The honest man is the fool, as the German saying goes. As we were preparing for this interview, you were just saying that companies should be honest. Do you not want companies to be successful?
Kai Beckmann: In the foreseeable future, honesty will be a fundamental factor for entrepreneurial success. Success is based not only on economic aspects but also, and increasingly, on social and ethical values. Trust is the basis of doing business successfully. Already, a wide range of third-party groups and players are passing judgment on companies more and more. That is why it is becoming increasingly uncertain whether companies can maintain an advantage over time that was gained by, for example, a breach of regulations or by corruption. Volkswagen is currently a prominent example. It underscores the point that what, in years gone by, was considered a trivial offence is now subjected to critical scrutiny and tough sanctions. Today more than ever, dishonesty is a risky undertaking and no longer constitutes a competitive advantage.
A role model or mission statement describes not only what one should not do but also what one should do. Could you outline briefly to our readers what, in your view, a mission statement regulates in a company, and why one even needs one at all?
Beckmann: The mission statement regulates which side a company is on. It should represent a clear statement about where the company stands on values, regulations and laws. That is why in my view it is extremely important for it to incorporate sufficient specificity and to establish a recognisable framework. In case of doubt, an employee must be able to fall back on a mission statement and that will only work if it is tailor-made for the company and for the work the company does. In the final analysis VW had clear statements on how the company and its employees were to deal with laws, but it would seem not to have been the case that VW employees set such great store by them that they felt they had to abide by them.
I would like to dig a little deeper at this point. Nobody is going to formulate a mission statement that says a company wants to commit fraud. All mission statements sound a positive note. Does such a thing as a bad mission statement exist, and, if it does, what makes it bad?
Beckmann: A mission statement that matches a company can be recognised by the fact that the values and behaviour in the mission statement are actually lived in the company across all hierarchy levels. A mission statement is inadequate or a bad match if the company’s employees cannot follow it or do not support the aims it espouses. If a company, and especially the company’s management, is regularly in breach of its own mission statement, the mission statement is superfluous. Only if the mission statement truly is a guideline that is valid for everyone and is accepted by everyone – only then can it support corporate development. That is not to say that it must be set in stone. A mission statement should repeatedly be scrutinised and updated. As soon as a company goes international it should ask itself what its mission statement means for its new employees in Asia or the Americas. These are challenges that come with the serious and lastingly effective engagement with one’s values and with the code of behaviour that is felt to be desirable. But if entrepreneurs ignore this critical analysis of the subject, the mission statement will become arbitrary and will not, in reality, be of any help.
You’re saying that the recipe for success involves a clear orientation, consistent implementation, a regular review and the integration and involvement of your employees. That sounds logical and straightforward. Why, then, do many companies find putting it into practice so difficult on a day-to-day basis?
Beckmann: Many companies have yet to commit to the systematic and ongoing process of developing values that fit them precisely. They fail, for example, to link corporate values with available instruments for management and controlling, such as the compliance management or risk management system. Target conflicts in core processes such as purchasing are frequently still tolerated.
For us at Roever Broenner Susat Mazars that is one of the reasons why we take a comprehensive view of compliance, risk management, sustainability and values management within the framework of MAZARS:Impulse – because all these issues influence each other and require all-embracing consideration.
A further, frequently unused opportunity is the fact that the requirements of the mission statements are not reflected in target agreements and employee assessments. This grounding in day-to-day work is a simple and pragmatic management instrument and an important step in the direction of effectiveness.
The late German Chancellor Helmut Schmidt once said that people who have visions should pay their doctor a visit. That is why I am now asking you whether something so abstract and visionary is especially difficult to implement in down-to-earth, practically oriented companies?
Beckmann: Visions have always been a part of entrepreneurship, and of German small and medium-sized enterprises in particular, as they would otherwise not be where they are today. That having been said, there is little readiness to implement systems for which the added value is not immediately evident. Mission statements are frequently not formalised in a family-run enterprise; instead, they are demonstrated by example, in how the proprietor, the family or the management behaves. This lack of systematisation or standardisation can, however, prove problematic if the management changes hands, new companies are added or internationalisation is taken forward. Business units in other countries have little, if any, opportunity of being guided by these frequently informal pre-defined values.
What happens if you at Roever Broenner Susat Mazars are asked by an SME entrepreneur or company owner to “please help us to develop and implement a sensible mission statement”? How can I understand the steps involved? Which management instruments do you use? What does it mean in practical terms?
Beckmann: The first questions are what does the company stand for, how does it see itself and what are its medium- and long-term objectives? How is the company’s governance structure arranged? Who defines values? Definitely, the first task is to take stock, for which there are pragmatic, tried and tested instruments. The result is an overview of the values for which the company currently stands. If, say, responsibility in the supply chain is a key value – human rights, working conditions, social aspects – it should be reflected in the company’s purchasing processes. If people there are geared only to monetary objectives or to quality and time, but not to working conditions at suppliers and sub-contractors, conflicting goals are the inevitable consequence. A buyer who has signed off on abiding by a mission statement that includes UN human rights guidelines but must, however, impose a price at which the supplier or sub-contractor cannot deliver under normal working conditions has a conflict. If he is able to resolve this conflict by keeping to the company’s values as framed in the mission statement, the system is working. If he is unable to do so, the mission statement will soon land on the back burner.
I would like to spend a moment on the keyword conflict resolution. Companies can have a comprehensible mission statement and a large compliance department, and yet individual processes still get out of hand. Take Volkswagen, for example. How must control and conflict resolution elements be anchored in the company? Who mandates and controls whom – and how?
Beckmann: If I have a mission statement and develop and implement a set of values for the company, the first question to ask is when people behave with integrity. Do the company’s employees advocate these values and live them in their day-to-day work? So I must first make employees’ behaviour visible and, ideally, quantifiable. To achieve the transparency this requires, Roever Broenner Susat Mazars uses instruments such as the Culture Compass and carries out value management audits. These instruments enable us to show whether the company has value, controlling or management deficits. The Culture Compass in particular, which won the Audit Innovation Award in 2013, is an instrument that is both pragmatic and suitable for creating the requisite transparency. In the final analysis, what can be systematised can also be quantified and governed. That applies both to values and, consequently, to behaviour. Governance parameters established in this way can then be transferred to target achievement, performance reviews and similar ways of bringing influence to bear. A company can thus deliberately specify the quality of implementation.
What can we do – and now I am coming back to Volkswagen again – in a situation in which employees do not behave with integrity but are motivated not by personal enrichment but by the conviction that they are thereby doing the company good? How does one deal with that?
Beckmann: In this case, too, we have a conflict of objectives. Formally, VW may have mission statements and rules and have instructed its compliance department not to violate laws, but the management also specifies sales and targets. In a conflict of goals of this kind what counts is the tone from the top – big trumps little. In a conflict situation of this kind employees orient themselves to the behaviour and expectations of the management and the board of directors. If an employee has no way to share views or seek advice, be it via an ombudsman or in some other way, it is clear which direction he will take as a rule. In a hierarchical culture of this kind responsibility is centralised and not delegated. Values such as a risk culture or willingness to innovate are quickly set aside.
Does a crisis always first have to happen for a company to change direction?
Beckmann: A crisis is a bad counsellor. In a crisis a company must react; it loses its freedom of action because, in a crisis, the available options are greatly reduced in number. Public pressure and pressure of time restrict the company. The people in charge act at short notice, are forced to improvise and make unfavourable compromises. Yet crises also ensure that uncomfortable issues are prioritised and brought to the attention of both employees of the company and the wider general public.
A crisis like the one at VW shows what a sensitive issue handling mission statements and values is and that slapdash management in both areas runs risks and may have serious consequences. In VW’s case the economic damage in the form of fines and compensation is probably less important than the damage to the company’s reputation.
In entrepreneurial practice line managers usually discuss economic targets in performance reviews. Aspects such as an employee’s honesty and reliability in value orientation are taken as a given and do not, as a rule, form part of the performance targets agreed. How can that be changed?
Beckmann: These conflicts exist, and are known to exist, in every company. All I need to do is ask the employees about them. That can be done in interviews, discussions or employee satisfaction surveys. That is how I find out where the conflicts are, be it in Purchasing, Production or Development. It is important to know what employees know in this context and to make use of their problems and experiences for value-oriented corporate development. For that, conflicts must be made transparent and checked for conflicts of goals between expected and actual behaviour. In conflicts of this kind, employees face a catch-22 that leads to a high degree of dissatisfaction. If the company enables consistency of expected and actual employee behaviour to come about, the level of employee satisfaction soars. In an environment of this kind, employees can put their skills and resources to use in a focused and efficient manner.
Why is there such a focus on areas like Purchasing, Sales and R&D where entrepreneurial responsibility is concerned?
Beckmann: In principle the focus is on all of the company’s core processes, which in a manufacturing enterprise are Production, Development, Purchasing and Sales. Purchasing and Sales are highly sensitive in many companies due to their position at the interface with the supply chain. Employees in these departments are often responsible from Tier 1 downward in the upstream supply chain for areas that are outside their own company and thus beyond the scope of their own controlling instruments. In my experience there have been changes in many purchasing departments over the past two or three years. In many cases questions are asked not only about price, quality and delivery dates but also about the effects of what buyers do on suppliers and on ecological or social aspects. But systematic integration of values management into supply chains is still in its early days. Much remains to be done.
What drives companies to implement values?
Beckmann: Many companies are part of extensive supply chains. The catalyst of these supply chains – companies like BMW, Bosch, EDEKA or BASF – increasingly and consistently require their entire supply chain to observe specified values by means of clear key figures. This is a trend that will gain momentum in the years ahead and require suppliers to take an increasingly systematic stand on sustainability. Suppliers must comply with values and key figures and make them transparent if they are to remain in the supply chain. So it is not primarily the legislative bodies that are regulating a change in attitudes on values and social and environmental aspects. The strong market participants in particular have taken this development forward in recent years.
There are readily measurable rules in corruption prevention or environmental protection. Issues that have in some cases yet to be finally defined, such as corporate human rights compliance, are more difficult. They indeed are a topic that is very much under discussion at the moment. Mazars is cooperating with SHIFT on it. What exactly has the cooperation accomplished?
Beckmann: In the past, human rights was a rather diffuse issue. Human rights are, of course, important and these fundamental rights must be upheld. But there was no standard and there were no framework for corporate implementation of human rights. The Reporting and Assurance Framework Initiative (RAFI) that Mazars has developed jointly with SHIFT provides the first opportunity of using checklists to establish in a standardised and systematic way what significance human rights has for a company and how it can improve its performance. In recent months I have noticed in discussions that companies are keenly interested in the specifics of this new framework. They provide them with an instrument that optimises and makes transparent along international human rights standards the requirements for companies to observe human rights.
Does the increasing importance of human rights requirements for companies apply only to Germany or is it a global phenomenon?
Beckmann: It’s an international trend. Even countries of which one might not expect it are attaching increasing importance to the observation of human rights within economic processes. In South America or in Asia subjects such as human rights and other social issues are in some cases discussed much more intensively than in Germany. Here the main focus still tends to be on the environment, with sustainability still seen mainly in terms of ecological aspects. That having been said, in Germany, too, the introduction of compulsory CSR reporting has led to a growing importance of Corporate Social Responsibility (CSR) in all its aspects, which include human rights just as they include integrity management or values management. These are issues on which we, both internationally and nationally, have many years of experience and on which we can regularly be a catalyst of change for our clients.
Mr. Beckmann, thank you very much for this interview.