Corrosion and Corruption

Is corrosion just part of life?

Photo: Mark Buckawiki. Source: Public Domain Project.

I’ve bought a couple older cars. When I check out a used car, one of the things I look for is corrosion on the battery. There’s blueish copper salt that forms on a battery’s positive terminal, or there’s a white powder that grows on the negative terminal. Both are signs that there can be problems with the electrical system. If left to itself, corrosion grows, eventually making it hard or even impossible to start the car. Corrosion doesn’t conduct electricity very well.

Corrosion is a fact of life with car batteries. It forms because the potential power in the battery leaks out onto the terminals. Coating the terminals with petroleum jelly or some other protective device can help, like those plastic covers over the terminals on newer cars. But eventually, the chemicals leach out and degrade the connection. If the corrosion gets into the battery cable, it may need to be replaced.

Corrosion in a car battery is like corruption in public life. The influence that comes with political power and financial success can be corrosive. From the ancient Greeks onward, people have explored the corrosive effects of power. Homer’s Iliad is based on a conflict between Achilles and Agamemnon, a conflict that started because Agamemnon used his position as ruler to steal Achilles’s girlfriend. Achilles went on strike, and thousands of Greek soldiers died as a result. When power corrodes personal and public relationships, they don’t conduct very well. The result can be disastrous.

Scene from the Iliad on ancient pottery. Source: Wikimedia

When we’re investing, one thing we look for is signs of relational corrosion in the management team. Insider loans, excessive compensation, early promotion of family members – these are all signs of rent-seeking, treating a company like it’s the manager’s personal piggy-bank. Companies led by self-serving executives won’t do very well, in the long run. They can’t attract the best talent, even if they offer a lot of money. The best don’t come for money.

Unless checked by customs and institutions, power and money leak out and corrode the personal networks that make a company work. They may cover the terminals, but we should always check the connections.

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-01-17T07:14:43-04:00January 17th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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