Chapter 610: 216, Collision of Business Models Chapter 610: 216, Collision of Business Models Clank, clank, on the train, Helen looked over the materials sent by Jesse Livermore.
“Is there really no issue with this matter?
Thomas Watson’s behavior just doesn’t make sense!”
Helen felt somewhat puzzled about Donnie’s acquisition of CTR shares.
In the current business environment in the United States, there are two patterns for inheriting a company.
The first one is represented by families like the Rockefellers and the Mellons.
Their fathers or grandfathers founded vast business empires, and they were hands-on in the management; when it came to choosing successors, they also cultivated their own descendants.
Just as old Rockefeller was always training young Rockefeller, and Andrew Mellon was fostering William Mellon, they all hoped to pass their companies on to their offspring.
This tradition has been around from ancient times to the present.
But apart from this mode, there is another: the managerial succession mode!
At present, professional managers have emerged, but the system is still not quite perfect.
Take for example one of the most influential banks in the United States, Citibank.
The previous president of Citibank, James Stillman, did not own many shares before taking over, but once he became president, he immediately started acquiring shares of Citibank.
He eventually bought 1.1% of the bank’s shares from various directors, which was approved by Citibank’s board.
In that era, it was a very common scenario for the owners to manage the company and for new managers to become the new owners by buying a large number of shares from the original owners after taking over.
This arrangement allowed retiring business owners to capitalize on their enterprise’s value, while also enabling the new owner-manager to gain a controlling interest in the business!
Such a dual transition of ownership and management meant that the new manager had to look after the interests of the original owners, while also linking their own interests with the enterprise they managed!
Of course, this type of succession system could eventually lead to the company becoming a public company.
The most obvious case was Hong Kong’s HSBC.
HSBC, as the largest bank in Hong Kong, turned into a public company due to such a succession system, where each head, as a decision-maker of the bank, would lead to a split in company shares after their departure.
Returning to Citibank, following the board’s approval, Stillman continued to purchase shares from the original directors and the market, eventually capping his stake at 6.6%, making him the largest shareholder!
Clearly, James Stillman did not believe such a succession system was in his family’s best interest to continue controlling Citibank, so with his successor Vanderlip, the attributes of a professional manager began to emerge.
This also led to young Stillman taking over Citibank and the resignation of an unhappy Vanderlip, who did not receive shares from James Stillman.
Last year, under young Stillman’s leadership, Citibank’s investments in Cuba resulted in heavy losses, and not having an absolute controlling interest due to the Stillman Family, young Stillman also had to leave Citibank sadly.
Although now Charles Mitchell has become the president of Citibank, the board has decided not to continue with this succession system, so Charles Mitchell was unable to acquire a controlling share in Citibank.
Such an environment has led to a bottleneck in Citibank’s development.
However, this bottleneck will be broken next year when Citibank introduces a “management personnel fund” bonus plan.
The main content of the plan is to distribute the bank’s profits in three parts: first, to extract the bank’s excess reserves at a rate of 8% of the shareholders’ equity, then to distribute dividends to shareholders at a rate of 16% per share, and finally, to allocate 20% of the remaining profits to a management personnel reward fund, which will be distributed to vice presidents and senior management personnel.
This plan takes into account the risk and interests between the owners and managers: The owners provide a lower limit of compensation in the form of wages to the managers, the managers provide a minimum dividend ratio guarantee to the owners, and then the remaining profits are shared between the owners and managers at an 80:20 ratio.
In fact, Donnie’s company also adopts such a management personnel fund plan, with just a few differences in the profit distribution.
The situation with CTR is actually the previous succession system of Citibank.
If Thomas Watson can become the president of CTR, he would also buy the controlling interest of CTR from the original directors.
Afterward, Thomas Watson immediately revised this succession system, passing IBM on to his own son.
“It’s not that simple!”
Sitting on the sofa in the train carriage’s private compartment and looking out at the lush green landscape, Donnie laughed and said, “Thomas Watson is indeed the most hopeful candidate to become CTR’s president right now, but he is not the only one. Google seaʀᴄh ɴovᴇl_Firᴇ.ɴet
This succession system seems fair and entirely for the company’s development, but you must realize that any system is executed by people.”