Roger Martin has an excellent post on Harvard Business Review that looks back at how business executives used to be embedded in the community they served but are now disconnected from it, as are the businesses they work for. It is a must read.
In the 60s, business were smaller, executives knew their customers and their staff. Shareholders were in it for the long run so tolerated long-term planning. Companies had more loyalty to their home city, so “doing things to benefit the city made sense both corporately and personally.”
While not perfect, this structure enabled the executive to live a reasonably authentic life; the way he wanted to live personally was largely aligned with her corporate responsibilities. He wanted to make the customers — whom he was likely to know personally — happy. He wanted to support his employees’ well-being — employees who he and his family probably knew. He wanted to be a respected figure in the city, a city that was important to his company and his family. And he wanted to make his shareholders happy because he knew that they had placed a long-term bet behind his company. If he worked on all those aspects of his community, he could be successful and happy. And by serving customers and employees well, the corporation was likely to keep on prospering.
But now companies and the executives that work for them have become dissociated from their environs, their staff, their customers and, crucially, from long-term thinking. Martin says:
[T]he idea that shareholder value was a corporation’s principal objective function took hold, largely, I think, through the agency of business schools, whose dramatic rise coincided with the decline of the traditional business community.
This disintegration of community is not a good thing for the exec, his business, the community or frankly, anyone else. It leads to the sort of short-termist thinking that led to the Crash.
Martin paints a fairly bleak picture, but I think there is a cause for hope: Social media. Blogs, Twitter, LinkedIn and a host of other tools provide a way for the people in business, whether executive or not, to get back in touch with their wider community. It also allows customers to collaborate and to become a countervailing force to shareholders, Wall Street and analysts who encourage companies to make bad decisions.
The new community that businesses find themselves in isn’t a geographically constrained community, but a community of interest, or rather, a community of people who have an interest, whether they are customers, staff or curious onlookers.
And there’s nowhere to hide, either. The sunshine of the public’s attention can illuminate any previously hidden nook or cranny, and behaviour that businesses once got away with can now be exposed and challenged. The broader reach of businesses also frequently allows customers to swap away from the worst offenders, using their dollar or pound to vote against a company’s policy or behaviour.
I think we have a long way to go before we make real progress, and the largest of companies frequently have the longest journey, but I think the tide is finally on the turn.