Barbarians At The Gate: The Fall Of RJR Nabisco

The problem with financial capitalism appears both in the CEO of RJR Nabisco and the private equity people like Henry Kravis. The capitalistic system allowed them to leverage more capital from high risk sources (bonds and loans) which are part of this system. This phenomenon became more intense when the competition between CEO and KKR became bigger. Even if Ross Johnson could stop this competition by agreeing separate stock for each division (food/tobacco) or by splitting the company, he continued impetuously fighting for the exclusivity of the company. The idea of a buyout was given to Johnson by Henry.

However, Ross decided to go ahead with other firm and not KKR. His ego blindness made him not thinking clear. We could say that Ross Johnson hasn’t act in a moral way. Since he focused most on his personal interests he underestimated shareholders’ opinions and interests. From the begging, he ignored his colleague’s warnings about result of research on Premier cigarette. He could avoid this situation by listening to other’s advice. Moreover, he decided to buy out the company before even taking company’s shareholders green light. As a leader, he should trust his people in order to trust them back.

For this reason, the board couldn’t trust him in the end. The battle with the buyout turned to be a battle for self-interests and greed rather than creating value for the company and its stakeholders. Ross preferred to put in risk the company and all the employees rather than recede and cooperate. It’s not morally accepted being selfish as a leadership. In this case, Ross Johnson was more than that. He was fighting to buy the company not for protecting it but for ensuring that he could continue having a luxurious life. Moreover, living into lavishness by spending company’s money is not morally accepted, since you take advantage of the leadership’s power. It is outstanding how little this kind of large corporations care about their employees and consumers’ interests. Everything has to do with profits and satisfying self-interests. In this capitalistic system, unethical behaviors serving self-interests can manipulate and enhance individuals’ wealth which in turn aggravates economic inequalities in society. As far as inequality is concerned, this is one of the worst disadvantages of capitalism. A society based on capitalism works under the right to transfer wealth and well-being to next generations. However, if this wealth is manipulated only by a small amount of people and continues to be passed in the same people, then the problem with inequality and social separations becomes more intense. In “Barbarians at the Gate” case we see a small group of people like Ross Johnson, Henry Kravis, investors and people of Wall Street who manage wealth and take decisions against shareholders and company employees’ interests. One positive outcome of capitalism is innovation. Firms and entrepreneurs want to produce innovative products which can lead to more choice and product development.

However, Ross Johnson wanted to produce a new type of cigarette named Premier which appeared to be healthier for people in order to maximize his profits. Despite the advice of his colleagues, he didn’t hesitate to invest a big amount of money in R&D and in the production of product setting in danger firm’s and shareholders’ money. It is obvious that he wanted to take advantage of corporate social responsibility. Concluding, we could say that even if capitalism has lead people living under high standards and providing them high quality goods and services still can lead to worse effects like continuous consumption, society division, inequality and rise of corporate power. With the constant producing of wealth people can become greedy and selfish, trying to satisfy only their egos and interests. According to Adam Smith, this economic egoism can lead to social and economic injustice. “Barbarians at the Gate” is one of the most realistic examples of how capitalistic systems work giving food for thought of how capitalism can lead society.