Charlie Rose was kind enough to have me on last night to talk about Facebook-WhatsApp.
In the “green room” for the show, I met another guest, the Washington Post columnist and George Mason professor Steven Pearlstein.
Pearlstein was on to discuss a far more important topic than Facebook-WhatsApp: The fact that U.S. capitalism has now become so obsessed with “maximizing shareholder value” that we’ve lost sight of all the other forms of value great companies can create (value for customers, employees, and society, for example, not just shareholders). Pearlstein pointed out that there’s no law of capitalism that company managers have to “maximise profit” — that that’s just a story told by greedy investors who want to take home as much money as possible for themselves. Our economy would be much healthier, Pearlstein argued, if we better balanced the interests of customers, employees, society, and shareholders.
Pearlstein is right. One of the big reasons our economy is so crappy these days is that the labour – capital pendulum has swung so far toward “capital” that almost all the value that our companies create now goes right into the pockets of shareholders (instead of, for example, being shared with the people who create it — the employees). And this “shareholder value maximization” mantra has been repeated so often and for so long that even normal Americans have come to believe that there’s some law of capitalism that says companies have to be managed this way.
They don’t. And it’s too bad people think they do. Because it is hurting average Americans and our economy.
But, anyway, in the green room for Charlie Rose (where you wait before going on), Professor Pearlstein said something else that was interesting.
He said he thinks the Facebook – WhatsApp deal will mark the top of the market.
Every big boom has its iconic market-top event, Pearlstein says. And he thinks the $US19 billion that Facebook is shelling out for a company with $US20 million of revenue, combined with the market’s immediate and startling celebration of this move (remarkably, Facebook’s stock went up on the news), will mark the top of this latest 5-year bull market.
Will Pearlstein be right?
I, personally, think the WhatsApp deal made sense for Facebook. WhatsApp has a good shot at becoming “the next Facebook,” and if you want to own “the next Facebook,” you can’t wait until you have proof that a company will be “the next Facebook,” because, by then, it will be too expensive to buy.
But, that said, even I was taken aback by how quick the market was to enthusiastically rubber-stamp the deal. And I’m already nervous about Facebook’s valuation (25-times revenue after WhatsApp) and the broader market’s valuation (50% overvalued by most historically valid measures). So I do think there’s a chance that Professor Pearlstein might end up being right.