06 April 2010
The Single Greatest Obstacle To Manufacturing Excellence
Some guy named Rich Campanola was working hard at the Simmons Mattress plant in Agawam, Massachusetts – trying to wrap his mind and the factory around lean principles – way back in 2002. Little did he know that lean was a complete waste of his time. Not 80 miles away in Cambridge, Harvard was cranking out smart kids with one purpose in mind – to find dumb working stiffs like Rich and profit from his efforts without ever raising a drop of their own sweat. There is no money to be made leading lean journeys – no serious money, anyway. The big money is in finding naive saps like Rich willing to do the hard work, buying his company, borrowing against the assets of the company to the hilt to pay yourself back the money it took to buy it plus a whopping profit, then unloading it on another investment banker to do the same.
Simmons just came out of bankruptcy after having been bought and sold seven times in some twenty three years. It was a solid company when all of this began – still might be but it is unlikely we will ever know. By the time the last investment banker was finished with it, Simmon’s debt had gone from $164 million to $1.3 billion, with the investment bankers sucking $750 million in profits on their ‘investments’.
The last owner before the bankruptcy was a cesspool of greed called Thomas H Lee Partners who made a $77 million profit on flipping Simmons – or at least flipping it into bankruptcy court – along with hundreds of millions of dollars in fees for the ‘services’ they rendered.
Why do I single out Harvard as the culprit? THL has 21 Managing Directors and 14 of them have MBA’s from Harvard. They also have 13 Directors, Principals and VP’s, and 7 of them have Harvard MBA’s. 21 out of the 34 folks at the top all from one school. Thomas H Lee himself is no longer part of the company, but he is also a Harvard man and a great benefactor to the old alma mater.
They do not teach anyone the first thing about creating value, or even creating wealth at the Harvard business school. You have to learn that elsewhere if you want to actually contribute anything to society. They only teach how to game the system, how to get your hands on the wealth hard working people like Rich Campanola created. Real work is for the lesser intellects; Smart people don’t get their hands dirty. You can read the whole sordid story in the New York Times.
The people running Harvard should be ashamed of themselves and of the type of people they are turning out. The founding motto of the once-great school was, “”Let every Student be plainly instructed, and earnestly pressed to consider well, the main end of his life and studies is, to know God and Jesus Christ which is eternal life, and therefore to lay Christ in the bottom, as the only foundation of all sound knowledge and Learning”. I guess all of that nonsense about Christ as the bottom of all sound knowledge and learning is like work – just pap for suckers. The “main end” of life taught to Harvard MBA students appears to be to get rich, and to hell with everyone else, and if it is the ruination of the once great manufacturing economy of the United States, that ain’t their problem.
Understand that Simmons was generally profitable and generally growing – but they laid off over a thousand people and closed plants because they were desperate for cash to make the monthly payments on the loans the investment bankers had taken out on their assets to pay themselves. People like Noble Rogers didn’t hit the streets because of high US labor rates, or the heavy hand of government regulation, or because they can’t compete with the Chinese.. They lost their jobs because their paychecks were needed to pay back the hundreds of millions of dollars Wall Street stole from the company.
As Tom Johnson wrote of the Simmons travesty in an article for The Systems Thinker, “The terrible costs that investment firms impose on their targets are driven home when we note that Bill Simon’s firm [Wesray, one of the seven flippers of Simmons] cashed out of its investment in Simmons in 1989 by selling its stock to the company’s employee pension fund for $241 million. That cash equaled twice what Simons firm had paid for Simmons in 1986. When Simmons shares plummeted during a subsequent market slump, the employee pension fund was left penniless.”
Yeah, that’s right. While hard working manufacturing people are doing their best to treat employees with respect, the investment bankers are stealing their pensions. Bill Simons – an incredibly wealthy man by any measure – stole the retirement money from people who worked all their lives to make arguably the best mattresses in the world. Tom quoted and agreed with a guy named Fritjof Capra who wrote, “Today’s global financial institutions seek to deal with people, resources, and businesses as commodities to be traded in the least regulated and least transparent markets possible in order to make as much money for themselves as possible, whatever the cost to society as a whole.”
Make no mistake about where the obstacles to lean lie. The biggest forces of opposition to manufacturing excellence lie in the global financial community – the investment bankers in particular – who have their tentacles deep in the government and it makes no difference which party is in power. And their ranks are swelling each time Harvard’s business school and its ilk crank out another graduating class.
Will the story have a happy ending? Don’t bet on it. Another investment banker picked the company up for a song in bankruptcy court … and here we go again, only the next trip to the bankruptcy court will most likely be a brief stopover on the way to the manufacturing graveyard.
I am more and more convinced that only a progressive capital gains tax over, say eight years, can protect manufacturing from the investment community. Profits taken in the first year should be taxed at 87.5% tapering down to 0% after eight years. Reward those who invest for the long term, and punish those who use companies full of hard working people as personal piggy banks. Interest on loans from investors to the companies in which they invest should be traeated as capital gains; same with revenues from fees charged by investors to the companies in which they invest. All they understand is money, so only through controlling their money can they be expected to behave the right way.
Posted by Bill Waddell | Permalink
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What an amazingly ignorant post. Bill, I’ve long skipped your posts here because they are consistently ill-informed and poorly thought out. But this one is the last straw for me – I’m unsubscribing to this site.
To all of the other authors on this site, please reconsider putting your thoughtful opinions next to Bill’s drivel.
Posted by: Matt Cline | 06 April 2010 at 03:52 PM
It is amazing that this can happen over and over. Being a part of a small (95 people) company that isn’t run for the investment bankers is rewarding. The benefits we get from lean will be used for the good of the company and the employee owners.
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A story on how modern day capitalism is feeding off the people that really matter. Stand up and be accounted for I wuold almost like to scream. This is an outrage! Flipping companies and making a profit over the people that build it with passion and energy. Shame on the managers from Harvard with MBA´s that think this is okee and don´t lose a night sleep over it.