Nine visions of capitalism by Hampden-Turner Chrales & Trompenaars Fons

Author:Hampden-Turner, Chrales & Trompenaars, Fons [Hampden-Turner, Chrales]
Language: eng
Format: epub
Publisher: Infinite Ideas Limited
Published: 2015-08-31T21:00:00+00:00

Unusually high level of profitability and continuity

The 1,300 hidden champions achieved a 13.9 per cent pre-tax return on investment compared with an average 3.7 per cent for Fortune 500 companies. Return on equity was 24.2 per cent for the hidden champions and return on revenues was eleven per cent; for the Fortune 500 companies, return on revenue was 3.5 per cent. The implications are clear. Companies actually make more profit when they aim for something beyond the bottom line: the satisfaction of customers, the engagement of employees, the support of suppliers and good relationships with the community of stakeholders.

It is in the years before any IPOs that companies grow apace and most never intend to go public at all. Once shareholders take over, companies tend to change as enriching shareholders becomes their chief aim. The family behind Hewlett-Packard discovered this to their fury but could do nothing about it. Richard Branson took Virgin back into his own hands after falling out with shareholders, as did Michael Dell of Dell computers. Companies managed in a way to enrich shareholders cannot take a long-term view because shareholders keep their shares for less than a year and regard them as chips to trade with. The necessity of producing quarterly reports means that short-term gains are everything and managers refuse to accept the short-term losses that investment in the longer future entails.

Increasing revenue and innovating are hard work, but slashing pay-rolls, cutting costs, buying back shares and compromising on quality are easy. Unfortunately, the effects of such actions are only revealed in the long-term, by which time the shares will have been sold and the protagonists retired. The finance people now in charge will have little understanding of technology and the company will become a mechanism for making money for its owners.

In contrast, a majority of the hidden champions are reluctant to go public. Should they choose to do so, the easiest route is via a private equity partner. But these are also considered to be more interested in money than in growth and in quick profit rather than in high technology. The more complex the technology and the narrower the niche, the harder it is for equity funders to understand and appreciate what’s on offer. Most hidden champions complain that their financial worth is under-estimated by non-specialists and outsiders.

An IPO is even worse. It obliges a company to report more information than it wishes to and opens it up to publicity and scrutiny. Letting people know how valuable your niche is invites rivals to enter the business. It makes it impossible to maintain a low profile and shareholders may resist any investments that fail to pay off in the short-term. Going public does of course create vast riches and allows sellers to fund whatever other activities they choose. It is sometimes seen as the ultimate success. However, it is not in the long-term interest of the corporation and its survival as a profitable incubator of human development.

Hidden champions were also paragons of continuity. Over ninety per cent of the hidden champions identified by Simon are still prospering and growing.

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