What do CEOs do? A CEO Job Description (Stever Robbins, Inc)

 

 

What do CEOs do? A CEO Job Description.

Download “What do CEOs Do? A CEO Job Description” as a PDF.

CEO is one of the most coveted, and least understood, jobs in a company. Everyone believes that CEOs can do whatever they want, are all powerful, and are magically competent. Of course, nothing could be further from the truth. By its very nature, the job description of a CEO means meeting the needs of employees, customers, investors, communities, and the law. Some of a CEO’s job can be delegated. But several elements of the job must be done by the CEO. Read on for the details of what makes a CEO.

Responsibility, duty, and all that…

• Part 1: A CEO Job Description
• Part 2: Measuring Success as a CEO
• Part 3: Pitfalls and solutions for the CEO
• Part 4: Coaching tips to stay sane and skillful at the top of the heap.

Related podcast "What is a CEO’s job?"

Related article The Executive Mind-Set

Related book on business leadership, It Takes a Lot More than Attitude…to Lead a Stellar Organization.

This essay is written using "she" to refer to CEOs. There is no deep agenda hiding here. I’m in the business of helping people think outside the box, and gender is an obvious place to start.

 

Admit it. We all feel a touch of awe when someone has it: the CEO title. The power, the salary, and the chance to Be The Boss. It’s worthy of awe!

Too bad so few CEOs are good at what they do. In fact, only 1 in 20 are in the top 5%[1]. Many don’t know what their job should be, and few of those can pull it off well. The job is simple—very simple. But it’s not easy at all. What is a CEO’s job?

More than with any other job, the responsibilities of a CEO diverge from the duties and the measurement.

A CEO’s responsibilities: everything, especially in a startup. The CEO is responsible for the success or failure of the company. Operations, marketing, strategy, financing, creation of company culture, human resources, hiring, firing, compliance with safety regulations, sales, PR, etc.—it all falls on the CEO’s shoulders.

The CEO’s duties are what she actually does, the responsibilities she doesn’t delegate. Some things can’t be delegated. Creating culture, building the senior management team, financing road shows, and, indeed, the delegation itself can be done only by the CEO.

Many start-up CEOs think fund-raising is their most important duty. I disagree. Fund-raising is necessary, but the CEOs contribution is in building a superb business with the money raised.

What is the CEO’s main duty? Setting strategy and vision. The senior management team can help develop strategy. Investors can approve a business plan. But the CEO ultimately sets the direction. Which markets will the company enter? Against which competitors? With what product lines? How will the company differentiate itself? The CEO decides, sets budgets, forms partnerships, and hires a team to steer the company accordingly.

The CEO’s second duty is building culture. Work gets done through people, and people are profoundly affected by culture. A lousy place to work can drive away high performers. After all, they have their pick of places to work. And a great place to work can attract and retain the very best.

Culture is built in dozens of ways, and the CEO sets the tone. Her every action—or inaction—sends cultural messages (see "Life Under a Magnifying Glass"). Clothes send signals about how formal the workplace is. Who she talks to signals who is and isn’t important. How she treats mistakes (feedback or failure?) sends signals about risk-taking. Who she fires, what she puts up with, and what she rewards shape the culture powerfully.

A project team worked weekends launching a multimedia web site on a tight deadline. Their CEO was on holiday when the site launched. She didn’t call to congratulate the team. To her, it was a matter of keeping her personal life sacred. To the team, it was a message that her personal life was more important than the weekends and evenings they had put in to meet the deadline. Next time, they may not work quite so hard. The emotion and effect on the culture was real, even if it wasn’t what the CEO intended. Congratulations from the CEO on a job well done can motivate a team like nothing else. Silence can demotivate just as quickly.

Team-building is the CEO’s #3 duty. The CEO hires, fires, and leads the senior management team. They, in turn, hire, fire, and lead the rest of the organization.

The CEO must be able to hire and fire non-performers. She must resolve differences between senior team members, and keep them working together in a common direction. She sets direction by communicating the strategy and vision of where the company is going. Strategy sets a direction. With clear direction, the team can rally together and make it happen.

Don’t underestimate the power of setting direction. In 1991, at Intuit’s new employee orientation, CEO Scott Cook presented his vision of Intuit as the center of computerized personal finance. Intuit had just 120 employees and one product. Ten years later, it’s a billion-dollar company with thousands of employees and dozens of products. Worldwide, it is the winner in personal finance, bar none. The success is due in no small part to every Intuit employee knowing and sharing the company’s vision and strategy.

If vision is where the company is going, values tell how the company gets there. Values outline acceptable behavior. The CEO conveys values through actions and reactions to others. Slipping a ship schedule to meet quality levels sends a message of valuing quality. Not over-celebrating a team’s heroic recovery when they could have avoided a problem altogether sends a message about prevention versus damage control. People take their cues about interpersonal values—trust, honesty, openness—from CEO’s actions as well.

Capital allocation is the CEO’s #4 duty. The CEO sets budgets within the firm. She funds projects which support the strategy, and ramps down projects which lose money or don’t support the strategy. She considers carefully the company’s major expenditures, and manages the firm’s capital. If the company can’t use each dollar raised from investors to produce at least $1 of shareholder value, she decides when to return money to the investors. Some CEOs don’t consider themselves financial people, but at the end of the day, it is their decisions that determine the company’s financial fate.

Footnotes for Part 1

[1] Pay no attention to the math background peeking from behind the curtain… back

 

Measuring Success as a CEO.

Knowing the job description is a good first step for a CEO, but to know how she’s doing, she needs to design her own measurement system.

Unlike inconvenient lower-level jobs, no one tells the Chief Executive how she’s doing. Do managers let her know she’s undermining their authority, making poor decisions, or communicating poorly? Not likely. Even when a CEO asks for honest feedback, the fear is there: non-flattering feedback may stall a promising career[1]. Even when a company uses 360-degree feedback, no one penalizes the CEO if she doesn’t act on the feedback.

The Board of Directors supposedly oversees the CEO, but they are far removed from day-to-day actions. Over time, they can evaluate performance, but they look mainly at share price and company strategy. They are rarely interested in—(or qualified to comment on!)—the CEO’s daily behavior.

But the CEO’s daily behavior will make or break the company! The CEO’s duties don’t change because they are unmeasured. Indeed, lax measurement makes it easy for the CEO to feel confident, even when she shouldn’t. Good feedback is the only way to know what’s working, but share price simply doesn’t do it. External measures measure the company, not the link between the CEO’s actions. A low share price tells her something’s wrong, but it doesn’t help her figure out what.

By measuring her performance based on her duties, a CEO can learn to do her job better. As explained in part 1, the CEO’s job is setting strategy and vision, building culture, leading the senior team, and allocating capital. The last of these is easy to measure. The first three are more of a challenge.

How does a CEO know she’s doing the vision thing? It’s hard. Having vision isn’t enough—that just takes a handful of mushrooms and a vision quest. Communicating the vision is the key. When people “get it,” they know how their daily job supports the vision. If they can’t link their job to the vision, that tells a CEO that her communication is faulty, or she hasn’t helped her managers turn the vision into actual tasks. Either way, a CEO can monitor her success as a visionary by questioning and listening for employees to link their jobs with the company vision.

Culture building is subtle, the culture a CEO sees may be very different from the culture of the rank-and-file. One company had a facilities policy that all equipment within 450 feet of the senior management offices was kept in top working order. Senior managers saw a smoothly running company, while everyone else saw neglect and carelessness.

Surveys about openness, values, and morale can be used to develop a measure of culture. The questions to ask aren’t rocket science. The book First, Break all the Rules gives a great questionnaire for measuring overall culture. Also, check turnover. When 95% of your workforce says they can’t wait to get to work, something is going right. If people rarely leave, and if it’s easy to attract top talent at below-market prices, you can be sure the culture plays a large role. If people leave (especially your top performers), again—look to culture. And don’t underestimate the power of walking around and counting smiles. If people are having fun, it will show.

The CEO’s success at team-building can often be measured through the team. Teams usually know when they’re effective. They can also rate their team using assessments that measure specific behaviors. For example, “I can trust my teammates.” “My teammates deliver their part of the project on time.” “Every member knows what is expected of them.” Regular team self-assessments can help the CEO track the team’s progress and hone her abilities to keep the team running smoothly[2].

Easiest to measure is a CEO’s capital allocation skill. In fact, financial measures are the ones made public: earnings and share price. But how can a CEO link those to her actual decisions? Working with her CFO, a CEO can devise financial measures appropriate to her business. Sometimes traditional measures are most appropriate, such as economic value added or return on assets (for a capital-intensive company). Other times, the CEO may want to invent business-specific measures, such as return on training dollars, for a company which values state-of-the-art training for employees. By monitoring several such measures, a CEO learns to link her budget decisions with company outcomes. Ultimately, the CEO’s should be creating more than a dollar of value for every dollar invested in the company. Otherwise, her best bet is to return cash to the shareholders for them to invest in more productive vehicles.

In startups, earnings begin low to nonexistent, and share price is more about salesmanship and vision than earnings. So the CEO gets almost no useful feedback about her capital allocation wisdom. She doesn’t know whether a dollar spent on a slightly nicer-than-necessary copy machine is wasted or is a wise investment in a long-term. Careful attention to the design and tracking of financial measures can help her prepare for the transition to an earnings-driven company.

In his 1988 Annual Report, Berkshire Hathaway chairman Warren Buffett included an excellent essay on CEO accountability. Click here to read Mr. Buffett’s observations on CEO measurement.

 

Footnotes for Part 2

[1] The CEOs don’t help the problem. Many of my CEO clients highlight the value of honest feedback from their coach. Yet they complain about employees who disagree with them, just don’t “get it” or don’t have enough information “to understand the real issues.” In a coaching call, they can hear feedback and consider it. At work, they treat disagreement as dissension, and then wonder why everyone’s a “Yes man.” back

[2] There are dozens of team effectiveness surveys. You can start by checking out http://www.cambriaconsulting.com, http://www.ccl.org, and http://www.pfeiffer.com. back

 

Pitfalls and Solutions for the CEO

A CEO can tank a company by not understanding their duties, or failing to set up good measurement systems. But it’s also true that the job itself can screw up the person, as well. It’s said that power corrupts, and few positions are more powerful than CEO. While the USA may be a democracy, our companies are legal dictatorships with the CEO calling the shots(1). While she may be having a great time playing Boss, the position may be taking a very human toll.

It’s all too easy for the CEO to become a …; jerk(2)  …; without realizing it. They can forget—if they ever knew—what it was like to have a boss. They are free to ignore feedback that they don’t want to hear, and no one will call them to task for it. They can bypass the chain of command when they want to meddle. They can give themselves raises and genuinely believe they deserve it. And most dreadfully, they can forget what it is like to be “one of the little people”:

worker	I have to leave early today.
CEO	Why?
worker	To pick up my kids from daycare.
CEO	Oh…; looks genuinely perplexed …; Why don’t you have your nanny do that?
worker	I don’t have a nanny.
CEO	Oh…; wanders away with a mildly confused expression

The worker was an incredibly productive person. She worked harder than the CEO, got more done, yet couldn’t have afforded a nanny if her life depended on it. The CEO didn’t intend to be a jerk, but his lack of empathy didn’t win many supporters.

A CEO can become arrogant by externalizing blame

Having no day-to-day accountability for her actions can also turn a CEO sour. When things go wrong, she can blame everyone around her without facing her own shortcomings. “My employees just don’t get it,” proclaims the CEO, never thinking for a moment that she is the one who hired them. Did she hire incompetents? Or has she failed to communicate goals consistently and clearly? “Market conditions have changed.” she declares. A nice excuse, but isn’t it the CEO’s job to anticipate the market and position the company for success under a variety of scenarios? Without someone to keep her honest, she can gradually absolve herself of all responsibility.

Believing in a title can lead to overconfidence

Arrogance also threatens a CEO. “Because I am CEO, I must know the business better than anyone else.” It has been said, but it just isn’t true. No CEO can be an expert in all functional areas. A CEO who is doing her job is spending time with the big picture. If she knows the details better than her employees, she’s either hiring the wrong people or spending her time at the wrong levels of the organization. It’s appropriate for a CEO to manage operations if absolutely necessary, but she should quickly hire good operational managers and return to leading the whole business.

If she also comes to believe that the CEO title grants infallibility, watch out. Even the Pope is only infallible a couple of times each century. But CEOs can reinforce their delusions of grandeur by giving themselves higher salaries (surely she deserves it! After all, salary benchmarks show how underpaid she is) and more perks. Then when layoffs come, the CEO wants applause for having the moral strength to make “hard choices,” quietly overlooking how her own poor decision making led to the need for layoffs.

CEOs can stop learning well

Of course, once infallible, there’s no more to learn, and a CEO may quietly stop learning. Without daily oversight and high quality feedback on how she does her job, she can mistakenly believe her actions lead to success. In reality, she may be doing the wrong thing, but her staff may be working around the clock to cover for her.

Furthermore, sins of omission aren’t penalized. A CEO who does an adequate job, but far less than she could/should have done—goes unnoticed. In hindsight, XYZ Software(3) could have had a $1 billion market niche, and gone public with a valuation of tens of billions. Instead, it stuck to one product, had little understanding of its markets, and ignored competition. Yet it still went public in a $300-million IPO. Was management penalized for a lack of vision and market responsiveness? Hardly! The top managers walked off with $60 million apiece, reinforcing the notion that they had done a great job. Yet with a slightly grander vision, the company might have been 10 or 100 times its size.

Setting vision is the CEO’s job, but nothing tells her if her sights are too low. She isn’t penalized for missing the grander vision. Such sins of omissions are a CEO’s worst enemy. She can be lulled into mediocrity by not knowing what would have been possible. The four-minute mile was considered impossible…until Roger Bannister ran it. Now, it’s commonplace. Likewise, a CEO may limit herself by not realizing she can do her job better.

Though salary benchmarks are common, performance benchmarks are surprisingly rare. Quality learning demands a CEO benchmark herself against other superb CEO’s. Her central learning question is not “are you doing a good job?” but “are other CEOs doing a better job and if so, how can you learn to measure up?(4)“

Footnotes for part 3

(1) Ok, ok. Technically the Board of Directors has hire/fire authority over the CEO, but the Board can’t control day-to-day operations. And while there are certainly boards that replace inept CEOs, it takes sustained incompetence over a long time to move a board to action. So for practical purposes, the buck stops with the CEO. back

(2) Her employees may use less diplomatic terms. back

(3) Names are changed to protect the innocent. back

(4) An excellent book on management best practices is “First, Break All the Rules” available by clicking here to go to the books page. back

Woof, woof

One for the future

Yesterday in the offices of the Youth Cabinet we were debating the foundational information needed to do spatial/service/business planning in the City of Toronto (ie take action of any sort). As open data policies spread through the City and throughout local civil society, the common denominator is geography. Each department, agency or major local organization depicts/divides Toronto's geography in different ways. The alternative ways of administering or servicing Toronto's Districts gives us insights into the "Why" of jurisdictions. Equally important, it shows us where overlaps occur and exactly which public servants or civil administrators are responsible for an area. Conclusion: every city should be collaborating internally to produce a "super base map" composed only of border files layered together in an easy-to-understand way.

Amassing all these layer files from every group in the City is no small task, but to do anything less would be to defer democracy. Every actor and resident is deserving of a full picture of Toronto and a full directory of responsible servants/administrators correlated to their coded areas or zones of engagement.

How do we get there from here?

At our City Hall meeting yesterday we sketched out a framework that should help guide this mammoth effort. It's daunting but once it's done we can move on to really using Open Data - to further programmes development and neighbourhood planning. Without a map as we've described the plotting of geographic data will be impotent - action and redevelopment of the city requires an understanding of, jurisdictions, effected entities, combined of course with the ability to convene motivated parties.

The rough framework sketched out November 25th, 2014 follows.

Types of Geographic Shapefiles for Management & Development of the City--

1. Areas of Governance (Official, Wards, other)

2. Areas of Administration (Departmental/Agency relative division of the City)

3. Areas of Strategizing (Delimited areas of the city in sync with geographic objectives)

4. Zones of Experimentation (Zones nested within areas of strategizing or administration where investment is being encouraged)

5. Spaces of Opportunity (Specific parcels/multiple parcels identified for special investment, with year of availability)

6. .. is there one more category / layer of geography?

That's my contribution for the Fall. Hope 2014 wraps up well for Planning. Looking forward to helping Planning work with its brethren throughout the City in 2015. Open Data efforts are not about data, as your department understands well. It is .. an historical opportunity to -- a)  get reacquainted with the challenges faced by "adjacent departments" in the city, b) rediscover a common language for expressing departmental data based on shared commitments and responsibilities in the City, and c) model for Ontario and the globe what a collaborative, aspirational bureaucracy looks like in practice. Normalizing progressive practices requires aggressive targets in order to overcome inertia and make it up the current hill to a new plateau. The 5 types of geographic data outline a daunting and aggressive set of targets that meet the challenge given in November's meeting - "let all zones be known". If some parts of the Official Plan can't be digitized, then let's move the conversation into an affirmative space - what all can be shared and how can we do so in concert with other struggling but committed departments?

Artificial Ear Sculpture "Listens" To Greivances of South Korean Citizens (EDwin Kee)

Artificial Ear Sculpture “Listens” To Grievances Of South Korean Citizens

By Edwin Kee on 08/19/2013

Now here is a piece of artistic sculpture that will definitely do more than just sit pretty in view of the general public – the artificial ear sculpture by artist Yang Soo-in, who happens to be backed by an organization known as Lifethings. This particular sculpture has been shaped to resemble that of a large ear, and it can be found right outside the City Hall in Seoul. The whole idea of this particular sculpture is to convey a message to the people that Mayor Park Won-soon and his administration are more than willing to listen to the people.
The entire shape is not there just for novelty purposes, since speaking into the “ear” would see a recording device capture everything that was said, before the recording is played over speakers located at a citizens’ affairs bureau that lays right smack in the basement of City Hall. Motion sensors will be able to know just how long folks are standing under the speakers to determine its playback time. I must say, this is definitely one of the more interesting pieces of art that I have come across, and to see it meld with the world of technology is something else altogether.

Filed in General. Read more about art. Source: psfk

Five schools of thought about where the world may be headed next (Dough Saunders)

Five schools of thought about where the world may be headed next

 

Over the next quarter-century, Mr. Gorbachev’s new world order became, simply, the world order: a world built on a broad agreement among most major countries that democracy and liberal economy were desirable goals; a world with only one superpower; a world where international institutions could govern trade, monetary and financial affairs and military conflicts; a world in which poorer countries gradually adopted the values and institutions first popularized in the West; and a world dominated by the United States, its military and its dollar.

 

As the UN once again convenes its General Assembly this week – and surprising words emerge from the speeches of Iranian, Chinese, Russian and American leaders – there is a profound sense, among many observers, that the world is once again reordering itself. The old certainties have collapsed or faded, and new threats challenge them.

 

The United States no longer always calls the shots, and when it tries to, as in the Middle East, it sometimes fails badly. It may no longer be the only superpower, as China expands to become one and uses its military to torment Japan and to bid for control over the South China Sea. Rival models of nationhood, far more economically and politically authoritarian, are increasingly influential, if not united.

 

The failures of Iraq and Afghanistan and the tumult of the post-2008 economic crisis have left many countries searching for other influences. An authoritarian, territorial and anti-Western Russia has brought back some of the harsh logic of the Cold War. And a group of defiantly anti-democratic states and violent non-state movements are exercising their own influence – most notably in the failed states created by Iraq’s aftermath, where the Islamic State’s well-financed bid for a brutal theocracy is provoking a new, very different sort of international war, one whose bizarre coalitions we saw emerging in New York this week.

 

Old-style nationalism, from China to Scotland, has become a force once again. And international institutions have failed to solve some of the world’s most damning problems, notably carbon-driven atmospheric change.

 

In a recent lecture, Michael Ignatieff, now at Harvard University, spoke of the failure of the old institutions and powers to hold together “the tectonic plates of a world order that are being pushed apart by the volcanic upward pressure of violence and hatred.” The old rules don’t seem to apply any more. People who make a living observing the interactions between nations almost all say that some form of an even newer world order is taking shape around us – but there is little agreement as to what it looks like.

 

Here are five major, competing visions of the emerging international order, and the thinkers who argue on behalf of each. If history is a guide, the world of the next decade will not resemble any one of them purely, but will be influenced by many of them. In 1988, Mr. Gorbachev’s “new world order” seemed to be a fringe prognostication, dismissed by many. What we are witnessing today may be an equally unpredictable shift.

 

The world becomes rudderless

 

The United States is declining in power and influence. That may not be true in any way you could measure or prove, but it is what much of the world believes today – and when it comes to power and influence, perceptions are often as important as reality.

 

At the same time, many believe that no other country, or bloc of countries, is really interested in becoming the world’s cop, banker, supermarket, sugar daddy or scold. Europe is struggling to maintain its own unity and restore its economy, Japan is looking inward, China is mainly interested in China’s interests, and blocs of new powers such as the so-called BRICS countries (Brazil, Russia, India, China and South Africa) have failed to act in any co-ordinated way. As a result, this argument goes, the world is increasingly fragmented, without a single vision (or a single big bully) to shape its direction. Those who buy this see it as either a good thing or a bad thing.

 

On the “bad thing” side of the equation are U.S. scholars Ian Bremmer and Nouriel Roubini, who argued in an influential 2011 essay, and in a book by Mr. Bremmer, that “we are now living in a G-Zero world [as opposed to a well-organized G-20 or G-8 world], one in which no single country or bloc of countries has the political and economic leverage – or the will – to drive a truly international agenda.” On crucial issues such as climate change, international trade, facing up to Russian or Islamist threats, or controlling nuclear arms, it has become nearly impossible to reach international consensus, and the result, they say, “will be intensified conflict on the international stage over vitally important issues.”

 

A less pessimistic version of this rudderless-world is proposed by Stewart Patrick of the Council on Foreign Relations. He sees an “unruled world,” but one of ever-changing coalitions and improvisations, rather than the dark nihilism of the G-Zero vision.

 

“I see even more ad hoc actions taking place, with more fluid coalitions to deal with global problems and selective use of frameworks – there’s going to be a lot more compartmentalizing of issues,” he says.

 

But none of it will be permanent: There will be neither guaranteed Western influence over events, nor an organized anti-Western bloc of nations taking shape as there was during the Cold War (because their mutual rivalries and disagreements tend to trump any solidarity).

 

Mr. Patrick points to Barack Obama’s UN speech this week, in which he called for world order – but in the form of ad hoc coalitions, among countries that might otherwise be enemies, to deal with the threats of Russia and the Islamic State. Other issues, such as the climate threat and Internet governance, may not be dealt with at all. “There’s very little appetite to remake things,” he says, but at the same time the old institutions won’t have the same drivers at the wheel – or, sometimes, any driver at all.

 

A new Cold War erupts

 

What if this new world isn’t fragmented by chaos and disharmony, but instead is divided in two by conflict and enmity? A number of influential thinkers believe that the signature event of our age is not the messy ad hoc coalition of the Middle East but rather Russian President Vladimir Putin’s seizure of Crimea and military meddlings in eastern Ukraine and northern Georgia. In this vision, the new world order is being replaced with something a lot like what came before it – a showdown between ideological blocs allied against one another.

 

In the view of this school of thinkers, Mr. Putin’s Crimean adventures are not simply a regional problem to be dealt with through tough sanctions and military postures, but one event in a longer showdown between either Russia and its allies – often called the “revisionist states,” for their desire to turn back the clock to pre-1989 days – and the West.

 

“China, Iran, and Russia never bought into the geopolitical settlement that followed the Cold War, and they are making increasingly forceful attempts to overturn it,” Walter Russell Mead, a leading New Cold War theorist, argued this summer. “That process will not be peaceful, and whether or not the revisionists succeed, their efforts have already shaken the balance of power and changed the dynamics of international politics.”

 

Critics of this view point out that Mr. Putin’s embrace of ethnic nationalism and the military meddling do not appear to be part of some imperial bid to dominate the world, but rather to make the most of decline and weakness – and that there is nothing you’d call a proper alliance between Russia, China (which Moscow often sees as an enemy) and Iran and Syria (given that Russia often sees Islamic states and its own large Muslim population as a principal threat).

 

But the Russian-provoked violence in Ukraine, including the downing of Malaysia Airlines Flight 17, has certainly changed the way people look at international affairs: Russia has not just been kicked out of the G8, but out of the old world of interational co-operation. Edward Lucas, a writer with The Economist who warned of a “new cold war” with Russia in a 2008 book of that title, argues that this can be seen only as part of a major new East-West showdown.

 

“Russia is a revisionist power. It has the means to pursue its objectives. It is winning; and greater dangers lie ahead,” Mr. Lucas said in testimony to the British parliament this month. “Our weakness over Ukraine (and before that, Georgia) has set the stage for another, probably more serious challenge to European security. … Estonia, Latvia and Lithuania are loyal American allies and NATO members. These are our frontline states: The future of the world we have taken for granted since 1991 hangs on their fate.”

 

A Chinese superpower takes hold

 

On the other hand, some believe that the end of superpower dominance is really a transition. What if Beijing overtakes Washington not just economically, but militarily and politically as well? A number of people believe this is the major emerging trend.

 

“The question of whether China is becoming a status quo power, a contented power, a country that’s basically willing to live within the confines of the existing system – it seems to me increasingly that that is not the case,” says Aaron Friedberg, a national-security official in the George W. Bush White House and now a political scientist at Princeton University’s Woodrow Wilson School. “When you look at what Beijing is doing, for example, with the maritime disputes with their neighbours, they’re trying to change the status quo in some pretty significant ways.”

 

The main critique of this vision is that China does not appear to desire to be a global superpower, in the conventional Cold War sense: Its interests are largely mercantile; its only territorial ambitions seem to involve securing its borders; and it does not seek to impose its ideology or culture on the countries with which it engages – even those in Africa where it has a colonial-like economic role. China depends almost entirely on its economic relations with the wider world and would not dare to jeopardize them.

 

But a number of influential thinkers – as well as senior Pentagon officials – believe this is changing, especially under Xi Jinping, who since becoming president in 2012 has increasingly brought the military’s voice into Beijing’s discourse. This has led many to argue that China is looking to challenge the United States – certainly within the South China Sea region and the eastern hemisphere, and maybe even more widely. It has become increasingly self-confident and independent – and, because it has eliminated severe poverty and raised living standards within its borders, it is not quite as dependent on outside trade as it once was.

 

This has led a number of scholars, most on the right, to argue that Western countries should prepare a policy of containment for China, much like that imposed on the Soviet Union during the Cold War. “In his final years in office,” military scholar John Hemmings wrote in an essay this summer, “Obama must decide with regional allies and partners what the red line is for China. And then he must act, if that line is crossed.”

 

His rhetoric echoes that of Robert Kaplan, the apocalyptic-minded U.S. political scientist, who argued in 2005 that “the American military contest with China in the Pacific will define the 21st century.” That hasn’t come true yet, but there are an alarming number of people, in both the U.S. and the Chinese military, who believe that it will and who are actively preparing for such a conflict – and military timetables have an alarming habit of being put to use.

 

More hawkish voices argue that Beijing is preparing for superpower status in other ways. “Do they intend to conquer the Philippines? No. But would they like to exercise a dominant influence across their entire region, I’d say yes,” says Mr. Friedberg, whose most recent book is A Contest for Supremacy: China, America and the Struggle for Mastery in Asia. “They’ve never liked or accepted American alliances, and they’re increasingly dissatisfied with those. They’re trying to use economic leverage to strategic ends as well.”

 

We fight over climate and scarce resources

 

What if no specific superpower or alliance becomes a major enemy, but the Earth itself does? As petroleum becomes more scarce and valuable, will we have global wars and conflicts over access to it? Will the devastating effects of climate change create new rifts in the global order?

 

This is not a new model. The idea of dwindling resources or an unstable climate becoming the main sources of global conflict has been around for almost 25 years; just such a resource-and-climate showdown has been predicted by observers such as Mr. Kaplan (in his 1994 essay, The Coming Anarchy) and Canada’s Thomas Homer-Dixon (in such 1990s works as Environmental Scarcity and Global Security and Environment, Scarcity and Violence).

 

It also has become a theme for environmental historians and activists such as Jared Diamond and Bill McKibben, who argue that climate and resources will soon trump all other politics.

 

Surprisingly, this has not yet happened. While petroleum rights have played a role in a few conflicts such as the 2011 NATO-supported overthrow of Libya’s Moammar Gadhafi, in general, conflicts during the past quarter-century have not been “about oil” – most of the big ones have been about the old motives of territory, religion and ethnicity (although many have been financed with petroleum revenues). And the notion of climate-driven conflict, beyond a few marginal examples, remains largely a hypothesis.

 

But there is a distinctly new dynamic to the politics of energy and climate, one that could, some believe, create a difficult relationship between the major powers and their people.

 

“Resources aren’t becoming scarce as much as they’re becoming increasingly problematic – those that were easy to obtain are depleted, and those that are left are difficult, in many respects,” says Michael Klare, the U.S.-based author of such works as Resource Wars and The Race for What’s Left: The Global Scramble for the World’s Last Resources.

 

“Either they’re in contested areas like the South China Sea or the Arctic, or you’re relying more on natural gas, which gives Russia and Iran a lot more clout … or they’re causing a domestic struggle over practices such as hydro-fracking.”

 

This, he notes, leads to a paradoxical problem: Increasingly, countries see these hard-fought resources as necessary tools for their own independence (a petro-centric belief that afflicts everyone from Vladimir Putin to Canada’s Conservatives to Greenland’s independence-minded Inuit to the militants in the Islamic State). By relying on this tool – at the same time as countries such as Germany walk away from non-polluting technologies such as nuclear power – they are further evading any confrontation with a looming climate crisis.

 

While the result may not play out like the global apocalypse some members of this group foresee, it is increasingly likely that both energy resources and climate change are going to be major components in the emerging world order.

 

The world muddles through as it has before

 

Any of the preceding visions could become the one that people in the 22nd century use to describe our era: as one of chaos, as one of division, as one of a new superpower conflict, or as one of resource panic. But it is just as likely, given recent history, that all four will provide at least some sources of tension in a world order that is not so much new as slightly different – one where the same old creaky institutions, and a new set of compromises, allow the world to muddle through.

 

What if conflicts don’t drive nations apart, but bring them together? This is not as farfetched as it sounds, a number of scholars say.

 

That case is made most assertively by political scientist John Ikenberry of Princeton University, who notes that, despite limited-scale regional conflicts, the liberal order established after the Second World War remains robust and unchallenged. Russia and China, he writes, “are not full-scale revisionist powers but part-time spoilers at best.” Both countries are deeply integrated into the liberal institutions of the world: “They are geopolitical insiders, sitting at all the high tables of global governance.” And, he notes, most of the values and principles that 50 years ago were considered “Western” are now truly universal, practised and embraced even by those countries that most aggressively oppose the United States. He feels that the best response from Western countries is not to engage in conflict but to deepen engagement – economic and institutional – between countries.

Daniel Drezner of Tufts University, in a book this year titled The System Worked, noted that the period after the 2008 economic crisis was one of surprising international co-operation: Not only did the major powers (including China and the United States) make important compromises and agreements to avoid global ruin, but the postwar international organizations – the UN, the World Bank, the International Monetary Fund, the G20 – suddenly started functioning well as problem-solving bodies. Problems such as piracy, offshore banking, currency imbalance and lax banking regulations have been resolved in recent years through deep international co-operation – some of it involving countries, such as China and Iran and Russia, that are opposed to one another in other spheres. Tensions and conflicts exist, but they have not led to isolation; the world is not divided in two.

 

These thinkers could be equally wrong – their views sound like those which were popular on the eve of the First World War. But they provide a reminder that awkward, yet ultimately successful compromise and stumbling, rather than global cataclysm, have been the norm for seven decades, and may still be the cornerstone of the newest world order.

Why Bureaucracy when I Die...

HBR Blog Network

Bureaucracy Must Die

by Gary Hamel  |   2:00 PM November 4, 2014

• Comments (13)
•        

Almost 25 years ago in the pages of HBR, C.K. Prahalad and I urged managers to think in a different way about the building blocks of competitive success.  We argued that a business should be seen as a portfolio of “core competencies” as well as a portfolio of products.  By building and nurturing deep, hard-to-replicate skills, an organization could fatten margins and fuel growth.  While I still believe that distinctive capabilities are essential to distinctive performance, I have increasingly come to believe (as I argued in an earlier post) that even the most competent organizations also suffer from a clutch of core incompetencies. Businesses are, on average, far less adaptable, innovative, and inspiring than they could be and, increasingly, must be.

Most of us grew up in and around organizations that fit a common template. Strategy gets set at the top. Power trickles down. Big leaders appoint little leaders. Individuals compete for promotion. Compensation correlates with rank. Tasks are assigned. Managers assess performance. Rules tightly circumscribe discretion. This is the recipe for “bureaucracy,” the 150-year old mashup of military command structures and industrial engineering that constitutes the operating system for virtually every large-scale organization on the planet. It is the unchallenged tenets of bureaucracy that disable our organizations—that make them inertial, incremental and uninspiring.  To find a cure, we will have to reinvent the architecture and ideology of modern management — two topics that aren’t often discussed in boardrooms or business schools.
Architecture. Ask just about any anyone to draw a picture of their organization — be it a Catholic priest, a Google software engineer, a nurse in Britain’s National Health Service, a guard in Shanghai’s Hongkou Detention Center, or an account executive at Barclays Bank — and you’ll get the familiar rendering of lines-and-boxes. This isn’t a diagram of a network, a community, or an ecosystem — it’s the exoskeleton of bureaucracy; the pyramidal architecture of “command-and-control.” Based on the principles of unitary command and positional authority, it is simple, and scaleable. As one of humanity’s most enduring social structures, it is well-suited to a world in which change meanders rather than leaps. But in a hyperkinetic environment, it is a profound liability.
A formal hierarchy overweights experience and underweights new thinking, and in doing so perpetuates the past. It misallocates power, since promotions often go to the most politically astute rather than to the most prescient or productive. It discourages dissent and breeds sycophants. It makes it difficult for internal renegades to attract talent and cash, since resource allocation is controlled by executives whose emotional equity is invested in the past.

When the responsibility for setting strategy and direction is concentrated at the top of an organization, a few senior leaders become the gatekeepers of change. If they are unwilling to adapt and learn, the entire organization stalls. When a company misses the future, the fault invariably lies with a small cadre of seasoned executives who failed to write off their depreciating intellectual capital. As we learned with the Soviet Union, centralization is the enemy of resilience. You can’t endorse a top-down authority structure and be serious about enhancing adaptability, innovation, or engagement.

Ideology. Business people typically regard themselves as pragmatists, individuals who take pride in their commonsense utilitarianism. This is a conceit. Managers, no less than libertarians, feminists, environmental campaigners, and the devotees of Fox News, are shaped by their ideological biases. So what’s the ideology of bureaucrats? Controlism. Open any thesaurus and you’ll find that the primary synonym for the word “manage,” when used as verb, is “control.” “To manage” is “to control.”
Managers worship at the altar of conformance. That’s their calling—to ensure conformance to product specifications, work rules, deadlines, budgets, quality standards, and corporate policies. More than 60 years ago, Max Weber declared bureaucracy to be “the most rational known means of carrying out imperative control over human beings.” He was right. Bureaucracy is the technology of control. It is ideologically and practically opposed to disorder and irregularity. Problem is, in an age of discontinuity, it’s the irregular people with irregular ideas who create the irregular business models that generate the irregular returns.

In this environment, control is a necessary but far from sufficient prerequisite for success. Think of Intel and the extraordinary control it must exert over thousands of variables to produce its Haswell family of 14-nanometer processors. This operational triumph is tempered, though, by Intel’s failure to capitalize on the explosive growth of the market for mobile devices. More than 60% of the

company’s revenue is still tied to personal computers, and less than 3% comes from the company’s unprofitable “Mobile & Communications” unit.

Unfettered controlism cripples organizational vitality.  Adaptability, whether in the biological or commercial realm, requires experimentation—and experiments are more likely to go wrong than right—a scary reality for those charged with excising inefficiencies.  Truly innovative ideas are, by definition, anomalous, and therefore likely to be viewed skeptically in a conformance-obsessed culture.  Engagement is also negatively correlated with control. Shrink an individual’s scope of authority, and you shrink their incentive to dream, imagine and contribute.  It’s absurd that an adult can make a decision to buy a $20,000 car, but at work can’t requisition a $200 office chair without the boss’s sign-off.

Make no mistake: control is important, as is alignment, discipline and accountability—but freedom is equally important. If an organization is going to outrun the future, individuals need the freedom to bend the rules, take risks, go around channels, launch experiments, and pursue their passions. Unfortunately, managers often see control and freedom as mutually exclusive—as ideological rivals like communism and capitalism, rather than as ideological complements like mercy and justice. As long as control is exalted at the expense of freedom, our organizations will remain incompetent at their core.

There’s no other way to put it: bureaucracy must die. We must find a way to reap the blessings of bureaucracy—precision, consistency, and predictability—while at the same time killing it. Bureaucracy, both architecturally and ideologically, is incompatible with the demands of the 21st century.
Some might argue that the biggest challenge facing contemporary business leaders is the undue prominence given to shareholder returns, or the fact that corporations have too long ignored their social responsibilities. These are indeed challenges, but they are neither as pervasive nor as problematic as the challenge of defeating bureaucracy.

First, only a minority of the world’s employees work in publicly-held corporations that are subject to the rigors and shortcomings of American-style capitalism. Bureaucracy, on the other hand, is universal.

Second, most progressive leaders, like Apple’s Tim Cook or HCL Technologies’ retired CEO Vineet Nayar, already understand that the first priority of a business is to do something truly amazing for customers, that shareholder returns are but one measure of success, that short-term ROI calculations can’t be used to as the sole justification for strategic investments, and that, since corporate freedoms are socially negotiated, businesses must be responsive to the broader needs of the societies in which they operate. All this is becoming canonical among enlightened executives. Yes, work still needs to be done to better align CEO compensation with long-term value creation, but that work is already well underway. And while some CEOs still grumble that Anglo-Saxon investors are inherently short-term in their outlook, their argument breaks down the moment you realize that investors often happily award a fast-growing company a price-earnings multiple that is many times the market average.
Simply put, at this point in business history, the pay-off from reforming capitalism, while substantial, pales in comparison to the gains that could be reaped from creating organizations that are as fully capable as the people who work within them.

I meet few executives around the world who are champions of bureaucracy, but neither do I meet many who are actively pursuing an alternative. For too long we’ve been fiddling at the margins. We’ve flattened corporate hierarchies, but haven’t eliminated them. We’ve eulogized empowerment, but haven’t distributed executive authority. We’ve encouraged employees to speak up, but haven’t allowed them to set strategy. We’ve been advocates for innovation, but haven’t systematically dismantled the barriers that keep it marginalized. We’ve talked (endlessly) about the need for change, but haven’t taught employees how to be internal activists. We’ve denounced bureaucracy, but haven’t dethroned it; and now we must.

We have to face the fact that any change program that doesn’t address the architectural rigidities and ideological prejudices of bureaucracy won’t, in fact, change much at all. We need to remind ourselves that bureaucracy was an invention, and that whatever replaces it will also be an invention—a cluster of radically new management principles and processes that will help us take advantage of scale without becoming sclerotic, that will maximize efficiency without suffocating innovation, that will boost discipline without extinguishing freedom. We can cure the core incompetencies of the corporation—but only with a bold and concerted effort to pull bureaucracy up by its roots.


This post is part of a series leading up to the 2014 Global Drucker Forum, taking place November 13-14 in Vienna, Austria. See the rest of the series here.

How to Make Sense of Creativity (Scott Ginsberg)

How Make Sense of Creativity

August 14, 2014

inShare1

A key component to The Prolific Framework is learning and employing a robust vocabulary of creativity. It’s a language that permits you to communicate with yourself and others about the creative process, helps you make sense of the otherwise ambiguous world of creativity, empowers you to speak a language that supports your intentions, and allows you to conceptualize and describe your experience of creating.

As I continue to publish my moments of conception case studies, each of which deconstruct an inspiring scene from a popular movie, the glossary continues to expand
Here are eight strategies for domesticating your creative blocks. Each terms comes with a case study from one of my favorite movies, depicting the vocabulary word in action:
1. Artistic withdrawal. The physiological readjustment required after we’ve been addictively working on a creative project for a while.
2. Centering sequence. A daily ritual that brings your brain up to operating temperature in order to run properly.
3. Centerprise. A tool that enlists unique aspects of your authentic personality to enhance your ability to sell, making the commerce component of art easier to swallow.
4. Meaning context. Making motivation significantly easier by reframing an activity as being existentially painful not to do.
5. Momentum device. An elegant excuse just to have ideas and validate the process with a sophisticated piece of office technology, building your confidence, commitment and competence.
6. Opportunity agenda. A form of second order imagination, it’s the inherent enterprise to notice creative opportunities, apply force and propel them into interesting directions.
7. Safety container. A space without circumference where judgment can’t enter, a free venue where ideas can run free without the scrutiny of readers, critics, editors and yourself.
Good luck, happy creating.

10 Things Only Exceptional Bosses Give Employees (Jeff Haden)

 

10 Things Only Exceptional Bosses Give Employees

 

Good bosses have strong organizational skills. Good bosses have solid decision-making skills. Good bosses get important things done.

 

Exceptional bosses do all of the above -- and more. (And we remember them forever.) Sure, they care about their company and customers, their vendors and suppliers. But most importantly, they care to an exceptional degree about the people who work for them.

 

And that's why they're so rare.

 

Extraordinary bosses give every employee:

 

1. Autonomy and independence.

 

Great organizations are built on optimizing processes and procedures. Still, every task doesn't deserve a best practice or a micro-managed approach. (Here's looking at you, manufacturing industry.)

 

Engagement and satisfaction are largely based on autonomy and independence. I care when it's "mine." I care when I'm in charge and feel empowered to do what's right.

 

Plus, freedom breeds innovation: Even heavily process-oriented positions have room for different approaches. (Still looking at you, manufacturing.)

 

Whenever possible, give your employees the autonomy and independence to work the way they work best. When you do, they almost always find ways to do their jobs better than you imagined possible.

 

2. Clear expectations.

 

While every job should include some degree of independence, every job does also need basic expectations for how specific situations should be handled.

 

Criticize an employee for offering a discount to an irate customer today even though yesterday that was standard practice and you make that employee's job impossible. Few things are more stressful than not knowing what is expected from one day to the next.

 

When an exceptional boss changes a standard or guideline, she communicates those changes first -- and when that is not possible, she takes the time to explain why she made the decision she made, and what she expects in the future.

 

3. Meaningful objectives.

 

Almost everyone is competitive; often the best employees are extremely competitive--especially with themselves. Meaningful targets can create a sense of purpose and add a little meaning to even the most repetitive tasks.

 

Plus, goals are fun. Without a meaningful goal to shoot for, work is just work.

 

No one likes work.

 

4. A true sense of purpose.

 

Everyone likes to feel a part of something bigger. Everyone loves to feel that sense of teamwork and esprit de corps that turns a group of individuals into a real team.

 

The best missions involve making a real impact on the lives of the customers you serve. Let employees know what you want to achieve for your business, for your customers, and even your community. And if you can, let them create a few missions of their own.

 

Feeling a true purpose starts with knowing what to care about and, more importantly, why to care.

 

5. Opportunities to provide significant input.

 

Engaged employees have ideas; take away opportunities for them to make suggestions, or instantly disregard their ideas without consideration, and they immediately disengage.

 

That's why exceptional bosses make it incredibly easy for employees to offer suggestions. They ask leading questions. They probe gently. They help employees feel comfortable proposing new ways to get things done. When an idea isn't feasible, they always take the time to explain why.

 

Great bosses know that employees who make suggestions care about the company, so they ensure those employees know their input is valued -- and appreciated.

 

6. A real sense of connection.

 

Every employee works for a paycheck (otherwise they would do volunteer work), but every employee wants to work for more than a paycheck: They want to work with and for people they respect and admire--and with and for people who respect and admire them.

 

That's why a kind word, a quick discussion about family, an informal conversation to ask if an employee needs any help -- those moments are much more important than group meetings or formal evaluations.

 

A true sense of connection is personal. That's why exceptional bosses show they see and appreciate the person, not just the worker.

 

7. Reliable consistency.

 

Most people don't mind a boss who is strict, demanding, and quick to offer (not always positive) feedback, as long as he or she treats every employee fairly.

 

(Great bosses treat each employee differently but they also treat every employee fairly. There's a big difference.)

 

Exceptional bosses know the key to showing employees they are consistent and fair is communication: The more employees understand why a decision was made, the less likely they are to assume unfair treatment or favoritism.

 

8. Private criticism.

 

No employee is perfect. Every employee needs constructive feedback. Every employee deserves constructive feedback. Good bosses give that feedback.

 

Great bosses always do it in private.

 

9. Public praise.

 

Every employee -- even a relatively poor performer -- does something well. Every employee deserves praise and appreciation. It's easy to recognize some of your best employees because they're consistently doing awesome things. (Maybe consistent recognition is a reason they're your best employees? Something to think about.)

 

You might have to work hard to find reasons to recognize an employee who simply meets standards, but that's okay: A few words of recognition--especially public recognition--may be the nudge an average performer needs to start becoming a great performer.

 

10. A chance for a meaningful future.

 

Every job should have the potential to lead to greater things. Exceptional bosses take the time to develop employees for the job they someday hope to land, even if that job is with another company.

 

How can you know what an employee hopes to do someday? Ask.

 

Employees will only care about your business after you first show you care about them. One of the best ways is to show that while you certainly have hopes for your company's future, you also have hopes for your employees' futures.

 

Now it's your turn: What exceptional thing has a truly extraordinary boss done for you?

Why The World's Dumbest Idea Is (Finally) Dying (Steve Denning)

Why The World's Dumbest Idea Is (Finally) Dying

Comment Now 

Follow Comments 

Bad ideas don’t die just because they are bad. They hang around until a consensus forms around another idea that is better. This is what’s happening now with a stupid idea has dominated American business for the last four decades: that the purpose of a firm is to maximize shareholder value. The massive problems that this notion has caused for business and society have been documented. Even Jack Welch has called it “the dumbest idea in the world.” Yet it remains the conventional wisdom throughout much of big business. What’s different now is that a consensus is forming around a better idea.

That’s the big news coming out of a recent report from the Aspen Institutewhich convened a cross-section of business thought leaders, including both executives and academics. The report’s most important finding is that majority of the thought leaders who participated in the study, particularly corporate executives, agreed that “the primary purpose of the corporation is to serve customers’ interests.” In effect, the best way to serve shareholders’ interests is to deliver value to customers.

It’s true that you have to read the report carefully to discover this key development, which is buried in the middle of page 6. The report doesn’t headline the finding because it frames the debate wrongly and suggests a false compromise that misses the main point.

Wrong framing of the debate

The report begins, “Ask someone, ‘What is the purpose of a corporation?’ and you are likely to hear some variation on maximizing profits for shareholders or creating value for stakeholders.”

This is like saying that the debate over climate change is between those who believe that climate change is caused solely by natural causes (a bad idea) and those who believe it is caused by evil spirits (a discredited idea).

“Creating value for all stakeholders” is the idea that preceded shareholder value. It was Milton Friedman who in 1970 argued that corporations had lost their way by addressing the needs of multiple stakeholders—shareholders, employees, customers and the community. He had a point: having multiple unprioritized goals in an organization is like having no goal at all. When there is no way to measure progress, there is bound to be confusion.

Firms had to decide, Friedman said, on what their primary goal was. He proposed focusing solely on profit. He attacked those who thought differently as “unwitting puppets” of forces that were undermining society, and “stealing the shareholders’ money” (along with other unprofessorial invective). The article drew on the ideology of those who believe that unconstrained pursuit of self-interest is always good.

However the choices are not between focusing on profit (a bad idea) or addressing multiple stakeholders (a discredited idea). The intelligent choice is the goal supported by the majority of the study’s participants, namely, to serve customers’ interests. This is essentially the idea that Peter Drucker articulated back in 1973: “the only valid purpose of a firm is to create a customer.”

The goal was further articulated by Roger Martin in January 2010 in Harvard Business Review as “the age of customer capitalism.” Maximizing shareholder value, Martin wrote, “is a tragically flawed premise, and it is time we abandoned it and made the shift to… customer-driven capitalism “ Now in 2014, the Aspen Institute report shows that thought leaders are in fact converging on customer capitalism as a better idea.

By downplaying this development, and framing the debate as one between a bad idea (shareholder value) and a discredited idea (serving stakeholders), the report creates more confusion then clarity.

In fact, the report spends so much time recounting the opinions for and against shareholder value that it never gets to examine the substantive case for (or against) the idea that the majority of the participants actually support, namely, customer value.

A false compromise: “fighting short-termism”?

Instead the report celebrates the “common ground among all participants,” both those who support shareholder primacy and those who reject it. The common ground is said to be that “short-term decision making is the bane of American business and requires remediation to mitigate its most pernicious effects.”

“What we have here,” the report says, “as the warden in Cool Hand Luke said, is ‘a failure to communicate.’” It claims to have discovered “a viable middle ground,” namely, that short-termism is bad.

This is to confuse the fundamental nature of the disagreement between the defenders of shareholder primacy and the supporters of customer primacy.

The substantive debate is not about short-term versus long-term. It’s about whether organizations should operate as money-making machines solely for the benefit of managers and shareholders or as instruments which add value to society.

One is the internally-oriented self-interested perspective whose essence was captured in the movie, Wall Street, with the phrase “greed is good.”

The other is a morally-grounded externally focused perspective that a corporation’s primary purpose is to add value to those for whom work is being done.

This is not a difference between short and long term perspectives. In fact, when self-interested shareholder-value thinking is applied in a long-term plan to maximize earnings per share, as in IBM IBM -0.05%’s Roadmap 2015, it is even more self-destructive than shareholder value operating short-term, quarter by quarter, as explained in my article, Why IBM Is In Decline.

This is not a “he said, she said” debate

Part of the problem with the report lies in its methodology. “Altogether, 28 one-hour interviews were conducted with men and women who hold an important position in one of three areas: a) in an investment capacity (9 respondents); b) as a senior executive in a large corporation (11 respondents); and c) in an academic setting in which the respondent engages in topics related to business issues (8 respondents).”

The result is a report of 28 separate interviews, but it’s not conversation. There’s no evaluation as to whether what is being said makes sense.

It allows the supporters of shareholder value to claim that it has been good for business and society without ever being asked how that squares with the known problems of the shareholder value doctrine, namely:

• a crippling of US capacity to compete in international markets;
• massive unwarranted offshoring that destroyed major segments of the US economy;
• a disengaged workforce;
• an inability to innovate;
• “bad profits” that have undermined customer loyalty;
• excessive financialization of the economy that has sparked increasingly severe financial crashes:
• the undermining of economic recovery, and
• drastically reduced rates of return on assets and on invested capital of US firms.

How The West Was Stung

If you are wondering why so many bright highly educated people have gone along with such a bad idea for so long, you could be cynical and say, “Follow the money.” You could note that in the period 1978 to 2013, while the rates of return on assets and invested capital in US firms declined by around 75 percent, CEO compensation increased by an astonishing 937 percent, while the typical worker’s compensation grew by a meager 10 percent. As Upton Sinclair noted long ago, “It is hard to get a man to understand something when he is being paid not to understand it.”

But on a more intellectual level, Roger Martin has been pointing out the rhetorical tricks that were used to sell this bad idea, namely, by presenting it as a matter of tradeoffs between the interests of shareholders versus the interests of society. Why should shareholders get anything less than 100 percent of the benefits of the business’s success?

“Friedman won the way a great debater wins,” says Martin, “by cleverly framing the terms of the debate… Because Friedman was so inflammatory in his call for a 100 percent versus 0 percent handling of the trade-off, his entire opposition …has focused on making arguments for a number lower than 100 percent for shareholders. In doing so, they implicitly… accepted Friedman’s premise that there is a fundamental trade-off between the interests of shareholders on the one hand and other societal actors such as customers, employees and communities on the other hand. Ever since, the Friedmanite defense has been to force the opposition to prove that making a trade-off to any extent whatsoever against shareholders won’t seriously damage capitalism.”

“Had the opposition been cleverer, it would have attacked the premise from the very beginning by asking: what is the proof that there is a trade-off at all? Had they done so, they would have found out that Friedman had not a shred of proof that a trade-off existed prior to 1970. And they would have found out that there still isn’t a single shred of empirical evidence that 100 percent focus on shareholder value to the exclusion of other societal factors actually produces measurably higher value for shareholders.”

In fact, all the evidence that we have since 1970 points the other way: shareholder primacy has been a financial bonanza for the C-suite (the very problem shareholder primacy was meant to solve) but a disaster for the long-term interests of the firms themselves, their shareholders and society.

“If [corporations] make it their purpose to maximize shareholder value, shareholders are likely to suffer because that cravenness turns off customers, employees, and the world in general. If they make it their purpose to serve customers brilliantly, be a fabulous place to work, and contribute meaningfully to the communities in which they operate, chances are their shareholders will be very happy.” The key is to see that it’s not a tradeoff.

“No long-term schism”?

The other rhetorical trick that Roger Martin has identified, by which economists defend shareholder primacy, is to say that in the long term, customer value maximization and shareholder value maximization converge. So there is no long term schism. Thus shareholder primacy is, the argument goes, perfectly reasonable because it will cause enlightened management to make decisions that are good for everybody; today’s stock price is a perfect representation of the future cash flows of the company so using it as your measure of progress toward long-term shareholder value is legitimate; therefore, stock-based compensation, quarterly guidance, and so on, all make sense. QED.

The fundamental flaw in this argument is brought out by the example of IBM, which no one can accuse of being short-term in its focus on shareholder value. For almost ten years, IBM has, through Roadmap 2010 and Roadmap 2015, been relentlessly focused on increasing earnings per share and so increasing its stock price, by whatever means necessary.

The result? Relentless cost-cutting, automatic culling of more costly experienced staff and a resort to cheaper expertise, declining technical competence, stifling bureaucracy and increased rigidity caused by the effort to make fixed earnings targets no matter what, an inability to innovate and a consequent reliance on acquisitions rather than innovation, resort to financial incentives to induce performance, plummeting staff morale, an imploding business model and a broken future strategy.

As revenues fall, IBM’s higher earnings targets are met through relentless cost cutting, tax reduction gadgets and share buybacks funded by borrowing. While IBM’s share price soars, as the top managers and big investors extract cash from it in a weird kind of reverse-Ponzi-scheme, IBM steadily becomes an increasingly unproductive shell, a mere shadow of its once truly-innovative self. As a triumph of financial engineering, IBM “makes money from money,” while its future is being systematically destroyed. How many more of such disasters will we have to witness before the shareholder primacy idea finally dies?

The death throes may be long and painful

A year ago, in response to a question, I offered a forecast as to how long it would take for the world’s dumbest idea to die:

“Major thought leaders: end 2014.

All major businesses and business schools: 2020.”

The news contained in the Aspen Institute report suggests that we are on track to achieve the first part of my forecast—major thought leaders will have made the shift by end-2014.

The bigger issue is how to help businesses make the shift and so avoid the economic and financial catastrophe that another six years of pursuing the world’s dumbest idea will cause.