Against managerialism
I retired for less than a year before I had to go back into the business,” says Tony, a founder of a manufacturing firm. “I thought our succession process worked. My sons, with topnotch MBAs, want to professionalize to grow, so they hired foreign consultants with expensive ideas. But then good people left, old customers are angry, and not because of the pandemic.”
“Change is challenging, but capable employees welcome it,” I say. “Customers benefit from streamlined operations. What is the real problem?”
“The CEO,” Tony instantly says. “He worked in finance for a multinational and my sons gave him an expat package. But employees hate him and many left.”
“Does he demand performance which they cannot deliver?” I ask.
“No!” Tony shouts. “He does not know what they are doing, but he gives metrics no one understands. Financials are done differently, and he says we are making money. My sons believe him, but I think profits are down.”
“It makes no sense to hire a financier to run a manufacturing firm,” I say, and tell Tony that the CEO appears to suffer from “managerialism,” described by US professors Robert Locke and J.C. Spender in their book “Confronting Managerialism” as “what occurs when a special group, called management, ensconces itself systematically in an organization and deprives owners and employees of their decision-making power, and justifies that takeover on the grounds of [their] education and exclusive possession of the codified bodies of knowledge and know-how necessary to the efficient running of the organization.”
Good management, characterized by wisdom and humility, is different from managerialism, which is often ignorant and arrogant. The book “offers a scathing critique of the crippling influence of neoclassical economics and modern finance on business school teaching and management practice. It shows how business managers, once well regarded as custodians of the economic engine driving growth and social progress, now seem more like the rapacious ‘robber barons’ of the 1880s [in the United States]. In effect, responsible management has given way to managerialism, whereby an elite caste of businessmen disconnected from any ethical considerations now call the shots, throwing the lives of the rest of us out of balance.”
The professors contrast family-owned German small and medium enterprises (SMEs) with US startups. The latter desire rapid growth through initial public offerings, and “founders get very rich this way, but from increasing stock valuations, not profits from business activity.” The former prefer to remain in family hands for generations, and dislike intensely the notion of corporate buyouts by entities described by a politician as locusts that “graze on underpriced businesses, lay off employees and move on.”
German SMEs still hire professional managers, but power is not vested solely in them, but shared with the family owners.
“Let the CEO go, and talk openly with your sons,” I tell Tony. “Tell them that you understand the need to professionalize, but get experts who know the local environment. More importantly, emphasize that you are a family business that cares for employees and customers aside from profits, so even as you rely on professionals for their expertise, your family has to set the bottom line. Your family is in charge of metrics and goals. Unless your sons understand this, you have no choice but to come back from retirement.”
Firms run by managerialism “engage in short-term profit maximization and cost-cutting at the expense of the workforce,” whereas family businesses prioritize sustainability in the community. German SMEs develop apprenticeship programs to upskill employees and look beyond the financials.
“You are in manufacturing,” I tell Tony, “so it is good to know that world-class German manufacturing family firms devote time to customer relations, making sure to maintain personal contact with valued clients, something you used to do. Your next CEO should do the same.”
Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Get her print book “All in the Family Business” at Lazada or Shopee, or e-book at Amazon, Google Play, Apple iBooks. Contact the author at [email protected].
