Diller: Beating (Wall Street's) expectation of earnings is yesterday's game

Reuters Media Summit

Barry Diller: “It’s not that you don’t want to earn as much money as you can — it is your obligation, of course — but companies have obligations beyond that and they certainly have obligations beyond that at certain times, in the times in which they operate. And they also certainly ought to know that meeting and beating expectations is probably yesterday’s game and it will be increasingly so, which would be by the way very healthy for companies. Running a company that meets and beats expectations, and that runs their company accordingly, are companies that I would question why anyone would invest in.”

Here's a quick clips of Diller saying the above.



This second clip has Diller parsing the utility of saving 20, 30 or 40 million dollars (about what many job cuts aim for at mid-cap sized orgs) in a year "when nobody's counting."



I don't know what Diller's positions have been in the past when QVC or other outfits he's run have encountered the fainting spells of Wall Street analysts agog over his quarterly numbers. My guess is he's less than pure on this front if he's a pure-bred American CEO. Regardless, there's a whole bunch of epiphanies happening out there.

No doubt, much of what's coming to pass is thanks to the damaging effect of a singular idea of the last 30 years, when the spadework of doing, as our parents did, became unsexy and unfulfilling: Profit became "the product"--The Moonshot--of many companies and the near-myopic focus of many leaders and our network of value-measuring and dictating institutions. Any sense of the power of work--and profit as meaningful proof of any work's worth--long since went out the window as a passe mark of the goofy or unsophisticated person. Well, reality is back in vogue and, let's hope, not too late.

###

This reminds me of something from Shalom Schwartz and Amir Licht that's useful as an executive measure when pondering corporate governance and direction. I'll dig it up and post something on it later.

Attack of the 50-foot Negro

Steve Benen at The Carpetbagger Report has a bit on how the narrative against Obama has devolved to it's ultimate Hollywood-Kryptonite form: He's a Commie-Socialist-Pinko. From Mars.

Benen rightfully observes a few things. ONE, how in fair cricket it just isn't done to suggest that avid uncritical melding of pro-military, pro-corporate views may accrue fascist-sounding and -appearing trappings and behaviours like, oh, monolithic definitions of "patriot" and flags on everything including the NYSE and big aircraft carriers named for still-living politicians related to the current boss. And TWO, how this accusation of soulless socialistic monsterdom is not supposed to rile the sensibilities of leftward leaning types, what with it being patently obvious like how women are just awful drivers and Polish people are really dumb.

Wait, those last things aren't true? Next, someone will tell me liberals don't cheer aborted babies and may, just may, actually love their own children. As if.

Yes, the Commie meme is especially dear to this blogger what with it being a perverse driver of so much of the last 50 years' triumphs and trainwrecks and an endlessly evolving project about Moonshots and (Red Menace-like) Tsunamis. The short exposition is the fact that thinking is damn boring, and that feeling, well, that's what some intelligent designer™ designed us for and here we are, feeling to the max. 21st C. American life is an orgy of sensation, the Friday the 13th franchise or the endless parade of bad 50s sci-fi all rolled up. Spooky stories enliven us, no matter how ridiculously stretched the telling has to get. And hey, I have slides to prove it...



So now, we have the main feature. Obama the alien being, a Muslim in reel one, a radical Christian in reel two, a liberal non-bowling elitist in reel three and, next, now, the ultimate culmination that only sputniks, UFOs, mushroom clouds and Rosa Parks could deliver. Attack of the 50 Foot Negro. There goes the galaxy.

Does it make sense? Hah. Sense would be Hillary Clinton realizing she's fragging one of her own and her legacy in her quixotic search for relevance and its last gasp cartoon of Boomer consultant-solution-speak, all the while making John McCain appear like a breath of fresh air to a GOP-fatigued electorate. Sense in this age of hyperreal, with adults displaying the appetites, patience and judgment of children is as rare as Iridium, something I hear scientists say we find on Earth mostly because asteroids deliver it from outerspace with big cataclysmic booms of their own.

I digress. Benen points out the odd idea that comparisons to Joe Stalin shouldn't trouble a sturdy liberal head but calling a conservative fascist is somehow akin to calling one a pedophile and just beyond the pale. There is nothing so complicated here as the "I'm rubber, you're glue" model of 7 year old debate. But Andrew Sullivan thinks he sees more.

[Kristol's] calling him a lying, Godless communist.

You could argue, as Kristol and others hilariously will, that Lou Dobbs has no base,
that fundamentalist Christianism has no problem with "the other" in a globalized world, that dozens of state constitutional amendments banning civil marriages that had never and would never have taken place were just spirited forms of civic engagement, rather than scapegoating or politicking on resentment. You could also argue, as others legitimately will, that spasms of economic distress and social discontent are unconnected. Hey: Weimar had nothing to do with Hitler. But Kristol is doing something much more pernicious: he is saying that Obama is faking faith, that his very profession of faith is a "mask" that is slipping, and that Kristol is the person to determine whose faith is genuine and who is a fraud.

A non-Christian manipulator of Christianity is calling a Christian a liar about his own faith. That's where they've gone to already. And it's only the middle of April. What are they so scared of?

What? Something so scary, so alien it makes them quake. Something William James would call a 'novel idea,' too novel and too discombobulating for comfort. They are scared of a black man who tilts their understanding of the machine, one whom many of their fellow Rs actually liked before he started getting the Michael Rennie treatment from Hillary and Mark Penn. They are scared of a 6-foot, 1.5 inch man, who is liked almost regardless AND because of his color. But it's his invocation of intrinsic goods, of the things we'd like to believe about ourselves collectively as Americans, that's what makes him seem 50-foot tall.

Leave be those small-town voters who may or may not be "bitter" about getting the shaft for the last 30 years. It's Hillary and Kristol who are apoplectic that their particular Boomer projects straddling two American centuries just haven't been the Moonshots they'd hoped for. They've got nukes. And Flag pins. And the 50-foot Commie-Alien with a real map to the moon must pay.

Credit Markets: "Complexity" is French for "I got mine."

Remember the old saw about the Chinese symbol for crisis being a hybrid of the icons for Danger and Opportunity?



It's bullshit borne of some business consultant looking for a profound-sounding moment or 'take-away."

Likewise, the Securitization of Debt and it's hoary babysitter, Hedge Funds, have little to do with Fiduciary Responsibility mated with Risk Management and everything to do with a different, old combo thing that gets us into trouble: Boredom and Greed. And it's yet another example of the search for feeling boost of Hyperrealism because the actual realism thing seems so damn stodgy what with it not having CGI and a crescendo-building soundtrack by Celtic waifs or chanting Monks or, by Nickleback.

Damn, I'm such a cynic. Too many boardrooms. But Tanta, of Calculated Risk, ain't buying it either.

Wharton on the Future of Securitization:

"The lurking concept here is 'leverage.' You want to make the big bucks investing in MBS? You leverage them. That's where those CDOs came from. A whole lot of this complexity is driven by the 'need' to goose the yield, not by some essential opacity of the underlying credits or the failure of originators to retain residuals--which, in fact, they actually did quite a bit of in there. The complexity came in because you can't get a tranche paying 12% out of a bunch of loans that pay 8% unless you create complex cash-flow structures hedged by complex rate swaps leading to re-securitization of tranches in new vehicles (parts of the MBS become CDOs, for instance).

So are all the rest of you convinced that market participants are going to give up on the chase for mo' better yield without regulation?"

One of my favorite clients wants me to believe this (Credit Swaps, SIVs, Bear Stearns, the whole thing) is about liquidity. No, it's about runaway human nature fire-walled from accountability by over-complicated jargon and 'cleverness,' and practiced by people who love to tell other people they just don't understand complex systems.

"Complexity" is, too often, French for I don't really understand it myself, but it helps me make a buck and it hasn't hurt my interests yet, so we'll worry about it later.

Why do I get so animated about this shit? Because me and mine, we're the clean-up crew once the "pros from Dover" get done self-actualizing themselves into others' oblivion. Yes, we try to fix the damage. And we get paid something for it. But I much prefer the other side of our business, where we deal in hope, humility and curiosity and opportunity. Because it's a sorry day when a Child Protective Services worker hopes for more customers.

Calling Tom Guarriello and Bob Lutz: shirts ready

[Tees? Of course!]

Detroit News

Chrysler image: bad marriage

What is with Germans and matrimonial imagery? At DaimlerChrysler's annual shareholder meeting this week in Berlin, investors discussed Chrysler like a cheating ex.

"This marriage made in heaven turned out to be a complete failure," said Hans-Richard Schmitz, one of a long line of investors who condemned the 1998 merger and called for a quick sale of Chrysler.

"Were Chrysler finally to be led before a divorce court judge, we would be very thankful," chimed in Henning Gebhardt, head of German equities at DWS, which manages funds for Deutsche Bank. "But what will happen if you do not find a new bridegroom for Chrysler, or if he demands too high a dowry?"

If that wasn't bad enough, some shareholders went on a refuse tangent, saying Chrysler was "garbage" that belonged on a "scrap heap."

Yeah, what is it with the marriage example?

April '04

...Even Daimler-Benz got interested, not for Chrysler's sexy balance sheet--it still wasn't all that sexy, yet--but for their ideas.

And that brings us to the prologue. Once craft and goofy passion had generated the new appeal, guess who got re-interested and re-exerted their control? Yes, the suits. Cat's away the mice will play. The suits then went to their "craft" and engineered a very dumb M&A with D-B, two different DNA streams, poorly imagined and merged. Not impossible, but poorly understood and intuited. And now, the indigestion is getting worse. Germany and the US are at each others throats. Again, an arranged marriage signed in differing blood types, on a balance sheet, not--NOT--on a dogeared 1969 copy of a Le Mans month Autoweek, after a suitable period living in sin to learn and blend each others quirks, as it should have been.

April '06

...I once wrote somewhere that the problem with Daimler's and Chrysler's merger was that they hadn't lived in sin together. Not to any meaningful degree anyway, and, without a simple requirement: Once enough hot, rough, draining and sweaty rapid prototyping had steamed up the windows and, uh, "preferences" were known (Dirty Secret Soulmates!), the marriage (we don't do "deal" here, baby) should have been signed in blood, on a dog-eared 1969 copy of June Autoweek. Maybe cigars or Don Shermans afterwards. But definitely Jaeger. Lots of it. And Strohs. And Moet. Shooken up and sprayed wildly. Then a wild orgy of kimono-opening top to bottom with get out jail free cards from accounting and PR.

And then, something really good: Let's make catalytic converters obsolete in 20 years. While cranking out the baddest, sexiest rides since, since.... well, forever. Now go!

Can you say "obscenely high margins" and "fresh fields and metaphors of marketing"? Of course you can. That's where folks who believe in the future's possibility naturally send their minds. Frontiers do that to us Americans. At least, they used to. Until our extractive, subtraction-rewarded brethren took over the show.

As I sat in executive-business school classes, then guest-taught them, I began a really tortured wonder: blind and deaf AND insensitive to the ground shifting under us? Yeah. Completely and narrowly and proudly so. The really sucky part of this prognostication thing I now gamble on is that many people who deserve better must wait interminably long until their 'betters' figure how to do this 'business' shit better. I'm no genius and it's not hard. I just read *all* of Adam Smith.

“if man is not asked of his work to exert his understanding, or his invention when presented with challenges, then he generally becomes as stupid and ignorant as it is possible for a human creature to become. [p. 210

Looks like someone else I know read Adam, too

Martin Fridson, Chief High-Yield Strategist, Merrill Lynch
Financial Management Association International, October 2002

[The Invisible Hand is a] "very convenient cover story for people who are actually trying to stack the deck in their favor."

Yea, Martin. Silly, stupid, pretenders. Business is a subset of life, not the other way 'round. Would solve and save alot of expensive and dead-inducing problems if managers were drilled on that metric before they met a scatter-chart.

Thank God it's Friday. [FYI: Martin, Tom has no allegiance to this blog, this post or to GM]

[UPDATA :stoopid me. Tom is my bud. I meant that i hadn't talked to Martin since way back on a panel and was apolitical on this one .]

Me? I'm a board-room terrorist for hire.
.

Business' Bonehead Management threat to national security?

GM and Ford are national security risks
The car makers are way behind when it comes to building fuel-efficient cars, and they're fighting rule changes for better gas mileage. This leaves U.S. consumers sending money to the Middle East for oil, or to Japan for hybrids.

Scott Burns - Dallas Morning News [sign up - free]

Nearly 35 years ago, General Motors Corp. asked a consulting firm to examine a problem.

Imported cars, mostly Japanese, had captured 25 percent of the California car market. GM management was worried. The Big Three still had 90 percent of the national market, but top brass at GM saw California as the future.

So the study was done.

Today, General Motors' market share is down to 25 percent nationally. The Big Three have seen their share shrink to 57 percent.

Our domestic automakers, including Ford and Chrysler, have lacked foresight and innovation for so long that they are now fighting to hold market share in the big categories essential for survival: midsize cars, sport utility vehicles and minivans.

Management will blame this on intractable labor costs. Although labor costs are definitely a problem, it's time to consider a larger problem: Intractable Bonehead Management.

The same Japanese managers derided for their conformity and slow decision-making are eating Detroit's breakfast, lunch and dinner. That's a management problem.

Today, GM and Ford are well positioned to be dinosaurs. So is Chrysler. Worse, they are threats to national security.

How is this happening? Here are three main thrusts:

• The industry has consistently lobbied against any changes to the Corporate Average Fuel Efficiency, or CAFE, rules, even as our dependence on imported energy has increased. The domestic carmakers talk about a global industry but have acted as though the United States was peculiarly immune to rising energy costs. One side effect is that domestic cars are unsuited for foreign markets because foreign markets are geared to fuel efficiency.

• The industry has focused its profitability on gas guzzlers that are supersized – like the Hummer H2 (10/13 mpg), the Lincoln Navigator (13/18 mpg), the Chevrolet Suburban (14/18 mpg) and the Cadillac Escalade ESV (13/17 mpg) – or on an array of super-muscle cars that are remarkably fuel-efficient relative to their forebears but still send plenty of money to the Middle East.

• Rather than innovate and invest in hybrid technology, as Toyota and Honda have done, the industry has repeatedly labeled the most successful car introduction in a decade as a "niche market" car. Ford, belatedly, is licensing Toyota technology for its first hybrid.

When fuel efficiency becomes crucial, American consumers will have two ugly choices: Send enormous amounts of money to the Middle East for oil or send enormous amounts of money to Japan for efficient cars.

Seems to be a thread developing here. I've been sitting on a post about a recent fierce McKinsey Quarterly report saying that Corporate Directors think management are bonehads also. There's something for everybody: Sarbox haters and fans, Claw hammer haters and fans, Henry Kravis haters and fans, management haters and well, you get the picture. I'll put it up this weekend.

Seems BusinessWeek smells blood in the water also.

The Boss On The Sidelines
How auditors, directors, and lawyers are asserting their power

If anybody needed proof that the new balance of power in Corporate America has shifted, Maurice R. "Hank" Greenberg provided it on Sunday, Mar. 13. While the imperious chairman and CEO of American International Group Inc. was holed up aboard his yacht on the Florida coast, his company's independent directors were packed into a conference room in their lawyer's Manhattan office. The board members faced an urgent crisis: a growing accounting scandal that seemed to lead straight to the CEO. As directors debated whether to cut Greenberg loose, the 79-year-old titan lashed out at them by telephone. "This board is being run by a bunch of lawyers who can't spell the word 'insurance,"' he shouted. "If you get rid of me, you will destroy this company!" It was the kind of intimidation that had helped Greenberg consolidate unprecedented power in his four decades at the helm of the insurer. But this time, the bullying didn't work. Within a day, Greenberg, once the most powerful man in the industry, was out as CEO. Two weeks later, as the scandal widened, he was forced to resign the chairmanship, too.

Hank, Hank, Hank. When you ask for a loan from American Re in the shape of 500 million bux to quiet shareholders and analysts about your dodgy loss reserves, that's not spelling "integrity" either. And it doesn't do much for shoring up the long-term health of the company. What color is the sky in your world?

Hubris? Gilded Age 2.0? Bubble Hangover? Yeah. All the above. And plenty of bad mojo, deserved and otherwise. There's lots of good stuff if you follow the Bizweek link.

Dispatches from the Climb Ev’ry Mountain department

Boy, there sure is a lot of jostle and champing at the bit out there in blogville. A disturbance in The Force. I love it! Yesterday afternoon, I was pointed to Seth Godin’s post on Alpha Credit Card Execs and Beta CPAs (Fair characterization, Seth? Probably not.):

I just finished giving a talk to a group of 400 high-powered (high-leverage, high-paid) credit card execs. As I left the hotel, I passed a much smaller room, where a seminar for local CPAs was going on...

The difference, i think, was that a long time ago, the people in the second room had made a decision about what they deserved, or what they were capable of, or what they were going to stick with. And it was a bad decision.

Then, I find Business Pundit lamenting the lack of ambition and rambunction in companies:

Talk is cheap. I guess that is why so many people talk about being great but never do anything about it.... I. Don't. Understand. Sometimes I think we benchmark not to see if we are better than our competitors, but to make sure we are all doing the same things so that we can feel comfortable.... I think most companies are confined to mediocrity because they want to do what everyone else is doing. It gives them a sense of confidence that they are on the right track when in truth they are just playing follow the leader.

And, in comments, vinod has this:

Generally, there are only 2 [opportunties] to get out of "Chasing Taillights" mode -

1) at the VERY START of the venture - before any revenue commitments are made, employee orgs are designed, relationships with external firms are constructed, etc. This is the "having sex" part of new venture creation ;-) You've got a blank slate.

2) AFTER the company is profitable / out of the woods - when the short / medium term health is secure, and you've got enough time / $$$ to fund exploration.

Fair enough. But relative to what Seth, Rob and vinod are saying is this point: many of these people are only following the rules as they’ve been set out for them. Set out wrongly. In my estimation, we see the tail wagging the dog of what Business is really about: Allowing men and women to exercise their creativity and energy, with profit as proof of their success, not a ring through their noses.

In that vein, let's add another, third bullet, to vinod's above--one I think has far more probability of occurring than his "#2":

Henry Kissinger once said "A lack of choices clears the mind marvelously." When companies are against the wall, when every available arrow in their quiver has been shot and missed, their "sliderules" are failing them, they then become open to new ideas; teachable, as it were.

Large scale case: Chrysler was in the dumper several times in the last few decades. In many instances their problems stemmed from a lack of leading their market and getting stodgy and bureaucratic, causing finance/senior management to dictate strategic risk choices due to their lesser size relative to competitiors. This led finance to go to the only bag of tricks they knew and felt comfortable with. Messy, wrong acquisitions and projects as silver bullets and "leapfrog " moves--Lamborghini, for instance. I'm simplifying for space, but these suit-centric choices, if you will, got them in holes and delivered them to death's door. At this point, many traditionalist auto-types gave up on Chrysler and bailed for another "host". Suits gone, guys like Bob Lutz, were allowed a "What the F*ck," last ditch effort. In other words, freer reign.

("Whadawegot to lose?" Who was watching to say, "NO"? )

What did Lutz do? He raided design schools and foreign and unusual sources and shipped in a hot rod culture and let them go to it... Cars built for love of curve and metal, for love of cars. Bing bang boom, Viper. Using a V10 development people in finance hated because of parts economics of scale, and because it wasn't their idea in the first place. Next: Prowler. Next PTs. Next: Curvy-fendered Ram pick-ups when the trend was to GM's boxy longbed frame and body of the 1500s and Suburban genre.

They were designing cars people suddenly "had to have." Lotta craft, lotta love, lotta intuition, and Bob Lutz out front running interference with his "First law": The customer is not always right. In this case, he meant designing to the customers desires, ahead of them, not to the customers specifications, which was what previous management had done with focus groups and market testing concepts to death--not one, but three! cupholders as "design breakthrough!" He let people exercise their love and skill, used some unususal research models like cultural anthropology and resurrected a winner. Even Daimler-Benz got interested, not for Chrysler's sexy balance sheet--it still wasn't all that sexy, yet--but for their ideas.

And that brings us to the prologue. Once craft and goofy passion had generated the new appeal, guess who got re-interested and re-exerted their control? Yes, the suits. Cat's away the mice will play. The suits then went to their "craft" and engineered a very dumb M&A with D-B, two different DNA streams, poorly imagined and merged. Not impossible, but poorly understood and intuited. And now, the indigestion is getting worse. Germany and the US are at each others throats. Again, an arranged marriage signed in differing blood types, on a balance sheet, not--NOT--on a dogeared 1969 copy of a Le Mans month Autoweek, after a suitable period living in sin to learn and blend each others quirks, as it should have been.

Now, race back to the 1920-30s when car manufacturers were everywhere. Look at a PT cruiser or Ram. Shape remind you of anything? A Packard, Ford, Doble, Velie, Studebaker, Hudson or Dodge of the era? Of course it does. Car designers didn't have CADCAM or statistical sampling or one way mirrors with customers behind them to guide ideas. They had their gut, their art and their craft.

Now go back further: Adam Smith. Division of Labor. 1776. Wealth of Nations. Smith knew he was onto something good. But, while he may not have seen all the effects of his newly new minted economic description, he recognized one: It’s stifling potential on people’s minds and ambition….

“if man is not asked of his work to exert his understanding, or his invention when presented with challenges, then he generally becomes as stupid and ignorant as it is possible for a human creature to become.

Funny how most of us business types gloss over that one for the more soul-crushing but "actionable" examples of mass production Smith used in his Pin Factory example, eh?

And herein lies the entrepreneur's dilemma: We are allowed to make it very personal, to actualize ourselves in the extreme through our business efforts. For us it's not business, it is personal. But the structures we then create, unless we're very careful, suck the very same passion we crave out of the efforts of those who work for and represent us. We then demand of our people "Where's the commitment!? Where's the magic?!" Once we're done huffing, we then unleash them on unsuspecting customers who somehow sense from these employees: "Gee, it's all business with this guy. Where's the humanity and flexibility and can do? Where's the power? Where's the personal?"

Ladies and gents, Seth and Rob and Vinod are right to wonder. They're just right. It doesn't have to be that way. This way.

You have the Pole.