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Sour Grapes

Are Wall Street's critics outraged by greed, or simply jealous?
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Why suddenly all this hand-wringing? Nothing has changed in the basics of capitalism since the Middle Ages. If Gould, Vanderbilt, and Morgan were given license to gouge the public as they pieced together our giant industries, then the same license must be granted Goldsmith, Pickens, and Icahn as they tear them apart. Like it or not, we have to live with both the unsavory and the savory characteristics of the system -- a long list that, alas, includes greed. No doubt the typical takeover artist is an avaricious boor with the personality of an anaconda, but nowhere in the laws of enterprise does it say we have to sip high tea together.

And takeover artists don't intend to operate their targets like Mr. Nice Guys, either. Indeed, maybe they don't intend to operate them at all. But to decry the size of a raider's overnight gains is like complaining about a poker opponent who bluffs himself into a big pot. The rules allow it, and no aficionado would pillory a winner because it's only fair that he hold a full house instead of a pair of deuces. Wall Street's game also condonse the idiosyncratic behavior by which winners browbeat losers.

If you buy the alibi that hostile raiders distract management from focusing on long-term planning, ask the gifted team at Exxon -- no takeover fretters they -- why, in 1980, an oil company executed a long-term plan to go into office automation, only to have to skulk back out in 1984. Ask USX what happened to the mills it had a century to think about. Better yet, ask whoever's left at LTV just plain, what happened?

There are so many questionably managed public companies around that it would be an ill-destined raider indeed who selected a healthy and profitable corporation to put into play. The common stock of a well-run public company sells at a premium; if you were to acquire it and liquidate its assets, from here it looks as if you would lose. On the other hand, the common stock of a poorly run and barely profitable company sells at a discount, at which depressed price it is available in enough quantity for a raider to spring a rude awakening on slumbering management.

Take Goodyear . . . please. In September 1986, GT (its stock symbol) was selling in the $30 range, a level around which it had been languishing for the better part of the 1980s. A trusting investor who bought GT at the end of September '83 and cashed out at the end of August '86 could have earned $4.50 a share. That happens to be less than 5% per year, but what with a few points tacked on via dividends, not too bad for a conservative stock, eh? Well, don't be envious: the Standard & Poor's 500 was up nearly 50% in the same three-year period.

Now comes October '86, however, and the revelation that some British moneybags has been accumulating Goodyear stock. Hear! Hear! -- a takeover. GT shoots up to $50 -- a one-month gain that corporate was not apt to accomplish on its own in this century. It took the threat of seeing a greedy foreigner in the chief executive officer's chair to get Goodyear managers off their overpadded duffs and selling the nontire divisions they'd shown little ability to run anyway. Public stockholders need protection from that?

Granted, the mere rumor of a manipulation is a surefire way to make a stock dance. But such tactics can't be condemned merely on the grounds that investment bankers shouldn't amass huge profits while directing financial maneuvers calculated to reap even huger profits. By that same reasoning, corporations might as well be forbidden from earning over 10% net and required to donate the excess to animal shelters. Profits, not platitudes, are at the heart of our great system.

All that aside, what's truly great about our system is that anyone can equally become an investment banker or a journalist -- and then is entitled to whine about choosing wrong.

Last updated: Oct 1, 1987




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