Dr. Michel Phillips, President of the Frank Russell Company, an international firm managing investments well over one trillion dollars, suggests three qualifications to the best graduates of our School of Business. Here is a summary of his recommendations:

• Outstanding personal reputation! Above all, respect everyone, especially yourself. Your good name is entirely in your own hands.

• Technical mastery! Your professional work will change rapidly in an environment of constant technical innovation. You’ll have to keep up your professional competency.

• International orientation! A firm successful in the future will be an international company. Good ideas may originate anywhere, but their applications will take place throughout the world.

We believe that this is also good advice to the students and graduates of the Estonian Business School. These qualifications are based on values learned at home, in school, and in work. In part, they emerge from general and professional schooling. Together, they form a particular managerial mentality that is well suited for economies in transition.

Frank Russell Company traces its growth to a major innovation 40 years ago when the present Chairman, George Russell, then a young financial expert educated at Stanford University and at the Harvard Business School analyzed trends in savings. He found an expanding market niche in managing retirement and pension funds in Tacoma, Washington. This search for new opportunities was linked to his unusual technical and managerial competencies, and the wisdom of his grandfather Frank Russell, an outstanding entrepreneur of his day. Absolute fairness and honesty were the values at the core of his business culture. This foundation of a clean reputation and superb technical skills helped George Russell to build a superior team that included the best graduates from the best schools (even one Nobel laureate in economics!). At a time when few Americans were thinking about financial markets abroad, George Russell deliberately made his company international in scope. Indeed, one of us met Michael Phillips, a London lawyer, first when he was the young Russell manager in London.

Let us now turn to a case closer to home. In a sense, we find this case of trust in innovation, in excellence of technical improvement, and in the importance of a larger market in Sweden of Charles X Gustav instructive. In 1656, Johan Palmstruch, an inventive and persuasive Livonian, became the founder of the first modern central bank, Stockholms Banco.

At that time, the most common metal used for Swedish currency was copper, fine for low value coins. The shortage of gold and silver in Sweden led the royal treasury to issue stamped sheets of copper in value up to 10 dalers and about 16 kilograms in weight. In 1661, Palmstruch was permitted by Swedish government to establish a bank to take copper money deposits and issue an alternate currency. This currency was freely circulating credit notes printed on finest paper and authenticated with no less than eight impressive signatures. It was a great idea and a useful innovation for those tired of carting around slabs of copper. The Swedish trade was large enough to support Stockholms Banco. The bank’s credibility was enhanced by the prominence of the bank’s board, and the chief inspector who was also Sweden’s chancellor of the exchequer.

Unfortunately, the bank made questionable loans, did not maintain adequate reserves and issued too many notes. It lost trust of the public, and was unable to meet its obligations. Without trust, the bank failed. Palmstruch faced the death penalty in 1667; he was lucky to have it changed to a prison sentence.

More conceptually stated, individual enterprises and whole transitional economies require the injection of three integrated investments. The first is the traditional capital, in the form of funds or physical assets accumulated in savings or provided by external investors. The other is human capital represented by education, training and skills. The third is social capital, often defined as an environment of mutual trust and a high level of cooperation. As the last decade in the Baltic states has shown, significant progress begins to take place when the level of education rises, and skills increase. More progress comes when the players in the transitional society have learned to trust and cooperate with each other. The last is the least expensive and is also the most difficult of tasks.

Obviously, the desirable mixes of managerial values vary from one organization to another and range from an autocratic or bureaucratic society to those of a civil society. Market oriented societies tend to be rather pragmatic. Looking at value clusters and mindsets in the Baltic states, we can easily detect managers of a pragmatic or practical, even rationalistic engineering orientation, moralistic bureaucrats and other seekers of justice and better control, and those who identify with comfortable harmony in their own communities.

Our research shows that Estonian managers, surveyed some time ago at the EBS, are unusually pragmatic in their personal values. This pragmatism is confirmed by the study of first year students by Lembit Turnpoo and Ana Virovere of the EBS. Their findings are not inconsistent with our own surveys and interviews of advanced business students and more experienced managers. The views of our respondents were shaped by a more mature commitment to professionalism. Generally, their ranked priorities include the values of professionalism, ability, creativity, productivity, organizational effectiveness, rational approaches, concern about clients and customers, the taking of risks, profitability, and personal success. These are strong preferences that represent operational values that actually guide individual behavior.

In Latvia, the professional mentality is more diverse. It includes mindsets of Soviet style Russophone and Latvian factory managers strongly oriented to physical production, government bureaucrats in search of compliance, and many managers without certain or strong convictions. We believe that Lithuanian managers are expected to have close and friendly ties with their communities. Thus, they seem to be much more attuned to various leaders and have more social concerns.

This variety of managerial values suggests to us that within the Baltic markets, there already is obvious necessity for mutual understanding and tolerance, and increasing trust and cooperation. Interestingly, managers in all three Baltic states dislike aggressive behavior. This suggests a careful, and possibly, passive approach to opportunities for cooperation and shows limitations of trust. Estonians and Lithuanians place trust among the top ten of 66 values we measured. Cooperation is valued much less. Conversely, managers in Latvia place cooperation among the highest values, leaving trust rather low in the scales. They may reflect an environment of prevailing distrust. Simply put, Russophone managers in Riga seem to have little trust in anyone. In Latvia, carefully structured relationships are built first. Trust comes later.

It may well be that the mentalities of Baltic managers are best analyzed in relationship to the administrative and managerial role models familiar to them. Expecting that their values should be aligned more with an environment of a market economy, there should be more emphasis on more appropriate models. In keeping with an international orientation, there ought to be a deliberate effort to move away from unnecessary controls and what we believe are influences of past conquerors and rulers. In all three Baltic states, we would like to see more new business cultures that favor innovation, organizational cooperation and international alliances.

Jane Jacobs, a celebrated critic of contemporary city planning, distinguishes two principal ethical behaviors of civic and business leaders. The first is mostly a culture of conquerors and guardians of the inherited power. The other, more in line with what Estonian managers have observed and worked with in the Nordic countries, is a culture of more democratic civil societies and merchants. These two cultures do not exist in a pure form. Both are found side by side in the most advanced economies. Frequently enough, they also may form particular balances of power and economic efficiencies that may or may not be suitable for any given organization. Moreover, they are further influenced by a variety of mostly inherited bureaucratic systems and procedures.

Here are the characteristics of what Jacobs calls the guardian moral syndrome:

Clearly, the syndrome above is that of power, commands to reinforce it, and controls to preserve it. It has served effectively in a different age. It is not very compatible with an era of a global economy, international cooperation, innovative teamwork and an unremitting technological change. By definition, it is conservative and devoted to status quo.

In contrast, here is what Jacobs calls the commercial moral syndrome.

• Shun force.

• Come to voluntary agreements.

• Be honest.

• Collaborate easily with strangers and aliens.

• Compete.

• Respect contracts.

• Use initiative and enterprise.

• Be open to inventiveness and novelty.

• Be efficient.

• Promote comfort and convenience.

• Dissent for the sake of the task.

• Invest for productive purposes.

• Be industrious.

• Be thrifty.

• Be optimistic.

The two systems for survival behavior suggest interesting and useful options. It is obvious that modern managers in the Baltics will have to shape and influence the values and norms of politicians seeking power, just as it has happened in the West during the last two centuries. The beliefs and the systems changed in the West with revolutions in America and in France. Unfortunately, they were reinforced in the Baltics by Russian monarchy and Soviet rule. Baltic managers now have to decide the nature and degree of cooperation with the structure of political power. They’ll have to persuade the politicians to make the necessary investments to help raise the levels of public and private education. They’ll have to find ways to increase social capital in the Baltics, first by making the justice system far more effective than it is today. Indeed, one of the hallmarks of the commerce syndrome is enforcement of laws and the swift and certain justice of ius mercatorum when offenders with still dusty feet (pieds poudres) are brought from the market place to the court. Baltic leaders and managers will have to decide what is and should be good for them, their business organizations, and their partners abroad. They’ll have to make hard choices. They may elect to work with the autocratic structures in the East, or within the democratic, yet demanding, economies of the West. They’ll also have to work with the bureaucracies in their own capitals and in Brussels.

In the everchanging transition and transformation, they will have to define cooperation and trust for their purposes. As we have seen, they are defined differently in different systems.

We find that modern managers will need systems that are dynamic enough to take new opportunities in stride, moving quickly to higher levels of economic achievements. To get there sooner is important. Good examples have their educational and inspirational value. Thus our Estonians respondents, representing a country of gradually improving economic growth, are more optimistic about their future than Latvians and Lithuanians. Baltic entrepreneurs and professional managers alike have to examine and change their own value systems and their behavior. Under conditions of rapid transformation, they have to show to their colleagues, employees and partners the following:

• Honesty and credibility

• Technical and managerial competence

• Predictability and reliability of judgment

• Loyalty to their teams

• Environment where their views and information available are openly shared

Only these managers can build strong and innovative teams to face future challenges and the competition in an incteasingly international market economy. They’ll be responsible for meeting new demands for higher quality, lower costs, and delivery on time.

To return to our earlier observations, the lessons for Baltic entrepreneurs and managers are clear. In their work, they have to integrate traditional investments in men, machines and materials with education and training, and with social capital formation. A successful entrepreneur has to be more than an active, skilled administrator. For success, the technological firm relies on internal teamwork and external alliances to stay ahead of the competition. Where the innovation to be promoted is substantial, and the target sales are large or distant, the credibility and reliability of innovators is of paramount importance.

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The Spring 1999 special business issue of the Estonian Business School Review is an excellent source of complementary reading, especially the article by Lembit Turnpoo and Anu Virovere, "Value Judgements as Factors Effecting People’s Behavior."

The two syndromes are taken from Jane Jacobs, Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics. New York: Random House, 1992.

For a sampling of our research, see the special Summer 2000 issue on the Baltic Economies in Transition of the Journal of Baltic Studies in the EBS Library.

Gundar J. King is Professor and Dean Emeritus of the School of Business at Pacific Lutheran University. He is one of the founders of this school and of the Riga Business School, and served as a director of EBS for many years. He received his Ph.D. (business) from Stanford University, was honored with a Dr. Sc. (h. c.) degree by Riga Technical University, and was awarded the Dr. habil. oecon. degree by the Latvian Science Council.

Professor J. Thad Barnowe received his Ph.D. degree in organizational psychology from the University of Michigan. An outstanding teacher, he teaches in courses of his expertise: global management, organizational change, and human resource management at Pacific Lutheran University. He has taught as a Fulbright scholar in China, Norway, and Poland. His research on managerial values now spans nine countries.

 February 21, 2000