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Dump the CEOs Before Investing in U.S. Industry

By       Message R. Queisser       (Page 1 of 4 pages)     Permalink    (# of views)   3 comments

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Before Congress dispenses any funds, loans, or loan guarantees to major American industries it should insist on wholesale replacement of the executive management teams of every corporation taxpayers assist.  This is not radical or scorched-earth thinking; it is routine practice whenever corporations merge that top operatives, with few exceptions, are replaced by hand-picked new appointees.  Should Congress do anything less?  Here's why this makes sense.

The health of corporate management in the U.S.A. has been dismal for decades.  What we are now witnessing is the predictable end-stage in the natural history of this disease.  One wonders if Congress (which has shown it can't even manage a $700 billion bail-out fund) could ever really comprehend that sending cash to CEOs in commercial banking, investment banking, airlines, automakers, credit-card companies, or raw material producers will result in predictable repetition of the dismal patterns we have seen in recent decades.  For truly, the leadership selection process among corporate boards and human resources management in the U.S. has been demonstrably incompetent since the 1950s.

Recent U.S. history is replete with examples of colossal failures by corporate boards and their CEOs.  Here are some of the most egregious failures of American corporate management:

1.  The Steel Industry (R.I.P. -- 1970s)

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Steel industry executives were so completely out-maneuvered by United Steel Workers (USW) negotiators that by the 1960s some U.S. steel companies were staffing their foundries and blast furnaces while paying the most senior steelworkers up to 26 weeks of vacation per year!

The earliest signs of a failing U.S. corporate managerial class were visible in the steel industry by the late 1950s and early 1960s.  David J. McDonald, who became president of the USW upon the death of Phillip Murray in 1952, boldly challenged industry giants Bethlehem Steel, U.S. Steel, Republic Steel and other large corporations in his quest to gain better wages, job security, and employer-paid pensions. 

Imagine leading a large international steel corporation, hobnobbing with Presidents, golfing with Senators, drawing big bucks for an annual salary and bonus--and all the while failing to recognize that no company can reasonably operate at a profit over the long term if even a small portion of its workers must be replaced, while on vacation, 26 weeks of each year.  No small business owner would contemplate offering a half-year's vacation benefits to even the most valued of employees, but that is exactly what happened in the steel industry.

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2.  The Auto Industry (R.I.P -- 2009?)

The Big Three CEOs - Richard Wagoner of General Motors, Robert Nardelli of Chrysler and Alan Mulally of Ford, and their predecessors, are really clones of the worst bosses from a Dilbert cartoon.

The prima facie evidence for Big 3 Auto's management's ineptness is the current cash crisis, with GM now claiming (12/02/08) that it will run out of cash within 6 weeks.  Every competent manager knows that sufficient cash must always be conserved; good managers are always forecasting cash flow days, weeks, months & years in advance.  Did GM fail to comprehend, 2 or 3 years ago, this nation's increasing debt, dubious banking behaviors, and stagnant income trends?

There is also ample historic evidence of corporate management's ineptitude demonstrated (then, as now) by U.S. auto industry "leaders"-.  In the 1960s, as Chevrolet introduced its Corvair, a Time Magazine article quoting a senior GM executive who asserted arrogantly that small cars like the Corvair were simply a passing fad.  He said in effect that, "We know that American buyers really want big cars.  These compacts won't be around for long."-  Even a naíf could see at the time that this business blindness did not bode well for the U.S. auto industry. 

This author's automobile history is one example of a reasonable buyer's response to management failure. After a 2-month fling with a U.S.-made Studebaker that developed a hole in a cylinder wall, this writer has now progressed through two 125,000+ mile Volkswagens--one beetle, one bus; an MGB-GT; two Toyotas (both still running well at 200,000 miles when sold); a Mazda Rx-7; and two Volvos (each well over 250,000 miles when sold).  And guess what this author's 20-ish sons drive?  One has chosen Lexus, the other Volkswagen.  Why would they buy a U.S.-made product that is "value"--engineered to fail and designed to invite replacement every 80,000-90,000 miles?  Do GM, Ford & Chrysler really think the American public is that stupid?

Even in late 2008 U.S. auto manufacturers still show no signs of penetrating insight: e.g., (1) they refuse to design--for US sales--lighter, fuel conserving cars, (2) they routinely tolerate drug-use and alcoholism among production workers ("Don't buy a car manufactured on a Monday!"-) who then produce high defect levels, (3) they consistently opt for short-term quarterly results rather than long-term solid growth, and (4) they historically negotiate non-sustainable union contracts that now contribute to the inevitable financial doom of the U.S. industry.

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Walter Reuther, former head of the United Auto Workers (UAW), would pick one of the "Big Three" automakers as his negotiating target at each contract cycle.  At every contract cycle one of the Big Three would blink and offer concessions which would be difficult to sustain, reasoning that they could pass along cost increases. If, for example, Ford did not offer concessions, the UAW would strike Ford and let the other auto manufacturing giants absorb Ford's lost sales.

Besides high hourly wage rates and paid vacations, Reuther negotiated many new benefits for his union: employer-funded pensions (beginning in 1950 at Chrysler), medical insurance (beginning at GM in 1950), and supplementary unemployment benefits (beginning at Ford in 1955).  Yes, these levels of compensation helped build a solid middle class, but the Big Three failed to compensate for increased expense levels in their design and manufacturing activities until far too late.

Clearly, not one former auto CEO or board chairperson has shown sufficient judgment to hold out for sustainable wage and benefit levels.  No labor law requires a bargainer to accept a contract provision it doesn't like, no matter how long the strike or lock-out. And these same "executives"- are now begging our Congress for $34 billion in unrestricted loan funds to perpetuate their demonstrated failures yet again. Are U.S. taxpayers really that stupid?

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I am a progressive activist. After 28 years in health care management I left in disgust at the mess that commercial health insurance companies have created. I must work to live (self-employed) and enjoy performing with several classical & jazz (more...)

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