Kudos to the Boeing Company! Earlier this week Boeing’s new version of the Dreamliner took flight. The 787-9, which is 20 feet longer than older versions, “can fly a few hundred miles further without additional fuel, and – with a capacity of 270 to 290 seats – can hold 40 more passengers.” Boeing has learned a lot with this program. The new version of the Dreamliner was 70% designed internally, which is different from the original 787. Boeing recognized through the problems faced during the launch of the original 787 that the supply chain did not have the skills they thought it had. Therefore, Boeing moved some of the design and manufacturing responsibilities back in-house. “It is easier to manage something when it is across the street, than on the other side of the world.”
Enrico Moretti described in his WSJ article where the good jobs are and why. He notes that some areas in our country have not recovered from the recession, and some, like Seattle, have. The regions of our country that have recovered are heavily dependent upon innovation industries. Innovation means the ability to think, which means education. “Since 1980, data show that the economic success of a city has been increasingly defined by its number of highly educated workers. Cities with many college-educated workers and innovative employers started attracting more of the same, and cities with a less-educated workforce and less innovative employers – such as traditional manufacturing – started losing ground.” This tells me that education still has value.
The last topic I’d like to touch on is Carl Ichan. I am more of a Stakeholder advocate, than a shareholder advocate. However, when someone invests in my company they should have the right to a reasonable return on that investment. Ichan’s editorial this morning in the WSJ was very interesting. “Challenging the Imperial Boardroom” describes quite well the tension between the principle, or owner within a company, and the agent, the hired manager. In the editorial he describes what he calls a dysfunctional system of corporate governance.
He discusses the “Business judgment rule,” that allows Boards to ignore the will of the shareholder. Or how a board can issue a flood of new stock, when an investor purchases 10% to 15% of the company’s stock, “to dilute those holdings thwart a takeover because it may cost them their jobs.”
Whether one agrees with Ichan or not, Principle-Agent Theory is a relevant area of research for business theorists. Owner rights is well defined legally. The manager is hired to run the business in order to maximize profits and give the shareholders an excellent return. Therefore, I won’t dispute Ichan’s premise, but being a manager I understand the bigger picture.
Whether a company is well run or not can be a subjective measurement. The manager may see the company’s mission differently than the shareholder. The other stakeholders may be receiving value from the company but the shareholders may feel they are not getting the level of dividends that they think they are supposed to get. Each player’s perspective is framed by its worldview.
For Ichan to whine about Michael Dell, and brag about his huge returns to his investors, annualized at 16%, I think is too narrowly focused. Don’t get me wrong, if a company is not being run well, as evidenced by its inability to perform its mission, then it should be taken over by those who can run it well.
I am tired of people being destroyed by large investors who take over a company because its market value is less than the sum of its assets and then the investors sell off the assets and turn a nice profit. I am also tired of the narrow profit focus that Ichan and his cronies have. However, I also believe that profit is still important, and the shareholders deserve a return on their investments.
Good business means good relationships. Ichan is trying to disassociate himself from the new aristocracy by calling board members Imperialists. Not a good strategy. He is a part of that Imperialism, and I am sure he has a very large crown that he wears periodically to remind his employees who is king.
And that is my thought for the day!