----- Original Message -----
Sent: Monday, April 13, 2009 11:47 AM
Subject: [Norton AntiSpam] Re: Performance and values
Dear Kim,
If I remember correctly the starting point of the discussion was the question of how we can rebuild the current system to avoid the massive disruptions we currently experience. The basic assumption was that the current system has inherent flaws and that from a psychological perspective the incentives have been misaligned. Your question of whether it was competence or immoral behavior is a good one (in my eyes), and in my perspective it was probably both. Having said that, I believe that the systemic structure forcing people to 'maximize' ONE thing will necessarily lead to mindless blindness, a condition in which our vision is limited to objects we intently focus on (independent of the nature of that ONE objective ( financial or social).
I am not sure that your take on the systemic changes as wishful thinking is convincing. You might be correct that a profit motive will always exist, but when talking about multiple objectives, no one is excluding a profit motive, the only point is that the profit motive in itself will not create a sustainable system. Otherwise we would not experience any crisis right now (I would venture to say, that behind the financial crisis, lures a bigger social inequity and environmental sustainability crisis). If any attempt to rethink the current system is dismissed as fanciful, I am not sure what the role of business academics is. Is it the role of the cynic?
Let me suggest some points that might make a systemic shift seem less unrealistic, and let me also try to debunk some of the assumption regarding 're-engineering' human nature.
-First, in the past 30 years so called third sector has grown faster than the for profit sector, in terms of resources, and number of organizations started. The growth rate of new NGO's being setup is far higher than businesses being started in the for profit sector (Herman, 2005; Drayton 2007, 2009). That information at least points to objectives/values inherent in human beings other than profit.
-In fact, all across the world you see policy initiatives helping to foster multiple objective organizations, such as social enterprises. In GB there is an cabinet office dealing with such changes, and it is reported that already 1 % of GDP is created by such organizations (http://www.esrcsocietytoday.ac.uk/ESRCInfoCentre/facts/UK/Social_enterprise.aspx). That might not be much in comparison to the traditional for profit businesses, but in terms of growth potential it could demonstrate a trend. -Not negating the importance of organizations focusing on wealth creation, Jim Collins found that the 'great' for profit organizations do pursue higher purposes than profit. In fact, Collins and Porras find that none of the organizations built to last do pursue shareholder value maximization, because it does not inspire people at all levels of the organization (p.227 Built to Last). The Economist also finds that CSR, meaning pursuing other goals than profit maximization, is done mainly to keep employees motivated. That in turn supports that human beings as such are not only concerned with income or profit maximization.
-A very convincing argument about human nature is made by Paul Lawrence and Nitin Nohria in 'Driven", in which they basically use insights by evolutionary biology and neuropsychology to demonstrate that humans are driven by four independent drives (drive to acquire, drive to bond, drive to comprehend, and drive to defend). These drives seem to be independent of each other, which would strongly contradict a single objective focus. In fact, in a follow up HBR piece Nohria et al, find that organizations attending to all four drives generate much higher levels of motivation than those focused on profit (d A) only.
Now, I don't discount the problems arising when shifting a system, but I find that some of the above insights demonstrate that we don't have to re-engineer humans, but rather that the system needs to be re-engineered to fit humans better than it currently does.
Best,
Michael
Sent: Friday, April 10, 2009 5:33 AM
Subject: Performance and values
Whilst the debate on values has been useful in its own terms, could I respectfully submit that it has moved beyond the simple question of how higher ethical standards might have mitigated the current crisis and into the realm of wishful thinking.
The chances of eliminating the profit motive [even if that were a good thing] are absolutely zero, or even getting it significantly moderated by higher values. Equally unlikely is that teaching ethics in business schools could eliminate from the global management community everyone who might behave wrongly apart from anything else, many successful business people do not go through formal business education in which they might be exposed to such teaching. [By all means keep doing it, but just dont expect to have a huge impact.] It is equally fanciful to imagine we can architect a fundamentally different approach to business, whatever that might be.
The reality, I suggest, is that we will for the foreseeable future have to live with a world in which the profit motive continues to dominate, and in which a minority of executives and financiers seek to make themselves wealthy at the expense of others, both within accepted ethical norms [e.g. taking market share from competitors] and outside them.
in which case, the question shifts from how we can re-engineer human nature to how we can set up systems to guard against the problems caused by its harmful excesses.
No such systems are likely to be feasible until executives, investors, regulators etc. share a much stronger understanding of how any business system functions and delivers profits [and other outcomes] from quarter to quarter, year to year. To the best of my knowledge, no such model currently exists. If it did, we would have read analyst reports on corporate performance with comments such as This action taken by firm X may have raised last quarters earnings by Y%, but will likely damage earnings 2-3 years from now. So we recommend selling this stock in spite of its earnings rise. Anyone ever seen such a comment? They should have appeared like confetti over the last 3-4 years.
Kim Warren: London Business School.