By: Adam Harmes

  Standing at the podium before the swanky crowd of the Economic Club of Detroit, Robert J. Eaton - chief executive officer of the Chrysler Corporation - was pleased to be amongst his own. He had a beef to share, one that he felt would not be popular outside the rarified atmosphere of this pro-business environment.
  "I'm going to complain about the ongoing demonization of corporate America by some of our prominent politicians and news organizations" he began.
  The real problem was that these people had been telling his mother he was a bad man. Mrs. Eaton used to be proud of her little boy. He ate all his peas and worked hard. Hard enough to become the very-well-paid head of one of the country's largest corporations.
  But now she was confused.
 

"Companies aren't put together to create jobs. The number one priority is creating shareholder wealth," said Bob Bertram of the Ontario Teachers' Pension Plan

  "That's because every time she opens a magazine or turns on the television, she's told that people like me are no good...She reads that people like me fire thousands of other people so we can impress Wall Street and get bigger bonuses for ourselves" explained Mr. Eaton.
  In recent years, 'restructuring' has become the name of the game in corporate North America. Between 1988 and 1996, according to a report by the Canadian Centre for Policy Alternatives, thirty-three of Canada's major corporations cut their employment rolls by almost 35 percent. Tellingly, these job losses - in the area of 216,000 - occurred at a time when the combined revenues of these companies had increased by over $40 billion.
  However, despite the growing criticism of these seemingly cold-hearted executives, the fact of the matter is that CEOs are no longer the real power in North American boardrooms. The real power behind corporate downsizing and soaring executive salaries has been the growing importance of mutual funds and pension funds.
  "Clearly, pension funds have become major, if not dominant, players in the Canadian economy. And while the media and government focus on the celebrity corporate elite, their power struggles and divorces, the nondescript pension fund managers are probably the most powerful arbiters of business" said Financial Post columnist Bill Tielman.
  Twenty years ago, when the ownership of U.S. stocks was scattered among a large number of individual investors, CEOs were all-powerful because owners were too unconnected and disorganized to challenge their authority. But with the rise of mutual funds and pension funds, stock ownership has become increasingly concentrated to the extent that CEOs can no longer ignore the demands of their large institutional shareholders.
 

The next time we decide to hand out the blame for mass layoffs and stratospheric executive bonuses, we should look to our own RRSPs rather than to the boardroom

  In Canada, corporate ownership has always been concentrated. But whereas the boardrooms of Canadian companies were once dominated by a handful of elite families, today power has been transferred to the mutual funds and pension funds. John Bart, president of the Canadian Shareowners Association has argued that the old "Family Compact" of corporate Canada has given way to a "Funds Compact" led by institutions such as the Ontario Teachers' Pension Plan.
  The difference today, however, originates in the competitive nature of the investment industry and the fact that fund managers are often under intense pressure to perform strongly in the short-term (see sidebar). Because of these pressures, fund managers demand that companies focus exclusively on "shareholder value", which is the sanitized term for short-term stock performance based on downsizing.
  "Companies aren't put together to create jobs. The number one priority is creating shareholder wealth" said Bob Bertram, the senior vice-president of the Ontario Teachers' Pension Plan.
  Fred Telmer, the CEO of Canadian steelmaker Stelco Inc., well-understood this pressure to create shareholder value. In an interview with The Globe and Mail he noted that fund managers are under tremendous pressure to perform strongly in the short-term and that they, in turn, pressure corporate management to boost share prices, often through imprudent job slashing.
  As the influence of fund managers has grown, they have forced corporations to adopt the use of stock options which serve to link executive pay directly to a company's share price. And as these prices rise with each swing of the axe, executive salaries have soared.
  At the same time, the "excessive use of stock options reinforces the already intense focus on share prices. North American investors have become accustomed to quarterly - if not instant - gratification from their holdings. And that has greatly contributed to the business community's ongoing mania for corporate downsizing and narrow focus. Layoffs and asset sales, for example, have become one of the most efficient ways to boost stock price in recent years" reported Maclean's business columnist Deirdre McMurdy.
  Corporate downsizing has had many negative effects and we are right to be concerned about it. But next time we decide to hand out the blame for mass layoffs and stratospheric executive bonuses, we should look to our own RRSPs rather than to the boardroom.

Adam Harmes is a PhD student in political science at York University in Toronto. This article is adapted from a chapter in Just Making Change (Golden Dog Press), edited by Lorne Nystrom, M.P.