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The Spirit of Capitalism: the Quakers and the First Industrial Revolution

Posted on May 29, 2012 by David

The Quaker unit of organization was the egalitarian meeting. No distinction was made between religious and business activities.

Quaker Meeting House

The ecological model in The New Ecology of Leadership shows enterprises as being conceived in passion and born in communities of trust and practice. My insights into this dynamic were first guided by my discovery of the Society of Friends, or the Quakers, as they are better known and the role that they played in the First Industrial Revolution. In Crisis & Renewal, where I first wrote about them, I felt that they exemplified Max Weber’s “Spirit of Capitalism”. I called them “hunters of the spirit”.

The First Industrial Revolution in 18^th Century England came after a century of political, religious and social turmoil. The Civil War of the 1640s had culminated in the execution of Charles I and the establishment of a parliament that was no longer prepared to be ignored by the monarchy. In the religious sphere a number of sects felt that the Church of England had retained too much of the tradition and hierarchy of the Catholic Church that it had replaced. They dissented against it, embracing the ancient doctrine of the Christian calling with its direct relationship between man and God. Add to this scene a severe agricultural depression and the social consequences can be imagined. The society was in ferment and the times were full of portents; itinerant preachers delivered their apocalyptic visions to receptive audiences.

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Posted in Change, General, Leadership, Strategy | Tagged Adam Smith, Anglican Church, Anglo-Saxon capitalism, Barclays Bank, Book of John, Book of Matthew, Catholic Church, charcoal, Christian calling, Coalbrookdale, coke, community, complex systems, engines, English Civil War, English Nonconformists, First Industrial Revolution, George Fox, ideology of markets, iron, Iron Bridge, Lloyds Bank, market price, Max Weber, means and ends, pots, pumps, Quakers, Robert Barclay, Royal Navy, Sermon on the Mount, Shropshire, skillets, Society of Friends, sociology of virtue, spirit of capitalism, The Wealth of Nations, Theory of Moral Sentiments, William Penn | Comments Off

Bain or Bane? Private-Equity and Creative Destruction

Posted on May 22, 2012 by David

Featured in the Harry Potter books, it is part of the Wolfsbane Potion that werewolves use to retain their rationality and conscience when transformed into wolves.

The poisonous aconite plant or wolf's bane

With Mitt Romney now the inevitable Republican Presidential candidate, renewed attention is being focused on his incredibly lucrative years running Bain Capital. In that private-equity firm he and his colleagues played key roles, mostly as the turnaround managers of mature organizations, but also in the support of business start-ups as venture capitalists. One of principal questions raised by pundits has been: Are Bain’s activities and those of private-equity a desirable feature of capitalism?

Earlier in the year The Economist weighed in with an excellent article on the subject. They reviewed two charges, firstly that private-equity plunders companies, and secondly that their executives do not pay enough tax. They cited evidence that the former charge is not true – average employment declines only 1% two years after a buy-out – and they argued that to the extent that the firms can improve productivity and hurry along the process of “creative destruction” that is “all to the good.” They agreed however that the U.S. tax code encouraged executives to pile too much debt onto the target companies. The proceeds of the debt are usually paid out in the form of dividends, which are treated as “carried interest” and taxed at a rate of 15%. The Economist argued that it should be regarded as ordinary income and taxed at a higher rate. In addition, they questioned whether private-equity actually generates superior returns for shareholder after its outsize fees are taken into account.

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Posted in Change, General | Tagged American economy, Anglo-Saxon capitalism, Bain, complex systems, creative destruction, ecological perspective, forest renewal, incentives, innovation, Mitt Romney, neoclassical economics, Obama, predator, private-equity, scavenger, shareholders, tax policy, The Economist, venture capital | Comments Off

Sustaining Complex Systems: Fairways and Traps

Posted on May 15, 2012 by David

Shoreline view on Rhode Island

This past Sunday’s New York Times contained another cautionary tale about complex systems and the people who live in them. It is the story of the seaside town of Matunuck on the southern coastline of Rhode Island. The entire region is exposed to powerful northeaster storms and the beaches are constantly eroding. In Matunuck the shoreline has shrunk some twenty feet over the last dozen years. Pubs and cottages are threatened as well as the road that serves this small settlement. The community has three choices:

Protect the entire beachfront
Protect the road (and let the seaward buildings go)
Retreat and move away from the eroding shoreline.

The folk who live in Matunuck want to protect the shoreline with seawalls and buy some time until technology comes up with a permanent fix (they hope). No one likes the third option, not even the environmentalists and scientists who recommend it. But the latter groups understand how complex systems work and how postponing difficult decisions can make the eventual costs much higher. The problem is that waves bounce off seawalls, accelerating the removal of sand from the beaches. Stability is bought in the short-term, but at the cost of much more severe change in the longer run.

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Posted in Change, General | Tagged American politics, complex systems, decision-making, expedient, important, quick fix, Senate, sustainability, urgent | Comments Off

The Re-Enchantment of Management and The Renewal of Capitalism

Posted on May 8, 2012 by David

I argue that the "house of management" rests on sand. The "rock" on which it was founded fifty years ago has been completely eroded.

A destroyed beach house

Recently the Harvard Business Review, McKinsey & Company and the Management Innovation eXchange (MIX) conducted a series of three competitions on “Reinventing Management”. The first was the The Management 2.0 Challenge, which characterized the existing version of management as version 1.0 and looked for something new. The second competition was The Beyond Bureaucracy Challenge, which encouraged entrants to come up with disruptive ideas that might allow organizations to manage without managers. The third and last contest, which closes at the end of this week, is The Long-Term Capitalism Challenge. The description reads: “It’s time to radically revise the deeply-etched beliefs about what business is for, whose interests it serves, and how it creates value.”

Yesterday I submitted an entry based upon The New Ecology of Leadership. You can read it here: The Re-Enchantment of Management and The Renewal of Capitalism. In it I argue that the house of management is sitting on sand: it has to revisit the philosophical foundations upon which it has been based these past fifty years. That is, it has to revisit its ontology (what reality is), its epistemology (how we know about reality) and its methodology (how do we go about exploring what can be known).

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Posted in Change, General, Leadership, Strategy | Tagged Anglo-Saxon capitalism, disenchantment, ends, financialization, Harvard Business Review, human potential, management academy, McKinsey, means, mission, MIX, nurture, positivism, purpose, re-enchantment, release, renewal | Comments Off

The Poverty of Economics: Capitalism Is Not Just About Competition

Posted on May 1, 2012 by David

Neoclassical economics cannot tell a coherent, compelling story about capitalism

A Broken Piggy Bank

Last week David Brooks wrote a column titled “The Creative Monopoly” (New York Times, April 24). In it he told a story about Peter Thiel, the entrepreneur who founded PayPal and the course he is now teaching about entrepreneurial startups at Stanford University. One of Thiel’s students posted some remarkably coherent class notes on line and Brooks’ took his text from them.

Thiel questioned the assumption that capitalism was synonymous with markets and perfect competition. He argued that firms, especially startups, should not aim to be competitive but to find what Brooks called a “creative monopoly”, with a distinct market, niche and identity.

Throughout his column Brooks groped for an alternative way of framing the issue, but still wound up using the language of economics. His struggle underlines the poverty of narratives based on economics, especially in its neoclassical incarnation. Economics does not care where markets (or firms, for that matter) come from – they are just there and range from “perfect” markets, where all players have the same perfect information and all products are commodities, to imperfect markets where the risk of monopolies is ever present. Static, equilibrium-based neoclassical economics is all about the allocation of resources and the distribution of wealth. Without people, a plot, or progression, economics cannot tell compelling stories. And that matters for a story-telling species that looks for compelling narratives to make sense of cause-and-effect in their world.

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Posted in Change, General | Tagged Anglo-Saxon capitalism, creative monopoly, David Brooks, ecological narrative, Fannie Mae, IMF, market power, neoclassical economics, niche, perfect competition, Peter Thiel, regulator capture, Simon Johnson | Comments Off

Breaking the Cake of Custom: A Cavalry Charge with Fresh Horses

Posted on April 24, 2012 by David

Walter Bagehot (1826-1877) founder of The Economist

Organizations have to do two things to survive in a sustainable fashion:

Conserve their core business
Innovate to change their business

The current term for this ability of organizations to both “exploit” and “explore” is “ambidexterity”, but it has long been a concern for managers and students of management. The “father” of modern management, Peter Drucker (1910-2005), was constantly preoccupied with the tension between continuity and change. In this matter he identified most closely with Walter Bagehot (1826-1877), the founder of The Economist, who coined the term “the cake of custom”. Bagehot noted that while forming virtuous habits was a great achievement, breaking them in order to improve the system was even more difficult: “The great difficulty which history records is not that of the first step, but that of the second step. What is most evident is not the difficulty of getting a fixed law, but getting out of a fixed law; not of cementing … a cake of custom, but of breaking the cake of custom; not of making the first preservative habit, but of breaking through it, and reaching something better.” [Physics and Politics (1869) p.33]

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Posted in Change | Tagged Alfred North Whitehead, cake of custom, conservation, Dan Señor, habit, innovation, Israel, Mormon, noveltyPlato, Peter Drucker, progress.order, Saul Singer, think and act, Walter Bagehot | Comments Off

Disrupting the Past: (Channeling David Brooks #2)

Posted on April 17, 2012 by David

New York Times columnist David Brooks

As readers of my blog know from a previous posting, New York Times columnist David Brooks is an alumnus of the University of Chicago. Famously he got his big break when he wrote a satirical parody of William F. Buckley’s memoir Overdrive, just as the conservative pundit was coming to campus to deliver a speech. On the strength of the parody, Buckley paused mid-lecture to offer Brooks a job at the National Review, an offer that Brooks took up a few years later.

I enjoy Brooks’ columns and like the way he struggles to reconcile opposing concepts and ideologies without either compromising or settling for one side over the other. In this respect he resembles political scientist-turned-management writer Peter Drucker, whose central preoccupation was the tension between the need for continuity and the need for innovation and change. The appeal of the ecocycle, the central dynamic of The New Ecology of Leadership, is that it too deals with the tension between conservation and innovation. Indeed, in next week’s blog I will argue that this is the essential appeal of ecological frameworks. In any event, when over a year ago, the University of Chicago Magazine ran a David Brooks parody contest, I felt I just had to enter. While none of my entries won, but I enjoyed writing each one of them in the style of Brooks. The limit was 500 words and here is one of my other entries:

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Posted in General | Tagged Adolph Hitler, anomalies, causes, competency, context, continuities, David Brooks, disrupting the past, ecocycle, Elliot Gorn, Henry Ford, history, John Lewis Gaddis, Marc Bloch, Peter Drucker, Saddam Hussein, science of change, singularities, strategy, University of Chicago, Vietnam. Philippines, virtuous habits | Comments Off

Management Without Principles

Posted on April 10, 2012 by David

A Mechanical Brain

Management “principles” have been a prominent feature of the field ever since the 1950s, when a concerted attempt was made to put management on the path to becoming a social science. With economics as their guide and physics as the ultimate goal, management scientists set about looking for generic, context-free principles that could be applied in every situation. Many of the early textbooks were entitled The Principles of Management and enumerated activities like planning, organizing, staffing, directing, coordinating, reporting and budgeting, or POSDCORB, to give it its unlovely acronym.

Management texts and titles have changed a bit since then but management principles are still alive and well, although they are often called something else. Take a recent book I reviewed for example. The Innovator’s DNA: Mastering the Five Skills of Disruptive Innovators by Jeff Dyer, Hal Gregersen and Clayton M. Christensen reports on the work they have done to identify innovation “skills”. These are associating (a thinking skill), questioning, observing, networking and experimenting (behavioural skills). Although the metaphor they use is “DNA”, the authors hasten to add that these skills can be learned.

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Posted in Change, General | Tagged Cartesian mind, complex systems, context, contextual intelligence, ecological rationality, economics, history matters, innovation skills, management principles, Master's golf, meaning, POSDCORB, The Innovator's DNA | 1 Comment

Measuring Buzz: Hunting Dynamics in the 21st Century

Posted on April 6, 2012 by David

Bees in the Hive

Every manager knows that the “buzz” on a team is an important indicator of their likely success. You can poke your head into a meeting room and, without hearing a word of what is being said, get an instant impression of the energy and engagement on the team. It was the energy and engagement of the top management team during a time of crisis at Hugh Russel Inc. that really got my attention. As related in The New Ecology of Leadership, during four years of continual crises we became a “band of brothers”, with high levels of energy and trust that contributed hugely to the successful extraction of the business from an apparently hopeless financial mess.

Once we were out of the mess I started to think about what had happened to us and what we could learn about management and leadership from the experience. In April 1990 I read an article in Scientific American, entitled “The Transformation of the Kalahari !Kung”. It detailed the conversion of the hunters and foragers of the Kalahari wilderness to herders and farmers over a period of a few decades. This transformation was accompanied by a severe deterioration in their health and well-being, both as individuals and as a society. As I read the article, I realized that the transformation being described was the same as that from an entrepreneurial firm to a large-scale bureaucracy. The experience of organizational renewal, that we had just been through at Hugh Russel, was all about the reintroduction of “hunting dynamics” into a herder hierarchy.

I subsequently wrote an article about the !Kung and their story became the opening chapter of Crisis & Renewal. Now Professor Sandy Pentland and his colleagues at MIT’s Human Dynamics Laboratory have come up with hard evidence that supports the whole hunting thesis.

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Posted in Change, General | Tagged body language, buzz, communication media, engagement, exploration, fission-fusion, hunter-gatherer, hunters and herders, hunting dynamics, narrative | Comments Off

Channeling David Brooks #1: Asking the Right Question about America

Posted on April 3, 2012 by David

New York Times columnist David Brooks

New York Times columnist David Brooks is an alumnus of the University of Chicago. Famously he got his big break when he wrote a satirical parody of William F. Buckley’s memoir, Overdrive, just as the conservative pundit was coming to campus to deliver a speech. On the strength of the parody, Buckley paused mid-lecture to offer Brooks a job at the National Review, an offer that Brooks took up a few years later. With unlimited access to the most influential conservative intellectual of his era, the internship proved to be a springboard for Brooks to move through a series of challenging journalistic assignments, culminating in his appointment to the Times.

I enjoy Brooks’ columns and like the way he struggles to reconcile opposing concepts and ideologies without either compromising or settling for one side over the other. He is not always successful, but one senses that he is genuinely trying to be intellectually honest, not just taking easy options. So when, just over a year ago, the University of Chicago Magazine ran a David Brooks parody contest, I felt I just had to enter. Who knew? If I won it might just be the big break for The New Ecology of Leadership, which contends that managing an organization is all about integrating opposites in creative ways. Well none of my entries won, but I enjoyed writing each one of them in the style of Brooks. The limit was 500 words and here is one of my entries:

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