The best lesson in damage control in the recent past by a major corporate player is Coca-Cola’s recall of 2,5 million bottles in Belgium in June 1999. This followed reports that children were being treated at a hospital after drinking Coke at their school. It appeared that production problems at two plants – one in Belgium and the other in France – may have been linked to this incident. Bans on the sale of Coke were imposed in several European countries while consumers in others steered away from drinking the stuff. Not only was Coca-Cola swift in implementing the recall; it also made a public apology for the incident and pledged to reimburse the medical expenses of those affected. After a fortnight, business was back to normal, proving that foxes sometimes come in the shape of a Coke bottle! Besides which, they have the fizz of the liquid inside.
Quite unfairly, foxes are perceived as creatures with plenty of guile but little moral sense. The truth is that foxes have a sensitivity to moral issues seldom demonstrated by hedgehogs who feel they are above the law. Foxes have good manners because they respect the little things in life. In this respect, what a splendid example of a fox was Fritz Schumacher, the German economist, who wrote the classic treatise Small is Beautiful, A Study of Economics as if People Mattered, first published in 1973. That went right against the trend in those days. Foxes are sometimes labelled as eccentrics, but they follow the old motto “manners makyth man”. Similarly, foxy companies have their idiosyncrasies, but they understand that a clean, decent image is a competitive advantage these days. Moreover, they believe in human interaction. It does a lot more for improving employee morale and changing behaviour for the better than new-fangled management techniques that come and go ever will.
One of the most famous articulations of the moral rules of the game is found in the Old Testament. The Ten Commandments are not only fundamental moral laws – otherwise they’d have been called the “ten guidelines” – they also form a good practical basis for running a modern society. It is interesting to note that of the ten commandments, eight prohibit certain behaviour and only two place positive demands on you. Falling into the former category are commands not to have other gods; worship golden idols; blaspheme; murder; commit adultery; steal; lie about your neighbour; or covet his wife, servants and possessions. In the positive category, the commands are to respect the Sabbath and honour your father and mother. In today’s world where lack of spiritual values, greed, bad language, violent crime, promiscuity and rape, theft, deceit, envy, workaholism and unruly children are a sad reflection of how little we have progressed, the commandments would appear to be a solid ethical framework for hedgehogs and foxes alike. They are not sentimental or soppy. On the contrary, the commandments are as hard as “full-stop rock”. For example, they are needed to stop modern evils like paedophilic rings on the Internet. Yet, they do not rule out the principal driving force of free enterprise, which is to pursue one’s own interests. They merely prohibit certain shady ways of doing so. Being foxy is fine: being a wolf is not!
Islam also offers absolutely hard and fast rules of morality. Indeed, it is the unchanging nature of those rules that give Muslims a fundamentally secure basis for life and the confidence to become entrepreneurs and run foxy family businesses.
However, for those who would prefer something with less of a religious connotation, the “four-way test” read out at the beginning of Rotary Club functions concerning the things we think, say or do is a good start: (1) Is it the truth? (2) Is it fair to all concerned? (3) Will it build goodwill and better friendships? and (4) Will it be beneficial to all concerned? There’s nothing amazingly original about any of these questions, but how many people – let alone companies – can answer them in the affirmative when making a decision? To the criticism that all this stuff sounds old-fashioned and prudish, our retort is that economic growth is only sustainable in the long run if there is a fair degree of trust between the governing classes and the governed; the country is peaceful and free of corruption and crime; citizens are generally healthy and free of stress; and a sense of justice prevails at large. We all talk now of working towards a civil society. Well, civility goes with the kind of values implied in the four-way test.
The old order changeth
Picture the moral rules of the game as an invisible spider web hanging in the ether, waiting to catch unsuspecting celebrities. Nothing can move a prominent individual faster from hero to zero than being caught in the web. Occasionally, a celebrity can wriggle his way out like Bill Clinton with his ingenious definition of sex. According to this definition, dimpled chads would not have counted as votes in the last presidential election. Work that one out! But the vast majority of the spider web’s famous victims end up being cocooned and forgotten.
Over time, the spider web changes shape and position. What was acceptable yesterday is no longer acceptable today. For many years in Italy, company directors oiled the wheels of the state’s bureaucracy with lavish bribes. It was the done thing. Suddenly the tide turned after the intervention of an aggressive magistrate; and many a financial director of ill-illustrious company was left high and dry, gasping for air on the beach as his colleagues abandoned him. On a wider scale, think back to the Romans. They offered nations around them a simple choice: either volunteer to be part of the Roman Empire or be annihilated by our legions. This brutal principle of empire-building stood until the middle of the last century. But then the rule changed and invasions were no longer allowed. Iraq’s Hussein and Serbia’s Milosevic were caught in the web. Now the web is closing in on dictators suspected of torturing and slaughtering their own citizens in large numbers, as well as those who siphon the nation’s wealth into their foreign bank accounts. In Roman times, CNN wasn’t around to film what the legions did to subjugate other nations. Now, the victims of a Western bombing raid on Baghdad are interviewed in their hospital beds. To television viewers, strong-arm tactics are unacceptable if innocent victims are a visible consequence.
In the world of commerce and industry, “corporate governance” is not just a buzz word. It is a new piece of the spider web, changing the rules of the game about how a company should be run. The positions of chairperson and CEO should no longer be vested in the same individual, as this concentrates too much power in a single pair of hands. For the sake of checks and balances, the chairperson should be non executive. The major subcommittees of the board of directors should also be chaired by non executive directors. Companies should issue reports on their performance in areas such as safety, health and the environment, as well as ones describing their social responsibility programmes. The traditional annual report is not comprehensive enough.
Hence, it is not the rules of the game that applied in the past that you should be considering in the first quadrant of our matrix, it is the ones that will apply in the future. Rules change. Just think of smoking! Next, it may be carbon emissions that have to be reduced in light of global warming and more frequent conditions of extreme weather. But, for a real flip-flop, you need look no further than the area of corporate strategy. Diversification was all the rage in the 1960s to reduce the risk associated with any one particular business. Now, the fund managers and market analysts want companies to focus. Stick to your knitting, go back to your core business, they say. Indeed, they want you, the company, to be the pure play, while they decide on the portfolio mix and diversity. Some would call it poetic justice, but of course the rules of the stock market have changed for the fund managers as well. In these days of instant information, frictionless trading and emphasis on short-term performance, selective crashes of individual shares – as opposed to the market as a whole – are becoming increasingly common. Unexpected profit warnings are a kiss of death and down goes the share by up to 50 per cent in a day. Markets generally can go up or down three to five per cent in a single session! The rules