Overreaching

I am enjoying the post Christmas holiday -- a chance to catch up on cleaning, organizing, and reading. One interesting thing I am reading about is the Caroline Kennedy bid for Hillary Clinton's vacant senate seat. This has raised the eyebrows of not only partisans who would likely oppose her Democratic party affiliation in any case, but of democratic politicians who might agree with her.

First question is why the gumption by Ms. Kennedy to even venture? Actually, is is quite predictable and happens all the time. In business terms is is simply extending the brand. Many companies attach their popular brand identity to new products or ideas all the time in hopes of taking advantage of that brand's equity. Did you know that Dial not only has its leading bar soap product but sells a deodorant (at least used to) by the same name? Dole became famous for its pineapples . . . or was it bananas or peaches or . . . In extending brands they also run the risk of diluting them.

In politics the branding is fundamental. It is Hillary Clinton, not Hillary Rodham. It is Caroline Kennedy not Caroline Schlossburg (or something like that). The appeal and name recognition is a politicians gold. But like any product or company brands, political brands can overreach. People associate Dial as being a soap not a deodorant. Consumers can be attracted by known brands -- the Kennedy magic would seem to be a case in point. Paradoxically, they are pretty savvy in rejecting these known brands when they overreach into areas they lack competence.

Since John and Bobby Kennedy forged the brand in the 1960s (sowed by their father well before then), the Kennedy family and name has remained intriguing (see this Emery piece that lays out the brand dilution well). But it doesn't mean that people will always buy it. Ted, while loved in his home state, has only marginal national standing (including a failed run for the presidency). Other third generation Kennedies have fizzled when trying move beyond local politics. And I suspect Caroline will have a hard time making traction. People will want to give her a chance, but they also know she lacks some basic qualifications. Despite the rash of political dynasties in the making the American way is still one of merit.

Woe to be Rich

It is a bear to be rich these days. Take Harvard University, which reported losses of $9 Billion to its lofty endowment just in the third quarter. This amount is greater than the sum of the endowment funds for all but the most affluent universities. Running the Harvard endowment (i.e., managing the funds)was one of the most prestigious jobs in finance. Looks like Harvard was playing the risk reward game and got stung like many other common folk.

This week we learn of Bernard Madoff who has now made lots of rich people very mad. Amazingly, he was able to garner over $50 billion of investments from a number of well heeled investors only to use it for big Ponzi scheme. Many of these investors now are on the hook to lose most if not all of their investment. Interestingly, Mr. Madoff is the ultimate charmer, getting all kinds of people to trust him enough to put millions of their dollars in his hands. You can read about Madoff's ruse here. Seems that many people get sucked into presitious opportunities and are shamed to investigate lest they come off as a mere miser. I think it is called snob appeal.

Perhaps, the investors in Madoff's scheme need their own government bailout . . . consider that many of the victims of the scheme are charities and foundations. Madoff built his reputation in part on linking with charities. Many are now the victim of "friendly fire."

Ethics, Ethics . . .

Of course the big news today is the sitting governor of Illinois being arrested for trying to "sell" Barack Obama's now vacated Senate seat. This on the heels of senator Ted Stevens being convicted of corruption and Charles Rangel of New York not far behind. At least the voters of Louisiana voted out William Jefferson--the congressman who happened to have $90,000 just sitting around (Alaska did the same to Stevens). But this is not the story on ethics I want to explore. These "gentlemen" did not have ethical lapses as much as they simply engaged in criminal activity (fraud, conspiracy, and corruption is not an "ethical lapse").

John Thain, the most recent CEO of Merrill Lynch -- swallowed up by Bank of America at the height of this Fall's financial meltdown, reportedly asked for a bonus of $10 million. I am sure the consensus among the punditry and people at large is that Thain getting a bonus is outrageous considering that the value of the stock has gone from about $60 to $15 over the course of his tenure. Is it ethical for Thain to even think he deserves a bonus?

Well, actually maybe. Here is one pundit who says Thain deserves it because he saved the company (and thousands of jobs in the process). In fact, some reporting back in September chronicled how well Thain actually performed in saving a company that was in serious trouble when he took over a year ago. Compared to some of his counterparts at Bear Stearns and Lehman (Mr. Fuld make a nice comparison), Thain was very good in a very tough situation. Thain has evidently accepted the Board's decision not to grant a bonus, but the decision may be more one of public relations than actual lack of merit.

Fraud and corruption are not hard to evaluate or condemn . . . the ethics of compensation and many other business decisions are prone to debates more difficult to evaluate.