Another piece by a respected analyst describing the cause of the economic crisis – moral hazard.
Of course, it is not just America’s failure, but one that has been made globally.
America’s monumental failure of management.
by Henry Mintzberg
in The Globe and Mail
“If you always do as you always did, you will always get what you always got.” So goes an old saying. And so goes the American economy.
The problem has become the solution. Americans are now getting from their government what they got from their corporations. The automobile companies are collapsing because of their short-term perspectives and so the government has provided one bailout projected to last a few weeks, and here comes another.
We call this a financial crisis or an economic one, but, at the core, it is a crisis of management. To understand this, consider the mortgage debacle.
How could these mortgages have come to exist in the first place and, worse, how could they have spread to so many of the bluest of blue-chip financial institutions? The answers seem readily apparent. Those who promoted these mortgages were intent on driving up sales as quickly as possible for the benefit of their own bonuses, the ultimate consequences be damned. In fact, they sold off these mortgages as quickly possible.
From the archives
* Managing our way out of this mess
* A top-down problem
The Globe and Mail
But how could any serious financial institution have bought this junk – or, more to the point, tolerated a culture of people too lazy or disinterested to realize it was junk? That, too, is simple: These companies were not being managed. They were being “led” – heroically, no doubt – for short-term spectacular performance. The executives didn’t know, and the employees didn’t care.
What we have here is a monumental failure of management. American management is still revered across much of the globe for what it used to be. Now, a great deal of it is just plain rotten – detached and hubristic. Instead of rolling up their sleeves and getting engaged, too many CEOs sit in their offices and deem: They pronounce targets for others to meet, or else get fired.
‘CASH FOR TRASH’
And the new U.S. administration? It rushes in with dramatic actions, paying out “cash for trash,” deeming the movement of massive amounts of money around the economy, much of it to prop up dying businesses in the short run. More quick fixes for an economy brought down by quick fixes.
The problem has been evident for a long time. Executive compensation, the most evident manifestation of this legal corruption of management, was labelled scandalous by Fortune magazine more than 20 years ago, and repeatedly ever since, to no avail. While America escalated its love affair with leadership, its corporate leaders singled themselves out for increasingly obscene pay packages, all the while extolling the virtues of teamwork and sustainable enterprise.
Alongside this came all that “downsizing”: Fail to make the targets, no matter how profitable the company remained, and out the door went thousands of employees, those “human resources.” So conveniently called, in fact, because while managers have to be careful about human beings, they can dispose of human resources like any other resources.
But at what cost? Rather high, because these people carried out much of the critical knowledge of their companies, as well as those companies’ hearts and souls. A robust enterprise is a community of human beings, not a collection of human resources.
We have been told how productive the American economy has been. Well, check the way productively is calculated: Firing great numbers of people, and expecting those left behind to carry the load before they burn out, is productive, indeed – until the longer-term consequences show up. They have been partly showing up in the massive U.S. trade deficits. The U.S. economy is collapsing because the American enterprises – and worse still, the country’s legendary sense of enterprise – have been collapsing.
To get bailed out yet again, the auto companies have to offer plans. No problem: American companies specialize in making plans. It’s the execution that’s been the problem. (Remember those grand auto shows, with all their exotic cars that never made it to market? That was “planned obsolescence.”) These companies couldn’t succeed by doing, so how are they supposed to succeed by planning? The only thing we know for certain is that these plans will result in many more layoffs. That’s some way to fix an economy.
What we have is a government that palliates: It provides geriatric medicine to its oldest, sickest enterprises in a country that requires pediatric and obstetric medicine for its young and vibrant enterprises, the ones that create the jobs, not eliminate them.
We hear now about “too big to fail.” “Too big to succeed” is more like it. General Motors has been going slowly and painfully bankrupt for decades, managerially as well as financially. The new money will only put off its demise. Americans will have to face this reality sooner or later.
From where I sit, management education appears to be a significant part of this problem. For years, the business schools have been promoting an excessively analytical, detached style of management that has been dragging down organizations.
Every decade, American business schools have been graduating more than a million MBAs, most of whom believe that, because they sat still for a couple of years, they are ready to manage anything. In fact, they have been prepared to manage nothing.
HUBRIS ON A MASSIVE SCALE
Management is a practice, learned in context. No manager, let alone leader, has ever been created in a classroom. Programs that claim to do so promote hubris instead. And that has been carried from the business schools into corporate America on a massive scale.
Harvard Business School, according to its MBA website, is “focused on one purpose – developing leaders.” At Harvard, you become such a leader by reading hundreds of brief case studies, each the day before you or your colleagues are called on to pronounce on what that company should do. Yesterday, you knew nothing about Acme Inc.; today, you’re pretending to decide its future. What kind of leader does that create?
Harvard prides itself on how many of its graduates make it to the executive suites. Learning how to present arguments in a classroom certainly helps. But how do these people perform once they get to those suites? Harvard does not ask. So we took a look.
Joseph Lampel and I found a list of Harvard Business School superstars, published in a 1990 book by a long-term insider. We tracked the performance of the 19 corporate chief executives on that list, many of them famous, across more than a decade. Ten were outright failures (the company went bankrupt, the CEO was fired, a major merger backfired etc.); another four had questionable records at best. Five out of the 19 seemed to do fine. These figures, limited as they were, sounded pretty damning. (When we published our results, there was nary a peep. No one really cared.)
How much discussion has there been at Harvard about the role it might have played in forming the management styles of graduates who, over the past eight years, have been running America and what used to be its largest company? The school is now reviewing its MBA program, but the dean has made it clear that questioning the case-study method will not be on the agenda.
In this, we have America’s problem in a nutshell: the utter absence of collective introspection, whether it be the current crisis, the relationship between the Vietnam and Iraq debacles, even what might have contributed to 9/11, as well as the way it has been compensating and educating its corporate “leaders.” The country seems incapable of learning from its own mistakes.
Put differently, the U.S. appears to be in social gridlock. Thanks to vested interests and their powerful lobbyists, as well as an economic, individualistic dogma that has been embraced so thoughtlessly, it is business as usual in America. And beyond: Our planet is becoming as sick as many of these corporations, yet we are being implored to get back to consumption. Fix the problem now; continue to forget about the future. Except this time, we may be consuming ourselves.
No country in the world has been more admired for its capacity to change, to learn with the times. This remains true of technological change; but, on the social front, America seems incapable of changing.
Will Barack Obama be able to change that? I hope so. I fear not. A huge infusion of money may merely stave off the financial crisis while the management crisis continues to fester, masked by this very money. The dean at Harvard said recently that “we must be involved … in fixing the problem.” The U.S. government thinks likewise. How are the perpetrators of this mess supposed to get us out of it? Maybe the rest of the world will have to wake up, finally, to the realization that continuing to follow America’s lead may be the worst possible strategy. Do we really need to continue to get what we already have?
Henry Mintzberg is Cleghorn professor of management studies at McGill University.