SharkJumping

SWA 3914 - Flight Attendants Gone Wild

   I rarely write about general business news, but my parents just had the most bizarre flight experience on Southwest Airlines #3914 from Las Vegas to Islip, Long Island on Dec 26, 2008.  I'm a big fan of SWA, particularly for its no hidden fees policy, which trumps every other airline in the US, but this incident is causing me to reconsider Southwest's policies.

My parents' flight took off from Las Vegas at 5PM, 2 hours late due to the connecting flight arriving late.  That's not the end of the world, especially for my parents, who have flown extensively all over the world.  However, the bizarre behavior began 30 minutes in when the flight attendant announced over the speakers that someone had stolen 2 bottles of wine from the drink cart, and that if that person didn't turn themselves in, they would land the plane in order to deal with the incident.  

And yes, 45 minutes later, the plane proceeds to divert to Denver where upon the police come on to the plane and haul away the man who was suspected of stealing the wine.  To make things even worse, the FBI also has to come to the plane ("transporting wine over state lines" or "wine kidnapping"?) and then investigate the incident, fill out paperwork, etc.  One would assume both the FBI and local police have other things to do besides deal with wine thieves, but apparently not on SWA, where this incident is worth diverting an entire plane of 200 people for 3 hours.

So the plane finally leaves Denver, and arrives in NY around 4.5 hours late, but according to the flight attendant, "the safety of the plane was at risk", so everyone should feel better about the response.  I could think of other responses:

1. Deal with it when you land in NY
2. Take up a collection from the passengers to pay for the wine - as one person said, "it's white wine on SWA, how much can it cost?"
3. Ignore it and focus on the rest of the passengers experience

Now it's possible that this suspect was actually much worse than a wine voleur, and that this was just part of an elaborate plot to do something much worse or that he was some other type of security risk, but it seems unlikely since my  mother spoke to the man's row-mate, who said that the suspect was quiet and didn't seem to be bothering anyone.  

However, SWA and its lead flight attendant felt that it was worth diverting an entire plane to deal with it, and unless there was something much more serious that no one understood, they really should apologize to the passengers rather than give some vague statement about how it was a security risk since, even post 9/11, not everything is a security risk - sometimes it's just people acting stupidly.  

Bid for My Credit Card Business - An Amex Case Study

I've been heads down riding the explosive growth of MeezNation since it launched, so I haven't had time to blog recently, but it was time to get back to it. 

A business always has to consider what it will do to retain its top customers.  In many cases, the firm focuses too much on attracting new customers with better deals rather than retaining its best current customers - e.g. I routinely receive Comcast notices at my house offering a better deal to new customers than the one I currently have with them.   So what customers naturally should do is periodically look at their vendor relationships to see if they can get a better deal, like what we all do each year when our cable bill goes up and we threaten to leave.

This has recently happened to me with our Meez credit/charge card vendor, American Express.  I opened an OPEN account when Meez started.   It's a small business focused-account which is personally guaranteed by me, and we charge almost everything at Meez through it.  Over 3 years, this number has grown each month to where we now charge more than $100,000 a month on it, we always pay on time (since I'm guaranteeing it), and we never call customer service.

However, the issue I recently encountered is a lack of customer segmentation by American Express - basically, we receive no additional benefits beyond what a person who charged $1,000 a month would get.  The service isn't bad - it's just that Amex is probably booking $35K a year in charge fees, and they have literally no extra costs from our account vs a smaller one - it's all margin.  For a small business account, we're probably in the top 5-10% of their users.  The PLUM card gives us 2% back if we pay in 10 days, but again, I get no extra value for my additional charge volume, meaning my guess is there are other vendors who might want to compete for our business.

So I called their customer service group, whom i have never spoken with, and made my case to them.  The good news is that they're being responsive to my threat to leave, and a very pleasant and smart woman has repeatedly insisted that Amex provides enough value that I should essentially be happy with the service.   The bad news is that they apparently have no way to value my business in a way that's meaningful for me.

So here is my proposal to anyone in the credit card/financial services field reading this blog:  make me an offer to take over the Meez credit card business - clearly it has to involve some type of benefits to Meez which are substantially above what other smaller customers receive, but I leave it open to each company to decide what that deal is.  I'm happy to provide past financial statements to make my case.

And American Express?  Well I admire their confidence in their overall service offering that they don't feel the need to do anything substantial to retain our business, but I'm not sure that losing my entire account over this confidence is a good move.  However, every business makes this call - what should we do to retain top customers?

Claudina's Kitchen Launches!

My wife Claudine has officially launched Claudina's Kitchen (here), her food blog, as well as her SF catering business.  As our friends have known for years, Claudine is an amazing cook, focused on slow, seasonal, local, delicious and healthy foods, as well as the nutrition and health aspects of food.  Plus she loves to entertain, and isn't fazed by cooking the same delicious meals for 2 or for 35 people, as she did last week for the Meez Fall event, so check it out.

Bottled Water is Becoming Like Wearing Fur

I rarely blog about non-tech issues (or at all these days), but i was struck today by my lunch experience.  I went with a friend to the "foodie" SF Ferry Building for lunch, and in an attempt to cut back on my Diet Coke habit, I grabbed a bottled water.  However...

My first thought was that there was a high carbon tax on this choice since it was "New Zealand Water" (no local choice available), and my second thought was that I should really find a drinking fountain and a cup since this bottle was a waste of money and of resources.  Of course, my friend immediately piled on, stating that he had given up getting bottled water, and was trying to get rid of it in his office as well.  I joked that I needed to hide my purchase in case I received nasty comments or stares, just as folks who wear fur out in public used to receive - on the other hand, I could probably assuage my liberal guilt by buying a carbon off-set like a Terra Pass.  The NYT has jumped on this similar trend recently with a series of articles such as the one here.

People can claim this is just another San Francisco over-reaction, or a yuppie trend that will soon fade, just as fur wearing has now become more acceptable.  I'm not so sure - I think this is just the tip of the iceberg, and the first products which are going to get hurt on a nationwide level are going to be simple bottled water ones since there is no way in an industrialized nation to make the case that the tap water isn't a sufficient replacement.  This will obviously be an issue for leading water companies like Nestle and Danone, but it will also affect Coke ($1.9B in 2006 water sales) and Pepsi ($2.1B in 2006 water sales), especially since they are looking at water to drive their growth engines as part of alternative beverages.

I originally thought that this will seriously diminish the value of the recent $4.1B Glaceau purchase by Coke, but I think it will less affected since there is a feeling that Vitamin Water users are getting something that's not easily found in water fountains or taps, whether true or not.  Other bad trends for water:

• Mayor Daley has endorsed an extra deposit tax on bottled water (here)
• Pepsi has agreed to change its labeling on Aquafina to make it clear it's coming from tap water (here)
• San Francisco, LA and Salt Lake City have banned city purchases of bottled water
• HIgh end restaurants such as Incanto and Chez Panisse have stopped offering bottled water, even though it's a high margin product - see article here
• And we here at Meez will be looking for a supplier of carbonated water to replace our bottles

This might turn out to be a passing fad, but my guess is we're just seeing the early signs, and it will significantly affect some companies, as well as open up opportunities for better solutions.

Home Depot Shareholders Meeting - Simply Amazing (original post)

UPDATE:  Nardelli is fired today (1/3/07), but is given $210M as an exit package - see post here.

(this was originally published in May 2006) I rarely comment on anything non-tech related, and I'm generally a big fan of capitalism, but as a shareholder of Home Depot (HD), I am sitting here in utter amazement over how CEO Bob Nardelli conducted the annual meeting this week.  As a recap, Nardelli has been paid $245M by shareholders (including options) in 5 years as Home Depot's stock has gone down 12%, while its primary competitor, Lowes, has gone up 173%.  BTW - this excessive pay is for a CEO who risked nothing by coming to Home Depot - it's not as if he started it out of his garage.

The meeting apparently played out like you used to see in Japan - a 30 minute long meeting, utter contempt for shareholders, physical intimidation of attendees, and no room for any debate on any issue, outside of Nardelli uttering the words "The Board Recommends You Reject This Proposal" over and over again.  Amazingly, the Board didn't even bother to show up to the meeting, thus confirming their contempt for shareholders as well - simply outrageous and embarrassing.

NYT columnist Joe Nocera was actually at the shareholder meeting and has a devastating critique of it in today's paper (unfortunately behind subscription wall here, but currently available in full here), but you now appreciate the intelligence of GE's board in not selecting Nardelli as CEO.  A key leadership attribute is how does a CEO handle adversity?  Nardelli has an obsession with military-like terms, so we'll use a similar analogy - Cowards cut and run, while true leaders face their accusers and defend their actions.  Guess which type we saw this week? 

What will now happen is that the Board will terminate him over the next year or so, but will probably pay him hundreds of millions of dollars more in severance to do so, all of which is coming out of shareholder pockets.  It would appear that there is no limit to the stupidity of Boards and to the greed of executives, which is especially timely coming the same week as the Enron verdict.  The Home Depot BoD should be ashamed of their complicity in this entire process since at the end of the day, it's the Board's role to manage the CEO and they have totally failed.

Rich Exit for Nardelli at Home Depot

As was predicted here last year (see post) after the disastrous shareholder meeting, highly overpaid Home Depot CEO Bob Nardelli was fired today by the Board of Directors.  As a parting gift, the Board paid him an amazing $210M in severance (not to be confused with the tens of millions of dollars he has been paid so far), which would seem to be a little generous for a CEO who presided over a 9% drop in the stock price during his 6 year tenure while the overall market and Lowe's both significantly increased in value.  Even funnier is that Nardelli can receive yet another $18M in "entitlements" over the next 4 years if he doesn't violate his non-compete - given his performance over the last 6 years, wouldn't you actually encourage him to go to a competitor?

Now it's time for the entire Board of Directors to resign, although I'm sure it will never happen since they would have to admit to effectively giving away huge sums of shareholder money.  To reiterate, CEO's are like my children - they always want dessert and junk food, and it's up to the parents (in this case, the Board of Home Depot) to actually act like adults and not give in to CEO demands for these remarkably huge and risk-free pay packages for CEO's who create zero value.

Fundraising Time Again

With the new Meez site launched, large distribution partners coming online (e.g. try Meez on the Sportsline forums), and a real avatar/identity market emerging in the US, it's time to go raise money for the 3rd and hopefully, final time.  Raising money can be an exhausting and sometimes frustrating process, but we're in a good position, and you actually can learn a lot about your business from investors who ask questions or offer suggestions you had never thought of when you're deep in the weeds.

HP - GC Resigns as Saga Plays Out

To no one's surprise, HP General Counsel Baskins resigned today, continuing the utterly predictable saga at HP (as I have laid out for weeks), similar to watching a train wreck in slow motion - you just know you'll see the caboose anytime  smashing into the rest of the cars.   

Outside counsel Sonsini will drop away next, and the Board and company will declare itself "clean", apologize profusely one more time, and move on with Hurd as combined CEO/Chairman.  And we'll never figure out how CEO Hurd could "forget" to read the critical report commissioned by the Board which detailed the illegal and unethical activities commissioned by HP.

HP - Ding Dong, Dunn is Gone

The ever-amusing and increasingly bizarre HP soap opera continues to play out in a predictable manner (see earlier post) with Chairwoman Patricia Dunn now immediately resigning from the Board today (versus wandering out the door in January), although passing the buck on the way out by blaming her underlings for the disaster.  CEO Hurd took over the Chair seat, which is not exactly a step forward in corporate governance, especially since he admitted approving some of the allegedly illegal activities, but then said he didn't read the actual report that was created about the activities - huh?  In addition to that foolishness, why does the "independent" investigator HP has appointed to look into the issue end up reporting to Hurd?  How does that make any sense, although I suppose there is almost no one credible left on the board since neither the General Counsel nor outside counsel are clean in this episode.  This sounds like it's going to get worse, not better, before we're done.

My father and I were discussing the saga today, and he made the astute observation that it just points out how out of touch with reality these corporate boards and executives often are.  To think that there were actual conversations about planting covert operatives in newsroom cleaning staffs, sifting through peopl's trash, attempts to implant spyware on journalist machines, and the shadowing of suspected leakers around Silicon Valley - it's just staggering how a group of supposedly intelligent people could just drive the truck off the cliff. 

As I have said before, I have no idea how the other HP players in this saga realistically survive this episode - it wasn't as if Dunn contacted the investigators herself.  But I assume those players will be drummed out as the parade of law suits, congressional panels, and criminal investigations takes place.  Plus, as an experienced tech executive told me yesterday, once a company really screws over a set of reporters, there won't be a positive article written on that company for a long time.  HP could invent cold fusion this weekend, and still get shelled next week for other gaffes.

The downside to this episode is that it's not going to make it easier to recruit board members now that these guys have been dragged in the mud.  The good news is that it finally pushed the option back-dating scandal off the headlines for a while - oh wait, Cablevision just admitted backdating stock options for a corpse - I guess it's back...

HP Continuing Disaster - Bite the Bullet

As I outlined in an earlier post, there was no way Hewlett Packard Chairman Patricia Dunn would survive the "pretexting" scandal.  That having been said, the HP board totally wimped out and let her retain her board seat while having her step down at some arbitrarily decided time in the future, being Jan 1, 2007.

To the shock of all involved, it now looks like the stupidity involved in the drive to ferret out the leaks was far greater than anyone imagined outside of most people with IQ's below 10 who somehow believed the first explanation, kind of like the US drive to find WMD's in Iraq.  The NYT is now reporting that it looks like HP-employed investigators attempted to install spyware software on reporters' computers and may have even followed them around to track down their sources, in addition to the general idiocy involved in the investigation.  I assume this type of information will continue to expand as we hear more about it, as it always does.

Let's be blunt - Chairwoman Dunn should (and will) fully resign  unlike this first attempt at gradual resignation, and most probably, the General Counsel who managed the investigation will do so as well.  This is unfortunate since Silicon Valley doesn't have enough senior female executives, but you can't  do these types of things and continue to be involved with public companies, especially those with formerly stellar reputations.  There is a larger debate about the role of HP outside counsel Larry Sonsini (of Brocade stock option backdating fame), but that will not end up being relevant since my assumption is that he will be off the board shortly as well.  It's unfortunate since we have lost track of the core issue that a board member was allegedly leaking information, but given the illegal behavior involved here, it's not a big surprise.