Finally, McKinseyQuarterly admits to a lack of leadership based on the survey of corporate directors

This clearly exercised me 5 years ago! The situation at the top of large companies is likely even worse now. Besides lack of real leadership we can now safely add unjustifiable pay inflation as Thomas Piketty shows in his highly acclaimed book “Capital in the Twenty-First Century” (Harvard University Press)

Martin Wolf writing in FT says in his review from which I quote extensively below:

Capital in the Twenty-First Century contains four remarkable achievements. First, in its scale and sweep it brings us back to the founders of political economy. Piketty himself sees economics “as a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science”. The result is a work of vast historical scope, grounded in exhaustive fact-based research, and suffused with literary references. It is both normative and political. Piketty rejects theorising ungrounded in data. He also insists that social scientists “must make choices and take stands in regard to specific institutions and policies, whether it be the social state, the tax system, or the public debt”.

Second, the book is built on a 15-year programme of empirical research conducted in conjunction with other scholars. Its result is a transformation of what we know about the evolution of income and wealth (which he calls capital) over the past three centuries in leading high-income countries. That makes it an enthralling economic, social and political history.

…In all, the two most striking conclusions are the rise of the “supermanager” in the US and the return of patrimonial capitalism in Europe.
…
Third, Piketty uses simple economic models to explain what is going on. He notes, for example, that the huge rise in labour earnings at the top of US income distribution is overwhelmingly explained not by sports stars or entertainers but by increases in remuneration of managers. He argues that this is the result of the falls in marginal taxation, which have increased the incentive to bargain for higher pay, reinforced by changes in social norms. The alternative view – that the marginal productivity of top managers has exploded – is, he asserts, unpersuasive, partly because the marginal product of a manager is unmeasurable and partly because overall economic performance has not improved since the 1960s.
…
Fourth, Piketty makes bold and obviously “unrealistic” policy recommendations. In particular, he calls for a return to far higher marginal tax rates on top incomes and a progressive global wealth tax. The case for the latter is that the reported incomes of the richest are far smaller than their true economic incomes (the amount they can consume without reducing their wealth). The rich may even take themselves outside any fiscal jurisdiction, so enjoying the fiscal position of aristocrats of pre-revolutionary France. This fact blunts one of the criticisms of the book’s reliance on pre-tax data: over time, the ability of individual countries to redistribute resources towards the middle and bottom of national income distributions might dwindle away to nothing.

Yet the book also has clear weaknesses. The most important is that it does not deal with why soaring inequality – while more than adequately demonstrated – matters. Essentially, Piketty simply assumes that it does.

One argument for inequality is that it is a spur to (or product of) innovation. The contrary evidence is clear: contemporary inequality and, above all, inherited wealth are unnecessary for this purpose. Another argument is that the product of just processes must be just. Yet even if the processes driving inequality were themselves just (which is doubtful), this is not the only principle of distributive justice. Another – to me more plausible – argument against Piketty’s is that inequality is less important in an economy that is now 20 times as productive as those of two centuries ago: even the poor enjoy goods and services unavailable to the richest a few decades ago.

For me the most convincing argument against the ongoing rise in economic inequality is that it is incompatible with true equality as citizens. If, as the ancient Athenians believed, participation in public life is a fundamental aspect of human self-realisation, huge inequalities cannot but destroy it.

In a society dominated by wealth, money will buy power. Inequality cannot be eliminated. It is inevitable and to a degree even desirable. But, as the Greeks argued, there needs to be moderation in all things. We are not seeing moderate rises in inequality. We should take notice.

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Follow up on Harvard Business Publishing Voices Blog on Effectiveness and Focus

Following a Twitter posted link yesterday, I found the blog post entitled The Key to Effectiveness-Focus. This is what Norman wrote about the

classic questions of focus and bandwidth

by way of a comment on the same site:

The late Stafford Beer, who did brilliant work on governing with Viable System Models, wrote that “Ethos was the ultimate variety reducer”.

The governing paradox is that policy makers must regularly enlarge variety to absorb vital new ideas; whilst then reducing variety to focus on what to manage; and how; and when. It seems that failures occur regularly in each direction.

Both tasks require abstract thinking skills, concept creation, relevance testing, understanding of multiple communications’ trajectories and persuasion time constants. These must be linked to critical path planning, causality analysis of a high order, input-output analysis, and strategic awareness of present and alternative demand possibilities and their future impacts.

Ethos – defined as the characteristic spirit and genius of a society, culture, policy, system or idea – or an amalgam of them – embraces the summation of what we stand for today; it is also tomorrow’s vision of what we want to stand for then. Stafford Beer called these two distinct positions “the inside and now” and the “outside and then”. Thinking about them requires successive utilization of divergent and convergent multi-disciplinary thinking, together with abstraction, transduction and learning skills, if change is to be managed successfully.

So one can redefine governance as continuing ethos management from now to then; as eras are created and fashions and zeitgeists pass. Or, at its simplest, if what was promised in an election is to be delivered in office.

In retrospect, what President Obama and others failed to realise was that Health Care Systems’ Policy-making attacked far too many constituents’ views and value systems for fast decision-making that would stick. His decisiveness and need for control, his team’s skills and policy options, what future care would provide to whom, etc. all had to take account of the different ethos and value systems of a vast multitude of constituents that cut across and within all party lines.

In retrospect it was an elementary mistake to make for a team whose collective bandwidth had only previously practised on-the-fly policy-making, speech writing, opinion forming, multi-media broadcasting, perception and manipulation in one on one contests and debates; rather than governing a digital society in all its complex variety. He recognized this recently in a working meeting when he said something like “I want more people in this room around this table, with different opinions than you have provided here”. What he did not see is that he alone cannot take the decision of what they come up with round the table. Enlarge the assumed participants in increments of 5 and you will soon get to a number of those involved where you will agree that it is unworkable. A more rigourous option-generation and decision-making system is required. Put simply no single person can absorb enough new data to take rapid decisions on their own, without a process to aid them. And whatever it is, that degree of bandwidth, information processing, knowledge building and multi-disciplinarity is not a normal meeting.

Additionally, just adding to available inputs, by using the internet to allow fully open inward communication of external ideas and publishing them as “Wordle” diagrams will not do. The need is both to take in more inputs and to understand how to manage the contradictions, paradigms, systems of thought and analysis, complexities, alternative values, potential policy shifts and conflicts of opinion which their variety provides. Ultimately, I expect we will need to define another governmental separation of state power – beyond the executive, legislative and judiciary to become skilled in the on-going variety all of this. I know of no country or institution which does this well, so there is a pressing need to create one ab initio. We could call this fourth separation of power the “Plurality” – E pluribus unum; out of many, (ideas to) one.

Without such continuous, because institutionalized, organic thinking across all aspects of society, government ( and /or regulation ) will not be matched to the complexities of preventing the emergence of critical national and global problems that require urgent solving – if not first prevented in a “just in time” or “well before they become urgent” way.

The number of upset countries, distraught citizens, failing companies and failed leaders thrown up by the global financial crisis proves just how much such basic reappraisal of our bandwidth in governing, regulatory, organisational, structural, constitutional,institutional and leadership systems is still required.

Opposing opinions must be reconciled more effectively by institutions learning to practice higher order unifying concepts, such as ethos, so that all of the best available knowledge is properly evaluated and absorbed by the governing system, rather than “Wordled” or manipulated by dumb software.

True bi-partisanship has a multitude of faces whose opinion polarities must be subtly handled. A new ethos of health care that won broad acceptance, beyond the simplicities of the victorious ideology, was the only way to achieve this goal. And that task, as it turned out, tested the Democratic party’s governance well beyond the limits of its academic advice, bandwidth, competence, experience, culture and processes.

How can it recover without addressing the true complexities involved? Which academics, or businesses, or system engineers or researchers or citizens have bits of the answer; and who will focus this into a new governance vision?

According to Stafford Beer, it is ethos alone that can unite disparate policy functions, purposes, meanings and motivations clearly, to summate what an organisation, nation or political party stands for. In my view, good government is Ethos Management, and I suspect he would agree.

Perhaps the modern democratic state needs to be redesigned around these precepts if vision, policies, values and multiple motivations are to be captured in a distinctive ethos, enacted by a Viable System and coupled with the effective governance that leads to optimized citizen engagement and satisfaction for the majority, without alienating too many minorities. Then we could hope that we have at last created an organisation and operating culture, that is best suited, to carry out the ruling values, derived from the distinctive ethos, which summates the critical policies that citizens voted for. Yes we could!

– Posted by Norman Strauss
September 2, 2009 12:24 PM

Please let us have your comments. We would love to hear more views.

The Times take on female directors impact

Apologies for a messy post. This comes from my E71 mobile due to BT broadband unavailability since last evening. I could not leave alone the research that generated such opposing reports. Why this happened remains open to speculation.

More articles about LSE study came out in The Times yesterday. The title could not be more different than the one I posted about from FT yesterday Women bad for business? It’s men who are susceptible to groupthink The Times Business Editor goes as far as to call the implication in FT that women on corporate boards are bad for profit ‘BUNK’

Why oh why quality papers fall for sensational titles or are women still fair game?

I am really angry, sad and ready to pounce -all 3 at once due to media fueled attacks on professional women.

Latest in the line of summer games aimed at senior and professional women is the article in FT today (link coming later from computer). The title claims that WOMEN DAMAGE PROFIT of companies on whose Boards they sit (the print copy of FT has tthe same article on p.16 under the title Doubt cast on women in boardroom). When you read the article it says nothing of the sort. The researchers observe that women sit on the Boards of companies that HAVE lower profit and smaller market capitalization. There is no indication of whether the profits ACTUALLY fell since appointment of female directors or where they like that before they were brought on board. Similarly, we are not told if market capitalization was lower at the time of appointment. Boo to FT!

Since the beginning of the week Harriet Harman has been piloted from all sides. It started with a ridiculing her comment that more women at the top reaches in the banks would have made a difference to male driven competitiveness of winner takes all variety. It then moved onto her comment that Labour should have a woman in one of the top two jobs – hang on everyone, she was not asking for men to step aside and give both jobs to women for a change! That could have been noteworthy. When pens and daggers came out relating to Harman’s decision to get Rape Bill tightened, it all became too much, at least for me.

So, could all this be the result of mysogeny of journalist profession which according to Richard Reeves, Director of Demos, has the highest proportion of private school educated members of all professions -boys rebelling against a Headgirl.

Time to grow up me thinks.

PS. In the weekend FT Emma Jacobs rounds up on Harriet Harman critics in Sisterly suggestions cause hysteria. However, she conveniently forgets to mention her own paper and Brotherly uproar about female directors misreporting of the research.

Systems Thinking in Public Sector -has the time for application finally come?

It started with the Stefan Stern article in the Financial Times ‘Change the way you work’. However, failure of large systems, whether in financial services, public sector or industry, is not big news any more. Yet, little has been said about practical and long lasting ways to deal with this global and endemic problem. So, it is refreshing to read the following:

“Systems thinking requires a profound shift in … the design and management of work,…reversing current norms to go from ‘push’ to ‘pull’, and placing the development of workers, individually and collectively, at its heart.”

If companies want to get better at what they do, then their people have to be able to learn. …
Working within a rigid framework that is designed to achieve imposed targets makes it almost impossible for employees to learn.

Then today The Times has article ‘New way’ thinker John Seddon aims at council targets’
While ‘systems thinking’ here is an interpreted version, the approach is clearly catching attention and strikes at the core of some burning issues by:

Mr Seddon advocates what he calls “systems thinking” — designing services entirely to meet the demands of local customers. …

Mr Seddon rejects the term “best practice”, replacing it with “better practice” because, he says, each problem requires its own solution. He believes that the focus on best practice has caused “the worst ideas from the private sector to be copied in the public”. …

“… I’m in the business of helping people to think,” he says bluntly.

In reply, Norman Strauss wrote the following comment also published in The Times:

Mr Seddon is right to champion systems thinking. The customer’s
appreciation systems ( my phrase ) are indeed the ultimate and proper
masters and arbiters of public services, their design, systems, processes,
products, people, costs and delivery.

However, care must be taken to ensure that learning systems, innovation
systems and service ecosystems are not driven by public opinion ab initio;
or nothing strikingly new will ever be envisioned, created, tested,
developed and produced again.

Major improvements and new demand technologies have to be created by
visionaries, made to work, and their purpose explained effectively, before
they can be best appreciated and needed by customers.

Progress does not come easily.

Simplistic targets can indeed prevent creativity, design and change. They
can kill commitment.

Researching present and future customer needs/demands cannot be done by
focus groups or surveys alone.

Customers cannot create major technological, scientific or industrial
breakthroughs. They can only comment on them once they have been
developed, communicated and used to create new demands.

The phrase alternative demand technologies says it all.

What all three items show is that the time of real application of systems thinking has come. The expertise needed to make this happen is not widely spread in spite of a growing number of knowledge workers in the workforce.

25 years on -and that from one of Tories leading thinkers

On Wednesday 20th May Daniel Finkelstein wrote a well argued article in the Times entitled Will the next Mr Speaker get the new era? He argues that large political parties arose in the era of mass media and that the information revolution is changing all that. The thesis is that the shift is thus from closed politics to open politics.

About time someone noticed. This is exactly what Norman Strauss argued 25 years ago, among other places in the Article “State of Mind that Can Stop Decline” He pointed out that government is not well designed for building a bridge from values to policies and legislation- as we so graphically see now! In the days well before Barack Obama went to his graduate studies at Harvard and much before Lord Layard from LSE recognised the need for lifting UK dismal levels of life satisfaction, Norman wrote:

Building a positive ‘can do’ altruistic ‘mental-welfare state’ is what modern politics should be about.

Any of the major parties doing anything about it? If not, why not?

Learning Lessons from Iraq war- UK Government Inquiry

Sir John Chilcot (former senior Civil Servant) and 4 other officials, among them 2 historians, 1 ambassador (in Russia) and 1 member of House of Lords (responsible for judges appointment) will head an independent inquiry into the Iraq War to last a year- as announced by Gordon Brown, PM this afternoon in the Parliament.

All the comments I saw about this seem to miss the main point: Who among these 5 people is an expert on processes required to identify Lessons Learnt?

In addition, I wonder:
1. What support will the new Privy Cousellors have in doing this important job?
2. Why is this an ‘Inquiry’ rather than ‘Audit’?
3. Who will be responsible for putting LESSONS Learnt into practice?

Having worked in BP, where it was routine to carry out Large Projects Reviews so that Lessons Learnt can be applied in subsequent cases, I know that neither the process required to pinpoint them nor their later usage were easy or attempted by people without extensive experience in the actual domain nor without the deep familiarity of the process to be used. As it stands, I am deeply sceptical about the capacity of the appointed Committee to do the job they are tasked with so that results can be truly usable!

No wonder we, the knowledgeable public, are sceptical about the politicians and Government.

The politicians say they want to hear from public, but do they?

listening to discussion in BBC Newsnight and marveling at general lack of appreciation of the systems related issues. First, there are no systems experts in the Parliament or they are hiding! Second, BBC does not see it necessary to bring a systems expert into the studio to demystify current mess. As a control systems engineer and a systems thinking practitioner, I maintain time has come to bring in some graphic education to the media, politicians and public.

It is finally accepted that the problems are in the system itself. It is also accepted that those within the system itself are responsible for its structure. However the prescription for fixing it that involves quick changes of systems governance rules betrays a real lack of appreciation of how to effectively address the problems of bad behaviour and rules abuse. What we are seeing is Fixes that Fail systems archetype at play.

Academic spat about the role of women managers/leaders in the current economic climate and the real influence

It is interesting to watch academic spats spill into the quality daily press especially when they go against the grain. Here we have three female professors, each from a different top 5 European Business School, responding to a male professor of a less well-known European Business School.

Let me start by saying that I totally agree with the starting position of Profs Herminia Ibarra, Lynda Gratton and Martha Maznevski where they register

dismay at the quality of debate on the role of women in the financial crisis. Specifically, we question the basis for current speculation that the meltdown might have been averted had more women been running the business world.

What I am surprised by is the lack of quality in their own argument, as I will show below.

Compare the titles: Soapbox: why women managers shine followed by Claims that women are inherently more cautious are deeply troubling. Now, let us look at the arguments and supporting data.

Prof. Michel Ferrary is the first author and uses statistical comparisons, namely his research on the correlation between French company stock index and percentage of women managers in the respective companies. He finishes with two questions about the conclusions one could draw about performances of feminised companies in different conditions. In turn, the letter authors Profs Herminia Ibarra, Lynda Gratton and Martha Maznevski offer no data whatsoever yet finish with strong admonition that one must

beware of perpetuating unfounded stereotypes along the way.

More surprisingly, they choose to interpret the closing question from Prof Ferrary’s comment as

speculations (that) also come with dangerous implications

and follow by restating it to serve as a proof of their main point:

we are deeply troubled by claims that women are inherently more risk-averse or cautious or prudent than men, and that this essential nature somehow makes women more suited to leading in a downturn

So their whole argument hinges on whether one agrees that

Several gender studies have pointed out that women behave and manage differently from men. They tend to be more risk-averse and to focus more on a long-term perspective. A larger proportion of female managers appears to balance the risk-taking behaviour of their male colleagues.

This is an area where a lot of the research has been done yet the letter writers offer no data at all. They could have consulted Prof. Deborah Kolb short note Are Women Really Risk-Averse of March 9 in the Washington Post for research results.

The conclusion is best summarised by Ms Jackie Orme in End of the ‘ego driven’ leader who simply states

What we most need is a greater mix of personal qualities in our leaders.

As for the future importance and position of women leaders it is not the professors who decide. Ms Sarah Best has a telling example

The FT has already told us (March 11) that, of the 50 people in the world who have the position, skills and contacts to see us through the financial and economic crisis, just five are women. Women taking a leadership position? I’m not sure, it all sounds very risky to me.

At the same time (March 8th) Washington Post Leadership blog has asked its Distinguished Panel of 20 Experts (five of them are women) to address the similar question Testosterone and the Crash — you can read all answers there. With statistics that show that only 2% of Fortune 500 CEOs are women and that median bonus for men in largest USA companies is 3 times larger than for women it is clear that anything they had to say was just wishful thinking. May be the last word should be with Professor Warren Bennis:

Unfortunately, the explanations for the crash have little to nothing to do with DNA or brain circuitry but have everything to do with the serious design flaws of its system, a system run amok for a whole bunch of reasons and like all system problems are multi-determined: group think, greed, sloppy and lax regulation, and close to zero transparency. Those are the problems and they are deep and there’s no silver bullet like testosterone — or lack of it — that can solve them.

If you see what is required in good time why is it so difficult to open minds of opinion formers?

Those with the classical education know about the fate of Cassandra. For others suffice to say that by telling truth to power got her into deep trouble. This may not be so dangerous in our times, yet it is certainly not appreciated and most likely totally ignored.

Just follow the controversy brewing about Sir Gus O’Donnell’s comments reported in the Financial Times about the vacuum at the top of US Treasury civil service in times of real crisis. We can add to this the thoughtful follow up by Willem Buiter in his Maverecon blog post To the victor go the spoils: who answers the phone in the US Treasury? in the same paper who points out the costs The price of the US spoils system: the emasculation of US macroecononomic policy making. However, only two days earlier in the same paper two eminent USA professors have declared about the same situation that When a house is on fire, you put all your initial effort into putting it out.

Lets turn to the economic situation in UK. A day earlier in the same paper we have an article where Gillian Tett in Lost through destructive creation starts off with:

Six years ago, Ron den Braber was working at Royal Bank of Scotland in London when he became worried that the bank’s models were underestimating the risk of credit products. But when the Dutch statistical expert alerted his bosses to the problem, he faced so much disapproval that he eventually left.

“I started off saying things gently . . . but no one wanted to listen,” Mr den Braber recalls. The reason, he believes, lay in “groupthink . . . and pressure to get business done” – as well as a sheer lack of understanding about how the models worked.

Tales of that nature go some way to explaining how the west’s big banks brought themselves to their present plight and tipped the world into recession.

Now remember, this is the paper that has twice ignored the attempts by Norman Strauss to point out how these issues can be addressed at the fundamental level first in Q3 2008 and then in December 2008. Yet the Editors are willing to give space to the contributions like the most recent An unruly phenomenon in constant need of social control.

Let Cassandras have their say! Otherwise we will be indeed stuck with the closed circle of Future of Capitalism Top 50 leaders with no new face from another discipline, a young thinker or an old rebel among them framing the debate about all our futures!

PS I have just spotted a letter that fits some of the contrarian criteria Let a few uncomfortable truths appear on your pages, FT by Dr Roman Wolczuk. A case of synchronicity or?