Dean Barber

Companies Behaving Badly

In Site Selection on April 6, 2014 at 7:56 am

Mitt Romney was right about this – corporations are people. Or rather, a collection of people.

And because people are what they are, they will inevitably mess up on occasion. In the past week alone, I have read a collection of news reports about companies making big mistakes if not behaving badly. Among them:

General Motors: Senators accused GM this past week of “criminal deception” over a decade-long ignition problem linked to 13 deaths.

CEO Mary Barra pledged that GM will be forthcoming with results of an internal investigation into what led it to keep using ignition switches it knew were faulty for years, then change the parts without alerting the public or regulators.

Toyota: A settlement with the U.S. Justice Department in March ended a criminal probe over the way Toyota handled its biggest recall ever. The Japanese automaker pay a record $1.2 billion fine for misleading and concealing information tied to American recalls dating back to 2009 – when vehicles sped up without prompting from drivers.

The $1.2 billion dollar payment represents the largest criminal penalty imposed on a car company in U.S.history and came with a rare admission of guilt from the company.

PG&E: The owner of  California’s largest utility, PG&E was charged this past week with 12 pipeline safety violations by the U.S. government for a 2010 natural gas explosion that killed eight people and left a crater the size of a house.

PG&E was charged in a grand jury indictment filed in federal court in San Francisco with knowingly and willfully violating the Natural Gas Pipeline Safety Act by failing to test and assess unstable pipelines to determine whether they could fail. The company was also charged with keeping incomplete and inaccurate records about the pipeline that exploded.

Duke Energy: CEO Lynn Good stepped before the cameras for the first time this past week to answer questions about the utility company spilling millions of tons of coal ash into the Dan River near Eden, NC., back in February.

“It was an accident and it resulted in an accidental discharge,” said Good, making no mention of any company wrongdoing. “And I just want to say we are accountable for this and are prepared to move forward.” 

North Carolina Gov. Pat McCrory, a longtime Duke employee, has urged the company to “come out of the shadows”.

German Beer: Germany’s Federal Cartel Office has fined a group of brewers 231.2 million euros ($319 million) for their part in alleged illegal beer-price fixing — the second round of punishment in the case.

The antitrust authority penalized six companies, with Radeberger and the German unit of Danish brewer Carlsberg accounting for the lion’s share of the fines. The office had already announced fines totaling 106.5 million euros in January against another five companies over price-fixing.

So there you have it, a spate of recent news stories about companies who are alleged to have acted bad;y. These reports show that even companies of substantial means, capabilities and reputation can and do mess up.

And that’s because corporations have yet to become fully digitized with a staff of cyborgs and robots, but instead rely on people, who are always hard to program.

If Management Will Listen

There is not a whole lot that a local economic developer can do when a company behaves badly. A viable business retention and expansion program would ideally give an economic developer a pathway to speak to senior management and possibly provide valuable counsel if management will only listen.

If a company views that local economic developer as a trusted ally, senior managers just might listen. Maybe.

Getting companies to listen has always been one of my biggest challenges as a consultant. I don’t think of other consultants as my chief competitors in site selection work. Rather, it is those companies who choose to do site selection on their own.

More often than not, they will fall short as site selection is not, never will be, nor should be their core function. But it is my core function, along with advising economic development groups on how to better compete for corporate investment.

Quoting the great management consultant Peter Drucker, I would urge companies to “Do what you do best and outsource the rest.”

Signs of Growth

To the millions of unemployed and underemployed in this country, this recovery may still feel like a recession. But there are continued signs that the economy is improving, albeit slower than we would like.

On Friday, the Labor Department said  the U.S. economy added 192,000 non-farm jobs in March. The nation has recovered all but 437,000 of the 8.7 million jobs, including those at government agencies, lost as a result of the last recession.

At the current pace of job creation, we should reach a new high for total employment sometime this summer. But it will come five years after the recession was supposed to have ended. Also, keep in mind that the labor force participation rate remains near its 36-year low. It stood at 63 percent last month, well below its long-term average.

Manufacturing reduced payrolls by 1,000 workers in March after adding 19,000 in February, according to Friday’s report. Construction companies boosted employment by 19,000 workers and retail payrolls rebounded 21,300.

Automotive in Gear

On another positive light, cars and light trucks sold at a 16.33 million annualized rate in March, the strongest since May 2007, according to Ward’s Automotive Group.

Demand is certainly the driver behind automotive companies investing billions of dollars in new capacity in the United States and Mexico. Last month, BMW said it would expand its assembly plant near Spartanburg, SC., creating 800 new jobs by 2016 and boosting production by 50 percent, to 450,000 cars a year.

The $1 billion investment by the Munich-based automaker would make the plant one of the largest in the U.S.

I Don’t Get It

Speaking about automotive, I’m not the only person scratching their head about the size and scope of Tesla’s so-called future $5 billion, 10-million square foot “gigafactory.” One of my better read blogs recently was “Skeptical Me” on this very subject.

“I don’t quite get it,” Volkswagen AG Chief Executive Martin Winterkorn told the Wall Street Journal last month. “We have enough suppliers and wouldn’t get the notion to build a battery factory.”

Sales of electric vehicles remain less than 1 percent of the total U.S. market. From 2008 to December 2013, over 170,000 highway-capable plug in electric cars have been sold in the U.S.

But here is Tesla, with sales of just over 22,400 cars last year, saying that it can sell 500,000 vehicles a year by 2020 if it can just build this plan and thereby reduce the cost of its lithium batteries by 30 percent. I’m sorry, but that looks like a stretch to me, as is the Obama’s administration’s goal of having 1 million electric vehicles by the end of next year.

Five years ago, Germany set a goal for 1 million electric vehicles by the end of this decade. A McKinsey & Co. study foresaw an average annual 25,000 new electric cars being added from 2011 to 2014. The average number of new registrations in the first three of those years was just 3,720 annually.

In January 2013, less than 0.1 percent of the passenger cars on German roads were electric.

It does make you wonder. I am reminded of Art Linkletter’s book from years ago called “Kids Say the Darndest Things.” Well, so too do company executives and politicians.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. All requests for information are considered confidential.

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