There’s a new guy in blog town and he’s shooting from the hip about the defects of the corporate governance models we’ve all come to know and hate over the past decades. His name is Carl Icahn and his blog offers great insight into the mind of one of the most successful corporate raiders in history.
Although it is obviously favorable to Icahn’s bottom line to maintain how incompetent boards are leading to the decline of western economic civilization as we know it, I’m hardly going to disagree with the notion that corporate governance, especially in the technology sector, often seems out of whack with shareholder interests.
It is important not to confuse Icahn’s critiques with the whacky ones of many who suggest the corporation itself is a bad model and should be replaced by outmoded socialistic and centralized approaches that brought economic ruin on an entire generation of eastern Europeans and helped bring genocidal regimes into power in asia. On the contrary Icahn’s point is more that we need to make sure the corporation model can thrive by insisting on better governance for struggling companies.
In the case of Yahoo, Biz Doctor Icahn’s prescription is to buy up a huge share, then throw the corporate board bums out and sell the company to Microsoft. The stakes here are so high for Icahn (he could see over a billion in profit if his plan works), that he’s hardly in a position to entertain alternatives that might be better for Yahoo, but I think most shareholders already are rooting him on in the hopes of salvaging the $11+ per share lost when Microsoft withdrew from the bidding for Yahoo last month.
Disclosure: Long on YHOO
I like Icahn’s blog too. I’m not sure if it’s not anything we haven’t heard somewhere else before, but I have to admit the guy’s got style.
The lesson I take from what he’s said on his blog so far is that inefficiencies and bad governance are not restricted to the public and civil sector.
I guess that’s an odd lesson to take (maybe I just have an axe to grind), but working for an environmental organisation I hear a lot about how the world would be a better place if corporations took over a lot of the work done by us and by the government.
The assumption is that shareholders and the profit incentive somehow guarantee better governance. In reality, they are just more checks and balances – bad governance can still happen in the private sector. And charities can still be well-managed.
It’s reassuring for me to be able to draw on a gun as big as Icahn when arguing against that line. I’m not sure he’d appreciate me doing it (has he ever spoken abou public sector inefficiencies?), but I’m still reassured.
inefficiencies and bad governance are not restricted to the public and civil sector.
SixteenVoices this is a great point, and I bet Icahn would agree. My take is that the bad stuff is weeded out *faster* in the private sector due to market ruthlessness, but even that argument gets weak in the face of “cost plus” military contracts and such. Eisenhower’s nightmare has partly come true (Military Contractors in private sector exploiting the Government’s bureaucracy and politics to their profit and ideological advantages). As a fiscal conservative this… more than anything… pisses me off.
You can call me Paul.
Since market ruthlessness encourages extra checks and balances, bad governance must, on average, be weeded out faster in the private sector.
That said, it is usually weeded out by companies failing to survive – so it doesn’t guarantee that any particular company will be better run. Just, in a random sample, a given private sector company is likely to be better run than a civil or government body.
But even then competition for funds in the civil sector is so tight that survival is incredibly difficult – I know from personal experience that we need red-hot governance to have any chance of making it at all. Otherwise we just scratch by on a few bucks and volunteers. That’s hardly an economic evil.
I guess government bodies are more-or-less guaranteed survival, which is where the inefficiencies creep in. And once the private sector gets good at exploiting those, as they have in the US and are increasingly good at in the UK, then we’ve got a big problem.
Like, a REALLY big problem. The profit incentive ends up favouring companies able to exploit weakness in government. That;s not a competitive advantage I enjoy spending time thinking about.
Not sure why, but my comments aren’t automatically linking to my bad blog, so I’m going to plug myself here:
Paul several more good points. As somebody who toiled for years in the non-profit sector I’d agree there is a big difference between that and government and private sector, and I especially agree that profiteers exploiting bureaucrats represents one of the greatest threats to democracy and our otherwise fairly robust economic structure.
Yes, please add the links to your blog as you have or check your WordPress settings which should make that happen automatically.
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