Savvy CEOs Are Learning to Manage Trump
At first glance, it sure seems as though President-elect Donald Trump is having his way with big corporations. No sooner does he slam a fist on his desk, demanding that companies add American jobs, than they issue press releases promising to oblige.
Wal-Mart will add 10,000 jobs, it announced earlier this week. General Motors plans to invest $1 billion and add 7,000 U.S. jobs, it said. Bayer AG, the German pharmaceutical giant, promised to invest $8 billion in America, and add 3,000 jobs. And soon.
Trump thinks it's all terrific!
He has also met with a number of other top executives, including Randall Stephenson, the chief executive of AT&T, and Dennis Muilenburg, Boeing's CEO. In both cases, the two CEOs came across as supplicants who had arrived at Trump Tower to kiss the ring of the new king. Which, of course, is exactly what Trump wanted.
But upon closer inspection, you have to wonder whether it's Trump who is gaming the companies, or the companies that are gaming the incoming president.
It's not just that those 10,000 new Wal-Mart jobs were always part of the company's plan for 2017 -- the new employees will mainly staff new stores -- it's also the kind of jobs they represent. Although Wal-Mart has become a little less stingy in recent years, its entry-level wage is still only around $10 an hour. Meanwhile, as Bloomberg Intelligence analyst Jennifer Bartashus has noted, Wal-Mart is "cutting costs by eliminating more non-customer-facing jobs." In other words, Wal-Mart is cutting the good jobs while expanding the bad jobs. This is not exactly a strategy to Make America Great Again.
The General Motors announcement was even more of a scam. Days before the GM news, Trump had complained the Chevy Cruze was built in Mexico—and he threatened to impose a border tax. Indeed, he wants all the car companies to reduce their Mexico operations and start bringing those jobs back to the U.S.
But it’s never going to happen, for two reasons. First, most American sedans can't be made profitably in U.S. factories; the margins are too small.
Second, Mexico has made itself an attractive place to make cars, with worker training programs, incentives for manufacturers and the like. The result is that Mexico is becoming to auto manufacturing what China is to tech manufacturing.
By making its announcement about 7,000 jobs, GM was able to distract the president-elect from the hard facts about building cars in Mexico. The announcement had no specifics, but never mind. Trump got to pat GM on the back and declare victory. And the Mexico issue went away -- at least for now.
Bayer? It wants to take over Monsanto, and it will need regulatory approval from the new administration. So the CEOs of both companies met with Trump and emerged from the meeting promising additional jobs for Monsanto as well as billions in new investments. Naturally, the Trump team took credit for the new job promise.
Hey, wait a minute. What are these two company executives doing lobbying the incoming president about a merger? Isn't the Justice Department supposed to have the final say on whether a merger can go through or not, based its reading of the nation's antitrust laws? And isn't the president supposed to defer to the antitrust experts in his administration? Of course he is. The last president who got directly involved in helping a company avoid antitrust problems was Richard Nixon. The company was ITT. It didn't work out so well.
It's possible, I suppose, that Trump knows this is something presidents are supposed to leave to the Justice Department, and he just doesn't care. But it’s just as likely that he doesn't know any better, and that the companies are taking advantage of his naivete -- and his ego -- to make what amounts to an ex-parte appeal for their deal.
Indeed, another CEO who visited Trump to plead for a merger was AT&T's Stephenson. AT&T wants to buy Time Warner -- a deal that Trump had vowed to block on the campaign trail, claiming it would bring about a “concentration of power.” After the meeting? In an interview with Mike Allen and Jim Vandehei of the new online news site Axios, Trump backed away.
Which brings me, finally, to Boeing. I have long been bewildered by the animosity of so many Republicans toward Boeing. It is the largest U.S. exporter. It employs over 160,000 people, almost all of them in the U.S. In Seattle, where it does most of its manufacturing, the average wage for a Boeing worker is $91,900. Boeing is a national treasure.
Yet for the last few years, Republicans have mocked Boeing for using the Export-Import Bank -- which they want to get rid of -- to complete deals. Indeed, if they do eventually succeed in abolishing the Ex-Im Bank, Boeing will be hurt, because there are lots of airplane deals that simply can't be done without export financing. And during his campaign, Trump had criticized plans by Boeing to open a plant in China, where it was going to build 300 planes for the Chinese.
Not long ago, Muilenberg, the company's chairman and CEO, made a speech defending free trade. Almost immediately, Trump sent out a tweet complaining about Boeing’s work on developing a new Air Force One:
Does Air Force One really matter to a company with some $96 billion in revenue? Of course not. And were the development costs really $4 billion? Nope. "It's really $2.9 billion over 10 years," said Richard Aboulafia, a vice president of the Teal Group and an expert on the commercial airline industry.
Nonetheless, Muilenberg has twice met with Trump, most recently on Tuesday. After the meeting, he said that the measures they discussed for Air Force One would "provide a better airplane at a lower cost." He also said that he and the president-elect had discussed fighter planes. Then he added: "I think Trump is doing a great job engaging business. We are all on the same page here."
Translation: Air Force One will cost whatever it was always going to cost, rather than Trump's inflated number. And Boeing's defense business will do just fine in the next four years.
You're always going to have to let Trump appear to be the winner when you meet with him, but if you're willing to stroke his ego, you'll get what you want. That's what companies are learning. And taking advantage of.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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