Category Archives: Stakeholder theory

Bad Theory and Management Renewal

Management scholar, Sumantra Ghoshal, accused mainstream business schools and university departments of teaching ‘bad management theories’ that were ‘destroying good management practices’. His arguments were persuasive, both as to how bad the theories were and how effective they had been in destroying good management practice. The bad theory was that management had no other social responsibility than the legal duty to maximise shareholder wealth. The good practices this bad theory destroyed were related to concern for employees, customers, the local community, the environment and (therefore) the long term, all of which were exploited and impoverished, or at the very least neglected, on the altar of short term shareholder interests.

Ghoshal argued that destroying the bad theory would be an essential first step to renewing good management practice. If the bad theory remained intact, the greed enabling culture it supported would remain as the dominant set of beliefs. Under that circumstance, initiatives promoting sustainability, transparency, fairness and integrity, as characteristic of the role of business in society, would be doomed to fail. At the end of the day, no matter how worthy an action would be, if it meant reducing shareholder return, it would not be sustained. And if an action were to harm employees, customers, the community or environment, but would enrich shareholders, it would be justified. For this to be reversed, the bad theory must be totally overturned.
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Matters of Belief

People are, and have always been, able to persuade themselves to believe the weirdest things. If a theory is not testable then it is either rejected or it becomes a matter of belief, which people can be readily persuaded to accept and even proclaim with varying degrees of conviction. Economic theory is by no means unique in this.

A hundred years ago, there being no tv, cinema or even radio, people tended to socialise mostly face to face with real people. And even in godless England, much of that interaction was within the context of the Christian church. Children attended Sunday school, went on Sunday school treats and outings, and in due course were confirmed as church members and regularly attended its services. That was where girls and boys very often met up. In the absence of mass hi-tech entertainments, they joined church youth clubs, played sports for church teams, contributed to church concert parties and drama societies, participating in, and being entertained by, their various amateur productions. As a consequence they were imbued with a set of values which were essentially benign and had some influence over how people behaved to each other. Fairness, honesty and generosity were at the core of those values and were publicly proclaimed, far beyond the church, as the acceptable way to behave. It didn’t mean people believed all the detail the churches promulgated. They didn’t have to. Christian doctrine was a matter for theologians. The mass of people were not overly exercised about the details of belief.

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A Further Word on Cadbury

The takeover of British confectioner Cadbury, with its long and honourable history in British industry, from its Quaker origins to its death throes earlier this year, has been featured as the main topic of two posts on this site, and mentioned in passing on five others. It is a compulsive story which celebrates the satisfaction of greed, the naïve stupidity of ideologically driven government, the destruction of Britain’s real economy and its real jobs, and the fatalistic acceptance of all this by the population at large.

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Unpicking Shareholder Primacy

The idea that companies, if not all economic activity, exists to maximise the wealth of shareholders or owners, dominates the world of corporate governance and much else. Bankers and traders believe it. Industrial managers have been led to accept it. Universities and business schools preach it. It is part of the free market ideology, often identified by its origins, as the Anglo-Saxon or Anglo-American approach. And its many adherents claim it is the only system that really works. Shareholder value is, for them, the acid test, all that matters. All this is despite clear evidence to the contrary from Germany, Japan, China, India and many other jurisdictions.

Much of the literature on corporate governance argues that these other approaches are in fact converging on the Anglo-American model and even assesses the level of their maturity in terms of how closely they comply with the Anglo-American line. It’s all nonsense.

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