Saturday, November 4, 2017
There is no shortage of theories about why modern American life is beset with a stagnant middle class and a lack of good jobs. Indeed, this reality served as one of the backdrops of the last presidential campaign, in which Donald Trump blamed bad trade deals and a hollowed-out manufacturing sector for all the things that ail us economically. In his new book, The End of Loyalty: The Rise and Fall of Good Jobs in America, Rick Wartzman offers a different primary culprit: corporate culture.
This culture, Wartzman argues, has “explicitly elevated shareholders above employees.” Looking at issues like the rising disdain for unions, the emergence of Ronald Reagan, and, quite simply, less corporate focus on the common good, Wartzman makes the case that the increasing focus on top salaries and shareholder returns has warped American life.
I spoke with Wartzman, who is the director of the KH Moon Center for a Functioning Society at the Drucker Institute, recently. During the course of our conversation, which has been edited and condensed for clarity, we discussed why the corporate culture of postwar America was more beneficial to workers, what’s gone badly wrong in corporate culture today, and what really scares corporate America.
Isaac Chotiner: What is it specifically that you think has changed about American corporate and business culture?
Rick Wartzman: The four big companies that I use to tell this story are GE, GM, Kodak, and Coca-Cola. There was a shift from a stakeholder orientation, where the CEOs of these giant corporations talked in terms of balancing all their constituents in this postwar era. They talked about taking care of their customers and the communities they operated in; they even bragged about how much they paid in taxes. Corporate America shifted to a model that is now largely centered around maximizing shareholder value. Investors have explicitly been put quite above all of these other stakeholders, so when you carve out the pie, a bigger share is now going to investors, and a smaller share is going to labor. That’s what happened.
Why do you think companies 50 years ago were not interested in maximizing profits given that many people think of doing so as human nature?
One argument is that companies could afford to be generous and balance the interest of their workers in that era because the U.S. had global competition on its knees and the big American companies produced an inordinate amount of the world’s goods. This was an extraordinary time. Another reason is that they were forced to the table by the power of organized labor, and indeed unions did have a lot to do with creating a social contract, and not only for those carrying union cards. Another is that there was a belief then that was pretty prevalent among CEOs that we have to pay workers enough to keep the consumer economy humming. We’ve got to put enough wages in their pockets, as Charlie Wilson, the president of General Electric, said in the ’40s, so that they’ve got enough to buy my refrigerators. This was the kind of logic that went back to Henry Ford when he famously raised workers’ wages, and lo and behold they could afford to buy cars, including Ford.
There was also an element of fear; specifically, there were tens of millions of service men about to return home from war. A number of executives talked about how if we don’t provide good jobs with good security, good benefits, we may well invest in another depression, perhaps one even worse than what unfolded in the 1930s. If that happens, we might end up with socialism or God forbid even communism on American soil. Those were of course very real alternatives at that time, or seen being by many as such.
There is also a big cultural reason. I am quite convinced in doing all the research that I did that there was just more of a “we’re all in this together” effort at that time in America. I think it was more of a “we” culture than an “I” culture. Remember, this was a generation that had come through the depression and World War II together. I think that corporate culture in that way both kind of reflected and reinforced those larger societal norms.
I think that there’s a lot of nostalgia for the ’50s and early ’60s, a nostalgia for the kind of shared ethos you were talking about. Obviously the giant lacuna in that sort of analysis is that there was segregation in the country, the status of women, status of gay people, etc.
Thank you for raising that. It’s exactly what you’ve said. The American workplace was openly hostile to women and people of color through this era, so it’s mainly a golden age for white men. That is a hugely important point to make, and you know from reading the book there’s a whole chapter that deals with incredible discrimination. Women and blacks—they were coming into the workforce in the ’60s, but it’s still terrible, frankly, today for all too many people of color and women, and there are all kinds of issues we have not really corrected. But it is better in many, many ways.
That chapter ends with this idea that blacks and women had finally been let into the party and the party was about to end. By the late ’60s, they were in to a greater degree and starting to really flow into the workforce. And by the early ’70s or about, their wages are now going to stagnate and their compensation is going to definitely stagnate for the next 40 years.
You’ve already answered this question partially because some of the things you’ve listed are no longer existent today, but are there any other specific things about our more recent era that have exacerbated these downward trends?
I think it’s fair to say that in the ’70s and into the ’80s, America began to worship the marketplace more and more. We sort of looked to the market as a place with a kind of flawless rationality to solve all kinds of problems. We saw it rise right into business schools and law schools and politics. I think that there was something that again shifted from this “we’re all in this together” to much more of an “everybody is in it for themselves” kind of a thing. The marketplace will sort it out and take care of you if you deserve to be taken care of. This was the “greed is good” era.
Then the other thing that really reinforced and solidified it is CEO pay. CEO compensation began to be tied more and more to share price. So suddenly the people in charge, it was in their personal interest to see the stock price go up. There are a couple of ways to do that. You can really invest and you can build your business, and, over time, over the long term, the market should reward you for that. I think by and large it does reward you. But in the short term, the fastest way to make the stock prices go up is to make your profits go up. The fastest way to do that is to cut costs. In that scenario, workers start to look not like an asset you invest in. They look like an avoidable expense.
How big a difference to the average American have these things made?
A big one. A big one. Think of it this way: We know, if Americans were sharing in economic productivity gains as they did 30 years after World War II, 35 years after World War II, if the productivity gains had been shared the same for the last 40 years, somebody making $40,000 today would be making a bit over $60,000. To me, that’s a pretty big difference.
Culture is really hard to change. What sort of solutions do you see, given that that’s the case?
First of all, there’s a whole slate of public policy things that need to happen. I think we need to have a living wage and that we should index it to inflation so we can stop fighting about it. A truly living wage. We need to expand the earned income tax credit in different ways. I think we need portable benefits for the growing ranks of independent workers. I think we really need to rethink education top to bottom and really create a system of lifelong learning for people with a really much more robust workforce development piece and a way to take care of people that have been dislocated by automation or globalization. I think we can do some nudges in terms of tax policy to encourage corporations to invest more in training, treat that the same way we let companies expense and count as assets on their balance sheet big investments in equipment and doctors. Why don’t we do the same thing when it comes to the human side?
But the whole premise of my book is that the public sector is hugely important, but, ultimately, whether people live decent lives or not is really owed to what happens to them at work every day, how they’re treated there. Are they able to live with dignity? Are they able to get by economically? Those are largely determined by their employers. Ultimately, they have access to good health care because most Americans access their health care through an employers. Will they be able to retire with security and dignity? Those are all employer-based things. We’ve got to change that system. I think there’s some pressure that we can bring to bear as employees.
And the big leverage I think has to be brought through the capital markets. So the more and more as individuals we can do socially responsible investing and think about not only the way the planet is treated by these companies and investment firms but also we can look at how they treat people and invest in firms that care about that. The real leverage should come from, it needs to come from, big institutional investors, foundations, the government, pension funds. And they’re starting to pay more attention to this. One in five investment dollars now in the U.S. under management—about $9 trillion have some kind of socially responsible investing kind of criteria around it. That’s important and powerful.
And I do think some CEOs are waking up to the fact that unless prosperity is shared more broadly and they take some responsibility for making that happen, things might get tougher for them politically.
This goes back to the point you were making at the beginning of this conversation about one of the things that drove people together originally was big companies were scared that the political system would take on a direction they didn’t want.
Exactly. I think there may be something there. So if we’re going to swing the pendulum back at all, I think that’s the way.
Wednesday, October 25, 2017
by Allen Laudenslager
While marathon watching the television series “Downton Abbey,” I was struck by the attitudes and mannerisms of the “rich.” They seemed very sure of their positions on every subject and were shocked and defensive whenever their assumptions and decisions were questioned. Then it dawned on me that they lived in a world of paid servants. Nearly everyone around them was paid by them to do what they wanted to be done and to do it in the rich person’s time while following the rich person’s directions.
In many ways, it is much like the celebrity privilege we see in the news today. Particularly, younger celebrities’ living hedonistic lives with seemingly no one trying to stop their excesses. I attribute that behavior to their position as employers. Their business managers, lawyers, and personal staff are not hired to tell them “no, don’t do that!” Those people are specifically hired to enable the undisciplined celebrities to do what they want, when they want, and to buffer the celebrities from any negative consequences.
It’s the same kind of behavior we see in many business managers today. They think that being conferred with decision-making authority and being surrounded by people paid to do what the boss wants somehow has also granted them universal knowledge and judgment in ALL subjects. The problem, of course, is that while senior managers are making decisions at the strategic level they have lost contact with many of the day-to-day operational necessities of their business. And that’s as it should be. Very few people can hold a clear mental picture of every detail of a business and still shift “hats” to encompass the long-range thinking necessary to guide a business.
To overcome this, we must first admit that there’s a problem. The problem is pride and the solution is humility. In these situations, a manager has to accept that none of us can be the best at everything and that the larger the range of issues you are called to make decisions about, the more important it becomes to trust your subject matter experts and to follow their advice even when it runs contrary to your wishes. Even the President of the United States does not make decisions in a vacuum. He has subject matter experts to advise him on what to do. A foolish manager surrounds himself with sycophants (yes men); a wise manager surrounds himself with people who will say, “no that’s not right!”
In the era of Downton Abbey, the servants had to be sycophants if they wanted to keep their jobs. And hedonistic celebrities continue that tradition. But today if you want to run a successful business or organization, managers can’t afford to be prideful like they were in Downton Abbey; they have to become humble and accept they can’t know everything and be willing to take the advice of their trusted employees on what to do.
Tuesday, October 24, 2017
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