Strategic Management of Shareholder Value: Coincidences? (part III)

Rogers Communications and Shaw Communications expected to have their merger to be closed by July 31. It must be a coincidence, but July 31, 2022, marks the 100th anniversary of Milton Friedman’s birth.

Apart from that, nothing else in Rogers Communications’ history, including the recent outage, is a coincidence. Rather, everything is a natural outcome of the Friedman doctrine, supported by the carefully crafted competitive strategy.

Just a reminder to those who may have missed Part 1 and Part 2. In 1970, Milton Friedman created what has become known as the Friedman Doctrine. His key idea: the social responsibility of a business is to increase its profits. In line with this doctrine, all executives who, by virtue of their position as employees of the owners, are only agents serving the interests of their principals, and their primary responsibility, therefore, is “to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society.” Indeed, they simply do not have their own resources that they could spend on “social responsibility.”

In other words, the goal of any corporation – and by extension of its executives – is to increase its investors’ profits, or shareholder value. Friedman went so far as to label any attempt to “use the cloak of social responsibility, and the nonsense spoken in its name” as unethical and “clearly harmful to the foundations of a free society.”

Although not directly for his “shareholder primacy” idea, Friedman was awarded the Nobel Prize in 1976. And although there’s never been a Nobel Prize in Economics, rather the “Nobel Memorial Prize,” the sublime title helped his doctrine to spread like a pernicious virus.

Next, Michael Porter’s Five Forces framework gained popularity among Friedman’s disciples. Published in 1979, the model focused on preserving and multiplying shareholder value. Essentially, it played the role of a step-by-step guide to creating a monopoly. His seminal article in HBR opens with this straightforward statement:  “The essence of strategy formulation is coping with competition.“ In other words, wiping out the competition is the right path to success.

Over the years, the Friedman Doctrine has been criticized by many academics and business practitioners. Among them was Jack Welch, one of the foremost popularizers of shareholder primacy. In 2009, several years after the end of his infamous “success” at GE, he called it “the dumbest idea in the world.” Even Michael Porter himself has toned down his strategic thrust, at least his later articles refer to the importance of corporate social responsibility much more often.

Yet, due to certain innate aspects of human nature, shareholder value maximization remains the dominant driver of a vast majority of business owners and executives.  Realistically, we will not be able to change the world and make business executives, who have been genetically modified, rescind the shareholder value primacy. Likewise, we can’t predict the future; we can only recognize some patterns that are likely to repeat themselves. In the case of Rogers, Friedman and Porter helped us understand and explain history (Part 1 and Part 2) and now – suggest what may come next.

Reading between the telephone lines

A solid foundation for the forecast has been formed over recent years. Based on the history of Boeing and its other “big brothers” in recent decades, it is plausible to suggest that Rogers has moved from an engineering company – to a cost-driven and business-oriented enterprise.

True, the Boeing – McDonald Douglas merger may have led to the crashes, not followed them. But it does not change the purpose of the merger, its nature, and the probable outcomes.

This suggests that the Rogers-Shaw merger will probably happen, albeit with a delay.

Rogers: The Shaw (merger) must go on

Rogers and Shaw pledged to press ahead with the deal and fight the government’s efforts to block it. Most probably it will happen as planned, within the next six months.

Like in the case of the Boeing and MCD-Douglas merger, Rogers has come up with a long list of “savings” and “efficiencies” that the merger is doomed to produce. Those “efficiencies” are mostly “economical,” expressed in numbers, and thus easy to understand and report (an important factor if you work for the government).

Likewise, the “Three-point plan” suggested by Rogers is like a 30-year climate change promise. It’s a checkbox requirement, and it is clear to all parties that circumstances and “leaders” will change, and there will be no one to hold accountable… Just let us merge now, OK?

What can delay the merger – is yet another outage or major problem in Rogers’s or any other network within the oligopoly. By the way, Shaw and Rogers brag often that they are two family-owned companies with quarter-century ties. That makes Shaw already part of the oligopoly – in the West of Canada.

Another outage is quite probable

According to Mr. Staffieri, “it is clear that what matters most is that we ensure this doesn’t happen again.” No doubt, “they” will try their best because their pay is explicitly dependent on the merger. Staffieri (who was Rogers’s CFO and former SVP Finance of Bell) got the top job exactly because “he played a lead role in delivering strong results and long-term shareholder value” and pledged to “remain focused on driving shareholder value.”

Thus, if a major issue surfaces before the merger, the merger will be delayed again – but hardly stopped.

It took 346 lives to ground Boeing 737 MAX. Since things aren’t all that bad in telecoms, an extra nudge might be needed. When that happens, we’ll hear yet another profound apology from the CEO. That’s so very Canadian, and it usually works here on all levels.

The expected outcomes of the merger

The Competition Bureau had clarified that already: The deal would substantially lessen competition by eliminating Rogers’ closest competitor in the wireless sector in Canada. The acquisition(!) of Shaw has the sole objective: to extract bigger profits for shareholders.

Here are the imminent results that will affect all of us:

  • Significant “downsizing” a.k.a. massive layoffs is the first step, even if the opposite was promised
  • Further deterioration of customer service
  • Increased mobile rates (at least de-facto, with inflation factored in)
  • More outages or minor interruptions of service (because when all imaginable costs have been cut, employees are forced to cut corners)
  • The percentage of temporary contract employees vs permanent ones will continue to grow at Rogers
  • For better or worse, the Shaw family will become one of the largest shareholders in Rogers
  • Freedom brand will be retired and former customers will be asked to forget about Rogers’s pledge to maintain the rates (plus, global rates are going down, so maintaining them may be a bad thing for users)
  • The effort to outsource support functions will resume/continue, leading to cost savings – and less control over the quality
  • Salaries, historically, do not grow after a merger
  • No internal root cause will be disclosed (probably some external supplier will be blamed again)

And, with some political aspects added to the “shareholder value” mix, Rogers may decide to close the Montreal office and “reallocate resources to a state-of-the-art development and training centre for employees” – elsewhere.

NOTE to CRTC Canada

  • You should treat the outage as a national emergency and a wake-up call for CRTC Canada, not just for Rogers core network.
  • You can use Porter’s Five Forces framework to determine what needs to be done to break the emerging monopoly.
  • Instead of letting another bigger animal swallow it up, help Freedom to survive – and set a good example and an invitation for future new entrants.
  • Restore fair rules of the telecoms game. Rogers may be a leader in the oligopoly – but Canada is a laggard in mobile on the global map. Without competition, Canada will continue to lag behind.
  • Even conservative sources suggest a mixture of public and private entities could be a good solution for national telecoms.  Should all employees, perhaps, own the stock?.. Should we split the core network from services?… There are many ways to rebalance society, and this may be a good opportunity to make the first step.

What we can do as individuals

  • Change the provider. You are entitled to keep your number anyway. Other members of the oligopoly will be happy to offer you a very good rate.
  • Do not accept the credit of a few bucks. Request realistic compensation for the business lost during the outage. What Rogers is planning to pay is a joke and it deserves a class-action lawsuit.
  • Ask Rogers (and not only) to make their ratio public, and chose your suppliers accordingly.

Note: there are two ways to improve any ratio; decrease the numerator or increase the denominator. Ever thought about that when considering top-tp-bottom pay ratio at Rogers?

Is this yet another coincidence?

Looking at this business case from the shareholder primacy top, some curious minds noticed another suspicious pattern in the timeline of events. 

  • The Friedman Doctrine gained popularity, and the shareholder-first mentality took hold of corporate America in the mid-1970s.
  • Coincidentally, in 1975, US scientist Wallace Broecker coined the term “global warming.”
  • By the end of the 1970s, the first studies on carbon dioxide impact on the Earth’s climate were started by the US National Academy of Science.
  • If you google for “global temperature history graph,” any graph will suggest that the Earth has developed fever only since the 20 century, and that fever may have gotten out of control since the late 1970s.

But that must be a coincidence that has nothing to do with this…

Or has it?  

What do you think?

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