A few weeks ago I met a women at a conference in San Diego. She is a social media manager for a technology company in central California. She told me a story we have heard before.
The technology company she is employed at was recently sold to a bigger company, and along with that went the vision and autonomy of the company. I then explained that capitalism is designed to increase capital by buying other stuff, which is then used as a write off (an expense) against corporate taxes. Big fish need to eat a lot.
When we buy other businesses, we can reduce taxes against the profits in the parent company–this is an expense right off to protect wealth. This is the essence of capitalism, eat a lot or see your profits get eaten.
When the original founders of a business sell, new owners enter the picture, often without vision, and often without value-adding leadership. While we can see these qualities in free enterprise, we cannot see them in capitalism. Capitalism is strictly a financial decision to preserve wealth and avoid higher taxes. There could be strategic benefits to own the business or other assets to protect or grow market share, but mostly it’s a decision to protect wealth. Capitalism is about wealth protection.
The culture in the original company, according to this woman, is already in free fall. Talent is leaving and new client acquisition is dropping. Selling a company can be a real problem because it can destroy once thriving business cultures. Build and sell a business or buy and let it die, it does not matter as long as the loss or expense is used against higher taxes. A write off can easily bury taxable profits. In fact, inflated losses from one division of a company can hide profits in another. Chief financial officers are always looking for right offs to hide profits, or they are looking for capital expenses to do the same. If most companies could get away with it, they would operate at zero every year. As long as an investment expense can build more equity to reduce taxation, this is the basics of capitalism, which is good at protecting wealth but terrible at free enterprise in adding value.
My dad faced this problem of a company being sold many times in his career. In one particular situation he was employed as an engineer in a company that built auto-testing equipment. The company was owned by the same family for over thirty years. With no debt the company looked good on the books and became a prime target for a buyout, which actually happened. A larger investment firm in Chicago bought out the company and immediately started cutting costs. They shut down one factory and centralized all management and all operations for a quick resale to another unsuspecting buyer.
Buying businesses to then resale for a gain or to avoid higher taxes is not something that sustains optimism. Genuine Optimism is found when everyone’s full potential in a company is conserved and never sold off. The only way this can be maintained is if the culture in an organization believes that every human being should fulfill the best they have to offer.
For instance, buying a business to protect wealth is far less optimistic than letting each person add their best value in the company. Which do you think creates more value to the company and its owners? The challenge is that adding value is called risk. Optimism is about exposure to some degree of risk. It’s the only way new ideas can surface. When a company shuts down all risk in the hands of the people running the company, we see a dying culture.
Maintaining a vibrant company culture requires that we conserve some if not most power in the hands that created that culture, namely the employees and the leadership vision that inspired the company. In next week’s post I will talk about the real divisions of power. Suffice it to say that preserving culture has a lot to do with leaving some risk inside the company. If you are thinking of selling a company, ask yourself this question. What are you passing off to the employees? Are you hoping to preserve culture or are you killing it? Are you leaving some power in the hands of the employees? Seller beware is just as important as buyer beware. Both can destroy what we have built if not done correctly. In selling or buying a company, there is always a hand off, and sometimes the handoff is not done with the best effort.
Every company or organization (even religious and government organizations) must make a decision, how much risk is healthy and feasible? Are we willing to hand off some risk and give every voice within the organization a stake in that risk? Talk with your employees or membership. Ask them how much wiggle room they need to be inventive, creative, and visionary. Then determine how much the company can risk. Giving freedom to employees is the most undervalued principle in running a successful business or an organization. It’s the best way to make sure value is being added to the company. This is the essence of free enterprise.
We have all met that person who left a company because their value was not received or appreciated. This is because there was no freedom to welcome it.
A renaissance is coming that will change how we run our businesses. It is more relational and less linear. It will inspire more voice and more involvement horizontally, and it will support visionary leadership. Eventually, successful companies will allow for the right amount of risk in the hands of employees. If you can see that this is one of the true building blocks of a company and even community culture, then most likely you are the change many want to see in the world.
Keith R Kelsch, The Genuine Optimist