Picked from today's edition of Economic Times, the article reproduced below contains one of the finest voices of anger in these days of prevalent desolation. Its sense is outstanding. Comes with my hearty recommendation.
Nature of Business
Companies that make profit through greed, gorging and gambling hurt all of us, says an angry Rosabeth Moss Kanter — and the socially conscious and idealistic new generation is not going to stand for it
R. Sridharan and Vinod Mahanta WAY BACK IN 1977, she introduced the word ‘empowerment’ into business lexicon and till today, Rosabeth Moss Kanter remains a repository of cutting edge ideas on strategy, innovation and leadership. The Ernest L. Arbuckle Professor of Business Administration at Harvard Business School is the author of 17 books including best sellers like Men And Women Of The Corporation, Confidence: How Winning Streaks & Losing Streaks Begin & End, When Giants Learn to Dance, The Change Masters.
The 66 year-old grand dame of management was in India last month to deliver a keynote lecture at the Nasscom India Leadership Forum, where she met up with CD and in her inimitable straightforward style, discussed the leadership crisis, value lead capitalism, and toxic leaders. Excerpts:
Responsible leadership has started to sound like an oxymoron. Are we losing the battle for leadership? Clearly, we have hit bottom unless we have more revelations out there, which is entirely plausible because when the economy turns bad, it exposes more weaknesses. So we have examples of total failure of leadership, let alone moral leadership, and I am angry about it. On the other hand, we also have examples of some companies, which have redoubled their commitments to responsible leadership in the 21st century, literally, in the last few years. They may be exceptions but IBM and P&G are two shining lights. Companies from other countries as well, like Cemex from Mexico and Banco Real, a bank from Brazil, which took social and environmental responsibility as its differentiator, are doing interesting work. It’s a tremendous model and the bank wasn’t even caught in the subprime mess. They believed in values and prudent risk management, something that is missing in the US.
I have been talking of 3Gs — greed, gorging and gambling — and you can see I’m angry about it. It has hurt all of us, including charities and the world. One of the things that the Brazilian bank did was social and environmental screening of its customers. It was a courageous thing to do.
I am not saying that everything is perfect in these companies. Everybody makes mistakes. The question is how you deal with them. Do you let them pile up for you? Right now, is there somebody who thinks business is a tremendous force in the world and could be a tremendous force for good? If business capabilities can be applied to social problems in a way that public sector can’t do by itself, it can benefit everybody. We need the private sector but if it is so discredited, then we will lose this force for good.
Fundamental Attribution Error
What do you think is changing — human nature or the nature of business? On human nature, we don’t really know yet, but brain studies are starting to show us something and so are the gene studies. While we have selfish and individualistic tendencies, there are also great communal tendencies. Both are part of human nature.
On the brain side, in my limited knowledge, one thing that seems to be clear so far is that in the reptilian brain, the responses of fight, flight and protection get activated faster than other parts of the brain, like giving and altruism. That doesn’t mean they are not there. The history of civilisation has always been to transcend that which is most animalistic in our nature. People aspire to be higher and spirituality seems to be wired into the brain. Although I must say most wars and evil acts have been committed in the name of religion, we still can’t blame it all on human nature. But by nature, we are greedy. There are things that become socially acceptable over a period of time and it’s in the culture. I am a great believer in the culture.
As far as the nature of business goes, there is nothing inherent in the idea of profit, which says you have to make it in ways that violate social norms or that it has to come only in the short term. That’s the nature of the financial systems that are erected around the business and they can be dismantled. So we can change the rules as we have in the past.
I think companies with values are more sustainable in the long run because they are willing to make short-term trade-offs in the interest of longer-term benefits. It’s like what Winston Churchill said about democracy, ‘It’s the worst system we could imagine, except for all the others’.
Do you think the present financial crisis will change the way we do business? Will there be a movement towards responsible leadership?
I hope so and actually I think it will. Not today or tomorrow, but hopefully by the end of August, when people will be ready for that message. Because you can demonstrate that the surviving companies with good reputations and high sense of values are also profitable and that gets people’s attention. The rising generation is much more socially conscious and idealistic, and also somewhat angry. They are not going to stand for these practices and they now have new communication tools. So there is a big generational effect that’s going to help. And the problems of the world are much more apparent to people now. There is more pressure and interest in solving these big problems, and business has the capabilities. It’s really about a better way to run a company that pervades all aspects of business because when you begin with values and principles, you use them to assess what you do.
You speak of values-led capitalism. In these difficult times, can one realistically expect values to prevail over profits?
It does not have to be principles over profits. In fact, principles often get you profits because the bank in Brazil (Banco Real) that walks away from customers who didn’t pass muster on their environmental and social loan selection criterion, had the customers coming back to them with a plea to help them comply. They also got new customers who said this is where we would like to put our money. There is evidence that these two put together work very well. P&G had a product that they thought was a wonderful way to make a difference in the world, something the poor could really afford and needed. It’s a water purification sachet called ‘PuR’, and it turns out they couldn’t make a business out of it. There was a big argument in the company to pull the plug on the product but people said ‘we can’t do that because of our values’ and this is important for poor people. So they set up a nonprofit organisation and gave the sachet to it, and they got enormous goodwill from other partners, like NGOs and governments. After the tsunami, the demand for sachets was such that warehouses were emptied. So they recovered the cost but value to them came in employee commitment, demonstrating their values to the customers, and in many other ways. IBM gets more from their social contributors than from their business and products. IBM helped digitise the culture treasures of Egypt in a programme called ‘Eternal Egypt’. It was an internally funded project they said, and that got them not only important handshakes from government officials but some commercial projects as well because of the quality of work. A company doesn’t necessarily say to itself ‘we are doing it for marketing purpose’ but they do it because they believe it’s the right thing to do and they have value to add. And the benefits for some are large.
We heard about Motown executives flying down in jets to ask for aid. We had John Thain spending $87,000 on a rug and $35,000 for a “commode on legs”. Wall Street firms paying billions of dollars in bonuses while asking for aid. Didn’t a lot of problems originate from toxic leaders than toxic assets as it is believed?
Obviously, the two are connected. No one would have said John Thain was toxic before it happened. He came from Goldman Sachs, a firm that was considered a gold standard and has produced some great leaders and citizens. When he went to NYSE, he took less in salary as there had been a scandal. I think they don’t get it. They only get symbolism, they only talk to each other, they don’t have shame. The US doesn’t have a shame culture and we need a shame culture. We need to put them out at a public square and let the people who have been hurt talk to them. They just don’t get it. So when Thain says we paid bonuses we promised, he probably thought he was doing something honourable. I am not defending him. But he wasn’t exposed to the wider consequences of all this and sometimes people who don’t create the harm in the first place, are operating as usual and they don’t get it. Why did the auto guys fly to Washington in their jets? I asked a communication person in one of the firms, ‘weren’t you counseling him?’ He said, it was just normal business and Washington said it wasn’t a big deal, it was a done deal with Congress. But I think, there is a sense that people at the top have been too insulated from the public to understand how severe the consequence of certain actions can be. I feel we do need a culture change and Obama was trying to shame them.
When you do have a handful of companies practicing values-based capitalism, what is it about their culture that allows them to foster such values?
It has to start with the leaders. I remember being criticized as a sociologist years ago because I had to fall back on explanations involving individual leaders. But it does begin with leaders. New CEOs who take over have a sense of obligation to the country in which they operate. Leaders like Lorenzo Zambrano of Cemex, who wasn’t the founder but had the feeling that his company had to meet the highest standards. High standards are really something that these companies have in common, but to just talk about values misses the point. They aspire to be the best, one can call it ambition but then values mean being the best on multiple dimensions.
These companies are responding to the leaders and they are also responding to the times and these companies are much more in touch with their various stakeholders. They take in the feedback. If you are listening to a range of various stakeholders, you are much more likely to be sensitive to them. You are less likely to use a corporate jet when you are going for a handout.
In good times, everyone was a good leader. But now when the tide has ebbed, lots of people seem to be swimming naked. Are a lot of good leaders making bad decisions or they were not such good leaders to begin with?
They weren’t too good to begin with. I have no trouble in saying they don’t deserve a disproportionate share of wealth because they didn’t necessarily have to work very hard. I think they were probably okay, but not geniuses, and the times were good. Social psychologists called it the fundamental attribution error: in examining the behaviour of others, people exaggerate the role of internal causes and invoke traits as a primary cause. They were lucky to be presiding in good times when the companies had a lot of momentum, and they also had a lot of smart people working for them.
