For several years I have been concerned with the question of why the big publicly traded companies find it so difficult – often impossible – to embrace lean in a meaningful, sustainable way. The best lean success stories just about always come from privately held companies.
There are a couple of things that drive this, but I think the apostle John summed it up about as well as anyone:
John 10:11-13 "A good shepherd lays down his life for the sheep. A hired man, who is not a shepherd and whose sheep are not his own, sees a wolf coming and leaves the sheep and runs away, and the wolf catches and scatters them. This is because he works for pay and has no concern for the sheep."
Because Wall Street encourages stock to be traded so quickly and easily, and because the modern mercenary 'professional manager' often has no long term commitment to anything but his or her own bank account, employees, factories and jobs are tossed overboard very easily. As soon as the company hits a bit of rough sailing, the people who "work for pay" head for the hills and the employees are left to the wolves.
The lean pillar of respect for people is perhaps the easiest aspect of lean to embrace, but the hardest to sustain. The owner of the private company tends to be in it for the long haul – especially when the owner is running a family business and has the livelihood of generations at stake, and his own name on the product. When tough times come (as they have now) stockholders sell out, hired managers polish up their resumes and hit the road, but real owners are more likely to have a personal concern for their employees, and a real concern for the health of the business when the tough times come to an end.
I am more convinced than ever that only a sharply graduated capital gains tax over a period of at least five years can restore manufacturing to the United States in a big way. A tax of 80%+ on profits in the first year, tapering down to 0% after five years will force stock traders and senior managers to focus on the long term, and to focus on the real long term value adding proposition of the company. The day traders who look to get rich quick will have to leave businesses and their stakeholders alone and head for Las Vegas where they belong.
You don't have to be a Christian to lead a lean effort, but you do have to care about something other than yourself, and you have to have a sense of the long term implications of your actions, and at whose expense you are trying to succeed.
Michael F. Martin says
Bill,
I would love to see managers and investors in public companies take a longer view, and some might be sympathetic to the way you appeal to their interest in doing so here, but I think this is the wrong message to push to the masses.
A less ideological way to make your same point, I think, is to demand that public companies put more of their inside information into the public’s hands. Day traders are gambling because they have too little information to process. Managers are competing to be more aggressive with the numbers not because they don’t care about their companies, but because that’s what other managers are doing. The way to end the cycle is to force public companies to play with their cards face up — let the strong company rather than the strong manager attract the capital.
The easiest way to do this in terms of technology is to require all public companies to report the real-time flow of transactions through their balance sheet. Just like hockey players being forced to wear helmets, every company will be at the same disadvantage in terms of strategy for having to disclose its information. But the end result will be more attention on the aspects of management that create value rather than the window dressing for analysts.
Ron Pereira says
Bill, excellent post!
As timing would have it… this scripture was from the Gospel read yesterday at Mass and I also thought of parallels to lean and respect for people.
Thanks for sharing this point of view. I enjoyed it.
Bill Waddell says
Matt,
Pushing for compensation and financial reward based on long term performance is exactly what I am advocating. A study conducted a few years ago of exactly who owns GM stock and what their investment goals are was informative. Nearly 80% of the stockholders planned to own their stock for 9 months or less – yet most of them described themselves as medium or long term investors.
When investors don’t plan to stick around for even half the length of a product development cycle, nothing good can happen. It is the mere announcement of a new product that stirs them. The ballyhoo drives the stock price up, and they cash in. Whether the new product actually pans out is of little consequence. Same with managers whose compensation is largely based on vesting periods shorter than the time it takes to see whether their decisons are any good or not. Announcing a strategy becomes more lucrative than executing one.
I think you might have missed the point with the sheep. The sheep owner will work longer and harder to keep the sheep healthy than the guy who can walk away at the first sign of trouble. The underlying assumption that both St. John and I made was that sheep will always have some inherent value. Of course if the market shifts from sheep to hogs, the prudent shepherd will become a pigherd. But then he will strive to keep the hogs free of swine flu, and nurse them back to health when they catch it, while the hired hand will quit and find an easier job.
Rod Claar says
Bill,
Thanks for the great post. I was told by an employer a couple of years ago not to use the example of the “servant leadership” of Jesus when dealing with clients. This is just so wrong.
Servant leadership is leadership for the long haul. This kind of leadership is not tempted by near-term gains that are not sustainable. This kind of leadership is looking out for the health of the team for the long haul.
That is what we need in this country. More long-haul thinking.
And more servant leadership.
Mike says
I understand and agree with the overall point, but not with the capital gains tax recipe to achieve it. No, I don’t have a better idea yet, but your proposal resonates the same as the idea that people will use less gasoline and thus save the planet from global warming if we just raise the gas tax to an exhorbitant level. Or, people will smoke less if we just keep raising the cigarette tax.
Mantar says
Mike, that’s a bad analogy. Both gasoline consumption and cigarette smoking are highly inelastic, and demand doesn’t respond strongly to price fluctuations. Higher gas prices won’t stop people from driving to work, they just depress the economy elsewhere. Thanks to nicotine addiction, higher cigarette prices do the same. It should be obvious why boosting taxes won’t reduce consumption much in those cases.
But we’re not talking about an inelastic market, and we’re not even talking about consumption! We’re talking about methods of making money, and his suggestion will reduce the profit to be made from short-term investing — which will absolutely drive people to other money-making plans, unless all of economic history is wrong.
(Still, a better way to handle this would be to do away with absentee ownership over businesses and replace them with worker-owned and operated syndicates. IOW, letting the sheep pick their own shepherds from among the flock. The kind of loyalty and team spirit that that brings with it really can’t be achieved in any other way.)
Mike says
Well, Mantar, we’ll see how your theory works out with Chrysler now that the UAW own the majority stake.
And I think my analogy still holds water. Each case is an example of arbitrarily raising the tax or the price on something in order to encourage certain bahavior and discourage other behavior.
Mantar says
Well, I’m not sure having a business run by a vast quasi-democratic bureacracy that claims to represent the workers is really going to be the same as if it were a worker-run syndicate.
And you can’t just wave away the elasticity argument — if demand is only weakly responsive to changes in price, then of course changing the price to discourage demand will have little effect. It’s practically axiomatic in that case, but that doesn’t mean it will apply where demand is elastic.
Paul Todd says
Financial reporting issues aside, the idea of long term commitment is one reason I hope to see Ford Motor Company survive and thrive over the next few years. Through all the mistakes the company has made over the years, the one factor working in Ford’s favor is the continuing commitment of the Ford family. With his name on the building and the weight of his family’s legacy and fortune on his shoulders, Bill Ford isn’t about to take off when the wolves appear. I admire him for having the guts to admit he wasn’t the right person to be the CEO, and for having the judgement to hire Alan Mulally.
Mike says
I’ve long been in favor of capital gains rates going down over time. As it stands capital gains tax itself encourages short term investment. You pay taxes on gains due just to inflation. You can pay high taxes on something that hasn’t even appreciated at all in real value if you hold on to if for a long time.
Cigarette demand maybe inelastic but the cost of externalities is high.