Chapter 4: What possible ‘defences’ exist against the harm of ‘Money Power’?

So I’ve:

  • set out Ford’s explanation of Dead vs. Live money (Chapter 1);
  • ‘shot at’ organisations that claim they get this –as in “see, here’s my purpose!” (Chapter 2);
  • explained why shareholders are probably the last people you’d want as guardians for an organisation’s successful longevity; and
  • put forward a logic as to why executives behave as they do (including the recent Mylan example to consider) (Chapter 3).

light-bulb…and at this point you may reasonably ask “so what can be done about this situation?”

Thankfully not everywhere is the same…and we can look around for ideas.

Ha-Joon Chang writes that “most rich countries outside the Anglo-American world have tried to reduce the influence of free-floating shareholders and maintain (or even create) a group of long-term stakeholders (including some shareholders) through various formal or informal means.”

These include:

  • government ownership (either direct or indirect) of a sizeable share to act as stable shareholders (examples in France, Germany, Korea);
  • differential voting rights for different classes of shares e.g. for founders and their families to retain significant control (Sweden);
  • formal representation by the workers on the company supervisory board (Germany);
  • minimising influence of floating shareholders through cross-shareholdings amongst friendly companies (Japan)

“Being heavily influenced, if not totally controlled, by longer-term stakeholders, companies in these countries do not as easily sack workers, squeeze suppliers, neglect investment and use profits for dividends and share buybacks…all this means that in the long run they may be more viable…

Running companies in the interests of floating shareholders is not only inequitable but also inefficient, not just for the national economy but also for the company itself.”

(Of course, I should reflect that there are lots of other ownership models ‘out there’, such as State Owned Enterprises, Mutuals and Co-operatives…and I have read many a good-news story about what can be achieved with the latter.

If you already have one of these ownership models, please stay as you are! What follows is aimed squarely at the Dead Money corporations).

Exploring the employee option:

proft-sharing-quoteI’m a big fan of the ‘employees as long-term owners’ method.

Now, many a ‘large corporate’ would respond that their people can buy shares in their company and, further, that they encourage this by administering some form of ‘employee share buying scheme’.

So how’s this different to share ownership through profit sharing (as in the Oktogonen Foundation)?

Well, if we consider a typical ‘employee share buying scheme’:

  • You are asking employees to put up their own money as risk, rather than rewarding them for their ‘blood, sweat and tears’;
  • Only a limited number of employees will buy shares (for a variety of reasons – the most obvious being their level of affluence and their attitude to risk);
  • The minority that do buy a small ‘side salad’ of shares have simply been added to the vast pool of floating shareholders…worried about short-term profits and dividends.

In contrast:

The power in ‘share ownership through profit sharing’ is that EVERYBODY in the organisation becomes an owner, and thereby connected with the same aim.

The power in setting up a foundation specifically for this purpose is that the employees as a GROUP obtain a significant voice, creating representation on the board.

The power in defining a long-term method of payment (say, at pensionable age) is that employees (past and present) care deeply about the LONG TERM success of the organisation…which will produce a genuine focus on the CUSTOMER (and society).

Now these words might cause the following reaction from existing shareholders and executives: “Whoa…I don’t like the sound of ‘worker power’ – this is Trade Unionism by the back door…and look at where that always ends up!”

Here’s why it is the exact opposite:

The birth, and historic basis, of the Trade Union movement was to protect the workers from the power of the owners. In response to Trade Union power, the owners would regularly claim that the employees were ‘biting the hand that feeds them’…and thus a hugely adversarial battle became the norm1 (usually with the customer, and consequently the organisation, suffering in the cross fire).

But, rather than employee ownership through profit sharing stoking the ‘worker – owner’ flames, it actually dissolves the problem! Everyone is pointing in the same direction.

Even better, a foundational base is set to enable the business to become so much more efficient and effective because all those commanding and controlling ‘management instruments of torture’ can be torn down – that would be incentives and Performance Management2 for a start!

….just think how easy it would become to engage with the workers – or should we call them ‘long term guardians’ now?

“Just close your eyes and imagine…”

imagineI have often found myself in company presentations with management eulogising about the next ‘cost cutting’ initiative. A usual candidate is the travel and expenses budget (and the associated rules to be complied with)…and they always use the same logic:

“Imagine it as your own money!”

Ponder upon this for a minute: management ‘get’ that it isn’t our money, and that this will alter how we think about it…but they want us to play a game of ‘pretend’. Hmmm – they’re missing something there.

But what if THEY (management) altered their thinking such that it IS the employees’ money. They can dispense with those silly games, and potentially all those wasteful cost cutting initiatives. Imagine that!

“But it’s not their money!!”

Now, there may be a backlash of comments from shareholders with a view that the company would be giving away their money.

Some thoughts on this:

  • The organisation doesn’t need to raise capital to do this! It just needs to STOP the offering, and paying, of contingent rewards. There’s plenty of money right there;
  • For those shareholders that don’t realise this…there is loads of cost spent in administering the performance management/ incentives lark…and a great deal of harm caused that is unmeasurable! This is no longer required;
  • But, fundamentally, a long term ownership interest (Live Money) will change the way that employees think…for the good of the customer and therefore the organisation…and, as a result, to the benefit of those that invest.

A start to the journey

silver-bullet‘Necessary but not sufficient’: I’d like to be clear that, whilst profit sharing could be game changing, it’s not a silver bullet….but it is a hugely sound foundation from which the right type of business can be successfully built and sustained.

It can act as a catalyst for all those things that you’ve been saying, but not been able to do. Why? Well, because it fundamentally changes the employee – company relationship.

It brings Live Money onto the scene and, if done well, brings Service Power back to the fore.

(Note: I’ve written this whole serialised post because – after many years of pondering – I came to the conclusion that you can understand and passionately want to change your ‘culture’ BUT you won’t (meaningfully or sustainable) achieve this if you don’t address your ownership structure…and this relates to Money Power).

To close: A comment on the current ‘side show’

The current ‘large corporates’ hymn is all about diversity….and that this will ensure the future of an organisation – all those different people, with all those different perspectives and ideas! What’s not to like?!

Now, I’m all for diversity. I believe in respect, equality and fairness for all.

However, you can be as diverse as you like, but if you don’t change the system (of management and ownership) then you’ll simply get more of the same.

To repeat my regular John Seddon quote (I have it ringing in my head most days!):

“People’s behaviour is a product of their system. It is only by changing [the system] that we can expect a change in behaviour.”

Or, to a Deming pearl of wisdom: “A bad system will beat a good person every time”

Stop trying to change people and, instead, perform a paradigm3 shift so that they change for themselves.

I should add that the diversity thing will be so much easier to achieve when all employees want to collaborate together (profit sharing) rather than competing with each other for ratings, rankings and contingent rewards. i.e. If you really want diversity, and what it can offer, then change the system first.


Okay, so I’ve argued that employee ownership through long-term profit sharing is a bloody good way to go…but there’s a few people that I really need to convince first. That would be a) the existing shareholders and b) the CEO. And that is the subject of my next, and final, chapter 🙂

Update: Link forwards to Chapter 5

Footnotes:

1. Owners vs. Unions: As usual, Henry had something useful to say on the matter:

“Business does not exist to earn money for the capitalist or for the wage-earner. The narrow capitalist and the narrow trades unionist have exactly the same view of business – they differ only on who is to have the loot.” (Ford)

2. On the merit system (i.e the rating and rewarding of people’s performance): Here’s a nice Deming exchange in a Q & A part of one of his famous lectures:

Question from the audience: “What do you propose to replace the merit system with?”

Deming: “Replace it? What, you want something to destroy people better than that does?!

Replacement means another method to do the same thing. [Do] you know of anything more effective in the destruction of people?

Question rephrased: “But is there any way to change the merit system?”

Deming: “Change it? Abolish it! Look at what it’s done to us.”

3. Paradigm: I usually hate using the ‘p’ word – it seems so ‘management consultancy’ to me…but in this case it is spot on!

4. So…what if you don’t (yet) want Live Money: If you don’t want to do the profit sharing thing (even though you’ll be seriously missing out) then STILL GET RID OF THE INCENTIVES!

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7 thoughts on “Chapter 4: What possible ‘defences’ exist against the harm of ‘Money Power’?

  1. Well, well, well!

    I await in expectation for the next rendition

    Of the required condition

    To change the so-called owners and their

    Representative CEO’s situation

    In favour of

    Your position

    In recognition

    Of a post that tells!

    Liked by 1 person

  2. I just want to put out there how much I’ve enjoyed reading your posts this week and thank you for sharing your thoughts. I hope you’ve enjoyed writing this, it’s certainly been a pleasure to take some time out of each working day and read your blog this week.

    Like

    • Hi there. Thanks for your comment. Always nice to know that people are reading what I’m putting down on the page 🙂

      Have I enjoyed writing it? Erm, yes and no…I’ve rewritten it about a dozen times (including taking on the excellent feedback from a colleague to serialise it – it was far too long to be one post!!)…but it is good to finally ‘get it out there’ for people to consider, ponder, and hopefully have fruitful conversations about.

      Like

  3. I think you have hit on why businesses insist on maintaining the assumption that people (their thinking and their behaviour) are separate from the business system. Your posts challenge this very assumption.

    People are the system.

    Without people you only have a collection of inanimate objects.

    Liked by 1 person

  4. Throwing out another thought to be considered/debated/discussed:

    “People’s behaviour is a product of their system. It is only by changing [the system] that we can expect a change in behaviour.”

    I suspect that John Seddon meant: “It is only by changing [THEIR system] that we can expect a change in behaviour.”

    We must be careful not get trapped by the same error that has prevailed about systematic management for too long:

    “In the past the man has been first; in the future the system must be first. This in no sense, however, implies that great men are not needed. On the contrary, the first object of any good system must be that of developing first-class men; and under systematic management the best man rises to the top more certainly and more rapidly than ever before.” – Frederick Winslow Taylor

    We need to read, understand and act on the whole paragraph – not just the first sentence.

    Of course, we also need to be cognisant that “man”, “first-class men” and “best man” really refers to people.

    Like

    • Hi Karl

      Thanks for adding your discussion comment. Here’s some thoughts 🙂

      Whenever I use a square bracket within a quote, it is me signalling that I have altered or completed it to (what I believe) suitably fits…..so I went searching for John Seddon’s original quote to see what word he actually used…

      …and after searching through a number of his books I finally (re)discovered it (I must improve my referencing!):

      “People’s behaviour is a product of their system. It is only by changing the regime that we can expect a change in behaviour” (last line of Chapter 16, ‘Systems Thinking in the Public Sector’)

      where ‘Regime’ means “A system or ordered way of doing things” (Online Oxford Dictionary).

      Seddon’s sentence appears at the end of a paragraph challenging ‘management’ to adopt “a better view of human nature”.

      Regarding ‘Fred’ Taylor: I have very mixed feeling about his writings. I ‘get’ that he was a man of his times. I also ‘get’ that much of his writings were about manual, rather than creative, work (e.g. Schmidt handling pig iron) – most of this work has been automated nowadays. But I don’t like his class divide between ‘management’ and ‘the worker’ or his divide between supposed ‘1st class men’ and the rest. I believe Taylor understood systems but I don’t believe he understood people – but modern psychology hadn’t been born by then so this is just circumstance rather than a criticism.

      The contrast is made pretty clear by:

      – Ackoff in his comparison of different models applied to system types https://squiretothegiants.wordpress.com/2016/07/11/oh-so-thats-why-command-and-control-doesnt-work-very-well/ ; and
      – Scholtes/ Seddon in trying to understand why a person might seemingly be ‘underperforming’ https://squiretothegiants.wordpress.com/2015/07/19/outstanding/.

      There’s probably a ‘Taylorism’ post in there from me at some point!

      Cheers.

      Like

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