Wednesday, November 26, 2008

The Basics of a Corporate Mission

One of the first times I heard Harvey Mackay speak about Mackay Envelope's corporate mission, I was taken aback. He said that it was the following "To be in business forever." A few uncomfortable chuckles broke out, and other CEO's in the audience shook their heads at each other. Shouldn't this be the fundamental mission of every corporate organization?

Look at the U.S. auto makers. In the Seventies and Eighties, they were reeling from bad products, poor management, burdensome labor contracts, and retirement costs. However, in the Nineties, with the economic recovery in full swing, things got much better. Cash flows were strong, as the SUV phenomenon swelled profits per vehicle, but the managements succumbed to the short-sightedness of Wall Street and its hedge fund activist investors. Shareholder value fell onto everyone's lips, and lots of stock was bought back and dividend payouts raised.

Reinvestment in the company's basis business, which is a key to a company being in business forever, was ignored. What about new plants, new processes, new ways of manufacturing, right shoring? What about looking beyond a wave that surely would not last forever and investing in the ability to build smaller, more innovative vehicles?

It's easy to guess what the Japanese did: Toyota and Honda ignored the self-interested and short-sighted cries of vocal institutional investors and they continued to innovate around their basic business, making vehicles.

Lots of traditional mission statements flow from the basic one uttered by Harvey Mackay. Looking beyond the current crises, one wonders which ones of today's industrial leaders plan on being around for a long time.

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