Corporate reputations came crashing down in 2008
Nothing in this world creates more wealth than private companies. And that wealth is spread around – to shareholders, employees, governments, suppliers and customers. The interconnected micro-world around the private company is the world’s most powerful economic ecosystem.
Those at the top of the corporate world tend to have a halo around their heads. We all want to believe in the unique wisdom, acumen and judgement of those who head the world’s big companies. Only an idiot would believe in politicians, after all; people from the world of art are too narcissistic and incomprehensible; and even men of the cloth do let us down when their secret foibles are revealed. So the savvy, go-getting, sharp-witted leaders of the business world are all we have, really. They HAVE to know what they’re doing…
Well, 2008 brought that idea crashing down. The devastating collapse of the world economy, of long-cherished companies, of trust and confidence, reveals that corporate titans are as short-sighted, as greedy, as dumb and as untrustworthy as anyone else. That is a damning conclusion, and as someone who has worked with the leaders of business across continents, a particularly painful one for me personally.
Consider just a few examples. General Motors, for so long the world’s leading automobile company, is now perched on the edge of a precipice. As it looks into the abyss, it is accompanied by its fellow American car-makers, Ford and Chrysler. GM has been around for a very long time, and has weathered many storms and downturns. But this one may be different. The company was forced to plead with the American government for a bailout; the alternative was bankruptcy. GM revealed that without a taxpayer bailout, its American operation might not even have made it past Christmas. Wow. Are we talking about one of the world’s most prominent companies, or some shady two-bit outfit in Nairobi’s industrial area, unable to make end-of-month salaries?
Citibank is probably the best-known global banking brand. It is renowned for its international footprint and vast resources, and is the place to work for many of the world’s budding bankers. You don’t get any better than Citi – or so we thought. Citibank, too, needed a bailout. Its shares had plunged so precipitously that at one stage late last year it was worth just $20 billion – down from $260 billion a year earlier. And it announced layoffs for a staggering 75,000 people.
Citi’s clients probably used to think they were with the world’s safest bank. When they found themselves no safer than if they had banked with a rickety Kenyan provincial outfit, they panicked. They were reassured by soothing letters that explained government depositor guarantees were in place, and promised that the ‘Citi never sleeps’.
Come on, guys. Never sleeps? The Citi’s top brass were asleep at the wheel for two years, letting an insane exposure to sub-prime mortgages and toxic derivatives build up unchallenged. Customers want their banks, not governments, to take responsibility for safeguarding their money.
And finally, let’s not forget AIG, the world’s biggest insurer. All this economic mayhem caused me to fall behind in my regular reading in 2008, and so I recently picked up a copy of the New Yorker magazine dated August 2008. In it was a full-colour advertisement entitled ‘+15′. The ad explained that “not worrying can reduce stress and add 15 years to your life”. It went on to boast “with the AIG companies, you’re tapping into more than 85 years of wisdom and expertise…”.
You may recall that AIG had to receive a huge government bailout shortly thereafter, otherwise it was going belly-up. And with it might have died the savings of millions in 130 countries. Wisdom and expertise? Can we deduce that subsequent events deducted 15 years from the lives of AIG customers?
GM, Citi, AIG. All have substantial operations and shared brands in Kenya. And here’s the bizarre twist: the Kenyan operations seem, thus far, to be fundamentally sound and well-managed, and have been at pains to say so! For as long as I can remember, the unspoken paradigm of multinational operations has been that local managers are dimwits and the ones at HQ are the bees’ knees. Now, Kenyan-based managers seem to be have been more sure-footed and prudent about risk than their foreign overlords, many of whom were demonstrating the ‘wisdom and expertise’ of the addicted crapshooter in a casino.
Those are but three companies I have highlighted, perhaps unfairly. Let no-one feel smug. Every person involved with big business had their reputation splattered last year, regardless of sector. Much rebuilding need to be done. It is a time for great humility. We will have to go back to first principles and relearn the basics of business, and to remember the duty of trust that society gives to every manager and director of a business. We got it all wrong, and now we must get it right. On which, more next week.