The Soul of Competitiveness
The effectiveness of macro areas like law, health, policy and governance are at the heart of competitiveness as also are corporate leadership and ownership, wherein too government plays a role in its enhancement or determent.
“An entrepreneurial climate is one that encourages and nourishes entrepreneurs and dynamic companies and sees past business failure as useful experience rather than disgrace.”
“Stewardship means that both the owners and the board whom they have elected wish to pass on the business in a healthier shape than they inherited it.”
What is the basis of India’s competitiveness? It wouldn’t be different from any other country’s—talent and education; technology and a climate for innovation; infrastructure; fair markets; effective government and regulation; the rule of law; the health of civic society; and capital availability.
But, as Michael Porter argues, competitiveness is ultimately created in companies—not just the next generation of hi-tech companies, but the whole ecology of enterprises and the value chains they form, not least of which are in vital sectors like food and agriculture.
To have a healthy company sector, countries need 3 things—effective entrepreneurs, effective leaders and effective owners. Governments can enhance or undermine each of these.
An entrepreneurial climate
An entrepreneurial climate is one that encourages and nourishes entrepreneurs and dynamic companies and sees past business failure as useful experience rather than disgrace.
An inclusive approach for companies towards purpose, values and relationships
There is abundant evidence of businesses that over long periods of time seek to serve a purpose beyond profit outperform those who look for money alone.
There are 20,000 companies in Japan that are more than one hundred years old. 600 are more than three hundred years old. There are 30 that are more than five hundred years old, and 5 businesses that are more than thousand years old. So, what are the things long lasting businesses have in common? Leadership with clear values; a long-term viewpoint; understanding the importance of people; exhibiting social consciousness; and frugality.
The same things come up in other studies in Europe and America. Arie de Geus studied long-lived companies and found they had in common financial conservatism, sensitivity to the surrounding environment, a sense of cohesion and identity in their employees, and the ability to delegate. The Stanford pair of Jim Collins and Jerry Porras found that a portfolio of companies which had outperformed the stock market by 15 times over 50 years differed from their peers by having a core purpose beyond making money, an emphasis on leadership that transcends the individual, and strong consistency between stated and actual values.
A recent 10-year study of 50,000 brands around the world by the former Marketing Director of P&G found that:
“Companies (which put)…ideals of improving people’s lives at the centre of all they do outperform the market by a huge margin, and frequently create both new businesses and entire new business sectors”. An investment in the top 50 of these companies would have outperformed the stock market average over ten years by 400%. …[i]
This inclusive approach is really common sense. Business is a human activity, conducted by human beings, in relationships with one another, using the mechanisms and disciplines of the market to help them achieve human purposes. Business activity is impossible without making a profit, but moneymaking is rarely the purpose. The best businesses steward their assets; they do not sweat them.
It seems obvious. It has been true for centuries. Yet it has precious little to do with what is taught in our business schools, let alone the world of corporate finance. We do business with those we trust. Trust enhances the value of the brand.
The best people want to work for organisations that give their work meaning and purpose beyond their financial return. And so it is that the leaders of all the best businesses start with purpose and values. This is the key to success and coherence in all relationships. Their CSR is not just on the sidelines, it is their purpose and values in action, in all their relationships. There are many examples of this inclusive approach from East and West. From Tata and Toyota, to Dr Reddy’s and Transasia.[ii]
Ownership and stewardship
So, why have we decided to ignore the very soul of competitiveness in our economic life in general, and in our capital markets in particular? The Shared Value agenda promoted by Professor Michael Porter has done much to achieve a reconnection with human purposes.[iii] To spread this approach, India now needs to rediscover the human purposes of ownership.
You only have to look at the history of Tata to see a living and enduring example – a company in which leaders set a purpose with the confidence that it will be held to beyond the term of office of any one CEO. Stewardship means that both the owners and the board whom they have elected wish to pass on the business in a healthier shape than they inherited it. We need ownership that gives managers the confidence to manage without arrogance or greed. We need owners who see business as servant of society; who stimulate necessary change while holding on to constancy.
Sometimes this may be done by mutual ownership. Credit unions are much better than banks at assessing many lending risks by making them local. Sometimes still, it is achieved by family ownership, provided that it is the kind of family ownership in which the family sees itself as a servant of society.
Sometimes it will be done through the mechanism of listed markets, which efficiently recycle savings and profits, but we need them to operate in a much more inclusive way. Each time I visit India I see more and more advertisements for financial services companies. People save; their relatives send money back from working overseas; their parents pass on wealth when they die, that money increasingly flows into savings schemes, life insurance, and pensions. From there, in due course the savings find their way into the world’s capital markets. But those capital markets are not yet adjusted to serve human purposes.
Shareholders are citizens and a growing number of citizens are shareholders. We all want and need value – a return on our investment consistent with an improving quality of life. What’s the point of being able to afford a car if it can’t move for the traffic around it? It is only the golden thread of effective investor stewardship that will channel citizens’ savings into results that citizens will value, through the operation of robust, principled companies in a thriving economy, a well-run society, and a sustainable environment.
Sanskar – the motivation that comes from within.
As the Modi government finds its feet, India, we are told, is at the crossroads. Its growth has slowed. It still hasn’t opened up its markets and liberalised its economy. The poor are still poor and the economic justice is still far off. Corruption has not been defeated.
Perhaps there is truth in these criticisms. And yet, if, many of us here today would probably agree that the answer to India’s problems does not lie solely in technical or technocratic solutions.
The foundations to competitiveness are to be found in the human spirit, and how it is applied to the achievement of better entrepreneurship, better company leadership and more effective investor stewardship.
We all know what can happen when we leave everything to government. More rules, more red tape. More energy and cleverness wasted on how to bend the rules, at the expense of time spent trying to do better for the customer, and society. But working together, and in this spirit, business leaders, investment institutions, civil society and federal and state governments can create the climate for the competiveness of a nation.
[i] Jim Stengel “Grow” How Ideals Power Growth and Profit at the World’s 50 Greatest Companies. Virgin Books 2012. Location 484 Amazon
[ii] All of the references in this article can be found in this book Living Tomorrow’s Company – rediscovering the human purposes of business by Mark Goyder, published in India by Knowledge Partners, 2013.