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
  • eFeedback:
    • 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 latest charade.

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 expensive lifestyles.

Click Executives Scramble to Comply as Regulators Puzzle Over What to Do About Laggards

Click SEC deadline: Yawns, blowups

Click 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.

    Kevin Gilligan
    President and CEO
    Automation and Control Solutions

Pinto’s Points:

  1. 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.
  2. An industry observer provided the following possible scenarios:
    1. 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.
    2. 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.
    3. Jim Pinto scared off Sutter with his challenge to duel at the OK Corral.
  3. 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.
  4. 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.
  5. 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.
Stay tuned.....

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 human situation.

Click Scientific American: Human Demand Exceeds Earth's Sustainable Supply

Click 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.

Click 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.

Click 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 prevent casualties.

Click 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.

Click 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.

Click 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 obstacles.

Click 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:

  • 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

Click Links to ISA archives InTech Pinto Points


Responding to my comments about stock options, my neighbor Wade Lovell [success@ceoathome.com] wrote:
    "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.

    "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."

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 reactions:
    "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.

    "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 from you!"

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 '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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