KEY POINTS:
In his superb book on corporate behaviour, How: Why HOW We Do Anything Means Everything ... in Business (and in Life), Dov Seidman tells the story of the New York City doughnut seller who taught him a valuable lesson in business trust.
A glazed doughnut cost Seidman 75c. The first time he made a purchase, he offered a dollar bill. The doughnut man took the dollar, gave him his doughnut and nodded towards a pile of change on the counter. Seidman then noticed that other customers were making their own change, each taking the equivalent of a quarter from the pile of change. Seidman was impressed.
Over ensuing weeks he observed other doughnut sellers, working their carts on busy New York sidewalks. The doughnut man who trusted his customers to make their own change was selling twice as many as his competitors. What's more, Seidman returned to the original seller as a customer.
In addition, it's reasonable to surmise that many customers wouldn't have bothered making up their change, so there was an extra profit for the doughnut man in extending this measure of trust. This is the kind of story that makes Seidman's book interesting and why it is having such an impact in the United States, and increasingly in Australia.
In a June New York Times column, Tom Friedman focused on Seidman's analysis of why the how of doing business has become so significant in an age of instant global communication. Seidman, incidentally, is the CEO of a business ethics advisory firm, LRN.
Friedman wrote: "His book is simply called How. Because Seidman's simple thesis is that in this transparent world 'how' you live your life and 'how' you conduct your business matters more than ever, because so many people can now see into what you do and tell so many other people about it on their own without any editor. To win now, he argues, you have to turn these new conditions to your advantage."
Above all, business reputation is of paramount significance. Reputation which may take decades to earn, but can be lost in very short order. As Seidman notes, word of mouth now crosses continents.
Reputation, of course, can be damaged in different ways, from insurgencies and disputes on boards, as characterised at the National Australia Bank (NAB) or the National Roads and Motoring Association (NRMA) some years ago. Reputation can only then be repaired carefully and deliberately over time as it has been with both these organisations.
Or damage can occur as a result of a strategic misstep, as Qantas discovered recently during its failed takeover. Again, reputation needs to be restored quietly and patiently, as Qantas has set about doing.
And dumb decisions can cause damage well beyond the initial problem.
Seidman's example is of an anti-theft bicycle lock, supposedly the top of the line, designed by Kryptonite. When an online forum revealed that the lock was easy to break, Kryptonite ignored the critics and the result was disaster; the product's reputation was severely damaged.
Better to confess a failing, as Apple's Steve Jobs did on one pivotal occasion involving executive misconduct, and simply apologise. Weakness thereby becomes strength.
Reputation can also be damaged by malice and mischief. About a decade ago, Arnott's Biscuits confronted this squarely. Its response was a benchmark in common sense and courtesy and worked beautifully.
Arnott's announced early that it was having a problem with a threat to its products.
Thousands of packets of biscuits were trashed and the company made it clear that its commitment to the safety of its customers and staff was of overwhelming importance. The public was kept briefed regularly while the police got on with the job of finding the villain.
While Arnott's suffered a temporary disruption to production and sales, its reputation was enhanced and its business prospered when all was eventually resolved.
Contrast this with the problems experienced by the Cross City Tunnel under Sydney's CBD. Problems, real and perceived, plagued the tunnel: street closures annoyed residents of Inner Eastern Sydney; the toll angered some potential users; estimates of vehicle numbers proved optimistic; and motorists sought to avoid the tunnel by "rat running". Despite this, the Cross City Tunnel insisted all was well until late in the piece. This wasn't credible and a deteriorating business reputation was damaged further.
Seidman tells another story about trust. He cites the workings of the Antwerp Diamond Market, where sales of millions of dollars of precious stones are based on handshakes. It's been this way for some seven centuries. People work on the reputation for integrity of buyers and sellers.
Implicitly, businesses which focus on their reputation for doing the right thing as corporate citizens are observing the Antwerp precedent.
Of recent times, climate change has been a major issue for corporate Sydney.
Both the major publishing houses, News Limited and Fairfax, have acted in a robust way.
News Limited (for which this writer has been a columnist for some years), has embraced a vigorous programme of cutting its greenhouse gas emissions.
Fairfax, on the other hand, has supported Earth Hour, which recently saw lights in Sydney dimmed as a symbol of what business ought to be doing to reduce the impact on the climate.
Another issue which generates passion is obesity, and McDonald's has moved beyond its salad menus to build sponsorship of athletics for young people. The critics may not be silenced, but the agenda and public debate can be reset or amended.
There is no doubt that programmes of this kind can add to reputation.
Doing the right thing has always been good for business. What Seidman's book makes clear is that regardless of whether it is in Sydney or in Auckland, being open about the manner in which a corporation operates, trusting customers and insisting on maintaining standards which enhance reputations, is now of global significance. Investors everywhere are looking at issues relevant to integrity.
If we are looking for proof , look no further than Dov Seidman's story of the New York City doughnut salesman.
* Stephen Loosley, a former federal president of the Labor Party and Australian senator, chairs business advocacy group Committee for Sydney.
