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You have done an admirable job discussing a widely misunderstood area of the securities laws ("Finders Keepers," February). I have worked with Hugh Makens's ABA task force on unlicensed financial intermediaries, and am an attorney as well as a principal in a licensed, fully compliant broker-dealer. I would submit that the unlicensed persons you speak of are actually very close to committing malpractice on a daily basis, since they lack fundamental understanding of so-called private placements or exempt transactions under the 1933 Securities Act. The danger is heaped upon the unsuspecting client as the client and its lawyer become insurers to the transaction by virtue of rescission rights afforded the purchaser in the presence of an unlicensed broker-dealer. What I seek is a level playing field so that the unlicensed bear the burden of the same regulatory compliance and liability as I do.
Peter G. Ness
Get Off the Bandwagon
I was disappointed in "The Long Haul" (February) for several reasons, but mostly because I expected more than just another ride on the low-cost-carrier "rah-rah" bandwagon. How hard is it to be a low-cost carrier today? There are no labor contracts to speak of, no fleets of any real size or variety (so there's limited maintenance costs), very few long-haul routes, no meals and limited cabin service....I could go on and on. Add to that a savvy traveling public that can pick and choose their flight du jour on the Internet, and whose choices for the most part will be price first and schedule second, and voilà — the formula for a low-cost carrier.
The real heroes are the CFOs of the legacy carriers who are struggling, some rather successfully, to keep their airlines afloat — in particular, those who work for airlines that did not get much in the way of government subsidies or loans after 9/11.
I do not disagree that the airlines are probably among the worst-managed businesses and that their years of "monkey see, monkey do" have made them their own worst enemies. However, do not forget that while Congress was spreading largesse around by deregulating the industry, no one gave the legacy carriers any breaks in terms of their labor agreements, and that is the bottom line. Pull the plug on the price but not the cost. Thanks a lot.
I have the greatest admiration and respect for the CFOs of all of the airlines, but I wish you would give credit where credit is due. The CFOs at Northwest and Continental have my vote, and I'll wait to see who's crowing loudest in another few years when all the dust has settled. This isn't over.
28-year legacy-airline employee
Great Falls, Virginia
Get off the Boards
Roy Harris writes in "Across the Board" (January) that talent scouts are targeting public-company CFOs to be directors of other firms, "usually for audit-committee members." The same article notes that most CFOs have the common sense to say no.
When former GE man and now Home Depot CEO Robert Nardelli stepped off the board of Coca-Cola, we applauded. Why? Because, in our view, no senior executive of a public company should sit as a director of another public company.
We can think of a bunch of reasons why the officers of public companies should not sit on the boards of other companies, but the number-one issue is time. By definition, no C-level executive has time to sit on anybody else's board. They can play corporate director after retirement, but for our money, when they are on the firing line, the employer gets 100 percent of the available bandwidth, 24/7.
The second issue is liability, both personal and to the employer, should an event occur where the focus and diligence of the executive is questioned. Senior executives with time to go to the corporate board meetings of other companies better fly commercial and pray that things don't screw up back at the ranch. Better yet, just say no.
The third is the same reason that CFOs and COOs should not sit on the boards of their own companies, unless they happen to be significant shareholders. A C-level executive is a senior officer of a corporation, but is also an employee of that company and therefore should not also be a director. All employees are subordinate to the board of directors and, indirectly, to shareholders. One management representative on a company's board is tolerable; more than that is ridiculous.
The corollary to the above rule also covers bankers, lawyers, accountants, and other corporate professionals. No professional who pretends to offer objective advice and good service to clients should ever sit as a director. If a company or a village school board or a worthy not-for-profit needs your advice, then have them hire you in a professional capacity for at least $1 and provide indemnification, but don't expose yourself and your organization to the liabilities that attend corporate directorships.
Never forget, fellow professionals, that we enjoy legal and regulatory privilege only by maintaining an arm's length relationship with our clients. One reason why Sarbanes-Oxley affirmatively requires lawyers and accountants to turn in wayward clients is because many professionals, thinking they should earn as much as or more than their corporate clients, have forgotten this basic rule.
Institutional Risk Analytics
I am a buy-side industrials analyst at ING and enjoyed your excellent article on capital spending ("Capital Choices," December 2004). But how exactly is ROGFA calculated? I read the box on page 44 ("Measuring Capex"), so I understand it's EBITDA in the numerator, but am confused about the denominator. By "gross" do you mean that you add back accumulated depreciation and amortization to the net number for property, plant, and equipment? And do you remove land and buildings from the denominator?
ING Investment Management Americas
David Hagen, manager of Pittiglio Rabin Todd & McGrath, the consulting firm that prepared the data, responds:
As you suspected, the denominator of ROGFA is gross PP&E (net PP&E + accumulated depreciation and amortization). This includes land and buildings. A gross figure rather than a net one was used because we wanted a metric that addressed the contribution of all fixed assets in operation, not just the portion of fixed assets that have book value.
Hard Lessons Learned
My comments are in response to Work/Life (November 2004). I am not a CFO, but I have the drive to be as successful as any CFO. Young and with some college education, I was able to learn and to market myself, so that I could do the best for my wife and children. I was on top of the world and reaching for the stars. In the process, I put my family second to my job. Sure we had money, houses, and toys, but my relationship with my wife and children suffered, and a divorce followed.
There has to be a happy balance between work and life. Define your goals and action plans, and share them with your family. Ask for their input and ensure that they are in agreement that your work goals will not interfere with the quality of life your family requires.
Michael A.T. Jerila