On the weekend before Valentine's Day, I found myself in an animated discussion with a young Frenchman sitting in a hotel on the outskirts of Boston. The young man argued against the spread of free market capitalism, citing its lack of concern for the rights and needs of all people. He was deeply troubled by the growing gap between the rich and the poor and the lack of high quality basic services being provided for the poor. As a very strong supporter of the free market, I immediately tried to point out that maintaining a free market is crucial to these disequilibriums to be resolved. Our discussion touched on issues ranging from competition versus market dominance to the Bush administration's plan to start an ownership society with privatized social security.
It finally occurred to me that I would not convince this young French "Royalist democrat" of the intrinsic strength of the free market. The reason was that the free market has failed and is failing to provide the poor with an extended list of "God given rights", such as healthcare and potentially retirement savings. In the long history of American capitalism the little guy has primarily found salvation in governmental regulatory policy, not in the "enlightened despots" of big corporations. As a solution to the failure of free markets to address the demands of the poor, my French friend introduced me to the idea that government regulations can actually be good without resulting in an overall loss of market value. For example, recent regulations by the EU to force competition into the soft drink, beer, and automobile markets were lauded by the Frenchman while many US officials are warning that such moves will put even further downward pressures on Europe's already slow-growing economy. The new EU antitrust commissioner, Neelie Kroes' reasoning behind these moves is to protect " consumers who should be able to enjoy the benefits of a single market with access to a wide range of goods and services at reasonable prices," says her spokesman, Jonathan Todd.
The inefficiencies that
such actions create are not lost on our European counterparts, but the difference
in judgment comes from a difference on how they view value. The main idea of
this report is for US businesses to adjust their perception of "value"
motivated by an effort to:
1) take advantage of the economic value created by social disequilibria,
2) reduce the behavioral inefficiencies in the US economy at large;
3) and ultimately position themselves as strong corporations that address the needs of all stakeholders
The major step in this adjustment is to revisit strategy. As a result of the over emphasis on accountability that has emerged due to a number of events, strategy has been reduced to numbers. Actions that cannot be justified with a strong quantitative analysis are more often than not seen as strategically unwise. This new model of strategy does create shareholder value. The incremental value is not optimal, however. Optimal value is surrendered primarily due to past vagaries of the managing class, eroding value with foolish deals and overcompensation. The result is a general strategy model that does little to take advantage of the economic disequilibrium that politicians are left to squabble over.
The EU is creating equilibrium through stiff regulations supported by the cultural atmosphere well represented by our Frenchman. The US has a strong private sector infrastructure (i.e. financial and human capital markets), but also the right cultural mindset to support a similar economic balancing. Corporations should explore leveraging their strengths and scale to create shareholder value that extends beyond operating profits and healthy debt-to-equity ratios. Strategically, creating local or national programs that help the poor find jobs, find healthcare, and begin saving for retirement or their children's education add to the social and economic value of a corporation and can also be a smart way to cut costs and to even benefit from slim margins on new businesses.
Rick Wagoner, GM's chief executive, has recognized the need for US companies to begin paying attention to the economic value available. He has made healthcare reform a focus of his strategy to revitalize the limping auto manufacturer. Cynics see this focus as a bid for a government bailout. If successful, Mr. Wagoner will probably receive some kind of support from the government and possibly other interested agencies, but the bottom line will be increased shareholder value via more than just a reduction in healthcare costs.
We're citing Mr. Wagoner's campaign as the best example of this proposed strategic re-evaluation and value adjustment to appear in corporate America, however, another worthy example is Samsung's Four Seasons of Hope, the brainchild of Samsung's SVP of Strategic Marketing Peter Weedfald. Mr. Weedfald has executed the Four Seasons of Hope, which pairs sports and entertainment figures with national retailers, to help charities that do valuable community work; and in the process, strengthen ties with national retailers. This campaign does not yield financially measurable returns but it does add an immense amount of strategic value. It has been a crucial facet of Samsung's unbelievable growth in the consumer electronics market once dominated by Sony.
These examples provide adequate precedence for the argument that the corporate view of value in the US must and can be adjusted. Unfortunately, they do not clearly embrace the economics of this proposed shift of core business policy. With the emergence of hedge funds as the new generation of Wall Street "raiders", there is an even heightened alert to creation of shareholder value. CEOs will undoubtedly mire themselves in the minutiae of everyday operations and detailed due diligence before even thinking to start tapping new sources of value. Not even the best and the brightest top dogs can stave off ambitious hedge funds for long; their default strategy is to take the offensive.
Our argument is rather
than allowing the fight to come to them, CEOs must take the steps necessary
to begin strengthening their value proposition to consumers and shareholders.
In the spirit of our country's renewed interest in connecting with our allies
across the Atlantic, it seems appropriate for us to embrace the idea that balancing
social disequilibria can result in economic value. While it would be unwise
to follow the European's regulatory tactics, a shift in perceptions (and ideally,
behavior) can facilitate innovation in strategic value models.
Write to Aankit
Patel at firstname.lastname@example.org
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