SUMMING UP his own achievement, Milton Friedman, the celebrated Chicago economist who died last month, wrote: ‘Judged by practice, we have been, despite some successes, mostly on the losing side. Judged by ideas, we have been on the winning side.’

He was too modest. Friedman was regretting his limited, as he saw it, influence on macroeconomic and social policies. But in today’s most pervasively experienced social-science discipline – management – his triumph is pretty much complete.

Indirectly, Friedman’s doctrines, and those of the Chicago school in general, have worked themselves to the heart of management theory (and many of the social sciences), and thence into every cranny of practice. Every chief executive who claims that ethics and morality have no place in business and that their only job is to maximise shareholder wealth every business school teaching courses in corporate governance based on agency theory or organisation design based on transaction cost economics every City firm shrugging off the break-up of a company as the inevitable consequence of globalising capital markets, is practising Milton Friedman. And is practising, moreover, an ideology, not a science.

Friedman himself made no bones about this. He called the ideology ‘liberalism’ (which sounded more ‘radical’ than conservatism), and as the late Sumantra Ghoshal noted, it rested on two fundamental convictions. First that social theory had no place for ethics, which should be left to the individual. And second that, humans being imperfect, the problem of social organisation was as much a negative one ‘of preventing bad people from doing harm as of enabling good people to do good’.

To repeat, there is no ‘evidence’ for these propositions: they are philosophical, not scientific, positions. But this ‘ideology-based gloomy vision’ has come to dominate economics and other social sciences, especially management, with incalculable consequences.

Just as the course of economics has been shaped by what has been termed ‘physics envy’ (the desire to become a ‘hard’, testable science), so management’s cultural cringe is to economics. By adopting Friedman’s liberalism, with its exclusion of ethics and intention and assumptions of self-interest as the basis of human behaviour, as its starting point, management at a stroke could present itself as a science: a kind of deterministic mechanics emphasizing command and hierarchy to squeeze efficiencies from reluctant workers, and sharp incentives to align managers’ with shareholders’ interests.

No matter that the underlying view of human nature is at best grotesquely partial nor that the liberal management model doesn’t seem to work (Enron yawning inequalities ever-increasing work intensification the ransacking of the planet). If enough people believe and act on the underpinning propositions, self-fulfilling prophecy ensures they become ‘right’. Far from losing the battle of practice, via management, Friedman’s shivery achievement is to realign human behaviour with his own pessimistic assumptions – thus making the ideas come out ‘right’ too.

This is bad enough. But another consequence of using opportunistic individuals as the unit of management analysis is the undertheorising of the organisation. Pace Adam Smith, wealth in today’s societies is created not by the invisible hand – individuals transacting in the market – but by the visible hand of co-ordination in organisations acting, in Ghoshal’s description, as ‘marshalling yards’ for society’s resources. We live in an organisational rather than a market economy, so the quality of that co-ordination is critical: management matters.

Tell that to Gordon Brown. The reason the Treasury still puzzles over lagging UK productivity, and the public sector refuses to improve in line with the billions thrown at it, is that he persists in treating these as economic rather than organisational problems. A good example is the application of crude incentive pay to public-sector professions, where any gains in individual effort are more than offset by demoralisation of those less well treated, destruction of teamwork and other unintended consequences. Obvious in economic terms, in management this is just illiterate. Management is not that deterministic.

Even in areas such as corporate social responsibility, all isn’t as it looks. For instance, at a recent international conference celebrating CSR, participants crowed that Friedman’s well-known objection to it as incompatible with capitalism ‘is being overtaken by events’. Yeah, right. It so happens there’s just one instance where Friedman is happy to admit the case for CSR: where it’s used as a PR stunt under cover of which management can get on with its real job of making money for shareholders. Most CSR, alas, is just that.

Thanks largely to Friedman’s influence, it’s not economics but management that is – literally – the most dismal discipline. He may have had the last laugh but it’s no joke for the rest of us.

The Observer, 3 December 2006

INNOVATION GOT a bad name in the dotcom years, being more about finding new ways of parting unwary investors from their money than customers. Since then it has taken a back seat as companies hunkered down to cost-cutting and efficiency drives. Now, according to an article in the November issue of Harvard Business Review , in the constant seesaw of fashion it has moved back to the top of the corporate agenda, with the same companies seeking to rediscover the forgotten secrets of growth.

But what kind of innovation? It would be nice to think that this time around, taking on board the lessons of the past, companies would focus on real needs, not least the urgent ones that they themselves have created in previous waves of capitalism: the greatly compromised health of the planet, the welfare of those at the bottom of the pyramid, and the desire of the better-off for personal rather than mass-produced goods and service and for relationships based on trust and honesty rather than rip-off.

Some hope. In another recent issue of HBR , the lead article proudly showcases the new-found ability to print pictures, jokes and trivia questions on crisps -that’s right, crisps – as a triumph of worldwide innovation. Another business magazine shows how a credit-card company has harnessed new profiling techniques to sell cards to those who can least afford loans, boosting its profits through late payment fees.

A different reaction is for companies to persuade themselves that they are innovating by doing complex financial deals. Last week’s extraordinary frenzy, in which a record $75bn was committed to takeovers in a single day, is a new high (or low) point in that respect. This year’s transaction totals are likely to overtake the $3.4 trillion and $3.3 trillion notched up in 2000 and 1999 respectively. Driving them, commentators agree, are globalisation, a commodities boom, the availability of vast amounts of cheap capital and the incentivised zeal of investment bankers to keep the flow of deals going. Nothing here about customers, you notice, for whom most such deals are of stupendous irrelevance, simply creating an even wider gap and even more impersonal relationship between them and the ultimate management.

In some cases this will come to look like fiddling while Rome burns. Particularly where the internet puts power in their hands, customers are taking over the innovation process, bodily reshap ing industries that are resisting what they want. Take the so-called Web 2.0 phenomenon. It’s not established companies that have pioneered the key businesses of the second-generation internet but geeks and customers who scorn the commercial offerings pushed at them by industry leaders and instead create new ones to meet quite different demands of interchange and self-expression.

The model was the music industry, at first dismantled by consumers using peer-to-peer networks to get what they wanted rather than what the music companies wanted to give them, and then put together again in a different form by a quick-witted computer company, Apple, using the smart integration and cute design of the iPod and iTunes software. Now customers are moving on to pick apart other industries that have failed to respond to their changing needs.

The media, for instance. Take the rise of the bloggers. This is no simple accident of technology, but the price newspapers are paying for having treated readers as passive consumers without bothering to find out more about them as news users. In the same way, artificial TV reality shows are being challenged by the mushrooming growth of permanent reality spaces like YouTube, MySpace, Etribes and others, and 3D virtual-reality sites such as Second Life.

No one knows where these trends will end. Of course, traditional media companies are pitching in to buy up anything with Web 2.0 pretensions, however remote. But as the AOL-Time Life debacle graphically showed, there is no necessary synergy between old and new media, and unless attitudes to customers change radically, they may find that the benefits of innovation are not easily bought.

The irony is that opportunities to make things better for customers are all around. In yet another recent HBR article, the owner of a noted restaurant explained that it had built its high reputation by carefully managing mood as well as food. ‘We have to assess and understand how our customers are feeling right now & and then do whatever it takes to make them feel better’ & not by hovering over the wine or asking how the food was at each taste but adjusting service – speeding up, slowing down, being conversational or leaving well alone – according to the mood of the table. The aim is that each table should score no less than nine out of 10 for mood, and as staff work discreetly to push the score up, ‘they develop a wonderful confidence in their ability to handle difficult situations as a team’.

Not rocket science – but real innovation nonetheless.

The Observer, 26 November 2006

‘I NEEDED a drink, I needed a lot of life insurance, I needed a vacation, I needed a home in the country. What I had was a coat, a hat and a gun. I put them on and left the room.’ Thus Philip Marlowe, Raymond Chandler’s private eye, in Farewell, My Lovely. Chandler’s Bay City is admittedly a bit different from, say, Newport Pagnell. Still, the revelation that, confronted with a crime, the modern English policeman’s weapon of choice is the photocopier, closely followed by the Biro, black, and forms, for the filling in of, is a graphic indicator of just how far removed today’s law has become from the mean streets where crime actually happens and whose inhabitants suffer it.

Along with a cast of local no-hopers and lowlife, office stationery features largely in Wasting Police Time, an entertaining and sobering account of one direct-response (ie local beat) policeman’s experience of life on the front line in ‘Newtown’, a settlement of 60,000 somewhere in the north of England.

In this account, an outgrowth from the pseudonymous PC David Copperfield’s seditious blog (http://coppersblog.blogspot.com), the ordinary policeman’s lot is not a happy one (although there is sardonic and surreal humour aplenty). However, the main hazards in his life are not violence and organised crime, but police management – proliferating bureaucracy and the ranks of internal and external auditors who seem more interested in whether targets are met and procedures complied with than catching criminals.

Thus, one day Copperfield finds himself the single uniformed response officer for the whole town, in a station otherwise full of office-based specialists, task forces and community support officers (‘a government idea that ensures a cheap, uniformed alternative to police officers on the street, while allowing police officers themselves to get on with writing reports, filing and stapling’) – a not very terrifying prospect for even the fairly incompetent villains of Newtown. Needless to say, staffing is scheduled by computer.

But even when he gets out on the streets, he doesn’t stay there long. As the individual officer’s margin of discretion is eroded, more and more must be recorded for subsequent audit. Just talking to a couple of loitering youths must be noted and later entered into the computer. A straightforward arrest for vandalism takes an entire shift of longhand form-filling, leaving just half an hour for ‘policing’. As Copperfield notes, the system makes the administration of crime more important than reducing or solving it. ‘Greater numbers of police are not the answer to rising crime,’ he writes. ‘There are enough policemen, it’s just that they are all sat behind desks.’

Some of what he does is strictly pointless – like interviewing witnesses for cases that have already been settled. This nonsense is the nightmare byproduct of diminishing discretion crossed with detection-rate targets. Under national crime reporting standards, every complaint, from a fight in a school playground to a murder, must be recorded as a crime. That means it has to be investigated and solved. The result is straightforward: to keep detection rates up, forces solve easy cases.

‘Detecting’ the playground scrap, which in the past would have been dealt with by a ticking off, is a simple matter of getting one party to admit to hitting the other, with the promise of no further action taken. Better: get the other party to admit a thump too, even though no charges will be brought, and that’s two detected crimes. ‘Cleverer still, what if, during their scuffle, someone’s bag got knocked on to the ground and the handle was broken? I don’t know about you, but that sounds very much like criminal damage to me. Now you’re talking! THREE detected crimes!’

Naturally, all this has unintended consequences elsewhere in the system. One casualty, as in all target regimes, is police crime figures, many of which are meaningless. But there are individual tragedies, too. As Professor Rod Morgan, chairman of the Youth Justice Board, noted on Newsnight last week, police get no points for brokering commonsense solutions, but they do for ‘bringing people to justice’. So they do, with the result that too many youngsters have criminal records for trivial offences, the system is clogged – and police officers spend time writing up cases that will never come to court or have already been filed.

Even allowing for a bit of exaggeration, the picture Copperfield paints is not reassuring. Yes, he says, people may overestimate the incidence of crime, but they overestimate far more the number of coppers on the street. In any case, why should we expect the police to be different from the rest of the public sector, where target bureaucracy and top-down management sap front-line energy in the same way? In a black aside, Copperfield remarks that rather than trust the soothing official line, he’d rather have ‘a gun and a few acres and I’ll take care of myself, if it’s all the same to you’. Maybe Bay City isn’t so far away after all.

The Observer, 19 December 2006

GIVEN THE pervasive stereotypes it has bred about itself – dreaming spires, lost causes, undergraduates out of Evelyn Waugh and dons out of Anthony Powell – it’s easy to cast current arguments about the management of Oxford University in similar terms: academic port-sippers waging a vain last-ditch attempt to hold back the 21st century.

But it’s not so simple. Running a university is tricky. Unlike the NHS, British universities have not had an injection of funds to help square the circle of dramatically boosting output with no fall-off in academic standards. In addition they are full of clever, opinionated people whose job it is to disagree with each other.

At Oxbridge, these starting conditions are vastly compounded by two more: the division between the university and the colleges, to whom most dons owe primary allegiance and a centuries-long history of being unique. New Zealander John Hood, Oxford’s controversial vice-chancellor, is the first outsider to head the university in 900 years.

Other universities have dealt with the management issue by brutal centralisation. They are no longer administered by academics but by highly paid managers as likely to be consultants as professors. They have bulldozed through sweeping changes, using government research and teaching assessments to control academic staff, and funding procedures to dictate academic and other priorities.

The Observer, 12 November 2006

In government terms, this has been largely successful in getting academic institutions to do as they are told, even though the costs are high: war between managers and academics, unspeakable bureaucracy, and a haemorrhaging of young talent from a teaching profession where, for most, morale is as low as pay.

Oxford has never undergone this managerialist revolution, and that is what the current fuss is all about. So far, like Cambridge, Oxford has done wonders in competing in a world market for education with a fraction of the resources of its north American rivals. In international league tables, Oxford and Cambridge are consistently the only non-US entries in the global top 10 and even top 15. But Oxford is falling behind arch-rival Cambridge, and even the anti-reformers concede that change is necessary.

The university badly needs money – it loses pounds 5,000 a year for every undergraduate, and will post a deficit this year. More money requires tough decisions, but tough decisions is just what Oxford doesn’t do: decisions are cloaked in opac ity and take too long there is no method of resolving contentious issues and there’s a glaring lack of external input and expertise.

Supposedly ‘self-governing’, in practice, the university is ‘the least democratic institution I know’, says John Kay, who used to head the university’s Said Business School. ‘They don’t realise it, but everyone you talk to speaks of the university as ‘them’, not ‘we’. They’re wedded to an unworkable model.’

So what kind of change is it to be? How can the place be made more agile without destroying what makes it unique? The vice-chancellor, who put dons’ backs up just eight months into office with a (defeated) attempt to introduce individual appraisals, is pushing proposals by an official working party which, while leaving formal primacy of Congregation (Oxford’s ‘parliament’ of 3,700 lecturers and fellows) intact, would separate out academic affairs from finance and organisation. The latter would be the purview of a 15-strong council, on which external members would have a majority.

The proposals are fiercely resisted by critics who believe they are the first step towards centralised business-style management. They charge that the trappings of democracy are a sham, and that Congregation will be powerless to hold to account an executive that is determined to play down Oxford’s traditional emphasis on teaching humanities to bright but low-paying undergraduates and play up the government’s numbers game: recruiting higher-paid staff to university faculties rather than colleges, incentivising them to concentrate on funds-generating research, and switching the teaching emphasis to higher-paying postgraduate students from abroad.

They point to the hard-ball tactics used by Hood at a rancorous and inconclusive Congregation meeting last week as a portent: ‘If you think Congregation will be able to hold back an aggressive and secretive management team, you’re smoking dope,’ says Peter Johnson, a management fellow from Exeter College. Johnson, in previous life a management consultant, argues that the proposed governance architecture is in any case more suitable to a machine bureaucracy than to communities of professionals – and past its sell-by date even in the commercial world.

Kay agrees that there should be an open debate about what the university aims (and can afford) to be before deciding on governance that has to choose between the centralised model or deliberately doing the opposite. Either way, the stakes at the next debate on the proposals, on 28 November, are high: if Oxford doesn’t reform itself, there are dire hints (blackmail, say the antis) that the government may take a hand.

MOST OF the story of modern management is a quixotic struggle to substitute numbers for judgment. ‘Managers start off trying to manage what they want, and finish up wanting what they can measure,’ sighed strategy guru Igor Ansoff. But management is essentially a moral, not a numerical, occupation. The proof is the self-fulfilling prophecy.

Expectation is management’s secret weapon. It is the self-fulfilling prophecy – a grander name for the power of expectation – that turns it into an instrument of mass destruction or the reverse, a powerful amplifier of trust and co-operation.

First described in the 1940s by sociologist Robert Merton, the mechanism by which belief creates its own reality is unique to social science. In the physical sciences, human attitudes have no effect on reality: all the Pope’s authority could not make the sun orbit the Earth. Not so in human affairs, however, where even if a proposition is ‘wrong’ to start with, if enough people believe and act on it, de facto it becomes ‘right’.

Management writers Jeffrey Pfeffer and Robert Sutton have identified 500 research studies on the self-fulfilling prophecy. They show that, to a remarkable degree, performance depends on expectation, whether or not objectively justified. ‘Independent of other factors,’ writes Sutton, ‘when leaders believe their subordinates will perform well, positive expectations lead to better performance. And the converse holds for poor performance.’ Managers’ theories about performance and ability are self-fulfilling.

One effect of this is to turn the company into a battleground between two rival views of human nature – with reverberating consequences, because the self-fulfilling mechanism means that one of them will eventually make itself ‘right’. Suppose managers assume that employees are basically lazy and self-interested, and must be coerced into doing a good job. They will then use hierarchy, tight supervision and incentives and punishments to make them comply. But research evidence is that the more people are treated as naughty children the worse they behave, justifying even more repressive methods. The circle is not only self-fulfilling but vicious. A company built on assumptions of self-interest and opportunism progressively recasts employees in its own misshapen image.

Meanwhile, a company that functions on the basis of trust and co-operation creates a system in which honest, co-operating people flourish. The more it flourishes, the more the norm is reinforced. The self-fulfilling prophecy makes the company quite literally into a force for good.

The battle of expectations, and consequent adjustment of ‘reality’, occurs along the management ideas chain. Studies show that students on MBA and economics courses (unlike others) come to embody the assumptions of rational self-interest that underpin the teaching. MBA students become less concerned with customers and ethical concerns the longer they study. Self-fulfilling individual self-interest is reinforced at the next level by business-school rankings, in which the salary effect of taking the course is a high-ranking criterion. But the self-interest is learnt, not hard-wired: a self-fulfilling assumption.

Or take incentives. They are ubiquitous, but be careful, because incentives work, most powerfully, to teach people to expect them. One snag is that people who come for incentives leave for better ones, so the ratchet moves ever upward. The inexorable rise of chief executive pay is an awesome example of double self-fulfilling prophecy, incentive expectations being compounded by learnt self-interest and all the doctrines based on it, such as agency theory and options – which is why nothing seems to be able to slow it down.

Another problem with incentives occurs all over the public sector. As with the new GP contracts, to get people to concentrate on a few headline measures, the government sets targets and incentives for reaching them. This has two effects: doctors find ways of meeting the targets, so payments go through the roof but also by definition their motivation changes. (Extrinsic) incentives drive out (intrinsic) professionalism: but which doctor would you rather go to, one who is motivated by money, or by doing a good medical job? No wonder patients are dissatisfied and doctors conflicted.

Some dilemmas raised by the power of expectation are less clear cut. In his provocative book Weird Ideas That Work , Sutton suggests that one good way to approach innovation is to decide to do something that will almost certainly fail, then convince yourself and everyone else it is bound to succeed. You can probably see what’s coming. Statistically, almost all innovations flop, but telling the truth will make failure certain. Conversely, the one thing you can do to change the odds at least slightly in your favour is to ignore the evidence and persuade yourself and others that it will be a triumph.

What to do? Most management books won’t tell you, but deciding which ‘reality’ you want may be the most important decision a manager ever takes.

The Observer, 5 November 2006

It sounds like one of Steve Wozniak’s celebrated pranks. Woz, as he likes to be known, the other co-founder of Apple Computer, owner of the first dial-a-joke service in the San Francisco Bay area, took a phone call a few months ago from a friend who invited him to invest in a new company. Nothing odd about that, except there was a catch: it wasn’t allowed to know in advance what it was going to do. ‘It’s a Special Purpose Acquisition Corporation, or Spac,’ says Woz happily, ‘whose job is to acquire some company to do something – which we’re in the middle of doing right now, so I can’t tell you too much about it.’ He admits it’s hard to believe – ‘no one had ever heard of this weird kind of company that could go public and not be allowed to know what it’s doing’ – but he found the unexpectedness of the project instantly attractive. So he said yes.

In fact, the company being acquired, for $260m (£136m), is a California chip foundry called Jazz Semiconductor, which makes super-fast chips that the new owners hope will be at the heart of converging generations of mobile phones and other wireless consumer products. Woz will be chief technology officer, and thus finds himself back in the established corporate world that he hasn’t inhabited since he left Apple in 1985. Woz, a genial, bear-like 56-year-old, is in the UK to promote his as-told-to autobiography, iWoz , and as he emphasises in the book, pranks have done him well. The dial-a-joke line, run from a kitchen in Cupertino, netted him his first wife, one of its customers, before he had to give it up because (typically) it was costing too much. Among the projects on which he honed his nonpareil technical skills were early computer games and the famous ‘blue box’. This was a device for making free long-distance phone calls with which he once narrowly failed to wake up the Pope. On both occasions his partner in crime, as it were, was another prankster by the name of Steve Jobs.

Games are part of what it is to be human. Even in ultra-competitive Silicon Valley most people acknowledge that Woz’s genius as well as fundamental niceness was to import a human quality into the computer – then an array of flashing lights and dials whose only input was through punched cards and only output printouts of incomprehensi ble computerese. Until Woz constructed the Apple I, the computer did not engage with humans. ‘I didn’t realise it at the time, but that day, Sunday, 29 June, 1975, was pivotal,’ he recounts in his book. ‘It was the first time in history anyone had typed a character on a keyboard and seen it show up on the screen in front of them.’ Before the Apple I, no computer had come with a keyboard or screen after the Apple I, he says proudly, no computer would come without them.

Although an engineering prodigy – ‘engineering, teaching and humour are my things: maybe I should have taken a psychology degree?’ – Woz was an unlikely entrepreneur. Having taken time out of college to earn enough to pay for his final year, he had landed a job designing calculators at Hewlett-Packard, which he had decided was the best job in the world. ‘I just wanted to be an engineer.’ Building devices on the side was fun – over the next year Jobs and he sold 175 Apple Is (priced at the typical Woz figure of $666.66 until he realised the satanic connotations) – ‘but I never wanted to leave Hewlett-Packard,’ Wozniak says. It was only when Jobs, convinced of his partner’s ability to design a computer that would change the world, orchestrated a campaign to convince him, that he agreed to leave HP and join Apple full-time – and then only as long as he could remain an engineer rather than a manager.

Jobs was right, and Woz’s almost single-handedly designed Apple II did change history. ‘It had tons of firsts: it was constantly being optimised,’ Woz says – and it did it in the most elegant, simple and powerful way, which, he adds quickly, is his recipe for life as well as engineering excellence. Ironically, given his subsequent financial career, his creation also bailed out the infant Apple for the next few years through the disasters of the Apple III and the Lisa, which lost money, and kept it going till the Macintosh kicked in 1984.

Woz left full-time employment at Apple in 1985, although his mainstream influence had been on the wane since 1981, when he crashed his light aircraft and temporarily wiped out his memory before returning to college to finish his degree. Since then, his career has been so far removed from the hustling Silicon Valley stereotype that he would qualify as an anti-Mammon. At Apple’s flotation in 1980, Woz had already caused amazement, not least to Jobs, by selling tranches of his shares to 40 ordinary Apple employees (the ‘Woz Plan’) for $5, and giving more away to others left out of the allocation. He bought a cinema, set up philanthropic organisations and dropped $25m, although that was not part of the plan, on two rock festivals (he plans another next year). He taught full-time for eight years, and his latest venture, a GPS-system start-up called Wheels of Zeus (look at the initials) closed down this year. Once described as ‘uniquely undriven’, Wozniak himself admits that he doesn’t ‘feel attached to my money in normal ways’. Of the $200m or so that he made from the Apple IPO, one of the biggest ever at that time, he says on his website: ‘My ideals led me to give most of it away and not that much remains.’

All of which may explain his return to the corporate fray at the shell company Acquicor. Doing engineering at the old pitch of intensity to create a unique product such as the Apple II would in any case be impossible these days, he says, both because industry conditions have changed and ‘because it is hard on the head’. Intriguingly, the new venture brings him together with two old Apple colleagues – Gil Amelio, CEO until he was pushed out in a bitter row after Jobs returned to Apple in 1996, and Ellen Hancock, also a Jobs casualty. Doesn’t this pose problems, given that Woz remains good friends with Jobs, whose temper is legendary? ‘I don’t have anything against someone because someone else I know is in a feud with them,’ he says. ‘I’m one of the rare people who can be friends with lots of parties who are in feuds.’ Woz believes Amelio had overlooked strengths, including an ability to instil financial discipline. ‘He put Apple back on a sound financial footing.’

Woz remains an Apple shareholder (he still draws the minimum salary as employee No 1), and uses the word ‘we’ about the company. He still thinks it serves customers better than anyone else. But that doesn’t stop him criticising the OS X operating system and looking forward to the day when computer applications reside on the web and consumers are released from the regular upgrade tyranny. He is out of sympathy with an industry that has lost the human faith – and humour – it had 25 years ago.

‘I really just wanted recognition as the person who could connect chips better and more elegantly than anyone else in the world,’ he told an audience at Oxford’s Said Business School last week. They gave him a standing ovation.

THE CV

Name Stephen Gary Wozniak

Born 1950, San Jose, California

Education University of Colorado, University of California at Berkeley (electrical, engineering and computer sciences)

Career 1976 left Hewlett-Packard to co-found Apple Computer with Steve Jobs, helped shape computer industry with development of Apple I and II 1985, left Apple to take up teaching and philanthropy 2006, joined shell company Acquicor

Family Married three times, three grown-up children

The Observer, 29 October 2006

ROLL OVER, Milton Friedman. At a huge conference in Cleveland last week on ‘Business as an Agent of World Benefit’, billed as ‘the largest outpouring ever of research and thought on global corporate citizenship’, thousands of executives, academics and government officials assembled to face hundreds of papers and presentations challenging ‘the trade-off illusion’ – the idea that a company must choose between benefiting society or benefiting shareholders.

It could hardly have been a more portentous occasion. A group production by the UN’s Global Compact, the US Academy of Management, and Cleveland’s Case Weatherhead business school, the forum was nailed to the increasingly popular idea that, as Kofi Annan put it, business interests are more and more dovetailing with the UN’s objectives for development and world peace.

‘Today, leading businesses realise that the world’s problems can become business opportunities – perhaps the business opportunities of the 21st century,’ declared the conference website. To this extent, mused the Academy of Management’s Professor Nancy Adler, Friedman’s objection to corporate citizenship as incompatible with capitalism ‘is being overtaken by events’.

So that’s OK, then? Are we near, or at, a tipping point when a new era of business practices dawns, based on the linking of financial goals with social purpose and when, fortified by this handy convergence, business will move seamlessly from creating some of the world’s most awkward development, environmental and social problems to solving them?

To which the reply can only be, not so fast. It’s true that the business case for corporate social responsibility (CSR) has never been more forcibly put, or more widely believed, including, genuinely, by company executives. There were also some inspiring stories and presentations at the forum. CK Prahalad’s assessment of the upsurge in corporate activity to stimulate commerce and development among the world’s poorest people eloquently counterpointed the well-deserved award of the Nobel Peace Prize to Muhammad Yunus and microcredit Grameen Bank. A keynote on the potential of advanced energy and resource productivity induced hope and despair (so why isn’t everyone adopting these techniques?) in equal measure.

Yet there are limits to what CSR can do on its own, and reality is not served by downplaying them. They are most clearly outlined in David Vogel’s The Market for Virtue (Brookings Institution Press), a sober review of the field that notes while voluntary action by companies has produced some important gains – in working conditions in some developing countries, in fair trade, in reducing greenhouse gas emissions and in getting many companies out of Burma – its potential to bring about lasting change in corporate behaviour is much more modest than enthusiasts suppose.

‘The main constraint on the market’s ability to increase the supply of corporate virtue is the market itself,’ Vogel writes. ‘There is a business case for CSR, but it is much less important or influential than many proponents of civil regulation believe.’ Thus, despite the new conventional wisdom, and earnest endeavours by researchers to prove it, there is no evidence to show that ‘responsible’ companies are more profitable than irresponsible ones, let alone a causal link between the two. Neither, alas, does socially responsible investing produce higher returns than the ordinary variety.

CSR, says Vogel, is better thought of as a strategy like any other. For some companies – think John Lewis, M&S, Timberland, the Co-op – it makes positive business sense as a key part of their brand and customer and employee appeal. For others – Shell, Nike, Dell – it is defensive, a way of containing risk and warding off unwanted attention. At least initially, says Vogel, ‘their objective was not primarily to use CSR as a source of competitive advantage, but to prevent it becoming a source of competitive disadvantage.’

The argument that CSR pays is attractive but disingenuous and often untrue, recalling Archbishop Whately’s maxim: ‘Honesty is the best policy, but he who is governed by that maxim is not an honest man.’ Maximising resource efficiency or minimising environmental damage may make financial sense, but then it’s not CSR, it’s responsibility to shareholders.

The bald fact is that a few companies in a few high-profile sectors do some CSR because it suits them and doesn’t cost too much. Most don’t, and the capital markets don’t make them.

If companies are serious about responsibility, as Vogel says, they need to do more than go ‘beyond compliance’ themselves they need to push governments to raise compliance standards, level up the playing field and eliminate the free riders. CSR is shareholder capitalism’s guilty conscience, but it leaves the justification of shareholder primacy intact. And some guilt it can’t assuage: in the late 1990s, one company was highly rated by ethical investment funds and garlanded with environmental awards. Its name was Enron.

The Observer, 29 October 2006

SIBERIA IS huge, empty and inhospitable – a five-hour plane ride from Moscow in a battered 1970s Tupolev gets you no further than the wild central republic of Khakasia: population 600,000 average yearly temperature, zero Celcius. It seems an unlikely hotbed of new developments in a pounds 30bn world industry.

Yet nothing better illustrates the changing of the world’s industrial guard than the new Khakas aluminium smelter at Sayanogorsk, south of capital Abakan. Khakas, the first smelter built in Russia since 1985 and claimed to be the most technologically advanced in the world, is being built by Russians, using Russian technology, with Russian money. The pounds 375m investment is just a starter: even before this month’s merger announcement with smaller rival Sual, parent Rusal (for Russian Aluminium) had began a pounds 8bn expansion and modernisation programme aiming to almost double production to 5 million tonnes by 2013.

At a stroke, the merger, which includes the raw materials assets of Swiss metals trader Glencore and will be known as United Company Rusal (UCR), achieves Rusal’s aim of becoming the world’s Number 1 producer, overtaking long-time North American leaders Alcoa and Alcan. Given the company’s history, this is remarkable in itself. Only six years old, Rusal emerged as a joint venture put together by oligarchs Roman Abramovich and Oleg Deripaska out of the wreckage of the ‘aluminium wars’, a violent struggle for control of the industry in the mid-1990s. Its chief assets were four giant Soviet-era smelters whose size was offset by being run down, over-manned and an environmental nightmare. The captive workforce wasn’t just disaffected – it was dangerously mutinous.

But it would be a mistake to dismiss the company’s rise from nowhere as a triumph of dodgy finance and quantity over quality. ‘Becoming number one is good, but it’s all about quality,’ says director of strategy and corporate development Pavel Ulianov. As bold as the company’s growth goals, is its ambition to become Russia’s best-managed company and an employer of choice. This means playing a canny game on at least two levels.

The first is strategic and geopolitical. The largest cost element (at 30 per cent) in aluminium production is energy – which is why, as competition for energy sources hots up, the industry’s centre of gravity is shifting to the Middle East, Iceland and Siberia, which is blessed with clean and renewable hydropower. Energy will account for a third of UCR’s investment spend. Also vital is a secure supply of raw materials – alumina for smelting and the bauxite from which that alumina is refined.

Increasingly, aluminium production requires global scale. As Deripaska noted, the estimated pounds 15bn Rusal-Sual-Glencore deal creates ‘a truly global company’, with assets stretching from Guyana to Guinea by way of Australia and Europe, and substantially in energy as well as aluminium. In turn, that requires the company to raise its game in managing operations, and, particularly, people. ‘I used to believe we needed to breed ‘Rusal people’,’ says HR director Victoria Petrova, part of a young top team that relishes the idea of creating a world-class Russian enterprise. ‘Now I think diversity is more important.’

Alongside R&D and design capabilities, the group has set up a corporate university, professional ‘academies’ for functions such as HR and finance, and a medical institute. With 110,000 employees in 17 countries across five continents in the combined group, diversity now has a strong international element.

Just how far Rusal has come in international awareness is in evidence at the Sayaganorsk complex. On the walls of the spick-and-span plants are charts tracking production, quality and absence levels, while at the Khakas smelter, robots delicately stack aluminium ingots on pallets. Apparently at Deripaska’s behest , Rusal invited sensei (teachers) from Toyota to advise on production techniques. It now boasts a ‘Rusal Business System’ along the lines of the famous Toyota Production System which, according to Petrova, is removing swathes of bureaucracy as well as identifying novel ways of boosting smelter productivity. Although this has doubled since 2000 it still lags behind the best international standards.

In other areas, however, the company remains unabashedly Russian. It is proud that, having sacked the original international contractors, it is building Khakas using its own engineering and construction resources. The advanced processing technology used at the site is also self-developed. It had to be – foreign rivals refused to license theirs.

Less welcome – and its most obvious Achilles heel – is another Russian speciality of the 1990s less-than-transparent corporate governance and the potential for political influence. A flotation in London in the next two years – a condition of the merger – and Russian presidential elections in 2008 are tests that will be watched by investors and competitors alike. But assuming those hurdles are passed, have no doubts: it won’t be how the cold-war warriors were expecting it, but the Russians are coming.

The Observer, 22 October 2006

IMAGINE A company whose ultimate purpose is ‘the happiness of all its members’; has a written democratic constitution of which the above is the first principle; is a partnership whose members undertake to treat each other, customers and suppliers with respect, honesty and courtesy; and has just decided to pay its top manager no more than 75 times the average basic rate of non-management members – in effect reducing the theoretical maximum.

Isn’t such an entity too good for this cynical old world? Come on: business isn’t a democracy – if everyone had a say, how would anything get done? Similarly, a company can’t be nice to everyone and how will it attract good people with such an unworldly pay policy? Received wisdom says an organisation built on those lines would be squelched in short order by harder-nosed conventional rivals.

Well, prepare for a shock, or maybe a new definition of hard-nosed: John Lewis not only exists, it is kicking sand in rivals’ faces. The stores group has shed its staid image and reinvented both the supposedly passe department store and the supermarket for a more health- and fairness-oriented age. As well as growing physically – it plans 10 more department stores in the next decade and will soon have 200 Waitrose supermarkets – the partnership also runs fast-growing online operations for both divisions, and earlier this month launched a direct services outfit called Greenbee. No wonder the chairman began his presentation to the recent quarterly ‘council’ meeting (the partnership’s parliament) by congratulating partners on a ‘sparkling’ first-half performance.

With 65,000 partners and revenues of pounds 6bn, John Lewis has come a long way from founder John Spedan Lewis’s ‘experiment in industrial democracy’ set up in 1950. Human resources director Andy Street bristles at the idea of John Lewis as an amiable eccentric trading off its reputation as a national treasure. John Lewis has to be a better business than its rivals, he says, because of the conditions partnership imposes – final-salary pensions, for example, which alone among large retailers it has no plans to abandon (although the council has voted to raise the retirement age to 65).

Conversely, although the connection is hard to prove, the business model rests on the conviction that ‘partnership’ is what supercharges the retail performance. Fulfilled workers go the extra mile for customers, which makes for greater satisfaction and loyalty, and higher profits – part of which are then shared equally among the partners (in effect, 15 per cent bonus last year). ‘It’s a closed loop,’ says Street. ‘Co-owners behave differently… it all fits consistently together, which is why others find it hard to emulate.’

Pay is an essential part of the mix. Take top salaries, the formula for which has just been revised by the council after strenuous debate. It’s actually quite hard to make comparisons with other companies, since almost everywhere else top pay includes a huge variable element – which John Lewis eschews. But the 75-times maximum ratio for chairman Sir Stuart Hampson (a theoretical pounds 887,000, although he only made a basic pounds 650,000 in 2005) compares with 127 times for the UK as a whole, and 466 times for Tesco’s Sir Terry Leahy. No other major British company, maintains Street, has an explicit link between top and shop-floor pay, let alone one set by employees. As for making it harder for the group to attract talent (as some council members fret), Street claims the reverse happens: it puts off people who are motivated only by money and attracts those who want to work in the partnership model – so the spiral is self-reinforcing.

The group is now engaged in a conscious attempt to make the partnership principles even more central to day-to-day management. Customer satisfaction and profits are easy to measure, notes council member Anne Buckley, whose day job is ‘registrar’ – a kind of internal consultant on partnership best practice. For the past three years, an employee survey has attempted ‘to gauge performance on the partnership principles better’. As Hampson emphasised at the council meeting: ‘So often it is management that sets the agenda. The partner survey turns that around.’

It was always part of the founder’s aim to establish ‘a better form of business’, and with confidence high the partnership is, in its modest way, going on the offensive. One reason for growth, says Street, is to give more people the chance not just to buy from the partnership but to participate in and contribute to its more fulfilling business model.

That’s a brave aim. But success creates its own pressures. As Hampson also reminded the council, a business is most vulnerable when it believes it’s doing well. Part of the group’s surge is the result of the public mood catching up with the principles it has always espoused. Having survived modest obscurity, in the limelight, partners will be reminded of another partnership principle that they signed up to: that ‘they share the responsibilities of ownership as well as its rewards’.

The Observer, 15 October 2006

I ONCE TRIED to get entrepreneur publisher Felix Dennis to back the launch of a European management magazine. Ten pages into his book How to Get Rich , it’s easy to understand his lack of interest. For this weird, brash, compulsive, irritating and highly entertaining volume is best described as an anti-management, or more accurately an antidote-to-management, tract.

True to his promise, there is not a word of business jargon in it – ‘Who bloody cares about management?’ he exclaims at one point. Instead, there are exhortations, often in verse (usually his own – as he boasts, spending three hours a day writing poetry while sipping Chateau d’Yquem on Mustique is a privilege of the extremely rich), supported by an eclectic collection of non-business quotes (he is voraciously well-read), lists, and a stream of publishing anecdotes, autobiographical snippets and philosophical diversions. And that, gentle reader (as he would say), is about it.

Actually, I have no doubt that, despite his distaste, Dennis would have backed our project ‘in a heartbeat’, as he would also say, if there had been commercial value in it. He is nothing if not opportunistic. He has made fortunes variously out of kung-fu exploitation, computer and lads’ mags (Maxim outsells all rivals in the US), but also out of apparently lost causes he has obstinately upheld even when they gave other people heart attacks.

Thus, against dire warnings from his directors, he invested in a struggling, cheaply printed weekly news magazine with no ads called The Week. ‘You can guess the result. The Week is now the most profitable magazine I own in the UK. Pound for pound… it is the most profitable magazine I ever owned.’ Even more quixotically, he launched a US version which has now, he claims, reached break-even, although it cost him $50m to get there.

How much of a fortune? Between $400m and $900m (pounds 212m and pounds 478m) before tax, he says – not bad for a penniless hippy who was jailed in 1971 for his part in the Oz schoolkids’ issue, which was judged obscene. In short, there is method in the Dennis madness – and there is, too, in the book, once you get past the surface annoyances. The style, for instance. Short sentences with no verbs. Like this. Very wearing.

And you may wonder what the verse is all about as well, until you realise that, as he explains, ‘poetry forces a writer to condense and crystallise his thoughts and often represents a short cut to truths unsuspected by the author himself’.

Stripped of the woolly euphemisms of management, How to Get Rich is a sharp reminder of what entrepreneurial capitalism is about: the scary, exhilarating business of multiplying money through new ventures, and in turn spreading the proceeds about (with tens of millions binged on rock’n’roll-style indulgences, he was particular good at the latter).

Getting rich this way requires insane determination and self-belief, coupled with relentless emphasis on execution (rather than a great idea) and a rigid refusal to give away a single point of ownership (‘Ownership is not the most important thing. IT IS THE ONLY THING THAT COUNTS’). Cleverly, Dennis realises that, unlike him, most people are not primarily motivated by money so you can hire smart people to make you rich by being generous with the things that turn them on: good pay, opportunity, a great place to work, start-ups to launch – and a ringing send-off when they depart for pastures new.

This is not rocket science. In fact, ironically, it corresponds with the findings of some, dare I say it, good management books. But, despite Dennis’s exhortations, that doesn’t make it easy. Just how not easy becomes clear in some extraordinary passages on fear and luck, the sentiments of which would do justice to one of Dennis’s heroes, that most anguished and terrifying blues singer, Robert Johnson. Luck helps – but not if you seek it. Fear of failure, Dennis believes, is the single greatest impediment to getting rich. But in the face of the certainty of death, why should anything else matter?

‘If you want to be rich you must make a pact with yourself about fear… You cannot banish fear, but you can face it down, stomp on it, crush it, bury it, padlock it into the deepest recesses of your heart and soul and leave it to rot.’

In his heart Dennis must sense that few people can resolve the Catch-22 at the heart of his proposition. You can only get rich if you really, really want it. But if you really, really want it, you are liable to forget that getting rich is a game, a game you can only win if you treat riches as if they didn’t matter – otherwise you destroy the fragile things that made you want to be rich in the first place.

The rich really are different.

Dennis apparently wanted to call his book How to Get Rich (But it Won’t Make You Happy). Did his publisher persuade him that was too negative, or was it his own realisation that it’s something everyone has to find out for themselves? Either way, his book may not succeed in making other people rich – but I bet it adds to his mighty pile.

The Observer, 8 October 2006