Remember: “Culture eats Strategy for breakfast”.

A quick summary of Jon Corzine’s handle of MF Global, posted yesterday in the NYT’s Dealbook column, also shows some impressive similarities.

Groupon has also lit up the alert board with a “just for employees” memo by its CEO, Andrew Mason – conveniently leaked out immediately to the press – with very detailed accounts of how Groupon will silence its critics when it goes public. Yes, it includes financial numbers previously undisclosed. It’s pre-IPO marketing during the company’s quiet period, a very complicated issue the SEC will probably want to look into. Groupon is one of the most scrutinized companies in the planet right now, and there’s no way such a huge, juicy memo wouldn’t be leaked out.

We have more comments, but rest assured that we will keep following his letters – perhaps one day we can write a post as flattering as the one we wrote about Warren Buffett’s letters…

Highlights (general):

In general terms, the breadth of subjects he wrote about is already worth praising. It seems like a good, albeit obviously not complete, set of subjects to discuss in order to put past and future performance into context.

Finally, having the divisional Heads write their own letters to investors (thankfully shorter) is a great idea, one that should probably be adopted elsewhere.

Highlights (specific):

“Our first priority was to restore a decent dividend – this is what our shareholders wanted (if it were up to me personally, I would reinvest all the capital into our company and not pay any dividend – but this is not what most shareholders want).”

“Five years ago, very few people seemed to worry about outsized risk, black swans and fat tails. Today, people see a black swan with a fat tail behind every rock.”

On the need for the US to address the challenges ahead of it (budget, entitlements, immigration, education etc.): “The sooner we address these issues, the better – America does not have a divine right to success, and it can’t rely on wishful thinking and its great heritage alone to get the country where it needs to go. But I remain, perhaps naively, optimistic. As Winston Churchill once said, ‘You can always count on Americans to do the right thing – after they’ve tried everything else.’ “

He makes a passionate defense about the value of his firm’s (and the global banking system’s) offerings to the global economy and ultimately all of its agents – when the banks do it right. He does it through a very personal story about a trip to Ghana with his daughter, which is a rare tale from a Fortune-500 CEO.

The part above is fodder for the next section, about new regulation and its impact in the financial system. That by itself is worth the download, despite the obvious “don’t ask the hairdresser if you need a haircut” cautionary note.

We expect to publish an update with further highlights.

LINKS:

Now for the noise part:

Alice Schroeder’s quip on the subject. Keep in mind her personal issues with the company.

Allan Horwich, a professor of law at Northwestern U., clarifies the “is it insider trading?” question. Technical but interesting.

Reading the letter from Buffett discussing the resignation (in itself a very rare event: a letter outside of the annual report), it’s clear that Sokol had to go: the mere appearance of a Berkshire “luminary” practically “front-running” Buffett and Berkshire would be unacceptable (we don’t like it but can’t call it, and we’d discount any strong opinion emanating from anyone other than Buffett or Sokol).

It’s obvious that it’s a strange event in a company that takes so much pride in its unique culture of ethics, governance and lifelong managers who “love what they do”, and who are supposed to stay forever and be masters of common sense. That is, a company and a culture that isn’t supposed to fail in any aspect. This episode is just another reminder that this assumption must never be used for any person or company. It’s amazing that a highly-paid leading global executive of a huge company, number one candidate for one of the most prestigious jobs imaginable, could jeopardize all this for lack of common sense – or, heaven forbid, character. Yet it’s all too human.

Finally: since Buffett says in the letter that Dave Sokol had talked seriously about leaving at least twice before, is it possible that the list of four candidates to succeed Buffett did not include Mr. Sokol?

LINKS:

CNBC interview with Dave Sokol – Link to the “live-blogging” text (the video is embedded below):

Financial Times – SEC investigation in the works…

Forbes blogs – strong opinion that Buffett did not know of the stake

CNBC’s Herb Greenberg compares Sokol’s conduct to Berkshire’s Code of Conduct – and finds obvious problems…

Former federal prosecutor discusses the legal aspects at Bloomberg (5:41)

Jeff Matthews (of RAM Partners and author of Pilgrimage to Warren Buffett’s Omaha) has some good points as well (6:43):

Update (Feb. 17th, 14:00 ET): Bloomberg Business Week magazine published a lengthy profile on Bill Ackman in its last issue. Always be wary of stories about controversial people, be it favorable or unfavorable.

In the first section below, there’s a good defense of short-term traders in the stock and financial markets in general. They provide liquidity and different opinions due to many different reasons – but mostly, of course, the long vs. short-term focus arbitrage.

In this next section, Mr. Ackman discusses JC Penney in more detail, especially and most interestingly in comparison to Target and even Eddie Lampert’s Sears. As with the other two, JC Penney is an older retailer which owns a lot of its real estate or has long-term leases with very low rent. While it is a good aspect, he notes that having “free rent” can actually cause less discipline with costs and general operations that leads to inefficiencies. Having seen firsthand many such examples over the years, we agree when he says that “you have to run your business as if the rent is high”. There’s a bonus after some 8:30 where another HBS professor – Clayton Rose – is discussing GSE’s such as Fannie Mae and Freddie Mac (he’s in the Board of Freddie Mac). Mr. Ackman then drills him on where his fiduciary duties lie: shareholders, the government, etc. A very interesting exchange follows. Later on, he attacks rating agencies, with an interesting idea about the role of rating agencies.