Capitalism is Crazy

Capitalism: A Love Story

Capitalism: A Love Story (Photo credit: Wikipedia)

An important article in NY Times documents how a U.S. company is destroyed sending jobs overseas. California Teachers Retirement System is part of the destroyer team.

http://www.nytimes.com/2014/12/07/business/timken-bows-to-investors-and-splits-in-two.html?_r=0

Timken Steel of Canton Ohio.

…If he can’t, or if another company comes along with an offer too rich to refuse, Mr. Timken acknowledges what many in Canton would rather not say out loud. “If the number is big enough, the board is going to have to look at it and say, ‘Ugh, O.K., unless you can show me a plan that’s better than that, we’re going to take it,’ ” he said. “We’re a publicly traded company.”

As in all publicly traded companies, TimkenSteel’s board and top executives have a fiduciary duty to shareholders to maximize both profits and investor returns. For many companies in the region, that has meant cutting costs and moving production to places where labor is cheaper. Goodyear Tire & Rubber, for example, was founded in nearby Akron in 1898, but Goodyear hasn’t made regular tires in the onetime rubber capital of the world in more than three decades….

“The professor said we’d all be bankers and consultants and lawyers and health care professionals,” Mr. Timken recalled. “There’s a role for those people, but the ripple effect of manufacturing is dramatically higher than the ripple effect of banking. It creates wealth. And countries that have let it slip away have suffered.”

“It’s been 115 years and we’re still here,” he added of the family business. “We never went bankrupt, never sold out and I feel a personal obligation to continue it.”….

 

The tale of Timken and the activist investors might seem like a Michael Moore-style good guy/bad guy narrative of Wall Street greed. But the players in this drama are not black-and-white caricatures. The reality is more nuanced and reveals the pressures executives and money managers, not just workers and residents in local communities, face in today’s economy.

Relational wasn’t the only investor to take on Timken. Its partner from early on was the California State Teachers’ Retirement System, known as Calstrs. One of the nation’s largest public pension funds, with $187 billion in assets, Calstrs owned only $16 million worth of Timken stock at the start of the fight, compared with $250 million for Relational, but it also has more than a billion dollars under management with Relational. A higher return on its Timken shares would help meet $11.45 billion in annual payments that are due to more than 236,000 teachers and other retirees.

Relational had experience pressuring old-line industrial companies to change their ways. The firm was founded in 1996 by Ralph V. Whitworth and David H. Batchelder, who first made their reputations working for T. Boone Pickens, the corporate raider.

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