Capitalism in Question

The Academy of Management (AOM) is a professional organization that strives to further the scholarship of management. It comprises twenty-five professional divisions and interest groups focussing on management problems. Examples of these divisions are „Business Policy and Strategy“, “Entrepreneurship“, “Human Resources“, or „Social Issues in Management“. Every year, the AOM carries out an Annual Meeting. Last year, more than 10,000 participants – primarily university professors – took part from all over the world. In numerous events, such as the Professional Development Workshops, Paper-Sessions, Panels and All Academy Symposia, the newest research and teaching methods were discussed. Also Switzerland was well represented, coming in at 10^th place with respect to the number of participants.

For each of the AOM annual meetings a theme is selected. For this year’s meeting that takes place between the 9^th and 13^th August in Orlando, Florida, the theme will be “Capitalism in Question”.  Indeed, following the financial crisis of 2008, the business schools are challenged to review the foundations and assumptions upon which their research and teaching are based on. Currently, this is the neo-liberal economic theory and the corresponding theory of the firm. Questions and problems that the organizers have put in the center are for example:

·        While it is recognized that the market competition during the last decades brought great benefits, material prosperity and much innovation, it has also become clear that there are serious down sides: economic, social and ecological “costs”.

 

·        Research questions are called for that deal with the question if and how the capitalistic economic system can and should be further developed.

·        In need are also contributions that elucidate what alternatives there are to the current system and what would subsequently change in a social, economic and ecological context.

·        Connected with the above is also the question of by what social and ecological components the objective of shareholder value maximization by firms need be complemented and what this means for the role and self-conception of managers and leaders.

·        Also the question how true innovation can be upheld in firms – as for example via a shift of focus from rivalry to cooperation with stakeholders – has been included in the call for papers.

It will be interesting to see what an event of this size and scientific reputation will bring forth in terms of insights and impulses for the academic research and teaching in the area of management. I hope to be able to report some of these interesting news in a later blog post.

Edwin Rühli

The first of May: Power, Legitimacy and Urgency

It’s the first of May and I am sitting in my office even though we have the day off. To get into my building I had to step over several union banners laying on the ground, ready to be taken to the official annual rally. I felt something like pride when I saw these committed people waiting to start announcing their demands. They could have just stayed at home and had a lazy morning, drinking coffee but they decided to put themselves out there. And I did feel a bit bad that I was ignoring this “Labor Day” and going to work but I am just not the rallying type. Apart from all the vandalism and violence that usually co-occurs on this day, I think it is good that workers use this day to say what they think they are entitled to. For at least one day a year it gives total legitimacy and power to the stakeholder employee and the “worker” in general. I think it is also a kind of celebration of the rights we do have here: Right of unions, freedom of association, right to strike, freedom of speech and so on.

 

When glancing over to Bangladesh, globally there is still an extremely long way to go. The claims workers have in Dhaka are not only legitimate but also very urgent. When a house is actually built on sand, shows obvious cracks, workers knowing about this danger but still going to work because they are worried to lose their job they are so dependent on, the disastrous absence of their power is evident. Yesterday the people of Dhaka went out on the street to demonstrate their anger. Demonstration and strike is their only means to counteract on their lack of power in hope to find leverage of their claims through other parties.

Looking out of the window I can see all the different concerns the people have. The concerns are not just about work, but about people living together as a society in general. Even though I don’t share all of the opinions and many demands are much too extreme for my taste, I want to go along. Here is my demonstration: People should take responsibility for what they do. Businesses should take responsibility for what they do. Not only power and urgency, but also legitimacy of claims should guide the way. Only by respecting and treating others as human beings and not as abstract figures in a long value chain can we work together to mutually create value for people.

Vanessa McSorley

On Being an Academic

What differentiates academics from other professions? In some form or another, academics are associated with knowledge and expertise in a more or less narrow field of research. There exists the popular stereotype of academics being pure theoreticians, not being aware of or connected to people’s everyday life and problems. The metaphor of the ivory tower usually comes up at this point. I won’t make any judgment about this clearly untruthful perception, but will try to give my personal view of how we academics sustain this stereotype.

Starting with the notion that every person (this includes academics!) strives for a positive self-concept, I assume that academics define a good part of their self-concept by drawing on their expertise. To convince others of their knowledgeability, academics tend to give sustained analyses and normative advice when it comes to a discussion related to their field of research. In my case this is stakeholder theory and often leads me to act like a real know-it-all followed by a deadlock in a heated discussion. Let me give you two illustrations:

 

The first example is an argument I had with a bank manager about value creation of Swiss banks for society at large. Trying to present myself as a knowledgeable person regarding this issue, I was arguing that Swiss banks are destroying societal trust by engaging in ethically questionable business practices. The result of this reasoning was, of course, making my counterpart an advocate of the Swiss banks. My striving to present myself as a competent person ended up by the bank manager explaining me with a wagging finger how the banking business really works and that my perspective is a pure academic one.

The second example is related to a discussion about maximizing profits with a friend of mine who works as an electrician. Although my friend started the conversation with the words “You as a theoretician…”, I had no reason to strengthen my self-concept by taking the role of an academic. The discussion ended with me having learned quite a bit about how business works for electricians, and him becoming acquainted with another perspective on maximizing profits.

Having a lot of experience in the types of interactions given in the first example, I am now trying hard to establish more discourse-oriented discussions when it comes to an issue related to my field of research. This is somewhat threatening my positive self-concept, because I have to drop my own stereotype of academics. Two things are helping me: First, the quote by Socrates “The only true wisdom is in knowing you know nothing” and, second, the knowing that in the end, academics are always right.

Tom Schneider

Of American “Libertarians” and European “Common Good Economizers”

Which type of economic (and political) system one favors is largely dependent upon what kind of a notion one has of what it means to be human, more specifically, a ‘successful’ or ‘good’ human being - and by extension also a “successful” and “good” society. Yet if our prevailing economic system ought to reflect our collective values of what it means to be successful or good human beings, then it is striking just how unsatisfied we are with the status quo. According to a study by the Bertelsmann foundation, roughly 90% of all Germans and Austrians pine for a new economic system (this figure is likely to be even more striking in economically weaker countries such as those of southern Europe). While the current economic system still tends to find more champions in America than Europe, also the citizens of this largest of capitalistic nations are ripe with frustration, disillusionment and cynicism. The colloquial expression “Corporate America” has long since become synonymous with some large, deceitful bureaucratic machinery that is not governed by the principles of merit, honesty or creativity, but by its own aloof and singular logic of marketing (products and the self, as in Me, Inc.) and Washington DC lobby power.

Yet while Europeans are inclined to seek reform via a notion of human nature based on caring empathy, collective cooperation and sharing of wealth, Americans tend to look towards human success through the prism of healthy competition, individual freedom and merit-based creativity. Never mind that creativity, freedom and caring mean different things for different people, as also to most Europeans and Americans. The point, and difference, between the predominant American versus European stance to fundamental reform is in where in the hierarchy of daily self-awareness these rather ill-defined notions figure. Permit me a brief, although clearly simplified, analysis.

The American is apt to become emotionally roused by anything that threatens his or her “individual freedom” or obstructs the reaping of “merit based fruits of hard work” (both often linked to property rights). This is why Americans, even if they are among the majority of citizens who are demonstratively increasingly among the losers of the current economic system, still tend to extol laissez-faire “free markets” (note the catch word “free”) while scoffing at European notions of statism and “socialism”, which for many is nothing more than the ante-chamber to full-blown totalitarian communism. Thus, a creative, typically American response to the current problems has been in the form of “libertarianism” (See for example the “Libertarian Party” (https://www.lp.org/, or the partially aligned Tea Party movement (http://www.teaparty.org/).

The European, on the other hand, is prone to get emotionally worked up about anything that threatens his or her sense of fairness and material equity, which is looked upon as the direct result of cooperation, sharing and caring. This is why Europeans, even if they are among the relative winners of the current system, tend to still prefer an economic system that constrains wide income disparities and distributes wealth, despite state-coffers that are neigh bankruptcy, and are suspicious of “markets always know best” and are repelled by the winner-takes-all ethos so prevalent in the USA. Hence, a contemporary innovative, typically European solution to the current malaise has been in the form of an “economy of the common good” (see for example, the GWÖ http://snipurl.com/26rosb9).

While an adequate elucidation of what “libertarianism” and “common wealth economy” designate is beyond the scope of this brief analysis (the reader is encouraged to read more on it!), it is once again telling to simply look at the etymological roots of the involved wording. In as much as all words are reflections of the reality we human beings are conscious of, it is the words – and associated stories – we are personally and culturally exposed to, that create our notions of “good” and “successful”. Hence the cultural narrative of “the land of the free and home of the brave” as per the American anthem can easily be understood as freedom from governmental interference and brave, merit based self-determination, while a common European narrative as in the French motto “liberté, egalité, fraternité”, not just enjoins freedom, but notably stresses equality and brotherhood.

At the end of the day, our political leanings and thus our economic preferences are more of a function of our emotions than any rational analysis. They are formed by our personal histories as much as by the histories and stories of the countries and cultures we are part of. A fundamental question that this raises is where and to what extent an international consensus is required and even possible in creating a global economy that is socially and environmentally sustainable in the long-run. Clear is that the effective stewardship of our world economy simply requires domains where all stakeholders are not only involved but also sign on to. The process must be along the lines of libertarianism in as much as any directives cannot be imposed upon individual countries, but the results need to transcend particular interests and be more along the lines of a common good.

Manuel Dawson

A questionable fascination with size

Recently there was news that U.S. researchers have presented a large project in the field of brain research. A few weeks ago, Ecole Polytechnique Fédérale de Lausanne (EPFL), part of the Swiss Institute of Technology, also announced a major project in the same field. Both projects are budgeted to cost billions.

Surely one must hope that the more money (and minds!) is invested in a research project, the greater the chance to achieve breakthrough results. The anticipated output may therefore justify these large expenses. In addition, there are areas of research that require big projects because a large and expensive infrastructure is necessary, as for for example the CERN (Conseil Européen pour la Recherche Nucléaire) in Geneva.

But one should not ignore the flip side of this:

First, size is no guarantee for success. How many scientific discoveries have been made by individuals or, more recently, by small research teams? Small groups can stimulate and combine leading representatives of a field in good harmony, complementing each other without needing billions.

Major projects also carry the risk of binding financial and human resources that then lack elsewhere. "Peripheral areas of research" are neglected. This phenomenon is well known from pharmaceutical companies, where research often focuses on profitable "me-too" products, while little or no research is done on rare diseases (orphan drugs). Thus, the diversity of research can be at stake.

Furthermore, we must not forget the prestige effect of large projects. Only those who have a major project gain status in the scientific community. The ranking of universities might soon be done according to how many major research projects an institution has, and how big these are. The statement of someone involved in a major American project that the label "large project" is a major sales pitch, catches one’s attention in any case.

Finally, one must not forget that a large project also  requires a great coordination and control effort. If, for example, a hundred or more million francs are spent as in the above mentioned projects, no one can afford not to make annual or even quarterly rigorous controls, reports and justifications. Thus considerable resources and precious research time are used for administrative work and coordination meetings. In addition, administrators begin to influence projects and results.

One should therefore not be blinded by the publicity large projects get. "Big" is not automatically "great".

Sybille Sachs

Looking back

While clearing up my library recently, I came upon a book by K.R. Andrews, "The Concept of Corporate Strategy" (1971). Looking through the text over 40 years later, I am amazed how current Andrews’ considerations are. Andrews was Professor for Strategic Management at the Harvard Business School. He became well known for a number of things, among them a case study on the Swiss watch industry. In this study he demonstrated how a small firm can compete with larger ones strategically, sustainably and successfully.

In his Concept of Strategy, Andrews argued on the basis of the SWOT analysis - which is his “invention" by the way - that a firm always needs to seek an economic strategy that is aligned to the moral concepts of its leaders (p.38): "Personal values, aspirations, and ideals do, and in our judgment quite properly should, influence the final choice of purpose". In this way the manager’s sense of responsibility as human being and not as homo oeconomicus is addressed ("his own standards of right and wrong") (p.118). For Andrews, strategy is always "a human construction; it must be responsive to human needs" (p.117). Andrews goes even further and argues in the spirit of modern Stakeholder Theory that strategic decisions also need to always have the well being of society as a whole in mind. He writes: "By ‘social responsibility’ we mean the intelligent and objective concern for the welfare of society that restrains individual and corporate behavior from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined." (p. 120) Unfortunately this thinking, on Strategy Theory and the practice of strategic action, was completely buried in the 80s by narrow and inflexible economic thinking. Ironically, his colleagues Porter and Jensen, also at the Harvard Business School, were forceful promoters of the economic model. Decisive factors were Shareholder Value as the primary goal and hard competition; homo oeconomicus determined practices. This led to unreal abstractions with dangerous consequences. For these reasons, the “ultimately destructive activities” that Andrews addresses in the above quote came about in the financial crisis of 2008. And the subsequent debt crisis confirms his warning: "Business cannot remain healthy in a sick community; ultimately no corporation is an island."

Today scientific work in Strategic Theory places great emphasis on the latest literature. However, sometimes it would also be good to refer to old classics; they often challenge “modern” theories and accepted practice! In any case, Andrews can be regarded as a forerunner of a stakeholder-oriented view of strategy.

 Edwin Rühli

 

 

 

The "Yes" to the fat cat initiative and the destruction of the social contract in Switzerland

 

Switzerland was for once progressive: it said yes to the so called fat cat initiative (“Abzocker-Initiative”) which gives shareholders more binding say over company executive compensation. The day after the vote media around the world reported about the decision in the tiny country. This shows that the verdict of Swiss voters hit the nerve of an issue of global interest.

Before the ballot economic-liberal commentators of the country described the fat cat initiative as a danger for the Swiss social contract between citizens and elite which consists of a highly liberal economic regulation. They acknowledged that the dismantling of the contract had begun when the economic elite started to pay exorbitant compensations to managerial top-shots which legitimised this with a hint to realities of the global economy. They also understood that such and similar behaviour (e.g. high risk strategies of banks) completely ignored the deeply anchored culture of egalitarianism and disliking pomposity in Switzerland.

 

Despite this, the elite omitted to approach the issues appropriately. In approvals to proposals like the fat cat initiative these commentators see the price the elite now have to pay for its ignorance: a further dismantling of the social contract in the form of more economic regulation. This probably all is true. But beyond this, citizens seem to have realised that the time has come to go new ways. The worldwide interest in the yes to the initiative supports this: it shows that the issue of the behaviour of detached economic elite is not a specific Swiss concern. And the yes indeed was not primarily a yes to strengthen shareholders’ rights but a yes to stop the detached behaviour of the elite.

 

It is key that the elite realises that it can hold no longer on obsolete practices and to preserve the “ancient régime” if it wants to retain the social contract providing liberal economic conditions. Only if the elite are willing to understand moderation and the role of companies primarily to serve the society not as a local competitive disadvantage but as a global necessity the specific Swiss social contract without much regulation can be renewed.

Besides all this it would be negligent not to consider shortly the fact that the fat cat initiative reinforces the rights of shareholders. But even if one considers the enforcement of these rights as appropriate, the question about the interests of the other stakeholders stays largely unanswered by the initiative. Indeed, the initiative requires pension funds to vote in the interest of their insurants. But this alone is insufficient. Shareholders, of course, are also stakeholders. But they have specific interests and are a part of the economic elite (at least the larger ones). Switzerland has to go further down the road and the elite have to participate if it wants that the reforms do not come exclusively in the form of new regulations. Because the time is ripe for corrective measures reforms will come anyway, in either form (regulative or liberal). And because the issue is global in nature also the other countries are under pressure to reform.

 

Claude Meier

Caring about the customer

 

 

In stakeholder management customers are regarded as primary stakeholders of the firm but also many a firm not pursuing general stakeholder management, does think it should be customer oriented. “Usability”, “ergonomics” and “human centred design” are no longer exceptions in strategic considerations. The customers are moving toward the core focus of business, which I think is a good development, because traditional customer orientation is not enough. A deeper and more honest relationship to the people who are buying your goods is necessary. As I see it, the primary focus should not be on how to sell more of a company’s products, but on what the person buying the product really wants (also resulting in selling more products).

I would like to illustrate this think shift: Many people like to eat healthy food. A snack company spots this customer need, puts some milk into the product and praises it as being a healthy snack, even though most nutritionists would assess the product to be of the contrary (heavily sugared and fatty). So just by recognizing and addressing the consumer need doesn’t make a customer centred firm. Another example: Consumers like the look of dark red meat (not grayish meat) because they have built the mental shortcut (heuristic) that intense color in food is a sign of freshness. This is why market research study participants would prefer the dark red meat to a grayish meat product. A company that follows what the consumer actually wants, will not sell the consumer a meat that was treated with a gas that keeps it red (but doesn’t keep it fresh), it will sell the consumer fresh meat. This is not only a shift in strategy, this will have wide implications for a company’s daily business in distribution, packaging, communication and so on.

 

We use these mental shortcuts (here: intense color equals fresh food) because they mostly lead us to making good decisions (read publications by Gerd Gigerenzer for more on this topic). Shortcuts make life easier; especially in this fast paced, information-overloaded environment. These heuristics are good because they are often based on experience and implicit knowledge. But the shortcut only works if it is not tampered with by others. Robert Cialdini, a social psychologist, wrote several books on persuasion, summarizing his findings based on many experiments he had made in his research on e.g. selling tactics. But he states “Just because a given [powerful psychological] principle is successful does not mean we are ethically entitled to commission its persuasive power to create change.” I think this misusing psychological mechanisms such as heuristics is not only unethical it is also a strategy that won’t lead to sustainable business success. A company that shares its purpose (the “why” of a company) with its customers and therefore wants the same thing, will be able to engage the people they call their customers and conquer the challenges (such as resource scarcity) together in an innovative way, and of course sell their products.

 

Vanessa McSorley