One of my favorite quotes is “I can’t give you the formula for success but I can give you the formula for failure-which is: Try to please everyone,” attributed to Herbert Bayard Swope. A recent article in a popular business publication lamented the CEOs that have been dismissed from major corporations recently. Thirteen companies with market capitalizations greater than $40 billion replaced their CEOs in the first five months of 2017. Good lord, the unemployment figures alone must be staggering. The argument is that CEOs who are quite talented are being let go before they have been given sufficient opportunity because of short-term investor pressure. The investors bought the stock, they need the money, and they need it now.
The so-called “activist investors” obtain as little as 5% of the stock and start insisting that they be given a seat on the board. The hedge-funds are apparently the worst. Wonder why we have all the mergers and acquisitions? Wonder why we have plants with thousands of employees shut down and moved overseas? The “activist investors” are exerting a great (and greatly undue) influence on the corporations, and Jeffrey A. Sonnenfeld of the Yale School of Management thinks it is all unneeded and unnecessary.
The hedge funds and “activist investors” buy a few shares and think that they can run roughshod over the boards of companies. It is time to the companies to grow a backbone. The hedge funds and “activist investors” are a great motivating force to encourage mergers and acquisitions, sometimes to the great detriment of the firms, not to mention the employees who get dismissed in the process. Many companies who focused on the short term gains because of the “activist investors” are now mere shells of their former glory.
Does it seem to anyone else but me that we (the U.S) have become an instant-gratification society to the point that it is becoming self-destructive? I am quite surprised that anyone goes to college anymore, given that it takes four years or so for the undergrad degree, and the average student takes five years. As much as I try to get those starting college to take classes in the summer and get things over with, none of them pay attention to my advice. I am also amazed that so many organizations are insisting on employees having the qualifications of a master’s degree, when considering all of the time that it takes to earn one, not to mention the expense. Honestly, I am not going back to graduate school without someone else paying or an enforceable contract as to what I get when I graduate.
The article correctly points out that CEOs make astronomical salaries, travel a lot and have long workweeks. Despite their long hours, I doubt that their hourly wage come close to anything like the minimum wage, though. If the CEO of Chipotle worked 80 hours a week, his hourly pay would still be around $6,000 an hour. Nice work if you can get it, even when 70% of the shareholders vote that you shouldn’t be paid that kind of money to run a glorified taco stand, but financial fortune favors the bold (hope you caught the altered quote.) It’s amazing that “activist investors” can’t keep Chipotle from paying Ells $25 million a year. Steve Ells of Chipotle has been the CEO for at least six years, despite the contamination scandal, and the automatic clocking out of employees staying late to clean up, and the lawsuits. But then, Ells has a degree in art history, one of the most desired degrees that any candidate of the CEO position could have. Or not. The advice of “just get a degree and get your foot in the door” hasn’t been true for at least the past thirty years, at least not for me, nor for many people that I know.
I found interesting the suggestion that the new age CEOs are not the county club networkers of old, but dedicated, hard-working people. Jeffrey Immelt, who was given more chances than Hillary Clinton, never restored GE’s stock, (and I ought to know, as I own the stock) and yet remained far too long at the helm. If Immelt is any kind of an example, CEOs stay far longer than they should. For example, Mark Fields worked at Ford for 28 years, becoming CEO in 2014. In 2015, Ford had the best earnings in its 113-year history. You would think that would be enough, but not for the “activist investors” but it wasn’t. My favorite was the legendary retailer J.C. Penney who fired CEO Myron Ullman in 2011, only to sheepishly lure him back after two years of losses. Whoever thought that they could do better without Ullman needs to be fired, and all involved need to be summarily dismissed. If they can’t make any better decisions than to fire someone like Ullman and try for fresh blood that cannot equal or exceed Ullman’s performance, they themselves are incapable of making the executive decisions of running the firm. Their time is up, and the consequences they imposed on Ullman need to be exercised upon them instead.
The J.C. Penney/Ullman incident brings up a point that I am not sure that any Human Resource person has ever addressed, at least not in my experience, and I hold reasonable credentials in Human Resources. The idea is this: How can you ever know what kind of an employee you will get if you fire an employee? In other words, if you fire someone because they have not managed to attain your unrealistic goals, how in the world do you know if their replacement will do any better? This applies even more so when the employee you are letting go, as in the Mark Fields case, has over twenty-five years with the company. So much for loyalty, eh?
When twenty-five years and some of the best earnings in its history aren’t enough, I begin to question whether the expectations of the firm, as influenced by the “activist investors” are reasonable. Of course, I am familiar with the tactic of giving the senior employee so much work and such unattainable goals that they cannot make their quota and that is a justification for letting them go. But then, as mentioned, how in the world could you place a bet on someone whose performance within your company is a complete unknown, (the replacement) as opposed to a seasoned veteran who, with all of their experience and organizational knowledge, cannot reach the goals that have been set? If the people who insist on replacing Fields cannot recognize talent, and cannot replace talent, then they have disqualified themselves from making any more decisions.
As I have never read about this in any Human Resource text, I am going to call it the Jackson Resource Replacement Question. When replacing an experienced dedicated employee with someone off the street, you have no idea if that person is capable of doing better than the experienced employee that you are letting go. While I am all for optimism, but “those battered by reality cannot afford the luxury of optimism” (another original quote, so I insist that you identify me as the origin of the quote if you use it.)
Someone who owns 5% of a stock, or even 20% of a stock should not have the kind of control that they are exerting. Here’s some sage advice for the “activist investors:” If you are dissatisfied with the performance of the firm, try buying another stock. I realize that is a simple solution, but I like simplicity, or, as Leonardo DaVinci said: “Simplicity is the ultimate sophistication.” All of this short-term mentality and insisting that they have a voice in the company needs to be dealt with swiftly and harshly like dealing with the spoiled child who has never faced any consequences; time to pay the piper. The short-term mentality is killing American business, and anyone with any sense is aware of this fact. It is time to realize that the future is more than the next six months.