Business at a Crossroads Leadership_7 potx

164 BUSINESS AT A CROSSROADS
collective intent. What might seem to have been a strategy, such as
conquering Detroit, was in retrospect merely a fortuitous and unpre-
dictable interference pattern generated by the interplay of the actions of
the MaBE’s constituent agents, as each explored its adjacent possibili-
ties. Because MaBEs don’t know where they’re going, all destinations
are open to them.
Many allegedly “intentional” strategies are probably like that. An
accident or chance encounter leads to a series of small steps each of
which makes sense on its own; a critical combination of actions and
circumstance produces an unlooked for success; the CEO is said to have
devised and implemented a brilliant strategy, retro-fitted on to a sequence
of more or less fortuitous events, and it is not in his or her interests to
disabuse the hero-worshippers and admit that “it just happened.”
There are lessons here for large companies.
Small and local
Some say that a strength of large companies is that they have more people
than small companies in direct contact with customers. This is obviously
true – a large circle has a larger circumference than a small circle. But it’s
also true that the combined circumference of 10 circles is over three times
the circumference of one circle with the same total area. It’s the propor-
tion of employees who are customer-facing that determines an enter-
prise’s sensitivity to the market and by that measure a 10-agent MaBE
beats a CEO-led company of the same size hands down.
Another great strength of the MaBE, which is seen by many of those
who acknowledge its existence as a great weakness, is its lack of global
intent. The great weakness of today’s giant company, which is often
seen as its great strength, is its subordination of local intent, of which
the MaBE has plenty, to a global vision.
Local intent and locally selfish actions that may not always be in the
interests of the whole enterprise make the MaBE more sensitive to its

environment and more adaptable.
It follows from this that a large, CEO-led company eager to become
more sensitive and adaptable to its local marketplaces around the world
should yield more power to its local units and allow them to pursue
their own, local goals, even if when so doing they act in ways that appear
to be against the interests of the global company as a whole.
Dream on, seems the obvious response to that suggestion. No CEO
being paid a king’s ransom each year to align the company behind a
9780230_230941_11_cha09.indd 164 09/09/2009 10:02
9 SIZE AND SHAPE 165
grand global strategy is going to allow local baronies to go their own
ways, ride roughshod over the rules designed to ensure global align-
ment, or generally refuse to sing from the group hymn sheet. Giving
power away requires surrendering power, and only omnipotence can
justify today’s CEO pay packets.
This is why CEOs tend nowadays, when embarking on the classic
CEO project of restructuring the company (almost de rigueur for a
new CEO because it affects everyone and is thus a clear demonst-
ration of CEO omnipotence), to rein in local baronies by switching
from a geography-based to a business-based structure. If globaliza-
tion is to deliver value to shareholders, so the theory goes, regional
and national operations must be brought under the centre’s control.
So hungry are the CEOs of global companies for “power over,” as
Mary Parker Follett put it (see Chapter 8), that, far from ceding power
to local managers, they take it away. This centralization of power and
agency is an integral part of the globalization process.
But there’s a disintegration yin within the integration yang.
Power with
The CEO-led company is a command organization. The CEO directs
and controls, through master–servant and principal–agent relationships

with its own employees, teams, and departments, and with its value-
chain neighbors (suppliers and distributors). All these have their own
plans, but it is taken for granted that they’re subordinate to the central
strategy. The center dreams and everyone else realizes its dreams.
But, in addition to illustrating the command nature of the CEO-led
company, globalization has been modifying it, by encouraging
CEO-led companies to form business relationships (strategic alliances,
joint ventures, and other kinds of partnership) in which they don’t
have full control.
Partnership as a means to commercialize technological advances was
common long before James Watt linked his engineering genius to the
entrepreneurial flair and managerial talents of Matthew Boulton in the
18th century to develop, manufacture, and sell steam engines. In our
own time, partnerships between inventive small firms and large companies
with marketing and distribution clout were often seen as an alternative to
licensing deals during the microelectronics and microbiology revolu-
tions of the 1970s and 1980s and they are still seen as a good way for
small, high-technology companies to reach overseas markets. Partner-
9780230_230941_11_cha09.indd 165 09/09/2009 10:02
166 BUSINESS AT A CROSSROADS
ships, both between CEO-led companies and within MaBEs, seem
likely to continue to play an important role in computer software devel-
opment (see Chapter 7).
Partnership was the only way for large companies to enter overseas
markets where majority local ownership was required by law. It was also
seen as an effective way to respond to major plate shifts in the world
economy, such as the disintegration of the Soviet bloc, European inte-
gration, the opening up of China and globalization in general.
Another partnership theme has been the replacement of conven-
tional market-based relationships between suppliers and buyers with

more intimate alliances. First seen as a cheaper and less risky way to
exert control over the value chain than vertical integration, this model
later developed into the “value-adding partnership” (VAP); a group of
independent companies working together to manage the flow of goods
and services along their value chain. Some early American railroads
resembled VAPs (see Chapter 7) and they’re comparable in some ways
to the Japanese keiretsu (business society). The idea of the VAP survives
in the modern VAR (value-added reseller); a firm favored by an original
supplier, because it adds additional value to its products or services
before selling them on.
Whatever the motivations for such alliances and partnerships, they
all involve, to a greater or lesser extent, the teaming up of CEO-led
companies with other organizations that are not their servants or agents,
and whose life plans, although compatible with, are not subordinate
to theirs.
A 1995 study by consultants Booz-Allen & Hamilton, found that
the number of joint ventures, licensing deals, collaborative research,
exchanges of technology, and marketing alliances had exploded over
the previous decade. U.S. companies had formed only 750 partnerships
in the 1970s, but were forming thousands a year in the mid-1990s as
globalization was getting into its stride. The Booz-Allen study esti-
mated that revenues from alliances in 1995 accounted for 6 percent of
the revenues of America’s 1,000 largest companies, against less than 2
percent in 1987. The study’s authors concluded “a new chapter in the
evolution of free enterprise” had begun.
1
Another study by Andersen Consulting (now Accenture) in 1999
found that 82 percent of Fortune 500 executives surveyed saw alliances
as prime vehicles for growth; alliances accounted, on average, for 26
percent of Fortune 500 members’ revenues (up from 11 percent in

1994), and for 6–15 percent of their market value; executives expected
alliances to account for 16–25 percent of the company’s market value
9780230_230941_11_cha09.indd 166 09/09/2009 10:02
9 SIZE AND SHAPE 167
within five years. But there were downside risks. The study estimated
that the 15 most successful alliances had created $72 billion of share-
holder value, but that the 15 least successful had destroyed $43 billion
of shareholder value.
2
A study by consultants A. T. Kearney, found that the share prices of
the best exponents of partnership (those with a long history of successful
partnerships) outperformed their sector peers by over 5 percent, but
those with a poor record underperformed by nearly 12 percent.
3
Whether it is because of these downside risks, which may have more
to do with the inability of CEO-led companies to yield power, than
risks inherent in partnership itself (see Partnership problems below), or
because there are only so many seats on the strategic alliance bus, and
they are all occupied now, one does not hear so much about alliances,
joint ventures, and partnerships these days. In the late 1990s, alliances
between large, CEO-led companies were seen as the next “big thing”
and a lot was written about them. There is still plenty of talk of networks
and alliances of small firms, but the idea of partnership strategies at
large companies has gone out of fashion.
This is a pity, because the growth in partnerships between CEO-led
companies could, as Booz-Allen & Hamilton suggested, have been and
with luck may still be the start of a new chapter in the evolution of free
enterprise. It is difficult but healthy for all-powerful CEOs accustomed
to commanding to be obliged, if their partnerships are to thrive, to
negotiate, compromise, and concede. Partnerships only account for a

fraction of the total revenues of most CEO-led companies, but it’s a
vital fraction, because it is where business is going.
Imagine a company whose business relationships consist entirely of
partnerships; a company like ARM Holdings (see box below).
From an Acorn
Acorn Computers designed the world’s first commercial, single chip RISC (reduced
instruction set computer) in 1985 and used it in its Archimedes computer, launched
in 1987.
But
A
corn, based in Cambridge in the
U
.K., knew the potential market for its fast,
energy efficient chips, which were easy to program and had good code density (they
needed less memory than competing RISCs) extended way beyond personal
computers. I
n an effort to tap the wider market, the company “spun out” the
RI
SC
development team in
November 1990, to form Advanced RISC Machines (ARM).
9780230_230941_11_cha09.indd 167 09/09/2009 10:02
168 BUSINESS AT A CROSSROADS
The traditional way to exploit such a lead is to raise a bundle of money and set
up an integrated, design, development, manufacturing, and marketing business.
When
R
obin Saxby (now Sir
R
obin) was being interviewed for the job of

AR
M’s CEO
he proposed another approach. “My idea was to run lean and quickly, and get into
profit fast. We had outstanding people, a leading architecture and the chance to
transform it from an
A
corn, into a global standard. But we did not have the capital for
manufacturing.”
3
Saxby saw ARM’s raison d’être as designing and developing advanced RISC
processors and systems. ARM would stick to that. Everything else needed to make
A
R
M
’s chips world beaters would be provided by what Saxby called “partnering in
multiple dimensions.”
A
R
M
did not form partnerships from time to time as expedi-
ency dictated.
It
was built on them. “
Th
at’s the benefit of a clean sheet of paper,”
said Saxby. “We had no history so we could plan for [partnerships] from the outset
and concentrate on doing what we were best at.”
AR
M licenses its designs to its partners, who manufacture, develop applications
and market their products. “We can license to anyone we want,” said Saxby. “We

charge an upfront license fee and then a royalty per piece.”
O
ne important attraction
for
AR
M’s partners is that
AR
M’s multiple partnerships make it easy for them to
arrange local sources of supply.
A
nother attraction is the
AR
M practice of publishing
its product development plans, or “roadmaps” as Saxby called them.
T
his allowed
AR
M’s partners to plan their own product development around specifications for
more advanced chips that ARM had committed itself to developing.
T
he roadmaps exemplified
AR
M’s partnering philosophy, because they revealed
to partners product development plans that a conventional semiconductor company
would have regarded as highly confidential. Saxby saw it differently.
H
e wanted
AR
M’s partners to commit long term to the
AR

M architecture.
To
be willing to do that,
they would need, he believed, to know what
AR
M was planning. “It costs us and our
semiconductor partners, several million dollars to develop a new chip … we have to
be sure there are products ready and waiting for it.”
AR
M’s research and development is also based on partnerships, with universities
and other research institutions.
A
s Saxby put it, “We recycle intellectual property.”
AR
M was part of what Saxby called the “Cambridge keiretsu”; an autocatalytic
network of academic and business people, which spawned
AR
M’s parent,
A
corn,
and many other high-tech firms that have sprung up around the university town.
When
I
spoke with him in 1997, Saxby was happy with the results of the novel
business model that he had proposed at his interview six years earlier. Sales had
risen from less than £1 million in 1991, to £10 million in 1995, and after start-up
losses of £2 million, operating profits had reached £3 million. “
It seems to work in the
early stages, at least. We are self-funding and cash generating.” Sales and profits
were £42 million and £9 million respectively in 1998, the year

AR
M’s shares were
listed on the London and
NA
SDAQ stock exchanges. Saxby retired as chairman in
2006, leaving
AR
M in rude health.
I
n the year to
D
ecember 31st, 2008
AR
M revenues
were almost £300 million and pre-tax profits reached a new peak of over £100 million.
9780230_230941_11_cha09.indd 168 09/09/2009 10:02
9 SIZE AND SHAPE 169
ARM’s strategy, if one can call it that, is indistinguishable from its
partnership business model. In effect, it borrows its strategy from its
partners. It’s part of several distributed enterprises in several markets,
and its fate is the fate of all its partners. ARM sees itself and its partners
as members of a community. It claimed in a press release issued in
February 2009, for example, that the fact that over 60 “ARM Connected
Community” members would be showcasing ARM technology at the
forthcoming Mobile World Congress, in Barcelona, demonstrated “the
impressive strength and growth of the ARM ecosystem.”
ARM sees each partnership as long term. It has no idea of where it
will lead. It’s content to take one step at a time. Its people are inspired,
not by visions, but by faith in the RISC technology they have mastered.
They go where it leads. They have no desire to plan its life in detail.

They are great project planners, but they have no “strategy,” in the
normal sense.
The parasite’s strategy
The emergence of companies such as ARM, with what might be called
“reduced instruction set” strategies derived from the strategies of other
companies, is a sign of evolutionary activity reminiscent of the activity
Thomas Ray observed in his computer-simulated, virtual world, Tierra.
One of the problems in previous “Alife” (Artificial Life) research had
been that self-replicating computer programs were “brittle,” in the sense
that any mutation caused them to crash (in biological terms, they became
non-viable monsters that were invariably stillborn). Ray realized that the
quality of the genetic code that made it so robust when mutating, was its
small instruction set; only 64 instructions from the nucleic acid bases, are
translated into only 20 amino acids. Ray gave Tierra, which first went live
on January 3, 1990, 32 instructions, far less than conventional computers
and considerably less even than ARM’s RISC machines.
4
After Tierra had been running for a while a “mutant” appeared with
a slightly smaller instruction set, which quickly outnumbered its ances-
tors. A few generations later a program emerged with half the original
instruction set (too few to reproduce in the conventional way), which
depended on others to reproduce. These parasites were later displaced
in their turn by hyper-parasites, which reproduced by forcing other
parasites to help them by sharing their operating instructions. This led
to the emergence of “societies,” where each creature relied on at least
one other to reproduce.
9780230_230941_11_cha09.indd 169 09/09/2009 10:02
170 BUSINESS AT A CROSSROADS
Ray’s societies are strikingly reminiscent of ARM’s ecosystem, and
the Linux community (see Chapter 7).

Tierra and other artificial worlds have shown that parasitism is a
powerful evolutionary strategy, and there is no reason to suppose the
business world is any different. Few firms can produce without the help
of other agents and, as outsourcing and partnership-based enterprise
increase, companies in general are becoming less self-sufficient. The
way they cling to their core competences and key functions suggests
CEOs see this reduction of self-sufficiency as a weakness. Tierra suggests
the opposite. Plans that are so simple as not to deserve the name
“strategy” and must borrow instructions from other agents, are more
robust than conventional strategies, because they work with, rather
than against, the self-organization that shapes their environment.
Partnership problems
A partnership is a more complicated enterprise, both operationally and
psychologically, than an integrated, CEO-led company. It has a different
shape. It is bipolar, rather than monopolar, and cannot be managed by
command. A CEO who, for good business reasons, forms a partnership
with another company (or companies), must recognize this difference
in shape and adopt a different management approach that relies less on
power and more on persuasion.
In The Partnering Imperative, Anne Deering and Anne Murphy say
the essence of the challenge is the need to confront contradiction and
paradox. To succeed in the era of partnership enterprise, agents (individ-
uals and firms) must learn to value difference and make it work for them.
CEOs find working with difference hard going. “How can we main-
tain our sense of identity, while accommodating different ways of doing
business locally?” they wonder. “How can we allow our partners and
employees to grasp local opportunities, without causing chaos? How
can we develop understanding and trust and retain control? How can
we share without being exploited; open ourselves to the influence of
others and remain true to ourselves; share visions, when we see things

differently and see different things?”
The choice is between controlling partners, which risks alienating
them, and surrendering control, which risks chaos. (As we’ve seen in
Chapter 7, it need not be chaos – except in a technical sense – because
complex adaptive systems can organize themselves and reach a state
where things are under control, but no one is in control.)
9780230_230941_11_cha09.indd 170 09/09/2009 10:02
9 SIZE AND SHAPE 171
One way to look at the competition between the CEO-led company
and new forms of enterprise, such as the MaBE, is as an exploration of
a “relationship space.” CEO-led companies favor or are confined by
their nature within one particular area of the relationship space, while
other forms of enterprise are free to roam further afield to more
productive regions. Deering and Murphy aren’t as concerned as I am
with the structural implications of different regions of the relationship
space, but their “grid,” plotting relationships both within and between
partners according to their “ambitions” for the relationship on the
vertical axis, and “response to difference” on the horizontal, is an
elegant depiction of this space. It is worth summarizing the six boxes
generated by their grid.
3
Figure 9.1 The partnering grid
Reprinted with the kind permission of John Wiley & Sons Ltd
Command and control (bottom-left)
The widely held view is that the source of most of the problems in
relationships (including business partnerships), from the trivial, to the
life-threatening, is differences between the partners. This leads to poli-
cies designed to eliminate or minimize differences in goals, processes,
values, and behavior, typically by establishing standards and rules, and
requiring all parties to the relationship to comply with them.

Such relationships are based on formal contractual agreements, and
assume every contingency can and should be planned for in advance.
Great care is taken, in pre-contractual preparation, to ensure the part-
nership is “set up right.” In these relationships, it is usual for one
partner, usually the largest, to draft the rules. Because the partnership is
Command and control
Do and reviewHearts and minds
Arm’s length
Radically new
Gridlock
Promote
the positive
Ambition
(reason for
partnering)
Avoid the
negative
Avoid Tolerate Value
View of difference
9780230_230941_11_cha09.indd 171 09/09/2009 10:02
172 BUSINESS AT A CROSSROADS
merely a vehicle for completing a project, or a transaction, and consists
of little more than a formal exchange of resources, the relationship is
usually seen as short term, and its character usually reflects the character
of the dominant partner.
Hearts and minds (top-left)
In this box, difference is reduced by a search for alignment rather than
an imposition of rules. It’s assumed that if all the partners think alike,
they will work harmoniously and achieve the mutually desired outcomes.
When leaders stress the need for the partners to “sing from the same

hymn sheet,” they’re advocating this hearts and minds approach. CEOs
who believe that expressing a “vision” is the way to gain the commit-
ment of their people, tend to bring the same philosophy to their
partnerships.
Arm’s length (bottom-middle)
There’s always a tendency for perceptions of a partnership to move to
an adjacent box as partners’ attitudes to difference change. A partner-
ship that begins in hearts and minds, for example, may fail to achieve a
cultural fusion and move to command and control, or a command and
control partnership may mutate into arm’s length, when partners
become more tolerant. The latter move is inevitable when neither
partner is dominant and the relationship continues for any length of
time, because differences can only be papered over for a while. Sooner
or later they will become too obvious to ignore, and will have to be
tolerated if the partnership is to survive.
In arm’s length relationships, risk is managed by agreeing to
differ and formal procedures for resolving disputes. Good communi-
cations, and periodic checks on understanding, are seen as absolutely
vital in these partnerships. Flexibility is seen as valuable, as long as it
does not require the loss of too much identity. Relationships tend to
be distant and tinged with mild, mutual suspicion. As with all defen-
sive relationships, there is a temporary quality to arm’s length part-
nerships. They continue as long as anticipated benefits materialize,
but the partners reserve moral as well as contractual rights to with-
draw at their convenience, or seek other partners if the relationship
encounters problems.
Do and review (top-middle)
A relationship that tolerates differences but takes a longer term view than
an arm’s length partnership, requires more committed and trusting part-
9780230_230941_11_cha09.indd 172 09/09/2009 10:02

9 SIZE AND SHAPE 173
ners. Do and review extends arm’s length emphasis on planning and
process design, from the operational to the strategic aspects of the part-
nership. Partners accept that goals are multi-dimensional and should
change in response to new opportunities and threats. There is an ethic of
cooperation, an assumption that the partnership is long term and a focus
on learning and improving the partnership’s processes and systems.
There is a feeling of sharing a future as well as a present. These part-
nerships still move step by step, from project to project, but the purpose
of the reviews following each step is to learn how to improve the part-
nership, rather than to decide whether it is worth continuing with.
Gridlock (bottom-right)
This box is easy to enter from arm’s length, but hard to occupy for
long, because of inherent contradictions. Its location on the grid shows
it as lacking ambition, but valuing difference. Deering and Murphy say
these attitudes are hard to reconcile. If difference is regarded by both
partners as valuable, two things can happen. Its potential can be real-
ized, in which case the partnership will tend to become more ambi-
tious; or can fail to materialize (because of conflict, bad management,
or disagreements about the appropriate balance of power), in which
case partners will begin to doubt the value of their differences, and be
inclined to move to the left of the grid.
Radically new (top-right)
When differences are not merely valued but actively explored, the part-
ners may begin to see the relationship as a possible solution to the most
pressing problem of all; the need to change themselves utterly to cope
with a turbulent present and unpredictable future. In these circumstances,
the partnership is seen, not as an adjunct to each partner, but part of its
essence. Difference is valued and the perspectives of everyone in the two
organizations contribute to and define the relationship. Instead of seeking

a shared vision of the future, the partners seek a picture of their shared
present by exploring each other’s views and outlooks. They stop trying to
change, or convert each other (that would take them back to hearts and
minds) and embark on a joint search for the “common ground” on which
there are opportunities for profitable joint action.
The partnership is never defined – it is encouraged to emerge from
the day-to-day experiences of working together. All the prejudices of
separateness that made gridlock uncomfortable and frustrating are
abandoned, and a shared sense of destiny comes to dominate the
outlooks of all those involved.
9780230_230941_11_cha09.indd 173 09/09/2009 10:02
174 BUSINESS AT A CROSSROADS
Deering and Murphy say “radically new” should be seen as a hole in
the relationship space, because once you’re there, you are willing to
deal with all agents, wherever they are or see themselves to be on the
grid. Those in radically new will partner with anyone, the more different
the better, and their much wider choice of partners gives them a
competitive advantage.
Yielding power
On the Deering and Murphy grid the most comfortable habitats for a
CEO-led company are command and control, and hearts and minds.
The hierarchical shape of such organizations, and the power with which
it endows their CEOs, make the middle two boxes hard to enter, and
the radically new box virtually inaccessible.
Huge CEO pay packets contribute significantly to the immobility of
CEO-led companies in the relationship space, because moving to the
right of the grid involves yielding power and, as we’ve seen, only
omnipotence can justify enormous rewards.
Given the complexity of the modern business landscape, the
erosion of economic and technological frontiers and the endless

battle for competitive advantage, the inability of CEO-led companies
to yield power to partners, and to regard difference as desirable and
life-sustaining, is a serious weakness. The ability to attract and keep
good partners is becoming as crucial as the ability to attract and keep
good people.
Most CEOs of large companies probably realize they need to move
to the partnership area of the strategic space, but because they have a
personal interest in the status quo (in integrated, hierarchical organiza-
tions where they have all the power) many are unwilling to move to the
appropriate area of the relationship space. They play at partnerships on
the peripheries of their companies. Even if it could be shown to be in
the interests of shareholders, it’s not in their interests to move their
companies lock, stock, and barrel to areas in the relationship space
where they have less control, but from where I believe the successful
enterprises of the future will emerge.
A company that wants to move through the hole in the relationship
space should identify the business relationships where it has less than
complete control and use them as models for all relationships in a new
policy of multi-dimensional partnerships. Once the route through the
hole has been negotiated, however, what emerges at the other end
9780230_230941_11_cha09.indd 174 09/09/2009 10:02
9 SIZE AND SHAPE 175
won’t be a CEO-led company. It will be more like part of an MaBE
than a self-sufficient MuBE. It is a different world down there. There is
more energy and creativity, but less form; things are under control, but
no one is in control; speed and agility are more important than direc-
tion; intentional strategy is not simply useless, it’s almost inconceivable.
Other attributes of managerial capitalism, including management and
leadership, also lose much of their meaning.
CEO-led companies don’t fit in there. They’re too big, they’re the

wrong shape and they don’t talk right.
Creative conversation
Stepping through the hole in the relationship space requires a new style
of communication. I am referring here, not to the media, but to the
philosophy of communication. The electronic media will be important
catalysts in the emergence of MaBEs, but their potential to act as the
nervous systems of enterprises in which no one has control won’t be
realized unless those involved conduct themselves appropriately when
they talk to each other.
To see why a new communication philosophy is needed, we will start
with the uncontroversial idea that the potential of a partnership-based
enterprise is some function of the collective potential of its members
and associates. The challenge for the enterprise is to map this potential,
so that it knows roughly where the partnership can shine most brightly.
Changes in an enterprise’s environment, and thus its best fit with
that environment, are impossible to predict, of course. There’s no way
to avoid this uncertainty. The enterprise can only accommodate it by
staying flexible. Another, more soluble problem, however, is the effi-
ciency with which the partners communicate. They must have what
Bill Gates calls “high bandwidth” conversation, and the fact is that
conversation in CEO-led companies is anything but. It is corrupted
by creatures of hierarchy, such as politics, prejudices, false assump-
tions, and hidden agendas, which combine to prevent the full picture
from emerging.
It’s very hard, for example, for new members of a strategy team to
express doubts about official policies in front of people in whose hands
their chances of promotion lie. Unequal distributions of pay and power
tend to prevent free and frank discussion. An omnipotent CEO paid ten
times as much as anyone else in the room cannot expect his or her views
to carry the same weight as everyone else’s.

9780230_230941_11_cha09.indd 175 09/09/2009 10:02
176 BUSINESS AT A CROSSROADS
Dialogue, as opposed to CEO monologue, is essential in a situation
where power is distributed, because attempts to control and direct will
put the survival of the partnership in jeopardy. Dialogue is not easy. It
requires strict compliance with dialogue rules, such as turn-taking,
listening attentively, and being candid about one’s motivations and
what one assumes are the motivations of others.
Managers used to hierarchical relationships and the pecking orders
associated with them see dialogue as messy, inconclusive, and time-
consuming. It is true that getting everything out on the table and giving
all involved a chance to speak their minds, is not a recipe for quick deci-
sions. But speed is not the purpose. The great value of dialogue is that it
can reveal issues that would otherwise have remained hidden so that all
participants grasp the whole situation and can make better decisions.
In meetings in which everyone is a subordinate, or a superior, and all
but one are usually both, efficiency, clarity, and speed can be achieved,
but opportunities, threats, anxieties, suspicions, false assumptions, and
the ambitions of participants, any or all of which might, had they been
known, have led to different decisions, can’t be given their due
consideration.
Over the past 160 years or so large CEO-led companies have created
a great deal of value for their shareholders. I suspect that they, or rather
the resources they commanded, would have created a great deal more
value if they had been organized as partnerships, rather than tyrannies.
Partnership enterprise
The five qualities of the ideal workplace we identified in Chapter 1 were
“free,” “fair,” “reasonable,” “decent,” and “democratic.” It seems
obvious to me that these qualities are more likely to obtain in an MaBE
consisting of partnerships than in an MuBE commanded by a CEO.

The crucial advantage of a partnership over a CEO-led company,
and the main reason why I see the adoption of partnership-type systems
as a promising adaptation for MuBEs, is that it requires partners to
write their own stories. The story of a CEO-led company belongs to its
CEO. Its story is the CEO’s story. The organization’s size and shape
require the work of other employees to be broken up into jobs that are
more or less the same each day, and for employees to be treated and feel
as if they’re being treated as interchangeable components. They are
denied their own stories, for the sake it is assumed of economic effi-
ciency, and must seek self-respect outside work.
9780230_230941_11_cha09.indd 176 09/09/2009 10:02
9 SIZE AND SHAPE 177
CEOs have power, money, and story and they’re among the powers
that be who are candidates for public honors. In the U.K., for instance,
it’s a rare New Year’s honors list that doesn’t ennoble or knight several
CEOs. Such honors are recognition of great service to the country and
society. They are culminations of careers and stories, and presumably,
for those so honored, substantial contributors to self-respect.
That there have been angry demands in the aftermath of the
banking crisis for some bank CEOs to be stripped of their titles does
not alter the fact that CEOs get the recognition for business success
to which many contribute (see Chapter 6) while most people have to
seek self-respect and stories outside their work in sport, God, and
hobbies, for example.
It’s sometimes said that the importance of the U.K.’s constitutional
monarchy lies, not in the power it has, which is vestigial, but in the
power it denies to others. The weakness of the CEO-system is not so
much the power it gives to CEOs, which is excessive, but in the recog-
nition and stories it denies to others.
The argument so far

The “feminization” of company management advocated in the previous
chapter will change companies in several beneficial ways. It will make
them better places to work and reduce the toxic effect of the CEO
system on the liberal capitalist consensus. This chapter has argued that
the risk and costs associated with omnipotent CEOs and their grand
strategies will be further reduced if companies become more dependent
on other companies through partnerships of one kind or another. The
final chapter will look at other remedies for what ails big business,
including therapeutic decapitation.
References
1 A Practical Guide to Alliances, Booz-Allen & Hamilton, 1995.
2 Cited in: “Strategic Alliances: The Right Way to Compete in the 21st Century,” Maria
Gonzalez, Ivey Business Journal, September/October 2001.
3 The Partnering Imperative: Making Business Partnerships Work, Anne Deering and Anne
Murphy, John Wiley, 2003.
4 Evolution, Ecology and Optimization of Digital Organisms, Thomas S. Ray, Santa Fe Insti-
tute working paper, 1992.
9780230_230941_11_cha09.indd 177 09/09/2009 10:02
178
10 Corporate reformation
Management-speak is littered with the dried husks of English words
that meant something in everyday language, but which, through misuse
and over-use, retain only a vestige of semantic content in the language
of management. They go in and out of fashion. One doesn’t hear so
much about “paradigm shifts” or “re-engineering” nowadays, but
“global mindset” and “vision” still trip easily and frequently off
managers’ tongues, and “transformation” is a hardy perennial.
Transformation is what charismatic leaders do. They take an ailing
company by the scruff of its neck and transform it into a stellar market
performer. They are much more than change agents. They are, or at any

rate they are billed as, agents of metamorphosis. That’s what transfor-
mation means; a metamorphosis, a change of form or of character; an
alteration of function or of nature.
Something of the kind may occur eventually at companies that adopt
the adaptive strategies advocated in the two previous chapters –
promoting more women to senior positions and forming more business
partnerships. This chapter has a more modest ambition. It proposes
ways in which the large company can be reformed. Reformation isn’t as
fundamental as transformation. It simply means the amendment of
something that’s faulty, of a corrupt or oppressive institution or prac-
tice, for example; or the removal of some abuse or wrong.
Transformation is a long-term, evolving thing. Companies can begin
to reform themselves right away. But they need a reform objective.
We begin with a reform objective borrowed from one of my favorite
management gurus, the late Sumantra Ghoshal.
The Individualized Corporation
Ghoshal is best known for Managing Across Borders co-authored with
his friend and long-time collaborator Christopher Bartlett.
1
I inter-
viewed them at London Business School in 1997, soon after the publi-
9780230_230941_12_cha10.indd 178 09/09/2009 10:03
10 CORPORATE REFORMATION 179
cation of their earlier and, in my view, more interesting book, The
Individualized Corporation.
2
Ghoshal had a great line in cosmic marketing. He said that we were
privileged to be witnessing a very rare event in business history; the
emergence of a new corporate form. It had happened only twice before
and on both those occasions, the birth had been heralded by the return

of Halley’s comet.
When the comet passed earth in 1835, that fateful collision on the
Western Railroad, which led to Alfred Chandler’s MuBE (multi-unit
business enterprise) was five years in the future. When the comet
returned in 1911 this Mk. 1 company was reaching the limits of its
“complexity carrying capacity,” as Ghoshal put it, and managers such as
Alfred Sloan and Pierre du Pont would soon begin to experiment with
a new multi-divisional form, which would subsequently dominate the
world of business.
According to Ghoshal the Mk. 2 variant was approaching its sell-by
date when the comet returned in 1986. Its emphasis on planning and
(under the influence of Frederick Taylor’s “scientific management”
principles), its treatment of employees as cogs in a machine, were being
challenged by a new breed of management revolutionaries.
People like Jack Welch, at General Electric, and Percy Barnevik at
ABB were beginning to espouse a new philosophy that saw employees
as the prime movers in the process of value-creation. It was from this
philosophy that the “individualized corporation,” as Bartlett and
Ghoshal called it, was emerging.
“We looked at a group of top companies” Ghoshal explained “and
saw a different philosophy emerging, that challenges the idea that you
cannot run large companies unless you standardize behavior and treat
human beings as replaceable parts. It is not applicable in all contexts – it
is an approach to managing that sees individuals as the primary source
of value creation.”
The new form was immature, as its progenitors had been when Halley
heralded their birth, and Ghoshal and Bartlett (to reflect their partner-
ship, they liked to alternate the order of their names) expected it to have
been much improved by the time Halley’s comet returned in 2062, to
herald the next new business form. They insisted, however, that it was

much more than a mere refinement of the Mk. 2. They speculated that,
if Taylor had been alive to hear Welch say “the talents of our people are
greatly underestimated and their skills are underutilized,” or Barnevik to
talk of the “tremendous unused potential in our people,” he would have
known the game was up for scientific management.
9780230_230941_12_cha10.indd 179 09/09/2009 10:03
180 BUSINESS AT A CROSSROADS
The title of the book was chosen to reflect William Whyte’s thesis
in The Organization Man.
3
Whyte argued that corporations had
subjugated people, to maintain consistency and control. Bartlett and
Ghoshal argued that a new corporate form was emerging in which the
organization is subjugated to the individual, to nurture his or her
initiative and creativity.
I asked Ghoshal what was left for the center following such a role
reversal. Does it have any role at all when people are empowered and
assumed to be well able to manage themselves and, if so, what might it
be? Was business being drawn inexorably to the “virtual” form where
there is no center, or is there a new kind of corporate glue, or catalyst
that is value-creating, and can only be supplied by the leadership?
Ghoshal’s answer was “the secret lies not … in structures, programs
or incentives, but in a deep genuine and unshakeable belief in the ability
of the individual.”
It had long been acknowledged that a weakness of the Mk. 2 form
of organization was the way its bureaucratic style stifled individual initi-
ative. But previous attempts to reignite the entrepreneurial flame had
endeavored to by-pass bureaucracy, rather than fix it.
Managers of individualized corporations were not content to create
the odd pocket of entrepreneurship. They were trying to move the

entrepreneurial engine, lock, stock, and barrel, from the executive suite
to the front line. The challenge, said Ghoshal and Bartlett, was to
“release the entrepreneurial hostages” without compromising the
integrity of the organization.
It was an axiom of the Mk. 2 company that a little knowledge was a
dangerous thing on the shop floor. The only valuable knowledge was
embedded in the plan, or strategy. In the Mk. 3, “individualized”
company, management abandoned what Bartlett and Ghoshal called its
“quarter-century-long love affair with strategic planning,” and tried
instead to be as sensitive as possible to emerging changes. It saw knowl-
edge as very valuable on the shop floor, assumed that people were
innately curious, and naturally motivated to interact with and to learn
from each other, and did all it could to remove those features of the
Mk. 2 legacy that limit, impede or kill this natural motivation.
Too often the old Mk. 2 company became a victim of its success and
remained unmoved and immovable as its winning formula degenerated
to conventional wisdom, and thence to sacred cow. It could and did
refine its winning formula, but lacked the courage to relinquish it or the
ability to replace it. According to Ghoshal and Bartlett the new self-
renewing, individualized companies saw refinement as a continuous
9780230_230941_12_cha10.indd 180 09/09/2009 10:03
10 CORPORATE REFORMATION 181
process and sought improvements that would be seen in Mk. 2 compa-
nies as ludicrously ambitious.
Ghoshal began his explanation of how to turn a Mk. 2, into a Mk. 3
company with an olfactory metaphor.
“I visit Calcutta for a month every summer,” he said. “In down-
town Calcutta in July it’s 106 degrees, and the humidity is 99 percent.
I get tired and spend a lot of time in bed. I go to Fontainebleau [before
moving to London Business School, Ghoshal was Professor of Business

Policy at INSEAD] in spring, and I can’t take a leisurely walk through
the forest; the crispness in the air makes me want to run.”
“You can get the smell of a place in the first 20 minutes. In many
cases it’s the smell of downtown Calcutta in summer. The challenge is
to create the smell of Fontainebleau in spring.”
Bartlett and Ghoshal saw companies as portfolios of processes, and
assigned three key roles to top management (equivalent to the CEO, as
leader of the CEO system): stretching opportunity horizons and estab-
lishing performance standards; institutionalizing norms and values to
support cooperation and trust; and creating an overarching purpose
and ambition and challenging deep-seated assumptions.
“Purpose isn’t strategizing,” Ghoshal emphasized, “it is sharpening
the focus from the top, so strategy can emerge from the day-to-day
actions of people … It provides energy, and a sense of excitement and
direction. Strategy is emergent and induced.”
An important consequence of the idea of companies as portfolios of
processes, was the death of what Ghoshal and Bartlett called “the
Russian doll model of management”; management as a neatly nested
hierarchy of responsibilities. In the “individualized” corporation there
are no generic managers; just individuals in different roles that require
different abilities.
This is getting quite close to my idea of the multi-agent business enter-
prise (MaBE). In the hands of Bartlett and Ghoshal the Mk. 3, individual-
ized corporation becomes more like an integrated network than the Mk.
2 divisional hierarchy where horizontal relationships and information
flow are swamped by the organization’s essentially vertical dynamics.
But individualized companies have CEOs. “We do not see the
virtual corporation,” said Ghoshal. “Some professional and high-tech
firms will take that form, but our study suggests that there will almost
always be a center. It may be small, but there has to be a primary

engine to articulate, revise, and embed a sense of purpose. It is not
about creating a bunch of cowboys and cowgirls. It is about an abiding
faith in people.”
9780230_230941_12_cha10.indd 181 09/09/2009 10:03
182 BUSINESS AT A CROSSROADS
Ghoshal and Bartlett put their fingers on a number of vital issues,
and they made a strong business case for the kind of organization a
reformed MuBE could become. The “individualized corporation”
was, in a sense, a late 1990s entrepreneur-oriented development of
Douglas McGregor’s Theory Y, which held that people can manage
themselves and companies perform better when they trust their
employees to make decisions.
4
But Bartlett and Ghoshal weren’t interested in structure. For them
beliefs, ambience, and “smell” were more important than shape. They
saw the corporate form as an abstraction.
It is not an abstraction. Structure and size help to determine the
ambience and “smell of the place,” and a hierarchical shape, where all
power is in the hands of a charismatic leader whose pockets bulge with
options and restricted stock, precludes, whatever those CEOs might
say, a style of management based on an abiding faith in the ability and
entrepreneurial talents of frontline employees.
Although for a brief time it looked as if it might, the appearance in
our skies of Halley’s comet in 1986 didn’t herald the emergence of the
“individualized” corporation and the realization of Douglas McGre-
gor’s 30-year-old vision. It heralded, instead, the advent of shareholder
value maximization as the primary strategic objective, the associated
obsession with finance, the rise of the charismatic CEO and the execu-
tive pay explosion.
The CEO system obstructed the emergence of the company Ghoshal

and Bartlett described. It is the cause of most of the large company’s
problems and weaknesses. Something has to be done about it.
The regents committee
A CEO can get run over by a bus; get poached by a rival company or
lured away by a government post; lose the confidence of investors; fall
out with the chairman; get ousted in a boardroom coup; make a cata-
strophic decision; turn out to be incompetent; have a heart attack;
decide to spend more time with the family; get caught with his or her
hand in the till; or just quit for no apparent reason.
Companies can lose their leaders unexpectedly at any time and they
have to cope, one way or another. The chairman, or another C-level
executive, often the chief financial officer, is appointed acting CEO, the
nomination committee (NomCo) swings into action, head-hunters are
briefed, and an urgent search for a replacement begins right away. It is
9780230_230941_12_cha10.indd 182 09/09/2009 10:03
10 CORPORATE REFORMATION 183
a nervous period. The investment community, with its addiction to
charismatic CEOs, worries about who’s minding the store and assumes
that employees are rushing around like headless chickens. The strategy’s
on hold, because no one knows who the new CEO will be, let alone
what he or she will want to do. The agency of the business has gone.
Nothing happens, because no one has the power to act and no one
wants to pre-empt the new CEO for fear of starting off on the wrong
foot with the new Grand Panjandrum.
Losing a leader is an ever-present risk, with potentially damaging
consequences during the interregnum. Boards are obliged, by their
duty to shareholders, to mitigate all risk. One way for a board to
discharge their duty to mitigate this particular risk would be to appoint
what I call a “regents committee,” the stated task of which was to enable
the company to operate effectively without a CEO for extended periods.

Such a committee would be more like an executive committee,
than a board sub-committee. It might have a non-executive chairman,
but it would have no leader equivalent to a CEO, because such a
person would probably be a candidate for the vacant CEO position
and thus have a conflict of interest. Its membership could be chosen
by the non-executive directors. It would shadow the CEO system by
sending “observers” to strategy-formulation sessions and meetings
with key external advisers – lawyers, consultants, investment bankers,
and so on – establishing relationships with shareholders and the
investment community, including investment analysts and the finan-
cial press; and, by these and whatever other means are deemed to be
necessary, generally equip itself to assume the reins of power, should
a need arise.
During a regency a leaderless stand-by system would save money
and equity dilution (from grants of options and restricted stock), and
would also have many other advantages. It would reduce the urgency of
the search for a new leader, which would have the added benefit of
moderating the upward pressure on CEO pay. It would reduce the risk
of boardroom bust-ups and, during the time of the regency at any rate,
would reduce the sense of unfairness created by huge CEO pay packets.
By enabling the board to dispense with their CEO with relative impu-
nity, a leaderless stand-by system would also prevent a bad CEO from
destroying too much shareholder value.
Following the huge destruction of shareholder value in the banking
sector over the past two years, the merits of this last advantage scarcely
need emphasizing. It would be in accordance with Sir Karl Popper’s
dictum that the most important question in politics (and in business, in
9780230_230941_12_cha10.indd 183 09/09/2009 10:03
184 BUSINESS AT A CROSSROADS
my view) isn’t “Who should rule?” but “How can we so organize polit-

ical institutions that bad or incompetent rulers can be prevented from
doing too much damage?”
5
If regents committees made boards less reluctant to fire CEOs who
were intent on making “strategic” acquisitions at recklessly high prices
the alarmingly high M&A failure rate might be significantly reduced.
I would not expect a proposal to establish a regents committee to be
greeted with universal approval. The incumbent CEO, for one, is
unlikely to relish the prospect of a group of subordinates looking over
his or her (almost invariably his) shoulder, as he steers the corporate
ship. Nor is his replacement likely to be sanguine about joining a
company where he will be replacing, not the former CEO, but a group
of executives who have been running the company pretty well during
the interregnum, are well-connected with the company’s key constitu-
encies, and will remain together as an alternative base of power and
influence after his arrival.
I say “running the company pretty well,” because there’s no reason
to suppose a group of people who know the company well, are aware of
its resources and strategic options, have inherited a system of manage-
ment from the previous CEO and who are disinclined, in their caretaker
role, to take great risks, will not do a reasonable job. The longest inter-
regnum I can remember at a major U.K. company began when Martin
Taylor resigned unexpectedly as CEO of Barclays Bank in November
1998. When Matt Barrett, the distinguished Canadian banker who
eventually replaced him in October 1999, announced the group’s 1999
results a few months after his arrival, he revealed a 49 percent increase
in operating profits to £2.9 billion. Not bad for a company that
for most of 1999 had been operating with no CEO, under the non-
executive chairman Sir Peter Middleton, and a group resembling an ad
hoc version of a regents committee.

Although it’s unlikely that either Taylor or Barrett, or any other
incumbent or prospective CEO, would have welcomed the formation
of a regents committee, shareholders should approve, for the reasons
outlined above. The company’s employees should also take comfort
from the knowledge that, in times of leaderless uncertainty, there are
people they know, and who know them, at the helm.
Some companies might find they perform better without a leader and
decide they can dispense with charisma, give the money they save on
CEO pay to shareholders, and assign the CEO job to the regents
committee permanently. They might retain the name and maintain the
fiction for a while that they were still looking for the right man or woman,
9780230_230941_12_cha10.indd 184 09/09/2009 10:03
10 CORPORATE REFORMATION 185
if only to appease charisma-addicted investment analysts and journalists.
But if they performed as well as, or better than, their CEO-led industry
peers, the CEO position could remain vacant indefinitely.
If a regents committee is to play more than a stand-by role, much
thought will need to be given to its composition and constitution. How
will its members be chosen? If, in its original incarnation as a risk
management system, its members were appointed by the board, does
that remain appropriate for its role as a CEO replacement, or should it
be a “soviet” – a council of elected delegates? That word carries far too
much baggage for a capitalist institution, but the idea of a gubernatorial
committee of delegates or representatives (half of whom would, hope-
fully, be women) elected by the workforce and shareholders has a lot to
commend it. How long would members serve? What would be the
formal relationship between the committee and the board? What would
be the formal, legal responsibilities of the committee collectively and its
members individually?
These are important questions, because the answers will become the

model for the way that power is exercised and responsibilities are
assigned throughout the organization. If the CEO is replaced by a
committee of elected representatives, it’s inconceivable that old-style
command and control management could survive beneath it.
To many this is the nightmare scenario; a democratic plague sweeps
through the organization, sapping its disciplines and rigor, and robbing
it of direction and decisiveness. A company, once lean and hungry for
shareholder value, becomes a mere debating club capable of producing
nothing but hot air.
Possibly. If so, the company will go bust and those who talked too
much and did too little will be out of work. Competition will weed out
corporate democracy experiments that fail.
Corporate democracy
The Orpheus Chamber Orchestra’s experiment did not fail. Musicians
and executives found a way to produce sublime, award-winning music
year after year, without a conductor.
When first rehearsing a piece of music, a “core team” consisting of
the principal player, for that piece, from each instrument section decides
musical elements, such as tempo, interpretation, phrasing, and bowing.
The core team members are the “leaders,” chosen by the orchestra, for
that particular piece. “No one owns a chair; no one owns a principal
9780230_230941_12_cha10.indd 185 09/09/2009 10:03