Breaking News
0

Book Review: Go Long

By Brenda JubinMarket OverviewMay 09, 2018 05:03AM ET
www.investing.com/analysis/book-review-carey-et-al-go-long-200314562
Book Review: Go Long
By Brenda Jubin   |  May 09, 2018 05:03AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Go Long: Why Long-term Thinking Is Your Best Short-term Strategy (Wharton Digital Press, 2018) by Dennis Carey, Brian Dumaine, Michael Useem, and Rodney Zemmel is a short book packed with managerial, and investing, insight. In the first part it profiles leaders who went long: Alan Mulally at Ford, Larry Merlo at CVS, Paul Polman at Unilever (LON:ULVR), Ivan Seidenberg at Verizon, Sir George Buckley at 3M, and Hewlett Packard Enterprise and Costco (NASDAQ:COST) director Maggie Wilderotter. Part two offers principles for leaders who want to start thinking long term.

Some CEOs use long-term metrics as organizing principles. Alan Mulally invoked PGA (profitable growth for all), which is revenue times margins. His goal at Ford, even as he faced a $17 billion shortfall in a single year when he joined the company, was to use that measure to achieve a 10% to 15% compounded annual growth rate. How would Ford achieve this kind of growth? “The only way to raise revenue is to make products and provide services people want and value, and good companies improve their margins every year by improving quality and productivity. Mulally says the trick is to work both of those levers.” At each of his business review meetings, Mulally asked his 16 top executives to apply PGA to a five-year horizon: “imagine five bars representing profits going out five years, and each one going up 15%. That simple exercise got the executives to look five years out every week, every quarter, every year—even while they were dealing with short-term crises.”

The title of the chapter dealing with Sir George Buckley is “R&D Is the Last Place to Cut.” In the four years before Buckley became chairman and CEO of 3M in 2005,capital spending had been slashed by 65% and R&D by 25%. Buckley believed that the company’s sluggish growth was the result of shortchanging innovation. He “reached back into 3M’s history and reinstated a key metric known as the New Product Vitality Index.” He calculated that to grow at a 4% compounded annual growth rate above market growth would require that more than 30% of the company’s revenues come from products introduced in the last five years. “By the time he took mandatory retirement at age 65 in 2012, Buckley had grown the share of new products launched over the previous five years from 8% of sales to 34% of sales.”

Traditionally Wall Street hasn’t rewarded companies that plow earnings back into R&D and other capital expenditures. Goldman Sachs (NYSE:GS) found that between 1991 and 2016 the stock returns of companies offering the highest combined dividend and share-buyback yields outpaced those of companies that spent more on R&D. Is the trend starting to shift? It’s too early to say, but last year “those companies in the Goldman study that spent more on capital expenditures and R&D outperformed those offering high dividends and buybacks by 11 percentage points.”

Go Long is a wonderful mini-manual for corporate executives and members of boards of public companies. But it is also meant to educate investors, to get them to think beyond the next quarter and to reward companies that focus on longer-term goals.

Book Review: Go Long
 

Related Articles

Book Review: Go Long

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email