Bring on the Iron Cage

Technical competency is all very well, but what any best in class organisation really needs is leadership. Sort of, actually no it doesn’t, not really.

Leadership is both a catch-all phrase and a cult. Typically, it's that amorphous mess of charisma, vision and ability to inspire others you occasionally stumble upon, but more often watch strutting about on a podium or sitting the other side of a desk. And by definition it’s both a vague and rare quality; we can’t all be chiefs after all, leaving it something you simply know when you encounter.

This vagueness makes it's supposed importance a belief more than anything else, yet one powerful enough to underpin an entire industry of head hunters, business schools, publishers and training companies, all engaged in selling the stuff YOU need to recruit or even better become a new and improved leader. Unfortunately, reality gets in the way because the belief in leadership is one that can actually destroy shareholder value, the only real measure of a thing's worth in business.

One reality is that “leadership” informs a self-serving political rhetoric that helps legitimise structured inequality. Like when you ask why has that bloke got loads of cash and I don’t, it’s because he’s a leader.

Another reality is that people have vested interests that influence their judgement, decisions and behaviour. To give an obvious example, people buy themselves food because they have a vested interest in not being hungry. To give a more complex business related example, people support projects led by people more senior than they are because it might make their getting a promotion more likely regardless of whether the project is silly. And that’s it really, vested interests routinely drive decisions that may or may not destroy shareholder value, but are perfectly rational for whoever makes them due to the material rewards they generate for the individuals involved.

You could of course challenge this by claiming various organisational structures are in place to put a check on stupidity. Except, the point about the cult of leadership is it emphasises the individual over the committee and, as already mentioned, legitimises as well as encourages the unequal distribution of resources, including organisational authority and power. So you can have as many project approval committees as you like; if one leader is in a position to influence the size of every committee members’ bonus, then what he wants is typically what happens and if he’s an utter nutter, you’re stuffed (and thats not even taking socialization into account or the pressure to conform with organisational values, etc., etc., yadda yadda).

The typical response here is to try and make sure you don't appoint a silly leader by conducting oodles and oodles of interviews. Except, these are typically just more of the same thing, which transforms the process of recruiting a new leader into a pointless endurance race.

A practical alternative that’s both more cost effective and efficient is to move away from the cult of leadership and focus instead on a candidate’s technical competency. To put this in sociological terms it’s to ditch the rediscovery of what Max Weber called “charismatic authority” and instead re-emphasise the importance of “rational-legal authority”.

I’ll explain why; first off, technical competency is easier to assess and measure. So rather than asking some bloke to tell you about a time when he inspired people to exceed expectations and what the outcome was, you simply ask him to change the plug on a kettle then plug it in. If he gets his wires mixed up, bingo, that’s one less travel expenses claim.

More seriously, leadership is such a half arsed, subjective thing to assess shifting the emphasis towards more technical criteria reduces the scope for inconsistent and basically bad outcomes. Most importantly of all, as someone kindly pointed out to me earlier today, it minimises costs/losses and avoids destroying shareholder value.

This is easy to illustrate using a wee model that sees 4 candidates being interviewed for the role of leader.

- Candidate A is a good leader with good ideas
- Candidate B is a good leader with bad ideas
- Candidate C is a bad leader with good ideas
- Candidate D is a bad leader with bad ideas

Candidate “A” is who you’re looking to find, not only has he got good ideas, he’s also got the leadership skills needed to implement them. Appoint him and bingo, you’ll going to improve your company’s bottom line.

Except, if you could spot an “A” straight away you wouldn’t be working thru a protracted interview process in the first place. Alongside this if your organisational focus is on leadership, the difference between a candidate A and a candidate B i.e. someone who can talk a good game, but doesn’t have a fucking clue, runs the real risk of being obscured.

Even worse, the vested interests noted above mean the fact a newly appointed leader might not know what he’s talking about will be swept under the carpet by everyone involved in appointing him because they don't want their lack of judgement shown up. Similarly, all those hoping that by keeping the new leader sweet they’ll get a bigger bonus aren't going to say diddly either.

So installing a B type candidate will see money wasted on external consultants, strategy weekends, bad acquisitions and so on, because they have the personal ability to convince people to buy-in to all that kinda shite. At the same time no one will challenge them because of their vested interest in preserving the status quo

Candidate C on the other hand has loads of good ideas and is highly technical, its just he’s a boring fecker everyone tends to ignore. But, that’s OK. If he was candidate B, he’d be pissing money against a wall inspiring people to build a shareholder value destroying machine. C on the other hand has this wonderful idea for making oodles of cash, it’s just everyone always ignored him whenever he mentioned it, so it never got implemented. At least not initially except now "C" is a leader, he will be listened to.

Similarly, no one cares what “D” thinks, because he also doesn’t have the personal chutzpah needed to introduce any changes of any significance whatsoever regardless of whether they’re good or bad. But, "D" doesn't matter anyway because the use of technical criteria meant he didn't make it past the first interview.

Pulling this together, focusing on good ideas (i.e. technical competency) has two possible outcomes. (1) increased profits or (2) no additional costs. By contrast focusing on leadership will either (1) increase profits or (2) generate losses/increase costs.

So focussing on leadership is only just as likely to deliver the same gains as ignoring it altogether, but poses higher risks. And thats that really.

Words from the genius

(being the first, not very good album by the GZA/The Genius)

When John Kay recently wrote an article arguably excusing, if not quite defending, bank CEOs, it got me thinking about those other, not quite as senior executives. I mean who is out there right now defending or even helping them? No-one, thats who despite them needing it judging by the story I once heard about a recently appointed exec who did something in clear breach of company policy.

For the HR Business Partner involved this was due to his naivety and inexperience and most definitely not an obviously nepotistic act that successfully alienated hundreds of staff. Except we don’t even need to take the HR bod at their word to know why the modern executive needs help. The cult of leadership that defines so much of corporate life to the extent I keep getting spam at work from training companies asking me if I want to unlock its secrets, by definition means there’s no need for leaders (i.e. executives) to have the foggiest notion of what it is the businesses they lead actually do or how they do it.

Except unfortunately they do. Now mebbe Oliver Williamson might intervene at this point, getting all transaction costy to say that’s not an issue because recruiting that type of executive has so far generated the highest returns. Except that’s post-hoc rationalisation that is and doesn’t take the opportunity cost of the alternative into account.

Besides that still leaves us with all these poor execs trying to make their way in a corporate world whose politics they understand, but whose markets they don’t. The obvious solution at this point is to get a consultancy in to outline a big project that will make everything best in class. Result! Theres the exec with consultants fanning his ego 4 times a day outlining a project that will give him enough resource to start doing some of the patronage type shit that got him his company beamer in the first place!

Except now he discovers the project approval committee he sits on has received a report from elsewhere in the business that comprehensively destroys the rationale for his pet project. No it’s not as nice as the consultants' report (they’ve a team of 20 MBAs in India who for 2 rupees will produce the whizziest power points imaginable), but it is clear, factual and well-founded. So what is he going to do? Even worse, what if that was you!

First of all DON’T PANIC! Instead take comfort from the fact anyone naïve enough to challenge the status quo regardless of how credible or coherent the analysis, is clearly not executive material.

Second, remember the golden rule; in business all success is due to great leadership and all failure the result of circumstances over which no individual could possibly have exercised any control let alone forseen.

Third, use one or all of the following tried and tested strategies (complete with shit acronyms) to make sure any opposing view can be safely ignored. In fact, if you’re so inclined use them aggressively enough to completely discredit whoever contradicted you in the first place. Bingo!

1) The Captain Pedant (CP): The CP is easy and can be applied to any report. The mechanics are straightforward – find a fault, any fault, then blow it completely out of proportion to discredit the entire document.

Because no report is perfect it should be relatively easy to spot something. Except, that involves having to read the whole thing and being able to understand the subject matter, which can be difficult to square with the all the other important meetings you need to attend and your basic competency level.

But, that’s OK because you can start with the basics, like is there a vaguely complicated diagram you can spend 10 minutes asking about? Can you plausibly get away with saying the exec summary is too long? Even better is a department that changed its name after the report was written referred to by its old title? Better still get someone else to read it and on their suggestion point out “labour” should be “labor” and that it’s not a “gutter-dynamic-shifting flange”, but actually a “dynamic-gutter-shifting flange”. Sure all this might strike the man in the street as superficial mince, but for a high-flyer like you it’s actually a rich source of reasons as to why an entire report can be safely ignored. I mean if they can’t get the small stuff right, what else have they got wrong?

Even better there’s a good chance no-one else round the table has read the thing, which means you’ll create the impression you actually know what you’re talking about and are a stickler for detail, a definite positive if your career to date has been in sales.

2) The academic (the Bad A): Oh, oh, despite you playing the CP someone who actually read the report is claiming to be impressed by its overall thrust. Again, don’t worry – an executive with time to read every paper he's sent is clearly an executive on the way out, in fact he’s probably already in discussions with HR about his early retirement package. Besides, now you can do the “Bad A”.

In business to call something academic is to discredit it, because in business “academic” is commercial’s idiot brother and that’s that really. Hence, the only decisions worth a damn are “commercial decisions” and the only kind of experience required is “commercial experience”.

Call something academic and you tap into a deep-seated prejudice that means allova sudden the best aspects of academic research – that it strives to be objective, informative, independent and substantiated (yes the reality is different, but hey ho it’s something worth aspiring to) – become weaknesses. So are there lots of facts supporting the argument? Thats academic that is. Are there any numbers, graphs and possibly even formulae? Definitely academic. Even better if its formatted in such a way that even vaguely reminds you of a university essay, then by definition it’s academic and as such can be completely ignored because its irrelevant to the kind of hard, commercial decisions you and everyone else round the table takes every day.

And again you come out smelling of roses because you’ve made clear that for you if it ain’t commercial it ain’t jackshit. Ooo, whose all hard nosed allova sudden.

3) The Mom and apple pie (MAAP): Shit. The report actually stated in clear English in the first few lines of the exec summary that you’re project could drive the company into the ground, listing both the reasons why and practical alternatives. But, that’s OK because there’s always the MAAP.

Somewhere, sometime, someone wrote out a meaningless list of mince packaged up as the "core-values" of “how we do things round here”. These will be so vaccuous no-one could possibly disagree with them and in there somewhere will be something along the lines of “we value our customers through the good times and the bad”.

Because this report is essentially saying for gawd sake don’t do the bad, it'll fuck the lot of us, you can ignore that and instead respond with a MAAP quote. Brilliant! Everyone round the table has to agree because they were at the same strategy weekend held at a rather good hotel where the CEO came up with that bollocks in the first place. I mean to not agree with you that the report is a bad thing is to be disloyal so of course they will.

Still smelling of roses? Definitely, you’ve just quoted the CEO fer gawd’s sake.

4) The offline long-grass (OLG): Except mebbe the CEO or committee chairman just realised the facts are so fecking obvious the points made can’t be ignored. Damn, you might be thinking, but don’t. Theres a meeting agenda after all and because by now you’ve used the CP, the Bad A and the MAAP and there’s still lots of important decisions to be taken, you can now play the OLG – just say rather than take up any more time you’ll take this off-line and pick up with the report’s authors (by which you mean sponsors) so that everyone can move onto the next item. My, my aren’t you the time conscious fecker and masterful with it too. Go tiger, Grrrr!

So despite your project being completely discredited, you’ve now created enough time in which to get this temporary hiccup sorted out. And in dealing with the report off-line you can now reapply the CP, the Bad A and the MAAP all over again in a one to one setting with a wee bit of BM on the side!

5) The Big Mate (BM): Off-line is when the BM comes into its own. First off any report worth its salt should be circulated in draft form round all interested/affected parties before being submitted. Don’t like it? Then hit it with the CP, the Bad A and the MAAP either individually or all at the same time. Has that not worked? Nae bother, just find out who is sponsoring this report and whether you're more senior than them. Then do the BM during a wee quiet chat about how at the present time this might not be in the business’s interest, or anyone else's for that matter i.e. I am senior to you so shut it.

But, what if the sponsor is just as senior as you are you're thinking? That’s OK, the kind of maverick willing to put his name to critical reports won't have as many patrons as you do amongst the upper reaches of the organisation, so all you need to do is have a quick chat with one of them, then drop their name in an email to the sponsor and hey presto, the report is gone because your BM is bigger than his BM.

Now thats before a report has been submitted, but don’t worry you can take the same approach now its OLG. Even better if you kick the report into limbo by inconsistently applying the CP, the Bad A and the MAAP, the poor sod that wrote it won’t have a clue what to do because they're probably the kind of schmuck that thinks black is indeed black when its black rather than the lovely shade of orange the CEO has been partial to ever since that 2 week strategy course he went on at Insead . Even better the more irrational and unreasonable you are the greater the paralysis you'll induce, which means the author will rapidly acquire a reputation as someone who can't deliver.

There you are, problem solved. Apply all of these strategies often enough and rest assured you’ll soon be so senior you can simply disagree with things for no reason whatsoever. As for the project, its costs and eventual losses, just remember the golden rule; in business all failure is the result of unforeseen circumstances over which no individual could possibly have exercised any control.

Nae prospect

For me Prospect stands out a mile as the best regular journal. So OK they’ve got a lurve thang going on with Chris Patten, the acceptable Tory despite his way out of date references, but by the same token they avoid the nepotistic, upper middle class mediocrity that characterises the Spectator. Similarly, they’ll get Labour bods in to write stuff, but avoid the plodding, partisan dullness of the New Statesman. And thankfully, they just don’t do the one-sided free marketeering wank that too often lets down the Economist.

But, here that’s no saying its good, rather it’s saying it’s not bad, whereas it is in fact good. So sure the recent article by some plumb saying Sarkozy’s appeal to France was based on French people wanting to be ridden hard by a sex dwarf was bloody awful (I shit you not. Shame the references were to Nietzche and not Marc Almond), but for the most part the commentary is wide-ranging and the views expressed informative and thought provoking. I mean fuck me a magazine that actually provokes thought as opposed to reinforcing existing prejudice, how cool is that? The problem it has right now though is relatively straightforward – it’s the economy stupid!

I don’t mean by this an exercise in political positioning or sloganeering. Nor is it a question of which party is best equipped to run the Treasury. Rather the reality is that (a) the economy is totally fecked and will be for a good while, (b) following on from that we are going to see a mighty hack back in public spending over the next 3 years at least and (c) we’re currently seeing the rules governing the relationship between the financial sector and the economy being debated before they are rewritten and as such are still up for grabs.

These are key issues and they’re simply not being addressed by Prospect (or anyone else for that matter). Sure they’re getting in bods to explain what quantitative easing is, but so the fuck what? The point surely isn’t to simply explain, rather it’s to analyse, contextualise and relate the implications of this to government policy, the economy and social issues.

Here a quick and easy example –

An obvious response to the recession is for government to embark on a major social house building programme, which would address housing issues and provide jobs.

However, it would also increase government borrowing. The existing level of government debt has already prompted at least one rating agency to make noises about downgrading Britain’s credit rating, which would increase the government’s cost of borrowing.

However, the same rating agencies also said sub-prime was the bees knees despite the conflict of interest whereby the people paying for the ratings where the same ones who would benefit from it getting a high rating.

So should we look at the role of rating agencies, their structure, strategy and technical competency both in terms of rating sub-prime debt and government debt? Like should we rewrite market rules so they can go and fuck themselves?

Even more straightforward, should the issue of social inequality figure in the regulation of pay in banking and the assocaited rhetoric used to justify mega bonuses.

See? Some quick, practical examples that relate social policy to economic policy to financial re-regulation.

And there’s more – the cuts in public sector spending to appease rating agencies arguably render Prospect’s a wee bitty wanky obsession with think tank politics irrelevant. So one think tank says we need to do this to help the disabled, that to help ethnic minorities and the other to address issues of national identity? Piss off, we can’t afford any of them and that’s that really oh and we’re cutting your 2010/11 funding by 30%.

For me unless these realities are addressed and debated it looks like what we’re going to see when it comes to the financial system and the economy is one big vested-interest cluster fuck focused on retaining as much as possible of the old regime, regardless of its flaws .

I should perhaps confess at this point I still think Marx had it more or less right when he wrote -

“these relations of production correspond to a definite stage of development of their material forces of production. The sum total of these relations of production constitutes the economic structure of society - the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life determines the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.”

i.e. that’s what I mean when I say “it’s the economy stupid”. The challenge we have right now is that outwith the Treasury, the FSA, the Bank of England and the financial system theres too much focus on the superstructure and way, way too much ignorance about the base.

the moon is made of green cheese

Aaaaaaaaaarrrrrrrrrrrrrggggggggghhhhhhhhh! We all know what income is, it’s that thing that gets paid into a bank account every month then used to pay the bills – and long may it continue (he types with fingers crossed thinking of how shaky a peg he’s currently on). Wealth on the other hand is different. To be wealthy is to have a big house, a flash car, oodles of investments and solid gold pants i.e. to have lots of assets that may or may not generate an income, but have some monetary value and are of varying degrees of liquidity i.e. can be eventually sold for cash (crikey has ebay made the world’s wealth more liquid I wonder?). Except most of us aren’t wealthy and what wealth we have primarily consists of the equity in our houses. So when terribly, terribly serious people witter about consumption and the wealth effect, for the most part they’re referring to the influence house prices have on how much we collectively spend. The only problem is it’s a stupid notion at a macro-economic level, hence the initial “Aaaaaaaaaarrrrrrrrrrrrrggggggggghhhhhhhhh!”

It’s stupid for all sorts of reasons like this one; so say house prices go up - remember when that used to happen? - then chances are I need to spend more to buy a house i.e. rising house prices transfer cash from buyers to sellers, who are more likely to be old with a good pension and suspect attitudes towards gender and racial issues. So if you can net off much of the supposed increase in wealth why do people continuously witter on about the “wealth effect” and consumer spending? I’m guessing this is because of two different theories, a “strong” one and a “weak” one.

Starting with the weak one, this is all about confidence and works along the lines of “Daphne! The Daily Mail says our house is now worth 50 grand more than we paid for it, I’ve just clicked on www.sneak-a-peak-at-how-much-your-neighbours-paid-for-their-house-without-asking-them.com and by jove they’re right, I’m feeling so mighty confident, lets buy some extra tins of beans and caviar to celebrate when we do the weekly shop!”

The strong argument is much less wanky. Instead, rising house prices provide more collateral for banks to lend against. Homeowners in turn take out equity release loans/increase their mortgage when their 2 year deal is up to get some serious spondollas to spend on stuff like diamond yachts and shit.

The significance to attach to both arguments is, of course, set in relation to the netting off effect. The strong argument can also be measured using bank lending statistics and in Britain equity release loans just aren’t that important a factor. The other thing of course is that house prices and consumer spending both tend to rise at the same time because they’re influenced by the same factors, which until the credit crunch largely meant the availability of cheap credit. Hence going daft in a shopping centre with 13 0% balance transfer credit cards with mad limits and taking out a 120% mortgages to buy a new build ensuite city centre flat were simply different sides of the same coin.

So given this is all bloody obvious why a wee while back when I phoned into an invite only tele-conference given by a leading investment bank did I hear one of their professional economists witter on about the “wealth-effect”? The long answer is sociological and takes into account individual ignorance, educational failings, vested interests in the production of economic commentary, prejudice and conformity. The short-answer is because they're an ignorant cock.

More depressing though was the new article on the otherwise fab Voxeu.org, wherein taxpayer funded academics disproved the wealth effect at great length. Presumably they’ll be following up this groundbreaking study with a detailed, econometric analysis of the moon’s cheese content. Cock 2x.