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Europe is suffering economic pain along with the U.S., but with a few key differences and a few distinct glimmers of hope on the horizon, speakers said at a recent conference at Harvard Business School.
In consulting, for example, European firms are less likely to "overreact" to the downturn, observed German Armin Schmiedeberg, head of European recruiting for Boston Consulting Group. Clients in Europe seem confident enough to strike a balance between the desire for short-term profitability and long-term potential growth, rather than grub for quarter-by-quarter earnings. Most clients engage BCG for a program that unfolds over three to four years, said Schmiedeberg, who spoke at the panel session titled "Is There a Europe for Consulting Companies?"
McKinsey & Company colleagues based in North America are more likely to focus on cost reduction than their European counterparts, who take a longer view, said Mark Watson, a specialist in the global leadership and organization practice at McKinsey. HBS professor Thomas R. Eisenmann moderated the panel, which included Eric Dailey of Alvarez & Marsal.
The sessions were part of the student-run European Business Conference, held at HBS on November 16.
Looking at corporate governance
As for corporate governance, it is true that some European firms rejoiced in Wall Street's fall from grace since the American business scandals of this year and last, said panelists at a separate session on European corporate governance. Even so, the lessons for Europe are far from clear.
The U.S. and Europe have very different company ownership structures, said Stephen M. Davis, of Davis Global Advisors, Inc.
| Because [in the U.S.] you have a separation of ownership and control, you can hire the best executives. |
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— Brian R. Cheffins, University of Cambridge |
"Americans thought they had the best capital markets in the world and the best corporate governance, and I think that kind of complacency laid the groundwork for the problems that exist and that gave rise to Enron and others."
Europe has a "potential downside" in corporate governance due to many family-dominated companies, added Brian R. Cheffins, professor of corporate law at the University of Cambridge. The U.S. scenario has problems but also advantages through its system of ownership and control, he said, spelling them out: access to capital, a beneficial risk-spreading effect, and "a sensible division of labor. Because you have a separation of ownership and control, you can hire the best executives."
There were bugs in the U.S. system, but the system as a whole is not flawed, said McKinsey's Mark Watson, who was also a member of the consulting panel. The U.S. system demonstrated how healthy it was by reacting as fast as it did, he said. HBS professor Jay W. Lorsch moderated the session; Ronald Freeman, of Troika Dialog Investment Company, also participated.
Stark contrast
The contrasts between North America and Europe seemed especially stark for keynote speaker and venture capitalist Neil Rimer (HBS MBA '91). A Canadian-born, U.S.-educated Swiss citizen and co-founder of Index Ventures, Rimer said there are only a "very small number" of technology-focused VC funds in Europe, unlike Boston or Silicon Valley, and there is no single center that monopolizes the deals.
As Rimer presented a short list of contrasts between the U.S. and European business markets as part of his talk, he warned that the list does not look attractive for Europe.
"The venture capital market in Europe is not a pretty picture, but nothing is a pretty picture today," he said.
| In Europe, depending on where you are, entrepreneurs are rarely elevated to the status of hero. |
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— Neil Rimer, Index Ventures |
Recognizing the differences between the two continents might help people figure out ways of improving the business landscape, he said. The market—"monolithic" in the U.S., fragmented in Europe—is the "single most important" difference, Rimer said. The U.S. has one market, one currency, one set of distributors, one advertising network. Some aspects of the situation in Europe, he said, "will change through political means, some of it will be changed by smart businesspeople, and some will never be changed."
The legal framework for business in the U.S. is "frictionless," he added. In Europe it is Byzantine. Perhaps the legal framework was state-of-the-art in Byzantium, he commented wryly, but Europeans today contend with different sets of rules when they want to implement stock option plans or use other vehicles to offset the risks involved in making investments in private companies.
Entrepreneurs aren't heroes
Culture, competition, hotbeds of entrepreneurial activity—these are all divergent and diffuse in Europe, said Rimer. One of the big differences he sees is the way entrepreneurs are regarded in the U.S. versus the way they are seen in Europe. The U.S. tends to embrace them as heroes. Even the ones who fail—assuming they are not jailed for fraud or gross negligence—look attractive when they seek a new job because they have earned valuable experience.
"In Europe, depending on where you are, entrepreneurs are rarely elevated to the status of hero," he said. Instead, European entrepreneurs are usually viewed as misfits who have been forced to marginalize themselves to pursue their dream.
But he dismissed the common assumption that Europeans are less risk-taking in general compared to the U.S. "In fact, I think to be an entrepreneur today in Europe you have to be willing to take more risks than if you're an entrepreneur in the U.S.," he declared. Unlike many in the U.S., he added, European entrepreneurs operate without a safety net.