‘Business leaders need to know where we are and how we arrived here’

Professor Geoffrey G. Jones, Isidor Straus Professor of Business History, HBS, thinks every corporate board needs to have a history lesson before considering mergers and acquisitions. As he points out, most acquisitions tend to fail, either because they are overpriced or there are integration issues. Half in jest, he says, he would like to talk to these boards for 30 minutes, even as a service, and take them through the experience of many similar companies.

He was in Mumbai recently to conduct a programme at Harvard Business School’s Mumbai campus. Excerpts from an interview.

What do businesses get from studying their history?

I have asked that question myself. HBS pioneered the study of business history. Why did they do that? A former dean, Donald, in the nineteen twenties, was very concerned that the world was running into many troubles – about the failure of political leadership, about loss of responsibility. And he was right – for within a few years, we had the advent of Hitler, the Great Depression, World War II. He was the one who said the next generation of business leaders need training and they need to know history. They need to know where we are and how we arrived here. And they need to know that business shouldn’t be studied in a vacuum but studied as part of an ecosystem of society and that business has real impact on society. The best way of doing that is not to do it theoretically but show examples of how businesses impact societies.

One of the most important things you get from studying history is that you internalise it. It is difficult for a practising manager to step back and feel that he is doing something relevant to history. But you can see the good and the bad things they have done and draw lessons from it. What history doesn’t do is tell you what job to take next or what brand to launch next. History, I think, changes your mind, changes how you think about things. You realise things change. The most problematic situation is when you imagine that the present world is something that will always be as it is now and go on forever. Then you are not prepared for change. One of the ways is to come to the conclusion that we live in a spectrum of time is to see how things have changed in the past.

Businesses seem to make mistakes again and again. Does history not teach you not to repeat the same mistakes?

I think we have had some important examples of learning and some important examples of not learning. One important example of learning was how the Federal Reserve responded to the financial crisis. Ben Bernanke of the Fed had done a PhD on the depression in the 1930’s and he understood how the Fed had made things worse then. So he did a textbook example of how not to fall into that situation. That is a very clear example, of how policy makers can learn from history.

On the reverse side, there is the story of globalisation. In the course I teach, I talk about how the first globalisation trend was in the nineteenth century – that’s when the world became integrated. There was a huge gap between winners and losers. It may be politically incorrect to say this, but the winners were white men who lived in the US and Europe. The losers were those who were colonised and those who lost their lands; blue-collar workers rose, inequality rose and that world fell apart because the losers eventually decided in the early twentieth century that they didn’t like the rules of the game. They were going to push back. We saw communism, we saw decolonisation; newly independent countries adopted state-planning and socialism rather than capitalism, so regulations were everywhere. What we saw was income inequality going up.

In the last 30 years we saw a new wave of globalisation, where much wealth has been created – including in India. But business leaders perhaps failed to appreciate that if there were too many losers in the system then it is going to be bad reaction. What we have watched playing out in real-time is income inequality rising to the same level that it was in the late 1920’s. We have seen huge swathes of the world still in a state of poverty. An important historical lesson is that if the losers become too large, there is going to be a reaction against the system and the system will meltdown. I think what I am seeing unfortunately repeating is what happened in the pre-War years and it is quite serious as a result.

If white men benefited from globalisation and there was the resultant backlash, how do you explain Brexit – where it was all white?

Well, the white man that I was referring to earlier were those who benefited from the first wave of globalisation. The general rule about globalisation is that it rewards winners. Successful people tend to accumulate more wealth. In the second wave of globalisation – it was not just the white men – it included people who lived in big towns – even in India and China – and people with skills. The people who lost out are those in the countryside and those without skills. There was a recent study of Brexit which directly goes to the county level and shows that there is a direct correlation between the people who voted for Brexit and their education levels. The more educated they were, they wanted to stay in Europe. That was the case in the US as well – higher the education, the more they voted for Clinton. The less educated – they voted for Trump. And the reason is that people whether they were in Boston, New York or elsewhere were winners of globalisation whereas their equivalents in hinterlands noticed this success while they were struggling to survive. Many blue collar workers have lost their jobs and we are seeing consequences of that.

Business was part of this problem. In America, boards would meet and decide that it was cheaper to move out to somewhere else and say bye to jobs. I don’t think that was good corporate strategy. I don’t approve of protectionism or nationalism, but I think it would make lots of sense for a company which had decided to outsource production to take responsibility for the people who were leaving, providing them some training or alternative jobs, instead of just bye-bye. If you act like that, you get a reaction against the system.

Isn’t America and capitalism known for its hire and fire approach? What has changed now? Why is it painful now?

It is commonly thought that the US had that approach, but historically it is not true. In a big chunk of the twentieth century, a large number of companies were paternalistic and offered workers jobs for life. And that was particularly true in the fifties, sixties, and seventies. Companies like IBM offered all manner of benefits. HBS was teaching stakeholder capitalism in the sixties. One reason for that was the explicit concern that the American system should be shown to be superior to the Communist system. That was explicitly articulated at HBS and other places. All the top companies were enormous and dominated world markets – Ford, General Motors, offered security in a paternalist way – that has gone away. Nobody offers pensions anymore. Security in the job has gone away – eaten away by competition. Suddenly the gap between CEO wages and average workers’ wages shot up. And so, although there is a stereotype about US businesses, lots of the twentieth century wasn’t like that. But in the last 30 years, it has taken that kind of outlook. There is some trade-off, there is a huge amount of insecurity. So, we are seeing massive social consequences to that kind of system. That is a historian’s perspective.