Thinking Managers

Robert Heller of pulls no punches in describing the excessive rewards being lavished on a few corporate heads and the trail of destruction they have left behind in pursuit of personal wealth.

The Age of the Naked Plutocrat

Hubris has provided the basis for an unstoppable surge in private wealth. The economy in the new millennium represents the era of the Naked Plutocrat. The new super-fortunes are supposedly rewards for super-adequacy and super-success, but the Plutocrats are beginning to resemble the Robber Barons, a much earlier group of self-servers.

Riding on the coat-tails of the fast-rising US economy, the barons exploited their workforce servants mercilessly, hammered their few competitors and many customers, spent lavishly and exported their power to Europe and the Far East.

The biggest fortunes of today now approach Robber Baron dimensions as debt replaces equity in organisations which mine the corporate economy for opportunities for extracting or creating wealth. But the possibilities are not restricted to the strategy of building debt-driven private companies. Why shouldn’t the private equity company (or the hedge fund, its partner in self-enrichment) become public, the wise have asked themselves?

This apotheosis of the revelation came on 11th June 2007, with the disclosure from the money firm Blackstone that chairman and CEO Stephen Schwartzman would reap the reward of $677.2 million in cash from the public offering of its shares. However, that was small potatoes when compared to the estimated value put on the boss’s remaining stock, a cool $7.8 billion. Two effortless transactions had achieved Midas rank for the 60-year-old.

However, Nemesis wasn’t only lying in wait; it had already struck with a force that still rocks the global economy today. The shocking fall of investment bank Bear Stearns, forced to turn to the central bank for desperately needed rescue, is evidence.

The collapse in the summer of two Bear Stearns hedge funds, full up with sub-prime mortgages, is now thought of as the first sure sign that a fully-fledged financial crisis was underway, the revelation coming just before Blackstone’s apotheosis. As Schwarzman’s empire had employed the strategy of steering clear of mortgage-backed securities, you might have thought that major falls in value would also be avoided. But no: come mid-January, Schwartzman’s shares in the mother lode had halved, to just $4.62 billion.

The Age of the Plutocrat is still riding high thanks to the giant personal fortunes, old and new, that already command the economic heights. The holders of these fortunes try to justify themselves by citing the ‘trickle-down effect’, the theory being that the poorer citizens gain by feeding on the crumbs from the rich man’s table. ‘Trickle’, though, means just what it says.

Meanwhile the plutocratic chickens continue to come home to roost, and the likes of Bear Stearns and Northern Rock have been hit by a flood.

About the author
Robert Heller is one of the world’s best selling authors on business management.