The Corporation is Ailing Social Technology: Creating a ‘Fit for Purpose’ Design for Sustainability
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- Metcalf, L. & Benn, S. J Bus Ethics (2012) 111: 195. doi:10.1007/s10551-012-1201-1
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Designed to facilitate economic development, the corporate form now threatens human survival. This article presents an argument that organisations are yet to be ‘fit for purpose’ and that the corporate form needs to be re-designed to reach sustainability. It suggests that organisations need to recognise their agent status amongst a much wider and highly complex array of interconnected, dynamic economic, environmental and social systems. Human Factors theory is drawn on to propose that business systems could be made sustainable through re-design. They could fit their environment more appropriately by improving: Efficiency, Adaptability and Social Cohesion. Leaders of organisations would also need to take a holistic approach to alter the organisation proactively to adapt to the systems within which it is embedded.
KeywordsComplex adaptive systemsComplexity leadershipCorporate social responsibilityHuman factorsSustainability
The 2008 Global Financial Crisis, and the resultant, yet still current, chaotic state of global financial markets and unfolding environmental crises such as climate change, have stimulated demand for change towards more sustainable socio-political and economic practices (e.g. Garnaut 2011; Jones and Millar 2011; Pollard et al. 2010). Several major studies indicate senior management recognises that sustainability is having a material impact on how companies behave and plan to behave (Boston Consulting Group 2009) and that it should be fully integrated into strategy and operations (Accenture 2010). However, such demands for change towards more responsible business practices are not new and indeed stretch back over the history of the corporation, becoming louder since Milton Friedman’s (1970) controversial pronouncement that the only social responsibility of business is to increase profits.
In this article, we argue that although it was designed to facilitate economic development, the corporate form now threatens human survival. We present an argument that organisations are yet to be ‘fit for purpose’ and that the corporate form needs to be re-designed to reach sustainability. According to Garriga and Mele’s (2004) classification of the range of theories that deal with corporate sustainability, corporate social responsibility (CSR) and corporate citizenship, we take the view that the sustainable business organisation integrates the needs of society as they unfold over time and that these increasingly complex and dynamic requirements are reflected in social, economic and environmental dimensions (van Marrewijk and Hardjono 2003). In this sense, we assume a considerable degree of overlap between current understandings of CSR and corporate sustainability.
The article is necessarily broad because we draw system level effects, such as the Global Financial Crisis, down through the layers of the system to the level of individual human capacity. Although we do not pretend to cover all possible theories in our analysis, we have been innovative in pulling together diverse areas of management theory (Okhuysen and Bonardi 2011). The article draws system level effects down to the behaviours of individual agents, arguing it is individual behaviour that impacts at the level of the organisation as the agent and then at the wider level of the interconnected economic, social and environmental systems (Benn and Baker 2009; Ehrenfeld 2000, 2005; Milne et al. 2006).
The article is organised as follows. First, we summarise our argument that the corporation should be considered as a failed social technology. Arguing that sustainability is a human decision making problem, we then mount an argument for Human Factors science as a means of assisting scholars, practitioners and educators to redesign the leadership of organisations so as to work more appropriately within the needs of a whole systems approach to sustainability. The final section of the article suggests specific human behaviours that could enable fit-to-system redesign of the corporate form.
The Organisation as Failed Social Technology
Management theory and practice is now confronted with evidence that, despite years of management theory and well meaning management practice, business still suffers from a decline in social trust (Jackson and Nelson 2004). As some scholars are now suggesting (e.g. Arena 2004; Hart 2005; Pirson and Lawrence 2010) the way business is conducted needs to be radically rethought.
Increasingly, managerial theory appears drawn to incorporating a recognition of failures associated with modern capitalism, neoclassical economics and rationalism/logical empiricism, in favour of a psychological and social redesign of theories, models, systems and practices that ‘fit’ the needs of society better and address group behaviour more accurately (Kahneman 2003; Tversky and Kahneman 1981; Becker 1968; Simon 1987; Ainslie 1975; Rabin 1998). In essence, although the science of managerial decision making has previously preferred highly rational theoretical models, it is increasingly moving toward a broader model of theory, at least as concerns human psycho-social influences (Rabin 1998).
A review of the management studies literature also reveals recent critiques of contemporary capitalism and corporate behaviour. Chan et al. (2010, p. 39), in a review of global business ethics research from 1999 to 2008 in ten leading business ethics journals, found that the Global Financial Crisis of 2008 had raised questions and concerns about ethical issues and practices in a ‘financial world littered with Ponzi schemes and frauds’ and that leading business schools were actively changing their curricula to more directly emphasise business ethics.
In fact, the academic literature has become increasingly vocal on the need to recognise the limitations of current management practice when it comes to sustainable and responsible business practices. In 1995, the Academy of Management published a special issue that warned of the unsustainable nature of the present philosophies of business (Gladwin et al. 1995; Hart 1995; Purser et al. 1995; Shrivastava 1995; Starik and Rands 1995). This included some discussion of a need for alternative paradigms for business and a fundamental shift in operating practices that could incorporate simultaneous social, economic, and ecological value creation (Gladwin et al. 1995; Purser et al. 1995). Since that special issue, the call for change has become more emphatic with numerous management scholars advocating for a shift in the role of business (Annan 2002; Banerjee 2003; Bansal 2002; Chort 2007; Margolis and Walsh 2003; Sharma and Henriques 2005; Ward and Smith 2007). However, despite the calls of these distinguished researchers, real shifts in actual business behaviour appear yet to occur, encouraging protests such as the 2011 ‘Occupy Wall Street’ (Guardian 2011) which was reported to have affected 900 cities globally.
In essence, recent managerial practice indicates the co-existence of a corporate and public community desire to be socially responsible and sustainable, and a massive disconnect on reaching that goal. In 2006, the United Nations launched its Global Compact (UNGC) in recognition of both of the important roles business now takes in the world and of the negative impacts unsustainable business can have. The launch represented a push from the international governance community for business to play an essential role in sustainable development. At the same time, CEOs of the world’s largest publicly traded companies voiced their commitment to more sustainable approaches to business (Chase 2007; Harvey 2007). Further, most major corporations have developed and showcased a number of initiatives, including sustainability reports, CSR departments, and philanthropic contributions (Blackwell 2008; Laufer 2003; Rogers 2000) to demonstrate their commitment to social responsibility and environmental responsibility, to ‘lead the way’ in creating a sustainable world, and claiming to reflect increasing demand for a different, more responsible kind of business operation. Finally, stock exchanges have created indices of sustainability, whilst large consulting firms create ‘best employer’ and ‘ethical business’ awards to promote companies they deem as having some sustainable practices (Smith 2011).
Increasingly, corporations have to convince us that they are responsible organisations. Most large organisations now have CSR or sustainability written into corporate plans and reports (Kolk 2005; KPMG 2005, 2008), and compete for sustainability awards. Researchers often ‘buy-in’ to this reactive approach by formulating new ways of measuring sustainability and even more award programs (Cooper and Owen 2007). International consultants poll businesses and their leaders on key strategic issues, constantly coming up with CSR or sustainability as the number one, or thereabouts, concern for the next financial year (Accenture 2010). If believed at face value, we might agree that business is moving toward sustainable practices, except for the ongoing demonstrations of unethical or irresponsible corporate behaviour that, due to globalisation, now impact on increasingly larger numbers of people in communities around the globe (Guardian 2011). For example, one of the organisations which has ostensibly embraced the discourse of corporate sustainability is BP, the major fossil fuel resources company recently responsible for a massive oil leak in the Gulf of Mexico, with a CEO much criticised for his laissez faire management of the disaster (e.g. Mouawad and Krauss 2010).
Corporations have never had a stellar record. They were banned in England in 1720, and experienced public backlash in 1890, in modern times they have committed crimes under international law and created large scale environmental disasters (Zerk 2006). To a litany of historical bad ethical practice, we now also have to add the very recent Global Financial Crisis where the companies that collapsed due to a focus on short term profits over longer term ethical strategies included major financial institutions such as Northern Rock in the UK, Beare Sterns—sold to JP Morgan in a fire sale, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, and American International Group. Critics such as Bakan (2004), Korten (1995), Vogel (2005) and Bannerjee (2008) have taken such examples of unethical or irresponsible practice to argue that in its current form, the corporation is completely ‘self-interested’ and unable to take the concerns of other entities into consideration. These researchers use various methods and evidence to argue that contemporary discourses on sustainability, instead of promoting social interests, are used primarily to regulate external stakeholder interests and promote corporate interests. Governments too, appear to be part of the problem. The ‘Too Big to Fail’ argument (Goodman 2008) whereby policymakers perceive the costs of bailouts as justified to maintain stability in fact gives implicit support to corporate bad behaviour, sending messages concerning corporate power (Stern and Feldman 2004).
Given that managerial science and theory called for sustainable and responsible corporate practice as early as the 1960s (Carroll 1991) and has become more vocal on the topic since the mid 1990s, it is clear that such discourses are missing their mark. Corporations appear to have failed to generate the conscience that modern managerial science has been calling for in over 50 years. Arguably, as a result, business practices have begun to catastrophically undermine the integrity of our social and ecological systems (Friedman 2008; Hawken 2007; Klein 2007; Nikiforuk 2008; Stiglitz 2006).
Considering that the corporation was originally created with the purpose of expanding economic growth through railroads and shipping fleets, its failure as a piece of social technology (Sovacool 2010; Burke and Hornstein 1972) really comes to the fore. The corporation, as Sovacool (2010) points out, is a piece of technology because it is a tool composed of social organisation and knowledge, created by human ingenuity to facilitate the more efficient application of skill and resources, such as money and people, to larger goals e.g. railroad building. Arguably the corporation is a piece of social technology that fulfilled its limited purpose at the time of the industrial revolution when corporations were limited to local impacts on communities, but the larger reach of globalisation has pushed it beyond its capability to a point where it now has the potential to injure global society. Sovacool (2010, p. 3) states that ‘the case of the corporation highlights how a technology may function and work perfectly, but fails in a much larger sense by damaging society’. Sovacool (2010) also makes the point that this is largely because laws and practices over time have separated public and private interests when it comes to the corporation, creating an entirely ‘self interested’ social technology, a technology that is no longer concerned with fulfilling its social purpose, a technology no longer linked in any substantial way to the full range of human social needs, or to supporting the planet upon which all human life depends.
The logic of these arguments is that the failure of the technology to fulfil its social purpose has been underpinned by every corporate disaster; and although some sections of society have recognised this, e.g. the Occupy protestors, we have failed to sufficiently address it. We suggest this is because it can be difficult to see an alternative to the corporate form of business, and to take a leap of faith seems incredibly risky. This would mean a transformation of the corporation into something unknown, creating natural anxiety and risk avoidant decision making (Maner et al. 2007). It is even harder to take the leap when so many can see that some aspects of the corporation work well: Quality products are manufactured, staff paid, shareholders rewarded. However, when you consider that the number of corporations globally has risen from 7,000 in 1970 to approximately 77,000 in 2008 (Sovacool 2010), the need to address the damage caused by this ailing piece of technology becomes pressing.
The Adequacy of New Forms of Governance
Despite the failure of the social technology of the corporation to support society as it should (Sovacool 2010), we are becoming more dependent on corporations to provide even the most basic needs of life. Governments continue to step away from basic service provision in favour of public–private partnerships or perpetual leases of service operation (Parker 1991). Grit (2004) argues that the political aspect related to these responsibilities has not dissipated with the loss of government control but has passed from election day to activists and consumer choice. According to Grit (2004) corporations and non-government organisations are thus placed in a political position where they will have to continually prove their legitimacy. However, persistent corporate failure to address concerns (Guardian 2011) demonstrates their inability to act adequately in this new sphere.
Certainly, this swing to new forms of governance giving more influence to corporations has not gone unnoticed by the wider public. Witness, for example, the large protests against the neo-liberal institutions such as the World Trade Organisation (WTO) and the General Agreement on Tariffs and Trade (GATT) that have occurred in recent years around the world. Singer (2002) inventories the problems with the WTO as related to the process of decision making around disputes, quoting cases where countries have tried to protect labour or wildlife but found they were unable to do so under GATT (Singer 2002). Basically, GATT was created to address the rights and interests of multinational business firms and other interests, but ignored the men, women and children in the international labour market (Senser 2007); thereby further encouraging the self centred focus of the corporation as a social technology.
Whilst the UNGC addresses a wide breadth of sustainability with its ten principles in the areas of Human Rights, Labour, Environment and Anti-Corruption, it has no regulatory teeth and so merely provides a forum for discussion and way of influencing governments, business and other stakeholders. As well, the UNGC has signature parties that have questionable practices and it has been criticised for inherent bias through press releases from its own staff. In October 2008 the UN’s own water advisor released a press statement criticising UNGC signatory companies for continuing to ‘hunt for’ and sell bottled water, also making the point that companies like Coca-Cola and PepsiCo could never be water neutral (Global Compact Critics 2008).
Due to the sheer diversity of industries and businesses, it is tempting to label the failure of internal CSR and sustainability programs in businesses as limited to the individual company they occur in. However, the logic of the arguments discussed above allow us to conclude that the issue is not individual to any specific organisation or industry, but is instead systemic to the corporate form and predicated by the separation of the corporation as technology from its full social purpose.
Redesign of the Corporation: Drawing on Institutional and Complexity Theory
As discussed, CSR has a long history in management science and organisation studies literature. More recently the related theme of corporate sustainability has also received attention. Despite a continually growing interest in academe, poor and irresponsible business practices continue. In addition, academics have warned that the change needed to reverse some of these issues will only grow in urgency the longer this economic paradigm persists (Edwards 2008; Harvey 2005).
Several researchers have already presented alternative paradigms and frameworks (Catton and Dunlap 1978; Dyke and Schroeder 2005; Gladwin et al. 1995; Hoffman 2003; Lamberton 2005). To name but a few: Gladwin et al. (1995) introduced ‘sustaincentrism’ as a way of meshing technology and environment (Simon and Kahn 1984). Sustaincentrism had the central tenant of intellectual superiority of humanity in nature but at the same time appreciated its dependence and need for engagement with nature (Gladwin et al. 1995). There have also been Buddhist perspectives (Lamberton 2005), Christian perspectives (Dyke and Schroeder 2005), sensemaking and social meaning perspectives (Basu and Palazzo 2008; Starkey and Crane 2003). Yet none of these frameworks has managed to produce a shift in real world business practice—none, in their prescriptions for corporate transformation, appear to have satisfactorily addressed the decoupling of corporate behaviour from systemic impacts which is the root cause of this apparently intractable problem.
In order to solve this profound issue, we take our guidance from Albert Einstein who stated: ‘A new type of thinking is essential if mankind is to survive and move toward higher levels’ (Einstein 1946). In order to follow his advice however, we must first determine the level on which this problem was created and to do so, we draw from institutional theory and complex adaptive system theory as both recognise the wider systems that ‘house’ businesses operating around the Earth.
First, institutional theory proposes that CSR is more likely under institutional conditions such as strong state regulation, collective industrial self-regulation, independent monitoring organisations, a pro-responsibility institutional environment, membership of business associations and institutionalised stakeholder dialogue (Campbell 2006). It has also been spoken of as referring to the institutional infrastructure that drives CSR (Waddock 2008) and influences policy making and community activity (Doh and Guay 2006). Broadly categorised, these institutions are said to be state/government, market/economic, and civil society influencers (Waddock 2008).
In addition, the institutional environment can involve ‘implicit’ and ‘explicit’ CSR (Matten and Moon 2005, 2008). Implicit CSR is embedded in the business-society-government relations within a political system. Matten and Moon (2008, p. 409) argue that implicit CSR is represented by ‘values, norms and rules, that result in (mandatory and customary) requirements for corporations to address stakeholder issues’. On the other hand, explicit CSR is voluntary and implemented as a result of deliberate and often strategic decisions made by the corporation (Matten and Moon 2008). Whilst the CSR practices might be the same for firms practicing implicit versus explicit CSR, Matten and Moon (2008) emphasise differences in language and intention: Corporations practicing implicit CSR view CSR as an implicit element of the institutional framework of the corporation and do not describe values or norms-driven practices as CSR, whereas those practicing explicit CSR communicate their policies and practices to stakeholders using the language of CSR as a business strategy to foster shared meaning of its business value. In particular, Matten and Moon (2008) attribute a rapid shift, worldwide, from implicit to explicit CSR to the emergence of a ‘new institutionalism’ where an increasing emphasis on symbolic action and meaning in the institutional environment is a force that directs institutional change and therefore societal change at the level of norms and values (March and Olsen 1984). Whilst such scholars demonstrate a link between the organisation and wider society, their analysis does not enlighten us as to how organisations may address failed responsibilities to society since their main emphasis is on the national political traditions that companies work within.
To institutional theory’s recognition of the place of business within a wider system or framework, we also add complex adaptive systems theory which can help us view the wider institutional and socio-political environment of capitalism (Hoffman 2003; Newton 2002; Valente 2010) along with its multiple interacting factors. Researchers have long appreciated the position of business in the wider institutional environment when examining paradigmatic shifts, but recent thinking incorporating larger systems of norms, discourses, values, and assumptions (Cohen-Rosenthal 2000; Ehrenfeld 2000, 2005; Starkey and Crane 2003) operating within and around business has widened the perspective. In fact, the conclusions of these and other researchers have been that the social and environmental challenges of business may be mere symptoms of a wider dysfunctional complex system. Porter and Cordoba (2009) for example, argue that systems approaches to sustainability at the interpretative level (such as stakeholder participation and values identification) need to be complemented by functionalist (such as introduced through life cycle analysis) and complex adaptive systems perspectives (Porter and Cordoba 2009).
Whilst researchers are yet to agree on a definition for the concept of ‘complexity’, a number do agree on the definition of complex adaptive systems (CAS) as networks of relationships that are independent, interdependent and layered (Holland 1995; Langton 1989; Stacey et al. 2000; Zimmerman et al. 1998). Referenced thus, complexity refers to a large number of autonomous agents that interact with one another through feedback mechanisms (Dooley 1996). The simple rules that govern the interaction between agents tend to result in complex behaviours that are not natural extensions of these rules of interactions. The interaction gives way to emergent properties, which represent patterns resulting from the collective behaviour of agents as they adapt in the system (Colbert 2004; Holland 1995; Morel and Ramanujam 1999). Since complex adaptive systems have disputed boundaries, we operationalise this broader view by recognising the CAS in this case to be: The complex interconnected and dynamic environmental, economic and social systems within which business is embedded as an agent on Earth, referred to more simply as an acronym: CIDEESS.
The CAS approach to viewing the world seems most appropriate in understanding business and the problems it has in interacting with its social and environmental spheres. Business interactions can be as simplistic as a consumer purchase of a good, or as complex as participating in industry negotiations for mechanisms and pricing for carbon trading. Even in these disparate areas, the simple and complex would interrelate as carbon pricing would cause an increase in product price and, as a result, a change to consumer purchasing behaviour. In short, agents such as businesses or leaders or employees are then challenged to respond, adapt and survive within the CIDEESS according to these interactions (Zimmerman et al. 1998). However, agents have difficulty linking their own individual behaviour to the behaviour of the system(s) (Anderson 1999) and so struggle with adapting to system wide problems, such as climate change created by over reliance on carbon based energy.
Interestingly, although most businesses would recognise a need to look beyond their own organisation to develop and maintain up to date strategy and market positioning, many still deny their links to the wider CIDEESS in relation to issues that seem too big or unrelated to business, such as climate change. The argument of ‘the business of business is business’ still stands (Gladwin et al. 1995; Margolis and Walsh 2003; Vogel 2005), despite institutional demands for more responsible business (Riaz 2009). The argument made in this article is that this may be more due to a decision framing problem than a moral choice.
In fact, institutional demand for better, more responsible business is a form of feedback from the wider CAS that business operates in (Riaz 2009). Feedback in a CAS describes the situation where output from an event or phenomena influences the current or the future occurrence of the same event or phenomena (Dooley 1996). In this sense, it is logical to conclude that social demand for socially responsible business practice is rooted in previous irresponsible business practice and that business decisions that impact on the community are the events that are creating this feedback from the wider CIDEESS, a suggestion that resonates with Luhmann’s (1995) notion that social systems can be thought of as systems of communication.
However, our examination of business history as well as the work of institutional theorists described above tells us that this institutional feedback for more responsible business has itself a long history. Clearly business is yet to find a way to use this feedback successfully. If we again look at the broader system, we can apply a systems approach to see that the Global Financial Crisis is an outcome of the non-transparent business practices in direct agent relationships that produced defaults in payments (agent level) which then produced a loss of trust in banking relationships (agent level) which then produced public distrust in the banking and financial systems (social system emergent behaviour) which then produced country level bankruptcy (economic system emergent behaviour). In essence, the financial sector collapse was created by agents withholding information, an ‘error’ in direct agent relationships, which then ‘flowed on’ to impact on the community through bank repossession of houses and even riots in Greece from government bankruptcy (Donadio and Kitsantonis 2011).
Given the above discussion, it is possible then to view the Global Financial Crisis to be a result of financial organisations’ lack of adaptation to the institutional feedback loop of a social cry for more responsible business. Corporations have failed to address social system feedback of social concerns, resulting in a fundamentally unsustainable system of behaviour in the wider CIDEESS which has now resulted in economic crisis around the globe (New York Times 2011). In essence, it seems as if we have created a system, i.e. business, that is designed to fluctuate and crash simply because it fundamentally cannot engage with the wider CIDEESS feedback loop of society’s demand for responsible business: Business that fulfils society’s goals for the social technology of the organisation. This creates direct relationships that have an ‘error’ in them, which eventually create large scale system emergent behaviour that then re-sets the system by having an impact right down to agent level. In the case of the Global Financial Crisis, that effect on agent level was the bankruptcy of some large corporations and the homelessness of many people (New York Times 2011).
Of course this leads to the question as to why business struggles to engage with social concerns, and to theorise about this we return to the notion of the corporation as social technology. In their original design form, if corporations collapsed it was shareholders who were liable. However, in 1886, liability was limited and corporate personhood created (Zerk 2006). In essence, at this point, human beings created what could be seen as the first form of artificial intelligence. The corporation became a piece of intelligent technology, intelligent through group behaviour, and ascribed a sort of humanlike sense of identity but missing the normal social learning consequences. Unfortunately this meant it was a form of technology without a conscience of its own. Instead it relied on leaders to exercise their individual conscience through decision making and leader consciences could then be suppressed by organisational group norms. We suggest that as a result, corporations which are run by managers, as referred to by Smith (1999, 1776), as a form of social technology, feel no guilt and have no desire to preserve familial genes, aspects of human psychology and biological drives which are thought to create a moral link to community, or conscience (Bakan 2004).
Human beings have a strong psychological link to their communities. Studies have found that: People certainly do not always engage in free riding-behaviour (Bohm 1972, Brubaker 1975; Marwell and Ames 1981), that egoist incentives are not necessary to induce cooperation or altruistic behaviour (Dawes et al. 1986), and that people often cooperate in prisoners’ dilemma-type situations (Coleman 1982; Lave 1962). In the business world, research has shown that some firms are not motivated solely by the pursuit of profits, but by a mixture of goals. Included amongst these goals are those considered morally appropriate by peers, communities, and society as a whole (Bailey and Boyle 1977; Donaldson and Lorsch 1983; Herendeen and Schechter 1977; Monsen et al. 1968; Woller 1996; Gintis et al. 2003). In fact, we reference our moral values from our community which is why institutional theory and particularly implicit CSR may be a more fundamentally appropriate approach to the CIDEESS than the more formalised explicit CSR (Matten and Moon 2008). Studies on the social behaviour of family run organisations actually support this argument by demonstrating that they, since they are not Smith’s (1999, 1776) managerially run corporation, have a ‘relational’ orientation to stakeholders and stronger links to community (Berrone et al. 2010; Bingham et al. 2011; Gomez-Mejia et al. 2007). This evidence suggests that by allowing CSR to be led by implicit, broader norms in society, this may make the organisation more responsive and more appropriate to the CIDEESS.
In addition, we can then ‘draw down’ from the complexity of implicit CSR, broader norms in society, into the organisation itself by looking at the organisation as ‘complex responsive processes’ (Stacey 2000). Stacey (2000) proposes that an organisation can be viewed as a complexity of various forms of communicating that organises and manages meaning. Organisational form, then, is the pattern of talk and therefore the pattern of power relations within that talk (Stacey 2000). Themes of talk organise the experience of organisational life and organisational change occurs by refocusing attention and embracing diversity of thought, background etc. (Stacey 2000). At the individual level there is also a theory of complexity leadership (Plowman et al. 2007) that can be used to take us even further into what a highly ‘engaged to the CIDEESS’ organisation may look like.
In summarising the argument above, we propose that the institutional driver of a social need for socially responsible business has created a demand for a more holistic business system, one that can incorporate the wider CIDEESS of economics, alongside society and environment. The value of conceptualising business as embedded in a wider CIDEESS is in the possibility that we could then produce a stable business system, i.e. one that is not prone to emergent system re-set behaviour such as the Global Financial Crisis. To do so we would merely need to discover the best way for the business system to ‘work with’ the CIDEESS. One of the more obvious ways this could be done is by simply encouraging managers and leaders in organisations to think more holistically. Through holistic thinking, we may be able to encourage leaders in organisations to be less reductionist and to think more about the wider CIDEESS as a whole. It is logical that, if leaders can link organisational practices to wider system effects more successfully, there would be both a recognition of the place of social/environmental accountability and responsibility in business, and a new avenue of change management to adapt to the wider system(s) as time and effect require. It is the need to accept and promote leadership thinking linked to the CIDEESS that would link the corporation with a social conscience, make it respond more like a family firm by engaging in meaningful relationships with society and hence make it more likely to fulfil its social goals as a technology.
Engaging the Organisation into the Wider CAS
This evolution to holistic thinking points toward some re-design of the current form of the corporation as a social technology and, to help it adapt to the feedback needs of the wider complex adaptive system in which it is embedded. This re-design would necessarily include all organisational systems and processes. Whilst some scholars have suggested phasic approaches that could assist in moving organisations towards more responsible and sustainable practices (e.g. Dunphy et al. 2007; Maon et al. 2009), more specific understanding is required of the changes in individual human behaviour that will link the organisation into feedback loops with the wider socio-economic and environmental systems and so alleviate the failure of the organisation as social technology. A science that has been used to address similar questions is Human Factors science, we suggest Human Factors science can provide some methodology on how to make this transformation.
Human Factors science addresses the interaction between technology, including social technology such as organisations and corporations, with human beings (Reason 2000). It asks whether human beings and technology can work together better and how that could be achieved. Since human social technology and human beings rely on Earth’s environmental systems to survive, it is logical that Human Factors science can help us embed organisations into human and environmental systems more holistically to reach total Earth system sustainability. In essence, Human Factors science can help scholars and practitioners alike re-design leadership, management and organisations themselves to work more appropriately and adaptively within the CIDEESS of Earth.
Human Factors science incorporates research and practice from psychology, engineering, industrial design, statistics, operations research and anthropometry (Reason 2000). It is the science of understanding human capacity and ability in application to technological design (of systems, tools and machines), sometimes referred to as ‘ergonomics’ (Dumas and Salzman 2006). In general, Human Factors asks whether the human element and machine or system element can work together better, whether a better understanding of the human and the machine or system can result in better performance of the total combined man–machine ‘organism’ (Dumas and Salzman 2006). It can also be applied to social interactions, social technology (Gorman et al. 2006, 2010a) and, in this article we concern ourselves with whether Human Factors science can be used to address the mismatch between human social needs of the corporation and the outcomes the corporation currently delivers.
Human Factors and ergonomics are recent terms, and the field itself did not come into existence until after World War II where it was primarily used to reduce aircraft fighter pilot error (Reason 2000). It then moved from looking directly at man–machine interaction to looking at man-system interaction (Porter 1964). Because the field is relatively new it is still experiencing specialisation and terminology expansion, including cognitive ergonomics, usability, human computer/human machine interaction, and user experience engineering (Reason 2000). However, the fundamental concept of Human Factors science remains constant. We argue that Human Factors science can also be applied to corporations to help them better functionally ‘fit’ the human social environment and hence the CIDEESS.
So far, the Human Factors approach has been predominantly applied to corporations in the form of product and/or work process testing to improve person/team and product/process fit and this is often conducted through direct observation in workshops and other forums (Reason 2000). In this instance, we apply Human Factors to the organisation as a whole and to the wider CAS that business operates within, including its interaction with the environment through human society. Scholars have not yet considered using Human Factors to extrapolate to the system that ‘houses’ businesses and the social technology of individual businesses as organisations for the sake of sustainability. However, when you consider how the Human Factors approach is used to ‘humanise’ technology, i.e. how it is used to develop technology that works better for human beings, this seems the most logical approach to then ‘humanising’ the social technology that is the corporation. We note that a recent special edition of Human Factors journal goes some way to this effect in a discussion of complex system adaptation to environmental uncertainty (Gorman et al. 2010b), without any mention of sustainability or systems external to the organisation.
One aspect of Human Factors research that could easily be applied to understanding corporate responsibility failure is the analysis of unsafe acts, with multiple methods already applied to Chernobyl (Gaddy and Wachtel 1992) and the Challenger disaster (Vaughan 1996). Reason (2000) argues that errors can be either as a result of a person’s mistakes or as a result of a problem in the work system that surrounds the person, and that there is more to be gained by focusing on the work system in solving errors because human beings are inherently fallible. In this model, the system can create the error, and a better system can prevent it. Reason (2000) determines that it is possible to create low error or ‘reliable’ organisations by creating a culture of reporting errors/mistakes with a ‘justice culture’ to limit personal blame.
According to Reason’s (2000) model, system based errors are a ‘Swiss cheese’ problem, where errors are represented as holes in each Swiss cheese layer of the work system. Holes result either from ‘active failures’ or ‘latent conditions’. Active failures are the result of direct mistakes made by people and Reason (2000) splits these into slips, lapses, mistakes and procedural violations. Latent conditions are the inherent ‘pathogens’ in the system, i.e. a process that invites a subtle error that grows, such as understaffing in the health care system or time challenges causing a failure to recognise warnings such as in the Challenger disaster.
In CSR studies, focusing on personal values places the ‘error’ firmly at the feet of the individual and as a conscious or unconscious ‘active failure’, whereas something like institutional theory moves the ‘error’ more towards the system and existing ‘latent conditions’ in the system around the business. If we apply Reason’s (2000) model to the Global Financial Crisis, it is possible to include both. First, there are the ‘active failures’ of leaders and staff in organisations who, wittingly or unwittingly, made errors that led to the crisis (Stiglitz 2010) and second, there are ‘latent conditions’ such as the conditions within the financial system and systems in the related financial businesses, that reward extreme risk taking behaviour or low transparency in the buying and selling of financial securities around the world (Stiglitz 2010). If we take Reason’s (2000) thinking that solving latent conditions is more beneficial than focusing on active failures we can see that improving transparency (Stiglitz 2010) would be the best way to prevent the emergent system behaviour of the dramatic financial system crash from happening again.
In addition, Reason (1997) found that errors made in more complex problem solving, of which sustainability or CSR would certainly fit due to a lack of agreed definition alone, were the result of either failure of expertise, a lack of expertise, or lack of research. Reason (1997) found that a lack of research meant a tendency to rely on existing knowledge rather than seek out new knowledge. In the case of CSR, this failure to seek out new knowledge could be interpreted as a failure to recognise the feedback loop in the CIDEESS, a failure to think outside the organisation and think holistically. If we again apply this to the Global Financial Crisis it would be that the complexity of the financial system and the wider CIDEESS meant that financial organisations involved in the crisis, and individuals within them, suffered from either: A lack of expertise about how they should act to be truly socially responsible; or a failure of expertise in that attempt; or a lack of research about their relationship to the CIDEESS. In essence, it was the complexity of the context that turned thinking ‘inwards’ and encouraged organisations to act only with self interest, simply because that was where their expertise could play out successfully and simplistically, if only at the organisational level of the CIDEESS.
In addition, Klein (1999) reviewed over 600 decision points in different domains and found three points of error: Lack of expertise, lack of information and lack of mental simulation. Here, mental simulation was defined as the ability to imagine how a course of action might be carried out (Klein 1999). Mental simulation produced error through a failure to notice warning signs of problems, and an over fixation on the end goal of the solution (Klein 1999). Again, the lack of adaptation or even recognition of organisational agent impacts on the wider CIDEESS might be similar to a failure to notice warning signs in Human Factors theory. If we applied this to the Global Financial Crisis we would look for mechanisms in the CIDEESS, the economic system, the financial system and individual organisations involved that did not allow or create the opportunity/ability for the human beings in the organisation to adapt to the ‘error’ in the system that they were creating through their behaviour. We would also look at ways of changing the system in the organisation so that the ‘error’ would not occur again, and this would produce a ‘testable’ intervention for our argument that could be used at organisation agent level.
Human Factors theory and practice also asks us to look at the ‘usability’ of a product or technology (Reason 2000). In usability testing the principle is to create a design that quite literally ‘makes life better’. Currently, it could be argued that much sustainability research is akin to the Human Factors ‘validation’ studies, although incomplete without the Human Factors theoretical foundation. Validation studies are usability testing performed late in development of a technology by collecting information on performance and comparing it to existing standards or benchmarks (Nemeth 2005). In the case of responsible corporate behaviour, standards would be social norms. Sustainability or CSR indexes that rank organisations based on ‘responsibility’ performance are closely akin to Human Factors ‘comparison’ studies, where two or more technologies are compared on criteria to determine usability, such as community ethical standards and community reputation perception. However, the lack of reference to Human Factors theory in these rankings means that the ranking does not consider the functionality of the organisation (as technology) itself. Hence, an organisation can be ranked high on community reputation but fail to be financially viable or could seem to rank well on both criteria but still fail to link to the CIDEESS, thereby failing to be truly functional as a social technology. The rankings fail to consider the full extent of how an organisation must be ‘useable’. The Human Factors method of determining usability also includes ‘exploratory’ and ‘assessment’ studies that are performed early in the development of technology (Reason 2000). Arguably, the early failure of corporations to address broader societal needs was at least one example of an ad hoc exploratory study which then indicated that the technology lacked ‘usability’ for social needs.
We also need to point out, however, that business schools and management training practices in general are culpable in the narrow and deterministic way that the managers and leaders of our organisations, including both government and corporate, have looked at their role (Grey 2008). Recent research by Benn and Martin (2010) highlights the very different models of teaching and learning that are needed if universities and their business schools are to engage with wider society to further shared understandings of sustainability. Their revised model for education for sustainability provides for structural and visionary boundary objects that allow the sharing of concepts that enable the different participants within a community of practice to interact and build interdisciplinary knowledge and holistic understandings around sustainability (Benn and Martin 2010). The need to redesign our management studies curriculum is reinforced by recent special issues of journals including Journal of Management Education (Rusinko and Sama 2009); Academy of Management Learning and Education (Starik et al. 2011) and Journal of Management & Organization (Benn and Kramar 2011).
Designing a ‘Fit for Purpose’ Organisation with Human Factors Science
This now begs the question as to how we might determine a successful ‘fit for purpose’ (Reason 2000) corporation, and hence how we might define the appropriate purpose of the corporation. The above bodies of theory draw us towards the recognition of a complex system environment, the CIDEESS, that demands organisations react to wider system issues without necessarily being able to plot a direct line of cause and effect to the organisation itself. It also leads us towards a vision of the corporation that is not limited to self centred pursuits but is instead engaged with society and environment.
Our discussion leads us to suggest that organisations operating responsibly and sustainably within the world must therefore have a sort of ‘conscience’ that enables adaptation to the CIDEESS. However, we must ground our approach in the recognition that most management systems are based on profit and loss and, hence, the efficient use of resources, and apply this in a way that meets the needs of the wider CIDEESS within which organisations are embedded.
This then leads us to suggest a set of testable propositions that could be elaborated on and measured further through quantitative, qualitative or even mixed methods research. We propose that there are three specific conditions which would enable organisations to be ‘fit for purpose’, i.e. fit for the CIDEESS. These conditions would be: Efficiency; Adaptivity (to the wider CIDEESS through change management and appropriate leadership styles and skills that could predict organisational impact on the CIDEESS) and; Social Cohesion (where society and community could be the main avenue, although not the only way, that the corporation keeps abreast of CIDEESS concerns and changes).
Efficiency is the traditional organisational management of profit and loss and good resource management. It refers to the use of resources such as production materials, finances, information technology and people. Based on the use of specific management systems such as ISO9000, ISO14001 and SA8000, efficiency is well established as criteria for sustainability in the extant literature (Dunphy et al. 2007; Steurer et al. 2005). Efficiency is internal to the organisation and could even be interpreted as the triple bottom line approach (Norman and MacDonald 2004) as environmental and social issues that are internal to the organisation still need to be managed efficiently to ensure organisations operate effectively and do not engage in waste either on a social, environmental or financial level. It also refers to eco-effectiveness or the extent to which the organisation can produce goods and services that add social, environmental and economic value (Braungart et al. 2007). Examples include cradle to cradle design such as intelligent materials pooling, where companies agree to a shared commitment to phase in or out unsustainable materials or processes (McDonough and Braungart 2002).
Adaptivity refers to an organisation’s responsiveness and ability to adapt to the demands and changes of the wider CIDEESS. It is somewhat internal to the organisation, but also interprets what needs to be changed by referencing the external. Whereas efficiency is related to quantified measurement of the organisation, adaptivity relates more to capacity to move and alter the organisation’s impact on the wider CIDEESS through leadership, change management and other internal human resources/managerial processes (Benn and Baker 2009; Dunphy et al. 2007). Here, we note that adaptivity is not the same as ‘fit for purpose’ for the CIDEESS. Fit for purpose for the CIDEESS is how the organisation meshes with the wider CIDEESS, adaptability is how the organisation changes internally to enable that meshing. Adaptability would be similar to the idea of organisational ‘change readiness’ (Armenakis et al. 2011), however, whereas change readiness refers only to how staff can be influenced by leaders to be ready for organisational change, adaptability would also include leader acceptance of new ideas and structural flexibility.
Finally social cohesion refers to an organisation’s psychological boundaries and its abilities to link closely with the CIDEESS through the communities it engages with. An organisation with a highly porous psychological boundary would be able to link strongly with community and therefore would engage more actively and openly with the wider socio-economic system. Recent empirical research suggests, for instance, that employee giving programs can strengthen employee commitment to the organisation by ‘enabling them to see themselves and the company in more prosocial, caring terms’ (Grant et al. 2008, p. 914). Arguably, this is also the mechanism described by many researchers in family firm studies when they describe these organisations as more ‘relational’ to stakeholders and community at large (Berrone et al. 2010; Bingham et al. 2011; Gomez-Mejia et al. 2007).
An organisation that fits well within the CIDEESS would be high on adaptivity, high on social cohesion and may have a potentially higher level of efficiency.
An organisation that does not fit well within the CIDEESS would be low on adaptivity, low on social cohesion and may have a potentially lower level of efficiency.
In addition to this, it is possible to translate this back into the wider CIDEESS by viewing the organisation as an agent. An inherent link exists between the adaptivity and social cohesion to organisations, and the wider CIDEESS as a whole. This indicates how leaders might endeavour to determine broad feedback loops and how they interact with their own organisation, organisations in their industries as well as organisations present in other groupings.
Finally, in Fig. 1, all of these sit within, influence and are influenced by the environment of Earth, which could also be the local or national environment. This diagram is figurative and is therefore designed to guide understanding of the CIDEESS, rather than specifically predict it, it may be that further exploration of these ideas results in a more detailed representation that will assist in developing a ‘fit for purpose’ organisation. The key contribution of this approach to thinking about the problem of CSR or sustainability is that it encourages managerial/business academics and practitioners alike to view the issue of sustainability or CSR as a system problem, rather than as a moral problem. This is beneficial since, as Reason (2000) indicates, human beings are inherently fallible, focusing on the system rather than person is much more likely to produce a stable outcome of a sustainable or ‘fit for purpose’ organisation.
Leaders who work holistically to adapt the organisation to the CIDEESS will be the key mechanism by which irresponsible, or non-adaptive corporate actions will be prevented and adaptive, responsible behaviours will be encouraged.
Holistic System Based Leadership
It is both ironic and strangely fitting that CAS theory and Human Factors science, both highly mathematical and empirical ways of examining the world, lead us to a conclusion that the best way for improving the organisation’s link to the wider CIDEESS is through holistic system based thinking and leadership.
Leaders who are able to help an organisation adapt to and recognise the demands of a wider highly complex set of systems (the CIDEESS) will, given these extraordinary demands, need to think differently to any other form of leader that managerial science has previously theorised about. Egri and Herman’s (2000) research suggests what that style may be. These researchers examined leaders in the greening of management, leaders who would arguably be required to mesh organisation and CIDEESS more closely. Egri and Herman (2000) found that these leaders were more ‘eco-centric’, open to change and self transcendent. Here eco-centric referred to Shrivastava’s (1995) conceptualisation, a holistic concept encompassing a sense of internal organisational democracy as well as an aspect of stakeholder welfare, alongside waste reduction and environment protection. These researchers also found that the organisations these leaders operated within were more receptive to transformational leadership and therefore also more adaptive. There was also some indication that particularly the for-profit organisations in the sample were both adaptive and efficient in their internal mechanisms.
This proposition of a new kind of leadership style is also supported by the ‘Mission Church’ (Plowman, et al. 2007) case study. This study of a church undergoing radical change, involving an alteration of attendees from middle class people to the homeless resulted in a need for leaders to bring about rapid organisational change. Plowman et al. (2007) found that leaders refrained from dictating direction and instead took on a role of disrupting existing patterns, surfacing conflict, and embracing uncertainty to encourage a new direction. The result was a reinvigorated church with local recognition for its ministry of the homeless. Although further empirical work is needed to support the evidence from this single case study concerning this leadership style, it may be that this style of leadership, complexity leadership, would be appropriate for linking CIDEESS and organisation as seems to be indicated here. As Uhl-Bien et al. (2007) explain, complexity leaders enable the future rather than direct it, they use language to create shared meaning from conflict that they surface, creating conditions for people to innovate as individuals and learn as a social group. The business benefits of complexity leadership are yet to be demonstrated empirically, although the case study of the ‘Mission Church’ (Plowman, et al. 2007) does indicate some of the benefits of this form of leadership. In addition, it may be more beneficial to use complexity leadership alongside a more holistic version that embraces the CIDEESS more obviously.
In essence, the preceding research and argument indicates that these leaders will need to understand, engage in and promote wider CIDEESS thinking and will need to be able to deal with massive amounts of complexity in information without suffering from perceptual narrowing. Arguably, they will need to be leaders who challenge assumptions, take a much wider view that will not always seem appropriate, be passionate about community concerns, and yet still be able to reinterpret all this into the appropriate way the organisation should adapt either in terms of organisational processes or strategy or structure or even social learning. It appears they will need to be management scientists in the widest sense of the word, able to mix all types of methodology of science, critical inquiry and practice to develop truly adaptable and socially cohesive organisations. They will be instigators, navigators and translators of complexity.
Despite decades of managerial science and practice around corporate responsibility, unfavourable corporate impacts on society indicate disconnect between management science and practice. Regardless of decades of academic theory and science, managerial education and managerial practice to create socially responsible organisations, corporations still fail to live up to social needs.
In this article, we have argued that we must transcend the existing level of analysis to solve the problem. This next level encompasses a recognition of the wider complex adaptive system that ‘houses’ the organisation, alongside a redefinition of the corporate form and, as a result, a re-definition of capitalism itself. In effect, we pursue the idea that businesses necessarily operate in a complex adaptive system (the CIDEESS) but that business uses less than adaptive systems to perform their agent activities. That the predominant management strategy thinking of reductionism: Formalisation and simplification of organisational structures (Mintzberg 1983), processes, production etc. may actually be maladaptive to the organisation’s responsiveness to the CIDEESS, and will inevitably result in crisis points surfacing in the system(s), i.e. businesses are unable to recognise and adapt to the CIDEESS and hence must be re-set by the system on a regular basis through emergent crisis behaviour. We also propose that more holistic approaches to management and leadership such as complexity leadership (Plowman et al. 2007) may help organisations adapt more effectively to the CIDEESS.
We conclude that the corporation is, therefore, an ailing social technology that could be better designed by improving social cohesion and adaptivity. This would also mean developing leaders who think holistically, that is, about the whole CIDEESS, and help the organisation adapt to it. We encourage all areas of managerial science and practice to consider the Human Factors approach to redesign as a means of finding ways to link the organisation with the CIDEESS and prevent emergent system crises.
In essence, our article suggests that organisations be redesigned to be ‘fit for purpose’, that is to fit more holistically within society and environment. Organisations would then focus on the three components that will make them fit for purpose in the CIDEESS: Efficiency, adaptivity and social cohesion. In order to achieve this, leaders will be instrumental in how they inspire, transform and engage with the CIDEESS so that organisations may become more holistic in internal design and so CIDEESS wide adaptation through disaster and crisis can then be replaced with gradual organisational adaptation as a result of responsiveness to CIDEESS feedback. Thus, in this article we postulate a novel approach to business management, outcome measurement and structure, designed to prevent wider CIDEESS emergent crises through Human Factors science re-design of the corporate form, and even capitalism itself. In this way it may be possible to create individual businesses and related business and industry systems that are truly socially responsible and hence fit more adaptively within their system(s). Our study also suggests a role for the business school and management training practices in enabling these approaches and to give real context to the teaching of business ethics or CSR rather than ubiquitous prescriptions which lack real meaning or context.
Further research should examine the methods and mechanisms by which organisations can move towards more porous connections and adaptivity to the CIDEESS. It may be that social cohesion can be improved using existing community reference methods in organisations such as customer surveys, however it may also be that organisations require additional mechanisms such as community reference groups, in addition, boards may need to be more diverse to reference the community more closely. Moreover, as we have already indicated, leadership skills and styles may need to be more accommodating of complexity in the CIDEESS, in addition to being capable of fast and extensive organisational change. It may be that complexity leadership has a role to play in creating organisational adaptivity although what that role would be and how it would play out is yet to be determined. Finding and testing the appropriate mechanisms, structures, skills and styles that assist the organisation in predicting and adapting to the CIDEESS using mixed method Human Factors science approaches may be the most successful way to address the link between the organisation and the CIDEESS and improve the possibility of reaching a better person-organisation-CIDEESS fit and the sustainability of business as a whole.