Fixing the Game, by Roger L. Martin, is a book about “Bubbles, Crashes and What Capitalism Can Learn from the NFL.”
And if you don’t know…
Roger Martin is a highly-respected business professor who has published a number of eye-opening and intriguing books about strategic thinking, business innovation and (finally) the stock market.
By the way:
While Fixing The Game is Roger Martin’s most recent book, I’ve read his other books and most of his newspaper opinion columns. So I hope I’m well-positioned to review Fixing the Game and share the findings with you.
In this book review you can expect to get an overview of Fixing the Game, including the best parts and where the book comes up short. Sound good?
Great. Then let’s see what Fixing the Game is all about…
Why Fixing The Game is Worth Reading:
Fixing the Game is an excellent book that looks at the very foundations of American Capitalism. By carefully looking at the assumptions and ideas our free market system is built on, Fixing the Game draws out some incredible insight that is of extreme use to investors of all shapes and stripes.
Fixing the Game takes a long hard look at the idea of expectations, shareholder value and how they translate to business results. The conclusions are telling.
Martin makes it abundantly clear in Fixing the Game, that the current system is far-too focused on short term results. Near-sighted executive actions are the result of short-dated option compensation. This often give executives enormous rewards for boosting short term value at the expense of long term sustainability.
But I know what you’re thinking…
Executive compensation isn’t a new argument. People have been complaining about this income inequality for years. But Fixing the Game takes the discussion a step further. Martin makes it clear that not only are executives acting in the short-term interest, they are also playing the analyst expectations game very carefully.
Martin gives countless compelling examples of how management often panders to the analyst community and will do increasingly desperate things to meet the ever-rising bar of expectations. And that’s the real kicker.
Individual investors should pay heed: You need to understand that companies are being judged in short term performance derbies. And as executives meet expectations they continually raise the expectations for next quarter until winning becomes impossible.
Wall Street is always jockeying to get ahead of the next earnings report. And as a result stock prices can (and frequently do) disconnect from the underlying economics and operations of the business. If this is a dynamic you don’t understand you will have trouble investing effectively in the stock market.
Roger Martin’s overview of the current market structure and focus on near term earnings has huge ramifications for investors of all sizes. Plain and simple. But that’s not even the best part of Fixing the Game. So more on that in a second.
If you want to learn more about the specific arguments and ideas posited in Fixing the Game, you might enjoy reading this recent HBR Guest Post by Roger Martin.
Now, let’s move on to the best part of Fixing the Game.
The Best Part of Fixing the Game:
Fixing the Game is rendered even more useful because it takes complex ideas and makes them easy to understand. The best part of Fixing the Game is thus the sports analogies that Martin relies on extensively.
Martin compares the stock market, and the world of publicly traded companies, to the major professional North American sports league. The best analogies are drawn between corporate earnings reports and the NFL season.
Martin compares management earnings guidance to the coach of an NFL team saying “we expect to win our game next week by this many points.” … Doesn’t that sound crazy?
And to take it a step further, imagine if the NFL coach not only said that they expected to win next Sunday, but by how many points they expected to beat the gambling spread in Vegas (or Proline)! Can you imagine?
That’s basically what CEO’s are saying all the time on every quarterly conference call. When management gives guidance to shareholders they are in effect saying, we see the market expects X, we expect Y and will tell you the result on date Z. (Now get gambling!)
For more information, this Forbes article illustrates why Martin’s sports analogies are so effective. The point is…
When you start to see the dynamics that influence the behaviour of CEOs at large publicly-traded companies you can better anticipate how they’ll interact with the analyst and investor community. Knowing how the earnings game is played is very helpful context. And that’s to say nothing of the ethical implications Martin also touches upon.
But while I really liked Fixing the Game, there’s one part that felt a little bit empty.
What Comes After Fixing the Game?
Fixing the Game is an incredibly important book. It shares a set of ideas that create a compelling case for changing how we think about shareholder value. It re-examines the fundamental foundations of American Capitalism and asks some very interesting questions.
Unfortunately, just exactly how this change will come about is a little bit unclear. Martin covers a lot of ground in this approximately 200 page book. But it feels like the ideas need to spread a lot further and develop a little more before the system will improve. You see…
While Martin clearly wants to improve the way our markets work (and shows a few examples of companies that are doing a good job of it), the book almost ends up serving as a warning to readers – that this is the way it is.
Now to be sure, I’ve found a lot of value in adjusting my thinking this way. But the book left me a little melancholic, since there isn’t an easy way for these ideas to be implemented. I guess that’s a testament to how original the thinking is, right?
So with that in mind, let’s wrap up this book review of Fixing the Game.
Fixing the Game – The Final Word:
As you can probably tell from this book review, I really enjoyed reading Fixing the Game. Even though it was published a few years ago the ideas are still as important as ever (maybe more so). And to be sure…
Fixing the Game is not just an academic textbook. The ideas are applicable and can really help you better understand the investment landscape. For these reasons I encourage you to buy Fixing the Game on Amazon and learn for yourself!
If you still want a little more information though, you can also check out the video book review below to get more information on Fixing the Game, and whether it’s the best business book for you.