"Whom do we want as our business leaders?" This was the question posed at the start of the 2nd International Conference on Humanizing the Firm and the Management Professions, which opened today in Barcelona under the title "Towards a New Theory of the Firm." The conference is being held in collaboration with Fundación BBVA.
After introductory remarks from Dean Jordi Canals and IESE Prof. Joan Enric Ricart, Prof. Donald C. Hambrick of Smeal College of Business, Pennsylvania State University, spoke about how changes in the corporate milieu have brought about a new breed of CEO.
Hambrick believes that today's CEOs are different people from 30 years ago. In the 1950s and through to the 1970s there was what has been dubbed the "soulful corporation," in which CEOs had secure jobs and a fixed salary with a only a small bonus or share option component. The shift in the 1980s to investor capitalism and agency theory brought more concentrated ownership and shareholder primacy. CEOs were paid on results and their jobs were no longer secure.
These institutional shifts have affected the profile of the sort of person who wants to be a CEO and who boards want to employ. CEOs are more materialistic and attached to "scorecard symbolism" about earning more. There is also less and less correlation between CEO's pay and the rest of the company, and the gap is widening.
"Today's CEOs are much more narcissistic than their predecessors," Hambrick said, adding that charisma and narcissism tend to go hand in hand.
Prof. Josep Maria Rosanas then presented a manifesto for better management that he wrote with Prof. Rafael Andreu. They lay the blame for the current crisis at the door of ratings agencies, financial analysts, investment banks and the commercial world, as well as business schools and the economics departments of universities.
Rosanas argued that we should see firms as communities and be more oriented to people. Organizations should exist for people and not vice-versa. We also need to understand that people have their own purposes and motivations.
This was followed by a contribution from Prof. Raymond Miles of University of California, Berkeley, Haas School of Business, on the "Theory of the Firm Community." He said that in a knowledge-driven world there has to be trust and fair dealing within and between organizations and stakeholders. "Humanizing factors too often seen as “add ons” after profit rather than a necessary component," he said.
The core question, he said, is "what would actualization mean in an advanced society, what would it mean for us to become all the things that we already are? What would we change in an advanced society for it to really mature?"
Costs of Non-Herding May be Linked to Financial Crisis
The recent financial crisis proved that there are steep costs for going against the crowd in many organizations, said Prof. Bruno Frey of the University of Zurich, who presented the paper, "Repressed Voice and Costs of Non-Herding," co-written with Reto Cueni on the second day of the conference.
Since the financial industry's best interests are served when positive economic outlooks prevail, many employees who expressed a pessimistic view of the future prior to the crisis were sidelined until they either resigned or were fired.
"It is very difficult to deviate from the common opinion of a herd," said Frey, whose paper examined the possible costs of non-herding. "The person who deviates has high costs himself because he must give good reasons why this development should end. But it's very difficult to give good reasons because it's in the future and it's unknown. Moreover, the others don't like people with different opinions."
"But the real problem is that informal information that would be useful for the firm and at the end, for society, does not come to the fore," he said.
To keep herds from forming, business leaders should seek to organize meetings in such a way that people who have different opinions have an incentive to tell them, says Frey.
For instance, instead of asking the most senior or experienced employees for their views on a problem, they should first seek out the youngest employees and those who are not so entrenched in the organization. CEOs should also strive to foster open discussion, rather than those based on hierarchies.
Avoiding herds and their negative effects requires effort, he said, because it's much easier for managers to surround themselves with subordinates who agree with their opinions.
"We all like agreement," he said. "But for the firm as a whole, it is very good that we have diverse opinions, hear them and evaluate them."