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Wednesday, September 23, 2015

Does It Matter If Carly Fiorina Failed as CEO?

Business success doesn't tell you anything about the quality of governance

I’m trying to comprehend the nature of the criticism of Carly Fiorina, the one that says she was unsuccessful as CEO of Hewlett-Packard, and therefore… what? She is unqualified to be president?

I’m still trying to wrap my head around that.

She says she boosted revenue. The critics say that doesn’t matter — revenues only went up because of a bad merger with Compaq. What does matter is whether she boosted profits, and there she failed. But at the same time, she is being blasted for having fired 30,000 people as a cost cutting measure.

I don’t see how both can be a criticism: cost cutting can be essential for profit making. That the company posted a loss in 2002 (in the midst of a big downturn in tech) suggests that she may not have been aggressive enough.

As for the acquisition of the computer firm Compaq, yes, it was a bad deal. Hindsight is 20/20 (or is it?). But at the time, Compaq was the industry leader. No one is clairvoyant, especially not concerning the computing industry of 2000.

The dotcom bust was a hurricane, and it rearranged everything in the tech sector. Since then, it’s been 15 years of upheaval, and no living soul has been able to predict how it all would pan out. Competent management and due diligence is all that you can reasonably expect.

But Aren’t Profits Evil?

In any case, I’m scratching my head about all of this. It seems like the day before yesterday, everyone agreed that large corporations were making too much profit, and high-paid CEOs were the lowest of the low.

In the blink of an eye, the expectations have changed. Now, based on the media frenzy concerning this question, we are supposed to expect candidates for public office to have been calculating business masterminds as well.

Which is strange. Very few presidents have had business experience. Thomas Jefferson ran a successful nail factory. Warren G. Harding started a newspaper. Herbert Hoover founded a mining company that profited. Harry Truman opened a clothing store that went belly up in a few years. Jimmy Carter turned his dad’s peanut farm into a global company. H.W. Bush started an oil company with family money, and it sold and made him rich.

Those are the only exceptions to the usual rule of lawyers, military leaders, and career politicians. And it’s much the same in the House and Senate today. Sustained business experience (apart from banking) is uncommon.

The Crucible of the Private Sector

In private enterprise, success or failure is not difficult to discern. You have income. You have expenses. The first has to exceed the second. This is true whether it is a weekend lemonade stand or a multinational worth trillions. Every enterprise must face that crucible of profit or loss. And they face it hobbled down by endless taxes, mandates, regulations, and legal uncertainties (also true whether they are a multinational or a lemonade stand).

The challenge is awesome to consider. It really is true that you can bring in $10 billion (or $1.00) in revenue, but if your costs exceed your revenue, you still lose. 

I’ve heard startup entrepreneurs say, in light of their own experience, that it amazes them that anyone attempts it at all. The market is the ultimate reality check. Nothing else compares. You have can all the dreams, skills, and even capital you need and still fail — and 3 of 4 new companies with real funding do indeed fail.

And one should never discount the value of failure either. It provides an invaluable education. The beauty of enterprise is that it can learn and adapt. Experience at a failed business is sometimes a qualification: Inc. Magazine reports that “Failure, it seems, is the buzzword of the moment in Silicon Valley.”

Does our political culture need more people who have passed this test, or people who have at least have tried?

It can’t hurt. If nothing else, such experience can generate a bit of sympathy for long-suffering private enterprise — a sympathy President Obama has never had. His mindset has always centered on the distribution and not the creation of wealth. Maybe a few years doing actually doing commerce rather than “community organizing” might have helped him see what a mess he would be creating with the Affordable Care Act.

Government “Accounting”

At the same time, it’s naive to think that business experience alone can fix the problems of government. Accounting in government is very different from free enterprise. You can search in vain for a profit center in the public sector. Indeed, if government services were profitable, there would be no reason for them to be provided by government.

The accounting structure of government is not based on a producer/consumer relationship. Instead, the idea is to take as much money as possible (or borrow, or print) and spend it in politically advantageous ways. A surplus and a deficit both spell bad news for government’s involuntary “customers.”

What if every government program were assessed with the severity with which we judge HP during the Fiorina years? Of course, it is not really possible. Every government program loses money, massively. It’s part of the structure, meaning, and design of all government to lose money. It’s the ultimate money pit.

Even worse, government doesn’t learn from its failure. It only double downs, demands more compliance, and spends more money. The whole history of government is a testament to this fact.

Whether Fiorina was a good or bad CEO is not as important as the fact that she was there at all. She knows how hard it is. And she has surely learned from her experience.

Here’s a more fundamental question: If you are great at business, creating value every day, why would you give it up for politics, which has proven the greatest drain of human value and energies in the history of the world?