THE NEW GLOBAL WE.

Perform or Perish

Posted in Big Thought, TOOBs by Harsha on October 31, 2007

I love Business Week.

 

Has life ever been about black and white or has it always been about being gray? If everything was measured as a winner-take-all game, then the majority of us are sore losers. I am sure you don’t think of yourself as a loser, especially since you’re reading this blog! πŸ™‚

 

The world of private equity, one that I absolutely do not reside in, is both enigmatic and so mortal at the same time. I know the math that these high level managers blaze through is truly mind-boggling yet fallible. If you talked to any one of them in a casual conversation, you’d be stumped at their knowledge and expertise of financial deals.

 

Yet even a kid knows that if you stick your hand, even in a tiny flame, that you’re going to burn the @#$ out of your skin. And yet, these private equity honchos crack the whip just like they’ve done in the past years during the downturns and upturns. They do the same things over and over again.

 

I was somewhat disappointed by the article. It sounded like the author was almost impressed by the motions of this machine – investor cracks whip, overpaid CEO yells at managers, uses complex jargon, work becomes hell for employees, layoffs, company stripped, CEO moves on to next target.

 

There has been a lot of action in the “let’s take these companies private” to avoid regulatory and public scrutiny either because some of these investors felt that they can truly incorporate change or to just make a quick million here and there in the bargain. Either route seems to emit the same characteristic symptoms of the greed of money. It doesn’t emit anything even remotely related to good business ideas or strategy. Oh no, that one is for the classroom where you’re taught these things but shame on you if you stepped out there and tried to execute on them. And how easy or successful were you when you were nice, motivated with ideas and full of inspiration? Controversy seems to win eyeballs and I am telling you that from personal experience. I could not get a single comment out of any of my readers but when I was “harsh” with my comments on Whizspark, their CEO stepped out to write an entire article (even praising me!). So controversial actions that are in-your-face garner more eyeballs and interest than reasonable, regular actions (Nassim Taleb’s idea of silence of evidence).

 

One of the companies discussed is Aleris. Revenue doubled to $3.2B but operating income was cut into almost 1/2 thanks to overloaded debt payments. Two days after S&P warned about a possible downgrade in on it’s debt, the CEO shuttered a plant in TN that belonged to one of it’s acquisitions Wabash Alloys. The goal of the owner of this firm, TPG, is to keep the momentum going in order to strip what’s left of the company, of it’s cash and assets. So the books on brand building, customer service and organizational development were just thrown out of the window, neatly replaced by an Excel spread sheet with an IRR formula.

 

I’m not saying that Aleris was well managed before the purchase by TPG. Maybe it did not have a chance of even having it’s assets sold at good value. That is not the point. The point is that this article breaks up the world into “performers” and “perishers”. I don’t think they’re mutually exclusive. You can be a performer at one time and a perisher at another. The thin line that separates the two is luck. I don’t think we either perform or we perish. We could even perform and perish based on variables that we have no control over.

 

So while the article is really well written (again, I love BW), I am disappointed that it focused one one aspect of the problem with no commentary on its appropriateness or validity. True, the aim of the article is something other than what I would have hoped it would be, but I don’t think it is valuable to me as a reader. I already know that private equity canines are trained to be watchdogs and not pets. I already know that CEOs like the ones chronicled in the article engage in the same-old-same-old. Tell me something new.

 

The article on Business Week – Perform or Perish.

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2 Responses

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  1. Varun Jain said, on January 6, 2008 at 7:49 pm

    Hey Harsha!

    First of all let me congratulate you on maintaining a really interesting blog! I took the liberty to go through some of them and really enjoyed what I was reading!:)

    This particular one on Private Equity really caught my eye. I agree that perhaps the potrayal in BW is slightly biased but I must say I still remain a fan of Private Equity!

    To me PE, especially buyouts, and that too in a country like India at the moment, is more that just THE place to be. I consider it a superior form of governance, drawing from the finer aspects of Investment Banking and Consulting; perhaps, making PE players the new kings of Capitalism!

  2. Harsha said, on January 7, 2008 at 11:40 am

    Hi Varun,

    Thank you for the kind comments and taking the time and effort to write.

    The Indian environment is very different from the US in that there has been little in terms of organized corporate culture. That aspect is mature in the US and so to apply the old method of cracking the whip doesn’t fly any more. In terms of the perform or perish aspect of work, that is pretty useful in today’s India because it will generate more momentum till in a hundred or so years, we realize that that model no longer works. πŸ™‚

    Thanks again.

    Harsha


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