The Agony and the Ecstasy
One of the greatest works of art is Michelangelo’s fresco on the ceiling of the Sistine Chapel. Very few have not seen pictures of at least part of it. It was painted from 1508 through1512 under the tutelage of Pope Julius II and is a cornerstone of Renaissance art.
Pope Julius II undertook making the Church the political leader and unifier of Italy. He wanted the art decorating the Churches to represent a strong symbol of his command. The paintings were to depict the doctrines of the Catholic Church with the ceiling illustrating the Book of Genesis and many of the Old Testament Prophets. 343 figures are painted on the ceiling.
Michelangelo was a noted sculptor and wanted no part of the assignment, but was prevailed upon by the power of the office and personality of the Pope. Michelangelo had his own visualization of how he wanted the ceiling to appear and the Pope yielded to his ideas.
Irving Stone wrote a novel of the conflict and interaction of the two men. “The Agony and Ecstasy” tells an interesting and historical story of the painting and also of the strong wills of the protagonists. The story shows how people with divergent interests can work together and accomplish great feats without compromising their principles. I recently saw the 1965 movie based on the 1961 book. Charlton Heston plays Michelangelo and Rex Harrison, Pope Julius II. Check it out. Moses and Henry Higgins!
P.S. Michelangelo shows the Prophet Daniel with an open book. I contend that book is an accounting ledger since Daniel is known to have been a clerk and kept financial records for King Nebuchadnezzar.
Leveraged Buyouts
Leveraged buyouts (“LBO”) seem to have become a current political issue. Supporters of President Obama claim LBOs are a cause of our financial destruction and Romney supporters are claiming they are a major job creation device. Neither is right. LBOs are a long used financial tool and like any tool can be used properly or not, based on the motive and skill of the artisan.
I know Marty Edelston from the Bottom Line/Personal publications for about 36 years and he is a good friend and advisor. The first article I ever wrote for him appeared in the August 15, 1976 issue of Boardroom Reports and was titled “Business Acquisitions Via Bootstrapping.” It explained how LBOs worked. I called it “bootstrapping” since LBO wasn’t used until an investment banking firm devised the term sometime in 1978. They thought they came up with a secret weapon, when in reality, LBOs were a long, widely used technique in M&A. In fact, one firm I worked with had ownership positions in over 600 companies they had acquired using bootstrapping. They maintained a no publicity and notoriety profile but had a power far greater than almost all of the best known investment bankers combined.
LBOs are a method of buying a business by using the assets of the business as collateral for the loan obtained to pay for the business.
A simple illustration is to compare an LBO to a typical home mortgage. Don’t we all buy houses putting up a small down payment and then borrow the bulk of the purchase price using the house as collateral. That is an LBO. Not so terrible is it? There have been many abuses – overpriced and overvalued houses; too little or negligible down payments; and/or the owners lacking cash flow to make the payments. Other factors contributed to failure… such as a lack of care and maintenance of the house or suddenly adverse economic conditions shrinking values and cash flow. Well, business LBOs work the same way – but to blame or condemn the tool is irresponsible. For the user to claim the universal goodness of the tool is a false humility. LBO is a borrowing technique and nothing else.
My 1976 article ended with caution for the seller to probe the buyer’s character, past history, source of upfront funds, and to the extent there is a commitment to manage the business as well as possible. Still the same advice today!
AICPA 125th Anniversary Meeting
Last week I attended the AICPA’s 125th Anniversary Council meeting in Washington, DC. I caught up with some old friends and met new ones. There were presentations of a quality that greatly impressed me and want to share some of what I heard.
IRS Commissioner Douglas Shulman gave insights of what the IRS is doing to try to improve the level of their services (understanding that taxes are not what they used to be). He said that 90% of all returns are either done by professionals or self-prepared by computer so methods to review these returns and assure competency by preparers has to adapt and be more effective.
David Walker, Founder and CEO of Comeback America Initiative and former Comptroller General and head of the U.S. Government Accountability Office said we need not greater fiscal responsibility, but fiscal responsibility…from both sides of the aisle. He set forth a comprehensive plan that our legislators could follow to get control over the economy and debt. One comment that really grabbed me was that “interest on the federal debt is a cost to be repaid by future generations for past excess consumption.” Some of his comments are presented in an article that will appear in the June Journal of Accountancy.
Robert Bunting, Chairman of Moss Adams and a past Chairman of AICPA gave an interesting and humorous history lesson of the development and meaning of trusted professional which originally came from a 1904 speech by the Chairman of the AICPA’s predecessor. The history background of his speech was provided by the top CPA historian, Gary John Previts, who also assisted me, along with Dale Flesher, with the Carousel of History article in the 125th Anniversary edition of the Journal of Accountancy. A big time plus for me was meeting and spending time with Gary and Dale – and I was not disappointed – two great people. Another plus was Dale’s wife Tonya, an equally impressive professor and CPA.
George Colony, Founder and CEO of Forrester Research gave a very insightful explanation of how we are running out of time doing social networking and social networking is running out of people. There is a cap – in the number of hours we can each spend online and on the number of people in the World. He also pointed out that 20% of the world population is Gen-Y and that there is a widening disparity between this group and Gen-X the next oldest group… let alone everyone else older. A point he made is that Gen Y does not read newspapers while Gen X does, and Gen Y are mobile-engaged 24/7… more than any other group. He also spoke about how technology has encompassed everything we do. For example, 60% of travelers consult the Internet when they plan a trip, and the time and cost to bring something to market is 100 times faster than a generation ago. He also gave a glimpse into the post-social world.
James Doty, Chairman of PCAOB, Troy Paredes, SEC Commissioner, Leslie Seidman, Chairman of FASB, and many other equally authoritative Accounting and Auditing Chairpeople were in a panel. I must say that I was super impressed with Ms. Seidman. She said that the accounting rules have to start concentrating on what is essential for investors to know, not what is nice to have. Rules need to concentrate on relevance, transparency uses of new technology and delivering the right information that helps decision making. She said we cannot solve problems with the old thinking that created them. She went on to say that auditors need to be credible, neutral and dispassionate. In addition, they must try not to become advocates or judges for what they audit. “Policy makers” should get the auditors’ unbiased information with which to make decisions. I have the feeling that she will deliver new looks at many approaches.
A panel on rebooting business raised the premise that information is the new currency and we need to be able to turn information into knowledge; questioned whether “dot connecting” can be taught; and raised the thought that shareholders should vote annually on their assessment of the performance of board members with the bottom 20% being fired each year.
Being part of CPA history in some way and meeting the top people in our profession was an interesting and stimulating ride for me and I am glad to be able to share, with this blog, some of the excitement I felt.
P.S. I am very proud to say that my partner, Jim Bourke, was one of a small group that was representing the AICPA that went to the White House to meet with President Obama.
Getting Your Affairs in Order
Everyone’s affairs end up the same way – distributed, dispersed or dumped.
Sometimes it’s easy and sometimes it’s difficult. The easier it is, the better the chance that the deceased’s affairs are settled the way they wanted, and with as little extra time and cost as possible.
This process starts with you. And - you can start today or not at all. It’s all up to you.
My new book, Getting Your Affairs in Order, shows how to arrange your affairs so that:
- You will have a better handle on your finances;
- Your heirs will know what you want done and how;
- The distress to your heirs will be minimized.
Arranging affairs is difficult because life interferes with a lot of “wish I could do’s” or “need to do’s.” This book lays out things you can do in an easy-to-follow manner. The consequences of not following certain rules and, where applicable, laws are illustrated. For example, everyone has a will. It is either a will you caused to be written, or the default will the state imposes on your estate. Neglecting doing something does not eliminate the need… rather, it says you prefer the way the state will dispose of your assets and that you won’t mind the added costs, bother and time. After all, you won’t be around anyway.
Included are 14 worksheets and forms that can be completed quite easily. If doing anything that needs to be done is difficult for you, think about the problems your heirs will have trying to find and assemble everything you had or owed, and then report it to the governments involved and disburse the rightful shares to those you designated in the manner and the time you determined.
Sometimes we look back and realize we would have liked to have done or said something different. Now is a good time to write it out as a final memo to those that were either affected or would have benefited. It can’t change what was done, but it might make the person appreciative of your thoughts. A chapter gives examples and explains final remarks.
Check out the book at www.Amazon.com.
Why I Became An Accountant
Last week’s blog about my father’s largest client brought back memories of one of the reasons that pointed me toward a career in accounting.
As a young boy, I not only seemed to learn “everything there was to know” about this client but I learned what a CPA does. My father “pushed the pencil” – that’s how he made a living. But he did more – he was a trusted confident and advisor to all his clients.
My father would share with my mother what his clients wanted to know or do, and living in our cramped Bronx apartment, I usually overheard these conversations. It seemed to me that my father was a very important person. He had to be if all these people needed him to tell them what they should do. This presented my father, the CPA, as a man of power – perhaps a quiet power since he didn’t seem to get the overt recognition – but he was in the middle of everything and I started picturing myself as being able to wield power someday – just like my Dad.
Why are accountants consulted so often by their clients? Well, for one, most businesses, and a lot of personal decisions, involve money and that is the CPAs bailiwick. No one wants to make a decision that will cost them more than it should, garner a tax benefit, avoid a tax trap, or without find out from a trusted adviser if there might be a better way. CPAs also have a wide range of clients in many different industries that provide an accumulation of an extremely broad experience in industries, professions, and unusual financial situations. And for some reason, successful CPAs have an uncanny ability to transfer or project their experiences to a myriad of circumstances and then articulate it clearly to present an apparent path for the client to follow.
I learned at a very young age the “extras” or “value-added” element of the CPA/Client relationship. As I grew, I developed the ability to anticipate what clients wanted, and ways to deliver it in an easy manner to them. I don’t recall ever getting much accolades or thanks, but I always got the first call they made seeking guidance. That was the “thanks” I needed. We spend over 50 hours a week working. Making it supportive, challenging and enjoyable provides the icing on life’s cake.
I was once asked if it was exciting having well-known and famous clients. I thought for a moment and replied that the excitement I get from this is not from who my clients are or what they do, but from what I do for them. These extras create the greatest “highs.”
JPMorgan’s Bad Timing
Yesterday morning I heard on CNBC that the Chief Investment Officer (CIO) retired suddenly. When I arrived at my office, I received an email from a JPM banker forwarding a “timely report” prepared by their CIO! Bad timing!
Also bad timing, on Thursday there was an announcement that JPM lost $2 billion in hedging transactions. These are the same types of transactions they have been lobbying the Treasury to curtail enforcement of, calling these compliance regulations “unnecessary and unfair” for this type of trading.
I also noticed that JPM has their annual meeting today so the timing of the loss will likely affect that as well.
I hate to say this but I think this is all male cow doodie!
FYI: $2 billion is probably the initial announcement and it should be higher when JPM finally liquidates all of their positions.
Also, this was a bet that had another side – somebody made that $2 billion. Why aren’t the winners jumping up and down with great joy? Hedging losses don’t vanish, they just cause a redistribution of wealth. The probable reason the winners didn’t announce it is that it hasn’t been realized yet and it might not be material to them. Don’t get me wrong, $2 billion is a lot of money. But, to the game’s players, it is not material. JPM has a $400 billion trading portfolio. $2 billion represents one-half of 1 percent of the money in play. That is 50 cents of a $100 bill. Further, JPM made about $17.5 billion last year and expects to make over $15 billion this year. It is a big company and this loss is not life threatening. Annoying maybe, but not that critical.
What is bad is the way it was announced and handled afterwards. JPM executives acted like it was important. This caused a 12 percent drop in the market value of the company – that is material (about $15 billion). It is causing regulators to pat themselves on the back, rub their hands together, greedily and say they need more and tighter regulations and oversight.
What is bad is that it indicates a symptomatic illness in the banking industry – that nothing was learned from the 2008/2009 melt down. That greed might still be present in the system. I don’t think government can or should solve the greed problem. “Punishment” should be meted out in the market place. A $15 billion loss in market value – for starters – hurts. A greater drop will hurt more. And, if there is no further decline, then it will be reversed quite quickly and no punishment will result. That is ok – the market cares, is unforgiving, remembers and watches. The market works… Government intervention will not. The mechanism is in place. Caveat emptor and caveat venditor. It works. At least in this case… leave it alone. All it is right now… is bad timing!
Walter Bialo Will Be Missed
I literally knew Walter my entire life. My father became an accountant when he started his business in 1938. As I was growing up, my father used to tell my mother what went on during his day. Walter would pop up because he was my father’s largest client.
Walter was 94 and lived a fulfilled life with loving children, grandchildren, great grandchildren, a loving wife, a dear deceased wife, and other relatives and friends. At his funeral the words spoken were warm and touching but could not express the scope of the regard and love felt by those he left behind.
When my father died in 1976 (too young and too soon) I took over as Walter’s accountant. Walter was one of those clients you wish for. Demanding for sure, but with a strict code and ethic that applied to everyone including himself. He never asked anyone to do something he wasn’t prepared to do. When he wanted something – he wanted it right away – and when he had to do something, he did it right away. He expected his customers to religiously honor his payment terms – and he never paid a bill late. He expected his employees to work hard and always remember that the “customer is always right” – he did likewise. No one ever quit because they thought they were underpaid, and his office and executive staff turnover was less than minimal. He was a completely trustworthy man whose word was bond. He was generous, charitable, always cheerful, and continually looking for better ways to improve his products and provide exceptional customer service (which he was known for).
With me, he was open, available, full of ideas, always pushing me to come up with creative ways for his business to do better, and listened and challenged. He was not afraid to try something new. It was a successful partnership.
Our practices are businesses but there are personal elements that make what we do extremely satisfying and enjoyable. He was one of those elements. I loved him and will miss him.
