The Company Men

The Company men is a film based on how the recession and severe market plunge resulted in mass job losses, specifically leaving three of the main characters; Bobby Walker, Gene McClary and Phil Woodward redundant. The reasoning behind the mass redundancies at shipping and manufacturing conglomerate, GTX, was to downsize in order to raise their stock prices.

One main worry a shareholder would have here is that when the economic climate is facing difficulties, there is a large chance that GTX’s profitability will suffer. As a result of this, shareholders could make the decision not to invest In GTX due to concerns of whether or not they are making a large enough profit, in turn meaning that their share price will fall. This then explains why GTX would downsize, as having a lower amount to pay out for company salaries will increase their profitability and this therefore shows shareholders that their main aim is to maximise shareholder wealth. One theoretical concept that could also help to explain GTX’s thought process behind their decision is ‘The efficiency assumption’ (Cascio, 2002; Rigby, 2002). This concept makes the point that it is widely assumed that downsizing a company will reduce expenses, and as a result of this there will be improvement in two main areas; profitability and competitiveness. As well as this, GTX will want to increase their share price, as when it comes to investment, a company’s share price is used as a kind of window into the company and gives investors an idea of whether or not GTX’s current finances are healthy and whether or not they have future growth prospects.

Another issue that GTX face in the film is the potential threat of a merger or acquisition due to their low share price. In my lecture at university on corporate valuation, I found out that there is three basic ways to value a company, these being; Income based valuation, Stock Market Valuation and Net asset value-based valuations. The main form of valuation that can be applied to GTX’s situation in the film is the Stock Market Valuation, as in this instance a company is valued by finding their market value, which due to the economic downturn is currently quite low. Consequently, this then means that they are an easy target for acquisition, which is often mentioned within the film as the main thing they are trying to avoid. However, if GTX is unable to raise their share price, shareholders may make the decision to accept an offer of an acquisition, even if the board of directors advise them not to, otherwise known as a hostile takeover.

Although GTX decided to downsize as a method of raising share price, another method that they could have used is stock buybacks. This is when a company purchases their own shares either in the open market or from shareholders directly. The reason why this could help them to raise share price is because when GTX purchases these shares the number available to the public will decrease, therefore meaning that the business value for each share will increase, in turn making all of their stock more valuable. As well as this another way they could’ve prevented downsizing such a significant amount is by selling their newly bought luxury tower that they are in the current process of renovating. During a discussion on different methods of how GTX could increase their share price in the film, Gene McClary makes the point of mentioning selling the tower but is quickly shut down by company owner James Salinger. From my perspective this is just a perfect example of a money hungry business owner, as how on earth is it fair to make over 8000 employees redundant, but still be spending such a large portion of the company’s capital on a new tower, that isn’t a necessity? To put it simply, it isn’t fair.

On top of this it is also mentioned that Salinger’s annual salary is $22 million. Surely with the owner of the company making such a huge amount of money there should be some cash reserves that could be used to prevent even a few of the GTX’s redundancies. In my personal opinion when a company faces economic difficulties the owner’s salary shouldn’t sit at such a high level, when the simple decision to lower their salary by even the slightest bit could save a vast number of jobs. It just leads to the question of whether or not these successful business owners have any morality, however, in a competitive business world all business decisions are made with the intentions of survival and to put it bluntly its every man for themselves…

Cascio, W. F. (2002). Strategies for responsible restructuring. Academy of Management Perspectives, 16(3), 80-91.

Rigby, D. (2002). Look before you lay off. Harvard Business Review, 80(4), 20-21.