Management / Rene Carayol: Circumstances change – values don’t. Brands don’t die – people kill them

Rene Carayol: Circumstances change – values don’t. Brands don’t die – people kill them

The heavy hand of UK regulation, controversially introduced to fix the testosterone fuelled race to be the biggest and the best in global investment banking, has had severe unintended consequences. It has had the serious effect of killing essential productivity gains right across financial services, especially here in London.

rene-199x300Huge numbers of people who have been recruited in “control” areas like compliance and risk have added hundreds of millions to the costs of the financial services industry. The new requirements of oversight and intervention have added a huge financial burden that has led to the surprise collapse of productivity figures for the whole of UK industry. This has made it so much easier for lean and agile new entrants to make a mark, leaving yesterday’s banking giants looking overweight and leaden-footed. They are now paying a crunching penalty for their growth-at-all-costs culture. It looks like recent history is in danger of repeating itself with the automotive industry. At the heart of this problem are not self-centred investment bankers but too-competitive smart engineers.

In some respects the circumstances are strikingly similar – another battle for global leadership. This dangerously became the fixation of the leading investment banks, and has been mirrored by the three-horse race between the members of the “10 million vehicles a year club”.

Volkswagen has been in the heat of battle for dominance, having unseated General Motors by volume, and is now in touching distance of the global leader, Toyota. GM was caught out tolerating faulty ignition switches and Toyota were found to have “unintended accelerator” problems.

Competition is meant to be healthy. The wholesale concentrated push on emissions reduction has added cost and complexity while manufacturers are striving to remain cost-competitive and importantly, especially in VW’s case, take market share.

The discovery that the path they had chosen for managing the emissions of their small diesel cars was deeply flawed led to the wholly inappropriate direction they chose – the solution should have been to “fail fast” and admit that they had got it wrong. The late leadership guru, Stephen Covey, had a definition of the leader as the one who
climbs the tallest tree with his people around him, surveys the entire situation and yells: “Sorry, wrong jungle”. The leader prepared to talk openly about failure will encourage their people to try harder without fear.

A particular and relevant definition of culture is to consider “what happens when the CEO leaves the room”. VW has now lost its CEO, and there have been many other executive casualties, with more to come.

Similar to the banks, that’s just the start of the huge cost of unethical behaviour. Some 30 per cent has been wiped off the value of VW, not mentioning the absolute cost and the opportunity cost of recalling 11 million cars worldwide.

Five days after the scandal broke, it forced the resignation of CEO Martin Winterkorn in September. He had said that he was not aware of any wrongdoing on his part. Standard and Poor soon downgraded VW’s stock rating with the withering legacy of his tenure (“VW’s internal controls have been shown to be inadequate”) and, while being the first credit agency to do so, they will not be the last. All competitive industries must be performance driven, but they must also be values led.

Circumstances change – values don’t. Brands don’t die – people kill them.


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