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25th Anniversary series: The Future of Corporate Culture

November 30, 2015

What will corporate culture look and feel like in 2040? Responses to the bank scandals and the problems of poor care in the NHS, described in the Francis Report, have led to greater attempts to strengthen controls and compliance. At the same time there is public concern about the apparent level of greed and opportunities for personal enrichment in the corporate sector, particularly in finance.  The trends over the last 40 years have been for financial services to grow in profitability relative to other sectors and for pay within this sector and pay at the ‘C’ level in all large corporations to increase relative to average pay levels. In the diagram below we can say that there has been a move downwards in the bottom half towards self interest as well as a move to the left towards command and compliance.

Figure 1  Axis of influence

 

Fig 1

 

This is not a desirable state of affairs except for the relatively small number of people for whom it creates personal wealth. It does not encourage trust or innovation, nor does it make most people happy in their work.  It is not likely to lead to long term investment and risk taking to encourage the kind of enterprise which creates more wealth for society or breakthrough technology which could help protect our planet.

The next 25 years could see a continuation of the trend. Volkswagen, assuming it survives the current scandal, is likely introduce more controls internally – whether or not regulators demand it. While this may sound OK, the problem is that in practice more controls and compliance requirements are more likely to do more harm than good. They encourage a tick box approach to rules where people may comply with the letter but not the spirit; people tend to find it harder to apply common sense or take personal responsibility and some people look for ways to exploit loopholes in the rules.

We could hope that over the next 25 years we will see a change of direction on the vertical axis where the trend is for cultures to be more orientated towards the public interest rather than self interest. This is not necessarily a wildly left wing ideal. Adam Smith, who was hardly socialist, divided incomes into profit, wage and rent. He argued that in their profit-seeking behaviour, businesses create value in a competitive environment by engaging in mutually beneficial transactions. This is the invisible hand that promotes the public good, irrespective of the intention of the profit seekers. For Smith, profit was a good thing as it creates wealth. Rent, however, does not create wealth but transfers it.  Some of the so called ‘profits’ in finance are forms of economic rent and not profit. Neither do wages create wealth and some of the very high rewards enjoyed by some are a transfer of wealth more like an economic rent.  In theory at least, the public interest can be served by self interest. Today though such a theory is hardly tenable and the invisible hand needs a bit of guidance: public interest would better be served by enlightened self interest.

Those of us who would like organisations to be happier places to work where trust, teamwork and innovation thrive can also hope for a change in direction along the horizontal axis away from command and compliance towards empowerment.  More empowerment means less hierarchy and less need for formal controls. Teams work to achieve common goals without the need for senior managers as we know them today. This is the ‘teal’ organisation described by Frederick Laloux in Reinventing Organisations. To a traditional manager such organisations sound either impossible or a chaotic recipe for future disaster. Laloux however describes many such organisations, such as Buurtzorg and Patagonia, that exist today which are doing very well.

Figure 2 Four scenarios

Fig 2

 

So we could see culture evolving along two axes. We could end up with four types of corporate culture. If current trends towards self interest and command and compliance continue we could envision dystopian cultures like that described by George Orwell in 1984. We can call this a Henry VIII culture where the CEO rules supreme in a climate of fear. No one trusts anyone. Risk taking would be foolish as would innovation. Business would decline. Conceivably the trend towards command and compliance could continue but, instead of a vengeful monarch, we have a Benevolent Dictator. In such a situation people will accept a lack of freedom as they see the value of where the organisation is going and what it is doing.

Another possibility could be termed the Three Musketeers with “all for one and one for all“. Here everyone works together for their own self interest. This culture probably exists today in some professional partnerships. The last of the four possibilities can be called The Angels. Here we have self managing teams who work towards a public interest that also benefits them personally.

What will influence the outcome? We should remember that our individual and corporate actions are a result of the systems we work in and our beliefs and desires. We are all part of a system and that system is influenced by the prevailing world views and society’s mainly unconscious but deep rooted myths and metaphors. This is a variation of Causal Layered Analysis as described by Sohail Inayatullah.

Figure 3 Causal Layered Analysis

Fig 3

 

The four scenarios of Figure 2 are at the activity level in Figure 3; they represent what we can observe. To move from one scenario to another will require a systems change at least and possibly a changing in ideology, beliefs or world view. Myths and metaphors take generations to change so will not be considered here in this look 25 years into the future and in the interest of brevity.

The primary systemic causes of an orientation towards command and compliance are the modern performance management system, performance linked pay and the short term nature of capital and financial markets as they work today.  While performance management systems and performance related pay schemes sound fine and may seem essential in theory they are often poorly designed so that they cause all sorts of problems. The world view, ideology or paradigms driving these systems are that people are rational, motivated mainly by monetary reward, basically lazy and dishonest and we want it now.

The ideology or views behind empowerment are largely the opposite. People can be trusted, are hard working and are motivated by a desire to do good and something they believe in rather than monetary gain. We could usefully speculate on the systems that would result from such beliefs, but so far they only exist in a few localised pockets, where they are usually the result of a belief or desire for a better way of working by one or a small number of enlightened and trusting individuals.

Figure 4 Systems and ideologies for Command and Compliance and Empowerment

Fig 4

The systems that support a leaning towards self interest are the same as those which support command and compliance, namely performance management systems and performance related pay. The beliefs underpinning these are ‘me first’ and ‘there is not enough for everyone’. The beliefs which would support an orientation towards the public interest are the opposite: there is plenty for everyone, and to coin a Scottish phrase ‘we are better together’, together we can make the whole worth more than the sum of the parts. This is synergy where the more we put in the more we all get out – we can make 2 + 2 = 5. Systems that would support this will have clear and accepted vision and values, self managing teams and a process where, instead of management authority, people and teams take advice from colleagues and other teams.

Figure 5 Systems and Ideologies for Self Interest and Public Interest

Fig 5

 

If we are looking for policy decisions by senior management or governments and regulators to initiate a move from self interest and command and compliance to public interest and empowerment, then we should start with looking at performance management systems.  These need to work to support the organisation as a whole, rather than a few self interested people within it. This requires alignment of objectives, systems, rewards and operations;  and the elimination of incongruities and conflicts, such as where individuals are personally rewarded for behaviour which damages the organisation or the efforts of others.

Management and leaders can also do far more to foster appropriate values. This is easier said than done and easily botched. What is vital are (i) for any values or culture initiative to involve people and not just be a top down exercise and (ii) to consider what sort of culture and values are best for an organisation and where, recognising that different cultures and values will be inevitable and may be appropriate in different parts of an organisation.

We can all hope that corporate culture in 2040 will be more like The Angels than Henry VIII. There are some promising signs. There are organisations which exemplify an Angel culture. There is growing interest in debating what corporations are for (see e.g. the initiative by Frank Bold Purpose of the Corporation and The Futures Project by Tomorrow’s Company) and what responsibility they have to society. Many business leaders realise they have to connect better with society.  Time will tell but such change for the better will require luck, a lot of work and some brave political and business leaders.

Paul Moxey is a SAMI fellow, Visiting Professor of Corporate Governance at London South Bank University and chairs of the CRSA (Culture, Control and Risk Self-assessment) Forum since 2000. He lectures widely and provides executive education and consulting support on governance, risk management, business ethics and culture. He was formerly CFO and company secretary of a listed company, an internal auditor and a management consultant working in governance and risk.  From 2001 to early 2015 he was Head of Corporate Governance and Risk Management at ACCA where he was involved in governance developments across the world including speaking at conferences and other events in five continents as well as a considerable amount of writing. His main interest is in the behavioural aspects of governance and risk and his last major project at ACCA was to lead an ESRC funded international research study of corporate culture and behaviour.

The views expressed are those of the author and not necessarily of SAMI Consulting.

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