The Ten Commandments for Business Failure - Don Keough [20]
Commandment Four
Assume Infallibility
TO BEGIN WITH, never ever admit a problem or a mistake. If something seems to be heading in the wrong direction, cover up, or, better yet, wait until you have a full-blown crisis, then blame it on some external force—or blame it on somebody else. Customers are frequently troublesome. You can always blame whatever goes wrong on them!
Annual reports often amuse me, particularly the letters to shareholders. In one report after another, even if the company has had a thoroughly disastrous year, the chairman’s letter is frequently an artful exercise in finger-pointing at any number of causes ranging from unforeseen currency fluctuations to the unusually active hurricane season. You have certainly read, many times probably, that all-purpose feckless homage to passive impotence, “Mistakes were made.” The timbers are caving in, dust is in the air, and the person in charge of it all blithely asserts, “Mistakes were made.” Implied, of course, is, “But not by me.”
That’s the refreshing thing about Warren Buffett’s legendary annual letters as chairman of Berkshire Hathaway. If in a particular year, performance is not quite up to previous years or what might have been expected, Warren is quick to say, “It wasn’t good and it was my fault.” Despite his virtually unequaled record for profitably allocating capital, he lays no claim to infallibility. In his 1996 letter to shareholders, for example, Warren noted the problems with Berkshire’s investment in USAir and commented: “In another context, a friend once asked me: ‘If you’re so rich, why aren’t you smart?’ After reviewing my sorry performance with USAir, you may conclude he had a point.”
Coke again also provides an instructive example of the malady of infallibility left to fester.
In 1999, several schoolchildren in Belgium got sick and they attributed it to some Coca-Cola they’d recently consumed. The company did a bit of technical evaluation and convinced themselves at headquarters—a few thousand miles away—that there was nothing in the product that could have made the children sick. And that was that. The company was infallible in such matters.
Now, the children thought they were sick. Their parents thought they were sick. The doctors thought they were sick. Key executives in the company did not.
Sales plummeted and with agonizing slowness the company management finally forced itself to do what should have been done on the first day of the crisis—took the offending product off the shelves. Even though, as far as company leadership could tell, the Coke was completely uncontaminated. The fact is that the perception was clear and without hard facts to the contrary, perception became truth. But the pain was drawn out and the negative publicity was allowed to gather momentum. The whole affair resulted in the largest product recall in the company’s 120-year history and required costly months to repair the damage to its reputation and image. Reputation and image are priceless. Guard them with your life. As it says in Proverbs: “A good name is rather to be chosen than great riches.”
Schlitz beer had one of the greatest names in the American brewing business. Do you even remember it? In 1975 Schlitz was number two in the country, behind Budweiser, and it aspired to be number one. Schlitz management fancied themselves more sophisticated in the ways of marketing than the traditionalists at Anheuser-Busch. They used more extensive “marketing research” than the competition and began to see themselves as just plain smarter. They began to think that their way of doing business was infallible, and if they ran counter to the traditions of the brewing business when they cut corners to reduce their ingredients costs, well, so be it. And for a while it looked like a good idea.
And for a while things were all right.
But Schlitz kept tinkering