Some guy named Rich Campanola was working hard at the Simmons Mattress plant in Agawam, Massachusetts – trying to wrap his mind and the factory around lean principles - way back in 2002. Little did he know that lean was a complete waste of his time. Not 80 miles away in Cambridge, Harvard was cranking out smart kids with one purpose in mind – to find dumb working stiffs like Rich and profit from his efforts without ever raising a drop of their own sweat. There is no money to be made leading lean journeys – no serious money, anyway. The big money is in finding naive saps like Rich willing to do the hard work, buying his company, borrowing against the assets of the company to the hilt to pay yourself back the money it took to buy it plus a whopping profit, then unloading it on another investment banker to do the same.
Simmons just came out of bankruptcy after having been bought and sold seven times in some twenty three years. It was a solid company when all of this began – still might be but it is unlikely we will ever know. By the time the last investment banker was finished with it, Simmon's debt had gone from $164 million to $1.3 billion, with the investment bankers sucking $750 million in profits on their 'investments'.
The last owner before the bankruptcy was a cesspool of greed called Thomas H Lee Partners who made a $77 million profit on flipping Simmons – or at least flipping it into bankruptcy court - along with hundreds of millions of dollars in fees for the 'services' they rendered.
Why do I single out Harvard as the culprit? THL has 21 Managing Directors and 14 of them have MBA's from Harvard. They also have 13 Directors, Principals and VP's, and 7 of them have Harvard MBA's. 21 out of the 34 folks at the top all from one school. Thomas H Lee himself is no longer part of the company, but he is also a Harvard man and a great benefactor to the old alma mater.
They do not teach anyone the first thing about creating value, or even creating wealth at the Harvard business school. You have to learn that elsewhere if you want to actually contribute anything to society. They only teach how to game the system, how to get your hands on the wealth hard working people like Rich Campanola created. Real work is for the lesser intellects; Smart people don't get their hands dirty. You can read the whole sordid story in the New York Times.
The people running Harvard should be ashamed of themselves and of the type of people they are turning out. The founding motto of the once-great school was, ""Let every Student be plainly instructed, and earnestly pressed to consider well, the main end of his life and studies is, to know God and Jesus Christ which is eternal life, and therefore to lay Christ in the bottom, as the only foundation of all sound knowledge and Learning". I guess all of that nonsense about Christ as the bottom of all sound knowledge and learning is like work – just pap for suckers. The "main end" of life taught to Harvard MBA students appears to be to get rich, and to hell with everyone else, and if it is the ruination of the once great manufacturing economy of the United States, that ain't their problem.
Understand that Simmons was generally profitable and generally growing – but they laid off over a thousand people and closed plants because they were desperate for cash to make the monthly payments on the loans the investment bankers had taken out on their assets to pay themselves. People like Noble Rogers didn't hit the streets because of high US labor rates, or the heavy hand of government regulation, or because they can't compete with the Chinese.. They lost their jobs because their paychecks were needed to pay back the hundreds of millions of dollars Wall Street stole from the company.
As Tom Johnson wrote of the Simmons travesty in an article for The Systems Thinker, "The terrible costs that investment firms impose on their targets are driven home when we note that Bill Simon's firm [Wesray, one of the seven flippers of Simmons] cashed out of its investment in Simmons in 1989 by selling its stock to the company's employee pension fund for $241 million. That cash equaled twice what Simons firm had paid for Simmons in 1986. When Simmons shares plummeted during a subsequent market slump, the employee pension fund was left penniless."
Yeah, that's right. While hard working manufacturing people are doing their best to treat employees with respect, the investment bankers are stealing their pensions. Bill Simons – an incredibly wealthy man by any measure - stole the retirement money from people who worked all their lives to make arguably the best mattresses in the world. Tom quoted and agreed with a guy named Fritjof Capra who wrote, "Today's global financial institutions seek to deal with people, resources, and businesses as commodities to be traded in the least regulated and least transparent markets possible in order to make as much money for themselves as possible, whatever the cost to society as a whole."
Make no mistake about where the obstacles to lean lie. The biggest forces of opposition to manufacturing excellence lie in the global financial community – the investment bankers in particular – who have their tentacles deep in the government and it makes no difference which party is in power. And their ranks are swelling each time Harvard's business school and its ilk crank out another graduating class.
Will the story have a happy ending? Don't bet on it. Another investment banker picked the company up for a song in bankruptcy court … and here we go again, only the next trip to the bankruptcy court will most likely be a brief stopover on the way to the manufacturing graveyard.
I am more and more convinced that only a progressive capital gains tax over, say eight years, can protect manufacturing from the investment community. Profits taken in the first year should be taxed at 87.5% tapering down to 0% after eight years. Reward those who invest for the long term, and punish those who use companies full of hard working people as personal piggy banks. Interest on loans from investors to the companies in which they invest should be traeated as capital gains; same with revenues from fees charged by investors to the companies in which they invest. All they understand is money, so only through controlling their money can they be expected to behave the right way.
Matt Cline says
What an amazingly ignorant post. Bill, I’ve long skipped your posts here because they are consistently ill-informed and poorly thought out. But this one is the last straw for me – I’m unsubscribing to this site.
To all of the other authors on this site, please reconsider putting your thoughtful opinions next to Bill’s drivel.
Roy Waterhouse says
It is amazing that this can happen over and over. Being a part of a small (95 people) company that isn’t run for the investment bankers is rewarding. The benefits we get from lean will be used for the good of the company and the employee owners.
Bill Waddell says
In response to a well thought, logical, well reasoned rebuttal like yours, I can only respond with, “OK”.
Victor Haze says
Bill, I have read your post, I think I understand it, I thank you for the insight. I wish I could say I hope you´re not right, but I am afraid that you are. I am just thinking how it is possible that these practices are still condoned. Hope to read more of these! I have spread this through my networks. Looking forward to the discussions ;-)
Two words for you – Bridgeport Machines. The once-venerable capital equipment firm was fleeced in the late 90’s/early 2000’s in what, IMO, was a similar manner. Kinda reminds me of watching a sporting goods store in the weeks following Tony Soprano winning it in a poker game …
Joseph C. Samuel says
That was a great post, Bill. Your posts have helped me in no small way to gain understanding and insights on various subjects. It is pleasure reading your thoughts and I look forward to more of it.
Ron Jacques says
Bill, I whole heartedly agree with your thoughts on the demise of our manufacturing base. As a career manufacturing operations professional who holds one of those MBA’s, I have been on the wrong side of these transactions more than 8 times in my career. I agree with your statement that these corporate raiders need to be stopped. It seems that all they understand is money and fail to make the connection about how the manufacturing dollar stimulates the economy 7X fold. I guess they just don’t teach that anymore in B school like when I went through.
In order to allow manufacturing to regain its foothold, we need to rebalance the trade deficits that exist along with stopping all this Wall Street greed. Sadly it will probably take some type of intervention by government (even they don’t know what they are doing)to right this ship. I agree that taxing (penalty) or some other form of regulation (incentives) need to be installed in order to encourage “investment” in manufacturing companies for the long haul, and by that I mean 20 years not 20 months. I have worked at many companies that blew the socks off of our competition, foreign and domestically and made net profits in excess of 35% of revenue. That’s not a misprint. But just like all the others that I have worked for, mergers, acquisitions, consolidations and other Wall Street games got in the way and not only ruined a great cash machine but eventually killed it and forced what used to be to move to Asia for several reasons.
I think that it is going to take even stronger restrictions than your suggested 87.5% and 8 year declining ROI plan to make this trend turn around. Much like my IRA’s if I take from the pool before my time, I forefit not only the interest that I have accrued but also need to pay the tax penalty on top of it. Safe to say that what ever money I put in has done no work for me, only for the government. Maybe with teeth like that, Wall Street would stop their flipping behavior because it wouldn’t make sense to invest in something for the long term because the short term penalties would make their investment a zero sum game. That seems to be all that they understand.
Believe me when I say that I could go on for days. I have spent many years making Lean /Six Sigma generate great money, savings and quality product for many companies to the benefit of their customers only to watch all that hard work get tanked because of greedy investors who choose to rape and pillage the retirement funds, assets and whatever other cash and operating assets that a company may have only to leave them riddled with debt and ultimately targets of bankruptcy. And who loses here, the employees who get laid off, the local economy that loses local tax revenue and economic vitality and the last investor who got left holding the bag. Sounds like positive fiscal policy to me (not).
This isn’t what I learned in B school in terms of “business adminstration” with my background in finance. I learned how to make companies strong, vibrant and profitable, not how to rape, pillage and steal. Harvard should be ashamed of what it has created and consider what it needs to do to become a leader in building the strength of our nation back to what it should be instead of just being a global player in the world of finance and letting the rest of the world improve its quality of life at our expense. Maybe if those Harvard types experienced some of the “real world” lives of folks like the people portrayed on “Undercover Boss” they may actually “see” what is real and not manage their companies by the numbers, but more importantly by how their companies contribute to society as a whole. If managed this way, the profits will come and shareholders will realize value. Value is not only measured in dollars but in many other ways.
Wayne Furniss says
Great article. I’m curious – have you done any studies regarding the background and prior experience of these Harvard MBAs? Having worked in various U.S. industries for over 25 years, I’ve dealt with a number of MBA’s. I’ve been fairly impressed by most of them; however, those whose undergraduate majors were not as demanding and went straight from getting their bachelor degree to their MBA seem to lack “real life” business management and people skills. Those who obtained a technical degree such as engineering, worked for several years in industry and then went back for their MBA tend to have this real life approach to the business and the people who are affected by their decisions.
Bill Waddell says
The majority of them went from undergrad straight to grad school; or from undergrad to investment banking then grad school then back to investment banking. None that I found had ever worked in the industries they raided – or on any other productive capacity, for that matter. A number of them worked for Bain Capital – Mitt Romney’s old outfit – before hooking up with THL. It seems to be a sort of minor league farm team for the big time crooks.