July 13, 2017 / 6:29 PM / 11 days ago

Cox: White House kitchen-sink job going down drain

6 Min Read

U.S. President Donald Trump reacts as he attends a joint news conference with French President Emmanuel Macron at the Elysee Palace in Paris, France, July 13, 2017.Kevin Lamarque

NEW YORK (Reuters Breakingviews) - There's a time-honored tradition for new chief executives to start the job with a kitchen-sinking. The idiomatic expression seems to derive from the idea that when selling a home, everything that's not affixed to the plumbing can be carted off. In the business context, bosses rip out the approaches of their predecessors, including sometimes even the proverbial washbasin. Donald Trump's attempt to apply the strategy to the American presidency isn't working.

These are usually two-quarter exercises in the corporate world. They often include some combination of a revision of company strategy, significant writedown or sale of assets, restatement of financial accounts, replacement of senior executives and changes in guidance about future prospects.

Among recent examples, think Valeant Pharmaceuticals, where Joseph Papa reversed a strategy of gobbling up rival drugmakers. Or consider how John Cryan began his reign at Deutsche Bank with a big loss. Similarly, hark back to the mother of all kitchen sinks in 2003, when new Time Warner CEO Richard Parsons took a $98.7 billion charge to write off the acquisition of America Online two years earlier led by the man he replaced.

Trump, who wraps up his second quarter as president in two weeks, brought a similar approach to the affairs of government. He has ripped up high-profile deals signed by President Barack Obama and is seeking to shred his signature healthcare plan. He also signed numerous executive orders undoing Obama's accomplishments, and generally sought to diminish his two-term legacy. The catch is that Trump is fast running out of his forerunner's policies to savage.

Investors tend to give new bosses some leeway to reconfigure their firms and castigate previous management. Eventually, however, they expect to see a fresh vision, with clear results taking shape, usually in the form of a rising stock price. Having made his pitch to the U.S. electorate as the first businessman president, it's not unreasonable to hold Trump to similar standards.

That means the New York real-estate developer and reality-TV star will need to pivot quickly from simply blaming Obama, or George W. Bush for that matter, to formulating a blueprint from which he can build prosperity and stability. In normal times, that's hard. When battling the institutions of democracy on a daily basis, amid a law-enforcement investigation into possible electoral collusion with Russian government entities, it may be impossible.

Still, should the president style himself a turnaround artist, he is fortunate to have many corporate analogs to study. Valeant is one. Just months after replacing Michael Pearson at the helm of the acquisitive drug company, Papa came out with crummy results and cut the troubled company's full-year financial guidance. The stock tanked on the announcement, which a Breakingviews colleague labeled a classic "throwing in the kitchen sink."

Papa then started unraveling Pearson's strategy, which largely consisted of acquiring rivals, slashing their research and development budgets and jacking up drug prices. He is now focused on Valeant's dermatology, eyecare and gastrointestinal units. To pay down debt, Papa embarked on a series of asset sales. Last month, Valeant sold iNova Pharmaceuticals in Australia for $930 million.

The fruits of these efforts are beginning to appear. Papa has promised to cut Valeant's $28.5 billion debt load by some $5 billion no later than the first quarter of 2018. Investors are coming around to his harsh remedies. Hedge-fund boss John Paulson, for one, increased his position in the stock, and is now the largest shareholder. Over the past three months, Valeant's shares have vaulted 82 percent. That's because Papa has not merely trashed his predecessor, but provided a design for Valeant's future.

A similar story has played out at Deutsche Bank since Cryan was named CEO two years ago. Like Papa at Valeant, Cryan quickly took a financial hit. He announced a $7 billion loss by writing down the value of Bankers Trust, which Deutsche Bank had acquired 16 years earlier. The move was seen as symbolic of Cryan's desire to conduct a kitchen-sink transformation of the German lender. He then cleared the bank's top ranks.

Shortly thereafter, Cryan moved beyond undoing decisions of previous bosses Anshu Jain, Juergen Fitschen and Josef Ackermann by, for instance, pledging to reduce Deutsche Bank's headcount by some 23,000 jobs. While the stock still trades below its book value, it has gained a third over the past year. The point is, Cryan like Papa and other incoming corporate commanders in chief swiftly moved beyond the blame game to formulate credible strategic plans of action designed to improve the organizations they run.

Since his inauguration in January, Trump has almost exclusively focused on undoing everything from the Paris climate accord to the Trans-Pacific Partnership on trade. Next he hopes to sign a bill from the Republican-controlled legislature that repeals, and maybe replaces, the Affordable Care Act. Equally, Trump has gone beyond assembling his own cabinet, as all presidents do, and fired career officials including the FBI chief and prosecutors at the Department of Justice.

The president naturally faces a different set of pressures than public companies, where the stock price provides a real-time verdict on management. A 6 percent decline in the dollar against the euro since Trump's inauguration may, however, provide something of a proxy. Trump could argue he needs another quarter to fully flush out the complicated plumbing of the previous occupant of 1600 Pennsylvania Avenue. After that, though, his agenda will start rapidly circling down the drain if that's all he's got to offer the American people.

Breakingviews

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