To read my article for The Foundation, click through at the bottom of the page here
Yeah, right – what planet do you think we live on?, might sneer anyone who’s done an MBA. Dream on, those on the receiving end would sigh wistfully.
Yet the funny thing is that companies set up in this New Age fashion conform much more closely to the hard evidence of ‘what works’ than conventional top-down, short-back-and-sides rivals. Companies that figure in ‘best places to work’ lists, using practices like the above, are consistently more profitable than ‘normal’ counterparts; getting employees more engaged is the single sure-fire thing any company can do to boost performance (see my piece on the extraordinary failure of people management here).
For a concrete example of how and why such practices work, look no further than training company Happy, which does all the things in the first paragraph, plus many more. Happy trains 20,000 people a year, and picks up awards for customer service, work life balance and being a great place to work with a regularity that must depress rivals. Generously, founder Henry Stewart (previously a journalist, and it shows) has written a provocative and welcome book about how it’s done, self-explanatorily entitled ‘The Happy Manifesto’.
Stewart’s book has a foreword by LBS’ Professor Julian Birkinshaw. The combo is particularly felicitous because Birkinshaw has himself published a fascinating research report on ‘employee-centred management’ – and the two complement each other perfectly, Birkinshaw’s paper setting out the research findings, Stewart illustrating them with practical examples.
They’re a great double act, and I’m sure they won’t mind my saying that reading them together is even better than reading them apart. Time after time, lightbulbs go off as the issues raised by Birkinshaw are faced, and faced down, by Happy. Here are three of the brightest, at least for me.
First, since the elements of helping people perform well are well established, muses Birkinshaw, why are most companies so bad at it? One reason is that the trusting, open management required is a minority sport – an ‘unnatural’ activity that goes against the grain of control and risk-aversion that managers at business school and their previous employer. Happy’s solution – ‘our most radical concept’ – is… to select managers who like and are good at managing. Wow. Let that sink in a minute. Many people are comfortable with left-brain management activities like strategy and decision-making, far fewer with supporting and coaching behaviour. So split the roles and hand people management to those who do it best. In addition, give people a say in who manages them. Poor management, points out Stewart, ‘undermines morale, creates stress, reduces productivity and causes companies to lose some of their best people. It is a massive problem, but there is a simple solution: let people choose their managers. If they don’t like the one they’ve got now, let them decide who they want instead.’ Done, problem solved.
Second, it’s a truism that front-line staff know more about what customers want (and are getting) than managers. But all too often companies block good customer service, and innovation generally, with rule books that force people to do things that they know are not in customers’ interests. (As Peter Drucker once lamented, ‘So much of management consists of making it difficult for people to work’.) Instead, Happy as far as possible eliminates rules. How? By making an incredibly important distinction: between rules and systems. ‘There is a crucial difference between the two. A rule has to be obeyed. In response to a rule you are expected to suspend your judgement. A system is the best way we have found so far to do something. But, if any member of staff can think of a better way in the situation they are in, they are encouraged and expected to adapt the system.’
In many organisations, the response to a mistake is to create a rule. Rules never get taken away, only added, so we end up with ever more and more dispiriting restrictions on the use of common sense, both at work and outside it. This dynamic explains why an author has to have a CRB check before he or she can give a reading at a school, or a neighbour can’t look after a child for a morning without registering as a child minder. Of course, you can’t just get rid of rules and throw people back entirely on their own resources. But the minute you start thinking in terms of systems you have terms of reference within which to exercise judgement, as well as guidelines for deciding whether rules are necessary (is the incident natural variation, or noise, in which case it’s pointless to make a rule; or is it a signal of a change or malfunction in the system that does require a reaction?).
Third, another reason why good people management is so rare is that in times of crisis like the present the default reaction is to is to pull control back to the centre, so that the manager is on top of everything. But this is often exactly the wrong thing to do, since it is people at the front end who are best positioned to respond to fast-changing circumstances. Happy’s answer, and more generally to pre-empt the automatic assumption that the manager knows best, is to institutionalise trust in the shape of pre-approval – making clear to a group or individual that they will have authority to implement their project or proposal, without prior management sign-off. As Stewart admits, this scares many mangers witless. ‘But think for a moment. What effect would this have on how seriously people took the task? We find it instantly removes any play-acting and politics. Suddenly it’s for real.’ Moreover, at implementation time they have an investment in making it work – and they can’t blame management interference if it doesn’t work.
Any of these practical insights is worth the price of the book on its own. But there are more on almost every page. Some of them have policy implications. For instance, whoever came up with the notion that making it easier to sack people would make them or the company more productive has only to turn to Stewart’s hierarchy of management needs on page 52 to understand why it is the stupidest idea in the world. Or page 106 to twig the real point of flexible working: ‘Flexible working is not what you approve of, but about the member of staff and what they need. It is not about you. It is about them’. The section on recruitment is particularly illuminating, or more accurately inspiring. Why do so many businesspeople complain that qualifications fail to prepare people for the world of work – yet continue to insist on the same irrelevant qualifications, Stewart asks. If more companies followed Happy’s practice of ‘recruiting for attitude, training for skills’, the UK unemployment figures would look much rosier – particularly among the angry and disaffected young.
In his foreword to the book, Birkinshaw notes that companies such as Happy are ‘more important for the economy than the immediate value they create for their customers and employees’. Their significance as alternative role models to the dreary (and ineffective) norm is immense. It can’t be emphasized enough that the management philosophy represented by Happy is not some fluffy attempt at do-gooding, but the reverse. It’s the rest of the world that’s out of line. Notes Stewart: ‘It would be nice to say that we do this out of a belief in democracy in the workplace, but this isn’t the real reason. We do it because it is more effective.’ Why not both? He rightly calls his book a manifesto, a call to arms. I hope he’s sent it to Dave and Ed.
Read my column in FT Business Education, 5 December 2011, here
Is there any management justification for paying people who run large established companies, which by and large grow at about the same rate as the economy, such enormous sums of money? No, not one.
- No reputable study has shown a link between executive pay and performance: in fact the evidence challenging the existence of a link ‘has become increasingly compelling’.
- There is however plenty of evidence of the damage done by stratospheric pay to the fabric and cohesion of the company. There is a whole page of references in the report to the importance of employee engagement to performance (and see my piece here). The single most important thing companies can do to boost performance is to improve dismal engagement levels by managing people as if they mattered. Enormous pay inequality says in the starkest fashion that people don’t matter. And the inequalities continue to rise. Last year alone FTSE directors’ pay went up a stunning 49 per cent at a time when many at the bottom of the scale were taking pay (and pension) cuts.
- ‘The [national] economic case for getting to grips with the dramatic escalation of top pay is increasingly apparent. Extreme levels of pay inequality have a [negative] impact on: entrepreneurialism; growth; economic instability; sectoral imbalances; social mobility.’
- The idea that exorbitant pay reflects a ‘market rate’ is a myth. As the report makes clear, there is no functioning international market for top executives – if there were, real pay would be the same everywhere. A ratchet is not the same thing as a market.
- Finally, paying people according to different criteria fails the tests of both fairness and simple logic. If high pay is essential to induce some people to get out of bed in the morning, why should it be different for those at the other end of the scale?
As with dreadful people management, there is almost complete consensus that excessive management pay is destructive, scandalous, and shouldn’t happen. So, again as with people management, the only interesting question is – what is causing it that makes it impossible to stop?
The answer is, governance.
There’s no point in wringing hands over it: soaring executive pay is not an aberration. It’s the logical creation and consequence of a corporate governance structure that is enshrined in all our City codes. The HPC is only half right to say that pay excess ‘is a symptom of a particular form of free-market capitalism’: more accurately, it is its triumph.
Unfortunately, the HPC does not peel back that ‘form of free-market capitalism’. It was born in Chicago with Milton Friedman and his associates. Crucially, it was transmitted from macro to micro economics by Professors Michael Jensen and William Meckling, who in 1976 published a celebrated paper in the Journal of Financial Economics entitled ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure‘.
As Roger Martin recounts in his important Fixing the Game, Jensen and Meckling’s is the most quoted article in economics history. It is also the most influential. It is not much of an exaggeration to say that one academic article has shaped the course of corporate history for the last four decades.
It has much to answer for.
Management based on it, says Martin, ‘has reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking. Capital markets – and the whole of the American capitalist system – hang in the balance.’
Along the way, it has given us a new caste – the imperial, and imperially paid, CEO.
As Steve Denning noted in a recent Forbes post, Jensen and Meckling performed the time-honoured trick of creating an artificial problem to which they just happened to have a handy solution. The straw man was the ‘agency problem’: the supposed misalignment of ‘principals’ – the firm’s shareholders – and their ‘agents’ – managers and workers, who left to themselves were allegedly spending more energy tending their own interests than those of their shareholder-principals.
For there to be an agency problem to solve, two crucial assumptions have to be made. One is that the company’s sole purpose is to maximise value for shareholders. But why should shareholders be singled out as ‘principals’, their interests privileged above other company stakeholders? To justify that, Jensen and Meckling had to make another heroic assumption – that shareholders own companies.
That belief is now so engrained that it has become invisible; the assumptions, at least in the Anglo-US context, have become fact. But it is a myth.
Here’s what two business professors wrote about it in that fiery left-wing organ Harvard Business Review last year. ‘It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes – even when a loss in value is documented–courts side with directors the vast majority of the time’.
Here’s the late Sumantra Ghoshal in a much admired article in Academy of Management Learning and Education: ‘We know that shareholders do not own the company… They merely own a right to the residual cash flows of the company, which is not at all the same thing… They have no ownership rights on the actual assets or businesses of the company which are owned by the company itself, as a “legal person”. Indeed, it is this fundamental separation between ownership of stocks and ownership of the assets, resources and the associated liabilities of a company that distinguishes public corporations from proprietorships or partnerships. The notion of actual ownership of the company is simply not compatible with the responsibility-avoidance of “limited liability”.
Here’s Paddy Ireland in another frequently quoted article, ‘Company law and the Myth of Shareholder Ownership’: ‘Disinterested and uninvolved in management, and, in any case, largely stripped (in law as well as in economic reality) of genuine corporate ownership rights, the shareholder is, as Berle and Means pointed out, ‘not dissimilar in kind from the bondholder or lender of money’. While, therefore, the relationship between shareholder and company is not exactly one of lender to borrower – the share is not, as some have suggested, a kind of loan – neither is it in any meaningful sense one of owner to owned’.
And finally (although plenty more could be added) Charles Handy: ‘The idea that companies are owned by shareholders is, excuse me, balls. It is the cause of all kinds of problems… Somehow the myth has grown up that shareholders are owners; whereas the law says that the corporation is an individual and therefore has the same legal and moral obligations as a person. Even more than that, a company is a community, a group of companions, which means that it can’t be owned by anybody else in any real sense. You can own the village, but not the inhabitants in it – we used to call that slavery’.
If companies aren’t owned by shareholders, the whole governance edifice on which executive pay is the culminating spire simply collapses. The agency problem vanishes. The single-minded imperative to maximise shareholder value vaporises too, and with it the requirement to incentivise managers to achieve it. In fact, such incentives can now be seen in their true light, as destroyers of corporate cohesion and engagement and thus squarely contrary to the board’s fiduciary dury to the company itself.
It has been forgotten, including alas by the HPC, that agency theory and governance based on it (including all our City codes) come out of assumptions grounded in ideology, not in any evidence of what actually ‘works’. As Ghoshal pointed out they have no predictive value, and none of the current governance prescriptions have any correlation with superior performance.
In fact the contrary: one of the revelations of Martin’s book is that, extraordinarily enough, shareholders have done less well in the past three decades of shareholder primacy than they did in the postwar years when managers were supposedly ripping them off.
One of the crowning ironies is that the Jensen-Meckling theory was at bottom anti-management: it was framed as a response to managers’ self-interested ability to exploit their corporate position for their own ends. Yet the greatest beneficiaries of the resulting new order have been managers who first accepted, then eagerly demanded as their entitlement the escalating alignment incentives on offer – including managers and fund managers of institutional shareholders, themselves benefiting the same self-serving incentives. This unholy alliance has hijacked all the corporate returns during the period. While profits on both sides of the Atlantic soar to record heights, it is only managers, both corporate and finance, who have benefited.
Present corporate governance arrangements not only did nothing to prevent the crash of 2008: they helped cause it. As with executive pay, they, and the assumptions they are based on, are the problem, and any solution that uses them as the starting point will self-evidently fail. It’s no use asking shareholders to discipline managers, because they are playing on the same side. That helps explain why no attempt to rein in top pay has had the slightest effect so far.
Unfortunately, as the HPC report shows, the fact that these ideas are time-expired does not prevent them exerting a powerful influence from beyond the grave. The Commission will apparently continue to work for another year after delivering its final report. Before it disbands, it should make it its job to put a final stake through the zombie’s dark heart – otherwise its prescriptions, for all that many of them are right, will suffer a similar fate.
Yes in each case: and you’d be right. Although it is hard to be categorical about what causes what, the evidence is that high employee engagement and satisfaction is indeed reflected in superior business outcomes, including profit. Among a stack of similar studies, the most recent scholarly research finds that a value-weighted portfolio of the ‘100 Best Companies to Work for in America’ outperformed the market average by a cheerful 3.5% a year over 25 years – hardly a flash in the pan.
Nor is there any mystery about what causes people to enjoy their jobs and work at them. Things like responsibility for doing a worthwhile job, work autonomy, opportunities for personal growth, working with good colleagues and recognition head the list. Salary and working conditions – another ‘duh’ – rate barely a mention. They are ‘hygiene factors’, demotivating people when inadequate but never becoming a positive source of satisfaction, however high they go.
Yawn. Tell us something new.
Yet the commonplaces contain a large puzzle.
Because the ‘alpha’ garnered by companies that put employees first shouldn’t exist. It resembles the economists’ hypothetical £5 notes that really are lying around in the street because no one has picked them up. Think about it. We know that overall, global levels of employee engagement are dismally low, the proportion of those highly engaged plunging downwards from 20 per cent in the US and 12 in the UK to single digits in France, China, India and Japan. We know also that raising them would improve business performance. Finally, we know what good management looks like.
‘So, if something doesn’t work very well, and a (proven) better alternative exists, surely we would expect everyone to gravitate towards that alternative?’ ponders London Business School’s Professor Julian Birkinshaw, who has just spent a year investigating the subject, with fascinating results.
One factor, Birkinshaw and his team surmised, was that management is always approached from the point of view of those doing the managing. Unlike marketing, which has learned to view its function as ‘seeing the world through the eyes of the customer’, managers still see the world exclusively though their own eyes, not those of their employees. One result is s a hopeless mismatch between expectation and requirements on both sides.
This matters, big time, because, underlining yet another ‘duh’, the single biggest predictor of whether you will be engaged and happy in your work is having a high-grade manager. And in this area Birkinshaw’s findings are both extraordinary and damning.
In marketing, many high-performing companies (eg Apple) use something called the Net Promoter Score as a measure of customer loyalty. NPS asks, on a scale of 1 to 10, how likely you are to recommend the company to friends or colleagues. It’s a tough metric, because only 9s and 10s count as promoters, and 1s to 6s as detractors. Subtracting the latter from the former gives a single net score showing how positively (or not) customers view the company.
Now, when Birkinshaw and his colleagues asked employees at five companies to rate their managers in the same way – ‘how likely is it that you would recommend your line manager to a colleague as someone they should work for in the future?’ – there were massive variations. One company posted a NMPS (net management promoter score) of +61 per cent while at the other end of the scale another company scored -28 per cent. But the average was -15 per cent – that is, overall 15 per cent more employees gave their managers the thumbs down than the thumbs up. From an employee point of view, there were more bad managers than good.
Dwell on that a bit. Here we have perhaps the most basic building block of management, the relationship of a manager with his/her immediate report. We have an unimpeachable evidence base. Yet we still manage to get it wrong more than we get it right. In its most fundamental task, getting the job done through other people, management’s effect is negative.
Why do managers find it so hard to do the right thing?
One reason is surely ideological. As Birkinshaw notes, most large organisations continue to operate on a management operating system devised a century ago – bureaucratic coordination, hierarchical decision-making, extrinsic rather than intrinsic reward. In a world where the imperatives of efficiency and compliance have long ago ceded to commitment, initiative and discretionary effort, these principles objectively outlived their usefulness some time ago. But the framework was effectively locked in place by the shareholder-value, free-market doctrines that emerged in the 1980s (which requires all thse things), and they have permitted no movement since.
By reinforcing natural human tendencies to self-interest, control and risk-aversion, ideology makes them self-fulfilling. So even if it wasn’t originally, the behaviour that constitutes good management – focusing on people rather than self, delegating and tolerating mistakes in a larger cause – now runs against the grain. It becomes an ‘unnatural’ act. Put this together with managers’ conflicting priorities and limited time, and the fact that a check-list of things to do isn’t necessarily a good how-to-guide (all the activities require precise judgment so as not to overshoot in either direction), and good management, though obvious, suddenly seems less easy.
Birkinshaw’s research leaves some leading questions.
Why isn’t this stuff taught to all business students from lesson 1?
Why did the last government spend an estimated £70bn – enought to bail out a small eurozone economy – on IT and management consultancy, none of which addresses the elementary management issues?
Isn’t this, as Donal Carroll of Critical Difference suggests, the starting point for a manifesto for a radical, democratic, functional form of management?
It’s a mantra intoned in every management article ever written. ‘Success in [fill in the blank] depends on unwavering commitment from the top’. ‘Without senior management initiatives are unlikely to succeed’.
In other words, if you’re a middle manager with ideas about doing things differently, forget it – at least until you can find a top manager to sanction and champion the changes.
Obviously no one told Inspector Simon Guilfoyle.
In a recent presentation, he described his experience as an practical ‘operations inspector and systems thinker’ who in September 2010 took over responsibility for a staff of 80 policing the busy north-eastern sector of Wolverhampton.
When Guilfoyle took over his sector, a patch ‘busy even for Wolverhampton’, including a district well known for guns, gangs and serious organised criminality, this is what he found.
Officers were hardworking but harassed, with the heaviest workloads in the town. Crime rates were high (not totally down to the police) and service poor: to meet the numbers (x arrests, detections and stop forms a month) officers inevitably focused on doable cases rather than difficult ones, and backlogs ate up capacity to deal with new ones. Performance data was useless as a guide to activity because it made no distinction between noise and signal. There were conflicting priorities. Seven operational teams worked as individual units, unlike criminals, who nipped happily across boundaries. Bureaucracy and the rule-book had gone unchallenged for years, fostering a culture of risk aversion and disempowerment, with inevitable effects on morale.
‘There’s so much we do to make our own job harder, stuff that generates more work and is no value to the public,’ sighs Guilfoyle. He blames the poor service on an anti-systems approach to service delivery, in particular the target-driven performance management.
So what did he do?
Guilfoyle explains it far better than I can:
‘I went to Wolverhampton and got rid of some waste. It’s not much more scientific than that.
‘I can’t do much about what the force or government are saying about targets and so on, but I can do whatever I can locally on my sector.
‘The first step: take out from people’s performance reviews numerical targets and all those arbitrary measures of achievement.
‘I pointed out to the sergeants that if I needed to know what happened overnight I could press a button on a computer. I didn’t need to know what they did or planned to do on a daily basis. If there was a really interesting job to do or that had been done, great, I’d love to hear about it, let’s celebrate and let the community know. But I don’t need to know they’re patrolling the hotspots because that’s what I expect them to do.
‘I believe strongly in organisational trust and devolved opportunity. Sergeants are sergeants for a reason, and however much I consider myself still front line, these guys are on the ground every day, and I need to trust them to be sergeants and do their jobs without me leaning over them. They know their staff and their patch better than I do, so let them get on with it. Let them sign off their overtime, they don’t have to report back to me on normal activity.
‘Clear priorities. We’ll target the things that matter most to the community. You know what I feel about targets, but you can’t do everything so you have to have priorities. Let’s go for serious acquisitive crime, which is a problem in our sector. And anti-social behaviour – we know who the main offenders are, we know the hotspots, let’s use the data about crime patterns intelligently and react to what’s there to react to, not stuff that isn’t there. Clear priorities, everyone’s going in the same direction then, and we’re making value judgments about what to put further back in the queue. Of course all crime is important to the victim, but we have finite resources and priorities where certain offenders and certain types of crime are causing more harm to individuals, and it’s right that we focus on them.
‘Because officers at the time didn’t have the capacity to address them, we were carrying the largest workload in Wolverhampton on existing enquiries. Some of this stuff was growing hairs – crime reports from 2008-2009, for perfectly straightforward stuff. Unfortunately it was still ongoing, so the public was receiving worse service [while officers attended to it]. The likelihood of resolving any of the cases had totally vanished, because the victim had moved away or the CCTV footage had been erased. I asked the sergeants to review all existing crime reports, and we filed a third of them. The public tends to be pretty realistic when you say let’s get real about the theft of a Mars Bar three years ago. There was a lot of support when those decisions were made, because there was a minimal chance of bringing anyone to justice.
‘Professional judgment. The optimist’s view – mine – is that people join the police to do good and help people, and then we ask them to leave their brains at the door, we constrain them with prescriptive doctrine and process. They’re robbed of professional judgment. I really wanted to embody in my sector, we trust you as professionals. If you need to lean on the sergeant or me do so, but 99 per cent of the time you can deal with a house burglary or road traffic accident or angry caller on your own because you’re a professional and that’s what you do.
‘That was stage one.
‘In January 2011, as a result of the initial changes there was extra capacity which allowed us to set up – from our existing people, we were never going to get any more – a proactive team which could address issues across borders within and beyond the sector. So now we have a capacity where you have local ownership of individual neighbourhoods, but also the proactive team to do extra things on top of the daily business.
‘We’d slashed the workload by one-third so that was manageable, and it’s being managed effectively so we get through it quite fast. Service is better, officers are more visible so in theory that should drive crime down a bit. Then one of the extra things we did: before January we had a massive list of people wanted on warrant, escaped from prison, had failed drug tests, who – guess what – were probably responsible for much of the crime. We’d never had capacity to deal with them before, because we were chasing our own tails with waste activity.
‘Having taken waste out, we’ve taken the new team, a sergeant and eight PCs, and set them loose on the guys who are doing the cash-in-transit robberies, burglaries, gang activities and class A drugs.
‘Yes, in one sense we’ve ‘created’ crime by finding these people, but we’re now addressing the root causes of crime, the drugs activities fuelling house burglary and cash-in-transit robberies, for example. We’ve tackled emerging trends like stealing lead off roofs – a 90 per cent reduction of one crime type overnight, because we found out who was doing it and locked them up… There’s now no one on the sector wanted by prison or failing to attend a drugs test, they get locked up straight away so they’re not out committing extra crime.
What’s the picture in north-eastern Wolverhampton now?
‘Here’s a Statistical Process Control [capacity] chart, showing the incidence of serious acquisitive crime.
‘The first step change coincides with the initial changes, the second with the introduction of the proactive team. Coincidence? Maybe, I don’t know. I can tell you it’s the same 80 people working on the sector as before, they weren’t bad people then, but they couldn’t get things done because they were swamped in waste. As Deming said, 94 per cent of it is down to the system and 6 per cent to the people who work in it. All I’ve done is said, let’s stop doing this because it’s wasteful.
‘To summarise. It’s a two-stage process. Analysis took about five minutes. The check phase was so obvious because I was already within the work, so I was able to see without having to look from an outside angle.
‘Stage two, once we got things under control, let’s see what we can do with the extra capacity.
‘So there are two questions to consider.
‘Is it rocket science?
‘Were these crime reductions a coincidence?
Acutally there’s a third question. Do you still believe it’s impossible to change anything as a middle manager? Take a leaf from Guilfoyle’s book: just do it.
Harder to talk about than money and sex (its constant hangers-on), power is passed over in silence by a literature that desperately wants management to be a respectable science rather than a battleground for primitive urges. Yet for all the words devoted to ‘official’ topics such as strategy, leadership, shareholder value and customer focus, the truth is that the drive to win and keep power is the ‘invisible hand’ that yanks the strings which determine much of what happens in business. And, through business, increasingly in politics too, as the Murdoch and Berlusconi scandals in Europe and the struggle to regulate the global financial sector graphically illustrate….
Read the full article in Management Today, 1 November 2011
Just what the Dean and Chapter of St Paul’s wanted. The news that FTSE 100 bosses’ pay went up by an average 49 per cent last year could hardly have been better calculated to strengthen the Occupy movement’s conviction of its rightness and its determination to stay put. Nothing changed: the gap between self-serving haves and powerless have-nots continues to grow apace.
The reality that top executives have taken up residence on a different planet was coolly underlined on the Today programme by the intelligent and articulate Sir Martin Sorrell (salary £7.4m), chief executive of giant marketing services group WPP. WPP, Sorrell stated simply, was global, with just 10 per cent of its revenues in the UK. He left unsaid the fact that the group was also global as in footloose, having moved its domicile to Dublin in 2008 before relocating back to London this year.
You could almost hear Sorrell shrug the questions away. He didn’t so much defend his pay – he didn’t need to – as calmly inform his questioner why the situation was thus and could be no other way. It’s none of our business, he could have added but didn’t, and there’s nothing, absolutely nothing, anyone can do about it anyway.
WPP is a perfect summation of the ideal late capitalist corporation: enormous (2010 revenues £9.3bn, pre-tax profits £1.4bn), anonymous, diversified, of no fixed abode or nationality, subject to no overriding law but its own, while Sorrell himself is the archetypal technocratic leader. Together they are the product of what author and guru Gary Hamel describes as a sweeping twin process of centralisation within companies and consolidation across them that in industry after industry has concentrated power in the hands of a few imperial CEOs who earn greater returns on an hour of their time spent lobbying politicians than on an hour inspiring employees or pleasing customers. We now have a ‘corporatocracy’ rather than a democracy, Harvard Professor Jeffrey Sachs argues. It’s a regime ‘Of the 1 per cent, by the 1 per cent for the 1 per cent’, charges Joseph Stiglitz, the Nobel economics laureate, like Sachs hardly a raving left winger.
The counterpart of the remote untouchability of the few at the top is the perceived powerlessness of the many at the bottom, in front of St Paul’s, in Zuccotti Park or any of the 900 cities where Occupy protests have taken root. One blogger expressed the view from the bottom like this: ‘There is an overwhelming and global sense that the rest of us don’t matter any more in our globalised industrialised society, except as passive consumers of products. We are not needed or wanted any more for our ideas, for our viewpoints, for our knowledge and skills, for our approval at the voting booth, or even for our physical labour; the corpocracy would prefer that we just borrow more and spend more, endlessly, quietly, and uncritically, until we die’. Another noted that capital having exhausted its first fuels, ‘now it’s the creation of poverty, not of wealth, that makes the world go round’.
That seems almost literally true. While households and governments are crippled by debt, partly incurred by bailing out the banks, corporations are soaking up all the wealth they are creating. In the US corporate profits as a proportion of the economy are near an all-time high, just as wages are at an all-time low. Leaving aside the period in 2007 just before the crash, profits are higher than at any time since the 1950s. US companies alone are sitting on $2tr of unspent cash.
In years to come, people will look back on this era as just another in the line of imperiums stretching back through the Arab dictatorships, the domination of the communist party in Soviet Russia to the anciens regimes and feudal societies of Europe. The sense of entitlement of today’s corporate ruling class is as absolute, and irrational, as the former belief in the divine right of kings. Along with the weight of vested interest, it is such that it is most unlikely that reform will come from within. But if it doesn’t, the lesson of history is that sooner or later it will surely come from outside. As Stiglitz points out, one thing that all the exorbitant wealth of the rich doesn’t seem to buy is an understanding of what self-interest really means: looking out for number one requires having regard to the welfare of the other 99 too.
Read my article in FT Business Education, 24 October 2011, here
Meet 90-year-old Tom. Like many who get that far, Tom is beginning to show his age. He doesn’t see or hear too well, and he’s not very dextrous, which makes dressing difficult. But he’s vigorous, independent, full of spirit, and lives for his daily visits to his wife of 70 years, Iris, who went into a home last year with advanced dementia.
One day Tom is admitted to hospital with a suspected stroke. Actually it wasn’t a stroke (but better be on the safe side…). In hospital, Tom is distressed and confused. He can’t see Iris. He’s moved several times, is seen by many different people and can’t make out what busy doctors are telling him. He has difficulty with his clothes. He’s not sure where the loo is but is not very good with the bedpan, spilling some urine and slipping on it and falling. He’s quickly labelled ‘vulnerable’. ‘at risk’ and ‘unsafe for discharge’.
Eventually he does get home. But a few weeks later he is readmitted after a fall because an out-of-hours doctor sees the reference to stroke (better be on the safe side… ).
In most circumstances, Tom’s independence would have ended there. The ‘problem’ (the system’s, not his) would have been resolved with a move into residential care. There, living the life the system prescribed for him, not his own, he would indeed have been depressed and confused. Thus do people become the label the system pins on them.
Fortunately, however, Tom lives in Somerset, where a small integrated team has been piloting a very different approach to the commoditised world of care. Tom is one of the team’s service users, and his carers knew that he wasn’t, at all, a lonely and confused old man who couldn’t cope – he just looked like that because he was out of his normal context.
Having taken the time to understand Tom’s context, the care team discovered that putting his life back in balance, under his own control, was astonishingly simple.
He didn’t need a local authority ‘package of care’ for dressing or meals, still less a place in a care home. What he did need was clothes that fastened with velcro rather than the buttons he fumbled with. Yes, he had fallen, but that was due to poor lighting and inability to locate his glasses rather than failing balance. Solution: automatic lighting switches. As for eating, Tom’s issues – he had alarmed carers on their first visit by trying to prise bread from a toaster with a breadknife – were met by modest changes to his shopping habits: like buying rectangular bread.
Analysing what happened to other care users, the Somerset team found that Tom’s case set a depressingly standard pattern (minus the happy ending). Like Tom, most people presented with non-medical isses but, once through the NHS gateway, were rapidly medicalised. They became patients. To find a package of care they could be fitted to, they were assessed and passed on to different agencies, departments and teams literally dozens of times – in one case 35 times in 18 months.
Paradoxically, things were being made worse by each agency’s attempts to meet financial pressures by ‘trying to do things better’. In practice, this meant increasingly standardised processes and packages, spending less time in interviews, and rationing the time of experts.
Unfortunately, you can’t improve the system as a whole by optimising the individual parts. As Deming patiently explained, ‘If the various components of an organisation are all optimised, the organisation will not be. If the whole is optimised, the components will not be’.
In care, the cost of optimising the components was to make the system more fragmented, more impersonal and more prone to error – which is exactly how users experience it. ‘We’re great at assessment,’ notes Fiona Catcher of the Somerset care team. ‘But understanding… ’
In services as in manufacturing, the counterpart of increasing speed and standardisation is overspecification (better be on the safe side…). It’s a false economy. In care, repeated too-heavy solutions (hospitalisation, ‘at risk’ labels) further unbalance lives so that people rarely regain their previous independence. Horribly, it’s the reverse: once in the system they are on a ‘clear glide-path into residential care’. Adds Catcher ruefully: ‘It’s really perverse, isn’t it, that when the system swings into action to help, it gives you a leg up into greater dependency, greater need and of course at much greater cost to the public purse.’
Instead of operating on the old ‘assess-treat-refer’ process, Somerset now offers an ‘understanding and rebalancing’ service. Its mantra is ‘light touch, right touch’ and its aim to help people solve their own problems, maintain them in their own context, and manage their own lives. The most important qualification for this work, it has found, is an ability to listen. ‘Listening and understanding isn’t a profession,’ notes Catcher. To carry out the new value work, ‘what we really need is staff who can give people a right good listening-to.’
Understanding takes time upfront. But this is a small price to pay for a move from ‘doing things better’ to ‘doing better things’ that takes service and its cost into a dimension that is incomprensible to those stuck in the old model. As in Tom’s case, the material costs of rebalancing are laughably small, while the savings elsewhere in the system are uncountable. For 93 people discharged from the Somerset service, there were 12 prevented hospital admissions, 25 reduced stays, six prevented admissions to long-term care homes and 29 reduced packages of care, let alone numberless assessments, appointments and other transactions that didn’t need to happen. And how do you compute the positive benefit? ‘Think of the effect on Tom’s life,’ reflects Catcher. ‘And think also of the effect on the social care budget’.
Somerset began by thinking it was redesigning an adult re-enabling and rehab service. Now it believes it’s doing something much bigger, recasting the entire interface between communities and services, with implications that at this stage can only be guessed at.
‘What we’ve done in administration in the public sector over the last 15-20 years is turn public agencies into deliverers of transactionalised services,’ reflects Richard Davis of Vanguard, the consultancy that helped Somerset’s care team. ‘When we do that the issues that come to the fore are standardisation and efficiency, and the more we standardise the less we understand what matters to people and the more we miss the plot. One of the things that’s beginning to interest us is a move from looking at services as commodities, as they’ve become, to relationships, which is what they used to be. In many services, certainly the police and health, a lot of things go wrong because we don’t know people and have no relationship with them. It sounds terribly expensive until you understand the harm that’s being done because we don’t understand and the cost that’s being incurred as a result of doing the wrong things’.