True Mind Consulting

February 6, 2023

A friend of mine was recently told she was being made redundant. It was all done by the book — a meeting with the line manager, attended by HR, all points covered and next steps explained. By the time she got back to her desk, she had an email from another HR person containing a detailed settlement agreement and links to all the information she might need to support her through the process.

What struck her, she told me, was that in her 5 years or so at the company, she had never seen HR be so efficient. Hiring people into her team, getting support to develop her own career or even just visibility into things like open roles across a department were always painfully difficult.

This wasn’t due to personal failings on the part of HR people. Perhaps this is just a case of a system doing what it is actually there to do, rather than what anyone thinks it should be doing, including the people that work there. The cybernetician Stafford Beer coined the phrase POSIWID, or the Purpose Of a System Is What It Does. In other words, you don’t understand an organisation or one of its components by looking at mission statements or other ways it describes itself, but by how it actually behaves.

In the case of this HR department, what the system actually did was cover the company against the risk of claims of wrongful dismissal, discrimination and the like by efficiently creating contracts that cover every possible scenario, and settlement payments that encourage people to sign those contracts. In other words, it protected the company from action by its (ex) employees.

I used to work in Risk. Risk departments tend to describe themselves as helping businesses make informed decisions by weighing up the downside of any course of action against the upside, and making sure the organisation is protected against operational failures. When I got into that line of work, I took it seriously and educated myself on how to measure risk, how to make risk-aware decisions based on the likelihood of various outcomes, how to prepare for possible scenarios and so on. I saw that most of what passed for risk management wasn’t fit for purpose — at least as I understood the purpose. What typically happens is “list management” where people maintain a list of issues, to which they assign risk ratings based on poorly defined and uninformative heat maps. For a long time I banged my head against the wall, not understanding why people would do it this way and why they wouldn’t take up my suggestions for something more effective. Now I realise it’s because the purpose of the system isn’t what it’s purported to be, but what it does. What it actually does is demonstrate compliance with a set of rules to external parties like regulators and auditors. They’re not concerned with whether your business is making decisions that balance risk and return in its own interest, they’re concerned with whether you’re following their rules. And if you depend on them for your license to operate, you’re going to do what they tell you. In other words, at least part of your purpose has to be demonstrating that you’re following their purpose. Mystery solved. I stopped trying to make “risk management” something it was never going to be.

If you work for a big company, it probably has a “purpose” that says how it aims to help the world. However, if it’s a publicly traded company, its real purpose is to “maximise shareholder value”*. This may or may not be compatible with its stated purpose, but in the case of conflict, the shareholders always win. To me, calling companies good or bad misses the point. Even companies whose activities I would disapprove of are only following a purpose imposed on them by the logic of shareholder value.

That doesn’t mean there are no choices. The Danish fossil fuel giant DONG Energy transformed itself into the world’s largest manufacturer of wind turbines. In the end the shareholders did well out of it, but management had to take a longer term view to get there. Sadly this story is an exception as not many leaders are prepared to embark on such a wholesale reinvention of what their company stands or.

The bigger a company is, the more it thinks it has to lose from change and the more it focuses on quarterly results to keep the stock price up. If we take the idea of purpose seriously, we should either forget about shareholder returns altogether — which would necessitate finding other sources of financing — or at least put them in their right relationship to purpose. The “adjusted purpose” would then be to generate shareholder returns as long as it’s compatible with the wider purpose, while avoiding activities that don’t support the wider purpose. That way you’d be honest about the fact that you’re trying to make money, but also holding yourself to standards that others can judge you by.

*Of course this is a simplification. Within any profit-driven company you’ll find many things that don’t serve shareholder value at all, but are driven by internal culture and politics — but these things are tolerated within the constraints of generating returns overall. I’ve worked for very profitable companies that were also very wasteful, because they could afford to be.

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