Owner’s capitalism vs manager’s capitalism

Dear Bob …

This article (“A Labor Day dichotomy,” Keep the Joint Running, 9/1/2008) fits perfectly with the notion that John Bogle put forth during the early part of this decade: owner’s capitalism versus manager’s capitalism. If you are not familiar with the concept, it’s worth a few minutes of your time to read.

Short version:

• Owner’s capitalism: The company exists to benefit its owners (typically its stockholders). Workers, managers, senior executive benefit as a side effect of this work. Theory: the owners have invested their hard earned capital, they’ve taken the risks, they should reap the rewards.

• Manager’s capitalism: The company exists solely to benefit its managers (and usually just the senior managers). The senior managers work to pad their pockets with little to no regard for those doing the work. Their exit strategy: Get in, pad their pockets for a few years, rape the company of all/most of its assets, then head off to their next adventure.

– http://www.vanguard.com/bogle_site/sp20030611.html

– http://www.amazon.com/Battle-Soul-Capitalism-John-Bogle/dp/0300119712/ref=pd_bbs_sr_3?ie=UTF8&s=books&qid=1220351720&sr=8-3

Side note:

I interview with a company whose major stockholders had just filed suit against all but one of its senior managers for, basically, stepping over the line on the manager’s capitalism way of doing things.

After the interview, I pretty much had the job but really didn’t want to work for a sweat shop (such as manager’s capitalism companies tend to be).

So I asked him how it was that stockholders had enough disgust and energy that they would go through the trouble of filing a lawsuit against the senior managers for basically mismanaging the company. I also asked him why I would want to come to work there since it was obvious from the lawsuit that those running the company neither appreciated nor rewarded those on whose effort their success depended.

He got red-faced, stammered some lame excuse, I apologized for having wasted our time, and never looked back.

It’s amazing how, on the first cut, you can judge a company if you simply look at it from an owner’s versus manager’s capitalism point of view.

– Dodged a bullet

Dear Dodger …

You aren’t going to like my comments, I think.

First, owners’ capitalism vs managers’ capitalism strikes me as another false dichotomy, not to mention an overly simplistic generalization.

There is nothing fundamentally incompatible between companies being run to benefit their owners, investors (emphatically not the same as owners), managers, and non-managerial employees. Quite the opposite — a well-run company that’s managed to create sustainable growth and profits benefits all of the above.

The second point amplifies the first: The idea that stockholders … investors … are owners is nonsense. The owners of a privately held company are actively engaged in decision-making and have a stake in the long-term sustainability of the company they own (or in its attractiveness as an acquisition target).

The stockholders of a publicly held company have only one legal right when it comes to how the company is run — an annual vote on the board of directors. Beyond this, only those who buy equity stakes think as owners.

The rest consider shares of stock to be the company’s most important product, not tiny bits of ownership. All they want to do is buy low and sell high. Shareholder value is the single biggest reason the modern corporation isn’t run in a sustainable fashion.

Next: Many, and I suspect most shareholder lawsuits are concoctions of the bottom feeders of the legal profession. These … carp (I transposed two letters to sustain the metaphor) look for companies whose stock is under-performing, find a few shareholders who figure they can make a quick buck with a lawsuit, and add that lawsuit to what they actually call their portfolio of assets.

There are cases where shareholders seek out legal representation, I imagine. The reverse situation is the norm.

And: Shareholder-value-driven companies are more likely to be sweatshops than manager-value-driven companies.

Shareholder-value-driven companies are less likely to be run as sustainable ventures. Their management will do anything to squeeze out another penny of earnings per share. That means “lean and mean” is the order of the day, even when it results in a hollowed-out company whose employees see 60-hour work weeks as what happens when there isn’t a crisis.

And finally, I have to ask — what possessed you to apply for a position at a company you had no interest in working for? And what benefit did you see for yourself in being rude to a middle-manager who was probably just stuck in the middle, trying to hold things together?

If you knew it was a sweatshop you shouldn’t have wasted his time and yours, instead of doing so and then offering a meaningless apology afterward. If you didn’t know it was a sweatshop, asking relevant questions during your interviews to get a handle on the corporate culture would have been a good idea, instead of assuming your inference — at best based on a generality — was correct.

Even if it did turn out that long hours were the norm, you might have heard that the company had a plan to turn things around, was stretched to the limit right now and was asking employees to pitch in with longer hours, and had made a commitment to reward those who did so if the turnaround was successful.

You didn’t ask for advice. I’m going to give you some anyway.

Only apply for jobs you want, or at least might want. Applying for anything else wastes your time, and the time of those who are trying to hire someone who does want the job.

And if, during the interview process, you discover something about the position or the company that makes you decide it isn’t for you, handle the rest of the interview so that, when it’s all over, those who talked with you regret their failure to persuade you to take the job.

The reason, beyond basic good manners, is simple: This wasn’t the last job interview you’ll ever have in your life, and this probably isn’t the last position the manager with whom you interviewed will ever hold.

So imagine you find your dream job. You apply. You’re invited in for an interview. You fill out the paperwork with HR, and the company’s recruiter escorts you to the office of the hiring manager. Who turns out to be … the manager you insulted back in the other interview.

It’s a more likely scenario than you might think.

– Bob