Featured Quote

In 1913, Henry Ford wrote the following as the directors had been reaping the rewards of profits - "The wages we pay are too small in comparison with our profits. I think we should raise our minimum pay rate".

Thursday, March 31, 2011

Short Run Results vs. Long Term Viability

A 2003 Address by business leader Bill George identified the problem in the Business sector that has gone on to cause an economic collapse, propped up by a tax-payer funded bailout - but destined to fall again, unless things CHANGE.

Its hard to trim out just a few pieces of his lengthy writing to hi-light, but I've tried with this one :
We are witnessing the excesses of the shareholder revolution that began fifteen years ago. In its early stages, pressure from shareholders did much to improve the competitiveness of American corporations, as companies trimmed unnecessary expenses, improved profitability, and increased cash flow. However, the financial rewards from their actions, both corporate and personal, were so great that companies and shareholders alike developed an inordinate focus on short-run results. In a booming stock market, it all seemed to be working.
Then capitalism became the victim of its own success. Instead of focusing on traditional measures such as growth, cash flow, and return on investment, the criterion for success became meeting the expectations of the security analysts. Investments were cut back in order to make earnings, limiting the company’s growth potential.
Here is a more poignant slice of wisdom :
The general public played a role in this tragedy as well. In idealizing the high-profile personalities that ran these companies, we made them into heroes. We equated wealth with success and image with leadership. To our dismay, we have learned that these celebrity CEOs have been filling up their personal coffers at their shareholders’ expense, while destroying the pensions and life savings of thousands of people.
People are still making criminals into heroes.  When we say that CEO pay is too high, they cry that we want to punish success.  No, it is not success that would be punished, it would be excess.  If you 'succeed' by destroying others, taking away from others and harming the economy of a country, that is not success, that is a failure.  It is a failure of Ethics, a failure of Good Business and a failure of Personal Responsibility.

Here is an example of the kind of "business leadership" I (and US Uncut) have been talking about - a failure of epic proportions :
Back in 1998 I met with one of these leaders to talk about acquiring one of his companies. In our brief meeting he explained how his off-shore headquarters enabled his company to avoid U.S. taxes, how he automatically issued pink slips to twenty-five per cent of the workers on the day he acquired their company, and how he shut down every research project or investment that didn’t pay off in the first year. As I walked out of his office, I held onto my wallet and decided to cancel further talks with him. You cannot do business with people you do not trust.
Here is why I am not for legislation to take care of this issue :
It is impossible to legislate integrity, stewardship, and sound governance.  
Ethical Capitalism MUST begin with the Companies themselves.  We can choose who to buy from - even if their product is not "the best" in the market.  We have a choice and a way to influence decisions.
Somewhere along the way we lost sight of the imperative of selecting ethical leaders that create healthy corporations for the long-term.  
 The lessons from this crisis are evident: if we select people principally for their charisma and their ability to drive up their short-term stock price instead of their character, and shower them with inordinate rewards, why should we be surprised when they turn out to lack integrity? We do not need executives running corporations into the ground in search of personal gain. We do not need celebrities to lead our companies We do not need more laws.
We need a new kind of leader.We need authentic leaders, people of the highest integrity, committed to building enduring organizations. We need leaders who have a deep sense of purpose and are true to their core values. We need leaders with the courage to build their companies to meet the needs of all their stakeholders, and who recognize the importance of their service to society.
See, can't stop clipping from that blog! Great stuff and STILL relevant. We need a New Kind of Leader - well, actually an old fashioned kind of leader.  Perhaps some that prefer to make twenty thousand workers prosperous and contented rather than a few executives multi-millionaires.

There are a lot more gems in the piece, but I will let you read it for yourselves.  Please comment here.
While the development of fundamental values is crucial, integrity is the one value that is required in every leader. Integrity is not just the absence of lying, but telling the whole truth, as painful as it may be. Without complete integrity in your interactions, no one can trust you. If they cannot trust you, why would they ever follow you?
A book to read : Leadership Is an Art
DePree believes that a corporation should be “a community of people,” all of whom have value and share in the fruits of their collective labor. DePree practices what he preaches. While CEO, his salary was capped at twenty times that of an hourly worker. In his view tying the CEO’s salary to his workers helps cement trust in leadership. Contrast that with today’s CEOs, who are earning – on average – four to five hundred times their hourly workers. As DePree said recently, “When leaders indulge themselves with lavish perks and the trappings of power, they are damaging their standing as leaders.”
 Check out Bill George.