Mistreating Employees A Clear Sign of Management Troubles

ChrisBanescu.com | Chris Banescu | August 28, 2007

During the glory days of the Dot Com Bubble I worked as Director of Web Development at Homestore.com (now Move.com). Homestore ran Realtor.com, the largest real estate site on the web. Homestore’s management team was unable to capitalize on the unique position and strategic advantages the company had in the marketplace and squandered the resources and talent they were entrusted with.

The way executives reacted to the looming financial crisis of their own making is an illustrative case study in how not to conduct layoffs and how not to manage a company’s most important assets – its employees.

When it comes to difficult management decisions, improperly planned and implemented layoffs represent one of the most disruptive and destructive decisions made by executives. Many, if not most, of the layoff horror stories we’ve all heard about confirm that few managers understand the impact and consequences their decisions have on the reputation and goodwill of the business; the long-term value and strategic effectiveness of the company; and the morale, trust, and productivity of the remaining employees.

Facing significant losses and with no effective leadership and strategic management solutions from executives, Homestore decided to cut costs with wave after wave of layoffs. (I was laid off in October, 2001).

Here’s how Homestore did it:

  1. Do not disclose anything to your employees in advance and do not communicate your intentions or reasons for doing anything.
  2. Reassure employees that their jobs will be secure, that the company is doing ok, and that layoff rumors are false.
  3. In order to manipulate and intimidate employees and managers that are hoping for advancement or a better raise, leak rumors about the layoffs and threaten them privately with the statement: “be lucky you still have a job!”
  4. Keep the entire organization guessing until the very last moment; usually the morning of the layoffs.
  5. Lay people off in multiple waves to avoid problems with employees figuring out what is really going on. This insures that employees remain in a constant state of uncertainty and further degrades innovation, productivity, and morale.
  6. On the day of the layoffs, start calling each employee one by one into the vice president’s office, make them sign a waiver, and withhold their last paycheck until they release the company of all liability.
  7. Escort employees back to their office or cubicle and give them until the end of the day to clear out everything and say their goodbyes. If they’re an especially talented or appreciated employee, have security watch over the process to insure the employee does not suddenly turn into a criminal after years of loyal service and starts destroying key information and steal company property.
  8. The day after the layoffs are completed, have the CEO send out a condescending email to the entire company telling everyone how terrible, but necessary, the whole process was and how the remaining employees need to sacrifice for the success of the company. In the same email remind everyone that bonuses this year will be halved, and raises will be kept to 2%.
  9. Finally, issue a severe warning to all remaining employees that absolute loyalty is mandatory and no one is allowed to look for another job on company time. Further threaten employees who discuss the layoffs with the loss of their job.

None of the layoffs improved Homestore’s bottom line. The company lost some its most critical and talented people. The process created absolute chaos, confusion, and mistrust throughout the entire organization.

In the years immediately following Homestore’s collapse, the SEC indicted and prosecuted many Homestore executives for fraud and corruption. It turns out that while the employees were being threatened and mistreated and the company was driven into the ground, management was lying to investors and arranging fraudulent transactions, while they continued cashing in tens of millions of dollars in stock options.

Homestore represents an extreme, but unfortunately not unique, example of Dot Com abuses and greed that we saw with Enron, WorldCom, and other corporations. The company had great promise and wonderful opportunities. But when management forgot that truth, integrity and ethical treatment of employees are essential elements to managing organizations, they embarked on a course that led to financial disaster and criminal prosecutions and indictments for many of the executives involved. To date 11 former executives, including the CEO, Stuart Wolff, sentenced to 15 years in federal prison, have been convicted on multiple federal criminal charges.

Related links:

SEC Files Financial Fraud Case Charging Three Former Homestore Executives
http://www.sec.gov/news/press/2002-141.htm

Former Homestore CEO Stuart Wolff Sentenced to 15 Years in Prison
http://losangeles.fbi.gov/dojpressrel/pressrel06/la101206usa.htm
http://10qdetective.blogspot.com/2006/11/former-homestore-ceo-stuart-wolff.html

SEC and US Attorney Charge Former Homestore Executives With Scheme To Inflate Advertising Revenue
http://www.sec.gov/news/press/2003-120.htm

Former Homestore Exec, Peter Tafeen, Receives 30-month sentence
http://www.silvar.org/index.cfm/news/Former_Homestore_exec_receives_30month_sentence_201.htm

Chris Banescu is an attorney, entrepreneur, and university professor. He is a regular contributor to OrthodoxyToday.org, manages the conservative site www.OrthodoxNet.com, writes articles, and has given talks and conducted seminars on a variety of business and management topics. He has also written book reviews for Townhall.com and articles on Acton.org.

Comments

  1. Dean Scourtes says:

    Chris – You described the management practices that explain why Dilbert has been such a popular comic strip. Dilbert’s pointy-haired boss has his real-life twin in almost every office in America.

    I think your emphasis on business ethics is very important because where when there is a failure to observe them, systemic failure occurs. We are now witnessing very worrisome declines in the stock market and housing prices that are the result of a lack of ethics.

    A bubble in housing prices was allowed to expand because (1) Realtors pushed buyers towards homes they could barely afford to generate higher brokerage fees, (2) Lenders made risky mortgages to people who were barely credit-worthy in order to generate origination fees, (3) Securities firms packaged them into mortgage-backed securities and marketed them as nearly risk-free investment vehicles, and (4) Hedge and investment fund managers focused exclusively on the high rate of return, failed to perform due dillegence to determine the actual risk posed by the underlying mortgages. (5) Rating agencies like Moody’s and Standard & Poor’s also failed to acurately report the risk posed by these securities not wanting to jeapordize future business with the wall Street firms issuing them.

  2. Jim Holman says:

    Chris, excellent piece. The only change I would make to your article is the title. I would call it “Mistreating Employees A Clear Sign of Management.”

    In other words, I think the practice of lying to employees and keeping them in the dark is simply standard operating procedure in many companies.

    The interesting thing is that performance is irrelevant. Have you saved the company hundreds of thousands of dollars? Have you brought in hundreds of thousands of dollars in additional revenue? Doesn’t matter. You’re just a line on a report.

    More and more people understand this. When I talk to people about their jobs, many say that they don’t trust their employers. They expect to be lied to. They understand that all this stuff about “we value our employees,” is nothing but a bunch of worthless management-speak blather. They try to do a good job, but don’t feel any particular loyalty or affection toward the employer. Of course the employer values you. They value you for what they can get out of you today, and they value you for the cost savings they can achieve when you’re laid off tomorrow. They value you for the bonus they’ll receive for “cutting costs” when you’re laid off. Increasingly, employees feel just the same affection for the employer. And little wonder.

  3. I wonder if, because of the decrease in the relative amount of small businesses (where the hierarchy is much more transparent) this problem has been exacerbated?

  4. Missourian says:

    Note 2, Talking water cooler kvetching seriously, obviously these people haven’t spent much time in a competitive labor market.

    More and more people understand this. When I talk to people about their jobs, many say that they don’t trust their employers. They expect to be lied to. They understand that all this stuff about “we value our employees,” is nothing but a bunch of worthless management-speak blather. They try to do a good job, but don’t feel any particular loyalty or affection toward the employer. Of course the employer values you. They value you for what they can get out of you today, and they value you for the cost savings they can achieve when you’re laid off tomorrow. They value you for the bonus they’ll receive for “cutting costs” when you’re laid off. Increasingly, employees feel just the same affection for the employer. And little wonder.

    I’m sorry, but, this is simply childish. Businesses survive because they can provide a product or service at a price that someone is willing to pay. If they can’t do this, they go out of business.

    Of course the employer values you. They value you for what they can get out of you today, and they value you for the cost savings they can achieve when you’re laid off tomorrow. They value you for the bonus they’ll receive for “cutting costs” when you’re laid off. Increasingly, employees feel just the same affection for the employer. And little wonder.

    >

    Of course, a employee is valued for his or her productivity. An employee is not a child or a family member, he is someone who has been hired. The bargain is that the employee does useful work and the company pays for his/her time.

    There is a huge difference in productivity between people in the same job, it is mainly an knowleedge, attitude and habit issue. The truth is that in any company, everybody really knows who is competent and productive because those are the people that others go to when they need help.

    After a very short period of time, people outside a particular business find out who the competent and productive employees inside the business are. For instance, I know that when I need to do business with local company X I always call “Joe” at the main office, he is the most competent, knowledgable and productive employee that company X has and when I need to get something done with Company X I go to Joe.

    Productive employees aren’t laid off. The non-productive employees are. Does Jim Holman think that employers should adopt adults for life?

    Would you prefer the company keep non-productive employees until it goes out of business and no one has a job? Have you studied the fate of American railroads? The unions attached themselves to the jugular of that industry and kept taking until it nearly died.

    Any business, repeat, any business that does not value truly productive employee will lose them to businesses that will value them. This is called a “free market” in labor and it is quite effective.

    A couple of years ago I had a discussion with an employee of an electric utility and he complained how terrible management was. I asked him how long he had worked there and he said “18 years.” Well, for 18 years this terrific and productive employee couldn’t or wouldn’t find a better employer. Maybe he wasn’t so valuable an employee that another company would hire him OR maybe he was just indulging in the human vice of complaining about owe’s situation in life and blaming others for the absence of perfection.

  5. Missourian,

    Productive employees aren’t laid off. The non-productive employees are.

    In theory that’s what should be happening. In reality far too many times this is not being practiced. Unethical and insecure managers feel threatened by productive and effective employees and either demotivate, subvert, or fire them. In those dysfunctional work environments usually the most “compliant” and “non-wave causing” employees are safe and even get promoted regardless of their level of competence and productivity.

  6. Missourian says:

    Note Banescu, if companies keep low-productivity employees the company will suffer for it because America has a competitive private sector

    Keeping low-productivity employees results in higher than necessary costs;

    Higher than necessary costs results in a loss of competitiveness in price, quality of service or convenience with respect to the company’s competitors

    If the company cannot compete as well with it competitors, its loses
    sales to its competitors

    If the company loses sales, it loses revenues, it loses profits

    If a private company loses profits, it hurts the interests of the owners;

    Generally at this point the owners investigate and seek to
    restore profitability, most of the time they figure it out
    sometimes they don’t, in which case they go out of business

    If a private company loses enough profits, it goes out of business
    and cannot provide employment or goods and services for anybody.

    If a public company produces only low profits per investment dollar
    stockholders sell stock and buy the stock of more productive
    companies

    If this goes uncorrected the company goes out of business,
    the company can no longer provide employment for anybody
    resources, including human resources, are released and
    free to travel to more competent managers.

    Some businesses can’t and won’t recover, we aren’t paying subsidies
    to the buggy whip compaies that went out of business when
    the horseless carriage came on the scene and I, for one,
    am glad that we didn’t. Our economy grew and provided
    jobs for people in other industries.

    I feel as if I am the only one on this board who has run a business, am I?

  7. Missourian says:

    Note 5, Banescu, productive employees are exactly those who can be hired by competitors

    If a company has a manager that acts against a the company’s interest and retains employees who are not productive thereby driving away those employees who are productive, the company will become less competitive.

    At the very least, productive employees go elsewhere and are welcomed. As I noted, every industry is really just a small town and everybody in the industry knows who is really productive (good, tatented, efficient, choose the description). I know some people my my industry in my town who work for other companies. If these people are ever available I will gladly hire them.

    Sure occaisionally, there are exceptions but they prove the rule. Unless you are a government agency you cannot keep incompetents and survive for very long.

    I just ordered a book from Lexis/Nexis on line and I can’t believe how efficient and cheap and helpful they were, the contrast with the DMV is just painful.

  8. Christopher says:

    Mr. Banescu,

    I have to side with Missourian on this one. On balance, organization effectiveness is dependent on the effectiveness, productivity, and yes ethical integrity of both owners, managers, and “worker bees”. The following where you say:

    Unethical and insecure managers feel threatened by productive and effective employees and either demotivate, subvert, or fire them.

    Just is not that large of a problem, because these same managers by ‘acting out’ this way shoot themselves in the foot as far as what they are responsible for. In other words, they are not effective managers themselves and don’t last long. This is not to say it does not occur, but it is not a situation that can last long.

    As far as “most” American workers sensing a basic ethical breakdown in American corporate management, I don’t really buy that either. The reason is that lying, cheating, and stealing has no future, whether it’s against your customers, employee’s, or both. Business’s don’t last long ticking off their customers and/or their employees.

    Your experience with your dot com business was unfortunate, but I don’t think normative. As a computer professional myself, I have worked at one company whose ownership was questionable, and I quickly left. Interestingly, they are no longer in business. The other companies I have worked for have proved themselves to have good ethics, and interestingly, they are all still in business – in a tough business to last in as you know…

  9. Missourian says:

    Note 9, Basing a business deal on reputations

    Businesses build reputations in their industry and in their community. A smart business person strives mightily to establish and maintain a reputation for honesty and integrity, it draws business.

    A single instance of backstabbing, cheating, lying in any form will cause a customer to cut off all business ties and to tell others in the industry. The best policy is to assume that “the truth will out.” It nearly always does.

    Written contracts are great and will always be required in real estate and many other businesses but if you have to translate every tiny aspect of deal into a full paragraph of lawyer’s gobblydegook then you probably shouldn’t be doing business with that person.

    Business can move very fast sometimes and sometimes you just can’t wait for the lawyer to get the contract out, you have to commit to a deal orally and maybe follow up with an informal written commemoration. We will only do this with businesses that we know and that have a proven track record of integrity. Consequently, those without a proven track record of integrity lose business opportunities with us.

  10. Missourian says:

    Note 1, Dean, what is it about “high-risk” you don’t understand?

    Should society treat real estate purchasers as adults?

    Should people purchasing real estate assume the risk of understanding the legal documents they sign?

    Should people who don’t understand the legal documents generated by a real estate transaction be expected to spend a tiny percentage of the purchase price on a lawyer to review the documents prior to signing?

    bubble in housing prices was allowed to expand because (1) Realtors pushed buyers towards homes they could barely afford to generate higher brokerage fees, (2) Lenders made risky mortgages to people who were barely credit-worthy in order to generate origination fees, (3) Securities firms packaged them into mortgage-backed securities and marketed them as nearly risk-free investment vehicles, and (4) Hedge and investment fund managers focused exclusively on the high rate of return, failed to perform due dillegence to determine the actual risk posed by the underlying mortgages. (5) Rating agencies like Moody’s and Standard & Poor’s also failed to acurately report the risk posed by these securities not wanting to jeapordize future business with the wall Street firms issuing them.

    1) Realtors are hired to sell properties. Realtors have never been expected to assess the credit worthiness of a buyer, that is the bank’s job. Realtors have never been expected to assess the desirability of the transaction for the buyer, that is the buyer’s job.

    2) When a lender makes a high-risk loan, they KNOW they are making a high-risk loan and as competent adults over the age of 21, they have accepted the risk. If the high-risk loans go bad, the lender loses money. What is it about “high-risk” people don’t understand?

    3) Securities firms packaged them in “risk-free” investment vehicles? Huh?
    The only investment that economists consider to be “risk-free” is low yield federal government bonds. Securities firms knew full well that the packages were nothing more than groupings of “high-risk” loans. They understood that and they took the risk.

    4) I doubt any hedge fund didn’t know exactly what they were doing and why. They understood it and they took the risk.

    5) If this is true, then there are possibly legal consequences. I would have to see alot of proof of this.

    Everything I have read indicates that everybody knew that they were entering into HIGH-RISK loans and they all thought that the bet they were placing would pay off. Sometimes bets don’t pay off.

    In the first case, a consumer in my community can get a lawyer to review real estate documents for less than $500. Not much to pay in a real estate transaction where the purchase price is $300,000 and up. THAT IS ALL THAT IT WOULD HAVE TAKEN TO PROTECT THE BUYER! Stop. Slap forehead. Proceed.

    I don’t want my tax dollars tapped to clean up after the bad decisions of some sloppy adults who didn’t do their homework before signing lots of documents.

  11. Jim Holman says:

    Missourian writes: “Productive employees aren’t laid off. The non-productive employees are. Does Jim Holman think that employers should adopt adults for life?”

    If you’re talking about mom-and-pop businesses, yeah, I suppose layoff decisions are rationally made. In large businesses they are not. Such decisions are made with a chainsaw, not a scalpel.

    Businesses lie to employees or withhold the truth in order to keep them from jumping ship prematurely. After 21 years at the same organization I was laid off a couple of years ago. It was basically “take your stuff and get out.” Later, I found out that they had known months earlier that I would be laid off. Had they told me then, I could have looked for another job at my leisure. But of course, I might actually have gotten a different job, and then the projects I was working on wouldn’t have been finished.

    I worked my way through college as a blast freezer operator in a cannery. Most of us were seasonal employees, but around 20 people were year-round, permanent employees, mostly mechanics and supervisors. One year the company decided to shut down that cannery and move all the work to a different cannery they owned. What they did was to let all the permanent workers keep working until the end of the season. Then one day they said “sorry, we’re closing the plant, you don’t need to come in tomorrow.” In other words, they withheld the information that the plant was closing until the last minute so that none of the permanent workers would jump ship and find different jobs before the season was over. But once the season was over, there were no other jobs to be had. Some of the people had worked there twenty years, and this was how they were treated.

    Missourian: “I feel as if I am the only one on this board who has run a business, am I?”

    But try a couple of decades in a larger organization and it may change your perspective.

    Missourian: “If a company has a manager that acts against a the company’s interest and retains employees who are not productive thereby driving away those employees who are productive, the company will become less competitive.”

    In a large company, no one will ever know. Performance metrics for a department might drop a little, but a bad manager can always spin that.

    Christopher: “Just is not that large of a problem, because these same managers by ‘acting out’ this way shoot themselves in the foot as far as what they are responsible for. In other words, they are not effective managers themselves and don’t last long. This is not to say it does not occur, but it is not a situation that can last long.”

    No, they won’t last long in that position. They’ll be promoted. Look, in a lot of large organizations “management” is largely a matter of spin, schmoozing, finding ways to manipulate irrelevant numbers, covering up disasters, and so on.

    Christopher: “As far as “most” American workers sensing a basic ethical breakdown in American corporate management, I don’t really buy that either. The reason is that lying, cheating, and stealing has no future, whether it’s against your customers, employee’s, or both. Business’s don’t last long ticking off their customers and/or their employees.”

    A business that ticks off employees can continue to exist and make money. What’s lost is the potential for better performance. As W. Edwards Deming said, the most important numbers are unknown and unknowable. A company can continue to exist with bad management. What no one will ever know is what they could have done with good management.

  12. Missourian says:

    Note 11,JimH, Competitors will take the market share of a badly-run business, large or small, even if bad metrics prevent the badly-run business from understanding how or why they are comparatively unproductive

    Missourian writes: “Productive employees aren’t laid off. The non-productive employees are. Does Jim Holman think that employers should adopt adults for life?”

    If you’re talking about mom-and-pop businesses, yeah, I suppose layoff decisions are rationally made. In large businesses they are not. Such decisions are made with a chainsaw, not a scalpel

    Many very large businesses are known for the ability of the managers to attract, reward and keep the best employees—GE, IBM and Hewlett Packard come immediately to mind. Intel is also known as a company that hires the best and treats them very, very well.

    My comments have always conceded that a bad or an unscrupulous manager might be able to keep unproductive employees and consequently fail to keep productive employees.

    HOWEVER, if this is done on a significant scale and over an extended period of time, the business chickens will come home to roost. The overall company will be less efficient, will have to charge more or offer less than competitors.
    Competitors will take market share.

    It doesn’t matter that the badly run company doesn’t see the losses due to bad or missing metrics, the loses will occur because other companies will outcompete them. If the loses continue long enough, the badly run company will go out of business.

  13. Missourian says:

    Note 11, Jim H, I have experience in large private companies, state agencies, state legislatures and the federal government as well as my own business.

    Missourian: “I feel as if I am the only one on this board who has run a business, am I?”

    But try a couple of decades in a larger organization and it may change your perspective.

    At one time or another I have worked for

    The legislative branch of a state government in the Midwest (1 year)

    A large executive agency of a state government (3 years)

    A large executive agency of the federal government (2 years)

    A private company with more than 20,000 employees ranked
    in the Fortune 500 (6 years)

    Running my own business (13 years)

    Please don’t condescend based on some imagined more extensive work experioence.

  14. Missourian says:

    Note 11, Jim H, badly run companies will lose market share to well run companies

    A business that ticks off employees can continue to exist and make money. What’s lost is the potential for better performance. As W. Edwards Deming said, the most important numbers are unknown and unknowable. A company can continue to exist with bad management. What no one will ever know is what they could have done with good management

    .

    We agree that a company doesn’t have to be perfect in all situations to exist, but, you always forget the impact of the market. In open markets there are always people out there looking for ways to lure more business to their own company. Sooner or later, a company which is seriously careless and sloppy will lose market share to some other company that takes customers seriously.

    In just the last 2 months, I have switched my purchases from 5 or 6 companies that provided bad, slow of lackadaisical service to companies that were responsive and efficient. I know that I am not the only one.

    You consistently ignore the impact of the market.

  15. Jim Holman says:

    Missourian writes: “It doesn’t matter that the badly run company doesn’t see the losses due to bad or missing metrics, the loses will occur because other companies will outcompete them. If the loses continue long enough, the badly run company will go out of business.”

    Well, this is small comfort to the employee who spent a career there and got the shaft in the end. One of the fellow laid off at the same time I was spent 25 years there. He was laid off from one position and bumped into another. He was laid off from that and bumped into another. Finally he was laid off from the third position. But of course, the company was not targeting “older workers.” No indeed. As long as it’s in the name of cost cutting anything goes.

    Missourian: “At one time or another I have worked for . . . ”

    That’s great. Go work for a single company, crawling your way up the ladder for a couple of decades, then get the shaft. Where I worked we didn’t get a service pin until 10 years. You worked 1, 2, 3, and 6 years at places you didn’t run. Whoop-tee-doo. Please don’t condescend based on some imagined more extensive work experience. You were a job-hopper, and good for you. You actually had the better strategy. That’s the kind of loyalty most companies deserve. Put in a couple of years and go elsewhere. I was foolish enough to stay with a company through the good times and the bad. I was dumb enough to think that superior performance appraisals, documented cost-savings, and loyalty counted for something. You were smart. I wasn’t. I mean that. But people are starting to wise up.

    Missourian: “Sooner or later, a company which is seriously careless and sloppy will lose market share to some other company that takes customers seriously.”

    Well, sure, but that can take years. Small comfort to the former employees out on the street.

    But back to the original article. I like Chris Banescu’s article, because it’s not theoretical or hypothetical. It’s a first-hand view from the trenches, from somebody who’s been there, done that, and got the tshirt. It documents what happens when business operates without a moral vision.

  16. CFLconservative says:

    Note Banescu, if companies keep low-productivity employees the company will suffer for it because America has a competitive private sector

    Keeping low-productivity employees results in higher than necessary costs;

    Higher than necessary costs results in a loss of competitiveness in price, quality of service or convenience with respect to the company’s competitors

    If the company cannot compete as well with it competitors, its loses
    sales to its competitors

    If the company loses sales, it loses revenues, it loses profits

    I have to second Jim’s comment here. Since 1995, I’ve worked at some of the largest software and financial services companies in the world. The numbers of 8th largest software company, third largest bank holding company, largest brokerage firm in the U.S., and now the sixth largest software manufacturer in the world. (8,000 employees globally, though we are a small part.)

    I have been through multiple rounds of mergers and every time there was a RIF.

    Almost every single time we had a RIF, we ended up hiring back formerly downsized employees as either contractors or back as employees as soon as the dusts settled.

    Did you read that, Missourian? “non-productive” employees who were downsized were hired back within WEEKS.

    Why? Because the cuts were often ordered by finance weenies who needed to make the combined balance sheet look better after a bloated merger or an acquisition they overpaid on.

    The managers were given orders to cut, and usually directed to cut the highest paid members of staff.

    Guess what? Highest paid usually equals most qualified and most experienced. After cutting them, productivity went to heck in a handbasket and they were soon back at their desks, sometimes as employees sometimes as contractors on a temp-to-perm basis.

    How many times have I seen this? At least five that I can think of.

    Missiourian, I’m sure you are a great lawyer and a wonderful person but spare me the lectures on corporate America. Yes, corporations out-perform the government.

    What doesn’t?

    However, that doesn’t mean that large, bloated corporations aren’t run illogically. They are.

    I just wrapped a four day class prepping the fourth largest bank in the entire world for the initiation of a $3 million project. They will be using at least a $1 million of consulting from us. Why?

    Because the head of the project doesn’t understand basic accounting or cross-border processing, and needs all the help she can get.

    Good for us, bad for their shareholders.

    Well why not just give the project to someone who can do the job without $200 an hour consultants?

    Because she’s best friends with the Executive VP who plays golf with the CIO who is a frat brother of the CEO.

    So she’s in the driver’s seat of a project she can’t manage and will spend a dozen times the needed outlay of capital to make up for her liabilities.

    I am NOT advocating socialism, got it? But the mere fact that socialism is worse doesn’t mean that our bloated corporations are running well.

  17. Jim Holman says:

    CFLconservative writes: ” . . . Because she’s best friends with the Executive VP who plays golf with the CIO who is a frat brother of the CEO.”

    Ah yes, the “buddy system.” It works great for skin diving, but is a disaster in corporations.

    I think Missourian believes that there is a kind of meritocracy in operation in companies. I think there is a little blt of meritocracy — you’ll find pockets of it here and there. But by and large the buddy system prevails.

    The buddy system is extremely discouraging to “outsiders,” for three reasons. First, the outsiders know that they will never become the department director or the VP. The stock options and big bonuses will never be offered to them. In the event the company collapses they will not receive the golden parachutes. Second, the outsiders are often more competent than the buddies. This means that eventually they will come into conflict with one or more of the buddies. When than happens the outsider is considered a “troublemaker” who is not a “team player.” Third, the buddy has to make sure that an outsider doesn’t receive too much recognition for excellent work. It that happens, then the incompetent buddy is threatened. So the buddy has to make sure that the outsider doesn’t get too many opportunities or too much visibility.

    CFLconservative: “So she’s in the driver’s seat of a project she can’t manage and will spend a dozen times the needed outlay of capital to make up for her liabilities.”

    Yes, and no one above her will ever know about that. In fact, when the project is finally successfully completed, in spite of and not because of her, she will receive a bonus and be in line for a promotion because of her “management skills.”

    In my career I have worked for only four really good managers. When you’re working under a good manager, it’s like you died and went to heaven. You show up early and leave late not because you have to, but because you’re excited about the work. Everything becomes easier; you feel like the wind is at your back for a change. All of a sudden you’re getting encouragement. You’re getting training. Opportunities appear. It’s truely remarkable.

    What happened to the four good managers I worked for? Two quit and went elsewhere after being passed over for obvious promotions. Two got into trouble with the “buddies” and were fired. So it goes.

  18. Note 15, JimH demonstrates that clinging to the breast of Mother Corporation may not be good strategy

    Here in America our dynamic economy is characterized by flexibility. This means that new companies start up frequently, some succeed long-term, some fail. Resources move rapidly from unproductive activities to productive activities, this flexibility is the reason that America’s economic dynamism is unsurpassed in the world. It why we, (including you, Jim H) are richer than the rest of the world.

    Your entire comment display the mindset of the DMV employee.
    No one promised anyone life-long employment. In fact, promises of life-long employment are a sure recipe for disaster, see the DMV

    As to your specific points:

    Missourian writes: “It doesn’t matter that the badly run company doesn’t see the losses due to bad or missing metrics, the loses will occur because other companies will outcompete them. If the loses continue long enough, the badly run company will go out of business.”

    Well, this is small comfort to the employee who spent a career there and got the shaft in the end. One of the fellow laid off at the same time I was spent 25 years there. He was laid off from one position and bumped into another. He was laid off from that and bumped into another. Finally he was laid off from the third position. But of course, the company was not targeting “older workers.” No indeed. As long as it’s in the name of cost cutting anything goes.

    A company doesn’t agree to do anything more than pay a person for doing a particular job. This gentleman was paid a salary for doing three different jobs. At any time, he could have left and joined another company. Again, you seem to think that a company adopts a person for life and promises them eternal happiness. No so, such expectations will only lead to disappointment JimH.

    If the company violated the extensive laws against age discrimination, here is what the aggreived employee could do. First, every state in the union has a state EEOC which will provide a free investigation of his claim and the possibility of a lawyer to represent him. If the state EEOC turns down his case, the aggreived employee can go to the Federal EEOC and again, he may get a lawyer to represent him for free. Lastly, if both the state and the feds reject his cae, the aggreived employee can get a private lawyer with the promise of attorney’s fees if he wins. That is called “three shots at the apple” Jim.

    Missourian: “At one time or another I have worked for . . . ”

    That’s great. Go work for a single company, crawling your way up the ladder for a couple of decades, then get the shaft. Where I worked we didn’t get a service pin until 10 years. You worked 1, 2, 3, and 6 years at places you didn’t run. Whoop-tee-doo. Please don’t condescend based on some imagined more extensive work experience. You were a job-hopper, and good for you. You actually had the better strategy. That’s the kind of loyalty most companies deserve. Put in a couple of years and go elsewhere. I was foolish enough to stay with a company through the good times and the bad. I was dumb enough to think that superior performance appraisals, documented cost-savings, and loyalty counted for something. You were smart. I wasn’t. I mean that. But people are starting to wise up

    .

    When I was seventeen and leaving high school, my father explained to me that companies hire an employee they do not adopt an employee. I noted this fact. I am sorry to hear that it took virtually decades for you to discover that you weren’t adopted by the company.

    I mentioned my job history firstly because you condescended to me and described the business that my husband and I created as a “Mom and Pop” operation. Well, we do just fine. I suggest that until you can create a successful business from scratch, that you refrain from condescending to those that have, by referring to it as “Mom and Pop.”

    Secondly, you suggested that I lacked your vast business experience because I hadn’t worked for large organizations. I have worked for large organizations in both the public and private sphere. So your factual assumptions were false. I was merely correcting them.

    I find it difficult to believe that an employee like yourself with
    “superior performance appraisals, documented cost-savings” could not get a job in the same industry. It is customary to keep records of these accomplishments and then recite them on your resume. Real accomplishment are noticed by employers.

    I am not sure what “loyalty” to a company is. Of course, you were expected to do your job and use all legitimate means to advance a companies interests.
    You were paid for that, period. Work is not adoption, nor is it a religion, it is work, a contract in which employees trade time and skills for money. You seem unclear on this idea.
    .

    Missourian: “Sooner or later, a company which is seriously careless and sloppy will lose market share to some other company that takes customers seriously.”

    Well, sure, but that can take years. Small comfort to the former employees out on the street.

    Again, I note the dramatic self-pity of the “on the street” description. Gee, were you in a bread-line? By your own statements, you have an advanced education!!!I am sure that someone of your brilliance understood the AESOP
    fable about the squirrel that saved a few nuts for winter.

    Someone with your high IQ and advanced degrees certainly saved a few dollars for a rainy day, didn’t you? Someone of your intellectual stature certainly kept up with your industry, attended professional conclaves and kept professional ties with other people in the industry? No? why not?
    Why should you have been “on-the-street” Americans have an average savings rate of 2% sometimes that bites.

    I might have some sympathy for people without an advanced education, but, this paragraph is an incredible demonstration of self-pity.

    Again, Jim H, you are a materialist. You may be surprised to learn that I have had some economic ups and down in my life. I have found that the Lord has always helped me through the hard times. No a angel didn’t drive me to the job interview, but the Lord sent people to encourage me while I was looking for a job, and I know that He was with me and cared about me.

    It is sad, that as a materialist you have no such help in times of trouble.

  19. Note16, CFL Conservative,I have built a business on the incompetence of large corporations.

    Nearly every customer we have was won away from a large, incompetent corporations. We (my husband and I) built a successful business on it, we are taking away their customers right and left.

    I never suggested that every corporation operated at an optimal level, quite the contrary, corporations of various degrees of competency are competing with each other. In the long run, the best will survive and the incompetent won’t. In corporate America the “long run” isn’t very long, maybe a couple of years.

    By the way, people who are conversant with the auto industry think that there is a possibility that Ford and/or GM could declare bankruptcy in the new few years. I hope not, but, it is possible.

    Reciting individual instances, even widespread instances, of corporate incompetence proves nothing except that everybody, expert and inept, can compete in an open market society.

    Again, as I noted to JimH, Christians have an advantage in hard times, that is besides the practical and ordinary precautions of saving for a rainy day, we have the assurance that God care for us in all ways and at all times. During my times of economic uncertainly, I was blessed with help from many friends. I consider those friends to have been Godsends. It is difficult for materialists they are truly “on their own.”

  20. Missourian says:

    JimH, the plight of Leftist Materialist (LM) when hard times hit

    The Leftist Materialist spends years of his life scoffing at abstinence before marriage, denigrating the ideal of monogamy and fidelity; rejecting the entire concept of a life-time committment between spouses, and endorsing casual and temporary “family” structures. Our Leftist Materialist spews contempt at the Church and Church communities: “these people think they possess the Truth.” How oppressively arrogant of them, don’t they know truth is a social construct. The LM is too mentally tough to accept anything but scientific proof so religion is rejected.

    Time passes and hardship hits. The LM is in Jim H’s word “on the street.” Yes, the employer whom the LM believed should be an adoptive parent lets him go. The LM was too intellectually demanding to accept religion but he somehow believed that employers are parents. The LM turns to the comfort of his spouse. But, the LM’s “spouse” is only there for as long as it is comfortable and easy, and he/she is out the door when the paycheck stops. No “for better or for worse” for the LM and his spouse. “For better or for worse” is clearly part of that oppressive institution “traditional marriage.”

    Even further, the LM finds that his “collective” of like minded people have drifted away. One member of the LM’s collective would like to help out but he is hitchhiking through Europe this year. Another member would like to help but he wasn’t into that “working and saving” thing so he can only do a few Zen chants for the LM. Permanent family structures are oppressive and the members of his collective chide the LM for “stepping on their buzz.”

    Given this the LM can only do with every good LM does. He agitates politically for the power of government to make the world his guarantor of good times; a nifty little income/wealth redistribution program should work just fine.

    The LM may be alone, but he’s got his government check to comfort him.

  21. Jim Holman says:

    Missourian writes: “imH, the plight of Leftist Materialist (LM) when hard times hit”

    Missourian, I’m actually quite baffled by your post and why you seemed to have addressed it to me. No one has suggested any kind of government control. No one is suggesting any “solutions,” either from the left or the right, except for companies treating employees ethically. No one has said that the employer is a parent and the employee a child. No one raised any issues about “leftists” or “materialists.” Who exactly is the “leftist materialist” whose spouse abandoned him? Who is the leftist materialist whose friends vanished? What is the “government check?” You really have me puzzled with this one.

  22. #19 Missourian:

    “Reciting individual instances, even widespread instances, of corporate incompetence proves nothing except that everybody, expert and inept, can compete in an open market society.”

    So, how does ineptitude successfully compete in the market society? Why is it rewarded at all? I thought your point is that productivity is rewarded, and incompetence is punished, in the market society.

    What the numerous examples demonstrate is that the problem is widespread. It is so widespread that companies do not go out of business as a result (except for the most egregious cases, like Enron). The truth is that, in most large companies (at least in my business), unless one is selected to climb the ladder, one can work twice as hard and be twice as productive as one’s peers, and one might get paid 10% more than the peers at best. Climb the ladder, and one might easily make 10 – 100 times the amount of the “grunts,” but, from what I’ve seen, being selected to climb the ladder (and I was on the short-list in one company – so this is not sour grapes) is very random, and quite often has little to do with business sense, technical skill, or work ethic. Where I am currently, the “buddy system” has a lot more to do with managerial advancement. Clearly, something is amiss.

    I’m not saying socialism would be better. It would be worse. But, as many people have pointed out, most corporations are not harshly weeding out incompetence and vice, and likewise are not adequately rewarding competence, even though in theory and in fact it is in their best interest to do so. I think this is nothing more than yet another manifestation of American cultural degradation.

  23. Note 21, JimH, oh puleeeze

    Missourian writes: “imH, the plight of Leftist Materialist (LM) when hard times hit”

    Missourian, I’m actually quite baffled by your post and why you seemed to have addressed it to me. No one has suggested any kind of government control. No one is suggesting any “solutions,” either from the left or the right, except for companies treating employees ethically. No one has said that the employer is a parent and the employee a child. No one raised any issues about “leftists” or “materialists.” Who exactly is the “leftist materialist” whose spouse abandoned him? Who is the leftist materialist whose friends vanished? What is the “government check?” You really have me puzzled with this one.

    Sure, JimH, you are really puzzled. I believe that.

    I have been reading your stuff for a long time JimH. So has everybody else.

  24. Note 22, D George, instances of bad management rewarding relative incompetence

    #19 Missourian:

    “Reciting individual instances, even widespread instances, of corporate incompetence proves nothing except that everybody, expert and inept, can compete in an open market society.”

    So, how does ineptitude successfully compete in the market society? Why is it rewarded at all? I thought your point is that productivity is rewarded, and incompetence is punished, in the market society.

    The short answer to your question is that you are comparing the competency of individual employees, the market forces act on the net endproduct of the entire organization, the product or service offered to the public: the product or service that competes with other products or services in the market place.

    At some point in time a company has to offer a product and/or a service to the public. A member of the public is generally free to chose what he thinks is the best product. In the vast majority of cases, customers can compare quite a few different products.

    The net productivity of a company is demonstrated by its value/price ratio as perceived by the customer. Its “value” subjective, sure, to some extent, but most industries have companies that are industry leaders and they are industry leaders because consumers or other customer want their product above all others. Example, everybody has their own favorite automobile (subjective because different people value different aspects of an automobile differently) but nearly everyone agrees that Mercedes is an industry leader.

    In order for a company to simply stay in business it must collect more than it spends. Beyond that in order for a company to keep market share, it must have a net productivity which is roughly comparable or better than its competitors.

    There are sociologists who propound the idea that an organization can grow too large for its own good. An overly large organization can, by its very size, become unmanagable. The reason a large corporation can become unmanagable is that it may be too complex for managers to properly judge the productivity of individual employees.

    Success or failure of the organization as a whole is always very easy to determine. Is the company making a profit? Is the company keeping market share? Is there any trend apparent, either in profits or market share?

    The market is relentless, it never stops operating. If a large share of consumers choose your product over others then the company as a whole is sufficiently productive to stay in the game. A company is like a ship, a strong engine can push the ship forward even though there are some barnacles on the hull. A few very productive employees can make up for the dead-weight that inevitably is acquired by any corporation.

    My company has 8 employees, we could let go of 3 of them and the company income would only drop by about 10% not 37.5%. There a two employees who are the engine of the company, without those two the company dies.

  25. Missourian says:

    Note 22, George, the profit and loss statement knows no buddy-system.

    What the numerous examples demonstrate is that the problem is widespread. It is so widespread that companies do not go out of business as a result (except for the most egregious cases, like Enro

    n).

    If companies stay in busines it is because customers think that their products or services are worth buying. Somebody in the organization has to be creating that customer perceived value in the product or service. Somebody in the company is creating what that customer wants. That is is type of productivity that counts. There may well be dead-weights but somebody is creating it and is sufficiently productive to outweigh the deadbeats.

    The truth is that, in most large companies (at least in my business), unless one is selected to climb the ladder, one can work twice as hard and be twice as productive as one’s peers, and one might get paid 10% more than the peers at best.

    The productivity that counts is the productivity that creates the value that the customer wants. There are many positions in major corporations which are support positions, they allow the primary-mainline creators of value to function. They include accounting and HR, for example.

    If you are working twice as hard are twice as productive as one’ peers and are not rewarded with advancement or pay, one of three things has to be true. First, management can be honest and incompetent, second management can be corrupt, third the “productivity” of your position doesn’t really add value to the product or service that the customer wants. Remember in the end, it is the customer that rewards productivity by buying the product or service. An accountant who works twice as hard may not add any more appeal or value to the product or service in the eyes of the buying public.

    Climb the ladder, and one might easily make 10 – 100 times the amount of the “grunts,” but, from what I’ve seen, being selected to climb the ladder (and I was on the short-list in one company – so this is not sour grapes) is very random, and quite often has little to do with business sense, technical skill, or work ethic. Where I am currently, the “buddy system” has a lot more to do with managerial advancement. Clearly, something is amiss.

    It is simply irrational to state that a company can survive for long if advancement has nothing to do with business sense, technical skill or work ethic. It is simply an oxymoron. Again, somebody is producing that value that the company wants. It doesn’t appear from nowhere.

    Was the company in which the buddy system employed making a profit? If so, it can remain in business, it won’t go bankrupt. Was the company steady in market share? If so, then its net productivity was about the same as its competitors in the eyes of the consumer.

    If the company was not making a profit or it is losing market share, there will soon be no jobs for the “buddies.” The profit and loss statement knows no “buddy-system.

  26. Jim Holman says:

    Missourian writes: “JimH, oh puleeeze . . . Sure, JimH, you are really puzzled. I believe that. I have been reading your stuff for a long time JimH. So has everybody else.”

    Now I’m more baffled than ever. Was your post really supposed to be about me?

    Did I get laid off after 21 years with the same organization? Yes. Was I disappointed? Yes. Did that decision make sense to me? No, because most of the projects I worked on involved cost savings and revenue enhancement. No one is guaranteed a job, but getting rid of someone like me is like burning the roof in order to heat the house. But that was the decision; so be it.

    Did my “materialist” wife leave me? No. When I told her that I was laid off, she offered a few choice epithets in the direction of my former employer. Then she said “you should just stop working, because we can do fine on my salary” — an offer that I appreciated but politely declined. Did my “materialist” friends abandon me? Quite the opposite.

    My “government check?” Yes, after my employer and I paid into the state unemployment fund for 21 years, I received $1400 during the two months I was out of work. This was — what — immoral? Hell’s bells woman, I started working in the summers picking fruit next to Mexican migrant workers when I was 11 years old in order to buy school clothes. (Typical liberal “elitist.”) Forty-one years later I get a couple of unemployment checks, and it’s the end of civilization and the triumph of leftist materialism?

    I’m searching for a different interpretation, but to me that post really seems unusually rude and cruel. It seems like you’re rejoicing over my supposed demise after being laid off — a demise which in fact did not happen. Am I really that despicable? You know, Christians get laid off too. Christians get the shaft too, and some of them have outcomes much worse than mine. Christians can be destroyed financially. Christians can lose their homes. This is not about left or right, spiritual or material. This is about people, and the extent to which companies have a moral vision of how to treat people. Some companies do; many do not. That is the issue. I’m not the issue.

  27. This is an accurate assessment of what is happening in many companies:

    as many people have pointed out, most corporations are not harshly weeding out incompetence and vice, and likewise are not adequately rewarding competence, even though in theory and in fact it is in their best interest to do so. I think this is nothing more than yet another manifestation of American cultural degradation.

    In my experience, unethical self-interest (greed), egos, and politically motivated favoritism play major roles in who gets promoted and who does not. Advancement and special treatment are frequently not based on optimal performance, productivity, education, qualifications, ethical behavior, or effectiveness inside an organization. In my 22+ years of working for various companies and corporations (from small businesses to multi-billion dollar enterprises) this is the reality and dysfunctional management “styles” I ran up against over and over and over again.

    It is because of that that I started my own businesses and chose to be self-employed, consult, and teach. I wasted years of my life and thousands of hours of overtime believing the theory that hard work, productivity, results, and ethical behavior will be fairly and proportionally rewarded and recognized in organizations. While this occasionally happened, the instances were very few and far between; usually followed by abusive and incompetent “management” actions by executives.

    Having also taught in multiple MBA programs at various universities for the last seven years, I am amazed at how common these dysfunctional experiences are and how many of my students (across all ages, industries, and organization types) relate the exact same approaches and problems. This is NOT how businesses are supposed to be managed and lead. Free-market capitalism is very rarely practiced in these companies. What you get instead is a pseudo-feudalistic or pseudo-communistic environment where often management and executives have absolute dominion over their departments and employees, are not held accountable for their incompetent and disastrous decisions, and rarely use many of the key principles of management taught in our business schools and MBA programs.

  28. Jim Holman says:

    Chris writes: “Having also taught in multiple MBA programs at various universities for the last seven years, I am amazed at how common these dysfunctional experiences are and how many of my students (across all ages, industries, and organization types) relate the exact same approaches and problems.”

    I’m curious — have you noticed any difference between manufacturing and other kinds of companies? I’ve always had the impression that things are better in manufacturing. Many of the business innovations seem to come from manufacturing — e.g., statistical process control, lean, just-in-time, theory of constraints, hoshin planning, and many of the concepts in quality improvement. Also, I’ve worked with people who come from manufacturing backgrounds, and they usually seem more straightforward, more honest, just want to get the job done right, less political, etc. In my years of working in the medical world, it always seemed to me that whenever we wanted to improve something, we always adopted some concept or technique from manufacturing.

    Also, are these “dysfunctional experiences” more of an American thing, or in your observation are they just as prevalent in other countries?

  29. Jim, I would not be able to say specifically if manufacturing was any different or whether their managers were closer to the management ideal. While the information I was talking about is anecdotal, the book “Good to Great” by Jim Collins actually reinforces and validates my own observations and insights. Collins’ findings are backed up with solid data and objective research across multiple industries and markets spanning decades.

    The best companies, and there are many out there, had ethical, intelligent and humble management that was not only qualified, productive, and effective, but had excellent people skills, understood how to meet and exceed customer expectations, how to reward the best employees and quickly admonish and fire the “dead-weights”, how to deal with conflict, how to motivate and inspire employees, how to maximize profits, how to act strategically and build competitive advantages against potential competitors, and how to increase the size and long-term value of the company. That’s how you achieve meaningful and real success in a free-market capitalist economy.

    Also, are these “dysfunctional experiences” more of an American thing, or in your observation are they just as prevalent in other countries?

    On the whole it seems things are worse in other parts of the world, except for some companies in Japan, Germany, Ireland and Switzerland, from what I have read and heard. I believe with all our problems and dysfunctional situations, American companies fare much better and have the greatest potential to change and improve. I am convinced of that.

    The more we support and promote ethical self-interest and ethical capitalistic principles, free-market competition and reward performance while getting rid of the punitive taxation scheme (based solely on communist redistribution of wealth principles), subjective subsidies, and senseless regulations we burden companies with, the more likely it will be that, as Missourian correctly pointed out, the great companies (small and big) will succeed and beat out the dysfunctional, unethically managed, and inefficient ones.

    The key point here is that gov’t MUST get out of the way and truly de-regulate and level the playing field when it comes to taxation, subsidies, and regulation. America should keep the regulations and punishment for unethical and criminal companies and management. But our gov’t has to stop picking and choosing industries (energy, farming, airlines, cable, telecommunications, etc…) to support and give special treatment to, while telling others (computers, clothing, furniture, retail, electronics, travel, etc..) to “deal with it”, while continuing to punitively tax success, risk-taking and profits.

  30. Christopher says:

    Mr. Banescu writes:

    In my experience, unethical self-interest (greed), egos, and politically motivated favoritism play major roles in who gets promoted and who does not.

    There is a lot packed into that sentence. For example, “egos”. While you obviously mean a it in a negative context, what else would you expect. Since at least the fall of mankind, our personal relationships have been broken to a greater or lesser extant. I have had different experiences than you, for I have found in my business life that when someone is complaining about “egos” it is usually a problem with the complainers “ego”, NOT the person they are talking about. Many people do not cultivate relationships in business (or the rest of their life) as they should, and this has dire consequences in the business environment where relationships ARE important. Trust is important. Seems to me you would have some sort of “Business SAT” test set up, where only allegedly objective metrics are used on who should be promoted and who should not. Much of a persons performance, even in technical positions, is related to how they deal with others, not purely on how many widgets they produce.

    Yes, they should be able to adjust to and compliment their teams and their boss’s “egos”. You seem to be arguing for a strange, depersonalized work environment. I know I do NOT want someone on my team, who might be able to produce slightly more “widgets” than the next guy, but who demand that everyone else conform to HIS version of the workplace and the world. As a manager, I will “favor” someone else over that person each and every time.

    In my 22+ years of working for various companies and corporations (from small businesses to multi-billion dollar enterprises) this is the reality and dysfunctional management “styles” I ran up against over and over and over again.

    Your experience is not typical I believe. It certainly does not jibe with my own. Yes, I have ran into what you are talking about, but it is the exception not the rule – and I was prepared BEFORE HAND to do what it took to extract myself from the negative situation. To be blunt, If you really believe this to be the norm for you, you should look to yourself, as it is most likely a habit or paradigm that you have taken on and not the environment. I am in the same field as you (computer professional) and have not found your experience to be the norm. In networking with my comrade in arms at trade shows and professional organizations, I would say yours is not the typical experience.

    Having also taught in multiple MBA programs at various universities for the last seven years, I am amazed at how common these dysfunctional experiences are and how many of my students

    I wonder if your generalizing too much here, or perhaps bringing out these experiences from your students while not bringing out the “other side of the coin” so to speak. In any case, I find this view to be exaggerated…

  31. CFLconservative says:

    Your experience is not typical I believe. It certainly does not jibe with my own. Yes, I have ran into what you are talking about, but it is the exception not the rule – and I was prepared BEFORE HAND to do what it took to extract myself from the negative situation. To be blunt, If you really believe this to be the norm for you, you should look to yourself, as it is most likely a habit or paradigm that you have taken on and not the environment.

    Dilbert would not be the hit that it is, if this weren’t widespread.

    It is.

    No one is advocating the government ‘fix’ this with regulation.

    Quite the contrary, ‘rent-seeking’ among corporations encourages this kind of dysfunction by partially insulating corporations from market pressures.

    However, the simple fact is that many large corps are run badly by incompetents. However, they’ve reached a market position in which they can coast for a long, long time before the market finally pushes them over the edge.

    And even then, there is no guarantee that large, badly run corporations will even be allowed to fail.

    Chrysler comes to mind, so does Long Term Capital. The current massive liquidity injection to shore up bad housing loans is another. Over and over again, the government keeps stepping in to protect major corporations from their own bad management.

    So what’s the moral of this story?

    Well, there’s room for improvement. Corporations should be discouraged from running like ‘old-boys’ networks and instead as meritocracies. The government should not intervening in the economy. Lobbyists should be put out of business. Corporations should be allowed to fail.

    That would be a good start.

  32. Christopher says:

    Glenn writes:

    However, the simple fact is that many large corps are run badly by incompetents. However, they’ve reached a market position in which they can coast for a long, long time before the market finally pushes them over the edge.

    I think what Mr. Banescu is referring too is something different than “incompetence” when it comes to strategic business planning and response to the market. Having an unsuccessful business (perhaps because your product was simply not wanted) is not a moral failure in of itself. He is talking about an ethical breakdown, particularly by poison pills at the managerial level, and a business culture that protects of even encourage these poison pills. This argument is what I don’t find convincing – at least the idea that this situation is typical.

    Chrysler comes to mind, so does Long Term Capital. The current massive liquidity injection to shore up bad housing loans is another. Over and over again, the government keeps stepping in to protect major corporations from their own bad management…

    I agree. Let them fail.

  33. Christoper Note 30,

    Much of a persons performance, even in technical positions, is related to how they deal with others, not purely on how many widgets they produce.

    Yes, that’s exactly how I phrased also. If you actually read all of the parameters for an effective manager that I posted you will see these comments: “The best companies, and there are many out there, had ethical, intelligent and humble management that was not only qualified, productive, and effective, but had excellent people skills, understood how to meet and exceed customer expectations, how to reward the best employees and quickly admonish and fire the “dead-weights”, how to deal with conflict, how to motivate and inspire employees, how to maximize profits, how to act strategically and build competitive advantages against potential competitors, and how to increase the size and long-term value of the company. That’s how you achieve meaningful and real success in a free-market capitalist economy.”

    You seem to be arguing for a strange, depersonalized work environment. I know I do NOT want someone on my team, who might be able to produce slightly more “widgets” than the next guy, but who demand that everyone else conform to HIS version of the workplace and the world.

    I have no idea where you’re getting this from, but my comments support the exact opposite argument. Please go back and re-read what I actually wrote because you’re completely wrong in attributing these views to me. Subjective views of ethics and work environments is the problem! Objective, truthful, fair, balanced, and ethical perspectives is what I support and base my analysis on.

  34. Missourian:

    “The short answer to your question is that you are comparing the competency of individual employees, the market forces act on the net endproduct of the entire organization…”

    True. My point was that if the market functioned ideally, the employee market (and there is a market for employees) would serve to winnow out incompetence and “buddy networks,” and would serve to reward competence and hard work. Unfortunately, whole markets are susceptible to corruption.

    In the business I am in hard work and competence are rewarded with a five to 10 percent premium, at best. The problem is most accute in larger organizations. Decisions on who will climb the ladder occasionally consider competence, business sense, people skills, and work ethic, but most often are based on other variables (like who one’s parents are and who one happens to know, or affirmative action laws) that are of no benefit to the health of the company.

    Clearly, something is wrong. And, if the employee market is not effective in promoting good employees and punishing bad ones, the market for products, goods, and services may not function ideally either.

    “Note 22, George, the profit and loss statement knows no buddy-system.”

    Agreed, but the response that Mr. Banescu’s article received was that this the sort of corruption he describes will not survive for long because companies that are so corrupt will go out of business: The market never stops working. Ideally, that is the case. But, the market cannot act ideally if the sort of corruption we are discussing is widespread across most/all companies of a certain size that specialize in a certain industry. If no significant number of viable competitors are much better (a significant number, as opposed to a single superior company, is necessary due to anti-trust laws), the industry as a whole may be less efficient, but market forces will not necessarily act to reduce the inefficiency.

  35. Christopher says:

    Note 33:

    I have no idea where you’re getting this from

    I get it from such sentences you write (unless I am mistaken):

    In my experience, unethical self-interest (greed), egos, and politically motivated favoritism play major roles in who gets promoted and who does not.

    and

    In my 22+ years of working for various companies and corporations (from small businesses to multi-billion dollar enterprises) this is the reality and dysfunctional management “styles” I ran up against over and over and over again.

    These strike me as emotionally packed assertions at best, and untypical “experience”. Again, if these have been your “major experiences” I have to question the way you are looking at things. Perhaps, you have had an extraordinary run of bad luck, but I do not believe that the way you describe things is the reality in most companies. You say in this last post:

    Subjective views of ethics and work environments is the problem!

    Which is where I (think, unless we are talking past each other) I disagree. First, you can not remove the “subjective”. Second, if not “subjective”, then “objective” right? The problem with this view is that the objective ends up being measurable things like number of widgets produced, etc. We do agree that ethics are important, we do seem to disagree on the size and scoop of the problem…

  36. Michael Bauman says:

    From my experience over the years Chris is more right than wrong. Part of the problem is that often ability to do techical aspects of the job well is confused with being able to manage. That’s when the “promotion to one’s level of incompetence sets in”.

    In my business, insurance, ego is a major problem on the agency level. Most agencies are started and run by exceptional insurance producers who don’t like someone else making the rules for them. They don’t know how to manage at all and are not amenable to working with other people. A tremendous amount of productivity is lost.

    When people don’t feel as if they have a real stake in what they are doing, ethics don’t matter as much.

  37. Christopher says:

    Mr. Banescu,

    Who were these “240 participants”? I would hazard a guess, but if you asked all the folks I work with in an anonymous “online survey” you might get similar results. If you asked them about politicians, I bet 90 % of them would say “They are all crooked”, and if you asked them whether the last salesman who sold them a car was “a cheat”, 95% would say yes, and if you asked them about their mother-in-laws, 99% would say they are “trouble”. It’s all a cliche

    This is not to say the people and situations described by you and in this last article do not happen. I have seen it myself. I have also seen that it is a-typical, not typical in all the organizations I have worked for. In fact, in most cases, the situation was discovered (one way or another) and handled.

    I also recognize that at least half of the folks in any organization, most of them at the bottom rung of organizations, are folks who, how shall we put it, barely getting along in life. They tend to externalize their problems (they are all “victims”), they tend to make bad decisions not only in their relationships at work, but in their personal life as well. Whatever situation they are in, it is someone else’s fault. The “I did not get promoted because so-and-so is a cheat” is all too common among these folks.

    My experience among the middle and upper levels of management, tells me that these are your not only your more clever and sharp people (in business and in life), as well as more socially adapted, but they also are your more “ethical” people. They tend to be more truthful, honest in their relationships, and interestingly are often the “pillars” of a community, doing the real charity work (all the organizing that makes a united way or a church run day to day for example) and organization in our communities. In other words they are “successful” not because they are un-ethical, but because they are ethical.

    I really think you should do some better research in this area, particularly if you are teaching. Again, this is not to say the problem you identify is not real (it is), but it is another thing entirely to generalize it and say it is the norm. You would also have to find a method that got past the “glass half empty” and distinguish between someone who is not only answering truthfully, but is capable of answering truthfully. Like I said, organizations are full of people who are always a “victim” of their circumstances, and you would have to somehow account for this. I thank God for all the ethical folks who run organizations, because it is they who provide a successful organization for the mass of “victims” out there, providing for them a chance at a living…

  38. #37-38

    I think Christopher overstates his case a bit, but I would basically agree. I worked for 11 years in postions where I was able to interact with numerous companies on several continents. I worked with every level of the organization from CEO to assembly worker. I found ethical behavior to be pretty much evenly distributed across this spectrum; but, what was more prevalent at the bottom rungs was the “malcontent” syndrome. People tend to succeed in business because of a positive attitude, social awareness, and ability to cooperate.