Author: nvanzand

On November 17, 2016, OneWest Bank was accused of breaking federal laws by deliberately keeping branches out of minority neighborhoods and allowing very limited numbers of mortgages to be processed for black and Latino borrowers.  From 2014-2015, OneWest approved only two mortgages to black borrowers across a number of diverse counties throughout Southern California, despite the fact that the bank operated 52 branches in those areas.

According to the director of the California Reinvestment Coalition, “the bank has no significant branch presence in communities of color and its home loans to borrowers and communities of color are low in absolute terms, low compared to peer banks, and low when compared to what one would expect.”  This advocacy group has filed a complaint with the US Department of Housing and Urban Development asking them to investigate what they claim is a violation of laws that ensure equal access to credit for minority home buyers.

This story is particularly important due to the identity of the owner of OneWest at the time this was reported to have been happening.  Steven Mnuchin was the founder and Chairman of OneWest before it was acquired by CIT Group.  Steven Mnuchin is also now being named as top pick to be the next Secretary of the Treasury Department under the Donald Trump Administration.

 

Sources:

Dakin Campbell, “Mnuchin’s Bank Accused of Redlining Black and Latino Homebuyers,” Bloomberg, November 17, 2016.

Federal regulations enforced by the US Department of Transportation (DoT) require airline companies to generously compensate airline passengers that are bumped from flights in order to dissuade the airlines from intentionally bumping low-fare customers to provide seats to higher-paying travelers.  While these are the rules, airlines do not always follow them as they know that most passengers are oblivious to them.  This is exactly what United Airlines has been caught doing.  However, one passenger successfully fought back which led to a $2,000 settlement in court and an article in the Wall Street Journal highlighting United’s less than honest practices with their customers.

According to DoT regulations, if a passenger is bumped from a flight where they have a reserved seat, typically due to airlines overbooking, that passenger is entitled to a cash payment amounting to 200% of their original fare (up to $675) if they are rebooked with only a delay of two hours, or 400% of their fare if it is longer than two hours.

In the case of this traveler, he paid $706 for two tickets for him and his wife, but when he was bumped from his flight due to overbooking and had to wait several hours, the United gate agent only offered them a total of $376.  However, according to federal regulations, he should have been entitled to at least $1,400, but probably even more considering he was stuck at the airport for well over two hours only to ultimately abandon their trip entirely.  This man then filed a suit in small claims court that United initially fought, but when he persisted and sought to take the case to a trial court, United eagerly sought to settle for $2,000, an offer that was accepted by the plaintiff.

This case highlights a lesson for many consumers, that many companies will not operate by the rules when they know that most of their customers are ignorant of those rules and where paying out legal settlements is still far cheaper than operating by the law.  While United did have to pay a few hundred dollars more in this settlement than they would have if they paid him the legally mandated amount for bumping him from the flight, they are still making far more in revenue with overbooking flights and expecting bumped passengers to never be the wiser when they are offered a fraction of what they should be receiving, if anything at all.

In this rare case a customer fought back and won in what was an isolated instance of holding the airline to account.  However, until better regulatory enforcement is in place to force compliance, United and many other American-based airlines will continue to ignore this regulation and will continue bumping paying customers from flights without fair compensation.

Source:

Scott McCartney, “When United Bumped this Flier, He Fought Back,” Wall Street Journal, November 9, 2016.

Elon Musk is at it again, always looking for the next big thing to change the world as most high tech entrepreneurs claim to do.  His creation this time around involves fixing the most fundamental flaw to rooftop solar panels that has dogged the industry for decades.  While many consumers have welcomed the idea creating their own energy, the eye sore involved with large bulky solar panels on their homes has created reluctance with homeowners and homeowners associations alike.  Now, as Inc. reports, “Elon Musk might have just taken his biggest step yet in getting the world to convert to solar energy.”

What Musk has unveiled is not entirely a new idea, but many believe he will succeed where others have failed.  What he has unveiled are solar shingles that are transparent when viewed from above to allow sunlight to strike the solar cells inside but opaque when viewed from the ground.  Solar shingles have been done before, but never has anyone developed this kind of technology in a way that almost perfectly mimics the appearance of standard rooftop shingles.

In addition to the aesthetics, Musk has announced that installing these panels will cost less than not only standard solar panels, but also cheaper than installing regular roofs.  Furthermore, these solar shingles have a lifespan of 50 years, roughly double the lifespan of regular roofs and provide better installation.

One of the biggest obstacles for homeowners—particularly middle class homeowners—in making the decision to install solar panels is cost.  The average price tag to installing panels is around $15,000, an amount that most middle-class Americans do not have on hand to spare.  It is true that having solar panels can eventually pay for themselves with lower utility bills, it can often take several years before that return is evident.  By one account, an average payback period can be 15 years.  However, according to the National Association of Homebuilders, the average time a typical home buyer actually lives in their home before moving is 13 years.  Many homeowners might value solar power, but would be right to question the economics.

Musk, however, has changed the economics.  A home builder can construct a new house with solar shingles installed at a lower cost than regular shingles, but he or she can then sell the home at a higher value with solar installed.  A homeowner may not seek to rip out their shingles to replace with solar, but those that already need their roofing replaced, they can then install solar and see immediate cost savings with lower utility bills and with the longevity of 50 years, they too can ultimately sell their home at a higher value.  Musk has made rooftop solar not only attractive, but he has made it cost effective and profitable for homebuilders and homeowners alike.  With this shift, individually owned solar energy may very well see a significant rise around the world.

References

Kevin Ryan, “Why Elon Musk’s Solar Roofs will Succeed Where Others Failed,” Inc. October 31, 2016, Available at: http://www.inc.com/kevin-j-ryan/why-elon-musks-solar-roofs-will-succeed-where-others-failed.html

Paul Emrath, “Latest Study Shows Average Buyer Expected to Stay in a Home 13 Years,” NAHB, January 3, 2013, Available at: http://eyeonhousing.org/2013/01/latest-study-shows-average-buyer-expected-to-stay-in-a-home-13-years/

“How Long to Pay Off my Solar Panels” EnergyInformative.org, Available at: http://energyinformative.org/long-pay-solar-panels/

By Nicholas Van Zandt

For the past six years, Alphabet, the parent company of Google, has struggled to achieve its very lofty goal of competing against the cable and telecommunications giants in their effort to roll out high speed fiber optic internet networks.  On October 26, 2016 they announced what they were calling a “strategy shift”, but was more of a sizable curtailment of the program entirely.

In their announcement, Alphabet stated that their expansion would be significantly curtailed and they would be reducing the staff in that business unit.  Furthermore, the chief executive overseeing the Google Fiber division stated that he was planning on stepping down so that the company could focus instead on new technologies and deployment methods for their high-speed internet.  No replacement leader was announced.

While Google does has not released the financials for the fiber optic project, there have been numerous reports that the expenditures related to this business unit were excessive due to the costs involved with digging up the ground to lay the cable and having to pay to connect homes to the network even if those homes do not subscribe.

It would appear that this decision comes after several years of facing cost overruns that the company could no longer support.  These costs, which one might have assumed that a company like Google could of foreseen, have apparently required the company to scale back operations and it is unclear if the full fiber optic plan will move forward.  Google, for its part, has suggested that their real goal was not to profit from this project, but instead to motivate the existing internet providers to move faster in their own implementations of high speed internet.

Nicholas Van Zandt – Blog 6

On October 14, Salesforce announced that it was backing out of their bid to buy Twitter in what became a significant blow to the social media company that has seen declining stock and was reported to be desperate for an acquisition.  This announcement was not met well with Twitter’s stock price, which experienced a seven percent drop immediately following the news.

Twitter experienced remarkable growth following its founding in 2006 as it successfully positioned itself in the social media space with a unique offering.  However, behind the scenes the company experienced significant problems with managerial turmoil and many have criticized the company for having a lack of product innovation.

In addition to Twitter’s share sizable drop in price, their total users count has been declining precipitously year-over-year.  As the company’s success is largely determined by their number of users the reasons behind their mutual declines are nearly identical.  As eMarketer reports, their declining share of the social media market has largely been attributed to the rise of competing platforms to include Facebook, Snapchat and Instragram.

Since Salesforce walked away from the deal, Twitter’s CEO Jack Dorsey is now back at the drawing board to identify a plan for what to do with a rapidly declining company that nobody wants to buy.  In addition to Salesforce, Google, Disney and Microsoft were initially showing interest but ultimately decided such a purchase for them would not be a good fit.

These companies in deciding against the purchase asked the same questions as many of Twitters former shareholders: What is Twitter’s unique value proposition and does it offer an attractive return to advertisers that will monetize the platform.  These advertisers were charged a premium but did not see a viable enough ROI as compared to competing platforms like Facebook.  As a result Twitter’s share price plunged over 80 percent just a few quarters after its IPO and now Dorsey is left with some very difficult choices as his last best hope of salvaging his company has evaporated with the Salesforce bid departure.

Sources:

Liana Baker and Jim Finkle, “Twitter Charts Solo Path as Salesforce Rules out Takeover,” Reuters, October 14, 2016.

Matthew Ingram, “Here’s Who May Want Twitter Now that Salesforce Says it Doesn’t,” Fortune, October 14, 2016.

Seth Fiegerman, “Twitter Stock Tanks as Salesforce Backs out of Bidding,” CNN Money, October 14, 2016.

“Twitter’s Share of US Social Network Users is Dropping,” eMarketer, August 15, 2016.

Blog 5

Yahoo and Customer Protection: A Lesson in What Not to Do

By Nicholas Van Zandt

On October 4, Reuters released a story stating that Yahoo has been allowing for US intelligence agencies to scan the emails of hundreds of millions of Yahoo Mail accounts.  According to the report, Yahoo complied with a government request to not only allow the National Security Agency to have access to their users personal emails, but they actually tasked their own engineers and developers to create the program that would facilitate the scanning and data collection.  This allowed real-time scanning of emails so that every time a Yahoo email user sent an email they were under surveillance.

In 2015, when Yahoo’s CEO Marissa Mayer agreed to obey the government directive, this apparently was not a consensus opinion among their senior leadership.  This led to the voluntary resignation of their CISO in June of last year.

Yahoo issued a statement in response to this story stating that “Yahoo is a law abiding company, and complies with the laws of the United States.”  However, when other tech companies were given similar directives they fought back for their users’ privacy rights.  In early 2016, Apple was given a very similar directive by the FBI to create a program that would allow the government to hack into iPhones.  Their response was a very public refusal.  Google, while acknowledging that they did not receive such a request, stated that their response would be very simple, “no way.”

This news comes on the back of reporting that Yahoo had suffered a massive cyber attack where over 500 million of their users’ email credentials over a period of two years.  According to inside sources inside Yahoo, while all other major tech companies were investing millions in security and hiring hundreds of security engineers, Yahoo was regularly denying the requests of their small security staff to increase funding to improve their defenses.

This security team that was seeking to raise the alarms were referred to as “the paranoids” by Yahoo leadership and were frequently ignored.  Other companies, such as Dropbox, Facebook, Google, and Apple, were instead highly impressed with the passion and efforts of Yahoo’s security team and many of the most qualified were hired away.

While these reports have all been released in the past few weeks, these were issues that were years in the making.  Yahoo has clearly shown a willful neglect at protecting their email users’ privacy, from either surveillance from US intelligence agencies or from foreign hackers.  While this author realized Yahoo was a weak technology worth replacing with a Google account over ten years ago, the best advice can be put in the words of The Intercept: “Delete your Yahoo account.”

Sources:

Arjun Kharpal, “Apple vs FBI: All you Need to Know,” CNBC, March 29, 2016, Available at: http://www.cnbc.com/2016/03/29/apple-vs-fbi-all-you-need-to-know.html.

Jeff John Roberts, “Google and Microsoft not Part of NSA Email Scanning Tied to Yahoo,” Fortune, October 4, 2016, Available at: http://fortune.com/2016/10/04/google-microsoft-nsa-email-yahoo/.

Nicole Perlroth, “Defending Against Hackers Took a Back Seat at Yahoo, Insiders Say,” New York Times, September 28, 2016, Available at: http://www.nytimes.com/2016/09/29/technology/yahoo-data-breach-hacking.html?_r=0.

Sam Biddle, “Delete your Yahoo Account,” The Intercept, October 4, 2016, Available at: https://theintercept.com/2016/10/04/delete-your-yahoo-account/.

“Yahoo has Reportedly been Spying on Hundreds of Millions of its Mail Users,” Reuters, October 4, 2016, Available at: http://fortune.com/2016/10/04/yahoo-mail-spying-software/.

Ford Deploys Aggressive Public Relations Defense Against Donald Trump

By Nicholas Van Zandt

Bad press for the auto industry is certainly nothing new for their public relations teams.  For decades they have had to deal with public pressures and criticisms regarding their off shoring practices to build their cars in countries with cheaper labor costs so that they can better compete against foreign auto makers.  For workers in US states that have long been dependent on manufacturing, particularly in the auto-heavy state of Michigan, any news of plant closures comes with fierce public outcry.

In his efforts to appeal to the working class voters in swing states like Michigan, Ohio and Pennsylvania, Donald Trump has attacked the auto industry for exporting jobs to Mexico.  He specifically targeted Ford stating that “Ford is leaving.  You see that, their small car division leaving.  Thousands of jobs leaving Michigan, leaving Ohio.  They’re all leaving.”  It would be one thing if this statement was made on Trump’s Twitter feed, but he made this statement at the first presidential debate in front of 100 million viewers.  Naturally, Ford had to go into immediate damage control, and rightfully so.

While it was true that Ford was phasing out the production of its small car models Focus and C-Max compact cars in order to start building them at a new facility in Mexico, their social media team had to go into overdrive to dispel the notion that this was going to result in thousands of jobs leaving as well.  For Trump, it is a very easy to understand without a great deal of context: Ford is closing down production and opening it back up in Mexico.  Queue the outrage!  Ford, however, is now stuck with the task of trying to explain a much more complex story stating that the specific models they are sending to Mexico for production are models that are far more popular in that country while the workers in America are being shifted over to SUVs and pickup trucks, which can be sold at a higher profit.  The smaller cars—due to declining gas prices—are no longer sell as well as they used to and so Ford had to restructure their production in order to stay ahead of the curve.

Once can see the dilemma in terms of messaging.  For Trump, he appeals to his supporters with catch phrases like “Ford is sending your jobs to Mexico”, even if it is not based in fact.  Ford, however, is left with a far more difficult task of refuting this overly simplistic statement by trying to explain 140 characters at a time how shifting consumer behaviors based on declining gas prices requires them to restructure their supply chain model and to transfer existing stateside workers away from small car production.  Instead, they have rightly focused on more easy to consume messages about how they have added more workers and invested more money in US based production facilities than any other American car maker.

 

Government Proposes Regulations for Autonomous Cars

By Nicholas Van Zandt

On September 20, the Obama Administration proposed that greater regulatory requirements be enacted on the rapidly growing effort to put self-driving cars on the roads.  This proposal would require that greater transparency into the design of autonomous vehicles be made for the government and called on the manufacturers of these vehicle systems to provide greater details of how such systems work and the reasons for which they do or can fail.  The regulatory agency overseeing this proposal is the National Highway Traffic Safety Administration and they are seeking voluntary submissions of these systems as part of a 15 point safety assessment.

Many autonomous vehicle manufacturers have already expressed reluctance for a formalized regulatory regime—considering how much has already been invested in these systems—and are concerned that doing this would drastically slow down the time in which these cars can be taken to market and out on the roads.  Regulators are nowhere near capable of passing legislation fast enough to keep pace with the rate that auto makers are pushing these to be out on America’s streets.  Political deadlock in Congress has made it even more likely that such regulations would stall the entire industry.

This voluntary submission of details relating to car design and the nature of the proposal to establish a national set of rules—instead of a patchwork of contradictory state-level rules—have largely been what the manufacturers have been asking for.  However, consumer advocates have been less than enthusiastic and have stated that “this new policy comes with a lot of bark but not enough bite”, according to Consumer Reports.

This could create problems as many manufacturers may find themselves in a position where sharing their vehicle system information could increase the risk that proprietary information could be revealed to their competitors.  Should this only be voluntary, there is a very likely chance that no such information will be shared while these cars are permitted out onto the roads.  Manufacturers will likely be in a significant rush to get their cars out into the market as fast as possible and safety standards could be placed in jeopardy.

Source:

David Shepardson, “U.S. Proposes Regulators have more say in Self-Driving Car Design,” Reuters, September 20, 2016, Available at: < http://www.reuters.com/article/usa-selfdriving-idUSL2N1BW2B1>.

Chipotle Faces Yet Another PR Fiasco

By Nicholas Van Zandt

On August 31, 2016 it was reported in BuzzFeed that nearly 10,000 current and former employees of Chipotle had filed a new lawsuit against the burrito chain restaurant claiming that they were being required to perform unpaid work after their shifts had ended.  The suit alleges that Chipotle had violated federal labor laws by regularly failing to pay their staff for the hours that they worked.  This comes after Chipotle had already settled a similar lawsuit with former employees in 2015.

As the article points out, the announcement of this suit is another significant blow to the company’s reputation after it was revealed in 2015 that a number of Chipotle stores had caused food-borne illness outbreaks leading to a nationwide temporary shutdown.  This alone caused a 26.5% decline in sales in the first six months of 2016.

Plaintiffs have also alleged that Chipotle would promote employees to higher positions to avoid having to pay them overtime wages, however those employees claimed that there was no real difference in the work they were doing from their previous titles of crew member.

Recognizing the already tarnished reputation following the food illnesses, Chipotle for its part has been making efforts to improve its image among current and future employees.  In early August 2016 the chain announced that it was partnering with Guild Education to pay their employees up to $5,815 a year in tuition reimbursement which as part of the partnership agreement will allow them to pay as little as $250 a year in tuition.  They also offer health and dental benefits and paid time leave and vacation even for their hourly employees, benefits that are not available among their many competitors in the fast food industry.

 

References

Joanna Szabo, “Chipotle Workers File Wage and Hour Class Action Lawsuit,” TopClass Actions, August 19, 2015, Accessed on September 13, 2016, Available at: https://topclassactions.com/lawsuit-settlements/lawsuit-news/93469-chipotle-workers-file-wage-and-hour-class-action-lawsuit/

Venessa Wong, “Almost 10,000 Workers have Joined a Lawsuit Against Chipotle,” August 31, 2016, Accesssed on September 13, 2016, Available at: https://www.buzzfeed.com/venessawong/almost-10000-workers-joined-lawsuit-against-chipotle?utm_term=.mwxQNGRqE#.vajgONbMQ

Wells Fargo and the Repeating Cycle

By Nicholas Van Zandt

Wells Fargo, the nation’s biggest bank, is currently suffering from what may be this year’s greatest public relations crisis.  Recent news has announced that the bank fired 5300 employees and is paying $185 million in fines and $5 million in restitution as part of a giant cross-selling scam they were running on their customers.

As Cheryl Conner from Inc. points out, Wells Fargo did meet most of the four criteria of accountability in such instances, which includes:

1. Acknowledgement of the full role in the problem
2. Acceptance and acknowledgement of all consequences
3. Actions of restitution
4. Plan of action and commitment to ensure the problem never happens again.

It is true, Wells Fargo admitted their fault, fired who they claimed were responsible, and paid a fine.  Problem solved right?  Not quite.  In fact, this episode is yet another near replica of the standard PR playbook for when Wall Street commits fraud on the American consumer.  As it typically goes, have your lawyers write up your “apology” letter where you accept culpability (after you have exhausted all efforts to quash the lawsuit), pay a small fine that barely registers as pocket change compared to annual profits, hold a round of public firings of your expendable line employees that were more likely than not just following orders from their higher ups, and if you do need to remove an executive, be sure to provide them with a golden parachute larger that most Americans will see in a lifetime.

First of all, the statement they issued:

“Wells Fargo reached these agreements consistent with our commitment to customers in the interest of putting this matter behind us.  Wells Fargo is committed to putting our customers’ interests first 100 percent of the time, and we regret and take responsibility for any instances where customers may have received a product that they did not request”

This statement is a great example of admitting fault while not really admitting anything at all.  Phrases like “in the interest of putting this matter behind us” sounds as though the pain they are feeling from getting caught is a great burden to them and they just want to move on from all the fuss.  I reminds us of how BP CEO said of the Deepwater Horizon oil spill—one of the largest environmental disasters in history where 11 people lost their lives—that “there’s no one who wants this over more than I do.  I would like my life back.”  They also chose wording like “we regret and take responsibility for any instances where customers may have received a product that they did not request” and entirely leaving out that they were not just mistakenly giving the wrong products to people, they were deliberately committing fraud on a massive scale by opening accounts and credit cards in their customers’ names, charging them fees for these fake accounts and impacting their credit scores.

Second, “those who were responsible” included thousands of non executive employees who were almost certainly not the ultimate authority on whether or not this behavior was acceptable.  The person who was the ultimate authority is Carrie Tolstedt, the executive in charge of the business unit where this behavior was occurring.  She was not fired, but left the company in what the bank described as a “personal decision to retire after 27 years with the bank”.  Even as the bank was in the process of settling the lawsuit related to this fraud that occurred in her division, the Wells Fargo CEO actually said in the announcement of her departure that she “had been one of the banks most important leaders and was a standard-bearer of our culture”.  Oh, and what Wall Street banking scam would be complete without a giant golden parachute for offending executives.  Tolstedt left with both high praise and a $124.6 million dollar payout.  This is actually more than 60 Americans with a college degree will earn in a lifetime.

Third is the fine they paid.  $185 million may sound like a lot, and it is to the average person, but to Wells Fargo who pulled in $36.1 billion in pre-tax profits in 2015 it is a drop in the bucket.  In other words, Wells Fargo can make this amount back in less than two days in just the profits they make.  However, if you were to take it out of their revenues, it would only take 19 hours.

So, after they have issued their apology letter about how they want to put this all behind them, they paid their fine equating to 0.5% of last year’s profits, and they have punished the wrong doers by firing the low level employees and paying their boss $124.6 million, the next step in this repeating cycle is Congressional outrage.  The U.S. Senate will now likely haul the Wells Fargo CEO before a committee, berate him for about eight hours to let the whole world know how angry they are at this scandal.  Then, they will do absolutely nothing to stop this from happening again and in no time at all we will watch the cycle unfold once more.

References:

Cheryl Snapp Conner, “PR Lessons from Well Fargo’s Double Serving of Crow”, Sep 10, 2016, Available at: http://www.inc.com/cheryl-snapp-conner/pr-lessons-from-wells-fargos-double-serving-of-crow.html, Accessed Sep 11, 2016.

Robert Longley, “Lifetime Earnings Soar with Education,” About.com, July 7, 2016, Available at: http://usgovinfo.about.com/od/moneymatters/a/edandearnings.htm, Accessed Sep 11, 2016.

Stephen Gandel, “Wells Fargo Exec Who Headed Phony Accounts Unit Collected $125 million” Fortune, Sep 12, 2016, Available at: http://fortune.com/2016/09/12/wells-fargo-cfpb-carrie-tolstedt/?xid=soc_socialflow_twitter_FORTUNE, Accessed Sep 12, 2016.

“2015 Annual Report”, Wells Fargo, Available at: https://www.wellsfargo.com/about/investor-relations/annual-reports/, Accessed Sep 12, 2016.

Benjamin Snyder, “Tony Hayward’s Greatest Hits”, Fortune, June 10, 2010, Available at: http://archive.fortune.com/2010/06/10/news/companies/tony_hayward_quotes.fortune/index.htm, Accessed Sep 12, 2016.