Welcome to my weblog, www.alokeghosh.com. Via this personal blog, I am sharing pertinent issues, current topics, and policy matters in the fields of auditing, financial reporting, and corporate finance with relevance for auditors, hedge fund and mutual fund managers, controllers and CFOs of public companies. The targeted audience includes my current and past students, colleagues from academia and practice, and anyone else fascinated by the crossroads of auditing, accounting and finance. Because my academic training and professional experience overlaps these three interconnected business fields, my commentaries/ideas/claims are often a distinctive outcome of a triangular subject-matter lens rather than a specialized subject-matter lens.by
A shell corporation often has no active business operations or hold any productive assets. Structured as an efficient financial vehicle, a shell corporation can serve as a convenient mechanism to raise funds, to complete a hostile acquisition or to take a company public. Nevertheless, these corporate structures can also be used for nefarious purposes some of which include disguising ownership from law enforcement or the public, or to evade taxes.
For instance, the “Panama Papers” leaks revealed that banks, political leaders and wealthy individuals had allegedly hidden billions of dollars in shell companies through a Panama law firm. The scheme allowed clients to evade taxes. Reportedly 214,000 shell companies were created to facilitate illegal activities.
Not all shell companies are creating to siphon off funds or to evade taxes. There can be merits to creating a shell company.
- A startup can use a shell corporation to safeguard its assets before officially launching its business.
- A company preparing for a merger or an acquisition can hold its assets in a shell company for legal reasons and keep those assets separately from the acquiring entity.
- Foreign companies can create shell companies in tax havens like Panama (Swiss private banking, Hong Kong, Belize are some of the other dubious and prominent tax havens) and lower their taxes at home. How so one may ask? Most tax haven countries do not mandate tax information for the funds being funneled into the tax haven countries via shell companies. Further, some tax havens do not report the existence of these shell companies to the government of the owners operating the shell companies thereby creating a “black hole.”
- Shell companies are often set up to mask the identity of the individual owning assets in the company or to evade taxes.
- Occasionally, companies take advantage of the secretive nature of shell companies and engage illegal activities like money laundering.
Limited Games in the Land of the Free
In the U.S., we are fortunate to have monitoring agents like the Securities and Exchange Commission, the Justice Department, and the Public Company Accounting Oversight Board (PCAOB) guarding the corridors of capital markets to ensure that public companies are not actively engaged in “shell games” to defraud minority shareholders.
In sharp contrast, and most inappropriately, in emerging markets and particularly in the BRICS countries, minority shareholders may not be as fortunate where the use of shell companies to hide business ownership or to evade taxes is rampant.
What is the auditors’ role in policing dubious shell companies which are actively created by publicly listed companies to siphon off funds and to dupe minority shareholders?
Let the Games Begin in BRICS Countries
The Securities and Exchange Board of India (the counterpart of US SEC) is scrutinizing the functioning of auditors in various public companies in India, especially if the auditor has had a long-standing relationship with the client. Under the Companies Act of 2013, auditors, have greater responsibilities to ensure that financial statements of an Indian company are not materially misstated and that auditors red flag “dubious” transactions.
The Finance Ministry in collaboration with SEBI is taking actions against 331 listed suspected shell companies. More than 100,000 directors (holy cow!) may be disqualified for their association with shell companies. Investigations are in progress to identify professionals, chartered accountants, company secretaries and cost accountants associated with the defaulting companies.
The auditors are not exempt from these inspections. Authorities are looking at the possibility of having stricter scrutiny of global auditing firms (e.g., the Big 4 audit firms) and to make them more accountable when their auditors certify companies with a clean opinion even when clients are actively engaged in corporate misconduct.
Commentary on BRICS
Similar to the initiatives in India, China, where the problems of shell games are even more pervasive, under President Xi Jinping, has been actively confronting these problems. While these are modest steps, India and China can do more to bring the unaccountable or black money back into the mainstream economy for the betterment of their citizens.
While India and China are at least attempting to tackle this social ailment, sadly not much can be said about the other 3 countries within the BRICS which include Brazil, Russia and South Africa where their top leaders appear to be the cause and not the solution to this social ailment.by
Scotch whisky inspires a near cult-like devotion among circles with an affinity for malt beverages. Known for its pungent, peaty aroma with a long, lingering finish, Scotch whisky, the iconic malt beverage from Scotland, is designed to sip, and not shoot akin to its popular siblings like Vodka and Tequila.
How to do you prefer sipping your favorite Scotch? This quintessential question can generate a diverse set of responses some of which include I take my Scotch neat, I prefer adding a splash or a few drops of water, I like my Scotch with a few ice cubes, or I like to blend my Scotch with soda and/or coca-cola.
While there are no “correct” responses, because drinking alcoholic beverages is a matter of taste and preference, aficionados have long recommended taking your dram with a few drops of water. A Scotch enthusiast may ask why must I add water? The answers vary, but some of the more emblematic responses include:
- Splash of water takes away the stinging or burning sensation when you “nose the whisky” thereby liberating the true spirit locked in the bottom of the glass to rise to the top
- Splash of water dilutes the alcohol volume
- Splash of water takes away the heady alcohol smell/taste away
Nose your Whiskey
To fully appreciate the spirit, which has been craftily aged in a barrel anywhere from 3 to 25 years, you must let the nose kiss the tip of your whisky glass and then proceed to inhale deeply (your chance to “inhale if you missed it when you were young and restless”). This ritual is very similar to how you get acquainted with, or nose, your red wine. When nosing, we are paying careful attention to the following olfactory receptacles.
- Smokiness: Flavor the peatiness as malted barley is often thrown over a peat fire to smoke it.
- Saltiness: Smell the distinctly maritime smell mostly unique to Islay whiskies.
- Fruitiness: Identify the fruits contained in the alcohol which may include dried currants, apricot, peach, or cherry.
- Sweetness: Savor the discrete caramel, toffee, vanilla, honey tones or some other confections that you might decipher.
- Woodiness: Oak is an integral companion of the whisky-aging process, which makes the smell of wood in Scotch omnipresent.
Bjorn Karlsson and Ran Friedman, a pair of Biochemists doing nose-breaking research at Linnaeus University in Kalmar, have finally provided a truly spiritual response to why splash of water is highly recommended for deriving the optimal olfactory pleasures from whisky consumption. Scottish whisky, especially the ones from the Island of Islay, contain a group of flavor-packed molecules known as “phenols” and “guaiacol.”
Laboratory simulations reveal that adding a splash of water or H2O makes guaiacol rise to “the air-liquid interface.” Because the drink is consumed at the interface first, adding water to whisky helps to enhance its taste. The concentrations of guaiacol are in much higher proportions in Scottish whiskies than in American or Irish ones, which is why the releasing of taste/flavors is much more pronounced in Scotch whisky than in its counterparts in the US or Ireland.
The fundamental conclusion from this original path-breaking scientific study is that it behooves us not to add a splash of water when we commiserate with our own spirits while leisurely sipping that perfect Scotch whisky.
Enjoy your Perfect Dram! High Noroc!by
Law Enforcement Against Drugs, or LEAD, partners with Schools in New Jersey to educate our youths on the dangers of drug use. One of the initiatives of LEAD this year was to invite seven gifted students from Fifth Grade to write an essay, poem, or narrative on the dangers of drug and alcohol (ab)use. A LEAD-jury selected three winners from this competition. Emma Ghosh was awarded the second place in the competition held at Lafayette School District.
The battle with drug addiction has afflicted our society for decades. Our approach to tackling this societal predicament has been from the supply side, i.e., trying to restrict the inflow of drugs from other countries. Nevertheless, it is hard to regulate contraband items when payoffs are high because of the escalating demand for these coveted products. A simpler and more effective solution, which is often ignored in our societies, is to limit the demand by making our youths familiar with the heightened risk from drug (ab)use. We applaud the efforts of these seven fifth graders who are committed to disseminating the dangers of drugs, alcohol and tobacco.
Name: Emma Ghosh
Teacher: Ms. Dellano
Project Chosen: Essay on the Dangers of Drugs, Alcohol and Tobacco
Doesn’t everyone want to live life to the fullest? Don’t you? I do, my friends do, my classmates do, my family does. Well, the L.E.A.D program teaches kids how to be safe and protect themselves from obstacles that could possibly prevent kids from living a happy and healthy life. The program helps kids learn what drugs, smoking, and alcohol can do to their body and how it can affect the way we treat others and others treat us. The L.E.A.D officers teach us that there is nothing good about taking drugs, alcohol, and/or smoking. There are many morals that L.E.A.D is able to help kids understand, like the difficulties of life when you do start alcohol, drugs, and/or smoke. Three things that I have learned from the L.E.A.D program are that life is supposed to be a journey, exploration, an adventure, when you start drinking alcohol, smoking, and/or do drugs, you physically cannot keep up with the adventure and journey. You wind up hurting those around you, those that love and support you. Secondly, smoking, alcohol, and/or drug usage has deadly effects on your brain and body. Lastly, and most importantly, L.E.A.D taught me strategies on how to say NO to drugs.
First off, life is supposed to be a journey, exploration, an adventure, basically action-packed. When you start drinking alcohol, smoking, and/or use drugs, you physically cannot do even the basic functions. Alcohol, drugs, and smoking make it hard for you to stay active and keep up with all your other friends. Most importantly, you hurt the ones around you and the people that love and support you.
Secondly, smoking, alcohol, and drugs stop your brain from functioning properly. The chemicals in cigarettes are horrible for the brain. The ingredients in cigarettes, alcohol and drugs are in every way, harmful to you body. I can recall that one of the L.E.A.D teachers said, “One of the main effects of alcohol is brain and nervous system damage. Alcohol can be memory-impairing, vision-and-speech-affecting, seizure-causing disorder. You won’t be able to form new memories. You’ll mumble involuntarily and your eyes will twitch constantly.” The brain and heart are 2 of the most important body parts. We would not be able to survive without them, and smoking, drinking, and drugs target you heart and brain, which is one of the reason people die from one of the three.
Additionally, smoking, especially, can lead to irreversible damage to your lungs and heart. Which can then cause the person to have trouble breathing and put them at a greater risk of heart disease or lung cancer. For example, the L.E.A.D teachers explained, “Smoking, in particular, can give you lung cancer or heart disease because of the smoke that you inhale. The smoke that is inhaled can damage your lungs because of all the chemicals in tobacco, which are also released into the smoke. The chemicals in the smoke are absorbed by your blood cells and then reach your heart and hurt the function of your heart and lungs. That will subsequently make it hard to breath. Smoking can also cause cancer of the lung, esophagus, mouth, throat, kidney, bladder, liver, stomach, and much more.” The L.E.A.D teachers also mention the horrible consequences of using drugs too. From deadly cancer to fatal heart attacks, some prescription drugs have even been known to cause either slow or immediate death. Other drugs may cause patients to do things they wouldn’t ordinarily consider. Drugs can also cause cancer of the bladder and other organs. Drugs can also elevate diabetes symptoms. This all proves that smoking, drinking, and drugs can cause irreversible damage to your body.
Most importantly, L.E.A.D taught me strategies to say no to drugs. One big problem is that some people are really hurting others and making them suffer through peer pressure. One of the most important factors is that drunk people think smoking, drinking and doing drugs is “cool”, but that is just the chemicals taking over their brain! “Peer pressure will usually stop after the person says no, but in some rare cases it doesn’t. And that is where you want to go to a trusted adult, like a family member or whomever is closest, like if you are at school tell a teacher or aid. This is NOT tattle-tailing! Peer pressuring is wrong and not ok, it should be reported immediately. Even if you see someone being peer pressured who doesn’t know how to say “no” or is being threatened, you could help by telling an adult immediately, or the person being peer pressured could get seriously injured!” stated one of the L.E.A.D teachers. This shows that although some people may say it’s cool to take drugs, drink or smoke, in reality you would know not to listen to them because you had L.E.A.D classes! This is an extremely important thing to know because if you are clueless when something like that happens to you, you need to stick up for your own health and wellbeing! ‘Cause not everybody else will know what to do during such a situation.
In conclusion, if you’re on drugs, drink, or smoke, life is a bottomless pit that drowns you in sorrow and remorse. You cannot trust drugs, alcohol, and smoking to help you or heal you or make you forget that horrible past, you have to handle it yourself and learn to deal with it like so many other people in this world have. The L.E.A.D teachers tell us that our mind is still growing then, which is when smoking, drinking, and doing drugs have the ability to take their hardest strike at our brain, heart, lungs and other internal body parts. L.E.A.D is an important program that I feel, everyone should know about. The program is not your average program that tells kids “drinking is bad”, “don’t smoke or do drugs”, it is able to get into more detail and give kids an absolute crystal clear image of how dreadful it is to smoke, drink, or do drugs. In conclusion, I have learned valuable lessons from L.E.A.D. Most importantly, life is supposed to be a journey, exploration, an adventure, and when you start drinking alcohol, smoking, and/or do drugs, you physically cannot keep up with the adventure and journey. You wind up hurting those around you, those that love and support you. I, Emma Ghosh, pledge to never ever try to drink alcohol, use drugs,or smoke.
July 4, 2017
For the year 2017, a well-diversified portfolio consisting of US public companies generates returns anywhere between 4% and 8% (S&P MidCap 400 gained 4%, Dow gained 6%, S&P 500 gained 8%). Quite impressive.
What about a more aggressive investor, or a more flamboyant hedge fund manager, seeking even bigger alphas/returns? Is there any country offering bigger equity returns than the US equity markets? Much of continental Europe generated relatively modest returns for the year 2017. While emerging markets may be more promising, the returns were no better than the US. Key indices in China and Brazil are up between 4% and 8%. Given the risk, the US seems a much safer bet.
There is one emerging market, however, that stands-out in 2017. India has outperformed most developed and emerging markets. Most key indexes in India are up more than 11%.
You Are My Destiny: Slumdog Millionaire
- Roughly, half of India’s 1.2 billion population is under 25
- The country, especially parts of the south, west and north, is entrepreneurial
- While educating billion people remain a daunting task, much of the Indian population understands the value of good education
- Low oil prices have been a blessing because India imports nearly 80% of its oil to sustain growth
- In 2014, Modi, the leader of the conservative party, captured the imagination of Indians because his economic vision is tied to domestic investments and he intends to attract foreign investments by removing various barriers to foreign capital and by pledging to eradicate corruption.
Despite the promise of tomorrow, there is no denying that India today remains a poor country. Even relative to the other BRIC countries, its per capital GDP is about half of China and a third of Brazil.
World Bank Sings Jai-Ho for the Bengal Tiger
The World Bank projected the Indian economy to expand at a rate of 7.8% this year and 7.9% over the next two years. The continuing slump in prices of oil, which is one of the major imported commodities in India, had a significant effect on the Indian economy over the past one year. The Bank said: “In contrast to other major developing countries, growth in India remained robust, buoyed by strong investor sentiment and the positive effect on real incomes of the recent fall in oil prices .”
The World Bank estimates India’s growth projections to be higher than that of the Dragon Warrior. The Bank expects Chinese GDP growth to be around 6.5% over the next two years. Brazil and South Africa, the two other BRICS countries, are embroiled in major corruption scandals involving their leaders, which injects enormous uncertainty for investors. Russia seems determined to inject global anarchy into the world while disregarding the welfare of its own citizens.
A distinct attribute propelling India’s economic growth is its appetite for domestic consumption. According to Adrian Lim, a Singapore-based investment manager with Aberdeen Asset Management, which manages $11.5 billion of assets in India, “India is being seen as a relatively resilient place to invest because quite a bit of the economy is driven by domestic consumption.” Moreover, Lim asserted “More than two thirds of the stocks listed (on the Sensex) are driven primarily by domestic demand, something you can’t see on the Chinese benchmark.”
India’s stocks reached a new highs recently powered by foreign funds. India’s bellwether S&P BSE Sensex broke a two-year-old closing record Monday as it rose to end trading at 29,910.22.
Exposure to India
How can US investors play India?
Consider investing in one of the top 5 India-based ETFs, as per the US News and World report (http://money.usnews.com/funds/etfs/rankings/india-equity?sort=category_rank).
#1 iShares MSCI India INDA $5.11 billion in assets
#2 VanEck Vectors India Small-Cap ETF SCIF $0.32 billion in assets
#3 IShares MSCI India Small-Cap SMIN $0.19 billion in assets
#4 PowerShares India ETF PIN $0.26 billion in assets
#5 Columbia India Consumer ETF INCO $0.12 billion in assets
The U.S. News Best Fit ETF rankings are designed to help long-term investors evaluate and compare the structure of exchange-traded funds. Since all ETFs are intended to track an underlying index (for a variety of equities, or the price of a commodity, for example), the rankings aim to identify large, liquid funds that perform reliably. The report also compares funds’ costs and the fund’s level of diversification and success in tracking its index. We discuss each of these measures in depth below.
Consider playing Danny Boyle’s Slumdog Millionaire!
Finland, June 8, 2017by
Some U.S. multinational companies are avoiding paying high U.S. taxes through relatively simple tax strategies. If a U.S. multination company generates part of its income in a foreign jurisdiction, the foreign income is not subject to U.S. taxes until it gets repatriated back to the US. Contrary to personal income tax, which is levied on all sources of income regardless of where the income is earned, only U.S-based income is subject to taxes for U.S. corporations. The foreign income earned is subject to US taxes once the money is transferred back to the U.S. for redistribution or reinvestment.
Therefore, U.S. citizens cannot shelter foreign income from U.S. taxes, but U.S. companies are able to do so.
Another tax strategy to shelter income from U.S. taxes is more dubious in nature where the objective is to attribute a higher percentage of the income to a foreign jurisdiction with low tax rate even when the income is not economically earned in the foreign jurisdiction.
The Pillar in the Cat-and-Mouse Strategy
Caterpillar is under intense scrutiny for shifting much of the profit from its lucrative replacement-parts business to a Swiss subsidiary where the tax rates are low. The strategy, which dates back to the late 1990s, has generated an employee lawsuit, a U.S. Senate investigation, and a federal criminal investigation that led raids on Caterpillar’s headquarters and two facilities in Illinois.
How large is the tax avoidance? According to a U.S. Senator (see the April request from Sen. Carl Levin, D., Mich., for the PCAOB to look into the tax avoidance matter), Caterpillar has deferred $2.4 billion in taxes under strategies devised by PricewaterhouseCoopers LLP.
CtW, an investment group, wants to shake up the company’s audit committee following the terminator’s (machinery giant) offshore tax strategy. The investment group, has issued a public letter asking shareholders to vote against Caterpillar’s three board members because of inadequate oversight of tax strategy and dysfunctional monitoring of the external auditor. In the case of Caterpillar, PricewaterhouseCoopers LLP happens to be both the external auditor and the tax consultant!
The audit committee members of Caterpillar include
- Daniel Dickinson, a private-equity executive
- Dennis Muilenburg, Chairman and CEO of Boeing Co.
- William Osborn, former Chairman and CEO of Northern Trust Corp.
Conflict or Efficiency
By serving as the tax consulting and external auditor, does PricewaterhouseCoopers LLP generate efficiencies for the company or is there a conflict of interest whereby the audit quality suffers because the external auditor is no longer an independent monitor of the company’s financial statements.
Independent or Dependent
PricewaterhouseCoopers has been Caterpillar’s independent auditor since 1925, according to the 2017 proxy statements filed by Caterpillar, which means the big accounting firm has been with this client for almost a century! Can an auditor with a century long relationship with a client provide high quality audit assurance?
How much has the accounting firm earned from this company?
Audit services Tax consulting Total Fees
2016 $33 million $0.1 million $35 million
2015 $32 million $20 million $54 million
Why did tax consulting fees drop suddenly in 2016? Too much political heat?
If you use 2016 fees as a proxy for annual fees earned by the auditor for the prior years, which is an exaggerated assumption, PricewaterhouseCoopers has earned around $3 billion from the Terminator since 1925.
I wish we could buy shares of PricewaterhouseCoopers!
Is PricewaterhouseCoopers a tax consultant or an “external” auditor for Caterpillar? Does PricewaterhouseCoopers have the conviction to question accounting practices adopted by Caterpillar and confront questionable accounting practices in light of this money train?
Your guess is as good as mine…..
May 29, 2017by
New York City or the “Big Apple” is the financial capital of the world—the city that never sleeps. Walk down the streets of Broadway, and you can hear someone humming the tune “New York, New York” immortalized by Liza Minnelli and Frank Sinatra. With access to Central Park, I believe a more appropriate label for New York City is the “Garden of Eden.” The trees in this Garden sustain life, support knowledge, and generate forbidden fruits. One serpentine bite of the forbidden apple and we are at the cross roads with Genesis!
Why was New York City baptized as the “Big Apple?”
In the early 1920s, “Big Apple” was a nickname for large monetary awards associated with horse racing contests, many of which were organized in and around New York City. The name was commercialized by prominent writers from the New York Morning Telegraph reporting on the City’s horse-racing. Because the city hosted important races, rewards associated with the races were substantial, which may explain the term Big Apple.
Big Apple was subsequently adopted by the City’s jazz musicians. An old saying in show business was “there are many apples on the tree, but only one Big Apple.” New York City being the premier place for jazz musicians to perform made it customary to designate New York City as the Big Apple.
The City in 1971 started a campaign to increase tourism and officially adopted the nickname Big Apple. The campaign featured red apples as reminder of the bright and cheery side of the City, in stark contrast to the common belief that New York City was dark and dangerous. Since then, New York City has officially been designated as the Big Apple.
What if a bite of the Big Apple eludes you? There is a solution to this biblical dilemma—own a piece of Steve Jobs’ Apple. Apple Inc. designs and manufactures computer hardware, software and other consumer electronics. The company is best known for its Macintosh personal computer line, iTunes media application, the iPod personal music player, and the iPhone.
The original logo of the company, which portrays a man sitting under an apple tree, draws on the Newtonian inspiration from a falling apple. Subsequently, Apple redesigned its logo depicting a bite of an apple. I believe the bite taken out of the Apple represents the story of Adam and Eve from the Garden of Eden with apple representing knowledge.
- Holy Cash Cow
The company today is a colossal holy cash-cow. Based on data from the most recent financial statements, i.e., April 2017, the company has a cash balance including short term marketable securities of around $67 billion. If you add long-term marketable securities, the balance increases to nearly $260 billion, which is larger than the GDP of Greece!
What is the genesis of the cash balance? iSimple, high margins. The company’s gross profit margin is around 40%, which means for every $1 of sales, the company generates 40 cents of profit after deducting the cost of sales. The operating margins are equally staggeringly high (around 27%). Even after netting out all operating costs, the company generates $27 of profits for every $100 of sales. The sales for the first quarter of 2017 alone was $52 billion, a mind- blowing number.
- Investments and Acquisitions
Apple is all about organic growth. The company is very frugal with its investments and acquisitions. Much of the excess cash is heavily invested in marketable securities (parking the cash and generating returns on those dollars). Its corporate investments, i.e, purchase of other companies or fixed assets, is rather modest at less than 5% of total assets.
- Giving Back
What does the company do with its surplus cash balance? It pays dividend and buys back its own stock. Over the 6-months period ending April 2017, the company paid $6 billion as dividend. Over the same period, it repurchased $18 billion of its common stock. Thus, the cash returned to its shareholders was around $24 billion over a period of six months only.
No wonder shareholders are elated and appear flying on Elon Musk’s spaceship to the red planet. Over just under a year, the stock price of the company has increased from around $93 to $155, which translates into a 67% annual return. No legal business in the world can come close to generating these holy numbers.
If you cannot get a bite of the Big Apple, I suggest you consider a bite of the Apple company. Apple’s history is being cooked with a hint of exotic spices by its own “Cook.” The taste is simply divine.
May 16, 2017
CEOs of for-profit companies are paid handsomely for their nifty management skills and for creating shareholder value. According to Associated Press study, the median annual CEO pay for S&P 500 companies in 2016 was $11 million (average pay was even higher at $14 million). When compared to the value created by these companies, the pay appears economically insignificant and immaterial. In 2016 alone, nearly $1.5 trillion of shareholder wealth was created by the S&P 500 companies.
What about the pay of the top bosses in nonprofit organizations like academic institutions? Much less. The average pay of a University President is less than $0.5 million. Therefore, S&P-500 CEOs get about 30 times more than a typical University-CEO.
The Art of Presidential Pay
The highest paid academic top gun was not from an Ivy League institution but a leader of an arts college in Georgia. According to the Wall Street Journal, in 2014, Paula Wallace, the president of the Savannah College of Art and Design (say what?), earned a whopping $9.6 million in 2014. That is, the pay was about 20 times a traditional academic presidential pay.
Ms. Wallace earned a base salary of $859,000 and a bonus of $1 million. In addition, the board/trustees of Savannah College of Art and Design voted to pay Ms. Wallace supplementary deferred compensation of $7.5 million as a cumulative reward for her prior 14 years of service (this is in addition to the annual salary she drew over the past 14 years).
Deferred compensation refers to the portion of an employee’s compensation that is set aside to be paid at a later date in the form of retirement plans or pension plans. In most cases, taxes on deferred compensation are delayed until income is paid. In common parlance, deferred compensation is the ability to provide for a “highly prosperous retired life” by leveraging current position and power.
Stellar Savanah College
Ms. Wallace is one of the founders of the college. Her achievements include overseeing enrollment growth, and the expansion of academic majors and branch campuses. According to a consulting firm retained by the arts college in Georgia to approve presidential pay, “the compensation is fitting given her four decades of contribution towards the success of the institution.”
Tuition, fees, and living expenses can exceed $50,000 a year. Students at this institution collectively received about $115 million in federal student loans. Among nonprofit art and music colleges, students of Savannah College of Art and Design rank among the top quartile for graduation rates and earnings. About two-thirds of full-time students graduate within six years, and their students receiving financial aid reported median earnings of roughly $35,000 a decade after entering.
Scarcely stellar when you consider that a representative student can potential rack-up federal loans of up to $250,000 to get this coveted arts and design degree from Georgia.
Raymond Cotton, a lawyer who advises university boards on presidential pay, called Ms. Wallace’s compensation “..such an outlier in the world of higher education; it’s really incredible.”
Benchmark: Harvard’s Presidential Pay
How does this pay compare to the Presidential pay at country’s leading academic institution with a largest endowment?
Harvard University’s President, Drew Faust, earned a $811,000 salary and received a meagre total compensation package worth $1.2 million.
Nonprofit organizations are organized for a public or mutual benefit other than generating profit for owners or investors. Because a nonprofit company’s intent is to increase the welfare of society, the government sponsors those objectives by defraying some of the nonprofit’s costs by exempting nonprofit organizations from paying taxes.
If Presidential Pay at academic institutions mimic CEO-pay at S&P 500 companies because academic institutions draw inspiration from for-profit companies, why the big need for subsidy from the federal and state government?
Midnight in the Garden of Good and Evil!
Chatham; April 17, 2017by
Romania and Chad are two “sovereign, independent, unitary and indivisible” National States. Separated from each other by the Mediterranean Sea and by the adjoining countries including Serbia, Bulgaria, Macedonia, Greece, and Libya, the two countries are most diverse in their economic, social-political, ethnic, religious and racial backgrounds. Yet, the pennant, the umbilical cord bonding the two countries, is identical. Their tri-color flags are indistinguishable!
Imagine, the two countries locked in a competitive sporting duel and you are passionately waving the blue-yellow-red tri-color cheering one country! It may become hard to assess your preferred country.
Design of Flags
Vexillography deals with the art and practice of designing national flags. A casual inspection of the national flags highlights common underlying attributes unifying most national flag designs;
- All national flags are rectangular, except for the flag of Nepal
- Except for Nepal, the width is taller than the height for all national flags
- Only the national flags of Switzerland and Vatican City are exact squares
- All national flags are either identical or mirrored, except for the flag of Paraguay
- All national flags consist of at least two different colors
- It is common for many flags to feature national symbols, such as coats of arms
Convention for Adoption
The national flag is often, but not always, mentioned or described in a country’s constitution. Its detailed description may be delegated to a flag law passed by the legislative, or even secondary legislation or in monarchies a decree. For most countries, the date of flag adoption is apparent. For others, the task of determining the exact date may be more complex because of unknown or disputed design changes, regime changes, or other geographical changes.
According to the office of the U.N., “…it is up to Member States to select their own flags,” which means there is no internationally recognized governing body delegated with the task of approving and supervising the issuance of flags.
Therefore, it should not come as a complete surprise that two or more countries may have twin sibling flags.
Romanian Tri-Color National Pride
It is historically well-established that dissidents in Romania from 1800s began waving the blue-yellow-red tricolor during protests. Subsequently, a series of monarchical governments used versions of this symbol. In 1949, when the Communists took control of Romania, they tweaked the flag by adding a star, several chaffs of wheat, mountains, trees, a sunrise, and a power line, which was the enforced “Romanian coat of arms.”
As is customary in a communist regime, the input of the native Romanian citizens was not deemed as being necessary! All was well with the flagging spirits until 1989, when during the revolution at Timișoara, Romanian dissidents quite understandably began ripping and tearing out the communist symbols from their flag. For a few revolutionary months, Romania’s de facto flag was the blue-yellow-red tricolor with a big hole in the middle.
Finally, by a decree-Law, on 27 December 1989, the National Salvation Front and of the territorial councils of the National Salvation Front declared that “the national flag is the traditional tricolor of Romania, with the colors laid out vertically, in the following order, starting from the flagpole: blue, yellow, red”.
Chad Tri-Color National Pride
Chad, a country in North Africa, gained its independence from France on August 11, 1960. The country officially adopted its flag on November 6, 1959. It combines two colors from the French Tricolore (red and blue), and two Pan African colors (red and yellow). Blue represents the sky, hope and agricultural strength of the southern part of the country. Yellow is representative of the country’s northern desert and the sun. Red represents prosperity, unity and the blood shed for independence.
Lennin to Lennon
In essence, Chad and Romania have had identical flags since 1989. Chad government has been protesting to the U.N. declaring that two countries cannot have the same flag. Yet, for the moment, Romania appears unperturbed by this trivial practical resemblance.
You can almost hear the epic Lennon song in the background
“Imagine there’s no countries, It isn’t hard to do, And no religion too
Imagine all the people living life in peace, you…”
March 23, 2017by
Giddy up! At more than 21,000, the Dow Jones Industrial Index has soared by 1,200 points or about 13% since January 2017. If you consider the run-up since February 2016, the stock market has delivered a staggering return of about 30%. The stock market has been on the best winning streak in 25 years.
One fundamental reason for the stock market rally is linked to the growth of Exchange Traded Funds, or ETFs, as retail investors have poured in $124 billion into this type of an investment vehicle in 2017 alone.
State Street Corp.’s SPDR S&P 500 ETF is the market’s oldest, largest and the most-traded security in the world.
Love Thy ETF
Introduced in 1993, ETFs, or Exchange Traded Funds, trade on an exchange like stocks. An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike actively traded mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.
ETFs typically have lower fees than mutual funds, making them an attractive alternative for individual investors. Shareholders do not have any direct claim on the underlying investments in the fund, instead, they indirectly own these assets.
According to research firm XTF, there are around 1,800 ETF investment vehicles holding stock worth more than $2.7 trillion. There are no SEC rules governing ETFs which means ETFs are regulated via mutual fund regulation. Just three firms
— BlackRock Inc.
— State Street Corp.’s State Street Global Advisors
— Vanguard Group
manage 80% of ETF assets.
ETF vs Actively Managed Funds
- ETFs try to track the performance of a particular market benchmark, or “index,” as closely as possible. In contrast, Actively Managed Funds (AMFs) try to outperform their benchmarks and peer group average.
- ETFs buy all (or a representative sample) of the securities in the benchmark, while AMFs combine research, forecasting, and experience/expertise of a portfolio manager or management team.
- Index funds tend to be more tax-efficient and have lower expense ratios than actively managed funds because they trade less frequently than AMFs.
- Although AMFs attempt to beat the market, quite often they may also miss their targets which results in losses for the funds’ investors. In contrast, ETFs are only undertaking the underlying risk of the market benchmark.
- Most importantly, AMFs typically charge between five and twenty-five times what ETFs charge their investors.
Not surprisingly, the pace of ETF inflows bodes negative news for asset managers. Investors have started pulling their investments from AMFs to ETFs. The largest providers of ETFs have started reducing management fees to attract even more funds. The average annual fee of ETFs bought this year is only $23 for every $10,000 invested, sharply lower than last year. Some ultralow-cost iShares Core funds cost as little as $4 a year for a $10,000 investment, which is can be about 1/25th fraction of the fees charged by most mutual funds.
Given the low-cost structure of ETFs and the raging bull market, $7.5 billion has moved into the iShares Core S&P 500 ETF and $5.4 billion into the Vanguard S&P 500 ETF in January 2017 alone!
Hamiltonian Hip Hop and ETFs
Lately, the US stock market has generated staggering returns unmatched by almost any other country. Take for instance the returns generated from an investment in S&P 500 stocks in the last eight years.
- 2009 26%
- 2010 15%
- 2011 2%
- 2012 16%
- 2013 32%
- 2014 14%
- 2015 1%
- 2016 12%
If you invested in the S&P 500 from 1928 to 2014, the per annum compound rate of return was 9.8%. Thus, if you invested $100 in 1928, your nest egg would become $346,261 in 2014.
Join and celebrate the US goldilocks economy and consider becoming an ETF shareholder.
Vermont, February 10, 2017by
Academic tenure is a contractual right that grants a professor permanent employment or a legal protection against summary dismissal without just cause. Principally, the status of a tenured professor is analogous to a Supreme Court Justice—a lifetime of employment guarantee. Less than one-third of all college and university faculty members are tenured in the US.
Tenure may be revoked if there is evidence of incompetence, unprofessionally behavior, or when an academic department/school is in serious financial difficulty. Nationally, about 2 percent of tenured faculty are dismissed in a typical year.
The notion of academic tenure dates back to the early part of the 20th century when tenure system was erected to protect professors from the abusive power of University Presidents and Trustees who were free to fire professors for their socio-political views. According to NEA, academic freedom via tenure is valuable because professors can then assert their independence. Scholars can challenge conventional wisdom, discuss and debate controversial ideas without having to worry how such exchange may affect their jobs.
- Florida, Missouri, North Dakota, Iowa
Faculty at State College of Florida hired after July 2016 no longer qualify for tenure-like protections. In Missouri, North Dakota and Iowa, Republican lawmakers are introducing bills to eliminate tenure. In North Dakota, the state board of higher education is considering reducing to 90 days from 12 months the amount of time administrators need to give tenured faculty before they can lay them off. The state’s 11-school college and university system is bracing for steep layoffs this year after cutting about 500 full-time positions last year. A Missouri bill would prohibit any public institution of higher education from awarding tenure after Jan. 1, 2018.
While not eliminating the status of tenure, Wisconsin’s state legislators voted in 2015 to weaken state tenure law. Consequently, state universities in Wisconsin had to grapple with sharp reduction in budget (around $250 million) and deal with lower tenure protections. In response to the State law, Wisconsin’s University Board instituted “independent and substantive reviews” of tenured faculty once every five years. Tenured professors who are deemed as lacking in productivity have three to four semesters to improve else their tenure is revoked. The Governor of Wisconsin, Scott Walker, recently declared plans to cut tuition by 5% across all University of Wisconsin System schools while instituting “faculty accountability policy” which aims to monitor the time professors spend in classrooms.
Steep jumps in tuition, students have to accumulate large amount of debt to get quality education, and higher wage inequality may have magnified the scrutiny on the business practices of universities including questioning the concept of permanent employment of professors.
Defense of Tenure
According to NEA, there has been a temporal decline in the proportion of tenured professors. For instance, in 1975, 45% of faculty at public and private schools was tenured or tenure-track, however, by 2014, that number had dramatically declined to 29%.
Defenders of tenure claim that state that disallow granting of tenure will be unable to attract high quality talent. Such states also risk losing valuable grants which is often linked to the human capital and innovative abilities of tenured professors. Another prediction is that salaries are expected to increase dramatically as professors would demand a higher wage rate in the absence of tenure.
Tenure at most prestigious and nationally visible universities is granted after an exhaustive and critical review. The longer the tenure clock, the more stringent is the granting of tenure. Given these parameters, most, if not all, tenured professors are eminent and productive scholars with a shared passion for teaching.
Market theory suggests that, because tenure has endured for more than a century, the benefits must outweigh the costs from having a tenure system. While the experiment of not having a tenure-system is counter-factual in the US, one can draw on the experiences from other countries without a tenure track system. The consensus is that higher education has lagged behind in quality, scientific research and intellectual advancement in countries without a tenure system. More so, countries that have moved to a tenure track system (e.g., schools in mainland China, Hong Kong, Australia, and Europe) have seen a rise in the quality of their advanced level education.
While distinguishing the benefits of tenure, one cannot help underscore that there are some apparent costs including a classic moral hazard problem leading to potential misallocation of resources because of inadequate monitoring.
Future of Academic Justices
Will the US tenure system survive the current predicament? Will tenure endure a refurbishment? Some states have made their decisions. Other states can only resist or follow suit.
Chatham, February 24, 2017by