Below you will find the link to a paper I wrote in mid-2019 on maximizing shareholder value. As you can see from the title, I’m not keen on the idea . . . to put it mildly. And, yes, the title is loooong, but I wanted readers to know from the start exactly where I stand.

We had a discussion about this on Twitter on 2 July, and I promised to post the paper. Click on the title below to download the PDF.

“Maximimizing Shareholder Value 1970-??? The Morally Bankrupt, Incomparably Destructive [Not Legally Required] Economic Idea That Decapitated Modern Business and Is Spurring Social Instability”

I know I’ve heard this one before, or some close kin. But I laughed anew (that’s better than crying) at this ha ha from Saturday’s Wall Street Journal:

“An economist, a chemist and a physicist are marooned on a desert island. Their only food is a can of beans, but they have no can opener. What are they to do? The physicist says, ‘Let’s try and focus the tropical sun onto the lid—it might melt a hole.’ ‘No,’ says the chemist. ‘We should first pour saltwater on the lid—maybe that will rust it.’ The economist interrupts: ‘You’re wasting your time with all these complicated ideas. Let’s just assume a can opener.'”

WSJ author Anatole Kaletsky continues: “This little joke tells us more about the causes and consequences of the 2007-2009 crisis than any number of ministerial speeches, Wall Street research reports and central bank monographs. The propensity of modern economic theory for unjustified and oversimplified assumptions allowed politicians, regulators and bankers to create for themselves the imaginary world of market fundamentalist ideology, in which financial stability is automatic, involuntary unemployment is unimaginable and efficient omniscient markets can solve all economic problems, if only the government will stand aside.” (The WSJ piece is a book excerpt from Capitalism 4.0; Kaletsky is editor at large of the Times of London.)

Discount my discounting of economists if you will. It is true that I’ve always thought the discipline a bit of a joke. (Though only when it matters, at times like the present. The economists do quite well in the good times, when the stakes are minuscule.)

Happy Monday!

Happy summer!

I think of my self as a free-markets fanatic. I’ve earned my keep on that score, through everything including testimony to Congress. Hey, I was even asked to contribute a blurb to a collection of F.A. Hayek readings from the U. Chicago press.

Nonetheless …

I started my day, you’ll be glad to hear, with a clean T-shirt. Made in China, of course, but odds are, made in China from highly subsidized cotton grown in Texas. Milk on my cereal this morning, rather inexpensive, courtesy the New England Dairy Compact. Off to the country store to get papers—traveling on a tax-subsidized road. Waved to neighbor’s children waiting for a subsidized bus heading to a subsidized school. Whoops, forgot, was online at dawn’s early light; most of the tools I used, microchips, Internet, etc., were to a significant degree products of Department of Defense-funded R&D.

If my sore throat doesn’t get better, off to the doc’s. More subsidized roads, and when I get to the office, out comes my Medicare card. Several testing devices will doubtless have been covered in part by subsidies of some sort.

And so on.
And on.

So I will go on preaching self-sufficiency, free markets, unfettered entrepreneurialism, and the like. But every now and then I reserve the right to laugh at myself for thinking that I’m a self-reliant person.

Time (1130.09) devotes a column to financial market forecasting, in particular to the wisdom of Robert Prechter. Prechter is a man after my own heart. Psychology and sociology rather than “efficiencies” drive the market: “Prechter argues,” says Time, “that standard economic models of financial markets depict prices as reflections … of true value.” But Prechter believes that “waves of social mood are the driving factor” of prices.

All I can add is: Amen!
Maybe even: Duh!

1. Jobs are not coming back. People are hurting!!!! “Some people” (me!) cheered the return of the DJ average to 10,000 last week. Yup, we’re pulling out of the recession! Try telling that to the 15 million out of work in the U.S. And those still working are scoring but 33 hours per week—the least in 60 years. In a horrifying (careful word choice) article by gazillionaire Mort Zuckerman in yesterday’s Financial Times (“The Free Market Is Not Up to the Job of Creating Work“), Mr. Z adds a raft of other appalling facts about the astonishing mismatch between areas where job growth might take place and the skillsets of the recently booted. Message: The recession is a long way from “waning” for a bloody lot of people! Keep your cheering to yourself! (You may have to keep it to yourself for, say, the next 10 years.)
2. So the reporter at the desk next to yours lost his job. An article in Time focused on the implications of the revolutionary transition to the “new economy.” For God’s sake, I’ve been yelling about that for 15 years. And what a bunch of bull! Yup, there is a new economy—and newspapers are getting clobbered. But the large majority of us still work in pharmacies and insurance offices and, yes, car dealerships. Why oh why do we always willfully focus on folks in big companies in sexy industries?
3. Gen X (etc.) is bringing a new look to the work force. Yeah, unemployed. Much as we focus on the 52-year-old UAW worker tossed out the door, the fact is that the older folks are doing relatively well in the “contraction”—and the younger folks are taking it in the chops. (See BusinessWeek‘s “horrifying” October 8 cover story, “The Lost Generation.”)
4. Don’t lose those superstars! Is there any credible evidence that Wall Street’s superstars (about to receive mega-bonuses) are actually superstars? If so, it’s not clear to me. (I admit to being a slavish devotee of Nassim Nicholas Taleb‘s Fooled By Randomness—which sets off alarms on this topic.)
5. Our gentle neighbors. I was in Toronto last week. (Love that city!) When “we” think of Canada, we often think it’s a “very nice place.” Well, it is, but life for workers ain’t no walk in the park! (Understatement.) Canadian pension plans are going bye-bye like ours (Except for the public sector, like us). Fact is that only 25% of Canadian workers have a pension plan. So much for kindly Canada, the workers paradise. (Yup, they all have health coverage—no small thing. And many I talked to are really pissed off at our willful mis-characterization of their health plan, with which they are more or less quite happy.) (Source for pension information, The Globe and Mail, 10/17/09.)

Sunday New York Times, biz section, p1, “Tales from Lehman’s Crypt.” Quote from an ex-Senior Vice President, Ken Linton, who evaluated mortgage quality as a prelude to securitization, and smelled a rat early—or at least a rotting mouse:

“You are not paid to rock the boat.”

From a front-line employee at McDonald’s, single-Mom with two kids, totally forgivable. Or a 48-year-old GM employee now at Wal-Mart.

But this …

As I said, obviously a mis-quote.
Right?

(Not.)

And Says …
“Who the Hell Are You?”
They Reply …
“We’re #1!”

The attitude in China a couple of weeks ago was pretty good, maybe better than pretty good. There were economic problems, but the group of mostly entrepreneurs I was with vibrated with energy and lived to turn others’ problems into their opportunities. Economically (I’m not talking nukes here), the feeling was also pretty good in Korea. Moreover, I was in Seoul to be part of Korea’s launch of a new growth strategy, focused on global leadership in “green” industries, and marking a radical departure from business-as-was; the goal is to go beyond “doing good work” to unalloyed planetary leadership in arenas that matter. It did not seem incongruous to them or me that we were having a refreshing discussion of a brave new & exciting future when the current economic numbers were still sketchy—and surprises, even bad ones, could be in store. (E.g., how will the world’s markets react to an almost certain GM bankruptcy? For what it’s worth, my layman’s bet is that after a hiccup or two or three, the markets will settle down and take it in stride. Maybe six months ago the psychology would have been such that true panic would have set in, but not now.) To sum it up, there’s no bunker mentality—moving ahead smartly, even audaciously, is the order of march.

In a somewhat similar vein, I’ve been carrying around a couple-week-old special section of the Boston Globe, titled, “Globe 100: The Best of Massachusetts Business.” Some things about MA seem to bug some people, but the academic and entrepreneurial firepower concentrated here surely makes it a Top 10 “success city” in the world—or, rather, success region. (We benefit from a bunch of such regions in the U.S., like the SF Bay Area/Silicon Valley, with no real earthly parallels, Greater Austin, Greater Seattle, Greater D.C., Greater Houston, Raleigh-Durham, Madison WI, great swaths of the LA Basin, etc.)

I found the “Globe 100” fascinating. Three of the top five finishers, 13 of the top 25, and 31 of the top 50 were tech companies—that number should actually be about 35; some of the so-called “service” companies are essentially tech companies. I have a house in Boston, though I’m hardly a regular resident, and business in general is my beat—hence I definitely should be plugged into “all this.” So I was literally dumbfounded that of the 13 tech companies in the top 25, I had never heard of eight of them—and in particular I’d never heard of #1, Cubist Pharmaceuticals! (It’s a half-billion-dollar revenue company—the rankings are performance-based, not size based.)

I actually think my ignorance is very cool—and important. You could say, surely, that it condemns me as “out of it.” But I think that would be an erroneous conclusion. My conclusion is that there is a truckload or two or three or four or forty or four thousand of largely-invisible-absolutely-fabulous great stuff going on from Greater Boston to Greater Shanghai to Greater Seoul. The developed world is indeed in the middle of a profoundly troubling financial-economic crisis, and the impact will be felt for years; but unlike the Great Depression, all sorts of extraordinary things are going on or in the works or even accelerating—and the promise of a raft (a big, big, big raft) of future tech-based Revolutions (yes, with a capital “R”) is mind boggling; and cause for extraordinary, almost giggle-worthy mid- to long-term optimism.

Shanghai’s irrepressible entrepreneurs.
Korea’s aggressive, bold green initiative.
The “Globe 100.”

And now I’m off to Delhi …*

(*NB: my trip-to-Delhi reading is alibaba: The Inside Story Behind Jack Ma and the Creation of the World’s Biggest Online Marketplace, by Liu Shiying and Martha Avery. Wow!)

(It would be ironic if this Post appeared the day GM applied for bankruptcy. But if it were so, I would not change a word. While I would weep for dislocated families and shuttered businesses, I would also remind myself, and you, that it ain’t a GM world, and it actually hasn’t been for a good quarter century—even in the U.S.A.)

You may recall my applause for Larry Janesky, who has turned “dull” basement transformations into a powerhouse business, Basement Systems Inc. (His portfolio includes his best-selling book, Dry Basement Science.)

Well, Larry’s hit a home run, as far as I’m concerned, with an idea he passed on to his dealers—in my experience it’s an original.

In short, Larry distinguishes between “busy” and “growth.” Simply put, “busy” is booking business in good times—which boosts your revenue growth to the heavens, in the short-term. As to “real growth,” it occurs “when the troughs in sales come up, not when the peaks go up.” That is, on a chart, the bad times bottom-trough today is higher than the trough during the prior problem period.

In a little more detail, directly from Larry’s dealer presentation (imagine quotation marks around what follows):

“Busy”: OUTSIDE forces acting positively on my business.
“Growth”: INTERNAL forces acting positively on my business.

Busy:

Good news: Lots of work available, go get it (but it probably won’t last).
Bad news: Can’t count on it continuing—so don’t let your overhead soar!!!

Growth:

Good news: [Internal-basic] improvements are paying off.
Bad news: Probably been growing because your [internally driven] good work allows you to take competitors’ business. But when you [succeed and] become a “big fish in a little pond,” you’ll have to add higher value to your products to redefine what you do and thus expand the marketspace.

Your call, but I think this approach to business makes a helluva lot of sense—especially to those firms, the great majority in my experience, which did indeed get sloppy during the now departed “good times.”

Circa 2009, lots of top performers (financially) in the U.S.A. Look at “Barron’s500” (05.11). Top of the heap includes: Mastercard. (#1). Research In Motion. Western Digital. Oracle. Apple. Google. Microsoft. HP. Fluor. Philip Morris. Jacobs Engineering. Ingersoll-Rand. CVS Caremark. Charles Schwab. Best Buy. Deere. Etc.

BusinessWeek (04.27), tech companies sitting on cash: Cisco, $27 Billion. Apple, $26B. Microsoft, $21B. Google, $16B. IBM, $13B. Intel, $12B. HP, $10B.

Manufacturing dead in the U.S.A.?

Read yesterday’s interview with Cisco CEO John Chambers on page ONE of Investor’s Business Daily.

Chambers took over this MANUFACTURING company in 1994.
Revenues 1994: $1 Billion.
Revenues 2009: $40 Billion.

Prospects for technology companies and technology manufacturers in the U.S.A.? Nothing short of staggering in their potential, Chambers asserts. In infotech, let alone biological-based sciences, Chambers declares that we have many, many, and many more LARGE-SCALE REVOLUTIONS to come.

One suggestion of his, which I love, and which Chambers attributes to VC superstar John Doerr: “We should staple a Green Card to every science, technology, engineering, and math advanced degree [awarded by a U.S. university to a non-U.S. national]. The economy is struggling now, but it won’t be forever, and we need to attract and keep the best and brightest in our country to maintain our competitiveness as a nation.” (TP: Alas, fat chance.) (TP: Chambers is one of the many, me among them, who points out that our top research universities, best in the world by a long shot in terms of quality and quantity, are perhaps the #1 U.S. competitive advantage; we may lament the passing of “old manufacturing,” but we damn well better remember that we must pull out all the stops, private and public, to support to the hilt our top research universities.)

(NB: Chambers, arguably the most Republican of Silicon Valley superstars, perhaps surprises with this: “I think the U.S. government is doing the right thing with the stimulus package, and I hope other governments follow suit.”)