Mama, Don’t Let Your Babies Grow Up to Be Distressed

At least he didn’t ban future procreation among his workers.

Last week, AOL Chief Executive Tim Armstrong told employees on a conference call why he was cutting their retirement benefits. “We had two AOL-ers that had distressed babies that were born that we paid $1 million each to make sure those babies were OK in general,” Armstrong said. “And those are the things that add up into our benefits cost.”

Condemnation, both inside and outside AOL, was swift and widespread. Writing in Quartz, Tim Fernholz summed up the general response, “How dare Armstrong (perhaps America’s most gaffe-prone CEO) single out these two women’s health care costs as a reason for cutting back on every employee’s 401(k)—especially when he’s personally on track to make $12 million this year?”

A mother of one of the “distressed babies” ventured into the fray herself. Armstrong “exposed the most searing experience of our lives, one that my husband and I still struggle to discuss with anyone but each other, for no other purpose than an absurd justification for corporate cost-cutting,” wrote Deanna Fei in an article for Slate.

Writing for The New Yorker, Amy Davidson argued that Armstrong’s comments represented something beyond cheapness: His “rationale is really just a riff on how much higher profits would be if you didn’t have to hire human beings.”

Perhaps the closest to a defense of Armstrong—who later apologized and reversed the slated benefit cuts—came from Bloomberg’s Megan McArdle, who complained that the costs are real and that “our emotional reaction to anyone who dares to mention our expensive choices makes it very difficult to have a rational conversation.”

Peter Drucker may have been sympathetic to the dilemmas that companies face in an era of high benefit costs. But he surely would have considered Armstrong’s remarks to be symptomatic of a much bigger problem in corporate America.

“Managers are fond of saying, ‘Our greatest asset is people,’” Drucker wrote in Management: Tasks, Responsibilities, Practices. “But while managers proclaim that people are their major resource, the traditional approaches to the managing of people do not focus on people as a resource, but as problems, procedures and costs.”

Armstrong’s $12 million in compensation also wouldn’t have gone unnoticed by Drucker.

Indeed, he called it “morally unforgivable” for top executives to reward themselves with fat paychecks while making cuts in the ranks. “As societies,” Drucker observed, “we will pay a heavy price for the contempt this generates among the middle managers and workers.”

What do you think of Armstrong’s comments and the resulting dustup?