He retired from Alcoa 25 years ago. 25 years ago, crooked CEOs went to prison too. The US is much Shinier now.
Depends on the culture of the company. The pump seal company was closely held, but the atmosphere in the late 70s/early 80s, was every bit as toxic as Radio Shack, a NYSE listed public company, in the late 80s/early 90s.
Not related to the grape juice, but Robert Welch helped develop some candies, including Junior Mints, before founding the John Burch society, and saying democracy was bad, because it would allow the people to elect Communists.
Jack Welch didnât build GE Capital (the finance subsidiary), A math/insurance genius named Gary Wendt did. It was legend that Wendt was the only GE executive who didnât have to suck up to Jack Welch because GE Capital was 35%-40% of annual earnings and Wendt was the only person who knew how the run it.
{{ Says a former GE executive: âWendt is the only top executive at a GE function who wonât be kissing Jackâs [behind].â }}
I have written before that I spent time at Westinghouse (17 years) and that we looked at GE as the big brother/competitor that we had to try to outdo.
Westinghouse, like GE, had a financial services division. It was set up in the 1950âs to provide credit to appliance dealers who could then pass the credit to customers buying swell Westinghouse appliances like refrigerators and stoves. It was such a good business that it expanded into providing credit for industrial customers buying airplanes and electric turbines, and that was such a good business that âŚ
And hereâs where it gets funky, they started loaning money to leveraged buyouts and real estate deals and all sorts of other things that they really had no understanding of. But there were a couple of big shots in that division, I have no recollection of their names, who were variously described as âcowboysâ and ârough ridersâ who were gung ho for everything and everyone.
Here is a paragraph of minutiae which explains it; skip if you like. Real estate developers would go to banks for a loan to build, uh, hotels, golf courses, apartment buildings, whatever. The banks would say âYou have to have skin in the game, weâll only loan 70% against your secured 30%, and itâs all our collateral if it doesnât work. The developers would come to Westinghouse Financial and get the 30%. Oh sure, the rate would be high, and the fees! (Think mortgage points) and the division was printing money ⌠for a while. Yes, we had an unsecured 30% and the bank had a secured 100%. It was hard for them to lose (but a few did) and it was easy for us to wind up with nothing. They were heroes, skimming huge profits for the corporation, making the rest of us in other divisions look bad with their gimongous ROIs.
Then came a recession. Oops. Lots of projects and buyouts went bad, and Westinghouse lost the full 30%. Suddenly that 2% upfront fee and high interest rate (on nothing) didnât look so good, and the entire company was upside down. All of us went through layoffs, privation, crappy bonuses and pay because of the cowboys, who rode off into the sunset with what they managed to wrestle during their half dozen good years.
And Westinghouse was crippled, just as GE was crippled by the exact same thing. Youâd think they could have learned something, but apparently not.
My point is that the cowboys didnât really know what they were doing, they took huge risks and took a big payday while it lasted. The rest of us lived with the consequences, and the Westinghouse brand was tarnished and practically extinguished, good now only to be licensed to others, like Bell & Howell or Polaroid, failed companies which now exist only in a name which at one time had meaning.
Remember Bill Esrey? He was CEO of Sprint in the 90s. The Wiki entry on Esrey implies he was fired from Sprint due to an abusive tax shelter scheme that Ernst & Young cooked up for him. My recollection at the time was that he was fired for failure to match Worldcomâs numbers. The news looked Esrey up, to get his reaction when the Worldcom fraud came to light. Esrey said that he always wondered how Worldcom could produce the numbers it was reporting, because he could not see how it was possible.
So, hereâs another example of how the âJCsâ see their personal path to riches in financial manipulation.
I avoid investing in financial services firms where most of the profit goes to sales commissions, bonuses, and excessive Executive Compensation while the shareholders get all the risk on the downside.
Iâm just about finished updating my annual âReal Life Retiree Portfoliosâ for the REHP site. The leader is the Harry Dent Portfolio which is 1/3 Tech, 1/3 Drugs, and 1/3 Financial Services which has 12 times its starting balance after 30 years of 4% inflation-adjusted withdrawals. If you eliminated the Financial Services allocation and went with 1/2 Tech and 1/2 Drugs over the past 30 years, youâd have about 17 times your starting balance today.
Minimizing the âskimâ â the key to retiring early.