I have been asked before: What is the difference between a CEO and an executive director? Both are leadership titles in organizations. Each is the highest title in the organization and the one responsible for carrying out the goals or to fulfill the mission established by the board of directors. The term executive director is more frequently used in not-for-profit groups, whereas CEO is used with for-profit corporations or extremely large non-profits. Most have stockholders on for-profit entities, who demand the shares increase in value. Sometimes it seems not much else matters. We can recall the 1987 movie Wall Street, where Gordon Gekko is quoted saying, “Greed is good.” It seems today’s CEO’s must live by this motto.
The push for increases in market share or market share pricing have always been there but today it seems intensified. The wine industry is an ironic example as they have now begun intensifying wines. Investors refuse to wait ten years to get the return on their investment. So, wine makers responded by developing a wine that could be consumed in a year, not requiring years of aging. However, these wines cannot be stored and must be consumed—there are consequences. Ever wonder why today’s wines give you a headache?
Under Pressure
The modern CEO is under pressure and passes it along. There are two common tactics that seem popular for quick results. The first is innovation, like fast aged wine. The pressure on staff to come up with a revolutionary product is intense. The staff scrambles to create, take short cuts on testing and ignore red flags. The Gekko character would likely argue that pressure is good and compare this with innovations in war time that were also made under pressure. But this type of pressure is not the same. Pressure to save one’s country and for a noble cause is what drives inspiration. Gekko is only for greed and profit. This is a significant difference. Even if you are on the wrong side of a war, you believe in your heart you are on the right side.
Cutting Costs
The second option for CEOs to increase profit is to simply cut costs. The first step is to cut staff deemed to be over-paid. I have seen this time and again. A major corporation buys a smaller successful competitor and starts the process to trim the fat. The CEO sees a field sales representive making six figures and the solution is clear and obvious: They must be terminated. Logic is that they can hire two college graduates for the same price. These two will cover twice the territory, are trained on computers and fall more quickly in line with corporate policies. This is really a no-brainer: fast and effective.
Unfortunately, the CEO does not really know the intricacies of this business. Most likely the sales person was a pro with tons of experience, they were likely looked to as the answer person for problems that customers would come up with. The clients relied on this person and they were paramount to the success of the product line. They were not just an order taker, but a problem solver. The immediate result is quick profits.
Overtime, the clients get less help and become fed up. They tend to slowly switch to the competition. This happens and while it should be that the CEO sees this coming, the immediate stock price surge wins the day. I think many do know it will happen, but have time to find others to blame for market share loss or assume new innovations are forthcoming to save them.
Another cost savings plan is to ship production overseas. This is not just an American trend. My brother-in-law works in Switzerland for an international computer component manufacturer overseeing clean room quality control. The Swiss are renowned for precision and quality is critical in the pieces they make. They have recently opened factories in Malaysia and Romania. The quality from those plants are less than stellar. He reports directly to the CEO and explains how challenging it is to get the same quality. The CEO is undeterred, he keeps pushing to get the quality better in those plants. Ironically, only the Swiss plant turns a profit. The CEO’s plan is clear, the workers in these other plants are paid a fraction of Swiss pay.
All operations will move when they can work out the bugs. The trick is to do this before their brand reputation is shot. Needless to say, my brother-in-law has calculated his retirement day and figures it will come about the same time as those bugs are worked out. He feels bad for the future of Switzerland and that his hands are tied. I often wonder what is being taught at business schools today, because this just seems wrong. W&C
