Friday, October 17, 2008

Where Do the Children Play?

Someone asked:

How does one, as CEO, lose billions and make millions?

Fund investors take run up money from the stocks and leave the companies trying to pay off the leverage. If the leverage isn't paid, they break it up into pieces and sell them.

Someone said to me that if I am better off today than I was eight years ago, I should vote Republican. The funny thing is, I am better off. By about 40%. My 401k has taken a beating but I am much better off. Why?

The last company I was working for was bought by a San Francisco-based investment firm. During the previous ten years, we had worked hard to bring our stock value up from about $4 a share to around $30. That is when the Board tossed out our President and replaced him with a fund manager from Wall Street. He brought his Harvard grad buddy in and they began to squeeze the company down to show higher profits on the books theoretically through cost reductions.

It sounds like good business. Why isn't it?

Where we had been careful and scrupulous in our bidding for work, they tossed the safety rules aside and had us pursue work we couldn’t do at prices we couldn’t perform. We won a lot of business that way. So when they began to look for buyers (the plan the board had from the beginning), on paper, we looked like a great buy or so the story went.

The truth was, our money in hand was cash from winning intellectual property lawsuits. The value was the patent portfolio, but the time was running out on that, so the cash in the bank was a lottery ticket we couldn’t play again.

So they squeezed. Result: while we looked good on the books, we had devastated our human capital which is the real engine of a business. There was no way we could perform.

Smart engineers and managers knew it and bailed fast. I was one of those. That company is now having to buy back parts of their contracts as their customers are becoming furious with their underperformance. The investors who bought them don’t care. They were buying the cash on hand and they took it out of the company at purchase.

So how do they do it? They descend on a company like locusts and hollow out the value while polishing the outer shell. It takes a while to notice this and people believe what they are told. This is why XBRL and other technologies are so important to achieving transparency.

Me? I went to work for a company run by sharp immigrants from Mumbai who’s company is also their passion. We stay lean, we stay smart, and we meet our deadlines with good technology. We work hard. We have a good time together. Our products save lives. We are proud of that.

As a result, I am better off. Should I vote Republican? Well, I won't vote Democrat and oddly, I AM a Democrat. Obama cheats and lies to win and just as the story related above, means matter.

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