Welcome to the world of Karl Marx

"Welcome to the world of Karl Marx" is Arie de Geus' greeting to corporate leaders. "Capital is a commodity. Human talent is not."

Here are my notes from the Don'tStop01 Business Innovation Conference we are holding here in Copenhagen. Arie de Geus was head of Shell Oil's Planning Unit for 38 years.

People have little loyalty to companies:

New MBAs stay in their jobs less than 5 years
CEOs stay about 2-3 years.
Shareholders hold their shares about a year

This isn't loyalty.

Why is this? What does it mean.

It's certainly very contrary to the view that I have of what constitutes a successful company. My view is very different... my view is based on some interesting things we learned at Shell.

In the 70s, we asked ourselves "who should be our example?" What companies should we look up to?

We made a study. We asked a team to go out into the world, and find companies that were older than Shell, more than 100 years old, who were leaders in their industry, and who still had their corporate identies intact.

27 companies met the definition.

Siemens, more than 150 years old
Dupont, more than 200 years old
Mitui, 300
Sumitomo, 400
Stora, 700 years old

What characterizes these old companies? What let's them survive. It's clearly not "cultural" because we have American, Swedish, German, and Japanese companies on the list.

We found they shared these traits:

1) Financially conservative. This is bad news for investment bankers. These companies want to keep their own money in their own pockets, and don't want someone else's money. Surviving for centuries means never having a banker pull the rug out from under you.

2) The leaders of these companies are sensitve to the world around them. Leaders were outward looking people, and are often highly active in the society around the company. Dupont has produced generations of US senators. If your leaders are out there in the world, active, they will note changes in society and keep asking "what will this mean for the company?"

3) Strong sense of cohesion and company idenity. Leaders and staff know what the company stands for, and are happy to identify with those values.

4) Management style of tolerance. Lots of space on the margins for new or different activities.

That led me to my definition of a corporation: a good firm is financially conservative, has staff that identifies with the company values, and has management that is tolerant and sensitive to the world in which they live.

That's not what they taught me in the economics department when I was in university in Rotterdam. There we were taught that  companies are institutions that produce goods and services for which other people are prepared to pay a price. The successful company combines labor, capital and land in an optimal way: Minimize cost, maximize price, maximize profit.

This is still taught.

Three definitions. Three different implications.

1. Where there is no loyal relationship to the company, it's every man for himself. It becomes the tragedy of the commons. The measure of success is maximation of  shareholder value.

2. If we accept the classic definition, the one still taught, we must accept the company as an economic machine. The measure? Efficiency and maximization of profit at short notice.

3. And my definition: human work community aimed at continuity from generation to generation. Goal is survival and self-development in a changing world. Measurement is life expectancy.

Which is the right definition? Which company would you want to work for? If you lead a company, which would you want to create?

Let's think about three things.

1) A study done at Stanford in the early 1990s showed that long-living companies produced, on average, 15 times more profits over 60 years than the stock market average. Human work community meets the goals of life expectancy, profits, and shareholder value.

2) When we look at the oldest companies, we must remember the hundreds of thousands of companies that died. The average life expectancy of a company is less than 17 years -- as low as 4 years according to a recent UK study. If you have to choose what sort of comapny you want to create, your choice is quite stark. Choose wrongly, and your company will be dead before you are.

And let's not say "oh, that's just survival of the fittest, that's the market at work." The death of a company is not gratuitous. People suffer. And if we accept that companies are like people -- they get wiser and better as they grow older -- then the death of a company is a tragic loss of knowledge and wisdom.

You may say "survival of the fittes, free markets". But I cannot believe the death of a company is gratuitous. People suffer. And don't companies get better as they get older, much as we do in life.

3) Finally, we are in an age of fundamental change. Capital is now a commodity; it is no longer a scarce production input. This is enormously significant: in the last 50 years, we have had near constant GNP growth, and we have saved 20% to 30% of this a year. Our world is simply awash with capital. Capital is no longer dominant.

In fact, capital is a commodity -- the capital market is a buyer's market, not a seller's market. So if you are choosing what business to create, why on earth would you structure it to maximize the return to the supplier of capital, the shareholders? That is very short sighted.

No, today, labor -- human talent -- is the scarce production factor. And if you would succeed you must have a management style that makes the most of that human talent. 

Corporate leaders: you live in the world of Karl Marx. Your core asset, the asset that is the value of your company, goes out the door every day. I really wonder how you sleep at night, because you have no idea if they will come back. So you better create the conditions so that they do.

Technorati: business innovation, dontstop01, Arie de Geus

Posted by Allan Jenkins at 11:35am in Business, Conferences, Copenhagen, Corporate Governance, Corporate Management, Management | Permalink | Comments Welcome! (5)

On Your Mark (Part 2): Louise Lego Andersen Whips LEGO in Court

Blogger for Benjamins Jaffe recently vented spleen over LEGO's request that we call their toys and bricks "LEGO bricks" or "LEGO toys", rather than simply "Legos".  It was a silly vent, one that illustrated Jaffe knows little about protecting intangible assets, and Jeremy Pepper was quite right to call him out on it.

(To get you up to speed: LEGO is a Danish maker of toys, especially distinctive building bricks. Jaffe practices PR, I believe, somewhere in New England, I believe).

The real LEGO & Intellectual Property story this week is entirely different.

I am a big fan of LEGO. Years ago, they were a client of mine.  I have -- on behalf of two children -- invested heavily in their wonderful products. And, seeing LEGO up-close & local as I do, have nothing but respect for their corporate governance and care for employees.

But even I have to admit they went off the rails when they sued Louise Lego Andersen, an art dealer and gallery owner,  for trademark infringement.

Here in Denmark, the name Andersen is extraordinarily common. As with Jensen, Hansen, Rasmussen, you can't throw a brick down the street without braining an Andersen. So it's common practice for people with common surnames to be known by their middle name -- a sort of surrogate surname. This isn't about vanity; it's just handy. Ask a Dane about Poul Rasmussen and Anders Rasmussen and you will get a blank look. Ask about Poul Nyrop (Rasmussen) and Anders Fogh (Rasmussen), and  she'll know you are talking about the former and present Prime Ministers.

So it's not surprising that Louise Lego Andersen  -- who goes by Louise Lego --  chose to call her gallery  Galleri Lego.

LEGO sued. Trademark infringement. Dropped on her like a jaguar out of a tree.

But... as Berlingske Tidende reports today, Louise Lego whipped LEGO in court yesterday:

"The Admiralty and Commercial Court handed down an preliminary ruling giving Louise Lego Andersen relief in 95% of her case, which is about whether her gallery can be called 'Galleri Lego'."

The ruling becomes a verdict in the next week or so. Either party can appeal the verdict to the Court of Appeals or, in the meantime, agree to a court-proposed settlement. Both parties are weighing their options.

The "5%" that's still in question?

"'The remaining five percent, where the court ruled against us, is about how Louise's name will appear in search engine queries', said attorney Egil Lego Andersen. 'Obviously, we don't agree with that part of the ruling, but that's small stuff.  I believe the court reached the right conclusion.'"

I think Egil Lego knows more about SEO than he lets on.

Technorati tags: lego louise lego

Posted by Allan Jenkins at 10:39am in Bizarre but Expected, Corporate Governance, Denmark, Intellectual Property, Law | Permalink | Comments Welcome! (0) | TrackBack (1)

How CEOs Slip into Fraud

Jim Horton looks at how respectable CEOs can slip into fraud.

How does a respectable corporate executive slip into fraud and ruin his reputation and the reputation of his company? Oddly enough, a book on Accounting Irregularities and Financial Fraud, (Aspen Law "& Business, 2002) paints a convincing picture of how this happens, even to honest executives.

It's important for PR practitioners to understand how irregularities occur because every one of us can be tarred by major failure. The editor of the book, an attorney by the name of Michael R. Young, draws a picture that limns the Internet Bubble.

It starts with a company that is a hot stock and a CEO who is overly concerned with Wall Street's opinion. The CEO sees business starting to slow before Wall Street senses it. Usually a slowdown is cyclical because no business grows at a fast pace forever. The CEO refuses to accept that the company must cut earnings, and he damn well doesn't want to see his stock price fall. To prevent that, the CEO holds his reports to high earnings targets and will not bend. His subordinates MUST find a way to meet sales and earnings goals -- often called "stretch goals."

Link: Online Public Relations Thoughts.

Posted by Allan Jenkins at 07:15am in Communication, Corporate Governance, Public Relations | Permalink | Comments Welcome! (0) | TrackBack (0)