Category: Free post

Does management work?

It’s a good question. It certainly ‘works’ (although that might not be the right word) on the downside: look no further than the banking meltdown and its ghastly aftermath – a man- or management-made disaster which has affected not just the financial companies involved but practically every person in the developed economies. But what about the positive side – something to justify those enormous CEO and top management salaries?

Here’s what economist Chris Dillow thinks. ‘To a large extent, the value of firms is beyond the control of CEOs’, he wrote in a recent blog (on Hester’s bonus). ‘“Management“ functions rather like witchcraft. It’s a set of rituals which are wrongly supposed to have effects on the outside world. When, by happy chance, those effects materialise, the witchdoctor takes credit. And when they don’t he blames external malevolent forces – if not the debt crisis then the “challenging economic environment”, “fragile consumer confidence“ or (more feebly) “operational issues.”’

Overcynical? It rang some bells. Mickelthwait and Wooldridge’s book on management consultants was called ‘Witchdoctors’. Then I looked up a 2002 Harvard Business Review article by Rakesh Khurana, now dean of Harvard Business School, called ‘The Curse of the Superstar CEO’. Sure enough, in it he notes a belief in the powers of ‘charismatic’ (literally, in possession of gifts of the Holy Spirit) corporate leaders that borders on the ‘quasi-religious’, based on very little in the way of real evidence linking leadership to organisational performance. A CEO’s ability to affect performance is hemmed in by all sorts of internal and external constraints – laws and regulation, convention, the state of the industry and the economy, infrastructure, the organisation’s own history are just some of the things a CEO can’t easily change (no wonder Deming ascribed 90 per cent or more of performance to the system). Most academic studies, Khurana notes, suggest that 30 to 45 per cent of firm performance is attributable to industry effects and another 10 to 20 per cent to changes in the economy. Meanwhile, according to shareholder activist Nell Minow, fully 70 per cent of stock market gains are due to movements in the market as a whole rather than company performance. The best we can say, then, is that a CEO’s ability to affect the multiple and interrelated factors in corporate performance is greatly overexaggerated. In fact, what is generally called ‘success’ might be more accurately characterised as the ability to be in the right place at the right time. As a GE executive noted drily of Jack Welch: ‘Jack did a good job, but everyone seems to forget that the company had been around for 100 years before he ever took the job, and he had 70,000 other people to help him.’

The paradox is that management may matter a lot more lower down the food chain. Hardly controversially, evidence suggests that an engaged and happy workforce tends to perform better than one that is oppressed and bored. Engagement is the by-product of management that systematically gives people a good job to do and then works to make it easier for them to do it.

As such, the chief factor in engagement is your immediate boss. As Julian Birkinshaw and others write in their paper ‘Employee-centred management’, ‘a high-quality manager is the single biggest factor that determines whether you, as an employee, are engaged and happy in the workplace.’ So the fact that levels of engagement are in general appalling (around 20 per cent in the US and the UK) is squarely a management failure – and a failure whose tone is set at the top, since internal climate and work design are things that the CEO can influence.

We can spread it a bit wider. As Birkinshaw goes on to note in the same pamphlet, most large organisations still use a set of management principles that evolved more than a century ago to manage the early railroads and the manufacture of the Model T Ford – bureaucratic coordination, hierarchical control, extrinsic motivation and objective-setting by alignment. These principles worked, up to a point, when efficient replication was the name of the job but are now as obsolete, in every respect, as the products of the period. This, by the way, gives the lie to the earnestly promulgated idea that management is getting more difficult: of course gets harder if you’re resolutely doing the wrong thing. Acting like this bears some resemblance to John Locke’s description of a madman: ‘reasoning correctly from erroneous principles’ – a kind of Enlightenment version of the witchdoctor thesis.

And then we come to pay – which turns out to be the subject of the cloudiest, mistiest, most magical thinking of all. If management is the ritual, pay is the tribute that companies offer up to the gods in return for their favours. But no matter how tempting the offerings companies put forward as they vie with each other for attention from on high, it is often in vain. Alas, there is no reliable evidence linking CEO pay with company performance. In fact the inequalities that always accompany very high CEO pay tend to undermine engagement and thus sap performance. Some incentives, such as ‘guaranteed bonuses’, turn out to be the opposite – anti-incentives. And however generous the sacrifice, there is no guarantee that it will avert disaster. Jeff Skilling at Enron and WorldCom’s Bernie Ebbers are just the two most obvious examples. To quote the sage of Omaha, Warren Buffett, ‘With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’ To return to the thesis, let Deming have the last word. ‘Reward for performance,’ he said, ‘may be the same as reward for the weather man for pleasant weather.’ I think the ayes have it.

How Apple blossomed

Whether out of awe for the achievement (which almost justifies the phrase ‘insanely great’), or the reverse, dislike for the obnoxious aspects of the personage (likewise), reviewers of Walter Isaacson’s masterful warts-and-all biography of Steve Jobs have failed to pick up on a rich vein of dark comedy that runs through it.

One strand, the three-decade-long ego joust betweenJobs and Microsoft’s Bill Gates, just asks to be made into a Tom-and-Jerry type animated story (by Pixar, naturally) in which every seven or eight years an abrupt new sideways leap by his rival leaves a baffled and apoplectic Gates trailing in Apple’s wake. Jobs ‘doesn’t know anything about engineering and 99 per cent of what he says and thinks is wrong,’ Gates yells at then Apple CEO Gil Amelio when the latter brings Jobs back into the fold by buying his start-up, NeXT, in 1997. ‘Why the hell are you buying that garbage?’ Similar incredulity and denial greets every strategic shift and product announcement: the move from IBM to Intel chips, the launch of the iMac, then the iPod and iTunes Store, which wrong-foots Microsoft yet again. Redmond carps that the iPhone is too expensive and doesn’t have a keyboard (exactly), and the iPad will be sidelined by devices with a stylus and camera. In the end, of course, Jerry outdoes Tom even for size and money. Jobs reflects: ‘The older I get, the more I see how much motivations matter. The Zune [Microsoft’s music player] was crappy because the people at Microsoft don’t love music and art the way we do… If you don’t love something, you’re not going to go the extra mile, work the extra weekend, challenge the status quo as much.’

One of the profoundest things he said, that quote channels the higher-level comedy of which the rivalry with Gates is a knockabout subset. Redmond isn’t the only thing Apple made a monkey of. In the course of its journey to most valuable firm in the world it cocked a snook at every nostrum of the conventional management playbook (one reason, of course, why its actions were so difficult for others to anticipate). From corporate governance down, Jobs made up his own rules. ‘Jobs did not cede any real power to his board’, Isaacson notes; one of the conditions of his return to Apple was replacing most of the existing directors with his own appointees. He kept them in the dark about his illness. Sometimes his disregard for the normal rules got him into trouble, as in the options backdating affair of 2006 – but even then it served to underline the fact that options are a black joke at the best of times; his sheer disregard got him off the hook. Shareholders he simply ignored.

As Isaacson shows, Jobs cared about customers, though. ‘We made the iPod for ourselves, and when you’re doing something for yourself, or your best friend or family, you don’t cheese out,’ he said. From this unsparing product focus, everything else flowed – whatever the textbook might say. Against all advice, Apple insisted on making both hardware and software, because seamless integration made for a product that was better, sexier, easier to use. Jobs wouldn’t licence the Mac OS and killed off the Mac clones, again in the face of dire warnings, for the same reason. The desire to show off the product in the best possible light led to the Apple stores. Everyone warned that it was a vanity project; in fact the Apple stores, manned by Apple freaks who are on salary, not commission, are the most profitable retail real estate per square foot on the planet. Apple is a relationship company – and retail the fourth industry, after computers, music and phones, that Apple has stood on its head.

The obsession with product even determined the company’s structure, with profound consequences. Because Jobs wanted integrated products, he ran a company that was integrated, too. Determined that techies would work with artists, production with design and marketing, he ran his teams as one company with one bottom line. Sony, on the other hand, was organised in divisions, each with their own P&L. Having all the elements, including content, under one roof, Sony was ideally placed to do the iTunes Stores – but it could never get its divisions to work together to do it. The implacable product focus was his best weapon in negotiations, too. It meant that he always knew when to fold and when to push, a talent that served him well not just in the tense arguments over the iTunes Store but also in the sale of Pixar to Disney, in effect a reverse takeover. Finally, Jobs intuitively understood that if he got the product right and established a relationship with the customer, the money would take care of itself, which it duly did – Apple’s culminating paradox is that it became the richest company in the world by caring about everything except money.

It’s hard to overstate how unlike the normal businessman Jobs was. ‘Vegetarianism and Zen Buddhism, meditation and spirituality, acid and rock – Jobs rolled together, in an amped up way, the multiple impulses that were hallmarks of the enlightenment-seeking campus subculture,’ sums up Isaacson. Whether conscious or not, not being a businessmen was one of Jobs’ greatest strengths, allowing him to entertain preposterous yet insanely profitable ideas that more sensible people would have dismissed out of hand. The trouble with Gates, Jobs once opined, was that he had never loosened up: ‘he would have been ‘a broader guy if he had dropped acid once or gone off to an ashram whn he was younger’.

I said it was a dark comedy. In only one respect did Jobs’ belief in his own rightness let him down, but it was a crucial one. A lifelong dieter, Jobs was a vegan and sometime frutarian who in his youth held the whacky (and, as co-workers testified, completely false) belief that a strict enough diet absolved him from the need to wash. More damagingly, in 2003 he dismayed his family by delaying an operation for pancreatic cancer in the hope that diets and other New Age remedies could stave off the inevitable. Alas, in the grim reaper he had picked one of a very few entities that was immune to his notorious reality distortion field. As to who gets the last laugh, it’s too early to tell. Jobs wanted his legacy to be ‘an enduring company where people were motivated to make great products’ (his thoughts on this subject are perhaps the two most moving pages in the book). He left it many advantages, including the App Store, through which Apple keeps its cherished close integration yet opens its devices up for personalisation, and its very difference. But as this brilliant, clear-eyed account makes clear, Steve Jobs will indeed be a hard act to follow.

The myth of shareholder ownership

The reason the pay debate goes nowhere is that it is predicated on the most stubborn and damaging myth in business: that shareholders own companies.

Once and for all: they don’t. According to two law professors writing in that revolutionary organ, Harvard Business Review, ‘the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person.’ Directors’ fiduciary duty is to the company, not shareholders. Shareholders own shares, which give them rights to residual cash flows and to vote on resolutions and board elections at the AGM. They have no ownership of the company’s assets, which are owned by the company. They don’t even have an unqualified right to dividends–the most valuable company in the world, Apple, rich enough to buy the eurozone, has never paid a dividend in its life. Shareholders, says Charles Handy, our most eminent business philosopher, no more own companies than a punter on the 2.30 at Tadcaster owns the nag he is betting on.

This is not just a semantic difference. Although you’d never guess it from the acres of writing on the subject, high pay isn’t an aberration of the system but its predictable outcome–the logical creation of governance arrangements that assume that shareholders are the boss and it is the manager’s job to do their bidding.

Where did the myth come from? For once it is possible to pinpoint the source with some accuracy. Flashback to the end of the 1970s, when a growing feeling that shareholders were being short-changed by corporate managers who had grown fat and lazy in the long post-war boom was crystallised by Michael Jensen and William Meckling in a paper that despite its less than pulse-quickening title, ‘Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure’, remains the most quoted ever in the economic literature.

The authors cast managerial underperformance as a ‘principal-agent problem’. In their construct, shareholders are the firm’s ‘principals’ who hire managers to run the company on their behalf. The ‘agency problem’ arises because if they can get away with it managers will (like everyone else) put their own interests first. In other words, the incentives are misaligned. Ergo, the argument runs, the way to get managers to do their job is to realign the incentives by giving them significant amounts of stock-based compensation, turning executives into shareholders too.

There is one glaring snag in the theory. In law, directors and managers aren’t employed by shareholders at all but by the company as ‘autonomous legal person’. But that doesn’t square with the new (and wholly ideological) assertion that the company’s sole purpose is to maximise shareholder value. That can only be the case if shareholders actually own the company. To sidestep this inconvenient fact, the authors simply dismiss the company’s autonomous status as ‘legal fiction’–a ‘simple falsehood’, points out Gordon Pearson in his careful study, The Road to Cooperation, on which is based the entire edifice of governance that has stood ever since.

Ironically, Jensen and Meckling’s pro-shareholder remedies were eagerly seized on managers who correctly spotted in them a bonanza-in-the-making that would make their previous pickings look like small change. The theory expected them to be greedy; they complied in full, demanding ever greater incentives for their alignment in a perfect example of the self-fulfilling prophecy.

The full accounting for the era of ‘shareholder primacy’ has yet to be done. But we do know that, as Roger Martin has shown, shareholders have paradoxically done less well since the 1980s than in the previous 30 years when managers were supposedly feathering their own nests. A little reflection shows why. Doing exactly what the incentives told them to, a new breed of imperial CEOs used every means in their considerable power to jack up the share price (and thus their own salaries) in the short term. They bought back their own shares, did deals and financially reengineered their companies. They also cut spending on research (so innovation stalled), slashed the workforce and dumped pensions. The sufferer was the company, the true principal, looted by an unholy alliance of insider-managers, both corporate and financial, who hijacked the spoils. The effect of the Jensen/Meckling model has been the exact reverse of what was intended.

Now we can see why halting the CEO pay up escalator is impossible without disposing of the ownership myth. Present-day governance based on it is a recipe for increasing CEO pay whatever their performance. Calls to cut or even abolish bonuses are irrelevant, since boards will simply transfer the ‘incentive’ to another kind of pay. It’s the legally erroneous and counterproductive incentive to maximise returns to shareholders that’s the issue, making CEO pay rises not just, in J K Galbraith’s words, ‘a warm personal gesture from the individual to himself’ but one that is justified by the official version of how the company functions.

Once the ownership issue is resolved, everything else falls into place. When it is recognised–and the 2006 Companies Act could hardly be clearer–that directors’ duty is not to shareholders but to ‘promote the success of the company for the benefit of its members as a whole, and in so doing have regard for… the long term’, then long-neglected issues of internal fairness and morality come bursting in from the cold, bringing an icy blast of reality with them. For example, Peter Drucker told Forbes magazine back in 1997 that top pay of more than 20 times the average hourly wage could only damage company morale. Few top executives, he added, ‘can even imagine the hatred, contempt, and even fury that has been created – not primarily among blue-collar workers who never had an exalted opinion of the “bosses” – but among their middle management and professional people.’

Since then that multiple has soared to 145 times, and much more in the US. That is the reason for the ‘hatred, contempt and fury’ that has spilled into the open these last few days and so surprised RBS’s Hampton and Hester. One excellent reason for putting employee representatives on remuneration committees is to make sure they won’t forget it again.

In a recent article the FT’s Martin Wolf observed that the chief failing of that ‘brilliant social invention’, the limited liability company, was that ‘it is not effectively owned. This makes it vulnerable to looting’. Exactly. He confessed that he was unable to come up with a remedy. But the answer is staring us in the face. Ownership is a red herring. Instead of trying to make it work, all we have to do is amend the governance codes to reflect the reality incorporated in the 2006 Companies Act rather than the myth generated by a 1976 article in the Journal of Financial Economics–the company is the principal, not shareholders.

Well, do something

On Thursday Ed Milliband wrote about capitalism in the FT, and Dave and Boris gave speeches about it. FT deputy editor Philip Stephens penned a thoughtful piece on the morphing of financial crisis into a global political one as politicians flunk the challenge of thorough-going financial reform; Lex noted laconically that over the last decade Goldman Sachs, that day announcing a 58 per cent fall in earnings, had paid employees twice what it had made in net profits (doubling their amounts in the process). Meanwhile, The Guardian’s Zoe Williams wrote about supermarket profits (and therefore top pay) being indirectly subsidised by state benefits to cashiers and shelf-stackers to supplement poverty wages. Murdoch paid out hundreds of thousands of £to settle 18 phone-hacking cases. And Kodak filed for protection from bankruptcy.

Just another day in the life of post-crunch capitalism. It’s all here: the out-of-control pay, the toxic imbrication of politics and business, the overweening overconfidence and fallibility of top bosses, the headlong march of globalisation – and the infuriating inability of politicians to see to the nub of the issue.

As the FT’s Stephens notes, all ‘the talk of “responsible” capitalism, of rebalancing economies and constraining the rewards of the super-rich, falls short of anything resembling a grand plan. The ambition is to make do and mend.’ None of the parties has a clue about the symbiotic relationship between markets and organisations, which means that they have little useful to say about the public and private sectors either. Ironically, Labour has been the worst custodian the public sector ever had, imposing on it the crudest kind of private-sector performance management, while Cameron’s claim that only Conservatives – ‘those who get the free market’ – are equipped to make capitalism fairer is just risible. As in domesticating the the feral rich by appointing a previous Murdoch editor as press secretary, Dave?

From robber barons to Tea Party, capitalists have always been capitalism’s worst enemy, which has relied on contrarians, humanists, trade unions and others to soften the most abrasive edges and prevent itself from auto-destructing. They are still getting it wrong. As John Kay acutely observed in the same week, we constantly overestimate the advantages, and longevity, of large companies, and the merits of scale and centralisation generally. The big question now is whether not just the banks but any number of other global industries have become just too big either to fail or to be reined in. Having increasingly turned ‘political decisions over to the highest bidding lobby [and allowed] big money to bypass regulatory control’ (Harvard’s Jeffrey Sachs, in another telling piece in the FT last week), does the polity retain the wit or will to act on these insights, firstly to prohibit any further industry concentration and second, preferably, to start breaking existing ones up?

Attempts to deal with the other manifestations of capitalism are equally namby-pamby. Yet the outlines of a new settlement are perfectly clear. Corporate governance needs wholesale reform. As Tony Hilton pointed out in a brutally logical piece in the Evening Standard, executive pay is now so complex that no one can understand or properly compare it. So amend governance codes to make flat rates of pay – no bonuses or side deals – a norm with which companies are obliged to comply or explain why not. Of course the workforce should be represented on remuneration committees. People who work for a company have far more at stake than most shareholders, who are no more ‘owners’ of, or even investors in, firms than racecourse punters are owners of the horses they bet on. The average holding time for a US equity is 22 seconds, according to SocGen; 70 per cent of UK equities are held abroad or by short-term traders. The secondary market provides no extra capital for companies. To expect the majority of shareholders to give a toss about executive pay a) is as pointless as pushing on string, and b) there’s no justification for it anyway.

The other necessary element of governance reform is equally evident. It is stated unequivocally in Roger Martin’s important ‘Fixing the Game’, which shows how an ideological fixation on shareholder value has, paradoxically, ‘reduced shareholder value, created misplaced and ill-advised incentives, generated inauthenticity in our executives, and introduced parasitic market players. The moral authority of business diminishes with each passing year, as customers, employees, and average citizens grow increasingly appalled by the behavior of business and the seeming greed of its leaders. At the same time, the period between market meltdowns is shrinking.’

As Martin points out, giving executives stock options is tantamount to encouraging sportsmen to punt big on the result of the game they’re playing in. The incentive to use any means to get a result (in the case lever the stock price upwards) is irresistible – that’s what CEOs are supposed to do. The only way to kick the habit is to destroy the expectations market by outlawing stock options and prohibiting earning guidance to the City and Wall Street. And, by the way, ban pension funds and public investment vehicles from investing in hedge funds whose fees aren’t adjustable downwards when they fail to deliver the promised rewards (lastest calculations are that over the last decade hedge funds consumed all the returns they created).

Break up the oligopolies (making barriers to entry, and therefore eventually profits, much lower); alter corporate governance to dethrone shareholders and prevent companies being looted by managers in cahoots with short-term traders (thus benefiting shareholders in the long run); ban CEOs betting on games whose outcomes they can easily manipulate. These are the minimum actions needed to bring capitalism back under control and return it to its proper role – servant, not master.

From accountability to responsibility

‘Accountability’. Tough and businesslike, the word features in almost every political or business speech these days. It’s the stuff of modern management, something that no organisation can do without, like goals and values. But, like synergy, it’s one of the mythical beasts of management – constantly evoked and assumed, but hard to pin down and even harder to identify in the flesh.

How can that be, when conventional performance management is built on the concept of making people accountable for what they do? Police, teachers, nurses and most ordinary workers in the private sector are subject to a whole bureaucracy of accountability, backed up at the centre by a superordinate regulatory regime, ensuring that they make their numbers or standards or show the reason why.

But accountability is a charade.

Yes, of course people subject to such a regime are obliged to account for what they do. But all too often, as Vanguard chairman John Seddon points out, they are accountable not to purpose or the customer, but to arbitrary and abstract targets set by the centre. This is accountability as managers in the Soviet Union would have understood it: ‘The accountability bureaucracy serves the hierarchy, not the work,’ writes Seddon. ‘While the bureaucracy is telling politicians that services are improving, in truth the only thing that is improving is the ability of the bureaucracy to produce the numbers politicians want to see.’

Far from being a virtue, this kind of mechanistic accountability is the reverse, encouraging people to obey the form while absolving them of responsibility for attending to the substance of work. It’s the ‘I was only obeying orders’ excuse disguised as management jargon. Yet the stealthy substitution of accountability for responsibility comes at a heavy price. The removal of responsibility is the route to the tick-box, by-the-numbers services that is now prevalent throughout the public sector: education as exam passes, medicine without care, policing as arrests and detections rather than peaceful communities.

Making people accountable is beside the point when they are being forced to do the wrong thing. In fact it’s worse than that. Upwards accountability of this kind prevents learning and stamps on innovation – sometimes actually prohibiting it, as in the daft but surprisingly common situation where improving service delivery involves flouting statutory regulations.

Meanwhile, by the time it reaches the top, accountability ceases to have any practical purchase at all.

Who, after all, is accountable for the shambles of the Rural Payments Agency, whose new IT system for implementing Europe’s Single Farm Payment has so far cost a staggering £850m, including temps to clear backlogs and EU fines, instead of the £32m originally estimated? Who’s accountable for the billions wasted on the national programme for IT in the NHS? Who’s accountable for the disastrously failed ‘reforms’ of HMRC and DWP, or the fact that emergency readmissions to hospital have gone up by three-quarters in the last year? Who will take the can for the disaster-in-waiting that is the Universal Credit, dependent on another giant top-down IT system, or for continuing to mandate shared-service projects when there is no evidence that they work? Who is accountable for putting in place systems that oblige staff to do the wrong thing by people they should be responsible to, making service worse and more expensive?

Just as bogus accountability removes responsibility for doing the right thing from where it should be – with those with those who deliver the service – it also dissolves relationships and replaces them with transactions. Responsibility to a customer or client necessarily requires a relationship. If there is no relationship, there is no knowledge either, so customers have to be fitted into standardised categories where they become transactions to be processed as accounting numbers.

‘What we’ve done in administration in the public sector over the last 15 to 20 years is turn public agencies into deliverers of transactionalised services,’ reflects Vanguard’s Richard Davis. ‘When we do that the issues that come to the fore are standardisation and efficiency, and the more we standardise the less we understand what matters to people and the more we miss the plot.

‘One of the things that’s beginning to interest us is a move from looking at services as commodities, as they’ve become, to relationships, which is what they used to be. In many services, certainly the police and health, a lot of things go wrong because we don’t know people and have no relationship with them. It sounds terribly expensive until you understand the harm that’s being done because we don’t understand, and the cost that’s being incurred as a result of doing the wrong things’.

The costs are both personal and systemic, as in the project examples above. Because the relationship with service users is fractured and impersonal, the system has no way of understanding what the real need is. So it provides services that don’t solve problems, creating knock-on failure demand as people come back again and again, and driving costs up.

Relationships are to responsibility what transactions are to accountability. It’s lunacy for ‘reform’ to proceed in lurches as one set of management ideas and prejudices enshrined in law turns out to be wrong and is then succeeded by a completely different one. We’re about to do the same thing yet again with Andrew Lansley’s NHS reorganisation. We need to return responsibility for improving services to those who deliver them, allowing them to experiment and innovate for users and clients, not the hierarchy – and, incidentally, releasing armies of specifiers, inspectors and regulators for more gainful employment.

Today’s accountability is junk management. Like other kinds of junk it belongs in the bin.

Avoiding the management tax

Here’s a thought to start 2012 with. Despite the universally positive assumptions, management is first of all a cost. In a chapter from his latest book, ‘What Matters Now’ (I shall be reviewing it for Management Today), Gary Hamel describes management as a ‘tax’ that in any large organisation will account for at least one-third of payroll. In addition, there’ll be thousands of senior people in staff roles in IT, finance and HR, all of whose mission is to keep the organisation from collapsing under its own weight. From memory, GE once calculated that admin and management ate up fully 40 per cent of revenues – a figure that in less ‘efficient’ companies will of course be very much higher.

Several thoughts stem from this. The first is that, ironically for a discipline that sets such (erroneous) store by it, traditional management does not benefit from economies of scale, if anything the reverse: the bigger the organisation, the more managers it needs to manage other managers. The one bit of scale it does get is a negative one. As Hamel notes, ‘The most powerful managers in most organisations are the ones furthest away from frontline realities. All too often, decisions made on an Olympian peak turn out to be unworkable on the ground… Give someone monarch-like authority, and sooner or later there will be a royal screw-up.’

Throw in the bureaucratic friction engendered by multilayered management (whence Peter Drucker’s lament that ‘So much of management consists of making it difficult for people to work’), and it is clear that management has an awful lot of work to do before it creates any net value at all. What does the management tax actually buy? Chiefly control and coordination. But like compliance, its mirror image on the employee side, control is an overrated and depreciating asset in conditions where discretionary effort and initiative are key, and coordination by the centre, as it is usually done, is both basic and expensive.

So what’s the answer?

One part of it is to distribute management differently.

Hamel has two examples. One is the extraordinary Morning Star, a US tomato processor, of all things, which has revenues of $700m and a full-time staff of 40, who manage themselves. That is, the company is not managerless but the reverse: everyone is a manager. No one can tell anyone else to do something; everyone has to do whatever needs to be done. Management is democratised. Similarly at the better known but equally remarkable WL Gore, where there are few formal titles except CEO – Terri Kelly, who was elected by the entire workforce – but the founding values are so fervently internalised that everyone is in effect a trustee; everyone holds everyone else to account for both performance and cleaving to the values. (It may be no coincidence, incidentally, that both Morning Star and Gore are private companies, able to pursue their unconventional path without worrying about quarterly income statements or the prying eyes of Wall Street.)

But we don’t have to go so far afield for lessons in management tax avoidance. Remember that ‘management’ in the abstract, without purpose, is meaningless – just cost. It only exists to get something done. If the information needed to coordinate and process the work can be carried in the work itself, and people are empowered to act on it, they no longer need management to tell them what to do. This is what happens in the best just-in-time manufacturing arrangements and the equivalent service designs, where measurement is closely connected to the purpose as defined by the end-user. In this case control comes free (because it’s in the work), so some of the manager’s previous role is redundant. And once the benevolent circle is launched more drops away: since workers are now doing an understandable, customer-related job that they are in control of, there is no need for anyone to manage morale or absenteeism or culture. In fact, in organisations that were particularly hierarchical in the past (the police, for example), working like this will often leave some central and functional managers twiddling their thumbs.

God knows, the public sector has no monopoly of poor management. But in the area of management excess it has no equal. It seems to have no concept of management as cost. When a university decrees that multi-page staff appraisals should be carried out twice a year (then anonymised so even if they were ever seen again they couldn’t possibly be used), it seems not to realise that it is subjecting itself to at least two levels of tax: the direct cost of employing HR people to draw up procedures and forms. and the opportunity cost of not doing stuff that would be much more useful. Some people (count me in) would argue that appraisal itself (‘a reminder of who owns you,’ as one cynic put it), taken for granted as it is, is another management exercise that can be gainfully dispensed with if the work is set up to provide instant feedback from the best source, the customer.

Now consider a classic example of this kind of management illiteracy from the mouth of the Prime Minister himself. In this week’s announcment of a new initiative to raise standards of care in the NHS, David Cameron proudly promised a new Care Quality Forum, a ‘patient-led inspection regime’, and hourly ward-rounds by nurses to check on patients in their beds. It’s hard to know where to begin with this. Leave aside that Cameron has no way of knowing if ward rounds are the answer to the specific problem – he may be right, but he also may not. More importantly, the grotesque oxymoron of care-less healthcare now prevalent in the UK is not an accident but the wholly predictable result of ministers’ own ‘targets and terror’ regime, which effectively ensures that nothing not targeted gets seen to. Targets are already an enormously costly bureaucratic burden; to compound it with an additional new regulatory body, with all the direct and indirect costs it entails, simply doubles the management tax level at a time when the NHS is supposed to be cutting costs.

Care is the very heart of nursing purpose, the value that should be self-enforced above all other. If the answer is more management, it’s the wrong question, full stop. In management less is more and more always less. To adapt Peter Drucker, ‘There is nothing so useless – and uselessly costly – as doing efficiently that which should not be done at all.’