This is a book without a theory, which I mean as a compliment. Because instead of theory it has wisdom. As usual, the publisher’s subtitle – Why (Almost) Everything We Are Told About Business Is Wrong – can’t quite cope with this concept. The “almost” is a nod to the book’s distaste for over-simplicity, but the revisionist tone drags it towards the “smart thinking” genre, where it doesn’t quite belong. Because although John Kay is a leading economist, this is really a history book – history written with a sustained moral outlook and world-view. It’s a history of global business, a primer on organisational thinking, and a comparative study of how national identities are shaped by corporate ownership and its obligations. Above all, it is a history of how people live and work together.
A central thread in Kay’s argument is that shareholders don’t own companies. So who does? In legal terms, this is complicated and contested territory, with a long tradition of court disputes between shareholders and company management about competing rights and powers. Philosophically, it may be simpler, but with a peculiar kind of simplicity. “So who does own Apple or Amazon?” Kay asks. “The answer is that no one does, any more than anyone ‘owns’ the Mississippi River… or the air we breathe.”
The ambiguity of ownership, of course, also applies in non-corporate settings. A few years ago, I bought the field next to my house, which quickly became the place where the kids on our street (and some adults) play football and cricket. Beyond bringing joy and friendship to the patch of grass that I theoretically own, each family has helped me to improve the field, either with machinery or manpower. There is a deeper layer, too. My neighbour directly across the street was born and raised in the house I live in, and her parents once farmed the land we now play sport on. Her connection to the place could scarcely be deeper. So my “ownership” of the field, though not contested, has a subtle context. “Ownership, like friendship, has many characteristics,” as Kay writes.
The line is classic Kay. He is fascinated by ambiguity, which he usually locates close to the heart of the matter. He perceives ambiguity as central to creativity, and he does not attempt to unweave what can’t be disentangled. His writing is always clear but never closed. By exploring ambiguity without lapsing into vagueness, Kay achieves what he advocates: resisting thinking reductively and rushing to the bottom line.
Having dispensed with the primacy of shareholders, next Kay has profits in his sights. He catalogues firms that have sharply declined, a moment which coincided with them embracing increasing profits as the company’s definitive purpose. In 2004, Boeing’s then CEO Harry Stonecipher boasted that he changed the culture of the firm because, “It’s a great engineering firm, but people invest in a company because they want to make money.” That priority led to Boeing’s disastrous decision to reconfigure 50-year-old 737 planes into the 737 Max. Money duly saved, share price nicely boosted. Then the aircraft began to fall out of the sky. And Boeing is now consistently outsold by its rival Airbus.
In a less high-consequence setting, in 1988 Marks & Spencer decided to set the target of £1bn in annual profit. This goal initially achieved, the share price boomed to £6. Then customers noticed the shortcuts, sales collapsed and its share price crashed to £1.
It’s no surprise, then, that Kay singles out private equity in particular for chasing short-term profit at the expense of long-term value. My wife and I used to play a game of “private-equity bingo” when we experienced a restaurant or hotel that had fallen off a cliff in terms of standards and charm (usually having “scaled-up”): which private equity house had recently bought it?
The Corporation in the 21st Century is a guide to effectiveness as well as questions of ownership and purpose. Kay correctly argues that formal authority – job titles and badges, reporting lines, organisational charts and all the other fantasies that keep functionaries busy on quiet afternoons – are usually invoked only when there has been a failure of leadership. If the protagonist had been better at their job, the issue would have been settled by persuasion and influence. It may surprise people that this point is especially true in high-stakes environments which are thought to be hierarchical. Kay cites Lyndall Urwick, an army Colonel turned management consultant, who admitted:
The “proper channels, the official channels”, were there and were used to confirm and to record agreement already reached by far quicker and friendlier means of communication. If an officer had to use them before that point was attained, it was rightly regarded as a confession of failure.
“Even the military hierarchy,” Kay infers, “was essentially a ratifying hierarchy.”
A critical capability of any organisation is internal nimbleness, especially when power and expertise are not aligned. “The Silicon Valley start-ups that could grow into successful businesses,” Kay writes, “were necessarily those few which could handle well the interaction between authority and knowledge.” In other words, a business needs dexterity when someone “up the chain” understands that the technicians “below them” actually know better. Managing up is the hallmark of a shallow careerist; helping insights travel up is where the magic happens. “If you want to hire great people and have them stay,” as Apple co-founder Steve Jobs put it, “you have to be run by ideas not hierarchy. The best ideas have to win.” Successful leaders who are thought to be “innovative” are often simply better at recognising, empowering and benefiting from innovation that was already happening beneath them.
The mark of a good team of people is not holding people to account for outcomes, but instead the ability of peers to cooperate on identifying priorities and resolving disagreements. Kay refers to this as a company’s “mediating hierarchy”. Here sport mirrors business: ask any successful coach or captain about what defines a great team and they will probably answer, “Senior players sorting stuff out among themselves.” When the mediating hierarchy fails, it’s everybody’s problem.
The entrepreneur, in Kay’s reading of how business works, becomes less the caricature of a risk-taking solo hero and more the convenor of collective intelligence. This links back to the word’s roots – entre, “between”, and preneur, “taker”. He posits, “The original meaning of the term ‘entrepreneur’ describes a coordinator, someone who brings things together.”
Kay periodically steps away from his main narrative to dwell on bite-sized anecdotes, each given a little text box of its own. One of these reproduces the bullet-point advice offered in 1944 by the US Office for Strategic Services (what became the CIA) about how to obstruct the conduct of war (I’ve abbreviated all of the points):
– Insist on doing everything through “channels”.
– Make “speeches”.
– When possible, refer all matters to committees.
– Bring up irrelevant issues.
– Haggle over precise wordings.
– Refer back to matters decided upon at the last meeting and attempt to reopen the question.
– Advocate “caution”. Be “reasonable” and urge your fellow conferees to be “reasonable”.
Kay signs off: “Many readers, especially academic ones, will be able to testify to the continuing effectiveness of these techniques even in peacetime.”
Bureaucracy-busting is one of the book’s subliminal themes. When Arnold Weinstock’s General Electric Company acquired the slow-moving English Electric in 1968, Weinstock signalled a new approach in a letter to all managers: “Our philosophy of personal responsibility makes it completely unnecessary for you to spend time at meetings of subsidiary boards or of standing committees. Therefore all standing committees are by this direction disbanded.” Brilliant.
The book is full of sporting analogies, so I won’t apologise for finishing with one. A sportsman’s soul often circles around a question we are trained to gloss over: what is winning, really? Superficially, we know winning is written in the score. And I am almost ashamed of the glee I’ve felt at watching my teams clock up the wins. But we also know, more of us than admit it, that it’s hard to find enduring meaning in any zero-sum activity. If all you’ve done is redistribute (towards your own side) a certain percentage of a fixed and unchangeable stock of success, money or “entertainment” – then it’s hard to make the case that you’ve contributed much to the world.
So there has to be more to it than that. And of course there is. Because, in any proper account of winning, there is how your team plays the game, which runs deeper than the aesthetic question of playing style. A team that gives deeply of itself, and by doing so becomes more than it otherwise would have been, isn’t just narrowly successful. It’s also inspiring. And that inspiration leaves a mark – in surprising places – long after the scoreline has receded. That’s the kind of winning we really seek.
But of course, earning a shot at the deeper kind of winning can’t be done without accumulating enough of the superficial winning to stay alive and in the game. So sport is both brutally transparent and yet unavoidably ambiguous at the same time, the latter point being simultaneously heretical and yet all too obvious.
Kay’s portrait of business emerges along similar lines. Businesses need to be profitable to stay alive over the long run. But while profit is necessary, it is neither sufficient nor complete (in any analysis). Further – and here again sport and business converge – seeking profit doesn’t even correlate with being profitable. Being good and staying good, with profits accruing via obliquity, is a surer path. The businesses Kay admires are able to keep employees engaged with the process of finding and then retaining a competitive advantage. The fun resides in the “edge”; profit is just one of the by-products.
In the same vein, great sports coaches achieve wins by freeing up players to focus on the playing rather than the winning. Winning is always there, of course, but it is no longer the fickle tyrant king of the circus.
The American Football (NFL) guru Bill Walsh, whose protégés effectively took over coaching across the NFL, titled his book The Score Takes Care of Itself. The axiom would serve as a fitting strap line for this excellent book, and for Kay’s career-long contribution towards understanding what winning really looks like in business.
The Corporation in the 21st Century
John Kay
Profile, 448pp, £25
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[See also: The two sides of Boris Johnson]
