Tag Archives: Management

Four Perspectives on Dilemmas in Management Analysis in Greenland

Introduction

What is the situation of management research in Greenland? Academic knowing is about how to work with the formulation of the knowledge that we do not have. We arrange the discussion in the Hegelian perspective: knowing is about how subjects formulate objectives with the help of concepts (Østergaard 2004 and Hegel 1807). Thus, we look at the meaning of subject position in relation to ethical dilemmas in the process of knowing better, and describe how responsibilities are understood and dealt with by traditional, modernist and contemporary academic perspectives on collaboration in local communities. How can the academic analyst construct the work process towards a relevant formulation of the objective of the academic analysis in different traditions? How do the relevant perspectives see and deal with dilemmas in the work process? Do different paradigms and positions concerning theoretical knowledge generate different spaces for dilemmas or different relations to the research object? How, then, do they respond to dilemmas in the research process, regarding the research objective and the stakeholders?  We discuss these questions in relation to how analysis has been done in Greenlandic management studies and how Greenlandic managers create productive interactions as articulations in the organizations,

The ‘self-governed’ society Greenland is dominated by ethnic Inuit and mixed up with arrangements and institutions from the colonial activities and period (e.g., settlements and cities established during that time; an arrangement not based on Indigenous Inuit traditions but under the influence of the Danish and other European ideologies, businesses and formal organization). Also, the country is in a process of independence that is not comparable to most Indigenous Peoples’ situations. Still, Greenland is a very small semi-national community, and bears some similarities with other Indigenous communities, which is the reason why this perspective has found a forum in particular arts, pedagogics and social studies in Greenland. This particular situation requires rethinking management research in Greenland.

If we look at the history of the study of management in Greenland we can demonstrate the need for rethinking management research and practice. Many publications and extensive discussions on leadership and management in Greenland are based on anthropological and in particular ethnographic works that are successful because they employ an idea of unique situations as the foundation of social processes as proposed in the idiographic perspectivist analysis. The Danish author Peter Freuchen wrote about how organizing took place in Greenland. He examined this with a background of studies on life and nature in the Northern Arctic in Greenland, Canada, Russia and Alaska. He also had experiences from business and colonial activities, which he performed between 1905-1935. He tried to influence both the Danish, Greenlandic and American public and political spheres through his relations and publications about the significance of the Arctic communities and the way the Danish and American relations to Greenland and Inuit was maintained. But foremost Freuchen wrote several books about local life and how the Inuit Greenlanders organized their society. Among the many books, novels, stories and biographical notes was a historic novel White Man (first published in 1943).

It might have been of inspiration for later ethnographic researchers and both resident and non-resident writers. Within his attention were issues of how the Greenlanders in small groups, and often semi-nomadic communities, organized in situations of paradox and conflict.  One ethnographic study on leadership practices in Greenland has given unique and significant grounds for further studies in Arctic leadership (Gert Nooter, 1976), as it integrated the analytical model into a frame usable in the description of unique nomad and Indigenous communities, where the political changes of the mid 19th century to the mid 20th century hit small remote communities, as it happened in the Arctic area. He introduced in his analysis distinctions between management systems (present as the colonial authority) and leadership (based on particular competencies).  Langgaard (1987) similarly published long term ethnographic studies, which he discussed with local informants before publication.

These approaches have been interesting, but they do not really correspond to the contemporary challenges of management research in Greenland. The task is to rethink management research in order to develop better concepts of management for Greenland, taking into account contemporary changes in management. One new perspective is the Kantian idea of how to decide about individual responsibility (Kant, 1983) in management. Fundamental questions that lead to the identification of conflictual distinctions and dilemmas should include: “What is good action?”, What is responsible management?”, “What is good and responsible management in action?”. This is the contemporary challenge of rethinking management research that we need to adopt everywhere (Rendtorff, 2019). Research should discuss the fundamental ethical questions concerning the move from leadership theory to action, from theory to practice and to ensure good, prudent and responsible management in the practice of businesses and corporations in Greenland. This is an essential dimension of rethinking management research in order to promote better practices of management.

In this context, research should evaluate different methods, methodologies and theories of management in order to address their importance for practice. Here it is important to develop our philosophy of science in order to rethink management practices in Greenland. We need a philosophy of management to analyze leadership practice (Rendtorff, 2013; 2019). The problem is how general theory can inspire management practices of leadership in Greenland.  We might say that there is a basis for understanding the legitimacy of corporations present in modernist theories of leadership and management. The fundamental questions to ask when developing the discipline are philosophical questions like “What is?”, “What is management?”, “What is justice?”, “What is responsibility?”, “What is meaning?”, “What is good leadership?” and to all these questions we should add the question “And what does this mean for Greenland?”. Thus, our task is to discuss the basis for the development of new forms of management research corresponding to the new forms of methodologies and methods for management research in Greenland.

We can turn to questions that need to be asked in order to be creative in the practice of management when we want to develop the field in Greenland. With the help of management theory, we can ask the ontological question  “What is good management?” We also need to ask the question about what is important and meaningful. This could also be seen as a Socratic approach to leadership where leadership management theory asks the radical question  ”What is it?”

In order to answer the question about how analysts do their management analysis, and how they see and must deal with dilemmas in their work process, we will meet perspectives on management in the following paradigmatic positions. One of these is not based on modernist assumptions about realism that makes nomothetical theorizing possible, but rather on the ambition to be able to analyse unique and complex situations of change, which implies reflexive analysis of organizing and management processes.

But first, we address the basic assumptions about academic knowledge, which is the problem orientation that we employ during the discussion about decisions and dilemmas in all four perspectives.

Problem orientation

Our situation is in general about how to develop the practices and principles of high-quality university education and research in Greenland, in relation to inquiries into leadership and management in Greenland. Thus, our effort to rethink the methodology of management research and philosophy of science in Greenland is focused on having a relevant impact on the practice of management. But, here we also need to take our point of departure in the concrete and specific experience of management in Greenland. In order to be pertinent to the local community, we have to engage in urgently relevant fields. We need to base research on the experience from the local community. The analyst must give an extensive explanation for the knowledge objective prior to the specification of the observation and analysis. Accounts for relevance is central for research that is problem-oriented and makes a difference for the practice of management.

The complexity of research issues in management and leadership motivates the use of both local competence and theoretical knowledge in the construction of qualifying questions. (Hegel, 1807; Østergaard, 2004; Becker, 1998; Blumer, 1969). The benefit of this research is not only to help the local community, it is also essential for understanding the reality of the practice of management. Locally embedded and stakeholder-oriented, critical research should focus on problem orientation and knowledge, contributing to the development of local organizing of business and management. Thus, we need to engage both researchers and research participants into a discussion on the relevance of how to address and account for the relevance of the way to describe, observe and conclude about the objective. The reason to propose problem-oriented in this context is that you cannot understand the reality of management without studying real problems and doing research based on the examination of concrete problems to make a difference in the practice of management. Academic problem orientation is an activity where we address a lack of knowledge in a particular situation. The object and knowledge question is based on a description of a situation, by the help of theories and actual observations, the analyst constructs a formulation of something not known, which we need to know. (Olsen & Heaton, 2012: 199-200; Pedersen 2019).

What distinguishes the academic style from less reflected contemplation is that the analyst keeps focusing on the particular aspects that are not known and relevant enough to spend analytical effort on. Academic analysis implies the ability to reflect on singular problems using general concepts and formulate theories based on interpretations of real events. And it is demanded that the academic analyst expresses how and what is done, in order to specify and answer the question in focus. Among these obligations is to express how the context and the theorizing lead to the specific formulation, and to explain how it is not known well enough. The analyst (the active academic subject, collective or single individual) carry the obligation to formulate the objective of the inquiry. A manager often has, due to her involvement in the ongoing complex practical process, to move on in the flow of activities whether something is known well enough or not. The complex process of organizing demands that the practitioner continues to take part in the flows of practising, and the tool to use academic problem-oriented analysis is to have a dialogue with competent analysts or to engage in analysis activities in the vicinity to the organizational practice. This creates the ability of the manager to perform a reflective analysis of the event in a situation.

The theoretical framing that is brought into the description is a structuring aspect of how the knowledge objective will be formulated, due to the concepts that are employed in order to formulate the relevant lack of knowledge. And the framing of the practical situation, where the new knowledge is meant activated, is important for relevance and powerfulness of the knowing.

 

Table 1.

Classical, modern and contemporary methodologies and their response to research dilemmas:

Analytical characteristics of the position The paradigms of leadership studies
Centralized “Classical” and “modernist” studies “Critical post colonial studies” “Engaged Scholarship” “Idiographic perspectivist analysis”
Ontology Classical: Essentialism, Modernist: Realism Realism  

Realism

 

Management is the practicing of it, overt or covert.
Epistemology C: Empiricism or rationalism. M: Interpretivism. Interpretivism/subjectivism Interpretivism. Knowledge is the social practice.

 

Methodology Deduction: To describe reality with concept as the phenomena are.

Induction: to describe the reality as observed.

 

Engaged cocreation.  Action research Most techniques, also those based on categories and quantities or time series Studies on interactions and social dialogue

The centralized studies, classical or modernist

The modern mainstream research practices of management were developed in the 20th century with the upcoming and successfully expanding modernization of societies, which changed the Western societies from smaller states and communities, based on religion and smaller or expanding power-centres. The prime characteristic of the classical research philosophy was rationality, objectivism and essentialism in knowledge, based on natural sciences procedures of knowing, while the characteristics of modern research practices were realism, even though acceptance of interpretation as a condition for knowledge, and nomothetic repetitiveness. At the same time research was incorporated into dependencies of funding, giving priority to political projects that brought attention to governments and industries. Most management research traditions from the 20th-century claim neutrality and objective truthfulness, based on distance and disinterestedness in the researched complexity, which caused the need for discussions about the colonial functionality of some research, as pointed to by both the present self-understanding in Greenland and the post-colonial theorizing. Indeed, here we can propose embedded problem-solving as an alternative to these research traditions. It goes for some modern approaches to management studies, like those based on applied science, empiricist and most international scientific community orientations, that work with big general knowledge constructions build on verification, evidence, specified categories aiming at quantitative data structure like some dominating theories in management strategy (Porter, 1990), marketing (Kotler, 1967), finance (Dreyer et al., 2020), time-series studies (Glomserød et al., 2021), rational organization theory (Daft, 2017) and even entrepreneurship studies (Hamilton, 2000). All these traditions need to apply problem-oriented research in order really to be relevant for management research in Greenland.

It is a condition for the idea of unbiased and objective social science research, that researchers are at a distance from their object of research so that they can form independent and neutral opinions about the research field which is not influenced by morality, political ideology and practical interest in the situation that is investigated. But, this kind of research risks being biased and normative as such since it ends up objectivizing and constructing the research object in the light of modernization or in the light of the power centre, which implies the application of power and oppression to those people that are constructed as research objects.

When the scientists claim neutrality, and even objectivity, they avoid a discussion on the significance of the subject position in research. They may as well integrate assumptions about globalization, international economy, stakeholder relations and business environments that do not problematize particular situations for the Greenlandic population or businesses. Reflections on the responsibilities of the designer of the research question are rejected by claiming objectivity and neutrality.

Thus, objectivist social science researchers need to establish a discussion about how researchers critically orient themselves, and they need to understand how research is more dependent on the actual research situation and how they must pay attention to the dependencies to research communities, scientific dogmas and financial dependencies.

Robert Merton (1942) pointed to the principles of sciences as: 1. Universalism 2. Sharing of knowledge 3. Disinterested Attitude 4. Organized Skepticism 5. Fallibilism. In the context of ethics of research these principles help the scholar to move beyond the limits of the traditional and modernist gaze since universal, sceptic and critical principles of science are replacing the subjectivism of studies organized by power centres like anthropological studies supported by imperialist business intentions or the categorizations layered into statistics and business comparisons. Ethical principles of science involve respect for human dignity and moral consciousness of scientific integrity in order to protect the vulnerable research subjects in the framework of respect for basic ethical principles of autonomy, dignity, integrity and vulnerability (Rendtorff, 2009; 2012; 2019).

Robert Merton and Elinor Barber wrote about the capability of a research process that a certain amount of luck and open-eyed attention is an important element in research and analysis. They refer to the presence of an idea of serendipity in a book from 1958, where they discussed the origin of the term and even mentions the meaning of the term as it appears by looking up 30 language dictionaries from the period of 1909-2000 (Merton & Barber, 2004 (1958): 246). The formulation was in 1913 “the ability of finding valuable things unexpectedly” and in 1934 in the Websters New International Dictionary of the English Language “the gift of finding valuable or agreeable things not sought for”. The idea is that some knowledge is established by attention and ongoing attempts to identify something relevant in the situation, that is not known before. These not known aspects become known due – not to systematics and planned procedures but – to careful attention to what is not included in the frames that are known before. It is not based on asking and confirming a hypothesis, but on the need for new theoretical constructions that are not prepared in the well-known lexicon, and therefore has to be formulated in new better ways, and with the use of better concepts that those signing the well-known categories.

Merton is critical towards the simplicity of rational designing, objectivism and the idea of stable and long-lasting knowledge in relation to knowing about significant new analytical objectives. Even if he refers to functionalist roots, he does not suggest the use of dogmatism in positivist methodology. It takes more to know what is needed than what can be planned and precisely asked for. What is needed is reflexivity based on some preparedness to see what is not seen before, and some attention to what appears by chance during the process of trying to know better. Relevant analysis demands critical attention to ones own presumptions, work process and a careful reflection over events appearing and used during the process. And in relation to modernism, one should see Merton’s comment as a warning to modernist research, when it assumes that already known theoretical constructions repeat themselves throughout into the future as they appeared sufficient in the present or past. Unfortunately, this concern was never well integrated into traditionalist or modernist management studies and theorizing, but rather exchanged with repetitive systems and look out for applicable signs of evidence. In relation to the modernist studies in Greenland, these points may be of help for the researchers who perform extensions to realist and positivist thinking, in order to establish a critical reflection to the realist or centralized academic practices.

 

Decentralized analytical perspectives

From a contemporary problem-oriented view the specification of the lack of knowledge develops during the ongoing attention to the relevant complex situation and the information that can be created about it, including ongoing attention to theoretical attempts to formulate something about the situation. Again, problem-orientation is essential for the development of new research practices in Greenland. And the problem area becomes more and more detailed and certain during the analytical work and the knowing about the empirical aspects. It seems not to be a logical process only, but a process that becomes more and more precise and well-reasoned, and ends up with a research question that was possible to answer, and which answer is better than what was possible to know before. Thus, reflexivity and transparency in the work process are what we look for in valid research processes. Also, today, when we try to produce an academic quality to the theorizing and analysis about leadership and management in Greenland, and the academic education in leadership.

Most contemporary analytical approaches to management studies integrate the practitioners or local perspective into the research scheme. They involve practitioners in the analytical process or emphasize the local perspective to research in leadership and management. To investigate how they define and act upon the dilemmas of legitimacy for the researchers, we look through some headlines of three of these strategies.

They are firstly the “Critical Politics Perspective”, which formulates how to avoid suppressing the local ethnic perspective and to avoid new dependent relations. The leading orientation is constructed by an understanding of the needs of the local environment, that is established on realist grounds for seeing relevant aspects in society. It is often in this case activated when critical studies are relating to indigenous cultures. These perspectives do not have to envision or presuppose that the analyst or researcher are indigenous or Greenlandic. However, if the analyst and researcher are not indigenous or Greenlandic, it is important to be able to take the place of being embedded into the culture and management practice of Greenland.

The idea of “Engaged Scholarship” discusses how analysts and practitioners may cooperate based on a critical realist approach, which means that academic priority is given to the theoretical world of the scholarship, while the practical priority is open for reflection. It suggests an active involvement with the investigated practitioners.

The “Idiographic Perspectivist studies” refer to the unique construction of an object and theoretical structure for the observation and discussion. They represent opposition to realist theoretical positions, as they address the upcoming and being of management ontology as what is created in interactions. This approach supports attention to the local management discussion and the academic and practical objectives that are relevant including the conflicts and dilemmas that may motivate reflection and decision.

 

Critical studies and the subject position – the realist position to local studies

This line of critical methodology emphasizes that research should be engaged in the relationship between researchers and the people in Greenland. Researchers should be participating in the local community and collaborate with the people in Greenland when carrying out the research. Researchers should not only collect data in Greenland and publish it abroad and contribute to international discussions only, but they should also give, by using their knowledge to contribute to co-creation and problem-solving in the local context of Greenland. In this way, research should be stakeholder-oriented and communicative and co-create knowledge in the research process. In this sense ethical formulation is an important dimension of successful research as decisions take place during the research action, and integrates or exclude the involved research informants’ perspectives into the upcoming action.

Thus, in order to be concerned with the powerless and vulnerable dimensions of society in Greenland, it is essential to propose a critical perspective of management research. The critical politics perspective is based on priorities given to pay attention to power and problematic implications in dependency relations. It represents a way to problematize arguments in research that are embedded in reasoning outside the local community.

The critical theoretical position assumes that it is useful and necessary that researchers discuss their scientific assumptions in the light of the local embedded perspective, in order to create a local embedded subjective position in the research. Critical theory needs to be critical, but it can also include ethical evaluation of developments in the field of research (Rendtorff 2016). In discussions on how to do critical politics in the interpretation of ethnographic studies in indigenous inquiry, Smith points to eight questions that indigenous scholars should pose in order to know about qualitative aspects of decisions in the research design in a critical politics study (from Denzin, Lincoln & Smith 2014 p 9). The questions may as well be posed in relation to studies within Critical Theory, taking the position of the less powerful informants in the research set-up.

The questions Smith formulates (2000: 239) as relevant for studies in relation to the local community are:

  1. What research do we want to be done?
  2. Who is it for?
  3. What difference will it make?
  4. Who will carry it out?
  5. How do we want the research done?
  6. How will we know it is worthwhile?
  7. Who will own the research?
  8. Who will benefit?

The aim of each of these investigations is to change the perspective from a meaning specified by a distant centralized governing perspective or by a scholar and professional perspective to a local embedded perspective.

The questions are addressed to the research, in order to introduce particular reflections about their way to identify the research objectives. However, it is important also to take into consideration the subjectivity of the researcher. Most of the eight questions are formulated as if they will be answered by an administrator or a politician who has some funding or other resources to direct an upcoming research activity. Still, the author mentions that the questions are supposed to be reflected by researchers in “oppressed, marginalized and silenced groups … through emancipation groups “(Smith 2000 p229). The author and her colleagues offer some supporting explanations about how to deal with the position of being an academic researcher at the micro-level, in the mentioned environment. The advice is about both to be an advanced academic, e.g., in the use and the development of theory, and to be accountable for the local environment (Denzin & Lincoln 2014 p 10). They highlight, that being useful as an academician in a local environment as taking part in decolonizing activities, implies advanced use of academic abilities. The academic approach to research can in this context increase reflexivity in relation to the embeddedness in a society of critical research. In itself, this is a formulation of the meeting of advanced academic abilities, which will have a precondition of internationally related and oriented scholarship, and traditional or ethnic competencies, relations and positions.

 

Engaged Scholarship and the subject position

Engaged Scholarship is a relation to social sciences and management studies which in Van de Ven’s formulation is closely related to critical realism. The ”Engaged scholarship is a participative form of research for obtaining the advice and perspectives of key stakeholders (researchers, users, clients, sponsors, and practitioners) to understand a complex social problem.” Van de Ven mentions about his participation in a research project among low-income inhabitants that “Through these trial-and-error meetings we developed what became known as the Nominal Group Technique; which subsequently became the most widely used method of group brainstorming. I still recall the rewarding feeling of an elderly person telling us after one neighborhood block meeting that this was the first time in his life where he felt he could speak his mind.” (Ven, Andrew H. Van de. 2007. Preface page X) Van de Ven describes his personal transformation from an objectivist and rational construction of research starting at a research question followed by an empirical procedure where observations were collected, changing into a more complex (and collective) problem discussion and identification among researcher colleagues.

This change implies a more interpretive epistemology thus still aiming to contribute to nomothetic theories of normality in studies of organization development. “But the time and trouble of engaged scholarship paid off. Involving others forced me to alter my initial conceptions of the research problem and to modify the study in ways that I would not have done on my own.” And “I can say in retrospect that some of my greatest insights and learning experiences came from engaging others in better understanding complex social problems and ways to study them.” Van de Ven sees the mentioned publication (Van de Ven 2007) as a tool to integrate practitioners into the analytical process as he understands it, and divide into four steps. “It (the book)  provides a guide for involving stakeholders in each step of the research process: (1) ground the research problem and question being examined in the real world; (2) develop plausible alternative theories to address the research question; (3) design and conduct research to empirically evaluate the alternative models; and (4) apply the research findings to resolve the research question about the problem.”

All steps but one (2) expresses the critical realist thinking through the actual formulation of each step. First, the idea of being able to test a particular knowledge in the real world is to emphasize the reality before the relations and the involved persons actualization through their communication. It is possible to describe the reality through theories that express stabilities and general rules, which will be answer to the question. That the research process is constructed by alternative theoretical models, and to establish tests of models is to say that theories about reality can be tested or at least discussed.

In this step, one could ask for more reflection about what is observed and what is the situation as addressed in the abductive reflection. Abduction means according to the Stanford dictionary “abductive reasoning involves deciding what the most likely inference is that can be made from a set of observations. … Abductive reasoning is important because there is often many or an infinite number of possible explanations for a phenomenon.” Rather, Van de Ven’s pre-determined realism leads to simplicity, which implies dependency on the theoretical frames that are already available. Pragmatists would point to the necessity to consider the abductive decision takes transparent reflection in order to collectivize the knowledge, while the critical realists assume some kind of representation of the real as principle of truth.

The fourth sentence assumes that the researcher has a role to play in the practical world. It may be relevant as far as the research is about mapping or identifying possibilities in rational systems. But it is not the case in situations about organizing or leading complex and not well-defined processes. In those situations, analytical academic results may be better understanding of the situation, or better knowledge for doing evaluation in the situation.

This understanding will have high value in the hands of practitioners, not in the hands of researchers. The analyst has the task to inform the involved persons in the situation and the related managers about how to structure the situation, in order to be understandable in relation to decisions about future relations. Our comment about the structure that is related to the engaged scholarship is, that it may be relevant when the questioned aspects of situations are to some extent perpetual or repetitive. This stability allows knowing about the questions to be explained by nomothetic theorizing, which is the basis of engaged scholarship only.

In studies in leadership in Greenland the approach appeared relevant in the sense that the idea is to cooperate with practitioners about critical realist analysis construction, which is seen in Greenland in several cases since 1980. The studies that emphasize cultural aspects in relation to organizing and management address aspects that are generally found in processes changing over years (Lynge 2003, Balslev 2017), or aspects that are related to ethnic and traditional differences implications for leadership and management (Bakka 1997, Kahlig 1999, Knudsen 2016).

The advantage of engaged scholarship in relation to management studies in Greenland is the collaboration with local management partners. At the same time, it refers to the part of management studies environment, that is involved with studies and theorizing of similar kind. Thus, practicing Engaged Scholarship in Greenland implies that the international scholar standards of critical realism, and the issues similar to those met in Greenland, are integrated into the studies of management in Greenland.

 

Idiographic-perspectivist analysis and the subject position

The critical realist position will not be sufficient if the problem analyzed is unique as when it consists of complex and responsive processes. Unique situations are present in much organizing when managers meet issues they hardly can describe. The reason is that complex orientations meet and support a situation with conflicting accounts and rationalities and with diffused priorities about what should be noticed in the situation. It is difficult because managers are dependent on the understanding and formulation the directly involved share in interactions about activities that are not described before and if the issue is quite new, the intersubjective reasoning may start up on diffuse grounds. The situation will not be answered by copying or other comparison or deduction or rationalizing or another simplification, or setting aims or other perspectives from the past. It must be described in a way that is based on the present observations, and not assume about aspects that are not known about.

The analyst cannot copy descriptions from known theoretical models that function as a deduction from situations that are not similar and enough relevant for the present. The analyst must accept that the description of the present and future situations is both under construction and development, based on important observations and perspectives brought into the reflection of involved interactants pointing to problematic assumptions in the expected action in the organization.

This kind of analysis of organizing will involve several involved persons in the subject position, in order to identify a lack of knowledge in the collective work process. Both the direct involvement in productive activity and interaction in the organization – like an involved employee who experiences dilemmas or conflicting situations (Alvesson & Spicer, 2016; Stacey & Mowles, 2016), those leaders who formulate the common perspective of the organization (Northhouse, 2019: 5), and those analysts or others who may be involved into the verbal reflection managers have underway they decide what the situation is about (Hegel, 1807).

Research in leadership and management will in Greenland involve the actual situations that managers try to deal with, the cooperative processes they activate, and the challenges they meet in doing the organizing process (Weick, 1979: 47; Hernes, 2014 I: 107 & Hernes 2014 II: 294). The position of the researcher is the one of an observer and a responsible and loyal co-designer of the formulation of the unique situation and analysis, and the one who keeps the situation related to relevant focussed reflection – probably in a scientific environment that in Greenland involve further discussions on management, because of the need to be more reflective on management in order to develop new models of management. Still, the involved manager is the person who controls how the leadership knowledge is used, and the productive participant is the one who controls how the new collective knowledge about the situation may be integrated into actual production.

The contribution of the academic analyst, in this case, is the ability to identify, collect and structure data from the collective organizing process into a trustworthy and relevant construction, which will lead to a focused interaction about the unique organizing situation, and which the involved try to deal with. So, the academic skill in use is the ability to contribute to focus a collective interaction, in cases where some of the direct involved managers or producers already are prepared to pay attention. It may happen when they notice conflict, dilemmas, paradoxes or neglect upon upcoming phenomena that are not dealt with in the organization before. The researchers/analysts contribute to the understanding of the persons actively involved persons. It is seen in Rasmussen & Olsen (2020, 2021) and Rasmussen’s extensive presentations in Greenland. As well we might do international contributions to studies in leadership in the Arctic (like Balslev, 2017; Noter, 1976).

Indeed, even if we need new forms of management research in Greenland, researchers and analysts also need to work in the framework of mainstream academic research. When we refer to the importance of universalism in sciences, we could mention that all academic careers are based on publication and international approval, so there may be a cause of reasons for publication, that is not driven by relevance in Greenland. This kind of publication causes hardly any dilemma of legitimacy, in case this publication is a result of decisions in relation to the construction of the localized research in Greenland. Rather, local research needs a cosmopolitan dimension of a universal approach to research that is not only based on local particularity.

 

The analysts’ strategies to deal with dilemmas of legitimacy

Research is related to possible ethical decisions, depending on the construction of research processes and the particular local situation. Doing management analysis implies a scope of situations, that is directed by the philosophy which the analysis is constructed within, thus general for doing the investigation anywhere. We can mention that it functions as the internal and external aspects of research ethics. And the scope of potentially problematic situations is as well directed by local conditions, that make particular dilemmas relevant and possible. In Greenland, it is directed by the historical and ethnic aspects, as well as the nature, geography and in particular the situations that are generated by the society’s aspirations to be an independent welfare society based on the traditional Inuit life. Due to the particularity of the situations that may expose relevant dilemmas of this type, they have to be treated as unique and paid attention to and decided about as such.

Internal aspects of research ethics refer to problems in the actual knowledge production process and how it is establishing dilemmas and problems for the directly involved persons, researchers, informants, hosts and people who indirectly are influenced by the actual analytical work. Internal research ethics comprises the relation of researchers to their work and their ability to do this research with respect for research integrity and concern for good research practice.

Olsen, Hansen and Rasmussen’s text on internal aspects of ethical issues in quality assessment in problem-oriented project work mentions that ethical aspects will be found in relation to different activities in the analytical work (Olsen, Hansen, and Rasmussen 2019: 205). Thematizing, designing, interviewing and transcribing, analysis, triangulation/verification and reporting are working labels that all may be related to ethical issues. There may often be issues of interpretation in relation to observation, interviewing, document studies and triangulation, due to language. Problems related to data collection and interpretation may call for a particular discussion.

External aspects of research ethics refer to the social responsibility of science where the researcher should be aware of the context in which the research is deciding about how to address local aspects and how to create knowledge. There is a need for risk evaluation and early warning in relation to the use of the research for different purposes. Here, it is important that the researcher is aware of the specific value dimension of the research and indeed the value structure of interests that directs the analysis.

A discussion on external aspects of ethical dilemmas must be addressed in the description of the area of the knowledge problem. Kaare Pedersen points to the relation between the context of the knowledge question and asks if the way to structure the knowledge problem is ethically acceptable. He writes:

In connection with most knowledge problems, you need to ask yourself whether your research is ethically acceptable. Who can use the answer to the knowledge problems and for what purpose (e.g., in connection with an organizational analysis in a company)? What impact can the research have on the people and groups contacted (e.g. in connection with sociological analyses of vulnerable groups or occupational health and safety research)? (Kaare Pedersen, 2019: 42)

 

The academic analyst must explain the reasons why the objective is formulated as it is and structured as it is. It has to be explained in relation to and no later than the evaluation of the analysis.

Dilemmas and conflicting positions may be found in research work in relations between the analysed and the analyst, and even in relation to stakeholders involved in funding or being dependent on the knowledge. Most issues of ethical relevance will be common for situations in as well other local places as in Greenland. We assume, that even if there are different conditions for the competent academic scholars in Greenland, they may have the same particular conditions for the creation of a research object. The leading question about doing academic problem-oriented analysis in Greenland is: How does the subject analyst notice and act upon ethical dilemmas during the formulation of the objectives? Indeed, it is in this context that we have proposed to rethink the theory and practice of management research in Greenland.

 

Table 2. All strategies for practitioners’ involvement in academic activity are relevant for both resident and non-resident analyst and analytical situations in Greenland:

 

Ethical aspects of the position

The subject position in leadership studies
Centralized

“Classical” and “modernist” studies

“Critical post colonial studies” “Engaged Scholarship” “Idiographic situationist interactionism”
Space for dilemmas Assumption about value free science. There is no dilemma in relation to formulation of the objective.

Dilemmas in relation to data production and analysis are handled as rights to ownership.

Dilemmas are decided on or negotiated with the suppressed group in the research. Identification is in the hands of informants.

 

Dilemmas are an issue for the practitioners and the researcher to deal with.  Describes collaborative relations to stakeholders as ‘with’ or ‘for’. The practitioners have an opportunity to care about dilemmas, in the object formulation. The analyst must notice and formulate dilemmas and paradoxes also in the design and report activities.
Relation to the research object in management studies Loyalty to scientific traditions and the knowledge-puzzle. Ethical issues are formalized into general codex. Loyalty to dependent local perspectives Loyalty to realist scholar standards and models.

 

Co-definition of research objectives with practitioner

Loyalty to the involved managers perspectives and involvement, and to reflexive academic standards.

The involved practitioner is the relevant user of results.

Examples of attention to – internal research dilemmas Neutralize information by anonymization of individuals, but open about aggregated data Adjust the research to local resources Work together with practitioners who have the resources to prevent some dilemmas Analyst and informants protect the involved in interactions, design and report.
Examples of no attention to external dilemmas… Blind to local power relations Issues related to macro perspectives. If issues are not represented in the planning group If issues are not relevant for the management analysis or formulated by the involved.
Examples of attention to

external dilemmas (stakeholder)

The researcher decide about public admission to information. Takes the position of the allied group Takes the position of the practical stakeholder or limit the research The analyst support dialogue about the research results, which are specific for the ongoing responsive process.

 

Conclusion

In conclusion, we can summarize our argument by indicating that we expect to see different approaches to observing and dealing with ethical dilemmas from different analytical perspectives. The ethical dilemmas are in particular arising in two typical situations. One is related to the possibility of developing a good problem formulation as a high-quality formulation of the investigated situation and the objective of the analysis. Misunderstandings or rude simplifications should not be elements in the formulation of the important situations of leadership and organizing activities. We try to answer the question: How does the subject analyst notice and act upon ethical dilemmas during the formulation of the objectives? And answer abstractly, that analysts have the responsibility for the understandable formulation of the objectives in focus, worked out in a transparent motivation that allows issues of ethical character to be noticed and discussed.

We also point to the significance of an extensive collaboration between analysts and actual participants in the situation of leading activities, in order to support co-description by expert participants in the situation. And to provide a prime source for information that may be processed critically in a reflection on the dilemma. Due to the centralized background for some analyses, in particular those that maintain the nomothetic and phenomenalistic basis for analysis (objectivist theories and quantitative empirical studies), they pay less attention to local dilemmas in complex micro situations and conflictual aspects than those management studies that are based on unique design and local involvement in the creation and use of the analysis. In particular, to deal with dilemmas specific for the Greenlandic management environment is – due to the specificity of possible particularities – conditioned by the use of unique analytical designs and the collaboration with the involved managers during analysis.

We investigated how four approaches to research place the decisions of ethical problems related to research. In the traditional (objectivistic and phenomenalistic) and modernistic (nomothetic and realistic) positions, the analyst maintains neutrality at a general level and pays no attention to unique local conflicts and conceptual or other contradictions between the observed and the observations. The analytical model does not always comply with the situation it is supposed to address. Three perspectives pay in different ways attention to conflictual situations and the legitimacy of the academic activity. In “post-colonial critical studies” dilemmas are identified in the perspective of the suppressed. Often analysts use action research approaches to propose ethical dimensions of research and to deal with legitimacy, i. e. to place the dilemmas in the hands of the investigated, or in a theoretical based discussion about the positions in social relations.

In the “Engaged Scholarship” perspective one develops the research in the perspective of an ad hoc approach to ensure the identification of legitimate issues that may arise during the study, based on both the loyalty to professional forums and the reflections within the research groups. Dilemmas are identified from the practitioners perspective. In the “idiographic situationist perspective” studies ethical issues and issues of legitimacy are in the hands of the academic analyst, who has the responsibility to see and deal with conflictual situations, probably in interaction with the investigated managers. Dilemmas must be formulated into the research when it is observed by analysts and local managers. The condition is that research processes are as unique as significant responsive events.

We point as well to aspects that are related to the journey of analysis, empirical work and reporting plus dialogue about what is known better, were differences based on the involvement in Greenlandic discussions and the ability to have admission to everyday life experience due to language abilities and to advanced academic competencies are relevant in Greenland. These aspects of dilemmas are more or less comparable to dilemmas that are well known in all ethnographic work but have particularities, in this case, deriving from the conditions that qualitative/interpretive work will meet in Greenland. Academic proficiency and experience will help to deal with these dilemmas, as well as local life-world competencies are very useful and often necessary in order to verbalize these situations.

 

References

Alvesson, M. & Spicer, A. (2016). The stupidity paradox, Profile Books

Bakka, J. F. (1997). Ledelse i Grønland. In Mosaik om moderne ledelse (pp. 188–197). Nyt fra Samfundsvidenskaberne.

Balslev, L. (2017). Actors and practices. An institutional study on management accounting change in Air Greenland. CBS PhD Series 27.2017

Becker, H. S. (1998). Tricks of the Trade: How to Think About Your Research While You’re Doing It. University of Chicago Press.

Blumer, H. (1969). Symbolic interactionism. Perspective and Method. University of California Press.

Daft, R. (2017). Organization Theory and Design. Vanderbilt University Press.

Denzin, N.K., Lincoln, Y.S. & Smith, I.T. (2014). Critical methodologies and indigenous inquiry. In Handbook of critical and indigenous methodologies. Sage

Dreyer, K.D., Sharma, V & Smith, W.T. (2020). Warm-Glow Investment and the Under-Performance of Green Stocks. In Financial Management Association Virtual Conference 2020. https://www.fma.org/virtual2020.

Freuchen, P. (1943). White Man. Westermann

Glomsrød, S., Duhaime, G. & Aslaksen, I. (2021). The Economy of the North – Econor 2020. Arctic Council Secretariat, Statistics Norway.

Hamilton, B.H. (2000). Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment. Journal of Political Economy 108, no. 3: 604–631.

Hegel, G.W.F. (1807). Phänomenologie des Geistes, System der Wissenshaft. Goebhardt.

Heinrich, J. (2012). Eske Brun og det moderne Grønlands tilblivelse. Arktisk forskningsjournal. Inussuk 1. Naalakkersuisut (Grønlands Selvstyre), Forlaget Atuagkat.

Hernes, T. (2014I). A process theory of organization. Oxford University Press.

Hernes, T.  (2014II). Proces, emergens og meningsskabelse. In Vikkelsø, S. og Kjær, P. Klassisk og moderne organisationsteori. Hans Reitzels Forlag.

Kahlig, W. (1999). Leder i Grønland – en kvalitativ holdningsundersøgelse. Ilisimatusarfik.

Kant I. (1983). Werke in 6 Bände. Wissenschaftliche Buchgesellschaft.

Knudsen, R. (2016). Perspectives on skills – an anthology on informally acquired skills in Greenland. University of Copenhagen. (A Greenland Perspective publication).

Kotler, P. (1967). Marketing Management: Analysis, Planning and Control. Prentice-Hall.

Langgaard, P. (1986). Modernization and Traditional Interpersonal Relations in a Small Greenlandic Community: A Case Study from Southern Greenland. Arctic Antropology, Vol. 23 (No. 1/2), (pp. 299–314).

Lynge, F. (2003). Kunuk op gennem tiden… In Winther, G. (ed.). Demokrati og Magt i Grønland. (pp. 25-29). Aarhus Universitetsforlag.

Merton, R. K. (1973 (1942)). The Normative Structure of Science. In Merton, Robert K. (ed.), The Sociology of Science: Theoretical and Empirical Investigations. (pp. 267–278). University of Chicago Press.

Merton, R. K. & Barber, E. (2004 (1958)). The travels and adventures of serendipity. A study in sociological semantics and the sociology of science. Princeton University Press.

Northhouse, P. G. (2019). Leadership – theory & practice. Sage

Nooter, G. (1976). Leadership and headship.- changing authority patterns in an East Greenland hunting community. Brill.

Pedersen, K. (2019). Problem and Problem Formulation. In Olsen, P.B. & Pedersen, K. Problem- Oriented Project Work, Samfundslitteratur.

Petersen, R. (1993). Samfund uden overhoveder og dem med. In Grønlandsk kultur- og samfundsforskning 93. Ilisimatusafik/Atuakkiorfik.

Porter, M.E. (1990). The Competitive Advantage of Nations. Macmillan.

Olsen, P. B. & Heaton, L. (2012). Enacting the new university principle over 40 years in Roskilde: Recilience in Flux. In Lyse, R. & Gingras, Y. Les Universités Nouvelles. Enjeux et perspectives. Presses de l’Université du Québec.

Olsen, P. B., Hansen, U. K. & Rasmussen, M. A. (2019). Quality Assessment. In Poul B. Olsen & Pedersen, K. 2019 Problem-Oriented Project Work. Samfundslitteratur (pp 189-206).

Rasmussen, M. A., & Olsen, P. B. (2020). Ledelse i Grønland: COVID-19
bryder med kendte aktiviteter og rutiner i ledelsesaktiviteten, Tidsskriftet Grønland 2/2020

Rasmussen, M. A. & Olsen, P. B. (2021). Ledelse i Grønland, SØJ working papers 2021/1, Ilisimatusarfik

Rendtorff, J. D. (2009). Basic ethical principles applied to service industries. Service Industries Journal, 29(1), 9-19.

Rendtorff, J. D. (2012). “Business ethics”. In R. Chadwick (red.), Encyclopedia of applied ethics (pp.365-372). Academic Press.

Rendtorff, J. D. (2013). “Basic concepts of philosophy of management and corporations.” I C. Luetge (ed.), Handbook of the philosophical foundations of business ethics (pp. 1361-1386). Springer Science+Business Media.

Rendtorff, J. D. (2016). Review of Le tournant de la théorie critique, Collection Solidarité et société.  Journal of Classical Sociology, 16(3), 305-309.

Rendtorff, J. D. (2019). Philosophy of Management and Sustainability: Rethinking Business Ethics and Social Responsibility in Sustainable Development. Emerald Group Publishing.

Smith, L.T. (2000). “Kaupapa Maori research” In M.Battiste (Ed.) Reclaiming indigenous voice and vision, (pp. 225-247). Vancouver. UBC Press,

Stacey, R.D. & C. Mowles (2016). Strategic Management and Organizational Dynamics – The challenge of complexity to ways of thinking about organizations. Seventh Edition. Harlow, Pearson.

Weick, K. E. (1979). The Social Psycology of Organizing (second edition), McGraw-Hill.

Van de Ven, A. H., (2007). Engaged Scholarship: A Guide for Organizational and Social Research, Oxford University Press.

Østergaard, C. B. (2004). Hegel og Åndens fænomenologi (The translators introduction to the Danish translation of Hegel’s the Phenomenology of Spirit). (pp IX-LV). Gyldendal.

Jacob Dahl Rendtorff, Cosmopolitan Business Ethics. Towards a Global Ethos of Management (Abingdon: Routledge, 2018)

Is ethics for business an oxymoron?

The role of the free market has from the beginning in the eighteenth century been contested. Adam Smith, the father of modern economics, is often interpreted as an advocate of an amoral free market regulated only by self-interest. He famously said in his work The Wealth of Nationsthat it is not from the benevolence of the butcher, the baker or the brewer that we expect our dinner but from their self-love or self-interest. This has been taken to imply that the major incentive or the major driving force of the free market is not the goodness of our heart but our self-interest, the strong desire to profit. If the desire for profit reigns supreme in all our economic activity all moral requirements become problematic in this sphere. If self-interest is the only or the most effective reason driving us in the economy then moral requirements become hindrances, they prevent us from profiting as much as we possibly can.

It needs to be said that this is not the way Smith himself thought of the free market. It was clear to him that moral requirements are a necessary feature of a free market. But he clearly believed that the free market did not work through the idea of the common good, the brewer did not provide his services because he believed he was contributing to the public good. He seems to believe that this was not an effective way to organise the free market. Self-interest was a much more effective way.

This way of conceiving economic activity has been problematic from the beginning. The first socialists believed that the major problem about the free market was that it should serve society as a whole, not only its participants. What they saw in front of their eyes in the first decades of the nineteenth century was that some people were becoming enormously rich while others survived in poverty and the rich were actually becoming richer because those who worked in their mills or other places of industry got meagre pay just enabling them to scrape by, not enough to live a reasonably good life. Karl Marx famously criticised the free market and saw no other way out of the problems he found than to overcome it, to get rid of the free market altogether and argued that the common good should guide all our actions. This has not proved to be a good solution to the problem of how we should coordinate our economic interactions. So we are stuck with the free market and constantly have to evaluate its benefits and drawbacks.

Jacob Dahl Rendtorff has written a book about business morality. His main idea is that businesses are not amoral agents in a free market pursuing profit regardless of anything else. They should be thought of as citizens in a republic with at least some, maybe all, of the obligations as real-life citizens. This is a pretty radical idea, especially in this day and age. The last decade has not only seen how the financial system, an important part of the free market, has collapsed in many countries and those in charge of the executive part of the state decided to pump enormous sums of money into the system to keep it alive. The reason why the financial system collapsed was irresponsible behaviour of the bankers, often clearly criminal. Unfortunately, the bankers have not been prosecuted and put into prison except in Iceland and even though they were among the worst of the lot I do not think they were the worst. Later the Panama papers were published demonstrating that vast numbers of people in business are just plain thieves hiding their money in tax havens to avoid paying taxes. The same applies to the international organisations themselves that move their income around ending up paying maybe 1-2% income tax. The third serious problem with international business is the free ride of the chief executive officers ripping off the organisations for their own benefit being paid millions of euros each year and there is no constraint within the business organisations on this behaviour in the boards or in special income committees keeping a lid on the pay rises of CEOs. This has resulted in the top executives earning 100 to 200 times the median pay in the market while it was maybe 5 to 10 times more forty/fifty years ago. There is no moral justification for increasing this difference and there is no reasonable argument for doing this based on better efficiency of the organisations themselves. So, all in all, the free market has not been a showcase of moral decency in the last 20/30 years and a substantial part of it has behaved like a band of gangsters. It is a reasonable question if ethics has anything to do with business, that it is not amoral but downright immoral or criminal.

It must be said that those working in business do not consider themselves as criminals or immoral agents. I guess this applies to most businesses. So we should keep the immoralities in perspective. The faults of the free market mentioned above are not the general rule even though the pay divide seems to be becoming general. But the important fact is that the free market is a part of the larger society and it should be so organised that it serves the common good. This means that it comes within the purview of morality. And it is important to understand how we should think about the free market and the businesses operating on it as moral agents. Rendtorff offers us a good guide to do just that.

He argues for corporate social responsibility which is more than following the law, it requires the firm to realise and put into practice its understanding of its moral responsibility. In this case it is its responsibility to its customers, it must produce products that can be sold on the market, it has obligations to its own society and it is to be expected that it contributes to its society beyond paying out its dividend to its shareholders. Its employees should not be forgotten either. One question about moral responsibility is who is morally responsible for the firm´s actions, the organisation itself or the executives that actually took the decisions leading to the action. The idea that the firm is a citizen requires that the firm or organisation is a moral person. Stating this is not to argue that the firm is a moral person. Rendtorff bites the bullet and accepts the notion of collective intentionality as describing the organisation based on the corporate-internal-decision-making-structure. This means that there are certain things in place in the organisation that make it possible to meaningfully say that it is a morally responsible agent, things such as value driven management and ethical structures. If these things are in place then it can be argued, as far as I can see, that the organisation is a moral person and hence can be considered a citizen. It should be said that this is not a nice knockdown argument as Alice in wonderland would have it but it is a serious candidate for an argument for this conclusion.

In addition, Rendtorff argues that the corporate citizen has cosmopolitan duties. It seems to me that this is natural because globalisation has been driven mostly by the interests of businesses. The author covers a lot of ground in this book, discusses issues like sustainability, stakeholder management and ethical accounting to name three. What I found most valuable and most interesting was his description and discussion of business ethics in Germany. This is, as he points out, a tradition unknown in the English-speaking world but it is socially valuable. All in all, this book is a substantial contribution to business ethics in English.

Jacob Dahl Rendtorff, French Philosophy and Social Theory. A Perspective for Ethics and Philosophy of Management (Dordrecht: Springer, 2014)

It might be argued that a rigorous study in the field of business and management theory could not adopt a pure philosophical perspective. By contrast, the peculiar effort of this book is precisely to present scholars perspectives useful for academic research in the areas of business theory and philosophy of management, without dealing with specific topics of these fields.

Continue reading Jacob Dahl Rendtorff, French Philosophy and Social Theory. A Perspective for Ethics and Philosophy of Management (Dordrecht: Springer, 2014)

István Sandor, Fiduciary Property Management and the Trust. Historical and Comparative Law Analysis (Budapest: HVG-ORAC, 2015)

The book by István Sándor, university associate professor with habilitation, was published in the autumn of 2015. It provides a historical analysis of the Anglo-Saxon trust, together with a review of civil-law institutions that have similar functions on the basis of comparative law. It is a unique work, offering an analysis of the institution of the trust within an international context.

Continue reading István Sandor, Fiduciary Property Management and the Trust. Historical and Comparative Law Analysis (Budapest: HVG-ORAC, 2015)

Compensating the Crashers

Before moving on, it is important to address the key-terms discussed in this article. “Executive compensation” is going to be used as a rather broadly defined concept, including (but not limited to) bonuses, stock options, and even pensions. Their uniting feature is that the company rewards their executives in this way on the basis of company performance (in theory, at least). It is also pivotal to state clearly what I mean by “Board” and “executive”. The former is the body that the stockholders elect to guard their common interest. The latter is an individual chosen by the Board to carry out the day-to-day running of the company. Executives are not members of the Board, but rather their employees.

Executive compensation is of course a very important topic for Boards and the stockholders that they ideally represent. In light of recent events it has become clear that it is also an important topic for politicians and the voters that they ideally represent. The thought has been widespread that if the Board wants to pay their executives ridiculous super-salaries, then that is their prerogative. The shareholders have invested their own money, the Board is their duly elected agent, and if things turn sour it will be the shareholders who carry the loss. Everybody else should just mind their own business. But as we gaze upon the stage today and realize that in Iceland, as well as in many other countries, company ownership is strangely reminiscent of North Korea, then it becomes obvious that executive compensation is in no way a private affair for the Board. Increasingly companies must consider factors like fairness, moderation, and take notice of the interest of other workers, shareholders, and the general public.

Although popular in many other countries, executive super-salary is a concept that only recently invaded the Icelandic psyche. The underlying notion is that by linking the salaries of the executive with the performance of the company, the company is effectively being put on autopilot and the Board members can with good conscience withdraw to improve their golfing handicap. A somewhat perversely socialistic idea of rewarding those that create the wealth and not just those providing the capital (Torrington & Hall, 1998). The obvious difference between these groups of people is that owners and investors bring capital into the company and their gains are proportional to their investment. Executives on the other hand, wager nothing. They have nothing to lose. It does not take profound knowledge of human nature to see that this kind of mutant Marxism will stimulate risk-taking by executives, who have much to gain from the company growing fast, but nothing to lose if things get tough. Some companies have responded to this conundrum by having executives taking loans to buy shares, a practice that I will discuss later in more detail.

But can it really be so that if the company puts forth demanding goals for growth and promises of bountiful bonuses if they are achieved, then no further governance is required? Of course not. Things are much more complicated. The first issue to be resolved is the question: “Which are the appropriate goals?” As shareholders own shares, it might seem logical to tie the goals of the company to share-price. But that is not always the best indicator of a company’s performance. Often shares in riskier businesses rise much higher at a given period than others. And the stock market is not always very sensible. Its behaviour usually seems more related to the mentality of herds rather than the exercise of common sense. Also, in very large companies, it can be exceedingly difficult for executives to affect their actual workings with their contribution. The simplest way for an executive to raise share-price is simply to buy other companies. In its short-sightedness, the market usually always responds to such a measure in a favourable manner. Another short-sighted move the market favours is laying off people. Both of these steps by and large cause share-prices to rise in the short-term. A time period surprisingly often just long enough for the executives to cash in their bonuses. In the aftermath, we find companies that are larger and more complicated or with fewer people on the payroll. The net result of such exercises can be rather slender.

The rather problematic relationship between share-price and performance is well known and has been tackled by some companies by tying bonuses to more numerous and varied goals. However, research has shown that the more complicated the goals become, the easier it seems for the executives to attain them almost automatically without any additional effort. Complex goals show high correlation with the amount of bonuses being paid out, but no correlation with the actual performance of the company. The result is an uncoupling from the interest of shareholders, which has been clearly demonstrated by the fact that the companies that have required the most government assistance in the crisis, have at the same time been contractually obligated to pay out the highest bonuses.

A prime example of the insanity that this culture of executive pampering has led to, tells of a reputed British banker. The man in charge of the Royal Bank of Scotland, who filled the list of the worst bankers in history (a list all too familiar to Icelanders), retired at the tender age of 50 with an annual pension of £703 thousand for the remainder of his life. This sounds quite extraordinary given the fact that Sir Fred Goodwin was responsible for major catastrophes such as the acquisition of the ABN Amro bank that resulted in RBS posting the largest loss by any company in the history of Britain, a staggering £24 billion. Even for an Icelander, accustomed to our banking wizards losing hefty sums, Sir Fred’s capacities in annihilating the balance sheet seem almost perversely admirable. This generous pension scheme had been approved by the Board and was in fact irretrievable despite the obvious and grievous harm that Goodwin had caused.

The eminent Canadian economist John Kenneth Galbraith once said that “the salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself”. As much as I admire Galbraith, I have to disagree with him on this point. First of all, I do think the market determines executive pay and compensations. The problem is that the market is sometimes absolutely brainless. Secondly it is almost never within the power of the executive to decide upon his salaries, but rather it is the Board’s decision. And it is there that the problem lies, and there were improvements can be realized. Granted, the development over the last few years has not been very encouraging. The salaries of top executives in Britain for example, have grown from being 17-times higher than the average subordinate, to 75-times higher in only the last 20 years. And please note that I am talking about average, i.e. not minimum subordinate wages. At the heart of this problem lies the familiar principal-agent dilemma. In line with Galbraith, it is obvious to point out that the interests of the company are likely to be quite different from the interests of the executive. Performance-basing executive compensation should strive toward giving (all) the shareholders the highest return on their investment. That is why it is extremely important that the performance-measures used accurately reflect this. It is for example critical to factor in the time-issue. There is an inherent danger that the long-term interests of the shareholders will be forfeited in exchange for the short-term interest of the executives. One such problem of time is linking executive compensation with stock-price. The value of a stock is based on expectation of future performance of a publicly traded company. But creating expectation of performance is quite different from actually delivering performance.

In this context it becomes very interesting to look at the changes in the role of the executive during the past decade or so in Iceland. It has moved from simply being on top of the employee pecking-order, to becoming compensated as an owner or a risk-seeking investor. Malcolm Gladwell provided an excellent account of the collapse of Enron in an article in The New Yorker in 2002. To an Icelander his observations sound eerily familiar. He maintains that the interests of the shareholders had given way to the interests of the company stars; a culture driven by management consulting firms, whose employees often graduate to executive positions in other companies (including Icelandic ones). Traditional attributes such as experience, education and seniority were redundant at Enron and replaced by inordinately rewarding the company’s stars. All of this was also part of the mantra being repeated for the Icelandic public when it dared to question the raison d’être for the humongous compensations being awarded to our home-grown finance stars. Following extensive deregulation and privatization it took these financial super-beings six years to bankrupt the whole country (interesting for investors to note that crisis unusually often follows deregulation and privatization).
But what is the actual correlation between bonuses and company performance? If we give way to cynicism, we might claim it to be extraordinarily strong: the higher the bonuses, the more spectacular the bankruptcy! But if we are advisors in some company’s remuneration committee, which would be the proper advice regarding the adoption of bonuses? Well, we could state that research shows that there is a weak but positive correlation between bonuses and company performance. The correlation coefficient is between 0.09 and 0.11. But what really stands out when one reviews the literature on executive compensation is that scientific research in the field is almost non-existing. Given the cost that the companies incur, this comes as a surprise. The proponents of these compensation schemes (a position sure to be rewarded with a bounty of invited speaking opportunities at exotic locations) frequently claim that one needs only to look at the annual outcome of companies to see that the more successful ones pay out more bonuses and options. Of course to anyone with a modicum of sense the fact that more lucrative companies pay higher salaries says absolutely nothing else than that. There is nothing to indicate a causal relationship.

What about stock-option contracts in which the employees have to take loans to buy shares and are then stuck in a huge gamble with their private fortunes for two to three years or longer? This was a common practice within the Icelandic financial sector and landed several executives with personal debts worthy of a small country. The laws applying to companies serve to limit the responsibility of shareholders. So stock-option contracts that require executives to take on such personal risks, actually counter the law.

Even though the stated purpose of Boards putting forth bonuses is to make the executives think more like owners, reality may contradict this assumption. Basic theories in portfolio management suggest that it would be in the executives’ own best interest, when they receive additional shares in the company, to sell what they had before. By doing that they would minimize the risk that comes from having too much capital invested in a single company. The risk of this “single company exposure” has indeed more to do with share-owning executives than with other investors, since the executives’ employment status is also linked to the company performance. Accordingly, studies by Ofek and Yermack (2000) show that executives that own shares in their company, usually sell them upon receiving new stock options. That will of course reduce the anticipated incentive the Board has in mind when giving out additional options.

Bonuses have to be considered in lieu of co-workers and cooperation within the company. Bonuses are by definition assigned to individuals. Their role is to further individual performance. That is in itself a conundrum, since we all realize that an individual by himself will accomplish very little within a company. The entirety of his accomplishment is indeed based upon his opportunity to seek help from his co-workers. However, if my supervisor calls me day and night, holidays not excluded, and requires me to work far beyond my contractual obligations, then of course it will leave a sour taste to see him walk away at the end of the year with huge bonuses while I am left with huge black rings under my eyes. Bonuses have to be fair with regards to co-workers. This is evident to most companies and those that dish out the heftiest bonuses are in the habit of ensuring that some crumbs are left for the plebeians. The overall result is often that married with increased risk-seeking, the companies’ overall salaries swell. Unfair bonuses can actually demotivate and destroy morale. In that way they can actually counteract their initial purpose.

An important and largely ignored issue is that of repeated bonuses. There is no question that most people would work like mad and increase their performance, if offered to double their salaries. If offered such doubling again the following year, again most people would readily accept and some people might be able to muster a slightly better performance (not twofold though). The bonus offered in year number three is however, not likely to do anything to enhance your performance, and indeed it is very likely that performance will actually be dwindling, if not for other reasons then exhaustion. Also suffering from exhaustion will be your personal relationships, health and all the really important things. In these situations, bonuses only work in keeping people, but do not have any effect on performance. And this is a key issue. In fact executive bonuses have been intended more to keep them put, rather than increasing their performance. But why do Boards pump more and more money into executives when they know that their performance is unlikely to improve? At some level it is due to a common attribution-error that has permeated both popular and academic writings on the subject. We all have a tendency to take the credit for our successes, whilst blaming our failures on the environment. In the almost unprecedented bubble-atmosphere we have been experiencing in the last few years, where almost all shares increase logarithmically in value no matter what, the Board which actually might have very limited true knowledge of the workings of the company, tends to take immeasurable pride in how shrewd they were in bringing in and/or keeping their star management-team. And thereby completely overlooking the fact that the success is simply driven by an overabundance of cheap credit. It takes strong bones to survive good days and in such a favourable atmosphere it is pivotal that the Board stays grounded in its decisions on remunerations.

A reasonable person will determine a certain degree of fairness between efforts at the workplace and the pay received for those efforts. We instinctively know when we are being treated fairly in that respect. And if we feel underappreciated paywise, we tend to reduce the level of output. Similarly, if given a raise we are likely to contribute a little more. However, if we are receiving, say, 240 times the pay that our lowest-paid co-worker is taking home, then we experience something of a crisis, because we can no longer justify the amount that we get. Still, human beings are, most often regrettably, very well endowed with all sorts of ways to justify themselves. So if we are being overpaid, we tend to justify it by manipulating our own sense of fairness. Instead of focusing on the relationship between your own pay-cheque and your contribution, you start looking at your pay in relation to what others are being paid. Is anyone less competent than you being paid the same amount? Or is someone just as competent as you getting paid more? Since the links to performance have been effectively severed, the end result is just higher wages without any increase in output. This practice then rubs off on other companies that will experience mounting pressure from their executives to play along.

But what happens with executives with stock options and bonus-contracts if the company is doing poorly? Ideally, motivated by their own personal gain, they should increase their efforts. However, that rarely happens. They will experience more stress, but their performance will not improve. The time they spend ogling the falling share prices is not productive. This applies specifically to those executives that have taken loans to finance their stock option deals. If the company is not performing, these people are not looking at lost bonus opportunities but actual personal loss. This is a very dubious way of managing performance.

I suspect a lot of people had high hopes in the aftermath of the current crises, that the super-salaries of executives would become a thing of the past. These hopes are likely to be crushed. I refer you to the strongest laws of economic theory, the bounty of greed and stupidity. The present crisis is neither the first nor the last. The first thing that surfaced from underneath the rubble this time was greed. Bankers are presently waiting to lock in even higher bonuses and options than ever before. Courtesy of the common tax-payer. The reason for these monstrous salaries, is said to be that the banks are in dire need to compensate their best employees, otherwise they may seek employment elsewhere (although where exactly is not fully clear).

But performance-based pay is not altogether a bad concept. It works well in various factories, for skilled workers and even among us lazy, no-good academics. However, I think it is pivotal to rein in the madness that has been going on amongst executives. This is the responsibility of the Board. But since it is the shareholders that select the Board, the ultimate responsibility lies with them. It is in fact noticeable how easily the Boards of many companies have been able to face public outcry.

It is absolutely necessary to keep in mind when deciding upon bonuses, that they should have a predetermined range. For example, that nothing is paid out before 80% of the goals are reached, increasing gradually until nothing extra is paid if 120% of the goals are reached. A part of the problem with bonuses has been a lack of cap. Share prices for example have no upper limit, and I think it really tests the individual to have his/her performance linked to that sort of compensation.

Executive bonuses should also extend longer into the future, even years after the person has given up his/her job. This might better guard against executives cashing out from decaying companies. In the case of stock options, it may prove valuable to put more consideration on the buying price for the executive. Some companies have supplied their executives with stocks below market value, which effectively generates profit immediately. Others have been supplied on the value that they were on the contract day. But isn’t in fact more proper to offer stock to executives at a price that is higher than the market is paying on the contract day? That would most likely guarantee that the executive would need to perform better.

The trading of company stocks is based on trust. The whole crisis for that matter is simply a case of sudden depletion of this most precious asset. People buying stocks must be able to absolutely trust that executives, Board members and accountants do their best to look after the interest of all shareholders. This is especially relevant for small investors since they often do not have the resources or the knowledge to pour over company statistics. Since portfolio theory would recommend the small investor to diversify, it places him in even more problems with monitoring his investment.

In Iceland there has lately been a lot of interest in calling to the table psychologists and psychiatrists to share their insights into sociopathic personalities. This in my view can only serve to muddle the discussion and divert it in unproductive directions. True, mental professionals have long since known that the ratio of sociopathic personalities in the top layers of business is much higher than in the general population, although the exact numbers are a matter of some debate. But if one looks at the definition of such individuals, for example in Cangemi (2010), it is not difficult to see how they become valuable in the environment of modern business. They are callous, focused, have a strong desire to destroy their competitors, delight in inflicting pain, and have remorseless willingness to do whatever it takes to reach their goals. However, I find the current obsession with sociopaths in business to miss the point. It was not that the ratio of these people had dramatically risen in the preamble to the crisis. And all the people that either partook in these dodgy dealings or failed to correctly signal what we were obviously heading toward, were not sociopaths. The cause of the crisis was not a personality issue, but rather one of politics and shoddy systems. And by focusing on personality we risk averting our eyes from, and neglect the real issues that need attention. Anyone who reads history knows that sociopaths have filled the top layer of society from its very beginning. So nothing new there. But focusing on the role of the sociopath in bringing about the crisis also alleviates responsibilities. It somehow brings the message that we have been attacked by criminals, instead of building up a failed system. Greed and stupidity are universal personality trends, not disorders of the few.

The principal-agent dilemma needs to be recognized as a problem of Boards of companies as well as their executives. The Board is the highest authority of the company excluding the shareholders themselves. It fails mainly due to two reasons. Firstly, the owners can be short-sighted and only on the lookout for quick and easy gain. In that case they will soon leave the company a hollow shell having stripped its assets or engaged in excessive borrowing. In Iceland this was a common practice leading up to the crash, and even glorified in the popular press as a part of the Icelandic business genius. Secondly, the Board may be representing the owners by proxy. This happens when the Board is comprised of representatives from pension funds, banks, hedge funds et cetera. Funnily enough, one of the most durable mantra of Capitalist thinking is that people take better care of their own money than other people’s. However, in practice this is rarely the case. Such arrangements really magnify the principal-agent dilemma, and are probably the most important issue to address if we are to regain an acceptable level of trust and sanity within the financial system.

In restructuring our system of finance, business and politics, we would be well advised to head the tried and tested adage; hope for the best but prepare for the worst. An executive will not think like an owner just because he’s being compensated as one. The most dramatic improvement to the financial system would be realized if we could get the owners to think like owners, i.e. to guard the interest of the company in a longer term. This is the really important principal-agent problem, because at the end of the day it’s the decisions made by the Boards, not executives that sink companies.

Conflict of interest

Dr. Arnarsson would like to state that he was himself a recipient of stock options in his former employment within international pharma.

References

Cangemi, J. P. (2010) Sociopaths In High Places. Organization Development Journal. 15 Feb, 2010. http://findarticles.com/p/articles/mi_qa5427/is_200907/ai_n32127546

Gladwell M. (2002). The Talent Myth – Are smart people overrated? The New Yorker, July 22, 2002

Ofek E. & Yermack D (2000). Taking stock: Equity-based compensation and the evolution of managerial ownership. Journal of Finance, 55, 1367-1384

Torrington D. & Hall L (1998). Human Resource Management 4. ed. Prentice Hall: London.