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Why do so many “successful” corporations fail? The dirty little secret behind the headlines…

There is something in common behind the most spectacular corporate failures of the past few years - and we only ever hear about the biggest ones as the smaller ones don’t make headlines. There are many more, and there is a reason for them. It has nothing to do with the economy, cars or mortgages, the stock market or supply and demand, but a single common factor shared by ALL failed corporations.

Publicly traded corporations are owned by a large group of independent investors who don’t even know each other, each one is too small individually to exercise any rights or responsibilities any real business owner would. If you ever tried to put a few hundred people in a room and get them to agree about anything, you know that it is pretty much impossible.

So any such corporation is owned by a large group of people who each have their own opinion, but none of them has any rights to make a decision about what the corporation should be doing. Therefore in actual fact, a corporation is worse off than a company with NO owners at all. And what happens with something that has no owners, like an abandoned house? Yes, it gets looted until there is nothing more of value left to be taken, a ruin left behind for destruction and decay until someone decides it’s time to clean up the street by demolishing what is left.

But since unlike an abandoned house, a corporation cannot be without managers, a corporation’s board hires people to manage its affairs.

Trouble is, that in many cases, the managers they hire turn out to be the looters themselves, albeit the smarter ones: those who want to loot the corporation from inside, stuffing their pockets and private accounts, but instead of being prosecuted, they are protected by the legal system. They leave behind a company in ruins, but they themselves become rich beyond imagination in the process - all 100% legal. What can we say: pretty smart!

Is this what is being taught in our universities and MBA courses today? Hopefully not, but it just strikes me as interesting that occupying one of those golden chairs always comes with the requirement of being a graduate of at least one, preferably more of them.

The “game of corporations” has been made into a giant pyramid scheme by an odd combination of the stock market and incompetent, irresponsible and self-serving CEOs.

The CEO “who got in on top” gets paid millions of dollars regardless of how many people on the bottom lose their money. People at the next level of management get smaller, but still sizable fortunes, just for being close to the top. And people on the bottom, who invested their money in the corporation may wake up any morning to the news that their investments have become worthless. That’s it - game over, please make your bets for the next round. The people on top of the pyramid made enough money to be flying private jets for the rest of their lives, and the small people on the bottom lost their invested dollars. Well, there is a risk in investing, and they put their money on the wrong horse - one that took their money and ran.

The only thing that conceals these pyramid schemes and makes them seem like they were anything else is the fact that they hide their own private moneymaking business behind operations that have become recognizable, trusted brands, built by others before them. All these CEOs and managers do is use the name and the trust that goes with the brand to channel money to their own bank accounts. The moneymaking scheme they are operating is successfully separated from the original operation like making cars, selling electricity, running a bank or an insurance company. (That explains why the “bonuses” never seem to have any connection with the success or failure of the original operation, since the executive contracts were never meant to serve the corporation’s success or interests, but the executive’s moneymaking goals).

Are these CEOs and managers interested in these operations at all? Not on the top. They look down on the small person who is busy creating something of value. They feel like it is too low for them to be involved in making something - they are royalty, not workers. Their only interest is financial transactions - investors, share value, dividends, bonuses, executive pay, wealth-building, luxury homes, private jets and the like. Only the lower level managers are involved in the “dirty work” of running operations that actually produce something. That’s just the props for the show - the real business of CEOs is completely separate and different, ran from the luxury penthouse office suite or on the golf course, far away from the noise of factories.

Originally, the idea of a corporation served a different purpose. The idea was that investors would all become part owners of a business, each pitching in part of the money needed to fund a business to enable it to grow. But would you invest $500 in a corporation if you knew that the top management’s plan with with money you lent  them to make the business grow was to deposit it into their personal accounts as a “bonus”, while your $500 investment became less and less valuable until it reached zero value - a share in a bankrupt company?

What is the common denominator of those corporations that made headlines in the recent past by becoming spectacular failures? On investigation, every case turned up skeletons in the closet, huge bonuses paid to failed executives, lies, dishonest, greedy people on the top, lack of proper management of the company, and, in every single case, executives who were busy falsifying their own “performance” by creative accounting or drumming up PR in the media about how well they were doing. Not surprisingly, since they never got paid on real performance, but by the false impression of “performance” they themselves created.

Is the top management of a company responsible for its success? Since they carry the burden of “being responsible” for thousands of employees, billions of dollars, making the most important decisions, they agree that they must be compensated with an 7 or 8 figure income for “having such a huge responsibility”. But what does that responsibility mean in addition to a justification for a gigantic paycheck? If the corporation fails, do they still have that responsibility?

Apparently not. Today’s best paid CEOs seem to have a peculiar new definition for responsibility: “If the company is doing well, I am responsible for its success. If the company is not doing well, I am not responsible for its failure.”

Failing in their jobs spectacularly has no consequences whatsoever for CEOs and top managers. They get fired. So what? They signed a contract that in case they get fired, they are entitled to a HUGE severance package, guaranteed by contract - so they have the entire legal system to protect their rights to their loot and their personal wealth amassed in the process. Even when they fail so badly that the corporation doesn’t want them at the helm any more, they must pay a king’s ransom just to get rid of them.

It is too bad that so many great corporations, originally founded by real entrepreneurs, end up in the hands of the worst get-rich-quick scam artists who see them as an opportunity to make a quick buck (or a billion) for themselves. After they got what they wanted, they just jump ship with their pockets stuffed, leaving corporate skeletons behind.

We hear them preach in the media about “corporate responsibility”, but they haven’t even arrived to the point when they can grasp their personal responsibility.

I don’t mind if a CEO makes a billion dollars a year if it is proportionate to and paid out of the profits the corporation made under his or her leadership. But I think it is criminal to take even $100,000 as executive pay for a job that was supposed to make the business succeed, if the corporation did nothing but lose money, or even worse, went bankrupt.

Wouldn’t it be time that REAL executives with REAL responsibility, with employment contracts reflecting that responsibility, and with bonuses only paid on actual performance replaced the scam artists currently at the helm of many - large and small - corporations?

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There are 3 comments for this post.
  1. Comment #3
    Catalyst Web Designs on May 20, 2013 at 10:50 pm

    Amazed at how many Twitter Followers and Web Views you have for such a simple website of only 4 posts. What’s your secret? Will there be more posts soon, or is this it? Thanks for you time today. https://twitter.com/Meachamrob

    Catalyst Web Designs
  2. Comment #2
    topeka on January 4, 2013 at 6:56 pm

    Baloney Investigater - Try starting a company.

    The original post makes excellent points and criticizes the “Corporate” or “Wall Street” system with RELEVANT points

    Which are NOT DISPUTED by the Right Wing press. Find one example of any Right Wing host, analyst, or journalist defending Embezzlement or Accounting Fraud? Any fool following the financial news knows that any investment adviser worth his salt is constantly accused of being “Right Wing” for Telling the Truth about Big Bad Businesses.

    … So you know you are LYING unless you’re a complete drooling idiot.

    The I find your OFFENSIVE LIES so OFFENSIVE is because you are ATTACKING ME AND MY FAMILY!

    YOU LIARS ATTACK, ATTACK, ATTACK, ATTACK, and ATTACK!

    You accomplish NOTHING to limit the power of the PINHEAD CEO’s criticized in the ORIGINAL POST. NOTHING to protect investors, employees, pensioners, or bondholders! In fact, the SEC deliberately washes over crimes committed by the PC and the connected.

    So your Post is HOGWASH!

    Meanwhile, as one of the 13 million CEO’s of a corporation, I constantly face a barrage of absolutely useless regulations, compliance requirements, and just plain HATE fomented by the LIES of SCUM like you.

    topeka
  3. Comment #1
    N. Vester Gator on December 21, 2011 at 10:14 am

    We often hear stories from such sources as Talk Radio, the right wing conservative Republican propaganda mill, that paint all businesses as the heroes of the world, and anyone who would cast dispersions on any of them as scum of the earth. Some corporations may, indeed, fit the profile of wonderful business conglomerations — wisely and competitively and ethically run, providing products the world needs, using their power to apply large amounts of money to research and development and to production of products and/or services of great benefit to many. But many corporations, large and small, are little more than legally protective shells around deliberate, calculated, criminal, con artistry.

    The right wing propaganda speaks out of both sides of its mouth: praising the constitution, waving the flag and playing patriotic music while faulting the government as being too big when and if it enforces the laws of the land and the regulations that protect the citizenry from being criminally exploited, poisoned, sold products that are dangerous or of poor quality, sold services that cheat and exploit them.

    Now retired, I worked for years as an investigator for the U. S. government, and saw criminal fraud engaged in and GOTTEN AWAY WITH behind the legal veil provided under the laws for corporations. That corporate veil was designed to allow business ventures the freedom to honestly avoid risk to personal incomes of those who honestly wish, and try, to become “good” law-abiding businesses. I found corporations using every kind of trick of the trade to circumvent being prosecuted for blatant pocketing of investors’ money without even trying to profit off it. Unfortunately, a corporation’s principal officers can, if they are very, very smart and wise in having or hiring legal advice on how to beat the system, they do. And often they beat it for millions of dollars, while making no attempt to provide more than the appearance of “trying” to compete in business or make a profit for the corporation. Whatever profit they can generate, they syphon off into their own pockets. And whatever losses the corporation has get charged off to the corporation, eventually bankrupting it. And the smartest, most successful corporate managing criminals take great care to contribute to political campaign funds and make “friends” of politicians, and call upon those politicians to use their influence when, and if, they (the corporate officers) begin to feel law enforcement or regulatory enforcement agencies breathing down their necks. And, regretfully, many of those politicians become wealthy off what can be called, laundered favors, favors or money opportunities that are legal because the sources of them (crooked corporate officers)have used legal loopholes and untraceable methods of translating bribes appear to have come from casual contributors and benefactors.

    Insider information, from a crooked corporate executive, is illegal for any other citizen to utilize in avoiding loss in the stock market, or gains resulting from knowing when a stock’s price is about to be driven up by some news only insiders know. But politicians are exempt from prosecution from insider trading. The crooked ones often turn their account over to someone else, so they can say they did not use insider information provided to them. But they easily can, and many do, drop a hint to that person or agency to buy or sell, and not get caught.

    Again, good corporations exist, and are a wonderful boon to an economy, while crookedly run corporations are one of the greatest spoilers of an economy. In fact, the U.S. housing market was destroyed with the knowledge of, and at the direction of, corporate managing criminals. As of this date (12-21-11) the politically controlled enforcement agencies have not prosecuted any top-ranking officer of even one of the seventeen Wall Street Banks that bilked the system of trillions — yes, trillions with a “t”, destroying the housing market and causing what would have been a “correcting” recession to become the Great Recession.

    It is one thing to know this is going on. It is quite another to do anything effective to stop it. When the elected officials of a nation are legally allowed to be “on the take” by way of legalized campaign donations and carefully laundered favors from criminal corporate managers, there is little hope of law enforcement agencies or regulatory agencies to protect the public from being scammed. And those who work inside those agencies, if they reveal too much of what they know, simply expose themselves to losing their jobs or worse.

    N. Vester Gator

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