Chapter Content
Okay, so I wanted to talk a little bit about this idea, this concept of the "finance curse." It's, uh, it's something that's really been bugging me, and I think it's super relevant to what's been going on in the business world, you know, for the past few decades.
Basically, the finance curse is, it's when companies start focusing *way* too much on financial metrics, like, you know, quarterly earnings, stock price, all that jazz. And, like, they forget about actually, you know, satisfying the needs of their customers, their employees, their communities… basically, all the stakeholders that aren't just shareholders. And the thing is, this focus on short-term financial gain, it almost always, almost *always*, ends up hurting everyone in the long run, including the shareholders themselves! It's kind of ironic, really.
Think about companies like, uh, General Electric, or Sears, or Marks & Spencer… these were like, *huge*, incredibly successful companies. But, you know, over time, they started prioritizing, like, squeezing every last drop of profit out of their operations, cutting costs, raising prices in ways that made their products and services less appealing. They started, like, "managing" earnings, which is basically borrowing from the future to look good *now*. They got all caught up in mergers and acquisitions, which, you know, sounds exciting to investors, but it rarely actually creates any real value. Usually, it destroys it.
And the result? Well, if you invested in these companies back in the day when shareholder value was all the rage, you probably lost a ton of money. Like, GEC and Sears, you would have lost *everything*. Even in companies like ICI, you would have lost most of it. It’s wild.
What happened? These companies basically became addicted to that short-term boost in the stock price, that quick hit of, you know, financial success. And they completely lost sight of what made them successful in the first place, which was, you know, providing value to their customers. They were just focusing on the wrong things, honestly.
You know, the companies that seem to do the best in the long run are the ones that actually resist this pressure to prioritize financial metrics above all else. Think about companies like Proctor & Gamble, or Coca-Cola, or Unilever. These companies are, like, obsessed with understanding and responding to the needs of their customers. And that's why they've been able to stay successful for so long.
There are people that come along and think that things can be cut or squeezed to drive performance, you know, it’s like these private equity firms, that come in and start slashing costs, driving ‘zero-based budgeting’. Sure, it works for a little while, but eventually those chickens come home to roost.
I even had a personal experience with this. I was on the board of the Halifax Building Society for a while. It was this amazing institution, totally focused on helping ordinary people buy homes. It grew to be the biggest mortgage lender *in the world* based on those principals, on that culture! But then, the pressure to become a shareholder corporation got too strong. And, you know, long story short, it ended up merging with a bank and, well, it's just a trading name now. And those windfall shares that were given out to members? Worth almost nothing these days. Such a shame.
And that gets back to that fundamental point: neither quarterly earnings management nor merger and acquisition activity is a source of sustainable competitive advantage. And it is sustainable competitive advantage – that is the basis of business success. And the only long-term source of shareholder value. It all comes down to, ya know, focusing on the long game.