Ten years after the crash of 2007, banks today might be more solvent but we still cannot trust them. Their underlying culture, where profit conflicts with societal value, has not changed. They persist in trying to justify their profit-driven behaviour with a wilful misinterpretation of the words of a Nobel prize winning economist from nearly 50 years ago. This is why very few of the perpetrators have been called to account and corporate fines are favoured over criminal charges against individual transgressors.
Continually blaming bankers though is diverting attention away from a much larger group whose behaviour needs to change – management professionals. The global financial crisis exposed serious deficiencies in professional standards across the full spectrum of management disciplines. For two professons in particular, this now amounts to an existential crisis. Accountants have finally had to acknowledge that their accounting conventions do not account for human capital and HR practitioners still struggle to demonstrate the value of their methods. In the background, MBA classes continue to teach as though nothing has changed. One bright light on the horizon is the dawning realisation that the world is a whole system and has to be managed as such. So the challenge now is how to make the necessary transition towards a whole system that works more coherently and more cohesively; for the benefit of everyone.
Established management institutions find it virtually impossible to change their ways. They have become businesses and their business models are based on reassuring their memberships that their professional credentials remain intact and business can continue as normal. It cannot, but it is probably too much to expect any leader in this situation to admit that the foundations of their profession have already crumbled. This is why the Maturity Institute, evidence-based and without baggage, was formed. It is stepping into this leadership vacuum to set an example of how legitimacy can be restored; by dealing with two fundamental issues. First, professional management standards need to be raised to a much higher level; especially in accounting and human capital management. Second, leaders from across the management spectrum should be held to account; based on a test of professional value. The MI test checks that organizational purpose is supported by evidence of societal value.
Using this objective test, we recently looked at the HR profession and the facts behind the lack of professional standards at US-based SHRM. The UK-based CIPD is in exactly the same position. These two organizations have something else in common; their CEOs do not come from an HR background. Henry (Hank) Jackson took over the helm at SHRM in 2010, with a background in accounting and auditing. Peter Cheese spent the majority of his career with consultancy Accenture, latterly heading up its “human capital and organisation consulting practice”, before taking over the CIPD in 2012.
Both appointments beg two very obvious questions. Any professional body has to be built on a body of evidence, secured through systematic, scientific means. Its members then have to acquire and apply this evidence in their practice. So how can anyone without such expertise in HR be expected to lead its professional institutions? If HR people have so little confidence in their own professionalism, what makes them believe they can trust someone else from outside?
At first sight, one might reasonably expect that Accenture’s former head of “human capital” would be well qualified to run the CIPD but Accenture is a profit-driven business, not a professional institute. So how professional is Accenture in its own human capital practice and what standards control the behaviour of its consultants?
We should also remind ourselves that Accenture was formerly Andersen Consulting: part of the Arthur Andersen organization that collapsed after its ‘professionally qualified’ auditors were found to be shredding evidence at Enron. Whatever advice Accenture has been offering its clients since, on such HR staples as performance management, it recently had to admit that its own internal processes have been largely ineffective. So it introduced a “new performance management process” for which, according to its CEO, “All the credit goes to … our HR officer”.
Any CEO who views performance management as a process, rather than how it fits with the whole organizational system, and hands responsibility over to HR, clearly indicates immature thinking, which is compounded by amateur practice. This gaping hole in human capital management professionalism, at every level, creates a vicious circle where the mistakes of the past are more likely to be repeated than rectified.
The MI perspective accepts that it is quite natural for human beings to want to cover up their mistakes. Our mature, analytical methodology and diagnostic is clinical in remaining detached and resisting any temptation to judge people on their innate traits; that stem from an evolutionary survival instinct. At the same it recognises that legitimate organizations cannot be allowed to run on animal instincts alone. We accept people as they are and consciously factor these human frailties into the organizational change management process. For example, in our banking reports, we accurately predicted that the new CEO at Barclays, recruited by the highly immature chair of Barclays, was likely to carry on behaving the way he had always behaved at JP Morgan. For Barclays to change, they have to shore up their internal human systems and allow employees to speak up; or find themselves another chair and CEO whose natural behaviours encourage that type of culture.
This is why on OMINDEX, an open source, diagnostic instrument for organizations to check their own maturity rating, the default rating for any organization deploying conventional HR practices is a lowly ‘B’. It signifies serious and significant under-utilisation of human capital with the added risk of its misuse and abuse. The reason the default level is so low is that business schools have not been developing mature leaders who see their organization as serving society above all other stakeholders. The only solution is for such organizations to recognise their predicament and make a conscious effort to raise their standards of accounting, ethics and human capital management to a much higher maturity level. The mature CEO then has to employ someone, who meets an equally high standard of professionalism, to take on the specific and well-defined responsibility for managing the organization’s human capital in a way that will unleash its full potential.
As with many CEOs taking on a new job, Peter Cheese aimed to make his mark at the CIPD with a grand project – “Valuing your Talent” (VyT) – which was supposed to ‘measure human capital’. Cheese obviously understood profit while at Accenture but he has yet to learn what value means. Nevertheless, he gathered together a cadre of other organizational leaders, including the CEOs from accountancy body CIMA and management institute CMI; neither of which had developed any capability in this new field of human capital management. He also joined forces with UKCES, which wanted a specific “deliverable” from the project – “To increase the number of businesses which measure the impact that investing in people has on their organisational performance” – until its funding was withdrawn by the UK government earlier this year. MI had advised Cheese, back in March 2014, that it had to use the right measures if the UKCES objective was to be achieved. We specifically advised against the use of meaningless metrics such as ‘training hours’ and offered MI’s very simple definition of value to measure impact.
In the meantime, according to the response we have recently received from Cheese, the CIPD continues to “engage” with the Financial Reporting Council, the “steering committee… of the UK Corporate Governance Code” and ISO; the international standard setting organization that confuses metrics with professional standards. Cheese also quotes support from the Department for Business, Energy and Industrial Strategy – “We agree with the Chartered Institute of Personnel and Development”. He provided no evidence as to why their view should carry any particular weight. It seems those who are blind to convincing evidence of value allow themselves to be so easily led by those who do not present any evidence.
After his 5 years in charge at the CIPD, and three years after our original advice, we asked Cheese whether he would now be pinned down on at least the one specific metric of training hours. Here is the reply:
“…. we agree that training hours is not a metric to understand outcomes of training and we have never said it does. However, I don’t agree that it has no use at all as a measure and I don’t see organisations about to ignore it – it has some use in understanding costs (not just delivery costs, but also opportunity cost of training) and in some cases…… in comparisons of training approaches. Many organisations are making cases to invest more in digital and online learning and one of the arguments is about how more digital learning might also reduce the hours needed, so trying to make a case about efficiency (although also hopefully understanding effectiveness).”
The one word he does not mention here is value; the raison d’être of professional management. Training hours can never “measure impact” or be connected to value. There is no coherence in his thinking and no clear policy to lead or guide his CIPD membership. Is this still the standard of thinking that drives consultants at Accenture today? As long as the client is prepared to pay for their hours they will give them what they want. Is that the lesson for new entrants to the profession of human capital management?
This revelation should come as a shock, not just to Accenture clients and Fellows of the CIPD, but to anyone dedicated to high standards of professional management. If training hours “is not a metric to understand outcomes of training” then words such as “efficiency” and “effectiveness” lose all meaning. That is why MI always measures impact in terms of net value, not only to the organization but to society as a whole, through increasing output, reducing cost, raising revenue and improving quality; and specifically measured as Total Stakeholder Value. Nowhere, in any of the VyT literature or its ‘case studies’, does a definition of value appear; the word itself is used frequently and loosely though.
This does not appear to concern any of the academic and institutional partners of the CIPD, who have willingly showered Cheese with a variety of honours (sic)* without any evidence that the value or professional standing of the CIPD has improved under his reign. The damaging ramifications that such false and unwarranted honours can cause are incalculable. They present a veneer of capability when the reality is ignorance and incompetence.
Those CEOs who didn’t know any better, having carved their careers out of finance and investment for example, now need to know what professional human governance and human capital management really mean because they have finally realised that culture matters. The Investment Association and Pensions and Lifetime Savings Association, (whose members control £trillions in investments) have taken CIPD advice at face value rather than checking its financial value. In the US, the Human Capital Management Coalition has petitioned the SEC to improve reporting on human capital; because they know it will affect future pensions. MI has offered its advice to the Coalition and submitted comments directly and publicly to the SEC. We are doing everything we can to ensure that the misleading metrics of VyT are not incorporated into corporate reporting requirements; without fear or favour.
The Valuing your Talent project failed at inception. All of the institutions that signed up did so trusting that the CIPD was the obvious reference point. They no longer have that excuse for supporting VyT and yet are continuing to offer a disservice to their own professional constituencies. What their members should have a right to expect from their professional body is a questioning mindset and the application of a scientific method that will test shaky theories and ill-conceived projects. This is no longer just a question of professionalism, per se: these professional bodies are failing society. This is the true measure of how deeply and insidiously the tendrils of incoherent leadership and amateur people management are entwined.
We must do better than this and mature CEOs are already doing much better than their immature counterparts in hard financial terms. The paradox of societal value is that it is best for shareholders as well. MI is not only framing the debate but providing a platform for open, frank and transparent discourse. Our clinical, analytical methodology does not make for comfortable or easy reading; any more than the cancer surgeon’s diagnosis is welcomed while offering hope of successful treatment. Our analysis, of how the whole system works, begins to explain many of the root causes of what happened in 2007 and continues unabated today throughout the corporate world. We will not join the decorators who are papering over the cracks. We are embracing obvious and necessary change while learning new ways to rebuild the foundations of legitimate capitalism; for all of the societies it has to serve.
*“Peter is a visiting Professor at the University of Lancaster, a member of the Board of BPP University, and sits on the Advisory Board for the Open University Business School. He holds honorary doctorates from Bath University, Kingston University, and is a Fellow of the CIPD, AHRI (the Australian HR Institute) and the Academy of Social Sciences. He’s also a Companion of the Institute of Leadership and Management, the Chartered Management Institute, and the British Academy of Management. Prior to joining the CIPD in July 2012, he was Chairman of the Institute of Leadership and Management and a member of the Council of City&Guilds.” (from the CIPD website)
Reprinted with the permission of the Author.