Read my article, ‘Control or chaos’, a commentary on a Foundation Forum on 5 February 2013, here

The world has its fair share of ‘wicked’ problems – global warming, conflict in the Middle East, drugs, antibiotic immunity, and various tragedies of the commons come to mind – agonising dilemmas to which there is no one right answer, only less wrong ones. In these cases, as Goethe sagely pointed out, ‘The only answer to the problem is another problem.’

But there is a whole other class of serious issues that are entirely self-made. As Sumantra Ghoshal wrote in a celebrated essay on the role of the business schools, we don’t need to do a lot more to prevent such issues arising: we just need to stop doing a lot that we currently do. We don’t need to run our national health service like a Soviet tractor factory. If the financial sector has hijacked the economic system it is supposed to serve, it’s because humans have designed it to do so. We want to eat beef rather than horse, or indeed the reverse? So stop creating supply chains that allow confusion of the two, just as we should stop dehumanising needy and vulnerable people and driving them into care homes in the name of care. We know the liberating effects of ceasing to do such things from the exhilarating cases where independent thinkers have chosen to do just that.

What this says is that never mind the economic downturn, it is perfectly within our grasp to transform people’s lives for the better without spending a penny on infrastructure, massive top-down reorganisations or giant IT products. We don’t need the permission of David Cameron or Mervyn King. We just need to reverse the ideas about how we run our organisations to make people happier and more productive. The efficiency improvements come free.

The current wrongness of management is systematic and fractal – it looks the same at every level, from the individual to the economy as a whole.

Start with the latest Employee Outlook from the Chartered Institute for Personnel and Development (CIPD) which shows employee engagement at work at 35 per cent, the lowest level yet. Only four per cent are actively disengaged, but that leaves 61 per cent neutral – they don’t care one way or the other. Worryingly, says the CIPD, it is the more recent hires who are more engaged; the longer they stay, the less engaged they become. The CIPD surmises that the dip reflects disillusion with senior managers: only a net 11 per cent agreed that managers treat employees with respect, and nearly one-third more people said that managers didn’t consult them on big decisions than did.

To repeat: this is a choice. Managers are allowed to consult employees; they don’t have to treat them with disrespect. Indeed, as Julian Birkinshaw and co-researchers at London Business School showed conclusively last year, organisations that manage people well (basically giving them a good job to do and letting do it) get better results than those that manage them badly. Good places to work tend to be more productive, which for most people is not a surprise.

Economic theory says that you don’t find £5 notes lying in the street because someone will have picked them up. So why don’t managers pick up the free ones lying around in employee engagement? One reason is socio-cultural. Ninety-nine point nine per cent of management literature is written from the point of view of managers (the other 0.1 per cent is Birkinshaw), and that’s a tough bias to shift. Culture is supported by ideology. Ninety-five per cent of management literature assumes that the job of management is to command. In this view only managers know what it takes to deliver value to shareholders, and they must oblige employees to carry it out with carrots and sticks, otherwise they will shirk, cheat and dissemble to further their own self interest.

Where this reductive view of human nature leads is described in a damning academic research report on performance management published by the Scottish TUC. Self-explanatorily entitled ‘Performance Management and the New Workplace Tyranny’, the report traces the trajectory of performance management from benign, enlightened expression of shared interest (as it is still presented in the literature) to a direct instrument of management control, systematically used to intensify work, drive down cost and ‘manage the exit’ of those identified as ‘underperformers’. As the report puts it, the only thing left of the original is the smile on the face of the Cheshire cat’. Like ‘lean working’ and Human Resources Management (HRM), as in a horror film it has morphed into its opposite – synonymous ‘not with developmental HRM and agreed objectives but with a claustrophobically monitored experience of top-down target driven work’.

Low-trust management like this is self-defeating. The phenomenon is so well known that it has a name – the ‘superviser’s dilemma’, in which tight supervision and monitoring lead to demoralisation, disengagement and worse performance, apparently justifying a further turn of the supervisory screw. Just as aapplied to individuals this leads to Mid Staffs, at the level of the supply chain it gives us horseburgers. Scaling up the same tyranny, the big supermarket chains play suppliers off against each other, enforce short-term contracts and force prices down. The result: a British meat industry that is in long-term crisis and decline, unable to defend itself against less cannibalistic European counterparts.

I bore myself saying this yet again: it doesn’t have to be this way. You don’t have to take my word for it: here’s the verdict of Manchester’s Centre for Research on Socio-Cultural Change (CRESC). ‘There are better ways to organise the supply chain through vertical integration to ensure participants take responsibility for the overall health of the supply chain… The better way, which delivers on broader economic and social objectives, is represented by the integrated national models of the Danish and Dutch pig industry or the directly-owned processing operations of Morrisons, which competes on price in the mass market and uses a higher proportion of British meat than any of the other major supermarkets. The Morrisons model aligns the interests of firm, supply chain and society through directly-owned processing plants which run at full capacity and proves the benefits of plant loading. Our accounting research show that Morrisons increases margins and reduces costs. Society gains through reduced import dependence, stable employment and the capacity to address animal welfare and climate change.’

If Morrisons can do it, so could Tesco and Sainsbury. Why don’t they? Because they are signed up to the top-down, short-term performance management agenda, locked in place by the equally reductive and simplistic belief that their only job is to make money for shareholders (and themselves), and hang the consequences for the rest of the supply chain, let alone the wider society.

As that suggest, there’s yet another level that the poison has permeated. For all that it is fatally flawed in both theory and practice, shareholder value is the basis of and embedded in all the official governance codes, and, as Said Business School’s Professor Colin Mayer makes clear in a telling RSA lecture on the consequences of that belief, the revision of company law in 2006 did nothing to weaken its destructive grip. So at the level of the economy as a whole, the result of thousands of companies doing what they believe is in their own self-interest is the adversarial supply chains and self-defeating competition that CRESC chronicles. Once again, as with performance management, HRM and the supposed marvel of the market, we end up with the opposite of what the bright official rhetoric promises: not the high road of the high-commitment, high-wage knowledge economy but the low road: the low-innovation, low-commitment, low-wage and high-insecurity economy embodied in Prêt and Amazon.

Dilemmas are dilemmas because the decisions are difficult. Getting rid of bad management is not a dilemma; there are simply no arguments against it. Do the right thing and economic recovery will take care of itself. What, I wonder, is Ed Milliband, or indeed any other ambitious politician, waiting for?

In one of two voluminous reports on the disaster of the Mid-Staffs Hospital Trust, where between 400 and 1,200 people may have died unnecessarily, Robert Francis QC noted that those giving evidence used the phrase ‘in hindsight’ 378 times.

In hindsight, his reports write the damning epitaph not just of a dysfunctional hospital organisation (Mid-Staffs was ‘the most shocking failure in the history of the NHS’, according to Health Secretary Jeremy Hunt), not just of the national healthcare system , but of the entire public-sector management paradigm.

The first Francis report graphically described the appalling suffering caused by and to individuals under the regime of ‘targets and terror’ in a single organisation.

The second equally mercilessly documents the failure of every one of the plethora of watchdogs, regulators, inspectors and superior management tiers, up to and including the central NHS cadres in Whitehall, to notice what was happening, let alone raise the alarm or do anything to stop it.

The failure was complete, embracing every actor in the drama, from lowliest auxiliary to the minister and top civil servant in charge. To provide the finishing touch to this masterpiece of failure, it is Teflon-plated, not a shred of accountability or responsibility attaching to any of the parties involved.

Unlike politicians and the press, which assume that every management debacle has special causes, mostly in the shape of flawed individuals, no one who has thought even for a minute about the organisation as a system will be surprised by this cascade of failure.

It is built into a system that might have been designed to fail every practical and human test.

As to why, a Scottish TUC research report published last week under the self-explanatory title ‘Performance Management and the New Workplace Tyranny’ handily describes just the cycle of work intensification, cost cutting, task-standardisation and IT-monitoring that (often coupled with outsourcing) decisively broke the link with compassion and care.

This is the morally and economically bankrupt ‘deliverology’ that New Labour built, the public-sector variant of the ideological shareholder-first, externalising travesty that in the private sector presented us with sub-prime, Lehman, and the financial meltdown. Unwittingly emphasizing how closely they are related, David Cameron’s dismal addition to Francis’ 290 recommendations is to propose performance-related pay for clinical staff – the very thing that in the finance sector almost brought the walls of capitalism tumbling down.

Performance management, with its relentless focus on individual targets, is the link between the two. Targets simplify, fragment and pull teams apart, focusing workers (whether clinical or professional, public sector or private) on themselves, bosses and regulators rather than customers or patients. Targets being invariably arbitrary, bearing no relation to the capacity of the system to make them, the only way workers can reliably meet them is by working on the one thing they can control: the numbers. They cheat. As a recent Guardian article noted, ‘’target-based performance management always creates ‘gaming’ ‘. Not sometimes. Not frequently. Always’.

This means that the numbers managers receive are wrong. This matters, since as Francis observed, Mid-Staffs managers managed by numbers and abstractions rather than interaction with the front line. Here is one reason why they were blind to what was going on under their noses.

But they are usually the wrong numbers anyway. To serve as a guide to improvement, a measure must be related to purpose from the customer’s point of view – the end-to-end time to let a property, do a repair, diagnose and treat a patient. Most of the measures managers are obsessed with (standard response times, call-handling times, agreed service levels) measure activity, not purpose. So even if the numbers had been correct managers would have still been in the dark: in the blackest of satire, patients died while managers fretted about people meeting irrelevant targets.

Let’s sum up. The NHS is an organisation where staff face in the wrong direction, the numbers are fiddled and the measures irrelevant, and managers spend the vast majority of their time beating up on individuals instead of attending to their real job, seeing to the system.

In this light the only surprise is that there aren’t more mistakes; brutally, if lives are saved it is despite, not because of, a system that mass-produces care packages to meet abstract meta-targets – cutting MRSA by half, a four-hour wait in A&E – rather than to respond to individual need. The system simply isn’t set up to do care and compassion. But since people experience care as individuals, even when targets are hit patients feel no improvement. Try boasting about success in cutting MRSA to those still infected, for example.

The management of the NHS has itself become a disease. Responding to the Mid-Staffs disaster by piling on more regulation and inspection, setting service standards for compassion, intensifying the performance management regime and threatening criminal charges is like trying to bludgeon a patient back to life. Instead, we need to start at the other end, with the patient, and design an organisation that can respond to patients,’ not ministers’ or commissioners’, needs. Unless and until the NHS sickness is wiped out, there will be more Mid-Staffs (five more hospitals are being investigated) not fewer.

As any blues singer will remind you, you never miss your water till your well runs dry. The same is true of trust – just ask the consultants at Arthur Andersen, which dematerialised overnight in the wake of the Enron collapse in 2001, or more recently the News of the World journalists whose livelihoods went up in a puff of smoke in the chain reaction triggered by the phone-hacking revelations of July 2011. This – and the subsequent arrest of News International hacks – throws into sharp relief questions of individual and collective trust that were explored in an illuminating discussion at the launch of PR firm Edelman’s 2013 Trust Barometer, now in its 13th year.

The Barometer tracks attitudes to trust in various institutions and individuals in 26 countries across the globe. For one panellist at the UK launch, FT.com managing editor Robert Shrimsley, there was a twinge of sympathy for some NOTW journalists caught up in a culture not of their own making: if everyone else is getting otherwise inaccessible stories by employing private eyes and bugs, it takes a conscious and public effort to go against the cultural grain. (For a less charitable professional reaction, see Sir Harry Evans, the long-time Sunday Times editor, here.)

But this is exactly why the role of the individual in trust is crucial, noted another panellist, the academic Sarah Churchwell, who made a crucial distinction between accountability and responsibility (something I have also written about). Accountability is imposed from the outside – something owed to a customer or, more problematically, a hierarchy or central regulator. Responsibility on the other hand is internal – an inner voice that tells you what is right or wrong. It may involve expressly refusing the mechanisms of bureaucratic accountability (ticking boxes, doing things right) in the name of doing the right thing. Whistleblowing or choosing to be accountable to citizens rather than inspectors or regulators are cases in point.

At News International, the generalised collapse of trust in the shape of a mass withdrawal of advertising was the direct result of irresponsible behaviour by journalists in the performance of their jobs. Interestingly, the macro story mapped out by Edelman in this year’s Barometer makes also makes a link between the individual and the wider evolution of trust in general, albeit a slightly different one.

Perhaps the most striking development in the narrative of the last few years is the growing trust gap between institutions and their leaders. Thus while with some exceptions (banks, media in the UK) trust in institutions has gradually been recovering ground since the low point of 2008, the same cannot be said of institutional leaders, who their underlings view with a much more jaundiced eye. Among the general population, only 13 per cent say they trust government leaders to tell the truth, compared with 41 per cent trusting government as an institution, the equivalent fitgures for business being 18 per cent and 50 per cent. These differences are unprecedented and ‘nothing short of extraordinary’, according to Edelman.

There are of course some obvious reasons for the thumbs-down for individuals – Edelman singles out the continued high-profile outing of individuals such as former McKinsey managing partner Rajat Gupta, Barclays CEO Bob Diamond and Chinese government official Bo Xilai, together with the drip-feed of poison from the ongoing Libor and phone-hacking affairs.

But together with other complementary findings, they have some sobering implications for CEOs and business leaders. In 2008, before the full implications of the financial crisis had hit, corporate reputation depended above all (76 per cent) on operational excellence: the ‘what’ of performance. In 2013, in another ‘extraordinary transformation’, executing well has become just table stakes – one of the basic competences necessary to get into the game. More important for reputation, and getting more so, are ‘how’ questions about the way business is done: does the company behave ethically, is it a good employer, does it put customers before profits and is it transparent and open in business affairs – all issues that in the past could be dealt with with a bit of lip service, but which in practice interfered little with the drive for shareholder value

That alone should put many traditional CEOs on red alert. But even if they start making the right noises now, it won’t be enough – for the very good reason that, as we have seen, people don’t believe them any more. According to Edelman, people now need to see or hear something three to five times in different places before they’ll accept it’s true.

But there’s more. If not their bosses, who do people believe? Experts and academics is one answer, but also peers – ‘people like us’ – who are twice as credible as CEOs or government officials.

What this means is that CEOs can no longer just push their chosen messages down to a mass audience from on high, as in the past. Just as important are continuing real-time conversations and assessments between consumers, employees and other stakeholders. The implications are profound. For the message to be believed, these constituents have to be engaged too. Or rather, the message from on high has to be consistent with the one that is being spontaneously generated from below. As Richard Edelman puts it: ‘The hierarchies of old are being replaced by more trusted peer-to-peer, horizontal networks of trust.’

Think about this for a moment. I’ve always been sceptical about the lasting significance of social media, at least in business. But could it be that the true, unexpected vocation of Twitter and FaceBook is not to peddle tittle-tattle, spread news or even organise flash crowds, but finally to kick out the foundations of top-down corporate management? The tweeting of the sacking of HMV headquarters staff this week is just a small illustration of the disruptive potency of the message from below. The emerging storyline of trust is: it can’t be pushed into existence. It’s reciprocal. That means that the individual’s role is critical, in both its creation and destruction. And accepting and exercising that responsibility just may be the most important, liberating thing that individual does.

Read my article on managment as a liberal art, FT Business Education, 28 January 2013, here

Dell, a former titan of the computer industry, is shortly due to go private in a deal worth $22bn. As the PC sector is reshaped by competition from tablets and smartphones, Dell reportedly believes that its strategic shift from commodity PC manufacturer to purveyor of business services is best carried out ‘behind closed doors’ of private rather than public ownership.

This is odd. If shareholder control and the metric of the share price, the central pillars of today’s governance, provide the best possible compass for running a company, as the dominant wisdom asserts, why would a company voluntarily forgo them? Even odder is that it’s actually not odd. Dell is far from alone. As the officially sanctioned corporate form loses its appeal, stock markets on both sides of the Atlantic are shrinking. According to research by Grant Thornton, from 1997 to 2009 the number of publicly listed companies in the US declined by 39 per cent, and Will Hutton’s Ownership Commission found a similar trend in the UK.

There’s more. Not only are investors not clamouring for companies to invest in that specifically state shareholder value maximisation as their purpose, they flock to buy shares in firms with A and B-class equity that deliberately weaken shareholder rights, such as Google, Linked in and Zynga. In other words, shareholders themselves don’t seem to value shareholder control very highly. Finally, ponder this. The UK has taken the shareholder-primacy model considerably further than the US (indeed, compared to the latter it is sometimes termed a ‘shareholder paradise’). But if the standard model were truly superior, and companies run accordingly were the most efficient, the UK would be world champion at breeding successful global companies. Which it, er, conspicuously isn’t.

So what’s going on here?

What’s going on, says Lynn Stout in her forensic study of the subject, self-explanatorily entitled The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations and the Public, is the implosion of the shareholder-value paradigm that has held business and academic thinking in a vice for the last four decades.

For sure, by the end of the 20th century the idea that the purpose of companies is to maximise returns to shareholders was entirely dominant. And it continues to hold much sway. In the UK it’s behind Vince Cable’s reforms to give shareholders a binding vote on executive pay. In the US a famous essay termed it ‘the end of history for corporate law’: ‘The triumph of the shareholder-oriented model of the corporation is now assured,’ the authors wrote in 2001, ‘not only in the US, but in the rest of the civilized world’.

Yet it’s a myth. No slogan-chanting revolutionary, Stout is a well-regarded legal scholar who in admirably clear and concise language successively demolishes every one of the props of shareholder hegemony.

In the US, shareholder value’s spiritual home, ‘corporate law does not, and never has, required directors of public corporations to maximise shareholder value,’ she writes. ‘Second, closer inspection of the economic structure of public corporations reveals that shareholders are neither owners, nor principals, nor residual claimants. Third, the empirical evidence does not provide clear support for the proposition that shareholder primacy rules produce superior results. Indeed, once we shift our focus from the performance of individual firms to the performance of the corporate sector as a whole, it suggests the opposite’.

In other words, the 40-year-experiment proves that shareholder primacy is a con. It has neither descriptive nor normative value. Not only is it not a panacea; prescriptions based on it are the cause of many of the things that are going wrong.

Although CEOs and some hedge fund managers have done exceedingly well, it has failed to live up to the promise of making shareholders as a class better off. Worse, says Stout, it encourages amoral, selfish behaviour that erodes the commons and undermines the economy as a whole. Its fingerprints are all over the succession of scandals that culminated in the meltdown of 2008. It is implicated in the slowdown of innovation, the rise of outsourcing and offshoring, and the demise of pensions. In its name, the salaries of CEOs soar while those of ordinary workers are held down. Shareholder value fuels the inequalities that destabilise societies and keep economies in the doldrums.

Shareholder value may be a zombie, but the undead grip is still strong. Why? The central idea has the virtue of being simple and easily understood by the public and the press, for which it plays into the need for strong stories, and by managers too, even when it is leading them astray. By lending itself to numbers and equations, shareholder value serves the academic need for management to look like a science; and it’s hard for scholars to accept that more than a generation’s worth of work was futile. It’s no less difficult to convince shareholders long used to being theoretical emperors that they have no clothes. And CEOs who have grown fat on the comfortable idea that they deserve to be rich as benefactors of shareholders have too much at stake to give up without a struggle. More subtly – and this Stout only hints at – by teaching that the baser instincts are not only normal but desirable in the shareholder interest, it turns the fiction of homo economicus into reality, with incalculable consequences for the future.

There is no longer room for doubt: recovery from the crisis is not a matter of business as usual with an added layer of regulation. It’s kicking out the shareholder-value paradigm and the destructive management model that goes with it. By taking her sharp legal axe to the accepted framework, Stout continues the urgent demolition work begun by Rakesh Khurana’s magisterial account of the betrayal of the business schools, From Higher Purpose to Hired Hands, and Roger Martin’s Fixing the Game (see my interview with Martin here). Stout demonstrates that the edifice was all front and no foundation from the start. Now the cracks are on the outside. So all together now: a few more coordinated shoves and we’re there.

It’s no pleasure to see the once-great (and make no mistake, Gérard Depardieu is, or was, the most charismatic French actor since Jean Gabin) turn themselves into a laughing stock. But the sheer grotesqueness of the mountainous actor’s tax-evading cavalcade through Belgium and Russia should not be allowed to obfuscate the important lessons it contains about the nature of the 1 per cent and how they get and keep their status.

A street kid who grew up on the wrong side of the tracks, and intermittently the law, in the unprepossessing French town of Chateauroux, Depardieu – as he recounts it – was saved from a life of petty crime or worse by the discovery that he could act. He started out on the stage, but stardom, and wealth, were a consequence of his breakthrough in the cinema in a string of arthouse and commercial successes from the 1970s on.

Now, Depardieu was rightly rewarded for his remarkable acting gifts, and if he has successfully parlayed his cinematic earnings into a business empire comprising vineyards, restaurants and property worth €120m according to one count, chapeau to him.

But raw talent was only one element in his financial success. The other was the existence of a thriving film industry and vibrant film culture that recognised and valued his talent. And one reason why the French film industry is in good enough health to do that – only Holly- and Bollywood turn out more films a year than France, and only the US exports more – is that it has benefited from enlightened and consistent long-term state support, primarily in the shape of levies on ticket and DVD sales and internet access that are ploughed back into film production.

So when le grand Gérard exports himself to Belgium or Russia to avoid paying taxes in France, it is not just an issue of an individual’s right to do what he likes with his own money. It is an indirect attack on the industry that nurtured him.

In that, as in other things, Depardieu is a true member of the 1%. He systematically underestimates the role played in his success by the industry ‘commons’, ie collaborative effort, and the support contributed by the state. Put another way, the risks and rewards applying to the different economic actors are out of sync, in both time and space. Increasingly, risk-bearers and reward-takers are different people, the benefits disproportionately accruing to a few prominent individuals who have positioned themselves directly under the tap to gobble the jackpot when it pays out. It’s perhaps not an accident that the Depardieu affair (‘Obélix chez les Belges’, as a newspaper headline dubbed it in a nod to the Asterix films in which he plays the plucky Gaul’s enormous egg-shaped sidekick) coincides with a furious row in France over the ‘bloated’ fees demanded by the most bankable French stars, alledgedly undermining the prospects of even the most popular films.

In their paper The Risk-Reward Nexus, academics William Lazonick and Mariana Mazzucato show how writ large a similar process of value-extraction (pillaging, in less decorous terms) operates to stunt innovation, hold back growth and promote inequality over whole economies, particularly the US and UK. Their examples are CEOs and top managers of venture-capital and hi-tech electronics and biotechnology firms operating on a scale that makes even Depardieu’s financial appetites look puny. But the mechanism is the same.

The role of venture capitalists and entrepreneurs in creating new economic value is as exaggerated as any Hollywood epic, they claim, while the state’s part is written out. Thus, it may surprise many to learn that the algorithms used in Google’s search engine, some of the technologies in the Apple iPhone, nanotechnology and indeed the internet itself, all emerged from publicly-funded rather than private research. The US National Institutes of Health currently spend $30bn a year, double the real levels of the 1990s, to develop the biotech and biopharmaceutical knowledge base, without which ‘the US, and probably the world would not have a biopharmaceutical industry,’ according to the authors.

Having the public fund innovation in this manner absolves firms from the hard work of doing R&D or building human capital and frees them to do other things with their profits – like paying them out to shareholders, which they do with abandon. To take just one example, Lazonick and Mazzucato calculate that in the decade to 2010, the $170bn that Microsoft spent on dividends and share buyback (directly benefiting its own executives as shareholders) amounted to a stunning 138 per cent of net income. Public funding also helps explain the phenomenon of PLIPOS, or ‘product-less IPOs’ – the launch on the stockmarket of speculative start-ups which might strike it rich but generally don’t, but in the meantime provide players for hedge funds and others to bet and make money on even in the absence of products. Given the amounts of money raised in this way, returns in terms of innovation have been small, note the authors, ‘while financial interests, including highly remunerated… executives have done very well’ from a truly alchemical business model.

The final insult is that, like Depardieu, companies such as Google, Amazon and others make a virtue out of paying as little tax as possible (it’s called maximising shareholder value) and often lobby to reduce the government spending that has underpinned a part of their success. As Depardieu’s odyssey all too graphically illustrates, at these levels of wealth both individuals and their companies have become ‘loose’, unmoored, unconstrained by ties to place or norms such as fairness and solidarity, loyal only to others of their class and their own pocket books.

Tell you what – when he’s finished his next screen project playing Dominique Strauss-Kahn, another rotund French 64-year-old who’s fallen foul of the authorities, shouldn’t he make a film about it?

Read my piece for the Foundation on ‘From muck to brass’ here