JimPinto.com - Connections for Growth & Success™
No. 92 : July 23, 2002

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

  • Crony capitalists & piranha politicians
  • Automation Update
    • Invensys' sale of woe
    • JimPinto.com weblogs
  • Orwell's 1984 nightmare was reversed by technology
  • Soft Solutions for Hard Problems
  • Industrial Automation needs new technology boost
  • eFeedback:
    • Corporate Greed
    • Siemens is repeating old mistakes
    • Rockwell, Honeywell & Siemens

Crony capitalists & piranha politicians

Financial markets are fragile, built up with confidence that accumulates slowly but can quite easily be shattered suddenly. Confidence has been shaken in America, now hit by a cascade of corporate scandals that began with Enron and continuing with the collapse of all the old inequities. Ultimately, we hope that this shakeup will pay off for all of capitalism's stakeholders and for society at large.

This shaken confidence is not just about the rising tide of "restated" earnings. It is about government, business leaders and the media, cooperating to bend reality to their own selfish agendas.

The media covers outraged, the feeding frenzy of holier-than-thou piranha politicians who are demanding new rules and regulations to control the very people who have lined their pockets for years. President Bush condemns behavior that he himself had recently practiced, but refuses to discuss. Vice President Cheney maintains a stony-faced silence. Commentators wax eloquent on prime time, while nothing is really being done. And everybody knows it. Since Enron surfaced, how many CEO's and CFO's have been thrown in jail?

The drive to increase the penalties for corporate wrong-doing is political rhetoric. Corporate executives do NOT feel they have been corrupt; this is simply the way business is being done - higher and higher pay, bonuses, stock options, company limousines, corporate aircraft, yachts, expense accounts. Status as a corporate executive is measured by the plethora of personal perquisites. This is not illegal; it is simply standard procedure.

Have you seen the movie Distinguished Gentleman? Eddie Murphy plays a con man who gets elected to the Senate. A senate committee chairman helps the freshman senator with voting preferences on several key issues: "Make your own choice - if you're For you'll get money from this lobby group; and if you're Against you'll get money from that lobby group!" This would be funny, if it was not so true. Most politicians admit to getting support from corporate interests.

The stock market is like a running vote of confidence. As we write this, investors are angry, volatile, scared, and jittery. On Friday, 19 July '02, and then again on Monday, 22 July '02, all the major stock indices fell below the depths of 9/11. No one can predict where this will go.

Click Critical Theory and Capitalism

Click Forbes: Where Are The Indictments?

Click Crony Capitalism

Click Creeping Criminality

Automation update: Invensys - sale of woe

Invensys remains in the doldrums, unsettled by the trouble it is facing to find a buyer for its power transmission and conveying equipment business. This sale, which analysts reckon is worth $750m, is an important part of the Invensys $2b disposal program which was launched with promises to the banks to reduce their debt burden.

Key competitive buyers are paralyzed - either preoccupied with their own problems, or concerned by the possibility of lengthy anti-trust approvals. Private equity firms are the only realistic buyer (former CEO Allen Yurko is lurking in one of those lairs) but even they are finding it difficult to raise the necessary financing.

Analysts pointed out that it took Invensys six months to find a buyer for Flow Controls & Energy Storage, but feel that this follow-on sale will take much longer in the present climate. This leaves Invensys turning slowly in the wind.

The controversy about executive pay spread to Invensys recently, when it became known that Allen Yurko had picked up about $3.5m in cash and shares in the 10 months before his "resignation" last year, evidently aided and abetted by Chairman Lord Marshall.

There was a bit of a flap recently too, about whether or not Invensys had accounting irregularities. A strong statement was issued that there were none, and the noise subsided. One wonders if that same statement could have been issued while Yurko was still around.

Yurko's pay was about 40% more than current CEO Rick Haythornthwaite. Haythornthwaite is apparently not exiting as quickly as I had predicted. He and CFO Kathleen O'Donovan have both been issued over two million share options at exercise price of 100.35p, exercisable after 3 years. Haythornthwaite now has a total of 2.2m options; O'Donovan has 2.4m.

Invensys shares closed on Monday July 22 '02 at about 69p, which makes these options valueless. If the trend continues, Haythornthwaite may see the struggle as futile, and my prediction about his exit may still come about.

It is interesting that CFO Kathleen O'Donovan still remains; she joined from BTR with the Siebe merger. Many analysts felt she would be booted along with Yurko; but she's still there. And the pompous xenophobe Lord Marshall of Knightsbridge is also a diehard.

Pinto Prognostications:
Invensys insiders close to the top have told me that their strategy is to sell the profitable divisions and use the money to restructure and turnaround the unprofitable ones. That's about as stupid a strategy that I have ever heard in any business! In the current economic climate, it's suicidal.

Invensys will be in trouble if Siemens acquires Honeywell's process automation business, as I have recently predicted. Foxboro, and other key pieces will inevitably be sold off when the right buyer turns up.

You wanna bet?

Click Guardian UK : Invensys' Sale of woe

Click Invensys rewards Yurko for failure

Click UK Financial Times: Invensys grants CEO and CFO options

JimPinto.com weblogs

Use the JimPinto.com weblogs to read the latest 'chat' and review the breaking news on Invensys and other automation majors.

If you have any comments, updates, news or views on this, or any other topic in JimPinto.com eNews, please 'blog'.

Click JimPinto.com weblog index

Click Invensys weblog

Orwell's 1984 nightmare was reversed by widely-available technology

1984, that dreaded Orwellian year, has been swept into the past century. Orwell's novel, written in 1948, contained the prophecy that technological advancement would advance totalitarianism, with individual liberty an inevitable casualty.

Happily, technology has caused the downfall, not of freedom and democracy, but of totalitarianism itself. In the period from 1989 to 1991, the world watched as democracy and liberty spread (like a plague to Communism) first through the Soviet satellites and then into the heart of the Soviet Union itself. It is now encroaching steadily into the last bastion of Communism - China.

What went right? In the initial decades of the cold war, the totalitarianism envisioned by Orwell conquered much of the world. But then, like the Martians in H.G. Wells’s War of the Worlds, it began to die as if from a mysterious disease: information and communications.

Technology has been the most liberating force in history, benevolent because it gives access to knowledge. Information leaked, and then poured, across the walls built by totalitarianism. People learned that their "worker's paradise" was far inferior to the capitalist world outside. And the gap was growing.

The technology of liberation in China was initially the fax, used to receive foreign newspaper reports which the government could not squash. Realizing that the Internet is necessary to compete in world markets, China is spending large amounts of money to get the country wired. And cheap cell phones are invading the developing world. Now the first Wal-Mart has opened its doors in China.

Orwell’s error was simple: he assumed that only the state would be able to afford high-tech - an assumption shared by virtually every science-fiction writer and futurist. But it proved to be wrong.

As late as the 1970s, the driving force for technology in the US was the military; now Defense requirements are dwarfed by the consumer market. The military, whenever possible, now orders commercial off-the-shelf technology. Many of the GPS receivers used in Desert Storm were bought at Radio Shack. Most of us cannot even count the number of computers we own, because we don't know how many are hidden in our microwave ovens and automobiles.

Read this fascinating article from MIT Tech Review -

Click Who's afraid of 1984?

Soft Solutions for hard problems

Hard realities in a new century bring the recognition that a new society is emerging - new demographics, institutions, ideologies and problems. This is quite different from the society of just a decade ago, and different from what most people expected. Much of it is unprecedented. And more change is rapidly emerging.

America’s technology and business prowess brought the illusion of world dominance. But, low-tech terrorists have exposed our vulnerabilities. Jet-fighters and tanks seem to be powerless against individuals who sacrifice their lives to make a point. At the other end of the spectrum, governments seems to be powerless against individual selfishness and greed.

Indeed, the concurrent collapse of financial markets are bringing new recognition that many of our problems have little to do with terrorism, and more to do with our societies blind-spots.

It is clear that the problems we face are hard and cannot be solved by the old hard solutions that might have been effective in the past. New, soft solutions are needed. The coming century must become a century of soft things.

We discussed this topic in JimPinto.com eNews some months ago. Since then, I have received a lot of feedback and have had a lot of e-discussions with a lot of people. I have been working very steadily to develop more practical ideas which can emerge and crystallize as soft solutions.

The latest summary of my findings will be included as a chapter in a new book, "Viable Utopian Ideas: Shaping a Finer World" edited by Dr. Arthur Shostak, Professor of Sociology at Drexel University, Philadelphia, PA. This book will be published within the next few months; I'll let you know when it's out.

The World Future Society has published a version of these ideas on Soft Solutions on their website, with an opportunity to generate discussion and provide direct feedback. I invite your participation and involvement.

Click WFS website: Finding a softer approach for a new century

Click Soft Solutions for Hard Problems

Industrial automation needs new technology boost

The industrial automation business seems somewhat stale, waiting for mythical market resurgence. To be successful in the future, we must use the current lull to get back to basics: developing new technology, new manufacturing methods, and new market approaches for a new business environment.

For industrial automation, several new inflection points will arrive in the next decade. Here are my favorite possibilities:

  • MEMS - micro miniature sensors & actuators
  • NEMS - nanoscale electromechanical systems
  • Wireless I/O on the pervasive Internet
  • CAS - complex adaptive systems
My new article was published as Industry View on the back page of InTech magazine, July 2002.

Click InTech: New technologies will boost industry out of recession

Click Read this New-Technologies article at JimPinto.com


Bob Peterson [PETERSONRA@aol.com] wrote on corporate greed:
    "The temptation to use accountants to finagle the numbers is a huge problem. CEOs and other top execs have a big stake in the profit numbers, yet have no real oversight. Boards of directors have become staffed almost entirely with the CEO's cronies, and even so-called "outside" directors, aren't really outsiders - or they would never get nominated to the BOD in the first place.

    "Employee ownership is something you seem to feel strongly about, yet it has had an uneven record. Often the big shots get theirs and the little guys end up with very little. Even in large companies, employee ownership is no guarantee - look at UAL.

    "The most important reform would be to have shareholders crack down on the Directors. The sad fact is that so much stock is now owned by third parties (mutual funds, insurance companies, pension plans, etc.) and many of the people running these organizations are into the cronyism thing as well. When was the last time you saw even reasonable shareholder resolutions pass? Boards know that the third parties holding the vote almost always vote with management, so they are usually safe."

Dick Caro of CMC Associates [rcaro@Caro.us] wrote about Siemens culture, and their possible acquisition of Honeywell IS. We can only paraphrase some of his comments. You can read the full text of this eloquent criticism on the Siemens weblog.

Click Dick Caro on Siemens

    "While we watch, Siemens is destroying the equity they purchased at Moore Products. It hurts to watch Moore's innovation destroyed by the forced integration with Siemens technology. Moore APACS is a very innovative DCS and Safety System. If Siemens was not so full of German bravado, they would take advantage of APACS, especially the software, and just slide in PCS7 for the controller hardware. Sadly, APACS has been reduced to maintenance-only status. The story on Moore's Procidia is much the same.

    "Spanish philosopher George Santayana wrote" 'Those who forget history are doomed to repeat it.' It seems that Siemens management in the Automation and Controls Business Unit have this as their business model. I refer to the debacle when Siemens purchased the PLC division of Texas Instruments about 10 years ago. At the time, TI was the third ranking PLC supplier in the US, GE probably 4, with Siemens way behind Omron, Telemechanique and Square-D. TI was the only PLC vendor to have a significant share of the process control batch market. The result of Siemens buying TI was to make GE the No.3 PLC supplier and raise Omron to No. 4.

    "Siemens was never able to take advantage of the technology or market distribution they purchased. The same thing is happening to Moore Products as it simply becomes a local office of Siemens.

    "The US industrial automation market is unique, but Siemens management keeps trying to fit it to the German business model. Worse, they do not accept advice from those who are capable of giving it. And, they still wonder why they are not more successful in the US market. Buying Honeywell is NO ANSWER!"

A major UK solutions provider (name withheld by request) provided this feedback:
    "Concerning the news of Siemens possibly getting their hands on Honeywell IS, this is no doubt going to be interesting to see from Rockwell Automation's perspective. They have collaboration with Honeywell for the top end of their ProcessLogix offering (Honeywell Plantscape).

    "This could well (at last!) mean Rockwell use their new Supervisory Edition SCADA as a common platform SCADA for both PLX and ControlLogix (CLX) and provide a more credible and serviceable solution to the market which will compete head-on with Emmerson DeltaV and Siemens PCS7 and I'm sure position themselves ahead in the hybrid solutions market space.

    "My understanding is that Rockwells technology provided to Honeywell Plantscape is the PLX hardware. Rockwell use the Honeywell SCADA layer from Plantscape for their PLX solution - i.e. their server and applications that sit on it."

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