Fine Print - November 2007

Aggressive target marketing
By G.D. Gearino

Business leaders have long sought to learn lessons from war. In the '80s, for instance, the parallels between commerce and conflict were nakedly obvious, as corporate raiders - an untold number of whom had copies of Sun Tzu's The Art of War somewhere in their offices - launched hostile takeovers that were as ruthlessly executed as Sherman's march through the South. More recently, the current issue of Harvard Business Review features a long interview with a Scot who served as a civilian administrator in Iraq. The headline over the article reads: My Extreme MBA: How hardship, chaos and the fog of war made a stronger, wiser, more resilient leader.

Conversely, military commanders often find it useful to step away from the parade ground long enough to attend graduate school in order to bring organizational efficiency to a bureaucratic enterprise. (Just to cite one example, the new chairman of the Joint Chiefs of Staff, Adm. Michael Mullen, studied management at Harvard Business School.) It's likely that this exchange of knowledge comes out almost even: For anything helpful a corporate leader learns from war, a military commander learns something equally valuable from business.

Both of them can learn something from Blackwater USA, the North Carolina-based company whose business is war (cover story, June). Its most notable client is the Department of State, for whom the company provides security in Iraq. As you surely know, Blackwater has been much in the news lately - none of it good. Its hired guns killed at least 11, maybe as many as 18, people in Baghdad in September, which prompted the Iraqi government to threaten to withdraw Blackwater's license to guard U.S. diplomats. A few weeks later, a congressional report on the deaths of four Blackwater security contractors in Fallujah in 2004 alleged that it had sent them into a dangerous area without proper equipment and manpower (or even a decent map), then sought to stonewall the subsequent investigation.

The lesson to be drawn from all this is that regulation and oversight aren't necessarily burdens for business. As often as not, they protect companies from their own untrammeled instincts. Blackwater found itself in the closest thing to an unregulated market that any company could hope for, and it is now all the worse for it. This is blasphemy to the free-market crowd, of course. But work with me here. You'll see what I mean.

Largely thanks to Coalition Provisional Authority Order 17 - which basically exempted American contractors from Iraqi law - Blackwater was able to focus exclusively on its mission without worrying about consequences or resultant misadventure. It was a situation that almost no other big business has enjoyed since the bad old days of the Industrial Revolution. ("C'mon, kid, work harder. And stop that infernal coughing. What's the matter, the soot bothering you? Take it up with OSHA. Wait a minute, there is no OSHA. Bwa ha ha ha.")

Imagine an oil company being told that its sole concern was getting maximum output from its refinery and that all other considerations - environmental damage, worker safety, handling of hazardous waste, etc. - weren't its worry. The oil would get refined, the company would post huge profits, and a huge mess would surely be left behind. Now imagine that afterward a great hue and cry erupts when the mess is revealed to the larger public. The company is retroactively held accountable for the damage, income plummets, and corporate executives are dragged into committee rooms to be grilled in front of a national television audience. The company's very name becomes a shorthand reference to criminal irresponsibility.

That's Blackwater right now. It did its job well - the people and material it guarded tended to stay safe - but that was possible in part because its personnel sped through the streets of Baghdad with guns blazing (at least according to congressional investigators, who determined that Blackwater contractors initiated the gunfire in 80% of the incidents in which they were involved). But the day is long past when a company can do business without consequence and accountability. Even in the chaos of Iraq.

Other industries have already come to this realization. The New York Times reported last month that trade groups and some manufacturers, motivated in part by a desire to head off liability lawsuits, now seek from the federal government the very health, safety and environmental mandates that they once sought to avoid. Blackwater's appearance on every newspaper front page confirms the benefit of those mandates.


Blackwater found itself in the closest thing to an unregulated market that any company could hope for, and it is now all the worse for it.