Are we really being business-like in the arts and cultural organisations where we live?
For many years I have decried the narrow outlook of many people when they think about future options. Thinking is confined to the narrow discipline in which they work, what is thought appropriate behaviour in that discipline or industry. In some areas in which the focus is solving problems and advancing understanding this need not be a problem. Think of quantum physics and astronomy, genomics and brain science, though they are not entirely free of internal squabbling and denials of new truths. We can learn a great deal from studying organisations in other domains.
Thinking narrowly is regression down blind alleys. Worse, in the extreme what is listened to is what agrees with notions already held: new information is not accepted if it is disagreeable. What we end up with is a failure to innovate, to bring new thinking to problems: something quite different from what happens in really successful organisations where seeking out even whacky solutions is the norm. Innovation involves putting together ideas that previously were unconnected as Mark Dodgson has pointed out in excellent talks on ABC RN’s Ockham’s Razor and the Science Show. That carries inherent risks. Any organisation which is risk averse will not be innovative. That is not well understood in Australia and the notion that it only occurs in the private sector is a myth, as pointed out by Professor Mariana Mazzucato of Sussex University in her recent book, The Entrepreneurial State.
Narrow thinking typifies much of what passes for leadership and governance. Understanding human behaviour is usually more difficult than in some of the hard sciences, a feature that Einstein and others have noted: they preferred to study physics and maths. Seemingly unlimited variation in human behaviour makes dangerous the attempts to predict what people are likely to do in any situation. This is something that contemporary writers such as Nicholas Nassim Taleb (in his book Antifragile: Things that gain from Disorder (Penguin, London, 2012)) and behavioural economists have noted. The capacity to cope with ambiguity is at the heart of genuine leadership and successful governance. In other words, the call for certainty heard in some business circles is a nonsense.
In human behaviour, in attitude formation, people are more likely to rely on their own individual experience than on evidence from study of other people’s behaviour or events. The same is true when it comes to accepting or rejecting the arguments advanced by reputable scientists, arguments often, though not always, derived from repeated testing of theories properly framed. Hence the mess in the debate about climate change. The same is true of economic judgements and transactions which we are offered on the daily media: opinions based on preconceived views and often addressing an unknowable future. Which is why market economics is largely a myth. A dangerous one at that.
Overwhelmingly current policy making in many countries continues to embrace the paradigm of neoclassical economics despite the many flaws more and more evident every week. Reform of government, for instance, continues to hold out the promise of privatisation of functions as a solution. The simplistic notion is that the private sector, driven by the profit motive, will always be less costly because it is more efficient. That the services and functions once delivered to the needy as well as the well off might not now be delivered or that social justice would be removed from the reach of the disadvantaged is ignored. Tony Judt wrote about this in ‘What is Living and What is Dead in Social Democracy’ in the New York Review of Books five years ago.
Business is driven to efficiency so as to compete more successfully when there are competitors, by definition. Monopolies, such as most government enterprises like utilities and social services, don’t become more efficient when run by the private sector unless they no longer serve those unable to pay. Quite apart from seeking to drive up prices because there are no competitors. Quite apart from governments agreeing to pay private operators when they don’t make a profit. Where is the risk that might justify a higher price? Historians and philosophers like Tony Judt and economists such as John Quiggin, amongst almost countless observers, have pointed out the flaws of neoclassical economics.
As Simon Longstaff of the St James Ethics Centre in Sydney said recently (in the ABC RN’s ‘Big Ideas’ for 28 May 2014 program ‘The Luck of Fools’), calling for economic justifications of everything is like the advocates for cessation of slavery using economic gain as the most important reason for its abolition. Tony Judt attributed this marginalisation of social democracy and embrace of small government to refugees from war torn Austria including Friedrich Hayek and Joseph Schumpeter who saw it as a way to prevent totalitarianism. Their views were taken up in the USA where people easily accepted the view that individual freedom was the most important goal of society. Social democracy and its care for the relatively disadvantaged has come to be considered socialism, requiring higher taxes which the citizens do not wish to pay.
But the variability in human behaviour does not mean we don’t know anything useful; more importantly it is entirely unhelpful to simply accept as true what those who are in charge at any one time have to say without checking it out. The conduct of war and indeed the conduct of any group of people in a business or a school or an army provides numerous examples of judgements based on poor analysis, or even none at all! The question is whether the analysis of the behaviour has been rigorous or simply involved cherry picking those features which conform to already held beliefs. Think of Gallipoli, the Bay of Pigs fiasco, Dien Bien Phu, Srebrenica, the Global Financial Crisis or the decisions of the US to involve itself in almost every country, as Malcolm Fraser has most recently pointed out in his recent book, Dangerous Allies (Melbourne University Press, Melbourne, 2014).
We can make valid generalisations as Daniel Kahneman in Thinking Fast and Slow (Farrar, Strauss & Giroux, New York, 2011) and others have shown. Kahneman and his colleague Amos Tversky were able to demonstrate, for instance, that people were usually more likely to choose not to lose in a situation but likely to accept the possibility of large gains even if the probability was low. Their Prospect Theory won the Nobel Prize for Kahneman; Tversky had died before the Prize was announced. Behavioural economics also tells us outstanding achievements one day are unlikely to be followed by even better performance the next because of the influence of chance. Structured analysis of the demonstrated achievements and abilities of prospective employees are more reliable than intuitive judgements (or opinions of referees). And so on.
The big problem is that very little notice is taken of the research. Preconceived notions trump evidence! The approach taken by management courses asserting that management everywhere is management, no matter the domain, have failed dismally since unsurprisingly the approach does not take account of the different attitudes and backgrounds of those involved, the producers, consumers, constituents, not least the people with most influence on the industry as I have said elsewhere.
Managerialism is clearly not what it was held out to be: domain knowledge and authentic leadership characterise successful organisations. But in thinking through problems and opportunities solutions are usefully found outside one’s own domain could seem to be a paradox. The rationalisation is that effective application of solutions requires consideration of the environment in which the solution is being applied. Simply importing in pristine condition the solutions which worked in other domains to problems which seem at first glance to be the same is simplistic and most likely will lead to failure.
Consider governance. Boards are supposed to hold the people actually running the business to account. At the extreme, directors are exhorted to exercise oversight because executives are more than likely to act in their own self-interest rather than the interest of the company’s shareholders or, in the case of a government or nonprofit organisation, the constituency which the organisation is supposed to serve. And the taxpayers. That oversight based on such a view is likely to produce resistance and avoidance behaviour by the executives is a major conclusion by distinguished management expert, the late Sumantra Ghoshal.
Ghoshal was also a trenchant critic of matrix structures as causing endless confusion. Restructuring – matrix organisations can be one device – is a blunt instrument to apply in trying to achieve coordination. There are all kinds of ways of getting those people who should talk to each other and work together to do so; providing a variety of experiences through ensuring that career progression involves working in different kinds of tasks is one way; in knowledge organisations having people present seminars on topics outside their own field is another. Canada’s Perimeter Institute is just one example. High risk with high returns over the longer term.
Arts and cultural organisations are as likely as any other group of organisations to confine their thinking about these issues of leadership and governance to what they know about similar organisations rather than looking further afield. Like educational institutions, they have in the last 50 years been exhorted to behave more like businesses. In pursuing this new “appropriate” behaviour they have taken to management seminars and discussions and brought on board supposed experts in human behaviour. That is what business does. The more than unsatisfactory outcomes which result are less well known than they should be.
Outcomes have included psychological profiles and intuitive judgements delivered by people in charge. Human relations departments have often delivered seeming irreversible opinions about hapless employees and put in place processes leading to decisions on appointments and promotions that failed to identify the most appropriate people; worse outcomes than the flawed intuitive judgements previously made.
In identifying best practice far too much attention can be paid to what is termed reputational analysis. Appropriate lessons are thought to be found by studying the behaviour of those in charge of projects considered successful or most often the accounts of behaviours and interpretation of the outcomes promoted by those claiming credit. Surely their behaviours are ones which lead to the observed success. Sometimes they are. Sometimes a great deal of luck is at play or critical influences were not obvious. Experts travel from conference to conference reporting on how they overcame problems, grew the business, expanded their market share, all now things which arts and cultural organisations, for instance, are exhorted to take on board.
Thus at such a conference someone might speak of the difficulties faced by large boards representing different constituencies. These are thought to encourage community participation, whether they are politically or geographically based or based on specific disciplines. In Australia the structure of many organisations reflects the federated nature of Australia’s political system. Achieving decisions to which all are committed in such large diverse boards can be as difficult as achieving commitment amongst the political leaders of the states and Commonwealth. The issue is not irrelevant but the question is the strategy to overcome whatever is holding up progress. That is seldom explored or the likely solution branded unworkable. Think of the United Nations. One court judgement mandated that directors were only responsible for the organisation of which they were a director, not those from whence they came. That is not a universally applied rule which obviously leads to problems. Think of the European Union.
And discussions of how arts companies can more effectively promote themselves through the media might involve mere recitation of the alleged “successful” strategies. Whether behaviour of media gatekeepers is part of the problem and how that might be addressed through discussion of what arts contribute, as opposed to the usual arid rhetoric about elistism, is not dealt with.
That people are more likely to adopt behaviours recommended by people they trust is an important point made by that wonderful American surgeon and writer Atul Gawande. The strategic solution to achieving better publicity might be to build trust amongst the arts media as a whole by overcoming prejudices.
Rather than listening to the views of those in charge in similar organisations, who quite likely have not themselves considered situations outside their own industry, useful lessons can often be found by examination and discussion of situations in other domains which have been studied and analysed already.
Consider industrial relations. Much of business practice sees solutions to employment problems such as inefficiency, inappropriate behaviour or resistance to change as a mix of seeking wage minimisation, restructuring or gaining greater prerogative to dismiss employees considered unsatisfactory. In some domains, including government practice, unions are more active than in much of the private sector. They have responded by seeking to limit the opportunity for managers to dismiss staff for whatever reason. What is much less common is putting in place effective performance management systems which are agreeable to employees and managers alike. But whatever the practices, they only are applied if the employers agree: too often they fold under intimidation or in the belief it will give them a quiet life. Plenty of analyses show this but ignorance continues.
Automating tasks and recruiting temporary or casual staff avoids the hard work of people management, the very thing that makes a really good organisation successful. Too many in the upper echelons of the public sector have gone along with inappropriate practices which they believe the private sector employs. In fact the most effective private sector enterprises have very detailed recruitment and performance management systems. Unfortunately, many businesses have deserted their obligation to provide training to new employees, instead demanding that government-funded post secondary education do the training. Or temporary immigrants “solve the problem”. Not even computers arrive at work ready on the first day!
Managerialism has led to adoption of the worst practices of the private sector with the familiar inevitable results. The last 30 years of downsizing of government departments has revealed almost every week failures to adopt superior practices as the best and brightest have departed under voluntary redundancy schemes leaving behind people with limited capability in a poorly resourced organisation run by executives distracted by never ending demands for accountability.
The years since the Global Financial Crisis have been very difficult ones for many countries and their citizens as the irresponsible actions of financial institutions resulted in near total collapse of the system. Governments were persuaded to fund bailouts in order to prevent total failure of companies that were “too big to fail”. Six years later banks that received substantial funds from governments to rescue them – with resulting hardship visited on the citizenry – are paying bonuses as high as ever to their executives, resisting reforms to limit risk by restructuring their activities as strongly as ever and lending less to projects to expand opportunities in housing and infrastructure and many other areas. They are instead putting a lot of money into high frequency trading which brings lucrative returns in a manner as opaque as that surrounding their promotion of instruments such as credit default swaps that led to the GFC in the first place. And the tulip scandal and land under water of earlier scams.
Michael Lewis is amongst the many authors who have studied these events and behaviours. His books The Big Short and Flash Boys have become best sellers. The former is the basis of the film Margin Call starring among others Kevin Spacey, Jeremy Irons and Demi Moore. This highly regarded film by writer director J.C. Chandor, was reviewed by Christopher Orr of the Atlantic magazine for October 21 2011. It was considered amongst the best films of that year.
Margin Call depicts two days in which very dangerous trends in trading by a Wall Street financial firm resembling Lehman Brothers are discovered by a risk analyst who, as the film opens, is being “let go”, action which he observes is a strange way to begin layoffs. It emerges that the analyst was correct: the firm is in fact exposed to losses exceeding its entire capitalisation.
The CEO is called back to the office late at night by staff colleagues of the just dismissed analyst. More senior colleagues are called in as the situation is further considered. The chairman, Tuld (Jeremy Irons), is called and arrives in the middle of the night by helicopter. A meeting is held, the results of the analysis presented to Tuld. The sacked risk analyst dragged back to the office is asked to speak in English, “Speak as you might to a young child, or a golden retriever,” Tuld says. Orr observes, “It is a disaster movie, in which even the Masters of the Universe are running for their lives… the film is less a portrait of individual malfeasance than of systemic, cultural failure”.
The drama of the situation is immense: questions of loyalty, honesty, truth, previous revelations and actions taken are confronted. Or not. Realising the appropriate strategy to overcome the crisis ends up trashing the option of more detailed analysis which would take weeks. It turns out that the likelihood of this crisis had been explained to the chairman a year earlier. But now denied. The chosen solution is to sell off the soon to be worthless holdings to other unaware brokers. For a bonus.
We have seen this before of course, for instance in such films as Charles Ferguson’s documentary Inside Job with its chilling revelations of financial executive and consultant behaviour in the crash which led to the GFC. Tom Wolf’s Bonfire of the Vanities is fine for laughs at the hubris of the Masters of the Universe but doesn’t capture the corruption, the arrogance of academic consultants unable to recognise the need to reveal who is funding their investigations.
And here is the point. These are situations that all boards confront. They are not ones confined to financial institutions or the Global Financial Crisis. Every board has to face up to emerging problems like those depicted in these books and films. They are not ones which can be put down to the inevitability of board structure, they are not properly sheeted home to having to trust the advice of the CEO or the Finance Director. And they aren’t solved by executives refusing to acknowledge that they had already been told of the consequences of proceeding with the strategies which have now led to disaster.
And the solutions cannot be ones which satisfy the existing CEO just because he or she was appointed by the Board and to not accept the CEO’s recommendations would suggest the appointment was inappropriate and so would reflect badly on the directors. And perhaps of greatest concern, the decision cannot be accepted because it is too technical or because to not accept it would be tantamount to interfering in management.
Determining the appropriate agenda and ensuring that the really significant issues are to the fore is as important to every board as they are to the Head of State about to chair a major international meeting. The effective board does not involve themselves in doing the leadership and management for which the executive is hired. But the effective board does have a process for reviewing the practices which conform to those which typify the organisation they wish to become.
Too few boards understand their role and how to exercise it. Too few boards take note of the substantial very good literature based on serious studies which point the way to what it is that does work, in appointments, in conduct of meetings and in decision-making. Too few boards acknowledge their accountability for failed corporate performance as they collect their large fees. And boards are often at much at fault as are the executive they oversight in their failure to put in place proper performance management: they have none of the lists recommended by the aforementioned Atul Gawande. The chair seldom ensures participation by all members, seldom encourages contribution and hardly ever applies sanctions when necessary. It is like the school classroom where the same students put up their hands to answer the questions: the result of that is only some students learn and the teacher is properly judged to have failed!
Instead of checking indicators of executive and board conduct which accords with the culture and outcomes and the authentic leadership they should be espousing, they fumble around the structure of the agenda and accept the reports of the financial situation – surely not the most important issue – hardly stopping to genuinely seek understanding of its meaning. They don’t ask whether the practices they are reviewing are likely to produce the financial (and other) outcomes they see as appropriate given the nature of the business and the environment in which they are operating. Financial success derives from effective exploitation of unexpected opportunities, not simply from tight cost control. In other words, the financial outcomes are secondary, not the main game. The same applies to governments. It is no use framing budgets, with all the hoo haa that goes with that, without making clear what kind of organisation, or society, one is intending to advance. Treating budgets of organisations and countries as one would treat one’s household expenses is entirely invalid: the analogy might be appealing but the reality of such an approach is a deceit.
Meanwhile expansions or contractions or new ventures which should or should not occur proceed anyway and the executives are relieved that they have survived another board meeting.
Instead of lessons from supposed successful persons currently thought to be successful, the effective executive team and the responsible board will regularly examine and discuss and debate the lessons which can be drawn from actual documented and analysed situations drawing such conclusions as are considered valid only so long as every view has been heard and every view countered and other views brought to bear if necessary. A lesson, and there are many, might be the debate in the White House at the time of the Cuban Missile Crisis. As people talk through their perceptions of these situations they come to a greater understanding of their own organisation and the dynamics of its culture and environment. Or the discussion might centre on the film Margin Call and the numerous analyses of the GFC and subsequent events, the decisions by governments, the responses of institutions, the behaviours of lawyers and industry spokespersons.
Conversations are important. Remember that story of how a board asked to conduct a conversation about the trends in their business and what might be the future opportunities had difficulty talking for more than a quarter of an hour? But when they were asked to talk about the company’s financial trends they could talk on for hours. Financial success derives from exceptional success in the business which the enterprise was established to conduct, not from attention to the money. Which, as Peter Drucker once observed, basically comes down to nothing more than tight cost control anyway.
In his latest novel, Flash Boys: Cracking the Money Code (Allen Lane, London 2014), reviewed, for instance, by John Lanchester in the London Review of Books, Lewis reveals how people from completely unrelated disciplines can unravel the key issues in the probably illegal high frequency algorithm driven trading typifying today’s Wall Street. These studied situations of financial collapse and political bravado provide opportunities for analysis and discussion which can reveal lessons much more useful than the received “wisdom” of economic and political pundits derived from we know not what! Except that it is the wisdom of those currently in positions of influence and therefore thought to be successful!
 This observation serves to highlight one of the most important aspects of the conduct of business enterprises, and those such as government agencies which have been overtaken by the business ethic. Notions such as maximising the wealth of shareholders have overtaken the vision of business enterprises and government agencies supplying goods and services not other wise available in “the market” or community: billions of words have been written suggesting various arcane pursuits in the name of leadership which completely ignore the way in which groups of people work and what in fact motivates people to act.