Josh Brown

Saving the Middle Class: Josh Brown on Corporate Stupidity

As anyone who reads this blog or follows me on Twitter knows, I'm beyond being a fan of Josh Brown and his blog, The Reformed Broker.

I think he's a hero - particularly because the truths he's telling are about his own industry: Financial Services. Most important of all, he gives those of us not in the industry the information we need to make smart decisions, see charlatans for what they are and the knowledge of when to run like the wind.

Well, he did it again over the weekend with his piece: "Forget Fairness, Let's Talk About Stupidity."

Only this time, he takes on what the multi-year corporate decision to hold down wages really means. Not just the dismantling of the middle class - although that's definitely happening. It's that the companies are giving themselves a slow death by not ensuring that employees have enough money to buy the products and services the companies, themselves, are providing.

Short-sighted idiots.

Here's a taste:
The corporations are every bit as vulnerable to the disappearance of the middle class as the middle class is itself. 
They've managed around this issue thus far with an increasing emphasis on exports (now responsible for half of the S&P 500's sales and profits) as well as systemic and legally-sanctioned overseas tax evasion. Consider that Exxon Mobil made $19 billion in profits in 2009 and paid zero Federal income tax (you want to laugh, they actually got a rebate of $256 million). GE earned $14 billion in 2010 and also paid zero in Federal income tax. Microsoft and Hewlett-Packard have each set up offshore subsidiaries which they use as payment conduits so as to keep their profits shielded from the IRS. 
But offshoring of profits and the export of goods and services won't sustain these corporations forever. At a certain point, native companies within the developing world will nudge our adventuring multinationals aside (China's already building its own version of Wall Street).  And when that happens, Corporate America is going to turn around and be horrified by the devastation in its own backyard. 
"Where did all our customers go?" 
Well, you enormous fucking idiots, you fired all your customers. You've spent the last decade or so suppressing wage growth in the name of "creating shareholder value" and now even your shareholder base is disappearing. 
You allowed wages to stagnate for a decade and made every decision you could in the service of nudging the quarterly profit higher, thinking less of the yearly profit and virtually nothing of the long-term viability of your business.
Read the full post here. It's more than worth it.

Thanks, Josh.

Goldman Sachs' Culture: When Making Money Isn't Enough

You know you've hit a nerve when not only are the Twitter stream and blogosphere overrun with comments and links - but the originating publication has to close its comments on your article because the volume has become too much...and run a live blog on the commentary that has ensued.

Normally, you'd think that this is a Lady Gaga announcement about her new Foundation getting her Little Monsters going. Or Justin Bieber doing something Justin Bierber-ish. Or something.

But no. This is Greg Smith's doing.

Who's Greg Smith? You might well ask - because, until today, unless you knew who he was there was no way you'd know his name. Or need to. Or care.

Mr. Smith is - until tomorrow - an executive director of Goldman Sachs and head of their US equity derivatives business in Europe, Middle East and Asia.

Now, because he's written an Op-Ed piece for the NY Times taking the lid off of Goldman so that we can all see what he's been seeing - and what has led him to decide to resign - there's no stopping the commentary. For the business and finance types - and everybody who's still angry at all the banks and investment houses that caused the 2008 crash - he's the ultimate celebrity.

It's better than who the contestants are for this round of "Dancing with the Stars"...by a long shot.

In fact, as interesting as what Mr. Smith has to say - and he doesn't pull his punches - the reaction from within and outside Goldman is just as compelling.

First, let's start with what Mr. Smith wrote about his soon-to-be former employer. Then we'll take on what his well-written rant has wrought.

Integrity and Disillusionment

When Mr. Smith joined Goldman twelve years ago, it was an organization that respected its clients.  Now, not so much.  In fact, from what he describes, not at all.

How could they be respected when it's acceptable for staff to refer to them as "muppets" and the best way to move up Goldman's corporate ladder is by:
  1. Persuading clients to invest in stocks or other products Goldman is trying to "get rid of" because they don't have a lot of potential profits
  2. Getting your clients to trade "whatever will bring the biggest profit to Goldman" and
  3. Trading any "illiquid, opaque product with a three letter acronym."
What he describes - and is the basis of his decision - is that any integrity attached to selling clients a product that is in their best interests is gone.  That's because the culture has shifted so that the only focus is on making money for the organization, itself.  Not its clients.  For Goldman.

Which makes its clients roadkill.  Institutionalized roadkill.

He puts the blame for this directly on the current CEO, Lloyd C. Blankfein, and President, Gary D. Cohn.  As far as Smith is concerned, the two titans leading the organization lost sight of what had been the culture long ago - and this is the outcome.

For Mr. Smith, who had real pride in having gotten a job at Goldman, moving up the ranks and, most particularly, pitching the company as the go-to answer for best-of-the best graduating students, his own integrity was on the line.  His disillusionment with this company he loved - and which had treated him so well - was complete.

Which leads us to what the rest of the world has to say.

From Within and Without

Not unexpectedly, Goldman is doing its best to counter the arguments that Smith put forward.  Citing everything from employee surveys to their own personal commitment to clients, Blankfein, Cohn, et al are doing their best to make it seem as if:
  • what Mr. Smith describes is a surprise to them
  • there's no basis for his comments and,
  • he never said anything about it to them anyway - so  there was no way they could have known of his perception or his disillusion...
...which, of course, is wrong.  So they say.

As for the rest of the writing/blogging/Tweeting/commenting world, the reaction depends, in part, on which side your bread is buttered.

For those who want to stay in good with Goldman (which, after all, is still one of the largest, most successful investment banks in the world), the tendency is to demean Smith.  That's typical and to be expected.

Among the financial types, there's a lot of skepticism with not a lot of support for Mr. Smith or his position.  Of those, though, the most surprising to me came from Joshua Brown on his blog, The Reformed Broker.

Brown is a Vice President at Fusion Analytics and the author of Backstage Wall Street - an expose of how Wall Street really works.  So, while he states, quite correctly, that there's nothing new in financial service companies like Goldman being out for themselves - to the point that he cites Goldman's complicity in moving the 1929 Crash forward after they had protected their assets - given his intolerance for the behaviors of his Wall Street brethren, his impatience with Mr. Smith's Op-Ed was unexpected.  At least to me.

Which leads us to the leadership lessons learned from this very big and public debacle for Goldman.  If you're the leader of your organization:
  1. Make sure you're clear about what you want your organizational culture to be, and
  2. Make sure your employees know - and are rewarded - for perpetuating that culture.
Most important, if the culture of your organization is not something you'd want discussed by everyone and their cousin on the front page of every newspaper, blog and Google News search, either do something about it or find a way to rewrite your employee handbook's section on proprietary information, non-disclosure and confidentiality.

Because, if you don't, one day you may find yourself with a Greg Smith on your hands.  And it's not pretty.

Just ask the boys at Goldman.

[An earlier version of this article appeared on Technorati.]

Why @thereformedbroker Never Sucks

Okay, so you may want to officially refer to this post as a Resource Alert - and it is - but it's more than that.  It's damned near a paean of praise - and about an investment advisor, for God's sake.

You may also wonder why I:

  • have such a different - shall we say snarky (at least for me) - style in this piece and/or
  • used such a strange title for this post.
Blame it on Josh Brown.  What can I say?  He brings out the snark in me...and I always enjoy it.

Mr. Brown (you see how I'm being polite again?) is an investment advisor who blogs - constantly - and never pulls his punches.  That being said, I don't always agree with his assessments - but I'm always challenged and informed by his writing.

Take his piece "June Swoon", for example, in which he refers to June being a "sucky month for stocks most of the time."  (You see?  My post title is an homage!)

On the face of it, that's a nice piece of information but wouldn't normally be given more than a passing mention.  Brown, on the other hand, takes an analytical, contextual look at it and, in so doing, provides you with better thinking material as you look at decisions you need to make.

His writing is extremely clear (even when he talks "gangsta"), in immediate and historical context, concise and always with workable information that assists in expanding his readers' thinking.  For that he's always great.

He's honest and courageous in his writing, too.  And while his blog is not designed to give specific investment advice, whether you're looking at your own portfolio or you want to have a better sense of where industries are going worldwide, he's your guy.

On the other hand (because this isn't a love fest and I have a need to take this one shot at him), in a recent post about Amazon's decision to establish a Kindle-based imprint publishing romance novels, he refers to the readership as "nitwits" before changing that reference to "buyers." 

Clearly, he hasn't read the domestic and international readership surveys that the competing publishing houses (which are not happy with Amazon's decision) have been taking for decades.  Had he, he would have known that those 'nitwits' are a highly educated, very accomplished population of men and women who read those babies.

(Don't get me going on this one - because I'll win.  I researched the business model when I was in graduate school and have kept up with the industry since then.)

Other than that, though, the aspect of the topic that he addresses (i.e., the distributor becoming a direct competitor of the content producer) was on target and does raise issues - in publishing and otherwise - regarding intermediation and disintermediation across industries.

It's not easy when your supply chain 'partner' suddenly becomes your worst nightmare come to life - and that's a future that Amazon's move brings to the present.

Josh is a really smart man and a really talented writer.  You want to follow him.  He's well worth your time.

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