Much of Wall Street these days worships at the altar of “shareholder value.” Sounds like a benign term, doesn’t it? But in reality, “shareholder value” is a euphemism for “get the price of your stock up and keep it going up” regardless of the damage that short-term-oriented firings, plant closures and poorly executed stock buybacks can inflict on employees, communities, suppliers and our country as a whole.
And if you’ve spent time watching companies and financial markets, as I have, you see that what makes great companies great is competent long-term planning and deft execution. Not obsessing about today’s stock price.
As luck would have it, two friends and former colleagues of mine — Howard Covington Jr., with whom I worked at the Charlotte (N.C.) Observer about 50 years ago, and Brian Dumaine, my editor at Fortune when I retired in 2015 — have each written a book showing the value of long-term thinking.
The books are wildly different in tone and subject. But both show the huge advantage that long-term thinking offers over “what have you done for me in the last five minutes?” thinking.
So let’s look at those books. And in the process, let’s also look at Warren Buffett, revered by many as a long-term builder but whose Berkshire Hathaway has become a huge financial backer of a slash-and-burn crew called 3G that fires people en masse at the companies it takes over.
That, of course, is the kind of corporate pillage that sows fear and resentment and helped lead angry, anxious, working-class and middle-class people to support Donald Trump rather than Buffett’s preferred presidential candidate, Hillary Clinton. Short-term strategies can have long-term consequences.
Okay, here we go.
Covington’s book, “Lending Power: How Self-Help Credit Union Turned Small-Time Loans into Big-Time Change” (Duke University Press, 2017, $27.95) is the tale of someone who’s not exactly a household name: Martin Eakes.
Eakes and his wife, Bonnie Wright, started the Center for Self-Help in Durham, N.C., in 1980 and in 1983 founded the Self-Help Credit Union, whose first deposit was $77 from a baked-goods sale. Since then, Eakes’s various not-for-profit ventures have helped tens of thousands of lower-income people in North Carolina and elsewhere get reasonable mortgage rates and decent returns on their modest savings accounts and also protected them from predatory lenders.
Covington, who met Eakes (rhymes with “shrieks”) when his daughter went to work for him, shows us how Eakes’s and Wright’s burning desire to help the less fortunate has helped make our country a better place, not only for those people but also for the better-off among us who want our country to be a fair and open place that gives everyone a chance to succeed.
Organizations such as the Ford Foundation (whose president wrote the introduction to “Lending Power”) helped with seed money. So did a foundation established by Herb Sandler and his late wife, Marion, who were also the initial funders of ProPublica, the not-for-profit investigative journalism operation where I’m an editor at large. Sandler-Eakes begat the Center for Responsible Lending, among other things.
Covington’s hilarious description of Herb loudly cursing out Eakes as Marion calmly listened and knitted totally rings true for those of us who’ve dealt with the Sandlers.
One suggestion: If you read “Lending Power,” start with the Final Notes on pages 191-194. That will help put things into context.
Dumaine’s book, “Go Long: Why Long-Term Thinking is Your Best Short-Term Strategy” (Wharton Digital Press, 2018, $18.99) is a more conventional work than Covington’s. It’s also shorter: a bit under 100 pages of text.
“Go Long,” which Dumaine wrote with a prominent academic, a consultant and a business executive, has prominent academics as contributors, deals with for-profit enterprises and has blurbs from big-time business people such as the chief executives of PepsiCo and Amgen and the Carlyle and Clayton, Dubilier & Rice “private equity” operations.
My favorite part of the book is the four chapters showing how long-term thinking helped Ford, CVS, Verizon and Unilever through difficult times. (Unfortunately, problems have since returned to Ford.)
I was fascinated that CVS decided to give up $2 billion of annual revenue by banning tobacco from its stores, part of a decision that its future lay in becoming a health company rather than remaining a drugstore chain. That looks like a wise decision on both the business and public-health fronts.
I was also taken with the chapter about Unilever’s decision to turn down an above-market $143 billion takeover offer from 3G because it didn’t want the company gutted.
For reasons that escape me, Buffett, the smiling, folksy avatar who made his reputation by preaching long-term good, seems enamored of 3G. Berkshire (whose shareholders include me) helped fund Kraft’s brutal takeover of Heinz to form what is now Kraft Heinz, and was the major backer of the Unilever bid.
After Unilever turned down 3G, Buffett said he wouldn’t back a hostile takeover bid — “hostile” meaning “opposed by the target company’s board of directors.”
Buffett had no problem, however, helping 3G-controlled Kraft take over Heinz, gut it and put thousands of people out of work. So what matters to Buffett, it seems, isn’t whether what 3G does is good for our country or is even a good long-term business strategy, but whether a target company’s board likes the buyout price. You’d expect better from Buffett.
I was encouraged that Unilever turned down 3G. I’m also encouraged by “long term” thinking getting favorable buzz in “Go Long” from BlackRock and Vanguard, the two giant index fund shops.
With luck, maybe “long term” will someday supplant “shareholder value.” And we investors — and our society — will all be better off.
Footnote: In March, I wrote how crummy investment choices in numerous Berkshire subsidiaries’ 401(k) plans don’t let employees practice what Buffett preaches about the wisdom of buying low-cost index funds. Buffett wouldn’t talk to me, so I wrote that I hoped someone would ask Buffett about this at Berkshire’s May 5 shareholder meeting.
Sure enough, one of Buffett’s questioners, Andrew Ross Sorkin of the New York Times and CNBC, read a Berkshire employee’s letter that cited my column and that asked Buffett, “Will you do something to improve our 401(k) offerings to match your investment philosophy?” Buffett’s answer, effectively, was “no.”
I’m glad Sorkin had the courage to risk annoying Buffett, who seemed uncomfortable with the question. You can judge for yourself by watching this video.
Who knows? Maybe watching the boss squirm a bit will prompt some Berkshire managers to offer better, cheaper 401(k) choices. That would be true long-term thinking.