MANAGEMENT RESPONSIBILITY AND GOOD CITIZENSHIP
Picture: Midnight at Magdalena Fjord in Northern Spitsbergen (Norway). Although extremely remote, the Norwegian government uses extensive financial means to provide Spitsbergen population with decent life conditions
Disagreement with the current state of affairs
The arrest of Jay Y. Lee, vice chairman of Samsung Electronics, on suspicion of bribery in the influence-peddling scandal that led to the South Korea president's impeachment was the most recent example of the excesses of multinational’s management to overrule countries’ laws and controls’[1]. He is the last in a long row of managers and politicians from all over the world that use their powerful office to cheat for their own benefit or for their company’s benefit. Every year the international business magazine Fortune publishes a Top-5 of the biggest –in their eyes- corporate scandals of the year. [2] Juicy stories about fake bank accounts, price gouging in the pharmaceutical industry, cell phones with exploding batteries, revelation of gigantic tax fraud or tax evasion by thousands of superrich individuals, artificial boosting of company sales figures or overstatement of earnings, electronic cheating on carbon emissions etc. All these stories are only the top of an iceberg; everybody on the planet is aware of that. But, public opinion shifts from awareness and incapability to do something about it towards indignation and insurrection. The leading class struggles more than ever to get away with it.
This of course occurs in the first place in democracies, where the population has their moment of expression every four-five years and starts to use it. Bribed politicians can be removed in that way, although their removal sometimes reveals to be difficult. The latest examples of several long-standing African leaders[3] who lost the elections but refused to leave their lucrative function or who manipulate elections brutally is the last fight of dinosaurs against a new natural order. The recent marathon manifestations in various Romanian cities against partial depenalisation of corruption are an example to every country in the world that populations do not accept this type of politicians and business people anymore.[4]
The application of this change management is much more difficult in multinationals, as well listed as privately held companies. Rules of corporate governance are promoted worldwide, but the interpretation of the rules and the way the rules are applied and controlled inside the organisation are sometimes stunning. The strength of multinationals of course is that they operate in more than one country and can therefore transfer income from one country division to another, before declaring taxes. They also will declare taxes in the less demanding country. Moreover, they produce on different locations and even assemble parts coming from several countries in yet another country. So, in fact, not one single government is able to control them, and even international organisations such as the EU are a weak counterpart against these well-oiled organisations paying millions of dollars on consultants for the best legal and fiscal advice. And then there is of course also their bargaining power: they create vast employment opportunities and they can destroy thousands of jobs by one finger cut. Governments or even international trade associations that hinder them too much, are “punished” with “strategic decisions”. Cases like the closing down of the Caterpillar production plant in Wallonia, the drastic personnel cut of ING in Belgium are typical examples of aberrant decisions by greedy general managers and stock owners, who do not care about employment and corporate governance in a country. Their only motivation is profit. Because even if production plants are well managed, make a more than reasonable profit and are future oriented, they prefer to cut down costs and produce elsewhere where salaries are lower, assuming that the profit will not only be acceptable, but immense. Or they prefer to have their production done by robots or machines, objects that only require maintenance. Unfortunately for them, robots do not open bank accounts, do not eat or drink, do not buy houses, do not buy cars. It is people who do that, and when these incomes are reduced to a minimum, they will not be able to buy any of the produced products anymore. The problem is: this way of global thinking is not the task of company managers. Their task is to make profit. And that’s it. Is it?
Lots of observers see the change in mentality worldwide. I quote two recent opinion makers in my own country: “There are increased expectations of citizens who expect more and more assistance and welfare of their state. There is globalization, which is redistributing work on a global scale and leaves out many people in the cold in our countries. (…) What literally billions of people on earth yearn for, is the modest miracle of a normal life,[5] in countries where violence prevails in countries where dictatorial regimes shamelessly enrich themselves without taking the citizens of their country into account.”[6] And on the same day, in the same newspaper: “Resisting against companies that consider their profits more important than the public interest. Resisting against those who do not care about the future of this planet. Opposing to politicians who accept that laws are dictated to them by multinationals and who evade their responsibilities. Resistance. Because the urgency of climate change does not tolerate "alternative" facts.”[7]
These observations are applicable to the economy and the changes that take place in it and that are of concern for us all. The structure of the economy shifts since several years to a new decentralised and digital economy. Its characteristics can be described by the following aspects[8]:
a. The old economy is still based in many cases on exploitation of workers and employees by bosses or by a general management. And this is not only the case in upcoming economies such as the Next-Eleven countries[9] where all power is in the hands of a few owners, part of the leading class. Or were a large part of the economy is even in the hands of the army, that does not tolerate contradiction or competition. The new economy is one of co-operation. Large new companies such as Google, Microsoft, Facebook and others, have a more flat structure and divide the profit cake among many. One other example is the appearance of the “Bazar” as sales model. Because of the high real estate prices, companies that have to offer something are coming together in the same building, renting small spaces. With fixed tenants and with try-out tenants, that have the possibility to check the attractiveness of their offer. [10] The principle existed in Eastern Europe -I observed with the phenomenon in Vilnius as well as in Bucharest- in the beginning of market economy. It now returns in Western Europe, as a correction to the greed of real estate owners.
b. Large multinationals are still organised in a very centralised way. Anglo-Saxon companies still believe in the power of the CEO. Extremely well paid, taking all decisions, leading the company according to his strategy. In their strategy “focus” has been the buzz word of business schools over the last fifty years. New companies are managed in a decentralised way. The focus model has been lately put seriously under pressure by Google. Google diversifies strongly, invests in promising activities and, because of its core business profits, is not afraid of admitting it. In fact Google found its inspiration in Warren Buffet’s Berkshire Hathaway, who ran his businesses -from brickmaking to clothing and insurance- under a similar structure.[11] The same principle exists in new economies where families invest in all types of industries, creating conglomerates and managing them with their relatives and confidents in a way based upon trust. This is a way of mitigating risk but also a way in creating employment.
c. Most companies’ products are still offer-based. Many large technological companies made errors in the past thinking they could open the consumer’s mouth and ram the product into its throat. Most multinationals in the agro sector still believe they can put all types of chemical additives into the food, and that the consumers continue to accept it. Most textile companies still make huge profits because they believe no one cares about the way workers are treated in the textile production factories. But the new generations of consumers start to become sensitive to what they are eating and wearing. Production becomes demand based and companies adapt to those wishes. When production can be tailor-made without too much additional cost, why should a consumer accept then to wear products that do not fit completely or to food that is not adapted to ones preferences, health needs or even allergies? Moreover, textile products made by child labour are more and more proscribed by Western consumers.
d. Fossil energy runs to its end. And the coal and oil lobbies will fight until the end for their business model. They go as far as denying that there is a climate problem for the planet. They send lobbyists such as Myron Ebell and presidents such as Donald Trump into the arena in order to support their business. But the time of renewable energy has come. Changing the energy business model drastically. Because allowing citizens to contribute to energy production and reward them for it. Taking the power out of the hands of the energy brokers and putting them in the hands of regional authorities and co-operatives willing to invest in smart energy control devices .
e. Production of large quantities at a very low cost in mostly polluting. One of the most scandalous examples of polluting industries is the ship breaking industry in countries such as India, Pakistan, China or Bangla Desh. In recent years, ship breaking has become an issue of environmental concern beyond the health of the yard workers. Many ship breaking yards operate in developing nations with lax or no environmental law, enabling large quantities of highly toxic materials to escape into the general environment and causing serious health problems among ship breakers, the local population, and wildlife [12] The request for clean production is overwhelming in Western Europe, not only because of the climate change, directly linked to air pollution. But mostly because of the perspective that industrial pollution, air, sea and road transport, affect heavily people’s health. And the pressure of the population increases. Air pollution has caused a threat to the leading communist party in China. President Donald Trump’s intention to reopen coal production facilities and oil production out of fracking, has caused an unseen protest wave worldwide.
f. The stock market was in the past a way of attracting financial means to companies and projects that could create added value. Large railway projects, the creation of a harbour, shipyards that build ships, pharmaceutical companies that did research to cure a new disease: lots of those companies appealed to the stock market in order to collect the necessary capital. And thanks to the added value they created, they could provide the shareholders with attractive dividends. During the last twenty years, individual mass shareholdership has been replaced over by investment groups and banks, [13] as well as by professional fund traders, who purchased companies with the sole purpose to squeeze as much profit out as possible for the shareholders. The effect of corporate raiders’ actions has been devastating in many cases, destroying added value in their effort to squeeze all the liquid out of a company and then throw it away.[14] In a newspaper article of 2008 the former Philips CEO Jan Timmer denounced the greater influence that shareholders have received in recent years in the management of listed companies. In particular, the Corporate Governance Code enabled individual shareholders in the Netherlands to interfere more in the affairs of companies. "The cure is worse than the disease. Out of profit and greed wrong decisions are taken and a company’s continuity is not taken into consideration anymore. It is staggering that a few shareholders can cause tensions, forcing an entire company to split itself.” [15] Nowadays the demand for added value increases again, drastically. The pharmaceutical sector was criticised that its largest companies over the last five years did not find new solutions to diseases anymore. They just replaced their existing products by other ones. The lack of added value in the food sector is denounced vehemently by scientists. Industrial companies depend indeed on cheap raw materials that can be continuously supplied (soya, sugar, corn, ...), which can be well conserved (by extracting water by reducing fruit and vegetables to concentrate without fibers by heat treatment expense is healthy nutrients) and which are tasty (by adding sugar, fat and salt).[16] Scientist therefore claim that the sector, because of the mistreatment of the initial ingredients, is responsible for massive diseases such as obesity, diabetes, etc…
g. Mass production was the key word since Henri Ford invented the moving assembly line and declared: “Any customer can have a car painted any color that he wants so long as it is black” [17]. Of course, one does not have to take this quote literally: Ford T’s were made in various types of colours. But the industry, because of its mass production, forced consumers into a certain behaviour and into a certain taste. Forced professionals into using a certain type of pipes and wires and screws. And stopped production of these on regular moments and replaced them by other types so that professionals could not continue to repare devices properly. Consumption had to be fed, because production had to be continued. Mass production lowered prices also and made expensive products available to the middle class and later to everyone. The smart phone is a typical example of a product available for everyone, and therefore changing African, South-American and Asian economies drastically. Those same smart phones and their apps and internet applications enable a second revolution. They enable people to take pictures and measures accurately, to make drawings, and to send accurate data to small automated production entities such as 3-D printers. This creates a new, and very attractive revolution: the tailor made production. This type of disruptive economy already started in the real estate business and in the hired transportation business, with companies such as Uber and AirBNB. But this is just a start.
h. The millennium generation in Western Europe is the first generation that does not consider the ownership of a car as a necessity anymore. It does not consider the ownership of a lawn mower as a necessity. They are pretty much aware of the existence of apps bringing ownership and demand together. Therefore they put use in the first place. Bartering also becomes a new trend: exchanging tools and services.[18] Renting becomes a habit. The availability of bikes in big cities solves for many the problem of doing distances between public transportation stops and their final destination.
i. Globalisation has been stretched until it started to irritate. It redistributed work on a global scale, which was beneficial for many people in upcoming economies. Or as Francis Fukuyama describes: “When we talk about a liberal world order, we are speaking about the rules-based system of international trade and investment that has fuelled global growth in recent years. This is the system that allows iPhones to be assembled in China and shipped to customers in the US or Europe in the week before Christmas. It has also facilitated the movement of millions of people from poorer countries to richer ones, where they can find greater opportunities for themselves and their children. This system has worked as advertised: between 1970 and the US financial crisis of 2008, global output of goods and services quadrupled, bringing hundreds of millions of people out of poverty, not just in China and India but in Latin America and sub-Saharan Africa.” [19] But it also made that the 62 richest persons in the world own as much as the poorest half of the planet. Or to put it in a different way: the 8 richest people on the planet own as much as the 3.6 billion poorest people on the planet.[20] There are trends now in Western countries, to put an end to global trade, to cancel free trade agreements, and to restart production in their own countries. That also is too drastic. Moreover, it will affect the poor more than the rich. Like everywhere else, the remedy lies in the middle. Some call it glocalisation. Glocalisation is the adaptation of globally marketed products and services to local markets. Glocalisation works best for companies which have decentralised authority. Although globalisation has benefits to the consumer it does not always benefit the producer with newer and smaller companies struggling to keep up with the low production costs of the multi-national competitors. This results in either a higher price and loss of consumers or a lower profit margin which in turn results in less competition within the market.[21] I myself go further than this solution and call for localisation in a globalising world [22]. One cannot deny the presence of globalising products and companies. But one cannot deny either that new and small companies try to compete with the large competitors by offering better service, more market adapted products in domains with low production costs. Their aim is to survive, to be original and also –in some cases- to create local employment. And one has to admit: there is a local pride, a local need for authenticity, a belief in local quality these companies appeal to.
j. In most Western European countries a democratic consensus has grown after the second Word War that a system of political and economic freedom combined with social solidarity, equality and creates more wealth than anything shown so far, it was the so-called Rhineland model. In the neoliberal world after 1980 every decision was focused on the improvement of the wellbeing of the individual. The Rhineland-model, because of its cost, came under pressure. Tax reduction, public expenditure limitation and less state became the buzz words. But on the other hand, the neoliberal model, preached by Ronald Reagan, Margaret Thatcher, G.W. Bush and many others, also proved there is the basic fact that no society ever can and will be perfect. The neoconservative guru Francis Fukuyama predicted in his book “The End of History and the Last Man” the eventual global triumph of political and economic liberalism. But his mind-set changed as he recently stated: “The liberal elites that have created the system need to listen to the angry voices outside the gates and think about social equality and identity as top-drawer issues they must address. One way or the other, we are going to be in for a rough ride over the next few years. “[23] Large trends in society appreciate a combination of individual approach and a community involvement. The defence of individual rights and social rights together with the welfare state and with the renewal of the democratic system are in many new political movements presented as top priorities. Ciudadanos in Spain, En Marche in France, Cinque Stelle in Italy, G1000 in Belgium are examples of this trend that distance themselves from traditional political parties and that claim the relevance of political movements populated by ordinary citizens. Most of them fight for concrete local or regional subjects and are able to influence politicians on that level. This same trend is shown in societies where people are active in the civil society, on a local or regional basis.
k. One of the most appealing new behavioral trends in society is the shift from linear economy to circular economy. In the linear production model, raw materials are extracted from resource countries, transported to manufacturing powerhouses, such as China, and processed into various products. The finalised products then get shipped to the United States, Europe, and further destinations, where they are used, discarded and eventually replaced by newer iterations.[24] The main driver of economic benefits in the circular model stem from the ability to restore materials that are disposed of in a linear production model. The restoration of these materials leads to multiple cycles of product use. The process of product restoration is more energy and cost efficient than producing everything from scratch.[25] Every day now new examples are disseminated of initiatives taken by small companies, engineers, individuals to reuse existing materials and to use them as raw material for a new product.[26] Just a couple of striking cases:
- Grandmas Re-Use Plastic Bags To Make Sleeping Mats For The Homeless [27]
- A Malawian teenager William Kambwamba taught himself how to build a windmill out of junk and bring power to his village. He then built a second larger windmill to power irrigate pumps [28]
- A beer based upon unsold bread from supermarkets[29]
- Package of medicines, packets of chips or pizza tray, all this contains aluminum but nothing or almost is revalorized. The Metallurgical Research Center of the Liège University is currently developing a technique to recover this raw material.[30]
- A Palestinian girl in the Gaza strip makes bricks from sand, ash and rubble because of the Israeli blockade it is hard to get bricks to rebuild the strip after 3 wars in 10 years’ time. The product is cold Green Cake and is commercialised now.[31]
Moral condemnation of widely spread tax avoidance
Tax avoidance has become a sport over the last 25 years. And because of the multinational character of multinationals, these companies dispose of all the possibilities, as well as their managers, to find the best place to hide their income from the tax administration. Nearly 20% of large U.S. corporations that reported a profit on their financial statements in 2012 ended up paying exactly nothing in U.S. corporate income taxes. [32] At least six of Britain's 10 biggest companies paid no corporation tax in 2014 despite ringing up global profits of more than £30billion. [33]
But they do not have to fight against tax administrations anymore but against hackers, who’s aim it is to expose them. Almost yearly now numerous documents show that rich people’s income is striking[34], but also that they refuse to contribute to the welfare of the nation they live in. Much of the information does not show anything more than prudent financial management. But more and more people feel offended by the immoral behavior of the companies and company owners they buy products from. And that pressure modifies their own purchase motives and shopping target short lists. Company managers have to understand this is an issue that will affect their reputation and their income in the coming years. The press from over the world is emphasizing on tax avoidance stories, and on the mechanisms behind it. Politicians from over the world are confronted with the fact that people do not accept tax avoidance mechanisms anymore, consider it fraud, do not want to contribute alone anymore to a nation’s organization burden. To police protection against criminals, fight against terrorism, new roads, state of the art hospitals, top education systems etc. On European level, efforts are undertaken. But we do not recognize signals from large company owners about their willingness to work on their own good citizenship and to pay their taxes consequently.
Louis Delcart, board member European Academy of the Regions; www.ear-aer.eu
[1] Se Young Lee and Ju-min Park: Samsung chief questioned by prosecutors in South Korea political scandal in Reuters, 12-1-2017 http://www.reuters.com/article/us-southkorea-politics-samsung-group-idUSKBN14W034
[2] Chris Matthews,Matthew Heimer: The 5 Biggest Corporate Scandals of 2016, Fortune, 28-12-2016, http://fortune.com/2016/12/28/biggest-corporate-scandals-2016/
[3] Gambian president Yahya Jammeh, Pierre Nkuruzinza of Burundi, Congolese president Joseph Kabila, Robert Mugabe in Zimbabwe and many others
[4] Protesters in Romania hold huge demonstration over government 'anti-corruption U-turn, EuroNews, 2/2/2017, http://www.euronews.com/2017/02/02/protesters-in-romania-hold-huge-demonstration-over-government-anti-corruption-u
[5] http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/EN/foraff/126561.pdf
[6] Mia Doornaert: “Het bescheiden mirakel van een normaal leven “ (The modest miracle of a normal life), in De Standaard 6-2-2017
[7] Joeri Thijs, “Het klimaat verdraagt geen alternatieve feiten “ (The climate does not tolerate alternative facts), De Standaard 6-2-2017
[8] Mischa Verheijden, "Het verbaast me dat slechts enkelen vatten dat er een grote maatschappelijke verschuiving aankomt" (It amazes me that only a few people are aware a major societal shift is upcoming), in Innoveren, 10-1-2017 in dialogue with prof. Jan Rootmans, professor at the Rotterdam Erasmus University and an international authority in sustainability and transition
[9] http://www.goldmansachs.com/our-thinking/archive/archive-pdfs/brics-book/brics-chap-13.pdf
[10] Dieter De Beus: “Vilvoorde loopt warm voor winkelconcept” (Vilvoorde warms to store concept), in De Standaard 6-2-2017
[11] http://lodelcar.tumblr.com/post/139373678545/business-conglomerate-in-stead-of-business-focus
[12] https://en.wikipedia.org/wiki/Ship_breaking
[13] http://lodelcar.tumblr.com/post/143795680400/corporate-social-responsibility-in-regional?is_related_post=1
[14] The Belgian newspaper “De Standaard” published on 7-8/2/2015 an analysis by 4 investment market specialists of the added value brought by fund manager Albert Frère of GBL, revered in France, feared in Belgium. The main trend of the interviews was: he took much care of his own fortune, but destroyed many Belgian flagships and has been devastating for the Belgian economy.
[15] Jan Timmer hekelt hebzucht en wanbeleid,(Jan Timmer denounces greed and mismanagement) in Eindhovens Dagblad, 2-2-2008
[16] Lotte Alsteens, WE ZIJN NIET OPGEWASSEN TEGEN ‘BIG FOOD,(We are unable to cope with Big Food) in DS Avond, 9-2-2017, http://www.standaard.be/cnt/dmf20170209_02721550?shareid=8993f13ad93b85f7bf2af2c09cbaa9d3f54907b7a592cf53a8bd75ead5b1ea672e94c39646ab3c23ab3b0a00e6f358a1845e99ed1cbf5ad8f289a1bcd461eb5e
[17] Henry Ford and Samuel Crowther (1922), My Life and Work, Garden City Publishing Company, Inc.,p.72
[18] http://lodelcar.tumblr.com/post/155351547920/the-european-gloom-are-there-remedies
[19] Francis Fukuyama, US against the world? Trump’s America and the new global order, in: Financial Times, 11-11-2016, https://www.ft.com/content/6a43cf54-a75d-11e6-8b69-02899e8bd9d1
[20] “Acht rijksten bezitten evenveel als 3,6 miljard armsten” (Eight richest possess as much as 3.6 billion poor) in De Tijd, 16-1-2017
[21] Brooks, Jeffrey; Normore, Anthony (2010). "Educational Leadership and Globalization: Literacy for a Glocal Perspective". Educational Policy. 24 (1): 52–82.
[22] http://lodelcar.tumblr.com/post/139787275600/localisation-in-a-globalising-world?is_related_post=1
[23] Francis Fukuyama, US against the world? Trump’s America and the new global order, in: Financial Times, 11-11-2016, https://www.ft.com/content/6a43cf54-a75d-11e6-8b69-02899e8bd9d1
[24] Santiago Miret, The future of manufacturing: From linear to circular, Berkeley Blog, 24-2-2014, http://blogs.berkeley.edu/2014/02/24/the-future-of-manufacturing-from-linear-to-circular-2/
[25] Santiago Miret, The future of manufacturing: From linear to circular, Berkeley Blog, 24-2-2014, http://blogs.berkeley.edu/2014/02/24/the-future-of-manufacturing-from-linear-to-circular-2/
[26] http://lodelcar.tumblr.com/post/155351547920/the-european-gloom-are-there-remedies
[27] https://www.facebook.com/DavidAvocadoWolfe/videos/vb.102515706511/10154026544121512/?type=2&theater
[28] https://www.facebook.com/anonews.co/photos/a.997588523586040.1073741828.997108126967413/1307873152557574/?type=3&theater
[29] Une bière à base d'invendus de pain de supermarchés bientôt disponible (A beer based upon unsold bread from the supermarkets), in RTBF, 17-3-2015, https://www.rtbf.be/info/regions/detail_une-biere-brassee-avec-du-pain-recupere-de-supermarches?id=8933743
[30] Hugues Angot, « Le recyclage des métaux, c'est la métallurgie de demain » (Metals recycling is the metallurgy of tomorrow), RTBF, 21-11-2016, http://www.rtbf.be/info/regions/detail_le-recyclage-des-metaux-c-est-la-metallurgie-de-demain?id=9460636&utm_source=rtbfinfo&utm_campaign=social_share&utm_medium=fb_share
[31] https://www.facebook.com/ThisIsZinc/videos/558914800975857/
[32] Jeanne Sahadi, 20% of big companies pay zero corporate taxes, CNN, 13-4-2016
[33] Tim Sculthorpe, Six out of Britain's 10 biggest firms pay ZERO corporation tax despite ringing up global profits of £30billion, in Daily Mail, 31-1-2016, http://www.dailymail.co.uk/news/article-3425295/Six-Britain-s-10-biggest-firms-pay-ZERO-corporation-tax-despite-ringing-global-profits-30billion.html
[34] Panama Papers, https://en.wikipedia.org/wiki/Panama_Papers
