The Fortum scandal
One of the biggest differences I’ve found between the American left and the Finnish left is the issue of corporate welfare. Before the War in Iraq, corporate welfare was the progressive left’s biggest concern - but it’s not a concern of the Finnish left, they fully embrace it. I’m with the American left on this one.
This whole Fortum indicident is just one of a million reasons why the government should keep their dirty fingers out of corporations. An elite few are getting rich all thanks to the Finnish taxpayer. The state buys into companies so things like this don’t happen, yet it’s happening. When it comes to business, Finnish politicians (like all politicians) are inept, unqualified, and corrupt. You’re naive if you think this all was just some “mistake” by some lowly civil servant. When a big U.S. corporation gets rich off stock options, they’re all evil and greedy. When a big Finnish corporation will get rich off stock options, it’s just some politicians’ blooper and now we need to “learn a lesson from the situation” as one Social Democrat said. I don’t buy it.
But this whole thing really seems to be about jealousy. Finns are jealous that others are getting rich, especially since the Finnish state is holding hands with them as they rake in the millions. The Social Democrat Party, who normally would be against this growth in wealth for individuals, appear to be the ones who gave the “green light” for this whole thing to happen - proving once again the kind of hypocrisy and elitism found in the Social Democrat Party. However, without these big incentives for shareholders, would people ever invest in them? Start up a company and make it public on the stockmarket and say, “Invest in our company, but if we ever become successful, you’re not getting any money!!” …you won’t find too many investors.
So Phil, should the state just sell its share majorities or should there be more efficient controls to prevent this kind of thing from happening - provided we want to prevent it?
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 1:51 pm
We already have “more efficient controls”, yet this still happens. More controls won’t change anything. Then you’ll get
beauty queenspoliticians running the show. And it’s the taxpayer who suffers in the end.Sell it all off. Companies like Nokia run just fine without the state’s involvement.
Comment by Phil — Thu, Sep 29th, 2005 @ 2:01 pm
Do we need more efficient controls or more efficient people in control? I go for the latter.
Comment by Anzi — Thu, Sep 29th, 2005 @ 2:03 pm
Companies like Nokia run just fine without the state’s involvement.
Now who’s being naive?
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 2:07 pm
I am puzzled, Phil. Why do you think that these mega-option packages are a bad thing? They are a result of the almighty Free Market.
We usually hear that it’s impossible to get competent management without astronomical compensation. I wonder if this is really so. During the height of the IT bubble, it was often complained that it’s impossible to get regular web monkeys without 10,000 EUR/mo salaries and weekly vacations in the Bahamas. Still many in the industry were working for peanuts.
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 2:11 pm
How does Nokia need Finnish politicians or taxpayer money involvement? If they liked the government’s involvement so much, they wouldn’t be moving more and more offices to the U.S.
Comment by Phil — Thu, Sep 29th, 2005 @ 2:14 pm
Do we need more efficient controls or more efficient people in control? I go for the latter.
Business executives know what’s best for their own companies, not politicians. And if they don’t, well it’s their own companies that go down the drain.
Comment by Phil — Thu, Sep 29th, 2005 @ 2:16 pm
I am puzzled, Phil. Why do you think that these mega-option packages are a bad thing? They are a result of the almighty Free Market.
When the state owns the majority of the company, it’s not the “Free Market” that’s at work.
Comment by Phil — Thu, Sep 29th, 2005 @ 2:17 pm
When the state owns the majority of the company, it’s not the “Free Market†that’s at work.
Yes it is. The Finnish government hasn’t decided about the trend that it takes a 10-figure salary to get a high-flying manager out of bed and to work in the morning.
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 2:21 pm
Business executives know what’s best for their own companies, not politicians. And if they don’t, well it’s their own companies that go down the drain.
Well gee, wouldn’t it be nice if this was the case. It just so happens that the execs of public companies seldom own 100% of the company’s stock.
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 2:23 pm
How does Nokia need Finnish politicians or taxpayer money involvement?
Well, it could be argued that they don’t need it any more. It might do you good to do some reading on the company’s history, though. Free education is also a major factor in Nokia being able to hire graduates with third world salaries. They also pretty much dictate how many engineers in relevant fields are trained in Finland.
If they liked the government’s involvement so much, they wouldn’t be moving more and more offices to the U.S.
Are they really moving R&D to the States? That would seem kind of stupid.
Comment by Tarja Rosenberg — Thu, Sep 29th, 2005 @ 2:28 pm
[?]It’s just some politicians’ blooper and now we need to “learn a lesson from the situation†as one Social Democrat said[?]
Funny thing!
Socialists are the same no matter where you are located!!!
Comment by el Gréco — Thu, Sep 29th, 2005 @ 3:47 pm
“However, without these big incentives for shareholders, would people ever invest in them? Start up a company and make it public on the stockmarket and say, “Invest in our company, but if we ever become successful, you’re not getting any money!!†?you won’t find too many investors.”
What does this have to do with options packages for key executives?
Comment by spiritus fortumis — Thu, Sep 29th, 2005 @ 4:48 pm
I agree on your point Phil, and as we have seen in the past few years, the government has sold a lot of the old state-owned companies away.
There is one important point however. Many of today’s state-owned companies are the successors of those that the government started after the war in the Kekkonen era. There weren’t enough private moneylying around and international investors weren’t too interested in Finland back then, so the state invested in certain businesses that were seen as vital in getting the country back on it’s feet and all those war-related payments to the then Soviet Union payed off. One part of the deal was to get jobs to certain rural areas.
Now I haven’t studied Fortum’s history too closely, but it’s predecessors Neste and Imatran Voima were probably started in the same manner, and so the state hasn’t exactly bought itself into these companies as you wrote. It has always been there. This whole thing with stock markets and such came later.
As for these Fortum dividends the politicians clearly made a mistake. The then ministers for trade and industry Sinikka Mönköre (sd.) and Erkki Tuomioja (sd.) are to blame, but the government (sd., kok., vihr., vas., rkp) as whole is responsible for accepting the plans too.
Now it’s too late to start complaining about past mistakes, and since the company is otherwise quite profitable both as an investment (was it a few 100 million euros or something that the state got this year?) and via all those taxes that are paid by the dividendin’ managers, it maybe isn’t so bad for the taxpayer after all - this time that is. In the future it would probably be a good idea to get rid of state-owned companies.
Comment by Joonas — Thu, Sep 29th, 2005 @ 7:03 pm
“Invest in our company, but if we ever become successful, you’re not getting any money!!â€
Investing to Fortum hasn’t got investors any profits?
The manager options package in fortum was created in 1999 and 2002. Since then, the share price has soared 200%, excluding Fortum oil, which has profited the investors at least the same amount. Fortum has been one of the most profitable finnish companies since the golden days of Nokia.
The government being the biggest shareholders in both Fortum and Fortum oil, it has been a goldmine.
Most people (hopefully everyone) who were involved in the options program when it was first created knew that if the company will get this kind of success, the options would be worth a lot of money. So did the execs and made it happen. The cost of the options is a tiny fraction of the profits gained by the investors.
What I see here is the famous Finnish envy rising up again..
Comment by Mikko — Thu, Sep 29th, 2005 @ 8:27 pm
Ye-e-e-s, Mikko, I take your point, but it probably would have gone better for the Fortum management if they had been in a company selling widgets and had sold a lot more widgets, rather than in a company selling a product whose current inflated price has prompted the stock to go ballistic. I’m not altogether sure people understand the directors of Fortum/Neste Oil as being much more than lucky driftwood in the market nand not “people making it happen”, and hence their envy is somewhat easier to fathom…
Comment by spiritus fortumis — Thu, Sep 29th, 2005 @ 10:19 pm
Yes, I see your point of view too. I guess a huge success needs always at least a little luck.. But these kind of complaints are always so shortsighted. Do you remember the fuzz about how “cheap” the government sold sonera (7 and 21 eur). Things look different at different times, people should remember that.
Comment by Mikko — Fri, Sep 30th, 2005 @ 1:50 am
I would like to point out a slight misunderstanding: This is not an issue of corporate welfare, but an issue of poor leadership. Corporate welfare means cases where the state puts out overpriced orders to companies or gives them tax breaks or subsidies.
The Fortum-issue is about the management option-plan that was sanctioned by the owner, i.e., the state.
To the point: contrary to what many pro-corporate people have said, the plan was a failure. Fortums big profits are not due to good management but due to soaring oil prices. The plan is rewarding the management for stuff that the management had nothing to do with.
Comment by Tiedemies — Fri, Sep 30th, 2005 @ 8:55 am
I would like to point out a slight misunderstanding: This is not an issue of corporate welfare, but an issue of poor leadership. Corporate welfare means cases where the state puts out overpriced orders to companies or gives them tax breaks or subsidies.
Right, it’s not corporate welfare in the traditional sense, but it’s still the state investinging alot of money and resources into a corporation, and sometimes (not in Fortum’s case), keeping them afloat.
Comment by Phil — Fri, Sep 30th, 2005 @ 9:09 am
Look at this debate a different way….
So the management of Fortum delivered growth and profits to this company but shouldn’t be rewarded for it.
So the ‘investors’ in this company who have profited (97% in this case)from the managements work (but haven’t actually lifted a finger themselves or even obviously had a clue what was going on in some cases!) should keep all the profit from that.
The above sentences dont make sense really. I just think more people in this company should have been included in the bonus scheme and that shareholders should recognise good work people in their companies do & thank their lucky stars they have a good team as they obviously couldn’t do the same job themselves.
One last question much profit has the Finnish state made from Fortum?
Comment by lewism — Fri, Sep 30th, 2005 @ 10:26 am
Are they really moving R&D to the States? That would seem kind of stupid.
Comment by Tarja Rosenberg
“The United States is ranked second, its strong performance attributable to its continuing technological supremacy, and a pipeline of innovation second to none in the world. The US has companies that are aggressive in adopting new technologies, and spend heavily on research and development”
- taken from World Economic Forum study.
Comment by BigUnit — Fri, Sep 30th, 2005 @ 1:23 pm
“This whole Fortum indicident is just one of a million reasons why the government should keep their dirty fingers out of corporations”
I agree. Free competition makes the world better. Just think of Disney, HP, Enron and other corporations that don’t (did not) pay too much to their managers. Specially they don’t have golden handshakes. Good to have free markets.
And when these leaders fail and the corporations should pay something to consumers, they are shouting chaper 11, chapter 11. We need to pay 1 billion to our managers, we can’t afford to pay this lawsuit. If we do we make bankcrupcy. Fortunately free market allows them to do so.
And when these managers really fuck up and break the law (that is to say earn a pile of money), they “make co-operation with the authorities” and they are freed from all charges. Furthermore they can keep the money they stoled. But fortunately the government has nothing to do about this. It is the free market.
Comment by Anonymous — Sat, Oct 1st, 2005 @ 1:35 am
“The United States is ranked second, its strong performance attributable to its continuing technological supremacy, and a pipeline of innovation second to none in the world.”
Agreed. They also pay engineers with real money, so moving all R&D there would probably at least double R&D expenses. Hence, not a very wise move.
Comment by Tarja Rosenberg — Sat, Oct 1st, 2005 @ 9:44 pm
In capitalist America money usually begats more money, which in turn begats more money. Hence……..good move. Not a law, Just an opinion.
Comment by Anonymous — Sun, Oct 2nd, 2005 @ 2:28 pm
In capitalist America money usually begats more money, which in turn begats more money. Hence??..good move. Not a law, Just an opinion.
So the theory goes. In practice, though, “socialist” Nokia is more profitable, and I daresay, more innovative than “capitalist” Motorola.
Comment by Tarja Rosenberg — Sun, Oct 2nd, 2005 @ 4:18 pm
So the theory goes. In practice, though, “socialist†Nokia is more profitable, and I daresay, more innovative than “capitalist†Motorola.
Comment by Tarja Rosenberg ? 2.10.2005 @ 4:18 pm
Prime use of anecdotal evidence.
Comment by Anonymous — Mon, Oct 3rd, 2005 @ 11:30 am
Prime use of anecdotal evidence.
I think this “anecdote” is rather relevant to the case of Nokia moving its R&D.
Comment by Tarja Rosenberg — Wed, Oct 5th, 2005 @ 8:58 am
And how many Tekes are there in the US to share the cost of R&D??
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Comment by Jeremy — Fri, Feb 9th, 2007 @ 9:04 am