Published in UT San Diego, August 11, 2014
Six spades, doubled, redoubled.
I loved Ace Greenberg. He was the consummate entrepreneur who died late last month at the age of 86. Born middle-class, from the Midwest with no Ivy league credentials (University of Missouri), Alan Greenberg went to Wall Street and rose from back-office clerk to the CEO of Bear Stearns.
He became known as “Ace” due to his passion and skill at bridge — along with talents in magic, billiards and big-game hunting. He was from a different time — in the mold of a Hemingway, a bald, muscular, cigar-chomping, poker-faced, larger-than-life capitalist. He was famous for paying low salaries and big commissions. If you performed, you got rich; if you didn’t, you were fired. Simple economics.
Lots of articles have been written about how to hire employees, and Ace had a simple model that he used throughout his career. He hired his team by the PSD method — Poor, Smart and with a deep Desire to get rich. I love that model and use it today. And Greenberg was relentless in wanting people to become rich. To coin a phrase — rich was good. (Rich is different from greed.)
He said, “Our first desire is to promote from within. If somebody with an MBA applies, we will not hold it against them.”
He got cancer when he was 31, and his response was classic, “The odds aren’t too bad, but the stakes are awfully high.” He recovered and decided given the circumstances, that “he would only rent, not buy.”
But he was most famous for his “Memos from the Chairman.” Ace had the quirk of writing to his employees to share wisdom and thoughts, but he did it as the “Designated Oracle” sharing the wisdom from Haimchinkel Malintz Anaynikal, his fictional mentor.
Greenberg insisted that people not leave the office without telling someone where they were going and when they would return. “I conducted a study of 200 firms that have disappeared from Wall Street, and I discovered that 62.349 percent went out of business because important people did not leave word. That idiocy will not occur here.”
Greenberg was relentless about expenses. “Haimchinkel says we should not lose sight of fundamentals, such as cutting expenses. I have informed the purchasing department that we should no longer purchase paper clips. Every day we all receive documents with paper clips — save them. We will soon be awash in clips and periodically, we will sell them — a perfect arbitrage, since our cost of goods was zero.”
How can you not love a guy who understands “cost of goods sold”? He actually wrote a similar memo about rubber bands.
But this column would not be complete without a fair look at history and the demise of Bear Stearns. They were a sharp-elbow firm that ultimately went broke during the financial/subprime mortgage crisis. For a detailed analysis, read William Cohan’s “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.”
To be fair, Greenberg was not chairman or CEO during the debacle. That falls to Jimmy Cayne (also a champion bridge player). But Ace was the cultural godfather of the firm, and so he clearly bears some responsibility. One wonders how Greenberg and Cayne thought about the classic dilemma of risk-taking, and its corollary — when and what is enough.
It is strange that Greenberg’s almost religious zeal to cut costs did not translate similarly into managing risks.
And so herewith, a final admonition from Haimchinkel: “The time to stop stupidity and be tough on costs is when times are good. Any schlemiel and most schlamozels try to cut costs when times are bad. (A schlemiel is the guy who spills the soup at the bar mitzvah; the schlamozel is the guy he spills it on.”)
Rule No. 366
Paper clips — don’t fold, bend, mutilate or spindle.