The struggle for the corporate soul

Executive greed versus CSR policies; 'people are our greatest asset' versus mass redundancies. It's corporate schizophrenia.

by Simon Caulkin, World Business magazine
Last Updated: 23 Jul 2013

Will the real corporation stand up? Is it a psychopath, as alleged in Canadian law professor Joel Bakan's 2004 book, The Corporation: the pathological pursuit of profit and power, concerned only to off-load its costs on to others irrespective of collateral damage to society or the environment? Or is business a 'noble calling', the counterview put forward by Lord Browne, CEO of BP? Supporting this alternative view is the burgeoning social responsibility ethos coming from companies and the explosive growth of 'social entrepreneurship' - the application of innovative business methods to social problems.

It's no surprise that people are confused. Perhaps the best explanation of the contradiction is that the corporation is neither a saint nor a psychopath, but a schizophrenic, as it is capable of the best and the worst at the drop of a hat. Its contradictory behaviour is the product of a clash between two warring sides of its personality - call them the dark and the light. And the struggle is dangerous too. It's a battle where the consequences for the western world are, in the long term, as great as the struggle for the soul of Islam, although much less visible.

That may sound hyperbolic, but one of the unique and insidious properties of social science is that its underlying assumptions can all too easily become self-fulfilling. Dark assumptions beget behaviour that lives up to them, and similarly light assumptions. Start looking at the world through the dark/light prism and there's no escaping the Manichaean pattern where everything is either good or evil.

Of course, the official language of management is light. Annual reports, for example, are always written in 'light' even when the import is 'dark', as are speeches at the World Economic Forum at Davos, and most management articles and books. This is a world in which people are seen as the most important asset: pleasing customers and the partnership with suppliers must come first. Yet these light sentiments are undermined by the dark side. While lay-offs were once a last resort for employers, they are now the first option. Equally telling is the wholesale shift of risk from the company to the individual as companies shrug off their welfare role, first as carer and now as pension provider. Customers may be king, but they are also routinely exploited in a hundred ways: by misleading advertising and labelling; by restrictions hidden in small print; by deliberate overcharging and mis-selling. Similarly, talk of 'partnership' brings hollow laughter from suppliers, which cite examples of bullying and an extraordinary range of rebates, payments and other obligations imposed on them for the privilege of joining industry or retail supply chains.

Finally, consider what social responsibility can possibly mean for corporations whose shareholder-value doctrine requires them to do all the above, outsourcing as many costs as possible and squeezing as much value as possible from its partners. In this respect, it's perhaps not surprising that management-speak is notoriously evasive and jargon-laden: the tortured language and clumsy circumlocutions express perfectly the schizophrenia lurking beneath.

From the dark side comes the characteristic vicious circle of our times in which 'progress' is inevitably accompanied by sacrifice: the degradation of the environment, ever-intensifying work pressures, the progressive marketisation of civil society and the erosion of balance between work and private life. We have to work harder to stand still.

And it is not just about working harder. Journalist and author Madeleine Bunting notes that companies are no longer content with people's labour: to compete in today's world, they want them to internalise their commitment: they want their souls, too. The phenomenon of this ratcheting intensification and dehumanisation has been termed the 'hyper-organisation' by think-tank Demos and, more colourfully, 'asshole management' by the late London Business School academic Sumantra Ghoshal (see top right).

In the world of hyper-organisation, fortune, in all its senses, goes to the most hard-driving, the most ruthless, the most 'unreasonable' - those companies and managers least willing to compromise and most determined in the name of shareholders to put the greatest pressure on their employees, customers and society as a whole. The greatest assholes, in fact.

Of course, few people actually like being thought of as assholes. The light side exists in reality, as well as in the corporate imagination.

There are companies that consciously differentiate themselves by being 'good' - Ben and Jerry's, for example, and to a lesser extent early Body Shop (founder Anita Roddick says that the company lost its soul when it went public) and Google (motto: 'Do not do evil') - although the Google halo has slipped badly over its decision to censor its Chinese site.

There is also the open-source software movement, whose collectively developed products largely power the internet, proving that good work does not depend on crude sticks and carrots. There are less fashionable non-traditional enterprises, such as the Basque Mondragon co-operative, the Workers' Beer Company, or the maverick Semco in Brazil, all of which operate successfully within market economies, but refuse dark logic.

And what else are CSR programmes but a back-handed compliment to the light side - in effect, a manifestation of the corporate guilty conscience?

It's easy to be cynical about the blatant contradictions of CSR - how can companies boast of their social responsibility programmes while they are shutting their pension schemes - but that's the point: the desire to be considered a good citizen while simultaneously shedding responsibility is a perfect example of this schizophrenia, the corporate internalisation of the struggle between light and dark.

If the stakes in this battle for the corporate soul were simply the wealth and well-being of employees and consumers, that would be disturbing enough.

For it's hardly controversial that the dark side is in the ascendant: the incidence of stress, burn-out and resentment is going up as customer-satisfaction indices go down. The social and environmental price of 'progress' is mounting all the time. Governments too seem to believe that the risks of corporate bad behaviour are serious and growing, as witnessed by ever-denser thickets of regulations in almost every country in the world.

But the struggle goes much deeper - to the nature of humanity itself.

This is the result of the tendency for observations about human behaviour, unlike physical objects, to become self-fulfilling. If you advanced the theory that the earth is flat, you might get funny looks, but it wouldn't alter the shape of the earth's surface. On the other hand, if managers who treat employees as opportunistic shirkers generate alienation and opportunism, it justifies a further tightening of the screw. Governance based on the assumption that managers can't be trusted to carry out shareholders' wishes without sharp incentives breeds managers who believe that as of right they need a large salary to do a job and huge incentives to persuade them to do a good one. A strategy based on the idea that maximising profits involves a battle for value with employees, partners and society generates corporate Frankensteins, such as Enron, that distort competition and, in the end, wreck themselves.

The danger then is not just that corporations become narrower, more instrumental, less human places to be; it is that as they do so, they remake humanity in their own impoverished image. "Men," wrote the philosopher David Thoreau, "have become the tools of their trade."

An article last year by management scholars Fabrizio Ferraro, Jeffrey Pfeffer and Robert Sutton in Academy of Management Review spells out how the bedrock of economic assumptions underlying management studies have these self-fulfilling effects. Theories become self-fulfilling, the authors suggest, by describing how people and organisations ought to behave. Thus, it has been shown that as they study, business-school students become more concerned with shareholder value and less sensitive to customers and employees. Similarly, a larger proportion of MBAs among top managers in large companies is associated with more illegal activity.

One study quoted in the article found that business-school students "placed the least importance on knowledge and understanding, economic and racial justice, and the significance of developing a meaningful philosophy of life", and that "business majors reported almost 50% more (cheating) violations than any of their peer groups and almost twice as many violations as the average student". In sum: "A growing body of evidence suggests that self-interested behaviour is learned behaviour, and people learn it by studying economics and business."

So here we come to business's heart of darkness. It is the doctrine of self-interest. It has shaped decisively companies' internal dispositions (hierarchy to control opportunism), strategies and governance. The corporate schizophrenia that results comes from the conflict between the learned dark side and the 'better' half of human nature struggling to survive.

The idea that the trouble with management practice is management theory is one that a number of prominent academics have arrived at more or less independently. One is Stanford's Pfeffer, co-author of the article quoted above; another was Ghoshal. Not for nothing did they both quote John Maynard Keynes' famous passage: "The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist ... Soon or late, it is ideas, not vested interests, which are dangerous for good or evil."

Researchers such as Ghoshal were puzzled and concerned at the deeply ambivalent position that companies and managers had got themselves into.

The 'light' reality is that the company is an extraordinary invention, a prodigious amplifier of human effort and the chief engine of economic progress. No advanced country has reached its present condition without the aid of a body of sophisticated large companies. We depend on companies not only to satisfy economic wants, but also for comradeship, identity and purpose.

Yet managers can be seen sabotaging this positive reality; instead of respect and admiration, they provoke fear and loathing. Because of this growing distrust, their work is edged by ever-more onerous regulations, which, in the name of discouraging the abusive few, also have the serious effect of making the job of the many more difficult.

Why have managers shot themselves in the foot? Ghoshal argued that recent corporate excesses had their roots in ideas developed in business schools over the past 30 years, which had deliberately stripped management of human intent and any moral dimension. Instead of nurturing their organisations as engines of progress, managers have turned them into vehicles of coercion and exploitation, aping markets, creating monopolies, ripping off customers and forcing employees to work harder while they helped themselves to breathtaking amounts of pay - simply doing, in fact, what business-school courses had taught them.

Business schools, Ghoshal wrote, "do not need to do a great deal more to help prevent future Enrons; they need only to stop doing a lot of what they currently do. They do not need to create new courses; they need to simply stop teaching some old ones. It is our theories and ideas that have done much to strengthen the management practices that we all now so loudly condemn."

Of course, 'good' theory can be just as powerful. To exclude completely the light side - the possibility of altruism, trust and generosity - is not just grotesquely unrealistic, it is perverse. It is a vision more suited to a prison than a voluntary association of workers - and, incidentally, it is often forgotten that some of today's management techniques, such as psychological testing and appraisal, originated in prison regimes.

Many management practitioners can now sense in their guts that something is fundamentally wrong with today's ever-more laborious treadmill - hence the desperate attempt at counter-balance through social responsibility.

But that does nothing to resolve this ruinous personality split; it just perpetuates it. The only way to heal the damage is to devise a theory that better describes and legitimates what corporations and their managers actually do - one that treats the corporation not as a poor second best to markets, but as an intentional entity with its own distinct logic and role, and one that accepts that individuals have positive qualities that need to be nurtured.

A theory that, as Ghoshal says, acknowledges that "companies survive and prosper when they simultaneously pay attention to the interests of customers, employees and perhaps also the communities in which they operate".

That way, responsibility is brought inside the corporation, where it belongs, and the pathological tendencies brought under control, not by the regulator's straitjacket, but by managers' more reasonable and realistic expectations of the job.

Schizophrenics are dangerous to others as well as to themselves. The pathology is not incurable, but the effort had better be made soon. The logic of the situation is that, backed by both theory and vested interest, the dark side holds the stronger hand. Dark ideas create a world in their own reductionist image - and the stronger these effects become, the harder they are to reverse. A world governed by the precepts of asshole management is an unenticing and ominous prospect.

THE TOP FIVE CHARACTERISTICS OF GHOSHAL'S 'ASSHOLE' MANAGEMENT 1 Uncompromising 2 Put shareholder interests above everything else 3 See staff as tools to drive shareholder value 4 Prepared to bully customers and suppliers 5 Do not consider ethical issues to be important

THE PROBLEM WITH BUSINESS SCHOOLS, ACCORDING TO GHOSHAL

Sumantra Ghoshal wrote that many of the worst corporate practices had their roots in a set of ideas that had emerged from business school academics over the past 30 years. He described three of these ideas:

1. Managers cannot be trusted to do their jobs and that to overcome problems, managers' interests should be aligned with those of shareholders - making stock options a part of their pay, for example

2. The need for tight monitoring and control of people to prevent opportunistic behaviour

3. Companies must compete not only with their competitors, but also with their suppliers, customers, employees and regulators

Ghoshal said: "Why do we feel surprised by the fact that executives in Enron, Global Crossing, Tyco and scores of other companies granted themselves excessive stock options, treated their employees very badly and took their customers for a ride when they could?"

He argued that most of the disciplines in which management theories were rooted were influenced by the ideology of 'liberalism', in which a set of pessimistic assumptions about individuals and institutions were grounded.

"Rejecting what we saw as the 'romanticism' of analysing corporate behaviours in terms of the choices, actions and achievements of individuals, we have adopted the 'scientific' approach of trying to discover patterns and laws, and have replaced all notions of human intentionality with a firm belief in casual determinism.

"If we really wish to reinstitute ethical or moral concerns in the practice of management, we have to first reinstate them in our mainstream theory. If we wish our students to contribute to building what Warren Bennis has described as 'delightful organisations', we will have to teach them the theories that describe how they can do so."

Source: Bad management theories are destroying good management practices, Sumantra Ghoshal, Academy of Management Learning & Education, 2005, Vol 4 No 1, 75-91

LIGHT READING

The corporation: the pathological pursuit of profit and power Joel Bakan, Constable & Robinson, 2004

Economics, language and assumptions: how theories can become self-fulfilling Fabrizio Ferraro, Jeffrey Pfeffer and Robert Sutton, Academy of Management Review, 2005, Vol 30 No 1

Bad management theories are destroying good management practices Sumantra Ghoshal, Academy of Management Learning & Education, 2005, Vol 4 No 1

The ultimate question Frederick Reichheld, Harvard Business School Press, forthcoming

Willing slaves: how the overwork culture is ruling our lives Madeleine Bunting, HarperCollins, 2004

Searching for the ideal leadership attributes Sumantra Ghoshal and Simon Caulkin, Financial Times, 24 November 1998

The general theory of employment, interest and money John Maynard Keynes, Harcourt Brace, 1936

The way of the rat: a survival guide to office politics Joep Schrijvers, Cyan Books, 2004

On the dark side of strategic sourcing: experiences from the aerospace industry Christian Rossetti and Thomas Y Choi, Academy of Management Executive, 2005, Vol 19 No 1

Disorganisation: why future organisations must loosen up Paul Miller and Paul Skidmore, Demos, 2004.

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