I fear for the future of American business—not because of US trade imbalances or budget deficits but because of the productivity of its corporations. America’s highly touted productivity may be destroying its legendary enterprise and many of its powerful enterprises.

Many of the claimed productivity gains in recent years have amounted to productivity losses. To appreciate this, imagine what would happen if you fired everyone in your company and shipped from stock: working hours would disappear while output would continue. That would be extremely productive and you’d make a lot of money in the bargain. Until, of course, you ran out of stock.

In my opinion, many American companies are running out of stock. They’re trading away their future health for short-term results. No CEO fires everyone, of course. But thanks to corporate subservience to shareholder value, which means driving up the price of a company’s shares as quickly as possible, CEOs have been finding all kinds of other ways to cash in the goodwill that accountants and economists have trouble measuring.

Trashing the brand is one easy way. Cutting R&D is another. Then there is managing by the numbers: the CEO decrees the desired results, and everyone else has to run around meeting them—no matter what the consequences.

Most popular of all, of course, and closest to shipping from stock, has been “downsizing,” a euphemism for firing operating workers and middle managers left and right to cut costs. At the drop of the share price, even as the company remains profitable, out the door they go: bones thrown to the hungry dogs of the financial community.

How could so many people suddenly have become redundant? Were American enterprises that bloated? Or have irresponsible leaders, unable to create real value, simply dumped their failures on the workers and managers, both those who were fired and—worse—those who remained? Considering the resulting burnout of these employees, the answer seems obvious.

Certainly there are exceptions—the companies that have been managed sensible for the long term. Costco, for example, seems to respect its employees and pay them fairly. But many discussions I have had with people at all levels of business indicate that the shareholder-value philosophy is, if anything, increasing its hold on publicly traded American companies.

And stories from Europe suggest that the problem is spreading. Think of DaimlerChrysler introducing tiny cares that undermined the legendary Mercedes brand, and BP destroying its heavily promoted environmental credentials through cost cutting, that led to disasters in Texas (the 2005 refinery fire that killed 15 people) and Alaska (the 2006 pipeline leak).

What is to be done? To take a line from the novel Shogun, it’s simple: All we need do is change our concept of the world.

§          Get the analysts off the backs of the corporations. Companies can’t be managed from a securities analyst’s office. Great enterprises are built slowly and thoughtfully by people who are fully engaged. Let’s begin by getting rid of quarterly earnings. Whoever came up with the absurd notion that the fortunes of a great enterprise can be discerned from one three-month period to the next? Quarterly reports keep management myopically focused on immediate measurable results instead of on products, services and customers.

§          Take corporate governance seriously. Corporate boards need to be opened up to the voices of people who care about the long-term health of the enterprise, most notably the employees.

§          Keep the mercenaries out of the executive suites. People in charge of enterprises should care deeply about the firm’s long-term health. Anyone predisposed to demanding a massive personal package that sets him or her apart from everyone else (and includes protections that no one else gets) has no claim on the title “leader.”

§          Treat the enterprise as a community of engaged members, not a collection of free agents. We can start, for example, with compensation systems that encourage cooperative effort. Corporations are social institutions, which function best when committed human beings (not human “resources”) collaborate in relationships based on trust and respect. Destroy this and the whole institution of business collapses.

American enterprise needs to get out of the impossible state it is now in. For the sake of American society, as well as the American economy, it is time to get past productivity.

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Henry Mintzberg is the Cleghorn Professor of Management Studies at McGill University and the faculty director of its International Masters for Health Leadership. A fuller version of these comments can be found at www.mintzberg.org.

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Productivity is killing American enterprise

I fear for the future of American business—not because of US trade imbalances or budget deficits but because of the productivity of its corporations. America’s highly touted productivity may be destroying its legendary enterprise and many of its powerful enterprises.

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