Making a play for power

With the stakes for individuals and organisations rising ever higher, does anything matter more than the getting and keeping of power?

by Simon Caulkin
Last Updated: 09 Oct 2013

It's more than 30 years since Harvard professor Rosabeth Moss Kanter memorably described power as US management's 'last dirty secret', but the sentiment could hardly be more up to date - and not just in the US, but all over the world.

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.

Power is not to everyone's liking, but trying to understand business without it is like treating football or rugby as branches of physics. It's also a cop-out. With the stakes for both individuals and organisations at an all-time high, learning the rules of the power game and how to play it may just be the most important thing today's generation of managers can do.

What marks out the powerful from the rest? The most important qualification, says Stanford's Professor Jeff Pfeffer - author of Power: Why some people have it - and others don't - is realism: understanding (or intuiting) that power is a game played by its own rules, which don't necessarily include fair dealing, generosity or even stellar performance. For the squeamish who would prefer power to drop in their laps because they are good, nice or loyal, Pfeffer has a simple piece of advice: get real.

Sanitised ideas of leadership extolled in self-serving literature, and management courses that are more like sermons than descriptions of the world as it is, are substantially to blame, Pfeffer charges. Yet the social science is clear: believing in a just world where people achieve what they deserve to and virtue triumphs is a career handicap. Studies show that in the real world, ethical managers do not fare better and nice guys do indeed often finish second. Warmth is interpreted as weakness, while those who get away with being rude, violating the rules and ranting at others are assumed to have power and, as a consequence, accorded more status. 'People react much more positively to anything that signals strength, including brute strength, than they think,' says Pfeffer.

Visibly or not, power shapes everything. Hierarchy occurs everywhere in the natural order, even among fish, and although alternatives exist, such as democracy, most firms are arranged around the male organising principle of competition, tournaments and winners and losers. Given this, and the rewards both direct and indirect with which top jobs are associated, it is scarcely surprising that executives prefer to be at the top rather than the bottom, and that some scheme and strategise to get there.

You would expect an aspiring chief executive to have a strong power drive, says Dr Elisabeth Marx, a partner at search firm Stonehaven. The trick is to identify whether he (and it usually is he) has the self-knowledge, interpersonal skills and grasp of reality to use it to further the aims of the organisation rather than his own. Even with all those qualities, a strong CEO may find it hard to manage power relationships among a top team consisting of six or eight people, all of whom have reached the top by being alpha-males (whatever their gender). 'I sometimes think the best person a board could appoint would be a child psychologist,' says Don Young, a director with experience of several FTSE company boards. 'Some top teams are like kids in a playground: are you in my gang or someone else's?'

Power games don't stop once an executive has reached the top. Although the position comes with control of vast financial and other resources, CEOs aren't invulnerable. And the enemy is not just capricious capital markets. Power brings its own perils. 'Power is dangerous,' says Nigel Nicholson, management professor at LBS. 'People want to take it from you, you have to defend it, there are transaction costs in maintaining it.'

Tenures are shrinking worldwide - CEO sackings and oustings rose 300% in the decade to 2006, according to Booz Allen Hamilton. But these career crashes don't usually happen through failure of technical competence ('I never met a dim CEO,' says Young) but because executives can't handle relationships laterally or with their board. Leo Apotheker, removed as HP's CEO after less than 11 months in office, is a prime example. Pfeffer's prediction: with a record of skilled board management at eBay, his replacement, Meg Whitman, will survive longer at HP, whatever her record.

Corporate power is thus a two-edged sword. 'Yes, I think power does eventually corrupt,' says an experienced non-exec and chairman who heads the board at a defence contractor - although rarely in a criminal sense. A CEO might come to view the organisation as a personal lifestyle support.

A more common and subtle corruption is the erosion of reality, as the busy CEO becomes ever more separate from the rest of the firm by the trappings of the top job. At Lehman Brothers, a private lift whisked CEO Dick Fuld to his top-floor office without his seeing any underlings. The tendency is abetted by followers who flatter the powerful to stay on their good side.

Routinely getting their own way and being treated as if they were special, power holders can end up believing their own press. Studies show that in turn they quickly become overconfident, insensitive, prone to taking greater risks and treating others as instruments for their own gratification.

Writ large, this syndrome has contributed to the undermining of traditional ties within firms, favouring layoffs, outsourcing, offshoring and acquisitions as weapons of first rather than last resort. Without realising it, notes Young, such CEOs end up inhabiting a different universe whose centre is equipoised between City, media and peers and competitors rather than the company itself - an uncomfortable and ultimately unsustainable position.

In time, reality usually intervenes to cut the hubristic down to size. Yet the powerful have a remarkable propensity to bounce back. Once acquired, a reputation for power and competence is hard to destroy, notes Pfeffer. Bet on Apotheker popping up again as CEO of a European company in a year or two. Murdoch and Berlusconi are wounded, but the basis of their power, their media empires, remains intact. Not only has no banker gone to prison for his part in the great financial crisis: at the end of 2008, after the market meltdown, seven of the most prominent US financial CEOs were sitting on gains of $209m apiece for their previous eight years' work.

Yet the key property of power is not that it is protean and self-perpetuating. It is that, unlike many physical and economic processes, it is self-reinforcing. At every level, power begets more power. Powerful leaders attract followers who feed their self-confidence, make them look good and give pause to rivals.

The same is true at company and industry level, with ramifications for the economy - and polity - as a whole. Consider the research finding that countries with highly developed financial services tend to be weaker in manufacturing. The explanation is simple: they are two sides of the same coin. Manufacturing is weak because finance is powerful. It attracts the most ambitious with higher salaries and maintains an unfavourably high exchange rate; then by hijacking for itself resources that it previously channelled to industry through bonuses and profits when there were any and subsidies when there weren't. Finally it destabilises the real economy through the derivatives that escape the regulators' (and its own) power to control.

Almost everyone outside the City agrees that financial reform is urgently necessary. But, as the BBC's Robert Peston wondered on air in October, will it happen if it means weakening a sector that supplies not just 10% of tax revenues and 3% of GDP, but also - as was revealed the same day - 51% of Tory party funds?

Kantor was more right about the 'dirty secret' than she knew. Three decades ago, her canvas was exclusively firms that were small by today's standards and where CEOs were paid multiples of 30 or 40 times the salary of the average worker. Her version of the dilemmas of power now seems quaint. Largely through the operation of those hidden self-reinforcing mechanisms, the terrain and the stakes have since been transformed out of all recognition.

One of the advantages of being the CEO is you can write the rules by which the firm operates. As power is concentrated, the same thing happens at the level of industries or sectors. And there is no dispute that power has both consolidated across firms and centralised within them.

LBS's Professor Gary Hamel, an acute analyst of such metatrends, castigates governments and regulators for allowing industry after industry to become not just a national but a global oligopoly with the power to fix its own rules. Finance, cars, oil, insurance, airlines, pharma, computers, media, internet - the list goes on. A recent study found that the 500 largest global firms account for 40% of world GDP.

At the same time, in complete contradiction of official management mantras (flat organisation, distributed leadership, shared interest, web-enabled local empowerment), the reality within firms is sweeping centralisation, untethered CEO pay, megamergers and disempowerment as big businesses impose uniformity both within and without.

None of this is supposed to happen: research has failed to find a connection between firm size and profitability. Mergers mostly destroy value. Beyond a certain point (long passed in the sectors mentioned), industry consolidation has no economic justification. The whole point of capitalism is vibrant competition that prevents abuse and ensures that all firms are price takers, not makers. And concentrating economic and political power in ever fewer hands is potentially catastrophic.

So why does this situation persist? Viewed through the lens of power, these 'aberrations' suddenly aren't aberrations at all. Size may not pay off for others, but it does for those who have the power to make it happen. Consolidation and the movement of power to the centre, as Hamel notes, are driven by imperially minded CEOs whose salaries and access to resources grow in tandem; and the knowledge that size equals power politically as well as economically. 'You have more influence in Washington, London or Berlin if you speak for a very large company,' he says. 'The average CEO can earn a higher return on an hour spent influencing policy than on innovation or inspiring employees.' After the Citizens United case in the US, which removes limits on corporate campaign spending, that disproportion can only grow.

Put this way, pay, mergers and centralisation aren't out of control at all - they are in the control of those who benefit, and seemingly beyond the reach of individuals, regulators and even governments to inhibit. Sceptical? Consider this snapshot of today's balance of power: while countries and households are going broke in the worst financial squeeze for 100 years, corporations are stuffed full of cash. The problem for corporations is not making money but what to spend it on. US companies alone are sitting on a cushion of $2trn of unspent cash.

'The central question (for capitalism) is: how large and powerful do we want our institutions to be?' sums up Hamel. All power generates resistance, and those who answer 'infinitely' should ponder the opposing force that now, he says, threatens to let reality through in a new and unexpected way. That is the radical decentralising tendency of the web, enabling instant collaboration without the institutional overhead of infrastructure, bureaucracy or control.

The clash of the two is the story of the Arab Spring, where deeply entrenched elites were taken on by a suddenly connected rabble - and the rabble won. Time to remember the lesson of history. As in Egypt, Tunisia, the Soviet Union, Enron and Maxwell's Mirror Newspapers, power does indeed enrich, protect and self-perpetuate long enough for those who have it to imagine that it will go on for ever. And then suddenly it doesn't.

HOW TO WIN THE GAME

Bad guys only get to the top because other people let them, says Pfeffer. The good guys need to stop being squeamish, roll up their sleeves and become more powerful themselves. Here's a nine-point primer ...

Front up. Face it, power isn't going to drop into your lap unaided. Learn the rules of the game and work them.

Get over yourself. Unsparingly analyse your strengths and weaknesses - and correct them.

Understand the rules. Intelligence is less important than ambition, energy, confidence, focus and willingness to tolerate conflict. So is performance - although if you can convince superiors it's brilliant, so much the better.

Don't be intimidated. Stand out, act with power. Don't be afraid to break a few rules.

Get some backing. Make yourself useful to the higher-ups - but not so indispensable that you can't be moved.

Build a reputation. Image creates reality - first impressions couldn't be more critical.

Learn from setbacks. Treat failure as a chance to get better; never take it personally.

Network. Network, network, network.

Worry about yourself. Not the organisation - ask yourself how much does it care about you?

 

STEVE JOBS, SUPREME POWER PLAYER

Star exponents of power are as rare as other kinds of virtuoso. But one was undoubtedly the late Steve Jobs, the brash entrepreneur who co-founded Apple, was kicked out of it by his own recruit, and returned as a seasoned executive to magic it from a near basket-case into a contender for most valuable company in the world.

Apple is a classic story of self-reinforcing success. Jobs was, to put it mildly, a hard taskmaster. A notorious control freak, he shouted, set impossible standards, and wanted it tomorrow. But that just increased his aura of power, attracting enough good followers to rebuild success. 'Once you're successful and powerful,' says Jeff Pfeffer, 'it's mostly backward induction - people attribute positive qualities to you and want to be associated with you.'

Ambition and focus provided extra pull. Nor was fierce accountability a disincentive - rather the reverse, since consistency is also prized. Apple's top team barely changed in a decade.

Observers often mocked Jobs's 'reality distortion field' - a parallel universe that functioned according to his rather than nature's laws. But the joke was the other way round. Jobs was the master of using the power of positive expectation.

Dozens of studies show that when leaders believe subordinates will do well, they do better than if they think they'll do badly. Conversely, if you convince yourself and others that the near impossible is both do-able and bound to succeed, you give yourself a chance. That's the reality distortion field to a T. As the record shows, Apple achieved innovation that other firms could only dream of.

Will Apple survive Steve Jobs? Success is the most powerful legacy. But don't underestimate what may be Apple's greatest innovation. No, not the hardware, but iTunes and its spiritual heir, the App Store.

iTunes reduced sales friction to almost nil, allowing users to 'pull' what they wanted when they wanted and in what order, and revolutionised a tired music industry. The App Store went further, first differentiating the iPhone from rivals, then effectively crowdsourcing the function of the tablet iPad. Remarkably, the iPad succeeded without a killer app. By capitalising on its customer relationships, the iTunes/App Store model gives Apple the mechanism to repeat the trick again and again.

Although a monument to Jobs's perceived power and genius, Apple is thus far from a standard corporate dictatorship. Leaving a company focused on the customer as much as the all-powerful boss may be the latter's most far-sighted bequest.


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