Doom and Voom
Dolan's debacle

1. Flipping the Bird at Cablevision

Well, you can say a lot about Chuck Dolan, but you can't accuse him of wishy-washiness. Once he fixates on a bad idea, he holds on to it for dear life.

Dolan, to remind you, is chairman of Cablevision ( CVC), the mostly successful cable TV operator behind the ill-fated high-definition television satellite service called Voom.

As was widely reported last week , Cablevision's board gave up on Voom, and the company sold off its key satellite assets.

But what wasn't so widely reported was Dolan's assessment of why Voom went down the tubes.

It had nothing to do with the obvious reasons why Voom was near-doomed from the start. Voom, for example, faced intense competition from the comfortably established EchoStar ( DISH) and DirecTV ( DTV). Voom's much-vaunted high-definition programming was padded with lame, exclusive-for-a-good-reason programming such as Euroleague basketball and views of a tropical fish tank.

No, that wasn't the problem, according to Dolan. Instead, it was Our Litigious Society, which apparently makes it impossible for company directors to Be Brave and Do the Right Thing.

Really. In a memo that leaked out of Cablevision (at least one analyst believes it authentic, but the company declined to comment on the authencity of the memo), Dolan and one of his sons -- also an executive at Cablevision -- wrote that they believed the board's decision "has to do with today's post Enron regulatory climate, which places great emphasis on the potential legal liability of directors who sit on the boards of corporations involved with new enterprises."

Dolan can scapegoat lawyers and regulators if he wants to. But we suspect the blame lies with the guppies.

2. Commerce, Cool and Collected

Now that Wall Street has rid itself of research-investment banking conflicts, what's stopping analysts from doing honest, well-informed assessments of the companies they cover?

The companies, evidently.

That's the case, at least, with Commerce Bancorp ( CBH), the New Jersey-based bank caught up in allegations of two executives' involvement in municipal influence peddling in Philadelphia.

As we learned from The Philadelphia Inquirer last Friday, Commerce has a delightfully straightforward method for silencing its critics in the analyst community. It silences them.

Specifically, when it came time for the question-and-answer session on the company's recent fourth-quarter earnings call -- the time when companies must depart from their scripted presentation to answer occasionally difficult questions from analysts -- Commerce simply refused to take questions from analysts who had unfavorable ratings on the company, according to the Inquirer.

Four analysts -- including one from Legg Mason and another from financial services specialist Keefe Bruyette & Woods -- told the Inquirer that they didn't get a chance to question management, no matter how many times they pressed the buttons on their phone that should have put them in the queue.

Meanwhile, more favored analysts from Merrill Lynch and A.G. Edwards were able to ask not just one question, but two. (And no, it wasn't simply two-part questions or quick follow-ups they asked, but clearly distinct questions at separate times during the call.)

A Commerce spokesman was both evasive and blunt in addressing the issue. "We try to accommodate all the calls, supporters or non-supporters," he told the Inquirer.

Well, that doesn't make sense. How can he say that he's accommodating nonsupporters if friendlier analysts get to cut back in the question line before skeptics get to ask one call?

"But in the interest of time," continued the spokesman, "a lower priority is given to callers who have a history of being disruptive. ... Some people really don't like us."

Hmmm. If a company suggested to us that being critical was the same thing as being disruptive, maybe we really wouldn't like the company, either.

3. An Allocation for Taking Stock

Remember back in the olden days of the dot-com boom, when hot, newly public stocks would shoot skyward on their first day of trading in a spontaneous frenzy of demand?

Well, it turns out that the frenzy was not so spontaneous.

On Tuesday, the Securities and Exchange Commission settled civil complaints with Goldman Sachs ( GS) and Morgan Stanley ( MWD) on charges that the investment banks violated securities laws in 1999 and 2000 in their handling of initial public offerings of various tech companies.

According to the complaints, the two banks -- not, apparently, in concert -- came up with the same method for improving the odds that shares in companies they brought public would jump in price once they started trading on the open market.

How they did it was to ask for a quid pro quo: If certain investors wanted the privilege of being allocated IPO shares at the offering price -- stock that, at the time, was virtually guaranteed to jump in value -- those investors had to commit to buying a certain number of shares, at a certain higher-than-offering price, once the stock started trading.

These efforts to pump up aftermarket demand, says the SEC, were illegal. But they worked. (Goldman and Morgan Stanley, which neither admit nor deny the charges, are paying $40 million apiece to settle them.) One of Morgan Stanley's key IPO marketing objectives was to create the "perception of scarcity," reports the SEC. As we recall, it sure looked like scarcity to us.

What's depressing about the complaints is how systematic and organized the inappropriate practice was. Salespeople suggested to customers how high they should bid in the aftermarket. They wrote internal memos reporting the commitments they collected. They verified whether customers followed through on their commitments. They even had shorthand language for the illegal linkage: "3 for 1," for example, meant a customer would buy three shares in the aftermarket for each share he was allocated at the IPO price.

So was it the dot-com bubble that we all lived through, or the perception of the dot-com bubble? Maybe investors should count up their perceived losses and let us know.

4. Hour Mutual Friend

Last week we were shocked to learn that Qualcomm ( QCOM) was paying one of its executives on an hourly basis -- as if he were, say, a part-time employee at a doughnut shop.

Well, it turns out that one of America's most famous doughnut shops works pretty much the same way.

Top-Dollar Temps
Krispy Kreme puff gigs

On Tuesday, Krispy Kreme Doughnuts ( KKD) announced the pay scale for the two turnaround specialists brought in to run the company after the departure of CEO Scott Livengood.

For the services of new CEO Stephen Cooper, Krispy Kreme will be paying his employer, Kroll Zolfo Cooper, $760 an hour. President and Chief Operating Officer Steven Panagos, also on the payroll of KZC, will cost $695 an hour.

So, let's get this straight. The two new Steves atop Krispy Kreme aren't simply hourly wage workers, they're also temps. Is this a great country, or what? Makes us want to run out and sign up with Kelly Services ( KELYA).

Just to make sure that this time-clocked-executive thing is as odd as we think it is, we called someone who knows a little bit more about executive pay practices than we do: Dave Swinford, a managing director at the compensation consultancy Pearl Meyer & Partners.

"The hourly rate is very unusual, no question," says Swinford. He guesses that the hourly arrangement, instead of the typical monthly retainer for these turnaround situations, is designed to address possible concerns that CEO Cooper might split his Krispy Kreme duties with other KZC work.

Of course, says Swinford, the real payoff is the yet-to-be-negotiated success fee that Cooper might earn in his tenure at Krispy Kreme. "While 760 bucks is a pretty good hourly wage," says Swinford, "I'm sure he's in it for more than that."

5. The Knauss that Roared

At Donald Trump's wedding last weekend, evidence of inflation wasn't limited to the developer's well-nourished ego.

For starters, the published prices of some key marital commodities went through the roof. Trump's bride, Melania Knauss, wore a wedding dress valued at $100,000 and an engagement ring valued at $1.5 million. Given that Donald is chairman of the bankrupt Trump Hotels and Casino Resorts, we're shocked he can keep up with this inflationary spiral.

But the most alarming sign of runaway inflation lies in the press coverage of the new Mrs. Trump -- a woman who, before she hooked up with the Donald, apparently made a decent living as a fashion model.

See, for about as long as Trump has been romantically linked to Knauss, the press has identified her as what she was: a model. But in the run-up to the wedding, as well as in the subsequent coverage, Knauss was increasingly referred to not as a "model," but as a "supermodel."

Title inflation, we suspected, was afoot. So we did a little research to see if we could verify the trend. We could.

Back in April and May 2004 -- when Trump and Knauss' engagement became public -- we found 104 press mentions of Knauss that mentioned her occupation. In 101 of them, she was described as a model. In three, a supermodel.

The Trumptials
Super silly-ous

Fast forward to this month, when we found 212 mentions of Knauss' job. She was identified as a supermodel in 33 of them. In other words, a model who was rated a supermodel 3% of the time eight months ago got bumped up to being a supermodel 16% of the time today.

So there you go. You've got the same person -- the same basket of goods, so to speak -- who for no particular reason is valued 1,300 basis points higher today than she was eight months ago. Now, if that doesn't embody inflation, what does?

Forget about the consumer price index or whatever inflation model economists usually employ. We'll stick with our new Melania Knauss Supermodel Inflation Model. And, boy, is it scary.
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