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Phoenix World Views Digest

A Phoenix Capital Research Publication MAy 28, 2010

PoliticalLessonsfromtheWalangKulit,Pt2

Whilemostofushavetochoosewhichcandidatetovotefor,bigbusinesstypicallybacksbothpartiestoinsurethatwhoeverwinsis“intheirpocket.”ConsiderthedonationsfromCommercialBanksinthe2008election:

TotalDonationsDonationstoDemocratsDonationstoRepublicans%toDemocrats%toRepublicans

$37.5million$17.9million$19.5million48%52%ThepublicconsensusisthatRepublicansarethe“bigfinance”party,buttheabovenumbersclearlyshowcommercialbankcontributionsaresplitevenlybetweenthetwoparties.Thisisnothingnew.Indeed,evenifweincludeallcommercialbankcontributionsgoingbacktothe1990elections,thetotalamount($221million)isstillsplit41%vs.59%betweenDemocratsandRepublicans:hardlyaskewedbreakdown.Andwhenyou’retalkingaboutdonationsinthehundredsofmillions,even10%ofthisisstillaHUGEamountofmoneycomparedtowhatUSindividualsdonate.Belowisalistofthetop25corporatedonorsfrom1989‐2009.Onlyathirdoftheseareuneven(thosearebolded).Theremainder(2/3)ofcontributionsareroughlyequal(anythinggreaterthana60/40splitwasdeemeduneven).

Rank Organization Total '89-'09 Dem % Republicans %

1 AT&T Inc $44,361,209 44% 55%

2 Goldman Sachs $31,612,375 64% 35%

3 Citigroup Inc $27,179,418 50% 49%

4United ParcelService$24,333,183 36% 63%

5 Microsoft Corp $20,221,604 53% 46%6 JPMorgan Chase & Co $20,129,053 51% 48%

7 Time Warner $20,059,030 71% 27%

8VerizonCommunications $18,868,752 40% 58%9 Morgan Stanley $18,585,734 45% 53%10 Lockheed Martin $18,545,123 43% 56%

11 Pfizer Inc $18,355,232 29% 70%

12 General Electric $18,172,909 51% 48%13 FedEx Corp $18,134,041 40% 59%14 Bank of America $17,316,442 47% 52%15 Blue Cross/Blue Shield $16,670,269 40% 59%

16 UBS AG $15,571,924 40% 58%

17 Merrill Lynch $14,336,680 37% 61%

18 Boeing Co $14,224,472 47% 52%

19 Reynolds American $13,417,652 24% 75%

20 BellSouth Corp $12,993,782 45% 54%21 Credit Suisse Group $12,634,176 44% 54%22 General Dynamics $11,909,089 46% 52%

23American FinancialGroup $11,474,005 18% 81%24 GlaxoSmithKline $11,167,939 29% 70%

25 Altria Group $11,025,201 39% 60%

WiththisunderstandingoftheUSpoliticalprocess,itisobvioustomewhyeverymajoreconomicpolicyintroducedormaintainedinthelast30yearshaslargelybenefitedBigBusiness,specificallyexecutives,andnooneelse.

OligarchManagement:AllMovesLeadtoMorePay

Overthelast30years,Ibelievecorporatemanagementstrategieshavebeendominatedbythefollowingthemes:1)

Outsourcing2)

Mergers&Acquisitions(leveragedprofitgrowth)3)

GreaterExecutiveCompensationExecutives,likeeveryoneelse,actbasedonself‐interest.Soit’snosurprisethatallofthesepracticesandtheiroffshootshadonespecificgoalinmind:greatercorporateprofitsresultinginhigherexecutivecompensation.Let’sdelveintoeachoftheseindetail.

I.Outsourcing



“Outsourcing”isthepracticeofmovingjobsfrom“in‐house”tooutsidecontractors,usuallylocatedabroad.Therearemanyreasonstodothis.Themostobviousonesare:1)

Youdon’thavetopaycontractorsbenefits(greaterprofitmargins)2)

Youdon’thavetopayseverance(lesserfutureobligations)3)

InternationalwagesareusuallylowerthanintheUS(greaterprofitmargins)4)

Increasedcustomercare(havinganofficeabroadallowsfor24hourcare)Numbersone,two,andfourarebothobvious.Numberthree,however,isworthexaminingindetail.Onthatnote,thebelowchartcomparestheaveragesalariesforComputerProgrammersbothintheUSandabroad.

Asyoucansee,aUScorporationcanmoveisProgrammingworktoCanada,Ireland,oranynumberofdevelopedcountriesandsavebigonwages.Movingtosemi‐developedmarketssuchasChina,India,orthePhilippinesresultsinevenbiggercostcuts.Smallwonderthatthispracticetookthecorporateworldbystorminthe‘90s.Detailingexactlyhowbigtheoutsourcingmarkethasbecomeisnoteasy.Asurveyby

CIOMagazine

revealsthatasearlyas2002,69%ofcompanieswereoutsourcingtheirInformationTechnology(IT)services.