Power, money and the self-fulfilling prophecy: Stanford’s Professor Jeff Pfeffer on how corporate leaders have amassed more power than world leaders.
Simon Caulkin: To pick up where we left off last time, you said to me that a good political analysis of power would start by looking at at who benefits from today’s supposedly dysfunctional capitalist system?
Jeff Pfeffer: It’s not a question of functional or dysfunctional, it’s the way things work. If you’re going to make things better you have to begin by understanding why things are the way they are, and the forces that made them so. I think that a lot of traditional leadership literature and stuff that’s taught in business school doesn’t distinguish very well between what they’d like the world to be and what it is. Hence my description of it as lay preaching rather than social science. You need to understand forces working with you and against you.
SC: At any rate, the way the system currently works benefits those in pole position?
JP: Yes. There’s an article in the Journal of Economic Behaviour in Organisations that asks, do ethical people do better in their career? And the answer is, ethical men do worse while with ethical women it makes no difference. Another article, in the Academy of Management Journal, shows that less nice people do better. There are a bunch of studies starting with Teresa Amabile, quoted in my book, saying that competence and warmth are often seen to be negatively correlated. Yet another piece talks about how people who break the rules or are rude, are perceived as powerful. There’s this heuristic association, so if you scream at someone and get away with it you must have power over them, if you violate the rules the assumption is you must have power. Because of this heuristic association between power and being not nice, people who aren’t nice are assumed to have more power and accorded more status as a consequence. And there’s something else in the book about anger, which shows that expressing anger gets you more status than being remorseful. God knows why – evolutionary psychology, perhaps – but people respond much more positively to anything that signals strength, including brute strength, than they think they do. Because of this heuristic association between power and the ability to engage in certain behaviours, to the extent that you engage in that behaviour, people assume you have power.
SC: So the pursuit of power is the sort of invisible hand behind everything, covertly shaping everything that happens in business?
JP: Yes, absolutely. I’ve been doing some pieces for a Wall Street Journal special section on HR. I’m working with some talented coaches, and also Bill Gentry of the Centre for Creative Leadership, on a bunch of things. For one, career derailment. Career derailment is amazingly common – it happens between 33 and 75 per cent of the time. It’s very costly for both the individual and the organisation. But it doesn’t happen because of technical failure (people who aren’t very good technically don’t last long… ) but mostly over issues of organisational dynamics, ie politics – they can’t handle relationships laterally or with the boss. Organisations and even individuals are very reluctant to acknowledge this, so firms don’t train for it and people are oftentimes at a loss to understand what’s going wrong with their career patterns. They’re convinced there’s something wrong with their boss. But the reality is that your boss is your boss. You need to build a good relationship with him, because if you don’t you’re going to have career problems.
SC: This is what’s happened at Yahoo! and HP?
JP: Absolutely, or at least at HP. I agree with the New York Times that the HP board is one of the worst in the US, but but beyond that I think for example that Meg Whitman [the new CEO] will keep her job at HP because as she demonstrated at eBay she knows how to manage her board very effectively. Leo Apotheker [the previous CEO] was brought in to make strategic changes and she’s following the same line. His problem was was that he didn’t know how to look and present himself as a CEO. It’s mostly about image and perception. Carol Bartz at Yahoo! was another story, but I like the way she left. She wasn’t going to be pushed without telling her story, and good for her. It’s all politics.
SC: You said to me that power wasn’t a homeostatic or self-correcting process, but that it amplified variance. Can you elaborate?
JP: Yes. The powerful become more powerful. Let’s say your name is Simon Murdoch. To the extent that I believe you have control over vast resources and dominate the media field and I have any talent, I’m likely to want to work with you. That perception helps you attract best the talent and become more successful. That’s just one social process. To the extent that I believe you hold lots of power, I’m unlikely to take you on, so you face less opposition. So for a variety of self-fulfilling reasons, power reinforces itself. Better people want to work for you, you have less opposition, reputation grows and because of the self-reinforcing aspect, everyone looks at what you do from the perspective that you’re a powerful genius rather than a deranged madman.
SC: So power is a case of self-fulfilling prophecy?
JP: Absolutely. There are thousands of manifestations of social processes that are self-fulfilling. If you think you’re going to interact with someone intelligent you’ll interact in a way that allows them to demonstrate their intelligence. If you think they’re stupid, even unconsciously you’ll act in ways that make it difficult for them to show they’re intelligent.
So yes, the self-fulfilling nature of human interaction is a very powerful force. It’s particularly so with power and reputation. Once you become known as powerful and competent, the reputation is almost impossible to destroy. Leo Apotheker was fired from two jobs in two years – what do you bet that in another two he’ll be back in Europe as head of another big firm?
SC. What you’re suggesting is that power structures are pretty hard to shift. So nothing much will change.
JP: I think in general in economic systems the best forecast or the safest prediction is no change, or no change from the trendline. I recall in business school 1000 years ago I took a macroeconomics course where we looked at all these fancy forecasting models. Our professor said, don’t look at whether they’re up or down compared with last year but whether they can predict turning points. They did horribly, worse than chance. Because of the self-fulfilling properties of most economic systems and power, the safest most likely bet is that they’ll continue. If they’re going up, because of the self-fulfilling properties they’ll go on going up, if they’re going down because of the self-fulfilling properties they’ll continue to go down. And we’re reading a lot of that lately: governments have too much debt so they’re cutting spending, and when you cut spending you cut jobs, which cuts tax revenues, which makes debt problems worse. So that in general it’s true in most social phenomena that whatever is going on will continue. It’s not 100 per cent – but the Arab spring is the exception. And even there – look at Yemen, Syria, even Gadaffi has hung in there. It requires a lot of energy and force to change trajectories. It’s like Newton’s law of motion applied to social systems: a body at rest remains at rest or a body in motion remains in motion at the same speed and trajectory unless something slows it down. I think the same is true for social systems as well.
SC: Is it part of the same thing that we now have oligopolistic industries and huge concentrations of power in fewer and fewer hands?
JP: Everyone talks about how important markets are, but governments have done nothing to make them work. The first requirement for a market is that there will be lots of buyers and lots of sellers. But look at the oil industry. Look at what BP has been allowed to buy, or Exxon-Mobil, Phillips-Conoco. Or financial services. Many people have commented that banks that were too big to fail in 2008 are now even bigger, in Europe too. In airlines there’s BA-Iberia, Lufthansa-BMI-Austrian, Delta-Northwest, United-Continental, etc. Or the phone companies, where basically the AT&T monopoly has been reassembled. When I look at the world, in industry after industry I see increasing concentration of power and resources. There are plenty lots of SMEs, of course, but big companies are getting bigger, and no one is stopping it happening.
SC: Why don’t people want to talk about power?
JP: In 1979 Rosabeth Moss Kantor wrote in HBR that power was the ‘last dirty secret’. People like to believe in a just world where people get their just desserts and virtue triumphs. You can understand they want to fight it. Number one, people like to believe they live in a just world when if you do a good job everything takes care of itself. Number two, they really don’t want to believe the things we just talked about, that warmth and competence are negatively correlated, that nice guys finish last, these really aren’t very nice messages. Once in a while I go to Amazon and read the reviews of my book, and one recently said, ‘This is one of the most depressing books I’ve ever read. It makes me sad to think that world works this way’. It’s not a question of being sad or not – it’s about understanding what is. If you want to change these processes, you have to begin by taking a hard look at what the social science says about them and the logic behind it. People are lazy too – it’s much easier just to have a few aphorisms. As Jack Nicholson says to Tom Cruise in A Few Good Men, ‘You can’t handle the truth!’ True. Look at what happens to whistleblowers, people who uncover major corporate and government malfeasance. They are seldom seen as heroes. What that individual has done is throw a monkey wrench into the existing order of things, into the existing power structure, and even when they’re correct, they don’t get much thanks. They may get financial reward, but they’re not popular guys.
The really good CEO understands that the higher you go in an organisation, the more likely is is that people will automatically treat you as if you’re right. The upper echelons are often completely devoid of critical thought, so it becomes incumbent on senior-level leaders to get someone who will actually tell them the truth. There are not many leaders who do that – a few, but not many.
SC: Are companies more powerful than governments?
JP: Oh, for sure. Look at Cameron and Murdoch. One of the reasons they have power is that they also have what politicians need, which is campaign money. I was speaking to a senator recently, someone who’d read the book and actually liked it, a Republican no less, and he said one of the depressing things about being in government is that you spend all your time raising money. And you go to raise money where money can be raised, and after the Citizen’s United case in the US there’s almost unlimited ability… so yes, companies are at least as powerful as world leaders.
SC: John Kay wrote a good piece in the FT recently making the point that lobbyists eventually get their way because they that’s their job. They do it every day of the week, whereas supporters of a public interest cause have to go back to the day job, and public opinion moves on.
JP: Exactly right. Money talks. The old golden rule is that he who has the gold gets to make the rules – and companies now have enormous amounts of money. Isn’t it interesting that governments are massively indebted, with huge budgetary troubles, average households are in debt and in trouble, and companies in the US are sitting on $2 trillion in cash. The point being that the only entities in good financial shape are companies. Their profits and balance sheets have never been in better shape. The big issue for them is what to do with all the money they’re generating. It’s a perspective to keep in mind when thinking about all this.