Business wonk that I am, my favorite moment in last week’s Republican debate came when Carly Fiorina and Donald Trump got into a spat over which of them had the lousier track record as business leaders.
“The company is a disaster,” scoffed Trump, referring to Hewlett-Packard, the iconic technology company Fiorina ran from 1999 to 2005. Trump continued: “When Carly says the revenues went up that’s because she bought Compaq. It was a terrible deal, and it really led to the destruction of the company.”
Fiorina responded by focusing on how Trump ran his three Atlantic City casinos into the ground. “You ran up mountains of debt, as well as losses,” she said, “using other people’s money, and you were forced to file for bankruptcy not once, not twice (but) four times, a record four times.”
They’re both right. Fiorina’s tenure at HP was indeed a disaster, and Trump’s casino interests did indeed file for bankruptcy multiple times. Now that Trump and Fiorina are No. 1 and No. 2 in a recent poll — oy! — it’s worth taking a closer look at their business records.
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Fiorina’s effort to revise her reputation began in October 2006, some 20 months after she was ousted as chief executive of HP, when she published her autobiography. In it, she claimed that she had taken a company that was adrift and gotten it humming again. She described her firing as the action of a dysfunctional board, which it certainly was. But that was in no small part because the directors played Charlie Brown to her Lucy. Again and again, she would say that progress was right around the corner, and they believed her; again and again, she disappointed.
By every metric that mattered, HP was in far worse shape when she was fired than when she was hired. The company’s stock price dropped more than 50 percent during her tenure, compared with a 7 percent drop in the S&P 500. And net earnings dropped to $2.4 billion from $3.1 billion during that same time. The Compaq merger, meanwhile, was a misguided fiasco; today, virtually all remnants of it have disappeared from HP. Fiorina’s me-me-me leadership style demoralized the company and its shareholders. When she walked out the door in February 2005 — with a $21 million severance package — the stock jumped nearly 7 percent.
Trump? He’s a business legend, all right — in his own mind. To listen to him, you’d think he is the greatest business person of all time. He is not even close.
The key fact about Trump’s early success is that it would never have happened without his father Fred’s money. As Tim O'Brien points out in his highly entertaining 2005 biography, “TrumpNation,” Trump would have flopped in his first foray in the big time — turning the Commodore Hotel into the Grand Hyatt in Midtown Manhattan — if his father had not lent him the money to cover cost overruns.
According to O'Brien, Fred Trump bailed out his son on other occasions, most notably when he bought $3.5 million worth of chips at one of Trump’s casinos — and then didn’t use them to gamble, in violation of state casino regulations — so that his son would have enough to make a loan payment.
As for the casino bankruptcies, Trump likes to characterize them as shrewd business moves, and stresses that he never filed for personal bankruptcy. But those corporate bankruptcies were costly; he wound up having to give up many of his real estate holdings, and was even put on a monthly budget for a time.
And with some $900 million in personal guarantees, he avoided personal bankruptcy by a whisker. Again, according to O'Brien, Trump borrowed millions from his siblings to keep his head above water. Today, a far more cautious Donald Trump runs what amounts to a Potemkin company, with a staff that mainly licenses his “brand.” He owns very few of the buildings with the Trump name on them.
Trump claims, implausibly, to be worth more than $8 billion. (Forbes puts his net worth at half that amount.) But even taking him at his word, that sum is less impressive than you’d think. As several writers have pointed out, if, in 1988, he had simply put his money in a stock index fund, it would be worth $13 billion today. In effect, his post-1988 business career has cost him $5 billion.
Even putting aside their policy positions, their narcissism, their poor records as leaders and their lack of scruples in spinning failures as triumphs all suggest that Fiorina and Trump would make terrible presidents.