[OUTLOOK]American-style management bestAfter seeing Enron and WorldCom go bankrupt, some people prophesied the demise of the system of American management and called for an alternative. A column written by an Oxford professor that appeared in the Financial Times compares the current American recession to the Great Depression. Some commentators even tried to revive Marxist theories.
The "anti-capitalists" behind these claims say that the only way to set a market gone wrong right is to put it under more controls. They insist that the market system should be completely revised, although it is correctable if transparency is enhanced.
Yet, as we experienced after the financial crisis in 1997, there is no alternative to American-style management from which Korean businesses can learn. No management theory and education can yet replace those of the United States. With the exception of two or three European schools, the top 20 business schools in the world are all in the United States. This is evidence that business experts around the world acknowledge American management techniques. The majority of multinational corporations around the world also adopt American management. American management, in short, is no longer American, it is the global standard.
Take a look at result-oriented American management and salary systems. The Japanese style of management, which was once considered the golden rule, saw clear defeat after the 1997 financial crisis. We started seeing the light of cash flow-oriented management and learned the wisdom of discounted cash flow and EBITDA, or earnings before interest, taxes, depreciation and amortization. Through painful restructuring, many businesses were able to climb out of their crisis. Had we adopted the American style of management beforehand we would not have had to spend trillions of won of tax money.
What about Japan? The Japanese economy is buried under insolvent operations; the total size of insolvent assets had reached 52.4 trillion yen ($444 billion) by the end of last year. This is the worst financial situation Japan has seen since it opened to the world in the mid-19th century.
In a Fortune Magazine survey of the world's top 500 businesses, six out of the top 10 are U.S. businesses. Nearly 200 out of the total 500 are American. The United States also leads the way in long-term technology development and the international pharmaceutical industry, with its capacity to generate result-oriented cash flows. Only when "cash flows," do long-term investments also become possible.
On the issue of merit-based salary systems, some might claim that this system of evaluating individual merit is not appropriate for Korea's reality. Of course, there is the difficulty of converting individual capability into numbers. That is why more research is needed on this. However, if not a merit-based salary system, we would have to use the Japanese-style system of a pay-scale based on seniority. This would downgrade our management results and weaken individual creativity and a sense of future-oriented challenge.
The downside of American management, as discussed in the case of Enron and others like it, could be considered footnotes compared with the impressive results that the system has produced.
In contrast, European accounting standards are far looser than those of the United States and there are many times when account fiddling simply goes undiscovered there. Quite a few cases, though, have been discovered. Germany's Comrod, France's Credit Lyonnais and Belgium's L&H are a few. Window-dressing accounting practices have caused the value of Germany's second market to drop to one-twelfth of that in 2000.
There are several elements of American accounting techniques that do not fit our situation, such as class action lawsuits and the participation of outsiders on executive boards. These elements can be adjusted for our reality.
Excessive stock options, an element of American management considered to be evil, brought short-term result-oriented management, which in turn brought window-dressing accounting. Yet, American business is the most transparently managed business in the world.
As mentioned above, the key to decreasing management risks is to follow a world-recognized management model. All roads in international business still lead to the United States. At this stage of the knowledge industry, where creativity is emphasized, Japa-nese-style management would be only a hindrance. There are still many Japanese-style businesses in Korea with glossy surfaces but crumbling structures. Let's opt for a properly executed American style of management instead.
The writer is the chairman of the Korean Chamber of Commerce and Industry.
by Park Yong-sung