Introduction
The development of the American economy was so steep at the end of the 19th century that it placed the United States at the top of the world market, thus making a case for an unprecedented leap in economic growth. The history of the early American business progress can be seen as the story of several entrepreneurs, or, as Morris prefers to call them, “tycoons,” when the U.S. “outdistanced the pack” (Morris 00:00:53) and made an incredible thrust forward.
As a result, the environment for the attitude toward leveraged buyouts that occurred in the 1980s was formed. Although the current approach toward leveraged buyouts can be seen as more employee- and overall stakeholder-oriented, the seeds that were planted at the beginning of the 20th century and defined the corporate culture of the 1980s have affected the current way of treating staff members during leveraged buyouts.
American Corporate Culture During the 1980s and Now: Analysis
To explore the factors that have led to the creation of the 1980’s system of corporate buyouts, one needs to take retrospect into the early development of the U.S. economy. Although Rockefeller, Carnegie, and Gould were the pioneers in promoting the business model in which the needs of key stakeholders are dismissed for the sake of the corporate benefit, other entrepreneurs also accepted the proposed framework and implemented it in their businesses.
For example, Morris mentions that Frederick Taylor Gates, who was one of the founders of the American economy at the time along with Rockefeller, was rather unsympathetic toward the needs of blue-collar workers. Specifically, Morris recalls that “since Taylor used his standards for piecework payrates, almost all the pig loaders had their wages cut” (Morris 13:24:13-13:24:15). The specified attitude did not prevent him to be nominated for the title of the father of the American economy. Therefore, the early American business development was not kind to the plight of the working class, the identified attitudes being manifested particularly strongly in the leveraged buyout technique that Rockefeller, Carnegie, Gould, and other business people such as Taylor preferred.
While the situation has improved significantly for the working class since the beginning of the American economic development, the propensity toward disregarding the needs of staff members during leveraged buyouts seems to have remained a tendency. For instance, the current approach toward leveraged buyouts may imply the threat of job layoffs and job polarization for workers, as a recent study on the subject matter explains (Olsson and Tåg 751).
The specified phenomenon is very similar to the problems that could be observed in the 1980s (Burrough and Heydar 5). Specifically, Burrough and Heydar explain that the phenomenon of leveraged buyouts was often seen as “stealing the company from its owners” (5). Although the process of buying out an organization has become more civilized, the propensity toward introducing changes to a firm without any regard for the established corporate values and philosophy may still linger in the contemporary U.S. corporate environment.
Nonetheless, the current approach toward managing leveraged buyouts in the U.S. economy seems to have shifted toward a milder and a more responsible one. Specifically, employees are protected by a set of regulations that prevent company leaders from abusing the rights of staff members (John et al. 52). The observed situation is drastically different from the era of the early American economic renaissance when the American economy was comparable to a huge and unfeeling machine. At the time, the “Goliath steam engine” (Morris 05:34:20) was the exact representation of the U.S. economic development compared to the previous “thirty years of bleeding” (Morris 00:01:01).
Since then, the necessity to sacrifice the needs of the working class for the well-being of an organization that has been bought out seems to have given way to the concept of corporate integrity (Bouvier and Nisar 3). The observed change can be easily explained by the change in priorities, environment, and time frames within which the contemporary American business exists. For instance, the 1980’s U.S. economic development hinged on the drastic change of the infrastructure and the associated expenses, hence the lack of concern for stakeholders, including not only employees but also partners and shareholders (Burrough and Heydar 4).
The strained environment in which companies operated at the time did not leave any room for considering the needs of stakeholders, including employees and partners. Therefore, the choices that entrepreneurs such as Rockefeller and Gould, as well as their 1980’s counterparts, made were far from being ethical. While labeling them as motivated purely by greed would be erroneous, it is evident that the specified values and principles would not have fit the contemporary idea of managing the workforce and the needs of participants and entities involved in leveraged buyouts.
The specified trend affected the further development of the U.S. economy and the creation of the philosophy of leveraged buyouts, as Burrough and Heylar explain it: “Proponents insisted that companies forced to meet steep debt payments grew lean and mean. On one thing they all agreed: The executives who launched LBOs got filthy rich” (5). The example that Burrough and Heylar consider in their case is a very accurate portrayal of how leveraged buyouts were handled in the 1980s, with the complete disregard for the needs of any stakeholders except the owners of an organization.
In a more philosophical vein, discussing the motivation of the so-called tycoons should not be restricted entirely to greed. While what Burrough and Heylar defined as a genuinely barbaric approach toward managing leveraged buyouts was not exactly the representation of ethically impeccable decisions in business, it was also an inevitable step to take. The proposed changes were defined by the previous alterations that took place in the American economy.
The same focus on analytical thinking and the detailed scrutiny and assessment of all factors that may possibly impact the outcomes of a transaction have remained in place. For instance, Morris remarks that Carnegie was especially calculating when making decisions in regard to leveraged buyouts. Specifically, Morris mentions that, when buying ET, Carnegie “knew what their costs and salaries were” (Morris 06:05:21-06:05:22). Moreover, Morris emphasizes that Carnegie “proceeded to lay out how much lower they were at the ET, making all allowances for Carnegie’s propensity for exaggeration, and the fallibility of second-hand accounts” (Morris 06:05:30-06:05:34). As a result, the 1980’s setting of the U.S. economy was predetermined by the specified phenomena.
The problem of leveraged buyouts concerns not only the issues associated with the corporate culture but also the management of resources that they imply. As Burrough and Heylar explain, LBOs demand significant budget cuts and a reduced amount of resources for research (5). Similarly, the problem of LBOs in the 1980s affected the staff members, whose salaries were cut significantly, and who were under the threat of being dismissed as invaluable assets to the organization.
A similar mindset can be found in the present-day U.S. business setting. For example, during leveraged buyouts, the value of staff members is likely to be reassessed, with the following change in human resource management (HRM) practices. Similar to the organizations that pioneered the exploration of business opportunities in the U.S., contemporary organizations tend to focus on employees’ worth. As Eisenberg points out, age-related reasoning often provides the foundation for HRM-related leveraged buyout decisions (par. 5). However, contrary to the expected assumption, older employees are not dismissed on account of them being incapable of meeting corporate standards.
Instead, there is a tendency to use the specified staff members as the backbone for training new recruits and promoting corporate values (Eisenberg par. 5). Moreover, according to the existing standards, leveraged buyouts are offered to employees that have reached a particular age and, therefore, can be characterized by their fidelity to an organization (Eisenberg par. 6). Thus, the present-day corporate policies in regard to leveraged buyouts can be seen as more lenient toward staff members than the ones that were in use in the 1980s in the U.S.
The tendency to perform detailed business analysis and scrutinize all available factors has remained the top priority, yet, with the change in values, the ethical dimension has been added. As a result, the needs of stakeholders and especially employees are currently taken into consideration during leveraged buyouts, with staff’s rights being protected by state regulations and laws. Therefore, while one has to admit that the current principles of arranging relationships during leveraged buyouts are still based on the idea of corporate growth that Burrough and Heylar mentioned as the key tendency in the 1980’s U.S. economy, it can be described as more stakeholder-oriented (7).
The current business scenarios do not involve the situations in which organizations feel the threat to “kill a developing buyout in its cradle” (Burrough and Heylar 8). As a result, a shift toward a more employee-oriented approach has occurred, thus allowing to keep the original idea regarding the corporate growth intact yet seek the strategies for its completion that are less ethically questionable.
Particularly, a closer examination of the present-day business setting will show that the idea of leveraged buyouts as a practice that is particularly harmful to employees has been altered slightly to address some of its most problematic aspects. However, the basic premise that provided the platform for leveraged buyouts’ development as a concept remained intact. Specifically, one should consider the case of Tomson Reuters’ leveraged buyout as one of the most recent examples (Scaggs par. 1).
According to the existing evidence, the sponsors that have bought out Tomson Reuters have rather impressive skills of minimizing costs, which is most likely to imply significant challenges for the participants involved, particularly, employees at Reuters (Scaggs par. 3).
The observed practice is very similar to one of the 1980s as Burrough and Heylar define it (8). Furthermore, it is reminiscent of the one that Carnegie, Rockefeller, and Gould promoted as the guiding principle of building an efficient economy. Particularly, a similar situation could be witnessed when Carnegie was buying out ET: “Something like that surely happened for the ET, which had yet to produce an ingot, was allotted the same share as Cambria, the largest in the pool” (Morris 06:05:35-06:05:42). Therefore, the current process of buying out organizations shares a range of characteristics with the one that the predecessors of modern entrepreneurs utilized.
Thus, on the specified time slot, the tendency to dismiss the needs of stakeholders, including employees and partners, was an approved and often practiced strategy. However, the current framework for managing leveraged buyouts seems to handle the problematic aspects of the process from a more ethical perspective. The observed trend in the leveraged buyouts system can be seen as the transfer toward a more people-oriented approach to managing businesses as a result of the rise in the power of the middle class.
As Morris explains, the emergence of the specified segment of the U.S. population has affected the realm of the American economy to a considerable extent (07:36:12). In fact, Morris claims that the transition to the needs of people belonging to the designated social caste was the “war of the burgeoning new demographic: the middle class” (07:36:14-07:36:15).
It is quite remarkable that the described change in the perspective of American entrepreneurs was predetermined by the innovations that these entrepreneurs introduced to the American landscape, including department stores as the “proliferation of metropolitan American shopping palaces” (Morris 07:30:20-07:30:21). As a result, a change in the relationships between company leaders as key participants of the buyout process and employees as the people that were affected by it was implemented.
Conclusion
Despite the massive change that the American economic landscape has experienced since the 1980s when leveraged buyouts were barbaric destruction of the corporate environment, buyouts still have the tendency to ignore the needs of employees and other stakeholders. However, with a more recent focus on the creation of strong corporate values and the enhancement of staff’s loyalty and integrity, corporate buyouts have become more sensitive toward the needs of staff members, suppliers, partners, and other parties that may potentially be affected by the alterations in the corporate structure. Therefore, the process of leveraged buyouts has been equipped with the use of employee-oriented strategies, yet the lack of regulations that guard staff’s rights makes modern leverage buyouts similar to those of the 1980s.
Works Cited
Bouvier, Laurent, and Tahir M. Nisar. “Design and Impacts of Securitized Leveraged Buyouts.” Cogent Economics & Finance, vol. 3, no.1, 2015, pp. 1-12.
Burrough, Bryan, and John Heylar. Barbarians at the Gate: The Fall of RJR Nabisco. Harper Collins, 2009.
Eisenberg, Richard. “Fidelity Latest to Offer Older Worker Leveraged buyouts: Double-Edge Sword?” Forbes, 2017. Web.
John, Kose, et al. “Employee Rights and Acquisitions.” Journal of Financial Economics, vol. 118, no.1, 2015, pp. 49-69.
Morris, Charles R. The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy. Narrated by William Hughes, Blackstone Audio, Inc., 2014.
Olsson, Martin, and Joacim Tåg. “Private Equity, Layoffs, and Job Polarization.” Journal of Labor Economics, vol. 35, no. 3, 2017, pp. 697-754.
Scaggs, Alexandra. “What the Biggest Leveraged Buyout of 2018 Says About the Credit Boom”.Barrons. 2018. Web.