Professor Rudy Moenaert was my grad school marketing sensei at TiasNimbas Business School in the Netherlands, and I am grateful for his contribution here as my guest blogger. Rudy is the author of several books on Marketing and Strategy and a very keen observer of people and business. Since graduating from business school, Rudy and I share weekly emails covering topics of mutual interest including marketing, worldwide and U.S. politics, beer (usually Belgian) and the occasional joke.  

 
I saw the movie “The Magnificent Ambersons” (1942) about twenty years ago. The movie tells the story of the downfall of an American aristocratic family during the early 1900s.  The emerging automotive industry defined the new elite, and eroded the old one. While this legendary movie is considered one of the best ever, director Orson Welles was highly critical about the final version that made it into the movie theatres. Scenes had been cut without his consent, and the ending was, in the best of Hollywood traditions, altered towards a happier end than Orson Welles intended.   

 In many ways, the top managers of banks across the globe ressembled the Ambersons very well. High on the elitarian scale of their society, they acquired other banks, invaded countries, and developed complex products that Joe the Plumber did not understand. Am I exaggerating? The reason Italians banks suffer less from the financial meltdown, bankers have confided, is caused by the simple fact that their Italian colleagues did not understand the highly sophisticated English explanation that accompanied the collateralized debt obligations (CDOs) issued by the foreign banks...  

A country must not be big to suffer the fate of greater nations, as Fortis has proven in Belgium and the Netherlands. Fortis, the leading Belgian/Dutch bank had set its sight on acquiring the ABN-Amro bank.  Teaming up with RBS and Banco de Santander, they succeeded in acquiring and dividing the prey. It is difficult to imagine any task so important that it warrants the transportation by helicopter between two countries so small.  That is most likely why I vividly remember the picture of the Fortis board getting out of a helicopter during the summer of 2007.  The Fortisians got out of the helicopter, laughing  their way to the Dutch shareholders meeting.  The picture made it reassuringly clear who had won the fight at the ABN-Amro corral. 

One may be ambitious, but one should never be foolish though. Shortly thereafter, the financial crisis struck. Fortis did not possess the financial stamina to support the deal.  It succumbed, becoming virtually worthless in the time span of few months. With the start of the financial crisis, the downfall of the Fortisian aristocracy was swift and unforgiving.  Just like the Ambersons, the logic of the market forces did not  give in to the arrogant insight of the historic elite. In the vaudeville that ensued, the board was humiliated and ousted,  the Belgian government fell, and Fortis was acquired by BNP-Paribas. Roughly similar in size some years, Fortis was now an easily digestable amuse-bouche for BNP-Paribas.  The logo of Fortis “reflects the diversity of the communities we serve” (sic).  Intriguingly, its composition ressembles the famous last painting of Mondriaan “Victory Boogie Woogie”.  Mondriaan worked on this painting until the day he died (February 1, 1944), it was never completely finished, and it is extremely expensive. The same is true for Fortis: CEO Jean-Paul Votron and his board were terminated, the magnum opus was never finished, but it did cost a fortune.

One business owner I know had a straight loan with the Fortis bank.  This loan was backed by, you guessed it, Fortis shares.  As those shares became virtually worthless, the local Fortis branch manager refused to renew the straight loan.  Can it get more cynical than this?  In a country such as Belgium, definitely! The Belgian Corporate Governance Code is colloquially referred to as the “Code Lippens”, named after ‘Viscount’ Maurice Lippens, chairman of Fortis. The Belgian aristocracy must stop awarding medieval labels to people who cleverly combine arrogance with stupidity. When people are promoted upward in spite of a lack of competence, they will not behave humble.  On the contrary!       

Since the decline of Fortis, numerous journalists have written articles and even a splendid book (“The perfect prey” by Jeroen Smit) on the ABN-Amro débacle.  As an academic, however, I want to use this story to illustrate some simple messages about the resource-based view of the firm. The resource-based view, the dominant paradigm in contemporary strategic marketing, simply states that competitive advantage and resources are two sides of the same coin.  What one accomplishes has everything to do with how one organizes the resources.  The resource-based view came to prominence with the power writings by Hamel and Prahalad (‘The core competence of the corporation’). 

I want to single out two very important, and easily forgotten corollaries of the resource-based view.  First, making a profit is not an option, it is a duty.  Profit is required, because shareholders are entitled to a return, investments must be made to continuously improve the resource base, and a strategic buffer is needed for eventual tough times.  Isn’t it bizar that many managers are so impatient with sales growth, and very patient with profits.  It should be exactly the other way around: in most businesses, one may be patient with sales, but not with profits. (Note: for not-for-profit companies, this adagium may be rephrased as: “Making a value added is not an option, it is a duty”)

Second, a company may be big, but a company must be strong. Size does matter, said the advertisement for Godzilla.  Now that was a strong figure. Fortunately for Matthew Broderick and his girl friend, Godzilla went down in the end. Rightly so, one must not imagine giant lizzards visiting Fifth Avenue occasionally.  However, let me return to the Fortis saga. Fortis wanted to be among the leading European banks, but it forgot size and strength do not necessarily correlate positively. Like many other financial powerhouses, their market capitalization melted faster than snow in “Ice Age 2”.  How does one become and remain strong?  By making solid choices and saying no business investments that create size but erode power. Business investments must be sold on their economic merits (Effectiveness and/or Efficiency), not on the personal status of the executive (Executive Ego).

Is there a way out?  Not in the short term, I’m afraid. In addition to the money that is needed to prevent a collapse of the economic system, a change of mindset will be needed. Top managers must learn that big challenges require genuine humility. Whenever I hear somebody being introduced on CNN, BBC or the local Dutch or Belgian media as a “chief economist” or “senior economist”, I wonder why professionals who re-defined the word “global crisis” are still using titles that carry no intellectual weight whatsoever. What use is the Amberson family name, when the aristrocracy itself becomes dysfunctional?  What use is the label “chief economist”, when your talent ripped the economic texture of our industrial system?