Courtesy of Vitaliy Katsenelson.
Michael Dell should ask himself a simple question: “Who is my daddy?” He says his current daddy — Wall Street’s army of sell-side analysts and impatient investors with their insatiable thirst for short-term results — makes it impossible for him to transform Dell from a PC maker into a technology services company. He doesn’t want Wall Street to be his daddy anymore; he wants to grow up and be his own daddy, and thus he is taking his company private.
On the surface this switch makes sense. Wall Street’s time horizon has been shrinking for decades. With Nobel-winning theorists and their by-products — betas, thetas and whatever other “etas” — leading the charge, investors’ long-term decisions are analyzed on a daily and monthly basis, thus turning what might otherwise be long-term investors into long-term traders (an oxymoron).
The media are, of course, a great amplifier of this misalignment. A recent Wall Street Journal article that describes Coca-Cola Co.’s “performance” is a great example of this: “Over its past 20 earnings releases, the company has lagged behind estimates only three times, and always by less than 1 percent.” This is statistically accurate but primitive journalism; a ten-year-old could have written this sentence describing how “well” Coca-Cola management performed. I don’t want to beat up on the Journal too much — the article did have some meat in it — but “beating” the guidance is a game that has little to do with Coke’s core business.
Unfortunately, CEOs don’t live in a bubble, and they read these articles too. As Pavlov’s dog, if you get a reward for “beating the numbers,” you will start to respond to Wall Street’s carrots and sticks. Even if you’re the most rational, long-term-oriented CEO on the planet, quite inadvertently, “beating the numbers” becomes the core of managing the business. Building a business with a competitive advantage that will last for generations — which should be the objective of any CEO — will fade into the background.
Mr. Dell wants to create a legacy that his descendants will be proud of; the company bears his name, after all. But toxic, ADD-infested Wall Street doesn’t provide an environment in which a long-lasting enterprise can be built. Dell needs to go through a transformation. Wouldn’t it be great if Michael Dell could report once a year to just a few private equity partners who had a time horizon measured in years and who “got” what he is trying to build? Of course!
Wall Street only becomes your daddy if you let it.
So Michael Dell should not blame Wall Street for his company’s current predicament and low stock price. That’s too easy. He should direct the blame at himself. Aside from the fact that he was the one running Dell when it made unexciting, eye-insulting boxes and failed to come out with a cell phone or tablet worth buying, he is the one who chose to play by Wall Street’s rules. He did not have to, especially as he was a highly respected CEO who also controlled 15 percent of Dell shares.
