Citigroup

Yesterday's post was on shareholder value. Here is another example of a company who values the shareholder (and themselves) above their employees.

Citigroup (C) announced a massive restructuring earlier last week. The headline from this restructuring is 17,000 job cuts! Wow, is this because the company has been mismanaged for so long? So one day you need 17,000 employees and the next day you don't? The company rids itself of "back office" employees like they are some sort of a disease. These same people are the workhorses that make people like the CEO, Charles Prince, as rich as he is.

So, who is going to do the work that is left behind? They certainly didn't get rid of all that work overnight, did they? 17,000 full time employees equates to 35,360,000 hours a year. It begs the question, what were these people doing and how will it effect the customer? Work doesn't just disappear. Less people doing the same, or even close to the same amount of work means mistakes and inefficiencies. With these mistakes come increased costs of doing business. Of course Citigroup won't tell you this. For them, it is all about the stock price.

Why all the job cuts? Well, Charles Prince was quoted as saying "nobody is more upset about the stock price than I am". I wonder why. He owns 1.6 million shares worth about $83 million. Maybe he is trying to get to $100 million. Why not upset 17,000 lives in the process to squeeze a few extra million to line his pockets.

Prince may get his wish in the short-term as the fools rush in to buy on the promises of the company. But will this provide long-term value to the investor? Does owning 1.6 million shares affect the decision making ability of a CEO? What do you think?

Shareholder value

Dell recently announced that they had identified a number of accounting errors and evidence of misconduct at their company. This news follows a bonus takeaway I talked about in a previous post. http://givemebigmoney.blogspot.com/2007/02/opportunities-in-guerilla-recruiting.html
The news just keeps getting worse at Dell, but Dell is similar to many other companies in corporate America. The difference is, Dell got exposed. Others won't be far behind.

So what drives this sort of behavior? One of the major culprits is executive compensation. Incentive plans that reward top executives based on the value of the share price is a recipe for disaster. The temptation to manipulate the books to prop up the stock price is very real when the executive stands to lose a boat load of money from reporting a quarter that missed "expectations". Yet most companies continue to reward their executives with stock options and restricted stock forcing executives to focus primarily on the stock price.

While it is important to continue to provide value to shareholders, short-term solutions that put the company at risk is not the answer. Top executives should be rewarded on revenue growth, employee retention, profit, leadership skills as determined by their employees, and ethical behavior as determined by an independent firm. These are things that will provide long-term value to the shareholders.

Taking care of the business will take care of the share price. A lesson many companies have failed to learn. It has already caught up to Dell, who is next?