Out with the old and in with the new
One of the things which connects the Summer holidays and New Year’s Day is that they are often times when we reflect upon things we want to change in our lives. How we want to live, behave and think differently; more usefully, healthily and helpfully for ourselves. Or, as an economist might put it, how we might change our behaviours (the inputs in our lives, if you will) to maximise (or optimise, and the two might not be the same) our levels of personal utility.
Unfortunately, often our best-held intentions fizzle out after an all too short period of time and we revert back to our old behaviours and thought patterns – which is irrational really if we recognise that the change will benefit us. And this is interesting because it does pose a very difficult conundrum for those economists who claim that we are all the best judges of what is in our best interest – that we are ‘rational economic men and women’. If we can’t even stick to a resolution to eat a little bit less cake and exercise a little bit more in order to maximise the chance of us enjoying a healthier short, medium and long term life how likely, really, are we to be able to make more complex buying, consumption and investment decisions in relation to financial and economic matters?
This idea of ‘what is in our best interests is at the heart of much economic theorising and models. Of all the social sciences it is perhaps the one which can truly claim to be concerned with divining what the ingredients are of ‘The Good Life’ ( I don’t mean the 1970s sitcom – although I did like it enormously as a child).
The IMF has, for a good number of years now, seemingly been more and more concerned with similar questions and appears to have (slowly perhaps) moved beyond its old view that the economy can be regarded as a finely tuned mechanism which, with a bit of tinkering here and there (usually centred around reducing the scale of the state’s economic activities vis a vis the private sector) the good life – in an economic sense – can be achieved.
This old, reductionist proto-mathematical, view of the economy is giving way to something much more nuanced and, arguably, realistic with a recognition that economic actors (ie humans) are perhaps driven more by co-operation than the selfish dispassionate competition with each other (Adam Smith would doubtless have approved of this if his ‘The Theory of Moral Sentiments’ is anything to go by). The IMF develops this in a recent blog which praises a new book by Minouche Shafik (yes, she of the Bank of England) called ‘What We Owe Each Other’ which argues that we need a new social contract for the 21st Century where “..harnessing everyone’s talent is not just an issue of fairness, it is also good for the economy.”
And we see this at the micro-level in terms of how the best companies are managed. Now ‘best’ is a very subjective term, but against an economic backdrop of greater uncertainty and risk (which seems to have been the case since 2010 and significantly so over the last few years) we could make a reasonable case that ‘best’ means the most resilient and adaptable – or, to paraphrase Darwin, those most fitted for longer-term survival. In our work with our clients, and particularly helping owners and senior managers work through business problems and challenges they face, we have found that the best quality decisions always emerge when a variety of viewpoints are allowed to be heard and taken into consideration. This isn’t just about gender and racial diversity – it is also about role and function diversity.
If your job title places you in the position of the leader it can be a lonely and cold place at the top of your particular pyramid. Most of the decisions leaders have to make are tricky, using incomplete information and frequently are time-pressured. The stakes can be high and the odds are usually not stacked in the leader’s favour. Seeking the viewpoints of others can help a leader see the problem from a different perspective. These viewpoints are as valuable if they allow the leader to test their decision and confirm it as they are if it causes them to change their point of view. In many ways, the greatest service is performed by others who challenge our thinking and preconceptions rather than confirm them.
So, if you are minded to make some far-reaching decisions which affect your business you could do a lot worse than reflecting upon John Donne’s statement of 1624 that “No man is an Island..” and recognise that in order to thrive we usually need some degree of input from others.
Author: Stephen Gregson, Corporate Finance Director, MHA Moore and Smalley