Friday, February 27, 2009

Derailing The Gravy Train

The dismay at the announcement of 1850 jobs being lost as Pacific Brands relocates its manufacturing offshore has been replaced by anger and outrage at the news that the executives and directors of the company have been awarding themselves massive payrises and bonuses. Even worse is the realization that incentive payments made for achieving cost savings can be seen essentially as a reward for destroying people’s jobs. And the outrage is spread around the community. As you would expect, employees and unions have condemned the payments, but so too have politicians, industry leaders, and market analysts.

There are many issues raised by the Pacific Brands episode, including offshore outsourcing, tariffs and trade protection, government support and subsidy conditions, corporate culture and practices, and the role of banks in determining how businesses are run. While it is easy to say that this should never have happened, it may not be true. It may be that it’s no longer possible for local clothing manufacturers to compete with imported goods. It may be that this particular company has suffered such a downturn that no other choice was left, although many dispute that. The point is that even if that was true, it should never have unfolded in the way that it has with everybody from workers to shareholders to customers all losing out, while the top executives and directors pocketed big fat pay increases. It is a clear illustration of what has gone wrong in corporate culture.

While many might have thought that the “greed is good” culture of the eighties might have gone out with the mullet hairstyle, recent events have made it overwhelmingly clear that it has been alive and well and hiding behind a veneer of productivity and cost efficiency. Put simply, it is a culture that views employees as an expense and seeks to extract maximum effort from them at least cost, while rewarding the executives who find ways of reducing the number of people doing the actual work. And the rewards are massive, with six and seven figure bonuses being paid to managers who can maximize the bottom line, regardless of how they achieve it.

The problem with that is that it promotes a short sighted and narrowly focused approach which fails to invest in staff retention and development or planning for longer term capacity. It is the exact same kind of rationale which has seen governments around the nation neglect long term investment in infrastructure even when the money was pouring in. The effect for companies like Pacific Brands is to destroy a company’s ability to continue to provide the product or service that it sells, alienate its customers and destroy the value of its shares. Bottom-line thinking, also known as economic rationalism, is short sighted and destructive. In the long term it creates exactly what we are seeing now, which is the fat cats walking away with big bonuses and golden parachutes leaving everyone else to foot the bill.

Now don’t get me wrong. I have always said that there is absolutely nothing wrong with someone being well paid for a job well done. But the problem is that current corporate culture rewards the wrong things, and overvalues others, resulting in buccaneers waltzing into senior positions and looting the shareholders and employees alike. Or perhaps that’s the wrong analogy. Perhaps a better description of corporate behavior would be 21st Century feudalism. Vast estates are controlled by an elite brigade of feudal lords, with their employees all beholden to them for their livelihoods. The myth that shareholders have some kind of control over matters is clearly debunked by the reality that boards routinely disregard non-binding shareholder votes on matters such as remuneration. Many of these feudal empires are so large that they are bigger than some nations, and they have the power to act as capriciously when dealing with the lives of their vassals.

The reason such behavior is so shortsighted is that the very same workers who are being pushed out of their jobs are also customers and consumers. In every way, they are the wheels that keep the engine of the gravy train on the tracks. It’s about time big business realized that failing to keep those wheels well oiled will inevitably lead to a disaster which sees everybody hurt, regardless of whether they were travelling in first class, or shoveling the coal.


Anonymous said...

How strong is the evidence of payrises in this instance?

It would seem Pac Brands CEO Sue Morphet's "payrise" is very much a case of semantics. She was promoted to CEO between years, hence the "enormous" performance bonus being reported by the media.

And she is earning considerably less than their previous CEO, Paul Moore. Indeed, where's the uproar about underpaying a female exec?

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