AoM-Meeting 2012; People for People

The annual meeting of the Academy of Management  (AoM), at which 12,000 participants from all over the world discussed the latest research results and trends, was held in Boston August 3-7. One presentation type is the “Professional Development Workshops” (PDW), which are about the further education of university teachers. Professors Joe Mahoney (University of Illinois) and Sybille Sachs (University of Applied Sciences in Business Administration Zurich, HWZ) organized and moderated a panel discussion on “Value creation with People for People”. It was the continuation of an initiative that the two had started the previous year at the AoM-Conference with the goal that after years of excessive emphasis on shareholder-value thinking the importance of people should again be regarded as the central focus of interest (see the report of last year). Some impressions of the well attended and comprehensive presentation are noted in the following:

Professor Joe Mahoney (University of Illinois), a leading academic in the field of the Theory of the Firm, demonstrated among other things that managing decisions narrowly oriented to shareholder value often lead to breaks in the social contract that exists between the firm and its stakeholders (e.g. customers, employees etc.). This again leads to the underinvestment of these stakeholders in their firm specific engagement and generally to a lack of commitment of these stakeholders. The firm can thereby suffer a weakening of its resources and a decrease in productivity. In contrast, when stakeholders are involved as people in management decisions, not only can negative effects be avoided but also commonly found innovative solutions can be encouraged (see our book, Chapt.7, p. 114 ff). 

Ed Freeman (Darden Business School), theoretician and founder of Stakeholder-Management, regards the increasing inclusion of People for People thinking as the most central question of business education in our time. He reminded us that in the course of history great thinkers (e.g. Freud, Kant etc.) have acquired fundamental knowledge about human beings that has not been sufficiently regarded and applied in the education of true leaders.

Jim Post (Boston University), professor for Business and Society, who together with other authors has recently published a book on The Historical Development of Social-Responsibility – Idea in Theory and Practice, demonstrated with the example of his own university, how regard of human aspects have changed in teaching. Whereas a few years ago the vision of the Dean in charge was completely oriented to human aspects and required a humanistic mindset from the faculty, this orientation is missing today.

Sybille Sachs (HWZ), professor for Strategy and Stakeholder Theory, demonstrated in her contribution that the aspiration of a more human perspective, and in particular an increased propagation of positive narratives, is not only to be seen in management. In various academic disciplines analogous thoughts are being acquired, which means that there is potential for interdisciplinary cooperation. She illustrated this with quotations from very different scientists, who are advocating a positive humanistic view in their fields. One such quotation is given here: “In particular, we encourage researchers to examine the origins and implications of positive framing. We further advocate for positive leadership (e.g., Cameron 2008) in response to crisis and the outcomes to be gained from crisis events when positive frames and positive leadership are enacted” (James, Wooten and Dushek, 2012, p. 483).

The participants of the workshop agreed at the end of the extremely stimulating discussion that the idea of People for People needs to be continued and deepened in a presentation at the AoM-Meeting 2013. In the meantime information on examples of positive narratives in leadership education or in firms should be exchanged among the participants. Should you also know of examples, we would be happy to publish them in our blog.

Edwin Rühli

What about Fair Play of International Sporting Events?

Sport games are a wonderful celebration of excellence in sports, excitement and pride. The expectation of sporting events is always high and the questions being raised even higher: Will the event help develop the infrastructure and the society of the host country in a sustainable way? Will all the money be well spent? Huge sport games like the Olympics and the European Cup might be vulnerable to corruption in several ways: match-fixing, corporate hospitality, ticket allocations, sale of television rights, corporate sponsoring (for further information please visit http://snipurl.com/24qh8hy ). Above all they represent a big exercise in construction and procurement. Both stand for classic areas that are prone to corruption. In this article I will focus on these two challenges.

The development of infrastructure for international sporting events involves the mobilization of vast resources, complex logistical arrangements and pretty tight timeframes. These challenges probably became a sincere problem for one of the latest European sporting event. In regard of the Euro 2012 allegations of corruption have been made. Ukraine embarked on a program of modernization for Euro 2012. Stadiums were built or renovated, the airports were upgraded and the roads repaired. All this happened without competitive tenders, since in 2010 Ukraine cancelled the tenders for all Euro 2012 projects. Uefa, the governing body of football in Europe, is now under pressure to investigate claims of massive corruption. Opposition politicians claim that $ 4 billion from the state funds were stolen by officials (http://snipurl.com/24qh8s2 ). But also in Brazil the preparation for the World Cup in 2014 and the Olympics in 2016 face some corruption challenges. In June the government coalition deputies approved a bill that would keep the massive infrastructure budgets secret (http://snipurl.com/24qh96c ). Because of critics the text got changed and the budget will be public but just after the public tender process.

In international sporting events many stakeholders are involved: the organizing international organization, the host country, different governments and last but not least the public - just to mention the very important ones. To enhance transparency, the involvement of all these stakeholders is central. A good way to do this is a multisectoral initiative.

In regard of the construction sector the Construction Sector Transparency Initiative (CoST) could be of help (www.constructiontransparency.org). CoST is a country centered multistakeholder initiative designed to promote transparency and accountability in publicly financed construction. CoST’s core is the belief that the processes involved in the construction of public infrastructure must be more transparent.

As all the mentioned critical aspects are important issues for various stakeholders, pressure will increase to make international sport mass gathering events that cost billions of dollars more transparent for them. Then availability of information to the public is of great importance to hold decision makers to account and to ensure better value for money. In this regard issue based multistakeholder initiative represent a promising solution.

Sabrina Stucki

Switching perspectives

If we talk about stakeholder relationships, the most common reaction of people is to think about a firm and the different groups which are affected by the corresponding business activities. These stakeholders are usually named as financiers, customers, suppliers, employees, the communities and so on. By this means we talk about stakeholders defined by their functional relationships with a firm, which is situated in the center of its stakeholder relationships. Further, the usual way of thinking about stakeholder management is on how to elaborate positive relationships with stakeholders to create as much economic value as possible.

In this blog post I would like to address two rather unusual ways of thinking about stakeholder management by making use of the example of employees’ work-life balance as an independent issue. In the context of this issue, the traditional defined stakeholder categories of a firm are no longer of much use to capture the essential features of the employees’ work-life balance. To assess what is of real importance for people, a firm’s decision makers have to switch perspectives to find out which groups have a real stake in the issue of the work-life balance. The traditional stakeholder category of employees then becomes more fine-grained, for example as mothers, fathers, daughters, sons, part-time workers and so on. By switching the perspective from a functional firm-centered to an issue-based view, decision makers are able to identify a much broader, and arguably more useful, set of stakeholders related to the firms’ activities.

But how are those newly recognized stakeholders related to a firm’s value creation? I think part of the answer arises from a too narrow understanding of value in an economic sense. It is easy for decision makers to conceptualize economic value creation in traditional firm-stakeholder relationships, as those ties are, as described above, functionally defined. But from a stakeholder’s perspective, there are other ways of understanding what “value” actually consists of. Indeed, regarding the issue of the work-life balance, stakeholder groups like mothers or fathers acknowledge the results related to their relationship with a firm, for example the accessibility to corporate childcare services, but also the possibility to work part-time in a managerial function. However, besides those extrinsic values related to economic or non-economic goods or services in a stakeholder relationship, employees are also seeking for more intrinsically motivated results. For example, employees also appreciate the psychological result of job satisfaction, as they are recognized and esteemed by the firm’s decision makers regarding their stake in the issue of work-life balance, thus for example as mothers and fathers.

In my opinion, managerial decision-makers can realize a much broader potential for value creation if they not only rely on a firm-centered approach to create economic value together with their functional stakeholders. Switching perspectives to identify the stake different groups have in a focal issue and recognizing both the corresponding extrinsic and intrinsic results of stakeholder relationships will then lead to an enhanced mutual value creation of a firm with its stakeholders.

Thomas Schneider

Market-advocates demand state interventions: An ideological absurdity that is reality

End of July Mario Draghi, President of the European Central Bank (ECB) indicated quite vaguely the intervention that ECB will buy state bonds from crisis countries of the Eurozone. The stock market reacted promptly by increasing quotations. This is interesting because interventions from institutions close to the state normally are not what market-advocates (to which stock exchanges overall can be counted) put into a good mood.

But, since the sub-prime crises from 2008/09 and the following bail-out of many financial institutes by states all over the world, things have fundamentally have changed, one could mean. The state since was not only decent again, it was indispensable. The neo-liberal ideology of a pure self-regulating market solving (nearly) all economic problems and beyond as well as the ideology’s inherent state-critic was out of fashion suddenly. Draghi’s indication of a possible intervention by ECB shows that state related interventions today not only are accepted but even are demanded by market participants. If this is right or wrong or just a logical mechanism, is irrelevant. It is reality and that’s what’s relevant.

But how this new reality gets along with an ideology that sees things quite different? Already after the first shock of the sub-prime crisis the old apologists of the market ideology came back on stage. In their contributions in diverse newspapers, magazines and journals it was to read again what blessings a pure market-driven system would be able to perform, as long as there is no distortion through state interventions. In many contributions the new facts haven’t found any access to the thoughts of the authors. It seems that many want to preserve their ideology and its theoretical backgrounds as it is and defend it against the new realities. One of the latest of such market-purists seems to be the US presidential candidate of the Republicans Mitt Romney. Overall, he seems to believe that the less state intervention exist in the market-economy (taxes, regulations etc.) the better it performs. The state primarily handicaps economic freedom and is a threat in general. If things would be so easy we never had the sub-prime or other economic crises.

To stay ideologically fair, we can take a look to the ideologists on the other side of the continuum, the state-centrists. Indeed most of them learned at latest after the fall of the Berlin wall that a pure centrally planned economy does not lead to salvation and comprehensive well-being. But, there are still contemporaries who try to save as much as possible from this state-centric ideology by ignoring facts and reality. The latest example is the President of France, François Hollande, a Socialist. As soon as he was in power he reduces the retirement age back to 60 years although the public purse is nearly empty and the people’s life expectancy rises and rises.

Either market-purist or state-centrist both are ideologically conservative and therefore also structurally conservative: old and outdated structures (e.g. pension age 60 in France, the intention to prolong temporary tax reliefs for very wealthy citizens by Romney in the USA although also here the public purse is scarce) will be preserved with such bodies of thought. Ignored thereby is the reality. A reality in which capital investors demand state interventions. It is obvious: such realities need new and a more progressive and pragmatic political thinking and measures. It is very important to adapt the institutional structures to the new needs which are already here and recognizable in the daily life. Ideologies are principally ok as guidelines but they have to develop themselves by incorporating actual reality. The other way is fatal: to simply serve the ideological clients by trying to impose ideological purism in reality.

Claude Meier

Tales from the “Real World” – how much ethics can the world of business tolerate?

In my last blog post I described a concrete example of a moral dilemma that I faced while I worked in the international business arena (and I use the word “arena” for a reason…). I posed the question as to what realistic options are available to business leaders should they like to take the moral high road. The answer hinges upon, I think, how we should like to define “realistic”.

Would it have been “realistic” for me to go sign up the fledgling start-up as our distributor in Tunisia, foregoing engaging the established Dutch firm? As much as I am loath to admit it, I think not. The company I worked for was operating in a highly competitive industry where thin profit margins provided for very little largesse in choices that were not tightly aligned to short-term profitability. In another industry, with a pioneering product with no immediate competitors, or in a domestic market artificially shielded by high entry level costs or tariffs, there might have been more room to maneuver. But when one was competing tooth and nail for survival, this was not a viable option.

Prior to working in the low profit margin apparel industry, however, I worked in a radically different industry for a medical laser manufacturer where profit margins hovered around 60%. While obviously also a competitive industry (after all, everybody was scrambling at getting a piece these dream margins…), there certainly was more room for maneuver from a moral point of view. Regrettably, this option was not always exercised. A case in point: over the course of several years I had the pleasure – and it was indeed a pleasure – to nurture a start-up firm in Russia to be our distributor in this promising market. They were highly motivated and worked endless hours. Even though they had very limited resources, they sent one of their engineers over to the United States for a one week product training program we offered to our distributors. After two years of major investments and working the market, the company was finally poised to make some important sales. This was, however, also the point in time when the medical laser company I worked for was bought by another medical device company and consequently overnight we had two distributors in virtually all of our markets.

Our new owners insisted on using their own distributors in all of the countries where they themselves were present or alternatively forced our distributors to become sub-distributors, which for our distributors essentially meant giving up all control of the business and taking a major cut in their earnings. I remember being on the phone with a manager at our new parent company and him telling me to terminate the sales agreement we had with our Russian partner. When I explained to him that our Russian partner had worked for two years to build up the necessary relations in a market that had very long decision making procedures, he told me that “first cut him, bring him to his knees and then we renegotiate our terms with him from a position of strength.” So the basic strategy was to first make him desperate (he would lose two years worth of investments!) and then try to squeeze the max out of him so that he could salvage at least a pittance of what he had invested. Hardly a win-win strategy.

While many people sincerely tried to do their best to remain “humane” in an essentially a-moral system and things seem – at least in public discourse - to be changing somewhat these days, many of the things I saw and heard while in the business world were diametrically opposed to a human centered, win-win, stakeholder approach. A few of the ones I still remember I wish to share with you here (some are paraphrased by me, their essence is however retained):

·         “There is no ethics in the business world”

·         “If we don’t do it, somebody else will”

·         “No matter how much you may like somebody and how close you get to them in your work dealings, never make the mistake to think that they are your friends”

·          “The [neo-liberal] economic system as it is today reflects a deeper reality that is inherent in all of nature and therefore cannot be changed: just look at Communism!"

·         “Survival of the fittest”

·          “Markets always know best”

·          “If you can’t beat them, join them”

·         “The corporate world is essentially one of war without weapons”

·         “Money is success and success is no coincidence”

·         “Make money first, then do good”

·         “Too much ethics is a weakness and we have no place for weak people in our management team”

·         “The business world is the only real world and we who actually operate in it have nothing much to learn from researchers and intellectuals as they live – at best - in a naive utopian, imaginary one”

What all these quotes reveal is that, at the end of the day, there was a widely prevalent attitude (even if not voiced thus publically) that ethics, a humane stakeholder approach and the competitive business world simply don’t mix. Regrettably, the way our current economic system is set up and the widespread normative mantra of “profit and shareholder value maximization” inculcated into students, employees and managers, this has become in many ways a self-fulfilling prophecy.

In my next blog posts, we shall take a look at these proclamations and how they fit or don’t fit into a sustainable economic system.

Manuel Heer Dawson

The Need for Humanism in Management Across the World

Over the last weeks I spent my summer holidays travelling through northern and western Madagascar – a wonderful country with charismatic people, a variety of landscapes and unique flora and fauna. But this is not meant to be a travel report and to my delight I frequently stumbled across what is supposed to be the underlying subject matter of my research topic – microentrepreneurs or commercially active people living on a few bucks per day. For example, there was this artisan group of neighboring women producing gorgeous silk embroideries and selling them in a small shop on a veranda. In another village, there was a man crafting delicate artwork and articles for daily use out of polished cow horn with the help of an old washing machine’s engine. Like in every developing country, the majority of Malagasy people, however, were working on fields, planting rice and spices or farming cattle. Here and there, I spotted agencies of microfinance institutions (MFIs) in surrounding villages, indicating that financial services were potentially available for the aforementioned random acquaintances.

Back home, I found the report of the Microfinance Banana Skins Survey 2012 from the Center for the Study of Financial Innovation (CSFI) fresh from the press (www.csfi.org). With the title ‘staying relevant’, this is the 4th edition of what can be regarded as the most comprehensive risk perception survey in the sector. According to this year’s report, the most pressing risk is - for market observers unsurprisingly - overindebtedness among microfinance borrowers. However, the overindebtedness problem is symptomatic of deeper difficulties in the industry - first of all the overemphasis on growth and profit at the expense of prudence and the lack of good governance, management skills and professionalism in local MFIs: “Corporate governance is widely perceived to be inadequate, failing to provide sufficiently strong leadership to keep MFIs on a healthy growth path. Management quality is also seen to be lacking in many markets…, including the quality of risk management which is seen to be low or nonexistent in some sectors” (p. 8).

Reflecting on my holiday experience with regard to the responsibility of business schools and research for establishing a new paradigm of leadership, this made me realize that it is clearly not only western, industrialized countries, for which a new generation of managers and leaders is needed, but certainly also developing countries. Although they weren’t directly liable for the recent crises in the global economy or necessarily affected by the numerous management scandals in multinational corporations, narrow-mined short-term thinking with a sole focus on profit-maximization there too takes its toll. The microfinance experience in developing countries shows again that economic progress and societal development cannot be sustainable without appropriate management education and responsible business leaders with a sense of solidarity for all their stakeholders. The humanistic mission of initiatives like “People for People” seems therefore equally important for fighting inequality across the world and the aspiration for prosperity of underdeveloped regions.

Marc Moser

Value Creation with the Humanistic Mission of ‘People for People’

During the last several years both business and society are undergoing substantial change. A few key examples illustrate this change: the oil spill in the Gulf of Mexico; the nuclear catastrophe in Japan; the ongoing European debt crisis and social movements such as “Occupy Wall Street” that have spread around the globe. All these changes show that it is not simply single actors who are salient, but rather networks of actors. This interconnectedness is the critical feature of today’s reality. Value creation takes place between firms and stakeholders in networks to achieve greater service to society. Such networks of value creation encompass the boundary of sectors (economic, political, and societal) as well as the degree of institutionalization (formal and informal).

Business schools are responsible for preparing new generations of leaders for a networked globalized society in which intra- and inter-network cooperation is key. The responsibility of business schools was also the topic at the caucus session we conducted at the annual meeting 2011 of the Academy of Management (AoM) (http://www.fh-hwz.ch/g3.cfm/s_page/63780/s_name/socialmovementinitiativeteaching). The focus was to assess whether there is sufficient interest in the core challenge of nurturing humanism in management education by creating a network of interested scholars. The shared understanding of participants was that it matters what business schools do in educating future leaders and managers. The participants came to the conclusion that as educators of future leaders and as world citizens we have to foster teaching and research that contributes to the humanistic mission of ‘People for People’. "People for People" describes the humanistic mission of all management: human beings helping others.

If you are interested to advance the humanistic mission in management education please join us for our Professional Development Workshop at the annual meeting 2012 of the Academy of Management (AoM) in Boston. Joseph Mahoney (University of Illinois) and I organized this workshop for the following divisions of AoM: Business Policy and Strategy (BPS), Human Resources (HR) and the Social Issues in Management (SIM). Panelists include Sandra Waddock (Boston College), Robert Phillips (University of Richmond), James Post (Boston University), Tom Donaldson (University of Pennsylvania), Ed Freeman, (University of Virginia). The workshop takes place on 03. August 2012, 2:45pm, pm Boston Hynes Convention Center, Room 301 (http://program.aomonline.org/2012/subMenu.asp?mode=setmenu&menuid=14).

I am looking forward to see you there.

Sybille Sachs

Humanistic Perspectives in Management

This June, the Humanistic Management Network organized a conference at the University of St. Gallen, Switzerland, with the topic “Happiness and Profit – Wellbeing as Alternative Objective Function for Business?”. This network has as its objective to promote an economic system which operates in the service of human well-being in the larger context. Out of the many ideas that one could reap at this occasion I would like to highlight the following three:  

1.      Professor Binsweanger, an economist, reminded us that the original economic theory made the comprehensive concept of utility as the goal of our dealings and not the narrow objective of the multiplication of money as has been brought to prominence in both theory and practice these past years. Such a broader understanding of utility is incompatible with both the narrowly conceived shareholder value thinking as also the notion that the gross national product accurately reflects the prosperity, much less happiness, of a society. The financial crisis and the bonus discussion have shown that narrow monetary goal conceptions lead us astray and are nefarious to our common good. This understanding is fully in line with the people for people project espoused here. http://stakeholder-peopleforpeople.blogspot.ch/

2.      Various conference contributions elucidated possibilities as to how the use of multidimensional criteria grids could create indices which reflect the utility of economic as well as ecological and social dimensions. They complement already available approaches in this direction as for example the Global Reporting Initiatives. The utility contribution of a firm or a project is thereby reflected in a more sophisticated manner then a mere monetary measurement. A considerable number of firms already today produce such common-wealth balance sheets and common-wealth reports. Such firms should in the future be privileged by their customers or by the attribution of public commissions, as they serve the common good in a more deliberate fashion. Regrettably, there were no representatives of public institution at the conference; they would, however, have a model function with the promotion of such a common good thinking.

3.      I was especially impressed by an entrepreneur (Mörkisches Landbrot – a bread bakery) who conducts a consequential stakeholder management which is rarely seen in practice. Through a systematic cultivation of the interactions with important stakeholders (for example suppliers or co-workers) he could not just attain a high degree of motivation and loyalty, but also valuable impulses for the increase of innovation and quality. Thereby his operation is also oriented towards a broad segment of the society. This understanding of value creation which he has pragmatically developed reflects to a high degree the theoretical concept which we also elucidated in our book http://tinyurl.com/8ay79k7. He would be a valuable interview partner for our new leadership project http://tinyurl.com/88qqpxy

The most valuable aspect of the conference was the orientation towards practice. The conference also showed me that there is a considerable need to bring these pragmatic approaches onto solid theoretical basis, so that they will not drift off to arbitrariness.

Edwin Rühli