So many companies have taken a similar approach to the continued weakness in the world economy of downsizing that it was a nice change of pace for me to hear about a local Chicago-based company, William Blair, who has taken the approach of increasing in size. This company’s approach of staying debt free and staying away from risky trading strategies has kept it profitable even in this time of economic uncertainty and William Blair continues to expand its staff in order to increase business and serve its customers better. “What fed William Blair’s growth spurt”, an article in Crain’s Chicago Business, explained this approach and stated, “We’re happy with our return on investment”. This statement seemed strange to me as many companies think that profits are most important, no matter the costs. This could contribute to some of the issues that we are currently facing with our economy.
Lehman Brothers and MF Global are examples of companies that used excessive debt and risky trading strategies to try and make excessive profits. These companies seemed to have never been “happy with their returns”. By overleveraging and having risky trading strategies that did not provide a correct risk hedge, these companies went bankrupt. In turn customers lost their life savings, jobs were lost, and some clients will probably forever have trust issues with banking institutions.
It is my experience in the grain industry that many customers are willing to pay extra for great customer service and this service from a trustworthy company can be well worth any extra cost. I have also noticed from my trading experiences that although excessive debt and risky trading strategies can produce huge profits and be very sexy when receiving a salary these short-term profits can affect the long-term strength of the company. This can affect perhaps the strength of the industry as a whole.
In the end, companies in the current market seem to be hesitant to hire more people with the complete uncertainty in the world economy. While companies, such as William Blair, are taking a strategic approach of sucking up talent in this market and have given up short-term profits by keeping debt low and limiting risk for that of a solid return on their business strategy, others have chosen the opposite and are now suffering the consequences. The question becomes do short-term profits justify possible long-term negative effects as shown by MF Global and Lehman Brothers? I think it’s refreshing to see a company with management willing to give up these short-term profits. To me it almost becomes an ethical question, where a manager can decide what is most important to the company.
- Marek, L. “What fed William Blair’s growth spurt”. Crain’s Chicago Business. 26 Nov. 2012
- “Lehman, MF Global Dominate October Claims Trading”. WSJ. 29 Nov. 2012
One thought on ““We’re Happy with our Return on Investment””
It’s easy to come up with examples of companies that have failed ultimately as a result of greed. American society tends to chastise failing companies in bad times, while admire these same companies that were making large profits during the good times. Lehman Brothers was for decades a Wall Street staple and was actually a vital part of the secondary financial world. During the boom years, Lehman’s large profits and ability to return money to shareholders produced very few critics, and Lehman was effectively making money off the same products that would kill it. Once the real estate bubble burst and the recession started, Lehman was overexposed in areas that took a nosedive which ultimately led to its demise. My point is that I agree that short term interests can compromise long term success, however I think there are far more companies doing business “right” than the few that have failed and become talking points in business textbooks. American society also tends to be “Monday Morning Quarterbacks” and as soon as one large company fails, the media and politicians throw a fit and cry things like “how could they do that?” and villanize the management of the company (these same people however, don’t say anything when the business was making exorbitant profits during the real estate boom of the early 2000’s which led to their overexposure in subprime real estate mortgages in the first place!).