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The HBS Blog offers insight on Delaware corporations and LLCs as well as information about entrepreneurship, start-ups and general business topics.

Toyota and Tylenol
By George Merlis Wednesday, February 3, 2010

If corporate crises were a game, the Toyota safety recall would be a Superbowl contender.

Toyota Motors is a company that heavily promotes its engineering innovation, production quality and service reliability.  In a haymaker blow to Toyota’s reputation, the company suspended production and sales of eight of its most popular models -- including America’s (previously) best-selling car, the Camry.  And now Toyota is recalling millions of already-sold cars worldwide to fix a potentially life-threatening problem: unintended acceleration.

(Disclosure: I have a personal stake in this story: I own a second-generation Toyota Prius.)

This week Toyota began shipping parts to dealers across the country to correct an accelerator problem that could lead to cases of disastrous unintended acceleration.  The Toyota problem is so serious the automaker stopped production and sales on eight of its top-selling models -- including the Camry, the best-selling car in the U.S.  The scope of the problem is staggering: I’ve seen stories on the web sites of European, Japanese, South African, Canadian and Israeli newspapers.  Toyotas sold in China have also been implicated.

I always judge a company’s handling of a crisis by what I call the Tylenol Standard.  Back in 1982, Extra-Strength Tylenol capsules were the best-selling over-the-counter pain reliever in the United States.  Then, seven people in the Chicago area died; they had all been taking the drug.  J & J jumped into action with an approach that is taught in business schools to this day.  The company suspended all production of Tylenol immediately.  It recalled the 31 million bottles of Tylenol then on store shelves, destroying all the medication that was returned.  It launched a rigorous inspection of all its manufacturing facilities. And, Johnson & Johnson made top officials readily available to the media where their story was: “We don’t know how this happened.  We will find out and correct it.  Meanwhile, do not use any of our products that you have at home; return them immediately, and report any adverse effects from our medication that you have already taken.”

The company’s response was fast, comforting and took a page from the Harry Truman adage: “The buck stops here.”

As it turned out, the buck did not stop at Johnson & Johnson.  The Tylenol deaths were murders, not the result of accidental contamination.  Someone had tampered with some Extra-Strength Tylenol boxes in drug stores around Chicago. The killer opened the packaging and the bottles, inserted potassium cyanide into the capsules and then resealed everything and put the product back on the shelves.  Police and FBI theorized the killer had a specific target in mind but killed others in order to make his intended victim look like a random casualty in a series of accidental poisonings-by-contamination.  (The case remains unsolved to this day, possibly because the intended victim never took the contaminated drug.)

Within a year, Extra-Strength Tylenol had regained its position as the country’s top-selling pain killer.   Unfortunately, the Toyota brass must have cut class in business school the day they taught the 1982 Tylenol lesson.

Toyota was late to the table with an admission that there was, indeed, a problem and slow with information to the media (and through the media to the millions of Toyota owners worldwide).  This sowed the seeds of confusion and resulted in a serious erosion of trust in the company.

Toyota’s worldwide president, Akio Toyoda, grandson of the company’s founder,  made no statements to the media and no apologies to customers until a crew from NHK, the Japanese TV network cornered him at the World Economic Summit in Davos the last week of January.  This reclusive behavior despite the fact that the issue has gained massive media attention since last August when an off-duty California Highway Patrol officer and three family members burned to death after crashing a runaway Lexus they had borrowed from a dealer in San Diego.  The company’s U.S. president, Jim Lentz, was also noticeably absent from the media until February 1, when it was time to announce the fix.  Then he began a media blitz explaining the problem and the repair, a belated attempt to restore Toyota’s battered image.

But wait, there’s more, as the infomercials say.  If you look at the list of cars being recalled for the accelerator fix (below) you’ll notice that the Lexus in which Highway Patrol officer  Mark Saylor died -- a 2009 ES -- is not on it.  That’s because those cars -- and many other Toyota-made cars, including my Prius -- were subject to an earlier recall, back in November, 2009.  In that recall, the Lexus accelerator pedals were shortened so they could not be trapped under the floor mat -- the ostensible cause of Officer Saylor’s accident. (For the Prius, I was just told to remove the mat -- which I had already done.  It still sits in my trunk awaiting the promised “permanent fix.”

But at the same time as the mat matter was being handled, Toyota was aware that for six years both the company and the National Highway Traffic Safety Administration has been looking into multiple cases of unintended acceleration and that the mats were unlikely culprits in all of them.  In its autumn response, Toyota tried to sweep the more basic accelerator problem under the floor mat problem.  In fact, in November, Toyota put out a press release misrepresenting the NHTSA’s conclusions about the floor mats and had to issue another press release correcting the first one.  But neither press release acknowledged that unintended acceleration might have been caused by anything other than misplaced or mismatched floor mats.

So there were two problems and initially Toyota tried to conflate the simpler problem (the mats) with the more serious problem (the accelerator mechanism).  The mat recall affected 3.8 million vehicles and despite the fact that NHTSA told Toyota that mat removal was at best an interim solution, no long-term solutions has been reached for many of those recalled cars.  The faulty accelerator affects 4.6 million vehicles, some of which were previously involved in the mat recall (with the attendant danger that owners who addressed the mat problem will now think the entire problem solved.)

Here is a list of the cars in the current Toyota recall.

• 2009-2010 RAV4

• 2009-2010 Corolla

• 2009-2010 Matrix

• 2005-2010 Avalon

• 2007-2010 Camry

• 2010 Highlander

• 2007-2010 Tundra

• 2008-2010 Sequoia

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The Best Revenge: Make More Money
By Rick Bell Wednesday, January 27, 2010

American entrepreneurs really are a whole different breed. They don’t expect anyone to give them a break or a pat on the butt. They get their satisfaction from scoring, not praise. They take pride in doing something better than mankind ever did it before, not just their competitors. They pay their taxes to the local, state and federal governments without resentment, and then they pay for useless but mandatory insurance of all different varieties, interest on borrowed capital necessary to grow and merchant charges for credit card sales that scoop off a clean 2 – 4 percent right from the point of sale. For the credit card companies this is like a private tax that they get first, at the time of the sale, before anyone else gets a chance to cannibalize the entrepreneur’s “gross sales”.

Question: How many congressional Representatives and Senators can you buy with 2% of America’s retail gross sales? Answer: Just about all of them. Credit card companies ARE the BANKS. If you think banks make money lending money you are falling for the image of them THEY want you to have. Banks lend money, sure they do but it's the credit card income that keeps them floating in a sea of money coming in everyday – NOT the interest they earn off your line of credit or your mortgage. They can shut down those sources of income instantly and still make gigantic profits. It USED to be that banks made money serving your capital needs, but times have changed.

So when the banks caved in to the federal government and made real estate loans that went sour because they never should have been approved in the first place, they didn’t need to go begging to Congress for a handout, because they’d already bought the Congressional Representatives and Senators they needed to patch things up with special legislation for them and billions of dollars of quick money to solve the problem. That’s how the biggest bailout in the history of man happened, which became a stimulus package so gargantuan that it staggered everyone in the world who read about it, and numbed even those Americans who repeated the words, “785 Billion” as though it was just another big number. But the money’s gone now, with no apparent impact on the economy as seen by the American entrepreneur, the progenitor of global prosperity.

American entrepreneurs brush it off, but now with a great deal of resentment. What will their strategy be for 2010 and beyond assuming the federal government aims to feed off them and piles on the fees and taxes and increased costs of staying in business? Will they organize politically? Will they re-organize their companies to be more efficient? Will they sharpen their focus on ROI? Or all of the above? I believe they’ll figure out how to make more money, pour themselves a scotch at 5 p.m. as usual and reinvent the world economy again.

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Certificate of Good Standing Available Online
By Brett Melson Monday, January 25, 2010

Harvard Business Services, Inc. has made it easy for our clients to order a Certificate of Good standing with or without Apostille on our website. The new interface allows clients to place an order online without the hassle of having to call. We offer different levels of service, ranging from a two hour to 48 hour time frame for the retrieval of the document.

Some reasons clients may need a Certificate of Good Standing:
Opening bank account
Applying for a loan or line of credit
Starting a new business relationship with another company
Qualifying as a foreign entity in another state

To order the Certificate of Good standing go to https://www.delawareinc.com/gstanding/

**In order to receive a Certificate of Good Standing, the entity must be current with all annual fees.**

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Made in the USA
By Rick Bell Wednesday, January 20, 2010

Now is a great time to start a manufacturing company in America.

I bought two Flexible Flyer sleds recently to have some fun in Switzerland when I go there next week. Having used them as a kid as my personal vehicle in wintertime, I know every inch of the sled’s anatomy and how it performs even in extreme conditions. The sleds I received from my internet order were JUNK. Made to look like the real thing, with the same familiar logo. The metal parts were re-engineered to look like a sled but they were weak and even flimsy. The wooden slats that you lie on were the same quality wood as a pallet, not a craftsman-built sled like I used as a kid. The pins used to hold the steering mechanism together arrived with one snapped in two from shipping it. I wonder how it will hold up under my sledding on it! 200 pounds of me bumping up and down as I careen down a 600 foot hill in the mountains. The sleds were broken upon receipt, but I fixed them up with four bolts, duct tape and sandpaper. A sticker on the underneath side said MADE IN CHINA and DO NOT REMOVE THIS STICKER, but it was peeling off upon arrival and fell off during my repacking them for the trip to the Alps. Yes, I’m going to try them out, but I wish I had a sturdy ol’ Flexible Flyer, made in the USA like I had years ago.

I can’t tell you how many things I’ve purchased the past year that looked like the real thing, but almost immediately fell apart or rusted or broke or never worked out of the box.  All made in China. I’m sure you’re noticing the same thing. A toaster lasts a year, tops. My mother’s GE lasted my whole childhood. All of a sudden, we look around and we’re replacing everything all the time. The world calls us a consumerist society, because we have to buy everything new again every year or two because nothing lasts longer than that anymore.

Nothing, that is, except things still actually made in America. We’re still the best at manufacturing almost anything. But we can’t manufacture it cheaper than the Chinese can make it AND ship it to America. Free Trade, and the perception that the lower priced item is the one to buy, has forced most American manufacturers to produce in China or face extinction. We all know that.

What’s worse is GREAT American brands like Schwinn and Flexible Flyer have been bought up by the Chinese for peanuts and the products coming out under those brands are just plain junk.

“Made in America” is going to make a comeback. Sooner or later American consumers, now facing a loss of disposable income and only long-term prospects to return to affluence again, will choose to buy what lasts and they will turn back to American made goods. To find products still made in America look at http://www.stillmadeinusa.com/.

The world will react when this happens. The "American Consumer" is the most powerful group of individuals on the face of this Earth, in the whole history of this Earth, and it extends across all religious, political and ethnic groups. When American consumers begin to DEMAND products made in America the recession will take care of itself.

As long as we’re willing to buy the cheapest and keep China in business instead of our neighbors, we have no hope of real recovery from the deep financial reversal we’ve had thrust upon us over the past ten years by corrupt financial services companies and our needy, greedy, seedy Congress.

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What is an Individual Taxpayer Identification Number?
By Brett Melson Tuesday, January 19, 2010

Question: What Is an ITIN?

Answer: The ITIN number or “Individual Taxpayer Identification Number” is similar to that of the Social Security number. The ITIN is for individuals that cannot acquire the SSN but have tax filing requirements with the IRS. The ITIN is 9 digits in length just like a SSN, but it will always start with a 9. The number was created 13 years ago to assist individuals without a SSN to comply with Federal tax law. The thought process is if income is earned here, then filings need to be made with the IRS, whether you are here legally or not. Not just anyone will receive an ITIN number, the IRS stipulates that the individual requires a filing of a federal return in order for it to be issued. Possession of an ITIN does not indicate permission to work in the US or obtain benefits from the Social Security Administration, it is simply a number to identify an individual to the US tax system.

I was surprised to learn that the IRS is not allowed, by Federal Law, to share any of this information with any of the other US Agencies. This was enacted to encourage filings with the IRS without the fear of retribution, such as deportation. The goal of the legislation was to allow illegal immigrants to pay their fair share of taxes. More than 1.5 million applications for the ITIN were processed in 2008. A recent study by the Treasury Inspector General for Tax Administration took a sampling of 510 ITIN applications and found that 78% of these contained errors, but they were processed anyway. In addition, the government also admitted that more than 55,000 ITIN’s were used multiple times on different returns within a year, with refunds totaling over $202 Million!

If you need an ITIN don’t let the lengthy application deter you from proceeding, as the statistics above show, even if you mess up the application they will still issue the number…..

If you would like information on how to obtain the ITIN number visit http://www.irs.gov/individuals/article/0,,id=96287,00.html

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