CFO welcomes your letters. Send them to: The Editor, CFO, 253 Summer St., Boston, MA 02210.
E-mail us at JuliaHomer@cfo.com. You can also contact a specific author by clicking on his or her byline at the beginning of any article.
Please include your full name, title, company name, address, and telephone number. Letters are subject to editing for clarity and length.
Apropos of your cover story on dying industries ("The Turning Point," April), when was the last time you saw someone smoking a pipe? It was probably 1964. "My Three Sons" was a big TV hit, and Fred MacMurray smoked a pipe on the show. The U.S. Surgeon General appeared on TV, smoking a pipe, to announce that cigarette smoking was dangerous to your health.
At the time, there was a pipe manufacturer in the New York area. The company could not keep up with demand. It built automated manufacturing facilities and financed its growth through bank loans from a major financial institution. Sales topped $40 million, a considerable sum in 1964.
Turn the clock ahead to 1979. As a senior accountant at a Big Four accounting firm, I was sent off to a remote, rural location to audit a long-standing client of the firm. It was the pipe maker, which had by then shrunk from a $40 million manufacturer to a $1 million importer.
Nice people, still hanging in and still owing the bank millions from the go-go days. Why did they hang in, and why do others in dying industries hang in? The answer is simple.
Founders and executives may make a fortune when things are great. If they carefully watch the trends, they can modify company operations as business conditions change. While they may not continue to make the kind of fortune they did when things were great, they may still make a decent living. Hanging in could make them the only or the dominant player in a much smaller industry. Imagine how well the very few buggy-whip manufacturers must be doing now.
As people get older, they can't always switch gears. Unfortunately, this strategy may not enhance shareholder value much, but top executives may keep their jobs, especially if they have substantial control over voting stock. However, it is more often than not the responsible move to keep the company alive in its legacy industry, rather than let it wash away in a sea of change.
Stewart W. Robinson
Partner, Director of Securities Practice
A simple analysis of "Who Played Ball," the table that accompanied "The Limits of Mercy" (April), could help show just how much mercy the Securities and Exchange Commission has shown. Using an odds-ratio analysis, firms that decided not to cooperate were 16 times more likely to experience penalties above the median than firms that cooperated (equivocal notations were not used).
Despite some high penalties for those that cooperated and those that did not, the bottom line is that the odds favor cooperation. Perhaps Lincoln was right when he observed, "I have always found that mercy bears richer fruits than strict justice."
Warren, New Jersey
The Waiting Game
While I agree with the intent of companies to make 401(k) enrollment the default choice for employees ("Make It Automatic," April), I'm not sure it is always in the employees' best interest. There might be a time when an employee does not wish to be in the 401(k) plan, and since the funds being invested are the employees', they should have the option to enroll or not. I am a big fan of 401(k)s, but this, and other items, should be addressed properly.
Another item to be addressed is the waiting period for enrollment that some companies' plans have. If being in the plan is such a good thing, why make those wishing to enroll wait so long?
Contribution percentages should be large enough that employees can contribute the government-allowable amount in the year. Some companies set the percentages so low that some employees cannot contribute the maximum amount. Again, it's their money: let them contribute as much as they wish, subject to governmental limits. The increased costs to the companies are minimal, if any, for making any of the above changes to their plans to be more employee-focused.
William P. Rosenberg
The fundamental question for a buyer of 401(k) services is not about the depth or breadth of what is offered by a recordkeeping platform. The decision should depend substantially on whether the vendor is a fiduciary to your plan. Why? Most vendors disclaim any such status. Fundamentally, in doing so they are declaring their intention to represent their self-interests when doing business with the plan.
Given that the fiduciary's job is to ferret out that self-interest, shine a bright light on it, and see that it does no harm to the plan participants, hiring organizations that are not fiduciaries makes your job more difficult. It increases your exposure to liability. It also increases the liability exposure of your appointed fiduciaries.
The 401(k)-vendor community does this because buyers allow it to—simple as that. When the buying community demands more accountability from the vendor that wants access to the assets, the entire retirement-plan industry will be more effective for plan participants.
Wayne H. Miller
Chief Executive Officer
Denali Fiduciary Management
I enjoyed your article on knowledge management, "A Human Inventory" (April), and generally I agree with it. For instance, I agree that organizations need to make an inventory of their people's capabilities, and that they need to understand what those capabilities are. But the underlying problem is that the experts are very resistant to sharing knowledge.
Software alone can't fix problems of knowledge sharing. It requires the understanding and trust of the workforce, along with the backing of management.
Rocky Mountain High
The sidebar in your February article "Big City Blues" ("Suburban Blight") reported on the problems the city of Lakewood, Colorado, was facing due to budget issues attributed to the state's tax-spending lid, the Taxpayer's Bill of Rights (TABOR). I find it ironic that CFO, of all publications, would take these complaints at face value without mentioning how much Lakewood's budget—along with its population—had grown during the relevant time period. You certainly wouldn't do that when discussing the financial challenges of a public firm.
The article also glossed over the fact that under TABOR, the city could propose a variety of fiscal options to voters for approval or rejection. I wish that Colorado's high-tax neighbor Kansas had the protections that TABOR provides, along with the growing economy that Colorado is enjoying due to this lid on government growth. The Tax Foundation recently ranked Colorado as having the eighth best fiscal climate among the 50 states.
In our May article "New Holes for Hackers, we misidentified the company that produces an application called Sanctuary. It is actually a product from SecureWave.
In the April news story "The Danger of Deferrals," we stated that under the IRS's new rules for deferred compensation plans, executives can tap deferral plans only in the case of employment termination, death, or disability. Sam Sheth, a managing director at Clark Consulting, wrote in to correct us: participants can still take planned distributions according to a preestablished schedule, upon hardship, change in control, or retirement. Executives will simply have less flexibility in the timing of these distributions.