The money people have a hard time focusing


Deutsch Welle reports that Siemens outbid Caterpillar and GE and won the contract to build 32 locomotives for the first European-style high speed rail trains in the United States. The bidding wasn’t particularly close – Siemens came in at $226 million, while the Americans came in at $260 million.

This isn’t the only bad news for Cat and GE lately.

The US Senate is investigating Caterpillar for tax shenanigans. Seems a former employee has blown the whistle, alleging “the company used a ‘Swiss structure’ to shift profits to offshore companies and avoid more than $2 billion in U.S. taxes. He also alleged that Caterpillar used a ‘Bermuda structure’ involving shell companies to return profits to the U.S. without paying required taxes.”

Reuters reports, “Federal regulators are conducting two investigations into General Electric Co's credit card business for potential violations of consumer finance laws, according to a regulatory filing related to the unit's planned initial public offering.”

Forget about the morality of Caterpillar going to such extraordinary lengths to avoid paying taxes. You can read their glowing description of their lean strategy, their fawning over employee involvement and their love for their customers and dealers … then read about how they wielded a machete to layoff 8,000 of those wonderful employees to meet their short term profit objectives and how they are threatening their dealers with the axe if they don’t step up and use the latest Cat technology to track end customers to sell them more high profit spare parts.

Instead, think about just what it takes to construct and operate shell companies and move profits from their true source to places like Switzerland and Bermuda where the tax rates are minimal. Same with GE. When finance people are put in charge of manufacturing companies it seems the allure of making money in the money business rather than manufacturing is awfully hard to resist. At GE: “The financing arm at one point accounted for almost half of the company's profit. The unit's rising funding costs during the 2008 financial crisis nearly sank the company.

How much brain power, how much senior management time do you suppose was devoted to tax avoidance and setting up complicated financing businesses? How much better would the operations of the business that actually create value for customers be had all of those smart folks been working in the value adding operations? While Siemens has not been an organization of choir boys lately they have a track record of making their money and staying focused on what they do best – engineering and manufacturing. Perhaps had Caterpillar and GE devoted their brainpower to the same they wouldn’t lose contracts for things that are supposed to at their core.

It goes on everywhere, it seems. I don’t think it is a coincidence that United Airlines and US Air are the lowest rated airlines in the JD Powers Customer Service rating, and they are the two that inundate me most with pitches selling me their credit cards. If they put a fraction of the time, brainpower and energy they put into credit cards into running the airlines just how much better could they be? With a lawyer/economist running United and a finance guy running American/USAir it comes as little surprise that making money in the credit card business is just too exciting to pass up – especially compared to the detailed drudgery of creating greater value for air travelers.

In In Search of Excellence Tom Peters urged companies to “Stick to the Knitting”. That is exactly what the lean companies I have had the honor and pleasure to work with do. They are committed to making money by creating value for their customers in their core business, and they focus all of their time and energy on doing so. Their debt is low and their cash is managed conservatively. They understand the tax rates for each of their value streams and accept them. They don’t play games with foreign exchange rates. They understand that Forex is simply a cost (or benefit) of doing business. Mostly, they understand that time spent on clever schemes with money is time lost in continually improving what they do best.

Money people running big companies can’t see to resist the urge to keep their hands off the money – to act like bankers and financiers - to want to make money from money, and too often end up changing the focus of the business; or at least losing their own focus.

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