Book Assails America’s Business Bureaucracies : ‘Corpocracies’ Identified as Our Biggest Drain on Competitive Efficiency
Corporate America, heal thyself.
Quit blaming Washington, Tokyo and labor unions as the prime sources of business ills.
So say Mark Green and John F. Berry, authors of a book that claims that American corporations are hobbled by vast bureaucracies which, business school and government studies suggest, waste about $1 trillion annually.
But it is not government bureaucracy that ails corporate America, the authors argue, so much as vast corporate bureaucracies, which they call “corpocracies.”
Corpocracies have made American business so horrendously inefficient that American business wastes one of every four dollars rung up on the national cash register each year, Green and Berry assert in “The Challenge of Hidden Profits: Reducing Corporate Bureaucracy and Waste” (William Morrow & Co., $19.95).
Bloated middle management, seven-figure pay for top executives, shoddy cars that underperform Japanese models, toxic-waste dumping and thefts by employees are among the many examples of waste the authors explore.
From the $641 toilet covers Lockheed sold to the Pentagon or cost overruns on building prisons, waste has become an ‘80s watchword, but “Hidden Profits” presents a decidedly different idea of waste.
Green and Berry’s charge is audacious, akin to telling a chief executive that he has no clothes, for the efficiency of the private enterprise system is virtually an article of economic faith in America taught to every schoolchild. But Green and Berry have spent their lives practicing economic heresy.
Green, one of the original Nader’s Raiders, said during a visit to Los Angeles that “Hidden Profits” is intended in part to counter the drive by industrialist J. Peter Grace, chairman since 1945 of the multinational conglomerate W. R. Grace & Co., to cut many federal programs, including legal services to the poor, by labeling them a waste of taxpayer money.
Green is a close adviser to New York Gov. Mario Cuomo, one of the Democrats’ rising stars, so the ideas in “Hidden Profits” may be a window on the thinking that Cuomo will put forth if he seeks his party’s nomination for President in 1988.
“The federal bureaucracy is being blamed by Big Business for every and any political problem it has,” Green said.
“This book has two goals. One is to promote economic growth in America by encouraging companies to shrink their corpocracies and the other is to end the demagoguery by Grace and others, to shift the axis of the debate about waste” from the hearing rooms to the board rooms, Green said.
Fred E. Bona, a Grace spokesman, said in a telephone interview that “Peter Grace has said time and time again that with any organization, especially any large organization . . . a survey could find 10% waste without any trouble and that’s all the Grace Commission did, find 10% waste in the federal government.”
Bona said he sees no connection between corporate waste and the government waste addressed by the President’s Private Sector Survey on Cost Control in the Federal Government, which Grace chaired.
“The debate in the hearing rooms is about taxpayers’ money, but the issue with corporations is shareholders’ money,” Bona said. “If stockholders are unhappy, they can just sell, but it’s pretty hard for Americans to give up their country if they don’t like government waste.”
Seeking a Debate
Green said he wants to debate Grace on national television about corporate versus government waste, both of which Green said he deplores.
Bona said he did not see “how it would serve Peter Grace and Peter Grace’s project to get the Grace Commission recommendations adopted by Congress.” Bona did not rule out such a debate, however.
Green and Berry collected the estimates of waste from studies by business school professors, from prestigious journals such as the Harvard Business Review, from government reports and other documents.
“The most difficult reporting was gathering the numbers,” Berry said in a telephone interview. “One problem is there are so darn few people around who have looked at these situations . . . but Americans like to see figures and we footnoted extensively.”
Near the end of their 391-page book, Green and Berry warn that the data comes from a compilation of “primitive and imprecise” estimates of corporate waste, fraud and abuse. Then they give their list of waste, which adds up to $1.1 trillion annually. And in five of their 25 categories of waste, fraud and abuse they make no estimate, so even that understates the size of the problem, Berry said.
That’s Green’s and Berry’s high estimate. The authors’ low estimate of corporate waste is $861.8 billion per year.
That’s more than $300 per month for every man, woman and child in America, or more than four times this year’s federal budget deficit, or more than six times as much as the $141 billion that the Grace Commission estimates the federal government wastes each year.
And how do Green and Berry contend that such vast sums, equal to nearly one quarter of the Gross National Product, get wasted?
They say it happens when companies engage in such practices as hiring outside lawyers when staff attorneys could do the work for half the cost. Green and Berry give no overall estimate of what this common practice costs, nor do they consider the potential benefits from retaining specialist lawyers, including those whose political connections may reduce corporate costs.
The authors also criticize companies for providing what they call outrageously bloated executive compensation, noting that in 1984 the median compensation of chief executive officers at America’s 99 largest corporations was $919,659. And the authors describe as unfathomable the giving of raises to chief executives of companies that are losing money, as Ford Motor Co. and American Motors did in 1982.
Green sees another sign of self-induced corporate sickness in so-called golden parachutes, those contracts guaranteeing top executives big money for years even if they lose their jobs.
The authors attack mergers between corporate giants, saying they misdirect the economy away from creating new wealth and waste billions on interest costs and fees to investment bankers, who arrange such deals for multimillion-dollar fees. They cite several examples of how big companies bought up profitable little companies and then ran the acquisitions into red ink--until the seller bought the little firm back and nursed it into the black.
The authors decry what they charge is rampant corporate mismanagement with excessive layers of managers that add $74 billion annually to payroll costs and isolate top management from the factory and the market. Shoddy products, which drive consumers into the showrooms of Japanese auto and electronics makers and create expensive product liability suits, cost another $87.5 billion, Green and Berry contend. Thefts by employees cost $30 billion per year, the authors say.
Included in their calculations of corporate waste are costs which corporations avoid, shifting them from their books to society at large. The authors say this includes the cost of discriminating against women and minorities, both in pay scales and in not hiring them ($118.8 billion); tariff barriers ($46 billion) and overpriced and unnecessary automobile repairs ($20 billion).
Green, 40, a Harvard Law School graduate, runs the Democracy Project, a public-policy institute in Manhattan. He has written or edited 11 other books, including a study of Washington power called “Who Runs Congress?”
Co-author Berry, 49, is a former Washington Post business reporter whose exposes of the check-writing practices of Jimmy Carter’s friend Bert Lance and Hollywood producer David Begelman made major national news.
“We have more innovation and genius in this country than anywhere else in the world,” Green said. “But we aren’t succeeding in marketing this innovation and genius. The Japanese and others are taking our ideas and marketing them and in a generation have turned ‘Made in Japan’ from a joke into a statement of quality.
“So long as American corporations work on making paper profits, on giving golden parachutes to top executives and focus on short-term results, we aren’t going to focus on creating more wealth,” Green said.