Thursday, December 29, 2011

Responsibility towards the Stakeholders

Globalization has made the boundaries between politics and economy blurred, thereby making the world more interdependent. In the last decades, the labor separation between politics and the economy underwent considerable change. Due to this internationalization, governmental constraints on firms may be less effective often resulting in a “race to the bottom” that pits state against state. A so called laissez-faire mentality was a common practice. 

But the current financial crisis challenged this way of thinking. The private sector expected the governments to take responsibility for the functioning of the economy and the welfare of the nation. 

Unfortunately governments are made up of politicians who want to be reelected. Politicians aren’t saints. They are part of a party, have got a network and act in their self or partisan-interest. One example was this summer’s debt debate in the United States of America. The months of partisan fighting resulted in the downgrading of the US’s AAA credit rating ( ) by the rating agency Standard & Poor. 

There are top managers who want government to also consider the concerns of the country, in a way that they themselves consider the concerns of the company’s mutual stakeholders. Indeed, the gridlock and partisanship in Washington D.C. provoked some top managers to formulate clear expectations towards government. A well known example is Warren Buffet’s statement “Stop Coddling the Super-Rich” in a New York Times opinion page. He concludes with the words: “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.” ( ) Or take the CEO of Starbucks, Howard Schultz, who called for a boycott on campaign contributions to either party until the elected leaders of the United States of America put aside their political posturing and find some common ground on long-term fiscal issues ( ). 

This kind of debate, however, doesn’t only exist in America. Also in Europe managers have clearly expressed their expectations of politicians. Diego Della Valle for example, CEO of Tod’s, published an article with the title “Politici ora basta” (Politicians, now it’s enough). He states in Italian newspapers that the politicians’ selfish behavior disregards the concerns of the country and damages the reputation of Italy ( ).

These examples show that some top managers realized that an organization can’t be sustainably successful in today’s world without the inclusion of all the stakeholders. No company and no market economy can be sustained without heeding the needs of employees or citizens (Swissquote Magazin Nov/11, 67). 

Instead of concentrating on short term goals like increasing the shareholder value or winning elections, decisions should be made based on sustainable thinking and by including all relevant stakeholders.

Sabrina Stucki

Sunday, December 25, 2011

Leaders are human beings

Leadership seems not to be divisible; it absorbs the person totally. This credo is accepted in business but also in politics. We experienced this already four years ago when Barack Obama was elected President. Even though he had small children at the time, there was barely any discussion of how he could carry out the two responsibilities, namely the Presidency and fatherhood. But if Michelle Obama had been elected President, certainly everybody would have been discussing this matter. The difference in judging the same situation between a man and a woman is even more astonishing, as both are well educated and successful in their profession.

Recently a similar situation occurred in Switzerland. A 39 year old (young!) man, Alain Berset, was elected as Swiss Federal Council.  His wife is also very successful in her profession. The couple has three young children. Again there was little public discussion that Alain Berset as Federal Council will barely have time to see his three children. We – as a culture - obviously think it is more important that our leaders carry out their professional tasks full-time, rather than that they spend part of their time with family duties. We consider that their duties lie in their professional life and not in their private life as human beings. This is especially true for men.

This understanding asks either for specific personalities and values for leaders, or that failing, it accepts that leaders simply bear the stress due to the tension between their professional and private lives. What is however mostly overlooked is that the values and personalities of such leaders also influence the understanding of leadership in society, which thus far emphasizes an instrumental and not human oriented worldview. Moreover, it hinders men to think about their multiple roles, and how they might coordinate them with their partners.

But why should it not be thinkable that an American President or a Swiss Federal Council work part time? And more provocatively, that a man actually asks to work part time as President or Federal Council? Are the experiences of parenthood so negligible that we prefer our leaders to just be professionals?

If we don't start to see our leaders more as human beings, we can’t expect that they will be humanly oriented. We should change our priorities in this respect. In case studies we carried out with students at the University of Zurich and also in other studies (see e.g. Shellenback, K. (2004). Child Care & Parent Productivity: Making the Business Case), it becomes obvious that shared leadership in firms, leads to higher motivation but also to additional competences based on the experiences of parenthood. These studies also make clear that we need more leaders who are asking for shared leadership and more examples of good practices. So let us look for new ways of leadership in 2012. I am looking forward to your experiences on our blog.

Sybille Sachs

Wednesday, December 21, 2011

Upper echelons

In the aftermath of the past financial crisis, a lot of people have been really upset about the greedy behavior of managerial decision makers. Especially in the financial industry top managers are still granting exorbitant compensations to each other and don’t consider the widening disparity of incomes and the problematic dissemination of value created by companies. As people got stunned about this obvious exhibition of pure self-interest and the pronounced ignorance of consequences for the society at large, they started to protest. A well-known example is the now fading “Occupy”-movement. However, public, media and even psychiatrists are wondering if those managers’ peculiar behavior is a distinctive expression of narcissistic personality traits, which accumulate in upper echelons.
As a social psychologist I am somewhat prone to take the social context into account to explain a specific phenomenon. People tend to define their self-concept not only by their individual personality, but also through relationships and memberships in social groups. Moreover, once a person perceives herself as a member of a social group and therefore identifies with it, this social identity influences her perceptions, attitudes and behaviors. Therefore, a social identity provides a person with a framework to interpret but also makes sense out of her social environment and adds to the questions of “Who am I?” and “What is my role in society?”.
If we consider the existence of an upper echelon identity, we have to assume the existence of a social group consisting exclusively of top managers. It is not very difficult to find examples of such social groups, for example during the formal World Economic Forum (WEF) or the infamous and informal relationships between members of top management in various globalized organizations. As every social group is based on similarities between its members, power, decisiveness, prestige and high salaries may are distinctive shared characteristics of top managers. If a person then identifies with a social group, those characteristics become part of her self-concept, other in-group members are perceived as more similar and, thus, generally more positively evaluated.
Coming under attack by other social groups, members of social in-groups move even closer to each other, trying to protect their social self-concept by sticking to the well-known values and norms of their shared identity, partly ignoring the concerns of their wider social environment. In the case of an upper echelon identity, the behavior of top managers therefore resembles the one of pure self-interest, described above. But actually, this behavior is not simply driven by self-interest, but also by those managers’ specific upper echelon identity and its corresponding values and norms.
To counteract the described problematic behavior of top managers, much more is needed than to focus simply on personality traits: the values and norms of an upper echelon identity have to be utterly questioned and replaced. This endeavor of changing a powerful and prestigious social group’s norms and values may can’t be accomplished by regulations, but by a paradigmatic shift from self-interest to mutuality as guiding value and shared norm.

Tom Schneider

Saturday, December 17, 2011

Dare to care

During a recent conservation with the leaders of various business units in a multinational corporation it became clear how different leaders are used to perceive and treat their employees. One of the participants told the following story: One of his employees was undergoing a difficult personal situation in her family circle. Finally she could no longer carry the burden; so she told to the manager that she was no longer able to perform in her usual manner as she had to unexpectedly take care of a problem in her family. The manger who esteemed this employee and her extraordinary performance decided to support her. Therefore he suggested that she could give priority to her personal problems for a certain time. He restrained from giving her a time limit or any other kind of specifications and restrictions.  
The reaction of the employee was overwhelming. She voluntarily informed him how she resolved her situation step by step and she was obviously even more devoted to her work after this experience than before. The manager himself decided that in the future he would encourage his staff to be open to him regarding their personal situation.

This story is probably not an exception but it confirms important insights we can gain out of studies that are done in the area of “work and care”. People are more motivated to work if they are respected not only as a human resource but as a human being. Doing business is not a purely economic affair but also a human one. And finally, considering employees as human beings provides  not only positive effects in motivation but such employees are more than 30 % in a better physical condition, 25 % have a reduction in stress,  5 % are sleeping better. Due to their improved  work-life balance an increase in productivity of over 30 % could be ascertained  (see for example  Bright Horizon (2010).  Enhanced Employee Health, Well-Being, and Engagement through Dependent Care Supports).
With respect to a systematic approach to motivate employees and other stakeholders to contribute their resources for a firm’s value creation, it is important to keep in mind that stakeholders are ends and not means. This was emphasized by an interviewee as follows: “Employees as stakeholders play an integral role because if you treat employees as interchangeable commodities that can just be switched in and out, you're never going to get the transfer of knowledge; and you're never going to achieve the real efficiency that you can with the development of knowledge and expertise” (see chapter 6 in Sachs, Rühli 2011). Last year the annual meeting of the Academy of Management was guided by the motto “Dare to care” to explore new approaches in the field of strategy and organization. Based on the above stated experiences and studies I suggest that one of the guiding principles for new narratives of leadership should be “Dare to care”.

Sybille Sachs

Wednesday, December 14, 2011

An ode to the dismal science – or, why this time is different

I remember my first encounters with economics and finance at the university with considerable fondness: the sophistication with which economic activities were organized in our contemporary world and the compelling simplicity of some of the mathematical models proposed made it a joy for me to explore. And yet, already as a college student, it was clear to me that something critical was missing from all these models: they were not grounded in a realistic conception of human nature and the larger world we actually inhabit.

The widely apparent failure of communism with its naïve conception of human nature as essentially selfless and communitarian, made it prone to derision by economists, while at the same time the evident success of capitalism with its conception of human nature as selfish and rational, permitted it to stand often unquestioned in its apparent logic and utility. Over the past couple of decades, however, it has become increasingly clear that also this latter, rational and selfish conception of human nature is an erroneous conception of what it means to be human. Bit by tiny bit (as a facetious saying went - progress in economics occurs one death at a time), there is a shift occurring within the august hallways of our proud economists, management consultants and even managers themselves. Younger economists have been increasingly found looking over the fence of their little fiefdoms, peering into the rapidly sprouting pastures of modern biology, psychology and the complexity sciences in order to find new answers to the most pressing challenges of this day and age.

Will neo-liberalism, with its rational “utility function optimizers”, fall the wayside as communism had? The evidence is increasing that it will; indeed, it may soon be ridiculed as communism had, as being a fanciful and ultimately distorted, if not downright destructive, conception of human beings and how to arrange our social, political and economic activities.
But what will take its place?

That is the question to which nobody today has a compelling answer. Certain is only that insights from such fields such as evolutionary biology, neuropsychology or the sciences of emergence will continue to make forays into our comprehension of ourselves and the world we inhabit. And certain is also that we will have to decide what to do with this new knowledge: to what extent do we wish to experiment in structuring our socio-economic institutions in accordance to the hints we are getting from these sciences? Apart from the fact that we are only at the very, very beginning of this revolution in understanding (humbleness is required!), there remains a certain weariness in passing laws and building foundations on insights gleaned from the natural sciences. Too distasteful are the reminders of our flirtations with eugenics at the beginning of the past century, too aware are we of the deep ethical dilemmas they will inevitably press upon us.
And yet, I posit that this time will be different and that to close our eyes to them will be nothing less than folly. The understanding we will be gleaning will be simply too compelling, the stakes too high, the opportunities too great. For we are rapidly leaving the days of our blundering, collective childhood behind us, increasingly having the knowledge and tools to chart our own course on this planet with deliberation, equipped with more than simply our ideological leanings through which to perceive and structure our reality.

It is with this in mind that I would like to - in a loose, intermittent series of posts - take peeks at some of these insights from the natural sciences and what they may mean for how we think about and organize ourselves socially and economically.
I would be delighted to get your feedback!

Manuel Heer Dawson

Sunday, December 11, 2011

 Rating Agencies Challenged

The methodology of the rating agency Standard & Poor is increasingly being questioned after its recent extensive downgrading of the credit worthiness of diverse European countries (see The European Union is even considering creating a European rating agency in order to break the monopoly of the American rating agencies (see,1518,773549,00.html). With this, the EU suggests that the methodology of a rating agency is also culturally influenced.

This reminds me of an experience that I made in 1995 in the setting of the first worldwide roundtable talks pertaining to stakeholder relationships, which were organized by Shell in the wake of the “Brent Spar” event and the conviction of Ken Saro Wiwa in Nigeria (see Sachs, Rühli, Kern 2009). During these round-tables, the question was addressed in considerable depth as to what the future of reporting to stakeholders should look like for a firm. The challenge was to come up with a method which does not simply show the financial results of a company, but also takes account of the social and ecological dimensions. It was discovered that the specific expectations for such reporting was strongly dependent on the cultural background of the involved parties. The discussion participants had two basic approaches: transparency of the business operations and the trust in those who carry out these business operations. 

These roundtables revealed that the transparency of indicators which could be measured was most central in the United States. This approach was denominated as a “show me” culture. In Asia, on the other hand, stakeholders regarded trust as the most important indicator, which led to the designation of a “trust me” culture. In Europe, again, stakeholders sought to find a balance between trust and transparency, which some called a “tell me” culture. The result was that the respective cultural background of each participant had a significant effect on the choice of rating criteria.

One can thus reasonably assume that the “show me” culture was most salient with the three largest American rating agencies. The limitations of this approach are however becoming evident: a one-sided focus on quantifiable transparency will not assist us to overcome the current crisis of trust. For this the rating agencies will require evaluation methods which indicate how a broader perspective of trust can be developed (see also Sachs, Rühli, 2011, chapter 5). If the creation of a European rating agency is the solution is currently being debated. In any case, it is clear that rating agencies are having their methodologies challenged.

Sybille Sachs

Wednesday, December 7, 2011

A trade-off?

A few days ago, I spoke at a conference on impact investing. I was invited to speak on the topic “Trade-offs between profit and social impact?” from an ethical perspective. The deeper I got into the question, the more I discovered how interesting and challenging it was to provide an adequate answer to. Indeed, there are several answers to it. The first and simplest one is: “Yes, of course!” If a corporation doesn’t do anything else but maximizing profits, it doesn’t bother about the social impact of its activities. The “Invisible hand” of the market will turn private vices into public goods. Spending money for “corporate social responsibility” is an undue sacrifice of profits. All followers of the Friedman-tradition will agree on that answer.
I think, however, that the title of my presentation was set by those who invited me to challenge this tradition. 

I discovered that you can look at the question from a different perspective and say: “No! There is no trade-off between profit and social impact.” Profit is the result of a specific impact of money in a creative and productive socio-economic environment.  No profit has ever been made without any social impact at all. So the question regarding a trade-off is not the right one. The right question is the one referring to the quality of the social impact: “Is profit the result of a fair process of value creation, and a fair process of distribution of benefits?”

The trade-off question leads me to the moral category of “fairness”. This is not just because I’m an ethicist. It is because there is no way around the fact that value creation is a process of social interaction. In a business environment, this process is facilitated by the investment of specific resources such as financial capital, human capital, natural resources etc. Different stakeholders represent different resources and potentials. 

Thus, coming back to the initial “trade-off-question” we need to acknowledge that there may be nevertheless be a trade-off between financial profit and social benefit. But we realize that the meaning of our question has shifted away from a perspective of narrow financial interest to a broader perspective of shared value creation. 

Financial profit is just one particular form of benefit that emerges from shared value creation. So: “Yes, there may be trade-offs between different forms of benefit”. But one thing is clear: financial profit at the cost of providers of specific and success-critical resources is not the result of value creation, but of unfair value redistribution. We have seen enough of that recently. 

Financial profit in the context of shared value creation and a fair distribution of benefits is a fantastic thing. The better we understand the signs of our time, the better off we will be in the future.  

Christoph Weber-Berg

Monday, December 5, 2011

The human factor

Last week I was invited to a networking meeting of top-management to present our book to leaders of different industries. The focus of the event was the success factors of strategic management, in the time after the financial crisis and in Europe’s critical economic situation. The participants agreed on one dominant factor for success: human beings. After a long period of narrowing down corporate value creation to a purely financial dimension, which can be measured and negotiated in impersonal markets, the longing for a human dimension has become dramatically noticeable.

The success stories the participants presented are examples of actively motivated individuals, who are inspired to contribute in a meaningful way to value creation. The successful management strategy in these examples depends on the way human beings are willing to contribute. And they emphasize that human beings are motivated, when they are respected and appreciated in their engagement. Confronted with challenging times, and the growing lack of trust in leadership, the relief is seen to be in the hands of human beings.

The participants of the meeting then asked how this crisis of confidence could be overcome. One leader emphasized that successful mangers are also courageous individuals. Leaders have to stand up and advocate sustainable value creation that contributes to the quality of human life, and not to quick short-term profits. They have to support their own people, and respect the experience and knowledge of the people with whom they do business. These kinds of human narratives contrast greatly with the greedy behavior that brought us to the deep crisis of trust in which we find ourselves. Or to quote one manager: “Every company has the employees it deserves. If a company is interested in short-term profitability and it sets the corresponding incentives, it will automatically have selfish and extrinsically motivated people. Companies are what they do (not what they say!).”

Successful business is moving away from the idea of the controlled and defensive management of relations toward a constructive and partnership exchange between leaders of firms and stakeholders. In the late seventies, Chandler was already calling for the visible hands of the leaders (Chandler, A. D. (1977). The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: The Belknap Press of Harvard University Press). We recall Chandler’s notion of the "visible hand," because value today is not being primarily created by the invisible hand of the market, but by the active shaping of leaders (see chapter 9 of our book). Not the invisible hand of the market leads to an overall increase in the welfare of society, but the visible hands of the leaders of the firm and its stakeholders. The human factor, not the inhuman factory, matters in rebuilding trust and achieving sustainable value creation.

Sybille Sachs