Larry the liquidator
While writing the post Other People’s Money (OPM I) I remembered a film that I had seen some time ago, which was also called Other People’s Money. The film is based on the script for a play written by Jerry Sterner who I am sure would wish to be called a ‘playwrite’, but who nevertheless wrote this play based on his experience as a financier. In 1989 the the play became an an off-Broadway hit in New York. The film, billed as a ‘romantic comedy’ is worth watching for its portrayal of the corporate investment world and its characterization of the players in this story. The film contrives a ‘happy’ yet feasible ending to the story, whereas the original play reaches a more realistic and plausible conclusion. The post Other People’s Money: A Tale of Capitalism and Creative Destruction by Edward W. Younkins provides a good synopsis of both the film and the stage version of ‘Other Peoples Money’. With the benefit of hindsight in the form of market crashes and especially in the light of the current financial crisis, I see the story itself and especially the role of ‘Larry the Liquidator’ as an allegory in the context of these.
Both the play and the film emphasise the developing romantic relationship between Larry the Liquidator and his female protagonist, a wall street attorney, this creates the feel good factor in both. However: the title ‘Other People’s Money’ is very apposite. Larry the Liquidator said “ I love money. I love money more than the things it can buy. There’s only one thing I love more than money. You know what that is? OTHER PEOPLE’S MONEY”. But this isn’t Gordon Gekko of Wall Street fame talking about ‘greed’, Larry the Liquidator actually cares about other people and their money, although it would be more precise to say that Larry cares about the people who entrust their money to him. Larry is making a hostile bid to take over another Corporation in which the company CEO would seem to have had little regard for other people and their money. That is, the people who entrusted their money to him by investing in his Corporation stock (shares). Larry appearing to be the villain in this story creates something of a paradox. Paraphrasing what playwright Jerry Sterner said “It’s scary how many single women have asked me if Larry has a brother but I wanted to show what happens when we allow him to capture our hearts as well as our pockets.”
Other People’s Money is the story of contrasting opposites. It is centred around a traditional but antiquated plant in a small town, operating in a declining industry, being just one division within the larger Corporation that Larry is seeking to takeover. In using corporate funds to maintain this ailing plant division the company CEO is seen as a sentimental, if intransigent, communitarian. Larry the Liquidator is portrayed as a cunning but principled capitalist. He is the CEO of a city investment corporation using state of the art information technology to identify those corporations that are suitable candidates for a takeover. It has identified for Larry that the company owning the plant division has no debt, no pending lawsuits, a fully funded pension plan, valuable assets, and a strong liquidity position. It has also identified that the antiquated plant division is consistently losing money requiring it to be subsidized by the profits of the other divisions within the company. In making his hostile takeover bid, Larry states that it will be necessary to liquidate the plant and redeploy the proceeds into either the other more profitable divisions or perhaps into new ventures. The liquidation of the plant division being necessary to protect the company’s other divisions and to do what is right for the stockholders. However: the paternalistic CEO of the company values tradition, community, stability, and predictability, he wants to keep the plant open in order to keep the town alive and its citizens employed. Ultimately the issue is to be decided with other people’s money. That is: by the stockholders in the company.
The CEO of the company makes an impassioned plea to the stockholders to keep their faith in him and allow the company to continue as it is. A plea arising out of hubris and not rationality. He is willing to continue risking the stockholder’s money but not his own wealth fund of $30 million.
‘Larry the Liquidator’ understands that managers have the obligation to use the stockholders’ money for specifically authorized stockholder purposes, which usually amounts to maximizing stockholder profits.
‘Larry the Liquidator’ is really a man of integrity, a CEO whose moral principles are based on a process or equity theory of justice. He views corporations as voluntary associations and as private property. They are a form of property created by individuals in the exercise of their natural rights. Managers are employees of the stockholders and have a contractual, and hence moral, responsibility to fulfill the wishes of the stockholders. A manager is an agent of the owners of the corporation and has a fiduciary responsibility to them. Any CEO not fulfilling this fiduciary responsibility is open to be voted out of office by the owner stockholders who take control of the board of directors. In this context, the takeover can be seen as a humanitarian act and Larry can be viewed as a hero and not as a villain.
“The first responsibility of business is to make enough profit to cover the costs for the future. If this social responsibility is not met, no other social responsibility can be met.”
Peter F. Drucker, The Practice of Management
Larry the Liquidator Quotes
Kate (Attorney): Someday, we’ll smarten up, change some laws, and put you OUT OF BUSINESS.
Larry the Liquidator: You can change all the laws you want. You can’t stop the game. I’ll still be here. I adapt.
Kate (Attorney): Why so uptight? It’s not illegal.
Larry the Liquidator: It’s immoral. A distinction with no relevance to lawyers. But it matters to me.
Kate(Attorney): Well, for someone who has nothing nice to say about lawyers, you certainly have plenty of them around.
Larry the Liquidator: They’re like nuclear warheads. They have theirs, so I have mine. Once you use them, they f**k up everything.
Larry the Liquidator: Not Albert Schweltzer. Robin Hood. I take from the rich. And give to the middle class… Well, the upper middle class.
Larry the Liquidator: Since when do you have to be nice to be right?