Five reasons companies mistreat customers and staff

In the 1980s, a colleague I shared an office with got a call from his daughter. He had bought her a cheap compact disc player from audio retailer Richer Sounds in London to take to university and she had found that it didn’t work.

He suggested she take it into a Richer Sounds shop in Manchester, where she was studying. The staff there tested it and it worked. But she seemed uncertain, so they gave her a more expensive CD player instead.

“This is not complicated,” Julian Richer, the UK company’s founder, told the Financial Times last week, as he outlined his business philosophy. Treat your customers and employees well and the business will thrive.

Staff turnover and employee theft at Richer Sounds’ 53 audio equipment stores are far lower than the retail average. In May, Mr Richer sold a 60 per cent stake in the 41-year-old business to an employee trust for £9.2m (of which he is giving £3.5m back to the staff). He has done well enough over the years to buy several Rolls-Royces.

He makes business sound easy. If you treat your staff decently, they provide excellent service to your customers, who not only keep coming back but tell other people how good you are. You make more money and are able to treat your staff even better so that they do even more to satisfy your customers. Why don’t all chief executives run their companies the way Mr Richer does?

I can see five reasons why they don’t.

Size. 

As companies grow, they need to put formal procedures in place. They feel they have to create a corporate bureaucracy, with marketing and human resources departments.

The people at the top become increasingly distant from employees. They stop bothering with staff at the sharp end and the staff stop bothering with the customers.

Politics. 

Mr Richer is unusual both in managing to retain control and maintain his focus.

In companies where there are several founders their aspirations, both corporate and personal, can begin to diverge. Some want to concentrate on the existing business, others to diversify. Some want to sell out to a large acquirer, others to keep control.

When non-founder managers come in, they have their own ambitions, both personal and corporate. They argue, scheme and plot. The central business of creating products and providing services gets forgotten, along with employees and customers.

Distraction. 

Even if they are united, the company’s leaders often want to move the business on. They enter new markets.

They make acquisitions which, because of differences in culture and IT systems, seldom work. Having succeeded with one product or service, they try a related one.

Having attempted this and found it too difficult, they need to retrench, refocus, close subsidiaries and lay off staff. Those employees who remain are overworked and demoralised, which the customers soon notice.

Greed. 

Perhaps the biggest reason of all. The company’s leaders regard making money as the principal aim of the business rather than a byproduct of running it well. They see an opportunity to make money for themselves by selling the company to a bigger rival (which often ruins both businesses — see above), to a private equity group or to list it on a stock exchange.

They persuade their boards that to attract leaders like themselves they need to be better paid. They also argue that they require share options to align their behaviour more closely with their shareholders’ interests.

The shareholders demand quarterly or half-yearly earnings increases, which encourages the business leaders, with an eye on those options, to look to ways of boosting the share price rather than investing for the long term. They continue to talk about employees being their biggest asset and the customer coming first, but their eyes are elsewhere.

Competition. 

This can derail even the best-intentioned business leaders. Although Mr Richer says it isn’t complicated, staying in business is hard.

Other companies undercut your prices, and technologies and distribution methods change. Richer Sounds has done well to retain its shops in the face of online competition.

The company says it has done it by recruiting on “natural friendliness, rather than high-pressure sales skills” and finding staff who are enthusiastic and knowledgeable enough about the products to explain them to customers.

Other businesses have found that isn’t enough to survive. Or perhaps not enough of them have tried. FINANCIAL TIMES

ABOUT THE AUTHOR:

Michael Skapinker is a Financial Times contributing editor and columnist on business and society.