Seat at the Table

In this week’s Economist, a piece entitled “Vote for me, dimwit” (subscription required) outlines four biases that present the irrationality of the electorate - otherwise known as the mass market to the business community.   Irrationalty? But what about the wisdom of crowds?  The shows how the “wisdom of crowds” is not clearly there, hence the irrational biases.   For example, people may feel as a crowd that offshoring is an economic negative (even if it’s not) but many, if not most, will still buy the cheaper product that is the result of offshoring.   This mixed-bag is the ongoing reputation challenge for the corporate suite.

This post outlines those areas and translates them into the key business challenges that business  leaders, like politicians, must deal with.

1. The anti-market bias.  People don’t believe that helping a company do well helps them.  Witness the pharmaceutical industry.  Ridiculout paychecks and overpriced/underperforming drugs aside, you won’t find too many consumers who are sympathetic to high prices and high profits being needed for the substantial R&D that leads to drug breakthroughs.  But the economic fact is that slim profits would lead to little R&D which, in turn, leads to even fewer health improvements for consumers.

2. The anti-foreign bias.  Yes, we are xenophobic.  So is most of the world.   This reputation problem is best summed up by the fact that people love their cheap goods, but lobby against them being made in China.  Even though that is exactly what makes them cheap.   Likewise, most of us arrived as immigrants and have recent immigrants helping us today in one way or another, but are hesitant to legally open up our borders more widely.  Short term fear despit the long term gain.   Offshore related (and gardening, fast food etc) industries deal with this bias everday.

3. Equating prosperity with employment rather than production. This is one of the toughest ones larger companies have to face periodically - explaining layoffs.  The fact is, as companies grow, there are times when it must let people go in one area even if it is hiring and growing in another.  People may be let go due to lack of growth or even progress (e.g., Toyota automated it’s factories to cut the need for some factory workers but overtime still hired more vs. The Economist’s good story about an economist suggesting to a dam building foreman that they spoons instead of shovels if they want to create jobs). 

Nevertheless, while the market, the keeper of “wisdom of crowds,” may praise these moves, the mass market understandably finds them painful and reason to be pessimistic.  Over time, people may acknowledge the benefits, but they’ll always find it bitter in the short term (and rightfully so).   There is not good communications cure for this medicine.  The best companies simply focus on making the transition to new job opportunities as painless as possible through strong benefits and top notch job training. 

4. An economic bias towards pessimism (we always think the economy is worse than it is).  People are alway worried about where the economy is headed.  If the reputation of a company is that it is dragging down wages it may be deemed a corporate devil, even if it’s untrue (Wal-Mart).  Likewise, if they see a company as driving economic progress, it will be hailed as a hero (hello Intel).  While this bias may not affect the bottom line in the short term, it can open up areas of attack over the long term.  Wal-Mart found this out when attacked on wages even though it was paying decent wages compared to the mom and pop stores it was accused of putting out of business.  So as not to turn off the lower wage shoppers (it’s core base), it tool a public lead in the lobbying effort for higher wages in order to address this economic-bias reputation challenge.  Intel, on the other hand, is seen as driving economic growth and  productivity.  As a result, people want to see it succeed.  A useful sentiment for both sales and valuation.

I’m not going to claim all these biases are correct all the time or that the suggested solutions are appropriate.  However, these are biases that often reflect the sentiments of the mass market.  As a result, they are biases the care takers of corporate reputations should carefully be watching.