Wednesday, August 02, 2006


Nepotism Causes Firms To Lose Money

According to a study of 5,000 firms conducted in Denmark between 1994 and 2002, appointing a new CEO unrelated to the previous CEO causes a 1.3 percent rise in company performance on average, while appointing a relative as the successor results in a .1 percent decline. Company performance was defined as the ratio of operating income to assets, and the difference cited is equivalent to $14,000 per every million dollars earned. Sexism also appears to influence the role of nepotism in selecting a successor for company leadership. When the firstborn child of the CEO is male, the chances of the top spot staying in the family is 40 percent, while it is only 30 percent if the firstborn child is female. Other factors may come into play in the choice of a successor. For instance, leadership may pass to the CEO's son in good times, but to an outsider with known troubleshooting skills when times are bad. Nevertheless, relatively small differences in the tendency to pass on control to a relative can, and no doubt often do, result in real catastrophe when a corporation is shaky to begin with.

Here is scientific evidence that giving the main chance to the erstwhile prole who worked his way up the ladder, rather than to the spoiled heir apparent, can improve the fate of even the stodgiest family concern. Anything that can shake up the hereditary hegemony of the corporate elite, and keep upward mobility alive, is all for the better in our book at least.

"Meet My Son, Your New CEO" from Slate
"Inside the Family Firm: The Role of Families in Succession Decisions and Performance" from the National Bureau of Economic Research

The Greedy Corporations and the Profit Hungry Shareholders

Honesty and integrity went out the window – anything goes

Corporate greed and the insatiable thirst to make a profit, to satiate shareholders share- holders’ profit expectations have changed American values, where anything is justified in order to derive enormous corporate profit and satisfy the expectations of the share-holders; maintain the image of profitable corporate America. It is a vicious cycle that feeds itself to ultimate disaster.

These attitudes have brought corporate executives to exercise the drive and mentality that anything goes, no holes barred.
Inflating earnings, hiding debts and liabilities, outright fraud and deception. Theft by executives, theft of corporate assets, graft, bribery, illegal contributions to politicians, trips, gifts and favors to politicians, crooked lobbying organizations.
Where and when does it all stop? When are Americans going to wake-up and realize they are on the path of disaster of magnitude proportions that will bring our downfall?

We still have honest ethical hard working people in America. Let us all rise and protest these money hungry actions and methods, before it is too late.

Work hard to better America, institute honesty and integrity.
It starts at the top – the politicians, the legal system, corporate America and progresses to the masses.

The media is not exempt. Honest reporting is a must, the public expects no less.
Exercising - Sincerity, honesty and integrity is a good beginning.

If you work hard, perform your duties sincerely and honestly, you will be able to earn a better profit/living. You will not have to worry about covering up for your wrongdoing and you will be able to sleep better at night, look at yourself in the mirror.

Corporate America should be required by law to insure pension funds of employees. This will protect employees from losing their pensions to greed and fraud as happened with Enron and others.

We should learn to respect each other.

Bring back family values.

Am I asking too much?

Jay Draiman, Northridge, CA – Sept. 25, 2007

An essay concerning the origins, nature, extent and morality of this destructive force in free market economies. Definitions. Paradoxes and omissions in Adam Smith's original theory permit - encourage - greed without restraint so that in a very large society [USA] over two centuries it has become an undemocratic force creating precipitous inequalities; divisions in this society now approach a kind of wealth apartheid, and our values are quite unlike Smith's: this is an immensely wealthy society but it is not a humane society. Wealth and poverty are connected, in fact recent sociological theory shows our institutions routinely design inequality in, but this connection is largely avoided in texts and in the media, as is the notion that greed is a moral wrong. Problems created by greed cannot be solved by technology. We are also distracted by already-outdated environmental rhetoric, arguments that scarcities and human suffering follow from abuse of our ecology. Rather, these scarcities are the result of what people do to people. This focus opens practical solutions.

"The Social Responsibility of Business Is to Increase Its Profits." The future Nobel laureate in economics had no patience for capitalists who claimed that "business is not concerned 'merely' with profit but also with promoting desirable 'social' ends; that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of re formers."
He wrote that such people are "preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting pup pets of the intellectual forces that have been undermining the basis of a free society these past decades."
He argues that corporations add far more to society by maximizing "long-term shareholder value" than they do by donating time and money to charity.
He said "there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." That's the orthodox view among free market economists: that the only social responsibility a law-abiding business has is to maximize profits for the shareholders.
I said. But we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. In my marriage, my wife's happiness is an end in itself, not merely a means to my own happiness; love leads me to put my wife's happiness first, but in doing so I also make myself happier. Similarly, the most successful businesses put the customer first, ahead of the investors. In the profit-centered business, customer happiness is merely a means to an end: maximizing profits. In the customer-centered business, customer happiness is an end in itself, and will be pursued with greater interest, passion, and empathy than the profit-centered business is capable of.
Many thinking people will readily accept my arguments that caring about customers and employees is good business. But they might draw the line at believing a company has any responsibility to its community and environment.
This position sounds reasonable. A company's assets do belong to the investors, and its management does have a duty to manage those assets responsibly. In my view, the argument is not wrong so much as it is too narrow.
First, there can be little doubt that a certain amount of corporate philanthropy is simply good business and works for the long-term benefit of the investors.
That said, I believe such programs would be completely justifiable even if they produced no profits and no P.R. This is because I believe the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company. It is the entrepreneurs who create a company, who bring all the factors of production together and coordinate it into viable business. It is the entrepreneurs who set the company strategy and who negotiate the terms of trade with all of the voluntarily cooperating stakeholders—including the investors.
The shareholders of a public company own their stock voluntarily. If they don't agree with the philosophy of the business, they can always sell their investment, just as the customers and employees can exit their relationships with the company if they don't like the terms of trade. If that is unacceptable to them, they always have the legal right to submit a resolution at our annual shareholders meeting to change the company's philanthropic philosophy. A number of our company policies have been changed over the years through successful shareholder resolutions.
The Theory of Moral Sentiments. There he explains that human nature isn't just about self-interest. It also includes sympathy, empathy, friendship, love, and the desire for social approval. As motives for human behavior, these are at least as important as self-interest. For many people, they are more important.
When we are small children we are egocentric, concerned only about our own needs and desires. As we mature, most people grow beyond this egocentrism and begin to care about others-their families, friends, communities, and countries. Our capacity to love can expand even further: to loving people from different races, religions, and countries—potentially to unlimited love for all people and even for other sentient creatures. This is our potential as human beings, to take joy in the flourishing of people everywhere. Whole Foods gives money to our communities because we care about them and feel a responsibility to help them flourish as well as possible.
The business model that should be embraced could represent a new form of capitalism, one that more consciously works for the common good instead of depending solely on the "invisible hand" to generate positive results for society. The "brand" of capitalism is in terrible shape throughout the world, and corporations are widely seen as selfish, greedy, and uncaring. This is both unfortunate and unnecessary, and could be changed if businesses and economists widely adopted the business model that I have outlined here.
To extend our love and care beyond our narrow self-interest is antithetical to neither our human nature nor our financial success. Rather, it leads to the further fulfillment of both. Why do we not encourage this in our theories of business and economics? Why do we restrict our theories to such a pessimistic and crabby view of human nature? What are we afraid of?
Businesses such have multiple stakeholders and therefore have multiple responsibilities. But the fact that we have responsibilities to stakeholders besides investors does not give those other stakeholders any "property rights" in the company, contrary to those' fears. The investors still own the business, are entitled to the residual profits, and can fire the management if they wish. A doctor has an ethical responsibility to try to heal his/her patients, but that responsibility doesn't mean his/her patients are entitled to receive a share of the profits from her practice.
Many probably will never agree with my business philosophy, but it doesn't really matter. The ideas I'm articulating result in a more robust business model than the profit-maximization model that it competes against, because they encourage and tap into more powerful motivations than self-interest alone. These ideas will triumph over time, not by persuading intellectuals and economists through argument but by winning the competitive test of the marketplace. Someday businesses like these, which adhere to a stakeholder model of deeper business purpose, will dominate the economic landscape. Wait and see.
The first is that running a profitable business requires using soft values. It's easy to caricature the greedy profit-maximizing business owner as ruthless. But the best businesses are led by people who excel at soft values, who treat their customers and employees well. Business that treat customers and employees badly find it harder to thrive.
Running a family like a business destroys it. Running business like a family destroys it and leads to tyranny.
Post a Comment

<< Home

This page is powered by Blogger. Isn't yours?