1 Introduction
Increasingly managers, politicians and the wider public have started agreeing that the never-ending story of misbehavior, unethical behavior, fraud, poor service delivery, etc. mainly in business, are unworthy of the 21th century. For years the corporation was the cornerstone of our economic system – stable, trustworthy, providing growth, and creating employment. Al , of course, for the advancement of society. Arguably, corporate and business development has contributed to the increase of wealth, at least in certain parts of society and parts of the world. At the same time, this often had negative effects on other parts of society and in other parts of the world. However, until roughly a decade ago, we were not aware of the scandals and brutalities that we have come to know over the last decade, perhaps starting with the Enron case as the most noticeable instance. Books have been written about these scandals, analyses made, corrective measures taken, but not much seems to have changed. The Libor manipulation in the UK, the latest in a long sequence, goes beyond imagination. Why is it so difficult to change? Do we have an interest in change in the first place? Who are we, and what can we change to?
These questions are what this book will deal with. What are the assumptions supporting our current business management model? Are those assumptions the correct ones? Are profit and shareholder value exclusively the drivers of business, or are these merely outcomes, though important ones? What if values would be the driver? Isn’t the motivation of any entrepreneur to bring to the market something that nobody yet delivers and that clients need and are waiting for? Something that adds real value to the lives of customers? What is the value added by a company? What do you add to society, to the economy? A difficult question, perhaps, so let me state it differently. If you go bankrupt tomorrow, what will we be missing, what will society be missing? And if society is missing nothing, why does your business exist in the first place? Indeed, companies often lack values, value added meaning and purpose. And meaning and purpose motivate people and employees, not profit and shareholder value.
Once we have explored the purpose of business, we will delve deeper into the mechanism of management. Most of what business schools teach is based on a set of assumptions that can and should be questioned. Business management is for the most part based on a very mechanical concept of a company. That company will perform in an ideal way provided that we correctly assemble a certain set of elements. We can make decisions and apply formulae to impact any of those elements, and that will produce a clear and uniform outcome. We presume causal relationships to be everywhere in the company. If I invest 10% more in marketing, my market share wil increase by 2%. If I recruit 10 more people I could raise my revenue by 20 million. If I dismiss 50 people my costs will go down by 10%, etc. However, practice shows that this does not work. We never get these clear-cut outcomes and we excuse this by claiming that we always deal with a number of unknowns, but that their impact is minimal. We grossly ignore the role of human beings in this. We ignore that people are non-linear and dynamic in their thinking and that they do not follow a path where there is a neat relationship between cause and effect. People are networked, interconnected with many other people, inside and outside the company. The outcome of decisions that impact that network can often not be anticipated at all due to the dynamic workings of the network. You cannot say with certainty how people are influenced in their behavior as a result of singular decisions.
Some will argue that all of this is the domain of courses like human resources management and organizational behavior. And that is true, but only in theory. It is already a gross oversimplification to assume that human resource management and organizational behavior are isolated disciplines. It is to be brought into a more broad conversation about business management. In fact, since we work with human “material” everywhere, human resources and organizational behavior are real y foundation courses. Since your company is a network and the market is a network, it is crucial to understand the mechanics of the network. A network cannot be deconstructed into basic elements so that, if they could be optimized individual y, the entire network would be optimized. A network can only be “optimized” or managed if we accept it as a complete network, a holistic structure. For this we have to use a holistic approach to management. Such a holistic understanding of management and business is developed in this book, including tools to apply this in practice.
A last crucial element is the focus of management. If the company’s drivers are values and no longer purely financial concerns, then what should a manager focus on? What should receive principal attention? I argue that the answer to that question is innovation, innovation as a driver for continuous change. What do we need to do in order to be close to our clients, to deliver value under conditions they desire? In order to answer that, we will need to be “innovative”. We have to be alert, to continuously monitor improvement, explore new ideas, and find new business models and new insights. It is a way of “being” in an ontological sense, being resilient, alert, aware, empathetic and translating that into new products and services, or at least improved products and services.
In this we focus on the role of the manager: the manager as a values-based innovator. Companies and the society are in great need of leaders who are able to refocus companies and organizations in their main task of creating and contributing wealth to society, adding value to society by doing meaningful, purposeful and inclusive business. Business has to have clients and ideal y that should be anyone regardless of social standing or economic factors. We cannot exclude those with lesser means and who cannot pay for expensive products because we only cater to the top of the pyramid. And talking about innovation, can we design products for the bottom of the pyramid? Why do we still design 80% of our products for 10% of the people? When are we going to design 80% of the products for 80% of the people? It is then that we will have inclusive business that contributes to the development of the economy whether rich or poor, mature or emerging. Then, business will show its real power for good, which it certainly hasn’t shown as yet. There is hope. Everything we need is already there. We just have to change focus correctly. Therefore, this book will deal with the following issues: values, network functioning, leadership and innovation; A whole new approach to business and leadership.
Some current thinking about values
In the first part of the previous century, Management by Instructions (MBI) was what was then called the scientific way of management. From that time the evolution of the behavior of markets and also our understanding of this evolution, has fuelled further evolution in our managerial thinking– especial y in terms of increasing complexity, uncertainty and speed of change. The 1960s, for example, gave rise to the still popular Management by Objectives (MBO) model. MBO developed 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 its accompanying, sometimes gueril a-like management style, 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. Where does it all lead?
Dolan et al (2006) suggest that the following four interconnected trends are increasing 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.
In terms of quality and customer orientation, we are confronted with the issue that in today’s markets, value-adds have become a question of continuation, or let’s call it survival. A highly developed customer expectation can only be met either by a product or service that adds real value – something which no-one else offers – or by a price competitive offering which of course, in the long run, may not be viable for the company to maintain. Consider the simple question that I mentioned earlier which in practice does not seem to have a simple answer: what is the value added by your company? What would the market, the economy and society miss if your product or service is no longer there (e.g. if you went bankrupt)? Are companies truly able to state the value they add to society and if they can’t, how could companies be managed to realize any values? If they do not have them, why do they exist in the first place from an economics point of view, other than simply for making an individual profit? Maybe there is no answer yet, since many are still looking for the perfect answer.
The need for professional autonomy and responsibility is one that has to do with the re-focusing of human skil s on the human (and the mechanical skil s on the machine). The more technology progresses, the greater the need for humans to make 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 company or 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 properly skilled at playing soccer), they have autonomy on the field and they are willing to take their individual 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. We will develop this 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 used by 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, their role in line with Dolan et al’s research, should be to transmit values, facilitate work processes and allocate and co-ordinate resources.
The scenery of values
As already argued, the approach of “shareholder value only” belongs to the mainstream managerial paradigm that is increasingly being 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 beings, including ourselves and nature. The framework of a short term business view, ignoring the devastating impact of our consumerism on our environment and our own wel being, is no longer tenable.
On 27 January 2008, we learned that at least one trader in France was responsible for the loss of 5 billion euros for Societe General. It wasn’t the first time in financial history that this happened. Nick Leeson’s actions in 1995 had devastating consequences for Barings Bank. While searching online, I found this short paragraph, part of a much larger article.
“The col apse of Britain’s Barings Bank in February 1995 is perhaps the quintessential tale of financial risk management go ne wrong. The failure was completely unexpected. Over a course of days, the bank went from apparent strength to bankruptcy. Barings was Britain’s oldest merchant bank. It had financed the Napoleonic wars, the Louisiana purchase, and the Erie Canal. Barings was the Queen’s bank. What real y grabbed the world’s attention was the fact that the failure was caused by the actions of a single trader based at a small office in Singapore”.
I would like to draw your attention to a small detail in this paragraph. “The failure was completely unexpected.” Even though I am not a financial specialist, I, and others around me, already believed and knew that this could happen. It does not require some “psychic superpower”, looking into the future. It is a straightforward application of the dynamics of a (complex) financial market.
ING bought Barings for a symbolic price and later sold it off again, for an appropriate profit.
It’s hardly surprising that this can happen since it is a realistic outcome of a systematical y incorrect assumption of reality. Everything that has to do with options and futures is, by definition, part of a completely artificial world that is created, and that can continue to survive without any underpinned economic reality. It is a virtual world that has created its own reality, its own goods and services that are pure “belief” products. There is no longer any links with real companies, markets, economic dynamics, etc. A downward economy contains an equal y large potential for profit as an upward market. It reaches the same kind of “virtuality” as the divide between the reality of a soccer game and its huge (virtual) economic potential, both connected to the value of top international soccer players and to their competition. At that point the comparison ends: with soccer, the bal , the lines of the playing field and the goal posts do not change during the match; in financial markets they do.
Former French president Nicolas Sarkozy, then French Minister of Internal Affairs, said during a speech to students and staff at a French Business School the following: “…whatever one could say about capitalism, it, at least, never made victims. ” I still want to believe that he wanted to be truthful. I still hold on to the idea, the impression, that he wanted to express his true feelings, ideas and vision based on his experiences and assumptions. I heard what he said and felt upset, angry and could not believe my ears, since our need for honesty, integrity and the knowledge of some truthful facts was not fulfilled.
Was his speech based on values?
We wish and hope to continue our search for reason, for truth, for an open vision and for meaning. We hope never to forget to search for facts, for clarity and for reasonable questions in every situation and for every institution. We do not need to be out-of-the-box thinkers to be able to know, to experience, that capitalism never existed in the first place as a pure model, and that secondly, it had, and still has, some very negative impacts on the well-being of people (child labor, exploitation in low income countries, arms trade, etc.) Capitalism creates victims through the diamond trade, arms trade, trade in alcohol, tobacco and other drugs, wars over energy resources, etc. One does not need to be a communist to see this. What else does Enron il ustrate?
The Netherlands had their own Enron, called Ahold, an international retailer. Many small (private) investors lost money; many employees lost not only minor investments but their jobs as wel . Ahold faced bankruptcy. Before they entered troubled waters everyone wanted to do business with Ahold – suppliers, accountants and financial specialists of the foremost banks. The General Manager, who was responsible for the eventual disaster, was once elected “Businessman of the Year”. They too operated in the same il usionary (or artificial) “world” based on finance and financial values expressed by the share value. In general it was believed (and it still is) that this business model, this management style, should be “the” example for the rest of the world. It does not recognize the existence and the diversity of other business models elsewhere in the world that might be based on other, sometimes more ethical, assumptions. When Ahold went bankrupt, former friends wanted to distance themselves from the former “Businessman of the Year”. Unconditional friendships are rather rare in business.
We sometimes see a strange separation between private life and the business environment and Kofman (2006) clearly states that this separation is the cause of much “un-ethical” or “non-responsible” management behavior. The manager can at the same time be a parent or grandparent and they will discuss with their children and grandchildren the importance of honesty, integrity and ethics. At the same time they do not hesitate to act irresponsibly, creating disasters in the organization they help 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 dismiss them. Poor results or not, significant bonuses are paid out every year. Where is the link to the risk that these so-called managers run? What would justify their extremely high salaries?
Arguably large amount of money is unfairly “earned” by non-equitable trade, child labor, unsafe working conditions, unfair legislation and regulation, unfair competition, fraud in the construction sector, and that seems to take place in most countries. It is almost location 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 most countries. The challenge is to find evidence for inside 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 that have key positions in those financial institutions? They can easily share their knowledge in a 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 unethical activity possible and even underpins it. Banking became, like many other industries, a self-referential system. Inside the system it works highly efficiently, by using “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.
A few decades ago, you would have had “owners” of small organizations who knew all the people they worked with. They knew that they needed the ideas and creativity of all the other people in the company. They felt responsible, not only for all their family members, but also for the people they worked with. They considered them to be an extended family. They had a vision. They would have been able to answer the question of the value added that their organization brings to society. They were committed to the organization and the people they worked with. They did not hide behind hierarchy, protocols and the like. They were their company.
The present shareholders of an organization are no longer the “owner-managers” of the organization. There are now shareholders on the one hand and managers on the other. They have different goals, means and ideas. Shareholders do not necessarily 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, and obviously certain figures interest them more than others: share value, dividends, etc. If they believe that the organization will do worse in the future, they will leave “the sinking ship” without hesitation, 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 certain renowned banks.
It seems that true feelings of empathy are minimal. Currently empathy, respect, a peaceful mind, and love seem to be separated from what we consider business should 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 heart, 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 I will argue later, 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 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?
The separation of the owner-manager into an owner (as shareholder) and a manager did not only change the purpose and the method for the shareholder, it also changed them for the manager. As Whittington wrote in his award-winning book in 1993 “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: He or she 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 conclusion of Whittington is devastating: after having explained what strategy is, it appears, to him, not to matter.
At the 250th anniversary celebration of the Sara Lee Corporation, the former mayor of New York, Rudolph Giuliani, and some celebrities tried to convince the other invitees of the great importance of shareholders for managerial success. We did not observe any further interest from those anniversary speakers in any of the other stakeholders. The four classical production factors (land, labor, capital, knowledge) were reduced to one.
Everyone is interrelated and we do not want to judge them for what we would call a short term vision. Nevertheless this short term vision causes many problems. Enormous amounts of money are invested in advertisements 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 prescription drugs). In many European countries, Christmas sales are seen as the most important instrument to measure the confidence of 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.
But it is not as difficult as it appears. When asked once how one could know what was good or bad (in a business school and in business per se), I could only quote my wife who always says: “Good is what you comfortably talk about to your children and grandchildren and bad is what you avoid talking about to your children and grandchildren.” Thus, the simple question is “What are you doing in your professional life, and are you willingly talking about the details of what you do and how you do it to your children and grandchildren?” Let that be the simple rule to start with.
Some examples
Is values-based leadership new? No it is not. It just deserves to become more center stage, more mainstream; more the talk-of-the-day and teach-of-the-day in business schools. It is a difficult change, not largely due to the content but because it essential y speaks to deep-rooted assumptions in management education. It relates to the “doing” and eventual y the “becoming” of the leader. And where new concepts are easy to assimilate, new behavior and a new “being” is much more difficult and challenging to work on. However it is the cornerstone of the change we need. Let us look at some examples of people that have shown what it means to be a values-based leader.
We start with the political slant to values-based leadership and while some obvious examples are the likes of Gandhi, Desmond Tutu and Nelson Mandela, I’d like to talk about Jim Joseph. He is the former ambassador of the USA in South Africa and for many years led a leadership program both in the USA and in Cape Town, South Africa. In his book “Leadership as a way of being”, he reflects on those courses in the following words. “There is a need for a new kind of leader – a transformative leader who is capable of understanding the profound moral and ethical dilemmas of the global environment, who has a vision of a higher purpose and seeks to inspire, motivate and gain the commitment of others to carry out that vision. There is a need for leaders who are comfortable with ambiguity, who are aware of themselves and others, leaders who seek to serve before they wield power.”
1. Through the broad experience of his career, he developed the following 12 lessons. It is possible for a leader to be humble without being docile, strong without being arrogant and still exert great influence;
2. Leaders who seek power to disperse it rather than simply concentrate it have a very special attraction and appeal;
3. The leader must be capable of learning from those he/she leads and must be capable of doing so without losing respect or influence;
4. The value-driven leader who needs consensus in order to act is likely to be most effective if he/she is willing to help shape that consensus rather than simply respond to it where it can be found;
5. The leadership style that works best for me is leadership that seeks to elevate and empower others. It seeks to engage the whole person in ways that satisfy higher and nobler needs;
6. Despite the continuing dominance of hard power – economic muscle and military might – in exerting influence and pressing one’s will on others, I have found that soft power – moral messages, exemplar behavior and respect for other cultures – is likely to develop goodwill and establish relationships that are far more enduring;
7. Leadership is likely to be far more effective when it appeals to people’s better nature;
8. While we seek to change the practices of the adversary, it is important that we maintain respect for his/her humanity;
9. In times of rapid change, zealots emerge claiming one truth and one theology. The challenge for the leader is not to use his/her values to proclaim absolutes but to help others cope with ambiguities;
10. An organization is what it rewards. It is not so much what it says in its mission statements, or even in its code of conduct, as it is what it rewards its people for being;
11. There are no hard and fixed absolutes about either managing or leading. To be rigid and play only by the rules on your organization chart or the theories of some guru is to miss the opportunity to meet people where they are. People-centered leadership recognizes the uniqueness of each individual and seeks to unleash the magic within;
12. Every leader does not have to be a superstar. Many apparently ordinary people are quiet leaders who make extraordinary contributions. They may not be seen as giants in the grand scheme of things, but the superstar could not accomplish anything without them.
These are some wise lessons of a wise man, referring mainly, but not exclusively to values-based leadership in politics.
Particularly in the African context, mining is important business, with a lot of “baggage”. David Gleason (et al, 2011) interviewed Mark Cutifani, CEO of AngloGold Ashanti who shows strong similarities to much of what I will further develop as values-based leadership. In the following paragraphs Gleason, Nkomo and De Jongh reflect on the interview with Cutifani.
Cutifani has an established record at various previous places of employment as being a man who tirelessly strove to improve safety records. In defining what Cutifani and his management team wanted for AngloGold Ashanti – which is to create the leading mining company – the first of the values agreed on was safety. In Cutifani’s view, the subject of safety is the start of any conversation in the industry because the inherent risks of the business permeate the lives of all involved.
Cutifani approaches sustainability from an angle that is different from what most others would consider it to be, but completely in line with how I define it. He believes that sustainability is synonymous with every company’s efforts to make valuable contributions to the communities in which it operates and therefore, to society as a whole. “Firstly, in the mining