Munger Would Say Envy and Jealousy Are Crucial to Ford's Success

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If you know Berkshire Hathaway (NYSE: BRK-B  ) , then you probably know its vice chairman, Charlie Munger -- Warren Buffett's right-hand man. Munger's book, Poor Charlie's Almanack, collects his speeches and musings, including his intriguing thoughts on the 25 tendencies that lead us humans to make really bad decisions. For your benefit and mine, this series will review each of those ill-fated impulses, the errors they create, and the antidotes that can help make us better investors.

Today, we're on to tendency No. 8: Envy/Jealousy Tendency.

Jealous again
I've been getting a lot of questions lately from my daughters about jealousy. They're only 6 and 5, so it’s a relatively new concept to them. But explaining it isn't as easy as I thought it would be. Munger makes the observation that envy has a lot to do with food -- specifically when one person has some when another doesn't. With food being a necessity for life, this makes sense. From there, the evolution of man and just progress in general has given us more to be envious of.

Envy and jealousy can also weasel their way into many of the companies we research. Look through the DEF 14A forms, and often we see that compensation is geared around sector averages so that companies can all keep it in the same ballpark, making all managements' exorbitant pay seem reasonable. If accusations of envy and jealousy start flying around, the end result could get nasty.

Oh, the disparity!
But is it fair when executives are paid multiples upon multiples more than the daily workers in a particular company? Do you think this creates an envy or jealousy factor? I think it has to on some level. The worker making $50,000 a year may look at the CEO who makes $25 million a year and say that he or she could do the same thing. Does executive management really warrant that kind of disparity in compensation? Certainly not always. In fact, I bet that more than one company on the Dow Jones Industrial Average (INDEX: ^DJI) has had this problem.

All's fair in love and … cars?
Look at the recent contract negotiations between Ford (NYSE: F  ) and the UAW. Thanks in part to management's efforts to cut costs along with the fact that the company is producing cars that people want to buy, Ford has now realized nine straight profitable quarters. But it appears now that this very success could in fact jeopardize the company's future if it's unable to renegotiate a contract with union workers. At issue is of course, compensation.

Let's forget for a moment that fellow competitors General Motors (NYSE: GM  ) and Chrysler had to rely on government bailouts and bankruptcy to stay in business. (Sounds weird, doesn't it?) There's no doubt that this created a stigma for the two that they're still trying to overcome. It also created a situation where Ford was able to call more of its own shots, including paying its executives for turning the company around. Ford's CEO and chairman each took home $26 million in 2010. Consequently, today we have a situation where Ford's workers are demanding to see their share of the company's good fortune as well.

Part of this is a matter of fairness. Workers gave up a lot and now want what they consider to be their fair share. And part of this no doubt is also attributable to envy and/or jealousy. Why should executives make so much more than the folks who are putting the product together?

A little give and take is the bottom line
I'm certain that if Ford wants to keep on the same upward trajectory and its workers want to continue to remain employed, then they'll all come to an agreement that will keep everyone in business. Munger makes a good reference to a Buffett quote at the end of this particular passage: "It is not greed that drives the world, but envy." Words worth remembering.

Read the other installments so far in this series:

Motley Fool Stock Advisor analyst Jason Moser owns shares of Berkshire Hathaway. The Motley Fool owns shares of Ford Motor and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of General Motors, Berkshire Hathaway, and Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 03, 2011, at 7:36 PM, richardgrelber wrote:

    What sacrifice did the workers make other than nearly running the company into the ground with union work rules, and being paid twice the normal industrial wage?

  • Report this Comment On October 03, 2011, at 9:52 PM, wigginsrl wrote:

    Never mind Ford and its brave counter-socialism stand against the UAW and the Dems, who have conspired to establish bankrupcy and government takeover as the favored stategy for Union advancement. Let's talk about your children's question about envy and jealously. Are you going to let them join the growing masses of grammatically ignorant Americans who think the two words are interchangeable, or will you explain that "jealousy", although almost always misused in popular speak, means to fiercely guard what belongs to you, which is a right thing; while "envy" means to be obsessed with wanting what others have, which can be a destructive thing. I'm hoping for your children!

  • Report this Comment On October 04, 2011, at 10:02 AM, TMFJMo wrote:

    @wigginsrl,

    Wow, so I guess I would just say that the example with my daughters was just to introduce the tendency as defined by Munger. I am not changing anything he wrote to appease any grammatical concerns anyone may have.

    The purpose of this piece was to talk about Munger's tendency. The Ford/UAW issue was a good example of that. While there were no intentions of getting political for the purposes of this piece, I did expound a bit on it in my blog here:

    http://caps.fool.com/Blogs/rs-weekly-update-ford-and/647946

    I'm not a big union guy, but that's no secret :)

    While one meaning of the word jealousy can be understood to be "vigilance in maintaining or guarding something," for you to imply that this is the only meaning is incorrect.

    I appreciate the fact that you are hoping for my children; don't worry a bit. They're doing just great!

    Foolish best,

    Jason

  • Report this Comment On October 06, 2011, at 5:06 PM, decbutt wrote:

    I urge those Fools interested in challenging long-held convictions to look to the example of Germany, where a lot of top management pay is 3x their average worker, or thereabouts.

    So many elements of the society should not work, but it works brilliantly.

    It is not that the executives are paupers.

    It is that the janitors can drive BMWs, if they save.

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