CHAPTER TWENTY-ONE
Tomorrow’s Managers: The Major Trends
THE GREATEST CHALLENGE to American business in the ’90s, especially the large company, may well be its management people. And we are totally unprepared for it.
One reason why there will be a problem is the sharp turn in the structure of management. For 35 years, from the end of World War II until the early ’80s, the trend ran toward more and more layers of management and more and more staff specialists. The trend now goes in the opposite direction.
Restructuring the organization around information—something that will, of necessity, have to be done by all large businesses—invariably results in a drastic cut in the number of management levels and, with it, in the number of “general” management jobs. Even the General Motors of 1995 is likely to have only 5 or 6 management levels, as against the 14 or 15 it has now. The 3 or 4 levels between operating divisions and the corporate top will, for instance, be eliminated altogether, and with them large numbers of staff people who now “report” to these levels.
And “restructuring” by the “raiders” has shown in every single case that even a large company can get along without “service staffs”—that is, people who analyze and advise rather than do. Yet, “service staffs” have been the major growth area in American big business since Harold Geneen 30 years ago began to run a large and diversified ITT with staff specialists from the top.
The total number of managerial and professional people in the America of the mid-1990s is almost certainly going to be larger than it is today if only because we can expect fairly rapid growth in production, information, and customer service. But proportionately many more of the managerial and professional people in the latter ’90s are going to be in “lower-” rather than in “middle-,” let alone “upper-” level jobs. Proportionately more will be in operations and in functional and technical work rather than in “general” management, let alone in “staff” work. And many more will be on their “terminal” job at a fairly early age rather than on a “promotion track.”
It is not only information that is causing these changes. During the last 20 years demographics almost guaranteed rapid promotion, at least into middle management, as the baby boomers moved into a near-vacuum created by 20 years of falling birth rates between 1925 and 1945. Now, especially in the big companies, two people stand on every rung of a promotional ladder that is itself getting shorter.
Business, and especially the big company, will have to change its personnel policies, its compensation policies, its promotion policies. Even more difficult, it will have to change the expectations and the vision of its management group. And it will have to do this at a time when it has lost a good deal of the trust and confidence of that group. In many—and, again, especially in big—companies, middle managers and professionals have become alienated from their company, and especially from its top management. They’re distrustful of and sometimes openly hostile to it.
The reversal of the trend toward layers of management and headquarters staffs—the trend that had propelled the careers of the people who are in management jobs today—would have been upsetting enough. It means a drastic change in their expectations and in their views of both the company and themselves. In many cases it means loss of a job when “lifetime employment” had virtually been taken for granted. And it means the anxiety of a job hunt and a painful relocation.
What made all this traumatic, however, was that the “restructuring” was done largely through financial manipulation: mergers, acquisitions and divestitures, leveraged buyouts, asset-stripping, and hostile takeovers. Middle managers and professionals feel, as a result, that their lives and careers are being sacrificed to enrich a few speculators who “have never done any productive work.”
Bitterness
It isn’t just Iowa farmers who fuel the populist upsurge that is so pronounced an element in the 1988 presidential campaign. It’s equally management and professional people in the big corporations. “I thought slavery had been abolished,” one middle manager, a highly competent engineer who had been “relocated” by two hostile takeovers in a row, said with great bitterness in one of my seminars. “But we are nothing but chattel now to be sold to the highest bidder.”
What has hurt particularly are the “golden parachutes” that make top-management people rich in a hostile takeover or a leveraged buyout while their middle-management associates lose their jobs. Every middle manager in this country knows the E. F. Hutton story: the bosses whose mistakes caused the brokerage firm’s downfall walked away with huge bonuses when the company was sold to Shearson Lehman while the local managers and salesmen who had kept the firm afloat through a decade of poor decisions at the top lost their jobs, their stock options, and, in some cases, even their severance pay.
But what hurts the most is that the new masters of American business (at least as perceived by middle managers and professionals)—the raiders, the junk-bond underwriters, the arbitrageurs and stock-exchange players—are so openly contemptuous of management people, of their focus on work rather than on “deals,” of their working for a salary rather than to become rich, and especially of their belief in the company as something to be proud of, as something to “belong” to.
“Can we restore middle-management loyalty?” is a constantly asked question today. “No” is the answer. Loyalty is a two-way street. And middle-management people do not feel that they have deserted the company; they feel strongly that the company has deserted them.
What’s more, they now know they do not need to depend on the big company. Being let go by a GE or a Citibank is very painful, but it is rarely fatal. The overwhelming majority of middle-level people who were fired by big companies have found new jobs—and often better ones—within a year at the most. They are particularly in demand in small, entrepreneurial businesses.
The executive recruiters, in turn, who a few short years ago confined themselves to looking for top-management personnel, are increasingly willing to take on middle-management clients. “I doubt,” says a leading executive recruiter, “that there is a single middle manager or middle professional under 50 at a big company such as IBM or GE, AT&T or Sears Roebuck, who does not have his resume ready. And not one of them hangs up on me when I call.” And what top managements call “disloyalty,” middle-management people call “taking responsibility for one’s family and career.”
But just as yesterday’s “loyalty” will not be restored, yesterday’s expectation of “lifetime employment” for middle management will likewise not come back. Companies from now on will increasingly be run with the clear realization that what they call “profit” is a genuine cost (something I have said for 30 years). A business, a division, a market, a product line has to earn the cost of capital or it will eventually be shut down or abandoned. This means that, increasingly, bigness will not be used or misused to finance the losers and to perpetuate yesterday. Thus, both employer and employee can expect more rather than less instability in managerial and professional employment.
Adjustments
These trends demand changes in compensation. Many companies have “dual ladders of advancement” that offer pay and recognition other than promotion into management ranks for individual professional contributors. These will have to be substantially improved. But we also need policies that encourage staying in a job rather than being promoted out of it. We need emphasis on assignments to task-force teams, which will be the only way, in most cases, in which professional specialists can acquire a “view of the whole” now that they will no longer be routinely promoted into managerial positions.
Altogether, we need policies that compensate people for performance rather than for rank—to the point where ten years hence we may routinely pay a top-flight professional more than the manager to whom he or she reports, just as we pay a football star more than we pay the coach.
But above all we will have to reconsider the relationship between employer and managerial or professional employee. Increasingly, we will be forced by middle-management pressure to restructure the job as a “property right.” And a “property right” is something that can be taken away only by “due process.” Actually, we are halfway there even though company lawyers still do not want it to be true.
Increasingly, dismissed managers and professionals sue, and many, many more threaten to do so. In every case I know of, the plaintiff has either won or received a generous out-of-court settlement. A few more years and it will be accepted legal doctrine that an individual manager or professional cannot be dismissed unless there is (a) proven malperformance on his or her part against clear, preset performance standards; (b) a clear removal procedure including, except in the grossest violations, a number of formal warnings; (c) appeal of the decision to, and its review by, impartial authority; and (d) proper compensation.
The sooner employers institute such “due process” themselves, rather than wait for the courts to force them, the sooner they will regain the trust and allegiance of their managerial and professional employees.
But at the same time we need to safeguard the company’s ability to lay off managerial and professional people, and especially to lay them off when it is not their performance, but economic conditions or business decisions (e.g., a merger or a divestiture) that causes them to become redundant. This certainly means higher severance pay than American companies have traditionally offered; we are already moving in that direction.
It would be less expensive and have greater motivational impact to do what some companies (e.g., Herman Miller, the office-furniture maker) are already doing: provide for all managerial and professional employees “silver parachutes,” that is, extra compensation in the event of the firm’s being sold, acquired, or merged.
More effective, probably, would be nonfinancial measures, foremost among them “outplacement” services for managerial and professional people who lose their jobs for any reason except gross malfeasance. Most laid-off managers find new jobs themselves rather than through a company’s “out-placement” service. But for most, especially people with long years of service with a company, the shock of being let go is severe—and that would be greatly assuaged by an effective “outplacement” service furnished by the company.
For 50 years, ever since the union movement of the ’30s, “employee relations” in American business has meant relationships with and policies for rank-and-file workers. Increasingly, the employees to be concerned with will be the ones that most companies today take for granted (as companies in the ’30s took the blue-collar worker for granted): managerial and professional people.
[1988]