People for People

2012-03-07T16:52:00.000+01:00

One pieceof chocolate now or two pieces of chocolate later?

In the aftermath of the recent economiccrisis, much has been debated about its potential causes and the lessonslearned. However, it seems to me that neither from the causes nor the lessonsas a starting point, a significant and generally accepted foundation emerged thatcould now lead the way out of this precarious situation and prevent us from futureeconomic failure or misbehavior. Except for the obvious and the unhelpful, suchpost-fact evaluations leave us still wondering when the next crisis is going tohappen and what it might look like.

In a recently published paper, ThomasDonaldson (2012) illuminates potential causes for the crisis from the angle ofbusiness ethics and leadership. In doing so, he also sheds a valuable light on someof the lessons that must be learned. Donaldson puts forward an argument for theethics story behind the crisis and submits that among its causes can also befound three ethical roots: ‘Paying the peril’, ‘The normalization ofquestionable behavior’ and ‘Tech-shock’.

Without going to much into detail on theseethical roots that indeed go beyond the obvious and unhelpful, I came across acentral aspect that is common to all of them to a certain extent – the dilemmabetween short-term profit and long-term value. Whether it is on an individuallevel, where an investment banker gambles on a ten percent annual risk ofdisaster in order to reap a big bonus; or on an institutional level, wherebanks pay salaries and bonuses to managers for actions today, even though thefirm’s rewards or penalties for those actions happen tomorrow; or on anindustry level, where practices become accepted that enrich the short term onlyto impoverish the long term, the dilemma is ever-present.

Thinking of these matters, I wasreminded of an insightful TV report about the human ability to maketime-dependent decisions. A simple experimental design was set up; children atthe age of about 4 years were given a piece of chocolate and told that if they won’teat it during the next 5 minutes, they get another one. The outcomes were equallyamusing as astounding: except for some rebels for which the single piece seemedtoo tempting, the majority either managed to run down the clock withouttouching the chocolate (in which case they usually tried to distractthemselves) or they tried to cheat, i.e., tasting the chocolate and then puttingit back before the investigator returns in the hope of getting away with it.Apparently, the ability to trade individual short-term satisfaction for a futurebonanza, which is by the way also found among certain animals, starts to evolveat around 3 to 4 years of age – one of the behavioral scientists explained.

Although, this straightforward comparisonmight tempt us to argue that the badethics, which led to the recent financial crisis, is occasionally part of ournature, it also and more significantly emphasizes the importance of settingappropriate incentive structures to encourage good ethics and placing more weight on collective rather thanindividual value. Because the most important question that remains is at whatage the ability to trade individual short-term profit against future collectiveprosperity starts to evolve?

Marc Moser

Donaldson,T. (2012): Three Ethical Roots of the Economic Crisis. Journal of Business Ethics, vol. 106, no. 1, pp. 5-8.

2012-02-28T17:10:00.001+01:00

Regulations or More Moral Minds: Which Wayto go concerning Global Issues?

In comments about the global economy weoften can read that we need responsible capitalism today but not newregulations. But what is meant by a responsible capitalism without newregulations? One often heard answer is that such capitalism can be establishedthrough a change of mind towards more moral thinking. But it is rather unlikelythat this change of mind would be so fundamental and action-guiding that theglobal problems, which for example became obvious with the financial crisis,can be solved in this way alone.

Let us do a short analysis of the global situation:Today there are many issues that know no boundaries (transboundary), such asthe global financial crisis, climate change, migration, trade etc. Theterritorially bound nation-states can’t solve these issues on their own.Therefore, in the world of international relations where anarchy still rules (themonopoly of power is still on the level of the nation state: there is no‘world-government’ or state over the nation-state) states often come togetherto coordinate activities and cooperate concerning global issues. Butcooperation between states is insufficient today. In the concept of “globalgovernance” of political science not only state-actors but also stakeholdersfrom the societal sectors of business and civil society are considered to be importantpolitical actors in contributing to solutions of transboundary or globalissues.

Such new global governance systems existalready (e.g. Climate-Conferences, WTO, ILO, ISO14000 or privateregulation-standards in different consumer-goods industries like e.g. ETI[Ethical Trade Initiative] etc.). Although they vary widely as to the specific issues,structure, actor participation and success, there is no other way in a politicallystill anarchic but globalised world to try to solve global issues.

Of course, it is difficult to bringtogether the relevant stakeholders of an issue and it is even more difficult toachieve a constructive dialogue, cooperation and meaningful coordination amongthem. It is already a significant success when regulatory designs can beestablished and when implementation and evaluation of effectiveness of therules is seriously done. And it is also obvious that a certain change of mindis a precondition to bring the stakeholders together. These components are allparts of building-up global institutions, and regulatory designs are one integralpart thereof.

But, to propagate the development ofhighly skilled moral competencies of humankind which make regulationsunnecessary may indeed be a noble demand but won’t work in reality. Moreover, tolet a global issue drift around in an anarchic environment without trying tomanage it actively is simply irresponsible. There is no way to circumvent thebuilding-up of global institutions including regulations. On the national levelstates have also established rules to solve issues, i.e. to provide commongoods (e.g. protecting property rights, legal certainty).

Global institutions have not the aim torestrict individual rights or freedom but to provide common goods (e.g. protectionof property rights, clean air). Of course, to fight the right of the stronger, whichidentifies the anarchic space, it is necessary to reduce the possibilities ofpowerful actors to exhaust certain individual freedoms by power exclusively fortheir private gains and at the costs of all others. Regulatory designs thushelp to provide common goods by aiming to substitute the rule of the junglethrough a ‘rule of regulation’. In this way, also innovative individual freedomcan be protected from anarchic arbitrariness. The building up of globalinstitutions, based on stakeholder cooperation establishing regulatory designs,is unavoidable for a responsible handling and solving of global issues. Anotherquestion, of course – not considered here – is the democratic legitimacy ofsuch global institutions.

Claude Meier

2012-02-22T10:45:00.000+01:00

The blame game

Have you ever noticed how efficient peopleor organizations are in identifying their stakeholder relations when it comes tobeing blamed for a specific behavior in the context of a negatively framedissue? A striking example is BP’s public communication regarding the disastrousoil spill in the Gulf of Mexico. Although assuming more or less theresponsibility for the leaking wellhead’s consequences, BP continuously emphasizedthat deepwater oil drilling depends on cooperation between various businesspartners. In this regard BP frequently pointed out that the oil-drilling rig“Deepwater Horizon” was operated by offshore drilling contractor Transocean;that the oil-companies Anadarko and Mitsui are co-owners of the leaking well;that Halliburton cemented the leaking seal of the wellhead; that the oilservice provider Cameron delivered the failing blow-out preventer; and that theresponsible US supervisory authority did regular inspections on BP’s rented drillingrigs. It seems that being blamed for various failures leading to the oil spillin the Gulf of Mexico, BP’s communication provided the public, at least partly,with the company’s stakeholder relationships regarding the controversial issueof deepwater oil drilling.
Interestingly, in the case of success peopleand organizations do not mention their stakeholder relationships in the sameway as they do when being blamed for failure. Indeed, employees and customersare frequently recognized as being important for organizations’ positiveresults, but has BP ever mentioned Transocean or Halliburton during the yearsof (financial) success? It would clearly add to the quality of stakeholder relationships,if an organization not only recognizes its stakeholder network in the case ofbeing blamed, but also when it comes to the dissemination of mutually createdvalue.

A second example describes an issue in manycountries, including Switzerland: violence between sport fans. After theabandonment of a soccer game between two teams in Zurich due to fighting scenesamong rival fan groups, the affected stakeholders blamed each other for beingresponsible. The rival fan groups accused each other for having triggered theclash; the people accountable in the different soccer clubs blamed each otherfor not taking positive influence on their own fan groups; the Swiss Soccer Leagueblamed the hosting soccer club for not providing adequate security arrangements;the hosting soccer club blamed the municipality for not getting sufficientresources to guarantee the safety of the game’s spectators; and finally almostall of the issue’s stakeholder groups blamed the police for not sufficiently demonstratingpresence in the stadium. Again, this sort of “blame communication” by the differentactors revealed quite exhaustively the involved stakeholder network. However, Iam wondering if I have ever heard a positive mention of the police from a Swisssoccer club’s official in the case of success...
The two examples mentioned above show thatbeing blamed often forces people or organizations to defend themselves and, therefore,leads to blaming other stakeholders in the context of a negative issue. However,recognizing the different actors in a stakeholder network can also take place inthe context of success and the corresponding dissemination of mutual createdvalue. This behavior can be appreciated as taking on responsibility, not only inthe case of failure, but also in times of success. Indeed, recognizingstakeholders in the case of success may prevent organizations of being overlyblamed in the case of failure.

2012-02-19T16:31:00.000+01:00

Child laboralong the Mekong

Since a week I and my husband are on a cruise on theMekong River, having started in Siem Reap, Cambodia where we visited theamazing Angkor Wat temples. On this cruise we have the chance to see ruralvillages in Cambodia and Vietnam, all villages which just started to establishrelations with this cruise line, owned in part by a man from Switzerland. The basicset-up is that passengers can walk through the villages and in return thesevillages get financial support from the cruise line. During the visits there isalways a local guide to accompany us – first from Cambodia and now fromVietnam.

Just today we visited Binh Thanh Island near theVietnamese town Sadec. In this village, we could see how rice mats were made bylocal women. Some of these women looked very young. Our guide told us that someof them worked there already for a long time. She especially pointed out a girlwhich according to her was already thus employed for six years.

When I pointed out that this was a child labor issue, ourguide failed to acknowledge my objection to this practice. She indicated thatthe girl still went to school every day for four hours. What she failed tocomprehend, however, was that such a work setup would impact her schoolperformance as she would be tired in class, not have enough time to do herhomework – and, not have enough time to play with other children. As this typeof work is only done by women, it also impacts the equality of opportunitybetween men and women, or rather, boys and girls. These girls will benefit fromless education than their male counterparts, which will impact their future workopportunities and scope of personal development. Moreover, this imbalance willmake these girls in the future more dependent on their families and husbands.

My objection to this work setup really astonished mytour guide – even though she was a woman herself. As I returned to the ship Ireported the incident to the manager of the ship who was not aware of thissituation. The cruise line how has the opportunity to induce change.

The fact of the matter is that most such villages are veryunexposed to the outside world and nobody really knows what is going on there.Due to the fact that these villages profit directly from the tourist tours fromthis cruise line, however, there is now an opportunity to give a voice to theseyoung girls by negotiating with the leaders of the villages to refrain fromchild labor. Moreover, the cruise line has the opportunity to train the localguides so that they are aware and sensitive to these kinds of issues. Actions bythe cruise line such as this one would help offering these girls the samestarting conditions in life as the boys have in these villages.

Sybille Sachs

2012-02-15T10:16:00.004+01:00

The Class Room as an Advertising Zone

The newspaper “Sonntag”published last weekend an article on Apple’s marketing strategy at schools (http://snipurl.com/227ahrp). And sureenough, Apple knows how to promote its products.

Apple has got a 70.4percent share of the market at Swiss schools. But it seems that the company’sgoal is to have an even stronger monopolistic role in this very importantmarket. To reach its aim Apple launches new marketing projects. Its marketingstrategy focuses on the teachers. “Apple Distinguished Educators” (ADEs) is aworldwide community of visionary educators whose goal is to make a differencein the future of education. ADEs teach students, share their expertise withother educators and advise Apple on the realities of integrating technologyinto learning environments (http://snipurl.com/227apep). One has toadmit that this idea is a great example of stakeholder involvement in thedevelopment and innovation of products. Educators have to apply for being amember of this worldwide community. Already 28 Swiss teachers have got the honorto be ADEs.

Additionally theEducation-Team at Apple Switzerland is implementing the global “AppleProfessional Development Program”. It should complement the offers of theUniversity of Teacher Education in information and communication technology(ICT). Teachers teach teachers how to use Apple products in the class room.

Furthermore regionaltraining centers are built, a pilot project allocates iPads for schools andApple is developing school books in all four national languages for iPads. Apple pursuits a pretty offensivemarketing strategy, but also Microsoft tries to bind schools to its products,what already caused differences with the Swiss government (http://snipurl.com/227b86u).

These examples show that theeducation market is very important for tech companies and therefore highlycompetitive. As education is part of the public sector the companies role inthis area should be controversially discussed.

The critical aspects of thementioned marketing strategies are multifarious.

Both enterprises try toconsolidate their market position by their campaigns at schools. As the knowhowof using technology is very important for nowadays education and schools only havelimited financial resources, these “public-private partnerships” are actuallyimportant. But the problem is that these examples aren’t real public-privatepartnerships. And so we have to ask ourselves who gains more profit out of thesecollaborations.

As this kind of products andespecially the brand behind the product have got an emotional component andwant to influence the attitude to life, it becomes very important for thecompanies to win young customers. Therefore the campaigns at schools are partof a very clever marketing strategy. But do we want ad men to teach ourchildren? Or shouldn’t class rooms rather be commercial-free?!

If the public reactsskeptical on companies that sponsor professorships, then Apple’s behavior hasto provoke skeptic too. The given examples raise the issue of independency ofthe educators or institutions to a certain extent. Teachers who simultaneouslyoperate as Apple-ambassadors will find themselves in a conflict of interest. Butindependent education is one of the most important aspects for the developmentof knowledge.

Sustainable solutions areimportant to reduce our dependency on these companies. We should care about thesustainable education at our schools and not about sustainable volume of sales forApple and Co.

Sabrina Stucki

2012-02-07T14:30:00.001+01:00

Gaininga Common Good through Relinquishing Sovereignty

In the first decades after World War IIthe Aussenpolitik (foreign policy)from the Federal Republic of Germany (FRG) was embossed by the strategy of gainof sovereignty through a relinquishment of sovereignty: By integrating itself moreinto the West through concessions to the West-Allies and abandoning therebynational options, the FRG gained more scope for negotiations and an opening viathe East. The gained scope used for contacts and negotiations with the SovietUnion finally led to the reunion of Germany.

When one looks at the problems of the European Union (EU) oftoday in general (e.g. migration, democracy deficit) and the debt crisis inparticular the question of relinquishing sovereignty for gaining scope andoptions is at least as actual as it was in the mentioned decades. The potentialgain of today would be a common good in the form of more stable, elaborate andsustainable (financial) institutions in the EU.

The text of the fiscal compact of the EU whichhas been completed on 30.01.12 was a step in this direction. It requires participatingcountries to implement a debt brake on the national level to achieve budgetsthat are generally in balance or surplus. In case of non-compliance sanctionsare scheduled. Hence, the aim of the compact is to achieve more fiscaldiscipline in the participating countries. But the financial compact is oftencriticized referring its enforceability as well as altogether being to less tosolve the debt issue sustainably.

Therefore, it is often stated, a transferunion would be necessary. Overall, this would mean that EU member-states launchcommon state bonds (Eurobonds) and that transfer payments from countries withbalanced budgets to such with imbalanced ones have to be established. But ifthis really would be a more sustainable solution, why then aren’t Germany aswell as other countries not willing to do this by now?

Probably because of the risks that relativelysolid EU member-states would be liable for the debts of such threatened byinsolvency? Maybe yes, but – and this is decisive – the problem behind thescene is deeper: Ideas like the transfer union – as well as potentiallysustainable solutions in other policy fields (e.g. security policy, democracydeficit) – require a transfer of sovereignty from the single EU member-statesto Brussels. The single countries are enormous struggling with that. This isunderstandable: Nobody likes to relinquish scope, power and independence indecision-making. But the gain of the transfer could be a common good in theform of an appropriate institutional design that guarantees stable finances anda healthy European currency. Both are preconditions and set up options for aprosperous European economy. In the picture of the well known prisoner’sdilemma this public good would be the collective optimum, the best solution for allstates together. In contrast, preserving and/or even maximizing the availablesovereignty for a single EU member-state would mean maximizing the individual gainon the cost of the collective one.

The example of the young FRG showed thatshifting some scope from a less important field (crusty national options) to amore important one let one achieve even visionary aims. The only option forEurope today is a deeper integration and coordination what demands relinquishing nationalsovereignty. This does not at all mean that EU member-states have to give up all their sovereignty. But, solely by relinquishing thehurting, yet necessary part, can Europe come to inner stability. Thesingle EU member-states would have gained the scope and institutional designthey need for a prosperous national economy in an interdependent Europe and aglobalised world.

Claude Meier

2012-02-01T16:06:00.000+01:00

Society of Jealousy or Society of Justice?

It is a welldocumented fact that human beings, and many animals, have since early childhoodan ingrained sense of justice. Chimpanzees as well as year old babies are readilycapable of discerning whether they’ve been cheated or not. Give a chimp or ababy less food than their companion, and they are likely to react inunambiguous ways that this is not “ok”. Moreover, studies have found that bothchimps and human babies also are inclined to want thieves to be punished – evenif they themselves were not the one stolen from. And therein lies a problem.

InSwitzerland, as in much of Europe, one often encounters talk of a “society ofjealousy”. This term is applied to the public outrage at the large bonuses,golden parachutes, and financial and taxation acrobatics available only for theprivileged few (interestingly, however, only few seem bothered at thehorrendous incomes of athletes or other celebrities…). The basic premise isthat this outrage is fueled primarily by jealousy and that could the rest takeadvantage of the same benefits, they would do so without any qualms.Consequently, this resentment is unwarranted. This logic is commonly held by muchof the wealthy elite and many economists who view human affairs solely throughthe lens of “rational economics”.

A concreteexample of this is Switzerland’s lump sum taxation practice. This is where avery high net-worth individual goes to a Swiss Gemeinde (County) and negotiatesa special income tax significantly below the usually applicable rate. Thus youhave billionaires who pay a pittance of their annual income in tax whencompared to the average working citizen in the same Gemeinde.

Inan indignant article in the Neue Zürcher Zeitung (17. Feb. 2010), Charles Blankart, then professor ofeconomics at the Humbolt-Universität zu Berlin, made a strong case for theeconomic logic of such lump-sum taxation for the wealthy and lamented this“society of jealousy”. He grounded his argument in the fact that such taxation policies make perfect rationalsense for the Gemeinde (as otherwise they would forego the watershed of moneythe billionaire would bring in) as well as the notions of competition andliberty, i.e. that each Gemeinde should be free to choose how to manage its ownfinances and compete with other Gemeinden. He called this with some haughtiness“Economics 101”.

Now, theproblem with such a conception of economics is that it completely misses thepoint that human beings don’t function according to what used to be (change ison the way!) taught in “Economics 101” and that structuring our society only onsuch a hypothetical economic model has a plethora of nefarious side-effects.

First, whatwe observe in Switzerland and much of Europe is not the outcry of a “society ofjealousy” as much as the outcry of a “society of justice”. Our deeply engrainedsense of fairness gets systematically trampled on by taxation policies as arecommonplace in Switzerland (and elsewhere!) today. Second, while such taxationpolicies are by all means “rational” from a purely financial standpoint of asingle Gemeinde, they are highly corrosive for the trust citizens have in ademocratic, law-prescribing republic.

This lack oftrust in the legitimacy of the laws of the state then sooner or later manifestsitself in the (mis-)behavior of its citizens, so that for example income from clandestinework remains undeclared or cheating on your tax returns is readily justified:“If the rich get to cheat, why not also the rest of us?”. At the end of theday, such policies and the cynicism they create undermine the very foundationsof a functional collective as any modern democratic state is. And at a laterstage, it brings out the worst in us: an “everybody for him or herself society”and a society where not just justice is demanded, but increasingly also punishment.

Because atthe end of the day, we are all still driven by the same evolutionary levers aswe were as babies and as our relatives the Chimpanzees are.

In my nextblog post I will attempt to delve into the great mystery of why this “societyof justice” seems to be remarkably absent in a large portion of the Americanpopulation when it comes to politics: I doubt that Mitt Romney and his 13.9%income tax rate makes much of a dent in his popularity among his base of Republicanvoters – even if they are amongst the economically struggling.

Manuel HeerDawson

2012-01-26T09:11:00.000+01:00

The Great Transformation 2.0

This year’s WorldEconomic Forum WEF is headlined: “The Great Transformation: Shaping NewModels”. However, the term “The GreatTransformation” does not seem to be all new to us. It has not been invented byKlaus Schwab, Founder of the WEF, but by the Austro-Hungarian philosopher KarlPolanyi. As early as 1944 he described what he understood as the “GreatTransformation”: The transformation of traditional societies into marketsocieties, characterized by the subordination of the substance of society tothe laws of the market.[1]

For many years,the World Economic Forum was almost a synonym of this development, and to bigbusiness; and politicians who attended the forum seemed to understand economyas “the continuation of politics by other means.” As opposed to Clausewitz, whounderstood war as “the continuation of politics by other means”, they certainlyshaped a more peaceful process. Nevertheless, the WEF was one of the mostimportant forums and market places of “The Great Transformation”: Thesubordination of all realms of society under the laws of economy. Those werethe days when protests against the WEF mobilized thousands of“anti-globalization activists”, and the critics of capitalism were suspected tobe reactionary communists.

Today, there arejust a few dozen protesters, and Klaus Schwab himself publishes the followingsentence on the front page of the WEF website: “Capitalism, in its current form, no longerfits the world around us. We have failed to learn the lessons from thefinancial crisis of 2009. A global transformation is urgently needed and itmust start with reinstating a global sense of social responsibility,”(http://www.weforum.org/). What a remarkable shift! Are the illustriousattendees of the forum willing and able to work towards a second “GreatTransformation?” Do they understand what has been wrong with “Capitalism in itscurrent form?”

I dare to doubt. I dare to doubt that“Capitalism in its current form” is capitalism at all! I haven’t heard anybetter analysis of what we have seen during the last couple of years than theone of Marc Chesney, Professor of Finance at the University of Zurich, who saidthis was not capitalism but “betrayal of capitalism”[2]. Accordingto him, capitalism is based on an elementary principle: Those who are taking entrepreneurialrisks, are entitled to reaping the benefits of their endeavors. However,“Capitalism in its current form” has been the art of separating risks frombenefits, of creating “absolute return” to owners of capital, no matter whichway the markets would develop. Governments, tax payers, unemployed people,society at large are paying the bill today and in the future.

Thus the problem is not with capitalism, but withits abuse by those who created – or tried to create – private wealth at thecost of society, and legitimized their action by referring to mainstreameconomics. Stakeholder theory is about value creation through fair exchange ofrisk and benefit potentials in stakeholder networks. This has been describedand explained by many scholars from Freeman’s seminal Book in 1984 (Freeman, R. Edward, 1984: Strategic management: A stakeholder approach.Boston: Pitman) to the latest publication of my colleagues Sybille Sachs and Edwin Rühliat HWZ (Sachs Sybille / Rühli Edwin, 2011: Stakeholders Matter, Cambridge:Cambridge University Press).

We may call it capitalism; we may call itanything else: I do agree with Schwab, a “Great Transformation” is needed. However,I would call it “The Great Transformation 2.0”, towards true leadership andmanagement in the service of a peaceful and prosperous global society. Do weneed the WEF for this insight? Not really: We could have known earlier – atleast since 1944 – and we could have known better – at least since 1984. Let’shope the attendees of the World Economic Forum 2012 are wise enough and fastenough – not to turn back the wheel, but to make credible steps forward towardsa fair and more stable economic system in the service of humans around theglobe.

[1] Polanyi Karl, 1944: The great transformation.New York: Rinehart

[2] Chesney Marc, 2009: La finance trahit-elle le capitalisme? In: RevueFinance & Bien Commun, Genève, Mai/Juin 2009

2012-01-22T17:00:00.000+01:00

Creative Destruction or Simply Destruction?

Sybille Sachshighlighted in her last post (New path to innovation) some of the questionablebusiness-practices surrounding corporate cost-cutting. I would like to providehere a concrete example I experienced in my years in the corporate world andfurther consider the short-term and long-term consequences of such companyreorganizations and cost-cutting.

In the 1990sI had the pleasure to work for a rapidly growing, privately held start-upcompany in the medical laser industry. I use the word “pleasure” withdeliberation, as the motivation, dedication and team-spirit were wonderful –and that despite working long hours, not having any huge bonuses or enticingstock-options as carrot-sticks dangling in front of our noses. The morale inthe company was high because input (in terms of resources, effort and creativity)was readily recognizable in concrete results.

Then thecompany was purchased by a publicly traded corporation.

Within monthsa “reorganization” was initiated that resulted in the suspension of researchprojects, the dissolution of numerous prospering business relationships and theattrition of - in several rounds - employees. All this was undertaken in thename of “business consolidation” and the concomitant cost-cutting. Theinvestors and stock market loved it: the corporation’s share price exuberantlyjumped in response.

On the“inside”, however, the result was exactly the opposite: a sharp drop inemployee motivation and rising cynicism, erosion of trust and know-how and –eventually – evaporating financial returns by the corporate subsidiary we hadbecome. Indeed, within 18 months employee count had roughly gone down by athird and a company that boasted 35 million dollars in revenues, posted at besthalf of that number. The share price of the corporation subsequently droppedfrom (if I correctly recall) about 40 dollars a share to only 4 dollars ashare!

Granted, amultitude of factors played into this precipitous drop in share price. But thatthese “cost-cutting” activities contributed in some form to the financialfallout in the stock market is self-evident. Less evident, however, are thelarger implications of such “cost-cutting” strategies.

First,despite any strong personal penchant for valuing people over profits andstriving towards not making ends justify means, it must be recognized that on alarger, macro-economic scale, such “destructivity” could indeed be part ofSchumpeters’ (in)famous creative destruction. The American “churn” model ofhire and fire, while often with terrible personal, social and innovation costs,does (or at least did…) permit considerable labor flexibility, speed of economicrejuvenation and knowledge transfer as employees and resources shuttle fromcompany to company. For me, after having been let go in the second wave ofattrition meant that I suddenly had the needed motivation to get out of thecorporate world into an environment more suitable to my aptitudes and taste.

Second,however, what may be “creative” at one place (or time or for any one person),may not be thus in another. For a large and fluid labor market as the USA, thechurn model may have been a viable option. For a more segmented and embeddedlabor pool as the EU, it seems less so. And for a very small and very much sociallyrooted labor pool as Switzerland, the “churn model” would have catastrophicsocio-economic and likely also political consequences.

Notsurprisingly, this is indeed what one discovers, as was once again poignantlyillustrated to me during a recent lunch I had with a scientist at theMassachusetts Institute of Technology, who was involved in a start-up companywith a footing in both Switzerland and the USA: he complained about howdifficult it was to get start-up funding and start-up employees in Switzerlandas compared to the USA. He readily understood, however, that the American modelwould be unsuitable for Switzerland, as the capacity to sustain “churn” wassignificantly smaller for tiny Switzerland. Nevertheless, both Switzerland andthe US have highly productive and competitive economies, each remarkably welladapted to their particular socio-economic and geographic “biotope”.

Indeed, weknow from biological organisms as well as biotopes that change is vital for thesurvival of an organism or a species. The challenge for all organisms (andbiotopes) is to find that “sweet-spot”, sometimes referred to the “edge ofchaos”, where change – and thus innovation – is maximized without sliding intochaotic destruction. Much the same may hold for an economy. But while one maywell entertain such questions about an entire economy, it is another matterentirely to what extent such “creative destruction” or “churn” is to be adesirable for individual human beings.

If humans areto be ends in themselves, any corporate strategy that facilely treats employeesas mere cost centers risks devaluing human life per se. And history isunfortunately replete with examples of where that can lead to…

Manuel HeerDawson

2012-01-18T18:53:00.000+01:00

Do (and communicate) the right thing atthe right time

A fewmonths ago, Novartis, one of the biggest pharmaceutical companies in the world,aroused people’s attention by announcing a cutback on more than 1000 jobs intheir Swiss headquarters and a local production facility, while at the sametime reporting on a profit in excess of USD 10 billion for the first ninemonths of 2011. Unsurprisingly, such a controversial announcement wouldn’t makesense for the general public and especially not for the company’s soon-to-beex-employees.

However,after a certain period of considerable protest on the part of the employees andtheir unions and the usual stubbornness and secrecy of multinationalcorporations in such situations, yesterday’s newspaper reported on a wondrous U-turnthat seem to have occurred in the management of Novartis. Whereas nobody has toleave the outdated production facility (that even receives a substantialmakeover) anymore, also the job cuts in the headquarters could have beenreduced by over two third.

Afterdigging deeper into the triggers that caused Novartis to act this way, itappears that a fruitful dialogue between the involved stakeholders from theeconomic, political and social sphere has taken place in order to mutually finda better solution for the company’s planned restructuring in Switzerland.Apparently, managers from the US had a great influence on the overhastycommunication regarding the mass layoff and were afterwards surprised by Swisspeople’s intense reaction on the announcement.

What tellsus this story? In my opinion, the case vividly illustrates two importantaspects of stakeholder management and the idea behind “people-for-people”. Onthe positive side, the case confirms that bringing together the involved peoplein the form of a multi-stakeholder dialogue, clearly has the potential to yieldmost favorable solutions for all involved parties in situations like this -given the dialogue is set up correctly and all parties are willing toconstructively contribute to the solution.

However,on the negative side, the right timing and corporate communication in thecontext of such stakeholder round-tables as a problem-finding an -solvingapproach is also decisive and – as shown in this case – can go terribly wrong.Why Novartis risked reputational damage and didn’t first try to involve theconcerned stakeholders, search for common ground and this way actively seek a mutuallybeneficial solution that might even put them in a favorable light from abest-practices perspective remains their secret.

Marc Moser

Source:TagesAnzeiger, “Novartis: Schweizer setzen sich gegen amerikanische Managerdurch”, frontpage, 18.01.2012, Zürich.

2012-01-16T14:18:00.000+01:00

New path to innovation

In an article titled “The Pharmaceutical Industry Faces a Horror Year,“ a Zurich newspaper (http://snipurl.com/21qcbem) writes, that leading pharmaceutical firms like Pfizer, Sanofi as well as Novartis are facing the loss of patent protection for important top products this year, and are therefore facing major revenue losses. Interestingly, these firms are confronting the situation with drastic personnel cuts in different areas, which includes such as how to respond to clinical developments. Cost saving has to begin immediately. However, proceeding this way raises questions.

First, investigations show[i] that personnel cuts, particularly in the long run, do not bring about the desired success, unless a strategic reorientation occurs at the same time. In an extensive empirical study the authors were able to show that the size of the employee cuts is not a factor in explaining the post-downsized performance.

A further point concerns “survivor sickness” studies[ii]. They show that personnel cuts have an array of negative consequences, also for those who remain at the firm: “Research indicates that survivors exhibit a plethora of problems, such as demotivation, cynicism, insecurity, demoralization, and a significant decline in organizational commitment”[iii]. One also speaks of the difficulty in diagnosing dysfunctional side effects of personnel cuts. They often lead to slumps in productivity.

In addition, if one considers that in the knowledge oriented society of today, knowledge is often a more important success factor than capital. There is then the danger that for every cut in personnel, the know-how networks will be destroyed and important knowledge bearers will be discarded. Indispensible resources for future core competences may be lost.

It is also striking that the only reasons given for the personnel cuts are the costs, but never the revenue side of the coin. By strengthening R&D capacity, setbacks could be absorbed. Is it therefore sensible to dismiss people in the area of research and development? Wouldn’t it make more sense to encourage targeted cooperation with stakeholders that possess special knowledge, in order to stimulate the innovative productivity of the firm’s own R&D?[iv].

Also in our own empirical investigations, we have always found impressive examples of cases, where firms that work together with their stakeholders have been able to substantially increase their license to innovate (see Sachs, Rühli 2011, page 114 ff). In this regard an interview partner (page 118) mentions, “The suppliers are creative and often involved as they try to find new solutions for the market….They act as accelerators who give us new ideas….And very often the supplier is also a strategic thought leader….”

Especially in the area of innovation, firms should not only engage in professional stakeholder management when the turnover drops. Our examples show in fact that not only the firms improve their license to innovate but also the involved stakeholders, which motivates them to further cooperation.

Based on the above, we can conclude that managers, practicing personnel cuts with the argument of saving costs, have an obligation to demonstrate that they also have the above mentioned consequences under control, e.g. the benefits. It should be carefully examined if the multifaceted disadvantages and damage of personnel cuts are not, in fact much higher than the advantage of short-term cost savings.

Sybille Sachs

[i] Garry D. Bruton, Kay Keels, Christopher L: Shook, Downsizing theFirm: Answering the Strategic Question, Academy of Management Executive 1996,Vol. 10, No2, pp- 38-45

[ii] E.g. Firns, I., Travaglione, A. andO'Neill, G. (2006), Absenteeism in times of rapid organizational change.Strategic Change, 15: 113–128. doi: 10.1002/jsc.757

[iii] Ibid, p. 2

[iv] E.g. with lead-users, see ChristopherLettl, Cornelius Herstatt, Hans Georg Gemuenden,, Learning from usersfor radical innovation, InternationalJournal of Technology Management, 2006, 33 (1), 25-45

2012-01-11T17:43:00.000+01:00

Doesit make sense?

Compared to the previous five decades, the last ten tofifteen years have seen dramatic changes in many ways. Some say we are going througha fundamental crisis of moral values. They say that selfishness, mistrust andopportunism are taking over, and from their point of view, we need to go backto deeper and stronger moral behavior. As an ethicist I certainly agree that moralbehavior – whatever it means – may help us to lead a better life as individualsand as communities. But I suspect that’s not all of the answer. The answer – atleast for the most developed countries – lies beyond the question if peopleused to be morally better or worse in the past.

My suspicion is that the marginal sense-making valueof additional economic output and individual consumption is decreasing andabout to tend towards zero. You think this answer is somewhat technical? Let megive you two examples:

My grandparents got their first telephone around 1948.Before then, they had to walk to the local post office to call a doctor, theirfamily or friends. A clumsy black device on their kitchen-shelf changed theireveryday life, and allowed them to easily stay in touch with an increasingnumber of people. It connected them to the world – to their world at least.

My parents bought their first car in the earlysixties. It literally opened new horizons of freedom and autonomy for theirprivate, as well as their professional life. In the early seventies, we spentour first vacation abroad and my parents bought a TV-set.

Back then, economic growth created jobs and wealth, itopened opportunities for consumption to millions of people – and most important:it all seemed to make sense. People experienced emancipation, dramatic increasesin their quality of life. I’m not saying those times were ideal, particularlywith respect to the environment.

But let’s be honest to ourselves: What about the lastsmartphone we bought? What about our newest car, our last vacation and our new TV-set?Do they make sense? Do they have a real impact on our quality of life, comparedto what we had before? Maybe yes: the phone has more apps, the car uses lessfuel, and so does the airplane that took us to the Seychelles, and the new TV-setis a digital one. But the difference to the generations before us is evident:more than ever, we are confronted with the question: “Does it make sense?”

This is a challenge and an opportunity at the sametime. It is a challenge because economy and business firms are still organizedas if more output, more income, more consumption and more economic growth werethe solutions to all of our needs. But humans want to live in communities theycan trust; they want to see perspectives for their future, they are searchingfor a meaning to their lives. It is an opportunity to face these questions frompersonal, as well as from organizational perspectives, and to carry them beyondunsustainable consumption patterns.

Future leaders make good useof this opportunity. We need to find them, better understand them, and leveragetheir wisdom into business schools and companies, in order to create a moresustainable future.

Christoph Weber-Berg

2012-01-08T19:27:00.001+01:00

The Power of Positive Motivation

In various messages at the turn of the year, the sense of community was mentioned as the primary basis for society, which needs again to be promoted in order to counterbalance self-interest as the mainspring of human behavior. When a person concentrates on his self-interest, as foreseen in the concept of human beings as homo oeconomicus, then he is mainly concerned with himself and his needs. Others very quickly become rivals. In his professional life he is motivated to use his knowledge and ability to earn as much money as possible, so as to better satisfy his own needs. According to a popular expression, “The more he has, the more he wants.”

If, however, our understanding of human beings causes us to see our relations with others as being of primary importance, then we will carry our knowledge and ability into our relationships. In this way, knowledge and ability can be combined innovatively and developed. In this context Erich Fromm distinguishes between active and passive motivation, and emphasizes that human beings need to interact with other human beings primarily with active and not only with passive "motivation." Passive motivation focuses on controlling an interaction, for instance to protect property. The output of these interactions can be described as "having." In contrast, active motivation considers "being" as "process, activity and movement." Fromm describes motivation as an activity between two human beings as follows: "He gives him of his joy, of his interest, of his understanding, of his knowledge, of his humor, of his sadness – of all expressions and manifestations of that which is alive in him." (Fromm, E. (1956). The Art of Loving. New York, NY: Harper & Row, p.24). With respect to knowledge, Fromm offers the following examples to contrast active and passive motivation within human interaction: "Having knowledge is taking and keeping possession of available knowledge (information); knowing is functional and serves only as a means in the process of productive thinking." (Fromm, E. (1997) To Have or to Be? London: Continuum, p. 33).

In our studies of stakeholder relations in practice, we found numerous examples in which Fromm’s concept of positive motivation led to innovative, new solutions. (See chapter 7, Sachs, Rühli 2011). The basis of this motivation is the desire to respect and understand and thereby to replace going solo with a sense of community.

Sybille Sachs

2012-01-04T10:29:00.000+01:00

Ties thatbind

Recently, I had a talk with a catholic priest aboutpeople’s participation at the Mass. Not surprisingly, he told me about thecontinuously declining numbers of participants, but he was more worried aboutthe decreasing level of general social participation in his parish. As a matterof fact he pointed out the additional problems of recruiting or retainingmembers of various parish-related associations like charities, youth, hiking orcard playing groups. In his opinion this phenomenon was not basically a questionof religious faith, but mainly one of individualism. As people want to taketheir lives in their own hands and like to organize more and more aspects oftheir lives individually, they make ever less use of the parish’s socialofferings. Again, this is not a new insight, as Robert Putnam (2000) describedin his seminal work “Bowling Alone” various aspects of the American community(political, civic and religious participation, workplace connections etc.) andits decreasing level of social activity or, as he named it, social capital.

I am asking myself what the consequences of thisshrinking in social capital are for people’s willingness to participate incollective actions regarding social issues. Let’s take the steadily increasingdisparity of incomes and wealth in most of the Western countries as an example:“We are the 99 percent” is one of the corresponding “Occupy”-movement’sslogans. But why are those 99 percent not able to trigger any societal changeregarding fairness in the dissemination of income and wealth? “No, we can’t!”seems to be the more adequate slogan.

I think that individualism is part of the problem. Ifpeople are striving for their own personal goals, they are not really organizedregarding the pooling of shared interests in the context of a social issue.Further, people’s membership in and their feeling to belong to associations,unions and other social groups fosters the development and maintaining ofshared values, norms and interests in the context of a social issue. Therefore,not only personal relationships, but also memberships in social groups lead toties that bind among people.

One possibility to approach a social issue is astakeholder network. Especially regarding complex social issues for whichcooperation among the affected actors is needed to create sustainablesolutions, stakeholder networks are a promising organizational form. However,even if stakeholder networks have proved their potential to create valueregarding a complex focal social issue, they are no panacea. Stakeholdernetworks depend heavily on the knowledge and skills of the differentstakeholders’ representatives participating in the problem-solving regardingthe focal issue at hand. Therefore, through the interactions of representativesin a stakeholder network, the corresponding shared values, norms, and interestsregarding the social issue are emerging. These personal interactions, in thesense of people for people, are important for creating sustainable solutions incomplex issue-based stakeholder networks.

Stakeholder networks and its organizational formcreate social capital by supporting two different kinds of ties that bind. Onthe one hand, there are the already mentioned interactions amongrepresentatives of different stakeholders. On the other hand, shared values,norms and interests provide the social glue among individuals. This glue isneeded to address complex social issues like the increasing disparity ofincomes and wealth.

TomSchneider

2012-01-02T03:41:00.001+01:00

From materialism to non-materialism

At the end of 2011, many people mayquestion the deeper causes of the financial crisis and the possible ways out. DamianosI, Abbott of the Greek-Orthodox St. Catherine’s Monastery and Archbishop ofSinai, (NZZ am Sonntag, p. 73, 25. Dec. 2011) made in my opinion a veryconvincing statement in this regard: "For me it is clearly not so much about a financial crisis but a spiritualcrisis. There has always been materialism. Money has always been important. Buttoday materialism is no longer merely tolerated as a human weakness. Havingmany things, being wealthy, are ideals today. The human need and desire formeaning is as big as it always was. But most people are seeking in the wrongplaces. However as in every crises this one also offers the opportunity offinding the right path."

Therefore if we want to embark on anew path in 2012, then according to these wise words nonmaterial values need tobe given special attention. We need to consider that we do not only “possess”material goods but that we also have knowledge and experience at our disposal,which in today’s knowledge based society are as relevant as material goods. Theessential innovations of our society did not come only about on the basisof financial ownership but through knowledge, ideas and the engagement of humanbeings in human enterprises. These contributions create property rights of allkinds (e.g. intellectual, organizational, financial etc.) for the firm. Thereforestakeholders (e.g. employees, customers, suppliers) with their broad range ofskills become key actors in value creation.Due to their contribution in the value creation process, they create andenhance property rights for the firm as well as for themselves. In reality abroad range of stakeholders are normally indispensable for corporate operationsaside from the investors. This has in fact important implications not only forvalue creation, but also for value distribution. Both are not exclusively of afinancial nature but consist of different kinds of values (see chapter 4,Sachs, Rühli, 2011).

Property rights have to therefore beunderstood in an extended way: materially and non-materially. This broadunderstanding of property also motivates people to engage themselves in societyinstead of only concentrating on enriching themselves financially. Theresolution for 2012 for the “right path”, also in the spirit of Damianos I, isto engage ourselves more with and for nonmaterial values.

Sybille Sachs

2011-12-29T05:28:00.001+01:00

Responsibility towards the Stakeholders

Globalizationhas made the boundaries between politics and economy blurred, thereby makingthe world more interdependent. In the last decades, the labor separationbetween 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-fairementality was a common practice.

But thecurrent financial crisis challenged this way of thinking. The private sectorexpected the governments to take responsibility for the functioning of theeconomy and the welfare of the nation.

Unfortunatelygovernments are made up of politicians who want to be reelected. Politiciansaren’t saints. They are part of a party, have got a network and act in theirself or partisan-interest. One example was this summer’s debt debate in theUnited States of America. The months of partisan fighting resulted in thedowngrading of the US’s AAA credit rating (http://www.bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html )by the rating agency Standard & Poor.

There are topmanagers who want government to also consider the concerns of the country, in away that they themselves consider the concerns of the company’s mutualstakeholders. Indeed, the gridlock and partisanship in Washington D.C. provokedsome top managers to formulate clear expectations towards government. A well known example is Warren Buffet’s statement “StopCoddling the Super-Rich” in a New York Times opinion page. He concludes withthe words: “My friends and I have been coddled long enough by abillionaire-friendly Congress. It’s time for our government to get seriousabout shared sacrifice.” (http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html )Or take the CEO of Starbucks, Howard Schultz, who called for a boycott oncampaign contributions to either party until the elected leaders of the UnitedStates of America put aside their political posturing and find some commonground on long-term fiscal issues (http://www.huffingtonpost.com/2011/08/15/starbucks-howard-schultz-boycott-campaign-contributions_n_927550.html ).

This kind of debate,however, doesn’t only exist in America. Also in Europe managers have clearlyexpressed their expectations of politicians. Diego Della Valle for example, CEOof Tod’s, published an article with the title “Politici ora basta”(Politicians, now it’s enough). He states in Italian newspapers that thepoliticians’ selfish behavior disregards the concerns of the country anddamages the reputation of Italy (http://www.corriere2000.it/2011/10/politici-ora-basta/).

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

Instead ofconcentrating on short term goals like increasing the shareholder value orwinning elections, decisions should be made based on sustainable thinking andby including all relevant stakeholders.

SabrinaStucki

2011-12-25T05:39:00.000+01:00

Leaders are human beings

Leadership seemsnot to be divisible; it absorbs the person totally. This credo is accepted inbusiness but also in politics. We experienced this already four years ago whenBarack Obama was elected President. Even though he had small children at thetime, there was barely any discussion of how he could carry out the tworesponsibilities, namely the Presidency and fatherhood. But if Michelle Obamahad been elected President, certainly everybody would have been discussing thismatter. The difference in judging the same situation between a man and a womanis even more astonishing, as both are well educated and successful in theirprofession.

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

Thisunderstanding asks either for specific personalities and values for leaders, orthat failing, it accepts that leaders simply bear the stress due to the tensionbetween their professional and private lives. What is however mostly overlookedis that the values and personalities of such leaders also influence theunderstanding of leadership in society, which thus far emphasizes aninstrumental and not human oriented worldview. Moreover, it hinders men tothink about their multiple roles, and how they might coordinate them with theirpartners.

But why should itnot be thinkable that an American President or a Swiss Federal Council workpart time? And more provocatively, that a man actually asks to work part timeas President or Federal Council? Are the experiences of parenthood sonegligible that we prefer our leaders to just be professionals?

If we don't startto see our leaders more as human beings, we can’t expect that they will behumanly oriented. We should change our priorities in this respect. In casestudies we carried out with students at the University of Zurich and also inother studies (see e.g. Shellenback, K. (2004). Child Care & ParentProductivity: Making the Business Case), it becomes obvious that sharedleadership in firms, leads to higher motivation but also to additionalcompetences based on the experiences of parenthood. These studies also makeclear that we need more leaders who are asking for shared leadership and moreexamples 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

2011-12-21T13:51:00.001+01:00

Upperechelons

In the aftermath of the past financial crisis, a lot of people havebeen really upset about the greedy behavior of managerial decision makers. Especiallyin the financial industry top managers are still granting exorbitantcompensations to each other and don’t consider the widening disparity ofincomes and the problematic dissemination of value created by companies. Aspeople got stunned about this obvious exhibition of pure self-interest and thepronounced ignorance of consequences for the society at large, they started toprotest. A well-known example is the now fading “Occupy”-movement. However,public, media and even psychiatrists are wondering if those managers’ peculiarbehavior is a distinctive expression of narcissistic personality traits, whichaccumulate in upper echelons.

As a social psychologist I am somewhat prone to take the socialcontext into account to explain a specific phenomenon. People tend to definetheir self-concept not only by their individual personality, but also throughrelationships and memberships in social groups. Moreover, once a personperceives herself as a member of a social group and therefore identifies withit, this social identity influences her perceptions, attitudes and behaviors. Therefore,a social identity provides a person with a framework to interpret but alsomakes sense out of her social environment and adds to the questions of “Who amI?” and “What is my role in society?”.

If we consider the existence of an upper echelon identity, we haveto assume the existence of a social group consisting exclusively of topmanagers. It is not very difficult to find examples of such social groups, forexample during the formal World Economic Forum (WEF) or the infamous andinformal relationships between members of top management in various globalizedorganizations. As every social group is based on similarities between itsmembers, power, decisiveness, prestige and high salaries may are distinctive sharedcharacteristics of top managers. If a person then identifies with a socialgroup, those characteristics become part of her self-concept, other in-groupmembers are perceived as more similar and, thus, generally more positively evaluated.

Coming under attack by other social groups, members of socialin-groups move even closer to each other, trying to protect their social self-conceptby sticking to the well-known values and norms of their shared identity, partlyignoring the concerns of their wider social environment. In the case of anupper echelon identity, the behavior of top managers therefore resembles theone of pure self-interest, described above. But actually, this behavior is notsimply driven by self-interest, but also by those managers’ specific upperechelon 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 andnorms of an upper echelon identity have to be utterly questioned and replaced.This endeavor of changing a powerful and prestigious social group’s norms andvalues may can’t be accomplished by regulations, but by a paradigmatic shiftfrom self-interest to mutuality as guiding value and shared norm.

Tom Schneider

2011-12-17T18:47:00.000+01:00

Dare to care

During arecent conservation with the leaders of various business units in amultinational corporation it became clear how different leaders are used to perceiveand treat their employees. One of the participants told the followingstory: One of his employees was undergoing a difficult personal situation inher family circle. Finally she could no longer carry the burden; so she told tothe manager that she was no longer able to perform in her usual manner as shehad to unexpectedly take care of a problem in her family. The manger whoesteemed this employee and her extraordinary performance decided tosupport her. Therefore he suggested that she could give priority to herpersonal problems for a certain time. He restrained from giving her a timelimit or any other kind of specifications and restrictions.

The reactionof the employee was overwhelming. She voluntarily informed him how she resolvedher situation step by step and she was obviously even more devoted to her workafter this experience than before. The manager himself decided that in thefuture he would encourage his staff to be open to him regarding their personalsituation.

This story isprobably not an exception but it confirms important insights we can gain out ofstudies that are done in the area of “work and care”. People are more motivatedto work if they are respected not only as a human resource but as a humanbeing. Doing business is not a purely economic affair but also a human one.And finally, considering employees as human beings provides not onlypositive effects in motivation but such employees are more than 30 % in abetter physical condition, 25 % have a reduction in stress, 5 % aresleeping better. Due to their improved work-life balance an increasein productivity of over 30 % could be ascertained (see for example Bright Horizon (2010). EnhancedEmployee Health, Well-Being, and Engagement through Dependent Care Supports).

With respectto a systematic approach to motivate employees and other stakeholders tocontribute their resources for a firm’s value creation, it is important to keepin mind that stakeholders are ends and not means. This was emphasized by aninterviewee as follows: “Employees as stakeholders play an integral role becauseif you treat employees as interchangeable commodities that can just be switchedin and out, you're never going to get the transfer of knowledge; and you'renever going to achieve the real efficiency that you can with the development ofknowledge and expertise” (see chapter 6 in Sachs, Rühli 2011). Last year theannual meeting of the Academy of Management was guided by the motto “Dare tocare” to explore new approaches in the field of strategy andorganization. Based on the above stated experiences and studies I suggestthat one of the guiding principles for new narratives of leadership should be“Dare to care”.

Sybille Sachs

2011-12-14T14:46:00.002+01:00

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

I remember my first encounters witheconomics and finance at the university with considerable fondness: thesophistication with which economic activities were organized in ourcontemporary world and the compelling simplicity of some of the mathematicalmodels proposed made it a joy for me to explore. And yet, already as a collegestudent, it was clear to me that something critical was missing from all thesemodels: they were not grounded in a realistic conception of human nature andthe larger world we actually inhabit.

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

Will neo-liberalism, with itsrational “utility function optimizers”, fall the wayside as communism had? Theevidence is increasing that it will; indeed, it may soon be ridiculed ascommunism had, as being a fanciful and ultimately distorted, if not downright destructive,conception of human beings and how to arrange our social, political andeconomic activities.

But what will take its place?

That is the question to which nobodytoday has a compelling answer. Certain is only that insights from such fieldssuch as evolutionary biology, neuropsychology or the sciences of emergence willcontinue to make forays into our comprehension of ourselves and the world weinhabit. And certain is also that we will have to decide what to do with thisnew knowledge: to what extent do we wish to experiment in structuring oursocio-economic institutions in accordance to the hints we are getting fromthese sciences? Apart from the fact that we are only at the very, verybeginning of this revolution in understanding (humbleness is required!), thereremains a certain weariness in passing laws and building foundations oninsights gleaned from the natural sciences. Too distasteful are the remindersof our flirtations with eugenics at the beginning of the past century, tooaware are we of the deep ethical dilemmas they will inevitably press upon us.

And yet, I posit that this time willbe different and that to close our eyes to them will be nothing less thanfolly. The understanding we will be gleaning will be simply too compelling, thestakes too high, the opportunities too great. For we are rapidly leaving thedays of our blundering, collective childhood behind us, increasingly having theknowledge and tools to chart our own course on this planet with deliberation,equipped with more than simply our ideological leanings through which toperceive and structure our reality.

It is with this in mind that I wouldlike to - in a loose, intermittent series of posts - take peeks at some ofthese insights from the natural sciences and what they may mean for how wethink about and organize ourselves socially and economically.

I would be delighted to get yourfeedback!

Manuel Heer Dawson

2011-12-11T22:56:00.001+01:00

RatingAgencies Challenged

Themethodology of the rating agency Standard & Poor is increasingly beingquestioned after its recent extensive downgrading of the credit worthiness ofdiverse European countries (see http://www.bbc.co.uk/news/business-16082759).The European Union is even considering creating a European rating agency inorder to break the monopoly of the American rating agencies (see http://www.spiegel.de/international/europe/0,1518,773549,00.html).With this, the EU suggests that the methodology of a rating agency is alsoculturally influenced.

This remindsme of an experience that I made in 1995 in the setting of the first worldwideroundtable talks pertaining to stakeholder relationships, which were organizedby Shell in the wake of the “Brent Spar” event and the conviction of Ken SaroWiwa in Nigeria (see Sachs, Rühli, Kern 2009). During these round-tables, thequestion was addressed in considerable depth as to what the future of reportingto stakeholders should look like for a firm. The challenge was to come up witha method which does not simply show the financial results of a company, butalso takes account of the social and ecological dimensions. It was discoveredthat the specific expectations for such reporting was strongly dependent on thecultural background of the involved parties. The discussion participants hadtwo basic approaches: transparency of the business operations and the trust inthose who carry out these business operations.

Theseroundtables revealed that the transparency of indicators which could bemeasured was most central in the United States. This approach was denominatedas a “show me” culture. In Asia, on the other hand, stakeholders regarded trustas the most important indicator, which led to the designation of a “trust me”culture. In Europe, again, stakeholders sought to find a balance between trustand transparency, which some called a “tell me” culture. The result was thatthe respective cultural background of each participant had a significant effecton the choice of rating criteria.

One can thusreasonably assume that the “show me” culture was most salient with the threelargest American rating agencies. The limitations of this approach are howeverbecoming evident: a one-sided focus on quantifiable transparency will notassist us to overcome the current crisis of trust. For this the rating agencieswill require evaluation methods which indicate how a broader perspective oftrust can be developed (see also Sachs, Rühli, 2011, chapter 5). If thecreation of a European rating agency is the solution is currently being debated.In any case, it is clear that rating agencies are having their methodologieschallenged.

Sybille Sachs

2011-12-07T07:19:00.001+01:00

A trade-off?

A few days ago, I spoke at a conference on impactinvesting. I was invited to speak on the topic “Trade-offs between profit andsocial impact?” from an ethical perspective. The deeper I got into thequestion, the more I discovered how interesting and challenging it was toprovide an adequate answer to. Indeed, there are several answers to it. Thefirst and simplest one is: “Yes, of course!” If a corporation doesn’t doanything else but maximizing profits, it doesn’t bother about the social impactof its activities. The “Invisible hand” of the market will turn private vicesinto public goods. Spending money for “corporate social responsibility” is anundue sacrifice of profits. All followers of the Friedman-tradition will agreeon that answer.

I think, however, that the title of my presentationwas set by those who invited me to challenge this tradition.

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

The trade-off question leads me to the moral categoryof “fairness”. This is not just because I’m an ethicist. It is because there isno way around the fact that value creation is a process of social interaction.In a business environment, this process is facilitated by the investment ofspecific resources such as financial capital, human capital, natural resourcesetc. 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 betweenfinancial profit and social benefit. But we realize that the meaning of ourquestion has shifted away from a perspective of narrow financial interest to abroader perspective of shared value creation.

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

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

Christoph Weber-Berg

2011-12-05T11:49:00.001+01:00

The human factor

Last week Iwas invited to a networking meeting of top-management to present our book toleaders of different industries. The focus of the event was the success factorsof strategic management, in the time after the financial crisis and in Europe’scritical economic situation. The participants agreed on one dominant factor forsuccess: human beings. After a long period of narrowing down corporate valuecreation to a purely financial dimension, which can be measured and negotiatedin impersonal markets, the longing for a human dimension has becomedramatically noticeable.

The success stories the participants presented are examples of activelymotivated individuals, who are inspired to contribute in a meaningful way tovalue creation. The successful management strategy in theseexamples depends on the way human beings are willing to contribute. Andthey emphasize that human beings are motivated, when they are respected andappreciated in their engagement. Confronted with challenging times, and thegrowing lack of trust in leadership, the relief is seen to be in the hands ofhuman beings.

The participants of the meeting then asked how this crisis of confidence couldbe overcome. One leader emphasized that successful mangers are also courageousindividuals. Leaders have to stand up and advocate sustainable value creationthat contributes to the quality of human life, and not to quick short-termprofits. They have to support their own people, and respect the experience andknowledge of the people with whom they do business. These kinds of humannarratives contrast greatly with the greedy behavior that brought us to thedeep 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 inshort-term profitability and it sets the corresponding incentives, it willautomatically have selfish and extrinsically motivated people. Companies arewhat they do (not what they say!).”

Successful business is moving away from the idea of the controlled anddefensive management of relations toward a constructive and partnershipexchange 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 recallChandler’s notion of the "visible hand," because value today is notbeing primarily created by the invisible hand of the market, but by the activeshaping of leaders (see chapter 9 of our book). Not the invisible hand of themarket leads to an overall increase in the welfare of society, but the visiblehands of the leaders of the firm and its stakeholders. The human factor,not the inhuman factory, matters in rebuilding trust and achieving sustainablevalue creation.

Sybille Sachs

2011-11-30T16:11:00.001+01:00

Engaging People

In the section „Neues aus der Wissenschaft“ (News from the sciences) ofthe 28^th November edition of the NeueZürcher Zeitung am Sonntag, an article by the title „Zu guten Taten bewegen“(To motivate for good deeds), an experiment was discussed that shows thatpeople can be most readily brought to do something for the common good, if theyhave been provided the opportunity to actively and seriously reflect on aspecific topic. Neither abruptcompulsion nor noncommittal information result in comparably good results.

This insight is all the more remarkable since in our contemporarysociety, and especially in the economic realm, it is still prevalent to assumethat human beings act only on the basis of self-interest. Whence thisassumption leads we can see especially well by example of the current financialcrisis: erroneous prognoses, ice cold managerial egoism and market failure.

It is time that we depart from more realistic behavioral assumptions inour economic and social realms: active engagement and cooperative collaborationin the value creation process. This is all the more necessary, as in ourcontemporary knowledge society it is imperative that a highly specialized,sophisticated and broadly strewn knowledge spectrum must be brought together.Self-interest does not fit into this landscape.

In our newly published book (see Chapter 5) we proposed a number offundamental principles with regard to this issue and also illustrated how positivehuman behavioral assumptions can lead to innovative value creation. Internaland external stakeholders are therein not perceived as self-serving egoists,but as people who share their knowledge with a positive motivation for thecommon good. Indeed: “People for People”.

Edwin Rühli

2011-11-28T13:56:00.001+01:00

The Limits of Regulation - A Claim for Good Management

A new study from Syracuse University recently revealedthe shrinking numbers of fraud prosecutions since the financial crisis in 2008(http://articles.businessinsider.com/2011-11-16/wall_street/30404680_1_prosecutions-transactional-records-access-clearinghouse-financial-crisis#ixzz1ehpr2kd9,see also http://tagesanzeiger.ch/wirtschaft/geld/Finanzbetrueger-haben-Justiz-im-Griff/story/28152529). And the New York Times already in the springof this year raised the question: “Why, in the aftermath of a financial messthat generated hundreds of billions in losses, have no high-profileparticipants in the disaster been prosecuted?” (http://www.nytimes.com/2011/04/14/business/14prosecute.html?pagewanted=all).It seems that a serious regulation failure exists based on wrong assumptions ofwhat should guide the actors’ behavior.

In our bookwe argue that today the underlying basic assumption of the dominant businessmodel, which promotes self-interest as rational behavior, is at risk of havingto be revised (see chapter 5). And we mention that already the Nobel PrizeWinner Amaryta Sen reflected on the basic assumption of the self-interest ofactors in his book "On Ethics and Economics” in 1987. He concludes thatthe idea that only self-interested values are rational is even harder todefend.

If all humanbeings are modeled as self-interested actors, and efficient market functioningfails to occur, additional control mechanisms of firms and their actors mustexist. These are normally in the form of state laws and regulations, or in somecases voluntary self-regulation (e.g. Global Compact). A continuous need forcontrol is all the more important as some of the actors are not interested inefficient market functioning. And it is the same actors that are also trying toannul all kind of regulations. In as much as state sovereignty is by definitionlimited to geographical borders, this leaves serious gaps in governmentalcontrol of this self-interest. But even a mixture of compulsory and voluntaryadherence to regulation will always lag behind a constantly and swiftlychanging environment. It is consequentlyoften up to the discretion of the diverse actors of firms whether or not theyexploit such regulatory gaps. Meanwhile, regulators and prosecutors arefrequently not able to fulfill their functions in an adequate way, resulting inthe lack of prosecutions mentioned above.

To overcomethis unsatisfactory situation, new mindsets are necessary: After the firstwaves of corporate scandals, Ghoshal claimed in his seminal paper that we have tochange the basic assumption of strategic management, and that amoral businesswith its negative impact should not serve as a role model (Ghoshal, S. (2005).Bad Management Theories Are Destroying Good Management Practices. Academy ofManagement Learning & Education, 4(1), 75-91). In this context, we ask whyit is necessary for firms to commit themselves to the worst forms ofself-interest and to fight against an endless series of constraints, when theycan focus and draw upon the stimulating cooperation of a broad cast ofstakeholders for value creation? We propose as a positive approach that thepotential of value creation will be unleashed through creating a sense ofmutuality in networks of stakeholders, rather than through the self-interest ofsingle parties sometimes violating regulations. Therefore new narratives aboutleadership are required for good management (http://www.fh-hwz.ch/g3.cfm/s_page/63500/s_name/leadershipprojekt11).

Sybille Sachs

2011-11-23T16:02:00.001+01:00

Stakeholder Governance in Social Performance Management

While socialinitiatives often come up with and nurture ideas with the potential to changethe world, a healthy business approach is required to unleash the fullpotential of such ideas in the majority of cases. This also applies formicrofinance - the response to the demand for financial services of micro-enterprisesand poor households in developing and emerging countries, that otherwise wouldhave no or only limited access to the formal financial sector.

Recentevents in some of the most advanced markets for microfinance and the at timesconcomitant controversial media coverage have regrettably tarnished the sector’sreputation lately. They have thus drawn the attention not only of themicrofinance community, but also the broader public, to the risks involved inthis rapidly growing industry. These risks include increasing competition,governance and regulatory issues such as overindebtedness of clients, badlending practices of the microfinance institutions and mission drift - to namebut a few. Stakeholders at all levels of the value chain, from investors to endclients, are increasingly worried about the negative consequences of aunilateral commercialization of microfinance in pursuit of financialprofitability.

The SocialPerformance Task Force (SPTF), brought together in March 2005 by theConsultative Group to Assist the Poor (CGAP), the Argidius Foundation and theFord Foundation, has taken on the challenge of addressing the issues themicrofinance sector is currently facing. Governed by a 16 member steeringcommittee with members from every region and a fixed number of electedrepresentatives from each of the major stakeholder categories, thismulti-stakeholder initiative (MSI) has been initiated to come to an agreementon a common social performance framework and to develop an action plan to movesocial performance in microfinance forward.

Remarkable froma stakeholder-oriented perspective is the way in which SPTF attempts to reachthese objectives. By engaging with diverse microfinance stakeholders, theinitiative provides a platform for dialogue, learning and collaboration. Over1,000 individual members, representing almost 600 different organizations,currently discuss and decide on new resolutions and agreements in annual oronline conferences. Moreover, members of the task force are regularly being askedfor their opinion and active participation in the development of a socialperformance framework and an action plan.

Such a deeplyembedded stakeholder governance-approach seems to be most efficient and fruitfulin a setting that is characterized by social objectives, global activities, andinstitutional complexity like microfinance. However, the SPTF may also serve asa positive example to learn from for the establishment of governance structuresfor multinational corporations embedded in complex stakeholder networks.

Marc Moser

Links and references:

Social Performance Task Force (SPTF) - http://sptf.info/sp-task-force

Consultative Group to Assist the Poor (CGAP) - http://www.cgap.org/

Argidius Foundation - http://www.argidius.com/

Ford Foundation - http://www.fordfound.org/

2011-11-21T14:35:00.001+01:00

Governing governance

Recent events emphasize the need to reflect on our governance systems atdifferent levels:

At the state level different EU countries, especially Greece but alsoItaly, were not able to govern their economic risks adequately. At the corporatelevel, this forced particularly system relevant banks to increase their equityratio in EU countries. To succeed in increasing the equity ratio, withoutreducing the incentive bonuses of managers or dividends for shareholders, thesebanks are now even more conservative in lending money to small and mediumenterprises (SMEs). However, SMEs are in turn vital for a prospering economy. A spiral of interconnectedness has thus been activated that is obviouslygoing in the wrong direction.

It must be kept in mind that it is not simply singleactors that are relevant, but rather networks of actors. One of the majorchallenges for governance systems under today’s conditions is developingmutuality and network interactions (see Sachs, Rühli 2011, p. 173-178).

At the level of corporate governance, this network view should also beincorporated in an appropriate way so that internal structures and processesare aligned to support mutual value creation with and for stakeholders. In arecent empirical investigation, it was demonstrated that different forms ofstakeholder participation existed in the decision making processes of firms. (seeSpitzeck, H., & Hansen, E. G. (2010), Stakeholder Governance: HowStakeholders Influence Corporate Decision Making, Corporate Governance, 10(4),378-391). As an example, stakeholder councils could not only act as soundingboards for system relevant banks, but could also play a role in strategydevelopment and implementation.

Such governance systems, rooted in a stakeholder perspective, willrequire adaptations of the current legal basis in areas such as propertyrights, competition law, bankruptcy law, taxation law, corporate law and the responsibilitiesof the diverse actors in firms and stakeholders. The recent adaptationto limit the power of a few worldwide rating agencies by the EU is an attemptin this direction (http://www.ft.com/intl/cms/s/0/5f8db28c-03ac-11e1-864e-00144feabdc0.html#axzz1dyg7FVCt ).

Governance at the state, but to a lesser degree also international level,can also be developed further in a stakeholder perspective. The correspondingsteps in the political sciences merit more attention and support (see e.g.Reich, R. B. (2009), Government in Your Business, Harvard Business Review,July-August, 94-99).

Sybille Sachs

2011-11-16T09:58:00.001+01:00

Consideringall relevant stakeholders: A question of will

New andmodern strategic management approaches which also consider societal demandsstill aren’t the norm in many corporations. This becomes clear one sees thateven technically highly innovative corporations sometimes follow old strategicapproaches.

Last month Applelaunched the new iPhone 5 to the market. As its precursor, it was assembled infactories like Foxconn in China. Foxconn won notoriety when 13 workerscommitted suicide because of working conditions. Some improvements weresubsequently made but the situation is still far from satisfactory. From theselling price for an iPhone 4 of $ 560, material costs of $ 187 and the assemblyin China comes to just $ 7 (according to isuppli and the German ZDF televisionbroadcast “Frontal 21”). Hence, Apple has a gross margin of $ 366 or 65%,respectively per one sold iPhone. Experts have calculated that if theproduction would be in the USA, the costs would be ten times higher, but the grossmargin for Apple would still be about 50%.

This simple calculationreveals that – although being a technically highly innovative company – thestrategic approach of Apple is still guided by the old, short-termprofit-maximization strategy for owners and managers, at the expense of otherstakeholders. According to such a conception of corporate strategy, society (andwith it all stakeholders) gets compensated for the risks that result from thecorporation’s activities by means of dividends for the stockholders. This is,however, a very narrow understanding of compensating society.

A broader andmore modern strategic view recognizes that besides the stockholders there are alsostakeholders like employees, suppliers, clients, communities having relevantand legitimate stakes in a corporation. The reason is that they all contributeto the value-creating process of a corporation and are likely to also carryrisks. This gives them the right to be considered in the distribution of thecreated value.

In the case ofthe iPhone, this would mean that workers in the factories in China getcompensated more appropriately: not only concerning wages but also concerningconditions at the workplace itself, company sponsored accommodations etc. Thiswould result in a shift away from a short-term financial profit-maximization strategytowards a socially more sustainable strategy, fully acknowledging thestakeholder worker’s participation in the value creation chain.

In the longrun, it can be assumed that a more appropriate consideration of all relevantstakeholders would lead to a larger and more sustainable value of thecorporation (as long as innovation is still provided for): The clients wouldhave no reason to boycott the product because there would be no horrifyingpictures in the media following non-compliance with worker rights, nopotentially costly juridical process would be menacing, institutional investorshad nothing to complain about and the stockholders would have titles with potentiallymore sustainable values. The figures above show that this would be possible. Lastlyit is a question of will and insight of the management to adopt an innovativemanagement approach that considers relevant stakeholders more strongly.

Claude Meier

Links and literature:

Frontal 21 (ZDF):

http://www.zdf.de/ZDFmediathek/beitrag/video/1260876/Gala+%22Cinema+for+Peace%22%3A+Haiti+im+Fokus#/beitrag/video/1457154/Ausgebeutet-f%C3%BCr-das-iPhone

http://www.youtube.com/watch?v=jMQCbE54_5g

Isuppli:

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4-Carries-Bill-of-Materials-of-187-51-According-to-iSuppli.aspx

Friedman, Milton (1962): Capitalism and Freedom. Chicago, IL: University of Chicago Press.

Hill, Ch. W. L., Hones, Th. M. (1992):Stakeholder-Agency Theory. Journal ofManagement Studies 29(2): 131-154.

Shankman, N. A. (1999): Refraiming the Debate BetweenAgency and Stakeholder Theories of the Firm. Journal of Business Ethics 19: 319-334.

2011-11-14T12:30:00.001+01:00

Exploitationfor Statistics

At this year’s conference of the Strategic ManagementSociety, I had the distinct pleasure of meeting a former professor frommainland China. We soon engaged in a lively discussion about the variouspurposes of value creation for a firm. It turned out that she was a veryadamant advocate of the view that a firm’s value creation should bringwellbeing to all individuals engaged in this value creation process. Indeed,she confirmed that this is a lack for many employees in China. Foxconn seems tobe just the most famous example of innumerable unknown companies treating theiremployees in a similar fashion –or worse (formore information on this case, see also our book “Sustainable Success withStakeholders – The Untapped Potential”, Chapter 7, P. 14.).

It is a biting irony that this tendency of employeeexploitation is exacerbated by the Chinese government’s policy objective ofcreating employment for the Chinese population. The quantitative measure ofraising the employability rate clearly matters more to the Chinese governmentthan the quality of the conditions under which these employees will have towork under.

Taken by this outspoken critique of the celebratedsuccess story that China is known for, I asked her if I could get some of herpapers about specific cases of worker exploitation.

The answer was no.

She explained that she was not allowed to reveal hersources, because her interview partners are afraid of reprisals. Regrettably,however, without transparency of sources and methods, no paper will be acceptedby a peer-reviewed journal. Therefore she refrained from writing a paper.

In stakeholder management we call stakeholders such asthese employees “silent voices”. Let’s give these people a voice – also withouta source!

Sybille Sachs

2011-11-07T15:53:00.000+01:00

Reapingthe Full Worth of Networks

In a recent quantitative study on theinterconnectedness of transnational companies by three researchers at ETH(Swiss Institute of Technology) in Zurich (you can download the PDF herehttp://arxiv.org/abs/1107.5728) it was shown that there is worldwide a coregroup of 147 firms with the highest interrelationship of financial propertyrights. Although those firms represent just one percent of the 43,000investigated firms, they controlled more than 40 % of the others based onownership relationships. This interconnectedness on the basis of financialrelations makes it evident, that firms in today’s economy are acting in anetwork-view and some are in the words of the authors “too interconnected tofail”.

Network interactions are not necessarily a risk. Besides the financialdominance, there are other interactions such as for example exchangingknowledge or experience. Therefore although interactions in networks may raisethe risks for the participants, there are also the chances of possiblebenefits. Important is the insight that firms are creating value in a networkof interactions, and not only in a value chain as suggested by traditionalstrategic management approaches. We could see in our empirical studies that iffirms and stakeholders are aware of the networks of value creation, they areable to develop products or services with superior value (see Sachs, Rühli,2011, p. 148). Suva, the Swiss insurance company we analyzed, implemented theNew Case Management method of focusing on the recovery process from a networkperspective. When customers are involved in an accident, in addition toreceiving the best medical care, their families and employers, physicians andhospital, and the case manager are all involved in the recovery process. Thanksto this network approach, accident victims are able to return to their jobsearlier and to be reintegrated into the work process more quickly andcomprehensively than without an interconnected process. This benefits not onlythe patient but also the firms and society.

Sybille Sachs

Welcome!

2011-10-31T14:30:00.000+01:00

Businesslegitimacy depends on public confidence in corporations and in their leadersand is one of the major problematic issues we face in this first decade of the21^st century. Guided by an exaggerated notion of shareholder valuemaximization, business executives took on enormous amounts of risk in financeand operations alike. This in turn has led to widespread mismanagement, marketfailure and even crimes that have often dominated the news headlines. It hasbecome evident, that the methods from yesterday do not suffice to solve theproblems of today and tomorrow.

We are agroup of academics who have extensive experience in engaging firms andstakeholder groups through our teaching and research. Fully committed tounleash the tremendous potential of value creation of people for people, we seestrategy as value creation in a sense of mutuality in networks of firms andtheir stakeholders. This new, more comprehensive understanding of strategy aimsto not only improve the quality of life for human beings, but by virtue of moreaccurately reflecting our reality as pertains to our natural world, it willalso ensure its sustainability. It is not the invisible hand of impersonalmarkets and endless regulation that create value, but the visible hands ofleaders in both firms and stakeholder organizations.

We invitepractitioners from diverse firms and organizations, as well as scholars andstudents from various fields, to support us in our research and as educators ofthe leaders of tomorrow. There are numerous ways you can contribute. Check outour “Purpose” page for more details on how you can get involved and directlybenefit from this project. Leave us your comments to our posts. Or submit to usyour suggestion for a post that either we will take up or you yourself willwrite based on your own experience. We will then publish it right here on thisblog.

We need torise beyond simply analyzing and criticizing and work to creating solutions fora better tomorrow.

We lookforward to hearing from you!

SybilleSachs