Tax and competitiveness conference

According to a Treasury Department press release:

Secretary Henry M. Paulson, Jr. will hold a one-day conference on Thursday, July 26 in Washington, D.C. to examine ways in which our current business tax system affects economic growth and U.S. competitiveness in the global economy.

No other details are available at this time. But it looks like this is a follow on to an early June conference on New OECD International Tax Initiatives: Looking Ahead. However, that conference was more about the harmonization of specific tax details, such as transfer pricing, than about the impact of tax structures on competitiveness.
If the Secretary’s conference is really going to look at tax policy as a factor in competitiveness, it will need to put ideas from both the left and the right on the table. From the left, it will need to address the concern over tax policies that are said to encourage the transfer of production and jobs overseas. From the right, it will need to look at concerns over double taxation of corporations and the capital gains tax rate. And while it is at it, it should look at the whole issue of moving to a Value Added Tax (VAT).
It should also bring to the table the recommendations of the President’s Advisory Panel on Federal Tax Reform (commonly known as the Mack-Breaux Tax Reform Commission). While the Commission’s recommendations have fallen on deaf ears and have been dismissed as impractical in some quarters, it should serve as at least part of the bases for continued discussion.
So, it is unclear in my mind what a one-day conference hosted by Secretary Paulson will accomplish. But if it does a good job of fairly raising all of the issues, it will be successful. If it becomes just another forum for spotlighting any number of specific hobbyhorses, then it will be just another meeting. Let’s hope it can address the real tax issues facing the I-Cubed Economy

Accountants in demand

Looks like the hottest career path in the I-Cubed Economy right now is accounting —
Graduating With a CP-Yay –

Accounting isn’t typically considered to be the most thrilling course of study, but number-crunching students have become hot commodities on college campuses as firms try to keep up with the exploding demand for financial workers.
Increased scrutiny of public companies coupled with the impending retirement of thousands of baby boomers have driven accounting firms to snag the next generation of auditors, bookkeepers and tax experts as early as possible with promises of plump paychecks and tempting perks. Some firms are grooming potential interns as early as high school.

Now, if we could just get the number crunchers to understand intangible assets (he says tongue firmly in cheek).
I do have to wonder how many of these number crunchers are being drawn fro the ranks of potential engineers?

Outsourcing — to Canada

From today’s Wall Street Journal – Microsoft Plans Canada Software Center:

Microsoft Corp. plans to open a software development center in Canada this fall to attract talent and avoid U.S. immigration issues.
The Vancouver, British Columbia location will be one of only a handful development centers outside the company’s headquarters in Redmond, Wash., the software company said Thursday. It previously announced plans to build sites in Boston and Bellevue, Wash.
Microsoft said the Vancouver location will “allow the company to continue to recruit and retain highly skilled people affected by the immigration issues in the U.S.”

So — Canada picks up a jurisdictional advantage because of US immigration law (or lack thereof). Interesting.

Not banking on intangibles – yet

In an earlier posting, I talked about how intangible assets are being used more and more as collateral for loans, including in one case to finance a leverage buy-out. So this item in today’s Washington Post about possible takeovers in the hotel industry (Stock Rush Belies Marriott Sale Odds) caught my eye.

Another reason Marriott is a less likely target, [Robert] LaFleur [an analyst with Susquehanna Financial Group] said, is because unlike Hilton, Marriott owns little real estate. The firm prefers to manage and franchise the hotels in its chain. At the end of last year, it owned only 13 of more than 2,800 hotels across its brands. That’s important because private-equity groups like Blackstone can get more attractive financing rates when they can borrow against actual assets, letting them swallow companies cheaper and make more money quicker.
“The Marriott brand has a lot of value, but it is intangible value,” LaFleur said.

It seems that tangible assets rich companies are more of a target than those with high intangible value. For now. My betting is that this will change as the financial community learns to monetize intangibles.
But as I said earlier, using intangibles as a form of financing is a difficult transaction – with a lot of back-up mechanisms needed. Lots of issues here – which will be explored in our forthcoming working paper on monetization of intangible assets.

Art as economic development

Americans for the Art has published its latest survey – Arts & Economic Prosperity III: The Economic Impact of Nonprofit Arts and Culture Organizations and Their Audiences:

Nationally, the nonprofit arts and culture industry generates $166.2 billion in economic activity every year—$63.1 billion in spending by organizations and an additional $103.1 billion in event-related spending by their audiences. The study is the most comprehensive study of the nonprofit arts and culture industry ever conducted. It documents the economic impact of the nonprofit arts and culture industry in 156 communities and regions (116 cities and counties, 35 multicounty regions, and five states), and represents all 50 states and the District of Columbia.
The $166.2 billion in total economic activity has a significant national impact, generating the following:
• 5.7 million full-time equivalent jobs
• $104.2 billion in household income
• $7.9 billion in local government tax revenues
• $9.1 billion in state government tax revenues
• $12.6 billion in federal income tax revenues

Not covered in the report is the indirect effect of the arts — as collaborators with other activities such as design and entertainment and as a source of creative training that benefits all sectors of the economy. The I-Cubed Economy is multifaceted — and our policymakers need to remember the contributions from every sector, including the arts.
To read about the specific impact on three specific communities, see:
Arts return economic favor to supportive city- Ft. Collins, CO.:
Study shows economic power of the arts – Santa Cruz
Culture is economic development – Cedar Rapids
Thanks to our friends over at EDPro Weblog: Economic Development for Today’s Professionals for pointing this out.

Refining image

Speaking of reputation management, today’s Washington Post has a story as well — Calling In Pros to Refine Your Google Image:

Google’s ubiquity as a research tool has given rise to a new industry: online identity management. The proliferation of blogs and Web sites can allow angry clients, jealous lovers or ruthless competitors to define a person’s identity. Whether true or not, their words can have far-reaching effects.
Charging anything from a few dollars to thousands of dollars a month, companies such as International Reputation Management, Naymz and ReputationDefender don’t promise to erase the bad stuff on the Web. But they do assure their clients of better results on an Internet search, pushing the positive items up on the first page and burying the others deep.

I find this fascinating, and a little disturbing in a number of ways. The first is in how easily rumor can become fact. Everyone knows that a major benefit of the Internet is the massive available of information. The dark side, however, is that not all of the information is accurate. As I mentioned earlier, information flows are much faster now – both accurate and inaccurate. Sorting out what is true or not is difficult.
That problem is compounded by the need to sorting out what is important or not. Here is my second issue. Who gets to determine what is important? These types of services are paid to make information seeker believe that the good stuff is always the most important. But sometimes the bad stuff is both important and true. I would like to think that if the bad stuff is both important and true, no amount of image management would help.
But, I’m not sure.

Valuing reputation as an asset

Business Week is running an interesting story on the intangible asset of reputation — What Price Reputation?

Many savvy companies are starting to realize that a good name can be their most important asset—and actually boost the stock price

More and more are finding that the way in which the outside world expects a company to behave and perform can be its most important asset. Indeed, a company’s reputation for being able to deliver growth, attract top talent, and avoid ethical mishaps can account for much of the 30%-to-70% gap between the book value of most companies and their market capitalizations. Reputation is a big reason Johnson & Johnson (JNJ ) trades at a much higher price-earnings ratio than Pfizer (PFE ), Procter & Gamble (PG ) than Unilever (UN ), and Exxon Mobil (XOM ) than Royal Dutch Shell (RDS ). And while the value of a reputation is vastly less tangible than property, revenue, or cash, more experts are arguing it is possible not only to quantify it but even to predict how image changes in specific areas will harm or hurt the share price.

This isn’t just PR. In fact, as the story warns:

A company’s message must be grounded in reality, and its reputation is built over years. And if there is a negative image based on a poor record of reliability, safety, or labor relations, “please don’t hire a PR company to fix it,” says strategy professor Phil Rosenzweig of Switzerland’s International Institute for Management Development. “Correct the underlying problem first.” The biggest driver of a company’s reputation and stock performance is, after all, its financial results, notes Rosenzweig, author of The Halo Effect, a book that details how quickly reputations can turn.

Here are two examples of how it works:

in late 2005, UTC turned to a tiny consulting firm named Communications Consulting Worldwide, led by sociologist Pamela Cohen and former Ernst & Young strategist Jonathan Low, pioneers in the nascent study of how public perceptions affect a company’s stock price. A CCW team spent months processing a bewildering amount of assorted data UTC had amassed over the years. It included studies tracking consumer perceptions of its brands, employee satisfaction, views of stock analysts and investors, corporate press releases, thousands of newspaper and magazine articles, and two years’ worth of UTC financial information and daily stock movements. After feeding the data into an elaborate computer model, Cohen and Low concluded that 27% of UTC’s stock market value was attributable to intangibles like its reputation.
The duo determined the way to drive up the stock was to make investors more aware of UTC’s environmental responsibility, innovation, and employee training—points the company had not stressed publicly. To make sure investors got the message, UTC plastered the Sikorsky S-92 ads and others like it featuring an Otis elevator, a Pratt & Whitney jet engine, and a hybrid bus with UTC Power fuel cells, on four commuter train stations in Connecticut towns with high concentrations of financiers.
. . .
Southwest also leaves little to chance. The Dallas carrier already enjoys one of the industry’s best reputations, and Wall Street rewards it accordingly. Its $11.4 billion market cap is bigger than the combined value of the two biggest airlines, American (AMR ) and United (UAUA ), a gap that differences in assets like planes and routes don’t begin to explain. Still, when Linda Rutherford, Southwest’s vice-president for public relations and community affairs, heard Low’s pitch at a PR meeting two years ago, she decided to hire CCW to assess whether it was stressing the right points.
After crunching years’ worth of data, Cohen and Low flew to Dallas last August with results that were eye-opening. CCW estimated public relations alone could move Southwest’s stock up or down by 3.5%, equal to $400 million in market value today. The data also indicated Southwest was getting little return by stressing its budget fares—a familiar story. Instead, there was more upside potential for shares if Southwest stressed its extensive routes and schedules. “We had a bit of an ‘Aha!” Rutherford recalls.
So Southwest has begun emphasizing long-haul flights and frequent service between many cities, points that seldom had gotten press. It also plans a third-quarter ad campaign based on CCW’s advice. The effect so far: While airline stocks have fallen more than 15% overall in 2007, Southwest’s shares are down only 5%, to about 14.80.

(In the interest of full disclosure, Jon Low is on the Board of my organization, Athena Alliance).
So — it is not enough to have a good reputation, you have to let Wall Street know about it. This tracks our earlier findings that financial analysts and managers really don’t understand companies’ intangible assets (see Reporting Intangibles). If you don’t measure it or at least track it, it doesn’t get managed and only indirectly and informally valued.
And that is no way to run a railroad.