Article: No corporation is an island

#ChangeTheGame

No corporation is an island

A glimpse into the history of organizations and the birth of operational people processes through mutual benefits.
No corporation is an island

Western business literature is awash with cases explaining what made corporations great, and why they fell from grace. There is a lot to be learned there. Yet, the western world is not monolithic, and here and there, one finds glimpses of independent perspectives that are sure to prove useful to the rest of the world.

A few weeks ago, I attended a lecture by Professor Carlos Brito, until recently Vice-Rector for Innovation with the University of Porto, Portugal. One cannot fairly distil brilliance but, briefly, Professor Brito argued that while novel ideas are scarce and necessary for success, what is essential for success is the range of the entrepreneur’s relationship capital. By that, he meant the range and effectiveness of the entrepreneur’s network to bring in other forms of capital and clients, as fast as possible.

Relationship capital might be a misnomer, but it rings the right bells because the concept capital has become prominent and works well to refer to other fields, such as human capital. Nevertheless, if the entrepreneur’s idea is attractive enough it will attract the early round of financial capital, because there is no shortage of people wanting to get their foot in the door. With funding, the entrepreneur will be able to attract some talent, or human capital, and move ahead. Nevertheless, it is the entrepreneur's wealth in relationship capital that will play the most important role in attracting the rest, including distributors, lawyers, insurers, logistics, and more. Without those, growth will be slow or it might not even happen.

Trust runs paramount in relationship capital. High levels of trust run along clan lines. In clannish societies, the radius of trust is remarkably short: it falls steeply away from the center; there is little trust granted to outsiders. 

The sugar trade of the 16th century, and the ostrich feather trade of the 19th century both ran on trust, because there were no enforceable contracts over such long spans of time and geography. Trade within Jewish networks facilitated the trade.

Diamonds are very portable and easily hidden, or lost. Trading in diamonds relies on trust and therefore favors working along tightly knit communities where reputation is paramount. Again, relationship along Jewish networks provided the necessary trust in the diamond trade around Antwerp. Similarly, relationships now provide the trust along Palanpuri Jain and Katiawadi Patel diamond traders. 

It would be safe to say that all peoples trust their families more than they trust outsiders. Yet, in the advanced economies, mostly the ones of the Germanic traditions, clans are less important as sources of trust. Germanic European countries show the least difference in trust granted to family and non-family members. The difference with other societies lies in how much more do people in those societies trust their families than they trust the rest. 

Because America’s aspirational culture derives from the Germanic ones, trusting behaviour there is quite similar to the Germanic one. Yet, in southern Europe’s Spain, people’s trust in their families rather than in non-family is almost four times as high as among the Germanic tribes. The difference with the Germanic tribes is greatest among Latin Americans and Muslims who, respectively, differ from the Germanic tribes almost five to seven times as much.

It is not surprising that in the management literature coming from America and from the Germanic tribes, relationships plays a relatively low role in explaining the role of corporate growth, because there trust spreads wide. On the other hand, it is not surprising that a prominent southern European academic as Professor Brito would place a much higher emphasis on the quality of relationships to explain the success of entrepreneurs.

Because trust is more parsimoniously granted, it plays a much higher role among Muslims and Latin Americans; and it would show in the business literature if their academics found higher prominence in academic journals. With the increase in academic publications originated in clannish regions such as Africa and Asia, or Latin America, we are likely to see a greater importance attributed to the role of trusting relationships in the growth of corporations. While that happens, be warned, in clannish societies corporate growth is driven by the quality and extent of the entrepreneurs’ relationship capital.


Source: Alfredo Behrens

Topics: #ChangeTheGame, Others

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