Sunday, January 16, 2011

Who's to Blame: Society or the Manager?

Throughout the last week or so, there has been a lot of debate about whether individuals should be expected to control their actions or whether they are at the mercy of the society in which they live. Pundits on both sides of this debate have put forward some interesting arguments in trying to explain the behaviour of Jared Loughner in Arizona the Saturday before last. Whereas Sarah Palin in the quoting of Ronald Reagan implies that society should not be blamed for the acts of an individual, there are others who would argue that individuals are heavily influenced by the institutional environment in which they exist.

"We must reject the idea that every time a law's broken, society is guilty rather than the lawbreaker. It is time to restore the American precept that each individual is accountable for his actions" (Ronald Reagen)

The institutional environment represents the norms and taken for granted beliefs that guide the behaviour of an individual, group or organization. Those young families who aim to “keep up with the Jones’” would be an example of conforming to the institutional environment of what is expected of young families.

The events that transpired a week ago Saturday were indeed tragic but I’d like to extend this debate to understand business behaviour. I need you to bear with me as I try to draw a connection between the behaviour of a schizophrenic 21 year old and the behaviour of managers – okay perhaps this isn’t a huge stretch in some cases.

In the movie The Corporation, Noam Chomsky draws the analogy of a slave owner to suggest that CEOs and managers can be genuinely nice people but show their monstrous side when they are in their societal role as managers of corporations:

“When you look at a corporation, just like when you look at a slave owner, you want to distinguish between the institution and the individual. As individuals they may be nice to their slaves, benevolent, friendly, nice to their children, caring about other people. But in their institutional role they may be monsters, because the institution is monstrous” (Chomsky from The Corporation).

Here’s my question: Does Western society’s relentless pursuit for material and economic wealth represent a monstrous institution that has created monstrous behaviour among managers? If so, then who holds the moral responsibility for the consequences of the actions of managers?

Is Tony Hayward (former BP CEO) a nasty blood-sucking serpent? Were those BP employees who cut corners on the oil platform that failed last April shady individuals with a poor moral compass? Would these same people cut similar corners at home? What does it tell us when farmers shockingly testify that they would never feed their families the same food that they produce for the grocery store?

There is not doubt that our society has imposed pressures on managers to create as much financial return for shareholders within the confines of the law. In most cases, the investors who expect this return have very little knowledge of or don’t really care about what the company actually does. I would bet that 95% of those people reading this blog who have investments knowingly or unknowingly are investing in industries that produce unsustainable products like oil and gas, mining, and tobacco.

When we criticize Exxon’s lack of any substantive commitment to renewable energy and their over-emphasis on fossil fuels, we tend to forget the pressure of institutional investors like pension funds who, to assure a comfortable retirement, demand that Exxon stick to the high cash yielding lower-risk forms of energy rather than the higher risk, low-cash yielding renewable energy. If Exxon executives were to ignore these pleas, the board of directors is expected to fire them and replace them with new managers willing to play this role.

It is also arguable to suggest that managers are limited in their ability to change behaviour of society if the consumer market isn’t ready to purchase sustainable products. If the public doesn’t yet care about how their purchasing decisions are connected with nature, is it up to managers to convince them to care? Is it not the role of business to provide the goods and services that the market demands in a way that creates value? The same could be said for employees who demand high salaries at the expense of a company’s commitment to more social and ecological endeavors. Why is it that the labour pool leans heavily to the private sector over the lower-paying non-governmental organizations?

Companies do not live in a proverbial vacuum where managers can rely on their individual values to make decisions at the firm level. They are very much at the mercy of a broader institutional environment that is predicated on economic value creation as the ultimate priority. This is not just a guide for business, it is fundamental to our way of life in Western society. So if this is part of our taken-for-granted beliefs, should we expect any more of business than we do of our role as consumers, investors, and employees? If not, then does this mean that any systemic change of business is a function of a change in a number of segments of society?

So I’m not so sure that we can rely on Ronald Reagan’s claim that society is not to blame when we’re talking about business behaviour. I’m certainty not an expert in human psychology to suggest the same for Jared Loughner but my point is that we live in a very complex society where understanding behaviour of an organization must go beyond the individual psyche of the decision-maker. I know that my left wing colleagues might be cringing at this post but at the very least I’m hoping that this will spark some dialogue on the need to understand the broader complexities of the society in which businesses operate when trying to understand the negative or positive effects of the manager making the decisions.

As a compromise, perhaps there is a line to be drawn where individuals must intervene to stand up to the pressures of his or her surrounding environment. Perhaps traders at Enron and executives at Goldman Sachs and General Motors relied too heavily on the institutional system of which they are apart and didn’t stand up to the taken for granted belief system that characterizes their role as creators of enormous short-term financial return. Perhaps those who are building businesses that go beyond this purpose are those who are standing up to their institutional environment. But let’s extend this expectation to consumers/investors/employees who are making purchasing/investment/employment decisions as well.

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