Negative attitude to business

Public have a healthy cynicism about business. Some reasons for this include

- business scandals ranging from

i) Daimler & VW's diesel emissions cheating, ie Dieselgate (see more detail below)

ii) VW, Daimler and BMW's collusion on technology, suppliers and exhaust-gas cleaning systems for decades

iii) dubious behaviour of investment banks during the global financial crisis

iv) the tax affairs of large US technology companies like Apple and Google

v) Australian financial institutions cross-selling products and services, misleading customers and over-charging for services

vi) Deutsche Bank and Credit Suisse's sale of mortgage-backed securities before GFC

vii) BP's Macondo oil spill (Gulf of Mexico) (see more detail below)

- the spin in press releases

"... I have to say I do read a lot of press releases and I can't believe what I am reading......it's full of corporate speak. It's not human......any CEO has to realise that lawyers are there to advise. They are not there to run the company. You are paid as CEO to make very tough decisions, and you've got to balance all these things, and in the end the truth is the best thing. I do think you get a lot of points for admitting failure. not saying something like, 'we failed on that one and we are not quite sure why.' But if you say, 'this is a failure and this is what we are going to do', then people say, ' we get that'. Because everybody knows that not everything goes right in a company..."

John Brown (ex CEO, BP) as quoted by James Chessell 2016

John Brown received a lot of criticism after the Deepwater Horizon oil spill in the Gulf of Mexico, he accused of shaping the company that put profits before safety and that his rebranding BP to "Beyond Petroleum" was a cynical exercise in "green washing". Also, he was accused of lying to a court about how he met his former boyfriend.

NB McKinsey & Co found that a firm's relationship with society accounts for about 30% of its market value (James Chessell 2016). This was the percentage that shares in VW fell when the emission scandal surfaced in late 2015.

"...When there is a reduction in the belief that business is serving the population and there is a reduction in the amount of trust to the point where nobody believes anything, then business finds it very hard to work and economies suffer..."

John Brown as quoted by James Chessell 2016

- failure of business concepts like

i) Corporate social responsibility (CSR). It degenerated into a box ticking exercise developed for PR purposes, where publishing lengthy reports hid the fact that it was business as usual for most organisations.

For a couple of decades CSR aimed to encourage companies to look beyond immediate short-term gains like profitability, and foster a genuine corporate engagement with issues around environment, social, community, etc. Generally it has failed. An example is Enron (Houston-based energy and commodities company) which won several CSR awards and donated millions of dollars to charity before going broke in 2001.

ii) business model

Anything that challenges the business model or interrupts the flow of business is not welcomed by business. Some examples

- Intel in the 1990s decided not to develop links with US policymakers as they were engineers, not policymakers. On the other hand, their dominance of the microprocessor market, ie 90%, came under the scrutiny of the US Dept of Justice

- Uber (ride sharing platform) assumes that its business model is adequate to win arguments with regulators.

A fresh approach by companies needs to evolve. they should not presume to impose their agenda onto society; rather, the needs and expectations of society in which they are hoping to operate should be the focus of their decision-making. Essentially it requires a respectful approach. However, this utopian attitude may be difficult to achieve.

BP's Macondo oil spill (Gulf of Mexico)

Reputations do matter. In fact organisations need to have a reputation reservoir, ie stock of goodwill, to call on when a disaster/crisis occurs, especially if the response to the crisis does not satisfy the expectations of the critical world. For example, owing to the Gulf of Mexico disaster

"... BP's market value fell by more than US $ 100 million in two months following the accident, a loss of more than 50%. The damage lasted. In the 12 months prior to Macondo, BP share prices had outperformed Shell by 15%. three years on, it was down by 25% while Shell was up 30%...... in July 2015, BP agreed an US $ 18.7 billion settlement with United States federal authorities and the 5 Gulf states, taking the total bill for cleanup, damages and penalties to a US $ 54 billion. This places the cost of the accident at more than US $ 11,000 per barrel, more than 120 times the market value of a barrel at the time. An unprecedented divestment program was launched to pay for all of this. Three years on from the accident, BP has sold US $ 65 billion worth of assets and was planning a further US $ 10 billion in assets sales by the end of 2015. The entire direction of the company has changed. Beyond the financial and strategic implications, perhaps the most worrying impact of the reputational crash might be on employee recruitment and retention..."

John Brown et al 2015

NB the reason why the reputational reserve of BP was low was due to other significant incidents like

- in 2005, the tragic Texas city refinery explosion (15 people lost their lives and 170+ were injured)

- in 2006, pipeline corrosion led to a small oil spill on Alaska's northern slopes

This erosion of BP's reputation did not help. It was regarded as an accident-prone foreigner identity by US public and policymakers, eg Pres Obama's threatening language after the incident and the assembly of around 4,500 government officials to investigate.

VWand Daimler (dieselgate)

The systematic deception started around a decade before it became public in mid 2017. Unable to satisfy increasingly stringent emission requirements, the engineers used software design to cheat the system, ie guaranteeing good emission results in vehicle testing stations but allowing these supposedly clean vehicles to emit harmful nitric oxides

 

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