The Crisis of Corporate Leadership_6 docx

142 Business at a CRossRoads 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. 9780230_230941_09_cha07.indd 142 09/09/2009 10:02 7 LeadeRLess CompetitoRs 143 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 University Press, 2002. 3 The Visible Hand: The Managerial Revolution in American Business, Harvard University Press, 1977. 4 Explorations in Economic Sociology, edited by Richard Swedberg, Russell Sage Foundation, 1993. 5 At Home in the Universe: The Search for the Laws of Self-Organization and Complexity, Oxford University Press, 1995. 9780230_230941_09_cha07.indd 143 09/09/2009 10:02 144 Business at a CRossRoads 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 Futur e, 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 T imes, December 7, 1998. 12 Is Micr osoft the Great Satan?, FSF, 2007. 13 IDC pr ess release, August 27, 2008. 14 Micr osoft Missing Netbook Growth as Linux Wins Sales, November 6, 2008. 15 “El Aleph,” first published in the Ar gentine journal, Sur, in 1945. 16 The Illusion of Leadership: Directing Creativity in Business and the Arts, Palgrave Macmillan, 2008. 17 Catcher in the R ye, Little, Brown, 1951. 9780230_230941_09_cha07.indd 144 09/09/2009 10:02 145 8 The adaptive challenge 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 9780230_230941_10_cha08.indd 145 09/09/2009 10:02 146 BUSINESS AT A CROSSROADS 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. 9780230_230941_10_cha08.indd 146 09/09/2009 10:02 8 THE ADAPTIVE CHALLENGE 147 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- 9780230_230941_10_cha08.indd 147 09/09/2009 10:02 148 BUSINESS AT A CROSSROADS 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. 9780230_230941_10_cha08.indd 148 09/09/2009 10:02 8 THE ADAPTIVE CHALLENGE 149 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 9780230_230941_10_cha08.indd 149 09/09/2009 10:02 150 BUSINESS AT A CROSSROADS 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 9780230_230941_10_cha08.indd 150 09/09/2009 10:02 8 THE ADAPTIVE CHALLENGE 151 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, 9780230_230941_10_cha08.indd 151 09/09/2009 10:02 [...]... cultures Some of the chairmen and CEOs we spoke to while we were writing A Woman’s Place, said the appointment of the first woman to a board made a difference, but not as much of a difference as the second and third The full therapeutic effects of the infusion of women into large companies won’t be fully realized until women are as firmly established at the top of large companies as they are in the registrar... advantage Feminine management Some of the benefits companies gain when they’re better than their competitors at attracting and keeping able women are obvious They have access to a larger pool of talent They are more sensitive to the concerns of their markets, because most of their customers are women They are also likely to be better at acquiring and keeping the “soft,” 154 Business at a Crossroads... rather than for money itself, that keeps the eyes of executives on the benchmarks The second is that, as we have seen, women are more concerned with relationships and seeking consensus than men, and are generally better at reading character and mood, and seeing things from the points of view of others They have more empathy They are, therefore, more likely to be conscious of, and concerned about, the. .. or services Combining the two, she suggests, ensures that ideas “are successfully grown and launched into the system.” Just as there is synergy in the parenting styles of the mother and father, with one protecting and the other preparing, so there is, in my view, much for companies to gain from making themselves more attractive to able women, and somehow or other ensuring that their inherent maleness... foreseen Their nemesis wasn’t Toyota, Honda, or Nissan, but a new system of production, often attributed to American consultant, Edwards Deming, the significance of which was below the threshold of the big three’s awareness at the time The Japanese auto makers didn’t set out to conquer Detroit They adopted JIT (just-in-time) supply, because they lacked the capital to invest in stocks, and they embraced... their ambition In all early societies 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 interested 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. .. about, the effects on the motivation and self-respect of employees of very high levels of senior executive pay 160 Business at a Crossroads The promise of women The appointment of more women to senior management positions is no panacea for the ills that beset big business The male-dominated status quo retains a firm grip on the future and it will take time for the influence of additional women to... 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... a chain of events triggered by its decision to take on Apple, and enter the personal computer market It was “hoist with its own petard” in a process no one controlled The epitome of the planned corporation was brought low by an unplanned and inherently unpredictable sequence of events GM, Ford, and Chrysler were similarly humbled by a concatenation of events on the other side of the Pacific they could... consistent with the research cited above which found the leadership styles of women tend to be “transformational,” rather than “transactional.” Pay There are two reasons why it seems likely that the arrival of more women in the top echelons of company management will moderate the upward pressure on executive pay The first is that women are less hungry for status than men, and it is hunger for the status . 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. things from the points of view of others. They have more empathy. They are, therefore, more likely to be conscious of, and concerned about, the effects on the moti- vation and self-respect of employees. 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,