Against Phillips

by John Collar

The business theorist, Michael Phillips, is most well known as author of Gods of Commerce. Gods of Commerce was a sequel to Honest Business which in turn was a sequel to The Seven Laws of Money, first published by Random House in 1974.

The Seven Laws of Money was a book that responded to the financial questions of the exploding hippy community. Phillips was at the epicenter of this movement as the business manager of Glide Memorial United Methodist Church in San Francisco. Glide was involved in nearly every hippy and social activist event of that era.

Phillips had been a bank marketing research executive, ending his prestigious eight-year career as a vice president, during which time he was the catalyst for MasterCard. He was also closely associated with the Whole Earth Catalog, the bible of the hippies, and was President of the foundation that dispersed the money earned by the Last Whole Earth Catalog.

All of these experiences and more combined to give Phillips the qualifications and credibility to write The Seven Laws of Money, for which he was widely recognized. The Seven Laws was accepted as a book about personal finance, but it was more. In it one can find the seminal ideas that drive Phillips' later thinking. In The Seven Laws, Phillips introduces the ideas of (1) the business value of passionate love for one's work, (2) openness in business as a primary value and (3) the primacy of accounting in successful business.

Phillips' book and the associated notoriety immediately made him the center of the emerging hippy business world, where he and the people surrounding him became the business consultants for hundreds of new and seminal businesses. The feedback was mutual. Phillips, and his group, called the Briarpatch, learned from the new entrepreneurs as well as learning from each others experience.

Phillips apparently taught his clients and disciples the lessons derived from his three key observations and in turned learned many more. Six years of intense interaction with over six hundred of the Briarpatch businesses became the source of ideas for his next book, Honest Business, in 1982.

( I have neglected to discuss his co-author Salli Rasberry who was also the uncredited co-author of The Seven Laws of Money. Ms Rasberry deserves full credit for their joint effort and my neglect of her role is only for matters of economy. Phillips always tried to acknowledge her vital contribution to his ideas and their many books. I also wish to acknowledge her contributions.)

Honest Business added six new ideas to the Phillips constellation of business ideas. (4) There are unique culturally-carried skills and attitudes that favor success in commerce, (5) Openness in business has specific community, customer and managerial advantages and (6) Capitalization is an incidental, not central, element of business; it can be negative as well as positive.

Phillips introduced a distinctly new idea (7) that business can be inherently fun. I don't quarrel with this idea and will not criticize it later on. He also alluded to an idea that is more fully developed in his next business book, Marketing Without Advertising: (8) A generous licensing strategy for a new product or service will generally be successful in creating a larger market and giving the licenser a major market share. His ninth major idea was the title of another book: (9) Honest Business as a superior strategy for starting and managing a business. Phillips, of course, considered honesty without openness as something of a moral conundrum. Honest people can be open, but open people must be honest; so he usually equated open and honest, knowing that they are not really equivalents. He did not feel that honesty without openness was an inherently positive business value. It is simply a positive moral value.

After Honest Business, Phillips began teaching business classes at his own school, the Noren Business Institute in San Francisco. After codifying his business observations in classes (most classes involved on site visits to active businesses), he produced two more books: Marketing Without Advertising and Running a One Person Business. Both of these books were practical manuals and explored the implementation of Phillips' ideas in business.

After the last of these books was finished, several years after he had stopped teaching regular classes and working intensely with clients, Phillips put together his major business opus: Gods of Commerce.

Gods of Commerce was a deliberate synthesis of Phillips' work as a business theorist. Phillips introduced two new ideas in Gods of Commerce that are properly associated with commerce, but are not part of his core business observations. One is the idea called Social Sorting (the flag that attracts people to an organization, the screen that allows some to enter or join, and the overflow out of the organization that create unique structures to all voluntary organizations). Phillips was stunned that the Social Sorting idea was uniquely his, it was historically magnificent and powerful, yet it seemed obvious to him. He could never believe he had discovered such a brilliant idea. I am forced, however, to relegate it to the ideas of sociology, as it is indeed powerful, but not central to understanding Phillips' universe of business theories. The same is true for Phillips' second unique idea in Gods of Commerce, the linguistic nature of money. Money can best be understood as a language or as semiotic. A brilliant observation, a major contribution to intellectual life, but not central to Phillips' theories of business.

Gods of Commerce has one idea, that (10) there are three distinctly different forms of commerce: trade, industry and clientry. These three forms operate concurrently in our society and have three distinctly different structures, values and goals. Trade focuses on a proper markup for each sale, industry is the exploitation of economies of scale and clientry is a focus on lifetime business relations. While Phillips' acknowledged that Karl Marx had seen the distinction between trade and industry, he himself claims to be the first to recognize all three.

Phillips also recognized that one of his distinct categories of commerce, clientry, was probably the only pure form of business that described his twenty years of business experience and advice. He had created a category of commerce that was the home for the ideas he had generated over two decades. Clientry was a form of commerce that clearly worked best in the environment of openness, passion for work, community and fun that he had promoted for so many years.

It is my criticism of Phillips' work that such a category of business, clientry, is not a distinct form of commerce and that it probably does not operate on the distinct principles that Phillips has assigned to it.

I argue that business is business ... pure capitalism. Business follows business school rules of profit maximization, capital accumulation and free market competition. The whole constellation of Phillips' theory existed only in the world of hippies, if it ever existed at all.

I have been the CEO of several successful corporations. I have discussed these issues with many of my peers. We just don't see what Phillips is talking about.

Many of the details of businesses that Phillips describes as distinct attributes of clientric businesses we find in giant Japanese corporations, in a few socialistic Scandinavian corporations and in one or two old line American companies, like Readers Digest and Nordstrom, that existed before American companies were influenced by Phillips' work.

These companies were widely recognized for promoting values of honesty and intense commitment to customers, including quality control and product recourse practices that were well known. These existed in traditional giant capitalistic companies long before Phillips came along. These approaches to business were implemented for a variety of reasons. In some cases the practices reflected the values of the founders, in other cases the practices reflected the highest values of the Japanese or Scandinavian societies in which the companies were founded. They succeeded in the capitalist milieu in spite of these values and not because of them. Otherwise many more companies would have imitated them. Business is survival of the fittest and most companies are not like the Phillips models.

Frankly, I see that internally, in the companies I know, honesty is pervasive and necessary. We can't work together as a well functioning company, if we are not honest. Dishonesty is simply not tolerated anywhere that I have worked, nor inside any important companies that I know of. Openness exists internally in some matters and not in others; it is purely a matter of efficiency and expediency. There is no principled reason for it to be present or absent.

Outside of the bounds of the corporation it is dog eat dog. It is slow, meticulous, non-violent warfare. I don't see how anyone who has been under fire in business can see it otherwise. We use any and all methods available, within the law (and try to change laws where necessary), to lower our costs, gain market share and increase profits and stock prices. That is capitalism and that is reality.

I also want to point out before concluding, that Phillips borrowed his ideas about openness from Stewart Brand, the creator of the Whole Earth Catalog, who in turn credited the idea to Steven Durkey, a New Mexico environmental inventor.

Phillips has also been a public champion of the vital importance of accounting in business success. I think this fact was universally appreciated before Phillips made it an issue. High caliber accounting was widely used for the past century and was certainly appreciated by the people who used it. Seat-of-the-pants business advocates have always been few and far between. Few seat-of-the-pants people could exist in today's complex business environment.

In summary, Phillips may have made contributions to the discussion of business theory, he has invented some major concepts in sociology and linguistics, and we all thank him for appreciating the fun that many of us find in business, but his other ideas just don't fly in the real capitalist world of day to day competition and management that I and my peers live in.


John Collar, CEO GRT, Houston, April, 2000