Monday, February 19, 2018

Stopping the train.

Things that really matter in keeping it together for South Africa’s future.

Love them or hate them, but current events have demonstrated how deeply ingrained the ANC has become in South African society. In many respects we are like a one party state, and the trauma that that party experiences, reverberates through all walks of life. Its leadership transition has created as much uncertainty and anticipation as the country experienced in the heady days of the early 90’s.

But these events have shown something else:
·        How easily power corrupts;
·        how fickle and fragile it is when it is based on patronage and loyalties shift from a weakened patron;
·        how effective opposition can be even without parliamentary power;
·        how political opponents can unite against a common threat;
·        how strong civil society can be when it says “so far and no further”, and
·        the supreme value of being guided by a Constitution supported by an independent judiciary and law enforcement.

The Jacob Zuma gravy train has been derailed. It may take a while for the carnage and broken corrupt carriages to be cleared, but history will reflect on these times as a painful evolutionary hiccup and stark cautionary case study. For that alone, 2018 has become a turning point and a year to celebrate even in its infancy.

As many commentators have opined, there’s certainly a lot more hope for a better future. But that does not mean there’s more trust. Indeed, the political uncertainty; corporate scandals; a still unacceptably high crime rate; increasing revelations of corruption, arrests and charges being laid, and the economic quagmire we find ourselves in, have all contributed to deepening distrust. We already have one of the world’s lowest levels of trust in institutions such as government; business; NGO’s and the Media; as ranked by the 2018 Global trust Barometer.

One could also argue that with none of these institutions being fully trusted, and because trust is one of the most significant factors holding a society together, we should be a dysfunctional society. Yet we are not. Only ultra-cynics, or some disgruntled ex-pats who lose touch with the day to day lives of ordinary folk, will argue otherwise. I fully appreciate that there are many of us, including myself, who have been affected, even traumatised by crime, betrayal, poor service, and of course the daily headlines that constantly highlight our capacity to do others harm.  But we go on, sustained I believe, by the number of benevolent acts that we experience more often than malevolence, and a pool of goodwill that despite everything, still exists between us.

Perhaps it’s the metaphor, but I am drawn to reflecting on another train.

Let’s go back a month or so, and to the maize farming town of Hennenman, where a full passenger train was derailed after crashing into a truck at a level crossing. More than 20 people died and about 200 were injured. Within minutes a handful of local folk rushed to help, saving many lives amid anguished screams from passengers trapped in carriages. Among the rescuers were two pre-teen boys – Mokoni Chaka and Evert du Preez – who have a firm friendship oblivious to racial differences, and who helped evacuate the injured, including quite a few infants. They created the perfect cameo not only of humanity’s instinctive empathy at an early age, but how what is most important to our survival bridges any differences between us.

A few weeks earlier, I too was hit by a train. It happened at a level crossing next to a settlement called Dutoitsrus in Buffeljagsriver near Swellendam. I had stopped at the crossing, but edged closer because of an obstructed view of the track. Then there was a deafening hoot just before I saw hundreds of tons of steel hurtling towards me.

Nothing I have experienced comes close to that split-second of paralysing terror. Fortunately I was not too far into the goods-train’s path and it hit the front left fender, spinning the car out of its way to end on an embankment next to a huge blue-gum tree. The train had stopped and I got out of the car. I was not hurt and within seconds was surrounded by many residents – mostly teens and youngsters. I sensed only genuine concern in their curiosity, and had no thoughts that I could be harmed. It’s strange how we often legitimately trust a moment, and then only later question the wisdom of it, mostly on the prompting of others.

Confusion! What does one do when you’ve stopped a train? Get details. Of what I don’t know, but I found a scrap of paper. One young man offered to testify on my behalf that the train had not hooted until it was upon me. But I could not write down his name, having committed a journalist’s cardinal sin of not having a pen. Then I felt a tug on the leg of my pants, and a boy not much older than four offered me his prized possession of a pencil stub. I wrote down the number of the train and name of the “witness” before putting the pencil stub back in my shirt pocket. There was another tug – and an outstretched tiny hand asking for the return of the pencil-stub.

Soon I was surrounded by railway forensic staff and I suspect most of the police contingent at Swellendam. The crowd too had swelled, while crime scene tape was stretched for hundreds of meters around the train and surrounding area. An elderly lady offered me some mineral water, and soon thereafter another on crutches offered me half a bottle of coke. “For the sugar,” she said. I can’t remember how many people approached me with offers of help. I can only remember the genuine warmth and concern around me, including police and railway staff.

There are many things that made the event memorable, apart from the rarity of being hit by a train on a scarcely used line. Among them was the fact that the car had minor damage and I could drive it away, while the train was stuck for 5 hours to undergo repairs to its steel sweeper. For a while, friends and close acquaintances called me the “train stopper”. Fortunately that passed before some village joker was tempted to ask: “Did he really need a car to do that?” But what will linger for the rest of my life is how those folk at Dutoitsrus confirmed my deep faith in humanity and its capacity to care.  

In the larger scheme of things and the current turmoil, these reflections may appear counter-intuitive and perhaps even trivial. Not so when one considers how many thousands of times they are repeated in different ways throughout society. As long as we have that and continue to demonstrate it, it outweighs all else in holding our society together.

Monday, February 5, 2018

Hope and Trust

Will increased hope improve the low level of trust?

Few states are more important in society than happiness and trust. All of the other indicators and measurements we use to gauge societal and economic health pale into insignificance compared with these two. Not only are they codependent but ultimately they will also affect all others things that we think are important. 

I remember some years ago there was a significant global debate on incorporating levels of public happiness and life satisfaction not only as important metrics, but also as significant components of official policy. There’s no point, it can be argued, in having growth, income and employment targets as the primary policy goals, while people are disgruntled. That debate seems to have died down, most likely because of the extreme difficulty in measuring them, but perhaps too because it’s a fair assumption that a large part of humanity remains miserable, angry and for the most part in rebellion against the establishment.

Trust is largely created by personal experiences but can also be significantly influenced by external factors such as improvements in the economic and political climates which engender hope in the future. Globally there has been a marked improvement in economic growth prospects and domestically there has been a complete shift in prospects in a few short months, so adequately outlined by Hilton Tarrant in this Moneyweb Article that further treatment here is unnecessary. Indeed, South Africa’s economic prospects are suddenly a lot brighter.

But will this translate into greater trust? That will take a lot more time and depend not only on economic and political factors. On the global front, economic prospects are very fractured and come with a growing fear of national isolationism and protectionism. There is growing concern also of the financial nature of this growth and the prospect of a repeat of the 2007 great recession. Domestically, much has to happen to restore trust in both government and private sector institutions. The apparent collapse of a corrupt cabal in the wake of some incredible exposé work last year by the media and many others, has to be followed up by rigorous accountability, law enforcement and retribution; as covered in my last article last year. This seems to be happening and could make 2018 one of the most significant life changing years in South Africa, should some of the criminals, including those in the private sector, end up behind bars.

For quite a number of years, one of the most credible global trust reports, the Edelman Trust Barometer, has consistently shown disturbing declines in levels of trust. Its 2018 report is not much different, but could be overtaken by recent events, especially in South Africa. Yet, it is useful to reflect on how it saw 2017 compared to the previous year which it described as “trust in crisis”. The global report, tables and graphics are available at this link.

The Trust index of all of the 28 countries measured has improved by only 1% – from 47 to 48 – in trust in the main institutions of Government, Business, NGO’s and media. However, that means that we are still living in a world where these institutions are mostly distrusted, and hides the fact that one more country has moved from neutral to mostly distrusted. Trust in all South African institutions declined: government by 1% to 14%; business by 3% to 53%; NGO’s by 8% to 50% and the media by 4% to 35%.  

What this is saying is that no institutional sector in South Africa is fully trusted any more, with 2 having neutral scores and 2 being outright distrusted.

Some of the global highlights include
·        The rise of experts in trustworthiness.

·        Respondents saying they want CEOs to take the lead on policy change instead of waiting for government, which now ranks significantly below business in trust in 20 markets. (A point I have repeatedly raised in my own articles.)
·        A highly significant plunge in trust in social media, due to the occurrence of fake news. This in turn has raised trust in journalists themselves, particularly in reports where sources are named. There is a swing from trusting platforms to sources, but even here, as we have seen with the reckless Viceroy reports, sources themselves can be highly suspect. Excessive hyperbole and hysterical panic mongering in their work bear testimony to dubious motives and are never seen in serious company analyses.
·        The global polarization of trust where some countries like China have had massive trust gains, and others like the U.S record breaking declines.

The last bullet perhaps answers a question many South Africans were asking after Donald Trump was elected President of the U.S.: “Who had the worst leader: Americans or South Africans?”

This may be a hint because trust in the U.S. has suffered the largest-ever-recorded drop in the survey’s history among the general population. Trust by that group fell nine points to 43, placing it in the lower quarter of the 28-country Trust Index. Trust among the informed public in the U.S. imploded, plunging 23 points to 45, making it now the lowest of the 28 countries surveyed, below Russia and South Africa. But mischief aside, this refers to trust in all four institutions, and not government alone, and by an informed group and not the general population where the U.S.’s 43% is still significantly higher than South Africa’s 38%.

2018 is certainly going to be a very interesting year. Let the games begin. In many respects they already have.

Monday, November 27, 2017

Immunity breeds impunity

Accountability's missing link -- jail time!

As VIP’s go, you can’t get much higher than a Saudi prince, specifically billionaire Prince Alwaleed bin Talal al-Saud. With a Forbes net worth rating of $16,5bn he is one of the richest men in the world and has large holdings in some of the biggest global companies. I wrote about him some years back (see When Billionaires pout) when the prince threw some of his golden toys out of the cot at not being ranked higher in the Forbes listing of richest people in the world.

Now he has been arrested among dozens of princes and former government ministers as part of a sweeping anti-corruption probe in the country; a difficult thing to fathom in a state that has been rife with endemic corruption and is one of the most repressive regimes in the world. In addition, the purge is clearly part of a very tangled web being weaved around power in the royal family and in the broader context of Middle East geo-politics. But it is the kind of action that might just lift the Kingdom from its 62nd ranking in Transparency International’s corruption perception index, which, surprisingly perhaps, is two ranks better than South Africa. Top spot as the world’s “cleanest” nations is shared by Denmark and New Zealand.

The global rebellion against corruption has become intense.

“In too many countries, people are deprived of their most basic needs and go to bed hungry every night because of corruption, while the powerful and corrupt enjoy lavish lifestyles with impunity,” says José Ugaz, Chair of Transparency International.

Unemployment, poverty and especially inequality create a passionate intolerance of brazen corrupt behaviour and of political largesse and nepotism. It has been a key factor in the global assault on the establishment and the rise of populism. One may be tempted to use events in Zimbabwe as an example, but that has been more about political power mongering than a popular uprising against corruption. This in itself shows how corruption fuels political instability and factional conflict.

We are seeing much of that in South Africa too, but South Africans themselves cannot be accused of indifference towards corruption. These past few months in particular have seen an unprecedented public outcry against the behaviour of some of the political and business elite, including household names in institutional finance. Opposition parties have been active in parliament, the streets and courts; parliamentary committee meetings have become courtrooms with members of all parties practising their prosecuting skills; investigative journalists are writing best sellers with new revelations each day, and civic organisations have adopted law enforcement roles in various ways. We salute them all. We should support them all. These are the good men and women who do NOT allow evil to flourish by standing by and doing nothing

But what is needed now is for one or a few of our own untouchable princes, including some of those in private sector institutions, to be handcuffed in his or her office, marched to jail and subjected to robust prosecution. We have named them. We have shamed them. They should now go to prison.

One can name, but one cannot shame the shameless.

There is enough evidence to institute a high level prosecution. Perversely, the public parading of all of this evidence is aggravating perceptions both here and abroad, of the depth of corruption. We have shown the world our dirty linen. We have not shown that we are prepared to wash it. It’s a moot point whether there aren’t countries that are more corrupt than South Africa, but rank better simply because of media and public repression.

Perceptions drive trust and the biggest price we are paying for both the levels of corruption and the uproar around it, is a widening of the trust deficit. That has become an important factor in holding back economic growth. Imprison one or a few high profile miscreants and trust will gain a substantial boost. Legal retribution is now no longer only about fair play and justice; but also about economic growth, credit ratings, jobs and prosperity.

Judicial commissions, parliamentary committees and enquiries, may add to the heat, but will do little to burn the criminals. Like the enquiry into tax morality, which is a ludicrous oxymoron. How can you can expect tax morality when you have immoral tax spending?

There are many who are hoping that the much talked about ANC’s elective conference next month will be some kind of watershed in the fight against corruption. At least all candidates have included it in their personal manifestos.  It’s little more than typical political incoherence and hypocrisy. It is doubtful whether this fish has rotted only from the head, and that a different head will stop the rot.

What was once viewed as the ruling party’s greatest strength, has become its greatest weakness -- its strong decentralised power structure and the power vested in its branches. From the early 90’s, elections in these branches had become little more than job-hunting by unemployed cadres. Political position was made convertible into employment in all forms of government, S.O.E.’s and supply chain patronage. It was even a good credential to have in seeking employment in the private sector. The extent to which this qualification influenced appointments in executive and administrative positions has undoubtedly aggravated poor service delivery, but its effects on the branches themselves are now obvious in sometimes violent contestation for branch posts and the degree to which branches, regions and even provinces are often in disarray.

Corruption has become systemic, not only in party structures, but in the broad government and related bureaucracies. That is not counter-intuitive to the need for prosecution at the top. It may not make a clean sweep throughout political, government and private sector institutions, but will certainly dramatically change foreign and domestic perceptions about corruption in South Africa.

Wouldn’t that be a nice Christmas gift for the nation?

Monday, November 13, 2017

What the ancients knew.

An enduring principle that can help rescue the economy.

From a distance it looked like an ordinary broken stone. But when farm manager, Adrian Sutton, got closer, he realised that the piece of rock surrounded by cobbles of different sizes, was not shaped by accident. Its symmetrical design formed an axe-head that could fit into a large hand. It was later identified by experts as having been made during the earlier Stone Age between about 400,000 and a million years ago. They are often found in old river gravels, in this case between the Breede River and the Langeberg Mountains to the north; where the cobbles that were rounded by the natural tumbling action of water over millions of years were left on terraces above the river as it cut deeper into the valley.

The prehistoric creature that shaped that axe-head so long ago was one of the earliest manifestations of a social principle that has endured for millennia – that of adding value. The difference between the original rounded stone and the axe-head, and the time, effort and purpose it took to make it, represents value added for his or her particular circumstance. That principle has shaped the destiny of our species and remains the key underlying force that accounts for progress and the difference we make to others lives. It was only a small, but highly significant leap for those ancient creatures to start making such implements for each other, creating a powerful force of social co-operation and cohesion. Exchange and barter was a natural consequence of that, and soon a means of exchange, or money, was developed to ensure smooth transaction.

And so we can draw a direct line between that axe head and everything that underpins all of the complexities of our modern co-existence. 

It is no coincidence that the more we have moved away from adding value as the supreme principle of creating wealth and generating prosperity, the more we have created distortions and arguably many of the critical problems modern economies are facing. These include over-financialisation and the ability to accumulate wealth through rental income; contamination of price discovery through overwhelming speculative and derivative markets; critical levels of inequality and the growing displacement of labour as a significant contributor to and beneficiary of wealth distribution, which in turn feeds market demand.

The supremacy of the value-added driver over any other such as profit-maximisation; shareholder value or even standard productivity measurements is its three dimensional nature and broad inclusivity. These are: transformation; measurement and intent.

TRANSFORMATION: Common understanding of value-added is restricted largely to its physical transformative nature – in other words changing one item into another that is more useful – like a stone into an axe-head, or gold into jewelry. But of course it applies to changing situations or circumstances a well, such as retail, distribution and entertainment. What is mostly lost sight of is that value is always determined by the end user, and without a very determined focus on making that the purpose of transformation, value creation is restricted – in some cases even destroyed. One could apply the same argument to South Africa’s Radical Economic Transformation policy.

The transformation dimension of value-added is a far superior and robust productivity enhancement tool than the standard cost accounting approach. This is because it embraces not only scientific measurements but also subjective criteria that speak to meaning, or the meaningfulness of the transformation itself. Everything has to be tested against usefulness to the end-user, not merely to the agent or provider. That approach keenly questions much of wasteful assets and actions.  A conservative and intense interrogation of any expenditure or action that asks “what difference will this make to our customers?” quickly shows red-flags of unnecessary and wasteful activities. The less clear the usefulness can be defined, the bigger and brighter the flag should be.

Long held assumptions, such as ostentatious head-offices, huge ad-spending, lavish executive benefits, and even many of the employee fringe benefits should not remain holy cows. I have for some time held a rather contentious view that the adage that “happy employees make for happy customers” is demonstrable nonsense. It should be reversed to say: “happy customers make for happy employees”, especially if customer satisfaction is linked to employee benefits triggered by improvements in the value-added measurement.

MEASUREMENT. I have dealt with this at length in previous articles covering the Contribution Account, which is a purified version of the value-added statement or cash-VAS, such as this one extrapolated for the mining industry.

It should be noted that benchmarks such as market pricing for labour and capital, or meeting the legitimate expectations of those constituents, are important in assessing the appropriateness of their share of wealth. This is especially useful in identifying trends over a certain time. What is perhaps less appreciated is the significance of using value-creation as a productivity test, especially in teams and divisions, sometimes even at individual level. This is becoming easier with enhanced data gathering and sensible norms of transferring costs. Techniques such as throughput accounting, are also useful.

Beyond measuring, the subjective assessment of usefulness to the end user should always be a key concern. This focus is by far the best method of engaging employees and other stakeholders in the destiny of the enterprise. It may be a useless exercise, but at every turn, companies should make this dimension of value added known to government, and perhaps do their own calculations on the bang for tax buck they are getting. It’s a good conversation to keep alive. Shareholders too, should become more acutely aware that profitability and sustainability go hand in hand with creating maximum value. This, and the role they can play, should be a key focus at shareholder meetings and in executive remits.

INTENT. The intention to create something useful for others is the whole purpose of adding value. Championing motives such as profit, wages, taxes, or any other self-gain as key drivers of wealth creation are counter-intuitive and detract from that essence. It’s an argument I have repeated many times over the years, and fits in with my understanding of humanity as being essentially empathetic creatures, and not the predatory cannibals often mistakenly attributed to Adam Smith’s view of humanity and depiction of the invisible hand.

Value-adding is at the heart of trade, innovation, evolution, competitiveness, social cohesion, progress and prosperity. It is powerful and simple. Adopting it in everything we do; as a life-style and purpose, is a near guarantee for success – at a personal, company and country level. If ancient creatures with limited cognitive capacity could understand that, then so can the modern child at a very early age.

And so they should. Because it is a principle that will add meaning to their adult lives.

Monday, October 30, 2017

Beyond share empowerment schemes.

Lessons from the failed SASOL Inzalo share empowerment scheme.

In their heyday, employee share option schemes, or ESOPS, were nothing more than an extension of the agency system: that much vaunted snake oil of the 80’s which enticed executives to “think like shareholders” and pursue the narrow dictates of shareholder value growth.

“The world’s dumbest idea”, declared American Industrialist, Jack Welch back in 2009. Adam Smith, if he were alive today, would no doubt concur. Perhaps even Milton Friedman, the ultimate champion of shareholders, would agree.  One can’t blame shareholders only. They are such a divergent at times perhaps even naïve group with varying interests that to attribute to them clearly defined expectations in the form of abstracts concocted in business schools, is misplaced at best.

At the same time it made them easy prey for a new mercenary breed of executives who understood those theoretical concoctions enough to create smoke, mirrors and myths around their exceptionality and exclusiveness and extract maximum short term gain from that body. Finally along came King and regulations. It is not appreciated enough that governance prescriptions were not triggered by a social rebellion against executive misbehavior, but by shareholder wrath. It’s a moot point whether the executive mercenaries have been curtailed by the outcry. They are by no means defeated and despite the mounting body of evidence against them, shareholder-value criteria, according to an article in Forbes Magazine, still predominates most of executive thinking.

The key lesson from Sasol’s Inzalo scheme is the limitations these programmes have in broad based black economic empowerment. The costly and complex nature of a massive multi-billion rand exercise such as the Sasol scheme must surely beg the question whether they can really deliver on their large promise, even if market conditions did not turn against them. From a labour perspective in particular, no one can still seriously consider ESOP’s as a method of enhancing employee involvement in the destiny of the enterprise. If you view a company as a feedlot; as a means of extraction then you will focus on where you can extract the most. As a worker the more you extract through wages, the less you can extract through profits. That creates an inherent conflict of interest.

But one could use the same argument against all of the three estates of labour, capital and government – all viewing enterprise as a means of self-gain rather than an opportunity for contribution. This has naturally swung economic emphasis globally from tangible wealth creation to wealth accumulation and ownership. It is value-adding, or wealth creation, and not wealth accumulation that encourages inclusivity and broader empowerment. Because the latter naturally encourages concentration, it will always end up in the hands of the few and exacerbate inequality. It’s a disastrous formula for a country like South Africa, where even wealth creation itself fosters huge disparities through skills shortages, unemployment and barriers to opportunity.

In a world obsessed with possession it may sound counter-intuitive to argue that possession on its own does not represent power. Ownership that exists purely for self-gain and self-gratification becomes barren as an economic factor, especially so when they are productive assets. Responsible major shareholders know this. And private owners of small and medium enterprises even more so.

Asset ownership, whether in the form of capital, land, property, equity, or companies themselves is a highly flawed cornerstone of populist rhetoric and regulatory thinking. I have often argued that business itself has invited this response through its own championing of shareholder supremacy, of profit maximization and of a narrow definition of purpose. But now politicians themselves seem to understand that power, or empowerment, cannot be narrowly confined to ownership, and have added “control” and “management” in their latest Radical Economic Transformation framework.

That does not make the framework better, but indeed even more flawed. It’s a classic case of where macro theory simply clashes, or is destroyed by the micro reality. And I’m not even talking about the obvious of the shortage of skills, experience, and expertise to change the current racial composition of “management and control”. The entire empowerment framework has to change or be redefined to embrace tasks, operations and ownership: and in that order.

It starts with the individual taking ownership and responsibility of his or her own destiny and at the very least be willing to make a meaningful contribution to their social and economic environment. That willingness is reflected in their daily tasks, mainly at work, which are part of operations that have a common purpose in adding value to society, or customers. Such a commitment removes any barrier to being part of “management and control” and it is a small and valid leap to being given equity in the company itself. Only then will share option schemes make sense. To summarise then, the progression of empowerment is from self-accountability; to ownership of task; to operations and then to assets. A lot of this presupposes the existence of means and abilities to pursue that process, but the most important is individual willingness and a shift from expectations to aspirations. Achieving this in society starts with parenting, then schooling and then proper skills development. In companies themselves, individual ownership can be much enhanced through appropriate strategic, transparent, and governance models such as the Contribution Accounting methodology.

Self-worth is not simply about self-gain. The ownership-equals-power assumption rests on a shallow understanding of power itself. Authentic and legitimate power is earned by its contribution to others. When it does not do that it is simply control, which relies either on seduction or coercion. Ultimate empowerment is that which enables one to make a positive difference to people’s lives. It’s based on the simple premise that our true value lies in our capacity to make a contribution to others.

That’s how we judge others. That’s how we should judge ourselves.

Monday, October 16, 2017

The wealth distribution obsession.

To the point of Incapacitating wealth creation itself.

It’s a cliché, I know, but one can only imagine the positive change that is possible if South Africa, or any economy for that matter, switches focus from wealth distribution to wealth creation. No matter which way one looks at it, one cannot share what has not been created. Eventually all the intangible vapour that has been created through debt, financialisation and asset appreciation, will have to find some anchor in the production of goods and services.

That means being market driven, serving customers and creating a link between meaning and money. In my first article (see here) on following meaning in wealth creation, I argued that  our customer focus is in an appalling state as shown by poor service delivery, customer neglect, streams of cases before the Competition Tribunal, lack of competitiveness, and poor levels of innovation.

One could argue further that all of that is due to a very narrow focus on wealth distribution; on reward rather than contribution, which translates into exploitive behaviour by the key “internal stakeholders” of labour, capital and state in the form of wages, profits and taxes. It spawns a relationship between them that is inherently antagonistic. That is highly counter-intuitive to wealth creation: detracting from the only common purpose that those stakeholders can have and which gives not only meaning to their involvement but fosters the source of all rewards.

No amount of stakeholder management, concessions and tolerance will be effective if each maintains a narrow self-gain purpose without swearing full allegiance to a common serving purpose. That will only happen when each appreciates that they all also have a common fate in the enterprise.

Given the unprecedented re-examination of macro-economic theory, the time has never been better to extend that to the micro; to companies and organisational theory itself. That world has been changing even more profoundly since the early 80’s, with South Africa in some respects ahead of the pack, and in others trapped in outdated theories and ideologies as well as onerous demands for transformation. When these externally driven forces translate into a tug of war between the main internal stakeholders of labour, capital and state trying to maximise their own benefit, the biggest loser is service delivery and customer focus. That has a far bigger impact on wealth creation than global economic conditions or the external economic environment.

There are laudable attempts at a national level, through organisations such as BLSA, Nedlac and others, to create greater economic cohesion between the three economic estates. But this is mostly in the form of a haggle around trade-offs, and often gets derailed by political rhetoric, distrust and exaggerated demands. Stalemating can only be broken by facing an existential reality: all have a common purpose in serving markets and creating maximum wealth, and all are dependent upon the value added for their respective rewards. That distribution can at the very least be pegged to some broad principles: it has to meet legitimate expectations and it has to encourage continued contribution.

That, in a nutshell, is the base of meaningful relationships between the contributors or beneficiaries of wealth creation in business. Those critical relationships, as I have argued before, are destroyed by having absurd theories, abstracts, metrics and aggregates define them. That demeans the entire venture to a mechanical money making process, away from its true nature as an eco-system of people serving people.

Largely through its own doing, labour has commoditised itself as an institutional abstract, priced according to supply and demand for skills and qualifications, and accommodated as a “cost to production”. That crass understanding simply disappears when one argues that labour has made a contribution to the market through the company structures and processes, and then receives a legitimate share of the value that has been added. In my consulting and training days, I was constantly struck by the extent to which the true meaning of all work, that of creating something of value for others, is simply lost in conventional expression. But more encouragingly, attitudes become far more flexible when the link between task and contribution is made, incumbents are involved in customer and productivity improvement processes, information is shared more openly and fortune sharing incentives are introduced.

The hard nut to crack, is the dogmatic approach to capital interests, and the absolute holy cow of shareholder supremacy. A good example of this can be found in an attempt by BLSA research (see here) to debunk the corporate cash hoarding “myth”. Apart from some magic with metrics that can be challenged, the key trap that the researchers fell into is the assumption of a “generic capital model” that applies to all investment in business and that has unshakeable and invariable expectations. Even if that were true, the whole construct of investment in business has changed dramatically in the past few decades. It is simply impossible for normal ventures with even acceptable risk profiles to compete in financial markets with quadrillions of dollars incestuously looping around for quick and lucrative returns. American author and columnist, Rana Foroohar estimates that only 15% of the money in the financial sector is invested in business.

That demands a review of old paradigms around enterprise funding and even some of the dogmatic expectations captured in key measurements such as EVA, ROI, ROCE and the plethora of others. It may even need a new approach to capital formation in productive capacity generally, including more partnerships between capital and state, like we have seen in Asia and specifically the South Korean Chaebols. But let’s be clear: no-one can accuse these nations and their companies of not being truly market- and customer driven. That is a non-negotiable and it virtually rules out the South African government with its SOE track record as a trustworthy partner.

Most psychologists and life skills experts argue that meaning is to be found in having an external focus and making a difference to others. Business is the ideal and most inclusive platform to do that. But, if business is simply about making profits, it has little true meaning. If work is simply about earning a living, it has little true meaning. And if government sees companies simply as a means of generating revenue, that too has little meaning.

And because enterprise and work is such a significant part of most of our daily lives, it renders a significant part of those lives meaningless.

Monday, October 2, 2017

Follow the meaning.

And get a better idea of company health than following the money.

“Follow the money”, they say, “and you will get to the essence.”

Do that with any company or business and you will confirm a self-evident truth: it comes from the customer.  But here’s a more relevant proposition: follow the meaning! Do that and you are most likely going to arrive at the same point – the customer. Imagine, if you will, what an honest response would be if you asked any business leader: “what’s the meaning of your business?” or “what difference does your business make?”, and “what value do you add?” Will that not reflection their real calibre? Compare the possible answers of Tesla’s Elon Musk and Enron’s Jeff Skilling. It was a similar question to Skilling that brought the Enron empire down.

It’s a question I regret not asking enough on the Business programme Diagonal Street many years ago. But it’s certainly a question that’s become far more relevant today against the background of King IV, and going back further to Ed Freeman’s “stakeholder theory”; John Elkington’s Triple Bottom line; and Kaplan and Norton’s Balanced Scorecard. And in their wake: clutter, clutter, clutter: sheets of brown paper with endless bulleted scribbles plastered floor to ceiling on walls of conference rooms, offices and barely missing the office loo. I was present at one of those sessions, when Martin Rosen of Pick ‘n Pay exclaimed: “For heaven’s sake; we are not trying to invade Spain!” The clutter clearly has some value, but all can be distilled into one powerful postulate:

The health and success of a company depends on the meaningfulness of its relationships.

They include the mutually empowering relationship between meaning and money; meaning and means; and meaning and form. The above theories don’t do that very well. Indeed in some cases they create huge volumes of work, resentment, conflicting positions, inappropriate definitions, activities and targets that are difficult to reconcile, especially with the final shareholder accounts that drive the organisation. The Contribution Account© (see format examples here) is the closest you will get to the shareholder accounts; is absolutely reconcilable with them and condenses all of the volumes of information crammed into an integrated report into 6 or seven lines: income; (less) outside costs; (gives) value-added; (shared with) labour; capital, and state. The abstracts take human form in: customers, suppliers, employees, government and shareholders.

Customers. Hierarchical rankings are mostly juvenile and silly, but if psychologist are right in arguing that meaning is found in the contribution we make to others, then following meaning and following money both lead to customers. That makes them the most important relationship of all. MBA schooling that often defines the market as an “exploitable resource” in profit pursuit is crassly inappropriate, and simply untrue. Perhaps equally inappropriate is to relegate customers to “stakeholders” under Freeman’s theory, or one of the beneficiaries in “creating value for all” under King IV. Being market driven means being driven by customers’ needs and wants within the rules of ethical, mutually fair and legitimate transaction. That is subject to only one higher order, and that is the interest of society as a whole as expressed in its values, norms and laws.

Those rules do not detract from business’s natural external focus and being the most inclusive institution we have devised. Indeed, those who see the service driver as a “mushy”, soft and ill-disciplined act of charity, fail to recognise that it actually supports sound business principles of prudence, sustainability, productivity and maximum efficiencies. That’s rooted in the understanding that going out of business is the ultimate customer let-down and inefficiencies are mostly paid for by the customer.

There can be no tougher test of any action, behaviour, asset or measurement than simply asking: “does it add any value and is it in the customers’ best long term interest?” The perfect order is when the interests of society, customers, and the company are aligned.

Customers’ interests should also inform any regulator, policy maker, lobby group, trade union and outside supplier or even a competitor whose actions may impact on a company that is providing a product or service to their society. Including competitors may seem to be a paradox. But only an insecure, immature, inwardly focused organisation will view competition as an enemy, and not as offering customers a choice while creating benchmarks for excellence and innovation. Enlightened business practice distinguishes between competitor co-operation and collusion, with the former in the interest of customers, and the latter for self-gain.

Outside suppliers: A meaningful relationship with suppliers goes beyond text book theories of being supportive and empowering. Ultimately they have to be subjected to the same customer interest lens, which, if taken seriously enough, will preclude questionable practices such as nepotism, bribery and corruption. (As an aside, I include environmental care in this section, albeit not always quantifiable.)

Here’s an example of how being service driven supports sound business practice: because outside suppliers are mostly the biggest cost to value added or wealth creation (income less outside supplies = value added) it is tempting to follow the trade union call to eliminate outside contractors or outsourcing and do everything internally. Taken to extreme, you could also argue that all companies should generate their own electricity, make their own paper, build their own computers, etc. None of this would make sense in ensuring the customer gets the best product or service at the best price. It would also not make business sense. Suppliers have become a favourite instrument in economic transformation policy. The question seldom, if ever asked is whether it’s in the customer’s interest.

In this article I have dealt only with the two main categories of wealth creation: customers and outside suppliers. There’s even a bigger problem of dysfunctional relationships in wealth distribution, which I will cover in a future article. But we don’t need more evidence to demonstrate that most companies, and even the country as a whole, simply do not get it. Our customer focus is in an appalling state as shown by poor service delivery, customer neglect, streams of cases before the Competition Tribunal, lack of competitiveness, and poor levels of innovation.

Some may argue that we are essentially a free market economy. But that’s a very far cry from being market driven or even market orientated. It is the latter that gives meaning … and money.