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Good business is the only sustainable option

May 09, 2010 Strategy, Sunday Nation

Whether or not Goldman Sachs is found guilty of the various charges laid against it, its reputation has suffered huge damage. It is being fried at the court of public opinion, and faces an uneasy path back to its previously dominant investment banking position.

Many other companies face these ordeals, and they are usually of their own making. Corners are cut, compromises made, short-cuts created. Before you know it, the foundation of integrity has collapsed, and a culture of “anything goes” rules. Herb Kelleher, founder of Southwest Airlines and one of the business world’s good guys, put it well: “Your culture is what people do when no one is looking.”

After my piece in this column last week lamenting the frequency of corporate malfeasance, I want to take us back to the road of integrity. It is still very important to do things right in business, even when those around you are prospering by cheating. Let me set out the case why.

The paramount reason concerns the nature of business. Contrary to popular belief in Kenya, business is not just a series of shrewd transactions, where you benefit at the expense of another party. A good business is an ecosystem: an interdependent group of players who hold a stake in and earn a living from the workings of the business. Shareholders provide the capital – and earn a return on their investment. Banks provide funding – and earn interest. Employees run the day-to-day show – and gain salaries and meaningful careers in the process. Suppliers provide inputs – and gain from a long relationship. Customers enjoy the goods and services coming out of the business – and reward the ecosystem by providing the revenues that feed everyone else.

The business ecosystem works, and keeps working, if all the elements in the food chain feed properly. But if any one part of the ecosystem causes a breakdown, the entire system, sooner or later, collapses. Jeffrey Skilling of Enron infamy, now a guest of America at a correctional facility, presided over an outright fraud masquerading as a company. He and others caused awful suffering to employees who lost their pensions, customers whose contracts were not honoured, directors whose reputations were destroyed. Yet Skilling kept repeating one mantra to his accusers: “Everything I did I did in the interests of the shareholders.” Well, most shareholders lost everything, while a handful of crony insiders pocketed hundreds of millions of dollars.

It’s really very simple: if you have any interest in creating a business that generates wealth for multiple parties and continues to do so across generations, you have no option but to do things the right way. Your ecosystem will only work if you create sustained reward for every element within it.

When information was limited and the world disconnected, you could get away with sharp practice for a while. But Umair Haque, a business advisor, warns that the new hyper-connected world will not reward bad behaviour. Blogging thoughtfully at hbr.org recently, he asserted that the new world of business rewards good practice and is self-correcting: “Think about it this way. Wall Street banks sold the next guy toxic junk. But the next guy was selling their toxic junk right back to them. It’s the golden rule of network strategy: what goes around, comes around. When an industry or market’s connected tightly enough, doing good becomes the only game in town — unless, of course, you want to melt down catastrophically, like Wall Street did.”

Haque also provides the heartwarming thought that over time businesses are getting better, not worse: “…looking across the slow, steady sweep of history, it’s as clear as day. Yesterday, the global economy was built on debtors’ prisons, usury, expropriation, colonialism, and slavery. Today, it isn’t.”

The nature of society and its institutions also plays a key role in making business better. In the cases of Enron and Worldcom in America; Samsung in Korea; Satyam in India: there have been consequences. The perpetrators have been hauled over the coals, vilified in the media, incarcerated in prisons. Here, we are more likely to lionise malfeasants, provided they steal enough money. That is an appalling failing in our society, and one which, if not corrected, will cause our wholesale collapse someday.

At the end of the day, it’s your call. What do you want to be? Do you want to create a business ecosystem that generates reward for many elements, provides employment, fulfils need, contributes meaningfully to the society that sustains it? Wonderful: start working on the excellence of your product and the warmth of your service. Create a business that enters the annals of history and is admired by many. Your call.

Or are you just a self-absorbed mercenary who is looking for immediate personal gratification at everyone else’s expense? Then join the roll-call of degenerates and reprobates who have blighted human history. Whether you steal a few bob or billions doesn’t matter. For all your palaces and chariots, you are but a lowlife swindler. Also your call.

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