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Stanley Plays the Numbers Game
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Business New Haven
4/14/2003
By: BNH
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In what the New Haven Register headline euphemistically characterized as a "retooling," the Stanley Works announced April 9 that it would cut more than 1,000 jobs, close warehouses and manufacturing facilities in a few-holds-barred attempt to wring more black ink from flagging sales.
Actually, the language of Stanley's announcement was much more circumspect even than that of the Register: It called the news a "margin-improvement initiative," which ought to make the 1,000 soon-to-be-unemployed workers and their families feel as though they had been a part of something noble and important.
It's not as though Stanley isn't making money. First-quarter earnings per share, to be announced April 29, will be in the 33- to 36-cent range, the company said. That falls short of the 43 cents analysts surveyed by Thomson First Call had predicted.
Instead, calling his company's earnings a "clearly unacceptable situation," CEO John M. Trani said Stanley would aim for and hit an earnings target of 15 percent.
Stanley blames the usual suspects - lower sales, higher costs, a "soft" economy - for its travails. And its response is probably not atypical of large public companies during a period in history when stock price has become the paramount measurement of management effectiveness.
But should profitability and, ultimately, earnings per share, be the sole raison d'etre of American corporations? Have other traditional functions of the corporation - as employer, as economic bulwark of the host community - become utterly dispensable or even meaningless?
The Stanley Works has been a central thread in the fabric of New Britain and Connecticut since Frederick Trent Stanley in 1843 opened a tiny shop to manufacture door bolts. Even as the global manufacturing giant it is today, it is impossible to separate the life and history of its host city from that of its largest employer.
In its disregard for that role and that legacy, Stanley forsakes its larger responsibility on the alter of a false god. In his new book, The Number: How the Drive for Quarterly Earnings corrupted Wall Street and Corporate America, New York Times business reporter Alex Berenson observes that, ''Earnings per share is the number for which all other numbers are sacrificed.''
The only problem with that, Berenson says: "the number" is too often a lie - or at the very least so vulnerable to manipulation as to make it virtually meaningless. To make "their number," companies have resorted to increasingly daring accounting tricks, the legacy of which is as evident as it has been disastrous.
Enron was just a warm-up for a series of disasters traceable to accounting ''gimmickry'' during which, Berenson writes, $4.3 trillion in ''market wealth - $15,000 for every American - simply evaporated.''
But companies such as Stanley aren't going to stop managing to "the number" just because some New York Times reporter points out the fallacy of doing so. And Stanley's announcement drew praise from some on Wall Street. Said one analyst, "They're doing what they ought to be doing - taking costs out of the business."
Perhaps. But when companies reduce "head count" to drive profits, it's easy to forget that those heads are connected to people - who are connected to families, and to communities.
And when a lavishly compensated suit such as John Trani (who was paid $3 million last year) chops off 1,000 heads to meet some analyst's "expectation," the corporation's larger constituency - workers, neighbors, customers, vendors - has a right to ask questions about why earnings-per-share is the only number that means anything.
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