Honor Among Thieves

"You Must Do Exactly What You Say You Will Do" - Miami Vice (2006)

"Goodwill" comes with many fancy & complicated definitions & sub-groups:

1. Business Goodwill

2. Institutional Goodwill

3. Professional Practice Goodwill

4. Practitioner Goodwill

5. Practice Goodwill

The sources of goodwill are as numerous:

1. Brand Name

2. Location

3. Customer Base

4. Customer Relations

5. Employee Relations

6. Patents

7. Proprietary Technology

But in reality, goodwill is basically the commercial name for trust. The trust between seller & buyer; the trust between employer & employee; the trust between senior & junior. Most people believe that the most important factors in a successful business range from liquidity to connections; but they are wrong - the most important factor in a healthy commercial venture is goodwill.

All competitions & conflicts have one thing in common: At least one of the involved parties wants more than anything to prove that another party will renege on his principles if enough pressure is applied. Except for psychopaths, who stand for nothing except their own perpetual spite against pretty much everyone, all normal people stand for something: loved ones, professional ambition, wealth, influence - the list is endless. In business, the meaning of goodwill is how far is a person willing to go to fulfil the promise he or she made to family, allies, employees, competitors or enemies.

The business world seems to be getting a vague understanding of the importance of goodwill. Some firms are demonstrating this growing understanding by creating financial instruments that ask the creditor to place unequivocal (& uninsured) faith in the debtor, e.g. the Exchange Traded Note (ETN). But what most businesses don't seem to be able to grasp is that what ever product or service they are offering, the business of business has changed with the dawn of the 21st Century. It no longer matters that the product or service is "sound"; it needs to actually bring about the result promised by the seller.

Bad Medicine & Fishy Transactions

Big Pharma has been taking a serious beating during the last 15-odd years. So have the global banks. It wasn't all that noticeable all this time because these companies have deep pockets & have succeeded in managing the media admirably in order to hold off panic selling - until now. But ever since the Valeant & Citigroup fiascos exploded on to the world newspapers, the cat is out of the bag. There is no going back; & no amount of financial jargon & hollow financial instruments is going to save such businesses now. Some of them have already lost almost everything; even their highly-respected brand names are now nothing more than the titles of terrifying cautionary tales...& the damage is spreading like wildfire, particularly in the Western Hemisphere.

The one strategy that might - & I emphasise, might - save their failing businesses, is re-establishing customer goodwill. But there's a catch: The product or service in question must be both affordable & effective. Now, every company, regardless of which sector it belongs to, has to become like its customer's lawyer or financial advisor: In effect, when a seller convinces a buyer to make a purchase, the seller's responsibility no longer ends with the clink of the cash register; he is now duty-bound to do all that he is legally capable of to make sure that the customer actually does derive the promised benefit from the purchase.

Take pain medication: It has generated plenty of debate, with a special focus on the inexplicable aches & pains that perfectly healthy people suddenly develop that don't respond for more than a minute or so to the painkillers marketed by the most respectable pharmaceutical companies in the world. Once upon a time, that wasn't the problem of the companies; they took your money & you took their pills; end of story. But the playing field is not levelling out as much as it is literally becoming everyone's concern to stay on the field. Big Pharma can no longer drive sales on the basis of their medicines' past reputations. They either actually guarantee that they can make sure their medicines bring meaningful & lasting relief - or they can lose their customers.

Similarly, look at the big banks: They seem to have made a priority of discretely encouraging shady financial activities, like the reportedly friendly partnership between JP Morgan Chase & notorious American Ponzi Schemer Bernie Madoff. The reason is not that the good people working in places like JP Morgan Chase have stronger criminal instincts than employees from any other bank; it just is that they forget that their account holders are not their prey, they are their partners. Banks go belly up when they don't go out of their way to take on only sensible investments that are genuinely in the long-term best interests of both their shareholders & account holders.

The Power Of A Promise

Once upon a time, the business world believed - very rightly - that if all else fails, they can recoup their losses by investing in a sector called "sin stocks", some of which are as follows:

1. Alcohol

2. Tobacco

3. Gambling

4. Commercialized Sex

5. Weapons

But times have changed. Sin stocks can't save people or their wealth any longer. Those days are over for good. Not that sin stocks aren't profitable any more; they still are. It's just that if any businessman or company thinks that a quick foray into sin stocks will resolve cash flow problems & tide the firm over the difficult times, that doesn't apply any longer. Boeing tried to balance its civilian contracts with its defense contracts, & look where its reputation is nowadays. Brand names aren't an effective buffer either. If you don't believe that, just look at Rio Tinto.

Eastern philosophy teaches us that Life exists in a circle. Everything eventually comes back to how it began. In that vein, our ancestors began doing business on the basis of the credibility of the seller (to bring about a specific result) & the buyer (to offer fair compensation for said result). These transactions began as little more than a verbal agreement between the seller & the buyer only; there was rarely any supervisory authority. But business flourished because all concerned parties understood that the point of trade wasn't the exchange of material things as much as the fulfilment of specific promises concerning specified outcomes.

Considering that the biggest multinationals are drowning in red ink while the sole traders are getting along fairly steadily, it seems that the market is telling the world - especially the global corporations - that it is time to get back to viewing customers as people that companies must protect, not simply bill & discard. Sellers & buyers aren't opposite parties; they are all one family. The sooner the corporate world understands & accepts that, the better; or else, the nature & number of problems the multinationals are facing have only just begun to make themselves felt.