Business at a Crossroads Leadership_6 pdf

That the distributive injustices it’s creating have contributed to the erosion of public trust in the liberal capitalist system; that it denies its employees sufficient bases for self-re

Finally, the stories of both Linux and Wikipedia tell us something

about leadership, for want of a better word, in environments such as

today’s in which self-organization fosters more creativity and produces

generally better results than the CEO system

Stewards, seeders, guardians

There are protagonists in these stories of new enterprise: Richard

Stallman and Linus Torvalds at GNU/Linux; Larry Wall at Perl; John

Ousterhout at Tcl; Jimmy Wales and Larry Sanger at Wikipedia But

they are not “leaders” in the normal sense of the word

Perhaps there was a time when Wales could have established “rights

of sovereignty” over the Wikipedia project, equivalent to those he

already had at Nupedia But had he done so it is very unlikely, in my

view, that the phenomenon of Wikipedia we know today would have

“snapped into existence.” The lack of a CEO, an agenda, a strategy and

a “business model” was an important part of the attraction for the new

encyclopedists They could do their own thing, knowing that no

commercial interest mediated their relationships with those who sought

enlightenment from their articles

But the beginnings of things cast shadows over what happens

Those who were there at the beginnings, either because they were in

the right places, at the right time, or because things they did or did

not do became initial conditions that generated the positive feedback

loops that drive complex adaptive systems, have authority and

influ-ence People are interested in beginnings Although Torvalds and

Wales could not have known how the processes they seeded would

turn out, they’re respected by Linux and Wikipedia devotees as the

creators and patriarchs

How this patriarchal authority is used is crucial It will be lost if it

is mistaken for and used as CEO-type control Nor should it be used

to guide, because no one can know where things are going The

patri-archs of complex adaptive systems are more like guardians and

stew-ards, than guides The system is owned by all participants collectively

The patriarchs cannot tell them where to go, or what to do, but the

regard participants hold them in, and their vantage points above the

system, as benign overseers, give them the power to proscribe; to

suggest to participants that they’re barking up the wrong trees,

re-inventing wheels, or heading down roads others have proved to be

dead ends

As Piers Ibbotson explains in The Illusion of Leadership,16 a good

theatre, or film director encourages the emergence of a great

perform-ance from the ensemble, by imposing “creative constraints” that liberate

creative energy “Creative leadership is a balancing act between the

emergent and the directed … the changes that will happen in spite of,

or without, your interventions and the desired changes that can be

encouraged by your actions and directions.”

This is the role of patriarchs of MaBEs The rules that led to the

emergence of Linux and the Wikipedia are creative constraints that

liberate energy, which the patriarchs protect thereafter by saying “no”

from to time

Their model is Holden Caulfield, protagonist and narrator of J D

Salinger’s novel, Catcher in the Rye, and his imagined role as the

guardian of young children playing in a rye field on the edge of a cliff.17

The argument so far

Part I was about how big business has got to where it is today and why

it is not a good place, either for people or big business It argued that

large, joint stock companies face two main challenges If they don’t

offer work more in tune with what people want, they will find it hard to

attract and keep good staff and if they don’t rein in executive pay, they

will destroy the political consensus on which their current freedoms

depend Part II is about where big business goes from here and how it

can reform itself It begins in this chapter with a warning: if MuBEs

cannot kick their addiction to omnipotent, charismatic leaders they may

find it hard to defend their markets against attacks by more adaptable

MaBEs In the last three chapters we look at how MuBEs can take up

arms against their sea of troubles

References

1 The Sunday Times 100 best companies to work for, March 8, 2009.

2 Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, Princeton

5 At Home in the Universe: The Search for the Laws of Self-Organization and Complexity,

Oxford University Press, 1995.

6 Competitive Strategy: Techniques for Analyzing Industries and Competitors, Free Press,

1980.

7 The Fifth Discipline, Doubleday, 1990.

8 Thriving on Chaos, Macmillan, 1987.

9 Competing for the Future, Harvard Business School Press, 1994.

10 Chaos, Management and Economics: The Implications of Non-Linear Thinking, Institute of

Economic Affairs, Hobart Paper 125, 1994 See also: Complexity and Creativity in

Organizations, Ralph Stacey, Berrett-Koehler, 1996.

11 Financial Times, December 7, 1998.

12 Is Microsoft the Great Satan?, FSF, 2007.

13 IDC press release, August 27, 2008.

14 Microsoft Missing Netbook Growth as Linux Wins Sales, November 6, 2008.

15 “El Aleph,” first published in the Argentine journal, Sur, in 1945.

16 The Illusion of Leadership: Directing Creativity in Business and the Arts, Palgrave Macmillan,

2008.

17 Catcher in the Rye, Little, Brown, 1951.

That the distributive injustices it’s creating have contributed to the

erosion of public trust in the liberal capitalist system; that it denies its

employees sufficient bases for self-respect and that its structure is

unsuited to the modern business environment, does not mean the large

joint stock company is doomed But it does mean it has some adapting

to do if it is not to undermine the liberal capitalist consensus utterly,

and lose the able people it needs to maintain its current position to

other kinds of enterprise, better suited to the modern world

It has adapted of course, and continues to adapt Globalization is

an adaptation to improved communications and the removal of trade

barriers The unilateral repudiation of the “loyalty for security”

psychological contract between companies and their employees was

an adaptation to a more volatile and competitive environment The

adoption of shareholder value maximization as the listed company’s

primary objective, and the emergence of debt as the main source of

company finance, were both adaptations to the growth and increased

efficiency of capital markets

But adaptations to environmental pressure in one area often create

new environmental pressures in other areas This chapter examines two

adaptive approaches that large companies have pursued over the past

two decades with little success, and a third approach that is both more

promising and more challenging

The question of purpose

A decade ago, before the management discourse came to be dominated

by shareholder value analysis and financial engineering, there was quite

a lively debate about the “purposes” of companies It seemed a

poten-tially powerful adaptive approach, because it addressed the problems

created by the large company’s perceived detachment from the moral

constraints of civil society If a company could somehow persuade its

existing and prospective employees and customers that it was moved by

a higher purpose than making profits, it could, or so it seemed, become

better adapted to the modern environment

Some commentators argued that it was the responsibility of CEOs

or “leaders,” as they were coming to be seen, to choose purposes for

their companies, and that they could choose whatever purposes they

liked, subject to the constraints imposed by capital markets

If it’s true that companies are free to choose whatever purpose or set

of purposes they like, they’re free, it was argued, to be what they like; to

be, for example, “soft,” rather than “hard”; “nice,” rather than “nasty”;

“responsible,” rather than “selfish”; and “cooperative” rather than

“competitive.”

I was associated with this idea, because of a book I had written a few

years before, in which I had argued that companies were coming under

pressure to behave in ways that were seen, by their existing and

poten-tial employees, customers, suppliers, and neighbors (by which I meant

local communities and society at large), to be fair, ethical, responsible,

and responsive, because otherwise they would be unable to attract and

retain able employees and loyal suppliers and customers.1

I emphasized, however, that what I had called “niceness” was not a

purpose, but an aspect of a new shareholder-value-maximizing (SVM)

strategy more in tune than the traditional “nice guys finish last”

philos-ophy, with the heightened environmental, moral, and community

consciousness of existing and potential employees and customers

Although I have some sympathy with the thinking behind it, the

idea that a company can choose its purpose is wrong A company can

have no purpose other than to maximize shareholder value, and that is

not so much a purpose as a raison d’être, or fate bequeathed to it by the

logic of the capitalist system

Capital moves to its highest value use If a company declared that (or

behaved as if) it regarded SVM as subordinate to some higher purpose,

such as supplying quality goods and services to customers or quality of

life to employees or other “stakeholders,” it would become less

attrac-tive to investors, which would cause its cost of capital to rise, and its

ability to achieve any purpose to fall

The debate about the “purposes” of companies and the popularity

of what I’ve always thought was the rather facile idea that investors are

just one among a number of so-called “stakeholder groups” who have

legitimate claims on the company, both stem from the mistaken belief

that SVM is irreconcilable with allegedly nobler aims, such as serving

customers, caring for employees and the environment, or being a

responsible corporate citizen

Companies are not free to choose their purposes, but they are both

free and duty bound to choose ways to maximize shareholder value

Because SVM is hardly a goal that can stir human blood and inspire

extraordinary effort, other purposes, visions or missions may need to be

invoked But it is wrong to see a mission as having priority over or being

in some sense “higher” than the goal of SVM Visions and missions are

marketing; means to the end of creating value for shareholders, not

ends in themselves

I have never wavered from this position My view was always that the

“nice” strategy was value maximizing, because it acknowledged the

value of a class of intangible assets that I call “reputational,” the

accumu-lation and preservation of which were in the interests of shareholders

Although some, including Elaine Sternberg,2 concurred, others took

serious issue with this view, and some even seemed to find it downright

obnoxious The quality of giving, in their view, is more to do with the

motives that inspire the giving, than with the gift itself, although what

earthly difference motivation makes to those who receive I have never

been able to fathom

Those who insist there is something disingenuous and cynical about

companies that give generously to charities, adopt codes of ethics and

promulgate environmentally responsible operational guidelines, not

out of the goodness of their corporate hearts but to maximize value for

shareholders, are effectively arguing that the owners of companies

should subordinate their interests to nobler more caring purposes

chosen by executives This is absurd Shareholders choose their own

causes to support It is not the job of managers to act as the consciences

of their shareholders and nor are they equipped for that role

But that doesn’t mean appeals to the company’s non-existent better

nature are pointless Such appeals are messages from outside about the

changing relative value of the various classes of reputational asset, and

thus convey important information to value maximizers Moreover,

volunteering, company philanthropy, and Corporate Social

Responsi-bility (CSR) projects engage the humanity of employees who do have

“better natures,” and thus add authenticity to the “nice” strategy

Although sincerity and a genuine wish to do good are not necessary

when hunting for “reputational assets,” they can help to maintain

consistency and reduce the risk of the company’s exposure as a

corpo-rate hypocrite

There are many genuinely good, even saintly, people working in the

community relations departments of many companies, creating value

for shareholders as well as for the clients of their volunteering,

philan-thropic, and community activities But there’s no denying the conflict

between the company as a value creator and the company as a

respon-sible and generous corporate citizen To minimize the cost of financial

capital, firms must appear to be “value hunters”; but to minimize the

cost of human capital (and maximize their ability to attract and keep

employees and customers), firms must appear to be “value givers.”

In the past the conflict was resolved by the “security for loyalty

contract” (keep your nose clean and close to the grindstone, and you’ve

got a job for life) before it became a dilemma When it was “my

company, right or wrong” there was no need for the company to be

responsive to public opinion Now that companies have forfeited

employee loyalty, by unilaterally repudiating the old security for loyalty

contract, the inherent conflict emerges

Philanthropy, CSR, volunteering, and commitments to sustainability

or carbon neutrality are all sensible adaptations Companies can’t disavow

a value-hunting destiny bequeathed by nature, but they can try (and

many are trying), to resolve the value-hunting vs value-giving dilemma

by wearing new clothes, and going about their value-hunting business

with an appearance of niceness and the attributes associated with it

The problem with this kind of adaptation is cognitive dissonance

Because it relies on masquerade, on giving the impression that the

company is a value giver, while it remains, by its nature, a value hunter,

there is a constant risk of being unmasked Reputational assets are hard

to win, but easy to lose A reputation for being a socially responsible

neighbor, earned, for example, by helping the unemployed in the area

around a company factory, will be destroyed overnight by a

value-hunting decision to close the factory and set up manufacturing overseas

where wage costs are lower

Moreover, CEO-led companies could find it hard to earn

reputa-tions for being philanthropic, and concerned about the disadvantaged,

if they continue to pay their CEOs huge salaries, contribute enormous

sums to their pension funds, grant them king’s ransoms in bonuses,

stock options, and restricted stock each year, and ferry them about in

executive jets

Soul and community

Another kind of adaptation some companies tried was to replace the

long-repudiated security for loyalty psychological contract with a new

kind of magnetic glue to attract and keep able employees

It was proposed, for instance, that since the human hunger for the

sacred and profound was no longer satisfied, in this secular age, by

non-work institutions, employee loyalty will be strengthened if the leader

can discover (or “conjure up,” if you’re a skeptic) the company’s “soul,”

articulate it and embed it in the culture.3

I call this argument “the company as church” and I personally find

it repugnant But the idea that satisfying a spiritual hunger not being

met by any external institution should make the company more

attrac-tive to employees on whose loyalty it depends, is perfectly sensible

Corporate soul would probably make a great magnetic glue if it existed

or could be invented, and if employees were moved by it But although

people certainly do hunger for spiritual meaning, there is no evidence

that they seek it in, or would accept it from corporate churches It’s

presumptuous and, therefore, foolish for companies to suppose they

can induce people to make such deep personal commitments They can

have our diligence, professionalism and, sometimes, our friendship, but

they cannot have our souls and most self-respecting employees would

be offended if they asked for them

A more palatable variation on the theme is the idea that companies

should turn themselves into working “communities” rather than mere

workplaces; that people are starved of a sense of community in the

urban environments in which most companies operate, and are likely to

work hard for, and become committed to, a company that feels as if it’s

a community CEOs shuttle from site so site, holding “town meetings,”

instead of making monologue presentations, to introduce the latest

strategic initiative.4

I call this idea “the company as village.” As well as being rather more

appealing than the “the company as church,” it’s more in tune with

human nature and with how people socially construct their own

work-places But a large company is too big, and its employees are too

dispersed to be one community Moreover, it is difficult for employees

attending a town meeting to see their superstar CEO, who has many

other meetings scheduled at other sites, as their locally elected mayor

The town meeting model of CEO–employee interaction invites

ques-tions from the floor and it is, therefore, better than simply issuing

orders But when all is said and done it’s merely a rallying of the troops,

masquerading as an exercise in democracy Asking for questions from

the floor is just a courtesy Everyone knows there can be no debate; that

the CEO system has already made up its mind by then

The trouble with these assumed qualities and roles is that they’re

hard to reconcile with the qualities expected in “the company as a value

creator.” As CSR managers who have to fight with their CFOs to retain

their budgets at the bottom of business cycles know only too well, this

isn’t just a theoretical problem There’s something about large, modern

companies that makes them look awkward wearing “nice” and “soft”

attributes It is almost as if they’re the wrong sex for such finery

Too few women

Efforts to acquire reputations for being soft, nice, sensitive, and caring

amount in my view to the most coherent and, potentially at any rate,

the most promising, of the adaptive strategies currently being deployed

by large companies

Since soft, nice, sensitive, and caring are adjectives applied more often

to women than to men, the adaptation can be characterized as an attempt

by companies to get in touch with, and project, their feminine sides

How could companies go about this adaptive change? It seems fairly

obvious that the best way would be to appoint more women to senior

executive positions I say “more,” because, at present, there are very

few women in powerful positions in large U.S and U.K companies

According to Catalyst, a U.S non-profit focused on women’s issues,

women accounted for barely 15 percent of board positions in large U.S

companies (Fortune 500 companies) in 2008 And according to The

Female FTSE Report, published each year by Cranfield University’s

School of Management, women accounted for less than 12 percent of

the directors of large U.K companies in 2008 The position is worse

than these figures suggest, because of the 131 women on the boards of

FTSE 100 companies in 2008, only 12 were executive directors

Why so few women at a time when there is supposed to be a “war for

talent,” companies are under pressure to project a more caring and

sensitive image and, as I and my friends and co-authors Peninah

Thomson and Jacey Graham reported in our book, A Woman’s Place is

in the Boardroom: The Business Case,5 many of the male chairmen and

CEOs of our large companies seem genuinely keen to appoint more

women to their boards?

We related, in the book, what we all felt was a revealing exchange

during a “diversity workshop” at a large U.K company A group of 30

or so middle managers, about half women and half men, had gathered

off-site to discuss their company’s new “diversity” program:

“OK!” said the facilitator loudly enough to be heard above the

largely female chatter “Everyone’s here, so let’s get started The first

thing I want you to do is spend a minute or two jotting down some

thoughts about the company you all work for Since the subject

today is diversity, it would be good to have diverse perspectives, so I

want women to describe what it’s like being a woman working for

the company, and men to describe what it’s like being a man working

for the company.”

There was silence for a few moments, as the 30 participants collected

their thoughts Then they started writing furiously Or, rather the

women started writing furiously It seemed the men needed longer

to gather their thoughts – so long that, eventually, the facilitator

asked one of them whether there was a problem He looked around

at the other men and, reassured to see his own puzzlement reflected

on their faces, said: “Yes I’m sorry, but I’m not sure I understand

the question.”

What struck us most about this exchange was not the hapless male’s

obtuseness, but what his and his fellow males’ confusion revealed about

their company and companies in general What is it about the modern

company that made the men react to what seemed, on the face of it, a

fairly straightforward question, as fish might react when asked to

describe water?

It is not just that, in the upper echelons of corporate hierarchies at

least, men outnumber women, and that this majority is reflected in

company cultures There seems to be something more profound and

deep-seated about this maleness of companies than a male numerical

superiority

We decided that, as the ladybird found in the animated film A Bug’s

Life, with his deep voice and belligerent manner, it is not easy to get in

touch with your feminine side with testosterone coursing through

your veins

Matt Ridley, former chairman of the state-owned U.K mortgage

lender Northern Rock (see Chapter 6), supplied a clue to where the

inherent maleness of modern companies might have come from in his

book, The Red Queen.6 Ridley’s not a banker He’s a science popularizer

and an evolutionary psychologist In The Red Queen, he pointed out

that humans are unique among the apes in having developed a sexual

division of labor In chimpanzee societies females and males seek the

same foods, but in early human societies women and men looked for

different foods Women gathered, and needed to read the shapes of

trees and plants, the patterns of foliage where edible berries, nuts, and

roots might be growing, and the colors of their ripeness Men hunted,

and needed a sense of direction and location, of where they were, so

they could find their way home after the chase

These differences in the skills required for gathering and hunting

in the Pleistocene period can be summarized by saying women had to

be good at pattern recognition, which made them better at reading

faces and judging character and mood than men, and that men had to

be good at reading maps These contrasting aptitudes of gatherers and

hunters survive to the present day When a couple in a car get lost she

wants to stop and ask someone the way, but he reaches for the map

Both are playing to their strengths She’s relying on her pattern

recog-nition ability and associated social skills inherited from her

fore-mothers He’s relying on his sense of direction and “bump of locality”

inherited from his forefathers, who had to find the way home after

hunting trips Differences between the minds as well as the bodies of

female and male humans evolved, because they played different roles

in Pleistocene society

The differences transcend cultures Men everywhere want to be seen

as “practical,” “shrewd,” “assertive,” “dominant,” “competitive,”

“crit-ical,” and “self-controlled,” and women everywhere want to be seen as

“loving,” “affectionate,” “impulsive,” “sympathetic,” and “generous.”7

We talk in different ways too, and for different reasons Male

conversa-tion is public, competitive, status-seeking, factual, and designed to

demonstrate knowledge Female conversation is private, cooperative,

reassuring, empathetic and enjoyable for its own sake.8

Ridley says that some of the differences stem from the division of

labor (gathering, hunting); some stem from our ape heritage (adult

females leave their groups and live with strangers, males live among their

kin); and others are attributes of all mammals and many birds (females

raise the young, males compete for females) “It surely cannot be a

coin-cidence” he says “that men are obsessed with status … and that male

chimpanzees compete for status, in strict hierarchies of dominance.”

He suggests that our human and mammalian heritage may also

explain why men and women differ in their ambition In all early

socie-ties male reproductive success, the only success evolution cares about,

was measured in terms of quantity, and depended on status; how far the

male climbed up the group or tribal hierarchy Women were less

inter-ested in hierarchy-climbing, because quality was the measure of their

reproductive success, and that depended on the status of their mates

They had to judge the quality of possible mates, find allies in the tribes

into which they married and improve the well-being of their children by

persuading others to help them The few women who are ambitious do