Aubyn Hill
ALMOST EVERY IMPORTANT CRISIS or problem that a company or organisation faces can be placed squarely on a manager's lap. This is true whether we are dealing with the former Century National Bank or Eagle Merchant Bank that died in the FINSAC years of the 1990s, or the death of Enron and its lead accounting firm Arthur Andersen, or the waste, inefficient service and cost overruns that are generally a major output of government agencies which, given the endless and often unaccounted flow of taxpayers money, are never allowed to die. In some cases it may even be correct to state that managers did not cause these problems and crises; however, the top decision makers remain accountable and responsible for these negative outcomes.
It is right that accountability be laid at managers' feet because whether by omission or commission they are directly or indirectly responsible for the mistakes and problems that occur under their watch.
ACCOUNTABLE
Each manager at his or her level is accountable for the decisions and activities under his or her purview and as one goes up to the top - at the chief executive officer's level - the accountability is total. There are, of course, exceptions to this accountability and responsibility mantle; one would have to concede that events like earthquakes, tsunamis and sometimes hurricanes (I say sometimes because hurricanes are much more predictable and manageable than the former two natural events) are really outside the control of managers.
I would wager though, that in a few years mathematicians in the securities business will offer hedging mechanisms against hurricanes, earthquakes and even tsunamis, at which time managers who could be exposed to these risks will be remiss not to buy financial cover. The events of September 11, 2001 also qualify, and just possibly crude oil prices that peak above US$70 per barrel. Managers of companies are essentially responsible for all other events.
ANYTHING OR ANYONE BUT ME
It is amazing the lengths that managers will go to try and avoid taking responsibility for their actions or lack or action. Take, for instance, the payment of taxes. I have heard managers complain about the level of taxes (it is always too high -- not an unreasonable observation!) and when the time comes to pay the government, one excuse after the other is trotted out as to why his or her company has become delinquent and needs a rebate from the Ministry of Finance and Planning.
I am often surprised at the fact that the senior executives of these companies will continue to offer their services or products to companies, institutions or government agencies and departments which they complain do not pay them. I can understand when a client welches on his or her payment to a company for the first time, but when the CEO or senior executive of the company that is selling its commodities to these clients or agencies continue to deliver products and services month after month and they do not get paid, then that manager is patently foolish and inept.
After all, a sale of goods and services takes place only when cash is given in exchange for those goods or services. When those goods and services continue to be delivered when payment by the receiver has been withheld, then clearly what were intended to be sales transactions have become a one way gift-giving exercise (not even a fair exchange of gifts or even a consignment).
The foolish manager then becomes very aggressive with the tax collectors, calling them inhumane for recognising that the manager in charge of selling the company's good and services was really incompetent and continued in his or her folly on a regular basis without taking the necessary action to cut the sales and make tough and systematic arrangements to collect the company's money in order to pay the government its legitimate taxes. The taxes are legitimate in that a sovereign government used legal and parliamentary means to declare the taxes and made the requirement to pay these taxes publicly known well ahead of time.
Other instances of executives ducking responsibility often surface as a result of very cosy relationships between family members and friends in management. These family and friends may be clearly underperforming but are left in place rather than the senior executive making the tough decision of asking the underperformer to change his or her management results or clear out. Often, not only the CEO or the particular manager is responsible but other senior executives, or even board members, become culpable in perpetuating the tenure of the non-performing or incompetent manager.
WHEN THE CEO DUCKS, SHAREHOLDERS SUFFER
CEOs get to their position because they are smart, possess political savvy and have strong will. Once they arrive at the top they tend to use many of these skills to stay in their position rather than look after the maximum welfare of the shareholders in publicly traded companies (or owners in the case of private companies).
They avoid hard decisions with a plethora of explanations as to why a business that has failed to turn a profit over years and sometimes decades must still be kept rather than cut from the activities of a company or a group of companies. It may be that a CEO or important executives or family members who are involved in the purchase of the business use pride rather than business sense to keep the failing company in the stable rather than cut it off and focus on more profitable businesses.
Similarly, managers who fail to perform either by building up huge inventories which they refuse, or are unable to move, are kept in their positions while the inventory burden depletes profits, destroys morale and generally wipes out shareholder value month after month. CEOs who duck these hard decisions are doing a great disservice to shareholders.
The board of directors by not requiring corrective actions, and that might mean changing the CEO, is doing an even greater disservice to the shareholders whom board members are supposed represent and protect.
In the final analysis, when managers and senior executives fail, eventually their companies suffer, their employees suffer from morale and reduced compensation, but the biggest loser will be the shareholders who will watch their equity fritter away instead of growing in line with what executives are paid to do.
Aubyn Hill is the CEO of Corporate Strategies Ltd., a restructuring and financial advisory firm. Respond to: writerhill@gmail.com.
