Thursday, December 7, 2006

Cancer Strikes the Business Model

I’ve never been a fan of the corporate quarterly profit. Wall Street and its demands, its requirement to forecast, its punishment for missing the number along with its fickle application of investment capital  has enormously empowered the crooked executive.

Wallstreet_1 I’ve never been a fan of the corporate quarterly profit. Wall Street and its demands, its requirement to forecast, its punishment for missing the number along with its fickle application of investment capital  has enormously empowered the crooked executive. That philosophy encouraged an era of backdated options, cooked books and insider trading.
All of which benefits the Street and outrageously overcompensates top management for not paying attention to business. I can't think of a single aspect of growth for the sake of growth that benefits business. Prostrating themselves (ourselves) before the idol of growth, encourages
  • Strategically flawed mergers and acquisitions
  • Pay-day mania at investment banking and merger specialists
  • An unhealthy concentration on the deal
  • The pillaging and raping of the merged entities, in the name of eliminating redundancy and maximizing strengths
  • Unwarranted front-loading of profit, taken only a New-York-minute before
  • Selling off the wrecked entities to concentrate on further core opportunities
Whitecollarcrime_1 The money siphoned off in these unending shell-games goes into private pockets, neglecting to add a single dime to company value. Billions escape our capital needs each and every year, pounded into the personal rat-hole of a second (or third) trader-home in the Hamptons. Who profits when Time-Warner merges with AOL? No one up or down the food chain but the bankers and deal-makers.
Who needs these guys?
Cancer is by definition, uncontrolled growth and
  • pushing numbers for the short-term quarterly demands of Wall Street,
  • cooking the books to support or enhance stock valuation,
  • or chop-shop deconstruction of a business enterprise for the sole profit of those who wield the torch
are all evidences of widespread and systemic corporate cancer.
Walmart_3 Annys Shin writes, in a December 2nd Washington Post article--Wal-Mart Confronts a Conundrum: How Does the Biggest Get Bigger? Good question.
   
Wal-Mart has a problem: In 93 percent of American households, one person shops at its stores at least once a year, and that's not good enough for the company.
    The retailer wants to continue growing to keep investors happy. But how? If it can't attract new shoppers to push up its sales, it must get the occasional ones, who dash in for bargain dog food or paper towels and then hurry out, to cross the aisle and load up on clothes, bedsheets and flat-panel televisions.
    For a year, Wal-Mart has been trying to get those sporadic and mostly higher-income customers to do that. It designed a line of up-to-the-minute clothes. It stocked its shelves with organic cotton sheets and sustainable fish. It wished its customers a "Happy Holiday," not a "Merry Christmas." It hired civil rights leader Andrew Young to burnish its image. It joined the National Gay and Lesbian Chamber of Commerce. This year, it began remodeling nearly half its stores.

  In November, Wal-Mart had a decrease in sales, a rarity for the company, which fared worse than many U.S. retailers the day after Thanksgiving.
The better question is why would Wal-Mart even try? Why would the long-term corporate goals not be better served by fine-tuning the operation and incrementally increasing the bottom-line? Why is it no longer possible for American business to thrive in an environment of innovation and fiscal restraint, instead of selling itself off as the best-dressed whore on Wall Street?
Walmartsale_1 Four months in a row of declining sales and Wal-Mart will find itself the target of a hostile takeover by Kirk Kerkorian (or his equivalent maximum-profit gun-slingers) to junk-bond the company, sell off its bits and pieces, fire an extraordinary number of employees, reconfigure the business-plan and leave a smoking ruin behind, as they move on to ‘new opportunities.’
Wal-Mart, in a period of four decades approaches 7,000 stores and nearly 2,000,000 employees. Four of the ten richest people in America are Waltons. Rather than reach for ever larger numbers until the inevitable end of the line, why is it not possible for the company to concentrate on continuing to provide better jobs and more regionally tailored products, that offer competitive pricing and value?
Cellphoneman_2 Because the stock market demands otherwise. The final arbiter is unconcerned with jobs, pricing and value, instead held hostage to growth. Cancerous growth that will ultimately claim the life of the world’s largest retailer.
Ford Motor Company is trying to take itself private. The Ford family seems to think they could do great things if they were disconnected from the stockmarket and no doubt they’re right. Rolling the family dice. That has a nice ring to it. Family companies do very well. A nice thing about families is that they have generational responsibilities, caring about what happens to kids and grandkids and their grandkids.
Families may put it on the line, but they think about it beyond the next quarterly dividend. It's possible, just barely possible a cure for corporate cancer may be at hand.
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Media reports;
    * Reuters-Wal-Mart exec doesn't rule out more toy-price cuts
    * Chicago Sun-Times-Wal-Mart mess typifies ad world woes