If you discipline staff more than you promote them, is it time to rethink your HR policy?

Posted on April 10, 2012 by lawrence serewicz
Punishment with a Great Knout. Russia, 18th ce...

Punishment with a Great Knout. Russia, 18th century. (Photo credit: Wikipedia)

An organisation’s policies and rules show the internal culture. If the documents are written to protect the organisation first and the employee second, you know there may be a flawed culture. The policies set the framework for rewards and punishments.  In some organisations, or industries, it is hard to reward staff directly. For example, governments are not usually run for a profit so bonus structures and financial rewards are limited.  As a recent study of senior management in local government revealed, Councils can attract and retain talent, if the work has to be made interesting and varied.

 

The challenge is to keep staff at all levels motivated and engaged with the work so that the best results are produced.  However, the danger is that with rewards limited, the focus turns to punishments, or the threat of punishments, to motivate and encourage staff.  What can then occur is a downward cycle as staff worry about making mistakes, their stress increases, and they underperform, which in turn leads to managers seeking punishments to improve performance. The stress created by the culture limits performance.

To stop this downward spiral, an organisation has to look at how it uses rewards and punishments.  If it sees disciplinary punishments as the “cost of doing business”, the policies will show this.  In the HR policy, the sections on grievances and how to discipline staff will outnumber those on rewarding them or promoting them. In such a culture, the staff often react to the disciplinary system by instituting grievances. Thus, the unspoken dialogue emerges between punishment and grievances.

The disciplinary dialectic needs to be seen in a wider context to fix it. Here a systems approach can work. If grievances and punishments are seen as “waste”, the focus can shift to prevent and cut them.  The organisation can restructure its approach to these events to cut them and not accept them. At the same time, managers need to be trained to approach conflict at work without resorting to the stick at the first opportunity.  One way to do this is to include the managers in any disciplinary procedure against staff.  The manager would have to explain how they had helped the staff before the disciplinary was invoked. In doing this, the staff issue is also owned by a manager.  In this regard, one could look at manager’s regular assessments to see how they have avoided disciplinary actions and grievances.

 

By changing the approach, one can create what Knox D’Arcy consulting call an active management cycle where staff and managers are working together.  The managers are actively involved in the work to prevent the conditions that lead to a disciplinary or a grievance.  However, this requires managers to change their focus on how they work as well as senior managers’ assessment of their work.

The performance management framework can help focus on the issue. A performance indicator could measure the number of grievances and disciplinary actions.  If an organisation does not do this, it may suggest that they have an internal communications system that can send “critical information” upwards.  The performance indicator, even if this done informally, will give managers an insight into the corporate culture.  In particular, bad news travel far and fast as staff become aware of who was disciplined and why, if only to avoid it.  If punishments are used as a first resort, then staff will know it. They will avoid challenging decisions, even ones they know are wrong, if only to avoid the threat of being seen as “insubordinate” or “awkward.”  The managers will not see that when workers fail they are failing as managers. When an employee makes a mistake then the manager needs to take responsibility. The manager is responsible for how the staff was hired, how they are trained, and most importantly how they are managed. The lessons for overcoming many of the performance issues that lead to grievances or punishments can be found in better coaching and leadership.

The indicator will help senior managers understand where challenge is muted or undermined.  Workers who know they are going to be disciplined are less likely to speak up and offer a critical appraisal of the challenges and the work.  What will compound this problem is if managers “push down” more responsibility to staff under the guise of “empowering” them. The staff will have increased responsibility if things go wrong, but very little authority to change things.  What happens is that managers are implicitly encouraged to disengage from managing and they stop actively managing. By disengaging in direct management, they can avoid the responsibility that comes with being actively involved in the work of their direct reports. When an employee becomes a problem, it is then easier to describe them as an errant employee or a rogue employee.

As a result, line manager will revert to using the stick (management disciplinary tools) to keep staff in line. What happens is the managers stop managing and start punishing staff.  If an employee makes a mistake, and the first resort is to the disciplinary procedure and not trying to figure why they made the mistake, what caused, it, how to avoid it in the future and work better. Instead, they will know what they did wrong because they will have a permanent reminder in their file, but very little if anything that will tell them what to do right.  Moreover, their manager will be less likely to offer preventive measures because that would undermine the reason for the punishment in the first place.  Such an approach seems easy for the managers because they have a clear approach.  In practice, the approach creates more work for them without fully realizing its source.

If an employee makes a mistake, then they need to be shown why it was a mistake, how to do it right for the next time, and then explained the consequences of getting it wrong. While this may require active management, this approach saves work because staff understand why they are doing what they are doing.

The goal is to get staff to work better and to do this they need better management and rewards systems and not punishment and control mechanisms.  The choice is there for all managers and companies to make.  What choice has your employer made?

 

What to do?

  1. Review your HR policies; do they emphasise rewards or punishment?
  2. Do you have performance indicators to capture how your organisation is using punishments and rewards?
  3. Have those areas with high usage of punishments been helped to use active management and lean management techniques?
  4. Does the organisation focus on preventing disciplinary and grievances and not seeing them as part of doing business?
  5. Do you have a rewards structure that give staff positive reinforcement even when direct promotion or financial rewards are not available?
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Hierarchies are networks! Hyperlinks do not subvert hierarchies.

Posted on March 28, 2012 by lawrence serewicz
In "The IRG Solution" it was envisag...

In "The IRG Solution" it was envisaged that each person would be at the centre of an IRG - Information Routing Group, of relatively well known and trusted persons. He might exchange information with a contact in his first group. (Photo credit: Wikipedia)

For many who believe in the web as way to transform society, politics, and human life, my blog may come as a shock. There is no evidence to support the claim that hyperlinks subvert hierarchies.  When you check the evidence, you will find very little if any. Usually, you will find people repeating the mantra without demonstrating it or even analyzing it.  See for example this blog.

As we look at the thesis, we realize that it is empty of meaning so it can be filled with whatever meaning or intent the speaker wants.  Here is the “thesis.”

Thesis 7: Hyperlinks Subvert Hierarchy

The ability of the internet to link to additional information – information which might exist beyond the formal hierarchy of organizational structure or published material from such an organization – acts as a means of subverting, or bypassing, formal hierarchies.

The hypothesis does not seem to have been tested. The thesis never defines hierarchy or a hierarchical organisation.  It seems to ignore organisational theory.  Organisations thrive on information, they are organised to use it for their daily work as well as their major decisions.  Accordingly, no organisation, which wants to survive cuts off its supply of, or access to, information.

The thesis hides a number of untested assumptions that need to be examined to consider whether it is valid. As it stands, it is an exhortation rather than information.

The first assumption is that hierarchies and organisations are built solely on, and for, access to information.  Thus, those with the most information should run, or rule, run organisations seems to be the message.  Yet, it misunderstands organisations. Organisations serve a number of functions from making things to delivering them.  At their core, they have to executive plans, which need them to make decisions and follow through with them.  This is where organisational hierarchies become important.  The hierarchy is there to help be clear about roles and responsibilities when acting on a decision and making sure it is done.  In some cases, information has a role and the better organisations have a feedback loop in which hyperlinks can have a role.

The second assumption within the thesis is that hierarchies are bad and hyperlinks replace them are good. However, the assumption does not understand that hierarchies are networks as well.  The organisational structure serves a purpose and hierarchies are only one of a kind.  They too rely upon communication and information.  Thus, the power of hyperlinks helps the communication between layers within an organisation to cut the transmission costs.  In many ways, this does not so much subvert a hierarchy, but allow it function better, or as intended.

The IRG solution developed in a 1984 suggested a way to overcome the communication problems within a hierarchy. The book suggested that, Information Routing Groups (IRG) were to be developed to overcome centralised or silo structures.  The book can be seen as a precursor to hyperlinks if only in an organisational sense.  In this system, the hierarchy is not so much subverted as improved.  Like the management expert Peter Drucker, who argued that most middle managers could be removed because they were only information transmission points within an organisation, the theory had some merit. However, there still needs to be middle managers to execute and deliver the work. As such, the hierarchy remains, it is just reduced to some degree, and it is not eliminated nor is it subverted.

The third assumption within the thesis is that hierarchies limit the transmission of information. The thesis suggests that hyperlinks allow information to get to the “real” decision makers.  In most case, the layers or hierarchy are there to serve an important winnowing process, a process by which the organisation and the constraints of a span of control, can work effectively.  Consider the case of Charles V of Spain. He was the last pre-bureaucratic leader.   After him, the bureaucratic structures emerged to allow leaders to handle larger amounts of territory and areas. Phillip II, his son, is likely to be the last leader to have personally overseen, through letters, an empire.  The organisational structure allowed a leader to leverage their influence and power without having to be personally responsible for each decision.

Overall, these assumptions betray a misunderstanding of how decisions are made and why, within an organisations.

The organisational chart is a formal document that shows roles and responsibilities.  One can see it as a power structure, yet it is more a roadmap.  Power rarely follows structures. In the White House for example, power is based less upon the formal relationship, as given by the Constitution, than it does with the informal relationship, access to the President. We can see why National Security Advisers, like Henry Kissinger, who have more access, are successful against a Secretary of State who has formal power but is in a different location. To confuse the formal structure with the real power structure within an organisation is to misunderstand power and organisations.

Finally, the idea, even when expanded, becomes incoherent. In the chapter on the 7th thesis, in the Cluetrain book, we see fuller discussion of the issue. The longer treatment of the thesis does not explain how hyperlinks subvert hierarchies. The chapter claims that hyperlinks subvert hierarchy without demonstrating it. What is worrying is that it ends with the grand statement that “conversations subvert hierarchies”.

The belief is that connections change a structure. Yet, leaders use the hierarchy so that they keep the structure that serves them and not serving it.  At the same time, they reach out within the organisation to find information and hear the news for themselves. A case study in this was Lyndon Johnson, the president of the United States, using the telephone to reach 3 or 4 layers into the relevant bureaucracy to check the facts.

We are left with statements such as the following:

“You see, the hyperlinks that replace the org chart as the primary structure of the organization are in fact conversations.”

Yet, knowing who to talk to in a business about business is not the same as “shooting the breeze.”  The Under-Secretary of State is very interested in your choice of Starbucks only if it is not in the way of finding out the political disposition of Karzai’s cabinet.  People who make decisions need the information to make the decision and their time is at a premium to get that information.  The structure is designed to get them the information as quickly as possible and efficiently.  They are not there to be “democratic” or to be “friends”. They are there to get the job done.  Hyperlinks help them do that, they do not subvert that process.  The information will be going “up the pyramid”. The pyramid, the hierarchy, is “a network” that is good at the tasks it is set.  In this way, hierarchies use hyperlinks and have the conversations but not in the way, that one perceives initially.

In the end, the statement that hyperlinks subvert hierarchy remains untested and unverifiable.

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Which is more difficult? To admit your mistakes or to admit someone else was right?

Posted on March 15, 2012 by lawrence serewicz
Example of Markov Decision Process (MDP) trans...

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Perhaps the hardest thing to do at work (and in life) is to admit when someone is right, especially if you disagreed with them.  In many books on management and learning organizations, we hear about the need to admit when we made a mistake or the organisation made the wrong policy choice.

Management theorists often tell us that good managers are able to admit their mistakes and learn from them just as good organisations (successful ones) are able to admit mistakes and learn from them.  The learning organisation can look at what to do.  The challenge, I was to look at though is related but different. When and how do you admit when someone else was right?

From the challenge of logic, admitting someone is right is hard because there has to be a basis for judging someone is right independent of their assertions.  As Erik Crabbe pointed out in a famous theorem, whoever is right can be judged right.  The challenge for a manager is related because a learning organisation should have a process by which decisions are judged right.  Krabbe’s discussion of the logical theorem and what it means to be right and to be judged right is worthy of its own discussion. The focus, here though, is on what it means in terms of management culture.

We know that an organisation reveals its culture in the ways in which it deals with people who make mistakes. We also know that a healthy corporate culture encourages people to admit their mistakes and not hide them.  A healthy corporate is open to change, challenge, and encourages communication.

What the management literature does not discuss is how managers admit that someone else was right.  The point is not that admitting someone was right and you were wrong.  As such, it is not a zero sum process. Instead, it is more complex and subtle.  The issue is how senior managers react when their subordinate’s idea was the better. A manager may find it easier to admit when they were wrong; than they are to admit, someone else was right.  For some managers, the danger of losing face is too great.  As with mistakes, they will never admit it.  For others, it is too threatening to their authority because a senior officer may have to admit a junior officer made the right call. However, the issue moves from the internal political dynamic within an organisation, to how the organisation works as a decision making body.

The underlying issue in admitting someone else was right is more than judging someone right and someone wrong.  The issue is how decisions are made and reviewed. We find difficulty in admitting someone else was right because our decision process does not allow us the space to consider it or deal with the issue.  As Krabbe mentioned, the challenge is not just being right but being judged to be right.  In this case, the managers need to investigate how and why the decision making process led to a sub-optimal decision on the issue.  As such, the ability to admit that someone was right is suggestive of a learning culture.  An organisation that can assess its performance, and admit when the right decision was not taken is a learning organisation.  Too often, though, the sub-optimal decision is glossed over and failure becomes an orphan because there is no method for judging a decision right.  The outcome or the effect of the decision is assumed the final judge, yet the organisation is in danger of making the wrong decision repeatedly because it is not able to admit that the better decision existed.

So, the next time you are found to have made the right call on a decision, look at how your peers and your senior managers react.  How they react tells you about the organisation.  You are going to have a sense of how the organisation works before that moment, yet it will show how senior managers’ deal with the challenge of getting it wrong and how they go about making it right.  An important step in that process is being able to admit that someone else was right.

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What a photocopier tells you about your corporate culture

Posted on March 10, 2012 by lawrence serewicz

Many times leaders will ask themselves how they can tell the morale of their troops. Sure signs of bad morale are easy to spot. We see slumped shoulders, people looking at their shoes, people not picking up after themselves and generally not caring about their equipment or their area.

These may easy to spot in the military. For example the unit that was at the centre of some of the US atrocities in the Iraq war did not have good discipline records. Their base camp was messy and officers did not show command and soldiers did not show respect. In short the lack of control allowed bad things to happen.

The same can be said in business. If workers are not taking care of the details, large problems can occur.  At the same time if line managers are not engaging, the workers can see this as a sign their behaviour is tolerated or condoned.  Leaders have to step in and address the issues for both workers and managers.

So what does this have to do with the photocopier?

The photocopier is a good barometer especially if it is in a communal area where people cannot be seen to use it. Why? People will take out their frustrations on the machine when no one is watching. They will slam doors, yank on the handles and generally beat up on it. The more it breaks down the more likely your morale is low.

The photocopiers and printers in offices will have a better repair and maintenance record.  This is not simply because they are watched. They are also seen as belonging to someone rather than to the company and therefore abstract.   This is not the tragedy of the commons issue, though, either.  Everyone knows that the photocopier belongs to the comapny and that others rely upon it.  Thus when damaging it and beating up on it they know that it will affect others. At the same time it is more likely to be used by frontline teams and workers.  If they are not supportive of the mission they are not going to take care of the equipment.  As a result their behaviours, disrepair, unwillingness to care for it, and disregard for the organisation’s property show how far they are disassociating themselves from the comapny.

Thus, a quick check of your maintenance costs and photocopier repair records may be a good barometer of the morale in your unit, service, or the whole company. You can also use it to check whether your direct reports are communicating bad (critical) news upward.  If they keep insisting morale is fine and the repair record is high, you may need to ask some searching questions and consider the morale may be lower than you realize if direct reports cannot tell you how bad it morale is.

So, the next time you make a photocopy or print you may be indicaing more than you realize.

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More words and phrases that kill customer service

Posted on March 8, 2012 by lawrence serewicz
English: Customer service counter inside the n...

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A few months ago, I wrote a blog about words that kill customer service.  Words like “unfortunately” or “of course” and “obviously” immediately undermined the attempt to give good customer service.  I am now returning to that idea with some more words and phrases.  In many ways, the words and phrases by themselves are not an issue. If your organisation has a good customer service reputation and culture, then it can overcome the poor choice of words in a customer service letter or conversation.  However, these words and phrases often betray a poor customer service culture.

The words and phrases may also show staff that are disengaged or unable to own a problem. They lack the resources or trust of senior managers to be able to solve a customer’s problem or complaint. As a result, they rely upon language that is defensive and ultimately destructive of a good relationship.

Always remember that even bad news can be delivered well.  Here are more words and phrases that kill good customer service.

The first item is a phrase: “I am sorry I couldn’t be more helpful”.  When you use this, you show, implicitly, that you could be more helpful. Instead, the second half of your statement will indicate the reasons why you either could not, or would not help the customer.  In that sense, you are telling the customer you cannot own the problem and resolve their issue.  One way to do it.  “I cannot solve your problem/complaint/issue.”

The next item is the word “But”.  As others have pointed out on the web, this word is simply a transition in a sentence to tell you what is not going to happen. It is setting up the negative point even if the first part is positive.  “I would help you, BUT….”  “I would refund you the money, BUT…”  “You could complain, BUT…”

The third item is the “As you know”. In many ways, this is like the word “but” because it is setting up a negative expectation.  The phrase puts the person in their place and defends the writer.  “As you know, we are unable to give you a refund.”

The fourth item is “I am afraid”. We are not terrified of people nor are we terrified of situations. Instead, the phrase is defensive used to excuse and not explain.  “I am afraid we cannot refund your money.”

Here is a list of more words to avoid in customer service and ways to recover them.

So, what is to be done?

In each of these items, there is an opportunity to turn the situation around.  If you are going to give someone bad news or news that they will not like, it is better to tell them that clearly and directly.  One does not have to be brutal, rather one as to be clear and to the point.  Here is an example of how it is done poorly and then I provide a positive approach to the issue.  How you frame the response will go a long way towards how the customer will receive it.

Example

I refer to your recent request for a bucket.  Unfortunately, it did not meet the criteria therefore, I am afraid we cannot provide and service a bucket in your home.  Sorry I couldn’t be more positive but our lack of resources leaves us no leeway.

Possible Revision.

Thank you for your request or a bucket.  We cannot give you one because your request did not meet the criteria for giving you one and we are running low on buckets. When more buckets become available, we will reassess your request.  Please be aware that you still may not be eligible for a bucket. You may be eligible for our bin service, which you can find here.  If I can be help you with anything else, please contact me directly.

One thing to consider as a customer when you receive poor customer service is that the customer service inside the company is likely to be as poor or worse.  Good customer service inside the company is reflected in the customer service outside of it.  Therefore, the language you use with your colleagues, your “internal customers” will also show whether you have a good customer service culture within the organisation.  Therefore, the next time someone says “unfortunately” in a meeting, you may have to ask yourself whether you are getting good customer service.

Remember the language you use reflects you as a person and your organisation.  You owe it to yourself and your company to frame your approach positively an avoid words that kill customer service.

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Risk cannot be conquered: Has Wall Street forgotten Machiavelli’s lessons?

Posted on March 6, 2012 by lawrence serewicz

In chapter 25 of Machiavelli’s Prince, we see the problem of fortune and the challenge it presents to a prince.  In this instance, we are using fortune to refer to risk.  The two are not exactly the same so one cannot use this in a strict analysis of Machiavelli’s meaning.  Instead, I am going to apply Machiavelli in a less analytically robust way to make the terms interchangeable. The problem is not simply risk, as risk, but how one deals with it, respects, and understands it.

For Machiavelli, risk was closely associated with nature.  The prince’s ability to control nature is related to his ability to control fortune.

So it happens with fortune, who shows her power where valour has not prepared to resist her, and thither she turns her forces where she knows that barriers and defences have not been raised to constrain her.

Most hedge fund managers work with a belief framework that if they have not conquered risk, they have at least built the barriers and defences to constrain it.   They know that their derivatives, their algorithms, their personal brilliance and hard work will be enough to sustain their success and fortune.

In many ways, Machiavelli will be the most appealing of philosophers for hedge fund managers and investment house CEOs. His exhortations to audacity and bold action suit the worldview of partners and CEOs who make audacious risks and deals.  They are making the big plays, staking fortunes, waging a titanic struggle for profit and glory.  All the time, they are walking the tightrope between profit and loss, between winning and losing, between the market and their competitors.

In a sense, the deal, the profit, the bonus are emblematic of a youthful vigour infused in the system.  Like the youthful vigour that fuels Hollywood, in a different way, youthful ambition is the essential force within Wall Street.  The men pursuing the profits, the deals, and creating the margins, are acting with a self-belief so audacious that they cannot fail.  Like Machiavelli’s prince, they will be able to control fortune (risk) through their ambition and willingness to push the boundaries for more.

I conclude therefore that, fortune being changeful and mankind steadfast in their ways, so long as the two are in agreement men are successful, but unsuccessful when they fall out. For my part I consider that it is better to be adventurous than cautious, because fortune is a woman, and if you wish to keep her under it is necessary to beat and ill-use her; and it is seen that she allows herself to be mastered by the adventurous rather than by those who go to work more coldly. She is, therefore, always, woman-like, a lover of young men, because they are less cautious, more violent, and with more audacity command her.

They know that fortunate favours the brave.  They will take the risks, they will work harder, they will push the boundaries because such is the down payment to success in the global financial market.  All of this and more is what they pledge to control fortune.  Yet, this is the great fallacy and hidden danger within the wall street ethos.

What hedge fund managers and financial speculators forget is that fortune cannot be controlled.  They forget, at their peril and ours, that fortune is closely related to nature.  Risk, in the end, is natural phenomenon.  Man cannot tame nature.  The great delusion of modernity is that single belief that nature can be known and because it is known, it can be conquered. Instead of Machiavelli, they need to remember an earlier, classical, understanding of nature.

Horace describes the problem of risk so well naturam expellas furca, tamen usque recurret. (You may drive out Nature with a pitchfork, yet she still will hurry back.)

So what does this mean?  It means that we have to remind ourselves of nature’s power. We need to respect nature.  The financial hurricane that swept through America’s housing market was as powerful as the natural hurricane Katrina sweeping through Gulf Coast states.  When we remind ourselves of nature, we do not become timid or complacent.  Instead, it should turn us to look to perfect it and not looking for more.  Interestingly enough, nature itself produces an unstoppable abundance, and in that, our human nature shares an affinity, seeking out more. Yet, it is in constraining our natural rights, our desire for more, that we can find our humanity and connect to something more than our appetite.

In these episodes, people have a choice.  We can choose how we are to live and what we want to make.  We can consider our future guided by Machiavelli, living in an eternal tension with fortune, striving after something illusory. Alternatively, we can live with the laws of nature, and nature’s god, to find a balance within what we do, its effect on us, and its effect on others.

What choice are you going to make today?

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Tax Avoidance: Barclays and the death of Corporate Social Responsibility?

Posted on March 2, 2012 by lawrence serewicz
Secret denunciations against anyone who will c...

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Tax Avoidance: Barclays and the death of Corporate Social Responsibility?

Why do we pay taxes? Everyone grumbles about having to pay taxes and worries about paying too much, but how many of us worry about paying enough?  How many of us go about our daily business thinking about avoiding our tax?  More to the point, how many of us can afford to pay someone to think of ways to avoid paying taxes?

Yet, that is exactly what Barclays and other organisations are doing when they avoid paying taxes. They are not simply deferring taxes or waiting until the tax burden is lower (the idea behind IRAs in the US or ISAs in the UK). They are actively working to avoid legally mandated taxes.  These taxes fund the government’s programmes that deliver programmes for the common good. Yet, the organisation chose to avoid that responsibility.  When it does, how can it say that it is behaving responsibly? How can it say that it is a good corporate citizen as Bob Diamond CEO of Barclay’s Capital Group claimed?

Here is how Barclays citizenship report stated their commitment.

Citizenship is not peripheral to our business, but rather lies at the heart of what we do – which is to employ Barclays unique resources, expertise and people to support our customers, clients and communities. (Barclays Annual Report 2010)

If being a good citizen means obeying the laws and taxes are the law, what does that say about Barclays?  Do their tax avoidance lawyers wake up each morning and decide which laws they are going to obey? The philosophical questions this poses are why do we obey the law, and; what does it mean to be virtuous?

The questions are not idle. The questions go to the heart of what it means to be a good citizen. Our respect for democratic legitimacy is one of the reasons why we obey the law. We know it is there to protect us as well as others. The law is not made for one group at the expense of others; it is there for the common good.  A respect for the law is a key part of a fundamental democratic belief in the common good.  If we simply obey the law because it may punish us, how is that different from a tyranny?

If good citizens do not pay their taxes, how can they support the common good? How can we draw from the common good for essential (and discretionary) government services like libraries, leisure centres, hospitals, or roads?  These questions get to the heart of what it means to avoid tax.  What are we doing when we avoid tax but avoiding compliance with the law passed by a democratically elected body and enacted through a democratically accountable organisation?

The deeper questions, especially for an employee of these organisations, are the following. If the organisation is spending vast amounts of resources to avoid taxes, that is avoid obeying the law, what other laws are they avoiding? Are they doing the same with their responsibility to health and safety laws?  Are they equally responsible to equalities legislation? Why do you accept they will honour their Health and Safety responsibility, when they avoid their tax responsibility? Why do you accept that they can avoid their tax responsibility but they will honour their equalities duties? Why do you as an employee accept their irresponsibility to the common good, when they seek to avoid their tax responsibility?

Here is Barclay’s press statement in which they claim they brought the tax avoidance issue to the HMRC’s attention

This situation arose when Barclays voluntarily disclosed to HMRC in a spirit of full transparency that it had repurchased some of its debt in a tax efficient manner.

If companies, especially banks, are avoiding their taxes, how can they claim to be supporters of corporate social responsibility?   How can they claim to be good citizens when they undermine the common good?  Do good citizens undermine the common good?  For a morally challenged analysis of the issue, see this article.  What makes it troubling is it is unable to define a good citizen or the good regime to understand what it means to obey the law. It cannot express what it means to be virtuous as a corporate citizen. With advice such as this, one is in little doubt about why corporate directors may have difficulty addressing moral choices like paying taxes or being a virtuous corporate citizen.

What is interesting to note is that the UK government’s Border Agency has a financial requirements for entry into the UK.  In addition to the applicant showing they are of good character, they must have a good financial background.

Your financial background

We will check that you pay income tax and National Insurance contributions. We may ask HM Revenue & Customs for confirmation of this. If you do not pay income tax through Pay As You Earn (PAYE) you should send a Self Assessment Statement of Account with your application.

If Barclays were applying for entry into the UK, would they be allowed entry?

Indeed, if we follow Aristotle’s analysis Barclays behaviour appears to suggest that it is superior to the current regime as it is not a good regime.  Aristotle argued in the Politics that the virtue of the good citizen and the excellent man were the same only under an ideal regime. In this regard, Barclays would appear to be suggesting their excellence means that they cannot be good citizens.  To be a good citizen means to pay taxes. Yet, their “excellence” (their profit motive) appears to exempt them from that responsibility.  Barclays and others are behaving as they do, avoiding paying tax (acting in a tax efficient manner), to show that they are beholden to a different standard. They are suggesting that they exist beyond the regime. Moreover, their behaviour suggests that the regime is corrosive of their virtue (as a legal person) and thus they are not bound by its requirements.  If this is what they are suggesting, then we have a deeper problem within the UK. What this may suggest is that we have two regimes, one for those who have to obey the laws and those who can choose which laws they obey.

As we see daily with the Leveson inquiry revelations, such a view, that a small minority are above the law, is corrosive and dangerous to democracy.  If we no longer accept that view from the media operators, why should we accept that from banks? Even if they pay more in taxes, why should we allow banks and financial organisations to act differently? If they are above the law, how can they claim to be good citizens? When they act above the law, it shows disrespect to the laws and the citizens who obey the laws. In other words, it shows that they are not fit to be part of the society or able to share in the common good.

We face a difficult choice. Either we can accept that some in our society are above the law, and allow our democracy to be diminished, or we can demand that citizens obey the laws, pay their taxes, help their fellow citizens to nourish and expand the common good.

Will you choose the corporate good or the common good?

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Is the future of work an aristocratic democracy?: Leo Strauss on Managment

Posted on February 26, 2012 by lawrence serewicz
Famous posthumous portrait of Niccolò Machiave...

Machiavelli as Manager? Image via Wikipedia

Harold Jarche has a challenging post about the future of management and the future of work at his site: Enterprise 2.0 and Social Business are Hollow Shells without Democracy.

Are the future of work and the future of management inherently democratic?  Will we have democracy or rather an enlightened aristocracy?  The point is not theoretical or philosophical for its own sake. The question has a deep resonance in how organisations structure themselves, how workers understand themselves, but most importantly, how workers engage with the organisation.

In one sense, a truly democratic organisation is a recipe for a disaster.  Studies have shown that the more people involved in a decision, the worse it becomes.  On the surface, this sounds anti-democratic and in a sense, it is. However, democracy is rarely effective when it is a direct democracy on a large or fast-moving scale.  Instead, large organisations rely upon the representational model.  Thus, decisions may be made by a few, but scrutinized and ratified by the many.  In that sense, one can say that organisations can be democratic.  Yet, how many even reach that level?

Jarche is correct that most firms are run like a tyranny in terms of their communications systems. However, only the truly dysfunctional ones are tyrannical.  For example, Enron was more a tyranny, because the leaders enriched themselves. There was no corporate common good. Instead, the organisation’s corporate culture created the perverse incentives that made it happen.  Unlike Enron, most organisations are run closer to an oligarchy where the senior management benefits and passes down the privilege and the patronage to make the system work, within their fiefdoms.  What social media allows, and the web 2.0, is that the oligarchy can be challenged.  The question is now whether a meritorious aristocracy, democracy properly understood (see below) with a representational system can replace the oligarchy.  An alternative is to have a democracy in the worst sense of the word that is without structure or leadership. In that realm, the organisation would react to the whims and appetites of whatever the majority is on any given decision.

The following is an example of what a pure democracy may look like in an organisation.  The DWP developed a “game” or an “internal market” for deciding on how to allocate resources to “good” or “innovative” ideas that would save money. The people who proposed ideas would have their idea voted on and supported by others within the organisation.  Through a complex (but not complicated) system of decision-making, the idea with the most votes would be selected. Although the focus of the “game” was to develop innovative ideas, the same principle could be used on any major decision facing an organisation.

Two things are readily apparent in such an approach and do not bode well for democracy flourishing in the workplace unless work is radically transformed.  They relate to the problem of change and why change usually fails those who benefit and opposed strongly by those who have the most to lose support it lightly.

Machiavelli expressed it well.

And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them. Thus it happens that whenever those who are hostile have the opportunity to attack they do it like partisans, whilst the others defend lukewarmly, in such wise that the prince is endangered along with them. (Machiavelli, Prince Chapter 6)

First, the senior managers have to trust their staff.  How many organisations are like Capgemini and allow internal microblogging to allow staff to communicate with immediate constraints?  For most managers, this would be a frightening experience as staff, perhaps with more ideas and talent, could quickly emerge.  Their place, gained in the previous years by obeying the rules, would quickly be undermined. They would be at a disadvantage.  Immediately we see an institutional constraint on the embrace of such technology.

Second, the approach assumes that the workers are ready to produce new ideas and new ways of thinking.  To be sure, there may be ideas within the staff, but if the culture has been deeply embedded and staff are not encouraged to raise ideas or “challenge” then no amount of technological change is going to change that culture.  As I suggested elsewhere, the fish rots from the head. By that I mean, the senior management have to set the tone or the overall culture.  If the culture is one where staff are told their ideas and that anyone suggesting alternatives or “challenging” the status quo is “punished”, then there is less likely to be an intrinsic desire to put forward new ideas.  In much the same way that the democratic ethos had difficulty emerging in post-Communist states because people did not know what they could suggest or act upon and whether the “authorities” or the “structure” would stop them.

I am not suggesting that grown people are destined to act and to be treated as children.  Instead, I am trying to suggest that change is not simply going to come about because someone suggests or even models a “democratic” workplace.  Instead, the change has to come from senior managers encouraging staff to “challenge” and staff being ready to “challenge. When that occurs, one sees a “democratic” culture.  Yet, maintaining a democratic corporation is probably as hard as maintaining a democratic regime.  History, even modern history, is strewn with examples of failed democracies where those who were to benefit (the people) were less likely to support, as those who were to lose the most (the ruling group) were unified and vehement in their opposition to it.

So what remains?  What appears to be emerging is the true virtuous corporate regime.  An aristocracy of talent seems to be emerging. In this approach, organisations are designed to support specific talents. They will replace outmoded systems that are designed around organisational hierarchies built upon authority.  In political philosophy, the argument from authority is one of the weakest arguments and a poor basis for acting within a democracy.  Perhaps what we are seeing is what Leo Strauss called the Democracy as an Aristocracy. “Democracy in a word is meant to be an aristocracy which has broadened into a universal aristocracy.” As such, are we seeing the emergence of an organisation that can nurture the aristocracy of talent? It may be that the organisation “disappears” as an agent and is there to support talent.

The model may be closer to a university. Yet, the new organisation will work a faster pace and with less respect for authority and more respect for demonstrable success and talent.  We can reverse this vision to look at how universities and businesses can converge. If universities embrace this organisational approach, they may be able to ensure their success.  However, one caveat is that a university structured in that way would stop being a university in which knowledge for knowledge sake is pursued.

I think that this will be the organising principle for organisations but the question is who will operationalize it?  How will it be operationalized? Is, or was, Apple the closest embodiment of this idea? Did it really work that way or was it, too, just a hollow shell professing to be democratic?

If the command and control hierarchy is simply an outgrowth a communications problem, then will better communications systems change that?  No. In reality, it is not a problem of a communications system.  Instead, it is a failure to develop a culture that communicates critical (negative) information upwards. A democratic organisation can deal with bad news, a tyrannical organisation cannot.  As a result, the communications problems get worse because no one wants to be the bearer of badness. At the same time, more rogue employees emerge because no one is willing to control those doing what is wrong. Why? They fear to communicate that bad news upward especially if the “rogue” appears to be succeeding.

We are on the dawn of a new organisation. It remains to be seen who has the vision, the will, and the resources to found the new modes and orders.  Can we usher in a new era where an aristocracy of talent works together? On the other hand, are we destined to be caught and captured by path dependency continuing to suffer under arguments of authority?

Whoever can found this new organisation will reap the rewards and found a new era in business.

 

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Why do companies obey the law? Compliance in a self-regulated business is habit that needs to be nurtured.

Posted on February 17, 2012 by lawrence serewicz
English: Risk bow-tie for regulatory complianc...

Image via Wikipedia

One of the challenges faced by businesses is how sustain compliance with corporate governance rules.  The recent corporate scandals such as Enron, WorldCom and others shows what happens when the internal corporate culture diverges from corporate governance.  The challenge is particularly severe in industries that are self-regulating to a large extent. Sectors such as finance, media and law-enforcement are susceptible to abuse. The workers in these fields often have an organisational autonomy to get the desired result.  In finances, it is t make the deal and reaps the profit. In the media, it is to get the exclusive.  In law enforcement it is to make the major case.  The actors have great responsibility, and autonomy, to meet these results. In sum, the rogue employee is more likely in a field where organisations are self-regulating.  However, this is more than an issue of a rogue employee, it is about the organisation.

What is the theory behind this?

What, then, is to be done to keep an organisation from becoming dysfunctional?  The question is more than just avoiding a rogue employee; it is about avoiding a rotten barrel.  [Insert links]  What is needed is a return to first principles.  At the root of each organisation has to be awareness, reinforced throughout the organisation that obeying the law comes before the profit, before the exclusive, and before the big bust.  If the law is compromised the results are tainted. Thus, the organisation must instil and show an ethos that its work is always done within the law.

What are the practical steps?

Moving from the theoretical or the philosophical, there are important practical steps. These are drawn from the following study of law enforcement.

First, the selection of new employees is critical. How the organisation chooses its new recruits, how they are treated, and how they are promoted will decide the success of the organisation. The same criteria have to apply to how the recruits follow the organisation’s corporate governance system.  The new recruits should not be promoted simply because they are successful, it is vitally important that they

Second, the organisation needs to consider how and why it rewards its employees.  The ultimate success of a company depends on its ability to deliver for its measure of success: profits, stories, arrests.  In each of these areas, an organisation will set goals for its employees.  Evidence from the Enron scandal showed that the HR policy of “rank and yank” led to perverse outcomes where the wrong behaviour was encouraged and rewarded.  For the law enforcement, where arrests lead to promotions and not being an end in itself, there is a challenge around what is called the goal-gradient issue.  According to the theory, the farther away a worker is from their goal, the less they will be working to achieve it.   What is necessary is to have frequent goals that can be achieved and still stretch the worker.  The goal is not to have targets, which by itself only creates perverse outcomes.  All the work has to be for the organisation’s overall success.

Third, the organisation has to ruthlessly cut any double standards or the appearance of double standards within it. If employees see senior officers “getting away with” infractions for which junior officers would have been punished, the message is sent.  The same can be said for poor performance or performance that is legally or ethically dubious.  If someone who cuts corners to deliver success is encouraged and promoted, it will send a message throughout the organisation that such behaviour is tolerated.   The rules have to be applied with extra attention against senior officers. If senior officers have the appearance of being corrupted in any way, an organisation must investigate with extreme vigour or it sends the wrong message to the public and to the others in the organisation.

In the recent phone hacking scandal was that senior Metropolitan Police officers resigned as soon as they realized their situation was untenable.  By doing that, the senior officers showed that the overall organisational success was more important.  The appearance of impropriety by senior officers could not be tolerated. As a result, they acted in accordance with the highest standards to remind the organisation that such behaviour cannot be tolerated.

The fourth element, not covered in the article, but implicit throughout, is the need for strong line management.  If the immediate manager or supervisor is not actively involved in supervising or managing the work, there is a greater chance of inappropriate habits and behaviours developing.  There is a need for what has been called “active management”.  Although this report is based on local government, its principles can be applied to regulatory compliance.

To put the rule of compliance into the broken window theory, the organisation has to deal with small infractions to keep the large ones from developing.  If the workers understand that infractions will be found out, will be punished (fairly) and there is a severe consequence for themselves and the organisation, the chance for compliance is higher.  The steps can help the organisation to develop an internal culture where collective efficacy is demonstrated about corporate governance. The organisation works together to support the rules and succeeds within the rules.

Will this work?

We can instil compliance within an organisation. However, the organisation has to live by its rules or it will, literally die from them and it can create the habit of following them.  Every day a worker or a manager makes a choice, whether to obey the organisation’s rules or follow their own rules.  How they resolve that choice each day will be guided by how well the organisation, and their colleagues, has the habit of following those rules. In time, if senior managers make bad choices and are not challenged by their colleagues or their subordinates, the choices will accumulate into a flawed culture.  In the end, that culture will either remain compliant or it will become corrupted.  We cannot stop people from exercising their free will to the wrong ends, but we can certainly make it harder for them to do so within an organisation that is habituated to following the rules.  The choice, in the end, is whether the organisation accepts or rejects the behaviour that is improper and whether that habit is inculcated throughout the organisation.

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Reducing the Deficit: Leadership and the challenge of deficit thinking in management

Posted on February 11, 2012 by lawrence serewicz

One thing I have been noticed is how managers and leaders approach problems.  In a previous job, I had a couple of projects that were technically challenging and had to get sign off from a number of managers before being presented to the organisation.

 

In one case, a presentation had to be developed for an internal audience and an external partner.  The presentation was developed and circulated to the relevant managers. What was interesting, in hindsight, was how some managers used deficit thinking.  They looked at what was wrong, what was missing, and why it would not work (the deficit) and not what was working, why and how to make it work even better (the positives).  I found that the CX was focused on the opportunities in the presentation.  The leader was looking at ways to leverage the project into something more and not looking at what was missing.

This could be the classic story of seeing a glass as half-empty vs. half-full, but there is a deeper message. Leadership within the situation frames an issue. In one sense, the managers and leader were framing the problem differently and thereby getting a different approach and, ultimately, a different outcome.

 

The question that challenges me is how to stop people from deficit managing?  Is there a role for it in the right context? Is the question for leaders how they get their managers to look for the opportunity focus on what is the potential rather than focusing on what can go wrong?  Moreover, is it that certain cultures reflectively or reflexively revert to blame avoidance, which in turn creates a desire to point out the flaws, should anything go wrong with a decision.

 

At the same time, though, there can be good reasons why a leader and managers need to work with a deficit management approach.  For example, the leader may needs to know what is not working so he or she can fix it. In those situations, they are seeking out what is wrong, while the junior officers may be trying to appear that, everything is ok while passing upwards the “good news” and avoiding “critical” or negative information.

 

The problem for the leader is that they have to fire fight. They cannot leverage the opportunities his junior officers are bringing him.  In a dysfunctional situation, the leader may be struggling to find out what is wrong let alone what an opportunity that the organisation can exploit is.  The leader then has to find out what is wrong, ix it or redirect to others.  Problems dominate the agenda and not opportunities.   One can often see this at the board level, when the board has massively long agendas with dozens of projects or issues.  They are still focusing on operational issues, really topics for divisional managers, and not looking at the organisation’s strategic objectives.

 

In that regard, an organisation’s internal culture intersects with the management team’s view.  The board frames the issue as deficit management. The habit then is set for middle managers to view it the same way.  When the management team is constantly working to resolve operational issues they are signalling the organisation to send them the problems. The organisation then believes that operational matters are the board’s domain. In doing so, it will encourage middle managers to frame the issue with a deficit management approach.  The middle managers will use deficit thinking (and by extension managing) instead of seeking the opportunities that can be leveraged into success.

One way to counter this is to frame the issue differently. The management team can tell the organisation to bring it opportunities. In turn, the senior managers need to work with middle managers to find and develop opportunities.  By discussing the strategic goals and opportunities, they middle managers behave differently.  They begin to see how the organisation can respond to those opportunities.  Two key ingredients are needed.  First, there has to be a level of trust within the organisation. The senior managers have to trust the middle managers with these opportunities as well as these discussions. At the same time, a robust internal communication network has to exist.  The staff, managers and senior managers need to know and interact with the Board’s strategic opportunities.  If the internal communication network is more about intelligence gathering and not communicating, the process will not work.

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