LETTERS FROM THE GLOBAL PROVINCE
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GP5Nov03: The King of Spices, The Week Magazine, and Street Smarts
Astral Events. On Halloween night, the ghosts, goblins, and ghastly witches were unusually active, even though many spectators missed out on the doings of the spirit world because only a crescent moon illuminated all the supernatural proceedings. Unnoticed, Halloween has become the year’s most important party night and commercial holiday by some accounts, so much so that it is inspiring companion celebrations overseas. At any rate, it is generating a lot of lucre and increasing hilarity. London itself put on a classy scare this year.
We are, in fact, entombed in an orgy of strange happenings. Just a few months ago (August 2003), Mars crept unnaturally close to earth, so as to take a closer look at what’s going on down here. Only last week a solar storm sped in from the sun and disrupted airline communications, especially in the Northern Hemisphere. Led by 72-year old Jack McKeon, the Florida Marlins swept in from left field to crush the overpaid Yankees ($180 million payroll) who hardly looked imperious when confronted by this superior Star Wars force from the grapefruit state that itself threatens to overtake New York in the population rankings.
Once in a lifetime events are now happening every day. They’re creating odd magnetic fields that distort our compasses, pointing us in all sorts of mistaken directions, and leading us to make strategic blunders at every turn. Often, to go straight ahead is to go backwards.
Pepper is King. For a couple of years, the food elite has waxed poetic about all the rare varieties of salt that can make your food more gourmet. It turns out that in most situations the different salts don’t make that much of a taste difference. The excess salt only does a little bit of extra damage to your health. Basically, you are best served, in our eyes, by using kosher salt. The bigger grains, even sparingly used, will give you an extra jolt.
You should do a 180-degree turn and pay attention to pepper, the king of spices. That’s where you’ll see a real flavor difference. In this vein, we recommend to you a good starter article on pepper, Johnny Apple’s “Following the Pepper Grinder All the Way to Its Source,” New York Times, October 29, 2003, pp. D1 & D9, which amply pictures India’s contribution to the pepper trade. On the same day, we put out “Crème de la Crème: The Best White Peppercorns,” on the Global Province, and we will have more to say about pepper in the future describing its sources, its correct use, and some of the exotic recipes in which it enjoys a star billing.
So get with the pepper and be casual about your salt.
The Week. A few months back, somebody started stuffing The Week (www.TheWeekMagazine.com) into our mailbox, and it’s a big hit around the household. We think of it as the magazine world’s answer to the cable news generation, since it sandwiches a little bit of everything between its covers in very few pages, quickly covering more of the world than MSNBC or CNN. Nor does it browbeat you as they do, compelled as they are by competitive forces to repeat hourly the same inconsequential stories. Still something of a secret, it has become a word of mouth success around New York City.
Generations ago, Time and Reader’s Digest did the same thing for the newspaper generation, compressing the world into a 50-page magazine so that one only had to spend 2 to 3 hours a week to stay in touch. With a few pages of factoids, The Week lets you do it in 45 minutes, making Time and the newspapers seem dull and old hat. It does not, however, provide interpretation or meaning; you simply learn what’s going on, not what it all adds up to. The Week is a publication that gives you the illusion you are keeping up, a bandage for a generation that knows in its heart that it’s falling behind the information eight ball.
It’s easy to miss the fact that the mainstream media—newspapers, TV networks, magazines—are missing the market and probably dying, even if we are dimly aware that their circulation statistics are flat or worse. They fill our mailboxes and our screens, so it’s hard to know they are passé.
Heart wrenching in this regard is The Wall Street Journal. This once great enterprise is floundering under listless management and weak corporate governance. You just have to read it to know it is simply confused: this very disorganized newspaper seems to lack an animating intelligence to pull it together. Ironically, its best coverage is of health matters, almost as if somebody knows that Dow Jones is on life support systems and has started the search for a new heartbeat. To read about its decay and decline if you can bear it, peruse Ken Auletta’s “Family Business,” The New Yorker, November 3, pp.54-67. But Dow is simply the most vivid example of the stroke and brain-death that have afflicted most of our national media, an industry that can’t find a new direction. So one must look to exotic new creatures such as The Week to find some hints as to what might come next.
Horrendous Transaction Costs. For a number of years we have been doing more and more corporate finance work for sundry corporations around the globe. All of it stems from one vexing oddity: investment banks make their money from doing transactions, not by making sure their clients are prospering. Their deal mentality always means they take a short term point of view: despite their rhetoric, they never do the strategic. The consequence is that corporations have to live with bad acquisitions, ill-conceived divestments, and expensive financings. You have already read that 90% of all acquisitions don’t work out. That’s because the process is inherently flawed.
Post-2000, we have gotten somewhat more formal about our efforts. In fact, we have just posted a brand new brief about our services, which you can read at http://www.globalprovince.com/corporatefinance.htm. Suffice to say, big corporations still think about making big acquisitions. Large-scale acquisitions are a risky business these days: your purchase may be one of the walking dead, a hulk surrounding an outmoded, unfixable model. And small companies still dream of pricey initial public offerings. Congress has severely ratcheted up the costs of being a public company, and the equity markets lack the patience to nurture great companies. It behooves managements to avoid the rocky horror show of misbegotten transactions.
Wall Street likes it this good old way, since its desires are ever more divorced from the needs of Main Street. Mr. Grasso was very well paid for maintaining an expensive, outmoded specialist system. Many have come to believe that The Street is propelled by expensive trading, unwieldy acquisitions, jaded offerings, and the like. Almost daily, news accounts buttress this point of view.
More recently, the Fed’s interest rate cuts have created another stock market bubble and a spectacular 7.2% GNP spurt for the quarter. But it has not created jobs, even though the pundits promise us lots in the months to come. To make a long story short, the economy is undergoing genuine structural changes that have sliced jobs out of big companies and that mandate entirely new corporate business models we are just beginning to understand. So the economy is inflicting pain no amount of Excedrin from the Fed will relieve. You can expect lots of rebound headaches.
For big companies and small, this structural change suggests alliance-building and a complex pattern of small, incremental transactions Wall Street banks can neither stomach nor deliver. Agile companies will beat a retreat from The Street. A few years back Peter Drucker—who, incidentally, got his London start in a small banking house—noted that strategic alliances had superseded mergers and acquisitions as the right formula for business combination. Increasingly, this will mean going around financial intermediaries whose interests are not aligned with the corporation. Corporate financial advisors must point their corporate clients away from the vortexes of oblivion that lurk in the financial canyons about the developed world.
Copyright 2003 GlobalProvince.com