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Critical thinking for business leadership

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Benito L. Teehankee

The View From Taft

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Business leaders need to exercise more critical thinking to avoid and solve the problems businesses have caused in the last two decades. While business has created massive economic growth all over the world and lifted billions out of poverty, chronic management malpractices have also harmed consumers and worsened income inequality, environmental damage, and psychological and health issues for so many workers.

Business managers do not intentionally set out to harm others when they fall into malpractice. They have good intentions, but unfortunately, they pursue these based on unsound beliefs and dangerous half-truths that are basically myths. To paraphrase a well-known Josh Billings quote: “It’s not what we don’t know that gets us in trouble; it’s what we know that ain’t so.” Business leaders have their share of beliefs that just ain’t so. But because these myths are so durable and widely believed, they have caused so much trouble for people and societies.

Myth #1: Numbers reflect business reality and should be the main basis for decisions.

This myth comes from the absurd claim that “accounting is the language of business.” In recent decades, the numbers mania has been pushed by the mindless use of “metrics,” “key performance indicators,” and “analytics.”

Numbers can never fully capture business reality because they do not reflect context, and quite a lot of subjective judgment goes into producing such numbers. Whether the numbers come from accounting, operational, or technological processes, numbers merely show the tips of icebergs, so to speak. They give a hint of what may be happening in the business. Fuller knowledge requires finding out the stories behind the numbers. Some of the worst scandals in the last 20 years, including Enron, the US-mortgage crisis, Volkswagen’s emissions cheating, and the BW Resources stock manipulation scam, all happened because people put too much blind faith in numbers — leading to short-term thinking, the manipulation of numbers, and poor judgment.

Good managers try to know as much about business reality by observing and talking to people on the ground and understanding the stories behind the numbers. They combine this information with the numbers and make sounder decisions accordingly.

Myth #2: Markets are fair and should be trusted above all else.

University of Chicago economist Milton Friedman made this ideology famous, but repeated market-based debacles since the turn of the century and culminating in the Global Financial Crisis have completely discredited it. Unfortunately, I still hear thought leaders in business argue that we should “let the market decide.” They assume that forces of demand and supply will provide the optimal outcomes that ultimately benefit everyone.

To be sure, markets play an essential role in business and economic success. But markets are fair only if: 1.) information on market options and activities is transparently available to all participants; 2.) buyers and sellers are free to move in and out; 3.) all stakeholders have the resources to participate in the market; and 4.) all benefits and costs to all stakeholders are included in the pricing. In reality, these conditions are violated most of the time. Important information is not disclosed, or is available only to insiders. Dominant players make it difficult for other participants to move in or out. Affected members of the public do not have the voice or the resources to counter negative impacts on them. And finally, the poor do not have the resources to participate.

Environmental damage, the sale of harmful products, and community harm are the results of unfair markets. Government regulation is necessary to ensure that: 1.) sellers disclose accurate product and service information; 2.) sellers avoid harm to others or include the cost of preventing such harm as part of their prices; and 3.) those with fewer resources can also participate in the market.

Myth #3: Workers are expensive resources.

Economics refers to labor as factor, input, or resource for production, similar to capital or technology. Accounting practice considers workers only as expenses. The half-truth that people are expensive resources has led to much business malpractice because resources more properly refer to inanimate things meant to be used or exploited for one’s own benefit.

In reality, a worker is not a thing, but an animate person with dignity, a set of capabilities, decision-making power, and feelings. Business managers who do not empathize with workers and who overwork or otherwise exploit them are causing serious psychological harm. The World Health Organization has sounded the alarm that burnout is a result of “chronic workplace stress that has not been successfully managed.” It results in: 1.) feelings of energy depletion or exhaustion; 2.) increased mental distance from one’s job, or feelings of negativism or cynicism related to one’s job; and 3.) reduced professional efficacy.

Workers are best viewed as capable partners in production and value creation. They deserve respect, support, and fair compensation. Moreover, they have the right to participate in decisions that affect their welfare and achieve the goals of the business. Business leaders who can harness the creativity, judgment, and passion of workers can create a healthier workplace and thereby achieve sustainable competitiveness.

 

Dr. Benito L. Teehankee is the Jose E. Cuisia Professor of Business Ethics and Head of the Business for Human Development Network at De La Salle University.

benito.teehankee@dlsu.edu.ph

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