Wag the Dog, April 10, 2011

An increasingly frequent refrain that we hear around WVH is, “now that we are a co-op, we have to operate like a business.” But just saying that we are a business doesn’t make it real. Real businesses are responsive to their customers, “how may I help you? How was your stay? Could you please fill out this service response card?” Real businesses act like my business is important to them–“is there anything else we can do for you? Please come again!” If something goes wrong, real businesses–at least the successful ones–try to fix it right away. “I’m so sorry you were inconvenienced; please accept this extra item on the house.” Real businesses are so interested in what I think about their goods and services that they try to bribe me with sweepstakes if I’ll only go on-line and answer a few questions. Real businesses want to hear from me all the time. Even the most callous let-them-eat-cake business listens to somebody if it wants to be successful. The same goes for non-profits that listen to donors, their members, and the constituencies that they serve. Whether for- or non-profit, most corporations enlist an array of feedback mechanisms to let them know “how are we doing?”

When I invest in a real business, I get detailed quarterly reports about my investment sent to my home where I can study them at my leisure. I don’t have to nag anybody or beg or plead for information. I don’t have to attend a twice-a-year meeting with no take-away reports or make an appointment to go to an office after work. Everything I need is sent to me. I can even go online and track how my investment is doing day-to-day or minute-by-minute if I want to. That’s how real businesses work.

I think that functionally, WVH falls into the same class of business as utility companies. Shareholders are a captive market at WVH. What economists call “switching costs” are exorbitant (or opportunities to switch are non-existent) and that rarely leads to good business practices (think back to your first cellphone contract). We can’t switch to another apartment complex like we can switch to another mechanic, and so we are locked in. Because we are locked in, our voices can be pretty much ignored when decisions are made, all in the name of “acting like a business.”

Whatever your views about capitalism, the concept is that the dog is the markets (consumers and investors) and the tail is the business enterprise or corporation, including its managers and board. Market forces wag the corporate dog. So does WVH run like a real business?




One thought on “Wag the Dog, April 10, 2011

  1. Great piece. Now, more than ever, whether it’s Dodd Frank/Wall Street reform, the Extractive Industries Transparency Initiative, Transparency International Perception Index, Foreign Corrupt Practices Act prosecutions or whatever…transparency is the watchword of good governance, PARTICULARLY good economic governance. If businesses run on markets, markets run on information — comprehensive, reliable and timely. To be sure, this bedrock principle may often be respected more in words than in practice …but how anyone in this day and age can affirmatively and unashamedly try to justify shadowy back-room governance practices as “good business” is beyond me. In a progressive Greenwich Village, “tenant-run” co-operative — inspired by Janes Jacobs, no less! — we should be able to do a lot better than we are with “our” business.

    Ken Hurwitz
    684 Washington St

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