Congressmen Bail Out Firms to Protect their Own Investments

Equity ownership, stocks and shares owned by politicians, influenced their legislative and financial monitoring activities. The financial interests of politicians increased the probability that banks received bailout money, how much support these institutions received and how quickly.

Representatives’ stock ownership influenced members of the US House of Representatives to bailout the financial sector by voting for the bills HR 3997 on 29 September and HR 1424 on 3 October, 2008. In the initial vote, the likelihood of voting for the bailout was 41 percent for non-investors and 58 percent for equity owners. In the final vote, the likelihood was 55 and 69 percent respectively.

Congressional equity ownership in a given firm was also shown to affect the probability of receiving a bailout, the bailout amount and the timing of government support to that firm. Congressional committees with jurisdiction over the finance sector can affect regulatory outcomes. Equity ownership of members of these congressional committees affects bailout decisions, largely due to the powerful members in each committee, the chairs and ranking members.

Lobbying is indubitably an important means of exerting influence in politics. In the United States, campaign donations also matter. What has gone virtually unnoticed thus far though is that politicians also are investors. Part of their wealth rests with firms whose wellbeing falls under their legislative and regulatory influence.

Professor of Business Laurence van Lent of Tilburg University in the Netherlands and Ahmed Tahoun of Manchester Business School (UK) drew these conclusions on the basis of an analysis of 555 publicly listed financial sector firms, 295 of which received government support under the Troubled Asset Relief Program (TARP).

Cash Bailouts Are Frittered as Added Executive Compensation

A business study of corporate bailouts has found that debt relief is more successful than cash injections. It revealed that, in the year after a cash bailout, executives paid themselves and some employees higher compensation!

Executives of firms that receive cash almost immediately give their employees and themselves raises.

Professor Kenneth Kim

The study of the performance of 104 corporate bailouts in 21 countries between 1987 and 2005, was carried out by Kenneth Kim, associate professor, and Zhan Jiang, assistant professor, at the University at Buffalo School of Management, and Hao Zhang, assistant professor, at the Rochester Institute of Technology.

They found also that bailed out firms could recover to a point where their performance was as good as before, depending upon several factors. Recovery was best for firms that had had a sudden decline for reasons outside management control, or because they had problems servicing their debt. Firms that had declined more gradually with no significant external factors, or were unprofitable, were genuinely sick, and could not recover as well despite the bailout, though many did survive. Kim noted:

The former were profitable, they just needed a hand. So, it makes more sense to rescue firms that have been otherwise strong than to keep afloat “prolonged decliner” firms that have been weak or inefficient for some time.

Firms recovered least from governmental bailouts, because governments:

1. don't monitor firms after the bailout as closely as large shareholders and banks
2. may bail out a firm to keep people employed or to keep the economy going, regardless of the firm's performance
3. are more inclined to bail out firms with government connections.

UM Studies Support National Health Programs

A University of Michigan (UM) study of workplace wellness programs, in a Midwest utility company, showed it pays to keep employees healthy—it saved $4.8 million over nine years—the program cost $7.3 million and it saved $12.1 million. Dee Edington, director of the UM Health Management Research Center and principal investigator, said the findings are good news for companies looking to implement wellness programs. Well, by the same token, isn't it good news that Obama has brought in the means for ensuring that the whole population stays healthier than it is?

The UM study showed wellness programs work long-term, even though the employees who participated aged during the study, and it showed that those who participated throughout benefited most. Companies are realizing that insurance plans to care for sick employees must include wellness plans to keep healthy workers healthy. Summing up the findings among employers, Edington said:

Employers want a benefit plan that will take care of sick people but also keep your healthy people healthy and working.

Another UM study found that the pressure to keep their jobs in times of high unemployment is stressing out hundreds of thousands of American workers. Workplace stress is estimated to cost US businesses about $300 billion a year through absenteeism, diminished productivity, employee turnover, and direct medical, legal and insurance fees. About 75 percent of Americans list work as a significant source of stress and more than half say their work productivity suffers due to stress.

But companies can benefit from alleviating workplace stress, and possible violence, among workers by providing complementary alternative benefits. Cindy Schipani, professor of business law at Michigan's Ross School of Business, said:

It would seem that a healthy, less stressed and collegial work force would be less prone to resolve conflicts by violence. Not only might stress reduction contribute to a more peaceful society, reduction of employee stress together with the promotion of good health may positively affect the bottom line.

Schipani and Ross School colleague Norm Bishara did a best practice study, looking at companies on the Forbes magazine list of the “best companies to work for” that offer complementary alternative benefits, above and beyond traditional benefits that create value in the workplace by implicating employee stress reduction and positively impacting health.

Complementary alternative benefits may include:

• flexible work hours and working from home
• employer-paid health care premiums
• subsidized health care classes and health club memberships
• onsite fitness centers and medical and dental clinics
• paid leave time and special services for new parent employees
• laundry and dry-cleaning services, valet parking and grocery delivery
• discounted tickets to after-hours social activities, such as movies, plays, museums, sporting events and amusement parks.

Companies on the Forbes list that offer generous complementary alternative benefits enjoy a significant reduction in employee turnover, compared to the industry average. The average cost savings for the firms examined as a group was about $275 million in 2007. Bishara, assistant professor of business law and business ethics noted:

From a pure business perspective, complementary alternative benefits are attractive because reducing stress and, therefore, reducing costs associated with things like absenteeism, sick time and premature turnover, can increase profits.

Benefits accruing to the employer were:

• lower employee turnover
• higher worker productivity
• reduced employee health care costs
• healthier and less stressful lifestyles for employees
• a sense of community among workers

Most of the actions and benefits here are specific to the employer, but if they work across large companies, it makes sense to allow them to work across society:

In addition to improving the lives of their employees and benefiting shareholders, providing employees ways to reduce stress and promote health may also have a positive impact on society.

Schipani

Someone healthy enough to work could still cost an employer more than $4,000 annually in unnecessary health care costs. It makes sense for employers to reduce their own costs by supporting health benefits provided by the federal government, and competing then on making their workplace attractive to the best workers.

The University of Michigan also looked at how metabolic syndrome (MetS) and associated chronic disease can cost employers up to $5,867 annually in health care, pharmacy and short term disability, compared to $1,600 for a healthy worker. MetS is a collection of health risks that includes body mass index, cholesterol, glucose, blood pressure and triglycerides. The study was designed to determine the relationship between MetS and disease among employed adults. Health risk assessments were given to 3,285 employees in a Midwestern manufacturing company in 2004, and again in 2006. They hoped to determine whether employees with MetS would develop one of five chronic conditions—heart disease, diabetes, chronic pain, heartburn, or arthritis—associated with MetS.

Workers with MetS were significantly more likely to report arthritis, chronic pain, diabetes, heartburn and heart disease. If someone had MetS in 2004, they were much more likely to develop one of the associated chronic conditions by the second test in 2006. Study author, Alyssa Schultz, says workers in the study were just as likely to develop heart disease and diabetes as the general population. People in the general population with MetS are known to be more likely to develop health problems such as heart disease and diabetes without health intervention, but this is the first time the link has been studied and shown in working populations.

This finding challenges the supposed “healthy worker” effect that working people are healthier and more insulated from disease than the unemployed. Schultz said:

People with MetS cost employers money, but people with MetS and disease cost a lot more. It shows disease is an issue for corporations and other organizations, and they need to take action to help employees stay healthy.

A prevention and intervention program for at risk workers can cost as little as $150 a year per employee, according to the paper.

The important thing is to catch employees who have the risk factors before it escalates to a disease state. Keeping people healthy is much wiser then treating the illness or disease after it occurs.

It leads to improved vitality and quality of life for individuals, and cost avoidance for corporations in the form of lower health care, pharmacy and short term disability costs. Surely it follows, for employers as well as the employed and unemployed people who will come into the workforce when there is work available, that it must be good news if the general health of the population is improved by a federal health scheme. With all this plain evidence garnered directly from industry, is there so much irrational opposition to health care in the US, from both sides, ordinary people, and captains of industry.