Recent events in the stock, financial, and automotive markets have brought attention to the behavior of corporate management and the entitlements that American corporations believe they have. But well run, responsible corporations maintain their value through good times and bad. The reason is simple. A well-run company will stay the course in bad times knowing it is doing things right and maintaining value for customers, employees, and stockholders.
What separates a well-run company from a poorly run company? Experience! An experienced executive staff will know how to maintain quality while keeping costs under control in a bad economy while maintaining customer satisfaction.
There was a time, not that long ago, when corporate management was promoted from within the company or from a company in the same field. These managers also had worked directly with customers, vendors, and partners on a personal level. Good people skills, values, ethics, and business management skills all play a role in a successful executive. But during the 1980s, a trend of replacing these folks with young post-graduates paved the way for a change in view of how companies should be managed and a change in their overall management goals.
Constant pressure from stockholders to provide higher stock returns has put many executives into a quandary where they can’t do what’s right under any circumstances. A CEO who works up from within the company and knows every job has the experience, clout, and confidence in standing up to stockholders by making smart decisions and maintaining customer, employee, and stockholder confidence.
Senior executives that are imported from outside the company and may have no track record to support their decisions can have a hard time selling stockholders on their ideas and maintaining stock values. Blue-chip companies are guided by senior executives who know the business, don’t overreact, are balanced in their decision making, and can convince stockholders to forgo immediate profits for stronger long-term gains.
To overcome the current financial crisis, we need to get back to the basics in managing if we are to survive, compete, and grow. The value of a company that is closed is a small fraction of a working organization. Once the doors shut, the value of a company is gone forever and only those who attend the equipment auction will benefit from the loss.
Maintaining a Good Order of Priorities
During prosperous years, priorities can get out of kilter, though they won’t be caught until a disaster hits. American companies have gotten confused when it comes to the priorities of customer and employee importance. If we look at the financial institutions that were recently bailed out, they gladly took taxpayer money and promptly cut off the credit of the very people who financed their bailout.
When Congress took a closer look, it was discovered that the Treasury Department had put no restrictions on how the money could be used or rules to ease credit to the very people who financed the bailout. While the short-term effect of this may seem small, the long-term ripple this will have on the financial industry will be grave. The reason is simple. These institutions have changed the way customers perceive them forever.
Who should take priority when it comes to customers, employees, partners, or stockholders? Customers have to come first because they pay the bills and without them no company can exist. Without customers, there are no employees, vendors, or stockholder dividends. Employees are the lifeblood of providing goods and services to customers in addition to being the familiar face to the customers. Well-trained, qualified employees keep customers happy and project a positive image for the company, diffusing difficult situations and providing growth. A good employee is just as valuable as a good customer, and good employees bring in more income than they create in expenses.
No company can be all things to everyone, and partners are next on the list of importance. Good partnerships allow for everyone to grow and a company to excel in areas where it may not have strong employee skills. Good partners are like extended family, providing a valuable service to customers. Since partners are direct expenses, the company has many options on how they can work together during hard times, reducing the amount of outsourcing and keeping employee layoffs to a minimum if needed at all.
Then we have stockholders. American stockholders have grown accustomed to solid returns every quarter and trading faster, allowing more profitable returns faster than ever. Yet the faster reporting leads to the kneejerk reactions we see the market take when news may be less than positive. If we compare today’s quarterly reporting to the reporting of 30 years ago, we can quickly see that news travels much faster. Today we report the earnings of a company almost one quarter faster than we did in the 1970s. In fact, 30 years ago, a company earnings report was almost outdated by the time it hit the street. By the time a downturn in sales was reported, sales were already increasing.
Stockholders should not be investing for immediate return, and even a well-managed company won’t be profitable every quarter. A well-managed company will provide a moderate return on investment over the long term while raising the overall stock value over the same period. This combination provides for quarterly profits while increasing shareholder value for the long term. This strategy preserves company value in a downturn and maintains confidence by employees, customers, and stockholders even in a bad economy.
Good Management Practices
No one is exempt in hard times from sacrifice, especially executive management. How willing an executive is to make sacrifices for the good of a company can provide tremendous insight into how these individuals see their value in comparison to other staff members. Executive management should expect higher compensation even in hard times but not by a factor of hundreds or thousands of percent. Most executives actually have little to do with the day-to-day operation and decision-making of a company. They’re goodwill ambassadors and the voice of the company more than anything else.
In hard times, everyone has to sacrifice for the good of all. Anyone who isn’t willing to make some type of sacrifice, even executives, makes it extremely difficult for others in the company and the company image projected. Take the recent auto executives who went to Washington, D.C., to beg for help in their corporate jets. While their subsequent trips have been by hybrid car instead, the image they projected will be remembered for a long time as contempt for the American taxpayer.
And that first impression may have been the driving force behind how much help they have received. To everyone who watched, these executives were more interested in taking care of themselves rather than their employees, vendors, stockholders, or taxpayers. These executives may have learned a very hard lesson in the end at the expense of their companies or the American automotive industry.
Forgoing a bonus or excess salary can go a long way in establishing goodwill with everyone—employees, vendors, partners, and stockholders. But people who are willing to voluntarily make those types of sacrifices also make a big statement about their own character and ethics, creating the impression that they are honest people with high regard for others, solid integrity, and willingness to make tough decisions at their own personal expense.
It is this group of executives who are good corporate citizens, facing hard times with courage and making the tough decisions even when it means personal sacrifice. Good corporate citizenship starts at the top and works all the way through the company. It not only means the difference between profit and loss, but in many cases the difference between success and failure.