Strategy Op. Ed.

No car industry bailout ... unless they do it my way

On October 13th I gave my remedy for the car industry, ("GM and Chrysler: How the U.S. Chose to Fail"). My plan was probably over the top, but nothing I have heard or read since sounds even close to right. In fact, what I read and hear is so wrong-headed that I want to up the ante on my original plan. Here it goes.

In exchange for the taxpayers bailing out Detroit, we the people propose:

1. GM and Ford will promise even better fuel efficiency than we asked for before. 40 MPG by 2011 and 50 MPG by 2015. All models including SUVs. No nonsense about fleet averages!

2. Chrysler will be spared and be rechristened, Phoenix Motors. Phoenix will not make cars, rather the bailout money will go to developing technology for clean energy engines and systems. One big project ought to be refitting cars and buses for fuel efficiency and reduced CO2. Another ought to be developing high speed trains (target 300 MPG) as we spend billions on transportation. The train unit will be headquartered in New York City and staffed by hedge fund billionaires who agree to take 0 pay in service to their country.

3. No executive will make more than $500.000/yr., including performance-based pay. Designers and engineers who come up with real innovations will be rewarded accordingly -- as if they were the athletes who win the world championships in the big three sports.

I have lots more hare-brained ideas that could save the industry. I think them up as I type. And in the meantime, Washington and Detroit get nowhere because they refuse to accept that Detroit makes lousy cars and management stinks. To reinvent this business we need to kill it and then fumigate.

And one final key measure: Any and all ideas proposed (or supported) by Henry "Hank" Paulsen will be rejected out of hand.

GM and Chrysler: How the U.S. Chose to Fail

In the on-going melodrama "How the U.S. Chose to Fail", the demise of the U.S. auto industry over the last quarter-century may just be the key piece.

Forget about the financial crisis for a moment. We will get over that. But the self-immolation of the automobile industry congers up visions of Jared Diamond's sad tales civilizations gone done the tubes in "Collapse: How Societies Choose to Succeed or Fail"-

In the blog on Sept 27th, 2006, I wrote,

Some would have us believe that the problem for General Motors and Ford is the pension burden. While the pensions are costly, this is not reason GM and Ford don't sell enough cars. We are frequently reminded that GM and Ford sell big gas guzzlers. This is true, but they have a complete line, and American small cars are are not competitive either. We have been told that American workers could not manufacture quality cars. But the Japanese car plants put the lie to that idea.

Of course, we know the real reason: Awful management. Awful management that manufactures mediocre cars. The verdict is in: the American cars that General Motors and Ford make in America are mediocre. In Consumer Reports' list of the best cars for 2005, in all 10 categories the winner is a Japanese car. Not one U.S. car made it. Not one! The bottom line is that Japanese cars are better. To that we can add that European cars are more stylish, and Korean cars are less expensive.

Since then, things have only gotten worse. The proposed $25 billion bailout won't fix things either.

Now, as a last resort, GM and Chrysler are in merger talks. When I teach mergers in strategy, I use a matrix where we match up big and small companies and good management and bad management.

Take a guess what's the worst option: two big, badly managed companies decide to merge as they run away from their problems.

Do I have a better idea. Of course, I do.

Chrysler should be liquidated; the sooner the better.

Now to General Motors.

1. GM should close its Chevrolet, Buick. Oldsmobile, Pontiac divisions. (I can see Alfred P. Sloane, Jr. grieving). Get rid of Saab, etc.

2. Spend whatever it takes to turn Saturn into a brand that can compete with Toyota, etc. Saturns sells only cars that get a minimum 30 mpg. Make sure the world knows it.

3. Cadillac will go head to head with Lexus, BMW, etc. The odds are awful, but there is no choice but to try.

Sound crazy? You got a better idea? You think the "visionaries" who are running GM have a better idea? Do you think they have any ideas at all?

Frank Rijkaard, "Self-management", organizational ecology

Ever since I wrote the FC Barcelona case, "FC Barcelona: Changing the Rules of the Game" about the Laporta successful turnaround, I have been fascinated by the hailstorm that accompanies even the smallest shifts in the club's fortune.

This week Head Coach Frank Rijkaard is against the ropes. This is the same Rijkaard who won a Champions' League title and two Spanish league titles. But this year, with Real Madrid ahead of Barcelona in the League standings, Rijkaard has been accused of losing control of the locker room, in particular Ronaldinho, Barcelona's official "galáctico" mega-star.

The accusastions turned to crisis when Edmilson, another of the Barcelona's Brazilian player, a mature solid player but not a star, told a reporter that there were "black sheep" in the lockerroom, and questioned Rijkaard management. Rijkaard, it seems, treats his players as adults and prefers "self-management" to imposition. The result, according to Edmilson, is chaos.

Those who want Rijkaard's head say that his "management style" is not appropriate in a club where Ronaldinho is not playing well and may have personal problems (another of Edmilson's revelations); more importantly, though FC Barcelona is said to have the best team in the world, the Club seems to lack direction on the field at times and there are uncharacteristic defensive lapses. The critics want someone who will put some discipline back. They don't believe that Rijkaard is the man to do it.

Which brings us back to an old problem that we have discussed before, but which I want to give a slightly new take on. There is a wide-spread belief that each Head Coach comes with a simple straight-forward management style and coaching recipe. Accordingly, choosing the Head Coach is contingent on the players and the chemistry in a particular moment. This cross-sectional approach to leadership has lead to firing Head Coaches as soon as they lose a few games. No one seems to care why it is happening, whether the loses are triggered by a couple of injuries, a few bad games, a bit of bad luck, enemies and the press looking for blood and a story or, the unlikely case that the Head Coach is a lousy coach. Given the way coaches rotate from team to team, it hardly appears that qualification and skill are at issue; it seems to be all about contingent fit.

All this assumes that Rijkaard has the cognitive and behavioral flexibility of a hedgehog. The animal grunts and that's that. It is as if the self were a socially constituted fact as unchangeable as the rotation of the earth.

This week with my Doctor in Business Administration strategy seminar, we studied organizational ecology and institutional theory. Together, the two theories tell us that industries are born and die principally because of their inability to adapt to the environment; and individual firms are born to innovate and die because they develop routines and rigidities that are inevitably inadaptive. We can say pretty much the same for individuals, as well.

At the level of the individual, ecological determinism confuses personality traits with behavior. Personality traits are relatively fixed by a certain age, but behavior need not be. New information is taken and processed within the parameters defined by the individual's cognitive limitations, but how the information is later used is dependent on the interaction of that information with the repertoire of behaviors the individual has developed. An individual with a rich set of behaviors may be capable of a wide range of responses to a new situation and new information precise because he or she has identifiable, strong personality traits. The traits are not just a limitation, they also permit us to have a style, a way of doing things, that at least in some people has real breadth, depth, and flexibility. In other words, we are capable of change and of intentional behavior that may vary from previous behaviors.

Tragedy, Greek or Shakespearian or Bushian, is based on a deterministic response driven by a man's (or woman's) character. In the words of Heraclitus, "A man's character is his fate." But character may be large, varied and generous, full of possibilities, or it may be small, monotone and stingy. Greek and Shakespearian tragedy are cautionary tales, reminding us that small, monotone and stingy men and women dominate the species.

Such things are a question of character. Rijkaard prefers to manage players as young persons free to build their own character, and that given freedom to do so, most players will chose responsibility. It is a noble idea, but like all noble ideas it may not work in all situations. In the current circumstances, Rijkaard's preferred management style may not work. We shall see how large a behavioral repertoire Rijkaard has.

But, as always, all does not depend on Rijkaard nor the players. There are others, principally FC Barcelona President Joan Laporta, who can decide Rijkaard's fate even before we get to see what Rijkaard is capable of doing. As a strategist, my interest is in seeing Rijkaard play this out.

Mr. Murdoch and the Journal

The New York Times’ Sunday, June 10th, 2007 editorial begins with a truism -- "Editorial pages generally do not compliment the competition" -- and ends with a plea to the Mr. Murdoch not to undo the Wall Street Journal.

We all know the basic argument: Murdoch will take the Journal and gut its vaunted editorial independence and journalistic professionalism. Accordingly, the Bancroft family, who have systematically destroyed value for shareholders in the 21st century, are obligated to reject Murdoch's $5 billion and to save the institution of the Journal, qua Journal.

In fact this is the current Wall Street Journal management has used Journal's editoial page to make the selfsame argument, leading to the rather strange set of circumstances by which the editorial pages of the two most influential U.S. newspapers, inveterate opponents and competitors, coincide. And so we have one of those rare ecumenical moments where competitors agree on institutional purpose.

For we strategists, negotiating between value creation and institutional objectives remains the great unsolved challenge. Where ethics and social responsibility is involved the response is relatively easy: Do the right thing. But the Journal’s social contribution consists in giving voice to a particular economic and political ideology and doing it better than anyone else; while of great social value, it is not a social obligation. People like me depend on the Journal (and the Times) to give us the news and opinion straight and don't mind paying for it. The question is whether there are enough us and enough profit to make it worthwhile for these newspapers to continue doing things as they have decades.

The Times and The Journal are businesses, not public goods. Their shareholders are free to decide if they wish to maximize their wealth by selling the brands to those, like Mr. Murdoch, who are likely to change editorial and journalistic policy in the pursuit of value creation. The same shareholders are also free, as both the Journal and the Times have asked in their editorial pages, to risk economic value for more "institutional value". I like to call such companies "maintenance-for-profit" companies in that they defend an institutional position though it may reduce economic rents. This differs from social entrepreneurship, which consists of setting up companies whose mission is to solve clearly defined social problems while also turning a profit for owners. The Times and The Journal do not engage in social entrepreneurship. Rather over the course of time, they have acquired the institutional role of "defenders of the faith" and we are loath to lose their voices.

Customers like me recognize that the Journal brand might create greater economic value if it abandoned its its editorial voice and the commercial constraints that defending that voice require, and that media magnates like Rupert Murdoch are skilled at squeezing out economic value by repositioning brands to broader segments. Snobs like me consider this vulgarization, and end up screaming that the product has been destroyed. A Schumpeterian would be more likely to call it creative destruction. But as all of us have a right to decide what to do with our money, I am hoping that the Bancrofts consider themselves rich enough, and institutionally committed enough, not to need Mr. Murdoch’s billions. My world, if not the world itself, will be a better place for it.

Executive Compensation: Is This the Beginning of a New Era?

At Verizon, shareholders won by a narrow margin, with 50,16% of the vote, a direct voice in determining top management pay. The Verizon vote is part of a movement by shareholders, led by corporate governance reformers, to bring executive pay under control.

But for those of you who believe top management is paid too much, don't get your hopes up too high. While we may see fewer outrages, such as $140 million severance package Richard Grasso garnered on leaving the NYSE, it will do little to change executive pay.

What few people remember is that Richard Grasso's pay and severance package (a.k.a "deferred compensation") was based on "benchmarking" against the pay of other CEO's at large companies.

The Verizon shareholders, led by the 100,000 strong Association of Belltel Retirees Inc., have really asked for little more than tying pay to performance. In other words, they think it is fine for Ivan G. Seidenberg, Verizon’s chief executive, to enjoy a package worth $20 million just so long as he creates value.

This is nonsense. Measuring who is responsible for creating value in an large company like Verizon is at best an uncertain task. Verizon was the result of the merger of Bell Atlantic and GTE. In other words, Verizon is a descendent of the old AT&T, the former telecommunications monopoly. If Seidenberg had started the company, he could have become rich on his investment, but he took over the top position at a company with a 100 year plus history. He was not required to bring put up his fortune. He is a hired hand who works for the shareholders, at their pleasure. In order for him to be worth $20 million a year, they shareholders ought to be convinced that hiring someone for a $1 million a year would mean that the company would make at least $19 million less. The problem is that they don't know how to measure Seidenberg's contribution or compare it to what the contribution of a substitute would have been. Seidenberg's worth is, excuse the term, a matter of faith.

My argument, I realize, may strike you as even bigger nonsense. But in order for me to be wrong, then there must be a market for executives that requires multi-million dollar payouts. But if you believe, as I do, that there are probably hundreds of qualified executives who could run Verizon, and who would be willing to do it at a lot less money, then we have a classic case of market failure.

Figure out who creates value in cases of complex causality, e.g., financial performance at large companies, is not easy. As regards CEO's at these companies, there is significant human resource asset substitutability. In other words, value creation is not dependent on a specific someone holding the top post; what matters is that one of a large number of qualified someones is CEO.

In the quarter-century, CEO's have worked with their boards and executive pay consultants to create an imperial CEO who receives a treatment akin to that of a head of state and compensation that sets him apart from masses. Like the kings and priests of antiquity, his pay has instantiated within the social institution of the giant firm and, hence, decoupled from economic value creation.

If I were a shareholder of Verizon, I would limit CEO pay to $1 million a year, plus a modest pay-for-performance package that was part of company-wide profit sharing. But before anyone jumps on the bandwagon, a word of caution. My idea would surely fail. Verizon would be taken private in no time, thanks in part to favorable tax legislation; former Verizon executives would get rich on fees; and middle and lower level workers would get screwed.

Unfortunately the current system, with its institutionally legitimated inequalities, will endure. The imperial, super-rich CEO is an accepted social fact by the players who make the rules. In response to corporate governance reformers, the worst excesses will be rooted out, but the fundamental dynamics of corporate power and pay will not change. The reward for making it to the top of a huge corporation will continue to be incalculable wealth, warranted or not.

Daimler Gives Chrysler Away For Free

For once, someone has listened to my advice. After years of imploring Daimler to dump Chrysler, my voice was heard and Daimler has passed control to Cerebus Capital Management, one of those private equity companies with billions in cash unknown outside the investment community.

Cerebus, of course, paid nothing: This is a fair, given that Chrysler was worth less than nothing to Daimler but potentially something to Cerebus. Forget about the announced $7.4 billion  payment. It hides the real figures just to make the Daimler people not look like they were complete fools for having bought Chrysler. In the end, this was bartering a la Adam Smith.

The failed DC merger-takeover embodies just about every reason strategists as so skeptical of mergers. Two allegedly complementary product lines (Mercedes big luxury cars; Chrysler everything else), two complementary markets (America and Europe) were supposed to be the basis for synergies as well. DC sold the idea that a company could be much larger, much more complex and much more efficent all at the same time. In short, core incompatibilities and incompetencies would produce nuclear fusion.

Why such foolishness? On Daimler's part, management showed a lack of confidence in Mercedes's business model and were unable to come up with a convincing strategy story that did not include become a "world AG" with partners in America and Asia. It is worth nothing that Mercedes's alliances with Mitsubishi and Hyundai also failed. As for Chrysler, former CEO Eaton sold the company with the satisfaction that America's eternal number 3 had been merged (remember, they called it a merger) with Europe's number 1, for which he received a very very large goodbye paycheck.

Now that this fiasco is over, what can we expect? Cerebus will cut costs in ways that Daimler could not, and if they get lucky their essentially 0 investment may bring them real money. Ever better yet, if they save Chrysler, they may even get to be called heroes, which would be a real change for the private equity world.

As for Daimler, they have kept 19.9% of Chrysler. Since they gave the rest away for free, they thought they might as well keep a piece just in case Cerebus turns the company around. That way they could finally turn a profit on Chrysler. Stranger things have happened.

Corporate Identity: Love Our Company and We Will Take You to the Promised Land

As luck would have it, just as Endesa was losing its status as Spain's flagship among the world's largest energy companies, Iberdrola bought Scottish Power and leaped to #5 in the world.

To celebrate its new status as one of the world's mega-multinationals, Iberdrola has launched a corporate identity campaign, extolling the virtues of size and international presence. The television ads run against the backdrop of Iberdrola printed large on the sail of El Desafío Español, semfinalist in the America's Cup. It's all rather majestic ... and here too luck has played its role. The decision to sponsor El Desafío Español was taken years before the takeover, at a time when not many would have bet on the Spanish team reaching the semi-finals.

As for the ad campaign itself, Iberdrola's ad is remarkably similar to Endesa's ambitious "All You Need Is Love" campaign. I'll turn to the two advertising blitzes in a moment, but first a few remarks on corporate identity advertising.

Often corporate identity advertising is done to defend the company against some dangerous weakness, with the company proclaiming to be exactly the opposite of what it is suspected of being. For me, the most striking example is Dow Chemical's launching in 1985 of its "Dow Lets You Do Great Things" campaign to counterattack the company's awful reputation for having provided the U.S. Armed Forces with napalm during the Vietnam War. For those of you don't remember Dow and napalm, I am sure that you will recall Robert Duvall's famous line in Apocalypse Now, "I love the smell of napalm in the morning."

During the Vietnam War, Dow was truly reviled. The company was target of demonstrations on college campuses all over the United States, When I was 16, my college interview at the University of Pennsylvania had to be delayed because of a demonstration against Dow Chemical recruiting on campus.

The demonstrations did not stop Dow from continuing to manufacture napalm and Agent Orange throughout the war. The effect, however, on Dow's reputation was so severe and lasting that the company had to wait a whole decade after the end of the war to go ahead with its clean-up corporate identity campaign.

Dow ran the ad campaign year after year. The company's diligence was rewarded. More than a decade later, when I was finishing up my MBA at New  York University, a couple of classmates mentioned that they were interviewing with Dow Chemical. I recounted my college interview experience. I was a bit taken aback by their response. Though they recalled napalm, Agent Orange, and knew about the breast implant lawsuits against Dow Corning, they still had a positive view of Dow as a market leader and innovator.   

I had to give Dow credit. Years of persistent, upbeat, we help make the world a better place advertising had done its job. In fact, Dow was so pleased with the results, that the company became one of the first to make being green and CSR an integral part of its strategy. Dow's most recent campaign, launched in 2006, is "The Human Element", proclaims Dow's vision of addressing some of the most pressing economic, social and environmental concerns facing the global community in the coming decade."

For those of you who are concerned that this might just be opportunism, it turns out that pledging to be socially responsible does have at least one, important positive effect. Employees and NGOs end up expecting firms to live up to their rhetoric, and when they stray, as was the case with BP, the response can be brutal.

Well-desigend corporate identity programs work. What, then, about Endesa and Iberdrola. On several occasions, I have written about how amused I was by the Endesa's use of the Beatles' "All You Need Is Love" in their ads, as if somehow management knew that without the "love" of Spaniards, the company would get taken away from them. Intuitively, management understood that there was no imperative demanding the continued existence of Endesa. Apparently, no very many of us are convinced that the world is like to be better or worse because of Endesa.

Iberdrola's message is nearly a photocopy of Endesa's. Once again, no one, other than the Spanish government, which wants to have its big multinationals, seems to really care. With all the attention focused on the Spanish government's attempt to keep Endesa, Iberdrola's apotheosis has gone almost unnoticied. In their ad, then, you can sense a yearning for attention. Once again, the music gives it all away. This time it's Carly Simon's "Let the River Run", her version of the traditional "The NewJerusalem".

"The New Jerusalem" was the theme song for Working Girl, a charming Harrison Ford - Melanie Griffith "Dr. Doolittle" retelling, directed by the astute Mke Nichols. As the movie closes, Melanie Griffith, having achieved her aim: the transmorgrification from secretary to boss substantiated by being given an office. And the music kicks. It's upbeat, just a few happy notes to the words of

Let the river run,
Let all the dreamers
Wake the nation.
Come, the new jerusalem.

But the New Jerusalem may not be all it's cracked up to be. While Melanie Griffith's Tess luxuriates in her office, the camera pulls back and back and back to reveal hundreds and thousands of tiny squares windows all exactly alike, thousands of identical dot-sized new Jerusalems, no more substantive than the firms that go by names like Endesa, Iberdrola, e.on, Chrysler, companies with no meaningful institutional legacy, firm that will be bought, sold, privatized like Chrysler or taken public, firms that talk of their proud history, their commitment to same values everyone else is committed to  ... when in fact most companies are simply a collection of assets and activities designed to create economic value.

This is not all bad. Once we get rid of the idea that firms should be created to make the world a better place, we are free to judge the actions of those who are running firms now without the safety net of a proud corporate legacy. There is no fall back position, no appeal to what "the founders has in mind". Management is responsible for its success and failures, both economic and social.

There is no compelling reason to keep Endesa, Iberdrola, or Chrysler for that matter, alive. All we need are firms and management that innovate, create wealth, and behave responsibly. We don't need to love Endesa and we don't need Iberdrola to lead us to the New Jerusalem. Perhaps we could do with less corporate identity and lot more managerial integrity.

Telefonica Controls Telecom Italia

Surprise, surprise. Telefonica now controls Telecom Italia. With its new stake in Olympia, the consortium that includes Mediobanca, Generali, Intesa Sanpaolo and Benetton, Telefonica will enjoy two seats on Telecom Italia's Board of Directors In the new company. Telefónica will also, according to the company's press release will also have the right of first refusal of on the sale of shares, as well as veto rights in certain decisions related to share ownership changes, divididend policyand divestitures." Telefonica will also be required to maintain a strict separation between management of Telefonica and Telecom Italian.

To make the mess as simple as possible, Telefonica is the largest shareholder in Olympia, which is the largest shareholder in Telecom Italia, and Telefonica is the only Olympia member that knows anything about Telecoms. It the perfect deal. As for possible opposition from the Italian government ... Forget it! Paolo Gentiloni, Italy's communications minister, declared that he was delighted with Telefonica's investment great just minutes after the official announcement was made.

Recently Telecom Italia, the fith largest European telecom, had been pursued by AT&T and France Telecom, with the French dropping plans to buy into Telecom Italia just last week. France Telecom's excuse for dropping out of the running was that they did not think that mega-takeovers were the way to build a great company. Fighting against what governments want probably is not the best way either, so we can't fault the French for pulling back, especially when it was clear that Telefonica was the government favorite.

Telefonica's triumph is perfectly consistent with the Mediterranean strategy developed by Zapatero and Prodi, and is widely seen as tit-for-tat for permitting Enel's takeover of Endesa. In line with the "progressive" Mediterranean political world view, we can expect Enel some time next year to invite Endesa's President, Manuel Pizarro, who has strong links to Spain's opposition Partido Popular, to leave in favor of someone closer to Spain's President José Luis Rodríguez Zapatero.

For all this non-market shenanigans, what really matters is how consumers and shareholders will be effected. In this case, probably not all that much. To start with, there is no particular reason to believe that consumers will benefit from Telefonica's incursion into Italy. Fortunately, there is no reason to believe that consumers will be hurt either. On the one hand, It is doubtful that Telefonica's two board members will inspire Telecom Italia to provide breathtaking new services and much greater efficiency; on the other hand, as digital information is limitless, unlike fossil fuel, and switching costs are low, Telecom Italia customers don't have to worry nearly as much about price increases as Endesa customers. We ought not to forget that Endesa's new owners have to make up somehow for paying double the September 2005 share price.

As for Telefonica itself, both top managment and the Spanish government could not be happier. Telefonica's market capitalization makes it the world's fifth largest telecom and Europe's "largest integrated operator"; the Spanish government has no intention of losing Telefonica to anyone, at anytime. Similarly, there is little chance that the Spanish government would look favorably on a possible takeover of BBVA or Santander. I think it would be fair to argue that no other country in Europe is as committed as Spain to building its multinationals. This is, perhaps, a reflection of Spain's recent rise to the ranks of the big players and the pride that is taken in being the market leader in Latin America in banking, telecom and energy, as well as an emerging player in Europe. More than once, I have seen Spaniards point with pride to a Zara store on the main shopping street of a European capital. After suffering post-Civil War poverty and 40 years of dictatorship, Spaniards understand all too well what it means to have and to have not.

A footnote. Last year, the Benetton family tried to sell Autostrade to Abertis, but Prodi put a stop to the takeover his first week in office. There is talk that the takeover may be revived.

Endesa Epilogue

In his testimony before the Spanish Congress, the resigning President of the CNMV (the Spanish SEC), Manuel Conthe, accused the economic advisors of Spain's President, José Luis Rodríguez Zapatero, and the Vice-President of the CNMV, Carlos Arenillas, of intervening in the takeover process in favor of Enel-Acciona, prejudicing the interests of E.ON.

Few doubt that there was interference; after all, the fascinating Endesa melodrama began with the takeover bid by Gas Natural. The hostile bid was promoted by the Spanish government in September 2005 and defended by President Rodríguez Zapatero in the name of building a "national energy champion" in a frontal attack on EU competition policy.

Government intervention is neither surprising or new in takeover bids in "strategic" industries; such behavior has become a standard feature of industrial policy throughout the world. But the Endesa case is different. For a year and a half, the battle has been played out on the front pages of the Spanish newspapers and on the national television news. Why did this happen when, in fact, most people never did understand what was going on nor care who owns Endesa?

For Spain's two leading political parties, the Endesa takeover was a centerpiece in a battle over their respective political agendas. PSOE, the ruling party, thrust Endesa into the controversy over regional rights by bringing Endesa into play in the middle of the negotiation over the Automous Region of Catalonia Statutes. The takeover was clearly part of the package to get in support of the Statutes promoted by PSOE. The Partido Popular, opposed to the Statues, took advantage of PSOE's clumsy handling of the Gas Natural bid to attack PSOE's interventionism. To be fair, Partido Popular was as disingenious as PSOE. No one actually believes they really wanted Endesa to be sold to the German E.ON rather than remain Spanish; their is ample evidence of Partido Popular interventionism defending Spanish MNEs during the Aznar Administration. In short, the Spanish public had to put with up its two leading political parties fighting it over Endesa as if who owned the company was as important a public issue as education, crime or immigration.

In the end, the only ones who have benefitted from the whole mess are those Endesa stockholders who sold their shares during the last 18 months, and observers like me who have had fun writing about it. As I have argued on more than one occasion, the real losers are Acciona and Enel shareholders (including the Italian public that owns 30% of Enel via its government) who have probably paid too much for Endesa, and consumers who will undoubtedly pay higher energy fees.

From the beginning of the takeover process, my opposition has been based on my belief that consumers will be hurt. We should not be shy in reminding the parties involved that competition policy is about protecting consumers.

Wal-mart and Social Justice

In 2005 in the United States, the top 1% of the population garnered 21,8% of total, the highest percentage since 1928. The pre-Depression benchmark is apt, as it reminds us that economic growth and stability do, in fact, depend on meeting Henry Ford's maxim of manufacturing cars that the "average person" really can afford to buy.

Consider how income inequality affects Wal-mart. Business Week's cover story on line for April 30, "Wal-mart's Midlife Crisis", describes the consumer goods giant's fundamental problem. Responding to the decline in purchasing power of the poor and lower middle-class, Wal-mart decided that it had to go up-market, only to discover that it really did not know how to, and even worse, that they were caught in the traditonal trap of trying to serve customer segments with conflicting needs.

To be fair, Wal-mart has other difficulties (among them competitors that have improved operations and Wal-mart's reputation blunders), but confronting a shrinking target segment is, without question, the company's worst problem.

For many business strategists, Wal-mart's troubles are just another case of a company struggling to adapt to environmental change. But for those of us interested in non-market strategy, Wal-mart's shrinking market is a textbook example of how not to manage government relations.

After years of preaching the ideology of "employees are partners" that don't need unions and don't need a minimum wage, but rather the "freedom" to work and move up the economic ladder, Wal-mart has suddenly changed its rhetoric. As a born-again champion of raising the minimum wage. CEO H. Lee Scott has come to the shocking conclustion that if their traditional customers lose purchasing power the company loses as well. Prior to this change, Wal-mart has been resolutely Republican in its politics, earning the enmity of labor unions and environmentalists to become the whipping boy of anti-big business.

And so, like General Motors and other big companies, Wal-mart has learned that better wages and a national health care system are good for big business, just as spending more on education will provide them with workers who are better prepared and can help increase productivity.

Perhaps, in the future, these companies will also come to realize that the traditional goal of bringing generation after generation of immigrants and the underprivileged into the middle classes is as good for business as it is for the commonweal. But this is unlikely to happen as long as top management at our largest firms continues to believe that "making it to the top" means accumulating as much money and perks as possible and that such wealth is a right that comes with success. This last asseveration is based on the simple principle that the solution to social problems can not be based on philanthrophy or charity of a privileged class that prides itself on giving back to society, but rather on defining correctly the needs of children and meeting those needs via social goods, among them education, health care, a secure environment, and jobs for their parents that pay a living wage. Addressing serious social problems is the job of civil society institutions that frame social justice in terms of rights rather than handouts. This is why we pay taxes; no one should have to thank Bill Gates for getting AIDS treatment or a decent high school education.

In future posts, I will have good deal more to say about the relationship between business, social values and public policy. One need not be Nostradamus to predict that stakeholder pressure on government and business to respond to corruption, climate change and social inequality will move center stage in the United States as frustration with our failures in domestic and foreign policy grows.