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Future of the Firm This Is Not Business as Usual Josh Bersin, Tim O’Reilly, Roger Magoulas & Mike Loukides Future of the Firm Josh Bersin, Tim O’Reilly, Roger Magoulas, and Mike Loukides Beijing Boston Farnham Sebastopol Tokyo Future of the Firm by Josh Bersin, Tim O’Reilly, Roger Magoulas, and Mike Loukides Copyright © 2019 O’Reilly Media All rights reserved Printed in the United States of America Published by O’Reilly Media, Inc., 1005 Gravenstein Highway North, Sebastopol, CA 95472 O’Reilly books may be purchased for educational, business, or sales promotional use Online editions are also available for most titles (http://oreilly.com) For more infor‐ mation, contact our corporate/institutional sales department: 800-998-9938 or cor‐ porate@oreilly.com Editor: Mac Slocum, Virginia Wilson, Jenn Webb Production Editor: Melanie Yarbrough February 2019: Copyeditor: Rachel Head Interior Designer: David Futato Cover Designer: Karen Montgomery First Edition Revision History for the First Edition 2019-02-22: First Release The O’Reilly logo is a registered trademark of O’Reilly Media, Inc Future of the Firm, the cover image, and related trade dress are trademarks of O’Reilly Media, Inc The views expressed in this work are those of the authors, and not represent the publisher’s views While the publisher and the authors have used good faith efforts to ensure that the information and instructions contained in this work are accurate, the publisher and the authors disclaim all responsibility for errors or omissions, including without limitation responsibility for damages resulting from the use of or reliance on this work Use of the information and instructions contained in this work is at your own risk If any code samples or other technology this work contains or describes is subject to open source licenses or the intellectual property rights of others, it is your responsibility to ensure that your use thereof complies with such licenses and/or rights 978-1-492-05384-2 [LSI] Table of Contents Future of the Firm Setting the Context Trust, Responsibility, Credibility, Honesty, and Transparency The Search for Meaning New Leadership Models and Generational Change Big Systemic Thinking New Kinds of Partnerships Between People and Machines From Hierarchies to Networks Free Agency, Personal Brands, and the Evolving Employer/ Employee Relationship Compensation Beyond Pay Diversity, Inclusion, and Fairness at Work Board Governance and Diversity Conclusions 11 13 14 17 19 20 22 24 iii Future of the Firm We’re excited that O’Reilly Radar is partnering with Josh Bersin to cover topics like organizational learning, workforce expectations, adapting to digital transformation, and leveraging technology for human resources—all topics related to the future of the firm Bersin has a long history of providing prescient advice on the human side of what organizations need to tackle the changing technological landscape they face You may know him from the research reports he developed at Bersin by Deloitte The “future of the firm” is a big deal As jobs become more automa‐ ted, and people more often work in teams, with work increasingly done on a contingent and contract basis, you have to ask: “What does a firm really do?” Yes, successful businesses are increasingly digital and technologically astute But how they attract and man‐ age people in a world where two billion people work part-time? How they develop their workforce when automation is advanc‐ ing at light speed? And how they attract customers and full-time employees when competition is high and trust is at an all-time low? When thinking about the big-picture items affecting the future of the firm, we identified several topics that we discuss in detail in this report: Trust, responsibility, credibility, honesty, and transparency Customers and employees now look for, and hold accountable, firms whose values reflect their own personal beliefs We’re also seeing a “trust shakeout,” where brands that were formerly trus‐ ted lose trust, and new companies build their positions based on ethical behavior And companies are facing entirely new “trust risks” in social media, hacking, and the design of artificial intel‐ ligence (AI) and machine learning (ML) algorithms The search for meaning Employees don’t just want money and security; they want satis‐ faction and meaning They want to something worthwhile with their lives New leadership models and generational change Firms of the 20th century were based on hierarchical command and control models Those models no longer work In success‐ ful firms, leaders rely on their influence and trustworthiness, not their position Big systemic thinking The firm of the future must be able to adapt to changing envi‐ ronments, changing interactions with its customers, and chang‐ ing communications patterns within the organization Every firm must understand their business is a complex system, and that it’s impossible to change one aspect of the organization without affecting everything else New kinds of partnerships between people and machines AI and ML are changing almost every job This shift raises many questions: Who manages the machines, and how? What skills those new managers need, and how are they acquired? What kinds of compensation are appropriate? From hierarchies to networks Firms of the future are trending toward networked marketpla‐ ces where organizations build on their core competencies and outsource the rest to a network of contractors and free agents Increasingly, these networks are managed by centralized algo‐ rithmic systems Free agency, personal brands, and the evolving employer/employee relationship Employees are free agents, which means hiring and retaining talent is difficult Firms need to help employees meet their career goals, satisfy employees’ ethical concerns, and more | Future of the Firm Compensation beyond pay The nature of compensation is changing, with firms offering alternate work relationships, more flexible workplaces, training opportunities, additional perks and benefits, and more of a sense of “taking care” of workers Diversity, inclusion, and fairness at work It’s well known (but not well practiced) that diverse teams pro‐ duce better results But achieving diversity is more than a mat‐ ter of filling the pipeline with new hires Diversity requires solving compensation problems, creating a safe workplace, inclusion, and ensuring everyone knows their opinions will be respected Board governance and diversity Board independence and increased diversity can help improve board governance Diverse boards provide broader perspectives and ask better questions, helping improve outcomes and adapt‐ ing to rapidly changing business environments This is only a preliminary map of the territory, with some topics appearing across multiple regions Our high-level view tries to dis‐ tinguish the cities from the fields, mountains, rivers, and oceans that surround them Whatever the future of the firm, rest assured, it won’t be business as usual Setting the Context Before diving into the details, let’s look at the factors that have influ‐ enced our perspective on the future of the firm The economist Milton Friedman claimed that “there is one and only one social responsibility of business—to use its resources to increase its profits.” This formula no longer works Today, driven by technological, social, and political factors, success requires broad systemic thinking about all the players the organization affects— employees, customers, society, the environment, fairness, inequality, and purpose The context, the milieu, the incentives, the scale, and the workforce expectations that organizations operate in have all changed in a world with increasingly sophisticated automation, with massive social connectivity, and with issues of inequality and climate change More and more people are questioning whether the basic Setting the Context | tenets of capitalism work best for everyone, whether automation will wipe out jobs, what millennial and younger employers want and demand from the companies they work for There’s a lot going on, a lot to digest, and a lot to process For exam‐ ple, Seth Klarman, in a recent (and rare) interview with Evan Osnos at The New Yorker, explains how his focus on value investing helped him evolve his thinking—that a short-term profit focus is the wrong perspective for organizations, that they need to focus on customers, on employees Recent reporting from the Davos World Economic Summit highlights the “clueless” response from billionaire attendees that “upskilling” for a digital age is all that’s needed, that wealth inequality is not the problem And for citizens, the situation is worse: the latest research shows that only 20% believe “the system is working for me.” These observations and many more help inform this compendium of topics In the sections that follow, we address what business lead‐ ers, tech leaders, and decision-makers can expect; how they can pre‐ pare; and what they should learn to shape the future of their own firms These are lessons that affect much more than the bottom line Trust, Responsibility, Credibility, Honesty, and Transparency From our perspective, we see society undergoing a trust shakeout, with formerly trusted brands losing that trust and new trust inter‐ mediaries ascending to positions of trust and influence Organiza‐ tions can take advantage of the shakeout to focus on building trust and earning a trust premium that both customers and employees value As Laura Baldwin, President of O’Reilly Media, likes to say, “Your customer (your user) is your conscience.” Not only your custom‐ ers let you know when you’ve let them down, they let the world know And increasingly, there are some with a much bigger mega‐ phone than others In particular, there are people who understand what Jeremy Heimans and Henry Timms call “New Power” Donald Trump rode social media power all the way to the White House; Alexandria Ocasio-Cortez has become a congressional powerhouse even as a freshman because she too knows how to work the levers of internet visibility and vitality | Future of the Firm as a service,” sound simple in retrospect But getting through the complexity to those decisions isn’t simple There are no silver bullets; big systemic thinking can go just as wrong as any other thought process Getting through the noise to communicate those decisions to employees, to customers, and to the board of directors isn’t simple, either But without that kind of thinking, you can’t be right New Kinds of Partnerships Between People and Machines At internet companies like Google, Facebook, and Amazon—and any other company delivering software-based services—we need an inversion of perspective It’s easy to think that programmers are sim‐ ply workers, assembling code like a previous generation assembled manufactured goods, but in fact, much of the actual work these companies to serve their customers is done by software agents At Amazon, one piece of software shows you your buying options Another takes your order Another queues it up for shipping The software developers and “DevOps” staff are the managers of this new generation of workers Every day, the managers are checking on their digital workers, A/B testing new approaches, and giving their workers feedback in the form of new code releases Meanwhile, the central job of massive, real-time coordination of people and resources—formerly done by human managers—is increasingly done by machine learning and artificial intelligence sys‐ tems The humans creating these systems are more like their teach‐ ers than their managers They create them and train them, then turn them loose on the problem When something goes wrong, those with a 20th-century perspective expect the company management to step in to fix the problem directly, but in a 21st-century company like Facebook, Google, or Amazon, the company’s programmermanagers must actually retrain the systems, or build new ones to compensate for their failings The humans no longer run the opera‐ tions directly Managing the unintended side effects of poorly designed systems becomes the principal focus of human managers For a purely digital company like Google or Facebook, the analogy stops there But at companies like Walmart, Amazon, or Uber, which provide physical-world services, the software bots are inter‐ New Kinds of Partnerships Between People and Machines | 13 mediaries between the managers and humans When a customer requests a ride from Uber or Lyft, a software agent routes a driver to the pickup, and from there to the destination But the driver isn’t the only one in the workflow In what Microsoft researcher Mary Gray calls “Ghost Work”, a pieceworker in India may be performing a security check on the driver via Amazon’s Mechanical Turk service Uber is a single vast machine made up of humans and software working in a complex dance Machines also upskill the drivers It is no longer necessary for a driver to know their way around the city The app knows that This is one of the key enablers of a model in which anyone can drive for pay This is also the new face of learning on demand: learning by doing, with the machine guiding you along the way Autodesk, the engineering and construction management company, is exploring this same concept, building tools that increasingly help humans to complex jobs not just by teaching them new skills but by partner‐ ing with them in new ways While we don’t know all the implications of automation and AI, we know people will still have important roles Already, as AI enters roles like retail and customer service, companies like IBM and American Express are hiring people to monitor decisions made by software, improve social cues, and translate machine recommenda‐ tions into more meaningful recommendations Just as we “train” our computers to think through software and instructions, people will “train” their robots to be more successful through feedback From Hierarchies to Networks Ever since Ronald Coase wrote “The Nature of the Firm” in 1937, the general understanding has been that the command and control systems within a single organization have lower transaction costs than the cost of finding, vetting, and contracting from among a marketplace of small independent businesses That system peaked with the lifetime employment and generous benefits of the golden age of industrial concentration But for the last 30 years, companies have been building two-tier organizations (with a highly compensa‐ ted core of dedicated employees and a far larger base of fungible contractors) and outsourcing relationships, usually to large out‐ sourcing companies that hide the churn of workers at the fringe 14 | Future of the Firm The internet and big data added the last pieces of the puzzle, provid‐ ing capabilities for companies to directly manage large networks of individuals (though intermediaries may also still play a role) A company such as Uber or Airbnb displays this pattern in its fullness: asset light, algorithm heavy Human-scale marketplaces and man‐ agement processes have been replaced by algorithmic, internet-scale marketplaces in industries such as advertising, where Google is only the largest of the algorithmic advertising networks that have threat‐ ened “Mad Men”–style agencies Amazon only looks like a retailer; once you realize that it carries more than three billion SKUs world‐ wide (600 million in the US alone), many of them from third-party sellers who themselves carry all of the inventory risk, you under‐ stand that it, like Uber or Google, is an algorithmic matching mar‐ ketplace, pairing up buyers and sellers in real time Systems like these preserve the appearance of free market econo‐ mies, but in reality they are centrally planned economies, where the designers of the algorithms ultimately choose who gets what and why As these platforms achieve near monopoly status, it vastly increases their power relative to their marketplace participants We need a new theory of antitrust: one that measures the health of plat‐ form marketplace ecosystems, and the extent to which marketplaces compete with their suppliers, rather than simply looking at con‐ sumer benefit Building platforms that take better care of suppliers, not just their users, can create a critical strategic advantage You can already see this, for example, in Apple’s position on privacy (treating its users as data suppliers to be valued, whereas Google and Facebook treat them as resources to be exploited) It Isn’t Just Internet Giants Who Manage Networks O’Reilly Media can be seen as a case study in how to build competi‐ tive advantage by recognizing a business as a two-sided market‐ place of suppliers and customers Twenty years ago, the company was primarily a publisher of computer books Realizing its success depended not only on its community of authors as suppliers but also on the communities of open source and internet software developers who created the technologies they wrote about, the company added a conference business to bring together and evan‐ gelize the work of those developer communities O’Reilly also launched an online ebook platform to which it invited even its big‐ From Hierarchies to Networks | 15 gest competitors, because the company leaders understood they had to grow the whole market and not just their own share of it As new online learning modalities like video and live training became pos‐ sible, they morphed their platform to embrace them, not just because they are popular with users but because they provided new revenue opportunities for their suppliers Thinking beyond simple compensation, O’Reilly offers authors the opportunity to speak, provide training, and participate in live online events on its learning platform and at the many conferences the company puts on By providing these opportunities for authors, O’Reilly helps those authors bolster their credibility and reputa‐ tions, and they in turn help the company maintain its reputation as a top destination for those interested in teaching what they know about cutting-edge technology This is a major benefit to the com‐ pany’s customers, but its business strategy was triggered by under‐ standing what would make the marketplace more vibrant for its suppliers Perhaps the biggest change taking place is the rapid evolution away from management hierarchies to networks of highly empowered teams More than two decades ago, software engineers realized that large, hierarchical software teams were underperforming, so they developed the concept of small, multifunctional teams (The book The Mythical Man-Month by Frederic P Brooks, Jr., first pointed this out.) Since then, the business concepts of “Agile,” “teams,” “Scrum,” and “iterative development” have exploded in all areas of business, shat‐ tering the corporate hierarchy Yes, companies still have job levels, managers, and executives, but more and more companies now real‐ ize that people not perform well when they are “told what to do.” What really makes companies thrive is letting people “solve prob‐ lems,” “serve customers,” and “invent” in their own personal ways In a recent study published in the Harvard Business Review, 83% of R&D departments, 82% of operations, 79% of marketing, and 78% of sales, HR, and finance teams reported that they believed they were using some form of “Agile” in their business operations While the true application of Agile principles in non-software operations is still emerging, the trend is clear and unstoppable The firm of the future is a network, not a functional hierarchy 16 | Future of the Firm This has implications in many areas of management Should we pro‐ mote people “up” or “across”? Should we pay people for individual performance or team results? Should we promote leaders who are good at direction and strategy or those who thrive at coaching and development? Should we develop goals from the top down or bot‐ tom up? Every management principle can now be questioned, and as we see companies like GE fall behind in their growth and profitability, we can question decades of management philosophies based on the industrial organization of business We believe the future of the firm is an empowered, bottom-up structure—and one that operates like a network, not a directed hierarchy Free Agency, Personal Brands, and the Evolving Employer/Employee Relationship As the bonds of loyalty fray between companies and their employ‐ ees, there are two countervailing trends First, relatively low-skilled employees, who might once have had secure jobs, have joined what Guy Standing calls “the Precariat”, living lives of continuous partial employment In contrast, highly sought-after employees (such as AI professionals in Silicon Valley) have become the equivalent of movie or sports stars The ability of such people to build reputations through open source software, blogging, and other forms of internet visibility gives them free agency This leads to a tension in which some companies seek to hide their talent, while others let them dis‐ play it freely You can see this in the difficulty Amazon and Apple had in recruiting AI talent because of their cultures of secrecy, while Google and Facebook allowed employees to publish their research Amazon was forced to open up, and Apple is starting to Skills and capability far outweigh seniority and tenure for determin‐ ing free agent compensation In highly stratified organizations, this can cause serious dislocations in pay and status For example, in order to appropriately compensate cybersecurity professionals, the White House Office of Personnel Management had to create entirely new compensation guidance, authorized by an act of Congress! If this can happen in government, expect (for now) that salary parity rules at private companies will also be selectively tossed out—until the equity issues get thorny enough for a broad reassessment Free Agency, Personal Brands, and the Evolving Employer/Employee Relationship | 17 Top talent (executive or technical) commands superstar salaries, just as in movies and sports Astonishingly high levels of compensation are funded not with dollars, but with stock options and grants, which pass at least some of the costs to investors and hide the true cost of employee compensation Some companies correctly report stock grants as employee costs, but many continue to bury these costs in footnotes and report non-GAAP financials This has led to a vast compensation imbalance between companies with sky-high stock valuations based on growth momentum and those that are liv‐ ing in the more mundane world of real cash flow and profits This creates increasingly a winner-takes-all race for talent The Superstar Firms theory, put forth by David Autor and others, posits that eventually these higher wages will spread through the corporation and into the broader market, bringing up compensation levels for ordinary employees This is something to be hoped for In the meantime, companies without highly inflated stock must com‐ pensate employees in other ways One such approach is through brand, mission, values, and purpose (we’ll come back to this in the next section) Macroeconomic factors may eventually also bring profitless growth stocks to a more reasonable level Even at lower levels, though, there is far more job mobility, again through online platforms Temporary work through a platform like Upwork can even be a way of gaining new skills in an environment with less risk than at a person’s current employer Data from O’Reil‐ ly’s online learning platform shows that employees often seek addi‐ tional training before changing jobs, and after moving to a new internal job or receiving new responsibilities Training is no longer something employees are sent to; it is something they seek out It is also worth noting there is a new labor movement building, but it’s not focused on the old labor issues It’s more concerned with top‐ ics covered in “The Search for Meaning” on page When Google employees walked out, it was about Google’s failures of social con‐ science, not about higher wages or working conditions They were protesting Google’s involvement in providing AI for military pur‐ poses, and rewards to a top executive who, facing multiple charges of sexual harassment, had been forced out of his job but still received a massive severance stock payout On a humbler level, when 30,000 Starbucks baristas used the coworker.org platform to raise issues with management, the first issue was not higher wages 18 | Future of the Firm but the dress code, which required all employees to cover up any tat‐ toos! Compensation Beyond Pay One of the fast-changing parts of organizations is the way people are paid As increasing numbers of workers engage in contract, contin‐ gent, or gig work, organizations are rethinking their rewards Eco‐ nomic data shows that US workers’ wages are not keeping up with inflation, leading an estimated 40% of American workers to take on “side hustles” How does the firm of the future think about pay? Research shows this is a re-engineering process taking place now A 2018 study by Deloitte found that only 12% of companies strongly agreed that their pay practices were fully aligned with their business strategies In most cases, companies compete for talent, so pay is driven by market wages But when you dig deeper, the data shows something different In any given job family, there are employers who pay less (perhaps even “underpay”) but offer more career development opportunities, a more flexible workplace, and more benefits Others, with more competitive cultures, may pay more—but they expect more This new bifurcation of pay is letting firms think about all their people as independent agents, and they can now create the optimal mix of pay and benefits for their employees We’re seeing a shift in the composition of compensation toward perks, benefits, and non-cash rewards In the US, benefits have grown from 28% of payroll in 1998 to 32% in 2018, increasing the burden employers are taking on This increase is largely due to a rise in medical costs, leading employers to increase focus on well-being programs and other health benefits that reduce health care expenses In fact, there is now an entire industry of corporate well-being pro‐ grams in place, creating an escalating war for the best, most innova‐ tive, most modern types of well-being benefits This goes beyond yoga classes and includes offerings such as programs for fertility, pet care, elder care, and free lunch; allowances for commuting; pro‐ grams to help with student loans, financial fitness, and healthy diet; and mental health counseling And that’s leaving out a huge exten‐ sion in parental leave, exemplified by a CEO as central to his com‐ pany as Mark Zuckerberg taking advantage of his company’s liberal parental leave policy to step away from his job for a full two months Compensation Beyond Pay | 19 This shift in pay to a more customized, integrated set of holistic offerings is forcing companies to be more competitive and accom‐ modate flexible working styles The firm of the future is one that truly takes care of its workers, trying to entice employees to stay put, as more and more options become transparently available on the internet If we see a recession, much of this may slow down, but we see this as being a permanent shift in the way companies pay their people Finally, in the new race for skills and continuous learning, compa‐ nies are starting to realize that learning, development, and career opportunities are a huge surrogate for salary Companies that invest in strategic learning and development (L&D) offerings, internships, and a culture of development can pay people less yet still attract the best and most motivated candidates because everyone is worried about falling out of date Diversity, Inclusion, and Fairness at Work Diversity, inclusion, and fairness are among the most critical issues facing business leaders today The #MeToo movement set off a steady disclosure of gender bias and mistreatment in business The passage of the CEO pay disclosure act set off a discussion about pay fairness The Black Lives Matter movement sensitized non-white workers to their low levels of pay and relatively fewer roles in senior jobs And now people are starting to wonder if AI and algorithmic decision systems are going to take all these decades of bias and insti‐ tutionalize the problem in hiring, promotion, pay, and other talentrelated decisions At the Davos conference in 2019, there were a series of sessions dis‐ cussing the need for wealthy people to take responsibility for philan‐ thropy and social equality As we noted earlier, 51% of millennials have a favorable view of socialism, and the percentage of Generation Xers and Boomers who favor capitalism is declining While many wealthy individuals have set up foundations and other philanthro‐ pies, there is a movement against this kind of giving The book Win‐ ners Take All, by New York Times reporter Anand Giridharadas, argues quite persuasively that it is now time to put our trust back into government and political systems because no matter how hard we try, profit-making enterprises will never what’s right for soci‐ ety 20 | Future of the Firm We believe the future of the firm is a new form of responsible capi‐ talism It is not enough to have social responsibility programs and sustainability programs: companies must gladly pay taxes, they must support and give to political institutions, and they must support the infrastructure-based systems in their communities This is a tricky new space for CEOs and business leaders More than 45% of executives recently surveyed by Deloitte believe their new “social purpose” products and services are revenue generating opportunities That may be true, but it’s the wrong reason to it Companies that don’t truly act responsibly will be found out, and the social backlash can be tremendously damaging: when United Airlines mistreated an animal, when Volkswagen cheated on its emissions tests, when Equifax leaked sensitive data—these are brand-damaging events Right now, we have very uneven economic growth around the world Developed economies are becoming unequal—the Gini index (a statistical measure of income distribution) is getting higher in major democracies than in autocratic countries This means workers and buyers of products feel upset, frustrated, and angry at “wealthy firms.” While the firm is not a person, it represents a persona—and when the CEO and leaders not take an active position on social and political topics they can risk long-term brand damage We know all companies must make money to survive We know that profits fuel economic and business success But despite the stock market’s short-term focus, we believe companies that not specifi‐ cally focus on trust, fairness, inclusion, social responsibility, and building a sense of internal community are going to suffer in the long run If we experience a recession and buying slows, consumers will be even more sensitive—and Generation Zers and millennials are already very sensitive to company brand when they buy prod‐ ucts Companies must inspect and audit fairness in all their new AI and algorithmic digital systems If bias is discovered, it must be fixed promptly and openly; it’s not OK to find out later that a mortgage company was discriminating against black homeowners or a wellbeing company was overpricing products to low-income neighbor‐ hoods just because the AI recommended it Every AI-based decision needs to be validated with a human lens—and this is a new burden and an expertise companies have to develop Diversity, Inclusion, and Fairness at Work | 21 Issues of gender, race, and age diversity must be addressed Yet, an employee survey shows most companies not have programs that enable women and others to openly report on harassment or unfair treatment This is woefully inadequate given the increase in the diversity of the workforce and the sensitivity of employees With companies more service-dependent than ever, despite the growth of automation, diversity becomes a tool for increasing the pool of resources for these important roles Fairness must be part of the blood of the firm, with constant, consistent attention to rooting out inequities Research also now shows that college degrees and GPAs are not pre‐ dictive of career success Companies must expand the aperture of their hiring, opening up the lens of talent acquisition to people of all ages and backgrounds New AI-based assessments now make this easier than ever; however, as we’ve mentioned, these systems need vigilance and care to ensure fairness Another issue related to both fairness and compensation is the huge increase in CEO pay inequity Despite new laws in the US and UK to force companies to disclose CEO pay ratios, the amount paid to CEOs keeps going up In the US, the average salary for S&P 500 CEOs reached 373 times the average median income in 2014, with some companies paying CEOs 400–500 times the median employee salary This inequality is having a negative effect on many employ‐ ees, and we suspect it contributes to those 51% of millennials now preferring a socialist form of economy We believe CEO pay has gone high enough, and companies have to realize that CEOs are not gods: they are replaceable, and many organizations have successors waiting in the wings For a more detailed look at issues related to equality and freedom, including the link between respect and policy to ensure freedom, see “The Philosopher Redefining Equality” by Nathan Heller Board Governance and Diversity What is the board’s responsibility for the future of the firm, or the firm of the future? Boards are responsible for setting direction and overseeing the day-to-day managers They’re responsible for ensur‐ ing the firm is managed responsibly Yet, for too long, boards have been hired, bought, and paid for by management The concept of an “independent director” is a convenient fiction Given that directors 22 | Future of the Firm are typically paid with generous stock grants, and that the share‐ holder value hypothesis posits that the directors’ primary fiduciary duty is to increase shareholder value, both pecuniary incentives and legal directives ensure there is little effective representation for workers, customers, or other stakeholders This is an area ripe for reform Corporate boards are also lagging in digital sophistication Areas like cybersecurity, social media marketing, AI, big data, and algo‐ rithmic management are all becoming table stakes for the modern company A new kind of directors’ college is needed When Tim O’Reilly attended Stanford Directors’ College a decade ago, most of the information provided was about how directors can avoid liabil‐ ity, rather than how to engage in a proper corporate governance role More broadly than digital sophistication, board members concerned about the future of the firm must think carefully about the big pic‐ ture, about all the components of the firm’s success, not just the bot‐ tom line That includes items affecting societal good, reputation, customers, employees, and even contractors For example, a board with an elected employee representative only reflects employee con‐ cerns if all board members think employees are important Board responsibilities like ethics, not just compliance liability, are often complex, with no “right answer”—which is precisely why the board needs to be involved Given the scope of a board’s responsibilities, one would expect organizations to constitute a board structured to give the best, most prescient advice Yet, boards made up of “elder statesmen” from the business world notoriously lack independence and diversity—fac‐ tors that affect board relevancy during this time of great organiza‐ tional disruption At the O’Reilly Radar Conference in November 2018, Jeff Wong, Head of Innovation at EY, spoke about the lack of diversity on cor‐ porate boards—not just physical diversity (i.e., race and gender) but cognitive diversity—for tackling difficult issues like digital sophisti‐ cation, employee welfare, ethics, and trust Boards need to a bet‐ ter, more confident job of asking the right questions—about change, digital transformation, cultural changes in the workforce, social media, artificial intelligence, and other (sometimes uncomfortable) topics that boards should address Board members often miss these Board Governance and Diversity | 23 questions because they lack the diverse backgrounds that accurately reflect the state of the world As Wong noted, many organizations select board members based on what they’ve done over the last 30 years, which would be fantastic if the next 10 years were expected to look like the last 30 That’s not the situation most organizations face To address a future of change, boards should hire people who look different, think different, have different tenures, earned their wealth in different ways, and have dif‐ ferent academic and professional backgrounds, but who bring the right perspectives and right questions to the boardroom Another benefit of creating more diverse corporate boards is the finding from Scott E Page that more diverse groups tend to make better decisions This topic is well covered by Steven Johnson in his book Farsighted For corporate board activities like evaluating risk and scenario planning, we consider Johnson’s advice for groups in general relevant: that “the most important element is the diversity of perspectives” assembled—an effect strong enough that “it appears to apply even when the diverse perspectives have no relevant exper‐ tise.” Johnson goes into more detail as to why diversity helps: homo‐ geneous groups “tend to come to decisions too quickly,” settling early on the most likely scenarios and not spending the energy to question assumptions Like the rest of the firm, the future of boards is likely evolving, rewarding firms that turn their boards into true assets that bring broad, diverse perspectives, independent thinking, and guidance to help navigate and anticipate a dynamic and disruptive future Inde‐ pendent, diverse boards bring a healthy dose of real-world perspec‐ tive and are good for the bottom line Conclusions If there’s one idea to take away from this report, it’s this: if you think you can run the firm of the future the same way businesses ran in the past, you’re wrong, and perhaps fatally wrong The next 10 years won’t be like the last 30 years, and won’t be remotely like the last 60 Technological fluency isn’t optional: it’s table stakes, all the way to the board level Your employees will be changing, and they will value opportunities to learn and to make a difference Integrating different ways of thinking and different kinds of experience is a must Above all, businesses are complex systems, and simple, reductionist 24 | Future of the Firm approaches are doomed to fail There are plenty of opportunities for success, perhaps more than ever before; it’s the path toward those opportunities that has changed As we said at the start, whatever the future of the firm is, it won’t be business as usual Conclusions | 25 About the Authors Josh Bersin is an analyst, author, educator, and thought leader focusing on the global talent market and the challenges and trends impacting business workforces around the world He studies the world of work, HR and leadership practices, and the broad talent technology market He is often cited as one of the leading HR and workplace industry analysts in the world He founded Bersin & Associates in 2001 to provide research and advisory services focused on corporate learning Over the next 10 years, he expanded the company’s coverage to encompass HR, talent management, talent acquisition, and leadership and became a recog‐ nized expert in the talent market He sold the company to Deloitte in 2012, when it became known as Bersin by Deloitte He continues to serve as a senior advisor to Deloitte, advising large organizations and contributing to major research initiatives He also sits on the board of UC Berkeley Haas Business School Executive Education and advises some of the fastest growing technology companies in the HR and workforce management markets Tim O’Reilly has a history of convening conversations that reshape the computer industry If you’ve heard the term “open source soft‐ ware” or “web 2.0” or “the Maker movement” or “government as a platform” or “the WTF economy,” he’s had a hand in framing each of those big ideas He is the founder, CEO, and Chairman of O’Reilly, and a partner at early stage venture firm O’Reilly AlphaTech Ven‐ tures (OATV) He is also on the boards of Maker Media (which was spun out from O’Reilly in 2012), Code for America, PeerJ, Civis Analytics, and PopVox His book, WTF: What’s the Future and Why It’s Up to Us, was released by Harper Collins in 2017 Roger Magoulas is Vice President of Radar at O’Reilly He works to support O’Reilly’s mission to spread the knowledge of innovators by using qualitative and quantitative methods to track technology adoption trends and communicate those trends both inside the company and to O’Reilly’s customers Mike Loukides is Vice President of Content Strategy for O’Reilly He’s edited many highly regarded books on technical subjects that don’t involve Windows programming He’s particularly interested in programming languages, Unix and what passes for Unix these days, and system and network administration Mike is the author of Sys‐ tem Performance Tuning and a coauthor of Unix Power Tools (both O’Reilly) ... competitors Not only that, but Amazon realized it could be more than one online retailer among many it turned itself into a marketplace by unbundling its web catalog, its warehousing, and its delivery... or Adidas, builds its shoes entirely from sustainable products; it focuses on health and comfort for its young buyers, and its brand has skyrocketed in popularity because of its “good” way of... explicit responsibilities is to publicly model the right behav‐ iors These days, it s quite an explicit and important part of my per‐ sonal approach to leadership, and something I explicitly require