Archive for the ‘Business’ Category

The Real Deal

Sunday, February 1st, 2015

The Book of the Week is “The Real Deal, My Life in Business and Philanthropy” by Sanford Weill and Judah S. Kraushaar, published in 2006. This career memoir describes how, over the course of about fifty years, Weill became a major change agent in the American financial services industry. His specialty became leading the execution of mergers and acquistions for the investment, banking, and insurance companies of which he was an executive and board member.

In spring 1960, he started a securities brokerage, actually on Wall Street, with three partners. The stock market was bearish in 1962 and 1963. Interesting sidenote: “The typical stock in the Dow Index had a price 23 times its earnings as this downturn began, compared to a multiple of only 10 times in the early 1950s.”

Through the years, he gained more and more power and accumulated more and more wealth. When he attended events at which he had to speak to stockbrokers, he adopted a policy of brevity, saying, “You’ve heard enough speeches– what questions do you have for me?”

Although the author fostered a corporate culture of informality and “Management By Wandering Around” at his own company, in many instances, he failed to take into consideration the culture of the target company. His strengths lay more in bringing the top executives of the parties together to do the deals, and negotiating the new management structures. It was ironic that he was such a poor judge of how the two cultures would mesh once the integration process began.

At times, Weill tapped the power of his friends in high places, one of which was the government. It helped him change federal law to allow transactions to proceed. For instance, prior to 1999, certain banking and investment banking services could not be legally offered by the same company, due to financial conflicts and possibilities for abuses. He and his cohorts had a hand in making the historic change so that people within the same company could offer their clients all kinds of financial services.

Weill describes a whole bunch of instances that provided evidence for the necessity of strict financial auditing laws. In just a few years at the turn of the 21st Century, greed had spun out of control in the industry, leading to the accounting scandals of Enron and WorldCom, the dot-com crash, and a major hedge-fund crash that requried a bailout. A terrorist attack didn’t help, either. By 2002, the chickens had come home to roost in the form of a bear market. “The regulators, the press, and politicians of all stripes…” played “the game of pointing fingers.”

And yet Weill writes, “…governance rules mandated by Sarbanes-Oxley (enacted in summer 2002) made it seem likely that bureaucratic needs would trump the fun of the business.” He also complains that businesses would have to spend more money preparing their financial statements. Sorry about that, Mr. Weill. Yes, pesky, bureaucratic, expensive laws reining in greed are no fun.

Six years later– same song, different verse… a whole lot worse. Need it be said– The more things change, the more they stay the same. History will continue to repeat itself, given human nature.

Read the book to learn the details of Weill’s career ups and downs and trials and tribulations. This blogger skipped the last chapter, in which Weill merely rambles on stating his opinions, and the endnote, which is an interview with his wife, whom he lavishly praises as loving and supportive throughout this ebook.

Why I Left Goldman Sachs

Sunday, January 4th, 2015

The Book of the Week is “Why I Left Goldman Sachs” by Greg Smith, published in 2012.

This career memoir details how the author experienced the change for the worse in corporate culture of stock brokerage Goldman Sachs (GS) over the course of a little more than a decade, from 2000 to early 2012. The company lost its way in terms of its mission and values, which embodied fiduciary duty and integrity.

In 2000, the author completed the selective, elitist, highly coveted summer internship program at the brokerage. He saw how principled the money managers were in recommending truly suitable transactions to their clients; not necessarily the most profitable ones.

When he began working there as a full-fledged staff member the following year, he took to the work, possessing the right combination of talents, skills and abilities to focus for long hours on conferring with clients and doing what was financially best for them. The goal was to build trust in order to foster a long-term relationship. It stands to reason that that is a more profitable course of action than seeking to rake in maximum money in the short term– which would provoke disloyalty from the client, when the client realizes he’s been taken advantage of.

Smith writes that a gradual change was occurring at his workplace around the start of 2005. At the time, he admittedly was “drinking the Kool Aid” like everyone else. The megabucks were multiplying because conflicts of interest were increasing betwen the brokerage and the government and other entities with which the brokerage was associated in various ways. The CEO and COO of GS were all for it. Their yearly letter to shareholders reasoned that such conflicts were inevitable, and were a sign that business was good. A telling example: GS netted approximately $100 million when it helped its client, the New York Stock Exchange merge with publicly traded, electronic exchange Archipelago in a $9 billion deal.

In the early 2000′s, one trend in the securities industry that would contribute to huge financial losses for the big firms including GS, was automated trading via software. The autotraders of the different firms were programmed to engage in largely the same behavior. They sought to trade in obscure, off-the-beaten path investments in markets in which it was difficult to find a buyer when it came time to sell. And they were all trying to sell at the same time. That was not a condition the autotrader creators had anticipated.

Another aspect of the big picture was that the people selling the financial products– more specifically, derivatives– did not themselves, understand what they were selling. It might be recalled that a derivatives debacle plagued the securities industry in 1994. Apparently, in 2007-2009, the greedy people involved in this rerun of a financial catastrophe failed to read their history, or had short memories. And governments of entire countries like Libya, were suffering losses of billions of dollars, thanks to GS, in 2007.

Read the book to learn much more about the outrageous occurrences borne of avarice witnessed by the author and the world during what became for him, an ordeal, characterized by the saying, “The fish rots from the head down.”

House of Versace

Sunday, December 28th, 2014

The Book of the Week is “House of Versace” by Deborah Ball, published in 2010. This is the story of how a family and its business recovered from a tragedy.

The two brothers, Santo and Gianni, and a sister, Donatella, started running a high-end clothing design business in the 1970′s. Gianni became the indispensable partner. His talent lay in creating trend-setting clothing and changing the culture of the fashion industry. Donatella recruited celebrities to wear the Versace brand by sending them free products and inviting them to lavish parties.

Around 1990, Versace began to woo female models whose faces appeared on the covers of fashion magazines, rather than women whose whole bodies– supermodels– appeared in photos. The former had to learn how to strut down the runway, however, and convince Versace to pay them big bucks. Appearances in the tabloids, rather than appearances in fashion shows, had previously been their major publicity vehicle. Donatella spared no expense in recruiting them, treating them to luxury travel and clothes. Versace’s competitors had to follow suit.

Read the book to learn how, by 2004, the company had become nearly bankrupt. There were a number of causes; the major one, however, was the aforementioned tragedy.

Diary of a Hedge Fund Manager

Sunday, November 30th, 2014

The Book of the Week is “Diary of a Hedge Fund Manager” by Keith McCullough and Rich Blake, published in 2010. This sloppily proofread ebook is about McCullough’s passion for ice hockey, and personal experience on Wall Street in the the single-digit 2000′s.

McCullough grew up playing hockey in the Thunder Bay area of Canada. He had a dream of playing professionally, but built a career in the stock market in the United States instead.

At the turn of the 21st century, Ivy-League college connections allowed McCullough to get a job with money managers. He spent a short time at a few places, having been lured to the next place by more money. The companies were able to run legalized Ponzi schemes because they had “… access to institutional channels, corporate and state pension funds, nonprofit foundations, and university endowments, not to mention the world’s wealthiest individuals…”

Most of the hedge funds of that period engaged in poisonous groupthink– cartelizing behavior (but apparently were never taken to task by the government for price-fixing/monopolistic practices)– they all bought the same stocks to overhype them and push up their prices artificially. They “… had devolved into nothing more than highly touted engines for producing excessive compensation.”

Read the book to learn:

  • the steps McCullough took to co-found a hedge fund and how he and it fared;
  • what else he has been doing;
  • how he defines a trade, a trend and a tail; and
  • the method he uses and philosophy he espouses to sense what is going to happen in the market.

Here are two hints: He thinks closing share prices and integrity are very important.

Bonus Post

Wednesday, November 12th, 2014

This blogger skimmed “Too Late for the Festival” by Rhiannon Paine, published in 1999. This ebook recounts the expatriate experience of the author, a tech writer, at the Hewlett-Packard office in Japan starting in 1985.

Paine describes in detail the then-culture in Japan, which discriminated against women in the office. Fluent in English, “Miyuki had graduated from Keio, the top private university in Japan” and yet could get only a low-level secretarial job with H-P, where one of her tasks was to serve tea twice a day.

Paine was tolerated as a tech-writer because she was a foreigner, but was still treated as an outsider. She was on a long-term temp assignment, for which she was grossly overpaid. However, she felt unfulfilled, as the tech product was obsolete by the time she was done with her role in the project. As is typical at a lot of American companies, the boss was just giving her make-work to justify the department budget and his supervisory power.

One quirk of Japanese culture this blogger found interesting, was with regard to the commuter trains. The author was taking a train, and suddenly informed by a traveling mate that they were going the wrong way. The reason was that some commuter trains are split at a particular station so that one portion departs in one direction, and the other portion, in the opposite direction. That doesn’t happen in the United States.

Read the book to learn of many other aspects of Japanese culture, and the fate of the author.

Idea Man

Sunday, October 5th, 2014

The Book of the Week is “Idea Man” by Paul Allen, published in 2011. This autobiographical ebook’s author is best known as the co-founder of Microsoft, and one of the world’s wealthiest people.

This is not exactly a career memoir, because he gives only an overview of his eight years with the company– from which he withdrew as an employee– and the rest of the book is devoted to his other life experiences. It appears that the amount of information he chose to provide on his short tenure with the software company is insufficient to fill an entire book, so he supplements with his: investments in sports teams, stadiums and communications and aerospace companies; his medical problems; travels; musical encounters; and philanthropic endeavors.

Allen, a ten-grader in 1968, describes eighth-grader Bill Gates’ physical appearance: “…pullover sweater, tan slacks, enormous saddle shoes… blond hair all over the place…”

The two youths took full advantage of the opportunity of a lifetime to learn the craft of programming in the computer room of a private school in Seattle. They had endless capacity for the extremely time-consuming and labor-intensive brainwork required. When he had yet to turn twenty years old, Allen’s experience spanned “…ten computers, ten high-level languages, nine machine-level languages, and three operating systems.” Pretty good for a college dropout.

In the late 1970′s, affordability was a major requirement for selling personal computers, an industry in its infancy. “Today’s laptop is thirty thousand times faster than the machine [the PDP-10] I was lusting after, with ten thousand times more memory.” At that time, memory was expensive and lack of it made machines glacially slow. Today’s base iPhone has four million times the memory contained in BASIC– the programming language that ran on Altair, one of the first computers sold to businesses and consumers in the late 1970′s.

Allen said Gates was a thrill seeker, enjoyed driving fast. In the early 1980′s, “Bill got so many speeding tickets that he had to hire the best traffic attorney in the state to defend him.”

The author discussed how a technology company must always be on the qui vive for the Next Big Thing, and introduce it before its competitors in the right way with the right people, or perhaps suffer significant financial losses. In 1982, DEC came late to the party by selling the high-quality Rainbow 100. Unfortunately, the minicomputer was behind the times– running on the old 8-bit CP/M system, while a 16-bit system was already on the market.

Suffice to say on most of his investments, Allen was a Warren Buffett wannabe. He deserves credit for freely admitting to his epic losses. Nevertheless, it was just another case of redistribution of wealth among the wealthy.

Read the book to learn the details of this billionaire’s life stories.

Bonus Post

Wednesday, September 17th, 2014

This blogger skimmed “Madboy” by Richard Kirshenbaum, published in 2011. This ebook is mostly a name-dropping brag-fest.

Granted, the author does have bragging rights as an adman and did provide numerous tips on acquiring clients and maintaining good client relations, and described what it was like working in the ad industry in the 1980′s and 1990′s. But the first anecdote about a major business decision that resulted in a large financial loss, appeared almost halfway through this book. The author did gloze over a few mini-fails prior to that. However, this blogger thinks a career memoir need not put a happy face on every negative story, as though the author is in a job interview. He should be more introspective. Kirshenbaum seemed a tad insecure, and both he and his wife seemed easily starstruck. This blogger is not impressed that he has met and worked with dozens of celebrities in the last few decades.

The author recounted one amusing anecdote involving indecency during a camera shoot in Mississippi. He also made a few rather unfortunate statements:

  • Witty ads for his agency’s first client mentioned politicians famous in the 1980′s, that he said, “…captured the public’s attention, as it hadn’t seen this kind of creativity in the advertising business before.” Doubtful. There is nothing new under the sun.
  • About social networking: “…where now consumers actually control the conversation about brands and have honest and controversial conversations about a company’s brand preferences.” See http://educationanddeconstruction.com/?p=4180
  • Kirshenbaum believes American consumers are fiercely brand-loyal and “…the rise of social media (Facebook, Twitter, and YouTube) influence them.”  Again, see http://educationanddeconstruction.com/?p=4180

Read the book to learn of some of the big-name people Kirshenbaum met through the years, the campaigns and entities he spearheaded, places to which he traveled, what he learned from whom, and what became of his agency.

Bonus Post

Thursday, September 4th, 2014

This blogger was reminded of two books by Herschell Gordon Lewis (“Direct Mail Copy That Sells” and “On the Art of Writing Copy”) that contain actual facts and excellent advice, after watching this video:

This blogger thinks the above is well worth watching in its entirety.

[Warning:  some language in this video]

Bonus Post

Friday, June 27th, 2014

This blogger skimmed the ebook, “In the Name of Profit” by multiple co-authors, originally published in 1972. This depressing set of anecdotes on corporate greed simply reminds the reader that there is nothing new under the sun.

One theme is that through the 1950′s and 1960′s, big manufacturers such as Goodrich and General Motors had constructive knowledge that the products they sold were defective. Purchasers had bad experiences, and were seriously injured or were killed by those products. The companies’ attorneys and their employees rationalized that “‘planned obsolescence” meant progress. “But the meaning is clear: ‘Go cheapen the product so we can make more money.” In the case of drug company Richardson-Merrell, the product wasn’t cheapened, but rather, serious side effects were downplayed or hushed up and the results of FDA pre-approval testing were fabricated. Unsurprisingly, the company and its subsidiaries hired top-dollar attorneys skilled at helping businesses weasel out of legal trouble.

Another topic covered was Napalm, whose evolution began at Guadalcanal during WWII. “The Napalm fire bomb was deliberately designed as an indiscriminate terror weapon for mass destruction and death among civilians.” When people in Vietnam were harmed, Dow Chemical’s legal defense was bolstered by the fact that it had received orders by the U.S. Government to make the controversial product.

This ebook also discussed stock manipulation and corporate takeover. SEC laws were shown to be very lax in the 1950′s and 1960′s, as one particular perpetrator did jail time for various securities violations, but after his release, went right back to his old tricks. One Herbert Korholz repeatedly gamed the system with acquisitions. President of the Susquehanna corporation, he was able to bribe directors and officers in taking over another company with a secret tender offer of a share price higher than what was to be offered to the general share-owning public. “Profit-making firms can cut their taxes magnificently by merging with big losers…” One Maurice Schy, an attorney, attempted to make the government aware of Korholz’s unethical, unlawful and disgusting behavior, by filing lawsuits through the years, to no avail. Government officials were mired in conflicts of interest (favorable to Korholz’s interest) and ruled against Schy every time except one; a ruling was pending as this book was being released in 1972. Schy had finally gotten a possible break only because there was another case brought by another party against Korholz’s companies’ illegal activities.

In sum, we human beings are a mixed bag of evolutionary traits; altruism and greed among them. On many occasions, greed wins out, and we never seem to learn from those past occasions.