JimPinto.com - Connections for Growth & Success
No. 95 : August 15, 2002
Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.
- Lifestyles of the rich & failed
- Automation Update: Honeywell IS Chief Terry Sutter quits
- Technology extends Earth's supply of resources
- More on robots
- ISA InTech eNews - weekly Pinto's Points
- An investor comments on stock options
- A good Salesman comments on "Never be the lowest bidder"
- Invensys "March madness"
Lifestyles of the rich & failed
The loss of net-worth in the recent stock-slide is rippling back
to affect everyone. The average household net-worth in the US has
dropped by nearly 25% - a stunning statistic. A fumbling congress
and administration attempt to bolster investor confidence. Curiously,
Dick Cheney remains mysteriously mum on his own golden handshakes
and we still have not seen any Enron "perp-walks". On Monday,
President Bush took time out from his vacation to attend a major
economic summit, saying that he had "tremendous confidence" in
the economy. The stock market dropped in response.
You've probably seen the TV show "Lifestyles of the Rich & Famous".
The stories of luxury yachts and palatial mansions flaunted by
executives who committed corporate accounting fraud has brought
suggestions for a new TV series: "Lifestyles of the Rich & Failed".
This week (Wed. 14 Aug. 02) CEOs and CFOs of major companies
(initially 947 companies with sales over $1.2b, list since expanded)
must comply with the SEC order to sign sworn statements that the
accounting in their company is correct. So, now in order to get a
few bad eggs, the good, the bad and the really ugly are all subject
to the same tedious requirements: doing extra due diligence to make
sure books are squeaky clean. Now not only can a CEO go to jail for
cooking the books, his signature alone may send him to jail if one
of his employees cooked the books under his watch.
What will be the penalty for those who refuse to sign? The answer
is confusing - there was no penalty written into the law for failing
to submit a certification. It will be interesting to see how CEOs
and CFOs, the innocent and the guilty, will participate in this
In the meantime, while several major companies (GE, GM, Coca-Cola)
acquiesced to outcry that stock options should be expensed, several
technology companies (notably Microsoft, Intel and Cisco) have
rightfully refused to bend. Recognizing that employee stock options
are a major motivator, especially in tech-companies, they insist
that they will simply make more information available to investors
about the impact of stock-option programs.
This uncomfortable period of post-Enronitis is still playing out,
as have similar scandals in the past (the SEC was formed in response
to the market-crash of 1929). Inevitably increased scrutiny will
cause process improvements that will benefit the system. It will
make it more difficult for the "rich & failed" to keep their
Executives Scramble to Comply as Regulators Puzzle Over What to Do About Laggards
SEC deadline: Yawns, blowups
Intel, Cisco Fight Options Expense
Automation update: Honeywell - Terry Sutter quits
After the recent brouhaha about Honeywell being in discussions with
Siemens about sale of Industry Solutions, Terry Sutter, President
of Honeywell IS issued the "standard strong denial" memo to all
IS employees (date 27 June 02).
On Wednesday 7 Aug. 02, this surprise announcement came from Kevin
Gilligan, President of Honeywell ACS. (Extract here)
To: All Industry Solutions employees worldwide:
Terry Sutter has decided to leave Honeywell to join another publicly
traded company. The company Terry is joining will announce his new
position soon, which is why we are not providing additional
information about Terry's future plans.
Terry has provided outstanding leadership (blah, blah, blah - usual
empty praise for the outgoing).
I know that you've seen many changes in the leadership of this
business over the past few years, which has created uncertainty and
anxiety. We expect to fill this position from within Honeywell by
the end of August, which is when Terry will leave.
Thanks for your support as we make this transition.
President and CEO
Automation and Control Solutions
- JimPinto.com eNews just recently commented that Terry Sutter's
denial memo had the same wording as that of his predecessor (John
Weber) just prior to the news that Honeywell was being bought by
United Technologies (and then GE). We suggested that perhaps
negotiations were going on at a higher level, subject to
non-disclosure. We invited Terry Sutter, or Kevin Gilligan
(Sutter's boss), or David Cote (Honeywell CEO) to comment directly.
They did not. Then Sutter quit.
- An industry observer provided the following possible scenarios:
- The Siemens talks are still going on, and Sutter doesn't fit
into the plan. This is somewhat like Markos Tambakeras
(previous Honeywell IAC(IS) President) who departed before
the Allied Honeywell merger.
- The performance of Sutter's group is shaky and Kevin Gilligan
is using Sutter to save his own posterior. Gilligan recently
fired the Service President as well.
- Jim Pinto scared off Sutter with his challenge to duel at the OK Corral.
- Kevin Gilligan is over his head and kissing up to David Cote who
promoted him to his current position at ACS, the Group that includes
all Honeywell "red" - industrial and home & building automation.
Gilligan has lost a LOT Of key managers recently, all dissatisfied
with the current state of affairs.
- No one has announced yet where Terry Sutter is going. Perhaps
it's a secret because it is still up in the air. The all-seeing Yahoo
bulletin board mentions that Sutter is going to Cytec Industries,
a NJ-based company that is involved with specialty materials and
industrial process chemicals in the markets for water treatment,
paper, aerospace, recycling, plastics, and automotive products.
Cytec is a public company, NY stock exchange listed, sales $1.3b,
market-cap $1b. The current Chairman, President and CEO David Lilley
(age 55) seems well ensconced in his position. So, if Sutter is going
to Cytec, he is probably just a Division chief. He's not exiting to
land a juicy job, as suggested.
- Is the Siemens/Honeywell deal still on? Terry Sutter's sudden
departure might indicate that he was upset at being left out of the
loop. In my view, the deal is still being negotiated at a high level,
and stuck on price and terms. Siemens is very interested to acquire
Honeywell IS. If they don't get it, then their next play will be to
buy Foxboro from ailing Invensys.
Technology extends Earth's supply of resources
The global population exhausts a supply of natural resources
equivalent to that produced by 1.2 earths each year, eroding
nature's ability to regenerate. People have been taking more from
the planet than it can consistently restock, and have cumulatively
produced so much waste that complete re-assimilation is impossible.
This era of unbounded exploitation may soon be forced to a screeching
halt, according to a recent study published in the Proceedings
of the National Academy of Science.
This pessimism dates back to 1798, when Thomas Malthus wrote his
"Essay on the Principle of Population". His theses: population, when
unchecked, increases exponentially while resources grow linearly.
The dreadful conclusion was that disease and famine were not only
inevitable, but that they served an essential function in reducing
population. This bleak outlook gave economics its famous nickname:
"The Dismal Science".
However, technology provides a more optimistic view. There will be 10
billion people on Earth by 2100 and all of them can live comfortably
if advances in energy-saving technology continue. "Rosenfeld's Law"
of population dynamics suggests that the world will move towards a
happier conclusion than Malthus predicted.
Arthur Rosenfeld is a former physics professor at UC Berkeley,
former senior advisor to the Dept. of Energy and currently a
California energy commissioner. In a study of the history of energy
use, Rosenfeld discovered that from 1845 to the present, the amount
of energy required to produce the same GNP has decreased steadily at
about 1% per year. This is not quite as spectacular as Moore’s Law -
doubling of computer power every 18 months - but it has been tested
over a longer period of time. 1% per year yields a factor of 2.7 when
compounded over 100 years. It took 56 BTUs (59,000 joules) of energy
consumption to produce one (1992) dollar of GNP in 1845. By 1998, the
same dollar required only 12.5 BTUs (13,200 joules).
The pessimists who use extrapolations to predict doom do not take
into account the amazing ability of technology to improve the
Scientific American: Human Demand Exceeds Earth's Sustainable Supply
The Conservation Bomb
More on robots
A lot of people were interested in my commentary on robots.
Here are some more interesting robot developments:
With their Distributed Robotics Program, DARPA (the US Defense
Advanced Research Project Agency) is seeking to develop revolutionary
approaches to extremely small robots, re-configurable robots, systems
of robots, biologically-inspired designs, innovative methods of robot
control including innovative interfaces, and methods of implementing
pooled capabilities and/or layered intelligence.
DARPA Distributed Robotics program
DARPA is putting up $1m for the "Grand Challenge", planned for 2004:
self-contained robots must deal with roads and rugged terrain, to
travel from Los Angeles to Las Vegas without human intervention.
DARPA to fund all-terrain robot race
The war in Afghanistan is the first time robots are being used by the
US military as tools for combat. Proponents believe that sending them
into caves, buildings or other dark areas ahead of troops will help
US Tests Robots in Afghanistan
At UC Berkeley, a tiny robot called Micromechanical Flying Insect
has wings that flap with a rhythm and precision matched only by
natural equivalents. The goal is to develop tiny, nimble devices
that can, for example, surreptitiously spy on enemy troops, explore
the surface of Mars or safely monitor dangerous chemical spills.
Future of Spying: Tiny Flying Bots
A six-foot autonomous robot was the star of the recent annual meeting
of the American Association for Artificial Intelligence in Canada.
The robot, called Grace, performed well in the "Robot Challenge"
event: start at the entrance to the conference center, take the
elevator to the registration desk, register for the conference and
then deliver a speech in the auditorium.
NY Times - Charmed by Six Feet of Circuitry
Technology guru Dick Morley [MDmrly@cs.com] sent me this interesting
item on a walking robot for harvesting forests. Moving on six
articulated legs, the harvester advances forward and backward,
sideways and diagonally. It can also turn in place and step over
PlusTech: Forest walking machine
ISA InTech eNews - weekly Pinto's Points
InTech, the ISA magazine, publishes a regular (weekly) eNews, which
includes a link to a brief Pinto Point. Each point is an item that I
think will stimulate your thinking - technical trends, market musings,
sales solutions, and business briefs.
Here are some of the recent topics:
Links to ISA archives InTech Pinto Points
- Search-engines - looking for Google's successor
- The future of paper
- PC circa-2010 - and what next?
- Erasing language barriers
- Fusion of human and machine
- Electronic signatures coming of age
- NEMS making the scene - fast-expanding markets for MEMS
- Patterns of Decline? Look outside for answers
- Emerging Wireless Technologies
- Untangling software code
- The wireless car of the future
- The Silicon Car
Responding to my comments about stock options, my neighbor Wade Lovell
"Accounting for the marked to market value of stock options as an
expense does not in any way diminish the value of stock options as a
compensation tool. It may be good PR but it also eliminates the
fiction of high earnings when huge salary expenses are being disguised
off the books because of bogus accounting rules for stock options.
A lot of people read and appreciated the spirit of my article :
"Never, never be the lowest bidder!" Bernie Quinn
[Bernard.Quinn@EmersonProcess.com] summarizes some practical
"As an investor I am interested in appropriate management incentives
with a direct relationship to actual and sustainable results.
I am an outspoken opponent of off balance sheet accounting in its
many disguises. I'm interested simply in fair and accurate reporting
of earnings and expenses.
"Accounting properly for stock options is not just a PR move. It is
among many measures that need to be taken to allow savvy investors to
translate reported assets, liabilities and equity, income and cash
flow into meaningful information about the investment opportunity
each company's stock represents."
"I enjoyed your article but felt that I had to take issue with you
- at least in part. Everything you say in your message is perfectly
valid - as long as you are dealing directly with the end-user. They
will listen to the FABs (Features, Advantages, Benefits) life-cycle
calculations, etc. and appreciate the cost savings and peace of mind.
A long-time Foxboro employee had complained (eNews July 30, 02)
about sales numbers being padded during the Yurko regime. Here
another employee (name withheld) reports from manufacturing:
"The problems arise when the client is not also the customer (the one
who purchases the goods, as opposed to the end-user). For example, in
the Oil & Gas industry, 90% of all decent-sized contracts go through
Major Contractors (Architects & Engineers) who have turnkey contracts.
Their emphasis is "meet the spec."! Unless one has previously
persuaded the end-user to go single-source, the Contractor's
purchasing people will shoehorn at least 3 vendors into
spec-compliance. Then they select the cheapest.
"This brings me to my favorite aphorism: You cannot SELL to
Contractors or Purchasing Agents; you must make them want to BUY
"The 'unnamed employee' who mentioned padding the sales figures
at Foxboro Environmental touched upon a general practice used in
manufacturing as well. Not only are the sales figures 'cooked',
but also the production figures.
"The Foxboro fiscal year begins with April 1 (how appropriate).
With the coming of Yurko & Siebe and continuing thereafter, the
month before the fiscal year close became known as 'March Madness'.
The factory works overtime to produce material to the point where
expedited orders and development prototyping are impossible to
schedule. There is always speculation among employees as to where
some of the material is shipped, which customers are invoiced and
where some of that RMA material returned to the factory comes from
around the second or third week of April.
"Mention 'March Madness' to any Foxboro employee and you get
a deep chuckle in return.
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