On Thursday Ed Milliband wrote about capitalism in the FT, and Dave and Boris gave speeches about it. FT deputy editor Philip Stephens penned a thoughtful piece on the morphing of financial crisis into a global political one as politicians flunk the challenge of thorough-going financial reform; Lex noted laconically that over the last decade Goldman Sachs, that day announcing a 58 per cent fall in earnings, had paid employees twice what it had made in net profits (doubling their amounts in the process). Meanwhile, The Guardian’s Zoe Williams wrote about supermarket profits (and therefore top pay) being indirectly subsidised by state benefits to cashiers and shelf-stackers to supplement poverty wages. Murdoch paid out hundreds of thousands of £to settle 18 phone-hacking cases. And Kodak filed for protection from bankruptcy.

Just another day in the life of post-crunch capitalism. It’s all here: the out-of-control pay, the toxic imbrication of politics and business, the overweening overconfidence and fallibility of top bosses, the headlong march of globalisation – and the infuriating inability of politicians to see to the nub of the issue.

As the FT’s Stephens notes, all ‘the talk of “responsible” capitalism, of rebalancing economies and constraining the rewards of the super-rich, falls short of anything resembling a grand plan. The ambition is to make do and mend.’ None of the parties has a clue about the symbiotic relationship between markets and organisations, which means that they have little useful to say about the public and private sectors either. Ironically, Labour has been the worst custodian the public sector ever had, imposing on it the crudest kind of private-sector performance management, while Cameron’s claim that only Conservatives – ‘those who get the free market’ – are equipped to make capitalism fairer is just risible. As in domesticating the the feral rich by appointing a previous Murdoch editor as press secretary, Dave?

From robber barons to Tea Party, capitalists have always been capitalism’s worst enemy, which has relied on contrarians, humanists, trade unions and others to soften the most abrasive edges and prevent itself from auto-destructing. They are still getting it wrong. As John Kay acutely observed in the same week, we constantly overestimate the advantages, and longevity, of large companies, and the merits of scale and centralisation generally. The big question now is whether not just the banks but any number of other global industries have become just too big either to fail or to be reined in. Having increasingly turned ‘political decisions over to the highest bidding lobby [and allowed] big money to bypass regulatory control’ (Harvard’s Jeffrey Sachs, in another telling piece in the FT last week), does the polity retain the wit or will to act on these insights, firstly to prohibit any further industry concentration and second, preferably, to start breaking existing ones up?

Attempts to deal with the other manifestations of capitalism are equally namby-pamby. Yet the outlines of a new settlement are perfectly clear. Corporate governance needs wholesale reform. As Tony Hilton pointed out in a brutally logical piece in the Evening Standard, executive pay is now so complex that no one can understand or properly compare it. So amend governance codes to make flat rates of pay – no bonuses or side deals – a norm with which companies are obliged to comply or explain why not. Of course the workforce should be represented on remuneration committees. People who work for a company have far more at stake than most shareholders, who are no more ‘owners’ of, or even investors in, firms than racecourse punters are owners of the horses they bet on. The average holding time for a US equity is 22 seconds, according to SocGen; 70 per cent of UK equities are held abroad or by short-term traders. The secondary market provides no extra capital for companies. To expect the majority of shareholders to give a toss about executive pay a) is as pointless as pushing on string, and b) there’s no justification for it anyway.

The other necessary element of governance reform is equally evident. It is stated unequivocally in Roger Martin’s important ‘Fixing the Game’, which shows how an ideological fixation on shareholder value has, paradoxically, ‘reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking.’

As Martin points out, giving executives stock options is tantamount to encouraging sportsmen to punt big on the result of the game they’re playing in. The incentive to use any means to get a result (in the case lever the stock price upwards) is irresistible – that’s what CEOs are supposed to do. The only way to kick the habit is to destroy the expectations market by outlawing stock options and prohibiting earning guidance to the City and Wall Street. And, by the way, ban pension funds and public investment vehicles from investing in hedge funds whose fees aren’t adjustable downwards when they fail to deliver the promised rewards (lastest calculations are that over the last decade hedge funds consumed all the returns they created).

Break up the oligopolies (making barriers to entry, and therefore eventually profits, much lower); alter corporate governance to dethrone shareholders and prevent companies being looted by managers in cahoots with short-term traders (thus benefiting shareholders in the long run); ban CEOs betting on games whose outcomes they can easily manipulate. These are the minimum actions needed to bring capitalism back under control and return it to its proper role – servant, not master.

Here’s a thought to start 2012 with. Despite the universally positive assumptions, management is first of all a cost. In a chapter from his latest book, ‘What Matters Now’ (I shall be reviewing it for Management Today), Gary Hamel describes management as a ‘tax’ that in any large organisation will account for at least one-third of payroll. In addition, there’ll be thousands of senior people in staff roles in IT, finance and HR, all of whose mission is to keep the organisation from collapsing under its own weight. From memory, GE once calculated that admin and management ate up fully 40 per cent of revenues – a figure that in less ‘efficient’ companies will of course be very much higher.

Several thoughts stem from this. The first is that, ironically for a discipline that sets such (erroneous) store by it, traditional management does not benefit from economies of scale, if anything the reverse: the bigger the organisation, the more managers it needs to manage other managers. The one bit of scale it does get is a negative one. As Hamel notes, ‘The most powerful managers in most organisations are the ones furthest away from frontline realities. All too often, decisions made on an Olympian peak turn out to be unworkable on the ground… Give someone monarch-like authority, and sooner or later there will be a royal screw-up.’

Throw in the bureaucratic friction engendered by multilayered management (whence Peter Drucker’s lament that ‘So much of management consists of making it difficult for people to work’), and it is clear that management has an awful lot of work to do before it creates any net value at all. What does the management tax actually buy? Chiefly control and coordination. But like compliance, its mirror image on the employee side, control is an overrated and depreciating asset in conditions where discretionary effort and initiative are key, and coordination by the centre, as it is usually done, is both basic and expensive.

So what’s the answer?

One part of it is to distribute management differently.

Hamel has two examples. One is the extraordinary Morning Star, a US tomato processor, of all things, which has revenues of $700m and a full-time staff of 40, who manage themselves. That is, the company is not managerless but the reverse: everyone is a manager. No one can tell anyone else to do something; everyone has to do whatever needs to be done. Management is democratised. Similarly at the better known but equally remarkable WL Gore, where there are few formal titles except CEO – Terri Kelly, who was elected by the entire workforce – but the founding values are so fervently internalised that everyone is in effect a trustee; everyone holds everyone else to account for both performance and cleaving to the values. (It may be no coincidence, incidentally, that both Morning Star and Gore are private companies, able to pursue their unconventional path without worrying about quarterly income statements or the prying eyes of Wall Street.)

But we don’t have to go so far afield for lessons in management tax avoidance. Remember that ‘management’ in the abstract, without purpose, is meaningless – just cost. It only exists to get something done. If the information needed to coordinate and process the work can be carried in the work itself, and people are empowered to act on it, they no longer need management to tell them what to do. This is what happens in the best just-in-time manufacturing arrangements and the equivalent service designs, where measurement is closely connected to the purpose as defined by the end-user. In this case control comes free (because it’s in the work), so some of the manager’s previous role is redundant. And once the benevolent circle is launched more drops away: since workers are now doing an understandable, customer-related job that they are in control of, there is no need for anyone to manage morale or absenteeism or culture. In fact, in organisations that were particularly hierarchical in the past (the police, for example), working like this will often leave some central and functional managers twiddling their thumbs.

God knows, the public sector has no monopoly of poor management. But in the area of management excess it has no equal. It seems to have no concept of management as cost. When a university decrees that multi-page staff appraisals should be carried out twice a year (then anonymised so even if they were ever seen again they couldn’t possibly be used), it seems not to realise that it is subjecting itself to at least two levels of tax: the direct cost of employing HR people to draw up procedures and forms. and the opportunity cost of not doing stuff that would be much more useful. Some people (count me in) would argue that appraisal itself (‘a reminder of who owns you,’ as one cynic put it), taken for granted as it is, is another management exercise that can be gainfully dispensed with if the work is set up to provide instant feedback from the best source, the customer.

Now consider a classic example of this kind of management illiteracy from the mouth of the Prime Minister himself. In this week’s announcment of a new initiative to raise standards of care in the NHS, David Cameron proudly promised a new Care Quality Forum, a ‘patient-led inspection regime’, and hourly ward-rounds by nurses to check on patients in their beds. It’s hard to know where to begin with this. Leave aside that Cameron has no way of knowing if ward rounds are the answer to the specific problem – he may be right, but he also may not. More importantly, the grotesque oxymoron of care-less healthcare now prevalent in the UK is not an accident but the wholly predictable result of ministers’ own ‘targets and terror’ regime, which effectively ensures that nothing not targeted gets seen to. Targets are already an enormously costly bureaucratic burden; to compound it with an additional new regulatory body, with all the direct and indirect costs it entails, simply doubles the management tax level at a time when the NHS is supposed to be cutting costs.

Care is the very heart of nursing purpose, the value that should be self-enforced above all other. If the answer is more management, it’s the wrong question, full stop. In management less is more and more always less. To adapt Peter Drucker, ‘There is nothing so useless – and uselessly costly – as doing efficiently that which should not be done at all.’

Imagine working in a company where you help choose the department head, and if you don’t like your manager you can choose a new one. Salaries and company finances are open-book. You are trusted to the point that the projects you work on are pre-approved so the solutions you come up with actually matter. You know you can alter the usual procedures if it’s better for customers – and you won’t get punished for an honest mistake.

Yeah, right – what planet do you think we live on?, might sneer anyone who’s done an MBA. Dream on, those on the receiving end would sigh wistfully.

Yet the funny thing is that companies set up in this New Age fashion conform much more closely to the hard evidence of ‘what works’ than conventional top-down, short-back-and-sides rivals. Companies that figure in ‘best places to work’ lists, using practices like the above, are consistently more profitable than ‘normal’ counterparts; getting employees more engaged is the single sure-fire thing any company can do to boost performance (see my piece on the extraordinary failure of people management here).

For a concrete example of how and why such practices work, look no further than training company Happy, which does all the things in the first paragraph, plus many more. Happy trains 20,000 people a year, and picks up awards for customer service, work life balance and being a great place to work with a regularity that must depress rivals. Generously, founder Henry Stewart (previously a journalist, and it shows) has written a provocative and welcome book about how it’s done, self-explanatorily entitled ‘The Happy Manifesto’.

Stewart’s book has a foreword by LBS’ Professor Julian Birkinshaw. The combo is particularly felicitous because Birkinshaw has himself published a fascinating research report on ‘employee-centred management’ – and the two complement each other perfectly, Birkinshaw’s paper setting out the research findings, Stewart illustrating them with practical examples.

They’re a great double act, and I’m sure they won’t mind my saying that reading them together is even better than reading them apart. Time after time, lightbulbs go off as the issues raised by Birkinshaw are faced, and faced down, by Happy. Here are three of the brightest, at least for me.

First, since the elements of helping people perform well are well established, muses Birkinshaw, why are most companies so bad at it? One reason is that the trusting, open management required is a minority sport – an ‘unnatural’ activity that goes against the grain of control and risk-aversion that managers at business school and their previous employer. Happy’s solution – ‘our most radical concept’ – is… to select managers who like and are good at managing. Wow. Let that sink in a minute. Many people are comfortable with left-brain management activities like strategy and decision-making, far fewer with supporting and coaching behaviour. So split the roles and hand people management to those who do it best. In addition, give people a say in who manages them. Poor management, points out Stewart, ‘undermines morale, creates stress, reduces productivity and causes companies to lose some of their best people. It is a massive problem, but there is a simple solution: let people choose their managers. If they don’t like the one they’ve got now, let them decide who they want instead.’ Done, problem solved.

Second, it’s a truism that front-line staff know more about what customers want (and are getting) than managers. But all too often companies block good customer service, and innovation generally, with rule books that force people to do things that they know are not in customers’ interests. (As Peter Drucker once lamented, ‘So much of management consists of making it difficult for people to work’.) Instead, Happy as far as possible eliminates rules. How? By making an incredibly important distinction: between rules and systems. ‘There is a crucial difference between the two. A rule has to be obeyed. In response to a rule you are expected to suspend your judgement. A system is the best way we have found so far to do something. But, if any member of staff can think of a better way in the situation they are in, they are encouraged and expected to adapt the system.’

In many organisations, the response to a mistake is to create a rule. Rules never get taken away, only added, so we end up with ever more and more dispiriting restrictions on the use of common sense, both at work and outside it. This dynamic explains why an author has to have a CRB check before he or she can give a reading at a school, or a neighbour can’t look after a child for a morning without registering as a child minder. Of course, you can’t just get rid of rules and throw people back entirely on their own resources. But the minute you start thinking in terms of systems you have terms of reference within which to exercise judgement, as well as guidelines for deciding whether rules are necessary (is the incident natural variation, or noise, in which case it’s pointless to make a rule; or is it a signal of a change or malfunction in the system that does require a reaction?).

Third, another reason why good people management is so rare is that in times of crisis like the present the default reaction is to is to pull control back to the centre, so that the manager is on top of everything. But this is often exactly the wrong thing to do, since it is people at the front end who are best positioned to respond to fast-changing circumstances. Happy’s answer, and more generally to pre-empt the automatic assumption that the manager knows best, is to institutionalise trust in the shape of pre-approval – making clear to a group or individual that they will have authority to implement their project or proposal, without prior management sign-off. As Stewart admits, this scares many mangers witless. ‘But think for a moment. What effect would this have on how seriously people took the task? We find it instantly removes any play-acting and politics. Suddenly it’s for real.’ Moreover, at implementation time they have an investment in making it work – and they can’t blame management interference if it doesn’t work.

Any of these practical insights is worth the price of the book on its own. But there are more on almost every page. Some of them have policy implications. For instance, whoever came up with the notion that making it easier to sack people would make them or the company more productive has only to turn to Stewart’s hierarchy of management needs on page 52 to understand why it is the stupidest idea in the world. Or page 106 to twig the real point of flexible working: ‘Flexible working is not what you approve of, but about the member of staff and what they need. It is not about you. It is about them’. The section on recruitment is particularly illuminating, or more accurately inspiring. Why do so many businesspeople complain that qualifications fail to prepare people for the world of work – yet continue to insist on the same irrelevant qualifications, Stewart asks. If more companies followed Happy’s practice of ‘recruiting for attitude, training for skills’, the UK unemployment figures would look much rosier – particularly among the angry and disaffected young.

In his foreword to the book, Birkinshaw notes that companies such as Happy are ‘more important for the economy than the immediate value they create for their customers and employees’. Their significance as alternative role models to the dreary (and ineffective) norm is immense. It can’t be emphasized enough that the management philosophy represented by Happy is not some fluffy attempt at do-gooding, but the reverse. It’s the rest of the world that’s out of line. Notes Stewart: ‘It would be nice to say that we do this out of a belief in democracy in the workplace, but this isn’t the real reason. We do it because it is more effective.’ Why not both? He rightly calls his book a manifesto, a call to arms. I hope he’s sent it to Dave and Ed.

According to the High Pay Commission’s final report last week, the average FTSE 100 chief executive now takes home £4.2m in annual pay. That’s 145 times the salary of their average employee and an increase of 4000 percent over 1979. By contrast the ratio between top and average was 20 times or less 30 years ago, since when average pay has risen by just 300 per cent. On present trends by 2020 the multiple will hit 214 times.

Is there any management justification for paying people who run large established companies, which by and large grow at about the same rate as the economy, such enormous sums of money? No, not one.

• No reputable study has shown a link between executive pay and performance: in fact the evidence challenging the existence of a link ‘has become increasingly compelling’.
• There is however plenty of evidence of the damage done by stratospheric pay to the fabric and cohesion of the company. There is a whole page of references in the report to the importance of employee engagement to performance (and see my piece here). The single most important thing companies can do to boost performance is to improve dismal engagement levels by managing people as if they mattered. Enormous pay inequality says in the starkest fashion that people don’t matter. And the inequalities continue to rise. Last year alone FTSE directors’ pay went up a stunning 49 per cent at a time when many at the bottom of the scale were taking pay (and pension) cuts.
• ‘The [national] economic case for getting to grips with the dramatic escalation of top pay is increasingly apparent. Extreme levels of pay inequality have a [negative] impact on: entrepreneurialism; growth; economic instability; sectoral imbalances; social mobility.’
• The idea that exorbitant pay reflects a ‘market rate’ is a myth. As the report makes clear, there is no functioning international market for top executives – if there were, real pay would be the same everywhere. A ratchet is not the same thing as a market.
• Finally, paying people according to different criteria fails the tests of both fairness and simple logic. If high pay is essential to induce some people to get out of bed in the morning, why should it be different for those at the other end of the scale?

As with dreadful people management, there is almost complete consensus that excessive management pay is destructive, scandalous, and shouldn’t happen. So, again as with people management, the only interesting question is – what is causing it that makes it impossible to stop?

The answer is, governance.

There’s no point in wringing hands over it: soaring executive pay is not an aberration. It’s the logical creation and consequence of a corporate governance structure that is enshrined in all our City codes. The HPC is only half right to say that pay excess ‘is a symptom of a particular form of free-market capitalism’: more accurately, it is its triumph.

Unfortunately, the HPC does not peel back that ‘form of free-market capitalism’. It was born in Chicago with Milton Friedman and his associates. Crucially, it was transmitted from macro to micro economics by Professors Michael Jensen and William Meckling, who in 1976 published a celebrated paper in the Journal of Financial Economics entitled ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure‘.

As Roger Martin recounts in his important Fixing the Game, Jensen and Meckling’s is the most quoted article in economics history. It is also the most influential. It is not much of an exaggeration to say that one academic article has shaped the course of corporate history for the last four decades.

It has much to answer for.

Management based on it, says Martin, ‘has reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking. Capital markets – and the whole of the American capitalist system – hang in the balance.’

Along the way, it has given us a new caste – the imperial, and imperially paid, CEO.

As Steve Denning noted in a recent Forbes post, Jensen and Meckling performed the time-honoured trick of creating an artificial problem to which they just happened to have a handy solution. The straw man was the ‘agency problem’: the supposed misalignment of ‘principals’ – the firm’s shareholders – and their ‘agents’ – managers and workers, who left to themselves were allegedly spending more energy tending their own interests than those of their shareholder-principals.

For there to be an agency problem to solve, two crucial assumptions have to be made. One is that the company’s sole purpose is to maximise value for shareholders. But why should shareholders be singled out as ‘principals’, their interests privileged above other company stakeholders? To justify that, Jensen and Meckling had to make another heroic assumption – that shareholders own companies.

That belief is now so engrained that it has become invisible; the assumptions, at least in the Anglo-US context, have become fact. But it is a myth.

Here’s what two business professors wrote about it in that fiery left-wing organ Harvard Business Review last year. ‘It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes – even when a loss in value is documented–courts side with directors the vast majority of the time’.

Here’s the late Sumantra Ghoshal in a much admired article in Academy of Management Learning and Education: ‘We know that shareholders do not own the company… They merely own a right to the residual cash flows of the company, which is not at all the same thing… They have no ownership rights on the actual assets or businesses of the company which are owned by the company itself, as a “legal person”. Indeed, it is this fundamental separation between ownership of stocks and ownership of the assets, resources and the associated liabilities of a company that distinguishes public corporations from proprietorships or partnerships. The notion of actual ownership of the company is simply not compatible with the responsibility-avoidance of “limited liability”.

Here’s Paddy Ireland in another frequently quoted article, ‘Company law and the Myth of Shareholder Ownership’: ‘Disinterested and uninvolved in management, and, in any case, largely stripped (in law as well as in economic reality) of genuine corporate ownership rights, the shareholder is, as Berle and Means pointed out, ‘not dissimilar in kind from the bondholder or lender of money’. While, therefore, the relationship between shareholder and company is not exactly one of lender to borrower – the share is not, as some have suggested, a kind of loan – neither is it in any meaningful sense one of owner to owned’.

And finally (although plenty more could be added) Charles Handy: ‘The idea that companies are owned by shareholders is, excuse me, balls. It is the cause of all kinds of problems… Somehow the myth has grown up that shareholders are owners; whereas the law says that the corporation is an individual and therefore has the same legal and moral obligations as a person. Even more than that, a company is a community, a group of companions, which means that it can’t be owned by anybody else in any real sense. You can own the village, but not the inhabitants in it – we used to call that slavery’.

If companies aren’t owned by shareholders, the whole governance edifice on which executive pay is the culminating spire simply collapses. The agency problem vanishes. The single-minded imperative to maximise shareholder value vaporises too, and with it the requirement to incentivise managers to achieve it. In fact, such incentives can now be seen in their true light, as destroyers of corporate cohesion and engagement and thus squarely contrary to the board’s fiduciary dury to the company itself.

It has been forgotten, including alas by the HPC, that agency theory and governance based on it (including all our City codes) come out of assumptions grounded in ideology, not in any evidence of what actually ‘works’. As Ghoshal pointed out they have no predictive value, and none of the current governance prescriptions have any correlation with superior performance.

In fact the contrary: one of the revelations of Martin’s book is that, extraordinarily enough, shareholders have done less well in the past three decades of shareholder primacy than they did in the postwar years when managers were supposedly ripping them off.

One of the crowning ironies is that the Jensen-Meckling theory was at bottom anti-management: it was framed as a response to managers’ self-interested ability to exploit their corporate position for their own ends. Yet the greatest beneficiaries of the resulting new order have been managers who first accepted, then eagerly demanded as their entitlement the escalating alignment incentives on offer – including managers and fund managers of institutional shareholders, themselves benefiting the same self-serving incentives. This unholy alliance has hijacked all the corporate returns during the period. While profits on both sides of the Atlantic soar to record heights, it is only managers, both corporate and finance, who have benefited.

Present corporate governance arrangements not only did nothing to prevent the crash of 2008: they helped cause it. As with executive pay, they, and the assumptions they are based on, are the problem, and any solution that uses them as the starting point will self-evidently fail. It’s no use asking shareholders to discipline managers, because they are playing on the same side. That helps explain why no attempt to rein in top pay has had the slightest effect so far.

Unfortunately, as the HPC report shows, the fact that these ideas are time-expired does not prevent them exerting a powerful influence from beyond the grave. The Commission will apparently continue to work for another year after delivering its final report. Before it disbands, it should make it its job to put a final stake through the zombie’s dark heart – otherwise its prescriptions, for all that many of them are right, will suffer a similar fate.

The only conceivable response to the research about worker engagement and company performance is: ‘duh’. Come on, wouldn’t you expect a happy workforce to be more productive than a unhappy one? Engaged and secure staff more likely to go the extra mile for the boss and the customer than bitter and twisted ones who are scared of losing their jobs? And isn’t it common sense that that would pay off in better business performance?

Yes in each case: and you’d be right. Although it is hard to be categorical about what causes what, the evidence is that high employee engagement and satisfaction is indeed reflected in superior business outcomes, including profit. Among a stack of similar studies, the most recent scholarly research finds that a value-weighted portfolio of the ‘100 Best Companies to Work for in America’ outperformed the market average by a cheerful 3.5% a year over 25 years – hardly a flash in the pan.

Nor is there any mystery about what causes people to enjoy their jobs and work at them. Things like responsibility for doing a worthwhile job, work autonomy, opportunities for personal growth, working with good colleagues and recognition head the list. Salary and working conditions – another ‘duh’ – rate barely a mention. They are ‘hygiene factors’, demotivating people when inadequate but never becoming a positive source of satisfaction, however high they go.

Yawn. Tell us something new.

Yet the commonplaces contain a large puzzle.

Because the ‘alpha’ garnered by companies that put employees first shouldn’t exist. It resembles the economists’ hypothetical £5 notes that really are lying around in the street because no one has picked them up. Think about it. We know that overall, global levels of employee engagement are dismally low, the proportion of those highly engaged plunging downwards from 20 per cent in the US and 12 in the UK to single digits in France, China, India and Japan. We know also that raising them would improve business performance. Finally, we know what good management looks like.

‘So, if something doesn’t work very well, and a (proven) better alternative exists, surely we would expect everyone to gravitate towards that alternative?’ ponders London Business School’s Professor Julian Birkinshaw, who has just spent a year investigating the subject, with fascinating results.

One factor, Birkinshaw and his team surmised, was that management is always approached from the point of view of those doing the managing. Unlike marketing, which has learned to view its function as ‘seeing the world through the eyes of the customer’, managers still see the world exclusively though their own eyes, not those of their employees. One result is s a hopeless mismatch between expectation and requirements on both sides.

This matters, big time, because, underlining yet another ‘duh’, the single biggest predictor of whether you will be engaged and happy in your work is having a high-grade manager. And in this area Birkinshaw’s findings are both extraordinary and damning.

In marketing, many high-performing companies (eg Apple) use something called the Net Promoter Score as a measure of customer loyalty. NPS asks, on a scale of 1 to 10, how likely you are to recommend the company to friends or colleagues. It’s a tough metric, because only 9s and 10s count as promoters, and 1s to 6s as detractors. Subtracting the latter from the former gives a single net score showing how positively (or not) customers view the company.

Now, when Birkinshaw and his colleagues asked employees at five companies to rate their managers in the same way – ‘how likely is it that you would recommend your line manager to a colleague as someone they should work for in the future?’ – there were massive variations. One company posted a NMPS (net management promoter score) of +61 per cent while at the other end of the scale another company scored -28 per cent. But the average was -15 per cent – that is, overall 15 per cent more employees gave their managers the thumbs down than the thumbs up. From an employee point of view, there were more bad managers than good.

Dwell on that a bit. Here we have perhaps the most basic building block of management, the relationship of a manager with his/her immediate report. We have an unimpeachable evidence base. Yet we still manage to get it wrong more than we get it right. In its most fundamental task, getting the job done through other people, management’s effect is negative.

Why do managers find it so hard to do the right thing?

One reason is surely ideological. As Birkinshaw notes, most large organisations continue to operate on a management operating system devised a century ago – bureaucratic coordination, hierarchical decision-making, extrinsic rather than intrinsic reward. In a world where the imperatives of efficiency and compliance have long ago ceded to commitment, initiative and discretionary effort, these principles objectively outlived their usefulness some time ago. But the framework was effectively locked in place by the shareholder-value, free-market doctrines that emerged in the 1980s (which requires all thse things), and they have permitted no movement since.

By reinforcing natural human tendencies to self-interest, control and risk-aversion, ideology makes them self-fulfilling. So even if it wasn’t originally, the behaviour that constitutes good management – focusing on people rather than self, delegating and tolerating mistakes in a larger cause – now runs against the grain. It becomes an ‘unnatural’ act. Put this together with managers’ conflicting priorities and limited time, and the fact that a check-list of things to do isn’t necessarily a good how-to-guide (all the activities require precise judgment so as not to overshoot in either direction), and good management, though obvious, suddenly seems less easy.

Birkinshaw’s research leaves some leading questions.

Why isn’t this stuff taught to all business students from lesson 1?

Why did the last government spend an estimated £70bn – enought to bail out a small eurozone economy – on IT and management consultancy, none of which addresses the elementary management issues?

Isn’t this, as Donal Carroll of Critical Difference suggests, the starting point for a manifesto for a radical, democratic, functional form of management?