AHRI’s CEO, Lyn Goodear FAHRI GAICD, speaks on the importance of focusing leaders’ attention on culture during fragile times.

Don’t let shareholders call the shots

Managers should “conduct business in accordance with [shareholders’] desires, which generally will be to make as much money as possible” within legal and ethical limits. In essence, such was the thinking of University of Chicago’s economist, Milton Friedman, in the 1970s. Since that time his dictums have largely prevailed in Western corporate behaviour.

At 86 years of age, Charles Handy has lived through the Friedman era and arrived at the view, expressed in the July issue of HRM magazine’s cover story, that it’s dangerous “to allow the shareholders to call all the shots”. Rather than seeing shareholders as the owners of the business, Handy prefers to see them as “the suppliers of capital being rented by an organisation”, and he sees the managers, workers and customers as the “true stakeholders”.

Organisations, Handy reminds us, are treated as persons under the law, and when they are successful it’s usually because, like people, they care about what they are doing, and thrive when they’re doing it well. CEOs such as Facebook’s Mark Zuckerberg have expressed similar sentiments, adding that making money is incidental to the company’s mission.

Of course, Facebook has not lived up to that sentiment and has recently earned the wrath of the regulators, its customers, its employees and its shareholders.

Facebook isn’t alone, as the revelations at the royal commission into Australia’s financial institutions makes plain. Many of the executives involved have been exposed as having lost sight of the mission of the company, as well as the welfare of the customer.

When we secured Handy to give a keynote address at the AHRI national convention in August, the Royal Commission hadn’t started, but there could hardly be a more opportune time for his presence in Australia.

Set the cultural dimensions with certification

Our certification initiative endorses the assumption that HR has a recognised claim to play a central role in setting the cultural dimensions of how an organisation’s people should behave. Hence its focus on professional standards that contribute towards organisational capability.

The concept of culture is rooted in the idea that, for people to perform to the best of their ability, they need to engage with the organisation’s objectives. That means bringing their professional knowledge, skills and behaviours to bear on satisfying customer expectations, contributing to profitability and sustaining the enterprise.

While over time HR practitioners have laid claim to being responsible for creating a positive organisation culture in these terms, they have also witnessed many business leaders honouring their claim more in the breach than in the observance. That is especially true if a positive culture is seen to impede the incentives that result in individuals’ short-term financial gains.

HR is not alone, as evidenced in a recent Financial Review article in which the head of the Institute of Internal Auditors has alleged that his members’ reports were suppressed or ignored when they reported that the people in the company were behaving in ways that were out of alignment with stated company policy. The findings of the royal commission are an opportunity. There can be no better time for HR to restate the centrality of culture to leaders who are particularly sensitive at present to the risks of downplaying culture.

I look forward to the wisdom that Charles Handy will bring to these matters at the AHRI convention in Melbourne next month. I hope to see you there.