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July 24, 2003
IT'S WRONG, IT STINKS, AND WE'RE ALL RESPONSIBLE
Strong Preface: Before anyone chooses to go off on me for my utter disregard for how leading financial markets operate, let me just say this: I Don't Care. So, in posting replies -- don't bother taking me to task for not understanding how the system works. My point is this... the way the system works is flat out wrong!
The news from Wall Street late yesterday afternoon was that U.S. stocks -- led by gains in the technology sector and news that Eastman Kodak would be cutting 4,500 to 6,000 jobs -- managed to close higher than the day before. The part about this news which stinks, in my humble opinion, is that Eastman Kodak's stock gained $2.27 per share, or 9.2 percent, to close at $26.86 per share AFTER an announcement that the photo services giant would be cutting 8.5 percent of it's workforce.
Why do we continue to reward corporate America for doing the wrong thing? Sure, I get that by cutting its workforce a company saves on its fixed costs, but I'm here to tell ya... it's wrong, it stinks, it's ass-backwards, and all of us that hold stock in publicly-traded companies thru the major markets should be ashamed by what it is that we're supporting at a core level.
What makes the stench even harder to handle is the fact that Kodak's sales revenue edged up from $6.04 billion to $6.09 billion, and that just last year the company eliminated 7,000 jobs, and in January of this year announced that it'd be eliminating 2,000 additional positions. In all, over a 24 month period, this company made plans to reduce it's workforce by nearly 20 percent... AND WE -- it's shareholders -- continue to reward the company itself and OURSELVES with a higher valuation, all while more and more of our fellow humans lose their jobs and face a very uncertain future.
When will this practice of rewarding ourselves at the expense of our fellow human beings end? When will we, the shareholders, insist on socially responsible management? Is what we stand for today here in the U.S.A. any different than what we stood for before divestiture in South Africa? I Think Not? What do you think?
Posted by Mikal at July 24, 2003 7:33 AM
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An interesting article that adds more to your post. "Such cutbacks don't even guarantee that the bottom line will improve. Sharp investors should examine a company's sales growth relative to its inventory and receivables. If a company's inventory is building at a rate that far exceeds its sales growth, layoffs won't solve the problem. The same is true if a company has growing unpaid receivables." http://www.redherring.com/mag/issue95/1590018759.html
One thing I never understand... why firms don't grasp the fact that helping its people first will ensure a sounder economic society. After all, where will these corporations be without the consumer to purchase the service or product.
The problem is the short-sightedness those on The Street employ. For them, it is GOOD that Kodak will lay off people at this time - it reduces cashflow immediately which can help determine whether or not or how much dividend will be paid this quarter or this year. *That* is what drives large and institutional investors - what will my reward, or payoff, be . . . now that this or that has happened? Socially responsible management looks beyond this short-term result to posit a long-term, sustainable, growth strategy that takes into account shareholders, board members, employees, & the communities in which all of those live and raise families, etc. I think all of these factors must be balanced - a tough and sometimes tricky thing to do. I know because I've had to do it. Eliminating a position, especially at smaller firms like the ones I've managed, is especially difficult when the encounter must be made face to face. However, sometimes it is unaviodable when revenues, business models, or market forecasts don't go as expected.
I agree with Lee. I also agree with Mikal, to an extent. Mikal, I firmly believe that it stinks, severely even, that corporate America is 'awarded' by investors for trimming staff or flat out axing it. However, sometimes that's what happens, it's the reality of business. Unfortunately, the modern market can work faster and more people have access to market news than ever before. As a result, we see larger swings do to the desire to get the quick buck to which Lee referred. Investors are in the business of making money, so they try to find the most effcient ways to make said money.
Thanks, Matt. Although I am a businessperson, I am not an apologist for big business or corporate America. Yes, restrained capitalism (whcih is practiced in modernity) seems to be the best system on earth, but it is far from perfect. It's not a choice between life and liberty or even a "love it or leave it" scenario, but, overall, it does seem to work for the greatest good for the greatest number. That, to me, seems like the best of the available otpions.
Howdy from Houston, Indianapolisites!
Hey Mikal. Finally posting.
Amen. I have always hated that companies & specifically the people in charge can receive short term benefits (stock options, etc.) through socially destructive behavior. But of course I have no suggestions on how to fix it. I agree that capitalism seems to be the only option.
Something that's related to this that also bothers me is the concept that growth is such an important measure of success. It drives me nuts when I see a company punished, via their stock price, when they announce that they are hugely profitable...just not MORE profitable than last quarter. Anyone got an Econ credit or 2 under their belt that can give me an insight on this that will cool my blood?
Am I just a closet communist?
Talk to me comrades..
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