Short term greed killing American jobs

March 17, 2013

Short-term management killing American jobs

We all know our nation is in deep financial trouble, and our political leaders seem unable to take any meaningful actions to repair the damage...or even slow down the bleeding. We also know our economy has not even come close to recovering.

No matter how the unemployment rate is spun...23 million Americans remain un or under-employed. This has resulted in nearly 50 million Americans living below the poverty level, and nearly all rely on food stamps and other government assistance to survive. to make matters worse, wages for the vast majority of Americans have been virtually stagnant for several decades. In spite of these clear side-effects of our failing economy, our nation continues borrowing nearly 40% of what it spends and faces a staggering $16 trillion national debt.

I have blamed powerful special interests, namely big businesses for using their lobbyists to influence lawmakers to ensure all laws favor their interests. I have also complained about politicians so easily allowing themselves to become prostituted by lobbyists. I even pointed the finger of blame at ourselves for blindly supporting one party over the other, or just dropping out of the voting process.

A recent article published in Forbes about a new study from Harvard has revealed another factor which should be added to our list of concerns. The studies authors are three highly respected Harvard professors, Michael Porter, Jan Rivkin, and Rosabeth Moss Kanter. They were motivated to do the study and publish their conclusions because, as Professor Porter explains, "there was a clear feeling that something different was happening in the U.S. economy...this was not just a deep recession caused by the housing mortgage crisis and so forth...something more was going on."

Part of their concerns was recognition the majority of jobs created over the last decade were mainly locally by employers such as, government, healthcare, retailing, and others not exposed to international competition. They said this was a sign U.S. businesses were losing the ability to compete internationally.

They decided to begin the study by surveying their own Harvard MBA alumni. Of the more than 6000 respondents, a third represented the senior leaders at the highest levels of a huge number of American businesses.

These leaders verified American companies were not competing effectively internationally. They...not surprisingly...overwhelmingly believed they were doing good jobs as leaders. They place all the blame on the government for restricting their ability to manage more effectively. The authors were actually shocked at their mass attitude of ducking responsibility, and even stated they wondered what had happened to the old American can-do attitude which used to prevail.

The authors agree government has played a restrictive role, but only in relatively minor ways. They believe the real reason for these highly educated leaders failure to compete internationally was caused by changes in corporate governance and compensation which began in the late 70s. Compensation plans were designed to increasingly reward management for accomplishing the short-term financial metrics expected to most positively and immediately affect stock prices. The management process thus became driven by cost reductions because it was much easier to manage than pursuing new customers...or even maintaining old ones.

Over the past four decades, managers have been increasingly rewarded for improving efficiencies and lowering costs instead of exploring new ideas about how to better serve customers. Not accidentally, this is the same exact time frame when the U.S. middle class began the decline which continues today. The authors go on to point out specific examples of U.S. companies and industries which missed out on technical changes and innovations which eventually put many out of business. Almost always because senior management was primarily pursuing short-term financial metrics.

I was very surprised to hear these three Harvard professors actually place the blame for this short-term management style on the curriculum being used by the best business schools...including their own Harvard.

Should we be surprised to learn even the best and brightest from the best schools would succumb so easily to managing primarily to meet short term goals? Didn't any of them care about long-term repercussions? Ask yourself...if you were one of these business leaders and you knew you would maximize your personal rewards based on the short-term financial performance of your business...what would you do? If employees were your highest cost item, how far would you go to reduce these costs? As the middle class has witnessed...pretty far indeed!

Another Harvard professor named Mihir Desai says, this type of compensation has now produced a giant financial incentives bubble for senior management which is inexorably pushing the U.S. economy into decline.

The authors said the most incredible realization they got from analyzing data collected was the fact "customer" was not mentioned a single time by any respondent!

Professor Rivkin summarized by saying, "the ability of firms in the U.S. to be competitive in the world economy and to support living standards in America is in doubt."

The authors believe the only hope is for the best business schools to change what they are teaching in order to get our nation's future leaders back on track toward focusing on the customer and doing everything possible to delight them through innovation and quality. What...no government fix? If you are still optimistic, please let me know what you are drinking...I want to join you.

These are my opinions. What do you think?

Mike Tower