My entire career has been working with global brands and companies. I have worked in great multinationals such as Unilever, Visa and Diageo. I have had the privilege of managing global brands in highly competitive categories. I am a supporter of competitive free markets that are sensibly regulated. I sincerely believe that corporations should be exposed to natural competition and the risk of failure. Otherwise they will not be efficient and the fruits of their sustained success will not accrue to society at large. Capital is the accumulated saving of society. It must fetch return.
A global corporation is an important institution in the modern world. There is enormous concentration of wealth and influence in the top 1000 corporate entities of the world. Just one American company Amazon now has a market capitalization that is fast approaching the nominal GDP of India!
Companies are legal entities, but they are also mortal. The average life expectancy of a multinational corporation — Fortune 500 or its equivalent is 40 years. This has been studied by many management thinkers –Jim Collins, Arie de Geus, Peter Drucker, Tom Peters, Richard Pascale amongst others.
Undeniably, management has focused on profits. This is what they are supposed to do. It is the fiduciary bargain that gets struck. Their creed is to maximise shareholder value. Social responsibility is mostly a matter of compliance to law. Now that thinking has to change. For corporate institutions to flourish it is important to always adapt to the context. Corporations that endure for generations have a cohesive corporate community with a strong sense of identity. They have loved brands with strong consumer communities. They are prudent and conservative in financial matters.
The Fortune 500 was first published in 1955 was led by General Motors, a company that held the top position for more than 30 years. It was a pillar of the US economy. In 2009 it went bankrupt. Through the Troubled Asset Relief Program, the US Treasury invested a total $51 billion into the GM bankruptcy.
Today, capital is abundant. The skills, capabilities and knowledge of people are scarce. Learning is tomorrow’s capital. Data is the new oil. Every company needs to grapple with continuous change.
To survive and flourish -business owners, executive management, corporate boards and senior operations executives must dedicate a great deal of time to nurturing their people.
The essence of wealth creation in the new economy is the deployment of creative capability. All companies desperately need high learning and innovation. Corporations have to turn into networks. They have to look beyond being limited liability companies, a legal frame dating back to the 19th-century industrial enterprises. They have to see themselves as living systems composed of other living systems — the people who worked for them and their allies and partners. A company’s success no longer depends primarily on its ability to raise investment capital. Success depends on the ability of its people to learn together and produce new ideas. The corporations that are ready to survive and thrive for long do not see themselves primarily as economic units to produce profits.
Today, in the Fortune 500, the companies which consistently rise —Amazon, Facebook, eBay, Microsoft, Google, Netflix, — have relatively few capital assets. The difference between their high capitalized share values and the low values of capital assets on their balance sheet represents a valuation of the intellectual capability of their human components. In the most successful companies, this valuation is comparatively high.
Most of the longest surviving corporations –Unilever, Nestle, GE, Coco-Cola – now recruit top people from the outside, which they rarely did before. They have gone past the logic of growing their own timber.
If society thinks of companies primarily as limited-liability organizations, with powerful fiscal legislation protecting them — and if managers have been taught at business school only about efficiency and bottom-line return on investment capital — then we will struggle with the more profound concept of work communities. We will have a hard time making the transition to a world where capital only has a secondary role to play, and where people shouldn’t pay more for capital than its market value.
Conventional business must recognize that the new business reality is about people. They must see that their critical competitive success factor is producing more talented output than their competitors. They can only accomplish this by getting people to learn and to work together better.
We all must pay heed to the human side of enterprise and ensure that companies must be fundamentally humane to prosper.