Logout
Click here for Pulp & Paper Radio International
The Paperitalo Library
Free Downloads
Search
My Profile
Login
Do you love your facilities?
Comment Print

I am sure I have written about this before, after all, I have been writing this column for over twenty years. But it is worth another round.

I recently attended a seminar that presented data on privately owned versus publicly traded pulp and paper companies. The conclusion was that publicly traded companies are poorer performers, less well maintained and have more of a chance of being obsolete than privately held companies.

Based on my experience, I would agree. Why is this? The management of publicly traded companies does not feel the ownership aspects but does feel the pressure to produce dividends. A couple of examples are in order.

The first is from agriculture. I have had the pleasure of becoming friends with a family in the middle of Kansas. These are "dry land" farmers--moisture is scarce, and they farm year-round in the ways that collect all the moisture--rain, snow, ice. The patriarch of the family is now 65. He and his wife were high school sweethearts. She has told me he is and always has been poor in math. He did not go to college. They started with nothing.

Now, farming is a tough business to start with, being short on moisture is like farming with one hand tied behind your back. Yet over the ensuing 45 years, these folks have managed to grow to an enterprise size of 7,000 acres (about half rented) and are currently operating a beef herd of about 300 head.

My wife and I stayed at their house last summer during wheat harvest. It is an extremely pleasant modern home but would likely not be featured in Architectural Digest. In the fields during wheat harvest, we saw two combines (retail--about $1 million each), two semis worth about $100,000 each and a myriad of other trucks and so forth. The equipment in the field was worth several times their home's value.

From their home it is seventeen miles to the nearest town and 80 miles to a Longhorn Steakhouse (not that they would need it) and likely 250 miles to a really fancy restaurant, museum or theatre. They love their business and lifestyle. It exudes love. Oh, and they have managed to raise a family that is already the next generation of farmers.

The late, great George Mead loved his business, too. I got to know George in his later years and would go to Wisconsin Rapids to visit with him once a year or so. George rose to chairmanship of Consolidated Papers. This was a publicly traded company started by his great grandfather. Although it was publicly traded, George loved this business, too. It was family to him and to central Wisconsin. George did understand the term fiduciary and recognized he was one. So, as the printing and writing paper business reached its zenith, George had the perspicacity to sell it Stora Enso. He got top dollar. That was a form of love, too.

After all these years, I can walk through a pulp or paper mill and tell if anyone at the top, at least at the top of that facility loves it. You can see it in the animate (people) and the inanimate (other assets) as you walk through. You can see it in the financial records, too, the place where it counts for owners, be they private owners or public shareholders.

Why do managers not love their facilities? Because that takes money out of their bonuses and can make shareholder meetings difficult. Yet I think it is deeper than that. Think back to when you were in high school or just started to college. You had a vision of what your life might be like if you achieved your educational goals. Did it involve managing shiny, clean, well run manufacturing facilities or was it a vision of sports cars, fancy houses and exotic vacations? In other words, what was the means and what were the ends?

It is not too late to evaluate and reassess your goals--and really be happy like my farmer friend or George Mead.

For a deeper dive, click here.

The Love of Facilities: A Study Guide

Quiz

  1. According to the author, what is a key difference in performance and maintenance between publicly traded and privately held pulp and paper companies?
  2. Explain how the example of the Kansas farming family illustrates the concept of "loving your business" and how this manifests in their operations.
  3. What was George Mead's relationship with Consolidated Papers, and how did his understanding of his fiduciary duty demonstrate a form of love for the business?
  4. According to the author, how can one discern if the management of a pulp or paper mill truly "loves" the facility? Provide examples of both animate and inanimate indicators.
  5. What does the author suggest is a potential reason why some managers of publicly traded companies may not prioritize the love and maintenance of their facilities?
  6. How does the author connect the idea of "loving your facilities" to personal goals and visions that individuals might have had in their younger years?
  7. What was a significant financial decision George Mead made regarding Consolidated Papers, and why does the author characterize this as an act of love for the business?
  8. In the context of the Kansas farmers, what evidence suggests their long-term commitment and investment in their agricultural enterprise?
  9. According to the author, what are the potential negative consequences for publicly traded companies when management prioritizes dividends over the well-being of their facilities?
  10. What is the central question posed by the author at the beginning of the column, and why does he believe it is a question worth revisiting?

Answer Key

  1. The author states that publicly traded companies tend to be poorer performers, less well-maintained, and have a higher chance of becoming obsolete compared to privately held companies. This is attributed to the differing priorities of management.
  2. The Kansas farming family demonstrates "loving their business" through their significant reinvestment in high-value equipment, despite living in a modest home and a relatively remote location. This prioritization of the operational assets over personal luxuries indicates a deep commitment to their work and its future.
  3. George Mead was the chairman of Consolidated Papers, a publicly traded company founded by his great-grandfather, making it feel like family to him and the surrounding community. His decision to sell the company at its peak price to Stora Enso, while fulfilling his fiduciary duty, also demonstrated a love for the long-term well-being of the business and its stakeholders.
  4. One can discern if management loves a facility by observing both the people (animate) and the physical assets (inanimate). Animate signs might include engaged employees and a positive work environment, while inanimate signs could be well-maintained equipment and orderly facilities. Financial records also reflect this in terms of investment in upkeep and upgrades.
  5. The author suggests that managers of publicly traded companies may not prioritize loving their facilities because it could detract from their bonuses and potentially lead to difficult shareholder meetings focused on short-term financial returns. He also posits that their personal aspirations might have been focused on personal wealth rather than the intrinsic value of managing well-run facilities.
  6. The author connects "loving your facilities" to youthful visions by suggesting that some individuals may have envisioned lives filled with personal luxuries rather than the satisfaction of managing excellent manufacturing operations. He implies that a shift in focus towards the intrinsic value of one's work can lead to greater happiness, similar to his farmer friend and George Mead.
  7. George Mead made the significant financial decision to sell Consolidated Papers to Stora Enso when the printing and writing paper business was at its peak. The author views this as an act of love because it secured the best possible outcome for the company and its stakeholders, demonstrating foresight and care for its future beyond his direct control.
  8. Evidence of the Kansas farmers' long-term commitment and investment includes their growth to 7,000 acres over 45 years, the operation of a substantial beef herd, and the significant investment in modern, high-value farming equipment, indicating a dedication to the sustainability and growth of their enterprise.
  9. When management in publicly traded companies prioritizes dividends over the well-being of their facilities, the author implies that it can lead to underinvestment in maintenance and upgrades, potentially resulting in poorer performance and an increased risk of the facilities becoming obsolete over time.
  10. The central question is "Do you love your facilities?" The author believes it is worth revisiting because the answer reflects a fundamental difference in how businesses are managed and their long-term success, particularly when comparing privately held and publicly traded companies, and because it relates to personal fulfillment in one's work.

Essay Format Questions

  1. Compare and contrast the motivations and priorities of management in privately held versus publicly traded companies, as suggested by the author, and analyze how these differences impact the long-term health and performance of their facilities. Use specific examples from the text to support your argument.
  2. Discuss the author's concept of "loving your facilities" and analyze the evidence he provides from the Kansas farming family and George Mead to illustrate this idea. How does this "love" manifest in their business decisions and overall success?
  3. Analyze the potential disconnect between the personal aspirations of some managers and the effective management of industrial facilities, as described by the author. What factors might contribute to this disconnect, and what are the potential consequences for the companies they lead?
  4. Evaluate the author's argument that publicly traded companies are inherently more likely to have poorly maintained and obsolete facilities compared to privately held companies. What are the strengths and weaknesses of his reasoning, and are there any counterarguments or nuances to consider?
  5. Consider the broader implications of the author's central question, "Do you love your facilities?" How might this concept apply to other industries or types of organizations beyond pulp and paper, and what are the potential benefits of fostering a sense of "love" or deep commitment to one's work and resources?

Glossary of Key Terms

Publicly Traded Company: A company whose ownership shares are available for purchase by the general public on a stock exchange.

Privately Held Company: A company whose ownership shares are not available to the general public and are typically held by a small group of individuals or a family.

Dividends: A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

Obsolete: No longer produced or used; out of date. In the context of facilities, this refers to equipment and infrastructure that are outdated and inefficient.

Patriarch: The male head of a family or tribal lineage. In the context of the text, referring to the elder head of the farming family.

Dry Land Farming: A type of farming that relies on rainfall for moisture, as opposed to irrigation.

Combine Harvester (Combine): A machine that harvests grain crops, performing the three operations of reaping, threshing, and winnowing in one process.

Semi-trailer Truck (Semi): A vehicle consisting of a tractor unit and a semi-trailer used for transporting freight.

Fiduciary: Relating to or involving trust, especially with regard to the relationship between a trustee and a beneficiary. A fiduciary duty requires acting in the best interests of another party.

Perspicacity: The quality of having a ready insight into things; shrewdness.

Stora Enso: A large, publicly traded Finnish-Swedish pulp and paper manufacturer.

Animate: Having life; living. In the context of the text, referring to the people working in the facilities.

Inanimate: Not having life; without energy or spirit. In the context of the text, referring to the physical assets and equipment of the facilities.

Jim Thompson is CEO of Paperitalo Publications.

****

Get Jim Thompson's "Monograph on Purchasing." Available here.

 


Powered by Bondware
News Publishing Software

The browser you are using is outdated!

You may not be getting all you can out of your browsing experience
and may be open to security risks!

Consider upgrading to the latest version of your browser or choose on below: