Self Serving CEOs - by Aaron Hoddinott

During this recession there have been millions of layoffs in all sectors. Both profitable and unprofitable companies have been contributing to the unemployment rate which sits at a 25 year high.

Why is it that the PROFITABLE companies are laying off workers?

They will tell the public it’s because business is slowing down. They will also give forecasts for future growth not maintaing the same pace as the previous year. Blah blah blah.

The truth is, it’s because certain executives have personal monetary incentive to do so.

Public companies are ran by their largest shareholders. The more shares one owns, the more influential power they have. If you own a lot of shares in a company, you naturally want to see the value of those shares increase. The CEOs of public companies aim to please their large shareholders.

When a public company lays off workers, it typically has a positive effect on the stock price, even in this market environment.

The more expenses a CEO cuts, the more profitable the company becomes (or at least that’s the goal) and the large shareholders will be more approving of the CEO’s performance. When a CEO has the approval of the company’s largest shareholders, he will likely receive more compensation. Laying off workers is a strategy used to please the shareholders and help secure the CEO’s bonus…And job.

CEOs need to stop trying to manage their stock price. They need to refocus on managing the business. A company is as good as