Tuesday, November 11, 2008

Does failure have consequences?

Reading the WSJ page B1 at lunch, I was struck by the ironic juxtaposition of two stories. The first was about failure and its consequences:

DHL Beats a Retreat From the U.S.
Deutsche Post Unit's Campaign Foiled by Souring Economy, Management Missteps

Four years ago, DHL's parent stormed into the U.S. with an advertising campaign designed to take on FedEx Corp. and United Parcel Service Inc. ...

On Monday its parent, Deutsche Post AG, announced a massive retreat. The company said it will pull the plug on domestic U.S. deliveries by the end of January and cut about 9,500 jobs. DHL will continue to deliver and pickup international shipments in the U.S.

Its foray into the U.S. was done in first by a series of management missteps and then finished off by the slumping U.S. economy.

Deutsche Post expects its U.S. express operation to lose $1.5 billion this year after losing $1 billion last year. In recent months, a number of high-profile customers have taken their business elsewhere. ...

DHL ran into problems almost from the moment it entered the U.S. in 2003 by purchasing Airborne Inc. of Seattle for $1.05 billion. Critics said the company underestimated the intensity of the competition, didn't have a cohesive strategy and failed to retain top Airborne talent. Airborne also proved a less-than-perfect fit because of its threadbare ground network and reputation as a discount service.
In other words, Deutsche Post will have nothing to show for its $1 billion acquisition — other than several billion more in losses since then.

The second was about failure and its lack of consequences:
GM's Shares Tumble on Rising Cash Concerns

General Motors Corp. stock fell to its lowest level since 1946 as concern intensified that the auto maker could run out of cash and be forced to file for bankruptcy protection.

GM and sympathetic lawmakers boosted their calls Monday for the federal government to bail out the company. In return for aid, lawmakers in Congress have suggested the government could seek to take a stake in the company, limit executive compensation and require GM to speed the introduction of fuel-efficient vehicles. A GM spokesman declined to say if GM would go along with such requirements.

GM's chairman and chief executive, Rick Wagoner, told the trade publication Automotive News that GM needs financial help before President-elect Obama takes office Jan. 20. But Mr. Wagoner added in the interview that he would not be willing to resign in return for aid. "I think our job is to make sure we have the best management team to run GM. It's not clear to me what purpose would be served" by his resignation, Mr. Wagoner said.
Instead of fixing the problems once and for all — with consequences for management, shareholders and employees — Wagoner hopes to continue on his current path with money from you and me.

In the real economy, failure has consequences. For politically powerful and influential firms — or those firms “too big to fail” — stakeholders are insulated from those consequences.

1 comment:

Ryan said...

I can't express in words how deeply bothered I am by how failure is lacking consequences at this time. I'd even go as far as saying that we are rewarding dishonesty.

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral. Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

This is starting to reveal the real depth of the financial crisis looming in front of us. During market conditions like today companies should be allowed more than ever to fail.
-Ryan Viegelmann