I read an interesting article the other day; it seems that people are blaming business schools and MBAs for the current mess. They claim that business schools teach their students that snap decisions and short term profits are a correct form of leadership, and the responsibility is to the shareholder to the exclusion of the workers and customers. This is an interesting thesis, and it is supported but the fact that CEO is now a profession, and companies can shop around for the “right” CEO. There was a time when most CEOs even if they were born to be a CEO started in the mailroom and worked their way up. They knew the company and its market intimately, but in this time of professional CEOs I doubt the CEO of most major companies truly understands what is being done in the R&D department. This is because the CEOs job is to maximize shareholder value, and most CEOs are like the President of the USA, if you are popular they will keep you around for a while, but in the end there are term limits. So if you set something up that will make profits thin for several years but in the end the company will make see huge rewards, you will likely lose your job and then your replacement will either reap the benefits or kill the project and point to those now fruitless years as a sign of your poor leadership.
To fix things CEOs need to be more like benevolent dictators, since without term limits planning can be much longer term. But like dictators, there needs to be a system for a peaceful coupe d'etat so if those who follow you lose their faith in you, you can swiftly be replaced. This means that the shareholders need to be linked to the success of the company long term
The answer is either in ownership by people like Warren Buffet who says you should never buy anything unless you plan to own it long term, or worker owned companies. The key to Warren Buffet’s success is summarized in that paraphrased statement, since he buys companies that are solid-ish then through leadership with an eye to long term gains makes the companies successful. However, there are not a lot of people like Warren Buffet. Most people would feel the need to show that their leadership skills and cash in too early.
That leaves worker owned companies, since people who hope to retire from a company that is more profitable than ever can see long term. The biggest obstacle to this is the Unions. Unions are political animals just like companies and see the need to maximize short term gains. How can a company survive if the management and the workers are both pillaging the coffers for short term gains?
I am not saying that communism the way, I am saying that power needs to be in the hands of people who can see past the next set of quarterly reports to a time when their kids will be applying for their old jobs. This does not require closing up the stock markets; this requires altering the structure of the board, and proxy voting system. If the workers own >51 percent of the company, in shares they can’t sell until they leave or retire, and the management also has the same golden handcuffs, selflessness is easier to achieve. (The shares you sell off over time will be a big piece of the pension, but the constant influx of younger workers keeps the company from becoming too “old” in its financial policies.) The external (minority) investors will still have seats on the board and votes at meetings, so they can sway the majority owners and win votes, and keep the company streamlined. However the CEO will now answer to the people on the factory floor or in the labs, instead of in the offices of the various mutual funds.
Now is actually a good time to make these changes, the US government has loaned enough money to the pillaged companies that it is now the majority owner in many. The workers are being asked to that pay and benefit’s cuts to help keep the companies afloat. This administration has proven that it is pro-worker, and unless many of these companies seriously change their ways, the government is just going to end up with a lot of factories after all the bankruptcies proceedings close. Instead, give the companies to the people who have an interest in their long term success, by selling the workers the discounted debit, for the required concessions. The UAW has long said they could run the Big Three better than the actual leadership, now it could be time to prove it. The American tax payer has a better shot of see their money again this way, than they do if the old guard leadership of the companies and their questionable practices are allowed to continue on. Once the debt is repaid then the workers can renegotiate their contracts and see both sides of the coin. Since competitive wages at the top end will now be justified by the workers seeing the value to the company. If the workers don’t vote for a good top level pay package they won’t be able to attract top talent. If they take a bonus instead of reinvesting in R&D, then next year they might be voting for layoffs or factory closings.
To some what I am proposing might smack of communism. It is not, the workers are investors, and the companies become a true democracy. By doing it this way the power can be put back into the hands of people who care about the future of the companies and this country, without the government needing to do it for us. If the government has to reform the financial system then communism or socialism is much more likely. By making the leadership of companies accountable again, we might reform our country and get out of a boom and bust cycle and back on a path that sees slow but continuous growth. The alternative is changing the mindset of all the people who went to business school to match that of Warren Buffet. You pick, which you think will be easier…
Though for the people who actually propose this idea in front of any USA legislative body, you better pray a phoenix really can arise from its own ashes, cause that is the only way you going to come out of this alive. However, if we stay on a path where it’s a few years of boom and then longer and longer busts, we will be a second class country again in a couple generations.
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