Drawn and Quartered; the Fate of American Business


For nearly 600 years under English law,
one could be ‘drawn and quartered’ for the crime of treason. Yet our present
day crime is the Quarterly Report, upon which investors depend for their
particular pound of flesh ‘drawn’ from the mismanagement of Corporations. Yet
the simile is perhaps not too far removed from the fate of American Business.

Present-day investors are the owners of business . . . its absolute owners. Thus what they demand
is profit, something to put in their pockets and those demands come due every
financial quarter. The punishment for missing such owner expectations is a drop
in stock price, essentially devaluing the companies they themselves own.

Now if that sounds like robbing your own pocket for a
failure to fill that pocket adequately, you’re dead right in theory. What
prevents this theory from becoming fact is that stock ownership has none of the
strictures icons like Edison, Ford, Rockefeller or Carnegie faced.
Those ‘owners of industry’ had to stick around and
deal with the difficulties inherent in building
wealth and value. Nasty little details like research and development, as well
as long-term planning and marketing, keeping a dedicated work force together
and assuring that their eye was on the ball in a changing marketplace.
Current ‘investment owners’ simply sell their stock
and move on to whatever pasture seems greener in the coming quarter.
Essentially, they have no skin in the game. They make their money by avoiding the nasty details, ‘drawing and
quartering’ the companies in which they invest and moving on.
Back to its definition, drawing and
quartering was, part of the grisly English penalty that could include several
steps. First he was drawn, that is, tied to a horse and dragged to the gallows,
a punishment that might include hanging (usually not to the death), usually
live disemboweling, burning of the entrails, beheading, and quartering. This last
step was sometimes accomplished by tying each of the four limbs to a different
horse and spurring them in different directions. We mimic that today, not quite
hanging our corporations to the death, but disemboweling their best attributes
and certainly burning what remains before tearing apart the corporate body
If you can’t get your head around why that happens in
this day and age, look at how we have contrived to reward CEOs. Most CEOs of
large businesses draw a minimal salary and are up to 90% compensated by stock options—the ability to take discounted options, not available to
other investors, on the company stock price and make millions (occasionally
billions) by pumping that stock full of air in the short term.
Certainly by any standards that’s treason against the
corporate body, yet there’s not a whimper of protest as our Dow Jones sits
comfortably above 15,000 and the nation staggers at or near poverty levels not
seen for three quarters of a century.
So we have two separate factions in the
corporate world, each profiting in the short term while ignoring the basic
health of the company—owners (investors) and managers (CEOs). But surely Boards
of Directors are there to prevent just such corporate chicanery.
Not so. Board members are self-interested
as well. These co-conspirators mostly have their careers behind them, yet the
average compensation for board membership in Fortune 500 companies is $250,000
for an average of eight meetings a year. Pretty nice compensation when you combine
several board memberships along with perks such as corporate air-travel and
generous expense allowances.
The modern investor-owner with the full support of its
corporate board operates on the Bain Capital template, taking over under
performing companies and stripping them of assets. Chuck the pension plan,
close down R&D, fire the older (expensive) employees and replace them with
young and inexperienced temporary workers, thus guaranteeing a rise in stock
price, pocketing a bundle and leaving not much but smoldering wreckage behind. But
who cares, if it was a good quarter and the ownership moves on?
The question is, how long can we sustain
the drawing and quartering of American corporations?

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