Saturday, January 17, 2009

Sam Walton is rolling in his grave

When I’m up late, I’ll turn anything on the idiot box rather than have silence. Early Thursday morning, it was Charlie Rose, who was interviewing H. Lee Scott, Jr., outgoing CEO of Wal-Mart. (During the show, the running gag was that Rose kept reminding Scott that there’s an opening for Commerce Secretary).

There were a few points where I agreed with Scott. For example, he and Rose were noting that the best shouldn’t be the enemy of the good, or, as Scott put it, “in business, you have to be generally correct: you don’t have to be perfect.”

The only problem with that quote was the context, which was instituting new government policies. Since we already expect government to captive of special interests, pork barrels, and politicians’ self-protection, [link] lowering our expectations further — from imperfect to mediocrity. I would have felt better if at least he’d identified first principles for economic policy, notably “first do no harm”.

However, I parted ways with Scott (not surprisingly) over one of the few areas he’s praised by left-wing activists: his push for greater government involvement in healthcare. About 26 minutes into the interview, Rose asked him about his views on healthcare.

Scott argued that government should mandate (or provide) healthcare for everyone, rather than impose a mandate only on large companies. Because “91-92%” of Wal-Mart “associates” have healthcare already, the he argued that the problem is small business and the self-employed. He predicted that in the next few years that “Those of us who have health insurance are going to be at a competitive disadvantage,” i.e. a race to the bottom.

If that point wasn’t persuasive enough, he then argued that a government failure to regulate small businesses would hurt the American economy because “large exporters” like Boeing would be at a disadvantage. Last time I checked, Boeing doesn’t compete with startups, but rather against a MNC with 50,000+ employees headquartered in the country that brought us socialism.

As a private citizen, Scott may legitimately believe that more healthcare mandates are better. However, as the CEO of the world’s largest company, Scott is not conveying his personal opinion but that of the company he represents.

Scott is holding in trust the seat made possible by the entrepreneurial imagination and tireless efforts of the late Sam Walton. The idea that his successor would advocate more government regulation to hurt competitors must have him turning in his grave.

Don’t get me wrong. Scott is no different than any other manager who’s work his/her way to the top of a big corporation. The selection processes reward politicians (kissing up, making peace), bureaucracy (consummate CYA) or worse yet, the overlap of the two in selective presentation of the truth to influence perceptions.

I realize that a good manager can preserve the value created by entrepreneurs, but the element of personal risk (or value added) is rarely there. Good CEOs are readily available in the labor market (even if great ones aren’t), with the main problem being that boards need to separate competent ones from those who are merely successful politicians. I gather that Scott has been an above-average manager (in an incomparably complex operation) and is now doing a “victory lap” prior to his retirement.

By comparison, entrepreneurs the ones who create value by doing something that hasn't been done before. They might offer something that people didn’t know they needed, like Steve Jobs, Juan Trippe or Fred Smith. Or they might find a way to deliver it more affordably than customers (or competitors) ever thought possible, like Michael Dell, Herb Kelleher or Sam Walton.

Entrepreneurs often continue as entrepreneurial leaders of their big companies, unless they’re shoved aside on the theory that the company needs a “real manager”. Clearly some founders develop the skills to grow their companies into the Fortune 500. In other cases, the founder grew into the job; it worked out for decades for Microsoft and Wal-Mart shareholders (among others).

Of course, successful entrepreneurs — nothing if not confident — often overstay their time. The visionaries have big ideas for time that has past. In ICT sector, we see this over and over again — tech entrepreneurs navigating a turbulent era of high uncertainty and high growth find they must cope with commoditized competition where pinching pennies is the norm. Exhibit A would be DEC founder Ken Olsen, the ultimate entrepreneur who failed to cope with the decline of the minicomputer market.

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