A "Third Way" for Germany

European business guru Fredmund Malik says blindly adopting American models won't work, and he espouses a new approach

Fredmund Malik, founder and chairman of the Malik Management Center in St. Gallen, Switzerland, is one of the most influential business thinkers in Europe, a consultant and teacher whose lectures attract top CEOs from the German-speaking business world.

Malik is also one of European business' leading contrarians. While no admirer of the antibusiness rhetoric currently permeating the German political debate, Malik criticizes what he says is an excessive focus on short-term profit by European companies ineptly trying to imitate U.S. management methods (see BW, 5/30/05, "Pushing Around Germany Inc.").

Recently, Malik spoke with BusinessWeek's Jack Ewing about the "third way" he believes is more appropriate for European companies. Edited excerpts of their conversation follow:

Q: Are you surprised by the debate we're seeing now about foreign investors, whom Social Democratic Party Chairman Franz Müntefering has called "locusts"?


The debate about capitalism was preprogrammed. It was unavoidable that corporate governance based on shareholder value would lead to a backlash, to class conflict, and new militancy by labor unions. It's not just partisan tactics. The economy as portrayed by the media provokes deep feelings among the public about justice and decency and plain manners.

Whether these feelings are right are wrong is another question. The discussion is at a very low intellectual level. It's being conducted in terms of the 19th century when we're talking about a phenomenon of the 21st century. But these views are a fact that can't be ignored any longer.

Q: Is business to blame?


There's a fundamental question about the correctness of corporate governance. Throughout Europe, business made the mistake of blindly adopting U.S. methods of management, sometimes to the point where it was infantile. Many of these methods are totally inappropriate for Europe, certainly for the German-speaking countries.

U.S. methods were adopted without thinking about what we could learn from the U.S., short of adopting everything. U.S. business-school theories have been exported to every corner of the world, because those are the only theories that are available in English.

Q: Does a better model exist for Europe?


I draw a distinction between shareholder-managed and entrepreneurially managed companies. Those are two different worlds. The entrepreneurial companies include names such as [electronics maker] Bosch, [mail-order house] Otto, [retailer] Aldi, [auto maker] Porsche, [appliance maker] Miele. And BMW. They have been led in a totally different way.

No one at BMW ever said profit, profit, profit the way other companies have. They have world leadership, they have created jobs. They're not driven solely by profit.

Q: So if you're not driven by shareholder value, what's the guiding principle for a business?


In addition to shareholder or stakeholder approaches, there's a third way that has been completely overlooked. That is not to put an interest group in the middle. The fundamental question of current corporate governance is, "In whose interest should a company be managed?"

What's overlooked is that the only possibility to lead a company properly is to put the company in the middle. Corporate capitalism, not stakeholder or shareholder capitalism. Ask the question, "What is a strong company -- what is a strong, viable company?" The answer is: "A company that has happy customers."

The purpose of a company is to create a customer. Whoever has customers will always have happy shareholders. It's customer value. All of the entrepreneurs I mentioned are exceptionally customer-oriented -- that is their guiding principle.

Q: Do you think the criticism of private-equity companies is justified?


I think they have done more harm than good. A company turns to private equity when it has a liquidity or management crisis. In only a few cases do they get good management advice. No fund can have specialists in every field. Their goal is to sell after a few years, three to five years at the most. The turnarounds are often superficial. It's a new variation of the greater fool's theory -- find someone who doesn't look behind the curtain.

Q: Do you expect new regulations to curtail private equity?


I hope there won't be any hasty legislation. Reform should come from companies, which requires civil courage. It's time the business community made itself understandable to the public. They have completely failed so far. People are afraid of what they don't understand.

Companies have to explain the market economy. The market system is a miserable system, brutal, ruthless, but all the other systems are worse. We also have to combat exorbitant pay for managers, and private equity should be more transparent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE