Friday, December 09, 2005

The art of the long view.

Carlota Perez: The Thought Leader Interview
by Art Kleiner

According to this influential long-wave theorist, the world is due for a technological and economic boom that truly lifts all boats. When? That’s up to us.

At a time of prevalent focus on short-term results, long-wave theories are quietly making a comeback. These theories are historically associated with the Russian theorist Nikolai Kondratiev (1892–1938), who posited that capitalism evolves through recurring 50-year cycles of boom and bust, and the Austrian-American economist Joseph Schumpeter (1883–1950), who identified the “creative destruction” of these cycles as necessary for long-term economic growth, no matter how harmful it might be to individuals in the short run. Today, the most significant proponent of long-wave theory is Carlota Perez, a visiting senior research fellow at the Cambridge Endowment for Research in Finance at Cambridge University in the United Kingdom.

Professor Perez, at 66, has the kind of eclectic background that one might expect from a theorist whose work combines analysis of financial, political, and technological trends. Raised in Venezuela, she studied architecture and the economic and social history of technology before becoming a forecaster studying the impact of high oil prices for several Latin American governments in the 1970s. In the course of her research, she noticed that the most promising growth opportunities linked with the new, still-relatively-obscure device known as the microprocessor. Between 1980 and 1983, as the director of technological development in the Venezuelan Ministry of Industry, Professor Perez established one of the first government-sponsored venture capital agency: an effort to support local innovation using new digital technologies.

That experience, along with her further studies of the history of technology, led Professor Perez to a broader view of technological change: as a force that drove both modernization and upheaval in society’s institutions and in the culture at large. Through the 1980s and 1990s, working in the development field and academia, she increasingly focused her attention on the link between technological and financial cycles. When a new set of technologies is ready to emerge into widespread use, it needs the force of freewheeling investment capital to give it momentum. This period, which Professor Perez calls Installation, might take 20 to 30 years to develop; then, there is another 20- to 30-year period called Deployment, when the potential of those technologies for improving quality of life comes to fruition. This recurring sequence is laid out in her 2002 book, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Edward Elgar). Based on 20 years of research (in collaboration with University of Sussex economist Christopher Freeman), the book happened to come out just as the world began to shift from one of these periods to the other.

Since the book appeared, it has gained a reputation as a counterintuitive but prescient explanation for the mysterious economic oscillations of the past few years. It has received avid praise from, for example, Brian Arthur, the Santa Fe Institute economist known for his theory of “increasing returns,” and from William Janeway, vice chairman of the private equity investment firm Warburg Pincus LLC. According to Professor Perez, the industrialized world is still in the middle of its painful transition from Installation to Deployment. Such a transition can last two years (as it did at the time of the Victorian railway panic) or 15 (as it did from the 1929 U.S. stock market crash through the end of World War II). The duration depends on how seriously decision makers, great and small, take the challenge of building a robust alliance between business, government, and the public at large.

We met with Professor Perez at a London hotel to conduct this interview. Whether or not her theory is correct (and it has the advantage of compelling face validity), it raises one of the most critical issues for our moment in history: how to marshall business strategy and government policy together to create the global markets of the future.

S+B: On the airplane here, I read two articles about the future. One predicted economic clear sailing and the other foresaw crisis and collapse.

Perez: They’re probably both right. We may well have a jolt or two in the near future, and then a great boom probably lies ahead. But the Nasdaq collapse of 2000 was not big enough to force the changes necessary to get there.

S+B: For people who lost their retirement savings, that’s a difficult statement to hear.

Perez: I couldn’t agree more, but that’s the price we’ve historically paid for our ability to reach great booms. The collapse has to be disastrous enough to make it clear to everyone that the time when the stock market drives the growth of the economy is finished. Finance capital has done its job; it’s brought forth the resources to pave the way for the next wave of technology. Along the way, it’s created an environment in which companies like Microsoft, Intel, and Google could emerge and flourish. Now we need to spread out the new paradigm of our era through all the economies of the world, just as in the past.

S+B: We’ve been here before?

Perez: Yes, and more than once. There are historical regularities in the way technological revolutions form and become assimilated into society. You and I both have seen the changes wrought by information technology, and we think it is uniquely momentous. Yet previous technological revolutions made equally momentous changes. When you go back and read contemporary accounts of life in the 1880s and ’90s, you could replace the words steamships and telegraph with computers and Internet and the text would sound completely modern.

Five Great Surges

S+B: Tell us more about these previous technological revolutions.

Perez: There have been five since the late 18th century. Each lasted 45 to 60 years. They each produced a great surge of development: growth, employment, new products, new industries, and — most important of all — new infrastructures for carrying goods, energy, people, and information farther, faster, and more cheaply. And while they were extremely different technologically, each revolution followed a similar pattern of phases and changing business climates.

S+B: And they were…?

Perez: The first surge was the classic Industrial Revolution that started in 1771. It brought mechanization, factories, and canals. The second, centered in Victorian England, began around 1829: the age of steam engines, coal, and iron railways. The third was the age of steel and heavy engineering. Civil, electrical, chemical, and naval engineering developed impetuously then.

S+B: When did that surge start?

Perez: Around the mid-1870s. That was when cheap Bessemer steel made possible transcontinental railways, major tunnels and bridges, and rapid steamship lines. Those, along with telegraphy, led to the first great globalization — which, by the way, was coordinated by the British Central Bank and the City of London. With those technologies, Argentina, Australia, and others in the Southern Hemisphere could send grain and meat in refrigerated ships to the northern winter markets.

In the fourth surge, which started with Henry Ford’s Model T in 1908, the center of gravity shifted to America. This was the age of oil, mass production, and the automobile. Our present, fifth, surge, the age of information technology and telecommunications, began in 1971 with Intel’s microprocessor. If the historical pattern holds, this surge still has 20 to 30 years left to realize its potential.

I could guess that the next wave will involve biotechnology, bioelectronics, nanotechnology, and new materials. But those are still in gestation, just like the transistor of the 1950s represented the microprocessor in gestation.

S+B: How does our current semiconductor surge differ from the age of oil?

Perez: Last time, producers were all seeking homogeneous markets. Henry Ford said you could have any color car as long as it was black. Most products, from shirts to eggs, came in three sizes: small, medium, and large. The cost advantages of mass production depended on high-volume standardization and economies of scale.

We are now in a different game. High productivity, diversified markets, and customization all coexist. There will still be high-volume production at the bottom end; China and India are increasingly handling that segment. But for every type of product now, there is so much market segmentation. People make profits now by catering to many different ways of life. Food, for example — from organic to exquisite gourmet foods, the choices are continually widening.

S+B: And organizations are different as well?

Perez: Yes, each surge brings with it a new organizational paradigm, new best practices, a new “common sense.” No one today would propose a centralized, rigid, top-down organizational structure, where you cannot communicate across functions except through your bosses, but that was precisely what Alfred Sloan set up at General Motors, to great advantage at his time. With today’s communications and flexible technologies, agile creative networks make more sense and lead to much more productivity.

The Frenzy of Installation

S+B: Where are we, then, in 2005, in our particular surge?

Perez: Well, historically there have been two major periods in each surge, with a critical break between them. That’s where we seem to be now, in the break.

I call the first half Installation, because we’re installing the new technology in the economy, and the new paradigm in the business and culture. This period is led by investment capital in alliance with young technological entrepreneurs, and it begins by confronting the “dinosaurs,” the powerful established institutions from the previous paradigm, which are now obstacles to change.

S+B: Why did the dinosaurs need to be confronted in the first place?

Perez: There are two types of dinosaurs inherited from the previous paradigm: the institutional framework (basically the rules of the game that governments establish for business in each age) and the mature industrial giant corporations. All of these will eventually be transformed and modernized. The industrial giants have reached limits to growth and innovation, but most of them still can’t give up their old practices, even when they see the need to. The electric refrigerator and the vacuum cleaner had been truly fantastic innovations, but by the 1970s innovation had devolved down to the electric knife and electric toothbrush. The appliance companies were still producing a lot of money, but they didn’t know how to invest in or design the new types of appliances that semiconductors would make possible.

S+B: In other words, what people call a “mature market” is more like a failure to develop new types of products when the old paradigm has run its course.

Perez: Yes. These companies are like J.P. Morgan at the dawn of the age of the automobile. He refused to invest in the Ford Motor Company because, he said, “That’s just a toy for rich people.” Trains and horses were good enough.

S+B: So who does put up the money during Installation?

Perez: It’s a new wave of bold financiers with entrepreneurial drive; in our surge, it was the new venture capitalists of the 1970s and ’80s. They looked around and saw a bunch of technologists, building and using little microprocessor chips. Suddenly these technologists were promising candidates for investment. After the first few financiers make money, many more flock to the feast.

By the 1980s, we had two economies side by side. The old economy was in decline; it was the economy of stagflation, high unemployment and high inflation. The New Economy was getting incredible returns — 30 to 60 percent profit, 60 to 80 percent growth. This was like a “strange attractor” in chaos theory: It drew money rapidly out of the old industries into the new technologies, which were reshaping the economy, and, as successes multiplied, all available money was absorbed into the game. Soon we had a casino atmosphere that encompassed all investment. Or, you might say, Installation culminates in a time of “frenzy” (in our own time, the high-tech bubble of the roaring 1990s). There was excess investment in dot-coms and especially in telecommunications. And that was a good thing.

S+B: Why was that important?

Perez: For each technological revolution to flourish, you need a lot of new investment in infrastructure. If you don’t have railroads, who can build locomotives? If you don’t have roads or electricity, how can you sell cars or refrigerators? But if you don’t have enough cars or refrigerators, you can’t justify the roads or power plants. The solution comes through asset inflation. As money flows into new technological stocks, investors make capital gains by reselling them. It doesn’t matter if there are no profits or dividends yet — the money keeps coming. Many of the canals and railways of the manias in the 18th and 19th centuries were completed years after their stock market boom ended, and many of the dot-com and telecom companies never realized any benefit from their investment. But the frenzy left enough infrastructure in place for everyone to benefit.

Of course, there is also an incredible amount of fraud at this point. So much wealth is running around, and decisions are made at such high speeds, that questionable ethics are commonplace. There are speakeasies and numbers runners in the 1920s, drugs and illegal weapons dealers in the 1990s. Work, entrepreneurship, and imagination are no longer seen as the source of wealth. Instead, wealth accrues to the cunning, the people who were smart (or lucky) enough to put their money in the right place. Meanwhile, the euphoric atmosphere and the extreme pressure for high profits every quarter push companies to doctor the books “just this once”…and we know how that ends.

S+B: Has such a pattern of frenzy appeared in every surge?

Perez: Every time. And it serves its purpose. By the time the bubble collapses, the old ideas are gone; the new networks become “normal.” The Internet, mobile phones, and computers are already taken for granted, just as railroads, electricity, and highways were after previous periods of frenzy. Bill Gates’s Microsoft is no longer a Harvard dorm room; Intel is far from being a bunch of innovators in Silicon Valley, IBM is rejuvenated, Google is a huge company. These and other information and communications technology, or ICT, giants are ready to serve as engines of growth for globalization.

If General Motors CEO “Engine Charlie” Wilson could say in the 1950s that “what’s good for the country is good for GM and vice versa,” we could say today that “what’s good for the world is good for ICT and vice versa.”

The Euphoria of Deployment

S+B: What happens next?

Perez: Well, in an ideal world, we would smoothly enter a golden age of expansion and growth in the global economy — a time when the amazing, wealth-creating information technology paradigm lifts all boats and produces global welfare. Instead, as in every previous surge, there is a difficult interim period: a time of uncertainty, instability, and economic recessions or even depression. In my book, I called this interim period the Turning Point. Maybe the Turning would have been a better name, because it can last years.

As every surge is unique, so every “turning” is different. It can be very short. It took less than two years after the railway panic in England in the mid-18th century for the Victorian boom to take off. But it can also be very long, as after the crash of 1929. It might have happened sooner if American business had embraced Franklin Delano Roosevelt’s New Deal, but they resisted it as “Communism.” Instead, the industrial momentum went to Adolf Hitler’s Germany, where a mass-production economy flourished after 1933, with autobahns, automobiles, tanks, weapons — and later, mass extermination. In his own horrible way, Hitler engineered economic expansion through government–business cooperation. Fortunately, he was defeated. In the West, the postwar golden age of mass production — with its Keynesian policies and its welfare state plus international stabilizers such as the Marshall Plan and the Bretton Woods international framework — only took off after the experience of World War II showed the benefits of government intervention to boost demand in the economy.

The last golden age lasted from the 1950s until the early 1970s. I call it Deployment, because technology is finally deployed to its full benefit, with profits from customers, not speculation, providing the bulk of new investment capital. A wave of regulation comes in that addresses the excesses of Installation and frenzy. Giant companies and governments redesign themselves, and the new sectors (in our case, the information technology industries) serve as engines of growth for the entire economy. It is like going from turbulent adolescence to young and strong adulthood. There are new institutions in place — some public and some private — and space for them to act in new ways. It is the Victorian boom, the Belle Époque, post-WWII America — the golden age.... But we’re not there yet.

S+B: Our current model could be thought of, then, as akin to 1946.

Perez: Not yet. Still more like the late 1930s, although the real pain is not so visible to people who are well off. We must remember that this current surge is global. In fact, that is why China and India have been able to serve as a “miracle cure” to avoid recession. They have opened vast horizons of investment and rapidly growing markets, while much of their surplus comes back to support U.S. investment and consumption. Such a huge lifesaver is quite unprecedented. But no one can be sure of its sustainability. The bursting of housing bubbles or of hedge fund mountains in America or a collapse in China could bring the whole world economy down.

Riding the Global Wave

S+B: What indicators would tell you that the Deployment period is near?

Perez: People would stop thinking that the Dow Jones is the barometer of the economy and would pay more attention to growth, employment, productivity, improving income distribution and increasing well-being. When you read accounts of these Deployment phases, it’s like reading about a big feast where everyone gets to participate. Six million people came in 1851 to the Great Exhibition at the Crystal Palace in London. In the 19 acres covered by that amazing glass structure, there were more than 13,000 exhibits, among which were the latest industrial products from machine tools, steam engines, looms, and reapers, to the new styles of household items such as china, cutlery, toilets, and cookers. Queen Victoria and her husband, Prince Albert, were the heads of the aristocracy, but they were the conveners of a celebration of industrialization, which the aristocrats had resisted in the past. There was this feeling of construction, of general growth, well-being. The same was true of the 1950s. Most people were happy. They were sure they’d have a place to live, and a job, sure their children would be better off than they were. Instead of the euphoria being limited to the few who invest, there was widespread social euphoria.

S+B: But how does that come about?

Perez: First, finance needs to be adequately regulated. Every time some forward-looking CEO tries to implement a three-year plan, he gets ousted in three quarters. The finance world still expects the easy profits of the bubble, but what is needed now is long-term investment. If capital gains were taxed more stringently when assets were sold before five years, for example, then more investors would “marry” the companies they own and focus on maximizing longer-term returns. Similar measures for all assets would discourage the current massive deviation of investment money toward housing bubbles and derivatives. And, obviously, regulation of global finance must be enforceable at the global level. Quite a tall order!

Second, prices have to come into line. During Installation, there is always strong asset inflation (both in equity and in real estate) while incomes and consumption products do not keep pace. This creates a growing imbalance in which the asset-rich get richer and the asset-poor get poorer. When salaries can buy houses again, we will be closer to the golden age.

Third, as Deployment gets closer, you will see increasingly stable industry structures. Look at the mad price wars of the airline industry; it has a lot of restructuring to do to segment its markets and develop a sustainable set of practices.

Fourth, there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here’s one small example: Millions of self-employed entrepreneurs work from home with uneven sources of income. Where are the financial instruments to smooth out their money flow so they can work and live without anxiety? For them, that innovation could be the equivalent to installment credit in the 1950s, which made possible the consumer base needed for mass production.

Finally, I’m not sure we’ve understood the causes of fraudulence at companies like Enron, nor how to avoid them by means other than excessive bureaucratic controls. The key decision makers, in government and business, do not seem ready to make the changes that could get a golden age under way.

S+B: What role does the government play in this?

Perez: A big role. I think that market fundamentalism today is as much of an obstacle to world economic growth in the next decades as state fundamentalism was in the 1970s and ’80s. Government needs to be reinvented, using as much imagination as it took to design the welfare state in the first place. It all seems impossible now, but things always seem impossible at this point in the surge. Between 1934 and 1946, a lot of economists believed that high unemployment was inevitable, because both industry and agriculture were shedding labor. But just after that, with an adequate institutional framework for mass production and consumption, the U.S. entered its biggest full-employment period in history.

S+B: What kinds of companies will ride the next half of the surge most effectively?

Perez: Those that recognize the kaleidoscopic market segmentation that characterizes the process of globalization. If you are in the U.S. or Europe, it makes no sense to insist on trying to produce something that can obviously be provided less expensively from Asia.

S+B: You mean specialization by country.

Perez: By country or by region. China, with its masses of low-cost labor, is becoming the center of standardized commodity fabrication; India, the center for mass-produced services. Resource-rich areas like Latin America and Russia will probably become centers for chemical, metallurgy, agricultural, and forestry products. Eastern Europe may become a source of heavy industry for Western Europe; maybe Mexico will be the same for the United States.

The U.S., Europe, and Japan will then concentrate on the upper edge of each industry, producing the most differentiated, complex, and high-priced goods and services, the kinds that determine a high quality of life. Have you noticed how good taste has suddenly become fashionable and is moving right down the income scale? That’s what happens when a Deployment period is dawning. The industrialized countries will also coordinate the global networks, which is a much more complex management task than that of the past giants. In addition, they will organize the enormous movement of goods across the planet. I can assure you that DHL, FedEx, UPS, and the others will not be enough. Education will also take on incredible importance. Many of the unemployed in industrialized nations will make a good living selling their skill base to people elsewhere. In fact, I see a thriving global education industry emerging. There will also be a huge environmental industry, dedicated to overcoming the polluting and health consequences both of the mass-production inheritance and of the current globalization — assuming there is strong and stable regulation to allow this industry to flourish.

S+B: Do you have the sense that decision makers are ready to talk about this?

Perez: Not yet. It may be that the experiences of the Indian Ocean tsunami, Hurricane Katrina, and the Pakistan earthquake create some degree of awareness. But even that may not suffice to start the necessary kinds of conversations — the equivalents to what took place to set up the welfare state and the Bretton Woods agreements.

A lot of people in the developing world are very much against globalization. They’re looking only at the trade globalization that destroyed their industries. Or they see the mess that financial globalization made of many economies (many saw their life savings completely wiped out by collapses such as Argentina’s). But there’s a third kind of globalization — the globalization of production that is increasingly happening now. And that’s the kind that, sooner or later, will probably bring prosperity to large numbers of people across the planet.

S+B: Then why not simply wait for it to emerge?

Perez: Because left to itself, it might not happen. Historical regularities are not a blueprint; they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost.

Reprint No. 05410

Author Profile:

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Art Kleiner (kleiner_art@strategy-business.com) is editor-in-chief of strategy+business.

©2005 Booz Allen Hamilton Inc. www.bah.com All rights reserved.

The moral is the story.

The Realist’s Guide to Moral Purpose

by Nikos Mourkogiannis

Four ideals of leadership that appeal to our deepest instincts — and can inspire a company to long-term success.

Everyone agrees that the performance of a company’s chief executive and top team has a decisive influence on long-term profitability. But what is it, exactly, that great leadership teams do? How do they create sustained competitive advantage in a firm?

Here the answers are not so obvious, but upon close observation, they become clearer. The most successful organizations, over time, are those in which people act consistently and decisively, innovating and building high-quality relationships. The task of leadership is to stimulate these kinds of actions, reliably and continually. The executives who can do this are not magicians. Consciously or not, they have learned how to deploy a conceptual tool that allows them to inspire and lead an organization toward enduring competitive advantage.

That conceptual tool is called moral purpose. A moral purpose is a value that, when articulated, appeals to the innate sense held by some individuals of what is right and what is worthwhile. For example, by all accounts, Sam Walton was a tough businessman, but at the company he founded, Wal-Mart, making money was secondary to another moral purpose: giving customers a good deal. He made his “associates” (as he called employees) feel that their work was worthwhile, by tapping into their natural good feelings toward fellow human beings. This in turn led them to treat customers in a friendly and helpful way, which (combined with his fierce pursuit of low prices) established the kind of customer loyalty that has been the central competitive advantage of his company. Mr. Walton could do this because he shared these feelings himself and communicated them at every turn. Indeed, his altruistic appreciation of his fellow human beings shines through his account of his own motivations (in his 1992 autobiography, Sam Walton: Made in America, written with John Huey, published by Doubleday):

[Our associates] learn to stand up tall and look people in the eye and speak to them, and they feel better about themselves…. Wal-Mart has helped their pocketbooks and their self-esteem. There are certainly some union folks and some middlemen out there who wouldn’t agree with me, but I believe that millions of people are better off today than they would have been if Wal-Mart had never existed.

Of course, outsiders may not always credit Sam Walton with altruism; they may attribute more ruthless self-interest to Wal-Mart than to other organizations. They may even have good reason for doing so. But that does not affect the degree to which an ideal of service drove Sam Walton and his employees during his lifetime, and made possible Wal-Mart’s success.

Moral purpose of a very different sort allowed Siegmund Warburg to build the financial firm S.G. Warburg into one of the top two merchant banks in London after World War II. This was a highly disciplined, innovative, and idiosyncratic firm. It was, for example, responsible for the first Eurobond issue (which was sold, characteristically, to a company no one else would have thought needed external financing), and for a series of hostile takeovers that offended more conventional European bankers. Mr. Warburg’s own name for his approach was “haute banque.” He strove for heroism, directly inspired by the writings of Friedrich Nietzsche, with the moral purpose of creating an aristocracy of elite financiers who would bring, as he put it, “the diverse potentialities of the human being to their highest possible level.” The drive to win and to achieve gave him and his firm capabilities that their competitors could not even begin to emulate.

Investor Warren Buffett, who similarly disdains the popular following of fashion in the stock market, has his own form of moral purpose. He seeks neither altruism nor heroism, but excellence. In his writing, he describes his purpose as being an artist, with investment as his canvas. He has never bothered to create an organization; his firm, Berkshire Hathaway, retains a tiny head office, for that is all that an artist needs.

A fourth moral purpose, the value of discovery for its own sake, has driven many entrepreneurs into new innovative domains. In the 1930s, it drove Thomas J. Watson Sr., the founder of IBM, to explore the thus-far-unseen potential of the data-processing industry, the scope of which he thought he alone recognized. Accordingly, he took huge risks and invested heavily in research, helping to make IBM impregnable. In doing so, he created a tradition of innovation that helped keep the firm close to the cutting edge of technological development for many years.

Behind every successful company one can find leaders with a similarly well-formed moral purpose. You may not like, or agree with, their particular moral sensibilities, but you cannot argue with the impact: Each moral purpose, in its own way, compels the people who work in that organization to rewrite the rules of their industry’s game and generate unprecedented results.

A well-chosen moral purpose, one that resonates with the sensibility of customers, employees, and other constituents, can serve a number of functions. It contributes to morale by establishing a sense of community and common meaning, grounded in mutual respect: Employees know that they have more than their paychecks in common. It fosters innovation by sensitizing people to market conditions and opportunities. For example, their drives for power and discovery, respectively, made Henry Ford and Tom Watson identify the potential of cheap automobiles and data processing. In providing a degree of emotional certainty, a well-grounded moral purpose also counters the natural risk aversion of a large company, which might otherwise hold back innovation. It inspires people to search out solutions to problems, to not give up, to keep on trying. In short, an organization’s moral purpose provides a unifying theme that allows its people to understand and facilitate the complex fit among its actions, assets, and strategic position.

The Test of Time

Why, some will ask, is moral purpose so important? Is something so seemingly esoteric really essential to the proper functioning of the firm? After all, there are plenty of hugely profitable businesses at which the overwhelming purpose of the management team is merely to make as much money as possible, or perhaps to be recognized as star achievers. There are even more businesses for which moral purpose is no more than a confection, providing a little boost to morale when needed but peripheral to the firm’s central profit-maximizing dynamic. Given these undeniable facts, why shouldn’t we attribute all of a company’s success to, say, the characteristics of the CEO, or the workings of the top team?

There are three reasons. First, moral purpose is where the big money is. Most stories about wealth creation and success are far easier to understand when we recognize the part that moral purpose has played.

Second, moral purpose reveals the underlying human dynamics of the firm, the most fundamental issues involving motivation and behavior.

Third, moral purpose is all that successful CEOs want to talk about — although they do not put it in those terms.

When no clear moral purpose is articulated, a company acquires a de facto amoral purpose: expediency. It becomes the kind of company that professes, “We are here only to make money.” This can be very successful in the short run, but companies without a clear moral purpose cannot endure; they do not survive the changes they will face in their markets or business environments. Even so, this type of company is preferable to the company that pretends to follow a moral purpose, such as excellence or altruism, but actually practices expediency. This gap between real and professed moral purpose breeds cynicism among employees. Companies that profess moral purpose but do not display it become crisis-ridden and paralyzed, precisely because employees have inconsistent, even contradictory, guidance for their decisions and cannot set priorities.

Moral purpose is especially powerful when it prompts leaders to take radical steps that others would not take, and thus change the basis of competition in their industries. That is why moral purpose is a critical, if often unseen, element of strategic breakthroughs. A moral purpose can give a company the collective courage and persistence to strike out from the pack. To be sure, the transformation of a company or industry can be triggered by factors other than moral purpose. But the moment there is a genuine change in moral purpose, the organization transforms.

An effective moral purpose is intrinsic to a company’s identity and not a means to some other end. It is not a public relations or human resource tool. If the top team treats it simply as a means to profit, then it will not work effectively as a means to profit. It must be pursued for its own sake. By the same token, moral purpose is not corporate social responsibility, which is a company’s sense of moral obligation to a wider society or community. The BP Group, as the most explicitly environmentally oriented large oil company, holds a collective moral commitment to environmental standards. This forms part of its moral purpose. It also professes a social responsibility toward indigenous communities near its facilities around the world. But this latter responsibility is not so clearly aligned with its strategy, and is therefore less productive, for both BP and the world. It may be a good thing, but it is not part of BP’s moral purpose.

A moral purpose’s effectiveness also depends on its connection to the shared culture of humanity — to the extent that it draws on philosophical ideas that have stood the test of time. I disagree with the view put forward by Jim Collins and Jerry Porras in their influential book, Built to Last: Successful Habits of Visionary Companies (HarperCollins, 1994), that the content of the ideas animating a corporation matters little compared to how hard they are pushed by management. Not all ideas are born equal. It is true that a relatively isolated institution can effectively brainwash its members into believing anything. But when the average length of employment with one company is 4.5 years, this is not going to become standard business practice.

At the same time, the fit between moral purpose and strategy does not take place automatically. Company leaders must manage moral purpose and strategy so that they are aligned, so that the nature of the moral purpose helps the firm advance in its environment. Discovery, excellence, altruism, and heroism represent four sets of ideas, each with its own philosophical roots and long-standing cultural integrity. (See Exhibit 2.) They are not the only moral purposes that are influential in our culture. (See “Moral Purpose Outside Business,” below.) But these four, as the successes of Thomas Watson, Warren Buffett, Sam Walton, Siegfried Warburg, and many other business leaders have shown, are most relevant to competitive businesses today. An effective corporate strategy, I believe, starts by identifying which of these moral purposes is closest to the company’s strategic intent — and worthy of the investment of the senior team’s attention and engagement.

Moral Purpose Outside Business

There are, of course, a number of moral ideas besides the four described in this article that are influential today. They include belief in equality and universal justice, religious morality, obedience to authority and precedent, and patriotism. These have value outside business and have sometimes been associated with successful businesses. But for a variety of reasons, they do not in themselves inspire employees in ways that would make these concepts useful as moral purposes for most competitive firms.

For example, fostering equality used to be the moral purpose of many firms. But that is no longer compatible with the competitiveness of the contemporary world. Telephone and power utilities, in exchange for their government-sanctioned monopolies, treated all customers equally. But the moment a utility is privatized, that utility must necessarily segment its customers and offer them different products and services and different prices, or it cannot stay competitive.

Similarly, patriotism is no longer appropriate as a moral purpose for business in a nonmercantilist world. Many British companies have successfully transformed themselves by changing their moral purpose. They were built to serve the Empire; they enjoyed local privileges in India, South Africa, and Australia. But patriotism cannot sustain those firms any longer, so they have become global, European, or regional competitors.

Discovery: Adventure’s Challenge

Discovery put America on the map, men on the moon, and the dot-coms in business. It involves a love of the new and the innovative, and it animates many technological enterprises. This type of moral purpose is rooted in the intuition that life is a kind of adventure. At Sony, the “joy of technological innovation” was explicitly stated by its founder as a reason for the company’s existence.

This is the intuition of the existentialist, articulated by Søren Kierkegaard in Denmark in the early 19th century. When we live authentically, we are free to continually seek out the new and the worthwhile, without being bound by convention. But — and this is why discovery is a moral purpose and not just a continuation of adolescence — this does not mean constantly changing course. Precisely because we have chosen our course freely, we are committed to what we are doing and pursue it consistently. In the last analysis, each individual has to make his or her own choices, if only to decide which rules to accept.

This emphasis on our complete freedom of choice and our resulting commitment to the consequences occurs again and again in existentialist philosophers. It implies a constant attempt to perceive each situation freshly, and invent our own response, without being burdened by the conventions of the past. Tom Watson of IBM would have agreed with this: “THINK” was his slogan, which he plastered up all around the company. He recognized that he would have to live with the consequences of his decisions, which took the company to the edge of bankruptcy on more than one occasion.

Discovery is a difficult principle to live by because humans tend to identify with the groups or corporate bodies to which they belong, and to accept external rules governing behavior and thought. When we operate under the moral purpose of discovery, we accept the unbearable, painful state of free choice, challenging though the consequences may be.

Excellence: Virtue’s Fulfillment

Excellence built the great cathedrals of Europe and today’s most successful professional and creative businesses. The standards of excellence, like those of an artist, are defined by the craft itself rather than by the customers. Medieval craftsmen spent as much time carving angels that would be invisible to visitors as they did on the cathedral’s more prominent ornaments because God would see all of the carvings. Businesses pursuing excellence would rather turn away customers than compromise their quality. Not that the pursuit of excellence and profit maximization need to conflict: Warren Buffett is one of the best examples in modern business of a successful practitioner of both.

This type of purpose is rooted in the idea that the supreme good is excellent performance of one’s role in life, both as an individual and as a community member. Aristotle articulated this ideal in Athens in the fourth century b.c. He called it eudaimonia, sometimes translated from the Greek as “happiness,” but closer in meaning to “fulfillment,” “flourishing,” and “success.” Aristotle’s audience was composed of young men who were to become citizens, and the question of reaching individual fulfillment within a closely knit democratic society was tangibly important to them. We cannot achieve fulfillment simply by aiming for it, Aristotle taught; instead, we must cultivate traits of character (which he called virtues) that will lead us to behave automatically in a way that contributes to our success.

Aristotle identified the following as relevant for the Athens of his day: courage, temperance, liberality, magnificence, pride, good temper, friendliness, truthfulness, wittiness, shame, justice, honor. In our time, we might choose others; the particular virtues matter less, under the moral purpose of excellence, than the eternal commitment to try to reach them.

Aristotle also writes about vices. For every virtue there are usually two vices — one representing too much and one too little of the virtue in question. The vices of fearfulness and foolhardiness, for example, represent an imbalance of courage. Those who pursue excellence will cultivate a reasonable and measured way of life, the famous doctrine of the “golden mean.”

Altruism: Empathy’s Justification

Altruism is the moral purpose underlying all major political movements, most charities, and a whole range of businesses, including many small businesses, that exist primarily to serve their customers. In these organizations, altruism may take the form of personal service beyond formal obligation (as at Nordstrom or Marriott, with its “Spirit to Serve” slogan), the provision of products at prices so low that they transform customers’ lives (Sam Walton’s Wal-Mart), or the use of technology and ideas to improve human experience (Hewlett-Packard and even Hallmark Cards).

Altruism in business is not always directed at the customer. At the Body Shop, Anita Roddick’s altruism is directed at animals and at her employees. As she put it: “How do you ennoble the spirit when you are selling something as inconsequential as a cosmetic cream?” Her answer: By following a set of altruistic principles, the most famous of which is to refuse to sell any cosmetic known to be tested on animals. This principle is unconnected with any standards of product quality or customer service excellence. Another, more traditional, variation on altruism is paternalism toward staff. A good example is the leading British retailer Marks & Spencer (at least in its heyday), whose founders established a tradition that staff were to be treated as “part of the family.” Altruistically driven businesses often “care” about the staff, who will in turn care for customers — an approach summed up by FedEx as “People–Service–Profit.”

Under the moral purpose of altruism, the ultimate justification for any action is to increase happiness. David Hume, the 18th-century Scottish philosopher, argued that the desire for happiness is rooted in innate human empathy, triggered by the pleasure or pain we feel when we contemplate good or harm to others. We as individuals maximize our own happiness by taking into account the happiness of others, trading off our selfish pleasures against the pleasure generated by fulfilling our moral instinct to care about others.

Other philosophers, notably Adam Smith (professor of moral philosophy at Glasgow University), Jeremy Bentham, and John Stuart Mill built on these ideas, eventually developing the philosophy of utilitarianism. This is the view that the right action in any situation is what brings the greatest possible happiness (or absence of unhappiness) to the largest number of people. Utilitarianism is often used to justify capitalism, free markets, and profit maximization: These are all said to be good because they maximize wealth, which in turn is said to maximize happiness. The ethical justification of commerce and business, in short, is traceable directly to altruism; the market is worthwhile, from this view, because it creates the most happiness for the most people in the long run.

In this sense, altruism doesn’t mean debasing oneself in the service of others; it means adopting an ethic of service as a path to happiness for all, including oneself. ServiceMaster, the ancillary services company, depends for its economic success on being able to recruit and motivate low-wage employees. Its professed Christian values are expressed as an explicitly altruistic moral purpose: to treat its employees with respect. This in turn reinforces employees’ commitment, so that moral purpose and strategy are perfectly aligned. The hotel chain Marriott has a similarly altruistic moral purpose, encapsulated in its slogan “The Spirit to Serve.” Since 1979, Marriott has targeted welfare recipients in its recruitment and training programs in the U.S., which it expanded after the welfare reforms of 1996. This altruistic practice, offering people the chance to improve themselves, also meets the requirements of Marriott’s business by providing a large pool of low-cost labor with a relatively low turnover rate that, over time, helps to guarantee the service quality of these companies. It is important to note that ServiceMaster and Marriott cannot simply exploit their employees; they may not pay much, but they must honor the promises implicit in their moral purpose, including providing enough flexibility to allow their employees to care for their families.

Heroism: Power’s Effectiveness

Heroism resulted in the Roman Empire, Wimbledon champions Serena and Venus Williams, and many of the most spectacular growth companies, from Standard Oil to Microsoft. When Gary Hamel and C.K. Prahalad (in the Harvard Business Review in 1989) described “strategic intent” as an “obsession with winning” linked to “heroic goals,” they were championing this moral purpose as a means to business success. Bill Gates’s plan to put his operating system into every desktop computer represented just such a will to win. It is not the specific goals themselves that inspire people, but the ambition, daring, or heroism evident in those goals.

Henry Ford was by far the most famous industrial hero of his day. At first glance, his ambition to “democratize the automobile” by reducing its cost and his introduction of the $5 daily wage for his workers might indicate a strongly Humean moral purpose, a desire to bring happiness to customers and workers alike. But he pursued widely varying social and economic goals throughout his life; the welfare of customers and workers was less important to him than his ambition to exercise his will on the world through the Ford Motor Company, which he referred to as his “machine.”

Heroic moral purposes such as Ford’s gain their force from the Nietzschean intuition that only some people are truly free. If you are one of these people, then you will inevitably be drawn to exercise your willpower and lead. Otherwise, you should follow those who are true leaders, admiring them for their superhuman intensity. For the Nietzschean, the ultimate reason for an action is that it increases overall human achievement and effectiveness.

Writing in Germany in the late 19th century, Friedrich Nietzsche was repelled by what he perceived to be the mediocrity of the democratic age. In the emerging bureaucracies of the industrial era, he wrote, “the herding animal alone attains to honours” in contrast to “the higher man, the higher soul” with his “creative plenipotence and lordliness.” He longed for rule by an aristocracy of greatness, and argued that the French Revolution was justified because it paved the way for Napoleon.

“We want to become…human beings who are new, unique, incomparable,” he wrote, “who give themselves laws, who create themselves.” To achieve this, a certain kind of character is required. The necessary levels of courage, pride, and firmness are found in relatively few human beings. It is easy to see why this moral theory has been used to justify the extremes of fascism. Many modern writers on management, with their adulation of leadership, achievement, and strength, have Nietzsche’s will to win as their underlying moral assumption.

Purpose in Practice

As Ken Andrews, the father of the field of business strategy, has written, the success of a strategy depends primarily on the level of emotional support that the strategy attracts from the chief executive, other executives, and employees in general. Thus, successful strategies are always shaped by the company’s moral purpose, at least in large companies with some history.

Evidence suggests that, over the medium to long term, the morale of a large company is more influenced by the strength of its moral purpose than the magnetism or strength of its leader. Charismatic leaders like Sam Walton are effective precisely because they are communicating moral purpose; leaders who try to inspire by sheer force of character have at best a short-term impact. Some well-known companies, such as 3M, maintain high morale without relying upon charisma. It is moral purpose that attracts, retains, and motivates the staff.

On the most fundamental level, competition between large companies is always a battle between moral ideas. Apple and Microsoft, for example, have two very different sets of ideas about what matters in the world: good design and innovation (excellence) versus broad-based effectiveness (heroism). These ideas attract their staff, maximize their morale, guide their strategies, and provide their moral foundation in the public eye.

The winner of corporate competition, at any given moment, is the company whose moral purpose best fits the prevailing environment and assets. Thus, before World War I, Henry Ford’s Nietzschean efforts to mass-produce automobiles and dominate the industry created competitive advantage. But after World War I, this same moral purpose no longer matched the growing diversity in the customer base for automobiles, and the Ford Motor Company was overtaken by Alfred Sloan’s General Motors, aiming altruistically at recognizing customer needs and providing different cars to match. GM’s more customer-focused, Humean ethic held sway from 1929 to 1985, when the advantage passed to Toyota’s Aristotelian ideal of excellence.

Moral purpose helps employees foster communities of expertise that transcend corporate boundaries. Discovery shaped Silicon Valley; the fashion and advertising industries embody excellence; and the pharmaceutical industry succeeds through its altruism or fails when it is not perceived as altruistic enough.

In 2001, GlaxoSmithKline launched a visible strategy for improving health care in the developing world. It involves a commitment to making drugs available at low cost, an ongoing program to research treatments for diseases common in the developing world, and a range of community partnerships. According to Profits with Principles, by Ira Jackson and Jane Nelson (Doubleday/Currency, 2003), the company was stung into this action by public outrage over the high prices of AIDS drugs in the developing world. The South African government had introduced a law overriding drug patents in some circumstances, GlaxoSmithKline (along with some other pharmaceutical companies) had sued the government, and the backlash was so strong that even the company’s institutional investors were concerned about reputational damage.

As the initiative unfolds, the GlaxoSmithKline leaders have a choice. They can pursue it as a public relations exercise, aimed at placating the opinions of customers, investors, and employees. Or they can pursue its strategic potential. Conscious of the size of the developing-world market and of the benefits that drug companies have gained from generosity in the past (for example, Merck after World War II in Japan), they could seek to reposition their company as a leading provider of drugs to the whole world. Strategy and the fundamental purpose of the company would then be entirely consistent with each other.

Business leaders cannot pretend that what they do is value-free, even if they want to. The individual who aspires to be a leader must throw off traditional typecast roles: the wealthy entrepreneur or investor, the famous deal maker, the tough chief executive, even the charismatic leader. These roles have become commodities — they can be adopted at will by individuals, and even bought and sold in the marketplace (a specialty of executive recruiting firms). The true business leader’s more significant role is to be in touch with, and act on, the moral currents that influence his or her colleagues. People do not want commoditized leadership; they want principles. To fulfill this role requires understanding of the moral issues that sway individuals, whether they know it or not.

Obviously, leaders need to develop a competitive strategy around their companies’ strengths, but the difficult part, the differentiating part, is less likely to be the framing of the strategy than the inspiration that turns it into action. It is moral purpose that drives action consistently and in the long term. Hence moral purpose is central to the kind of modern business leadership that is hard to imitate and thus provides the basis for the kind of enduring competitive advantage that can sustain a company for decades.

From Moral Purpose to Strategy

If your moral purpose is discovery: Take note of Intel. “Only the paranoid survive,” said its CEO Andy Grove, not because he feared the world, but because he knew he could never rest. Richard Branson operates with a similar ethic in his Virgin companies: He continually seeks new challenges that will test his informal, customer-centric business model. The most successful Internet companies — eBay, Amazon, Google, and Yahoo — have all been perennially capable of discovery. (Other ballyhooed Internet companies, like WebVan and Priceline, could not succeed because they adopted the moral purpose of heroism.) The challenge for your strategy will occur as your company matures: Can you, like Intel, continue to reinvent yourself, or will you need to create a change in moral purpose, as many innovative upstart companies (such as Microsoft and Nokia) have ultimately managed to do?

If your moral purpose is excellence: Forget about cost leadership; you can never attain it because you are not selling commodities. Your profits depend on top-line performance. Apple prices its computers at a significant premium over Dell’s, precisely because people know they are paying for a different standard of machine. Many companies, including Motorola and Deutsche Bank, have tried to combine cost leadership with a purpose of excellence, and failed. At the same time, you don’t need a large organization; you can succeed with a small, innovative hierarchy. Warren Buffett’s Berkshire Hathaway firm has only six employees; BMW has a very small, highly profitable organization by automotive standards. Your vulnerability is mediocrity; Apple, when Steve Jobs was not chief executive, suffered because the quality of its designs declined. J Sainsbury suffered when it was no longer perceived as the provider of the United Kingdom’s freshest foods (Tesco overtook it by training its employees to remove any food they suspected of staleness from the shelves).

If your moral purpose is altruism: You are vulnerable to the extent you are perceived as hypocritical. When Wal-Mart or Marks & Spencer is seen as abusing employees, the business loses appeal. Telephone companies have a history of altruism, which is one of the reasons they suffered so badly in the scandals of the recent bubble. William Clay Ford’s efforts to change Ford Motor Company’s purpose from effectiveness to altruism have not succeeded because he has not, to this date, walked the talk. He has not yet led the company to risk everything on the altruism of its professed environmentalism. (Toyota succeeds with its hybrid gasoline–electric Prius because it does make a full commitment, and because its environmentalism, an expression of its moral purpose of excellence, is more evident in its products.) Because competitive battles are so difficult for altruistic companies, you can expect, and should prepare for, fierce competition. Thus, like Wal-Mart and other successful altruistic companies, and like any effective foundation, you must maintain rigorous financial discipline to maintain the wherewithal to be altruistic.

If your moral purpose is heroism: Others accord you respect because of your strength and effectiveness, and you will never increase that through good works or craftsmanship. Microsoft’s chairman, known for dominating his industry, started the Bill & Melinda Gates Foundation with his wife; the Ford Motor Company, founder of the auto assembly line, bought Jaguar, a car line distinguished by its elegant artisanship. But these attempts to broaden horizons have had no impact on the success of either company. Combativeness suits your purpose; the newer “upstart” airlines such as Southwest are succeeding through a moral purpose of heroism, precisely by undermining a complacent group of airlines that had been altruistic so long they had come to take their customer loyalty for granted. Top leaders of heroic companies are effective when they seek control; Jack Welch’s line, “Control your destiny or someone else will,” represents a heroic strategy. Thus, heroism requires scale, at least enough to dominate a niche. If you cannot ever be No. 1 or No. 2 in your market domain, as Mr. Welch once mandated for GE, then you will probably not be able to realize the benefits of this moral purpose. You don’t have to be there now, but you have to have a credible path for getting there.


Reprint No. 05405

Author Profile:


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Nikos Mourkogiannis (nikos@panthealeadership.com) is a partner in Panthea Ltd., a consulting firm based in London. Formerly a senior executive with the Monitor Group and General Dynamics, he taught international negotiation at Harvard University. This article is adapted from a forthcoming book.

©2005 Booz Allen Hamilton Inc. www.bah.com All rights reserved.

Maverick.

Ricardo Semler Won’t Take Control
by Lawrence M. Fisher

The Brazilian CEO and best-selling author transformed his pump plant into a model of participative management, and launched his company on 14 straight years of double-digit growth.

Like many chief executives, Ricardo Semler used to wonder what would happen to his company if he were hit by a truck. One night in February 2005, he found out — while driving 85 miles per hour on a highway in Brazil.

Miraculously, he was still alive within the 20-inch pancake of crushed steel and shattered glass that remained of his car. Also miraculously, his company, Semco Group, of São Paulo, Brazil, carried on seamlessly during the months he spent lying in intensive care and recuperating from the multiple surgeries he needed to repair his broken neck and battered face. Numbers were met, deals were closed, and business continued pretty much as usual.

Mr. Semler, 46, is the leading proponent and most tireless evangelist of what has variously been called participative management, corporate democracy, and “the company as village.” As proposed 45 years ago in a book called The Human Side of Enterprise, by Douglas McGregor, one of the founders of the field of organizational development, participative management says that organizations thrive best by trusting employees to apply their creativity and ingenuity in service of the whole enterprise, and to make important decisions close to the flow of work, conceivably including the selection and election of their bosses. Underneath this is a view of human nature that Professor McGregor called “Theory Y,” which holds that ordinary people don’t have to be managed with the “carrots and sticks” of incentives and controls. Instead, people are naturally capable of self-direction and self-control, even in a corporate or bureaucratic setting, if they’re committed to the organization’s goal and if they are treated as mature adults who can learn from their actions and errors. Participative management has inspired a fiercely dedicated following, and many managers find it appealing and compelling in principle, but it is often dismissed as utopian and naive in the real world of conventional workplaces.

Even among the true believers, though, Mr. Semler is in a class by himself. His credentials as a thinker are impressive: He has gained a worldwide following as both a guest lecturer at Harvard Business School and MIT’s Sloan School of Management, and an author with a long list of bestsellers to his name. But what makes Ricardo Semler all the more notable is the way he has put theory into practice. Many people have talked the talk of corporate democracy; his company walks the walk.

In the last two decades, Semco, a maker of industrial machinery like giant oil pumps and restaurant dishwashers, has operated as a real-world laboratory for Mr. Semler’s radical approach to leadership. For the most part, the Semco experiment has been a huge success. An investment of $100,000 made in Semco 20 years ago would be worth $5.4 million today — a rare record of profitability that by all accounts stems directly from the participative management approach that Mr. Semler champions.

“I just wish that more people believed him,” laments Charles Handy, the British management guru and social philosopher. “Admiring though many are, few have tried to copy him. The way he works — letting his employees choose what they do, where and when they do it, and even how they get paid — is too upside-down for most managers. But it certainly seems to work for Ricardo.”

Mr. Semler’s Planet

To see Semco’s approach in action, just visit the company’s pump plant on the outskirts of São Paulo. This operation bears about as much resemblance to a traditional factory as the rainbow hues of its walls — the choice of the employees — do to industrial gray. Forget about foremen barking out orders to passive proles. On any given day, a lathe operator may himself decide to run a grinder or drive a forklift, depending on what needs to be done. João Vendramin Neto, who oversees Semco’s manufacturing, explains that the workers know the organization’s objectives and they use common sense to decide for themselves what they should do to hit those goals. “There’s no covering your ass,” says Mr. Neto. “The intent is to get straight to specific targets.”

Semco’s 3,000 employees set their own work hours and pay levels. Subordinates hire and review their supervisors. Hammocks are scattered about the grounds for afternoon naps, and employees are encouraged to spend Monday morning at the beach if they spent Saturday afternoon at the office. There are no organization charts, no five-year plans, no corporate values statement, no dress code, and no written rules or policy statements beyond a brief “Survival Manual,” in comic-book form, that introduces new hires to Semco’s unusual ways. The employees elect the corporate leadership and initiate most of Semco’s moves into new businesses and out of old ones. Of the 3,000 votes at the company, Ricardo Semler has just one.

In Mr. Semler’s mind, such self-governance is not some softhearted form of altruism, but rather the best way to build an organization that is flexible and resilient enough to flourish in turbulent times. He argues that this model enabled Semco to survive not only his own near-death experience, but also the gyrations of Brazil’s tortured politics and twisted economy. During his 23-year tenure, the country’s leadership has swung from right-wing dictators to the current left-wing populists, and its economy has spun from rapid growth to deep recession. Brazilian banks have failed and countless companies have collapsed, but Semco lives on.

“If you look at Semco’s numbers, we’ve grown 27.5 percent a year for 14 years,” says Mr. Semler over a cappuccino at one of São Paulo’s sidewalk cafés on a lovely fall day. He conducts many work-related conversations here; the ultimate hands-off leader, Mr. Semler doesn’t even keep an office at Semco. “Here’s why: Our people have a lot of instruments at their disposal to change directions very quickly, to close things and open new things.” Flexibility is the key, he says. “If we said there’s only one way to do things around here and tried to indoctrinate people, would we be growing this steadily? I don’t think so.”

Those four words, “I don’t think so,” delivered with a Brazilian Portuguese lilt, represent Mr. Semler’s standard answer to corporate dogma, assertions that something he wants to do cannot be done, and even overly doctrinaire interpretations of the participative management concept. Mr. Semler is not a particularly self-effacing or humble advocate of human potential; his assurance in argument is legendary. In conversation, in teaching, and in his books Maverick (Warner Books, 1993) and The Seven-Day Weekend (Penguin/Portfolio, 2004), he puts forth participative management as not just a pragmatic path to business success, but also a healthy and enjoyable way of life. Mr. Semler has a law degree he has never used and no advanced business degree, but the success of his books and the entertainment value of his message have helped him become a frequent guest lecturer at Harvard Business School and MIT’s Sloan School. To executives and graduate students alike, Mr. Semler insists that his is not some quirky South American survival story, but a real-life lesson in making the work world work better.

To be sure, his message is not always well received, at home or abroad. “What planet are you from?” is one of the more polite questions Mr. Semler has fielded from Brazilian politicians. The Federation of Industries, representing Brazil’s corporate leaders, has publicly accused him of undermining managerial authority. The local business press has both lauded him with awards for progressive leadership and blasted him for letting Brazil’s powerful unions gain the upper hand. In response, he says that managerial authority is an illusion, and that since the influence of unions is a fact of life that isn’t going to go away, Semco is the stronger for engaging them rather than fighting.

Even in academic circles, usually more accepting of radical innovation, he’s met with some skepticism. “He has reified all these precepts from the early days of participative management, the ’40s,” says Warren Bennis, one of the most prominent scholars in the field of leadership and management, and an early protégé of Douglas McGregor. “Letting the employees elect officers to the company with periodic votes, almost like a true democracy — this is the most advanced, progressive, and, to my view, problematic way to practice participative management. There’s nobody else I can recall at the head of a company who has subjected himself so thoroughly to the most radical elements of that term.”

And while Mr. Semler is accustomed to commanding attention, he has no illusions about easily winning minds. “Semco is bucking not only the traditional business model, we’re resisting a code of behavior at the very core of Western culture,” he writes in The Seven-Day Weekend. “No wonder our ideals are hard for outsiders and other companies to embrace.”

The Family Maverick

In the reception area of Semco’s offices in the Jardim Marajoara district of São Paulo, visitors are greeted by a bronze bust of Antonio Curt Semler. The Austrian-born immigrant founded the company 50 years ago, initially to produce his patented vegetable oil centrifuge. By 1980, the company had evolved into a supplier of major equipment for shipbuilders, and today Semco offers a diverse range of products and services, from air conditioning components for office towers, to inventory management and environmental planning. The company also has joint ventures in such areas as building maintenance and mail processing with several multinational corporations, including Coldwell Banker, Pitney Bowes, and Johnson Controls.

At a casual glance, Semco’s headquarters look uncommonly tidy. The rooms are bright and airy, the walls decorated with contemporary Brazilian art. But noticeable by their absence are offices, administrative assistants, and even cubicles. Instead, there are workstation pods — round tables with four low dividers and network plug-ins for laptop computers. At any given moment, a gray-haired senior executive may share a pod with a couple of 20-something recruits fresh from school. Small conference rooms are set aside for private conversations, but most meetings are open to anyone, of any rank, who wishes to attend.

The bust of Curt Semler, as he is known, looks remarkably like his son Ricardo, and in turn like Ricardo’s 5-year-old son, Felipe. Curt Semler always intended to turn the company over to Ricardo, but the transition was not easy.

Ricardo hadn’t wanted to join the family business, preferring to ply his Gibson Les Paul in a series of striving São Paulo rock bands during the mid-1970s. But he tired of earning next to nothing playing one dank club after another. So in his late teens, Ricardo went to work at Semco. By age 20, in 1979, he had a lofty title as assistant to the board of directors, but he was frustrated that his responsibilities remained minimal, and his ideas for diversifying Semco were mostly ignored. Between 1975 and 1980, Semco’s operating earnings had evaporated as the Brazilian shipping industry, then its primary customer base, weathered a deep decline. Yet the company’s senior management refused to consider entering other businesses. The company limped along, its only earnings from investment income. Tired of fighting with his father and being condescended to by the old guard, Ricardo threatened to leave the company, and even initiated the acquisition of a business of his own.

Rather than watch his son walk away from his legacy, the elder Semler made a surprise move. In 1980, while Ricardo was in law school, Curt named 21-year-old Ricardo president and shortly afterward left on a long European vacation, saying only, “Do what you need to do.” When Semco’s senior executives insisted on waiting out the moribund shipping industry, Ricardo’s response was to fire 60 percent of top management in a single afternoon. The departing executives took a lot of company know-how with them, and frightened customers demanded their return, but Ricardo stood firm.

At the outset, the younger Semler’s change agenda had nothing to do with lofty ideals like participative management, and everything to do with jump-starting Semco’s stalled growth and returning the company to profitability. Toward that end, he hired a succession of get-tough managers and launched a series of strategic acquisitions, in areas like food-processing equipment, aimed at reducing the company’s dependence on the shipping business. Semco did grow, and rapidly. But the new emphasis on productivity and meeting ever more ambitious growth projections was a strain on the organization, steadily worsening employee relations and bringing Ricardo to the brink of physical collapse.

He was just 25 years old when he passed out during a visit to a pump factory in New York. A battery of tests identified the problem as acute stress and prompted Mr. Semler to think hard about his life and Semco. That’s when he had his epiphany: He had succeeded in diversifying the company, and stanching the flow of red ink, but it had become an unhappy place to work, and he had exhausted himself in the process.

“Semco appeared highly organized and well disciplined, and we still could not get our people to perform as we wanted, or be happy with their jobs,” he wrote later in Maverick. “If only I could break the structure apart a bit, I thought to myself, I might see what was alienating so many of our people. I couldn’t help thinking that Semco could be run differently, without counting everything, without regulating everyone, without keeping track of whether people were late, without all those numbers and all those rules. What if we could strip away all the artificial nonsense, all the managerial mumbo jumbo? What if we could run the business in a simpler way, a more natural way?”

During his convalescence, Mr. Semler devoured the works of Peter Drucker, Michael Porter, and Henry Mintzberg, searching for a solution. But his inspiration ultimately came from a more unlikely guru, the former principal of a small, progressive teachers’ school whom Brazil’s dictators had forced out for urging his faculty and students to question authority. After he was fired, Clóvis da Silva Bojikian had worked unhappily in executive training at Ford Motor Company’s Brazilian subsidiary and at KSB, one of Semco’s competitors in the industrial pump business, where his notions of self- governance, patterned after the “Summerhill” model of student-directed education, were not well received. When Mr. Bojikian answered Mr. Semler’s want ad for a director of human resources, the two talked late into the night, and Mr. Semler began to see how Semco could become a more humane organization without sacrificing growth and profits. At the heart of their conversation was the conviction that employees who participated in important decisions would naturally be more highly motivated and make better choices than those who simply followed orders from above.

“I could see the opportunity to do more innovative work here, inside an organization,” says Mr. Bojikian, 72, who is, under Semco’s policy of rotating leadership, currently chief executive. “We wanted to demonstrate that the workplace could be a place of satisfaction, not of suffering. Work should be a pleasure, not an obligation. But this wasn’t just some humanitarian thesis. We believed that people working with pleasure could be much more productive.”

Road to Participation

Resisting their impulse to transform Semco overnight, Mr. Semler and Mr. Bojikian started with small steps. Noting that the company cafeteria was the subject of endless complaints, they asked employees for help in improving it, and wound up turning over food service management to a group of the workers themselves. The complaints stopped. From this beginning, it was easy to move on to letting workers choose the color of their uniforms and the paint on the factory walls.

The next step was to address working hours. A city of 15 million people, São Paulo is prone to paralyzing traffic jams; the wealthy cope by commuting by helicopter. For Semco’s factory workers, an eight-to-five workday meant a long, unpredictable commute. The solution seemed obvious to Mr. Bojikian and Mr. Semler: Let the employees set their own hours, so they could all travel at nonpeak times. Skeptics within Semco’s management ranks said it would never work, that an assembly line could not function with flexible scheduling.

But the anticipated hiccups never happened. “People had many meetings to figure out the logistics of the new process, and when the day came, they had arranged that certain groups would be sure to be at the factory at the same time,” says Mr. Semler. “And they ended up having a core group arriving at approximately the same time, but it was the time that they wanted, not the time that we had scheduled. It is pointless and futile to spend your life doing something that is obviously incoherent or stupid based solely on the needs of the guy organizing it.”

Next, they let employees set their own compensation. This was a more complex process, which involved hiring an analyst to benchmark pay levels across multiple positions at 35 different companies. Average pay scales were established for comparable companies, to which Semco added 10 percent to help reduce employee turnover. And everyone’s salaries, from that of the security guard at the factory entrance to Mr. Semler’s own, were published for all to see. Peer pressure provided an efficient leveling mechanism.

Summarizing Semco’s transition to a democratic workplace — a process that took nearly five years — makes it sound smooth and seamless, but there were plenty of bumps and false starts.

“We experienced a very turbulent period,” recalls Mr. Neto, the manufacturing director who joined Semco in 1984 with the acquisition of Hobart Brazil. “We call it the watermelon truck. Imagine a truck full of watermelons, and you open the tailgate and all of them roll out. That’s what it was like when we started asking people what they wanted, what they liked and didn’t like. The company decided there were no taboos, they could ask anything, and the company books were open,” he says. “But it’s much easier to say than to do.”

Mr. Neto notes you can’t implement corporate democracy by half measures. “These practices cannot be adopted piecemeal, because they only work when everyone in the organization knows exactly how everything works,” he says. “Some companies here in Brazil tried doing bits and pieces of what we do, but it never goes anywhere.”

Semco’s top-to-bottom commitment to participative management has yielded a remarkable degree of unity that has carried the company through perilous times. In 1990, the kleptocratic government of Fernando Collor de Mello froze citizens’ bank accounts and seized their assets, plunging the country into a deep depression and forcing Semco to consider layoffs for the first time. “If you open up everything, including the company’s books and board meetings, you’ll find that the employees are honest, responsible people. Our employees understood the situation, and they knew we could not keep everybody. They themselves came up with the names” to cut, says Mr. Neto. “Most of our competitors in capital goods disappeared, and I’m sure that our culture was the bonding factor that kept us alive during that time and keeps us going now.”

Habits of Thought

How Semco built that culture became the subject of Mr. Semler’s first book, Turning the Tables, published in 1988, which spent four years on the Brazilian bestseller lists. Expanded and rewritten in Mr. Semler’s own English as Maverick, the book was translated into 29 languages and sold more than 1 million copies worldwide. Although Ricardo Semler the bon vivant had long been a boldfaced name in Brazilian newspaper gossip columns, by 1995 he commanded an international audience as an improbable business guru. His obvious warmth and humor still draw listeners in, even when his message contradicts everything they believe they know.

In speeches at management conferences, he often suggests that he can write the five-year plan for any company in that many minutes. “It says we will grow 5 percent this year, 10 percent the next, and 15 the year after that. Have you ever seen one that says we’ll grow 5 percent this year, then we’ll have a big loss, then we’ll be merged?” he asks. “I don’t think so.”

Or he may ask the assembled CEOs to write their corporate values down on a small piece of paper, in simple block capitals. During a break, he gathers the papers, shuffles them, and redistributes them at random. When the executives return, they find that the lists are nearly all identical, but for minor differences in order. That’s when Mr. Semler goes in for the kill: “Did anyone write that we’re going to make products that last only until the warranty expires, or that we’re going to discriminate against women and minorities, but only when we won’t get caught? I don’t think so.”

Then Mr. Semler segues into his perennial theme: the habits of thought that can change rigid, dehumanizing workplaces into engaging, productive ones. As he writes in The Seven-Day Weekend, “Our ‘architecture’ is really the sum of all the conventional business practices we avoid.” Consider, for example, typical employee recruitment.

“It is like Internet dating,” says Mr. Semler. “I’m always six foot, four inches, and I look like Brad Pitt; you are always Cindy Crawford or Angelina Jolie. In the recruitment process, we put out fraudulent stuff about the company, like we’re going to double our earnings, leaving out that we’re also transferring all production to Vietnam in a year. You forget to tell us that you have fits of rage, that you worked six months here, six months there, and it’s not on your resume. Then we meet at a bar and decide to marry. What are the chances that is going to work?” he asks.

At Semco, by contrast, “We put out ads that are realistic,” says Mr. Semler. “We don’t have an HR department, so the person who has the opening will take the stack [of applications] and distribute it for review. We wind up with a group of 35 people in a room, 15 of whom are candidates. When that conversation ends, our people will pick three for further interviews. They’ll come back several times. By the time we decide to marry, we know a lot about these people. That leaves us with 2 percent turnover in an industry with 18.”

The CEOs and Sloan fellows who attend Mr. Semler’s classes listen attentively, chuckle at the right moments, and take careful notes. But it’s not clear what they take away from these encounters. “When he talks, it’s a bit of smoke and mirrors,” says Bruce McKern, director of the Sloan master’s program at Stanford University’s Graduate School of Business. “He challenges just about every shibboleth of corporate management, but it happens so quickly you’re not quite sure what he has in place to replace them.”

Mr. Semler has heard this before. “Bruce saw a 30-minute presentation, meant indeed to provoke — not much more can be done in such a short time. Of course the full Semco story has dozens of cases and examples that back the theories up.” In addition, if you ask Mr. Semler about the sources of his ideas, you will hear about such stalwarts of management innovation as Joseph Scanlon (whose “Scanlon plan,” developed in the 1950s, involved labor unions in the governance of factories and made them accountable for results) and Wilbert L. Gore (whose company, Gore-Tex, has operated on participative principles since its founding, in 1958). The reading list in Mr. Semler’s MIT courses includes work by Franz Kafka and Gabriel García Márquez. The most appealing aspect of the Semler theory and practice is the part that once seemed most threatening to conventional management: the embodied view of managers and workers as whole human beings, seeing life and work entwined in mutual commitment.

Ricardo Semler and his associates at Semco have gone even further than Mr. Gore in throwing away titles, rules, and institutional control, and what has emerged is a company that truly lives by its leader’s precepts. With remarkable consistency, people describe Mr. Semler as a hands-off leader, fascinated by bold strategic moves but uninterested in implementation. It is a good thing, they say, that Semco’s participative management — and the presence of a half dozen veteran leaders — allows it to be largely self-governing, because Mr. Semler is hardly ever there. “He doesn’t like the day-to-day thing,” says Mr. Neto, the operations manager. “He gets bored easily.”

Still, Mr. Semler worries that he remains too influential. Although it’s been a dozen years since he’s had a desk at Semco and there are plenty of other people at the company who have check-signing authority, major decisions are often deferred until he returns from one of his many trips, and few big deals are closed without his presence.

That’s the price, he concedes, of his personal magnetism. “At the company, no matter what you do, people will naturally create and nurture a charismatic figure,” Mr. Semler says. “The charismatic figure, on the other hand, feeds this; it doesn’t just happen, and it is very difficult to check your ego at the door. The people at Semco don’t look and act like me. They are not yes-men by any means. What is left, however, is a certain feeling that has to do with the cult of personality. They credit me with successes that are not my own, and they don’t debit me my mistakes. They give undue importance to what I say, and I think that doesn’t go away.”

That doesn’t mean he always gets his way. Recently he and Mr. Bojikian lobbied for a potential recruit with many years of relevant experience, only to be outvoted by younger members of Semco’s board who preferred a less seasoned candidate closer to their own age. Mr. Semler doubts the young man will succeed, but he went along with the decision for the good of the Semco system of participative management.

“By having so much stock, I have a loaded gun, but in 25 years I’ve never used it because you can only use it once,” Mr. Semler says. “If I veto someone, the next time they’re going to say, ‘Forget it; he’s going to do what he wants.’ They have to go through processes where they know they’re going to prevail.”

Of course, Mr. Semler’s ownership stake is a big reason that he is able to implement his managerial principles at all, and maintaining those principles is the primary reason Semco has never had a public stock offering. Also, with $240 million in revenues and 3,000 employees, Semco is a relatively small company. But much of Semco’s growth and diversification in recent years has come through joint ventures with multinational corporations, most of which are publicly traded. Despite Mr. Semler’s best intentions, these entities tend to practice a diluted version of the democratic workplace.

“I don’t know that any American company could operate under his beliefs,” says Dan Sheffield, executive vice president of RGIS Inventory Specialists of Auburn Hills, Mich., which has a joint venture with Semco to service clients in South America, including Wal-Mart. Even in Brazil, “I’m not sure the supervisors walk the walk as thoroughly as Ricardo thinks they do. I’m sure Ricardo wants it that way, and probably has everything in place, but the people under him are maybe not as trusting as he is. Everyone would love to work in an organization like that, but how do you get there? The only way is for the company to have complete trust in you. We make them earn it first; we don’t assume the trust,” he says. “Ricardo takes pretty big leaps of faith.”

Participative Philanthropy

Because there are limits to the leaps of faith that any for-profit enterprise can undertake and because he’s only involved with Semco to a limited extent these days, Mr. Semler has poured his energies into a philanthropic foundation, a think tank, a grade school, and an eco-resort. All are laboratories for further exploring what is possible when leaders relinquish control and allow rational people to pursue their goals unfettered by established rules and procedures.

In each case, Mr. Semler plays the catalyst, while surrounding himself with people who have often given up more exalted positions elsewhere to work with him. Their job is to implement the impractical.

Mr. Semler’s latest brainstorm is Hotel Botanique and Habitat dos Mellos, an upscale eco-resort and botanical garden, which is being built about 125 miles northwest of São Paulo in Bairro dos Mellos, a destitute village where unemployment had hit 38 percent. Scheduled to open in late 2006, the project is a study in contradictions, with all the luxuries essential to an international destination resort, but rigorously natural, with no televisions, no air conditioning, and exclusively locally grown, organic produce in its resolutely French restaurant. Guests will be among the world’s wealthiest, and most jaded, clientele, but Mr. Semler is committed to staffing the hotel with indigenous people drawn from the neighboring village.

What makes this enterprise pure Ricardo Semler is the democracy of its management structure. The trickiest part is his insistence that each guest feel that he or she is staying at a small inn and being served by the owner. An avid traveler, Mr. Semler believes even the best hotels make guests work too hard. He intends to empower every hotel staffer to answer any wish at any time. If you’re a guest and you want to go mountain biking, you won’t have to call the activities desk to arrange it; you can just ask the nearest employee.

At a meeting of his leadership team, consultants from Cornell University’s School of Hotel Administration and the Ecole Hôtelière de Lausanne do their best to explain why a traditional structure is still essential. Mr. Semler listens attentively and then poses a question: “Why does anything have to be done the way it’s always been done?”

Later, Basilio Jafet, the hard-nosed real-estate developer brought in by other dos Mellos investors to keep Mr. Semler from losing all their money, confesses that he too finds the Semler ideas unexpectedly persuasive. “I was very skeptical, but I’m being transformed,” he says. “Ricardo is not only charismatic, but very coherent in his ideas. He’s against all common sense, but amazingly he’s right and we are all wrong.”

Mr. Semler’s approach to dealing with São Paulo’s enormous number of homeless children is just as iconoclastic. He quietly pays the tuition of several needy youngsters at the Lumiar School, an experimental institution founded and funded by the Semco Foundation. “Whatever I do in terms of philanthropy, I do anonymously,” says Mr. Semler. “I give to projects I don’t control at all.”

And they all function on the same democratic model that Semco uses. Thus the director at Lumiar’s pilot school in São Paulo is a lively young woman named Lilian Kelian, with no background in education. Mr. Semler voted against her. “The parents wanted Lilian, so Lilian’s the new director,” he says. “The person we were backing had 20 years’ experience as a school director. But the parents were more interested in the mind-set, the drive, and the belief system. And Lilian has a lot of qualities. She knows we lobbied against her, but now we work together and off we go.”

Asked why true participative management is still such a rarity, Mr. Semler cites two elements that he says are in sadly short supply: “One, the people in charge wanting to give up control. This tends to eliminate some 80 percent of businesspeople. Two, a profound belief that humankind will work toward its best version, given freedom; that would eliminate the other 20 percent,” he says.

Meanwhile, Semco has made Mr. Semler and some of its other senior employees wealthy, and has given a few thousand more families a solid middle-class income in a country where the norm is masses living in desperate poverty and a tiny elite living with extraordinary wealth. Mr. Semler says he no longer worries about Semco surviving without him, and, unlike his own father, he has no intention of passing the company on to his son. And although he wants his ideas to be heard, he knows they are still an affront to most corporate leaders. “Semco is on the fringe of business thinking, which tends to be very conservative, by nature and design,” he says. “Rethinking ways of doing business will rarely be popular or easily adopted. But we like it our way, and hope that we will sow some seeds out there.”

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Lawrence M. Fisher (fisher_larry@strategy-business.com), a contributing editor to strategy+business, covered technology for the New York Times for 15 years and has written for dozens of other business publications. Mr. Fisher is based in San Francisco.

©2005 Booz Allen Hamilton Inc. www.bah.com All rights reserved.

Thursday, December 08, 2005

Those who are bored are boring.

From Business 2.0

Don't Be Interesting -- Be Interested

JIM COLLINS, consultant; author, Built to Last and Good to Great

I learned this golden rule from the great civic leader John Gardner, who changed my life in 30 seconds. Gardner, founder of Common Cause, secretary of health, education, and welfare in the Johnson administration, and author of such classic books as Self-Renewal, spent the last few years of his life as a professor and mentor-at-large at Stanford University. One day early in my faculty teaching career -- I think it was 1988 or 1989 -- Gardner sat me down. "It occurs to me, Jim, that you spend too much time trying to be interesting," he said. "Why don't you invest more time being interested?"

If you want to have an interesting dinner conversation, be interested. If you want to have interesting things to write, be interested. If you want to meet interesting people, be interested in the people you meet -- their lives, their history, their story. Where are they from? How did they get here? What have they learned? By practicing the art of being interested, the majority of people can become fascinating teachers; nearly everyone has an interesting story to tell.

I can't say that I live this rule perfectly. When tired, I find that I spend more time trying to be interesting than exercising the discipline of asking genuine questions. But whenever I remember Gardner's golden rule -- whenever I come at any situation with an interested and curious mind -- life becomes much more interesting for everyone at the table.

link to original piece.

Rockefeller, Carnegie, Gates--step aside.

C. Montgomery Burns
Forbes.com
David M. Ewalt, 12.06.05, 3:00 PM ET

In more than 80 years of corporate life, C. Montgomery Burns has operated casinos, prisons and Chinese opium dens, but he's best known as chairman and chief executive of the Springfield Nuclear Power Plant. In that role, Burns, 104, has inspired generations of businessmen and shown a profit-making ability totally unrivaled by competitors. What's the secret to his success?

"I'll keep it short and sweet," says Burns. "Family. Religion. Friendship. These are the three demons you must slay if you wish to succeed in business. When opportunity knocks, you don't want to be driving to a maternity hospital or sitting in some phony-baloney church. Or synagogue."

In his autobiography, Will There Ever Be A Rainbow?, Burns describes the childhood that led him to develop such a cutthroat style. As a young boy, he chose to leave his loving but poor natural family and was adopted by the billionaire owner of an atom-smashing factory. He quickly began learning the trade, taunting immigrant workers in his free time. At Yale, he was tapped for the secret society Skull and Bones, and after graduation, he went into business for himself.

Burns says he tries to follow in the footsteps of his personal heroes, including Sun Tzu, Vlad the Impaler and Judas Iscariot. He also likens himself to Oskar Schindler, the German businessman who saved more than a thousand Jewish workers from the Holocaust. "Schindler and I are like peas in a pod," he says. "We're both industrialists. We both made shells for the Nazis. But mine worked, damn it!"

It's hard to argue with results. Burns' cost-cutting techniques have made Springfield Nuclear Power Plant the most profitable in its industry, outshining competitors such as Duke Energy (nyse: DKE - news - people ), Exelon (nyse: EXC - news - people ) or Entergy (nyse: ETR - news - people ). He's eliminated health plans, Christmas bonuses and tartar sauce from the lunch room. He saves on nuclear waste transport and storage by dumping in nearby parks and rivers. And he reduced safety costs by making sure that fire extinguishers were only painted on the wall.

There's more to Burns' masterful management than just pinching pennies. Despite his advanced age, Burns continues to come up with new money-making techniques and innovative business practices. In 1995, he built an elaborate device that blocked out the sun in Springfield, forcing consumers to use more electricity to light their homes. He also once employed a bird --Canary M. Burns--as the president of the company, a clever dodge against lawsuits and federal prosecution.

His investment style is just as unique as his management practices. Burns balances holdings in giant companies such as Merck (nyse: MRK - news - people ) and Altria (nyse: MO - news - people ) with little known firms like the Baltimore Opera Hat Company, Amalgamated Spats and Confederated Slave Holdings.

Critics of Burns' ruthless style charge that he abuses his labor force--citing practices like stealing workers' clothes and selling them, or whipping employees to get them to finish their lunch quickly. He's also been dogged with persistent charges of environmental negligence. "He's a horrible old man, and he's contaminating the planet in a manner that may one day render it uninhabitable!" says Lisa Simpson, age 8, a Springfield resident and environmental activist.

Typically, Burns has little patience for these naysayers. His office is outfitted with a variety of trap doors and giant falling weights that can be deployed against protesters. There's even a ceiling-mounted suction tube that ships unwanted visitors to Morocco.

"I've heard quite enough from those slack-jawed troglodytes," says Burns, unrepentant. "What good is money if it can't inspire terror in your fellow man?"