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Monday, June 12, 2017

Reading List: Kindling

Shute, Nevil. Kindling. New York: Vintage Books, [1938, 1951] 2010. ISBN 978-0-307-47417-9.
It is the depth of the great depression, and yet business is booming at Warren Sons and Mortimer, merchant bankers, in the City of London. Henry Warren, descendant of the founder of the bank in 1750 and managing director, has never been busier. Despite the general contraction in the economy, firms failing, unemployment hitting record after record, and a collapse in international trade, his bank, which specialises in floating securities in London for foreign governments, has more deals pending than he can handle as those governments seek to raise funds to bolster their tottering economies. A typical week might see him in Holland, Sweden, Finland, Estonia, Germany, Holland again, and back to England in time for a Friday entirely on the telephone and in conferences at his office. It is an exhausting routine and, truth be told, he was sufficiently wealthy not to have to work if he didn't wish to, but it was the Warren and Mortimer bank and he was this generation's Warren in charge, and that's what Warrens did.

But in the few moments he had to reflect upon his life, there was little joy in it. He worked so hard he rarely saw others outside work except for his wife Elise's social engagements, which he found tedious and her circle of friends annoying and superficial, but endured out of a sense of duty. He suspected Elise might be cheating on him with the suave but thoroughly distasteful Prince Ali Said, and he wasn't the only one: there were whispers and snickers behind his back in the City. He had no real friends; only business associates, and with no children, no legacy to work for other than the firm. Sleep came only with sleeping pills. He knew his health was declining from stress, sleep deprivation, and lack of exercise.

After confirming his wife's affair, he offers her an ultimatum: move away from London to a quiet life in the country or put an end to the marriage. Independently wealthy, she immediately opts for the latter and leaves him to work out the details. What is he now to do with his life? He informs the servants he is closing the house and offers them generous severance, tells the bank he is taking an indefinite leave to travel and recuperate, and tells his chauffeur to prepare for a long trip, details to come. They depart in the car, northbound. He vows to walk twenty miles a day, every day, until he recovers his health, mental equilibrium, and ability to sleep.

After a few days walking, eating and sleeping at inns and guest houses in the northlands, he collapses in excruciating pain by the side of the road. A passing lorry driver takes him to a small hospital in the town of Sharples. Barely conscious, a surgeon diagnoses him with an intestinal obstruction and says an operation will be necessary. He is wheeled to the operating theatre. The hospital staff speculates on who he might be: he has no wallet or other identification. “Probably one of the men on the road, seeking work in the South”, they guess.

As he begins his recovery in the hospital Warren decides not to complicate matters with regard to his identity: “He had no desire to be a merchant banker in a ward of labourers.” He confirmed their assumption, adding that he was a bank clerk recently returned from America where there was no work at all, in hopes of finding something in the home country. He recalls that Sharples had been known for the Barlow shipyard, once a prosperous enterprise, which closed five years ago, taking down the plate mill and other enterprises it and its workers supported. There was little work in Sharples, and most of the population was on relief. He begins to notice that patients in the ward seem to be dying at an inordinate rate, of maladies not normally thought life-threatening. He asks Miss McMahon, the hospital's Almoner, who tells him it's the poor nutrition affordable on relief, plus the lack of hope and sense of purpose in life due to long unemployment that's responsible. As he recovers and begins to take walks in the vicinity, he sees the boarded up stores, and the derelict shipyard and rolling mill. Curious, he arranges to tour them. When people speak to him of their hope the economy will recover and the yard re-open, he is grimly realistic and candid: with the equipment sold off or in ruins and the skilled workforce dispersed, how would it win an order even if there were any orders to be had?

As he is heading back to London to pick up his old life, feeling better mentally and physically than he had for years, ideas and numbers begin to swim in his mind.

It was impossible. Nobody, in this time of depression, could find an order for a single ship…—let alone a flock of them.

There was the staff. … He could probably get them together again at a twenty per cent rise in salary—if they were any good. But how was he to judge of that?

The whole thing was impossible, sheer madness to attempt. He must be sensible, and put it from his mind.

It would be damn good fun…

Three weeks later, acting through a solicitor to conceal his identity, Mr. Henry Warren, merchant banker of the City, became the owner of Barlows' Yard, purchasing it outright for the sum of £5500. Thus begins one of the most entertaining, realistic, and heartwarming tales of entrepreneurship (or perhaps “rentrepreneurship”) I have ever read. The fact that the author was himself founder and director of an aircraft manufacturing company during the depression, and well aware of the need to make payroll every week, get orders to keep the doors open even if they didn't make much business sense, and do whatever it takes so that the business can survive and meet its obligations to its customers, investors, employees, suppliers, and creditors, contributes to the authenticity of the tale. (See his autobiography, Slide Rule [July 2011], for details of his career.)

Back in his office at the bank, there is the matter of the oil deal in Laevatia. After defaulting on their last loan, the Balkan country is viewed as a laughingstock and pariah in the City, but Warren has an idea. If they are to develop oil in the country, they will need to ship it, and how better to ship it than in their own ships, built in Britain on advantageous terms? Before long, he's off to the Balkans to do a deal in the Balkan manner (involving bejewelled umbrellas, cases of Worcestershire sauce, losing to the Treasury minister in the local card game at a dive in the capital, and working out a deal where the dividends on the joint stock oil company will be secured by profits from the national railway. And, there's the matter of the ships, which will be contracted for by Warren's bank.

Then it's back to London to pitch the deal. Warren's reputation counts for a great deal in the City, and the preference shares are placed. That done, the Hawside Ship and Engineering Company Ltd. is registered with cut-out directors, and the process of awarding the contract for the tankers to it is undertaken. As Warren explains to Miss McMahon, who he has begun to see more frequently, once the order is in hand, it can be used to float shares in the company to fund the equipment and staff to build the ships. At least if the prospectus is sufficiently optimistic—perhaps too optimistic….

Order in hand, life begins to return to Sharples. First a few workers, then dozens, then hundreds. The welcome sound of riveting and welding begins to issue from the yard. A few boarded-up shops re-open, and then more. Then another order for a ship came in, thanks to arm-twisting by one of the yard's directors. With talk of Britain re-arming, there was the prospect of Admiralty business. There was still only one newspaper a week in Sharples, brought in from Newcastle and sold to readers interested in the football news. On one of his more frequent visits to the town, yard, and Miss McMahon, Warren sees the headline: “Revolution in Laevatia”. “This is a very bad one,” Warren says. “I don't know what this is going to mean.”

But, one suspects, he did. As anybody who has been in the senior management of a publicly-traded company is well aware, what happens next is well-scripted: the shareholder suit by a small investor, the press pile-on, the back-turning by the financial community, the securities investigation, the indictment, and, eventually, the slammer. Warren understands this, and works diligently to ensure the Yard survives. There is a deep mine of wisdom here for anybody facing a bad patch.

“You must make this first year's accounts as bad as they ever can be,” he said. “You've got a marvellous opportunity to do so now, one that you'll never have again. You must examine every contract that you've got, with Jennings, and Grierson must tell the auditors that every contract will be carried out at a loss. He'll probably be right, of course—but he must pile it on. You've got to make reserves this year against every possible contingency, probable or improbable.”

…

“Pile everything into this year's loss, including a lot that really ought not to be there. If you do that, next year you'll be bound to show a profit, and the year after, if you've done it properly this year. Then as soon as you're showing profits and a decent show of orders in hand, get rid of this year's losses by writing down your capital, pay a dividend, and make another issue to replace the capital.”

Sage advice—I've been there. We had cash in the till, so we were able to do a stock buy-back at the bottom, but the principle is the same.

Having been brought back to life by almost dying in small town hospital, Warren is rejuvenated by his time in gaol. In November 1937, he is released and returns to Sharples where, amidst evidence of prosperity everywhere he approaches the Yard, to see a plaque on the wall with his face in profile: “HENRY WARREN — 1934 — HE GAVE US WORK”. Then he was off to see Miss McMahon.

The only print edition currently available new is a very expensive hardcover. Used paperbacks are readily available: check under both Kindling and the original British title, Ruined City. I have linked to the Kindle edition above.

Posted at June 12, 2017 00:35