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Two Signs of a Good Company


You may have read “Built to Last” and “Good to Great” or whatever other great books about how company sustain their businesses and eventually thrive. How good a comparison or relevant the author has made will be made evident in the years to come.

breadtalk I am currently reading a book “Paths to Wealth Through Common Stocks ” by Philip Fisher. In it there is this part that resonated with me about what good companies should be.

I shall quote verbatim:

Robinson and Brown (Pioneer Metals Corporation) took on two small fabricating jobs in these newer metals and alloys. They lost money on both…..

Then came the episode that was to mark the turning point in their business. They took on a job for one of the largest manufacturers in the area. Although the metals involved were too tricky for this experienced fabricator to want to handle himself, Robinson gave a verbal promise of delivery in eight weeks. Relying on this, the large manufacturer in turn had contracted to furnish a major piece of equipment to his largest customer’s business. Failure to delivery would be very costly. Robinson felt almost physically ill when four weeks from the day of the promised delivery his men made a mistake in judgment and all the work done to date was hopelessly ruined.

At this point, most managers would berate, scold and blame the workers. Or ask for an extension. What did this manager do?

Robinson was not bound by contract to deliver on time. However, he felt his word was pledged. Although his financial resources were already severely extended, he authorized overtime and double time without stint. He even hired extra helpers to get the full eight week job done in the four weeks that remained. He insisted his company was to blame for the difficulty and asked for no extra reimbursement for the buyer.

I think you get the gist, at this point, their reputation soared as word got around of the company’s integrity. That’s not all,

Even in tough times when he could not afford it, Robinson tried within the limits of his financial ability to treat his men as individuals and give them every possible break. … Then, as prosperous days arrived, another episode occurred, equally dramatic but far more tragic than that which won him the respect of his customers. He sent one of his men in a company automobile on a company errand. On an open road an oncoming car went out of control. There was a head-on-crash. Through no fault of Pioneer, an employee was killed.

Robinson could think of nothing he less wanted to do, but he felt he should call on the widow immediately. She had three preschool children. He had no legal liability. Nevertheless, he told her the company felt a responsibility for the children and that trust funds would at once be started to see that they, at company’s expense, would get not only a high school but also a college education.

From then, the attrition rate of the company dived far below the average for the area. Employees felt they belonged.

I would like to think that this example from the book illustrates the benefits to treating the customer right and the employee fairly.

Often, you find managers not caring when their employees are hospitalised, or bothered to attend the funerals of immediate family members of their own employees.

If you know that the leader of the company you are looking at is someone who will scrape for every bit of earnings from the customers and squeeze them dry or who expect every employee to stay back far beyond their official working hours with no overtime pay and give shitty bonuses, that is an example of a company you should think twice before investing (or working in, for that matter)

So for a company like Berkshire Hathaway, the character of their leader, Warren Buffett, as a person of integrity (like getting paid US$100,000 as salary for generating billions) is for me a strong buy without even looking at their financial figures.

Some may say he’s an old guy and cannot keep up with a younger man. I beg to differ.

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