Sacred cows and holy grails.

Whatever happened to that business catchphrase “the customer is king”? Or the “customer is always right”?

Has it been consigned to useless rhetoric as many of our aphorisms and universal truths tend to be? Has it become nothing more than a bit of “rah-rah” to fit into some advertising campaign or to get unwilling staff a bit fired up in improving service?

It is such a pity…because customer focus and the pursuit of service excellence are the essence of economics. It is much more than rhetoric. It is much more than sloganeering. It is indeed the holy grail of a market driven economy. Seeing customer service as the ultimate super-ordinate goal of business brings to life the axiomatic truth that supply exists to serve demand. It is not the other way around. It is an obscene thought that markets or the customer collective is an exploitable entity that exists to generate profits, create shareholder value, pay executive and other salaries, create jobs, pay taxes et al. This has arguably been the cause of many of our economic ills, particularly in the past few decades.

The whole debacle over the Walmart entry into the South African market is an important case in point. Very little of the public discussion and popular media coverage centred on what it would mean for South African consumers. One would have thought that the Competition Tribunal’s main concern would have been those benefits rather than prescribing conditions for entry. Perhaps it did take a balanced view in the end, but the fact that it had to spend so much time and debate on paying homage to other sacred cows is a worrying reflection of how far we have moved from the holy grail of customer sovereignty. Indeed, one can also ask whether it is at all appropriate to compromise customer interests in achieving a “balanced” solution.

From a purely consumer point of view, one should celebrate the entry of the world’s biggest retail group into the country. It will certainly shake-up competitiveness in retail which, not so long ago, was being questioned by the unions in the wake of bread price collusion. The deal represents some R16bn in investment, the promise of 50 new stores and some 6000 new jobs. This is only the “beast in the bush” as the Economist called it, if we fear disturbing growing protectionism, labour inflexibility and inefficiencies that have already tumbled us down to number 54 in the Global Competitiveness Index. That same article made the point that in the United States, Walmart was instrumental in reducing inflation.

In the big metros and abundant shopping mall areas one can sometimes lose sight of the benefit of competition. Swellendam has been abuzz recently with the opening of a new mall, and the coming to town of a Checkers store to compete against Spar, OK Bazaars, Shoprite, and a local discounter, Check-in. For some weeks now, there’s been much animated talk about prices, specials, parking areas and service comparisons. All agree that each store has upped its game quite a bit.

Competition in retail is only one thread of a much bigger economic tapestry. Customer sovereignty is not just a slogan. It recognises the important axiom that ultimately our true value lies in our capacity to make a contribution to others. Business is an important conduit for achieving this. In a market orientated economy all other considerations are secondary to this one overriding principle. You cannot create jobs by throwing tax payers money at it. You also should not preserve jobs by protecting gross inefficiencies. Jobs are created by serving the needs and wants of others. Jobs are preserved by competing effectively against all comers. The foundation of creating wealth is in adding value for others and indeed in accounting, wealth is measured by measuring value added. This again underscores the problem of our time of froth liquidity based on wealth creation without tangible value having been added.

In much of my consulting I would encourage companies to approach any problem, from major strategic issues to minor employee disputes from the perspective of what would be in the best interests of the customer. It is virtually infallible as a beacon and cuts through petty and narrow interest like a hot knife through butter. It invariably leads to a solution that few can challenge as being biased.

We have deviated quite severely from the purist market driven path in which the customer is king in all things. We have created many sacred cows that stand in the way of that holy grail. These include trade protectionism, executive remuneration driven by share value, profit maximisation at any cost; narrow labour interests, rigid pay demands and burgeoning taxes. To this one can add the more shady activities such as corruption, nepotism, cronyism, and collusion. The thought comes to mind whether one would not have a valid case in challenging these practices, both “legitimate” and shady under the new Consumer Protection Act. They are more invidious and damaging to longer term consumer interests than occasional malpractices.

There are some very eloquent arguments in defence of market interventions. Most of them are legitimately based on the misbehaviour of interests devoid of sound human values. The only question that we need to ask ourselves is whether the customer should be knocked so far off the pedestal as we have done. Should we not brandish the butcher’s knife at some of the sacred cows?

From an global perspective, the principle of providing humankind with the best products at the best price should be an overriding guide. But, as the Doha trade talks keep on revealing, narrow national interests continue to bedevil this process.

From a national perspective, trade liberalisation and competitiveness are by far the most essential ingredients for a successful economy in the longer term, underpinning the prescription discovered some years ago by World Bank researchers, that successful economies are those with an external focus and strong domestic people development policies. Yet, inflated popular expectations keep on driving national policies in the opposite direction.

From a company perspective, the most sustainable are those whose primary measurements of success are customer satisfaction, market share and innovation, a contented workforce and healthy profitability.

From an individual perspective, the most empowered and arguably the most content are those who seek meaning by adding value to the lives of their fellow human beings.

Many countries, businesses and individuals today are market led. The really great ones are sincerely market driven.

The customer is indeed king.

Sam the dairy man.

Sam was desperate. He had just taken over the family dairy in a town in KwaZulu-Natal. It was one of the few remaining independent dairies in the district in the aftermath of that volatile period when labour unions were vying for membership. Despite being fluent in Zulu, he simply did not have the means and experience to deal with the demands of a fledgling union that threatened to send the business down the tubes.

I, on the other hand, had just started my employee communications company when Sam called. At the time I too had little more than a passionate mission to enhance economic awareness in the workplace and promote the concept of fortune sharing based on wealth creation in companies. There was no instrumentation, no training programmes and no established process on how to do this.

By then I had learned that the fees for employee communications consulting could only be a fraction of those charged by my elite colleagues in Public Relations. But Sam baulked at paying even that, so after a bit of haggling and an assurance that he would pay my travel costs, I found myself boarding a twice weekly flight on a fully booked six-seat Cessna “something”. As I made my way to my seat, there was a distinct whispering by some of the passengers. Although never comfortable with recognition, I had become used to this puerile habit of a celebrity conscious public. But it was a bit of a let down when I turned and saw that the attention was aimed at fellow passenger and former tennis star Kevin Curren who had done so well at Wimbledon some time before.

Light aircraft are made for little people. Their seats are made for midgets. The seatbelts are made for Lilliputians. I tried in vain to disguise my inability to fasten the belt by hiding the ends in a non existent lap. The response from the pilot who did the checking was to brandish an extension in full view of all the passengers. My cover was truly blown.

Sam had arranged a two day interaction with his staff. I spent the first morning going through his figures and what I intended to share with them. The only discomfort he had was in revealing his own earnings from both the profit that he and some family members were getting from the dairy, and the salary that he paid himself and another manager. On the strength of a number of employee interactions I had had by then, I could assure him that the pay differential was rather modest.

Something else that I had long before settled in my own mind was the myth that workers by nature are full blown communists who vehemently subscribe to the concept of “from each according to means and to each according to needs.” It simply is not true.

Most workers fully subscribe to the concept of differentiated pay and have a fair understanding of the impact on wages of supply and demand for skills and qualifications. Inexplicable multiples of thousands are a different issue. But I also assured him that I would spend some time on this in my talk with them. As far as the profit was concerned, his dividend, when split with the family, was also very modest. My regular approach of comparing the dividend with what his family could be earning in interest if they sold the business and invested the money in a bank would more than satisfy the most belligerent that he was not profiting from their toil.

Sam had a healthy 2:1 dividend cover and the presentation of retained earnings as a commitment to the future of the business is one that is simply not emphasised enough in communicating profits to staff.

Satisfied that I would not unleash more labour unrest, we discussed logistics. Sam had nothing – no flipcharts, no coloured marking pens and no venue! On top of that he informed me than none of his staff had a working knowledge of English. All were Zulu speaking. I knew a few words of Xhosa and a smattering of the polecat Fanagolo. It was not a good idea to use Sam in the interaction and the only translator we could use was a combative shop-steward. It was risky, but we decided to give it a go as long as Sam sat in and monitored the translation. The venue, we decided, would be Sam’s massive cold storage warehouse. My “teaching aids” would be bottles of milk, slices of cheese and bricks of butter.

We had barely progressed beyond a few opening remarks when fidgeting and murmurs among the group of about twenty started getting to me. I feared some or other rebellion, but soon my own built-in duvet failed, and I realised that we were all starting to get frostbite. We had to switch off the freezer compressors.

Guided by the dairy’s value-added statement, I used a number of bottles of milk to reflect income from customers and removed most as “outside costs” to supplies from farmers and others. The milk left represented wealth creation. This I poured into glasses for employees, tax, retained income and then the owners’ dividend. It followed the pattern I had become used to. More than half went to employees, about a quarter to tax, 20% to savings and less than 5% to Sam and his family. The second day, I used a block of cheese and repeated the exercise.

We then went back to the slice that represented wealth creation and had one of the most productive discussions about how this slice could be increased. Most of the suggestions came from the staff themselves. Then something happened that caught both Sam and I flatfooted! The translator and previously belligerent shop steward asked Sam whether he would share any of the extra wealth if the staff helped him in creating more!

There was little hesitation on Sam’s part and I left them with a handshake on the agreement of a principle and a promise to discuss the detail of how it would be done.

Secured again by an extended seatbelt, I endured the flight back with warm thoughts of Sam the dairy man, his dedication to his customers, his community and his group of openhearted employees.

Months later I received a letter from Sam confirming the difference the interaction had made; the implementation of a modest gain sharing programme, a structured regular communications effort, and a rather hefty bill he faced for the loss of stock in a warm warehouse.

But there was a nagging disquiet that in the not too distant future, the dairy would be swallowed up by a “corporate”, the battle lines between “labour and capital” would be redrawn and a humble group of dedicated workers would join the ranks of an agitated and angry mob with inflated expectations.

The reality of perceptions.

If some Klingons were sent to earth to determine how human business works they would most likely agree on one basic observation – it’s about people serving people.

Knowledge of any business has to start by answering three questions: what; how: and why?

What I found in working with many groups from various levels of awareness over a number of years is that the “what”, (product or service) of their companies was fairly well understood and endorsed at most levels. The “how” (method of production or delivery) was not always understood by all, but it seldom led to conflicting views. Responses to “why” the company existed invariably gave three answers: the majority would say “for profit”. Some would say “to create employment” and a small residue would argue “to serve customers”.

The “service” response was often based on either the company’s high level of customer focus where the company had such a practice, or mainly on some lofty mission, vision, or purpose statement that had been repeatedly rehearsed.

From a perceptions point of view we can identify three basic models plus one which we may have forgotten as our memory of the cold war fades:

The more popularly understood profit driven model assumes that the formation of companies is sourced from capital. Its purpose or motive is to make a profit or generate a return on the investment. In the process it “uses” means such as the market, labour, state services and outside suppliers.

The wage driven model assumes that companies exist to employ people. The end purpose is wages and the means are the market, capital, state services and outside suppliers. On the surface, such a model would appear attractive, and indeed many in my workshops expressed some preference for it in an environment of high unemployment.

There is an assumption that the wage model simply won’t work because labour cannot ensure the same efficiencies as capital does. I’m not sure if this is true. The Mondragon labour co-operative in Spain is just one example of a highly successful and competitive labour driven model. Post war Japan saw its biggest growth when employment was a high priority and companies and government made that their focus. Of course, a competitive wage driven model has to adopt the same flexibility in wages as capital does in profits, which makes it a virtual non starter in the South African environment.

The state or public sourced model with wages as its purpose has arguably been consigned to the trash heap. It lacks competitiveness and is hugely inefficient. But of course, it continues to exist in various forms such as in state owned enterprises, government and municipal services and NGO’s. The danger is that they can readily accommodate inefficiencies by easy access to taxpayers’ money and too often those that should be purely service driven become wage and employment driven. NGO’s such as charities are of course purely service driven with stringent disciplines imposed by scarcity of funds.

The market driven model assumes that companies exist to serve their customers. My illustration shows perhaps an idealistic sourcing of common intent and effort from the three main actors involved: capital, labour and state. But it need not depend on this categorisation. Indeed, any of the three could stand alone as the source, and view the others as “means”.

But this is the beauty of the market or service driven model. It evolves virtually naturally into a state of partnership because the end purpose is common, not self interest driven and not in conflict with the interests of another party. It is usually one that can be shared by all -- unless you are an anti-smoker working for a tobacco company!

The most important consideration with the market driven model is that it is not a “charity”. It has a contributory approach to society but does not and need not break the fundamental principles of sound business. It must adhere to the rules of legitimate transaction; ensure sustainability through healthy profitability, prudence and maximum efficiencies throughout the value-adding chain.

One could argue that any of the models shown can achieve competitiveness and viability if it sticks to those fundamental principles. It is just harder with some than with others.

These are not my own scientifically designed models: merely a reflection of how people perceive company behaviour. The conclusion that business is about people serving people can apply to any model. But I would argue that the one that best reflects this is the market driven model.

The philosopher Bertrand Russell once concluded that “there is no reality but our perception of it.” Perceptions create behaviour. We have for too long perceived the primary purpose of business as being about maximisation of profit. This automatic assumption has encouraged many sins. It is outdated but still firmly and broadly entrenched. But if it were authentic, then most company mission or purpose statements would simply be lying. The volumes of research that has shown that not all of the great entrepreneurs past and present were driven purely by the need to make a profit would also be false.

But that tide has been turning for quite a while now with international business trust research showing that the sound modern business is more likely than before to compromise share value if it were in the interest of broader society to do so. Latest voices to emphasise this point came from Bank of England Governor, Mervyn King who lambasted British Banks for “putting profits before customers”; and from our own Mervyn King (the governance expert) who recently argued that the exclusive focus on profit was outdated.

A shift away from the profit convention is not going to be easy while the raison d’être of business rests on an understanding that the human being is purely selfish and materialist by nature. This is the underpinning premise of Milton Friedman followers which in turn has condoned, cemented and encouraged ever increasing levels of greed-driven behaviour. Friedman’s understanding of psychology can be questioned. There are many more fundamental works in psychology, including those of Frankl and Jung, which argue that man’s search for meaning is mostly found in generous and outgoing behaviour. Then there’s social scientist Robert Winston’s postulate that caring for others is as basic and as strong a human instinct as survival is.

For decades we have allowed our understanding of economics to rely on the worst in the human spirit, culminating these past ten years in a period which our Mervyn King has described as “madness”. This can only be broken by a more generally held view that the real purpose of business is to serve, and profits, wages and taxes are merely the means to sustain it. Who knows? When that era dawns, public condemnation and consumer response to inappropriate behaviour will be a far greater punishment and deterrent than laws could ever be.

The service driven model has long been a reality for a number businesses and the people who run them – enough to show that it does not detract from profit, but indeed enhances tangible wealth creation upon which profit should be based. It does much, much more: it gives authenticity to the things business likes to say about itself.

Our business life will reach its ultimate desired state and maturity when it becomes the instrument for individual meaning rather than means. It is simply a matter of changing perceptions.

Kowtowing to Chihuahuas

It is most likely a character defect, but I must confess that I am one of those people who get attacked by that little green monster when I follow David Carte’s series on executive incomes. So with some effort, let me suppress personal pique and apply whatever journalist objectivity I can muster.

It is a much bigger issue than many think. It deserves serious national debate and far more scrutiny than a fob off as emotional rhetoric about envy. Although this too cannot be ignored in a society like South Africa faced with rampant expectations, huge welfare disparities and popular discontent. Rubbing people’s noses in ostentation is one thing; having a dubious source of that ostentation is another highly dangerous dimension.

Even the more enlightened will have difficulty in defending some of the mind boggling rewards that a few individuals can accrue in their positions in companies. Something must be very wrong. The unquestionable benefit of a values-driven free market is that it creates balance. Speculation is supposed to smooth the transition. When we have lived for nearly 40 years with growing imbalances, particularly in individual incomes then we have to face up to the fact that these markets are broken. I have argued before that this is so with both the upper end of the skills market, and the lower end.

Executive share options are the most contentious of all. The criteria for their allocation make little distinction between creators, builders and professional managers of companies. Remuneration committees are, according to Warren Buffett, packed with Chihuahuas and not Dobermans. A hypothetical sketch may help illustrate this.

Joe is passionate about developing a new innovative widget and spends many months in his garage perfecting it. He starts selling and soon recruits a few equally dedicated people to help. Years of development and sales, home mortgages and personal risk pay off and they go to the stock market to raise capital. A large proportion of the shares issued are allocated on merit between the founders. A few more years of rapid exponential growth and further rights issues give the founders mind boggling wealth. It culminates in their losing control to outside shareholders, some of whom may understand the widget and its potential. Many others are intent only on share value. Some are investors; many are simply traders or speculators. It is their demands that drive the selection of professional managers or executives, and to ensure common focus on creating maximum share value, they offer large share options to the incumbents.

The important distinction between the founders, internal builders of tangible value and the professional managers of share value is lost. The former two are arguably far more deserving than the latter. They are very special people and rarely “interchangeable” between transport, banking, law, mining and retail. You don’t “buy” these people. The belief that you can replicate a Joe or his dedicated followers through massive financial incentives is seldom true.

The point is simply that good executives should not kowtow to shareholder whims – like Richard Branson and many others have shown when they get fed up and de-list. Shareholders on the other hand would do well to follow the unsolicited and “un-incentivised” lead of good executives – like they did with Apple and Steve Jobs in 1997.

Recognition after the fact and cementing the relationship either through bonuses or share ownership is an entirely different matter. There is a huge difference between recognition and incentive. The former is not an expectation. The latter is, and creates behaviour that has ranged from outright fraud to inappropriate actions for the long term sustainability of a company. No number of King based regulations and sustainability reports can counter that. Share option benefits spread over 3 or even five years are still a long way off the Buffett norm of “forever”.

We are told that shareholders should think like owners, and executives should think like shareholders. This is blatant irony! At the very least it shows a severely broken link between the motives of owners, shareholders and executives.

I’m grateful to Moneyweb reader Joan, who brought to my attention an insightful book “Fixing the Game” published earlier this month and authored by Roger Martin. He draws a distinction between the “real” economy and “expectations” economy. It is similar to my distinction between “tangible wealth creation” and “speculative froth” which I spoke of in my article: “The Cappuccino economy”.

Martin argues that the shareholder-value theory and stock-based options In the U.S. focus executive attention on the “expectations” market because that is where the money is. Ultimately, he concludes, stock-based options force managers to focus on what they can control – managing the share price over the short term.

Stock exchanges world wide are driven largely by speculation. Speculation is obviously based on expectations of exponentially increasing returns and growth. This is rarely sustainable and to gain advantage of their share-option structures executives have to either keep expectations alive, cash in their options or leave before they implode.

Martin also contends that stock-based compensation has failed in maximising shareholder value. Total compound annual returns on the S&P 500 from 1933 to 1976 were 7.5%. From the beginning of the share-value era in 1977 to the end of 2010, they were 6.5%.

Executive share options hold a much greater threat to the economy than envy and some dubious executive behaviour. Martin warns that these theories underpin the regulatory fixes in the wake of bubbles and crashes and because they are based on the wrong premise, they will be ineffectual.

Coinciding with my argument for a return to tangible value creation rather than reliance on speculative froth, Martin says: “The difference in outcomes between a real-market focused world and an expectations-market dominated world is stark and critically important for the economy. When the real market is dominant, customers are the focus and the central task of companies is to find ever better ways of serving them.”

Clearly, executive share options are adding substantially to the froth and the speculative tail wagging the wealth creating dog!

Despite ever increasing regulation, share markets remain the arena for the biggest crimes in history. A superficial scanning of only some of Barry Sergeant’s articles will show how, even in this country, billions can be siphoned off into the pockets of a handful, sometimes with only a small dilution of share value. I’m not for one minute suggesting that this reflects the behaviour of most executives who have share options – far from it. But it certainly reflects the temptation and opportunities that are created for behaviour ranging from fraud to even the most modest inappropriateness. At an individual level the returns can be huge!

In this country too, we have compounded the issue with dubious B.E.E. deals creating instant individual, Porsche driving, sushi-eating-off-naked-bellies billionaires who certainly don’t have the same credentials as Joe the creator, or his fellow builders. Some even lack the basic skills of the professional managers. Unless, of course, we assume that being previously disadvantaged is a qualifying accreditation. It helps too, if the incumbent has political sway and some useful crony connections. A further handy attribute is an ability to turn one’s back on the surrounding squalor that one previously crusaded against, or ignore the plight of unpaid mineworkers.

This article is probably going to mean little more than tilting a lance – no a toothpick at a windmill. I accept that there are billions of rand in vested interests. These are often linked overtly, covertly and perhaps even corruptly through all institutions in our society, including government. But I firmly believe we underestimate the full ramifications at our peril, not only for investors, but for the country as a whole.

Yes, there is pique. But this should not detract from the fact that we have a real problem. If there is behaviour that can cause the throwing out of the free market baby with the greed contaminated bath water, then this is it.

We can start with the smallest of steps by replacing the Chihuahuas with Dobermans on the remuneration committees and their consultants.

The Worker Capitalist delusion.

What is this economic mutant called a “worker capitalist”? On the surface it seems to be an attempt to merge the employee and shareholder interests and create a new hybrid of fired up, loyal and committed actors on the company stage. In one swoop, it seems to say, the “inherent conflict” between capital and labour can be countered if not eliminated.

The idea has found favour with no less an influential capital investor than Elias Masilela, the new head of the Public Investment Corporation (PIC). As the chief of an entity controlling close to R1trn in assets, one is bound to sit up and listen. American Lawyer and Economist Louis Kelso is credited with designing the concept in the late 1950’s and being the architect of instruments such as the ESOP (Employee Share Ownership Plan) and CSOP (Consumer Share Ownership Plan). But it has only been since the mid seventies that wooing labour into the shareholder camp has gained momentum and has given rise to a whole array of schemes with some of the most complex, costly and imaginative forms of accounting targeted at the whole spectrum of employees from executives to the general workforce.

Reluctant to tilt my lance at the formidable windmills of economists, financial journalists, accountants, and remuneration consultants, I decided to delve a bit deeper. In the end, I must admit defeat. There are as many champions as detractors. The accounting conventions are still not fully understood, polished or even universally supported. Returning to simple logic, I ended with a similar conclusion to that of Warren Buffett who a few years ago ruled that they were based on “fuzzy maths”. Of course, he was talking about executive remuneration, although the principles are the same as when applied to a group of employees as a collective.

The principles may be the same, but the nature and behaviour both intended and unintended are quite different for the two groups. It has become common cause among remuneration experts that as an incentive, share options and share ownership appear to work better at the more senior level of employment than at the general workforce level. Both are questionable. Those for general staff are of suspect value and those for executives perhaps even an evil. This article focuses on the schemes for general staff and I will come back to executive schemes later, which may be the more controversial and challenging topic.

I also do not discount the value of such programmes in facilitating leveraged “empowerment” actions and management, employee, or customer buyouts. This was the intention of Kelso’s original design. Most ESOPs today do not have that as their purpose.

I may be a poor “Googler” but as far as general staff are concerned, nowhere have I found definitive, conclusive and comprehensive evidence that ESOPs do what they are supposed to do – create a more committed and involved group of employees. The evidence is sketchy, anecdotal and largely sourced by vested interests. The point really is that from a simple cost benefit point of view, there is more evidence to show that ESOPs do not prove their value against the elaborate provisions needed to put them in place such as the formation of trusts, individual accounts within the trusts and the accounting dimensions of “expense” or liability against equity.

If ESOPs are created as an employee incentive, they will clearly fail and there is little evidence to contradict this. Certainly in South Africa they cannot claim to have tempered wage demands or labour unrest. The value of most ESOPs to the participants depends ultimately on the share price and for quoted companies this can be very far removed from operational performance, especially labour productivity, The value of each employee account is mostly only a fraction of what they earn in normal wages and compromising the latter for an improvement in the former would not make sense to anyone. Also, the full value for the employee is mostly only realised on retirement or departure, becoming little more than a supplement to their pension or provident provisions. These seldom motivate people in their day to day work.

But ESOPs fail as an incentive in one of the key requirements – line of sight, or visible and tangible evidence of performance improving an outcome. They are far too remote at an individual level. This means they can never serve as an instrument for gain sharing or flexible pay. A far more tangible, direct line of sight trigger is value-added or wealth created which in turn forges a common focus on service and creates empathy for common fate. These are ideal conditions for fortune sharing and pay flexibility.

The champions of ESOPs defend more vehemently the role of such programmes as a tool for involvement. Of course, this is firmly rooted in classic capitalism’s obsession with ownership. It’s an important feature in economic philosophy and even psychology. We steadfastly adhere to the belief that owning something is more important than doing something, that we only do things to own things and that ownership and not action or behaviour is what gives us our real worth. From this perspective, ESOPs are an insult to the nobility of work.

ESOPs assume that ownership ensures involvement. Even if this were true, ownership is not a blanket, indivisible entity. The more ownership is shared the more it is diluted. Owning one cell in one body of a crowd of shareholders becomes meaningless especially if these shares have no voting rights in the company. Then rather have the German system of appointing a labour representative to the board. At least you can claim to have listened without necessarily having heard.

Incentives seldom guarantee genuine involvement, whereas genuine involvement mostly creates incentive. Genuine involvement comes from behavioural things such as service, customer care, sound leadership, shared values, ethics, trust, transparency, developmental communications and nurturing aspirations.

Of course it is not a bad thing to create an understanding of and empathy with shareholding. But it pales into insignificance in terms of understanding the real value of work and real labour issues that should still be addressed in most companies.

Trying to mix shareholding and labour to create a “worker capitalist” is like trying to mix oil and vinegar. It only works when they are shaken up to serve on a salad – when they serve a purpose greater than themselves as individual components. In companies the salad has to be customers. You cannot change the molecular structure of each to achieve this. Left to focus on their own needs, they return to their separateness.

Of course “worker capitalists” do exist. I know many. They include the likes of Raymond Ackerman, Johan Rupert, Bill Gates, Steve Jobs, Koos Bekker, Brian Joffe, Adrian Gore and many others. They are the creators and builders of business.

But they were not created by a construct of ESOPs or narrow financial incentives. They created themselves out of a passion for making a difference.

Faces without noses.

Here we go again! There’s a rumbling on the labour front in the not so metaphoric “silly season” of public service wage negotiations.

The latest salvo is the suspended municipal workers strike which intended to involve some 220 thousand members and threatened to cripple the already poor service delivery. Quite puzzlingly, South African Municipal Workers spokesperson, Tahir Sema claims that their real motive is to improve service delivery! Included in this demand is a call for the sacking of Co-operative Governance and Traditional Affairs Minister Sicelo Shiceka.

The attempt to glorify the strike as an act of concern for ratepayers and recipients of municipal services rings rather hollow when you unpack the Union’s solutions: one being a demand that President Zuma not sign into law the Municipal Amendment Bill which is intended to "depoliticise" municipalities and ensure they appoint skilled people. Another is to scrap provincial governments and divert their funds to local authorities. Even the most ardent supporters of decentralised power (of which I am one) would baulk at the idea. What would happen to the hundreds of thousands of provincial government employees? One shudders to think what incompetent local authorities would do with the extra manpower and extra funding. Even our best run municipalities are nowhere near the proficiency of a Swiss Canton. A third “grievance” is the old perennial of opposition to outsourcing of services. People intent on service should not be too concerned about where the service comes from, but rather how they can do better.

Adding to the rumblings of a bigger storm cloud is Finance Minister Pravin Gordhan’s warning this week that there was “no money to afford steep wage demands.” Few can forget the devastating 21 day civil service strike of last year. Images of patients dying in hospitals and empty seats at schools are still fresh in our minds. Initial empathy with underpaid teachers and nurses turned to anger as unruly vandalising crowds and scenes of violence were shown repeatedly on our television screens.

One of the silliest expressions in the English language is: “to cut off your nose to spite your face.” Who on earth would perform such a bizarre form of self-mutilation? But labour behaviour brings the metaphor to life. There are many civil servants and municipal workers out there who probably still have not made up what they lost in income during last year’s strikes. Certainly many a South African still conjures up those unfortunate images when they hear the word “nurse” or “teacher”.

We are proud of having an advanced labour-law framework. But it is a dispensation that many argue is far too utopian for a developing country like South Africa. Study after study shows that it is too inflexible to encourage employment. Felicity Duncan’s latest article and graph showing comparative unemployment rates is one confirmation of that.

Another is the World Economic Forum’s Global Competitiveness Index. In 2010/2011, of the 139 countries surveyed, South Africa ranked at 135 for hiring and firing practices, at 131 for flexibility of wage determination, and at 112 for pay and productivity.  There seems to be some hope that this penny has finally dropped.

Law is one thing. Behaviour is another. I believe the latter is far more important than the law itself. Without detracting from the important role business can play in ensuring a healthy level of trust at both individual and collective level, labour seems to be still locked in a destructive and outdated confrontational mode with its old enemy, “capital”, and is ready at any time to play the strike card.

The SAMWU action this past week is a good example. Even if we accept that negotiations have been underway for some time, the threat of a strike came out of the blue for many. Even non-sceptics saw the move as expedient ahead of the municipal elections. The subsequent “suspension after talks with the ANC” is equally expedient and disingenuous, leaving the threat hanging in the air and a lingering “we’ll show you who’s the boss”.

For good measure, SAMWU throws in its 18% increase demand. It then tries to legitimise this outrageous level by saying it is “only the opening bid and can be negotiated down”. “It should not be taken seriously”, said Tahir Sema. Then why say it at all? Apart from the obvious ploy of claiming kudos for being conciliatory when the settlement is at a more legitimate level, it creates expectations and heat in an already inflamed environment.

We know we live in a violent society, one that we keep on trying to rationalise in avoiding our own present day accountability. The source of most violence starts at a much more innocuous level, at minor confrontations leading to intransigent positioning, then to strikes and then to violence. Have we not come to accept this process too readily?

Lasting and legitimate power is never achieved through coercion. That is control, and control without legitimate power sows the seeds of its own destruction.

Legitimate power can only be earned by contributing to those around you. It is also where true empowerment comes from.

Will we have more faces without noses in the months ahead?

Stop rationalising crime!

I can’t speak on behalf of others, so I will. But in my defence, I simply can’t imagine that many South Africans of all colours are not sick and tired, if not downright angry, at the extent to which misbehaviour and crimes in our society are rationalised on the basis of the past. If there is one phrase that has become hackneyed and an excuse for everything from rape and murder to corruption and misguided policies it is “the legacy of the past.”

The most recent is Cosatu Chief Zwelinzima Vavi’s bit of inspired psychology: “Colonialism, apartheid and international mining houses created serial killers and rapists”. A day or so earlier President Jacob Zuma told the E-news channel that “apartheid created a culture of violence”.

The simple fact is that the more you rationalise and find extenuating circumstances for any act, the closer you get to condoning it. Few can doubt that at the very least, you encourage it as a mantle of expediency for those so bent. Blaming others is always the simplest way of defending one’s own shortcomings. It is also the most obvious and disingenuous.

Just as bizarre is encouraging the populist rhetoric of an “ongoing revolution” and the need for continued radicalism. Even the lesser enlightened would argue that democracy with its supporting institutions such as the constitution, courts, freedom of association and expression, and instruments of accountability makes such behaviour redundant. Indeed radicalism and revolution have seldom been friends of democracy, but rather its antithesis. Soon the victors become the vanquished.

I have never quite understood the debate in psychology around “nature or nurture”. Both seem to be little more than a cop out for personal accountability.

One of those who were the most disadvantaged by the previous regime was Nelson Mandela. When he came out of his 27 years in prison he could have, according to the nurture theory, preached violence and retribution. He did not. Instead he became an icon for reconciliation and a statesman of international stature.

When Viktor Frankl came out of years of incarceration in a Nazi concentration camp, he may have been forgiven if he had murdered the first Aryan German he saw. He did not. Instead he wrote “Man’s Search for Meaning”, one of the most profound and inspiring works in psychology ever written and one still widely read today by those in search of a higher human self. If Mandela and Frankl teach us nothing else, it is that you need never revert to the worst in you because of debilitating circumstances such as deprivation, poverty or anger.

If deprivation triggers depravation then those reared in wars and depression would surely be mostly depraved. Certainly most of the holocaust survivors would be suspect.

There are literally thousands of people who contradict the nurture argument. They may not have reached the pinnacles of success and iconic stature of Mandela and Frankl, but they have survived. They have struggled and grown to become loved, admired and respected by those who know them – often not in spite of severe deprivation but because of it!

Most of us know such people. They are not saints. They are not even exceptions. They are simple ordinary folk who listen to a deeper voice, respond to the good in themselves and follow a caring compass that exists instinctively in all of us. They are less controlled by and more in control of their circumstance. I often used to argue to my work groups that you are just as, if not more likely to find acts of compassion and generosity in the streets of the Diepsloot squatter camp than you will in the Sandton suburbs.

Nature or nurture?

My own background questions both. I have related snippets of my upbringing before and for some interesting reading I suggest accessing my brother, Berend’s blog here. We were six siblings. Four were born during the war years in a shack not much better than the average squatter camp home. From what most would have described as severely dysfunctional circumstances, came the suicide of the eldest brother in his late teens, and a mother and an elder sister constantly seeking refuge in institutions for nervous breakdowns. But those circumstances also spawned a brother who founded the Anti-apartheid movement in Holland, another who became an award winning journalist and broadcaster as well as founding a successful management consultancy, a third who became a leadership consultant and a sister who was one of the first in South Africa to adopt abandoned babies across the colour line and is running a well established home for children. Three have authored published books. None turned to common crime.

Neither genes nor circumstance can explain the disparity in accomplishments or varied careers. There are many families in South Africa with similar experiences from a variety of backgrounds.

There are also many “strugglers” of the past who share some of the concerns about leadership behaviour in South Africa. They include Archbishop Desmond Tutu and former Trade Union leader Jay Naidoo. There are many more. Perhaps these words by activist Berend Schuitema says it best: “I feel an alienation rising up in me that has more to do with nostalgia for a lost country I knew, a dashed frustration about what I thought it would become.”

The words echo in the resting places of fallen heroes both sung and unsung, and resonate in the hearts of thousands of a generation of South African adults. They came from both sides of a structured apartness – villains once heroes, heroes once villains. They were brought together in lingering suspicion and tentative hope through a short and yet so long walk to freedom by a real and symbolic hero. Those steps inspired and united most of the citizens of a polecat country – from the warriors on both sides of the gulf to a vast middle that either voted or waited.

All shared a dream of what they thought the country could become.

A very important part of current leadership accountability is the unrealistic expectations that have been created and still form part of populist pronouncements.

In one of my first articles, I related the fable of a wise old American Indian who informed a young protégé that all humans have two fighting wolves inside of them: one good and the other evil.

“Which one will win?” the young man asked.

“The one you feed the most”, the old man replied.

The evil wolf has enough real grievances to feed on. Let’s not feed it scraps of psycho-babble!