Lectures and Essays III: 1996 - 2006

2009.

Corporate culture:

The key to business success¹

Introduction

In conducting research for a cover story on corporate culture, in the spring of 1996 we carried out an extensive interview with Reinhard Mohn, Chairman of the Bertelsmann Stiftung and longtime Chairman and Chief Executive of Bertelsmann AG. The version of the interview printed in the German business magazine impulse concentrated on those elements that are relevant to mid-sized companies. Throughout the course of our discussion with Mr. Mohn, however, many ideas came up that we feel could make a valuable contribution to current debates on social issues and that are presented here, in this longer version, in all their complexity.

Cologne/Gütersloh, August 1996

Wolfram Baentsch Dr. Franz Josef Strittmatter

Corporate culture as a progressive paradigm

impulse: It appears to be important, at least to some extent, to rescue the concept of corporate culture from the feature pages of our daily newspapers and integrate it into business practice. Corporate culture has oftentimes been more about words than deeds. So how can the concept of corporate culture be implemented in everyday practice?

Mohn: Germans are currently suffering from a pervasive feeling of helplessness in the face of the abysmal state of our society. We are also seeing increasing numbers of proposals aimed at ameliorating the situation-many of them completely beside the point-such as establishing organizations to promote employment, job training and competitiveness. Many organizations, including the Bertelsmann Stiftung, are undertaking or have proposed initiatives of varying kinds concerning the labor market. But I feel that this entire debate is lacking forward-thinking arguments and strategies. Much ink has been spilled concerning the social safety net, the distribution of wealth, and the division of labor; but to me these are outmoded concepts. The arguments being advanced on all sides are perfectly understandable, and I wouldn’t reject any of them out of hand. However, I have my doubts as to whether these rather passive approaches will enable us to dig ourselves out of our present hole, particularly in view of the fact that our political leaders are suffering from deer-caughtin-the-headlights syndrome, for reasons with which we are all too familiar.

Implementation of a corporate culture should be one of the prime elements of any forward-thinking strategy. When people say from time to time-and with good reason-that German companies aren’t particularly well run, we shouldn’t regard this as just another piece of information or viewpoint, since this is in fact the very heart of the problem. Indeed, this we would do well to formulate inversely, as follows: If German companies were managed more efficiently, unemployment would be lower. I, for one, feel strongly that this is in fact the case. For in my view, the key factor for success in any activity, whether in the public or private sector, is always governance in conjunction with personnel and management techniques. What I’m in effect referring to here is a new concept whose nature is of course determined by the individual who is advancing and/or implementing it. And in point of fact, this is far from being a simple concept.

The collective consciousness should be a guidepost

Although the kind of complex evolutions I’m referring to here cannot be reduced to a simple statement, it can nonetheless be said that social arrangements must be efficient and must reflect the collective consciousness that drives the zeitgeist at any given time. I feel that every system must meet this requirement. Take Marxism, for example: It looked great on paper but was a total failure in practice. But this doesn’t change the fact that systems absolutely must have the capacity to evolve. You’ve got it all wrong if you subscribe to the view that the status quo will remain in place indefinitely just because it has been working for a thousand years. The driver of change in any social system is the collective consciousness, which you need to have the courage to take into account when you’re developing a system.

impulse: Can companies achieve greater success by following Bertelsmann’s example?

Mohn: Many roads lead to Rome and business success is determined by a whole host of factors. There are some very good examples of this in connection with companies that have instituted a corporate culture, particularly in the SME domain, where you see hierarchically managed companies that are very well run. This works for a mid-sized company, but is harder to pull off in large corporations. So I’d answer your question as follows: It’s definitely worth considering, and possibly even emulating, what we’ve accomplished here at Bertelsmann. Our system comprises building blocks that should be regarded as having nothing to do with social or economic evolutions-on the contrary. For a corporate culture is a response to changes in the relevant underlying factors and thus can be regarded as a form of progress. Corporate governance plays a key role here. Moreover, I feel that management style and managers’ deportment need to be analyzed first and foremost.

This can also occur at Bertelsmann, of course. The most impressive management techniques I know of are those I observed in the U.S. However, we can also learn a thing or two from management practices here in Germany- where, for example, corporate managers have completely pushed trade unions out of their companies, which are in turn managed in a very strict and authoritarian manner, in some cases based on the hierarchical management model of the past. Here in Germany, however, some people are wondering who they should turn to in order to reinstate a dialogue.

Corporate management:

A task of ever-growing complexity

impulse: Mr. Mohn, many SME owners and executives feel that corporate culture is a matter for large corporations that don’t have any other major issues on their plate.

Mohn: I’m familiar with this misconception, the only correct aspect of which is that a major corporation is no longer major if its corporate culture fails to take account of changes in social conditions and social arrangements. And when it comes to such changes, people simply must realize that business management is a far more daunting task today than ever before, for the simple reason that the top-down, hierarchical management model has become dysfunctional in both the public and private sectors.

Think for a moment about the impact of such unexpected evolutions on many large corporations a decade ago: Companies with a large global market share suddenly found themselves in trouble. That is what can happen if you try to run a company today using a hierarchical management model. State capitalism has become dysfunctional, and fortunately our major public sector organizations such as the German National Railroad (Deutsche Bahn) and the post office are being privatized. But of course the question arises here: What can replace hierarchical organizational governance in view of the fundamental changes in our social paradigms?

The right to self-fulfillment

impulse: In your view, what should replace the old principle of command and obey?

Mohn: Well, needless to say, we need to take the changes in social paradigms as our starting point. There are no underlings anymore; what we have instead are citizens of a democratic society who feel entitled to realize their dreams. Thus, for example, people need to believe in and identify with the work they are doing. We need this kind of belief and identification in order to improve worker productivity and corporate performance. In other words, all parties concerned need to be able to identify with their company’s goals and philosophy, with the company itself, and with their work. Any company where this is not the case needs to change its corporate culture, a task that entails understanding the principle that if a hierarchical management organization has become unworkable, you soon realize that you’ve simply got to delegate responsibility.

Delegating responsibility, while fostering creativity, self-fulfillment, and productivity

impulse: Easier said than done, because let’s face it: Such ideas raise people’s hackles wherever you go.

Mohn: You’re right. People need to begin by learning these principles and practices. How can you possibly delegate authority to people who have only ever followed orders? And when you look at lower-level jobs in an organization, you realize that people haven’t learned to make decisions and improve things and move forward on their own, and have only ever been asked to carry out preset tasks. But in a time of rapid change, this model simply won’t cut it. Managers need to develop a management methodology using entirely different building blocks, must redefine their goals, and must find other solutions. For example, corporate managers need to ask themselves how they can ramp up employee productivity and company performance. They need to consider how incredibly motivated Japanese workers are, as well as the need for increased creativity and innovation in the private sector.

impulse: But how do you go about accomplishing that?

Mohn: Well, for one thing, not by expanding your R&D department, that’s for sure. Because creativity has to be catalyzed among lower level employees-among the people who have direct experience and contact with the relevant tasks and markets. You get creativity by turning department managers into enterprising businesspeople with the real capacity to learn the ins and outs of management, creativity, and progress-and who also must be allowed to make mistakes as part of the learning curve. People who work for hierarchically managed organizations never acquire any of these capabilities.

The key human resource factor nowadays is self-realization. Today, people’s work and private lives revolve around and are driven by the concepts of proving their worth and of showing what they’re capable of. Corporate employees want much the same thing-and this in turn relates to the need to delegate authority. Today’s companies could massively improve their performance and creativity if they delegated responsibility to people working in lower-level positions. And this in turn would enable employees to have a say about what goes on in their company. We need to massively shift decision-making processes to rank-and-file employees; we need to learn how to delegate more decisions to the work force as a whole; and we need to figure out how to encourage employees to participate proactively in what goes on in their company. This in turn would make work far more enjoyable for all concerned, with the result that corporations would benefit to an infinitely greater extent from greater productivity, fewer errors, and better quality-all of which are directly related to each other.

I would like to mention in passing that the Bertelsmann Stiftung carried out a survey on the attitudes of retired people, with a view to finding out, for example, what happens to people who retire early. Okay, they get a lot of money at first. But then what? The survey, which was conducted by EMNID, revealed something that is highly significant for the corporate-culture issue. Retirees who, during their careers, learned to think for themselves, make decisions, and take actions as part of a team have no trouble keeping themselves busy and participating in group activities. And actually, this makes a lot of sense. Because if you’ve never made your own decisions during your career, you won’t be able to do so when you retire either. I feel that this finding points to an intriguing spin-off effect of instituting a corporate culture.

Redefining goals in the working world

impulse: You mentioned building blocks. You hear a lot of talk nowadays about customer orientation. If this is the case, how can SMEs orient themselves completely toward customer needs?

Mohn: Well, I think first of all you need to redefine your mission, relative to the received ideas about business aims that have prevailed in our society and in the business world, as well as in the evolution of our economic system, over the past century. Many people, including academic researchers and much of the professional literature on the subject, say that the main purpose of a business is to maximize profits. But in my view, we need to reconsider what the fathers of our social market economy had in mind when they instituted this economic system.

For in point of fact, a social market economy is predicated on the assumption that it will yield better results and will provide a higher standard of living-and that this in turn will enable governments to act in a more socially minded and humane fashion.

impulse: We’ve definitely experienced this in recent decades in Germany.

Mohn: Yes, indeed! But then the question arises as to whether the social market economy paradigm is in fact compatible with profit maximization. To put it in a nutshell, the basic principles in this regard that I’ve instituted at Bertelsmann and that I talk about in my lectures are as follows: First, the mission of a business enterprise in a democratic society with a social market economy is to make an optimal contribution to the good of society. But: In any given company, you have various groups of people, which leads me to my second principle-namely that the right to self-fulfillment of each group of persons in a business organization must be recognized and taken on board. Why, I ask you, should this right be the sole province of corporate executives or business owners? I don’t think it should.

For the good of society

impulse: But do you think that self-fulfillment is workable if customer orientation is not a company’s overarching mission?

Mohn: It’s workable to some extent. Which is why I say that a company’s overarching goal should be to contribute to the good of society. The goals of all concerned- customers included-simply have to take a back seat to this basic principle. But now I’d like to return to the concept of self-fulfillment.

Shareholders and management abilities

It goes without saying that shareholders are entitled to expect that the companies they invest in earn a profit or pay dividends. But you also have to realize that under current circumstances, shareholders can make a contribution to a company’s organizational structure and strategic orientation. That’s what I mean by governance. But shareholders rarely play this role in our socioeconomic system, which is exactly why I feel that the management capacities of shareholders should become part of the discourse. For shareholders are a key governance factor for every corporation. But the right to have a say in corporate governance no longer equates to owning company shares.

Needless to say, being the drivers of corporate management gives managers the right to self-fulfillment-for example in terms of the freedom to shape processes as a classic precondition for enterprising and dynamic management. Incentive pay is also part of this. I am totally opposed to paying board members a salary. What I think we need to do instead is base corporate salaries on entrepreneurial criteria.

Employees’ identification with their company

I’d now like to address the work domain, where it goes without saying that work safety and social benefits must be provided. But there’s another factor here that is a key element of corporate governance-namely, that companies need to create organizations whose employees feel that what the company is doing is consonant with the company’s avowed mission and is also beneficial for society