Walter Baets
Complexity, Uncertainty and Societal Responsibility: The paradigm of the emergent economy

The last days we were together with the faculty and management of our Business School, working around an interesting concept that I want to share with you. Most business approaches, be it practiced in business, or preached by business school are driven by algorithms.  We presume we can solve things, and therefore we only need the right algorithms to solve the problems, to fix the world.

It are, however, the mysteries that allow innovation, and it are also mysteries that are essentially what emerging markets are about.  If emerging markets are markets with high degrees of uncertainty, complexity and inequality (as I often say), managing in emerging markets means harnessing the mysteries.  An algorithmic approach makes one additional assumption, i.e. that people are motivated by incentives.  The world of mysteries, fortunately, knows that people are rather motivated by purpose.  And even that might be a mystery.

We had long and interesting discussions about integrative thinking.  It has a lot to do with systemic thinking, or holistic thinking, however, according to some it goes further. Integrative thinking is about knowledge in action, knowing in action (Raelin) and being in action. In my own terminology that is where I prefer talking about noetic knowing: an informed, deep inner knowing, that drives the steering of mysteries. The development of noetic knowing needs however a different paradigm, a different drive (for the unknown), and a courage to commit to what not yet is. It also needs another business school curriculum.

That feeds into transformative leadership. Transformative leaders are inspired and driven by noetic knowing (and I deliberately do not say noetic knowledge). Noetic knowing is an emanation of being in action. It is an aware and mindful state of presence, that allows one to steer for the mysteries. If people are able to develop such mindfulness, transformation will take place. But transformation is firstly and mainly a personal choice to work towards this state of mind.

Organizationally transformation is reached via respect (for each and everyone), inclusion (in the decision making, having an input), fairness, trust and honesty, all routed in an evidence based exploration. In summary, a relevant and aligned HR policy.

Yesterday someone “informed” me about the fact that I have regular readers of my blog, and though this is probably even the purpose of writing a blog, it never came up with me that having a blog would create a moral obligation to your readers. Logic for an author, logic for a journalist, and of course logic for a newspaper. Therefore my sincere apologize for not being more regular in my posts. It is not a lack of interest, and certainly not a lack of respect for the readers.  It just did not come up with me.

Lots of things have happened over the last months, and maybe I should just share that with you. The last one is that my wife forced me to open a Facebook account, allowing her to link me as her husband.  However, opening a Facebook account gives the moral obligation to have at least something on there, and that is not always that easy.  It takes time. Then you have to start chasing for friends, and I got 42 friends in only a few days. One would really think that the cyberworld might replace the real world: dangerous concept. Just have a look in the success of the virtual farm application, where lots of people, are milking cows and feedings pigs, or collecting eggs, ignoring that there might even be a real farm just around the corner.  Did you ever wonder how a potato plant looks like when it is in the field ? One of the things one get while living in South Africa is a good sense of connection with nature. It is all around, so obvious. Anyway, I have a Facebook account now and some friends, and hence part of the “real” world. Oh yes, and I even have a twitter account, but I did  not yet master to book time for doing something with it. I know the purpose of Twitter is precisely not to loose time to inform the world of interesting things, but I am still finding out where that logic sits precisely.  Be sure, I did enroll in a course on how social media will help me profiling myself, and help realizing my life purpose. Maybe more later.

Then to the real world, or say the material world. By the way, one is never sure whether the material world is real, or the thought world is. As you know, for your brain, there is no difference.  The brain perceives the real world (or should I say the manifest world, or maybe better keep the term material world) exactly in the same way as it perceives say a dream. Hence what is real: the material world or the dream world? Yesterday and the day before we had an Indaba (a corporate event, an off site workshop, or whatever one would like to call this), where we tried to dream up the dream: define the mystery.  I do think, indeed, that if we would have a strong, meaningful dream, it would eventually get realized, just by the energy that we are spending on it. And in general, we lack dreams, mystery, and the unknown in business life. It is the unknown that we have to invent, not the known. And though this seems obvious, we often do precisely the opposite. We (re)invent the known.  This was a little side step.

The Graduate School of Business is doing extremely well. We have currently a remarkable group of faculty members, dynamic, energetic and interested in relevance, meaningfulness, social innovation, values, etc.  A real energetic crowd, powerful in ideas, supported by a strong group of dedicated support staff on all levels.  The vibe that goes through the corridors is real and can be felt. We therefore have been able to attract important funding, and other than the last year launched Allan Gray Centre for Values Based Leadership, and the recently launched Bertha Centre for Social Innovation and Entrepreneurship, we are now announcing the Old Mutual Research Fellowship in Emerging Markets.  Where 3 years ago the faculty were less than 25, we are now in the months to come moving towards 38 faculty members, and for the South Africans amongst you, they are a real transformed bunch. This is a great potential, a tremendous resource, for having a purposeful business school, that is able to contribute meaningful things to society. We are about the create a social innovation incubator (we need still some funding for it), but the interest is really great and the drive manifest. And two weeks ago we had the peer evaluation team at the school for AMBA (the Association of MBAs accreditation), that gave us an incredible positive feedback.  We anticipate they will accredit us. Those things, though, keep you busy.

And therefore I forget to pay the necessary attention to my blog.  But I’ll try to do better. Thanks for your interest.

A few weeks ago, Sir Richard Lambert, currently Chancelor of Warwick University, but before DG of the Confederation of the British Industry, explored this subject for an audiance of business school deans: what does business expect from business schools. I thought to share his ideas with you. He felt that an MBA (graduate) should have the following qualities.

1. The ability to manage diversity and diversity of a variety of natures.
2. The capacity to deal with uncertainty. He saw the end of modelling, finance the way we have been teaching it for years, forecasting, etc. Climate change, the financial crisis, the euro crisis and the big issue of inequality in the world are only a few disruptive events. A manager (MBA graduate) should be able to question ones own assumptions.
3. Have proper understanding of the role and operations of governments. The governments increasingly play an important role in stabilizing the financial crisis, the survival of banks, strategic take-overs, just to name a few. Above all, the income gap issue, growing in mature countries, still always very big in emerging economies, is a time bomb under any economic development. And I allow to refer to a previous post where I develop the concept of inclusive growth.
4. Develop a very good understanding of the role, responsibility and purpose of business.

He indeed asked his audiance what business was actually for ? And referring to the HBR, he confirmed how happiness seems to drive profit. The concept of the healthy organisation: for years already explored by Erna Oldenboom. He ended his speech with claiming that the shareholder value only model, did not seem to be a reliable model anymore.

Good to hear it from business what they expect business schools to concentrate on.

Today, I took part in the EABIS Conference “From Corporate Responsibility to Sustainable Business” in Nottingham, and want to share some thoughts.

I personally think we should go beyond the concept of Sustainable Business and talk about “Inclusive Business”: business with a wider positive impact for all. Inclusive business, most probably, can only be values based and values driven. But in order to talk seriously about inclusive business, we have to touch the prevailing paradigm. As someone said: we have squeezed the Anglo Saxon paradigm out on responsibility for what it has, and it was not enough. Are we, business schools and business people, willing to explore a more inclusive paradigm ?

A little side remark: I feel that businesses have taken over from the business schools in this matter. Business Schools no longer have the prerogative to create knowledge in this field. That is not bad perse, but it reinforces the necessity of much stronger cooperation between Schools and companies. The World Business Council for Sustainable Development (WBCSD) is just one example of this thought leadership.

As usual, the discussion went on about profit. But profit is not the problem, much profit is not the problem either. The problem is that business often is not inclusive. The driver is the inclusiveness, the values based focus, and not the profit. But profit we need. And that brings us to the discussion about capitalism. Many would like to add something nice to capitalism (responsible capitalism, social capitalism, or whatever). For me, capitalism has everything to do with the ownerships question, and then we should not even talk about capitalism anymore (as Mintzberg says: beyond Smith and Marx). The discussionabout capitalism is a historic one. Today, it is about the development of more innovative forms of inclusive business, like cooperatives (just to name one, already very old, form), community owned businesses, employee owned businesses.

Who is in charge? We. We, business schools and businesses alike, should innovate our thinking in order to create social innovation and to eradicate poverty, inequality and exclusivity. A breakdown in the “social ecology” would be really dangerous, and the tremendous inequalities in the world is such a potential time bomb.

Dipak Jain, the dean of Insead, feels that inequality is the real danger today. We need to try and come up with a plan that is benefiting for “all”. That focus forces us to train our students differently. We should pay attention to “Reflection” (where am I, what am I doing, where is my contribution), “Renewal” (how can I grow beyond myself), “Responsibility” (on individual level, and that is what a leader is all about).

Management students should know that they are a happy few in the world and by having this opportunity to study they take a responsibility on them that goes beyond themselves.

I was in the Netherlands for personal reasons last week and while browsing the newspapers, I found an interesting study. The Sustainable Finance Lab (under the direction of Herman Wijffels, former CEO of Rabobank, a co-operative bank) researches sustainable financial practices. They came up with the suggestion that the only way ahead, avoiding further deterioration of the economic situation, would be finishing the bonus culture both in banking and in the financial intermediary sector. There is more that could be done, like the separation of banking as a support function for economic development and banking as a money-making business. The minimum guarantees of banks should be raised. And finally, a more long-term and future oriented risk management approach would be welcomed.

In the same newspaper there was an interesting discussion about the Nobel Price for Economics and the fact that a psychology professor felt that the Nobel Price for Economics should be discontinued. The reason he gave was that he feels that economics does not seem to contribute to improve economic reality. The economists then argue that science is about delivering the theories, and not about dealing with the real issues. Interesting discussion. Is one responsible for the theories that he or she invents? Or can an academic claim that academic work is about the theories, the explanations, even if they do not seem to work in practice.

I recall Nobel Laureate Prof Aumann in South Africa. When someone in the audience asked him what he thought about the vulnerability of China for bad US debt (at the beginning of the crisis), he could only answer: I am not an expert in this matter, so I cannot answer. Not sure I felt this an adequate answer for a Nobel Laureate in Economics. In Medicine, maybe, but I thought it was not a very difficult question for an economist that got the worlds highest recognition for his contribution to economic theory.

A discussion with no winners and losers, but it would be great if academics would also care about the practical consequences and relevance of their theories. The Ivory Tower, as old as sciences themselves, is still too much of a reality.

In the last 10 days I was taking part in two major health leadership think-thanks: an international one in INSEAD, an a South African in Pretoria. A few common ideas popped up, that I want to share with you.

Most real challenges in health care (which is not equivalent to cure of diseases) are systemic in nature.  They are not always easy to solve. The WHO correctly has defined an increased attention for life style problems as a way to solutions. More than 50 % of the SA health related expenses have to do with life style, culture, economics and society:  HIV/AIDS, TB, overweight, violence, and alcohol abuse. Preventing them is more accurate and cheaper than curing them. In the same corner we will have to explore other more innovative forms of financing, amongst others public-private initiatives, or social entreprises. At the end of the day, we will have to have the courage and the accountability to go that route.

There is of course, at the same time, the growing need to consider health care as a 24/7 service delivery issue, and I do not want to suggest that surgery has to take place around the clock. Service delivery is about organisation, management, leadership. It is about reinforcing the first line and this, most probably, embedded in the communities.

I think we might need an advanced certificate in health care leadership to deal with some of those issues.  The issues are not medical; they are managerial. On one of the conferences, Novartis gave an interesting example of a course that they organise for their staff: an entrepreneurial leadership program.  It is an internal program, in which staff work for 4 weeks on an action learning project: a kind of an innovation lab.  They have to come up with a business solution to a social innovation. Often the projects end up to be somewhere in between business projects and some charity. But some of them are taken up by Novartis and are incubated. It is not only a brilliant in company training, but it is also a system to get to a series of new business ventures to the market.

Business Schools cannot stay at the side lines.  We have to move in that arena, but in a smart way. Novartis can show us some of the way.

These were the words that Doug Baillie, Chief HR Officer of Unilever used in his presentation on the recent EABIS conference at INSEAD, in preparation of the final round table of deans in which I took part.  I could not have had a better introduction.

Those who know me, know that I could not agree more. We at the GSB define emerging markets as markets with high degrees of uncertainty, high degrees of complexity and high degrees of inequality.  Good to see that emerging markets thinking is gaining ground in the practice of big multinational companies. And since it is so good to hear a like-minded person talking. I’ll just limit myself to summarizing a few of Doug’s ideas here.

According to Doug the world of business today is characterized by volatility, uncertainty, complexity and it is full of ambiguity. He felt we needed a new business model, and in fact a new model of leadership. He gave some very detailed indications of what that would mean.  New ways of doing business, for him, means some of the following:

• Moving from a focus on shareholder value to shared value
• From quarterly capitalism (meaning, focussing on the next quarter only), to a longer term orientation
• More collaborative forms of working together
• Honesty and transparancy
• Companies become accountable for the impact they have.

New leadership was also very concrete in Doug’s mind.  New leadership should bring a sense of purpose in the business. Business needs leaders who show themselves and care. Leaders who also know themselves, and who are authentic. Business leaders today need to show service leadership: they attribute greatness to the others.

And a second speaker, Sir John Holmes, former UN emergency relief co-ordinator added a few more ideas around leadership:

• Leaders need to better understand the issues in a holistic manner, crossing all kinds of artificial borders
• Business leaders need to link up with their environment and contribute to solutions for that environment
• Engagement with all key actors is crucial, and he referred to social politics
• Eventually he pleaded for real long-term partnerships between parties, public and private.

No need to add a lot.  I really appreciated both speakers and presentations.  It is so encouraging and exciting for business schools today to be able to play a role in this new leadership and new business thinking.  And personally I am very proud that at the GSB we have two (young) centres actively contributing in this arena: the Allan Gray Centre for Values Based Leadership and the Bertha Centre for Social Innovation and Entrepreneurship.

Being in Cairo for the Board meeting of the Association of African Business Schools and the first PRME (Principles of Responsible Management Education) conference for the MENA region, it was good to talk to a number of colleagues of the MENA region. And of course, the subject was the “revolution” that went on and is still going on throughout the MENA region, and what impact this should have on business school curricula.

Where most of the uprisings started with criticism of governments and their dictatorial attitudes, they rapidly took a much more economic orientation. The issues in the MENA region are very comparable to those in other African countries. The MENA countries (and the other African countries) all have high unemployment, and in particular high youth unemployment. Food at affordable prices is a growing issue. Growth rates for most of these countries are OK or splendid (like in Ghana, for instance), but inflation, food indexes and inequality kill it all. The big challenge for the decade to come is to make the African economies inclusive. The Gini coefficients (indication of inequality) have to be seriously reduced (South Africa having one of the highest in the world). Governance, and more so leadership, remains a big issue.

The business schools in the region give growing attention to: entrepreneurship, and more generally the role of the local private sector; innovation, to be understood as moving out of what we have done for years; leadership training instead of only training managers; and social contract, the re-establishment of responsibility of companies in the local community.

The AABS agree strongly that these are common tendencies that should be included in the curriculum adaptations in African countries (and could form the nucleus of what an African business school should be interested in).

But we still have one overarching outdated principle: the IMF’s credo for growth.  Still too many countries think that growth per se is going to bring salvation, and the past has shown this is not the case in a number of countries.  Many African countries have known a good growth rate, but it did not trickle down to the poorer part of the population.  Growth did not seem to create the employment that we all need so much, leaving aside that it did not bring a more equally distributed wealth. Shouldn’t our eternal focus on growth change for a focus on happiness (like in Bhutan) for instance? The Egyptian economy was doing well, but the results never got down to the lower income levels of society. We have a crisis of poverty, more than anything else, and that might be or become a time bomb.

If the IMF asks for growth, employment, inclusiveness and sustainability, that might just be too much.  And not only too much, but sometimes also contradictory.  If we want employment, we will have to target employment.  If we want inclusiveness, we will have to target inclusiveness. If we target growth, we will get growth. But for whom? And growth might just not be good enough to get where we want to be.

Last Friday, Pravin Gordhan, Minister of Finance of SA, gave a speech to the deans and directors of the South African Business Schools and their guests. His message was clear, and to be honest, since it resonated that much with me, I thought it was worth sharing with you.

According to him, the theories of a growth path without the necessary employment are becoming highly questioned (see my earlier post around the World Bank credo). Growth and employment are not the same: they are not and they have never been. So we might need to make a choice.

Inequality in society (and again Minister Gordhan’s words) is now a big issue, if not the biggest issue in the current society. If we do not reduce that inequality, the society might not be able to develop. We cannot, in any case, continue this inequality. He referred to the indeed remarkable ask from some rich French citizens (and approved by the president) to have an additional tax for the rich. Not so long ago, we had other discussions than this one in France and Europe.

The world (and Africa and South Africa) have to take a long-term perspective and should not be tempted into going for the liberal capitalist short-term view of business, performance, and reward, that has shown its weaknesses. We have to train our managers instead in certainly thinking (good enough in the short-term) to emergence thinking, necessary to be able to operate in longer term perspectives, uncertainty, complexity, etc.

Of course, obvious one would say, the minister focused on the role of entrepreneurship. The basis of business is societal value creation. Values should be the drivers for business, profit and/or shareholder value an outcome. That is what made Allan Gray decide to create the Allan Gray Centre for Values Based Leadership at the GSB.

Classical European (and US) models do not work for emerging markets, and arguable even no longer for Europe itself. All this strengthened by a disconnect between the financial (and often highly virtual) world and the real economy. Wealth creation cannot continue to go to a limited group of people, as the minister continued. We have to give hope to the young, and we do not do it with our classical models. A new curriculum is, according to him, on the table.

We will have to create an inclusive growth, which will need a real green economy. At the end of the day, it is a question of values-driven business with a high focus on entrepreneurship.

Business for the good, I presume. And I know some don’t like this term, since it would suggest that there is also business that would not be for the good. But indeed, I think there is business that is not for the good of society, the economy, but exclusively for the good of a few individuals. History is there to show us.

We have a number of possible solutions. We can do nothing, continue what we have done before, continue teaching what we have been teaching for decades, and claim that the free market is the best organizer anyway. We just ignore what we observe and sleep well.

Alternatively we can blame the government, and blame it all on poor delivery, which is an unfortunate reality. We do have to try and train governments, but we can probably wait for the rest of our lives for this to change. The means are not there. The taxable part of the economy in Africa is too small, and anyway, most of the capital is abroad. So one can blame government, train government, and find out that government will never be able to solve the issues. But it allows us to continue in the private sphere what we have been doing for years: business as usual.

A third solution, which finds increasing support in business, society and in academia is what we sometime confusingly call social enterprise, or social innovation. We could of course deny thinking about solutions since we do not get the definitions right, but I think we should get out of our ivory tower. Business schools should contribute to training managers with a different value set, with a different set of skills and a different kind of motivation. And I think it is the responsibility of business schools to contribute to this. We do need to review our curriculum, as the minister asks.

The principles of responsible management education, PRME, (academic chapter of the UN Global Compact) have brought together a growing number of academics that have been thinking, over the past 6 years, about alternatives. Those alternatives include new content, new teaching methods, new research fields (like operations of companies in the grey area between purely financially driven ones and purely government driven ones). At the GSB we have been able, with the support of the Bertha Foundation, to create the Bertha Centre for Social Innovation and Entrepreneurship. In doing so, we hope to be able to answer to some of the concerns of the minister and contribute to a less unequal society, by training managers and students to get equipped with a more contemporary values and skill set.

If business schools do not take responsibility in that necessary change, who would be better placed for doing so? And what will we tell our children and grandchildren?

What is the problem with Malema? Why are some politicians so controversial? What is it that hurts us with those “difficult colleagues”? Why are meetings sometimes so difficult?

I have had the pleasure of living and working in different cultures.  One thing has became clear to me. Each culture is specific, and values, dreams, ways of doing, work ethics, etc are different in different cultures.  But at the end of the day, independent of the culture, it all has to do with respect and evidence, or better the lack of respect and evidence. If everybody would speak up with respect for others, and based on some evidence, we would really gain a lot for our time and energy. What cannot be said respectfully should not be said at all. What is not based on evidence, should be a question.

Respect is not so difficult to define. Respect is the simple attitude that all those around the table (in a meeting) have the same positive attitude as yourself towards the company, the purpose and each other.  All around the table have the same good intentions.  They all have good ideas, and yours are not, by simply being your ideas, better. That is respect.  In the systemic management tool we have designed in Rethinking Growth (Baets and Oldenboom, Palgrave, 2009), one of the questions is whether “ontological humility” is valued in the company. I admit that this is not really an everyday question, but it is surprising that almost nobody understands the question.  Is it just simply that the words are difficult and not common, or is it that we have forgotten what ontological humility is?  The very simple acceptance that I am not better just because it is me, that my thoughts are not better just simply because they are mine. Does our society suffer from a lack of ontological humility, or call it simply respect?

And then we get to evidence.  It would be good if people would base what they say on some evidence.  “Nobody” agrees with this, is seldom based on evidence.  Wishful thinking is not based on evidence.  Corridor talk is not based on evidence. And if someone does not have evidence, then one can ask a question.  Is is true that …?  Could we imagine doing …? We loose so much time and energy in claims that are made, presented as substantiated, or real, or true, that in fact are based on no evidence at all.

Freedom of speech should be based on respect and evidence. Without respect, we rapidly spread hatred.  Without evidence we claim the right of free lying (and that cannot be of any real use).

It is not about freedom, not about right or wrong, not about scientific or not. It is about respect and evidence.