Case Blog

In the July 26th issue of New York Magazine, Joe Hagan raised the question: is Goldman Sachs (GS) just extremely good at what it does or evil?  This followed a July 2nd article in Rolling Stone by Matt Taibbi entitled “Inside the Great American Bubble Machine.”  Taibbi clearly came down on the evil side and tied Goldman Sachs to creating and then exploiting bubbles like the Internet bubble and the housing bubble. This one was written with a genuinely conspiratorial tone. Then on August 9th, an article written by Gretchen Morgenson and Don Van Natta Jr. in the New York Times raised the issue of how many times former Treasury Secretary and Goldman CEO Hank Paulson spoke to his successor, Lloyd Blankfein, during the fall credit crisis. Let us not forget that our global financial system was headed toward the abyss after the Lehman bankruptcy and the ensuing credit crisis. Both the outgoing Bush administration and the incoming Obama administration and their respective treasury secretaries, Paulson and Timothy Geithner, were in unchartered waters, and as we recover they should receive more credit than criticism.

Now I have a slightly different take than the authors of these articles and others. I do not buy into the conspiracy theories. (I do not currently own any GS stock.) I believe that Goldman’s partners have a definite swagger and this is reflected in how they do business.  Merriam-Webster online gives the definition of swagger: “…to walk with an air of overbearing self-confidence.”

Let’s look at swagger in this context. The New York Yankees and the Boston Red Sox, whom I write about frequently, have a certain swagger. Phil Jackson and Kobe Bryant’s Lakers have a swagger.  The Patriots under Bill Belichick and Tom Brady have it. Jamie Dimon and his team at JPMorgan Chase (JPM)  have it, particularly after paying back the TARP funds. (Goldman Sachs has paid back the TARP funds as well.)  Morgan Stanley (MS) under John Mack has not regained its swagger.

In the end, individuals and companies that outperform their peers do acquire a certain style or swagger that some will find arrogant. Those that don’t will find reasons to doubt how good they really are.  Great-performing companies and individuals do have self-confidence, but we should applaud their outstanding performance and excellence while we strive to have our own organizations become better at elevating our game.

It is also important to note that swagger can serve us when we hit the inevitable bumps in the road. Tiger Woods just lost the PGA Championship to Y.E. Yang, of South Korea. Yang becomes the first Asian golfer to win a major championship, with an incredible second shot on the final hole. I congratulate him, but I know that Tiger’s swagger will not abandon him as we move to the FedExCup.

As the battle intensifies between Microsoft (MSFT) and Yahoo (YHOO), many writers continue to focus on the difference in corporate cultures between The Valley and Seattle. We also have some large Yahoo shareholders, like Bill Miller of Legg Mason, joining the Yahoo board in declaring that the $31 per share offer is inadequate. As I wrote several weeks ago, this is reminiscent of the Dow Jones versus News Corp battle of last year, where the directors looked for alternative offers, spoke about unique corporate culture and values, and then finally, when no competing offer materialized and they were faced with the threat of shareholder suits, they accepted News Corp’s bear hug. I sense that this battle of West Coast titans will have a similar ending, although, I must admit that Jerry Yang’s latest idea of enhancing the severance arrangements for all employees that are dismissed during a change in control is a unique tactic.

I was once faced with a similar internal threat in an Eastern European country while I was with IDG. It faded away as a new country manager was introduced and the company started to grow again. I do think that Alibaba and its partners in China will be heard from before this deal is done and we may witness a very interesting proxy fight waged by Microsoft, because Yahoo does not have a staggered board and all the members are up for election this spring. As innovation continues apace in The Valley, this battle starts to feel like Microsoft and Yahoo are fighting yesterday’s war. I sense that Google and News Corp will eventually decide to stay out of the battle and “MicroHoo” will move to consolidate and try to play a strong number 2 to Google for online advertising dominance.

The challenge for the Gates/Ballmer team will be to create a culture that the Yahoo team embraces and justifies the $40B+ price tag. It cannot be a case of Seattle beating The Valley, because Microsoft will certainly have overpaid. Did the Semel years have to lead to this ending? Was the early focus lost? Were they spread too thin to take on Google’s steamroller in search?

Those of us who look to acquire companies and refocus them need to understand their corporate cultures. If we are to be successful in putting them on a new growth trajectory, we also need to understand where they went off course. We should not accept the excuses of entrenched management teams or boards for their recent failures. We should rigorously seek out the team members that can help re-establish the culture that once gave them a swagger within their sector. A friend of mine sent me a quote from an ESPN anchor, “pressure is a privilege.” I believe this can be applied to both sports and business.

I am on the West Coast for two weeks and the winter rains remain. I keep reminding myself that this will yield to a glorious spring starting later in March and April and will give us the snow pack we need in the High Sierras to provide us with water, without restrictions.

I started to read on the plane trip west on Virgin America, which I highly recommend, David Halberstam’s final book before his untimely death, “The Coldest Winter: America and the Korean War.” Although today both political parties seem focused more on the economy than the War on Terror and the Iraq War, some perspective from the author who gave us the “Best and the Brightest” on the Vietnam War and now the definitive work on the Korean War will help us better understand the rhetoric from both parties when the fall campaign begins in earnest after the conventions.

Finally, those of you who know me well understand that in addition to collecting wine, I like to collect cars and watch them age gracefully, particularly German automotive legends. About 10 years ago I sold an ’88 911 Porsche Cabriolet that I had owned for 8 years. I always regretted that sale and even offered to buy it back, to no avail. This Christmas I discovered that a dear relative had an ’88 triple black 911 Cabriolet with only 26,000 miles on it that he was looking for someone to adopt. I could not resist, and in mid-March it will be moving to its new home on the West Coast. I have promised the former owner that he has visitation rights and driving privileges whenever he is in the Bay Area!