Thursday, May 15, 2014

The Power Of Many

I don't really know what to make of Meg Whitman. On the one hand, there is this perception of her as a highly competent manager thanks to the incredible growth at eBay where she was CEO for ten years starting in 1998. On the other hand, she is also a politician (she ran for governor of California in 2010 and lost), and people who play that game are good salesmen. So is she this extraordinary manager who flawlessly executed at eBay, taking it from millions to billions, or was she lucky enough to fall into a company with tremendous network advantages while being politically astute such that she sold herself as a competent manager? Her book, The Power of Many, may offer some clues.

In her book, she sounds like my kind of manager. The values she stresses are the kind that would interest any value investor: she's into frugality, testing/iterating new projects so as not to waste capital/time and all sorts of other things that make sense but are commonly espoused by managers both good and bad (e.g. integrity, listening, focusing etc).

After reading the book, I couldn't help but wonder if I had missed an enormous opportunity not investing in HP (the company Whitman now runs) when its stock was in the dumps. Here is this superstar CEO who took over the company during a time of maximum pessimism, and I missed the opportunity because I only now recognize that she's a superstar, having read her book.

But of course, that's what a good salesperson/politician is able to do: sell herself. She comes across as exactly the kind of leader I would want at a company, but that may only be because her strength is convincing people of that, rather than actually executing!

This is a case where I think looking at her track record can be helpful; it is at least objective, rather than the subjectivity that's going on when we judge someone based on their telling of their own story. Here, Whitman's record is not so complimentary, in my opinion. While eBay did grow its revenues and profits tremendously, it somehow managed to do this without generating good returns for shareholders:

So despite running a company with incredible first-mover network advantages, eBay somehow generated some pretty weak returns on equity. On the other hand, maybe its only clear in retrospect that eBay has strong network advantages because of some of the work Whitman did to make it the large company that it is. Either way though, those returns on equity are not impressive!

As an aside, there was one part of the book I found particularly disturbing. In Whitman's words:

"What started to happen to eBay was that state legislators and regulators who had constituents whom eBay was impacting were increasingly being pressured by their local industries to put the brakes on eBay's growth. The growth of eBay Motors, for example, did not sit well with a lot of auto dealers...

In my very first meeting with an experienced, well-known, highly respected senator...he put on a little dramatic show...'What I see here is that the political donations from eBay are running about 90% for [the opposing political party],' he said...'That is going to have to change.'"

Companies like Tesla are likely facing this very thing today. Disgraceful!

1 comment:

Anonymous said...

From my quick review of MSN Finance's 10-year summary on eBay, it appears that during the Whitman tenure eBay used no leverage. This somewhat mitigates the low RoE, no?