Post-modern Management

A key question for business ethics:

• What is the relationship between making money and doing good?

• Premise One: Different opinions answering this question are embedded in different worldviews and different social realities.

• Premise Two: It is a useful simplification to distinguish traditional, modern, and post-modern worldviews.

A traditional opinion

• “No one can serve two masters, for either you will hate the one and love the other, or you will be devoted to one and despise the other. You cannot serve both God and money.” –Matthew 6:24

A modern opinion:

• “There is one and only one social responsibility of business –to use its resources and engage in activities designed to increase its profits.” –Milton Friedman, New York Times Magazine, Sept. 13, 1970

A post-modern opinion

• “Management is doing things right. Leadership is doing the right things.”

We treat Drucker as a key transition figure

• Born 1909 Vienna• Died 2005 California

Drucker paved the way bla bla bla bla bla for today´s creating bla bla bla bla bla shared value and bla bla bla bla bla unbounded organization

Let´s start with Milton Friedman

• “The social responsibility of business is to increase its profits.”

• Few managers and few academics agree with Friedman in the 21st century, but inside a certain worldview his opinion is obviously correct.

• What is that worldview?

Two pillars of “modern” thinking

• Utilitarianism in ethics• Equilibrium theory in economics

Put standard versions of these two together and it follows that doing well and doing good are identical.

The problem whether human action is determined by the iron laws of economics is not a problem because the iron laws make people do what they ought to do anyway.

The evolution of utilitarianism-1

• It started with Jeremy Bentham´s pleasure principle

• But with John Stuart Mill and others utilitarianism was broadened to mean “happiness” in a wider sense than pleasure

• “Happiness” became “Utility.” “Utility” became a standard concept in economics. “Utility” was held to determine prices and other quantities measured by economists.

The evolution of utilitarianism-2

• “Utility” brought together the old tradition of regarding “use value” as a prerequisite to “exchange value” with the newer tradition of utilitarian ethical philosophy.

• But “utility” was hard to measure.• It was easier to measure “revealed

preference” by identifying revealed preference with the prices people in fact paid for products they bought.

The evolution of utilitarianism-3

• BOTTOM LINE: THE ETHICAL DUTY TO DO THAT ACTION WHICH CREATES THE GREATEST GOOD FOR THE GREATEST NUMBER BECAME IDENTIFIED WITH CREATING MAXIMUM CONSUMER SATISFACTION AS MEASURED BY PROVIDING GOODS CONSUMERS CHOOSE TO PAY FOR.

Meanwhile economists were developing equilibrium theory

• Free competition• Among many buyers

and sellers• Each animated by

utility-maximization• Leads to equilibrium

prices• That MAXIMIZE

WELFARE

• Leon Walras 1834-1910

Maximum welfare is a Pareto optimum

• The definition of maximum welfare in equilibrium theory is

• That a point is reached where there are no more exchanges

• Because there are no more deals that would benefit both parties

• Vilfredo Pareto• 1848-1923

It follows that Friedman is (or was) right

• Profit-maximization by producers is equivalent to utility-maximization for consumers

• Assuming free competition that drives prices down to the point where marginal cost equals marginal revenue

• And assuming that it is possible to maximize profits in highly competitive markets with many producers.

• (both of which assumptions are clearly false in the 21st century)

“Modern” thinking fits the box made by early modern jurists and philosophers to meet the

needs of the times THE FREE INDIVIDUAL

PROPERTY CONTRACT

NO DUTY TO HELP

Modern advice: Stay in the box

• Assume perfect markets with free competition driving prices down to equilibrium levels

• Assume that firms can be sustainably profitable in such markets

• And in theory the result will be maximum welfare as defined by Pareto

But history is not over yet …!

• Today in the twenty first century people all over the world are moving toward what we call UNBOUNDED ORGANIZATION

• …thinking simultaneously inside the box and outside the box

• …working simultaneously on two enterprise planes, the plane of one´s own organizaton and the plane of social responsibility to the wider community

There is a comeback of Gemeinschaft in the Post-modern economy

Cartoon from cover story on financial impact of culture European Business Review 2012

Peter Drucker showed how reality is already outside the box

• We already live in a post-capitalist world.

• What did Drucker mean by talking about “post capitalism” and “the knowledge society”?

• Many would appear to say the opposite. Francis Fukuyama for example talks about “the end of history.”

• At the end of history there is only one system, defined as capitalism plus democracy, that is dominant now and will dominate the future.

The knowledge society.

• Knowledge, not capital, has become the key factor of production.

• We live in a society of organizatons, not in a society of individuals.

• Major organizations are to a large extent self-governing.

• Effective control has passed from shareholders to management.

• Managers must take the initiative in serving the common good. No one else can!!

Drawing on traditional wisdom, especially Confucius and Plato

Drucker proposes an ethics for a society of organizations

An ethic of prudent wisdom.

• “An ethic of prudent and wise conduct is appropriate for a society of organizations.”

• “The need for ethical integrity is the same whether the executive is a general in the army, an administrator in the public sector, a member of parliament, a vice-president of a bank, or the manager of a bla bla non-profit hospital.”

Ethical wisdom for a society of organizations

• “In an organization society, the managers are very visible, even if they are visible only inside one organization…”

• “They enjoy visibility not because of being born to a noble family, and not because of being rich …”

• “….but solely because of their responsibilities in the organization.”

• “They have authority because they have responsiblity.”

Ethical wisdom for an organization society

• “It is inevitable that the behaviour of the managers will be seen, examined, analyzed, discussed, and questioned.”

• “Although it might not be clear what is the right thing to do, it is usually clear enough when conduct is out of bounds and wrong.”

• ““And if there is any doubt, then the And if there is any doubt, then the conduct is questionable and should be conduct is questionable and should be be avoidedbe avoided.”

An ethic for a knowledge society, that is also an organization society

• “To comply with the expectations of our kind of society…

• …those in authority must develop their talents. .

• They must be examples of high achievement and high performance.

• They cannot rest satisfied with bla mediocrity.”

Traditional wisdom for a post-modern society

• “A SOCIETY OF ORGANIZATIONS IS A SOCIETY OF INTERDEPENDENCE.”

• “IT IS A SOCIETY OF OBLIGATIONS, NOT A SOCIETY OF RIGHTS.”

• “AND ALL OBLIGATIONS ARE MUTUAL.”

MBO (Management by Objectives) and Ethics

• For Drucker MBO is a method for achieving social integration (remember Durkheim).

• The participatory process of establishing objectives and metrics for evaluating their achievement is a process of integrating people into the values of the organization.

• Common goals to which each person makes a contribution, where achievement is measured by objective performance standards, turn the organization into a community.

Chris Argyris, professor of business at Harvard, makes a similar point.

• He distinguishes “unproductive” from “productive” reasoning.

• In unproductive reasoning the boss has certain pet ideas that cannot be questioned and the fact that they cannot be questioned cannot be questioned.

• In productive reasoning the team works together to use quantitative and qualitative data to find out what is in fact the case.

Therefore, according to the research findings of Chris Argyris

• A company that is more ethical by treating all its employees as respected members of a work communty

• Does more productive reasoning

• And achieves higher levels of productivity.

• Chris Argyris 1923-2013

• Let´s go back to the key question:

• What is the relationship between making money and doing good?

• What does Drucker say?

Our short answer

An organization is defined by its mission. This is true in the private, non-profit, and

public sectors. And in any fourth, fifth, or nth sectors there

may be. A mission cannot be accomplished without

resources. In most cases this means raising capital and

paying the cost of capital (what it costs to pay for the use of capital in the capital market)

Drucker´s answer

• Drucker says that even if we imagine that a CEO is an angel or a saint

• Still the CEO will work to make the organization profitable

• Because if it is not profitable it cannot achieve its mission.

• On this view profit is a means while serving society by making a useful product is an end.

• --Peter Drucker, Business Objectives and Survival Needs, Journal of Business, 1958

THAT´S ALL FOR RIGHT NOW!!STAY TUNED!!!