Home » Black Swans » Caterpillar Chinese Folly. Follow Trail back to Board of Directors $CAT

Caterpillar Chinese Folly. Follow Trail back to Board of Directors $CAT

Caterpillar (NYSE:CAT) was robbed, cheated, swindled, hog tied, defrauded and screwed over. Not exactly what you want to hear about the management of a large and otherwise supposedly seasoned global company.

They overpaid because the financials were mis-represented not because they were hyper-competitive. For a deal of this size the board would have been consulted, lobbied, presented to and otherwise engaged to ensure their blessing.

So lets look at the board and see if we can conjure up some reasonable explanations for this colossal destruction of shareholder wealth.

Jon M. Huntsman 51 is the former US Ambassador to China, before that to Singapore and before that the Trade Ambassador.He also sits on the board of Ford. Quite the catch for a director. You could just see everyone soaking up his wise counsel on globalization and the enormously compelling opportunities that China has to offer. Given his background if he had expressed any concerns the deal would have died.

But here is the problem with Jon Huntsman. He flies at 30,000 feet and is very macro. He does not operate on the ground with all the other soldiers and button men. He is not a wheeler-dealer type that you would find at the investment bank’s merger and acquisition teams. Basically he has never been kicked in the balls and therefore did not understand the concept of jock strap athletic protection device. Just wondering if the Chinese did not profile him in some fashion and gamed the negotiations.

Dennis A Muilenburg 48 is from Boeing and has a background in the defense side. So while he must have picked up global experience he never bought anything from a foreigner. Sure he must have sold combat aircraft to how shall I put this err “foreigners”; but that is completely different.
Miles D. White 57 points to McDonald’s, Abbott Labs and Motorola as experience. Still no experience in purchasing operational assets in China.
Susan C. Schwab 57 also sits on Boeing’s Board as well as FedEx. She too was an US trade representative which is a Cabinet level position. So along with Jon Huntsman she chimed in at 30,000 feet of altitude. The dirty deeds were done at trench level somewhere she has not been. at least not in the sense that Caterpillar needed.
Daniel M. Dickinson 50 is a private investor. While his bio does not show an Asian or china expertise you would think a private investor should be good a due diligence. Whatever it was that he did not save the day.
David L. Calhoun 55 is also on board of Medtronic and Boeing. Perhaps there was a herd instinct subtly at play. He was vice chairman of General Electric and CEO of GE Infrastructure. Strange that this background did not make a light go off and get suspicious. How closely was he involved.
Jesse J. Greene 67 is the former chief risk officer for IBM. This is exactly what this guy is supposed to be good at.
Charles D Powell 70 comes from the investment business. Nothing to show he was good at due diligence in China.
Joshua I. Smith 71 is also in board of FedEx (another hook up which may have caused herding) and Allstate which provides no transferable insights.
Edward B. Rust 61 also has a background with the State Farm system. Not helpful in China.
William A. Osborn 64 ran Northern Trust and was on board of Abbott Labs and General Dynamics. so here is another Abbott labs hook up. The General Dynamics experience while global is that of sales not purchaser of operating assets. Very different game.
Juan Gallardo 64 has a food and beverages background which is not helpful.
Peter A. Magowan 70 is the former President  of the San Francisco Giants and he also headed up Safeway. Nice gigs but no China experience.
So the bottom line is some high level expertise in China and trade. But at the brass knuckle level Caterpillar had no game at any level.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or maybe follow his evil twin who is writing a Wall Street Murder Thriller at twitter@georgegutowski