November 1 1987 by Chief Executive
HOW TO PAY FOREIGN MANAGERS
To the Editor:
I enjoyed reading Robert Lear’s column, “Rethinking Executive Compensation” (Spring 1987). It was timely in view of foreign competition and the “merger mania” climate.
Having been involved in international consumer-products marketing for 25 years, including 13 years residence in Europe and Japan, I was intrigued by his notion of providing several long-term performance incentives. American competitiveness in global markets has been dulled significantly by short-term thinking. Clearly, this is the arena where the Japanese are able to beat our pants off.
Although Hershey Foods Corporation provides several long-term incentive programs based on EPS and RONA performance, I would be very much interested in learning Mr. Lear’s thoughts about performance measurement applied internationally. Based on his experience in this field, has he ever surveyed performance measurement of overseas operations? Would he know, for example, how multinational companies weigh and prioritize performance benchmarks such as: earnings per share in translated U.S. dollars; cash returned to the Corporation in the form of dividends; “in-country” results in local currency or “dollarized” terms? Obviously, financial structure plays a key role here. Therefore, the way we propose to measure such operations could lead to different working-capital financing decisions and cap ratios. This is a perplexing problem that no two companies seem to agree upon.
Richard M. Marcks
Hershey Foods Corporation
Robert Lear replies:
I must admit that I am not a great deal farther down the road on developing long-term performance incentives for foreign subsidiary managers than you. Few companies have found a good standard technique to use.
My experience as an executive and as a manager has been somewhat spotty.
In most cases, we have forced foreign managers to fit into a domestic pattern, or we have simply adopted or continued an incentive practice that was acceptable in the country in question.
On the other hand, I see no reason why a specific incentive could not be set up-perhaps in the form of stock options or phantom stock or a cumulative bonus as an ultimate cash payout with the awards being granted for specific accomplishments. Perhaps it should be likened to the types of incentives that we developed for emerging profit centers for entrepreneurial ventures or for turnaround situations; all operating managers are not necessarily equal where incentive plans are concerned.
IBM, Xerox and Procter & Gamble have had a great deal of experience in this and have been quite successful in stimulating and holding their international groups together. Perhaps their experience is instructive.
CONGRATULATIONS CHARLES KNIGHT
To the Editor:
My compliments on a most excellent choice for Chief Executive of the Year. Charles F. Knight (Summer 1987), through his leadership and the results Emerson Electric has achieved, is certainly a worthy choice.
International Inc. Chicago, IL
THE NEW CAPITALISM
To the Editor:
Lawrence Blackmon’s critique of my book, The New Capitalism (September/ October 1987), is provocative, but not quite the way he intended. I think it shows how the views of typical CEOs are largely responsible for the current crisis in American business. Mr. Blackmon, a CEO himself, finds various points I made confusing, and he feels this “economic illiteracy” is a serious problem for our nation.
Frankly, this sounds like a red herring. When executives encounter critical opinions, they usually attribute it to the public’s ignorance.
The main point of my book is that the “Old Capitalism” of the Industrial Age is fading rapidly because “capital” is no longer the most critical factor of production. A good example is General Motors, a company I have worked for as a consultant in strategic planning. GM has poured $40 billion into sophisticated technology, yet the company is facing a deepening crisis. GM’s market share has dropped from 50 percent to 40 percent, and the bottom is not yet in sight.
In an information age, the critical factor is knowledge. Since knowledge increases when shared, today a “New Capitalism” is emerging based on collaboration among employees, customers, the public, and other stakeholders. The most successful move GM has made is its joint venture with Toyota in Freemont, California, which produced huge productivity gains through labor management cooperation. Ford is leading American auto makers because it has learned to get its managers, engineers, and employees working together to serve the real needs of car owners rather than simply selling a machine-a good example of the new wave of “client-driven marketing.” Even competitors are collaborating. There are now about 50 R&D consortiums, and most big companies have formed strategic alliances with their counterparts abroad.
The crucial distinction here is that the key to business success, which seems to elude most CEOs today, has little to do with traditional things like capital investment, technology, tough management, etc. Instead, the key to success now hinges on the CEO’s ability to unify all constituencies into a collaborative, political coalition-that’s what Lee Iacocca did to save Chrysler from bankruptcy and what Japanese CEOs understand intuitively.
The net effect is that the role of big business is slowly changing from its old focus on profit to creating a broader “economic community,” that serves the needs of all stakeholders-not out of altruism but because human values are now efficient. It can be thought of as a better way to make money. This is not “socialism” as many alarmists contend, but a more powerful form of private enterprise that a vanguard of leading-edge firms have pioneered for years-IBM, Aetna, Dayton-Hudson, HP, and Koll- Morgan-although they are few.
So I suspect the reason some people like Lawrence Blackmon have trouble with The New Capitalism is that these are subtle, complex, challenging matters which most managers and the public have trouble grasping and the toughest point to see is the “paradox of profit”: by focusing too closely on profit, we fail to pay attention to the human issues that are the source of profit.
Thus, progressive CEOs have an unusual opportunity today to redefine business from its old “profit-centered” role that created such a terrible business vs. society conflict, into a “human-centered” institution that serves social needs. If this crucial shift to human-centered enterprise can be widely understood and moved into the economic mainstream, American business could become far more successful; and CEOs could become the heroes of our society.
William El Halal
Professor of Management The George Washington University
Lawrence Blackmon replies:
Apparently the good Professor Halal was so incensed and sensitive to any criticism of his book that he didn’t stop long enough to discover what the nature of the criticism actually was. I will explain it to him in straight-forward, expository prose.
I put the needle in deeply for redundancy, for excessive hyperbole and for far too many fuzzy generalizations in his text. I expect tenured university professors to meet a higher standard of lucidity in their writings than us common mortals. I complimented him as far as I could by observing, “He has good, sound points to make, with or without novelty. Why screw them up with sloppy assertions?” The resulting book (and I will say now what I diplomatically avoided in the review), is a bore with too little that is novel to recommend.I find it rather sad that Halal feels it necessary to make an argumentum ad hominem and to try to set his reviewer up, strawman style, as a moss-backed, closed-minded CEO “old style”, who can be expected to be confused because he has trouble grasping “these subtle, complex matters.” I hope it is not too much for the author to acknowledge that he has taken relatively simple ideas and made sludge of them. I suggest he take his text and himself over to the English department.