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Management's defining moment?

Thu, 11th Feb 2016

I’ve been wrong before – but is management at last moving up the political agenda? The route is roundabout, but it’s slowly dawning on governments and ministers that many of the social and economic problems they are grappling with are micro-economic rather than macro-economic at root – that is, even if the results (inequality, lagging productivity, slow growth) manifest themselves as problems at the national level, those results are the sum of what goes on inside companies. The only levers that can be pulled to affect them are the beliefs, practices and incentives that operate in the workplace. So what happens in the boardroom and on the shop floor, how the company is governed and managed, have direct political ramifications.

A few voices have been have been trying to make such views heard for years. City economist Andrew Smithers, for instance, has made the seemingly obvious point that the motivations of those making resource-allocation decisions within companies have an important bearing on indirect outcomes such as productivity, jobs and income distribution. In The Road to Recovery he argues that there won’t be one unless the incentives to short-termism of CEOs loaded with stock-options are brought under control.

In a powerful presentation on ‘Reinventing the Corporation’ at the British Academy last year, Colin Mayer, formerly dean of Oxford’s Saïd Business School, noted that ‘it is to the corporation that we should turn for both the source of our prosperity and our impoverishment’, adding: ‘With the emergence of the mindful corporation we could be on the edge of the most remarkable prosperity and creativity in the history of the world. On  the other hand we could equally well be at the mercy of corporations that are the seeds of our destruction through growing inequality, poverty and environmental degradation that give rise to social disorder, national conflicts and environmental collapse on scales that are almost impossible to conceive of today. We are therefore on the border between creation and cataclysm, and the corporation is in large part the determinant of which way we will go.’

We might sense a returning echo from that warning in the whiff of fear in the air as today’s elites see the certainties underpinning their comfortable existence of the last few decades crumbling in front of their eyes. ‘As the US has developed a Latin American-style income distribution, its politics have grown infested with Latin American-style populists, of both the left and the right’, Martin Wolf summed up recently in the FT. There is no guarantee that these new populists, not only in the US but also in France, Spain, the UK, Greece and others, will be as compliantly ‘business-friendly’ as their predecessors; hence the need to head them off becomes a priority.

All of which brings the company squarely into the political firing line. Of seven steps Wolf listed for bringing elites back in touch with the masses they have left behind, no less than four involve the company, how it works and is regulated. First, curbs on the financial sector, whose vast expansion has not brought commensurate improvements in the rest of the economy (rather the reverse: the financial sector’s gain has been the rest of the economy’s loss); ‘ruthless’ competition policy to deal with ‘too big to fail’ and corporate rent-seeking; nailing corporate tax, which also means addressing issues of wider corporate responsibility and legitimacy; and finally, challenging the doctrine of shareholder primacy – ‘shareholders enjoy the great privilege of limited liability. With their risks capped, their control rights should be practically curbed in favour of those more exposed to the risks in the company, such as long-serving employees’.

Taken together with the wave of reform initiatives (in its broadest sense) that have sprung up around the world – the Purpose of the Corporation Project, Coalition for Inclusive Capitalism, Conscious Capitalism, benefit and b-corporations, the Management Innovation eXchange, the Global Peter Drucker Forum – Wolf’s list signals something important. All are a belated stirring of human agency – we are not drones in a technocratic economic machine with immutable laws and but have choices, including over the purpose and governance of companies that we work in, that we want to exercise. They reflect perhaps a greater appetite for change now than at any time for the last 40 years.

That doesn’t mean we’ll get it – it doesn’t help that politicians are dismally, diametrically wrong about management, micro-managing and laying down the law where they have no business to (method), and treating the big issues of purpose and governance, their proper domain, as givens that are undiscussable. The stakes couldn’t be much higher, with economists warning of a combustible conjunction of global economic slowdown, rapid population growth, climate change and resource shortages, and not least a wave of geo-political instability such that ‘the world has never been a more dangerous place’, in the view of one US military high-up. Two things at least are clear. The first is that, echoing Mayer, the corporation is a key determinant of whether the future is 'creation or cataclysm'. The second, following from the first, is that for management too this is a defining moment.


 


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User comments

John Carlisle :: 12th Feb 16
In a way this is what John Seddon has insistently been doing, and my own small way, working with NHS activists, I have been doing. If and when the politicians ever get this some of their policies may become useful for the nation.
Henning Sieverts :: 15th Feb 16
Of course, corporations do not function as a macro system, but rather as the sum of many small decision-making sub-microsystems inside of many large (not often united) micro systems. All of the big companies making cars are in the same markets, and together and even sometimes in ones and twos, they have huge impacts on how various national economies behave. But whilst they have very similar market incentives, it's what they do individually that matters. Not all of them succumbed to the incentive to fake diesel emmissions readings. That happened in individual corporations (perhaps only VW), or more specifically within one department of one division.
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