There may be much more corporate distress to come

For years now, I have been warning of many a corporate collapse to come, on this page and elsewhere. We have been seeing unprecedented speed of change in technology; the far-reaching impact of demographics; and gradual handover of power from producers to consumers.

Globally, many a dominant company has been laid low. Japan’s giant Sony corporation has struggled to make a profit for years, and its peers like Toshiba, JVC, Sharp and Panasonic have faded fast. Britain’s Tesco and Marks & Spencer, icons of the retail trade, are in perpetual turnaround mode these days. America’s technology giants such as Microsoft, IBM and HP are having to reinvent their business models. Big global banks are perpetually announcing more layoffs and continual cullings of their executive suites.

Kenyan corporations will also not be spared. Many who have enjoyed bumper profits for years, helped by a burgeoning spending class and consumer society. A rising tide will not lift all the boats – just the ones without holes. And I fear the holes in many will now become apparent. We are going to encounter a number of high-profile cases of bailout and restructuring in the months and years to come.

Look at the business environment right now: interest rates are rising dramatically; the shilling is on a slippery slope. Many will be squeezed until the pips squeak.

But do not be fooled that those who tumble will be laid low by external factors. Corporations, it is said, are rarely killed; they usually commit suicide. As such, there are four key reasons why there’s still trouble to come.

First, too many of our companies only pay lip service to corporate governance. We appoint boards simply because the law requires them, not because we are serious about prudent management of company affairs. There are way too many puppet chairs and regal CEOs around, and not enough proper control mechanisms. Look at the many corporations showing distress; the reckless and dubious deals say it all. Too many directors are asleep at the wheel, offering neither navigation nor control, merely collecting meeting allowances.

Second, there is the problem of hubris. For many a corporate titan, a few years of rising profits seem to be enough to convince him that he is superhuman, an unprecedented business genius. There are not enough of us able to have the humility to recognize the role of luck and serendipity in our success. This is very dangerous, for those who cannot see their own flaws will not see the need for help when trouble strikes. They will persist with ‘plan A’ even when it is hopelessly out of date. They will look for scapegoats everywhere except in the mirror.

The third problem is that of strategy. Way too many of our companies simply don’t have a strategy. They have business plans, sure, but a true strategy is different. A strategy forces you to focus on what is distinctive, not what is par for the course. Standout companies, those who have unique business models and unusual ways of doing things, are truly rare. And when the going gets tough in an industry, those who were simply mimicking the rest are the first to get caught out.

The final and most lethal weakness: customer bonding. I am fond of saying: if your customer loves you, no competitor can harm you. But when I look around, I see precious little love between customer and provider. The bonds are weak, and they are limited to the transactional. Few companies have been able to build emotional goodwill with their customers. When that is the case, a better deal is usually enough to sway the customer. Fickle bonds with customers will cost many their businesses.

Technology, particularly mobile computing, is blowing through many an industry. Equally, a very young, always-connected, non-docile workforce and customer base will upset many an apple cart. To cope, your business needs to be many things: protected against scandal and scamming; shielded from big egos and quixotic initiatives; different from the competing pack in special, innovative ways; and in a proper relationship with its customers.

Is yours?

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