IT IS A funny old game, although some might use another metaphor. Is Sven a great manager, an OK one, or, to use a technical footballing term, a turnip? Is he really worth pounds 4.2m a year? Or one tenth or even one hundredth of that?

The final judgment can only be posthumous, as it were. But even if England win the World Cup – more likely than Eeyore winning the Derby, but probably not much – it will not erase the memory of a number of distinctly ungreat moments along the way. No one comes out of the Sven-Goran Eriksson affair unscathed, and its gamey combination of cupidity and indecisiveness, laced with media tack, makes it an unattractive microcosm of the game as a whole.

The tactics of the News of the World are external to the FA and outside its control. Not so the greed and indecision off which the media feed. It’s significant, says Professor Christine Oughton, director of the Football Governance Research Centre at Birkbeck College, that FA action about Eriksson’s future came only after the second round of revelations alleging corruption in transfers, which directly concerned the great and the good of the Premier League, not the remarks about players, even though the latter are more damaging to the team.

The slow-motion reaction is in part the result of the unwieldy representative structure and blurred responsibilities and functions that characterise the FA as a whole. ‘Because of its institutional structure, the FA finds it hard to make decisions quickly,’ says Oughton. In fact, despite the high-profile (and high-salary) nature of Eriksson’s appointment, a similar sense of ambiguity and evasiveness pervades the entire employment relationship, as summed up in its curious ending. After all, Sven would almost certainly have gone after the World Cup anyway, either in a blaze of glory if England won or with ‘a thank you and goodbye’, as he put it, if it didn’t.

It’s hard not to see this as a cultural mismatch from the start – and one that is regularly replayed on the pitch. ‘English players prefer strong leadership and clear direction,’ says Chris Brady, professor at Cass Business School – and a former professional footballer. ‘That’s why they like 4-4-2: it’s clear and unambiguous. Why does [Chelsea coach] Jose Mourinho do so well in the Premier League? Although most of the Chelsea players are foreign, Mourinho works through John Terry, the captain, and Frank Lampard, who drive the team. It’s a perfect fit for the Premiership.’ Eriksson’s core relationship, however, is not with Terry or Lampard, England players both, but with the less forceful David Beckham. His style – ‘good organiser, nice guy, the players like him’ – is more consensual and less directive. This approach has much to commend it for a season-long league campaign. Indeed, Eriksson’s book, On Football (Carlton), puts a welcome and all too rare emphasis on that under-used footballing organ, the mind. ‘I spend a lot of energy taking the aggression out of my players,’ Eriksson says. ‘All a player has to do is begin to argue with the referee, play dirty or quarrel with the opposition for there to be a danger that their performance will sink like a stone.’

He talks of taking time to build relationships and security, eliminating performance anxiety and creating resilience. The approach won an Italian league title for Lazio in 2000 – albeit at the second attempt and with resources that would have pleased Mourinho. But managing qualification is not the same as the short, sharp shock of the knock-out phases. Players vying for glory are motivated differently to those playing for bread and butter in the league – and require similarly different management. This is like project management: high pressure, end-dated, with clear targets. ‘In this context and despite the conventional wisdom,’ says Brady, ‘the manager has great power and can be quite ruthless – provided the players believe they can win under his leadership.’

This, alas, is where the real damage has been done. At a quick count, Eriksson will have earned about pounds 14m (net) on his five-year England watch, a salary that a FTSE 100 chief executive would be proud of, even without a payoff. In these circumstances falling for the ‘fake sheikh’ set-up makes him look naive and greedy. But compromising himself is one thing to criticise the players to an outsider, even a bogus one, is to undermine the bond of trust and confidence that he spends much of his book promoting.

‘He may be technically right when he says it didn’t mean much – it’s hardly earth-shattering that a player is unhappy or lazy – but after that are they going to give him everything when it really matters?’ asks Brady. ‘It’s either all in the mind or it isn’t – he does seem to believe that he can have his cake and eat it too, and he wants us to agree in the bargain.’

It’s a flawed end to a flawed beginning. But despite the hype it was unlikely to be otherwise. Poor governance on one side and lack of straightforwardness on the other do not make a winning recipe, on or off the pitch.

The Obser, 29 January 2006

FEW MANAGEMENT books genuinely shock. Those that do begin with a quote by Baudelaire, end with a graphic account of a post mortem, reference Spinoza and Cicero and can easily and profitably be read in an afternoon. They could only be the work of one person, whom aficionados will instantly recognise from the description as the Dutch writer Joep Schrijvers.

Schrijvers’ world is The Office rewritten by Leonard Cohen – an annoying but addictive mixture of black humour and clammy pessimism that can’t be removed from the mind. So far as I remember, his first book, The Way of the Rat: A Survival Guide to Office Politics , didn’t actually contain corpses, but it did stick the knife into the body of many cheery writings on organisation. Proving that gloom is good, it also sold 150,000 copies. His latest, The Monday Morning Feeling , is another gloomily entertaining disquisition, this time on why so many people are so unenthusiastic about their work.

Of course, there is no shortage of books on employment and its discontents. But there’s a curious stasis about them. The tone is always earnest and exhortatory: change, competition, globalisation are inevitable and we should meet them head on employers should promote the HR agenda and work/life balance out of enlightened self-interest we should all work for a more human workplace. In short, we all can and should do better.

Schrijvers pokes merciless fun at such simple-minded optimism. His position is simple. Every work day is Monday. The basic problem with work, particularly working with others, is that a lot involves suppressing the elementary drives we have inherited from our evolutionary past. However much we try to be rational, we are actually ‘drive-driven’: in a deep psychological sense, we don’t want to be there or do what we are supposed to. Hence the malaise, headache, nausea or just inability to get out of bed.

This being the case, all the usual remedies for the condition are like trying to teach a pig to sing: pointless, and annoying to the pig. In a section called ‘Ludicrous Therapies’, Schrijvers skewers them one by one: the incantations of self-help guides that destroy people by assuming perfectibility and making them implicitly responsible for their own discomfort bureaucracy that promotes the illusion rather than the reality of control the ‘fairytale’ of the new spirituality and the attempt to humanise the company, which just makes matters worse by raising expectations that are impossible to meet.

Like eating nothing but marshmallows, an unalloyed diet of Schrijvers’ almost parodic dark view would drive you mad. But fortunately the book is brief and in any case he has anticipated this objection. If you suddenly think ‘Things aren’t as bad as this’ and throw the book across the room, that, he teases, is part of the diagnosis and purpose. ‘For nothing comforts and revives better than the awareness that things can be a lot worse. That is the knowledge that this book offers.’

The blurb about Schrijvers says he has worked as, among other things, a consultant. Reading the book, I wondered at first what kind of consultancy that could be – assisted corporate suicide, perhaps? In the end, however, an injection of the relentlessly downbeat ends up being energising. By clearing out some obvious (and not so obvious) idiocies, Schrijvers obliges you to think about more promising avenues. Thus, if ‘work is nothing more than work’, forget about the ‘culture change’, ‘people initiatives’ and ‘transformation programmes’ that so enrage employees and eat up time and energy, and concentrate on the organisation of work. That’s quite a positive thought.

At a different level, ‘the Monday feeling’ seems a more likely explanation for Britain’s productivity shortcomings than the economic equations used by the Treasury. It’s well known, for instance, that the results of the local football team have as much immediate effect on productivity as investment levels that UK workers notoriously lack ‘voice’ in the organisation of work and that British managers are highly prone to all the delusions that Schrijvers so diligently punctures.

If The Monday Feeling shocks, the effect comes not from the grisly ending on the mortuary slab but from the bleakness it dissects in the assumptions that underpin so much of corporate behaviour, and the way they play out not just in the workplace but in life. Lots of people will reject everything it stands for, at least in public. But that’s a start. Because the other revelation is the triviality, tedium and numbing length of almost all other business books. That’s a shock, too.

The Observer, 22 January 2006

THE SPECTACLE of British companies queuing up to renege on their pension obligations – foaming at the mouth over the government’s unwillingness to do the same – is not only deeply unappealing, it is also nature’s way of saying that there’s something mortally wrong with modern shareholder capitalism and the way companies are run under it. In Anglo-Saxon capitalism, isn’t accumulating value for shareholders, of whom pensioners should be at the front of the queue, what companies are for? And what executives are more than handsomely paid to achieve?

Of course, there are other culprits for this entirely self-manufactured crisis. The decision of Mr Prudence, Gordon Brown, to end the ACT tax break, thus giving companies the excuse to exploit a short-term stock market plunge and move straight from pension holidays to pension funerals, now looks like the most reckless economic bargain of modern times. Actuarial calculations are an art, not a science. Having ignored the problem of ageing for decades, the profession has now bounced itself into the opposite frenzy of overcaution. Regulation after the event makes life more difficult for the pension good guys, who now have to bail out the bad. Finally, current valuation methods are not ‘conservative’ a better description of snapshot valuations of liabilities that stretch decades ahead is ‘completely daft’.

Yet although outsiders have helped, companies needed little encouragement to pull the plug. Far from being an accident or a surprise, the pensions betrayal is the culmination of a long-term stealth project to transfer risk from the organi sation to the individual. In the name of shareholder value, companies first ditched long-term careers, then sotto voce, the commitment to employment in general. Once a last resort, undertaken only in emergency, redundancies are now for many companies the automatic first response. In this light, axing final-salary pensions is just the final nail in the corporate-welfare coffin. Job done.

Pensions are deferred pay, and as TUC general secretary Brendan Barber has noted, reducing pensions is a pay cut of a particularly blatant kind: although you wouldn’t guess it from the campaign that makes everyone else responsible, companies owe their pension funds at least £20bn in back contributions they elected not to make in the fat years. As late as 2004, when companies such as Rentokil were still basking in pensions vacations, FTSE 100 companies paid out a reported £39.5bn in dividends, compared with just £10.5bn in pension contributions.

So, who does benefit from companies’ worship of shareholder value? The answer is the financial services industry and top managers – the very people whose collusion brought us to this pass in the first place. It is an irony that the investment strategy of Warren Buffet and Berkshire Hathaway is the most effective. Their extreme patience and sumptuous returns exactly match the long-term needs of pensioners. Yet it is the antithesis of what most pension funds do.

Dominated by managers incentivised by shareholder value, company pension funds pursue a management-oriented agenda. The more costs and liabilities can be minimised and short-term investment performance maximised, the larger top managers’ pay packets. Likewise, fund managers’ bonuses depend on assets under management, the result of short-term performance. So they pressure managers to jack up share prices by every possible means – including slashing pensions.

While the pensions crisis is indeed real (except for directors, padded against the pain they are causing others by separate schemes – see table below), it is perfect nonsense to say that nothing can be done. Even investment professionals privately suggest that a government less in thrall to the City and the CBI could put a limit on dividends as a ratio of pension deficits or even – horror! – mandate a dividend holiday. Companies could reward long-term investors with higher dividends. And tax breaks could favour companies that shame the herd by continuing to show that there is an alternative.

To their credit, there are still a few. In his column in Real Business , John Timpson, the chief executive of the eponymous company, recently described sleepless nights when new valuation methods sent the group’s final salary pension scheme lurching into the red.

What was he to do? He duly found a way of keeping the scheme open for new entrants as well as existing members. The retirement age will rise, and it will cost ‘a tidy sum’ to fund the theoretical deficits. But ‘the extra contribution is much less than the pension holiday we enjoyed for 15 years… And when I present our pensioners with their retirement gift, I will be able to look them in the eye with a clear conscience’.

Top Ten Pensioners 2003

NAME COMPANY ANNUAL

PENSION pounds

J-P Garnier GSK 929,000

G Mulcahy Kingfisher 790,000

R Sykes GSK 729,000

N Fitzgerald Unilever 718,000

C Thompson Rentokil 690,000

C Gent Vodafone 662,000

R Wilson Rio Tinto 656,000

H Mogren AstraZeneca 597,000

B Gilbertson BHP Billiton 594,356

J Sunderland Cadbury

Schweppes 589,000

Average FTSE 100 director’s pension

2004: £167,000. Average occupational pension 2004: £6,400.

Sources: www.havingtheircake.com, TUC Pensionswatch2005

The Observer, 15 January 2006

Perhaps the most encouraging – and surprising – news for the environment in the past 12 months has come from the giant US corporation GE. Its product line of nuclear power, aero engines, coal plant and plastics hardly seems likely to endear it to environmentalists, with whom it has also crossed swords over chemical pollution (which it is now clearing up) in the Hudson river. Moreover, some of its largest customers are utilities, traditionally among the fiercest opponents of curbs on emissions of greenhouse gases.

Yet all the more reason to take notice of the company’s launch of an ‘ecomagination’ programme, charged with building sales of green technologies to $20bn by 2010. R&D in these areas, ranging from cleaner coal and power plants to fuel cells and wind turbines, will double to $1.5bn.

At the same time, GE says it will cut its own CO 2 emissions by 1 per cent by 2012, equivalent to a reduction of 40 per cent if it continues to grow as planned. It pledges to subject its performance, and ecomagination products, to an independent audit.

True, even $20bn is relatively small beer by GE’s standards: less than a seventh of last year’s turnover of $152bn. Even so, the symbolic importance of the move can hardly be overestimated. Never mind what George Bush thinks, the greening of the largest (by market value) and possibly hardest-nosed company on the planet surely signals the moment when global warming became as much of a business as an activist’s preoccupation. As Jeff Imelt, GE’s chief executive and ecomagination champion, says: ‘Green is green [ie, dollars].’

In bald terms, this means that environmental improvement now has the formidable management power of GE behind it – not to mention lobbying clout. As significant as GE’s internal decision is its call, along with a number of other major US firms, for regulation to force companies to take action on carbon emissions. ‘Tough regulation makes people play hard and compete hard,’ notes GE international president Fernando Beccalli- Falco. ‘We don’t mind regulation so long as it’s fair and everyone plays by it.’

Beccalli-Falco has an office in front of the European Commission in Brussels. GE is aware of European pressure for controls and has an important research centre in Munich. It is right that regulation will come in the end – at which point it will be in pole position to satisfy global demand for greener equipment. But it insists that the market is there anyway.

GE, says Beccalli-Falco, is both a technology company and a student of long-term megatrends. Combining the two, it was hardly rocket science to conclude that technologies for protecting the environment and minimising energy use could make money for both GE and its customers. Every oil-price hike and pollution scare in China just makes the reasoning more convincing.

Committing itself to cutting its own emissions was a similarly easy decision, because it helps GE meet internal targets for channelling operational savings into productive investment. In that sense, says Beccalli-Falco, putting investment, research and commitment into the environment was giving formal recognition to something that was happening anyway.

However, no one should underestimate the impetus that such formal recognition brings. On one side, managers will be held to those targets. On the other, in a call with analysts last December, Imelt spoke of the theme for 2006 as ‘go big’ – making sure that GE businesses got all the benefits and none of the drawbacks of the group’s vast size.

Not only global reach and technology, but also cast-iron financial status and ‘hardwiring’ its internal best-practice sharing processes would be used to build all of the businesses.

One example of ‘going big’: since 2001 GE has spent $60bn rebalancing its product portfolio away from financial services. ‘GE is 127 years old and aware that Darwinism is about the survival of the most adaptable, not the strongest,’ says Beccalli-Falco.

Is there a conflict between GE’s traditional pursuit of ruthless efficiency in delivering planned results and the requirement for inherently less predictable innovation? No, says Beccalli-Falco. On the contrary, the disciplines that GE’s internal processes bring are key to its ability to spread new thinking through its constituent parts and, counterintuitively, they make good ideas more likely to yield real results.

There is a limit to what one company can achieve. It is also the case that most of its effort remains outside ecomagination. Yet the endorsement of the environment as business by the world’s most formidable industrial company is worth more than all the world’s corporate social responsibility programmes. To rephrase the famous quote about General Motors: what’s good for GE isn’t at all bad for the planet.

The Observer, 8 January 2006

BINGE management is the phrase coined by Donal Carroll, of consultancy Critical Difference, to describe a debilitating condition afflicting much of UK plc. Symptoms include hypochondria, panic attacks, addiction to dieting and round-the-clock consumption of miracle remedies.

In management terms most companies are overweight and some obese. Almost all are unfit and sluggish, spending too much time and effort pushing paper and not nearly enough lifting weights in the gym.

Like human addicts, companies (and particularly their representative associations) have the unattractive habit of seeking to blame everyone else for their ills. But much of the condition is self-inflicted. Consider the analogy of regulation at the national level. The Better Regulation Task Force (BRTF), established in 1997 to lighten the regulatory overhead, estimates that regulation costs the economy around pounds 100 billion or 10-12 cent of GDP a year – about the same as income tax.

Of that, it reckons that 60-70 per cent is related to policy – improving health and safety, protecting the environment and so on – and therefore has benefits as well as cost. While there is always scope for improving policy-driven regulation by increasing the ratio of benefits to costs, the main opportunity for improvement lies in eliminating the substantial 30-40 per cent of regulation which is bureaucracy, ie waste pure and simple.

Shedding pointless red tape could free up 1 per cent of GDP for economic muscle-building, the BRTF reckons. There is a behavioural hit, too: just as losing weight allows individuals to lead a more adventurous lifestyle, so cutting regulation should produce a bolder, more entrepreneurial economy.

Industry has by and large welcomed the BRTF recommendations, while urging it (and the government) to do more. But there is plenty to do to bring its own addictive behaviour under control.

GE reckons that 40 per cent of its $150bn revenues are devoted to administration and back-office functions. In less efficient companies than GE the figure will be much higher. Firms, therefore, have at least as much to gain from displacing resources from bureaucratic to productive purposes as the economy as a whole. So what scope is there for adopting better regulation guidelines inside firms?

As the task force recommends in a recent paper, the overriding principle is ‘less is more’. The first thing is to stand on the scales, measure the flab and resolve to remove it. But experience tells that reflex reactions generally do not do the trick. Caution is in order – it is important that the remedy should not make matters worse.

In slightly differing ways, in both public and private sectors, one of the most insidious problems is what the BRTF calls ‘regulatory creep’ – the instinctive tendency of administrators to inflate the importance of the rule book and constantly invent new refinements to it. In universities, schools, police and the NHS, it’s not so much regulatory creep as regulatory sprint, as local managers enthusiastically embellish centrally set targets with their own variations and extra demands, as a result of which many professionals feel they are spending so much time accounting and managing that there is none left for the original task.

In companies, the phenomenon takes the form of new management initiatives raining down from on high with little explanation or consultation. According to management consultancy Bain, on average, companies currently have 13 major management tools in use. But these tools impose their own costs. Thus, companies’ attempts to downsize and outsource have shifted cost from the waist, as it were, but as usual where there is no method, it simply reappears on the thighs or bottom. Automating offices transfers employment from clerks to IT support staff more subtly, shunting customer service into robotic call centres offloads costs on to customers who extract payment through churn, ill temper and viral bad mouthing.

Similarly, lemming-like outsourcing, it is now clear, may have cut the cost of some activities, but the price is a ‘hollowing out’ of larger commissioning skills, so that many organisations have lost the capability to design, specify and project-manage solutions to their own problems. The cost is tears and recriminations and yet another remedy that falls short of expectations.

In the end, few tools turn out to be real management innovations. They offer no differentiation, since mass suppliers are prescribing exactly the same thing for competitors. They end up being just another cost of doing business: yet more management overhead or burden that, like the ageing population, has to be paid for by a smaller and smaller productive workforce.

In the short-term both public and private sector managers should take to heart the BRTF’s ‘one in, one out’ principle, under which every new rule intro duced should be balanced by another removed. The government has in principle accepted the recommendation, borrowed from the Dutch, although there is little sign so far of much effect on the ground. (In fact, it could be argued that the better regulation apparatus, consisting of simplification targets, plans and units in departments and regulators, is itself a net addition to the regulatory regime.) It is also sensible to cost the impact of new rules, rather than simply taking the benefits on trust, and consider non-regulatory alternatives. Finally, what is the worst that can happen if we don’t do this? As the poet Allen Ginsberg once wrote, ‘It’s never too late to do nothing at all.’

Weight control of all types comes down to concentrating on essentials, self-discipline and constancy of purpose. Rule books, hierarchies and multiplying management initiatives grow up to compensate for the lack of these things. At least in Ricardo Semler’s account, the culture at Semco, the Brazilian engineering firm, is so strong that it needs practically no rules at all. So let’s make 2006 the year of managing in moderation and ban the binge.

CAN it be ‘bah, humbug’ time again already? Every Christmas the appeal to our better nature serves to throw into ever more grating relief the mendacity, or at least deliberate ambiguity, at the heart of so many companies’ business practice – and this one is no exception.

Thus the boss of GNER admitted last week that it was hard to find cheap fares on the company’s website, adding coolly that it would take a year to make them more accessible. The next day British Gas was taken to task by the Advertising Standards Authority for a misleading ad campaign – for the seventh time in a year. Happy Christmas, suckers.

However, don’t think that this is just festive behaviour:

* A leading mobile phone company worked out that it makes two-thirds of its profits by not telling customers they are on inappropriate tariffs

* Don’t even try to pin down a ‘real’ air fare: airlines deliberately change their prices hundreds of times a day to make it impossible for you to find out

* Banks make much of their profits from extra charges on customers who overdraw – and have algorithms for paying in cheques that make sure they do so as often as possible

* Companies using 0870 or 0871 phone numbers for customer service profit from keeping customers on hold while they work their way through the dreaded automated answering systems

* Loyal customers are often worst treated, paying more for services than ‘rate tarts’ who switch every few months. Loyalty, in effect, is a mugs’ game.

The cynical may shrug, but that’s showbiz. Caveat emptor. As Groucho Marx put it: ‘The secret of success is honesty and fair dealing. Fake that, and you’ve got it made.’

Yet the long-term costs of the Groucho model of business are catastrophic. Some of the examples above are taken from a book out next year ( The Ultimate Question , Harvard Business School Press). In it Fred Reichheld, a senior consultant at Bain who has made a career of studying customer loyalty, graphically maps the differing effects of what he terms ‘good’ and ‘bad’ profits.

Good profits are self-sustaining because customers not only come back again for repeat purchases, they become advocates for the company – a virtual marketing department. Apple customers are a good example. Bad profits are the reverse. Instead of creating value for customers, behaviour like that above appropriates value from them.

But it’s a mistake to think that ripped-off customers are passive. They find ways of getting even that exert a huge toll on offenders. In a mirror image they become an anti-marketing department: an invisible army of detractors, each of whose negative comments typically cancels out several recommendations. Detractors complain more, make more calls on customer service and are a hidden drag on growth. They cost more and spend less. Angry customers depress employees, compounding the effect. And to neutralise their influence requires ever greater effort by the companies.

Figures in some industries – credit cards, mobile phones, cable TV and, sad to say, at least in the US, newspapers – are now so high that compa nies are having to pedal more and more furiously just to stand still. It makes the apocryphal customer-service director all too credible: ‘Our new automated ordering system has sped everything up: we’re losing customers faster than ever before.’

Statistician W.E. Deming said that the most important costs in business were unknown and unknowable. In this case it seems hardly coincidence that so many companies find it hard to grow consistently and so few provide a service that customers can be positive about. Yet very few managers are able to make the connection. The capacity for self-deception is stunning: while 96 per cent of directors responding to a Bain survey said their company was customer-focused and 80 per cent declared that they provided superior service, customers in other surveys rated just 8 per cent of the firms they dealt with as superior.

Bad profits are the result of short-term management by the numbers, aided and abetted by the notorious unreliability of conventional customer-satisfaction surveys. Instead, Reichheld proposes that managers should pay attention to a measure of, simply speaking, the ratio of promoters to detractors. Bain calculations seem to confirm that the relatively rare firms with a high positive ‘net promoter score’ have superior growth and profitability those with low scores – the vast majority – struggle to keep afloat, not least because their destructive tactics are generating as much negative as positive word-of-mouth advertising.

Reichheld’s analysis of good and bad profitability rings horribly true – and the next month will doubtless bring many new examples of the latter to the surface. But, as readers of this column may already be concluding, the difficulty will be putting the score into practice without depriving it of its integrity. If it is made into a target on which pay and prospects depend, the ‘net promoter score’ will cease to be a reliable measure, however persuasive the initial concept. When ‘making the NPS numbers’ becomes the end rather than the means, priorities are likely to become distorted and people lose sight of the underlying purpose.

The best companies intuitively understand that good service is not about loyalty programmes, satisfaction surveys or CRM, it’s about allowing customers to pull the value they need with the minimum of fuss and effort. If you provide that kind of customer service, you won’t need ‘customer service’ at all. And the NPS will, deservedly, go through the roof.

The Observer, 11 December 2005

ONE OF business’s quaintest boasts is that it lives in the real world. Actually, the world that it inhabits is a fantasy one: only in a dream could it endlessly consume its own natural capital and expect society to absorb the ever-mounting costs of its profit-maximising ways.

But real reality is beginning to intrude. On the day this column was written, in a discussion on the Today programme the government’s past and present chief scientific advisers agreed that human-induced climate change was the ‘the most serious challenge that humanity has faced in its history’. And the day of reckoning is approaching fast. Just one example: when Chinese car and paper use reaches US levels (no longer unthinkable), it will absorb all current oil and paper production.

Optimists suggest that technology will solve all that. Ultimately, however, the grim reaper in the shape of the second law of thermo dynamics trumps even free-market capitalism. So if capitalism is the problem, what is the solution?

Jonathon Porritt’s answer, in his chunky Capitalism as if the World Matters , is… capitalism. Capitalism, he admits, ‘is the only game in town’. Not only is there no time to conceptualise any other big idea, but in its most important institutions, companies and markets, capitalism possesses the only instruments that can credibly turn the situation around.

Porritt spends much time justifying this position, no doubt looking over his shoulder at his colleagues in the green movement. But it’s not as surprising as it looks. Although it’s true that industrial processes and consumerism have brought us to the present pass, some islands within it are already compatible with sustainable concepts. While ‘lean’ manufacturing, for example, is often portrayed as being about resource productivity (doing more with less – and there’s plenty to do here, given that 90 per cent of materials extracted for building consumer products ends up as waste), its real significance is that it reverses the demand cycle, the process only beginning with a customer order. It also works best with local sourcing and long-term relationships.

But the real point is a larger one. Capitalism is a system, albeit a sub-system of the biosphere as a whole. What’s key to its drive and momentum is not some metaphysical concept like the ‘free market’ or even the profit motive. It’s the ecology of capitalism: the dynamic, systemic interaction of markets and companies together, each obeying its own distinct logic, within the rules of the game. Companies compete to provide better solutions, markets decide on winners and losers and regulation decrees what success is.

Regulation is not some kind of foreign intruder in this process – a tiresome armchair umpire – but an integral part of it. Consider Formula One. The story of Formula One is intense technological competition within specifications laid down by a governing body. Each time an advance threatens to make races less competitive or attractive to watch, new regulations are imposed, driving further innovation. Like a sailing boat’s forward movement, innovation is driven by the twin pressures of competition (wind) and regulation (water) on the teams (keel).

It is hard to see organisations such as the CBI, to which Porritt unsurprisingly gives short shrift for its kneejerk rejection of all regulation, in the role of an F1 team, welcoming new regulation as a stimulus to innovation, leading-edge branding and new partnerships. In fact, it is an irony of the present situation that trade and employer associations find themselves in the parodic position of denying capitalism’s adaptability while progressives who have for years ignored this quality have turned into its most enthusiastic supporters. Writes Porritt: ‘What one suspects they don’t like is the idea that the self-same market forces that they venerate may well turn out to be the most powerful driver of change in our inevitable transition to a sustainable economy.’

It’s true that in this vision many large companies would be propelled out of their comfort zones, obliged by competition to focus much more on the dynamic processes of innovation than the static ones of collecting rents on their existing advantage.

But some leading companies have already made this step. GE is not a name that springs readily to environmentalists’ lips, but (crudely) its decision earlier this year that saving the planet was great business was more significant than the totality of corporate responsibility programmes to date.

Belying the whingeing of corporate pressure groups, companies like GE and some of the motor companies are now calling on governments to tighten environmental regulation to level the playing field and prevent rivals from free-riding on low minimum standards.

Naturally, this is in their commercial interests. But that’s the point. As Porritt emphasises, looking for significant results from corporate responsibility is pointless – it’s a distraction and a fig leaf (not least for governments) at best when the current rules of the game, entirely financially framed, make bad behaviour rational. As with F1, what’s needed is rules – comprising both carrots and sticks – that bend the purpose of the whole system to competitive innovation and make bad behaviour irrational. And only governments can frame those.

Just how far there is to go in this respect – and just how far governments lag behind the leading companies – was illustrated last week when the Chancellor casually tossed aside the requirement for firms to include an operating and financial review (OFR) in their annual reports. The OFR, in preparation for years, is just the kind of statement of long-term sustainability that is needed to complement the financial snapshot.

Despite its initial promises, bringing the government to sticking point on the environment will be tough. In the meantime, Porritt is right to emphasise the opportunities in sustainable development rather than the well-rehearsed Doomsday scenarios. As the environmental movement has learnt the hard way, proving that a course of action is wrong isn’t enough by itself to change anything.

Porritt’s book is a brave and important working draft for an essential positive alternative. It’s not always an easy read – but then saving the planet isn’t trivial either. As the distillation of unparalleled experience on the frontline and formidable reading, it is the best account of where we are now and how we might move ahead. He’s right that the world matters and right again that saving it requires us to recycle rather than throw away every scrap that we’ve learnt about managing companies and markets.

The Observer, 4 December 2005

ACCORDING to a study by the consultancy Booz Allen Hamilton, of all the value destroyed by the largest US companies between 1999 and 2003 (including Enron, Tyco and friends), just 13 per cent was the result of failures of regulatory compliance or board oversight. Eighty-seven per cent was caused by strategic or operational error.

In other words, investors’ health is, now as ever, at much greater threat from managerial cock-up than conspiracy. As Bob Garratt, visiting professor at Cass Business School, puts it: ‘Think of Marconi, Equitable Life and Morrisons – the issue here isn’t financial propriety, just basic competence.’

Yet, over recent years, the governance agenda has increasingly been driven by the former, impropriety. Britain was the early leader in code-setting: starting with Cadbury in 1992, through Hampel, Turnbull and finally Higgs in 2003, a succession of reports and ensuing codes have elaborated and refined the apparatus of corporate control.

Other jurisdictions have enthusiastically followed: there are now 273 governance codes in place around the world, according to Garratt. The current culmination of this trend is the US Sarbanes-Oxley Act, Sox for short, which takes a giant step further by making executives personally responsible for signing off the accounts, on pain of criminal sanction.

Now investors need to be protected from fraud, of course – but the effect is nullified if the cure exposes the patient to an even greater hazard. The results of governance’s reverse Pareto effect (spending 80 per cent of attention on the state of the stable-door lock and 20 per cent on whether a contented horse is still inside) are now coming home to roost.

Interviewing chairmen, directors and other usual suspects for a new report, The Role of the Board in Creating a High-Performance Organisation , researchers John Roberts and Don Young found that the constant pressure on boards to spend more time on investor relations and meeting regulatory requirements was diverting attention from strategic and operational issues, thus perversely increasing the chances of corporate failure.

This likelihood was greater for those boards that they characterised as ‘investor-driven’ – that is, highly reactive to often conflicting short-term shareholder pressures and in which non-executives were cast in a primarily policing, compliance role. By contrast, ‘strategy-led’ companies aim to resist short- term City pressures in favour of long-term improvement. Their boards operate as a unified team, and non-execs are expected to be more than policemen, adding value by acting as a resource whose distinctive knowledge is available to the rest of the business.

Everyone agrees that the intentions behind the codes were good, but, especially in the US, regulation has gone ‘miles too far, as even the Sox authors acknowledge’, says Garratt. The orgy of box-ticking has ‘developed into a bonanza for the people who got us into this mess in the first place, who are gold-plating the already onerous requirements. This is the theatre of the absurd.’ Not only is compliance expensive – pounds 50 million and up for a UK firm, says Garratt – but it is also eroding the propensity to take risks. Sarbanes-Oxley is a greater threat to capitalism than Karl Marx, he concludes.

The effects are less marked in the UK, where the codes explicitly mention the need for boards to contribute to strategic direction. But the direction of travel is inexorably the same. This is not surprising, since all contemporary corporate governance principles share the same theoretical underpinnings: the enormously influential agency theory.

In brief, agency theory suggests that the prime role of the board is to ensure that executive behaviour is aligned with the interests of shareholder-owners. Otherwise, self interested managers will use their superior information to line their own pockets. This is the justification for the separation of the chairman and CEO roles, huge senior executive salaries, the overriding requirement for non-exec independence, and much more.

Putting the theory into practice, however, has revealed at least three main faultlines. First, prescriptions based on it don’t seem to work. ‘Good’ governance according to the codes may or may not prevent fraud (Enron ticked all the boxes at the time), but it doesn’t by itself stop catastrophic strategic mistakes nor is there any evidence that it improves performance. As the report notes, governance is necessary but not sufficient to create high performance.

Second, the theory is viciously self-fufilling. As even its main progenitor, Michael Jensen, now acknowledges, the share options that he advocated as the remedy for agency problems didn’t so much align directors’ self-interest as create it. They generated perverse incentives for fund managers and executives first to collude in hoisting share prices above their underlying value and then to use any means to keep them there Enron, again, and the internet bubble are the classic examples. It encourages the idea that, opportunism and greed being the norm, anything that isn’t explicitly banned must be OK this, in turn, justifies the need for even tighter controls. Hence Sox.

Third, even the description of market actors as agents and principals collapses in today’s market conditions. Where there is a reported 90 per cent churn of FTSE stockholdings annually, the idea of ownership and the primacy of shareholder rights, the fountainhead of agency theory, simply dissolves.

Paradoxically, if we want companies to create value rather than destroy it, boards may need to pay less rather than more attention to corporate governance as it has come to be understood. To be clear, this is not a matter of ignoring investors, but of creating their own code and thereby snapping the cord that is too often used to yank investor-driven boards around between conflicting priorities. Boards’ first responsibility is the long-term sustainability of the organisation, not complying with investor demands for certain kinds of board structure and composition. Good governance is a means, not an end not just about seeking conspiracies but averting cock-ups, too.

The Observer, 27 November 2005

PETER Drucker, who died last week just before his 95th birthday, once said that the 20th century would have been impossible without management. It was a typical Druckerism: no one before him would have conceived of management in such large, even flamboyant, terms – and in doing so he helped to make it come true, with all that that means in terms of both good and ill.

As he proclaimed himself (he was never one to hide his light under a bushel), Drucker was the first to identify management as a distinct function and managing as distinct work with its own responsibilities. In Concept of the Corporation (1946), an analysis of General Motors, he put forward a seminal view of the company as not just an economic but a social entity (GM, in the middle of a bitter 113-day strike, hated it and tried to have it suppressed).

He also claims to have given currency to such now-familiar terms as ‘post-modern’, ‘privatisation’ and ‘knowledge work’. He predicted a time when companies would be owned by employees’ pension funds (‘pension-fund socialism’), wrote presciently of corporate responsibility long before it became a fashion, and was way ahead of the field in picking up the importance of not-for-profit organisations (the focus of his eponymous Foundation, set up in the 1990s).

For all these things he is unreservedly lauded. At Judge Business School in Cambridge, Charles Hampden-Turner, a seasoned international observer, notes that he was a guru before there were such things and his work as a consultant pre-dated academic striving for ‘relevance’. ‘He got there long before anyone else – the work he did half a century ago is remarkable,’ he maintains.

Charles Handy is another admirer. ‘Drucker was the great conceptualiser,’ he says. ‘Management research looks backward he was able to look forward. He had the gift of seeing the future in the present and showing us what it was.’

Part of Drucker’s authority derived from his experience and the extraordinary range of his reference, uncommon in business. Born in Vienna, where his family knew Sigmund Freud and the great economist Joseph Schumpeter, Drucker as a student interviewed Hitler before being forced to emigrate from Frankfurt, where he was by then working, after he had a publication burned by the Nazis. Together with his great cultural and historical erudition, this experience provided a unique framework for his ideas on management.

Management, as Drucker saw it, was a ‘liberal art’. Of course, profit – a tax on the present to provide for the future – and the disciplines to make it were absolutely necessary. But profit did not justify itself: ‘Free enterprise,’ he wrote in The Practice of Management (1954), ‘cannot be justified as being good for business. It can be justified only as being good for society.’

For Drucker, the heart of management was people – orchestrating individual effort so that it became more than the sum of its parts, amplifying strengths and neutralising weaknesses. Management was thus the dynamic, lifegiving part of business but more than that, it had a stewardship role, as protector of institutions from ‘the dark forces that lurk just beneath the thin veneer of civilisation that we had thought to have repaired during and after World War Two’.

There is some irony here. On the one hand, Drucker is venerated by his peers and regularly tops the poll in surveys of the most respected management thinkers. ‘Drucker comes in head and shoulders above everyone else,’ says Des Dearlove, of Suntop Media, producer of ‘Thinkers 50’. ‘In a fad-driven industry, that’s a remarkable achievement.’ On the other hand, never have his views about business been less fashionable.

Although a professor of management for half a century, Drucker was never a conventional business academic, and his brand of ideas-based rather than research-based scholarship – what the late Sumantra Ghoshal termed ‘the scholarship of common sense’ – was increasingly edged out of the mainstream as business schools tried to turn management into a science.

Drucker himself was aware of this, and made no secret of his disapproval. ‘I am not a fan of business education in its present form,’ he observed in 1999. ‘Management education has focused far too much on (a) being academically respectable, which means forgetting that management is a practice, not a science, and (b) believing quantification is management.’

He admitted being ‘appalled – and rather scared – by the greed of today’s executives’. ‘I have said frequently that it is both obscene and socially destructive for chief executives to get a $20m bonus for firing 10,000 workers,’ he said. ‘And I am not impressed by the way many businesses – including old friends and clients of mine – are being managed.’

But this too is part of Drucker’s complicated legacy. Among his other firsts, he invented not only the importance of management but also, perhaps inevitably, the importance of managers – with less favourable consequences. As Chris Grey of Judge Business School points out, Drucker was uniquely of his time and place, and when in the 1950s and 1960s he held up to corporate managers the flattering mirror of themselves as new cultural and economic heroes, they were dazzled by what they saw.

That they revelled in the image, but progressively trivialised before abandoning the humanist substance that Drucker had erected to carry it, was not his fault, but it was deeply wounding. There is similar ambivalence around management by objectives – perhaps his most famous management prescription. While many admire the negotiating of individual and corporate aspirations that were characteristic of his original version, others believe that with hindsight it was the first step on the road to the crude regimes of rigid imposed targets and quantification that he hated and that dishonour so much management today.

Drucker, says Henry Mintzberg of McGill University, was indeed ‘the father of modern management, with everything that that entails. His contribution was phenomenal. He was also a wonderfully warm and engaging human being.’ As Mintzberg suggests, the contribution and the humanity go together. If managers are to make sense of their difficult inheritance, they will need the latter attributes just as much as the business insights and wisdom of the founding pioneer.

The Observer, 20 November 2005

I F YOU had to write your organisation’s obituary, what would it say? Would there be any mourners? Has it made any difference to anyone? Would the world be worse off without it? Would anyone actually notice?

Faced with this question, say Klaus Fog and Christian Budtz, most chief executives are struck dumb, with no idea how to reply – a telling indication of the tenuousness of their companies’ hold on their purpose and meaning. If those inside the firm cannot encapsulate the core story, how can those outside be expected to understand it?

Both Fog and Budtz, of the small Danish communications group Sigma, believe that in a world of trivia, artifice and information overload, ‘the story’ is critical not just to a company’s brands, but to its whole existence. In most companies it is lost under accretions of history and bureaucracy it takes the obituary test to uncover and reinvigorate fundamentals.

Together with Baris Yakaboylou, Fog and Budtz have written a book about their findings (Storytelling: Branding in Practice, Springer). Significantly, Fog and Budtz have a newspaper and media background, but for all of them ‘the story’ is primordial.

The argument goes like this. In the West, we live in a world of material excess. Almost everything is in oversupply and whatever it is, you can probably buy a knock-off Chinese version that is cheaper and not much inferior to the original (which was probably made in China anyway).

Given this, traditional marketing methods lose their effectiveness, which is why so many brands are in trouble. This is partly a matter of messages becoming lost in the clutter – each consumer is exposed to an estimated 3,000 messages a day, almost all extolling a product’s features and how much better it is than rivals. But more importantly it is because, while companies have not changed, we have: we are not even listening to this kind of advertising any more.

Fog and Budtz invoke Abraham Maslow’s hierarchy of needs: consumers’ physical needs having been satisfied, they are now looking for sense or meaning, something they can use psychologically to realise their own potential.

Here is where the story comes in. Stories go back as far as humankind, for the good reason that the world is incomprehensible without them. By establishing relationships between things, a story permits meaning and memory. Plain lists are notoriously hard to remember: stories and theories act like mnemonics, allowing elements to be strung together and interrogated. Uniting emotion and intellect, stories can recount a complex technological narrative with breathtaking economy.

An example. A journalist in San Francisco is trying out his iPod as he waits for a bus. A young woman joins him at the stop, also with an iPod. Observing her neighbour, she wordlessly switches their earphones, so each is suddenly listening to the other’s music. As her bus arrives, she switches the earphones back, flashes a smile and is gone.

Now, some people will hate that story. But, says Fog, it encapsulates Apple’s cool ease of use in a way the company has never been able to do with its computers. No accident then that only now is the Mac making inroads into the Microsoft-Intel dominance as it bathes in the radiance of the iPod halo.

The important story can come from almost anywhere. What first drew Fog’s attention to the phenomenon was the launch of the world’s first digital hearing aid in 1997. Developed by a then little-known Danish company, Oticon, the device was presented as a ‘computer in the ear’ devised by the best audiologists and computer specialists. However, to the company’s surprise, in testing users reported not only that they could hear better, but that they experienced an unexpected flush of well-being. How could that be?

A neurologist friend of the CEO identified it not as a psychological but a physiological effect. With the computer filtering out the extraneous noise, the brain is freed up to do other things, such as noticing the surroundings, the food being eaten, and so on.

The scientific story was picked up by the Washington Post and then other media. By launch time, the company had a full order book and a reputation as a digital pioneer. Its stock price trebled in a year.

Underlying these stories are several key points:

* the story must be authentic: with all that practice, consumers home in on bullshit

* a corollary of the above, the story comes first. It cuts across the silos of marketing, sales and advertising

* the story is ‘out there’ – it’s a question of finding not creating it (a good place to look is the customer-service department’s filing cabinets)

* you cannot control it: it’s what consumers do with it that matters. ‘Viral marketing is having a good enough story to tell your friends,’ Budtz says. An unfavourable story travels as fast as a favourable one, maybe faster.

Of course, storytelling has always been part of marketing. In public eyes, 3M was a boring industrial company until the often-told invention of ‘Post-it’ notes established it as an innovator. It could be argued that the whole global bottled-water industry is ultimately built on the legend that 2,000 years ago Perrier was an essential ingredient of rest and recreation among the Romans.

What is new is that a brand without a narrative has literally lost the plot. On the other hand, with a strong enough story it can not only survive but rewrite its own obituary. The cult notebook Moleskine, now expensively on sale at a stationer near you, has served as a jotter for writers and artists from Van Gogh to Hemingway. Bruce Chatwin never undertook a journey without a stock – until the small French manufacturer stopped making them in 1986.

‘Now,’ recounts an insert in the revived version – a perfect example of the product-as-story – ‘the Moleskine… has set out again on its journey. A witness to contemporary nomadism, it can once again pass from one pocket to another to continue the adventure. The sequel still waits to be written, and its blank pages are ready to tell the story.’

The Observer, 13 November 2005