Despite the recent headaches, I for one am quite optimistic about the future of the Japanese auto industry. It seems to me that any company led by a CEO who is willing to unequivocally accept a mistake, publicly bow in contrition and emphatically apologise to customers who trusted the company?s brand is a company with a future. Contrast the behaviour of the Toyota CEO with the senior managers of Lehman, AIG, RBS, Citigroup and General Motors, who have committed managerial sins on a much larger scale and with far more wide-ranging effects.
In the course of the history of a company, as is the case with any human institution, there are ups and downs. Sometimes shortsightedness prevails, fundamental institutional values are overlooked, even violated, and the results are quite negative. To expect things to be smooth all the time is absurd. The real question is whether a social organisation like a company uses a setback (by and large self-inflicted) to endure, to learn, to evolve and eventually prevail. This, I would submit, is the path chosen by Toyota keeping in mind the preservation of their brand?s reputation.
The other option, currently adopted by many wounded financial giants, is staying focused on getting out of the immediate crisis (for example, how soon can we repay the
TARP funds and get out of government compensation oversight?) while pretending that longer-term evolutionary learnings are irrelevant or are the problems of future managers (we will be gone in five years at most?so why worry?).
In this context, it is worth wondering whether a family connection actually helps a brand and an institution. If a member of the families of either a Merrill or a Lynch or a Pierce or a Fenner or a Smith had been a major investor and a senior manager, possibly the CEO of that ill-fated company (now proving to be a potent poison within the innards of the once proud Bank of America), one can argue that he or she might have been a sobering influence. Preserving the brand becomes that much more important if your family name is involved and brands, like families, are supposed to last for centuries, not just exist and disappear like flashes in a pan.
The academics of the business world have traditionally looked down upon family-owned or family-controlled businesses that, in their opinion, have lacked ?professionalism?. Maybe so. But families may bring a different kind of value that, I submit, we should not disparage all too easily. And that value may be the key to long-term continuity.
In our own country, the companies in the Tata Group have had their vicissitudes. They have even had serious mishaps in governance and operations. The problems of Tata Finance and the public spat over Indian Hotels or Singur come to mind. Nevertheless, there has always been an overriding commitment that dealing with a Tata company means that one is dealing with a trusted party. This has been true of customers, of employees, of investors, of suppliers?virtually every stakeholder.
This has a solid management implication. Firstly, the likelihood of egregiously bad decisions is low; secondly, if bad decisions happen, self-correcting mechanisms kick in; if despite all these, things go really bad, the individuals involved are in a position to summon from the deep historical recesses of their institutional collective unconscious the strength, the integrity and the resilience to work out solutions that keep the long-term multi-generational requirements in mind; they do not seek the managerial equivalents of a quick course of broad spectrum antibiotics that cure the symptoms and do not deal with the frazzled soul of the institution in question.
Going forward, we need to figure out how to get the most optimal outcome between the short-term operating focus that the professional managers bring to the table with the long-term commitment to brand integrity that families seem best suited to defend. The Japanese, Koreans and Indians may be pioneering new ownership, control and management paradigms. The prevailing economic ?theory of the firm? is almost entirely focused on minimising transaction costs and maximising information efficiencies. The underlying proposition is that the firm exists because external sub-contracting is simply too costly or too prone to signalling and communication failures.
Hence firms come into being?otherwise all of us would just be individual atomistic agents contracting out our services. Long-term defence of the brand, retention of trust and creation of social capital within firms (and groups of firms under a family umbrella) are all parameters that are difficult to measure empirically, unlike costs or market shares. But just because they are difficult to measure it does not mean that they become unimportant. In fact, precisely because they are in the realms of ambiguity and emotions, human institutions (which at the risk of repetition is what companies are) need to take these parameters into serious consideration as they lay down their objectives and plan out their strategies.
Direct family involvement is not the only element that seems to matter. A commitment to the ideals of the founders has a great deal of influence. These ideals usually transcend returns on equity or market shares, while not underestimating the importance of those measures in order to ensure ongoing economic health. A sense of history, an insistence on not tarnishing the inheritance and the name associated with it also acquire a larger than life role. For instance, is it possible that the current leaders of the Alfred Sloan School of Management at MIT are more committed to preserving the intellectual legacy of Sloan than recent managers at GM have been to preserve Sloan?s business legacy? If so, what motivates the deans of MIT differently from the CEOs of GM?
No easy answers there, but definitely worth researching, and out of this research, as well as more insights into the workings of Toyota, Samsung and the Tatas, may come forth a new set of theories of the firm that I hope will be the material that managers of today and tomorrow will study and benefit from.
jerry.rao@expressindia.com