Capital and Management

"Capital and Management"

At the time of this writing, there is a major strike by labor against a national delivery service corporation. Without discussing the particular issues or taking any sides, I would like to use this background to explore one of my theories in corporate organization; that is, the conflict between management and capital is greater than that between management and labor.

You might summarize the situation as, "It’s the capital, stupid." In my opinion, capitalism is still the best method to organize people to accomplish development and obtain goals.

When I refer to conflict, it is not necessarily bad. In fact, conflict of interest - handled properly - can be the best guidance for making strategic decisions. A simple example is in driving a car: do you want to maximize safety or get to your destination in the shortest possible time; that conflict of interest can determine the optimum speed (especially when coupled with a posted speed limit or a possible traffic ticket).

Management and labor come from the same direction: they both really want to work less for more compensation, and take less risk. It is through management’s direct obligation to capital that negotiations are guided. Capital (the ‘owners" or "shareholders") wants everyone to work harder for less money to maximize "the bottom line." Capital takes the major risks, and they should receive the major rewards. It is this healthy conflict which guides the strategy to retain and motivate the best people to produce the goods and services at the proper price that attracts the quality customer in a competitive environment.

To carry out satisfactory negotiations for compensation to labor’s efforts, management represents the interests of capital. And, to be properly represented, capital must create with management’s decision process the need to attract additional capital at a fair cost to continue growing the enterprise. Management should therefor be compensated sufficiently through the capital process (for example, stock ownership or options) to have the conflict of interest between salary as an employee against reaping the big rewards through stock appreciation or profit-sharing bonus.

Decisions for other strategic expenditures and investments come from the same conflicts. Product development and marketing expansion create those same type of strategic decisions. Without solid investments, growth will be stifled. However, too much investment or unproductive expenditures reduce the earnings without obtaining growth or increased profits- and the enterprise can not obtain capital at competitive costs. Risk arises from either moving too slowly or too fast. And, only the results ultimately count. "The proof is in the pudding."

Wherever you fit into the technical development, marketing or management process, think about these issues whenever a strategic decision must be made. These healthy conflicts allow for the best decisions.

I would appreciate comments; contact me at Technology Business magazine: phone: 703-610-8787; e-mail: john@johnsanders.com; internet: www.johnsanders.com.

prepared for the September, 1997 Issue of the FLC NewsLink