6 Values
As argued before, a systemic view on the company starts with a thorough reflection on values. In this chapter we aim to broaden the scope to management by values. Management by values will be the focus for managing for sustainable performance. Indeed, sustainable performance is exclusively based on the realization of social y or societal y relevant values. It concentrates on the realization of real value added for the customer, the citizen, the stakeholder, and it does not limit its focus to the shareholder only.
In the first part of the previous century, Management by Instructions (MBI) was what was then called the scientific way of management. Since that time, the evolution of the behavior of markets, and also of our understanding of this evolution – especial y in terms of an increasing complexity, uncertainty and rapidity of changes – has fuelled further evolution in our managerial thinking. The 1960s, for example, gave rise to the still popular Management by Objectives (MBO). MBO arose alongside ideas on the role of the group and of group thinking: the idea of matrix organizations, project groups, sales teams etc. This understanding of organizations and their accompanying management style, sometimes gueril a-like, has contributed to economic success over the last few decades. More recent has been the emergence of Management by Values which continues to have a slow uptake. Nevertheless, as this book il ustrates, there is a growing demand for more human, purposeful and meaningful orientation of business. What does it all lead to?
Dolan et al. (2006) suggest that the following four interconnected trends are heightening organizational complexity and uncertainty, and contributing to situations where the MBO approach reaches its limits:
1. The need for quality and customer orientation
2. The need for professional autonomy and responsibility
3. The need for ‘bosses’ to evolve into leaders/facilitators
4. The need for ‘flatter’ and more agile organizational structures.
Quality and customer orientation are confronted with the issue that in today’s markets, value added becomes an issue for continuation – or call it survival. A highly developed customer expectation can only be met either by a value-adding product or service (something which competitors do not offer) or by a price challenging offering (which of course, in the long run, is not viable for the company). Consider the simple question that in practice does not seem to be that simple to answer: what is the value added of your company? What are the market, the economy and the society missing if your product or service would no longer be there (e.g. if it went bankrupt)? Are companies able to state their value added to society and if they would not be able to state it, how could they manage the company to realize those values? If they do not have them, why do they exist at all from an economics point of view (other than for making an individual profit)? Maybe there was no answer since they were all looking for the perfect answer. Further in the book, we will il ustrate at least one tool that is able to help you in this discovery.
The need for professional autonomy and responsibility is one that has to do with the re-focusing of the human skil s on the human – and the mechanistic skil s on the machine. The more technology progresses, the greater the need for humans to take decisions and to use technology to best realize their potential. Successful companies today seem to clearly understand the need for the human dimension in management. In a networked structure, whether a company or an economy, the intense interaction of individuals can only produce emergence if those individuals have autonomy, are responsible and have the necessary professional skil s. A soccer team will only function if all players are professionals (they are skilled in playing soccer), they have their autonomy on the field and they are willing to take on their responsibility in the game. There is no other way to manage a soccer team, nor is there any different basis for a company.
Success needs to be based on ‘bosses’ that evolve into leaders and/or facilitators. The chapter on leadership develops this a bit further. Leadership is related to communication and as Dolan et al suggest, instructions are the management tools of ‘bosses’, objectives are those of administrators and values are the tools of leaders.
Though many are convinced of the need for flatter organizations, very many traditional organizations are oriented towards hierarchical control with:
• Those who direct and think (or are supposed to);
• Those who control the ones who produce;
• Those who produce.
Some ‘bosses’, but only a few first-class ones, continue to be necessary, but not as controllers of irresponsible operatives. Rather, in line with Dolan et al’s research, their role should be to transmit values, facilitate work processes and allocate and co-ordinate resources.
The scenery of values
As already il ustrated in previous chapters “shareholder value only” belongs to the mainstream managerial paradigm that is increasingly called into question. With less and less time to lose, people cannot afford the luxury of continuing to think in a paradigm that hardly questions the “negative” side effect of its own ontology, let alone its impact on all living species, including ourselves and nature. The framework of a short term business view, ignoring the devastating impact of our consumerism on our own environment and our own wel being, is no longer tenable.
The discussion on values is sometimes made somewhat artificial y complicated. And I will add some of that complexity later in this chapter. There is a very simple way to define what is good and bad, and what are values and what aren’t. “Good” is what you happily and proudly talk about to your children and grandchildren. “Bad” is what you rather prefer not to talk about to your children and grandchildren. It can almost be that simple. And indeed, what you do in your job is what you should be able to talk about around the family dinner table. If not, that might indicate some lack of values in your actions and performance.
As stated previously, we sometimes see a strange separation between private life and business environment and Kofman (2006) clearly states that this separation is the cause of much “unethical” or “non-responsible” management behavior. The manager can be at the same time a parent or grandparent and they will talk honestly and discuss with their children and grandchildren the importance of honesty, integrity, and ethics. At the same time they do not hesitate to shirk responsibility for the disasters created in the organization they help to manage and lead. Some go so far as to say that today’s managers do not incur any risk any more: at their recruitment they negotiate a golden handshake for the moment the company wants to get rid of them. Poor results or not, substantial bonuses are paid out every year. Where is the link to the risk that such so-called managers run? What would justify their extremely high salaries in the absence of any risk?
Arguably large sums of money are unfairly “earned” through non equitable trade, child labor, unsafe working conditions, unfair legislation and regulation, unfair competition, and fraud in the construction sector which seems to take place in most countries. It is almost place and culture independent; but it is paradigm dependent. Changing this attitude therefore needs an evolved managerial paradigm.
Europe and the US have had some interesting cases. Well known and respected managers of large multinationals were accused of insider trading, which is illegal in many countries. The challenge is to find evidence for insider trading. In respected financial institutions, trading by employees is not permitted. But how can one exclude insider trading by a family member or friends of managers who have key positions in those financial institutions. They can easily share their knowledge in a (also for them) very profitable way. Despite the strict laws and regulations in this matter, it is the fundamental paradigm that governs
“management” (and its supporting ideology) that makes this un-ethical use possible and even underpins it. Banking became, like many other industries, a self-referential system. Inside the system it works highly efficiently by using a “jargon” that only the insiders understand. The outsiders do not understand what happens in the system and are therefore excluded from the supreme insider possibilities. Insider trading need not be deliberately unethical behavior. It can be nothing more than a logical consequence of the self-referential system of contemporary banking.
Running a smal , sometimes family-owned, business often shows another set of values. Such an “owner” of an organization knows all the people she works with. She knows that she needs the ideas and creativity of all the other people in the company. She feels responsible, not only for all her family members, but also for the people she works with. She considers them as an extended family. She has a vision. She would be able to answer the question of the value add that her organization brings to society. She is committed to the organization and the people she works with (see chapter 8 on leadership). She does not hide behind hierarchy, protocols and the like. She is her company.
The present shareholders of an organization are not the “owner-managers” of the organization any more. There are now shareholders on the one hand and managers on the other. They have different goals, intentions and ideas. Shareholders do not necessary need a vision or a mission. They keep a distance from the organization and the people that work in and for the organization. They are much more interested in managing figures with obvious emphasis on certain figures that interest them most: share value, dividends, etc. If they believe that the organization will do worse in the future, they will leave “the sinking ship” without hesitation, and often long before the water becomes visible to others. Some would call this recklessness that gives no thought to the impact on other stakeholders of the company. A number of acquisitions offer dreadful examples of this, such as the recent breakdown and takeover of ABN-AMRO Bank.
It seems that feelings of empathy are minimal. Currently empathy, respect, a peaceful mind, and love seem to be separated from what we consider business to be. Talking about peace and love is in many parts of the world something you do in private and not in public, especial y not in the world of business. In business, the prevailing belief seems to be that the analytical, isolated mind is superior and separates us from our hearts, since minds are much more effective and efficient. But what do we call effective and efficient? Shareholder value only? Return on investment only? Short term (financial) results? Continuous competition? But what if, as argued in earlier chapters, it is not possible to separate mind and thoughts from the rest of the body? What are the consequences of false hypotheses and assumptions? What price might be paid for these (wrong) mindsets? What about poverty, starvation, humiliation, aggression, child labor, abuse, and other cruelties? It could be that our reason can deal with all of these, but what about feelings and health? Could this be why people in many organizations and corporations avoid talking about love, compassion, empathy, and peace? Could it be that the decisions made by the so called corporations could be completely different if they would not exclude compassion? Is this what people fear most in business? And what is the cause of the many burnouts?
To recap what I said in the introduction, the separation of the owner-manager into an owner (as shareholder) and a manager not only changed the purpose and the method for the shareholder, it also changed them for the manager. As Whittington wrote in his award-winning 1993 book “What is strategy and does it matter?” managers have invented a new type of skill in order to justify the role of the manager. In the era of the owner-manager, the role of that owner manager was clear: it was the leader who committed to the vision of the company, who committed first and who functioned in a co-creating mode. In the absence of that commitment and given that the manager takes a technocrat’s role (i.e. managing on behalf of someone else), a new skill was necessary to justify the role and position of the manager: that became strategy. Gradual y, strategy disconnected from purpose, meaning, commitment, and involvement. A manager is hired, negotiates his golden handshake upfront, has a high salary with a multitude of bonuses and runs no risk. The risk-return logic of entrepreneurship has become one of “administration” (we indeed train managers to become masters in business “administration”). The answer of Whittington is devastating: after having explained what strategy is, it appears to him not to matter.
Everyone is interrelated and we do not want to judge people for what we could call a short term vision. Nevertheless this short term vision causes many problems. Enormous amounts of money are invested in advertising and marketing campaigns to make sure that as many people as possible consume products and use services that are not only unnecessary, but which may even have negative side effects (such as health-related issues with certain types of food, drinks or other legal drugs). In many European countries, Christmas sales are seen as the most important instrument to measure the confidence of the buyers in the national economy. Will we ever be able and courageous enough to re-think growth? We hope that in a new paradigm this might be possible.
Some principles
Before talking about values per se, it is important to spend some time on principles that allow and support management by values. Values in themselves can easily be identified, but if a manager wants to start managing by values, she will see the difficulty of starting the process. Values need a context, and without that context, values are little more than wishful thinking, existing in abstract.
An example of a set of interesting principles with this purpose is the Core Principles of Sustainability developed by Michael Ben-Eli (http://bfi-internal.org/sustainability/principles). These are, amongst others, subscribed to by the Alliance of New Humanity (http://www.anhglobal.org/).
At the core of its vision, the Alliance recognizes the unity of all life and a wholehearted adherence to the noblest aspirations of humankind (as proclaimed in all spiritual and humanist traditions that call for compassion and the celebration of life). The values and principles of the emerging movement for a new humanity (and of the Alliance, which is trying to serve it), are based upon the support of policies, causes and actions that favor respect for life, human dignity, freedom, ecological sustainability, and peace.
The basic tenet of this approach is a consciousness based on the inseparability of all life (i.e. that everything is connected and that therefore our wel being is the wel being of everyone). This consciousness, I believe, cannot be just passive, otherwise it would remain irrelevant. Instead, it has to be expressed for the benefit of all through service that improves life for all mankind. Love and action essential y need to go together, as Hafsat Abiola suggests while saying that action without love is meaningless and love without action irrelevant.
Sustainability, according to Ben-Eli, cal s for deep transformation in all aspects of human activity including our worldview, our values, our technology, our governance and more.
A growing number of people need little convincing that establishing the concept of sustainability as the organizing principle on our planet, will foster a well-balanced alignment between individuals, society, the economy, and the regenerative capacity of Earth’s life-supporting ecosystems. It is a challenge unprecedented in scope and urgency in our time. It requires a fundamental shift in consciousness as well as in action. It cal s for a deep and simultaneous transformation in all aspects of human activity including worldview, values, technology, current patterns of consumption, production, investment, governance, trade and more.
The concept of ‘sustainable development’ as coined by the World Commission on Environment and Development and, with it, the term ‘sustainability’ itself, have been gaining increasing recognition around the world in recent years. Wide-spread use has been followed by growing ambiguity. As a result, both terms are employed within a very broad spectrum of meaning, often to the point of trivialization. Expressions such as ‘sustainable loans’ or ‘sustainable projects’, for example, are often used in international agencies which provide financing for development. The terminology relates to questions of whether loans are likely to be repaid, or if projects are likely to be self-supporting beyond the term of initial backing. It has become completely divorced from the deeper and more important questions regarding the very nature of development and its ultimate impact on humans as well as the environment.
To be serious about ensuring a sustainable future, however, will mean being guided by more rigorous concepts and principles that could provide clear blueprints for the required change.
Nothing could offer a better perspective on the deeper meaning of the concept of sustainability than the direct experience of aboriginal peoples and the way their lives have always been intimately linked to their environment. In a documentary film on New Guinea made some years ago, the film makers interviewed a local tribesman. He was a hunter of birds of paradise, a revered profession for generations, passed on from father to son. The birds’ feathers are prized for ornamental decorations in sacred rituals. He related the story of how he was doing wel , had a good wife and owned two pigs. Then one day he was able to acquire a hunting rifle. Overnight his harvest of birds exploded. With every shot, birds were virtual y falling into his hands. He grew rich, obtained a new, younger wife and many more pigs but suddenly, and to his bewilderment, there were no more birds left to hunt.
In a moment of lucid insight, he understood that a ‘profit’ gained today at the expense of tomorrow cannot be considered real wealth. He also saw how the new miracle tool which brought him such swift abundance, turned into a dark curse, destroying the very resource upon which his livelihood depended. In the ‘old days’, birds were hunted with blow arrows, a much more demanding practice than spraying lead pellets around. It yielded fewer birds with each hunt, but also left the total stock basical y intact. Moreover, in a technique perfected through generations, arrow tips were wrapped with a leather bulb. On impact, a bird would fall to the ground, knocked momentarily unconscious. The few desired feathers would be plucked and the bird, after gaining its composure, would fly away able to grow a new crop of feathers in time.
In his simple observations, this native hunter was able to strike at the core meaning of sustainability. His story brought to the fore two crucial aspects: that ultimately, the concept relates to a particular type of balance in the interaction between people and the carrying capacity of their environment, and that in achieving such a balance some form of self-restraint must be involved. It is this specific kind of balance which must be the focus of a meaningful definition of sustainability, applicable to any population and its related environment: amoebas in a Petri dish, algae in a lake, or humans on the planet.
The current prevailing definition of sustainability emphasizes cross-generational equity, clearly an all-important concept for any society that wishes to endure, but one that is operational y insufficient. Since specific wishes of future generations are not easy to ascertain, it often fails to provide unequivocal guidance when specific policy decisions are debated. Anchoring an alternative definition directly to the relationship between a population and the carrying capacity of its environment, offers a more advantageous approach. It assumes a number of key variables, for example, population numbers, a measure of wel being, total inventory and rate of consumption of resources, the impact of by-products generated by human activity on the absorption capacity of the environment, the impact of new technologies in opening or hindering new evolutionary possibilities, and the like, that are all potential y measurable. Hence, the following definition (Ben-Eli):
Sustainability: A dynamic equilibrium in the processes of interaction between a population and the carrying capacity of an environment, such that the population develops to express its full potential without adversely and irreversibly affecting the carrying capacity of the environment upon which it depends.
This definition points to the dynamic nature of sustainability as a state; a state that has to be calibrated with time, again and again, as changes occur in population numbers, or in the resources available for supporting all humans at a desired level of wel being. It does not seek to define specifical y what such a level is, nor to limit yet unimaginable possibilities for social evolution. It recognizes, however, boundaries and limits that must be maintained by stone-age tribes and industrial societies alike. As long as the underlying conditions for equilibrium are maintained, the wel being of future generations is assured.
The set of sustainability principles which follows is grounded in Ben-Eli’s definition. The principles are articulated in broad terms but can receive a specific operational meaning in relation to particular sectors of the economy, development issues, business strategies, investment guidelines, or initiatives taken by individuals. We express them in relation to the following five fundamental domains (all representing essential aspects in the interaction of human populations and the environment):
1. The Spiritual Domain: Which identifies the necessary attitudinal orientation and provides the basis for ethical conduct.
2. The Domain of Life: Which provides the basis for appropriate behavior in the biosphere with respect to other species.
3. The Social Domain: Which provides the basis for social interactions.
4. The Economic Domain: Which provides a guiding framework for creating and managing wealth.
5. The Material Domain: Which constitutes the basis for regulating the flow of materials and energy that underlie existence.
The result is a set of five core principles, each with its own derived policy and operational implications. The set is fundamental y systemic in nature, meaning that each domain affects all the others, and is affected by each in return. Rather than a list, the set should be approached and understood as a coherent whole. The framework of these principles enables a nurturing context for discussing values.
The first principle relates to the spiritual domain, to the basic assumptions we hold about the very nature of reality and the values we hold. It cal s for recognizing the fundamental mystery that underlies all existence and the seamless continuum that links humans and our technology with the rest of the biosphere, and with the outermost reaches of the cosmos. This principle means honoring the earth with its intricate ecology, fostering compassion and an ethical perspective in all human affairs, reintroducing a sense of sacredness and reverence to all interactions, linking inner transformation of individuals to transformation in the social collective, and fostering the emergence of a genuine, wise, planetary civilization.
The second principle, relates to the domain of life. It recognizes that the lasting viability of all complex, self-organizing systems – rainforests, coral reef populations and industrial economies alike – depends on their very complexity. It is their internal variety that allows for the emergence and re-emergence of different configurations in response to change. This principle cal s for ensuring that the essential variety of all forms of life in the biosphere is maintained. It means assuming a responsible relationship with all species and ecosystems, conserving the variety of existing gene pools, harvesting other species only within their regeneration capacity, limiting human encroachment on other life forms, and enhancing biological diversity even in areas of human habitat.
The third principle, relates to the social domain. It recognizes the need for a new agenda for society based on human dignity, open processes, responsive structures, plurality of expression, social justice and global solidarity. This principle cal s for maximizing degrees of freedom and potential self-realization of all humans without any individual or group adversely affecting others. It means fostering respect for cultural diversity as the cornerstone for social interactions, establishing universal rights and responsibilities for all individuals and communities, ensuring inclusion in governance and equitable access to natural resources, strengthening cooperation as a basis for managing global affairs, and rejecting war as a method of resolving disputes.
The fourth principle, which relates to the economic domain, recognizes that the accounting system used at present to guide the economy grossly distorts values. It does so by pricing environmental services practical y at zero, by repeatedly counting consumption as if it were income and by ignoring important cost components, ‘externalities’ such as impacts of depletion, pol ution and waste. The fourth principle cal s for the adoption of an appropriate accounting system, ful y aligned with the planet’s geological, ecological and societal processes. It means employing a comprehensive concept of wealth involving the simultaneous enhancement of all key forms of capital; incorporating critical externalities in all cost accounting; recognizing a measure of wel being and human development in economic calculations; ensuring that taxation and regulation policies are designed to accentuate desirable outcomes and optimize for the whole; and finding ways for calibrating market mechanisms to reflect the true value of the global commons.
The fifth principle, relates to the material domain. It emphasizes the idea that the limits on possibilities in physical systems and thus on the productive potentials in the use of resources, is ultimately prescribed by the primary laws of physics. The principle cal s for using superior design to ensure that the flow of resources, through and within the economy, is as close to non-declining as permitted by natural laws. This means using resources consciously and creatively, eliminating waste, recycling each molecule and employing new knowledge in order to increase performance with each cycle of use. It also means avoiding depletion of capital resources and increasingly using sources of income instead.
Ultimately, any serious reflection on the concept of sustainability and the five core principles that together prescribe it, reveals that the spiritual principle is essential for the possibility of attaining sustainability as an enduring state. It alone underscores the difference between a greedy, egocentric, predatory orientation and a nurturing, self-restrained approach to the world. The spiritual principle drives, integrates and centers the other four principles. It provides the attitudinal orientation that is absolutely essential as a basis of change and, to quote Satish Kumar: “The moment our attitude changes, everything will start to change.” Or in Gandhi’s words: “We must be the change we want to see in the world”.
As Jack Welch (former CEO and Chairman of GE) wrote in a letter to shareholders: ‘In the old culture, managers got their power from secret knowledge: profit margins, market share, and all that… In the new culture, the role of the leader is to express a vision, get buy-in, and implement it. That cal s for open, caring relations with every employee, and face-to-face communication. People who can’t convincingly articulate a vision won’t be successful. ’
New leaders should be able to have firm dialogues on values. Ethics should be defined and explained in their companies. The organization should be completely transparent and it should be possible for people to analyze the values that drive the organization.
It is important to have internal dialogues in organizations about these values. We are convinced that this can be organized and a profitable situation retained by living according to these values.
During one of our classes we had a debate on responsible management. The question was whether the government and the society should be responsible for sustainable development and performance more than organizations. We personal y think that business cannot be separate from society. The businessman and businesswoman are part of society both as individuals and as managers simultaneously. Companies are more often more responsible for pol ution and the use of (natural) resources. The impact of the biggest organizations is the least impressive. Some of them have more money and more power than average developing countries in the world (as mentioned before, Philips, as only one example, has a budget larger than certain regions in the world). It is their responsibility, isn’t it? They invest their money in election campaigns with the hope of obtaining favorable treatment. They can make a decision overnight to delocalize their companies and production processes. Instead of preaching within their families about honesty and integrity, they need to act with those virtues in their businesses.
Does it mean that an individual would not have an impact? We believe that individuals do have an impact. Paraphrasing Steve Jobs: “It is the people that are crazy enough to think that they can change the world, that are the ones that eventual y will do so.”
Another burning question is whether it is possible to do something for the environment and nature without knowing what nature needs? We felt that this question is based on the idea of separatio