Sunday, May 9, 2010

2010 Wesco Annual Meeting Notes

A BIG thanks to Ben Claremon for the notes.

Link to: 2010 Wesco Annual Meeting Notes



The main problems in life can only be solved when you know what works, what doesn’t and why.

Very high IQ people coming out of b-schools are basically useless to us, aside from their own idiosyncratic virtues. These people often tell him and Warren that what they learned in b-school was useless and they like the way Warren and Charlie think. Simple formulas are all that are taught but they are totally useless. B-schools have not done civilization a favor by making the matter easier to teach but useless. If he were running a business school, he would start off with a history of business. That system would steal cases from each of the sub-specialist’s repertoire so there would be a lot of cross-academic friction. However, he thinks it is useful to know why GM rose and then failed. He also thinks it would be beneficial to examine why railroads rose, struggled and why are they better investments now. Unfortunately, it is easier to teach beta, which he equated to algebra; where you can plug in values and find an answer.

A friend of his went to a school that taught him how to reduce working capital by starving suppliers. They taught him to use simple algebra to squeeze suppliers. When he has tested on this material, he gave the calculation on the exam but told the teacher that it was asinine and that would never do that. We should all want to have a partnership with suppliers in which everyone trusts one another. He is a very prosperous guy and did well because he rejected the business school stupidity. It is very important for students to be independent and to question what they learn.

Gilford Glazer [a longtime friend of his], came back from the war and went to HBS. But his father’s little machine shop needed attention and he asked them to defer acceptance for a year so he could help his father. After a year he contacted HBS and asked for another year. The guy from Harvard then asked him how many employees he had last year at this time. He answered 50. Then, when he asked him how many employees he had now, the answer was 900. The Harvard guy laughed and told him he didn’t need to go to business school. That kind of approach is no longer present at HBS. They were probably wiser then than they are now.

Gilford’s father gave him good advice when he came back from the war. As a general principle, he wanted to sell people things that are good for them. He didn’t want to operate casinos or sell drugs. He believed a firm should only do things that were good for customers and now he is a billionaire. A lot of the ethical approach of the elder Glazer is gone today. Competition takes things to excess.

Charlie then changed the subject to soccer. Soccer is a game that is very competitive and it is hard to win when the other team has a player that is unusually good. If you let the players do what they want to do they will work mayhem on that great player. Therefore, the soccer referee has to limit the mayhem. This is an important role in soccer. This is the role that government should take with investment bankers. You can’t expect competitive people like them to reign themselves in. It’s understandable that if you recruit these competitive people that it leads to too much aggression and ethical standards go down. Something like that has happened in investment banking.

At the end, Lehman (LEH) was pathological. The totally crooked and crazy operators who originated mortgages and then packaged them into securities were behaving in a way that Glazer’s father would not have recommended. In the end it does not work well for those who sell things that are bad for their customers.