Pope Francis, the latest in a series of pontiffs, did not write this:
Which of these two (real) companies would you invest in?
The first boasts in its annual report that it has a single goal: “Maximizing shareholder value.”
A few lines later, it promises: “We are deeply committed to building the value of the Firm … in everything we do, we are constantly identifying and evaluating ways to add value.”
After discussing ways to boost the company’s share price in a conference call, the CEO emphasizes that “our goal is simple; that’s to create value for our shareholders.”
The other company takes a different approach.
Its annual report states that the business “was not originally created to be a company.” Customers who are key to its future “believe in something beyond simply maximizing profits,” it reads.
Its CEO once stated bluntly, “We’re definitely not in it for the money,” and admitted to a friend that “I don’t know business stuff.”
One analyst wrote that management simply “doesn’t care that much about making money.”
This is actually, if I recall properly, a bit of promotional mail from The Motley Fool‘s Morgan Housel, a financial columnist who I occasionally read but do not follow, despite finding his writing appealing. And the thesis of this column is appealing, too. The first company, it turns out, is the infamous Lehman Brothers, a financial services firms that went suddenly bankrupt during the recent Great Recession. The second is … Facebook. Now reportedly making millions of dollars.
Housel goes on:
Companies that focus on profits often lose customers, while companies that focus on customers often find profits.
As much as I want to believe in the thesis, my contrarian side simply notes that Lehman Brothers was a financial services company. They were about money – from whom to borrow, to whom to lend, where to invest. This is all about money, and their statements reflect that. The fact of their failure doesn’t mean their basic commitment of return on investment was wrong – it may mean they were simply incompetent in managing a business in a sector which has proven to be more and more difficult to successfully navigate (and so incompetent may be an unkind, even harsh word for folks who were inadvertent explorers, and were eaten by dragons).
His contrasting example, Facebook, went public in 2012. Think of that. His example has been public for three years, and while successful in that time frame, three years doesn’t make for a market dominating monolith like, say, Coke, or Berkshire-Hathaway. It’s a services company, not something making useful tangibles with a large moat, and frankly Facebook doesn’t inspire great love – I find it annoying in many respects. And I expect if the right new service company came along in the future, Facebook might become a ghost town. Remember Eastman-Kodak?1
This weak article is all the more unfortunate as it comes in the context of Pope Francis’ remarks about capitalism:
And behind all this pain, death and destruction there is the stench of what Basil of Caesarea called “the dung of the devil”. An unfettered pursuit of money rules. The service of the common good is left behind. Once capital becomes an idol and guides people’s decisions, once greed for money presides over the entire socioeconomic system, it ruins society, it condemns and enslaves men and women, it destroys human fraternity, it sets people against one another and, as we clearly see, it even puts at risk our common home.
Whether or not you’re Catholic (and I’m agnostic), the Pope’s remarks concerning a dominant economic systems are worth reflection. Once capital becomes an idol is a lovely way to remind the learned2 that the economic system should be our servant in the pursuit of larger, worthy goals – not our master that oppresses us. Morgan had an opportunity to reflect on the proper role of capitalism (or even any economic system) within society, how to interpret it for the benefit of investors – and missed it. Tying it in with Pope Francis’ remarks would have brought extra leverage to the argument. I regret his unforced error.3
1 I am not directly invested in any of the companies mentioned in this post.
2 We’ll skip the poseurs whose single lesson from their economic studies is that regulating business is bad for business and therefore shouldn’t be permitted.
3 Perhaps someday I’ll work up the hubris to take a shot at it.
