September 19, 2011 12:48 am

On management: the winning combination of wealth and power

Despite its claims to rationality, much of what actually happens in business is mysterious. Why are chief executives paid so much, regardless of performance? Why do companies make enormous acquisitions when research shows they destroy value? Why do global corporations such as Enron, Lehman and possibly News Corp commit suicide as they do?

Many of the blurred edges come into focus when viewed through the lens of power. In polite management circles, power is unmentionable. It is airbrushed out of books about leadership and scarcely ever adduced as a driver of events or strategy. Yet it is as ubiquitous, attractive and unruly as sex (the two often go together), and in the corporate sector the story it tells is as important as it is misunderstood.

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Take Rupert Murdoch and the News of the World, the former British tabloid at the centre of the phone hacking scandal. One of the effects of power, notes Stanford University’s Professor Jeffrey Pfeffer in his book Power: Why Some People Have It – and Others Don’t, is that it dissolves inhibitions as effectively as alcohol. Powerful people tend to think rules do not apply to them, and their drives often override social norms.

Murdoch, suggests Prof Pfeffer, is a non-political version of Silvio Berlusconi. “Here’s the interesting thing: despite screaming and gnashing of teeth and apparently consorting with underage girls and charges of corruption [Berlusconi denies both], he’s been prime minister of Italy … for a decade. And the basis of this is his media empire. And wealth.”

In reality, wealth and power are usually a winning hand in any situation.

Power is both protective and self-perpetuating. Says Prof Pfeffer: “The thing to ask is not whether they’ll suffer – which they will, a bit – but whether once all the theatrics have died down, they’ll have been protected from the worst in ways which you or I wouldn’t have been.” A pause. “So I’m not worried about Murdoch,” he chuckles. “Not worried at all.”

Unpalatable as the thought is to some, power – with politics, its inseparable sidekick – is a fact of life. Hierarchy, with power at the apex, seems part of the natural order. Given that that is the case, and that status is associated with rewards, it is unsurprising that people prefer to be at the top and that some act strategically to get there: moving into a vacuum, taking power rather than waiting for it, and using it to dominate or freeze out rivals.

To those who imagine that power will come to them without such tactics, as the result of talent or performance, think again.

Achieving power is a discipline of its own whose rules are about being noticed, influencing the measures used to judge your accomplishments and keeping the boss happy. Good performance is a bonus, but far from obligatory.

That is also the case for people at the top. One of the reasons power protects is that the powerful get to make or influence the rules. In the wake of the financial crash, that game is playing out now, with huge implications.

Beneath the glib rhetoric of flat organisations and crowdsourcing, management thinkers deplore a massive centralisation of corporate power in recent years in the hands of imperial chief executives, a shift that has coincided with waves of consolidation in nearly every industry: oil, insurance, cars, airlines, media and finance.

Prof Pfeffer agrees: “In 2008, the financial institutions were a problem because they were too big to fail. Now, without exception, they’re bigger.”

Markets and economies work through competition, which is why governments have put in place anti-trust legislation and competition authorities. But they have not enforced the rules.

“If you’re watching football and the referee says, ‘OK, guys, do whatever you want,’ you can’t blame the players for trying to win however they can,” says Prof Pfeffer. “It’s up to the people who make the rules and enforce them not to go to sleep. The problem in the UK or the US isn’t Rupert Murdoch; it’s the government.”

For Prof Pfeffer, power is ethically neutral; like a knife, it can be used to cure people or kill them. Learning how it works and how to use it is therefore an exercise not in cynicism but in realism. Those who think they are being high-minded by refusing to engage with its realpolitik simply hands the advantage to jerks, which is why so many get away with it. Power is a higher-stakes game than you think. As Prof Pfeffer writes: “Our only chance of having the powerful be good is having more of the good become powerful.”

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