The New Ecology of Leadership

Business Mastery in a Chaotic World

David Hurst

• Publisher: Columbia University Press
• Year: 2012
• ISBN:
  9780231504140
• Topic: Business
• Subtopic: Management
• Index: Business

David Hurst has a unique knowledge of organizations—their function and their failure—both in theory and in practice. He has spent twenty-five years as an operating manager, often in crises and turnaround conditions, and is also a widely experienced consultant, teacher, and writer on business. This book is his innovative integration of management practice and theory, using a systems perspective and analogies drawn from nature to illustrate groundbreaking ideas and their practical application. It is designed for readers unfamiliar with sophisticated management concepts and for active practitioners seeking to advance their management and leadership skills.

Hurst's objective is to help readers make meaning from their own management experience and education, and to encourage improvement in their practical judgment and wisdom. His approach takes an expansive view of organizations, connecting their development to humankind's evolutionary heritage and cultural history. It locates the origins of organizations in communities of trust and follows their development and maturation. He also crucially tracks the decline of organizations as they age and shows how their strengths become weaknesses in changing circumstances.

Hurst's core argument is that the human mind is rational in an ecological, rather than a logical, sense. In other words, it has evolved to extract cues to action from the specific situations in which it finds itself. Therefore contexts matter, and Hurst shows how passion, reason, and power can be used to change and sustain organizations for good and ill. The result is an inspirational synthesis of management theory and practice that will resonate with every reader's experience.

Part I

The Dimensions of Change

The art of progress is to preserve order amid change and to preserve change amid order.

ALFRED NORTH WHITEHEAD

1

Lost in Management Thought

The root cause of the inability of management thought to grasp the relationship between stability and change, as well as that between reason and emotion, is clear. It is its academic aspiration to be a science in the mold of physics, which dates back to the 1950s. Flowing from this is the increasing influence over the last fifty years of neoclassical economics.¹

Economics is, of course, the study of scarcity, of how resourceful individuals make hard, “either-or” choices among competing means to satisfy their wants, which are in principle unlimited.² At the turn of the nineteenth century, starting in Europe and spilling over into the United States, an intellectual battle was fought between two fundamentally different approaches to the subject. The German school of institutional economics, which embraced other intellectual disciplines like political science and sociology, focused on learning and evolution and stressed the function of power, values, belief systems, and the role of history.³ This perspective prevailed in the early years of the twentieth century before being vanquished by the Austrian school, a descendant of which developed in the United States into what was called “neoclassical economics.” It has dominated the field ever since, focusing our attention on efficiency and the allocation of resources rather than on innovation and the creation of knowledge and wealth.⁴

Neoclassical economics emphasizes a logical rationality and the allocation of scarce resources in the pursuit of self-interest and studies systems that are in equilibrium. This allows the use of abstract, formal models and the application of advanced mathematics. The unit of analysis is the individual; larger collectivities are simply treated as resulting from the aggregate behavior of individuals, who are assumed to act independently of each other. The emphasis on equilibrium allows predictions to be made on the basis of models rather than the examination of actual behaviors. Neoclassical economists are not curious about institutions or history; they don’t care about contexts. Indeed, their approach often seems to work as long as the impacts of context are excluded by the liberal use of the ceteris paribus, or the “all things being equal” clause.⁵

As the oldest of the behavioral sciences, economics has always been more advanced than the others, and in the past it has been seen by some as the model of what a science in this area might look like.⁶ Until very recently this sophistication has played to its advantage in what has been a chaotic field.

For a long time now the social sciences have resembled a fractured society rather like that in Afghanistan—a morass of feuding families, clans, and tribes dominated by fierce warlords, jealous of their territories, and involved in continual skirmishes to preserve their boundaries. They seem perennially unable to combine to defend themselves collectively against intruders. Neoclassical economics has come onto this scene like the intellectual equivalent of the Taliban: an insurgency with imperial ambitions, a fierce theology, and a ruthless readiness to use whatever means (mathematical in the case of economics) it takes to dominate. The hard practitioners of economics have been withering in their disdain for the other so-called social sciences. When Nobel Prize-winning economist George Stigler was asked by a political scientist why there was no prize for them, he replied that they already had the Nobel Prize for literature.⁷

Neoclassical Economics and the Business Schools

In his excellent book From Higher Aims to Hired Hands,⁸ upon which this section is based, Harvard Business School professor Rakesh Khurana shows how the business schools in the United States started, as new industries usually do, as a hodgepodge of uncoordinated experiments, beginning at Wharton in 1881 and followed by those at Chicago and Berkeley in 1898, guided by their vision of a new profession of management. From then on the number of business schools grew rapidly, reaching about eighty by the early 1930s.⁹ This was paralleled by significant growth in the demand for managers to run the operations of America’s burgeoning big businesses when new technologies, particularly in transportation and communication, opened up the country and allowed the consolidation of regional and local operations.

Initially there were a variety of approaches and business school curricula, but after World War II a dominant design began to emerge, fueled by the demand for higher education, the acceptance of the need for professional managers, and the insistence by the government, as supplier of student aid, on clear standards. The Ford Foundation and the Carnegie Corporation took the lead in this project, criticizing existing practices in harsh tones to shake the schools out of their lethargy. As resources became concentrated, institutions that had previously prided themselves on the diversity of their approaches began to look rather similar.

The prescription for success, the educational paradigm, was based on the twin models of Harvard Business School’s case-based, clinical method and Carnegie Tech’s more scientific, quantitative approach. Three other “centers of excellence” were Columbia, Chicago, and Stanford. Economists began to assume a dominant role in the shaping of the new curriculum in Ford-sponsored programs to train teachers of business. The belief was that, if management was going to be a profession like medicine or law, there was now a “managerialist” rationale on which it could be founded. It was a discipline-based “management science” that could be taught to students and used by them to tackle practical issues in ways that would be vastly superior to actual practices that relied on judgment and intuition:

Grounded in the new behavioral sciences (particularly economics), the new management science could best be taught to students… through a rigorous immersion in quantitative analysis and concepts from decision theory… the foundation reformers placed great faith in management science and the prospects for technocratic leadership.¹⁰

One unanticipated consequence of the institution-level consensus, at least among the top business schools, on what the educational paradigm should look like was the splintering of the academic disciplines within the schools into separate divisions, often pitching the economists against everyone else. At the same time a split emerged between the faculty’s research interests and the students’ learning needs. With hiring, promotion, and tenure all dependent on research and publications, more than fifteen hundred new scholarly academic business journals were founded between 1980 and 2006 to handle the new research output.¹¹ Unsurprisingly, little of the writing in these publications proved to be of interest to practitioners.

Khurana recounts how this “managerialist” initiative was sidetracked, first by the rise of investor capitalism in the 1970s, a period of economic turmoil and malaise, during which confidence and trust in American corporations dwindled, and then by the emergence of organizational economics and its application to organizations themselves. The investor capitalism, or shareholder value movement, as it would become known, suggested that “fat cat,” complacent managers had abused their duties under managerialism and that shareholders, who were the only stakeholders in the corporation who really mattered, had been disadvantaged. One famous article in the Harvard Business Review laid much of the blame for the situation at the feet of managers and the techniques they had been taught at business school.¹² The stage was set for a wave of deregulation and hostile takeovers, leveraged buyouts, and defensive mergers as the market for corporate control developed into a free-for-all.

The emergence of shareholder value as the raison d’être for corporations undoubtedly shook loose a good deal of capital that had been used inefficiently, but it also threw into disrepute the broad, stakeholder philosophies of earlier eras and any notions of wider corporate responsibility. The tough-minded advocates of shareholder value did not mourn the passing of such “dear to the heart” notions. In addition, a combination of transaction cost economics and agency theory, which came to be called organizational economics, was used to push the same philosophy one level down to organizations themselves. If the marketplace could solve all problems at the industry level and above, then why should it not solve problems inside organizations?

An organization was described as a “nexus of contracts” among self-interested, maximizing individuals. Organizational control was reduced to the challenge of monitoring performance and designing incentives: the use of stock-based incentives soared. So did corporate performance—at least as measured by reported numbers, often in pro-forma statements, and by executive compensation. Some of these performances turned out to be illusions; many proved to be unsustainable. It seemed that managers with a fine-grained understanding of the nuances of finance, accounting, and the law could always be one or more steps ahead of the intermittent, coarse-grained attention of boards, regulators, and watchdogs of all kinds.

The assumptions underpinning organizational economics challenged the very foundations of management’s authority and its motivation. With the role of trust driven completely from the equation, all that was left was the marketplace and financial incentives.¹³ Too often this meant that if, as a manager, one made one’s numbers, then one’s behavior was undiscussable: “by framing the organization as a nexus of contracts, agency theory conveniently dispenses with issues of power, coercion and exploitation.”¹⁴

Popular management consulting approaches at this time were equally tough minded. The reengineering movement spread like wildfire through large corporations, fueled by its aptly named (Hammer 1990) proselyte’s violent prose,¹⁵ while the rank-and-yank performance system (which required 10 percent of people in an organization to be fired each year), made popular by GE’s Jack Welch, was adopted by many CEOs and publicized as a badge of toughness. Some observers have suggested that this philosophy led to widespread asset stripping at the corporate level, where long-run sustainability was sacrificed for short-term profits, and to the destruction of trust at the community and societal levels.¹⁶

The business schools themselves were not immune to being seen as a “nexus of contracts,” whose only justification for existence lay in the marketplace. The coup de grâce to the concept of management as a profession was delivered by the business school rankings, initiated by Business Week but soon copied by many publications. They introduced a broad, stake-holder perspective on the assessment of business school performance, polling a wide range of opinion. Like most measurement systems, the rankings had some initial benefits, as the schools were forced to address issues other than research and publications. One consequence of this has been the rise of leadership as a focus of their activities. However, over time the metrics became targets and the rankings have become an arena for gaming and shopping for ratings just as the stock market measures of corporate performance corrupted management behavior.¹⁷

Khurana’s conclusion is that the business schools have lost their academic and societal mission; an institution created to legitimize management has ended up accomplishing the opposite. He calls for a new holistic, institutional context, one “that recognizes the legitimate economic and social interests of many members of society other than shareholders.”¹⁸ The ecological framework I present here offers just such a holistic context. I suspect, however, that we will have to postpone the notion that management is a profession in favor of the recognition that it’s really a practice that is embedded in the business of everyday living—an art, a craft and a little bit of science, as Henry Mintzberg puts it.¹⁹

2

Economics, Evolution, and Ecology

The claim that economics is the second or perhaps the third oldest science (after astronomy and physics) has stood it in good stead for most of its history, as it was hailed as a model for the social sciences. That advantage is now coming to an end as the Darwinian revolution moves inexorably through every field of study, changing our ideas of what it means for a discipline to be a science.¹ The advantage now lies with the latecomers, many of which have the adjective “evolutionary” in their names. Neoclassical economics, which long ago nailed its colors to the problem of allocating resources and the concept of equilibrium, may well undergo a decline in influence in a world where context matters in space and in time. The challenges now are the creation of knowledge, innovation, sustainable growth, and a fairer distribution of wealth. Evolutionary economics, based initially ...

Table of contents

• Cover 
• Half title
• Title
• Copyright
• Dedication
• Epigraph
• Contents 
• Acknowledgments
• Introduction: What to Expect
• PART I. The Dimensions of Change
• PART II. The Front Loop: Nothing Fails like Success
• PART III. The Back Loop: From Crisis to Renewal
• PART IV. Staying in the Sweet Zone
• PART V. A Brief Orientation and Field Guide
• Notes
• Bibliography
• Index