Despite a litany of corporate failures there remains an obsession with growth driven by shareholder value which when you cut through the jargon actually means greed. In many ways the greed of shareholders is eclipsed by the greed of executive directors who communicate publically that their aim is to grow the business for the good of all concerned on the premise that growing the business is good. Yet, as we have learned and experience regularly, executive directors are often more interested in growing their own wealth base and achieving this very quickly. The old Japanese style business model which set out 1,000 year plans have been replaced with 'here and now' planning. In the UK the Thatcher years replaced traditional five year planning cycles with twelve month planning cycles. Within ten years this became a three month planning cycle; today it is almost hourly.
Generic expansion having proven to be a slow process, modern expansion strategy is fuelled by takeovers. Takeovers allow a company to grow both revenue and profits instantly giving the impression of good management. Inevitably the underlying problems of combining disparate businesses into one come to surface but by this time those who have been rewarded for stellar growth have moved on; or retired to their place in the sun; or have been locked up - but not without significant pay-offs. The staff and management of businesses taken over have little in common with their takeover masters and as a consequence of losing out on real senior management power bide their time for revenge.
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The obsession with business expansion is often explained by the maxim 'if you're not growing, you're declining'. Business schools back this up by charting the typical life cycle of products and businesses, suggesting that merger and takeover activity will lengthen the upward curve. However within a very short time-scale the absorbed profits of the newly acquired enterprise become history, and the new financial year is replaced with the dawning reality of increased costs of running an increased business. Head office becomes monolithic and tensions between those at the front end and those cosseted by a lack of customer exposure increase dramatically.
Sometimes the takeover gravy train comes off the rails as either availability of takeover targets dry up or the amount of money needed to fund them reaches such a colossal level that it is seen as financial suicide to continue. Sometimes the aphrodisiac effect of these immense deals become so potent that they go ahead anyway but soon after the whole thing unravels and both the target and the predator collapse. In some situations, expansion is fuelled by partnerships and franchise arrangements. However these take far longer than quick conquest and involve patience, hard work, and recognition that profit has to be shared for this to work and sharing is not something which is common in the recent corporate world. Yes, the sound bites may say 'we're all in this together' but when it comes to financial reward that's not the case.
It does not take a genius to work out that if I am working as hard as I can, but I am being paid a fraction of my bosses who appear not to care whether I turn up at work or not, my motivation will be low. Not just that, I learn to agree with everything and say yes to everything, and play the part of a loyal and committed worker, but I also learn that the most important person to look out for is myself. This is after all what I learn from my leaders.
At higher levels in many organisations motivation is extremely high, but often not in the way that leaders hope. The game in head office is to expand personal empires to the detriment of peers. More staff, bigger offices and larger budgets become the trappings of success. Energy is expended on beating internal rather than external competition. It is often the case that when senior executives retire they are ill-prepared for life in the real world, as the only plotting they become involved in is who gets stuck with putting out the recycle bins on Thursdays.
The focus on short-term profitability and growth allows executive directors to amass fortunes in bonuses and shareholding undreamt of in the more austere approach of the past. The long haul is rejected in favour of the 'I deserve this now'. Whilst there are only twenty four hours in any day whether you're the chairman or the janitor, the disparity between the value of those twenty four hours for those at the top and those at the bottom of the organisation becomes so glaring that it creates fractures across the whole organisation; some obvious, most hidden. It's easy to see your enemy if they come out in the open, but the latter part of the twentieth century and the early part of the twenty first century clearly demonstrates that if you have fewer resources than the ruling class, coming out in the open is not a good idea. Which is why guerrilla warfare is the most difficult to tackle.
As with Emperors, Dictators, and Prime Ministers, senior management eventually begins to believe they are infallible and those around them feed that illusion in the hope that some of their godlike aura may be transferable. They begin to act as though only they know and truly understand the meaning of business and how to make it grow. Decisions begin to be made with little or no reference to the reality of the workplace and rely heavily on employing highly expensive advisers to tell them what they want to hear - that they are visionaries, and that they will be enrolled into the legend that is the company.
In the financial services industry, where the availability of money makes it easier to spend and amass fortunes, collapse of organisations such the Royal Bank of Scotland (RBS), Anglo Irish Bank, Northern Rock, and HBOS are classic examples of corporate blindness towards risk and personal responsibility. It is easy to be reckless when it does not involve your personal money. Even failure is rewarded by handsome pay-offs, but only if you are at the top.
We appear to know nothing of history - of a plethora of short-lived rulers who thought they knew it all and forgot what it was like to be at the bottom of the pile. Whilst it may seem ridiculous to us now, many Roman Emperors either believed themselves to be Gods or were promoted to Godlike status during their short lifetimes by those closest to them. This phenomenon has been repeated across numerous empires. Consumption of nectar and ambrosia is not a good diet for stimulation of common sense and awareness that not all is well around you. Euripides said 'those whom the gods wish to destroy they first make mad'. And is it any different now?
Recent history is littered with the Gods of industry and banking, once hailed as heroes in their own land, who now are the subject of the previous sycophantic saying 'I always knew he/ she was no good'. Yes, I'm sure you did, but at the time said nothing.
There is a myth that the Roman Empire declined and fell because of excess and debauchery. Whilst both were common enough what really contributed to the decline and fall of the Roman Empire and many others since (Britain, the Soviet Union, and the short-lived German Reich) was a combination of increased citizenship, internal turmoil, and primarily and probably as a consequence of the first two: unsustainable costs in running the empire. The army gained the empire and was supported in its efforts by resources raised as tax revenue from the existing population and the newly conquered population. Eventually as the empire grew it became unmanageable for a number of reasons, not least the cost of maintaining an expanded empire.
The Romans were never satisfied with what they had. Success was measured in conquest. From Rome they conquered the rest of Italy and from there the known world. The cost of maintaining a standing army of between 250,000 and 450,000 in order to a) continue expansion and b) to hold the borders began to outstrip income. In order to reach these numbers legions of auxiliaries were used to supplement Roman citizens. The auxiliary soldiers quickly learned to employ the fighting tactics of their new masters and eventually learned to use this against Rome.
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The solution to the rising cost of expansion was to offer Roman citizenship and self rule to the conquered territories thereby placing a buffer zone between themselves and the barbarians beyond the borders. Whilst in theory this would give people a stake in Empire it also gave them an acquired taste for freedom.
The distance between the centre of control (the senate), and the dispersed workforce (the legions), resulted in significant delays in communication and feedback. Generals were often in the field for a number of years during which time they became self-absorbed and increasingly convinced of their own importance to the Empire. In the meantime those at 'head office' spent their time feathering their own nests and careers, ignoring and forgetting that their continued existence relied on the 'workers' at the front end of 'the business'. As a consequence, front line generals became significantly disenchanted with the senate which in turn became resentful of the power base being created by upstart soldiers.
It is the same in business. It is difficult enough to manage a company with one thousand employees let alone hundreds of thousands, especially if they are spread across the globe. Leaders quickly become disenfranchised and detached from staff at the customer end of the business and rely on reports generated by managers who are wary of publicising the negative aspects of trading. Communication relies on sound bites and positive messages of support of senior management strategy. Telling the truth becomes career debilitating.
Senior management spends less and less time in the field and any problems that emerge are blamed on a lack of understanding by the workforce of how tough it is being at the top.
The emotional distance between different factions within the Roman Empire, the lust for power, and the excess availability of paid muscle to enforce individual will, often resulted in internal violence. Gradually, as much time was spent fighting each other as was spent on fighting the barbarians.
The normal tenure for a Roman soldier was twenty five years. The average rule of a Roman emperor was 7 years, with some holding office for only a few days (in AD69 there were five emperors). Many emperors died violently. It appears that working in head office, despite the fringe benefits, was a lot more dangerous than working in the front line.
As the slave population grew so did the Roman's strength to resist, despite the fatal consequences of rebellion. What the Romans failed to realise is that when people have nothing to lose they also have nothing to live for.
What lessons can we learn if any?In 1973 E. F. Schumacher's book 'Small is Beautiful: Economics As If People Mattered' was published. Schumacher questioned the very idea of growth for growth's sake and warned that the way in which economies slavishly followed the idea that measuring gross national product was an indicator of well-being was a flawed concept. Whilst the 'small is beautiful concept' was widely adopted for worthwhile consideration in many business schools, it has clearly remained an academic concept with only cosmetic transference to the business practices on the ground. Madeleine Bunting writing in the Guardian in November 2011 commented that 'Small became cool but only as part of a branding strategy which masked the ongoing concentration of political and economic power. Gigantism has triumphed'.
In the 1930s Mohandas Karamchand Gandhi promoted the philosophy of economic self-sufficiency at the village level. He believed that the industrialisation of India being promoted by others would lead to dehumanising and was both unnecessary and beyond the basic needs of most people. For the most part his argument lost out to those who wanted India to be the stimulus for a 21st Century industrial revolution. Yet Ghandian economics has a significant following, though little political clout.
In 2012, the European Union's budget (€130bn) coupled with committed expenditure will reach a staggering €276bn. What began as a common trading platform has mushroomed into an organisation that employs 33,000 people to administer policy and you might rightly ask 'what do they all do' and more to the point 'why'? On top of the 33,000 administrative staff there are 754 Members of the European Parliament. The official website for the EU says that the central operating cost for the EU is value for money, costing each EU citizen only 67cents each. It further assures us that a mere 6% of the 2012 budget is spent on administration and only 6% of that on salaries. Mentioning these figures and the way in which they are presented is indicative of people running large organisations who eventually lose touch with the reality of most people's lives. Those who put these figures together represent them as 'only 6%' - but that's actually eight billion euro! And 'only 6% of 6%' is still five hundred million euro. 67 cents each might not sound a lot, but 504 million people paying it is. But is anyone interested enough to do anything about this? Apparently not.
There was a time when to have two or three close friends was sufficient for most people. Now social and business websites such as Facebook, LinkedIn, and Twitter encourage us to count our friends and contacts in the hundreds. The World Wide Web enables us to reach billions of people and distance is no longer an obstacle to communication, but is it? Email and texting reduces our ability to interact and sensitise us to really understanding each other. The complaint of many employees is that 'nobody listens to me' and in the main that is probably true. Senior managers communicate by email and via layers of management until eventually the message becomes distorted and unrecognisable from what was meant at the outset. People sitting within touching distance in offices communicate by email. People standing and sitting next to each other in social situations constantly use their iPhones to send, update and receive messages from other people. Does it matter? Isn't it just part of progress? Perhaps not. Perhaps it is simply part of the unrelenting process of reaching out beyond the confines of our local environment and embracing the expansion of that environment, and encouraging us to grow.
At a local political level councils are obsessed with attracting large conglomerates to their area with the aim of creating new jobs. In the process they usually have to offer significant incentives costing millions. In many cases the large conglomerate, having milked as much profit from the deal as possible during the years of reduced business rates and easing of planning restrictions, eventually closes the business in order to find some other mug council to exploit. Councils do not seem to consider how supporting small businesses might be a better sustainable bet in the long term. Large businesses going bust cause mayhem. Small ones don't.
I agree with Schumacher that the slavish drive for growth is a flawed concept. There is nothing wrong with staying as you are, provided that you continue to meet your obligations. In order to do so you also probably need to be innovative and react to changing markets and the world at large. This is easier if you are a small operation. As you grow the problems become bigger and so do the number of people creating and attempting to solve those problems.
We need to question exactly what the purpose of growth is and it seems to me that its purpose is to make some people, a small number of people, very rich. Yet how rich is enough? It is not uncommon to see people with so much money that they could never spend it in a dozen lifetimes. Why does anyone need to be paid millions? Why does anyone need to be paid one million? Take away the financial incentive of growth and I guarantee that the mergers and takeovers which are deemed necessary to improve customer choice and services would disappear overnight.
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