How Owners and Managers Run Corporations into the Ground

ChinaWe can all be very thankful to the managers of Hostess Brands, Inc. Rarely have we ever been given such a clear picture of how a company can be driven into the ground by its managers.
There is an inherent conflict of interest, called the agency problem, when owners hire someone else to run their business. It can be difficult to see the effects. This problem is generally the reason to give stock options to workers to align the growth of the business and some of their compensation. It’s not a perfect system.

If you are a manager looking to run a company into the ground, here are some simple steps to help you along:

Start with a “cash cow”. There’s no point in exploiting a company that is not making money. You might have to do some actual work! Look for an established brand with consistent revenue and profit stream.

Borrow as much money as possible. Use it to pay yourself higher bonuses and buy back stock into the Treasury to inflate the price. This will make the owners believe you are doing your job because their returns are growing as well as maximize the value of your stock options.

Never replace equipment. You’re not going to be in business long enough for it to matter. If you do, your employees will have to be trained on it. They will become marketable and might leave, forcing you to hire replacements and pay market wages. Refuse to train workers in anything new.

Negotiate with multiple unions at separate times so you can grind them down individually. Fire people at random and don’t replace them. Promote from within but make sure the people still do their old jobs at the same time as the new ones. Remember, middle managers don’t get overtime pay.

Make sure to team up several key people in management before things begin to get dicey. Accounting is designed so that the people who approve expenditures and account for assets are separate from the people who write the checks and guard the assets. Be absolutely sure you have both powers on your team. Blackmail is particularly effective.

Buffer inventory with old, useless stuff. Value assets for amounts that you think the auditors will accept, rather than the truth. Be sure to know all audit locations and dates in advance.

Force providers and distributors to bear as much of the cost of doing business with you as possible. If they complain, simply switch. Quality and service are of no consequence.

When the company does start to go under, make sure that you sell all of your stock. Then get yourself fired so that you can collect your huge golden parachute. If possible, offer to come back and run the company while it is in bankruptcy for a high fee since you know the business so well.

It’s a little known fact, but as a stockholder you have rights concerning inspecting the premises, attending some meetings, and otherwise observing the business. Mutual fund managers have more clout in this respect, and their reputation is on the line if the stock takes a nosedive, so they often get even better results. If you suspect bad management, point it out to a major stockholder, or just sell your stock while you can.

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