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| Author | Topic: CDNow (CDNW) |
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MaxPower |
posted 04-19-2000 03:57 PM
 
wassup? - I disagree. I think you will find alot of companies who believe that taking care of their employees comes before taking care of their shareholders. The reason? In many cases, an employee will have a larger stake or a larger interest than any shareholder. It's their livelihood and it's what puts food on the table. If your employees aren't happy, then 9 times out of 10, the company won't perform well. Though you do make a good point - publicly admitting such a focus will often result in immediate death at the hands of the market. |
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wassup? |
posted 04-19-2000 02:12 PM
I had always thought there was a responsibility to the shareholders of a publicly traded company. For example, with MicroStrategy, when they allegedly deceived investors, weren't shareholders able to file a lawsuit against the company? Similarly, I think that if CDNow is suddenly acting in a manner that is clearly detrimental to the business and to investors, there is a legal recourse. I think there are certainly issues about what the goal of management should be: to act in the best interest of the stock price, or in the best interest of the business--there is often a discrepancy there. But never is "taking care of their own" a defendable goal of managment. If CDNow is arguing that it needs to reprice in order to hold onto their talent and try to turn things around, there is some merit there...but if the goal is honestly to take care of their own, then something is wrong. MaxPower, I don't think any company would EVER publicly say, "The goal of our management team will be to take care of our own at the expense of the business." So if that ever became a part of the gameplan, investors would be surprised and should have recourse. |
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KeithG |
posted 04-19-2000 12:12 PM
I ran across this article in Wired and thought it might apply to the recent discussion of CDNow's management--the topic is Forrester Research CEO George Colony's assesment of many dot-com CEOs. "Many of the dot-com CEOs lacked depth, experience, and common business sense," he wrote in a letter on Forrester's discussion site. "There was a fanatical focus on valuation -- getting public and liquid -- while value -- what the customer eventually gets -- was a back-seat discussion." Colony drew a sharp distinction between CEOs of Net startups and leaders of more established companies. Most Net executives, he said, seemed committed only for the short-term, unfazed by their highly fluid work force, and fixated on cliched and simplistic business models. He also wasn't too impressed by many of their businesses. "These companies are not built to withstand competition, they're not built to deliver sustained value, and they're not built to last," he wrote, offering this year's Super Bowl as an example of the lack of foresight. Internet companies spent record sums on 30-second spots that in most cases proved to be "a phenomenal waste of money." Colony had kind words for a few high-profile dot com executives, like Priceline founder Jay Walker, Amazon.com's Jeff Bezos, and eBay CEO Meg Whitman. Those few executives who possess a long-term vision and are willing to marshall the sales forces and put up the investments to back them will end up controlling most of the market. Weaker players, in the meantime, will be forced to drop out. The future, Colony said, will be one with fewer IPOs, less advertising, massive consolidation, and more stable prices. In the meantime, many of those in-your-face upstarts will find themselves cowed into the shadow by those slow-moving, profitable "old economy" companies they once derided. So where will all those 20-something Net millionaires end up? Colony issued the following prediction: "The dot-com generation will get squeezed by more skilled baby-boom managers and aggressive Generation Y newcomers. Former dot-com managers will end up working for their elders and their juniors," he said. |
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MaxPower |
posted 04-19-2000 11:12 AM
We seem to be getting into a discussion of what a corporate management's primary focus ought to be: should it be maximizing shareholder value, caring for their own, or focusing on the business. I once took a seminar on this class, and it is interesting to note that their is no consensus on what the answer is, nor is there a right or wrong answer - but as a shareholder, you need to recognize which way a company is going to lean. Clearly in the case of CDNow, they have decided to focus on caring for their own. Now if they have done this in a deceitful way, then I can understand a lawsuit or any kind of backlash or "should not have"'s. But if CDNow has demonstrated this focus in the past, and shareholders still decided to invest, then I don't fault CDNow one bit. And following this logic, if CDNow's practice was to give away a substantial portion of revenue to charity, then I don't have any problem with that either. As long as it is public knowledge, as a shareholder I have the right to invest or not to invest in any company. Anyway, I have absolutely no idea of management practices at CDNow in the past, so I have no idea what they have focused on in the past. |
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dude |
posted 04-19-2000 10:07 AM
> a management team still has the right to compensate the employees as they see fit. And if they decide to reward sticking around or to alleviate financial pain, then that is their prerogative. - Are you saying that if you're a shareholder of a company, and that company's management decides to give away all its money to charity (or the competition), that you shouldn't have any say in the matter (other than to sell the stock, after the damage has been done to the price)? If shareholders in the above case are arguing that the options repricing is not in the company's best interest, then this latter example is different from the options repricing case only in magnitude, not in type, and the same logic applies. > "Critics of this system says it is wrong because, quite simply, it rewards failure. > The distinction i'm making is between a company like Microsoft that is repricing its options to help keep on the best employees. |
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netinvestor |
posted 04-19-2000 08:53 AM
I am mostly speaking of all this in terms of ethics... and on that point we seem to basically agree. The distinction i'm making is between a company like Microsoft that is repricing its options to help keep on the best employees, and CDNow that is repricing so its execs (not all the employees) can get out with some $ as the ship goes down. the Microsoft type repricing I can understand and accept, although it is a dangerous game to play and it catches up to the company at some point. In terms of whether it could affect the stock price, it certainly could if the amount of shares that were repriced and then exercised and sold was large enough. I don't know whether it would in this case. Here's an interesting quote from CBS Marketwatch about option re-pricing: "Critics of this system says it is wrong because, quite simply, it rewards failure. Furthermore, investors fear that the resulting dilution will lead to a fall in stock prices at some future date when the insiders start to cash in big time. In this sense, stock options represent a mortgage on the future. Eventually they could lead to a serious transfer of wealth from the shareholders of the corporation to its top executives. The problem is compounded by the fact that shareholders only seldom have a say in the re-pricing process, since, up until now, it almost always takes place behind closed doors. Major exceptions are Apple, Novell and Advanced Micro Devices. So if this practice now becomes widespread should the SEC step in to increase transparency and insist that shareholders have a say? If it does, it could mark the beginning of the end of the heyday in the options game. Corporations will have to downgrade options and upgrade performance-based cash bonuses, and yes, even salaries, within their compensation packages. No doubt, they will have to earn that money the old fashion way, not print it at the expense of their shareholders as they do now." On the legal side, it was mentioned in this quote, and I heard it somewhere else the other day that shareholders can (and sometimes do) sue over this kind of thing. |
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MaxPower |
posted 04-18-2000 06:12 PM
netinvestor, fair to whom? I realize it is a public company, and a private company has much more freedom across the board to do what they want when it comes to compensation. But a mangement team still has the rigth to compensate the employees as they see fit. And if they decide to reward sticking around or to alleviate financial pain, then that is their prerogative. A shareholder then has the right to sell shares if they disagree. (I am assuming we are talking about compensation that will not affect the market price of the share.) Granted I am not coming at this issue from an ethical side. Ethically, I agree with you...it stinks. But as long as a company is hurting any other company, I really believe that if they follow the law, they have the right to do whatever they want internally. |
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KeithG |
posted 04-18-2000 04:38 PM
CDNow CEO Jason Olim defends his company from its attackers. http://cnnfn.com/2000/04/18/bizbuzz/cdnow/ An interesting article I thought...the most compelling argument is that CDNow is becoming a music portal more than an ecommerce site. This was something I had been thinking about--I go to CDNow to look at reviews and such, but have only made one purchase during a sale. If they can shift their revenue model to focus on advertising, I think they may just survive. They still need some cash, but I think with this pitch he'll be able to find some--peapod did. |
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netinvestor |
posted 04-17-2000 05:03 PM
Go ahead back to the original question... Why should these guys be profiting from a job poorly done? If i'm working at a job and I basically fail at everything should I get rewarded for it? I'm not saying they should be punished, just not rewarded like they are. I'm pretty sure what these guys did was legal, but it damn sure isn't ethical or fair or anything like that. I want to get back to my point about risk. They took a risk when they took on this job, high risk = a chance for high return. High risk shouldn't = high return no matter what but it will if the cards fall the right way for these guys who obviously didn't do a great job. There's a reason Bonuses are called Bonuses and not Entitlements. I'm sure CDNow isn't the only company that is gonna have a situation like this in the next few months. |
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MaxPower |
posted 04-17-2000 04:38 PM
But it's legal, isn't it? Until the laws are changed, you can't blame these people from trying to make the most out of pretty terrible situation. It's simple human nature. Granted if I were a shareholder, i may be quite peeved, but as an unbiased outsider, I can totally understand why they would do this. |
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netinvestor |
posted 04-17-2000 03:30 PM
MaxPower, I'm talking about execs here, not employees. If we are talking about employees I agree with you. For executives, they didn't run the company too well, and so they are re-pricing their options so they still make out well. I agree that it isn't necessarily their fault that the company failed, but they certainly didn't do anything that warrants being rewarded more than their base salary already entitles them to. They took a risk when they took on the position. Now that the risk failed they shouldn't be given the spoils anyway. And actually I think it would hurt the rest of the shareholders, cause any options that are exercised have to paid for by the company somehow, often by issuing more shares and diluting the ownership. |
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MaxPower |
posted 04-12-2000 02:41 PM
Remember though, when the employees originally received the options, it was probably in lieu of a higher salary or bonus. So in the end, they will still make less with the lower priced options. And there's nothing wrong with trying to improve company morale when things are so low, especially when it's not clear that management is to blame (as opposed to faulty business plan, faulty market, etc.). And also, this doesn't effect the outside shareholders, and a company legally has the right to do this internally. I don't see any "shoulds" here. |
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netinvestor |
posted 04-12-2000 01:22 PM
An interesting snippet I just read about CDNow. Execs are repricing their options to around $6 (even though the stock is hovering around $4) but rumblings of a takeover bid are that it'll be somewhere between $6 and $8. Why should these guys, who ran the company into the ground, be profiting from it? If you cause a company, or allow a company (depending on how you look at it) to go bankrupt. You should get out of there with only your salary and whatever assets you brought with you at the start... This is kinda sickening to me. |
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InvestorGuide Weekly Administrator |
posted 04-03-2000 01:00 PM
Online music seller CDnow may become one of the first "victims" of an industrywide etailing shakeout. After a string of setbacks was capped this week by auditors questioning whether the company has enough cash to last through the year, CDnow has basically lost the power to dictate its own future. (source: The Industry Standard) http://www.thestandard.net/article/display/0,1151,13462,00.html |
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gatsby |
posted 03-31-2000 02:15 PM
As my grandfather always said, "at the end of the month, you need more coming in than you have going out." Sure, he was talking about bills, but it's a very simple but important idea: With every new customer CDNow receives, they lose cash just a bit quicker. What's the point of volume if the more volume you have, the quicker you get to bankruptcy? And the stock rose on this kind of news??? Crazy... |
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