ACT 34 - Ownership Mentality – A review of “Am I Being Too Subtle?” by Sam Zell

Yesterday's experience preventing the waste of several thousand dollars in plumbing costs reminded me of a book I thoroughly enjoyed. It's Sam Zell’s book “Am I Being Too Subtle?”

There is a wealth of wisdom here, from a man who narrowly escaped execution at the hands of nazis while his mother was pregnant with him, and who went on to build a real estate empire in America, and later a business empire worth Billions.

I love the audio book version, and the fact it is narrated by Sam Zell himself and not some voice actor.  There is an element of humility present as well, where Sam describes how his personal life suffered from his business aspirations, and you can hear some lamentations about his failed marriages.

Hearing Sam’s raspy voice tell his life story makes me feel like I’m sitting in person at the feet of this great man. 

The top 3 lessons I learned from Sam Zell upon my first couple times listening to this book can be summarized as:  1. business is about risk, 2. how to have effective meetings, and 3. most importantly that an ownership mentality is critical.

Number One. Business is About Risk:

In chapter 4, Sam Zell describes his view on how simple business really is.  Besides understanding and acting on supply and demand, business is about managing risk:  “If you’ve got a big downside and a small upside, run the other way.  If you’ve got a a big upside and a small downside, do the deal. Always make sure you’re getting paid for the risk you take. And never risk what you cannot afford to lose. Keep it simple. A scenario that takes 4 steps instead of 1 means there are 3 additional opportunities to fail.”

Number Two. How to have Effective Meetings:

All materials are prepared in advance, and written material is expected to be read before the meeting.

The purpose of the meeting is to create robust discussion, not for written materials to be presented.

Number Three. The Importance of Ownership Mentality:

In discussing a new board Sam Zell joined, he describes a very boring meeting where the large board were falling asleep while the others talked, and just waiting their turn to talk for 10 minutes.

He says: “The experience was shocking.  I realized then the danger or boards that were beset by cronyism and [lack of] inertia.  As if appointment to a board were a perk. a retirement benefit. Or a no strings attached gift to a golfing buddy.  My philosophy on board composition and culture is the antithesis of what I saw in the Santa Fe board.  As the chairman of public companies I’ve always selected board members based on the assumption they were cheap consultants to the business, not potted plants.”   He then describes the importance of having a board of directors with an ownership mentality.   

“My experience with Santa Fe gave me a heightened awareness that companies need engaged owners.

It’s an owner who is willing to give up short term benefits for long term gains. 

It’s an owner who who uses vision to steward a company and guide management. 

And it’s an owner who brings in resources: additional capital, financial expertise, banking relationships, whatever it takes to […] succeed!” (emphasis added)

 

As an Accredited Canadian it's important to ensure people and businesses you invest in bring to the table an ownership mentality and “skin in the game.”  By partnering with someone with an ownership mentality, you will have someone completely aligned with your goals. If the person you have aligned with has reasonable intelligence, you can trust they will make decisions in their own best interest, and this will in turn benefit you too.  No management company or fee-for-service advisor will ever be as invested in the results of a business as the right equity partner.   That being said the only thing more dangerous than misaligned goals or outright criminal activity, is incompetence.   If you ensure your Co-owners compensation is aligned with how you make money in the investment and it's hard to go wrong with a competent person with a proven track record leading that business.  A competent person with ownership responsibilities will do whatever it takes to succeed, and that's what you want!