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The Center for Business Excellence
Matters of Urgent NecessityIt is increasingly apparent that American business faces a series of major and interrelated difficulties. The decline of the stock market, the implosion of the Internet and the severe setbacks of the telecommunications, energy and other sectors, the devastating long and short term effects of 9/11, and the foreseeable problems in commercial and possibly residential real estate markets, have combined to remove more than $7 trillion from the U.S. economy in the past two years. While some sectors are still holding up, a prolonged period of stagnant growth seems increasingly likely. In addition, several prominent business leaders, most notably Henry Paulson, Chairman and CEO of Goldman Sachs, have identified a growing crisis of confidence in the way companies do business, resulting in an erosion of trust on the American public. And in New Jersey we face specific difficulties related to the State budget deficit, the debate over increased business taxes, and the fact that we have a high-wage, slow-growth economy that desperately needs more innovation and more diversification.1. Restoring Investor ConfidenceAs Henry Paulson, Chairman and CEO of Goldman Sachs, has recently noted, "I cannot think of a time ever when business overall has been in such low repute. You just read the headlines in the paper, and you look at the loss of confidence… and I have no doubt that this lack of confidence is a big drag on the economy." (Speech to the National Press Club, June 6, 2002)
Paulson's message is that it does not need to be this way. But business leaders need to speak out, to acknowledge the difficulties, to suggest corrections, to restore trust in the system. The problems with Enron, with Arthur Andersen, with Tyco, and with other high-profile companies are not without precedent, and are indeed not worse than corporate excesses in the past, but coming on the heels of the dot-com explosion, September 11, and growing international turmoil, they are causing a crisis of confidence in our economy which we simply cannot allow to continue. As business leaders, we need to identify the problems and work together to foster self-corrective action.
With regard to the stock market, Paulson states: "Our financial markets are the deepest, most efficient and fairest to be found anywhere. They are models that others in developing and developed economies alike strive to emulate. But they are not perfect, and it is time that we fixed them."
More broadly, we must restore confidence in financial reporting, in investment analysis, and in the integrity of corporate management. "In the post-Enron environment, the system is already beginning to self-correct, to the extent that audit committees and Boards of Directors feel compelled to do their job with more zeal. But in my judgement they must do even more. Our goals must be:
- Restoring trust in our system
- Trust in the accuracy of financial statements
- Trust in the integrity of corporate management
- Trust in the honesty of investment analysis
Without such confidence we all lose. Investors will forego gains. Entrepreneurship will have less access to capital. There will be fewer and less attractive jobs. Less business overall is done, and there will be fewer tax dollars to support government programs."
Dealing with this loss of confidence and of public trust is one of the first objectives to be addressed by the Center for Business Excellence, by giving senior business leaders the opportunity to speak together about these issues both privately and publicly, and to be seen to be doing more to restore the confidence of their investors, their employees, and their communities.
The recent legislative initiatives are not, in and of themselves, capable of restoring trust. While they send an important message, more laws against fraud and deceit are not convincing solutions to the present crisis of trust in American business.
2. Re-Energizing New Jersey's EconomyOne of our objectives is to support and expand the conclusions of Harvard Business Professor Michael Porter in getting his message out to government and business leaders. As Porter has recently pointed out, New Jersey is a high-wage, slow-growth state, whose current rate of improvement is well below its potential. What it needs is continued innovation, major improvements in productivity, greater diversification, and a renewed partnership between business, government, and education.
To be innovative, a state or country needs the basic factors of production, plus an environment that encourages investment and competition. Strong local demand and related, supportive industries are also essential.
In recent talks with NJ's Governor Jim McGreevey and prominent business leaders, Porter strongly advocated upgrading the capacity for innovation across the entire economy and not just in a few sectors like biotech and pharmaceuticals. His prescription for New Jersey includes four elements:
Productivity -- [which] involves more research and patents at the corporate and university level; and also means eliminating barriers to productivity such as congested roads, poor schools, and wrong-headed regulation.
- Diversity -- creating innovative capacity throughout the economy and not just in pharmaceuticals.
- Clusters -- mutually supportive industries, with support services for key technologies.
- Collaboration -- a new relationship between universities, the private sector and the public sector.
In its initial statement on the topic, SHBN Founder Jonathan Cloud said, "We support these goals, in every area of the state, and most particularly in the Somerset Hills. In many ways the area offers the best advantages of the Garden State: densely forested hills, historic towns and hamlets, wealthy estates, elegant corporate campuses, luxury homes, and easy access to the Northeast's major metropolises. The Somerset Hills area is also one of the state's best loci for education, culture, and philanthropy. Our objective is to continue building on this, to continue building the prosperity which is needed throughout the nation and the state.
At the same time, we cannot afford to overlook the very real challenges that continue to face our state and our country. Stock market commentators may wish to see signs of recovery just around the corner; but economists and business leaders recognize that economic expansions do not happen all by themselves&emdash;rather, they are the result of concerted efforts by businesses, governments, and the people who work in them.
Joan Verplanck, President of the NJ Chamber of Commerce, argues that many business leaders are "hunkered down" rather than taking bold stands. "We have a business climate no one is pleased with. The unacknowledged truth is that our state is no longer competitive, and government has no clue what to do about it."
Verplanck argues that there are solutions, but no one is willing to talk about them. "We have a lot of entrepreneurship here. We have more technology than Silicon Valley. We are exporting a ton of money from this state every day. If we can put more resources to work right here we can turn things around. We could propel ourselves out of recession if more companies were willing to buy New Jersey first. And this would be a good thing for the rest of the economy as well."
But we cannot trust the government to save the state. "What we need are key business leaders, business icons, to step forward and drive the vision."
3. Visibility, Transparency, and AccountabilityIn a recent speech to the National Governors' Association (July 14, 2002), Cisco CEO John Chambers noted that "What is causing the uncertainty is [lack of] visibility -- the CEO's have less visibility." Business leaders need to speak out about the value they create, and reconnect with their key constituencies: consumers, investors, employees, educators, and public officials. They must be genuine and convincing, because they are demonstrating by example their leadership, their commitment, and their understanding of the business challenges.
Chambers said, "It's back to the basics in this new economy we're going to see over the next decade&emdash;not just about market share, but about markets, cash, and productivity; not just about speed, but about brand and culture and teamwork." Most businesses and public institutions are just getting started in using the new technologies of the past decade efficiently. And given the continuing advances in redesigning business processes to take advantage of the internet, of video on demand, and other customer-driven information systems, the best-run companies and public organizations should be able to achieve five to ten per cent annual increases in productivity.
At the same time we all need to understand that "the countries and state that have the best infrastructure, the best education, will attract the jobs over the next decade." So we need a public and private partnership dedicated to making sure that we are developing our workforce in a sustainably competitive manner. As John Chambers says, "How you build out your infrastructure, including your education, determines the health of a state or of a country."
Business's role in this includes speaking out, articulating the vision, and creating the climate in productive work is possible, not just in the corporation but in society at large. As more and more citizens also become stakeholders in the corporations, businesses need to demonstrate their commitment not only to shareholder value but more broadly to public value. Those companies that show that they have the health of the economy and of the community as one of their goals will also develop a greater value in the eyes of stockholders. Companies must become more visible, more transparent, more willing to take a pro-active role. The media and public institutions must then reward those actions with favorable publicity and attention.New measures of corporate accountability are required. A local research firm, Rating Research, has developed an overall reputation measure based on eight factors -- marketing effectiveness, ethics, workforce retention, competitiveness, financial stability, strategic alliances, social responsibility, and charitable support. As analyst Doretta Gasorek notes, "In this age of Enron, people want to know the kind of company they are dealing with&emdash;whether they're a customer, regulator, or investor -- and have some objective means of evaluating the information." (Star-Ledger, July 18, 2002.)
All of this adds up to a focus on providing public value, achieving greater visibility, and demonstrating bold leadership in the business community and in the public realm.
3. Saving Capitalism from ItselfIn
4. Creating Passionate EnterprisesIn
August 2002
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908-306-9074 info@cbe-nj.org