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?