Chapter 10: Governance of Enterprise

Have you ever seen two organizations locked in a titanic battle? One is driven by the taskmaster who demands compliance. The other is led by a coach who mentors all on the common goal and who asks for feedback continuously. Which style is winning and why? These are my subjects for this chapter. By governance, I mean the style by which we manage our enterprise. Let me start with some groundwork.

The political history of the last 200+ years carries a simple yet profound message. Jeffersonian democracy is now widespread and gaining in much of the third world. Political systems having regard for the individual simply work better than do authoritarian ones. And so with organizations and business. The U. S. Constitution is an exemplary model, but not the only only one.

Throughout history, enterprise has been shaped first by tribal chiefs, then by feudal lords and finally by economic chieftains who operate through the big boss for hire. The big boss is authoritarian and exclusionary. His solo command-and-control style, Theory X, for which 14-hour days and child labor drove the wheels of capitalism from its inception, was the only norm for industry until the early 19th century. That changed, briefly, when Robert Owen opened a textile factory in the Scottish mill town of New Lanarck. No one knew it at the time but a new day had dawned. Among other things, Owen instituted: shortened working hours, a grievance procedure, pay continuance during business downturns, and contributory health, disability and retirement plans. He did these things while getting rich in the process. Ordinary stuff today, but remarkable (and highly profitable) in his time. But in Victorian England, Owen's reduction of child labor and other advanced ideas were not just novel-they were threatening. He was attacked from all directions. In the end, theory X survived alive and well. Remarkably, most of Owen's ideas came to pass eventually-- too late for the prophet to appreciate (or be appreciated for) during his life time. These progressive events came to pass in spite of the preponderance of Theory X managers, not in because of them. The ability of the working class to unionize provided (or forced, depending on your outlook) the political will to accomplish what the private sector would not. While the big boss remains in control, his relative numbers are in decline again after peaking near the end of the millennium.

In the early 20th century Douglas McGregor began advocating the importance of the human side of enterprise. He used his experience at Western Electric, WE, where hard data pointed to a better way. To be brief, these early experiments addressed the needs of a group of workers with a series of small changes. Productivity at WE increased in pace with each change-whether positive or negative. Workers were involved in decisions with supervisors who earned their respect. By becoming part of the process, they had realized their own dignity and self worth. Local WE management changed in character with personal respect, involvement and team play enhancing all dimensions of the human experience including the bottom line. In short, the local WE bosses became leaders. Theory Y was reborn.

Here was solid evidence-complete with scientific controls. Yet according to later writers on business and human affairs, it was largely ignored for some decades primarily because most employees and middle managers alike:

  • have a deep-seated sense of duty to authority (arising from their own authoritarian personalities);
  • have a habit of blind obedience (conventionalism arising from their authoritarian personalities);
  • could not accept progressive concepts because they were not their own ideas.
  • too readily accept the status quo (prior experience demands no less).

Industrial histories in the 20th century show a gradual but unsteady adoption of Jefferson's ideals by industry. By the late 20th century, companies with innovative managements that tended to be both participative and inclusionary (where people largely make their own work decisions) thrived. Personnel Departments, controlled by regulations, became Human Resource Offices, focusing on the value of employees as human beings. The postwar Japanese experience (e.g. where assembly workers could stop the line to fix a quality problem on the spot) was a dramatic case in point. And so was the belated response of Detroit, where Chrysler went the Japanese one better in some respects. Yet an estimated 75 - 85% of all industry retained Theory X as a management style. Some seemed highly successful too, even as many multiples more failed totally. The reason why Theory Y has not become dominant lies in our human genome which includes genes for dominance and fierceness as well as herding components for survival. Jungle and savannah life prepared us ill for the modernization that began in earnest with Galileo and Newton. That illness appears in business (Enron), politics (war in Iraq), and religion (the Crusades, or 30 Years War), not to mention numerous historic parallels. Each of these events have a common origin. Genetic extremists--otherwise known as extreme authoritarian-personalities--hijacked control of a society, or alliance of societies, of whatever ilk.

The 75-85% estimated range above arises from the researches of Milgram at Yale, Zimbardo at Stanford, and Altemeyer at university of Manitoba who extended the basic research of Adorno. Milgram found that 65% of everyone tends to have an authoritarian personality, many in the extreme. Others, notably Altemeyer, found even higher percentages in other contexts. John Dean in his "Conservatives Without Conscience" provides a vivid account of how authoritarian personalities hijacked the Republican party in the US over the last three decades, and how they polarized our nation and led us into the debacle that Iraq has become.

Against the grain of our heritage, Theory Y organizations thrive, once started, because:

  • They are dynamic and "fit for battle."
  • They make continuous learning and distributed decision-making their daily business and part of their strategies.
  • Instead of fighting each other, every employee gives his/her all toward making the organization what it can be.
  • The focus on: manufacturing quality products at lowest possible cost, customer service, and besting the competition.
I have observed and/or been part of several companies that were largely Theory Y, Theory X types or some mixture of the two. A mix of the two styles seems so work best as discussed below. When either type is too-pure, trouble often comes, sometimes big trouble.

The clearly defined issue is how to balance authority and leadership between a central figure and those who actually get the work done. Clearly some structure and central authority is needed, if only for legal reasons. Just as clearly, in a team of people having various disciplines, it does not often pay to challenge the experts as the team struggles for understanding and integration of thinking and direction. I am reminded of a lecture I once heard in a business psychology course. "If you are in a burning building, you better follow the person who knows the way out." The war in Iraq is a second reminder if one is needed.

We all differ in our abilities to do this or that job and in the style in which we do them. At the same time, we feel a fundamental human need for personal regard by others. This implies a perspective. Respect cannot be commanded without developing fear or hatred. We earn respect by what we can do, how we do it, how we interact with the group, and for what we are (character). How successful we are is up to the group to decide in Theory Y. Under Theory X, the boss or his/her boss decides. It is both that simple and that complex. All the while, some 70-80% of us, by nature, lean toward Theory X by instinct. This instinct (the nature part of the nature/nurture equation) makes itself felt in many endeavors other than business--in whole societies for that matter.

Properly applied, theory Y recognizes the need for structure. How that is done is a significant departure from Theory X. Theory Y leaders earn their jobs by the respect they earn by leading in an inclusionary fashion, while theory X managers are appointed on the basis of their ability to command and control. Command-and-control has long been a military tradition. But guess what? Even there it is evolving, at least in the US. Military where after-action reports weigh the opinions of everyone. A private is expected to find fault with a general if the latter erred. The Gulf War was the first field test of the new training procedure. With the Iraq war in its 4th year, we heard more and more open protest from the servicemen and women. They have found a voice along with the courage to use it. We see here a fundamental management issue faced in industry also played out in politics on the national scale. Dominance alone will rarely create a successful enterprise. Substance along with form must also be there.

When people feel safe, creativity and unity of purpose arise spontaneously. They let down their defenses. So we must remove all causes for fear, for example, the rational fear of a theory X boss. The war in Iraq, of course, accomplished the reverse--people began to feel less safe as violence escalated time and again in the wake of missteps in the field. Like the captains of industry, captains of state can err if they take their ideas for granted--confusing power with wisdom. In fact, Theories X and Y must be applied in balance in both politics and business.

The human component here relates to Chapter IX. Theory Y fails when applied by phony people in authority whose realities are biased. The reason is simple. The "X" style boss wearing a "Y" leader mask is transparent, no matter how loudly he may proclaim otherwise. I once observed such a man. He had an "open door" policy, which he broadcast loudly and repeatedly-yet virtually never did an employee visit--after one did, only to be punished for criticizing one of the big boss's decisions.

This theory X manager installed his hand-picked would-be successor in the number two slot, only to be forced to discharge her after she alienated suppliers, customers, and employees alike. This manager was soon replaced as well. In contrast, their successors never said a word about open doors; they just acted receptively. Within a month, streams of coworkers were giving them the low-down on how they felt and about what was going on in the shop, in the office, and in the market. These new managers were Theory Y by nature. The organization took quite a while to revive; some customers never returned. Being phony (defended), these command-and-control types missed the vistas and left damage in their wake.

Participative systems face reality more effectively than can the traditional command-and-control view of a single boss, no matter how smart s/he is. Because of his/her power to intimidate or fire, a boss with an idea that is off-track is rarely stood up to. His/her power (or even perception thereof) instills fear throughout the organization. Employees do not question the boss's rationalizations that misplace blame away from management. Like most managers, most employees:

  • are themselves authoritarian personalities (They instinctively expect to be commanded by a tough "big boss"!);
  • are handicapped by fear of retribution or losing their jobs in dealing with a "tough boss;" (Who isn't)
  • fear being ridiculed in public (Who wants this?);
  • have hang-ups (defenses that blind them to realities);
  • have a deep-seated sense of duty to authority (authoritarian personality.);
  • have a mind set of blind obedience (ditto);
  • do not realize they can in fact stand up to a tough boss (inexperience and naiveté speaking);
  • do not challenge the obviously absurd (fear of retribution, lack confidence, training or courage);
  • feel social pressure to not rock the boat (from many quarters);
  • do not take time to think the issues through (why bother?);
  • too readily accept the status quo (because prior experience demands no less, akin to the law of inertia).
The contrast between Theory X and Theory Y leadership, reveals the struggle between power at the top (telling you) and interdependence in the ranks (asking you) in a new light. The insecure Theory-X boss can only compensate for his own weaknesses (whether or not perceived) by being an overly aggressive commandant. That way he counters his inner fear of being a weak person. It is the human psyche in action.

In contrast, the Theory-Y leader is confident; together with his people, he can make decisions having all the wisdom available in the organization. He operates from a persona free of baggage (hang-ups). And importantly, his organization does too.

By recognizing values in the workplace, theory Y respects the value of the individual. In fact, when self-motivated, individuals achieve beyond all expectations. You have a theory Y leader when you hear him/her respectfully ask, "What do you think?" with feeling, sincerity, and empathy. You have a theory Y leader when no issue important to the group is hidden.

Yet Theory Y has a built-in Achilles heal. One can be too soft. I once knew a truly gentle man who ascended to high office in industry. When a downturn came, he could not bear to lay off anyone, much less his friends, not all of whom were competent. Nearing bankruptcy, his board had to let hem go. He was soon replaced by a out-and-out-Theory- X manager who cut the work-force into the bone. The company survived cleanly; it just never recovered its prior market dominance. No one was motivated, no one had the temerity to stand up the the new boss. To this day, this company has trouble retaining good people because of its micro-managing style. Neutron Jack (Welch) got his moniker for similar behavior. He is applauded for creating a behemoth that is GE of today. But he was creative more in corralling wealth more than he was in creating it. Like so many things in life, extremes of any kind may have an ideal, moral or not, and they may have adherents merely by their authoritarian natures. It is often the people in the middle between X and Y who, on average, leave the best marks as managers.

The following table summarizes the two extremes of management theory as it was understood by McGregor in his time:

Theory X Theory Y
Work is inherently distasteful to most people. Work is as natural as play, it conditions are favorable.
Most people are not ambitious, have very little desire for responsibility, and prefer to be directed. Self control is often indispensable in achieving organizational goals.
Most people have little capacity for creativity in solving organizational problems. The capacity for creativity is solving organizational problems is widely distributed in the population.
Motivations occurs only at the physiological and safety needs. Motivation occurs at the social, esteem and self-actualization levels, as well as the physiological and security levels.
Most people must be closely controlled and often coerced to achieve organizational objectives. People can be self-directed and creative at work if properly motivated.

Advances in personality and behavioral theory since McGregor's time require some modest modifications in management practice. The behavioral studies by Altemeyer zero in on three traits that distinguish the authoritarian personalities. These are:
  • Aggression
  • Conventionalism
  • Submission
Modern management practice must take Altemeyer's discoveries into account. That means fitting managerial behavior to the personality. This is where McGregor is still reasonably current, for nearly everyone responds loyally to respect, delegation, and trust. We only need to be careful to give adequate guidance and limits to those who desire them. Although this follows from Altemeyer's findings, I am indebted to one of my Chinese colleagues for this bit of advanced insight.

In the extreme cases, where the other person is out to do us in--in good authoritarian style--we need to be alert in seeing their game and be very firm in redirecting them. That is not always easy, because connivers work best in the dark. I have found it effective to bring their connivery out into the open where the group can judge the matter and deal with it. Usually, the mere threat of doing so is enough.

Such extremists have a much easier time in the exclusionary environment, where no one talks to anyone else. That is one reason why Theory X still survives as a popular management style. Their turf wars are dead giveaways.

My own personal experience teaches me that I can never know enough or be clever enough. Only by consulting my friends can I broaden my view, deepen my thoughts, and find a measure of wisdom. This article is no exception. It comes from long dialogues with many individuals over a long period of time. It also comes from a very hard look at my own biases and how they affect what I think. And it comes from interactions with my editor who suggests and smoothes content while fixing punctuation.

Further clues about governance can be found in nature itself. Everywhere I look I see interdependence, among individuals, groups, species, and bio-systems. On the grand scale, we all depend upon the sun-which was born of the universe we are part of. We are born helpless and, if we live out a natural life, we often end up the same way. In between, for one example, city folk depend on farmers for food and farmers rely on city folk to improve farming technology. This is more about cooperation than command and control. The latter comes into being when societies meet in conflict over resources. Individuals and societies react according to their genetic endowments (fierceness and herding instincts tend to preserve the species.)

My personal governance is based on trust, respect and firmness and it primarily comes down to a behavior of:

  • being real and learning from mistakes,
  • having empathy with, and trust in, others--individually,
  • providing examples in dialogue,
  • giving responsibility with a long leash, and
  • being firm, as firm as the situation demands, and being forgiving, but not to forgiving.
It works. My numerous achievements were all enabled by my many friends, colleagues, and co-workers at all levels. Take Ed Gubler, a lab tech, whose job it was to heat-treat experimental alloys. He goofed one time. But before I realized something was wrong with the test data, he hunted me down with the message. I thanked him, of course. His mistake helped give us a key to what we needed to file for a patent and take the alloy commercial. Think about this anecdote next time you fly on a Boeing 777. The main landing gear beams are a product of serendipity and honesty in an inclusionary environment.

Now that we have our venture in hand, I will turn next to market and business development.

© Copyright 2000, 2007 by Harry Rosenberg. All rights reserved.

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