Off-Balance Sheet Risks

I am almost certain Ron Paul is not on my mailing list, unless he is listed as an alias, such as Edward Quince.*  That matters, because what I am about to write will almost certainly get my libertarian card revoked.

This past week, the Supreme Court heard a case regarding whether or not employers need to pay workers for time spent on the job after they have formally clocked out.  This particular case involves workers at an Amazon distribution center where workers are required to pass through a security “check-out” after they have clocked out.

The legal points surrounding this case involve whether this time is a “de minims” amount and if such tasks are “integral and indispensable part of the principal activities” of the job.  The full legal issues are beyond the scope of this post (which, by the way, is merely a euphemism for–the author probably doesn’t fully understand the issues).  However, a few points can be surmised from the general situation.

First, Amazon does not actually employ these people, but uses a third-party contractor to hire and formally employee these workers, that’s why the case is  Integrity Staffing Solutions Inc. v. Busk.

Amazon is amazingly efficient in doing things.  So, why would they allow for a third-party to manage this relationship.  From my peanut gallery perspective, Amazon’s quest to be the low-cost provider has taken a lesson from Wal-Mart, the flag-bearer in low-cost distribution.  One big issue with being the low-cost provider is the wages you pay your employees.  Wal-Mart has learned that under the microscope of the public eye.  It has been painful lesson for their brand.

How does Amazon solve this problem?  Simple, Integrity Staffing Solutions (and other third-party employment agencies) take over that role.  They are happy to suffer the PR impact because they are local or regional firms that do not draw the national press or Hollywood documentary types that a scoop about Amazon would.

As for the legal issue, it seems almost obvious that a simple solution would be to place the “clock-out mechanism” directly after the security check-point.  If I leave work and cannot go directly to where I want, then I am still at work, correct?  If I am still at work, why should I not be paid?

I highlight these issues because they are “off-balance sheet.”  These are not complicated loan structures, a la Enron, but business risks that are part of an investment in Amazon.  Amazon is too big and complicated for me, but it is a great example of a lurking issue that remains outside the financial statements.  Thinking more broadly about a business and what problems could arise is the hard part–the part that is never mastered, only practiced…

If investing were all about the balance sheet, the Forbes 500 would be populated with accountants.**


I am trying to maximize my readership by posting on Friday night.  My marketing techniques may be somewhat unrefined.





*Edward Quince was an alias used by Ben Bernanke during the credit crisis.  It is unclear exactly why he used an alias during various communications with other Federal Reserve officials.

**I plan to keep saying this until Buffett adopts it as his version.



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