Aesop’s fables updated: the investor and the board

by Patrice Sarath, April 30th, 2008, 7:00 am

Once there was an automaker that was struggling to reverse its years of poor performance. One could say it had to change its ways from that of a light-hearted grasshopper, hopping and sawing away in the summertime, to that of the diligent ant, droning away on the assembly line of management plans and strategic forecasts and stuff. The auto company even divested its grasshopper-like sports and luxury nameplates, so you know it was serious.

And all this hard work paid off! The end.

Wait — that’s not our moral. Hold on. The automaker found that, much like the little red hen down the street who planted the wheat, harvested the wheat, ground the wheat, and made the bread, now that it had dough, all the other animals wanted in.

In this case, the investor. The investor said, “Hmmm, I’d like part of that bread.” And the automaker said, “Uh, that was just an analogy. We don’t actually bake bread, we build cars. You mean, you want to buy up nearly 6% of our stock?”

“Yep,” said the investor.

“Well,” said the automaker. “The last time you bought large stakes in car companies, you tried to take over one and force another one into an alliance.”

“Oh, that won’t happen this time,” said the investor. “We don’t even want a seat on the board. In fact, don’t mind us, just go about your business. We’ll just be right here, nice and quiet, raking in dividends. You do have dividends, right?”

Now at this point the car company was probably thinking of another fable, the one about the fox and the scorpion.

In this one, a scorpion asks a fox to carry him across a river. The fox demurs, saying that the scorpion will sting him and he will drown. “No,” said the scorpion, “for if I sting you, I will drown right along with you.” So the fox agrees, and he takes the scorpion on his back across the river. Right at the other side, the scorpion stings the fox! And the fox cries out, “Why? why?!” and the scorpion says, “because it’s in my nature.”

On the other hand, in this case, the investor was validating the car company’s hard work and recent success. And as the automaker points out, anyone can buy stock in a public company. But it sure seems like it would be against Kirk Kerkorian’s nature to remain a passive investor for long — though it is doubtful his sting would be a mortal wound. Still, it’s going to be very interesting to see what comes of this turn of events.

Oh yeah, moral of the story: Investors aren’t scorpions. Carmakers aren’t foxes. And the little red hen needs a better business plan.