To some readers, the answer to the headline may seem obvious: Yes, American management is clearly worse than it was, say, thirty or fifty years ago, because short-termism is endemic among public companies, and short-termism leads to all sorts of bad outcomes, like underinvestment and accounting gaming.
But that analysis is simplistic. Short-termism simply shows that management has adopted good for them, bad for pretty much everyone else (save maybe their bankster allies) goals and are pursuing them aggressively.
A comment by John Kay of the Financial Times has the effect of raising much more fundamental questions about the caliber of top managers. Forgive me by starting with a personal anecdote. When I was at McKinsey in the early 1980s, one of my clients was then then Citibank. The partner on the account asked me to get the organization charts of the major investment banks (commercial banks in those days were desperate to become investment banks and not very good at most of the investment banking businesses they could participate in, like M&A and private placements).
I knew Citi’s problem was not its organizational structure but its culture, so I dutifully followed orders, got the org charts, and then wrote a presentation that contrasted how investment banks operated versus commercial banks on five major issues. It became a best seller at Citi.
More than 20 years later, when I saw the partner who was still at McKinsey, he remarked, “You remember that document you wrote on investment banking culture? They are still using some of the slides at Citi.” He thought that was a good thing.
I thought it was a bad thing. It meant Citi had still not learned the lesson of the presentation.
Now to Kay. His article keys off a new book, Good Strategy/Bad Strategy, by Richard Rumelt at the Anderson School at UCLA. What I found disconcerting was this passage, which effectively says that despite the greatly increased presence of MBAs in the corporate world, business practice has not improved and has maybe even regressed:
The message of Prof Rumelt’s book is that strategy is really just careful thinking about business problems. Checklists – Swot (strengths, weaknesses/limitations, opportunities, threats), five forces or seven Ss – are popular because they are a starting point for people who are unaccustomed to structured thought. Good strategy begins with diagnosis. And diagnosis is analysis, not a description of symptoms. You don’t go to your doctor to be told you have a sore throat. You go to be told you have an infection and that an antibiotic will fix it. The doctor tries to discover “what is really going on here?” and the measure of his competence is his ability to do that.
If that also sounds obvious, it isn’t what business people typically do. In the business world – as sometimes in the surgery – the reputation of the CEO or value of the consultant is measured not by the accuracy of the diagnosis but by the confidence with which the prescription is dispensed. Many business gurus resemble George Bernard Shaw’s doctor, Sir Colenso Ridgeon, who treated every ailment with an exhortation to “stimulate the phagocytes”. Their PowerPoint presentations reiterate the patient’s complaint and prescribe their universal template.
Now I am big on stating the obvious, that the MBA is an overrated degree. But one of the things that that degree does provide is some commonsensical frameworks and tools. And naive me, I had assumed that the big reason that the big consulting firms like McKinsey were doing less good old fashioned strategy work was that the prevalence of MBAs meant that big companies were now doing more of the analytical work related to strategy in-house.
But Kay’s observations suggest instead that the effect of more “professionalized” management, perversely, is a greater need to be on the cutting edge of conventional wisdom in order to stand out, which makes them even more susceptible to hucksterism.
An alternate interpretation is that the short-termism has promoted faddishness, since any con that is good enough to enlist top managers can also be sold to the great unwashed investing public, and will pop a stock for a while (or even longer: look at how much the market liked “reengineering” and “outsourcing” and “offshoring”). Or maybe prolonged use of PowerPoint makes people stupid.