Taking a punch and coming back strong

When boxing was a mainstream, popular sport in America it had its own colorful language.

Some words and phrases, remnants of a once rich vocabulary, continue to add imagery and zest to today’s writing and conversations. People still “weigh in” when they add their views to a discussion. A politician still has a “tin ear” and a beautiful woman is still “a knockout.”

Some expressions like “a ham-and-egger” – which described an inept boxer who fought for little more than meal money – have taken on new meanings. In financial circles, for example, it came to mean an undistinguished person who would hover around a large transaction but was a nonfactor in shaping it or moving it forward.

But much of boxing’s vocabulary has vanished. The disappearance of one expression in particular is regrettable for it is a marvelously compact description of a type of flawed boxer – and a near-perfect description of some businesses. A boxer who had a “glass jaw” was one who was skilled in footwork and could hit with power and effectiveness … but couldn’t take a punch.

We have glass-jawed business organizations, too, which do just fine when things are going well but simply collapse when they take a hit – from the competition, from technology, from the economy, or simply from fate.

Two such businesses have been in the headlines recently: Circuit City Stores and the Tribune Co. Both had taken hits to their bottom lines. Both, also, have responded badly.

Circuit City has terminated the employment of 3,400 of its most experienced hourly workers and plans to hire replacements willing to work for lower pay. The company, which is battling for market share with Best Buy, was disappointed when its sales growth last year did not meet announced expectations.

The company’s decision has received a lot of public criticism, and even Wall Street analysts, who normally applaud cost-cutting measures, are concerned about the effect on employee morale and sales. Additionally, a lawsuit has been filed against Circuit City by three former employees in Oxnard, Calif., claiming that the firings violated state law prohibiting age discrimination in employment.

Ironically, Circuit City’s immediate need to shore up its bottom line came largely from a $92 million loss from “goodwill impairment.” Of course, somebody should have stood up and told the board of directors that if the company believed its goodwill was impaired before the firings, in the words of Al Jolson, “You ain’t seen nothing yet, folks.”

But nobody did stand up and tell the board that. In fact, the entire cost-cutting strategy of Circuit City may simply reflect the company’s inability to confront adversity. Like the “clinch” in boxing, cost-cutting by itself is not a winning strategy; it is a survival strategy. If after the cost-cutting everything goes back to the way it was, the odds are that the company will continue to be battered by the competition.

The Tribune Co.’s response to adversity was different. The media conglomerate owns 16 newspapers, including the Chicago Tribune and the Los Angeles Times, as well as 26 television and radio stations and the much-beloved Chicago Cubs. Saddled with debt, and bleeding cash, the owners decided to throw in the towel.

The company was placed on the auction block and after six months of haggling and maneuvering, the board of directors agreed to sell all but the Cubs to Sam Zell, a real estate magnate, for about $13.2 billion. The Cubs will be sold separately.

The complex deal contains two elements of fantasy. The first is that a failing company already saddled with heavy debt can be made profitable by increasing its burden. This is roughly equivalent to thinking that when your horse pulls up lame the thing to do is ride double.

The second is Zell’s theory that the company can be made profitable simply by charging for product – news content – the Tribune Co. newspapers currently give away on their Web sites. While he is probably correct about this in the long run, this concept is not solid enough to support the huge debt burden this leveraged buyout is forced to carry immediately.

Many chief executives and top managers are under-equipped to deal with the financial adversity that firms sometimes encounter. Business schools do not train them well for this challenge and the natural selection process in business tends to promote those with records of success faster than those who successfully addressed failure.

Maybe the examples of Circuit City and Tribune Co. will prompt corporate directors to wake up and recognize the value of a corporate leader who can take a hit and still go on to win. It would be good for the economy, and for all of us, if they do.

James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101” monthly for the Snohomish County Business Journal.