Trump The Business Man?

Business bankruptcy

One of the more simplistic ways to consider Donald Trump’s appeal to some Republican voters is to say that he is a business man and therefore will be able to “take care” of members of the business community.  Not. So. Fast.

There is a difference between being in business and being successful at business.  A person could argue that Jeffrey Skilling and Ken Lay were good (successful) businessmen, but what they did with the Enron Corporation was definitively criminal.  [BI]  Lehman Brothers was a profitable investment firm, but with $639 billion in assets and $619 billion in debts it ultimately failed, becoming one of the biggest bankruptcies in the U.S. [Invest]  We could add Washington Mutual, World Com, Conseco, and others to this list [Fortune] but the point’s been made. 

There is a difference between managing a business and growing a business.  Let’s assume for the moment that a person can manage a business (allocate resources, find revenue, and manage debt) without necessarily growing that business.  If a person is in the business of buying and selling businesses, then the focus tunes into how profitably the business can be sold – not necessarily a focus on how to grow the business into profitability.  And, at this point Mr. Trump’s business experience in Atlantic City is instructive:

“On the presidential campaign trail, Mr. Trump, the presumptive Republican nominee, often boasts of his success in Atlantic City, of how he outwitted the Wall Street firms that financed his casinos and rode the value of his name to riches. A central argument of his candidacy is that he would bring the same business prowess to the Oval Office, doing for America what he did for his companies.” [NYT]

There’s a persistent argument that the demise of Mr. Trump’s casino operations in Atlantic City was a function of a general downturn in casino profitability during his ownership period, however that was not the entire explanation – Trump’s operations were in trouble before the slow down began.

“…a close examination of regulatory reviews, court records and security filings by The New York Times leaves little doubt that Mr. Trump’s casino business was a protracted failure. Though he now says his casinos were overtaken by the same tidal wave that eventually slammed this seaside city’s gambling industry, in reality he was failing in Atlantic City long before Atlantic City itself was failing.” [NYT]

The formula was flawed from the beginning. First, Trump took on debt that was far too expensive.  Second, he delayed payments on the indebtedness.  Third, go into bankruptcy and convince bondholders to take less money (known unkindly as a haircut) rather than come out of the ordeal with nothing at all.  Finally, he took the companies public and placed the onerous debt burden on the shareholders.  Ultimately he lost control of the companies.   If this sounds more like Ken Lay, Andrew Fastow, and Bernard Ebbers than Warren Buffett, Dennis Gartman, and Howard Marks you’d be correct.

And in his wake:

“At the nearly deserted eastern end of the boardwalk, the Trump Taj Mahal, now under new ownership, is all that remains of the casino empire Donald J. Trump assembled here more than a quarter-century ago. Years of neglect show: The carpets are frayed and dust-coated chandeliers dangle above the few customers there to play the penny slot machines.”  [NYT]

There are good and bad ways of doing business.  Perhaps a good way to describe the difference is that the following should not be said of a person on his way out:

“He put a number of local contractors and suppliers out of business when he didn’t pay them,” said Steven P. Perskie, who was New Jersey’s top casino regulator in the early 1990s. “So when he left Atlantic City, it wasn’t, ‘Sorry to see you go.’ It was, ‘How fast can you get the hell out of here?’” [NYT]

The negative feelings were not without substance.   Edward Friel’s cabinetry business went under after Trump left the company unpaid for services rendered.  He wasn’t alone.

“At least 60 lawsuits, along with hundreds of liens, judgments, and other government filings reviewed by the USA TODAY NETWORK, document people who have accused Trump and his businesses of failing to pay them for their work. Among them: a dishwasher in Florida. A glass company in New Jersey. A carpet company. A plumber. Painters. Forty-eight waiters. Dozens of bartenders and other hourly workers at his resorts and clubs, coast to coast. Real estate brokers who sold his properties. And, ironically, several law firms that once represented him in these suits and others.” [USAT]

There was more:

“In addition to the lawsuits, the review found more than 200 mechanic’s liens — filed by contractors and employees against Trump, his companies or his properties claiming they were owed money for their work — since the 1980s. The liens range from a $75,000 claim by a Plainview, N.Y., air conditioning and heating company to a $1 million claim from the president of a New York City real estate banking firm. On just one project, Trump’s Taj Mahal casino in Atlantic City, records released by the New Jersey Casino Control Commission in 1990 show that at least 253 subcontractors weren’t paid in full or on time, including workers who installed walls, chandeliers and plumbing.” [USAT]

Carpeting firms, cabinet makers, plumbers, painters… all discovered what Trump’s bondholders knew.   Mr. Trump would incur debts, refuse to pay up citing convenient  circumstances, and then (to the bondholders) threaten bankruptcy or to the small business owners threaten protracted litigation, and “get out” of paying his debts.  Little wonder Atlantic City was happy to see the back of him. Whatever core values Trump’s businesses might have aspired to they weren’t enough to keep him in business.

Core Values are important.  This is as good a summation as there might be:

“Company values are not a statement of mission or commercial vision. They are priceless words, becoming the soul and force field of your business, preserving and protecting it from external and internal agents capable of compromising its survival and reputation.

When willfully and forcibly implemented into a company culture, values have extraordinary democratic benefits including increased employee alignment, motivation, loyalty, efficiency, cohesiveness and consistency of interpretation. Zero or weak implementation of values result in shifting integrity benchmarks, exposing organizations to higher political chess-playing and integrity management challenges, raising bureaucratic, operational, human resource, ombudsperson, legal and arbitration costs.” [Endeavor]

What does it say about Trump companies’ core values when there is endless litigation, mechanics liens, payroll disputes, bankruptcies, and bondholders and shareholders left holding the baggage?

Without a solid set of core business values the enterprise is reduced to gamesmanship – how much indebtedness can I shift to others? – how much less can I get a bondholder to accept? – how much can I get taken off a bill for services and supplies rendered?  — how little can I pay employees and still retain a workforce?   Thus we find Mr. Trump, not at the top of the business world with the Buffetts, Marks, and Gartmans but along side those who played “the game” and were ultimately found wanting; the Skillings, the Fastows, the Fulds, and the Ebbers.

Caveat Emptor indeed.

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