27/10/2015 § Leave a comment
“The basis of self-government and freedom requires the development of character and self-restraint.” John F Kennedy
I was talking to a friend recently who is setting up a new company. I suggested she include a clause in the company’s articles of association obliging the director’s to pursue a purpose beyond profit (typically in a company, there is no purpose stated, which means that by default company law says the director should place shareholders’ interests first). She questionned this, suggesting that people running a business are best left free to operate “unencumbered”, in other words to focus on efficiency and growth without having to worry about things like their impact on society or the planet.
This reminded me of something and later on I realised what it was. It was Adam Smith in one of the most often-quoted sections of the Wealth of Nations:
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest….he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
I’ve spent most of my career in business and know how exhilarating it can be to feel free to pursue an idea and not worry too much about the consequences. It’s like being a teenager again. I am also aware that there are plenty of spoilsports in the world who like nothing better than to create rules and constraints that block other people’s activities. There are plenty of good ideas that never get off the ground because they are held back by bureaucracy and excessive caution. So why not let our businesses run free?
In my view it comes down to a question of scale. In the sort of micro-businesses that Adam Smith was talking about, it is generally healthy for the business to pursue “self-interest” i.e. maximising profit. If the local butcher seeks to maximise his profits and fails to care for those around him, he will quickly get negative feedback – he will lose customers, his staff will get upset, his neighbours will complain. He will soon find it is in his self-interest to balance pursuit of profit with caring for those around him. Having minimal restraints allows him to learn rapidly.
With large, modern corporations, on the other hand, it’s quite a different story. These are very powerful creatures. As they grow, they accumulate power and are able to influence the market in ways that favour their interests. They learn how to comply with the letter but not the spirit of the law, they manipulate others through advertising and slick communications, they have friends in high places who can sort things out for them if they go too far. Their scale makes them insensitive, and allows them to disable the checks and balances that operate in all healthy markets. The “invisible hand” stops working.
We are all living with the consequences of this. The environmental destruction, social inequality and financial instability we are experiencing these days is a direct result of insufficient constraints on large corporations. It is not difficult to think of examples of excesses by large businesses across industry sectors, including the media, banking, retailing, pharmaceuticals, auto industry or energy.
Government does little or nothing to stop these excesses. Indeed all shades of government we’ve had over the last 30 years have bought into the ideology that business is at its best when “unencumbered”. That’s why successive governments have shied away from any real reform of the banking industry post-2008. That’s why when directors’ duties were reviewed in the Companies Act 2006, shareholder value remained top of the priorities of a director, with welfare of staff, the community and the planet a distant second.
It’s become clear that governments lack both the will and the ability to effectively to regulate these behemoths. The way forward is for these complex human systems to become self-regulating. This means that they have to adopt internal governance mechanisms that regulate the managers, obliging them to consider the consequences of their actions.
This may sound idealistic but in fact it’s already happening. For example, many large corporations in the mining sector have set up stakeholder councils, so that the board have direct understanding of the major social and environmental issues affecting their decisions. The retailer B&Q established a youth board to dialogue with the main board of directors. Companies are increasingly monitoring social media, seeking to listen more closely to what customers and the community want. Increasingly sophisticated ESG (environmental, social and governance) measures are being developed, pushed by demand from businesses who are seeking new, more holistic measures of success.
More radically, an increasing number of businesses are becoming employee owned or signing up to become B Corps, where they commit to a purpose beyond profit.
To me, this is a matter of maturity. As adolescents, we can kid ourselves that we have no need to take into account the needs or wishes of others. As we grow older, a more mature view takes hold. We realise that joy in life comes not from absolute freedom (an impossibility) but rather from freedom within restraints that are accepted willingly.
It is not wrong to be an adolescent – it’s just an immature phase we go through. Likewise, it’s not wrong to be a company focused primarily on profit. But it’s an immature phase and one that, for all our sakes, we need our large corporations to grow out of.
10/03/2015 § 1 Comment
This morning, Madonna’s song “Material girl” kept replaying in my head: “Cos we are living in a material world and I am a material girl.”
What does it mean, to live in a material world? To me, it means a world where we pay a disproportionate attention to what we can touch, feel and see, and downgrade things like feelings, love and other subtle energies that we can’t see. It means we value possessions and external beauty and discount things like creativity, courage, compassion and connection.
One of the ways in which this manifests is in our drive to create artificial versions of everything. Artificial flowers over the years have become steadily more life-like – I’m frequently fooled into thinking a flower is real only to find when I try to smell it or touch it that it lacks the essential vibrancy of a living thing. In films cartoons are becoming more life-like and films with people in them are becoming more cartoon-like, with computer generated images becoming more and more clever and common. Dolls too are becoming more and more life-like.
On the face of it, much of this is relatively innocuous – what’s wrong with having an artificial flower that brightens up the home? If someone is fooled by it, does it really matter? Yet there are other areas of life where this move to mimicry is far more unsettling. I think particularly of our food. There are reports that food companies are becoming more sophisticated in mimicking the texture, taste and feel of naturally occurring foods. As the Guardian reported last year, “Since the end of the second world war, a vast industry has arisen to make processed food taste good. During the past two decades the flavour industry’s role in food production has become so influential that many children now like man-made flavours more than the real thing.” This is in effect an experiment at massive scale. When I was young in the 1970s it was common to hear talk of the food of the future being simply pills. Most of us dismissed such stories as fantasy – eating just pills would be too boring. So instead we are being presented, on our supermarkets shelves, with “food” every bit as artificial as a pill, but designed to fool us into thinking it is natural. Can we live and thrive on it? Who knows.
Of course the industry won’t admit that there is anything wrong with fooling people. Apparently “consumers” (that horrible, demeaning label for people who buy things) would prefer not to know what really goes into their food. Hence there is lots of resistance to proper labelling – there have been huge battles in the US over labelling genetically modified (GM) products, and this will come here to Europe if we bend and allow them in to our supermarkets shelves.
The most unsettling thing about this is what drives the industry to do this. It’s always bold to make assumptions about people’s motives – people are complex and rarely have just one motive for anything. However it seems pretty plain that the prime motivation for companies like Monsanto and the food manufacturers is to maximise profits. It’s one thing when this applies to artificial flowers. But when it comes to the food we put in our bodies, it is quite another thing. And if you think that there is nothing wrong with the food “industry” being motivated primarily by profit, just think how you would feel if you went into doctor’s surgery and saw a sign saying “Our prime purpose is to maximise our profits.” Would you be willing to trust those doctors with your health? Would you not wonder, when they sent you for tests, whether the tests were necessary or useful? So how is it that we are trusting profit-motivated large companies with our food? So much of our food systems are controlled by large multinationals – up to 90% of world trade in grains is in the hands of just 4 companies, 66% of food and drink sold in the UK in 2011 was sold by 4 supermarket chains, filling the shelves with branded products produced by yet more large companies. We have no real choice.
Yet that’s not true. We always have a choice – it is just not always visible to us. Not only can we choose to shop in smaller retailers, and to buy organic and fair trade goods (much of which is run by social enterprises, for whom profit is merely a means to an end, like any good doctor). At a deeper level, we can remind ourselves of what the mystics tell us, that all we see and touch is maya – an illusory material world. The only true reality is the one that we cannot see and touch. Superficially we can be fooled, for a while. It is part of our journey, to let ourselves be fooled, taken in by maya. But eventually we wake up and realise that we have all been kidding ourselves – that an artificial flower no more meets our need to marvel at nature’s beauty than a blow-up doll can take the place of a human companion. That man cannot live on bread (or amyl acetate, amyl butyrate, amyl valerate, anethol, anisyl formate, benzyl acetate, benzyl isobutyrate, butyric acid, cinnamyl isobutyrate – all milk shake ingredients!) alone. That love is more real and more powerful than all the combined forces of the largest companies in the world. And that if enough of us wake up, no power on earth can stop us. 🙂
08/12/2014 § 2 Comments
My wife works in the NHS, the biggest employer in Europe. The NHS, providing free health care to all, has been a remarkable achievement. But there are many signs that pressure is building within the NHS at all levels – staff are unhappy and stressed (in my wife’s team alone, more than a quarter of the staff are absent with long-term sickness), finance is increasingly tight, more and more legal claims are being brought against doctors. Every now and then the system breaks down somewhere and horror stories emerge of badly neglected patients. Politicians are coming under increasing pressure to do something.
I was speaking to Cathy recently, a colleague of Dasha’s, who has worked within the system for more than 30 years, and asked her how she deals with all this. Her response was, in effect, “So long as I have a good team, I don’t mind.” She works in a team of 20 people who provide care in the community and she likes and respects most of the people she works with and that’s enough for her.
Organisations of any reasonable sort of size (let’s say over 30 people) can be crudely divided up into “tops”, “middles” and “bottoms”. At the top are the controllers, pulling the levers of power and hoping that they will get the response they intend further down the organisation. They tend to be strong on left-brain thinking, analysis and planning and they like to feel in control. Since it is pretty much impossible to really ever be in control of an organisation (you can certainly influence it but control it – never!), they are also quite good at pretending to themselves and others that they are in control. You can’t really blame them for this – the owners, the distant people who appoint them, expect them to be in control so they are obliged to pretend. One of the problems with this is that it gets in the way of them realising that they need information from the bottom in order to know what it is they are trying to control. Smart people at the top know that without this information they are worse than useless.
At the bottom we have the doers – people like Cathy. This is often the most satisfying place to work. If you have a good team around you, you can often ignore (most of the time at least) problems in the wider system. Their job is to get the work done within the constraints handed down by those above. They tend not to spend much time thinking ahead, or on strategy or big picture stuff – if they do, it can just get in the way of them doing their work in the moment. Yet they do need information about the big picture, in order that their work makes sense as part of the patchwork, and so that they can coordinate with others at the bottom to avoid duplication or gaps.
Then there are those in the middle – the multi-taskers. They have three critical functions. One is as a communication medium. They facilitate vertical communication, so the tops know what is happening at the bottom and the bottoms know where they fit in the system. Since the tops and the bottoms tend to think differently, they also speak different languages so the middles need to speak both languages. To communicate effectively, they also need to be good at filtering, sifting and distilling information – it is no use to the few at the top if the middles simply relay up all the information from the many at the bottom – the tops will quickly be overloaded. So the middles need to be good at extracting the essence and passing that up, and passing back down whatever comes from on high, translated so it makes sense in the local environment inhabited by the bottoms. Middles also have to be effective in horizontal communications – speaking with other middles to ensure that there is coordination across the organisation.
The second principle function of a middle is to appoint, monitor, supervise, inspire, hold to account, mentor and in general “manage” (there are so many complex and often hidden meanings in that simple word) the bottoms.
The third function of a middle (as indeed of tops and bottoms too) is to monitor, hold to account, and general manage themselves in their own tasks. This may be the hardest and most important of the lot.
Not surprisingly, the supermen and superwomen who work as middles in large organisations tend to get stretched, and the larger and more complex the business, the more stretched they get. It is rare to find a middle who can even do one of these critical and, let’s face it, usually very demanding, functions really well. To expect them to do all three well is fanciful. The way large organisations, whether private or public, tend to deal with this is to add more and more middles into the equation, promoting some of them to supervise the others. This can improve things for a while. After all, as studies have shown, almost any intervention from above can have a short-term positive effect, mainly it seems because those below like to think those at the top are paying attention to them (in one study, lights in a factory were turned up and the result was a measurable improvement in production productivity. At the end of the study, the lights were turned back down again by mistake and productivity improved again!). But since such an approach doesn’t address the fundamental problem, mostly what you get is a bigger wage bill (and the middles cost a lot more than the bottoms, though of course not nearly as much as a top) and often less efficiency, because the system gets more complex the more layers you add. What’s more, the organisation gets filled with professional managers who understand the theories of being a middle better than they understand the actual work of the organisation. This can be okay if they spend a lot of time with the bottoms, but because they have elevated salaries, many of these professionals feel it is beneath their dignity to spend a lot of time with the workers – so they hang about with other equally un-informed middles.
As far as I can work out, this is more or less what’s been happening in the NHS. People like Cathy carry on with their jobs but more and more they get weighed down by the pressure from the middle. I would love it if someone would measure how many managers have been added in the NHS in the last 20 years, as a proportion of the whole, and what the impact on patient care and efficiency (both important measures) has been.
An innocent outsider reading this might begin to wonder “Do we really need the middles?” This previously heretical thought is starting to occur to more and more tops (and indeed to middles and bottoms).
A talk at the RSA couple of weeks ago highlighted one of the most successful examples of taking this idea and pursuing it with rigour. Buurtzorg is a not-for-profit healthcare provider in the Netherlands. There is not a single manager in the place – instead it runs itself as multiple self-organising teams comprising 10 people each, who have broad responsibility for their own finances, scheduling and other key decisions. They do have “coaches” who fulfill the vital communicating function which is normally the responsibility of middles. But these coaches are not managers and they don’t have the power or responsibility that goes with it. Apart from anything else, there are simply not enough coaches for them to be able to pretend to manage anything. Buurtzorg has achieved remarkable success already. The most important indicator is the effects on patient satisfaction, which is far higher than in other organisations performing a similar role in the community. Staff satisfaction is likewise very high. By another measure too, they have been extraordinarily successful – in the space of just 10 years, Buurtzorg has grown from a group of 10 people to an organisation of more than 8,000.
Of course an organisation needs to be adapted to fit its context, and contexts vary massively from country to country, and industry sector to industry sector. So we don’t know how this approach might work, say, the oil sector in Texas, in aerospace in France, in pharmaceuticals in Sweden, or in the transport sector in Japan. But more and more examples are emerging of organisations taking this route to solve the problem of the squeezed middles. W. Gore, Vitsoe, Happy, FAVI, Sun Hydraulics, to name but a few. And this is not to mention open source communities and other on-line (Wikipedia, Flickr) and off-line organisings (Burning Man) that are radically re-thinking the way we organize. I dream that one day this sort of thinking will start to permeate the NHS and other great but troubled institutions.
For this to happen of course, we will also have to answer another question – having dealt with the middles, what you do about the tops? That is a question for another blog post!
17/09/2014 § 2 Comments
Charles Eisenstein says that the world we see around us is built on a story (you can see an inspiring video illustrating his talk here). Every culture answers the fundamental questions about who we are and what it means to be a human being in different ways – the story is what holds it all together.
The part of our shared story (in the rich West at least) that I have become especially interested in is the part that says that businesses are motivated primarily by profit. I choose not to “buy” that story (in a consumer society, buying something is the primary way in which we engage with it!). I think it is as misguided as the now debunked notion that we are all “homo economicus” – making choices designed to maximise our financial returns. We are far more complex than that. And so is a business. A better way to think about it is as a field of forces – the directing minds of the business need to balance the interests of customers, staff and investors if they are to succeed. What’s more, the more powerful the business, the more it needs to serve the needs of less visible interest groups – their community, the planet and future generations.
The idea that businesses are motivated primarily by profit is a part of our accepted story that is extremely harmful. It justifies all sorts of predatory behaviour that results in environmental degradation, social fragmentation and unhappiness. As someone who doesn’t choose to buy this story, I feel obliged to tell a different story whenever I can. So I intend to write a few blog post about this alternative story over the coming months. I haven’t written a blog post for quite a while – it was summer, and a lot of my energy was going into a book which, not surprisingly, is all about this alternative story. But the book is taking some time and I don’t feel like rushing it. Besides, writing blogs about it helps me think. I hope you will join me for story time 🙂
15/04/2013 § 2 Comments
Why do people keep repeating that the core purpose of business is to make money? Sue George did it today in the Guardian. bit.ly/16YPL She said: “...the core purpose of any business is to make money – without profit there can be no corporate social responsibility (CSR)…“. This is a bit like saying that the core purpose of a human being is to eat, because without food people can’t be nice to others.
People are conflating the content of business (exchange, innovation, creativity) with the vehicle (the organisational form). Since the typical legal form for a business is a limited company, and since the ultimate power in a company is in the hands of the shareholders (they appoint and can dismiss the board) people assume that (a) the purpose of a limited company is to serve shareholders and therefore (b) the purpose of business is to make profits to give to shareholders.
Most people creating new businesses are not, it seems to me, driven by the core purpose of making money. They have a passion to heal the sick so they start a pharmaceutical company. They are passionate about engineering so they start a car company. And so on. But they have to choose a legal form and they are advised to use a limited company because this is how you raise money. And sooner or later the logic of the structure prevails and rather than following their original passion they start serving investors’ passion to maximise their returns. Either that, or the entrepreneur is replaced because he or she is not prioritising investors’ interests sufficiently.
We seem to have forgotten that business, or enterprise, has been around a lot longer than the limited company, which has only existed in its current form since 1855. We forget the wisdom of Shakespeare, who revealed the ultimate sadness and alienation of those like Shylock in the Merchant of Venice who seek happiness through pursuit of wealth. We forget the wisdom of Kahlil Gibran “It is in exchanging the gifts of the earth that you shall find abundance and be satisfied. Yet unless the exchange be in love and kindly justice, it will but lead some to greed and others to hunger.”
Doesn’t that summarise our age rather nicely – some are lead to greed and others to hunger (see the front page of today’s Financial Times, “Commodity traders reap $250bn harvest“, if you want to see evidence of the extremes of greed in today’s world). What price kindly justice in today’s businesses?
So long as we accept that the purpose of business is to make money we can justify all sorts of unhealthy, unjust, unsustainable and simply greedy behaviour in pursuit of that purpose. Acceptance of this falsehood lies at the heart of the current unsustainable behaviour patterns of most businesses: pushing to persuade people to buy and discard goods they don’t need; to eat food when they are already full and overweight; to borrow more money than they can afford.
What do I think is the purpose of business? Maybe there is no one core purpose for business, just as there is no one core purpose for human beings. I have no doubt there are some businesses that have been set up with the core aim of making profit. But inevitably in time these businesses will prove hollow and unsatisfying – for their staff, their customers and even ultimately their owners. Those that survive and thrive will have tapped into something deeper. They will connect with true wealth – truth, integrity, compassion, love.
I believe the days when people can casually say that the purpose of business is to make money are numbered. Let us all hope so.