A Quality Beyond Measure

The modern infrastructure of business--shareholders, boards, governance, compliance, accounting standards--is not much more than 100 years old. Some of it is much younger. On balance, it works well enough.

By Roger Crombie

Every now and then, there's an Enron or a Bank of Credit & Commerce International, but mostly things move forward.

And yet ...

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Did you ever see a movie called "Earth Girls Are Easy"? On a scale of 1 to 100, it was a zero. That happens from time to time in a creative business. But how is it possible? The movie was a major studio release. That means that an idea was created and pitched; senior executives (and probably bankers) approved an investment of tens of millions of dollars; professionals made the movie; film stars were employed; the film had a director and a producer and editors and probably hundreds of staff.

The De Laurentiis Entertainment Group made the movie, and they're pros. Rushes were viewed; management meetings held. The cream of the movie and financial industries monitored and made the product, and it was utter dross. Watching the movie, it was impossible to believe that an adult had been involved at any stage of its production.

How can that happen? How is it possible that not one person involved in the process said: "Wait! This movie's a catastrophe. Let's kill it now and save millions for our shareholders, and then try to save our good names"?

I don't especially mean to beat on "Earth Girls." It was but one of dozens of major studio movies that have failed, often spectacularly. And I also don't especially mean to beat on the movie business. Every industry is littered with similar experiences.

In the United Kingdom, Decca Records turned down the Beatles. General Motors famously marketed its Chevy Nova in South America, unaware that in Spanish no va means "doesn't go." We've all tried to read appliance instructions translated from the Japanese.

Coca-Cola, in probably the most celebrated blunder of all time, changed the formula of the world's most popular brand. It wasn't broke, but sales lagged, so management tried to fix it. Pepsi-Cola, on the other hand, ran an advertising campaign, "Come alive with Pepsi," that apparently translated in German as "Come alive out of the grave with Pepsi," and in Japanese as "Pepsi brings your ancestors back to life." The Rolls Royce Silver Mist didn't sell as well in Germany as it might have because mist is a very rude German word indeed.

You'll be familiar with some of these corporate blunders. They're always good for a laugh, but it is the laughter of relief, for there but for the Grace of God, go we all. This is because the human race is largely as dumb as beetroots.

On my insurance watch, one morning not so long ago, a company called Trenwick had, oh, $580 million in capital. By close of business, it was essentially all gone, although it took a while to leave the building. Even Swissair--Swissair!--was a casualty of the post-Sept. 11, 2001, environment.

How can this catalogue of corporate catastrophe have come a-calling? I've asked this question of dozens of senior people, and the answer is always the same: leadership.

OK. So what causes leadership to fail? Probably as many different reasons as there are failures. An overbearing chief executive who appoints "yes men" can create an atmosphere in which a second opinion is never voiced. Or, if the boss is too hands-off, things can drift toward ruin. In other words, what's needed is neither too little leadership nor too much.

So in a world where almost everything is relentlessly measured, it all boils down to the correct quantity of the one great intangible: leadership. And on that intangible element are based the world's financial affairs.

Scary, huh?

ROGER CROMBIE is a Bermuda-based columnist for Risk & Insurance®.

August 1, 2007

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