Schumpeter

Jonathan Macey of Yale Law School explains why the Dodd-Frank bill might not have prevented the financial crisis, but will create jobs for regulators and lawyers

FEW brands are as loved in China as Apple, and few business leaders worshipped as much as the late Steve Jobs, Apple’s longtime boss. In time, the booming Chinese market is likely to become the company’s biggest and possibly its most profitable. And yet Apple, whose shares touched $500 apiece this week, appears to be doing everything wrong in the country.

Three things have called into question its strategy. Last month, the firm had to delay the launch of the latest iPhone after chaos broke out among the throngs who had queued overnight for the gizmo. The firm, it seems, had not prepared adequate security and logistics. Then fresh allegations of poor working conditions surfaced at Foxconn, the Taiwanese contract manufacturer that makes Apple’s devices. This caught Tim Cook, the firm’s new boss, on the back foot. But it should not have; he was, after all, its penny-pinching head of operations for many years before taking on the top job.

Now comes the astonishing news that exports of iPads may, just possibly, be halted from China. Proview Technology, a Chinese firm based in Shenzhen, has for some time claimed that it holds the mainland trademark for “iPad”. Apple, through intermediaries, had paid Proview’s sister company, based in Taiwan, for what it thought were global rights to the name. But a court in Shenzhen has already ruled against Apple on the matter, and another court in Shanghai is due to hear Proview’s challenge on February 22nd. Apple hotly contests the claims made by Proview, and is appealing the ruling and actively contesting other court cases on the matter. Much hangs in the balance.

Continue reading "End of the iPad?"»

AMERICA'S Food and Drug Administration (FDA) announced late on February 14th that 19 medical practices had bought counterfeit Avastin, a popular cancer drug. The doctors and hospitals bought the bum drug from a foreign supplier, Quality Specialty Products. 

As such scares go, this one could have been worse. Avastin, marketed in America by Genentech, is an injected drug available only in hospitals and doctors’ offices. Presumably health professionals will spot rogue bottles more quickly than the average consumer would have. So far there have been no reports of dangerous reactions, unlike some past incidents—in 2008 a sham bloodthinner made in China killed several Americans and sickened many more. 

But the news is alarming nonetheless. It is another reminder of how vulnerable the drug supply-chain remains. About 80% of ingredients for drugs bought in America are made elsewhere. Imports of drugs have grown by nearly 13% a year. Regulators have done their best to keep up. The FDA has opened a series of offices abroad; inspections of foreign factories increased by 27% from 2007 to 2009. It is trying to foster collaboration with foreign regulators—apparently Britain’s Medicines and Healthcare Products Regulatory Agency alerted the FDA to the counterfeit Avastin. More changes are on the way. Generic drug companies have agreed to pay the FDA a fee to increase foreign inspections, a deal that must still be approved by Congress. The FDA is also asking the government for more money to expand its operations in China. But change, as the recent fiasco proves, is not coming fast enough.

Digging deeper into Barack Obama's 2013 budget and the latest news on Greece and the euro crisis

“IF YOUR minicab’s not booked, it’s just a stranger’s car.” So reads a poster plastered across London’s tube stations and bus stops, part of campaign to encourage Londoners to avoid unlicensed taxis and minicabs. London’s taxis (“black cabs”) are among the most expensive in the world. Minicabs, which are not allowed to pick up customers off the street and must be booked in advance, are somewhat cheaper: they operate in a more competitive market and require less of the drivers. (They do not, for example, need to memorise London’s street map (called “the knowledge”)—and can instead rely on GPS.)

Continue reading "No knowledge needed "»

NO COMPANY likes being lumped with an extra cost. Airlines were therefore cheered by reports on February 6th that China had provisionally barred its airlines from complying with a European law to impose one, by including all flights into and out of the EU in its main provision for curbing greenhouse gases, the emissions-trading scheme (ETS). But the airlines’ joy may be short-lived. Whether or not China imposes a ban—a grave step, which might even instigate a global trade war—the row is already hastening efforts to make the world’s airlines pay for their pollution.

That is overdue. In global terms, airlines’ emissions are modest, about 3% of the total. Yet they are rising fast: between 2005 and 2010 they grew by 11.2%, according to data released this week. And until the EU’s intervention, all airlines were free to pollute as they pleased. This represents a dismal failure by the UN’s International Civil Aviation Organisation (ICAO) which was charged with fixing the problem.

Continue reading "Not free to fly"»

A MONTH ago, Konrad Hummler, managing partner of Wegelin & Co, the oldest Swiss private bank, said it was unlikely that an American court would charge his bank with tax fraud. Three of his employees, who managed accounts for American clients, had just been so charged. But indicting the bank itself would have “a destabilising effect” on the entire system, he argued.

The Southern District Court of New York clearly did not care. On February 2^nd it filed its indictment against Wegelin, for conspiracy to defraud the United States by concealing undeclared accounts from the Internal Revenue Service (IRS). Mr Hummler probably saw the writing on the wall: the week before, he sold the bulk of the bank to Raiffeisen, a Swiss mutual bank, but retained Wegelin’s American business and—according to the deal—any legal risk.

That makes Wegelin, founded in 1741, a shadow of its former self. But the little bank based in St Gallen is a mere pawn in a much bigger game being played between Switzerland and America over banking secrecy and tax fraud.

Since UBS, Switzerland’s biggest bank, paid a $780m fine in February 2009 and handed more than 4,400 names of clients to the American authorities, the country has been trying to negotiate a “global deal”. It would include a one-time cash payment (the sum being talked about ranges from $2 billion to $10 billion) and get the Department of Justice (DoJ), the IRS and the American courts off Switzerland’s back.

In the course of this negotiation several Swiss banks, in a target list of eleven, have delivered data about their American clients to Finma, the Swiss financial watchdog. Some of the information has been passed to the American authorities, but with the clients’ names blacked out.

The big issue for the Swiss is whether they can preserve their hallowed bank secrecy while complying with some of the American demands. Some say that the Swiss are on a hiding to nothing, because the DoJ, the IRS and the American courts will go on hounding Swiss banks and banking authorities until they reveal actual names. Others argue more antagonistically that these banks have not broken any Swiss law, since tax avoidance is not a criminal offence. And they may not even have broken any law in America either, since holding undeclared money is not itself an offence there.

Mr Hummler has made it clear that he shares the second view. The Neue Zürcher Zeitung, of whose board he happens to be president, seems to sympathise: “Politicians look on, while just a threat from US prosecutors puts an end to the oldest Swiss bank, without establishing any breach of the law,” thundered an editorial.

But the Southern District Court’s indictment makes colourful reading, even if the guns described in it may not be of the smoking kind. One Wegelin employee is said to have shuffled €16,000 cash between two clients sitting separately in the same Manhattan restaurant. And a client on a safari in Africa apparently sent a cryptic message to get his holiday paid from a Wegelin bank account.

“There will be more Wegelins,” predicts an experienced Swiss banker.

IN MINING circles it has been widely assumed that the age of mega-mergers that built mining titans such as BHP Billiton and Rio Tinto is over. Except of course, as everyone agreed, the inevitable big deal between Glencore and Xstrata. Ivan Glasenberg, Glencore’s prickly boss, has long talked about Xstrata as if the tie-up had already taken place. On February 2nd it seemed that he was close to getting what he wanted. Xstrata admitted that it was in talks with Glencore about an all-share merger of equals.

Continue reading "Merger of equals"»

ARISE, Mr Goodwin. Britain’s honours forfeiture committee has ruled that Sir Fred, as he was once, should be stripped of his knighthood after his tenure as chief executive of the Royal Bank of Scotland ended ignominiously with a huge bank bail-out. Mr Goodwin joins a list of ex-Sirs whose members include Anthony Blunt, a Soviet spy, and Robert Mugabe, the president of Zimbabwe.

If you think that is over the top, you’d be right. Galling as it is to imagine Mr Goodwin insisting on being called Sir Fred at his local corner shop, or offering his hand to be kissed at the bus stop, no power flowed from his title. Shame is an important sanction when very well-paid people screw up, but Mr Goodwin’s reputation was already in the gutter, following the bank’s failure and a nasty, public row over his pension entitlement. Knighthood or not, he was not about to walk back into public life.

True, Mr Goodwin had an abrasive management style that made him the dominant figure at RBS when it decided to lead a consortium bidding to acquire ABN AMRO, a Dutch bank. But if he was really that out of control then why not go the whole hog and strip Sir Tom McKillop, the RBS chairman and Mr Goodwin’s boss at the time, of his knighthood, too? More pertinently, poor decision-making was hardly confined to RBS. The battle for ABN began when Barclays announced it would merge with the lender: if ABN had not sunk one British bank, it would have torpedoed another.

News of the forfeiture committee’s verdict comes days after a row involving Mr Goodwin’s successor at RBS, Stephen Hester, who this weekend waived his entitlement to a controversial share award. The differences between the two men are obvious: one deeply culpable for RBS’s fall, the other trying to mastermind its revival. But both stories have lazily focused important debates about the governance of banks, and the compensation of bankers, on to specific individuals. Mr Goodwin was not uniquely reckless; Mr Hester is not exceptionally well-paid compared with his peers. Turning the likes of Sir Fred into pantomime villains lets the industry off the hook.

(Image credit: AFP)

David Einhorn, the boss of Greenlight Capital (pictured), a large American hedge fund, is usually the one to point out the errors in others’ ways. He has been a vocal critic of companies, such as Lehman Brothers, which he shorted before its collapse in September 2008. But yesterday Mr Einhorn was the one facing scrutiny. He and his firm were fined £7.2m ($11.3m) by Britain’s Financial Services Authority (FSA) for trading on inside information relating to an equity offering for Punch Taverns, the largest pub and bar operator in the United Kingdom.

Continue reading "Red light for Greenlight"»

“THERE comes a time in the growth of every successful company when the founders recognise the need to pass the baton to new leadership.” So said Mike Lazaridis, the creator of Research in Motion (RIM), in a press release on January 22nd that announced changes at the top of the company that makes the BlackBerry. Among other things, Mr Lazaridis and Jim Balsillie will step down from their positions as co-chief executives of the Canadian firm, handing the reins to Thorsten Heins, one of its co-chief operating officers. Messrs Lazaridis and Balsillie will also relinquish their roles as co-chairmen of RIM’s board. Instead, it will be headed by Barbara Stymiest, a former bigwig in Canadian finance.

Some of RIM's shareholders may wish that the baton had been passed on a long time ago. The firm’s smartphones are still sold in large numbers, but RIM is being battered by competition from Apple's iPhone and devices that use Google’s Android operating system. In the firm’s fiscal third quarter, which finished in November 2011, it made a net profit of $265m compared with $911m in the same period of 2010. The share price has fallen by more than 70% in the past year.

Continue reading "Boardroom in motion"»