Editor’s note: William Dunk of William Dunk Partners is an international business consultant who has been based in Chapel Hill since 1996. He writes frequently about business and cultural issues in his column “The Global Province.” He compiles a widely read and quoted review of corporate annual reports. WRAL Local Tech Wire is publishing Dunk’s 2007 reviews “Beast in the Jungle” with the second of three parts today.
CHAPEL HILL, N.C. – Go Abroad, Young Man.
We’re much less enamored of Warren Buffett than we were in yesteryear. We say this even though he made us a large packet of money, since we bought into Berkshire Hathaway back in the 60s or 70s when we had no idea who he was. We probably went negative on him when he gave up his policy of letting his shareholders vote on a proportionate basis on which charities should receive donations from Berkshire: in our eyes, he simply chickened out and gave up one of his brightest ideas because narrow-minded pressure groups got to him.
We’re even less enthralled that he is now going to give his money at death to Bill and Melinda Gates so that they can orchestrate grants that will ostensibly save the world and the United States. At the end of the day, this brilliant investor has accumulated a huge bunch of rocks, but there is no clue that he is using his pile to grow the economy and smooth the course of the world. There is no concept of stewardship. For him we’d recommend a reading of Shelley’s Ozymandias:
“My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!”
He has gotten to think about dying. Senility has become an attribute of business, as well as an overwhelming problem in all the earth’s most developed nations. In his current reports, you will find items about succession and about reconstructing his Board as members retire. He promises to keep to the game he has played—namely making bigger and bigger acquisitions. At the end of the day his real business is acquisitions. Some are interesting, particularly as he gets deeper into insurance and energy.
In the last few years, after having been an American First investor for so many decades, Buffett has been adventuring abroad. Like George Soros, he has fooled around with currency quite a bit, though we understand from his reports that he has closed down that activity after having made some quickie profits. But he’s also buying into many real foreign companies—an Israeli enterprise here, a dominant Chinese petroleum company there. For him the writing is on the wall: we have so many basic economic problems in the States that one has to look overseas for greener pastures, an issue he takes up in more than one report. He notes that the ‘investment income’ account of our country turned negative in 2006, having been positive every year since 1915. “
Foreigners now earn more on their U.S. investments than we do on our investments abroad. Basically this stems from our huge trade imbalances: we are buying much more than we are selling. Put simply, we’ve been living beyond our means. The nation is using its credit card even less wisely than the most foolish consumer.
Before California got so crowded, we would have urged you to “Go West,” as did Horace Greeley. Now opportunity is abroad, as our economy gets tied up in knots, and the country becomes the worst debtor of them all. Buffett makes the same point in his own quaint way.1
He is not alone in his worries about our rising tide of indebtedness. The World Economic Forum’s Global Competitiveness Report 2006-2007 has some startling news. Of a sudden, the U.S. has dropped from first to sixth in competitiveness, all arising from this trade leak in our balloon:
“Its overall competitiveness is threatened by large macroeconomic imbalances, particularly rising levels of public indebtedness associated with repeated fiscal deficits. Its relative ranking remains vulnerable to a possible disorderly adjustment of such imbalances, including historically high trade deficits.”
This reversal of fortunes is truly dramatic. Surely former Federal Chairman Greenspan saw it coming, knew the jig was up, and went into active retirement, now serving as a high-level consultant to German bankers. He’s sort of skipped town and become a Berliner. We think history will eventually look askance at his doings at the Fed.
As the New World dithers, Old-World business is showing us a thing or two. Print annual reports in the U.S., uninspired, emaciated, poorly designed, mirror enterprises that are mere shadows of their former selves. GE has slightly improved its graphics, which have always had a 1950s look, but its message lacks crispness, wandering from point to point, trying to touch all the bases, instead of articulating a clear theme. Along with many other companies, it complains that the stock market is not fairly valuing its growth and earnings prospects. Other reports are even more lackluster.
There has been tremendous growth of Web-based annual reports over the last 10 years. This has distracted companies from doing a good print document, which is what all serious investors still read. And, for all the expense, the digital reports are not very good, mostly because they usually try to put a brochure on the Internet, instead of creating something entirely different based on a new technology. For the longest time, after the invention of steel, we did the same thing with buildings and houses—trying to replicate wooden or stone grandeur even though the frame was actually steel. Web reports are a metaphor for the reengineering that never took hold of our economy: new technology is still being used to make old things happen, almost everywhere you turn.
Years ago Emhart Corporation took several extended bows for putting out rather pedestrian video reports. The reports weren’t very good, but they got a flurry of attention in the papers, which temporarily gave Emhart a little lift. Web reports are about the same: so far they sound good in theory, but are generally pretty lousy.
What’s happened in the meanwhile is that corporations, in many other countries, are beating the U.S. in the annual report game as well. They’ve seized the lead imaginatively in creative annual reporting—a sport virtually invented in the U.S. in the 1950s. We would refer you to Wolford 2006 in Austria, a lingerie and bodywear company, whose models, as pictured in the reports, will convince you that its products are a must for women who want to hang out with the European smart set. Fiskars of Finland 2006 celebrates Olavi Linden, designer of many of its tools, as it strives to show investors that it will prevail in the world through creativity and innovation. It rests its case with a History of Innovation (pp. 23-24) at the company that stretches back to its founding in 1649 and carries the tale forward to 1999.
Year in and year out, our favorite annual report from around the world comes from Vorwerk in Germany. Making carpets and vacuums and a range of household products, Vorwerk, importantly, has put together a direct selling machine that has now put 56% of its revenues outside Germany in countries ranging from Brunei to Kazakhastan. Vorwerk 2006 humorously and creatively talks about ‘growth,’ hinting perhaps that one key to its own expansion is its ability to think outside the box much more than most big companies.
More importantly in 2005 it celebrates the fact that it is a ‘family’ company in several senses. First off it is a ‘family-owned company.’ But, as well, it considers its customer to be the family:
“Half the German population still lives in one, gloomy prophecies notwithstanding, and we at Vorwerk have long championed the concept. But despite the many variations: classic, patchwork, single parent—where would we be without it? We will continue to give our best for the family. There’s not much a little humour won’t heal!”
The 2005 reports goes on, in the usual Vorwerk way, to impishly contemplate what families are all about.
In fact, great companies think of themselves as families, no matter how big they are. And they like to help other families. As some companies put family values aside, this is a point worth understanding. Just recently, John Deere, the tractor company, which is busy throwing its smaller dealers out of its tent, has recast itself. Says CEO John Lane, a onetime banker:
“For years we talked about Deere as a family…. The fact is, we are not a family. What we are is a high-performance team…. If someone is not pulling their weight, you’re not on the high-performance team anymore.”
The trouble is that teams come and go; families are here to stay. Deere is currently setting some records, but we won’t bet on it for the long haul.
British Land 2006 celebrates durability that goes beyond Mr. Lane’s timeframe. It uses portraits from the National Portrait Gallery, an institution founded, like British Land, in 1856. It talks of the need to create “exceptional long-term investments.” Strewn through the report are quotes that hint that the present stewards of the company have enough of a funnybone to be free of pomposity. The report pricks a lot of balloons. To wit, one Hudson Kearley notes: “When I want a peerage I shall buy it like an honest man.” And Freud suggests: “Civilization began the first time an angry person cast a word instead of a rock.” The report implies that business depends on a civilized culture if it is to flourish. It establishes the co-dependency of business and the society in which it subsists. Business, in this view, is not a team sport but a respectful interchange in which all sides win within a village or a nation.
Wednesday: The Social Contract