Friday, April 04, 2008

Ho-Chunk from The Economist

NESTLED in the hills of eastern Nebraska is Ho-Chunk Inc, owned by the Winnebago nation. For years visitors from other tribes have come to study the firm—one of Indian country's success stories, and a model for how tribal businesses can move beyond casinos. But these days Ho-Chunk is more popular off the reservation than on it.

On April 4th Ho-Chunk's chief executive, Lance Morgan, was due to meet with tribal leaders to defend his company. The spat was caused by a financial review, leaked to the Associated Press on March 14th, which questioned the company's stability. Mr Morgan, not one to mince his words, says the review is a politically motivated “crock of crap”.

Ho-Chunk was born from the fear that gambling money—the Winnebago have a small casino in Iowa—would dwindle. In 1994 the tribe gave Mr Morgan, a Winnebago and a graduate of Harvard Law School, $9.7m in casino money to start a new venture. Ho-Chunk now has 16 subsidiaries, from tobacco and petrol distribution to government contracting and a news website, Revenue for 2006, the most recent year available, was $113m. Mr Morgan admits that Ho-Chunk has ventured into industries where it lacked an obvious edge, and some businesses are stronger than others. But he insists that its debt, $12.7m in 2006, is sustainable.

Until recently, Ho-Chunk's structure insulated it from tribal politics. The tribal council appoints a board of directors to oversee Ho-Chunk, but Mr Morgan runs the firm, which pays the tribal council a 20% dividend. In 2006 the company paid the tribal council about $86,354 in dividends and $436,472 in taxes. But some council members wonder why these figures are not higher. There is also concern that the firm has too few Indian employees (127, about 30% of the total). Mr Morgan says he would hire more, but that “people with doctorate degrees and MBAs aren't falling out of trees here.”

The board of directors suspended Mr Morgan and his chief operating officer for two days last August for allegedly failing to co-operate with financial reviewers. But tribal members then ousted the board in October. Now the financial review's release has stirred tensions once more. Ken Mallory, who serves on the new board, fears that the conflict will deter investors.

Regardless of the financial review's accuracy, perhaps the worst outcome of all this would be for the tribal council to take control of Ho-Chunk. The Harvard Project on American Indian Economic Development conducted surveys of some 125 tribally owned companies, and found that when daily operations were shielded from tribal politics, they were five times more likely to be profitable.

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