DON'T Mortgage the Future

Since most CEO's and their executive team are only on their jobs for an average of 4.7 years... it is obvious that they will take a short term view of the organization they lead. Thus they will look for solutions to key issues that have strong positive short term impact and they let their successor worry about the consequences.

This is very apparent when you compare General Electric's labor costs with those of General Motors and Ford. GE is not burdened by excessive labor costs and benefits. This difference can be traced to the mid 1950's. GE's management took a strong stand against labor unions and BIG government and drew a line in the sand..they told the Union and Governments what they could afford, based on in-depth studies including their long term competitive impact. They were willing to take strikes and went public to fight the governmental tax and "give a way" stands. This included the willingness to move entire plants from the expensive Northeast and Mid West to the less expensive South and even to Korea, Taiwan and other lower labor, non-unionized locations. The also hired and trained a future president, Ronald Reagan to be their spokesman. Reagan admitted that many of his ideas and actions were strongly influenced by GE's Lem Boulware and Ralph Cordiner. Lem was the head of human relations and Ralph was his boss and CEO.

General Motors and Ford took the easy way out. They gave the unions high wages, and expensive retirement and health benefits. GM and Ford were the market leaders and didn't anticipate the invasion of the Japanese into their markets. They had INDUSTRY wide settlements and therefore assumed that their give a way programs would impact all of the competitors equally. In addition, health care was very cheap at the time and their workforce was young.

Today, GE is in a strong competitive position and the auto companies have been on the verge of bankruptcy. In fact, GM and Ford were forced to set up separate organizations to operate their underfunded pension and health care programs, just to survive. It is not clear whether Ford and Chrysler will even make it.

Leaders must have a long term horizon and think about the impact of their strategies and actions for the long term and not just take easy way. However, this also means that the leaders must be on the job long enough to do the job...4.7 years is not sufficient, I recommend a ten year reign...long enough to have a long term horizon, but not long enough to become the czar.

In my book, "The Secret to GE's Success" I describe the GE labor relations and leadership strategies. Though GE's strategies also have some pitfalls, it is one of the best models we have and it is worth studying and adapting what makes sense.

The message is clear...never take the short term, easy actions that can mortgage the organization's future.