78 - Dragontails

Dragontails of our Economy

Every business needs to pursue meaningful purpose (telos) beyond the single objective of profit.

In May 2012, iconic law firm Dewey & LeBoeuf, with more than a century of history, filed for bankruptcy. It symbolized the shared humiliation and crippling failure of a long list of seasoned, driven, very bright (though certainly overconfident) people who had sought and found success in the one thing they most desired.

Over time, they had grown the firm, “often through mergers; the aggressive poaching of lawyers from rivals by offering outsize pay packages” into a cash producing machine. It worked, and for a while, the goose laid golden eggs, making many of its partners some of the highest paid corporate lawyers in the world.

But many of the choices and methods (described above) that supported this goal of becoming a sleek, bottom-line, profit-maximizing business actually, “destroyed the fabric of a law firm partnership, where a shared sense of purpose once created willingness to weather difficult times.” So, as it pursued profit above all else, Dewey & LeBoeuf, “discarded the traditional notions of partnership — loyalty, collegiality, a sense of equality.”

As a result, as William Henderson, a law professor who studies such firms, opined at the time, “Because the partnership lacks any shared cultural values or history, money becomes the core value holding the firm together. Money is weak glue.

It unfolded just as wise old Aesop would have predicted. The goose was killed as its owners sought the full supply of golden eggs.

I am reminded of another fable, this one less well known. He was most certainly just an apocryphal young lad, the product of a fertile imagination (Dr. Pille Bunnell’s, I have always supposed, or perhaps that of Professor C.S. “Buzz” Holling). Regardless of its origins, this boy’s story taught us, the latest crop of students at the UBC Institute for Animal Resource Ecology, something about systems and adaptive change. Thirty years later, the lessons I learned still stick with me, and the images of that slide roll presentation remain implanted in my memory. Until recently, they lay almost dormant, when unexpectedly, they helped make some sense of a global chaos.

Here’s the fable as I remember it:

A small boy carrying a fishing pole skipped restlessly down a dusty lane. Alert, his eyes scanned the ground for his quarry. Soon he spied it—the retreating head of a worm about to disappear down its hole, taking with it all hopes of attracting that dancing, shiny fish that had really inspired his journey.

Quickly, the boy grasped hold of his prize, and pulled with all his might to extract the treasured earthworm from the ground. Once the boy had yanked on the worm, the artist revealed, frame-by-frame, that the other end of the boy’s “earthworm” was in fact the body of a dragon, hidden in its lair under the ground over which our young hero so innocently walked. Responding to the yank on the end of its wormlike quarry of a tail, the dragon’s head bolted from within its tunnel and poised itself menacingly, at the end of a long scaly neck, above the boy, whose ardent focus on worm gathering had kept his eye to the ground and left him quite blinded to the far more impactful existential reality of the fire-breathing dragon lurking above!

The lesson, of course, was that enthusiastic focus on a single variable without regard for or insight into the whole complex system will produce unintended and sometimes quite hostile results!

Though our worm-gathering subject experienced nearly immediate negative effects of his ardent focus on gathering the choicest of worms, eventually all management efforts to deliver returns on a single variable without regard for other elements of its complex ecosystem will deliver consequences opposite to what is sought. While such focused management may prove successful for a time, ultimately such success will create its own failure, either by exhausting the supply of the desired variable, and/or reducing the productivity of the whole system—perhaps even causing its collapse.

The reality is that our chosen economic principle that “profit rules all” is itself subject to a broader set of rules—a “natural” law that others have called Panarchy.

This natural law says that when we pursue a single aim—profit—we trigger a whole set of unintended outcomes that, in the end, limit our ability to realize our primary economic purpose. Panarchy transcends our own narrow focus on profit and is an underlying feature of all systems, especially our narrow economic ones. Numerous examples like that of Dewey & LeBoeuf and Kodak (a story I will tell throughout this series) illustrate the inevitable perils of chasing one particular outcome at the expense of others.

The massive expansion of economic rationalism in the 20th century through which profit maximization and shareholder wealth creation were optimized, to the exclusion of virtually anything else, brought about initial success through post-war consumerism through the end of the 20th century.

In that context of success, like the boy pulling his worm, we structured most of our companies, and in fact our entire economic system, so that they would maximize this one variable—financial profit—to the detriment and exclusion of the remaining elements of the complex systems that comprise businesses and the marketplace as a whole.

Resilience was sacrificed, imbalance embraced, and natural limits ignored.

We are at a unique point in time when the man-made rules of what we might call hierarchy, and its ambitions of human control and economic rationalism are meeting another more natural set of rules which comprise Panarchy, a lens through which we can understand both the limits and consequences of the fundamental tenets of modern commerce.

Yet it is significant to note that despite our best efforts, the world as we know it has not yet collapsed. Certainly we are blessed with a planet and systems of enormous complexity, diversity and resilience.

As always, hope endures—even in the rough and tumble, hardscrabble system of business we have constructed. Harbingers of a new era pop up daily it seems, like daffodils through the snow, at companies both new and old. With these hopeful signs, there is a spreading feeling that the damned model of single variable profit maximization we expect to bequeath (one that has churned out colossal damage in its wake) can be put to right. More on that still to come…

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