Restoring Trust in our Companies11 November 2023
PART A. The Scenario that is Killing our Companies
Adapted from Enough of MORE: Better is Better, posted here on 9 November 2017.
llustration by Sergei Brovkin and DALL-E
I am finding it increasingly difficult to trust many of the large enterprises with which I deal—retailers, phone companies, airlines, others. Some I find trustworthy, many I don’t.
For example, I shop at Costco, in which I have full faith. Just about everything that I have experienced there, consistent with what I read about the place, has left me with the impression that they are working for me. So if I see something there that fits my need, I just buy it. No investigation.
Not so Amazon. Their website is a free-for-all, with prices for the same product all over the place, plus little tricks here and there, like discovering after I ordered something in blue that it’s twice the price of what was displayed in gray. Amazon’s tagline should be: “Buyer beware!” So I shop there only when I must, annoyed that I have to investigate everything very carefully, while I wait for a convenient competitor to arise. (Amazon beware: I am not alone.)
Why is this happening? I put it down to “the dumbest idea in the world.” So declared Jack Welch, the revered chief of General Electric (until he left), who a decade earlier with his fellow CEOs famously championed the idea called shareholder value, which has much to do with shareholders but nothing to do with values.
Only the shareholders count, not the customers, not the workers, not the local community. And count these shareholders do, every quarter. Miss the targets in one quarter, and the pressures arise to make up for it in the next—for example, by throwing a few thousand workers to the wolves of Wall Street, or finding some clever new way to rip off the existing customers. (Who says the airlines aren’t creative? They are masters at inventing new add-on changes for existing services.)
Consider this scenario, all too common in the business world today.
Stage I: Creating the enterprise
You have a compelling idea and lots of energy, so you create an enterprise. You may not have much money, but with the help of an understanding local banker, alongside your own sweat capital, you succeed. Your customers are delighted, your employees are engaged, you take great pride in having built a decent company within your local community, and the economy benefits too. Win-Win-Win-Win.
As the enterprise grows, however, you become concerned. What if you get hit by a truck? Or you wish to retire in the manner beyond that to which you have become accustomed. Or you are determined to grow faster than your existing resources will allow. Your financial friends tell you to do an IPO, an Initial Public Offering: cash out, and get the cash in. Let outside shareholders fund faster growth. It sounds good, so you agree. This becomes the turning point.
Stage II: Grabbing MORE
The first sign of trouble is the realization that, while you just wanted some more, the stock market is intent on grabbing MORE. It doesn’t care about your ideas or your customers or your workers, except as a means for relentless, one-dimensional growth—for the sake of that Shareholder Value. You are running a publicly-traded company now, so you must keep feeding the beast.1
As a consequence, a different feeling is enveloping your enterprise, replacing its sense of community. The mercenaries have taken over. The analysts are analyzing, the day traders are trading, the sharks are circling, the stock market is demanding—better performance every three months. Every three months! How can anybody manage a company this way? Was that IPO really worth it?
But it’s too late. Anyway, you are getting greater growth, albeit accompanied by greater pressure. Eventually you find yourself running out of the usual customers, and it’s tough to get new ones with the old ideas, and to get new ideas with this new Value—no spirit, no soul. And so comes the key question: How to get MORE when there is no more to be had, at least not in the way that you built the enterprise?
Stage III: Ravaging the enterprise
The answers are all around you: just look at other IPOs. (1) Exploit the existing customers. Bamboozle pricing is a good idea—customers can’t figure it out. And how about nickle and diming the customers—charge for everything conceivable. (“Will it be a gratuity of 20% or 25% for this automated service?”) (2) Trash the brand, to bring in new customers: sell it to those who were not willing to pay for the high-end quality of which you used to be so proud. In other words, get MORE by giving less. (3) If you can’t increase the revenues, you can certainly reduce the costs: cut maintenance, cut research, cut everything out of sight, except the executive perks. (4) And don’t forget to squeeze the workers, by putting them on short-term contracts at lower pay, without benefits. Better still, fire the whole lot of them and outsource. To hell with your community within its community. (5) And when all else fails: Diversify. Get into all kinds of new businesses you don’t understand. So what: you’re big now, with lots of money to throw at them. After all, the market analysts love the drama of mergers, until they flop—which so many do.
Stage IV: Ravaging society and self
Your enterprise has now become a great global corporation, with obligation to no country, least of all your own, where it no longer pays taxes anyway. So why not go whole hog, so to speak? Do well by doing bad: (6) Collude with your competitors to create a cartel, or better still, buy them out altogether—in the name of competition. (7) And, in the name of free enterprise, lobby governments all over the globe to grant subsidies to your industry, also to rid it of those annoying regulations. (8) If you do eventually go bankrupt, which can happen to companies that exploit, fear not: you have become “too big to fail.” Thanks to your political donations, the government you betrayed will bail you out, shifting the costs of your failure to society at large (a grand example of what economists, right in step with these shenanigans, call an “externality”).
One day you wake up to the realization that, above all, you have been ravaging yourself. “Could I have been responsible for all this, by doing that IPO? I used to love my business. We had a great time serving the customers I worked so hard to keep. I had pride in our place, our products, our people. Now the customers write me nasty emails and the workers glare at me when I see them (which is rarely). For what reason have I cashed in my legacy: to amass all this money that I can’t even spend?”
Coming next: Enough of MORE: We can do BETTER (Part B)
© Henry Mintzberg 2023. No rights reserved: This has a Creative Commons Attribution-NonCommercial 4.0 International License.
1. In March of 2015, a deranged pilot flew a Germanwings airplane into the face of a mountain, murdering 150 people. Just over a month later, a New York Times article reported from a shareholders’ meeting that “at a time when Lufthansa faces urgent commercial challenges…many shareholders expressed concern...that the Germanwings tragedy risks detracting management from its turnaround efforts.” One portfolio manager claimed that Lufthansa management “will have to come back to reality.” The murder of 150 people was apparently a distraction; reality is getting back to creating Value for shareholders.↩