CHAPTER 5
"A ruler will perish if he is good; he must be as cunning as a fox and as fierce as a lion."
-- Niccolo Machiavelli. (1)
Every day, people in advanced economic societies go to "work" in firms. The dominant psychology inside firms is one of war; firms are conceived as empires at war with other empires in a winner-takes-all and loser-faces-disaster situation. This is the traditional view of how economies operate, how firms function in economies, and why it is thought that people who work inside firms must be subservient, controlled employees. It is thought that the firm will be vulnerable to attack from other, stronger firms unless internal control is maintained. This is the legacy of Rome.
We can all recognise a firm when we see one. But to define one is considerably more difficult. A firm can be a one-person operation or it can involve hundreds of thousands of people. It can have a corporate structure or be a partnership or a trust. It can be owned by shareholders, or a church, or a government, or a benevolent institution. It usually needs to make a profit to survive, but can often last for long periods of time even when it makes losses. It can hand its profit over to private owners or allow all profit to be ploughed back into its own growth; or it can exist for the purposes of donating to charity. A firm can be poverty-stricken or have more wealth than many individual nation-states. It can be a happy and rewarding place or soul-destroying or anything in between. But what is it?
When all else is stripped away, a firm is an organised set of human interactions directed towards the achievement of an economic or organisational outcome. The firm is most commonly thought of as the product of the owner or leader who directs it. The people who work in it are thought of as instruments of the leader.
In advanced societies, the law has come to play an essential part in the definition of a firm because firms are taxed, are subject to vast quantities of regulation, and have social expectations thrust upon them. They can often seem to operate in isolation from society, but are in fact among the most important elements in a society.
At one stage, firms were almost exclusively an extension of the family unit. Firms as corporations, as we now commonly think of them, are a comparatively new human experience dating back only 150 years. In Britain, "until the Joint Stock Company Act of 1856 legalised limited liability, corporate enterprise was a rare form of organisation. Incorporation required parliamentary sanction ... [and] it was rare for the entrepreneur to go to the trouble and expense of securing an Act of Parliament ... the characteristic unit of production was the family firm". (2)
For most of the twentieth century (and now in the twenty-first century) firms have by and large been thought of as command-and-control structures. Although this concept is beginning to change, it still holds. The idea of the firm as a control structure has it roots in the paternal benevolence of the family unit and the idea of the nation-state headed by benevolent leaders.
The idea of the benevolent leader/ruler has additional resonance in the way firms usually begin, develop and grow. The idea of an entrepreneurial firm is of one created by a single person who identifies a need in a market, satisfies that need, becomes successful and expands the organisation. The founding individual is thought to provide the driving force, but other people (employees) help manage the firm and so enable a system to develop and the firm to grow. Conceptually, the firm is taken to be the embodiment of the single entrepreneur's vision, creativity, drive and market success.
This understandable way of thinking holds that people working in the firm are (and need to be) subservient to the needs and wishes of the person at the top. After all, if the originator of the business was so adept at understanding the market and thus created the firm, surely the continuing success of the business is dependent on the same genius of the creator. This idea holds for government and charitable organisations too. The state perceives of a need, say, for welfare provision to the poor. A government-owned-and-funded organisation is formed to create and deliver the service and is led by an appointed head. Or a church or charitable organisation may fill the void. The driving vision is that of the state or the head of the church. The people who run the organisation are seen to need to adhere to the dictates of the visionary at the top.
As a firm grows and takes on more and more employees, formal structures are developed to ensure that the originator's genius continues to drive the organisation. The people working in the firm are seen (and see themselves) as dependent on the originator for their livelihood. Most people in the firm do not have the task of interacting with markets or replicating or competing with the genius of the originator, but must of necessity confine themselves to the organisational need to keep the firm's structure in place.
Firms typically go through several phases in this process.
The originator will operate on his or her own, with perhaps one or two other people, most often family members. Organisational issues and decisions relating to servicing the market are made by the originator -- on the run, quickly and in reaction to changing market needs. And the firm may become no larger.
Or, as growth occurs and the number of people employed expands, the originator will gather around him or her a trusted coterie of people who become skilled in sharing the originator's vision and drive. Often, these will be family and/or close friends who work together in a bonded and trusting relationship. The trusted coterie works in a team; the human interactions are close and personal. Each member of the coterie gets to know and understand the others. All eyes are fixed on the originator, who exerts a pervasive guiding influence over the others. When successful, the coterie begins to think as one, in harmony with the spirit of the originator. To be successful, care is taken to ensure that the rewards attained by the developing organisation are shared between the members of the coterie. Or, if the rewards are not immediate, a share of future rewards is structured into the employment arrangements. The proviso is that each person in the coterie can achieve a much larger income than if he or she were a salaried employee. This is the birth of inner management -- people who exercise decisions over the company and share in its successes.
With the input of the managerial coterie a much larger business can be created and managed. More employees can be taken on. These employees continue to be thought of as operational instruments and not as essential to the capacity of the firm to succeed in the marketplace.
The employees are paid considerably less than the members of the management coterie because their capacities are taken to be ancillary to the primary task of dealing with the market. In this familiar paradigm, workers are seen as controlled employees.
War between management and workers is thus born, because workers feel that they must fight to push up their remuneration. Management, ever mindful of the limitations and vagaries of the marketplace, wants to contain the operational costs. Personal communication between management and workers becomes more complex than when the firm was smaller and more intimate. When this stage has been reached, it's not that people have changed, but rather that the group dynamics have ceased to be personal and have become more crowd-like. Workplace relationships are no longer personal, intimate and family-like. The firm has become too big for this. Employees are simply cogs in a large organisational machine.
The small firm has now become a corporation. It needs organisational processes that manage, massage and formally control the organisation itself. Additional people are employed whose entire task is to focus on the internal operation of the organisation and hold it together. These people do not interact with the market but form a new level of the managerial class. They are decision-makers, but their remuneration is not tied to a share of the firm's success. They are wage-bonded managerial decision makers. They are like the white corpuscles that run through the bloodstream of the organisation, repairing damage before it becomes too great, keeping organs in check and ensuring smooth running of the organisation. They do not deal directly with the market, but ensure the smooth operation of the organisation so that the market-oriented managers can do their job. The processes become highly formal and usually rigid.
If the originator of the firm is still alive and actively involved in the business, he or she can retain firm direction of the corporation. If the originator has died or moved on, the mantle of control and interaction with markets may have been handed to a blood heir, well trained and skilled in the vision and drive of the originator. Or the mantle may have been handed to a non-blood heir who is as skilled, trusted and capable as the originator -- or so it is hoped. The originator or others in the upper coterie may have decided to cash in the latent financial value of the corporation and sell their shares, and may no longer be associated with the firm.
The listed corporation has been born. The corporation may now be owned by thousands of individuals, either directly or through superannuation funds, investment houses or a multiplicity of different entities. A pure form of communism has been created in which no-one owns the whole and in which ownership is available to anyone who wants to become involved and can afford the entry price. Still, a coterie of market-interacting and organisational control managers remains, whose importance is now vastly greater than when the founder was actively involved in the business. The non-operational owners are totally dependent on the specialist manager coterie for the delivery of trading profit. The only real sanction the owners have against poor corporate performance is to sell their shares. The shareholders may have the legal capacity to sack the board of directors but this is a logistically complex task only successfully undertaken when the corporation is in crisis.
The human dynamics within the listed corporation are now largely removed from any interaction with the market place. The employment bureaucracy has been born. Internal politics and individual situational need become the primary human dynamic that pervades the organisation. People inside the organisation know that the market is there, and know the total business is dependent on the market, but the bigger picture is so removed from their daily lives as to frequently disappear from view. People have a job description, mostly determined by a bureaucracy into which they may have a limited input. They do their job, fulfil their tasks, take pride in their achievements, are paid and have an income that enables them to lead a private life that may or may not involve others who work in the firm.
This employment bureaucracy also dominates public sector activity. Here the owners are even more removed from operations than in the share-owned corporation. It is the ultimate communist model. In a democracy, the public sector firm is owned by the total social collective. Control is exercised along lengthy procedural lines. Every now and then, voters elect persons who form a government. The government has control over the bureaucracy. The operation of the bureaucracy is the result of a complex interchange between the senior levels of the bureaucracy pushing agendas, public and private pressure for agendas, parameters imposed by legal principles and judicial interpretations, and formal policy dictates from the elected government. The market that the public sector bureaucracy is supposed to be serving often disappears from the field of vision in this complex mix of pressures. The people working in the public sector bureaucracy often become completely lost in a maelstrom of frustration. Their formal tasks seem to encompass the beginning and end of a process but without an identifiable higher purpose. They have little if any personal stake in the organisation's fulfilment of its charter. Bureaucrats' success is measured by their capacity to advance up the career ladder structure to higher pay levels. It is why unionism levels in the public sector are usually much higher than in the private sector. Unions provide public sector employees with a countervailing force against the dominance of the government bureaucracy.
Ultimately, this idea of the firm as a bureaucracy is carried through to the police and armed services. Here, the focus on a market is totally lost. The owners of the corporation, the general public, are less important than the corporation itself. The system of government takes priority. The objective of the police is to ensure that the system is maintained. Police will protect individuals from other individuals, but will protect the state in preference to the individual. The objective of the armed forces is to protect the system -- the nation state -- from external assault. People working in the police or armed services find that the "market" they serve is difficult to identify and isolate. These people are required primarily to understand the bureaucratic system, what it allows, not to question it, and to respond without question within a command-and-control framework. It is a system that necessitates the subordination of individual creativity and freedom of action to the constraints and dictates of the system.
There is nothing new in this picture and nothing sinister. It is simply the way societies have developed. It is also very successful. Any person who has worked at any of the levels described will recognise the core elements. The primary thread running through all of these descriptions of various levels of the firm during the twentieth century is that of command and control. In short, human organisation requires the creation of reliable chains of command in which all people in the chain respond appropriately and reliably to the commands they are given.
This command-and-control process is a natural human inclination. It is the current development of the burning vision of Rome, but is not limited to societies historically steeped in the Roman tradition. Most people have ultimate faith in their own capacities, and if they make a decision they want to see that decision carried out in the way that delivers the best results from their point of view. Alternatively, where people lack faith in their own capacities, they may feel inclined to rely on the evident self-assuredness of someone else.
Further, this idea of the firm being dependent on command-and-control structures has been developed in highly formal expressions that have influenced the thinking of legislatures, regulators and business strategists.
Take two important and influential writers on the subject during the twentieth century -- Ronald Coase and Elliot Jaques. Neither is a household name, but both exercised considerable influence over the formal concepts and approaches to the firm, particularly in the second half of the twentieth century.
COASE
Ronald Coase is an economist who is primarily interested in how markets operate. He wrote some of his most influential works around the middle of the twentieth century. The study of markets is principally the study of how people behave in their purchasing choices. One of Coase's significant contributions was his explanation of transaction costs. That is, that for every buying and selling decision that people make, there is a cost for undertaking the transaction that must be factored into the price.
In a simple example, buying an apple from a shop involves more than the cost of the apple. In the process of paying for the apple, we must pay for the time of the shopkeeper to undertake the transaction. In a more involved example, the process of buying shares on the stock market involves not only paying for the time of the stockbroker who arranges the transaction, but also covering the costs of the legislative and legal and regulatory environments that enable the transaction to take place.
Coase drew attention to the fact that, if transaction costs were too high, then transactions would not take place. And transaction costs are something we tend not to put a value on when we should. If, for example, every time shares were sold on the stock exchange the buyer and seller of the shares had to personally meet, sign documents, and lodge the documents with a registrar who took 30 days to record the transaction, few shares would be sold. If you were the buyer, the cost in your own time of meeting the seller and the delay in registration would probably dampen your desire to buy shares. You would trade in fewer shares than otherwise. The high cost of share-trading to you would not be recorded anywhere because you would not choose to trade. The opportunity for share-trading would be lost and never known.
Coase's contribution to understanding how humans behave was to establish that we all put value on our time and effort in a way that affects our decisions in life. Further, Coase observed and commented on how we organise ourselves to minimise these transaction costs. This is the significance of firms, according to Coase. Firms are a form of human organisation that enables us to undertake complex transactions in a way that keeps transaction costs within affordable levels. He argued that the key ingredient in the organisation of firms is command and control. More precisely, he identified in the legal form of employment, the right of one person to control another, the key ingredient that facilitated command and control.
Coase said:
We can best approach the question of what constitutes a firm in practice ... by considering the legal relationship normally called that of master and servant or employer and employee ... The master must have the right to control the servant's work. We can thus see that it is the fact of direction which is the essence of the legal concept of employer and employee just as it was in the economic concept (of the firm) which was developed above. (3)
In short, the firm could not exist without the controlling elements of employment.
Coase made this observation in 1937. He had spent several years touring the industrial heartland of the USA researching the transaction cost idea by talking to business people and asking how they organised their firms and what affected their decisions.
Coase's observations may have been accurate in the 1930s and perhaps continue to reflect how most firms operate. Command and control is a natural product of human inclination. But Coase's observations were more than simply observations of reality. Coase's explanation has reinforced practice and has had a profound influence on what economists, managers and most people conceive to be firms. Further, Coase influenced how markets are conceived, that is, as competing and interacting firms seeking to appeal to the whims of consumers.
Late into the twentieth century and into the beginning of the twenty-first, the dominant conception of a firm continues to be that of an organisation structured around command and control of employees by employers. This understanding of firms dominates the way we think about markets, in which command-and-control firms contain transaction costs, firms both interact and compete, and consumers make purchases from competing firms.
This idea of firms as solid command-and-control structures is developed in a more complete way by the author and management consultant Elliot Jaques.
JAQUES
Jaques was a USA-based management consultant and a psychoanalyst by training and background. Jaques has an impressive history as a researcher in organisational forms and published several important works during the late 1970s and early 1980s. His real impact has been effected through his consultancies to large, multi-national companies, many of which significantly re-evaluated their internal controlling structures as a result.
In Australia, Jaques consulted to the mining giant CRA during the 1980s. CRA took Jaques's views and philosophies on board and adapted them to CRA's circumstances. The process resulted in a watershed change in approaches to workplace relations and the organisational structure of CRA which, on implementation, helped turn CRA into one of the most successful and largest mining companies in Australia. In the 1990s, CRA merged with the London-based mining company Rio Tinto in what proved to be an Australian management takeover. Rio Tinto is now one of the world's three largest mining conglomerates. Jaques's management philosophies had a pervasive influence on how Rio operates. Further, hundreds of students of Jaques's principles who worked in management in the Australian arm of Rio have left Rio over the last two decades to take up senior positions in mining and other companies and in the public sector across Australia. The management principles promoted by Jaques have had significant influence not only in Australia but also internationally in certain corporations.
Jaques's core proposition is the superiority of the employment bureaucracy as the model for the internal structures of firms in industrialised societies. That is, the legal form of the employment contract is a most effective tool for the management of industrial activity, and the bureaucracy built around the employment contract is the most significant ingredient in a successful firm. In essence, Jaques is interested in the employment model of "control" as the basis around which to structure a firm. He studies the control system of employment and recommends a highly rigid process through which control can be effectively organised, thereby delivering success to the firm and a sense of purpose, place and reward to the individuals working in the firm. He points out, however, that his model does not apply to the small business sector and he remarks that he has found it difficult to apply the principles in the academic sector.
Jaques is critical of bureaucracy that is mindless and inefficient. His interest is in the process of designing and implementing a successful employment bureaucracy. His theorem is that every job has a "time span" in which the person doing the task thinks, plans and executes the job. A factory process worker will have a time span of, say, one week, the works foreman, say, one month, and the executive director, say, five years. Jaques reasons that this time span for each job is scientifically measurable and its measurement will determine the exact number of bureaucratic levels required in any given enterprise. When the firm is structured around the required bureaucratic levels, it will have achieved its perfect form. It will not function properly if it has more or fewer levels than those prescribed by the time-span analysis.
Jaques proposes that achieving the perfect bureaucratic form makes possible a fair distribution of wages and salaries and of socioeconomic status for all employees. Fair enterprises (4) can be designed and implemented, he says. He rejects any idea that employee remuneration can be set according to the principles of supply and demand, and he claims that studies have proved that a free market for labour inside the employment bureaucracy is disruptive of the perfect form of the firm.
Further, Jaques argues that the employment bureaucracy can give workers a sense of purpose and place in society. He reasons that, at each level in the employment bureaucracy, fair and equitable levels of pay can be achieved and can be proven to be so. He calls this "fair felt pay". It is the level of pay that a person can achieve in the employment bureaucracy that is commensurate with any other person who is performing similar work at the same level in the bureaucracy. As long as these differentials are maintained, every person in the organisation will feel that he or she is being treated fairly, thus achieving harmony within the bureaucracy. It is only when people in the bureaucracy seek to upset the "felt fair pay" differentials that problems arise.
It was perhaps not surprising that Jaques had significant influence in Australia because his perfect form of the employment bureaucracy matched closely that of the peculiarly Australian system of controlling wages and work conditions throughout the entire Australian economy. In 1904, Australia imposed on itself a complex system of wage regulation that can best be described as a nationalised version of the Jaques "felt fair pay" principles. It exists to the present day in 2005. Australia has quasi-courts that seek to establish measures of wage relativity across an entire spectrum of job and task descriptions. Presumably, the imposition of these "fair" wage differentials and structures achieves harmony within the working population of Australia and strengthens social cohesion. Through their industrial relations institutions, Australians have, like Jaques, rejected the idea that wages and incomes can be set according to the principles of demand and supply.
These ideas of the firm as a rigidly structured command system have become institutionalised, not just within firms but within nations as well. In Australia, for example, the micro form of the alleged perfect firm has been replicated in the macro form of the nation's labour-regulating institutions. In effect, these national structures impose on firms their managerial form.
LOYALTY
The dominant idea of the firm not only has these legal and managerial control elements but also psychological elements that are just as important and command-and-control orientated.
Nations have always expected and demanded loyalty -- it is both morally esteemed and deemed worthy of reward. Disloyalty has resulted in social exile and sometimes in execution. But far from being a good, loyalty is most often a tool used by the cunning to entice the unwitting to surrender power. The psychology of loyalty is the psychology of subservience to command and control. It is the process by which people are seduced into accepting their place within a class-based social structure, where they willingly give up control of their own destiny to someone else.
As in nations, in the modern business environment loyalty has been a dominant operational imperative thought necessary for success. Loyalty is so psychologically ingrained that it is considered to be a key element of the glue that holds a firm together.
The idea of loyalty has its roots in the blood, mud, death and comradeship of the battlefields of every war since the birth of modern civilisation in ancient Greece. Wherever a nation has existed, loyalty has been demanded. It has been accepted that, without loyalty, a nation could not survive external assault. It is not surprising, then, that loyalty should be a modern business catch-cry, because for the first 70 years of the twentieth century the business of conducting business was dominated by men whose approaches had been moulded by the experiences and demands of war.
Business in market economies has largely been seen as a war involving winners and losers. Loyalty has offered a prime conceptual framework for managing the firm for competitive war. The principal structure adopted has been that of class. Firms would invite people in and people would apply to become part of the firm. Individuals would be assessed for skills and abilities and slotted into formal, rigid class structures inside the firm. Incomes, status and decision-making prerogatives were all determined by the class structure.
This idea of micro class structures in firms, based on qualifications and acquired formal skills, replaced ideas of macro class structures operating across a society built on inherited position. The twentieth-century firm has been a scientific, sophisticated version of the traditional class system through which the lord of the manor managed his estate in medieval England. But in business, your position in life is not determined by birth, but by which part of the firm's hierarchy you are assigned to. The better-known class structures of old have became hidden within the class structures of the firm.
Within this class structure a simple set of unwritten rules applied that were meant to operate for the mutual benefit of the firm's members. The demands on the individual were simple: do the tasks allotted to you and above all conform to the hierarchical structures of the firm. In short, be loyal to the firm above all other considerations.
An individual's willing conformity or loyalty has often been more highly prized than success at allotted tasks. After all, mistakes at work can usually be corrected by other employees. And the firm's selection processes were surely so good that hiring inappropriate individuals could hardly ever happen! If an individual failed consistently over time, he or she could be reallocated to more suitable tasks. The system would protect the individual from occasional lapses, but was not itself threatened by individual task failure.
By contrast, lack of loyalty was cancerous and threatened to bring down the edifice. Exposing weaknesses inside the firm or questioning its hierarchical structures threatened the entire system. So, in return for loyalty, the firm would provide the employee with protection from the harsh realities of the war that was conducted daily between firms. The loyalty pay-off included financial security, longevity of engagement, security in retirement and a sense of place and purpose in the firm's class structure.
This dominant management model has been highly successful. Great industrial monoliths, larger than many nations, have been created. The principles of command and control, dependent as they are on loyalty-driven mindsets, have enabled spectacular and complex organisations to emerge, contributing to a twentieth-century explosion of material well-being.
But loyalty has never been solid. The trashing of corporations that began in the 1980s, with mergers, acquisitions, and downsizing, has sent the clear and unforgiving message that firms can and will be loyal to individuals only while it suits their purposes. In reality this has always been the case. Firms can be loyal to employees only while economic circumstances enable them to afford it: a lesson learnt by the Great Depression generation. When a business goes broke, that's the end of the loyalty pact!
Loyalty has always been sold to employees as a positive. But it has always had sizeable, never-to-be-mentioned personal downsides. Loyalty has always required the willing sacrifice of the employee's sense of, and desire for, freedom to the higher demands of the organisation. Nothing is more completely lost than that which is willingly discarded. Liberty thrown away creates a gaping, unresolved emptiness in the individual's heart. In this environment, loyalty generates a culture of silence, fear, transference of blame and gouging of personal integrity. For example, most people feel uneasy when the system requires them to ignore corruption. Most people chafe at the limitations on their ambitions that the corporate hierarchy imposes on them. Ultimately, the loyalty system creates a culture of subservience to the whims, egos and personal ambitions of the corporate elite. Such a culture makes it impossible for an organisation to realise the greatest combined potential of its personnel.
Above all, the loyalty thought necessary to a firm's performance has acted to dull performance by suppressing accountability. When loyalty is demanded, accountability becomes diffused and lost. All the signals in the loyalty-driven organisation say "the buck stops somewhere else". Accountability that has been diminished by loyalty causes errors, corruption, and general underperformance that has to be absorbed and accepted. Loyalty causes the firm's systems to be corrupted and incapable of solving internal problems.
Systems cannot fix problems. Only the people in systems can do that. Demands for loyalty suppress people who would otherwise keep the organisation operationally active, intact, alert and reactive to problems. A huge amount of informal conversation revolves around problems at work caused by people higher up on the firm's status ladder but which can't be brought to their attention.
The negatives of loyalty produce a major psychological dysfunction. As loyalty limits ambition and demands conformity to class structures inside firms, frustration emerges as a dominant but suppressed human emotion. As long as people are prepared to accommodate frustration, loyalty can survive. But generations moulded by peace have low tolerance levels of frustration. People want more. They want to explore the inner self, to find the thing that drives them, to risk and to create. They are less accepting of failure and negative behaviours in those around them. In short, the peace generations have become entrepreneurial and, as entrepreneurs, people find pathways to greater financial success and personal satisfaction.
In management thinking, loyalty has achieved a quasi-divine status. To challenge loyalty is to risk bringing down the wrath of the high priests of social and business engineering. Yet loyalty has an undeservedly good reputation. Its negatives have become apparent and are increasingly being rejected. The outcome can be maturity in the personal relationships operating inside firms, a maturity that promises greater dignity for people and improved performance for organisations themselves.
And this idea of the individual worker being controlled by the system of employment within the firm, of the firm creating and determining an individual's place in society, and of the firm needing loyalty and the individual giving it has had much of its justification in the belief that this is what the worker wants. One commentator said "The organisation transports us ... We do not have to think for ourselves if we do not wish, and most of the time this is a comfort ... most of the time we love it". (5) But others recognise the damage that this idea and structure of the firm inflicts. "We have pictured two broad problems; the first arising from an individual's consuming desire to 'belong' and his surrender of individuality to the organisation ... The second arising from the way the organisation manages to defeat both the individual who runs it and the individual who works within it." (6)
THE MYTH OF THE EMPLOYER
We have seen that the concept of a firm is taken to hinge around the legal right of the employer to control the employee. The employer is the embodiment of the firm. However, the idea of the employer, except in small businesses, is a figment of our collective and legal imaginations.
In most business situations, "the employer" is most often a complex process of control of employees by other employees: employees who have been given the delegated authority of the legal construct of the employer. This is a twist on the normal thinking about an employer but it is a fact that is seldom, if ever, addressed and will be explained further below. As with the king who had no clothes, as a society we fool ourselves into believing that the firm is a dynamic of employer-employee control. Employer-employee control is, in fact, most frequently a psychological and legal smokescreen that masks from our perception the true nature of the human work dynamic. In reality, employment control within a firm is control by one class of employees -- the delegated employees called managers -- over other classes of employees who do not exercise control, not even over themselves.
LOSING CONTROL: A CASE SCENARIO
The smokescreen happens like this. A person starts a business by identifying a market need, organising finance, production, the workers and so on. She works hard. She makes a profit from the enterprise, but then realises something. The business is financed entirely from borrowings. Machinery has been obtained on lease. Raw materials have been obtained on credit. Products are sold but credit must be provided to buyers, and bad debt exposure is now a possibility. If a worker is injured, the businesswoman will be up for costs and held accountable and financially liable. If product does not meet standards or, worse still, goes rotten and a customer is poisoned, the entrepreneur can be sued and even held criminally liable. Sure, there is profit, but it is not that great after all the negative possibilities are taken into account. The entrepreneur is not some industrial giant but an ordinary person with the full complement of human frailties. She has a family to care for and a mortgage on her house. So she has a chat with her friendly legal adviser.
The legal advice is, of course, to create a legal structure that protects the businesswoman's private assets from the commercial risk involved in the firm. A proprietary limited company is formed that takes control and ownership of the business. The entrepreneur is now a director of the company and may even be paid to work as an employee of the company. The proprietary limited company is at law a legal person. It has now become the employer. The employer is now not a physical person but a legal entity. The human relations charade has begun!
Now, employees of the firm are legally subject to the control of an employer that does not have a human form. Rather, it is a legal construct that is controlled by the entrepreneur. By this time the company has grown. One hundred and fifty people now work in the organisation. The family that owns the business feels that the closeness of the personal relationships that the entrepreneur once had with the workers is beginning to diminish. It has become difficult to know and relate to large numbers of people. The entrepreneur now needs a management team. It is formed. One person looks after marketing and sales. Another is in charge of production. Another looks after relations with workers. The entrepreneur finds that the direct control she once had over the firm is rapidly disappearing. Now the firm has a life of its own. In the human sense, the firm is no longer an instrument of the founding entrepreneur but a product of a management class that creates and responds to a vast array of influences. The legal control of the employer (now the proprietary limited company) is exercised through the employees who are on the management team. The management employees exercise employer prerogatives over other employees. A general manager might be in place who acts entrepreneurially.
The original entrepreneur senses that it is time to move on, to spend more time on the golf course and with the grandchildren. A return trip to the solicitor occurs, but this time with the accountant as well.
The accountant and solicitor both advise their client to reap the latent uncashed profit in the business and go public. The company is floated on the stock exchange and shares sold to the public. The entrepreneur retains 40 per cent of the shareholding but has made a windfall profit and could easily retire. Free shares were distributed to the accountant, solicitor and general manager -- who have also done very nicely. The entrepreneur, however, is now largely removed from the day-to-day operations. One of her adult children works in the company as the marketing manager and is being groomed for the top job. Another adult child has disappeared overseas backpacking who knows where. The third child has started an Internet company using his or her share of the proceeds from the company float.
The funeral of the founder is a celebration of a productive life. The workers are advised in a memo that the "boss" of the firm has passed away and will be missed by all. Further down the memo, workers are advised of the latest progress of the hourly pay-rate negotiations. The human relations legacy is an interesting one. The original employer in human form no longer exists. The employer is a legal entity owned by large numbers of disparate shareholders whose only concern is the share price and the dividend payments. If the company goes broke, the shareholders lose the value of their shares but are not held liable for the accumulated debts of the company. Banks, creditors and others who have loaned money to the company are the main financial losers. It is the company that has a duty of care to its workers, not any individual person. The company is no longer human but has become a system. The "employer" does not exist as a human but is instead a management process involving many people. The relationship between employer and employee has become a conceptual phantom and a legal concept around which a vast amount of social and economic regulation has been written. But it is mostly a sham, because the employer-employee relationship is a complex process of formalised class structures inside the firm where the relationships are exclusively those of employee-employee. But if you work in a firm, don't dare say this in a management meeting, because you will immediately become targeted as a threat to the class structure. It is a truth that is not allowed to be spoken.
ACCOUNTABILITY
But the implications of this control structure based around employment and class are not all positive. Sure, the employment-control firm has long been a successful model for the organisational conduct of a firm. But the class structures and the isolation and "protection" of the individual in the firm from the dictates of the external market systemically destroy accountability. And with the loss of accountability the firm becomes vulnerable to systemic and institutionalised incompetence and corruption. This is constrained only by the morals, integrity and competence of each individual person working in the firm. Employment control, as a model for the firm, is a systemic breeding ground for low forms of human behaviour, particularly corruption and theft.
The loss and eventual destruction of accountability works like this. Employees in a firm are paid at an hourly, weekly or monthly rate. The firm assumes entrepreneurial risk and reaps the rewards or suffers the losses. The employee is protected by the firm from the harsh realities of the marketplace because the employee earns money but does not face the risk of losses. Employees act in good faith to the best of their ability, but if they make an error of judgement the firm will assume responsibility for the error. The most an employee could normally suffer as a result of error is lack of promotion, transfer to another job, or, if serious, dismissal from the firm. The employee is protected from the full consequences of his error. The control systems in a firm are supposed to ensure that, if the employee commits an error but stays within the instructions of the control system, then it is the system that is at fault and not the employee. The employers (the managerial class of employees) are responsible for designing the control systems in a firm. The firm acts as a collective to protect the individual -- including the managers -- from individual error. It's a parallel concept to the idea of the nation.
Nations primarily exist, so it is thought, to protect the individuals inside the nation from external threat. Markets are assumed to threaten the individual and so the firm exists to protect the individual from markets. But nations and firms can protect the people only if individuals accept that they will be controlled. And protection of the individual from accountability is one of the "benefits" said to be delivered to an employee for his or her willingness to be controlled by the employer. In this sense, loss of accountability is a conscious, structured element of the employment-dependent firm. But it is a topic that management, managerial academics and labour regulators do not want to discuss. The pretence is that accountability is achieved or achievable within the employment control systems in the firm. And although this may often be true, the reality is that the control is fickle. Further, it is argued that, if individuals in the firm were held accountable in the same way that markets make individuals accountable, different human dynamics would come into play that would escalate the cost of operating a firm and threaten its very existence. This is another perspective on Coase's transaction cost theory discussed earlier in this chapter.
The destruction of accountability is at its worst when it aids and abets the people who work at the top of the firm, enabling them to rort the firm to satisfy their own greed. This occurs quite simply, for example, when the top managers of firms rewrite the policies of the firm to give themselves large financial or lifestyle perks paid for by the firm. Common things, such as lavish boardrooms and offices adorned with expensive artwork, are symbols of power and wealth which appeal to the egos of the top corporate players. Private jets and expensive cars do much more than enable the practical transport of time-poor managers from place to place. These are also usually symbols of importance giving the corporate player the sense of being Caesar-like in their own mini-empire. This type of cancer at the top of the firm can spread systematically right through the firm. When this happens, it further protects and enhances the largesse distributed at the top of the firm. This can be fatal and cause firms to collapse.
Around the turn of the twenty-first century, the giant US energy trading company Enron and telecommunications company Worldcom crashed. In Italy, the iconic milk and food giant Parmalat crashed. In Australia, the massive insurance conglomerate HIA crashed, as the Bond and Quintex (run by Christopher Skase) corporations had done earlier. In each of these cases, the ensuing investigations led to allegations that these giant businesses, led by high-profile corporate leaders, splashed their money around their subordinates inside the firm and around charitable and community organisations. The largesse given to others was, however, never as big as their own. The giving of money to others silenced the potential criticism of the giving of money to themselves. These allegations -- many of which are subject to ongoing testing in the courts -- also include claims of massive internal corporate fraud, in which money was routinely and illegally shipped from business to private accounts. The financial records of the companies, it has also been suggested, were doctored to hide transactions, and dubious accounting practices were used to make massive trading losses look like profits. And while this was happening, the banks who loaned money, the government regulators who allegedly oversaw the activity, the professional stock market analysts, and the thousands of professional business commentators who watched these firms failed to spot the impending crashes. Everyone external to the firms was blinded. But in each case the investigators from financial authorities found people inside the firms who knew, or had an inkling, that things were going terribly wrong. Those who knew and were involved were, like their bosses, criminally charged (many went to jail), others are still to face the courts, still others fled, hunted by the authorities. Some inside the firm who sensed that things were wrong could not or did not do anything before the collapses. Others were oblivious. But in all cases accountability and transparency inside the firms had collapsed. The command-and-control systems, dependent as they were on employment, were easily and routinely manipulated to avoid accountability and transparency. And this is not a rare occurrence. Every firm, every organisation that utilises command-and-control employment brings into its structure the psychological and institutional DNA for the destruction of accountability. Most firms contain and suppress the cancer, but they cannot eliminate it. Loss of accountability is the flip-side of the containment of transaction costs said to be necessary for the existence of the firm. But all too often the accountability destruction cancer destroys the organism it has colonised.
There is nothing surprising about this. It's the natural behavioural response when command-and-control employment systems are adopted in any human collective. It is changing, but not because governments, corporate regulators, corporate organisations themselves or shareholders are concerned about the systematic destruction of accountability within firms. These groups don't even recognise, let alone discuss, the problem for fear that to do so would threaten the very existence of the firm itself. These groups suffer from conceptual blindness to the problem. Where the change is coming from is the people.
THE "INDEPENDENT EMPLOYEE"
In truly democratic and educated societies, people are generally alert to the psychological processes of command and control. Even employees are not comfortable with command and control. People have become (and firms are now confronted with the "problem" of) "independent employees".
"Independent employees" are people who work in firms, are captured under the command-and-control contract and structures of employment, but in their actions, desires, thoughts and ambitions are people of independence. They are people who, in their work, live the lie of employment but have all the personal attributes of independence. They are potentially firms' greatest assets because they enable firms to be creative. They are people who thrive on accountability. They have integrity and adhere to their principles. They are large in number.
The independent employee has emerged because command-and-control employment depends upon ignorance and willing compliance for its survival. But people in educated societies have become less ignorant and don't want to be controlled. And it's difficult to control people who don't want to be controlled.
Why has the independent employee emerged?
In democracies, people have become used to thinking that, in theory at least, governments are servants of the people. Government is not of a higher order than the people. People express their individual supremacy over government at the ballot box. Obviously, once elected, governments can and do behave badly and systems of government can and do disempower individuals. But in the latter part of the twentieth century, government became more "light touch" than certainly was the case for earlier generations. The nation state exists to protect its people from external violence, to provide systems of law, order and justice within and to fund and often provide services. Frequently, in performing these tasks, the state assumes a higher importance than the individual. But in the modern state there exists an idea, at least, that the processes of governance should attempt to strike a delicate balance between the organisational needs of the collective and allowing the individual the right to be an individual -- to find his or her own place, harmony and happiness. The idea of the state has moved from one in which it sought to determine the individual's place in society to one in which it is thought of as an organisational framework for individual freedom. This idea is clearly current, even if the practice is frequently haphazard and always far from perfect.
This idea of the individual being free from state control has firmly taken hold in the psyche of democratic societies. It is clashing with the concept and practice of employment by the command-and-control firm. In their private lives, employees are free voters and consumers. They decide what to buy and when. They travel freely. They demand that their needs and wants are satisfied by the service providers whom they pay to do so. The law protects and enforces their right to choose and normally prevents them being required to buy or use services they may not want. They borrow large sums of money to purchase cars or homes or to set up businesses. As private individuals, people are not controlled. Yet when they go to work, they know they are controlled. They know that their incomes are dependent upon their willingness to be controlled. But they are not comfortable with it. In their working lives they live a lie. Most pretend to be comfortable with being systemically controlled, but employer control runs against the grain of their private lives of self-control. Some people accept this willingly. Some are happy to be told what to do at work. Other people revel in the control structure of firms, seeking to climb the internal career ladders in order to achieve greater rewards, but also in order to control those lower down the ladder. But others -- the newer, emergent and progressively dominant group -- privately resent the control.
We have reached a moment in history when the problem of the independent employee has become real and pressing. Independent employees are vast in number. They are people who, to earn an income, live in a society that insists on employment and find that they must accept the control of the employment contract if they wish to work. These people are in every respect independent beings. They want to and do think for themselves. They are decision-makers. They are self-managers. They seek to control their own destinies and careers and not to have the firm decide either their current or future place in the world. And the more educated they are, the more they want to exercise self-control. These people, working in firms, are the greatest challenge so far to the idea, structures and operations of firms.
The firm as a command-and-control employment system is under challenge. And it is not coping with the challenge. Occasionally the challenge turns into farce.
In April 2004, a French economist, Corinne Maier, who worked part-time as a researcher for the French firm Electricité de France, wrote a satirical book on life within the firm. The book, Bonjour Paresse (Hello Laziness), subtitled The Art and Importance of Doing as Little as Possible in the Workplace, includes chapters with titles such as "The Morons who are Sitting Next to You" and "Corporate Culture -- Stupid People". (7) The book had a slow start when first published, with an initial print run of only 4,000. But it sprang into prominence and on to the best-seller list when it became widely known that Corinne's employer had called her in for disciplinary action over the book. Apparently her employer didn't like Corinne's depiction of large organisations as driven by internal politics, beset with boredom and inefficiency, and plagued with bad management. Her advocacy of "active disengagement" and ensuring that one did as little as possible to climb the corporate ladder was perceived by her employer as "aimed at spreading gangrene in the system from within". But Corinne did no more than spell out what frustrated independent employees have learnt is the true nature of their positions. They are told that the system is more important than themselves and that to survive they must suppress the self for the good of the system. Corinne's book represents no less than the psychological response of the independent employee to being trapped within the command-and-control employment organisation.
Within employment control, the system demands that the identity of people be subjugated to the greater good of the system. The reaction of the independent employee in such circumstances is to leave; otherwise they become disgruntled, de-motivated and disillusioned. Only those who seek to be controllers enjoy the system and rise through its hierarchy.
Sometimes the independent employee breaks out. This occurs most dramatically with whistleblowers, people who work in a firm or organisation, see or experience fraud or great wrongs and errors in the organisation, and go public with the problem. Whistleblowers are people, like Corinne Maier, who find bad within the system and whose conscience tells them they cannot sit by and observe or experience the bad and do nothing. They expose the bad. They are people who display all the attributes of independent employees. They are people who cannot submit themselves to the control of the employment organisation, particularly when the organisation is wrong. And their reward for exposing wrong is most frequently not credit for ridding the organisation of wrong, but rather extreme pressure to shut up. They face disciplinary action, they are often sacked, and in extreme cases they put their own safety at risk.
In one typical example, (8) a police officer in the police force in the State of Victoria in Australia disclosed what become known as the "window shutter" scam. What was occurring was that retails shops in Melbourne, Victoria, were having their shop front windows smashed at night. The incidents were reported to police who would ring window shutter security firms to have the windows boarded up the same night. The cost would be covered by the retailers' insurers. It transpired that sections of the Victorian police were receiving financial kick-backs from the security companies. Suggestions also emerged that some of the police involved paid criminals to organise the window smashing. One police officer objected to the practice and tried to have it stopped by exposing it internally. However, the corruption was so endemic that he found that the senior officers to whom he complained were also on the take. He went to the press; the accusations made front-page news. An official police enquiry followed and the officers involved were disciplined internally. After the scandal and the subsequent investigative process, the only officer dismissed from the force was the one who complained. He brought an unfair dismissal action against the Victorian Police, which he won, but the police appealed through several superior courts until the officer lost on the grounds that he was a "servant of the Crown" rather than an employee, and so could not bring an unfair dismissal action for want of jurisdiction. Years later, corruption in the Victorian police force reached scandalous proportions. The top levels of the Force publicly accepted that they had deep problems at senior levels. Reports suggested that many of the corrupt senior officers were in fact the same officers accused of corruption in the shutter scandal, but since then they had been promoted to senior levels. The whistleblower was sacked; the corrupt officers were promoted.
This Victorian police case is not rare. And it seems that the problem for whistleblowers is that they find themselves subject to sustained attack by the organisations for whom they work. So common is the problem that, in many places, governments have enacted special whistleblower legislation to protect them. In so doing, governments have acted in the belief that people must be encouraged to be honest. Whistleblowers expose corruption and crime and must be protected and encouraged.
But enquiries into the whistleblower problem have not focused on what it is within organisations that allows cultures of corruption to become entrenched. Perhaps it is the systems of control established under employment that enable corruption to become more than simply the actions of isolated individuals. In fact, systems of control based on master-servant employment legalities have within them the seeds of systemic corruption. Systems of employment control face this constant problem. It's simply one of the many problems facing the human resources industry.
HUMAN RESOURCES: MANAGERS JUGGLING THE IMPOSSIBLE TO JUGGLE
It is human resource managers who seem to have been handed the near-impossible task of reconciling the aspirational and individualised motivations of the "independent employee" with the collective, bonding needs of the firm. Entire forests of trees have been converted into paper to produce the millions of books that have been churned out on the subject. None of these books seems to express the issue in terms of the mismatch between the independent employee and the concept and practice of control within the firm. Instead, the issue they all address is how to "motivate" workers, how to get them to act with imagination, creativity and responsibility while remaining with the firm and not leaving to work for other, competing firms or to start up their own. The firm needs employees to create value that is retained by the firm. This is the objective of the employment-based firm.
In the 1950s, the human resource manager began to come to prominence. Academic schools of human resource theory and training began to emerge, seeking to solve the central problem of the firm: how to exercise control without destroying creativity and performance. During the latter part of the twentieth century, human resource management theory started to accept that command-and-control processes did not result in the most productive of workforces, particularly in large firms. Command and control de-motivated. It created an "us and them" mentality, a psychology of war within the firm in which there were winners and losers. But the dilemma is that the firm is thought to be unable to exist without command and control.
The idea of command and control itself as the core structure of the firm has not been challenged. Why? Because even to think of challenging command and control assaults key psychologies of the senior management ranks of the firm. This includes their individual and collective egos, career ambitions, their perceived entrepreneurial flair and their ability to capture and retain the benefits of the firm for themselves and shareholders. Any manager who challenges the idea of command and control in a firm will rarely have promising career prospects. In fact, even suggesting that command and control has flaws is taboo. Above all, it is taboo to challenge the employment contract because employment is culturally accepted, if not always consciously recognised, as the key legal bedrock of control.
Instead, human resource managers and systems are supposed to reconcile the irreconcilable. The HR industry has been built around creating human, motivational, profiling and training propaganda and career systems that would entice legally bonded employees to perform at their peak, to give of their all, to want to stay with the firm and to willingly allow the firm to retain large shares of the value they create.
In this exercise, the HR industry has displayed genius. It has achieved considerable success, largely by focusing on the positives of the firm. It has downplayed issues of control employment and always looked on the bright side of life. Motivation comes from excitement, not negativity!
The most famous and perhaps most influential of management writers in this area is the late Peter Drucker, often billed as the world's greatest management thinker. (9) Drucker created the terms "knowledge worker" and "knowledge society".
In the 1930s, early in his career, Drucker noted that, whereas economists were interested in the behaviour of commodities, he was interested in the behaviour of people. Again, whereas economists reflected on the interaction between firms and between firms and consumers, management was focused exclusively on the internal human dynamics within firms. And the two were not, and still are not, conceived as being one and the same. Drucker was deeply wedded to the free enterprise system. His focus was on making it work well. He was concerned that the industrial corporation had assumed the market's central place in society and that the new social structures were failing in the areas of freedom and equality.
Drucker's concerns about the alienation of the worker paralleled those of Karl Marx. Drucker said:
Work appears as something unnatural, a disagreeable, meaningless and stultifying condition ... devoid of dignity as well as importance. [The worker] is not a human being in a society, but a freely replaceable cog in an inhumanly efficient machine. (10)
Drucker derided the authority and power of the executives in large corporations. Executives were no longer the owners of the firm but exercised illegitimate control over the corporation and its workers:
In the modern corporation the decisive power, that of the managers, is derived from no one but from the managers themselves controlled by no-body and nothing and responsible to no one. It is in the most literal sense unfounded, unjustified, uncontrolled and irresponsible power. (11)
But Drucker was not a destroyer. The solution to the problem of corporate control by management was not to do away with the corporation or management or free markets. Rather, he proposed to bring the assembly-line worker into the picture of the whole of the firm and so remove his alienation.
Shortly after the Second World War, Drucker was commissioned by General Motors Corporation (GM) to undertake a study of its management. Drucker found in GM something different from what might have been expected. Under the leadership of its president of more than 20 years, Alfred P. Sloan, GM was a heavily decentralised corporation. But, at GM, decentralising was much more than the norm. Drucker described the situation he found as follows. "Alfred P Sloan has developed the concept of decentralisation into a philosophy of industrial management and into a system of local self-government. It is not a mere technique of management but an outline of social order". (12) Drucker recommended that the workplace should be democratised, not by law but by management itself, because it would make the corporation more effective. Drucker talked of treating workers as a resource, not as a cost, and of looking to develop the "responsible worker". But when, in 1947, Drucker made his recommendations for change within GM, both management and unions turned against him. He had supporters, but the idea that management should manage and workers work held sway within GM, as it did in most corporations in the USA. And it wasn't until the 1970s, when Japanese car imports began rapidly to erode the dominance of the US car industry, that corporate America started to revise its thinking. Only then did Drucker's ideas of "the quality of working life" and "quality circles" and so on begin to find favour in the USA. More managers began to see that "For the proper functioning in the industrial enterprise ... its members, down to the last sweeper and wheelbarrow-pusher, must have a managerial attitude toward their work". (13)
How to achieve this? For Drucker, the first step was to eliminate power and fear from the management-worker relationship. Drucker thought that the power imbalance could be rectified. If the worker felt secure in his job, and had the right to withhold his labour without fear of being fired, then workers would cease abusing their power. There was thus an important role for unions. Management needed to be balanced by countervailing power. Job security was part of the answer but, for Drucker, management training was more important.
Drucker's most famous dictum was "management by objectives". (14) In 1954, he set out a conception of the manager as no longer the traditional delegate of the owner but as someone who sets objectives, organises, motivates and communicates, develops yardsticks and measures, and develops people. And there is no doubt that this concept of management has taken hold and been dominant since the 1950s. Drucker characterised it as a situation where managers had control over themselves rather than control from above. Further, he believed that management's most urgent task was to find ways of motivating workers by banishing fear, especially fear of losing one's job.
But even more was needed, reasoned Drucker. In 1966, he wrote that the new knowledge worker "needs opportunity, he needs achievement, he needs fulfillment, he needs values". (15) Drucker heavily criticised the human resource management schools that promoted human relations simply as a device to get workers to do what management wanted. Instead, he was in favour of extending downward the management of individuals so that workers managed themselves. As early as 1969, Drucker saw the evolution of the worker as entrepreneur as a dominant development, in US business at least.
Drucker was not alone in holding these views. Others also identified the development of the independent-minded worker as a key social, psychological and even economic force. Tom Peters was another of the major thinkers on management after the Second World War who recognised the emergence of the independent worker. (16) He said in the late 1990s: "We are CEO's of our own companies: Me Inc. To be in business today, our most important job is to be head marketer for the brand called You". (17) This was reflected in the reality of business of the late 1990s, when the vice-president of AT&T, James Meadons, said "People need to look at themselves as self-employed, as vendors who come to this company to sell their skills". (18)
Two further management thinkers are Mike Hammer and James Champy, who together came up with the idea of re-engineering the organisation. In 1993, they argued that responsibilities and authority were so widely distributed throughout the organisation that virtually everyone needed to become a manager, even if that management was only of his or her own work. And to accommodate this, they reasoned, organisations had no choice but to flatten the traditional command-and-control pyramid. By 1995, however, Champy claimed that re-engineering of firms was not occurring or was happening only half-heartedly, and that the obstacle to change was management itself. According to Champy, management had not changed but it would have to change its approach to control. He likened the problem to "a communist regime introducing free enterprise into a controlled economy while trying to hold on to power". (19)
Champy attributed the failure to change to the natural inclination of managers to conceive of workers only as machines. Managers "rely on humans only at the most elementary level of their being ... The machines (firms) are basically organisation charts bought to life ... all held together by chains of command and lines of authority". Managers' reasoning is that "With careful command and control, sound navigation and maintenance, the ship should operate with perfect reliability and rationality (no subjectivity) ". (20) Champy went on to predict the "collapse of the old corporate machine ... as customers make tougher and tougher demands on a company's services and products ... and it's specifically the chains of command and the lines of authority ... that are groaning and popping the loudest". (21)
Champy claimed that "what must be abandoned by the new management of our corporate ships -- that is both officers and crew -- is a whole ideology, a whole way of thinking about power". (22) But what stopped companies reengineering themselves in this new direction, according to Champy, was managers' fear of losing control: a fear that was greater than the fear of loss of status. He went on, "we must wake up to the fact that authority is no longer vested in a place on the organisational chart, but in an ability to do a job". (23) Champy was urging managers to revolutionise their thinking and their attitudes. The key to the new corporation was culture, not structure, and managers must start the new culture with themselves. The new culture could best be described as one of entrepreneurship. "Reengineering demands that managers empower people to do the new operational work and to do whatever it takes to serve the customer's needs". (24)
This same theme -- the elimination of top-down, command-and-control management -- was a consistent one among most profile management thinkers at the tail end of the twentieth century.
Rosebeth Moss Kanter is a Professor of Business Administration at Harvard Business School, author of numerous management books and consultant to many corporations and governments around the world on organisational change and renewal. Kanter sees the process of management reform as "providing the tools and conditions that liberate people to use their brainpower to make a difference in the world of constant challenge and change". (25) Kanter sees the management task as "mobilising and motivating individual human talent in pursuit of collective ends". (26) "Leaders must create cultures in which experiments, questions and challenges are not just for the courageous". (27)
Along with other management thinkers, Kanter sees continuity of staff as critical to the success of the firm. "Momentum is lost because of staff turnover"; (28) "in bureaucratic cultures, powerlessness, not power, can corrupt, turning the powerless into controlling, petty tyrants who guard their own patch of turf rather than strive to deliver value for customers". (29) Kanter says that "a debate has raged among business leaders in North America and Britain over whose interests should come first -- those of shareholders, customers or employees". (30) The new business strategies require managers to find new ways to guide action and motivate people, she reasons. (31) "Most businesses today say they serve customers. In reality, they serve themselves". (32) She puts the emphasis on finding new ways of motivating staff without using command and control. "The new security is not employment security (a guaranteed job no matter what) but employability security -- increased value to the internal and external labour markets". (33) She promotes a "kind of voluntary control through relationships among equals". (34) She looks at Bell Atlantic, which transformed itself and in which "Corporate staff were put on in a market-like situation, in which their budgets depended on selling their services, thus provoking an internal-customer orientation". (35) Kanter says that "creative managers are not empowered simply by a boss or their job; (but) on their own they seek and find the additional strength it takes to carry out major new initiatives. They are indeed corporate entrepreneurs". (36) "The idea that corporate staffs have internal customers became real at Bell Atlantic through Client Service group structure in which corporate staffs had to sell their services to line managers who were free to purchase them internally or externally". (37) What Kanter is describing here is the new development of "markets in the firm", a topic that is covered in Chapter Seven.
But what needs to be emphasised at this point is that, in all the management rethinking about control and power within the firm, the idea and practice of the employment contract has never been challenged. Management thinkers have not realised that the new desire to empower workers is at cross-purposes with, and defeated by, the legal underpinnings of employment: that the social, institutional and legal regulatory approaches to labour -- embedded as they are in the employment contract -- prevent the empowering of employees. Corporations may seek to operate with management by objectives, to empower workers, to have knowledge workers, and so on, but this is attempted within the legal framework of employment, which is entirely about control.
This creates irreconcilable tensions. Management cannot systemically achieve its performance objectives while it is trapped in the contract of employment. The tension can be resolved only by aligning management and philosophical ideas with the legal reality. If management wants command and control, the employment contract fits perfectly. But if management finds that command and control limits performance, and desires to move beyond command and control, this cannot be fully achieved while the employment contract is retained.
But the legal, social, institutional, and attitudinal paradigms within which labour regulation operates makes the move away from the command-and-control employment contract very difficult. This is the next topic for consideration.
ENDNOTES
1. Niccolo Machiavelli, The Prince, Penguin Books, 1981.
2. Phyllis Deane, The First Industrial Revolution, Cambridge University Press, 1979, page 180.
3. R.H. Coase, The Firm, The Market, and The Law, University of Chicago Press, 1988, page 53.
4. Elliott Jaques, Free Enterprise, Fair Employment, Heinemann, London,1982, page xi.
5. J. Irwin Miller, "The Dilemma of the Corporation Man" in The Book of Business Wisdom, Peter Krass (ed.), John Wiley & Sons Inc, New York, 1997, page 283.
6. Ibid., page 289
7. "Is slacking the only way to survive the office", The Scotsman, 16 August 2004; "What's that stench in your office? Inertia", TimesOnline 16 August 2004 at www.timesonline.co.uk
8. Konrad v. Victoria Police (State of Victoria) and Murray Neil Comrie, Chief of Commissioner of Police for the State of Victoria. No VG 58 of 1998. Federal Court of Australian [1999] FCA 988.
9. Jack Beatty, The World According to Drucker, Orion Business Books, 1998.
10. Ibid., page 45.
11. Ibid., page 46.
12. Ibid., page 56.
13. Ibid., page 76.
14. Ibid., page 111.
15. Ibid., page 115.
16. Tom Peters, Liberation Management, Pan Books, London, 1993.
17. Beatty, op cit., page 171.
18. Ibid., page 171.
19. James Champy, Reengineering Management, Harper Collins Publishers, 1995, page 5.
20. Ibid., page 13.
21. Ibid., page 20.
22. Ibid., page 21.
23. Ibid., page 27.
24. Ibid., page 115.
25. Rosebeth Moss Kanter, On The Frontiers of Management, Harvard Business Review Book, 1997, page xiii.
26. Ibid., page 6.
27. Ibid., page 9.
28. Ibid., page 11.
29. Ibid., page 15.
30. Ibid., page 21.
31. Ibid., page 27.
32. Ibid., page 54.
33. Ibid., page 55.
34. Ibid., page 62.
35. Ibid., page 66.
36. Ibid., page 99.
37. Ibid., page 125.
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