Many of us could not avoid being bombarded with news about how United Airlines caused a paying passenger with a valid ticket to be violently dragged off one of their flights to make room for four crew members. The passenger was bloodied and is reputed to need reconstructive surgery.
Neither could we avoid looking on astounded and dismayed at the totally cack-handed response from the airline’s CEO, Oscar Muñoz. One would have thought that United could afford the very best in crisis management advice. But maybe the CEO didn’t see the episode as a crisis. And, for his legal team, a crisis would only arise if their CEO were to say anything that exposed the company to any legal liability.
Anyone who has worked within or with a major corporation can perfectly recognize such a dynamic. And we have seen it played out endlessly following all sorts of mishaps and incompetence displayed by corporations.
In February, I wrote about how one of the reasons that globalism is in retreat is that large, multinational companies have become totally focused on managing cost rather than on providing service. They have lost sight of why they exist – which is to provide a good service to their customers and to do so in a way that makes them a profit. Instead, they now believe that they only exist to maximize shareholder returns. As we point out in our recent report on corporate governance reform, getting rid of the idea of shareholder primacy above all other stakeholders would be one of the most important changes that the government could make to improve British business.
These issues are not new. They have been evolving for some time. Over twenty years ago I was in a meeting at a major pharmaceutical company. The research team was explaining the various ideas they were working on. At one point, an exasperated finance person broke into the conversation:
“All this interesting science is all very well. But we mustn’t forget that the reason we’re all here is to make money.” The President of R&D, a wise Scotsman responded: “Laddie. We’re not here to make money. We’re here to make medicines that make people better. And if we can do that well, then we’ll make plenty of money.”
That kind of perspective is long gone from most major corporations of whatever sort. In spite of the rhetoric, profit targets and returns to shareholders are the Gods; customers, suppliers, employees and the planet are well down the totem pole. The consequences are there for us all to see and have been well documented in The Absent Corporation, a recent pamphlet from the New Weather Institute.
That is why we are seeing the relative decline of such corporations to be replaced by smaller, more local enterprises. But eventually these insurgents will themselves become the new offenders as they grow and go public (think Google, Facebook, Apple) and we’re back where we started.
Are there appropriate policy responses to these situations? Surely it is not for the government to monitor the quality of customer service. No, it is not. But there are appropriate policy responses. The first is the reform of governance frameworks as we have suggested. But the second is reform and enforcement of anti-monopoly legislation. Yes, for the free-marketeers, competition can help lift standards. But only if there is competition and it is maintained by strong anti-monopoly legislation and enforcement. Here we are still woefully lacking.
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