Beyond The Expectation Game: Achieving sustainable Real Growth Results

Has over-emphasizing internal-rate-of-return/capital-employed inhibited or distorted attaining sustainable real growth results? Founder and former chief of The Vanguard Group John Bogle said ‘Roger Martin has written a book, Fixing The Game that is at once original, insightful and inspirational. With his ‘tell-it-as-it-is’ bluntness, he chronicles the failures of modern-day capitalism and offers clear and realistic policy recommendations.’  According to Fixing The Game Roger Martin points out how stock-based compensation can contribute to price manipulation inhibiting achieving sustainable real-world growth results. For instance, in 1970 less than 1% of CEO remuneration was stock-based compensation. Similarly, 1976 “Theory of The Firm: Managerial Behavior Agency Costs and Ownership Structure” proposed Chief Executive Officer stock-based compensation to align executives with shareholder interests. Likewise, 1979’s Lee Iacocca’s ‘loan guarantee bailout’ of Chrysler saw upon repaying the loan guarantees Mr. Iacocca began exercising his stock options. Other financial engineers began insisting other companies do the same to align executives with shareholders de facto creating ‘a stock-based compensation expectation game’. However, in 1985 Warren Buffet of Berkshire Hathaway was one of the few that pointed out the possible dangers for stock-price manipulation. In Fixing The Game Roger Martin makes an analogy concerning the ‘expectation game’ looking at bookies and bettors during the 2007 NFL New England Patriots perfect regular season, how winning every regular season game was only mediocre compared to covering the betting spread. In other words, expectations exceeded the reality of the value created in actually winning the game.

Increased risk in the international financial system exacerbates this clash of cultures. For example, financially engineered instruments, which attempted to mitigate the risk on a single institution like the risk due to the Exxon Valdez, may have actually done the opposite augmenting risk in the entire international financial system. Affected by this risk in 1994, Peter Day of the British Broadcasting Corporation program ‘Business World’ interviewed Marvin Bower and Peter Drucker.

The 1933 inventor of the global management consultancy profession Marvin Bower, “Unfortunately in 60 years, business has not changed very much. The basic way of running a business is essentially the same, an all-powerful chief at the top, a hierarchy below to work out command-and-control of people. But with today’s competition, global economy and technology this structure is no longer as effective as it should be. Top-down command-and-control is working well, but not well enough. To get everyone working together, focus on the whole and make the whole work more cohesive instead of hierarchically.”

Also, in 1994, Peter Day interviewed business leadership guru, Peter Drucker, “after almost 50 years of my consultancy my basic emphasis that human beings are a resource and not a cost has had practically no impact in the business world. Everybody says people are our greatest asset, then fires them, because of cost. My 50 years of preaching that human beings are a resource and not a cost has had very limited impact. It is almost the same thing Marvin said, except only looked at differently. Human beings as a resource and not a cost, has had only a limited impact in the field of knowledge work. On the contrary, there has been a glorification of the autocratic chief executive that carefully stage-manages empowering bottom-up-workers. There are still very few exceptions of using human beings as a resource, but this is an exception.”

The Support Economy: Why Corporations Are Failing Individuals and The Next Episode of Capitalism  by Shoshana Zuboff and James Maxmim       Companies that arrange their business around satisfying customer needs are going to succeed. Over a period of time, based on the lifetime value of a customer, businesses that mollify transactional anxiety succeed if they work at satisfying the customer experience. Beyond the efficiency of managerial capitalism connectedness and the unique sense of self  presents an entirely new commercial support system forming a deeper long-lasting profitable business relationship.

Management is dead.

Can we get beyond the expectation game?