Marketplace - The complexity of succession planning 

Episode Date: May 21, 2024

On Monday, JPMorgan Chase CEO Jamie Dimon hinted at retiring soon after running the banking powerhouse for 18 years. But finding replacements for veteran CEOs can be a tricky business. Also in this episode: New research finds that Native households are more financially stressed. Plus: Lowe’s invests in professional contractors, and Chicago vendors scramble after grocery stores shutter. Our May fundraiser ends Friday, and we need your help to reach our goal. Give today and help fund public service journalism for all!

This is it everybody. Our May fundraiser ends on Friday and it's your last chance to help us reach our goal this month. Revenue sources for newsrooms like ours are changing and donations from you, our Marketplace community of listeners, are more important than ever. So please help us reach our May goal before Memorial Day weekend and fund public service journalism for all. Give now at marketplace.org slash donate and thanks. Hey, if you're listening to this, I will assume you're at least interested in money, understanding the economy and finances as well. And some of us now want to get the next generation

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Greenlight helps kids and teens learn to earn, save, spend wisely, and invest. Get one month free and an extra $10 when you sign up for a Greenlight account at greenlight.com slash million. On the show today, why inflation and politics are inherently intertwined. Also, home remodeling and succession planning. From American public media, this is Marketplace. In New York, I'm Kristin Schwab in for Kyra's Doll. It's Tuesday, May 21st. Good to have you with us. Today we're going to start with a sort of sideways look at the American consumer and the battle over who sells them the stuff they need to fix up one of their biggest assets, their homes. Lowe's reported first quarter earnings today. The home improvement company says sales

were down about 4% from the same period last year. The company attributes that to uncertainty around interest rates and inflation. One bright spot for the company though, spending by professional contractors was up. It's an area Lowe's has been investing in to compete with rivals like Home Depot. Marketplace's Stephanie Hughes has more. Lauren Henry Jim Moore has been working as a contractor for about 20 years. He buys lumber, tiles, pipe fittings, mostly from one place. David Muriel Diaz It's always been Home Depot for us. We just

stay with what we know. David Muriel Diaz It's kind of become synonymous with contractor. Lauren Henry That's David Muriel Diaz, Moore's colleague. They're on a smoke break from installing a door in a Baltimore apartment. Jim Moore says his company spends about a million dollars a year just at Home Depot. And the overall professional contractor market in North America is worth about $500 billion, says Drew Redding of Bloomberg Intelligence. Professional contractors tend to be loyal to where they're shopping,

so to make inroads to that customer for Lowe's is gonna continue to take time. Redding says that about 25 to 30% of Lowe's sales are to pro-contractors. At Home Depot, it's about half. Lowe's has stated it's going after small and medium-sized contractors who might remodel a kitchen or a bathroom.

Home Depot has been positioning itself to become a one-stop shop for really big jobs. Somebody doing, say, like a full house renovation or an addition. Right now, high interest rates are keeping a lot of homeowners from taking out loans to remodel. But if rates go down later this year, professional contractors should see more big ticket projects. They're not being canceled. They're simply being deferred until the timing gets a little bit better for consumers. Also, Redding says much of the housing stock in the U.S. is older, and those homes are going to need TLC beyond what a regular DIYer can do.

He also points out that while Home Depot and Lowe's compete with each other for these professionals, they're also up against specialty stores for flooring, lumber, electrical equipment. Baltimore contractor Jim Moore says it is helpful if the help knows what they're talking about. If you had a trained guy in the plumbing aisle that could say, oh no, you can't use that for gas lines. You have to use this, this or this. Moore says one thing he likes is being in and out of stores as fast as possible. Time spent shopping is time not spent building or earning money. In Baltimore, I'm Stephanie Hughes from Marketplace.

Wall Street today in a slightly better mood than yesterday, just slightly. We'll have the details when we do the numbers. Inflation, inflation, inflation. Are you sick of it yet? Because the word is everywhere these days. Rising prices are a regular topic during a trip to the grocery store, also on this program, and as we get closer to the election, in politics. It turns out that connection, prices and politics, is a deeply embedded one, partly because the way the government deals with rising prices has changed a lot over the decades. Which leads me to Carola Binder, an economist at Haverford College. In her new book, Shock Values, Prices and Inflation in American Democracy, she looks back at the history of how the government,

through the Fed and policy, has tried to stabilize prices. Professor Binder, it's good to talk with you again. Professor Binder You too. LESLIE So one of the lightbulb moments for me when I was looking at your book is when you talk about how periods of war often come with periods of inflation, and you make the connection that the pandemic has actually been described as a global war. Can you tell me about those parallels and why they matter? Sure. So almost all of the major wars that we've had in US history have involved the need for a lot more government spending because of course, the government has to finance the military and that government spending and the need to finance it

has tended to be inflationary. You also get it in other emergencies if the government is, for example, addressing the COVID pandemic by sending out stimulus checks and by having the Fed loosening monetary policy. Nicole Sade Yeah. And you say these emergencies inherently politicize monetary policy. What's the connection there? Why is that? Right, because inflation, for one, just affects different groups of people in different ways. It can be more helpful to you if you're a debtor and so the real value of your debt

declines, but it can hurt you if you're a creditor. And also because there's disagreement about how the government ought to address it, whether there should be price controls, whether there should be monetary tightening, whether taxes should increase. All of those things lead to a lot of disagreement and a lot of tension and sometimes social turmoil. One key policy you dig into from the World War II era is price controls. Can you talk about what that is and why they're a central part of your book today? Right. So the book really looks at the different ways that the government has tried to either stabilize or manage prices. And monetary policy is only one part of that.

The government has also tried using regulatory policy, like price controls. So in World War II, there was enough public agreement that it was really a time of emergency and that keeping prices down and really mobilizing the war effort was important enough that at least for a time, there was able to be popular support for price controls. But the price controls really involved a massive state effort, right? Because you had to have surveillance to make sure that they were being complied with. Shop owners would have an incentive to try to sell things at market rate rather

than at the controlled rate. So you had basically housewives who were volunteering to go around and make sure that everyone was complying. Wow. Is that not such a popular tactic today or viewed as one? Well, when inflation was really rising in 2021, there were some op-eds and things arguing for price controls and drawing some parallels between the pandemic and World War II. But I don't think that there was anywhere near the popular support that would have been needed for a really broad-based system of price controls like that. There are still, and there is often support for controls on particular things, like sometimes

in the medical field, but the idea that the government is going to set the price for all of the different groceries and things that we buy is pretty hard to imagine today. Going back to sort of the top of our conversation, do you see a future where economic policy and politics are seen as separate? I don't think you can ever really separate economic policy from politics, and I don't think you really should. We try to keep monetary policy separate from fiscal policy because fiscal policy is rightly in the domain of politics, right?

Taxes and government spending do really have big distributional consequences, and that means that there's something that I think we should be voting on but they're really fundamentally inseparable because they affect society so much and there's something that people have to you know understand and come to some agreement on. As someone who studies the economy but also lives in it as a regular person, tell me why did you write this book? KATE BOWEN I wrote this book because I felt like there was something missing in what I knew about inflation and I wanted to learn it. In grad school, if you do an economics PhD, you learn models of the macro economy and they may have predictions

for inflation and for how central banks behave. But I really wanted to know more of the context. Why is it that we delegated monetary policy to the Fed rather than choose some other kind of institutional arrangements? I wanted to understand what the Constitution says and what our laws say about what is even legitimate for the government to do when it comes to trying to intervene in prices in some way or another. What has it been like to have your book come out at a time when maybe we thought inflation would be less in the news, but still very much is and watch all of it continue to move on? Well, I was writing the book when inflation was even higher than it is now. Of course,

I was hoping that inflation would come down, even if it meant, you know, my book became less newsworthy or less timely. But I think that inflation really is a perpetual topic. Anytime there's an election, there's always questions about, you know, if inflation has been low, can the president take any credit for that? If inflation has been high, should the president take any blame for that? And it's a time when inflation is very much in the news every day and something that all households are thinking about and feeling the effects of. Karola Binder is an associate professor of economics at Haverford College. Her new book is Shock Values, Prices and Inflation in American Democracy. Karola, thanks so much for chatting.

Thanks so much for having me. We start this story with a name that has held weight in the finance world for decades, Jamie Diamond. It appears the weight that he holds, though, at least at JPMorgan Chase, may lessen soon. Yesterday at the bank's investor day, the CEO hinted that his tenure would be something less than five more years. That's a pretty murky timeline, possibly because filling diamond shoes won't be easy. He's led the company for 18 years, longer than any of his peers. And under his guidance, JP Morgan Chase has become the biggest bank in the country. So we had Marketplace's Megan McCarty-Corino look at the complicated process of succession

planning. Successions of longtime CEOs can get messy. That's why the topic made for four seasons of delightfully dramatic Prestige TV. Like HBO's Logan Roy, long-running CEOs often become larger than life, says business professor Yoja Chang at the University of Virginia. The personality of the CEO becomes so deeply intertwined with the external image of a company. They're not only financially invested but also likely very much emotionally invested. Which can make it hard for a company to move on. Charles Elson, the

founding director of the Weinberg Center for Corporate Governance at the University of Delaware, says keeping an outgoing CEO too close can lead to a Disney type scenario. Hello, goodbye. Hello, goodbye. In late 2021, CEO Bob Iger handed the reins to his chosen successor, Bob Chapek, only to take them back less than a year later. That process seems to have been much more CEO driven than board driven. And I think that that's the fatal mistake. Because what a CEO looks for in a trusted lieutenant and what the company needs to carry it into the future might be very different, says David Larker,

an emeritus professor at Stanford. You have to ask the question, do you want somebody just like that, only younger? Or do you want somebody quite different? Plus, long-running CEOs will often stay on as an executive director or member of the board as three times Starbucks CEO Howard Schultz has done. That can inhibit a new CEO, says Jeffrey Sonnenfeld, a professor of management at Yale. Sometimes a new person learning to walk, they wobble a little bit.

And he says boards of directors have to give their new choice the space to find their own path. I'm Megan McCarty-Corino for Marketplace. Coming up. That's my core business anyway. I originally started as a online first brand direct to consumer. Sometimes it's best to go back to where you began. But first, let's do the numbers.

The Dow Jones Industrial Average gained 66 points, 2 tenths percent, to finish at 39,872. The Nasdaq lifted 37 points, 2 tenths percent, to close at 16,832. And the S&P 500 added 13 points, one quarter percent, to end at 5321. We heard earlier from Stephanie Hughes about home improvement stores' battle for contractors' business. Let's check in on some of those stores. Lowe's sank one and nine tenths percent. Home Depot lost half a percent.

Floor and Decor declined eight tenths percent. Speaking of home improvement, did you know that Americans spent $158 billion in 2021 replacing systems and fixtures in and around their homes? That's according to Harvard's Joint Center for Housing Studies. They spent another $72 billion on disaster-related repairs or improvements to their lot or yards, and $101 billion on discretionary work like room additions or bath and kitchen remodeling. Bonds rose, the yield on the ten-year T-note fell to 4.41%. You're listening to Marketplace. My name is Lee Hawkins. I've been a journalist for over 25 years. On my new podcast, What Happened in Alabama, I get answers to some of the

hardest questions about how things came to be for many black Americans and the truth that must come before any reconciliation can happen. I investigate my family history, my upbringing in Minnesota, and my father's painful nightmares about growing up in Alabama. What Happened in Alabama is a new series confronting the cycles of trauma for myself, my family, and for many Black Americans. Listen now. Hey everyone, it's Rima Grace, host of This Is Uncomfortable. If you're looking for some good recommendations on books to read, well you should join This

Is Uncomfortable's Summer Book Club. Every other week in our newsletter, we'll share a new book that'll make you rethink your relationship to money, class, and work, while also featuring an interview with the author or an expert on the topic. Plus, when you join, you'll be entered in a giveaway where you could win some This Is Uncomfortable merch. Be sure to check it out. Sign up today at marketplace.org slash book club.

This is Marketplace. I'm Kristin Schwab. We got a window into the health of Americans' financial security this morning from the Federal Reserve's annual Survey of Household Economics and Decision-Making, or SHED for short. It says that in 2023, 72% of respondents said they were doing at least okay financially. 63% said they could cover an unexpected $400 bill. Those numbers are basically the same from the year before. What also persists is the presence of racial gaps. Black and Hispanic respondents once again reported lower levels of security than Asian and white Americans. But there's one group the survey doesn't tell us about, American Indians and Alaska Natives. Data

on those households exists, but doesn't make it into the published report. Why, you ask? Marketplace's Savannah Marr explains. The Shed's famous $400 question asks respondents how they'd cover a surprise bill of that size. For 25-year-old Malia Noor, that's not a hypothetical. You know what? My car's a piece of crap and it breaks down like three or four times a year. Knorr is Tlingit from Southeast Alaska but lives in Portland, Oregon. She quit her job last fall. Now she's putting herself through grad school with a couple of side hustles, like leading

public health trainings for tribal governments. I am also a dog walker and I sell jewelry. If the Fed called her up to ask about her finances, Noor would say something like... It's kind of a precarious situation. Her income isn't super predictable, but she's making ends meet. She'd tell the Fed that she's doing okay, just worse off than last year, and she'd answer yes to whether she could afford a $400 bill

without taking on credit card debt. In fact, she'd be relieved if her next mechanic bill was $400 or less. I wish emergencies cost $400 these days, honestly. The Shedd Survey does capture responses from Native people like NOR, but they make up just 1% of the total sample. The Federal Reserve says that's not enough to rigorously compare to other groups in its published report. And that's why most research you hear about on this show tells us nothing about native consumers or tribal economies.

The small sample sizes means that it's trickier, but still possible to get useful information about them. Ava LaPlante is a research assistant with the Minneapolis Fed's Center for Indian Country Development. She and her colleagues pooled nine years of publicly available, but previously unpublished, shed data.

She says that allowed them to draw some meaningful conclusions about how Native households are faring. Generally, we find that American Indian and Alaska Native households experience consistently lower financial security. Lower financial security than everyone else taking the survey, no matter how you slice it. Over those nine years, Native households were 20% less likely than average to say they're doing at

least okay financially, and around 30% less likely to say they had the savings to pay for that surprise $400 bill, even controlling for factors like age and education level. I don't think it's that surprising. Randall Aki is an economist in UCLA's American Indian Studies department. He says these findings track with what researchers know about lower average incomes, limited employment opportunities, and poor credit access in many Native communities. Still, they can help bolster the case for funding and policy changes that might help.

You know, I think tribal leaders, government officials that are interested in increasing access to capital, access to banking. This is the kind of evidence you want. Aki says the federal government could invest in reaching more native households with surveys like the Shed and the monthly jobs report. Oversampling could help fill data gaps. But for now, I think you have to be creative. You have to be creative in thinking about, okay, the perfect data doesn't exist. However, how can I get close to that?

Aki says that's the kind of effort it takes to get a glimpse of what's going on with native consumers and tribal economies. I'm Savannah Marr for Marketplace. Whenever a large retailer goes out of business, there are real effects not just for the company and its employees, but for the brands sitting on the store's shelves. Last month, all 33 locations of Foxtrot and Dom's Kitchen and Market closed. Both were upscale grocers in Illinois, Texas, and the Washington, D.C. area, owned by parent company Outfox Hospitality. The store shut down with virtually no notice, and now its vendors, especially the small businesses that make things like hot sauces and dips.

They're scrambling to find new ways to stay in business. Esther Yunji Kang of WBEZ in Chicago has the story. Get my gloves on. Justin Doggett is the owner and one-man operation at Kyoto Black, a subscription and retail-based cold brew coffee company on Chicago's north side. So you gotta just hold this until it fills up. On this afternoon, he's filling pouches of cold brew,

snapping on a dispenser spout, and packing boxes to ship to customers. Doggett also delivers the cold brew in bottles and kegs to local cafes and grocers, which used to include Foxtrot's 15 locations in Chicago. The stores were kind of like Whole Foods, but smaller and shicker, with lots of local brands. Thaugut found out over Instagram that Foxtrot was closing just after he delivered dozens of bottles to one location.

Did you get any emails from Foxtrot? I haven't heard anything from Foxtrot. The last thing that I heard from Foxtrot was the order placement. That was it. After the shock wore off, Doggett sprang to action. He asked friends on Facebook to subscribe to his monthly cold brew. He needs more than 800 new subscribers to replace the lost revenue from Foxtrot. And that's my core business anyway.

I originally started as a online first brand direct to consumer. So I've been pushing that mostly to plug the gap. Shipping directly to the consumer is not an option for Simone Freeman. Her company, Freeman House Chai, makes fresh drinks that are not shelf stable. She says about half of her revenue last year was from selling to Foxtrot and Doms. For her, the grocers were that sweet spot. It was a chain but stocked local goods, and it was a great place to get the word out about her brand. We had tons of different people reach out to us via email or Instagram and say,

oh, I saw you at Foxtrot. I love your product so much. Where else can I find you? Freeman says she never expected the fast expanding chain to shut down overnight. I was absolutely shocked. I mean, they had a location that they were building in D.C. They had another doms that they were building. They just had this merger. Parent company Outfox Hospitality did not respond to an interview request. Freeman does not expect to get back the couple thousand dollars the grocer owes her. And Yuta Katsuyama, owner of Onigiri Kororin, isn't holding his breath either. He says he invoiced the stores for about 13,000 bucks before they shut down. That's about a week's worth of revenue. I don't think we're going to get that payment. Katsuyama sells fresh onigiri, Japanese rice balls filled with salmon or tuna wrapped in

seaweed. He had sold them at Dom's first and had just started selling at Foxtrot last month. We were about to like expand our team and then equipment for meet their demand. He says Foxtrot was once his dream retail store but now he's looking for somewhere else to sell. Back at Kyoto Black, Justin Daggett is pouring some cold brew from the tap. He says as tough as it is to lose the Foxtrot account, he's felt really supported these past few weeks. I get messages saying like, so-and-so said, hey, if you want to sell here, you can, and spread this to vendors you know.

So that has been a great support network. There have been people taking initiatives on Instagram to just get a list of affected companies together. He says the food and beverage industry is volatile. But when shake-ups happen, the community shows up for one another. In Chicago, I'm Esther Yoon-ji Kang for Marketplace. This final note on the way out today filed this under whenever there's a new market for something, there's also a lot of new investment and eventually somewhere down the line a market correction. This time it's streaming. I read this in the New York Times,

Pixar will stop making original shows for Disney+, which means Pixar is reducing its workforce by 14%. The idea here is that the company has lost its focus and employees were spread too thin when the brand started making content for the streaming platform. Another lesson in quality over quantity. Our digital and on-demand team includes Carrie Barber, Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia K. Smith, and Tony Wagner. Francesca Levy is the Executive Director of Digital and On-Demand, and I'm Kristin Schwab. We'll be back tomorrow. This is APM.

Hey everyone, it's Rima Grace, host of This is Uncomfortable. If you're looking for some good recommendations on books to read, well you should join This is Uncomfortable's Summer Book Club. Every other week in our newsletter, we'll share a new book that'll make you rethink your relationship to money, class, and work, while also featuring an interview with the author or an expert on the topic. Plus, when you join, you'll be entered in a giveaway where you can win some This Is Uncomfortable merch.

Be sure to check it out. Sign up today at marketplace.org slash book club.