Why do so many good businesses go bad?
The problem with being a business commentator is that your subject-matter regularly lets you down.
Last year I was interviewed by NTV about the importance of ethics and integrity in business (a clip can be seen on www.sunwords.com). Great firms, I asserted confidently, do not become great by cutting corners or greasing palms. They thrive for decades exactly because they do things right – they build competencies, focus on customers, manage efficiencies. To illustrate my point, I reeled off a list of demonstrably great companies: Sony, Apple, Microsoft, Coca-Cola…and Goldman Sachs.
Yes indeed, Goldman Sachs. At the time, I was extolling the legendary investment bank’s staying power, as the only player left standing in its market through a combination of unrivalled corporate reputation and remarkable reach. All of which only serves to preface the events of last week, when Goldman found itself facing charges of securities fraud.
Now the jury is still out on Goldman, and as respected commentator Fareed Zakaria pointed out in Newsweek, we must not rush to judgement. In the transaction in question, the bank was arguably doing no more than arranging a bet between sophisticated parties. Both parties to the bet arguably knew what was in the deck of cards. Nevertheless it felt like Goldman left me on my backside.
But there was another banana-skin I recently missed stepping on. I was contemplating writing about the Indian Premier League (IPL), the cricket world’s most spectacularly successful recent phenomenon. The IPL’s youthful chairman, Lalit Modi, had created a global success story in just 3 years by combining a dumbed-down version of the game with Bollywood glamour and wall-to-wall corporate sponsorship. The IPL’s success is breathtaking: it has become a $4 billion business in next to no time, because of the manic loyalty of its Indian and global TV audience.
A great example of innovative business-model design in an emerging market, I thought. Well, that was then. The IPL’s cricket side is as popular as ever, but in the past two weeks the corporate edifice is showing signs of imminent collapse. The first casualty was Shashi Tharoor, erstwhile candidate for the UN’s Secretary General position and until last week a highly respected, urbane junior foreign minister in India. He was forced to resign after Modi dropped hints (on Twitter, of all places) that Tharoor may have benefited financially from his active promotion of a company that recently won a lucrative IPL team franchise.
As the fallout from the scandal grew, chairman Modi found himself in trouble amidst counter-allegations of opaque ownership structures and insider dealings. He was suspended from his post earlier this week, threatening to make further revelations and take others down with him.
I could go on. I used to teach Samsung Electronics as a business case in my corporate strategy programme. It was, I thought, an excellent example of an emerging-market company outdoing its western counterparts. The numbers are astonishing: Samsung is the world’s largest technology company by revenue; it commands 40% of the world’s flash memory market and serious shares in everything from printers to mobile phones to televisions. It makes up a mind-boggling 20 per cent of South Korea’s GDP.
I taught Samsung as a case in business excellence, led by a visionary leader, Lee Kun-Hee. Until that leader was convicted of tax evasion and breach of trust in 2008. He had apparently been running an extensive slush fund.
I cannot make conclusions about the guilt or otherwise of Goldman, IPL tsars or Samsung – that is for investigators to prove. I have to tell you, however, that there are days when I despair of this whole business of being a business writer and teacher and advisor. Are there any genuine success stories out there, or is everyone simply on the make? When we showcase success stories, are we glossing over the possibility that many make it simply because they are more brutal, more crooked, more crafty than the rest?
In such a poorly regulated economy as ours, how many so-called titans remain to be unmasked? How many swaggering business leaders will be revealed to be practitioners of the dark arts? Are things like competitive advantage and core competencies mere theories taught at business schools, when the reality is far more sinister? Is amazing business success ever genuine, or do we just turn our eyes away from all the underhand dealings that underpin it?
I usually descend into this sort of gloom for a couple of days, and then re-emerge. I am happy to report that in spite of all the setbacks, I invariably get back to my equilibrium position, which is that there is still a true north in business. There is still a right way to do things, a way that brings sustained success of the type worth having.
Let none of the charlatans and hucksters that dog the business scene deter us from doing things the right way. Allow me to spell out exactly why on this page next week.
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