If we can learn from it, we can establish management approaches that will do better
Photo of Hurricane Frances taken by Astronaut Mike Fincke aboard the International Space Station as he flew 230 statute miles above the storm at about 9 a.m. CDT Friday, Aug. 27, 2004. (NASA)
Our current management system is broken.
It’s based on macho attitudes, glaring inequalities, crazy monetary incentives for the top few, and false assumptions about how businesses work.
It allows — even encourages — individual greed and financial chicanery.
It allows bosses to walk away with millions from the wreck of the corporations they supposedly managed, while leaving underlings to suffer hardship and loss.
If anyone had imagined a world like this, it could only be in a book or film based on sadly black humor.
Writing in the British Sunday Newspaper The Observer on March 23 2008, Simon Caulkin, management editor noted:
‘The Americans have invented a system with no commitment, trust or long-term relationships,’ wrote Will Hutton in this newspaper last week. This is not aberration, but design. Behind the City and Wall Street firms that epitomise, in Indian business guru Sumantra Ghoshal’s words, the ‘ruthlessly hard-driving, strictly top-down, command-and-control-focused, shareholder-value-obsessed, win-at-any-cost’ management model stands the invisible weight of half a century of agency theory, transaction-cost economics and game theory — as taught in business schools, solemnly embodied in corporate governance codes, reinforced by consultancies, aped by the public sector and duly absorbed into the executive bloodstream.
I think he has it about right.
This approach has failed — spectacularly — and is now causing misery to millions around the world. It’s time for a re-think.
Here are my suggestions:
- If people will not voluntarily restrain themselves, there must be ways to restrain them. Whether this means regulation or ways to allow greater transparency, so that the public at large can be aware of what corporations are doing, is something that should be debated in detail.
- We must make it clear to business leaders that they cannot claim a ‘duty’ to shareholders in ways that runs against the wider interests of society. ‘Maximizing stakeholder value’ and other cant phrases do not mean you can ignore the public good. If it does (and that’s how it has been seen), it opens the door to just about any kind of action — from price manipulation to downright dishonesty — that will enrich the primary stakeholders (at least in their own eyes): the top managers and institutional shareholders.
- While it may be necessary to rescue specific institutions to avoid the collapse of confidence in the financial system as a whole, no such obligation exists towards those who managed them. If a corporation collapses — or would do so, but for government action — the executives should be required to suffer both loss of position and loss of any further remuneration — including share options, ‘golden goodbyes’ and pensions. Those who are paid most on the basis that they carry most responsibility for the running of the business should lose most if it fails.
- Academics and researchers should be asked to come up with ideas to reform the way corporations are managed. What we need is a lively public debate, leading to changes based on a broad consensus of opinions; not behind-closed-doors discussions, statements made for political effect only, and a general clinging to the status quo.
Rather than bewailing the mess we’re in — which was, after all, self-inflicted — we should be loudly swapping ideas on how to make it right and put ourselves on a better course for the future.
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Technorati Tags: management, change, corporate reform, improving management systems, financial crisis, lessons from the sub-prime mess, sub-prime, financial meltdown
