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BEYOND THE BOTTOM LINE

Creating Jobs Through Innovation

11 March 1997

Investment, innovation and honesty are keys to success, believes German businessman Friedrich Schock.'Unemployment is the greatest challenge of our times,' asserts Friedrich Schock, President of Schock Holdings of Schorndorf. Germany has suffered a post-war record of over four million unemployed, out of a total workforce of 32 million, since reunification with East Germany. Schock believes that small and medium-sized firms like his 'offer the greatest hope for the future'. Such companies made a major contribution to Germany's post-war economic recovery. Today, 98 per cent of German firms employ less than 1,000 people. Yet they create two-thirds of Germany's GNP. They can also take up the slack when big companies lay off thousands of workers. According to a Federal Employment Agency report, companies with 20 employees or less were able to cut by 50 per cent the unemployment caused by the 'streamlining' of big companies in 1993 and 1994.

In 1993, Schock's own company, which manufactures household and building industry components in four plants, had to lay off 150 of its 1,000 employees when, he says, there was a 'drastic reduction' in the construction industry which pushed his company into the red. 'We did this with a heavy heart,' he says. 'Our family shareholders showed solidarity and got involved personally. They offered their combined wealth as collateral to the bank and, because of this, the necessary investment for new products was possible. We were able to recreate the jobs that were temporarily lost. Our per capita turnover has increased in the last five years [1991-96] from Dm125,000 to Dm250,000.'

Investment and innovation are crucial for business, Schock continues. This seems to have been true in his own company. The family firm was founded in 1924 by Wilhelm Schock, together with his brothers Karl and Herman. In those days their products were decorative wood panels and a range of furniture fittings in wood and metal. A turning point came in 1957 when the company began production of plastic profiles. Since then, the Schock group has become a leading manufacturer in composite plastics technology, making sinks and worktop systems for kitchens and plastic skirting for the building industry.

'My father and his two brothers,' says Friedrich Schock, 'had real motivation: to manufacture good products, to bring work to people, and to make this their Christian commitment. Today, managers have wider responsibilities which go beyond the success of the company to the deeper needs of society and the world.'

Key factors in the company's success, he continues, 'have been the forging of close links and good relations with the construction industry, systematically assessing new markets worldwide and using innovative materials. Innovation and diversification is the driving force behind continuing dynamic growth and not a year has gone by without new product development.'

Today, Schock considers that the appropriate level of reinvestment in the company should be five to eight per cent of the annual turnover. 'But it will always require courage to take risks and at the same time to be loyal to the company and its employees.' For instance, in 1991 the company signed a joint venture in Bombay, India, as a minority partner in the manufacture of kitchen sinks, made of composite plastics, and automotive parts. 'I can only advise companies to consider such moves within the framework of global competition,' Schock says.

If investment and innovation have been keys to the company's success, so too has honesty. In 1995, Schock turned down a multi-million contract with an American firm because, he says, 'it wanted to tie us into practices we could not accept'. This threatened to put his company into the red for the following year, but Schock maintains that the firm's reputation for honesty had to remain paramount. 'You lose 10 per cent but you have to have the faith that you will gain 20 per cent in the long run.' Earlier, Schock had refused an offer of payment 'in black money into a Swiss bank account' for the sale of manufacturing licenses to Italy. This would have avoided German tax at 60 per cent. Instead, Schock insists that all revenues, and their sources, be declared for tax purposes.

While that kind of resolve takes courage, Schock is sustained through his participation in the Caux Round Table (CRT) group of business executives who meet each year to discuss business values. Schock's participation in CRT and its sister Caux Conferences for Business and Industry (CCBI) has, he says, helped him to 'form his global thinking and sense of global responsibility. To master crises and create new jobs, we need business leaders with vision and ideas, courage and moral conviction.'

Keys to competitiveness, he asserts, are 'constructive co-operation' between the 'social partners' of management and the workforce, and flexible working practices. High wages and running costs are less of an issue, he insists. Quarterly works council consulations between employees, owners and managers 'enable participants to express their hopes and concerns and develop honesty and trust. After 40 years of practical industrial experience, I can say that the positive side of co-determination is overwhelmingly greater than the negative side,' he says.

Schock is not afraid to declare his personal Christian conviction and the need to 'call on a superior source of energy and wisdom'. Once, for instance, in Caux he had 'an inner feeling' that poaching talent from other companies through head-hunting was wrong. In a highly unusual move he promptly sent a fax to apologise to the boss of another company, one of whose executives Schock's company had head-hunted. Head-hunting is certainly not illegal. 'But if you have a sharp conscience, then the Holy Spirit does not allow a Christian to do things just because they are legal,' Schock commented.

He sees the need for old verities to act as a leaven, especially at a time of recession: 'honesty, thriftiness, occupational conscience, creativity, enthusiasm and inner harmony. If these tried and tested ideals could be coupled with modern methods of information management, and science and technology, we would have business leaders with character, knowledge and ability.'

Material for this article is taken from a speech given by Friedrich Schock in Caux, Switzerland, July 1996. See also 'The ethical way to profitability' by Mike Smith, Financial Times, 25 August 1995, and 'Global debate converges in favour of business ethics', The Pioneer, New Delhi and Lucknow, 31 March 1997.