First published in the Financial Times on 14th October 2014.
There are two extremes of corporate culture: the hard-driving, aggressive category; and the warm, open-hearted type. But which is more successful at motivating a team, and delivering outstanding financial results?
An example of the “agreeable” philosophy of management is described in Peter Mead’s autobiographical book, When In Doubt Be Nice. He was a co-founder of the highly regarded advertising agency Abbot Mead Vickers, now AMV BBDO.
A slightly daunting 380-plus pages, the book has plenty of cosy, sensible advice, such as treating staff well (“be a father to your workforce”), always do your best, focus on quality not price and so forth. They are wise words, but I’m not sure these beliefs would all pay off in some cut-throat markets. His view is that if you do good work and look after your people, profits are sure to follow. In their heyday ad agencies could afford, for instance, to give all the staff the afternoon off before public holidays. Sadly, lots of industries are intensely overcrowded and offer miserable margins, with little time or money for kind words and sympathetic employment policies.
A contrast with AMV might be Rocket Internet, the newly public vehicle for the online ambitions of the Samwer brothers. The business clones digital operating models from America like eBay and Groupon and launches them in emerging economies. Oliver Samwer, the billionaire chief executive, told staff in 2011 that he was “the most aggressive guy on the internet” who would “die to win”, and expected the same from them (he apologised later). Clearly, however, that formula has made him very rich, and the stock market appears to like his practice of copying ideas rather than genuine technological innovation.
However, a monomaniac focus on profit at any price is unlikely to prove a winning ideology in the long run. Possibly the most notorious exponent in recent times was “Chainsaw” Al Dunlap, an ex-lieutenant of the late Sir James Goldsmith. He entitled his memoir Mean Business, which says it all. After turning around Scott Paper by slashing costs, Mr Dunlap attempted to revive Sunbeam Corporation using the same methods. The virtual collapse of the company destroyed his career, and was a stark case study of how real companies cannot prosper simply by sacking staff, using bullish accounting policies and playing M&A games.
And yet, when Mr Dunlap said “people want to be liked; they don’t want to do what’s right if it costs them entry to the clubhouse”, there is truth in his remark. Fixing broken companies is a difficult job that invariably means hard choices. Many companies go wrong because their leaders are too weak, and afraid to take painful decisions. Some of the most profitable organisations of the modern era did best when led by a boss with a hard-charging attitude. Steve Ballmer, the tough CEO at Microsoft, was famous for his take-no-prisoners approach to rivals such as Google. During his tenure, earnings more than doubled to $23bn, making it the most profitable business on earth. Could a more caring culture at Microsoft have delivered those results?
Of the 50-odd businesses I’ve backed over three decades, only a minority had exceptional company cultures. All of those cared more in some respects about their staff and customers than the bottom line. This emphasis paid off for the shareholders when the business had an intrinsically strong franchise. Sadly, having happy staff and customers does not always guarantee a sustainable economic structure. I’ve lost money in sectors such as films and bookselling where everybody enjoys the ride except the capital providers.
Combative companies are brittle. Usually they are based entirely around financial rewards, and when the profits slide, there is little staff or customer loyalty to fall back on. RBS under Fred “the Shred” Goodwin had a reputation as a ruthless acquirer, winning hostile takeovers for NatWest and ABN Amro. But in 2008 the bank had to be rescued with a state injection of £46bn. Its corporate culture of arrogance contributed to its downfall.
Nice companies are more pleasant to work in, and if you agree with management guru Peter Drucker that “culture eats strategy for breakfast” you should consider subscribing to the Peter Mead school of business. But in the shorter term, aggression can eat nice for breakfast too.