We are all equal

Published by rudy Date posted on April 17, 2009

It’s becoming more evident that this crisis is not going to be as bad as feared—it’s going to be worse, the news that comes out each day is of ever worsening conditions. Now the expectation is that the world economy will shrink by 1 percent this year. A recovery in 2009 is no longer a possibility although there has been some recent talk that stock markets are bottoming out. This, though, even if it is correct and I rather doubt it is, is not recovery of an economy, only one rather narrow aspect of it.

Consumers remain in non-spending mode (maybe they’re putting money in the stock market) so factories are not producing and are hunkering down for a long period of lower production. Some sectors, like the auto industry, are in very serious trouble. So companies are taking drastic actions to dramatically reduce costs to become “lean and mean” as so many have proclaimed. Mind you, why they weren’t “lean and mean” already (when that’s what efficiency is all about), I fail to understand.

My sense is that too many of them are panicking in their reaction to this crisis and taking decisions they’ll regret later. Some will disagree with this, and they’re right, their particular industry is indeed in deep trouble and they have no choice but to react in a draconian manner, even closing plants in the worst cases. But for most, I believe there’s over-reaction, a myopia that will turn out to be more harmful than whatever immediate gains may be achieved. And the area that most worries me in this regard is the treatment of people.

What I’m worried about—this has bothered me for years but is now dramatically highlighted—is the prominence given to investors versus those who work. Shareholders are given more importance than workers. I don’t agree, a lazy dollar earned is of less value than one sweated for. But that’s not popular thinking—maybe until now.

Perhaps this crisis will re-orient the business world to be a more responsible place. I well recognize the importance of stock markets, but these are ancillary to the primary function of society: giving everyone a decent life. Now a few live a life of luxury for successfully playing with (too often) other people’s money while far too many live in penury.

If that sounds socialist, so be it. But I assure you socialism is the last thing I believe in. Equality, is what I believe in. It is just not right that 80 percent of a population lives in poverty while 10 percent live in unfettered luxury. So what we must now search for is the real balance between two conflicting ideologies—free markets or centralized control.

At the G20 Summit, world leaders discussed a previously unthinkable concept—controlling the salaries of bankers. It’s not workable and must be discarded, but salaries do need to be brought into a better balance somehow. The 50 times difference between a chief executive’s $2-million salary and bonus and his secretary’s $40,000 with no bonus is too disparate in a responsible society. Yes, his decisions can make or break the company and there must be remuneration for that responsibility. But certainly the ratio should not be 50:1.

Investors put a lot of trust in a chief executive to succeed, and pay him exceedingly well to do so. But should he just be able to comfortably walk away if he fails? Shouldn’t he/she absorb at least some of the risk seeing as it’s his decisions that are driving the business?

There’s some fascinating philosophical thinking here that this crisis could well bring out.

A relatively few people have decimated a world economy through their greed and obsession with money beyond all else. Millions are now suffering. It can’t be allowed again but how to reasonably stop it is the question.

Perhaps if you are responsible for making decisions, you are rewarded well if you succeed. But if you fail, you pay personally from your own money. Maybe that would lead to more careful, prudent (not a bad word in today’s chaos) decision making.

Maybe an executive’s salary should be based on how well the workers are treated in some reasonable formula rather than how much he brings to the bottom line. Of course, contribution to the bottom line remains important, but not dominatingly so.

Everybody agrees this is the worst crisis in our lifetime and has exposed some glaring weaknesses in the business systems, so to go back to business as usual once recovery occurs would be a serious mistake, a unique opportunity lost.

So I hope the politicians and those who advise them can go beyond the box, throw the box away and structure a truly new world business order. A conference of the world’s best minds, fully supported by the world’s political leaders, could perhaps provide that inspirational re-direction the business world should have. It’s worth a try, and here’s the crisis-driven opportunity to do it.

For us in the Philippines, what I’m worried about is head offices making blanket decisions based on cumulative fear. Fear the corporation could suffer, even fail, unless draconian actions are taken. But individual corporate performances may just be overlooked. Blanket decisions are made and applied worldwide without any consideration for local performance or local conditions.

AIG would be a classic example. It has failed, so all its subsidiaries must be sold. But, wait a minute, Philamlife (AIG’s Philippine operation) has done really well, why on earth would you want to sell it? Finally, belatedly in AIG’s case, that gets recognized. Others have not been so lucky.

Head offices are telling subsidiaries they must cut all non-essential costs and define what those are. They don’t give the local chief executive the courtesy of being able to determine himself what those are despite the fact that they hold him responsible for the company’s success or failure. It is a myopia I’d not expect of otherwise intelligent businessmen. Country managers are hired because they understand how to do business in a particular country, and every country is different. They should be given the autonomy to decide.

One of the most common dictates I’ve heard is that the labor force must be reduced by, say 10 percent. But what if a subsidiary is bucking the trend and doing well? Or where labor is not the problem, reducing it may even exacerbate whatever the real problem is.

I’m greatly bothered by what I see as a growing trend—reduce the workforce is almost always seen as a first step. This is heartless. These are people with families, with financial responsibilities, with a need for a decent life. Depriving them of it should be a last, most reluctant step. It also violates my concept of three co-equal partners in business. You don‘t treat your partner so cavalierly.

Think too, when recovery occurs, who’ll do the work? Companies will have lost the experience, the expertise needed for a growing business. It’s expensive to train new personnel and it takes time. Reducing personnel should be a last, most reluctant action. –Peter Wallace, Manila Standard Today

Comments to my columns can be sent to wbfplw@smartbro.net

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