The Anonymous Analyst

Commenting on technology & communication issues around the world with focus on USA and India. Also ramblings on other subjects.

Thursday, March 17, 2005

American Corporate Greed

If one takes a look at corporate US today, it is characterised by extreme greed - people wanting to grab money in whatever means possible - CEOs getting unheard of salaries and bonuses, extremely large stock options, companies going in for mergers and aquisitions just for the board keeping their positions etc. The Bernie Ebbers, Kenneth Lays are the poster children of this class and unfortunately this has spread too much around. These top management folks then screw shareholders, middle management and workers by taking stupid decisions. Since they are in the know, they can sell their shares at the peak, leaving the lower strata holding the bag.

The top management increases their own salary & options, outsources jobs to cheaper climates, axes divisions etc - can they not reduce their own take and give more to their subordinates? Then they will have a more motivated worker class, which can come up with innovations and keep the corporate good in mind.

I think the US tech firm revolution can be easily traced more to top mgmt greed and incompetence than to anything else. The techies found out that they would not get any benefit for their ideas - the benefits will all go to senior mgmt. Hence they went out and started their own companies - most went down, but some succeeded.

This top mgmt greed has been exploited well by unions such as UAW which hold the auto industry at gun point today. If the big three top mgmt had not been greedy, the UAW would not have been able to take control so much. So what happenend? The unions negotiated very high wages and benefits, the ordinary white collar auto worker got shafted, the auto industry got even more shafted - result manufacturing in China/Mexico/India, job cuts, factory closures etc. The GM CEO is campaigning for lower benefits for retirees and workers, which is a valid point, but is also the result of the actions of his predecessors.

Seeing all this, the common man also wants to get rich via stocks, flipping houses and numerous other get-rich-quick schemes. But when it all tumbles down, as all things eventually do, the poor man in the street is left holding the pieces - the rich have long before exited with handsome gains. This is exactly what happened in the e-commerce meltdown and what will happen when the housing bubble bursts.

The data also supports this theory - the rich have been getting richer as per published studies. When a recession starts, the people worst affected are the low-income group. If the housing bubble breaks, all the folks who work in the construction industry and who have bought houses using interest only loans lose everything. The rich have already made their money in this housing boom and it is the poor who will be affected.

Will post more on this later......