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April 24, 2005
What Makes a Non-Profit?
The News-Gazette reported Friday that the Champaign County Board of Review is recommending the state deny Carle Foundation Hospital's request for tax-exempt status. Local conservative blogger IlliniPundit sees this as just another example of anti-business sentiment in the County. I see it as a legitimate finding based on the evidence.
Carle spends about $1.3 million each year on charity care. While that is real money, it’s only 0.5% of their annual revenues. The other 99.5% is going towards non-charitable costs. Another example of Carle’s charitable nature is their habit of charging low-income uninsured customers their highest list prices.
I would certainly prefer to see Carle spending more of its revenue on charity care. It’s a real way to give back to the community. While it’s true that $1.3 million isn’t peanuts, does it qualify Carle as a non-profit organization? Of course not. They made $33 million profit on $312 million of income in 2003.
Carle is a for-profit company, plain and simple. Think of it this way: if I staked a sign in my yard and called myself a church so I didn't have to pay property taxes, would you be interested in whether or not I actually was a church?
Health care is costing a fortune (and rising) in this country. Some of the costs pay for doctors, nurses, beds, MRI machines, heat, and other tangibles directly related to patient care. However, another big chunk is administrative costs for health insurance companies, CEO salaries, and profit for the shareholders. The United States spends more money per person than any other advanced country, yet our citizens die sooner than countries that spend half as much as we do. Everyone’s health premiums have gone up in the last several years, and the state’s budget woes owe a lot to increased health care costs. Are doctors, nurses, and other health care workers seeing huge wage increases, or is that extra money going to the insurance companies?
Spending 0.5% on charity doesn’t make Carle a charitable company. Their decision as a corporation to provide charity care may very well be a business decision designed to save them money by getting a tax exemption (for example, it saved them $700,000 in 2003). I would expect they'll now either start providing more charitable care (in order to change people’s minds on their status), or they'll stop providing it and start paying taxes.
Either way, it's the bottom line that counts for them, and there's no reason we should be making up for their disinterest in paying property taxes. If Carle does end up paying $2 million/year in property taxes, perhaps Urbana can spend some of that on Frances Nelson and/or other subsidies for low-income health care in the community.
Posted on 12:32 AM | Comments (3) | TrackBack
April 17, 2005
The Evilest Guys in the Room
There is a new movie coming out this Friday, April 22nd called “Enron: The Smartest Guys in the Room” (trailer: quicktime, wmv). Based on the book of the same name by Bethany McLean and Peter Elkind, this documentary illuminates the motivations of the executives and staff at the Enron Corporation during its tumultuous rise and its dramatic and costly fall. Thanks to a pre-screen copy from the film’s publicists, I had a chance to get a sneak peek.
First, let me dispense with the evaluative necessity—this is a great film. “The Smartest Guys in the Room” takes a complex subject and unravels it into its essential roots: the dangers of the corporate state, the consequences of our capitalist system on fundamental human behavior, and the degree to which so much in this country is controlled by so few.
The film sticks to a fairly traditional documentary style reminiscent of a Frontline or a 60 Minutes documentary. This is not a bad thing. In this age of name-calling and bias accusation (i.e. the SCLM), “Smartest Guys” presents a fully credible portrait built on the words of the Enron executives themselves. There is a great deal of direct footage of the primary players (Chairman Ken Lay and CEO Jeff Skilling), as well as backup narrative from various Enron employees that saw the action firsthand.
However, the most interesting part of this film is not its fact finding, but is instead the complex web it weaves between the facts in an attempt to explain the “why.” Moreover, the Enron executives could hardly fault anyone for asking this question given that their treasured corporate slogan was “Ask Why.”
“Smartest Guys” is a picture of the consequences of our priorities as a society—when the importance of making money becomes the driving mantra behind everything we do. The Enron execs were a bunch of macho, reckless guys with a wild-west gambler mentality. They merged this with a level of confidence that can only come with access to power at the highest levels (i.e. the White House). The result is an arrogance, both internal and projected, that allowed Enron to blind the world with their dreams and schemes.
The consequence I speak of is a corporate state without regard for you or me. The corporation has absolutely no interest or reason to support America and its people. Instead, every single aspect of the corporation is about money for its shareholders and executives. Enron took this idea to its highest highs (and eventually its lowest lows) by instituting procedures designed to weed out anyone with a cautious or empathetic bone in their body.
The Performance Review Committee (PRC), setup by CEO Skilling, was a structure for annual employee performance evaluation. If you weren’t cutthroat enough, weren’t fully committed to the unrelenting goal of making money regardless of human cost, you were let go. Enron dumped 15% of its staff every year based on PRC recommendations. What they were left with after years of this weeding was a staff that would screw us all over, that wouldn’t care about right or wrong, legal or illegal.
In the film’s best sequence, this evil mentality is most evident in Enron’s participation in, and engineering of the California energy “crisis” in 2001. “Smartest Guys” does a great job explaining how Enron sucked power out of California to create a false ‘shortage,’ so that they could then sell it back to them at a huge profit. This sequence is filled with telephone dialogue by Enron traders at the time who happily talk about screwing grandmas out of power and gleefully cheer on wildfires that threaten power distribution (so that their prices would go up even more). Finally, the film does a great job tying this whole debacle into the subsequent recall of CA Governor Gray Davis by Schwarzenegger’s friends Ken Lay and George W. Bush.
The frequent links to governmental power by the Enron executives is a recurring theme in “Smartest Guys.” Ken Lay knew Bush Jr. and Sr. going way back. Lay was an early champion of deregulation, publicly pushing for it as far back as the 1970’s. Despite George W. Bush’s attempts to distance himself from Lay in the aftermath of Enron, “Kenny-Boy” (Bush’s nickname for Lay) and his company were the largest single contributors to Bush’s presidential election campaign in 2000.
One aspect of this movie that particularly pleased me was its unwillingness to give any of the top executives a pass. It lays responsibility right where it belongs—at the top. There are great sequences in the film that include accusations by Sharon Watkins (the inside executive who was appalled at what she found and eventually testified against the company), and ridiculous rebuttals by Skilling in front of Congress. But the film doesn’t stop with Skilling and indicts Lay as well. As Skilling had, Lay claims he didn’t know anything about what these rogue people were doing in his company, and therefore claims no responsibility for what happened. Sure, he and Skilling had dumped millions in stock options just before the company tanked, had hired the people who screwed the world with its Ponzi schemes, and oversaw the downfall of the country’s 7th largest corporation—but its not their fault!
Kurt Eichenwald recently wrote a book on the same subject, titled “Conspiracy of Fools.” I had been particularly interested in reading this book when it first came out, as I was engrossed by his last work, “The Informant,” which lays out the details behind an ADM price-fixing scam in the style of a John Grisham novel. But my reading of reviews of “Fools” revealed that Eichenwald gives Ken Lay a pass and adopts Lay’s defense of ignorance. As unbelievable as his ignorance claims are, their truthfulness is irrelevant in determining guilt or innocence. At the very least Lay engineered and ran the company that screwed 20,000 employees out of a job and lost their billions in pension funds. He managed to get away with hundreds of millions in cash himself, though.
I do wish “Smartest Guys” had done a better job explaining the complex accounting schemes that led to the company’s unreal growth around 2000. Enron created hundreds of “partner” companies, usually consisting of nothing but paper, that they used both to squirrel away debt and to realize projected profits from. These schemes, combined with the confident attitudes and connections to power allowed them to blind the stock analysts who gave them nothing but buy ratings. The film missed an opportunity to unravel this mystery through a simple diagram and explanation.
I also would have liked to have heard more about the aftermath of Enron—the calls for corporate accountability by the citizens and the degree to which our government responded (or failed to respond). How much did Bush play in blocking these reforms? Was enough done to prevent this in the future?
Minor quips aside, “Smartest Guys” is a great film that does a noble service in pointing out that Enron is not an aberration, but is a direct and logical result from the structures we have setup and tolerate as a society. As the film mentions near its end: if it looks too good to be true, than it probably is—a fitting cliché for 21st century America, its corporate dominance, and its superpower politics.
Posted on 02:08 PM | Comments (5) | TrackBack