The Barbarians at the Gate depicts the Leveraged Buy Outs (LBOs) of RJR NABCO, a tobacco company. F Ross Johnson is the CEO at RJR Nabisco and plans to buy the remainder of the company’s shareholders. After that, bidding began. Henry Kravis, George Roberts and other pioneers of LBO wanted to participate in the buyout. We will be looking at Ross Johnson in detail.
Ross Johnson began his career selling newspapers as a child. He eventually rose to the position of CEO at RJR Nabisco. He has a large and expensive house. He also enjoys smoking his premium cigars. He decides how investors’ money will be distributed. Ross Johnson runs the largest tobacco firm and seeks to maximize profits for his shareholders as well. He lives in capitalist society and reinvests his profits. A risk-taking businessman, Nabisco’s CEO was determined to finance research for Premier cigarettes. This research was unsuccessful. The stock price dropped and Nabisco shareholders became upset. The stock’s price dropped after the failure. Henry Kravis suggested that he buy the company. Ross Johnson rejected the proposal. Kravis claimed that he would not fire people because LBOs require that there be a reduction in employees. He realized that the last chance to increase stock was gone because of the failure to sell the new cigarettes. So he decided to purchase the company. Capitalism requires that shareholders make money through money, and not their labor. Agents who manage shareholders’ and investors’ funds are under great pressure to return shareholders’ profits. It is therefore not surprising that ethical considerations in business decisions can sometimes seem secondary. Ross Johnson, Nabisco CEO, has proven this. He was aware that he had a moral obligation not to buyout the company or fire the employees. However, he decided to sacrifice their lives for his luxurious lifestyle. He was not able to give up on his welfare and accept failure because of his self-interest and grid.
Adam Smith’s invisible hand theory suggests that individuals can use their self-interest to create unintended benefits for society. Adam Smith also stated that governments should have a limited role on the markets. RJR Nabisco was an example of the invisible hand causing more harm than creating a fair society. Ross Johnson, who promoted his selfish interests and lost his job, lost his luxury lifestyle and lost his job. According to the free market, you get what you need. Ross Johnson is a man that has been working his whole life. His business strategies helped Nabisco become a successful company. Johnson did not make a mistake and lost everything. The grid CEO failed in his duty to protect the employees makes it unfair that they lose their jobs. It is not just the responsibility of government to act, but also the moral responsibility of protecting the employees under such circumstances.
Capitalism is not complete without inequality. Capitalism rewards those that are creative, take risks and predict the future. They will be rewarded for finding a product and service that the market supports. Henry Kravis, a pioneer in LBO, was also a very wealthy individual. What happens to people who are less gifted? We can say capitalism encourages inequality because less gifted people have a harder time surviving in such a society. This causes an imbalance between gifted people and those who are less talented, or rich and poor.
Overall, capitalism has led to a high standard in living. As more people leave capitalistic societies, they have access to high quality products and affordable prices. The positive effects of capitalism must be considered. People are more self-centered and will sacrifice ethics and values to make it easier to live in a capitalistic society. The result is a society that creates inequalities between the rich and the poor, and finite resources being taken advantage of the powerful. My view is that government intervention is needed to make capitalism fair.
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