194 InManagersWeTrust
Contracts also reduce the costs of doing business and investing by
enabling people to trade off future risks, but that works only if the
other person can be expected to live up to the deal.
Trust in business is deeply rooted in kinship, and so it is no
wonder that the son-in-law test makes sense. The link between the
son-in-law test for managers and business itself comports with the
broad history of business development. Most businesses start out as
family enterprises and then grow in size over decades or generations,
adding relatives to the management ranks (often even including
sons-in-law, as at Anheuser-Busch, the Washington Post Company,
and Mead, for example). In many cases, such growth leads families
to give up control and the business evolves into a modern corpora-
tion, as occurred at Brown-Forman, DuPont, Eli Lilly, McGraw-Hill,
Nordstroms, and countless others.
The erstwhile family business as modern corporation no longer
has Dad or Granddad or Daughter at the helm but instead has a
cadre of professional managers, a diffusion of control, an institu-
tionalized organizational structure, and lines of reporting authority.
The upshot is a corporation characterized by a separation of own-
ership from control—shareholders watching managers run the busi-
ness. Trust in the modern corporation should resonate with norms
and values associated with that family business.
It is rarely feasible for an individual investor to sit down and get
acquainted with the chief executive officers of most major corpora-
tions, but all these chiefs write annual letters to shareholders and
author other addresses periodically as well. These communications
contain remarkable clues about trustworthiness. The manager’s own
words often reveal her character. (Chapter 14 pursues this point.)
What is it that you trust a manager to do? The answer to that
question comes from thinking of him asyourmanager, something
that is hardly ever done. People always spea koftheirbroker,their
accountant,theirlawyer, but they hardly ever spea koftheirmanager.
Yet a corporate manager does just as much for your wealth as these
sidekicks do, or more.
What should your manager do? Run the business for your ben-
efit, as a shareholder, against the numerous and often conflicting
interests of other constituencies of the business. Here is another key
point that is often overlooked: The perspectives of investors and
managers often diverge. When they do, investor interests can be
disserved.