Custom Kitchen, Delivery

That ain’t working, that’s the way you do it, get money for nothing and your chicks for free.

Dire Straits

Money for Nothing

I hope you guessed from the title of this post that I was going quote Dire Straits, and I hope you figured out that I am going to write about our current economic crisis.  Regular readers may wonder why I would take on such a topical item that is way out of my range of expertise.  For fun really, though there is little that is fun about the crisis.

I have some common sense thoughts that I’d like to put out there so they can be refuted or supported by people who know more about business than I do.  To be completely open, I have not taken many business courses, and I have only worked in the not-for-profit sector.  I do not own or run any business other than The Alder Fork related enterprises, which don’t make any money.

A couple of items that are on my mind. The first has to do with the many company’s that have lavishly thrown money at executives in both good times and bad.  I wonder why shareholders and decision makers are so concerned with keeping “highly talented” people (by paying them loads of money) when most of these people failed miserably at their jobs. Wouldn’t you be better off paying someone else less to ruin your business? They certainly can’t do any worse.

That line of thinking leads me to wonder what are the best attributes for a CEO or other top executive.  It seems that especially in recent years companies have sought out greedy folks whose many interest is making as much money as possible as fast as they can.  Obviously, this is not true of all executives, but certainly seems to be the case with those who have created our current situation.  In my uneducated view a business is first about survival. If I own or am a shareholder of a company I want to know that I can still derive income from it many years down the road.  That enterprise is a security blanket for me in the future. Businesses, much like humans, rely on survival first and abundance second.  We can get by in lean times, particularly if we are wise in rich times.  I won’t even bother to tell you the story of the chipmunk and the grasshopper, or of Joseph’s adventures in the Bible.  If I was going to hire an executive to run my company I would want someone who was first and foremost interested in having the business survive well into the future.  I know that the days of a life long career with one company have mostly passed, but that is the kind of attitude that gets you to your 50th anniversary.

This leads to my next point, with companies floundering into bankruptcy and asking for government money, I think a decent place to start the rebuilding phase is making most if not all employees equal in terms of pay and benefits. I actually stole this idea in part from Mark Cuban who demanded that of the small companies he has been financing.  Of course, I am suggesting this for much larger entities.  I was quite angry when I heard that GM executives had suggested cutting benefits for all hourly workers while only giving themselves a 10% pay cut. So a middle class family can no longer afford to send their kids to the dentist or doctor, but an executive need only buy a slightly smaller house, or take fewer vacations to Europe? If they needed to prove that they deserved taxpayer money, I think they failed.  The benefit of this idea is job saving.  More people an work for less money, at least until the company is out of debt.  It may not save everyone’s job, but it will likely save more than the current alternative.

My last point has to do with the illusion of knowledge.  There have been many stories lately of Ponzi-like scams that have collapsed, Bernie Madoff comes to mind.  In those cases the idea of “too good to be true” proved correct.  But I also wonder what role perceived knowledge, in the form of education plays a role. Earning a degree means demonstrating knowledge and its application in a controlled setting under stressful conditions.  Working requires using and adapting that information in uncontrolled and changing circumstances, particularly in the business world.  There are thousands if not millions of companies in the world, each with their own culture and range of characters to interact with.  Just earning a degree in any subject does not guarantee you are good at what you do.  In fact, even demonstrating some success with another operation proves very little.  Success is best judged by reflecting on recent and measurable acehivement.  I think many owners/shareholders have been convinced that strong education is the most necessary credential to being a good business manager, when it is likely not.  If I am running a company I want to know that my executives can adapt to my needs and the needs of the organization. Then we might be getting somewhere.

Please take issue with this post and let me know what you think.

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4 Responses to “Custom Kitchen, Delivery”

  1. fallicule Says:

    Interesting post, Peter. I would argue that it is very difficult to find great executives because they possess several attributes that are rare and not learnable. Great executives possess leadership abilities. I think leadership abilities can be honed but cannot be learnt and few people possess them. Great executives also have incredible drive and determination which allows them to work the long hours required by their job.

    I also think employers are worried about losing executives to rival companies. When an executive leaves they take important (and private) strategy with them. Rival companies would be quick to scoop up these individuals.

    Another reason to retain executives is because it takes so long to retrain a new one. Such training takes place over years (not months) because they have to fully understand all of the intricacies and compexities of the business.

    I hate to sound like a supporter of executives. I am repulsed by the excesses that have occured in the past (and still are occuring). I’ve posted a few links below that shed some insight into how complex the crisis is and how difficult it is blame any single person or group of persons (executives). It really took the cooperation of many different groups representing a diverse range of interests (government, regulators, financial engineers, mathematicians, real estate agents / brokers, home purchasers, banks, investment banks, society at large). Of course, executives are not blamelss since orders typically move in a top-down fashion in companies.

    Anyone interested in understanding the financial crisis in more depth should check out this video and this article.

  2. ponpilate Says:

    Good points. Though I would argue that the executives I’m referring to have not shown particularly compelling leadership skills. There is a difference between being a confident controller and a true leader. Many people can give orders and make decisions (often bad ones) but fewer can truly lead in a noble and beneficial fashion. Lots of people are driven and determined and will work long hours. Many do it poorly regardless.

    As to insider information, I do agree with that fact, though if you are more or less destroying a company, you may not know enough to help.

    I wouldn’t blame a single person for the crisis, but I do put a great deal of the failure on those in top positions in many companies. There were signs that this was happening, and indeed some economists pointed it out. I’d hope that more would’ve taken heed instead of following the pack. Yet another sign of leadership is the ability to be realistic about a situation and create dynamic solutions, something that is sorely lacking.

  3. fallicule Says:

    You can’t blame an individual person for the crisis. US government tax policy (for decades) has encouraged people to buy huge homes and never pay them off because interest paid on a mortgage is tax deductible. The American government also sat aside while banks created Credit Default Swaps (http://en.wikipedia.org/wiki/Credit_default_swap), effectively skirting the issue of regulation and mandatory insurance on certain classes of investments.

    Real estate agents and brokers serve their own interests by selling whatever they can to whomever they can. Potential homeowners falsely believe that they really can afford the house they are considering buying and they put blinders on when they are told that the housing market won’t go down. Banks make more money by selling more mortgages. Bubbles are always happening. Housing markets go up and down. You don’t have to go very far back in time to discover this. People just don’t want to deal with it. The American Dream is partly to blame for all of this. American society is based on debt. MANY American citizens carry WAY TOO MUCH debt for how much they earn.

    Basically, the entire thing was driven by greed. The greed of almost all of the parties mentioned so far. The government tax policy mentioned above was driven by the greed of a leader to be successful and create a legacy. Even in the 1990’s and 2000’s everyone thought Alan Greenspan was God. Now we realize that he is even partly to blame.

    The financial crisis is not just a collapse of the financial markets caused by a few people and related to a few mathematical formulas. It has to do with the ingrained and fundamental way Americans treat debt. It is also a problem of greed. Everybody wants to live the American Dream, and that is partly fulfilled by owning a home. But the fact of the matter is that home ownership is not for everyone.

    Finally, the actions of one executive could not have caused this. If one executive said “lets do this” then it would have had NO EFFECT on the economy. If 10 said it, it STILL WOULDN’T MATTER. But when everyone said it, things eventually reached a tipping point, from which there was no return. It snowballed and got bigger and bigger as the housing market peaked and then began to fall as defaults started occurring. This has been in the works for a long time now (probably 1.5 years in the making) and I would argue that it has been inevitable since the first foreclosures started happening.

    Really, I blame the government for not regulating Credit Default Swaps, for having stupid tax policy around mortgage interest, and for not forcing more transparency on wallstreet.

  4. ponpilate Says:

    I would never claim that one person was to blame. Nothing this big could possibly be caused by one person. Greed and delusion is the obvious culprit in all this. Two rather negative traits of humanity led to this problem. Inevitably our downfalls always come from character flaws such as these. This sort of thing is as inevitable as war because of the fundamental flaws in the human person.

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