Political Froth

Sep 01, 2002 9:30 PM  By

Now that Fed Chairman Alan Greenspan has officially indicted “infectious greed” as the cause of corporate misdeeds, it’s time to sit back and think about how we can behave better next time. This comes down to two things: straightening out our heads and straightening out our numbers. Whatever form anti-fraud legislation finally takes (see stories on pages 12 and 16), the penalties for misconduct will certainly be more rigorous than any ever enforced before.

For catalog and retail merchants, the new rulebook may specify a different way of analyzing who’s accountable and for what. That old standby of warehouse performance measurement, tracking each employee’s productivity, will soon yield to far more sophisticated assessments of operational strengths and weaknesses, says retail distribution consultant Roger Cunningham: “For example, why is my fixed hard lines operating expense 19% of total expense when it’s 15% in the rest of the industry? Those expenses never get compared. That’s the heart of differentiation.”

It also helps to have your head in the right place, according to Sam Taylor, vice president of e-commerce and international operations for Lands’ End. “If you center your company on integrity and do right by your customers and employees, you will be rewarded,” he says. “That’s one of the reasons I came to Lands’ End — our unconditional guarantee of quality and emphasis on treating customers and employees fairly. If you focus on the customer, those bottom-line results will come.”

Taylor’s view isn’t naïve: It’s borne out by quantitative research. When analysts at McKinsey & Company recently surveyed 188 companies in six emerging markets, they found that “companies with better corporate governance did have higher price-to-book ratios, indicating that investors will pay a premium for shares in a well-governed company.” Good governance, as McKinsey defines it, includes transparent, dispersed, and neutral ownership; board accountability; independent audits and oversight; broad, timely, and accurate disclosure; and shareholder equality.

Of course, all the sound and fury may yet signify nothing. One retail executive who declined to be identified says the parade of scoundrels hasn’t ended. So far, retailers — with the glaring exception of Kmart — have largely escaped the taint of scandal, but more skeletons will tumble out of closets, this executive says. Then there are the total cynics who believe nothing and no one. “Any attempt to discipline the source of your wealth will always be without real merit,” says Stephen Harris, senior client representative at facility design firm Bread Loaf Corp. “I think this is a bunch of political froth generated to appear as if our elected representatives have any relationship to private enterprise other than receiving contributions.”