Is it better to be loved or feared?
If you asked Machiavelli, he would say it’s better to be feared than loved … if you cannot be both, of course.
For high-profile CEOs around the world, the new Trump administration represents a Machiavellian tiptoeing act that involves both fear and love.
That’s the general conclusion to be drawn by a piece in Monday’s New York Times titled, “For CEOs, a New Concern: The Activist-in-Chief.”
In his article, writer Andrew Ross Sorkin puts the issue into context this way:
As corporate executives around the globe try to understand the implications of the Trump administration on their businesses, they seem to be having an almost bipolar reaction: a euphoric sense that regulations and taxes could soon be lowered — which would likely increase their profits and paychecks — yet a simultaneous anxiety that they could become a target of one of the president’s Twitter tirades, which could undo their businesses or possibly their careers.
That’s about as love/fear as it gets. And the implications here are profound — not only for high-profile CEOs, but also for us investors.
Sorkin goes on to describe the many CEO “pilgrimages to Trump Tower” that we’ve seen since the election. Ones that comes complete with photo ops and tweets of the event.
On Monday, the pilgrimage extended to the White House. There, CEOs Elon Musk of Tesla Motors (TSLA), Kevin Plank of Under Armour (UA), Andrew Liveris of Dow Chemical (DOW) and several others had a meeting with President Trump.
This meeting and similar ones, according to more than a dozen executives who have attended them, are viewed by the executive class not only as an opportunity to help shape policy in their favor, but also, perhaps more important, as a defensive measure aimed at making “friends” with the new president so as to avoid his wrath later.
Avoiding wrath certainly fits the fear category. Yet the opportunity to shape policy in one’s favor fits into the love category.
Whichever the true motivation, we do know that some companies have already changed things up because of Mr. Trump.
As Sorkin points out, Jeff Bezos’ Amazon.com (AMZN) recently announced it will hire some 100,000 new employees. Automaker Ford (F) has canceled plans to build a factory in Mexico, saying it would also create 700 U.S. jobs.
Then a big surprise came yesterday, as Chinese electronics manufacturer Foxconn (the company that produces Apple’s (AAPL) iPhone), announced that it may spend some $7 billion in the U.S. to build a factory that could employ 50,000 people.
So certainly, changes are afoot in the corporate world, and you can chalk that up in large part to fear of the Trump Twitter account.
Even Trump friend and special adviser on regulation Carl Icahn admitted to Sorkin this was the case.
Here’s what Icahn told Sorkin in an interview for the NYT piece:
“If they are taking advantage of the system, they should be scared,” Mr. Icahn said of corporations. “Remember, many of the guys I went after deserved to be scared — but in many cases, I bought stock in companies with managements I liked, and I helped them get things done with recalcitrant boards.”
Now, do I think this is right?
Not really. In fact, I don’t like the idea that CEOs make decisions out of fear of the president of the United States.
What I do like is the potential for CEOs to help shape the regulatory landscape such that it favors commerce, business and capitalism.
It would also be better if CEOs were (or could be) motivated out of love for a president who helps make the business climate in the country much more friendly to corporate American than it’s been over the past eight years.
If this ends up being the Trump legacy, then I too will have some love for the entire situation.
Do you think fear is a good motivation for CEOs? What about the chance to shape policy in their favor? I’d love to hear what you think about this issue, and I encourage you to jump right in. Doing so is as easy as leaving me a comment on our website or sending me an e-mail.
Five Dow names — 3M (MMM, -1.4%), DuPont (DD, +4.5%), Johnson & Johnson (JNJ, -1.9%), Travelers (TRV, -1%) and Verizon (VZ, -4.4%%) — reported earnings today. Despite their mostly negative performance, the Industrials gained 113 points (+0.6%).
• Financials and tech stocks led the broader markets higher. And this led the S&P 500 and Nasdaq to post all-time closing highs. The S&P ended Tuesday’s session at 2,280.07 (+0.7%) and the Nasdaq came in at 5,600.96 (+0.9%).
• TransCanada (TRP) gained 3.5% after Donald Trump OK’d through executive order two controversial pipeline projects, Keystone XL and the Dakota Access Pipeline.
• Pumping the brakes on Brexit? The UK Supreme Court said Parliament must approve it before the process begins.
• Oxfam International: The richest 1% of individuals in the world have a collective net worth that exceeds the collective net worth of the other 99% of people in the world.
• An estimated 52% of American adults were invested in the U.S. stock market last year, either in personal accounts or through their retirement portfolios, according to Gallup. The S&P 500 gained +12% (total return) in 2016, higher than the index’s trailing 50-year average performance of +10.2% per year.
• Department of Labor: Inflation (as measured by the Consumer Price Index) advanced by +2.1% during 2016. Inflation in 2015 (+0.7%) and 2014 (+0.8%) were 2 of the 3 lowest rates of annual inflation in the United States in the last 50 years, i.e., 1967-2016.
• The world’s most-expensive city to live in is Hong Kong, according to the 13th Annual Demographia International Housing Affordability Survey. It says Hong Kong’s housing market is the least-affordable in the world.
• ETFs saw $288.6B of inflows last year. This puts them near $3T in assets under management (AUM). PricewaterhouseCoopers predicts AUM will grow 23% a year to reach nearly $6T by 2021. Mutual funds, which have $16T in assets, saw $90B in outflows in 2016.
Good luck and happy investing,
Uncommon Wisdom Daily