Toyota Grades

I've spent years watching companies over time. You get to observe lots of neat things if you look closely. Companies almost appear as living, human entities (they're not, Supreme Court!) For example, one can observe a formerly innovative and nimble company get "fat and happy" and lose their competitive lead. This can happen for all sorts of reasons, not the least of which is simply good, old fashioned arrogance. Corporate culture plays an important role too, particularly when a company's work force doubles in a relatively short time. The newer employees change the culture or have trouble integrating or are simply less manageable due to the sheer size and speed of the expansion.

Think for Yourself, Buffett Style

We've written twice about the pending hostile takeover of Cadbury by Kraft. As an illustration of the Agency Dilemma or principal-agent problem and a quick followup. The story continues to remain interesting (at least to me- hey, I find this stuff dramatic, ok? Some like football, I like hostile takeovers. Call me a finance nerd!) Anyway, Kraft's largest shareholder is none other than Warren Buffett's Berkshire Hathaway. Berkshire owns some 9.4% of the company, a significant voting block. Kraft just sent out proxies for a "special shareholder meeting". "Special" shareholder meetings are not, as one might assume, some grand event to celebrate the company's success complete with band, sushi buffet, dancing and balloons.

Merger Posturing and Agency Dilemmas

As I watch takeover announcements, something called the principal-agent problem crosses my mind. Also called "the agency dilemma", it can be described as follows (paraphrasing from wikipedia):

"the difficulties that arise under when a principal hires an agent, such as the problem that the two may not have the same interests"

More specifically, the owners of a company hire managers to run the company on their behalf. Those managers, often called "officers" are better known as the CEO, President and other corner office, executive suite titles. The owners or shareholders elect a board of directors who are supposed to find, hire and compensate managers so that owners' interests are aligned with management's interests. Put more simply, if management makes the company more money, the managers earn more money too- at least that is usually the intent.

Just one word. Are you listening? Silicon.

“I want to say one word to you. Just one word. Are you listening? Silicon.”  That’s what Benjamin would have heard thirty years later. Forget about the “new economy.” Don’t worry about who’s going to win the processor wars or who will dominate the Internet and the World Wide Web. It doesn’t matter who wins as long as it drives infrastructure. The Silicon machine tool industry seemed like a pretty good place to be in 1995.  And for the most part it was, until the dot.com bubble burst and Sarbanes-Oxley came along.

Better Orgasms or the Illusion of Corporate Governance?

I was going to make my introductory post earlier this week but what with the Obama inauguration and everything I decided to wait a couple of news cycles so as not to steal his thunder. Actually, that’s not true. The real reason is that I’ve been bouncing back and forth about whether to write about the failure of governance in the recent corporate meltdowns or about a survey just published that found that women have better orgasms with rich men. After all, Brett said I could blog about anything as long as it had to do with money.