The age of stardom

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The Independent Online
The plight of the franc in the exchange rate mechanism and the performance of the Government at the Christchurch by-election are hogging the headlines. But in a couple of years' time both will surely be forgotten.

Not so a feud that has been rumbling away for some months but which in the past week has exploded into open war - the fight between General Motors and Volkswagen over Jose Ignacio Lopez de Arriortua.

For people who have not been following the story, the row started over the decision of Mr Lopez to leave General Motors, where he was a senior employee, earlier this year to become production head at VW. He brought with him several colleagues, leading at the time to accusations of 'poaching'.

In recent weeks these accusations have developed into claims by GM of industrial espionage by the people who have left it for VW. These claims were angrily rejected by VW, which in turn claims that GM is waging war on it. This week the chairman of VW, Ferdinand Piech, hinted that GM had hacked into VW's computer system.

Now at one level this is a straightforward enough commercial row between two giant corporations. It is intriguing and slightly shocking for outsiders to see these great organisations at each other's throats - we expect slanging matches from politicians but we expect industrialists to spend their energies on making better products more cheaply.

But there is another aspect to the tussle that has gone almost unnoticed but which ultimately is much more important than the row itself. It is the message that the row carries about the changing nature of international competition between large companies and the extent to which it is becoming very difficult for any multinational to sustain a comparative advantage over another.

Any multinational can raise capital on the same terms on the world capital markets, so there is little financial advantage in having headquarters in any one country. It can build plants wherever it wants to take advantage of local costs, so there is little advantage in being based in a low-cost country. There are still some advantages from differential company taxation, but if a country imposes too severe a regime the companies can even move headquarters and legal domicile.

However, until recently companies were to a large extent dependent on the quality of management in their home country. US multinationals were managed by Americans, French by French, German by German, British by British (though we have imported a few Americans and some refugees from wartime Europe). At middle management level such national segregation was particularly evident.

Now, with the exception of the Japanese, who are protected by cultural and linguistic barriers, multinationals are all competing for the same talent. Mr Lopez is a Basque whose skills are being fought over by a US and a German company. If people are good they can go anywhere in the world. But, by the same token, if a company is to retain its best people it has to learn new ways of so doing, or maybe relearn old ways like paying them more and being nicer to them.

It is quite difficult for companies to realise that they are in a new market. Any company that accuses another of 'poaching' simply has not understood the extent to which the world has changed, that power has shifted from the corporation to the talented individual. Any company that loses people in this way has failed to create an environment that retains its talent.

Of course, for many years companies have gone through the motions of pretending that they value employees. Sometimes they carry photographs of staff in their annual reports with little homilies saying that people are their greatest assets, or maybe the chairman makes some statement thanking staff for their loyalty.

But this cuts little mustard in a world where IBM announces, as it did this week, that it is losing another 35,000 jobs, or when everyone knows that half-a-dozen key employees have left the previous month for higher salaries.

The lasting lesson of the Lopez saga will surely be that companies will have to rethink the whole nature of the work contract for their key employees. Maybe these should not be employees at all.

Maybe the correct policy at GM would have been to allow Mr Lopez and his team to form a separate company, which would have provided consultancy services to GM. They would have the satisfaction of working for themselves and the contract could be drawn in such terms that the company would not work for a rival without giving GM the option to outbid.

This requires companies to recognise that they are in much the same sort of relationship with their key employees as film studios are with their stars. Just as the success of a film depends increasingly on getting on board a couple of bankable stars, so the success of an ordinary commercial company may turn on holding on to a handful of bankable executives.

As in the film business, the people will become more important that the corporations. The performers have become more important than the executives who hire them.