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CEO cites Sarbanes-Oxley burdens as reason behind sale of company

Annapolis, MD-based CompuDyne announced today that it agreed to be acquired for about $59 million. Compudyne Chairman and CEO Martin Roenigk cited the costs of compliance with the Sarbanes-Oxley (SOX) Act as a major reason the company decided to sell...and become a privately held company, no longer selling its shares to the public.

"This action represents the culmination of a long process of exploring the best direction for CompuDyne to take," said Roenigk. "Given our relatively small size, complex structure and the inordinate costs of being a public company in the post-Sarbanes Oxley era, a sale of the entire company…seemed the most appropriate step to take."

SOX was created five years ago to help protect shareholders, and the economy, by preventing unseemly accounting dealings that we saw at companies like Enron and Worldcom. It is a law that requires more open and detailed financial and accounting reporting standards for publicly traded companies in the US.

But some say those standards and requirements are too burdensome, and compliance with SOX inflicts high costs on smaller public companies that don't have the same resources as a Fortune 500 company. Compliance, and the costs associated with it, detract from overall revenues and end up hurting these companies more than helping. Some say SOX is a complete failure.

This is the first example I have seen of a public company pointing to SOX as a primary reason it decided to sell out and go private (although I am sure there are others out there already). This might open the gates for other companies to do the same, and force a long overdue review of SOX and the burdens it places on smaller publicly traded companies.

That, or the CEO of a Maryland company always hated former Sen. Paul Sarbanes (D-MD), a primary author of SOX, and wanted to take a parting jab...  :-)

Whole Foods, No Scruples

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently." - Warren Buffett

John Mackey, CEO of Whole Foods, spent more than EIGHT YEARS bashing his company's biggest competitor, Wild Oats, posting comments to a very popular online forum that tracks publicly traded companies. And here's the catch, he did it anonymously, using the pseudonym "Rahodeb" (a variation of his wife's name, Deborah). How many different comments do you think you could post in eight years? In Mackey's case: 1,394.

(read "Rahodeb's" 1,394 posts by clicking here)

Eight years worth of online bashing, arguing against, speculating about, and trashing his biggest competitor.  A competitor that really posed little to no challenge to his very successful company. 1,394 times. Wow. That is real commitment. (cue sounds of cuckoo birds....NOW)

Wild Oats recently agreed to be acquired by Whole Foods. Suddenly this is an attractive company to Mackey... Why would he spend so much time bashing a company that he wanted to buy? My guess is that, initially, he was just trying to hurt the competition any way he could. Albeit in a weak, cowardly way - especially for the CEO. But, as others began speculating that Wild Oats was a takeover target (Mackey included, as he pushed that notion on the message board), perhaps he saw an opportunity to try and persuade OATS investors to sell, thus lowering the price of its stock and making it cheaper and easier for Whole Foods to acquire. Not only is this cowardly, it is completely ineffective (you are basically talking to day traders who have about as much success as Mackey at influencing stock prices of companies they bash on the boards). But that's not the issue.

One would think that an educated, successful CEO would have better things to do with his time, much less know that his anonymous posting of negative comments to an online investor forum about the competition (or his own company) is not only completely ineffective - it could very well be illegal.

Of course, now that his exploits have been revealed, he suddenly has nothing to say. He probably thought he would never get caught. (Note: you are never anonymous online) So, for now, we can only guess at what drove him to do this, so often, and for so long. Especially as other CEOs have gone under the microscope for bad behavior by Boards of Directors and State and Federal Government offices in recent years.

This comes at a bad time (is there ever a good time?) for Whole Foods, who has become the corporate world's poster child for successful retail growth while maintaining a positive image. They have earned a powerful, positive reputation as a provider of high-quality, healthy foods and products in a world that is growing increasingly afraid of pesticides, carbon footprints, genetic engineering, surpressing small farmers, and not buying local. They pride themselves on having strong ethics, which they say is evidenced by working with local growers, supporting fair trade, selling only organic meats and produce, etc. Ethics, fairness and quality are the foundation of their brand, that invaluable essence that defines a company in the mind of its customers and shareholders.

Were his actions illegal? I don't know, but I do know this - they were completely unethical and unfair, and that hurts the very core of the company's brand. The CEO is the human embodiment of the company, and therefore the first and loudest champion of the brand, and the protector of its reputation. Mackey needs to be fired, and pronto. The longer he stays, the more the Whole Foods brands will tarnish, and the faster the company will lose the reputation it spent so many years developing, which drives their success today. And they could lose the Wild Oats deal.

If their leader is capable of something like this, and Whole Foods deemed it fit to keep him on board, why would I want to continue shopping there? And, if that's not enough for shareholders - why would the FTC allow them to acquire OATS?

Just tie AOL to a tree

As almost anyone in the IT and media world knows by now, AOL announced yesterday a plan to completely revamp its business model, transforming from a subscription-based content and email provider into an online portal that offers content, email and other popular services for free. Much like Google and Yahoo have been successfully doing for years.

Two things:

1.) Time Warner, the media and content conglomerate that "merged" with AOL back in 2000, would have us believe this is a revolution that will evolve how people access and experience the Internet -  when all they are really doing is playing catch-up with Google and Yahoo.

Why do you really need to pay almost $30 a month for email, search, IM and news/feature content when you can get all of that for free at Yahoo?  TW realized this, and saw their dwindling subscriber base brining in less money each quarter.  The real money is in pairing targeted advertising to searches, email clients, and landing pages, which is exactly the focus of their new business model. 

But, here's why the execs at Time Warner must be truly kicking themselves about ever buying AOL (as if they haven't been doing that for years already).  This strategy shift means they essentially paid BILLIONS of dollars in 2000 for something they pretty much already had - an Internet content portal. It was called Pathfinder.  Sure, Pathfinder wasn't as advanced and service-oriented as Yahoo and Google are today (sucked, really - it was basically a way to put Time Magazine and Entertainment Weekly articles online for a fee). But that was 6 years ago, and if they had used even a fraction of that money for improving their own site and its services, they could have had long ago what AOL is today, for a fraction of what they (over)paid for it back in the days of dot.com hedonism.

2.) Time Warner - WHY ARE YOU TURNING YOUR BACKS ON LITERALLY MILLIONS OF PEOPLE WHO ARE STILL WILLING TO PAY YOU $30 A MONTH FOR YOUR SERVICES?!?!?  There had to be another way....right? Well, maybe not, after so many recent - and well-publicized - complaints about AOL's mind-boggling bad customer service.

In the end, they are trying to keep the loyal subscribers they have and turn them into eyeballs for advertising revenue (something they had been doing for a while anyway), and keeping the AOL name and brand alive.  After today's announcement that these changes mean AOL will axe 5,000 jobs, or, 1/4 of its global workforce, I wonder if it might be time to cut bait and focus on products and services that actually generate revenue...and have the chance at a future in an online business world with new rules, new technology and new ways of staying competitive, (which do not include just playing catch up).

Bleeding revenue. Losing customers every second of every day.  Cutting jobs.  Playing catch up with much more established competitors...  I can hear TW investors now: "Start up the new business model, run it for two quarters or until it is stable, and try like hell to spin off that turkey and hope someone will pay us money for it."

Blockbuster, for the love of Pete...

Here they go again - Blockbuster is now RAISING the prices of their online video rental subscription service to $17.99 per month, from $14.99.  This is after introducing the service at $19.99, lowering it to $17.49, lowering it again to $14.99...all in an effort to try and take share from leader Netflix, who has kept prices fairly steady at $17.99 for some time now. The primary reason - to help offset the losses incurred by their elimination of late fees, which for years was their bread and butter and margin builder.  And also drive their customers en masse to Netflix, who never had late fees.

This has to be the third or fourth post I have made about the problems facing Blockbuster and Netflix, and their fighting a duel to see who will go out of business last.  Some previous posts with my take on the Blockbuster/Netflix wars can be found here and here.

To summarize: the in-store and mail-order video rental business will not be around in a few years, and the eventual ubiquity of video-on-demand through your cable or satellite service will be the main cause of death.

In related news...  Netflix took steps to ensure Blockbuster will be the first to go out of business, and, in what I think is an even bigger story, proved that Wal-Mart can't dominate every market they enter.  Wal-Mart, the third largest player in the online video rental game, on Thursday conceded defeat and handed off its service - and subscriber list - to Netflix.  (Then again, Wal-Mart probably sees the writing on the wall and wanted to get out of this space before it inevitably crashes).

Blockbuster's counter move is to RAISE the price of their already late-to-the-game service??  Touche, Blockbuster.  Touche.

Blockbuster - shut down every last one of your stores, sell off any real estate holdings now before the bubble bursts, and go completely online.  Your in-store business and its overhead will only hasten your eventual demise, so shed it ASAP so you can compete more closely with Netflix, who is poised now, more than ever, to eat your lunch.

Netflix, fighting to stay in the red

In a post one month ago, I said that Netflix and Blockbuster are in a duel to see who will go out of business last - check out the post here.

Just saw this news about Netflix earnings today, and wanted to share it with you.

Here is what it says:

Netflix may have a 56-percent jump in the number of subscribers (3 million, currently) and a 53-percent leap in gross revenue during the first quarter compared with last year, but it ended up with a loss of $8.8 million 54 percent greater than its loss of $5.7 million a year ago. The expanding loss was attributed to the price war with Blockbuster and Wal-Mart and to increased costs of acquiring new subscribers, which now averages $37.89 for each.

Source: Studio Briefing (http://studiobrf.newshare.com/), through imdb.com

Again, the competition is good for you and me, since we get lower and lower prices, and innovative new services.  But in a few years it won't mean anything when it comes to how we get our movies at home, because we will be able to order any movie we want, at any time, through our cable or satellite service.   And I'll say now that I believe Netflix, with its current business model, will never be profitable.  So, fight all they want - Blockbuster and Netflix are not going to be around (in this form, anyway) in less than five years.