Can the car industry learn from Google? No, I don’t mean by having some clever search technology for vehicle diagnostics. Instead, in the context of the two-tier share structure the company developed for its IPO. Certainly, OEMs are far too entrenched to change the way they go to market—as in the financial market, not the one serving the customers who buy cars and trucks. But there is one important aspect of the Google approach that needs to be somehow fitted into the way that business is done at the auto companies. The two-tier structure is based on providing the managers of the company—the people who make the decisions and do the work that make the company’s product the default choice that it has become—with a 10x advantage in the voting power per share versus the fund managers. Fund managers aim to turn quick profits. Which is good for those of us who own funds. At least good in the short run. When the goal is to make quick gains, then the means to achieve them may be nothing more than short-termism. Long-term thinking means that there probably won’t be a payoff for quite a while—if ever. That runs counter to the quick-gain requirement. In the case of Google, the company has hired a whole bunch of exceedingly smart people because they are smart people. Those smart people have created the products that create the value of the company today. Presumably, they will create the products of the future that will make the company continue to offer value to the customers and investors. But that’s in the future, and for most fund managers, the future is now. Simply, the company that works to make the short-term numbers is what’s of interest. Those that are working toward long-term, sustainable gains are now rewarded as well. But the absurdity of the situation is that if companies don’t work for long-term goals, then their value continually diminishes. The figurative notion of their having a “sell-by” date becomes a literal one. And then the investors move on somewhere else.
What Google is doing is recognizing that their corporate growth and sustainability is the consequence of investing in the future. Because the people who are internal to the company have a better understanding of what that future could be, because those people are going to help create that future, they are being afforded the opportunity to have a stronger hand than they would if the fund-driven managers had equal control. In many regards, this approach is considered to be revolutionary. Imagine: Let good people make good decisions for the benefit of not only themselves, but others. Shouldn’t this be the status quo, not an exception?
Many vehicle manufacturing companies seem to be taking the short-term approach. They are doing what they can to succeed right now. They are reducing engineering staffs. They are working on decontenting vehicles so as to make them “more affordable.” They are putting pressure on their suppliers to cut cost in such a way that the suppliers, who are having greater demands placed on them with regard to expectations (e.g., engineering skills; international sites), can only eek along, which doesn’t make for a strong supply base. The numbers may look good this year, or this quarter, but we all know the end of the story. And it’s not “And they lived happily ever after.”
One company that has taken the long-term view for a long time is Toyota. Look where that’s gotten them. Yes, just look.