Image courtesy Salvador A
Unethical corporate behavior is disgustingly unattractive. Listen to these three cases. In the case of Darling International, employees shortcut company sanitation methods and destroyed a river ecosystem. More severe, Wells Fargo employees used unethical sales practices and destroyed millions of customer relationships. Most potently, WorldCom accountants cooked the books and destroyed a telecom empire. It’s no surprise that, according to EthicalSystems.org, 94% of MBA students say they would forego some pay to work for a more ethical organization.
If you dig into each of the above stories, you will quickly find a similar narrative. Darling, Wells Fargo, and WorldCom leadership had grown obsessed with hitting short-term numbers and placed extreme pressure on staff to hit those numbers. An additional learning comes from Valeant, which saw its stock price drop 90% in 2016 after regulators and the market cracked down on unethical price increases. The learning to note is that their CEO, Michael Pearson, was personally incentivized by the tune of 100’s of millions to see short-term stock prices gains. It’s no wonder the short-termism plague is rampant in Corporate America.
While short-term pressure can increase performance, much like it does for a marathoner making a final push to the finish line, that level of performance leads to massive breakdowns if used beyond periodic brief bursts. Few find themselves with the energy capacity necessary to adapt and survive in the long-term when market forces demand it. Only 60 firms from the 1950 Fortune 500 list remain today. IBM is one of them and is a prime example of a firm that transformed. When IBM realized it would be eaten alive by competitors, it pivoted away from hardware, and it now thrives as a services-focused firm. It narrowly escaped death via the plague.
Unlike countries, companies don’t have to opt for only a short or long-term system. While the United States and France avoid dictatorship through periodic leadership rotations, they lose out on consistent strategy execution over decades of the kind that Singapore, Russia, and China enjoy. Companies can benefit by balancing both, and they should, just like Unilever is learning to do. Despite external pressures, Paul Polman, Unilever’s CEO, has partnered with the Aspen Institute on their American Prosperity Project which is beginning to change United States strategies to gain benefits like those, say, of Singapore. Internally, he’s instituted a series of policies and made unconventional decisions like withholding quarterly earnings reports in effort to keep the company focused on long-term objectives. In the time Polman has introduced these approaches, Unilever has continued to churn out enviable annual yields and the market has already adjusted to the firm’s new style. Hopefully it eradicates the plague and ushers in a new era of business.