Steven Korman’s Open Letter to CEOs

The following idiotic “open letter” advertisement ran in last Sunday’s New York Times, Philadelphia Inquirier, and other newspapers:

Dear CEOs:

I have listened to the executives of many companies say that they are eliminating thousands of jobs to “improve the bottom line.”

I own stock in many of these companies and would prefer that the company make a smaller profit and the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs.

Please keep your employees working.

Steven H. Korman
CEO and Chairman of the Board
Korman Communities
kormancommunities.com

Apparently he’s also sending this letter to CEOs of major companies. May I wear my snark hat and write a reply?

Dear Mr. Korman:

Your ad positions you as a nice guy. Someone who cares about his community and people. Heck, your company name even has the word “community” in it — how cool is that? As you probably hoped for, people are praising this letter as an example of good corporate citizenship.

But alas your heart warming message cannot mask the brutal but necessary ways of markets. Let’s parse your plea sentence by sentence.

I have listened to the executives of many companies say that they are eliminating thousands of jobs to “improve the bottom line.”

Why do you put quotes around “improve the bottom line”? Are you skeptical that this is the real reason? Do you believe these capitalist monsters simply prefer to cut jobs? Hint: they’re cutting 10% of jobs so they do not have to cut 100% of jobs.

I own stock in many of these companies and would prefer that the company make a smaller profit and the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

Tell me, how does a stock fall and profit shrink in the “short term”? What happens in the long term? When the company cares again about profit, what happens to the neighbors and families? Or should companies never care about profit?

Please join me in reminding all CEOs that we are not just dealing with numbers and profit, but with real people and real families who need to keep their jobs.

Yes. I also “need” a billion dollars. Anyway, please join me in reminding all sentient beings that companies which do not generate those pesky numbers and profit do not survive, and when companies do not survive, the people who work there lose their jobs.

Please keep your employees working.

Good point. How about the government just employ all of us? Then everyone can keep working!

Yours earnestly,

Benedict

20 Responses to Steven Korman’s Open Letter to CEOs

  1. What if Korman had prefaced this to only apply to companies that pay dividends?

    While his open letter is too high level because it appeals to a wider audience with greater polarization of response, could he actually be emphasizing the point that the CEO’s should answer to their morals. Or even better, fix what is broken to maintain profitability.

    As Linus Pauling said. “If it’s not broken, fix it anyway. Constant improvement”. Or was it Demming? Either way, they sat on their booties, reaping profits instead of investing in capital and continually improving creating solid growth.

  2. Krishna says:

    The chairman of my previous company used to say this on manpower productivity – “Hire one, make him do three persons’ work and give him two person’s wage” – That way the employee will never have to be fired because he will always be contributing an extra person’s work for the wage he gets.

    But mindless capacity expansion based on excessive optimism over future demand often leads to heavy debt load and headcount that needs to be pruned as reality hits home.

  3. beerick says:

    Actually his points are relevant. In many cases corporations are laying workers off to preserve profits, not to sustain viability. You fail to realize that enterprises are measured quarterly, and it really is the bottom line at that time that matters. Layoffs are necessary in many cases, I acknowledge, but corporations are not and have never been held to the same standard of sacrifice that citizens have. Right now, it is time to put down the Ayn Rand and actually consider actions that can further the greater good.

  4. Ted S says:

    >I own stock in many of these companies and would prefer that the company make a smaller profit and the stock fall, in the short term, rather than affect the lives of our neighbors and their families as jobs are lost.

    There’s at least one shareholder (Mr. Korman) who doesn’t solely desire profit; he has other interests as well (jobs, lives, families). If the companies he’s invested in act solely to maximize profit, then they’re not acting in the interests of all their shareholders. (I’m speaking in the obvious sense — I don’t know much about corporate law or the technicalities of fiduciary duties).

    If companies followed Mr. Korman’s desires, they’d probably be blown out of the water by competition. My only point is that shareholders sometimes (often?) have interests other than profit, yet their other interests are in no way reflected in the behavior of corporations. Nor, in our system, can they be. Is that a good thing or a bad thing?

  5. Danny says:

    How has nobody noticed that this guy owns rented real estate in New York? Of course it is in his best interest to keep his lessees able to pay.

    This guy is no different than the rest of the execs.

  6. Ben Casnocha says:

    “Preserving profits” and “sustaining viability” are one and the same. You cannot separate these two.

  7. Ben Casnocha says:

    There is the larger debate about corporate philanthropy about whether companies should, say, give money to charity, as opposed to returning 100% of the money to shareholders.

    I think in general the corporation need to focus strongly on just profit maximization and let shareholders be charitable if they want to be.

  8. Scott Young says:

    The purpose of a business corporation is to make profit for the shareholders — not to ensure jobs to anyone.

  9. “They sat on their booties, reaping profits instead of investing in capital and continually improving creating solid growth.”

    Who is “they?” All CEOs? 10%? 1%? This is straw man bs. Korman gets to look like the good guy without naming names.

    His company provides real estate services in the NY/NJ area. Would it make any sense for me to ask him to charge below-market rates because so many people can’t afford his residences? To swear off evictions? To stop spending money on advertising and instead devote that money to people who really need it?

  10. Vic says:

    Corporations are inherently corrupt. This latest financial crisis is once again a smoke screen for the root of the actual underlying problem. Let’s move to a resource based economy, instead of one based on debt. Abundance for everyone. Human beings first not profit first then human beings. Its pretty tough to think about it, but my hope does not die.

  11. Tyler says:

    My thoughts exactly.

    I’m glad I’m not the only one that sees through these thinly veiled attempts to “look out for the little guy” by the well-to-do millionaire/billionaire.

    I’m sick of hearing the Mark Cubans (as much as I like him) and Warren Buffets (as much as I like him) complain that they are undertaxed and for the good of the nation they should bear the burden of the taxes in this country.

    How vein must one be to pretend that if only they were to sacrifice just a little more the whole nation would suddenly be lifted of its curse?

    I see Mr. Korman’s letter in the same light. Pure do-gooder posturing.

  12. Ted S says:

    I agree that under our current system, it’s largely impossible for companies to pursue goals other than profit (the only donations you’ll find are token ones for PR reasons). My question: is that property of our system good or bad?

    Maximizing profit and letting shareholders be charitable with the returns if they so choose is substantially weaker than having some sort of system (I don’t know what) that causes companies to truly reflect all the interests of their shareholders. Charity alone is stripped of much of the efficiency that comes with capitalism — you don’t see charitable organizations competing each other out of business in an effort to accomplish their causes.

    Mr. Korman’s plea is laughably naive, but his root complaint — that his interests as a shareholder are ignored — might be justified.

  13. Pat says:

    Change beerick’s response to “Preserve dividends”.

  14. Colin says:

    Not necessarily.

    Preserving profits this quarter and sustaining long-term viability are not the same.

    A company might (and I suspect many have) dump jobs to make quarterly data look less dire with no real long-term benefit. They (upper management) just don’t want to be fired today.

    It could be a matter of procrastinating (pushing off real re-org into the future) or trickery. But it’s certainly possible.

  15. Colin says:

    This reads like something from Animal Farm.

    Any non-platitudes to offer?

  16. Great response to a self indulgent open letter. The response reminds me of something that Hank Reardon would say (Atlas Shrugged by Ayn Rand). I don’t know if it is a sign of the times or just the fact that I am actually paying attention to politics, but I find myself running into more and more attitudes towards corporations and business in general that reflect this thinking. Business creates jobs and opportunities for people, so I have never understand the ‘evil corporation’ mentality. I guess people just don’t understand that when the government taxes/tries to impose windfall profits taxes, profit ceilings or anything else the burden is always passed onto the consumer. That’s what businesses must do to survive….profit. So if they now face an increased cost of doing business via taxes or regulation, the increased cost is merely going to be reflected in the price a consumer must pay for goods or services. The same holds true with this mentality that the company should bear the burden of ensuring that everyone keeps their job because they are people and they need that job. Eventually everyone will lose their job. That is the danger of acting based on the “need” of others. It is a slippery slope that will eventually override the purpose of the company in the first place; to provide value and to be rewarded for that value.

  17. CV Harquail says:

    Ben,

    your reaction to Korman’s letter seems both knee-jerkish and harsh. I was under the impression that you were a guy who was out there to learn and to make a difference, so I’m a little disappointed in your both the content and style of your reply.

    Maybe I’m disappointed b/c I just finished watching Barry Schwartz’s TED presentation on wisdom? Maybe if you’d watch that presentation, and then return to Korman’s letter, you’d be able to value rather than reject his point of view. Not saying you have to agree, but maybe you could learn something new.

  18. Ben Casnocha says:

    I want to watch Schwartz’s video — I’ve heard good things. What about
    Korman’s content do you find redeeming or valuable? The style of my response
    was introduced as snarky. But I’d be fascinated to know what part of his
    content you think is worthwhile.

  19. CV Harquail says:

    Hi Ben,
    Thanks for such an open reply to my comment.

    You prompted me to think more broadly about why Korman’s letter was worthwhile— so broadly, that I realized an entirely different reason why layoffs should be avoided … How about this: “Layoffs are unpatriotic”?

    I’ll be putting something up about this idea back at http://www.AuthenticOrganizations.com today. I’m not sure it’s a ‘better’ argument than any of the hundreds of studies that show how most layoffs are more costly than cost-effective, but it’s certainly an interesting argument. Food for thought.

  20. Humberto says:

    Dear Ben,

    Profit, where does it come from? From the market, from the society, from the consumers, am I right? A long term sustainable company must be concerned about the community.

    Do we need more jobs or fewer jobs? It is as honest as your: “they’re cutting 10% of jobs so they do not have to cut 100% of jobs”. There is still room for cutting 49% and save 51%.

    CEO’s must look for alternatives to develop markets, not to give up and take the short cut.

    Rgds,

    Humberto

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