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5. Banking (R.I.P. -- 2008)
The most basic management skill of banking is "perfecting"- a loan, aligning sufficient collateral with the loan amount so that the bank minimizes risk of a loan loss. Investment bankers balance equities and projected valuations to sell stock in new or re-financed enterprises. Do these sound like relatively simple math problems?
And now we have seen first Saloman Smith Barney and then Lehmann Brothers keel over from inept top management. Recently, Lehmann Bros. President and COO Joseph Gregory was fired and its CFO Erin Callan was demoted after "managing"- a $2.8 billion in quarterly loss. (That's just 2nd quarter, folks, not all of 2008, not five years' total losses; that means it took just 3 months to lose $2,800,000,000, or $930,000,000 each month. What were they thinking???)
Trading in securitized bundles of semi-worthless mortgages in no way constitutes responsible aligning of sound loan-to-value collateral relationships, yet the management whizzes who made the huge annual bonuses simply failed to exercise basic, prudent management judgment.
And in the same week, top management at the two major US-chartered housing lenders (Fannie Mae & Freddie Mac) was sent home and told not to return, albeit taking along their goofy multi-million dollar severance packages, for--there's that phrase again--failures of management judgment and frank incompetence when faced with impending crises. The summary below (the source of which I found while browsing web-based articles on the topic but then lost for footnoting) says it best:
The foolish and inexcusable housing-related investments by Wall Street firms, Fannie Mae and Freddie Mac resulted in no small part from executive compensation-driven efforts to drive up short-term stock values. These decisions were so bad, and of such enormous scale, that they have endangered the functioning of the financial system itself, thereby necessitating government intervention and massive taxpayer expenses--an indirect but even more expensive taxpayer subsidy for executive compensation.
Third, the most super-high compensation packages are typically based on performance standards, with executives cashing in on stock options as share values rise. But this is a system easily gamed, with those same shares sold before short-term thinking leads to medium-term losses. By way of example, consider the massive pay packages obtained by the ousted CEOs of the now-floundering Wall Street firms.
6. Food Services
One need only recall (no pun intended!) myriad recent public health disasters to see the pattern of management failures endemic to the boards and CEOs of food importers and manufacturers. Think back to tainted Odwalla beverages, multiple meat-packing vectors of e. coli and "Mad Cow"- disease, Taco Bell's contaminated tomatoes and lettuce, hundreds of beef, chicken and sausage recalls, toxic melanine levels in baby and pet food, and on and on. The end product of any company, be it a service or a commodity, directly reflects top management's commitment to quality. If management decrees that excellent quality is a goal and supports it with adequate guidance and resources, the result will be a quality outcome. If management focuses on expenses, profits, bonuses, or production, the inevitable result will be a shoddy outcome. Q.E.D.
7. Other Industries
Other examples are too numerous to list; suffice it to say that whenever corporate boards meet to guide the largest of US corporations, very little of what could be called management judgment is in evidence today. Similarly, every time regional managers meet at their corporate headquarters around the country we can expect to see more out-sourcing, more reactive decisions, and short-sighted goals instead of long-term planning. Just as insurance executives in effect saw off the limb they stand on when they force providers to increase billing costs, so the companies that out-source labor saw off the limb (in this case, affluent middle-class customers) they so desperately need as a market for their product.
How Can We Fix This Deficit?
Everywhere we look, other nations are eating our lunch--China, India, the EU, Japan, etc. And presiding over this debacle is a smug club of US-trained MBAs from prestigious U.S. business schools. When will the Deans of B-Schools see what has been obvious to many of us for decades?
For every accounting class, tomorrow's MBA students should take three classes on strategic management, quality engineering and operations research; for every class on business economics and computer science they should have two or three classes on social history, political philosophy and cultural trends.
Global managers need broader perspectives than are currently taught at mainstream business (MBA) programs. Leaders need to see connections and to extrapolate trends from disparate data sources. Accounting & finance studies don't promote these skills; nor do M&A balance sheet acrobatics produce anything of intrinsic value.
Similarly, computing itself doesn't make widgets or design innovative products; like the study of accounting, computer science courses teach mechanisms to track and manipulate the data needed for management exercises like planning. If the U.S.A. is to recover from its current deficiency in corporate management skills there must be a continuous source of fresh thinking and analysis. These skill sets more often come from liberal arts graduates, not from engineers and technocrats. Technocrats--whether with green eyeshades or SunMicrostystems workstations--will never find the practical and innovative solutions we need. Only the most broadly trained students are truly likely to re-pay their employer's investment in staffing.
