Too Much Focus On Short-Term Profits

The main reason I persist in reading the bidness press and magazines (not to mention my fatal weakness for PBS’ Louis Rukeyser) is I keep picking up nuggets that can be found nowhere else.

An example: Did you know that unexcused/unexplained absences from work went up dramatically last year? I think Rukeyser said 40 percent.

Gee, what a surprise. Could this possibly have anything to do with the several years of “downsizing,” “right-sizing,” “streamlining” and otherwise demanding that fewer and fewer workers do more and more work? This is not to suggest, of course, that there could be any possible connection between the fact that the salaries of CEOs of major corporations continue to soar while they cut the health and retirement benefits of their employees. Surely not.

In my trade, the newspaper biz, we are having a rough time bidnesswise on account of the dreaded Newsprint Price Increase. As scholars of the Newsprint Price Increase explain it to me, the shocking increase in the price of the stuff on which we print our newspapers - be they good, bad or indifferent - has occurred mostly because newsprint has been underpriced for several years and whatever circumstances brought about that happy eventuation no longer obtain. You see. The result is that editors around the country who slowly and painfully have built up excellent staffs now are having to lay them off. And rather than do so, some of those editors are quitting, which is why The Des Moines Register just lost the well-regarded Geneva Overholser.

While I was in the Midwest last week, I visited an old friend who is now a newspaper publisher, which is unusual in itself because most publishers come up through the bidness side of newspapers and consequently have little feel or understanding for what the news side is like. The peculiar duality of our trade - public service and private profit - long has tended toward a sort of separation of church and state on newspapers: The bidness side does not know the news side and vice versa. This separation exists to prevent the abuses of the bad old days, when advertisers could influence the content of the news.

This particular publisher soldiered through many a long-forgotten skirmish in the collection of news, later became an editor and then rose to his current eminence. In discussing how it all looks from the bidness side, he made a couple of fascinating points.

He declares that it is difficult but not impossible to get news-siders to understand that if the paper doesn’t make money, they can’t do their jobs. Too true. We news-siders always are wanting more space, more time and more staffers so we can do our jobs really well. Profit constraints make us grumpy. But since most of us are bright enough to realize that if the paper doesn’t make a profit then we can’t do our jobs at all, an uneasy compromise generally is in effect.

The current problem in the newspaper trade comes not from the pressure to make profits but from the push to make more profits. Every quarter. And that pressure does not come from some collection of berserk greedheads who own newspapers but from Wall Street. What happens if a chain of newspapers - or, as is more typical these days, a media conglomerate of newspapers, radio stations, TV stations, maybe a book publisher or two and possibly a movie studio - fails to increase its profits on a quarterly basis? Why, the stock falls. And if the stock falls, why, top managers even might get fired. Of course, they have their golden parachutes, while those on the bottom rungs are just a few paychecks away from welfare, which is about to be “reformed.”

So, there you are - caught in the middle of a conglomerate making money but not making more money - and what does that mean? It means you can’t expand, or at least you can’t expand as rapidly as you would like by buying more papers, radio stations, TV stations, etc.

Scholars of this phenomenon (many of them economists and business school professors) keep pointing out that the trouble with the unending focus on next quarter’s profits is that it runs directly counter to wise business practice - specifically, long-range planning.

Suppose, for example, an alert publisher had noticed a few years ago that the price of newsprint was abnormally low and that this happy situation was unlikely to continue much longer. Why, that prescient publisher would have set aside a little money - out of each quarter’s profits - so as to ease the shock when the price of newsprint finally caught up with the demand.

But the structure of bidness is such that quarterly-profits pressure outweighs intelligent long-term planning. And that, say the bidness school mavens, is what’s hurting American bidness.

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