Blog 5- 'Company Men' in a Financial Crisis

The 2010 film Company Men, shows us the effects of the financial crisis on some high-up, corporate managers/ directors. It demonstrates just how real the results of the financial crisis were and the big cuts that had to be made- as it shows these managers being made redundant.

The company in the film, GTX, is a ship building company and they are having to close shipyards down, fire a lot of staff and are losing big accounts such as Royal Caribbean; all due to the financial crisis. One line near the beginning of the film is “we work for the stockholders now”. I think it’s interesting that the company knows the shareholders are in control of them; they need to keep the shareholders happy, especially during in this volatile time or their share price will drop, and they’ll be in even more trouble than they already are.

The problem is, shareholders and company executives often have conflicted interests. Company executives are often more interested in what they are getting for themselves rather than the greater good of the company; dissimilarly, shareholders are usually more interested in the overall expansion and wealth of the company, to make sure share prices are going up and that they are receiving a healthy dividend. In the film this is demonstrated. One scene shows the CEO showing all his company executives around their fancy new headquarters… surely this is not a necessary spend when the company is having to lay off so many people? If the shareholders of the company knew this money was being spent during the financial crisis I wonder if they would be happy about it.

Agency theory suggests that shareholders may be happier if they were in a position where managers had to justify their spending to them; there is a lot of academic evidence to show investors like the idea of having more control over where the companies money (their money) is going. If this was the case, company executives would maybe be more careful with where they are placing the investors’ money and not investing in high risk projects or spending on unnecessary things- e.g. a new headquarters in the middle of the financial crisis.

In the film, while trying to decide how they can make their share price get back up, someone suggests selling the new headquarters. However, because the CEO so desperately wants a fancy new office, he opts for more job cuts rather than just selling the offices. I think this is a very clear example of conflicted interests between shareholders and company executives; although yes, getting the share price up is in the interest of the shareholders, surely having new expensive headquarters is not. Personally, I think this is a very selfish move, ruining peoples’ lives by taking away their job- as we see from the film it really does ruin peoples’ lives- rather than just choosing to wait a few years before opening new headquarters. As someone suggests in the film: with all the job cuts, there’ll be no one to use the offices anyway!

It is clear that the CEO is only bothered about himself when it is highlighted that that he ‘took home 22 million last year’ while cutting all these peoples’ jobs. The problem during the financial crisis was that all companies were downsizing, therefore, it was very difficult to find jobs. For one position, hundreds of over-qualified candidates may apply; all these people will have been made redundant too, so it was a lot harder to find a job.

From this film I can see a real-life example of agency problems (although the film is fictional), things like this will be happening all the time, especially during the financial crisis. I think it is important that company executives aren’t left to their own devices when spending investors’ money. This film shows that the CEO is only in it for himself and I presume there are a lot more like this. Managers need to show where their money is going and justify their spending before wasting other people’s money and not making decisions for the greater good of the company. The CEO cutting so many jobs in this film, while paying himself such a high salary and spending money on unnecessary things is a great example of how things shouldn’t be done. If I were an investor I would definitely be more confident throwing my money at a company that had to justify to me where all their money was going.