Philip Whiteley's Blog

November 16, 2012

Radical Shift: A mini-manifesto

Filed under: Uncategorized — felipewh @ 10:35 am

The ‘old normal’ business model has been exposed as unfit for purpose. The recent crisis has exposed how the costs of opportunistic, unethical pursuit of short-term returns have been huge: mis-selling, fraud, Libor-rigging and so on have damaged and even destroyed entire businesses. The forthcoming book New Normal Radical Shift, by Neela Bettridge and Philip Whiteley, describes how these damaging practices were based on flawed theory. It describes a positive but practical alternative, showing how sustainable, enlightened management can be good for business, the environment and society, simultaneously. The principles of the ‘New Normal’ can be summarized in six major themes:

The 20th Century business model was based on economic theory, not evidence on how businesses operate – Formal economics has used mechanistic metaphors for the economy and the organization, assuming ‘the firm’ or ‘labour’ to operate according to ‘laws’. We now know that this approach is inaccurate, and has led to a downplaying of the importance of personal leadership skills. Wages are described as the cost of labour in economics, but in the real world they form only a part of employment costs, and can be dwarfed by the costs of poor skills or low morale.

Accountancy can only measure money, it cannot measure the organization – The terms of reference of accountancy have been adopted for attempts to value organizations. This has led to the misnomer that the people who work for the company and their skills are ‘intangible’, whereas in fact they exist; and the misnomer that the assets owned by the legal entity of the firm are ‘tangible’, even though they consist of relative valuations expressed on a balance sheet.

The company is a network of teams, not a structure with resources – A business is based on relationships, not impersonal transactions. Business leadership means negotiating with, leading and challenging or inspiring people.

Sustainability is a business necessity, not an ethical extra – It is now clear that the cult of ‘maximizing shareholder value’  is an unsustainable business model, which does not even benefit shareholders, especially when measured over the longer term. Business sustainability has to be based on a recognition of the role of all stakeholders. Environmentally, the finite nature of natural resources, and volatility in commodities markets, mean that responsible and efficient stewardship of resources is now a business imperative as well as an ethical one.

Shareholders do not own a publicly listed company – Recent business orthodoxy has been geared towards maximizing returns for shareholders, who are assumed to be the ‘owners’ of the company. This is an arbitrarily narrow target, based on a misunderstanding of company law. Shareholders do not own the company; they own shares in the company, and benefit from limited liability. In many contexts the employees constitute a far more significant stakeholder. The duty of the directors, in law as well as in commercial good sense, is the long-term stewardship of the company for the benefit of all stakeholders.

Left-right politics is an anachronism: the interests of the workers are not always in opposition to the interests of owners and managers – Economic theories of left and right-wing politics agree that the interests of owners and workers are always inherently opposed. This can be found in the teachings of Karl Marx and Milton Friedman, which have been hugely influential. Decades of research on employee engagement now show this assumption to be inaccurate and extremely damaging to businesses and their employees.

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2 Comments »

  1. Milton Friedman’s “theory of the firm” has been the worst thing to happen to economics in the past 40 years. The Chicago School still exults him as “God.” He’s dead and rotting in his grave. We now live in a world that is much more Thomas Friedman than Milton Friedman. –Jason Gonzales, MIT Sloan School of Management and Co-Founder of AquaVida Labs.

    Comment by Jason Gonzales — November 16, 2012 @ 6:56 pm | Reply

  2. Jason – thanks for your comment. Great soundbite: ‘world is much more Thomas Friedman than Milton Friedman’.

    Comment by felipewh — November 17, 2012 @ 9:43 am | Reply


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