Managerial Revolutions Can Be Risky
Sometimes corporate moguls--with the best of intentions--create revolutionary changes in their “management style,” with devastating consequences to workers and managers alike.
The top brass at Thrifty Drug Co. and McDonnell Douglas did just that. Certainly both companies needed change, which they got. But it was chaotic. Now, after a few years of unprecedented turmoil and confusion, the companies are gradually recovering their equilibrium and should pull through.
Take a quick look at Thrifty. Its stores needed modernizing and refurbishing and the company needed capital. The picture wasn’t all bleak, though. Relations between management and employees were generally good. Thrifty’s workers have been represented by unions for 52 years. Top management cooperated in resolving employee grievances at individual stores. Morale was high, strikes were rare.
But Thrifty, once very profitable, had been hurt by the lingering recession and other factors. So most executives and workers welcomed the 1986 takeover of Thrifty by a huge conglomerate, Pacific Enterprises, which is far less well known than its giant subsidiary, Southern California Gas Co.
Pacific Enterprises’ top bosses, with no retail store experience, were expected to stay far in the background, providing only some capital and maybe a few ideas. Rick Icaza, head of the United Food and Commercial Workers Local 770 that represents many Thrifty workers, says, “It really looked promising initially, but things began to deteriorate quickly.”
Those in Pacific Enterprises’ executive suites wanted more action, as they watched the old Thrifty profits being replaced by hefty losses. They decided it was time for a revolutionary leader. One was picked in December, 1990.
The new dynamo executive, Eve Rich, was named president of the troubled Thrifty Drug Stores. If she had succeeded, she might have been worth the more than $400,000 a year, plus perks, she received.
She had been the successful head of a chain of apparel stores, but at Thrifty she quickly became known as “Autocratic Eve” among her new colleagues.
She unceremoniously dumped many Thrifty executives, scaring the daylights out of most of those who were not fired. She then hired an even larger number of new executives--some from the apparel chain she ran--and usually paid them more than the salaries paid to the executives she removed.
One top Thrifty official who was in charge of two divisions was replaced by two new ones to do his jobs. Each of them received higher salaries than he did.
Rich ordered remodeling of some stores, spruced up or sold others, added new products and discarded old ones--not all bad ideas.
But losses mounted as fast as morale dropped among nervous executives and rank-and-file employers who knew only by rumor what was happening. Thrifty went into the red shortly after Autocratic Eve arrived. She hung on for only 11 months.
Rich left because of what were euphemistically called “differences in management style” between herself and the much less authoritarian William Yingling, the recently appointed chairman and chief executive of Thrifty Corp. who also replaced Rich as Thrifty Drug’s president.
Her ego may have suffered, but not her bank account. She bailed out with a cool $1 million that she had arranged to receive--just in case her plans didn’t fly.
The recession and unjustifiably high expectations of quick results helped bring about Rich’s downfall, but a major factor was what was perceived as her highhanded management style.
Company executives say the more cooperative, pre-Rich style of management is being revived, although some of the innovative changes she initiated, such as modernizing the stores and offering better service, will remain. Thrifty’s future looks brighter now that the storm she created is subsiding.
Now look at McDonnell, another example of top corporate executives trying a quick fix on a struggling company by changing management style.
The aerospace firm was in financial trouble--and still is. Everything was going wrong, and, in 1989, McDonnell’s top officers correctly diagnosed at least one major problem: The company was being run too dictatorially.
To correct that, the highest bosses dictatorially ordered that workplace democracy must be instituted--immediately.
Gut-wrenching changes were made almost overnight. Lower-ranking McDonnell executives were told to be democratic or be fired, and many were dismissed. Many others were demoted, or quit.
Confusion was evident among managers and rank-and-file workers. Managers didn’t know what, if any, decision-making authority they had. The workers were divided. Some hailed workplace democracy as a rational way to share power with management. Other saw it as a sneaky management trick to wreck their union, the United Auto Workers.
Order is finally coming out of that chaos too. There are still financial problems, but far more democracy prevails at the aerospace firm than before the revolution that was started with no advance notice and too little planning.
Last week, workers, union leaders and company executives who favor the new system won something of a victory.
Employees in the firm’s Long Beach plant overwhelmingly approved a contract they had rejected twice before at the urging of some local UAW leaders, who denounced it as a sellout to the bosses after initially giving it their blessing.
Maybe the workers just wanted to end the prolonged game played by the rejectionists who again last week pleaded for them to vote against the contract. An added inducement was the lump-sum payment of 4% of their wages they will get Dec. 20, just before instead of after the Christmas holidays.
