Page 49 - Chapter One

Why it is Time Now for The Management Shift 17

and other stakeholders. The authors concluded that “business is good
because it creates value, it is ethical because it creates voluntary exchange,
it is noble because it can elevate our existence, and it is heroic because it
lifts people out of poverty and creates prosperity.” 76
Profit maximization and other elements of old management thinking and
paradigms found their way to the management textbooks used on courses
at business schools worldwide, and created generations of executives
educated on the premises of outdated management thinking. Some of
these courses and premises include:

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1. Courses on corporate governance grounded in agency theory, pro-
moting the idea that managers cannot be trusted to do their job (maxi-
mizing shareholder value) so their interests must be aligned with share-
holders’ interests (hence they get stock options as part of their pay).
There is overwhelming evidence that companies prosper when they
pay attention to the interests of customers, employees, shareholders
and communities in which they operate, all at the same time
2. Advocating shareholder value maximization assertion, which has many
flaws. Shareholders do not own a company; they contribute financial
capital, while employees, including managers, contribute human capital,
and both are needed by a company to create value. The question becomes,
if value is created by combining the resources of both employees and
shareholders, why should a value distribution favor only shareholders?
3. Courses on organizational design grounded in transaction cost econom-
ics have advocated the need for tight monitoring and control of people
78
to prevent opportunistic behavior; this led to the use of a hierarchical
authority to prevent opportunistic behavior, which causes employees
to feel neither trusted nor trustworthy and their perception of a lack of
autonomy decreases intrinsic motivation
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4. Courses on strategy based on Michael Porter’s “five forces” (Threat
of new entrants, Threat of substitute products or services, Bargaining
power of customers, Bargaining power of suppliers and Intensity of
competitive rivalry) preached the need for companies not only to com-
pete with their competitors but also with their suppliers, customers,
employees and regulators