Real Leaders

Are You Getting Screwed?

I am really upset, and you should be too. There is actually a debate going on as to whether we should raise the federal minimum wage to $10.10 per hour. Are you kidding? The only argument against it is that it is a “a job killer.” Well that’s just a lie. A big fat one. It has no economic validity. There is no credible study that shows raising wages of low income people shrinks the job market. So without proof, we are assaulted by fear mongering assertions and anecdotes from pundits and politicians who are paid millions a year and probably don’t personally know of love a single person trying to live on the minimum wage.

Those who oppose raising the minimum wage are the moral descendants of people who promoted slavery as an economic necessity and claimed slavery was actually good for the slaves. They also insisted that child labor in unregulated factories was necessary and a good way to bring up kids.

They claimed that filthy and disease ridden tenements were perfect places for ignorant immigrants to live and work. And yes, these are the same ones that don’t believe women should be paid equally to men. Isn’t it interesting that two thirds of people today who earn minimum wage are women? This minimum-wage debate is a burr under my blanket. It’s because low wages cause needless suffering at the bottom, drag down fair pay for the middle and propels wasted profits at the top. We all get screwed when work is undervalued at any level.

Consider these three reasons why building businesses on a low wage model is totally stupid.

Reason #1: Wasted profits caused by stunning leadership failure. 

Think carefully about what I am saying here. Today, there’s close to 2 trillion (TRILLION!) in corporate bank accounts that executives don’t know what to do with. This money represents everything wrong with trickle down economics. The faulty argument was that if corporations could make outlandish profits by continually demanding that their employees do more with less, the would reinvest those profits in new business opportunities resulting in more jobs, higher pay and healthier economy. Problem is…this just doesn’t turn out to be true. Not at all.

Instead, most of these corporations who are sitting on towering mountains of past profits are being forced by their shareholders to spend billions to buy back their own company’s stock. This doesn’t help grow these businesses, boost the economy, create new jobs or do anything but temporarily boost the net worth of shareholders. And incredibly, the positive impact on a corporation share price usually lasts less than six weeks!

Now this is what really torques me.

For 35 years, I’ve worked with leaders of organizations to try to help them get more productivity from their employees. Typically they are taking over from Neanderthals who tried to make their businesses succeed by adding more work, more hours and more stress loaded on the backs of fewer employees to make profit leaders have no idea what to do with. Is it too much to ask a business leader earning millions in annual compensation to have enough vision, enough drive to innovate, to have a healthy list of game changing products and ideas that they should be itching to invest their profits in? Ideas that could make the future much better for all of us.

Consider a few challenges like healthcare, education, and energy.  Wouldn’t you like to see some smart leaders invest tens of billions of dollars into creating innovative solutions to these challenges that would then become the source of rivers of new profits? (That’s exactly what Elon Musk of Tesla is trying to do and why Sergey Brin set up Google Ventures. But over 90% of profit hoarding corporations have leaders who doing little more than sucking their thumbs.) Let me pick on Apple for a minute.

It has become grotesque. Consider this… hard-working American minds designed an amazing, future changing product called an iPhone. To maximize profitability Apple has the phone produced in a huge Chinese sweatshop called Foxconn. This produces the highest profit margins and consumer-electronics in history. So now Apple sits on $150 billion that they evidently have no clue how to invest for future innovations. So they are being forced to consider spending $100 billion of that treasure to buy their own stock and pay dividends to shareholders who did not put one minute of either creative energy or sweat into making Apple products.

To be clear, stock buybacks are a sign of colossal leadership failure. I’ve said in public speeches to hundreds of investment bankers that any company who wants to spend their profits to back their stock is a sure sign of leaders whose brains are too small to pursue meaningful innovation. They ought to be fired rather than rewarded. Remember, all these corporate products’ profits were built on the time, effort and stress of millions of employees working their guts out for their organizations. All for leaders too lame to do anything productive with the money they have made.

So let me make an outlandish suggestion.

If Apple cannot think of smart ways to invest their $150 billion, what if they started making iPhones in the USA?  What if Apple paid their new manufacturing workers $20-$30 an hour? If you think the price of iPhones would have to go up you’d be wrong. The value of an iPhone is principally in its design and functionality not the cost of labor assembling it. Of course Apple would make less profit. But what if billions in new wages to American workers wages poured into our economy? How many more kids will go to college? How many new homes will be built? How many lives will be transformed and opportunities created? If you think I am nuts remember Henry Ford?

He’s the industrialist who raised daily wages from a $1.50 to $5.00. His rivals accused him of being a socialist but he was a brilliant capitalist who made a fortune in part by seeing his employees as customers for the Model Ts he was building by the thousands. I am not suggesting that laws should be passed to force companies like Apple to produce products in the United States. What I am promoting is the idea that leaders ought to seriously consider how to leverage their assets and power to create the greatest total value possible. I know, don’t hold your breath and there are two more reasons why leaders fail to perform.

Reason #2: Ethical failure.

That’s right… ethical failure. The classical standard of leadership ethics is a commitment not to cause avoidable suffering. That’s not really such a high standard. In fact it’s not too much to ask at all. Yet, it’s violated all the time. Think of all the unsafe products sold or unsafe working conditions or pollution… there are lots of ways to maximize profit at the cost of other people suffering. Another way to create suffering is to create businesses whose profit model relies on the systematic exploitation of labor.

That’s why people get so hopping mad at big box retailers like Walmart, Target and Home Depot and Fast “Food” outfits. Nearly all these kinds of companies have staffing models that minimize full-time workers. They have scores of financial analysts who keep labor costs to the bare-bones by ensuring that most of their in-store labor works less than 30 hours a week, have no meaningful benefits, and have frequent turn over. When leaders build a company whose core business model relies on paying people so little that you have to give them counseling on how to get food stamps then that’s an unethical system. Just because it’s legal to do doesn’t make it moral.

Reason #3: Management failure.

Highly admired companies like Trader Joe’s, The Container Store, Costco, and In-N-Out Burger prove that you can make a fortune by making it easy for high-school educated employees to succeed… they just have to be managed well, trained properly and treated respectfully. The average hourly wages of these companies’ employees are up to double their competitors after two years of employment.

That’s the reason they can be paid so much or workers are far more productive in these organizations. They are also happier and stay much longer… all because they are better managed. Earlier in my career I built a highly successful business that eventually grew to have 1,000 employees and continues to thrive today. Our goal was to pay our employees the most we could afford, not the least we could get away with.

It changed everything. If today’s business leaders honestly ask themselves “is this really the best I can do” when they consider how to train, develop and pay their lowest paid employees… everything will change. And we need it to.


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