3. Business of Business

In 1922 U.S. President Calvin Coolidge famously observed: “The business of America is business.” The economist Thorstein Veblen saw a clear difference between industry, producing things, and business, making money from producing things. In the age of capital, business rapidly financialized.

Originally, business people invested in factories and businesses that produced and sold things. Now, in the twentieth century, business people sought to make money in ways not necessarily directly linked to the making of things. Speculators can make money from trading oil even if they do not actually produce, refine, or consume oil. They can make money irrespective of whether the oil business is good or bad, the price high or low. Business profited from disturbing the balance of the system, especially from uncertainty and volatility.

Financialization required money, specifically securities. Shares and bonds could be traded and manipulated more easily than the factories, railroads, and businesses that they were claims over. In 1908, McClure’s Magazine understood that the old physical frontier of American history had been replaced by a new financial frontier. It was essential to make issuing, purchasing, and trading securities as safe as “producing farm land.” The speculation economy had begun.¹

Limited Consciences

The corporation allowed businesses to raise money from large numbers of people, combining their capital and economic power. Corporate securities limited the investor’s liability to the amount of their investment, allowing the participation of ordinary individuals as their wealth increased.

Limited liability allowed investors to escape personal financial responsibility for a company’s debts, encouraging speculation with other people’s money. In Gilbert and Sullivan’s satiric opera Utopia Limited Mr. Goldbury, a company promoter, sings:²

Though a Rothschild you may be, in your own capacity,
As a Company you’ve come to utter sorrow,
But the liquidators say, “Never mind—you needn’t pay,”
So you start another Company Tomorrow!

In the late seventeenth century in London’s financial district—the lanes around Lombard Street and Cornhill—stockbrokers, known as jobbers, sold shares in frequently dubious companies to investors. In 1696, concerned about the exploitation of credulous investors, England’s Commissioners of Trade wrote that shares were being sold “to ignorant men, drawn in by the reputation, falsely raised and artfully spread, concerning the state of [the company].”³

Formed in 1710 to carry on trade with Spain’s colonies in South America, the South Sea Company promised investors great profits. The stock increased by more than 900 percent. But in 1720, the stock price collapsed as shareholders tried to sell their shares, realizing that the company was worthless. The English Parliament enacted the 1720 Bubble Act, outlawing the creation of all joint stock companies not authorized by royal charter. In 1825, the need to raise capital to finance industry led to the Act’s repeal.

A Brilliant Daring Speculation

Originally, companies were floated to raise funds for speculative projects—railways, canals, new inventions, and mining ventures (usually the latest “gold rush”). During the Internet bubble in the 1990s, companies desperately sought to stick virtual claim pegs into the new frontier of cyberspace.

Oscar Wilde, in The Ideal Husband, captured the sense of feverish speculation:⁴

In the late nineteenth century, speculation took the form of overcapitalization, watered stock. The term originally referred to the practice of bloating a cow with water to increase its weight before sale. American stock promoters inflated claims about a company’s assets and profitability and sold stocks and bonds in excess of the true value. The promoters contributed property to the new corporation (for example, worth $5,000) in return for stock at an inflated par value (for example, $10,000), enabling the value of the assets to be written up. The overvalued stock was sold to investors.

Financialization of business reached its zenith with shareholder value. In 1981, in a speech at New York’s Hotel Pierre, Jack Welch, chief executive officer (CEO) of General Electric (GE), stated the company’s objective as returning maximum value to stockholders.⁵ Companies should only make investments and take on businesses providing returns above the firm’s cost of capital.

Incorporation increases the separation between owners and managers of the business. In their 1932 book, The Modern Corporation and Private Property, Adolf Berle and Gardiner Means argued that companies were akin to feudal kingdoms run by “princes of industry” in their own, not the shareholder’s, interests. Investors seeking to control the activities of managers embraced shareholder value.

This fitted the great expectation machine⁶—the needs of the pension funds, insurance companies, and professional investment managers who pooled and managed the savings and pension contributions of individuals. Investors want a simple mechanism to evaluate the companies they invest in. Disliking uncertainty, they prefer the financial world to be a predictable and highly ordered place. Shareholder value quickly became the preferred narrative and language of communication between companies, their managers, and investors. As remuneration became linked to performance via bonuses and grants of shares or stock options, managers embraced shareholder value.

With little control over the business, shareholders invested initially only for dividends paid by the company. Speculative shares were companies with uncertain ability to pay dividends, such as the Lucky Chance Oil Company of West Virginia.

Investors eventually became preoccupied with appreciation in stock prices. Companies became fixated on enhancing shareholder wealth by boosting the stock price. In investor presentations, Bernie Ebbers, CEO and later convicted criminal, would put up a chart of WorldCom’s rising share price and ask his audience: “Any questions?” In March 2009, Welch would change his mind, calling shareholder value “the dumbest idea in the world.”⁷

Dirty Tricks

Higher shareholder value requires increasing earnings, reducing the amount of capital used by the business, or decreasing the cost of that capital. You can improve the real business. Business improvements are risky and very slow, akin to watching grass grow. Financial changes are easier, more predictable and, most important, quicker. Financial engineering replaced real engineering. Rather than making things, trained engineers joined banks to provide turbo-charged financial structures for companies.

Until its spectacular implosion, Enron epitomized the new economy. Under Kenneth “Kenny Boy” Lay and Jeffrey Skilling, the merged Omaha-based InterNorth and Houston Natural Gas evolved from a natural gas producer and pipeline company into a trading company. Enteron, the original selected name of the merged firm, meant “intestine” in Greek and was hastily changed. Enron had “no meaning other than what we make it mean.”⁸

Enron’s center of gravity was its main trading floor in Houston, not its pipelines or natural gas operations.

There was the old economy business—generating and distributing energy. Then there was the new economy business—trading energy and ultimately everything. Enron shifted from the low return and regulated business of managing physical assets to the higher return unregulated business of trading. The asset lite strategy was the brainchild of Skilling, a Harvard MBA and an ex-McKinsey management consultant. The hallmark of Enron was the creative use of intellectual capital and money rather than physical assets.

Instead of managing the firm’s risk, the company’s financial operations increasingly augmented revenues by profits from trading in financial instruments. Companies now traded foreign exchange, bonds, commodities, equities, and derivatives.

For example, in the 1980s the yen appreciated, creating havoc among Japanese exporters, who were reliant on the cheap yen for competitiveness. Exporters changed strategy, moving production facilities offshore. Unfortunately, you cannot move a car plant to Mobile, Alabama, overnight. Japanese companies used zaitech or zaiteku (financial engineering) to cover up the weak profitability of their businesses.

In 2007, Porsche, the German sports car manufacturer, increased pretax earnings by around €3.7 billion to €5.8 billion, up 276 percent from €2.1 billion the previous year. The boost came from a profit of €3.6 billion from trading derivatives on shares (related to Porsche’s holding in another German carmaker, Volkswagen). During the same period, core earnings from Porsche’s car business fell around 30 percent.

Financialization of industry quickly spawned jokes: “How many workers does it take for Toyota to make a motor car?” Answer: “Four. One to design it, one to build it, and two to trade the long bond.”⁹

In 1994, Metallgesellschaft, a German commodity producer, lost $660 million in oil trading. Proctor & Gamble lost $157 million in interest rate trading, revealing what the gamble in the company’s name was about. In 1996 Sumitomo, a Japanese trading house, reported $2.6 billion in losses after discovering that Yasuo Hamanaka, a trader known as Mr. Five Percent because of his clout in copper markets, had manipulated the price.

In 2004, China Aviation Oil (Singapore) Corporation, a foreign subsidiary of a Chinese government-owned company, lost $550 million on speculative oil-futures trades. In 2005, Liu Qibing, a copper trader who executed trades on behalf of China’s State Reserve Bureau, mysteriously went missing after making wrong bets on copper futures contracts that potentially cost hundreds of millions of dollars.¹⁰ In 2008, companies in China, Korea, Taiwan, Hong Kong, India, and Latin America lost heavily as a result of speculative currency transactions.

In January 2011, providing definitive confirmation that trading by companies was a piscine affair, the Japanese carmaker Honda announced losses of ¥15 billion ($180 million) from trading in shrimp and shellfish. The company apologized deeply via its website “for causing great worry and trouble.”

Financialization also took simpler, more conventional forms. Automobile companies offered financing to buyers, insurance, and other financial services, which were more profitable than the cars themselves. The financial businesses could also borrow larger sums and operate with higher leverage.

GM set the standard with General Motors Acceptance Corporation. Starting life financing GM dealers and new car buyers, it evolved into a bank. As the earnings from financial operations grew, GM increasingly resembled a bank that owned an unprofitable car company on the side. By the time the venerable symbol of American capitalism filed for bankruptcy in 2009, the burden of its liabilities to its retired employees meant that the company was “not even a car company. It’s a health care provider with an auto manufacturer on the side.”¹¹

Companies exploited accounting rules to increase earnings or remain asset lite. Traditionally, earnings are recognized when cash is or is about to be received, progressively over the life of a contract. Mark-to-market accounting allowed revenues over the entire contract life to be recognized immediately. An electricity producer could book the entire future revenue that might be received over the useful life of the plant when the plant went into operation.

Skilling’s decision to join the company had been conditional on Enron being able to adopt mark-to-market accounting, “a lay-my-body-across-the-tracks-issue.”¹² Mark-to-market accounting accelerated growth, with future profits being brought to account at the start of the contract, creating an urgency to increase deal flow to maintain earnings growth.

Complex accounting provisions—special purpose entity rules (SPE)—allowed companies to shift assets off balance sheet, avoiding the need to record investments and associated borrowings as the firm’s assets and liabilities. This reduced the amount of reported assets used to generate earnings, boosting return on capital—the key to shareholder value.

Companies aggressively reduced their cost of capital by substituting cheaper debt for expensive equity. Alan Greenspan, chairman of the Federal Reserve, supported the rush to debt: “Rising leverage appears to be the result of massive improvements in technology and infrastructure...experience...has made me reluctant to underestimate the ability of most households and companies to manage their financial affairs.”¹³

Companies used cash flow from operations or new borrowings to repurchase their own shares to boost their stock price. Alan Greenspan put the practice down to a slowdown in innovation and excess capital.¹⁴ Stock buybacks left the company with more debt and a weaker financial position.¹⁵

In 1987 Standard Oil of Ohio (Sohio), once part of the grand dame of oil companies but now owned by Britain’s BP, advertised in leading financial magazines—“Standard Oil not standard thinking.”¹⁶ An arty graphic depicted a drop of oil in which a reflection of an oil well was visible. The text mentioned “a new very active management strategy,” a subtext for financialization. “Assets not strategic to Standard Oil have been divested” spoke of redeploying the firm’s capital by divesting underperforming investments. “We have also become fast creative traders” declared the trend to trading in financial instruments for profit. The text ended: “in a world of oil sheikhs and oil shocks, the more liquid we are the more solid.” The advertisement spoke of a financial strategy. The oil company had become the oil bank.¹⁷

Marriages and Separations

Corporations restructured constantly, acquiring and disposing of assets and companies, making comparison of performance over time impossible. Merger activity was the market for corporate control. Like Ronin, lord-less mercenary Samurai, groups of corporate managers competed for control of assets, providing the necessary discipline on errant businesses.

The weapon of choice was the hostile takeover, the brainchild of Siegmund “Siggy” Warburg, founder of S.G. Warburg, the UK investment bank that is now part of UBS, the Swiss bank. Traditionally, mergers were friendly affairs agreed between the parties. Breaking with convention, in 1958, Reynolds/Tube, advised by Warburg, sought to acquire British Aluminium (BA) without the agreement of the target’s board. Lord Portal, chairman of BA, haughtily rejected the offer as it would be giving away “a powerful empire for the price of a small kingdom.” Instead, BA sought a friendly alliance with Alcoa to prevent the hostile takeover. But Warburg, an outsider to the moribund English financial establishment, masterminded a stunning tactical triumph in which Reynolds/Tube gained majority control of BA, despite fierce opposition.¹⁸

The hostile takeover of BA by Reynolds “was a very expensive one for the client. In fact, Warburg gave Reynolds poor advice. British Aluminium was not worth it at that price.”¹⁹ The advice may have been poor but Warburg did not do poorly out of the transaction. Acquisitions became common as a new generation of more aggressive businessmen assumed power.

In January 2000, Time Warner and AOL agreed to merge.²⁰ Time Warner was a sprawling conglomerate with publishing, film, television, entertainment, and media interests. AOL, originally America Online, was a young Internet company synonymous with the catchy “You’ve got mail” campaign. Time Warner had $26 billion in revenues, $6 billion in cash flows, a large amount of debt, and was valued at $83.5 billion prior to the merger. AOL had revenues of $5.2 billion and had made $879 million over the previous year, one of the few Internet companies to make money. AOL was valued by the stock market at $163 billion. AOL bought Time Warner for $165 billion.

At the press conference announcing the merger, overturning their respective traditional corporate cultures, Gerald Levin, Time Warner’s chairman, appeared in an open-necked shirt and khakis, while Steve Case, AOL chairman, was clad uncharacteristically in a suit and tie. Case would be the chairman of the combined entity. The stock’s new ticker symbol would be AOL. Time Warner shareholders got 45 percent of the new AOL Time Warner, despite being the more senior partner.

Levin endorsed Internet stocks: “The new media stock valuations are real.” Media observers argued that it marked the end of old media, “go digital or die.” The blogosphere was triumphant—a 14-year old Internet start-up was taking over the world’s largest media conglomerate.

AOL’s value was its grossly overvalued stock. Riding the Internet boom to perfection, building up the stock price to stratospheric levels, AOL’s shares were a currency to purchase real income and cash-producing assets. Stock prices no longer represented any real underlying business or earnings. It was monopoly money, convertible into something real if others believed in its value.

In 2002, as the Internet bubble collapsed, AOL Time Warner took the largest writedown in corporate history, recording a loss of $54 billion. Old media managers reasserted control, forcing out Case and Levin.

Rio Tinto was old economy, formed in 1873 when British investors purchased the eponymous copper, silver, and gold mine in Huelva, dating back thousands of years to Iberians, Tartessians, Phoenicians, Greeks, Romans, Visigoths, and Moors. By the twenty-first century, Rio Tinto was one of the world’s largest diversified mining and resources group operating globally.

Rio Tinto’s chief executive Tom Albanese persuaded the University of Alaska at Fairbanks to create a new degree course combining geology and economics. Albanese’s reign at Rio Tinto was more about deal-making than extracting minerals.

In May 2007, just a few months into Albanese’s tenure, Rio outbid Alcoa, an American aluminum firm, to purchase Alcan, a Canadian rival, for $38 billion. A price that looked high became ridiculous with the onset of the global financial crisis. The purchase was funded by $40 billion in debt. The acquisition had assumed rising commodity prices, driven by the emergence of China and India, would underpin Rio’s earnings.

Shortly afterward Rio Tinto was subject to a hostile takeover bid from rival BHP Billiton. The bid valued Rio at $190 billion. Rio and Albanese rejected the bid. In late 2008, China experienced a sharp economic slowdown, sending metal prices plunging. $9 billion of debts falling due in 2009 and $10 billion in 2010 compounded Rio’s problems. As Rio’s stock market value fell, BHP dropped its bid, citing the target’s large borrowings.

Undeterred, Albanese and Rio sought salvation in another transaction with Chinalco, a largely state-owned Chinese aluminum firm. The Chinese firm would pay $12.3 billion for up to 50 percent of nine Rio mines and also purchase $7.2 billion in convertible bonds that would give it the right to raise its stake in Rio from 9 to 18 percent. This deal also fell over, forcing Rio to enter into a joint venture with BHP on some of its iron ore mines. In 2010, that deal too duly collapsed.

The beneficiary of serial deal making was banks and investment banks. They earned huge fees from advising firms, lending money to finance transactions, designing and distributing complex corporate securities to investors, and entering into derivative transactions with the company.

The House That Jack Built

No firm captured the financialization of business better than GE, the firm built by John Francis “Jack” Welch, its chief executive between 1981 and 2001.²¹ Historically, GE was founded on industrial innovation and engineering excellence—the light bulb, the first U.S. jet engine. Under Welch, the company financialized, building up GE Credit (now known as GE Capital) into a major part of its business.

During Welch’s tenure, GE evolved from a company with 425,000 employees and $25 billion in revenue to a company with 310,000 employees and $125 billion in revenue. The ruthless downsizing earned Welch the nickname “Neutron Jack,” a reference to a nuclear device that killed people but left property untouched. As GE’s stock performed well, investors, shareholders, and investment bankers loved it.

Assuming charge of GE, Welch had to overcome the opprobrium of the c word—conglomerate. GE had a bewildering range of businesses—consumer products, turbines, jet engines, medical technology, media, and a finance business.

Combinations of unrelated businesses had been fashionable in the go-go 1960s. The “nifty fifty”—stocks like Ling-Temco-Vought (LTV), ITT Corporation, Litton Industries, Textron, Teledyne, and Gulf and Western Industries were the darlings of investors. Low interest rates and an equity market that rose and fell with metronomic regularity allowed the conglomerates to buy companies at temporarily deflated values, anticipating the leveraged acquisitions of the 1980s and 2000s. Investors saw conglomerates as an unstoppable new power and pushed up stock prices, allowing them to borrow more to buy more companies.

In the 1970s, higher inflation and rising interest rates caused the profits of the conglomerates to fall sharply. Poor businesses bought on the promise of being rejuvenated on to a higher growth track remained underperforming. Promised synergies remained promises. Investors eventually sold off conglomerate shares savagely.

With conglomerates out of fashion, the new preference was for pure plays—firms with clear-focused businesses. Welch was forced to fight the conglomerate discount, the company’s share price traded well below the values of the individual businesses. GE’s mission was recast to be number one or two by market share in every one of its businesses. As with all management strategy, the number one or number two rule was not always adhered to. Simply, by changing the definition of market, it was possible to meet the test. But investors and shareholders liked the focus on market leadership. Sales of noncore assets, savage cost cutting, and reduction in employee numbers pleased investors even more.

Welch came up with a succession of other big ideas, introducing management controls and planning tools that focused on allocating capital to businesses, suspiciously similar to those of Alfred Chandler from the 1960s. To improve product quality and reduce costs, Welch introduced six sigma, based on statistical tools for process and production control, originally developed by Allied Signal, Motorola, and the Japanese. Welch was not beyond naked opportunism, creating www.DestroyYourBusiness.com during the Internet boom, promoting digital technology to improve productivity.

GE managers, trained at the firm’s Crotonville facilities (dubbed cretinville by sceptics), celebrated its integrated diversity, as well as its silo-less, boundary-less, and learning organization. Jack’s gospel of GE values, supplying organizational style and acting as professional change agents spread. Welch now wanted his gravestone to say “People Jack.”

Capital Ideas

The initiatives accentuated the positive features of GE’s diverse conglomerate structure. GE’s undisclosed business model was driven by opacity, complex relationships between its industrial and financial business, a reliance on continual mergers and acquisitions and earnings smoothing.

GE ran its old low-growth industrial business for earnings and cash flow, simultaneously diverting funds to aggressively grow its financial services business. GE Capital lent to customers to secure orders for power plants, wind turbines, and aircraft engines. Financial services were integral to selling GE products to customers, counteracting the slower growth and lower profitability of mature industrial businesses.

Consistent profits from its portfolio of industrial businesses maintained the parent’s pristine AAA credit ratings (signifying the highest quality of borrower), keeping borrowing costs low. GE grew its financial businesses to the limit of its credit rating, borrowing far more than any comparable industrial company to enhance its return on equity, earnings, and share price. By the early 2000s, GE was leveraged around ten times: $10 of borrowings, much of it short term, for every $1 of share capital. GE Capital was contributing in excess of 40 percent of GE’s earnings.

GE was also a merger and acquisition machine selling its low-margin industrial operations and buying profit and growth through purchases of financial businesses. Each year, it completed hundreds of deals involving billions of dollars. GE’s policy was to aim for 80 percent of growth from existing businesses and 20 percent from acquisitions. In reality, half of its growth came from acquisitions.

Despite protestations that the firm managed businesses not earnings, GE’s continuous restructuring of its portfolio and its growing financial services operations provided opportunities to realize gains and losses to smooth earnings to meet market expectations. GE used its insurance units’ reserves, corporate pension fund, and commercial property arm to adjust earnings. During periods of strong equity market gains, GE boosted its profits by suspending contributions to its pension plan. GE sold buildings in the final weeks of a quarter to help meet its earning projections. GE was increasingly a product of financial engineering.

The size and complex structure of GE made it difficult to understand and analyze—should GE be classified as an industrial or a financial firm? GE studiously maintained a constructive ambiguity, increasing the lack of transparency and making detailed like-for-like comparisons difficult.

The nature of the firm made the relatively few investment analysts who covered the company reliant on management, especially Welch, who was GE’s best share salesman. In analyst briefings, Welch typically replied to questions identifying each analyst by their first name. As The Economist noted: “[GE treats] analysts, journalists and other outsiders as if they either belong to the family and are believers, or do not.”²² Investors, reassured by a word from Jack and the company’s capability to meet or marginally beat carefully cultivated earnings expectations, bought GE shares unquestioningly. Other businesses copied the GE formula.

WWJD—Watch What Jack Did!

Welch understood and exploited the growing power of the business media. He was a master of the management narrative—the artful stories and self-conscious recipes used to manage analysts’ and investors’ image of a company. Welch understood the value of a pithy sound grab to convey a big idea: “Every idea you present must be something you could get across easily at a cocktail party with strangers.”²³ He cunningly avoided sophistication and “sounding smarter than anyone else.”²⁴

An entire literature provided uncritical and hagiographic portraits of GE and its CEO—29 Leadership Secrets from Jack Welch, Business the Jack Welch Way, the Welch Way: 24 Lessons from the World’s Greatest CEO, and so on. Despite disagreement on the number of secrets or lessons, the books cited evidence in support of preconceived positions—“GE is a great company” and “Jack Welch is God.”

Part of the narrative was Welch’s humble beginnings and modest rewards as a CEO in an era of unparalleled excess. Unfortunately the mythology unravelled in the course of his divorce from Jane Beasley, Welch’s second wife, whom he married in 1989. The couple had a prenuptial agreement but Jane hired William Zabel, a New York divorce lawyer well known for obtaining substantial divorce settlements for clients.

Welch leaked information that Jane had had an affair with a handsome Italian chauffeur and bodyguard. In Welch’s view, Jane was a second wife who married a successful CEO. During their 13-year marriage, she enjoyed a lavish lifestyle. She had not made any contribution to Welch’s career. Ironically, in his memoir Jack: Straight from the Gut, Welch reported that Jane was a perfect partner accompanying him on his corporate trips. Jane gave up her business career devoting herself to her husband, even taking up golf to play with Welch’s business associates. Welch even noted that Jane introduced him to the Internet.

Annoyed at an ongoing dispute over her monthly living expenses and the negotiations, Jane lodged an affidavit outlining Welch’s assets, liabilities, expenses, and income and other details of Welch’s lifestyle, exposing details of the retirement package agreed by GE. In 2000, his last full year at GE before retirement, Welch received compensation, including bonus and salary, totaling $16.7 million. He remained a consultant to the company on $86,535 annually for his first 30 days of work, with a payment of $17,307 for every additional day. GE was paying for Jack Welch’s living expenses in retirement, including cars, aircraft, apartments, mobile phones, flowers, security systems, and vitamins.

“People Jack” was entitled to floor-level seats to New York Knicks games, courtside seats at the U.S. Open, VIP seating at Wimbledon, a box at the Metropolitan Opera, a box at Red Sox games, and a box at Yankee games. GE paid four country club fees; limousine services; security services, satellite TV, communications, and computer equipment at his four homes; and security and all the costs associated with his New York apartment, from wine and food to laundry, toiletries, and newspapers. GE also covered dining bills at the Jean Georges restaurant in the Manhattan apartment building where he lived.

The resulting outcry forced Welch to give up the perks he believed he was entitled to after 40 years of service to GE. Jane Welch received an amount believed to be around $180 million in the divorce settlement. But Welch remains high on the list of most admired management leaders.

Welch’s successor at GE, Jeffrey Immelt, inherited a company at the end of its growth strategy reliant on GE Capital. Immelt tried to reorganize the company, increasing transparency. He expanded into alternative energy, which raised the eyebrows of Welch, a climate change nonbeliever. But Immelt also relied on large acquisitions to transform GE. In 2004, GE was among the largest purchasers of investment banking services, paying fees of more than $450 million to financial advisers. Immelt was truly a chip off the Welch block. When the global financial crisis exposed the weaknesses of its business model, GE’s stock price and performance went into meltdown, or as one journalist christened it Immeltdown.

Business Dealings

Finance gradually replaced industry, with trading and speculation becoming major activities. In his classic nineteenth-century work Lombard Street, Walter Bagehot cautioned that: “Common sense teaches that booksellers should not speculate in hops, or bankers in turpentine; that railways should not be promoted by maiden ladies, or canals by beneficed clergymen.”²⁵ The advice was seen as quaint and irrelevant in the modern age.

Facing pressure from investors for quick tangible results, corporate managers and boards resorted to financialization. Peter Drucker, the management scholar, identified the reason:

Dealmaking beats working, dealmaking is exciting and fun, and working is grubby. Running anything is primarily an enormous amount of grubby detail work.... Dealmaking is romantic, sexy. That’s why you have deals that make no sense.²⁶

The death of the owner manager and the rise of the MBA-trained professional managers meant that those running companies lacked domain knowledge—the specific knowledge and skills to run a company operationally. Maryann Keller, writing about General Motors, noted the change: “the best way to achieve success at GM is to be a good finance man...juggling numbers in order to present the picture people want to see.”²⁷ You only managed the things that you could measure. Eventually the business of business became money. Like individuals, they became habitués of The Mirrored Room.

In Other People’s Money, Andrew “Jorgy” Jorgenson (played by Gregory Peck) faces off against “Larry the Liquidator”—the private equity investor who is seeking to take over his family company. Jorgy tells the assembled shareholders that at least the old robber barons built something tangible—a coalmine, a railroad, even banks. The new entrepreneurs of post-industrial America use other people’s money to buy up businesses, create nothing and leave behind nothing, except the paper that cannot cover the pain of the people whose lives are wrecked.

Money came to drive individual lives and businesses. Heinrich Heine, the German poet, saw the reality of this future: “this is based on the most unreliable of elements, on money...which is more fluid than water and less steady than air.”²⁸