Change and Rupture, Published by SchmidPreissler Strategy Consultants

 

Life is change. That is not new. From the beginning of creation, the world has changed with every passing day, every hour. In the past, the change of which we speak occurred at a more or less moderate pace. Within limitations, it was calculable.

Globalisation, new information technologies, the New Economy, increasingly sharply differentiated ideologies, suggestions of economic recession, catastrophes, and other events have increased the tempo of traditional, familiar change to such an extent that it has spun out of control. A fracture has resulted that is so deep and permeates all aspects of life to such an extent that the question becomes ever more urgent: how is this to continue? For many, the future seems to be in danger.

Until now, at least in the First World, people lived by and large at peace and under circumstances of ever increasing prosperity. In Europe, the population discovered that peace means much more than just the absence of war and the dangers lurking in the darkness were soon forgotten. The 11th September 2001 represented the outbreak of a new dimension and type of war. The supposed secure world of the strongest power on earth was deeply wounded.

The events are driving people to their utmost, above all the knowledge that their abilities have become inabilities and that instead of being the ones in control they are being controlled and hustled. Money and work are becoming scarce. Virtual possessions are dissolving into nothing. Hunger and poverty are spreading even more quickly. The neo-socialists and neo-communists are rehearsing a comeback.

Due to bewilderment, weakness and fear in the upper echelons of politics, business and society, but less frequently among the “common man”, change, as we experience it today, is commonly reinterpreted as an apocalypse scenario.

At the moment, more and more top managers, unprepared for the challenges that confront them, are leaving the business world, some by choice, some under duress. Even quite serious, solid and well-known economists are falling victim to mental traps. Graspers are doing foul work. Ethics and moral are being thrown by the wayside all too quickly if advantage can be gained somewhere. One might almost think that with the loss of a hold on the values of yesterday we are all being catapulted into uncontrollable chaos.

Today, just managing is no longer sufficient to deal with the situation. This is true of both the economy and politics. An orientation that will lead to a new order is necessary if we are to feel the ground steady under our feet again and regain trust in ourselves and in others.

We need more entrepreneurs.

Entrepreneurship is essential. This is very likely the reason that family companies are experiencing an unexpected renaissance.

What we are experiencing is not a game.

What we are experiencing in the economy is not easy to solve with home-made drastic cures. Above all caution is advisable when using quick solutions. Successes achieved quickly are often bogus successes and of short duration.

Personnel reduction, cost reduction plans, Lean management structures, new management-by... programmes, benchmarking, restructuring programmes off the peg - none of these, not even the 100 US management concepts recently offered in book form by one consulting firm, convey as a rule solid solutions.

We have to be capable of more.

Our time, characterised by change which generates rupture, also has its chances and it is necessary to accept and use these without any ifs and buts. Ultimately, it is the chances that can lead us out of the valley of worries and problems.

In order to do so, we must again pay close attention to the rules of Creation.

We must serve truthfulness, that is, we must stand up for and guarantee what we say and do. And we must undertake nothing that we cannot affirm.

We must again practice discipline, be open, fair and determined.

We must be responsible.

One’s word must again be worth something.

And we must recognise and respect the limits of freedom.

Unrealistic? Illusory? By no means!

We know many entrepreneurs and companies that either never relinquished their stability, or regained it, and are in terrific shape. And, therefore, they brilliantly survive the storms unleashed by change.

Our own clientele is proof that traditional and conservative values combine in an excellent symbiosis with an elite, polyglot, modern context.

This symbiosis has a future: it is the path to tomorrow’s success. And the current change signalises a new beginning for it. It has always been the basis of our strategic consulting.

We understand the current chaos as a process of clarification and renewal. The four seasons are a beautiful example provided by Creation for natural events, though they recur with regularity, are also always new.

What are the essential aspects in terms of the structuring of a corporate future?

·  Uniqueness: this is among the most important goals for any company. Only a company that strives for and achieves uniqueness can enjoy a leadership role.

·  Leadership role: no company should follow trends; rather, it should formulate them. The most important prerequisite for that is independence.

·  Independence: the degree of independence in all its manifestations decides the value of a company. Its value is then expressed in its culture and style.

·  Culture and style: a company must be able to afford culture and style in order to ach¬ieve profitability.

These essentials constitute the armour that allows a company to thrive.

Knowledge is power.

The First World has largely completed the change from an information society to a knowledge society.

 With his knowledge, each individual, each achiever represents an unknown challenge for each company, but likewise offers great and multifarious opportunities.

The current change is creating new perspectives for companies of every size, it creates for those who understand it, who perceive the rupture, chances for a “place in the sun”.

The storm that is sweeping over us speeds up a long overdue process of elimination, separating the wheat from the chaff. The survivor of this process then faces equally stiff competition. In the long run, this results in better achievements for everyone, a better economy and better economic management.

New horizons emerge through this process, particularly in the context of consumption.

In the First World, the importance of immaterial goods increases as that of material goods declines. They have lost their significance.

In the Second and Third Worlds, private consumption is just becoming a factor in the political economy.

One further aspect of this change is of great importance to us. It will make possible the future transition from a knowledge society to a culture society. Knowledge allows us to prevent the destruction of our world through the misuse of power. And, knowledge can also enable us to find ways to set strict boundaries for stupidity.

After what we’re going through now, nothing will be the same as it once was. Let’s understand change and rupture as a chance for a new beginning.

 

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Action/Abstraction: Pollock, de Kooning and American Art, 1940-1976

I just attended a preview of the exhibition at the Jewish Museum, NYC, Action/Abstraction: Pollock, de Kooning and American Art, 1940-1976.  My advice: Drop whatever you're doing and go see it! 

Not only is the selection of works from the American Abstract movement beautiful and well presented, but more impressive to  me, is the organization and mounting of the show. The art works are punctuated with intelligent and highly informative curatorial narrative as well as with a good amount of original, period documentation. All of the paintings are exhibited in the context of continuous references to the historically significant critical writings of  the period's two pre-eminent art critics: Clement Greenberg and Harold Rosenberg. This exhibition is as much about the important role which art criticism and artistic dialogue play in the creation of an art movement and the shaping of the art that defines it, as it is about the specific American Abstract artists included in the show.

Even though I frequent museum exhibitions and have always been attracted to the art of this period, I was relatively unaware of the role which these two individuals played in shaping and defining their contemporary art scene. My fascination with their writings was made even more intense when I realized that there is no comparable critical dialogue evident in our contemporary art community. Today, we are asked to judge artists and their works, by the continuous loops of spiraling auction prices and gallery price increases. 

When covering contemporary trends, the art press generally seeks out the opinions of auctioneers, art dealers and affluent collectors. Hardly any attention is paid to the more academic and critical segments of the art community. And with good reason: they have disappeared from the scene.

While we can't instantly create knowledgeable art critics or writers or reporters who can invest the time to learn about something before they report on it, it is a step in the right direction to realize that our dialogue is incomplete, that an important element is missing. From the perspective of a collector, or from that of a contemporary art curator, this realization should, at a minimum, encourage us to go slow when acquiring contemporary art at contemporary prices.

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Use Caution in Regards to Growth of Consumer Goods Turnover in 2008

From Brief Letter, published by Schmid-Preissler Strategy Consultants, Germany

Cost of energy, development at foreign exchange markets, exploding costs for health care, pension provisions, research and education, costs for fighting poverty, epidemics as well as terrorism, war and the consequences of war, rising costs for public service, securing and expanding infrastructures, fighting ecological destruction, development of new energies, protecting what is still whole in nature, fighting and lowering national debt – all of these problems are prevailing equally in countries of the First, Second and Third World and thus burden financial powers. People have to dedicate considerable financial resources to these problems and this is going to significantly affect consumption in the next year. Everywhere in the world even if there is a positive development of the global economy taking place. It’s not that consumption is going to collapse under these general burdens, but it is still going to change and we assume that it is going to change more and more sustained than many think during this time of a positive general mood.

Wants and needs are going to get even more distinct outlines than has been the case in the past. Everything that can’t be clearly assigned is going to continue to disappear.

Meaning, people are going to purchase more prudently. They are going to use their considerable knowledge during selection and purchase of products and services.

Surely, there are needs that can be met, in regards to quality, with simple and modest products and services, especially through automated facilities. Price can be adequately low there. The consumer has long gotten used to buying packaged products from a carton or simple shelves. When it comes to satisfying needs, the advantageous price is an important sales tool. This is why discounters are going to be of even more significance in the near future.

However, when this is about fulfilling wants, satisfying wishes, then people are always willing to spend more money. In economically tough times this may be even more so than in good times. But even for products and services which do not serve fulfillment of demand it is imperative that the relation of the value of the product to the price has to be evident. Far more critical than in the past, people are going to watch out for a comprehensible immaterial value of Premium and Luxury goods and services when fulfilling wants and satisfying wishes. Most of all this means brands dominating the premium and luxury business have to offer value.

It is going to be problematic for those suppliers of products and services which are still present in the traditional and disused “center” of the market and without adequate substance and yet are offered as premium and luxury goods and brands.

The consumer goods markets are going to shrink. But not the exterior outlines on the upper and lower edges of the individual markets or industries, but from the center.

If your planning includes growth for 2008 and the coming years you should rely less on the past but rather align your plans for growth with the possibilities, your products and services offer in regards to a clear profile.

Money available for consumption is becoming more valuable globally and the offer has to be designed correspondingly. If you are aware of this and look around accordingly, you are going to realize quickly that considerably more has to be done then just economizing and lowering costs. In order to keep the offer valuable and if necessary create a more valuable offer one has to be willing to invest into the market.

 

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Has the Fed Become a Sub-Prime Lender?

With the Fed's extension of $39 billion of credit, collateralized by the same assets that caused private banks to refuse to lend to Bear Stearns, hasn't the Fed become the largest sub prime lender in the world? And by facilitating the J.P. Morgan Chase buyout of Bear Stearns, the Fed has signaled it has the appetite to purchase additional piles of sub prime debt. 

The difference between the Fed's strategy and that of the banks and other financial institutions who hold large portfolios of sub standard assets is that the private financial institutions got into this mess unknowingly; the Fed knows exactly what its lending against and that's the tragedy.

Given the huge amount of sub prime debt still in the banking system and the Fed's declared policy of being a ready buyer of any asset unwanted by the private banking system, isn't it time to ask "What is the net worth of the Fed?" "How good are its guaranties?" and "What is the result of the Fed's insolvency?"

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From Bloomberg.com: Volcker Says Fed's Bear Loan Stretches Legal Power by John Brinsley & Anthony Massucci

April 8 (Bloomberg) -- Former Federal Reserve Chairman Paul Volcker questioned the central bank's decision to rescue Bear Stearns Cos. with a $29 billion loan, saying it was at ``the very edge'' of its legal authority.

``The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded central banking principles and practices,'' Volcker said in a speech to the Economic Club of New York.

Fed Chairman Ben S. Bernanke last month agreed to lend against Bear Stearns securities, paving the way for JPMorgan Chase & Co. to buy its Wall Street rival. Bernanke, who worked with Treasury Secretary Henry Paulson to broker the bailout, last week defended the move as necessary to prevent ``severe'' damage to financial markets.

Volcker, the Fed chairman from 1979 to 1987, had implicit criticism for U.S. regulators and market participants who allowed ``excesses of subprime mortgages'' to spread into ``the mother of all crises.'' The Fed's Bear Stearns loan was unusual, he said.

``What appears to be in substance a direct transfer of mortgage and mortgage-backed securities of questionable pedigree from an investment bank to the Federal Reserve seems to test the time-honored central bank mantra in time of crisis: lend freely at high rates against good collateral; test it to the point of no return,'' he said.

Wall Street Subsidy

Lawmakers, while praising the Fed and Treasury for averting a financial collapse, have also questioned the plan to subsidize Wall Street while the Bush administration resists using government funds to assist homeowners cope with the worst housing crisis in 25 years.

Volcker said the Fed's loan may send investors the wrong message.

``The extension of lending directly to non-banking financial institutions -- while under the authority of nominally `temporary' emergency powers -- will surely be interpreted as an implied promise of similar action in times of future turmoil,'' he said.

Volcker said the modern financial system has ``failed the test'' of the marketplace. When asked whether he predicts a ``dollar crisis,'' he said, ``you don't have to predict it, you're in it.''

The dollar has dropped 15 percent against the euro and 14 percent versus the yen in the past year.

$945 Billion in Losses

``What Chairman Volcker said in his remarks is that we need to make sure we are taking a look at the implications of the Fed decision,'' Glenn Hubbard, former chairman of President George W. Bush's Council of Economic Advisers, said in an interview. ``The question is: How do we then redesign regulation around a decision that bold?''

Volcker's critique comes as policy markers struggle to prevent the world's largest economy from contracting, a prospect Bernanke himself raised last week. The International Monetary Fund today said the global losses from securities tied to commercial real estate and loans to consumers and companies may reach $945 billion.

``The bright new financial system, with all its talented participants, with all its rich rewards, has failed the test of the marketplace,'' Volcker said.

As credit markets seized up, the Fed gave the 20 primary dealers in U.S. government bonds the same access to discount- window loans that had previously been reserved for banks. The central bank now auctions as much as $100 billion to lenders a month, and has cut the cost on direct loans to just a quarter- point above the overnight rate on loans between banks.

``The implications of these decisions, and the lessons from the unfolding crisis itself, surely deserve full debate and legislative review in the period ahead,'' Volcker said.

Fed's Response

The Fed has also lowered its benchmark rate six times since September to 2.25 percent from 5.25 percent, and traders anticipate it will cut by at least another quarter point this month to cushion the economy's downturn.

Volcker, 80, said the problems stemmed in part from trading of increasing complicated securities including derivatives that ``have taking on a trading life of their own,'' and said the turmoil ``adds up to a clarion call for an effective response.''

`There was no pressure for change, not in Washington which was spending money and keeping taxes low, not on Wall Street which was wallowing in money, not on Main Street with individuals enjoying easy credit and rising house prices,'' Volcker said.

To contact the reporter on this story: John Brinsley in Washington at jbrinsley@bloomberg.net

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Ungrateful, Apple Inc. Bites the Tree it Fell From

As a life long resident of the Big Apple, I always wondered why we permitted this little, spunky computer maker, Apple Computer, to borrow our brand and benefit from the decades of folk lore and tradition associated with the Big Apple's history. Maybe it was New York's natural affinity with the underdog, I thought. 

After all, here was a tiny David of a company, created by two computer geeks who actually thought that product design might enhance our experience with computers. Possessed with odd ideas that computers might make people's lives easier, more fun, more creative, they actually wanted to make these machines more intuitive to use, more "user friendly" in the industry jargon. They were contrarians from the inside out.

What the heck, I thought, these guys could use any help we, New Yorkers, could provide and letting them trade off our scruffy, anything-is-possible history is easy! It doesn't cost us and helps them. So no New Yorker objected when they showed a momentary lapse of creativity and adapted our logo, the Big Apple, as their logo. We even calmed down our friends at the Big Apple Circus and intervened with representatives of hundreds of Big Apple businesses, asking them to chill out, to give these west coast nerds a break and let them benefit from our luster.

But as my Mom used to say no good deed goes unpunished. On April 5th, Apple Inc. apparently renewed its objection to a proposed NYC logo for our Green campaign because it too closely resembled the logo they had appropriated from us. Go figure. I'm sure Jobs will dismiss the gaff, blame it on "the lawyers" as  he continues to showcase his flagship Fifth Avenue store, using images  backdropped by New York's iconic General Motors building, a view of the Plaza Hotel, Central Park, or shot from an angle showcasing the Fifth Avenue, Tiffany's intersection. 

A bigger question is "why does Apple care?" The company claims that having its logo share the market place with the New York City Green logo would dilute Apple's mark. Apple thinks that having the two marks co-exist would confuse the public. People would no longer know that Apple products come from Apple and that ads and related products bearing the Green NYC logo are promoting a NYC environmental "green" public policy. The legal experts refer to this as a "confusion as to source". Doesn't seem logical to me! 

And what if the public is confused as to the source of these products and services? Is that bad for Apple. As a maker of computers, ipods and monitors and as a reseller of vast arrays of computer and entertainment related  products, Apple surely doesn't have a very respectable environmental footprint. Would it harm them if a few New Yorkers actually thought they were good environmental citizens?

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Sotheby's, the Art Market’s Enron, Acts to Destroy Public Confidence in Chinese Contemporary Art Market

The Art Newspaper's April 2008 issue contains a first page article on the upcoming Sotheby's Hong Kong sale of Chinese art. If the events leading up to this auction aren’t a clear sign of the manipulation of the Chinese contemporary art market, I don't know what is. Like Enron, Sotheby's created its auction marketplace, oversees it, and trades in it, as a principal, thereby influencing supply and pushing prices up.

Basically, the article tells how a collection of Chinese contemporary art, assembled by private collectors,  was exhibited at the Louisiana Museum (Denmark) then traveled to the Israel Museum, Jerusalem. Both museums did what museums do for important exhibitions; they published catalogues, promoted the exhibition and most important, gave the “museum imprimatur of legitimacy and importance” to the displayed works and artists. The exhibition was packaged as works from a single, important private collection.

While the art was still being exhibited, a private art dealer "bought" the collection, allegedly telling the original collectors that the purchaser intended to keep the collection intact. As it turned out, Sotheby's acquired a significant ownership in the collection. And two days after the close of the Israel Museum exhibit, Sotheby's announced that the entire collection would be sold off at its Hong Kong and New York auctions, in April and the fall of this year.

When I sat on the Board of The Brooklyn Museum, in the 80’s and 90’s, museums were scrupulous to distance themselves from the commercial side of the art world. No dealers sat on boards or even advisory committees. Curators were appropriately circumspect when seeking and getting advice from dealers.

This is not because dealers are bad; it simply recognizes the conflict of interest that a dealer might have when advising a public museum on art or artists in which he trades commercially. To preserve their impartial authority, the museum world wisely kept its distance. Museums generally respected the public trust, which they hold, and did not want to risk being seen as participants in the commercial promotion of art.

Gradually, over the past twenty years or, the Museum world has lost much of its independence from the commercial side of the art market. Dealers are now active participants, providing funding and “scholarship” on block-buster exhibitions. They contribute significantly to the museums and guide important clients to museum boards. High profile, well-funded dealers now exert considerable influence on the policies of world-class museums.

Add to this mix the emerging market in Chinese contemporary art and you have the perfect storm: a vast art market both in terms of its number of artists and the works being produced, a market and culture largely unfamiliar to western audiences, a market sufficiently secluded and opaque to enable a speculator to buy and sell very privately. The Chinese art market of the 90's provided  an opportune environment for a financial speculator to accumulate large inventories of art out of the public eye.

And so they did. As recently as ten years ago, savvy art speculators trolled China and purchased large quantities, container loads in some cases , of art. So called investment partnerships were formed to purchase artworks in quantity and hold them for 3-5 years until they would be sold at projected multiples of 3 to 5 times their cost. At times these investor speculators even succeeded in locking up the supply of certain artists, by entering into exclusive supply agreements  for years to come.

The only challenge remaining was where and how to sell such large quantities of art at such prodigious projected gains. Large inventories of art typically require the investment of time and money, marketing and strategic placement of the art into important museums and private collections,  and the assumption of risk before an owner might realize a significant financial return on his investment. But this is not what these investors bargained for.

Enter the auction houses, eager to expand their global reach and smelling the potential for huge, quick profits embedded in backwater, undeveloped art markets. 

Significantly, during this same ten-year period, the auction houses evolved their often-criticized businesses of financing the purchases of art to guarantying auction results  to actually owning and selling art. These auction houses, entrusted with maintaining fair, honest and transparent marketplaces, see nothing wrong with investing in art and selling it through the very same channels they are supposed to keep fair and honest. Perhaps more important and more tragic, the art community hasn't found this development to be troubling either. After all, auction house interest in owning and selling art just means more money would chase less product and prices would go up.

Like Enron, the auction houses will likely continue these practices and relentlessly push the profit envelope further until this situation implodes. 

With no pushback from the Museum community, no significant collector voice challenging the claim that the auctioneer can be an honest broker of art belonging to others simultaneous with promoting the sale and appreciation of his own inventory, no outcry from the academic and art critic community that money has now usurped their roles as guides in public endeavor to understand and appreciate what is being created… in short, with the breakdown of  the checks and balances that we have evolved to ensure a viable and working art market, the  contemporary art market is poised to become another in a troubling list of financial bubbles.

 

 

 

 

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