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2011 Media Report

March 2012 Dear Faculty and Staff, On behalf of VSB’s marketing & public relations team, I am pleased to share with you our 2011 media report. I would like to sincerely thank and congratulate those of you who continue to devote your time, effort, and energies to promote VSB in the media. In 2011, our community achieved great success in generating increased brand awareness for VSB. Our efforts reached millions through appearances in international, national, and local media. More than 25 different faculty members, from each of our five departments, appeared in over 120 publications and on news programs around the world. Equally exciting, 20% of our stories this year focused on VSB’s institutional priorities, including our students, alumni, leadership, and innovation in education. Some highlights from this year include: • • • • • • • • •

An op-ed in the Financial Times by Jonathan Doh Michael Pagano featured in The New York Times “Dealbook” An op-ed by Ron Hill in Forbes Bret Meyers’ soccer substitute and football research in The Wall Street Journal Associate Press circulated hits by Jeremy Kees and Victor Li Anthony Catanach’s insight into the Groupon IPO VSB student Jeff Savio of Keep it Warm on MSNBC TV The Summer Business Institute featured in both U.S.News & World Report and the Chronicle of Higher Education MBA graduates Luke Bowen and Trevor Hayward of Evil Genius featured in the Philadelphia Business Journal.

With 64% of our media placements in national outlets, VSB reached our alumni all over the country. Our faculty also made appearances on nationally-televised networks, including ABC, CNBC, and CBS. Your participation in media opportunities plays an important role in enhancing VSB's reputation. This increased media attention coupled with our consistently strong rankings validate the outstanding work of our students, alumni, faculty, and staff, and increases the value of the degrees already earned by Villanova University alumni. The start of 2012 is proving to be just as successful for VSB. Thank you again for your support. Liz H. Field Director of Communication Villanova School of Business

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Television and Radio High Lights Privatization of Alcohol Sales

On January 6th Professor of Marketing Ron Hill was featured on the Fox 29 evening news to discuss the potential impacts of the privatization of wine and spirit sales in Pennsylvania.

Super Bowl XLV Ads

On February 3rd Professor of Marketing Charles Taylor was featured on Fox 29 news at 5 to discuss the highly anticipated and sometimes controversial ads for the upcoming Super Bowl.

Deutsche Boerse NYSE Merger

On February 10th Professor of Finance Michael Pagano was featured on IQ Radio with Ron Insana to discuss the proposed merger between the New York Stock Exchange and European company Deutsche Boerse.

Syrian Troops Fire on Protesters

On March 25th Professor of Economics Christopher Kilby was featured on NPR to discuss the impact of US governmental aid on Middle Eastern political and military actions specifically in reference to the unrest that has spread through the region.

Villanova And Camden Diocese Team Up And Offer Online Master’s In Church Management

On April 2nd CBS 3 featured the Center for Church Management and Economics Professor Charles Zech in a story about a new partnership offering a master’s degree in church management to officials from the Camden Arch Dioceses.

Ore. Suit Forces Vatican To Finally Open Records

On April 23rd Economics Professor Charles Zech talks about the court order requiring the Vatican to finally unseal its records in response to sexual abuse allegations against clergy in Oregon.

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Local Expert Says Bleak Economic Picture Shouldn’t Spell Panic Yet On June 3rd Economics Professor David Fiorenza was featured on KYW to discuss the slow economic recovery and people’s reluctance to spend tax refunds due to economic uncertainty.

New graphic warnings for cigarette smokers

On June 21st CBS News correspondent Elaine Quijano interviewed VSB marketing professor Jeremy Kees on the impact of new graphic picture warnings for cigarette packaging.

What London Riots Mean for Tourism London is the world’s most popular tourism destination with 26 million annual visitors. Tourism accounts for about 8 percent of England’s GDP. On August 12th Marketing Professor Ron Hill was featured discussing the aftermath of the London riots and the potential effects they may have on American tourists.

Catanach Stays Groupon Reporting Twice Amount of Revenue

On August 19th Accounting Professor Anthony Catanach was featured on Bloomberg News to discuss the potentially unethical accounting practices of tech firm Groupon and the issue of Gross vs Net Revenue reporting.

Elevator Pitch: Jeff Savio VSB ‘12

On September 25th Senior Finance and International Business major Jeff Savio was featured on MSNBC’s Elevator Pitch segment to talk about his socially responsible apparel company, Keep it Warm, LLC.

Grumpy About Groupon Accounting

On October 18th Accounting Professor Anthony Catanach was featured on CNBC’s Street Signs to discuss Groupon’s flawed accounting practices and his findings regarding red flags in their regulatory filings.

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Is Groupon IPO Trouble in the Making? Accounting Professor Anthony Catanach was featured on a November 2nd CNBC segment discussing his serious concerns about the reliability of Groupons accounting practices following a series of well-publicized financial reporting errors.

King Of Prussia Mall Announces Expansion Plans On November 28th Economics Professor Peter Zaleski was featured on CBS 3 news commenting on the upcoming expansion of the King of Prussia Mall in Montgomery County and the potential ramifications for the retail sector around the country.

Looking At 2012 Through The Financial Crystal Ball On December 27th Economics Professor David Fiorenza was featured on KYW to discuss the economic outlook for the upcoming New Year.

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Archdiocese of Milwaukee files for bankruptcy protection The Catholic Archdiocese of Milwaukee, which faces more than a dozen civil fraud lawsuits over its handling of clergy sex abuse cases, filed for Chapter 11 bankruptcy protection on Tuesday. Archbishop Jerome Listecki, speaking on the first anniversary of his installation, said the move was necessary to fairly compensate victims and to continue the "essential ministries" of the church. "As a result of the horrific actions of a few, there are financial claims pending against the archdiocese that exceed our means," Listecki said at a news conference at the Cousins Center in St. Francis, which houses the archdiocese headquarters. He said the recent failure to reach a mediated settlement with victims and a court decision absolving its insurance companies of liability in the cases "made it quite clear that reorganization is the best way to fairly and equitably fulfill our obligations." Victims' advocates and plaintiffs attorney Jeff Anderson characterized the filing as a ploy to protect the church and delay justice. They note that the move puts the civil fraud cases on hold, including the scheduled deposition of retired Auxiliary Bishop Richard Sklba, who has been called the "go-to-guy" for then-Archbishop Rembert Weakland in the handling of sex abuse cases. "This is about protecting church secrets, not church assets," said David Clohessy, national director of SNAP, the Survivors Network of those Abused by Priests. "The goal here is to prevent top church managers from being questioned under oath about their complicity, not 'compensating victims fairly.'" Milwaukee, with an annual operating budget of about $24 million, is believed to be the eighth Catholic diocese in the United States to declare bankruptcy in response to the clergy sex abuse scandal. The others are: Tucson, Ariz.; Portland, Ore.; Spokane, Wash.; Fairbanks, Alaska; Wilmington, Del.; San Diego; and Davenport, Iowa. Some of those cases have concluded; others are still pending. Legal experts say it is difficult to make generalities about them, because the facts and financial circumstances differ from diocese to diocese. The effects on parishioners also have differed. In Tucson and Spokane, for example, parishes were asked to pay a portion of the settlements - almost like a tax, said

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Charles Zech, director of Villanova University's Center for the Study of Church Management. Listecki said Tuesday that the filing would serve as a kind of final call for all sex abuse claims, allowing the archdiocese to determine its current and future financial obligations to victims. He said it would have no effect on schools and parishes, which are separately incorporated, although that would ultimately be decided by the bankruptcy judge. The archdiocese created a special e-mail,, where parishioners can send questions about the process, and said they would be answered periodically on its website, Chapter 11 bankruptcy typically is filed to give a company or organization time to restructure its debts and work with creditors, with the expectation that it will continue to operate and emerge stronger in the end. During the bankruptcy, the entity operates under the supervision of the court, and a committee usually is appointed to represent the interests of unsecured creditors. As part of the process, the archdiocese will come up with a dollar figure it believes can be allocated to an account to compensate sex abuse claimants, said Marquette University law professor Ralph Anzivino, an expert on Chapter 11 bankruptcies. The amount of the fund is likely to be challenged by claimants, but eventually it will be established by the court. "Let's assume they put $10 million in that account, but the claims are $100 million," Anzivino said, speaking hypothetically. "That means everybody is going to get 10 cents on the dollar. That's how it's going to work." In the recently failed settlement talks, the archdiocese argued that its resources were limited to unrestricted operating assets - which totaled $1.6 million in the 2009-'10 fiscal year - and a portfolio of seven properties worth $5.5 million. In interviews and documents released Tuesday, the archdiocese detailed its assets and explained why some resources could not be used to pay creditors - although at least some of those may be challenged by creditors in bankruptcy court. According to its most recent financial statements, the archdiocese had $98.4 million in assets and $12 million in liabilities in 2010; however, almost all its assets are in restricted and dedicated accounts, it said. The archdiocese said schools and parishes should not be affected because they are separately incorporated under Wisconsin law. However, that defense is being challenged in at least one other church bankruptcy, in Wilmington, where some parish funds were included in the pool of money available to creditors. Restricted funds, endowments and trusts - including the newly formed Faith in Our Future Trust created to hold the proceeds of a $105 million capital campaign - are protected under the legal language that established them, it said.

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"There's not a lot of precedent on this, but I think the courts will respect trusts and donor intentions," said Listecki. Anderson, who has argued that the archdiocese's assets are "vast and unknown," declined to speculate Tuesday on how a bankruptcy court might view the archdiocese's ability to pay creditors, including victims. The archbishop said it was too early to know how the operations of the archdiocese would be affected, or how that might trickle down to parishes, schools and others entities it supports. Tuesday's filing comes almost three weeks after the archdiocese announced a breakdown in settlement talks with 24 men and women who were molested as children, 16 of whom have pending lawsuits against the archdiocese in Milwaukee County Circuit Court. They accuse the archdiocese of defrauding them by moving priests with known histories of sexual abuse from parish to parish without telling families of their background. The archdiocese said the talks collapsed after the plaintiffs' attorney rejected a $4.6 million settlement offer. The victims denied that assertion, saying they refused to discuss financial terms until the archdiocese agreed to their non-monetary demands, including the release of all documents pertaining to abuse in the archdiocese. Â

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Archdiocese assets to be put under microscope 'Painful and long process' lies ahead in bankruptcy case When the Archdiocese of Milwaukee announced Tuesday that it would seek bankruptcy protection to deal with its clergy sex abuse claims, Archbishop Jerome Listecki was adamant it would involve only the assets of the archdiocese itself. Parishes and schools are protected, he said, because they're separately incorporated. Endowments and trusts - holding everything from the $105 million Faith in Our Future campaign funds to money meant for the perpetual care of cemeteries - he insisted, cannot be tapped. But a look at Catholic Church bankruptcies across the country suggests that every one of those every account, every asset, every legal contract that controls them - is likely to be scrutinized, litigated and negotiated as lawyers try to hammer out a settlement in which the archdiocese would compensate victims and emerge from bankruptcy intact. In the end, if cases elsewhere are an indication, the ramifications will be felt for years - by victims, the dioceses and Catholics in the pews. "This process will be a challenge to the faith and hope of the people involved," said Mark Chopko, a Washington, D.C., attorney and former chief counsel to the U.S. Conference of Bishops, who advised several dioceses during their bankruptcies. "This is a very painful and long process to go through." Milwaukee, which already has spent nearly $30 million on the sex abuse crisis, including settlements and legal fees, is the eighth U.S. diocese to seek Chapter 11 protection to deal with looming claims. Across the country, bankruptcies have resulted in multimillion dollar settlements in dioceses in Tucson, Ariz.; Portland, Ore.; Spokane, Wash.; Fairbanks, Alaska; Wilmington, Del.; San Diego; and Davenport, Iowa. Milwaukee filed for bankruptcy after a failed attempt to settle 24 pending claims for $4.6 million. Listecki said the Chapter 11 filing was the most equitable way to fairly compensate current and future victims, and continue the church's essential missions. The diocese lists about $98 million in assets on its latest financial statement, though it argues almost all of that is in restricted accounts and trusts. Diocesan officials say earlier settlements already exhausted much of its cash and property. Of the remaining assets, it said it has $1.6 million in cash and $5.5 million in property to pay settlements - figures that Charles Zech, director of the Center for the Study of Church Management at Villanova University, called "highly unusual" for an archdiocese the size of Milwaukee.

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"It's unusual and dangerous, because they'd be living right on the edge," he said. The archdiocese cannot tap insurance funds, under a court ruling, though the archdiocese has said it may appeal that decision. It's impossible to predict how Milwaukee's bankruptcy will shake out, experts say. Each one differs based on a diocese's assets, financial and operational structures, and how its state statutes intersect with federal bankruptcy laws. But a review of cases nationally suggests some of the issues likely to surface in Milwaukee:

Parishes and trusts: Creditors in the Milwaukee bankruptcy are almost certain to challenge the archdiocese's assertion that parish assets are off-limits because parishes are separately incorporated. The first salvo came in the line of questioning by victims' attorney James Stang in a hearing Wednesday. Stang questioned John Marek, the archdiocese's chief financial officer, about parish corporation boards, which includes the archbishop and his vicar general. Both Stang and archdiocese attorney Bruce Arnold declined to be interviewed for this article. Legal experts said bankruptcy courts have respected the autonomy of parishes in Davenport and Wilmington, where they are separately incorporated. But some trusts have not been ironclad. Trust structures were contested in Portland, Spokane and Wilmington. In Wilmington, the court ruled that millions of dollars in an investment trust held by the diocese for parishes, schools, cemeteries and other organizations would become part of the estate because they had been commingled with diocesan funds and couldn't be traced to their original sources - a decision that is now affecting pensions for lay employees.

Real estate: During bankruptcies, creditors' attorneys have challenged the amount of real estate initially identified by dioceses as available to pay settlements, in some cases bringing in forensic specialists to mine tax and property rolls, experts said. In San Diego, where the bankruptcy filing was dismissed after an outside agreement with victims was reached, creditors had accused the diocese of significantly undervaluing its holdings. News coverage at the time of the bankruptcy's dismissal put the assessed value of church properties there at more than $400 million, saying it included single family homes, vacant residential and commercial lots, multiuse buildings and condominiums. Lawyers for that diocese said Friday that diocesan ownership of the properties was never established at trial.

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But U.S. Bankruptcy Judge Louise DeCarl Adler was troubled enough to rebuke the diocese at the close of the bankruptcy, calling it "disingenuous" and saying it had enough assets to settle its claims without ever going to bankruptcy.

Future claims and a final call for sex abuse lawsuits: One of the advantages of bankruptcy for dioceses fearful of looming court judgments is that it creates a finite pool of money and a deadline for claimants to come forward. "That's the theory, but everyone is testing that now," Chopko said of the so-called "bar dates" that have traditionally imposed narrow deadlines for compensation. In Portland, for example, the court set an April 2005 deadline for most claims. But it left the door open for more than 20 years for certain claimants: minors, and those with repressed memories who didn't recall the abuse in time or didn't connect it to their injuries, such as addictions or emotional problems, according to the Portland archdiocese. "Future claims is one of the big issues on the table," in bankruptcy cases, said Marci Hamilton, the Verkuil chair in public law at Cardozo Law School, who has represented victims in church bankruptcy cases in San Diego, Spokane and Portland. She also represented victims in the Wisconsin Supreme Court case that opened the door for civil fraud lawsuits. "The two things that will be debated are the deadline when people have to come forward, and what happens to those who don't."

Non-monetary terms: While the bankruptcy proceedings rarely result in the release of significant documents - or depositions like the one Milwaukee victims wanted of retired Bishop Richard Sklba - bankruptcy settlements have included non-monetary terms. Across the country, dioceses that declared bankruptcy agreed to make public apologies; identify abusive priests, including those of religious order priests (that's now being litigated by the priests); build a monument to survivors; and other provisions. "One of the most important issues that comes up very quickly is that the survivors are never solely interested in just compensation and damages," said Hamilton. Even with large financial settlements, many victims are left with emotional damage that money can't assuage. They rarely get the documents and revelations that for some were the primary reason to sue. "I don't know of any cases where the victims group was satisfied with the level of information revealed by the diocese in bankruptcy," said Zech of Villanova. In the end, bankruptcy can clear the slate and give an archdiocese some level of certainty about its financial obligations. However, there are risks, including the potential loss of operational

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control, and the possibility that the negotiated settlement could be greater than it initially expected. "It's a gamble," said Zech. "The last thing a diocese wants is for outsiders to control their decisions, and they're careful not to go there." Across the country, dioceses have had to sell or mortgage properties, cut programs, and ask or compel parishes and the faithful to help shoulder the cost of settlements. "They're mortgaging their futures," Chopko said, "and cutting back on ministries that are vital to the growth and future of the dioceses." Â

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The possibility of generosity Filing for bankruptcy protection, says Milwaukee Archbishop Jerome Listecki, protects any victims of clergy sex abuse who haven’t yet filed suit: If current lawsuits eat up the archdiocese’s resources, later claimants are out of luck, he says. There’s reason to believe him: The church already has sold off real estate it owned for future parishes, and it’s been trying to sell its headquarters. It laid off about 40% of its staff. These things suggest an organization out of money; we’ll find out once the bankruptcy court sees the books. By contrast, lawyers suing the archdiocese on behalf of the church simply make claims that its pot of money is “vast and unknown,” as one, Jeffrey Anderson, put it. Perhaps he’s imagining some priceless art off in the Vatican might be auctioned – though the Vatican, separate from its dioceses, is perpetually penniless as well, since it’s in the same fix as the Milwaukee Public Museum was a few years back, in possession of museum-quality treasures but unable to sell them to raise money because of museum-world ethical taboos. Or perhaps Anderson’s thinking of selling off parishes’ real estate, though as Listecki correctly pointed out, parishes are separately incorporated in Wisconsin. Besides, it kind of changes the moral dynamics of the lawyers’ story when by their demands we’ll see 1,400 city kids chucked out of, say, St. Anthony’s before a sheriff’s auction. No, I don’t think the cathedral’s going to be sold off for a nightclub any time soon. But where, then, one might ask, would the archdiocese get money to pay new victims who respond to this “final call” for claims? Charles Zech, an economist at Villanova University, suggests one possibility. Zech, an authority of church financial management, has been surveying Catholics’ attitudes on money amid the scandal for years now – and he finds surprising support for some kind of special collection to compensate victims. He mentioned survey results when I talked to him a few years ago, and he says things haven’t changed much: Some Catholics will respond if asked to chip in for victims of abuse, “if it’s presented right.” Certainly not a majority, he says, “but it’s a significant minority.”

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Big Lenders May Lose With Simpler Mortgage Disclosure The Consumer Financial Protection Bureau said it will soon begin writing and testing a simplified mortgage-disclosure form aimed at making it easier for borrowers to compare deals from different lenders. The bureau expects to award a contract to develop the form by the end of the month, making it one of the first projects of the new agency, according to a bidding document given to vendors in November and reviewed by Bloomberg News. More concise disclosure is one of the main stated goals of Elizabeth Warren, the Obama administration adviser charged with setting up the agency established by the Dodd-Frank Act. Simpler forms that can be directly compared may make the market less lucrative for lenders such as Bank of America Corporation, Wells Fargo & Company, JP Morgan Chase & Co. and Citigroup Inc. “If buyers are better informed and understand the financial commitments they are entering into, they will be better able to make comparisons among lenders and the market will be more competitive,” said Alex Pollock, a former banker who is a resident fellow at the American Enterprise Institute. “In competitive markets, profit margins are -- and should be -- driven down to the level of the cost of capital.” Academic studies have shown that comparison shopping aided by the emergence of the Internet helped cut prices for consumer products including term life insurance in the 1990s. That squeezed profits, said Edward Graves, an associate professor of insurance at The American College in Bryn Mawr, Pennsylvania.

Lost Margins “When you see what’s gone on in terms of prices, the insurers have lost a lot of margin in this product,” Graves said in an interview. Bob Davis, an executive vice president at the American Bankers Association, said short disclosure forms might not simplify the process as much as Warren suggests, because of the “interconnected requirements” imposed by federal law. “It’s not so simple as creating two pieces of paper,” Davis said in an interview. Bankers agree with Warren’s “starting point,” he said. Warren has said she would like to see a standard document of one or two pages to replace about 80 percent of the mortgage disclosures mandated by the Truth In Lending Act and the Real

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Estate Settlement Procedures Act. The current “pile of papers” confuses consumers and is costly to business, Warren has said. Smaller community banks might become more competitive with Wall Street if new regulations succeed in reducing costs, Davis added. “The compliance process lends itself to certain scale and big technology solutions,” Davis said.

Mortgage Unit Head Along with the credit-card division, the new bureau’s mortgage unit may have the most immediate impact on consumer financial services. A candidate to run the mortgage section is Patricia McCoy, a University of Connecticut law professor who has been working with Warren part-time, according to a person briefed on the matter who spoke on condition of anonymity because the matter isn’t public. McCoy, 56, is a former corporate litigator who was a partner at Mayer, Brown & Platt during the savings and loan crisis in the early 1990s. Based in Washington, she represented bank auditors and examined residential loans and underwriting standards. She co-wrote a book published this month on the subprime lending crash. The contract to create a new disclosure form was advertised to selected vendors in November by the Bureau of Public Debt at the Treasury Department, where the consumer bureau is housed until it becomes an independent entity in July. It calls for firms to bid on providing “support services to assist with the design of a model disclosure form, including assessment of the form through consumer testing and revisions to the form resulting from the testing and public comments,” according to the copy obtained by Bloomberg News.

January Contract Bids had to be in by Dec. 14, and the contract will be awarded before the end of January, according to the proposal document. The vendor must complete the work by Jan. 15, 2012 or a year after the contract is awarded, whichever is earlier. Dodd-Frank requires the bureau to propose regulations on mortgage disclosures for public comment by July 21, 2012. The bidding document indicates that the bureau intends to move more quickly, saying its goal is to issue proposed regulations “as soon after” July 21, 2011, “as possible.” The bid request also emphasizes the role of field tests in the bureau’s decision-making, a point Warren raised at a Dec. 6 symposium at Treasury, according to one attendee, Ira Rheingold, executive director of the National Association of Consumer Advocates. Warren told the audience that “we’re going to be data- driven. We’re going to test things, and figure out what people respond to,” Rheingold said in an interview.

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‘Asking a Lot’ Not everyone studying the mortgage industry believes that simpler forms will translate into more comparison shopping by borrowers. “It’s asking a lot for a piece of paper to change actual consumer behavior,” John Kozup, an associate professor of marketing at Villanova University and director of the Villanova Center for Marketing and Public Policy Research, said in an interview. “It could be a decision aid but that is it.” Kozup, who also attended the Dec. 6 symposium, said that by the time applicants get a mortgage pre-approval and find a house, they “have a psychological commitment to a certain bank or broker, and no kind of disclosure is going to change that.”

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Local TV Stations Should Expect Revenue Slides in 2011 Drop of 7.9% Attributed to 'Unusually Robust Campaign Season' in 2010 NEW YORK ( -- Flush with money from a bevy of heated political campaigns, TVstation owners likely let activity in 2010 make them forget about the savage downturns of 2009. If they were smart, however, they kept those harsh memories close at hand. This year isn't likely to be as pleasant as the last -- though it won't be a return to the harsh recession-tinged downturns. With the elections over, 2011 will likely see a 7.9% drop in localTV revenue, according to a forecast from media consultant BIA/Kelsey. Local stations will see traditional revenue dip to about $17 billion this year, down from about $18.5 billion in 2010. The "more pronounced decrease" in 2011 is due to an "unusually robust political campaign season" in 2010, the company said in its report. Smart TV-station operators will make use of any surplus to fund new initiatives or improve their financial condition. "It is a challenging time for television, but television stations are adapting and trying to extend their brand into other areas," said Mark Fratrik, VP at BIA/Kelsey. "Some people may want to retire debt, hire more staff," he suggested, or even invest in news programming for a new time period, such as the early morning. "There's not one right solution, especially in a marketplace where you have three or four strong television stations, each with a good news presence." TV stations are enjoying comparatively good times, particularly when drawn against late 2008 and much of 2009, when their main advertisers -- auto makers and car dealerships -- pulled back ad spending sharply. Spending on local-TV advertising fell 23.7% in 2009, according to Kantar Media, but rose 27.8% in the first nine months of 2010. BIA doesn't see TV stations developing the kind of revenue from digital sources that will equal what it takes in from broadcast operations any time soon. Digital revenue in 2010 came to $600 million, and is projected to rise to $800 million this year. By 2014, BIA projects, digital revenue for local TV stations will total around $1.2 billion, compared with broadcast revenue that year at about $19.2 billion. At Meredith Corp., which owns 12 local broadcast stations, emphasis has been placed for some time on a number of new ideas, said Kirk Black, senior VP of Meredith's Local Media Group and general manager of its Atlanta CBS affiliate. The company has been working to streamline backoffice operations across its station holdings, investing in local programming ideas that might be more relevant to specific audiences than nationally syndicated offerings and making forays into digital media, he said.

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One idea that carries promise, he said, is the ability to broadcast content to portable electronic devices. He envisions a day when a viewer might tune to the local station for weather or sports, but with a tablet device or portable phone, rather than a TV set. At least one observer remains skeptical, however, that the bulk of TV-station operations will have enough foresight to experiment and have the patience that such work demands. TV-station executives "aren't like squirrels who put away nuts for the winter months," said Ron Hill, a professor of marketing and business law at the Villanova School of Business. "They often look to me as if they take what comes around. If it's a boom cycle, they enjoy that boom cycle, and if it's a bust cycle, they just hunker down." Â


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Fed to Continue Bond-Buying Program WASHINGTON — Federal Reserve policy makers voted unanimously on Wednesday to continue the central bank’s $600 billion plan to spur the recovery by buying government bonds. They took note of a rise in commodity prices, but reiterated their view that long-term inflation expectations had been stable and inflation had trended downward. The Fed’s preferred measure of inflation excludes food and energy, which tend to have volatile prices. The mention of rising commodity prices was a slight but notable acknowledgement of concerns that the bond-buying plan could eventually touch off inflation — concerns that the Fed deems to be unwarranted for now. As expected, the Fed left its benchmark short-term interest rate — the federal funds rate, at which banks borrow from each other overnight — at a range of 0 to 0.25 percent, unchanged since December 2008. The unanimity within the Federal Open Market Committee, the Fed panel that sets monetary policy, was a welcome and somewhat surprising vote of confidence for the Fed’s chairman, Ben S. Bernanke, who has favored aggressive and unconventional measures to stimulate the economy, even in the face of criticism. Under a rotation system used by the committee, four different regional Fed presidents joined the panel as voting members this year: Charles I. Plosser of the Federal Reserve Bank of Philadelphia, Richard W. Fisher of Dallas, Charles L. Evans of Chicago and Narayana R. Kocherlakota of Minneapolis. Mr. Plosser, Mr. Fisher and Mr. Kocherlakota have all raised doubts about the bond-buying program, which the Fed announced in November after hinting about it since August. But for now, they are backing Mr. Bernanke. The program is intended to lower long-term interest rates, give a lift to stocks and other assets, and ease the flow of credit. But skeptics fear that the bond-buying, which has the effect of further expanding the Fed’s already large balance sheet, could lead to destabilizing asset bubbles or touch off inflation. Mr. Bernanke and his allies, who represent a majority of the board, say they think that the program has been effective in meeting its goals and that the worries are exaggerated; they say the Fed is ready to step in to prevent inflation from igniting. The committee’s periodic assessment of economic conditions was little changed from its meeting in December.

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The panel said that the recovery continued, “though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.” It continued to point to a “depressed” housing sector and household consumption “constrained” by high unemployment, modest income growth, the decline in home values and tight credit. Victor E. Li, an economist at the Villanova School of Business, said that by not overreacting to recent improvements in employment and growth projections, the Fed seemed cautious. “I would have thought the statement would have been more optimistic,” he said. The bond-buying plan put in place by the Fed is commonly known as QE2, because it is a second round of the asset-purchase practice known as quantitative easing. From December 2008 to March 2010, the Fed bought $1.7 trillion in mortgage-related securities and Treasury securities to stabilize the housing market and provide support to an economy in the grip of recession. The current round of easing — $75 billion a month in bond purchases, starting in November — is supposed to continue through June. The Fed could change that plan, and affirmed on Wednesday that it was ready to “adjust the program as needed.” (In a related, smaller effort begun in August, the Fed is using the proceeds from its mortgage-related holdings to buy Treasury securities, and that effort is also continuing.) Difficult decisions loom for the Fed: whether to allow the program to continue through June, and also — if the frail recovery should suffer a setback — whether to expand it beyond the $600 billion or extend it into the second half of this year. Central bank officials are already turning their attention to those questions but have offered little indication of their leanings, preferring instead to wait and see whether the economy continues to improve. The Fed’s outlook seems neither too pessimistic nor optimistic, said Michael Dueker, head economist for North America at Russell Investments. “Nothing in today’s statement indicates that the Fed believes that additional quantitative easing will be necessary beyond June 2011,” he said. “And nothing indicates that the Fed is fazed by the so-called strong economic data as of late.” Though the Dow Jones industrial average briefly hit 12,000 on Wednesday, a height not reached since 2008, investors seemed unsurprised by the Fed’s announcement, which was in line with analysts’ expectations.

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Unemployment rate is one of many economic indicators of interest to experts Just days before the release of January unemployment figures, economic experts are looking for signs of long-term recovery and are downplaying the significance of potential short-term rate changes. Analysts concede the 9.4 percent jobless rate may rise because many employers discontinued temporary holiday work. But if signs show more people entering the job market, experts say, that bodes well. "The issue is not the number, but what's happening in terms of what people are doing," said Cheryl Carleton, professor of economics at Villanova University. "A lot of the jobs added in November and December were temporary jobs, but that's not necessarily good or bad, because that's where many firms start." National employment figures will be released Friday. Carleton said if many unemployed workers who had previously given up looking for work decided to re-enter the job market in January, the unemployment rate would increase at least temporarily. But that increase could signal private employers to begin hiring and put pressure on the government to stimulate job creation, she said. The unemployment rate does not account for frustrated workers who have stopped searching for work, or for part-time employees who would like to be full time. The Lehigh Valley's unemployment rate fell in November to 9.4 percent as local businesses added workers for the holidays. The state and regional report for December will be released this week. Nancy Dischinat, executive director of the Lehigh Valley Workforce Investment Board, does not expect the unemployment rate to change much. But she said the local board, which matches job-seekers with openings, is increasing its efforts to promote "green" jobs -- employment in energy efficiency, resource sustainability and renewable energy. The December state Green Jobs Survey Report found over 12,000 green jobs in the Lehigh Valley, accounting for about 4.5 percent of such employment in Pennsylvania....

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The Super Bowl Ads You Can't Miss Super Bowl advertisers are gearing up for an onslaught of commercials this Sunday. With so many of them, which ones should you look out for, and why? Actually, all of them. Just kidding, but there will be some great spots. Super Bowl advertising is a highly anticipated phenomenon where millions of Americans gather not just to watch the game but also the commercials. (This year's championship, the 45th, pits the Pittsburgh Steelers against the Green Bay Packers.) In fact, a recent report by Lightspeed Research, a unit of ad holding company WPP, found that a majority of Super Bowl viewers plan to tune in more for laugh-out-loud than competitive fun this year.

In Pictures: 10 Super Bowl Commercials You Can't Miss The popular deals site Groupon will be making its first Super Bowl appearance, as will well-known brands like Mercedes Benz and BMW, which hasn't bought a spot in the game in a decade. Returning advertisers, too, are putting more money in the spectacle, which is, after all, the most-watched U.S. sporting event. PepsiCo, for instance, has upped the prize money in its consumer-generated contest to $5 million, if commercials for its Doritos and Pepsi Max brands sweep the popular vote. Most spots air for only 30 or 60 seconds (of course, you can play them back on social media sites), and there will be a heavy lineup of marketers ranging from Volkwagen, which is going with a Star Wars-like commercial, to, which has tapped Nascar sensation Danica Patrick once again. So how do you keep tabs on which commercials are worthy of water cooler, Facebook or Twitter talk? Forbes interviewed a panel of judges, from creative directors at ad agencies to marketing professors to former chief marketing officers, for their top picks. Participants in this year's judging round are not currently involved in producing or consulting for any Super Bowl work. For Jeffrey Hayzlett, former chief marketing officer of Eastman Kodak, there are the obvious perennial favorites, including Anheuser-Busch's spots for its Budweiser brand, which have traditionally featured its Clydesdale horses. The Scottish steeds will be back in the game again this year, as confirmed by a sneak peek titled "Wild West," which the company released during the NFC and AFC title games last week. "I think we'll see another classic lineup from them," says Hayzlett, who during his tenure at Eastman Kodak was often urged by his team to run a Super Bowl commercial. "They've positioned themselves as an institution around the event." (Anheuser-Busch has advertised in the Super Bowl for 23 years straight, with privileges as the game's "exclusive malt beverage category" marketer.)

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Another returning but still relatively new Super Bowl presence is E*Trade's financially savvy, wisetalking baby. The character, the brainchild of Tor Myhren, former chief creative officer and now president of New York-based ad agency Grey, will make his fourth Super Bowl appearance Feb. 6. Jason Peterson, chief creative officer at the Chicago office of ad agency Euro RSCG, says E*Trade's baby has continued to be a hit because the spots have just the right amount of "nuanced humor." Last year's spot provoked the ire of actress Lindsay Lohan, who was mentioned in it; it remains to be seen what the E*Trade baby will try to get away with this time, Peterson says. (As of press time, the company has narrowed it down to two choices, one showing the baby talking up the benefits of the online investing site with an as-yet-unnamed personality, and another that depicts the tot and his tailor--yes, you read that right--doing well financially.) is also looking to the tried and true. For its Super Bowl XLV return, the job search site is resurrecting the chimpanzees from its 2005 and 2006 ads. "Things are looking good for CareerBuilder heading into the Super Bowl," writes Tim Calkins, a marketing professor at Northwestern University's Kellogg School of Management. That's because the company's biggest rival,, has dropped out of the game, giving CareerBuilder a little bit of breathing room, he says. With last year's Super Bowl reaching a record 106.5 million viewers, and advertising slots that sold out as early as October, the competition for eyeballs during Super Bowl XLV will be tougher than ever. And companies want consumers not only to see their ads, but to keep the buzz going. That may be what inspired PepsiCo to reprise its consumer-generated campaign this year. The company's cola brand took a pass on the Super Bowl last year (the ad dollars instead went to a community advocacy project dubbed Pepsi Refresh), but both Pepsi Max and Doritos will be there sometime after the kickoff at 6:30 p.m. Eastern time on Fox this Sunday. Previous consumer-created ads for Doritos, including one that showed a vengeful dog securing an electronic bark collar on a guy, and another that featured an office worker slamming a crystal ball into a vending machine, have notched top slots on USA Today's annual Super Bowl Ad Meter. Though PepsiCo has significantly raised its rewards stake this year, industry experts like Calkin wonder if it can once again "deliver high-impact creative." That's because other advertisers are also creating quite a bit of noise ahead of the kickoff. Bridgestone, the game's official tire sponsor, has already seeded two commercials on its site. The drama behind "Reply All," a snippet from a spot that shows what happens when a worker hits the wrong e-mail button, and a creepy, soul-searching "Carma" ad (hint: don't run over the beavers), will finally be revealed this Sunday. The latter is Juma Entertainment founder Robert Horowitz's pick for his company's annual "Super Bowl's Greatest Commercials," which airs on CBS at 9 p.m. EST Feb. 4. "I'm hearing great things about Bridgestone," he says of the pregame buzz. Villanova School of Business marketing professor Charles R. Taylor, meanwhile, is keeping a close watch on Audi. The luxury automaker, which competes with rivals like BMW, Lexus and Mercedes Benz, has already aired a spot, "Goodnight," which was inspired by the children's book Goodnight Moon, that is meant to be a prelude to its Feb. 6 commercial. "The focus is on mocking frivolous wealth. But with Audis selling at $70,000 a pop, this may be a tough sell, even though the campaign suggests the brand is 'redefining luxury,'" Taylor

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writes. Plus, this year's game is clogged with auto advertisers, making standing out even harder for Audi. Regardless, "it's likely to be a very memorable ad, whether it is widely liked or not, and memorability is a prerequisite for an effective ad," he says, drawing on knowledge of the company's past creative. One auto advertiser definitely worth watching is General Motors. The company is slated to launch new creative for its Chevrolet brand at a time when the company has emerged from bankruptcy, launched an initial public offering and installed a new top marketer, Joel Ewanick, formerly of Hyundai. (Ewanick, who also had a brief stint at Nissan, was the architect behind Hyundai's widely lauded "Assurance" buyback guarantee program.) Liz Vanzura, a former Cadillac global marketing director who now heads up marketing at ad agency MMB Advertising in Boston, names Chevrolet's ads her top pick. And that's not just because she used to work at GM. "Most people want to see car companies come back, so it's good timing," she says of the company's decision to advertise in the game. Unlike Ford, which didn't take U.S. government bailout money, and Toyota, which decided the timing--following the downturn--just isn't right, GM really has a story to tell, she says, citing recent innovation, including its Chevy Volt electric car. Celebrities, too, aim to make a splash. Horowitz, of Juma Entertainment, says Skechers was smart to snag reality television star Kim Kardashian. "It's clever meets sexy," or, in industry parlance, "the convergence of Super Bowl big time spot meets pop culture," he says. And then there are the simply bizarre. For example, Best Buy's pairing of teenage singing sensation Justin Bieber with "Godfather of Heavy Metal" Ozzy Osbourne. "The one thing they have in common is, I don't know who likes either one of them," Peterson, of Euro RSCG, says. "I have a 10year-old daughter and a 16-year-old niece, and neither of them like Bieber." As for Osbourne? He had his "resurgence and rebirth" years ago, Peterson adds. Love it or hate it, one commercial Super Bowl watchers will likely be noticing is Snickers'. The Mars-owned brand last year scored a whopping hit as the top ad on USA Today's Ad Meter for a commercial featuring Betty White, which propelled the former Golden Girls star to newfound celebrity status. (Facebook users rallied around a campaign to get her to guest host Saturday Night Live; it worked.) Aiming to keep its idea fresh, Snickers has replaced her with another actresscomedian, Roseanne Barr. Time will tell if the Snickers change is well-received, but in the meantime, one thing's clear: All eyes are watching to see who will be this year's breakout star. Betty White was certainly last year's sensation. "She was bigger than the Super Bowl," says Hayzlett. Other Super Bowl judges this year include Tony Granger, global chief creative officer at New Yorkbased ad agency Young & Rubicam; Jesse de Agustin, an advertising expert at Focus, an online business expertise network; Evan Fry, chief creative officer at Victors & Spoils, an ad agency in Boulder, Colo.; and Jeremy Baka, who goes by the title chief creative catalyst at global communications and public relations agency Cohn & Wolfe.

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Super Bowl ad considered offensive Yesterday’s Super Bowl featured the usual highly-produced commercials for soda, beer and cars. Some of the ads featured innuendo and vulgar humor. Yet, you don’t hear much of an outcry these days; it’s hard to offend viewers. But one advertisement managed to offend people across the globe. The advertisement for the two-year-old company Groupon, which sells group discounts, begins as an earnest plea for the Tibetan people living under Chinese rule. The commercial shows snowy mountain peaks, Tibetan monks, and Tibetan children dancing. The narrator, actor Timothy Hutton, provided the voiceover. “The people of Tibet are in trouble; their very culture is in jeopardy.” Then, the narration takes a turn, telling the viewer about other parts of Tibet. “But they still whip up an amazing fish curry, and since 200 of us bought at, we’re each getting $30 worth of Tibetan food for just $15 at Himalayan restaurant in Chicago.” The company also spoofed the causes of saving the whales and the Brazilian rainforest. The advertising message was intended to be this: Save something valuable, and save money using our coupons. It didn’t work, said Wendy Melillo, an assistant professor of communication at American University in Washington. “The ad is crass and greedy, and it’s poking fun at philanthropy, which typically doesn’t go over very well.”

Buzz at what cost? Melillo said for an advertisement to be effective, it has to do two things: get noticed and change behavior. She added that the Groupon advertisement scores very well in the first category. The Tibet commercial has created tremendous buzz in online chat rooms and social media sites. But Melillo said with the second category of changing customer behavior, “It fails miserably because it’s kind of a bait and switch, and people don’t like that because the hook draws you in and you’re thinking one way, and then the switch at the end, I think, has rightly angered people.”

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Advertisers have long tried to slightly offend and provoke to grab our attention. But you have to know which topics are out of bounds, said Charles R. Taylor, professor of marketing at the Villanova School of Business. The cause of Tibet is one of those topics. “In many ways, I think it (the Groupon commercial) presents Americans in a bad light in that it suggests that the plight of the people in Tibet is not all that important relative to getting a good deal when a relatively wealthy American goes out to eat,” said Taylor.

Silver lining The director of the organization Free Tibet, Stephanie Brigden also felt the advertisement was in bad taste. But she did find a silver lining. “If it raises the profile of Tibet, obviously that’s positive. People need to understand what’s going on,” said Brigden. “What would be great if this now kind of pricks people’s consciousness into saying, actually, I need to do something. And then it will have a really great outcome.” The company Groupon said the advertisements were parodies meant to poke fun at themselves. They’re also offering matching donations, up to $100,000, to support the causes they spoofed.

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Super Bowl ads star a chip-loving pug and a little Darth On Sunday evening, a record-breaking 111 million viewers tuned in for the annual orgy of advertising that is the Super Bowl broadcast. What did they learn? That the Force is still very much with us. That a live Eminem is far more compelling than a Claymation version. That it's shaping up to be a big summer for blockbuster films. That the Prince of Darkness is completely unfamiliar with the Princeling of Sweetness and Light. And that dogs are Madison Avenue's best friends. "Everyone thinks they know what makes a good Super Bowl commercial," says Susan Mudambi, associate professor of marketing at Temple's Fox School of Business. "Everyone is an expert critic on Super Bowl ads." When you're paying $3 million for 30 seconds of airtime, you expect your spot to stick the landing, not fall on its face. Those who watched Green Bay prevail over Pittsburgh 31-25 experienced both perfection and pratfalls during the commercial breaks. "I'd call it a good year, even though the public perception seems to be that it was pretty mediocre," says Charles R. Taylor, the Murphy Professor of Marketing at Villanova's School of Business. "The problem is that people have developed very, very high expectations for these Super Bowl commercials," he says. "So the advertisers are having to take bigger risks to get noticed. That results in a batch of ads that has both hits and misses." In many consumer polls, the ad that generated the greatest positive response featured a cute, compact pug literally battering down a door to satisfy his canine craving for Doritos. Also garnering positive reaction was a Bud Light spot set at a party that had dogs on their hind legs serving as bartenders and waiters. Ah, Fido. Ever the faithful salesman. The night's sentimental favorite employed a boy draped in full Darth Vader regalia, walking around the house, trying to get inanimate objects to respond to his mesmerizing "Force." Finally, to his vast astonishment, he has success activating the Passat in the driveway (with an assist from Dad). "It had real family appeal," says Taylor. "Usually, commercials using that approach try to appeal to moms. I think this one also appealed to dads. It's no surprise that ad has the most YouTube hits."

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Leaked early by Volkswagen, the clip was seen 3 million times before the game began. By Monday afternoon, the YouTube total had risen above 16 million. That is in addition, of course, to the massive audience who saw it during the broadcast on Fox. As is customary, the primary products being pitched were chips and beer. It's unclear whom these are intended to reach. People who put off their game-day shopping until the third quarter? Another robust category was automobiles. The car commercial that really stood out was a surprisingly sober two-minute ad for Chrysler that championed the city of Detroit and starred native rap superstar Eminem. "It's really generated a lot of buzz on Twitter," says Taylor. "The line they used - 'imported from Detroit' - is becoming an instant Eminem didn't fare as well in an ungainly, hectic, and obnoxious spot that used his voice and Claymation likeness to pitch Lipton's Brisk iced tea. There were celebrities - some freshly minted, some quite dated - popping up everywhere: Richard Lewis and Roseanne Barr as lumberjacks for Snickers, rock demon Ozzy Osbourne and pop angel Justin Bieber for a cell phone, Diddy for Mercedes, Kim Kardashian for sneakers, and Kenny G for Audi. Some of the commercials seemed oddly premature: numerous trailers for movies that won't be in theaters for months, and several elaborate Fox promos for Simon Cowell's The X Factor, a show that doesn't debut until September. Others simply didn't make sense. In one beer commercial, a gunslinger walks into an Old West saloon and starts singing Elton John's "Tiny Dancer." In another, actor Adrien Brody moodily murmurs a torch song in a smoky French nightclub. Wow, talk about misjudging your audience! "Every year a few advertisers go edgy, with ads that come close to crossing the line of good taste," says Mudambi. She cites the Doritos ad with a man sucking his coworker's fingers to savor the cheesy residue, and a Pepsi Max spot in which a jealous woman coldcocks a jogger with a full can of soda. The campaign that drew the most heated criticism came from Groupon, an online discount coupon service. Its commercials featured actors Timothy Hutton and Elizabeth Hurley making what seemed like grave public service appeals for, respectively, Tibet and the rain forest. Jarringly and in questionable taste, the tone suddenly switched to giddy celebrations of spoiled American consumerism. But perhaps there is no such thing as negative notoriety on Super Bowl Sunday. If people are talking about your ad the next day - enthusiastically or scornfully - you probably got your money's worth. Even at $100,000 per second. Â

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When Should a Soccer Manager Insert His Subs? Nifty article in today’s Journal about a nifty study by Bret Myers of Villanova: The pace and flow of soccer generally make it difficult for managers to affect the outcome of a match once it begins. Since soccer has almost no stoppages for coaches to draw on clipboards or strategize with their players, a manager’s most critical in-game decision may be choosing when to utilize their three substitutions. … Myers analyzed the substitutions and ensuing results of every game played during the 2009-10 season in the top English, Spanish, Italian and German professional leagues, as well as the 2010 Major League Soccer season and the 2010 World Cup. He concluded that if their team is behind, managers should make the first substitution prior to the 58th minute, the second substitution prior to the 73rd minute and the third prior to the 79th minute. Teams that follow these guidelines improve-score at least one goal-roughly 36% of the time. Teams that don’t follow the rule improve about 18.5% of the time. I don’t know if there’s much of an empirical literature about substitution for other team sports (this baseball study, e.g., is more about optimizing matchups). It does strike me that as much as “conditioning” is appreciated in sports, the role of fatigue — mental and physical — is perhaps underappreciated. Yet another reason to think about using an “opener” in baseball? At the top of this column is a (poor) photo I snapped in Barcelona in December, of Lionel Messi getting subbed in the 54th minute in a Copa del Rey match against Bilbao. (Below is a photo of Messi in action in that same match.) The other subs: David Villa at 63 minutes and Adriano at 79 minutes — just right, according to Myers’s research. But it didn’t work out for Barca. Neither Messi nor the others provided much of a spark as a sub, and the match was a 0-0 draw. He was nevertheless wonderful to watch.

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The Science of Soccer Substitutions The pace and flow of soccer generally make it difficult for managers to affect the outcome of a match once it begins. Since soccer has almost no stoppages for coaches to draw on clipboards or strategize with their players, a manager's most critical in-game decision may be choosing when to utilize his three substitutions. That's where Bret Myers, a professor of management and operations at the Villanova School of Business, comes in. A lifelong soccer player and fan, he sought to help coaches make their subs at exactly the right moment and discovered what he calls the "Decision Rule." To determine this, Dr. Myers analyzed the substitutions and ensuing results of every game played during the 2009-10 season in the top English, Spanish, Italian and German professional leagues, as well as the 2010 Major League Soccer season and the 2010 World Cup. He concluded that if their team is behind, managers should make the first substitution prior to the 58th minute, the second substitution prior to the 73rd minute and the third prior to the 79th minute. Teams that follow these guidelines improve? score at least one goal? roughly 36% of the time. Teams that don't follow the rule improve about 18.5% of the time. He noted 1,037 instances the rule could have been applied and found that managers abide by it a little less than half the time. He also found that the timing of subs has no effect on the team ahead in the score or if the match is tied. Dr. Myers said the rule shows that coaches underestimate the significance of fatigue late in a match, which causes them to overvalue starters and undervalue substitutes.

Timing Is Everything The minutes soccer managers should make their three substitutions to have the best chance of scoring at least one goal. The rule only applies to the team trailing in the score. It has no effect on the team ahead or if the score is tied. SUBSTITUTION TIME First Prior to 58th minute Second Prior to 73rd minute Third Prior to 79th minute ? Chance of scoring when followed: 36% ? Chance of scoring when NOT followed: 18.5%

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German Börse in Talks to Buy the Big Board The New York Stock Exchange, a symbol of American capitalism for more than two centuries, may soon have new owners — in Europe. The exchange, facing pressure from electronic upstarts that have taken business away from it, said on Wednesday that it was in advanced talks on a merger with the operator of the Frankfurt Stock Exchange. A deal would create the world’s largest financial market, with a presence in 14 European countries as well as the United States. A merger would potentially let customers trade stocks in New York, options tied to those shares in Paris and derivatives linked to them in Frankfurt. A combination, after the mergers of other exchanges, would be another illustration of how globalization and technology have changed marketplaces. The New York Stock Exchange is a giant among exchanges, yet in a world of around-the-clock trading and rapid-fire algorithmic programs, its significance to investors has diminished. Once known for chief executives who were prominent cheerleaders for the stock market, the exchange now has a more muted public presence. While the ringing of the opening bell every morning and images of anxious or joyful workers on the trading floor represent the stock market to millions of people, increasingly trades are being executed by computers far from Wall Street, in places like Jersey City and Kansas City. The Big Board has already undergone a radical transformation in just a few years: from a clubby nonprofit organization where brokers on the floor handled most trades to a profit-making multinational corporation engaged in largely electronic trading. Some 1,300 equities and options traders now work on the floor of the exchange, down from nearly 3,000 a decade ago. As a public company, its stock price has slumped 64 percent from a high in 2006. So while news of the merger negotiations was the talk of Wall Street on Wednesday, some had already accepted that further change was needed.

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“You probably need more consolidation,” said Barry Smith, 44, a financial technology executive, who sat drinking beer with two friends at Bobby Van’s Steakhouse and Grill across the street from the exchange. Under the terms being negotiated, the New York Stock Exchange — which began in 1792 when brokers gathered beneath a buttonwood tree in Lower Manhattan to trade five securities of the new nation — would still have a headquarters in Manhattan. But the Deutsche Börse would own as much as 60 percent of the new company, which would be incorporated in the Netherlands. If a deal is reached, it could still face several hurdles, including regulatory and political resistance. New York City leaders have been particularly vocal about maintaining the city’s status as the leading financial capital. Competition among exchanges has grown more intense in recent years as investors seeking speed, lower costs and greater liquidity have flocked to electronic platforms that pay little heed to financial centers or tradition. Exchanges are under pressure to get bigger to cut costs and invest in technology that will allow them to host as many transactions as quickly as possible. “There is a race toward exchanges becoming ever bigger,” said Elie Darwish, an analyst at Exane BNP Paribas in Paris. “This would give NYSE Euronext-Deutsche Börse an unchallengeable position.” Much of the $411 million in expected cost savings from a combination of the New York Exchange and the Deutsch Börse is expected to come from combining the two companies’ technology systems and back-office operations. Fewer than 1,000 job cuts are expected, with less than 100 in New York, said a person briefed on the matter who spoke anonymously because he was not authorized to discuss it. Still, a merger could raise l questions about the importance of the exchange to the vitality of the financial industry in New York. The role of the exchange’s professionals on the floor may become more limited as a result. Michael Pagano, a professor at the Villanova School of Business, said those floor specialists could help during times of market stress like the “flash crash” of May. “They could become something like the Maytag repairman,” he said. “He doesn’t necessarily do anything all day, but he’s there when you need him.” The joint statement by the two companies closely followed the announcement of an all-stock merger of the London Stock Exchange and the Toronto Stock Exchange. While NYSE Euronext and Deutsche Börse confirmed that they were in “advanced discussions” about a deal, they cautioned that the talks might still fall apart. Deutsche Börse has a history of trying to merge with other exchanges, including the Big Board and the London Stock Exchange, without success.

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Still, a merger could be announced as soon as the middle of next week, according to the person briefed on the matter. NYSE Euronext shareholders are expected to receive a roughly 10 percent premium to their shares, this person added. The last six years have yielded several big exchange unions, including the Chicago Mercantile Exchange’s purchases of the Chicago Board of Trade and Nymex Holdings and the Singapore exchange’s proposed acquisition of the Australian Stock Exchange. NYSE Euronext itself is the product of the New York Stock Exchange’s takeovers of Archipelago Holdings, which gave it an electronic trading platform, Euronext and the American Stock Exchange. Wednesday’s announcements will probably put additional pressure on smaller players, like the Nasdaq stock market, to seek additional partners to keep up. Deutsche Börse’s chief executive, Reto Francioni, would serve as chairman from Frankfurt. Duncan L. Niederauer, the chief executive of NYSE Euronext, would serve the same role for the combined company, whose name has not been determined. The names of the local markets, including the New York Stock Exchange, would remain, in part to try to mitigate political backlash. NYSE Euronext and Deutsche Börse held merger talks twice before, in 2008 and 2009, before resuming discussions again late last year, according to the person briefed on the matter. David Jolly and Colin Moynihan contributed reporting.

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German Company In Talks To Buy New York Stock Exchange According to reports, German company Deutsche Börse AG is in advanced talks to acquire and merge with the New York Stock Exchange. Deutsche Börse AG is the operator of the Frankfurt Stock Exchange, and the merger would create the world’s largest global financial market. But there is one thing that has already been requested: don't change the name. “The New York Stock Exchange is a foundation of the extraordinary American economic success story, and its name rightfully reflects the United States’ position as the financial center of the world,” said Rep. Ted Deutch, a Florida Democrat. So no go on "Die Börse Von New York"? Whether we keep the name or not, if the deal is approved, it will be another signal of the city's fading dominance in financial exchanges, or as the WSJ puts it, "recognition that securities trading today goes on at all hours and in all time zones, making the actual bricks and mortar of Wall Street far less important than before." Under the deal, the NYSE Euronext shareholders would hold 40 percent of the new company, but Deutsche Börse shareholders would own as much as 60 percent, which would be incorporated in the Netherlands, with its HQ split between Frankfurt and Manhattan. "New York is going to be important, but it's not the financial center. Capital markets are everywhere now," said Michael LaBranche, CEO of LaBranche & Co. The new entity, incorporating the NYSE, the Frankfurt Stock Exchange, and the four European exchanges owned by NYSE Euronext, would supplant CME Group as the world's largest futures exchange and create the biggest U.S. options group. Michael Pagano, a professor at the Villanova School of Business, warns that exchange specialists on Wall Street might have less of a role than previously: “They could become something like the Maytag repairman. He doesn’t necessarily do anything all day, but he’s there when you need him.” Even if a deal is reached this week, it will still have to go through approval by regulators. At the very least, we hope that the merger will bring about vast improvements in the quality of the NYSE candy machines; after all, Deutsche Börse are from the land of chocolate.

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NYSE Death as Dominant Exchange Presaged German Deal The New York Stock Exchange, the symbol of American capitalism for more than a century, may merge with a German rival after losing ground to smaller competitors. NYSE Euronext, the owner of the NYSE, is negotiating to be acquired by Deutsche Boerse AG with equity valued at $10 billion after its market share dwindled to 23 percent from 80 percent in the past six years. The new company will be the biggest exchange owner, handling equities worth $15 trillion and 40 percent of the U.S. options market. The 219-year-old exchange led by Chief Executive Officer Duncan Niederauer, home to General Electric Co. and Ford Motor Co., was diminished as regulators opened U.S. markets to more competition after investors demanded lower trading costs. The sale to 18-year-old Deutsche Boerse in Frankfurt shows the increasing importance of machines over humans in trading stocks and the rising influence of derivatives, where profit margins are as high as 55 percent. “Sadly, the NYSE became a victim of its own success -- too large and dominant to move quickly to adapt,” said Peter Kenny, a managing director in institutional sales at Knight Capital Group Inc. in Jersey City, New Jersey, who became a member in 1987. “It is not all bad, but it is very sad to an old timer like myself.” Deutsche Boerse and NYSE Euronext announced merger talks on the same day that London Stock Exchange Group Plc agreed to purchase Toronto-based TMX Group Inc. for about $3.1 billion.

Exchange Mergers The biggest day ever for exchange mergers triggered rallies in shares of operators from New York to Chicago and Sao Paulo. Nasdaq OMX Group Inc., IntercontinentalExchange Inc., CBOE Holdings Inc. and BM&FBovespa SA -- all of which run derivative venues for futures or options -- rallied as much as 6.7 percent yesterday. Deutsche Boerse rose 4.6 percent to 61.10 euros today in Frankfurt. NYSE Euronext shares slipped 1.2 percent to $37.64, paring yesterday’s 14 percent rally. Their total market value of $26 billion exceeds Hong Kong Exchanges & Clearing Ltd.’s, currently the world’s largest by market capitalization at $23.2 billion. “We are still waiting for more details and are flying a bit blind right now,” said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. “But the market likes the combination of cross-board stock exchanges.”

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Fragmented Markets With as many as 50 venues trading equities in the U.S. compared with fewer than 20 a decade ago, competition has driven down the amount exchanges can charge for executing trades. Brokers who owned the NYSE 10 years ago earned 6.25 cents or more when buying and selling 100 shares. Now, the spread is a penny for the most heavily traded stocks. NYSE Euronext said derivatives revenue climbed 14 percent in 2010, while overall sales declined for two straight years. Derivatives are contracts whose values are determined by underlying assets. Deutsche Boerse, which may buy NYSE Euronext for about $10 billion in stock, would own about 60 percent of the new company. Niederauer, 51, would be chief executive officer of the new organization. Reto Francioni, the 55-year-old CEO of Deutsche Boerse, would be chairman.

‘Better Off’ “You’ll have the two strongest stock exchanges together, and it’s going to give us access to Europe, and them access to the United States in a way that some of our other competitors, like London, will not have,” New York Mayor Michael Bloomberg said at a news conference today. “You’ll add jobs because the stronger the New York Stock Exchange is in our global world, the better off we are.” The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP. The New York Stock Exchange, formed in 1792 under a sycamore tree on Wall Street, became the center of American capitalism through its grip on stock listings and trading. During the crash of 1987, Chairman John J. Phelan won praise for securing pledges from executives of some of the exchange’s biggest companies to buy back their own stock. The Big Board’s reputation faded in the last decade when scandals highlighted the potential for collusion on the NYSE floor and faster technology reduced the need for middlemen. In September 2003, Chairman Richard Grasso ended a 36-year career at the exchange as regulators and directors said a $140 million pay package called his leadership into question. Two years later, the U.S. charged 15 NYSE specialists with fraud, saying they manipulated orders for four years to pocket $19 million at clients’ expense. The NYSE was censured for self- regulatory failures and agreed to submit to outside monitoring for the first time.

Thain’s Deal Grasso’s successor, John Thain, orchestrated the 2006 reverse merger that gave the NYSE control of Chicago-based Archipelago Holdings Inc. and turned the member-owned exchange into a public company. By then, regulatory directives aimed at lowering transaction costs were in the process of cutting the NYSE’s market share.

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The 2001 switch to decimal share pricing, from sixteenths of a dollar, allowed any firm willing to sell for a penny less than the best available price to step in and make the trade. That reduced margins for specialists on the floor of the exchange. Automated-trading firms such as Getco LLC in Chicago used high-speed computers on electronic venues such as Bats Global Markets in Kansas City, Missouri, and Jersey City, New Jersey-based Direct Edge Holdings LLC to overcome lower profits by sending thousands of orders to trade every second.

Ways to Grow At the same time, exchanges around the world were combining, with at least $95.8 billion of mergers completed since January 2000. NYSE combined with Euronext NV in 2007. TMX bought Montreal Exchange Inc. in 2008, a year after London Stock Exchange Group acquired Borsa Italiana SpA. ICE purchased the New York Board of Trade in 2007 and Bolsa de Mercadorias e Futuros bought Bovespa Holding SA in 2008. Futures exchanges around the world traded 8.2 billion contracts in 2009, almost three times the turnover in 2003, according to data from the Futures Industry Association. With rivals taking business, one of the quickest ways for NYSE Euronext to grow is through mergers and acquisitions, said Michael Pagano, a professor of finance who studies exchanges and market structure at the Villanova School of Business in Villanova, Pennsylvania.

‘Just Electricity’ “It costs a fixed amount of money to build a computer system for trading, but once you generate revenue that covers those fixed costs the marginal cost of covering just one additional trade beyond that is basically just electricity,” Pagano said. That’s led to a reduction in costs. Total salaries and benefits at NYSE fell by 5.6 percent to $613 million last year, the biggest drop since the data on the publicly traded company began in 2005. Deutsche Boerse, which is scheduled to release results next week, cut staff expenses by 3.7 percent in 2009 and 26 percent in 2008, according to data compiled by Bloomberg. NYSE Euronext owns exchanges in Amsterdam, Lisbon, Paris and Brussels, as well as Londonbased Liffe, Europe’s second- largest derivatives market. The company also runs three U.S. stock exchanges: NYSE Arca, NYSE Amex and the New York Stock Exchange, two options platforms and the NYSE Liffe U.S. futures exchange, which trades contracts linked to interest rates. Deutsche Boerse operates the Frankfurt stock exchange and Clearstream, Europe’s secondbiggest securities-settlement firm. The company also has Eurex Clearing AG and a 50 percent holding in Eurex, the region’s largest futures market. Eurex bought a stake in International Securities Exchange, an options market that competes with CBOE, in 2007.

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Cutting Jobs “In Exchange 101, it’s about operating leverage,” said Jamie Selway, managing director at Investment Technology Group Inc. in New York and an expert in how markets are organized. He said NYSE Euronext and Deutsche Boerse can combine and eliminate more costs in personnel and technology. “You spend a fixed amount of cost to operate platforms. Anything additional you can trade on them is incremental revenue.” NYSE and Deutsche Boerse may move to a single execution system, coordinating trading services and eliminating jobs in areas such as sales, marketing and computer support. The combined exchange will use NYSE Euronext’s trading system for cash equities, said a person familiar with the matter who declined to be identified because the talks are private.

Options Volume The deal would give the combined company about 40 percent of U.S. options volume by adding NYSE Euronext’s two markets with the ISE, currently the third-largest venue. CBOE was the biggest options exchange operator last month with 30 percent of contracts handled on its venues. Combined, the companies will be the world’s largest futures market by volume, according to data from the Futures Industry Association, a trade group representing Wall Street banks active in derivatives. The merged firm would control 11 derivatives markets, including Liffe U.K., NYSE Arca Options, NYSE Liffe U.S., Eurex and the International Securities Exchange. The combined venues would have posted volume of 4.8 billion contracts in 2010, according to FIA. That compares to 3.1 billion trades last year at CME Group Inc., the world’s largest futures exchange, FIA said. NYSE Euronext would also handle clearing, the guaranteeing of payments for transactions and delivery of securities, for equities and futures in Europe through businesses run by Deutsche Boerse. Combining products in the same clearinghouse limits the ability of other markets to compete. “Expanding a good, modern system that already exists like NYSE costs very little,” said Alfred Berkeley, chairman of Pipeline Trading Systems LLC in New York and president of Nasdaq Stock Market from 1996 to 2000. “They can eliminate all that redundancy in Deutsche Boerse and do a lot more business and a lot more trades than they’re doing now.”

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Global stock exchange consolidation may just be starting With the Toronto-London proposal and talks between the New York and German markets, a melding of Asian trading platforms could be next In the span of nine hours Wednesday morning, the global financial markets ushered in a new era. As the heads of the TMX Group Inc. X-T and London Stock Exchange Group Inc. sat together in Toronto to unveil their $7-billion merger plan, Deutsche Boerse AG and NYSE Euronext Inc. NYX-N confirmed that they too are in talks to create a vast new exchange company that would combine the New York Stock Exchange with Germany's main market. The Deutsche BoerseNYSE plan would create what would be the world's biggest market operator by revenue. The deals mark the resumption of a wave of mergers that in the past decade has seen exchanges unveil more than 600 purchases worth $94-billion (U.S.), according to Thomson Reuters. More than half that activity has been via cross-border deals as the industry has gone from one where each country had one or two major exchanges to one where transnational conglomerates dominate. The burst of merger activity - and the astonishing speed of the announcements - shows that exchanges once again believe that bigger is better after taking a break during the financial crisis. People involved with the LSE-TMX merger said the fresh consolidation craze is being driven by two factors: Investors' increasingly global view as they seek opportunities in all markets, rather than just at home, and fierce competition from alternative trading systems (ATS), which is putting pressure on the revenues of traditional exchanges. In the United States, for example, there are now about 50 different venues to trade stocks. In Canada, there are about half a dozen, and they have taken about a 30 per cent market share away from TMX, which once had a virtual monopoly. The current deal-making frenzy isn't likely to end with Wednesday's transactions, since trading in public markets is being concentrated in the hands of far fewer for-profit companies. There is at least one more potential deal in the pipeline, as Kansas City-based BATS Global Markets, which runs the third-biggest U.S. stock market and the second-biggest alternative trading system in Europe, is in exclusive talks to acquire Chi-X Europe, the largest electronic ATS in Europe. "Everybody's jockeying to become the one true global provider of trading services," said Mike Pagano, a professor of finance at Villanova School of Business who studies financial markets. "Nobody's there yet, but everybody is scrambling in that direction."

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For NYSE Euronext and Deutsche Boerse, a combination would mean significantly lower costs and greater heft in global trading. Unlike in the past, when exchange operations depended heavily on human traders, today they're dominated by highly sophisticated and automated trading systems. "When you merge companies, you don't need two technology platforms, so there are a lot of cost synergies," says Richard Repetto, a principal at Sandler O'Neill & Partners in New York. NYSE and Deutsche Boerse have large European derivatives trading businesses that can be combined to generate savings. The ambitions for Toronto and London are different. There are few costs to cut as there is little overlap, but there is an opportunity to create new products and offer new services, like the ability for TSX-listed companies to easily list their stocks also in London where there is a larger community of investors, said TMX Group chief executive officer Tom Kloet. The hope is also that TMX and LSE together can compete for the listings of some of the new companies that are being created in emerging markets to tap the capital of investors in developed economies. "Our industry is getting more competitive, and the critically important listings business is also on a global basis very competitive," LSE CEO Xavier Rolet, who has been tapped to head the combined company, said in an interview. "Together we will be in a unique position to enhance our competitiveness and attractiveness for the large flow of very, very large listings, and some not quite as large, that will be coming out of the emerging world over the next 10 to 20 years, looking for ideal places to raise capital." There's speculation that a Toronto-LSE merger is only a step on the way to a much bigger company. "I think that once these mergers get digested, the next logical step is to think what can we do in Asia," said Prof. Pagano. "Could it be London-Toronto-Australia? That would be a very interesting combination." The latest round of exchange consolidation started in October, when the Singapore Exchange, where Mr. Kloet was once CEO, announced a $8.3-billion offer for the ASX, the operator of the Australian Securities Exchange. However, the scale of these mergers is now creating the risk that politicians will step in, not just in Canada where it's expected that the TMX-LSE deal will face close scrutiny. Australia has blocked foreign takeovers in the past, mostly in the resources sector, and the Singapore-ASX deal immediately ran into political and regulator problems. "The pushback against this is there's some political risk," Mr. Repetto said. It will be difficult, although not impossible, for U.S. regulators to see the New York Stock Exchange - still the

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flagship brand of American financial markets - effectively acquired by a European entity. At the same time, European authorities may bristle at a combination that would create a dominant player in the region's futures markets. The mergers also show that exchanges are positioning themselves for an improving macroeconomic climate. "[This year] won't be a bang-up year, but people are more confident that the exchange business will see a bounce," says Jamie Selway, managing director at Investment Technology Group, Inc. in New York. If exchanges "can take out costs in preparation for that [uptrend], it's a good time to do it." Experts caution that the size and regulatory complexity of such transactions mean they can be long, drawn-out affairs. The last explosion of merger activity three years ago also showed there's a good likelihood some deals won't be consummated. Deutsche Boerse reportedly discussed acquiring NYSE Euronext back in 2008, for example. Â

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NYSE may merge with German company NEW YORK -- The New York Stock Exchange, the symbol of American capitalism for more than a century, may merge with a German rival after losing ground to smaller competitors. NYSE Euronext, the owner of the NYSE, is negotiating to be acquired by Deutsche Boerse with equity valued at $10 billion after its market share dwindled to 23 percent from 80 percent in the past six years. The new company would be the biggest exchange owner, handling equities worth $15 trillion and 40 percent of the U.S. options market. The 219-year-old exchange led by Chief Executive Officer Duncan Niederauer, home to General Electric and Ford, was diminished as regulators opened U.S. markets to more competition after investors demanded lower trading costs. The planned sale to 18-year-old Deutsche Boerse in Frankfurt shows the increasing importance of machines over humans in trading stocks and the rising influence of derivatives, where profit margins are as high as 55 percent. "Sadly, the NYSE became a victim of its own success -- too large and dominant to move quickly to adapt," said Peter Kenny, a managing director in institutional sales at Knight Equity Markets, who became a member in 1987. "It is not all bad, but it is very sad to an old-timer like myself." Deutsche Boerse and NYSE Euronext announced merger talks Wednesday, the same day that London Stock Exchange Group agreed to purchase Toronto-based exchange owner TMX Group for about $3.1 billion. "We are still waiting for more details and are flying a bit blind right now," said Timothy Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York, which manages $2 billion. "But the market likes the combination of cross-board stock exchanges." With as many as 50 venues trading equities in the United States compared with fewer than 20 a decade ago, competition has driven down the amount exchanges can charge for executing trades. Brokers who owned the NYSE 10 years ago earned 6.25 cents or more when buying and selling 100 shares. Now, the spread is a penny for the most heavily traded stocks. NYSE Euronext said derivatives revenue climbed 14 percent in 2010, while overall sales declined for two straight years. Derivatives are contracts whose values are determined by underlying assets. Deutsche Boerse, which may buy NYSE Euronext for about $10 billion in stock, would own about 60 percent of the new company. Niederauer, 51, would be CEO. Reto Francioni, the 55year-old CEO of Deutsche Boerse, would be chairman.

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The NYSE, formed in 1792 under a sycamore tree on Wall Street, became the center of American capitalism through its grip on stock listings and trading. During the crash of 1987, Chairman John J. Phelan won praise for securing pledges from executives of some of the exchange's biggest companies to buy back their own stock. But the Big Board's reputation faded in the last decade when scandals highlighted the potential for collusion on the NYSE floor and faster technology reduced the need for middlemen. In September 2003, Chairman Richard Grasso ended a 36-year career at the exchange as regulators and directors said a $140 million pay package called his leadership into question. Two years later, the government charged 15 NYSE specialists with fraud, saying they manipulated orders for four years to pocket $19 million at clients' expense. The NYSE was censured for selfregulatory failures and agreed to submit to outside monitoring for the first time. Grasso's successor, John Thain, orchestrated the 2006 reverse merger that gave the NYSE control of Chicago-based Archipelago Holdings and turned the member-owned exchange into a public company. By then, regulatory directives aimed at lowering transaction costs were in the process of cutting the NYSE's market share. The 2001 switch to decimal-share pricing, from sixteenths of a dollar, allowed any firm willing to sell for a penny less than the best available price to step in and make the trade. That reduced margins for specialists on the floor of the exchange. Automated-trading firms such as Getco in Chicago used high-speed computers on electronic venues such as Bats Global Markets in Kansas City, Mo., and Jersey City, N.J.-based Direct Edge Holdings to overcome lower profits by sending thousands of orders to trade every second. At the same time, exchanges around the world were combining, with at least $95.8 billion of mergers completed since January 2000. NYSE combined with Euronext in 2007, and with rivals taking business, one of the quickest ways for it to grow is through mergers and acquisitions, said Michael Pagano, a professor of finance at the Villanova School of Business. "It costs a fixed amount of money to build a computer system for trading, but once you generate revenue that covers those fixed costs, the marginal cost of covering just one additional trade beyond that is basically just electricity," Pagano said. That's led to a reduction in costs. Total salaries and benefits at NYSE fell by 5.6 percent to $613 million last year, the biggest drop since the data on the publicly traded company began in 2005. Deutsche Boerse, which is scheduled to release results next week, cut staff expenses by 3.7 percent in 2009 and 26 percent in 2008, according to data compiled by Bloomberg. Â

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Analysts Ask: What Now, Nasdaq? NEW YORK—Don't count Nasdaq CEO Robert Greifeld out just yet. The head of Nasdaq OMX Group Inc. finds himself in the position of being an exchange leader without a partner after rival NYSE Euronext appears near a deal with Deutsche Börse AG of Germany and as other exchanges are in various stages of tie-up consideration. However, Mr. Greifeld, who is no stranger to opportunistic moves to expand America's second-biggest stock market, might well be plotting an aggressive response. The 53-year-old Queens, N.Y., native, who worked his way through business school hawking computers to Wall Street firms, has built a reputation as a solid deal maker. In 2008, Mr. Greifeld's nearly $4 billion acquisition of Stockholm-based OMX Group helped the company keep step with NYSE's $14 billion acquisition of Euronext, which operated the Paris, Amsterdam, Brussels, and Lisbon bourses. Analysts today say Nasdaq still has its eyes on building out European operations. They believe his next move might be a takeover of an Asian exchange or even the revival of an old battle to buy London Stock Exchange Group PLC, which reached a deal for a tie-up with Toronto-based TMX Group Inc. "If these deals do happen, it does put Nasdaq a little bit back on the defensive when you think of how to compete with these growing megamergers," said Michael Pagano, professor of finance at Villanova School of Business in Pennsylvania. "Nasdaq has to really then think about what it is going to do, where it is going to expand." A spokeswoman for Mr. Greifeld declined to comment. But, during a conference on Thursday in Miami, Nasdaq Chief Financial Officer Adena Friedman said the exchange operator will remain rational and analytical in its strategic business approach. She noted that it if the rivals' deals go through, it will take some time for them to come to fruition, so "we have some time to really understand what that means for us and what that means for our competitors."

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She added, "We don't see any sort of significant competitive dynamic that changes in terms of what we are here to do." "I think [Nasdaq] would like to" broaden their reach in Europe, said Daniel Fannon, a research analyst with Jefferies & Co. However, he added, "what's out there for them to acquire that would also make sense is also limited." There are few other alternatives for Nasdaq to try to increase its market share in Europe, especially given that BATS Global Markets is in exclusive merger talks with pan-European trading platform Chi-X Europe. The European trading landscape is otherwise quite fragmented. To be sure, not all of Mr. Greifeld's deal-making pursuits have panned out. Five years ago, Mr. Greifeld came under scrutiny from investors for a series of missteps as he tried to expand the company. A number of acquisitions left Nasdaq with a hefty debt load, and a nearly two-year friendly-turned-hostile pursuit of the LSE ended in failure. Still, that isn't likely to stop Nasdaq from doing deals elsewhere, analysts said. And Asia is seen as the next area where the company could look to do a deal. "Bob has historically been an acquirer and I think he'll look at potentially interesting opportunities," Jefferies's Mr. Fannon said. In late 2010, local media in Tokyo reported that Nasdaq was considering a return to Japan by establishing a new market with Osaka Securities Exchange Co. as early as 2012. Nasdaq already is a market technology provider to a number of overseas exchanges, including Osaka, the Kuwait Stock Exchange, and the Australian Securities Exchange. There is also the possibility that Mr. Greifeld might not do anything. The growth strategy of Nasdaq OMX Group to diversify beyond stock and options trading has won plaudits from investors and has helped its shares outperform those of rival exchange operators in the past year. Nasdaq's stock is hovering near a 2½-year high, despite an admission last week that a computer system related to one of its nontrading services had been broken into. The shares were boosted by a more than tripling in the company's fourth-quarter profit, reported last week. "They have a lot of growth opportunities they're working on right now," said Chris Allen, an analyst with Evercore Partners. Â

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Elementary economics In Haverford, a thriving in-the-classroom marketplace teaches second graders way more than math basics. The headlines talk about a gloomy economy struggling to fully recover. But in an unassuming building in Haverford, business is going gangbusters.

Thomas' Costume Shop debuted a few weeks ago, next door to the popular Celeste's Toy Store and across from the Art Store, where the handmade scarves are to die for. The much-anticipated Books, Books & More Books is slated to open its doors as soon as its one-of-a-kind, handcrafted inventory arrives. Meanwhile, Imran Loudini is saving his pay for a business of his own - unless he gives in to the temptation of an expensive Pajama Day. This is second grade, after all. At the Friends School Haverford, 7- and 8-year-old students in Katherine Renninger's class have created a bustling classroom economy that President Obama would envy, one that has proved chock-full of lessons in competition, workplace management, and philanthropy. Across the country, personal finance and economics lessons - whether through pretend checkbooks with starting balances, online simulations, or Junior Achievement - have long been staples of K-12 educational experiences. In 49 states, including Pennsylvania and New Jersey, public schools are encouraged to spend time covering economics, and many private schools choose to do the same. This second-grade economy, however, is unusual because of its scope and focus on such young children, according to Karen Johnson, an assistant professor of education at West Chester University. "Usually, you see this in upper elementary grades," Johnson said. Each Friday, Renninger pays her students from $14 to $30 of play money each for classroom jobs such as sweeper, lunch helper, or peacemaker. On Monday, she collects rent, which varies from $5 to $18, for use of the desk, chair, cubby, and coat hook. So began "Our Classroom Economy," as the bulletin board declares, a project that started "as one way for students to gain a better understanding of math basics - adding, subtracting, making trades and making change, using money," said Renninger. "It has evolved into so much more." Driven not by the capriciousness of world markets, but by the inquisitiveness of second graders, the project has developed real-world complexities. As students accumulated stacks of bills, talk turned to how to keep one's money safe. FSH National Bank was established, after a field trip to

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the neighborhood Wachovia branch, and soon a student took out a loan, to be repaid with 10 percent interest. Emma Strawbridge, 8, was hired as teller, the highest-paying job at $30 a week because of the need for quick calculations. Other businesses opened as a way to bolster income, create jobs, and offer goods to consumers. If a student's "living space" (the desk and cubby area, that is) isn't kept clean, a fine of 25 cents is assessed. Exceptional workers have been rewarded with raises. When the students realized that was a possibility, everyone worked harder. "The erasers have been clapped so there is not a particle of dust remaining," said Michael Zimmerman, head of the school, who has watched with pride as the project unfolded. The students are "gaining a sense of how the world works." Students also can save money for luxuries, such as a no-homework pass ($65) or a personal Pajama Day ($150). All the while, basic math facts get practiced as students count, and recount, the money in their wallets. But the project isn't simply an exercise in the Darwinian world of capitalism. The children have pooled resources for a class Pajama Day ($250), and they have chosen to set aside money to help charities that support disadvantaged children or the environment. Those funds have been matched with real greenbacks by an anonymous donor and given in the students' names to The Smile Train, which finances operations to correct cleft palates, and to World Vision's clean water fund. "It's not just learning finance," said Nan Morrison, president and CEO of the Council for Economic Education, a nonprofit based in New York City that advocates personal finance and economics education in schools. "It's learning life skills. . . . When you don't teach people how to make decisions, they will take a mortgage they can't afford. Economics teaches that people have choices, and choices have consequences." The second-grade economy has had its moments of high drama. One child couldn't meet his rent obligation because his pay was spent. A classmate offered to spot him. In a gentler version of Donald Trump, Celeste Funari Muse, 8, fired her employee when her business fell on hard times and the worker, who had taken three jobs, wasn't meeting all her responsibilities. Tears were shed. But the worker recovered - and promptly found another job, showing resilience. She also learned the importance of fulfilling responsibilities and not taking on too much. But Celeste also discovered something about herself. It isn't easy "to be bossy," she said. "It was hard for me." Said the principal, "I'm not sure there won't be unions." Renninger was introduced to the idea of a class micro-economy through a Harvard Educational Review article. In the 1994 piece, Paul Skilton-Sylvester, now a director at the Wissahickon Charter School in Germantown, wrote about his micro-economy project at a North Philadelphia

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school. He wanted a way to talk about economic inequality with third graders, many of whom lived in poverty. "The strength of this type of teaching," he said, "is that it helps people see complex relationships." At the Friends School, the costume shop is mobbed with customers. Elina Emami, 7, who works at the Art Store, leaves her post to check out the goods. Owner Olivia Stratton, 8, takes note and approaches the teacher with a furrowed brow and her concerns. Renninger asks her what choices she has as an employer. "Fire her?" Olivia says, tentatively. Emma, off duty from the bank, joins the conversation. "You could pay her less." Ben Rothe, 9, suggests hiring a security guard to force employees to stay at work! Meanwhile, Elina is considering applying for a job at the costume shop. Says Renninger: "Do you need her? Is it worth paying her more to keep her at your store?" In the end, Olivia cuts Elina's pay from $5 to $2 for the week, to reflect the lesser amount of time spent at the store. Elina isn't thrilled, but then she focuses on the opportunity to split her time between working at the art store and consuming at the costume store, with the potential to get hired there. “I’m actually really impressed,” Peter Zaleski, an economics professor at Villanova University, said of the way the project simulates the reality of the marketplace. “The kids are learning many key aspects of human nature.” During circle time, the children discuss how much they like their jobs and businesses. But they also note that the world of their parents is not always pain-free. "It's scary," pipes up Sebastian Fras, 7. "Somewhere in your life, you may be a homeless person if you don't work hard." "It's also scary that you may not get a job because the economy is not having a lot of jobs," Imran, 8, adds. "I heard that on the news." And so it goes - children delving into the issues that have challenged the nation's finest minds. Katie Stratton, Olivia's mother, doesn't mind the heavy discussions and uncomfortable situations. "The reality of work is that you're going to run into situations with people that are hard to deal with," said the clinical dietitian.

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Parents also have noticed thriftier children who make wiser consumer choices. Elina, for example, has come to view her piggy bank less like an ATM machine. "She doesn't want to spend her money," said her mother, Maryam Emami, a clinical researcher in the pharmaceutical industry. At school, even though Elina wanted to use her pay on art supplies, she set an example by saving her money and donating a whopping $100 to The Smile Train. "At this age, I think it's great," said her mother, "that she's willing to give up something she wants for others."

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Changes in Diocesan Pension Plans Reflect National Trend   A handful of dioceses and archdioceses across the country have announced plans to change or freeze pensions for lay employees, following a nationwide trend affecting state employees and workers for nonprofit groups and private corporations. The Archdiocese of St. Paul and Minneapolis announced a change in its pension plan for lay employees, effective in January. The archdiocese, which had previously offered a defined benefit pension plan for its more than 6,800 lay employees and retirees, has switched to a defined contribution plan where employers contribute a determined amount to the employee's tax deferred annuity account. The former benefit plan was frozen, meaning that as of Jan.31, workers' pensions would not continue to increase in value. Instead, the archdiocese will contribute an amount equal to 2.5 percent of an employee's salary to the employee's account. John Bierbaum, the archdiocese's chief financial officer, told The Catholic Spirit, the archdiocesan newspaper, that the shift came about because of the market collapse and the fact that an increased number of lay employees with longer years of service at higher salaries required more pension funding. He said the new plan was seen as the best option to preserve the pension plan and help employees continue to save for retirement. "The move to a defined contribution plan is changing responsibility for retirement funds from employer to employee," Bierbaum said. "It sounds defensive, but we're not the only ones doing this." The Diocese of Gary, Ind., and the Archdiocese of Boston are going to the same plan, he added. Nationwide, state and local pension plans also have been at risk, operating under a deficit of at least $1 trillion, according to a 2010 report by the Pew Center on the States. Several states have scaled back their retirement plans by either curbing benefits given to new workers or raising the retirement age. Other states have boosted employee contributions or required workers to contribute more to health care plans. In December, officials from the Archdiocese of St. Paul and Minneapolis began to inform employees of changes to the retirement package by conducting meetings at parishes and schools. The Archdiocese of Boston has been holding similar meetings after announcing plans to freeze its pension plan for about 10,000 lay employees, with church officials there saying they hoped to

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stabilize the pension fund and make sure employees kept their benefits. Although the pension fund was fully funded in 2007, it suffered during the economic downturn in 2008, according to information the archdiocese provided its employees. The benefits of retired employees will not be affected and lay employees already in the plan will receive pension funds they have earned, but employees will not accrue additional benefits after the end of this year. Starting next January, the archdiocese will offer retirees an alternative, a 401(k)-style plan, similar to what the Archdiocese of Minneapolis and St. Paul is providing. Boston archdiocesan officials said the switch is similar to what many corporations have done -replacing traditional pensions with "defined contribution'' plans, such as 401(k)s, where employees set aside part of their salary, often with an employer match, and control their own investments. In an interview with the Boston Globe, Charles Zech, an economics professor and director of the Center for the Study of Church Management at Villanova University near Philadelphia, described the pension plan as "the wave of the future'' for U.S. dioceses. Mary Jo Moran, executive director of the National Association of Church Personnel Administrators, based in Cincinnati, told Catholic News Service in December that the change in diocesan retirement packages "has nothing to do with economy" but is more in line with an overall trend that has been going on for some time and puts more responsibility on each employee to plan for their retirement. "What's scary," she said, is that some people do not make good financial planning decisions. Moran noted that as each diocese changes its retirement benefits package, it tends to offer a number of workshops to help employees adjust. She also noted many that religious institutions have already changed their retirement plans perhaps because so many of them also manage large health care systems with large numbers of employees. In Moran's own archdiocese, Cincinnati, pensions were frozen at the end of this year. After Dec. 31, no additional compensation will determine an employee's pension. Future contributions will be made to a new 401(k) plan. Richard Kelly, chief financial officer and treasurer of the Cincinnati Archdiocese, said a positive aspect of the change is that employees' accounts are portable and do not require a long vesting period. Also employees can add their own funds to the account and choose their investment options. Echoing what officials from other dioceses have said, he described the pension change as a way to make sure the retirement benefits can continue. He also told The Catholic Telegraph, Cincinnati's archdiocesan newspaper, that the change was "unrelated to claims or settlements for

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abuse claims" against the archdiocese. Those concerns are currently being raised in the Diocese of Wilmington, Del., and the Archdiocese of Milwaukee, which recently declared bankruptcy as a result of settling abuse claims. In response to reports of an underfunded pension plan in the Milwaukee Archdiocese, church officials there released a statement Jan. 21 saying the underfunding was "no current cause for concern for our employees." The archdiocese attributed the decrease in pension funds to "poor investment experience." It said the experience was affecting "defined benefit pension funds across the nation" in the long term but "does not affect any of our employees in the near term." John Marek, the archdiocese's chief financial officer, told the Catholic Herald, Milwaukee's archdiocesan newspaper, that pension plans should not be at risk because of how they are structured. "The pension plan is a multiple employer pension plan," he said. "It's not an archdiocesan asset. It has assets that were contributed by well over 300 different employers. The archdiocese does not own that money; the archdiocese has an administrative role." In the Diocese of Wilmington, a group of lay employees filed suit in early January against the diocese seeking to protect their pensions during the diocesan bankruptcy reorganization. The Dialog, Wilmington's diocesan newspaper, reported that under the settlement plan, the lay workers' pension is to receive an additional $5 million from the diocese's bankruptcy estate. The diocese also will increase its annual contributions to the pension trust from about $1 million to $2 million. "This infusion of assets will enable the pension plan to meet its obligations," the diocese said. Â

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Apple after Steve Jobs? Shareholders press, but the board pushes back. With Apple founder Steve Jobs again on medical leave, shareholders vote down a resolution demanding a public succession plan, but observers say the depth of investor concern is clear. Every time Apple’s visionary founder Steve Jobs has gone on medical leave, the question has roiled company shareholders: Who will lead a post-Jobs Apple? On Wednesday, with Mr. Jobs again on leave, this time since Jan. 17, Apple shareholders voted down a resolution demanding that the technology giant create a public succession plan for the firm’s top executive. The board of directors had voiced strong opposition to such transparency about its management bench, but many with long experience in the art of “Steve-watching,” say the vote was an important indicator of the depth of investor concern, adding that the publicity around this latest organized effort to press the board underlines the importance of resolving the uncertainty about the company’s future. Apple’s Board of directors has consistently refused to publicly discuss succession issues in the wake of Jobs's health problems, says Prof. James Post of the Boston University School of Management. Apple is a wonderful company in many respects, Professor Post says, “but corporate governance is not one of them.” Jobs's central and critical role at Apple makes the state of his health a “material fact,” he notes. Investors buy and sell based on such information, which, he says, “puts the board in the position of having to be transparent and consistent in their disclosure policy and practice.”

Reasons to refrain from disclosure However, there are good reasons to refrain from such a disclosure, says Patrick Maggitti, director of the Center for Innovation, Creativity, and Entrepreneurship at Villanova University School of Business. Many strategists believe it is a good thing to have a “tournament atmosphere” among top managers, he says via email, “so they will work their hardest and perform their best as they

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compete with each other to gain the out-sized rewards that go to the person chosen to be CEO.” From this perspective, he adds, those not chosen will either not work as hard or will seek opportunities outside of Apple. Additionally, in a world where perceptions can drive a company’s value up or down in a matter of minutes, he says, establishing a succession plan at this point may also serve to validate rumors regarding the seriousness of Jobs's health problems. So the decision to announce a succession plan might drive Apple's stock down, he points out. Such a corporate culture of privacy begins at the top, says Carmine Gallo, author of “Insanely Different Principles for Breakthrough Success,” who points out that Jobs is a very private person. “He may have taken the mantle for one of the world’s most reclusive CEOs,” he says, which influences the culture of the entire company. “The lack of transparency starts with that attitude.”

'Think like Steve' Add to that an obsessive desire within the company to “think like Steve,” he says, and you can understand why the company does not embrace what many might consider a standard management move of publicly anointing a successor for the top post. Far from shaking the influence of their founder, the legions of Jobs acolytes within the firm seek to emulate his vision. And of course, the company is heavily invested in sending the message that the vision will endure beyond Jobs’s presence. “He set a gold standard … for simple, elegant design that delights the user,” says Mr. Gallo. Thinking like Steve is the creative heart as well as the financial engine of the company’s future, he adds. Therein lies the rub for companies created by a charismatic founder, says Prof. Joel Goldhar of the Stuart Graduate School of Business at the Illinois Institute of Technology. No matter how deeply the culture has been infused by its original leader, eventually the company either moves on or closes its doors. Professor Goldhar points to one of his favorite examples of a highly creative and influential company founder, ad executive Leo Burnett. “The company even published a little book of Leo’s rules,” he says with a laugh. And for 20, even 30 years, many people said Leo ruled that company from the grave, he adds. But, finally, “there were no more people who were trained by anyone who actually knew Leo, and the company became something else.”

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WikiLeaks: Is there a future for the website without Julian Assange? With founder Julian Assange grappling with his personal legal problems, some analysts say WikiLeaks has to chart an independent course, much as Apple needs to look beyond Steve Jobs. The government-secret busting website WikiLeaks got a mix of bad news and some kinda good news Thursday.

On the down side, the British courts ruled that WikiLeaks founder Julian Assange could be sent back to Sweden to face charges of sexual assault. But in the look-on-the-bright-side half of the equation, supporters of the site launched a nifty online gift shop, complete with snazzy “Free Assange” T-shirts and iPad sleeves. But it will take a lot of $19.99 T-shirt sales to cover the ongoing legal bills of its founder. (Mr. Assange says he has paid out £200,000 so far). Meanwhile, the fact that the major credit card companies as well as PayPal have withdrawn their financial services from the WikiLeaks site means the organization is at a critical tipping point in its evolution, many observers say. Can it transcend its founder and solidify itself as an ongoing entity, independent of its high-profile creator? Or, will it be another flash in the media pan that crumbles under the weight of a single person’s travails? Just as with any organization so tied to its founder, the team assembled around WikiLeaks needs to make some important decisions about its future, says Villanova University Business School marketing professor Ronald Hill. Although the companies are vastly different in scale, Professor Hill suggests that the likes of Microsoft and Apple have faced the same issue with very different approaches. Whereas the large software company has moved founder Bill Gates out of the boardroom, “Apple is still wrestling with how to define itself beyond Steve Jobs,” he points out. WikiLeaks may be miniscule in comparison, Hill notes, but it has garnered a certain magic in a bottle that is rare in today’s media world. “Whether or not you agree with what they have done,” he says, “WikiLeaks has managed to convince a very substantial number of people around the world that they are providing genuine information about important institutions that govern all of our lives.”

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The site therefore has the potential to evolve, he says, into that holy grail of Internet websites, a trusted brand. But to do that, the grassroots supporters that have come forward around the site need to take the next step. “They need to detach the functions of the site from a personality,” he says, particularly in light of Assange’s looming legal troubles. Making clear that he has no opinion on the allegations pending in Sweden, Hill adds, “the institution needs to establish an independent course to fulfill the vision of its founder without him.” But WikiLeaks is certainly not the first website dedicated to exposing both governmental and corporate lying, points out social media expert and tech entrepreneur Michael Hussey, CEO of – and it won’t be the last. “There is nothing special about WikiLeaks,” he says, “those files could be posted anywhere on the Internet by anyone with access to a computer.” If Assange is genuinely committed to the principles of his site, he says, “then he ought to step down and stop making the website so much about himself.” Admitting that he is “probably more against what WikiLeaks is doing than not,” Mr. Hussey says the site creator needs to “stop painting himself as this great White Knight and let a larger group take over.” If Assange really believe in his values, adds Hussey, “they should be able to stand on their own.” But when it comes to rising above the Internet din, having the rock star of uncomfortable truths as your figurehead cannot be underestimated, says Detroit-based social media entrepreneur Jerry Paffendorf. You can’t separate the momentum the site has gained from all the various tabloid-style histrionics that have tagged alongside Assange’s higher calling, he points out. This sort of “founder syndrome” happens often inside the world of nonprofit groups, he says, adding, “for good or bad, this is the kind of energy it takes to put an important issue on the map.” An unabashed supporter of the WikiLeaks website, Fordham University media professor Paul Levinson says nonetheless, “WikiLeaks is much more important than a single person.” A self-described student of history, Mr. Levinson harkens back to the lessons learned from the granddaddy of classified document releases, the Pentagon Papers, and says, “that was a very important moment in our history because it showed how our government had manipulated the truth and lied to the American people.” WikiLeaks, he adds, is important not for the soapbox it provides a single person, but for the role it plays in the larger civic culture. “WikiLeaks can serve the same function,” he says, adding “for democracy to flourish it needs a maximum amount of information.”

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Jerry Brown's tough choice: green energy in hard economic times With Jerry Brown now governor, California lawmakers are resurrecting an idea vetoed by Arnold Schwarzenegger: Make utilities buy at least 33 percent of electricity from renewable sources. Instability in the Middle East has put America’s dependence on foreign oil back on front pages. It’s also added another ball to California Gov. Jerry Brown’s juggling act over this state’s renewable energy sector in tough economic times. Democrats are resurrecting an idea vetoed by former Gov. Arnold Schwarzenegger that would require utilities to buy at least 33 percent of state electricity from renewable sources by 2020, hoping Mr. Brown will be more amenable. On Thursday, the bill passed in the state Senate. “All indications by those commenting on this in committee is that this is an idea whose time has finally come,” says state Sen. Joe Simitian, the bill’s author. “This last month in the Arab world has been a stark reminder of what happens when Americans are driven by energy needs rather than our values and principles.”

Leading environmental groups are applauding the action. “Senator Simitian’s bill has remarkable bipartisan support and would boost confidence in clean energy investments, create jobs, and enable California to meet its pollution reduction goals,” says Peter Miller, senior scientist with the Natural Resources Defense Council. “Voters made it clear last November that they want to move forward with a clean energy future. Now we must implement the wish of the voters.” Brown campaigned strongly on environmental themes, but others are asking how green he can afford to be given the state's current fiscal straits. Lawmakers already are at loggerheads over how to close the $26.4 billion budget deficit. If Brown is serious about balancing the budget – which he stated vociferously in both his inaugural address and his first state-of-the-state speech – how pioneering and innovative can he afford to be if big, costly programs are impossible?

How 'green' can Jerry Brown go? “There are real limitations on how green Jerry Brown can go,” says Ross DeVol, executive director of economic research at the Milken Institute. “Brown clearly supports the green industry effort and wants

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California to be a leader, but his top priority is the budget problem he has to deal with.” Mr. DeVol says it’s questionable whether the state is on track to meet the guidelines even for this year. But he says consumers and residents clearly back the idea as evidenced by their defeat of Proposition 23 in November. Prop. 23 would have suspended the state’s Global Warming Act of 2006, which mandates reduced carbon output by 2020 until state unemployment sunk below 5.5 percent. (It’s now at 12.5 percent.) Either way, California is definitely in the spotlight, experts say. “Absolutely, California has been the world leader in this area for many years," says Nabil Nasr, director of the Golisano Institute for Sustainability at Rochester Institute of Technology in New York. “Not only in the US but overseas as well, leaders in the field of renewable energy are keeping their eyes on the state to see what they can learn.” When the state Assembly takes up the bill, resistance is expected from the manufacturing sector, which is not particularly wild about moves to embrace clean technology industry in the current economic climate.

Jobs versus the environment “Our state should focus on creating permanent green jobs, rather than short-term jobs that survive only with government subsidies and damage the state's larger economy,” says Jack Stewart, president of the California Manufacturers & Technology Association. “The real solution to solving California's economic woes is to restore a healthy business climate by cutting job-killer regulations and allowing the demand for green products to be translated into jobs in California rather than jobs in Texas and China.” Some key Republicans in the state are against the idea for similar reasons. “At one time – not too many years ago – California was known as the center of innovation, technology, and original thinking. Today, as businesses close their doors and escape to more friendly environments, other states in the nation use California as the example of what they do not wish to become,” says Republican state Sen. Mimi Walters. “If our government truly sought to achieve the purported environmental goals … it would seek to promote an economy driven by innovation through private industry rather than by onerous regulations promulgated by government agencies.” One problem is the possibility of higher costs. “It's a noble effort for a good cause, but it will result in higher energy costs,” says Peter Zaleski, an economics professor at The Villanova University School of Business. “Why? Because green energy currently costs more to produce. In addition, such a requirement provides no incentive to green energy producers to develop innovations that would lower the cost of producing green energy. So it hurts in the long run as well.” Still, says Wade Crowfoot, West Coast Regional Director of the Environmental Defense Fund, “This is a gigantic step forward for renewable energy and the California economy.”

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In the scuffle for new soccer fans, Union puts up its Doop The ads have started to run on TV and in newspapers, a noticeable campaign based on an undefinable word: Doop. If you're a Philadelphia Union soccer fan, you know about doop - the rhythmic, repeated syllable in the song supporters sing whenever the home team scores a goal. If you're not a fan, the ads might cause some colloquial confusion. Either way, get ready, because more doop is headed your way. As the Union prepares to kick off its second season next month, it has embarked on a high-risk, high-reward ad campaign that promises to spread doop across media platforms in the Philadelphia region. The team hopes the promotion will bind devoted fans even closer, while pushing casual watchers to investigate the meaning of a word most unheard - and from there to open their wallets and buy tickets. Unconventional? Sure. But this is a team that intends to emblazon the name Bimbo on the front of its jerseys, having signed a four-year sponsorship with the baked-goods company. "It's funky enough to beg the question, 'What is doop?' " team CEO Nick Sakiewicz said. What, indeed. The word does not appear in Merriam-Webster's dictionary. It has no known definition, other than a couple of crudities suggested in compendiums of urban slang. Doop shows up in Marvel Comics as the name of a minor character, and on TV's Futurama as an acronym for an interstellar United Nations, the Democratic Order of Planets. "Doop" is also the title of a 1994 song by a Dutch techno band of the same name. But that song sounds nothing like the pulsing riff of the soccer version, which goes: Doop, doop, doop, da da doop, doop, doop.

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To devout Union fans, said Neal Simpkins, a season-ticket-holder and member of the Sons of Ben supporters group, doop is a noun of renown, invested with multiple uses and meanings. For instance, on the eve of a game, a fan might say: "Tomorrow, we doop." Any happy, exciting experience can be punctuated by adding, "Doop!" It can even be used to curse: Doop you. In advertising, one-word campaigns are rare, partly because they hold stark, home-run-orstrikeout potential. "It is risky, but at the same time, we're in an environment today where there's a great deal of advertising clutter," said Charles Taylor, a marketing professor at the Villanova University School of Business. He called the use of doop a good strategy, even brilliant, because it helps the Union stand out among the daily barrage of ads. It would be pointless for the team to promote star players - as the Phillies promote Ryan Howard or Roy Halladay - because most people wouldn't know them. Instead, the team is selling the excitement of attending games, he said, and even nonfans might be attracted to that. "When push comes to shove, this is about whether they get people to come to the stadium or not. That's how they'll know whether this is effective. But they're giving themselves a chance." Last year, the team averaged 19,254 fans per game at 18,500-seat PPL Park - the first two games were played at larger Lincoln Financial Field - and sold out all 12,000 season tickets. This year, 13,000 season tickets are available, and Union executives are counting on doop to help sell out those as well. The Union starts the season March 19 in Houston, with the home opener set for March 26 against Vancouver. Between now and then, doop will be seen and heard on the web, radio, and even team merchandise. In fact, the Union has applied for a trademark on the word. It was Cara Joftis, the team vice president of marketing, who came up with the campaign. She noticed that doop had become part of an internal language among the Sons of Ben. And that, to paraphrase the great linguist Humpty Dumpty, it is a word that means just what the user chooses it to mean. "We kept listening, and we kept seeing it," Joftis said. "Someone told us their 2-year-old grandchild will do 'doop' in their high chair. That epitomized it." Canned music isn't part of the PPL Park experience. Instead, songs and chants are led by the Sons of Ben. The fans are the sound track, Joftis said, and the ads celebrate that, while the accompanying pictures and voice-over alert casual fans that doop is connected to Union soccer.

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At the stadium last season, one sign cast coach Peter Nowak in the red, white, and blue hues of the famous Obama campaign poster. At the bottom, instead of Hope, the poster said, Doop. Nowak had a large hand in developing doop, long before the Union had a player or a place to play. The coach, a former star in the Bundesliga, the top German league, wanted fans to develop a song that could be sung when the Union scored. Foreign clubs often have such songs, and Nowak had heard a version of doop sung by Borussia MĂśnchengladbach supporters in Germany. He phoned Bryan James, president of the Sons of Ben, and the two met for several brainstorming sessions. What emerged from those discussions was, well, doop. "What started out as a small conversation between coach and fans slowly turned into a song that the whole stadium sings," Sakiewicz said. "A lot of times in this business, you've got to let the fans take you where they want to go." And that, he said, is the straight doop. Â

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Top schools face globalisation challenge Historically, business schools are a US phenomenon. Their growth in much of the 20th century coincided with the worldwide predominance of American businesses. US business methods were the model that others tried to emulate. Likewise, the US model of business education inspired the creation of schools in other countries. Within the EU, successful businesses became increasingly multinational, as did top European business schools. More recently, the centre of gravity of the world economy has shifted towards emerging markets. Since 1995 an astounding 80 per cent of world market growth has taken place in these economies, and half of that in low-income countries. Has the business school community adjusted to this shift? Many business schools measure internationalisation in terms of the number of international students in their programmes and by that yardstick consider themselves to be globalised. However, teaching foreign students is not the same as preparing them to operate comfortably in different national environments. The growth of inter- national investment and cross-border trade in goods and services challenges US and European businesses to operate in more unfamiliar institutional and cultural environments, not only in the Bric countries but also in the diverse smaller economies worldwide. The extent to which business schools prepare MBA students to thrive in such environments, as well as domestically is a more relevant metric of internationalisation. What does it take, beyond a solid command of core business school knowledge, for MBAs to function in such markets? The culture – in the broadest sense, encompassing familiarity with business, government, as well as social customs – is of the essence. For example, Swedes expect dinner guests to show up on time, while in Peru the hostess would be startled if the doorbell rang at the appointed hour. This may seem trivial, but it is not. Business success in foreign environments, especially in emerging markets, depends in large part on becoming accepted. Consistent anecdotal evidence from Africa and other emerging markets suggests that graduates of global business schools often fail in this regard. A number of schools have achieved a degree of globalisation by incorporating multilingual study and opening campuses overseas. They also require students to spend a portion of their residency in other countries, although usually in other advanced economies or one of the Brics, so that not

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many students experience conditions in fast-growing frontier markets in Africa and the smaller, emerging markets elsewhere. Short internships and experiential projects abroad are helpful, but when it comes to moving along the spectrum from provincial to cosmopolitan, far deeper experience of operating overseas is needed. However, embedding such opportunities into a business school’s core offerings means deep institutional changes that could take years to implement successfully and which most schools might be unwilling to undertake. Top business schools may be victims of their enormous success. They have grown to become the leading lights of business education, building layer upon layer of pedagogic excellence and shaping accreditation criteria in the process. Their very success, however, means that they only slowly embrace globalisation, in the sense of preparing students to adapt easily to a range of linguistic, institutional and cultural environments. Meanwhile, younger schools, especially those in emerging markets, although having fewer and less experienced faculty, may also have fewer traditions. They may also enjoy a greater degree of freedom to innovate, to the envy of deans of more established schools. Perhaps some of the best of these young schools will have an easier time embracing multicultural- ism and globalisation than the traditional schools. Jonathan Doh is the Herbert Rammrath chair in international business and director, Center for Global Leadership at the Villanova School of Business. Guy Pfeffermann is chief executive officer of the Global Business School Network

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Fed Meets as Economic Risks Widen The Federal Reserve meets Tuesday at a time of widening economic risks: higher oil and food prices; unemployment near 9 percent; crises in the Middle East and Japan. Threats at home and abroad have the potential to slow the U.S. economy, or heat up inflation. Or both. Chairman Ben Bernanke and his Federal Reserve colleagues will debate those risks at Tuesday's session. At the top of their agenda is whether to make any changes to the Fed's $600 billion Treasury bondpurchase program, which is set to expire at the end of June. The bond purchases are intended to help the economy by keeping long-term interest rates down, encouraging spending and driving up stock prices. Economists think the Fed will agree Tuesday to maintain the pace and size of the bond purchases. But the risks the economy is facing will likely complicate Bernanke's efforts to forge consensus. "Bernanke is walking a tightrope," said Victor Li, associate professor of economics at Villanova School of Business The Fed chief and a majority of his colleagues argue that the economy still needs support from the bond purchases, especially with unemployment still high and home prices in many areas depressed. But a vocal minority on the Fed has raised concerns that the bond purchases, combined with higher prices for food, fuel and other commodities, will spread inflation through the economy. They also say they worry that the purchases could feed speculative buying that could inflate new bubbles in the prices of stocks or other assets. Charles Plosser, president of the Federal Reserve Bank of Philadelphia, has said he may push for an early end to the bond-buying program. And Richard Fisher, president of the Federal Reserve Bank of Dallas, has said he might push to scale back the bond purchases. A contentious debate is expected Tuesday. If, as expected, Bernanke prevails and the Fed decides to keep the bond-buying program intact, Plosser and Fisher might dissent. There's a slight chance that Bernanke could craft a compromise. That could involve slowing down the bond purchases by extending the program's end date to September. The total size of the program, however, would stay the same.

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"This modest alteration in the large-scale asset program could be seen as a positive by both the doves and the hawks," said economist Steven Ricchiuto at Mizuho Securities. However, Ricchiuto and many other economists think it's more likely that the Fed won't make any changes to the bondpurchase program. With reputations as inflation "hawks," Plosser and Fisher are more concerned about rising inflation, than about stimulating the economy and lowering unemployment. Bernanke and other "doves" are more concerned about stimulating the economy and reducing unemployment. Upheaval in the Middle East has sent oil and gasoline prices up. A sustained run-up in those prices could cause Americans to reduce spending on other items and slow the economy. Bernanke has predicted that rising oil prices will cause only a brief and slight rise in consumer inflation. But he's warned that any prolonged surge in oil prices would pose a danger to the recovery. Other potential risks have emerged, from a slowdown in U.S. growth to renewed worries about Europe's debt problems to economic effects from the earthquake and nuclear crisis in Japan. When the Fed last met in late January, optimism about the U.S. recovery was rising. Fed officials predicted the economy would grow at a faster pace this year — between 3.4 percent and 3.9 percent. Even so, unemployment would stay elevated — at best dropping only to 7.7 percent by the end of 2012. Fortified by tax cuts, Americans are spending more. Retail sales grew strongly in February, marking the eight straight monthly increase. Businesses are hiring more. The unemployment rate has fallen nearly a full percentage point in just three months — the sharpest drop in a generation. Still, some economists are now lowering their forecasts for growth in the first three months of this year because they think high energy prices will slow consumer spending. JPMorgan Chase now predicts growth in the January-March quarter of just 2.5 percent, down from 3.5 percent. Once the recovery is more firmly cemented, the Fed will start boosting interest rates and taking other steps to soak up the money it pumped into the economy during the financial crisis and recession. Many economists think it will start raising rates early next year. Others think it will be at the end of 2012. The central bank's key interest rate has been at a record low near zero since December 2008. An increase in that rate would boost lending rates charged to consumers. These include rates on certain credit cards, home equity loans and some adjustable-rate mortgages.

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Villanova University business junior Michael Greco is, like most college students, searching for potential internships and preparing for a tough job market after graduation. But thanks to a new Villanova University app development course sponsored by Verizon Wireless, Greco is ahead of the game. Greco, a business management and management of information systems double major, is enrolled in “Mobile Device Programming,” a new course launched this semester by Villanova 's Center for Innovation Creativity and Entrepreneurship, or ICE, that prepares students to create programs for the nearly $15 billion mobile app industry. Greco and his team are developing an unnamed shopping wish list app. Other teams are designing apps ranging from homework organizers and education supplement games to mobile inventory managers. “The goal is to have a functional app with a business plan by the end of the semester,” said ICE Director Patrick Maggitti. The course is one of just two such programs sponsored by Verizon Wireless — the other is at the University of California in Berkeley. Maggitti said the multidisciplinary course, which is taught by three professors (business, engineering and computer science), evolved because Maggitti had been aware of a computer science professor who was programming iPhones and knew of an engineering professor who was studying the use of smartphone hardware for medical purposes in third-world countries. A conversation with William Wagner, a business professor, about the size and growth of the app market inspired Maggitti to combine the disciplines in a single course. Verizon Wireless became involved after Villanova University alumnus Anthony Melone, a College of Engineering advisory board member and global chief technology officer for Verizon Wireless, brought the course to the telecom company's attention. The company agreed to provide five Droid X phones with data plans and tech support in addition to guest speakers. Verizon hopes to hire Villanova interns at the San Franciscobased innovation center it is building. “It's not often you get to walk into a classroom and hand out five brand new cell phones,” said Maggitti. Students in the course can choose either Android or iPhone as their operating system platform. “We'd kind of assumed it would be a 50-50 deal,” Maggitti said. To his surprise, seven of

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the 10 groups chose the Android over the iPhone. According to Nielsen data, Google's Android operating system has 29 percent of the market share, ahead of RIM Blackberry and Apple iOS, which both have 27 percent. Elsewhere in Philadelphia, Drexel University, University of Pennsylvania and Temple University also offer app programming courses. This semester Rutgers University in Camden launched a mobile apps programming course through its computer science department. The course met its 23-person enrollment cap in two days. Back at Villanova, the 30 mobile apps students are midway through the semester and will soon begin developing a business and sales plan for their projects. “The complexity of building a successful app was highlighted quite often during the first few days,” said Greco about the course. “Villanova School of Business students got a taste of low-level code, computer engineers learned the pitfalls of user-interface design and computer scientists had the cold realization that just because an app was coded well doesn't mean it will move any copies.” The university, which does not have a formal way to license technology, is still deciding what to do if any of the student-owned apps become very successful. “This would be new, somewhat uncharted territory,” Maggitti explained. “We don't really know what would happen there.” “My team is looking at this project as more of a learning experience than a potential money maker,” Greco said. “Even [if we make] a profit it would still be from the academic standpoint of ‘can we make this happen?' Being a developer of mobile applications I will have the ability to know exactly what is or isn't possible, and I will even be able to implement solutions for myself if necessary. That kind of technological ability entirely redefines the idea of having a ‘competitive advantage.'” “This course is already proving valuable to me, and in the future I see it being a truly invaluable asset to my professional toolkit,” he said.

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A new start in the franchise market Many would argue that fried chicken has nothing to dowith health care. Reynolds Corea would beg to differ. He's a former outsourcing expert who was making "easily" six figures, Corea said, when Accenture Ltd. cut him loose in January 2009 after nearly 20 years. "They called it rightsizing - they had all sorts of euphemisms for it," recalled the 50-year-old Exton father of two college students. "But it was a layoff." A layoff that has led Corea where so many corporate refugees have opted to go for a second career act: operating a franchise business. Though small businesses, franchises account for some sizable economic statistics - nearly 18 million jobs and $1.2 trillion in gross domestic product, according to the International Franchise Association in Washington. The group attributes one out of eight nonfarm, private-sector U.S. jobs to franchise businesses. The franchise market is growing at an annual rate of 2 percent, said John A. Pearce II, endowed chairman of strategic management and entrepreneurship at Villanova's School of Business. "While that's not where all the action is, certainly there is a lot of vitality," Pearce said. Part of the appeal of franchise ownership is the range of opportunity it offers, said Brian O'Keefe of O'Keefe Franchise Advisors L.L.C., a Boston franchise consultant. The estimated 825,000 U.S. franchise businesses stretch far beyond sandwiches, coffee, doughnuts, and water ice to include such inedible specialties as tax preparation, automobile care, home inspection, and paving. O'Keefe said his typical client "always had this longing or desire to be a business owner. They see that franchising is a great way to enter into business ownership with less risk." As Pearce put it: "You are accepting someone else's business model, their public image, their cost structure, and you are agreeing by and large to follow their policy manual quite rigidly. That arrangement can be a source of great comfort."

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Indeed, it was the idea of being his own boss while following someone else's game plan that hooked Corea. That came after a period of introspection during some Accenture-sponsored outplacement counseling. From it, Corea concluded two things about his future wants: 1) "I did not want to report to anyone else, because in corporate America . . . it is that 'whathave-you-done-for-me-lately' culture now." 2) "Whichever organization I joined, it had to be the right culture, where I could run my own show - with certain guidelines." During that period of unemployment, Corea also worked on his physical condition. While on the treadmill, he would listen to audio books. One of them, Loyalty Rules!, by Frederick F. Reichheld, set him on the road to franchise ownership. It referenced Chick-fil-A's "picky" standards for selecting franchise operators - and Accenture management alumni were among them. What followed was an enlightening nine-month journey behind the counter at Chick-fil-A outlets in Glen Mills and Northeast Philadelphia at the humbling wage of $10 an hour. "It helped me confirm what my role should be and the kind of culture I'm looking for to work in," Corea, a Malaysia native, said of the Chick-fil-A experience. Although he embraced the company's commitment to quality service, Corea concluded: "I didn't see myself frying chicken." So Chick-fil-A would not be the answer for Corea. What he wanted was a business that involved matching the right people with those in need in Chester County. O'Keefe, the consultant, eventually led Corea to BrightStar, a predominantly home-health-care chain that started in 2002 as a local business run by Chicagoans J.D. and Shelly Sun, who left corporate jobs when their search for in-home care for a relative turned up horrifying results. They sold their first private-duty home-care and medical-staffing franchise in 2006, including one in Langhorne, said BrightStar president Chuck Bailey. At the end of last year, BrightStar had 198 offices in 35 states. The total by the end of this year is expected to be 275 - with future expansion plans buoyed by the anticipated ever-growing demand for in-home medical and nonmedical care as baby boomers age. The overwhelming majority of the 6,000 families a week currently served by BrightStar are private-pay clients. Bailey said - and Corea confirmed - that potential franchisees were put through a probing evaluation not only to assess whether they were a philosophical fit for the chain but that they meet its financial criteria, including a net worth of $500,000. The buy-in fee was about $200,000, Corea said. Open for business just since January, his BrightStar of West Chester franchise is providing two clients with nonmedical in-home care, such as bathing and dressing them, reading to them, and

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helping them get around. Corea is not ready to offer medical services but expects to be within a year at rates he acknowledges will not be the lowest in the market. Bailey said BrightStar prices were usually $1 to $2 an hour higher than average "so we can pass that back to employees." Its caregivers are usually paid about 10 percent more than the industry average, he said. That's all part of ensuring the quality service for which Corea wants his new venture to be known. "It's more than just sending a warm body," he said of his company's mission. "If our caregivers don't care in addition to providing a service, then we have failed." It's a "daunting" undertaking, Corea acknowledged, but one made less overwhelming because he is part of a franchise rather than a stand-alone start-up. "I'm out here scurrying around trying to build a business," he said. "I need someone to worry about what's next."

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Census: Among peer cities, Philadelphia's growth is above average It's more fabulous census news for Philadelphia, as government figures for similar cities show that the City of Brotherly Love is completely, definitely, um, well, slightly above average. The Census Bureau released complete 2010 figures Thursday for two remaining peer cities, making it possible to compare growth in Philadelphia to that of similar places - big industrial or postindustrial cities in the East and Midwest. The tally: New York grew 2.1 percent, to 8,175,133. Washington grew 5.2 percent to 601,723. Previously announced data for Boston showed the city increased 4.8 percent to 617,594. Philadelphia ranked fourth in growth after those peer cities, its population up a scant 0.6 percent, increasing by 8,456, to 1,526,006. Given the battering absorbed by the big onetime manufacturing centers, that's not a bad ranking, said Cheryl Carleton, an assistant professor of economics and statistics at the Villanova School of Business. "I think it bodes well," Carleton said. "Overall, with economic conditions as they are, I think Philadelphia has just as much going for it as any other city." Philadelphia divided the pack of peers, all of which saw increases among Asians and Hispanics, while their white and black populations tended to shrink. Overall, Baltimore lost 30,193 people, a decrease of 4.6 percent. Chicago lost 200,418, a drop of 6.9 percent. Pittsburgh dropped 8.6 percent, Cleveland 17.1 percent, and Detroit a staggering 25 percent. "It's the old story about Philadelphia: We never lose as much as some of our peers, and we never gain tremendously," said David Bartelt, a Temple University professor, who specializes in housing and community development. "The city, I think, has weathered the worst of its population losses." Bartelt, a coprincipal in the university's Metropolitan Philadelphia Indicators Project, known as MPIP, noted that the city has struggled with issues such as older housing stock. At the same time, Philadelphia hasn't gotten crunched like Cleveland and certainly not like Detroit.

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Alan Greenberger, Philadelphia's deputy mayor for economic development, called the city's grouping with other growing peers "a good sign for us." "The East Coast in general has sort of held its own," he said. "That's probably largely on the back of immigration and its own continued relevance to the country." Generally, the peer cities saw an exodus of whites and blacks, but dramatic growth among Hispanic and Asian populations. For instance, Philadelphia lost 12.7 percent of its white population and 0.3 percent of its black residents. But Hispanics increased 45.5 percent and Asians 42.3 percent. New York lost 2.8 percent of its white population, and 5.1 percent of its African Americans. The Hispanic population was up 8.1 percent, and Asians increased 31.8 percent. The glaring exception to that trend was Washington, where the white population leaped nearly 32 percent. The data released Thursday showed that the ranking of the nation's five most-populous cities remained unchanged from 2000: New York, Los Angeles, Chicago, Houston, and Philadelphia. Phoenix remained the sixth-largest city and one of the few leaders to attract more blacks. It also experienced a huge surge among Asians and Hispanics. Philadelphia's growth halted a 50-year population decline, prompting cheers by government and civic leaders. The growth suggests that Philadelphia's population may have stabilized after decades of drops that started when Harry Truman was president. Phoenix's failure to overtake Philadelphia in population also created some satisfaction. It had been widely accepted, based on census estimates, that Phoenix had surpassed Philadelphia. The complete data showed: Philadelphia, 1,526,006; Phoenix, 1,445,632. Still, Phoenix far outpaced Philadelphia in growth, increasing 9.4 percent. Carleton, the Villanova authority, noted that every city has push and pull factors, elements that drive people away or lure them in. In Detroit, for instance, the lack of jobs is a big push. In Philadelphia, the stability and growth of the education and medical fields is a big pull. Basic conditions such as employment and housing are abetted by secondary considerations such as recreation, culture, and sports teams, she said. "What does Philadelphia have that's going to attract people and keep them there? We're not New York, but we have a lot," Carleton said, and that includes easy access to theaters, museums, and shows in New York and Washington. "Where are you going to go from Cleveland? It doesn't have as much to hold you there."

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HOW TO GET T A PRO OMOTION N AT YOUR TEC CH JOB There aree plenty of opportunities o s for advanceement in the tech world, but determiining the righht path and approach to o landing a promotion meeans taking the t time to figure f out yoour goals, hone your skills, and show wcase your value to the business. b "In careeer managem ment for IT professionaals, you need to look foorward," sayys Steve Andriolee, Professorr of Manageement and Operations O a the Villan at nova Schooll of Business. but if you are "There'ss still a lot of o work thatt needs to geet done thatt's looking backwards, b a looking to t move up,, you really need to be vigilant v aboout career management m t and gettin ng on the stufff that's new.." While buusiness functtions vary accross the techhnology field, experts saay there are clear c managem ment and tech hnology areaas that offer the greatest opportunityy for upwardd mobility. Figuring out where and a how youu can fit in is key to gettinng promotedd in those fieelds.

Figure Out O Your Goals G Do you want w to get involved i moore deeply in i business managemen m nt? Are you u interested in vendor managemen m nt or focusin ng on archittecture and governancee? These thrree areas offfer the stron ngest opportunities in growth g movving forward d, says Andriole, and determining d early on what you want w to focu us on can heelp you tailoor your apprroach. For exam mple, if busiiness managgement is yoour interestt, figure out ways to moore closely align a yourself with the bu usiness side of projects -- developin ng relationsships with business managerrs and takin ng a hand att working with w business metrics. Iff it's vendorr managemeent that you are most in nterested in, Andriole suggests s invvestigating certification c ns you can get to legitimizze yourself in i the field. If its archittecture and governancee that you want w to purssue, staying up-to-speed u ng architecttures is espeecially criticcal to show hiring h on emergin managerrs you have a handle on n the industtry.

Align Yourself Y Wiith Emergiing Technoologies Step bacck to look att what techn nologies aree most forwaard-thinkin ng and figurre out how you y can get involved i in those. t "If yoou keep getting assignm ments in app plication su upport for a claims processing sy ystem that'ss 21 years olld, you havee to go to yoour manageer and say, 'You are givin ng me stuff the t field is running r awaay from," says Andriolle. "You neeed stuff thaat the field is running tow ward."

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Janice Weinberg, author of the book "Debugging Your Information Technology Job Search" says with more and more companies using cloud computing internet technologies to access webbased services, professionals looking to get ahead in their career ought o spend some time learning about this field. Similarly, Andriole suggests mobility and social media as two other critical areas in which business growth will take place in the coming years. While your manager may not give you opportunities to learn about these technologies, taking the initiative to do so on your own will help you get up to speed when opportunities do arise.

Get Business Savvy Understanding the business side of technology offers some of the best opportunities for promotion, says Weinberg. While your current position might be heavily focused in putting technology in place rather than assessing its business value, Weinberg suggests taking steps toward getting yourself more in the know about the business impact you are having. It can be something as small as helping put together project budgets and plan staffing requirements, she says, but getting more involved in how the company handles the business side of things will show you are capable of stepping into a line management role where you're responsible for staff and budgeting decisions.

Go Beyond Your Nine to Five It's easy to fall into the routine of a daily job, but if you want to show you're ready to move up in your IT career path, going beyond what's asked of you is critical, says Kingsley Tagbo, IT Career Coach for Exacticity, Inc., a Missouri-based career coaching firm. "Take on work that no one is willing to take on," says Tagbo. "Everyone appreciates someone who steps up." Weinberg suggests volunteering to be part of task force committees where you can use your nontechnical skills more. Making yourself visible to stakeholders and senior managers is also a critical way to help increase your chances of promotion says Tagbo. During stakeholder meetings, make an effort to give presentations at meetings so that you get on the radar of top managers. "Prepare yourself for additional duties above and beyond your role," says Tagbo. "It says, 'I can help other people get their work done.'"

Using Mentorship as a Way into Management Opportunities Often a promotion means moving from a technically-focused role to leading others. But if leadership isn't something you've had experience with, Tagbo suggests seeking out mentorship opportunities as a start. Taking the time to help interns or entry-level employees learn the ropes is one way to show your manager you're capable of overseeing others. Weinberg suggests you go as far as proposing an internship program if your company does not have one. For example, if you know the company needs to hire two entry level quality assurance software engineers and that the budget is tight, propose initiating a relationship with a local university and establishing an internship program in the IT department. While such an

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undertaking takes extra work, it also shows you as a self-starter. "[You] could have an accomplishment on [your] resume that would speak to [your] initiative and the fact that it saved the company $60,000 to $100,000 dollars," says Weinberg.

Address Pitfalls While landing a promotion often means seeking out opportunities that might not be officially out there, if you do have chance to apply for a vacant position within your organization, Weinberg advises that you really take the time to research why the position opened and what areas of need you can contribute to if you get it. "If you know what created the job opening, it can help you prepare to sell yourself more effectively," she says. If available, look into customer satisfaction surveys from previous projects to get a sense of where the last manager's weaknesses were. For example, if you know a survey of internal customers came back with negative comments about delays, think about possible solutions you can present during an interview. Weinberg suggests making a handout of solutions to show you've thought through a particular problem and can clearly outline your approach to solving it. Weinberg cautions against waiting for a position to fall into your lap. "Someone who aspires to a managerial role should not be waiting until they hear of a promotion opportunity," says Weinberg. "They should be approaching their daily responsibilities always with an eye toward creating the impression that they are ready for management." By identifying the management areas you're most interested in, staying up to speed on technologies that have the greatest potential moving forward, learning the business-side of the job and stepping up to go beyond what's expected of you, you send a message to managers that you're ready to take on the responsibilities that a promotion entails. Â

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In Toough Ecconomy, Even Houses of Worsh hip are in Need d The adveerse effect off a down ecoonomy has now n hit your pew at yourr house of worship. In thhese tough ecoonomic timees, churches,, mosques, and a synagoguues, like manny corporatioons and organizattions, face a conundrum: These placces of worshiip are being called on more m than eveer to help those in need, yet they are recceiving less from f supporters. Churches have h always been pillarss in the comm munity and as a such see it as their diviine duty to meet m the spirritual and hum man needs of thhe faithful. With W unemployment arouund 9 percennt, unemployeed worshiperrs are unablee to give as much m as theyy did during goood economic times. a parishionners alike arre feeling thee pinch. "Myy Churches and family is giving less, I have threee hungry littlle children and a a car payyment to meeet," said parishionner Daphne Baker. B "Peopple are tithinng less, they're not cuttinng programs,, just fundingg less, and the musician ns who oncee got paid aren't anymoree." "Most Catholic C parrishes, like other o faith-b based organ nizations, arre reluctant to lay off workers," said Villa anova econoomics professor Charlees Zech. "Th hey cope byy not replaciing parish sttaff who hav ve left, askin ng workers to take furlloughs - wh hich are in effect unpaid d vacation ns - or work fewer hourrs per week,, and cutting back on other o expensses. There aren't many m additio onal revenuee-raising op ptions availaable to them m." Accordinng to a recen nt study by thhe Barna Ressearch Grouup, which stuudies issues affecting a churches and congreg gations, mosst churches indicated i thaat their finanncial resourcees were b the econom my, resultingg in a moderrate decline in those conngregations. negativelly affected by The studyy found thatt the numberr of churchgooers who hadd cut back onn their givinng jumped from 20 percennt to 29 perccent in aboutt a three-monnth period. The T number of adults whho reduced giving too nonprofits in i general juumped from 31 percent to 48 percentt in that sam me time periood. "Catholiic churches,, as all churrches, have been b impaccted in two ways. w The most m obviouss one is througgh parishion ner giving. When W theree is a recessiion and parishioners eiither see theeir pay cut or o lose theirr jobs altogeether, they naturally n neeed to rethin nk their con ntributions," Zech said. "Along with w that, th he recession n has caused d the stock market m to goo down, so parish p reven nues from invvestment ha ave decreaseed. Fortunattely, few parishes rely heavily h on investment i income, so this hasn n't been as severe."Desp s pite the economic strugggles, some churchgoerrs

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still feel obligated to give a portion of their earnings as taught in their religion, whether it be the full 10 percent or less. "I'm giving the same, it's important to give your 10 percent no matter the economy," said Lurena Jackson of Gates of Heaven Pentecostal Church. Muslims also give obligatory Zakat, which is similar to the tithe. "I'm giving just as much, as Muslims we are responsible to give 2.5 percent," said Khalil Brown of the Islamic Family center in East Oak Lane. "You can tell it [the economy] affects the people because the people are struggling," Brown said. "You have to do things to get things done. People are making more sacrifices to meet the money needs, we sell dinners and cakes on Friday, there are also different projects for maintenance that we ask for money." With the fall of the economy the demand for need has gone up. "Our food bank ministry is working harder with regard to providing for needy families," said Carrie Hawkins of North Baptist Church Food Bank Ministry. In tough economic times, parishioners and houses of worship alike lean on each other even more. They say this is not the time give up on each other. Â

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FACULTY MEMBER FEATURED : CHARLES ZECH (ECONOMICS)  DATE: APRIL 3, 2011  MEDIA OUTLET: COURIERPOSTONLINE  AUTHOR: UNKNOWN  CAMDEN — A wave of parish mergers has transformed the Diocese of Camden in the last year or so. Local Catholics have seen beloved churches close, familiar names disappear and strangers joining them in the pews. Now, says Bishop Joseph Galante, the real change is coming. All of those mergers "are the preliminary to what is most important," Galante said last week. He signaled a new emphasis on educational programs, including some that offer college degrees, to prepare lay people for a greater role in parish life. "The mergers have been like the process of clearing the fields," Galante said at a ceremony that announced a partnership between the diocese and Villanova University. "Now we're planting the seeds for renewal and revitalization." The Villanova program will offer a Master of Science degree in church management. The two-year online course, which will be heavily subsidized by the diocese, is expected to prepare South Jersey parishioners for a variety of parish jobs, including oversight of operations and finances. In part, Galante says, parishioners must take on more duties due to a priest shortage. Galante has cited the lack of clergy as one reason for slashing the number of parishes in the six-county diocese from 124 to 68. That restructuring, announced in April 2008, is "pretty much wrapped up," said Peter Feuerherd, a diocesan spokesman. So far, Galante has decreed 32 mergers with the first, in December 2009, joining the former Queen of Heaven and St. Peter Celestine parishes in Cherry Hill. Indeed, church officials are planning a June 12 ceremony to mark the emergence of the remade diocese, said Feuerherd. He noted Pentecost Sunday, which marks the end of the Easter season, also is considered "the birthday of the church (and a time of) energy and enthusiasm." But the merger process has encountered resistance from people seeking to save their parishes. Most notably, members of St. Mary's of Malaga have occupied their church since January in opposition to a planned merger. "The mergers were in no way a necessary prerequisite to increasing educational opportunities," asserted Leah Vassallo, one of the bishop's critics at the Franklin church. "The bishop didn't have to do this." At Thursday's ceremony, Galante said an increased role for lay people is "vital to the future of the church." The diocese currently lists more than 20 activities for lay ministers, including serving young adults and seniors, people in hospitals or the homebound, and those preparing to marry or divorce.

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The diocese now offers "lay ministry formation" programs through eight academic institutions, including Neumann University and St. Charles Borromeo Seminary, both in the Philadelphia area, and the University of Dayton in Ohio. More than 300 parishioners are taking part in the academic programs, which were introduced in 2009, said Feuerherd. About five people are expected to make up the diocese's first class in Villanova's offering, which has been available at the suburban Philadelphia school since 2008. In most cases, the school reduces its tuition costs by about half, and the diocese and its parishes cover two-thirds of the remaining expense. The Camden diocese has almost $2 million in a fund to cover program costs, with a goal of $12 million, Galante said. Parishioners enrolling in the part-time Villanova program -- with courses like "pastoral strategic planning -- would pay about $4,100 for a master's degree that otherwise would cost about $25,000. "It's a real bargain," said Charles Zech, director of Villanova's Center for the Study of Church Management. At the same time, Galante indicated the diocese needs financial expertise at the grass-roots level. When he arrived in Camden in 2004, the bishop said, a third of the diocese's parishes had trouble paying their bills. The mergers also were intended to pool assets for more financial stability. "We needed to have parishes that had the resources carry out the ministries the people had asked for," the bishop said. He also noted lay people will be expected to share their specialized training, whether in management or a ministry, with other parishes. The diocese earlier this year restructured its deaneries -- essentially, parish groupings -- to promote more interaction between church members. One example of the change: Camden's parishes, previously clustered in a single deanery, now are divided into two groups that extend far into more affluent suburbs. "I'm trying to get the diocese as decentralized as possible," Galante said. The bishop, unhappy that only 22 percent of local Catholics go to Mass weekly, also wants more people in the pews. "Parish life has to be vibrant (and) it has to meet the needs of the people," he said, asserting lay people can provide the services that will boost church activity. "Parish ministries are vital to that." But at St. Mary's of Malaga, Vassallo said "the pain and anguish" caused by mergers could cause some people to shun the new parishes. "I hope what he does works," she said of Galante's educational efforts. "But I think the biggest challenge will be bringing back the people he's alienated."

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Churcch Givin ng Seen Reboun nding, but Cath holic Piccture maay be Diffferent WASHIN NGTON – Church C givingg is beginninng to rebounnd from challenges posedd by the recessionn, according to a new surrvey involvinng mostly Protestant chuurches. In the thiird annual “S State of the Plate” P surveyy, which inccluded responnses from more m than 1,5500 congregaations, 43 percent of the responding churches saiid donations were up in 2010, 2 39 perrcent said theyy were down and 18 perccent said theyy remained the t same as the t year befo fore. n said Brian B Kluth,, founder of “There iss good news here but alsso some conttinuing bad news,” Maximum m Generositty who begann the State of o the Plate suurveys in 20009 to measuure the effectts of the recession on churrch giving. Christianity C T Today Internnational and the Evangellical Council for Financiall Responsibiility joined with w Kluth’s group in solliciting respoonses to the latest surveyy from amoong their con nstituencies.. Because the three org ganizations work w primarrily with Prootestant conggregations, most m of the responses came from m evangelicall (24 percentt), Baptist (223 percent), nondenomin n national (21 percent), mainline Prrotestant (13 percent) or charismatic//Pentecostall churches (112 percent). Only O 2 percentt of the respo onding conggregations deescribed them mselves as Catholic C or Orthodox. O But a Cattholic expertt in giving saaid the surveey results miight or mighht not reflect Catholic givving patterns. “Despite the econom my, people suupport causess to which thhey feel the most m attachm ment and ment,” said Jaames K. Kellley, presidennt of the Inteernational Caatholic Stew wardship engagem Council. Noting thhat giving in ncreased duriing eight of the t 10 yearss of the Greaat Depressionn, Kelley saiid “offertoryy collectionss should not be down at this time” ass long as chuurches are welcoming w annd communiity-building places that educate e parishioners prooperly about the need to return their time, talent andd treasure to o God. Kelley, who w is direcctor of devellopment forr the Diocesee of Charlottte, N.C., saaid the stewardsship councill urges Cath holic parish hes to follow w the eight reecommendaations of Charles Zech, direcctor of the Center C for th he Study of Church Maanagement at Villanovaa Universiity, in his 20 006 book, “W Why Cathollics Don’t Give G And What W Can Bee Done Abou ut It,” and subsequentt publication ns. Zech outtlines “the eight e things the strongeest parishes did,” Kelleey said, and found that if other paarishes adop pt those pracctices they should s not be b damaged d by a tough h economy.

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A key “best practice” is financial accountability and transparency, he said, adding that “if you communicate well and often, our experience is the offertory does not go down.” The State of the Plate survey found that declines in church giving were greatest in the Southeast states - West Virginia south to Florida and as far west as Louisiana. In the previous two surveys, the Pacific states - California, Oregon, Washington, Alaska and Hawaii - were found to be hardest hit in terms of declining church collections. Asked about a proposed plan by the federal government to change the deductibility of charitable contributions, 91 percent of the respondents expressed concern that this would negatively impact giving. The survey results were released March 30 in a webinar for media. A related “View from the Pew” survey on the financial, debt and giving patterns in individual Christian households was to be released sometime in April. Because the respondents were self-selected and constituency-based rather than random, there was no margin of error given for the survey.

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Villanova’s Annual Real Estate Challenge Today Last year I sat as a judge at Villanova University’s inaugural real estate challenge, and I’ve been invited back and will be holed up at the school all day. The competition is hosted by the Daniel M. DiLella Center for Real Estate that is in the university’s school of business. Ten colleges competed last year and this year 11 teams of undergraduates will show up. The schools are: Florida State University, Georgia State University, Lehigh University, New York University, Pennsylvania State University, University of North Carolina, University of Pennsylvania, University of Southern California, University of Texas, Villanova University and Virginia Commonwealth University. Each team is required to analyze a case and make a presentation as if they are an analyst with a development company making a recommendation as to whether to move forward with a project. This year the stage is set in New York and the teams have been asked to take a position on a Manhattan development project on a parcel fronting Fifth Avenue in the Murray Hill district. The site was going to be a high-end condominium project that never materialized because of the recession. Now a developer has an option to buy the site, where zoning allows for commercial or residential uses. Based on today’s market conditions, what would the team recommend be built on the property, why and what’s the exit strategy? I’ll let you know some of the ideas that get bandied about and who wins.

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Bishop Joseph Galante Struggles with Change in Camden’s Roman Catholic Diocese Kim Simmons-Dimpter was the sort of lifelong Catholic who attended Mass every Sunday, volunteered at religious classes, and even tried to persuade her teenage son to get out of bed and go to church. But when Holy Rosary Church in Cherry Hill closed in 2009, and Simmons-Dimpter and her fellow parishioners were directed to another church three miles across town, she drifted away. "I can't even tell you the last time I went" to Mass, she said recently. "The fact it was across the street was really convenient. Plus my kids have a lot of extracurriculars. It's not any one reason." Since Camden Bishop Joseph Galante began merging South Jersey parishes three years ago in what has become a model for dioceses nationwide, Mass attendance has fallen substantially, according to data provided by the diocese. In the fall of 2006, a year and a half before Galante announced that he planned to reduce the number of parishes by more than a third, the annual fall Mass count was 114,000 parishioners. Last fall, the count dropped below 100,000 in the diocese, which stretches across southern New Jersey. "Yes, it's disappointing," Galante said Tuesday. "But the diminution in Mass attendance didn't happen overnight, and I don't expect that overnight it will suddenly recover." A former undersecretary at the Vatican, Galante has made the issue of helping parishes overcome a priest shortage and falling attendance his signature mission since taking over the Camden Diocese in late 2004. In his first year, he went out to the churches, sometimes visiting four in a week, and concluded that downsizing was the only option. With fewer parishes, fewer priests are needed and money is freed for professional ministers to provide services such as marriage counseling and youth ministry. Also, having fewer empty pews could liven up Mass, drawing the younger demographic the church has been struggling to retain. The problem Galante was trying to solve was one that church leaders across the United States are struggling with: how to get Catholics to church in a culture that is increasingly secular.

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And the Catholic Church's ongoing sexual-abuse scandal has pushed many Catholics away, the bishop said. "It provided a justification for people who were already shaky in their faith," he said. "We haven't done a good job giving people a grounding in the faith." The percentage of Catholics who attend Mass weekly has fallen to 31 percent, from 62 percent in the 1950s, according to Georgetown University's Center for Applied Research in the Apostolate. Catholic churches in the Northeast and Midwest, especially those in urban areas, have been hit especially hard. In the Philadelphia Archdiocese, average weekly Mass attendance fell 8 percent from 2007 to 2010, when it totaled 274,608. There have been other mergers in the Northeast, most notably in Boston in the early 2000s, but none on the relative scale of Camden, said Charles Zech, director of Villanova University's Center for the Study of Church Management. "Everyone around the country's watching," he said. "Whenever you do something like Camden's doing, you're going to alienate some people, and that can speed the drop in attendance." And Galante's bid to create "more vibrant" parishes has rubbed many parishioners the wrong way. At St. Mary's Church in Malaga, parishioners have been keeping a 24-hour a day vigil since Jan. 3 to protest the decision to close their church. One of the leaders of the protest, Vineland lawyer Leah Vassallo, said that even beyond the protesters' attachment to the 90-year-old church, she sees Galante's mergers as a movement away from the church's most cherished traditions. "I disagree with the idea you can convert churches into cash to pay people to make the church more vibrant," she said. "You take away everything people consider sacred and say [the church is] just a building. A church is God's home. A church is consecrated. It becomes more than what it was before." While many might disagree with Galante's methods, everyone agrees that there is a problem. One of the factors that determined the mergers was the poor finances of the parishes, about one third of which could not pay their bills, the bishop said. Mergers will reduce some of the costs, but if the parishes are going to achieve financial security, Galante says, attendance and collections, the churches' primary income source, must increase.

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To that end, Galante is getting ready to begin a large-scale hiring of professional support staff for the priests, to provide more services to parishioners and put on events, such as a recent event staged near Rowan University where Galante spoke on human rights with beer-drinking students. "The young people are interested in justice issues, poverty, how you improve the society you live in, and these are all areas the Catholic Church is active in," Galante said. Since the mergers began in 2008, the diocese has seen some success, both related and unrelated to the mergers. Attendance among Mexicans and Central Americans, who have moved to the region in large numbers over the last decade, is up considerably, Galante said. In some parishes, the mergers are already having their desired effect. At St. Vincent Pallotti Church in Haddon Township, ground zero for the fight against the mergers until Galante reversed course and made it the parish seat, Sunday Mass is far better attended than it had been in years, said parishioner John Hargrave. "Is the bishop succeeding? It's way too soon to say," he said. "But he deserves credit for recognizing the problem and trying to do something about it. I don't think there was any other choice." But Galante's plan is something of a gamble. If attendance does not turn around soon, hiring professional staff could place the diocese, which took a big hit in the 2008 stock market crash, in an even more precarious financial position. Galante spent much of his career in Texas and was impressed by the growth and vibrancy of the parishes there, which he attributes not only to demographics but to a longtime commitment to serving the community beyond Mass and rosary prayers. "When you perform services for people, they come and they give," the bishop said. "I hope [those who left] come around. Change is hard for everyone. Most human beings don't like a lot of change."

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THE STORY OF ‘THIS LITTL LE DIOCE ESE THA AT COUL LD’ Represen ntatives of the t Diocese of Camden n and Villanova Universsity particip pate in the signing ceremony c March M 31 at the Pastoraal Center in Camden too formalize the t partnerrship between the two insstitutions in providing a church maanagement degree proggram for paarish a manageers. Signing documentss at the tablee are (from left) Jamess Danko, deaan of leaders and the Villaanova Schoo ol of Businesss; Sister Rooseann Quinn, SSJ, dellegate for Lifelong L Faitth Formation, Diocese of Camden n; Father Peeter Donohu ue, presiden nt of Villanoova Universiity; hop Joseph Galante of Camden. C and Bish Sister Rooseann Quinn n, SSJ, deleggate for Lifellong Faith Formation F foor the Diocesse of Camdeen, deliveredd these word ds at the signning ceremonny to formaliize the partnnership betw ween the Dioccese of Camdeen’s Office of o Lifelong Faith F Formattion and the Villanova School S of Bussiness in providingg a church management m degree proggram for parrish leaders and manageers on Marchh 31 at the Paastoral Centeer in Camdenn. Today, I am going to o tell you a sttory, based on o the childrren’s book, “The “ Little Engine E That b Watty Pip per. My huncch is that, sinnce that bookk was writteen more thann 80 years aggo, Could” by everyonee gathered heere today is familiar f withh it, yes? Once upoon a time, less than four years ago too be exact, thhere were noo Catholic coolleges in thee Diocese of o Camden. This was a very v serious problem forr this land off 500,000 Caatholics spreead out over six counties. Catholic coollege and unniversity eduucation, readdily available across the river e in mid- and northerrn New Jerseey, was simpply an “impoossible dream m” in in Philaddelphia and even South Jerrsey. What to do, d when a dream d and allso a need too have womeen and men well-prepare w ed for parish ministry,, seems nigh impossible to effect in real r life? Whhat to do whhen nothing exists e locallyy? While wee all know an nd believe thhat our magnnificent univverse was creeated out of nothing, wee also know thaat, unlike Go od, we are inncapable of building b anytthing from nada. n Neverttheless, we were w determinned not to be relegated too forever beinng a little diocese without a Catholicc college or even to being a little colleg ge that couldd. And so, we w did what we could. We W knew thaat what we coould do was to pray and hope and drream and invitte and meet and a meet andd meet, and as nodding heads h in thiss room confirrm, we couldd do and did juust that. Afteer examiningg parish needs, participaating in counntless meetinngs, campus visits, conference callls, interview ws, informatiion sessions,, formal agreeements, andd climbing other o ntable hurdlees, our dream m was realizzed. seeminglly insurmoun South Jerrsey is now a diocese wiith a wide arrray of formaation opportuunities from m no fewer thhan seven insstitutions of higher learnning and otheer formation centers as well, w all thorooughly Cathholic

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institutions. With our partnering institutions, we now proudly offer 19 specializations in parish ministry for our co-workers in the vineyards, at the seashore, in the towns and cities of South Jersey. Some colleges offer their programs in Spanish as well as in English and so they meet the needs of a large percentage of the Latino people in South Jersey. We now have, as Bishop Galante so often proclaims, “a small Catholic college in South Jersey,” where almost 300 women and men from more than 75 percent of our parishes form an amazingly diverse and deeply committed student body of present and future lay ministers. One of our students, Maryann Exler, a member of a parish in Gloucester County who is studying for a master of arts degree in theology at Georgian Court University, was recently asked: “What difference does your studying theology make in your current parish ministry and in your faith life?” Without hesitation she responded, “It has made a world of difference. It empowers me. I am much more confident in my encounters with parents and parish staff members, both formally and informally. My classes have enabled me to be theologically grounded and more innovative in planning faith formation events and evangelization tools with and for people of all ages. My mind has grown. The more I learn, the more confident I become. Studying theology has increased my passion for my faith and relationship with Jesus, as well as my ability to speak about the teachings of the Catholic tradition and our spiritual heritage.” Today, we will sign an agreement with our newest partner in lay ministry formation, Villanova University, ranked number one in the set of regional universities, North, according to the 2011 US News & World Report. Their graduate program from the Villanova School of Business and their Center for the Study of Church Management will now provide the highest quality faith-based managerial education to church leaders in our parishes, enabling participants to apply sound business approaches to temporal issues and decision making. At the completion of their studies, students will receive a master of science degree in church management. This new degree program will assist our parishes and pastors administratively and also free our clergy to focus on the sacramental and spiritual needs of their congregations. This story, this little diocese that could, did grow, not a college or university campus, but a new genre of higher education in South Jersey, a whole community of colleges. We are now a diocese with many university and college partnerships, able and ready to form our people in their faith and in parish and diocesan ministries. Our hope is that this story of what could be, and is, will become a legacy of active faith formation across the life cycle that will be felt in every parish and in every Catholic heart and home throughout South Jersey. Our vision is becoming a dream made possible. Now and into the future, our parishes can thrive with new vitality and new ministries that will serve the needs of our people, our world and our Church. Thank you for becoming part of our history and the foundation of the one and only Catholic college of South Jersey. And thank you for being with us on this important day in our shared histories, and for enabling our story to continue, with God’s grace and our response, toward “a future full of hope.”

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How Foreclosure is Like Disease The past two years have seen the nation's worst foreclosure crisis in more than six decades. One often-overlooked cause of the crisis is the capacity of foreclosures to spread like a contagious disease. The presence of foreclosures in a neighborhood can make once-proud homeowners willing to walk away from their mortgages and abandon their homes, seemingly unconcerned about the consequences. According to my research with Carlos Ramirez and ChristofStahel of George Mason University and Ryan Goodstein of the Federal Deposit Insurance Corp., homeowners who are "under water" on their mortgages are up to 24 percent more likely to strategically default if their neighbors have already walked away from their homes. This contagion effect is much stronger among borrowers who are severely under water on their mortgages - that is, who owe much more than the house is worth - but who do not appear to be in financial distress. For instance, borrowers with current loan-to-value ratios of more than 120 percent and credit scores above 720 are six times more likely to be influenced by foreclosures in the surrounding area. My fellow researchers and I examined proprietary loan information provided by 16 participating mortgage servicing firms, including nine of the ten largest firms, which service more than 30 million active loans. The sample included about 170,000 loans that originated between 2000 and 2008, at the height of the housing boom. The concept of foreclosure as a contagion is important for several reasons. With nearly $14.3 trillion outstanding, the U.S. residential-mortgage debt market is as significant to the current financial crisis as the corporate debt market. But while there is a wealth of information identifying and explaining contagion effects in corporate credit, there is hardly any comparable information on residential debt. The idea of foreclosure contagion also has ramifications for a wide array of policy questions, ranging from mortgage-modification efforts to adequate levels of bank capital. We found at least three ways in which foreclosures can act as a contagion. The first means of transmission might be called the "learning channel," whereby neighbors who default on their mortgages help other potential strategic defaulters navigate the process by providing credible information about it. When it comes to foreclosures, learning from the experience of others is more powerful (and more affordable) than learning from the media, accountants, or lawyers. There's also the "social capital channel." The more people default, the less morally objectionable it becomes to homeowners. When defaults become widespread in a neighborhood, the stigma declines as the proportion of people defaulting rises.

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Last is the "social network channel." High neighborhood foreclosure rates lead to a loss of social networks, as well as a degradation of public infrastructure and security. That helps more homeowners rationalize a strategic default. Through all these channels, we found, defaults can spread like disease, and a few foreclosed homes can launch entire neighborhoods into foreclosure. Paul Hanouna is an assistant professor of finance at Villanova School of Business. His paper is available at the website of the FDIC's Center for Financial Research, He can be reached at Â

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5 TIPSS TO GET YOUR R CFO'S EAR Conventional wisdom m holds that thhe chief markketer and finance chief arre the right annd left sides of a MO doesn’t need to be a brain surgeoon to company’s brain--the creative verssus the practiical. But a CM communiicate with thee numbers peeople, marketting insiders said. “They haave to agree that there iss a joint goaalpost for both of them,”” said Ron Hill, H professoor of marketin ng and busin ness law at Villanova V Sch hool of Busiiness, in an interview i with m. “If someb body is tryin ng to hit a hoome run [an nd] somebod dy wants to score s a touch hdown, theyy’re not even on the samee game.” f years, evven as the reccession tighteened the scruutiny Conversaations have become easierr in the past few on markeeting budgets, experts saidd. Both sides are more foccused on shoowing an ROII since the sttart of the recesssion, and the rise of new digital d efforts, such as soccial media annd mobile, haave brought on o more reall-time metriccs to express that ultimatee goal. “It’s not that t will we ever e get to thhe Holy Graill. I think it’s very difficullt. But I thinkk the digital age a is getting uss a step closeer,” said Carl Anderson, CEO C and form mer CFO of Doremus, D thee corporate advertisinng specialist. There is no n silver-bulllet metric thaat will unlockk the money chest, either.. Depending on each company’s goals and industry, thee metrics releevant to the CFO C will varyy. In a new-pproduct introductiion, for exam mple, metrics showing triaal, such as aw wareness andd consideratioon, can be traaced back to acctivities such h as samplingg and point of sale, whichh can clarify the t ROI, noteed Ted Woehhrle, CMO of Newell N Rubb bermaid, in an a interview with w CMO.coom. In the auuto industry, lead generatiion is the goal, added Julie Roehm, R founnder of markeeting consultaant Backslashh Meta and a former Chryysler marketer.. Marginal ROI--the ex xtra return forr every dollarr spent beyonnd the projeccted budget for fo an effort---can be an effeective numbeer to show finnance staff thhe results of marketing, m saaid Douglas Brooks, B execcutive VP of maarketing at Management M A Analytics, a unit u of Synovvate. But likee a financial adviser a talkinng up an investm ment, the maarketer has too put that moddel in the conntext of the larger effort, he said. “Thaat’s what marrketers get paaid to do,” hee told CMO.ccom. “The daay a model reeplaces a marrketer, we’re all in troublee because theere is no grow wth and no innnovation.” Other meetrics--such as a reach and frequency, f nuumber of hitss on the Webb site, and leaads generatedd--are “lovely annd measurab ble, but they don’t d translatte to what thee CFO wantss to show,” Roehm R told m. Those num mbers need too be related to t the compaany’s bottom line, she saidd. Brooks saaid he often doesn’t d reporrt straight RO OI to clients. Instead, he prepares p a quuadrant chart relating thhe effectiven ness and efficciency of marrketing invesstments, show wing which ones o are driviing sales, which could be more successsful with moore spending,, and which could c be cut. “You need to t be

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a data-driven storyteller,” Brooks said. “Analytics don’t tell the whole story. When analytics are successful is when you have a good translator.” So how can a marketer learn to translate ad-speak into terms familiar to the CFO? Here are five simple tips to help you get on the same page as your brethren in the finance department.

1. Walk In The CFO’s Shoes “It’s like any relationship. I would begin by cultivating mutual respect,” said Hill, recalling one of his first consulting projects, which involved mediating between a company’s senior vice presidents of finance and marketing. “They were at loggerheads, absolute loggerheads.” The marketers didn’t care about profits because they were being judged solely on increasing sales. Meantime, the finance staff was concerned about losing profits by overspending to boost sales. By getting them to role-play each other’s position, Hill got the executives to begin searching for common ground. This is easier in companies where the two departments work closely, marketers said. Brooks said one CMO he works with takes the finance staff out to lunch and invites them to meetings and marketing event. That way they can get a sense for what his department does. Of course, the reverse also works, Roehm said. “Learn the financial operations of the company. . .Become a sponge,” said the former Chrysler and Wal-Mart marketer. Earlier in her career, she held positions in sales and finance, which gave her a sense of how other departments operated. “If you’re a CMO, you’re in the C-suite--you’re friends,” Roehm said. “That’s just teamwork 101. But a lot of CMOs avoid the CFO because they’re always taking things away.”

2. Tell A Story “Brand-building campaigns are soft tissue and require a leap of faith as a CFO,” Doremus’ Anderson told That’s why marketers need to walk the financial staff through the entire effort, rather than just hand out metrics, hoping the numbers will do the trick. An effective presentation has to make a case, starting with the big picture, Woehrle said. “We always start with, ‘These are our objectives,” and we say, ‘Here’s the reason for those objectives.’ Then you make the next case that to deliver that activity, it would require this level of investment, and then you have defend that investment,” he said. Last, the presentation has to show a plan for mitigating the risk to that investment--a contingency plan if the effort doesn’t come off as expected, Woehrle said. “I am ready to make trade-offs in my spending; I’m not going to fight to the death,” he said. And don’t back off from bringing bad news to the table; it’s part of maintaining a relationship. “It’s constant communications, whether it’s good news or bad news,” Woerhle said. “I want to be the first to give bad news to the CFO, not let him find through other channels.”

3. Make It Objective Charts and graphs are useful because they are the same tools the finance staff uses, Roehm said. But they are only really effective if they correlate marketing efforts to sales increases, which is not always a direct relationship, she said.

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With the growth in digital media, marketers have a lot more real-time data to model and demonstrate results. “With the integration of a larger amount of digital [media], it’s making the story more relatable to the CFO,” Roehm said. “To the extent that digital becomes a larger part of the marketing budget, it makes your CFO conversations easier.” For example, Anderson said one Doremus effort for Thomson Reuters was able to track its audience through the day by combining traditional and digital media. The combination generated a measurable 32-to-1 ROI: “That’s going to certainly gain the attention of the CFO,” he said.

4. Show A Before And After The finance staff wants to see ROI in concrete terms, so to tell a good story, marketers need to do more modeling than they have done before. Last year, while still a marketer with IBM, Todd Powers did some research that segmented customers who had been exposed to IBM’s advertising and matched them to the corporate ledger to figure out whether those clients exposed to advertising were spending more money on its products. It found a 10% increase in advertising would increase revenues “in the multiple millions of dollars,” said Powers, now chief research officer of the Advertising Research Foundation. “The CMO for the first time was able to take compelling information about the absolute impact of our advertising, and that made for a very enjoyable conversation with the finance department,” Powers told “Normally the finance department is questioning everything you do as an expense. We were taking them evidence that the expense we were discussing was absolutely creating revenue.”

5. Don’t Get Too Hung Up On Numbers “The numbers tell you a story, but they may create the false illusion of cause and effect,” Hill said. An increase in sales of a product can be a result of additional marketing spend, but also of additional support from retailers and affiliates, price cuts, or merchandising that’s executed at the same time. Some decisions still have to be informed opinions, where the experience of the marketing staff has to make up for the absence of clear data, Woerhle said. This is where it helps to have a team that cuts across departments, including sales, marketing and finance, he adds. “Modeling has different degrees of sophistication. Some businesses have rich databases and history, so they can model effectively. In others, the modeling might be as simple as five people from that category--including finance and marketing--sitting around a table with a whiteboard and a bunch of data sheets,” Woerhle said. The key in these CMO-CFO conversations is to find ways to line up marketing objectives so they achieve the company’s business objectives, and those are not too hard to figure out, Anderson said. It’s about profit. “The common ground is a little bit like Jerry Maguire: ‘Show me the money,’” he said.

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10 Coollege Cllasses That Imp pact the Outsidee World d These Coourses Allow Students to Gain Significcant Real-W World Experieence Before They T Graduaate It's not unncommon for students at thhe graduate leevel to make important i conntributions beyyond the wallls of their camppuses while simultaneously engaging inn their studiess. Oftentimes research or entrepreneuria e al endeavorss at Ph.D and M.B.A. proggrams are the conduits for this t blend of learning l and real-world r experiencce. However,, an increasing g number of undergraduate u e programs arre letting theiir students appply their burgeoninng skills in areenas outside the t classroom m. "Students do d the best proojects when thhey've got a tangible product p or serv vice they're dealing d with," says Michaeel Goldsby, exxecutive direcctor of Ball Sttate Universityy's entrepreneeurship centerr. "Sometim mes undergrad duates will loook at abstract projects, but the practicaliity of their ideeas isn't solidd, and I think thaat hurts their learning. l Wheen they can deal d with someething real thhey can learn a lot more." The follow wing are a few w examples of o courses thatt allow underrgraduate studdents to makee a significantt impact beeyond the con nfines of their colleges, while honing skiills that may one o day be appplicable to thheir careers. 1. Militarry 2 Market at Ball State: The school has partneredd with the neaarby Naval Suurface Warfarre Center, Crrane Division n in an effort to t commerciaalize military technology. The T two-yearr program, available to the school''s entrepreneuurship studentts, allows them m to get theirr hands dirty in i the laboratory while form ming businesss plans to com mmercialize thhese military innovations along a the wayy. Some of the t notable prrojects includee a synthetic skin that simuulates real skiin, which will be a practicee tool for doctorrs and nurses,, and a laser thhat can cut thhrough steel thhat will help free f people frrom car wreckks. Some studdents are even n in the proceess of seekingg venture capiital funding inn the hopes off turning the projects innto viable bussinesses. 2. Congreessional Districting: The Geography of o Politics att Clark Univeersity: Studennts learn abouut the congressioonal redistrictting process with w their proofessor Jim Goomes, who onnce worked foor Massachussetts Sen. Johnn Kerry. Studeents are askedd for their input on various ways to redistrict the statee of Massachuusetts and have even played a role in publiic hearings onn the subject. ment Design at the Univeersity of Pugeet Sound: Thhis year, studeents were askeed to design shoes s 3. Equipm for Crocs,, Inc., best kn nown as the makers m of the multi-colored m d plastic shoess commonly seen s on collegge campusess nationwide. Once prottotypes of thee student-desiggned shoes were w manufacttured, the classs tested them m by doing experimennts with runneers and measuuring foot-fattigue recoveryy time. If the testing is deeemed to be a success, thhe shoes will be on the maarket in 2013. Another studdent-driven Crocs C project is i planned forr the fall.

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4. Highwire Brand Studio at Miami University—Oxford: Marketing and graphic design students, among others, have the opportunity to work with paying clients, essentially turning the program into a fully functioning marketing and branding agency. And these paying customers aren't merely local momand-pop operations. Last week, the school unveiled a new marketing c 5. PR Lab at Arizona State University: This fall, the university's Cronkite School of Journalism will begin offering a hands-on capstone project for its public relations majors. The lab is home to a fully functioning and student-driven public relations agency, dubbed V3 Communications, that will handle real-world clients' various public relations needs. 6. Human Rights/Human Wrongs at Franklin and Marshall College: Under the tutelage of associate professor of government, Susan Dicklitch, a political asylum expert, students work in pairs to help individuals seek political asylum in the U.S. After interviewing potential candidates for asylum, students work with an immigration lawyer to find evidence and ready documents integral to the case. Not interested in law school? No matter, as the class is available to any senior at the school. 7. Undergraduate research at Lewis University: Students are working alongside their professors in the hopes of creating "self-cleaning materials" that could one day be used in hospitals, labs, and homes. The research is focused on fusing antibacterial properties with everyday materials that tend to be havens for bacteria, such as doorknobs and countertops. The goal is to reduce the number of common infections like MRSA and salmonella in hospitals and in the home. 8. Volunteer Income Tax Assistance at the Villanova University: While not a class, accounting students in the university's business school can hone their skills through volunteer work in which they prepare low-income individuals' and families' taxes free of charge. It's invaluable professional experience for undergraduate accounting students and has helped return more than $26,000 on 19 tax returns thus far this tax season. 9. Information Systems Application at Carnegie Mellon University: Every year, seniors in the program build custom software systems for Pittsburgh nonprofits. The students meet with leaders of the nonprofits to get a better feel of what they'd need to make their organization more capable. Students have written software that has helped the United Way track funding for after-school programs and that allowed the city to report and keep track of potholes, among others. 10. Organizational Website and Database Management at Eastern Connecticut State University: Similar to the Carnegie Mellon students, ECSU students help make nonprofit organizations more efficient. Students design interactive databases that have helped small, local nonprofits like churches and shelters track funds, people, and contact information.


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Post-QE2 plans the focus of Bernanke conference WASHINGTON (MarketWatch) — For good reason, Federal Reserve Chairman Ben Bernanke has been studying videotapes of foreign central bankers and having staffers pepper him with questions ahead of his first-ever press conference Wednesday to discuss an interest rate decision. Not that the central bank is sweating whether to veer from its current policy of targeting a Fed funds rate between 0% and 0.25% and its plan to purchase $600 billion worth of government debt by the end of June. The Federal Open Market Committee will announce its decision in a statement on 12:30 p.m., followed by a Bernanke press conference due to start at 2:15 p.m. Eastern. “It is still too early to move,” said John Silvia, chief economist at Wells Fargo. “There are too many questions about the outlook, combined with deficit craziness in Washington. There is no logic for the Fed to do anything except repeat everything they have said,” Silvia added. The question is what to do after the current bond purchase program ends. The Fed has kept its target federal funds rate between zero and 0.25% since December 2008, and markets don’t have a rate hike priced in until the end of the first quarter of 2012, as hawkish talk from regional presidents, such as Philadelphia Fed President Charles Plosser, has been outweighed by cooler economic data. Still, Fed watchers are divided on whether the central bank will signal what it plans to do with the size of its balance sheet once the program known informally as QE2 ends in June. The central bank has expanded its balance sheet to a record $2.65 trillion from $870 billion in December 2007. Many think the Fed will not send any signals at this meeting so they can remain flexible. But others, including Michael Gapen at Barclays Capital, believe the Fed needs to talk before the June FOMC meeting so as not to run the risk of unsettling markets. The decision is a potential flash point as hawks will want to get started on shrinking the balance sheet by letting maturing securities roll off. The doves will argue against the move that they would view as passive tightening. They will want to freeze the size of the Fed’s balance sheet by replacing maturing mortgage debt with Treasurys.

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Mizuho Securities U.S. chief economist Steve Ricchiuto expects no decision on the issue at the April meeting. He said Bernanke is going to be very deliberate about exiting from the ultra-low monetary policy. Last spring, the economy screeched to a halt in the April-June quarter after a robust beginning of the year. Ricchiuto attributes the slowdown in growth to the ending of the Fed’s first assetbuying program. “Last time we removed quantitative easing, the economy stumbled, “ Ricchiuto said Little is known for certain about how the Fed should exit, Ricchiuto said. “Only one other country, Japan, has done it, and it backfired,” he said. After the last FOMC meeting in mid-March, economists were looking forward to the April 26-27 meeting, thinking it was going to contain fireworks and some clarity about the Fed’s exit strategy. But these expectations have deflated along with growth estimates for the first quarter. The wheels seemed to come off the economy in the first quarter, analysts now believe, with growth sputtering below a 2% rate following a 3.1% growth rate in the fourth quarter. Data on first-quarter GDP is due just a day later. “The risk of a growth recession is increasing, especially in the second half of the year,” said Bernard Baumohl, chief global economist at the Economic Outlook Group. “The economy has decelerated to the point where companies may grow reluctant to hire more workers,” he added. Only a few months ago, economists were confident growth would accelerate to a 4% rate in the first quarter and the economy was on a “self-sustaining” path that would slowly and steadily bring down the unemployment rate. Even the Fed got excited, saying after its March 15 meeting that the economy was on “firmer footing.” Still, many economists maintain the view that growth will accelerate as the year progresses, particularly if the spike in oil unwinds. They point to a resurgent manufacturing sector and a slowly improving labor market that’s putting more people back to work — and putting more cash into the economy. But Ricchiuto scoffs at the notion. “Everyone was expecting 4% growth but now they are expecting 1.4% growth. But they think the economy will get stronger? How do I know they have anything right.” he asked.

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Although there is concern about inflation, the Fed got two pieces of good news that will allow them to remain on the sideline at next week’s meeting. Core consumer prices, excluding food and energy, rose only 0.1% in March. And consumer’s long-term inflation expectations, as measured by Thomson Reuters and the University of Michigan, retreated in early April. Reading the inflation data: Fed doves strike back. Another reason for caution from the Fed is the push in Washington for a budget deal. These efforts may have received a boost when Standard and Poor’s cut its rating outlook on the U.S. to negative from stable. Even if Washington does nothing, government spending will shrink. White House projections see the deficit falling from $1.1 trillion in this fiscal year to $750 billion in fiscal 2013, the biggest two-year drop in American history, said Stan Collender, a partner in Qorvis Communications LLC. “Fed officials don’t want to risk double dip by raising rates when the government is tightening fiscal policy,” added Victor Li, an economics professor at Villanova School of Business, who worked with Bernanke at Princeton, Looking at the future course of policy, at the moment, economists expect the Fed to take baby steps toward the exit over the rest of 2011. The overwhelming majority see little chance of another round of asset purchases. Only a few economists, including former Obama administration economist Christina Romer, have argued in favor of a QE3. Silvia of Wells Fargo said the Fed will hold steady until August and then start to draft an exit plan. “By August, they’ll have an idea whether growth is sustainable or not,” Silvia said.

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Job Search: Interview I Questtions Neew Grad ds Shoulld Ask and Answ wer (MoneyWatchh) Remembeer when yourr cool but quuirky p philosophy prrofessor encoouraged classsroom discusssion b declaring at by a the outset, "There is noo such thing as a a s stupid questioon." Well, hee was wrong. For new gradduates in the job F j market, thhere are zillions o stupid quesstions. Intervviewing at a bank, of b for e example, youu wouldn't waant to ask, "D Does this bannk o originate jum mbo mortgagees?" That's a dumb questioon; y should knnow the answ you wer going in. On the otherr h hand, you migght well ask,, "Given the weak w housingg market, iss the bank looking to cut back on its juumbo exposuure?" The intterviewer willl remember who w asked thaat question, guaranteed, annd being rem membered is what w it's all about. a a smart ones o -- requires homeworrk. Search thhe web. Speakk to Avoidingg dumb questtions -- and asking people inn the industry y. Read a tradde magazine. In short, knoow a companny's products and the kindd of advertisinng it does; bee aware of anny new big innitiatives and recent top-leevel managem ment changes. Understannd the impacct that generaal economic trends t are havving on its buusiness. Askiing one or tw wo (don't oveerdo it) smart questions will w show that you are seriious and leavve a favorable impressionn. If that soounds like a lot of work, well, it is. But B this is research you should s do an nyway to be ready forr what interv viewers mayy ask you. Joob interview ws with new grads g have gotten g a lot tougher in i recent yea ars, accordin ng to the Claay Center att Villanova School S of Bu usiness. In joob interview ws held on ca ampus this spring, s the scchool says th hat employeers were probing for belowthe-surfaace knowledge of their company c and d industry, and a a high leevel of intereest from new wgrad job candidates. The studen nts didn't gett a lot of softtball questioons like, "Teell me a littlee uestions weree pointed an nd specific too the job at hand, h and leet's about yourself." Many of the qu just say that t it wasn''t likely to work w out for students wh ho said, "Lett me think about that an nd get back to you." e as you u hit the job b market thiss year, here is a samplin ng of For a flavvor of what you might expect questionss that the Viillanova B-scchool grads were asked.. Interview wing with a financial f serrvices compaany: • •

What are thee top stories in today's Wall W W Street Journal? Wh hich article is most in nteresting to o you and wh hy? W What is the European E Deebt Crisis?

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Give me a stock pitch for 3 companies.

Interviewing with a fashion marketer: • •

What are the big clothing trends this season? What is the most fashion-forward piece of clothing you own?

Some general questions: • • • • • •

Tell me about a time when you worked in a group and someone didn't pull their weight. How did you handle it? Tell me about a time when you couldn't accomplish a project on time. How did you handle it? Tell me about an assignment you were given that you didn't feel comfortable with and how you handled it. Tell me about a time you faced adversity from an adult or leader and how you handled it. Name three people you'd take to dinner and why. Tell me about a process that you streamlined to make more efficient and how it benefited the overall cause.

The job market for new grads is improving, but still very tough. The bar has been raised for getting past the interview and to an offer. As always, you'll need to bring passion and enthusiasm to the interview. But you'll also need to bring some real knowledge of the company that is considering you and the position you are seeking. The last thing you want to do is ask a dumb question. But the bigger risk may be offering a dumb answer.

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2011 Media Report Villanova School of Business Page 99

 2011 Media Report Villanova School of Business Page 100


 2011 Media Report Villanova School of Business Page 101


Bankruptcy Filings Dip Local Chapter 11 business bankruptcy filings fell close to pre-recession numbers in the first quarter after spiking dramatically between late 2008 through the middle of last year. But a second wave of filings could come if interest rates rise without being accompanied by significant economic improvement, analysts and bankruptcy lawyers say. Business Chapter 11 filings in New Jersey and the Eastern District of Pennsylvania have been relatively steady despite the economic downturn because most major companies choose to file in Wilmington or New York. The recession-related increase in filings in 2009 and 2010 in the 3rd Circuit, which includes eastern Pennsylvania, New Jersey and Delaware, came largely from Wilmington, where many companies from around the country incorporate to take advantage of the business-friendly court structure. The number of Chapter 11 business filings in the 3rd Circuit combined were only 114 in second-quarter 2008. But after Lehman Brothers went under in September that year, followed by the stock market collapse, filings skyrocketed to 408 in the third quarter, 626 in the fourth quarter and 621 in first-quarter 2009. They remained elevated for the remainder of 2009 and the early portion of 2010 before dropping significantly to just 213 in firstquarter 2011. Cozen O'Connor bankruptcy department co-chair Mark Felger, who also serves as the firm’s Wilmington office managing partner, said there was a time in the first quarter of 2009 when his group was dealing with a filing every day in Delaware. But as the economy has improved slightly, he thinks businesses have become more optimistic about their standing. “Lenders are more willing to lend, there are more opportunities for distressed companies to find liquidity sources and remain viable and existing lenders are more receptive to restructuring,” Felger said. Stevens & Lee bankruptcy department co-chairman Robert Lapowsky said in addition to businesses having more access to capital, some people in the industry theorize that borrowers were aided by loan agreements with few financial covenants, particularly commercial real estate loans. That means that borrowers can struggle but without defaulting. But many filings that occurred in the most recent wave were pre-packaged arrangements with lenders that allow borrowers to reorganize. Buchanan Ingersoll & Rooney bankruptcy group chairman William Schorling said fewer midsize and small companies are using bankruptcy protection, choosing instead to either restructure their debt or sell

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the company. The reason for that is the fixed costs associated with bankruptcy that smaller companies cannot afford but larger ones can. “It is costly, so smaller companies are selling assets or looking for a buyer,” said David Fiorenza, a visiting instructor at Villanova University’s School of Business. “The process of bankruptcy could take longer than they would prefer so they just sell for 30 cents or 40 cents on the dollar and then it becomes someone else’s problem.”While the decline in business filings is viewed as a good sign for the economy, many pundits are predicting there will be another spike in filings when and if interest rates rise. Schorling said many struggling businesses have been saved by “unrealistically low” interest rates that allow them to maintain reasonable levels of cash flow despite the prolonged economic slump. Felger said he will enjoy the downtime for the next quarter or two because most pundits expect another spike. “Interest rates could affect the liquidity of many companies that could go off the cliff unless they find favor with their lenders,” Felger said. “[The Federal Reserve] is trying desperately to keep interest rates low but many question for how long.” Lapowsky said if interest rates rise as the economy improves, “that could make up for the additional borrowing expense. But if rates go up and the economy doesn’t, there could be a problem.” The number of Chapter 11 business filings in Wilmington rose from just 45 in second-quarter 2008 to 306 in the third quarter, 531 in the fourth quarter, 449 in first-quarter 2009 and remained over 300 filings a quarter through first-quarter 2010. Since that period, filings have declined to just 93 in the first quarter of this year, the lowest number since second-quarter 2008. Conversely, the number of Chapter 11 business filings in Pennsylvania’s eastern district, which is based in Philadelphia, have not fluctuated much since the beginning of 2008 — from a low of 19 in second-quarter 2008 to a high of 45 in first-quarter 2009 to 28 in first-quarter 2011. Quarterly filings in New Jersey have ranged from 50 to 127, with 92 in the first three months of 2011.

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Grad placement improved The job market for this year’s crop of college graduates probably isn’t as good as they’d like it to be, but it’s better than it was last year and much better than it was two years ago. Respondents to the recent National Association of Colleges and Employers’ 2011 Job Outlook Spring Update survey said they plan to hire 19.3 percent more graduates this year than they did last year. People with the career offices of area colleges and universities say the number of employers who visited their campuses the past school year and the number of positions for which they were hiring were up from last year, although the amount of the increases varied by school. The University of Pennsylvania saw a big jump. Employers conducted more than 14,000 interviews on the Penn campus in the school year just ended, up from 12,821 last year and 10,859 two years ago, according to Patricia Rose, Penn’s director of career services. “It’s a much better year,” Rose said. “That doesn’t mean that every graduate has a job — they don’t, they never do — and it doesn’t mean that there aren’t groups of students for whom this is still a bad economy, but for our large group of undergraduates, we see a lot of students who have accepted employment.” The competition for jobs is less fierce than it was last year. NACE’s Spring Update respondents said that while the number of applications they have received from graduating seniors has increased nearly 45 percent, the number of positions for which they’re hiring has tripled. The result, NACE said, is that the average number of applications per position has dropped from 40.5 last year to 21 this year. The best major for hiring is engineering, with 63 percent of NACE respondents saying they’re hiring people from it. Sixty-one percent said they were hiring business majors and 48 percent said they were hiring accounting majors. One accounting major who got hired was Carissa Branson. The Deptford, N.J., native participated in the fall recruiting program at Rutgers University

-Camden and landed a job at the Center City office of accounting firm

Tait Weller & Baker. “I was terrified that I wasn’t going to get a job,” Branson said. “The job market is tough right now.” It wasn’t that tough for accounting majors at the Villanova School of Business, 98 percent of whom had job offers prior to graduating, according to Brenda Stover, the school’s director of professional and business institutes.

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The figure is impressive, but Stover said every year by now most of the school’s accounting majors have jobs or graduate school lined up. “Many of our marketing and management majors are still actively pursuing opportunities,” she said. Strong industries for this year’s crop of graduates, according to NACE, are oil and gas extraction, chemicals and pharmaceutical manufacturing, computer and electronics manufacturing, and financial services. The public sector isn’t faring so well, with six of the eight government organizations that responded to NACE’s spring survey saying they expect to reduce their hiring of new graduates this year. “I think in the education market, it’s fairly tentative right now,” said Rebecca Ross, the director of West Chester University’s Career Development Center. “Public schools and districts are holding off [hiring] until they see actual budgets.” Ross said 68 employers attended West Chester’s career fair this spring, which is about normal. In 2009, the first spring after the economy melted down, the number was 50 to 55, she said. Drexel University had 100 employers at its career fair this spring, up from 75 last year, and they weren’t just there to fly their organizations’ flags. “They were all indicating that the economy was better for them and they were all there to hire,” said Kathy Neary, Drexel’s associate director of global business development and career services.Drexel has a closer relationship with employers than most schools because of its co-op program, which allows students to work up to a full school year at a participating organization. For example, Michael Liedike, an information systems manager from Bridgeton, N.J., did his co-op with Deloitte LLP. During Drexel’s winter term, he said, the accounting firm offered him a 60-day contract to work at its Glen Mills, Delaware County, office. “I’m actually working full time and going to school,” he said. Liedike’s contract is up at the beginning of June. He said Deloitte is interested in giving him more contract work or hiring him permanently, but isn’t sure it will be able to do either.If it can’t, Liedike thinks he’ll be able to get a job elsewhere. “I’ve been told that my résumé is pretty good compared to a lot of college graduates with Deloitte on my résumé and I think the number one reason why I have this job is because of the Drexel co-op.”

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Cigarette Packaging Still Too Alluring, Studies Find FRIDAY, May 27 (HealthDay News) -- Savvy tobacco companies are using color and other design elements to circumvent new U.S. regulations that crack down on misleading cigarette packaging, researchers say. As of June 2010, tobacco companies were prohibited from using terms such as "light," "mild" or "low," which minimize the dangers of smoking, in advertising and on cigarette packaging. But tobacco companies have found other terms, colors and even numbers to create an illusion of safety, according to several new studies from the Roswell Park Cancer Institute in Buffalo, N.Y. The researchers determined that certain design features -- light- or pastel-colored packaging associated with mild cigarettes, for example, and carefully chosen numbers -- enable cigarette makers to skirt the laws. "Though the removal of descriptor terms like 'mild,' 'light' and 'low' are a good start, manufacturers have basically replaced these terms with terms such as 'gold' and 'silver,' and changed the shading on packs to continue to mislead consumers," said study author MaansiBansal-Travers, a behavioral research scientist at Roswell Park. Another expert agreed that cigarette makers are using code language to falsely convince consumers that some cigarettes are less deadly than others. "From international evidence, we know smokers who see white, silver or light colored packs are likely to associate them with lower harm products; blue packs with mild products; red with regular [full-flavor] products; and green with menthol," said Janet Hoek, a professor of marketing at University of Otago in New Zealand. "Pack colors have become quite strongly paired in smokers," and they now recognize them without any verbal descriptions, she added. Hoek, who was not involved with the research, is an expert on tobacco regulation and other issues. The three studies, published in the June issue of the American Journal of Preventive Medicine, conclude that cigarettes should be sold in standardized plain packs with coloring restricted much like wording. In one study, about 190 smokers were shown six cigarette packages of Marlboro or Peter Jackson, a brand sold in Australia. The packages, in different shades and colors, had all text removed other than the brand name. Participants who said they were concerned with health, tar, nicotine and safety overwhelmingly picked the "whitest" package, such as an ivory-colored pack of Peter Jackson's. In a second experiment, researchers showed about 200 smokers and 200 nonsmokers pictures of cigarette packages that differed by a single element, either color (for example, light blue vs. dark blue); number ("10" vs. "6" ); or the size of the health warning. About 87 percent said they'd choose the lighter colored package over the darker one if they were trying to reduce their health risks. The lighter colored package was also strongly associated with smoother taste and less tar. About 89 percent of those concerned about health said they'd pick the package with the number "6" vs. "10," while 88 percent believed the packaging marked with a "10" had more tar than one marked with a "6."

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About 81 percent thought a package labeled "full flavor" had more tar than one with the word "silver" on the front, while 78 percent said they would choose the "silver" pack to reduce health risks. A third study tested reactions to proposed "corrective" statements about tobacco company misinformation that the U.S. federal court in the Department of Justice case against cigarette manufacturers is seeking to slap on cigarette packages. Study participants temporarily increased their knowledge about smoking risks, but the researchers concluded that people need sustained exposure for such messages to sink in. These efforts stem in part from the Family Smoking Prevention and Tobacco Control Act of 2009, which granted the U.S. Food and Drug Administration broad powers to regulate the manufacturing, advertising and promotion of tobacco products as a means of protecting public health. The United States is following the lead of other countries in cracking down on misleading cigarette packaging. More than a dozen nations have stringently regulated cigarette packaging for years, with some requiring gruesome images on the packaging. Starting in 2012, U.S. cigarette makers may have to cover half the packages with more graphic warning labels and vivid images of the dangers of smoking. The FDA is still mulling which labels to choose. "Despite the graphic warning labels, which will be great progress in educating consumers about the risks of smoking, there is still 50 percent of the pack that can be used to mislead consumers on the relative risks of their products," Bansal-Travers said. Marketing experts agree that the new legislation may not keep the packages from conveying subtle but powerful messages about the cigarettes inside. "Packaging is what sells the product at the point of purchase," said Jeremy Kees, an assistant professor of marketing at Villanova School of Business. "Up to 70 to 80 percent of consumer decisions are actually made in the store at the point of purchase," Kees said. "Of course, advertising and other promotions are important, but the packaging is the unspoken salesperson for the product."

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Hiring up for new graduates, but recent classes may never catch up It's been a month of bright hopes and brave speeches for the newly varnished tossing their mortarboards into the air at college graduations in the region.And no wonder. After several slow years, employers are actively recruiting on campuses again, and hiring is up 19.3 percent for 2011 college graduates compared to the Class of 2010, according to surveys by the National Association of Colleges and Employers, a research group in Bethlehem. Salaries are also up 5.9 percent over last year, to an average $50,462, NACE reported. The numbers look good, but they are being measured against several years of minimal hiring over the course of a historic recession. Those who graduated two to four years ago are already paying the penalties for the weak hiring environment that began with the economic collapse in 2007. Barely more than half of them hold full-time jobs, and even fewer have jobs in their fields. Moreover, they are likely to be compromised for years to come, including being overtaken in the job market by the Class of 2011. Among the newly hired from that class is Joseph Fraim Kressler of Villanova University. The accounting major starts working for PricewaterhouseCoopers L.L.P. in Center City in September. All but three of his 136 fellow accounting-major classmates have had offers. "As much as I love golfing all summer, I'm ready to take the next step and actually start making some money," said Kressler, of Bloomsburg, Pa., who will move to an apartment in Manayunk. "Life is better for this year's class, but it's not universally better," said Ed Koc, NACE's research director. Nearly every sector is looking to hire recent graduates, with hiring up 97.1 percent for engineers, NACE reports, though with a limited number of engineering firms responding. Manufacturing hiring is up by double digits in categories such as food, pharmaceuticals, and computers. Construction businesses are looking for college graduates, as are utilities and oil- and gas-extraction companies.

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"It's improved if you are looking at a career-oriented major, especially if it is in computer sciences," Koc said. But prospects remain less thrilling for liberal arts and education majors, who tend to rely on public-sector jobs. Governments are hiring 25 percent fewer graduates than they did a year ago. "For education majors, it's the worst I've ever seen," Koc said. "Only 19 percent even got offers. "I thought last year was the worst it could be, when only 22 percent got offers. I didn't think we could exceed that, but we did." Koc said prospects should improve if the private sector keeps adding jobs. "Then you are going to see the revenue coffers for state government [increase], and some of the school districts will be able to hire again," he said. "They do have to replace the teachers who are going to be leaving the system." All the good news for 2011 grads masks the discouraging prospects for young people who had the misfortune to graduate a few years earlier. "They are calling us the generation without hope," Kari Randall said as she shopped her resumĂŠ around at a job fair for recent college graduates at Temple University last week. "I agree with that." Randall graduated from Indiana University of Pennsylvania in 2008 with a degree in journalism. "For the first time in American history, we have nowhere to go," she said. Randall and her classmates are not only competing against this May's graduates for jobs but also against more seasoned unemployed workers willing to take jobs with less pay and less scope to stay in the labor market. Randall and the others are just starting out, but they face lasting consequences. Companies, Koc said, set aside entry-level slots for that year's college graduates. Graduates from the Classes of 2007, 2008, 2009, and 2010 land in the mix with job seekers of all ages, but they don't have enough experience to compete. "The studies indicate it will take at least 10 years [for conditions to improve for those college graduates], or they may never fully recover from the bad start they've had in the economy," Koc said. Randall worked for two years at a small-town newspaper while she was in college but has yet to land a permanent job in her field. She works part time as a church receptionist, tries to land freelance writing gigs, and relies on her faith that God has a plan for her.

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Nathaniel Cooper graduated from Howard University in 2010 with a degree in economics. He lives with his parents in Sicklerville and works a customer-service job that does not use his skills. He'd like to go into management or human resources, which is why he was at Campus Philly's Opportunity Fair at Temple last week. "The economy is tough," he said. "There are no jobs for us." Indeed, of all those who graduated between 2006 and 2010, barely half are working full time, and three in 10 have jobs that have little to do with their education, according to a study released this month by the John J. Heldrich Center for Workforce Development at Rutgers University in New Brunswick. Many made significant concessions to get jobs - working for less money, below their education level, outside their career interests, and without benefits. "Overall, the big picture is that the entire labor market is a buyers' market," said Carl Van Horn, co-author of the study and director of the Heldrich Center. "There is a large group waiting of talented people who have graduated in the last three or four years, and many of them have not found full-time jobs," he said. "Even though the economy is picking up, it's not picking up at a pace that can absorb all those jobs." According to the Rutgers study: Four of 10 took more than six months to find a job, and only 56 percent of 2010 graduates had found one by April. Four in 10 took jobs that did not require a degree. Students who entered the job market in 2009 and 2010 earned 10 percent less than 2006 and 2007 graduates. Though one in six believes he or she will have more financial success than the previous generation, 56 percent expect to have less success. Parents are propping up their children all the way through the young people's 20s. Of those ages 26 to 29, one in six either lives with parents or gets help with rent or a mortgage. As these young people struggle to find their place, they remain a drag on an economy barely limping into recovery, Van Horn said. They should, he said, be in the acquisition phase of their lives - buying cars, furniture, and homes, in turn helping to revive the economy. Instead, they are jobless, saddled with debt, and relying on their parents. "One of the ways this ripples through the economy is purchasing power," he said. "They have less purchasing power."

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Exterrnal Aud ditors Soometimees Will Rely R on Internaal Audittors New w research indiccates that exterrnal auditors arre likely to relyy on the work of o interrnal auditors onnly under certaain circumstancces. Proffessor James Bierstaker B of the t Villanova School of Bussiness in Penn nsylvania has written a stud dy of the mattter. The Publicc Company Accoounting Overssight Board haas recommend ded that exterrnal auditors “rely “ on th he work of oth hers” to reducce the greater--than-expected d costs associaated with h compliance with w Section 404 of the Sarb banes-Oxley Act. A However, desp pite the PCAO OB’s guidance,, little researcch has been doone since Sarb banesOxleey to investigaate the externaal auditors’ “rreliance decisions.” The decisiion on whetheer to rely on th he work of inteernal auditorss, as opposed to t external au uditors doing the t work them mselves, can bee complex deccisions that req quire auditor’’s judgment and a can be inflluenced by a number off factors, the study s found. Bierstaker’s B sttudy examiness both the inteernal and enviironmental influencess via an experiiment with neaarly a hundreed auditors, including 48 sen nior-ranking auditors a and 48 4 auditors at a the managerr or partner rank. The study identified diffeerent working styles s among thhe auditors andd measured thee barriers to theeir cooperationn with one anotheer. The particip pants were randdomly assignedd to conditions of high or low w audit budget pressure, p and to t high or low w client pressurre. Perceptionss of risks assocciated with “relliance decisionns” were also measured. m The study found that exteernal auditors were w more likeely to find the internal i auditorrs’ work usefull under conditiions where the perceived p riskss were low or when w they were pressed to doo so by client management, m particularly managemeent seeking retu urns on enhancced investments in the internaal audit functioon, a common condition c follow wing compliancee with SOX maandates and effforts to reducee related costs. The influennce of the percceived barriers to cooperationn (related to intternal auditor ability a and objeectivity) were contextual (interacting with w each other and budgetary pressures). Thhe external audditors were morre likely to relyy on internal auudit when they were viewed as a highly competent and also highly confronntational. Professor Bierstaker’s findings f suggeest that in add dition to client risks and inteernal audit qu uality, auditorrs’ reliance on n the work of internal auditt may depend on their willingness to conffront management or their preferencee to avoid conflict, as well as a their percep ptions about whether w it wou uld be pleasantt or unpleasan nt to

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work with internal audit. These individual differences could very well exert significant influence over any task that requires significant judgment. The study originated with Auditing Standard No. 5, which the Public Company Accounting Oversight Board approved as a way to make Sarbanes-Oxley audits more efficient and cost-effective, in part by allowing external auditors to rely on the work of others, including internal auditors. “We did this study to see whether external auditors would really start to use internal auditors’ work,” Bierstaker said in an interview. “What we found was, if it was a high-risk area, for example, they were still reluctant to rely on internal auditors. And another thing that would get in the way was the professionalism of the internal auditors. In looking at the barriers to communication, what we found was that if the communication skills of the internal auditors weren’t that good, that could be another potential problem area.” Other studies have also found that internal auditors may not have as much training in communication “soft skills” as external auditors, Bierstaker noted. “What we found was that if an external auditor had a negative prior experience with an internal auditor, they might be reluctant to use internal auditors’ work,” he said. “And work styles came into play too because if an external auditor had a conflict avoidance work style, and the CFO was really pushing to rely on internal audit, they might just do it to avoid a conflict with the CFO. But if the external auditors had more of an activist work style, if they were more comfortable pushing back and saying, ‘No, I still don’t want to rely on internal audit, even though you’re telling us they’re really great,’ they would still stand up more to the CFO, so it kind of depended more on their own work style.” Bierstaker recently presented the study at the Center for Global Leadership at Villanova, where it won the Research Excellence Award. He is planning to submit the study to academic journals for publication, and he has volunteered to work on synthesizing the research with other academics for the PCAOB.

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Catholic school closes after 64 years SOUTHCREST — It wasn’t unusual for graduates of St. Jude Academy to return years later to enroll their own children in the small parochial school. Parents said the close-knit community provided them lifelong friendships, strong academics and religious guidance. But that tradition is coming to an end. After educating students for 64 years, St. Jude’s Academy will close its doors Friday. Catholic diocese and parish officials decided this spring that the beloved school, which was opened in 1947 by the School Sisters of Notre Dame in old Navy barracks and named for the patron saint of lost causes, could not remain open as declining enrollment and income led to spiraling budget shortfalls. Parents, teachers and alumni say the school on 38th Street over the years provided a safe haven from the outside world and helped put preschoolers to eighth-graders on the path to academic success. “This is a little piece of heaven where everyone can find refuge,” said Maria Owens, the school’s bookkeeper, whose four sons graduated from the academy and whose daughter is a fourthgrader. “They know they are safe. They know they are taken care of.” St. Jude was known for its strong sports programs, a fact evident by the sheer number of basketball and football championship trophies crowded into its school display case. Particularly memorable was the 1998 seventh- and eighth-grade boys’ basketball team, which went 60-0 in league, recreation and tournament games, said Jack McCarthy, who coached sports at the school for nearly 20 years. “We still call it ‘the dynasty,’ ” said Mickey Pimentel, 26, an alumnus who became a professional football player with the Carolina Panthers, Kansas City Chiefs and Atlanta Falcons. Raised in Lincoln Park with his five siblings by his mother, Pimentel credits St. Jude teachers and coaches for keeping him away from drugs, gangs and other negative influences.

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“I might have fallen into the stereotype with my surrounding community. A lot of people don’t make it out of that place,” Pimentel said. “Since I went to St. Jude, it kind of pulled me away from that and it made me want more.” The academy’s enrollment at one time topped 300 students, but fell to 173 this past year as the sluggish economy made it difficult for families to come up with tuition ranging from $2,800 to $4,600, depending on income and other factors. Yolanda Minton, the school’s principal for the past 11 years, said the academy always was at risk but survived again and again with the help of benefactors. “People loved to help us. They saw what a wonderful investment it was,” Minton said. Stevan Laaperi, director of schools for the Roman Catholic Diocese of San Diego, said the diocese gave the academy about $450,000 over the past four years to meet operational costs, but this year the deficit swelled to $450,000 in a single year. “I think more people were asking for reduced tuition rates, their enrollment wasn’t growing, it was going backward. The numbers were not as strong as they had been,” Laaperi said. Parents and alumni rallied in the spring, trying to raise money and boost enrollment to keep the school open. Some were angry that they were given too little time to bridge the gap. Some questioned whether the 2007 settlement of sex-abuse litigation filed by people who alleged they were victimized by priests and church workers, which cost the diocese $107 million, was partly to blame for the closure. Charles Zech, a professor at Villanova University who has researched the economics of religious organizations, said he was unfamiliar with the St. Jude closure but said dioceses generally are having to make tough choices after paying out large settlements. Diocese officials point out they have not closed a parochial school in the region since 1993, with the exception of two high schools that were replaced by larger, new facilities, and said it was the economics at St. Jude that forced the decision, not the settlement payout. As the school year came to an end, parents scrambled to enroll children in new schools, some with the assistance of parish scholarships, and most of the teachers lined up new jobs. Minton told her staff and students to think of themselves as puffs on a dandelion being blown to new places, carrying a little bit of what made St. Jude special along with them. Kindergarten teacher Amanda Alarcon said that image comforted her as the last day of school approached. “We are getting blown to grow new flowers,” she said, “and to spread what we have here to new places.”

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The parish that works: Business practices for the church Imagine the moment (with a choir in the background for good measure): Under a banner proclaiming “Welcome Home!” a lapsed Catholic opens the beautifully crafted doors to the parish where she hopes by God’s grace to renew her faith life in Christ and the holy church. The friendly pastor, a smile on his face, shakes the newcomer’s hand, saying, “Thanks for giving us your business! We promise that you’ll discover we operate with best practices, accountability, transparency, and financial protocols that will ensure your donation is used effectively.” Choir sputters out, banner blows away in a sudden storm, and the returning Catholic bolts. And rightfully so. After all, thinking of the church—the body of Christ—and parish life in business terms is not what anyone wants. That’s just flat-out secularizing the sacred. Isn’t it? Charles Zech, director of the Center for the Study of Church Management at Villanova University, has heard the criticism and agrees with it—to a point. “The church is not a business,” Zech says, “but we do have a stewardship responsibility to use our resources wisely.” The goal is to adopt, to the extent possible, best practices from the business and nonprofit sector so as to more effectively utilize parish resources in service to the mission of the church, according to Peter Denio, coordinator of the Standards for Excellence project at the National Leadership Roundtable for Church Management (NLRCM, see “Business schooled” on page 14). Best practices include transparency and accountability in planning, financial reporting, and decisionmaking; collaboration with lay experts; good communication practices; thoughtful protocols (including child protection procedures) instead of “the way we’ve always done it”; and evaluating performance so as to improve. Good management in parishes and dioceses has always been a concern but has become more complicated as the world evolved. “I think back to the simple parish I grew up in in Ireland,” says Thomas Groome, chair of Boston College’s Institute for Religious Education and Pastoral Ministry. “Father Pat Harris, bless his heart, did not need a parish manager.” A priest didn’t even need a secretary. At least Pittsburgh Bishop Hugh Boyle, who wrote in 1948, didn’t think so: “I observe that some pastors have arbitrarily and boldly presumed to charge the parish treasury large amounts of money paid to a lay parish secretary. This is definitely unlawful and cannot be tolerated. All secretarial work must be done by the pastors and their assistants.”

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Bishops came around to see the need for parish secretaries, and they come around to seeing the need for better management practices. Msgr. Arturo Bañuelas, pastor of St. Pius X in El Paso, Texas, believes that bishops have themselves encouraged some of the new collegiality through their example of including more lay experts on diocesan boards and turning to lay experts for advice more often. “Yes, the church is not a business,” Groome said in response to one skeptical bishop, “but there’s the credibility of it that has been terribly damaged by poor management.” It’s not, in fact, for-profit business models that Groome and Zech are teaching. That would be easy. Both nonprofit and for-profit models are about planning, stewardship, enhancement of leadership, evaluation, and accounting. But while efficiency dominates the for-profit model, nonprofits must balance efficiency with relationships and mission. “The mission has to trump the management,” Groome says. “Yet the mission is constantly enhanced by good management and diminished by poor management.” Performance review A confluence of events has brought wide support for bringing the church into the modern world of striving for best management and financial practices. Foremost is the church’s culture of secrecy and clericalism that facilitated crimes against children. At almost the same time, the 2001 Enron debacle underlined the need for accountability and transparency, as well as good financial and personnel management, in every organization. Meanwhile the shortage of priests has made even vehement critics of the Second Vatican Council’s empowerment of the laity acknowledge at least a temporary need for laity to fill non-sacramental roles. “Half the priests already serve more than one parish,” says Father Steve Brice in Wausau, Wisconsin, regarding the Diocese of La Crosse. “We’ll have to go to one priest per four or five parishes.” Costs from lawsuits have already brought about nine diocesan bankruptcies. Those losses plus a lack of priests, practicing Catholics, and revenues have led to the closure of hundreds of parishes and schools nationwide. The Archdiocese of Newark, New Jersey alone has announced 100 parish closures in the past six years. The Diocese of Cleveland’s recent reconfiguration resulted in 50 fewer parishes. In the 2009-2010 academic year, 174 Catholic schools closed or consolidated. Finally, it’s almost cliché to say that if the 30 million lapsed U.S. Catholics were counted as a denomination, they’d be second only to the 68 million Americans who count themselves as Catholic. None of this reflects upon the eternal truths of the Catholic Church. They are rather the result of management problems, with terrible consequences for the faithful. There is no way that fewer priests, parishes, and schools make for a stronger church. But after a group of powerful and concerned Catholics created the reform-minded NLRCM in 2005, Bishop J. Kevin Boland of Savannah, Georgia told USA Today that the church is ordered by faith, not

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stockholders. “I fully support collaboration, but the challenge is how to apply [good business practices] theologically. We are not Walmart.” Still, when you combine the budgets and workforce of U.S. dioceses and other Catholic institutions, with a million employees and an annual budget of $100 billion, the church “is comparable in size to Walmart,” Frederick Gluck, former managing partner of McKinsey & Company, wrote in the Jesuit journal America in 2004. “But it still follows a feudal model of governance and management,” added the now-board member of NLRCM. Neither Groome at Boston College nor Zech at Villanova hear criticism anymore regarding the need to run parishes and dioceses with best business practices—which means greater lay involvement. There may at one time have been unease surrounding handing over business management of parishes to lay staff, they say, but that’s now in the past. “Bishops see the need,” says Zech. “We’re killing our priests.” Human resources There have always been parishes that have provided models of good management—and pastors in favor of running their parish on a business model. “I want to believe that we are running the parish on a gospel model with good business practices,” says Father Dave Gutmann, pastor of Holy Trinity in Beaverton, Oregon. A hardworking staff surrounds Gutmann, and the office door opens regularly to parishioners, coming in and out of the Oregon drizzle. Two thousand parishioners attend Sunday Mass here, and Holy Trinity boasts a dozen active ministries. “The finances and personnel management alone would take all my time if we didn’t run the parish like—well—a business,” he says. Gutmann credits his business manager, Kenya Palmer, as key to Holy Trinity’s smooth operations. Palmer, a 25-year veteran of upper management at nearby Nike, is a picture of welcoming efficiency—as is Gutmann. So does Palmer’s presence mean that Gutmann doesn’t need to keep track of the parish spreadsheets? Not at all. “Knowing business practices and administration is just part of the job,” he says. “A priest can’t just wash his hands of it; he can’t be a good administrator without knowing the stuff.” Easy for Gutmann to say. The priest is clearly a type-A personality, an on-the-go, well-organized extrovert who says he’s very familiar with how to read a balance sheet. He’s taken courses in business and regularly reads business books—for enjoyment. “I’m interested in it,” says Father Gutmann. “I knew it would be important.” Few seminarians, though, hear their vocation in terms of parish finances, budgets, and human resources management. When even a priest like Gutmann insists on a business manager, consider the plight of most priests. At St. Anne’s in Wausau, Brice says he’s been asked how the 1,700-family parish can afford a business manager. “How can we afford not to?” he counters. “Clergy have no training for human resources, for finances, for legal concerns. We’re walking into a buzz saw unless we bring in laypeople to help.”

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In the course of renewing the parish—and avoiding that buzz saw—Brice hired Jesuit Father Tom Sweetser and his partners at the Parish Evaluation Project to assist with self-assessment, planning, decision-making structures, and other business practices, all within the paradigm of empowering lay leaders. Sweetser says the naysayers on adopting business practices are still there. “You have to be very careful,” he says. “When we come in, we drop all language that has business connotations. It’s not business methods, it’s church methods.” A key element of Sweetser’s solution to bettering parish management practices is boldly elegant: He helps pastors find a lay partner, a co-worker who has knowledge in business and human resources. “Amazing things happen when the pastor has a partner who knows best business practices,” he says. “This person can sit down with the pastor and say, ‘This is what you need to know.’ ” At St. Anne’s, the former business administrator has become the pastoral administrator. “We share a vision,” Brice says of Jennifer Baumann. As an example of how such a partnership works, Brice tells how St. Anne’s recently hired a firm to manage its endowment fund. Both Brice and Baumann were present at the first round of interviews. When it came time for the second round, the pastor turned it over to Baumann. “I respect her business sense,” he says. Brice instead spent the day anointing four dying parishioners and visiting a fifth. “That’s the beauty of this model,” he says. “The business gets handled with expertise, and the priest is able to be about pastoral ministry.” Who’s the boss? Most pastors can achieve this kind of partnership, Sweetser says, but not without growing pains. “I’d always thought of myself as a collegial guy,” says Brice. “But I had profound feelings of displacement as we were implementing this.” He remembers, for instance, how he once led all the staff meetings, and how satisfying it was to see all those heads turn in his direction for answers. Now there’s a rotating leadership for staff meetings and the staff often looks to Baumann. In compensation Brice says the various leaders bring unexpected and important agenda items and insights to the meetings, and he isn’t burdened with preparing them every time. The parish is flourishing. “It’s a supply-side model,” Brice jokes. “If you supply the ministries, people will come.” A part of St. Anne’s vision statement reads, “At St. Anne’s, every baptized person is given the opportunity to share in Christ’s priestly, prophetic, and kingly ministries. . . . As parish members, we bring our wisdom and experience to all aspects of parish life from leadership decisions to ongoing operational projects. The pastor recognizes and promotes the dignity, giftedness, and responsibility of the laity and leads them by example.” A pastor must honestly have faith in the Holy Spirit in order to do that, Brice says. “But I believe we are incarnating the spirit of Vatican II.”

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Sweetser acknowledges that a new priest coming into a smoothly running parish can undo all the good work. Younger priests, in particular, may not have the self-confidence to believe that there won’t be chaos if they delegate power. “It’s a troubling scene,” he says, referring to a parish where an unsuccessful transition has occurred. “People are going somewhere else. There are financial problems. Without accountability a pastor can do anything he pleases.” A transition committee, Sweetser says, can create an image in the diocese of what kind of parish they are (branding, in business-speak), and go to the chancery to present the parish’s needs. If the new pastor is prickly about his power and makes decisions without telling people—or staff make decisions without telling him—relationships can sour. The practice of “consult, decide, inform” is one solution to that communication pitfall. First, Sweetser says, people clarify the issue they’re deciding. Then they discern who should decide. That person or group then consults with the necessary parties, makes the decision, and then considers who must be informed of the decision. Processes like this are time consuming, but it makes for a smoother operation—and in the end even idealistic young priests realize that they don’t have the time to make every decision if they hope to run a parish that offers all the ministries of today’s parishes. Multicultural and multilingual parishes make for even more challenges. It’s difficult to find management theories that apply to multilingual, multicultural communities, says Bañuelas. For instance, a priest or parish manager must begin with building relationships when working with Hispanic parishioners, since their culture prioritizes family and community. With some non-Hispanic parishioners, though, that priest or lay manager may need to demonstrate a get-to-the-point, time-ismoney sensibility, he says. “It’s not just to affirm their worldview, it’s in order to enter into it and see the world from their point of view, so that you can collaborate with them at a deeper level—both for management and for pastoral care,” says Bañuelas. “Otherwise you might miss out on the gifts they bring.” Bañuelas suggests that the servant-leader management model works across cultures. “The church has a great theology for servant leadership and collaboration with the laity,” he says. Well-oiled machine Zech sees today’s ideal parish as having a number of vital ministries, all well supported by the parish staff. “Get rid of the word volunteer,” he says. “These people are doing ministry; we should call them ministers. Serving on the finance council is just as much ministry as being a eucharistic minister.” Volunteers don’t necessarily expect to be supported or trained. They certainly don’t expect to be held accountable. “But ministers should expect all three of those things,” Zech says. “We wouldn’t throw someone in as a lector without training. And ministers should understand that if they’re not a good fit for their ministry, then we’ll find something else for them to do. It’s not OK, for instance, to be unprepared if you’re a teacher.”

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Another benefit to parish volunteers seeing themselves as ministers? Sweetser has found that they substantially increase their contributions to their parish. Sweetser reminds parish staffs that they can’t be the only doers. They’re there to find partners themselves. “The laity have a lot of resources already, but they’re not empowered.” At St. Pius X in El Paso, finance committee members don’t just advise, they vote on long-term and short-term plans for the 3,000-family parish. The parish’s ministry council decides on major projects. “But this isn’t just about finances, it’s about training people to take their roles in the church,” says Bañuelas. “This is an inspiration of Vatican II. Because of our baptism, we all have a part to play in the mission of the church. One of the greatest gifts of a leader is to bring out the gifts of everyone else and put them to work for the good of the community.” Thomas Harvey, a former head of Catholic Charities and now director of Nonprofit Business Development at the University of Notre Dame’s Mendoza Business College, has a key maxim he practiced at Catholic Charities: Never rely on behavior if you can solve a problem systemically. “The collection isn’t counted by one person,” he says. “You may have to borrow tools from a nonprofit library. Use an assessment tool for volunteers. Hold people accountable. As people are coming on, they need to sign a conflict of interest statement.” For child safety, he recommends the protocols set forth by the Council on Accreditation, which offers an evolving blueprint of policies and procedures. If, for instance, a child has to go to the dentist, there must be more than one chaperone in the car. Harvey says Catholic Charities and accredited child welfare agencies have almost no pedophilia because accountability is built into the system. “There’s a protocol, not just a handshake.” Father William J. Byron, S.J. has suggested parishes consider themselves as family businesses. Family businesses train their members in a more personal, more caring way than would a big corporation. Additionally, everyone in the family has a right to know how the business is doing and has a say in decisions. Craig Franco, president of the Catholic Business Network in Salt Lake City, sees this happening. “The church is coming out of this horrible period of abuse of power,” he says. “It’s reaching out and becoming more of a true community. So businesspeople will be able to do even more for their congregations. There’s so much talent within a parish—a lot of good is left untapped.” Growth chart Many parishes across the country already embody best practices. At Holy Trinity in Oregon, for instance, the books are always open, available to anyone. But even Gutmann had to learn some of his current competence the hard way. He winces at the memory of having discovered embezzlement at a previous parish only after several thousands of dollars had disappeared. The NLRCM’s programs and those offered by Boston College, Mendoza, Villanova, and several other institutions, aim to give lay administrators and pastors the tools they need to avoid having to live through cautionary tales of their own.

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“There are so many requests from young priests,” Harvey says. “They’ve been assigned parishes and don’t know what they need.” “No one goes to seminary in order to run a small business,” Zech says. “But they should know enough about finances to be able to talk with the folks running [them].” It’s not only priests who have limited business experience. Parish staffers are more likely to have a degree in theology than in management. At the most they may have a background in nonprofits. Pastors’ most frequent requests are for courses in accounting and human resource management. “Personnel concerns are what keeps a pastor up at night,” says Father Bob Heidenreich, pastor of Sacred Heart parish in Winnetka, Illinois. “Ministry is relationship. Cardinal [Francis] George [of Chicago] said ministry is to bring people into relationship with Christ and to bring people into relationship with one another as the body of Christ.” Harvey notes that in the past, there were high levels of trust, allowing for better functioning with parishioners accepting the pastor’s authority. Geoffrey Boisi, a former Wall Street banker and a board member of NLRCM, has said the Roundtable is intended to help re-establish the relationship of trust between the hierarchy and parishioners. What goal could be more worthy? In fact, good management within parishes, Catholic nonprofits, and the church as a whole isn’t important just for Catholics. Catholic schools educate more than 2 million American children every year, and Catholic Charities is second only to the U.S. government in helping those in need. At a less tangible but more profound level, Groome says that the Catholic Church has been one of the primary social structures forming opinion and values. “It has been a major force within the public realm of this great American experiment,” he says. “The Catholic Church and Catholic community have been a major force for good, truth, and justice.” Tragically its forcefulness, or as Groome puts it, “its leavening power,” has been greatly diminished in recent years. Can good management turn that around? As Brice might say, how can we afford not to try?

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New Cigarette Health Labels: 'Gross' or Effective? You may think an image of rotting teeth and a mouth lesion are gross. But the U.S. government says it's just what you need to kick the habit. Cigarette packs in the U.S. will soon feature new warning labels with graphic images of the negative health effects of smoking, including diseased lungs and the sewn-up corpse of a smoker. The U.S. government hopes the new warnings will discourage smoking, but smokers and nonsmokers alike question whether the ads are too gory. "Somebody said when they first saw the warnings, 'These are really gross.' And they are," FDA Commissioner Margaret Hamburg said at a White House briefing. "We want kids to understand smoking is gross —— not cool —— and there's really nothing pretty about having mouth cancer." The labels, which were released on Tuesday, are a part of a campaign by the Food and Drug Administration that aims to convey the dangers of tobacco, which is responsible for about 443,000 deaths in the U.S. a year. The warnings, which must appear on cigarette packs by the fall of 2012, include several images that could be seen as shocking to some —— and disturbing to others. Among the images: A man with a tracheotomy smoking, a mother holding her baby with smoke swirling around them and a man with an oxygen mask. The labels also feature phrases like "Smoking can kill you" and "Cigarettes cause cancer." They will take up the top half — both front and back — of a pack of cigarettes and be featured in advertisements. Some consumers on Tuesday said that they were concerned that the images on the new labels were too explicit for children and others who might come across them in store aisles. Zenobia Marder, a nonsmoker and high school student from New York City, was startled when she looked at some of the labels. "Oh my God!" screamed the 15-year-old. Ashley Johnson, 21, of Cincinnati, had a similar reaction. "They look so bad," says Johnson, who has been smoking for about a year. "I think that when people see these pictures, they might put the cigarettes back and get something else instead." Warning labels first appeared on U.S. cigarette packs in 1965, and current warning labels that feature a small box with text were put on cigarette packs in the mid-1980s. Changes to more graphic warning labels that feature color images of the negative effects of tobacco use were

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mandated in a law passed in 2009 that, for the first time, gave the federal government authority to regulate tobacco. Tobacco companies and others have argued graphic warnings like the nine new labels may cross the line of social acceptability. In comments to the FDA, some tobacco companies argued the "shock and awe" of the labels have been used in numerous ideological debates like when anti-abortion protesters display photographs of aborted fetuses or animal-rights activists display photographs of mutilated animals. "Although such images illustrate actual effects of abortions and actual animal treatment, no one would contend that they are 'purely factual and uncontroversial,'" Reynolds American Inc., parent company of America's second-largest cigarette maker, R.J. Reynolds; No. 3 cigarette maker Lorillard Inc.; and No. 4 cigarette company Commonwealth Brands Inc., told the FDA. The companies also are part of a federal lawsuit that in part deals with the legality of the new labels. Cigarette labels with more graphic images could also concern some retailers; customers who may be offended or disgusted by the packs behind the counter may take their business elsewhere. "You're going to run into people that will not necessarily like this," said Jeff Lenard, spokesman for the National Association of Convenience Stores, a group representing an industry that gets about 160 million transactions each day. "When somebody's hungry, they get something to eat. When somebody's thirsty, they get something to drink, and we just want to make sure that when they go in, they still want to get that." Health and Human Services Secretary Kathleen Sebelius acknowledged that the labels are "frank, honest and powerful depictions" aimed at making tobacco-related death and disease part of the nation's past. Marketing and tobacco control experts say that's what's needed. "It's clear to us that the stronger, the more graphic, the better," said Jeremy Kees, a marketing professor at the Villanova School of Business who has done studies on graphic cigarette warning labels. "Fear really drives the effectiveness of these warning labels ... mild, weak images are, in some cases, no better than a plain text warning." Marketing experts also say the new labels aren't unique to the U.S. In fact, the new U.S. labels are typical of what's being used in the more than 40 other countries, said Stanton Glantz, a tobacco researcher at the University of California at San Francisco. Canada, for instance, in 2000 rolled out warning labels to include a pregnant woman smoking. Uruguay also shows rotting teeth and gums on its labels, similar to the images on the new warning labels in the U.S. "These are the images that work," Glantz said. "What the research shows is that images that evoke a strong emotional response are the best ones." Â

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Sohn, O’Sullivan Say Fed Is Keeping Options Open Sung Won Sohn, an economics professor at California State University-Channel Islands, and Jim O’Sullivan, chief economist at MF Global Inc., said Federal Reserve officials are keeping their options open amid a weaker economy. They spoke after the Fed’s decision today to keep record monetary stimulus in place. Sam Bullard, a senior economist at Wells Fargo Securities LLC; Victor Li, associate professor with the Villanova School of Business; and Paul Ballew, chief economist at Nationwide Mutual Insurance Co., also commented today. Sohn: “They decided to keep their options open regarding a possible QE3. At the moment, it’s not likely the FOMC will do anything beyond QE2, but it is comforting to know they are going to reinvest proceeds from maturing securities. They want to make sure there is plenty of liquidity in the economy to support the fledgling economic recovery.” “Essentially, the FOMC feels their current policy is the correct one in view of sluggish economic growth and somewhat elevated inflation expectations, so they want to stand pat and not change the course of their monetary policy for now.” “They seem to feel the economic recovery is on schedule and don’t see any meaningful danger of the economy faltering. They’re a bit more optimistic than I am. At this stage, the economy is not as healthy as the statement would indicate. I would have expressed more concern about the economic recovery. However, if they had said that, it would have snowballed and created negative sentiment in financial markets, which they don’t want to do.” “They’re clearly looking at the economy through rose- colored glasses.” O’Sullivan: “Time will tell to what extent this weakening in the economy will reverse. Certainly, it’s quite reasonable that the weakness has been exaggerated recently.” “On the other side, one of the more notable things in the statement is the dropping of the reference to underlying inflation being too low. That change alone makes the statement more hawkish. The inflation numbers have clearly picked up. It certainly makes it a lot harder to initiate another round of stimulus. Given weaker growth numbers, they won’t want to tighten, but given the pickup in inflation, they can’t ease. So they’re not ruling anything out. For there to

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be a third round of stimulus, we’d need to not just see continued disappointing growth data, but the inflation numbers weaken as well.” Bullard: “They want to keep as accommodative as possible for as long as they can to hopefully add some juice to the economy and raise demand until the recovery is on a firmer footing.” “They acknowledged economic conditions have deteriorated since the April meeting, and there has been a downturn in the labor market. There has been a downshift in economic projections.” Li: “It doesn’t seem like there’s a lot of desire at this point or consensus to move ahead with another round of quantitative easing. The risks to inflation and another recession seem more balanced now, which suggests the Fed can keep the status quo.” “The economy has enough strength to sustain the recovery.” “One big risk is the housing market. Another big risk is if the Fed doesn’t tighten by the end of the year, we might see inflation rising a bit more.” Ballew on the statement: “Clearly, the Fed has been on the side of being a little more optimistic than private forecasters. We are seeing signs of moderately stronger growth, but we’re certainly not sprinting ahead. It’s a tepid recovery. The question is, ‘What else can they do?’” “The bottom line is a lot of these issues with housing and consumer and government debt are going to take time to rebalance. They didn’t give any real hint about QE3, but clearly have left the door open for any policy actions they think might be appropriate.” Ballew on Fed forecasts: “Their forecasts are now more in line with what we and other private forecasters are seeing, which is a hesitant recovery in the 2.5 percent to 3 percent range over 2011 and 2012. Clearly, labor markets are not improving as much as they would like. It’s going to be a slow slog.” The statement and forecasts “tell us the Fed is going to stay on the sidelines well into 2012, and any discussion about exit strategy is going to be delayed probably until the back end of this year.”

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The Marketer's Dilemma The concentration by global marketers on consumption of goods and services by the top 15% of the world's markets has left 85% of the population underserved or completely ignored. This has begun to change with the attention to the "Bottom of the Pyramid" (BOP) by marketers in multinational firms enticed by the fact that billions of potential consumers have yet to make brand preferences or establish a Western-style mode of consumption. The question is: Are they similar to or different from more affluent consumers? However, statistics on worldwide poverty are not encouraging. Chief Marketing Officers for these companies should be warned that at the very bottom of the pyramid are almost two billion people on bare subsistence living who can't afford to buy most branded products. What is more encouraging is that below the top 15% of global consumers, who are saturated with marketing messages, there are the emerging middle classes of the BRIC countries that have enough disposable income beyond the tipping point of "consumption adequacy." This potential market is approximately another 15% of the world population. These consumers have reached the ability to meet basic needs and are now ready to participate more fully in the marketplace of goods and services, similar to people in developed nations. In new research with Prof. Kelly D. Martin at Colorado State University that is forthcoming in the Journal of Consumer Research, we used data from more than 77,000 consumers across 51 developing countries and juxtaposed that data with multidimensional poverty data from 104 countries, with a combined population of 5.2 billion (78% of the world total). Our research showed that marketers who seek to exploit traditional selling opportunities by interacting with the bottom-of-the pyramid consumers are bound to be disappointed since the needs and desires of such individuals are not geared toward the types of consumption typical of sophisticated markets. Instead, firms should look to the next level of affluence across nations and modify their offerings in ways that make them affordable and available. For the true BOP consumer, their goal should be one of economic development through job creation that may eventually lead to rising levels of standard of living. For "Very High Human Development Countries" like the U.S., Norway, Japan, France, 14.79% represent the over-exploited consumer world. For "High Human Development Countries" such as Argentina, Kuwait, Chile, and Romania, 13.77% represent the greatest potential to inherit the needs and desires of High Development Countries and join the consumer world.

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"Medium Human Development Countries" including China, the Philippines, Egypt and Guyana, there is a 65.67% split between nations that are above and below the consumption adequacy threshold and represent some possibilities for marketers. And after considerable modifications to their product offerings, "Low Human Development Countries" such as Kenya, Yemen, Nepal, and Nigeria, 5.77% represent subsistence living and little market expansion possibilities without considerable economic development. In the final analysis, global business cannot continue to grow on the backs of wealthy or impoverished consumers. Instead, the overarching goal should be to expand opportunities around the world that inspire consumers to seek and fulfill important needs and desires. Â

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California 'Amazon tax' kicks in – and local businesses could be losers A new state law requires large, out-of-state retailers to collect sales taxes on Internet purchases by California customers. The so-called Amazon tax has online retailers cutting ties with local affiliates. A new California law, taking effect Friday, requires large, outof-state retailers to collect sales taxes on Internet purchases by California customers. The Golden State is the seventh, and most populous yet, to pass such a law.

Called the “Amazon tax,” the law was signed Wednesday by Gov. Jerry Brown (D) in hopes of raising an estimated $317 million annually to help close a yawning budget gap. At least 10 other cash-strapped states want to do the same. But California’s new law has plenty of critics, including local business owners who may end up taking a big hit. “We’re going to have to leave the state,” says Keith Posehn, who operates a website with his wife in San Diego. California – like New York, Illinois, Arkansas, Connecticut, North Carolina, and Rhode Island before it – is trying to get around a 1992 US Supreme Court ruling that holds sellers can’t be forced to collect sales taxes unless they have a physical presence in the state. “States in search of revenues try to find ways to establish that out-of-state retailers do have a presence or nexus,” says Stephen Liedtka, associate professor of accounting at Villanova University in Pennsylvania. Indeed, California has come up with its own way of defining an online retailer’s physical presence in the state. This definition has everything to do with local affiliates, or businesses, that refer customers to the online retailers. If such referrals result in substantial sales for an online retailer, then the retailer is considered to have a physical presence in California. “The out-of-state retailer will have to collect tax if it pays commissions to people or businesses in California that refer buyers to the online retailer, and it makes more than $10,000 in sales on

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those referrals and it has more than $500,000 in total sales in California,” explains Daniel Schibley, senior state tax analyst at CCH, in an e-mail. CCH publishes tax information. Mr. Posehn is one of at least 25,000 local affiliates affected by the new law. In 2008, he and his wife created – a website that helps clients develop online advertising campaigns. Until now, when his business referred a customer to an online retailer like Amazon or – and the customer made a purchase there – he was paid a commission. But now the online retailers are cutting off such payments, in a bid to erase their connections to California. Posehn says that 35 percent of his business is evaporating without the commissions. Looking for a state that is friendlier to tech-firm start-ups, Posehn says his next stop is Washington, Texas, or Utah. “We can either stay here and remain a target for a state that is hostile to the core of its own economy, or go to a state that is more supportive and open to tech and small business,” he says. Mr. Schibley explains just how a referral to an online retailer works. He gives as an example a person who sells sewing supplies out of his home via a website. The website might include a notice that says, “Click here to shop for sewing machines.” That click would take the buyer to an Amazon site. If the buyer then purchased a sewing machine from Amazon, Amazon would pay the website operator a commission on that sale. Not surprisingly, Amazon and other online retailers object to California’s new law. “We oppose this bill because it is unconstitutional and counterproductive,” Amazon says in an e-mailed letter that explains the termination of its affiliate advertising program. Supporters of the law say they are just trying to level the playing field. Online sellers, they say, have turned local retail stores into places where shoppers go to examine merchandise – before buying it online. “You can’t give one segment of retail a 10 percent discount every day. It’s just not fair,” Bill Dombrowski, president of the California Retailers Association, told the Los Angeles Times. In the end, California’s hope that the law will produce more tax revenue may not become reality. In North Carolina and Rhode Island, tax revenues actually decreased after similar laws were enacted, according to the Tax Foundation in Washington. That’s because the small businesses are crushed, says Rebecca Madigan, executive director of the trade group Performance Marketing Association in Camarillo, Calif. “Their only option is to move out of state and take their employees with them,” she says. Ms. Madigan surmises that it is big-box stores like Wal-Mart and Costco that lobbied and sold lawmakers on the legislation in their own efforts to wipe out their online competition. Her organization is suing Illinois over the law, and Amazon is suing the State of New York.

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NEW: Smokers say graphic labels won't make them quit If the response to an informal poll on is any indication, putting full-color photos of cancerous mouths, rotting teeth, diseased lungs and dead smokers on cigarette packages won't be enough to break smokers' addiction to nicotine. "I'm just so tired of the government as well as the non-smokers judging, bullying and mocking smokers," said one smoker who responded to the survey. "This tactic doesn't work with anyone. If they want to help us quit, then why not approach it from a more sympathetic, understanding point of view?" The graphic labels are a part of a campaign by the Food and Drug Administration that aims to convey the dangers of tobacco, which is responsible for about 443,000 deaths in the United States a year. The warnings must appear on cigarette packs by the fall of 2012. "It's clear to us that the stronger, the more graphic, the better," said Jeremy Kees, a marketing professor at the Villanova School of Business who has done studies on graphic cigarette warning labels. But most smokers responding to the Sun's survey said even the intense, graphic images wouldn't stop them. "After 40 years of smoking and still smoking three packs a day it is not really feasible for me to quit," wrote one Union Township smoker. "Not because of the enjoyment, but rather the addiction. The new packaging might help to get the young to not start, but for smokers, nah." A total of 69 people responded to the Sun's online questionnaire - not a scientific sample, but the results were consistent. Only two said the graphic images made them think they'd want to quit now; only four more said they'd think about quitting in the future. "I know what they are saying is true and honestly cannot come up with a good reason to continue smoking," said a Coleman smoker who said he would start thinking about quitting. "On the other hand, I do not like to continually have government interference." "We as smokers know that it is not good for us," wrote a smoker from St. Louis. "For people to throw graphics at us thinking it will 'guilt' us into quitting is a joke."

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Lagarde says debt among IMF top concerns WASHINGTON, July 6 (UPI) -- Under pressure on many fronts, Christine Lagarde used her first news conference as managing director of the International Monetary Fund to lay out her concerns and to suggest ways to shore up financial markets around the world. When asked Wednesday about what worries her most, Lagarde, a former French finance minister, said the combination of sovereign debt concerns and the issue of capital flows -massive influxes of investment to areas of the world that aren't prepared for it, and fear the effects on their economy -- are the "two immediate pressing issues." The new IMF chief stressed that global recovery depends on action on current crises. Lagarde urged the Greek political parties to make courageous decisions to fix its financial crisis following the cases demonstrated by political parties in Ireland and in Portugal. "There comes a time when individual interests, political rivalries should be set aside when it's in the national interest of the country," Lagarde said. Not willing to offer further comments on how the IMF plans to deal with Greece, Lagarde said she had a briefing scheduled on the issue and that the IMF board would debate the next round of aid -- $17.4 billion -- from last year's $160 billion rescue package to Greece on Friday. "The memory of the IMF's mismanagement of the Asian finance crisis in the late 1990s still lingers, making the IMF's performance this time round all the more important for the long term reputation of the institution," said Christopher Kilby, an associate professor of economics at the Villanova School of Business. Although Lagarde is the first woman to head the IMF since its foundation in 1944, she's the fifth pick from France and maintains the tradition that the post is held by a European. "Her inside knowledge of European politics will help her craft her interaction with EU members in putting together a policy response," Kilby said. "However, these same deep European connections undermine her legitimacy in the eyes of non-European IMF member nations and, to a lesser extent, in the eyes of financial markets." Lagarde will be running an institution that isn't only changing, but changing fast. While the European economies are battling their crises, developing countries such as Brazil, India, China, and South Africa have been increasing financial support for the IMF and are asking

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for a greater share of voting power. Some argue that the next IMF chief should be from a developing economy. "Lagarde will have to show that she has fully taken off her French finance minister hat and put on a global financial institution hat," said Kevin Gallagher, a professor of international relations at Boston University. "She will have to strike a delicate balance that on the one hand shows she is serious about the eurozone crisis but on the other shows that she recognizes that there are many other global challenges she is concerned with." Following her appointment, Lagarde held out an olive branch to developing countries and said her "overriding goal" would be that the IMF "continues to serve its entire membership." Global development group Oxfam said the IMF is badly in need of reform. "To protect the institution's credibility, Lagarde will have to act to loosen Europe's stranglehold of the IMF Board and give others more of a voice," said Caroline Hooper-Box, acting head of Office and Essential Services Media Lead at Oxfam International. "The influential role of first deputy managing director of the IMF, traditionally filled by a U.S. national, will fall vacant in August. And it's no longer tenable to have Europe and the U.S. dominate international financial institutions." Lagarde responded to criticisms on the lack of diversity at the IMF at the news conference. "We must complete the 2010 reforms, and governance and quotas must be readjusted to reflect the new architecture of the world," she said. "But that should also reflect in our employment policies, in our training policies, in the way in which we build teams, in the way in which we organize recruitment so that people are not clones of each other." Â

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Weigh h the Va alue of a Summeer Busin ness Proogram Use it a as a networking tooll, rather th han merely y a crash ccourse in tthe nuances of busin ness. Jamie Noonan, a po olitical scien nce and phillosophy majjor and risin ng junior att Villanova Universiity, wanted the flexibiliity to be ablle to excel in n any workp place, but feelt that with h dual majjors rooted in the liberral arts, she lacked the requisite r sk kills to do soo. To remedyy that, shee turned to the t school's Summer Business Insttitute, which h immerses students in n the intricaciies of accoun nting, manaagement, an nd marketin ng, among otther topics, during six hour days oveer the coursee of 10 week ks. Noonan''s parents fo ooted the $99,000 bill forr the prograam, but she is confiden nt their investmeent will yield d a significaant return. "Any job th hat you do, you're y going to be work king for a com mpany that is trying to maximize profits," p shee says. "Jusst knowing how h that sysstem works, you y can be a much betteer employeee." Villanova's program is celebratinng its 15th annniversary thhis summer, and some programs havve been in place p much longer, such as the Univeersity of Virginia's McInntire Businesss Institute, which waas the first of o its kind whhen it launchhed in 1982. However, career and liffe coach Jim m Weinsteiin notes that numerous suummer businness program ms, includingg ones hosteed at the Universitty of Califorrnia—Berkelley Haas Schhool of Busiiness and thee University of Chicago Booth Scchool of Bussiness, have been b poppinng up in recent years to capitalize c on a market off qualifiedd college stud dents and graaduates whoo are having difficulty finnding work, but don't waant to fully commit c to grraduate school. The proggrams typically range froom 4 to 10 weeks; w most are a offered only o to studeents hailing from f nonbusinness backgro ounds and aree available to recent colllege graduattes or studennts enrolled at a the host colleege or any other o school. The bulk off what is taugght is on parr with materiial covered in i introducttory businesss courses at the undergraaduate level.. "It's dow wn in the treenches," sayys Brenda Stover, S director of proffessional devvelopment and a business institutes at a the Villan nova School of Businesss. "Studentss are not foccusing on anythingg else but th his business curriculum m during thee 10 weeks that they're here. They don't have jobs. Theey're not taking other courses." c And whille the prograams complettely immersee students inn business, sttudents say instructors i realize most m studentss have limiteed business backgrounds b and instructt accordinglyy. Though shhe's a history major m at the University U of Pennsylvannia, rising juunior Jesse Reich, R who completed c New York University's Steern Foundatiions: Busineess Essentials for Non-Business Studdents program m

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this month, claims that the business professors understood how to frame the difficult concepts in ways that she could understand. "Nonbusiness majors oftentimes truly need to start from the very beginning," she says. "The teachers had the perfect combination of teaching to those who had never taken a business class before while also covering an enormous amount of material." The programs cost between $4,000 and $10,000, a seemingly heavy price to pay for a new line on a résumé. School officials maintain that because many of the programs are attached to highly regarded schools, employers have been impressed by that new résumé entry. Jack Lindgren, director of the UVA's 4½ week McIntire Business Institute, says the program has had success in placing graduates in business positions, in part, because of the school's reputation. Debra Woog, an M.B.A. career consultant, notes that employers might also be impressed with the impetus students demonstrate by enrolling in such a program while peers are spending college summers by the pool or on the golf course. "With so many young, recent college graduates in the market looking for a job, employers need a way to distinguish among them," she says. "If nothing else, I think the effort it shows to participate in one of these programs can help people stand apart when they're one of hundreds or thousands of résumés coming in." Career and life coach Weinstein warns, however, that students shouldn't simply assume that slapping an expensive summer program from a reputable school on their résumé will significantly bolster their chances for employment. Networking opportunities, more than anything gleaned in the classroom, he says, are the true benefit these programs have to offer. "All it takes is one contact," Weinstein says. Noonan, the Villanova student, for one, has adhered to that philosophy and claims she's tried to get the most out of the interview training and networking opportunities that are part of Villanova's program. "No matter what profession you're going into, you have to apply for a job, you have to interview, and you have to network," she says.


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Heat wave: Four things that will rise with the temperatures Slowing down because of rising heat is the expected response in any summer heat wave. But in a week like this one, where high temperatures fanned across the country, sizzling toward 100 degrees F. from Texas to Boston, some things also go up. Here are four things to expect to rise along with our desire to stay indoors and beat the heat.

1. Sales of stuff that keeps you cool Malls are high on the list of places where people frequent for free air conditioning outside the home. So it’s not a surprise that retail sales jump during heat waves, especially on goods related to keeping cool. Air conditioner and fan sales increased 25 percent in June compared with the same month last year, according to Planalytics, a market research firm in Berwyn, Pa., that specializes on consumer buying power during extreme weather. Increases in similar expenditures, such as water and sport-drink sales (20 percent) and sun-care items (15 percent), followed accordingly. “When you see items like these picking up, it’s a pretty safe bet they’re affected by the weather,” says Peter Zaleski, an economist at the Villanova School of Business in Pennsylvania. Professor Zaleski says retailers are very adept at using weather tracking early each season to determine what items to stock and at what volume, and they understand that “people are willing to pay a higher price” when immediacy is at play.

2. Stink bug populations Invasive pests like the three-inch Asian stink bug thrive during summer heat waves, and many agriculture experts are expecting a repeat of last year’s outbreak that harmed fruit crops, particularly on the East Coast. In late June, the Environmental Protection Agency issued an emergency ruling allowing orchard farms along the mid-Atlantic coast to use two lethal insecticides to mitigate the pests. But Monday the the insect diagnostic lab run by the University of Wisconsin at Madison reported the bug has made its way to Wisconsin, Minnesota, and Illinois and warns it will be a full-blown epidemic in those states in less than four years.

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Elsewhere in the garden, plants are sensitive to higher temperatures during extreme heat, particularly if cooling doesn’t take place at night. The most vulnerable plantings are those that were just put into the ground because they don’t have time grow deep enough roots to soak in moisture.

3.Energy consumption With all those air conditioners and fans in overdrive, it makessense that energy bills will be higher than average. Last week in New York, for example, energy usage topped 31,000 megawatts, according to the New York Independent System Operator, which controls the state power grid. The level brings it dangerously close 35,862 megawatts, the capacity that could lead to high-voltage system failure. Average usage in 2010 was 18,665 megawatts. Record usage was 33,939 megawatts on Aug. 2, 2006. Rising consumption may also lead to air-quality issues. “Not only are people going to have extremely high utility bills for July, it will also put increased strain on power plants, and we’re going to see more air pollution because of it,” says Angela Fritz, an atmospheric scientist with the Weather Underground, a weather tracking service in San Francisco.

4.Retaliation Extended heat waves have a way of triggering sporadic neighborhood street violence, right?

Not necessarily, says Richard Larrick, a researcher at Duke University Fuqua School of Business in Durham, N.C. Mr. Larrick took a unique look at the correlation between violence and heat through the eyes of a summertime tradition: baseball. Larrick and his research team examined 57,294 Major League Baseball games taking place between 1952 and 2009 and found that high temperatures were directly correlated with batters getting hit by wild pitches – but only in retaliation for another teammate getting hit earlier in the game. His broader conclusion is that while heat may increase aggression, there always has to be a motive. “Heat does not lead to more aggression in general. Instead, heat affects a specific form of aggression … retribution,” he said in a statement. “Baseball fans will tell you the sport's code of honor dictates you're supposed to hit a player on the other team when your player has been hit,… [but] nobody seems to be aware that players apply the rule much more at high temperatures than at cool temperatures,” he says.

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Business Boot Camps Cater to Students Versed in Proust, Not Price Points After graduating from Smith College in May with degrees in architecture and Italian studies, Stephanie Strenta decided that what stood between her and her dream job was a basic grasp of business. So like a growing number of liberal-arts and sciences majors, she performed a cost-benefit analysis and decided that a summer business boot camp was a sound investment. This month she completed a four-week program at Dartmouth College's Tuck School of Business, where, for just under $10,000, she got a crash course in accounting, marketing, management, and leadership. The Business Bridge Program also helped her hone her interviewing skills, polish her résumé, and tap into alumni networks. Programs like Tuck's are booming this summer as business schools cash in on the anxieties of today's college students and graduates, who are confronting one of the worst job markets in memory. Among the universities offering similar programs are Southern Methodist, Stanford, Vanderbilt, Villanova, Wake Forest, the University of California at Berkeley, and the University of Chicago. Many of the programs report record numbers of applicants, especially among younger students hoping to get a jump-start on securing an internship. Tuck's program offers two summer sessions, each for about 130 students. The 15-year-old program has in the past appealed mostly to rising seniors and recent graduates, but in the last two years, students who have just completed their sophomore year make up about a third of the class. "People are starting earlier in their quest for a job," says Paul Doscher, director of marketing for the program. "They realize that in this job market, you need every advantage you can get." He describes the workload as "a fire hose every day" with workshops extending through lunch. "These are M.B.A. faculty and content. It's not watered down for undergraduates." Persuading students to pay $9,600 for tuition, books, and on-campus housing often requires appealing to parents, as Tuck did on its Web site: "Consider that hundreds of thousands of students with college degrees flood the job market every year," it said. "Bridge grads are better

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able to get a job they love in a top firm or nonprofit because they speak the language of business. They have skills employers want." Ms. Strenta had worked as an intern for an interior-design shop before enrolling at Tuck. "I found that the part I really liked wasn't necessarily picking the fabric, but working with people and making sales," she says. Some of her friends at Smith initially gave her a hard time for choosing a more corporate direction for her career, but she remained undeterred. She says she's confident that the skills and contacts she's getting at Tuck will help her land a job in marketing or advertising. Some career counselors urge caution before jumping into a business-skills program. Students should first calculate "the return on investment," says Kate Brooks, director of career services for the University of Texas at Austin's College of Liberal Arts. "It's a great idea to combine a liberal-arts degree with some business knowledge, but most of the time, that can be done during the regular four-year curriculum," she says. Students can go online to learn some business skills, like working with Microsoft Excel spreadsheets, and universities like hers offer basic business classes like marketing and accounting to nonbusiness majors. "If an employer is truly looking for an accountant, a boot camp isn't going to compensate for that," Ms. Brooks says.

Spending Money to Make Money But students who are flocking to summer programs say a grounding in business skills boosts their confidence going into job interviews. Villanova University's 10-week Summer Business Institute, which gives the university's liberal-arts students a chance to earn a business minor, attracted a record 130 students this year—up from 94 students last year. A few students from outside Villanova enroll each year and earn a business certificate. The $9,000 price tag includes tuition, books, the use of a laptop computer, and a subscription to The Wall Street Journal. Students living on campus pay extra. Like Tuck, Villanova is finding that students are applying earlier; more than half of this summer's students just completed their sophomore year. Some are even younger. Michelle Velez, a rising sophomore, learned about the program during her campus tour. "My dad elbowed me and said, 'You should do that.' He's an accountant," says Ms. Velez, who plans a double major in environmental science and Spanish. "It's hard finding an internship as a freshman, but this program will give me an edge next time I apply."

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Asked what the hardest aspect of the program was, she replied: "Knowing in the back of your mind that all of your friends are going out to the beach while you're sitting inside studying." But she says the experience has been worth it. "A few weeks ago, I didn't know anything about finance and accounting, and now I can write a cash-flow statement." Two different groups of liberal-arts students are sweating it out at boot camps at Wake Forest University this summer. In addition to a four-week program, mostly for rising seniors, the university offers a 10-month master of arts in management that begins with an intensive fiveweek immersion in business skills. The program is geared toward recent liberal-arts, science, and engineering graduates. "At Wake Forest, we believe the pursuit of liberal arts is important, but students shouldn't be punished in the job market because they're an English major," says Matthew Merrick, senior associate dean for students at the business school. "Having this 10-month immersion in business, with one-on-one attention from the career office, gives students a huge advantage." Wake Forest is one of several institutions, including the University of Florida, Duke University, and Claremont McKenna College, that offer such business master's programs designed for students with a background in the liberal arts. Students shell out more than $40,000 for Wake Forest's 10-month program ($60,000 with living expenses included). Enrollment has grown from a dozen students in 2005 to about 100 this year. Wake Forest officials say 86 percent of 2010 graduates had jobs six months after graduation, and the mean starting salary was $49,453 (not including signing bonuses). That compares with a national average of about $40,000 for graduates of four-year programs in the humanities and social sciences, according to the National Association of Colleges and Employers. Back at Tuck, Ms. Strenta says her summer program "has prepared me to face the uncertainty of the job market" while giving her a new network of peers to cheer her on along the way.


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How Third-party CSR Ratings Impact Your Share Price With trillions in assets in socially screened portfolios on the line, investors are increasingly turning to third-party social indices to help them assess a company’s CSR performance as a way to discriminate between firms that are “talking the talk” and which ones are truly incorporating corporate social responsibility (CSR) into their business. Both the Domini 400 social index and the Calvert social index, for example, add and remove firms based on whether or not they exhibit strong social responsibility and ethics, determined by both financial performance and ongoing CSR behaviour. Managers interested in getting the best share price for their investors need to understand the criteria used for inclusion and removal because these actions have very real market consequences. Recent research from Jonathan Doh, Shawn Howton and Shelly Howton (all from Villanova University) and Donald Siegel (University of Albany, SUNY) looked at whether a company’s inclusion—or expulsion—from a social index impacts a firm’s share price. They reviewed companies added to and deleted from the Calvert social index between 2000 and 2005, testing whether these additions and deletions influenced the respective firm’s share price. The researchers found that being added to a social index doesn’t increase a company’s share price—but when a company is removed, its stock takes a hit. Dropped firms lost more than 1.2 percent of their market value in the two days following the announcement of their removal. This represented an average market capitalization loss of $4 million. Their research also confirmed the link between social/environmental investment and a company’s operating performance. They found there is stronger operating performance in the period immediately before a firm is added to the index and poorer operating performance in the period before delisting. As a final step, the researchers tested whether the market treats companies with a reputation as strong CSR performers differently from those with a reputation for poor CSR when added or removed. Firms with a strong CSR reputation experience less of a share price increase when added to the index than those with a poorer CSR reputation. Why? Those firms have an incentive to regularly talk about their good deeds publicly—so, any bump has likely already been factored into the company’s market valuation. That same good CSR reputation also helps protect companies when they’re removed from the index. The trust and respect earned from its stakeholders insulates it from market fluctuation. So while there is less of a market upside when good CSR firms are added to an index, there is less of a downside market risk when removed. Listing on indices that confer legitimacy can help your firm, but it should complement rather than replace proactive communication between your firm and its key stakeholders.

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Amazon pushes California toward referendum on online sales tax A new California law forces online retailers to collect sales tax for purchases made in the state. Amazon is fighting back by pushing for a statewide referendum on the issue. is preparing to fire back after California passed a law that requires the online retailer to collect sales tax from state residents. And in typical California fashion, they're taking their grievance straight to the people. The state attorney general's office on July 18 approved Amazon's petition for a statewide referendum on the law. If Amazon can collect 500,000 signatures by Sept. 27, voters will be able to decide next year whether they want to pay sales taxes for online purchases. California is the seventh state to try to get around a 1992 US Supreme Court ruling holding that sellers can't be forced to collect sales taxes unless they have a physical presence in the state. At stake is desperately needed tax revenue for states that are broke, the competitive advantage of the world’s largest online retailer, and the cost of everything consumers buy online. California is trying raise an estimated $317 million annually from sales taxes collected by online retailers. A University of Tennessee study says uncollected sales taxes from online sales could be as high as $11.4 billion nationally and $1.9 billion in California. But Amazon is refusing to cooperate. The California bill was founded in part on the fact that Amazon has thousands of affiliates in the state – small retailers that sell goods under the Amazon banner and get a commission from Amazon for every sale. As a result of the new law, which went into effect July 1, Seattle-based Amazon has severed ties with its California affiliates. In a July 1 letter to those affiliates, Amazon wrote: The bill is "supported by big-box retailers, most of which are based outside California that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, tax revenue.” The sales-tax issue is important to Amazon and other online retailers since it is at the core of their competitive advantage over stores like Wal-Mart or Best Buy.

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“Amazon has a lot at stake here [with their] huge competitive advantage in not having to collect sales taxes,” says Stephen Liedtka, associate professor of accounting at Villanova University in Pennsylvania. “There are lots of reasons readers should care [and] voters need to understand these issues to the extent that their states" need revenue. Amazon has already filed a legal challenge against a similar law in New York. Analysts say Amazon will spend a lot of money on the California campaign because its national reputation is at stake. “There are benefits to Amazon even if the referendum and other efforts fail,” says Mr. Liedtka. “This is because Amazon is sending a message to every state that efforts to raise taxes will be met with expensive, drawn out public battles and outcry from a subset of voters." He adds that the financial stress on California's erstwhile Amazon affiliates could also have an impact. "Even if it is only short term, if eliminating affiliates in California causes tax revenue to drop slightly, Amazon and advocates for no sales tax will have a powerful argument in their arsenal," Liedtka says. "Politicians who are secure in their jobs have incentive to avoid controversial actions.” Antitax critics in California are already piling on. "Californians are losing jobs and income as a result of the so-called ‘Amazon Tax,’ " says George Runner, who was elected to the state's sales-tax authority, the board of equalization, last year. "It should come as no surprise that impacted California business owners would seek its repeal." He says his staff has identified more than three dozen online sellers that have terminated their affiliate programs, costing jobs and income for California – “losses that could have been easily avoided had the governor and Legislature exercised a little common sense," he adds. If states want laws like California's to survive and spread, they need to work together, says Liedtka. “If every state enacted such a measure – or if there was a national Internet sales tax, which some have called for – Amazon won't be able to avoid sales taxes by simply relocating affiliates domestically,” he says. But he says such cooperation has rarely happened because the leadership in many states believes that sales taxes hurt businesses. Also, there is growing potential for non-Internet-sales-tax states to benefit at other states' expense.

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New 'Super Committee' may be the only hope for fiscal change The congressional committee created amid the deal to raise the debt ceiling, signed into law by President Obama on Tuesday, might be the only hope that months of political wrangling over the federal deficit improve the nation's finances. Raising the debt ceiling prevented the unthinkable - a historic default by the U.S. government - but it did nothing to fix the long-term budget problems, which have been building for generations and still leave the nation at risk of a credit-rating downgrade. The bipartisan committee, whose members still must be selected, will have until the end of this year to devise a plan to reduce the deficit by $1.5 trillion over 10 years. The messy political process that finally resulted in the debt-ceiling agreement managed to do nothing else, and raised an obvious question: Will the panel, already dubbed the Super Committee, have the stomach to recommend ways to boost tax revenue and trim the sacred cows of Medicare and Social Security? Economist Joel Naroff is waiting to see who is on the Joint Select Committee on Deficit Reduction. "Are they going to be those politicians who were bitten by the rabid dogs, or are they going to be people who are reasonable?" Naroff asked. That is crucial because the committee is "where something may or may not come out of this," Naroff said. If the 12-member committee, split between both houses of Congress and Democrats and Republicans, fails to agree on a plan, $1.2 trillion in automatic cuts will occur over a decade, including nearly $500 billion in defense cuts. "Are they really going to want to do that? That's where the rubber is going to hit the road," Naroff said. Bob Eisenbeis, chief monetary economist at Cumberland Advisors and former director of research at the Federal Reserve Bank of Atlanta, had a less generous view of the plan signed by Obama. For all the hand-wringing and worry around the nation's dinner tables and in financial markets, the Budget Control Act of 2011 "doesn't try to eliminate the deficit," Eisenbeis said. "All it does is try to slow the growth of the deficit over the next 10 years." 'Another drama'

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In negotiations this summer, Democrats held firm on their top priority of protecting Social Security, Medicare, and certain other programs for the poor and the elderly. The Republicans stood firm against squeezing more tax revenue from upper-income voters. Where will these postures leave the new committee? Nothing will change before the end of the year concerning the fact that tax revenue must increase and spending must come down. "They are going to debate, of course, what is going to be cut," said Peter Zaleski, a professor of economics at Villanova University. "Some will hold out. It'll play out like another drama." Zaleski's prediction is plausible. Eight months ago, Obama's 18-member National Commission on Fiscal Responsibility and Reform issued a report that was supposed to set in motion a discussion about serious measures to reduce the deficit.

Collecting dust The plan, which proposed slashing $4 trillion from the budget over a decade through a combination of substantial changes to the tax code and painful spending cuts - including an increase in the Social Security retirement age to 68 by 2050 and lower cost-of-living increases for beneficiaries - joined the ranks of blue-ribbon reports that do little more than collect dust. The economic collapse of 2008 has worsened the nation's deficit. But budgets built on generational promises to Americans, chiefly in the form of Social Security and Medicare with no real plan for how to pay for them in the future, are even more problematic. "It's a poorly designed system, and it's coming to a head," Zaleski said. The problem grows, he said, because "we make the decisions based on politics, when these decisions should be based on economics." Li said that's significant because by using a date, the Fed is saying that it expects to keep short-term interest rates low for the next two years. "Extended period" had been viewed as meaning from six to 12 months. It struck me as odd that such a change in wording was cited as the reason three of the 10 members of the committee voted against the policy action. All of the dissenters were heads of regional Federal Reserve Banks. Charles I. Plosser (Philadelphia), Richard W. Fisher (Dallas), and Narayana Kocherlakota (Minneapolis) sought to retain the "extended period" phrase. It's more than semantics, according to Li. Noted inflation hawks, they likely believe that setting an actual date shows the Fed is "not as serious" about fighting inflation, which is one of its two mandates, Li said. (The other is fostering maximum employment.) Li said the Fed appears to be weighing the risks of a possible double-dip recession against the risks of higher inflation. Â

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Business Schools Plan Leap Into Data Faced with an increasing stream of data from the Web and other electronic sources, many companies are seeking managers who can make sense of the numbers through the growing practice of data analytics, also known as business intelligence. Finding qualified candidates has proven difficult, but business schools hope to fill the talent gap. This fall several schools, including Fordham University's Graduate School of Business and Indiana University's Kelley School of Business, are unveiling analytics electives, certificates and degree programs; other courses and programs were launched in the previous school year. International Business Machines Corp., which has invested more than $14 billion buying analytics industry companies such as Coremetrics and Netezza Corp. since 2005, has teamed up with more than 200 schools, including Fordham, to develop analytics curriculum and training.

"The more students that graduate knowledgeable in areas we care about, the better it is not just for our company but the companies we work with," said Steve Mills, IBM senior vice president and group executive of software and systems. "It really comes down to what clients and customers need most." Data analytics was once considered the purview of math, science and information-technology specialists. Now barraged with data from the Web and other sources, companies want employees who can both sift through the information and help solve business problems or strategize. For example, luxury fashion company Elie Tahari Ltd. uses analytics to examine historical buying patterns and predict future clothing purchases. Northeastern pizza chain Papa Gino's Inc. uses analytics to examine the use of its loyalty program and has succeeded in boosting the average customer's online order size.

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As the use of analytics grows quickly, companies will need employees who understand the data. A May study from McKinsey & Co. found that by 2018, the U.S. will face a shortage of 1.5 million managers who can use data to shape business decisions. XO Communications, a business-to-business telecommunications-services company, has been looking to increase its analytics team but is coming up short. Trent Taylor, director of customer intelligence at XO, said it isn't easy to find someone who can pick up the business context while understanding statistics and how to structure a project. Cris Payne, senior manager of customer intelligence, said XO would "strongly consider" hiring M.B.A.s if they had such abilities. Fordham this fall will introduce a required analytics course—Marketing Analytics —for M.B.A. students on its marketing track. "Historically, students go into marketing because, they 'don't do numbers,'"said Dawn Lerman, director of the business school's Center for Positive Marketing. But these days, with so much data available surrounding consumer behavior, "you can't hide from math and statistics and be a good marketer." Ms. Lerman said the new class is intended to address marketing metrics related to in-store and online brand performance. Fordham also plans to introduce a master of science in Market Intelligence in 2012. The University of Virginia's McIntire School of Commerce has been working with datawarehousing company Teradata Corp. for years to make analytics a bigger part of students' curriculum, said Barbara Wixom, associate professor and director of the M.S. in Management of IT program at McIntire. The school this fall will introduce an elective track focused on analytics and also will start working with IBM."What has changed is the type of students who want these tools," Ms. Wixom said. Nowadays analytics is being used in classes for marketing and finance; not just IT, she said. "Analytics is certainly in the top five things [executives] are worried about and investing in actively," said Scott Gnau, president of Teradata's Teradata Labs. "Industry is going to demand it. Students are going to demand it." Consulting companies, especially those with clients in IT, marketing and sales, also have a need for employees with a background in analytics. Deloitte LLP paired up with Indiana University's Kelley School of Business last November to offer a certificate in business analytics to its midlevel employees. The certificate program included courses like Business Analytics Foundations and Data Mining and Visualization. The school tailored a similar certificate for employees of Booz Allen Hamilton Inc. And beginning this September, Kelley M.B.A. students will be given the option to major or minor in business analytics. Meanwhile, the Villanova School of Business is revamping undergraduate requirements to include more statistics. It began introducing new courses over the past few years.

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Beginning with this fall's incoming freshman class, the school will replace some of its calculus material with statistics and add an Introduction to Business Analytics course. The Center for Customer Insights at the Yale School of Management offers students the chance to work on analytics projects for, and with, companies. One such project with an accounting software company used analytics to search customer feedback for signs of dissatisfaction and suggestions for improvement. Ivan Dremov, a 2011 Yale M.B.A. graduate with a background in executive recruiting, who worked on this project, said it prepared him to do similar work at his new employer, a New York area strategy consulting firm. "When you tell them you can do an analytics project using sophisticated software, it's definitely something they pay attention to," he said.

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PhillyInc: When the Fed speaks, the market listens Few four-paragraph statements are as anticipated, dissected, and argued over more than those issued by the Federal Reserve committee that makes interest-rate decisions. Once again, the stock market soared the morning the Federal Open Market Committee met to discuss economic conditions, perhaps in the hope that Fed Chairman Ben S. Bernanke would unveil new measures to jump-start growth. When the official statement was released after 2:15 p.m., the major stock indexes immediately fell sharply only to recover robustly and finish the day up by at least 4 percent. No one can say for sure why markets go up or down on a given day because millions of trades are involved. But on the eight times during the year when the Fed gathers to adjust monetary policy, market activity is clearly influenced by the words used in the statement. To the casual reader, the statement released Tuesday would appear to be merely a recitation of the disappointing economic statistics that we've been living with for a while now. The 638-point swing in the Dow Jones industrial average that coincided with this August FOMC meeting indicates that those words meant more to investors. That's why it can be help-ful to get a little help with the Fedspeak translation from someone who has worked for the central bank. Victor Li, an associate professor of economics at the Villanova School of Business, had been a senior economist at the Federal Reserve Bank ofAtlantafrom 2000 to 2001. The first thing that Li noticed was that the language used on the outlook for the U.S. economy was "more pessimistic." If you compare the August and June statements line by line, you'll pick that up, too. In June, an economic recovery was "continuing at a moderate pace, though somewhat more slowly" than expected. By August, that characterization had shifted to "considerably slower" than expected. June's "weak-er than anticipated" labor market indicators had degraded to "a deterioration in overall labor market conditions" by August.

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About the only piece of good economic news is that inflation, which the Fed had noted as a concern in June, has moderated as of August. The FOMC did not change the zero interest-rate policy it has had in place for 30 months. But it did alter the language used to signal that it would keep the federal funds rate at "exceptionally low levels" by substituting "for an extended period" with an actual date - "at least through mid2013." Â

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Solving the t Diversitty Puzzle Lecturingg employees about diversiity is one thinng, but somee companies are a taking traaining a step further. Strategies S include engaginng employeess in teamworrk exercises and a having workers w simullate disabilitiees. Lecturingg employees about diversiity is one thinng, but somee companies are a taking traaining a step further. Strategies S include engaginng employeess in teamworrk exercises and a having workers w simullate disabilitiees. In Julyy, Jennifer Vena V decided to talk with colleaagues about Tourette's T synndrome after watchhing video cliips of Americcan Idol contesstant James Durbin D and public p speakeer Marc Elliot, both of o whom havve the neurological disorrder known foor causing motor m and voocal tics. It's thee latest in a string s of topiccs advanced by Vena since she deccided a year ago to add one item abouut diversity to o her team's monthly m meeeting agenda.. "It is really each individdual making a commitm ment to demon nstrate inclussiveness in his or her dailly actions thaat will make a difference,"" says Venaa, a senior co onsultant at Bright B Horizoons Family Solutions, S a private p compaany that manages employerr-provided ch hild care centters. Vena's seelf-imposed monthly m com mmitment is part p of an initiative knownn as One Thinng introducedd last year by Bright B Horizo ons. The brainnchild of the company's diversity d council, One Thhing challenges employeees to take onee action that fosters workpplace diversiity and inclussion. More thhan 600 employeees have subm mitted One Thhing commitm ments. Otherr employees have h vowed to t take new coc workers to t lunch so th hey feel welccomed or to read r books too learn about other dimenssions of diveersity. "It's an evvolution of th he way we're doing the work," w says Dan Henry, Brright Horizonns' chief hum man resourcess officer and co-chair of thhe diversity council. c "Theere is only soo much trainiing you can do d in this spacee. At some po oint, it has too come downn to what peopple do."

H isn't the only com mpany whosee Bright Horizons diversityy practices aree evolving. Inncreasingly, companiees are suppleementing lecttures with activitiess ranging from m simulatingg deafness to using casse studies thaat hone skillss for navigatinng

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complex situations. The goal: to create better managers, not simply more sensitive ones. "Companies are offering courses on how to be an effective team member, conflict resolution, cultural agility," says Quinetta Roberson, a management professor at Villanova University's School of Business who has researched diversity trends. "They're giving people an openness to experience where people can deal in various contexts with various people, where people have the tools to navigate in any context." Beyond guilt trips The National Training Laboratories of Bethel, Maine, which is now called the NTL Institute, determined more than a decade ago "practice by doing" is second only to "teaching others" as the most effective way learning. But only in recent years has diversity training transitioned away from shows and guilt trips to skill-building, such resolving conflict and providing developmental feedback to subordinates whom managers have little in common.

that of side as with

"People learn more by doing," says Ondra Berry, co-founder of training firm Guardian Quest. "We can recite experiences from our lives blow-by-blow because we remember more when we're actively involved, especially when it has made an impact on us." NV Energy Inc., which provides electricity to 2.4 million customers throughout Nevada, hired Guardian Quest for three days of training four times per year. The sessions are about teamwork as much as they are about diversity. In one, a line of people must navigate under chairs and around other obstacles, communicating only through taps and touches. In another, the group must figure out how to pass everyone through a spider web of ropes.

Carolyne Sharp attended the training after changing jobs involuntarily as part of a reorganization at NV Energy. She was unhappy because she had been transferred from a power plant, where she liked her co-workers, to the corporate office, where she would be working in purchasing and contracts. "After I took the training, I was fired up," Sharp says. "I found my voice. I wasn't afraid to say something anymore. The true me came out again." Since, she has won five awards for her efforts to expand the number of minority suppliers, holds regular reunions for her training cohorts and organizes an annual companywide event to honor veterans.

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The earliest forms of diversity education arose soon after President John F. Kennedy signed an executive order in 1961 that required federal contractors to "take affirmative action" to avert discrimination based on race or national origin. By 1963, government contractors such as Western Electric provided two days of lectures and discussions about prejudice to leaders of all their locations. During the 1970s when the U.S. Equal Employment Opportunity Commission gained the power to bring lawsuits against private companies, training sessions proliferated to help employers avoid litigation. These compliance sessions evolved in the 1990s into training that used broader definitions of diversity, including factors such as sexual orientation, religion, communication styles and tenure. Now, companies are increasingly looking for quantifiable returns on their investment. They're tracking employee engagement to see whether the training translates into higher scores and looking at 360-degree evaluations to see whether managers gained skills. "The expectation is more than a good experience," says Michael Hyter, president of diversity consultant Global Novations. "It's real, measurable learning. It's a measurable outcome. There is a specific skill that ought to be obvious for the investment that we're making in this person's development experience." Hyter says that he holds his firm to a different standard than he did a decade ago, emphasizing to clients how his firm's training builds competencies and enhances employee engagement. In one instance, a client had become alarmed about turnover among women of color. Hyter's firm conducted a cultural audit, which suggested managers were weak at providing developmental feedback across the board, not only to women of color. The firm identified competencies, trained managers and embedded behavior into 360-degree evaluations every 90 days. Within 18 months, turnover decreased and more women and minorities had risen within the organization. "If we talked 10 years ago, I would have said we gave 5,000 people diversity training and left, and they loved it," Hyter says. "But nothing much would have changed. There was no real measurable change in behavior or skills." Nowadays, he asks specifically what outcome clients seek and looks at what skills drive those results. In 2010, 68 percent of the member organizations surveyed by the Society for Human Resource Management indicated that they have practices in place to address workplace diversity compared with 76 percent of organizations surveyed in 2005. But of companies with diversity practices, 71 percent say they provide training compared with 67 percent in 2005. "The organizations that were really invested in diversity and inclusion work before the recession hit remain so," says Eric Peterson, SHRM's manager of diversity and inclusion. "Those who were getting started, it was an easy cut to make when they needed to cut back."

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Making an investment Sodexo Inc. is among the companies that have invested years of time and money into diversity strategy. The food and facilities-management services company offers multiple diversity workshops available to everyone from cashiers to members of the C-suite, invites outside speakers to lead sessions at its annual diversity conference and offers webinars available anytime from any location. "We use every opportunity we can to spark people's interest and seed a desire to learn more," says Betsy Silva Hernandez, Sodexo's senior director of diversity, learning and consulting. Managers attend a full-day diversity workshop, facilitated by a cohort of external trainers, within six month of joining the company. There, managers learn about their role in building an inclusive workplace, reflect on their own views of diversity and explore situations that they may encounter. One scenario presents a white male voicing resentment based on his perception of reverse discrimination. "It gives them an opportunity to talk about the issues in a safe place—what they feel are going to be their challenges—and an opportunity to talk about what they can better do to lead in this space," Hernandez says. Managers can opt to attend 15 Diversity Learning Labs, follow-up sessions that range from 90 minutes to three hours offered throughout the year. Topics include gender, sexual orientation, crosscultural communication and disabilities. A recent lab simulated working with disabilities. For one hour, participants lived with a disability. One employee wore special earplugs that blocked all sound, another temporarily lost vision, while someone else spent time in a wheelchair. "We want it to be interactive," Hernandez says. "We look at 90 percent interaction and 10 percent sharing information and raising awareness." John Friedman, director of public relations for Sodexo, gave up his sense of hearing during the lab. He went with a colleague to a place that was "100 percent familiar, where we'd been to 100 times in our own building," he says. "It was a markedly different experience and profoundly humbling." Eight years ago, Sodexo also began conducting an annual diversity and business summit, a place where it tests new learning labs on such topics as generational differences. Each year, the full-day event is held in a different region, with area managers invited to attend with North American president and CEO George Chavel and his executive team. As diversity has become ingrained into business strategies, Chavel and other chief executives are immersing themselves in their companies' initiatives. Their involvement underscores the organizational commitment to diversity. Consider, for example, Mark Wagar, president and CEO of Empire Blue Cross and Blue Shield, the New York City-based subsidiary of WellPoint Inc. In 2008, the company introduced the Empire Diversity Council to serve as an advisory body to its senior-management team. Wagar then launched a "community ambassador program" in which members of employee resource groups help identify ways of better serving their own demographic.

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When Asian employees formed a resource group last year, they asked Wagar to serve as executive sponsor because, he says, "of my activism." A self-described "giant Dutchman," Wagar agreed and is working with members on a business plan detailing employee education and customer research goals. "If it's a business reality that there's lots of old white men running companies, if you don't have old white men who are willing to speak out about this and about how it [diversity] makes richer lives and better business," Wagar says, "it's not going to go as fast as it otherwise would." Some companies also are linking diversity education to performance evaluations. Bright Horizons evaluates employees against the company's values, known as the Heart Principles. Employees learn about this connection in diversity training they attend during their first 90 days. Among those principles: "We strengthen our organization by embracing diversity and never allowing acts of nonacceptance." Sodexo goes further. It ties managers' bonuses to training, recruitment and other diversity goals. This connection provides an incentive for managers to attend additional training sessions and to encourage subordinates to do so, as well. The strategy appears to be working: In fiscal 2009, 2,900 employees participated in 85 learning labs, and the next year 6,900 attended 243 labs. Through June, Sodexo already had exceeded its 2010 attendance. Discussions about business cases for diversity—reducing turnover-related expenses, tapping new market niches, better understanding customers—still dominate conferences. But Caesars Entertainment Corp. is taking a novel approach. Fred Keeton, chief diversity officer of the casino operator based in Las Vegas, has developed a concept that he calls "Diverse by Design." Many organizations assume that having a diverse workforce naturally creates better teams, but Keeton handpicks team members to ensure that the teams have what he considers to be the relevant mix. He applies the hospitality industry's concept of yield management to diversity, creating teams with what he considers the best mix of cognitive styles and experiences to solve thorny business problems or drive revenue. "Every dimension is not always important to what you want to do," says Keeton who is also vice president of finance for external affairs. "You've got to manage your diversity like you manage so many other things." He mines employee data, picking the most relevant attributes using a matrix that considers everything from thinking styles to job function, geography, cultural style and the traits traditionally thought of as diversity: race, gender or ethnicity. Insight into cognitive styles, for example, comes from the Herrmann Brain Dominance Instrument survey, collected and shared with employees in diversity training conducted during their first 90 days. Caesars uses Diverse by Design teams for only its toughest tasks. "If you have a problem that's a really easy problem, having a lot of diversity doesn't necessarily help you answer that problem," Keeton says. "If you've got a really hairy, nasty, dirty problem that's hard to solve, diversity becomes

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most potent. We call it creating the capacity to call the baby ugly because the people who created the baby aren't going to call it ugly." The company piloted the first two teams in 2009 and has since formed eight other teams. One looked at ways of improving buffets. The team didn't review the food itself, but rather proposed ways to increase the efficiency and effectiveness of buffet operations. A second team looked at the revenuemanagement systems of hotels, while another focused on whether to buy new or retain existing slot machines and what mix of games to offer. Keeton says the results are proprietary information but the strategy is working. Yet even after 50 years, diversity programs continue to spark debate. Sociologist Frederick Lynch, an associate professor of government at Claremont McKenna College in California, argues that diversity programs promote the notion of hiring people because of their skin color, gender or other demographic traits. He considers this tokenism. "As I see it, we have gone from trying to make up for past discrimination to affirmative discriminations," says Lynch, author of The Diversity Machine: The Drive to Change the "White Male Workplace." Changing demographics may lead to a "natural affirmative action," he says. But other experts believe diversity won't just happen without a lot of hard work. Patti Digh, a former vice president of international and diversity programs for SHRM and co-founder of the training firm the Circle Project, voices her frustration that companies insist on developing business cases before advancing diversity, saying this demand amounts to a stalling tactic. Diversity programs no longer need to be justified, Digh says. They're core business tools that should be integrated across product development, marketing and communication, not thought of as a separate silo. "In the year 2011, continuing to say, 'We have to build a business case for diversity' is like saying, 'We should really look into this new Internet fad,' " Digh says.

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Talking to Kids About the Market This past week provides plenty of financial lessons. But is it so hard to teach them? If you think the current market volatility is frustrating, just try explaining it to your kids. When the markets dominate headlines, the evening news, and small talk among adults, there's little chance the kids will miss what's happening. That's not the same as them understanding it, though, and explaining the market's dips and dives is no easy feat (not to mention the debt downgrade) -- especially for parents who may themselves be confused and uneasy. But it is important, experts say. After all, some 42% of Americans says they get most of their financial knowledge from their parents, according to a 2011 National Foundation for Credit Counseling study. And learning how to better handle money and make financial decisions in tough times can ultimately help kids grow up to be savvier, more confident investors and savers, says Peter Zaleski, professor of economics and statistics at Villanova University. "If you have experience with something, the ups and downs don't scare you as much," he says. That doesn't mean it's easy. More parents are prepared to talk to their kids about drugs or sex than money, according to an April survey from ING Direct. For starters, many are afraid they aren't great financial role models, says Brent Neiser, a certified financial planner and the senior director of strategic programs and alliances for the National Endowment for Financial Education. They may also worry that sharing too much about a rough financial situation will create undue anxiety, or assume that their kids are unaware, he says. But staying quiet doesn't protect children in quite the way their parents may hope. Kids are likely to pick up on bits of the news from classmates, the news or other sources, and draw their own conclusions. And impressions formed early tend to last. Young adults who were in their early teens when the recession hit in 2008 are now very distrustful of financial institutions, with 75% saying the stock market is "rigged," according to a June survey from the University of Arizona's Take Charge America Institute. That kind of fear without experience could create a generation less willing to invest or save, warned researchers. It already has, in slightly older generations :A new study from found that investors age 35 and younger were 33% more likely than other age groups to shift from stocks into less-risky bonds during market volatility. (Read: How to Teach Kids about Money.) On top of that, kids figure out more than parents expect, which is why they could be anxious if you won't talk about it. "Parents invariably think their kids don't know much about family finances, whereas the kids tell us about family finances in all kinds of detail -- how much money mom earns per hour, or which bills need to be paid next," says Martha Wadsworth, a professor of psychology at the University of Denver.

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But talking to kids about money in general and the market swings in particular doesn't have to be hard, says Mark Zupan, an economist and dean of the Simon School of Business at the University of Rochester. Even elementary-school age children can grasp some of the basic lessons: there are good times and bad, and right now we're in the bad part of that cycle, he says. It's a prime time to talk about the importance of saving over the long term and having a plan for your money. That said, parents should be careful not to get so detailed that their young child starts to fear that Ben Bernanke is the monster hiding under the bed. Emphasize that the forces affecting the economy aren't ones that they can control, and that they shouldn't worry, says Kimberly Foss, a certified financial planner and the founder of Empyrion Wealth Management in Roseville, Calif. "You want to give your kids the facts and the truth, not nightmares," she says. Tweens and teens will benefit from even more detail, like how a declining market can provide a good opportunity to snatch up stocks at bargain prices, Foss says. They'll also need explicit lessons like how to manage a checking account. Use any investment accounts you have for them as a teaching tool, or better yet, give kids shares as a gift. PBS Kids, the government's Federal Citizen Information Center, 360 Degrees of Financial Literacy and the Jump$tart Coalition have tools and games to use, too. Parents who have been up-front with their kids about money say the results can be gratifying, if occasionally surreal. Maria Bailey, host of "Mom Talk Radio," was frustrated Wednesday to see Deere & Co. close at $68 a share -- a far cry from the $95 she paid for it back in May. "Don't worry about it," advised her 17-year-old son Owen, who, along with his three siblings, participates in family dinner-table talks about the economy and picks several stocks each year to invest in as a holiday gift. "It's important to stay in the market long term. You're not buying stocks to sell them tomorrow." Says Bailey of the exchange: "It was one of those a-ha moments in my life where I thought, I must be doing something right as a mom."


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Brand-conscious consumers take bad news to heart Consumers with close ties to a brand respond to negative information about the beloved brand as they do to personal failure -- they experience it as a threat to their self-image, according to a new study by Tiffany Barnett White, a professor of business administration at Illinois. Credit: L. Brian Stauffer Consumers with close ties to a brand respond to negative information about the beloved brand as they do to personal failure – they experience it as a threat to their self-image, according to a new study by a University of Illinois marketing expert. Tiffany Barnett White, a professor of business administration, says consumers with a high selfbrand connection maintained favorable brand evaluations even when presented with negative brand information, suggesting that the reluctance of brand-conscious consumers to lower their opinion of a brand might be driven more by a motivation to protect the self. "When companies get consumers motivated about their products, they are just as motivated to protect the brand as they are themselves," White said. "So it's really more about the self than the brand. When people can self-affirm through other means and activities, they're not defensive at all." According to the study, co-written by Shirley Y.Y. Cheng, of the Hong Kong Baptist University, and Lan Nguyen Chaplin, of the Villanova School of Business, brands become highly symbolic of a consumers' self-concept, so much so that consumers will defend their self-connected brands much as they would defend themselves from personal failure. "Consumers are highly resistant to brand failure to the point that they're willing to rewrite history," said White, the Bruce and Anne Strohm Faculty Fellow at Illinois. "It not only explains why so many Toyota customers ignored the negative brand information in the aftermath of the highly publicized recalls, it also accounts for why they're quick to defend the company and why they would want to re-write history in a more positive way." White says the research is scalable to brands in different industries. "It's not just Coke versus Pepsi, Toyota versus Honda, or Apple versus Microsoft," she said. "Self-brand connections can extend into multiple markets. People may even think, 'I don't have any self-brand connections.' Well, pretty much everyone does. It turns out that these self-brand connections are rather ubiquitous."

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It can even extend to preferences for professional sports teams, although you don't have to be rabid Chicago Bears or Pittsburgh Steelers fan for those effects to register. "In some cases, it can actually be a pretty subtle connection," White said. And even when teams muddle through losing seasons (or in the case of Chicago Cubs fans, 100plus years of losing seasons), the effects still hold. "People are always motivated to have a positive self-evaluation," White said. "They want to think of themselves positively, and they want others to think positively of them. So when the Cubs are a mess, fans think of other ways to bolster their self-concept as Cubs fans. They talk about what a great ballpark Wrigley Field is during the summer. For highly connected fans, they're re-painting the picture of their love affair with the Cubs brand. Otherwise, it's not just that the Cubs have failed. It's that they, as fans, have also failed." White cautions that brand-conscious consumers do have their limits. An Apple aficionado, for example, might be turned off by the squalid working conditions of the factories in China that churn out iPhones and iPads. "That could actually sever a consumer's sense of self-brand connection," White said. "They could say, 'Look, if that's what they're about, then that's not something I want to be a part of.' " According to White, the big lesson for businesses is that the consumer is "really watching your brand, so your performance as a brand matters," she said. "Brand failure is not something that just impacts your bottom line. It also influences the consumers who have become attached to it. So that really points to getting consumers involved and invested with brands. Ultimately, they become almost co-partners. It's another positive benefit of brand loyalty, and even another way to think about brand loyalty." More information: The study will be published in a forthcoming issue of the Journal of Consumer Psychology.


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Cupcake business bakes success in small batches Standing in the middle of Icing on the Cupcake's vast baking facility in west Rocklin, one can't help but feel like a visitor to Willy Wonka's wonderland. A patina of powdered sugar clings to the floor of the kitchen that serves all four of the company's local shops in Sacramento, Folsom and Rocklin. To the right, there's the Sugar Shack, a room where every ounce of powdered sugar is sifted. To the left, standing Hobart mixers, affectionately dubbed Big Bertha and Big Mama, whir as they whip up batches of Bavarian cream and other fillings and frostings. In the middle, spotlessly clean prep tables abut towering shelves stocked with glass containers filled with jewel-colored sprinkles, edible baubles and decorations. There are stations for batter, stations for frosting, stations for filling and stations for decorating. The 7,000-square-foot facility, with its perky pink walls and cheerful decor, is the epicenter of a burgeoning cupcake business that has blossomed amid an economic downturn that has led several other cupcakeries to crumble. Although this kitchen produces more than 150,000 cupcakes each month, each treat has delicate flavor and a lightness that tastes like it came from the pastry chef's home kitchen. What's the secret ingredient? There are several. Cupcakes are made in small batches of 28 to 33. Frosting comprises butter, sugar and extracts, just like home cooks have used for generations. Preservatives are purposefully left out. Flavors are thoughtfully researched and tested in advance. "We are all about detail, whether it's following recipes for frosting or making sure it's tinted a certain way," said Shirley Nagasawa, who owns the business with her daughter Christee Owens and family friend Chuck Meridith. "It's a little more intense as far as labor is concerned, but it makes a tremendous difference." In late July, Nagasawa was perfecting a recipe for blackberry cobbler cupcakes. It will be the featured flavor in September. Clever branding and marketing also have helped build business, Owens said. Their signature pink-and-brown decor and packaging and ubiquitous logo instantly identifies that this isn't just

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another cupcake – it's an Icing on the Cupcake creation. The company's Facebook page has nearly 9,000 fans. Owens acknowledged that she is always thinking of new ways to promote her business, both online and in the community. Trendy food businesses need that kind of constant nurturing to survive, said Patrick Maggitti, assistant professor of management and entrepreneurship at Villanova University. "In order to be competitive, you have to constantly be thinking of that next great thing," he said. "The ability to remain entrepreneurial even though you're not the start-up anymore is key. Companies that I've seen be successful seem to have marketing, creativity and recognize opportunities where others don't." And when you're dealing with a trendy commodity such as cupcakes, only the best will survive. "Oftentimes in these markets, there's an influx of competitors until there has to be a necessary cleaning-out phase," Maggitti said. "Some of the ones that make it through that come out better-equipped and stronger than if they didn't face that competition, and this is true of cupcakes in particular." The recession also may have helped propel the cupcake trend's success, experts say. While at one time a shopping spree or four-star dinner may have been a reward for a job well done, now, a relatively low-cost treat will suffice. "People want to feel like they're still having a treat, but they want to feel a little more in control," said Kit Yarrow, a consumer psychologist and marketing professor at Golden Gate University. "It's full-on decadence and delicious and special, but it's a smaller amount of money and food ‌ Maybe they're not taking a vacation or getting an expensive hairdo, but they can still feel like they're indulging." Consumer interest in food may also be helping the cupcake's continued success. But the cupcake craze may not have the staying power some may think once the novelty disappears. "Once people become accustomed to it, the novelty of it wears off, and they're very susceptible to a clever marketer of a difference product, like mini- cupcakes or a cookie wagon," she said. "People will always be looking for that small, decadent delight." For now, however, Icing on the Cupcake's wares have a strong following, and the company's business plan includes further expansion. One recent afternoon, a steady stream of customers filled the storefront attached to the west Rocklin bakery kitchen, buying cupcakes by the half-dozens and dozens.

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Denise Snell brought her two children and their friends to the cupcakery for a post-movie treat. She had purchased a Groupon deal that enabled her to buy six cupcakes for $8, half the normal cost. The Snells have been frequenting the bakery since the first Rocklin location opened in 2007. They now head to the newest Rocklin store every few months. "It's good, and the kids get to pick their flavors, so it's a special treat," Snell said. Carly Snell, 10, and Allison Montti, 10, said the variety of flavors is what makes the cupcakes special. "The first thing I said was 'best cupcake ever,' " Montti said. And for the bakery's owners and staff, that's the icing on the cupcake. Â


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Sen. Piccola says Council’s vote means future payments in question State Senator Jeffrey Piccola said the Harrisburg City Council’s vote against the mayor’s plan to bring the city out of debt with the help of state advisors will mean the city can’t make its upcoming bond payments. That, said the Dauphin County Republican, will put the bond ratings of the commonwealth and its municipalities in jeopardy. “Citizens in Pittsburgh or Philadelphia or Hazleton or over here in Cumberland County that have municipal and county governments that are fiscally sound and doing the prudent thing financially are going to find themselves paying higher interest rates.” David Fiorenza, a professor of economics at Villanova School of Business, said the city will have a lot of decisions to make. “Are they going to make payments for wages, are they going to make payments for supplies? What are they going to make payments for, the debt situation? Are they going to maybe try to restructure debt and talk to people who hold the debt and ask for some kind of reprieve?” The message from the state Capitol is clear: don’t look at us for a reprieve. Governor Corbett said he won’t advance payments to the city for its obligations. Piccola said tiding the city over would only take care of this month’s bills. “It doesn’t make any sense to just kick the can down the road,” said Piccola. “We’ve got to deal with this problem. We’ve got to solve the fiscal distress of the city.” Piccola has legislation, Senate Bill 1151, that would put Harrisburg on the road to financial rehabilitation. But the entire Legislature isn’t in session until late September. Until then, Governor Corbett is signaling that he’s waiting for City Council to make a move. “The ball’s in their court,” said Kevin Harley, Corbett’s spokesman. Piccola said the Council’s lack of any proposal of their own to deal with their city’s debt makes their rejection of Mayor Linda Thompson’s recovery plan all the more unreasonable. “My sense is they’re looking for a bailout,” said Piccola of the council members. “They’re looking for somebody else to pay for their irresponsibility over the years. And, that’s just not going to happen. First of all, the commonwealth doesn’t have the resources to do it, and it’s not the right thing to do, and it’s not fair.”

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Why This B-School Prof Says Groupon Is Cooking Its Books (MoneyWatch) We don't really know why Groupon (GRPN) is delaying its IPO or why the SEC contacted the company. But here's one possibility: Groupon's balance sheet is as weird as the rest of its business (Exhibit A: CEO Andrew Mason's naked yoga video, pictured). At the beginning of the year, $42.4 million in uncollected revenues sat on Groupon's books, up from just $601,000 the year before. As a percentage of all sales, Groupon's unpaid "accounts receivable" tripled as portion of its revenues from 2 percent in 2009 to 6.7 percent by the end of 2010: •

2009 • 2010 Revenues: • H2 2011 Revenues: Revenues: $30.5 $713.4 million $1.5 billion million Gross Profit: $280 Gross profit: $611 Gross Profit: $10.9 million million million Accounts receivable: Accounts receivable: Accounts receivable: $42.4 million $99.7 million $601,000 "Earnings manipulation"? A proportional tripling of uncollected debts is one of the signs of a company that is cooking its books, according to Prof. Anthony Catanach of the Villanova School of Business. Using the Beneish Model (an eight-variable statistical model that calculates the probability of a company manipulating its earnings, as I'm sure you knew) Catanach says "Groupon has a 100% probability of earnings manipulation based on 2009 and 2010 financial data." One of the variables is the "Days Receivable Index," which suggests aggressive revenue recognition. That index calculates accounts receivable as a percentage of revenues and then looks at whether that percentage is increasing or decreasing. It's increasing at Groupon, or at least it was until Jan. 1, when the company stopped publishing information about it. If you calculate the same ratio as a portion of Groupon's gross profits, which is the money Groupon keeps after it has paid off the merchants who supply its offers, then the numbers come out rather more charitably for the daily deal emailer: Receivables were 5 percent of gross profit in 2009, 15 percent in 2010, and 16.3 percent through the first half of 2011. That doesn't look like too dramatic ... until you consider what it means to Groupon. The company fails to collect nearly 17 percent of its revenues* in a timely fashion, and is getting worse at doing so as time goes by, even though almost all its users are paying by credit card. No wonder it is so dependent on temporary (and, in the long-term, unsustainable) cashflow gimmicks. *Correction: This item originally said, incorrectly, that Groupon's accounts receivable were nearly 40 percent of gross profit and that the company had not published a full balance sheet in 2011. Apologies for the errors.

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Franchising Structure Can Be Source of Comfort in Recovering Economy (Laredo, TX) For many experienced businesspeople, a franchise opportunity can offer a fresh start in the business world and a new challenge. Especially during the recession, when talented executives and managers were losing their jobs at unfathomable rates, franchising remained a strong business structure, as it attracted these individuals. "They called it rightsizing - they had all sorts of euphemisms for it," franchisee Reynolds Corea, a 50-year-old father of two college students, told the Indianapolis Star . “But it was a layoff.” Fortunately, Corea and many other "corporate refugees," as the source calls them, found a second opportunity in the strong franchising sector. In fact, franchising as an industry is preparing to grow at a rate of 2.5 percent in 2011, according to the International Franchise Association's 2011 Franchise Business Economic Outlook. Furthermore, franchising is expected to add 2.4 million jobs in 2011, helping to propel its economic output from $706.6 billion in 2010 to $739.9 billion. Why has this model become so popular, especially in a time of economic turmoil? Because it reduces the risk for businesspeople. In an independent business, individuals can sink their retirement funds and home mortgages in a venture without a marketing strategy, proven product or developed audience. Franchising, however, provides all three of these aspects and also offers franchisees a support system, including experts and training programs, that they can lean on in times of trouble. “Franchising shortens the learning curve and allows the franchisee to apply all of their professional skills while the system compensates for less developed areas,” added Contreras, Liberty Tax Area Developer. "You are accepting someone else's business model, their public image, their cost structure, and you are agreeing by and large to follow their policy manual quite rigidly. That arrangement can be a source of great comfort," John Pearce II, endowed chairman of strategic management and entrepreneurship at Villanova's School of Business, told the paper. However, a support system does not mean that a franchisee is forfeiting a sense of ownership and independence. Especially for individuals exiting the corporate world, being their own boss is of paramount importance.

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Don't Fear the FOMC: 'Operation Twist' Could Be On The Way Investors have been trying to divine the limited options left available to the Fed to stimulate the economy. The Federal Reserve’s economic outlook continues to maintain moderating growth over the next year and unemployment rates well above pre-recession levels. Yet there’s little doubt that economic conditions have stagnated over the past few months, long before a sustained recovery has taken hold. The high 9.1% unemployment rate has been unchanged and troubling. As the new headlines sensationalized, there was zero job growth last month, though it could have easily been slightly positive without the labor dispute and strike at Verizon (VZ). GDP growth has been anemic at 1% and well below the 3% necessary to lower the unemployment rate substantially. Many were expecting a new policy statement from Federal Reserve Chairman Bernanke at the Fed’s Jackson Hole Conference and a speech in Minneapolis but were disappointed when he did not clearly spell out the conditions under which they would consider a QE3 or even address the various other tools the Fed still has available. There is still hope that the upcoming FOMC decision and statement will reveal more about what the Fed’s policy options are at this stage. Among them is “Operation Twist” which is designed to change the composition of the Fed’s security holdings away from short-term and into long-term maturities. I’ve been saying for awhile now that a recovery cannot be sustained without growth in housing and residential investment. This has been the case following every major recession of the Twentieth Century, a fact noted in Ben Bernanke’s most recent speech. The housing market numbers are mixed and it still doesn’t have enough momentum. New home prices were down 1% in June, the second consecutive month but up 1.6% at an annual rate. Residential investment has risen since the bottom of the recession but has stalled in recent months. “Operation Twist” would likely have several favorable consequences for the economy. First, such a policy would place downward pressure on long-term mortgage rates and hopefully bring demand back to the housing market. Even though the near-zero short-term rates are at a historical low, long-term rates remain above 4% so there’s definitely some room for the Fed to maneuver and address some of the root problems holding the economy back. Second, securities are currently cheaper at the long-term end of the yield curve, so a reinvestment in them would have a limited impact on the Fed’s overall balance sheet, something which might appeal to the inflation hawks on the committee. Finally, it may open up new opportunities for market investors. Those holding long-term bonds would instantly see a greater return from the boost in prices. Although more difficult to predict, equities may also benefit if the policy leads to greater economic growth and lower unemployment while keeping inflation expectations low. However, if inflation becomes an issue it may strengthen gold and other commodity prices at the expense of an overall declining market.

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I do not believe there’s enough consensus yet among policymakers at the Fed for a major policy change like QE3. While economic conditions are not very good there is no imminent sign of a double-dip and the inflation hawks will surely be concerned about the uptick in consumer prices. The inflation rate, while still in check, is up 3.6% in July from the same time last year and core inflation has risen 1.8%, which is at the upper end of the Fed’s 1-2% comfort zone. Those who cast a dissenting vote on the latest FOMC decision, including Philly Fed President Charles Plosser, are skeptical of the Federal Reserve’s ability to precisely target the unemployment rate and will keep inflation at the forefront of the discussion. Although there is debate among academic circles regarding how the Federal Reserve should conduct monetary policy to achieve its mandates of maximum employment and price stability, most agree that it would be inadvisable for policymakers to focus singularly on the unemployment rate. History tells us that it is very difficult for the Fed to achieve a specific unemployment target and if it raises inflation expectations while trying to accomplish that target, stagflation could return. Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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MBA Education Guide: Evil Genius Beer Co. PBJ: Are business schools getting better at fostering entrepreneurs? Hayward: I think they are. In the past, business schools were focused more on training people to work in large businesses, but there’s been a dramatic shift toward people working at businesses with 50 or fewer employees. Business schools have had to shift how they train people. Small companies require that employees be “intrepreneurs,” which of course are similar traits and skills as those of an entrepreneur. Bowen: Business schools have always been incubators for entrepreneurs. However, they have never taken as active a role as they have since the recession of 2008. Now, students are being almost forced to become entrepreneurs since the availability of high-paying jobs is scarce. Business schools have recognized that a larger portion of students are interested in starting businesses and have responded by creating programs to help nurture those ideas. It was more reactionary than anything. PBJ: What other business ideas did you consider while at Villanova? Hayward: We looked at several. A lot of our other ideas were more “green” minded. We looked at developing an extremely energy-efficient house. We also looked at the concept of biofuel. Bowen: We looked at each idea very critically based on startup cost, contacts we have in that industry, regulatory environment and the five-, 10-, 15-year growth potential. PBJ: What appealed to you about the craft beer business? Hayward: This industry is very different from many others. Most small breweries have developed a camaraderie around the fact that craft beer is such a small segment of the market, and to survive, we all need to work together. Bowen: I have wanted to do this since I was an undergrad. I was very lucky to get exposed to the early stages of the craft beer business through a friend’s family. The lifestyle is amazing and the people you meet are creative and passionate. I couldn’t imagine doing anything else.

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HP and Meg Whitman: signs of a Silicon Valley in transition Long the symbol of Silicon Valley, HP could now be coming to represent new challenges facing America's idea factory. HP, as Silicon Valley's biggest and most mature corporation, is more big business now than Silicon Valley startup. Meg Whitman has to help HP figure out which way to go from here. From the days in 1939 that Bill Hewlett and Dave Packard founded their venture in a one-car garage in Palo Alto, Calif., Silicon Valley has been the province of the young and brilliant. From Hewlett and Packard to Apple's Steve Jobs and Facebook's Mark Zuckerberg, Silicon Valley thrived by producing young entrepreneurs who understood the needs and wants of individual consumers and how to meet them through technology. But HP is now America’s largest high-tech company with revenues of $126 billion, and its recent troubles in finding an effective CEO reflect a company caught between the Silicon Valley way and a more traditional model for big business. In short, HP has until now remained a player in the printer and PC market that made it famous, but it has also expanded into business-to-business platforms. The difference is fundamental, and as Silicon Valley's most mature startup, HP is perhaps the first to face this transition – thinking more about the needs of General Electric or General Motors than the general populace. As the new CEO of HP, Meg Whitman faces the decision of whether to continue to try to balance these goals or to abandon one for the other. The difficulty of that task – and the doubt about whether she can do it effectively – has driven HP stock to a six-year low. “If you look at those companies which have been enormously successful in Silicon Valley in the last five to 10 years, you find that they are largely founded on the business-to-consumer model,” says Faisal Hoque, CEO of BTM Corporation, which analyzes the convergence of business and technology management.

Leaving the garage behind? But he suggests HP is now based primarily on the business-to-business model that much of Silicon Valley does not understand. And that has caused problems, he says. This lack of understanding – by both CEOs and the boards that fire and hire them – is what is behind the musical chairs of management.

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Yet the rough transition is to be expected, in some ways. Business-to-business savvy comes from experience – from operating in the corporate world – and that comes only with experience, Mr. Hoque says “There is a vacuum of understanding at this level of needed knowledge and creativity, and it won’t be solved by the appearance of a Steve Jobs-type genius," he says. "The whole region needs to go through a growth curve, and it will take lots of time. Most high-tech creators are very young, and this coming new era requires a skill set of great experience – possibly by working within the giant businesses themselves, from the ground up.” There are differences of opinion about whether Ms. Whitman has the background to do this. Whitman took over eBay in 1998 as a startup company and in 10 years made it into one of the country’s most dominant e-commerce companies. But Hoque suggests that her experiences at eBay – and later at Hasbro toys – were consumer-based, and therefore won't translate well. But others feel that her basic creativity, and ability to forge something new out of nothing will be relevant. “It’s true that Silicon Valley is in a somewhat confused transitional stage,” says Tom Drucker, founder and CEO of Consultants in Corporate Innovation, who has worked for Xerox and other global companies. But Whitman’s creative and organizational skills could be just the ticket for this period of incubation, he says. “Yes, eBay started as a consumer business that helped individual people sell things, but it developed into one that launched entire entrepreneurial businesses for hundreds of people who now make very good livings out of their homes and which didn’t exist before Meg Whitman,” says Mr. Drucker. Her run for California governor in 2010 has also given her national and international experience that will serve her well, he says.

Change at the top To others, the hiring of Whitman is evidence that HP is embracing its transition. It is trying to find its way into “the new reality of computer enterprises and perhaps moving away from where their traditional strength was,” says Robert Beck, chair of Villanova University’s department of computing sciences. HP has been a global leader in printers and has made advances and then retreats into the PC market over the years, merging with Compaq in 2002. “It’s puzzling to me that HP is trying to find different directions from what their traditional business was,” says Professor Beck. “They seem to be going into areas where they perhaps shouldn’t be and that’s possibly what’s behind getting rid of their old CEO" Léo Apotheker.

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The past years have seen lots of changes at the top, a signal which has worried investors. Carly Fiorina was forced out in 2005. Then in 2010, CEO Mark Hurd resigned amid scandal. He was followed by Mr. Apotheker, but the HP board of directors was reportedly dissatisfied with the way that Apotheker recently announced that HP was looking to get rid of its PC division. Partly because of the rocky start, there is no shortage of interest in watching how HP responds and what it means for Silicon Valley. “Whitman needs to do two things: focus the company on core competency and then convince markets that HP now has focus,” says Peter Zaleski, an economist at Villanova. “She is very capable of doing both. The key questions to Whitman are: What are the company’s strengths to be leveraged and which divisions are mere distractions and need to be discontinued?” HP stock was down 90 cents – or 4 percent – at $21.90 in midday trading Friday, after hitting $21.50, its lowest level since May 2005, according to AP. “HP could possibly be a smart buy now because any sign of progress that Whitman can deliver will be a boost to HP’s stock,” says Zaleski.

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SEC Cuts Off Some Aggressive Accounting at Groupon It’s getting chilly in Chicago and one of our most famous start-ups, Groupon, is beginning to feel the bite of colder winds. Late yesterday Groupon announced yet another restatement of their S-1, the financial statements and other disclosures required for a still planned IPO next month. And they lost another key Csuite hire – the COO they snatched from Google only five months ago. As much as so many want this IPO to go off, and to go off spectacularly, it’s been a bumpy ride for Andrew Mason and his merry band. Reports at theFinancial Timesregarding COO Georgiadis’ scuttling say the Google veteran was “more corporate” and CEO and founder Mason makes decisions “more instinctively.” Mason’s recent misstep – extensive comments to employees about the company’s prospects including disclosure of financial information that was not yet public and then leaked to press – says to me he chafes at adult supervision. The numbers seem too good to be true, also. Groupon, under the approving eyes of auditors Ernst & Young (EY), has been taking an aggressive approach to several line items in their financial statements. Recording revenues gross of what they owed to merchants for the coupons they peddle is the one the SEC forced them to adjust this time. (They previously had to tone down their use of non-GAAP metrics in order to mitigate the potential of misleading investors.) Professors Ed Ketz and Tony Catanach indicted the overstatement of revenues, as well as a few other items, on August 24. They felt so strongly about the issue they sent their analysis to the SEC via its Whistleblower Program. This accounting method was wrong—it did not follow generally accepted accounting principles. The accounting policy did not conform to the requirements of Emerging Issues Task Force (EITF) 99-19. It looks like someone paid attention. I asked Professor Ketz how this farce could have gone on so long:

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I don’t understand how EY let this slip. Surely the EY auditors on the Groupon engagement are familiar with EITF 99-19 and SAB 101. How could they have approved such erroneous accounting? Ketz and Catanach also made the point that Ernst & Young has not yet given an opinion on Groupon’s internal controls over financial reporting. Why stop the train when it’s leaving the station at 120 mph? I wrote here at Forbes in May about the dangerous trend of unaudited numbers being used by companies, media, and investors to evaluate the potential of these IPOs. It’s endemic of the short-term focus of almost everyone involved in the process. As long as they get their return before the gig is up, who cares what the real story is? And it’s self-interest when Ernst & Young supports and encourages an aggressive approach to their audit clients’ accounting. How else do you become the go-to firm for a big chunk of the social commerce, social media, social gaming IPOs? According to the New York Times DealBook, Google – another Ernst & Young audit client – made the exact opposite adjustment to their revenue reporting before their IPO. Google switched to reporting revenues at gross from net of what they have to pay to distribution partners. Maybe the SEC will look more closely at the accounting techniques used by Google, and two other Ernst & Young audit clients, Facebook and Zynga, before their IPOs. Not only do Facebook and Zynga count on advertising and “virtual” revenue, they count on each other for business - like Siamese twins conjoined at the hip.

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Virginia Beach-based Geeks on Call gets upgrade Gone is the guy wearing a baseball cap, a polo shirt and eyeglasses with broken frames. Someone wearing a crisp white shirt and a tie has taken his place. The change in Geeks On Call's signature Geek reflects the computer-repair company's heightened emphasis on selling services, including voice-and-data services, to businesses. "Before, our franchise owners were technicians who knew how to fix computers," said Glenn Davis, CEO of Geeks' parent company, On Call Holdings International. Today, he said, Virginia Beach-based Geeks is seeking franchisees with entrepreneurial drive and an ability to sell. Davis and business partner John Finguerra spent almost two years revamping the company's strategy after buying the assets of Geeks On Call America in late 2009. With several changes in place, they began offering Geeks franchises this month. Davis and Finguerra already had built a telecommunications services company by the time they acquired what remained of the former Geeks On Call. Despite the departures of key managers and several franchisees, Davis and Finguerra figured Geeks' franchise structure could become a vehicle for selling telecom services to businesses throughout the country. Organized in 1999, the previous Geeks began selling franchises in 2001 and expanded rapidly. At its peak, it had franchisees in more than two dozen metro areas, including Boston, Chicago, Denver and Los Angeles. Service personnel drew attention to the company by driving Chrysler PT Cruisers bearing Geeks' toll-free phone number. However, a split within the management prompted some officers to leave in 2006. More left in 2009. Franchise owners, too, bailed out. By early last year, the number of franchisees had dwindled to 54. Today it stands at 44. One reason for the falloff was the difficulty some franchisees had adjusting to the weak economy, especially if they relied on residential computer-users, said Richard Artese, president of Geeks On Call International and an officer in the earlier company. When Davis and Finguerra bought Geeks, "we walked into a very lean shop," Davis said. Still, the new company was able to handle customers' inquiries and deliver services to franchisees without disruption, he said.

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The new Geeks has 30 employees, with slightly more than half working in the Virginia Beach call center. Ten employees in the parent company, On Call Holdings, provide accounting, advertising and marketing services for Geeks and its franchisees. Coming up with a different model for selling Geeks' franchises took longer than the partners expected. One reason was their determination to realign the costs for franchisees and eliminate a heavy royalty that Geeks was charging, said Davis, who serves on the Virginia Beach City Council. "Some franchise owners worked 60 to 70 hours a week, and some worked 40 hours," he said. "We figured, 'Let's not penalize the owners who put in extra effort'" by imposing the royalty on their revenue. The new model also had to include a way for franchisees to sell voice-and-data telecom services to businesses. That's important because sales of these services can generate a steady stream of income for franchisees, Davis said. Because Geeks had become a new company, its owners had to compile a new franchise disclosure document for the Federal Trade Commission and get approval from states that require franchise offers to be registered. Several states, including Virginia, require franchisors to provide detailed information about their background, financial condition, complaints involving franchisees and the cost of buying and operating a franchise. Geeks is selling franchises in 36 states and registering to sell in the remaining 14, Davis said. The company also plans to offer franchises in Canada, he said. A faltering national economy has complicated the sales of some franchises, especially those that require significant financing. Today, companies selling franchises want prospective buyers to have greater resources, including more working capital, because of the economic uncertainties, said John Pearce II, a professor of management and operations at Villanova University's School of Business, near Philadelphia. "The franchisor makes money from the success of the franchisee" and is looking for greater assurance that their investment will generate a return, he said. However, Geeks On Call has scaled back the fees that a franchise-buyer once had to pay. The cost of a Geeks territory includes an initial $20,000 franchise fee and a monthly membership fee of $500. That compares with a franchise fee of $25,000 for a single territory, an 11 percent royalty on the franchisee's gross revenue and a weekly advertising payment of $275 for each territory under the predecessor Geeks. The company has received inquiries from prospective buyers, but has not sold any franchises, Davis said.

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As part of their restructuring, he and others at the company sought to address several issues that upset franchisees in the past, including the fees, lapses in customer support and advertising costs. "There's no question that things are better under the new ownership," said Shep Bostin, who owns nine territories in Maryland suburbs of Washington. "These guys have the ability to run a business and give us the support we need." Geeks' new owners still have work to do, said Bostin, a Gaithersburg, Md., resident, but the complaints among franchisees are now, "When is the new stuff coming in?" rather than "How am I going to keep the doors open?" Meanwhile, Geeks' emphasis on selling services to businesses "is more consistent with where the real money is," he said. Liz Lasicki, who owns franchise territories in the Charleston, S.C., region with her husband, lauded the company's communications with franchisees and the expansion into telecom services. "It helps us get our foot in the door with businesses that don't need computer services" but may want to reduce the cost of their voice-and-data services, she said.   


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PhillyInc: Philly Fed chief: Taming inflation is key to economy When you're one of 10 people who gets to vote on U.S. monetary policy, your words get dissected as if you were the manager of the division-winning Philadelphia Phillies. Federal Reserve Bank of Philadelphia president Charles I. Plosser is no Charlie Manuel. But listen to enough of their post-game or post-Fed-meeting interviews and you can see that they are similar in one respect: Both managers like to keep things simple. In Manuel's case, it's expecting his hitters to hit, his pitchers to pitch, and his fielders to field. As for Plosser, it's warning the Federal Reserve against straying from what he sees as the central bank's main mission: fighting inflation. To him, keeping prices stable makes it possible for the Fed to fulfill its other mandates: promoting maximum employment and moderate interest rates. Inflation, or more specifically Plosser's long push to prod the Fed into adopting an explicit numerical objective for inflation, was a big part of his speech Thursday at the Villanova School of Business'second annual Business Leaders Forum at the university's conference center in Radnor. About 10 minutes in, as Plosser was talking about the current inflationary environment, the lights went out in the conference center's dining room. He didn't miss a beat, quipping: "You mention QE2, and everything goes dark." Then, addressing the Rev. Peter M. Donohue, the president of Villanova University, who had introduced him, Plosser asked, "Father, did you have anything to do with this?" As any university president would when surrounded by a roomful of business leaders, Donohue replied: "If we had more donations, we could keep the lights on." A little levity goes a long way at a time when so many fear that the U.S. economy of 2011 feels like 2008, and that we're slipping into another recession.

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In fact, Plosser has revised downward his forecast for gross-domestic-product growth in 2011 from a 3-to-3.5 percent range to less than 2 percent. But he expects growth to accelerate to about 3 percent in 2012. Despite the risks posed by Europe's sovereign-debt crisis, Plosser said, "I do not believe the data signal that we are on the precipice of a so-called double-dip recession." That doesn't mean all is hunky-dory. Consumers keep saving more and spending less. Labor market conditions "remain a serious challenge," said Plosser, who expects the August unemployment rate of 9.1 percent to remain little changed for the rest of the year, but fall to between 8 percent and 8.5 percent by the end of 2012. As for what can be done about high unemployment and sluggish growth, Plosser said he thinks the Fed has reached the limits of what monetary policy can do: "Even a monetary-policy maker can't say, 'Let there be light.' " Which helps explain why he cast one of three dissenting votes during the two most recent meetings of the Federal Open Market Committee. Plosser is not a fan of the Fed's recently completed second round of quantitative easing, which involved the purchase of $600 billion of long-term government securities, or its plan now to buy $400 billion of longer-term Treasuries and sell an equal amount of shorter-term bonds by mid2012. While the goal is to bring down long-term interest rates, the "pass-through" to businesses and consumers is likely to be quite small. "Thus, I am skeptical that this will do much to spur businesses to hire or consumers to spend, given the nature of the structural adjustments occurring in the economy and the uncertainties posed by the fiscal challenges both here and abroad," he said. The danger for the Fed in trying such tactics is one of losing credibility in the eyes of the public. "In my view, the actions taken in August and September risk undermining the Fed's credibility by giving the impression that we think such policies can have major impacts on the speed of this recovery," he said. "It is my assessment they will not." In Plosser's opinion, the Fed can't solve all the economic problems besetting the United States right now, and shouldn't act as if it can. Otherwise, when the lights do go out, it will be that much harder for the Fed to make the hard choices needed to bring the economy back from the shadows.


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Plosser Says Easing Moves May Hurt Fed’s Credibility, Fail to Boost Growth Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank may be undermining its own credibility by pushing forward with monetary easing that will do little to boost growth. “The actions taken in August and September tend to undermine the Fed’s credibility by giving the impression that we think such policies can have a major impact on the speed of the recovery,” Plosser said today in a speech in Radnor, Pennsylvania. “It is my assessment that they will not.” Plosser’s remarks are his first since he joined Fed district bank presidents Richard Fisher of Dallas and Narayana Kocherlakota of Minneapolis in dissenting from a Fed decision for a second straight month. The regional Fed bank presidents pose the most opposition within the Federal Open Market Committee in almost 19 years, opposing last week a plan to sell $400 billion of short-term Treasury securities and buy $400 billion of longer-term securities. The policy, so-called Operation Twist, is likely to reduce long-term rates by “less than 20 basis points” and “the pass- through to the rates at which consumers and businesses actually borrow is likely to be much less,” Plosser said at a Business Leaders Forum at the Villanova School of Business. “I am skeptical that this will do much to spur businesses to hire or consumers to spend.” Plosser, Fisher and Kocherlakota also dissented when U.S. central bankers last month chose to hold interest rates near zero until at least mid-2013. That replaced their prior pledge to keep rates low for an “extended period.” ‘Cautious and Vigilant’ “In addition to having little effect, the actions come with significant potential costs,” Plosser said. “We should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated.” Fed officials weighing in on the policy this week include Governor Sarah Bloom Raskin, who said the central bank’s use of tools has been “completely appropriate,” and Boston Fed President Eric Rosengren, who said he was “very supportive” of the Fed’s actions.

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Atlanta Fed President Dennis Lockhart said this week that Operation Twist should have a “modest positive impact,” while Kansas City’s Tom Hoenig said it may “introduce new complexities and risk new unintended consequences.” ‘Open Mind’ Plosser said to reporters after the speech that he “retains an open mind” on the idea of lowering the 0.25 percent rate the Fed pays financial firms on excess reserves. “Reducing the interest rate on excess reserves at least in my mind would be a more traditional monetary policy action,” Plosser said. The Fed may not want to take such a step because of the uncertain effects from lowering the rate to zero, including possible damage to overnight lending markets, he said. Plosser said he opposed the Fed’s decision, also announced last week, to reinvest its portfolio of housing debt back into mortgage-backed securities. The Fed had previously been replacing the housing debt with Treasury securities. The new reinvestment scheme is a “credit allocation scheme designed to help one sector,” he said. The policy halts the process of normalizing the Fed’s balance sheet, he said. “As a result, when the time comes, it’s going to make our exit problem just that much more difficult.” Job Market Boom Bonds have rallied on the central bank’s actions, with the yield on the 10-year Treasury at 2 percent at 11:04 a.m. in New York trading, not far from the record low close of 1.72 percent on Sept. 22. Low interest rates haven’t sparked a job market boom. In August, the economy added no jobs and the unemployment rate remained unchanged at 9.1 percent. Economists in a Bloomberg Survey predict the rate will remain at 9.1 percent this month. Plosser said he would consider further monetary stimulus “if deflationary fears were to become a real threat again.” If financial market disruptions from the European debt crisis became significant, the Fed may need to “respond in its role of lender of last resort,” he said. “I do not see either of these scenarios in my forecast,” said Plosser, 63, a former professor and business-school dean at the University of Rochester in New York. He joined the Philadelphia Fed as its chief in 2006. Gradually Accelerate Plosser said he forecasts economic growth of around 2 percent in 2011, down from the 3 percent to 3.5 percent he expected earlier in the year. Growth should gradually accelerate to around 3 percent next year, he said. “I do anticipate that with many commodity prices now leveling off or falling, and inflation expectations relatively stable, inflation will moderate in the near term,” he said. Unemployment

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will probably change little this year and decline to 8 percent to 8.5 percent by the end of 2012, he said. Inflation will decline to 2 percent next year or “maybe a little bit more,” he said to reporters. “I’m not concerned about inflation in the near-term,” Plosser said. He said that market-based measures of inflation expectations, such as the difference between inflation protected Treasury securities and regular Treasury securities, may be distorted by a “flight to quality” into heavilytraded Treasuries. Plosser renewed his calls for the Fed to adopt an explicit numerical target for inflation. He dismissed an idea similar to that proposed by Chicago Fed President Charles Evans to tolerate inflation higher than 2 percent to help bring unemployment down more quickly. “I am very wary of such a strategy because I don’t believe we can control inflation expectations that precisely,” he said. “It is at least questionable whether we could credibly raise inflation expectations. And were we able to do so, how easily would we be able to bring them back down?”

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Fed's Plosser: Recent Fed Stimulus Undermines Fed Credibility NEW YORK (Dow Jones)--The Federal Reserve's recent bids to provide more economic stimulus are futile and ultimately make future policymaking more difficult, a Federal Reserve official argued Thursday. "The actions taken in August and September tend to undermine the Fed's credibility by giving the impression that we think such policies can have a major impact on the speed of the recovery. It is my assessment that they will not," Federal Reserve Bank of Philadelphia President Charles Plosser said. "We should not take certain actions simply because we can." "If we act as if the Fed has the ability to solve all our economic problems, the credibility of the institution is undermined," Plosser said. "The loss of that credibility and confidence could be costly to the economy because it will make it much harder for the Fed to implement effective monetary policy in the future," he said. The voting member of the central bank's monetary policy-setting Federal Open Market Committee is one of the three officials who formally opposed the outcomes of the August and September meetings. Last month the Fed concluded a weakening economic outlook was creating conditions that would leave very low short-term rates in place for the next two years. Last week, the FOMC undertook what financial markets are calling Operation Twist. In a bid to cheapen the cost of credit, the Fed is selling $400 billion of its short-dated holdings to buy longer-dated bonds, in an effort to lower long-term bond yields. Plosser and the leaders of the Dallas and Minneapolis Feds doubt additional stimulus will help the economy. Underpinning that view is the idea that in a time when many families and companies want to cut debt while rates are already very low, making credit conditions easier simply won't do very much. In their view, the costs of acting outweigh the benefits. In his speech at Villanova School of Business in Philadelphia, Plosser took aim at Operation Twist, using the knowledge of how a similar program fared when it was tried half a century ago. "The reduction in long-term rates is likely to be less than 20 basis points for the 10-year Treasury yield, which is currently only 2%," he said. "The pass-through to the rates at which consumers and businesses actually borrow is likely to be much less. "I am skeptical that this will do much to spur businesses to hire or consumers to spend, given the ongoing structural adjustments occurring in the economy and the uncertainties posed by the fiscal challenges both here and abroad," Plosser said. Meanwhile, "we should be cautious and

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vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated." Plosser's critique of central bank action doesn't mean he's happy with the current state of the economy. "I was expecting GDP growth in 2011 to be 3% to 3.5%. Now, I expect GDP growth to be less than 2% in 2011, but to gradually accelerate to around 3% in 2012." He added "I do not believe the current data signal that we are on the precipice of a so-called double-dip recession." "I expect to see only modest declines in the unemployment rate, with probably little change over the rest of this year, and then falling to a range of 8% to 8 1/2% by the end of 2012," Plosser said. The official said "inflation has been higher than expected," but he added "with many commodity prices now leveling off or falling, and inflation expectations relatively stable, inflation will moderate in the near-term."



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Philadelphia Fed’s Plosser doesn’t want to do the Twist Philadelphia Fed President Charles Plosser spoke out about his opposition to the Fed’s latest market interventions in a speech at Villanova University this morning. It was his first public speech since the Federal Open Market Committee meeting on Sept. 20-21, when he and two other voting members dissented. More on what he said about how Fed easing may be undermining the central bank’s credibility in a bit, but first, remember that meeting? It went something like this. The committee and Chairman Ben Bernanke, who at this point can hardly conceal how baffled he is by the slowness of the recovery, decided on three things. First, they decided to retry something that has been done before with unspectacular results. In what’s being called “Operation Twist,” the Fed will sell a $400 billion batch of IOUs on its books to buy another set that come due much later. This maneuver has a late-night television debt relief scam quality to it, but it lowers long-term interest rates for ordinary peoples’ loans, so there’s that. It was tried before in 1961 and according to a recent study, it reduced long-term yields by … wait for it … 15 basis points. That’s 15 one-hundredths of 1 percent for the low, low price of your child’s future. But at least it did something. The second prong of the Fed’s latest intervention could have no effect whatsoever. It’s an attempt to lower mortgage rates a few more basis points by buying agency debt and mortgage-backed securities. The problem with this idea is that if you haven’t bought a new house by now, it’s not because you’re waiting for low mortgage rates. It’s because the house you bought at 4.60 percent last year, or at 5.15 percent the year before, is already underwater. And lastly, the FOMC members decided to do a lot more of exactly what they’ve already been doing already — to hold rates near zero, not just for the next three months or six, but until 2013. Nevermind that the economy might have different plans between then and now. It’s a wonder there were only three dissenters. The others were presidents Narayana Kocherlakota of the Minneapolis Fed, who has expressed inflation concerns, and Richard Fisher of the Dallas Fed, whose public remarkson Tuesday about why he dissented included a charming parable about monetary policy that implied nothing’s working and no one understands why. It’s worth reading. Plosser told the audience of about 100 at a Business Leaders Forum at the Villanova School of Business that he voted against these ideas because he didn’t think they would work, and he’s worried they could create stagflation.

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“We have provided a great deal of monetary accommodation to the economy, and given the stubbornness of the unemployment rate in responding to these efforts, we should be cautious and vigilant that our previous accommodative policies do not translate into a steady rise in inflation over the medium term even while the unemployment rate remains elevated,” he said. Plosser expects GDP to be only 2 percent this year, but gradually to get back to 3 percent in 2012. Unemployment will remain around 8 percent next year, he predicted, but he doesn’t anticipate a double-dip recession, nor is he expecting Eurocalypse, though he said a worsening of conditions overseas would necessitate the Fed stepping in again as a lender of last resort. On the subject of the Fed’s credibility, Plosser said that the actions taken in August and September give the impression that the Fed believes such policies can have a major impact on the speed of the recovery. Plosser doesn’t think they can. “We’ve done more than any central bank in history but at the margins how much more additional impact can we have?” Plosser said. “I believe the market and people have come to expect too much from monetary policy. It can’t do as much as some people think it can.” Monetary policies can do (and have done) a lot, just not, probably, these particular ones.

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U.S. economic recovery tied to European debt crisis The political intrigues in Brussels and Berlin over Europe’s debt crisis are as foreign to most Americans as the languages spoken there. U.S. exports to Europe don’t even amount to a fiftieth of what Americans produce. And American banks have at best a modest toehold in the European countries facing possible default. But the waves of anxiety caused by the European debt crisis are taking a significant toll on the United States — not just palpitations in financial markets but darkening prospects for the broader U.S. economy. That’s because developments in Europe, like never before, are influencing the judgments of key decision-makers in the U.S. economy: executives deciding whether to add workers or build a new plant, investors deciding where to place their money, even consumers deciding whether to take the plunge on a new house or car. And today, when they look across the Atlantic, the world seems a lot less safe than it did yesterday. The U.S. stock market was off sharply Friday, in part because of a discouraging report from Europe showing that German consumers had dramatically scaled back their spending because of fears about the debt crisis. The Standard & Poor’s 500-stock index, which fell 2.5 percent on the day, ended the third quarter with its steepest quarterly decline since 2008. “The world is now a very small place,” said Lynn Elsenhans, chief executive of the giant energy company Sunoco. While a slumping European economy has little direct impact on her company, she said the extreme volatility in world financial markets caused by the European crisis is making Sunoco executives more cautious about investing and hiring. American Eagle Outfitters, which operates 935 clothing stores in the United States and Canada, has been weighing expanding into Western Europe, according to chief executive James V. O’Donnell. But he said Europe’s situation “gives me real pause for concern. Normally we would be in a big hurry to get to the market, but we’re not in a great rush now.” On a larger scale, the European crisis also has applied the brakes to the U.S. recovery. In the spring of 2010, as the U.S. economy was finally starting to emerge from recession with several months of steady growth, concern erupted over Europe’s ability to deal with the debt crisis, which began in Greece and spread to other countries. Global stock prices plummeted. The U.S. economy slowed sharply in the subsequent three months. Once again this spring, the U.S. economy had regained momentum, recording healthy job growth. But as the European troubles worsened, U.S. job growth again slowed drastically.

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The link between economic growth in Europe and the United States is now tighter than in the past. Economists at Citigroup found that the relationship between GDP growth in Europe and the United States was three times closer in the 2000s than in the decade before. There are several direct ways that developments in Europe can affect the U.S. economy, notably trade. U.S. exports to the continent, while small relative to the overall size of the U.S. economy, still added up to $240 billion last year. That commerce could be endangered if Europe dips back into recession. U.S. multinational corporations, in particular, do extensive business overseas and could suffer real damage. But Europe’s influence on the U.S. economy also reflects the psychology of global investors. Increasingly, global markets move in sync, rising or falling together, depending on whether the day’s news offers reason for optimism or pessimism. For example, the U.S. stock market moved in the same direction as the German stock market on 86 percent of trading days this September, in contrast to 68 percent in September 2006. “The banking sector problems in Europe affect their economic growth, and together that affects the United States. Then over on this side of the Atlantic you have increased risk aversion, and that slows the economy,” said Edward Truman, a senior fellow at the Peterson Institute for International Economics. “There's a ping-pong between the real economy and the financial sector, back and forth across the Atlantic and around the world.” Executives see those effects in the cost of borrowing money to expand their businesses. “The credit markets have really tightened up since things worsened overseas,” said Terrence O’Toole, co-managing partner of Tinicum Capital Partners, a private equity firm that owns companies ranging from makers of parts used in the computer industry to Spanish-language media properties. And the impact of European turbulence is also apparent to executives in how their customers react to news day in and day out. “It’s a very interconnected world, and it’s an instantaneous effect,” O’Toole said. The ups and downs of financial markets and ominous headlines from overseas affect customers’ confidence, he said, leading companies to be more cautious about placing new orders for equipment or taking out advertisements. Most ordinary American consumers aren’t following the dilemmas of Greek debt as closely as corporate CEOs. But Americans do pay attention to their 401(K)s and the general tenor of economic news, and that can weigh on how wide they open their wallets at shopping malls. “People who come into my stores aren’t thinking consciously about Europe,” said O’Donnell of American Eagle Outfitters. “But to the degree the news is bad, it has a bad impact on demand and weighs on people.”

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Why California's reeling economy still has a 'golden' lining In many ways, the California economy is a mess. But the Golden State is holding on to its high-skilled workers better than any other state – and avoiding a 'brain drain' is no small thing. California's dismal fiscal outlook is well known: It's the record-holder for the largest state deficit in American history and it boasts the nation’s second-highest unemployment rate, among other ills. You'd be forgiven for assuming that all the high-skilled workers that helped make California the eighth-largest economy in the world were fleeing the state in droves. But you'd be wrong. That’s the finding of a major, 50-state report titled “What Brain Drain?” released Wednesday by the Milken Institute. In fact, California has the least annual “skill out-migration” of any state. From 2000 to 2009, the share of skilled workers leaving the state averaged 2.2 percent a year, a full percentage point less than the national average. “This shows that contrary to the popular notions, California is still the Golden State for investment in technology,” says David Fiorenza, an economics professor in the Villanova School of Business. Brain drain is important because many companies that drive job growth look to locate in areas with high numbers of skilled workers. In that way, brain drain is seen as an index of falling economic potential. Yet with California considering deep cuts to higher education – which is closely linked with the creation of a skilled workforce – the study is also being seen as a cautionary tale. The study charted how well states did at retaining skilled workers overall, as well as how well they did at holding on to high-skilled workers native to the state. By the second measure, California ranked No. 2. During the past decade, about 65 percent of skilled California natives were living and working in the state, far above the national average of about 50 percent. Only Texas scored higher, with nearly 70 percent of its skilled natives living in the state. Of those natives who did leave the state in 2009, 12 percent went to Texas, the biggest single destination for skilled Californians. Overall, however, California had a lower skill outflow rate than Texas. “I applaud the methodology of this study because they have parsed out data that had been used to give the wrong impression,” says Eric Darr, executive vice president and provost of Harrisburg University in Pennsylvania.

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One such notion in recent years was that California was doing poorly because of its shrinking percentage of skilled workers nationally. While it’s true that California’s share of skilled workers was diminishing, Mr. Darr says, "that was more due to the fact that the entire technology sector was growing, not any diminishment on California’s part." At a time when the national technology sector is growing bigger, more widespread, and more important to economic growth, skill retention has become an important strategy for cashstrapped states. “Most important in California’s case, the concentration of young innovators with advanced skills has been key to the success of Silicon Valley and other innovation clusters,” said I-Ling Shen, co-author of the report. “These clusters collectively act as an economic engine that breeds other industries providing professional, financial, and personal services.” Several analysts, however, say that the Milken report does not address the dire situation in California, where the state has made some $650 million worth of cuts to higher education, forced by its budget deficit. “The larger issue is that California needs more educated workers,” says William Tierney, director of the Center for Higher Education Policy Analysis at the University of Southern California. “It’s not that we’re losing the ones we have, it’s that we’re not producing enough to meet the needs that are projected.” Though the outflow of skilled workers remains relatively low in California, the state has other issues to consider. "California’s overall unemployment rate is the second highest in the nation, and its high-tech sector alone shed more than 75,000 jobs from 2008 to 2009," the report says. What's more, the state's heavy reliance on foreign-born skilled workers may backfire if these immigrants respond to new opportunities in their native countries, according to the report. Ben Agger, director of the Center for Theory at the University of Texas in Arlington finds the results of the study a puzzling paradox. We live in a knowledge-based economy, says Dr. Agger. “This makes it extremely ironic that California, like Texas, retains skilled workers and yet has massively disinvested in public higher education ... Perhaps the Milken people will next study the ‘brain drain’ of California faculty to other states."

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Pennsylvania's hapless capital Over the past year, the city of Harrisburg has been a bigger story than anything produced by the state and county governments it hosts. With about half its property tax-exempt and with other financial pressures building, the city of about 50,000 has been in decline since at least 2000. But the recent recession pushed it to the brink, bringing its debt and budget problems to the attention of the state and even the nation, particularly when the city filed for bankruptcy protection last week. The 1990s brought growth to many midsize cities, but generous union contracts, free spending, and big bond issues often came with it. In Harrisburg, a robust economy and increased downtown development reduced the number of vacant lots and buildings, and the city became more of a destination for shoppers, tourists, and small conventions. But the growth also came with questionable decisions by the city government under its longtime mayor at the time, Stephen Reed. These included the purchase of a minor-league baseball team, approvals of more tax-exempt development, the construction of a $32 million Civil War museum, and the expansion of an incinerator that remains an albatross to this day. During the late 1990s and early 2000s, borrowing was a way of life for Harrisburg, much as it was for many other American municipalities. Facing massive debts and growing deficits as a result, the city came to require extraordinary measures. But Harrisburg doesn't stand to gain as much from bankruptcy protection, the path chosen by a majority of its City Council last week, as it could have from the state's program for distressed cities, known as Act 47. The commonwealth has already reached out to Harrisburg with an Act 47 recovery plan that encompassed many of the advantages of bankruptcy, including comprehensive debt restructuring, and cash flow and budget analysis. Chapter 9 bankruptcy, the type reserved for governments, would give the city some leverage with its retirees and other creditors, but it would also require more spending on outside attorneys and consultants. Harrisburg should be renegotiating its existing contracts, not entering into new ones. The city should reconsider the state's Act 47 proposal. It's an opportunity to show that Harrisburg is coming to terms with its financial missteps and is ready to rebuild confidence. It would foster financial integrity, help the city start meeting its considerable obligations, provide emergency and long-term financing, promote cost containment and efficiency, and possibly strengthen the tax base. Unlike legislation now being contemplated in the Capitol, Act 47 is not a takeover or a bailout. It's a plan to improve the city's fiscal condition. Many of Harrisburg's built-in problems will not change. That means Harrisburg has to change. The Act 47 proposal and other reforms - such as a more assertive payment-in-lieu-of-taxes program and sales of unneeded assets - can help the state capital thrive again.

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Number of female 'Fortune' 500 CEOs at record high A record has been set for female leadership: More women are slated to take the reins of Fortune 500 companies than ever before. Mylan Pharmaceuticals tapped Heather Bresch to succeed Robert Coury as CEO beginning Jan. 1, 2012. Wednesday, pharmaceutical firm Mylan said Heather Breschwill succeed Robert Coury as CEO. Tuesday, IBM tapped Virginia "Ginni" Rometty to succeed Sam Palmisano, making her the first female CEO in the company's 100-year history. Both appointments are effective Jan. 1. If no women step down before the end of 2011, there will be 18 women running Fortune 500 companies in 2012. Previously, there haven't been more than 16 female CEOs at Fortune 500 firms at the same time. Yet, while the upcoming ascensions are notable, the gender gap between men and women in the workplace remains vast, with females struggling to get the mentors they need and the pay to equal their male counterparts. "The advancement of key women in business is stalled," says Cynthia Good, CEO of women's business newsletter Little PINK Book. This year, there were 98 female CEOs of 3,049 publicly traded companies analyzed by research company GMI. That represents 3.2% of the total company CEOs and is just slightly above the 3.1% from last year and 2.9% from 2009. Female CEOs represent just about 3% of Fortune 500 company heads. In 2009, women held 15.2% of Fortune 500 board seats, according to women's issues research group Catalyst. In both 2009 and 2010, 12% of Fortune 500 companies had no women serving on their boards.

Women CEOs When Virginia "Ginni" Rometty becomes CEO of IBM and Heather Bresch the CEO of Mylan in January, they join 16 other female CEOs in the 'Fortune' 500.

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"We've really flat-lined," says Debbie Soon, Catalyst senior vice president of marketing and strategy. "For the last five years, there's been hardly any progress." Yet, there is hope that as more women take the top ranks, female workers will be provided with more role models they can emulate. "It sends the message of 'yes, women can do this,'" Good says. "Women need to see other women in key roles." In the last few months alone, three other new female CEOs have emerged: Meg Whitman became Hewlett-Packard CEO in September, Denise Morrison took the CEO post at Campbell Soup in August, and Gracia Martore was named CEO of Gannett earlier this month (Gannett owns USA TODAY). There have been some reduced ranks as well. For instance, Yahoo CEO Carol Bartz was fired in September. But Good says that the numbers just aren't strong enough. "Facts are facts," she says. "And 3% is just 3%." Management patterns So what's holding progress back? A variety of issues, experts say. Many firms have had male leaders for decades, so a masculine management pattern is often the default style, says Quinetta Roberson, a management professor at Villanova School of Business. Managers at those companies tend to promote workers who follow a particular type of sanctioned behavior, which she says is often to be "very aggressive, unattached and direct." A woman who doesn't have that management style could be hindered during her corporate climb, she says. Men also tend to tout their accomplishments more than women, Good says. In turn, they are promoted and hired based on potential. Women, who can be more reticent, "are promoted and hired based on if they can do the job." Anecdotally speaking, men are also more apt to quickly say "yes" to a career-enhancing assignment that could affect their personal life, while women tend to consider how the opportunity could affect home situations such as elder care or child care, Catalyst's Soon says.

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In turn, the next time a manager has a job to offer, he or she may remember that woman's hesitation and consider going with another candidate, she says. Even newly tapped IBM CEO Rometty says that she had to change her thinking process — and work style — in order to move up the corporate ranks. Speaking at a recent Fortune Most Powerful Women Summit, she recounted a story from "early, early" in her career: She was offered a "big job" that she didn't think she was prepared to take. She told the person who made the offer that she didn't have experience and that she had to think about the offer before giving an answer. When she told her husband about that discussion, Rometty said his response was: "Do you think a man would have ever answered the question that way?" That was a wake-up call that she needed to be more self-assured, as well as have the courage to take professional leaps. "You have to be very confident, even though you are so self-critical inside," she said. Company shifts Good says that it's not only important for women to make changes in their behavior — but that companies need to make some shifts as well. "We've got to get past the point of just encouragement, suggestions and lip service about promoting women," she says. "We've got to get to the point where we set up metrics and very specific achievable goals where it leads to change." Change won't come "from one new woman CEO here and one there," Good says. It'll only come when businesses measure and benchmark their progress. Both Good and Catalyst's Soon point out some extra incentive for companies to push forward on diversity efforts: Firms with more female managers tend to be more profitable. There was a 16.7% return on equity for companies that have at least three female board members. according to a 2007 Catalyst report. The average for all companies analyzed was 11.5%. "When you have diversity of thought and various perspectives, you benefit from being able to talk about things that you wouldn't have even considered if you have a very homogeneous management team," Good says. Where differences show up Some differences between male and female workers:

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•Pay. In 2010, women made 81% of the median weekly earnings of their male peers, the Bureau of Labor Statistics says. While the earnings ratio has gradually risen since the BLS began tracking it in 1979, it has been stuck in the 80% to 81% range since 2004. •Expectations and confidence. Four in 10 men are optimistic that they will get an upcoming pay raise, while just 32% of women feel that way, according to a third-quarter survey from career website A separate December 2010 Glassdoor survey found that among employees who are eligible for a bonus, 62% of men expected one while just 53% of women did. Of those who anticipated a bonus, twice as many men as women — 16% vs 7% — expected a bigger bonus than the year prior. •Mentors and sponsors. Women are less apt to have an office advocate who will vouch for their competency — a so-called sponsor, says a report by the Center for Work-Life Policy and American Express. Women qualified to lead "don't have the powerful backing necessary to inspire them, propel them, and protect them," says the report. Many women are also without mentors: 82% say it is important to have a mentor, yet 19% don't have one, according to a new LinkedIn survey. Just over 50% say they haven't met someone appropriate for that role. Among the women who have never mentored, 67% said they haven't been asked.

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Diocese to reach out to lapsed Catholics In a bold initiative designed to shed meaningful light on the pastoral challenge of lapsed Catholics in the Diocese of Trenton, Bishop David M. O’Connell, C.M., will launch a new diagnostic tool this month in cooperation with the Villanova University Center for the Study of Church Management. The Villanova Exit Interview Study was the idea of Jesuit Father William J. Byron, university professor of business and society in St. Joseph University, Philadelphia, and developed in conjunction with Charles Zech, director, Villanova Center for the Study of Church Management. The survey can also be completed online by going to: The Diocese of Trenton will be the first diocese to implement the exit interview questionnaire, providing what Father Byron has referred to as an opportunity to “discover ways of welcoming back those who have left, even as it helps leaders find ways to strengthen the current worshipping community. This interview could also help identify what else might need to be taught to those called to positions of parish leadership.” Consisting of a series of open ended questions, the questionnaire will “give the people a chance to speak and be heard in a confidential setting,” explained Father Byron, who serves on the advisory board of the Villanova Center. The anonymous responses will be sent back to Villanova, not the diocese, where they will be analyzed and a report of the findings provided to the bishop. Unlike other studies on Catholics who have left the Church, which look only at numbers without looking at reasons, said Zech, the Villanova study will “provide an understanding of the reasons and tools for developing strategies to address those reasons.” Zech noted that Father Byron, former president of The Catholic University of America, the University of Scranton, and Loyola University New Orleans, had written an article for the January issue of America Magazine on the subject, entitled “On Their Way Out: What exit interviews could teach us about lapsed Catholics.” “He received a tremendous response from readers,” added Zech. One of those readers was former CUA president Bishop O’Connell, said Father Byron. “He called and expressed an interest in applying the exit interview strategy in the Diocese of Trenton.

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“The priests of the diocese offered good suggestions to improve the exit interview,” said Zech. “A final draft was approved in September,” with bulletin announcements and advertising in the secular press in the four counties of the diocese beginning this month, announcing the availability of the questionnaire and encouraging participation, he added. The process will “rely on practicing Catholics to get the news out to friends and family” who do not have a regular presence at church, Zech relayed. Father Byron recalled that his interest in the business approach to this problem was peaked after Larry Bossidy, a devout Catholic and former C.E.O. of Allied Signal and the Honeywell Corporation, addressed a meeting of the National Leadership Roundtable on Church Management and “pointed out that if businesses were losing customers at the rate the Catholic Church in the United States is losing members, someone would surely be conducting exit interviews. His observation was prompted by data on declining church attendance released by the Pew Research Center.” Those statistics, said Zech, indicated that one-third of baptized Catholics have left the Church, and 10 percent of the U.S. population are former Catholics. The purpose of an exit interview, Father Byron writes in his article, is to “elicit honest answers to open-ended questions aimed at identifying specific Catholic doctrines or practices that may have been factors in the break,” adding, “In the absence of good data, Church leaders might be accused of sleepwalking into the future or walking with eyes and ears closed to those they want to serve.” To encourage participation in the exit interview, Zech stressed that while the study is being done in cooperation with the diocese, all responses will be sent directly to the Villanova Center to be analyzed so a final report can be returned to the bishop which will allow him to develop strategies to deal with the trend. Information will also be reported to the parishes so they may serve their people more effectively. Those interested in participating in this interview project may contact the Center for the Study of Church Management, Villanova University, 800 Lancaster Ave., Villanova, PA 19085 (610-5194371) or at in order to receive a copy of the questionnaire.

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Foreign MBA students look to Africa for the future in business The future in business lies in developing nations. This was the sentiment in a recent Business Week feature, conveyed by Jonathan Doh, professor of Management and director of the Center for Global Leadership at the Villanova School of Business in Philadelphia, United States. “Too many business schools are preparing students for the last century. To ready them for this one, they should focus on China, India and the rest of the developing world,” he said. So it should be no wonder that foreign students such as American Sivan Maymon, Nigerian-born Folu Okunade and Kai Reuning of Germany would choose South Africa as a destination to study for their MBAs. South Africa offers a vastly different experience than anywhere else in the world with its cultural diversity, economic and political complexities, emergent market opportunities and beautiful landscapes all coming into account for prospective international students, not to mention the nation’s respected tertiary education system and top-class business schools. According to recent studies, foreign students comprise more than 7% of enrolments at South Africa’s public universities – a proportion in line with the world’s leading destination countries. Among US students, South Africa has entered the top 20 most popular study-abroad countries. The number of international students at South Africa’s universities quadrupled since the first democratic elections in 1994 – from 12 557 to 53 733 by 2006, about a quarter of whom are postgraduates. With emergent market economies as the current and future engines of global economic growth, it is no surprise that business schools in South Africa are experiencing a boom in foreign students. Commenting on the latest Financial Times survey of the top 100 MBA programmes, Ajit Rangnekar – dean of the Indian School of Business (ISB) in Hyderabad, India – confirmed this trend. He notes that global institutions from emergent markets, with an inherent cost advantage, will become more attractive destinations for management education, as well as a resource pool for management talent. But what do business students really want in a business school and, ultimately, in a study destination?

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Several thousand business school graduates from around the world, but mainly from the US, have named four factors that determined their choice of business school. A survey done by the Graduate Management Admission Council revealed that high on the deciding factors list are: quality and reputation of the school, locality, personal fit, and financial costs. For an ever greater number of students, South Africa is ticking the right boxes. With its emergent economy context characterised by uncertainty, complexity and, unfortunately, inequalities, it is proving to be an ideal setting for learning to lead in this emergent market century. It is a place where the foundation for the future of business is being laid. Dr Rolf Cremer, dean of the China Europe International Business School (CEIBS) in Shanghai, said recently that the structural and long-term problems now facing business and society are nowhere better understood than in the emergent economies: “Business schools in these economies will react quickly and creatively with curriculum changes and new content to address the post-crisis challenges,” he noted. Both the CEIBS and ISB are among a select group of emergent market business schools that have achieved recognition in the Financial Times survey. There are only six business schools from the BRICS (Brazil, Russia, India, China and South Africa) countries that have consistently achieved rankings. The University of Cape Town Graduate School of Business (UCT GSB) is the only business school in Africa making the top 100 – which it has done for the sixth consecutive year. It is intriguing that the emerging generation of students is more concerned with sustainable business, and business that is more connected with all stakeholders and society at large, rather than merely the shareholders. IBM conducted a Global Student Study of 3 600 students in college and graduate schools in conjunction with a Global CEO Study: the themes of globalisation and sustainability differentiated the younger generation, termed Generation Y, from the chief executives. When asked to select the most important force likely to make an impact on organisations over the next five years, twice as many students saw globalisation and sustainability issues as relevant in sharp contrast to the CEOs. Generation Y, the study showed, wants to create new relationships between societies, business, economies and governments. And it is here where emergent market business schools have the upper hand on their European and US counterparts, and are positioning themselves to take advantage of this fact. There is no substitute for actually operating in an emergent market such as South Africa where these concerns and complex issues are at the forefront. This was the case for Nigerian-born Okunade who, after working in Johannesburg for two years, decided on the MBA at the UCT GSB in South Africa because he was “very interested in understanding the interdependencies between business and society”. Having lived in the US for most of his life, the biggest difference between there and South Africa, he believed, lay in the intention of his peers: “The biggest difference – and something

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that was a pleasant surprise for me – was that from the start, students have all voiced their interest in finding ways to merge aspects of business and development,” he said. “So it seemed the intention of most students was not only to make a lot of money, but also develop society and effect change at the same time – help others while you help yourself. And I thought that was very interesting for MBA students. It must be something to do with the South African culture.” Another foreign MBA student at the UCT GSB, Kai Reuning, originally from Frankfurt, said he likes that the modular design of the course allows him the opportunity to study while working, which is an added bonus because he has the chance to apply in the workplace what he learns in the course – immediately, and with results. “The modular course suits my work and lifestyle. And while doing the course, I notice a change at work. I have grown tremendously as a leader and in my capacity to handle greater complexity and stress. “I feel like I can take on a lot more, which shows in my work,” he noted. “It has been a lifechanging experience in every regard. From the people I’ve met to the lecturers, which has opened up new doors of opportunity and shifted paradigms.” South Africa has gained much attention over the years through international acknowledgement of its ability to shrug off the apartheid legacy through reconciliatory efforts – a major 20th century political achievement. World sports events and a boom in tourism have grown its reputation. Statistics South Africa’s latest research shows a marked increase in foreigners travelling to the country. In April this year, for example, 1 658 786 foreigners visited our shores. It is a country that boasts eight World Heritage Sites, is home to more mammal species than Asia and Europe combined, and almost 80% of its plant life cannot be found anywhere else in the world. And diversity is one cloak the country wears well. Post-apartheid South Africa is called the “Rainbow Nation” because of the myriad cultures and traditions, people and languages the country is home to. Its vibrant history, due to its geographical positioning on a key shipping and trade route on the southern tip of Africa, and its rich natural environment has made it an interesting case study of contrasts between tradition and modernity, rich and poor. “I think the sites – the mountains, oceans, beaches – and people are beautiful, and I have made some lasting friendships,” said Okunade of his time in Cape Town. Added Reuning, “Cape Town is a beautiful city. I could not have asked to study in a more pleasant environment. The school is also centrally situated near the V&A Waterfront, and only a short walk from the hub of many great parties.”

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“I chose to visit Africa because... the continent has always intrigued me,” said fellow UCT GSB student Maymon, who has organised a local chapter of Net Impact, a global community of more than 20 000 new-generation leaders who are committed to using business to improve the state of the world, which will officially be launched in early September. “Studying here has been an amazing cultural experience, one that is constantly testing my world view: My peers are incredibly bright. Most of them have huge vocabularies and they challenge me. It is nice to get a different perspective from people who are from different cultures and have different backgrounds,” she added. Economically, the country is still developing, but in Africa it is an economic powerhouse – generating a quarter of the entire continent’s gross domestic product. According to African Business magazine, 15 out of the 16 top companies on the continent are South African. An emergent market economy and key continental player, the country’s challenges and opportunities create an interesting landscape for entrepreneurs, particularly social entrepreneurs. It battles with high levels of illiteracy, HIV/Aids and poverty. For prospective MBA students, the environment has endless possibilities for innovation and research. “The dynamics are intriguing – to live and work in a country with first-world privileges and third-world problems,” said Maymon. The UCT GSB classroom itself is representative of this melting pot of cultures and complexities, and the school has achieved international status thanks to its EQUIS (European Quality Improvement System) accreditation and its rankings. The UCT GSB performed well in several Financial Times MBA categories, featuring in the top third of the rankings in diversity, ninth in the international experience rank, and 28th in career progress rank. It remains one of the very best value-for-money MBAs in the world (second in value for money rank). Ranking in the international survey is an important accomplishment for emergent market business schools, as very few have the resources to compete with much larger schools in the US and Europe. Equally important is getting international accreditation – which the UCT GSB has in the form of its full five-year EQUIS accreditation from the European Foundation for Management Development. The progress made by the UCT GSB in terms of international stature was rewarded in October 2009, when global business school deans voted it the Best Business School in Africa.

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“A deciding factor for me, when it came to the time to decide where to study, was UCT’s international ranking. I often hear other foreign students saying the same thing,” said Okunade. For Reuning, “the fantastic reputation of the school – that it is a great school of high academic standards and with top-class lecturers – was a factor. “Also, I feel it is a necessary course to take to further my career because it facilitates personal growth and nurtures confidence while providing amazing course material.” The school, under the directorship of Belgian-born Walter Baets, is becoming a hub for emergent market thinking and teaching, and for addressing the issues of leadership and ethics. “The GSB believes that business schools exist to teach more than the fundamentals of business and management – the fundamentals are only a small part of the equation these days. The rest is about creating the conditions where students get to shake up their world view and see themselves and others in a whole new light,” said Baets. “Business programmes need to develop transformative leaders – leaders capable of great things through the way they think about the world and the way that they influence positive change.” With students concurring, South Africa – home of the greatest living transformative leader, Nelson Mandela – looks set to develop as an important laboratory for understanding emergent market complexities; and has welcomed the world, not only for soccer, but for study as well.

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Anthony H. Catanach Jr. is an associate accounting professor at the Villanova School of Business and a Cary M. Maguire fellow at the American College.J. Edward Ketz is an associate accounting professor at the Smeal College of Business at Pennsylvania State University. Groupon’s road show for its initial public offering brings to mind an article by Joan Magretta titled “Why Business Models Matter” that was published in The Harvard Business Review in 2002. She noted that Internet companies of the 1990s relied on Web-based business models to promise “wild profits in some distant, ill-defined future.” When we listen to Andrew Mason, Groupon’s chief executive, sell his powerful model of merchant and consumer value, we are left wondering whether Groupon’s “business model” is really anything more than a half-baked plan. While he makes a compelling argument for how the company delivers customer and merchant value, he is less convincing as to how Groupon will deliver value at an appropriate cost, and actually make money. For example, Mr. Mason readily admits that low barriers to entry pose a significant challenge to Groupon’s ability to successfully execute its strategy. He acknowledges the thousands of competitors that deliver similar products, but calmly dismisses the issue by saying “the proof is in the numbers.” Precisely and therein lays the problem. Over the last few months, Groupon has raised serious concerns about the reliability of its numbers in a series of well-publicized financial reporting miscues. First, in August the Securities and Exchange Commission required the company to amend its registration statement for its use of the controversial “Acsoi” metric, which understated operating losses by $120 million by excluding noncash expenses and online marketing expenses. In September, the S.E.C. forced yet another registration statement amendment, this time to correct the company’s method of reporting revenue. In this case, Groupon was caught inflating revenue by $400 million in 2010. Clearly, the proof is not in Groupon’s numbers, and the road show does little to address concerns about the quality of the company’s financial reporting disclosures. Groupon’s latest prospectus, filed on Tuesday, shows little change in the financial picture, with negative shareholder equity and negative working capital. Also troubling is the sense of urgency surrounding Groupon’s I.P.O., with the company’s shares expected to price on Thursday and begin trading on Friday. In fact, the whole situation has an air of desperation about it with the company hurrying to get an I.P.O. (any I.P.O.) done. In fact, in the last few weeks, Groupon reduced its planned offering to an amount half of that reported in its initial securities registration. This rush to the capital markets, at time of such volatility and turbulence in our global economies, raises more questions. First and foremost, why are Groupon investors in such a hurry to cash out? What’s the rush? Is there something lurking behind the scenes of which we are unaware? Why not wait until the markets stabilize and the company gets

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its financial reporting house in order? If all is well and the company has a viable long-term model, doesn’t it make sense to wait until the market can better value the company? Or is the rush to the I.P.O. because Morgan Stanley, Goldman Sachs and Credit Suisse want to collect their fee (which is tied to the market value of the stock issued) before the company’s value drops further. After all, the investment banker fees for Groupon’s I.P.O. already have dropped significantly as the company’s estimated value has plunged to about $10 billion to $11 billion from an estimated $20 billion. And then of course, there is the lost prestige of not being able to get the deal done. So, is there anything Groupon can do to save its I.P.O.? Yes, but only if there is a business to save, and right now, that’s the big question. To determine whether the company has a viable business model, we need more financial reporting transparency from Groupon and less marketing hype. Currently, Groupon’s numbers just don’t add up, nor do they make much sense. The company needs to postpone its I.P.O. until it gets its financial reporting in order. Two issues need to be addressed to restore confidence in the company’s disclosures: Groupon must drastically improve its system of internal controls over financial reporting. Its recent restatements and accounting errors suggest that the company’s sharp growth through acquisitions may have stressed its reporting systems. A formal report from its independent auditors on its internal controls would add additional credibility to its numbers. The company must address several important questions about its cash flows. How would operating cash flows be affected if the company’s vendor payment model became unsustainable? What would free cash flows really have been had Groupon paid for its acquisitions in cash rather than in stock? What kind of cash flows are the company’s $172 million in good will and intangible assets (more than 45 percent of assets at the end of 2010) creating? Accomplishing these two tasks will take some time. But if there is really anything to Groupon’s business model, the prospects for a future I.P.O. are much brighter. But the downside is that the numbers may expose the company as the 2011 version of the 1990s Internet bubble.

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Zynga and Groupon March On As privately owned big dogs Zynga and Groupon look forward to their IPOs, their valuations continue to drop. It turns out, upon closer inspection, some recent highs might not actually be everything they seem. Zynga and Groupon march towards their public offerings in the face of rising doubt. With all the hoopla surrounding the eternally imminent IPOs of Zynga and Groupon, it is easy to lose track of their highs and lows, which may not be entirely an accident. Recognizing the negative publicity these companies have had of late, some economists have come to doubt the legitimacy of several recent achievements. Groupon's problems have been numerous. Just days before the company prices its IPO, they today filed their seventh S-1 amendment. The Chicago-based daily deal leader has previously made S-1 changes to restate revenues at half what they once claimed, and more clearly explain how it delays merchant payments in order to rustle up extra short-term cash. And last month they were forced to cancel a road show after CEO Andrew Mason potentially violated the SEC’s “quiet period,” resulting in another infraction. And then, on October 21, Groupon filed its financials for the third quarter of 2011, reporting revenue growth of 9.5 percent. The problem is, exactly one year earlier, when they were the industry golden child, revenues were up 112 percent. With revenue per user, once $5.30 a month, now down to $1.10 a month, and the rising costs of expansion, Groupon cannot quite seem to figure out how to turn a profit. The coupon-providing service is in the awkward position of offering potential investors coupons for its stocks—at a two-thirds discount. So how did Groupon execs handle all this bad news? By doing something Felix Salmon of Reuters says he's never seen before. Groupon finally kicked off its delayed road show and posted the whole thing online with enough glimmer and polish to make you wonder if it wasn't a Jerry Lewis telethon for muscular dystrophy. "They're boring!" exclaimed Salmon in his column. "And, they feature senior executives looking uncomfortable wearing ties in front of a dark-grey background, talking to slides!" So why all the pizazz? Sam Hamadeh, CEO of the Private Company Financial Data Authority, said Groupon had been prudent to file their financials on the 21st of last month, but that hosting a roadshow so quickly after felt a bit desperate.

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"The whole situation has an air of desperation about it," said Anthony H. Catanach Jr. of Villanova University School of Business. "If all is well and the company has a viable longterm model, doesn't it make sense to wait until the market can better value the company?" Whatever Groupon is up to, Zynga doesn't seem to be too far behind. The San Francisco-based social gaming company has had its own issues with the SEC, though by comparison only minor infractions, said Hamadeh. At issue was what seemed to be confusion over actual revenue versus “bookings,” or expected revenue over the life of an account, and a request to disclose that only 1 percent of users actually pay for their games. The matter was resolved, and their new S-1 has been refiled. But it was too late, the headlines were already out there. So Zynga took action. And at the Zynga Unleashed event on October 11, company officials announced “Project Z,” part of their direct-to-consumer strategy—a website hosting Zynga games outside the confines of Facebook—and 10 new games. The move is seen as a way to gain the confidence of investors who interpret Zynga’s dependence on Facebook as a sign of weakness. Yet, nothing was actually done. Technically, little was really announced, since Project Z has been in the public's eye for months. The media called it a "launch" and the SEC issues began to fade away. “Zynga is benefiting from the Facebook fairy dust," Hamadeh said. "And [Zynga] is seen as a proxy investment to Facebook." The only reason Project Z was reannounced, he continued, is "because IPOs are based on hope, not current value." But analyst Paul Verna, of eMarketer, disagrees, saying, "What Groupon did is completely different than what Zynga did." Verna says Zynga had plenty of reasons for the Project Z announcement, and reminds that Project Z has been in the works for quite some time and was simply an asset they already had to address a growing problem. "A smokescreen is accurate to describe Groupon," said Verna. "With Zynga, it was a little opportunistic in that no one knows how far along Project Z is." He says Zynga needed to reassure it's investors, and that's exactly what they did. Hamedah says both Groupon and Zynga are too young to go public. "A year ago these companies believed the market’s hype." Now it would seem they are creating some of that hype and trying to sell it. "Either way, says Hamadeh, "You look in their eyes and they seem nervous.” Neither Zynga nor Groupon have responded to requests for comment.  

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Can Obama's high-speed rail plans survive California sticker shock? California's high-speed rail authority announced that its project will cost nearly $100 billion – two times higher than original estimates. Other regions supportive of President Obama's high-speed rail plans have started more modestly. In what transportation experts say could be a cautionary tale for the rest of the country, the estimates for the cost and finish date of California's signature high-speed rail project have been dramatically altered. The new cost estimate, formally released Tuesday by the California High Speed Rail Authority, is $98.5 billion, more than twice the previous estimate of $43 billion. The finish date is 2034, 14 years later than first predicted. California voters approved a $10 billion bond in 2008 in support of plans to build a high-speed rail corridor to link northern and southern California, with trains reaching 220 m.p.h. The system would link to other rail lines that fanned out across the state. Supporters of the project say this new estimate gives the state planning certainty. But critics are aghast. State Sen. Doug LaMalfa (R) announced plans to introduce legislation asking state voters to reconsider the bond measure they already approved. “The voters were deceived in the original go-around with highly optimistic ridership and cost numbers that have not been borne out,” Senator LaMalfa told The Sacramento Bee, saying the larger figures “should have been in front of voters to begin with, so they would have the truth.” Officials are rolling out other details of the plan to soften the blow, touting the connections to existing Metrolink rails in large cities, for example. They are also trying to be frank – and more conservative – about ridership estimates that critics say are way too high. "This plan represents a new day, a new train, a new beginning for the California High Speed Rail Authority and for our system," said Tom Umberg, chairman of the authority board, in a statement. Some analysts say the turn of events is a welcome bit of honesty, given that massive publicproject costs generally balloon beyond expectations.

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“The story is both shocking and unsurprising at the same time. It’s shocking because of the sheer size of the price tag,” says Jack Pitney, a political scientist at Claremont McKenna College. “It’s unsurprising because big projects often cost far more than the initial estimates.” The episode could have an impact on plans for other rail projects nationwide. In February, Vice President Joe Biden announced a plan to put $53 billion in federal funds into a national, highspeed rail network, which could be built in regional sections. But such projects are often more difficult than they seem at first, and California might have bitten off "way too much," says Steve Schlickman, executive director of Univeristy of Illinois at Chicago’s Urban Transportation Center. "That is based on my personal project experience,” he says. “They should have taken a more incremental approach, like the Midwest, which is starting with higher speed of 110 m.p.h.” Mr. Pitney says political opposition is likely to grow, especially in California’s current fiscal climate. “At a time when government at all levels has to cut back, many voters will wonder why California is spending so much on a system that so few of them will ever ride,” he says. But the bad economy could also be a selling point. California has the second-highest unemployment rate in the nation. Studies show that for every $1 billion spent on infrastructure remediation creates between 18,000 and 34,000 jobs, says Barry LePatner, author of “Too Big to Fail: America’s Failing Infrastructure and the Way Forward." Others, however, see this as evidence of what happens when government tries to trump the private sector. "The idea for this was generated out of Washington in an attempt to stimulate the economy," says Peter Zaleski, an economics professor at the Villanova School of Business. "In the free marketplace, producers try to earn a profit by efficiently producing something that customers will value. Rarely are such calculations performed when the decisions are made by government administrators and elected officials."  

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'Fast Money' Recap: Apple Dividend Coming? NEW YORK (The Street) -- The markets rebounded Wednesday despite lingering uncertainties in the eurozone debt crisis. The Dow Jones Industrial Average jumped 178.08, or 1.53%, to 11,836.04. The S&P 500 added 19.59, or 1.61%, to 1237.87. The Nasdaq rose 33.02, or 1.27%, to 2639.98 Joe Terranova said on CNBC's "Fast Money" TV show that it may take some time for clients to get their money from MF Global(MF). He mentioned traders he knew who still haven't been able to get their money out and don't know when they will get it. For a breakout of some stocks from a recent "Fast Money" TV show, check out Dan Fitzpatrick's "3 Stocks I Saw on TV."

Karen Finerman found that situation incredulous. She said the lessons of Lehman should have been heeded by any fiduciary or CFO to get their money out as quickly as possible after MF Global posted its largest ever quarterly loss more than a week ago. "You don't want to get your money tied up." Guy Adami said the scandal is a blow to investor confidence in the system. Will Apple(AAPL) finally relent and share its huge cash reserves with its shareholders? Finerman, who's been on a crusade to get Apple to return some of the $80 billion to shareholders in the form of a dividend or buyback, suggested giving way even $20 billion would not tie Apple's hands. Peter Misek, an analyst with Jefferies & Co., said he expects Apple to announce a dividend or buyback by the end of next year. He said Apple's cash reserves would have grown by then to $120 billion. "It's so big they can't spend it fast enough." Melissa Lee, the moderator of the show, noted that Qualcomm(QCOM) was up 13% on a good earnings report. Adami said the margins were good, adding the stock could push through $60 next week on a beneficial tape. Brian Stutland noted a short squeeze on the stock could send the stock higher on Thursday. With Groupon's IPO coming up, Anthony Catanach, an associate professor of the Villanova School of Business, said it was a shame that the company wasn't more transparent about its accounting practices. He mentioned three problems: its internal controls over financial reporting, more information on how it reports its cash and where it comes from and the value that resides in its intangible assets.

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He said none of the issues are improper, but he said these issues need to be addressed going forward. Lee turned to Whole Foods(WFM), which was down in after-hours trading after its same-store sales came up short. Karen Short, an analyst with BMO Capital Markets, said Whole Foods was a victim of rising expectations. She said the grocery chain otherwise posted solid numbers and was the clear leader in its space. She said the company has done a good job in providing customers with healthy, value-oriented food. Lee brought in Irwin Simon, CEO of Hain Celestial(HAIN), whose stock up was 8.4% today. He said the company is enjoying strong organic sales growth. He said his company is doing well because customers are willing to pay a premium for healthy food. He said the recent acquisition of Daniels Group, a chilled foods maker in the U.K., will make it a major player in that country. Lee noted Research In Motion(RIMM) shares fell below book value today. Adami said it might be worth a look. Terranova said he was waiting for a management change and wondered how long Jaguar Financial, a major stakeholder, could hang on. Finerman said RIM's patents are valuable, adding she was starting to get interested in the stock on the buy side. Lee shifted to the Fed's comments today in which it found some evidence of economic strength in the third quarter while it cut its growth forecast for 2012. George Goncalves, of Nomura Securities International, took those remarks to be favorable, saying growth expectations were still positive. He said the yield on the 10-year Treasury note should rise to between 2.5% and 2.75%. With the price of crude rising today above $92, Terranova said it was OK to own names like Anadarko(APC), Occidental Petroleum(OXY) and Suncorp. Brian Kelly added his favorite, Tesoro(TSO), and Adami favored Transocean(RIG). Lee said Avon Products(AVP) has come under fire as regulators are investigating whether it broke bribery laws. Bill Schmitz, managing director for Deutsche Bank Securities, said he still considers it for a long-term investment, although he wouldn't buy it on Thursday. He said the company's U.S. business is broken and its execution has been mixed. Lee noted that Bill Ackman's flagship fund was up 14%, in October and its international fund was up 13.5%. Both funds are still red year to date. In the final moves, Kelly liked SPDR Gold Trust(GLD). Stutland liked BP(BP). Adami liked Yamana Gold(AUY). Seymour said to play long iShares MSCI Emerging Markets(EEM) against the SPDR S&P 500 ETF(SPY). Finerman liked Carefusion(CF), and Terranova was bullish on CF Ind Â

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Oakland strike: For Occupy protesters, frenzied rumors before march on port With the worldwide movement watching the Occupy Oakland strike, hundreds of protesters target banks and swap rumors before the day's main dramatic act: a march on the Port of Oakland. With the eyes of the international Occupy movement turned toward Oakland Wednesday, protesters and officials did their earnest best to justify the intense scrutiny. Despite a flurry of exhortations, misinformation and official press conferences – what ensued for most of the day was a largely peaceful protest by hundreds of marchers. But the rumors did fly, especially regarding Occupy Oakland’s prize target of its day of mass action, the shutdown of the Port of Oakland in solidarity with longshoremen in Washington State. From early in the morning word was broadcast that the port was shut by a wildcat strike hours before the Occupy marchers even moved in its direction. That was followed by a denial from International Longshoreman and Warehouse Union spokesperson Craig Merrilees. "We are absolutely not calling for a strike," he said. At a 12:30 news conference, however, the official word from the city was more, well, nuanced. The situation at the port is “fluid,” officials said. Whether the Occupy Oakland protesters had achieved other goals they set themselves was also under constant review: How many business shut down in solidarity? How many workers were on strike? How many marchers showed up? Many stores did close and numerous public employees such as teachers and nurses did take the day off to show solidarity with the group’s call for a citywide general strike. City officials said some 5 percent of city employees took the day off. As the day wore on, police estimates put the crowd size at swelling to around 1,000. Some shuttered stores openly declared support, such as The Men’s Wearhouse, which posted a window sign, “We stand with the 99%. Closed Wednesday, Nov. 2.”

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Other small businesses such as the Payless Shoe Store on Broadway remained open (marchers need shoes, right?). But foremost on the protesters’ minds was whether or not the Port of Oakland had been shut down, as many exuberantly declared early in the day. According to Cecily Burt, a reporter who covers West Oakland for the Contra Costa Times, some 40 of the roughly 325 expected longshoreman due for the morning shift did not report for work Wednesday. A number of those workers turned up among the marchers, she noted, but over at the port, “the gates and terminals are open.” Around mid-morning, many marchers were under the impression that the entire port had been shut down, and, reported Ms. Burt, her paper’s own website had carried that information in error. “Our reporters tweeted it,” she says, before the information was corrected. That did not stop the rumor from spreading through the Occupy Oakland crowds. Talking on his cell phone as he moved down Broadway, a block from City Hall, media spokesman Allan Brill reported that all the cranes at the nearby port were shut down and the trucks backing up at the gates. “A wildcat strike is happening,” he said. Burt noted that trucks backing up at the gates is business as usual at the port. Nonetheless, the protesters were still planning to march on the port in time to close it down for the evening shift, says Mr. Brill, noting that a march has been called for 5 PM. Other prime targets of Occupy Oakland were banks. Protesters marched on branches of the Wells Fargo and Comerica banks, where the city advised the banks to lock the doors and allow customers in one by one. At least one of nine Wells Fargo branches in Oakland did not open for the day, a company spokesman said. Whether or not the day’s action succeeds in shutting down the city port, it will have an impact, points out David Fiorenza, a finance professor at Villanova University. “There will be costs for policing and cleanup,” he notes. However, according to Susan Piper, a special assistant to Oakland’s mayor, the city is still tallying policing costs and Wednesday was seeing a “minimum presence of police.” The most important impact may be the effect of the day’s mass actions on the larger Occupy movement, says Los Angeles media and political consultant, David Gershwin. “One of the complaints early on was that the actions of the Occupy movement were not getting serious media attention or being taken seriously,” he says, adding, “today’s actions in Oakland certainly show that they are a force to be

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Groupon IPO: Not the best daily deal? NEW YORK (CNNMoney) -- Groupon is poised to start trading publicly, but the road to an initial public offering for the popular daily deals site has been rocky -- and one that skeptics say is reminiscent of the dot-com bubble. Groupon is slated to price its IPO late Thursday and begin trading on Friday morning, according to several news reports. It will trade on Nasdaq under the ticker symbol GRPN. Demand for the stock is expected to be strong, but Groupon has been tarnished by questions surrounding unorthodox accounting measures, revisions of sales figures and scaled-back expectations of how much money Groupon will raise. "It's a flashback to the late '90s. We've seen this game before and we know how it's going to end," said Tony Catanach, accounting professor at Villanova University. Groupon's IPO has been controversial since it first filed the paperwork in early June. The company drew a barrage of criticism for its reliance on a nonstandard metric that stripped out Groupon's steep costs for marketing and acquiring new subscribers. Under pressure from regulators, Groupon re-filed in August to instead use only standard accounting procedures. As a result, the operating profits that Groupon cited in its first filing became operating losses. Then, in late September, Groupon revised its reported revenue to "correct for an error" -- namely, including in its revenue the cash it has to hand back to merchants for their share of the coupons Groupon sells. That effectively whacked Groupon's sales in half, to $688 million for the first half of 2011 from the $1.5 billion it claimed previously. "All of these amendments and changes are going to make intelligent investors a little skittish," Catanach said. Late last month, Groupon dialed back how much it hopes to raise in its IPO by 28% to $540 million. The company is putting 30 million shares up for sale, hoping they'll receive between $16 and $18 apiece. It had originally filed to raise $750 million. Several other online companies have gone public this year -- and while they've generally done well on their first trading days, longer term performance is mixed.

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Professional networking site LinkedIn's (LNKD) shares more than doubled in its May IPO, even though the company turned only slight profits in 2010 and 2006, and has otherwise has been in the red every year since its 2003 inception. The stock is still trading well above its IPO price of $45, but it is below its first day closing price of $94.25. In August, LinkedIn announced it turned a profit on its first quarter as a public company. Analysts were expecting a loss. LinkedIn will report its latest earnings on Thursday after the bell, and analysts are once again expecting a loss. Other tech IPOs did well on their first day but then quickly fizzled. Internet radio service Pandora (P) surged more than 60%within the first few minutes of trading, even though the unprofitable company had warned investors that it expected to continue losing money "through at least fiscal 2012." But shares are now trading below the offering price of $16.. And shares of Demand Media (DMD), an online content creator that faced its own accounting smackdown, closed 33% higher on its first day.But shares are now trading below $8, compared with the offering price of $17. The performance of Groupon's IPO will give an indication of how willing investors are to buy risky companies. Next up is Zynga. The social gaming company filed in June and is expected tostart trading later this month. Catanach saidinvestors need to be wary of any of Groupon, Zynga or any other new offerings from Internet companies if their stocks surge on the first day. "In the 90s we saw these [accounting] concerns put to the side," he said. "There were countless people saying this doesn't make sense, but investors still bought. And look what happened." Â

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Groupon Pops, But Has Plenty to Prove Groupon has finally gone public today, with its stock price immediately jumping after trading began this morning, and it became the hottest Internet IPO since Google. But can the heat last? Editor's note: This story was updated at 4:50 p.m. to reflect the closing price of the stock. The deal is definitely on for Groupon. As anticipated, the daily deal pioneer went public with a pop, with its stock debuting at $20 and surging as much as 56 percent, to $31.14, before swinging back to below $30, trading at $27.47 per share as of 3:11 p.m. It slipped to $26.11 per share by the market close. Andrew Mason, the company's chief executive officer, in New York for the initial public offering, was clearly delighted at the company milestone. "With our IPO behind us, I couldn't be more excited about what lies ahead," Mason said in the company blog. What lies ahead is definitely in the minds of investors too. Before the market opened, Groupon had already raised $700 million in its initial public offering—almost a third more than it initially sought—by selling 35 million shares at $20 apiece, according to data compiled by Bloomberg. That put the daily deal company's valuation at nearly $13 billion, making it the biggest Internet IPO since Google raised $1.9 billion in its 2004 initial offering. Groupon is floating just above 5 percent of the company, and that mere sliver of an offering upped the demand even before the stock hit the market. As expected, the institutional investors flipped those shares fast after the stock debut today, walking away with some tidy profits and, perhaps, not looking back. Anthony Catanach Jr., an associate professor in the School of Business at Villanova University and one of the authors of the Grumpy Old Accountants blog, has been watching Groupon with a critical eye and says he is not surprised at the increase today. “My problem is that I’ve got enough gray hair that I remember the dotcom bubble, and it doesn’t surprise me that it came out the way it came out,” Catanach told “The investment banks are very good at what they do. They’re very compensated, so they have every incentive to make this a success.”

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Groupon's financial condition has definitely been an issue on the run-up to the IPO. After its launch three years ago in Chicago, Groupon and its founder Mason became rock stars of the Internet startup world. There are numerous imitators now, but Groupon pioneered the market for deep discounts at local restaurants and stores, and grew its subscribers and revenues at headturning rates. Now a global company, the site boasts 142.9 million subscribers, according to its latest filing, seven times as many as it had in 2010. As of the third quarter, about 29.5 million of those people had purchased at least one deal. But the golden glow around the company has been fading since it filed its first prospectus with the Securities and Exchange Commission, revealing not only that it is not making any money, but also an unorthodox accounting method that ultimately forced the company to revise its revenues downward and unusually high marketing costs to acquire new customers (which is not so cheap anymore, thanks to all the Groupon clones). Today, though, the mutual funds bought into the stock, knowing that if they don’t buy Groupon, they might find it hard to get the next hot tech stock, such as Facebook, said Catanach. “If you’re a growth fund manager, it’s very difficult not to go out and buy some of this,” he said. “It’s an old selling tactic that the investment bankers have used for decades. If you want in on the next deal, you have to get in on this one. You don’t get to just pick and choose.” His question is how Groupon will fare when it tries to do stock offerings after this one, and whether the extrapolation that the company is now worth some $13 billion is a fair one since it’s based on the stock price today, with a limited number of shares available. “Going forward they’re going to have to prove that they have a business model that’s viable,” he said. Boyan Josic, chief executive officer of Daily Deal Media, thinks Groupon’s innovative business model is why investors bought into the stock today. “I think that investors that understand the space and what this industry is and understand Groupon’s position are buying,” Josic said. “This is a company that has 150 million consumers saying I want to see something from you every day, and that is unprecedented.” Josic added that he sees no problems with the company’s financial model. “I agree that there’s a ton of risk, but the business model works,” he said. Matter of fact, he disagrees with the company’s decision to scale back on marketing, something it did after getting criticized for its marketing costs. While the company said in its prospectus that it won’t need to use the proceeds from the IPO for at least a year and has no urgent cash needs, the company owed almost twice as much to merchants at the end of September as it held in cash. Its marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile.

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This has Catanach’s radar up, because typically when a company goes public, it does so for a reason, such as needing funds for operations costs, acquisitions, or expansions. “Why are you going to sit on $800 million for a year? I find that hard to believe, given their history (of payouts to early shareholders),” he said. “I think we’re going to see much of this money diverted to insiders." The reason people are so skittish is that Groupon has yet to turn a profit and it’s growth is slowing. It has narrowed its losses in the third quarter to $1.7 million, and its North American operations turned a profit. But growth is another concern. Yipit, which crunches the data on the daily deal market, put out what it acknowledged was an investor-scaring chart that showed Groupon’s quarterly revenue growth—a torrid 111 percent in the fourth quarter of 2010—coming down to room temperature—10 percent in the third quarter of 2011. One question these potential investors should make sure to ask: What happened to Groupon’s quarter-over-quarter growth rate? Or, better yet, what will happen next quarter? As a public company, a lot more people are going to want to know.    

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Bank Transfer Day: How much impact did it have? Community banks and credit unions saw big business on Bank Transfer Day, when some customers moved funds out of big financial institutions. But many see the action as largely symbolic. Bankers at the roughly 15,000 community banks and credit unions across the United States have been spending Monday running the numbers. And this is no routine tally. That’s because it’s two days after Bank Transfer Day, the Internetlaunched call to move money from big, transnational financial institutions down to the neighborhood level. Now, the beneficiaries of this social action are reporting that Saturday was, well, a small-town banker’s dream, with customers jostling for a parking spot and standing in line to open new accounts. “The branches had a flurry of activity, and we treated it as a celebration of community and a liberation from big-bank neglect,” says Kimberly Kaselionis, CEO of the Bay Area’s Circle Bank. Circle Bank opened 33 new accounts in its six-branch system (totaling $188,756), plus four new business accounts (totaling $12, 720) through its website. These numbers might seem low. But consider that in the five weeks leading up to the weekend – ever since the Sept. 29 announcement by Bank of America about a $5 debit-card fee, which has since been rescinded – more than $4.5 billion has shifted from big banks into the nation’s roughly 7,000 credit unions alone, according to the Credit Union National Association (CUNA). CUNA spokesman Mark Wolff says he expects final numbers by Tuesday afternoon. By some estimates, the 650,000 consumers who had moved their accounts to credit unions by last Thursday could soon climb to 1 million. Chase refused a request for comment. Bank of America spokeswoman Anne Pace said in an email, “We don’t have anything to share at this point on account closures.”

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Circle Bank is one of many small financial institutions that had a banner weekend. Further up the coast in Oregon, community institution Umpqua Bank says that the number of new accounts this five-week period is up 50 percent from a year ago. “This increase is a result of customers searching for localized products, services, and proven community investments,” says Umpqua spokeswoman Jane Taber. At Tropical Financial Credit Union, one of the largest credit unions in south Florida, the branches were packed, according to a TFCU spokesperson. Still, given that the money involved so far represents a minuscule fraction of overall banking assets, many financial analysts wonder about the lasting value of Saturday’s social action. “While it has caught the attention of bank customers nationwide, the impact is expected to be modest,” says George Conboy, president of Brighton Securities, an independently owned, fullservice financial firm based in upstate New York. Chase alone has more than 2 million checking accounts, he points out, so even if thousands of various online pledges to move accounts are also fulfilled, “the impact may not be much.” Other economists share this view. “It’s largely symbolic,” says James Kahn, an economics professor at Yeshiva University in New York. But others say there is more than just money at stake. “Congratulations to the participants of bank transfer day for demonstrating the importance of free competitive markets,” says Villanova University economics professor Peter Zaleski via e-mail. Because the banking sector is competitive, he adds, consumers have alternatives when they are unhappy with their banks. “The same is true for grocery stores, restaurants, and even gas stations to name just a few,” he writes. “If these industries had been nationalized, then consumers would have no alternative when they are unhappy with the company they currently use.” Ms. Kaselionis of Circle Bank says she views this as “the beginning of a return to ‘the way we were,’ as consumers and small to medium business owners seek the support and resources they need to meet their challenges and support their success.” Another indicator that this is perhaps more than a one-day event: The Occupy Wall Street movement has a new front, dubbed "Dump Your Bank Day," scheduled for Tuesday.


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Record-low percentage of Americans moved between 2010 and 2011 Tough economic times mean that people are staying put, as indicated in a new Census Bureau report Tuesday. There are many casualties of the Great Recession, including jobs, homeownership, retirement savings, and consumer confidence. Those issues are well known, but here’s one that isn’t as frequently discussed: Americans’ mobility. In a nutshell, bad times mean staying put, demographers and economists say. Uncertainty means clinging to the familiar, which more often than not means maintaining the residence you already have. The issue affects Americans’ aspirations about getting married and having a family. And it can be a big factor as they think about what constitutes a dream home, when to retire, and where to move in retirement. “When people are being challenged about their homes and their jobs, their primary focus shifts from one of thriving to one of surviving,” says Ronald Hill, professor of marketing at the Villanova School of Business in Pennsylvania. “That is one solid trend that all the unfolding data seem to support.” On Tuesday, the US Census Bureau released the latest data from its Current Population Survey, examining topics that include the likelihood of people moving and how the rate of moving is changing over time. The survey shows that some well-known, long-term trends – such as older people relocating from the snowy Northeast to the toasty Southwest, and young people moving from rural areas to cities – are on hold, at least until the economy picks up. And no one is predicting that anytime soon. Some of the key findings in the survey are: • The percentage of people who changed residences between 2010 and 2011 – 11.6 percent – is the lowest recorded rate since the Current Population Survey began collecting such statistics in

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1948. The rate was 20.2 percent in 1985, 11.9 percent in 2008 (a record low at the time), and 12.5 percent in 2009. • When people moved a considerable distance between 2008 and 2009 – 500 or more miles – it was most likely for employment-related reasons. That kind of factor was cited by 43.9 percent of such movers, while 11.6 percent said they moved for housing-related reasons. On the other hand, when people didn't move far – less than 50 miles – 40 percent did so for housing-related reasons. • As of 2010, the majority of Americans – 59 percent – lived in the state in which they were born. The state with the highest such percentage was Louisiana (78.8 percent), followed by Michigan (76.6 percent), Ohio (75.1 percent), and Pennsylvania (74.0 percent). Conversely, in four states – Alaska, Arizona, Florida, and Nevada – as well as in the District of Columbia, less than 40 percent of residents were born there. The findings not only reflect the current economic climate, but they also serve as a potential blueprint for legislators, city planners, and others trying to plan for the future. “This report is important for those who make decisions about where to invest public dollars, which are scarce,” says Cheryl Carleton, assistant professor of economics and statistics at the Villanova School of Business. “If more people are staying put in urban or suburban areas close to cities, then dollars could [or] need to be spent improving and maintaining the infrastructure there.” What is most compelling to Kenneth Johnson, senior demographer at the Carsey Institute at the University of New Hampshire in Durham, is a dramatic slowing of migration to states such as Florida, Arizona, and California. He also notes a slowdown in people moving out of states such as New York and Massachusetts. “These findings coincide with data from other recent studies that I’ve done,” Mr. Johnson adds. Clara Rodriguez, a sociology professor at Fordham University in New York, is struck by what she says is not a rosy picture for young people, who typically move a lot and purchase housing. But now they’re not, because they’re graduating without finding jobs. Also, she says, older people are deferring their retirement moves to sunny climes because they are forced to continue working. “We should all care because the diminished mobility retards economic growth,” Professor Rodriguez says. “Where there are jobs, the best people can’t fill them because they can’t sell their homes in other states.” While she laments what that means for the mixing of regional cultures, others see it differently. “If there is less migration and people are more attached to their communities, they will have more incentive to invest in their communities, both with time and money,” says Professor Carleton.

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Why Consumers In Poor Countries Try Harder To 'Keep Up With The Joneses' This article is by Prof. Ronald Hill, a nationally recognized professor of marketing and business law who specializes in marketing to emerging markets at the Villanova School of Business. For decades conventional wisdom dictated that consumers in wealthy countries have the means and time to compete with their peers for material goods — your neighbor buys a Porsche, now your $50,000 BMW needs to be replaced-maybe with a Mercedes. Keeping up with those around us is a game we can afford to play in our affluent world. The assumption is that the poor have limited or no access to goods as well as limited access to services like education, healthcare, clean water and basic utilities, and they only strive to survive, with much fewer social incentives compared to their wealthy counterparts. Marketers and advertisers brushed off any idea that consumers in poor countries have the mindset of people in wealthier countries because they lacked resources to enter the marketplace. Social comparisons based on material goods that are commonplace in affluent societies were non-existent in poorer countries: How could the poor compare their meager possessions and material situations with their peers who also have so little? New research I’ve done with Kelly Martin at Colorado State shows that social comparisons are significantly powerful determinants in life satisfaction for people in poorer, developing societies than for people in more affluent nations. We discovered that, not surprisingly, people in poorer countries are more dissatisfied with their lives than people in wealthier countries. This finding is consistent with previous work showing our lives are perceived negatively if we do not have access to what we feel is necessary to meet a reasonable living standard. Of interest though is that people in poorer countries who make downward social comparisons (comparing oneself to those who have even less vs. those who have more) are more satisfied with their lives than individuals making upward social comparisons. And social comparisons are more powerful determinants of life satisfaction in poorer societies than in affluent countries. In less developed parts of the world, individuals who look to peers and believe they are relatively worse off are consistently less satisfied with their lives than their counterparts in affluent nations. However, for individuals in poorer societies who believe they are relatively better off than their peers, the negative effects of poverty are softened, as they report significantly greater satisfaction with their lives. These differences are less dramatic in more developed parts of the world. As a

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result, they suggest that the notion of “keeping up with the Jonesesâ€? is alive and well in the developing world, and it is far more pronounced than in most affluent societies. These findings suggest that marketers need to understand the similarities as well as differences between the relatively poor in emerging markets and the relatively wealthy in developed economies. Recent interest in bottom-of-the-pyramid consumers has caused some multinational corporations to modify their product offerings in the United States so that they are within the financial reach of consumers in South Asia. Such decisions intuitively grasp the need among all people to stratify themselves relative to their neighbors who live in close proximity. Yet our collective social responsibility may force us to pause and ask about the relative tradeoffs among the people we serve. The choice of a too-expensive car for his/her budget may require a western consumer to scrimp on weekends or miss a second annual vacation. For the truly poor, a decision to purchase branded products that have social value may lead them to miss a meal or go without healthcare. Â

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Harrisburg Fate in Judge's Hands Validity of Chap. 9 At Stake Wednesday The status of a bankruptcy filing of compelling interest to the municipal finance and legal industries will be in the hands of a federal judge in Harrisburg, Pa., this week. On Wednesday, Mary France of the U.S. Bankruptcy Court for the Middle District of Pennsylvania will hear arguments on the validity of the Chapter 9 filing by the City Council of Pennsylvania’s capital city — a move that a majority of City Council members favor, but the mayor, governor and major creditors oppose. Harrisburg is saddled with at least $310 million in debt due to cost overruns on an incinerator retrofit project. This politically gridlocked city of 49,000 has three times rejected a state-supported workout plan, prompting the state legislature to enact a takeover law in September aimed at Harrisburg. Gov. Tom Corbett Friday named David Unkovic, chief counsel for the Department of Community and Economic Development, as his choice of receiver for the city, an appointment that requires approval from the Commonwealth Court. The City Council’s lawyer maintains that the bankruptcy filing, if upheld, would effectively negate the state takeover. The muni world will scrutinize what happens in France’s court. Bond insurer Assured Guaranty Municipal Corp. has been making payments the city and surrounding Dauphin County had guaranteed, and the city has missed about $60 million in payments on the bonds, according to bankruptcy documents. Harrisburg’s attempt to use Chapter 9, the Bankruptcy Code provision for municipalities, will draw a legal glare, as will France’s handling of it. But this case also has riveting storylines well beyond bond and legal spheres. The conflicts include mayor versus council, city versus county, city versus state, Democrat versus Republican, and Wall Street versus Main Street. Harrisburg’s plight has also raised questions about the use of debt to underwrite questionable enterprise projects and issues about municipal sovereignty. Racial overtones also surfaced. One council member last summer said Republican suburban lawmakers put a bull’s-eye on Harrisburg because its mayor and five of its seven councilors — all Democrats — are AfricanAmerican.

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“Convoluted best describes the Harrisburg situation,” said St. John’s University business professor Anthony Sabino. In 2003, Harrisburg and the county backstopped a $125 million loan to modernize the incinerator on nondescript South 19th Street four miles southeast of downtown after the federal government closed it, citing clean-air violations. City officials expected revenue from neighboring cities and towns paying to use the incinerator would essentially pay for the project. But that didn’t materialize and costs escalated. “In the case of Harrisburg, the city decided to guarantee the project financing, presumably with the view that the guarantee would never be called,” Natalie Cohen, a Wells Fargo Securities senior analyst, wrote in a municipal commentary. The city’s debt could soar to nearly $500 million. The Harrisburg Authority, the public works agency that runs the incinerator, acknowledged last week that it may need a further $70 million, unrelated to the incinerator, to comply with federal wastewater treatment mandates. “The good thing is that most of the previous borrowings are paid off,” said interim executive director Shannon Williams. Separately, city Controller Dan Miller said last month that in about five years the city is likely to be responsible for repaying another $95 million for two series of city-guaranteed capitalappreciation bonds that its redevelopment authority issued in 1998. The bonds begin to mature in 2017, according to official statements. The key conflict Wednesday will be city versus state: will the bankruptcy court side with the city’s claims that it can file Chapter 9, or defer to the state government’s procedures for handling local financial problems? Three times Harrisburg’s council has rejected, by 4-to-3 votes, a workout plan under Pennsylvania’s Act 47 program for distressed communities. Mayor Linda Thompson’s political opponents voted in the majority. The four — as well as Miller, who plans to challenge Thompson for the mayor’s office in 2013 — favor the bankruptcy filing and see the state takeover as helping bondholders at the expense of city needs. Thompson, who as councilwoman voted for the original loan, was elected mayor in 2009, ousting 28-year incumbent Stephen Reed, whom voters blamed for the incinerator fiasco and other debt-laden projects. They included a Wild West museum that never materialized and the city’s mid-1990s purchase of the Harrisburg Senators minor league baseball team, which it no longer owns. On Wednesday, all roads will lead to France’s court on Walnut Street in Harrisburg. Chapter 9 has relatively little legal precedent, which intrigues legal observers. It is “the stealth chapter of the Bankruptcy Code,” according to Sabino. “Chapter 9 is such a bland provision, but

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there are so many politically charged questions. Harrisburg is a wonderful example, for better or worse — some would say worse.” Whether a state-appointed receiver or the federal bankruptcy court determines Harrisburg’s financial future, the city will be better off in other hands, according to David Fiorenza, the former chief financial officer of Radnor Township, Pa. “I think the federal judge will rule that the state has lots of experience with lots of municipalities. I think the state will be able to obtain a debt restructuring and see if it can get the city a refinancing for the bonds, with historically low rates in place,” said Fiorenza, a professor at the Villanova School of Business. “The state can also put some operational mechanisms in play and make some forecasting that will benefit Harrisburg in the long run,” he said. What kind of receivership Unkovic has in store for Harrisburg is anyone’s guess, Fiorenza added. “What I see with Corbett, and I don’t say this as a negative, is that he plays his prosecutor’s role a bit,” he said of the Republican governor, a former state attorney general. “The governor plays everything close to the vest. He doesn’t let out much.” Bill Brandt, the president and chief executive of consulting firm Development Specialists Inc. and chairman of the Illinois Finance Authority, sees Harrisburg as Exhibit A in the perils of enterprise risk, or what he calls “event-driven” financial decision making. “It’s usually a bad idea gone really bad. As Harry Reasoner once said, if you’ve got a get-richquick deal and you’ve already heard about it, then you’re too late,” Brandt said, referring to the late television journalist. “A good bond deal should be sufficient to stand alone. Don’t try to sweeten the frosting by adding layers of credit enhancement,” Brandt said, citing the city’s original guarantee. “When I look at Harrisburg, I see risk failure.” Mark Schwartz, the Bryn Mawr, Pa., lawyer representing the City Council, called a new state law restricting the bankruptcy filing illegal. He said Harrisburg enrolled in Act 47 last December with bankruptcy as an option, only for the state to “change the rules in the middle of the game.” Schwartz favors a 1% city sales tax as part of any workout and wants to make bondholders whole. He said major creditors, which include Assured Guaranty, Covanta Energy Corp. and Ambac Financial Corp., should not have agreed to the deal in the first place. He also asked the Internal Revenue Service and the Securities and Exchange Commission to investigate the bond deal, and recommended initiating a “clawback” of money paid during the incinerator retrofit. “What did they know and what did they not know? These guys made big bucks,” Schwartz said.

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“Wall Street can sell any piece of garbage, which brought us to where we are today. The prevailing attitude has been, 'Give us enough juice for a broker, and we’ll sell it,’ ” he said. Assured Guaranty earlier this month rejected a request by the city to forgive $100 million worth of debt. And last week, Covanta, which issued a loan to the city to finish the incinerator project, blamed “the financial mismanagement of the city and the Harrisburg Authority” in a memo to employees from Paul Gilman, the company’s chief sustainability officer. The original engineering firm on the incinerator refit, Barlow Projects Inc. of Fort Collins, Colo., filed for bankruptcy in 2007. “The current situation in Harrisburg remains very uncertain and any potential outcome is unclear at this time. We will be supportive of any outcome or plan that is good for the city and good for our company,” said Gilman, who released the memo to the media. Ambac is the insurer for Harrisburg’s general obligation bonds, on which the city is current with payments. Harrisburg avoided a GO default in September by raising money through a 10-year lease extension with the parking authority, which sold taxable debt at a 10.75% coupon to make the up-front lease payment to the city. Brandt said Pennsylvania fears the domino effect of Chapter 9 filings, should France uphold Harrisburg’s request. “If I’m Pennsylvania, I don’t want to let it happen because a line will form outside the door. The state would lose control. If they let it fly and it happens 'just this once,’ it won’t be just this once,” he said. France will operate in her home court, where she is chief judge. Theodore McKee, chief judge for the U.S. Court of Appeals for the Third Circuit, appointed her. “She is a real smart lady. She has the right skills fit to do this, and the temperament as well,” Brandt said. “The chief judge could have assigned the case to any judge, from Pennsylvania, New Jersey, Delaware. … That he chose Judge France shows a lot of faith in her ability because this is a big Chapter 9 case,” said Juliet Moringiello, a professor at Widener University’s law school in Harrisburg. France has appeared at Moringiello’s classes, often performing roleplaying legal exercises with students. “I have read a lot of her written opinions and they strike me as well thought out,” she said. “This is a big case over whether Harrisburg has the authority to file for bankruptcy under state law and who can act on behalf of the city. There are a few issues to be settled and she will consider everything carefully.”

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Olympus Adviser Axes Closed Brokerage Soon After SEC, FINRA Examinations Nov. 18 (Bloomberg) -- Olympus Corp. retired director Koji Miyata talks about the outlook for the company's management. Miyata said Olympus should reinstate Michael C. Woodford as head to rebuild trust after the camera and endoscope maker admitted to hiding losses. He spoke yesterday in Tokyo with Bloomberg's Takashi Amano. (Miyata's remarks are translated. Source: Bloomberg) Nov. 16 (Bloomberg) -- Douglas Burns, a former federal prosecutor, talks about the accounting scandal at Olympus Corp. The camera maker is being investigated by Japanese, U.S. and U.K. authorities for alleged accounting irregularities. Burns speaks with Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg) Nov. 8 (Bloomberg) -- Former Olympus Corp. Chief Executive Officer Michael Woodford talks about the company's management team and practices, and the future of the firm. Woodford was ousted as Olympus’ CEO last month after raising questions about dubious acquisitions and the payment of nearly $700 million in advisory fees to a relatively unknown boutique firm that funneled the money to the Cayman Islands. Woodford talks with Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg) Axes America LLC, the now-defunct brokerage firm that advised Olympus Corp. in a transaction being investigated by the FBI, ceased operations in March 2008 soon after U.S. regulators began examining its books, records show. Beginning in 2006, New York-based Axes America served as adviser to Olympus in its $2.1 billion acquisition (7733) of Gyrus Group Plc, a British medical device manufacturer, in 2008. PriceWaterhouseCoopers LLP, which examined the transaction for the Olympus board, reported last month that the Tokyo-based company paid $687 million in fees to Axes America and a related Cayman Islands fund, Axam Investments Ltd. Olympus, which subsequently said it paid inflated fees to advisers to hide losses, is under investigation in the U.S., U.K. and Japan. Axes America disclosed in a Feb. 28, 2008 filing with the U.S. Securities and Exchange Commission that the SEC had examined its books and records in November 2007 and FINRA -the Financial Industry Regulatory Authority -- had done so in January 2008. The firm described both actions as “routine” and said it was “confident of a favorable outcome.”

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Axes withdrew its registration as a broker-dealer on March 5, 2008 -- six days after its disclosure of the SEC and FINRA reviews, according to SEC records. “The timing of the two is too coincidental,” said Anthony Catanach, who teaches accounting at the Villanova University School of Business, in a phone interview. “It’s extremely suspicious.”

Gyrus Probe Investigators including the Federal Bureau of Investigation and the SEC have begun an examination of the Gyrus deal and three other acquisitions by Olympus, according to a person familiar with the matter. Part of the probe of the camera and endoscope maker centers on fees paid to Axam Investments, according to another person familiar with the matter. Former Olympus President Michael C. Woodford, who was fired after he questioned the fees and other transactions, will return to Tokyo tomorrow. He is due to meet prosecutors and attend his first board meeting since his Oct. 14 dismissal. Woodford remains a member of the board, as does former Chairman Tsuyoshi Kikukawa, who stepped down over the scandal. Japanese banker Hajime Sagawa served as a director of Axam Investments and headed Axes America. Axam Investments, described in corporate records as an investment and holding company, was struck from the Cayman Islands registry in June 2010 for non- payment of license fees, PricewaterhouseCoopers said.

SEC Criticisms Michelle Ong, a FINRA spokeswoman, declined to comment on Axes America’s disclosure of the agency’s 2008 examination. John Nester, an SEC spokesman, declined to comment on whether the Axes America examination differed from periodic reviews the agency conducts on all broker-dealers to evaluate compliance systems. The SEC has been criticized for failing to uncover the decades-long fraud of Bernard Madoff. More recently, the agency has come under fire for destroying some enforcement documents and bungling a $557 million lease for new office space. Axes America was formed in Delaware in 1997 and registered as a broker-dealer in 1998, according to its SEC filings. The firm dissolved on Dec. 3, 2008, nine months after it withdrew its registration. In 2007, all of its revenue was earned from a single company, Axes America said in an SEC filing. By the time of Axes America’s February 2008 SEC filing, the agency hadn’t issued a final determination letter and the FINRA review was “ongoing,” according to the brokerage.

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Fraud Risk Of the $687 million in fees to Axes America and Axam Investments from 2006 to 2010, Olympus had paid $17 million to Axes America by Nov. 26, 2007, including $14 million in 2007 alone, PriceWaterhouseCoopers said in its report. The remainder of fee -- a total $670 million -- was paid to Axam Investments from September 2008 to March 2010, PriceWaterhouseCoopers said. Berson & Corrado LLC, an accounting firm in New York and Ramsey, New Jersey, served as Axes America’s auditor. Mark Corrado, a partner at that firm, didn’t respond to e-mails or phone calls about Axes America’s audited filings. Catanach questioned whether the audits of Axes America in 2006, 2007 and 2008 were sufficient to find that the brokerage complied with Generally Accepted Accounting Principles, the standard typically used to review company finances, as auditors had found. Axes America’s advisory fee revenue jumped from $324,000 in 2005 to $3.2 million in 2006, signaling that the nature of its business had “dramatically changed,” said Catanach, who is also the Cary M. Maguire Fellow at the American College Center for Ethics in Financial Services in Bryn Mawr, Pennsylvania. That should have triggered a new review of internal controls, the “underlying economics” of the transaction, and the role of related parties, he said. “One big fraud risk factor is that 100 percent of revenue comes from one source,” he said. “This puts huge pressure on the client to succumb to ‘customer’ wishes.” To contact the reporters on this story: David Glovin in New York at; John Helyar in Atlanta at


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Bankruptcy hearing affects more than Harrisburg, finance experts say Debt-hobbled Harrisburg’s options might soon be whittled down to one: a state takeover. Arguments begin this morning to help federal bankruptcy Judge Mary France decide whether City Council had the legal right to file its municipal bankruptcy petition last month. The hearing is expected to last several days. More than the future of Harrisburg is at stake. Capital city employees could be hit with a commuter tax. Municipalities around the state could see higher borrowing costs, and bond markets around the world are concerned. Should France decide that the council didn’t have the right to file for bankruptcy, the state takeover is a lock and a state-appointed receiver would take over Harrisburg’s finances. The receiver would be charged with implementing a fiscal-recovery plan for the city. If France decides Harrisburg was within its rights to file, the council improves its chance of averting the takeover, but Harrisburg would have to jump through one more hoop to get into bankruptcy. France still would rule on whether the city’s fiscal crisis would allow it to receive bankruptcy protection. And city officials still would be forced to develop a fiscal-recovery plan approved by the bankruptcy court if it gets Chapter 9, and City Council thus far has been unable to produce such a plan. “What is at stake is the long-term growth and economic development of the city,” said municipal finance expert David Fiorenza, professor at Villanova University School of Business. “A couple of things go into it. The Democratic majority on City Council, and you have a Republican governor. I think that plays into it. Some of it has to do with noneconomic issues like pride.” Mark Schwartz, the attorney the council hired to file its bankruptcy petition, will argue that the state’s Act 47 program did not give Harrisburg real relief from its $317 million in incinerator debt.

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The commonwealth and Mayor Linda Thompson’s office will argue that the council did not have the legal right under the city code or state law to file for the Chapter 9 petition. The state and Thompson supported the adoption of the Act 47 fiscal-recovery plan council rejected. Thompson’s plan mirrors the Act 47 plan that calls for selling or leasing city assets, cuts in services and increases in fees and taxes. The mayor also wants the option of instituting a commuter tax on workers who live outside the city. But bankruptcy could be the end result even if a takeover should take place, said Juliet Moringiello, a bankruptcy law professor at Widener University School of Law. Council members supported bankruptcy because a court could approve a plan that calls for bondholders to accept less than what they are owed. “There is a third option out there. It might be possible the receiver tries to get through a plan and not all the creditors agree to it,” Moringiello said. “It could be in the best interest of the receiver to file for bankruptcy. The receiver for Central Falls, R.I., filed its bankruptcy.” No municipality that has entered the Act 47 program has exited it, and some towns use the program as a crutch, said Fiorenza, who also is a member of the Pennsylvania and National Government Finance Officers Association. That could be a valid argument the council uses in bankruptcy court, he said. A takeover still is better for the city than bankruptcy, though, because Harrisburg would continue to get state assistance in developing a fiscal-recovery plan and bankruptcy paints a bad picture for the capital city, Fiorenza said. “Act 47 brings into play people who work in economic development throughout the entire commonwealth. So, [a takeover] would bring a broader sense of what kind of city it can be,” he said. “With bankruptcy, I think just the perception of the public throughout the commonwealth and the nation lends itself to failure. It’s failure with people’s tax money.” Harrisburg and Jefferson County, Ala., filed for municipal bankruptcies during the past month, but Chapter 9 filings are rare. A decision regarding Harrisburg’s legal right to file for bankruptcy will not set a precedent because the city’s situation is so unique, Moringiello said. “If it were about the judge granting orders for relief and plan confirmation issues, it might be precedental. But we’re not there yet and we might not ever be,” she said. Harrisburg essentially already is in bankruptcy, as its filing has stayed lawsuits creditors filed against the city, Moringiello said. “The city is in bankruptcy. What it hasn’t gotten yet is an order for relief. Once an individual is in bankruptcy, it gets an order of relief. For Chapter 9, [municipalities] gets the benefit of an

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automatic stay [of lawsuits],” she said. If the city is accepted into bankruptcy, lawmakers argue it would shake up the municipal bond market in Pennsylvania and perhaps across the nation. That isn’t necessarily the case, however, said Bill Brandt Jr., president and CEO of Development Specialists Inc., an Illinois firm that specializes in turning around troubled companies. The bond market is built to sustain one-off situations that devastate municipalities, and it definitely will not rock the international bond market, Brandt said. Brandt said he doesn’t believe Harrisburg will be accepted into Chapter 9. But how the debt crisis is handled could affect the municipal bond market across the state. “Like everything else in life, how it is handled will absolutely affect how other Pennsylvania bonds are seen in the marketplace,” Brandt said. Schwartz said the state takeover is moving too fast and in a response to DCED’s receivership petition to the Commonwealth Court, he asked the for a stay of the takeover until France rules on the legality of the city’s bankruptcy filing. Thompson asked the court Tuesday to require David Unkovic, whom Gov. Tom Corbett has chosen as city receiver, to implement her fiscal-recovery plan for the city. She also requested the court only allow the receiver to control the city’s purse strings for a year. Takeover time line State officials are proceeding with the state takeover of Harrisburg on the premise that the city didn’t have the legal right to file for bankruptcy. The following are key dates pertaining to the takeover process: — Tuesday: The date parties must file objections with Commonwealth Court against Gov. Tom Corbett’s pick of David Unkovic as city receiver. — Dec. 1: Commonwealth Court will hold a public hearing on Unkovic’s nomination for receiver. — Jan. 17: Commonwealth Court must rule on Unkovic’s nomination by this date. r Unkovic would have 30 days after his appointment to develop and implement a recovery plan for the city.

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NBA lockout not dunking Phila.economy Peter Zaleski doesn’t think the region’s economy will take that big a hit if the Philadelphia 76ers never take the court this season. “People will find other ways to spend the money they would have spent going out to the game,” said Zaleski, an economics professor at Villanova University . He noted a city the size of Philadelphia has enough substitutes for entertainment — be it a movie, play, other sporting event or even a night out at a nice restaurant — that people who have discretionary income to spend will still have plenty of options to spend that money. Zaleski said the big losers will be, almost exclusively, the local people who work at the arena on game day. That list consists of the 100-plus concessionaires, parking attendants, and souvenir sellers who lose money every time a game is not played. Representatives of Philadelphia-based Aramark , food services vendor at the Wells Fargo Center, were not available to provide the specific number of people it hires to staff Sixers games. “With the NFL season entering its second half, the college football season reaching its climax, the presence of NHL, and the fact that this is the early part of a long NBA season, I do not foresee the local sports bar or restaurant scene suffering from an NBA strike — especially in major sports towns such as Philly,” Zaleski said. “The folks who go to a sports bar aren’t going just for Sixers. The Sixers aren’t the only game in town.” Jana Piehuta, assistant general manager at McFadden’s Ballpark, said the South Philadelphia sports bar and restaurant attached to Citizens Bank Park doesn’t typically draw large groups of 76ers’ fans when the team is at home. “We get bigger crowds from Eagles and Phillies games,” she said, noting that the Wells Fargo Center has its own restaurants. “It hasn’t had a big impact on us.” Zaleski said unlike in some NBA markets, Philadelphia doesn’t have a large concentration of bars and restaurants around its sports venues. Instead, places that attract sports fans are dispersed around the region — and those places won’t turn into ghost towns just because the 76ers aren’t playing.

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He expects diehard basketball fans will focus more on college basketball, which has a strong local and national following already. Sixers season-ticket holders have not yet received any refunds from the team. Last week, 76ers fan Jeremy Chandler called his season ticket representative to see if a refund would be coming before “Black Friday” so he could use the money for holiday shopping. “It won’t. So I’m holding out two more weeks before I cancel,” Chandler said. “[I’m] hoping for a miracle.” The NBA has officially canceled all games through Dec. 15 because of the ongoing labor dispute that began July 1. A quarter of the season has already been lost. Key issues in the dispute are revenue sharing and the structure of the league’s salary cap. Last week the players rejected the owners latest offer, began the process of decertifying their union and filed two antitrust lawsuits against the league and owners claiming they have denied the players the ability to earn a living. The owners’ latest proposal called for a 50-50 split of basketball-related income between the owners and the players. The players previously received 57 percent of revenue. The Sixers are in an unusual position because the team was actually sold during the lockout. On Oct. 18, Comcast-Spectacor completed the sale of the team to a group led by Josh Harris, co-founder of Apollo Management and a University of Pennsylvania Wharton School graduate. Terms of the agreement were not disclosed. Various published reports put the price tag at $280 million. The diverse ownership includes a group of Penn graduates; Adam Aron, the team’s new CEO; GCI Commerce founder Michael Rubin, who sold his company to eBay earlier this year; actor Will Smith and his wife, actress and director Jada Pinkett Smith; and two Indonesian investors. Joel Maxcy, an associate professor of sports and recreation management at Temple University , said the new ownership group has already taken some positive steps during their early tenure — such as cutting individual ticket prices for nearly 9,000 seats at the arena by at least 50 percent. The team also gave one ticket to each to participant in this week’s Philadelphia marathon. “Attendance for the Sixers has fallen off during the last few years, so cutting ticket prices should help attendance,” Maxcy said. “There’s a trade-off with cutting prices — less revenue, but in the long run it’s a good [public relations] move. If they raise prices later on if demand goes up, it may not be seen in a negative light.”

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Maxcy is interested in seeing how the large ownership group works together in operating the 76ers. “They had that type of ownership group in Atlanta for the Hawks and Thrashers and it was a bit of a boondoggle,” he said. “There was a lot of conflict among the owners. Generally speaking, when you have a large partnership it works best when you have one person designated as the decision maker. Maybe that’s how they will have it set up here.” The sale of the Sixers during the lockout, Maxcy said, may help the new owners if fans harbor any resentment over the league because of the lost games and delayed start. “If there is any kind of hangover,” he said, “[the new 76ers owners] can’t really be blamed.”

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A Marriage Made in New Jersey Princeton Union Could Reflect Trend After voters in Princeton Borough, N.J., and Princeton Township approved a referendum two weeks ago to consolidate into one community, municipal finance and other observers agreed that it could reflect a trend. “The merger reflects the increasingly creative ways that local governments throughout the nation are dealing with ongoing budgetary stress. We expect more mergers as a cost-savings option,” said Moody’s Investors Service, which called the move a credit positive. On Nov. 8, both municipalities, with a border that bifurcates Princeton University on a northsouth plane, approved the measure after five rejections. Approval was more overwhelming in the township, 3,542 to 604, or an 85% majority, while borough voters approved it by 1,238 to 828, a 60% majority. The consolidated community, to call itself simply Princeton, will take effect Jan. 1, 2013. Both mayors, Chad Goerner of the township and Mildred Trotman of the borough, favored the move, as did New Jersey Gov. Chris Christie. Proponents cited the need to eliminate government redundancies. The two high-end towns share similar demographics, such as high median incomes and home values, and similar population sizes. U.S. Census statistics have the township with 16,265 residents, the borough with 12,307. While the more densely populated borough includes Nassau Street — “downtown” to both entities and home to upscale shops and restaurants — land in the township, which surrounds the borough, is less densely developed. According to Moody’s, while the borough and township will transfer and consolidate their debt into the new entity through a resolution, details are still in the works. By state statute, merged municipalities may apportion existing debt so that taxpayers of each consolidated municipality will remain responsible for their own debt. “With Princeton, however, the assumed debt is likely to be assumed and paid jointly by the new consolidated entity,” Moody’s wrote. Recent financial audits show the borough with $46.6 million of debt outstanding and the township with $65.9 million. A merger would result in $112.5 million of debt spread over a larger, more populous consolidated tax base.

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Moody’s rates the borough’s general obligation bonds Aa1 with no outlook, and assigns the township a Aaa and a stable outlook. While the Ivy League university’s official stance on the referendum was neutral and vice president Robert Durkee acknowledged uncertainties about the end result, he said: “In principle, I think it’s a good thing. We have two communities that long felt as they were the same. A benefit for the university, at least on some issues, is that we only have to work with one municipality. The issues become much more streamlined.” The school already works with a consolidated planning board, though the borough and township handle some zoning issues separately. Durkee said handling police matters may be easier under the new arrangement. “We have a firstrate on-campus police department, but when we coordinate with outside authorities, we’ll do so with only one police department, and that will be much more efficient,” he said. In the sixth referendum on consolidation for these two communities, the message of cost savings finally hit home. “As we get closer to the end of the year and into 2012, you’ll see more discussions in the tristate area of Pennsylvania, Delaware, and New Jersey about sharing services and combining budgets, with local revenues stagnant and declining. The problems of the national economy will weigh on the local economy,” said David Fiorenza, a professor at the Villanova School of Business and the former chief financial officer of Radnor Township, Pa. A report compiled for Princeton University by the Rochester, N.Y., think tank Center for Governmental Research estimated $3.1 million in savings from the first three years of the merger, though some opponents before the vote questioned that amount. The consolidation would not involve school or county government operations but would affect property tax levies. The report said the average residential taxpayer in the borough would save $591. The township equivalent would be $415. Nationally, one notable example of consolidation was Louisville, Ky.’s merger with Jefferson County in 2004, creating the 17th-largest city in the United States. Moody’s at the time upgraded the combined municipality’s GO rating to Aa2 from Aa3. More such mergers may come. “Illinois is one state with more than 6,000 governmental units,” said Bill Brandt, the president and chief executive of consulting firm Development Specialists Inc. and the chairman of the Illinois Finance Authority. The merger is the first of its kind in New Jersey since Hardwick Township absorbed Pahaquarry’s seven residents in 1997. For years, the state encouraged municipal mergers, even

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passing the Municipal Consolidation Act in 2008 to push the notion. Christie, in fact, offered for New Jersey, through its Department of Community Affairs, to contribute 20% of the estimated $1.7 million in Princeton merger costs Princeton is just one of several Garden State “doughnut hole” municipalities, which separate by borough and township. According to Fiorenza, sentiment against consolidation hinges on one major intangible. “People think they’re losing their sovereignty,” he said. “There’s heritage at stake. People grew up in the township or borough and feel attached to it. I liken it to Europe, where some people felt they were losing out when many countries changed to the Euro.” One source of friction has been the university’s relocation, about 460 feet southward from the borough to the township, of the small station that serves the “Dinky,” a train that connects the campus to New Jersey Transit’s Princeton Junction station two miles away. A citizens group, called “Save the Dinky,” mostly consisting of borough residents, is suing over the station’s move, citing a hardship for pedestrian-oriented borough residents. The group contends that the university lacks the authority to move the station, while the university and New Jersey Transit maintain the school is on solid legal ground. According to Durkee, New Jersey Transit sold the station as well as the land under and surrounding the rails, in 1984. The project, for a new arts center, would relocate the station and an adjacent Wawa convenience store and add an access road.

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Professor: Black Friday Not Good To Local Businesses Some Havertown businesses reported that they did not see many customers over the weekend. While Black Friday was much better compared to last year’s overall, it was not that much better for small local businesses, stated a Villanova marketing professor. In an email interview with the Haverford-Havertown Patch , Eric J. Karson, Ph.D., wrote that Black Friday sales did not help local businesses. “There was nothing specific to indicate Black Friday was any better for small businesses. From what I can see, it doesn't (seem) like there is anything but anecdotal evidence that Small Business Saturday helped either,” Karson wrote on Tuesday. Small Business Saturday was a promotional campaign by American Express to have consumers shop at local stores. The campaign was advertised on Patch. One Havertown business owner did tell Patch on Monday that a few of her customers came into her store because of Small Business Saturday. Franca Pezza, the co-owner of Alexia's Gift Box located on 25 W. Eagle Rd., said that a few of her customers told her that they were using the $25 they received from signing up with Small Business Saturday at her store. But she admitted that her 1-year-old jewelry and craft store did not do well compared to last year. She attributes this to the advertising “hype” from big businesses telling shoppers to go to big-named retailers. Yet Pezza said she is hoping that customers will shop locally as the holiday season goes on. Sonya Gines, the assistant manager of Mandee, said on Tuesday that the Black Friday weekend “was dead” at her store. “Our customer count was low,” she told Patch.

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Mandee’s goal was to make a daily $2,000 revenue for Saturday and Sunday and after looking at her sales figures she said that on Saturday the store only made $900, but Sunday the revenue was $2,447, Gines said. But not all stores were forthcoming with Black Friday sales figures. “Kohl’s does not provide specific information about sales or sales expectations between our monthly sales and earnings announcements and does not disclose location/region-specific sales as we consider this information proprietary to our business,” stated Vicki Shamion, Kohl's Senior Vice President of Public Relations and Community Relations, in an early Tuesday evening email to Patch. But with so many people still unemployed, it does put pressure on retail sales, Karson added. Small businesses will not fare well this holiday season for a few reasons, Karson predicted. “Online has really stretched the holiday shopping season. Many small retailers have a much harder time coordinating, and executing, the types of online promotions that larger chains can. Best Buy, Staples, and Amazon, all post Black Friday Deals, pre-Black-Friday deals, Weekend Deals, Cyber Monday deals, etc.,” he stated. “Small retailers just can't do this.” And it seems that online promotions are some of the reasons why as a whole many stores did well. Karson continued that another reason why this year’s Black Friday was better than last year’s was because the economy a year ago was “quite poor” and this year many consumers had “pent-up demand” for items that they needed or wanted. While many small businesses will not fare well this holiday season due to the tough economic conditions, according to Karson, he did offer some advise to them. “Pray for good weather. As I stroll down Haverford Avenue in Narberth, I do see some retailers’ (stores) brightly lit, and, perhaps, open longer. It has to attract some traffic,” he wrote.

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How lower taxes could hurt America’s big banks WHEN is a corporate-tax cut bad for a corporation? When it would trigger hefty write-downs of peculiar but critical assets, as is the case at some of America’s largest banks. The accounting item in question is the deferred-tax asset (DTA). This is a legacy of the financial crisis. America’s tax code allows losses amassed during the meltdown (with some restrictions) to be used to offset future tax bills. Since a bank is increasing its future cashflows by reducing expected tax payments, this is recorded as an asset on the balance-sheet. JPMorgan Chase held DTAs of $16 billion at the end of last year, while Bank of America had $27 billion-worth. The undisputed deferred-tax king, however, is Citigroup with slightly more than $50 billion-worth, the largest discretionary accounting item in the company’s history. To some, this looks highly optimistic. Mike Mayo, an analyst with CLSA, a broker, has relentlessly questioned Citi’s ability to produce enough taxable income to justify the asset and has suggested that it could be overvalued by $10 billion—a view for which he was, for a time, blackballed and badmouthed by the firm’s top brass. Citi rejects the suggestion that it is counting imaginary beans. Its DTA is, according to its latest filing, “recognised subject to management’s judgment that realisation is more likely than not” (though it acknowledges that some help from “tax-planning strategies” may be needed). Banks with DTAs have to worry about electoral politics as well as future profits. With Barack Obama and all the Republican presidential candidates either keen or at least prepared to lower the top rate of federal corporate tax from today’s 35%, a reduction over the next year or two looks reasonably likely, with an outside chance of a sharp cut. Any such move would make DTAs less valuable since future tax deductions would be worth less. With tax at 35%, a dollar of such deductions saves a company 35 cents. A cut to 20% would reduce the benefit to 20 cents. A decline of that order would hit the three big banks’ combined book value by $41 billion, according to Edward Ketz of Pennsylvania State University and Anthony Catanach of Villanova University and the American College Centre for Ethics in Financial Services (see

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chart). This loss would feed straight through to profits and shareholders’ equity. The impact on “core” tier-one capital, the measure of equity that financial markets care most about, would be more muted (since only part of a DTA can be counted when determining regulatory-capital ratios) but still “potentially painful”, says Mr Catanach. There would, of course, be offsetting benefits. Less tax means more net profit. But the boost to income would be spread over years (assuming profits rebound), whereas the write-downs would have to be taken straight away. And any deal on tax cuts is likely to include the closing of loopholes that have long allowed banks and other big companies to cut their effective tax bills to well below the official rate. No doubt the banks’ lobbying agenda includes a plea for special provisions that would soften the blow, should corporate taxes come down. But some in Washington might reasonably wonder why they should help to protect assets that probably should have been valued more conservatively in the first place.

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Will Economic Clouds Part in 2012? Guest commentary: The economic gloom just might lift in 2012, with a double-dip recession seeming less likely and another drop in the unemployment rate seeming more probable. But economists will be watching inflation and GDP very carefully. The question on the minds of many Americans is this: When will our recovering economy really roar back to life? There have certainly been some positive signs, with many, including Federal Reserve officials, predicting continued positive but slow growth into next year. The primary drags on recent economic performance over 2011 have been the job market and housing. However, I think the likelihood of a double-dip recession, meaning negative GDP growth, is now extremely low. The fact that our economy has been able to grow in spite of a weak housing market is a testament of its resiliency. A bottoming of housing prices and continued strength in consumer durables spending will continue to firm up economic conditions going forward. The recent sharp rise in the index of leading economic indicators suggests that GDP will continue to grow into the spring of 2012. If that growth exceeds the 2.5 percent to 3 percent range, it will not be surprising to see unemployment rates dip into the 7 percent range. As for the composition of the Federal Open Market Committee for next year, there will be another regularly scheduled rotation of four regional Fed bank presidents. The current three inflation hawks will be replaced by just one: Jeffrey Lacker at the Federal Reserve Bank of Richmond. Hence, there may be more movement towards something like a QE3 [third round of quantitative easing], but only if economic conditions remain static or deteriorate and if the core inflation rate does not rise any further. Federal Reserve chairman Ben Bernanke has been supportive of greater transparency of Fed operations and looking into adopting a more explicit inflation targeting policy. If that is the case, the inflation rate outlook may become a more important indicator of the Fed’s actions for 2012. Here’s a look at what has happened in 2011 and what is ahead for 2012: Economic Conditions The state of the U.S. economy has shown some improvement after a disappointing first half of the year. Although the “discouraged worker” effect, in which unemployed people give up looking for work, contributes partially to the dramatic decline in the unemployment rate to 8.6 percent, without it the unemployment rate would have still fallen by about half that amount which is still positive news for the labor market. If the trend continues, it’s a sign that GDP growth for the last quarter of the year may approach the 3 percent threshold. In recent months, the core inflation rate has risen and slightly exceeded the upper end of the Fed’s comfort zone.

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Although some have been suggesting another round of easing through asset purchases, perhaps even a QE3, in light of the positive unemployment numbers and signs of heightened inflation, I doubt we’ll be seeing any significant announcement at the upcoming FOMC meeting this Tuesday. Fed officials remain divided, with the inflation hawks (Federal Reserve presidents Charles Plosser of Philadelphia, Richard Fisher of Dallas, and Narayana Kocherlakota of Minneapolis) showing resistance to “operation twist” even though it kept the Fed’s balance sheet from growing, and the doves who have been the primary advocates of the recent easing policies (Federal Reserve President Charles Evans of Chicago even dissented at the last meeting because he felt the Fed was not accommodating enough). Even though the Fed did accommodate European central banks by lowering their international lending rate this past week, I don’t believe that situation will have a major effect on U.S. monetary policy unless it becomes much worse. Institutions like the IMF will still be the major player in stabilizing international financial markets. The Fed’s statement will acknowledge the improving conditions, state that there is still considerable softness in job creation and housing, and maintain its near-zero Fed funds rate policy for the foreseeable future. Inflation Inflation wasup 3.5 percent in September from the same this time last year, and down from the near 4 percent annual rate last month. Core inflation is currently at an annual rate of 2.1 percent, which is still at the very upper end of the Fed’s 1 percent to 2 percent comfort zone. Unemployment The rate of unemployment fell to 8.6 percent, the lowest in more than 2 1/2 years. Net job growth was 120,000, an increase from 80,000 in October. However, labor force participation fell and that contributes to the decline in those counted as unemployed. GDP Growth Third-quarter 2011 GDP growth was revised downward to 2 percent, but still confirms an upward trend for this year. There was considerable strength in consumer durable goods spending which is always a good sign as it is a leading indicator. Housing Housing prices remain weak, falling nearly 4 percent year-to-year for the third quarter of 2011, but the pace of decline was slower than in the second quarter, so there maybe signs of a bottom. Residential investment expenditures continue to increase in the third quarter as well and there was a sharp rise in housing permits last month. Victor Li is an associate professor of economics at the Villanova School of Business. He worked with Federal Reserve Chairman Ben Bernanke at Princeton University from 1998-2000. He was also a visiting scholar at the Federal Reserve Bank of St. Louis, and a senior economist at the Federal Reserve Bank of Atlanta from 2000-01.

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Zoomlion Biggest Short as Bears Bet China’s Building Binge Will Slow Down Zoomlion’s chairman and chief executive officer, Zhan Chunxin, said in a Nov. 15 interview in Hong Kong that slower expansion in Chinese demand for building equipment will continue next year because of waning economic growth and cutbacks in railway building. Zoomlion’s chairman and chief executive officer, Zhan Chunxin, said in a Nov. 15 interview in Hong Kong that slower expansion in Chinese demand for building equipment will continue next year because of waning economic growth and cutbacks in railway building. Photographer: Dale De La Rey/Bloomberg Short sellers have never been so sure that Zoomlion Heavy Industry Science & Technology Co., China’s second-biggest maker of construction equipment, will drop as building slows and customers fall behind on payments. Speculators lifted bets against Zoomlion to 22 percent of shares outstanding last month, the highest proportion on record and the most among Hong Kong-traded stocks tracked by Data Explorers. Bearish wagers increased even after the stock tumbled as much as 47 percent this year to an all-time low on Sept. 26. Zoomlion, whose sales of cranes and concrete machinery in China make it a gauge of the world’s largest building boom, posted a 50 percent gain in first-half revenue and a 110 percent jump in profit, four times more than the Hang Seng China Enterprises Index (HSCEI) average. The company spurred sales by letting customers buy machinery without paying upfront, a strategy that some investors say may backfire after banks curbed real-estate loans. Zoomlion shares gained 8.9 percent through yesterday from this year’s low as China eased lending restrictions to bolster the economy. “It’s going to be difficult to maintain the same pace of growth,” said Alex Au, a Hong Kongbased managing director at Richland Capital Management Ltd., which oversees about $300 million and is selling short Zoomlion shares. In a short sale, traders sell borrowed stock, anticipating the price will drop so they can profit by buying back the shares at a lower price. Chen Yingzi, a spokeswoman for Zoomlion, based in Changsha, Hunan province in south-central China, didn’t respond to three phone calls and an e-mailed request for comment. Zoomlion shares snapped three days of losses, climbing 5.2 percent to HK$8.26 as of the close in Hong Kong.

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Sales Forecast Zoomlion’s chairman and chief executive officer, Zhan Chunxin, said in a Nov. 15 interview in Hong Kong that slower expansion in Chinese demand for building equipment will continue next year because of waning economic growth and cutbacks in railway building. Meeting a 50 billion yuan ($7.9 billion) sales target this year will be “challenging,” he said. Policy makers in Beijing are taking steps to support growth in the second-largest economy, which may improve investor sentiment toward the construction industry, according to Manulife Asset Management. The People’s Bank of China cut the amount of cash banks must keep in reserve for the first time since 2008 on Nov. 30, to 21 percent from a record 21.5 percent. Zoomlion shares have dropped 42 percent this year, bringing its market capitalization to HK$70.9 billion ($9.1 billion), data compiled by Bloomberg show.

Yields Rise The company’s 6.5 percent yuan-denominated bonds due in April 2016 yield 6.09 percent, up from 5.7 percent at the end of 2010, according to data compiled by Bloomberg. The yield on JPMorgan Chase & Co.’s index of corporate debt in emerging markets has climbed to 6.25 percent from 5.8 percent. Zoomlion is rated AA- by Beijing-based Dagong Global Credit Rating Co., the fourth-highest investment grade, according to data compiled by Bloomberg. It isn’t rated by Standard & Poor’s, Moody’s Investors Service or Fitch Ratings, data compiled by Bloomberg show. Zoomlion’s valuation in the stock market is low relative to its history and peers, according to data compiled by Bloomberg. The company’s Hong Kong-listed shares trade for 5.6 times profits, compared with a historical average of 11 times, the data show.

Sany Heavy, Caterpillar Sany Heavy Industry Co. (600031), China’s biggest maker of construction equipment, trades at 10 times earnings in Shanghai and has a market value of $14 billion. Peoria, Illinois-based Caterpillar Inc. (CAT), the world’s largest construction and mining- equipment maker, is valued at 13 times profit in New York and has a market capitalization of $60 billion. Short sales of Zoomlion slipped to 20 percent of shares outstanding on Dec. 8 from a high of 22 percent on Nov. 22, according to New York-based Data Explorers, which makes estimates by analyzing securities lending data from custodian banks and fund managers. Bets against Caterpillar are about 1.4 percent of shares outstanding, the data show. Short selling of Sany Heavy’s shares isn’t allowed in Shanghai. The company said it delayed plans for a Hong Kong stock sale in September.

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‘Look Ahead’ “If China keeps loosening policy, then the market will look ahead and some of these stocks are trading at quite low valuations,” Terrace Chum, the Hong Kong-based managing director of greater China equities for Manulife Asset Management, which oversees about $199 billion, said in a Dec. 1 interview, declining to speak about individual stock holdings. Zoomlion has 18 stock recommendations equivalent to “buy,” seven holds and three sells, according to analyst recommendations compiled by Bloomberg. The average 12-month price estimate for the stock is HK$12.42, or 58 percent higher than the closing price of HK$7.85 yesterday, the data show. “Investors have overreacted on the risk for its financial leasing business,” said Stanley Yan, an analyst at Taipei-based Masterlink Securities Corp. (2856) who had a “buy” rating on Zoomlion as of September, according to data compiled by Bloomberg. Investors are increasing bearish bets against Zoomlion a year after the company sold shares in Hong Kong for the first time. Zoomlion raised HK$13 billion last December, following an increase in fixed-asset investment in China that lifted spending on construction equipment by 92 percent to $35 billion in 2010, according to data compiled by Bloomberg and consulting firm Off- Highway Research in London. That’s more than the combined equipment sales in the U.S., Europe, Japan and India, the data show.

Sales Growth Industry sales growth in China will probably slow this year to 5 percent, according to OffHighway Research, after a government crackdown on real-estate speculation led developers and cities to scale back projects. As state-owned banks reduced lending, Zoomlion has provided more financing and loan guarantees to its customers, according to the company’s semi- annual report. “Equipment leasing is becoming a bigger factor in promoting sales” for construction-equipment manufacturers, said Nicholas Yeo, the Hong Kong-based head of China and Hong Kong equities at Aberdeen Asset Management Plc (ADN), which oversees about $260 billion. Yeo said he doesn’t own Zoomlion shares. “We don’t know how prudent or conservative these companies are in their leasing and we won’t be able to tell unless we have a credit crunch.”

Late Payments Buyers of construction equipment are struggling to meet their obligations, according to Julian Bu, who oversees research on Chinese industrial stocks at Jefferies Group Inc. in Hong Kong. Forty-one percent of firms that purchased excavators made by local companies in the two years through October are late on payments and 7 percent have defaulted, according to a Nov. 24 report by Jefferies which cited data compiled by the Construction Machinery Dealers’ Association in China.

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“The outlook for the sector is not good,” said Au, whose Richland Asia Absolute Return Fund rose 3.6 percent this year through Nov. 30, compared with the MSCI Asia Pacific Index’s 18 percent drop, according to data compiled by Bloomberg. About 43 percent of Zoomlion’s assets as of June 30 were payments the company expects to receive from customers and other counterparties, up from 40 percent at the end of 2010, data compiled by Bloomberg show. Zoomlion had about 14.1 billion yuan of “trade and other” receivables and 18.4 billion yuan of receivables related to its finance leases, compared with 75.2 billion yuan of total assets, the semi-annual report shows. Sany Heavy’s receivables accounted for about 29 percent of assets at the end of June, while Caterpillar’s were about 39 percent as of Sept. 30, according to data compiled by Bloomberg.

‘Looks Like a Bank’ In addition to the receivables reported in its balance sheet, Zoomlion has provided about 10.4 billion yuan of guarantees for customers’ bank loans and third-party leasing agreements, according to the notes in its semi-annual report. “It kind of looks like a bank,” said Anthony H. Catanach Jr., an associate professor at the Villanova University School of Business and the Cary M. Maguire Fellow at the American College Center for Ethics in Financial Services. “Almost half of their assets are from someone who owes them money. They’re functioning as kind of a lender to their buyers.” Zoomlion’s operating cash flow, a measure of the cash generated by the business, was about 92 percent less than net income in the first half in part because its customers didn’t pay upfront, according to data compiled by Bloomberg. “It causes a lot of pressure on the cash flows because you’ve sold the machines, but you haven’t gotten the money yet, so the balance sheet is looking stretched,” said Jefferies Group’s Bu. “That’s why these companies are coming to Hong Kong and trying to raise money.”

Reserves Outlook Zoomlion hasn’t reported a surge in bad debts. The company made payments of 38 million yuan in the first six months of this year to banks in relation to defaults on loans it had guaranteed for customers, down from 61 million yuan in the year-earlier period, according to the semi-annual report. Zoomlion has been able to sell repossessed machinery for amounts that aren’t “significantly different” from the guarantee payments, the company said. Losses related to bad debts will increase as customers fall behind on payments, according to Villanova’s Catanach. “There’s clearly going to be some reserves that are going to have to be set aside, which are going to impact the income statement,” Catanach said.

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Zoomlion’s trade and other receivables due in one to three months rose 259 percent in the first half, compared with a 65 percent increase in receivables due within a month, according to the semi-annual report.

‘Too Crowded’ The company is considering acquisitions of machinery-makers in the U.S., Europe and Japan in part because the Chinese market is “too crowded,” Zhan, Zoomlion’s CEO, said in the interview. Sany Heavy said on Dec. 6 it plans to build factories in more than 10 foreign countries as domestic demand growth slows. China has about 235 publicly listed machinery companies, compared with 174 in the U.S., 257 in Japan and 17 in Brazil, according to data compiled by Bloomberg. “A lot of these companies are still producing a lot of equipment, so there could be a situation of supply outstripping demand in the short term,” said Aberdeen’s Yeo. “We’d prefer to be conservative and stay on the sidelines.”

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Giving to Catholic Parishes Drops Catholic parishes—and the charities that rely on them—have been feeling the pinch of the financial downturn. Contributions declined at more than half of parishes from 2008 through 2010, according to a new study. Roughly 20 percent of parishes said giving remained flat during that time, while 13 percent reported that contributions decreased at first and then rebounded. About 10 percent of parishes said donations rose. The Center for the Study of Church Management at Villanova University analyzed the data 390 Catholic parishes provided as part of the Faith Communities Today survey, which was conducted by the Cooperative Congregational Studies Partnership. Parishes’ budgets for charitable contributions were among the first victims of the downturn, according to the survey. About 55 percent of parishes reported that they reduced the amount of money they contributed to mission projects and charities. Other responses to falling donations: postponed or canceled building projects or capital campaigns (53 percent of respondents), salary reductions or freezes (52 percent), delayed hiring for staff positions (30 percent), and layoffs or furloughs (22 percent). As the economy continues to falter, some of the steps parishes have taken might become permanent, says Charles Zech, director of the Center for the Study of Church Management. “One of the first things they cut back on was giving to charity,” he says. “That might be a permanent theme, that the church looks more inward and takes care of its own needs first as opposed to benevolences and charity to outside groups.”

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Dynasties undone? Clippers, Angels are now the 'it' teams in L.A. The Angels signed superstar Albert Pujols last week for a record-breaking $250 million. And now the Clippers have just signed dynamic point guard Chris Paul. Repeat: The Los Angeles Clippers. Things may be finally looking up for two major-league sports teams in Los Angeles, after years of taking their cue from the Avis Rent a Car “We Try Harder” playbook. And their fans are taking heart. Not the obnoxious ones that everyone sees on TV, lining the parade route for the Lakers – 16time NBA champs – or the Dodgers, which many baseball fans hate as much as the Yankees. No, the teams we’re talking about are the Los Angeles Clippers and the Los Angeles Angels of Anaheim. The latter made history last week by signing batting superstar Albert Pujols for a record-breaking $250 million. His 10-year contract cost a third more than owner Arte Moreno paid for the team in 2003. Anaheim, about 45 minutes south of Los Angeles, has always been considered by many a small-potatoes town, along with their team. The Angels have lived in the shadow of the Dodgers, one of Major League Baseball’s marquee teams, despite the Angels winning the World Series in 2002. And now the Clippers have just signed Chris Paul, judged by many to be the most dynamic point guard since Magic Johnson. Repeat: The Los Angeles Clippers. Many people outside the city don’t even know there is such a team. Rooting for the Los Angeles Clippers has been so difficult that the editors at Webster put the example in their dictionary to precisely explain, “fool’s errand.” “Finally, my time has come,” school custodian Rod Allen told me, as I stepped into a Starbucks in Los Angeles this morning. He says he has cheered for the Clippers over the years despite past promises that have not materialized, including that the signing of star center Danny Manning was supposed to bring a championship. “I’m sick of being in the Lakers’ shadow,” says Mr. Allen. “Who remembers who placed second to Seabiscuit?” He was reading Bill Dwyre, lead sports columnist for the Los Angeles Times, who wrote: “Death, taxes and Clippers incompetence are the axioms by which we live.” Paul, a four-time All-Star, has the kind of statistics that can remake a franchise – averaging 18.7 points a game and 9.9 assists. He has the kind of full-court skill that can make other players

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shine. He’s often compared to the all-time great Bob Cousy, who ran the Boston Celtics during their heyday, or more recently John Stockton, who kept the small-market Utah Jazz a championship contender for more than a decade. I figured I might be too close to things after living in L.A. for 26 years, so I called a sports analyst as far away as I could find who is still in the United States: Dan Lebowitz, executive director of the Sport in Society at Northeastern University in Boston. Here’s what he told me. “This creates a national rivalry in a city that hasn’t had one – like the Mets/Yankees, Nets/Knicks,” he said. “It presents an intracity rivalry that will be good for the fan base on both sides of the equation and will likely make the Lakers better from serious competition as well.” I looked up one more source, this time on the business side of things to see what, if any, downside there might be. Ronald Hill, marketing professor at Villanova University in Pennsylvania, told me via e-mail, “[T]he issue is one of brand management. With a tarnished brand, the goal is to create new and positive beliefs that help overcome the existing ones.” He continued, “In this case, the addition of a star player may accomplish this goal, at least in the short run. Of course, all bets are off if the season begins and he does not perform up to expectations, which happens more often than you think.” I’m not mentioning this to Rod Allen.

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Xfinity rebranding raises doubts among experts Almost two years after Comcast Corp. launched Xfinity to shed its image as a stodgy cable company, the brand will get a big boost in the Philadelphia area. The entertainment/sports complex rising on the former site of the Spectrum in South Philadelphia will be named Xfinity Live! - intended to reinforce the image of Xfinity TV and Xfinity Internet as thrilling and exciting products. Comcast says that the Xfinity campaign has been a success and that 47 percent more customers seem willing to consider purchasing Comcast products now that they are branded Xfinity. "We are seeing great customer response," Peter Intermaggio, Comcast's senior vice president of marketing and communications, said Thursday. "Xfinity has been very successful for us. Xfinity is about everimproving products." But experts are not convinced that the rebranding was necessary or that Comcast has explained it well. Subodh Bhat, marketing professor at San Francisco State University, said the topic of Xfinity came up one day this semester in his graduate-level brand-management course. "The class consensus was that this did not make any sense," Bhat said. "Comcast has not given us a clear idea of what Xfinity stands for. . . . One fine morning, I woke up and turned on my TV and it was Xfinity" - not Comcast. And, he said, the name sounds too much like the Nissan car brand Infiniti. Craig A. Atwater, a lecturer in the Fox School of Business at Temple University, said he wasn't a fan of Xfinity, although he did like Comcast products. "It appeared on the heels of FiOS and felt to me like Comcast decided they had to do something, too," Atwater said. "But Xfinity, unlike FiOS, doesn't stand for anything, nor has Comcast tried to explain what it does mean for consumers. For now, it's just a label." Verizon Communications Inc.'s FiOS brand stands for "fiber optic service," which differentiated itself from the cable industry's coaxial-cable infrastructure.

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Ronald Hill, marketing professor at the Villanova University School of Business, had a different issue regarding the naming rights of the entertainment/sports complex. Companies establish themselves as civic boosters by purchasing the naming rights on stadiums and other public venues, and they typically use their corporate names, not brands. "People might not even recognize it's Comcast," Hill said. "We love the city of Philadelphia," said Intermaggio. "This is our home. And we are proud of the Xfinity brand. And we are putting it out there."

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Recession brings drop in parish incomes, growth in needs WASHINGTON -- More than half of U.S. Catholic parishes surveyed in late 2010 said the nationwide financial crisis has sparked a growth in requests for financial assistance and pastoral counseling while parishes struggle with falling incomes caused by the recession. Key findings from a survey of 390 Catholic parishes, reported this month by economist Charles Zech of Villanova University in Philadelphia, included: • • • •

More than nine out of 10 parishes said they have been called to do more for parishioners because of increased unemployment in the parish. Eighty-five percent said they have faced increased requests for financial assistance. Five out of eight -- 62 percent -- said they have received more requests for emergency housing as a result of the recession. Nearly two-thirds -- 64.6 percent -- reported that the recession has caused an increase in requests for pastoral counseling.

Even while demands for financial aid and other services rose, most parishes were confronted with recession-related reduced finances. Most of the surveyed parishes said those pressures forced them to furlough employees or lay them off, impose staff salary freezes or reductions, or delay filling open staff positions. Slightly more than half the parishes surveyed said they had frozen or cut staff salaries; 21.9 percent said they had to furlough some staff or lay them off; 29.2 percent said when someone on the staff left, they delayed hiring a replacement in order to save some money on a tight budget. More than half the parishes, 55.2 percent, said the recession hurt funding for mission and charity; 52.5 percent said it had a negative impact on a building program or capital campaign; 61.8 percent said parish investment and saving income had suffered. The Great Recession of 2007-09 was the largest financial crisis facing the United States since the Great Depression of 1929. By technical definitions of an economic recession, it began around January of 2007 and ended in June or July of 2009, but the slow economic recovery since then has extended its effects in the lives of Americans and American Catholic parishes into the present day.

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The Catholic parish survey, conducted by the Center for Applied Research in the Apostolate based at Georgetown University in Washington, D.C., was part of a larger study in late 2010 by the Cooperative Congregations Studies Partnership, a multi-faith group involving researchers and faith leaders in more than 25 Christian denominations. Zech, a professor at Villanova's School of Business and founder and director of its Center for the Study of Church Management, was chief analyst of the financial component of the Catholic part of the study. A leading expert in parish finances for many years, Zech told NCR that he believed the biggest longtime loser in changing parish economics would be the focus on contributions to broader church mission and charitable activity or outreach outside the parish. "Parishes are like family businesses," he said. When they face economic hard times they delay as long as possible layoffs, furloughs, salary cuts or other actions that directly and immediately affect staff members, he said. As parishes affected by the economic downturn of recent years begin to recover financially, Zech said most will try to restore adequate staffing and bring salaries back to former levels before they return to previous levels of funding for broader areas of church mission and social and charitable outreach. Parish allocations to wider church mission and outreach programs will probably be "the last to rebound" from recent and current recession-related declines in parish income, he said. The survey's findings largely mirror a recent report by Catholic Charities USA on the efforts of diocesan charities and social services agencies across the nation, which are also trying to do more with fewer resources to meet the needs of those forced into poverty and homelessness by unemployment and other economic factors. In a report released just before Thanksgiving, CCUSA reported that in a snapshot survey of local Catholic charitable and social service agencies nationwide for the third quarter of 2011: •


"The majority of agencies reported an increase in requests for help relative to the previous quarter from the working poor (80 percent), families (66 percent), homeless (60 percent) and the middle class (59 percent)." "More than 88 percent of local agencies report that they maintained a waiting list or had to turn people away" for one or more of their assistance programs.

The CCUSA findings represent "millions of individuals living in poverty in communities across the country," said Fr. Larry Snyder, CCUSA president. "It is not enough to help these individuals survive, we must help them thrive."

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Survey: slow economy hurting churches' ability to help the poor Parishes report increasing requests for help, but less money with which to lend a hand More than 92 percent of the congregations responding to a recent survey said they had been impacted by members’ job loss and loss of income. Only slightly more than a third said their church’s finances were healthy. The Villanova School of Business and the Cooperative Congregations Studies Partnership looked at more than 2,500 oldline Protestant, Evangelical Protestant, Catholic and Orthodox congregations in their “Faith Communities Today” survey. The partnership is a multi-faith group of religious researchers and faith leaders representing over 25 faith groups. They reported their findings on Protestant churches earlier this year, reporting that oldline Protestant congregations spend close to half their budgets on salaries and benefits compared to 31 percent spent on salaries and budgets by Evangelical Protestant congregations – even though the oldline In the new study, Catholic parishes across the country were found to be more in line with the Evangelicals with about 39 percent of their budget on salaries and benefits. Of the church administrators and treasurers surveyed: 39.7 percent said their parish’s financial health was in good or excellent condition – that’s down from 42.9 percent in 2005. More than half — 56.8 percent – said their church’s income had declined during the recession. To deal with that financial decline: 21.9 percent had reduced their staff 51.8 percent had frozen or reduced staff salaries 29.2 percent had left vacant staff positions go unfilled 52.5 percent said a building program or capital campaign had been impacted 55.2 percent found their funding for missions and charitable work affected The latter was tough to deal with, parishes said, since they are being called upon to do more to help parishioners in need: 62 percent had received emergency requests from community members facing homelessness 85 percent reported increased requests for financial assistance for such things as utilities and medical bills And a whopping 92.3 percent said they had felt the economic downturn’s impact through increased unemployment among their parishioners.

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2011 VSB Media Report  
2011 VSB Media Report  

Collection of media hits for the Villanova School of Business in 2011.