Saturday, 23 July 2005
Who Do We Work For?
The FT Global 500 is pretty much what you see when you look up “capitalistic orgy” in the dictionary. It’s a compilation of the largest 500 mega-corporations in the world, as measured by the market.
So, when I picked up the print edition while overseas last month, I was frankly a bit surprised to see an openly soul-searching article entitled “ Fair shares?” by FT’s management editor, Michael Skapinker. It relates the concerns of those who criticize unbridled capitalism;
Every time a company declines or disappears (usually because another one acquires it), people suffer. Employees lose their jobs. Their lives and those of their families are disrupted. Workplace friendships are ripped apart as staff are made redundant or forced into early retirement. Pensioners who gave their working lives to the company are deprived of the satisfaction of knowing they helped to build something enduring. Neighborhoods decline as factories, bank branches or shops close. All this to satisfy the short-term whim of stock market investors.
Things get even more interesting when he turns his gaze onto how people respond to “the way that companies put shareholder value above all other interests.”
[T]he most impassioned attack came in an article by Sumantra Ghoshal of London Business School, published posthumously in the US Academy of Management’s Learning & Education Journal earlier this year. Ghoshal, who died in 2004 at the early age of 55, argued that putting shareholders’ needs first was based on the outdated notion that they were the risk-takers who made capitalism possible. In fact, he said, shareholders took little risk. If they were unhappy with the company’s management, they could sell their shares. The real risk-takers were company employees, he said. For dissatisfied employees, moving jobs was much harder. It was also more difficult for companies to recruit talented and committed workers than it was to find investors.
“In every substantive sense, employees of a company carry more risks than do the shareholders,” Ghoshal wrote. “Also, their contributions of knowledge, skills and entrepreneurship are typically more important than the contributions of capital by shareholders, a pure commodity that is perhaps in excess supply.”
Wow (emphasis mine); that’s one of the most thought-provoking things I’ve read in some time. Mind you, Ghoshal was a respected management guru, not a raving Marxist; that said, his words could be the basis of another revolution. Hungry for more, I Googled Ghoshal’s manuscript, “ Bad Management Theories Are Destroying Good Management Practices.” [pdf]
“By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility.” — Sumantra Ghoshal
In a nutshell, Ghoshal argued that business schools have, for the past 30+ years, been preoccupied by two things, to little good result.
First, they have a need to have their work considered in the same favourable light that “hard” science is, by replacing ethics with “a firm belief in causal determinism for explaining all aspects of corporate performance.” This is problematic, according to Ghoshal, because unlike in science, where the universe acts in much the same way no matter what you say about it, the object of the social sciences — people — will change based on what you think about them, either rising to the occasion or sinking as appropriate. He calls this misapplication of the scientific method “the pretense of knowledge.”
The second theme is that of ideology of liberalism (in the original economic, rather than subsequent social, sense), and no name pops up more in this context than Milton Friedman. Ghoshal posits that they’ve become focused on the negative aspects of business — i.e., risks — while ignoring the positive ways that businesses and people interact. He calls this “the negative problem” of an “ideology-based gloomy vision”, which has lead to phenomenon like the complete exclusion of social benefits from business planning, because it is “irrational” and considered an aberration in a free, open market.
Dismal science, indeed.
I can’t help but wonder how technology can be used to help put management back on track. Right now, for example, investors can easily buy and sell the rights to a company’s future revenues with the click of a mouse; the price the market pays sends a signal to management about how they’re doing. It’s a very coarse-grained signal, however; it doesn’t say whether the investors prefer a long-term approach, or are in it for a quick ride.
Since we have the technology to buy and sell so easily, can we not also have the ability to impart more information into the transaction? To tell the Board that we’d prefer them to think beyond the next quarter? That maybe they’re paying the executives too much? How hard would that be for NASDAQ or E*Trade to do?