The Game of Business

Van Tharp over at smarttraderblog.com wrote an article that will be required reading should I have a nephew or niece. When they reach a certain age, I will introduce them to what Tharp calls "The Game of Business".

In junior high and high school, most of my instructors erroneously taught me that businesses are: 1) devoted to making their shareholders happy. 2) reward loyal employees with the growth of the company. 3) loyal to the country or state in which they are formed. and 4) have the interests of humanity and ethics at its heart. If you are naive to believe these four assumptions, you are doomed to work for the rest of this and the next ten lifetimes.

Tharp comments that businesses are formed to make the CEO, a few insiders, and the largest stockholders wealthier. They could care less about the average stockholder or the rest of the business.

Think I'm Wrong? The best example of this is outgoing CEO Robert Nardelli of Home Depot. In his brief tenure, Nardelli was responsible for wiping out one-half of the company's market capitalization. His punishment, a severance package of $210 million. Some punishment. Also note all of the option awards granted in the last ten to fifteen years. Notice the only ones that were the most valuable were the ones offered to corporate insiders versus the ones offered to employees. And yes, I'm calling you out, United Healthcare and Bank of America on this one.

In the past decade, it seems one of the primary goals of corporate officers is to determine which of their competitors they can drive out of business. Whether through acquisition or through cannibalization of customers, it seems that most corporate officers' compensation bonuses are contingent on them creating a paper transaction that generates massive wealth for them at the expense of thousands of employees who find themselves on the unemployment line.

Now while some may argue this is survival of the fittest, my question to you is, if everybody believes this will be the norm for the future, who will be left after everyone else is devoured. Because the logical conclusion is after everyone else has been eaten, the only one left will have nothing left to eat except one's self.