The real problem with big business

There have been a lot of argument about what should be done with AIG. A lot of so-called liberals have spoken out against corporate buyouts. I say so-called because this is, by far, the most socialistic action our government has ever taken. And, by republican standards, everything socialistic is liberal, so we should all be jumping for joy.
But liberals are pissed about the golden parachutes for CEOs. However, while absurd CEO packages are a symptom of the underlying problem, they are not the cause.
Follow me after the jump.
Plenty of people are pissed about the crazy-ass compensation packages for CEOs. However, this is just a symptom of a larger problem. It isn't the bonuses that we need to end, it's the "Professional CEOs" (aka: mercenaries) who jump from industry to industry with no knowledge of the business they're in.
The theory behind this is that, above a certain level, business is business, whether you're selling cars, computers, or toasters.
There was once a motto in business "Provide a needed service well and profitability will come." This is the fundamental theory behind the entrepreneurial spirit and lives on in small businesses across the country.  
Once upon a time, the CEO of an auto company had worked in the auto industry for decades. They may not have started on the line, but they had an intimate knowledge , and more importantly, respect, of the way that particular industry works at every level. They know from experience why this department or that is important, because they've seen it in action. And also, even more importantly, they have a vested interest in the long term health of the company they run. It's a personal pride thing. Everyone has a personal sense of pride in their work and in their company, whether it be waiting tables or selling computer software or designing cutlery. (Personally, I have been emotionally invested in every company I have worked in, even if they weren't all that invested in me.)
However, in the modern world of big business, mercenary CEOs cross industries with no training or knowledge or respect of the industry they are working in. So, health insurance is the same as auto-manufacturing is the same as fork manufacturing. It's all about the short-term bottom line, with no regard to quality or service or even THE LONG TERM HEALTH OF THE COMPANY.
The last point is in caps for a reason, because it's a HUGE part of the mess that we're in. (Not the only part, obviously. Its just a really potent catalyst)
Mercenary CEOs won't sign with a company until they are assured those "golden parachutes" that we all hate. However, most of those golden parachutes have SOME caveats. So, therefore, the mercenary CEO does JUST ENOUGH to fulfill those caveats, and nothing more. In fact, the most important thing for a mercenary CEO to do is to make a lot of money very quickly. This earns him or her a good reputation as someone who can turn things around, or give a boost to flailing company.
This is how the whole thing goes: A company is having trouble. Maybe a little, maybe a lot. They hire a mercenary CEO. The CEO comes in and makes a LOT of changes to everything, usually resulting in layoffs in a variety of ways. The most ruthless is the "10% policy" in which the lowest performing ten percent is automatically fired EVERY YEAR. Another is to declare that every division, no matter how productive or necessary, MUST fire 15% of their workers. Yet another way is to ruthlessly cut back on EVERY division that doesn't actively produce revenue. DISCLOSURE: This falls into things like field technical support, which is why I was recently laid off. It wasn't because we didn't have enough work, it was simply because we didn't actively generate revenue. Of course, with inadequate tech support the revenue will eventually fall due to unsatisfied and angry customers who drop the company as a supplier. But for the mercenary CEO, this isn't a concern. Because their single and overwhelming goal is to make a short term profit. And, for a couple of years, this strategy works. Doing crazy things (like eliminating tech support, or focusing all your effort on building GIANT SUVs) makes a ton of money.
Then, the mercenary CEO leaves, with a grotesque amount of money. Well earned, says the board, because he or she made the company a lot of money in a short amount of time.
However, the company almost immediately falls apart because all those layoffs, all those division cuts, all those SUVs built, did not take into account the long-term health of the company. The CEO doesn't care, because they've got theirs. But the company dies or needs a government bailout (if they're big enough).
But the mercenary CEO, they've moved on to the next troubled company. Because they did SUCH a good job with the last one. And, after all, the company only failed AFTER the CEO left. And they're desperate for some short-term relief. And they won't fail like the last one.
The ridiculous CEO compensation is a symptom of the sickness, not the cause. The CEO needs to have some respect for the industry and for the company, and should be hired from within (or from another company in the same industry) and TAUGHT about being a CEO. The era of the mercenary CEO MUST END.

Tags: big, Business, Election, Meltdown, stock (all tags)


1 Comment


for the real danger to our economy.

by EvilAsh 2008-09-20 01:24AM | 0 recs


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