Archives for posts with tag: Board of Directors

The Wall Street Journal just published a new article on this subject. A huge money manager, State Street announced it would vote against corporate Board members who are part of company’s nominating committee and do not add women to their Boards. State Street is also placing a statue of a young girl on Wall Street where she will stare at the famous Bull. (I did not make this up!)

In a review of the Russell 3000 index of companies, a quarter of firms have no female directors and over half of the firms have under 15% of women on their Boards.

In my book, The Business Zoo, I commented on what I called the One Third role of Board members. One third of Board members should not be on Boards at all due to lack of valuable background, age or being too busy on other Boards. The second One Third had the potential to be qualified and contribute but for a number of reasons did not; not reading the Board materials ahead or ever making a worthwhile comment. The final One Third led the Board and did a great job.

In my day we only had one or two women on a typical Board of 10 to 12. The women Directors were always in the best One Third category.  Why was this? Did they consider it an honor and a duty to service a firm which was paying them a lot of money? Were they younger and had much more energy and focus? Did they, as women, just work with other people better when given a chance? Of course all of these reasons are true. In fact, State Street’s research shows that in the last five years, Boards with at least three women Directors outperformed those companies with no women Directors. No surprise to me.

So how do we end up with more women on corporate Boards? I am not big on the statue. I do agree that voting pressure on companies and their Boards can help. Boards all have committees to nominate and elect new directors. Most of the committee members are men who nominate other men who they know. The existing women on Boards need to exert some pressure themselves and get on these nominating committees. Then not be shy about suggesting other women. And they can point to studies that show that Boards with more women directors can drive success and higher stock values!

Add on note: I really appreciate everyone who reads this blog and who bought my book on Amazon. I have received some wonderful feedback and am now starting on a second book!

Brad

The Wall Street Journal recently ran an article about the engine emission crisis at Volkswagon (VW). Senior executives of VW acknowledged that their firm had a “culture of tolerance for rule breaking” that lead to this “chain of mistakes”. Although the article did not name exactly who ordered their engineers to install the software to fool the tests, the article did state that it found no evidence that “VW executive or supervisory Boards were involved in the fraud”.

Yeh. Heard that one before. After British Petroleum (BP) had the disastrous oil spill in the Gulf, a top writer from Fortune magazine stated that BP’s long time focus on cost cutting versus safety goes back directly to the Board of Directors. The Gulf spill was proceeded by several major safety events including a huge explosion in Texas that killed a dozen workers. All organizations look for guidance or direction from the top and a Board is the ultimate top. It appears that maximizing profits through cost cutting was a top priority over safety for BP and its Board.

At my old firm, USG Corporation, every meeting, even the Board meetings, started with a review of safety. This goes back to when USG started as a gypsum mining firm. Major accidents, especially deaths, are reviewed in often grisly details. Senior people, including myself, would attend safety dinners when a plant reached an accident free milestone. Safety was a core value at USG Corporation.

Sadly in most of these disasters like BP and VW often a few, token senior people are fired but with huge severance packages. But a lot of staff or line engineers at these firms lose their job and often their livelihoods because of their presumed role.

At VW, the Board and the senior executives looked the other way or showed a tolerance for rule breaking or it would not have occurred. And  German car companies are known for their excellence in their engineering and engines. That makes this all the more unbelievable to me.

In my view, senior executives and Board members must be held to higher standards than they are and at times, they need to bear the blame and responsibility for not focusing on what is right.  Read the rest of this entry »

The Wall Street Journal has a weekly half page devoted to my former professional as a CFO. In a recent edition, they highlighted a new trend of corporate Board of Directors getting actively involved in their firm’s search and hiring of a new Chief Financial Officer. The reasons cited included the increased importance of the CFO role in everything from regulations such as Sarbanes-Oxley reporting, to  strategy and deal-making. A final reason was that former CFO’s are increasing looked upon as candidates to become a firm’s CEO.

My reaction to all this? Well, it’s about time! Time that CFO’s are getting the respect so many deserve, as they are often quiet and low key, yet are often the second most critical person in a public company. But more importantly, it’s about time that Boards of Directors are actually acknowledging this and getting involved in this hiring activity.

Historically, in many old line firms, the path to CFO was internally determined. Often it was a matter of paying your dues and moving up through various financial roles in treasury or controllership. If a business and its industry remained stagnant over the 20 plus year period it took to groom a CFO, that was a fine strategy. But businesses and their industries are not stagnant. Competition changes, mergers occur and technologies leap ahead. So the perfect internally- grown candidate of the past may not be best suited for a new environment.

The second way CFOs, and most other internal Officers were chosen, was solely by the Chairman or CEO. This was usually decided by the CEO alone who then informed the Board of his choice. The Board then dutifully elected the person to be CFO. Perhaps the Board knew a little about the person from HR succession charts but the Board rarely got involved in the selection or even with a token interview. This, in my mind, is wrong.

All public corporate Officers, including CFOs, are legally “elected by and serve at the pleasure of the Board”. Directors need to perform some due diligence on this critical personnel task. To do this properly, Boards need to spent time, not just in Board meetings or group dinners, with the senior officers. In fact, I would suggest that most of the countless, large, quarterly Board dinners I ever attended were worthless. Private one-on-one dinners between the various Directors and members of senior management would be invaluable to both parties. This would also allow the Board to have a much better of idea of who they were electing to be the next CFO or CEO. And if the current CEO objects because he or she is paranoid of what a Board member could learn in private from one of his team, then the Board better look very hard at that CEO!

Directors of large public company Boards are paid over $200,000 a year. Many of the problems Directors encounter when senior officers, like CFOs or CEOs, either abruptly resign or are fired for cause could be eliminated if they spent more time upfront getting to know these key people. So, Directors, get involved in hiring new, CFOs and, in some cases, other corporate officers. But also spend some quality time with the senior officers you have in place; it will be well worth your while.

A recent study of women directors on Standard and Poors 1500 company boards was done for the Wall Street Journal by governance researchers at MSCI Inc. Today, women make up about 16% of all these directors which is a slight improvement from 2009 when women were 12.5% of these directors.  Of the 67 firms that have a female CEO, like IBM, General Motors or PepsiCo, those Boards often have three or more women. Remember that most Boards average 8 to 12 directors. So, some slow progress is being made.

My last two public company Boards each had one female director at the time and currently have three women out of a total of 21 positions. These companies and their competitors in the construction and chemical industries are historically under represented by women versus many of the more consumer related firms.

But enough of the statistics, let’s get to the main point. What was my experience with women directors? In a word or two, they were better than many of their male counterparts. Let me list some reasons why.

1. Women directors view their position on corporate Boards as more of an honor and thus take it more serious. This may be because they have fewer opportunities or because they have to really work hard to land the role versus many of the “old boy” overlapping Board networks which still exist. The women directors are usually younger and are on fewer Boards than many of their male counterparts. We once had a male Director resign because he “accidentally” joined a direct competitor’s Board! I doubt that happens much with female Directors.

2. The women directors came better prepared to Board meetings. All companies send the bulk of their meeting documents ahead. Some of our male directors did not even bother to bring these materials probably because they had not read some or all of it and had made no notes. The women directors brought the materials and you could tell they had read them and had made notes.

3. The women directors stayed focused on the matters at hand. Sometime Board meetings, especially unexpected ones by phone can take a long time and it is hard to manage directors when you can’t see them. On these phone meetings, I have had male directors fall asleep and snore, go to a nearby bathroom without closing a door or have a lengthy discussion with their wife about what sandwich they will make them for lunch. Female directors really behave much better as a group!

So when you consider these examples along the fact that women are smarter than men and are more social than men and live longer, they should be on more Boards of Directors! Seriously, they should-but corporate america, like the rest of the world often takes a lot of time to change. I also believe that some men are aware of all the strengths that women can bring to leadership roles but are Afraid to give them the opportunity. And, as we have mentioned before on this blog, fear is not good in Board rooms or in The Business Zoo!

Wall Street Journal 2/27/14: Firms Alter Bonus Playbook and Use Nonstandard Accounting Measures to figure (Management) Payouts

Public company earnings are reported in quarterly and annual reports using what accountants, auditors, and the Security and Exchange Commission call ” generally accepted accounting principles.” These GAAP earnings or a multiple of them, based on how the firm is viewed in the stock market, creates the market price of the stock. Shareholders make money when the stock price increases.

But nowadays some 28% of the largest U.S. public firms calculate Management Compensation using different measures. These firms may start with the reported GAAP earnings but then add back various expenses to make the earnings higher. Some of these add back items can be the cost of stock options (usually to the same group), the write-off of an acquisition premium (or goodwill) even when those same executives may have overpaid to buy another company, and so on.

You are thinking, this is absurd! And very unfair and inappropriate! Well, get used to it. The number of large firms doing this has more than doubled in the last few years and I doubt it will decrease unless the public makes such a stink that the SEC or Boards of Directors force companies to change. One large, public firm in the article, medical products company McKesson’s shareholders voted 3 to 1 to stop this practice, and to require shareholder approval of executive compensation. But their Board of Directors (who are elected by the same shareholders) declined to adopt this measure. The Board cited that they “exercise great discipline” in deciding upon pay. Last year’s McKesson’s calculation started with the reported GAAP earnings of $.75 a share and some how added back enough to get them to $7.21 a share. Now I was the CFO of two large public companies, but even I was impressed with that story of financial artistry!

As discussed several times in my blogs, Shareholders elect the Board of Directors who in turn elect the Senior Executives. Boards rely on the company’s Human Resource people and outside Advisors to decide these matters. In over a decade of Board meetings I attended, only once did a Director get so upset that he convinced the others to throw out an obviously flawed Management Compensation plan. This needs to happen much more often.

In my book, The Business Zoo, I have written that in Board Meetings, the firm’s CEO should explain a new Management Compensation plan and its impact on pay. Not the Senior HR person or the CFO (yes HR often asks us to do controversial things) and certainly not an outside Consultant. If the Board has trouble understanding this new plan, they should hire their own Consultant to explain it or reject the plan until they do understand it and its implications.

And Shareholders, who have the ultimate power, should vote out Boards of Directors who allow practices or compensation plans that enrich Senior Management in ways that are not consistent with Shareholder’s value.

Wall St. Journal article: Activist shareholder Nelson Peltz threatens to break up Pepsi. Their Board says, no thanks.

Facts: The term “activist shareholder” is a Wall Street polite term for a firm that buys a small percent of a company’s stock and then threatens them with either a takeover or demands seats on their Board or something. Many people do this these days. Carl Icahn buys some Apple shares and demands stock buybacks. The activist shareholder does this for a couple reasons: the firm’s stock price seems low to them and they can make a lot of money on re-selling the shares if the price moves up. Corporate Boards really dislike these people.

Facts: Pepsi sales are $66 billion (a Fortune 500 top 50 firm). Half are beverages and half are snacks and cereals. The snacks business is growing well in sales and profits. The original core beverage business much less so, even though this includes Gatorade and Aquafina water. Apparently, selling sugared drinks and old soda pop is not what it was years ago. Pepsi is resisting Mr. Peltz’s suggestions, but said they would increase dividends and buy back more common stock to make him happy (and hopefully go away!) Just don’t mess with our Doritos!

This article reminded me of two related conversations I had recently: First, a friend and I were wondering how very large firms like General Electric are able to manage themselves. Our agreed answer was that they are not. GE sales are $150 billion which ranks it the 8th largest U.S. firm. It is truly a very mixed conglomerate with appliances, energy (nuclear power equipment) , transportation (trains),  aviation (engines) and finance. Very few of these products, industries or markets have anything to do with each other. But GE’s senior management are some of the highest paid corporate people.

Second, a couple friends asked why some giant companies keep buying other businesses trying to get even bigger. One asked if it was due to the egos of the senior people. A very appropriate and partially true comment. But there is another much more basic reason. And it goes back to my old friends in Human Resources and one of my favorite topics, Management Compensation.

You see, most companies set their salaries and bonus levels in large degree based on the size, usually in sales, of a business. When I was at USG Corporation, the headquarters people were paid the most. Then those who ran the largest business, Gypsum Wallboard,  the next most and so on down the line. And this is not just the President or CEO of a given business, it included all the senior management and on down to managers. For in Management Compensation, size does matter. You might ask, isn’t it harder to manage a bigger business? Answer, no; it’s harder to manage a more multi-faceted or troubled business. Or to manage an international firm with many different country locations, laws, and taxes than one giant U.S. based business. You might also ask, shouldn’t a firm’s Board of Directors figure this out and pay what is right? Well, the Board usually relies on outside Compensation Advisors who are hired by….. you guessed it the company’s Senior H.R. person! Not much help there.

So why do people like Nelson Peltz or Carl Icahn go around and threaten these giant firms? To make a fortune off the money they invest in these companies’ common stock, of course! But how do they know that nine times out of ten they will make money doing this? Because they know the following secrets. First, giant firms really do not maximize shareholder value over the long run by buying (often at huge premiums) and then trying to manage very different businesses. Most of these bolted together giant firms would be more successful and worth more as a smaller  firm or as a part of a similar business. Peltz wants Pepsi’s snacks to merge with Mondelez International which used to be Kraft’s snack business before he and some of his activist friends got involved. The second and most important secret is that the Senior Management of most of these giant firms will do anything in their power to get rid of these activist investors so they can continue to collect large salaries and bonuses based on the fact that they are a Fortune 10 or 50 giant firm. It takes a unique CEO and team to decide to breakup this game and take a chance on actually trying to run a smaller company versus a conglomerate. And remember it is tough being a CEO since their average tenure (or corporate life) is 5 years. They may need that money someday.

So good luck to Pepsi and their Senior Management. As an aside, I have not drunk a Pepsi in years (Vitaminwater instead) but I do love their Doritos and Lay’s chips!

Those who have followed this blog know that one of my favorite subjects is Fraud. Mainly the type committed by those who make the most and need the money the least: Management Fraud. But there exists, of course, a million other types of fraud, from con men to tax evaders. Which brings us to this tale of two famous or infamous fraudsters in the news recently.

Dennis Kozlowski was the CEO of a conglomerate called Tyco. Through acquisitions, Kozlowski grew Tyco into a giant public firm which was very successful and respected by Wall Street. He also managed to get paid tens of hundreds of millions in compensation from salary, bonuses and stock awards. But somehow this may not have been enough. Kozlowski was convicted of “stealing” from his company with an elaborate compensation package and outlandish expenses. These included a $30 million company owned NYC condo with, among other things, $6,000 in shower curtains and over $10million in artwork. You would want your luxury condo to look good after all. And let’s not forget the birthday party for his then second wife on the coast of Italy for which Tyco paid half of the $2 million cost. For all of this he was sentenced and just completed serving over 8 years in prison. One of the harshest sentences ever for a corporate executive. Kozlowski reported to a Board of Directors who were supposed to monitor his compensation and certainly understood much of what was going on. None of the Board were charged. Many business writers believed that Kozlowski’s punishment exceeded the crime in these circumstances.

Ty Warner, of Chicago, invented Beanie Babies and has been listed as having over $5 billion in net worth. But what does Ty do? He puts a mere $100 million or so of it into hidden Swiss bank accounts. Over a decade he uses different names including a foundation to evade U.S. income taxes. He has now paid our government over $70 million in back taxes, penalties and interest. The criminal trial just wrapped up. His lawyers argued that this tax evasion was the only mark on his lifelong business and charity record. Seems like a pretty big stain to me. The federal prosecutors argued for at least a year in prison as an example to others. The Chicago judge ignored federal guidelines of up to five years in prison and sentenced Warner to two years of probation and community service.

It was tax evasion that finally got Al Capone, also of Chicago. Tax criminals and corporate criminals should be treated the same. Ironically those who perpetuate most of these Frauds have the most money and the least reason to do so. It is very often more of a second thought or a game to them. So when caught and convicted, they should pay.

So what should we learn from all this? Individuals who commit fraud should be prosecuted with a criminal trial not just an out of court settlement. So often public corporations are afraid to deal with this type of unpleasantness and just announce that someone has left to pursue other interests. If those who commit fraud are not properly dealt with, it sets a terrible example for those who remain. It also allows corporate criminals to go off to some other organization and perhaps act in the same fashion. And it should not matter if the fraud involves expense accounts, kickbacks or tax evasion. Corporate America went through a rough patch with companies like Tyco and Enron grabbing headlines for all the wrong reasons. Some of the punishment was excessive in comparison to earlier times or similar crimes. What we need is consistent sentences based on federal or state guidelines. And even those with records as otherwise model citizens or major charitable donors should do prison time if that is the norm. Criminal Fraud should be followed with criminal punishment.

I have recently complained about Board of Directors especially in large, public companies.  But occasionally, I have run across some real, value adding, hard working Board members. Here is the story of one.

Cole National and its Misplaced Cash:

Cole National was founded after WWII by leasing spaces in Sears stores to make keys. It expanded over the years to leased optical departments and then to one of the first mall kiosks with their Things Remembered Shoppes, which sold items and performed services like engraving.

Cole was a client of my employer, Arthur Andersen, when they expanded rapidly and lost control of their business. One summer, AA&Co. sent several of us to help Cole out. This led to my first ever, face-to-face meeting with a Board member.

My assignment at Cole was to help with their massive cash management situation. For a month, all I dealt with were their many bank accounts scattered around the U.S. Perhaps we should call it their cash unmanaged system. Why? Due to their focus on rapid growth through acquisitions and new stores, they had lost control of their cash. At the same time due to heavy debt and a retail downturn, they were losing money and their stock price was falling. When this happens, even an often reluctant Board of Directors is forced to got involved.

Cole had not been able to track their cash flow or even reconcile their three hundred bank accounts for over six months. You may think this is a very rare event, but I can assure you that companies often lose control of aspects of their businesses.

So what did we find? Retail stores were being opened so fast that their sales and cash were piling up in some small, remote bank and never being transferred to headquarters. With some of the recent acquisitions, large cash escrow or down payments were placed in bank accounts that were never closed out. There were accounts with large untouched positive balances and some accounts with large overdraft balances and fees. This situation was a textbook on what not to do with cash.

But the worst was the Main Retail account that was supposed to receive all the transfers from the stores. It was not just a cash nightmare, it was an accounting one as well. Cole was trying to account for the sales of their lock and key business separately from their optical and other products by using the proceeds into the overused Main Retail Account.

In the end, we found, in today’s dollars, about $500,000 of cash the Company did not know about; a very big deal when they were having trouble with both earnings and their banks. All of this went into a dozen page report that listed account numbers, misplaced cash balances, and even proposed journal entries to correct things.  I also wrote new procedures for managing and reconciling both the stores and Main Retail account.

Which brings us to the Board of Directors. Our reports were submitted both to Cole’s Controller and their head of Internal Audit. Apparently, the Finance Committee of their Board also received a copy. On one of my last scheduled days at Cole, their Controller comes over and says that a member of their Board Finance Committee wants to meet with me about my report. At that point of my life, I assumed this was like meeting with another client executive, no big deal. I had not yet been trained on the almost mystical importance of such men. Only in my later years, did I learn the vast power of Board wizards and the need to constantly care for and feed them (both data and food).

A meeting is arranged with the Board member. I assumed the two of us would sit down across a desk and chat. But no, the meeting will be in the Board room. And besides the two of us, the Corporate Controller, the Manager of Corporate Accounting, the head of Internal Audit and I am not sure who else shows up. This is before Power Point, so the only media is my dozen page report which everyone seems to have a copy of. The Controller introduces me and asks me to summarize my report’s highlights. The dialogue goes like this:

Me: we found dozens of overdraft bank accounts.

Director: is this true?  The Cole people nod yes.

Me: we found dozens of accounts with untapped cash.

Director(louder): is this true? Cole people nod yes.

Me: in total we discovered over $500,000 in unknown cash.

Director(louder yet): is this true! Another yes nod.

Me: we reconciled 300 bank accounts for 6 months.

Director(pounding on table): I guess this is true! Yes nods.

Me: we wrote procedural recommendations on all this and how to reconcile the Main Retail bank account which will take someone 1 week a month to do.

Director, turning to me, shouting: 1 week that is crazy!

Me: it took me a week the first time, now I am down to three days. The person I just trained will need 1 week.

Director, yelling at Cole people: adopt these new procedures in a hurry and never let this happen again!!

Director, to Me, smiling: good job, thank you.

What did I take away from that first Board member encounter at Cole and what have I learned later after many encounters?

Then, Board members must often get really involved!

Later, not. If this was true, Boards and companies would be much better off. Directors rarely get this involved and, if they do, it’s because there is a terrible crisis.

Then, the Cole managers seemed afraid of the Director.

Later, sadly true. We are told that Management serves at the Board’s pleasure. But fear is not good in a Zoo or a Board room.

Then, Directors yell at Management but are nicer to, and even compliment, outside Advisors, like me.

Later, Directors are often too nice to and influenced too much by Advisors. Directors rarely yell at or confront company managers even when they should. This is especially true in a full Board meeting with dozens of people.

So what are the overall takeaways from this Business Zoo tale? For managers, when you meet Directors, know your material and act confident, not afraid. And for Directors, get more involved in the details, even if its only Cash; it will be noticed by management and can really help.

My wife invests her money in stocks she likes. She liked Apple products long ago and insisted, against my and our financial friends’ protests, on buying their stock in the $30 range when no one wanted it. Had I taken all of our money and done that… well we didn’t. Then she insisted on buying the stock where her brother works, Honeywell in the $50 (it is now over $80). And where her sister worked, J.C. Penney,  which is one of her only stock dogs, dropping from over $40 per share to the teens.

In the mail last week, we received a very official, class action looking lawsuit form against J.C. Penney and all their Board of Directors. For once I read this document. Only retired, former CFOs would ever do such a silly, time wasting thing.

Here is what this Proposed Settlement of Derivative Action notice seemed to say:

-someone named Everett Ozeene (now deceased) sued the company and all the Directors individually because of how they paid certain Executive Termination Pay. No mention of to who or how much, which is the more fun part I would have enjoyed reading.

-the notice then said this was not a Class Action suit on behalf of all Penny’s shareholders and that no shareholder would get any money! Now I am very curious. Why are we doing all this?

-it was then explained that J.C. Penney agreed that they had done something wrong involving Executive Termination Pay and that their Board of Directors’  Compensation Committee would do a better job on this for the next four years. Some detail was provided like making clear and in simple English these Termination agreements in future SEC filings. (Good luck on the simple, clear English part.) The Compensation Committee would meet four times a year and discuss all these matters with the full Board of Directors, etc. (If they had not done most of the things in the notice, they should get fired and sued for real.)

-I am still reading and re-reading because I don’t get what this is about… until the last section of the notice that states that the Lawyers who helped Mr. Ozeene bring this critical matter to everyones attention will receive $5,000,000 for their help and trouble. As often, I am shocked and disgusted, even though by this point of my business life, I have seen and heard this story too many times.

So poor J.C. Penney,  whose stock price has fallen dramatically in the last two years, pays $5 million to make this lawsuit of questionable value or merit go away. Why do companies and their Boards agree to pay off lawyers? Because they are afraid. Afraid of litigation in general.  Afraid of  having their Senior Officers having to testify. Afraid of having their precious Directors being personally suit and having to testify.

But mostly large,  public companies like J.C. Penney are afraid of looking stupid in a trial and having it published in all the financial media and on CNN.

As everyone knows, there is no room for fear in life or in business. We discuss this a lot in my book, The Business Zoo.

We have written before about the endless Class Action suits involving asbestos where whole industry segments have gone into bankruptcy. Or about the injustice to a fine old firm like Dow Chemical involving faulty implants that really were not faulty. I hope someday the public in general will help our state and federal representatives do a better job of rewarding those who are rightfully damaged versus a part of the legal profession who are so often wrongfully rewarded. Let’s all try to be a little more brave about doing the right thing.

Note to self: listen to wife more as she suggested we should have sold Penny when her sister retired earlier this year!

Disclosure: I own a very modest amount of the stock of Office Depot. I brought it because the people who work in the Chicago and Florida stores we frequent are so helpful and polite (and thus well managed). They even talked me into their frequent buyer program and each year I get about $20, which is enough for a modest bottle of wine.

Because of my vast ownership, I and thousands of others, received the Joint Proxy Statement to announce their merger and to get my vote. The second line on the cover announces that this is “A Merger Of Equals”.

So, I naturally found this lead-in fascinating enough to actually read much of the important parts of the 250plus page Proxy. In the finer print, you find some interesting details: 1. Office Depot shareholders will get 55% ownership to 45% for Office Max, very interesting.  2. Office Max legally will become a subsidiary of Office Depot, also interesting. 3. For tax purposes, they hope to qualify the merger as a tax-free reorganization which makes sense. 4. For accounting purposes, this will be an acquisition by Office Depot of Office Max, those pesky accountants just don’t like equals! 5. The new Board will have equal representatives from both and will elect a new Chairman,  senior team, and headquarter location. That meeting would be fun to listen in on.

I am very sorry to tell the fine employees of both firms, but there are “No Mergers of Equals!” The banking world loves this phrase and uses it constantly. It sounds friendly and cooperative and even nice. But if you look at the history of bank mergers, someone always brought someone, period. Modern day JP Morgan/Chase goes back to Chemical Bank buying half their New York competitors. Most of the deals were called mergers of equals. But the old Chemical Bankers always came out on top. And within three to five years, two thirds of the other bank’s senior people were gone, “to pursue other interests”. Yes, Jamie Dimon, a non Chemical banker,  is now Chairman, but that is another story.

The reason most mergers can not be mergers of equals is that people in the same industry, whether it’s banking or office supplies, hate their main competitors at worst, and distrust and dislike them at best. Even in the same industry, the culture and leadership style of each firm is always unique and never easy to blend. That is the nature of companies and the people who run them. It is a dog-eat-dog world out there and in my forthcoming book, The Business Zoo. Deal with it.

Who will come out as the real buyer and winner of this deal? I don’t know but I am rooting for my Office Depot team!

Note to self: send in that Proxy, my shares may turn the tide!