Corporate culture and the new economics

2009

One serious problem with the business world is that the reward for decision-makers has always been determined by vested interest. It obviously suits the men and women themselves to be paid enormous sums, irrespective of any rationale. It obviously suits non-executives to sustain a culture in which they themselves will find their rewards rising relentlessly. It suits other managers getting near to the top. It suits the head hunters, who are rewarded according to a percentage of the appointees' pay.

It even suits the politicians, generals and mandarins, who will find themselves in the queue for well-paid posts when they enter civilian life, so to speak. Those who are least well served by the system, however, include the staff, who don't share in the reward bonanza. The strategy here is just to increase the gap between the lower paid and the royally rewarded.

At times the shareholders might get restless, but events since the Credit Crunch arrived have shown no truly significant reforms - and most investors are too far from the investee company to take an active interest in the matter.

That leaves the citizens, who are even further removed from the action, and have to rely on the radical politicians and critical commentators to defend wider society's interests. The problem with this method is that it is so feeble.

Then consider the non-executives lodged inside the firms. Even if they try their best to supervise and guide the executives, they cannot move to transform the firm without showing their massive chasms of ignorance about its markets, current performance at the key levels and, above all, how the future is being prepared.

They should always take part in the provision of advice and approval in the defined areas where sense dictates that the executives should step back a few paces. That obviously includes the key issues of remuneration, management committee decision processes, the presentation of plans for the future, corporate financial strategy, mergers and acquisitions.

Executives have to be guided to help themselves, to provide an informed audience that can help to repel the folly of insularity, the medium being mainly the committee process, which doesn't have to live up to its bad name.

Non-execs should invariably be expert in certain matters which are important to the top management. Here the outsider differs little from the paid and expert consultant, who in lots of companies is rewarded for holding the chief executive's hand; it's a significant role, enshrining the true belief that the top people in pyramidal hierarchies too often look only inwards and at the present when they should be looking outside and towards the future.

The great Peter Drucker never tired of telling his clients (and management at large) that the interior of the company contains only costs; the profits are made on the outside, where the customer lives.

If only the financiers had listened to those wise words, the agonies of the Crash and Crunch might have been avoided.

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About The Author

Robert Heller
Robert Heller

Robert Heller, who died aged 80 in August 2012, was Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book".