Would You Do Business With Someone You Can’t Trust? How Corporations Become Predatory

Would you do business with someone you can’t trust?  It may be unavoidable. First some discussion of my approach to this article: I know it comes off as a huge generalization at first glance, but my intent is to suggest a path by which some corporations come to behave as they do, not to make a blanket indictment of business in general or any specific organizations.  Like most of you (if not all) I have both worked within corporations and bought things from them (how many times a day?), and have fought occasional battles and at other times felt robbed, frustrated, and complete unsatisfied.  I have seen terrible behavior inside companies and I have had great experiences, but the bad experiences were more prevalent and affected a lot more people.  In fact, some companies seem to never fail, never succeed, and instead muddle through time generating misery for employees, customers, suppliers, and anyone else involved.  It was those experiences that moved me to observe and think about why organizations behave badly when tiny local proprietorships can be so friendly and easy to deal with, and how and why the change might take place over time.  I recognize that few companies grow from small to large any more because successful small companies are usually bought by larger competitors and absorbed before they become giants, unless they have such amazing success that they can do the acquiring.

My big complaint with corporations is ... I can rarely trust them. After decades of observation and study, a top rank business school MBA, and working in about five careers in eleven companies ranging from a half dozen to nearly 350,000 employees, I have a theory as to how companies evolve from small startups to global corporations and go from customer-friendly and reliable to predatory and untrustworthy.  The conduct of corporations is rooted in the relatively normal actions and motivations of relatively normal people.  Corporate behavior is all based in human nature, as you might expect, but it changes greatly from the founding of a small company through when it reaches ascendancy as a multinational corporation.  So how does this huge turnaround in behavior come about?

Companies begin with good intentions. While some company founders may be sociopaths, they are too few to be worth mentioning, and their companies generally self-sabotage and go out of business or sell their key product lines and businesses to larger companies early.  Most companies are founded by people with good ideas and intentions, who are close enough to their customers and dependent enough on personal relationships for success that they care about the welfare of their customers and recognize that selling a customer something that they don’t need, or that isn’t the best for them, is not going to bring the repeat sales that are the essence of all continuing business success.

The culture of a company changes radically when the founder(s) leave the scene. When the founder(s) of a company leave, the people who run it thereafter rarely retain the principles and ethics of the founders for very long, especially if the company grows and they are no longer in personal contact with customers.  Soon top managers are emphasizing to each other the need to show good returns for the owners/shareholders, the importance of a good stock price on the market, and financial metrics that may be good for the company but really don’t reflect the quality of the service or product the provide.  This is further reinforced by a board of directors, usually investors in the firm, who generally have long involvements in other large corporations.

A new management culture, isolated from customers, takes on characteristics of “group-think”. The larger it grows, the less often the management of a company have any personal contact with customers.   Managers work together for the benefit of the company, coming up with new ideas to increase profits, and form a culture that becomes far more focused on financial results than anything else.  Managers make and share assumptions and decisions, rewarding each other for conformance as well as performance, all of it focused on the welfare of the company and themselves.  As a result, concern for the customer fades away to be replaced by what is effectively simple greed at an organizational level, though it is too masked in corporate policy and practice to be easily understood as such.

The Stanley Milgram experiment becomes a factor. Top managers make recommendations to each other, take the recommendations of their peers to heart, and develop strategies that direct each others’ and their subordinates actions.  The organization becomes analogous to a big Stanley Milgram experiment in which one manager can tell another to do something that is actually evil to customers, though they may or may not realize the full import of it, and it is done because it came from a voice of authority.  Evil concepts evolve from what were originally just standard capitalistic business motivations, and the company becomes increasingly predatory because the decisions are made without insight into or concern for the customer’s situation or needs.  “Out of sight is out of mind.” as they say, and doing what one is told becomes more important than concern for the customer.

The organization becomes litigious. Eventually a customer becomes so unhappy or harmed that they are moved to sue the company, and lawyers are brought in.  Since lawyers operate in a legal system based on adversarial interactions, and which requires opposing sides to push as hard as they can in favor of their clients, often regardless of moral or ethical precepts, the company’s actions and policies become even more predatory towards customers under their influence.  Lawyers, respected for their experience and knowledge of business, may be hired in as top managers.  The organization can become more faceless and litigious at the same time that it becomes larger, more bureaucratic, less efficient, and more prone to mistakes that could bring lawsuits.

With success and growth come cultural changes that make the company untrustworthy. As it grows and expands the corporation’s behavior and culture become dedicated to being competitive and taking the customer’s money by hook or by crook without regard for the wellbeing of the customer.  Customers may be numbered in thousands or millions, and either incoming communications from customers overwhelm the feedback system and are lost, or the bureaucracy effectively stifles them in systems that require information to be processed and re-processed so many times that it never is analyzed, interpreted, or the knowledge gained conveyed to anyone who could act on it in a constructive way.

The emphasis/de-emphasis problem appears as the bureaucracy gets “taller”. As the number of layers of management increase, people’s natural tendencies to increase the importance of words higher up and reluctance to report bad news from below cause off-hand comments at the top to become marching orders for armies far down the chain of command, and problems, even those that could destroy the company, either become translated into “great and advantageous ideas” on their way up the chain or completely disappear before they reach a level of authority at which they could be effectively addressed.  This was a fundamental reason why some companies reduced the height (number of layers) of their management structures in the 1980’s, and I was privileged to be working for a multinational corporation that did this, reducing their hierarchy from more than 15 layers to around 9 over a period of a few years.  The result was significant improvement in organizational effectiveness and efficiency, though it was unfortunately not enough to counter changing market conditions.

The “telephone game” also becomes part of the situation as directions and other information are passed through so many people that, just like the children’s game, what comes out the other end may be nearly unrecognizable compared with the original message.  One of the best protections against miscommunication is the cultural norm of telling people not just what to do , but why, and then listening to the feedback they provide.  Not only can people do a much better job of anything if they know why they are doing it, but the feedback provides opportunities for error-checking and correction that prevent dumb mistakes and bad actions carried out “because we were told to”.  It takes savvy managers to understand and work in this direction, but a good understanding of the impact of culture on corporate performance is apparently rare.

As it grows the company will hire experts in product development, marketing, and advertising, giving it immense power over the customer. Imagine arguing your case with a squad of top notch attorneys whose goal is to protect their client, the company, at all cost.  Unless you are a genius with limitless personal energy, and can bring to bear similar, extremely expensive resources, you have little chance of getting what you want unless it also involves paying increased sums to the company.  Advertising and marketing strategies become extremely sophisticated and subtle, even misleading, when contrived by teams of psychologists, sociologists, and advertising people who have spent their careers and sometimes earned their degrees by coming up with ever more sophisticated ways of convincing you to buy products, whether you need or can afford them or not.  While customer loyalty may fall precipitously, clever marketing and financial moves, such as buying up competitors, can counter that by leaving customers less options.

The corporation naturally evolves into a predatory but inefficient organization that can’t be trusted. I can’t tell you how many times, working in the corporate environment, I and my colleagues have looked at each other and expressed amazement that the organization we worked for ever produced anything of value.  At one auto maker we would sigh and say “Well … at the end of the day the cars will still be rolling out of the plant.”, understanding that the loss of production for just one day would cost the company millions of dollars, creating a powerful incentive to ship product even when it might dissatisfy or endanger customers.  99.9% of the people in the typical large company have almost no customer contact, since even when the product is as widely prevalent as toilet paper, they are convinced the number of customers they speak with is so small as to be of total insignificance.  The organization establishes formal channels for customer feedback, usually through customer service and marketing divisions, but the telephone game and emphasis problems implicit in the long chains of communication, both vertically and horizontally, dilute and corrupt the information through interpretations, re-interpretations, and interpretations of others’ interpretations until it is almost pure luck if something helpful to the customer results.  In the end the company is functioning based almost entirely on how more money can be extracted from customers, nearly  independent of any value provided to them, and the values and principles of the founder(s) are long forgotten.  At this point, from the customer’s viewpoint, the company is not only untrustworthy, but can actually be seen as a huge and extremely powerful predator from which one might obtain what they need, but they will be lucky if it is very satisfactory and even luckier if any suggestions or complaints they have are ever addressed in what they buy.  Mostly the customer can rely on the fact that the company will be out for it’s own profit at their expense, and will trick them or sell them out in any way it can to further that single end.

The huge transition from friendly and helpful startup company to predatory major corporation is driven by human nature. All the greatest problems are systemic, meaning that they are implicit in the hugely complicated systems that evolve to get things done.  Every human is by nature self-interested, as this is an expression of the survival instinct common to all life forms that have instincts.  It is the nature of humans to organize, and our organizations can become amazingly complex as they grow.  The interplay between the various fundamental aspects of human nature inevitably create bureaucracy, inefficiency, waste, and bad behavior unless the highest authorities in the organization are deeply aware of these relationships and actively work to create a collaborative and positive culture, and a corporate awareness that the customer is the sole source of their success, and not just any customer, but the repeat customer who is so happy they will come back again and again and tell or bring their friends.

A few corporations succeed at keeping customer loyalty. The most successful organizations often earn customer loyalty by keeping all their members in touch with customers and the fundamental understanding of the importance of customer loyalty.  Savvy top managers understand the problems I’ve described above: the telephone game, the emphasis/de-emphasis problem, group-think and the Milgram experiment, and the need to stay as close to the customer and as attentive to customer satisfaction as possible, and their companies benefit significantly.  Savvy managers understand that constantly listening, learning, and treating both employees and customers with a concern for their well-being will make them willing to contribute to the company’s success, and to give the company and its management the benefit of the doubt when things don’t go well.

Management, management styles, and corporate culture change over time. Even great corporate successes do not guarantee that a savvy corporation will continue to behave that way forever.  Management succession, changes of ownership, and environmental changes resulting from technology shifts, economic swings, regulatory climate changes, and a host of other factors can degrade a positive and productive culture, and the company that did great for you a decade ago may “burn” you today without an apparent thought, and  you may have no recourse except to go elsewhere.  Thus, corporations rise and decline over time.  There are ways to detect the internal culture of organization, such as watching how they deal with customer problems, but I will write about them at another time.  While what I have written here may seem like common sense, common sense is unfortunately anything but common.

Please give your comments, if you have them, and thanks for reading and thinking about these matters.  My writing is based on my own observations and studies and is not intended to reflect on any specific companies or individuals, but to stimulate thought on this area that seems too little studied or taught, and yet which has such immense impact on our everyday lives and the economy as a whole.

As always, I welcome (and hope to learn from) your comments — Tim

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5 Responses to Would You Do Business With Someone You Can’t Trust? How Corporations Become Predatory

  1. Great article – I think you hit the nail on the head for many corporations. A few break the trend. You know this would make a great paper “start” if you ever go for your Ph.D.
    Kim

  2. Daniel Lee says:

    your article caught my attention, as I’ve been search the net for information on predatory business practices of big businesses, an endorsed enterprise culture that is harmful at the core to our country’s long term wellbeing. I’m wondering if it is possible to have a short conversation with you as I’m in the process of a pro-consumer start-up and would love to hear you views and help refine and better serve our communities. It is not a for profit venture, but more community focused, self police-ing, healing, and seeks to involve local businesses, as well as academics.
    I look forward to a short discussion, Kind Regards,

    Daniel

  3. organization…

    […]Would You Do Business With Someone You Can’t Trust? How Corporations Become Predatory « Musings on Effective Management[…]…

  4. […] natural barriers to the flow of information in a large, bureaucratic organization is the “emphasis/de-emphasis problem.”  This concept describes how any issue reported up the chain of command will become less […]

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