The Hungry Spirit: New Thinking for a New World

by Charles Handy

  The shareholders, however, have to be behind the idea of the company as a person in its own right. As it is, in the Anglo-Saxon countries, a large chunk of those shareholders are the pension funds. Their principal interest is in a constant stream of dividends which will allow them the cash to pay out the pensions. They want a cash cow. Not for them is there the choice of foregoing today’s cash for tomorrow’s growth. As a result British and American businesses pay out dividends far higher than their Japanese or Continental European competitors.

  I remember standing on the roof of a factory at the centre of a small Belgian town. The Chairman of the business, a family firm, explained that the factory was essential to the life of the town below us. ‘We saw them through two world wars,’ he said, ‘and we shall see them through the current recession.’ Profit was therefore essential, he stressed, but everyone understood the reason. Family businesses where the owners are also the managers, and are competent enough to do the job, understand Mahler’s question. Ten years on, that Chairman is dead. The family is no longer involved in the management. It is now more interested in dividends than in Mahler’s question. When ownership becomes divorced from management, as in all public companies, Mahler’s question is easy to ignore.

  It is an odd irony that it was the prudent Anglo-Saxon tradition of investing the pension reserves outside the business, instead of keeping them inside, as in Germany and Italy for example, that effectively created the huge stock markets of London and Wall Street and made them such powerful engines of growth. Now that same tradition bleeds businesses of money, money which does not, on the whole, go back into any business but which either gets paid out to pensioners or is used to buy other shares from other shareholders. This secondary market, buying other people’s shares, is froth on the surface of enterprise. It is odd, when you think of it, that it should be given so much importance. The problem is that the immediacy of this secondary market can often divert attention from the real purpose and identity of the business.

  In truth, the only justifiable purpose of a business is to create and add value, to make something happen that wasn’t there before, or, if it was already there, to make it better, or cheaper, or available to more people. How that added value is distributed and to whom is another matter. When a business ceases to add value it dies, killed by the market which it has failed to satisfy. That is the principle justification for the market – it roots out the inefficient, and rewards the successful. A successful business is, therefore, one that continues to add value – for ever.

  Life everlasting, then? Strangely it is not impossible. Businesses and other organizations have a privilege denied to ordinary mortals – they don’t have to die. They can live beyond our graves, and can truly aim for indefinite, if not everlasting, life. The Mitsui corporation and my Oxford College are both more than 600 years old and still going strong. The Catholic Church is older still. When the Royal Dutch Shell Group looked around for some contemporaries as it reached its centenary it found thirty companies, varying in age from 100 to 700 years old, scattered through Europe, Japan and North America, with names such as Siemens and Du Pont. The Swedish company Sora survived the Middle Ages, the Reformation, the wars of the 1600s, the Industrial Revolution and two World Wars.

  To live that long, however, you have to deserve it. Most don’t, and quite properly die or get absorbed into something bigger and better. Because to live that long you have to know not only what you stand for, to be sure of your central values and your reason for existing, but also to change constantly what you do and how you do it, to grow better although not necessarily bigger, and to have a continuing passion for your work – all exactly as documented by the research into long-lasting companies. Arie de Geus of Shell describes these companies as river companies, always flowing, unlike the puddle companies which evaporate in the heat. The Catholic Church is currently under pressure to change some of its rules but not its central values. The question then arises: which rules are really central values? The wrong answer to this question has proved disastrous to organizations in the past.

  THE CORPORATE WHITE STONE

  Americans are increasingly talking about the ‘soul’ and the personality of an organization. By soul they mean the spirit and the atmosphere that pervade the workplace, something that is more than the structure or the systems or even than the financial rewards. Cynics might mock and claim that George III’s Chancellor, Baron Thurlow, was right when he said, 200 years ago, ‘How can you expect a corporation to have a conscience, when it has no soul to be damned and no body to be kicked?’ Times move on, however, and the argument of this chapter is that unless organizations have both a soul and a conscience they will not deserve their place in modern society and will not long survive. Organizations, in other words, also need to find their own white stone, to know what their telos or consuming purpose is, for they, too, are hungry spirits at heart, seeking for the meaning in all their striving.

  Dean Berry, an American consultant and writer, says, ‘If we are to feel spiritually rewarded, we cannot allow our lives to continue to be compartmentalized, divided or labelled.’ The new workers want to bring their whole personalities to work with them, they want to feel at ease and at one with the aims and values of the organization. An observer of Netscape, the Internet software company, said, ‘The only people who work this hard are people who want to. The only people who want to, are people with enough freedom to do the things they want to do. Netscape is a company that consciously undermanages.’ Echoes there of Microsoft’s ‘volunteers’. Both of these companies are held together by the spirit of the place. Lose that spirit and I suspect that the business will collapse, because the people will leave. ‘Spirit’, ‘soul’, ‘personality’ – these words crop up too often to be ignored. Language is often the herald of change.

  The successful company will try to ensure that its soul and its personality or essence outlive the transient careers of its people. It must aim for immortality, even though it may never achieve it. The average life of the Fortune 500 businesses is only forty years. How dared they, one wonders, have the arrogance, not so long ago, to offer fifty-year careers?

  ‘Soul’ is one of those concepts that, like beauty, evaporates when you try to define it, but like beauty it is instantly recognizable when you meet it. Organizations have a feel about them, a feel which the visitor picks up as soon as he or she enters the building or, often, merely encounters one of the people who work there. There is an abundance of what can best be called the ‘E’ factors, when ‘E’ stands for energy, enthusiasm, effort, excitement, excellence and so on. More than that, the talk is about ‘we’, not ‘I’, and there is a sense that the organization is on some sort of crusade, not just to make money, but something grander, something worthy of one’s commitment, skills and time.

  A match of corporate and individual souls releases those ‘E’ factors. Without that match, work and life are dull. David Whyte puts it well in one of his poems:

  Always this energy smoulders inside;

  when it remains unlit

  the body fills with dense smoke.

  An organization that leaves the individual souls imprisoned and unlit fills itself with smoke. It is not only inefficient, it is indecent. We need the chance, in our work, not just in our leisure, to discover some of the truth about ourselves. If the findings about the motivations of the young of today are correct – that they want money, yes, but after that the chance to use their brains and to control their own time, to have the freedom to express themselves – then any organization that remains a prison for their souls will soon lose the best of their young.

  The senior partners of an international consulting firm once came to me with a problem, looking for a neat solution. They recruited some of the best and the brightest in the land, they said, but they were disturbed by how many of them were leaving after two or three years, some of the best ones, too, apparently. ‘The odd thing is, they are not leaving to join our competitors for more money or more sen
iority – that we could understand – they are going into strange occupations like teaching or probationary work, or just backpacking around the world for a year or two.’

  ‘Do you ask them why they are leaving?’ I said.

  ‘Oh yes, but they just tend to say that it’s not right for them.’

  I suggested that they had discovered that their own priorities were not in line with the telos or goals of the organization and that their driven days then left no room for their self-expression. They were blocked in their search for the white stone.

  I could see that it wasn’t the advice that the firm wanted, or understood. For the senior partners the essence of their lives was the work they did. That was where their souls found their true nesting place. But the work that suited them might not be right for all. Souls must match if the organization is to live. A senior manager of Oxfam, the British-based charity, says that he receives a constant stream of young people who have left their high-paying jobs in consultancy or finance and come to Oxfam in search of work in which they can believe.

  THE NEW ASSETS

  These issues become more urgent with the growth of intangible property, the stuff that does not register on the balance sheet – the brands, the research, the networks, the reputation, the know-how and the ‘core competencies’ of the place. Chief executives have always talked about the importance of their people, but now it’s for real because it’s financial.

  The relationship between the price paid for new acquisitions and the book value of their assets was measured for 391 large American organizations between 1981 and 1993. The mean price was 4.4 times the book value. The difference was not entirely due to that mysterious thing called goodwill, nor to over-eager buyers paying over the odds, but was the best estimate, by those buyers, of the intangible assets lying behind the official balance sheet numbers. Today, in 1997, $100 invested in Microsoft will buy you only $1 of fixed tangible assets.

  The fact that we can only determine the value of those intangible assets by subtraction reflects the difficulty of measuring them, not the fact that they don’t exist. The OECD estimates that more than half of the wealth of advanced industrial societies is now derived from these sorts of asset and that knowledge workers now account for eight out often new jobs. The accounts still class these workers as costs, even though everyone knows that they are the crucial assets of any business. Once again, statistics lag behind reality, confusing us all.

  In organizations such as investment banks, advertising agencies or consultancies, there is almost nothing there except these intangibles. The building is leased along with the computers, the cars are on contract and the carpets are worn down. If anyone buys the business they are buying a customer list, some product brands and maybe some research, but, mainly, the hope that the best of the people working there will stay with the new owners for the ride. You can put a price on these things, of course, but you can’t own any of them (except perhaps the brands and the research) in any true sense of the word. You can’t own hope. Those people assets which you have acquired and thought you owned could vanish overnight. The very concept of property becomes unrealistic in this scenario.

  It is no longer sensible, perhaps not even moral, for the financiers to claim that they can ‘own’ the skills or the experience of the people in the business. This sort of intangible property can only belong to the individuals who have those skills and that experience. The idea of a community being a piece of property is, in any case, a rather Anglo-Saxon idea, which stems from the early beginnings of capitalism in the seventeenth century, when a business was a ship or a building, a real piece of property. In other countries, such as Japan or Germany, the people in charge understand that they have to share their powers with other interests. How, they ask, can you own something that does not belong to you, will probably outlive you and is not yours to dispose of?

  A Scottish friend of mine, the last in a long line of lairds, was driving an African friend back from the airport to stay with him in his castle. As they drove deep into the highlands, my friend waved his hand expansively at the heather covered hills all around them – ‘Now,’ he said, ‘you are on my territory, all that you can see belongs to me.’

  He wasn’t boasting, just explaining, but the African was puzzled. ‘I don’t understand,’ he said. ‘How can you own a mountain? That belongs to the earth, and to those who live on the earth, and will live on it. Perhaps you mean that you are looking after it for a while, a sort of trustee, maybe?’

  ‘If you put it like that, yes, I suppose so.’

  My friend told me this story a year later. He said that it had made him realize how we let our language shape the way we think. Of course, he said, ownership was the wrong word, because ownership implies that you have the right to get rid of it if you don’t like it, destroy it even. Which is why the idea that a man could own a wife did not survive into modern times, even if some men still act as if it did. It may well be that the idea of the ownership of companies will also not make it far into the next millennium, even if some continue to act as if it still made sense.

  If a business is now, in its essentials, a collection of people, it will make more sense to think of it as a town or a village rather than a piece of machinery. This will eventually change the way we think about businesses. It is already changing the way we talk about them. The language of political theory – leadership, constituencies, alliances, power and influence – is replacing the old engineering and property language of structure, planning and control, and even management. Talented individuals don’t like to be ‘human resources’, or to be managed. They prefer to be led by someone they respect. Try calling a pop star or a leading actor a ‘resource’ and wait for the response – it won’t be polite.

  Much attention has been paid to the difficult challenge of measuring these new kinds of assets. They have always existed, of course, but never in such predominance. Much too has been said and written about the management of such assets. But not enough has been said about the underlying contracts with the different stakeholders, contracts which now have to change. The shareholders, the so-called owners, must now see themselves more properly as investors. Twenty years ago, we should remember, it was another group of stakeholders who wielded too much power in British industry. That group was the Unions. Their influence was quite properly reduced, albeit rather traumatically. It is now the turn of the shareholders. We must hope that there will be less trauma this time around.

  Shareholders, or their agents will still have a voice, but not for long, I predict, will they be able to use that voice to command or insist on what they want, because the human assets themselves will increasingly demand their own voice. Wise investors will give those assets a say in the control of the business rather than see them leave. The investors may have reduced power in the new arrangement, but they will still have influence, and it is right that they should, because a business run by itself for itself can become lazy and blinkered.

  German businesses have long been controlled and directed internally by their own people, including representatives of the Unions, with finance and oversight provided by a comfortable cluster of big banks, who are content to wait for the long term future, reluctant to disturb the status quo in case the new is worse than the familiar. A few near disasters have made them begin to realize that they need not only the money of outside investors but also the harsher discipline that this interest group will bring. Ten years ago, I heard the then Chairman of Daimler-Benz insist that the company would never be listed on the New York Stock Exchange (where no German company at that time appeared) because the perspectives of those investors would distort their priorities.

  Five years later the company was listed on that Exchange, the first German company to do so. They may well have wished that it had happened earlier, because, prodded by their new shareholders, they might not then have sailed on so complacently into the uncharted waters, for them, of aerospace or waited so long to move any of their manufacturing out of expensive
Germany, or to develop smaller and cheaper cars for a less expensive marketplace. I would be surprised, however, if the outside investors were ever allowed to be numerous enough to sell the company. Investors they may be, with a voice to be listened to, and share prices to influence, owners they are not.

  The psychological contract with the new knowledge workers is another issue. It could be seen as a purely commercial transaction – money for skills and time, and more money for better results, and forget all the niceties. Bribery, in return for loyalty, in other words, on the principle that we are all mercenaries, on hire to the highest bidder, but in a winner-take-all world where the best can command so much more than the next best, this can be a very expensive option. Mercenaries owe loyalty only to themselves, with a temporary commitment to their current project and no commitment beyond that to the organization. This is a poor basis for immortality, since the mercenaries will be unprepared to trade short-term benefits for longer term growth. Why should I do what I don’t want to do, or go where I don’t want to go, just for the good of the organization?

  Organizations will need to distinguish between mercenaries and citizens. Mercenaries are those hired for their specialist skills, to be dispensed with when no longer needed. The contract is clear, even if we dress it up as employability, which is corporate speak for ‘it’s really up to you, don’t count on us’. Citizens are different: they are full members of the organizational state, enjoying a reciprocal commitment. Citizens traditionally enjoy, at the very least, a right of residence, access to justice, freedom of speech, a share in the wealth of society and a say in its governance, through elections or referenda. In return they implicitly or, in some countries, explicitly, promise to obey the laws and to be loyal to the state. The implications of a corporate citizenry will be explored in the next chapter.