Jan 192015

The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street (Applied Corporate Finance) by Jonathan Macey 
It will probably come as no surprise to anyone reading this book, but corporate reputation is at an all-time low. Once upon a time, a company’s reputation was a prized asset, guarded jealously. In this book, Jonathan Macey shows how that time is long gone, that companies who have lost their reputations have not lost business and sometimes even gained because of wrong-doing or even illegal activity. He picks apart everything from companies, brokerages, banks, the people who run them, even the regulatory agencies tasked to make sure they play by the rules. It is a disheartening look into just how corrupt commerce and government has become. Who loses? The consumers. Who do we trust? Who can we depend on to help make decisions? The simple answer is no one. And that is the saddest commentary of all.

The book is not an easy read. Macey does a good job of explaining the complex strategies employed. I understand junk bonds for the first time in my life from this book. But unless one is very interested in this topic, it will be a hard slog. I admit I used this book as a sleep aid more than one night. It is one of the best documented books I have read. I think the footnote references were half as long as the chapters.

Jan 112015

MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins  

The premise of this new book by Tony Robbins is listed right on the cover: Secrets from the world’s richest financial minds. Isn’t that what everyone who doesn’t have $1 million in the bank want to know? How did they get there and how can I get access to all the tricks the 1% of the world’s richest possess? What are the magic schemes they use to hang on to their money when all the rest of us seem to constantly be investing in the wrong thing?

I was asked to give an advance review of Tony Robbins’ new book, Money: Master the Game as part of their pre-launch marketing strategy. For the price of shipping and handling, I was sent a copy of the book. The problem? I didn’t receive it until after the launch. I was given the first two sub-chapters electronically, but about all those accomplished was to irritate me (and hundreds of others, based on Amazon reviews) by teasing me with everything I was going to be told in subsequent chapters that I didn’t have access to yet.

When I finally got the book, I started reading in earnest. Yes, I want those secrets. The first one? I am part of the richest 1% of the world. Yes, ladies and gentlemen, the first thing Tony points out is that if you make more than $50,000 per year, you are part of those evil 1%-ers the protesters all rail against. We in America are among the most blessed on the planet with what we have been given. With that out of the way, he then launches into questioning WHY we want to become rich. Make not bones about it, he absolutely expects everyone who reads this book to know why they want to have money, how much is ‘enough’ and what they will do with it once they get it.

Tony was frustrated with the lack of information given to the majority of the people in the world on what works and what doesn’t. Time and again, he would see people lose their life savings by turning their money over to “financial analysts” who would legally steal the money through fees, commissions and other legal methods. He was doing well with his pile, but he was able to hire the best and brightest in the world and had access to the smartest people on Wall Street through his myriad of connections. Four years ago, he decided to do something about it and enlisted those bright minds to get the information out in a format for everyone to see. The result is this book. He interviewed everyone from Sir John Templeton to Warren Buffet and asked them simple questions. Over the course of several years, he built up and extracted the strategies that are contained in the book.

Are they earth-shattering, market-rocking or super-secret? Nope. I have read every one of them before in one place or another. What IS helpful in this book is the way he puts it all together. For the very first time, someone showed me HOW to calculate just what I needed to retire on. Not only did Tony do that, he showed me how to calculate 5 different levels of retirement. I am thrilled to say that come this time next year, I will have achieved the bare bones retirement level. I won’t be having fun, but I will be able to live in my house, have food to eat, transportation and insurance for the rest of my days. It is very comforting to know that little fact/milestone. The next level up, a few other things added in, will be reached in 5 years. If everything stays the same as it is now, I will be able to retire at my current lifestyle one year before I actually retire. Well, that’s cool! I never knew that before. That in itself made me sunny and happy for the next two days! I’m not doing all that much for retirement beyond my 401(k) contribution right now, so I thought I was going to be living in a box, eating food out of a dumpster. At least, that is what the popular media had led me to believe.

What I do like about this book is the way everything is laid out. He explains things pretty well for the most part. There were a few times I got lost in some of the explanations. I even fell asleep several times throughout. But I have turned down several pages to go back and review as I work through implementing the plan. I enjoyed the interview transcriptions from the many people he interviewed. One of my favorite was with Kyle Bass and his concept of investing without risk of loss. That part was new to me and very profound.

One of the things I appreciated the most from this book was in the last chapter. Tony created a checklist to the entire book. I am a lover of checklists and this was welcome. I had been contemplating going back and rereading the book to make my own checklist when I turned the page and found it all assembled for me. The only addition I would recommend to Mr. Robbins is to add page numbers to the checklist for quick reference.

Good book, great stories, fantastic interviews and actionable advice I can go implement. Yes, there are a few times when it felt like a sales pitch for some of Tony’s companies or seminars, but he makes a point to saying they are not required. That’s all I would ask from a guy who makes his living from providing services. This book was a gift to the world – he is donating all the profits to his foundation to feed 40 million people a meal this year. I can live with that. In fact, I am planning on donating to it as well.

Jan 122014

Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Heylar  

I love books about business. I also love books on history. When I unwrapped this book at Christmas, I knew my son had me pegged. This was a great book for me. I devoured all 624 pages in two weeks. It reads like a thriller, almost as much a page turner as Tom Clancy, better than his later novels. Even though the outcome is history and I even vaguely remember it happening, I was on pins and needles to see how the last moments were going to evolve.

Barbarians traces the history of RJR Nabisco, the separate beginnings as the National Biscuit Company, makers of the Oreo and other snacks, and the R J Reynolds Tobacco Company, makers of Winston and Salem cigarettes. It covers each company’s histories, the men who created them and the CEOs through time who brought them to a giant merger that resulted in RJR Nabisco in 1985. Nabisco CEO Ross Johnson, a driven, deal maker Canadian, took the helm of the new company.

With all the bad press smoking was receiving, RJR Nabisco stock was taking a beating on Wall Street, despite strong profits. Johnson tried everything he knew to get the stock price to rise to the levels he felt it deserved. All during the three years after the merger, he was adamantly opposed to the sexy, new Wall Street fad: the Leveraged Buy Out or LBO. LBOs target companies with tremendous cash flow, but for whatever reason, poorly performing stock prices. In an LBO, the management of the company partners with banks and investments companies and raises enough capital to buy out all the stockholders of the publicly traded company, essentially taking it private. The “leveraged” part means they do it by taking out loans and selling bonds, often “junk” bonds, to raise the necessary capital. This essentially saddles the new company with enormous debt. The management then uses the cash flow in addition to selling off large parts of the company to retire the debt, clean up the books and then take the company public again. In the process, everyone involved usually makes boatloads of money in fees, bonuses and such.

After years of trying everything possible, Johnson gave in to the idea of doing an LBO. The problem was he didn’t move fast enough and other players, particularly Kohlberg, Kravis, Roberts and Company, were able to jump in on the action and bid against the management team. Suddenly a bidding war erupted and over the next 6 weeks, the world watched as the prices spiraled higher and higher. Bad press on all sides came out and the event quickly became the poster child of corporate greed, with Time Magazine revealing the $100 million Johnson stood to make on the buyout.

In the end, KKR prevailed and bought RJR Nabisco. However, the price was so high and tobacco’s future so troublesome, the deal never quite worked out as they had planned. They cover the resulting struggles in an afterword, written for the 20th anniversary edition of the book.

Burrough and Heylar are excellent writers, both having worked journalism for many years. They took on the task of explaining complicated finance topics and explained them exceedingly well. Their piecing together the story through hundreds of hours of interviews yielded a very detailed portrayal of the events, right down to the dialogue. When they weren’t sure or some accounts differed, they noted it.

I highly recommend this book to anyone wishing to learn more about corporate greed and the decisions that drive it. Well meaning efforts often turn into things unintended when large sums of money are in the balance. This book serves as a cautionary tale that has not yet been learned. I know of several universities who use it as a textbook in their business classes. There are many lessons businesses should learn, particularly tying CEO incentives to stock price and quarterly earnings. Often these short-term indicators drive quick behavior that seriously damages the company in the long-term. Consequently, we end up with the situation we have in corporate business today.

 Posted by at 9:15 pm