Only somewhat arguably, the shift from a firm’s purpose to its performance began in the 1950s, when Robert McNamara, then Ford’s manager of planning and financial analysis, decreed that performance would trump purpose, especially quarterly performance. Consumed by meeting metrics, leaders began to lose their way. In this thoughtful article, the author describes what leaders must do to restore faith in themselves and their organizations.
Asked about the art of managing, a certain former manager of the New York Yankees replied, “Managing is getting paid for home runs someone else hits.”
– Casey Stengel (1890-1975) (The Little Brown Book of Anecdotes, p. 523)
For the past three years I have devoted considerable time to studying the relationship between leadership and governance. In examining these topics I have attempted, in part, to understand how it is that many experienced and well-educated corporate leaders have so utterly failed to grasp their role, to lead with integrity and to do so with a sense of stewardship or corporate social responsibility. After all, since the dawn of the 21st century we have witnessed a series of colossal missteps on the part of corporate leaders, as reflected in leadership failure at Enron, WorldCom, Tyco, Wall Street investment banks, and more recently, the Libor scandal. In short, many corporate leaders have defaulted on their obligation to lead. As it happens, my research has taken me into the last century and, indeed, the latter part of the 19th century in an effort to understand the prevailing lack of public confidence in corporate leaders, especially that being demonstrated by young generations.
Before retracing history, allow me to recount something I learned in graduate school many years ago. If I recall correctly, the year 1950 marked an interesting point in time. It marked a new beginning, not only in terms of alliances, but also because, in large measure, business had spent the first half of the 20th century searching for and securing capital, while it spent the latter half of the century very much devoted to the use and flow of those funds. It is no secret that the last half of the 20th century was remarkable by any yardstick, as evidenced by phenomena such as the race for space; the development of atomic submarines; the introduction of the microchip and the computer; the widespread use and commercialization of the Internet; the expansion of food distribution via a network of global transportation systems, and the increasing interconnectedness of global finance.
What made for such rapid development in the back half of the 20th century? It turns out that the answer to this question might well lie in the innovative ideas of management. Recently, I read an article by Water Kiechel III entitled, “The Management Century” in which the author traces the emergence of a continuous stream of management ideas and concepts that began as long ago as May, 1886 (Harvard Business Review, November 2012). I was very interested in the article as I had only just reviewed the origin of American business schools (ABS) and schools of management (SOM) dating back to the latter years of the 19th century. I now realize that the ABS and SOM, while attempting to define and differentiate themselves by discipline, e.g., finance, economics and the like, had become relatively mature institutions by the middle of the 20th century. By comparison, it would be reasonable to suggest that Canadian business schools, while taking root in the first half of the 20th century as Schools of Accountancy (e.g. Alberta) or Departments of Commerce (e.g. UBC), didn’t really gain traction as mature graduate schools in their own right until post 1950. (Note: Western University’s Ivey School of Business would be the notable exception). Hence, numerous faculty and many ideas initially migrated to Canada from the universities of this country’s closest and largest trading partner. It is these ideas, incubated by academics and management gurus, together with their associated tools, techniques, concepts and methodologies, which have had a significant impact on shaping the thoughts and behaviour of corporate leaders during the period of unbridled growth, 1950-2000, wherein performance and return on investment became paramount.
As business has evolved in the last half of the 20th century, the curricula at business schools and schools of management have been reframed together with the discussion of various forms of management. The latter has engendered broad debate on the benefits and shortcomings of matrix, situational and systems management within the overall context of professional management. The former (curricula) is reflected in a range of concepts including management science, resource management, competitive advantage, corporate restructuring, change management, risk management and strategic management. This trend has greatly enhanced the practice and sophistication of management for the purposes of creating and consolidating wealth. In short, corporate leaders have come to rely on their well-educated, experienced managers in an increasingly complex, interdependent marketplace.
Just what have managers brought to the table? Perhaps we should first acknowledge that management largely deals with activities that aim to improve performance in the short term. On the other hand, leadership (hopefully) concerns itself with inspiring, motivating and aligning people to achieve ends that they never before had considered possible, over the longer term. So, while a leader may commit personnel resources to certain activities designed to achieve objectives, that same leader must appreciate the boundaries of those activities in terms of expectations, limitations and risks. There is, after all, only so much that an algorithm, model, process or best practice can achieve. An investment in any of the aforementioned is only part of the solution. This is because achieving a preferred outcome also involves implementation in sensible, integrated, meaningful and, increasingly, collaborative ways. This is often the leaders’ foremost challenge – the challenge of consequential strategic action which must never lose sight of business purpose.
Over successive decades since 1950, universities have educated and informed management students by covering a range of tools and concepts as follows: Performance Evaluation Review Techniques (PERT), Critical Path Method (CPM), Management by Objectives (MB0), Management For Results (MFR), Project Management (PM), Managing by Wandering About (MBWA), Balanced Score Card (BSC), Benchmarking (BM), Business Process Reengineering (BPR), Total Quality Management (TQM), Activity Based Costing (ABC), Business Process Outsourcing (BPO). In aggregate, these tools, concepts and methodologies have influenced and, in many respects, continue to influence business practice. They have proven helpful, useful and sometimes transformative in circumstances where, for example, corporate restructuring has been integral in improving the return on investment for shareholders, whether in private or public companies. As a bundle, these tools, concepts and methodologies have been employed by managers to aid in the achievement of specific results. However, in many instances, their advertised menu of fixes has been digested incorrectly by corporate leaders.
How have corporate leaders responded to this unique basket of intellectual capital that has been put on the table by academics, university graduates, management gurus and consulting firms?
I think it fair to state that leadership has endorsed the application of such management tools and concepts for particular challenges in an effort to improve the effectiveness and efficiency of their business operations. However, the pressures on a leader’s time have been and remain great, a fact that has led to a gradual misunderstanding of a leader’s role. In effect, leaders have allowed their authority to become eroded, given their increasing pre-occupation with the deployment and utilization of these compartmentalized measures of intervention and remedy. As a consequence, the attention of leaders has shifted from purpose to performance. Management’s ideas and concepts, as good as they have been, have gradually become a substitute for leadership. In the face of such a range of concepts, leaders could not fully appreciate their role or understand how to respond or act. Accordingly, an unintended consequence was that leaders unwittingly became displaced by the very ideas, concepts and tools they willingly and authoritatively adopted in the first place. Leaders thereby effectively defaulted from their role as individuals who create forward looking and meaningful strategic objectives, and communicate with integrity and understanding. Accordingly, leaders lost sight of their own purpose and, in so doing, the organization’s purpose. The resultant malaise in leadership has witnessed degradation in corporate behaviour and fragmented corporate cultures wherein greed and opportunism have often become more visible than values, ethics and stewardship. Many corporate leaders have thus found themselves in the spotlight for all the wrong reasons.
This vacuum in leadership has had a negative impact, primarily in 3 ways:
- There has been a loss of confidence on the part of shareholders and stakeholders.
- Many in the Generation X and Generation Y cohorts have become disillusioned and their respect for business has diminished.
- The role and independence of those who govern as board directors or in an advisory capacity have been questioned and scrutinized to the extent that there exists today organizations devoted to the provision of oversight of those who are appointed or elected to provide oversight in the first instance.
What leaders must do
The obvious next question pertains to just how leaders can and should rectify this dilemma of default leadership and embark on a remedial program of meaningful and consequential action. While the path is not at all clear, I would suggest that at the very least leaders must regenerate their capacity to allocate time for serious reflection about strategy, rethink their obligation to frame and pose thoughtful questions at the right time, fully understand the boundaries and limitations of management protocols, learn to appreciate the untapped residual value of collaboration and communicate with integrity. In this way, leaders might restore their focus on purpose and create sustainable businesses which are respected by competitors, customers, employees, partners and shareholders.