Surface Ripples

Should Companies Step in Where Government Lags?

 I was invited to comment on this question recently at a forum.  It got me thinking as, quite often, my ‘gut’ tells me that this might not be such a bad idea.  I was also flattered that I should be invited to comment, but decided that, in the end, preparing a well-thought-out comment amongst the volumes of others that would be pouring in was probably not the best use of my time ‘at that time’.

Had I contributed, it might have been along the following lines. 

Governments, because they are composed of human beings, are fallible (trouble is, so are businesses).  No matter what the political make-up of the governing party, it will be made up of humans with either socialist, conservative, liberal or dictatorial leanings to one degree or another.  At times, they can seem mind-numbingly incompetent; at others, unbelievably perceptive and efficacious.  The same applies to businesses - all run by humans.  

Businesses and governments share some goals but are wildly separated on others.  Free market theory suggests that businesses (we'll call them 'markets') are better users than governments of land, labour and capital (land/labour/capital) to achieve economic prosperity.

This is why, just as some countries have separated ‘Church’ and ‘State’, so ‘State’ and ‘Business’ should remain apart.  We see at present the strong arm of the Chinese Communist Party (CCP) intervening in China’s businesses when it perceives they are challenging its power.  Witness the recent fate of Jack Ma and Alibaba or China’s technology industry, and it is clear that China is clear that no one will supersede state control.  Never mind any impact this has on global markets either.  Is this an effective use of labour, land and capital?  I would say not.

Similarly, centrally planned economies have proven, by and large, to be failures.  One only has to look at post-Revolutionary Russia or North Korea and Venezuela of the present day to see the harm caused by too much central control.  Again, this isn't an effective use of land/labour/capital.  

So that’s government interfering in business; what about the other way round?  Businesses have one focus: profit by maximising use of land/labour/capital.  They’re under pressure from workers, investors and customers to ‘do right’ for said workers, investors and customers. The ‘robber barons’ of the early C20 USA showed exactly what happens when businesses and businessmen (who were usually the investors) pursued profit to the exclusion of workers and customers.  

Say a company wants to do business with a regime that its domestic government deems ‘undesirable’.  Should it be allowed to do so, it may make good money from that investment (capital), but the result may be the destruction of natural habitats (land) through the rape of natural resources, environmental disaster (land) or exploitation of those unable to defend themselves (labour) or all of the above.  Equally, it might result in increased disposable incomes of the population, creating a new middle class that purchases goods and services (including education) from overseas and improves bilateral trade flows and diplomatic relations.

The solution?  A balance of government, corporate and ‘popular’ pressure.  Popular pressure forces politicians (who are constantly seeking re-election) to enact laws that govern corporate outputs.  Popular pressure forced Barclays Bank to pull out of South Africa during the Apartheid regime.   A government wishing to support another country could provide legislative incentives for domestic business to invest in that country, thereby rewarding that country for ‘good’ behaviour or ‘pressuring’ it into behaving better (but see below).  

For business to negotiate with governments directly pre-supposes that labour/land/capital is the sole answer.  First, pressure to do right by their investors (pension funds, hedge funds, insurance companies, especially) distorts that view.  Second, despite the sanctions (legislative disincentives) on Iran and North Korea, these regimes continue with activities deemed undesirable any the community at large.  

For a company to invest or disinvest in any country is a massive undertaking requiring years (sometimes decades) of ‘payback’.  To pull out of a country (as some are currently doing in Myanmar) results in the loss of valuable jobs, tax income, goodwill and credibility as well as huge write-offs to profits and disenchanted investors (but hopefully not customers and governments who deem that regime odious).  It may also arise in beneficial tax write-offs…

Companies can play a part in supporting governments and vice-versa.  What is required is clear dialogue, incentives and appreciation of priorities on all sides.  Businesses (land/labour/capital) are not necessarily the solution to government-created structural problems.

I’ve spent more than half my life delivering change in different world markets from the most developed to “emerging” economies. With a wealth of international experience in international financial services around the world running different operations and lending businesses, I started my own Consultancy to provide solutions for improving performance, productivity and risk management.  I work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides a full picture of my portfolio of services.  For strategic questions that you should be asking yourself, follow me at @wkm610.

Labels: Crisis Management, Leadership, Regulation, Risk, Selling, Strategy

posted by William Martin @ 11:08