This Washington Post article reports on the seemingly simple choice that US Airways machinists face this week — either they can approve the carrier’s latest contract proposal calling for pay, benefit and job cuts or they can turn down the contract and walkout, which might just send the struggling airline into liquidation. That part of the article is fascinating as the WaPo reporter attempts to present in a coherent manner the machinists’ position that they would prefer to lose their jobs than making the concessions necessary to help keep the airline afloat so that they can keep their jobs.
But what is even more interesting is the article’s comparison of the US Airways situation with that of Eastern Airlines, which former Continental Airlines CEO Frank Lorenzo attempted to steer through a chapter 11 case during the late 1980’s. Although Mr. Lorenzo successfully reorganized Continental under chapter 11, he failed in regard to Eastern, which ultimately liquidated amidst internecine labor disputes.
My sense is that putting US Airways out of its misery would be a positive step for the long term health of the U.S. airline industry. Nevertheless, it is utterly amazing to watch the rationalizations that workers will come up with in such reorganizations to explain why they should push the liquidation button at the expense of their own jobs. Why would not it be better than simply losing their jobs entirely for the recalcitrant workers to negotiate a small equity stake in the reorganized airline in return for giving up their jobs to hungrier workers who want them? Or stated more simply, why do the workers feel compelled not only to shoot themselves in the foot, but to shoot their entire foot off?

Despite the fact that the market attributes virtually no value to its $19 billion acquisition of Houston-based Compaq Computer Corp two and a half years ago, Hewlett-Packard Co. announced today that it is combining its printing unit with its personal-computer division, effectively ending speculation for the time being that the company might sell various units of the company and refocus primarily on its profitable printing unit.
HP shares rose 1 cent to $19.96 in morning trading on the New York Stock Exchange. In comparison, HP’s closing stock price was $18.22 on May 6, 2002, the day on which the Compaq merger was consummated. This has led one sage analyst to remark that “HP paid $19 billion for the privilege of hardly making any money” in the personal computer business.
As noted in this earlier post, HP chairman Carly Fiorina publicly stated last month that the company’s board had considered breaking up the technology giant on three different occasions. However, Ms. Fiorina, who was the leading advocate of the Compaq acquistion, stated that the board each time decided the company’s diversified portfolio of technology products helped the company to moderate business fluctuations in the cyclical technology sector.
H’mm. I doubt any of those fluctuations in the technology sector to date would have cost HP the $19 billion it spent on Compaq.

The NY Times’ Kurt Eichenwald, who has been covering the Enron scandal and other post-Dotcom business busts over the past several years, reviews in this NY times article the current status of the lagging government reform movement in regard to corporate governance.
Although the article accurately summarizes the fits and starts of such governmental reforms, it does not get to the real heart of the matter until almost the end:

The problem, . . . is that shareholders – the true owners of a corporation – are virtually powerless to effect change in a board unless they begin expensive and hard-to-win proxy battles. Shareholders are not given the right to vote for an alternative candidate for director, or to vote against one advanced by the company. They can either vote yes, or not vote at all.
Responding to such concerns, the S.E.C. proposed rules essentially allowing shareholders to propose their own candidates for director in companies with proven weaknesses in their procedures for electing directors. At the time it was introduced, William H. Donaldson, the S.E.C. chairman, heralded the proposal as a “significant step.”
Quickly, the proposal brought widespread opposition from the business community, which argued that the effort was intended to allow unions with huge stakes in corporations through their pension funds to force social policy issues to the forefront on corporate boards.
“We think introducing a special-interest agenda into the boardroom isn’t good governance or good for shareholders,” said Mr. Hirschmann of the Chamber of Commerce.

Here, Mr. Eichenwald misses the point. He sees a political battle in what is really a problem of investors and their counsel lazily relying on an obsolescent business model. As Professor Ribstein, one of the blawgoshere’s foremost experts on this issue, commented in this recent post:

I believe an important lesson from all this is that our current model of corporate governance just isn?t working, and that we delude ourselves if we think that Sarbanes-Oxley is going to fix it. . .
Among other problems, Sarbox banks on an absence of conflicts, not the presence of expertise and incentives to actually do a good job. . .
As for expertise, corporate boards will continue to be the playgrounds of do-gooder social responsibility activists who have other things on their minds than actually understanding and doing the nitty gritty of business and finance. In what alternative reality is it that a busy law dean and expert on ethics can be expected to spot accounting fraud? . . . all the other layers of responsibility our laws impose just increase the opportunities for shirking and finger pointing.
So what?s the answer? First, we need high-powered market-based incentives that would be provided by the return of an active market for corporate control. Second, as I?ve been saying (e.g., here) we need to encourage alternative business structures that take near-absolute power over corporate earnings away from corporate executives and give it to the firm?s owners.

Professor Ribstein’s thoughts are spot on. The reform that truly needs to occur is in the marketplace as investors and deal lawyers reevaluate the the way to implement the controls necessary to protect the investor’s investment. That reform is going to take time due to the practical difficulties of changing existing businesses to a better structure. But over time, this reform will have much more far reaching and effective results in the marketplace than anything that government can come up with.
A good way to start this reform movement is for investors to begin demanding of their counsel that they require more responsive business structures as a condition of their investment. The desire of a entreprenuer to raise capital for his business often overwhelms the entreprenuer’s desire for an inefficient and value-limiting business structure. But investors need to take the lead in demanding the more efficient structures. Otherwise, the current status quo of reliance on the inefficient corporate model will continue.
On a related issue, don’t miss Professor Bainbridge’s comments here on how the traditional business judgment rule is being gradually peeled away to foist increased liability on outside directors.
By the way, it was a rather large oversight that Mr. Eichenwald did not approach Professor Ribstein or Professor Bainbride for their comments on these issues. A little Googling while researching the issues would have helped. ;^)

As noted in this earlier post, Mark Thatcher (or “Sir Mark” as he is typically referred to in England), son of former British prime minister Margaret Thatcher, had been caught up in the wild world of Equatorial Guinea (prior posts here), where the enticing combination of rich energy deposits and corrupt local governmental officals led the mercurial Mr. Thatcher to get caught up in a coup attempt last year. Here is the Telegraph’s article on the matter.
Well, according to this BBC News account, it appears that Sir Mark has been able to take care of that dirty business in South Africa with a fine and a suspended sentence. Despite the plea bargain, do not expect the Thatcher family to be vacationing in Equatorial Guinea anytime soon.

The Wall Street Journal ($) has this profile today on Andrew Beal, the Plano-based banker who has made a name for himself over the past decade of so placing contrarian bets on lending and bond business plays. Here is an earlier D Magazine Online profile on Mr. Beal.
Mr. Beal is definitely not your typical banker. He is a college dropout who never earned an M.B.A. He never worked for a big company learning the ropes. In the 1970’s, he operated a business that bought old homes, remodeled them, and then sold them at a profit, which led him to get into the banking business in the late 1980’s. Mr. Beal now owns 100% of Beal Financial Corp., which is a bank holding company with combined assets of $7.8 billion and a net worth of more than $1.7 billion.
One interesting characteristic of Mr. Beal is his penchant for Texas hold’em poker, as the Journal profile relates:

Mr. Beal has other interests in Las Vegas. Since 2000, he has been visiting casinos to play marathon sessions of Texas hold ’em poker against some of the world’s top gamblers. Participants say Mr. Beal sits practically immobile for hours. He wears sunglasses and headphones to shut out voices, so he won’t inadvertently betray a clue about his hand by making eye contact or chatting.
Other players say he lost several million dollars in these games, though a winning spree last spring brought him close to break-even. Mr. Beal doesn’t dispute that account. He is known for blasting away with big bets even if he has bad cards, sometimes inducing opponents with better hands to fold.
“It’s almost as if he’s playing with disdain for the value of money,” says one opponent, Doyle Brunson, a former poker world champion. Mr. Brunson, a legendary bluffer in his own right, calls Mr. Beal “a very difficult person to play against.”

This post from a couple of weeks ago noted this WSJ profile on Texas Pacific Group, the Fort Worth-based investment fund founded by former bankruptcy lawyer David Bonderman and business whiz Jim Coulter in 1993.
Well, it appears that TPG may be getting more than it bargained for in its proposed $2.35 billion cash and debt acquisition of Portland General Electric, which is Enron’s Pacific Northwest utility, a deal that is still awaiting regulatory approval.
In the meantime, this Williamette Week Online article reports that TGP’s proposed acquisition of Portland General is running into rough waters. Earlier this week, TPG released hundreds of pages of internal documents in response to the Williamette Week article as it tries to allay widespread skepticism among Oregonians about its intentions for the utility.
The documents lay out different scenarios that TPG is considering for for making the utility more profitable, including cuts in a customer-service department. TPG contends that the analysis was preliminary and is not going to be used as the basis of actual changes in utility operations. Despite the assurances, several Oregon officials are opposing TGP’s acquisition of Portland General as the Oregon Public Utility Commission has begun final deliberations over regulatory approval.
TGP has proposed to put day-to-day control of the utility in the hands of a new Oregon company that would have a board comprised mainly of Oregonians. Nevertheless, TPG — the 80% owner of the Oregon company — would retain the right to overrule the Oregon company’s board regarding key decisions. After Enron, Oregonians apparently do not trust anyone from Texas.
The main complaint of Oregonians that oppose the deal is that TPG’s turnaround strategies could degrade utility service in Portland and surrounding communities. Oregon and Washington consumers already have been hammered by sharply higher electric rates as a result of rising natural-gas prices and continued fallout from the California energy crisis of 2000-2001.
Meanwhile, the economic bargaining continues. TPG has offered rate reductions totaling $43 million spread out over five years beginning in 2007 if the deal is approved. However, Commission staff and consumer advocates contend that the rate reductions are inadequate and are pushing for further concessions. To date, TPG is holding firm.

This NY Times article provides a decent overview of the recent news that two Canadian energy companies had discovered an oilfield in the Gulf of Mexico under Cuba’s control that has estimated reserves of 100 million barrels, albeit with the usual Times over-analysis regarding the business and political implications of the find.
Given that Cuba’s business infrastructure and capital resources are utterly incapable of developing such a field, Castro will have to import those resources. Given his typical business instincts, a meaningful development deal will likely not get done anytime soon. Unlike the Times, I view Cuba’s entry into exploration and production competition as a good thing. Unfortunately, Castro doesn’t know how to compete, so the impact will likely be minimal.