The Myth of Corporate Leadership

I cringe every time someone says government should be run like a business. A former business journalist, I have had the opportunity to study the inner workings of Corporate America, and I know the one secret that businessmen and conservative politicians would rather you not know: Most American businesses fail. They fail due to poor leadership at the top.

Yet only two years after Wall Street led the country into the worst economic collapse since the Great Recession, California voters seriously considered electing two former CEOs – Ebay’s Meg Whitman and Hewlett Packard’s Carly Fiorina – to the governorship and the U.S. Senate. Not yet four years after the economic collapse, U.S. voters are considering electing another CEO, Mitt Romney, to the White House. That would only recreate the same mistake voters made 12 years ago with the election of George W. Bush as president.

 

Bush, after all, took great pride in calling himself the “CEO president.” He proudly referred to his days as chief executive officer of an oil drilling company called Abusto, Spanish for “bush.” What he never mentioned was that Abusto – as well as every other business Bush was involved with – went bust.

 

Nor was he the only failed CEO in his administration. As chief executive officer of Halliburton, Dick Cheney drove the oil drilling equipment giant to the brink of bankruptcy. He saved Halliburton only by appointing himself Bush’s vice-president and steering billions of dollars of government contracts to the company – at great cost to the taxpayer.

 

The myth of corporate leadership – that business executives could run government better than politicians – is just that, a myth, a fable that makes good bedtime reading for Ayn Rand fans but has little basis in reality.

Failed Corporate Leadership

 

In his book, “Built to Fail,” business author Jonathan I. Klein concludes “failure claims an overwhelming majority of businesses within five years [of start up] and almost all businesses within ten years.”  Despite claims of conservatives that most business failures stem from government interference, Klein concludes that these failures are rooted directly in the internal leadership of the failed companies.

 

Bush and Cheney, in fact, are splendid examples of  the modern CEO. Gone are the Horatio Alger days when a young man worked his way up from the mail room to the board room. Most CEOs today land in the big office with the help of their rich father (like Bush) or with the help of  personal publicists who make sure their clients get the credit for anything that goes right, and deflect the blame for anything that goes wrong.

 

As a result, CEOs often begin to think they can do no wrong.  By believing themselves infallible, CEOs turn a deaf ear to nay Sayers or any other harbingers of reality who might disagree with them. In his book, “Why Smart Executives Fail,” Sidney Finklestein points to this  “executive mindset” as well as  “protective mechanisms and delusional attitudes” as the cause for the growing number of corporate leadership failures.

 

Klein came to similar conclusions. The genesis of such failures, he says, came not from without but from within the corporation, and “included inappropriate motives for entrepreneurship, disdain for procedure, underestimation of resource needs, insensitivity to the environment, infatuation with the product, and unrealistic projections of the future.” In other words, poor judgment.

 

Bush showed this quality before Sept. 11, 2001, when he refused to listen to more than 40 separate warnings of an impending attack from Al Qaida – including two personal phone calls from the presidents of France and Russia. He showed it again when he refused to accept intelligence reports that refuted his belief that Saddam Hussein was responsible for the 9/11 attacks and was harboring terrorists and weapons of mass destruction.

Short-Sighted Leadership

 

Governing requires a long-term view of the needs of the population and the nation. American business executives, however, are notoriously short-sighted. In the American business world, everything revolves around the quarterly profit statement. Bonuses are based on the degree of profit seen in each three-month business cycle. This produces extreme myopia. Decisions are made to close plants, layoff workers, outsource jobs, etc., based entirely on how it will look on the next balance sheet. As a result, American businesses tend to suffer in the long run.

 

The Bush administration’s entire war strategy showed this kind of short-sightedness. When the United Nations refused the administration’s call for an immediate invasion of Iraq, the president did what too many CEOs would do: He plunged ahead without any plans for the long-term occupation or rebuilding of Iraq. His infamous landing aboard an aircraft carrier to announce “Mission Accomplished,” got him what he wanted – a jump in the polls – but his failure to plan ahead left our troops and the Iraqis in an ever bloodier quagmire.

 

Similar corporate leadership failures are leading to a volatile business environment. In the last decade, CEO turnover in the United States jumped from around 10 percent during the 1990s to nearly 50 percent, according to Chief Executive magazine. Not all those turnovers were firings, of course, but it shows a terrible instability in today’s corporate leadership.

 

Both Fiorina and Whitman were part of that volatility. Like Bush, both candidates boast of their CEO experience, yet neither candidate left behind a legacy that would promote confidence in their leadership skills. Fiorina, after all, was fired by HP’s board in 2005 because they lacked confidence in her abilities. Whitman resigned in 2008 amid demands from shareholders she be fired for driving the company stock value into the ground. Since her departure, most of Whitman’s business decisions at eBay have been reversed by her successor.

 

CEO candidates invariably claim they know how to create jobs. Unfortunately for  American workers, their legacies prove otherwise. Despite his vaunted “trickle down” tax cuts, CEO President Bush reigned over the worst U.S. job growth since WWII – and that was before his policies tanked the economy in late 2008, resulting  the loss of 700,000 U.S. jobs.

 

Fiorina personally helped Bush’s legacy by cutting nearly 30,000 U.S. jobs at HP and shipping thousands of them overseas  in an attempt to make up for massive financial losses at HP caused by her ill-conceived acquisition of computer maker Compaq. Whitman helped as well, outsourcing 40 percent of eBay’s workforce to other countries. Her corporate leadership failures also resulted in 1,000 eBay workers losing their jobs.  Despite their failure, both Fiorina and Whitman left their posts with expensive golden parachutes.

Romney, born rich, made himself richer at Bain Capital by buying up perfectly good American companies, firing their employees, and shipping the jobs overseas. Of course, that tactic didn't always work: twice while Romney was CEO of Bain, the company nearly went insolvent and Romney had to arrange for federal bailouts amounting to tens of millions of dollars.

 

This is one of the biggest failures in corporate leadership. Too often the CEO’s solution for every problem is handing out pink slips, and making their remaining employees work harder and longer. As a result, American workers put in longer hours than their European counterparts (50 to 60 hours compared to 30 to 40 hours in Europe) with less time off (one to two weeks of vacation compared to four to six weeks for Europeans). This, business leaders tell us, makes America more productive. Coincidentally, it also makes CEOs richer.

 

The last place you want to see this sort of  “do more with less” CEO mentality is in government, where doing more with less usually means fewer police, prosecutors, firefighters, paramedics – the very government workers we need to protect our property and lives. We saw the impact of doing more with less in Iraq and Afghanistan where our armed forces, stripped down by the Bush administration in the months preceding the 9/11 attacks, where stretched to the breaking point.

Corporate Welfare

 

Yet nearly every CEO candidate chants the same mantra: cut taxes and reduce government spending. Their religiosity in this regard would be more convincing if the corporations which spawned these same candidates weren’t the largest recipients of government welfare spending. In 1998, TIME magazine reported the federal government spent $125 billion a year on corporate welfare, and this undoubtedly doubled if not tripled under Bush’s CEO presidency.

 

This largess – which typically goes to the richest corporations in the country – includes cash subsidies, free or below-cost government services and products, tax-payer subsidized loans to foreign countries to buy U.S. goods, and tax breaks, including credits for outsourcing U.S. jobs overseas. This also does not count the subsidies and tax breaks given large corporations by state and local governments.

 

Despite such aid from the government, these corporations and their leaders continue to fail, miserably and repeatedly. Which is what makes me cringed when people say government should be run like business, and when failed CEOs like Mitt Romney want to run our government.

Class Warfare, Slavery and Company Towns

"There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” 

– Multi-millionaire Warren Buffet

Listening to GOP leaders, one might think the Democrats were waging nuclear class warfare. Because progressive Dems wants the richest one percent of Americans to pay their fair share in taxes, multi-millionaires Mitt Romney and Newt Gingrich, along with their cohorts in Congress, want Americans to think the Democrats are preaching the “politics of envy.”

Nothing is further from the truth. The fact is the Republicans have been waging a vicious, no-holds-bar war against the American worker for the past 30 years, since the election of their vaunted leader, Ronald Reagan.

Company scrip token.
Photo: Jerry Adams

In school, we are taught that America is the Land of Opportunity. America, in fact, has been the Land of Opportunity for many years of its existence – for some. In the 1700 and 1800s, yes, migrants from Europe had a chance to make something of themselves – assuming you weren’t Irish or Italian. God help you if you were Chinese – or African.

Even though slavery supposedly ended after the Civil War with the adoption of the 13^th Amendment, involuntary servitude did, in fact, continue in this country in the form of the truck system. Under the truck system, workers were paid in company scrip rather than real money. That scrip could only be used in company-owned stores to buy over-priced goods, or to pay excessive rent in company-owned housing in what came to be called “company towns.”

Also known as debt bondage, the truck system resulted in workers becoming indebted to the very companies they worked for, forcing them to stay in the company’s employ to pay off their debt. This, the companies contended, produced employee “loyalty.” Workers felt otherwise, as Tennessee Ernie Ford lamented when he sang:

“Load sixteen tons and what do you get?

Another day older and deeper in debt.

St. Peter don’t you call me, ‘cause I can’t go.

I owe my soul to the company store.”

The truck system was ruled slavery by the U.S Supreme Court in the early 1900s, but the concept hasn’t died. In 2008, Wal-Mart’s Mexican subsidiary was blocked by the Mexican Supreme Court of Justice for trying to pay its employees, in part, with company vouchers. The Mexican court ruled the vouchers were scrip, and in violation of Mexico’s prohibition of the truck system.

Debt Bondage Today

The concept of debt bondage hasn’t died in the United States either. One of the foundations the Founding Fathers conceived for this country was accessible higher education for its citizens. Thomas Jefferson’s pride in creating the tuition-free University of Virginia in 1819 surpassed his pride in being the third president of the United States. So much so, he made sure the epitaph on his head stone after he died would identify him as the author of the Declaration of Independence and the founder of the University of Virginia.

Today, the idea of a free college education is merely a memory for those of us old enough to remember what the education system of this country was like before Ronald Reagan was elected governor of California and, after destroying that state’s education system, being elected to the U.S. presidency to do the same nationwide. These days college graduates are so deeply in debt, they are largely incapable of movement up the class ladder – unless they happen to be another George W. Bush or Mitt Romney.

Keeping Americans in debt – and under control – has been the battle plan for conservative politicians of both parties and their oligarch overlords for the past 30 years. During that time, labor union membership – the greatest way to level the economic playing board – has declined as much as 30 percent, thanks to Reagan’s war on labor and GOP legislation making it harder to recruit members. That continues today with the anti-labor legislation being seen in states like today’s Walkerstan (Wisconsin) and Kasichstan (Ohio), where Tea Party governors and legislatures are passing repressive anti-middle-class measures.

Republicans would like you to believe that capitalism is synonymous with freedom. It isn’t. Recent history is rife with authoritarian governments ruling over capitalistic systems – Argentina under Peron, Spain under Franco, the Philippines under Marcos, Italy under Mussolini and, last but not least, Germany under Hitler. In each case, these dictators were put in power by industrialists and financiers. After all, fascism by definition is an authoritarian form of capitalism. For that matter, many economists argue that communism is simply a form of state capitalism.

Contrary to what many have been taught, capitalism is not synonymous with free enterprise and a free market place. Free enterprise is the provision of a service or product in exchange for a price. Capitalism is simply the accumulation of wealth and the power it brings.

To be truly successful, free enterprise requires two things, the free movement of money and a level playing field. Money is like blood to the economic body; if it doesn’t flow freely, the body dies. When the bulk of the wealth of a country is held by a small percentage of individuals – as it is in this country today – it doesn’t flow freely and the economy stagnates, contracts and dies, at least for the rest of us.

Taxation stimulates the excessively wealthy to spend their money through investment in new companies and the workforce. Taxes force the wealthy to convert the form of their wealth from offshore accounts to U.S. holdings, circulating that money through the economic body. Taxes paid to the government are reinvested in public infrastructure and public services, further encouraging the circulation of wealth.

A Level Playing Field

Along with circulating wealth, free enterprise requires a level playing field to allow those with enterprising abilities to rise to well-deserved levels of success. That can only be done by legislation that prohibits the kind of Mitt Romney vulture capitalism that destroys U.S. companies for the sake of short term benefits; legislation that prohibits exporting U.S. jobs for the same reason; legislation that regulates the business environment so predator corporations can’t wantonly destroy their competitors to establish anti-competitive trusts.

Yet for 30 years, Republicans and conservative Democrats have pushed through legislation that has torn middle class and worker rights to shreds, gave tax breaks to corporations that shipped U.S. jobs abroad, destroyed true competition, and left the burden of paying off the national debt that quadrupled under Reagan and Bush Jr. on the middle class.

Over the past 30 years, American wages have declined roughly a percentage point each year, while the wealth of the richest Americans – people like Romney – has grown exponentially. Republicans say the middle class has to carry the brunt of the tax burden because taxing the wealthy – the so-called “job creators” – would cost the country jobs.

That, as I’ve said, is nonsense. The economic engine of this country is small business, the mom and pops which are responsible for 95 percent of this county’s job growth. In other words, large corporations and mega-naires don’t have that much impact on the economy.

Don’t believe that? Then ask yourself this: George W. Bush and his Republican-controlled Congress gave every tax break they could to Big Business and the rich, yet the Bush administration was already suffering a net loss of millions of American jobs long before the recession hit us in 2007.

If high taxes destroyed jobs, then Germany, with Europe’s highest taxes, should have the Continent’s highest unemployment rates instead of its lowest. In fact, German unemployment is lower than any other industrialized nation. On the other hand, every European country that adopted neo-conservative “trickle down” tax policies is now experiencing extremely high unemployment rates and economic collapse.

In fact, when one looks at taxation vs. employment among industrialized nations, there is a distinct converse relationship – the higher the tax rate, the lower the unemployment. The United States, with one of the lowest tax rates in the world, also has one of the highest unemployment rates.

What more do Americans need to understand that they are, and have been, engaged in class warfare for three decades? And as Warren Buffet said, we, the middle class, are losing.

Distrust of Corporate Power Is an American Tradition

To hear Republicans, President Barack Obama distrusts American businesses and corporations. This, of course, makes the president an un-American socialist or, worse, a communist. I seriously doubt Obama is anti-corporation, but if it were true, historically he would be in good company.

 Our Founding Fathers were no fans of corporations. The Boston Tea Party, after all, was not a reaction to high taxation, as right-wing myth contends, but to the Tea Act’s nearly tax-free status it gave to the British East India Company, the largest corporation of its time, which threatened to destroy smaller colonial businesses.

  So abhorrent was the idea of large corporate interests to our Founders, that they purposefully left any mention of them out of the Constitution. Yet, even in the earliest days of our nation, many of our Founders were already growing appalled by the growth of corporations.

 "I hope we shall crush in its birth the aristocracy of our moneyed corporations,“ wrote Thomas Jefferson, “which dare already to challenge our government to a trial by strength, and bid defiance to the laws of our country."

 Loathsome Bankers

 Financial institutions were particularly loathsome to Jefferson. "I believe that banking institutions are more dangerous to our liberties than standing armies," he said.
  
 Jefferson’s foresight was eerily precise when he predicted that “the banks, and corporations that will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."

 Wow. It’s like the author of the Declaration of Independence was looking into the future and saw how banks and corporations destroyed the U.S. economy in the 1930s and again in 2007.

 John Adams, Jefferson’s long-time friend and sometime political adversary, was also wary of financial institutions. "Banks,” he said, “have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good."

 Hard to believe Adams was the founder of what is today the Republican Party.

 President Andrew Jackson was well known for his distrust of financial institutions and corporate monopolies. “Unless you become more watchful in your states,” he warned, “and check the spirit of monopoly and thirst for exclusive privileges you will in the end find that … the control over your dearest interests has passed into the hands of these corporations.”

 Enemy at the Rear

 As president, Abraham Lincoln had many things on his mind. He was fighting a war to preserve the nation. But Jefferson Davis and Robert E. Lee weren’t his only concerns.

 “The money powers prey upon the nation in times of peace and conspire against it in times of adversity,” he said. “The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe."

 Let’s see, “denounce as public enemies all who question their methods.” Would that be the same as the Republicans calling Obama a socialist, a communist, or a secret radical Muslim?

 As the Civil War drew to a close, Lincoln was eyeing his “greatest foe” as the next major threat to the country.

 "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country,” he said. “As a result of the war, corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war. God grant that my suspicions may prove groundless."

 Unfortunately, Lincoln’s fears were well grounded. In the decades following the Civil War, the country saw the growth of the Republican “Gilded Age,” when most of the country’s wealth was held by a handful of so-called “barons,” most of whom acquired that wealth by corrupting government officials.

 Citizens United

 President Teddy Roosevelt came into office at the height of the Gilded Age. From his bully pulpit, he saw the same threat to the country Lincoln did four decades earlier. That pulpit must have been awfully high, because Roosevelt was able to see all the way to 2012.

Like a man prescient of the U.S. Supreme Court’s Citizens United decision giving corporations “citizen hood” and all the free speech money could buy, Teddy warned: "The Constitution does not give the right of suffrage to any corporation. The citizens of the United States must effectively control the mighty Commercial forces which they have called into being."

 Unlike any Republican you’ll hear today, Roosevelt also said, “Laws should be passed to prohibit the use of corporate funds directly or indirectly for political purposes. Corporate expenditures for political purposes have supplied one of the principle sources of corruptions in our political affairs."
 Roosevelt, of course, went on to break up the “trusts” – large corporations – to reduce their political power, and gave Americans the “Square Deal, which helped create the middle class in this country.

 TR’s distant cousin, President Franklin D. Roosevelt, took this further, with legislation that controlled how financial institutions and corporations can operate and, of course, the “New Deal,” the greatest expansion of the middle class in U.S. history.

So I wonder how TR would respond to see his former party, the GOP, running a corporate multi-millionaire as their 2012 presidential nominee? Or if he knew that corporate interests like the Koch brothers or the pro-corporate American Legislative Exchange Council were financing Republican candidates and writing their policies and legislation? Would he agree with current members of the Republican Party that President Obama is too distrusted of Big Business?

 Let’s let TR speak for himself: "… [T]o befoul the unholy alliance between corrupt business and corrupt politics is the first task of the statesmanship of the day."