Hurt People Hurt People: SBUX, LMEs, BofA

that he's making, which is a lot. And then there's also the fact that he's going to be a remote CEO, which is also super interesting.

and massively underperforming Chipotle. So it makes sense that the Starbucks board was like, Wow, things aren't going too well right now. Who's really crushing it the industry?

are and you know, probably comparable businesses. One is doing really well, one is doing less well, and they picked the good CEO to run the bigger company, right, I mean, like you know, you talked about the money he's getting paid something like one hundred and thirteen million dollars, Like that's the valuation of his package to come from Chipotle

to Starbucks. When they announced him, Starbucks stock was up twenty billion dollars, like it was up, you know, like twenty added like twenty billion dollars of market cap, which is like he's a bargain at one hundred million dollars, right, If the difference in CEO talent and CEO skill is twenty billion dollars of market cap, then like, of course

it makes sense for him to move. Also, it's like interesting, you know, Chipotle lost like six billion dollars of market cap, so it was like an efficiency enhancing trade, right if you just go to this prices right, Like he had sort of done his work at Chipotle, he'd righted the ship, and him leaving Chipotle was sad, but not that sad, whereas him going to Starbucks was like extremely good for Starbucks. So you know, everyone's a sort of long term winner.

the chairman of the board. He's going to be paid a bucket of money, and he's gonna work from home because I mean, he's not going to have to move to Seattle to their headquarters. He's gonna kind of set up a remote office by his house.

have the leverage to ask for that. What I wrote is like, abstractly, like shareholders want good governance at public companies, right, And like one thing that good governance means is like there's an engaged board that supervises the CEO, and if the CEO isn't doing well, they get rid of him and get someone else. And that kind of looks like what happened here, right, I mean, there's an independent board. They talked among themselves and talked to the CEO. They

were like, we don't like this guy. He's not doing well enough. We're gonna find someone else. And they went out and found someone else, and they found a guy who you know, made the stock up by twenty billion dollars. Right, So they've found someone who the market seems to think

is a really good choice. But to get him, they have to give up some of that governance, right, Like, they built up some governance to sort of get to the place where they are, and then they have to spend some of that governance to get a really good CEO, right, because like they get a really good CEO, you're like, we're putting the company in your hands now. And you see that with like he's gonna be the chairman of the board. But also you see it with like the

pay package and the not having to relocate. He's just like, this is gonna be a little bit more his company than it was the previous CEO's company.

Colvin too, you're the CEO. And Solomon was so offended because he's like, what are you doing having lunch at a restaurant in the Hamptons during the week, Like, shouldn't you be doing work? And he's like telling this anecdote to everyone and looks like a grieved tone. People are, well, you were there too, write like what what are you

complaining about? I don't know. Also, like you know, one reason to follow the coming into the office policy is like you might run into the CEO there, and if he because while you're desking, you're not there, I'll get mad. But if he's not there, it's a little easier to not be there yourself.

the beginning of this data set in twenty seventeen. So we are at a moment where it feels like a lot of CEOs are being fired, and I think that kind of says something about the economic environment that we're in. I don't know what exactly, but I'm putting the thought out there.

wish I was a horse. Creditor on credit or violence another very human story about basically trying to cut in line and extract value from other people who might have been ahead of you.

trying to restructure your dot. But in the modern usage, there's like a bad association with that phrase because when people say liability management exercises, they mean calling up some of your creditors and saying, hey, we could use more money.

If you give us more money, we will put you at the front of the line to be paid back, and all those other creditors who were ahead of you in line will get put behind you in line, and the creditors that way you can do that, and they'll say yes, because there's a loophole in our documents and like our credit agreement says that those guys are first in line, but actually we can do a thing that makes them second or third or tenth in line. People really dislike this for a lot of reasons. Why as

they get like bumped out in line too. It's because, like you're a lender, you're sort of like expecting a certain amount of like stability and predictability, and you keep finding out that these documents that you negotiated that said that you had to be first in line actually mean you can be fourth on line. And so there's this real sense of like having the football pull out from you. Because people keep getting like surprised by new ways to

get liability managed. The only reason people don't like it is because it is this like prisoner's dilemma where if you you don't like this happening to you, the thing that you have to do is do it to someone else first. Right, if there's some company that's in trouble, it's going to do this transaction. It's going to do some sort of transaction that puts some creditors ahead of other creditors, and you want to be the one who's ahead,

not the one who's behind. So you will like go form a club with other creditors, and you will go to the company and say, hey, let's do a deal. And so there's the sense that like no one wants this, but everyone feels forced to do it.

do this, but they're called capital solutions businesses. And capital solutions is like you have like you go company, like, hey, we have a solution for your capital. We can give you money if and the if is always like if you stiff your other creditors. There's not always doesn't have to be like you could imagine, you know, a capital

solution that has win win and just friendly. But like, in practice, a lot of the capital slutions seem to be taking money from some creditors to give to other creditors.

are okay, found we'll do that. We're desperate, and they would default on their debt for fifteen minutes and the to make a lot of money and give the company some of it, and then the company would like live to fight another day. And I always thought that was so cool that like a like zero sum bet between

hedge funds could create funding for a real company. And similarly, here there's something kind of fun about like these companies can generate funding to like keep their actual business going by like sort of inter credit or fight among hedge funds. But mostly it's bad because first of all, these companies are not like you know, mom and pop businesses. They're like most traditionally owned by private equity firms who are like the sort of Sharbel Bode bars who are going

to do this. But then secondly, you knew like a lot of these things end in bankruptcy anyway, and so it's just like who is first in line to be paid back in bankruptcy? And so it's like if all of these things like solved, that the company's problems and like made everything better. Then you'd be like, okay, so like a hedge fund lost money for you know, the greater good of the company. But in practice, it seems that a lot of the men in bankruptcy anyway.

going to say, you have to treat your shareholders fairly. Traditionally, debt doesn't work that. Traditionally you don't have fiduciary duty to your creditors. And traditionally, if your bond agreements let you do some wild thing, courts are going to let you do the wild thing. There's some exceptions to that. Some courts will look at the bond document and say, oh, I couldn't possibly have met that, so we're not going

to let you do the wild thing. But in general, the rule is kind of like whatever the documents say you're allowed to do, you're allowed to do. And so there is much more of this sort of thing in de restructuring than there would be for like stock, because there is this traditional rule that you're allowed to do whatever you want to creditors because they're sophisticated people who negotiated a contract with you, and if they didn't put it in the contract, then they don't get the protection.

I think there's some sense that like one thing that could happen. Is that could change, right, that courts could get less receptive to this sort of thing and say, you know, it's just like, as a policy matter, bad for companies to always go around posing their creditors and

like treating some people more unfairly than others. And so we're not going to let them do that anymore, and we're gonna like apply some sort of like fairness standard or like what do people really want to reading these credit documents instead of just you know, reading what they say,

and so they allow it. That's like one possibility. The other you keep reading about people like creditors trying to prevent this by you know, forming groups and sort of saying we're gonna knock this off or like demanding better

covenants so they can't have this happen to them. And so you keep reading about these liability management exercises, but there's enough grumbling from like, you know, people who participate in them that like maybe the industry will find some way to reduce their frequency.

how many bonds it already has outstanding? And he's like, I was always an assets guy, and like, increasingly the business is a liabilities business. Like increasingly what you do as a credit investor is you look at the company's capital structure and you say, who can we hose here? What debt can we get ahead of? And as a lever of like complexity and nonsense, I enjoy that, but

it seems kind of bad for like the world. I was reading somewhere like research analysts complaining about this, because it's like as a credit research analyst at bank you have to spend all of your time thinking about liability manage exercises. You don't spend as much time thinking about like, you know, does this company have the capacity to cover

its deeps? And it seems like a loss in capacity when the industry is not about like finding good things to finance, but rather about like finding people to host to you know, restructure the financing. It seems like that's like a less good use of people's time and energy. But I hope that's true. Just like so as a first impression, it seems like it would be better to spend time on like growing the pie than on splitting

up the pie. But like, maybe that's not true. So the Wall Street Journal this week had a story about Bank of America junior bankers being asked to like fake their hours. So okay, Investment banking has always had very horrible hours, right, and like junior bankers in particular were sort of known for working one hundred plus hour weeks and it was very hard and bad, and over the last few years people have complained about it, in part because it's caused serious health problems and some deaths in

the industry. And so a lot of banks responded to these complaints by instituting some sort of humane hours policy exactly the details varied from bank to bank. But like people often talk about protected weekends, where like you're supposed to have like one weekend a month you get like both days off, or like you're supposed to have one day off each week or whatever. Right, so it's like there's some policy that says you're not supposed to work

one hundred and twenty hour weeks every week. And this has come into a lot of focus at Bank of America because a young banker there died recently after working

one hundred hour weeks on a deal. And the story in the Wall Street Journal this week is that although Bank of America has these policies to protect people from working all the time, a lot of people were disregarding them, and in particular, like bankers are being told to fake their hours and fill out a form saying how many hours you work, and you write fewer hours than you actually work so that you don't get a call from HR saying you can't work anymore because you know your

VP wants you to keep working, and if you get taken off the deal, your immediate managers will be angry and sad and think less of you.

work devices, that would kind of solve this problem. It seems like a lot of this trace is back to the fact that you're self reporting your hours.

I mean, one thing that happened like is Bank of America has like a very clear policy that you can't work all the time, right, and HR tells people you can't work all the time, you have to spit your hours, everything like that. But it seems to be, I don't know, universally ignored, but it seems to be ignored some of the time. And one thing that they did in reaction to this Wall Street Journal article is they kind of said, no,

we need it right. And I think you get a lot of mileage out of just saying no, we need it right. Like if the CEO leaves a voicemail for everyone saying this policy is for real, it's not just a fig leaf. You have to follow it. If you don't,

I'll be mad. That gets a lot of the way there, right, Because I do think that a lot of what happened here is that there was a policy put in place, almost as like a public relations thing, but the culture didn't change, and everyone sort of assumed, you know, all the mid level bankers sort of assumed the senior bankers didn't really mean it, and they wanted everyone to keep working really hard. And I think if you just have the senior bankers say no, no, we mean it, that

gets a lot of the way there. But yes, installing monitoring software could also get even more of the way there. I think people might prefer to work more hours and not be monitored, them to work through your hours and be monitored. But I'm not sure.

hurt people argument. Hurt people, hurt people. I say it all the time, but obviously this story blew up on social media and I follow a lot of the accounts such as Liquidity for example, both on Twitter and on Instagram. And like you said, Bank of America did put out this statement that they really mean it. The reaction that I've seen so far on social media is that, Okay,

these are just words. I think if they are serious about changing the culture, they do something like they would do some action, such as either installing that technology or actually firing people.

often the way that you fix this problem, right. I mean, part of the thing that is going on here is some sort of like cultural thing, some sort of like hazing thing where it's like, we want them to work long hours because one that trains them better than if they worked a few hours, and two there's in a culturation and like a hazing process of like, you know, we worked long hours, they should work long hours. We should make them feel part of the firm by making

them work on undred twenty hour weeks. But some of it is just there's a lot of work to do, right. It feels move fast, and you need a lot of people to do a lot of work on them. That part of the problem can be partly not entirely, but like partly solved, but just hiring more people so that you have more people to do the work. You know, if you have like the certain amount of work to do, more people do it and then each of them can

work less. You occasionally see that as a solution, but you don't see it a ton of the time as.

But it is probably the case that a lot of junior banker work could be is being will soon be sort of absorbed by AI, and then figuring out exactly what to do about that with people's hours will be an interesting problem. Yeah, Like the cultural stuff is real, Like they do want them there all the time, because that's how like you become a like a loyal, excited,

committed member of the banking team. Right, And if like AI does all your working, you go home at four every day, Like I think, like your VP will be sad even if the work is good, because like they wanted Also, like the training and hazing effect of all those hours.

in journalism. But you would take the car service home, like very early in the morning, and then like take a shower and like change your clothes at your apartment and then go back into the car service to take it back into the office. That just seems crazy. I don't know.

out of policy car service. The story about my sad hours that I tell a lot is that I once I had one night where I got ninety minutes of sleep and it was under my desk, and it was on my birthday. So that's a bad birthday.