Is Wall Street killing our future?
by Miki Saxon(CandidProf is chained and sleepless over his computer in order to meet a Friday publication deadline, he’ll return next week.)
Tuesday Wes Ball asked if Wall Street’s demands for shot-term performance undercut leadership performance; last November I wrote and When leaders can’t practice leadership and said,
“We live in a ridiculous world where Boards, in fear of investors, give CEOs six months to turn around multi-billion dollar companies that have been drifting, if not actually plunging, downwards for years; expect them to do it no matter what the situation or economy; where the slightest miss is considered grounds for firing; and long-term is a quarter.
Even when Wall Street recognizes the need to change a deeply entrenched culture they still demand that it be done in a quarter and analysts not only want perfect visions of future direction, but also exact execution plans, preferably grounded in heavy cost-cutting (read layoffs).
So, like the politicians who once elected spend much of their time fund-raising, CEOs and the senior managers below them spend much of their time focused on immediate numbers, which they must produce quarterly by hook or, more and more frequently, by crook.”
And when it’s not immediate enough, the leaders are fired.
GE’s Jeff Immelt is fighting that attitude now
“Along with the burden of replacing the most celebrated CEO of his generation, Immelt inherited an inflated stock price—the so-called Welch premium—that fostered unrealistic expectations. Yet he has still managed to produce 14% growth in annual earnings and 13% annual revenue gains, on average, over the last five years.”
But that’s not enough.
In the holy name of “maximizing shareholder value” corporations are raped, workers brutalized and communities trashed.
What else does Wall Street do besides cripple corporate strategic efforts?
(Pssst. Come back tomorrow for a look at the fiasco of self-regulation.)
Your comments—priceless
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Image credit: awestlan CC license
July 31st, 2008 at 6:39 am
Immelt has created his own problem. He created expectations that are impossible to meet, then surprised himself when he missed his targets. Welch and his predecessors learned it was critical to set realistic expectations. Immelt continues to run the company like a giant hedge fund… his GO BIG/ GO GLOBAL, Portfolio change strategies are too complex and makes it impossible to meet expectations consistently.
Bill Rothschild, author of The Secret to GE’s Success…now in six languages.
July 31st, 2008 at 6:54 am
Can American business survive the greed and bleed mentality of CEOs pandering to the desires of the stock market? I really wonder.
We worry about the “silent majority” among the electorate, but what about the “mute majority” of shareholders in America? We have given our voting rights over to institutional investors who are given incentives to create growth no matter what it costs, who then pressure CEOs to create that growth even though they are killing the golden goose. What will this leave us? A lot of empty tombs once called corporations.
I am a capitalist through and through. Let’s get back to capitalism which generates wealth for the many rather than manipulation for the gain of a few.
July 31st, 2008 at 9:42 am
Bill, you obviously know more about GE than I or most people and I realize that I’m taking my metaphorical life in my hands when I say that there is more to running a company than making Wall Street happy. Yes, expectations need to be realistic, but it’s easier to beat a modest set that you’re sure of than aim high and miss.
July 31st, 2008 at 10:02 am
Wes, I agree with what you say, except for where to place the blame.
Maybe I’m naive, but I think that the ‘greed and bleed mentality’ mentality you cite belongs more to the, in the broadest sense, Wall Street players than to most CEOs.
CEOs are employees and they react as any other employee faced with an abusive boss by practicing CYA, looking over their shoulder in an effort to avoid the knives, doing what it takes to keep their job and, in general, making the boss happy. Those who do stand firm are subject to public humiliation and abuse.
The problem needs to be treated at it’s source, but I have no idea how.
November 4th, 2008 at 5:40 am
[…] wrote a post a few months ago supporting Jeffery Immelt of GE, who had just been whipped public ally by his […]