What Would Thomas Edison Say About GE’s Expulsion From The Dow?

In 1896, Dow Jones created an Industrial Average of the equity values of twelve corporations that dominated the American stock market. Thomas Edison’s company General Electric was one of those twelve firms.

The other eleven corporations are long gone from the Industrial Average. Some continue to operate as smaller entities. Others merged into larger firms. And others dissolved or were broken up by court order.

Only General Electric remained in the Industrial Average until, last week, S&P Dow Jones Indices decided to expel it. Apparently, GE can no longer be characterized as a dominant American corporation.

So what would Edison, the American entrepreneurial icon who founded GE, say about this downgrade? Ironically, he’d probably wonder how his firm managed to remain in the Industrial Average until now.

That’s because GE was founded by Edison by 1890 to serve as a holding company for a variety of his electricity-related business interests. A hodgepodge of lamps, motors, and other items were tossed together under the General Electric brand name.

Had Edison been alive today, he likely would’ve explained that he always expected his application product businesses to wax and wane over time. He’d then return to his New Jersey laboratory and roll up his sleeves, determined to invent the next generation of applications.

Edison understood that the capitalist process of destruction and innovation would ensure that no application product would be popular forever. He undoubtedly realized that, just as his electric lamps and motors replaced predecessor products that ran on kerosene and steam, his own inventions would eventually yield to more efficient and effective products.

In other words, Edison would’ve likely put aside the existing application products of General Electric, and would’ve turned his attention to the solar panels and wind turbines of the future. And, while doing so, he would’ve relished the opportunity to build a better company than today’s GE.

Why You Should Care About Your Mobile Phone’s Location Tracker

Are you reading this blog post on your mobile telephone? If you’re doing so, you can now feel a little more secure about carrying it with you when you leave your home.

Why? Because the four major cell phone networks have decided to stop selling customer location data to third parties. They made this choice in response to the inappropriate corporate behavior of LocationSmart, a data aggregator.

How did LocationSmart mishandle location data? Unfortunately, the four carriers didn’t release detailed information regarding its actions. Nevertheless, LocationSmart’s web site highlights its sale of geofencing services.

A geofence is a virtual sensory field that surrounds a geographic location. When someone approaches the field, his mobile phone “pings” its location to the cellular network without notifying its owner. The data can be instantly communicated to a business that occupies the location, or packaged and then sold to third parties.

A relatively benign service might involve the text messaging of a price discount offer to a mobile phone in order to entice its owner to enter a store within the geofence. A potentially malignant service, though, might involve the compilation and sale of detailed personal profiles of cell phone owners.

The malignancy of a profiling service need not be intentional on the part of the data aggregator. Consider, for instance, the plight of an individual who frequently visits a grocer or restaurant that has recently opened in a building that also houses a cigar shop. A health insurer that purchases the data may (erroneously) flag the individual as a cigar smoker. The individual may never become aware of the sale of his location data, or of his health insurance classification.

The recent decision of the four cell phone networks removes one path to such an outcome. But if individuals continue to download and install applications without reading the fine print in their Terms and Conditions, they may provide data aggregators with new paths to the same undesirable outcome.

Can We Rely On Coca-Cola’s Water Use Disclosures?

Have you read the recent investigative news story regarding Coca-Cola’s water use? Apparently, the firm has been reporting data in an incomplete (and potentially misleading) manner.

The news story focused on the company’s claim that “For every drop (of water) we use, we give one back.” Why the concern? Because, even though clean water has become a scarce and precious resource around the world, Coca-Cola utilizes massive amounts of the liquid to produce its eponymous product.

The company claims that its water conservation efforts fully replace the volume of liquid that it draws out of the natural environment. But the investigative reporter revealed that the company “… does not count water in its supply chain — including the water-guzzling sugar crop — in its ‘every drop’ math.”

The reporter also noted that a company researcher once revealed that he was pressured to “ … adopt a ‘net green’ accounting method that would have lowered the water footprint of its agricultural supply chain.”

Huh? A “net green” accounting method? Any Certified Public Accountant or Chartered Accountant can confirm that no such method is defined by Generally Accepted Accounting Principles or International Accounting Standards. Coca-Cola concocted it to serve its needs.

Interestingly, the investigative reporter failed to note that Coca-Cola arranges for the Big Four global accounting firm Ernst & Young LLP (EY) to attest to the accuracy of its Water Replenish and Water Use Ratio metrics. The statistic is one of seven sustainability measurements that are assessed by the external accountants.

Sadly, industry critics will likely refer to this situation as an illustration that “corporate sustainability reporting (is) a great waste of time.” But even though it’s possible to regard the Coca-Cola brouhaha as an exemplar of misleading reporting practices, it’s important to keep in mind that — as a result of the company’s disclosures — its water use practices can now be scrutinized by external parties who care deeply about the environment.

Forget Pitching, Hitting, and Fielding! The New York Mets’ Most Glaring Area Of Weakness May Be Statistics

It’s difficult to believe that Major League Baseball’s New York Mets won 11 of their first 12 games this season. Earlier today, the Chicago Cubs completed a four game sweep of the club, continuing a stretch in which the Mets have lost 29 of 45 games.

During this woeful period, fans have witnessed displays of poor pitching, hitting, and fielding skills. And to make matters worse, earlier this week, they witnessed a managerial display of poor statistical skills.

At a critical moment in a game against the Milwaukee Brewers, Mets Manager Mickey Callaway removed an effective pitcher and replaced him with an ineffective one. The change enabled the Brewers to score four runs and convert a two run New York lead into a two run Milwaukee surplus.

So why did Callaway bring in Jerry Blevins to replace Robert Gsellman? Given that Blevins has struggled all season, while Gsellman has delivered periods of clutch pitching? Callaway explained:

The seven times [the Brewers batter] faced Gsellman he got three hits. He’s never gotten a hit (0-for-2 with a walk) off Blevins. The overall numbers suggest Blevins has a much greater chance to get the hitter out and you have to go with those. It is part of managing the game today.

At first glance, it does seem reasonable to bring in a pitcher who has experienced success against a batter. But “0 for 2 with a walk” means that the pitcher had only faced the batter three times in his entire career!

That isn’t even close to a statistically meaningful number of past attempts. Callaway himself acknowledged the “small sample size” that he relied upon to make his decision.

In all fairness, there is no single numerical minimum of observations that must be considered when making a statistically valid decision. The minimum number varies by one’s willingness, in any particular situation, to tolerate risk and uncertainty.

And yet no mathematician would agree that a counter-intuitive baseball decision could be made on the basis of three prior outcomes. Thus, the Mets can now add Statistical Analysis to their List of Necessary Improvements.

Water Use Reporting At Coca-Cola

The Verge, one of the online platforms of Vox Media, published an investigative story last week about the sustainability accounting practices of Coca-Cola. It raised a number of questions about the manner in which the firm reports on its water use in the production of its signature product.

For instance, the article noted that:

Coca-Cola claims that for every drop the company uses, it gives one back. But “every drop” includes only what goes into the bottle. The company does not count water in its supply chain — including the water-guzzling sugar crop — in its “every drop” math.

During the first two weeks of June, we are utilizing our Save The Blue Frog web site and case to support an intensive accounting course at Providence College in Providence, Rhode Island, USA. It is the capstone course for the graduate accounting program, entitled Strategic Management in a Global Business Environment.

Thus, for our course, the investigative story provides a well-timed example of the need to utilize standard industry metrics for the reporting of environmental, economic, and social outcomes. The capstone course is emphasizing the standards, frameworks, and metrics of the Global Reporting Initiative, the International Integrated Reporting Council, the Sustainability Accounting Standards Board, and the United Nations in its curriculum.

Many thanks to Barbara Sullivan-Watts, a Special Lecturer at Providence College who is teaching Environmental Biology at the institution, for bringing the Coca-Cola article to our attention.

Rockaway Beach Provides A Sad Example Of The Integrated Nature Of The Triple Bottom Line

Are you familiar with the Triple Bottom Line? First defined by John Elkington more than two decades ago, it refers to the principle that an organization should measure its social performance and environmental performance, and not solely its financial (or economic) performance. It is occasionally known as the Three P’s of performance, i.e. People, Planet, Profit.

But the principle can also be interpreted in a more complex manner. Each of these three performance factors impacts the others. Thus, the “bottom lines” of these factors should be reported in an integrated manner.

Last week, the City of New York sadly announced a community restriction that illustrates the integrated nature of the Triple Bottom Line. Due to the hurricanes and rising tides of climate change, severe sand erosion on the city’s southeastern peninsula has led to the closing of a prime strip of sandy beach in the Rockaways.

The decision occurred after local tourist businesses opened for the season. Residents, of course, have already begun to protest their government leaders’ decision.

In this situation, an environmental crisis has led to a social and economic catastrophe for a working neighborhood that relies on its primary community resource — i.e. its summer beach — for its survival.

The residents of the Rockaways will gladly attest to the integrative nature of the Triple Bottom Line. Hopefully, the municipal leaders of your own town will learn from the current travails of their New York City colleagues.

Sustainability and Integrated Reporting

Are you worried about the future of the Sustainability Movement? Fear not! Our accountants are endeavoring to save the planet.

It may be reasonable to feel a little dubious about that statement. Nevertheless, author Jane Gleeson-White has written a best-selling book entitled Six Capitals: The Revolution Capitalism Has to Have — or Can Accountants Save the Planet?

She does not definitively answer that question in her text. However, she does explain that our accountants have many impressive allies who aren’t ordinarily associated with their profession.

For instance, HRH Charles, The Prince of Wales, is playing a key leadership role through The Prince’s Accounting for Sustainability Project. Gleeson-White credits the Prince for being a major impetus behind the global adoption of the Six Capitals model.

For the next two weeks, we will utilize our Save The Blue Frog web site and case to support an intensive accounting course at Providence College in Providence, Rhode Island, USA. It is the capstone course for the graduate accounting program, entitled Strategic Management in a Global Business Environment.

As the final course that students complete before graduation, the curriculum emphasizes the need to analyze global business problems in an integrated manner, and to recommend solutions in a persuasive context. May we agree that there is no better topic for achieving these goals than Sustainability?

You are welcome to use this link to review our materials. As always, we continue to welcome your comments, suggestions, and feedback.

Farewell, James Marion Sims … And Hello, Kim Jong-un

When is it appropriate for us to engage in a public commemoration? Most would consider doing so when the honoree is a person, an event, or an idea that makes a permanent impact on society.

For instance, the Lincoln Memorial in Washington DC memorializes a suitable person. Local towns’ fireworks displays on Independence Day are worthy events. And the Statue of Liberty, in New York Harbor, is an exemplar of an appropriate idea.

But there are times when the progression of history modifies our perceptions about people, places, and ideas. When that occurs, permanent commemorations may become socially awkward, and may even be removed from view.

Consider, for example, last month’s decision by the City of New York to remove a statue of Dr. James Marion Sims from Central Park. The physician had been memorialized as the father of modern gynecology.

But there was a dark side to his fame. Prior to the American Civil War, Dr. Sims perfected his surgical skills by experimenting on human slaves without using anesthesia. In response to public protests, government officials in New York City decided to move the statue to his gravesite, and to present it in historical context there.

When the statue was first erected in the 1890s, Dr. Sims’ honorees could not anticipate the day when public opinion turned against his legacy. In other situations, though, the obsolescence of a commemoration is relatively foreseeable.

For instance, consider the commemorative coin that the White House of the United States recently issued in advance of a scheduled meeting between the American President Donald Trump and the North Korean leader Kim Jong-un. It portrays the two men in a head-to-head pose, and even refers to the latter as Supreme Leader.

Some commemorations, like the Sims statue, survive for more than a century. But the memorial coin immediately became a relic as soon as President Trump cancelled the meeting.

From large statues to small coins, our memorials are designed to remain in place forever. Nevertheless, their continuing presence is subject to changes in public opinion and the tides of history.

If Corporations Are People, Why Can’t Monkeys Be People?

It’s the Memorial Day weekend! As always, the holiday launches the summer vacation season in the United States.

It also marks the start of a heavy traffic period throughout America’s national park system. Throngs of citizens will drive their vehicles into forests, beaches, and other natural venues to enjoy the natural environment. And park rangers will struggle to protect the natural creatures from the massive invasive impact of tourists who come to visit them.

Earlier this year, People for the Ethical Treatment of Animals (PETA) explored an innovative legal strategy to protect one such creature. It sued in an American court to protect the rights of a macaque (i.e. a monkey) named Naruto to own his own image.

Why was that approach so innovative? PETA claimed that Naruto possesses rights that are normally attributable to humans. It then proposed to appoint itself to serve as the “Next Friend,” or legal guardian, of the animal.

PETA lost the legal case. But might it consider filing an appeal? After all, non-human entities have been granted various human rights in the United States.

No less a figure than Presidential Candidate Mitt Romney, for instance, once created quite a stir by addressing the question of non-human rights. His declaration that “corporations are people, my friend,” was enthusiastically supported by his political allies and roundly denounced by his foes.

But if a legal business structure can be granted certain human rights, why not an intelligent animal? After all, humans and monkeys are both natural entities that are born of the Earth. We can hardly say as much about corporations!

This might be worth pondering as you enjoy the Great Outdoors during your Memorial Day travels. If you disrespect Mother Nature, its “Next Friend” may sue you!

Campbell Soup Failed To Attract Healthy Consumers. Was Its Strategy Doomed From The Start?

Denise Morrison, the Chief Executive Officer of the Campbell Soup Company, suddenly and unexpectedly resigned yesterday. Why did she do it?

Some analysts believe that she was compelled to resign because she failed to turn around a brand that is stale with age. Campbell’s was founded in 1869, and its canned products gained universal fame in a 1962 painting by pop artist Andy Warhol.

But our perception of Campbell’s hasn’t modernized in the half-century after Warhol created his signature work. Although Morrison and others made many attempts to update its product line and introduce healthier complementary products, consumers continue to associate the Campbell’s brand with sodium-packed cans of soup.

That’s why Morrison lost her position. But was she truly to blame?

On the one hand, the contemporary consumer is undoubtedly demanding healthier foods and beverages. A persuasive argument could certainly be made in favor of improving the health content of Campbell’s product line.

But on the other hand, let’s try to identify other firms that have successfully implemented this strategy. How many purveyors of unhealthy goods have transformed their product lines into healthy ones? Has McDonald’s, for instance, truly succeeded with its offerings of salads? What of its ill-fated McLean Deluxe sandwich?

Alternative examples abound of such purveyors “doubling down” on the unhealthy pleasures of their product lines. Burger King, for instance, unapologetically sells a Rodeo King sandwich that contains 82 grams of fat, 2,270 milligrams of sodium, and 1,250 total calories. Yes, you can order a large side of fries with that!

Likewise, it’s hard to imagine that many consumers would be attracted to a healthy version of a deep-fried Twinkie. Even if a small niche of customers were to demand such a product, they might not trust Hostess Brands to create it.

So let’s be fair to Denise Morrison. It’s easy to blame her for failing to execute Campbell’s transformation into a healthy foods brand. But it’s possible that this strategy, adopted by Campbell’s Board of Directors, was doomed to fail from the start.

Perhaps, in contrast, Campbell’s should have embraced the authentic and unalterable image that it has earned over many decades of canned soup production. And perhaps, like Burger King, it will only find future success by being true to its image.