Memos from the Chairman is a collection of memos written by Alan “Ace” Greenberg, the CEO of Bear Stearns from 1978–1993, and then later Chairman from 1985–2001.
Greenberg’s memos were quirky. He often quoted axioms from Haimchinkel Malintz Anaynikal—a half-Jewish, half-Eskimo business professor—who is actually a fictitious character created by Greenberg to bring across his points.
As you’re reading the book, you’ll find Greenberg repetitive. He often restates the same points in multiple memos.
But I think that is the point. As Jeff Bezos once said (and I paraphrase): “a CEO’s job is to manage the culture of the company.” As CEO, Greenberg’s job is not to manage the day-to-day work of his partners and associates—after all, they’re probably better at those specific tasks than him.
Rather, his role is a coach: constantly remind his subordinates about the fundamentals, manage incentives, re-emphasize company culture, and so on.
That being said, we still have to take the ideas below with a heavy pinch of salt.
Why? As you may know by now, Bear Stearns was a huge culprit in the 2007–2008 financial crisis. They went bust and were sold to JP Morgan Chase.
Although Greenberg only managed Bear Stearns till 1993, to what extent did he contribute to the failure of the company? Was it the culture he created? Or was it solely the fault of subsequent CEOs?
And if the latter point is proven true, then we can clearly see the effects of a good CEO vs a poor one.
Now, what fundamentals does Greenberg reiterate?
Here they are:
Table of Contents
Control expenses
This is the biggest recurring theme in the entire book.
“Do not spend money frivolously. Every dollar we save will go to the bottom line.”
It’s a basic business principle: profit equals revenue minus expenses. This means there are two ways to increase profits. You either:
- Make more money;
- Spend less money.
Greenberg knows everyone in his company is obsessed with making more money (more on this later.) But it’s natural human tendency to want to spend more as one becomes wealthier.
“When mortals go through a prosperous period, it seems to be human nature for expenses to balloon. We are going to be the exception.”
So, one of Greenberg’s tasks in his memos is to constantly remind his employees about the need to save money and reduce expenses.
In his memos, he hilariously rolls out a bunch of “money-saving” directives: re-use rubber bands, paper clips and envelopes (so they will buy less), switching off electricity to reduce the electrical bill, squeezing out the final bits of the printer toner, cutting back on FedEx, etc.
(Maybe not so funny if you were a Bear Stearns employee at that time.)
Too extreme? Perhaps.
If you contrast that with current standards — with large tech companies like Google and Facebook offering every benefit under the sun — frugal companies like Walmart seem old-fashioned, conservative and out-of-date.
But I do feel that this is a by-product of CEOs who were born during the period of the Great Depression and World War II.
They understood what it was like to have nothing. They understood what it was like to live foot-to-mouth. And they understood how to live through tough times.
And given those experiences, it is somewhat expected to see such an emphasis.
Now, this is not a point where I’m glorifying boomers or disparaging millennials. I’m just looking from the perspective of a high-level executive.
If you could reduce expenses, improve your bottom line, and save that money somewhere for difficult times, you would be amazing as a C-level officer. Though, as an employee, you’ll probably hate the shit out of this culture.
Beware of complacency
This is the second recurring theme in Greenberg’s memos.
Whenever Bear Stearns does well, Greenberg will take care to remind his employees not to be complacent.
“September looks like it was the best month in the history of Bear Stearns.
After a month like the one we just experienced, I think we should be on our guard against the negatives that go along with great success. I am speaking of complacency, sloppiness, relaxing on expenses, cockiness, and just getting careless in general.”
Here are a few more quotes from his memos that reiterate this point:
- “Thou will do well in commerce as long as thou does not believe thine own odor is perfume.”
- “The year was over last Friday and it was a good one, but last year is gone. The score right now is nothing to nothing. Nobody cares (especially our competition) what we did last year.”
- “Let us continue to watch the shop and realize that none of us are really very smart. We are just in the right place at the right time.”
The type of person Bear Stearns wants to hire
“Our first desire is to promote from within. If somebody with an MBA degree applies for a job, we will certainly not hold it against them, but we are really looking for people with PSD degrees.
PSD stands for poor, smart and a deep desire to become rich.”
When to hire
“Business is tough. Firms are announcing major lay-offs.
What is our posture at this time? Your executive committee feels we should be hiring, not firing. This is the time to pick up great people. This position may amaze some newer associates, but those of you who have been exposed to our culture will not be surprised by this move. Being a contrarian has worked for us in the past and it will work again.”
Encouraging a culture of “crying wolf”
“We have a very liberal policy of rewarding, with cash and promotions, personnel who help us improve this firm. If you want to become a lot richer, just give us information that will aid us in discovering employees who violate either of the two rules of behaviour that I have just mentioned.
Call your supervisor or me with any of your suspicions. You will never be criticized if your information proves to be inaccurate. The fable about the boy who cried wolf does not fit with the Bear Stearns philosophy. Cry wolf at every opportunity. If your doubts prove to be false, you will still be thanked.”
Charlie Munger once said, “show me the incentive and I’ll show you the outcome.”
This is a very interesting way of using incentives to encourage people to come out and “snitch” on their colleagues.
(By the way, the two behaviors mentioned are hiding/burying trades and disclosing clients’ trading activity with unauthorized people.)
I mean: you’d want to create an open company culture where mistakes are caught and rectified immediately.
Yet, you don’t want to create an atmosphere of distrust between co-workers. Nor do you want to create an environment where people spend more time “crying wolf” than doing their actual work.
However, you also don’t want to punish the “wolf cryers”. Yes, there might be false positives. But you cannot jeopardize your company’s position by not catching the real perpetrators for fear of false positives.
Tough call. And I wonder how well it worked back then in Bear Stearns.
On surviving tough periods
“This is one tough period, and in my 41.5 years in Wall Street I have seen a few.
1. The bear market will end and it can end quickly.
2. A bell will not ring to prepare you for the good times. Remember how great the world looks three months ago? The market can reverse its present course just as dramatically.
3. This market gives all of us a chance to demonstrate what we are made of. Some people go through all of life and never get a chance to demonstrate their ability to lead. You are fortunate! You can help the people you work with to get through this by being a leader. Now is the time for real leaders to step up.
4. If you are going to stand tall, keep a few things in perspective. This is nothing next to Auschwitz, Buchenwald or Vietnam.”
This is surprisingly prescient. And good advice for today’s circumstances.
On courtesy
This is another recurring theme in Greenberg’s memos. He is constantly admonishing his associates to pick up phone calls quickly or to return all phone calls.
To Greenberg, returning phone calls promptly is a sign of courtesy — and it creates a good impression in a person’s mind about Bear Stearns.
“I think we should all follow some simple rules. When we get a resume, either you or one of your associates should call the person who sent it to you and say that it was received and that it will be processed. If a resume is passed on to you for a final determination, it is essential that we notify the applicant that he or she has been accepted or rejected.
Will these procedures take a little time? The answer is yes. But if a member of your family was applying for a job wouldn’t they appreciate these common courtesies? Remember one thing, today’s applicant could be next year’s client.”
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