w18 by christhebarker

Might as well face it, youâ&#x20AC;&#x2122;re addicted to work When will Amazon reach its sell-by date? Carter, Churchill and the surprising power of cultural competence The acronym thatâ&#x20AC;&#x2122;s really to blame for soaring CEO pay

Work. Because business is about people

Autumn 2018

Work.

Because business is about people

Google ‘cross-cultural business blunders’ and you’ll have plenty to choose from. Take the Iranian razor-maker which owned the brand ‘Tiz’. The name was fine in Persian (it means “sharp”) but offensive in Qatar where, in Arabic, it means “buttocks”. Other missteps include calling people by their first names in parts of India, not realising that “Yes” in Japan really means “I’ve heard you” and using dogs in advertising in the Middle East (where they are considered unclean). These are the kind of things that go wrong if we don’t do our homework when working with other cultures. As our feature on p20 reveals, the odd cultural faux pas is inevitable. Yet the best leaders learn from their mistakes – and don’t become so fixated on our cultural differences that they fail to see the similarities. After all, one characteristic we all share is a sense of humour, even if we often laugh at different things. Claire Warren, editor claire.warren@haymarket.com

Features in detail p4 Perspectives: distilled management thinking p6 15 minutes with… Sue Baker of Time to Change p12 Interview: Scottish Water p14 Cross-cultural misunderstandings p20 Leadership style: Oprah vs Richard Branson p28 Have we reached peak Amazon? p30 The real reason why CEO pay is so high p40 Q&A: Nesta’s Geoff Mulgan on innovation p48 All work and no play p54 Debrief: business research, reports and insight p62 Further reading p72 The off-piste guide to autonomy p74

The dogs of Amazon This year’s Amazon Prime Day delivered more than expected when the website failed to cope with traffic volume. Frustrated shoppers kept getting error messages – but the e-commerce giant softened the blow with pictures of employees’ pets. They proved so popular that Amazon released a charity calendar

FEATURES IN DETAIL

What next for Amazon?

p14

p20

p28

p30

It’s been a weird old summer right across the UK, something that hasn’t escaped the attention of Scottish Water CEO Douglas Millican. You wouldn’t normally associate Scotland with blazing sunshine, but temperatures soared close to record-breaking in July, and the company had to launch a ﬂeet of tankers to keep supplies ﬂowing in some areas. This is a company that is used to dealing with the weather, however. As Millican tells Claire Warren: “There is a huge amount of resilience in our teams.” That will come in useful as it works to meet the challenges of the future, notably an ageing infrastructure – some of the pipes and sewers date back nearly 200 years – and the potential implications of our changing climate.

On the one hand, it’s a relief the world isn’t one homogenised, interchangeable culture that’s exactly the same wherever you go. On the other, our differences can lead to unintentional insults and red-faced misunderstandings. Whether you accidentally declare your carnal love for Poland after your translator messes up, or you echo a US president and vomit on the Japanese prime minister because you’re too polite to refuse his sushi, it’s important to anticipate differences when working across cultures. Jane Simms presents a case for celebrating similarities, while acknowledging differences – something as simple as saying “we” instead of “I” can show you are a team player in a country, such as Japan, which values consensual decision-making.

What makes a good leader? Work. compares and contrasts two of the biggest names on the Forbes list of wealthy people – an American and a Brit who could not have come from more different backgrounds. In one corner we have Oprah Winfrey, who overcame poverty and abuse to become the ﬁrst female black billionaire in the world. In the other corner there’s Richard Branson, who now lives on his own private island but started out running a student magazine. Winfrey famously uses her own name as her brand (her production company, Harpo, is Oprah spelt backwards) while Branson, under the Virgin umbrella, has diversiﬁed into roughly 400 different companies. Their recipes for success? A cult of personality; a beardy, roguish charm; and some damnably impressive business acumen.

“We didn’t ascend from our hunter-gatherer days by being satisfied,” says Jeff Bezos, the perennially unsatisfied founder of Amazon, who has turned his creation into a global empire that sells books, web services for business, personal digital assistants, movies and TV series, music, public sector supplies, transport and groceries. Yet, Paul Simpson asks, will we soon reach peak Amazon? Competitors such as Alibaba, Tencent and Walmart are posing a more significant threat and Amazon itself is now so powerful that its HR practices, tax payments, delivery promises and data collection are being heavily scrutinised by regulators, rivals and the media. Bezos seems all-conquering now – like a chess grandmaster outplaying 103 opponents at once – but how long will his winning streak last?

Jane Simms is a freelance management journalist and was previously editor of Financial Director

Claire Warren is editor of Work. She was previously deputy editor of People Management

Paul Simpson is a business journalist and has written books on football and Elvis

Getty Images, Press Association, Richard Cannon

Interview: Cross-cultural Oprah versus Branson Scottish Water leadership

Focus on executive pay

Q&A: Nesta’s Geoff Mulgan

When work is an addiction

p40

p48

p54

According to the latest ﬁgures, a full-time UK worker (who earns a median salary of £28,758) would take 137 years to earn the same amount as a typical FTSE 100 CEO earns in a year. So just how did such enormous salaries become the norm? Take a closer look and it’s clear long-term incentive plans are the culprit. These were designed to align the interests of management with those of investors, but now account for over half of FTSE 100 CEO pay-outs. Some change could be coming. This year has seen an increase in shareholder revolts and scrutiny is increasingly coming from authorities. But, asks Adam Gale, are we asking the right question? Maybe the issue isn’t just about the effectiveness and fairness of executive pay, but what businesses are there for in the ﬁrst place.

“There are 101 deﬁnitions of innovation, but I use a really simple one: ‘new ideas that work’,” says Geoff Mulgan, who since 2011 has been in charge of Nesta (the National Endowment for Science, Technology and the Arts). Not all ideas are good for everyone, however – nuclear weapons being a case in point. It’s hugely important to maintain the momentum of innovation in society, given it’s at the heart of human progress, says Mulgan, who previously held roles in the UK government, including as chief advisor to Gordon Brown, but, he readily concedes, “I am a believer, with caveats.” Jeremy Hazlehurst ﬁnds out his thoughts on the rise of robot workers, intelligent systems and what the UK should be considering, post-Brexit.

Do you work with someone who lives a hamster-wheel, adrenaline-pumping existence, frantically rushing from A to B, driven by a compulsive desire for success? If so, asks Paul Simpson, would you say they are a workaholic? That description could equally apply to Thomas Edison, John Maynard Keynes and Alex Ferguson. Experts disagree over whether workaholism is an addiction and about what distinguishes a workaholic from someone who just puts in long hours. Yet in a world where people have worked themselves to death, where the gig economy threatens the very concept of a worklife balance and where many business cultures extol those who perform the modern equivalents of the labours of Hercules, the need for employers – and HR – to tackle this trend is more urgent than ever.

Adam Gale is editor of Management Today and covers business, leadership and technology

Jeremy Hazlehurst is a freelance journalist who has written for The Wall Street Journal, The Times and The Daily Telegraph

Debrief p62-71 Vocational training

Employers remain unaware of new T-level qualiﬁcations, which are designed to deliver a technical “skills revolution”.

Workplace behaviour

In a vicious cycle, if staff are bullied or subjected to angry confrontations, it can cause them to misbehave themselves.

Executive pay

FTSE 100 CEOs earned a mean pay package of £5.7 million in 2017, up from £4.6 million.

Agility

Strategic change often fails because organisations don’t take the human implications into consideration.

Networking

The higher the diversity of connections a CEO has, the more their company performance is boosted.

Rewards

Giving out an immediate reward can increase an employee’s intrinsic desire to pursue tasks.

Teamworking

Companies could beneﬁt from utilising mindfulness techniques in the workplace.

Alertness

A cup of coffee before meetings can energise discussions and boost team focus.

Career mobility

Youth and educational level are both key factors in determining whether individuals change jobs.

International

The UK is fourth for innovation globally, but once again Switzerland takes ﬁrst place.

Trust

The higher your capacity for guilt, the more you can be trusted, new research ﬁnds.

Impression management

Currying favour at work can backﬁre on both the employee and the organisation.

Innovation

With the right incentive there is an innovator to be found in us all, regardless of whether we think we are good at it.

PERSPECTIVES MANAGEMENT THINKING DISTILLED

Q&A WHITNEY JOHNSON

Personal disruption fosters innovation

How did you link disruption theory to people’s careers? I began thinking about it while reading Clayton Christensen’s book The Innovator’s Dilemma. Then, when I co-founded an investment ﬁrm with him, I realised the disruption framework and the S-curve model we were using to make investment decisions could also help managers understand shifts in individuals’ careers. How does that work? The S-curve, which is used to ﬁgure out how quickly an 06

What can managers do to stop that from happening? Hire for potential, not proﬁciency, and then facilitate the learning people need to climb the curve. Once their performance peaks, give them a chance to learn something new. What happens to organisations that don’t do this? They end up with too many people at the top of the curve, who will either leave or, if they stay, be too bored to innovate. And without innovation the organisation risks being outmatched by competitors. An A-team (a team that innovates) consists of people at different points of the learning curve. Encourage them to keep disrupting themselves and you’ll have an engaged and innovative workforce. Even if some people leave, others will line up to take their place because they know you are going to develop them.

AI will shift nature of HR management BENEATH ALL THE HYPE and anxiety about artiﬁcial intelligence, Avi Goldfarb sees confusion. Robots that can do everything we can are still decades away, and what we have today is prediction technology, he explained at the UK launch of Prediction Machines, co-written with fellow economists Ajay Agrawal and Joshua Gans. AI contributes to better decisionmaking by reducing the cost of prediction, which Goldfarb deﬁnes as using the information you have to generate information you don’t have. When something is cheaper, we use more of it, and things that complement it become more valuable. The co-authors give the example of a drop in the cost of coffee increasing the value of sugar, arguing that as prediction becomes cheaper, human judgement will rise in value. In future, many employees’ main role will be to exercise judgement. Subjective processes will be needed to take account of the complexity of the tasks these employees carry out and their individual strengths. This change means “AI will shift HR management toward the relational and away from the transactional”. Since the quality of judgement is hard to specify in a contract, less work will be contracted out and more will be kept in-house. Goldfarb is Ellison Professor of marketing at Rotman School of Management, Toronto

Ingrid Weel Media; Macy Robison; Platinum Studios; Internet Archive Book images

The theory of disruptive innovation doesn’t just explain how start-ups challenge and eventually displace industry leaders. It also applies to people, says Whitney Johnson. Personal disruption in the workplace – the movement of people from one learning curve to the next – drives engagement and innovation, argues the disruption theorist turned executive coach in her book Build an A-Team.

innovation will penetrate a market, has three stages: initial slow growth, followed by hyper growth, and ﬁnally, a tapering off of growth as the market is saturated. Applied to people, it means when you start something new you are at the base of the S. After a slow start lasting six months to a year, you move into the steep part of the curve where you are learning fast. That’s the fun part. But at the top of the curve, you get bored because you are no longer learning.

Words: Anat Arkin

Generating a wilful awareness of bias LIKE MANY OF US, Dolly Chugh sees herself as a good person who believes in equality and inclusion. Yet, she admits to clinging to antiquated gender stereotypes, letting homophobic jokes slide and other behaviour that falls short of her own standards. Regarding ourselves as good, despite occasional evidence to the contrary, does not make us bad people, says Chugh in her forthcoming book The Person You Mean to Be: How Good People Fight Bias. But it makes us unlikely to recognise when we are acting badly. To help build a better workplace we need to see ourselves as “good-ish”, which opens the way to growth. We can then see the privileges we take for granted, as men, for example, and use those to help others. Drawing both on her own and other scholars’ research into unconscious bias, Chugh looks at how we can move from the “wilful ignorance” highlighted by a recent Reuters poll showing that only 37 per cent of Americans believe minorities are not treated fairly, to “wilful awareness”. She also stresses the importance of including the excluded – perhaps by giving them airtime at meetings or credit for their work – and of educating and confronting people who act as barriers to equality. Chugh is associate professor, management and organizations dept, New York University

I N G P OI

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PERSPECTIVES

Should employment tribunal fees be reintroduced? The government has said it intends to bring back employment tribunal fees, scrapped last year by the Supreme Court. Ministers admit to getting the balance between access and affordability wrong but say fees discourage “vexatious’” claims. Have they got a point or are fees a barrier to justice?

EXPERTS’ VIEW KAREN JACKSON

MIKE CHERRY

Solicitor and managing director, didlaw

National chairman, Federation of Small Businesses

Fees clearly prevented people with valid claims from putting those claims forward. That’s the only explanation for the massive drop in the number of cases brought to tribunal while the fee system was in place. Relatively low value claims were obliterated, because if an employer owes you, say, £500, it may not be worth paying £160 to pursue that claim. Some people simply didn’t have the money to spend on tribunal claims, and the scheme designed to help low earners avoid the fees was in itself quite complicated.

We need a tribunal system that encourages workplace resolution of cases wherever possible. When a tribunal is needed, it should facilitate swift and fair outcomes.

The argument that fees deterred a huge number of people from bringing frivolous claims is nonsensical. Most employment lawyers see just the odd claim that has no chance of succeeding, and there are mechanisms for weeding out unworthy claims, with tribunals able to impose deposit and costs orders on claimants. What fees did was allow employers, who might previously have settled cases, to take a harder attitude because they knew employees could not afford to take them to tribunal. Fees were meant to contribute to tribunal running costs, but there’s no evidence the money raised came even close to covering these costs. And why should employees, some on the minimum wage, pay to enforce their employment rights? If they don’t have the means to defend those rights, there’s really no point in having employment laws.

The fees introduced in 2013 were excessive. On the other hand, the complete absence of fees risks creating an environment where legitimate claims are held in a queue behind cases that should never have made it to a tribunal. You need fees to ensure legitimate cases can progress, but any fee system must be fair and proportionate. We’ve yet to survey our membership about the impact of removing tribunal fees. However, we know across the country the number of claims brought by workers to tribunals has surged over the last year. This is naturally causing delays in processing genuine cases. Without proportionate tribunal fees, it’s harder to fund the expertise needed to deal with those cases. Tribunal claims can be costly for small employers. Unlike big corporations, they can’t set aside the time and money needed to ﬁght tribunals. So any new system should encourage alternative and workplace dispute resolution where possible, discourage vexatious claims and ensure cases that require a tribunal are resolved swiftly. One option would be a sliding scale of fees similar to those charged by county courts.

PERSPECTIVES

OM I N

Managerial feudalism

What difference does it make? As Hamel said in The Harvard Business Review: “A hierarchy of managers exacts a hefty tax on any organisation.” The direct financial costs are substantial, but it is harder to quantify the impact hierarchies have when they slow decision-making, limit debate and disempower lower level staff. Bureaucracy is often cited as a blight on the NHS, although last year a King’s Fund investigation found managers accounted for less than three per cent of the workforce. A bigger burden was over-regulation, complexity and a consequent rise in transaction costs. The “useless flunkies” probably suffer too – did the bureaucrats who spent $630,000 in 2011/12 buying Facebook likes for the US State Department regard that as fruitful labour? What can organisations do? In Graeber’s words, create fewer “bullshit jobs” and improve morale by giving staff meaningful work. Encourage selfmanagement – Hamel cites the Morning Star Company, in California’s San Joaquin Valley, the largest tomato processor in the world, with revenues of $700m and no supervisory managers. Every employee is a manager and encouraged to take personal responsibility for their part of the business. Brazilian entrepreneur Ricardo Semler did something similar 38 years ago, firing 60 per cent of top management and allowing staff to determine their salaries and hours. Semler says more companies are following his lead, as they try to adjust their working culture to suit millennials, but that too many “comply in a nominal and tricky fashion as they did with greenwash and sustainability”.

HR must be more outward-looking Reflection mindset aids future leaders MANY ORGANISATIONS are speeding up the development of future leaders, a trend Ines Wichert sees as driven by a shortage of leadership talent, coupled with the hunger of millennials for fast career progress. In her book Accelerated Leadership Development, the occupational psychologist concludes that with the right development, the 12-15 years it usually takes to move from graduate to senior exec level can be reduced by 25-30 per cent. Organisations achieve this acceleration by exposing rising stars to a range of roles and enabling them to develop the leadership capabilities needed. These include openness to change, comfort with ambiguity and curiosity. Emotional intelligence and the maturity to engage others through vulnerability are also qualities Wichert identifies as important for tomorrow’s leaders. But doesn’t maturity by definition take years to develop? “All the HR directors and business leaders I interviewed… stressed the importance of ensuring a breadth of experiences for emerging leaders, but also of embedding a culture of reflection – and it is this ‘reflection mindset’ that is key to developing maturity,” explains Wichert. Wichert is managing director of leadership development consultancy TalUpp

THE MAJORITY of the risks that affect organisations today are unpredictable, says Arturo Bris, pointing to political events, terrorism and even natural disasters. Traditional risk management techniques are little use in the face of such uncertainties, he tells Work. “The only way to protect ourselves from the unknown is to live in a constant state of awareness of what uncertainty can do to us – a kind of constant state of crisis management,” explains Bris, who will be speaking about the skills of effective HR leaders at this year’s CIPD annual conference. He argues that companies need to build a capacity for generating insights into what is happening in the world outside the business. Given HR’s involvement in skills development and recruitment, he sees the function playing a key role in this process. But those in HR, who are often overly focused on their internal customers, must become more outward-looking. “I think HR people should consider what happens with external customers, with external shareholders, with society. That’s something we are still far away from achieving,” says Bris, whose research interests include the relationship between income inequality, social mobility and competitiveness. Bris is professor of ﬁnance and director of the IMD World Competitiveness Center

AFP/Getty Images

What is it? A style of management in which statusseeking leaders acquire, in the words of London School of Economics anthropologist David Graeber, “feudal retinues of basically useless flunkies”. The “lean and mean” ideal applies only, Graeber argues, to the shopfloor, not management, where leaders employ people to enhance their prestige or, in some organisations, their salaries. In his view, this is especially prevalent in finance, insurance, real estate, the creative sector, education and health. Although Gary Hamel and other theorists have been advocating flat management structures for over a decade, “managerial feudalism” persists.

PERSPECTIVES

It's time to take care of ourselves FEARS TECHNOLOGY WILL fuel mass unemployment have led to a growing interest in the idea of a universal basic income. But for Muhammad Yunus, turning people into “beggars”, as he puts it, is no solution to the problems facing humanity. “We have the power to take care of ourselves, and if we take care of ourselves we take care of the world,” he told the recent Social Business Day, an annual event promoting social enterprise. While rejecting handouts for those displaced by robots and AI, the Bangladeshi economist doesn’t believe they should be jobseekers either. As evidence we are all innate entrepreneurs, Yunus points to the nine million villagers, nearly all women, who started small businesses with tiny loans from his creation, Grameen Bank. This view is central to the new economic system Yunus proposes in his recent book, A World of Three Zeroes. Arguing that capitalism today has produced dangerous levels of inequality, he says addressing the problem through charitable efforts and government programmes are inadequate. We need a new mindset that instead of restricting access to the market to “selﬁshness-driven” players, recognises the power of selﬂessness and gives people of every economic background the chance to solve human problems. Yunus is an economist and social entrepreneur

DAN SCHAWBEL

LEADERS WHO ENCOURAGE HUMAN INTERACTION AT WORK WILL CREATE MORE PRODUCTIVE AND COMMITTED TEAMS OVER THE PAST DECADE, the While some companies like Aetna workplace has become dispersed promote full-time remote work, as corporations champion remote others such as IBM and Honeywell work and employees demand more now require employees to be at the flexibility. Today, 70 per cent of office full-time. Apple has invested professionals work remotely at least $5bn in a new HQ to house over once a week. But while remote work 12,000 employees, for the purpose of can offer employees freedom, the encouraging social interactions and absence of physical team members idea sharing, while Amazon opened can also make staff lonelier and a rainforest building at its Seattle HQ unhappy. Our research has found to promote employee interactions remote workers are not as engaged, via a healthy environment. less productive and have less team Since people spend most of their commitment. A company culture is lives working, co-worker friendships hard to build when you matter. A Gallup study “Today, 70 per cent don’t see or hear other found 72 per cent of of professionals work employees with a best people for an extended remotely at least period of time. friend at work are more once a week” Collaborative apps, satisfied with their job instant messaging and – especially millennial video conferencing have and Gen Z employees, who view contributed to our ability to work managers as their ‘work parent’ and co-workers as their ‘work family’. remotely and organisations have Employees who have strong used such technologies to expand relationships with their teammates their reach, while also cutting costs. have their basic human needs What has gone relatively unnoticed satisfied, yet technology has created is that technology has created the a division between leaders and their illusion that today’s workers are employees. If organisations want to highly connected, yet those create stronger teams they need to connections are weaker than face-to-face interactions. use technology to encourage more, Email is the most common not less, human contact. communication vehicle, yet it is As technology continues to not always effective. Research by permeate the workplace, a leader's Western and Cornell universities responsibility will be to ensure it shows one face-to-face meeting is becomes a bridge to co-worker more successful than 34 emails. relationships instead of a barrier. Dan Schawbel is author of Back to Human: How Great Leaders Create Connection in the Age of Isolation. He will be speaking at the CIPD's annual conference

PERSPECTIVES

BEST OF Fresh thinking from the worldfamous incubator of ideas

SARAH DONNELLY Head of group secretariat, Westpac Working through cancer Going through cancer treatment, Sarah Donnelly found work kept her going. Of course, she turned to family and friends for support, but co-workers played a huge role in her day-to-day life. Yet many people in Donnelly’s position are told to go away and come back when they are better. Urging managers to offer employees a choice, Donnelly says: “We need to start positively engaging people with serious illness to keep them in the workforce, rather than paternalistically pushing them away.”

AMY EDMONDSON Novartis professor of leadership and management, Harvard Business School Turning strangers into a team Many people now work in temporary teams formed to solve new or urgent problems. Amy Edmondson gives the example of US hospitals where the average patient is seen by around 60 caregivers, who must coordinate their efforts to avoid tragic results. Clashing professional cultures are often a barrier to this way of working. But if leaders have the humility to admit they don’t have all the answers, and people are curious about what others bring, they will ﬁnd the psychological safety needed to take risks with strangers and turn into a team.

CEOs should make more time for staff WHAT EXACTLY DO CEOs do all day? Until now we didn’t really know, yet how CEOs allocate their time sends a powerful message to the rest of their organisation and determines what gets done, say Nitin Nohria and Michael E Porter. Their detailed examination of the schedules of 27 leaders of large companies, described in a recent Harvard Business Review article, How CEOs Manage Time, highlights the all-consuming nature of the job, with CEOs working an average of 62.5 hours a week. Face-to-face interactions, which the two leading management thinkers consider the best way for CEOs to exercise influence and learn what’s going on, take up 61 per cent of this time. Another 15 per cent is spent on the phone, or reading and replying to written correspondence, with the final 24 per cent taken up with electronic communications. In debriefings, all the CEOs in the study agreed that in some areas they could be making better use of their limited time. They often have trouble avoiding the “dangerous time sink of email”, prompting Nohria and Porter to suggest that many messages could be filtered

and relayed to others before the CEO sees them. Other recommended time management strategies for CEOs include having an explicit personal agenda, making meetings shorter and carefully choosing when to take part in routine activities such as review meetings or investor days. The study reveals that how leaders spend their days varies signiﬁcantly. This is especially striking when it comes to the time they allow for spur-of-the-moment meetings, which ranges from three per cent to 61 per cent of their working hours. CEOs who discovered during debrieﬁngs that they left little room for these meetings often recognised the need for change. As Nohria and Porter point out: “Spontaneity and accessibility enhance a CEO’s legitimacy.” And, they warn: “Leaders whose schedules are always booked up or whose PAs see themselves as gatekeepers and say no to too many people, risk being viewed as imperious, self-important, or out of touch.” Nitin Nohria is dean of Harvard Business School; Michael E Porter is director of its institute for strategy and competitiveness

TED; Susan Young, Elie Honein

FRANCES FREI UPS Foundation professor of service management, Harvard Business School How to build and restore trust Trust is fundamental to everything we do. But how can trust be restored if the CEO is caught disparaging an employee or people feel excluded, or worse? According to Frances Frei, we are more likely to trust people we ﬁnd authentic, rigorous in their thinking and empathetic towards us. So to build trust, be yourself, make your point crisply and logically, and put away your mobile because, as Frei says: “It is super difficult to create empathy and trust in its presence.”

PERSPECTIVES

JULIAN BIRKINSHAW

SUCCESS IN TOMORROW’S DIGITALLY DRIVEN BUSINESS WORLD MEANS HOMING IN ON WHAT MAKES US HUMAN – AND COMBINING THAT WITH SMART MACHINES THOSE OF US WORKING in business schools are trying to equip managers with the knowledge and skills to succeed in an increasingly digital world. At the same time, computer scientists are seeking to build machines that can simulate the qualities that make us human. It is tempting to view this as some sort of arms race between man and machine – a race the machines are winning. Computers can now beat humans at chess and Jeopardy, and are catching up in debating, medical diagnosis, image-recognition and driving. But I believe this competitive framing misses the point, for two reasons. First, winning a game like chess is very different from “winning” in business. A game has pre-deﬁned rules and a single winner. Business success is as much about breaking the rules as following them, and there are often many winners. Second, we don’t know which traditionally-human areas of expertise will be conquered next. Consider Moravec’s paradox: “It is comparatively easy to make computers exhibit adult-level performance on intelligence tests or playing checkers, and difficult or impossible to give them the skills of a one-year-old when it comes to perception and mobility.” The smarter questions to ask are: how can human intelligence be

combined with AI to achieve the most effective business outcomes? And what are the distinctive human qualities that computers struggle with? Through these questions, we can gauge the capabilities individuals need for tomorrow. Here are some initial thoughts: • Understand how AI works. We don’t have to become computer scientists, but we need to know enough about the algorithms to interpret their outputs and understand their limits. When “It is tempting to view this as some sort of arms race between man and machine – a race the machines are winning” driving, if your GPS suggests a route you ﬁnd surprising, you need to know what the recommendation is based on. If you understand the algorithm, you can legitimately overrule it when required. • Judgement and decision-making. Making good judgements involves weighing up different types of information and managing the trade-offs. It requires selfawareness in decision-makers, so they understand their own biases. And it requires good interpersonal skills, to ensure all perspectives are taken on board. These are all deeply human capabilities.

• Creativity and contrarianism. Every story of business success starts with a creative leap – an individual who deﬁed conventional wisdom, or a technological breakthrough. We have trained computers to be creative, but only within the parameters they have been given. If you want genuine, out-of-the-box creativity, you need human involvement. • Emphasise the personal touch. There are large segments of the population that value traditional human relationships. While the established retail banks are pushing online and mobile banking, ‘challenger banks’ are opening new branches and focusing on the personal touch, such as Sweden’s Handelsbanken and Metro Bank in the UK. And in investment management, robo-advisers are cheaper and often better at stockpicking than humans, but most clients still value talking with an empathetic advisor. All these competency areas are already part of the conversation, so I am not suggesting wholesale changes in what business schools and corporate universities teach. But homing in on our distinctively human qualities and our capacity to get the most out of the smart machines that surround us, gives us the potential for a competitive edge in tomorrow’s AI-driven world.

Julian Birkinshaw is deputy dean (executive education) and professor of strategy and entrepreneurship at London Business School

minutes with...

Sue Baker OBE The global director of Time to Change on mental health and living for the day

On starting out at Mind Mind was my dream job but the odds were stacked against me. The media’s narrative around mental health was terrible. I remember being live on ITV News after George Harrison had been stabbed by schizophrenia sufferer Michael Abram, a day after he’d been released from a secure clinic. I was trying to say it was tragic, but not representative of most people with mental health issues. But we were seen as a radical charity. On making progress Stigma about mental health – especially in the workplace – has changed dramatically. Mind used to run a ‘Bigot of the Year’ 12

award for journalists who refused to understand the issue. We don’t run them now. A survey I started into the extent to which mental health discrimination exists in society and the workplace is now the biggest data set charting improvements in public perception. I’m not saying we’re there yet, but attitudes have now shifted positively by 9.6 per cent, and reported discrimination has fallen from 42 to 23 per cent over the last nine years. On employer attitudes A consequence of our success is that some employers have been left feeling ‘everyone now has a mental health problem’. I’ve seen them roll their eyes and argue people should just ‘toughen up’. My response is that there’s a big difference between someone with a mental health problem and someone who has an occasional spell of unhappiness. We all have mental health – it should just be something we acknowledge needs nurturing all the time. On facing my own battles I’ve been open about my own battles with mental health. I’ve had severe depression, anxiety and suicidal thoughts. I also live with the fact I’ve been diagnosed with a terminal cancer. But what has surprised me is that even I left talking about it till almost too late. I assumed it couldn’t impact me,

because I knew too much about it. I remember trying to hide my pain; I didn’t want people to feel I couldn’t cope. I should’ve practiced what I preached! On how depression has shaped me The strange thing about having a mental health problem is that – in my case, anyway – I’ve become more resilient and more aware of my own self-care: things which I feel my employer has benefited from. You have to re-engineer your psychological self, and that can be beneficial. Even though I have a constant shadow over me [my cancer], I live for each day. Every morning I use the first five minutes of my train journey into work to appreciate my surroundings before I even unpack my laptop. On ‘the job’s not done yet’ When I was off work during a bout of depression, I remember looking at the woman at the till in a supermarket, thinking, ‘Even doing this would be better than returning to full-time work at Time to Change.’ No disparagement intended. But then I thought: ‘No, this is who I am. The job’s not done yet.’ There’s still a big task ahead for me, around things like training line managers to recognise the tell-tale signs that might indicate poor mental health. I intend to do it for as long as possible.

Interview: Peter Crush. Portrait: Andrew Ferraro

On realising my vocation I had my ﬁrst, hard exposure, to the debilitating effects of mental health when I was at college. My friend was diagnosed as bipolar and I saw the social isolation it caused her. Back then, while the phrase ‘mental health’ existed, its whole frame of reference was different: it was all about the ‘nutters’ and ‘schizos’. When my dad started suffering from depression – he lost his job because of it – I knew I needed to ﬁnd a job that could help change perceptions. I decided then to work for mental health charity, Mind, which I did in 1993, when the role of head of media came up.

Time to Change

The social movement was launched in 2007 by charities Mind and Rethink Mental Illness and is led by Sue Baker OBE. Time to Change works with schools and communities and has encouraged more than 900 corporates to sign up to a pledge to create cultures where staff can be more open about mental health.

Ode to Leven Water On Leven’s banks, while free to rove, And tune the rural pipe to love, I envied not the happiest swain That ever trod the Arcadian plain. Pure stream, in whose transparent wave My youthful limbs I wont to lave; No torrents stain thy limpid source, No rocks impede thy dimpling course, That sweetly warbles o’er its bed, With white round polished pebbles spread; While, lightly poised, the scaly brood In myriads cleave thy crystal ﬂood;

interview

Devolving from thy parent lake, A charming maze thy waters make, By bowers of birch and groves of pine, And hedges ďŹ&#x201A;owered with eglantine. Still on thy banks so gaily green May numerous herds and ďŹ&#x201A;ocks be seen: And lasses chanting oâ&#x20AC;&#x2122;er the pail, And shepherds piping in the dale; And ancient faith that knows no guile, And industry embrowned with toil; And hearts resolved and hands prepared The blessings they enjoy to guard! Tobias Smollett (1721-1771)

Water has long fascinated the Scottish bairds but, as Claire Warren discovers, its supply and management faces a series of challenges in the years to come – from crumbling pipes to the vagaries of climate change

ORDINARILY WE BARELY THINK ABOUT IT: turn on the taps and fresh clean water comes out. But this hasn’t been an entirely ordinary summer, with roasting temperatures across Europe, and the Met Office forecasting hotter than normal conditions for the UK until October. North of the border, Motherwell briefly claimed the record for the highest temperature ever recorded in Scotland, at 33.2°C on 28 June, before the Met Office discounted the figure on the grounds that a vehicle with its engine running may have contaminated the results. For Scottish Water, this year’s weather has forced it to take some unusual steps: deploying up to 30 tankers a day earlier this summer in a round-the-clock operation to transport water to areas with dwindling supplies. But this is a company that is used to having to pull the stops out to deal with extreme weather – the coldest UK temperature on record, -27.2°C, was first seen in Braemar, Aberdeenshire, in January 1982. “It can be quite pressurised for some of our remote teams,” says chief executive Douglas Millican. Intense storms off the Atlantic coast, for instance, can leave operational teams on the Western Isles battling the weather on multiple sites. “It’s a demanding role but there is a huge amount of resilience in our teams and pride in being the face of Scottish Water in their areas.” The fourth-largest water and waste water services provider in the UK, with an annual turnover of around £1.2 billion, Scottish Water serves 2.49 million households in an area of over 30,000 square miles – a third of the area of Britain – with 6,800 miles of coastline. It provides 1.37 billion litres of water every day, drawn from reservoirs, underground lakes and lochs, and takes away 921 million litres of waste water. While the water industry was privatised in 1989 in England and Wales (Welsh Water is now a not-for-profit), Scotland’s water service remained in the public sector, transferring from local authority control to three regional authorities in 1996, and then into one, Scottish Government-owned entity in 2002.

At the time there was a fundamental need to transform efficiency and performance. “We were reckoned to be about 40 per cent off the pace of the leading English companies in terms of efficiency,” says Millican, who has been with Scottish Water since the outset, ﬁrst as ﬁnance director and, from February 2013, as chief executive. There was also a huge investment programme to deliver, particularly to bring sewage treatment up to modern European standards, that would have seen charges in the north of Scotland sky rocketing under the old model. Those early years were all about driving operational efficiency, almost to the exclusion of all else. “We were doing huge employee downsizing but we did try to make sure people left with a smile on their face,” says Millican. “We weren’t doing a lot of investing in people at that stage, it was all about rightsizing the organisation.” Over the next few years the focus shifted to service and performance, while the last seven years or so, he says, have been more balanced. “We are trying to make progress on a variety of different fronts – to continue with the efficiency agenda and the last steps of the customer service aspects, delivering big investment programmes, trying to become more innovative but at the same time investing heavily in lots of different facets of the people agenda.” Scottish Water has managed to keep price rises low in recent years (at 1.6 per cent), one of its core ambitions, together with delivering a leading customer experience (it’s always possible to “talk to a human”) and increasing the reliability, resilience and sustainability of services. But it faces an uphill battle. There are almost 100,000 kilometres of pipes and sewers, some of which date back nearly 200 years. Replacing the entire asset base would cost £70 billion or £700m annually when you consider that the average lifespan of its infrastructure is estimated to be 100 years. “When we look at the challenges that we have got around replacing our infrastructure, we see an eyewatering potential price tag,” says Millican. “And when I look at our three ambitions, any one of those ambitions in isolation would be fairly easy to do, even two would be

THE SHAPE OF WATER 1325

1460

Friars lay a pipeline from a spring into Cambridge. Religious communities get a good name for water management.

A system of lead pipes is laid under the streets of Hull; householders pay for pumps to extract the water.

1582

The ﬁrst water pumped by mechanical means in London begins on Christmas Eve, via a waterwheel on London Bridge.

1584

Sir Francis Drake helps to persuade parliament to build a system to bring water 27km across the moors to Plymouth.

interview

Alan Donaldson

Scottish Water needs to spend £700m a year to maintain its assets but has pledged to keep prices low. Key to that, say Shirley Campbell and Douglas Millican, will be people and their ability to innovate

relatively straightforward. Trying to deliver all three is everybody’s role. It’s everything from light bulb moments, where the challenge lies.” doing something radically different, right the way through With such a large asset base things can – and always to actually just doing something a bit better,” says Millican. will – go wrong. Nearly 500 million litres of water a day But while a lot of progress has already been made – was lost through leakage in the 2016-17 ﬁnancial year, especially around new technology and working in although this is a reduction of more than 55 per cent since partnership with others – there is plenty more to do, 2006. The key, says Millican, is to smartly manage the particularly ensuring that “when we do get great innrisk. The company has already done a lot of work to get ovation, it is well-shared and well-embedded”. much more real-time insight into what’s happening Extensive use of people analytics is also helping the within its infrastructure but, ultimately, achieving its company to deliver on its ambitions, and identify the ambitions will rely on people and their ability to innovate. organisational time bombs that could derail its efforts. The company appointed its ﬁrst innovation manager Unusually perhaps, the people directorate, led by director about nine years ago. In the early days it was very much for people Shirley Campbell, has accountability for the “his thing”, but over the past few main locations, giving it an years it has worked to develop a overview of workplace utilisation process around innovation, to “When we look at the challenges across Scotland. This has helped demystify it and to use simpler it to produce an increasingly we’ve got around replacing our more accessible language. “I think sophisticated people report across infrastructure, we see an eyewe have now moved to a place a range of issues which, Millican where it is absolutely recognised points out, gave the business a watering potential price tag” • that innovation should be part of wake-up call a few years ago.

1596

Britain’s ﬁrst ﬂushing toilet is designed by Queen Elizabeth’s godson. Joseph Bramah perfects it in 1778.

1847

Polluting drinking water is made a criminal offence, but it’s not until 1885 that it is checked for bacteria.

1865

1930s

In response to the Great Stink of 1858, Joseph Bazalgette creates a system of intercepting sewers that still serve London.

The routine way to treat water is to ﬁlter out objects, treat it with aluminium sulphate and chlorinate it to kill bacteria.

“We woke up to the realisation that, my goodness, not that you remain skilled, equipped, relevant and have only do we need to make sure we can replace people as significance into the future,” says Campbell. Previously, staff that were at risk of redundancy or they retire, but how do we make sure we can accelerate people through the ranks, so we have senior managers whose role had changed would be referred to the ESP – and directors who can take over roles in the next five to 10 the employee support programme – a move that effectively “put you on the bench”. The plan, which will be shared years?” he says. As a result of that insight, Scottish Water launched its with senior leaders in the autumn, is to relaunch the ESP future leaders programme, the third wave of which has as an adjunct to the internal technical skills academy, recently kicked off. So far around 80 participants of both removing the negative connotation and providing an area where staff can be reskilled and potentially redistributed genders have joined the two-year programme. “Whereas in the past we might have struggled to have to other parts of the organisation. Collaboration with other organisations will be key to even one candidate, we are now developing a cadre of Scottish Water’s future success, believes people so we will absolutely have choice for Millican, pointing out that the company now our senior roles, says Millican. “That’s been generates around two per cent of Scotland’s a radical change over the last three years.” electricity. Most of that is via wind turbines, As part of the programme, participants are but it has also entered into agreements with expected to take on a series of ‘managed electricity companies to look at new forms of moves’ to help improve their versatility, TIMOROUS BEASTIES power. It has a food waste digester on its land, breadth of experience and readiness for senior takes in waste from a number of local roles. This includes gaining customer and which Scotland’s myths and authorities and businesses and converts that commercial experience, as well as taking on legends have been to energy. It’s also looking at how to tap into roles leading people and leading change. inspiring writers, artists and poets for centuries. the heat from sewer systems and use that “I think in the first wave the notion of The kelpie, a water to generate renewable energy for adjacent managed moves was more controversial: there horse, is said to haunt public buildings. One scheme is already up and was a reluctance from individuals to make lochs and lonely rivers, running and there are more in the pipeline. those moves, particularly if they’d come from looking for victims to take to a watery grave. Scotland already does collaboration very a technical area,” says Campbell. “But it is now Selkies were believed well, Millican says, but the regulatory model very much the organisational norm.” to be able to transform surrounding the water industry is proving to Dealing with the downsides of an ageing at will between human be another enabler. Both Scottish Water and population – 40 per cent of staff are over and seal form, while the its regulators (there are several) are all 50 years old – took a completely different Blue Men of Minch lived in the water looking for accountable to the Scottish Parliament, so approach. “Rather than regard it as a problem, boats to sink, and the meet through various fora. we thought, ‘What can we do to make it a bit Bean-Nighe (washer “What that means is that when we get into of a virtue?’ So we talk here about a blend of woman in Gaelic) was a the forward-looking dimension it’s very easy youth and wisdom enabled by digital techfairy that was seen as an omen of death. And to get the same people round the table to nology,” says Campbell. then there’s Nessie. In debate what is the right thing for the future of A few years ago, the company began 1934, a London the water industry in Scotland,” he says. “The proactively taking on more modern appsurgeon took a photo quality of conversation and rethinking how rentices, doubling the numbers to around 140, that would forever put things can be done better in the future is and buddying them up with older workers. Loch Ness on the tourist trail. Many absolutely superb here.” The idea, says Campbell, is that more sightings have been experienced workers who don’t want to retire Those conversations could prove to be proved to be hoaxes, stay on flexibly and pass their knowledge on, crucial. Current projections suggest an inbut the legend lives on. so that by the time they do leave there is crease in rainfall intensity of around 45 per “a modern apprentice who is ready to go”. cent over the next 30 years would cause a Focusing on the longer term is essential for a company 90-135 per cent increase in water volume in the sewers. that is responsible for Scotland’s water and waste water “Our climate is changing now,” says Millican. “We are not just now but for decades – if not centuries – to come, seeing longer periods of dry weather and then periods of and employees need to play a big part in that. At the end of more intense storms.” During those storms, water has to last year, 21 all-employee events were held, aimed at go somewhere and the challenge, for a business that getting staff, who can be highly immersed in the day to already faces a huge bill to simply renew its existing day, to lift their heads and think about what might change infrastructure, will be to find a way to deal with this and in the years to come, and how that might influence how other issues without spending millions of pounds on new Scottish Water operates. assets. This summer’s unusual weather only serves to “We were sowing seeds that your job may look very highlight how soon those challenges might arrive. different tomorrow but as far as we can, we will work with For further reading, see page 72 you and support you through that particular transition so 18

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20/08/2018 10:49:30

On his ﬁrst state visit to Poland in 1977, US president Jimmy Carter's badly translated speech did nothing to improve relations with Polish leader Edward Gierek

History is littered with embarrassing cross-cultural misunderstandings. But, as Jane Simms discovers, the most effective leaders learn from their mistakes 20

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“I WANT TO HAVE CARNAL KNOWLEDGE OF THE POLISH”

cross-culturalism

n his state visit to the UK back in July A middle child, he says he learned to negotiate between US President Donald Trump seemed to his warring siblings, and honed his diplomatic skills break every rule in the book. Most during a fast-track promotion scheme in the navy. conspicuously, when he and the Queen “I had a sheltered rural upbringing in the Cotswolds inspected the Coldstream Guards at and it was a bit of a culture shock going to sea with a Windsor Castle, he breached royal protocol by not just bunch of inner-city kids who knew you were going to be walking ahead of the monarch, but also stopping in their boss. They gave me a hard time but you have to front of her, meaning she had to manoeuvre around him. work out why – and you have to develop chameleonWhile Trump’s behaviour may seem inappropriate type strategies without selling yourself out.” to some, he clearly sees no need to adapt his style to the But how does this translate into dealing with the occasion. When he visited Israel earlier in the year he Japanese, who are at the opposite end of the spectrum spent just 15 minutes at Yad Vashem, the Holocaust to the British on nearly all of the scales identified memorial, and left a brief but buoyant note in the Book by INSEAD professor and cultural expert Erin Meyer of Remembrance: “It is a great honor to be here with all in her 2014 book The Culture Map? When it comes my friends – so amazing + will never forget!” to communication, for instance, while the UK is Yet even US presidents who take a more sober a relatively ‘low-context’ player – for us, good comapproach to international diplomacy can get caught out. munication is precise, simple and clear – Japan is On a state visit to Japan, George Bush Sr sat valiantly exceptionally ‘high-context’: so sophisticated, nuanced through a banquet featuring large quantities of sushi – and layered that to understand what they mean you not his favourite dish – only to throw up in the lap of the have to ‘read the air’. Marry this with other cultural Japanese Prime Minister before passing out. Jimmy (and on the face of it contradictory) characteristics, Carter hired a translator on a state visit to Poland such as a very hierarchical structure combined with in 1977, but it turned out that his expertise in translat- consensual decision-making, and unwillingness to ing written English into Polish challenge a superior combined didn't extend to the spoken with respect for age rather than word. He managed to mangle ability, and what you have is a “The secret is to listen Carter’s declaration during his cultural minefield. opening speech that he was Dormer recalls an early and watch, and not be happy to be in Poland, and had meeting with his Japanese tempted to jump in with “come to learn [their] opinions bosses when he thought they’d your point of view” and understand [their] desires reached an important decision, for the future” into a suggestion but realised that “while their that the president desired the mouths said yes, their eyes said Poles and apparently wanted to grasp their private parts. no”, and he admits to initial frustration with his young While we can’t always avoid cultural faux pas, the Japanese team when they wouldn’t challenge him. ability to recover from one is a hallmark of a successful “You can’t fight things, because it’s so ingrained in cross-cultural leader, says Andy Molinsky, professor of their DNA that you’ll just be banging your head against organisational behaviour at the Brandeis International a brick wall,” he says. The secret is “to listen and watch, Business School, and author of Global Dexterity. It’s and not be tempted to jump in with your point of view, about having a learning mindset and the ability to self- or talk at people. You have two ears, two eyes and one reflect, he says: “No one wants to commit cultural mouth, and you should use them accordingly.” mistakes, but they are the very best way to learn.” Carlos Ghosn, the Brazilian-Lebanese-French Even the most natural cross-cultural leaders have to businessman who achieved superhero status in Japan work at it. Alistair Dormer, group CEO of Hitachi Rail for reversing the fortunes of carmaker Nissan, appears (known for its Shinkansen ‘bullet trains’), is a case in to have got it right. A few years ago he was ranked point. His position itself defies Japanese cultural norms number seven, two places behind Barack Obama, in a – he’s the first non-Japanese CEO of a Hitachi business, poll asking Japanese people ‘what celebrity they would and joined the company as UK managing director in like to run Japan’ and his life story was even turned 2003 at the tender age (in Japanese terms) of 39 to into a series in a manga comic book. spearhead its entry into the UK market. The decision of Ghosn achieved this cult status despite cutting jobs, parent company Hitachi Ltd to relocate the global rail plants and suppliers, and imposing dramatic structural headquarters to London four years ago is testimony to and cultural change on the business – including elithe trust that has built up between Dormer and the minating seniority and age-based promotion, removHitachi top brass over the intervening 15 years. ing guaranteed lifetime employment, changing the “You do have to work at it,” says Dormer. “But, as official company language to English and including with emotional intelligence, some people seem to have European and North American executives in key global • certain characteristics or experiences that help.” strategy sessions. 21

The fact that he is multilingual – he speaks French, If Only They Didn’t Speak English. If we thought of Portuguese, Arabic and English fluently, and studied Americans as “the foreigners” that they are, suggests Japanese while he was running Nissan – will Sopel, we’d make more effort to understand them. undoubtedly have helped, but he was effective because The US has proved a tough nut to crack for many a he listened and sought to resolve problems through blue-chip British brand, including Marks & Spencer, cross-functional and cross-cultural team working; and Tesco and The Body Shop, which, seduced by the he was visible not just around the company, but also in apparent similarities between US and UK customers, the country. He helped to lead recovery efforts after were caught out by the considerable differences. Pret the Japanese earthquake and tsunami in 2011, A Manger’s first attempt to conquer Manhattan, communicating encouraging messages on Japanese TV spiritual home to the deli, in 2001 was a little rocky: and, despite its proximity to the damaged Fukushima probably because, in the words of then chief executive Daiichi nuclear power plant, his frequent visits to the Andrew Rolfe, “We’re going to do it our way and see Nissan engine plant after the earthquake helped it what happens.” return to full operation earlier than expected. While New Yorkers appreciated the fast service and Not all foreign CEOs fare so well. Howard Stringer, efficiency of Pret outlets, they were less enthusiastic a Welsh-born American, was Sony’s chief executive about the liberal use of mayonnaise, butter on the between 2005 and 2012, presiding over a difficult period cream cheese bagels and the absence of soup. However, during which the company saw record losses. Right after adapting the menu to the American palate the US from the start Stringer came up against cultural is now Pret’s most significant market outside of the UK. differences, telling the Financial Times in 2012 that The Americans are guilty of the same cultural when he took the job he had been unaware that the imperialism, of course: witness the global ubiquity of company was also planning to simultaneously appoint Coca-Cola, McDonald’s and Nike, which have been as president an engineer called Ryōji Chūbachi, who, successful for decades with very little local tailoring. with overall responsibility for “As an economic superpower, electronics, held the power. it is easy to become complacent “They didn’t tell me that when because the rest of the world “When you are in and of I took the job,” he told the FT. comes to you,” says Allyson “They said I was CEO … The Stewart-Allen, a UK-based a culture ... it is often difficult CEO is in charge in America.” American inter-cultural-working or even impossible to see He started learning Japanese expert and author of Working that culture” but (so the story goes) after a with Americans. “America thinks year someone told him he it is the greatest country in the sounded like a baby and, given world and because we think the Japanese perception that if you talk the language we’re amazing, we expect everyone else to think the badly you do everything badly, he gave up, relying same. But the world is not like us and doesn’t want to be instead on a small group of secretaries to act as his eyes like us, and that’s become much more apparent since and ears at Sony HQ. November 2016.” Sony’s difficulties were certainly about more than As with every national culture, US history determines cultural differences. In the year preceding its record much of what Americans do and think, says Stewartloss it had to contend with the earthquake, production Allen: “People have always gone to America because they difficulties and a strong Yen, but it’s interesting to look want to be American, and the US has a highly normative at Meyer’s Culture Map here. On the trusting scale, culture in terms of ‘training’ you to be American.” Japan and Brazil are highly relationship based, whereas In the US, she adds, probably more than in any other the US is extremely task-based (the UK falls some- country, you are defined by your work – ascribing this where in the middle). US managers are also highly focus to the mentality of the first Quaker and Puritan individualistic, whereas cultures like Japan and Brazil settlers and their view that “being your best vocational are more collective. The fact that Stringer would have self is a route to heaven”. It also explains why Americans habitually used the pronoun ‘I’ whereas culturally don’t like mixing business with pleasure. Ghosn would have been predisposed to use ‘we’ may So much that baffles or irritates foreigners about seem like a detail, but the ‘I’ plays badly in Japan where Americans, from their superficial friendliness to their ‘the team’ is so important. relentless optimism to their brashness, is deeply rooted Indeed, when it comes to reconciling cultural in their past. differences, it’s the US that can present the biggest “We’re used to big open spaces; we don’t know we’re challenge. George Bernard Shaw’s description of being loud and rude,” says Stewart-Allen. Winning in Britain and America as “two countries separated by a America means playing them at their own game: “You common language” hits the mark, as does the title of need to be full frontal, take risks, and don’t be apologetic BBC North America editor Jon Sopel’s recent book, about making a profit. In the US, money talks.” 22

cross-culturalism

It’s a strategy that Dyson used to good effect when it established a subsidiary in the US as part of its global expansion in the early noughties. It became market leader within two and half years. Martin McCourt, former CEO of Dyson and now an adviser to companies expanding overseas, explains: “Nine-tenths of your success is about taking share from those who hold it – and that amounts to an act of aggression, so of course competitors will train their guns on you. In the face of bigger players, with a stronger pull on stakeholders, your best strategy is to dance around in the spotlight they are shining on you.” There is probably more truth, then, in cultural stereotypes than some of the more facile clichés (the Chinese are shy, the French chauvinistic, the Italians voluble, the Swiss punctual and efficient, the Germans rude, Scandinavians self-effacing, and so on) might suggest. We are all rooted in our history, which determines so many of our values: whether we’re aware

of it or not. The problem is, while it is relatively easy to observe and learn about other cultures, we can be blind to our own cultural idiosyncrasies. “When you are in and of a culture ... it is often difficult or even impossible to see that culture,” writes Meyer in The Culture Map. Carlsberg is one company that has had a long battle with culture and identity, grappling with how best to integrate a series of major overseas acquisitions and capture economies of scale in a transformation designed to turn it into an FMCG business. Anne-Marie Skov, former senior vice-president, communications and CSR at Carlsberg, explains: “We’re talking about companies such as Kronenbourg in France, and big brewers throughout Europe and Asia, all of which had their own unique identities, but we were also on a quest for growth and proﬁt: we’d spent a lot of money on these acquisitions and we had to • deliver a return for our shareholders.”

DIRE CONSEQUENCES

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Did misunderstanding over the word ‘mokusatsu’ lead to the deadly use of atomic bombs at Hiroshima and Nagasaki? Experts disagree over whether the Allies’ actions were due to a mistranslation of Japanese Prime Minister Kantaro Suzuki’s response to their ultimatum as ‘not worthy of a response’ rather than ‘no comment’. But the incident illustrates the importance of effective communication

SIGN LANGUAGE

THESE PEOPLE Atomic bomb mushroom clouds over Hiroshima (left) and Nagasaki (right), August 1945, Japan https://www. nytimes.com/1989/08/21/ opinion/l-good-translationmight-have-preventedhiroshima-322089.html Atomic bomb mushroom clouds over Hiroshima (left) and Nagasaki (right), August 1945, Japan https://www. nytimes.com/1989/08/21/ opinion/l-good-translationmight-have-prevented-

Bloomberg/Getty Images, IWM/Getty Images

President George W Bush gave this ‘Hook ’em Horns’ gesture in 2006 in reference to the Texas Longhorns football team. It puzzled many outside the US, as the sign can mean anything from a love of heavy metal to a salute to Satan. Prime Minister Winston Churchill would ﬂip the ‘V’ sign, which is offensive in many countries, rather than its reversed ‘Victory’ version until his aides explained the difference

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Skov was in charge of cultural integration, and set time. Kronenbourg spent a whole year trying to define up a cross-national team of people to help. “The first what these behaviours meant for their business.” Perhaps the biggest lesson the leadership team as thing we sought to do was establish a set of values we could all agree on, based on what worked well in each of a whole learned in trying to transform the business was to look at what united the different businesses, rather our companies,” she recalls. than what separated them. However, what seemed like “There is a whole layer of a pragmatic first step proved cultures aside from the natimpossible to achieve. “For “Looking at the differences only ional culture, and for us the example, we’d taken over a huge most important one – and one Russian company, Baltika, and gets you so far. Focusing on the that we didn’t pay enough although they oozed ambition, they similarities is where you build attention to at first – is the rejected ‘ambitious’ as a value.” trust and relationships” brewing culture,” explains Because of their Communist Skov. “We found that the background? “Yes, probably.” brewers bonded across natAbandoning the attempt to agree on five determining values, they turned instead ional cultures very early on because they shared really to behaviours. “That worked really well for us. We came strong values. But the influx of new types of leaders and up with a set of winning behaviours that all companies competencies to drive this whole efficiency agenda and breweries could work with, and could translate led to comments like ‘you’ve stopped talking about into what they meant for them. But even that takes beer and started talking about liquid’. Once we

BURIED MEANING “We will bury you.” So threatened the Soviet Premier, Nikita Khrushchev, in a speech to westerners in 1956. His comment helped to further freeze the Cold War, prompting fears of a nuclear strike from the Soviet Union. However, it wasn’t quite what he meant: a better translation would be: “We will dig in/outlast you.” Years later Khrushchev claimed the phrase was “blown out of all proportion” by enemy propaganda

Keystone-France/Gamma-Rapho/Getty Images, Press Association

cross-culturalism

stopped talking about FMCG and put more focus on competence”. The growing ubiquity of a business school craft brewing and brands, it made other things easier education has led to “the homogenisation of corporate to reconcile.” leadership style”, he wrote. Fisher’s view could be seen Indeed, Andy Molinsky of Brandeis says that as symptomatic of the US view of the world but he may “a mistake people often make in trying to adapt to have a point. Dormer and McCourt also sense a certain different cultures is fixing too cultural levelling, driven largely much on the differences, because by millennials and Generation Y. LOST IN TRANSLATION that can mean that you overlook “Youth is having an impact all Understanding their target market is essential for the similarities. Looking at the over the world,” says McCourt. companies wanting to expand overseas, but even differences only gets you so far. “They are far more culturally the big blue chips can get it wrong Focusing on the similarities is attuned than earlier generations: where you build trust and they don’t view people as ‘foreign’ Fiat came a cropper in 2008 after employing relationships.” or in terms of ‘them and us’.” actor Richard Gere (below), a supporter of the Dalai What’s more, you can be Dormer talks about how Lama, in a TV ad driving a Lancia Delta from Hollywood to Tibet. The ad enraged the Chinese, caught out by the stereotypes, by frustrated young Japanese men forcing Fiat to release a statement distancing itself assuming that everyone from a and women are when, having from “Mr Gere’s social and political views”. particular culture fits it. It’s worked at a high level with a high more helpful to think in terms of degree of autonomy in the UK, ‘cultural prototypes’, he advises: they have to return to Japan and you have a hypothesis, an initial are relegated to their ‘agesteer, but you then have to test appropriate’ level in their home Colgate had the backing of the American Dental it. The cross-cultural training country's hierarchy. Even just Association when, in the 1960s, it chose to launch programme he runs focuses on venting this frustration (“They its new toothpaste, Cue, into the French market. helping people to adapt while want to change the world,” he Unfortunately, that was also the name of remaining true to themselves, says) is a step forward. a notorious pornographic magazine. resulting in what he describes as It seems unlikely, however, In 2015 Tesco joined forces with Pringles for ‘cultural hybrids’. that differences between cultures a Ramadan promotion – but was accused of Just how badly misleading will blur as result of being cultural insensitivity when it displayed smokey bacon-flavoured crisps in a London store stereotypes can be is evident “exposed to Western media”, under a banner displaying the Muslim in a section on British ‘cultas James O’Toole, a professor greeting “Ramadan Mubarak”. ural etiquette’ on the website at the University of Southern eDiplomat.com, designed to help California’s Marshall School of people cross cultural boundaries. Business, suggests. Just think “In England, reserve, politeness how accents differ, even town and restraint are admired”; in to town, across the UK. Scotland “Protestants mix only Indeed, such a blurring would with Protestants and Catholics arg uably be one of the worst When Parker Pen marketed a ballpoint in Mexico, mix only with Catholics” and possible effects of globalisation its ads were meant to read “It won’t leak in your “the Welsh love to sing and talk which, according to Gianpiero pocket and embarrass you.” It learned too late and spend much of their free Petriglieri, associate professor that the word “embarazar” didn’t mean “to time at home with their of organisational behaviour at embarrass” at all, but “to impregnate”. families”. A ‘helpful hint’ is INSEAD, “strives to homogenise Urban legend has it that when Coke went to China that English humour is often the different”. Indeed, it is in the 1920s it marketed its product with Chinese characters that, when pronounced, sounded like “ribbing, sarcastic, sexist or discontent with g lobalisation Coca-Cola, but actually meant “Bite the wax racist. Try not to take offence” that has fuelled the rise of nattadpole.” As it turns out, the story is true, but the and when dining out “You ionalism in Europe and the unusual translation was down to an enterprising should leave a very small amount US, he claims. Chinese shopkeeper and a home-made sign. of food on your plate when you Instead of trying to homoSources: Bad Marketing; The Independent; have finished eating.” We may genise the different, we should be The Telegraph; Campaign at times be blind to our own seeking to “humanise” it, urges cultural idiosyncrasies, as Meyer Petriglieri. We need to replace suggests, but how many of us would identify with these superstition and suspicion (“the pillars of tribalism”) wild generalisations? with curiosity and compassion, he suggests. It’s not a In an article entitled Are cultural advantages real? bad starting point for a business leader keen to build for the Korn Ferry Institute in 2015, Lawrence M Fisher bridges with other cultures. suggested that while cultural difference is real, “it may For further reading, see page 72 be transcended by the emerging global standards for 27

LEADERSHIP STYLE

Oprah Winfrey

Occupation Media proprietor, talk show host, Oscar-nominated actor, producer Born 29 January 1954, Kosciusko, Mississippi Marital status Partner, Stedman Graham Children Lost Canaan, a premature baby son, at 14 Lives California, Hawaii, Chicago

1972

THE ENTREPRENEUR CELEBRITY

After enduring years of sexual harassment from her family, she begins to enter beauty pageants, winning Miss Black Tennessee aged 17. Her public discussion of abuse leads to her being inﬂuential in the National Child Protection Act, signed by Bill Clinton in 1993

2000

Launches O – The Oprah Magazine with Hearst. It now has a circulation of two million monthly readers (more than Vogue). Fortune magazine called it the “most successful start-up ever in the industry”

2007

1978

Launches the Oprah Winfrey Leadership Academy for Girls, aimed at underprivileged girls living in nine provinces across South Africa. Each year she personally teaches her Life Lessons 101 course

Producers at Baltimore’s WJZ-TV ﬁre Winfrey from her ﬁrst job as co-news anchor (“I was so sexually harassed,” she later said). She is persuaded to front the newly created People Are Talking show instead

2011

1985

The Oprah Winfrey Network (aka OWN) is launched. Now available in more than 82 million American homes, it returns its ﬁrst proﬁt after just two years. In 2017, Winfrey sells a majority stake to Discovery Inc

After being cast in The Colour Purple, producer Quincy Jones tells her: “Baby, your future is so bright, it burns my eyes.” She is nominated for an Oscar. A year later she founds Harpo (Oprah backwards), her own production company

“I had no idea that being your authentic self could make me as rich as I’ve become. If I had, I’d have done it a lot earlier” READER OR WRITER?

MANAGEMENT STYLE

Ultimate self-made business leader with a skill for inspiring her team, executing her vision, but also maintaining mass appeal. Has built her success on authenticity and

DID IT FIRST

In 2003 she was the ﬁrst African-American woman on Forbes’ ‘Richest People’ list

$4bn

POLITICS

Oprah Winfrey’s net worth. Became the ﬁrst female black billionaire in 2003 (and only the second black billionaire)

Widely credited with garnering a million black votes for Obama in 2008. Rumours swirled that she would run in 2020: she denied it

strong adherence to vision and values. Prone to using her own fortune to treat staff to all expenses-paid holidays, including a trip to Hawaii and a Mediterranean cruise

Awards including 1 Honorary Academy Award, 18 Daytime Emmys, 1 Golden Globe, 12 NAACP Image Awards and 1 Tony

Prefers to recommend others. ‘Oprah’s Book Club’, which ran for 15 years, could boost sales by millions. Awkwardly, she chose Bill Cosby three times in 1987

FAMOUS FAILS

In 1996 Winfrey incurred a lawsuit from Texas farmers after airing a show about the safety of beef. And in an interview with Vanity Fair, she revealed she was “devastated” after her 1998 movie Beloved, based on Toni Morrison’s novel, was already a ﬂop after the opening night

Words: Peter Crush

WISEST MOVE

Winfrey hired lawyer Jeffrey Jacobs in 1984, who persuaded WLS-TV bosses to rename her series The Oprah Winfrey Show, giving her syndication proﬁts

Richard Branson

Occupation One-man-brand, business maven, entrepreneur Born 18 July 1950, Blackheath, London Marital status Married second wife, Joan Templeman, in 1989 Children Sam and Holly; ﬁrst child, Clare Sarah, died at four days old Lives Necker Island

1970

Three years after dropping out of school with dyslexia, Branson founds ‘Virgin’ (so-named because he was a business virgin). His ﬁrst business was in mail-order records. Two years later he launches Virgin Records

THE CELEBRITY ENTREPRENEUR

1984

2009

After a visit from Al Gore, who wants the tycoon to spread the word about his documentary An Inconvenient Truth, and consultations with Hawking and scientist James Lovelock, Branson develops the Carbon War Room: an NGO working with business leaders to create solutions to climate change

Branson partners with US lawyer and poker champion Randolph Fields to launch Virgin Atlantic. Later Field sells his stake for £1m. The airline is so important to Branson that he sells Virgin Records for £500m to ﬁnance it. He still owns 20 per cent of the airline

2011

Branson joins the Global Commission on Drugs Policy. The Commission calls for an end to the war on drugs – which Branson says is actually a “war on people” – and a policy that prioritises health, not punishment

2004

Announces Virgin Galactic, the world’s first space tourism company, complete with plans to design and build his own craft from scratch to take passengers into zero-gravity. Professor Stephen Hawking was reportedly going to blast off with Branson on the first flight

WISEST MOVE

Getting a 97-per-cent discount on Necker Island in the 1970s. It was up for $6m, but the seller was so desperate he got it for $180,000

Getty Images, Press Association

DID IT FIRST

Flew a hot-air balloon across the Atlantic in 1987; first to fly one across the Pacific in 1991

POLITICS

Has never personally donated to a political party, though he is an active environmental campaigner and did campaign to stay in the EU

2018

“As a leader you’ve got to praise a lot. You’ve got to be a good listener. You’ve got to write notes and listen and then do something about it”

For the ﬁrst time in almost 50 years as an entrepreneur, Branson moves into private equity, investing in a fund with Metric Capital that aims to raise $600m to acquire consumer companies. Boss John Sinik has known him for 20 years

READER OR WRITER?

MANAGEMENT STYLE

Regarded as a maverick with a penchant for pranks but, bravado aside, Branson is an old-fashioned leader. Cites projects as the thing that makes the difference and has

£4,000

The amount his dad said he had to sell in ads to get his blessing to drop out of school to launch Student magazine

A proliﬁc business-book writer. Favourite books include Luke Reinhardt’s The Dice Man, which inﬂuenced his decisionmaking when he was younger

mastered delegation so well, he can’t recall how many businesses he owns. Gave unlimited holiday to some personal staff after learning Netﬂix was already doing it

FAMOUS FAILS

In 2000, he failed to launch the ‘People’s Lottery’. Three years later, he tried to persuade BA to keep Concorde ﬂying, offering his rival £1m per plane. A deal was never likely. Virgin Cola, launched in the 1990s, never toppled Coke and was discontinued in 2012

388

Rank in Forbes’ 2018 billionaires list (net worth: $5.1bn). Has pledged to give around half to good causes

amazon

WHAT EXACTLY IS JEFF BEZOS TRYING TO PROVE?

Blue Origin

Disruptive visionary, digital titan and rocket man, Amazonâ&#x20AC;&#x2122;s founding genius is, Paul Simpson predicts, destined to butt heads with regulators

n 1 January 2014, an attack of kidney stones left Jeff Bezos in such agony an Ecuadorian Navy helicopter had to airlift him from a cruise liner near the Galapagos Islands for medical treatment. Luckily, Amazon’s CEO didn’t need surgery. His only public comment on the affair was a laconic, subtly self-promoting quip: “Galapagos: five stars; kidney stones: zero stars.” The incident left some analysts pondering how Amazon would fare without him. Ten months later, Bezos reassured Business Insider’s Henry Blodget that he did have a succession plan. Asked to elucidate, he gave a one-word reply: “Secret.” The succession question remains pertinent because, as Chengwei Liu, associate professor of Strategy & Behavioural Science at Warwick Business School, says: “Jeff Bezos is involved in every aspect of Amazon – far more so than Steve Jobs was when he came back to Apple.” Bezos founded the company, outlined the vision and defined its strategy and culture. When critics sneered that Amazon would never make a profit, his evident self-belief helped investors keep faith. Now 54, Bezos is a paradoxical CEO. He is a visionary who cashes in $1bn of Amazon stock every year to fund a lunar colony that, he believes, could save humanity, and a micromanager who scans customer complaint emails, often adding a simple, ominous question mark before forwarding them to the manager concerned. The company he has built has its paradoxes too. One of the world’s most powerful corporate behemoths, run by a man who is probably worth at least $112bn (warning: estimates of Bezos’s wealth can go down as well as up), Amazon seems to exemplify the entrepreneurial dynamism unleashed by the new economy, pioneering a business model that creates billions of dollars in wealth and hundreds of thousands of jobs. Yet Amazon is also a business where, in the UK, according to undercover investigator James Bloodworth, staff in distribution centres “peed in bottles all the time because they lived in fear of being disciplined over ‘idle time’ and losing their jobs just because they needed the loo”. The company disputes these claims, noting that it was ranked as the seventh-best employer in Britain on LinkedIn, and insisting it does not time toilet breaks. The statement included Amazon’s equivalent of the Nixonian non-denial: “We do not recognise these allegations as an accurate portrayal of activities in our buildings.” The statement that disputed the New York Times’ reports on Amazon’s working culture in August 2015 also featured the words: “We do not recognise…” The company doesn’t say such conditions don’t exist, just that it can’t see them. The impression that Amazon’s working conditions are “Dickensian with robots” was reinforced in June when the Observer newspaper revealed that a Foxconn factory manufacturing Kindles was breaking Chinese labour laws. Both companies pledged immediate changes but the opening words of Gethin Chamberlain’s investigation – “In the Chinese city of Hengyang, we find a fatigued, 32

disposable workforce assembling gadgets for the richest man in the world” – explain why Quartz asked: “Are you a bad person if you shop on Amazon?” The verdict? That socially conscious consumers probably shouldn’t buy from it, but that the discounts and fast delivery times were irresistible for many because: “Amazon puts us all on a convenience conveyor belt – and it’s really hard to get off.” There have been reports of Amazon warehouse workers receiving food stamp benefits in Arizona, Ohio and Washington State. As Liu says, “The difficulty for staff in distribution centres is that they need Amazon more than Amazon needs them. They can also see a time where their jobs become automated. In some warehouses, humans are only required to handle non-standard packages. In contrast, if you are a knowledge worker at Amazon, you are paid well, rewarded, and interact with some of the most talented people in the tech sector.” The standard narrative of Amazon’s extraordinary rise portrays Bezos as the ultimate corporate warrior for the digital economy, so successful that his company’s very name has become a verb – “You’ve been Amazoned!” – to describe how it crushes the competition. The “You’ve been Amazoned” narrative is reinforced by an avalanche of statistics designed to reduce even the most hardened cynic to a state of goggle-eyed wonder. Bezos deployed many of them in his last annual statement to shareholders: its Prime membership scheme now includes 100 million consumers; it sells more than 40 million local products from third parties in India; it directly created 130,000 jobs in 2017 and has topped the customer satisfaction index in the US for eight years in a row (and the UK’s rankings for five years in a row). There are other figures Bezos didn’t mention. Like the fact that 44 cents of every $1 Americans spend online ends up in Amazon’s coffers (it has more than 90 per cent of the US online market for batteries, home improvement tools, golf equipment, and skin care). The company has a bigger share of business web services than its four closest rivals added together. And it has just made a quarterly profit in excess of $2.5bn for the first time. “Amazon is one of the most successful creators of a digital platform, disrupting markets by supplying products at lower prices, with a strong track record as the first mover,” says Liu. The company’s success has been likened to management theorist Jim Collins’ concept of a flywheel: lower prices attract more customer visits – and sales – which attract more commission-paying thirdparty sellers to the site, which helps Amazon get more value from its fixed costs (warehouses and IT) so it can lower prices, attract more customers and fuel growth. Liu says there is another self-perpetuating aspect of its success: “The more customers buy, the more data it acquires, the more data it acquires, the more accurately it can target customers, who are more likely to buy again.” In 1994, when he was 30, Bezos decided that if he didn’t give up his job as a hedge fund manager to sell books online he would regret it for life. The global empire he now

amazon

Drew Angerer/Getty Images

One of the world’s richest men, Jeff Bezos has a “maniacal” record of investing in technology at Amazon. The company’s workforce is estimated to include at least 100,000 robots

runs rests on three pillars: e-commerce (including Prime and a booming private label business), web business services (which effectively generates all of its profit), and its online marketplace (in 2017, more than half of the company’s worldwide sales came from third parties – Amazon earns commission on each sale and extra commission if the product is sold through Prime). The company’s grand ambitions are reflected in Amazon’s mission statement: “Our vision is to become Earth’s most customer-centric company, to build a place where people can come to find and discover anything they might want to buy online.” This effectively positions Amazon as the Everything Store where, if you so desire, you can purchase a Nicolas Cage pillowcase, yodelling pickles and fake body fat (“Buy 5lb for $70 and save $14.24!”). Bezos has steered the company into movie and TV production, groceries (through the $14bn purchase of Whole Foods), fashion (through its private label, it will be the largest seller of clothing in the US this year), logistics, workplace healthcare and public sector procurement. Through his personal investments, Bezos is a media baron (he owns the Washington Post) and a rocket man (he owns Blue Origin, which aims to land on the moon in 2023). The one vice Bezos cannot be accused of is short-termism. Even in 2014, when the Fire smartphone flopped, losses mounted and the share price slumped, he kept faith, investing so heavily in technology, the normally staid McKinsey called the spend “maniacal”. There is, as Peter C Evans, principal of innovation and enterprise at KPMG, has noted, method in the mania. “Platform companies have become powerful engines of innovation, moving to the forefront of a range of cutting edge technologies. They

are driving innovation around cloud computing, computer voice, virtual reality, machine learning and artificial intelligence. The patents granted are one measure of the fruits of innovation – in 2017, Amazon was granted 1,900.” The company has recently applied to patent a wristband that tracks employees’ hand movements in real time; a floating warehouse for drones and a “voice-sniffing algorithm” that tracks “trigger words” in conversations to profile customers’ likes and dislikes. Bezos intuitively understood how radically technology would change consumer habits. As he wrote in his 2017 letter to shareholders: “One thing I love about customers is that they are divinely discontented. Their expectations are never static. They go up. It’s human nature. We didn’t ascend from our hunter-gatherer days by being satisfied. People have a voracious appetite for a better way, and yesterday’s ‘wow’ quickly becomes today’s ‘ordinary’. I see that cycle of improvement happening faster than ever. It may be because customers have such easy access to more information than ever.” Building on that insight, Bezos has built a company with a bottomless appetite. This year alone, it has acquired the rights to screen Premier League football matches, launched a scheme to encourage entrepreneurs to set up Amazon-branded delivery businesses and probably won a $10bn cloud services contract from the Pentagon. Inevitably, the question – “Is Amazon too big?” – is being raised in the media. The answer will differ on whether you are a customer, a regulator or a competitor. Let’s take the regulators first. In the 1900s, the fear that some businesses were becoming too big for America’s good led Republican President Theodore Roosevelt to back anti-trust legislation and the US Supreme Court to • 33

In Ludwig von Mises’s 1944 book Bureaucracy he distinguished between organisations with contrasting management styles: bureaucratic, where compliance with rules and regulations is paramount; and business, where “success is not whether the organisation closely follows certain rules and procedures but whether it is profitable”. In Amazon’s traditional markets, profit – or revenue – rules. In public sector procurement and groceries, you break rules at your peril. Earlier this summer, the US Institute for Local SelfReliance criticised an arrangement under which 1,500 government agencies buy supplies from Amazon Business, the B2B equivalent of Marketplace. Analysing purchases in one school district, the Institute said that buying locally would have been 10-12 per cent cheaper. One government finance expert claimed the arrangement’s requests for proposals (RFPs) favoured Amazon, likening it to including a requirement in a software RFP that says: “The logo must be in the shape of a fruit.” Amazon says that the arrangement gave public purchasers “competitive and dynamic pricing”. The fact that Amazon earned $31.8bn from the US government in 2017 will intrigue Donald Trump, who has set up a task force to investigate whether Amazon is “exploiting” the US Postal Service. Trump may be asking the wrong question – the postal service’s parcel business makes money – while identifying the right problem: on its current growth trajectory, Amazon could become as powerful as Standard Oil. Among the figures Bezos doesn’t dwell on are the sums paid to placate various European governments discontented by its tax arrangements, including $295m to Luxembourg, $232m to France and $118m to Italy. The

In December 2016, some Amazon staff said they slept in tents near its Dunfermline warehouse as they were too poor to commute. Glassdoor estimates a typical associate’s salary is £8 an hour

James Glossop/The Times

break up such monopolies as Standard Oil, railway company Northern Securities and American Tobacco. The comparison between Amazon and Standard Oil is particularly intriguing. Founded by John D Rockefeller, Standard once controlled more than 90 per cent of refined oil production in the US. Amazon isn’t that dominant in e-commerce but its vast trove of data is a significant competitive advantage. Data, the Economist has suggested, is to the 21st-century economy what oil was to the 20th century’s. Indeed, Margrethe Vestager, the EU’s redoubtable competition commissioner, has expressed concern about companies “with so much data that others can’t compete”. As Evans has noted: “As platform businesses gain in size and scale, their social and economic spillover effects become larger and attract greater regulatory scrutiny.” It wasn’t just size that led to Standard Oil’s break up. Rockefeller’s managers negotiated special deals so that railways charged rivals more to carry their oil. Standard’s ability to manipulate shipping prices – and its mountain of cash – made it easier to buy out competitors: in 1872, it bought 22 oil refineries in Cleveland, Ohio in eight weeks, a spree known as the ‘Cleveland Massacre’. Amazon has been actively acquisitive, snapping up threatening start-ups such as Zappos and Diapers. It has been accused of using Amazon Marketplace as a market research tool, tracking strong selling third-party products and launching its own versions. Such complaints have been muted – partly because merchants need Amazon more than Amazon needs them – but they persist. Amazon started out in e-commerce, a market that has been regulated lightly, hardly at all or, some would say, inadequately. Yet in groceries and public procurement, regulation is more comprehensive, complex and punitive.

amazon

Japanese government wants to close a loophole under national. The idea that you could win in any market you which the tax bill for Amazon’s Japanese subsidiary, entered if you were smart enough was successful for Genwhich is charged a hefty fee by the Seattle head office, is a eral Electric under Jack Welch, and later so unsuccessful tenth of what it would be for a similar sized department that one of America’s most storied companies is struggling store. In the UK, Amazon’s latest tax bill – £4.6m, though to convince investors it deserves to survive. Bezos will hope profits nearly trebled to £72.3m – ignited such tabloid fury Amazon’s diversification proves more enduring. that Philip Hammond, an innately cautious Chancellor of Yet Whole Foods epitomises some of the challenges the Exchequer, has publicly mooted an ‘Amazon tax’. ahead. The management mantra at Amazon is “Day 1”, on To be fair, as a company spokesman said, “Amazon the grounds that, as Bezos says, “Day 2 is stasis. Followed pays all the taxes that are required in all the countries by irrelevance. Followed by excruciating, painful decline. where we operate.” That said, the figures don’t look good, Followed by death.” That urgency works in e-commerce especially when – as everyone from the Daily Mail to but, as Liu says, traditional bricks and mortar retail is a Bernie Sanders never tire of pointing out – the company is different business model, where the comparison to turning around an oil tanker is more than just a cliché. run by one of the world’s richest men. Even so, he is convinced Bezos’s deal can still work: There are three reasons why governments would want to change the way they tax platform businesses. “Amazon has enough money to buy Whole Foods just to They could do with the money. They know the companies, learn everything about groceries and use that knowledge no matter how loudly they squeal, can afford to pay. They to automate the business either in-store or online.” That also believe that any tax would win votes. Yet Liu urges process could turn groceries into a $30 billion business caution. “The idea of a tax may be popular initially but if by 2025, giving Amazon its fourth pillar. the companies just pass the extra cost on Investors might worry about manageto the consumer, that won’t go down well ment bandwidth. Bezos is effectively with voters, especially in the US where 64 playing simultaneous corporate chess per cent of households belong to Prime.” against the likes of Alibaba’s Jack Ma; The practices and policies of platform Apple’s Tim Cook; Google’s Sundar Pichai; companies will prompt new investigations Walmart’s Doug McMillon and Microand regulations, with GDPR a foretaste of soft’s Satya Nadella. what may lie ahead. Of greater immediate Bezos’s determination to lead Amazon concern to Bezos may be the prospect of out of its comfort zone can be seen as a new laws in India to protect local technollaudable strategy to defy the built-in obsoogy business from foreign competition – lescence that has undone many corporate the same regulatory approach that gave dinosaurs. Yet, as Liu says, there is a risk at On 3 April 1995, computer scientist Alibaba and JD.com an edge in China. every successful company that “manageJohn Wainwright placed the first and their stakeholders develop A company’s strength can soon turn external ment order for an Amazon book illusions that the world is more controllainto a weakness and Amazon’s hoard of – on a 64 Kbps T1 transmission ble and predictable than it really is”. data may, Liu says, come back to haunt it. connection from his office Amazon looks well placed to avoid the Facebook’s troubles, he says, have made many consumers more wary about how their data is used. stasis of Bezos’s dreaded “Day 2”. In the US and the UK, the “At some point, especially when Alexa is installed in mil- company has become part of daily life. The flywheel effect lions of homes, people may start to ask: ‘Do I want Amazon should ensure rapid growth for the foreseeable future. Yet to have so much data about me?’” is Bezos such a genius that he can solve one of the conunVestager raised this issue. “There was a sense that our drums that has plagued multinationals as diverse as Pepsi, data was just lying around for anyone to pick up, like pros- General Motors, Exxon Mobil, IBM and Siemens: how do pectors in a gold rush picking nuggets from the ground,” you become that big and global and stay agile? she said in an interview this spring. “But those days are Nine years ago, Amazon remotely deleted two George over. People understand that handing over data has a cost.” Orwell novels, 1984 and Animal Farm, from customers’ Many of us like shopping on Amazon but dislike the e-book readers. Bezos apologised for the “stupid”, disconsequences. In 2017, a record 8,600 stores closed in the tinctly Big Brotherish mistake. As a voracious reader, he US. In the UK, at least 50,000 retail jobs have been lost might want to reflect on Animal Farm’s final scene in this year, with the media casting Amazon as the principal which the oppressed creatures “looked from pig to man, horseman of the ‘retail apocalypse’. Yet, as one retail con- and from man to pig, and from pig to man again, but sultant told Work.: “The British government has had ten already it was impossible to say which was which”. The years to formulate a policy that guarantees a level playing question for Bezos is: does he aspire to remain a pig – and field between traditional retailers, who have to pay busi- if he does, how he will manage the inevitable pressure for ness rates, and online sellers who don’t.” Amazon to normalise itself and become a farmer? Seeing itself as a very new kind of company, Amazon is For further reading, see page 72 starting, ironically, to behave like a very old kind of multi35

Amazonâ&#x20AC;&#x2122;s fulďŹ lment centre in Phoenix, Arizona, is 1.2 million square feet, which makes it 10,000 square feet bigger than Ellis Island, seen here behind the Statue of Liberty

The LIFE Images Collection; ÂŠ NBC Universal, Inc./Getty Images

In 2009, I Dreamed a Dream, the debut album by Susan Boyle, received more pre-orders than any CD in the history of Amazon. The previous record holder was Supermarket Fantasy by Japanese pop rockers Mr Children

Starbucks, Thierry Perrin/Gamma-Rapho/Getty Images

Amazonâ&#x20AC;&#x2122;s fastest delivery, a four-pack of Starbucks vanilla Frappuccino, reached a Miami customer in less than 10 minutes in December 2015. The most popular items on its free two-hour delivery service are bananas

There are 100 million members of Amazon Prime, four million more people than there are in Egypt. Consultants TreďŹ s estimates that, by 2025, 164 million people will belong to Prime, 20 million more than the population of Russia

TOP EARNERS 3.

Jeff Fairburn 2017 PAY

▲ £47.1m

(up on 2016) CEO TO STAFF PAY RATIO:

1,130:1

10.

Bob Dudley

BERKELEY GROUP

PERSIMMON

Simon Peckham MELROSE INDUSTRIES

▲ £42.8m 1,134:1

▲ £28m 273:1

8. 6.

André Lacroix

Dimitris Lois*

Jeremy Darroch

INTERTEK

COCA-COLA HELLENIC

▲ £11.7m 458:1

▲ £13.8m 563:1

SKY

▲ £16.3m 312:1

Martin Sorrell

The bulk of Persimmon CEO Jeff Fairburn’s and Melrose Industries CEO Simon Peckham’s 2017 pay was as a result of historical incentive plans

The highest-paid FTSE 100 CEOs in 2017, a year in which their median pay increased by 11 per cent

WPP

▼ £13.9m 295:1

BP 9.

Nicandro Durante BRITISH AMERICAN TOBACCO

▲ £11.4m 424:1

▲ £10.5m 106:1

11.

Paul Polman UNILEVER

▲ £10.2m 315:1

*Died 2 October 2017. Figure includes Zoran Bogdanovic, who took over from December 2017 7.

Rakesh Kapoor RECKITT BENCKISER GROUP

▼ £12.5m 362:1

13. 12.

Erik Engstrom RELX

▼ £9.9m 150:1

THE SECRET LIFE OF CATS

It’s easier to justify executive pay when we talk about it in the abstract, so Adam Gale takes a more personal look 40

Pascal Soriot ASTRAZENECA

▼ £9.4m 137:1

14.

Arnold Donald CARNIVAL

▼ £8.9m 400:1

Source: CIPD and The High Pay Centre. Pay ratios refer to total CEO remuneration compared to the mean staff package

Rob Perrins

executive pay

20. 19.

Mark Bristow

16.

15.

Ben van Beurden

Mike Wells

ROYAL DUTCH SHELL

PRUDENTIAL

▲ £8.7m 127:1

RANDGOLD RESOURCES

▲ £7.8m 64:1

18.

Simon Borrows 3I GROUP

▲ £7.5m 28:1

▲ £7.5m 380:1

Peter Harrison

23.

SCHRODERS

22.

▲ £7.1m 38:1

António Horta-Osório LLOYDS GROUP

21.

Mark Cutifani ANGLO AMERICAN

▲ £6.7m 183:1

▲ £6.4m 115:1

Stuart Gulliver HSBC HLDGS

▲ £6.1m 120:1

24.

Vittorio Colao VODAFONE GROUP

▲ £6m 164:1

CRH

▼ £7.6m 172:1

Bloomberg, AFP/Getty Images; PA Archive, Tass, PA Wire/PA Images

▲ £5.6m 377:1

Emma Walmsley took over as CEO from Sir Andrew Witty in 2017. The ﬁgure relates to nine months of her tenure and three months of her predecessor

Albert Manifold

COMPASS GROUP

*Died 31 December 2017

17.

he ﬁrst thing you should know about Pascal Soriot is that he’s done nothing wrong. By all accounts, the chief executive of FTSE 100 ﬁrm AstraZeneca is an intelligent, hardworking, personable man who lifted himself up from a housing estate in Paris to run one of Europe’s largest pharmaceutical companies. The second thing you should know is that his total take-home pay in 2017 was £9.4 million, making him the 13th best-paid chief executive in the UK, even if he did earn almost £4m less than in 2016. Assuming he works 80-hour weeks with few holidays, Soriot’s hourly

25.

Richard Cousins*

26.

Emma Walmsley GLAXOSMITHKLINE

▼ £5.6m 69:1

rate would have been about £2,350 last year, meaning he earned nearly as much in one 12-hour day as the median full-time UK worker did in the entire year. What can one person possibly do to justify such a ﬁgure? It’s a question that you could ask of all of the chief executives who lead FTSE 100 companies, but when we talk about the lavish pay packets of the business elite, it becomes all too easy to accept the situation as just the way it is. That’s why Work. picked on just one of them at random to ask: are they really worth it? As in most senior roles, the answer isn’t always straightforward. Soriot took on a tough gig when he • 41

PASCAL SORIOT’S BUMPER PAY PACKET The AstraZeneca head’s earnings are complex: his actual salary in 2017 was only 12.9% of the total

£5,718,000

Long-term incentive plans

£1,916,000 Annual bonus

£366,000 Pension

£1,220,000

Base salary

£93,000 Other*

£122,000

Taxable beneﬁts

*Deferred shares released after three years under AstraZeneca’s Deferred Bonus Scheme

line still looks strong – and that’s a large part of AstraZeneca’s attraction.” Given what’s happened to total shareholder return and the fact that the poor headline results were neither Soriot’s fault nor at all unexpected, you can start to see why investors were happy to allow big pay days. But can £9.4m really be seen as a fair wage for his personal contribution – something that may be impossible to distinguish from the efforts of AstraZeneca’s 61,000 other employees? Fairness doesn’t come into it, argues Jeffrey Moriarty, professor of philosophy at Bentley University in Boston and a specialist in business ethics. “A wage is the price of labour. We don’t sit around talking about the fair price of a loaf of bread.” In any case, pay for a chief executive of a major company like AstraZeneca is best understood as an incentive for certain behaviours rather than a reward for services rendered. Indeed, of Soriot’s total package of £9.4m, his actual salary was only 12.9 per cent, with another 5.2 per cent paid out in beneﬁts such as pension and health insurance. The remainder came in the form of an annual bonus against short-term performance measures (20.3 per cent) and shares to vest

PA Wire/PA Images

joined AstraZeneca in 2012, fresh from the COO role at Roche’s pharmaceuticals division. The British firm, like all pharmaceutical companies, makes its living off big ticket, blockbuster drugs that take years and vast budgets to develop. Once established, these medicines earn a fortune – for a while. When the patent expires, the drug becomes generic and the cash cow sickens. Competition floods the market, the price tanks, revenues fall and costs don’t (because skimping on R&D is more or less suicidal for a pharmaceutical company). The central objective of a pharmaceutical company’s leadership team, therefore, is to ensure that their next blockbuster drug comes online before the old one falls off the patent cliff. Yet all the money and science in the world can’t guarantee a promising new drug candidate will succeed or pass stringent regulatory hurdles. No matter how sound the strategy or clever the capital allocation, it’s almost impossible to avoid the natural cycle of peaks and troughs. And AstraZeneca was staring at one serious trough. Patents were due to expire on a generation of blockbuster drugs, yet the pipeline of new medicines was running dry. Soriot’s response was twofold: mitigate squeezed profits in the short term by selling rights to promising early stage drugs in a process called externalisation, which last year accounted for 10 per cent of turnover, while doubling down on the research pipeline. He did this by narrowing the focus to three main therapy areas – respiratory, CVMD (medicines that work at the intersection of cardiovascular and metabolic disease) and, above all, oncology. This makes R&D and marketing more cost efficient, but the downside is greater risk – a cure for cancer would render a large part of the portfolio obsolete. What about the results? At first glance, AstraZeneca’s scorecard is none too impressive. Revenues have fallen every year but one under Soriot. Last year’s turnover was $22.5bn, down a third from 2011. Over the same period, pre-tax profits fell from $12.3bn to $2.2bn. Yet revenues are now levelling out, and the share price has risen by 90 per cent since Soriot took over. This is down to two things. First, the pipeline has become stronger, with new blockbuster cancer treatments hitting the market (in 2017 there were 132 projects in the clinical stages of development compared to 71 in 2012). Second, Soriot has maintained the dividend, dishing out about $3.5bn every year throughout the period, courtesy of externalisations and a $10.7bn swelling in net debt. This has kept shareholders on side, and helped him fend off a hostile takeover bid from US giant Pfizer in 2014. “He did a fantastically good job of managing expectations. It could have gone very differently,” says Nick Hyett, an equity analyst at Hargreaves Lansdown. “The pitch from AstraZeneca was that we have this fantastic pipeline and you’re being bought out cheap. Stick with us and you’ll be rewarded for that. The pipe-

executive pay

PAY RATIOS AROUND THE WORLD Executive pay compared to adjusted GDP per capita ($)

NETHERLANDS 171:1

GERMANY UK

CANADA

201:1

149:1

265:1

136:1

SWITZERLAND 152:1

JAPAN CHINA

58:1

127:1

INDIA

229:1

AVERAGE CEO PAY $14.3M

8.5 8.2 7.9

SOUTH AFRICA 6.5

180:1

USA SWI NED UK CAN

(60.6 per cent) under AstraZeneca’s two long-term incentive plans, or LTIPs. If you want to know why executive pay has bloated over the past 30 years, look no further than this innocuous-sounding acronym, which now accounts for over half of FTSE 100 CEO pay-outs. The purpose of an LTIP is to align the interests of management with those of investors, over the long term rather than just the next quarter. As executives took some convincing to sacrifice fixed salary for variable pay that comes tightly packaged in a Gordian knot of conditions, delays and retrospective clawbacks, the easiest way to persuade them was to offer more money. Well-intentioned public pressure on investors to tackle short-termism in business has, ironically – and completely unintentionally – inflated executive pay. The broader debate about what’s right and fair for society, inequality and the rise of the one per cent is frankly one most shareholders would rather have behind closed doors. The whiff of double standards hangs a touch too heavily in the air, when they take an order of magnitude more in dividends than any CEO gets in vesting shares. The free-market doctrines of economist Milton Friedman maintained that high pay was irrelevant, so

Source: Bloomberg, IMF

long as the shareholders get a better return. While this is still the foundation of corporate pay structures, not everyone is convinced. “Where is the behavioural science that says large bonuses improve materially the performance of the people they’re given to? Do they make a CEO work harder or make better decisions? The evidence for any of that is scant to non-existent,” says Peter Cheese, chief executive of the CIPD. Indeed, since the modern LTIP model became standard around the turn of the millennium, pay inflation has been extraordinary. The financial crisis only slowed it down. According to research from the CIPD and High Pay Centre, the mean take-home pay for FTSE 100 CEOs was up 23 per cent year-on-year to £5.7m in 2017, although this is affected by large payouts for the CEOs at Persimmon and Melrose Industries. Using the median figure, pay rose 11 per cent to £3.9m. The FTSE 100 has lagged behind most major stock indices. If you had invested in the index during the dotcom bubble in 1999, you’d have effectively seen zero capital gain over the next 17 years. It’s only been since the 2016 Brexit referendum caused a drop in the pound and a corresponding improvement in the sterling value • 43

of foreign revenues that the index has risen, admittedly tion too severely – in a crude sense it would hurt egos by up to 28 per cent, to a record high this year. more than bank balances. If you think you’re good at While this asymmetry isn’t proof that pay-for-per- what you do, it’s a bitter pill to see your peers paid more. formance doesn’t work – corporate results may well Whether lavish incentive structures actually work have been worse otherwise – it does seem odd that its or not, they come at a cost which can go far beyond a effectiveness would be so widely accepted by institu- swollen payroll. “When you make executive pay tional investors, who are paid to squeeze every penny strongly based on incentives, they’re always looking for out of their assets. Surely they can’t all be wrong? Well, these huge paydays, which can create uncertainty and potentially, yes they can. As we saw all too clearly in the lead people to taking huge risks,” says business ethics financial services sector before the 2008 crisis, it’s per- expert Moriarty, adding: “You wouldn’t want the pay of fectly possible for an entire sector of rational executives politicians tied to incentives – the prime minister getand investors to produce an incentive structure that is ting a cut of GDP – because that’s a recipe for insanity.” systematically riddled with unintended consequences. Cheese believes the most egregious pay arrange“It’s become a herd mentality,” says Cheese. “You ments can have a toxic effect on employee morale and have this self-fulfilling upward spiral where remunera- public trust, which hurts the bottom line. “It disincention committees, aided by consultants or headhunters, tivises and demotivates your employees, and to that are saying we need to pay above the median to attract extent it would be measurable,” he says. “Employees the right talent. When 80 per cent are trying to pay work really hard, getting no more than a cost of living above the median, guess what happens.” increase if they’re lucky, and they see these payouts Interestingly, the talent argument – that fishing in a that to them would seem disproportionate and manicompetitive, global labour pool requires oversized bait – festly unfair.” only gets a scant mention in AstraZeneca’s remuneration Given all this, it becomes imperative for businessreport, and never directly concerning Soriot. That may es to set the right incentives for their senior managers. be because the logic would Martin Garcia Mortell, corporate get rejected outright by proxy governance research directadvisors and investors as a rationor (UK and Ireland) at proxy “It’s become a herd mentality... ale for a pay plan. Nonetheadvisor Glass Lewis, explains less, benchmarking against the that this means a diverse set When 80 per cent are trying to competitive set, which in Astraof metrics that aren’t duplicatpay above the median, guess Zeneca’s case includes rivals such ed across the annual bonus what happens” as Roche, Novartis and Johnson and LTIP. & Johnson, is core to determining “What we’re looking for is how high remuneration commitfor the remuneration committee tees pitch the salary, bonus and LTIP maxima, despite the to explain why the pay plan is appropriate for the comlimited evidence that lagging the peer group will cost a pany’s strategy. We’re expecting to see a thread woven corporation its best people. right through the annual report, through the chair“We did an analysis of the Fortune 500 and found man’s statement, the strategic report, the KPIs used to that less than one per cent of CEOs had been poached measure success, right the way through to the remufrom an international rival,” says Luke Hildyard, direc- neration committee statement. We’re looking for them tor of the High Pay Centre. “You also don’t really see to tie that strategy explicitly to the pay plan. In AstraBritish CEOs going over to America, where the money Zeneca’s case, it’s clear that they’ve done quite a good is extremely high.” job in tailoring the plan to their turnaround situation.” Indeed, there are many high-profile examples of Under AstraZeneca’s remuneration policy, Soriot chief executives who move against the pay gradient. can receive 180 per cent of his £1.2m base salary as an Look at Jes Staley, who left the compensation-friendly annual bonus, and 500 per cent under the company’s world of JP Morgan and hedge fund BlueMountain in long term incentive plan PSP (last year he also received New York City to become boss of Barclays. Why? £1.2m under another, discontinued LTIP). The variable Because it offered him the chance to make his mark, pay depends on meeting targets in three areas: scientake on a new challenge, and move to a new country. tific leadership, return to growth and growth financial “The vast majority of CEOs, and the absolute major- targets. The company says that 12 per cent of Soriot’s ity of good ones, are motivated by more than money. total pay relates directly to the increase in shareholder They have to be. These men and women work harder return since incentives were set. than almost anybody, they’ve given up a lot to do this. Happy with the mix of incentives aligning Soriot’s It’s about legacy and fulfilment,” says Peter Reilly, interests with the financial interests of the shareholddirector, corporate governance advisory at FTI Con- ers and the long-term recovery of the company, Glass sulting. “They are humans too.” This is probably why Lewis has supported AstraZeneca’s remuneration companies would struggle if they slashed compensa- reports since Soriot arrived, though its opinion hasn’t 44

executive pay

Press Handout

US CEOs earn more than any other executives. Aubrey McClendon (left), former head of Chesapeake Energy, led a lavish lifestyle before his death in 2016, a day after he was indicted for conspiring to rig bids for leases

been universally accepted. ISS, one of the other big proxy advisors, argued that pay was not “suitably aligned with performance”. Such concerns were shared by the 37 per cent of shareholders who voted against the policy at the AGM in May. The post-crisis rise in revolts over pay peaked in the ‘shareholder spring’ of 2012 but there has been a resurgence in 2018, with PwC finding in May that 20 per cent of FTSE 100 firms had faced a revolt of greater than 20 per cent of votes against remuneration policies, up from seven per cent in 2017. The roll call of companies being challenged gives a sense of the seismic change in attitudes: BT, Burberry, Royal Mail, Shell, Unilever and WPP being merely the most prominent. The threat of revolt has helped slow executive pay growth in recent years. No one wants to suffer the same fate as Cable & Wireless. Successive shareholder revolts from 2006 to 2010 over private equity-style incentives for executive directors – and a bonus-inflated £11m package offered to one director while the company was making 1,900 redundancies – destroyed investors’ faith in the board’s competence. Five years later, this 146-year-old company, which had once been bigger than BP and BT, was finally broken up.

Investors are increasingly mindful of the remuneration report when examining a company’s governance. Uncapped bonus schemes, very common before 2008, have now effectively been banished from the FTSE 350. Investors are no longer looking for a one-size-ﬁts-all approach to pay and incentives. In 2016, industry body the Investment Association published a major report advocating greater ﬂexibility in remuneration policies. “You cannot draft a perfect remuneration policy, so the discretion of the RemCo is fairly key,” says Reilly. “There are many factors that go into performance, so there should be a common sense check, to ask whether this is proportionate and reasonable.” As a result of this attention, shareholders are taking a long hard look at directors on remuneration committees, to assess their independence and willingness to stand up to the CEO – a level of scrutiny that arguably makes the job a poisoned chalice. Just think of Jonathan Davie, former remuneration committee chair at Persimmon, who fell on his sword last year after it was revealed that CEO Jeff Fairburn was in line for £100m worth of shares (later reduced to £75m), a payout that had been approved in principle by the board and the majority of shareholders several years • 45

AFP/Getty Images

Martin Sorrell was the highest-paid chief executive of 2016, earning ÂŁ 48.1m from advertising and public relations ďŹ rm WPP, the company he founded. His 33 years at the helm came to an end in 2017 after he was accused of professional misconduct and resigned

executive pay

CREAM OF THE CROP It pays to be a CEO, but how do the numbers stack up?

163 YEARS

£5.7 MILLION

Average (mean) pay earned by FTSE 100 CEOs in the ﬁnancial year ending 2017

The time it would take a full-time worker on a mean salary of £35,000 to earn this amount

HISTORIC MEDIAN FTSE 100 CEO PAY £3.9m

£3.7m

£3.2m

£4.2m

£4.1m

£3.9m

£3.6m

£3.9m

£2.2m

FYE 2009 FYE 2010 FYE 2011 FYE 2012 FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

HISTORIC CEO-TO-WORKER PAY RATIOS (US) 376:1

400

345:1

302:1

300

276:1 200

196:1

189:1

100

59:1

30:1

20:1 1970

1980

87:1

1990

2000

2010

FTSE-350 MEDIAN REALISED TOTAL INFLATION-

Median EP (£m)

Source: CIPD and the High Pay Centre; Economic Policy Institute; Lancaster University Management School

-15

-1

-30

-2

-45

-3

-60

-4

2004

2006

2008

2010

2012

Total realised CEO pay

Median total realised pay (£m)

ADJUSTED CEO PAY VS ECONOMIC PROFIT 30

2014

CEO PAY VS TOTAL SHAREHOLDER RETURN – HOUSE BUILDING SECTOR TAYLOR WIMPEY

6.7

6.3

6.9

BARRATT HOMES

6.4 4.3

4.1 3.8

3 1.7 1.5 1.7

1.4 1.2

2009 10 11 12 13 14

15 16 17

7.4

3.2 3.3

2.1

2009 10 11 12 13 14

15 16 17

BERKELEY GROUP

47.1

PERSIMMON 12.4 11

1.1 1.1

1.4 1.5 3.2 5

2.3 1.2 1.7 2.2

2009 10 11 12 13 14

15 16 17

CEO pay (£m)

1.9 2 2.1

2009 10 11 12 13 14 TSR

15 16 17

before. As Mortell puts it, “I wouldn’t be a RemCo chair for all the tea in China.” The Investment Association has also joined the likes of the CIPD, the High Pay Centre and the Prime Minister in calling for greater transparency over executive pay. It’s not enormously surprising: complex, opaque remuneration structures erode trust between senior management and all other stakeholders. It’s rare now to find a remuneration report that doesn’t use the words ‘simplicity’ or ‘clarity’ somewhere or other. The CIPD goes further, calling for an expanded remit for the remuneration committee beyond the executive directors and board members, to look at reward in the business more generally. “We need to find ways in which we can compare CEO pay with normal pay across the organisation, and use that as a base to judge whether what’s being paid is rational and to that extent fair,” says Cheese. Will any of this translate into meaningful change? It’s significant that scrutiny is increasingly coming from authorities as well as investors. The FRC published reforms to the Corporate Governance Code this summer, requiring companies to consider stakeholder interests as well as reject formulaic bonus plans, and mandatory executive-to-median-employee pay ratio reporting is likely to come into force in 2019. The effect, it is hoped, will be to force businesses to justify their remuneration policies and practice much more carefully. That level of transparency will stimulate debate, but is it the right debate? Maybe the issue isn’t just about good practice in remuneration or how effectively executive pay delivers its objectives for the business, but what those objectives should be in the first place. Pay regimes are still essentially Friedmanesque: their boiled-down purpose is to incentivise senior management to increase shareholder wealth by making them shareholders. In which case, CEO pay is likely to remain stratospherically high, says the High Pay Centre’s Hildyard. “Executive pay is one small part of a wider debate about the role of business in the economy and society, what it’s for and who it should be accountable to.” So is Soriot worth £9.4m a year? That depends on what you want him to do. This is not a question that AstraZeneca or any business can answer on its own. As they exist now, they serve the shareholders’ interests, and the shareholders support big rewards for senior executives because they believe it makes them more money. But the people leading corporations surely have a role in a healthy debate about what they are for. If business just passes the buck, then that debate will be fashioned by those who say there’s something not just greedy but plain wrong about a drug company making profits off cancer treatment and then showering money on its bosses. Ultimately, such hostility towards business would be bad medicine for all involved. For further reading, see page 72 47

“We try to encourage thoughtful intelligence, not shouty stupidity” As CEO of Nesta, Geoff Mulgan is passionate about ‘new ideas that work’. He unveils his vision of the future to Jeremy Hazlehurst Portraits

THROUGHOUT GEOFF MULGAN’S CAREER he has had a knack for spotted emerging trends. He was one of the ﬁrst people, back in the 1990s, to understand the importance of the creative industries to an economy and the role that city administrations can play in fostering them. Before Twitter was even a glimmer in Kim Kardashian West’s eye, he was looking at the impact digital networks can have on society. A decade-and-a-half ago he was working on social innovation. But he is not an ivory tower-dwelling theoretician. Between 1997 and 2004 he worked in the UK government, his roles including head of policy in the Prime Minister’s office, director of the Strategy Unit, and chief advisor to Gordon Brown. He also helped set up organisations such as the think tank DEMOS and The Young Foundation, where he was chief executive from 2004 to 2011. Since 2011, Mulgan has been the CEO of Nesta, the National Endowment for Science, Technology and the Arts, a charity promoting innovation. Through Nesta he works with the World Economic Forum, and governments in South Korea, the UAE, Scotland and Finland, as well as city administrations in Madrid, Barcelona, Helsinki and Reykjavik, and universities in China and India. 48

Richard Cannon

Somehow, he has also found the time to write several books, including 2013’s The Locust and the Bee: Predators and Creators in Capitalism’s Future, which in the aftermath of the ﬁnancial crisis suggested a way to amplify the best elements of capitalism. His most recent book, Big Mind: How Collective Intelligence Can Change Our World, looks at how the combination of human and machine capabilities has the potential to solve today’s challenges. Work. caughtupwith himinNesta’sofficesoverlooking the Thames, to talk about the meaning of true innovation, the emerging discipline of designing intelligent systems, and how to reshape the UK’s post-Brexit economy. Innovation is a word that can scare people, because it means change. What does innovation mean to you? There are 101 deﬁnitions, but I use a really simple one: ‘new ideas that work’. Innovation overlaps with invention, creativity and entrepreneurship, but it is somewhat different, because it is about new ideas put into the world. A lot of innovations involve no technology at all – kindergartens are a great example. We do a lot of business model innovation, helping organisations use •

leadership

innovation

WORKS IN PROGRESS Digital democracy Nesta plays a central role in the EU-funded DSI4EU programme, which promotes digital social innovation across Europe, mostly at the city level. It led a project to develop open source, distributed and secure tools which allow citizens to propose and draft policies, decide and vote on proposals, and allocate resources through participatory budgeting processes. Schemes have been run around the world, including Decide Madrid, which allocated €100m after participatory budgeting in 2017 and involved citizens in the remodelling of major public spaces. Flying high In late 2017 Nesta launched the Flying High project, which asked five cities around the UK to think about how drones could help to improve services in their region. The resulting report identified five possible uses of drones: transporting pathology samples, blood products and equipment between NHS facilities; flying medical supplies across the Solent to link Southampton and the Isle of Wight; reconnaissance at traffic accidents; providing high-quality information to support emergency call handlers and ground commanders in the fire service; and aiding the building industry by surveying sites and gathering real-time information on works progress. The next step is to create a challenge prize to spark practical innovations which could make these ideas a reality. Rocket Fund Nesta will start the sixth round of Rocket Fund in October, a crowdfunding platform that helps schools raise money from local businesses and the community to buy technology for the classroom. Teachers identify a piece of equipment they would like to buy, and create a project on the Rocket Fund website, which they can then share with their contacts. The platform is free to use and has so far helped 200 schools raise £185,000. Local businesses are encouraged to provide match funding. Data Control Since 2017 Nesta has been involved with DECODE, a Europe-wide project which aims to help people take control of their digital data and use it for the common good. When combined, people’s data has the potential to benefit society, and not just a few businesses that currently harvest it. Pilot projects in Barcelona and Amsterdam allow citizens to decide which data is shared with the city governments and what they want to keep private, allowing the administrations to improve services around the sharing economy, the internet of things, and participatory democracy.

These beehives in Burnley were one of the innovations introduced as part of Nesta’s Rethinking Parks programme: providing protection for the bees that pollinate wildﬂowers in the town’s green spaces

new models to care for the elderly, or the homeless, for example. Some of these use technology, some don’t. A lot of the literature around innovation tends to see it as entirely good. But some innovations are entirely negative, like nuclear weapons. There is a spectrum. I think we need to apply a more critical lens, whether we are talking about a new Facebook algorithm, splicing genes or new types of car. That said, I believe innovation is at the heart of human progress. Everything that has made life longer, healthier or happier started out as an innovation, and therefore it is hugely important to maintain the momentum of innovation in society. Right now there is a huge counterforce of nostalgia, fear of the future, of going back to bad old ideas, so I should stress that I am a believer in innovation, with caveats. You work a lot with government and public institutions, but doesn’t the best innovation come from private companies? It used to be conventional wisdom that government was the main funder of innovation, but it is a slightly weird effect of Thatcherism and market fetishism that this was airbrushed out. Basic research has always been mainly government funded, and equally turning that into products has always been private. Businesses sometimes innovate, but often to beneﬁt them versus other businesses, which sometimes doesn’t do a lot for the consumer. Finance was the extreme version of that. A lot of innovation, like PPI, was value-destroying for customers. Online, a lot of the innovations have been in the interests of click-throughs on ads, but haven’t really helped the consumer. There needs to be a more thoughtful discussion about it. We see that companies like Facebook are 52

increasingly being held to account for the way they innovate. This is a big question for the 21st century: are the innovations people are funding good or bad? Do different countries have different attitudes towards technological innovation? Japan has a declining workforce, and needs robots to do jobs in factories or offices, or to provide care. China has lots of programmes to develop robots because they know they face a decline in growth rates in the 2020s and 2030s. Here we have a long tradition of fearing technology. In some ways people are right to be nervous of robots cutting their jobs, because we have always had a weak adult education and training programme. It’s been cut by 40 per cent since 2010. A sensible approach would be to embrace technology and funnel some of the money from increased productivity into training to give people new opportunities. In Scandinavia and Germany the unions are very pro-automation because they realise that, managed properly, everyone beneﬁts, but if you don’t have the right systems in place it is rational to be a Luddite. At a time of rapid technological development and job changes, it is blindingly obvious that you need to adapt, and at some point British politicians will have to address it, but one of the effects of Brexit is that there is no headspace for this sort of thing. What innovation are you most excited about? I think a new design profession is coming into existence. We have a tremendous design industry in this country, but mostly in the design of products. I think there will be a new industry, which will be the design of intelligence in systems. It will include data science, technology, also psychology and a lot of other things. This is an emerging discipline, and not a single

innovation

university in the world is teaching it, but in 10 years’ time it will be common sense. Nesta just set up a Centre for Collective Intelligence Design, working with corporates like Google and McKinsey, universities and governments, asking: how do we make a system intelligent? We break intelligence down into its different functions: observing, data analysis, prediction, memory. Empathy is on the list, and wisdom, which is highly contextual and ethical. In any organisation you can ask: how well do we do these things? What’s our mixture of using machines and people for doing them? Machines might be great for observation, but hopeless for judgement or creativity. My greatest fear is that ﬁrms will have great AI, but make terrible decisions about what to do with it.

Nesta

Have you put this theory of designing intelligent systems into practice? We have worked with city governments in Iceland, Taiwan, Korea and Spain, designing tools for 21st century democracy that allow people to take part more directly in decision-making. The way that laws are made, parliaments work and political parties are organised hasn’t really changed in 50 or 100 years and often they are not suited to the modern world. We are using digital technology to tap into collective intelligence, making it easier to take part in proposing, commenting on, deliberating and prioritising ideas. We don’t say that people should set monetary policy, but there are a lot of things that people can have intelligent views on, especially in their local area, and you can tap into that intelligence. We try to encourage thoughtful intelligence and not shouty stupidity. So many people feel that decision-making power has been taken away from them and they feel fatalistic and angry. This is a way of returning power to them. It is interesting that new political parties have so far been the keenest to adopt these systems. How could these ideas translate into the workplace? Good workplaces give employees some control over their work. But there is a 200-year-old tension in capitalism between the model of top-down management and the idea of giving workers more independence. My bias certainly is towards giving people more autonomy and responsibility. An example is the Indian railway, which has two million employees and was created by the British as a hierarchical, top-down organisation. They’ve recently been trying to empower their staff by asking them to suggest better ways of doing things and hundreds of thousands of people have made suggestions. It’s about recognising that the most valuable intelligence often lies with the front-line staff. How do we harness the intelligence of our workforce, customers and others? In practical terms, this can be about things like better meeting design.

So how can organisations get this right? And what is HR’s role? Nesta spun off a company called BeApplied, which uses a method for recruitment that gets rid of CVs and uses a competence-based, bias-free process. HR should be using tools like this in order to ensure the workforce has the right balance of mindsets and skills, and that organisations are cultivating wisdom and creativity as well as skills for formulaic tasks. We recently did a piece of work trying to predict what skills are most likely to be in demand over the next 10 to 15 years. We definitely don’t think that half of all jobs will be replaced by robots. The picture is more complex: there will be a growth in demand for judgement, problem-solving, creativity and so on. That raises questions for HR, and for education too. Why aren’t these skills in the forefront of what schools and universities are doing, rather than at the margins as they are at the moment? We worked with a Chinese university asking, “If you were to start a university from scratch now, what would it look like?” The upshot was that you would still have disciplines like physics and engineering, but a lot more time would be spent teaching problemsolving in cross-disciplinary teams, learning by doing and in the real world, and fostering curiosity, rather than sitting in a classroom trying to absorb knowledge. Nesta’s work is very international. Why is that so important for an organisation which aims to help the UK innovate? The N in Nesta stands for ‘national’, but we made the decision five or six years ago that we had to become more global to do our job here. The best British institutions are both based in the UK and global. To make sure we are learning from the rest of the world, we work in 30 to 40 countries and are always learning from them. It’s also partly a Brexit response. The day after the Brexit vote we committed to setting up branches all over Europe. We have Nesta Italia in Turin and will open two more later this year. In the UK we need to maintain our frontier firms in banking and the creative industries, but we need to put more effort into pulling everyone else up, so a big part of our work is encouraging the diffusion of global best practices to SMEs. We helped the government design a fund, Business Basics, which will help improve smaller firms’ productivity. It is about re-fashioning adult education, using AI and data, etc. These things don’t automatically trickle down. The key to the post-Brexit economy is ensuring that if you are a medium-sized firm in a medium-sized town, you can be a participant in all these new developments that are happening all over the world, and not just an observer. We’re working out how to do that. For further reading, see page 72 53

Rubik Kubrick POW matrix, Rubik Cubes on panel, 2007 by artist Invader

All work and no play makes Jack a dull boy Being a workaholic is just as bad for you as alcoholism, and yet employees are often applauded for working overtime. Paul Simpson explores the double standard

A Rubik’s Cube portrait by street artist ‘Invader’ of Jack Nicholson in The Shining. The ﬁlm – a study in obsession both on screen and off – was directed by Stanley Kubrick, who drove his actors to despair with endless, repetitive takes

any nights, despairing of sleep, Sir Alex Ferguson would reluctantly drag himself out of bed, go downstairs, turn the TV on and watch a football match on video. It was, the then Manchester United manager told me in an interview in 1995, the only sure way he had found to get back to sleep. He wouldn’t have nodded off for long because he was usually at the club’s Carrington training ground before 7am for a workout in the gym, a cup of tea and a bowl of salted porridge. Seven years later, I interviewed Arsène Wenger, the Arsenal manager who was then Ferguson’s greatest rival in English football. I asked Wenger what he did to relax. At first he replied: “I read books on French society and history,” before adding: “Never mind having a day off, during the season, it’s very hard to get away from the game for an hour.” Football management is one of many professions in which workaholism is accepted, expected and respected. You find the same cultural bias in the media’s portrayal of film directors, CEOs and politicians. Stanley Kubrick’s perfectionist workaholism was cited as proof of genius, although it drove many of his actors – especially Kirk Douglas in Spartacus – to despair. When Marissa Mayer was hailed as the saviour of Yahoo, she played up to her image as the “hardest working CEO in Silicon Valley, bar none” talking about her ability to work a 130-hour week at Google. She made it sound easy: “You can do it if you’re strategic about when you sleep, when you shower and how often you go to the bathroom... For my first five years, I did at least one all-nighter a week.” Such was Mayer’s extraordinary devotion to duty that she started working, in her hospital bed, a few hours after giving birth to twins. Despite going beyond the call of duty, Mayer quit as Yahoo CEO after nearly five years, following scathing comments on her performance from some investors. Margaret Thatcher’s “sleep is for wimps” mentality was central to her image as the Iron Lady. The cultural bias towards workaholism was reinforced by Oliver Stone’s 1987 film Wall Street in which the amoral antihero Gordon Gekko (the surname referring to a kind of lizard) tells his protégé: “Lunch? You gotta be kidding. Lunch is for wimps.” Stone wasn’t presenting the crooked financier as a role model, but he had all the best lines and, as played by Michael Douglas, was the most compelling character in the film. Life soon began to imitate art to the extent that, today, only one in 100 Britons regularly take an hour off for lunch. Once it has been established that sleep is for wimps, and lunch is for wimps, it’s not much of a stretch to decide that anything that doesn’t involve work – families, friends, going to the theatre – is for wimps. Although the term ‘work-life balance’ was first bandied about in the 1970s, workaholism remains, according to Cary Cooper, professor of organisational psychology 56

and health at Manchester Business School and CIPD president, the dangerous norm in too many workplaces. To be fair to employers, Cooper says that we, as individuals, need to accept our share of the blame. “Some people make a personal choice to work long hours because it fulfils a need – psychological, physical or emotional. They may feel better, or more confident, at work than they do in any other aspect of their lives. Yet this only serves to isolate them further – from family or friends who could help them balance their lives – and encourages them to put in even more hours. The irony is that it doesn’t improve their productivity, and we know that working more than 45 hours a week, every week, will damage their health – physically and emotionally.” Workaholism has been linked to a long laundry list of disorders including anxiety, ulcers, high blood pressure, depression, claustrophobia, heart disease, insomnia, chronic fatigue, impotence and stressinduced paralysis. Yet can we really become addicted to work in the way we get hooked on alcohol and drugs? Wayne E Oates, the American psychiatrist and author who coined the word “workaholism” in his 1971 essay Confessions of a Workaholic: The Facts About Work Addiction certainly thought so. He explicitly likened his condition to alcoholism. Seven years later, he penned a kind of sequel: Workaholics, Make Laziness Work For You. Oates never took his own advice, writing 57 books before he died at the ripe old age of 82. The addiction Oates identified also has its own organisation, Workaholics Anonymous, complete with an Alcoholics Anonymous-inspired 12-step recovery programme. Alcoholism can be measured by tracking units of consumption, but workaholism is more elusive. There is not a lot of agreement about how we distinguish workaholics from people who just work very hard. Based on the answers to seven questions, Norwegian clinical psychologist Cecilie Andreassen has developed the Bergen Work Addiction Scale. If you answer “often” or “always” to four of the questions, you may be at risk. Yet many staff with a lot on their plate would often “spend much more time working than initially intended”. Barbara Killinger, a Canadian psychologist who specialised in the psychology of work, had a pithier definition: “A workaholic is a work-obsessed individual who gradually becomes emotionally crippled and addicted to power and control in a compulsive drive to gain public recognition and approval of success.” As workaholism progresses, she said, the individual will lose touch with their emotions, their values (studies do suggest some correlation between the condition and unethical behaviour, though not as pronounced as with drug or alcohol addictions) and ultimately their soul. Killinger’s rather judgemental definition sounds like she was being tougher on workaholism than the causes of workaholism. Yet she was tough on the parents of workaholics too, saying they may have encouraged

workaholism

Fine Art Images/Heritage Images/Getty Images

In 1935, Alexey Stakhanov mined 227 tonnes of coal in one shift. His hard work inspired a movement to ﬁre up Soviet workers, as lauded in this poster proclaiming ‘Long live Stalin’s generation of Stakhanov Heroes!’

such behaviour by granting conditional love when a child had surpassed expectations, or simply by not ensuring their kids have a “carefree childhood”. There is also some evidence that family circumstances – particularly the death or separation of parents – force children to take on adult responsibilities too soon, making them more likely to become workaholics in later life. As recently as 20 years ago, the idea that we could become as dependent on work as we could become on cocaine was not widely accepted. Today, as Cooper says, we have more understanding about how workaholism works on our metabolisms. To cope with sustained long hours, our bodies pump out more adrenaline which, over time, produces more cholesterol in our blood, narrows the blood vessels that supply our heart (making it harder for our body to get rid of cholesterol) and deposits more plaque on the walls of our arteries, narrowing them. Some experts go further. Killinger argued that victims effectively become disconnected from their own body because “the obsessional left brain ‘thinking’ function is dominant and their right brain ‘feeling’ function is repressed”. One of the early warning signs, she said, is that they develop a rigid, stiff way of carrying their body and their movements can appear robotic.

One of the difficulties is that millions of us have the stamina to succeed as functioning workaholics. Indeed, given that some studies suggest that as many as onetenth of America’s working population are workaholics, you could argue that functioning workaholics are the norm, not the exception. In a 2001 column for the New York Times, author Daniel Akst lamented the fact that “good old-fashioned obsession has fallen badly out of favour” and attacked the corporate consensus that “Someday, with advances in medical treatment and growing awareness of the problem, we’ll live in a better world blissfully free of people who work like maniacs.” The only problem with this better world, Akst noted, is “Without such people, there won’t be any advances in medical treatment – or in anything else.” As Akst points out, work-life balance is not a concept that would have meant much to Ulysses S Grant, as commander-in-chief of the Union armies during the American Civil War or, for that matter, to Thomas Edison who, at the age of 13, began his entrepreneurial career buying and selling food on the train from Port Huron to Detroit. Steve Jobs marked his return to Apple in 1996 by working from 7am to 9pm, seven days a week. He was also in charge of Pixar’s operations at the time. His mantra “Work hard, and others will • 57

Science History Images/Alamy Stock Photo

amazon

Inventor Nikola Tesla, pictured in his lab in 1899, worked obsessively, day and night. Elon Musk, who named his company after the genius, recently admitted to working 120-hour weeks

respect you” may not apply in every workplace but it helped him turn around Apple and transform our world with iMacs, iPods, iPads and iPhones. Such examples do show why the question ‘Can workaholism be good for you?’, as raised by Matt Palmquist in the journal strategy+business, is not as daft as it might sound. Citing a 2016 study for the Academy of Management, which tracked 763 employees at an international consulting firm, Palmquist suggested that: “For people who put in long hours but love their jobs, a sense of fulfilment seems to offset unhealthy stress.” The factor that was most likely to endanger an employee’s health, the study found, was not long hours per se but long hours worked by people who didn’t enjoy or engage with their jobs. The slight flaw in this argument is that, much like the alcoholic who has graduated to a bottle or two of vodka a day, workaholics have stopped enjoying their fix but feel powerless to do anything about it. Let’s be honest, being busy makes most of us feel important. As cartoonist Tim Kreider wrote in the New York Times in 2012: “Busyness serves as a kind of existential reassurance, a hedge against emptiness; obviously, your life cannot possibly be silly, trivial or meaningless if you are so busy you are completely booked, every hour of every day.” That was one of the clues to media mogul Robert Maxwell’s professional self-destruction. Up close and personal, there was something bogus about him – the bizarre cast of celebrities he paid to do his bidding, the alacrity with which he flew anywhere to collect every meaningless ‘humanitarian’ award and his frequent boast that “I turned down a lordship” all smacked of “existential reassurance”. One of his closest aides once told me that he was so prone to creating a crisis on a Friday evening, at the very moment his retinue were preparing to head home to kith and kin, she began to wonder if he did it to reassure himself of his own importance and to stave off loneliness. The destruction of his family during the Holocaust does not excuse his crimes, but it could explain why, even as an apparently fabulously successful businessman, he might have felt a powerful need to hedge against emptiness. Maxwell was shameless, but it is shame – and its concomitant fear of failure – that drives many of those who define their identity through work. In January 2009, German pharmaceutical entrepreneur Adolf Merckle picked up his coat at about 5pm and told his wife, “I have to go the office for a while.” He didn’t drive to work but to a nearby railway embankment, where he got out, laid on the frozen tracks, and waited for a train to kill him. He had once been one of the wealthiest men in Germany but the recession, family said, left him a “broken man”. A friend told the The Telegraph: “His companies were his life and when he was going to lose control of them, he obviously felt he would lose control of his life. That is the only way I can see it.” 60

You could say that, in a psychological sense, Merckle had committed karoshi: the Japanese term for people who work themselves to death. The phenomenon can be traced back to the 1950s, when Japan was rebuilding its economy. “After world war two, the Japanese worked the longest hours in the world by far – they were workaholics of the highest order,” says Cooper. By the 1980s, it is estimated that ﬁve million Japanese (seven per cent of the population) were slogging through 60-hour weeks. By the end of that decade, so many white-collar executives were dying through overwork that the Ministry of Labour began collecting and publishing statistics on karoshi (deﬁned as anyone who had worked 100 hours of overtime in the month before their death, or 80 hours of overtime for two months in the previous six). By 2015, more than 2,000 people were dying a year. Shinzō Abe’s government has since tried to restrict overworking but karoshi has spread. In China, where it is known as guolaosi, it kills around 600,000 people a year. Companies that genuinely want to change their workaholic culture need to lead by example. Cooper has been lecturing on management since the early 1980s and says that, in all that time, only one CEO has ever asked him to stress the importance of not working too hard to managers. “Terry Leahy studied under me and he had heard some of my views on the topic and shortly after he became Tesco CEO back in 1997, he invited me to address his managers and caution them against working long hours. More CEOs could do that. They could even say that, while it might be necessary for them, in their position, to work long hours, it shouldn’t be – and isn’t – expected of everyone else.” Karoshi does pose a difficulty for those, like Killinger, who classify workaholism primarily as some kind of psychological disorder. That view ignores the role that organisational culture, peer-pressure, learned behaviours, managers’ constant refrain about work ethic – let alone the simple need to pay the bills – play in conditioning us to become workaholics. And then there are the Protestants, who have been talking about their work ethic since the time of the Puritans. As German sociologist Max Weber noted in The Protestant Ethic and the Spirit of Capitalism, for Protestant idealists even the most mundane labour was a spiritual calling. Work wasn’t just something you did to feed the family or pay your taxes, it was “your purpose in life”. This conditioning is one of the inspirations for a fascinatingly grim contest on LinkedIn where self-styled productivity ninjas in the American tech sector post diaries and photographs to prove their worth, by illustrating how hard they work and how little they sleep. The ultimate expression of this belief was Mary, a pregnant Lyft driver in Chicago who, in September 2016, picked up passengers although she was having contractions, taking one customer to the hospital where

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CASUALTIES OFWORK Felix Dzerzhinsky Secret Police Chief When you love your work, it can be hard to stop and, as the first Soviet secret police boss, Dzerzhinsky (aka ‘Iron Felix’) was so keen on sending thousands of counter-revolutionary ‘traitors’ to their deaths he often lived in his office. He ignored Stalin’s orders to cut down his workload and, on 20 July 1926, at just 48, he collapsed during a rambling speech at a Central Committee meeting and died of heart failure. Akira Kurosawa Director A heavy-drinking workaholic genius, Kurosawa made his name with such classics as The Seven Samurai. At the end of his career the director suffered several flops and quit Tora! Tora! Tora! (1970) after struggling to adapt to Hollywood filmmaking. He once claimed he wanted to die while working on a film set; a stroke finally felled him, aged 88, at home. John Maynard Keynes Economist Britain’s most influential economist dreamed of a time when we would all work a 15-hour week. Yet as an economist, journalist, collector, philosopher and stock market speculator, he was, in the words of biographer Robert Skidelsky, “one of the most efficient working machines ever created”. Yet that efficiency undid him – he died, after a succession of heart attacks, in 1946 at the age of 62. His brother Geoffrey, a surgeon, lived until he was 95. Sergio Marchionne CEO “Being a leader at Fiat is a lifestyle decision,” Marchionne said once, “it’s not the Buena Vista Social Club.” Invariably clad in black sweater and pants – which he bought online in the middle of the night – fuelled by cigarettes and espressos and wielding six smartphones at once, he slept little and worked hard. The Italian-Canadian businessman’s modus operandi helped quadruple the value of Fiat and Chrysler but may have contributed to his unexpected death, at the age of 66, in July, after surgery on a tumour.

Bettmann/Getty Images

James Polk US president Famous for rarely taking a day off as president from 1845 to 1849, Polk (pictured above in a political cartoon) worked 12-hour days, micromanaged war against Mexico and avoided White House entertainments – making him, he said, “the hardest working man in the country”. He wrote in his diary that he often suffered “violent diarrhoea” during his time in the White House. He died of cholera at 53, three months after he left office.

she proceeded to have the baby. As Jia Talentino observed sardonically in The New Yorker: “Mary’s entrepreneurial spirit – taking ride requests while she was in labour! – is an exciting example of how seamless and flexible app-based employment can be. Look at that hustle! You can make a quick buck with Lyft any time, even when your cervix is dilating.” The shift to longer hours predated the gig economy. “People worked long hours during the Industrial Revolution but those hours declined until the 1980s, when they started increasing again – and they have kept doing so ever since,” says Cooper. “This is a direct consequence of globalisation, which meant that companies and public sector bodies reduced their labour force to compete, put more work on fewer people while burdening them with electronic overload – such as emails. And in the downturn, more people worked longer to show their commitment, which encouraged presenteeism.” Cooper’s belief – that too many companies actively or tacitly encourage workaholism – is echoed by Elizabeth Warren, the Democratic Senator for Massachusetts, who argues that this behaviour reflects a fundamental shift in attitudes. In a Wall Street Journal article, she wrote: “As recently as 1981, the Business Roundtable – which represents large US companies – stated that ‘corporations have a responsibility, above all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to enhance the enterprise, provide jobs and build the economy’. Building on work by conservative economist Milton Friedman, a new theory emerged that corporate directors had only one obligation: to maximise shareholder returns. By 1997, the Business Roundtable declared that the ‘principal objective of a business enterprise is to generate economic returns to its owners’.” In this world shareholders come first and employees come nowhere. Warren has introduced an Accountable Capitalism Act to Congress – which stipulates, for instance, that staff should elect 40 per cent of directors, but it has little chance of becoming law anytime soon. The truth is that workaholics will always be with us. There are some people who gravitate to work because they feel more accomplished at it than raising a family, maintaining friendships or repainting the living room. The smartphone has facilitated that, by blurring so many of the boundaries between work and the rest of our lives. At the same time, we must challenge the pervasive myths of self-reliance which make it, as Talentino observed in The New Yorker: “more acceptable to applaud an individual for working himself to death than to argue that an individual working himself to death is evidence of a flawed system”. For further reading, see page 72 61

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VOCATIONAL TRAINING

T-levels are due to be rolled out across construction, engineering and manufacturing

UK’s skills revolution needs a rethink Many employers remain unaware of new vocational qualiﬁcation

he much-heralded new and accounting, catering, and vocational qualification engineering and manufacturing. launched by the UK government Employers were also asked about to deliver a technical “skills the feasibility of offering students revolution” for Brexit Britain is long work placements, which are an facing a major barrier – most important component of a T-level. employers remain unaware of it. Only a quarter of employers A CIPD survey of 2,000 thought they would be able to employers has shown provide a placement “Employers are highly of the minimum 45 only 40 per cent have critical of young heard of T-levels, the days. people’s preparedness Level 3 technical A further 22 per cent for work” qualification that (small firms in will be on a par with particular) said it academic A-levels. Among those would be feasible, but they would who had heard of the new require some financial incentive. qualification, the majority rated Overall, employers were “broadly their level of knowledge about it supportive of T-levels”, with 44 per as fairly poor (46 per cent) or very cent saying they would improve poor (18 per cent). This is despite young people’s employability. Forty the first T-levels beginning in just per cent said 16 year olds and 17two years, followed by a full roll out and 18-year-old school leavers were across 15 sectors, including finance currently either fairly or very 62

poorly prepared for work; a third said 17-18 year olds recruited from further education colleges were fairly or very poorly prepared, and almost a third of university graduates were not well prepared. Lack of maturity and inexperience of the working world were cited as the main reasons for young people being underprepared, with poor attitude or motivation; inadequate common sense; and shortage of skills or competences, including in literacy and numeracy, also being cited. “Employers are highly critical of young people’s preparedness for work and identify a lack of work experience as one of the main reasons,” says the report, Reforming technical education – employers’ views of T-levels. Its author Lizzie Crowley, CIPD skills advisor, says in this respect, organisations are very supportive of technical education reform. “However, they are critical to the success of T-levels and it’s worrying there is such a low level of awareness,” she adds. “The government needs to take urgent steps to improve this. There also needs to be a careful rethink about the duration of placements and how these are delivered.” bit.ly/TechnicalEducationReport

WORKPLACE BEHAVIOUR

Train staff to break cycle of aggression Bullying or angry behaviour causes victims to misbehave

eing on the receiving end of bullying or aggressive behaviour at work doesn’t only harm victims’ health, it can also lead them to behave badly themselves.

Words: Rima Evans

BUSINESS RESEARCH, REPORTS AND INSIGHT

Bloomberg, Leon Neal/Getty Images

Research carried out among nurses shows that fear and anger resulting from being treated badly by colleagues or supervisors, as well as patients and their relatives (third-party aggression), can trigger misconduct. This can include mistreatment of patients, which breaks professional and ethical codes. So workplace aggression becomes a “vicious circle”, which can have potential consequences not only for the victims, but on an entire organisation, says the paper, ‘First, Do No Harm’: The role of negative emotions and moral disengagement in understanding the relationship between workplace aggression and misbehavior. Little research has been carried out around mistreatment at work in the healthcare sector despite the importance of the issue in this setting, the authors say. They wanted to explore the role fear, anger and sadness each play in prompting unethical behaviour, as these are the emotions frequently felt by targets of aggression. Some 855 nurses were involved in two studies. They were asked about their experiences of bullying, third-party aggression, negative emotions and health symptoms. They were also asked how often they engaged in a range of counterproductive work behaviours, ranging from insulting a colleague or stealing from their employer to clinical misbehaviour such as modifying prescriptions, using physical restraint on patients, or turning patients’ call bells off during night shifts. The results conﬁrmed that being the target of workplace aggression is associated with health-related problems such as headaches or difficulty in concentrating, and also misbehaviour. However, the results also suggest it is the experience of fear and anger associated with being the victim of aggression that can trigger subsequent misconduct.

Sadness, on the other hand, is exclusively associated with health symptoms. But what are the practical implications of these ﬁndings? Training around preventing workplace aggression should include a focus on emotions and the “speciﬁcity of the emotional experience”, the study says. It adds: “Training should help employees to gain awareness about the different possible emotional responses associated with the experience of aggression at work that may potentially lead to different dysfunctional paths for themselves and the organisation stakeholders.” The authors of the paper were: Roberta Fida of Norwich Business School; Carlo Tramontano of Coventry University; Marinella Paciello of Università Telematica Internazionale Uninettuno; Chiara Guglielmetti and Silvia Gilardi, both of Università degli Studi di Milano; Tahira M Probst of Washington State University Vancouver; and Claudio Barbaranelli of Università degli Studi di Roma La Sapienza. bit.ly/Frontiers-FirstDoNoHarm

Health Secretary Matt Hancock is “horriﬁed” by the level of bullying reported by NHS staff

EXECUTIVE PAY

Wage divide grows again FTSE 100 bosses earned a mean pay package of £5.7 million in 2017

K companies should start publishing details about the gap between CEO and worker pay now – rather than delaying until it becomes a legal requirement. That’s the advice of the CIPD and High Pay Centre, whose research reveals a growing gap between CEO pay and average worker pay. Research found that average FTSE 100 CEO pay has risen by 23 per cent and median pay by 11 per cent over the last year. By contrast, Office for National Statistics data indicates that mean salaries for all workers in the UK have gone up by just 2.5 per cent. Bosses of top ﬁrms received a mean pay package worth £5.7 million a year, according to the 2017 accounts of companies listed in the FTSE 100 in June 2018. This is up from £4.6 million in 2016. The median ﬁgure (the midpoint in the range of chief exec remuneration packages) was £3.9 million in 2017, up from £3.5 million in 2016. Highlighting the gulf between the highest-paid executives and the rest of the workforce, the research report, Executive Pay: review of FTSE 100 executive pay says: “It would now take a UK worker on a salary of £29k a total of 195 years to earn the mean FTSE 100 CEO reward package.” That equates to a pay ratio of 195:1. Long-term incentive plans (LTIPs) represent the bulk of total pay (56 per cent) awarded to FTSE 100 CEOs in 2017. Bonuses make up 22 per cent and base salary 16 per cent. Bonuses and LTIPs make up the divide between the very rich and the less rich, say researchers. 63

The CIPD and High Pay Centre welcomed draft plans requiring listed companies with more than 250 employees to publish pay ratios between their CEO and UK employees at the median, 75th and 25th percentile of pay distribution. The new regulations come into force next year, with the first appearance in annual reports in 2020. However, the report urges companies to introduce pay ratio reporting immediately, as there is considerable “stakeholder interest”, and the methodology for calculating pay ratios is already available. Companies should also provide clearer information about wider pay distribution, to show the share of total pay that goes to top earners (not just CEOs) compared with the rest of the workforce. Charles Cotton, CIPD performance and reward adviser, says it’s important for HR to lead the debate on pay by encouraging the business to consider what behaviours, skills and attitudes are required for employees to succeed, and how best to recognise them. “This will include talking to multiple internal and external stakeholders, using insights from behavioural science to reward employees in a responsible way and developing an approach that reflects the business and economic context of the organisation,” he explains. Other key findings included: • There were seven women in the FTSE 100 CEO list for 2017. At this rate it will take another 43 years for women to make up 50 per cent of the top 100 CEOs. • Consumer goods, consumer services and industrials are the three industries with the highest median pay ratios – 277:1, 142:1 and 109:1 respectively. The report was written by Elena Kalinina and Louisa Shand. bit.ly/ExecutivePay2018

Nokia diversiﬁed from rubber footwear to mobile phones but lost out to Apple and Android

“The failure rate of change initiatives is estimated to have remained constant over the last 40 years, suggesting organisations haven’t been learning from past mistakes,” says Carter in the paper Human implications of strategic Change capability in the agile initiatives often overlooked organisation. She attributes a big part of the hile agility is widely problem to employees suffering acknowledged as a necessary change weariness and wariness: ingredient for sustained corporate the feeling that continual change is success, it won’t be achieved until implemented simply for its own staff and teams are “changesake, and that it’s rarely successful. capable”. This is according to Drawing on a joint research a paper from the Institute for project between the IES and Employment Studies (IES), written Henley Research Forum, involving by principal research fellow, organisational change practitioners Alison Carter. from nine “Many strategic Many strategic organisations, the changes fail... and that’s paper describes what changes fail, she says, most often because of and that’s most often being change-capable the human aspect” because of the human means and how HR aspect, which tends to and senior leaders can get overlooked in favour help foster this mindset. of organisational issues. Being change capable has to work In other words, even where on two levels – people and organisations provide the necessary organisational. resources for agility – knowledge, While there must be enough skills, equipment and a culture of employees in a team who are learning – these on their own aren’t adaptable and responsive to fast sufficient if employees don’t have changing circumstances, it is also the right mindset for change. about having the right AGILITY

Right mindset key to change

Tony Lewis, Max Mumby/Indigo/Getty Images

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organisational process and skillset to be able to anticipate when change is actually needed, and then take action. Improving an organisation’s ability to adapt requires: • Listening – collecting feedback and reﬂections from teams on previous change so lessons can be learned from what worked well or not so well. • Visioning – offering an emotionally compelling vision of why the future state will be better than the status quo for both customers and staff. • Embracing the heretic – instead of silencing those who express doubts early on in the change process, let them identify pitfalls so they can be avoided. • Reframing – enabling teams to reframe their purpose to something that makes sense to them and their context. • Developing agile-smart leaders – organisations should discuss how team leaders can assist in creating organisational agility. bit.ly/ChangeCapability

NETWORKING

Wide networks lift ﬁrm value CEOs with diverse connections boost company performance

EOs looking to increase their ﬁrm’s value can do so by widening their social network, a study has found. The more diverse a leader’s connections, the better the performance of their business, says the paper Differences make a difference: Diversity in social learning and value creation. It adds that: “Networking with a heterogeneous group of people offers more diverse knowledge, new perspectives and

multiple problem-solving options that can enrich a CEO’s knowledge set and improve his/her decisionmaking.” This, in turn, leads to increased shareholder value. Researchers from the Stuart School of Business, Illinois Institute of Technology; Lally School of Management, Rensselaer Polytechnic Institute; and Fordham University analysed a sample of 1,212 CEOs who headed US firms from 2000 to 2010. They examined the CEO’s social networks, including their school, work and other social ties (clubs and charities) in the past and present. “Heterogeneity measures” were constructed based on contacts’ gender, nationality, academic degrees, majors, professional expertise and international exposure. The contacts had to be working in at least senior management or higher positions. Firms’ financial details were also collected. Results revealed that, overall, diversity in social networks enhances firm value, but that each separate diversity dimension also has a positive effect. Gender heterogeneity has the largest economic impact. For an average firm with total assets of $4738 million (the sample average), one standard deviation increase in gender heterogeneity leads to an increase in market value of around $189 million, emphasising the value of female directors and top executives, the paper says. Furthermore, the findings showed that leaders who took over from people with less diverse networks actually drove up their companies’ stock price. In addition, firms run by CEOs with diverse networks achieve more and better-cited innovations, and engage more in exploratory not exploitative strategies, which in turn promote firm value. They also make “better M&As in diversified

ﬁelds” because their connections bring different perspectives and greater overseas market knowledge. Authors Yiwei Fang, Bill Francis and Iftekhar Hasan conclude that shareholders should “consider how diversity of the social capital of upper management and board members can add value to the ﬁrm, given the changing face of the workforce and increasing global competition”. bit.ly/DifferencesMakeADifference

REWARDS

Who’s a good boy then? Immediate rewards can increase intrinsic desire to pursue tasks

eceiving an immediate reward to complete a task can make it a more positive experience and boost its enjoyment, a study has found. Early rewards, as opposed to those given out after an activity is completed, increase intrinsic

Humans may be more complex than dogs but the timing of rewards still matters

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motivation – the willingness to TEAMWORKING task. While all were paid a small, pursue a task for its own sake, fixed fee, some people were told rather than for a particular they would receive an immediate outcome. Even where a delayed additional bonus after they finished reward is larger, it’s the timing of the task, whereas others were told the reward that has most impact, they would be paid the same bonus, says the research paper, It’s about but in a month’s time. time: Earlier rewards increase After successfully spotting four Benefits to be reaped from intrinsic motivation. differences, participants were then creating a shared cognitive state Although some previous studies asked if they would consider have shown rewards can continuing with the task for no he secret to more productive undermine intrinsic motivation, additional compensation, or just work teams may be researcher Kaitlin Woolley of end it there. Eighty four per cent encouraging “team mindfulness”, Cornell University says “for of participants in the immediate which research suggests can play activities such as work, where bonus group continued, while only a powerful part in preventing or people are already 70 per cent in the “Even where a reducing conflict around how tasks getting paid, delayed bonus group delayed reward is should be carried out. It can also immediate rewards continued. larger, it’s the timing help lessen hostile behaviour can actually increase An additional study that has most impact” involving a reading intended to undermine colleagues intrinsic motivation, and hinder their ability to work well compared with task compared the – a frequent “spill over” from team delayed or no rewards. They are timing of a reward with the size of conflict. a useful tool for increasing interest the reward. This showed a larger Team mindfulness has received in an activity.” reward did not increase intrinsic much less attention than individual Woolley and Ayelet Fishbach of motivation as much as an earlier mindfulness, despite being adopted the University of Chicago carried reward did. by businesses including Google, out several studies to explore the In terms of motivating LinkedIn and Ford, say researchers effects of timing of rewards on employees, the study’s findings in their paper, Introducing team individuals’ willingness to purse suggest that smaller, more frequent mindfulness and considering its an activity because it’s seen as a bonuses throughout the year could safeguard role against conflict positive and beneficial experience in fact be more effective than transformation and social in itself. a larger end-of-the year bonus. bit.ly/EarlyRewards undermining. In one study, participants completed an experimental task in exchange for a chocolate reward. They were divided into two groups, “immediate” and “delayed”. The first group received a chocolate at the same time as being invited to complete a survey, but were asked not to eat it before finishing the task. The people in the other group were shown the chocolate reward and told they would receive it only after completing the survey. Results showed “participants who received the chocolate with (versus after) the experimental task, found the task more intrinsically motivating, even though none of them consumed the chocolate until the task ended”. Another study involved 223 workers in a spot-the-difference Companies such as Google and Ford are leading the way in the promotion of team mindfulness

The healing potential of mindfulness

Dimas Ardian, Ludovic Marin/Getty Images

Since mindfulness has been shown to affect work performance, innovation, staff turnover, decisionmaking and more, researchers Lingtao Yu of the University of British Columbia and Mary Zellmer-Bruhn of the University of Minnesota wanted to explore the positive effects it can have in a group setting. The study defines team mindfulness as a “shared belief among team members that team interactions are characterised by awareness and attention to present events”. It is also about processing team experiences in an open, receptive and non-judgemental way. It is distinct from individual mindfulness in that it is a “shared cognitive state”, the paper explains. The two researchers conducted three studies, the first of which established a measure for team mindfulness. The subsequent two studies involved teams of MBA students from a US university, and 48 teams of workers (292 employees) from a Chinese healthcare organisation. Team mindfulness in both was measured and participants asked about conflicts related to work projects, conflicts such as personality clashes that stemmed from relationships, and any negative behaviours they experienced from other team members (social undermining). The researchers found when teams were more mindful, there was less interpersonal conflict. Team members’ frustrations with particular tasks were also less likely to turn into personal conflicts with colleagues, and they were able to focus better on those tasks. In addition, team mindfulness can safeguard against social undermining behaviours, which tend to harm teamwork. “Team mindfulness ensures the task, rather than the person, remains the focus of reactions,” says Zellmer-Bruhn. “It can also

limit the intensity of one’s opposition and negative emotions, thereby limiting escalation.” Further research could explore whether low mindfulness may actually exacerbate team conﬂict, the paper suggests. bit.ly/TeamMindfulness

ALERTNESS

A coffee boosts team focus Caffeine drunk in moderation can energise group discussions

f your business meetings are unproductive and slow, drinking a cup of coffee could pep things up. Consuming a moderate amount of caffeine can energise group discussions and enhance individuals’ perception of their own performance and everyone else’s, a study has found. Several previous studies have shown coffee increases alertness and can boost individuals’ performance, but to date there has been no evidence showing its effect

If it wasn’t for the coffee, how productive would the world’s political leaders be?

on team performance, according to researchers from the University of California, Davis and the Ohio State University. This is despite “a large amount of coffee being consumed in business meetings” they say in a paper titled Coffee with co-workers: role of caffeine on evaluations of the self and others in group settings. Vasu Unnava, Amit Surendra Singh and H Rao Unnava conducted two studies to explore this theme. The first involved 72 US undergraduates who were low to moderate coffee drinkers (no more than four cups a day). They were assigned to two groups, with the first asked to drink coffee with around 270mg of caffeine. After half an hour, enough time for the coffee to kick in, they were given an article to read about a socio-political movement, and asked to discuss it as a group. Participants were then asked to evaluate the group’s and their own performance. The second group followed the same steps, except they drank the coffee at the end of the experiment. This first study found caffeine increased a group’s focus and encouraged all members to participate more in discussions. Those who consumed coffee before the group task also evaluated the group’s and their own performance more positively than those who drank it after the task. However, could drinking coffee before the task have given the first group an opportunity to warm to each other, making the difference? A second experiment, where all participants drank coffee together before the task, helped to eliminate this possibility. This time, half of the 61 students taking part were given decaffeinated coffee (but not told it was such). The results were the same as before, with those who drank caffeinated coffee rating themselves and their fellow group members more positively than those who drank decaf. The 67

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caffeine drinkers also showed a greater willingness to work with the group again compared to the decaf drinkers. And they rated themselves as being more alert. That’s the key, say the researchers. “It is not caffeine that affects group task performance, it is the increased alertness which led to our ﬁndings,” they conclude.

acquisition of human and social capital and success in recruiting and retaining employees, they add. The research team set about investigating career mobility across three “boundaries”: organisational – moving to a different employer; industrial – switching to a new industry; and occupational – changing careers. bit.ly/CoffeeWithCoWorkers An online survey among 503 Swiss alumni of management programmes gathered information CAREER MOBILITY about their career histories and current jobs. Between them they spanned more than 20 industries. Participants were asked about their education and openness to experiences. The researchers also Youth and educational level analysed the effect of yearly key factors in career change fluctuations in the labour market. Level of education was found hat characteristics spur to have a positive effect on the people on to change jobs? It’s likelihood of people changing jobs across organisations and industries, not openness to new experiences, while changes in the labour market as you’d expect, but their level of (specifically, lower unemployment) education or age. were also related to organisational The paper When do employees job changes. Although the cross boundaries? Individual and researchers had assumed career contextual determinants of career mobility would be attractive to mobility reveals being educated to individuals with a willingness to Master’s or PhD level increases participate in new experiences, a person’s likelihood of changing analysis showed this had no effect. organisations or getting a job in Openness to new experiences and a different industry. Age is another education also had no bearing on factor – younger employees are more likely to change organisations, individuals’ likelihood to change occupation. The team argue their industry and even occupation. findings strengthen the case for Career mobility is also affected by organisational labour market trends, “For organisations, investment in career with individuals more mobility is important management likely to switch for their strategic programmes to employer during low HR management” develop employees’ unemployment. skills. “Mobility has “Investments in employees’ become a key aspect of careers, internal employability and intraimpacting organisations and organisational career opportunities employees,” say Angelika Kornblum might pay off in times of a and Gudela Grote of ETH Zurich, favourable external labour market, and Dana Unger of the University of East Anglia. when talented employees have For organisations, mobility is many attractive job alternatives especially important for their available,” they conclude. bit.ly/EmployeesCrossingBoundaries strategic HR management,

Why staff opt to jump ship

INTERNATIONAL

Reasons to be cheerful on innovation Global report strikes positive note but green investment needed

he UK has climbed a place to reach fourth position in this year’s global ranking for the most innovative economies. The country is now ahead of the US in the Global Innovation Index (GII) 2018, which is published annually by Cornell University, INSEAD and the World Intellectual Property Organization. The US slipped to sixth place from fourth last year. Switzerland ranks number one in the GII, a position it has maintained since 2011, with the Netherlands and Sweden in second and third place respectively. China has broken into the Top 20 for the ﬁrst time and is ranked 17th. China’s rapid rise in the GII rankings over the past few years is described as “spectacular” in the Global Innovation Index 2018, Energizing the World with Innovation report. China is the only middle-income country to feature in the top rankings, which are dominated by high-income countries. Malaysia, currently in 35th place, is the only other middle-income economy edging closer to the top 25. In areas such as R&D expenditure and number of patents, researchers and publications, China is now “ﬁrst or second in the world, with volumes that overshadow most high-income economies”, says the report. In all, there are 20 countries that have outperformed in innovation relative to their level of development in 2018. They include India, Kenya, Vietnam, Ukraine, and new on the list this year,

Bloomberg, R. McPhedran/Getty Images

Colombia, Tunisia, South Africa, Costa Rica, Serbia, Montenegro, Thailand, Georgia and Mongolia. The GII ranks 126 economies based on 80 indicators, ranging from intellectual property filing rates to mobile-application creation, education spending and scientific and technical publications. Overall, the GII findings give cause for some optimism about global innovation and growth. “After almost a decade of uneven progress, a broad-based global economic growth momentum is now in place,” says the report. Innovation and R&D are also serious policy ambitions in most developed and developing economies, it adds. “Global R&D expenditures have continued to rise, more than doubling over the 20-year period between 1996 and 2016; businesses increasingly account for most R&D investments.” However, the report also stresses that given rising energy demand across the world, innovation in green technology will be key – hence the theme of this year’s report. “Projections indicate that by 2040 the world will require up to 30 per cent more energy than it

needs today and conventional approaches to expanding the energy supply are unsustainable in the face of climate change,” the report warns. Despite this, “green investment growth has slowed and energyrelated patenting has also stagnated and even declined in recent years following a period of accelerated growth”. In addition, incentives to take up energy innovations are missing, a factor governments should address through policy, says the report which was edited by Soumitra Dutta, Bruno Lanvin and Sacha Wunsch-Vincent. bit.ly/GlobalInnovationIndex2018

TRUST

Have faith in the guilt-prone Interpersonal responsibility is a predictor of trustworthiness

rust and trustworthiness are indispensable features of an effective organisation. However, how do we know who is trustworthy?

Mongolia, home to this bitcoin mining facility, is one of the countries outperforming on innovation

Presenter David Attenborough has been voted the UK’s most trustworthy celebrity

A study that looks at who can be trusted, rather than focusing on what makes people more or less likely to trust others, has come up with an interesting ﬁnding: people who are guilt-prone are more likely to be trustworthy. Researchers from the University of Chicago, University of Pennsylvania and Carnegie Mellon University explain this is a stronger predictor of how trustworthy a person is than other personality traits such as extraversion, openness, agreeableness, neuroticism and conscientiousness. Their study indicates that guilt-proneness is distinct from guilt, in that it is the “anticipation of guilt” over wrongdoing that causes people to avoid doing something wrong in the ﬁrst place. Guilt, on the other hand, is an emotion felt following a “transgression”. People who are guilt-prone have a sense of interpersonal responsibility when they are entrusted and are less likely to exploit the trust others place in them, the researchers conclude. Six studies demonstrate the relationship between guiltproneness and trustworthiness. In one, participants were asked to rate their guilt-proneness and trustworthiness before playing 69

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a “trust game” involving money. In this, players were given an amount of money from another player, which was automatically increased once received. They then had to choose whether to keep the whole amount for themselves or return half to the other player. The results showed that highly guilt-prone individuals were more likely to hold trustworthy intentions and more likely to act in a trustworthy way in the game. Another study explored whether a code of conduct can increase trustworthiness, even in those who don’t feel a sense of interpersonal responsibility. Participants were recruited for having either low or high guilt-proneness scores. One group read a code of conduct that asked them to act responsibly towards others, before playing the trust game. The other group read a set of statements about the importance of doing what is best for themselves. The experiment showed codes of conduct highlighting the importance of interpersonal responsibility tend to increase trustworthiness among both those who are guilt-prone and those who aren’t. “Individuals and institutions incur high costs when trust is misplaced, but people can mitigate these costs by engaging in relationships with individuals who are trustworthy,” says the paper, Who Is Trustworthy? Predicting Trustworthy Intentions and Behavior. Emma E Levine, one of the authors, adds: “Our research suggests that if you want your employees to be worthy of trust, make sure they feel personally responsible for their behaviour and that they expect to feel guilty about wrongdoing.” The other authors are T Bradford Bitterly, Taya R Cohen and Maurice E Schweitzer. bit.ly/TrustworthyBehaviour

asked to complete surveys at the end of each working day to assess how much they engaged in impression management activity, such as ingratiation or self-promotion; levels of daily depletion of self-control, and any deviant behaviour such as deliberately not following Every office has its own version of Blackadder’s Captain Darling, their bosses’ but their behaviour could leave them open to temptation instructions. IMPRESSION MANAGEMENT The researchers also surveyed participants to measure their political skill, the ability to understand others at work or influence others to act in ways that enhance personal and/or Research highlights the downside organisational objectives. of currying favour at work Findings showed the extent to which employees engaged in actics used to boost an ingratiation varied widely from day individual’s image in the to day. They also indicated that the workplace and their career can more employees tried to curry backfire badly, harming staff as well favour with their bosses, the more as organisations, warns a study. their self-control resources were Ingratiating behaviour requires depleted by the end of the day. effort and self-control to make it Consequently, the employees appear sincere, says Good actors but whose self-control was weakened bad apples: deviant consequences were more likely to engage in of daily impression deviant behaviour, “Leaders need to management at work. such as being rude to be aware that So while engaging in co-workers, missing ingratiation can come meetings or browsing this sort of impression management can have at a cost to employees” the internet during a positive effect on job working hours. and career success, it also leaves the “Our findings may help explain employee feeling drained and less why impression management able to resist temptation to behave tactics sometimes backfire, because badly, by lying for example. employees who try too hard to Researchers carried out a study appear likable may be more prone among 75 managers working for to engage in subsequent deviance a publicly listed software firm that undermines the positive image in China over the course of two they sought to cultivate,” the working weeks. The managers were research paper explains. This

Employees behaving badly

negative effect was found to be stronger for those employees with lower political skill. Leaders need to be aware that ingratiation can come at a cost to employees and that their own response to it can help determine that cost, says one of the authors, Lawrence Houston III of Oregon State University. “Leaders can respond to their employees’ ingratiation efforts in ways that are resource depleting or in ways that are more resource giving. Positive reinforcement is resource giving, and it’s free,” he says. The other authors of this study are: Anthony C Klotz of Oregon State University; Wei He of Nanjing University; Kai Chi Yam of National University of Singapore; Mark C Bolino of the University of Oklahoma; and Wu Wei of Wuhan University. bit.ly/GoodActorsBadApples

INNOVATION

Nurture beats nature in the workplace With the right incentive, there is an innovator to be found in us all

“self-identify” as innovators to those who don’t. They devised an innovation competition for engineering and computer science students based at UCSD, which required them to design an app. The students were chosen for having the technical capabilities to innovate and for being likely to pursue innovation-based careers. Newsletters, information sessions and emails promoting the contest resulted in around 100 students signing up. However, once the contest deadline passed, a second, randomly selected group of other eligible students that didn’t “self-identify” as innovators (by the very fact they didn’t enter the competition) were offered a monetary inducement to participate. Analysis showed this sample was less likely to be studying subjects with relevant skills for the competition and had lower Grade Point Averages (GPAs), the US measurement for academic achievement. In all, 190 students signed up. All the entries were evaluated by technology industry experts and entrepreneurs, who also acted as judges for the contest and who had no knowledge of which group the proposals came from. Every

application was evaluated for functionality, user-friendliness, novelty and its potential commercial value. Significantly, results showed that “despite appearing to be less well equipped to compete, the success of induced participants was statistically indistinguishable from those that were ‘innately’ drawn to the competition.” “It looks like effective innovators can be created,” the researchers concluded. The study also investigated the psychological components of innovation to uncover whether managers can boost the confidence of workers who may not believe themselves to be successful innovators. To do this the researchers randomly created subsets of both groups in the contest, the “self-selected” and “induced”. One subset in each group was sent encouraging and confidence boosting emails throughout the contest period, while the other received no intervention. Encouragement was shown to have no effect on average performance for any group, even the induced sample. However, when the results were broken down according to students’ academic achievement, there were further interesting findings. While lower ability students were helped by the additional encouragement, it harmed the performance of higher ability students. Further research is needed to understand why that is the case, says the paper. Its authors also suggest that while this study showed that managerial interventions designed to encourage workers can have negative effects, “it remains possible that alternative interventions could avoid this shortcoming”.

Born or made? Inventor Charles Babbage

bit.ly/CreatingInnovators

Everett Collection Inc, Chronicle/Alamy Stock Photo

he capacity to innovate is not innate – given some incentive anyone can be a creator or experimenter. This ﬁnding may have signiﬁcance for organisations in terms of how they increase “inventive output” or widen the pool of innovation talent, says the study Can innovators be created? Experimental evidence from an innovation contest. Joshua S Graff Zivin and Elizabeth Lyons, both students of the University of California, San Diego (UCSD), compared the performance of individuals who