From bydeway.com

Last week, Stephan Harper followed through with an election promise and introduced a package of tax breaks for families with children under 18. According to an article published in the National Post, included in this package is the ability for young families to “split-income” and transfer up to $50,000 between spouses in order to collect a tax credit of up to $2,000.

The reason for this new tax break is that single income families currently pay more tax than dual income families. For example, a family where one spouse earns $100,000 and the other earns $0 pays more tax than a family where each spouse earns $50,000.

Clearly, this old system is unfair, and I think the decision to allow families to split income is a just one. I also believe it is important that this credit only be available to families with children. This ensures that both spouses are contributing to society, as the one that is not earning income is providing care for their children.

However, even under this new ruling dual income families will still at an advantage because the maximum tax credit allowed is $2,000, and the maximum income that can be transferred is $50,000. This tax break has the advantage of looking really good young families, while dealing minimal damage to the government’s budget.

From businessreviewusa.com

According to an article in the economist, the United States federal government is taking legal action against Southwest airlines after 44 planes of their planes were found to not comply with FAA (Federal Aviation Administration) regulations. Allegedly, these planes were repaired improperly, and were allowed to return to service prematurely.

Although it is not specified in the article, I believe this event is a result of flawed reward system. In class 17, we talked about performance management and the dangers of rewarding one behavior while hoping for another. Southwest airlines utilizes a cost leadership strategy, and in order to maximize their profit they must operate at a very low cost. For this reason, it is likely the employee responsible for the proper maintenance of their aircrafts was offered incentives to devise a low cost strategy. While Southwest may have been unaware their actions did not meet required regulations, they are at fault for rewarding low cost over consumer safety.

Unfortunately, this event will likely damage Southwest’s reputation among consumers, and may cause them to lost market share. This is not good news for Southwest, as their relatively low margins demand a high volume of sales in order for the company to maintain its current profitability. Hopefully, this will serve as a lesson for Southwest, and lead them to reform their reward systems.

The Arc Initiative, social entrepreneurs and the United Nations all share a common goal: help impoverished communities enhance their quality of life. Hypothetically, if the United Nations had the means and decided to give all underprivileged persons the funds necessary to temporarily break them out of poverty, would the problem be solved? I don’t believe so, and my reasoning is quite simple: it’s not about the money. If you give a starving person $10, they will likely buy $10 worth of food and be hungry again the next day. However, if you loan a starving person money, and teach them how to use it to start and grow a business, they can feed themselves for the rest of their lives. In this case, the gift of knowledge and opportunity is more valuable than a lump sum of money.

This transfer of knowledge and opportunity is what the Arc Initiative and many social entrepreneurs choose to focus on. Unlike charities, this approach creates shared benefit for both parties. Students in the initiative are able to gain real world experience, while social entrepreneurs are able to make a profit.

For these reasons, even if the United Nations was able to provide adequate funds to temporarily feed all in need, programs like the Arc Initiative and social entrepreneurs will still maintain an important role in development of have-not communities.

Images from cascadestudios.com and kysis.edu.my

When I was in grade two I wanted to be a rock star. I had just started playing guitar, and I thought I had the skills to make it big. I told my dad one night about this aspiration, and he gave me some advice I will never forget. He posed, “If playing guitar is your job, what are you going to do for fun?” As a seven year old, I struggled with this concept. I wondered, why can’t work be fun? I understand now what he meant. Unfortunately, no matter what you do, work will always be stressful. Why would I take the thing I love, my escape, and make it stressful?

As I grew older, I was bombarded with an endless stream of advice all saying the same thing: “do what you love.” Maybe it’s because my dreams were crushed at an early age, but this message never made sense to me. By this time, I had already decided I wanted to go to business school. Did I love business? No, of course not. Did I think it would be a good fit for me? Yes, I certainly did.

I recently read a blog post by Penelope Trunk that humorously expressed my thoughts on this topic. She advices her readers to do what they are, not what they love (Trunk, 2007).

Now, why am I talking about this? What does this have to do with COMM 101? As an introductory course, we’ve spent considerable time discussing the different majors and programs offered here at Sauder. I believe the goal is to help students decide which fields interest them, and what they wish to peruse. If so, congratulations! I’d like to take this time to officially announce that I plan to major in accounting. Yes, you read that right. Do I have a passion for accounting? Sorry Jeff, but no. Do I think it will be a good fit for me? Yes, I certainly do.

From fortune.com

Vanessa Borowicz posted an article on her blog about Yahoo’s rumored interest in purchasing Snapchat. According to her article, Yahoo is valuing Snapchat at $10 billion. Personally, I have a hard time understanding how a company that has never made a single dollar in revenue could possibly be worth so much money. But this is not the first time a social media company has received an astronomical valuation. Facebook bought Instagram two years ago for $1 billion, and WhatsApp earlier this year for $19 billion.

As we talked about in class, it is nearly impossible to determine the value of a company until it changes ownership. This is due to intangible assets such as company image and brand power. Is this why Snapchat is worth so much? It must be part of it, but I think there is something else to consider. With over 700 million messages sent through Snapchat every day ^[1], potential revenue for this company is enormous. If they ever do decide to advertise, considering the number of eyeballs they receive every single day, $10 billion starts to look a little more realistic.

I believe this must be the reason for this incredibly high valuation. Yahoo does not want Snapchat for its image, they want it for its client base. Owning Snapchat would give them access to a new demographic, and the ability to reach over 700 million people every day.

[1] http://money.cnn.com/2014/08/01/technology/social/snapchat-10-billion/

From grandvillemed.com

Keegan Taberner wrote an article on his blog about how the Ebola outbreak is affecting stock prices of medical research companies working towards a cure. Not surprisingly, these company’s shares have increased in value. In his article, Keegan predicts that prices will continue to rise “as investors look to make a quick dollar, or even, help fund the company that cures Ebola.” While the first reason seems more likely, the second is still viable for someone pure of heart. Or is it? Will these companies actually be able to spend more on research now that their stock value is higher? On one hand, the stocks that owners own are now more valuable, so they appear to be richer and perhaps more willing to invest additional resources towards finding a cure. However, since they have not actually sold any stocks, there has been zero cash flow into these companies. This is a perfect example the difference between primary and secondary markets. Since stocks for these companies are currently being traded on the secondary market, all transactions are occurring investor to investor and not between the company and investors. The only way the increased value of these companies could lead to an increase in cash flow would be if the owners decided to dilute their ownership and sell more stocks on the primary market. For now, although this misconception may help investors sleep better at night, their contributions are not being used to find a cure.

From CFact.org

The word “Enbridge” is not a popular one in British Columbia. The Albertan oil company is attempting to build a pipeline that will transport oil through BC to the Burrard Inlet in Vancouver. The decision to move forward with this project was made by the Canadian government earlier this year, and has since sparked outrage in the province.

Barring an oil spill, this decision will likely have little effect on most British Columbians. However, there is one demographic that will surely be affected: the aboriginal people of BC. The Canadian government has failed this group numerous times throughout history, and unfortunately this pipeline is a continuation of that trend. Gordon Hoekstra recently published an article in the Vancouver Sun outlining some concerns of the Nak’azdli people regarding the pipeline. At the top of their list, the environmental danger it poses to sockeye salmon and the Nechako sturgeon.

As a British Columbian, the battle between the people of BC and the government seems a little ironic, as they don’t seem to be listening to the people they have sworn to serve. But this example is a little more complicated than that, and there are many external factors at play. First and foremost, market forces. Believe it or not, Canadians need oil, and so does the rest of the world. Second, macroeconomic forces. Canada is one of the largest exporters of oil in the world, and we rely heavily on the revenue it generates for us. Third, BC is only one province. Most other provinces, especially Alberta, are in favor of this pipeline.

Although the government’s decision is an unpopular one in BC, and it poses a direct threat to aboriginal land, understand that this decision was not made lightly, and cannot have been an easy one to make.

From Marketingmag.ca

In 2011, Target, a US based supermarket chain, began their Canadian expansion when they purchased lease rights from over 200 Zellers locations.^[1] Unfortunately for Target, Walmart, one of their direct competitors, made their Canadian expansion in 1994 and had already developed a strong brand relationship with many Canadians.^[2]

Both Target and Walmart employ a cost leadership strategy, and average prices from both chains are traditionally very low. However, a recent article in the National Post explains that Target has recently cut prices in their Canadian stores in order to challenge Walmart and win additional market share. The article shows that a sample of the exact same goods bought at the two different stores cost 4% less at Target.

This case is interesting because Target Canada is not just competing with Walmart, but also its father company Target USA. Most Canadians live close to the US border, and many routinely travel south of it in order to take advantage of lower prices. When Target opened its first Canadian stores in 2013, many consumers were upset to find that the prices offered in these new stores were significantly higher than those in the USA. By reducing their prices, Target has directly engaged Walmart in a price war, as well as offered Canadians increased incentive to shop in Canada.

From The Telegraph

A few days ago I came across an article in the National Post that caught my eye. The article was about Tesco, a large UK based supermarket chain, and how they recently suspended four executives for financial fraud. I was quite surprised to see this article, as it was just a few days before that we talked about fraud as part of our financial accounting lecture. The article explains that Tesco overstated their half year profits by just over $400 million.

In class five we talked about how the three main reasons that companies report fraudulent financial statements are greed, incompetence, and pressure. In this case, although Tesco blames incompetence, I believe that pressure was the key factor.

Tesco has long been the biggest supermarket chain in the UK, but in the last few years they have started to lose significant market share to newer companies offering lower prices. This loss in revenue makes Tesco’s financial well-being dependent on its shareholders not losing faith, putting an enormous amount of pressure on executives. This pressure most likely led them to falsify reports.

Unfortunately for Tesco, they got caught and the strategy ultimately backfired. On September 22, the day the news of the fraudulent statements broke, Tesco’s stock dropped 11.6%. I expect it will continue to drop until Tesco fires the executives involved, and announces an actual plan to re-gain lost sales.

What is the most ethical way of running a business? According to Milton Friedman, the ethical role of an executive is to make decisions based on maximizing profit for business owners and shareholders. Conversely, R. Edward Freeman believes that in order for a business to operate at its full potential, and maximize profits for business owners and shareholders, the executive needs to make decisions that please all stakeholders.

These methodologies are both aimed at growing business and maximizing profits. One method focuses on rewarding financiers, while the other claims it is both possible and beneficial to financiers to reward everyone. Is it possible to please everyone without decreasing capital? This early in my business education I was unsure, so I decided to try and find an example.

Dr. John Izzo’s article “A lesson in leading” focuses on former CEO, now executive chairman, Darren Entwistle of TELUS. When Entwistle took over the company in 2000, he decided that the company’s culture would lead to its success. To create the desired culture, he decided to engage employees by determining their values, encouraging them to buy shares in the company, and making their development a priority. Was this an ethical use of time and resources? Would Entwistle’s time have been better spent focusing on the financiers? The answer is, no! By focusing on his employees, Entwistle was able to create a brand that customers, suppliers, and communities were pleased with. The result was a shareholder value creation of 304%, a statistic that certainly pleased business owners and shareholders alike.

What did I take from this? One primary ethical concern for executives is to make sure they are maximizing profit for business owners and shareholders. Although, in some cases decisions can be made that not only benefit financiers, but all other stakeholders as well. It follows that the most ethical way of running a business is to make decisions that benefit all stakeholders. However, decisions made in the interest of other stakeholders must not come at the expense of business owners and shareholders.

Works Cited

Freeman, R. Edward . “Stakeholder Theory.” YouTube. Business Roundtable Institute for Corporate Ethics, 13 May 2009. Web. 10 Sept. 2014. <https://www.youtube.com/watch?v=Ih5IBe1cnQw>.

Izzo, John. “A lesson in leading.” Financial Post Business. National Post, 6 Sept. 2014. Web. 10 Sept. 2014. <http://business.financialpost.com/2014/09/06/a-lesson-in-leading/?__lsa=678c-4cdf>.

Zimmerli, Walther Ch., Klaus Richter, Markus Holzinger, and Milton  Friedman. “The Social Responsibility of Business Is to Increase Its Profits.” Corporate ethics and corporate governance. Berlin: Springer, 2007. 173 – 178. Print.