Rewarding Failure

This past week my previous long-time employer, American Airlines, filed for Chapter 11 bankruptcy. My decision to retire four months early now seems extremely propitious as I am in receipt of a lump sum representing 100% of what was expected. My colleagues still on the property will not be so fortunate. Time will tell, but it is safe to assume that a good portion will be passed off to the PBGC which will then dilute it further. Pay rates and work rules will also be “adjusted” to the detriment of the employees. I’m not going to take up your time lamenting about the unfairness of it all. Rather, I’m asking that you take a moment with me in an attempt to identify the true miscreants and the punishment for their deeds.

Every business venture has two competing forces: management and labor. Management’s task is to create a business plan that will reward all parties and labor’s role is to implement that plan. Needless to say, management wants to control every last penny of profit while labor seeks to raise the pay and benefits of the workforce. The means to this end, labor-wise, is sometimes through organizing under the banner of a particular labor union. Other businesses find less confrontational ways to handle the dichotomy of expectations. Neither is perfect and either scenario fits into our exploration.

No employee is interested in seeking to derail an employer and have them go out of business. Where is the sense in that? Corporate policies may erode morale to the point where customer satisfaction suffers and impacts the bottom line, but such cases usually result from short-sighted management techniques. So why, then, do businesses fail?

Well, some do because they run out of cash. Both sides suffer when the company dissolves and all are in search of a new position. Others, though, such as AMR (American’s parent) are still in possession of large sums of ready cash. They apparently grow tired of negotiating with seemingly recalcitrant employee groups and paying off loans they’ve received. And they find it easier to take the bankruptcy path that offers much less resistance.

In the courts, contracts can be set aside, pensions reduced or eliminated altogether, and outstanding bills can be renegotiated to the tune of something less than 100 cents on the dollar. Pretty neat, huh? Well, not if you’re a worker bee. But if you’re on the management team, all is well. Your pay and benefits remain largely untouched while you “re-organize” your floundering enterprise.

But who put the business in jeopardy in the first place? If the employees are charged with carrying out a battle plan that fails, does it not fall to the field generals when looking for someone to blame? I’d say so, yet day after day, in filing after filing, executive teams remain whole while shifting draconian measures to the backs of those least responsible for the train leaving the tracks.

Gerard Arpey, American’s CEO until one day before the filing, was heralded as saint-like because he took no severance package as he retired. I guess it’s easier to claim the moral high ground when you take a position with an investment group (headed up by a Continental ex-exec) the following day. And the rest of the nabobs from the Board of Directors on down remain in place despite the fact that they were unable to preserve the viability of what was once the largest airline in the country. Is there any reason to believe that they will suddenly discover the error of their previous ways and succeed where they’ve just failed? I doubt it and so should you.

Does that mean AA is headed for extinction? Not by a long shot. Many companies succeed not because of their leadership, but in spite of it. My only suggestion is that in these cases, the blame should start at the top and trickle down rather than the other way around. Where is the incentive to succeed when failure carries no penalty and, in many cases, its own rewards in future compensation?

It’s safe to say that another bankruptcy will occur in the not-to-distant future. And it’s equally safe to say that those surrendering a larger share will be the ones least responsible for the failure. And that, folks, just ain’t right.