Haunted Empire

The “Stupid manager theory of company failure” (and its corollary, the “Smart manager theory of company success”1) remains the most popular, perhaps even the most universally accepted theory of management. Book after book, thoughtful article after article alludes to this theory and whenever a company is perceived to be under-performing, all fingers point to the leadership with demands for blood letting.

This is not a new phenomenon. When catastrophe strikes, as a thoughtful species, we have always asked for leaders to be sacrificed. In Europe during the Iron age leaders were sacrificed when crops failed. In South and Central America leaders were ceremonially tortured for similar reasons.

Of course most crop failures were due to weather phenomena and the anointed leadership had nothing to do with these causes. Nevertheless ancient correlation analysis would have revealed the pattern that good leadership meant good weather and bad leadership meant bad weather.

There was a balance to the downside however. When times were good the leadership enjoyed luxuries and praise. This was the essential deal societies made: we’ll keep you in riches and allow you to be idle as long as times are good but ritualistically slaughter you when times are bad. We’ll declare you “chief magical officer” and place all our faith in you. But, of course, if you fail, we will will be vengeful.

And so it goes in today’s corporate world. I’ve often said that corporate governance is medieval, or pre-scientific in its approach to understanding causality. That may be too generous. As far as the reward/punishment system (also known as Human Resources) it’s probably pre-neolithic. The luxuries and extravagance which we heap upon the leader provide abundant evidence. Leaders insist on these ironic “pay packages” and boards approve them because they know they can and will be ritualistically sacrificed if and when the mobs turn against them.

A manager would be a fool to accept even generous pay given the risk, actually near certainty, of ritualistic slaughter. They demand and are unquestionably given absurd pay that has no relationship to performance. Such pay has no relationship to performance because it isn’t designed to reward performance but to account for the risk of arbitrary and very public sacrifice. Boards (and hence shareholders) are deliberately hiring a scapegoat for sins as yet unknown. Luxury and violence are thus finely balanced in what is called “Executive Search”.

What allowed civilized society (i.e. that outside of corporations and politics) to move beyond this has been an understanding that our destinies are not necessarily tied to individuals’ actions. We don’t need to adulate/prostrate/dismember/defenestrate someone if our car does or does not work. People have begun to understand that there are rules about nature beyond the control of known or unknown agents. Complex systems like factories, farm  irrigation and even air traffic can be made predictably reliable without magic.

Yet we are not willing to suggest that such rules apply to social systems. It’s not just laymen who abstain. Historians and social scientists are mortified at the notion that causal statements could ever be made about society.

Causal statements (beyond good/bad people => good/bad outcomes) are  considered non-credible in the very institutions which harness laws of nature in order to create value. Consider the recent instance of corporate defenestration  directed at Tim Cook. He was accused of failure of magic. I say this because he replaced a previous magician with many powers and the anger at his inability to match this power was at a fever pitch in 2012 and 2013. A book was even written about this failure and titled with the appropriate metaphor (See blog title).

I know what you’re saying: the sad fantasists which subscribe to these theories are wrong. Their theory is disproven almost every day. Even though we reward them as if they did, managers do not possess magical powers.

But the author of Haunted Empire was surely well rewarded for her accusations. We rewarded her because our search for answers is otherwise unmet. What alternatives do we have?

Think of it this way: What did ancient people have other than the Anointment/Sacrifice theory of good management? It persisted for millennia. The lack of alternatives means today we still believe as they did.

1. As well as the “Smart/Stupid leader theory of national success/failure” [↩]