Whose business is it anyway?

The collapse of BHS has been met with dismay.  Pensions are at risk, many are out of work, the former chairman stands accused of taking vast sums out of the business and a British institution has disappeared from the High Street.  It is a sorry story and very distressing for those involved, but it also raises a question: whose organisation is it?

The BHS story suggests that the legal answer to the question is not sufficient or satisfactory.  The legal owner of a business may be an individual, may be a small group, may be a highly diverse group of shareholders – some, if not most of them only in it for a short time and only interested in a speedy financial return.  Although the ownership arrangements at BHS were somewhat obscure, Philip Green appears to have acted legally, to have exercised his rights as the ’owner’ (though, technically, his wife owned BHS) – but no-one is happy and he has earned almost universal condemnation.  And the reason is not only that Green’s judgement and moral compass have been judged to be hopelessly awry: people also believe that owning the business did not confer the right to dispose of it in a way that risked the interests of a range of ‘stakeholders’.  Green is effectively charged with failing in what many see as a duty of care in relation to an important institution.

What does this mean for other organisational leaders?  I guess it will discourage obvious acts of selfishness though maybe some will take comfort from the notion that they, unlike Green, do not have responsibility for a national institution.  But for me it raises vital questions about what a business, an organisation, is, and what is required of those who own and /or lead it.

In 1957 Selznick (1) made a distinction between organisations and institutions that many continue to make.  An organisation is an impersonal instrument created for a technical purpose.  An institution is a body with an identity of its own, an intrinsic value, and a larger social purpose.   But according to Selznick bodies that start as organisations, as technical instruments, often for profit, after a period, may become institutions because of the human investment that is made in them. People who make this distinction often take the view that institutions are a small and special category and cannot be described as organisations at all.  But Selznick argues that because organisations are composed of people, most that last for any length of time will become institutions.  Institutions, in his terms, are not rare phenomena but common, a normal stage of organisational development.  On this understanding most organisations, therefore, are not merely the product of the actions or will of a particular individual or group (a founder owner perhaps) but have qualities that emerge from the interactions of all the people involved.  This is also a key insight of systems thinking about organisations – the whole is greater than the sum of the parts.

This means that those who start organisations create bodies that will pretty soon have a life of their own, one that touches a wide range of people and which cannot really be said to belong only to the founder or founders.

This may be a difficult thing for the entrepreneur, the owner manager, to recognise.  Such owners may feel that the organisation exists because of them, that they take the risk, work hardest and so forth.  And that is easy to understand.  But the fact is that no-one is able to achieve anything without people working for them, without the cooperation of many other parties.  If the organisation is denied a degree of independent existence it will probably not grow beyond a certain point, will never become all that it can be.  Growth almost certainly equals loss of direct control.

In more established organisations leaders and legal owners are more like stewards, charged with guiding the long-term care and success of a venture that is morally owned by a range of stakeholders and which has an identity and a purpose in the world that transcends profitability alone, that has a role in society.

The job of leadership is, therefore, is not so much to make bold decisions and decisive interventions and even less to make vast personal fortunes, but to ensure that the organisation is able to meet the demands of the changing world without compromising its essential identity.  This will require a sufficient regard for the voices of all those with a proper (though not necessarily legal) interest and will sometimes involve helping all the actors to recognise the need for a difficult decision.

It is unfortunate that this view of organisations, including businesses, as valuable social institutions, is not more widely recognised by those who lead and own them, or better reflected in the way that they are formally owned and legally constituted.  There are notable and successful exceptions, however, such as the John Lewis Partnership.

Too idealistic?  I don’t think so.  I think it’s the only way to build success that lasts.  I’m not saying there’s something intrinsically wrong with wanting short-term or personal success.  It’s just that you may find that it comes with a price principally paid by other people.

(1) Selznick, Philip (1957) Leadership in Administration, Harper & Row, New York