by Adam Hartung | Dec 19, 2015 | Books, Current Affairs, Ethics, Lifecycle
America’s middle class has been decimated. Ever since Ronald Reagan rewrote the tax code, dramatically lowering marginal rates on wealthy people and slashing capital gains taxes, America’s wealthy have been amassing even greater wealth, while the middle class has gone backward and the poor have remained poor. Losing 30% of their wealth, and for many most of their home equity, has left what were once middle class families actually closer to definitions of working poor than a 1950s-1960s middle class.
When Charles Dickens wrote “A Christmas Carole” he brought to life for readers the striking difference between those who “have” from those who “have not” in early England. If you had money England was a great place to be. If you relied on your labors then you were struggling to make ends meet, and regularly disappointing yourself and your family.
For a great many American’s that is the situation in 2015 USA.
At the book’s outset, Mr. Ebenezer Scrooge felt that his wealth was all due to his own great skill. He gave himself 100% of the credit for amassing a fortune, and he felt that it was wrong of laborers, such as his bookkeeper Mr. Cratchit, to expect to pay when seeking a day off for Christmas.
Unfortunately, this sounds far too often like the wealthy and 1%ers. They feel as if their wealth is 100% due to their great intelligence, skill, hard work or conniving. And they don’t think they owe anyone anything as they work to keep unions at bay as they campaign to derail all employee bargaining. Nor do they think they should pay taxes on their wealth as many actively seek to destroy the role of government.
Meanwhile, there are employers today who have taken a page right out of Mr. Scrooge’s book of worklife desolation. Ever since President Reagan fired the Air Traffic Controllers Union employee rights have been on the downhill. Employers increasingly do not allow employees to have any say in their work hours or workplace conditions – such as Marissa Mayer eliminating work from home at Yahoo, yet expecting 3 year commitments from all managers.
Just as Mr. Scrooge refused to put more coal in the office stove as Mr. Cratchit’s fingers froze, employers like WalMart rigidly control the workplace environment – right down to the temperature in every single building and office – in order to save cost regardless of employee satisfaction. Workplace comfort has little voice when implementing the CEOs latest cost-saving regimen.
Just as Mr. Scrooge objected to giving the 25th December as a paid holiday (picking his pocket once a year was his viewpoint,) many employers keep cutting sick leave and holidays – or, worse, they allow days off but expect employees to respond to texts, voice mails, emails and social media 24x7x365. “Take all the holiday you want, just respond within minutes to the company’s every need, regardless of day or time.”
Increasingly, those who “go to work” have less and less voice about their work. How many of you readers will check your work voice mail and/or email on Christmas Day? Is this not the modern equivalent of your employer, like Scrooge, treating you like a filcher if you don’t work on the 25th December? But, do you dare leave the smartphone, tablet or laptop alone on this day? Do you risk falling behind on your job, or angering your boss on the 26th if something happened and you failed to respond?
Like many with struggling economic uncertainty, Bob Cratchit had a very ill son. But Mr. Scrooge could not be bothered by such concerns. Mr. Scrooge had a business to run, and if an employee’s family was suffering then it was up to social services to take care of such things. If those social services weren’t up to standards, well it simply was not his problem. He wasn’t the government – although he did object to any and all taxes. And he had no value for the government offering decent prisons, or medical care to everyone.
Today, employers right and left have dropped employee health insurance, recommending employees go on the exchanges; even though these same employers do not offer any incremental income to cover the cost of exchange-based employee insurance. And many employers are cutting employee hours to make sure they are not able to demand health care coverage. And the majority of employers, and employer associations such as the Chamber of Commerce, want to eliminate the Affordable Care Act entirely, leaving their employees with no health care at all – as was the case for many prior to ACA passage.
Even worse, there are employers (especially in retail, fast food and other minimum wage environments) with employees earning so little pay that as employers they recommend their employees file for government based Medicaid in order to receive the bottom basics of healthcare. Employees are a necessity, but not if they are sick or if the employer has to help their families maintain good health.
But things changed for Mr. Scrooge, and we can hope they do for a lot more of America’s employers and wealthy elite.
Mr. Scrooge’s former partner, Mr. Jakob Marley, visits Mr. Scrooge in a dream and reminds him that, in fact, there was a lot more to his life, and wealth creation, than just Ebenezer’s toils. Those around him helped him become successful, and others in his life were actually very important to his happiness. He reminds Mr Scrooge that as he isolated himself in the search for ever greater wealth he gained money, but lost a lot of happiness.
Today we have some business leaders taking the cue from Mr. Marley, and speaking out to the Scrooges. In particular, we can be thankful for folks like Warren Buffet who consistently points out the great luck he had to be born with certain skills at this specific point in time. Mr. Buffett regularly credits his wealth creation with the luck to receive a good education, learning from academics such as Ben Graham, and having a great network of colleagues to help him invest.
Further, amplifying his role as a modern day Jacob Marley, Mr. Buffett recognizes the vast difference between his situation and those around him. He has pointed out that his secretary pays a higher percent of her income in taxes than himself, and he points out this is a remarkably unfair situation. Additionally, he makes it clear that for many wealth is a gift of birth – and “winning the ovarian lottery” does not make that wealthy person smarter, harder working or more valuable to society. Rather, just lucky.
What we need is for more wealthy Americans to have a vision of Christmas future – as it appeared to Mr. Scrooge. He saw how wealth inequality would worsen young Tiny Tim’s health, leaving him crippled and dying. He saw his employee Mr. Cratchet struggle and become ill. These visions scared him. Scared him so much, he offered a bounty upon his community, sharing his wealth.
Mr. Scrooge realized that great wealth, preserved just for him, was without merit. He was doomed to a future of being rich, but without friends, without a great world of colleagues and without the sharing of riches among everyone in order that all in society could be healthy and grow. Many would suffer, and die, if society overall did not take actions to share success.
These days we do have a few of these visionary 1%ers, such as Bill Gates, Warren Buffett and recently Mark Zuckerberg, who are either currently, or in the future, planning to disseminate their vast wealth for the good of mankind.
Yet, middle class Americans have been watching their dreams evaporate. Over the last 50 years America has changed, and they have been left behind. Hard work, well…….. it just doesn’t give people what it once did. Policy changes that favored the wealthy with Ayn Rand style tax programs have made the rich ever richer, supported the legal rights of big corporations and left the middle class with a lot less money and power. Incomes that did not come close to matching inflation, and home values that too often are more anchors than balloons have beset 2015’s strivers.
It will take more than philanthropic foundations and a few standout generous donors to rebuild America’s middle class. It will take policies that provide more (more safety nets, more health care, more education, more pension protection, more job protections and more political power) for those in the middle, and give them economic advantages today offered only wealthier Americans.
Let us hope that in 2016 we see a re-awakening of the need to undertake such rebuilding by policymakers, corporate leaders and the 1%. Let us hope this Christmas for a stronger, more robust, healthier and disparate, shared economy “for each and every one.”
by Adam Hartung | Dec 15, 2010 | Current Affairs, In the Swamp, Leadership, Openness, Television, Web/Tech
Summary:
- Business leaders are honored for creating profitable growth
- Those who create the greatest growth disrupt the status quo and change the way things are done – such as Zuckerberg and Jobs
- Too many CEOs act as caretakers, overlooking growth
- Caretakers watch value decline
- Under Welch, GE dramatically grew and he was Time’s Person of the Year
- Under Immelt, GE has contracted
- Too many CEOs are like Immelt. They need to either change, or be replaced
It’s that time of year when magazines like to honor folks for major accomplishments. This year, Time’s Person of the Year is Mark Zuckerberg, honored for leading Facebook and its dramatic change in social behavior amongst so many people. Marketwatch.com selected Steve Jobs as its CEO of the Decade – an honor several journals gave him last year!
There is of course a bias in these selections. Most journals highly favor CEOs that drive up their stock price! For example, Ed Zander was CEO of the year in 2004 for his “turnaround” at Motorola – and within 2 years he was fired and Motorola was facing possible bankruptcy. Obviously his “quick fix” (getting the RAZR out the door with a big marketing push) didn’t pan out so well over time. We’ll have to see if Alan Mulallly deserves to be CEO of the Year at Marketwatch, since it appears his selection has more to do with not letting Ford go bankrupt – like competitors GM and Chrysler – and thus reaping the benefits of customers who wanted to buy domestic but feared any other selection. Whether Ford’s “turnaround” will be a winner, or another Zander/Motorola, we’ll know better in a couple of years.
One fellow who isn’t on anybody’s list is Jeff Immelt at General Electric. His predecessor was. Given that
- GE is the oldest company on the DJIA (Dow Jones Industrial Average)
- GE is one of the most widely held of all corporations
- GE is one of the largest American corporations in revenues and employees
- GE is in a plethora of businesses, globally
- Mr. Immelt is paid several million dollars per year to lead GE
It is worthwhile to think about why he’s not on this list – whether he should be – and if not, whether he should keep his job!
Since Immelt took the helm at GE, the value has actually declined. He’s not likely to win any awards given that sort of performance. Amidst the financial crisis, he had to make a very sweet deal with Berkshire Hathaway to invest cash (via preferred shares) in order to keep GE out of bankruptcy court – a deal that has enriched Mr. Buffett’s company at the expense of GE. GE has exited several businesses, such as its current effort to unload NBC via a deal with Comcast, but it has not created (or bought) a single exciting, noteworthy growth business! GE has become a smaller, lower growth company that narrowly diverted bankruptcy. That isn’t exactly a ringing endorsement for honors!
Yes, GE has developed a nice positive cash flow, which will allow it to repurchase the preferred shares from Berkshire (Marketwatch “GE to Buy Back Buffett’s Preferreds Next Year.”) But what is Mr. Immelt doing to create future shareholder value? His plan to make a few acquisitions, pay some higher dividends (suspended when the company faltered) and repurchase equity offers shareholders very little as a way to generate high rates of return! Why would anyone want to own GE? Nobody expects the company to be a growth leader in 2012, or 2015. With its current businesses, and strategy, there is no reason to expect GE to produce double digit earnings growth – or double its equity within any reasonable investing horizon.
There’s more to being a CEO than being a “caretaker.” Mr. Immelt’s predecessor, Jack Welch, created enormous value for shareholders. Mr. Welch was willing to disurpt the GE status quo. In fact, he intentionally worked at it! He made sure business leaders were constantly challenged to find new markets, create new products, expand into new businesses, leverage new technologies and generate growth! Mr. Welch was willing to take GE into growth markets, give leaders permission to create new Success Formulas, and invest in whatever it took to profitably grow revenues. During the Welch era, competitors quaked at the thought of GE entering their markets because things were always shaken up – and GE changed the game in order to create higher rates of return. During the Welch era investors received amongst the highest rate of return on any common stock! GE value multiplied many-fold, making pensioners (invested in the stock) and employees quite wealthy – even as employment expanded dramatically. That’s why Mr. Welch was Time’s Person of the Year in 2000 — and for many the CEO of the previous decade.
Mr. Immelt, on the other hand, has done nothing to benefit any of his constituencies. Like far too many CEOs, he took a much less aggressive stance toward growth. He has been unwilling to challenge and disrupt existing leaders, or promote aggressive market disruptions through the GE business units. He has not invested in White Space projects that could continue the massive expansion started during the Welch era. To the contrary, he has moved much more slowly, and focused more on selling businesses than growing them. He has resorted to trying to protect GE – rather than keep it moving forward. As a result, the company has retrenched and actually become less interesting, less valuable and less clearly able to produce returns or create new jobs!
Mr. Immelt certainly has his apologists, and seems to securely have the support of his Board of Directors. But we should question this. It actually has an impact on the American economy (and that of several other countries) when the CEO of a company as large as GE loses the ability to create growth. The malaise of the American economy can be directly tied to CEOs who are operating just like Mr. Immelt: doing almost nothing to create new markets, new sources of revenue, new jobs. Many business journalists like to say the government doesn’t create revenue, or jobs. So who will create them when corporate leaders are as feckless as Mr. Immelt? Especially when they control such vast resources!
Congratulations to Mr. Zuckerberg and Mr. Jobs (and Mr. Hastings of Netflix who was named Fortune magazine’s CEO of the Year.) They have created substantial new revenues, profits, cash flow and return for investors. Their company’s employees, suppliers, customers and investors have all benefitted from their leadership. By disrupting the way their company’s operated they pushed into new markets, and demonstrated how in any economy it is possible to create success. Caretakers they are not, so like Mr. Welch each deserves its recent accolades.
And for all those CEOs out there who are behaving as caretakers – for all who are resting on past company laurels – for all who have watched their company value decline – for those who think it’s OK to not grow – for those who blame the economy, or government, or competitors, or customers or their industry for their inability to grow —- well, you either need to learn from these recently honored CEOs and dramatically change direction, or you should be fired.
by Adam Hartung | Dec 28, 2009 | Current Affairs, In the Rapids, Innovation, Leadership
I was intrigued when I read on the Harvard Business Review web site “Do we celebrate the wrong CEOs?” The article quickly pointed out that many of the best known CEOs – and often named as most respected – didn’t come close to making the list of the top 100 best performing CEOs. Some of those on Barron’s list of top 30 most respected that did not make the cut as best performing include Immelt of GE, Dimon of JPMorganChase, Palmesano of IBM and Tillerson of ExxonMobil. It did seem striking that often business people admire those who are at the top of organizations, regardless of their performance.
I was delighted when HBR put out the full article “The Best Performing CEOs in the World.” And it is indeed an academic exercise of great value. The authors looked at CEOs who came into their jobs either just before 2000, or during the decade, and the results they obtained for shareholders. There were 1,999 leaders who fit the timeframe. As has held true for a long time in the marketplace, the top 100 accounted for the vast majority of wealth creation – meaning if you were invested with them you captured most of the decade’s return – while the bulk of CEOs added little value and a great chunk created negative returns. (It does beg the question – why do Boards of Directors keep on CEOs who destroy shareholder value – like Barnes of Sara Lee, for example? It would seem something is demonstrably wrong when CEOs remain in their jobs, usually with multi-million dollar compensation packages, when year after year performance is so bad.)
The list of “Top 50 CEOs” is available on the HBR website. This group created 32% average gains every year! They created over $48.2B of value for investors. Comparatively, the bottom 50 had negative 20% annual returns, and lost over $18.3B. As an investor, or employee, it is much, much better to be with the top 5% than to be anywhere else on the list. However, only 5 of the top best performers were on the list of top 50 highest paid — demonstrating again that CEO pay is not really tied to performance (and perhaps at least part of the explanation for why business leaders are less admired now than the previous decade.)
Consistent among the top 50 was the ability to adapt. Especially the top 10. Steve Jobs of Apple was #1, a leader and company I’ve blogged about several times. As readers know, Apple went from a niche producer of PCs to a leader in several markets completely unrelated to PCs under Mr. Jobs leadership. His ability to keep moving his company back into the growth Rapids by rejecting “focus on the core” and instead using White Space to develop new products for growth markets has been a model well worth following. And in which to be invested.
Similarly, the leaders of Cisco, Amazon, eBay and Google have been listed here largely due to their willingness to keep moving into new markets. Cisco was profiled in my book Create Marketplace Disruption for its model of Disruption that keeps the company constantly opening White Space. Amazon went from an obscure promoter of non-inventoried books to the leader in changing how books are sold, to the premier on-line retailer of all kinds of products, to the leader in digitizing books and periodicals with its Kindle launch. eBay has to be given credit for doing much more than creating a garage sale – they are now the leader in independent retailing with eBay stores. And their growth of PayPal is on the vanguard of changing how we spend money – eliminating checks and making digital transactions commonplace. Of course Google has moved from a search engine to a leader in advertising (displacing Yahoo!) as well as offering enterprise software (such as Google Wave), cloud applications to displace the desktop applications, and emerging into the mobile data/telephony marketplace with Android. All of these company leaders were willing to Disrupt their company’s “core” in order to use White Space that kept the company constantly moving into new markets and GROWTH.
We can see the same behavior among other leaders in the top 10 not previously profiled here. Samsung has moved from a second rate radio/TV manufacturer to a leader in multiple electronics marketplaces and the premier company in rapid product development and innovation implementation. Gilead Sciences is a biopharmaceutical company that has returned almost 2,000% to investors – while the leaders of Merck and Pfizer have taken their companies the opposite direction. By taking on market challenges with new approaches Gilead has used flexibility and adaptation to dramatically outperform companies with much greater resources — but an unwillingness to overcome their Lock-ins.
Three names not on the list are worth noting. Jack Welch was a great Disruptor and advocate of White Space (again, profiled in my book). But his work was in the 1990s. His replacement (Mr. Immelt) has fared considerably more poorly – as have investors – as the rate of Disruption and White Space has fallen off a proverbial cliff. Even though much of what made GE great is still in place, the willingness to Defend & Extend, as happened in financial services, has increased under Mr. Immelt to the detriment of investors.
Bill Gates and Warren Buffett are now good friends, and also not on the list. Firstly, they created their investor fortunes in previous decades as well. But in their cases, they remained as leaders who moved into the D&E world. Microsoft has become totally Locked-in to its Gates-era Success Formula, and under Steve Ballmer the company has done nothing for investors, employees — or even customers. And Berkshire Hathaway has spent the last decade providing very little return to shareholders, despite all the great press for Mr. Buffett and his success in previous eras. Each year Mr. Buffett tells investors that what worked for him in previous years doesn’t work any more, and they should not expect previous high rates of return. And he keeps proving himself right. Until both Microsoft and Berkshire Hathaway undertake significant Disruptions and implement considerably more White Space we should not expect much for investors.
This has been a tough decade for far too many investors and employees. As we end the year, the list of television programs bemoaning how badly the decade has gone is long. Show after show laments the poor performance of the stock market, as well as employers. We end the year with official unemployment north of 10%, and unofficial unemployment some say near 20%. But what this HBR report us is that it is possible to have a good decade. We need leaders who are willing to look to the future for their planning (not the past), obsess about competitors to discover market shifts, be willing to Disrupt old Success Formulas by attacking Lock-in, and using White Space to keep the company in the growth Rapids. When businesses overcome old notions of “best practice” that keeps them trying to Defend & Extend then business performs marvelously well. It’s just too bad so few leaders and companies are willing to follow The Phoenix Principle.
by Adam Hartung | May 4, 2009 | Current Affairs, Defend & Extend, General, In the Swamp, Innovation, Leadership, Openness
Today Yahoo.com picked up on Mr. Buffett's recent comments, with the home page lead saying "Buffett's Gloomy Advice." The article quotes Buffett as saying newspapers are one business he wouldn't buy at any price. Even though he's a reader, and he owns a big chunk of the Washington Post Company (in addition to the Buffalo, NY daily), he now agrees there are plenty of other places to acquire news – and for advertisers to promote.
I guess the topic is very timely given the Marketwatch.com headline "N.Y. Times hold off on threat to close Boston Globe". Once again, in what might remind us of an airline negotiation, the owner felt it was up to concessions by the workers, via their union, if the newspaper was to remain in business. After squeezing $20million out of the workers, the owners agreed not to proceed with a shutdown – today. But they still have not addressed how a newspaper that is losing $85million/year intends to survive. With ad revenue plunging over 30% in the first quarter, and readership down another 7% in newspapers nationally, union concessions won't save The Boston Globe. It takes something that will generate growth.
And perhaps that innovation was also prominent in today's news. "Amazon expected to lift wraps on large-screen Kindle" was another Marketwatch headline. Figuring some people will only read a magazine or newspaper in a large format, the new Kindle will allow for easier full page browsing. According to the article, the New York Times company has said it will be a partner in providing content for the new Kindle.
Let's hope the New York Times does become a full partner in this project. People want news. And the only way The Boston Globe and New York Times will survive is if they find an alternative go-to-market approach. Printing newspapers, with its obvious costs in paper and distribution, is simply no longer viable. Trying to defend & extend an old business model dedicated to that approach will only bankrupt the company, as it already has bankrupted Tribune Company and several other "media companies." The market has shifted, and D&E practices like cost cutting will not make the organizations viable.
It's pretty obvious that the future is about on-line media distribution. We've already crossed the threshold, and competitors (like Marketwatch.com and HuffingtonPost.com) that live in the on-line world are growing fast plus making profits. What NYT now needs to do is Disrupt its Lock-ins to that old model, and plunge itself into White Space. I'm not sure that an oversized Kindle is the answer; there are a lot of other products that can deliver news digitally. But if that's what it takes to get a major journalistic organization to consider switching from analog, physical product to digital on-line distribution as its primary business I'm all for the advancement. Those who compete in White Space are the ones who learn, adapt, and grow. Being late can be a major disadvantage, because the laggard doesn't have the market knowledge about what works, and why.
This late in the market evolution, the major print media players are all at risk of survival. While no one expects The Chicago Tribune or Los Angeles Times to disappear, the odds are much higher than expected. These businesses are losing a tenuous hold on viability as debt costs eat up cash. Declining readership and ad dollars makes failure an equally plausible outcome for The Washington Post, New York Times and Boston Globe. Instead of Disrupting and using White Space, as News Corp started doing a decade ago (News Corp owns The Wall Street Journal and Marketwatch.com, as well as MySpace.com for example), they have remained stuck in the past. Now if they don't move rapidly to learn how to make digital, on-line profitable they will disappear to competitors already blazing the new market.
