Sumantra ghoshal, bad management theories are destroying good management pracitces

1. Bad management
theories are destroying
good management
practices by: Sumantra Ghoshal
Arlind Rexhepi

2. ‘’Academic research related to the
conduct of business and management has
had some very significant and negative
influences on the practice of
management’’
• Business schools have freed their students from any sense of
moral responsibility

3. Two major causes for this phenomenon:
• The pretense of knowledge
• Ideology-based gloomy vision

4. The pretense of knowledge
• Transition from Romanticism to Scientific approach
• It Is an error to pretend that the methods of the physical sciences
can be indiscriminately applied to business studies
• Distinguish between the natural science and the humanities

5. The pretense of knowledge

6. The pretense of knowledge
• Nowadays management theories are causal or functional in
their modes of explanation
• Intentional – for example moral and ethics are ignored from
management practices
– Example: CEO’s claim that competition or capital markets are relentless in
their demands, companies and managers have no scope for choice, they
free themselves from moral or ethical responsibility and put the blame to
external factors (slide 1)

7. The pretense of knowledge
• Ghoshal was critical of Milton Friedman where he says that
managers job is to maximize shareholders value
• After all, Shareholders do not own the company, they should not
be considered as the only value of the company
• According to theory: Employees, including managers, contribute
their capital for example, while shareholders contribute financial
capital. If Yes, than why should the value distribution favor only
the later?

8. The pretense of knowledge
• Labor markets are perfectly efficient- if employee is not satisfied
he can costless move to another job.
• With this assumption the shareholders are carrying the greater risk
by making their financial contribution more important than the
human capital
• The truth- Most shareholders can sell their stocks far more easily
than most employees can find another job

9. The pretense of knowledge
• Agency theory: support shareholders value maximization
– Expand the number and influence of independent directors on corporate
boards, split the roles of chairman and CEO, pay managers in stock…bla
bla bla
– A review of 54 studies on performance of boards composition shows that
the proportion of directors has no effect on corporate performance.
– 31 studies about the effects of separating leadership roles demonstrates
that there is no affect on corporate performance.

10. Ideology-based gloomy vision
• Pessimistic view of human nature
• Based essentially on an ideology
– The roots of the ideology lie in the philosophy of radical individualism
• Example of ideology-based gloomy vision:
– Friedman ideology=liberalism
– A major aim of the liberalism is to leave the ethical problem within individuals
– For the last 40 years theory has focused on negative problems of preventing
bad people from doing harm as of enabling good people to do good –
pessimistic view

11. Ideology-based gloomy vision
• Criticism of the Transaction cost economics - Oliver Williamson
– To ensure coordination, managers must know what everyone ought to be
doing, give them strict instructions, monitor them, reward - punishment
system to ensure that everyone is doing what is told to do.
– Consequences: The dilemma of the supervisor
– The situation when the use of surveillance, monitoring, and authority
leads to managements distrust of employees, decreases its intrinsic
motivation, damages self-perception.
– Solution: focus on positive Psychology

12. Reverse the Trend
• Delightful Organizations
• Focus on both the negative and the positive problems
• Reverse the management theory
• Reshape the context of business schools
– Deans have to take leadership by building the positive agenda
• Avoid the pessimistic, deterministic theories
– Researchers and teachers have to define and adopt a different path

13. Reverse the Trend
• The role of business schools governors should be more
stewardship involved
– Supporting and challenging rather than detached and controlling
• Institutions such as the Academy of management will also have
to play a key role
– Leaders of academy can ensure that all the academy journals dedicate
special issues to legitimize the new intellectual agenda

14. ‘’A theory must illuminate and explain and, if
it cannot do those things, it is not a theory -
neither good nor bad’’ - GHOSHAL

15. „What can we do about any of this?
• BUT: Is this enough?
• These are examples for evolutionary change processes and –
indeed – we need revolutionary change processes!!!