Values matter

Professor Chris Bones, author of The cult of the leader, the UK’s CMI Management Book of the Year 2012, argues that globalisation shouldn’t be about the imposition of a highly individualistic model of business success.

In 1985 Peter Drucker argued in his book Innovation and entrepreneurship[1] that management was the new technology. It would drive the social and economic innovation required to continue to deliver on our social promises and it would do this through generating wealth that would benefit the many, not just the few.

In my 2007 introduction[2] to the new edition of Drucker’s book I argued that this was a proposition whose time had come – today’s managers in a globalising world have the opportunity to transform our environment and to build a far more sustainable organisational model than that seen in many of today’s global corporations.

The trauma of the last few years has reinforced the opportunity - but also the size of the mountain we have to climb - if managers are to deliver on their potential to act on behalf of the greater good and create value for society as a whole.

The European tradition has always accepted that management was more than acting in self-interest or on behalf of a narrow sectional perspective. This is in contrast to the individualistic model that predominates in North America.

Jeffrey Pfeffer[3] asked the question: ‘Why are milk jugs more important than people?’ He did so referring to an incident in 2008, when a divisional CEO of Wal-Mart expounded on innovation in milk jugs and his company’s introduction of a rectangular, and therefore, stackable jug.

Whilst the CEO was proudly noting how the new design extended the shelf life of milk, reduced costs by between 10 and 20 cents, and eliminated more than 10,000 delivery trips, thereby saving the company money; research showed that Wal-Mart paid its employees almost 15 percent less than other large retailers and, because of the lower pay, Wal-Mart employees made greater use of public health and welfare programs.

Pfeffer argued that organisations have choices and are not compelled by some overwhelming competitive pressure to manage in ways that impose additional costs on the rest of society.He contrasted the treatment of sustainable environmental policy to that of building sustainable organisations: ‘whilst cost considerations are germane to labour issues’ he said, ‘with respect to adverse effects such as pollution or the destruction of endangered species, governments have largely precluded using economic necessity as an excuse for companies persisting in engaging in harmful actions’.

Here lies the paradox of 21^st century management: ensuring the long-term economic health for the enterprise, as well as the long term wellbeing of society as a whole. The opportunity for the European Model to lead the world is in defining how we best meet both goals and how we make choices when faced with conflicting priorities.

Why choice?

Let me explain by introducing you to my favourite modern philosopher, Albus Dumbledore. At the end of the second Harry Potter Book, Harry Potter and the chamber of secrets, Harry discovers that he possesses the same skills - capabilities if you like - as Voldamort, the villain of the series. It is Dumbledore, Harry’s headmaster, who comforts Harry by saying: ‘Ultimately it is our choices that show people who we truly are, far more than our abilities.’[4] In the words of one of the founders of Henley Business School, of which I am Dean Emeritus: ‘Character and integrity as as important in a manager as capability’ (William Henry Smith, 3rd Viscount Hambledon, a descendant of the founders of the retailer W H Smith).

I’m not arguing against market economics, or the virtue of private enterprise and profit – after all wealth cannot be created without them. But there is a different between enterprise and self-interest. Self-interest combined with unrestrained power undermined the foundations that had supported the development of global financial services over the previous 30 years.

How? Well it’s my opinion two structural changes came together with a shift in values - and the consequences were nearly disastrous for all of us.

Structural changes

The deregulation of financial services, led by changes in the US and in the UK. This created a culture of easy access to debt and a willingness to lend way past any recognisable sense of proportion. In the year that the financial system started to fragment, Britain's personal debt increased by £1 million every 4 minutes.
The emergence and acceptance of the myth that there was somehow a finite supply of talented people across the globe who were capable of running anything significant and that they should be retained and ‘bought in’ through a substantial shift in remuneration practices that changed the basis of employment in public and private companies.

This sense of an exclusive club of top talent is positively dangerous. It created the 20^th century’s equivalent to James Hogg’s justified sinner who ran around committing the most awful crimes on the basis that he had been chosen for paradise and as the chosen one he could do no wrong.[5]

In Something happened, his follow-up novel to Catch 22, Joseph Heller presented a highly critical account of business life in the insurance industry, in which he wrote: ‘Success and failure are both difficult to endure. Along with success come drugs, divorce, fornication, bullying, travel, meditation, medication, depression, neurosis and suicide. With failure comes failure’ [6]

What is it about success that can sow the seeds of failure? For instance:

What drives a Chairman to endorse accounting practices that ultimately bankrupts not only himself and his associates but also thousands of suppliers and investors?
What drives a Chief Executive to confuse his own assets with those belonging to his corporation and use the latter to fund what today’s press refer to as a ‘playboy lifestyle’?
What drives a successful oil executive to enrol their colleagues in a cover-up of the misreporting of oil reserves?

The shift in values

Now, I know the curse of success is not confined to business alone. But, whilst there have always been dishonest people in corporations just as much as there have been in any other walk of life, we do seem to be seeing a shift on from white collar crime, where the corporation is the victim of say fraud or embezzlement; to crimes where the corporation itself is the perpetrator.

Whilst it is always difficult to speculate on individual motivation for making unacceptable choices, one thing stands out as having changed in major corporations in the last thirty years: the structure and size of the financial rewards available to top executives compared to those of the average employee.

If the value at stake is so significant, and the ability to influence the outcome in your favour is in your control, then the temptation to make a choice where self-interest triumphs over the interests of owners, employees, suppliers and customers must be a very real one.

Now, there is a very real difference here between successful entrepreneurs and corporate executives. It is the difference between ownership and stewardship. It is a very different thing to risk your own capital, your own reputation and to work hard for the rewards of success. If you are the owner then rightly you have the choice of whether to harvest the returns from your efforts or to re-invest them.

Most of us however, do not end up as owners: we end up working for corporations: public, private or in the third sector. This notion of a steward is one tied up with our cultural and social development in Europe. It is an altruistic role, looking after and protecting the assets of others and whilst there are benefits through doing this to the steward, the greatest benefit of good stewarding goes to others – the owner of the land and their tenants. In the European model of management, corporate managers are not owners: they are stewards. It is not their wealth, their property or their futures they put at risk.

This has not been the prevailing view in North American business and business education. Here the individual is more prominent and this positive value has supported a proposition that managers themselves bring their ‘talent’ to the assets employed and that this talent is worth as much to any enterprise as the capital invested in it. The spread of this as a shared value, as the influence of North American corporations has spread across the globe, has driven a significant shift in the attitudes and behaviours at the top of many European businesses, particularly in the global arena of financial services.

What took these two structural changes and welded them into an unstable and combustible situation was a shift in public values that gave greater sway to the individual over society as a whole. The consequence was the establishment of an acceptance in this and other sectors that greed was good.

Today we face an opportunity as leaders facing challenging times to re-address this balance. We can only do this by espousing the right values and attitudes and being held to account if we fail to live up to them. This means taking on some of the prevailing orthodoxy in business and business education.

Not just the excessive bonus culture but also the increasing short-termism driven through performance management models with an overemphasis on financial indicators, exacerbated even further by quarterly reporting and reinforced by reward structures that fail to differentiate between success and failure.

To succeed in today’s world we need to promote a view of leadership that rejects self-centred individualism in favour of simple, age-old and proven values that create stable and prosperous societies. From our education systems through to how we develop people in organizations, we should be able to build people with the critical thinking capabilities to distinguish poor thinking from good and to build a real understanding of the world in which they operate rather than seeing their qualification as a route to easy wealth.

Yet what we have witnessed unravelling in front of our eyes are the consequences of operating in an environment where the driving value is personal greed. I offer four principles for universal adoption which can support a very different model:

We should understand and be able to influence the ratio of earnings between the highest and lowest paid in any enterprise. As shareholders by a binding vote, as taxpayers through our representatives and as donors through trustee assurance.
We should have no time for executives who see the shareholders’ wealth as their own; we should have no time for corporate kleptomaniacs who acquire assets that rightfully belong to others.
We should have no time for executives who believe that it can ever be right to influence any public servant through bribery.
And we should have no time for executives who use their education to find ways around proper governance and regulation, including their tax obligations to the communities in which they operate.

Leadership without an ethical framework turns executives into fat cats, politicians into charlatans and the dispossessed into terrorists. It was the Spanish American Philosopher George Santayana who said: ‘Those who cannot remember the past are condemned to repeat it’.[7] At the heart of the leadership dilemma that faces us today is how we learn from the past to ensure we build the capability we need for the future.

It is my contention that working hard to re-establish the importance of character and integrity and to reassert the role of stewardship in the leadership of business could be one of the single most important interventions we, as current leaders, could make today.

Peter Drucker believed that innovation and entrepreneurship held the potential to provide the key to sustainable wealth creation. He also believed that if applied to public services such as education and healthcare, it could generate social innovation that could transform our ability to deliver the level and sophistication of public services to which our people increasingly aspire.

Globalisation is not, after all, the extension of US practices around the world. Embracing Drucker’s ideas and joining them to the importance of the values and behaviours we expect from senior corporate managers could create the basis for a confident model that recognises the importance of wealth creation for everyone in society, not just a privileged few.

By doing this we will be better placed to deliver the dramatic changes that I think face all of us, if we are to establish a sustainable economic and social environment that can secure the future of a stable and responsible society for the long term.

References

[1] Drucker, P. Innovation and entrepreneurship. London: Butterworth-Heinemann, 1985

[2] Bones C. J. Foreword to Drucker P. Innovation and entrepreneurship. London: Butterworth-Heinemann, 2007

[3] Pfeffer, J. Building sustainable organizations: the human factor. Academy of Management Perspectives, Vol 24 (1) 2010, pp 34-45. An earlier version, Stanford Graduate School of Business Research Paper No. 2017, is freely available online at http://csi.gsb.stanford.edu/building-sustainable-organizations-human-factor

[4] Rowling, J.K. Harry Potter and the chamber of secrets. London: Bloomsbury, 1999

[5] Hogg, J. The private memoirs and confessions of a justified sinner. Oxford: Oxford World Classics, 2009. First published in 1824. Freely available online in full under Project Gutenberg at
http://www.gutenberg.org/ebooks/2276

[6] Heller, J. Something happened. New York: Knopf, 1974

[7] Santayana, G. The life of reason: volume 1. London: Constable, 1905. Freely available online in full from the University of Toronto’s Library at
http://www.archive.org/details/thelifeofreasono00santuoft