American Thinker | by Jim Gammon | 3/3/2010
We hear people speak of “business” and “capitalism” as being somehow evil, including comments about capitalists victimizing employees and customers in pursuit of the goal of “maximizing profits”.
In conversations with supposedly educated people who lean to the left, the concept is an accepted axiom, that maximizing profits – at the expense of everything good in the world – is the one and only purpose of business. It is the socialist rallying cry these days.
This really frosts me. I have been in business for 35 years, and there are many shades of business management styles, and only one puts “maximizing profits” first. In my opinion, “maximizing profits” as a management goal is the most ill-conceived and destructive business management style. It causes loss, not gain.
Survival is the first objective of any business. Profit is not the goal of running a business, it is the result of running a business well. Through the business cycles, profits are never a constant, you make hay while the sun shines and hunker down during the winter. Real profit comes in two forms, increase in total value and cash in the bank.
In today’s parlance, running a business “to maximize profits” means to run it to maximize short-term profits, disregarding the long term best interests of the stockholders as well as the employee. Short term profits really only benefit the management, and only if their reward system (salary and bonuses) is structured in a manner based upon short term profits.
Example: I recently had a situation where two suppliers (both NYSE listed companies) showed completely different ways of doing business.
Company A is much larger and has an enormous customer base. They provide a service with complex billing, hidden fees and 3 year contracts based upon the customer’s responsibilities, not theirs. They are “milking” their customer base for short-term profits. The high pressure environment, misleading marketing and dog-eat-dog management style make this a lousy place to work. They are losing customers, but making very good short-term profits. The upper level management is making enormous salaries and bonuses as the company, in reality, slowly shrinks. The stockholders don’t see much benefit, but the financial reports look good.
Company B is growing quickly, picking up the customers who become disgusted with Company A. They have lower prices for an identical product, no contracts, no fees or surcharges, simple billing and good service. It is a nice place to work and the stockholders are seeing a slow but steady increase in the value of their investment.
Now on the face of it, company A is doing better, but which one would you rather invest in or work for? Which one would you rather be an executive for?
Bad management don’t look bad all the time, but good management is unmistakable.
Look at General Motors. This is a classic example of a company run into the ground by bad management. This is not the fault of the evils of capitalism, it is the fault of the evils of bad management. Communism is the ultimate form of bad management, not a solution to capitalism’s ills.
If you think capitalism is at fault for bad management, you know nothing of human nature. To paraphrase Steve Forbes – If government run business was better than privately run business, then Communist Russia would have won the Cold War.
HT: American Thinker