LO & Big Layoffs LO5679

Fri, 16 Feb 96 18:10:16 GMT

Reply to LO5623:

> I detect a strong anti-corporate bias -- or anti CEO bias -- that
> seems driven by distrust.
> Yes it is sometimes necessary to let employees
> go, a decision I don't think that managers or leaders take lightly. I
> think that there is a devil's choice sometimes, do I 'downsize' and
> save the corporation or keep everyone until I file bankruptcy.

I agree that there is a anti CEO bias in many comments in that
list - but I think that there are also good reasons for that bias. Let us
start with the question what the objective of the organization is. You
can answer that the objective must be to maximise shareholder wealth (both
in the form of dividends and of capital gains through share price rises).
This financial objective is the one that most of corporate finance theory
assumes management is persuing. Common alternatives are the maximisation
of profits and growth in earnings per share.

However, the question is if manager do really try to look after the best
interests of the shareholders. If you size the company down, you may be
able to increase short-term profit (if you are lucky and are on the side
of the 41% of companies that could increase profit by downsizing).

However, there is still the question if that secures the future of the
company. Downsizing cannot be the fundament of a new strategy. It does not
create customer value, and therefore not shareholder value in the
long-run. A business, that has only 'dogs' in its portfolio, and that is
based with mature businesses, and will not develop further businesses that
may be able to become the cash-cows of tomorrow, such a business will die
(what may take long time). That cannot be the aim of any stakeholder,
neither of the employees nor of the shareholders.

The major problem seems to be that we have a generation of managers who
can only downsize and restructure, and are not able to develop the
business (and shareholder wealth) further. In my eyes those managers do
not really their job. And what would you do with a worker at the bottom of
the organization who does not his job?

Wolfgang Schmid
e-mail: ws2@student.open.ac.uk
Compuserve: 100101.3210@Compuserve.com ($!!)

company address:
OMV AG Raffinerie Schwechat
Mannswoertherstrasse 28
A-2320 Schwechat


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