Jan 29th 2016

Donald Trump: just how good a businessman is he?

by Scott Taylor

Reader in Leadership & Organization Studies, University of Birmingham

“Estimates of [Trump’s] exact net worth range from about $2.9 billion (Bloomberg) to $4.5 billion (Forbes).”

“[Had he] invested the $200m that Forbes magazine determined he was worth in 1982, it would have grown to more than $8 billion. [.…..] if he’d done nothing.

However, Trump has done a lot. He has had a rollercoaster career, which has involved carefully negotiating bankruptcy [……] a casino-hotel he owned and ran filed for bankruptcy in 1991; another hotel [.…..] in 1992; then, again in 2004 [……] then it happened again to his entire organisation in 2009 and it almost happened again in 2014.”

Demagoguery aside, much of Donald Trump’s bid to gain the Republican Party nomination for the presidency of the United States rests on his success as a businessman. It was his business fortune that meant he could kickstart his bid with $1.8m of his own money. But how credible a business leader is he? And, in light of his track record, should he be trusted to run the US?

Trump is certainly wealthy. Estimates of his exact net worth range from about $2.9 billion (Bloomberg) to $4.5 billion (Forbes). Billionaire status is a conventional marker, certainly in the US, of someone who is skillful and successful in business. But how Trump has come to this position is a fascinating and complex story.

The narrative that Trump promotes is, as you might expect, a stereotypical saga of individual success against the odds – a real American dream come true. In common with most celebrity business leader biographies, his is an epic adventure in which our hero overcomes adversity, fights hostile big government and established interests, and has inspired ideas. The supporting cast is few, and is largely there to acknowledge the leader’s intuitive brilliance. The buccaneering entrepreneur is, of course, ruthless in business dealings, but can also show a sentimental moral face to those who really deserve it.

It is easy to dismiss this kind of self-serving narrative, right? It’s simply a response to popular demands for a leader who fits the mould that society has constructed – nobody takes it seriously, do they? There is plenty of research evidence to show that self-presentation of this kind is crucial to the credibility of a leader. So these leadership books are published for more than just vanity or financial return – they’re intended to shape the social construction of an identity. In doing that, they hide as much as they reveal – as Trump’s life history shows.

Facts and fiction

So what do we find if we dig just a little deeper than the Trump myth presented in his speeches and autobiographical books? Some surprising things.

There are some incontrovertible facts. Trump mostly does business in real estate – he buys and sells land, commissions buildings and sells or rents them. That’s the centre of his fortune and the basis of his ability to spend money on securing political party nominations to enter presidential races. It’s not the most socially respected area for someone to do business in.

Then there are some financial facts. Here the story begins to complicate. Most observers agree that Trump was born into financial wealth and security. His father, Fred, owned and ran multiple housing rental projects in and around New York City. And this business was sometimes controversial – recent archive research has shown that Trump senior practised racist housing allocation in properties.

Through family funding, Donald Trump was able to attend one of the most prestigious business schools in the US, Wharton, as an economics undergraduate. When he graduated he was unusual, in that he claimed a personal net worth of around $200,000 (which equates to $1.5m in contemporary terms) from working for his father. This, presumably, didn’t come from wages paid during a four-year degree – if we trust Trump’s claim, the money was most likely generated by profit on capital invested.

He was then given control of his father’s real estate company in 1974, at the age of 28. While it is always difficult to know the exact state of Trump’s finances, it is estimated that if he’d simply invested his share of his father’s company in a mutual fund on the stock market in 1974, it would be worth $3 billion today and if he’d invested the $200m that Forbes magazine determined he was worth in 1982, it would have grown to more than $8 billion. This is what’s behind the idea that Trump would be even richer if he’d done nothing.

However, Trump has done a lot. He has had a rollercoaster career, which has involved carefully negotiating bankruptcy. The current count shows that a casino-hotel he owned and ran filed for bankruptcy in 1991; another hotel of his did the same in 1992; then, again in 2004, a multi-site hotel-casino group he owned and ran went bankrupt; then it happened again to his entire organisation in 2009 and it almost happened again in 2014.

These are a specific US form of bankruptcy, Chapter 11, in which a firm continues to trade while it is reorganised and debt is restructured. It’s a way of saving a business, as opposed to other forms of bankruptcy which would require liquidating the company. But bankruptcy is an unusual measure of success. And it seems to be something with which Trump has had a great deal of luck.

So one story about Trump in business revolves around his individual genius, capacity for hard work, and skill. Another points to a man who inherited the family business and a healthy amount of capital, who has been supported by US state regulations that encourage near failure. Trump’s rival candidate who cut her teeth in the world of business, Carly Fiorina, is surely right to ask Trump to defend his business record – after all, it is what he claims qualifies him for the position he’s currently seeking.

This article was originally published on The Conversation. Read the original article.


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