February 1, 2006
In the court of critical opinion concerning the financial health of American business, analysts reign supreme. To be sure, bad reviews from analysts can trigger bad decisions by companies seeking short-term solutions to beef up their public image and financial performance portfolio.
We need look no further than the airline industry in this regard. The automobile industry — meaning General Motors and Ford Motor Co. — is another example of how ill-advised decisions, concerning product development initiatives, labor-management issues, and operating strategies, can bring down even a giant.
Who knows, perhaps it is the nature of such giants to stumble before they fall. Should they fall, however, without the chance to right themselves in the eyes of consumers, investors, and analysts? None would answer no, for sure. The critical question is how much time is enough?
This question came to me as I read published accounts of analysts’ assessments concerning the progress Sara Lee has made in breathing new life into its global business. Even though Ford and GM captured their share of headlines at the same time, I had already concluded that leaders of those two behemoths had been given plenty of time to stem the tide of low earnings and labor strife. Toyota Motor Corp. did not just happen last year. It has been a major competitive force within the automotive industry for more than two decades.
Checks and balances, an essential strength of the system of capitalism, exist in the financial realm with financial analyst playing a critical role. The free will of individuals and shakeouts in the competitive business arena tell the real story. Quite simply, companies that manufacture a relevant product enjoy success. Moreover, company leaders who keep their arrogance under wraps, will find forgiveness in the marketplace when they stumble. Ask Lee Iacocca, late of Chrysler Corp. Financial analysts did not give an inch in their criticisms during the company’s hard times in the ’80s.
To be sure, financial analysts have one thing on their minds in doing their jobs: assessing the economic performance of companies and industries for firms and institutions with money to invest. They have no head for companies that don’t deliver on their promises. Take Sara Lee, which seems to have made commendable strides since 2001, when it closed the books on matters related to its 1998 voluntary recall of food products contaminated by Listeria monocytogenes.
It is understandable that Sara Lee does not relish reminders of this situation. The more important reminder is that a company is defined by its failures only to the extent that it does not recover and/or overcome.
Sara Lee is not only on the mend, it stands to reach new heights in its business pursuits under the banner of a “fresh start.” The company is unloading lines that have performed poorly to focus more attention on strong operations, especially meat-and-bread businesses. That is a good thing. Moreover, those divestitures may have a fresh chance at success under new owners.
These maneuvers are in line with Sara Lee’s year-long strategies designed to increase earnings. Certainly a year is little enough time in the grand scheme of things. But what do I know, for alas, I am not a financial analyst.
Only time will tell the rest of the story. Watching a rebirth grow into a stronger adult, however, is one of the many joys of sitting in my chair.