Professor Gary Hamel’s new book is available: ‘What Matters Now: how to win in a world of relentless change, ferocious competition, and unstoppable innovation’. Hamel is a breathless optimist. He sees the world changing and he encourages and motivates managers to achieve near impossible ends. He believes in the potential greatness and goodness of industry and teaches bright young people how to raise their game so as to take us forward to the promised land. He is today’s Peter Drucker, with slightly less gravitas, but rather more academic shape and a whole lot more bounce. We need Gary Hamel. Big business under the Hamel code would be honest and trustworthy, exciting and innovatory, giving people real opportunity to develop to their full potential and encouraging them to participate in decision making at all levels. He puts five issues at the centre of whether a business will ‘thrive or dive’ in the years ahead: values, innovation, adaptability, passion and ideology. They’re all people based factors which together ratchet up corporate performance to winning. But there’s a problem with Hamel’s brave new world. It’s not going to work.
Management practitioners today, at least the vast majority, believe in something quite different. They are taught to be, and have become, dedicated followers of the Friedman line: their bounden duty, they believe, is to maximise the wealth of shareholders, having no other social responsibility than that. To hell with everything else! Oblivious of the fact that maximising any one thing necessarily results in the neglect and impoverishment of everything else, they are taught that the relentless pursuit of shareholder value will end with the best result in the best of all possible worlds. But that, as Sir Mike Darrington of the Pro-Business Anti-Greed campaign would put it, is all ‘total bollocks’.
The idea that managers owe their first duty to shareholders is based on an academic pretence that the company does not really exist. It’s a “legal fiction” and thus can’t be the principal in a contractual relationship with its managers. But that is simply untrue. The whole point about a limited company is that it is a legal fact, empowered to make legally binding contractual arrangements. Managers owe their duty to the company, as specified in their contracts of employment and in Companies Acts. They are not the agents of shareholders and in fact have no direct contract with shareholders, but only through the company. So Professor Hamel’s people based approach has a legal foundation which the currently fashionable Friedman line lacks.
The Friedman line has produced the short term orientation of Sumantra Ghoshal’s ‘ruthlessly hard driving, strictly top down, command and control focused, shareholder value obsessed, win at any cost business leader’ – the exact opposite of Hamel’s winner. Prior to the Friedman line becoming institutionally dominant under the Thatcher government, there had been real plurality. The robber baron syndrome may never have been far away, but at least the business schools taught management as values based with professional ideals as well as technical expertise, rather than the corrupted version described by Ghoshal.
But it’s not only managers and business people, but the whole business-financial-political nexus, that has been so corrupted. That simplistic greed accommodating culture is utterly dominant in finance if a fraction of Greg Smith’s ‘muppet’ resignation letter to Goldman Sachs is to be believed. Goldman may be biggest, and have infiltrated the political sphere furthest, but are otherwise far from unique. That same culture dominates government thinking and action, and it is the culture that must be replaced, and the theory it upholds changed, before Hamel’s inspirational approach will stand a chance of being implemented. That’s the subject matter of The Road to Co-operation which is also published this week – http://www.gowerpublishing.com/isbn/9781409448303