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The theme of the Drucker Forum to be held in Vienna November 13-14 this year is “The Great Transformation: Managing Our Way to Prosperity”. In the run-up to it Simon Caulkin wrote a mainly excellent article in the Financial Times entitled “Era of management-led growth held hostage by old ideas that refuse to die”. In it he outlined the challenge of changing the assumption that the purpose of the corporation is to maximize returns to shareholders. He cited Lynn Stout’s work, among others, to assert that “shareholders own shares, not companies, which are separate legal persons, and directors’ only fiduciary responsibility is to the company. Shareholders are not principals and managers are not their agents.” Caulkin described the whole shareholder-primacy theory as a zombie idea.
Then he went off the rails a little by mixing his monster metaphors: “So, yes, an era if management-led growth is both feasible and urgently needed. But the renaissance will not flourish unless a stake is driven through the heart of the shareholder-primacy zombie first.”
Every monster hunter knows that you can kill only vampires by driving stakes through their hearts; to kill a zombie you have to disintegrate their brains. The shareholder-value model may suck out the lifeblood of corporations but it doesn’t have a heart. Its brain is in thrall to neoclassical economics with its belief in the sanctity of free markets and its scientistic assumption that if humans aren’t completely rational then they ought to be. Unfortunately the shareholder-value model is held in place by a powerful systems dynamic that works like an addiction. The short-term rewards for those who benefit – corporate executives, hedge funds, and buyout artists – are significant, while the long-term damage is only now becoming visible. Even then, the complexity of cause-and-effect in complex systems allows many to deny that any such relationship exists. As Upton Sinclair’s quip reminds us: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
So how to disintegrate this zombie idea’s brain? I have suggested a change in metaphor might help, from that of monsters to systemic addiction. Most addictions end only when the addict “hits the wall” and makes a radical attempt to change his or her lifestyle and avoid the contexts that trigger the habit. Often this takes a shattering event – either a personal crisis or an encounter with a charismatic individual, or perhaps both. I suspect that it will require similar events in the case of shareholder-primacy model – a crisis plus the emergence of charismatic enterprises that show a consistent ability to outperform their conventional counterparts in sustainability and service to their communities, while operating at a scale comparable to their conventional counterparts. Oh, and it couldn’t hurt to attack the idea intellectually, as Lynn Stout has done, and try to disintegrate its brain…
Robert Reich, former Secretary of Labor under Bill Clinton had a recent blog in the Harvard Business Review entitled “How Business Schools Can Help Reduce Inequality”
Here is my response:
“What is needed is an ecological framework of “both…and” to embrace and contain the “either/or” of economics. Only then will we be able to see effective management practice as the integration of the “hard” and the “soft”, the sciences and the humanities. The most encouraging indicator of this at HBS has been the appointment of Nitin Nohria as dean, with his academic interest in the power of context and contextual intelligence. An article on this topic by Tarun Khanna appeared in a recent issue of HBR.
An ecological perspective is the quintessential contextual view. From this vantage point we can see that enterprises are conceived in passion, born in communities of trust, grow through the application of reason and mature in power, where they tend to get stuck. This sets them up for crisis and destruction but with the possibility of renewal. At business schools an ecological perspective can be used to address complex existential questions like these:
- What kind of person am I (people are we)?
- What kind of situation is this?
- What does a person like me (a people like us) do in a situation like this?
- What are my/our options? How do I/we generate options?
- What are my/our decision criteria? how do I/we make decisions/choices?
- What are the consequences of my/our decisions/choices?”
In a subsequent posting Judith Samuelson refers to a helpful document from the Aspen Institute on the subject of corporate purpose and business education
This week my blog consists of the review I wrote for Strategy+Business of Lawrence Freedman’s Strategy – a History:
Lawrence Freedman defines strategy as the central political art. “It is about getting more out of a situation than the starting balance of power would suggest,” he writes. “It is the art of creating power.” This definition allows strategists to assess outcomes, but Freedman, professor of war studies at King’s College London, knows that it does not offer them much guidance in enhancing outcomes. For that, practitioners have to appreciate the evolution of our understanding of cause and effect in complex social situations, and the role that power plays in those situations. Freedman’s new book, Strategy—an erudite, encyclopedic study that will surely become a standard reference in the discipline—offers just such an appreciation.
I am taking a summer break from blogging and with a number of writing, teaching and speaking assignments looming, I need some time to prepare for them. The New Ecology of Leadership is coming out in paperback in October and I need to prepare for that launch too.
In future the blog will be occasional, rather than weekly and one of my projects will be to review the 130+ blogs I have written over the past two-and-a-half years with a view to putting together a field book of the ecological perspective.
I hope that you all (in the northern hemisphere) have a great summer!
This is the third in my series of blogs triggered by Harvard history professor Jill Lepore’s criticism of HBS professor Clayton Christensen’s theory of disruptive innovation. Although her curiously jumbled assessment was wide of the mark, it presented an opportunity for me to outline an ecological interpretation of disruption, rather than the mechanical readings that are so common and seem to be favoured by Christensen himself.
Last week I translated disruption into ecological concepts, using Canadian ecologist C.S. “Buzz” Holling’s adaptive cycle and the larger concept of panarchy, which looks at the interaction of these cycles at different systems levels. This week I add the cognitive dimension, which turns the adaptive cycle into the ecocycle, allowing one to use ecological analogies to understand the transformation of human organizations. In Crisis & Renewal I used Berkeley professor Jeffrey Pfeffer’s triad of perspectives on action: emergent, rational and constrained to supply this cognitive dimension and to suggest that they might represent three stages rather than three static categories.