Lately in America, Success has been breeding Failure. CEO’s have been hyper-compensated including risk-less golden parachutes and boards that reward them with upticks in total compensation even when their performance lags their competitors and/or the broader markets.
Investment Banking Malfeasance
Likewise Investment Banking, Hedge Funds, and Private Equity Firms have setup a similar riskless M+A game in which they ‘buy’ (using hugely leveraged funds) medium to low performing firms that have low debt equity ratios. Take them private. Then in the relative financial reporting darkness, saddle the takeover firms with large debt loads to payoff their highly leveraged loans, cut staff and services, out-source to Asia and cheaper labor markets in order to spruce up temporarily the P&L so they can re-issue stock at a small or large premium to what they bought it at and make a killing. If in process their highly leveraged transactions and other financial activities run amiss as in the recent Mortgage Meltdown, then they exhort the Fed to lower interests rates(backed by a whopping $8million in 2008 Presidential lobbying more than the commercial banks or the insurance industries), provide huge 100’s of $ billions in loan guarantees, and open special Fed borrowing windows to bail them out of a mess that could bring down the whole financial community and economy. Talk about a riskless scam.
Managerial Risk Failure
There has been a huge number of Managerial Taking-the-Easy-Path Failures. In the Energy business, American (and world energy corporates) have a)failed to deliver any energy independence to North America and Europe despite huge 100’s of $ billions in tax subsidies, ample time, ample profits, and ample scientific R+D breakthroughs and b)have not just turned a blind eye towards the premier problem of the half century, Global Warming, but in many cases have worked actively to discredit bona fide research in the field and create FUD like the Smoking Lobby in the US. Pharmaceutical companies instead of seizing on the opportunities to revitalize healthcare responsibly, instead a)have been caught camouflaging serious defects in their products, flogging redundant and marginal cures to consumers, and ruining their own research machinery and mechanisms. Auto companies have been selling gas guzzlers to the market, resisting even low fleet miles-per-gallon requirements, and in the case of US carmakers, surrendering alternate fuel market leadership and advantages to foreign car companies. This litany could go on too easily into chemicals, parts manufacturing, and industry after industry.
Unwillingness to Face Disruptive Trends
Whats wrong here is that US Business which heretofore prided itself on its entrepreneurial spirit and the ability to out innovate all its competitors has become timid and risk-averse as they strive for the brass ring of riskless hyper compensation. Even the ability to acknowledge major global trends such as the need to reduce greenhouse gases and to live within a much tighter environmental footprint; or to start to compete with foreign, ultra cheap-labor mass production with local mass customization that will preserve local jobs and markets; or to bring compensation across the corporation into line with team and total value delivered rather than the current “alpha-dog” based hyper compensation.
Riskless Sure Things
And why should businesses boards and top managers confront these tough, even wicked problems? They can see that hedge fund and private equity executives are pulling down riskless billion $ annual total compensation. In their own domain, they have seen their compensation also become increasingly riskless while topping $15.0 million average for the top 500 executive pay packets (increasing by 38% this last year) and even if dismissed they are likely to get rehired at or even above their previous pay levels. Success is breeding Failure because for top management – success is largely riskless. And as would only be appropriate, the top Business educators are coddling this phenomenon. For example, the Harvard Business Review despite constantly calling for New Leadership and Tomorrow’s Leaders, they are mired in defending the very riskless success that is engendering failure. US Business need a 5th more of a Gut check lest they become gutless vestigial players.