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Apropos of your cover story on dying industries ("The Turning Point," April), when was the last time you saw someone smoking a pipe? It was probably 1964. "My Three Sons" was a big TV hit, and Fred MacMurray smoked a pipe on the show. The U.S. Surgeon General appeared on TV, smoking a pipe, to announce that cigarette smoking was dangerous to your health.
At the time, there was a pipe manufacturer in the New York area. The company could not keep up with demand. It built automated manufacturing facilities and financed its growth through bank loans from a major financial institution. Sales topped $40 million, a considerable sum in 1964.
Turn the clock ahead to 1979. As a senior accountant at a Big Four accounting firm, I was sent off to a remote, rural location to audit a long-standing client of the firm. It was the pipe maker, which had by then shrunk from a $40 million manufacturer to a $1 million importer.
Nice people, still hanging in and still owing the bank millions from the go-go days. Why did they hang in, and why do others in dying industries hang in? The answer is simple.
Founders and executives may make a fortune when things are great. If they carefully watch the trends, they can modify company operations as business conditions change. While they may not continue to make the kind of fortune they did when things were great, they may still make a decent living. Hanging in could make them the only or the dominant player in a much smaller industry. Imagine how well the very few buggy-whip manufacturers must be doing now.
As people get older, they can't always switch gears. Unfortunately, this strategy may not enhance shareholder value much, but top executives may keep their jobs, especially if they have substantial control over voting stock. However, it is more often than not the responsible move to keep the company alive in its legacy industry, rather than let it wash away in a sea of change.
Stewart W. Robinson
Partner, Director of Securities Practice
KBL LLP
Via E-mail
Mercy, Mercy
A simple analysis of "Who Played Ball," the table that accompanied "The Limits of Mercy" (April), could help show just how much mercy the Securities and Exchange Commission has shown. Using an odds-ratio analysis, firms that decided not to cooperate were 16 times more likely to experience penalties above the median than firms that cooperated (equivocal notations were not used).
Despite some high penalties for those that cooperated and those that did not, the bottom line is that the odds favor cooperation. Perhaps Lincoln was right when he observed, "I have always found that mercy bears richer fruits than strict justice."
Fred Ellerbusch
President
SystemsThink LLC
Warren, New Jersey
The Waiting Game
While I agree with the intent of companies to make 401(k) enrollment the default choice for employees ("Make It Automatic," April), I'm not sure it is always in the employees' best interest. There might be a time when an employee does not wish to be in the 401(k) plan, and since the funds being invested are the employees', they should have the option to enroll or not. I am a big fan of 401(k)s, but this, and other items, should be addressed properly.
Another item to be addressed is the waiting period for enrollment that some companies' plans have. If being in the plan is such a good thing, why make those wishing to enroll wait so long?
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