Charles Hugh Smith, a thoughtful, insightful and creative blogger, comments on economic, social and political issues. However, last Friday he departed from his usual fare, and launched into a corporation bashing diatribe:
Scrape away the Human Resource Department rah-rah about “our mission” and how much your loyalty is “valued,” and what’s left? A paycheck and a sucking sound.
Let’s state the heretical obvious: Corporate America, you suck. We could count the ways–subverting democracy via your lobbying and campaign contributions, your sabotage of competition via regulatory capture, and so on–but what really matters is how you treat your employees.
We know: you really care about your employees. Really. The propaganda would be laughable if it wasn’t so bald-faced. Do corporate managers really believe in the Big Lie theory, that the bigger the lie, the easier it is to sell? Corporate America Really Cares About Its Employees (Really)
For 32 years, I worked for two major corporations and had business dealings with scores more. While it would be easier to agree with Smith, a little balance is needed before falling into the growing populist past time of corporation bashing.
The Role of Corporations
Corporations have a simple mission: maximize profits for their shareholders. The rest is mere commentary. The public, our politicians and even the corporation’s own employees often have a difficult time understanding this concept or simple mission. These and other constituencies would like corporations to meet a number of additional Social Objectives: provide work to minorities, females, veterans and the handicapped; improve the environment; publicly eschew support for certain racist or totalitarian countries; refrain from the defense business; donate generously to charities; support local educational efforts; provide job training and help reduce unemployment.
These Social Objectives may have their foundation in law (anti discrimination laws, affirmative action), shareholder activism (restrictions on investment in certain countries), or social pressure (donations to local hospitals, arts initiatives and civic pursuits).
Maximizing Shareholder Value
A corporate CEO has many ways to maximize shareholder value. An enlightened CEO may embrace Social Objectives because they are good business. He or she may publicly embrace affirmative action, which may help the corporation hire more talented and diverse individuals. The corporation then can become an “employer of choice” for talented and progressively thinking individuals. When executives provide community service and make donations to local charities it burnishes the corporation’s image. This approach is especially helpful if the corporation makes or sells a consumer product or service; consumers then think of the corporation as caring and concerned when they go to buy a product. In the same vein, an enlightened CEO may wish engage in socially conscious investments: avoiding racist countries (South Africa when apartheid was practiced) or investing in environmentally friendly projects. Such foresight may limit shareholder complaints, encourage stock investment and again remove a barrier in the consumer’s mind to the purchase of the company’s goods and services.
A less enlightened CEO may adopt a different approach. He or she may decide on a ruthless cost cutting approach: no charitable contributions, and constant layoffs and firings to “keep the workforce on their toes.” Usually in this paradigm, executives serve on the boards of charitable organizations on their own time, and adherence to the equal opportunity laws is more marginal, or at best a lower priority,
Corporations and their Employees
Much of the anguish over how corporations treat employees is based in nostalgia and memory of how employees were treated half a century ago. Since I worked on employee benefits and compensation issues, I was privy to this history and the evolution of human resources and benefits practices.
After World War II, there was no better place to work than a large corporation. The War had effectively destroyed competition and America produced 50% or more of worldwide production. With large manufacturing firms such as GM dominating the economic landscape “30 and out” became a rallying cry to retain employees for a long period of time and then permit them to retire early. Thus, companies provided cradle to grave job security in the form of no layoff policies, free active and retiree medical insurance and lush pensions. When I first started work in 1977, if a manager needed an employee, he or she just filled out a requisition and called human resources to find a candidate. There was little or no questioning of a request to hire. Raises and promotions were plentiful. The role of human resources was to keep the workforce happy.
The world has changed. We have new technologies which have made the skills of many employees obsolete. We have foreign competition which has made the American worker seem expensive and unproductive compared to cheaper Asian employees. Finally, we have a financial sector which has glorified short term performance, over long-term investment in employees and the business.
Smith inveighs against the current notion of “dispensability” of American employees. But corporations were at their inception a legal invention designed to perpetuate themselves beyond the life of any one employee. Their essence is that all employees are dispensable, from the CEO to the loading dock worker. Even in the halcyon post-World War II days employees were terminated. Why is Mr. Smith surprised that corporations fire and lay off employees to maximize profits?
This more recent profit maximization formula has made the early post World War II era look extravagant and the current environment look harsh. But were corporations good then and bad now? Can we paint this picture in such stark terms? My next blog will explore this further.
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Related posts:
- Corporations: The Good and the Bad
- The People v. Wall Street
- The Meal Was Great; Our Outlook, Not As Good
- Mission Creep
- Safety and Profits: Oil and Water?
Tags: "30 and out", corporations, layoffs, maximizing shareholder value
