Corporate Management

McMegan makes the really strange argument that GM management shouldn’t be held responsible for GM’s staggering loss:

The company is scrambling to retool for small cars, and I’m sure we’ll hear a loud chorus of voices saying that GM did this to themselves by becoming so dependent on light trucks.  Well, they did, but I’m not sure it’s fair to blame management.  GM’s historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could. 

Of course, as Matt notes, it was GM management who made those deals in the first place:

But look: This is all management. GM could have struck a different bargain with its workforce that entailed higher salaries and lower long-term pension obligations. Its management thought it would be wiser to strike a different bargain, and the results have wound up being non-pretty.

But even in stating the obvious, I think, Matt still misses the bigger picturel that it wasn’t “non-pretty” at all for the people who made those decisions. The executives who decided to defer earnings to promises of future benefits instead of upfront wages in the first place are long gone from GM (most of them are passed on in general). So the current mess isn’t really of concern to them. In the meantime, the effect to the short term bottom line (namely, it was bigger) put more cash in their pocket in the short run, and left someone else holding the bucket down the road.

The real problem here is our certifiably insane corporate structure, that not only encourages these sorts of things, it literally mandates them by law. Corporate executives are bound to maximize “shareholder” profits in the short term, and that means they make really stupid long term decisions in the service of tacking on a few percentage points quarter to quarter. Which would be their problem if not for other problems with the corporate structure. Since executive pay is decided by executives, corporate executives who perfrom poorly walk away with 8 figures for screwing things up. Additionally, the average span of executive tenure is fairly short, so “well” performing executives mortaging their firm’s future for next quarter’s reports can generally rest assured they won’t be the ones who have to fix the mess in 10-20 years. And that’s all fine and good, except that sometimes these decisions have huge effects on the economy at large, like the subprime fiasco. If corporations were encouraged to consider long term security, or there was some mechanism of holding executives accountable to the long run interests/performance of their firms, the sub prime mess never would have happened. But until we come up with a more sane way of doing business, we can expect a lot of other messes to be made out of, seemingly obvious, bad management.