Fat cats

When the public mood changes, the realization can take time to sink in. Behavior which was acceptable can become an outrageous. Glaxo Smith Kline has faced this problem when its shareholders voted to reject remuneration committee report, which would have paid Garnier $35 m if he lost his job and threated him and his wife as 3 years older that they are for the purpose of increasing their pensions.

It leaves the company in a sort of legal limbo. The message of shareholders discontent with large executive pay packages and poor corporate performance has never been so clear. Shareholders have for years accepted that “fat cats” paid themselves. But there is a strong feeling that many chief executives are living according to quite a different set of rules for everyone else.

Although the value of most large companies has fallen, bosses have continued to pay themselves more. Some of the aspects of Mr Garnier’s package were appeared to reward not superior performance but simply being there.

Of course, companies may set up deals with bosses to encourage them to go quickly out the company. But to reward failure is not a way to encourage success. The market for CEO’s is not perfect. There is no rate for the job. If the board has to defend its compensation decisions publicity, it may be easier to say “We’d love to give you a golden parachute but the shareholders would make a fuss”

The virtue of necessity

A serious safety problem is threatening the future of Transal a pipeline company. Hundreds of yearly accidents have led to high absenteeism, causing lost time, low morale, unsatisfactory efficiency levels, falling profits and a falling share price. Press articles wrote about Transal’s lack of concern for its employees. Now it is having a very negative effect on customers, shareholders and staff. Company now is considering to develop a safety conscious culture. I’d like to present three possible options to you:

1) Our staff can be sent to The International School of Industrial engineering to attend course on “Safety awareness”. It will raise company’s morale, reduce safety hazard but will contribute large investments.

2) Outside consultants might be brought in each subsidiary. It will entail a long-lasting period of training, moreover, all the budget is to be spent on it.

3) The last idea is to send a certain amount of money to a community charity. Each time our workers eliminate safety hazard it will lead to huge cost-savings and generate good publicity which is important for employee’s morale. However it’s risky and may be inefficient.

I would recommend option number one. The safety hazard will go down, also the employees will gain some experience how to handle the problems. What is more, we will achieve a lot of concern for absenteeism. In the end our company stops profits from falling and improves its reputation.

A matter of choice.

In the late 60’s it used to be hierarchical and bureaucratic organizations which were mainly aimed at making long runs of standardized products. There were lots of products with predictable regularity. Also, workers were provided with good employment conditions and enjoyed good industrial relations, but things have changed radically.

Due to the global competition, large corporations started being transformed or even disappeared. Most companies decided to shift their production system from high-volume to high-value model from standardized to customized. And they have flattened their management hierarchies. The question is: where is the modern company heading? There 3 standard answers to this thought.

1) A handful of giants engaged in a silent takeover. The only survivors are far more powerful than nation states.

2) The second school of thought argues about different occasions: From one side, big companies are a thing of the past, but in order to understand whether a business effective or not, let’s look at the Monorail Corporation. Monorail doesn’t own any tangible assets like warehouses or factories. They operate mainly from a single floor, where freelance workers are designing the computers in a spacious office building in Atlanta while demand is still low.

3) The third school of thought supposes that networks replaced companies. These groups of entrepreneurs market an idea then sell it to the highest bidder and move on to produce another idea or firm. The money are supplied by venture capitalists.

The reasonable thing is to focus on the environment. Choice defines the path for the environment. Technology and globalization give us an opportunity to collect information and conduct economic activity outside the traditional business. Modern flexible production system both lowers costs and increase choice and consumers feel free about their spending, especially where to spend their money. Producers and shareholders have now more choices, but besides these choices around we need to be flexible to adapt to the changing environments if they are to survive.