About Frédéric Filloux


Posts by Frédéric Filloux:

Numbers — A new metric is born : the Kerviel

The Kerviel unit is about E4.9 billion, approximately $7.2bn. This is the amount lost by the n°2 French bank Société Générale. There is also the Kerviel Plus, about E50bn ($72bn). This was the total position taken by the young trader; SocGen felt it had to dump it in the midst of a bear market. It’s a little too easy to call Jérôme Kerviel a “rogue” trader. He’s rather a searchlight suddenly throwing a piercing ray of truth on the the financial system follies. Unfortunately, even if this only about a very narrow sector of the system, Kerviel becomes a beacon for the legion of opponents to the free market economy. Plus, and here’s an interesting surprise, he’s exonerated, even lionized by the crowd . See Le Figaro’s poll last Friday, only 13% think Kerviel bears most of the responsibility in the SocGen mess, versus 27% who say it’s the regulators, and 50% the management of the bank. People are ready to forgive the index rider who went, well, slightly off track. But this new metric turns out to be an interesting tool to compare real and virtual economies. Let’s wonder : how many Kerviels (kvl) is your company worth these days ?
- Yahoo (11,500 employees) : 6,2 kvl (according to Microsoft)
- Google (11,400 emp) : 22 kvl
- Boeing (154,000 emp) : less than 9 kvl
- Total (95,000 emp): 23 kvl
- News Corp (53,000 emp.): 8.3 kvl
- The New York Times Co. : (11,500 emp) one third of a kvl Well, you get the picture. These economic discrepancies don’t make any sense, except that all the companies mentioned above feel the tremors when a market related incident occurs (drop in stocks, increase in interest rates, etc.). -
> A large part of the excesses of the financial sphere is tied to a corrupting compensation system. Read this insightful analysis – written before the SocGen debacle – in the Economist.

Google and Publicis to team-up

Last week in Paris, Eric Schimdt the CEO of Google, and Maurice Levy, chairman of Publicis Groupe, the n°3 advertising group in the world, disclosed a one year-old cooperation. Although the CEOs did not elaborate; they simply acknowledge loaning employees to each other (depending on the employees, that could mean a lot). It’s a smart move for Publicis, in a depressed French market, its stock gained almost 5% during the week.
> story in Adweek

The WSJ.com will not be free

Rupert has made up his mind : the online edition of the Wall Street Journal will remain a paid-for model – at least for now. Here is the figures : the million subscribers bring each year $60m to Dow Jones. To offset such a loss with advertising would require at least a twofold jump in audience (some analysts say much more). In addition, the WSJ.com could have lost on both ends since he is currently able to charge $60 CPT (cost per thousand) to its advertisers, twice the amount of the usual free-information website. Those math settled the issue. Mr. Murdoch is not ruling out increasing the annual fee to specialized areas of the WSJ.com. He has some margin to grow. Consider for instance the French business paper Les Echos that charges the equivalent if $540 a year its web only subscription and $780 if you combine with the paper, versus $65 for the WSJ.com.
> story in Business Week
> and in the NY Times

Irreconcilable differences

“We gave Norm an unlimited budget, and he exceeded it”. This is what the CEO of Dow Jones said about Norman Pearlstine, the managing editor of the Wall Street Journal. Well, those days, the eighties, are gone.The increasing antagonism between editors and publishers is a byproduct of the unending financial crisis of the newspaper industry. Journalists see management as a bunch of hopelessly thick beancounters, while CEOs consider editors as budgetary teen-agers, unable to cope with economic reality.
Problem is: they are both right. And for the sake of the industry, they need to make peace. Last week’s firing of the Los Angeles Times editor James O’Shea is a perfect illustration of this increasingly bitter discord. He is the second editor to leave the prestigious American newspaper in two years in a fight over budget cuts. Mr. O’Shea had a budget of $123m for his newsroom. That is approximately four to five times the budget of most European newspapers – where the cuts imposed are more like in the double-digit percentage territory.
Cost cutting vs. product developement
David Hiller, the publisher, wanted a 1% cut. He had some reasons to do so: the LA Times lost 10% of its advertising revenue last year and the entire Tribune Company (which also owns the Chicago Tribune, the Baltimore Sun, Newsday) is on the same track, with, among others things, a sharp decline in classified ads.
Predictably, Mr. O’Shea is arguing otherwise. Like many journalists, he believes that the permanent “shrinking mode” in the print media, will impoverish newspapers and accelerate the readership hemorrhage. On the supply and demand system, he is definitely on the supply side, a side where the facts support Mr. O’Shea. Under his
editorship, he launches several editorial initiatives, which, not only added to the bottom line, but also made the LA Times the only US newspaper to record an increase in its circulation in 2007.
Corollary, in an act of bravado, the editor asked for a $3m raise in his budget, invoking a particularly news-rich year (presidential race, Beijing Olympics). Even though he admitted that he could come up with the required $7m in cuts, Mr. O’Shea didn’t budge. He denounced the way Tribune Co. allocates its resources, not only at the Times but also at all the Tribune newspapers all around the country. In doing so, he escalated a war with its publisher – and was fired.
This dispute epitomizes the need for a cross-pollination between respective managements in the newsroom and the financial area. Most of the time, neither side has a clue on the needs and pressure the other is facing. This problem will grow further as our industry is brutally transforming itself in a J-curve like, where it will be worse before it gets better. This mutual understanding can be only be achieved through strong internal training programs in which executives gain genuin insights into each other’s circumstances. We can dream of a world in which there will be financial management classes in journalism schools. Some publishers envision even more radical approach like tying a part of editorial staff’s salary to the sales of the paper. As long as there is some reciprocity in involving the other side in the strategicchoices of newsgathering, why not.
> a summary of the LA Times dispute, in the Wall Street Journa
> editor James O’Shea’s farewell speech

A month ago, the entire Tribune Company was taken private in a $8.2bn buyout by real-estate magnate Sam Zell. He explains his views.
> story in Chicago Tribune

The Real Davos Talk

To be honest, the talk of the Swiss town was the massive fraud at the French bank Société Générale (for once, we, French, set a world class record in finance, let’s celebrate!)
Seriously now. I think the most interesting speech at this 2008 edition of the World Economic Forum was Bill Gates. Microsoft founder outlined what he called “Creative Capitalism”: the use of market forces to address poor-country needs.
> Gates’ interview in The Wall Street Journal
> and the report from Davos by Fortune
On the same subject, Business Week run a great cover story bluntly titled Can Greed Save Africa. Here.
And in this 2006 New Yorker’s piece, Connie Bruck outlined the connections between high stake entrepreneurship and microcredit. xw

Hedge Fund eyeing on The NY Times

Harbinger Capital Partners, an Alabama-based hedge fund, gave notice Friday that it would try to elect directors to The New York Times Company board. The very same day, Harbinger did the same with Media General, a Virgina based company that owns 25 newspapers and 75 online properties. The Times is almost immune from an unwanted outside push at its board since the Sulzberger family controls 9 of the 13 directors. But no doubt that pressure will grow.
> Story in The NY Times

The power of Visual Information

Have you ever tried to captivate you teenager’s attention on esoteric notions like global macro-economic issues ? Before giving-up : try this. Gapminder is specialized in animated graphical representation of various data. Not surprisingly the company was acquired by Google last year.

> see a representation of income per capita by country between 1975 and 2004, here. (Look at the tiny country thats falls sharply and bounces back : it is Rwanda).