There's No Success Like Failure

There's No Success Like Failure

There's No Success Like Failure

Moneybox
Commentary about business and finance.
March 20 2000 5:12 PM

There's No Success Like Failure

One of the great articles of faith in American business culture is that American business is a wonderfully and perfectly Darwinian system. If you or your company is not up to snuff, the market will find you, and it will kill you. As an example, consider the very bad day that a company called MicroStrategy had today. Just last week, CEO Michael Saylor could be found boasting in the Washington Post of his plans to personally fund a $100 million free Internet university. This morning, MicroStrategy announced that an "evolving business model" (which seems to involve less aggressive accounting) was causing it to restate its 1999 and 1998 earnings--from profit to loss. The software company's stock, which had closed Friday at about $226, opened down $118, and fell from there. See? You can't hide from the market.

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Actually, sure you can. It's reassuring to imagine the business arena as a pure meritocracy, where winners are fairly rewarded and losers are sent packing, but that would hardly explain the career of William Farley. The New York Times yesterday published the first interview with Farley since he was ousted last summer from his post as CEO of Fruit of the Loom, after that once-healthy company filed for Chapter 11.

What's remarkable about Farley isn't what he's accused of doing wrong (accounting gimmickry, ill-conceived operations decisions, commanding a huge salary while his company's losses mounted, selling $39 million of his Fruit holdings before announcing an earnings shortfall, perhaps using company funds to buy a MIG, etc.) or his attitude about those accusations (he says he did nothing wrong and that as a matter of fact the company owes him $100 million). What's remarkable is that Farley was so widely trusted in the first place. He is not exactly an obscure figure, and one of the ways he has had his name in the news over the years is by being associated with companies that went into bankruptcy. With the help of Drexel Burnham Lambert, he took over a textile company called West Point-Pepperell in 1987, and when the junk-bond market subsequently collapsed, both that company and Farley's personal holding company went Chapter 11. So did another company he controlled, a defense contractor called Condec. You might think that Wall Street would have grown extremely skeptical of this guy when Fruit's story started to sour in 1997, but instead most observers found a way to see the glass as half-full, until it was far too late.

The business world pretends to be all win-or-die--that's how massive paydays are justified--but the truth is that such second chances abound. Consider Ethan Penner, a real-estate securitization pioneer known for hiring Bob Dylan-level rock stars to play at his investor conferences. He eventually had to resign from Nomura Securities shortly before it was announced that the subsidiary he ran had lost $275 million. Now, less than two years later, Penner has re-emerged as part of a startup backed by credible Silicon Valley venture capital. Or Mark Breier: Just two months ago, as part of the e-commerce shakeout, his company, Beyond.com, refocused from consumer software sales to a trendy new business-to-business model, and Breier resigned. The consequences? According to the Wall Street Journal, Brier had been approached about 60 jobs within four days of his resignation.

This is my first "Moneybox" column, and I'm almost reluctant to start on such a testy note. My point is not that Microstrategy--whose shares still trade well above their 52-week low of about 7--should be bought or sold. I am not a stock picker. I'm just an observer who finds the rhetoric of money culture, the reality of it, and the gaps between the two, to be very entertaining. It has been only a bit more than four years, since I got interested in the stock market as a journalist, figuring it seemed like a big story that was likely to remain important. This turned out to be right, although I never imagined the degree to which money culture would come to hold center stage in quotidian American life. Four years ago the Dow was only recently past 5,000. The hottest magazines in the country were not business magazines. The masses were still discovering mutual funds. And I didn't know anyone who worked at an Internet company. Anyway, a lot has changed, but I'm still just an observer. I will never be able to duplicate what this column has been while in the hands the outstanding and authentically expert James Surowiecki, so expect it to evolve. If I can't make the thing work, I'm sure the consequences will be severe. I might even have to start my own company.