Welcome to the September 30 Monday Business Briefing.
This is your private business intelligence briefing, with Insider Louisville staff and contributors vetting tips collected during the past few days, hours and minutes before we post at 7 a.m.
As we prepare for our Insider’s Meetup this afternoon at Vincenzo’s, we’ll have multiple topics for discussion. Bill Weyland, CITY Properties Group managing partner, will tell us about his vision of downtown redevelopment.
But we predict the business topic today and for months to come will be Greater Louisville Inc.
• If there is a defining moment, say insiders, that illustrates how GLI –both an economic development agency and a Chamber of Commerce – got to where it is today, it was the city’s June 2011 budget hearings for 2012 city budget.
In 2011, led by Metro Council President Jim King, Metro Council members were taking a hard look at the $1 million the city contributes annually to funding GLI, and what taxpayers were getting for their money.
At the end of that hearing, King had this brief exchange with then-GLI president and CEO Joe Reagan;
Jim King: Do you know how many members of your organization make over $100,000 per year?
Joe Reagan: I do not know that.
King: Okay, thank you.
Flash forward to Friday, Sept. 27, and the answer now would be, “a whole lot fewer than in 2011.”
On Friday, at least 25 percent of the GLI staff, which totaled between 40 and 50 people, was dismissed.
Those included Tracee Troutt, executive vice president/chief administrative officer and the No. 2 ranking GLI executive. According to the latest GLI Form 990 we could find, dated 2011, Troutt was paid about $145,000 per year, though insiders say her salary had risen dramatically by the time she left.
Multiple sources confirmed that Mark Klein, GLI’s CFO, was dismissed. Klein’s salary was not listed.
In conversations with insiders this weekend, they told us the origins of Friday’s staff cuts date back to 2007/2008 when GLI membership roles started to shrink, and along with it, membership dues.
As IL reported in January, 2012, GLI lost both large and small member companies starting in 2009, with the total budget decreasing 14 percent from $9.7 million to $8.4 million in 2011, the last year GLI filed a Form 990.
On that latest Form 990, a 40-page document filed in July, 2012, GLI lists $7.5 million in expenses.
We tried to talk to Reagan and GLI executives Friday, and our experience tells us there is more to this story than what we’re hearing from Reagan’s critics, who are legion.
Those internal critics say as money dried up, Reagan increased salaries, but cut internal accounting, dismissing a controller. We double confirmed that at one period, GLI went for months without approving a budget.
This is a story that will be front and center for months.
Our insiders are encouraging us to ask the tough questions including:
- about GLI’s efficacy. Reagan testified before the Metro Council that GLI “was the lead negotiator” for years on the agreements between Ford and other companies to expand Louisville operations. How significant a role does GLI really play in such negotiations considering the tax incentives and loans came from the state and federal governments?
- about the role of the executive board?
Here are some of the board members per the GLI website:
Jeff Bringardner, President, Humana
Paul T. Costel, Market Manager – Middle Market, CHASE
Charles P. Denny, Regional President, Kentucky/Tennessee Banking, PNC Bank
Mayor Greg Fischer, Mayor, Louisville Metro Government
Tierra Kavanaugh Turner, CEO, TKT & Associates, Inc.
Jennifer Mackin, President & CEO The Oliver Group, Inc.
Bill Samuels, Jr, Chairman Emeritus, Maker’s Mark Distillery, Inc.
Debbie S. Scoppechio, Chairman & CEO, Creative Alliance, Inc.
Kerry Stemler, President, K. M. Stemler Company Inc.
Susan Stout Tamme, President, Louisville Market, Baptist Healthcare System
Scott Trager, President, Republic Bank
Jim Welch, Vice Chairman, Brown-Forman Corp.
Stephen A. Williams, President & CEO, Norton Healthcare
In more than a dozen conversations this weekend, GLI insiders and former executives described a culture of fiscal irresponsibility at GLI. Those sources were unanimous the board did not monitor GLI finances closely.
“When a chairman relinquishes oversight to the CEO, this is what happens,” one source said.
Insiders describe a culture under Reagan in which GLI staffers forgot they were executives at a small city chamber/economic development entity and started seeing themselves on par with CEOs at major corporations.
“That’s who they dealt with all day,” said one insider. “That’s who they started imagining themselves to be.”
For example, multiple insiders stated that every other year, GLI would hold a membership drive, called a “Total Resource Campaign.”
Once GLI fundraisers reached their campaign goal, the senior executive team would celebrate by treating themselves and top volunteer fund-raisers to a vacation in an exotic locale, destinations that included Cancun, the Dominican Republic and Jamaica.
The family members of GLI executives were included, with their expenses picked up by the organization.
In the Form 990 filed in July, 2012, one section states that GLI salaries were benchmarked against other companies in the region, not against other not-for-profit, quasi-governmental organizations that collect membership fees for amorphous services.
As the membership declined from a peak of 3,200 to about 2,000 today, with decreasing fees and increasing accounts receivables as companies reneged on membership fees, GLI leadership did not adjust for increasing financial pressures, our sources say.
“The (GLI) model is not that hard,” said one insider. “You get dues from members. You use the money to put on business events, to recruit businesses and further the interests of the business community.”
All this begs one central question: Will the Fischer Administration use GLI’s financial stress to separate its economic development function and integrate it into city economic development efforts, spinning off the Chamber of Commerce functions?
• The GLI story will once again point up how the community suffers from an eviscerated conventional media. As of 7 a .m. this morning, the Newspaper of Record had not reported on the GLI story. Business First had an initial report from a press release. (The biz newspaper has formal business relationships with GLI including at least one networking event.)
Why is this an important story? Because once upon a time, GLI was among the most aggressive economic-development agencies in the United States, pushing for big changes that led to Louisville becoming UPS’s air-freight hub. It would take several reporters working full-time to get to the bottom of what’s happened at GLI. Could this be the first test of Louisville Public Media’s ballyhooed investigative reporting center?
• Friday will not go down as a great day in the annuals of Louisville business history. In the midst of reporting on the implosion of GLI, we got multiple sources sending us links to this shocking press release issued late Friday afternoon – when media consultants tell all big corporations to release bad news.
A big chunk of the city’s most profitable signature corporation leaving is town for the Netherlands.
Brown-Forman Corporation (NYSE: BFA) (NYSE: BFB) announced today that it will establish a new head office for its European operations in Amsterdam, The Netherlands, effective January 1, 2014. Brown-Forman’s corporate headquarters will remain in Louisville, KY.
“Brown-Forman’s corporate headquarters will remain in Louisville,” seems to be inserted into the release as an afterthought.
IL has been following multiple BF restructurings, as well as the (we’re assuming still Louisville-based) spirits giant’s focus in international markets such as Germany and its huge investments in the Duty Free airport trade, including multiple new American Whiskey bars in British airports.
What we missed is a huge piece of the company – and those salaries – leaving Louisville for Amsterdam.
By January, Thomas Hinrichs, senior vice president and managing director of Brown-Forman’s Europe operations, “and other key members of the company’s European leadership team” will move to Amsterdam from Hamburg, London, Paris, Prague, and Louisville, according to Friday’s release.
From the release:
In addition, Carmen d’Ascendis, senior vice president and managing director of Brown-Forman’s vodka business, and other key leaders of the Finlandia Global Brand Team will relocate to Amsterdam from Louisville, KY. Ultimately, the company expects to have approximately 40 employees based in Amsterdam, although it will probably take a few years before that number is achieved.
The bad news doesn’t stop there. Brown-Forman will move its Finlandia Global Brand operation to Amsterdam from Louisville. “With more than 80 percent of Finlandia’s business sourced in Europe, it makes sense to put our global Finlandia leaders closer to their largest consumer base and to where the vodka is produced in Finland,” stated Lawson Whiting, senior vice president and chief brands officer, in the release.
If that’s not enough, Brown-Forman:
• consolidated its Western Europe and Greater Europe organizations into a single pan-European operation last January.
• created a fully integrated German company in 2010,
• formed its own distribution company in Turkey in 2012,
• is creating a new distribution company in France in January 2014. It also owns and operates distribution companies in Poland and the Czech Republic.
All this is about one thing: Consumption patterns. Europeans drink more than we do, but they’re just now discovering bourbon. And as they discover bourbon, BF is acquiring European brands such as the 2011 purchase of Maximus Vodka in Poland.
Europe accounted for 30 percent of Brown-Forman’s total net sales in fiscal 2013.
• On to a more positive topic. The phrase, “under new management” has rarely produced such a dramatic change. What a difference three years make. In 2010, Passport Health Plan was the target of former Kentucky Auditor Crit Luallen in a move that was mostly grandstanding.
(Have you see Luallen or any other Kentucky official digging into the $30 billion public employee pension scandal? No, you have not ….)
Now, Passport is ranked as one of the top Medicaid Managed Care Organizations in the United States. The National Committee for Quality Assurance ranks Passport No. 21 out of 131 Medicaid health insurance plans in its Medicaid Health Insurance Plan Rankings 2013-2014.
Back in 2010, an audit by Luallen found Passport’s four-person executive staff was traveling, dining, spending Medicaid/taxpayer money and generally living like they were P. Diddy on Oscars night.
But in 2012, the new Passport CEO, Mark Carter, told us that while, yes, the previous executives had shown, uh, poor judgement, Passport never faltered in its non-profit role of efficiently providing high-quality health care for its its 120,000-plus Medicaid members.
According to the Kaiser Family Foundation, the U.S. spends an average of $7,681 per person on health care. In Kentucky the $6 billion spent annually statewide on Medicaid comes to $7,194 per person while Passport spends about $4,558 per person.
• Amid all the talk about creating a new local food culture – and all the supporting infrastructure – in Louisville, we ran up against the cold reality of the grocery business. Our Steve Coomes hosted two IdeaFest food panels that included James Neumann, the CEO of the local ValuMarket chain. Neumann told the assembled the net margin is 0.5 percent for his six-store supermarket chain, which specializes in local produces, cheeses, meats and beer. He also said it takes three of his stores to gross what one busy Kroger grosses. What a brutal business.
• Several readers sent us a link to the Adweek website, which contained a bit – “The United States of Ad Agencies” – about the industry pub naming Doe-Anderson as their pick for the No. 1 agency in Kentucky.
The post is refreshingly free of any kind of empirical data justifying the pick.
It just says:
Every state has “that agency.” The one you can’t help but admire, or envy. The one where you’d like to work—or if you’re lucky, where you do work. The one that’s hard to beat. The one that critics moan is overrated. The one that, more often than not, just gets it right.
The site also includes a cool pop-up map of the states, with Kentucky represented by Doe’s quirky little acorn logo.
• Yesterday, we got a tour of the cluster of Portland warehouses Gill Holland, along with Gregg Rochman and Matt Gilles of Shine Contracting, are buying/have bought. The cluster includes a large, two-story warehouse at 1538 Lytle St., off 15th St. And we have to say, “We get it.” The warehouses are next to Grasshoppers Distribution, and there are a number of businesses in a tight block of building including testing laboratories and Dismas Charities. Matt Gilles led the tour. The biggest epiphany is standing at the east end of 15th and Lytle and realizing you’re so close to downtown that you can reach out and touch the Galt House and the Aegon Center.
We’re not quite sure what the plan is, but we could see any sort of businesses from fulfillment to tech in the smaller warehouses, with the larger ones used for loft apartments and artists studios.
• A reliable source just told us President Barack Obama is coming to town Thursday, October 3. We don’t know why, but we’re guessing it’s not to have a bourbon with Sen. Mitch McConnell.