The late Katharine Graham never thought that she would be a CEO.
But in 1963, Graham’s husband unexpectedly committed suicide, and she found herself thrusted into the lead role at the US-based newspaper publisher, The Washington Post Company. At that moment, she had been mostly unemployed (since the birth of her first child) for some twenty years prior to her husband’s death. To add to that, when she was appointed CEO, she was the only female CEO of a Fortune 500 company.
The task seemed impossible. But not for Graham.
Graham’s remarkable story was chronicled in the excellent investing book The Outsiders. From the company’s initial public offering (IPO) in 1971 to the time she stepped down as chairman in 1993, The Washington Post Company turned every dollar invested in its stock into a whopping $89.
(As a side note: Click HERE to learn how you can win a copy of the book.)
But wait, how did it happen?
The rigorous rule
It’s not possible to summarize all of Graham’s twenty-plus years of work into a few words. But one particular episode stood out for me.
Graham’s success was defined, in part, by the great care she took on how each dollar generated by the Washington Post was allocated. For every dollar flowing into the company, she could either use it to acquire another business, do a share buyback, issue a dividend, or expand the current business.
Graham subjected each of the four cash allocation decisions above to a rigorous, analytical test. Tom Might, one of her business lieutenants, summarised how Graham thought about acquisitions in one sentence:
“Acquisitions needed to earn a minimum 11 percent cash return without leverage over a ten-year holding period”
The essence of Graham’s focus is contained within one sentence, but there are a few things to unpack. For one, a ten-year holding period outlines the time-horizon that Graham was focused on – and that is, the long-term. She also sought to have a potential return (in this case, 11% annually) that would justify putting the dollars to work. Finally, Graham also insisted that the return come with little to no leverage used. Indeed, Graham rarely used debt during her tenure at the company.
The post newspaper era
Times have moved on since then, especially for the newspaper industry. Looking at the likes of Singapore Press Holdings Limited (SGX: T39), the industry no longer earns the same kind of profits as it did in the past. However, Graham’s lessons should live on for any CEO looking to increase the value of his or her company.
It takes a lot of discipline to execute, but as Graham’s unusual beginnings show, it is very much within reach.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chin Hui Leong doesn’t own shares in any companies mentioned.