John Blakey - The Trusted Executive: Nine Leadership Habits that Inspire Results, Relationships and Reputation

FIGURE 1.1 The temple of profit

This model had the benefit of being both simple and, for many years, largely effective in achieving the goal. We could regard it as a product of the industrial revolution a highly mechanistic, scalable means of production. However, can you imagine if I had teleported a 1970s businessman into a 21st-century boardroom and placed him amongst his modern-day peers? What would he have made of their smart phones and their video-conferencing, their tie-less, smoke-free conversations on the rise of Generation Y, their strange habit of pouring their own coffees at the break? Not to mention that the lady sat at the table is not a minute-taking secretary but the CEO herself! That businessman would be as bewildered as I hope you were when you read the above quote from Milton Friedman.

In this chapter, I will explore the background to this model: who created it, why they created it and the purpose it has served. In particular, I will examine the underlying assumptions that this model makes about the trustworthiness of executive leaders and conclude that it is a model that remains deeply wired in the executive subconscious. While this model has served the world of business to a point, I will argue that it is reaching the limit of its effectiveness in a 21st-century environment where the converging trends of globalization, technology, media, Generation Y and diversity are exposing that authority has been used as a surrogate for trust. In other words, what held the traditional model together and enabled it to function was deference to authority. When this pillar is challenged by the diverse stakeholders of the modern business, the model starts to break down. What is revealed is that authority is what we use when we want to manage staff for the singular pursuit of financial profit on behalf of the owners of the business. Trust is what we must use if we want to lead a diverse group of stakeholders who all wish to have a say in the future purpose of business and who all wish to benefit from its activities. So let us explore more closely how and why the 70s world of Milton Friedman differs from the world of tomorrows trusted executive.

Traditionally, life was simple. The purpose of a commercial business was to maximize profits and this was the singular measure of success. Even in third sector organizations such as charities and social enterprises, we have been trained to focus upon another version of profit, which we call surplus. Whatever we call it, profit has given us a barometer of success that has some advantages and some disadvantages. On the one hand, it is a readily understood concept in the business world and it is a consistent measure of the added financial value of our activities. On the other hand, it breeds a myopic fascination with one particular assessment of business contribution that can blind business leaders to the wider context in which they operate. If business continues to worship profit within a societal context that has decided it no longer worships profit then this will progressively undermine trust in business institutions and those who lead them.

Where does this idea of worshipping profit come from? It comes from Friedmans 19th-century peers such as Adam Smith and other economists who ushered in the industrial revolution. It is 19th-century economics that still lies at the heart of the modern business system. Smith and his protagonists created a model of man in which economic values guide choice, and choices are rational and utility maximizing the goal of Smiths economic man is to maximize the wealth of the firm and is based on contractual duties owed to owners. This mindset powered a period of unprecedented growth and innovation in the western world, yet we must be careful to remember that it was only ever a model; it was not the truth. Like all models it has its limitations. Despite those increasing limitations, it is highly likely that this model still remains the underlying assumption of your organizational world; an assumption so deeply wired into our collective consciousness that we have long forgotten its origin and its justification.

However, we have not forgotten its central implication which is that, as executive leaders, our job is to maximize profit on behalf of the owners of our enterprises. How could we forget this implication when these same owners monitor, control and reward us on a daily basis with this goal in mind? If you are an entrepreneur that owner may be a voice in your own head. If you are a charity then it is the voice of your trustees. If you are a global CEO it is the quarterly return you present to your shareholders. Whatever your form of governance, I guess that you will quickly identify this voice and recognize its impact on your leadership behaviours. As one of the global CEOs I interviewed put it:

However much you try to avoid it, the quarterly reporting matters and that drives a set of behaviours that are at odds with longer-term goals. You talk about driving the business for the long term but you act to deliver in the short term. Consequently, it appears as if you are lying.

The goal matters. What matters gets measured. And what gets measured gets done and so creates a deep groove in the organizational psyche.

CASE STUDY The case of Dodge brothers versus Ford Motor Company

The ideology of short-term shareholder profit as the sole purpose of business was enshrined in law via the legal dispute between the Dodge brothers and Ford Motor Company in 1919. Henry Ford, the founder of Ford Motor Company, sought to end special dividends for shareholders in order to make long-term investments in new plant and machinery, which would also increase the number of people employed by the company and reduce the cost of Ford cars to the consumer. Announcing his intention, he said:

My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.