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[Type the document title]

THE CASE STUDY OF CORPORATE CULTURE: SUCCESS AND FAILURE

THE CASE STUDY OF CORPORATE

CULTURE: SUCCESS AND FAILURE

Raj Singh

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Table of Contents

About the Author ............................................................................................................................. 1

Abstract ........................................................................................................................................... 2

Introduction .................................................................................................................................... 2

I. Procter and Gamble: When Change is not Always Transformative ................................... 4

II. Procter and Gamble: When Change is not Always Transformative ................................... 8

III. Google Inc.’s ‘Don’t Be Evil’ Culture ..................................................................................10

Summary ....................................................................................................................................... 13

Conclusion: Ascending the Corporate Culture 14

References ...................................................................................................................................... 15

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About the Author

www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 1

Raj Singh is the CEO of Safety@ Work and a leading Safety Health and Environmental

Consultant with extensive experience and involvements in Oil & Gas (Upstream and

Downstream), Petrochemical, Marine and Construction Industries for the past 18 years in Asia

and Middle East. Raj has a Masters in Business Administration from the University of Adelaide,

Raj has been providing consulting, advisory and training to the Top Management of

organizations as well as projects. His driving philosophy is to create a better, more productive,

profitable and professional workforce. Raj’s business acumen has allowed him to market his

services to various organizations around the world.

As a preferred supplier for the Energy Institute’s Hearts and Minds program, Raj comprehends the complexities and challenges senior executives face in their organization. This inner understanding of complex organization management has allowed him to conceptualize and offer custom solutions to busy executives. Raj’s is actively involved in developing training standards for safety. He also remains one of the most sought after expert witnesses in Singapore, having handled numerous expert witness cases involving fatalities whilst providing calculations and reports to the various courts. Raj has received extensive training in technical safety, investigations as well as Behavioural

Safety.

Raj is a prolific writer and author of two books. “Risk Assessment: Simplified” First published in 2004 and “The accident files: real industrial accidents.” In his free time, Raj enjoys spending his downtime at the driving range, running, and reading.

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www.safetyatwork.com.sg A Case study of Corporate Culture: Success and Failure 2

Abstract

This article explores fundamental reasons behind the rise and fall of management in leading

their companies on top of the cultural ladder. In an attempt to understand the dynamics of

corporate cultural development, three case studies are presented to better explain the

phenomenon. At the very least, it is interesting to pry deeper into the background of corporate

lifecycles with leading questions. How do companies fail despite of having leaders with

competent backgrounds and excellent records of accomplishment? What are the factors that

compel corporate leaders to fall from grace? What is the impact of company leadership to the

performance of their organizations? Is there an ideal corporate culture? More so, how could

companies recover from their failures and turn their crisis into cornerstone? Although it is

inadequate to fully explain the rise and fall of corporations in this brief article, the paper exposes

an area of study that could benefit business leaders. The successes and failures of companies are

the best classrooms from where business leaders could learn. The following case studies are

discussed in this paper:

1.) Procter and Gamble (P&G) and its bid to recover by changing culture

2.) The fall of Arthur Andersen

3.) Google and its unique corporate culture. These case studies are the knowledge platforms

from where conclusions shall be drawn out and it points to a value-based culture as an

indispensable factor for business survival.

Introduction

Peter Drucker said that the first duty of business is to survive and the guiding principle

of business economics is not the maximization of profit but the avoidance of loss. Viewed from

this perspective, we understand why corporate leaders and managers not only strive to gain

profit but also deviate from systems and processes that translate to loss. Of what use is 100

horsepower engine if you have a leaking tank?

However, loss does not only mean loss in profit or revenue. Loss is also in the intangibles

– leadership quality, moral ascendancy, management values, and corporate character. In a

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number of cases, these intangibles are overlooked due to the focus on profit and loss. Corporate

leaders and managers are blindly concerned with revenue increase, decrease cost and expenses,

increase of profit, project turn a rounds, effective and efficient use of resources. The ‘intangibles’

should be equally addressed and given importance because they indirectly affect the overall

performance of a company. In the end, a deteriorating corporate culture could eventually lead

into the demise of an organization.

While important questions should be addressed to management in assessing the quality

of the said intangibles, it is as fundamental to evaluate the performance of employees based on

the same criteria. The behavioral dynamics of the workforce are factors that could manipulate

corporate outcomes. In the last two decade, there has been an outburst of teachings, readings,

publications, seminars, and studies on addressing corporate culture. The so-called corporate

gurus have become household names and even commercial brands. While Drucker and his

writings remain as the backbone of management studies and corporate leadership, the likes of

Stephen Covey, John Maxwell, and a congregation of corporate apostles has been contributing

to the study on behavioral and cultural management in organizations. Corporations now accept

that corporate culture is an area in business that should not be overlooked.

Thus, it is a necessity to re-educate employees on developing corporate culture: behavior,

mindsets, belief systems, values, work habits, and character. Employees and the workforce

should feel that they are co-responsible for the future of their organizations. The challenge lies

in the hands of management on how to infuse such culture wherein employees are not treated

like machines made of gears and circuit boards. Management to address problems and issues in

corporate culture implements organizational development interventions regularly. There were

top rank companies that imploded because organizational development concerns were

neglected. The industry that develops business culture has become good business.

Steven Covey accurately describes the threat that misguided corporate leaders and

managers bring to corporate culture:

“The problem is, managers today are still applying the Industrial Age control model to

knowledge workers. Because many in positions of authority do not see the true worth and

potential of their people and do not possess a complete, accurate understanding of human

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nature, they manage people as they do things. This lack of understanding prevents them from

tapping into the highest motivations, talents, and genius of people. What happens when you

treat people like things today? It insults and alienates them, depersonalizes work, and creates

low-trust, unionized, litigious cultures. People stop believing that leadership can become a

choice. Most people think of leadership as a position and therefore do not see themselves as

leaders. They think that only those in positions of authority should decide what must be done.

They have consented, perhaps unconsciously, to being controlled like a thing. Even if they

perceive a need, they do not take the initiative to act. They wait to be told what to do by the

person with the formal title, and then they respond as directed. Consequently, they blame the

formal leader when things go wrong and give him or her credit when things go well. In

addition, they are thanked for their "cooperation and support.” This widespread reluctance to

take initiative, to act independently, only fuels formal leaders' imperative to direct or manage

their subordinates. This, they believe, is what they must do in order to get followers to act. In

addition, this cycle quickly escalates into co-dependency. Each party's weakness reinforces

and ultimately justifies the other's behavior. The more a manager controls, the more he or she

evokes behaviors that necessitate greater control or managing. The co-dependent culture that

develops is eventually institutionalized to the point that no one takes responsibility. Over time,

both leaders and followers confirm their roles in an unconscious pact. They disempower

themselves by believing that others must change before their own circumstances can improve.”

I. Procter and Gamble: When Change is not Always

Transformative

Even a corporate giant like Procter and Gamble (P&G) had to deal with restructuring to

solve stagnant growth and revenue loss in the late 1990s. This US-based multinational known as

the leading fast moving consumer goods company implemented a six-year organizational

restructuring program. The process included a radical revamping of P&G’s organizational

culture, streamlining of hierarchies and downsizing of the workforce. Durk Jager, P&G

President and CEO of that time, launched the restructuring plan coined as ‘Organization 2005’

in 1999. The goal was to increase global revenues from $38 billion in 1999 to $70 billion by

2005.

The corporate direction that Jager undertook was both praised and criticized especially

by those who had a background of P&G’s corporate history. The company has survived for more

than 150 years because it has remained rooted to its corporate culture since the mid-1800s.

However, analysts also opined that it was high time for P&G to reconstruct its traditional culture

and adapt a more progressive mindset in order to survive.

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William Procter and James Gamble in 1837, brother-in-laws who merged their

businesses, founded P&G. While Procter was candle maker, Gamble was a soap maker. Barely

thirty years after its establishment, their company became one of the largest companies in the

US with over $1 million sales. Aside from its successful sales and marketing, P&G gained a

reputation for its people-centric policies. P&G has the oldest profit-sharing plan and the first to

introduce a shorter workweek. Employees

were treated like family members and they

enjoyed a wide range of benefits – life

insurance, disability insurance, guaranteed

fixed-term employment, lifetime

employment, and leave with pay, among

others. The welfare of P&G’s employees was

as important as profit. P&G has proven its

strength and stability during the Great

Depression in the 1930s that while most

manufacturing companies closed, P&G

remained operational.

P&G was also a forerunner in benchmark human resource practices. It encouraged

lifetime employment by offering stock options and other benefits for those who decided to work

permanently for the company. Its recruitment process was extensive, well planned, and

effective. HR staffed went directly to colleges and universities to recruit the best minds and most

talented students. Resumes were thoroughly scanned for the promising prospects. Applicants

underwent aptitude tests for leadership, problem solving, interpretative skills, and reasoning

skills. P&G used these tests as basis to correlate their high score with the job that best fits the

candidates. Aside from these test, the applicants passed through a series of interviews where

their behavior, commitment, and purpose was thoroughly examined.

The corporate culture of P&G set the environment where employees could build a

lifetime career. As early as recruitment stage applicants were made to understand P&G’s

corporate culture. Since the company was ‘like a family’, values and commitment were

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inculcated early on. Both management and the workforce collaborated to chart the career path

for the employees.

In time P&G developed the Work and Development Planning System (W&DP), designed

to systemized on how superiors could develop their subordinates. The W&DP had four

components:

1.) The previous year's plan versus the results.

2.) Areas for further growth and development.

3.) Near-term and long-term career interests.

4.) In addition, a development and training plan for the year ahead. Management

regularly reviewed the W&DPs and became a basis of corporate decisions.

Through the years, P&G has evolved into a tradition-driven and conservative culture that

resisted change. After all, the antiquated organizational framework was still keeping the

company intact. Employees were satisfied with its stock options scheme and other traditional

benefits.

Fast–forward sixty-years later under Jager’s watch. At least from his perspective, the

CEO foresaw that P&G was bound to implode from such a restricted environment and culture.

He thought that their current stagnancy of that time was reflective already of the timeworn

corporate culture in their company. Jager took the challenge of changing P&G despite the odds.

The Organization 2005 program restructured P&G into four geographic business units to five

global business units (GBUs) based on product categories. The company relied heavily on IT to

speed up decision-making, innovate products, introduce new products, eliminate bureaucracy,

and reduce cost. As a result, the management created a more informal working environment

where knowledge sharing was encouraged in the workforce. P&G also introduced Stretch,

Innovation and Speed (SIS) philosophy, aimed to revamp the work culture of the company

during those fast-changing times.

In an interview, Jager said, "Organization 2005 is focused on one thing - leveraging

P&G's innovative capability. Because the single best way to accelerate our growth - our sales,

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our volume, our earnings growth - is to innovate bigger and move faster - consistently and

across the entire company."

This move changed the company’s approach in individual appraisals, adapted a stretch

goal plan, and set aside its conservative goal-setting plan. P&G’s usual practice was to appraise

employees based on the targets set and their achievement - but this had a loophole. Employees

were open in setting easy targets for easy achievement that created a space for under

performance. On paper, Jager’s change strategy seemed doable, if not, effective. However, the

results showed otherwise. P&G suffered a rise in cost and a decline in profitability. By April

2000, the company announced an 18% decline from its net profit for the first quarter of 2000,

the company’s first profit decline lost in eight years. Jager resigned as CEO just after a 17-month

stint as head of P&G.

Alan George Lafley took over the reins of P&G as the new president and CEO in June

2008. He steered the company back to the old culture and discontinued the radical changes that

Jager implemented. Under Lafley, P&G had a positive turnaround as financial performance

improved significantly. The company's share price shot up by 58% by July 2003. Although

analysts expressed doubts whether Lafley's leadership would sustain P&G's growth in the long

term, nonetheless the leadership transition redeemed the company.

Lafley reversed the radical direction that Lager undertook and reintroduced the

traditional culture of P&G. He restructured the management team and transferred 15 senior

managers, assigned women in higher roles, and appointed 42-year old Deborah Henrietta as

head of P&G global baby care division in preference to 78 senior managers in the company. With

the leadership restructuring, the average age of P&G Global Leadership Council was pulled

down to 49, compared to 54 in 1999. He promoted healthy competition among its top

management team and disclosed the financial results of each unit to entire company each

quarterly meetings. Lafley has steered back P&G to its profitable course by re-establishing the

founder’s corporate culture.

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II. Arthur Andersen: The Erosion of Integrity and Demise of a

Corporation

Arthur Andersen (Andersen) was one of

America’s prestigious and respected accounting firms.

It was founded in Chicago by Arthur Andersen and

Clarence Delaney in 1913. Being a partnership, all the

chief auditors have a share in the firm. At that time,

Arthur was one of the youngest Certified Public

Accountants (CPA) in the US. Brilliant and idealistic,

he was invited to be the first salaried president of the

New York Stock Exchange because of his expertise

and knowledge in the field of finance. Andersen

declined the offer despite of its prestige, as he wanted

to fully concentrate on Andersen. His firm was initially known as Andersen, Delaney & Co,

engaged in the business of offering accounting services to companies. The company name was

changed to Arthur Andersen in 1918 and earned a reputation for ethical practices, honest

accounting, and avoiding conflict of interest with clients. Andersen believed that 'public

accountants sh ould be answerable also to the investing public and not to the companies they

audit.’

Andersen started to change the organizational philosophy in order to garner more

clients. The younger and incoming generation of younger accountants did not share a deep bond

with core group and its values. Two factions started to form within the firm when the old culture

started to clash with the new generation of auditors. More resentment emerged when the two-

year practice audit rule was removed and new auditors were taken into the leadership circle

even if they lacked credibility and experience. At this time, this internal crisis did not yet affect

the exterior growth of the company. Big companies like computer giant IBM was one of the

prized clients of Andersen.

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By the 1980s, the conflict between auditing and accounting divisions worsened. To end

the animosity, the two groups agreed to work separately but with the agreement that the group

which earned more should give 15% in the earnings of the other group. More so, the two factions

agreed to report only to the consulting partners and not to the auditing partners. By 1989, the

consulting partners owned 40% of the $2.8 billion total revenues.

While Arthur Andersen underwent internal conflict, the erosion of corporate culture

ensued. The firm was compelled to compromise because of the auditing services industry was at

a low. Among the so-called Big Five auditing firms, Andersen had the slowest growth rate of

12.6%. The entry of other competitors like KPMG and Ernst and Young were also taking a

substantial slice from the market. Pressured to remain competitive, Arthur Andersen imposed a

dictatorial style of management wherein employees were not allowed to question their superiors

and were instructed to comply even with improper orders. As transparency eroded, the

unethical activities were institutionalized. Decent employees who believed in integrity were torn

by the dilemma. The deterioration of culture, infighting, unethical practices, rise of competitors

and immoral leadership paved the way for the company’s eventual downfall.

The final chapters of the Arthur Andersen story were embroiled in the Enron

controversy. In March 2002, the US Department of Justice for obstructing of justice and

hampering the investigation against the once mighty energy company giant indicted Andersen.

The firm shredded volumes of Enron-related documents that were demanded from them by the

US Security and Exchange. A severe blow shook the foundations of the company and blackened

the reputation of Arthur Anderson worldwide. Within three months of the controversy, Arthur

Andersen lost nearly 700 clients. Senior partners, employees, and staff abandoned the sinking

ship – they joined other firms. As revenues fell, the firm had a massive lay-off of nearly 18,000

employees.

When the US Department of Justice found Arthur Andersen guilty for obstructing

justice, the SEC revoked the company’s license to audit public limited companies. It was the last

nail in the coffin. Arthur Andersen was gone after closing its office across the US in August

2002.

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III. Google Inc.’s ‘Don’t Be Evil’ Culture

Google Inc. (Google) is one of the most successful companies in the world because of its

Unique corporate culture. The search engine giant thrives on informality, creativity,

individuality, and a fun culture that allows employees to enjoy their work as if they were in their

homes. However, Google’s corporate culture still receives criticism and dissension from pundits

despite of its success. Google’s success story is baffling. The founders paved a very

unconventional way in building a successful business empire. Traditional business gurus could

not understand how Google management runs its corporation by ‘breaking management rules.’

Google’s culture is uniquely Google’s.

The ‘Google culture’ can be traced back to its founders, Larry Page and Sergey Brin. Both

of them graduated from Stanford University with a degree in computer science in 1995. Young,

passionate and idealistic, the partners began to extend their summer by working on a concept of

search engine. They envisioned a technology capable to retrieve data from Internet in a fast and

accurate way. Initially, they named the program ‘BackRub’ because it acquired data by

connecting with the ‘back links’ of websites. Slowly the search engine gained a following due to

its relatively good search results. From then on, Page and Brin continued to further develop

their technology, resolved not to stop until they got the search engine they wanted.

Page and Brin decided to purchase terabyte memory disks that are capable to store huge

amount of data. Page set-up the data center in his dormitory room while Brin used his room for

their front office. Convinced that they have

developed the most superior search engine

ever, the partners went around looking for

investors who could finance their

expansion, development, licensing, and

marketing operations. David Filo, the

founder of Yahoo, was impressed by their

technology. Although he did not join the

partnership, he advised th e two technology

entrepreneurs to set-up their own start-up

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company.

It was a difficult climb for the two. They had to clear their office dorms, pay the debts

they incurred from the purchase of their storage disks, and put their doctorate plans on hold.

Help came quickly when a faculty member from Stanford University introduced the two to Andy

Bechtolsheim, one of the co-founders of Sun Microsystems. With an eye for technology and

impressed by the presentation, Bechtolsheim gave them a check of $100,000 to help their start-

up. They deposited the check under the corporation’s name: Google Inc. A total of $1,000,000

of investments from families and acquaintances poured in. Finally, Larry Page and Sergey Brin

opened office on September 7, 1998.

The rest, as they say, is history.The success of Google Inc. as a $9.7 billion company with

$72 billion of assets with 32, 467 employees worldwide is credited to its corporate culture.

Google employs the best people for its positions and provides a working environment that is

uniquely Google. Wikipedia describes Google’s work environment concisely:

“Google's headquarters in Mountain View, California is referred to as "the Googleplex", a play on words on the number googolplex and the headquarters itself being a complex of buildings. The lobby is decorated with a piano, lava lamps, old server clusters, and a projection of search queries on the wall. The hallways are full of exercise balls and bicycles. Each employee has access to the corporate recreation center. Recreational amenities are scattered throughout the campus and include a workout room with weights and rowing machines, locker rooms, washers and dryers, a massage room, assorted video games, table football, a baby grand piano, a billiard table, and ping-pong. In addition to the recreation room, there are snack rooms stocked with various foods and drinks, with special emphasis placed on nutrition. Free food is available to employees 24/7, with paid vending machines prorated favoring nutritional value. In 2006, Google moved into 311,000 square feet of office space in New York City, at 111 Eighth Avenue in Manhattan. [196] The office was specially designed and built for Google, and it now houses its largest advertising sales team, which has been instrumental in securing large partnerships.[196] In 2003, they added an engineering staff in New York City, which has been responsible for more than 100 engineering projects, including Google Maps, Google Spreadsheets, and others. It is estimated that the building costs Google $10 million per year to rent and is similar in design and functionality to its Mountain View headquarters, including table football, air hockey, and Ping-Pong tables, as well as a video game area.

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However, what sets Google apart is its ‘unofficial’ business motto that encapsulates its

corporate culture is hinge: Don’t Be Evil. This straightforward and down-to-earth company

slogan was jab to other companies who exploit on the data of their users. By internally adapting

this slogan, Google placed itself in a moral pedestal by believing that one can make money

without being evil.

Wikipedia explains that, “‘Don't be Evil’ is said to recognize that large corporations often

maximize short-term profits with actions that may not be in the best interests of the public.

Supposedly, by instilling a Don't Be Evil culture, the corporation establishes a baseline for

honest decision-making that disassociates Google from all cheating. This in turn can enhance

the trust and image of the corporation, which may outweigh short-term gains from violating the

Don't Be Evil principles.”

Ironically, Google has been involved in a number of controversies that apparently

violates its ‘Don’t Be Evil’ corporate culture. A class lawsuit filed against Google by more than

8,000 publishers and authors for copyright infringement, unauthorized digitalization of books,

and for selling e-books online without the right holder’s permission. Furthermore, Google critics

point out the loopholes of their ‘pay per click’ advertisements that was disadvantageous to the

advertisers. Google users are also about privacy issues and security of data that they input in the

search engine site.

Aware of the danger of ‘becoming just one of the dot.com companies’, Google set-up a

Director for Corporate Culture whose main task is to ensure that the original culture and vision

of Google is preserved amidst their growth, development, and profit. The founders of the

company believed that the culture that propelled them to succeed is an important factor to

preserve the company. To date, Google remains as profitable company, one of the biggest

countries in the world with net profit amounting to billions of dollars. At least 65% of Internet

users around the world prefer Google as their search engine. Although the company had lapses

that made them deviate from their core culture, nonetheless, Google has shown its willingness to

rectify its mistakes, be accountable for its actions, and exert effort to be the Google its founders

first envisioned.

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Summary

The three cases above-mentioned demonstrate the importance of preserving corporate

culture and its co-relation to performance of the team, quality of work, profit, revenue, and loss,

among others.

P&G’s case is a classic example of a company attempting to adapt with the changing

times by revamping its culture. Although this may appear to be good ideas since companies need

constant reinvention in order to survive, not all changes are transformative. P&G was a company

founded on traditional values and people-centric culture. The said culture has proven itself as a

stable organizational framework. After all, it is rare for companies to survive more than 150

years. Revising portions of corporate culture is indeed necessary for P&G must innovate and

adapt. However, Jager miscalculated and revamped even the aspects that should have been left

untouched. Management must also be selective on which areas of their culture should be

modified, revised, or completely changed. For these reasons, it should be wise for corporate

leaders to consult and conduct talks with the workforce before implementing a major change.

There are corporate changes that would not lead to transformative scenarios and such was the

case of P&G under Jager.

Arthur Andersen’s is a tragic case of corporate self-destruction wherein the corporate

heirs completely turned their backs to integrity, transparency, and honesty in order to cope up

with competition. What is equally disturbing is that fact that Arthur Andersen was an audit

company tasked to make sure that corporate accounting are accurate and correct. Arthur

Andersen failed to audit itself and this was the core reason for its downfall. The sinews that hold

a corporation together disintegrates when basic values are neglected. One small act of greed is

followed by a bigger one until its unsuitable appetite for profit eats up the institution at all cost.

Google Inc. has shown weaknesses in cultivating its corporate culture. The fact they they

have infringed copyright laws and the maintain the loopholes of their advertisement profit

schemes are crack signs in the walls of the corporate giant. No corporation no matter how huge

is strong enough to withstand the stormy consequences of dishonesty and lack of integrity.

Despite of this, Google Inc. is promising and it has shown the strength of not becoming an ‘evil

company’. The vision, values, and dynamism of its founders are good guideposts. Google should

not allow profit to compete with corporate culture so that they will not have reason to neglect

the former.

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Conclusion: Ascending the Corporate Culture

Finally, we can conclude that the ladder of corporate culture has no summit or top. This

means that a company could never claim that it has perfected itself and that they have reached

the summit of their success. Winning hearts – of both employees and clients – is a lifelong work.

No company could ever say that it has done enough. The ascent to on the ladder of corporate

culture should be constant and consistent. No amount of loss or profit should distract the

corporate leaders form keeping their eye on the bright spot that looms on top. Hearts are won by

character, values, and vision. Although profit and revenues are necessary incentives, the mature

corporation knows that the intangibles - fulfillment, solidarity, character, values, and sense of

purpose – are deepest reasons why people work hard.

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