Sunday, February 20, 2011

Business turns purple.

It was a bit of Americanism in the 80’s to refer to the two cold-warring economic systems as blue for capitalism and red for communism. It was probably a play on the American political party colours but it was exported as popular rhetoric at a time of aggressive strategic rivalry between the two super powers. It was also the time when I had my most intense exposure to the business environment. The domestic and global ideological propaganda got to us all, tainting our objective assessment of the “greed is good” era.

This fundamentalism was tempered somewhat by perestroika and the collapse of the Berlin wall. Attention started to swing to blemishes within victorious capitalism culminating in near outrage at its behaviour in what can be described as the “Enronic” era at the turn of the century. Clearly, most of us have moved on from the rigid prejudices of the past.

Not all mind. To judge from some of the comments on various articles on MONEYWEB, many are still stuck in the 80’s. On the advice of my MONEYWEB mentors, I have tried to ignore these comments, but old fashioned courtesy has prevented me from progressing much further than using pseudonyms and personal attacks as the filter. One that missed this process was a response to what I termed the “schizophrenic” behaviour of business bad boys. This commentator rationalised and defended their acts as a necessary evil for survival in South Africa to counter the debilitating effects of AA and BEE. Apart from the fact that he/she missed the inclusion of global players in my examples of miscreants, the defence of contemptible behaviour is puzzling to say the least, especially when innocent folk are the ultimate victims. But I am sure he/she is not alone in a secure cocoon of outdated slogans. It’s a tough thing to be open-minded and admit to being wrong. Ask Alan Greenspan.

No point in asking Milton Friedman, though, even if he were alive. At the height of the Enronic period and before his death in 2006, he vehemently opposed the need for business to be involved in any form of “social investment”, proclaiming that the sole purpose of business was to maximise profits. It seems as if his legacy is still very much alive. So it would not be surprising that most would respond with an emphatic: “No!” if asked “whether business should be prepared to compromise shareholder value to align its interest with society”. The same response is likely to a question whether governments should intervene to ensure responsible business behaviour.

Or would they? Some? – Yes. Many? – Perhaps. But most? - No!


In fact, most informed adults in 23 countries surveyed for the 2011 Edelman Trust Barometer have stated the opposite (above graphic). The blue bar reflects responses to whether shareholders should be prepared to compromise shareholder value in society’s interest; and the overlaid purple bar their responses to the need for government intervention. The U.S. is always interesting because of the position it holds as the advocate of capitalism. Here 85% support business social alignment and 61% government intervention. The disparity in responses from Germans to the two questions is interesting and confirms disenchantment with European bail-outs.

The volatility of trust itself means that one must take care not to rely on one snapshot in history. But if I compare the informed views of the 80’s to those that have been expressed over a number of recent years, then there is no doubt that the red and blue of the past have become distinctly purple – both ideologically and in practice, and irrespective of a number of even highly respected commentators being dragged kicking and screaming into this new reality. Slogans and labels are simply no longer useful. Indeed they are counterproductive.

A new business model is evolving, both by voluntary response to social demands and by a legislative framework. It has always been good business to be responsive to society’s needs. It has never been a good thing to have to ensure this behaviour through laws. Sadly there is mostly no alternative.

The Edelman researchers define this new model as having moved from being focused solely on profit to having profit with purpose, engaging all stakeholders and being open and transparent.


The respondents (above graphic) have again ranked customer focus as the most important element in corporate reputation. Financial returns were ranked the lowest. It seems that even having a widely admired leader will not swing it for a company, although arguably such a leader would ensure that the most important other elements would be in place.

Customer focus and being service driven has rightly been voted the most important of all. I have always argued that service is the true purpose of business and that profit is a vital means to that end. By its very nature, a service driven organisation will be responsive to society generally with the odd exceptions such as tobacco.

Other interesting features of trust in companies are:

- CEO’s have moved up considerably as credible communicators of company affairs. But they still rank 4th below (1) Academics and experts, (2) a technical expert from the company and (3) financial or industry analyst.

- Most people seem to use an on line search engine as the first source of company information and the most popular second source is an on line news source such as MONEYWEB. Print ranks third, followed by broadcasters, the company website, friends and family and the social media last.

While I share the scepticism many have about the reliability of opinion surveys, Edelman have been in the game a long time and at the very least have been able to form authoritative views on trends. There’s no doubt that business has evolved from an aloof “get on with business” actor in the social scene to one that is becoming more involved in and sensitive to society’s needs.

Some are simply reluctant law abiders. Others are adept at spin and see trust as a means to an end. But I believe many (perhaps even the majority) really do care, are passionate about what they do and want to be good corporate citizens.

But it really makes no difference whether they want to or not, whether it is sound economics or not and whether it fits into our Smithian or Marxist paradigms or not. Society itself will dictate the rules and preferably in such a way so as not to kill the golden goose. Conversely in can be argued that business will destroy itself by not being socially sensitive.

Business is an inanimate and inorganic entity. People bring it to life. Business cannot stand apart from a wider social conscience and the values that drive that society. It is hypocritical to expect business to follow a moral compass that we are not prepared to follow ourselves. There’s the rub.

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