Graziadio Business Report Blog

Owen P. Hall, Jr., PE, PhD, is Editor-in-Chief of the Graziadio Business Report and a professor of decision and information systems at the Graziadio School of Business and Management.

The ongoing dust-up about global warming has brought front and center a number of new opportunities and threats to California’s currently fragile economy. Whether man-made global warming is real or not, the debate is having a growing impact on business. California’s influence, as is the case with many issues, is at the forefront. The Golden State’s Greenhouse Gas (GHG) initiative is receiving worldwide attention. One goal of this initiative is to cut industrial CO₂ emissions by 25 percent by 2020.[1]

As a follow-up to the GHG initiative, the state of California sued six major automobile manufacturers for contributing to the global warming crisis by specifically failing to cut car and truck exhaust emissions.[2] Not resting on its laurels, the state followed up with a lawsuit against the U.S. Environmental Protection Agency for failing to act on California’s new limits on greenhouse vehicular gas emissions.[3] A number of other states have joined in the action. Most likely, there will be a protracted legal process—perhaps lasting many years. Interestingly, the proposed CO₂ standards will have, at best, only a modest impact on California’s overall air quality due to continued regional and worldwide population growth.[4]

Voices from the business community argue that more stringent environmental and energy regulations will simply chase more businesses from the state at a time when the overall economy has cooled off and the state government is having an increasingly hard time balancing the budget.

The state has already lost many businesses to Nevada, Arizona, Mexico, and beyond.[5] Losing businesses means losing jobs, which translates into less state income. While driving businesses out of the state could have a positive impact on air quality, it seems like a misguided solution to the problem.

Historical evidence suggests that well-crafted environmental and energy policies can have a positive impact on the state’s economy if managed correctly. A 2000 Rand report indicated that personal income was approximately $1,000 higher per year at the end of the century as a result of energy conservation programs that were implemented beginning in the late 1970s.[6] A second Rand report issued in 2006 suggests that with rising conventional energy costs (e.g., oil) and falling unconventional costs (e.g., renewables), the state could see around 25 percent of its energy supplied by unconventional, minimally polluting sources by 2025.[7] This projection, of course, assumes that the requisite infrastructure can be developed over this time period.

Any viable solution must recognize that energy consumption and environmental quality are both related to the job market.

What should be called for is a long-term approach that balances growing environmental awareness and increasing energy dependency from unreliable sources with the need to grow the economy and generate more jobs. Tax relief and tax credits represent an important aspect of this comprehensive plan. For example, the state should drop the minimum tax for small-to-medium-sized businesses (SMBs) engaged in either energy conservation or environmental quality businesses or in implementing energy conservation practices.

A substantial increase in tax credits for firms that 1) adopt unconventional energy sources, 2) reduce the energy signature of their products and services, and 3) switch to unconventionally-powered vehicles (e.g., hybrids) should lead to more significant outcomes compared to continuous litigation, which often yields questionable results.

A similar set of significant tax incentives for individuals engaged in like practices would go a long way to addressing the dual issues of environmental quality and energy independence. Another incentive package could be to encourage organizations to implement work-at-home policies. We are living in the digital age where the Internet has transformed the way organizations operate. The above incentives would not only create new jobs, but also help cut emissions and reduce reliance on unstable energy sources. It’s a win-win scenario.

Regardless of the pending litigations and potential incentives, many of California’s businesses are scrambling to prepare for potentially changing market conditions brought on by the threat of new regulatory requirements and increased consumer interest in “going green.”

Wouldn’t it be better to approach the problem from a positive job-creating perspective rather than a one-sided litigious one? How many jobs are created by lawsuits?

Firms that might be considering California as a new home—much like the gold miner did 150 years ago—could be deflected away after seeing the onslaught of regulations and lawsuits. There is new “new gold” to be mined in California, but the question remains:

What is the best way to extract these green nuggets?

This editorial first appeared in the Graziadio Business Report, Volume 11, Issue 2.

Related in the Graziadio Business Report

The California Electricity Crisis: Economic Lessons from a Failing Deregulation Process by David Smith, PhD, and Al Hagan, PhD

Launching an Effective Citizen Advisory Panel by John Milliman, PhD, and Ann Feyerherm, PhD

The latest issue of the Graziadio Business Report is now online at
http://gbr.pepperdine.edu.

(Click on the links below to access individual articles)

High CEO Pay Could Draw Renewed Attention in Election Year

Whether justified or not, the corporate world is offering a likely target for criticism: very large pay packages for chief executive officers and other top executives.

By Larry Bumgardner, JD

High pay for good performance at successful companies draws some scrutiny. But especially infuriating to average-paid workers and investors, not to mention politicians, are huge severance packages paid to CEOs who have been forced out for poor performance.

Commercial Banking and Treasury Management in Mexico

How significant changes in the Mexican financial sector are impacting U.S.-Mexico business transactions.

By Dubos J. Masson, PhD, CTP, Cert ICM

Mexico is a key trading partner with the United States and a member of NAFTA, and as such, many U.S. businesses have significant dealings with Mexican suppliers, customers, or subsidiaries. While there are some similarities in commercial banking practices, there are other, very significant differences between the Mexican and U.S. environments, for example, prevalence of foreign-owned financial institutions, varying payroll delivery mechanisms, and levels of anti-money laundering compliance.

The Trybaby Syndrome

How often have you needed X to be done and had Y proudly delivered to you?

By Charles D. Kerns, PhD

Trybabies focus on tasks and actions they can do well, but that have little or no relation to their success within an organization. This article identifies the Trybaby Syndrome as a performance challenge and introduces a “Performance Influence – Importance Matrix” to help managers identify the differences between so-called Trybabies, Spinners, Pass-Timers, and Corperformers.

The Tie-In Decision

The current state of the law and economics of tie-in sales and the implications for the business manager.

By Paul Gift, PhD

A “tie-in” is an agreement to sell one product on the condition that the buyer also purchases a different product. This article explores the potential economic and legal ramifications of a “tie-in” decision, including maximizing revenue, lowering transaction costs, and dealing with potential antitrust lawsuits.

Empowering Employees to Success

Audio interview with Steve Bilt, president and CEO of Bright Now! Dental

By Nancy Dodd, MPW, MFA, Editor

Steve Bilt is president and chief executive officer of Bright Now! Dental, Inc., and its wholly owned subsidiaries. In 2003, Steve was named Entrepreneur of the Year. In this interview, Steve talks about how his philosophy of empowering others—from dentists to operations management to patients—has helped him and his team build and sustain one of the largest and most profitable companies in the dental practice management industry.

Editor’s Note

California Greening: Boom or Bust?

By Owen P. Hall, Jr., PE, PhD, Editor-in-Chief

The ongoing dust-up about global warming has brought front and center a number of new opportunities and threats to California’s currently fragile economy. What should be called for is a long-term approach that balances growing environmental awareness along with increasing energy dependency from unreliable sources with the need to grow the economy and generate more jobs.

The Book Corner

Recommendations from Graziadio faculty for:

This is a guest post by Tim Berry, GBR Editorial Review Board member and President of Palo Alto Software

What? You say, reading my title here. Why would I want to? Here’s a question I received in the www.bplans.com Ask the Experts forum today:

My business sells window coverings and recently got taken by a client who decided to forgo paying for the balance due for product that was installed in his home. We often deal in large-value custom orders and need to protect ourselves in the future. What kind of agreement or contract can we use, and were can we find an example of something that will hold up in court? Should we use a lien agreement?

Ok wait. Let’s talk about this. Have you considered the impact on your business of asking all your customers to sign something like that? You’re selling window coverings. You have competition.

You just reminded me of my post last month The Heat, the Kitchen, and Credit Cards. I was mad at a customer who stole from us, and customer service for the credit card helped me out.

The active point in that was about the heat and the kitchen. You’re in business. You’re dealing with customers.

You have to decide whether the occasional bad apple is worth baking all of the apples as they come in.

Here’s a good exercise:

Continue reading ‘How to Protect Your Business From Customers’

Nancy Dodd, MPW, MFA, is editor of the Graziadio Business Report and an adjunct professor of screenwriting.

Customer service has been on my mind lately, or I should say a lack thereof. Business executives budget fortunes to figure out how to attract customers while the customers they lose out the front door go unnoticed. It seems that one of the best budget expenditures a company could make would be to train their employees on how to treat customers.

For example, I moved to a new neighborhood and on the way home was fortuitously placed a grocery store from a large chain that I thought would be ideal for me to stop at to buy a few groceries. Now even though this wasn’t a prime area, it was on a busy street and it is a major grocery chain. I made my way through the panhandlers and into the store, did my shopping and went to the checkout stand. The lady in front of me was buying a fifth of some sort of liquor that she thought was on sale. The lady and the cashier got into an argument over the price of the bottle—I distracted myself with magazines on the newsstand. The lady moved on—I didn’t notice whether she left with or without her purchase—and my transaction began. Another employee, who I took to be a supervisor, walked up to the cashier and told her, “That lady called you a ‘b—-’” [I didn't hear the word clearly]. The cashier was incensed. The supervisor nodded, sighed as though her job was such a burden, and said, “Go ahead.” The cashier left in the middle of my transaction and went after the lady to do who knows what, leaving me standing there with my mouth open, while the supervisor took over the transaction. It just seemed wrong on so many levels. No, I didn’t continue to shop there. I drive way out of my way to another store from another chain. Granted this is an extreme case of bad customer service.

Continue reading ‘Businesses Pay for Lack of Customer Service’

This is a guest post by Peggy Crawford, PhD, Professor of Finance, and Terry Young, PhD, Professor of Economics

The housing saga continues. The hope of “owning a piece of the American dream” is becoming a nightmare for some home buyers. While optimists argue that the “worst” is over as they cling to any sign of positive news, such as the slight upturn in sales of existing homes in February, others call for the government to come to our rescue and save homeowners by declaring a moratorium on foreclosures or “encouraging” financial institutions to renegotiate loan terms. Meanwhile, the Federal Reserve continues to cut interest rates (sometimes dramatically) hoping to ease the pain for some as interest rates reset on their mortgages and to spur activity in the sagging economy.

Have housing prices stopped plummeting? The experts disagree, but Business Week states that home prices could decline by another 25 percent over the next 2 or 3 years, returning the values to their 2000 levels in inflation-adjusted terms.

What can we expect? Like any market, the housing market is based on economic fundamentals of demand and supply. In general, housing prices are inversely related to interest rates. Now, both interest rates and housing prices are falling at the same time.

So, why aren’t sales increasing? Things have changed.

First, lenders are scrutinizing borrowers more carefully. No/low down payments are disappearing and no documented income is a thing of the past—at least for the time being. And second, potential buyers hear the news and are waiting for prices to fall further. On the other hand, some potential sellers are still in denial that the value of their property is decreasing not increasing.

Continue reading ‘Dream to Nightmare: Who Should Pay for the Housing Disaster?’

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