A simple and powerful idea that everyone needs to know

Laboratory section, Japan Baptist Hospital, Kyoto, 1955

WARNING: Daft piece of terminology coming up, but don’t be put off! It’s called The pessimistic meta-induction from the history of science  from Kathryn Schulz‘ essay of the same title. I read it in a book called ‘This Will Make You Smarter‘ (I thought I could do with the help, OK?)

Here’s what it means in plain English:

Because so many scientific theories from bygone eras have turned out to be wrong, we must assume that most of today’s theories will eventually prove incorrect as well. And what goes for science goes in general. Politics, economics, technology, law, religion, medicine, child rearing, education: No matter the domain of life, one generation’s verities so often become the next generation’s falsehoods that we might as well have a pessimistic meta-induction from the history of everything.

It’s powerful and incredibly obvious when you think about it. We find it easy to look at the past and shake our heads at how wrong we used to be about taking other humans as slaves, drilling holes in the skull to cure disease, tulip bubbles, and burning people as witches. The list is endless and we wish that we knew then what we know now in order that we might have avoided the awful consequences of our naivety.

So why do senior leaders in politics and business have such strong courage of their convictions, as if they believe we’ve finally reached the apex of human understanding where we have nailed what’s right and what’s true? They act as though there’s no possibility of their ideas being completely disproved – not just being wrong, but held to be massively damaging by future generations.

If the world understood this concept it would be incredible humbling and perhaps frightening as we face up to how pathetic we will look through the lens of history. But the world would also be filled with more possibility and hope. Things can be so much better than they are today. Perhaps leaders would become more open to ideas which seem radical today, but which may become mainstream in the future. At the very least, just asking the question ‘What will seem laughable tomorrow about what we are doing today?’ would be extremely powerful.

Umair Haque talks about this same concept in The New Capitalist Manifesto. Today our economic system is mostly based to a large extent on the ideas of two men. Adam Smith believed that in the pursuit of profit, an ‘invisible hand’ would deliver positive benefits for society through the provision of useful goods and services. John Maynard Keynes believed that it was the sole duty of a company to pursue profit, and that markets will self-regulate and end up with the best outcomes. However the financial collapse of 2008, and other mega-trends like impending climate crisis are thoroughly proving these theories insufficient and harmful.

Is this really the best we can do? Do we expect to have the same economic systems in place in 100, 200 or 300 years time? Surely things will look almost unrecognisable that far into the future, and our current ways will seem hopelessly naive and flawed. But we don’t see our leaders facing up to this, and the challenge of discovering what better systems will come next.

The first step is to recognise that the way things are today is going to be proved to be almost entirely wrong. Then with this shift in attitude we can move away from fixed ideology and dogma and become open to what the future might look like, including both small and radical ideas. If we do this then we stand a much better chance of avoiding catastrophe and reaching a better future, faster.

Obituary from the future: Public Companies. 1602 – 20XX

wreath_2

After a long struggle with their terminal condition, the last public companies finally passed away when the New York stock exchange – the last of its kind in the world – closed for the final time yesterday.

PLCs enjoyed an exciting life, becoming hugely more than their parents ever expected. Mr Adam Smith, a close friend of the family and a huge influence on the PLCs throughout their lives had high hopes for what the PLCs would achieve for the world. Through their relentless pursuit of profit for their owners, he saw a world made better through innovative products and services delivered to the masses.

Well the PLCs certainly delivered that and more to boot, with consumer products fulfilling every need and want imaginable. Some were clever enough to make money out of money itself without actually delivering any value at all. Those PLCs were from the Banks family. Many people were able to earn a living working for the PLCs and a few people (not the masses working for them of course) got very rich. Fantastic.

But after a happy childhood there was trouble ahead for the PLCs . They got fat. Not just the fat kids in the class, but fatter than the whole school. In fact fatter than many countries! That’s pretty fat, but that was OK because everyone was still working very hard and a lot of money was flying around, especially to the PLC’s owners on the stock markets.

The first big sign of trouble for PLCs came from those troublesome Banks adolescents. It turned out that what they had been trading was actually just hot air. Well really it was worth less than hot air because at least you can use hot air to dry your hands after washing them in the bathroom. The fat kids fell over and landed hard. Fortunately, there were some countries who were still fatter than the PLCs (other less fat countries were unfortunately squashed when they fell – oh well.)

The fat countries did the sensible thing and fed the fat kids enormous piles of sweeties to keep them really fat and get them happily up on their podgy feet again. After all they were so fat and took up so much space they if they didn’t get up then nobody in the fat countries would be able to move at all. But even with all of the free sweeties that the normal people in the fat countries paid for them to eat, they didn’t really change at all. But for a while everything looked like it was going to be OK again.

At the same time, the other PLCs were also feeling the first signs of trouble. They gradually started to realise that their masters were a group of owners who care purely about how much profit they made, and preferably QUICKLY. This was supposed to be a good thing because it kept the PLCs on their podgy toes. The owners could sell them to new masters or throw out their management if they didn’t stay fat enough. But in worrying so much about pleasing their owners, they didn’t focus on the people who mattered the most – all of those little people who actually did the work and created 100% of the value! It regrettably seems so obvious now that they’ve passed away but yes, in every PLC the employees were less important than the shareholders! And that was bad news for customers too (where 100% of their income comes from) because customers only get served the best when the employees are fully engaged.

What’s more, the focus purely on financial results turned out to not always be so good for humanity, societies and the planet. Life for many people got worse and the environment was being destroyed. They had a little go at countering this with ‘Corporate Social Responsibility’ which meant it was OK for a bank to invest several billion in a company making landmines because it allowed its employees a day off a year to paint a fence outside an orphanage for landmine victims.

The PLCs struggled on into their adult lives, but there were other leaner, fitter competitors around. These weren’t even new kids on the block, they were grown-ups too and had been around for just as long as the PLCs, but their day had finally come. These companies didn’t have to worry about shareholders pressuring them for short-term returns at the expense of the employees, because the employees WERE the shareholders. Imagine that – inmates running the asylum! And it turned out that these companies were more innovative, faster and provided better service to their customers. There was something very powerful about a business being owned by the people who actually did the work. And because the companies now existed for the benefit of people (not pension funds, hedge funds and city traders) they actually care a lot about creating value for, and not destroying societies and the environment.

One of these competitors, a guy called John from the Lewis family in England was already the most successful retailer in the UK. He was free from the pressures of the stock market and could attract and keep the best people who then delivered the best service to customers because they were owners of the business and cared the most.

These employee-owned competitors grew in number, size and power as the PLCs faltered in their later years. The best people flocked to them and they were able to think and plan long-term unlike their short-term sweetie-addicted old classmates.

Many of the smarter PLCs allowed the sensible thing to happen – they came out of the stock markets and were bought by the employees who paid for them out of future profits which were now higher because they performed better, and weren’t going to be bled out of the company to shareholders who contributed nothing.

A few tried to hang on for a bit too long and found that they just couldn’t innovate and deliver to customers as well as their more nimble employee-owned competitors. These final few were ultimately consigned to the history books when the last stock markets shut down yesterday.

I apologise because it’s wrong to speak ill of the dead, but the world is a better place now that the PLCs are gone. We now have businesses where people serve people for the benefit of everyone. And people have a conscious so now societies and the environment are better off too through their more thoughtful actions.

The slow and painful death of the PLCs surprised the pure capitalists who thought that the markets would take care of everything. In fact they actually did – the free market allowed these better competitors to make the PLCs irrelevant. And the socialists were both right and wrong too. It turned out that business wasn’t so bad after all, but they were right that things work best when the people own and control the means of production.

R.I.P.

Why do we accept giving up all of our rights at work?

I’m reading Beyond the Corporation by David Erdal at the moment and so have been thinking a lot about employee ownership. It’s making me wonder why we accept so little in the way of rights at work than we otherwise enjoy in the free and democratic societies we live in.

In a democratic country we have the right to choose the leadership and hold them to account; we have a right to transparency and information and we have the right to speak our minds, dissent, make our voice heard and participate.

In almost all businesses the employees have no equivalent rights. The rights belong only to the owners of the business – the shareholders. The shareholders are the only people with rights to information, to appointing or removing the management and ultimately deciding what the business does. Further, the shareholders are the only people with the rights to the profit and capital gains that it generates. Shareholders can sell these rights to whoever they choose in spite of any feelings the employees may have about it. The employees in the business create all of the value that it generates, yet they are merely ‘rented’ in return for pay, like a piece of machinery.

Why is it that we accept so little in the way of rights at work that we take for granted in society? Perhaps it’s because life is generally OK and we don’t feel hugely repressed, in spite of the lack of rights. Perhaps it’s because the status quo is so deeply entrenched in our history that we accept it as ‘the way things are’ and it cannot be changed. I wonder if this the same as the burgeoning middle classes in China who have decent jobs and access to consumer goods and perhaps don’t worry too much about the fact they cannot oppose or hold their politicians to account or have access to free information. But surely we can do better than this.

I am convinced that the solution is more than just democratic organisations. It is full ownership of companies by the employees. Only by the transfer of all rights from external shareholders to employees can we have true democracy at work.

Many democratic organisations are not actually true democracies at all. Whilst there are 10 principles of democratic organisations, what sets a true democracy apart is inalienable rights, not just operating principles which can be changed at the whim of the owners.

Most ‘democratic companies’ are actually benevolent dictatorships. The company I co-founded (and have now left but am still a shareholder in), NixonMcInnes, is a classic example. The company truly buys into democracy and has been independently assessed and shown to be living by the 10 principles. There is a huge level of transparency and employee involvement, from fully open financial information to guest seats for employees to attend board meetings. Employees have a say in selecting and evaluating managers, contribute heavily to strategy and planning, and have the right to ‘dissent’ by raising their own ideas, challenging anything that they are not happy with, and know that they will be listened to. There is also a generous profit sharing scheme in place. However, none of these things are actually rights – they are the policies set by the owners and can theoretically be reversed at any time, and the owners still have the right to sell the business to anyone they like who would be free to do as they please.

At NixonMcInnes, the concept of employee ownership has been discussed at length. I remember when we first talked to the employees about the idea and all of the rights that it would give them, they weren’t as excited as I thought they would be. The reason for this was that they felt they were already enjoying a lot of the benefits through the democratic principles, and the only real difference would be a big chunk of debt to pay off the old shareholders. In other words, life was OK under the benevolent dictatorship. I had to agree that this was a fair point, but I think there is something bigger at stake here.

Perhaps I am wrong, but I can’t help thinking that there is something hugely important about concrete rights that are set in stone forever – hopefully hundreds of years in the case of NixonMcInnes and certainly beyond the lifetime of everyone working there today. Rights that cannot be eroded over time or given up to new masters who want to do things differently. I think there is a massive difference between principles and true rights.

This is all sounding very socialist which is not a notion I’m terribly comfortable with to tell you the truth. In talking to socialist friends, they often say that the solution is for workers to unionise and to force (usually begrudging) employers to give them better rights. Personally I think the goal of better rights for employees is spot on, but the further polarisation of the situation into ‘them’ and ‘us’ is incredibly negative. It actually accepts and reinforces the status quo of the shareholder-employee relationship and misses out on huge opportunities to build amazing businesses that benefit the employees as well as society and the planet as a whole.

I would like to see far more employee ownership in order to give people these enduring rights at work. Perhaps unions could work towards raising finance to buy companies outright for the employees. I would also like to see bids for public companies to be taken out of the hands of short-term investors on the stock markets and into the hands of the people who work there.

This is not just social ideology. It is actually great business sense too and this is what gets me excited as an entrepreneur. In Beyond the Corporation, the myths about the supposed flaws in employee ownership (lack of innovation, inability to make tough decisions, bureucracy, short-termism etc) are thoroughly debunked by the reality of employee-owned companies like John Lewis, Arup and Publix who consistently out-perform their peers across all traditional measures of business success. It’s clear that employee owned companies can actually be more agile, innovative and better able to cope with tough times.

There are compelling reasons why employee ownership would be a far better and fairer standard framework for business than the current shareholder model. To test this theory, imagine for a moment that employee ownership was already the standard and employees had parallel rights at work as they do in society. Would any sane person suggest that it would be a good idea to remove all of these rights and give them up to owners who don’t actually create the value within the firm? Would anyone believe that these businesses would perform better? Would anyone think it would be better for society? Of course not. The current model only hangs on by virtue of the fact that it is ‘the way things are.’ But I don’t think it should or even can hold on forever. The day of the employee-owned firm is coming.

Measuring the nation’s wellbeing

Good to see the Guardian covering some of the issues that we have been discussing here on this blog.

Although the headline is ‘Happiness at work: why it counts,’ this is about much more than just our work lives. I welcome the government’s call for a ‘Wellbeing index’ to track whether our lives are actually improving as well as simply whether economic activity (GDP) is increasing. Unlike GDP which is just a measure of income, wellbeing is more like an asset on a balance sheet because it is enduring. It is a measure of value that has been created for people and societies (human and social capital.) This forms part of the ‘National Balance Sheet’ idea that economist Umair Haque has proposed and I wrote about recently.

It seems incredible to me that this is actually a new idea. What is the point of the economy and indeed even the government at all if not to improve wellbeing over the long-term? It is about time we actually started tracking ‘that which makes life worthwhile’ as Robert F. Kennedy put it. I would like to see GDP relegated in its importance and the Wellbeing Index expanded into a full balance sheet to show the value that we are building (or destroying) over time for people, societies and the environment as well as financial capital.

There will be some shocks as the government, corporations and society wake up to the fact that much of what increases GDP actually destroys value on our ‘National Balance Sheet.’ But we need to go through this process to learn how to shape our systems and institutions to deliver value where it really matters.

‘Betterness’ – the most important thing I’ve read about business in years

Betterness‘ is an essay by Umair Haque – an economist who’s played a big part in shaping my own ideas and beliefs about capitalism and its future. It’s actually been out for a while now but because I follow his blog I didn’t think there’d be much new in there for me. Wrong! It really is an incredibly important piece of work, bringing together and clearly laying out Umair’s radical but completely sensible ideas. I urge anyone in business or thinking of starting up their own venture to read this – it might challenge some very fundamental beliefs about what business and capitalism are actually for.

Here are four of the ideas that stood out for me:

Business and capitalism have ultimately failed in delivering true wealth (not just money, but across the board improvements in health, well-being, societies, the environment and happiness.) Umair offers some stark insights and statistics to back up this point. For example the plateauing (or in some cases falling) of happiness as GDP increases in developed countries and how America has seen increases in obesity and mental illness as it has become ‘richer.’

Personally I see a parallel with personal income and GDP. When you’re very poor (either an individual or a country,) more income does have a real positive impact because you can look after your base human needs (safety, food, water, medicine, shelter) but once these needs are met, increasing money don’t make that much difference and it’s higher things (relationships, well-being, enjoying the environment and having purpose and meaning in our lives) that make us truly happy. But money is like a drug and there is a tendency to believe that what made us happier before will continue as we earn more.

GDP as the primary measure of economic success is flawed and dangerous. GDP is like a corporation focussing solely on its income and not its balance sheet. It leads to a growth of sorts, but does not grow real, long-term value which should be the goal of any organisation or country. Instead Umair suggests that countries need to focus on a ‘national balance sheet’ to measure improvements or declines in human, social, emotional, environmental as well as financial capital. Then we would see much of current ‘business’ for what it really is – an extraction of value from humans, society or the environment to make money, but actually leaving us all worse off in the areas that really matter. It would then divert attention to creating value in all of the areas that matter.

The idea that even successful, ‘good’ businesses today perform at just a fraction of their potential to generate real wealth. Using the analogy of the change in the field of psychology from how can we cure people with psychological problems and get them to a ‘normal’ state to the positive psychology movement which looks at how we can continually better ourselves and build on what’s right to reach ever higher levels of happiness and achievement. The same is true for business which is often defensive and happy to return 5-10% net profit and focus on not screwing up rather than being creative and ambitious in how it can actually deliver true enduring value.

The need for deeper meaning and purpose in business. Umair gives ‘vision’ and ‘mission’ statements a thorough working over to show how most businesses are incredibly thin when it comes to their reason for existence. He suggests that all businesses need to have a much higher purpose – something that transcends their own organisation – and delivers diverse wealth back to people and the planet.

This essay is an inspiring call to arms for how we can radically change business into ‘betterness’ for the benefit of all of humanity. Umair doesn’t believe that there is any organisation in the world that is truly living up to this potential right now. Who will be the first? I personally will give it a damn good try.

Scrap bank holidays? I have a better idea

I couldn’t quite believe this was for real when I read it:

The Centre for Economics and Business Research says each bank holiday costs the UK economy £2.3bn.

They go on to suggest that cancelling all bank holidays will therefore add £19BN to Britain’s GDP. In other words, if we all work a bit more then the country will be better off.

What is really crazy about this is that they acknowledge that Britain is dependent on service industries which tend to shut down for bank holidays. But look at how one of the country’s largest service industries – banking – got us into this mess in the first place. They didn’t screw up and cause a global economic crisis because they took too many holidays. They worked too hard in fact, but at the wrong things. Perhaps if industry leaders had taken more time out to reflect then they might have seen how things were going to play out.

And it’s not just financial services that this applies to. All service industries require creativity, problem solving and innovation. You don’t get this by simply working harder. You get this by creating the right environment for smart people to be motivated and have the space to be productive. Time-off is essential to this – it gives the brain a chance to process. I have personally had great ideas whilst hiking at 4000M and on a scuba diving boat.

Bank holidays in the UK are very special for people in service industries. They’re the times when you get a holiday at the same time as just about all of your colleagues, clients and suppliers so you don’t come back to work having to catch up. Everyone is happier for the time off, and when we’re happy, we are more productive. And shouldn’t being happy be the goal anyway?

I would love to see how the CEBR has factored in these considerations, if at all. The BBC article doesn’t explain how they came up with this figure. I also visited the CEBR website and couldn’t find anything on there either.

I have a much bigger suggestion, and that is to stop using GDP as our primary economic measure at all because it makes us chase the wrong things. I agree with Robert F. Kennedy who said “Gross National Product measures everything, in short, except that which makes life worthwhile.”

Karmic capitalism

Revolution

There is a revolution underway in business. It goes by several different names but I believe that all of these movements are working towards an exciting and better future for the world. Here’s a quick summary:

Social business
This focuses on human interactions both internally and externally at an organisation. The idea is that if organisations become better at human, authentic, meaningful conversations and interactions then the company, employees, customers and investors all win. It emerged from the social media marketing/PR/systems movement when it became clear that there is a need to drive real change much deeper within organisations to become truly social and realise the benefits that this brings.

Conscious business
This movement is driving businesses that are profitable but deliver value to a broad set of stakeholders; and believe in human development, growth, involvement, awareness, communication and transparency.

Happiness at work
Ask a buddhist what the purpose of life is and they will simply tell you: ‘To be happy.’ After sleeping, we spend more time at work than doing anything else so we can only be truly happy if we are happy at work. And unsurprisingly, happy workplaces are high performing.

Social enterprise
These are businesses specifically set up to create social benefit. But they do this through providing products and services just like any other business rather than through charity. Some are run as not-for-profit and others for-profit. I believe that there is nothing wrong with profit. It’s a great way to attract investment, ensure long-term survival and allow you to grow in order to provide ever more value.

Organisational democracy
The least catchy title, but the term I use most often. It’s about running an organisation using a set of 10 democratic principles including transparency, reflection, individual freedom and choice. It’s very similar to conscious business, but for me, democracy is the wrapper for all of these movements. Democratic organisations are social, conscious and they lead to social benefit and happiness for everyone involved.

Karmic capitalism
OK this one isn’t really a movement. I just thought it sounded pithy when I read it in Chip Conley’s excellent book ‘Peak’. But it kind of simply sums up everything I have discussed. The idea that capitalism can be a force for good in the world, to generate positive outcomes for ourselves personally as well as businesses now and in the future.

Whatever you want to call it doesn’t matter, but it’s time we all joined the revolution to make capitalism karmic.