Jan 182013
 

When developed economies slumped as a result of the financial meltdown which began in 2007, companies everywhere scrambled frantically to find new markets for their goods and services. Overnight, “emerging” markets (developing nations) became everyone’s target.

By the time of the crash, it was already clear that a massive economic shift was under way from the West to the East, and that future global growth would come more from developing nations rather than the established powerhouses: the U.S., Europe, and Japan.

From the earliest days of global trade, the lure of foreign customers in strange places has been a strong one. Following World War II, innovative technologies and logistics systems, the spread of democracy, and the increasing wealth of billions of the world’s citizens have led to fabulous opportunities for companies selling everything from cement to soap, from food to financial services. But it’s really only been in the past 30-odd years that emerging market mania has taken hold.

Ted Levitt at Harvard Business School alerted companies in 1983 to “The globalization of markets,” and the opportunities in marketing across borders. Jim O’Neill, chief economist at Goldman Sachs coined the catchy terms “BRICs” (Brazil, Russia, India, China) and “the next 11” (Mexico, Turkey, Egypt, Iran, Nigeria, Bangladesh, Indonesia, South Korea, Pakistan, the Philippines, and Vietnam). C.K. Prahalad wrote about “the fortune at the bottom of the pyramid.” New York Times columnist Tom Friedman’s books, The Lexus and The Olive Tree (1999) and The World is Flat (2005), were best-sellers. Many other observers spewed out analyses, reports, articles, and books on the same topic. And it gets hyped to the hilt at the World Economic Forum’s annual Davos get-together.

Growth in rich countries remains sluggish. All evidence suggests that developing countries are where companies will find the sales they need. So competition there will become increasingly hostile, and the demand for fresh thinking on it will rise fast.

But there are some realities that cannot be ignored.

A LITTLE THEORY GOES A LONG WAY

Interest in emerging markets has brought with it an outpouring of views on the attractions of specific countries and what it takes to succeed in them. Usually, these are couched in stirring tales of how this or that entrepreneur beat the odds to make a fortune in some poverty-stricken place; how companies from India, Mexico, or South Africa became admired multinationals; and how firms in rich countries found opportunities in poor ones. Much of what’s on offer is entertaining and even inspiring, but contributes little to a theory of emerging market strategy.

The need for advice on how to crack emerging markets is a big one, and its growth is explosive. So we shouldn’t be surprised if zealous researchers and managers underplay what is already known, and what expansionary firms have learned over many decades—even centuries. Breakthroughs are always more seductive than “the basics.”

A few experts have provided useful insights about emerging market strategy. But by and large, efforts to produce useful concepts or tools specific to this field have been less than fruitful, and will continue to disappoint.

As with other areas of management, there’s only so much that can be said. There will be some incremental advances, but executives should not expect revolutionary new models or frameworks. Those in the advice business will add most value by providing information about particular countries and sectors (context), and what it takes to win in them, rather than about strategy itself (concepts).

THE GLOBALIZATION OF … MANAGEMENT

As I pointed out in a previous post, virtually every market for everything is today an emerging market, in the sense that conditions are in flux, the future is unclear, competitive intensity is high, and the rules of the game are evolving. Strategies and business models that once worked well can quickly become recipes for failure, so both must be adjusted or maybe reinvented to meet new circumstances.

But it also means that whether you’re doing business in Europe or the U.S., or trying to get moving in Malawi or Myanmar, many of the challenges are fundamentally alike. And solutions to them will be much the same, too.

The principles of management that produce results are similar across industries. They’re also similar across countries. It may be fashionable to suggest otherwise, but the evidence is clear.

Management know-how has not only been commoditized, it has also been globalized. So instead of wasting time trying to reinvent this wheel, you can focus on the really hard work of getting to know the market you’re aiming at, and figuring out how to apply the best practices within it.

CONTEXT IS EVERYTHING

The first and most important question every firm must answer when it ventures into new territory is, How will we fit in? This is the make-or-break issue. Deep local knowledge makes all the difference. Personal relationships count for a lot. Most executives who’ve worked in developing markets talk about their steep learning curve, the time it took to gain traction there.

Wherever in the world you do business, you have to be wise to politics, culture, and economics; to the structure and character of whatever market you’re in; to customer expectations and behaviour; and to what competitors are doing. But in developing countries, three issues demand particular attention.

First, there’s the fact that “things don’t work”—or at least not as they do in developed nations. Companies are dogged by what Tarun Khanna and Krishna G. Palepu have termed “institutional voids”: poor infrastructure, dodgy regulation, weak capital markets, lousy services, a lack of skills, and much else. Unhelpful bureaucrats make things worse. Corruption may be a huge problem (although it also occurs in even the most advanced nations). Protecting intellectual property can be a nightmare.

Second, is the difficulty in connecting sellers and buyers. Informal trade is probably the norm; business ecosystems are ill-formed. There’s little information about customers or competitors. Promotions, logistics, and support all present hurdles.

Third, is the management of people. Individuals with appropriate capabilities and experience are in short supply. Productivity, quality, and customer service are not their priorities. They’re unfamiliar with sophisticated working methods. They have to be introduced to a host of new ideas—roles and responsibilities, technical systems, performance management, communication, disciplinary processes, and so on. So foreign executives need to be firm and persistent in providing new direction, while at the same time acutely conscious of local custom.

None of this should be under-estimated. No one should imagine that building a business in a developing country is a cake-walk. It’s folly to believe you can simply charge out of New York and set up shop in New Delhi.

Joburg and Lagos may both be in Africa, but South African managers who think they can easily crack the Nigerian market because “We are African, we understand Africa,” are in for a shock. Success in one country in Africa, Asia, or Latin America is no guarantee of success in others in the same region, let alone elsewhere. Sony’s notion of “glocalization”—”think global, and act local”—is as valid today as it was when it was coined about three decades ago.

Emerging markets—in the sense of developing markets in developing countries—offer exciting prospects for many firms. They differ in many ways from developed markets, but managers should not hope for fantastic new theories for entering them or competing in them. Instead, they need to do their homework, strike a careful balance between importing ideas that worked elsewhere and developing new ones, and recognize that as outsiders they have special responsibilities towards their hosts.

Strategy is always a learning process, and even more so in emerging markets. But emphasis needs to be on learning about these places, not about new strategy concepts or management tools.

IN SUMMARY

Success in these markets depends, more than anything, on putting the right people on the ground with all the support they need.

They should balance a core set of strategic principles and a proven management approach with a sensitivity to local attitudes, customs, and behaviours, and always be respectful of these.

They should understand the importance of local knowledge, and never stop searching for new insights.

And most importantly, they should couple these practical actions with a preparedness to do what it takes to fit in (within reason) and the determination to improvise through difficulties.

Tony Manning_Essentials for emerging market success

A CHECKLIST TO GET YOU GOING
  1. Mindset matters. Given the hurdles you’ll face, you and your people have to really, really, really want to try. You have to be bold, you have to be able to adapt, and you’ll need both courage and perseverance. Above all, you’ll need to be resourceful—your ability to “make a plan” will be constantly tested.
  2. Appoint people who’ll be happy there. Living in Luanda or Laos is not like living in Los Angeles or London. It can be tough. Especially on families. Everyone can’t do it. So give them every chance to understand what they’re taking on, and all the encouragement and support they’ll need.
  3. Go “where the warm armpits are.” As Ted Levitt liked to say, there’s only one way to really understand any market, and that’s to go there and immerse yourself in it. To watch the locals and listen to them. To get to know what turns them on and off, and to learn how things work.
  4. Remember the first principles. Just as focus, value, and costs must be your mantra in developed markets, so they must guide your every action in emerging markets.
  5. Explore, experiment and learn fast. No matter how you prepare, no matter how good your initial information seems to be, and no matter how carefully you think through your strategy, you will get things wrong. This is a fact of life in any market, and especially so in developing ones.
  6. Get stakeholders on your side. You have to gain the support of government, communities, workers—the same array of players you deal with in your home market. But in emerging markets you probably have to work much harder to educate people about business in general and your business in particular. They have to understand not just what you expect of them, but what you can do for them. “Out there,” they can make or break you.
  7. Develop local partnerships. In some countries, they may be mandatory. In many, they’re necessary to open doors, smooth your entry, build alliances, and facilitate your growth. Their knowledge, experience, and contacts can be invaluable and make the difference between success and failure.
  8. Clear values, no compromises. While adaptability is critical, you have to be certain about how you need to behave and what you will and will not do, or you’ll be jerked around constantly—and a sitting duck for crazy demands and corruption. So set the rules early, or someone with another agenda will set them for you.
  9. Be willing to build your own infrastructure. This may mean anything from a shopping centre to a power plant or a water purification facility, roads or runways, a sewage system, accommodation for your staff, or schools and clinics for communities. It could mean offering to train local officials or upgrade their IT systems. Or it could mean working closely with PR or advertising agencies, or other service suppliers, to develop their capacity.
  10. Try, try, and try again. Cracking an emerging market is not a quick process. It’ll take most companies a lot longer than they expect, and cost far more. If you don’t go in for the long haul, you’re wasting your time. If you can’t keep picking yourself up, and adjusting your strategy, you may as well stay at home.
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  •  18/01/2013
Jun 232012
 

No leader in their right mind would deliberately take their company on a suicide mission. No one would initiate projects, programmes or activities that would foul up their organization’s culture, operations or results. Or agree to major commitments that would be a deadweight on performance. Or assign valuable people to tasks they never should have been doing. Or waste their own time and energy confusing and demotivating their people. Or wear themselves out trying to drive an agenda that was full of flaws.

Or would they?

More often than they know it, executives are their own worst enemies. Their good intentions cause endless trouble for themselves and their firms. They create the very problems that they worry about. They pour resources down the drain and wonder why they never get the results they seek. And perhaps worst of all, they never discover just how well they might have done.

Here’s what I call The Performance Paradox: In trying to improve results, managers deliberately, systematically and at considerable cost apply measures that come back to bite them in the butt by hurting performance. 

If you think this is a hysterical rant with no foundation, think again. And look at how easily it happens—and why it’s so common.

Management’s cycle of self-destruction

Start with the fact that every leader wants to better yesterday’s results. Sales should go up. Costs and waste should fall. Productivity and quality should surpass previous levels. Innovation and improvement should take customer satisfaction to new heights and make it possible to capture new markets. Profits should rise.

Wanting all this, the first question is, “Why haven’t we got it?” So introspection and diagnosis begins. And inevitably—between comments about fickle customers, competitors playing foul, IT problems, a lack of resources and so on—answers like these pop up:

  • “Our strategy’s not working—we need a new vision, mission and values”
  • “Our culture is wrong, so we need to change it”
  • “There’s no teamwork—our people operate in silos”
  • “They’re disengaged”
  • “We have a skills shortage, so everything is up to the top team”

The second question is, “What should we do?” And the fixes seem obvious:

  • Get a new vision, mission and values (preferably through a companywide conversation)
  • Change the culture
  • Teach people change management and involve them in change management projects
  • Start some teambuilding
  • Become “customer-centric” by making speeches, running workshops for all staff and putting up some posters
  • Motivate the people—get a motivational speaker for the company conference, improve the canteen food, spruce up the place, set up coffee bars in open spaces, put happy faces on all screensavers, introduce “casual Fridays”
  • Have HR find a new performance management process
  • Make empowerment a way of life—spread the word about “servant leadership”, get an expert on “ubuntu” or offer some courses on personal branding and self-actualization

But are these the right fixes? Chances are, definitely not. The management field is abuzz with nonsense. Too many vendors peddle one-size-fits-all panaceas. Flaky fads and unproven “solutions” are a dime a dozen. There are more tools than can ever be understood or used—many of them utterly worthless. And for every one of them there’s sure to be a champion, all too eager to take charge of a budget, make work and build an empire.

Besides, what appears at first sight to be an obvious problem might not be where an intervention is needed.

Take culture, for example. What exactly might be meant by the sweeping statement, “We need to change the culture”? Is culture a proxy for lousy leadership, skills gaps, a toxic climate, a dysfunctional structure, uninspiring incentives, weak systems, inadequate performance reviews, poor communication or some other factor? And if one or more of these is the real problem, isn’t that where attention should be aimed?

Or take another favorite—team building—trotted out as the answer to almost all corporate ills. Is teamwork really a problem, and if so, why? Could it be that no one knows where “the hill” is, so they’re all picking their own? Do they understand the company’s priorities? Are roles and responsibilities clear, and do people know what to expect from others? Are the right people in the right jobs? Are there enough meetings, are they about the right things, do they include the right people and are they well managed?

Follow a poor diagnosis with inappropriate treatment—or treatment you don’t know how to apply—and it’s all downhill from there. In no time, you’re in a doom loop. The “solutions” that looked so smart either cause whatever problems might exist to become even more entrenched, or quickly lead to others. Suddenly, there’s a flurry of new activities all over the place and people are bogged down under their weight. Complexity increases, confusion mounts and frustration grows.

But hey—you’re busy, busy, busy! You’re being proactive! You’re taking action!

All of which costs money and distracts people from what they should be focused on. The same old problems keep coming up in meeting after meeting. And again and again, the same solutions are offered: work harder at the initiatives that aren’t working, or get another one … or a bunch more. Or make a video and some T-shirts to rally the troops and drive the message home. Or send some of the team to a course. Or … whatever.

So how do you avoid this cycle of self-destruction?

  1. Face reality. Get your diagnosis right. Separate facts from mere opinions. Be alert to how politics, agendas and emotions color things, and don’t let them get in the way or distort your views.
  2. Be especially wary of too quickly settling on the “vision, mission and values” issue, trying to change the culture, or teambuilding or “empowerment” projects.
  3. Don’t buy any initiative with a funny name. Avoid tools you don’t understand. Beware of hucksters selling quick-fixes, or wielding a hammer and treating everything as a nail.
  4. Take an inventory of projects already under way. What is essential (and why)? What’s showing progress? What’s not working, or simply lurking on someone’s desk? Stuff piles up. The old suffocates the new. You can’t do everything. So agree what you’ll stop doing to make way for what’s next. And chuck out whatever you can (which probably means more than you thought!) as fast as you can.
  5. Don’t launch anything new until you’re satisfied that what was on the agenda has been dealt with or no longer matters. When you do start something, be reasonably sure you can see it through to the end. Then, stick to what you set out to do. Don’t chop and change. Your people are watching. They’re cynical and skeptical.
  6. Agree on a very short to-do list with tight timelines and clarity about who will do what. Better to do a few things well than a lot badly. Better to act fast and learn quickly than to keep the wheels spinning while you plan for perfection.
  7. Clarify how you’ll communicate what’s going to happen next—and communicate like crazy.
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  •  23/06/2012
May 272012
 

It goes without saying that leaders are driven to succeed—to do the best they can for both themselves and their organizations.

It also goes without saying that they expect their people to succeed—to do well in the jobs they’re paid for, meet and exceed targets, handle projects effectively, produce new ideas, create constructive relationships with colleagues and business partners, develop the people around them, reach their own potential, and so on.

Yet all too often, leaders set themselves and others up to fail. They “throw sand in the gears” of their organizations, by creating conditions in which under-performance is guaranteed.

That’s a hell of an indictment, so let me explain it.

For more than a decade, I’ve encouraged my clients to reduce all their strategies to a few goals and a series of 30-day action plans with specific people responsible for each result. This has four critical benefits:

  1. It forces people to break work down into “do-able” chunks, and to focus on the few things that really matter rather than the many which otherwise crowd their agendas.
  2. It puts immense pressure into an organization, as 30 days isn’t long and there’s no time for wheelspin. When it’s clear exactly what needs to happen, by when, and whose name will be called, people have to put their heads down and get moving.
  3. It enables you to see, very quickly, whether your strategy is on track or needs fine-tuning, and how the people responsible for various actions are doing. Fast feedback and accelerated learning let you deal with problems and opportunities in as close to “real-time” as possible.
  4. It enables you to quickly praise or reward people for a job well done, or guide, sanction, or replace those who don’t deliver. So the very process of driving your strategy becomes a powerful performance management process. And because success does lead to more success, celebrating some quick wins provides important motivation.

Making plans and assigning work is the easy bit. The hard part comes when you start reviewing progress. For that’s when things either get a boost or fall apart.

Every time you bring your team together, you have an opportunity to either turn them on or turn them off. The way you craft and conduct your conversations will either bring out the best in them or the worst.

Review meetings need to be both respectful and robust. So on the one hand, people must be treated decently. They must be listened to and given the sense that they are valued and their ideas count. But on the other hand, they need to know that your purpose is not to create a “social club” or win a popularity contest.

This is about work and results and progress. Everyone must know that they’re expected to deal in facts and well thought-through opinions, and that there’s zero tolerance for blaming, bluster, bullshit, or excuses.

I’ve sat through any number of these review sessions, in companies of many types. Some leaders get things right: people come well prepared, the conversation is informative and constructive, and they leave feeling positive and knowing exactly what they need to do next. But often, things break down quite quickly.

Typically, everyone pitches for the first meeting. The first few people to report back do it well. Mike, Sue, and Dumesani seem to have a grip on things and achieved what they had agreed to. And they’ve thought about what they need to do in the next 30 days. They get a “thank you” and a pat on the back. Smiles all around.

But then there’s a hiccup. Damien couldn’t do what he should have because he was still waiting for budget approval. Or a supplier had let him down. Or he’d had to deal with some emergency or other. Or he hadn’t been able to recruit a key person because the headhunters hadn’t come back to him. Or the IT guys hadn’t delivered. Or Jeff or Derek or Sam or whoever had been away for much of the month and hadn’t been available to discuss certain issues. Or…

What the leader should do when this happens is come down hard on the individual, question each of his “reasons” and make him explain why he couldn’t do something about them, demand that he take his plan for the next 30 days 100% seriously, and make it clear to everyone that such behavior is not acceptable. In other words, the “rules of the game” must be firmly established right from the get go.

What the leader actually does when she gets the ducking and diving is say, “Oh, OK. Thanks, Damien. Well, do try to sort those things out and get things moving before the next session. Now, let’s move on. Who’s next?”

In that moment, the leader has done two extremely dumb things: first, she has taught Damien that not meeting commitments is acceptable, that non-performance doesn’t matter. (And she has thanked him for letting the team down!) But even worse, she has taught the whole team the same thing. So her very first review session has set the tone for trouble.

When the next meeting comes around, one or two people don’t show up and more of them report that they haven’t done what they promised. Even fewer pitch for the third meeting and there’s a longer list of excuses. Meeting four gets called off because too many call in to say they can’t make it. Meeting five gets rescheduled a few times, but then doesn’t happen at all.

Game over!

Strategy reviews are, in effect, training sessions. You can make them work for you or against you. Clients who use my 30-day planning process say it’s the best thing they’ve ever done. The pity is that things so often start with a bang but end with a whimper. And that clever executives keep wondering why executing strategy is so hard, when it’s they who enthusiastically agree to a sensible way of working then show they didn’t really mean it.

Effective leadership requires tough love. Leaders need to show empathy, foster teamwork, and be unfailingly polite to their people. But they also need to instill discipline, enforce compliance with agreed procedures, and show courage in handling those who play fast and loose with their organization’s future.

Notions like “servant leadership, “principled leadership,” and “values-driven leadership” are all popular. However, if they’re not leavened with firmness, they cannot possibly drive performance and results. Being nice is no substitute for managing. Empowering people does not mean simply letting them loose and leaving them free to do or not do whatever they choose.

The buck stops on the leader’s desk. He owes it to himself to use the power of his position to make things happen. If he doesn’t, he’ll undermine himself because his people will know in a flash and lose respect for him.

If bad habits are allowed to creep into a business, it’s hard to get them out. Only the leader can stop them in their tracks. And strategy review sessions offer the ideal forum for doing it, because they usually involve senior people who, in turn, teach the rest.

Of course, virtually any other get-together—even those chance encounters in the passage where people share ideas or update each other  about projects—provides a similar opportunity. But the discipline, structure, and status of a 30-day review makes it special. Not to be wasted.

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Mar 222012
 

In my March 17 blog about the resignation of Greg Smith from Goldman Sachs, I predicted the story would become a big one. According to the Wall Street Journal, Smith’s Op-Ed missile in the New York Times drew three million page views by the afternoon of publication. It quickly trended in the top ten messages on Twitter. My Google search for “goldman sachs, greg smith” this morning yielded 44,300,000 pages. The infosphere is humming over the matter.

Smith has drawn heaps of praise for the way he showed Goldman the middle finger. But while he has lots of admirers, many of them citing other examples of huffy employees spilling their guts on the way out the door, he’s also drawn a surprising amount of criticism—and not just from business commentators or other hard-core capitalists. Populist, anti-business sentiment clearly has its limits.

Meanwhile, Goldman is reviewing Smith’s claims, and searching its email records for “muppets,” to identify employees who insulted clients and handed its detractors a soundbite from hell. It’ll also look for other offensive terms, but hasn’t said what will happen to staff who used them. (In America, “muppet” was popularized by the hit TV show of that name featuring Miss Piggy, Kermit the Frog, and other cuddly characters. In Britain, it’s a label for stupid, gullible people.)

The debate is on.

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  •  22/03/2012
Mar 172012
 

When Greg Smith, a 33-year-old London-based Goldman Sachs executive director published reasons for his resignation in the New York Times on March 14, he was scathing in his criticism. In a knife-to-the-heart Op-Ed piece heavy on praise for himself, he wrote:

“…I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.”

“…culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief”…

“It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s Work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding.

“I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

Andy Rosenthal, the Times editorial page editor, told The Huffington Post that Smith had approached them about writing the article. “We checked him out,” he said. “…the whole idea of Op-Ed is to generate debate and discussion, so the more, the better.” The article has certainly generated plenty of both. Its all over the internet and according to BloombergBusinessWeek, book agents and publishers are keen to sign a deal with him.

THE FIRST RESPONSE

According to the NYT, Smith’s “wake up call to the directors” exploded “like a bomb” within Goldman. “He just took a howitzer and blew the entire firm away,” said one observer. Within a day, investors stripped $2.15bn from the bank’s value.

As happens in this age of instant opinions, citizen journalism, and social media, the story “went viral.” The public and the media quickly added fuel to the fire with a mixture of praise and condemnation. Smith was variously described as “brave,” “reckless,” “foolish,” “disgruntled,” and “disloyal.” The fact that he’d held back his resignation until he’d been paid his $500,000 bonus for 2011 drew snide jabs. But journalists who dug into his background and talked to people who knew him when he was growing up in South Africa reported that he had a reputation for integrity.

A Bloomberg News item in the San Franscisco Chronicle tackled Smith for his naiveté, implicitly supporting Goldman and saying what many business leaders no doubt thought:

“It must have been a terrible shock when Smith concluded that Goldman actually was primarily about making money. He spares us the sordid details, but apparently it took more than a decade for the scales to finally fall from his eyes…

“We have some advice for Smith, as well as the thousands of college students who apply to work at Goldman Sachs each year: If you want to dedicate your life to serving humanity, do not go to work for Goldman Sachs. That’s not its function, and it never will be. Go to work for Goldman Sachs if you wish to work hard and get paid more than you deserve even so. (Or if you want to make your living selling derivatives but don’t know what a derivative is, as Smith concedes in passing that he didn’t at first.)”

Forbes columnist argues that this event is a mere a storm in a teacup, and says the excitement over it will soon blow away:

“So what should our reaction to this be? No, not as clients of the firm, that’s obvious. Similarly for the management, what they need to change is obvious. But what should we, the people out here in the public and political square be trying to do about the company?

“Nothing of course, we should be doing nothing at all. For one of the great joys of this mixed capitalism and free markets system is that mistakes like those allegedly being made by Goldman Sachs are self-limiting, indeed, self-correcting.”

Of course, Goldman—the target of much criticism in the past few years—quickly denied Smith’s accusations:

We were disappointed to read the assertions by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman think about the firm and the work it does on behalf of our clients.”

WHAT’S NEXT?

So where do things go from here? How will Goldman deal with Smith and the continuing fallout? What does this drama mean for other banks—and, indeed, for other companies of any kind? (And let’s not forget to ask, how will Smith’s career be affected?)

Unfortunately for banks, they’ve made themselves a juicy target for outrage. When Smith’s article appeared, a lot of people probably thought to themselves—or said to others: “I knew it. Here we go again. Scumbag bankers. Can’t trust them an inch. Bastards got bailed out, but keep stealing our money!” So what’s likely out in the “public and political square” is that this story will get so much airtime it will be impossible to ignore. The media will continue to make a feast of it. Politicians and regulators will seize the chance to sound off, and maybe try to force change. The anti-capitalist, anti-business crowd will jam the infosphere and the profit motive will take another beating. Smith’s act will become a popular dinner table topic, the stuff of business school class debates, and a trigger for massive introspection at both Goldman and other firms.

Business leaders need to tread carefully through this minefield. The CEO of Morgan Stanley told his staff not to circulate the Smith piece. Jamie Dimon, CEO of JP Morgan Chase & Co., sent word to his people that they should continue to act in the above-board way they always had. In a widely-publicized e-mail, he warned:

I want to be clear that I don’t want anyone here to seek advantage from a competitor’s alleged issues or hearsay—ever. It’s not the way we do business.”

You can bet the bosses of other financial institutions have sent similar messages to their staff and clients, and will spend a lot of time and money trying to distance themselves from the blast and confirm that they’re above reproach. And you can bet that a lot of people, from spin doctors to corporate governance gurus, from HR executives to career coaches, from management consultants to IT security experts, will hop onto the bandwagon and make new work for themselves.

Make no mistake, this event has huge implications. It affects not just financial institutions, but all of business.

THE DIFFICULTY OF PROTECTING A REPUTATION WHEN YOU CAN’T PROTECT SECRETS

One of the most important social trends of the past half century has been the move towards openness and transparency. That’s a very good thing. But it doesn’t make life easy for business.

Windows to the internal workings of organizations are being forced wide open. Largely as a result of scandals at Enron, Anderson, and many other firms, corporate governance has become a growth industry. Firms are required to provide more and more information about themselves. They face a growing number of regulators and a growing tide of regulation, vigilant law enforcement agencies, and courts that are under pressure to impose severe sanctions for shenanigans.

News-hungry media are quick to spot wrongdoing. Consumer hotlines not only give disgruntled customers a voice, but also make it likely that one complaint will trigger a shitstorm of others. Facebook, Twitter, YouTube, blogs, e-mail, instant messaging, and other social media make it increasingly hard to keep anything under wraps, and easy to be a critic or spread dirt. And reasonableness, objectivity, balance, and truth do not always prevail.

Wikileaks, has created awful problems for governments, the military, corporates, and individuals by splashing confidential material all over the internet. A growing community of criminal hackers break into government and business databases, and don’t hesitate to fraudulently use credit card details or post personal information on the web.

Whistleblowers like Greg Smith have long been a concern to employers. But if once they were vilified, they’re now encouraged, protected, applauded, and rewarded—true social heroes. Their motives don’t matter; the fact that they’re insiders, and therefore must know what’s going on, gives their views credibility and clout. And in a verbal war between a whistleblower and a company’s leaders, the underdog invariably wins most sympathy and support.

Dealing with anonymous attackers is no easy task. Fighting back when your attacker is a valued member of your team, apparently with nothing to gain by opening up—and apparently of unquestionable integrity, too—may be worse.  The reputational damage that follows leaks is hard to contain or fix. A carefully-crafted image that has taken years to establish can be shredded in an instant.

VALUES DON’T GUARANTEE “GOOD” BEHAVIOUR

Surveys show that public trust in companies and their executives is at an all-time low. The trust level in many teams is also nowhere near where it should be. So what now? Do you demand that your new hires all sign confidentiality agreements? (And how enforceable are those, and do you really want to explain yourself in court?) Do you require the same of the people you already employ? How do you deal with those who refuse? How do you deal with violators?

According to Smith, Goldman has a culture problem. He has just provided the culture-change crowd with new inspiration—and a new promotional drum to beat.

One of their favorite tools is values. “Values-based management” (not the same thing as value management) or “managing by values” is a hot fad, and thanks to Smith, just got hotter. The theory is that if you spell out how you expect your people to behave, they’ll stay on the straight and narrow, be nice to each other, bust a gut for customers, and produce innovations galore. But that’s a very big “if.” And anxious executives should beware: changing culture is never easy and always slow, and values are no silver bullet. So while we’re in for a noisy debate about all this, and opportunists will make pots of money peddling “new” ways to make things better, don’t expect miracles.

Most values statements include the same handful of terms—”integrity,” “respect,” “innovation,” “service,” “responsibility,” “teamwork,” “accountability.” Yet precisely what these mean is often open to interpretation. And you have to ask: if this guff  features so strongly in business books and leadership courses, if so much prominence is given to it in company documents and presentations and on office walls, and if it’s discussed so often and so seriously in team-building sessions and strategy workshops, why is “walking the talk” so uncommon?

The first reason is that it’s damned difficult. (The 10 Commandments haven’t done too well, have they?) It’s one thing to say that companies would solve many of their problems if they “just did the right thing,” but it’s quite another to actually do it. Values that sound so right when you adopt them are almost certain to clash with future circumstances, and what then? How much “flexibility” should you tolerate? When and how should you bend the rules? After all, values can’t be cast in stone … or can they? Should everyone be allowed to bend them, or just a special few?

The second reason is that all too often the very people who espouse a set of values are the ones who violate them. And are seen to violate them. They set a bad example—”Do what I say, not what I do.” Perhaps they never really believed in those values in the first place, but needed something to improve their company’s performance and thought a values statement might do the trick. Or maybe they were just humouring the HR department. Or they just wanted to be seen to be standing for the right things and to be in tune with the latest management thinking.

Individual and groups all have values of one sort or another. These may be either implicit or explicit. But it’s sheer delusion to think that merely drafting an explicit set of values will keep a company out of trouble. Take another look at Goldman’s response to Greg Smith:

“We were disappointed to read the assertions by this individual that DO NOT REFLECT OUR VALUES…”

This begs several questions: What exactly are those values? How were they defined and how are they communicated? Who champions them? How rigorously does the firm test itself against them? What sanctions exist for violating them?

It also illustrates the high probability of mixed messages about this very central, very potent subject. Leaders do not always send consistent signals. People interpret things differently. And they misinterpret things very easily.

For all the value in  values, there’s also a risk in making a big deal of them. When you tell your team that you expect them to adhere to a certain code, every word immediately becomes a potential rod for your own back. From the minute you utter them, the people around you listen, watch, and wait: “Oh yes … let’s see if she really means this.” And if you’re not 100% resolute and consistent in your own behaviour, their response will be, “If she was so serious about those values, but then didn’t stick to them, what else is she not being honest about? How can I trust her about anything?”

DID SMITH DO THE RIGHT THING?

It’s easy to be critical of corporate behaviour—and much of it deserves major criticism. Whistleblowers do have an important role to play in exposing corporate misdemeanors and ensuring that executives are held to account. But while Smith complains that “It makes me ill how callously people talk about ripping their clients off,” he also admits, “I don’t know of any illegal behaviour…” No doubt, we’ll hear more about that. Meanwhile, several clients have commented on the internet that they use Goldman because it gets results for them.

Smith spent 12 years at Goldman, in New York and London, so had plenty of time to choose to leave. For at least a decade he “recruited and mentored candidates through our grueling interview process”—most likely in the last 10 years of his career there, not the first. So how was he able to suppress his growing disgust at Goldman’s ethos and its leaders, and what did he tell those young people? Why did he agree to keep selling something he abhorred?

In his essay, he makes a strong effort to establish his own bona fides, but doesn’t say whether he ever spoke up before he savaged the hand that fed him. We’re left to guess whether the practices that caused his disappointment in Goldman in any way helped him earn his bonuses.

Smith isn’t the first person to leave a firm in a public huff. He won’t be the last. But his use of the New York Times to strike at his employer was a particularly spiteful move.

The Greg Smith/Goldman Sachs case is a special one in many ways, and the story is a work in progress. It has a long, long way to run.

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  •  17/03/2012