By Enrique Aboitiz Mendieta
May 2021
St. Covid sent us a signal reminding us to update this three-year-old article, relating it to today. As you will see, its relevance may have increased.
Appreciating that the general opinion of the market is that the goal of an enterprise is to provide long term value—that is the main purpose that everyone working for an enterprise realizes in different degrees. May I provide you with an interpretation of that view.
[UPDATE] IT IS CLEARER AND CLEARER THAT ONE HAS TO CHOOSE ONE’S OWNERS. WE WILL PROBABLY BE UNABLE TO SATISFY ALL. TOO MANY BUSINESSES ARE STRUCTURED TO ATTRACT SPECULATORS AND OTHERS WHO HAVE MOTIVES DIFFERENT FROM LONG-TERM PROFIT ADVANCES. EVENTS SUCH AS COVID SERVE SOME PURPOSE THAT IS NOT FOR THE BAD. THESE EVENTS PROMPT US TO RE-THINK. PERHAPS IT IS TIME TO RE-THINK WHAT SHAREHOLDER WE WANT GOING FORWARD. THERE ARE MANY SIGNS THAT OUR STRATEGY FOR ATTRACTING OWNERS HAS NOT QUITE SUCCEEDED AS WE WOULD HAVE WISHED IT TO.
The path that I suggest for long-term value lies in the pursuit of the better and better shareholder—a better owner, in simpler terms. Do we care who owns our stock? Yes, we do! We prefer owners versus shareholders: people who care about the company they own stock in, rather than speculators or traders. This is the main argument against regular briefings made quarterly, arguably targeted at the wrong audience. Anyone who cares how you are doing on a quarterly basis, or that monitors you every three months, is a shareholder you do not want. He is not the owner that we want.
[UPDATE] ONE CAN ARGUE THAT WE WENT AFTER OWNERS THAT WE DID NOT WANT. WE DO NOT WANT OWNERS THAT COME IN AND OUT, WHICH RESULTS IN DEMAND AND SUPPLY VOLATILITY THAT, AS YOU CAN SEE, HAS HAPPENED TO OUR STOCK. WE WANT OWNERS THAT KEEP BUYING SLOWLY FOR THE FUTURE, WHICH IS THE DEFINITION OF LONG TERM—CONTINUOUS, CONSISTENT, LONG-TERM ACCUMULATION REDUCING THE SUPPLY OF THE STOCK AVAILABLE FOR PURCHASE.
The ideal owner is the shareholder who keeps buying your stock with his savings and his dividends. He may sell stock once in a while to enhance his life, not to enhance his pocket—e.g. to put a downpayment on a house for his newly married daughter. The owners we want are individuals who pass on their stock to their children because our company has enhanced his and his family’s life.
Value is always a factor of supply and demand. Always. Nothing else drives value but supply and demand. The more owners we have, the higher our stock price because the supply of shares in the market keep shrinking. Owners are your best buyback plan.
Investment bankers tell you that having float is the right strategy to drive long-term value, and there is an argument there. The world has taught us that shortage of supply, due to increase in demand, is more powerful a value driver than liquidity. The ‘why’ of supply shortage matters. That ‘why’ is continually increasing demand. A shareholder who does not sell passes his stock to his children, who are buyers, so that their new income goes into buying more stock and not selling the stock they inherited.
[UPDATE] WE ARE HERE TO DO WHAT IS RIGHT FOR OUR COMPANY AND NOT WHAT IS RIGHT FOR INVESTMENT BANKERS AND INVESTMENT FUNDS. DO WE REALLY CARE WHAT THEY WANT AND HOW THEY THINK? WE MAY NOT WANT THEM TO INVEST WITH US. THEY BRING VOLATILITY, AND THAT MAKES OUR CORE, LONG-TERM SHAREHOLDERS CONCERNED.
WHY WOULD WE GO AFTER CUSTOMERS AT TXANTON THAT PICK FIGHTS? WE WANT CUSTOMERS THAT COME, HAVE A DRINK, HAVE SOME PICA-PICA, AND DO NOT CAUSE TROUBLE. WE WANT CUSTOMERS THAT COME A COUPLE OF TIMES A WEEK WITH BUSINESS PARTNERS, TEAM MEMBERS, FAMILIES, AND GIRLFRIENDS.
WHY DO WE LISTEN TO A SPECULATOR THAT WANTS VOLATILITY WHEN HE HURTS OUR LONG-TERM PARTNER SHAREHOLDERS? ARE WE NOW GOING TO BE GUIDED BY ENVIRONMENTAL ALARMISTS THAT WERE TAUGHT STUPIDITY IN CALIFORNIA? ARE WE GOING TO BE TOLD WHAT TO DO BY A FUND THAT CLAIMS CLEAN BUT MAKES ITS MONEY OFF OIL FIELDS? ARE WE GOING TO BE LECTURED BY FUNDS WHOSE CEO AND TOP TEAM DRIVE 12-CYLINDER MASERATIS? ARE WE GOING TO BE SHOWN EXAMPLES BY CELEBRITIES PREACHING GREEN BUT ARRIVING IN PRIVATE AIRCRAFT?
How do we get better owners? There is, again, only one way: through better margins—larger and higher margins.
[UPDATE] WE ALL NEED A PURPOSE. PURPOSES BRING MEANING TO LIVES AND ENRICH EXPERIENCES. HOWEVER, THAT PURPOSE MUST BRING IN HIGHER AND HIGHER SALES, PROFITS, MARGINS, AND EBITDA, BECAUSE VALUE IS DRIVEN BY THEIR ESCALATION.
How does an enterprise get better margins? Again, like in most questions in life, the answer is not only simple, it is in front of us—through better customers. Is the customer the king? No! There are terrible customers out there: customers who think that they walk on water and yet pay late. They are the ideal customer for the competition. Oversupply has a way of creating more of these creatures. Oversupply feeds the worst in customer attitude. Are the right customers kings? Without doubt. Who are they? Those that keep giving us better margins.
How do we create better margins? Again, in very simple terms, through better systems—better ways of doing things, and that means a better culture. Culture is defined very simply as how we do things around here. It is alive and evolving by the day.
[UPDATE] WHAT IS BEHIND THE SUCCESS TODAY OF UNIONBANK? ITS APP, IS IT NOT? IN SIMPLE TERMS, THE BEST ARE DRIVEN BY BETTER AND BETTER SYSTEMS—SYSTEMS THAT MAKE LIFE EASIER FOR OUR CUSTOMER.
Evolution could be the God that many search for. It has always been there, it controls everything, and it will always be there—360-degree infinity.
If we are algorithms as people, then we do not control that evolution. However, for now, those of us who believe that everything in life is a miracle prefer to think that the pursuit of better and better people with better and better attitudes is the ingredient that ends up driving who that better owner is.
[UPDATE] COVID REMINDS US THAT IT IS ABOUT PEOPLE, IT HAS ALWAYS BEEN ABOUT PEOPLE, AND IT ALWAYS WILL BE ABOUT PEOPLE.
WILL ROBOTS AND AI REPLACE PEOPLE? THEY MAY. SOME BELIEVE THAT THEY WILL BE YET ANOTHER ENHANCEMENT FOR BETTER LIVES THAT WE WILL CONTROL. OTHERS BELIEVE THAT SYSTEMS THAT KNOW US BETTER THAN WE KNOW OURSELVES (HARARI) WILL CONTROL US. THIS MAY WELL BE SO. FOR NOW, WHAT MATTERS MOST IS STILL PEOPLE. FOR NOW, I STILL MAINTAIN THAT IT HAS ALWAYS BEEN, IS, AND WILL ALWAYS BE ABOUT PEOPLE. IT HAS TAKEN COVID TO REMIND US. WE AT ABOITIZ, I HOPE, DID NOT NEED THAT REMINDER, AS WE HAVE ALWAYS BELIEVED THAT AT THE ROOT OF EVERY SUCCESS ARE PEOPLE. THE SAME ASSESSMENT APPLIES FOR EVERY TIME WE HAVE TRIPPED OR FAILED.
WHY DO WE COURT OWNERS WE DO NOT WANT? LET US FOCUS ON BUILDING A STRONGER AND STRONGER TEAM THAT IS FOCUSED ON SERVING OUR CUSTOMER—IN INNOVATION, IN REMIX, IN AGILITY, AND IN GETTING THINGS DONE WITH MINIMAL B&B (BUREAUCRACY AND BULLSH*T) TO ENHANCE OUR FREE CASH FLOWS—AND VALUE WILL FOLLOW.
