Henry Singleton: A Pioneer Of Corporate Strategic Leadership And Value CreationVW Staff
Henry Singleton: A Pioneer of Corporate Strategic Leadership and Value Creation
Fordham University – Gabelli Center for Global Security Analysis
August 19, 2016
Purpose: This paper profiles the leadership and Financial Strategy principles of Henry E. Singleton, Ph.D., the late founder, Chairman and CEO of Teledyne Corporation.
Design/methodology/approach: The main sources of this paper are a private study prepared by Leon G. Cooperman, founder, Chairman and CEO of Omega Advisors, Inc., who knew Dr. Singleton and who was a long-term Teledyne investor, as well as a 2007 book that was published by Teledyne’s former president.
Findings: The leadership and Financial Strategy principles of Henry Singleton have broad applicability to executives across industries, and to researchers across disciplines including strategy, finance, management, and entrepreneurship.
Research limitations/implications: Singleton’s principles, especially in the area of Financial Strategy, could be used by executives in the challenging times that likely lay ahead, and could serve as the basis for applied-based research, most particularly case studies, on entrepreneurship, growth by acquisition, capital allocation, stock buybacks, and spin-offs.
Originality/value: Long-time associates of Dr. Singleton believe this is the first academic analysis of his leadership and Financial Strategy principles. This paper is an updated and revised version of a paper that was previously published in Strategy & Leadership, Vol. 38, No. 6, 2010, pp. 29-37.
“According to [Warren] Buffett, if one took the top 100 business school graduates and made a composite of their triumphs, their record would not be as good as that of [Henry] Singleton… The failure of business schools to study men like Singleton is a crime, he says.” — John Train
“Something went haywire with American Capitalism in the 1990s, and we think we know what it is. There weren’t enough Henry E. Singleton’s to go around. In truth, there was only one Singleton, and he died before 1999… He habitually bought low and sold high. The study of such a protean thinker and doer is always worthwhile. Especially is it valuable today, a time when the phrase ‘great capitalist’ has almost become an oxymoron.” — James Grant
Henry Singleton: A Pioneer Of Corporate Strategic Leadership And Value Creation – Introduction
Warren Buffett appropriately credits the late Benjamin Graham as the main inspiration of his investment approach, but as the first quote above indicates, he also admired the pioneering managerial achievements of a lesser-known but equally seminal thinker-practitioner, the late Henry E. Singleton, Ph.D., founder, Chairman and CEO of Teledyne Corporation (Teledyne).3 In recent years, I have accumulated as much information as I could find on Dr. Singleton, which was difficult as he was a very private man who did not write a memoir. However, his number two at Teledyne—George Roberts—did write one; in 2007, Dr. Roberts self-published Distant Force: A Memoir of the Teledyne Corporation and the Man Who Created It. While this book was helpful for background purposes, greater detail of Dr. Singleton’s leadership and financial prowess was provided by Leon G. Cooperman, founder, Chairman and CEO of Omega Advisors, Inc. Mr. Cooperman both knew Dr. Singleton personally and he was a Teledyne shareholder for 25 years. By drawing on these sources I hope to show how Dr. Singleton’s actions were both value creating and lesson-rich for modern corporate executives.
Background and Approach
Henry Singleton’s academic training was in engineering and included a doctorate from the Massachusetts Institute of Technology. With this background he logically chose to focus his business activities on emerging, innovative technologies;5 in other words, technology would be Teledyne’s core competency.
Significantly, Dr. Singleton built his firm on a strong balance sheet,6 which is important because balance sheet analysis and management have generally become something of a lost art. This is unfortunate because the lack of balance sheet understanding has resulted in significant losses over the years. For example, in his best-selling book The Big Short (NY: Norton, 2010), author Michael Lewis profiles investors who were short financial services firms prior to the 2007-2008 financial crises; in essence, these investors wagered that the value of certain financial services’ securities would decline and they profited handsomely when that wager proved correct. What caused these investors to take such a highly contrarian view at the time? As Mr. Lewis recorded, one of his profiled traders would, “go to meetings with Wall Street CEOs and ask them the most basic questions about their balance sheets. ‘They didn’t know,’ he said. ‘They didn’t know their own balance sheets.’”7 Contrast this statement with the one then Goldman Sachs analyst Lee Cooperman made about Teledyne in 1982:
At a time when American industry is saddled with the most illiquid financial position and highest debt load in the post-World War II period, Teledyne is in its most liquid financial position ever…. The company currently has cash and cash equivalents of nearly $1 billion, no bank debt, and less than $5 million per year of maturing long-term debt in the ten-year period, 1984 – 1993. In addition, at recent levels of profitability, the company (excluding noncash equity accounting earnings) generates approximately $400 million per year of cash flow.
In addition to innovative technologies, Dr. Singleton employed innovative financial strategies to create value, which is arguably the area that he is best known for today. For example, he successfully diversified into financial services, and he employed stock buybacks and spin-offs strategically.
Strategic management requires both analytical decision-making and sound professional judgment. There are generally two ways to develop judgment: experience and historical study. As an industrialist, Dr. Singleton “was a student and an observer of the history of manufacturing. He studied the progress and growth of corporations from the days of Henry Ford to General Motors and how successful corporations grew by acquisitions. He studied the behavior of Jimmy Ling and others who were beginning to grow in this manner.9 He studied the emerging conglomerates Litton, TRW, LTVs, City Investing, Gulf and Western, and General Electric.”
Dr. Singleton also used history strategically; for example, in reading Alfred Sloan’s classicmemoir My Years at General Motors (NY: CurrencyDoubleday, 1990 ) he realized, “that for a corporation to grow and to have a strong financial base, it needed to have, as part of itself, an interest in substantial financially oriented institutions.”11 Therefore, Teledyne augmented its technological core competency with insurance businesses, which Dr. Singleton managed remarkably well.
Dr. Singleton also executed strategy very flexibly; for example, he did not manage to a business plan. “Once criticized for not having a business plan, Henry replied that he knew that a lot of people running companies had very definite plans they followed assiduously. ‘But we’re subject to a great number of outside influences on our businesses, and most of them can’t be predicted. So my plan is to stay flexible.’”
Operationally, Dr. Singleton was decidedly hands-on and detail-oriented. For example, when a Teledyne executive was preparing a newly developed navigation system for a demonstration he was on the floor setting it up, “when suddenly he realized that Henry Singleton was on his hands and knees alongside him helping to get the system up and running. ‘I was very surprised. Here was a brilliant man with a doctorate in electrical engineering who undoubtedly knew more about electronics than I would ever learn, helpingme put this systemtogether…. From a leadership standpoint, that was really a lesson for me.’”13 Dr. Singleton hired managers who shared his hands-on, detail-oriented approach; for example, after George Roberts joined Teledyne, Dr. Singleton introduced him to one of his managers whom he described this way:
What’s unique about him is that I’ll ask him a question about one of those companies that I’ve asked him to supervise, and he always knows the exact numerical answer. If I ask him what they did in sales last month, he knows right away without calling someone to find out.
So…that’s the kind of fellow that you pick who runs a company and does it well, but is also able to quickly understand and supervise, and have the facts about other companies under his wing. That’s the kind of a group leader we need.
So important was managerial skill to Dr. Singleton that he formulated a “management inventory” to ensure that Teledyne was “collecting and promoting the right people.” He also incorporated management expertise into his M&A criteria many years before doing so became popular.
As noted above, Dr. Singleton is perhaps best known today for his expertise in the area of financial strategy. The outlook underlying his success in this area was distinctly long-term; for example, in 1987, which was towards of the end of his career, Dr. Singleton was asked a series of questions for a Financial World magazine article. The questions were intended to gain insight into how management was going to boost Teledyne’s stock price, presumably in the near-term. Dr. Singleton replied characteristically that he was “not particularly persuaded by quick temporary gains. We’d rather get something permanent. And it takes time.” Questioned further on this topic he replied more firmly, “You’re thinking in the short-term, I’m in the long-term. So I wouldn’t do anything… for a temporary rise in the price of a stock.”16 These replies are incredibly relevant today, especially for corporate executives who manage to the short-term, which is a tendency that is so prevalent even mainstream academic economists are seeking to change it.
A long-term outlook facilitates allocative efficiency, which exemplified Dr. Singleton’s managerial approach. For example, Warren Buffett felt that Dr. Singleton had “the best operating and capital deployment record in American business.” To understand why, consider that Dr. Singleton grew Teledyne through acquisitions, but only when M&A pricing was favorable. His following acquisition criteria are still relevant today:
- Is the company (i.e., target) profitable?
- Do they have a good balance sheet?
- Is their profit and loss statement accurate?
- Do they have clean inventory?
- Is their backlog realistic and well documented?
- Is their management on top of their operations?
- Have they made long range plans to maximize their profit in a sellout?
- Does the business have growth potential?
- Is there opportunity for growth in profit?
- Can cash be taken from the company for use elsewhere?
- How is depreciation counted and is it a significant percentage of profits?
- What is the condition of their physical plant?
- And finally, and probably most important: Would this company be a good fit within the Teledyne organization and its goals?
Despite his many M&A successes, as private market valuations increased acquisitions were no longer economical so Dr. Singleton stopped acquiring. Even though such a decision is highly “rational,” it was highly contrarian at the time as executives such as Harold Geneen of ITT were still acquiring. Dr. Singleton explained his rationale to Forbes magazine in 1978 as follows: “I won’t pay 15 times earnings. That would mean I’d only be making a return of 6 or 7 percent. I can do that in T-bills. We don’t have to make any major acquisitions. We have other things we are busy doing.” Those “other things” included buying securities of select firms when stock pricing was favorable, in contrast to acquisition pricing, and he used the reserves of Teledyne’s insurance companies to fund the purchases. This strategy worked so well that, at the time, Teledyne was the largest stockholder of nine Fortune 500 companies and it had effective control of six of them.
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