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Apollo 13, Plato and chess

If you want to see how the rules of the game are applied with fox-like energy, you need do no more than microwave some popcorn, kick off your shoes, take the phone off the hook and watch Apollo 13 on video. Your ambition to pursue the merger with another company or beat your family doctor over eighteen holes at golf will shrivel against the challenge of bringing home three astronauts hurtling out of control through space. The rules of their game include some of the most powerful and unchangeable rules in the universe – the rules of gravity, time and distance. Separated by thousands of kilometres from the Earth and faced with an unanticipated problem in their capsule, the only thing of which they are certain is a lonely, slow and horrible death if they make a mistake. They work through the matrix by starting with an examination of the astrophysical rules of the game. There’ll be more on the fate of our astronauts later.

Plato said that the unexamined life is not worth living. In business, you might say that the unexamined game is not worth playing. Consider sending a team of rugby players on to a hockey field without sticks and expecting them to play hockey. They couldn’t. They would neither know the rules of the game nor would they be properly equipped. Yet in business we do it all the time. We enter a game without examining the rules and the resources required to play. Worse, you will find some companies that, even in this day and age of emphasising corporate communication, keep their employees in the dark as to the nature of the game itself. Consequently, some employees pitch up wearing white flannels expecting cricket; others have studded boots on for football; the third bunch have donned headgear in anticipation of scrumming down for rugby and so on. And then the directors expect to mould an effective team out of their workforce! Whew!

But how do foxes and hedgehogs view the rules of the game? On the one hand, we believe that foxes embrace the rules and use them to gain advantage. They understand the boundaries of the game and that there are games within a game. They are like chess players who are thinking several moves ahead. On the other hand, hedgehogs can’t see beyond the present. They are constantly breaking the rules of the game either through ignorance or through the misbegotten belief that while the rules apply to others, they can wilfully break them. And if they don’t break them, they can bend them to suit themselves.

Snakes, bombs and Scottish caddies

The R&A (Royal and Ancient Golf Club of St Andrews) is the governing authority for the Rules of Golf outside the United States of America and its territories. One of the most unusual judgements the R&A Rules Committee has been asked to make in recent years concerned the dramatic experience of a golfer in Africa. As he was approaching the top of his back swing for a shot from the light rough, a dangerous snake slithered between his feet. With a fine adjustment to his downswing he delivered a fatal blow to the snake’s head. Should it be counted as a stroke? After much deliberation the golfer was given a “not guilty” verdict. It was thought that the intention to strike the ball ceased at the moment he spotted the snake.

During the Second World War, many people clung to normality by continuing to play golf, and a special set of wartime rules was drawn up by Major G.L. Edsell. He generously allowed players to take shelter without penalty during gunfire or while bombs were falling. The positions of known delayed-action bombs were marked by red and white flags, which the small print added were “placed at reasonably, but not guaranteed, safe distances from the bombs”. A ball moved by enemy action could be replaced. If lost or destroyed another ball could be dropped without penalty. But a player whose stroke was affected by the simultaneous explosion of a bomb or shell, or by the sound of machine-gun fire, could play another ball only under penalty of one shot.

Although we may shake our heads and chuckle at the idiosyncrasies of the game of golf that sees the rules respected and adhered to in such extremes, the fact is that in golf, as indeed in life, there are rules that are certain, cannot be broken, are out of our control and therefore should be respected. As we have already intimated, the rules of any game cannot be changed unless the relevant and recognised authority has agreed that they should. Moreover, rules are necessary: otherwise games, which are just one manifestation of organised human behaviour, would not be possible. The rules of golf will no doubt be cursed by the frustrated hacker who has had a spectacularly “off” day and single handedly redesigned the course with his six-iron – but they are necessary. There was an occasion when an American tourist, playing extraordinarily bad golf at St Andrews, remarked to his caddie that this was not his usual game. With the customary dry wit of a Scot, the caddie replied: “What then, sir, is your usual game? Tennis, baseball, ten-pin bowling ...?”

The last story does raise an important pair of guidelines for budding entrepreneurs. First, study the rules of the game of the industry you intend going into very carefully. Does it provide a real opportunity of making money? Or could you be condemned to a life of slogging your guts out trying to get blood out of a stone? So many people do this, it’s not funny. Second, ask yourself whether you have a natural ability to succeed in that sector. The last thing you want to do is stumble in because you, or your parents or your friends, thought it was a good idea at the time. It’s no good being a gunslinger with a slow hand in a game where you’re quick or you’re dead. It may sound very obvious but at the outset the question is: “Am I in the right game – for me?”

Narrowing the cone of uncertainty

Far from being prescriptive, the rules of the game should be viewed as descriptive, as they shape the parameters within which we can operate. They show how the system ticks. Imagine the future opening up like a cone of uncertainty, as illustrated in the accompanying diagram. What the rules of the game do is to reduce that cone within reason and limit the number of outcomes. Hence, the inner cone with the three little discs on the rim (indicating possible scenarios). For instance, given the rules of soccer, you will hardly ever have a score at the final whistle as high as in a rugby game. Pierre Wack once said that, in making a good decision, it is as informative to know which futures are excluded by the rules of the game as it is to know which ones lie within the rules. In fact, a facilitator in a scenario workshop should squeeze the cone to as narrow a funnel as possible so that his group can concentrate their energy on handling the range of futures they plausibly face. Remember, business – as well as politics – is the art of the possible. It undoubtedly causes frustration to dwell at length on the rules of the game when people are eager to discuss proposals for action. But it’s like drawing back a bow. You have to make it as tight as you can before releasing the arrow. Then you have a chance of hitting the target.

Moreover, without first establishing what you don’t control, you will not achieve a firm understanding of what you do control. And you may be surprised by how much you do control. For the most inspiring examples of this principle, you only have to look at invalids who lead normal lives under the harshest of circumstances. They are not restricted. On the other hand, action programmes without rules of the game preceding them are merely “wish lists” where nothing ever gets done. Often lack of money is the reason, because no-one has worked out beforehand where it is going to come from. How many anti-poverty programmes have failed for this reason? Similarly, the failure of summits, conferences and workshops to follow through on the resolutions passed at the end of the proceedings is often attributable to transgressing one simple rule: people have to go back to their jobs; they have other fish to fry. They don’t have the time – especially the bigwigs. When something doesn’t work or doesn’t happen, the likelihood is that you’re breaking some fundamental rule of human nature. Most revolutionary changes in a business organisation are like that – dreamed up in haste by consultants, only to peter out when human nature reasserts itself.

In science, of course, the laws are such that – at the macro-level – the cone of uncertainty vanishes into a straight line.Scientific equations are hard predictions that if the left-hand side is fulfilled, the right-hand side will follow. Unfortunately, as we have repeatedly stated, this clarity does not extend to the world of human affairs in general and business in particular, where an irreducible element of uncertainty will always be found. After all, we all have free will which allows us occasionally to flout the rules!

The good, the bad and the media

Depending on the outcome of your particular game, you may describe the rules as good, bad or just plain ugly. However, even the legendary Wild West – epitomised by the many “spaghetti” Westerns starring an avenging Clint Eastwood – had rules. They may have been unwritten, but they were understood. They were not drawn up on gleaming mahogany desks by distinguished fellows in an ancient Scottish golf club. The rules were informal and silently agreed upon, enforced by the so-called “code of the cowboy”. For example, you didn’t take another man’s horse. But if a man cheated at poker, you were quite entitled to shoot him because you just didn’t cheat at poker! Nor did you count your money at the table while the cards were being dealt. However, once the cards were in your hand, you had to know when to hold ’em and when to fold ’em – the golden rule of poker.

Most commentators will agree that we have come a long way since the rootin’ tootin’ tumbleweed-strewn saloons of the Wild West. Yet the unwritten rules still apply in another game with an equally lawless frontier: business. The first thing any new recruit should do in a company is suss out its invisible rules – if he or she wants to get on, that is. But witness the showdown between the marshall of satellite TV, Rupert Murdoch, and the football-crazy citizens of Manchester in the late 1990s. In September 1998, news broke that the world’s most famous soccer club, Manchester United, had accepted a bid of £625 million from Murdoch’s BSkyB to acquire the company that controlled the club. To ordinary folk, Murdoch’s power and influence is almost beyond comprehension. His business game is motivated not by money, but by a desire continually to expand his formidable empire. His purchase of the rights to broadcast NFL football in the US has elevated him to the number four position among American broadcasters. It has also given him the leverage and financial clout to own superteams that play football, basketball and ice hockey in the two media capitals of the US – Los Angeles and New York. He also holds the rights to broadcast the Premier League matches in the UK. He now controls the most profitable satellite-TV operator in the world. He is also very well connected politically, numbering among his friends the British Prime Minister, Tony Blair.

You would therefore feel it legitimate to draw the conclusion that if anyone had the means to influence the rules of the game, it was the media mogul Rupert Murdoch. Moreover, he would have the support of the Labour-leaning Manchester United fans. Yet, he was stopped in his bid to add the ultimate jewel to his crown not by the BBC or the British Office of Fair Trade, but by the football supporters themselves. Under the co-ordination of SUAM (Supporters Against Murdoch) – founded within hours of the announcement of the bid – and the Football Supporters Association, a popular revolt was instigated. Fuelled by a growing concern about higher ticket prices and a fear that the transaction would endanger the “soul” of the game, the revolt spread and ultimately led to the deal falling through. In retrospect, Murdoch was obviously unaware of the unstated rule that English soccer clubs are not like American baseball teams which go automatically to the highest bidder. In Chris and Tara Brady’s book Rules of the Game, the authors refer to the “too-fat-cat” rule: while it is permissible to be a fat cat in Britain, you can’t be too fat cat. Likewise, in Murdoch’s Australia, the poppies can’t be too tall. In other words, don’t take too many liberties with the British public: success is okay but excess isn’t. Having said all that, class remains a highly influential unwritten rule governing British society; and Eton still gives you a good start in life. Murdoch didn’t go to Eton.

It’s all about values, stupid

Foxes have a nose for the intangible, informal, unwritten rules of the game and instinctively try to avoid overstepping the mark. In golf, foxes give short putts on the green that might have made their opponents sweat. On the cricket field, foxes will immediately walk if they know they’ve nicked the ball straight off their bat into the hands of a fielder. It is an informal rule of cricket that you don’t wait for the umpire to give you out. Changing the occasional thud of willow against leather for the continuous shout of traders on the floor, the London Stock Exchange operated on the informal rule of “my word is my bond” for centuries. And you won’t get anybody more foxy than a stockbroker. In companies, foxes never break the unwritten rule of merit, which is to choose the best person for the job irrespective of gender or colour.

Hedgehogs are not so sensitive; they have their own agendas. The classic example of a hedgehog-type blunder occurred on 1 February 1981 in a limited-overs cricket match between Australia and New Zealand. The latter required six runs to tie the game with one ball of the game remaining. The batsman facing the delivery was the Kiwi No. 11, Neil McKechnie. He had never hit a six in an international game. Even so, the Australian captain, Greg Chappell, ordered his younger brother, Trevor, to bowl a “sneak” (an underarm ball along the ground) to deprive the opposition of even the slightest chance of a tie. This he did and it was within the written rules. However, it went clean against the spirit of the game and outraged New Zealanders to the extent that they talked of scrapping diplomatic ties. In retrospect, the Chappell brothers mightily regretted the incident, going to show that the unwritten rule rules, OK!

It is for this reason that big business is regulated by statutory anti-trust and anti-monopoly bodies in places like the US and UK. Whilst there is a thicket of explicit regulations governing mergers and acquisitions, the overriding and unwritten rule is whether or not a transaction is in the “public interest” or not. The objective is that no individual or institution should come out a winner at the expense of everybody else.

The latest company to fall foul of this unwritten rule is Microsoft, which undoubtedly was the company of the 1990s. They were asked by the courts in America to break themselves up into two pieces, a ruling which they have managed to overturn. Yet, in the minds of many of the American public, Microsoft has got too big for its own boots and, more importantly, for the good of America. However brilliant their legal defence, they could be digging an even bigger hole for themselves in the perceptions of ordinary middle-class Americans. Bill Gates, the foxy nerd who struck it rich, could become Gates the mighty hedgehog.com. Even the second richest man in the world can have problems with his image.

This would seem an appropriate time for us to introduce the ultimate, invisible system that ought to be controlling human behaviour – the moral rules of the game. These rules can be compared to what surfers describe as “full stop rock” at the famous surfers’ resort of Jeffrey’s Bay in the Eastern Cape of South Africa. The rock is concealed under shallow water and, to all intents and purposes, is invisible until you hit it. Then you know all about it! The trend today is that big business – whether it likes it or not – has to subscribe to these rules, because there are activist NGO watchdogs following their every move and ready to bite if needs be. The public anyway have formed a cynical attitude towards the motivations of big business. Whenever the media break a new story, such as the Ford/Bridgestone saga where fatal accidents have been attributed to the covers of Firestone tyres fitted to Ford Explorers peeling off at speed, the damage to the company’s image can be enormous and no amount of public relations spin can undo it. Unless you are seen to act quickly to remedy the problem and recompense the victims, you are in for a torrid time.

The best lesson in damage control in the recent past by a major corporate player is Coca-Cola’s recall of 2,5 million bottles in Belgium in June 1999. This followed reports that children were being treated at a hospital after drinking Coke at their school. It appeared that production problems at two plants – one in Belgium and the other in France – may have been linked to this incident. Bans on the sale of Coke were imposed in several European countries while consumers in others steered away from drinking the stuff. Not only was Coca-Cola swift in implementing the recall; it also made a public apology for the incident and pledged to reimburse the medical expenses of those affected. After a fortnight, business was back to normal, proving that foxes sometimes come in the shape of a Coke bottle! Besides which, they have the fizz of the liquid inside.

Quite unfairly, foxes are perceived as creatures with plenty of guile but little moral sense. The truth is that foxes have a sensitivity to moral issues seldom demonstrated by hedgehogs who feel they are above the law. Foxes have good manners because they respect the little things in life. In this respect, what a splendid example of a fox was Fritz Schumacher, the German economist, who wrote the classic treatise Small is Beautiful, A Study of Economics as if People Mattered, first published in 1973. That went right against the trend in those days. Foxes are sometimes labelled as eccentrics, but they follow the old motto “manners makyth man”. Similarly, foxy companies have their idiosyncrasies, but they understand that a clean, decent image is a competitive advantage these days. Moreover, they believe in human interaction. It does a lot more for improving employee morale and changing behaviour for the better than new-fangled management techniques that come and go ever will.

One of the most famous articulations of the moral rules of the game is found in the Old Testament. The Ten Commandments are not only fundamental moral laws – otherwise they’d have been called the “ten guidelines” – they also form a good practical basis for running a modern society. It is interesting to note that of the ten commandments, eight prohibit certain behaviour and only two place positive demands on you. Falling into the former category are commands not to have other gods; worship golden idols; blaspheme; murder; commit adultery; steal; lie about your neighbour; or covet his wife, servants and possessions. In the positive category, the commands are to respect the Sabbath and honour your father and mother. In today’s world where lack of spiritual values, greed, bad language, violent crime, promiscuity and rape, theft, deceit, envy, workaholism and unruly children are a sad reflection of how little we have progressed, the commandments would appear to be a solid ethical framework for hedgehogs and foxes alike. They are not sentimental or soppy. On the contrary, the commandments are as hard as “full-stop rock”. For example, they are needed to stop modern evils like paedophilic rings on the Internet. Yet, they do not rule out the principal driving force of free enterprise, which is to pursue one’s own interests. They merely prohibit certain shady ways of doing so. Being foxy is fine: being a wolf is not!

Islam also offers absolutely hard and fast rules of morality. Indeed, it is the unchanging nature of those rules that give Muslims a fundamentally secure basis for life and the confidence to become entrepreneurs and run foxy family businesses.

However, for those who would prefer something with less of a religious connotation, the “four-way test” read out at the beginning of Rotary Club functions concerning the things we think, say or do is a good start: (1) Is it the truth? (2) Is it fair to all concerned? (3) Will it build goodwill and better friendships? and (4) Will it be beneficial to all concerned? There’s nothing amazingly original about any of these questions, but how many people – let alone companies – can answer them in the affirmative when making a decision? To the criticism that all this stuff sounds old-fashioned and prudish, our retort is that economic growth is only sustainable in the long run if there is a fair degree of trust between the governing classes and the governed; the country is peaceful and free of corruption and crime; citizens are generally healthy and free of stress; and a sense of justice prevails at large. We all talk now of working towards a civil society. Well, civility goes with the kind of values implied in the four-way test.

The old order changeth

Picture the moral rules of the game as an invisible spider web hanging in the ether, waiting to catch unsuspecting celebrities. Nothing can move a prominent individual faster from hero to zero than being caught in the web. Occasionally, a celebrity can wriggle his way out like Bill Clinton with his ingenious definition of sex. According to this definition, dimpled chads would not have counted as votes in the last presidential election. Work that one out! But the vast majority of the spider web’s famous victims end up being cocooned and forgotten.

Over time, the spider web changes shape and position. What was acceptable yesterday is no longer acceptable today. For many years in Italy, company directors oiled the wheels of the state’s bureaucracy with lavish bribes. It was the done thing. Suddenly the tide turned after the intervention of an aggressive magistrate; and many a financial director of ill-illustrious company was left high and dry, gasping for air on the beach as his colleagues abandoned him. On a wider scale, think back to the Romans. They offered nations around them a simple choice: either volunteer to be part of the Roman Empire or be annihilated by our legions. This brutal principle of empire-building stood until the middle of the last century. But then the rule changed and invasions were no longer allowed. Iraq’s Hussein and Serbia’s Milosevic were caught in the web. Now the web is closing in on dictators suspected of torturing and slaughtering their own citizens in large numbers, as well as those who siphon the nation’s wealth into their foreign bank accounts. In Roman times, CNN wasn’t around to film what the legions did to subjugate other nations. Now, the victims of a Western bombing raid on Baghdad are interviewed in their hospital beds. To television viewers, strong-arm tactics are unacceptable if innocent victims are a visible consequence.

In the world of commerce and industry, “corporate governance” is not just a buzz word. It is a new piece of the spider web, changing the rules of the game about how a company should be run. The positions of chairperson and CEO should no longer be vested in the same individual, as this concentrates too much power in a single pair of hands. For the sake of checks and balances, the chairperson should be non executive. The major subcommittees of the board of directors should also be chaired by non executive directors. Companies should issue reports on their performance in areas such as safety, health and the environment, as well as ones describing their social responsibility programmes. The traditional annual report is not comprehensive enough.

Hence, it is not the rules of the game that applied in the past that you should be considering in the first quadrant of our matrix, it is the ones that will apply in the future. Rules change. Just think of smoking! Next, it may be carbon emissions that have to be reduced in light of global warming and more frequent conditions of extreme weather. But, for a real flip-flop, you need look no further than the area of corporate strategy. Diversification was all the rage in the 1960s to reduce the risk associated with any one particular business. Now, the fund managers and market analysts want companies to focus. Stick to your knitting, go back to your core business, they say. Indeed, they want you, the company, to be the pure play, while they decide on the portfolio mix and diversity. Some would call it poetic justice, but of course the rules of the stock market have changed for the fund managers as well. In these days of instant information, frictionless trading and emphasis on short-term performance, selective crashes of individual shares – as opposed to the market as a whole – are becoming increasingly common. Unexpected profit warnings are a kiss of death and down goes the share by up to 50 per cent in a day. Markets generally can go up or down three to five per cent in a single session! The rules for a volatile market are very different to the ones that apply when the market is operating smoothly. Woe betide the fund manager who doesn’t adjust his strategies accordingly. All this suggests that a decision which is correct today may be wrong tomorrow, should the rules change. And you have to be prepared to do things differently when the rules do alter. How many businesses have been turned into non-businesses by a change in the rules without the owner even being aware of it? By contrast, how many entrepreneurs have made fortunes because they were the first to spot that the rules had changed?

The general public now have a record proportion of their assets invested in the stock market, either directly in shares or through unit trusts and mutual/retirement funds. In view of this, they are going to have to become accustomed to the uncertainties associated with the left-hand side of our matrix as their wealth waxes and wanes in line with movements in the market. Equally, broader share ownership has interesting implications for the economy, because there is now a much stronger linkage between the stock market and the real economy via the so called “wealth effect”: when people feel richer they spend more, and when they feel poorer they spend less. Back in the last century, shares could rise and fall and it would only affect the spending habits of the rich. Now, market volatility could influence the way the middle and lower income groups dispose of their income as well.

In preparing business scenarios, an important rule of the game to examine is the changing demography of the world as a whole, of the country in which you are based and of the market that you serve. You need a feel for this rule over the next twenty years; and, sadly nowadays, you have to include the likely impact of the HIV/AIDS epidemic and other diseases on your customer base. Probable advances in technology also feature as a prime rule of the game. They may enable your business to expand into new areas or they may threaten some of your products. Illustrating the last point is the famous story about Western Union being handed the telephone on a plate by Alexander Graham Bell. They turned him down because they thought the future still rested on telegrams and the morse code. An up-to-date example is the way CDs wiped out LPs. It would not have been smart to open an LP factory in the late 1980s! Now, despite Napster’s legal woes, the Internet combined with MP3s is transforming the music industry once again. If nothing else, we are going to have virtual jukeboxes where you can listen to your favourite songs and jive the night away – using your personal computer as a record player.

A company’s future competitive position vis-à-vis its rivals in the same market is very much a rule of the game. Here we can quote South African Breweries and how they saw things before the new millennium started. SAB visualised the beer market of the 21st century evolving into three leagues. The first was the premier league in which world-class companies like Anheuser Busch and Heineken were currently located with worldwide premium brands. The second league was that of national champions in which SAB, sundry British brewers and Carlsberg were represented. The third league was the niche/boutique one where specialist beers produced by European monasteries resided. Given this rule, SAB foresaw a danger for themselves in remaining in the middle league. For another rule of the game was that the middle league is vulnerable to intrusion from world-class players in the top one. The latter could – through economies of scale and selecting best practice from around the world – gradually eat up the markets of the national champions. SAB therefore had the choice to ascend into the world-class category or descend into niche businesses. They opted for ascension: this entailed a move of their head office from Johannesburg to London as the most appropriate base from which to launch their campaign for premier league status.

The “G” word

However, nothing illustrates the point of looking forwards rather than backwards better than globalisation. Before it arrived, many businesses were comfortably protected from the chilly winds of international competition by tariffs and quotas imposed on imports. Now it’s open sesame: you either set standards equivalent to best practice in the rest of the world or your business dies. Globalisation is like playing golf without handicaps. The scratch player will always win. So unless you start emulating Tiger, you don’t stand a chance. Thus, the globalisation rule has necessitated extremely painful adjustments to companies and societies alike – protagonists would say for the better; antagonists, who include the demonstrators that have thronged the offices of the World Bank and International Monetary Fund, would say for the worse. One thing is for sure: the nature of work and jobs is undergoing a metamorphosis which is not going to reverse itself. The two great engines of job creation for most of the last century – the public sector and big business – have shut down. In fact, globalisation has converted both of them into net job destroyers as they seek to be leaner and meaner than their next-door neighbours. That leaves medium-sized, small and micro enterprise as the area of most potential for future employment. It suggests another rule of the game for parents: their kids are going to have to be taught to be entrepreneurs during their school years if they want to find work. The accent will need to be on creativity and problem-solving rather than learning by rote. If parents really want to turn their offspring into foxes, there is no better way to do it than divide their pocket money in half and put one half into a savings account that can only be used to set up a business. The other half constitutes normal disposable income. One foxy child said to his parents that this arrangement was fine, provided they doubled the pocket money first!

Globalisation is also transforming the agricultural industry in the world today. If you’re a commodity farmer in maize, wheat, cotton, cattle or sheep, the new rule of the game is that you have to achieve economies of scale on a par with world-class agri-businesses in Western countries. In order to do this, size becomes critical. Farms are therefore merging or are being bought out, with the consequence that land ownership is becoming more concentrated. Now is this a good thing, when another rule of the game is that land is a very emotive issue? We seem to have conflicting rules. On the other hand, dividing up large farms into smaller ones to satisfy land hunger isn’t going to work either. Anybody banking on commodity prices in real terms rising to assist such a process is in for disappointment, because the world has a permanent surplus of commodities – that is another rule of the game. The alternative is to focus on speciality products or move out of conventional farming altogether by going into bed-and-breakfasts, game farming and trophy hunting, breeding disease-free animals, etc. One farmer near Mafikeng is now the largest parrot exporter in Africa! However, there is an answer to the thorny issue of world-class efficiency versus wider land ownership. It involves lateral thinking, which lies at the heart of our matrix. We’ll explain it after we have covered “win-win” outcomes in the next section.

For now, though, a final word on globalisation, having just dealt with the moral rules of the game. It is in the nature of competition that the gap between the winners and the losers widens. Remember the maxim: “To the victor go the spoils.” Globalisation at the moment could be renamed Americanisation because America sucks in the brains from the rest of the world. Indeed, America can cherry-pick talented Third World doctors, teachers, engineers and computer programmers at will, unintentionally doing more harm to the countries exporting these precious skills than by declaring war on them. The end result is that everybody regards America as the winner. This belief feeds on itself and makes America even more powerful in the global economic game and the rest less powerful. As an aside, the same “halo effect” applies to Murdoch’s former acquisition target – Manchester United. As the richest and most successful soccer club in England’s Premier League, it automatically attracts the best and the brightest football stars. So guess what – it is the odds-on favourite to win the league yet again. How boring for the fans who support other clubs!

However, if the gap between the haves and the have-nots widens to a totally unreasonable extent, then another rule of the game kicks in, which is injustice. Nothing could be more expressive of this rule than the words of a young Brazilian woman at a recent conference held in Porto Alegre in Brazil: “Can we not imagine a better world than this? Where the air will be free from the poison of fear of insecurity? Where the TV set is not the most important member of the family? Where food and communication will not be commodities because the right to eat and talk to each other are human rights? Where justice and liberty, Siamese twins condemned to live apart, shall again be conjoined back-to-back?” When the majority of people in any situation feel that injustice has gone too far like this young woman, they start a rebellion. This would not be in America’s interest. So America has to optimise between two rules of the game – the globalisation one and the injustice one. But this is precisely what foxes are about. They don’t pursue any one rule of the game as an ideology to the utter exclusion of all the others. Hedgehogs do!

In the business world, rules constantly clash. For example, one rule says that you ought to maximise profits for shareholders, while another says you should make a permanent contribution towards the communities where you operate. No clearer example of this tussle exists than the drug companies and their quandary over the prices they should charge for HIV/AIDS drugs in developing countries. But banks are next in line. They are coming under increasing pressure to behave like they did in the good old days when the bank manager was a pillar of the community and made credit available to people who would not normally get it. Against this, shareholders are demanding that banks concentrate on their highest value-adding activities such as servicing large corporate clients and high net worth individuals. Somehow a compromise solution has to be found.

Curves of pleasure and pain

In every competitive sport, you have a result involving winners and losers – in other words a “win-lose” outcome. Where the gains exactly match the losses, science calls this a “zero-sum” game. Physical laws like the one relating to the conservation of mass and energy are zero-sum: if mass or energy disappears from one part of the universe, an equivalent amount will reappear, maybe in a different form, somewhere else. Thus mass and energy can be transferred but the total amount in the universe will remain the same.

Life can also have win-lose, zero-sum outcomes. We have already mentioned sport but gambling falls into the same category. Take a poker game between two players: if one player wins a million dollars, the other must have lost it. CEOs often regard business as a zero-sum game. They only feel they’ve won if somebody else is licking his wounds because he’s lost. In some circumstances – like tendering for a large project – they are right. But there are other outcomes, life being more subtle than sport or science.

Imagine an all-out nuclear war between two nations where mutual destruction is not only assured but actually materialises. With devastated cities on both sides of the border, that is definitely a “lose-lose” outcome. You can also have “win-win” situations in human relationships created by love, friendship, parenthood or the pursuit of knowledge. When two people fall in love, you don’t normally call one a winner and the other a loser unless you have a deep disregard for one of them. Good teachers can have synergistic relationships with their classes so that everybody at the conclusion of the term is happy and inspired. Stephen Covey in his book The 7 Habits of Highly Effective People maintains that the only viable outcome in the long run to a negotiation is win-win or else the parties should walk away.

The reason is that a win-lose outcome will fester in the mind of the losing party and gradually erode his enthusiasm for the deal. Since the winning party may well be relying on the continued co-operation of the losing party, he will ultimately lose in the end as well.

This reasoning leads to the enunciation of three of the most important unwritten rules of the game: (1) virtually all decisions about the future involve a judgement of risk versus reward, because life is a risky business, (2) in most situations decision makers must take into account the reasoning and state of mind of other decision makers, and (3) even where there is conflict of interest, the outcome must be beneficial to both parties for the decision to stick. These three rules apply as much to companies as they do to individuals. Game theory, which was originally developed in a book entitled The Theory of Games and Economic Behaviour by John von Neumann and Oskar Morgenstern and published in 1944, expands on these rules. Let us begin with a diagram that we have christened “curves of pleasure and pain”:

The horizontal axis denotes gains and losses. These could take various forms, but for the purposes of this book we’ll denominate them as monetary gains and losses. The vertical axis measures the pleasure or pain of an individual as he makes gains or suffers losses. It is clear that Person A is either very rich or has an inveterate gambling streak. If he wins or loses the same amount, the graph tells you that however much that amount is, the pleasure and the pain are equally balanced against one another. Bunker Hunt, the American billionaire, was once asked how he felt about losing a billion dollars on the silver market. His response: “You win some. You lose some.”

Person B is more like most of us – of modest means and risk-averse. On the one hand, the pain associated with a loss rises exponentially beyond a certain amount of money. On the other hand, the pleasure linked to a monetary gain starts levelling out when the sum becomes ridiculous and individual B doesn’t know what to do with it other than leaving it to the kids who will promptly be spoilt by it. If you can’t conceive of ever having too much money for any addition to become irrelevant, then your curve on the right-hand side of the diagram rises in a straight line!

The left-hand side of the curve is, however, completely different if you’re a person of B’s temperament. Beyond a certain amount, it doesn’t matter what your attitude is: the pain of a loss will eventually outweigh the pleasure of a gain. To illustrate this point, think of a coloured disc where 70 per cent of the area is coloured blue and 30 per cent red. Would you be prepared to spin the disc on the basis that if the pointer was on blue when the disc came to rest, you would win a million dollars? But if it was on red, you’d lose it, in which case your house, your spouse and your car go up in smoke. Supposing 99 per cent of the disc was blue and one per cent red, would you review the situation and risk it? And what if we said you could only lose a hundred thousand dollars on red but still make a million dollars on blue? Mathematics says you’re an idiot if you don’t take any of these bets but then the rules of mathematics do not incorporate human psychology – the rules of real life do. Curve B also explains why most people get more conservative as they get older. They don’t want to lose the assets or reputation they’ve accumulated. Meanwhile, the young have nothing to lose: they can be radical.

Curve B has relevance in quite different contexts. Earlier we referred to the capacity of the human intellect to play tug-of-war with opposing ideas. On the emotional side, we have mixed feelings about people and things. For example, when we help ourselves to a particularly generous portion of chocolate cake, we experience the direct pleasure of consuming something wonderfully rich; but we also feel pangs of guilt about our lack of self-restraint. Hence, we yo-yo up and down the curve with dietary schizophrenia.

Curve B also highlights the danger of narcotics. The addict will seek bigger highs (gains) from harder drugs as he runs into the law of diminishing pleasure on the right of the chart. Sadly too, his increasing dependency on drugs means that he loses control over his life – options and decisions become irrelevant. In addition, the curve explains why relief from physical pain like toothache and psychological pain like anxiety over health can cause such intense pleasure: you’re moving very quickly up the steep side of the curve on the left. It also supports the theory that the most effective way to increase the general happiness of a nation is to target the ultra-poor and improve their quality of life. In essence, you are giving them a leg up the left-hand side of the curve by reducing their daily misery. Jeremy Bentham, the philosopher and social reformer who founded the philosophy of “utilitarianism”, would nod his head in approval. In his major work, Principles of Morals and Legislation published in 1789, he stated that the object of all legislation should be “the greatest happiness for the greatest number”. He was also a fox because he maintained that his principle of “utility” was best served by allowing every man to pursue his own interests unhindered by restrictive legislation.

Given that Curve B represents the psychology of the average person, Covey’s proposition that outcomes to negotiations should be win-win to have any chance of lasting a long time appears valid. For if you negotiate something that is very advantageous to yourself but equally disadvantageous to the other party, he or she is going to feel far sicker about it than you are going to have reason to rejoice. Their motivation to undermine the deal is therefore going to be stronger than your wish to make it stand. You might have good lawyers on your side to draft an unbreakable agreement which can hold up in any court, but what you don’t control is the attitude of the other party during the period that the agreement is implemented. You have to accept that the rules of the game in the mind of the other person may be different to your own and worthy of consideration. Rules can clash and then you have to compromise. This brings us back to the land issue raised earlier. Perhaps the way you satisfy all parties is to have bigger, more competitive farms, but then convert them into companies with a wide range of shareholders including the farmer and the employees on the farm. That way, land ownership becomes diffused. Maybe you then float the farm on the stock exchange. Who knows? The sky’s the limit!

Implicit in Curve B is another unwritten rule of human behaviour: a reluctance to tinker with the status quo. Nobody is going to jump from the known and certain to the unknown and uncertain unless the known and certain is already extremely unpleasant and painfull Again the logic is simple. The unknown and uncertain offers mixed chances of gain as well as loss for the prospective jumper, and the potential pleasure associated with a gain is outweighed by the risk of major pain associated with a loss. In normal circumstances, therefore, the inclination is do nothing but stay put in familiar territory: it is the preferable option over potential oblivion, no matter what the upside. To use that overworked expression, to shift a person’s paradigm or a nation’s mind-set requires the affected party to have a shock to the system (not smart) or develop an understanding of what may lie on the other side before the shock happens (smarter). That’s why scenarios are so useful: by offering a glimpse of the possible, they act as a catalyst to achieve the leap of understanding necessary for movement. The people of Northern Ireland and Israel need positive scenarios of what their countries could be like if they laid aside centuries of religious animosity. Then they might find one another and move to higher ground. Incidentally, inspirational tales of the past can often achieve the same result. The film Erin Brockovich tells the story of how a sassy, young miniskirted mother took up the cause of an American community, and won a legal case involving contaminated water against a gigantic power utility. It sent a powerful message: when ordinary people put their minds to it, they can do extraordinary things and make a difference. It also helped that the movie starred the Oscar-winning actress with the radiant smile, Julia Roberts!

Sometimes, however, the choice is between the lesser of two evils and showing people that if they don’t do something which prima facie looks against their interest, there is a worse scenario waiting in the wings. For instance, you don’t normally hand money over to a stranger for nothing in return. But if that stranger happens to say “your money or your life” and presses a cocked pistol against your temple, you do hand the money over. The alternative is worse! Dick Turpin, the famous eighteenth-century English highwayman, used this technique very effectively till he was hanged in York in 1739.

Finally, Curve B has an intriguing feature. If the time frame on the left or the right is a date sometime in the future, we discount the losses or gains because they mean less to us. For example, if the adverse effects of smoking or HIV/AIDS were felt immediately, people would be more averse to risking their lives on the immediate gratification involved in smoking a cigarette or having unsafe sex. Equally, monetary gains in the future aren’t worth as much as cash in the bank now. But the area where our natural habit of discounting the future creates a real blind spot is the environment. For the beneficial impact of making sacrifices in our current lifestyle may only be felt in a few generations’ time. And as some wag put it: “Why should we bother about the next generation? They have never done anything for us.” Alas, the short-sightedness highlighted by this observation is becoming more relevant by the day.

It takes two to tango

This brings us to the celebrated example of the “prisoner’s dilemma”, as formulated by the mathematician Albert Tucker. Two men – let’s call them Bill and Ben – are arrested for robbery. They are refused bail and isolated from one another in separate cells. However, the evidence is circumstantial as there are no hard witnesses. It requires one or other of them to confess for the charge of robbery to stick. Otherwise, they will be charged with carrying concealed weapons at the time of their arrest – an offence which carries a considerably lighter sentence. Both know the consequences of their decision to confess or remain silent. If they both confess, they will both get a five-year sentence; if neither confesses, they will both get one year for carrying a concealed weapon; and if one confesses while the other does not, the confessor will go free and the one who remains silent will get twenty years.

What is the best option for each prisoner? If Bill cannot trust Ben, it is arguably best for him to confess in order to limit his downside to five years at worst and zero at best.Ben’s reasoning must be the same. So, as untrusting individuals, they should both confess and get five years. If, however, they are members of the Mafia and have taken the oath of omerta (silence), then it pays for each of them to remain silent and go to jail for one year for the lesser offence.

The dilemma comes in when Bill and Ben are just friends. They are taken to separate interrogation cells without having any chance to compare stories or plan a strategy. The police tell Bill that Ben has already confessed. Bill has to decide whether the police are telling the truth or lying. Is Ben a friend or a double-crosser? The horns of the dilemma are very pointed and sharp for Bill.

There is no logical and satisfactory answer to this conundrum. Depending upon his personal risk profile and regard for Ben, Bill will either play safe and confess to the robbery; or take the plunge and remain silent. The intriguing thing is that this type of dilemma is repeated again and again in real life. Politicians make this judgement call whenever they have something to cover up. Should they rely on their colleagues to keep silent during the probe, in which case the cover-up option offers the best way out. Or should they tell the truth at the outset and take the rap? The problem in the cover-up option is that if they are wrong about their colleagues and the truth surfaces, they are in for the high jump. The cover-up becomes the issue as opposed to the original misdemeanour.

Here’s another illustration from the real world. If I’m a grocer pondering on cutting the prices of my fruit and vegetables, the big question is whether other grocers in the neighbourhood will follow suit. If they do, every grocer will be worse off; and if they don’t, I will grab their customers so I’ll be better off and they will suffer. Perhaps we should instead form a cartel and fix the price of fruit and vegetables for the entire neighbourhood, with the added benefit that it is extremely unlikely that any individual grocer will break ranks and do to me what I’m thinking of doing to him. But that’s precisely why cartels in most countries are illegal, because they are established for the benefit of the producers and at the expense of the consumers. It’s only if you are an international cartel like OPEC that you’ll get away with it. So, generally speaking, open competition is enshrined in law and the pricing dilemma that we’ve just alluded to persists in every player’s mind.

The arms race, which seems to have somewhat abated, once posed the same dilemma to the two superpowers – America and Russia. If I developed a nuclear weapon superior to yours, I was at an advantage. If, however, you responded by creating a new generation of weapon which equated with mine, then neither of us were better off militarily – but we were sure worse off financially. Sense now seems to prevail on both sides; but don’t rule out America exploiting Russia’s precarious financial position to have another go at achieving military superiority. “Son of Star Wars” is reported to be on the drawing board.

We’ve already mentioned the three rules of the game that flow from these examples (just above the ‘curves of pleasure and pain’ graph). Nonetheless, it is worth re-emphasising that no company is an island, as is assumed in many a strategic plan. You have to play scenarios on the responses of the competition to any action you intend to take – before taking it. For example, if you decide to merge with another company to become a larger entity, then two of your competitors may decide to combine into an even larger one. Vicious and virtuous circles also display the same feedback principle, this time with your customers. Hike your prices too much and your customers disappear so that you have to hike them even more to maintain your revenue. Lower your prices and you may attract more customers than you anticipated, in which case you can lower them even more. As Isaac Newton said, for every action there is a reaction. Hence, there is no point in waltzing into a boardroom with a proposal, entering into negotiations on a contract or presenting a sales pitch to potential customers unless you’ve worked through the range of reactions which are outside your control. The penalty, should you not do this homework, may be an undignified exit with arms flailing and a bruised ego. Not worthy of a fox.