Beyond Selfish

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Beyond SelfishnessA syndrome of selfishness,bu ilt on a series of half-tru ths, hastaken hold of our corporations andour societies, as well as our minds.This calculus of glorified self-interestand the fabrications upon whichit is based must be challenged.Henry Mintzberg, Robert Simonsand Kunal Basu

O n Wall Street, where shareholder "value" isvigorously pursued through ever leaner andmeaner organizations, business as usual changedahruptly on Sep tember 11, 2001 . With in hou rs afterthe tragedy, obsession witb self gave way to servingothers. At the very epicenter of self-interest, peoplebecame engaged in collective et^brt.

There is a message for managemenl in this. Tbepoint is not tbat concern lor otbei's is suddenlygoing to replace self-interest, but that there bas to bea balance between tbe two. The events of Septemb er 11 and thefollowing days belped to make evident how out of balance oursociety has become. The role of management responsiblemanagement is to work toward restoration of that balance.

The House That Self-interest Built111 the pa st 15 yeai's, we iji N ort h Am erica bave ex per ienc ed agloriHcation of self-interest perhaps unequalled since the 1930s.It is as if, in denying much of the social progress made sincethen, we have reverted to an earlier and darker age. Greed basbeen raised to some sort of bigh call ing; corporations bave been

Henry Mintzberg is the Cleghorn Professor of Management Studies atMcGill University. Robert Simons is the Charles M. Williams Professorof Business Administration and un it fiead of the Accounting & Controlarea at Harvard BusinessSchool. Kunat Basu is a Fellow In StrategicMarketing at Tempieton College. University of Oxford. Contact theauthors at [email protected]. [email protected] [email protected].

urged to ignore broader social responsibilities in favor ol' nar-row sbareholder vaiue; chief executives have been regarded as ifthey alone create economic performance. Meanwhile, concernfor the disadvaiKaged simple, old-fasbioned generosity has somebow been lost .

A society dev oid of selfishness is certain ly difficult to imag ine.But a society tbat glorifies selfishness can be hnagined only asbase. Tbe intention here is to challenge such a society not todeny hu ma n nature , but to confront a distorted view of i t. In sodoing, we wish to promote another characterist ic no lessh u m a n : engageiucut.

A syndro me of selfishness has taken hold of our corpo rationsand our societies, as well as our minds. (See "A Syndrome ofSelfishness.") It is built on a series of half-truths, each of wbichdrives a wedge into society: from a narrow view of ourselves as"economic man," to a distorted view of our values reduced tosbarebolder value, to a particular view of leadership as beroicand dramatic, to a nasty view of organizations as lean andincreasingly mean, to an illusionary view of society as a rising

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tide of prosperity. All of this looks rather neat, as does a house ofcards. Before it collapses ou trig ht, we would do well to balance itwith a rtithcr different set of beliefs.

It is important to note at tbe outset tbat Enron and tbe otbercompanies now under investigation are not tbe problem. Tbeyarc tbe tip of the iceberg the exposed criminality. That can bedealt with in the courts of law. Far more massive and dangerousis tbe legal corruption taking place below the surtace behaviorthat, wbile technically allowable, corrupts our leadership, ourorganizations, our society and ourselves as hum an beings.

Below we take a look at eacb of tbese half-truths upon wbichthe syndrome of selfishness Is built. We refer to each as a "fabri-cation" to convey tbat tbey are assump tions we have c onstructed,not trutbs we bave discovered.

First Fabrication: We Are All, in Essence, Economic ManIn this view of tbe world, we are all economic man. Homocconoiiiicns^ obsessed with our own self-interest , intent onmaximiz ing our personal ga ins. Homo economicus, in otberwords, is never satisfied, but always wants more demons l ra -bly, measurably more and is continually calculating toachieve that end.

In "Tb e Nature of M an,"^ an art icle tbat has profou ndlyinfluenced generations of M.B.A. students, Hnance professorsMichael lensen and William Mcckling introduced five modelsof human behavior. The first three sociological, psychologi-cal and political man tbey quickly dismissed. Tbe fourth,economic man, was not dismissed, but folded into their tifthand favored mo del, which goes by tbe rather convoluted label olResourceful, Evaluative, Maximizing Model (REMMj. TheREMM postulates tbat everyone is an "cvaluator," constantlymaking "t rade-offs and subst i tut ions among" wants specifi-cally among the "amounts" of eacb. {Tbat the amounts of somewants, sucb as money or diam ond rings, can be evaluated andmeasured more easily tban others, such as trusl or integrity, isnot discussed.) Tbese wants are unlimited. REMMs cannot besatiated. And there are no absolutes.

According to lensen and Meckling, "there is no such thing asa need," except, of course, the need for more itself. Everytbing isa trade-off. Tbey il lustrate this with a ratber start l ing example:

George Bernard Shaw, the famous playwright and ^ocijilthinker, reportedly once claimed that while on an ocean voyagehe met a cdebmted actress on deck and asked her whether .shewould be willing to sleep with him for a million dollars. She wasagreeable. He followed with a counterproposal: "What aboutten dollars?" "What do you think I am?" she responded indig-nantly. He replied, "We've already estahlished that now w e'rejust haggling over price."

A Syndronne of Selfistiness

Five mutually reinforcing misperceptions have driven aseries of disruptive wedges into the socioeconomic fabric,distorting our views of corporate and social responsibility.

RISING TIDE OF PROSPERITYWedge of Disparity

LEAN, MEAN OR GA N IZ A T IONWedge of Discontinuity

HEROIC LEADERSHIPWedge of Disconnection

SHAREHOLDER VALUEWedge of Disengagement

EGON OM IC M A NWedge of Distrust

SOCIETY

Ihe story is not startling it is, in fact, well known butJensen and Meckling's use of it in startling. For, instead of qualify-ing tbis in any way, they follow it witb this statement: "Like it ornot, individuals are willing to sacrifice a little of almost anythingwe care ti) name, even reputation or morality, for a sufficientlylarge quantity of other desired things.,, ." In other words, pushedto the limit, every woman and every man is a willing pros-titute. Everything, everyon e, every value has its price.

Our quarrel is nol just with the outrageousness of this claim,but also with its degree of truth. Tor while there are all too manysucb people in our midst , perhaps more tban ever too manyathletes or financiers or university professors, willing to selltbeir integrity at some price mercifully, that does not includeeveryone. Eor many people, integrity and self-respect are basicvalues. Tbey are absolute needs op en to no negotiation . Beyondmaterial goods lies an inner sense of what is good. Beyond cal-culation lies judgment. Indeed, is this not the essence of respon-sible management? To judge Xhe difference between short-termcalculable gains and deeply rooted core values?

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The fabrication of econom ic man drives a wedge of distrustinto society, between our individual wants and our social needs.When everyone merely calculates, wo end up vvitii a schemingsociety. "In the end," write Jensen and Meckling, "we can dothin gs /tJand /br indiv iduals only." The re is no society, no socialglue. This may be the perspective of economics, at least a nar-row side of i t , encouraged by the collapse of communism thatstood so dogmatically for collectivism. But dogmatic individu-alism is hardly hettcr. If capitalism stands only for individual-ism, it will collapse too. For we live as individuals in a socialspace: We certainly need kidividual init iat ive but emhedded insocial etigagement.

Ernst Mayr, described by Scientific American magazine as a"towering figure" in evolutionary biology, wrote in that puhli-cation in 2000 that recent research "widespread among manysocial animals" has suggested that "a propensity for ahruismand harmonious cooperation in social groups is favored by nat-ural selection. The old thesis of social Darwinism strict self-ishness was based on an incomplete understanding ofanimals, particularly social species."-

In her inOuential writin gs, Ayn Rand cons idered selfishnessa virtue. But she had a particular view of selfishness and of indi-vidualism: the courage of the individual to confront the faceless,mindless system, to pursue beliefs as a need, not a want, at theexpense of measurable gain, if necessary. Rand was, of course,railing against the socialist tendencies she saw manifested inEastern Europe. But one might wonder how she would react tothe intluence of the REMM on the corporate system of today.-^Second Fabrication:Corporations Exist To Maximize Shareholder ValueCorporations used to exist, or so we once believed, lo serve soci-ety. Indeed, that was the reason they were originally grantedcha rters - and w hy those charter s could he revok ed.Co rpor ation s are econo mic entit ies, to be sure, but they are alsosocial institutions that must justify their existence by their over-ail contribution to society. Specifically, they must serve a bal-anced set of stakeholders. That, at least, was the prevalent viewuntil perhaps ten years ago. Now one group of these stakehold-ers the shareholders has muscled out all the others.

For years a group of chief executives of America's 200 largestcorporations, call ing themselves the Business Roundtable, pro-moted this balanced view of the corporation, including a senseof corpo rate social responsibili ty. In 1981, their "Statemen t o nCorporate Responsibil i ty" stated:

Balancing the .shareholder's expectations of maxiriuini returnagainst other priorities is one of the fundamental problems

confronting corporate niiuiagement. The shareholder mustreceive a good return but the legitimate concerns of other con-stituencies (customers, employees, communities, suppliers andsociety at Urge) also must have the appropriate attention... .l,cading managers] believe that by giving enlightened consider-

ation to biihincing the legitimate claims of all its constituents,a corporation will best serve the interest of its shareholders.Then, in September 1997, ibe roundtabie 's report on corpo-

rate governance announced an about-face: The paramount dutyof management and ofboards of directors is to the corporation'sstockholders. Period. The customer may be "king," and theemployee may be the corporation's "greatest asset" (at least in therhetoric), but the shareholder is the bottom line. Tbe reportreads, "The notion tbat tbe board must somebow balance tbeinterests ol stockboiders against tbe interests of other stakehold-ers fundamentally miscon strues the role of directors. It is, mo re-over, an imworkable notion because it would leave the boardwith no criteria for resolving conflicts between the interest ofstockboiders and of otber stakeholders or among differentgrou ps of stakeholders."-' '

This refiects a fallacious separation of the economic andsocial consequen ces of decisionm aking . As econo mists l ikeMilton Friedm an wo uld have i t, business atten ds to the eco-nomic, whereas government takes care of the social . Perfectlysimple, except for one fatal flaw: Every economist readily rec-ognizes that social decisions have economic consequences, inthat they cost resources. So how can any economist or businessexectitive fail to recognize that economic decisions have socialconsequences, in that they directly impact human beings? AsNobel Prize-winning author Aleksandr Solzhenitsyn, wbo suf-fered under Soviet communism and later l ived in the UnitedSta les, commented:

I have spent all my life un der a commu nist regime, and 1 will tellyou that a society without any obiective legal scale is a terribleone indeed. But a society with no oth er scale but the legal one isnot quite worthy of man cither. A society which is based on theletter of the law and never reaches any higher is taking veryscarce advantage of the high level of human possibilities. Theletter of the law is too cold an d formal to have n beneficial effecton society. Whenever the tissue of life is woven of legalistic rela-tions, there is an atmosphere of moral mediocrity, paralyzingman's noblest impulses.^

In "The Divine Right of Capital,"' ' Ma rjorie Kelly, herself anentrepreneur, compares the privileges of today's shareholderswith those of feudal aristocrats. Why, she asks, should onegroup particularly a group so distant from the operations tbat may bave added nothing for years, lay claim to such a large

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share of the benefits? Are today's workers akin to the peasantswho toiled the land yet could be removed at the whim of theowners? Kelly's is a provocative argument imbued with niorethan a grain of truth.

The emphasis on shareholder value represents a curiousturnab out, for shareholders have traditionally been the "residualclaimants" on the corporation those wbo took the surpluses,namely the profits, after the other claimants had been paid offNow the corporation is managed for those profits, no matterhow much pressure that places on ernployees. Under the calcu-lations of EVA (econom ic value adde d), for exam ple, a charge forthe cost of capital provided by sbarebolders is subtracted fromthe profit of the business. In effect, the business earns no profituntil the shareholders receive their due. Shareholder wants bavethus been transformed into sharebolder needs'.

Let us take a good look at what these shareholders own andhow Xhty own it. In the tnodern economy, witb instantaneousinformation, global access to capital and Internet-based stocktrading, fewer and fewer sbareholders are in any way committedto tbe businesses they "own." Ciant mutual funds buy and sellmillions of shares eacb day to mirror impersonal marketindices. Alongside tbese are tbe day traders wbo buy and sellwithin hours, looking for arbitrage or momentum opportuni-ties. Durin g the 2000 bull market, tbey accounted for 15% ofNASDAQ trades.** These new hreeds of shareh older may not beinterested in products or services or customers, let alone thecompanies themselves; nevertheless, company managers live inmortal fear of their volatile actions.

The pressure not to "miss a quarter" not to upset theexpectations of the market analysts can promote someawfully dysfunctional hehavior. Executives are forced to watchthe Scoreboard instead of the ball, as the saying goes, to cut costswherever savings show up immediately (in johs eliminated, forexample), even if long-term benefits are forgone; to squeezeextra sales out of premature deliveries; at worst, to cut ethicalcorners and sometimes engage in downright illegal actions.Recently, we have seen case after case of this. All for more"value." Shareholder value: What a curious term for somethingthat refers to the price of the stock!

Shareholder value thus drives a wedge between those whocreate the economic performance and those who harvest itsbenefits. It is a wedge of disengagement, both between tbe twogroups and within each. Those who create the benefits are dis-engaged from the ownership of their efforts and are treated asdispensable, while those who own the enterprise treat that own-ership as dispensable and so disengage themselves from its activ-ities. One manager in a large bank refers to "this shareholdervalue craze" as "Draconian." Another says that shareholder

value "neither guides nor inspires employees." Who can get firedup abou t m aking money for strangers who d on't even care aboutthe enterprise?

Tbe wedge of disengagement is also driven between a com-pany and its customers, because tbe focus on ultimate financialperformance tends to blind people to the means by which il isearned, limployees are encouraged to see dollar signs out in themarketplace and sources of shareholder value, not people inneed of reliable products and services. So why not depreciate arespected brand for a quick boost in sales, or rush a question-able new product to market, or offer customer kickbacks topush up quarterly sales? Perhaps this is why the AmericanCus tome r Satisfaction Index has declined steadily in almostevery industry since the early 1990s.^ "Make the nutnbers andmove on" seems to be the mo tto of the day. The problem is tbatyou don't really serve customers by serving yourself. You serveyourself hy really serving customers.Third Fabricotion: Corporations Require Heroic LeadersFor decades, corporate shareholders remained passive. Indeed,famous books were written from Berle and Means' "TheModern Corporation and Private Property" in 1932 to JohnKenneth Galbraitb's "The New Ind ustrial State" in 1967 about bow managers bad seized control of large corporationsand manipulated sbareholders for their own purposes. So pres-sures arose in the financial community to challenge this. Theproblem was fixed all right, but the pend ttlum swung tbe otherway with a vengeance.

How have these shareholders, so removed from the corpora-tions, been able to appropriate so much of tbe benefits? Theanswer is rather simple: They have co-opted the chief executivesby rewarding them disproportionately for the performance of theentire enterprise. Through options and bonuses, they have boughtoff tbe cbiefs. According to a recent survey, "Executive Excess2001," conducted during tbe 1990s hy tbe Institute of PolicyStudies, CEO pay rose by 570% , while profits rose by 114%, andaverage worker pay rose by 37%. barely abead of inflation (wbicbwas 32% over this period). Had workers' pay kept pace, they"would have averaged $120,491 instead of $24,668" by tbe end ofthe decade.'" In 1999, wbile median sbarebolder returns fell by3.9%, CEO direct compensation rose another 10.8%."

Underpinning all of this is a massive set of assumptions: thathe chief executive is the enterprise, that he or she alone isresponsible for the entire performance, and that this perfor-mance can be measured and the chief executive rewarded lo dothe shareholders' bidding. Tbis kind of thinking bas been reinforced by the all-too-willing media, hungry for personalities andsimple explanation.s. Typical is tbis statement from the April 14

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Tw o Ways To Manage

Real leadership is often more quiet tban heroic. It is connected, involved and engaged. It is about teamwork and taking the long-term perspective, building an organization slowly, carefully and collectively.Heroic ManagementManagers are imp ortan t people, quite ap art from others vt/hodevelop products and deliver services.The higher "up" these managers go, the more important theybecom e. At the "to p," the chief executive is the corporat ion.Strategy clear, deliberate and bo ld emanates from the chiefwho takes the dramatic steps that drive up share price. Everyoneelse "implements."Implementation is the problem, because although the chiefembraces change, most others resist it. That is why outsiders consu ltants and new manag ers must be favored over insiders.To manage is to make decisions and allocate resources including"human" resources. Managing means analyzing, often calculating.Rewards for increasing the share price go largely to the leader,the risk taker (who pays no penalty for drops in share price).

Engaging ManagementManagers are important to the extent that they help other peoplebe important .An organization is an interacting n etwork, not a vertical hierarchy.Effective leaders work throughout; they do not sit on top.Strategies, often init ial ly modest and even obscure, emerge as thepeopie who develop the products and deliver the services solvelitt le problems that merge into new init iatives.Implementation cannot be separated from formulation. Healthychange requires a respect for the old alongside a recog nition ofthe new.To manage is to bring o ut the energy th at exists naturally with inpeople. Managing thus means inspiring and engaging.Rewards for making the company a better place go to everyone,and they are significantly psychic.

1997, issue of Fortune: "In four years [ Louis | Gerstner has addedmore than $40 billion to IBM's share value." Admittedly,Gerstner is a good CEO, but did he really do this all by himself?

But how could these chief executives, flesh-and-bloodhumiin heings like everyone else, deliver on such inflated expec-tations? By attemp ting to conform to the heroic images createdand expected by the media and the shareholders. The obsessionwith shareholder value thus promoted the notion of heroicleaders, larger than life, riding in, not to save the day, but to raisethe stock price. Heroic leaders ann ounce magnificent strategies,do dramatic deals and promise grand results. Interestingly, asthey gamble with other people's money, these heroic "leaders"are protected no matter what happens: They cash in theiroption s if the stock goes up and bail out with golden parachutesif it goes down sometimes even both.

Could all the attention to shareholder value in the end proveto have actually depreciated shareholder value? Certainly thereare success stories. But increasingly we fmd stories of failure,often dramatic, especially about executives who took theirheroic personae seriously. Tales of heroic leadership gone awrycan he told about John Sculley at Apple Computer, MichaelArmstrong at AT&T, Rich McGinn at Lucent Technologies andLinda Wachner at VVarnaco Group. Stay tuned to sec what hap-pens at DaimlerChrysler and Hewlett-Packard.

The problem with heroic leadership is that it is detached. Itdrives a wedge between the leaders sitting atop their pedestalsand everyone else. This is a wedge at ' disconnection that seesleadership as something apart. Ironically, amidst all the talk of

empowerment, partnership, knowledge work and the like, weare currently seeing a centralization of power along traditionalhierarchical lines to a degree unmatch ed in decades.

Perhaps the reason we are so obsessed w ith leadership today isthat we see so little of it. "Unhappy is the land that has no heroes,"comments a character in Bertolt Brecht's "Life of Galileo."'^"No," replies another, "Unhap py is the kind that needs heroes."

Real leadership is often more quiet than heroic. It is con-nected, involved and engaged. It is about teamwork and takingthe long-term perspective, building an organization slowly,carefully and collectively (See "Two Ways To M anage.")Fourth Fabrication:The Effective Organization Is Lean and Mean"Lean and mean" is a fashionable term these days, a kind ofmantra tor economic man. "Lean" certainly sounds good better than fat. But the fact that "mean" has been made into avirtue is a sad sign of the tim es.

There is nothing wonderful about firing people. Slash-and-burn tactics are merely the quickest way to "performance" in theabsence of im agination. "Chainsaw"Al D unlap, the master slash-and-b urn artist, who eventually got slashed and burned himself,was not an aherration, b ut only the extreme example of a popu-lar trend. In the year 2000, before the current downturn, U.S.employers discharged approximately 1.2 million workers in masslayoff actions ending the year with the highest number of lay-offs since the U.S. Bureau of Labor Statistics resumed calculatingthese statistics in 1995.'^

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Like the other easy assumptions of this syndrom e ot selfishness,lean and mean is supposed to offer it all: lower costs, higher pro-ductivity, flatter and more flexible structures, more empoweredworkers (with their bosses gone) and happier customers. It is oftenpackaged in glib phrases like "doing m ore w ith less" and "win-win."

Sure, all this can happen, but once again it is balf tbe t rutb.Tbe olber baif comprises burned-out managers, angry workers,quality losses in the guise of productivity gains and disgruntledcustomers. Lose-lose. Thus, tbe cbief economist for MorganStanley Dean Witter, writ ing ab out "the dirty little secret" of tbeproductivity miracle of tbe last decade, suggests tbat there maybe more "perspiration tban inspiration" here "... in otherwords, pushing people and machines to tbeir l imits rather tbandiscovering smarter ways to run economies."^'*

Perhaps tbe worst consequence of all tbis restructuring hasbeen tbe breaking of a basic covenant between employer andemployee: tbe implicit pledge of security in re turn for loyalty.People feel betrayed tbese days. "Is sbare-owner value a tbreat toyour job? Or will it sustain your career?" asked a Coca-Colabrocbure publ ished for employees in 1996. Four years later,employees received an answer as 6,000 of them about 20% ofthe workforce were laid off.'^ Hewlett-Packard, long famousfor its commi tment to its employees, has now followed suit. Nowonder one recent study reported that only 34'M) of employeesworldwide felt a strong sense of loyalty to their employers; in theUnited Stales, only 47% saw tbe leaders of their companies aspeople of high personal integrity.'^

These feelings of betrayal in ibe workforce cannot belp pro-ductivity in tbe long run, but productivity does not seem to bemeasured in the long run these days. Quarterly earnings per shareare easier to measure. So the lean and mean o rganization drives awedge of discontinuity between the present and the future.

It bas been said that the greatest advance in health care wasnot penicillin or insulin bu t simply cleaning up ibe water supply.Maybe it is t ime to develop healtbier organizations by cleaningup our atti tudes. We need economic sustainabili ty too, in addi-t ion to social and environmental suslainabili ty.Fifth Fabrication: A Rising Tide of Prosperity Lifts All BootsThe notion of win-win has gone beyond tbe lean, mean corpora-tion into tbe entire society. As tbis homily would have it, a risingtide of prosperity lifts all boats: Everyone pro spers in tbe selfisheconomy. This amounts to either a wonderfully convenient trutbor a cynical justification for greed: The winners needn't worryabout the losers, because there are no losers. All consciences canrest assured.

Let us take a look at this metaphor and then al some facts.First, tides are regular, if anything, this syndrome of selfishness

bas created a tidal wave. A tidal wave lifts only those boats tbatare moored to noth ing . The rest, which are connected to realthings, get swamped , as do the lowlands, where the peopledrown if they have nowhere else to go. Are we to he concernedonly with people in high places? Moreover, tides and tidalwaves are not sustainable. They eventually fall back as far asthey have risen, only to reveal the devastation that has beenhidden by tbe waters.

Our point is not to sleni tbe t ide, so to speak, but ratber tochallenge tbe simplisLic and blinding use of a metaphor indicative of so much of the rhetor ic of tbis syndrom e of self-ishness. Metapbors can be used creatively to open vistas ormindlessly to hide evidence. Wbat evidence does this one hide?

In 1989, tbe United States bad 66 billionaires and 31.5 mil-lion people living below tbe official pove rty line. A decade later,ihe number of bill ionaires bad increased to 268, whereas tben u m b e r of people below the poverty l ine had increased to 34.3millio n. '" A recent survey of the world's 18 wealthiest countriesby the United Nations ranked tbe United States highest both ingross domestic product and poveity rates.'^ Given these figures,i t sbould come as no surprise tbat the stock market gainsbetween 1989 and 1998 went disproportionately to the rich. Thewealthiest 10% of American households saw their stock marketholdings increase by mor e than 7 2% , while those in the bot tom60% of tbe income ranking saw tbeir boldings increase by lessthan 4%. '^ In 1999, at tbe beigbt of the economic boom, one insix American children was officially poor, an d "poverty wasmore acute than in prior years, while income inequitablyremained at record levels."^"

Despite increases in income among some groups during the1990s, the inflation-adjusted minimum wage is 21 % lower todaythan in 1979. In 1999, 26% of all workers were in jobs payingpoverty-level wages, a larger share than in the pasl.-' Overall, tbeto p 1% of bousebolds saw their after-tax income rise by $414,000from ] 979 to 1997 (exclusive of their capital gains), while the middle fifth gained S3,400 and the bottom fiftb actually lost $100.^^

Mucb has been made of tbe diffusion of stock ownersbip hi tbeUnited States and of companies pusbing stock options beyond theexecutive suite. Here, too, some figures are revealing. Stock owner-ship is clearly up about 16% in the past 10 years. But more ibanhalf the population owns no stocks or mutvial fund s, and only one-third of all house holds bold stock worlb $5,000 or more.--^ A nd theplunges in higb-tecb stocks, bankrup ting som e employees wbo hadcashed in their options and then had to pay taxes, bave hardlyencouraged more stock ownership. Sbould a society feel comfort-able wben more tban 30% o'i its households have a net worthincluding hom es and investments, of less than $10,000?'^'*

Is this, then , a rising of the tide or a shifting of the waters? Has

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a wedge oj disparity been driven between the prime beneficiariesol' slock price increases and the large numbers of people disad-vantaged by the corresponding actions? Moreover, many of thosewho bave done best in this economy RHMMs, in constantquest for "more" bave led a relentless and successful attack ontaxes, furtber undermining protections for the most disadvan-taged people in society. In tbe U.S., tbe wealthy today "pay a lessershare ot vastly increased incom es" and yet continue to winadvantage in the form of tax cuts. ^

Internationally, in some significant pockets at least, the dispar-ity of wealth bas become alarming. In certain countries in SouthAmerica (e.g., Bolivia, Paragiiay) and Africa (e.g.. Central AfricanRepublic, Guinea-Bissau, Lesotbo, Sierra Leone), tbe top 20% ofthe population receives more than 60% of the country's income,while tbe botto m 10% of the population receives less tban 1%. ^

As a part of the "rising tide" metapbor, peo-ple around the world are promised tbat freetrade will solve every social problem. Win-winonce again. The economic will magically takecare of the social. Certainly economic develop-ment belps to foster social improvement. But noless certainly, social development (sucb as freeelections) helps to foster economic improve-ment. It appears that tbe two bave to work intandem, wbich means that economic develop-ment with social regression may be destructive. Tbat seems to betbe experience of a num ber of "developing" countries.

Prosperity is not just economic and cannot be measured byaverages alone. It has to be societal too, and tbat depen ds on dis-tribution. Real prosperity combines economic developmentwith social generosity. Have we made progress in recent years?Economically, it is not clear. Societally, it is all too clear.

A series of damaging wedges has been driven into our socialfiibric. They will harm us more severely all of us if tbey arenot soon removed. Which is not to say that material wants, ben-efits for stockholders, leadership, productive efficiency, eco-nomic prosperity and even selfisbness should be challenged perse. But tbey must be rejected as ends in themselves. Tbe calculusof glorified self-interest and the fabrications upon whicb it isbased must be challenged.Toward EngagementLogical argument supported by factual evidence may be anappro priate way to confront tbe syndrome of selfisbness, bu t no ttbe most effective way to promote engagement, for that is a dif-ferent phenomenon. Engagement is rooted in experience inthe stories of those whose actions bave promoted tbe values oftrust, iudgment and com mitmen t. Tbere aiv manv sucb stories.

A woman at State Farm MutLial Insurance Co. was convert-ing a paper database into an electronic one. "Why are you w ork-ing so energetically?" someone asked her. "Do n't you know thatyou are working yourself out of a job?" "Sure," she answered,"but I've been bere long enougb to know that I can trust them.They'll fmd something else for me. If I didn't believe tbat,I might be tempted to sabotage tbe process." How mucb sabo-tage bas been taking place in our lean and mean organizations?Imagine, in contrast, tbe value including shareholder value of ibis kind of engagement.

Consider Alistair Pilkington, an engineer in Pilkington Glass{a family-owned company, although he was not a relative). Oneevening, while doing the disbes at home, be got an idea for anew way to make plate glass hy fioating it on a bath of tin. Tbeboard encouraged bim, and tbe experiments began. The board

Prosperity is not just economic and cannot bemeasured by averages alone. It bas to be societaltoo, and that depends on distribution. Realprosperity combines economic development with social generosity.

maintained its support through seven years of problems andnegative cash flow, not to mention 100,000 tons of glass thrownaway. When board members asked, "Can you make saleableglass?" Pilkington answered: "I don't know, but notbing basproved it s impossible." Eventually the process was perfected, tb epatents were granted, and tbe company licensed the processworldwide soon every new factory in the industry used it.-^''

Read lbe strategy books and you will not get tbe impressiontbat remaking a pro ductio n process is strategy, especially w henchampioned by a lowly engineer who tbought of it wbile doingthe disbes. Read tbe finance press and ask yourself whicb ana-lysts today would tolerate seven years of failure. "It isn't justwbat you do this year tbat matters," said one Pilkington direc-tor later, "bul what you are working on tbat is going to bearfruit in ten years' time. It is important that the company is notonly profitable, but also bas a 'beart.' " This company had aheart, and It made a great deal of money too. The man wbochampioned lbe new process eventually became chief executive.

IBM's entry into e-business was driven by two people farremoved from tbeformal eadersbip, a "self-absorbed programmer"who had lhe initial idea and beat all sorts of people over tbe head toget them to understand it, and a staff manager wbo picked up theball and somebow, with bardly any resources, stitched together the

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loose team of people that made it happen. ** Of the latter, one man-ager said: "[Hel was hard to refiise lin his initiatives] partly becauseit was clear that he was operating in IBM's interest as a whole andnot just lighting for his own little group." Wben first presented witbthe idea, CEO Louis Gerstner recogni7.ed the initiative's potentialand encouraged it. Gerstner, who according to the Fortune reportcited earher, added $40 billion to the company's share value all byliinisell:, played a background role. Of course, he may have set thetone tbat enabled such things to happen in the first place. But thatis often what real leaders do . It may be tbat the truly effective CEOis more quietly supportive than dramatically heroic.

Sixty years ago, after a decade of depression, there was aneno rm ous surge in tbe U.S. economy. American men and , inunprecedented numhers, women engaged in the efforts ofWorld War II, pulling together after one of the most divisivedecades in the nation's history. Thousands of people laid downtheir lives; many others toiled in factories and bought govern-ment bonds in huge mnnbers not to make tbeir fortunes butto furthe r tb e cause. This surge of collective effort, accord ing toCharles Handy, "violated many of tbe precepts of allocative effi-ciency bul pusbed GDP up by 50% in four years and laid thebasis for subsequent growth."^^

That singe of cooperative human engagement carried theUnited States through the war and then hegan to recede. It hasbeen receding ever since. It was arguably at its lowest point since1945 wben a catastrophe occurred in New York City and shadesof that earlier engagement reappeared. Perhaps it represents anopportunity for fundamental change. lensen and Meckling wereright in one limited respect. We do have a trade-off to make, onecrucial choice facing each of us as individuals. We can live ourlives and manage our enterprises obsessed with getting evermore, with keeping score, with constantly calculating and schem-ing. Or we can open ourselves to anotber way, by engaging our-selves to engage otbers so as to restore our sense of balance.

REFERENCES1. Originally published in M.C. Jensen an d W.H. M eckling, "The Natureof Ma n," Journal of Applied Finance, 7, no. 2 (1994): 4-19 {revised July1997).2. E. Mayr, "Darwin's Influence on Modern Thought," Scientific American,July 2000, 83.3. See, for example, A. Rand, "The Virtue of Selfishness" (New York:New American Library, 1965).4. "Statement on Corporate Responsibility'' (New York: BusinessRounbtable, October 1981), 9.

5. "Statement of Corporate Governance" (Washington, D.C: BusinessRoundtable, September 1997), 3.6. A, Solzhenitsyn, "How the West Has Succumbed to Cowardice,"Montreal Star, News and Reviews, June 10, 1978, p. B1.7. M. Kelly, The Divine Right of Capital: Dethroning the CorporateAristocracy" (San Francisco: Berrett-Koehler, 2001).8. T O'Brien. "The Day Trader Blues," Upside, January 2000, 182-192.9. American Customer Satisfaction Index. Q1 . 200 1. National QualityResearch Center, University of Michigan Business School, Ann Arbor;www.bus.umich.edu/research/nqrc.10. S. Anderson, J. Cavanagh, C. Hartman and B. Leondar-Wright,"Executive Excess 2001" (Washington, D.C: Institute for Policy Studies,2001), 1-11. J.S, Lublin, "Executive Pay (A Speciai Report). NetEnvy," Wall StreetJournal, Apr. 6, 2000. p. Rl.12. B. Brecht. "Life of Gaiileo," trans. J. Willett, ed. R. Manheim (NewYork: Arcade Publishing, 1995)13. "Extended Mass Layoffs in 2000." Report 951. U.S. Department ofLabor, Bureau of Labor Statistics, July 2001, p. 1.14. International Herald Tribune, Feb. 15, 2000.15. P. Barta, "In Current Expansion, As Business Booms, So , Too, DoLayoffs," Wall Street Journal, March 13, 2000, p. Al .16. A. Keeton, "Only 34 Percent of Employees Feel Loyal," MontrealGazette, Oct. 9, 2000.17. C-Coliins, C, Hartman and H. Skiar, "Divided Decade: EconomicDisparity at the Ce ntury's Tu rn" (Boston: United for a Fair Economy,1999). 2.18. E, Olson, "Rights and Strong Economies Go Hand-In-Hand, UNFinds," International Herald Tribune, June 30, 2000.19. L. Mishel, J. Bernstein a nd J, Schmitt, "The State of WorkingAmerica: 2000-2001" (Ithaca, New York: Economic Policy Institute,Cornell University Press, 2001), 270,20. "Poverty in the U.S.," International Herald Tribune, Sept. 29, 2000,21 . Mishel et al.. 'The State of Working Ame rica: 2000-2001," 353.22. "Richer and Richer," International Herald Tribune, June 7, 2001, p. 823. Mishal et al., "The State of Working America; 2000-2001," 266-267.24 . Mishal et al., "The State of Working America: 2000-2001." 264.25. 'The Gulf W idens." Washington Post, June 5, 2001, A20.26. Worid Bank, "World Bank Section 28, Distribution of Income orConsumption," in "World Development Indicators 2001," 70-72.27. J.B. Ouinn, "Pilkington Brothers P.L.C, Case 3-1," in "The StrategyProcess (Concepts, Contexts. Cases)," eds. H. Mintzberg and J.B. Ouinn(Englewood Cliffs, New Jersey: Prentice Hall, 1991), 826-844.28. G, Hamel, "Waking Up IBM: How a Gang of Unlikely RebelsTransformed Big Blue," Harvard Business Review 78 (July/August2000): 137-146.29 . "The Invisible Fist," The Economist, Feb. 15, 1997.

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