US leaders reap the whirlwind

This review was featured in The Observer, 11 September 2005

Look what their 'dynamic’ style did for New Orleans, says Stefan Stern

George W Bush is the first US president to hold an MBA, which he gained at Harvard business school in de mid-1970s. We can only presume he skipped the classes on crisis management. The most striking thing about the past two weeks- apart from the appalling devastation wreaked by hurricane Katrina in the southern states- has been the managerial incompetence of the US government’s response to it.

This was not part of the Republican sales pitch in the presidential election of 2000. Then we were told that order was going to be restored to the White House. The late-night, improvised shambles of the Clinton administration was to be replaced by a far more businesslike and professional setup. Meetings would start and end on time. Ties would be worn.

The ‘CEO president’ surrounded himself with other CEOs: vice-president Dick Cheney from Halliburton, and treasury secretary Paul O’Neill from Alcoa (who was later replaced by John Snow from CSX). If anyone knew about getting things done it would be these guys.

But last week tens of thousands of sick and vulnerable people languished for days, waiting for their government to get a grip. The New York Times attacked the US head of state in unprecedented terms. ‘Nothing about the president’s demeanour – which seemed casual to the point of carelessness – suggested that he understood the depth of the current crisis,’ the paper wrote. ‘Complacency will no longer suffice… but the chances of leadership seem minimal.’

Is there a connection between this crisis of corporate leadership at the head of the US government, and the crisis of corporate leadership witnessed in the US over the past five years, at Enron, WorldCom, Arthur Andersen and Tyco? It is not hard to join the dots: George W and ‘Kenny Boy’ Lay, former chairman of Enron, were once best buddies, with the latter lobbying vice-president Cheney’s energy task force hard to influence future policy. When Bush announced this week that he would lead his own investigation into the government’s response to Katrina, he sounded just like one of those remuneration committee chairs explaining why the chaps really did need to maintain their position in the upper quartile of the pay league tables.

But has the future of US business had a damaging effect on the wider policy? Donald Kalff, visiting professor at the Leiden school of management in the Netherlands, believes so. Next month he publishes An UnAmerican business, an attack on Us management style, combined with a rallying cry for what he calls ‘a new European enterprise model’.

Kalff is no unthinking anti-American. He took a PhD at Warton, business school in Philadelphia, and worked in the Us prior to holding senior posts at Shell and KLM. He now runs his own biotech company, as well as advising management consultancy Roland Berger.

His critique is a familiar one. Hero-worshipped CEOs, motivated to engineer short term performance to keep the stock market happy, lead their organizations astray. The rampant individualism of board directors feeds down into the rest of business. It is every manager for him – or her – self. And, because of the way they are remunerated, there is divergence between the personal interests of managers and what the organization should really be about.

‘At a time when co-operation between increasingly specialized exports and business units had become essential to make progress,’ Kalff writes, ‘it turned out that the American way of doing business had destroyed the trust upon which all forms of co-operation are founded’.

How does this ‘American way of doing business’ manifest itself in practice? Regular readers of this column (and its usual columnists) will not be surprised by the answer: arbitrary, counter-productive targets. Large, complicated business are reduced to a few simplistic numbers, designed to make management easier. But this has inevitable consequences. ‘A gap between the world of management and the real world opens up,’ Kalff says. ‘The greater this is, the greater the likelihood of poor decisions.’

Kalff argues that the alleged superior performance of the US economy has been overstated, and that it is European businesses, operating in a more collaborative and less short-termist way, that are the model of success in the coming years. Innovation is more likely to emerge from the more stable environment of European enterprises, not from the cutthroat world of US firms. European businesses are working to a longer time horizon. One reason for this has to do with sources of capital; only 25 per cent of the finance requirements of European companies are met by stock markets, Kalff says.
It is brave to publish a book championing the European way of doing business at a time when conventional wisdom has condemned ‘old Europe’ as sclerotic, inflexible, and unsustainable. Indeed, Kalff does not deny that macro-economic reforms are necessary. But here, too, there is a crucial difference from the US. ‘Tax reduction and tax reform are part of a broader programme to reform the welfare state, but the aim is to safeguard it’s future,’ he writes.

The current one-sided account of US versus European business tends to overlook other important details. Germany is once again the world’s biggest exporter. German unit labour costs have fallen by 10 per cent in the past five years. Europe may account for only 12 per cent of the world’s population, but it has 40 per cent of it’s wealth. European multinationals have seen record profits and their stock markets (Germany in particular) have been rising fast. . Europe still maintains a competitive advantage in a range of sectors. China has to sell 800 million shirts to buy one Airbus A380, as Bo Xilai, China’s trade minister, admitted earlier this year.

But surely this sort of pro-Europeanism is found only on our side of the Atlantic? Actually, no. Last year’s book by US commentator Jeremy Rifkin, The European  Dream – how Europe’s vision of the future is quietly eclipsing the American dream, is a hymn of praise to the European model. With it’s 25 member states, 455 million people and economy of $10,5 trillion, the EU is now firmly established as the world’s economic powerhouse, Rifkin asserts. Never mind the short-term difficulties involved in transforming their welfare states. Europe is leading the way for the 21st century.

It may seem harsh to write these words on 11 September of all days. But we have seen in the past two weeks what the cult of CEO and the worst kind of US –style management can lead to: angry, starving people, citizens of the world’s richest country, left without food or water. Remember those images the next time someone tells you that what we really need in this country is more US-style dynamism and leadership.

‘An UnAmerican Business – the rise of the new European enterprise model’, by Donald Kalff will be published by Kogan Page next month, price $18,99.
StefanStern1@aol.com