Monday, May 08, 2020

Gresham's Law and Leadership

According to Gresham's Law, bad coinage drives out good where both have the same face value. Sir Thomas Gresham, after whom the law is named, served Queen Elizabeth I in sixteenth century England, and was speaking about debased coinage — money made without the correct weight of silver. But Gresham's Law applies just as well to the "coinage" of management decisions. If poor, "quick-fix" management choices are awarded the same approval as good ones, they'll quickly become the norm.

Let's take a company whose sole objectives are financial. It needs ample funds to drive growth forward, and the best way to persuade Wall Street and the banks to keep handing over more cash is to provide spectacular business and profit growth, quarter after quarter. At first, let's assume, it isn't too hard to do this. The business has a good product and has found a market niche ready to be exploited. The trouble starts when it gets difficult to keep on exceeding Wall Street estimates. If all that matters is "meeting the numbers," sharp management practice will be accorded exactly the same value as any other approach.

It's far easier to produce the required numbers by pressurizing people or cheating than by the "good coinage" of sound, thoughtful management. Since the numbers are all that matter, the extra effort (and potential risk) of doing things right doesn't seem worth it anymore. Bad management — exploitation of staff, creative accounting, manipulation of figures and other unethical practices — quickly drives out good. The result is Enron, Worldcom, Adelphia and a host of other corporate scandals, all directly attributable to Gresham's Law.

A Culture of Bullies

Honest leadership is a demanding activity. It means getting to know your staff, understanding their lives and aspirations, and helping them find a sense of meaning and purpose in what they do. The alternative — macho bullying — demands much less effort, understanding or even concern. That’s why the various types of bullying are so common in high-pressure corporations. People aren’t led, they’re driven by a mixture of threats, derision and continual harassment. Those who fail are labeled "under-peformers" and either forced out, fired or removed at the next corporate downsizing.

Bullies survive because their behavior is tolerated. If all top management care about is reaching or exceeding target, they're likely to overlook “little things” such as bullying. It's a fine line between being a "go getter" and being a tyrant to subordinates and a toady to the boss — especially if the only risk lies in getting caught doing something so unacceptable the boss can't overlook it by focusing on results alone. In time, tough, macho, results-obsessed “leadership” becomes the norm. Bad practices drive out good.

Hitherto unacceptable business practices have become allowable because top executives focus solely on Wall Street and their stock options. When all that matters to the upper echelons of the company is that the numbers are achieved — and getting there the right way or the wrong way leads to much the same approval — the right way soon dies out. It takes more effort. It's less certain. And those who think it's important are quickly sickened by the sight of bullies and incompetents reaping the same rewards they've worked so hard to obtain. They quit. The bullies and shysters remain.

What's the Solution?

Gresham's Law will continue to produce bullying, macho management in "grab 'n go," marginally-honest corporations as long as making the numbers is all that counts. So long as investors are dazzled by profits and don't ask how they've been produced, companies and their leaders have every incentive to take the easiest route — and that's nearly always the one that's least concerned with ethics and sound business dealings. The only way to produce a working environment worthy of a civilized nation is to value some things more highly than financial results. That means accepting "the numbers" won't be achieved — shouldn't be achieved — if the price to be paid is the loss of dignity, honesty and humanity as guiding principles of corporate life.

Being ethical has a price. Most talented people prefer to pay it than work in an environment where their values are violated and their dignity counts for nothing. As a society, we need to return to valuing results only when they've been achieved fairly and honestly. Whether it's grasping, unpleasant business practices, or the use of performance-enhancing drugs in sport, bad methods will always drive out the good as long as no one inquires too closely into how those outstanding results have been achieved.

Slow Leadership is based on values higher than simply delivering the goods. Leading well and leading ethically demand time, thought, consideration for others and the willingness to fail rather than produce a result by uncivilized or unethical means. It's up to leaders to uphold these values, even if it costs more in the short-term than ignoring them. If they don't, they'll find themselves working in a society where bad managment coinage is the norm and ethical behavior is considered old-fashioned and eccentric.

Add to Technorati Favorites Stumble Upon Toolbar


Post a Comment

<< Home

Creative Commons License
This work is licensed under a  Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License.