The Vampire Squid Is Getting Meaner

The “Vampire Squid” refers of course to Goldman Sachs. Matt Taibbi of Rolling Stone used this moniker to describe “the world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

It was a bit controvercial when his 2010 article proclaimed this. After all, Goldman was still doing bring business and there were no signs of client defections. You’d think customers would be the first to dislike the offending GS behavior.

Today came an interesting opinion piece in the NYT. A long-time employee writes why he is leaving GS and it isn’t pretty for the firm. Greg Smith is leavings because of “the trajectory of its culture…the environment is now as toxic and destructive as I have ever seen it.” Almost corroborating Taibbi’s claim is that “Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way.”

Interestingly, his main claim is that “the interests of the client continue to be sidelined in the way the firm operates and thinks about making money” and “how callously people talk about ripping their clients off”. The problem for GS’s future, Smith writes, is “how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

Which raises some interesting questions. If GS’s behavior is so bad, why aren’t clients defecting? Are they that oblivious, clueless, blind or dumb? Or does GS offer things that can’t be matched elsewhere such that customers stay anyway? Perhaps clients simply don’t feel these claims are accurate and that GS really does care about them? As illustrated by Buffett saving Salomon in the early 1990′s or Arthur Andersen disappearing after Enron, reputation and trust are so important in finance that if GS’s business doesn’t hurt from these allegations, either they are not taking advantage of clients or clients are truly oblivious. It’s hard to see a middle ground.

The Corporate Hierarchy Explained

This seems to capture the feeling inside most management structures…

Some Thoughts on the US Postal Service

Just a few quick thoughts on the troubles at USPS. I suspect you’ll hear a lot more about this in the next few days/weeks provided that Europe doesn’t fall apart first. If Europe does have an acute issue, the USPS will be reported about on page 37, not the first page of any media.

As everyone knows, email is killing the Postal Service. Not just email, but electronic bill delivery and electronic banking. Google Ads have supplanted an awful lot of direct mail aka “junk mail”. There is no evil here, just “progress”. Times are a-changin’. Regular mail is slowly going the way of the buggy whip. The volume of mail delivered (measured in pieces of mail) is down some 16% in just two years, revenue is down 11% and headcount down 12%.

Thinking about an MBA?

I’ve been terribly remiss in posting lately. January is the busiest month for me, with year-end wrap ups, regulatory filings and tax efforts underway. I’ll also blame the cold for slowing my metabolism down. Then again, it’s not like you were hanging on our every word here. Anyway…

Given than a New Year tends to bring thoughts of planning for the future with New Year’s resolutions and whatnot, I’m sharing an interesting piece on MBA’s from The Economist below. If the chart is to believed, many MBA’s actually earn less after acquiring the coveted credential. The article’s explanation? The author suggests those years spent in the program detracts from real world experience and career advancement.

Which MBA? The Economist.

Corporate America- too leveraged?

I stumbled upon an article which commented on Corporate America’s current balance sheet. More specifically, it questioned whether America’s companies are taking on too much leverage. It prompted me to do some digging and seek a better understanding of the issue. It has been somewhat common knowledge that Americans (private individuals that is) have been paying down or defaulting on debt. That is lowing private debt ratios at the same time that State and Federal governments are borrowing more. We can see this in bank balance sheets too- in aggregate, total loans outstanding have decreased since the crisis began. Yet Corporate America is supposedly flush with cash, so the article makes me wonder if companies are over-leveraging, should we worry about their wherewithal to weather the next recession, slowdown or policy mistake?

Jobs’ antenna mistake

In late May, I wrote about Apple surpassing Microsoft in value for the first time. Heralded as evidence of Apple’s supremacy and future potential, I noted that Apple investors do in fact have things to worry about: namely Steve Jobs. In that post, I wrote:

Apple investors should be careful. Apple shareholders must be sure their company is more than just Steve Jobs’ genius. The company couldn’t survive without him in the past, are we confident it can do so in the future? It is well known that his health is seriously challenged. Can Apple maintain its dominance over a highly competitive consumer electronics space while negotiating the technology challenges? The world is littered with corporate corpses who failed to negotiate such waters.

What I failed to suggest is the other side of Jobs’ despotic genius: what happens when he is wrong. According to the Bloomberg, head antenna engineers warned him of potential problems with the new iPhone 4 antenna design. Bloomberg suggests Jobs decided to go ahead with the design. Apple disputes Bloomberg’s claim, while Bloomberg sticks by its story.

To me, this feels like Apple is covering up Jobs’ mistake. While embarrassing, the mistake hasn’t dented Apple’s sales one bit- which sets the stage for next time. It is very conceivable that the successful sales despite the rather serious flaw only serves to embolden Jobs and Apple that its secretive internal design process is superior. It wouldn’t surprise me if eventually they make a huge mistake eerily similar to this one. I reiterate “the world is littered with corporate corpses who failed to negotiate such waters”. That goes for Apple the first time around for sure; maybe the second time too.

Apple is worth more than Microsoft

The news was widely trumpeted yesterday: Apple is now worth more than Microsoft. Market capitalization, or “market cap” as we like to say, is the total value of a company’s outstanding stock. As of yesterday’s close, Apple was worth $222 billion while Microsoft slipped to a measly $219 billion- still the third most valuable company in the S&P 500 (no the top spot isn’t Walmart, which is no. 4; the top spot belongs to Exxon).

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.

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.