Back to the Future

Our honourable and beloved Finance Minister, in his usual, insightful manner, has opened up a world of possibilities for Big Business, with the retrospective change in law in the latest Finance Bill. The proposal amends the Income Tax Act to assert the government’s right to levy tax on merger and acquisition (M&A) deals involving overseas companies with business assets in India and is an enabling provision to protect the fiscal interests of the country and avert the chances of a crisis.

This has been done by changing policy with retrospective effect. Effective 1962. It is believed that this move will yield several billion dollars to the state’s coffers, mostly from a large Telecom company.

This one stroke of genius of the Finance minister has, however, revitalised failed and failing businesses the world over.

Kodak

Kodak, which lost a significant part of its value as a result of not moving to digital in time, has passed a Board Resolution to introduce digital technology, which it claims to have invented, with retrospective effect. This change is dated back to 1981, the year Sony introduced Mavica, a camera without a traditional film. Kodak has also retrospectively introduced workshops for senior management to shake them out of their belief that film will last forever and will continue to be hugely profitable.

As a result, Kodak is the most visible name in digital cameras today. Canon, Sony, HP and others trail Kodak by a mile.

Decca Records

Decca Records executives in charge of evaluating new talent, after travelling to Liverpool to watch a local band perform, inviting them to audition at their studio in London on New Year’s Day 1962 and deciding not to sign them, have, with retrospective effect, changed the decision they took in early 1962 to not contract the new band and, instead, have offered a lifetime contract to the band.

The band, of course, is The Beatles.

As a result of this retrospective signing, EMI, who had, then, signed up The Beatles, could not sign them up. They have continued to play on the fringes of mainstream music ever since while Decca Records went on to become the biggest name in music today, riding on the success of The Beatles.

Ford

In 1908, when Model T was first marketed, for its unique combination of price and quality, it revolutionised American culture and gave Ford an over 50% market share of the automobile market in the US. The Model T was also said to be the making of Henry Ford, lifting him from being any other Detroit automobile maker to becoming car maker to the world, and yielded him untold riches and power and pleasure. He was convinced of its capability and believed it would last forever.

Alas, that was not to be. Competitors kept innovating and soon the market responded. Chevrolet soon overtook Ford.

Ford has retrospectively replaced Ford as the Chairman, opting for an independent professional, Ford continuing in an advisory capacity. They soon introduced a new model to take over from Model T and it was even more successful.

Ford is the leading car-maker in the world today. Chevrolet, after briefly being in contention for the top slot, faded into oblivion. The automobile industry in Japan never took off because Ford, on account of its size and reach, was able to produce cars cheaply in Japan. The world never knew cars by the name of Toyota and Honda.

Atari

Atari has retrospectively agreed to make computers for Steve Jobs and Steve Wozniak and overturned an informal decision they took to not have anything to do with them when they apparently asked for funding and even agreed to let them work only for a salary in return for making their computers. Atari is sitting on a market capitalisation of over US$400 billion today.

Apple continues to be best known as a fruit.

Western Union

Western Union, which, then, had a monopoly on the telegraph, the world’s most advanced communication technology at that time, has retrospectively retracted the note which its President William Orton wrote to Alexander Graham Bell in 1876, which said: “Mr. Bell, after careful consideration of your invention, while it is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities… What use could this company make of an electrical toy?”

And replaced it with: “Mr. Bell, after careful consideration of your invention, we are pleased to offer you $100,000, as asked for, to own the patent for this new electrical toy?”

The electrical toy, of course, was the telephone.

Rejected by Western Union, Alexander Graham Bell kept the patent and started his own company. In a few decades his telephone company, “renamed American Telephone and Telegraph (AT&T), had become the largest corporation in America … The Bell patent – offered to Orton for a measly $100,000 – became the single most valuable patent in history.”

However, as a result of this wise retrospective decision of Western Union, Alexander Graham Bell could never realise the wealth his invention created for others, most particularly Western Union.

Lehman Brothers, Enron, et al

Lehman Brothers have retrospectively changed the decision they took at a Board Meeting in 2002 to actively participate in the housing market through acquisition of mortgage lenders, particularly ones engaged in subprime lending, like Alt-A Loans. The Board, instead, decided to “stick to the knitting” and continue with their core businesses (though there was dispute as to what their core business, or even their business, like any Investment Bank, was). It was a hotly debated and acrimonious battle as this retrospective decision would mean that the staggering profits made between 2004 and 2007 and, more importantly, the stratospheric executive compensation and bonuses of this period, would be wiped out.

However, reason eventually won and Lehman decided to stay away from mortgage lending. Its leverage – the ratio of total assets to shareholders equity, stayed under the historical 21:1 (which had gone up to 31:1 during the subprime crisis). It continues to be a storied Investment Bank and the dream job for every aspiring Investment Banker. As a result of this retrospective strategy change, the largest bankruptcy title remains with Enron.

It is believed that their liquidators of Enron are considering retrospectively changing the accounting practices at Enron which may help them stave off the tag of the largest bankruptcy in business.

Drake

Edwin Laurentine Drake has retrospectively patented the drill he invented alongwith his blacksmith uncle, in 1859. Till then, oil drilling relied on shovels and picks. Subsequent versions of the drill have been used by many others to drill for oil and become millionaires.

And Drake, with this wise retrospective patent, avoided dying in poverty. As a result of his retrospective patenting, Drake’s descendants are now the richest family in the world. And Drake Drilling the most valuable company.

Individuals

Not only big business, even small individuals have been so impressed by this move of the Finance Minister that they are taking individual steps to improve their prospects.

A Senior Manager I know who was made redundant as a result of his department closing down, has applied for a change of role with retrospective effect to a department that did not shut down.

An old friend of mine, who is a successful medical practitioner, has retrospectively decided to forego medical education and become a property broker, in view of the immense amount of wealth that real estate has created in the last two decades.

Yet another person I know well, who went to business school with me, is retrospectively changing his consulting profile to “energy consulting” in order that he could work for Enron, the collapsed Energy major, make his pile, and get out before the collapse.

The possibilities are mind-boggling.

Other unrelated developments

Steven Spielberg’s imagination has been fired by the immense possibilities that exist. He is said to be actively considering extending the Back to the Future franchise from the paltry two sequels to a more meaningful twenty four. The Finance Minister has been appointed the creative advisor for the new series.

Coming, as it does, after a Supreme Court decision against a government tax claim on the large Telecom company, it has raised the hackles of the judiciary who see it as government effort at undermining the independence of the judiciary. The judiciary in the democratic countries of the world have joined issue with the Indian judiciary, as this could become a trailblazer for governments in other democratic countries, who may seek to reverse the impact of unfavourable court decisions by making retrospective changes in law, thereby curtailing the power of the judiciary. Judiciary and people in the judicial system, in countries where the rulers also rule the judiciary, have not joined forces with the judiciary of the democratic countries. They do not see this as government effort to curtail their power. They have none.

The Telecom company most impacted has sought opinion on whether they can back out of the deal with retrospective effect so that they can avoid paying the tax they may need to once the retrospective law change goes through.

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14 thoughts on “Back to the Future

  1. The “bottom line” here beyond the tech success of these companies is that these mega corps and megabanks have more power that 80% of the world’s sovereign nations which therefore in essence makes them no longer sovereign. The rest of the big guy nations are certainly at the whim of the megabanks and megacorps to an increasing degree. These marches on wall street are expressions of the disgust and contempt (and anger) for these institutions that continue to gain the rein of political and economic engines. Most Americans now believe that our president(no matter who that may be) the congress and the senate are the dupes of these interests. Few people in America believe we have a government for the people and by the people. We have become disenfranchised from being participants in our own democracy.

    • It seems that progress has been defined in very narrow terms as “having more money”. And, it that money comes from someone else’s pocket, even better. Equally, I am sure people will find a way. Maybe protests and demonstrations today are muted because, perhaps, it is not hurting enough people badly enough. To that extent, mabe it will get worse before it starts to get better….

    • Share some of your angst, Carl. Also agree with you Ankur (defining success in terms of currency counts).

      What surprises me, though, is the assymetry of our reactions. When times are great, few are heard complaining against the very rules of the game that are vilified, after the bust. Cheap money makes it possible for us to own multiple homes, with the sole intention of flipping. I’m happy till the money rolls in; the bubble pops, I’m repossessed and bingo! I train my cross-hairs on Wall Street and all bad and sundry!

      The recent Facebook IPO is another case in point. ‘Smart’ people got lured in, with the prospect to selling to a greater fool. Price popped 15% within minutes of trading, everyone’s happy. Then, the reversal begins. When the stock’s 35% down by Day 3, investors cry hoarse, alleging Facebok’s investment bankers of ‘ripping them off’! Funnily, what people thought was ‘value’ at $120 billion (and good enough to buy, as a result) was suddenly discarded when the same thing was available for 35% lower!

      Wall Street to blame?

      After the multiple billion $ coup comparable to the one conjured by Wall Streets, I wonder how many will line up to carry out an ‘Occupy Face Book’?

      • Very well said.
        There is a place in Delhi (if you are familiar with Delhi on Sardar Patel Marg, near Maurya Hotel), where there is a forest on one side of the road. There are some monkeys in one part of that forest. People come and feed the monkeys reverentially, as they do with many things in India, as an offering to the monkey-God, in an effort to wash way thei sins. As people feed more, more monkeys arrive. The administration’s warnings of desisting from this behaviour fall on deaf ears. How can the administration prevent people from praying to the monkey-God and attaining good karma? However, the moment a mishap occurs, like a monkey bites someone, it suddenly becomes the administration’s problem. The common view becomes “the administration does not care about people’s safety”. Occasionally when the pitch rises to a crescendo the local authorities round up the monkeys and relocate them to a far-away forest, eventually at a cost to the tax-payer, which then raises issues of fiscal profligacy of the authorities. However, if only the people had exercised some discretion and self-control in the beginning….
        Unfortunately, that is us,human beings.

  2. Coming to the point of today’s muted protests today against widespread greed and growing disparity vs widespread passionate antiwar protests in the ‘idealistic’ sixties , can be explained by lack of a central charismatic figure like Che guavera and the rock and roll genre like the Beatles who galvanized the protests in the sixties by channelising the energy of the youth.Remember, the unrest and protests were worldwide and 1968 was a year which shaped a generation.
    Today’s buccanneer generation has no such figure, and todays cyberespace heroes and inspirations are mostly ephemeral, as most of them starting from Bill gates, Sabeer Bhatia, Jeff bezos. Sergey brin and lately Zuckerburg being instant billionaires of ‘ephemeral moments’ . Moreover there is an overall fatigue and lethargy in general.

    • My view is that when the time is ripe, revolutions will happen. Sometimes the methods change. Hopefully the next revolution will be less violent (I know it is wishful thinking!!). There are newer tools for galvanising protests, like Mobiles, FB, etc. As there is much greater dissemination of information today, there is lesser likelihood of heroic leaders, whose myth is also fed by lack of information, but a greater likelihood of “team” leadership.

  3. Now coming to retrospective ‘missed opportunities’ , let us not forget that the precursor to the Graphic user interface of most operating systems was originally invented by Xerox and first adopted by Apple in their OS. Also, the original VCR, the popular playback device in the 80s, was originally invented by NV Philips of Holland way back in the sixties and made commercially successful by the Japanese who captured almost 99% of the market in the seventies and eighties.

    • Thank you for your views. Take your point about Xerox and Philips. There are probably many many more examples of poor business decisions. And if I can collect some more nuggets, I can publish my very own Back to the Future sequel. In fact, if you have a post worth of such examples, I can publish it on this Blog with credit to you.

    • Thank you. I appreciate your taking the trouble to leave comments on the posts. It is often frustrating to not get feedback. At best, many people press a Like button here and there.

  4. As for me, I’d just go back in time and change some of my investment decisions, if your suggested course of action was adopted by these companies!

  5. I wrote a book dedicated to the stupidity of American corporate life, entitled “The low road to business success”, obviously a satire (see signature my links are below). It is simply unbelievable that some of the practices in large companies continue. If we were to go back in time, say, maybe only 15-20 years, what is commonplace today would seem to have occurred on a distant galaxy in another dimension. As for large companies possessing great wealth…they sure as hell have not been making any investments in the economy (U.S.) recently.

    Nick Schklair
    http://www.businessunderbelly.com/about.htm
    http://www.amazon.com/Search-Silver-Bullet-Essential-Operating/dp/1461135869
    https://www.smashwords.com/books/view/163939 “The Low Road to Business Success”
    https://www.smashwords.com/books/view/67183 “In Search of the Silver Bullet”

    • Thank you for visiting and commenting.
      Read the 20% of your book available as HTML. Pretty relevant stuff, written in a thought-provoking (or poking) manner. Will try to read the rest of it soon.
      Corporate “practices” continu to evolve, with each generation of Managers and Executives trying hard to outdo the last.
      Making investments is wishful thinking, many corporations seem to have “filch taxpayer money by raising the bogey of being an essetial service” written into the performance contract of senior employees…

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