Wednesday, July 2, 2014

Book review: "Barbarians at the Gate" by Burrough and Helyar

I stopped reading Barbarians at the Gate halfway through. Although it's considered a classic, it's really just a typical business book written by journalists. The writing is hyperbolic, and the authors emphasize the story's superficial aspects to make it more exciting to lay readers. Every chapter has descriptions like the following:

"J. Tomilson Hill III, Harvard College, Harvard Business School, was the warrior of the pair, a zealot for the Wall Street trenches. To enemies—and he had a few—Tom Hill came across as an oiled-back Gordon Gekko haircut atop five feet, ten inches of icy Protestant reserve. Hill was well tailored and proud of it; “the best-dressed man on Wall Street” a competitor called him, and Hill wore his dark Paul Stuart suits like armor. His office was all cool modern art and Lucite-encased tombstones commemorating past victories."

"A former Marine fighter pilot, at forty-nine Beattie had the sandy hair, baby-blue eyes, and soft voice of a kindly uncle, yet the steely gaze of an ex-Marine."

Despite the inflated prose, the book does offer some interesting descriptions.

Ross Johnson, the CEO of Nabisco and then RJR Nabisco, is portrayed as having been totally uninterested in the work of running the company. He main interest was using RJR's money to live lavishly: building a new headquarters in Atlanta because he found Winston-Salem too dull; overpaying movie stars and athletes to endorse the company's products so he could socialize with famous people; building the "air force," a fleet of ten corporate jets that he used for free; and many other abuses of company money. It's a chilling example of the agent-principal problem.

Johnson was able to take over successively larger companies despite doing badly for shareholders because he excelled at corporate politics. RJR had become increasingly dysfunctional in the years leading up to its merger with Nabisco, and that made it the perfect environment for Johnson to rise to the top. Once there, he bought off the board and other executives with freebies and favors. Good to Great lionizes Philip Morris's management, but Barbarians at the Gate gives the impression that their success was largely the result of having a dysfunctional competitor.

Before founding KKR, Henry Kravis and his partners were merchant bankers at Bear Stearns in the 1970s. Their record there was okay but not spectacular. After disagreements with Bear Stearns's leader, they left and started KKR. Their timing was good: 18 months later, legal rules were changed to make it easier for institutional investors to participate in buyouts, and a few years after that interest rates peaked. Kravis was always eager to do more and bigger deals, and that eagerness made him very successful in the 1980s bull market. He had the right personality for the time.

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