Professional Manager Decay Across Generations

“Weinroth lapsed into the familiar refrain (articulated by Milken, Icahn and others of their persuasion) about the decline of corporate America in the hands of its managers, and its rescue by the new breed of manager-owners. “Old companies were started by true entrepreneurs, who had children some of whom were affected by the ills of the rich,” he continued. “They brought in professional managers, who ran the companies in a conservative fashion . . . but those professional managers didn’t have an ownership stake. Their risk-reward ratio was skewed to being a conservator, not an initiator. Then the second-generation [managers] grew to the top. And even if they were high quality as managers, they were certainly not entrepreneurial. And then that group promoted people who couldn’t threaten them, and they in turn hired people inferior to them, who lived for their perks and compensation and ran their companies conservatively because they had no upside interest. And by the time you go through several generations of these managers, you have a company run by dull-normals!”

““I think the systematic realigning of corporate America, and putting parts of companies in the hands of guys who have major equity stakes in those companies, is the best thing we have done for our society,” commented corporate-finance partner Stephen Weinroth. “The cat’s out of the bag—and if the old-guard establishment puts us out of business, they’re not going to put the concept out of business, be it the LBO or the hostile takeover or valuing a company and breaking it up because the assets are worth more broken up than whole.””