The irony is that we know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it’s a given that in the long term companies can’t thrive unless they have society’s interests at heart along with their own.
So why do so many boards and managers, supported by politicians, systematically do the opposite – run companies as top-down dictatorships, pursue growth by merger, destroy teamwork with runaway incentives, attack employment rights and conditions, outsource customer service, treat their stakeholders as resources to be exploited, and refuse wider responsibilities to society?
The answer is that management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive “economic man” view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.
The  crash illustrates the first reason why management matters: when it screws up everyone suffers. But why it screwed up relates to its role as a carrier of ideas.
This derives from the built-in amplifier that is the power of expectation. Well known to social science as self-fulfilling prophecy, expectation has the power to create its own reality. If managers expect subordinates to perform well, expectations tend to lead to better performance. The reverse is also true.
The consequences are profound. In management and economics, the battle of ideas is decided not by which best explain the world but which most affect it and thereby become true as a result of their influence. Companies are the battleground.
Firms whose managers act on the principle that employees are self-interested opportunists who must be forced to do their job will tend to create just that. Conversely, a company that functions on the basis of trust and co-operation creates a system in which honest, co-operative people flourish. Self-fulfilling prophecy makes every company a force for either good or ill.
Since the 1980s, the assumptions baked into the management model are the pessimistic ones. In the crash of 2008 we can see where the template based on them (incentives, compliance with letter rather than spirit, rejection of ethical considerations) leads.
If the 21st century that management makes possible is to end happily, managers will have to absorb its most important lesson from the 20th: what matters most in management is not what you make but what you believe.
via Simon Caulkin.