The first thing we do is, let’s kill all the lawyers. Dick the Butcher in Act IV, Scene II of Shakespeare’s Henry VI, Part II

Following the successful sale of stock in Butler County Mushroom Farm to its employees, the company entered into a long and sad decline. I wasn’t around for that unhappy ride because I got fired – not by my client, but by my own law firm.

A month after the BCMF stock sale I was feeling pretty delighted with myself, but not for long. One afternoon the managing partner of my law firm, Mr. D, burst into our bullpen, jabbed his finger at me, and said, “My office. Stat.”

Back in his huge corner office, which could have accommodated our bullpen plus the RMS Titanic, Mr. D told me, at high volume, all the things I’d done wrong. In the first place, he said, young lawyers (“People,” as he put it, “who don’t know their butts from a hole in the ground”) are never – never, never, never – allowed to advise a client unless they are supervised by a senior lawyer.

All clients of the firm, he emphasized, are assigned to partners. Those partners either do the work themselves or, if they assign it to a younger lawyer, supervise it and make sure it’s done right. There are, Mr. D said, jabbing his finger at me again, serious financial consequences of not following these procedures.

For example, if I’d given the mushroom farm bad advice – I was thinking to myself that I’d given them enough bad advice to fill up a limestone mine – and if the client had sued our law firm, the firm would have had to write a check for the damages, coming right out of the partners’ pockets. That’s because the firm’s liability insurance carrier would deem an unsupervised young attorney to be a “rogue employee” and would refuse to cover the claim.

Mr. D assigned BCMF to a senior partner, Mr. O, who was a very bad choice. In the first place, Mr. O was an antitrust litigator who spent his time in billion dollar trials and who had not the slightest interest in a small mushroom farm. In the second place, Mr. O tended to speak to people as though he was a demi-god and they were pond scum.

He didn’t really mean anything by it, it was just the way he was, and when he spoke like that to the likes of me, it didn’t matter. But when he adopted that attitude with Mr. Y, a proud CEO and an ex-Marine who’d fought his way across the South Pacific, well, the mind boggles – Mr. Y fired us on the spot.

In subsequent years BCMF entered into a slow decline and then into a death spiral. Like all companies, the mushroom farm faced many challenges, but two of them proved to be existential. The first was competition.

In the prospectus I’d prepared, I’d devoted numerous pages to the issue of competition, especially to BCMF’s struggle against the Kennett Square growers. I had also discussed the recent importation of mushrooms from Canada. Although the volume of these mushrooms wasn’t huge, the Canadians were targeting the US East Coast and Midwest markets – the very markets BCMF served.

I never said a word in the prospectus about the gravest competitive threat BCMF would ever face, because it hadn’t yet raised its ugly head. But it soon would – China.

In those days the US was trying to cozy up to Maoist China, and President Nixon and Henry Kissinger had even traveled to China to meet with Mao and his top advisor, the wily Zhou Enlai. All this was supposedly an attempt to lure China back into the fraternity of nations, but actually the point was to drive a wedge between China and the USSR.

As part of the plan to suck up to Mao, the Nixon Administration opened American markets to China. At the time, the Chinese didn’t produce much that was of interest to American consumers, but one thing they did produce, and in prodigious quantities, was mushrooms.

Chinese mushrooms were pathetic things, small, ugly, tasteless, and with a texture like phlegm. But they possessed one huge advantage – they were dirt cheap. These imported mushrooms could never be sold in grocery stores (the so-called “fresh” market), but they were in much demand in the “processed” market – canned mushrooms, mushroom soup, and so on.

The market for processed mushrooms had never been very profitable for BCMF, but the revenue from sales into this market basically kept the lights on while the company made its money in the “fresh” market via its branded product, Moonlight Mushrooms.

But as Chinese mushrooms flooded the processed market, and as other Asian countries got into the act, the processed market essentially disappeared for BCMF – as it did for the Kennett Square growers. That meant that BCMF and Kennett Square were now competing viciously for the fresh market – a zero-sum game.

Along the way, by the way, a struggling BCMF passed through several corporate restructurings and name changes, but to avoid confusion – and because they are a mystery to me – I’ll ignore them.

In any event, Mr. Y did what he could. He reduced costs dramatically and increased the marketing budget for Moonlight Mushrooms. He lobbied Congress and wrote letters to the editor about the unfairness of the Chinese competition. But nothing worked. BCMF’s revenue slowly declined and its profitability dropped and ultimately disappeared altogether.

I was no longer there to witness these events first-hand, but I could easily imagine the despair Mr. Y must have felt as he watched his beloved mushroom farm wither and die.

Next up: The Life and Death of Moonlight Mushrooms, Part 6

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Please note that this post is intended to provide interested persons with an insight on the capital markets and other matters and is not intended to promote any manager or firm, nor does it intend to advertise their performance. All opinions expressed are those of Gregory Curtis and do not necessarily represent the views of Greycourt & Co., Inc., the wealth management firm with which he is associated. The information in this report is not intended to address the needs of any particular investor.

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