Reading between the lines - Stories of shareholder value creation - Economic Times

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“Reading a book is a movie for the mind. It's impossible to read a life story of an interesting person and not be involved emotionally. You're with them in their ups and downs. It's a predictable human reaction that you put yourself in their shoes.” - David Senra, Founders Podcast.

Power of Business Biographies
Business biographies are one of the best resources for reading between the lines about any business. If we are motivated analysts and want to get a good sense of what happened in a business, studying the numbers & reading the biography of that business can give us a lot of additional contexts.

Business biographies are of two kinds, one written by the owners/managers of the business & the other written by third parties like investment analysts or journalists who have been tracking the business for a long time.

Both provide interesting insights into how the business looks from the inside & the from the outside.

Documenting history:
In the developed world, primarily the US, there is an old tradition of openly writing about a business & the people running it. It can be either a management consultant/analyst/journalist, these people are able to freely report the facts & their personal interpretations.

Even autobiographical accounts written by the founders of these businesses provide a great window into the interpretation of past events. It is great to see that the tradition of documenting business history is also picking up steam in India.Isn’t it great to be able to learn history in this way where the parties involved & the keen observers get a say in how the events are interpreted?

Fact vs Opinion
While reading such material (or any material) it is very important for the reader to be able to distinguish between facts about the business & the opinion of the writer.

Sometimes people write biographies to re-write their role in history & sometimes they write to report & provide their learnings from past events.

Drama vs Result
Big businesses are dominated by strong personalities. People who are used to getting their way or they are great communicators who are also very good at convincing & influencing others. That’s a great source of drama & personality conflicts.

There are biographies that focus only on the drama & it is important for the reader to then connect that drama to the business performance. This is a very difficult task but an analyst studying a business is uniquely positioned to make sense of this narrative through their knowledge of the numbers. Knowing the business metrics well can definitely help a reader interpret the drama.

On Shareholder Value
Increasing shareholder value has been an important management concept. However, shareholders are not the only parties involved in running a business.

There are employees, suppliers, service providers, customers, lenders, the government & the society at large. Increasing value for one stakeholder doesn’t mean it has to reduce value for the remaining stakeholders.

When the people running the businesses become obsessed with a single metric like shareholder value, the incentives & the behaviour in the company changes & the focus shifts to pleasing this one stakeholder.

An example
Very few businesses have so much written history as compared to General Electric. GE has seen three centuries, the 19th Century when it was founded, the 20th century when it became one of the largest companies in the world & the 21st century when it still survives as a smaller version of itself.

This business has literally seen the industrial growth of the United States. The business has been a pioneer in the power equipment space & has been a leader across the world.

They have also been responsible in creating a management culture which has been a subject of many case studies. Many former employees of this company have successfully left GE and become the heads of other companies which themselves have achieved great success in their respective industries.

However, with such a stellar biography, we would expect that this business would be one of the world's most highly valued companies, but it isn't.

There are important lessons to be learned about the founding, the long period of growth & dominance & the eventual decline of this once-great organisation.

Here are some books about this business and its people & I’m sure I’ve missed a few.

The Learning
It’s interesting to note how history treats a subject when the result is not good. Some of these books have been written after the company has seen a long period of decline, and some of the books were written when the company was at the peak of its glory.

The main learning is not to be satisfied with a snapshot in time. We have to accept that it’s not a photograph but it is a movie.

Like any movie, it will have its emotional ups & downs and we as the reader should train ourselves to match the facts with the opinions rather than riding on the emotional roller coaster with the characters of the movie.

(The author is Fund Manager, PPFAS Mutual Fund)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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