many years ago, I worked for a 120 year old company producing industrial boilers. At it's apogee, it had over an 80% market share and a reputation for quality products.
Then came the accountants.
During the storm of leveraged buyouts in the late 1970's the profitable old company was bought by an accounting firm along with several related businesses by leveraging its assets. Within a very few years, it had a rapidly declining market share of 2% and a mountain of debt. In another few, it was gone and sold for scrap. Yes, I'm going to make a comparison between the fate of the boiler company and the fate of our nation.
Having been stripped of its reserves, the first of the fatal cost cutting practices so dear to the hearts of conservative accountants was maintenance of the aging production equipment. Soon, quality began to suffer. Advertising was curtailed: "we have to cut costs." The quality control department became overburdened with fixing problems caused by shabby construction caused by failing equipment. "We can't afford them. We need to be a 'leaner' company."
Bad welds, a dangerous thing, began to show up as welding inspectors, which for a short time I was, were eliminated. "we can't afford them." The problem of declining quality and the rising cost of redoing bad construction was blamed on the union although they were willing to bend over backwards to fix the problem and even volunteered for a wage freeze. Necessary design changes that had formerly been made in the quality control department in secret, were deemed "too expensive" although the dedicated guys in QC had been doing them by hand with parts bought at the hardware store and hand tools with their own money.
The quality control department was eliminated. "We can't afford them." We began shipping products that would not work. Field warranty repair costs skyrocketed. Our reputation nosedived.
People just short of retirement were fired to save on insurance and pension expenses "we couldn't afford." Management held the hard line on pricing. "People will spend more for our product because of the quality." Middle management was warned they'd be fired for showing that lower pricing would increase revenue.
Professional cost cutters and business school graduates with no knowledge of the equipment, its manufacture, its uses or the nature of the market were hired to fill the shoes of people who had led the company to its former heights. We had continuing optimistic reports from the new owners predicting that the cost cutting would soon turn things around.
Then came the bankruptcy, the sale, the quick demise, the economic collapse of the town surrounding the plant.
When I watch the antics of the far right, insisting, for instance, that we can't afford to stand up for equal pay for women, I can't help remembering. When we're given endless arguments about cost cutting and austerity being the way to prosperity, I remember. When we can't afford oversight, maintenance, pensions and health care and we deliberately neglect to do anything to improve revenue because it costs money, I remember.
Interesting. But then that's late stage capitalism for you.
ReplyDeleteFar too many rail against 'lawyers' but for my money if we were sink a few thousand MBAs to the bottom of the ocean we'd have a better outcome.
The list of American companies who have gone down this path were once household names; Zenith, Rubbermaid.. the list goes on. We are taking the cow to town and trading her for a handful of "magic beans".
ReplyDeleteYet I just read in the Huffington Post that most of the members of Congress saw a 16% increase in their personal wealth between 2008 and 2009. But really, I am sure they have our best interests at heart. [smirk]
Too many companies are crashing and it seems to be spiraling out of control.
ReplyDeleteI cannot even begin to say how sorry I am that this is happening in America.
You are so right and I share your pain.
ReplyDeleteThis post reminds me of the wave of hostile takeovers, leveraged buyouts, and greenmail by corporate raiders whose only motive was to strip companies of assets, bust unions, raid pension funds, destroy communities, and lower all standards of business ethics. Corporate raiders are lower than parasites.
ReplyDeleteAfter 40 years of capitalist excess, there are few good companies left that adhere to old-fashioned values or practice what used to be called “corporate citizenship.” To compare where we are today with how things used to be, it is informative to read the mission statement of Johnson & Johnson, Our Credo. Notice how all stakeholders (including customers, employees, the community, and shareholders) are included in the statement of responsibilities. A good mission statement binds management to a set of principles that spans generations. This is what we have lost in the last 40 years.
The stock option.
ReplyDeleteWhile it isn't necessarily a bad thing to reward management with equity in an enterprise based on performance the sad truth is that taken to absurd extremes any good idea can come back to bite you in the ass.
A profitable company building a decent product or providing a needed service benefiting share holders, workers, customers and the community alike seems rather...quaint.
But.
Leverage. Divide. Sell. Buy. Cut. Do things which generate a measurable effect NOW. An increase in share price becomes the end all for management and, as we have seen, the benefit is mainly theirs while customers, workers and communities (and small shareholders) are left with the change on the table after the big boys have cleared away the cash.
Suggested reading:
Barbarians at the Gate: The Fall of RJR Nabisco by Brian Burrough and John Helyar, 1990.
The story of the deal which provided the template for predatory business practices a la late 20th early 21st century capitalism. As vivid today as when it took place back in 1985. Considered by more than a few the best book on business ever written. It's a page turner.
A timely and apt comparison.
ReplyDelete