Interview with Cheryl Einhorn
Table of Contents
i) Company Websites are PR Vehicles
ii) Searching Mission
iii) 2017 Shareholder Letter and Annual Report
iv) Earth’s Most Customer-Centric Company
v) Let’s Get Practical
When I began researching the mission statements of major public companies, I expected it to be rather tiresome to visit website after website in order to pull the one- or two-sentence mission statement of each company. It would be cool to see them all side-by-side, I thought, but the only way was to do the work myself.
Au contraire. Turns out, it was fascinating to sleuth my way through each company’s website or annual report, deciphering their true priorities from their public presentation. For background, check out Issue #003, and view the mission statements all nicely laid out here. However, there were two conglomerates that were particularly frustrating to research. Amazon and Google.
I’ll get to Google in another issue, but for this one, I focused on Amazon.
i) Company Websites are PR Vehicles
I’m not the only one thinking about company websites and how much or little they tell us about the company’s priorities. Recently, I got to interview Cheryl Einhorn about her new book, Investing in Financial Research, in which she details her methodology of researching companies built from years as a financial journalist for Barron’s.
(Total side note: I just started subscribing to Barron’s for the first time after many recommendations from other investors, and it’s good! I now spend money on the Wall Street Journal and Barron’s and am very conscious of how much they cost. I decided to try keeping both for a while and see how useful they both are.)
Cheryl’s book is an extremely helpful reference, and I anticipate talking about it more because it gets deeply into research resources and lists an exhaustive number of questions to ask yourself as you’re reviewing companies. In it, she specifically calls out website sleuthing as a method of discovering what the company wants us to know about them. Reader, I yelped out loud. It was so exciting to read about this methodology being developed and written about by someone else.
She separates the consumer-facing website from the investor-facing website and asks how the company is trying to convey its value to us – and, Cheryl gave me a bite-sized interview specifically on this topic, EXCLUSIVE to The Invested Practice – you can find it above. Our first ever guest interview on The Invested Practice! Enjoy!
Her point that websites are the least regulated method of communication is a useful one to remember because it reminds us to keep perspective on what’s being presented to us. In her book, she wrote, “It’s your job as the researcher to make the qualitative judgment about how well and to whom the company is telling its story. Consider what your target’s website says about the company, management, and its focus. Does the portrayal seem to make the company a better investment? Or employer? Does this positioning help them sell their products? And how might you assess that?”
All right. Let’s make some qualitative judgments about Amazon. I LOVE getting permission to be all judgey.
ii) Searching Mission
During my search, the foremost question I had for each company was, “What is your reason for existing? If your specific business model needs to change, what greater purpose will you still be striving toward? What great thing are you trying to accomplish here? What do you DO?”
For example, take Whole Foods, my first great investing love. As you may know, Whole Foods is a natural and organic grocery store chain born in Austin, Texas, USA, and created by founder and CEO John Mackey, who pioneered the concept of “conscious capitalism,” which means the company prioritizes stakeholders of different kinds (e.g., the environment, employee welfare, profit maximization, integrity of resources) above solely seeking profit maximization for shareholders. According to Whole Foods’ mission statement, their sole aim is not to sell organic carrots, although that’s technically the service they provide. Rather, they aim to provide the best and most trustworthy organic and natural foods shopping experience. Or, as Mackey wrote in his 2014 Stakeholders Report, ” to nourish the health and well-being of people and the planet by being the authentic purveyor of food for the greater good.”
That’s what Whole Foods (when it was still its own independent company) originally sought to achieve. They put their money where their mouth was by only providing the highest quality food products, implementing a seafood sustainability rating system, adding a grocery delivery service, and offering the best ready-made hot food section of any grocery store ever.
In August 2017, Amazon bought Whole Foods. Since then, no one outside the company has quite known what’s happening with it. I’ve heard rumors that John Mackey has been actively trying to preserve his company’s original culture within Amazon and has had to fight to do so.
Now that Whole Foods has been melded into Amazon, let’s see . . . is Amazon clear about what it’s doing here? Has Whole Foods influenced Amazon’s Mission, or the other way around?
It took me a long time to search for its Mission through Amazon’s investor relations website, main website, ancillary websites, and annual reports. This Mission research is funny like that: either you have to trawl through a lot of the company’s resources before you find what you’re looking for, or you find it right away. You never know until you dive in.
As always, I started by searching online for “amazon investor relations,” because I like to go straight to the source. I always want primary sources and to find them myself, to see how easy the company makes it for me to access basic information. Searching online for the Mission doesn’t give me any information about the context in which the company presents the information, how easy or hard it makes it to find, or additional information that is needed to understand it properly. It’s a shortcut that defeats the point.
Amazon’s Investor Relations website featured the following categories:
01 Annual reports, proxies and shareholder letters
02 Quarterly results
03 SEC filings
04 Press releases
06 Corporate governance
07 Officers and directors
08 Contact us and request documents
Yikes. Amazon’s Investor Relations website felt like it contained nothing but numbers. No “About Us” or “Sustainability” or “Values”. No information on why Amazon is here and what it intends to do with its existence. Quarterly results, SEC filings, and press releases aren’t going to communicate the company’s purpose or Mission. Maybe FAQs? Sometimes companies will put their mission statement right there in miscellaneous investor questions or FAQs.
Not Amazon, though.
Amazon’s Corporate Governance section does describe some goals that investors want to know about, particularly focusing on cash flows, which is how Buffett always talks about the best-run companies. But nothing about the overarching purpose of why Amazon exists.
Argh! I started to get a bit bored, clicking around on a site that clearly was not set up to tell me its Mission. My investing practice time is limited.
I could have gone to the shareholder letters and annual reports, and I should have, because those are the primary sources that will show me if Amazon thinks it’s important for me to know their purpose and values easily. I think it’s ok for an Investor Relations website not to get into the gooey stuff about purpose and values, but only if they make their annual reports easy to find (which Amazon’s did). But, I was annoyed about all the clicking I had done, so I went straight for the shortcut: I searched online. Clicking is irritating and I had spent a lot of time looking on other websites already as I gathered their Mission Statements, so FOIN, it wasn’t my finest research moment.
In 1995, Amazon’s mission was:
“to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.”
Cool. Also, old. 1995!
Furthermore, it was on Amazon’s Jobs website, of all places. I mean, that’s useful for people considering working at Amazon, but surely, the Mission, purpose, goals, values of such a well-led company as Amazon should be stated in a more obvious place. What about its owners, the shareholders? Where could we easily find that information?
I wasn’t sure this Mission was still in effect, or if it was an old one that had since been replaced. I tried to see if there was an updated Mission on their Jobs website. I tried to retrace how I would have gotten to that page, to re-create my search and get the context, because getting a Google answer really didn’t tell me anything important. Without context, it meant nothing.
I clicked on the overarching company menu, which would take me away from the Investor Relations website. “Our company” sounded promising. But, it turned out to be only blog posts about company achievements and news. I clicked on “Working at Amazon”. More blog posts. “Our culture”. More blog posts. Finally, I went to the Amazon Jobs page, still nothing, and then “Amazon culture & benefits”. There it was.
“When Amazon.com launched in 1995, it was with the mission “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices.” This goal continues today, but Amazon’s customers are worldwide now, and have grown to include millions of Consumers, Sellers, Content Creators, and Developers & Enterprises. Each of these groups has different needs, and we always work to meet those needs, innovating new solutions to make things easier, faster, better, and more cost-effective.”
This was SO hard to find and the vague follow-on sentences left me feeling like Amazon doesn’t actually follow this Mission anymore, but hasn’t bothered—or doesn’t know how—to define a new one.
I was properly annoyed now. After all, Amazon doesn’t only sell goods online nowadays. A large part of its business is cloud computing, another large part is a tv and movie studio, another part is organic groceries. I find it really frustrating as an investor, though, to spend a good chunk of time poking around on their website and coming away STILL NOT KNOWING WHAT THEY DO. Why are you here?
Still, ok, to give them the benefit of the doubt – that was their Jobs website. As Cheryl Einhorn pointed out, we can take clues from where a company places their focus on their website, and Amazon has had a lot of damaging stories come out about the way they treat employees, particularly in their warehouses. Here, Amazon is trying to convey to potential employees that it’s basically a good dude, out to make things better, in lots of different ways.
I am a potential investor, not employee, so I went to my best primary source as an investor. The most recent shareholder letter..
iii) 2017 Shareholder Letter and Annual Report
In his letter, Bezos wrote a short description of Amazon’s different areas, including the aforementioned cloud computing, movie studio, groceries, and also music. It wasn’t exhaustive, but started to give me a sense of the wide variety of businesses Amazon is in.
He also, somewhat presciently, spent several paragraphs on “high standards” and how Amazon develops and keeps them. Somewhat ironic considering his recent personal life bruhaha with his divorce and the National Enquirer. (And by the way, it turns out his girlfriend’s BROTHER is the one who sold the info to the National Enquirer! It keeps getting juicier.)
Anyway, at the end of the letter, he writes: “our core values and approach remain unchanged. We continue to aspire to be Earth’s most customer-centric company…”
Ah ha! It was the first indication I found that Amazon is still committed to this purpose from 1995. There was more evidence, too.
After the letter, the annual report begins, and it says right there in the second paragraph, under “General”:
“We seek to be Earth’s most customer-centric company. We are guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.”
AH-BLOODY-HA. I found it. And right where it should be, up front and center at the beginning of the annual report. If I had looked there without searching online first, I would have found it quickly. My search actually wasted my time!
My mind flashed to Berkshire Hathaway’s bare-bones website which gives away nothing about its Mission, purpose, values or anything else. You have to look in their writings to find out that it’s the most values-driven company and set of investors around. Amazon’s Investor Relations website is much more decorated, but in terms of information, it hews to the same mold. I should have looked straight into Amazon’s writings to find out its Mission.
I had not, because I had been searching other company’s Mission statements and had been finding them on their websites. The way it is written in Amazon’s annual report is straightforward and to the point. I do wish Amazon would print that on the front of their Investor Relations website so we could all know, without wading through the website, without searching other parts of Amazon’s websites, without fine-tooth-combing the letter to shareholders, WHY Amazon is HERE and what Mission they seek to complete. But I suppose I can understand handling it that way. It’s a choice.
iv) Earth’s Most Customer-Centric Company
Amazon’s Mission statement is a useful one, both in what it says and what it does not say. I believe Amazon aspires to be Earth’s most customer-centric company by inventing products and services we, the customers, did not even know we wanted. When I visited Amazon HQ for the Fishbowl talk my dad and I gave, several employees I spoke with told me that if you have a good idea for something new, the company is interested in supporting that good idea. If it’s a really good idea, they will even take you off your regular job and fund the idea just to see if it could work. That’s putting their money where their Mission is, and that’s how Amazon has come up with, and executed, such innovative ideas.
This is a huge conglomerate of a company behaving like a nimble startup (one with deep pockets, of course). It’s working.
I started to wonder if this company is awfully hard to pin down. Is it a company that I can understand?
Remember Charlie Munger’s 4 principles of investing:
1. Is the company one that you are capable of understanding?
2. Does it have an intrinsic and durable competitive advantage?
3. Does it (hopefully) have management with integrity and talent?
4. Can you buy it at a reasonable price, with a margin of safety?
At the last Berkshire Hathaway shareholder meeting, Buffett rued not investing in Amazon back when it was just a bookseller. However, I see why he was wary of it. He didn’t understand why it is here. He saw the uncertainty, and saw the ambition, and didn’t know if it would work out or not.
I’m a huge fan, overall, of Amazon, and my guess is that investors in Amazon accept that they don’t know where it’s going and they trust Bezos to do a good job shepherding it to profitability. It’s a management investment, rather than a predictable-company investment. Indeed, Amazon actually lost money in 2012 and 2014. However, they’ve been doing well in the three years since. And I believe in their Mission. I believe they can continue to create goods and services that we don’t even know we need right now. In the 90s, did we know we needed an online bookstore with free delivery? In the 2000s, did we know we needed electronic books, e-book readers, and web services? In the 2010s, did we know we needed Prime Video original content, a huge Amazon Web Services, a way to sell our own products without ever having to touch them (Marketplace), and grocery delivery?
I don’t know what we’ll need in the 2020s, but I believe Amazon will find a way to make their customers’ lives even easier.
This exploration, though, made me more wary of whether I can understand the company. Do I know exactly what I expect Amazon to do? Nope. Can I tell what Bezos is going to do? Nope. Is it historically incredibly profitable and reliable company? Nope. Is the Mission super clear and pinpointed, like Whole Foods’ was? Nope.
In sum, Amazon has a vague Mission that, still, is accurate. It seeks to create things we didn’t know we needed, to serve its customers better. In his 2015 letter to shareholders, Bezos wrote, “We want to be a large company that’s also an invention machine.” I don’t think even Bezos knows exactly what Amazon will be making or offering in ten years, but I do have a feeling it will continue to follow its Mission.
So, when a company has a Mission you believe in and understand, but it’s an unpredictable one, what do you do?
You treat it exactly like any other company. Go through Charlie’s four principles, and add the fifth: Mission. Does it have a Mission you believe in and want to directly support with your money?
That’s it. That’s the practice. On the fifth, at least, I say yes.
LET’S GET PRACTICAL:
- Review Amazon’s mission and debate whether it’s specific enough for you to believe in. Compare it to the other missions on the Archive.
- Look for the Mission of another huge company and see how easy it is to find. What does that tell you about the company?