Sunday, August 26, 2012

Best Buy and Organizational Rationality

 Richard Schulze, the founder and largest shareholder of Best Buy, the “big box” electronic retailer, has announced his intention to buy back the firm by leading a leveraged buyout (LBO). Analysts are skeptical that he can attract the necessary venture capital. He is offering about $25 a share, but the stock is currently trading at about $18. It is unclear why investors would want to pay such a premium. Should he succeed, the company would have to take on an additional $7 billion in debt. If successful, the leveraged buy-out would mean that costs would have to be cut significantly. Moreover, Best Buy is in trouble. While its chief competitor, Circuit City, went bankrupt at the beginning of the Great Recession, it now faces competition from Amazon with its online sales capability, and Apple with its boutique retail outlets. It lost $1.7 billion in the first quarter of this year.

The proximate stimulus for Schulze’s leveraged buyout offer was his forced resignation as the chairman of the board. As the New York Times notes, “Late last year, Mr. Schulze, now 71, received a written statement from an employee “containing specific allegations about a possible inappropriate relationship” between Brian J. Dunn, the 51-year-old chief executive, and a 29-year-old female employee, according to a report by the company’s audit committee. Mr. Schulze confronted Mr. Dunn, who “adamantly denied any inappropriate conduct or romantic relationship with respect to the female employee.” Mr. Schulze accepted his word and viewed the matter as settled. He did not tell any of his fellow board members as was required by the company policy.”  In addition, he told Dunn who had filed the written statement.

The audit committee of the board, commissioned an investigation of Dunn’s behavior. The report concluded that, “The CEO violated Company policy by engaging in an extremely close personal relationship with a female employee that negatively impacted the work environment. He also violated Company policy by soliciting from a vendor a complimentary ticket for the female employee. His relationship with the female employee demonstrated extremely poor judgment and a lack of professionalism, but the inquiry revealed no misuse of Company resources… In addition, as part of the investigation, it was determined that the Chairman of the Board of Directors (the “Chairman”) acted inappropriately when he failed to bring the matter to the Audit Committee of the Board of Directors in December 2011, when the allegations were first raised with him.”

It is worth asking why the board took the extreme step of dismissing its chair and founder. He was the architect of the firm’s success, had appointed every prior CEO, was the major shareholder and, as his plan for the LBO suggests, he could create trouble. Indeed, one analyst described the board’s action as a “palace coup.” One hypothesis is that the board’s decision about Schulze was colored by the nature of Dunn’s faulty decision, namely, a decision to conduct a "close personal" relationship that “negatively impacted the work environment.”

The use of the term “close personal” is suggestive. I want to propose that the foundation for a psychologically secure work setting is paradoxically impersonal. In such a setting, a person is only as good as his or her past effectiveness, and should it prove wanting, the organization can fire the person. The organization is obligated to meet customers’ needs, not employees’ needs. To be sure, organizations should not be brutal. But this ethic of impersonality means that there is an element of indifference that shapes the psychological climate of the modern performance organization.

How can such an ethic possibly create a sense of psychological security? Because it also means that supervisors cannot “play favorites” based on personal preference, and people in authority cannot act arbitrarily in allocating tasks and rewards. Personnel decisions should be based only on what contributes best to the organization’s performance People experience such an organizational climate as rational, and this rationality is a partial compensation for the indifference. The climate may be challenging and the setting unkind, but it is not arbitrary. The organization’s rationality is the analogue of civil society’s “rule of law.”

This is an ideal of course. Informal social networks, through which people provide advantages to others who share the same social background, shape organizational life. Personal preferences can matter. But it is a measure of some progress that executives in authority are held accountable for minimizing the impacts of such preferences. This is the basis for most human-resources policies, and for anti-discrimination laws. When a discrimination claim leads to a legal suit, the rule of law and the ideal of organizational rationality are joined.

Yet, there is no reported evidence that Dunn favored the woman with career opportunities or company resources. Moreover, office romances are strikingly common. As one survey of 7,800 workers reports, “Nearly 40 percent of employees say they’ve dated someone at work, and of those almost 30 percent say they’ve hooked up with someone above them in company rank.”

This suggests that there was something egregious or unseemly about Dunn’s behavior. What could that be? The audit committee's report notes that Dunn and the unidentified woman had numerous private meetings and exchanged “hundreds of text messages and phone calls.” Moreover, as the audit committee’s report notes, he had asked a vendor to provide the woman with a free ticket for a concert. One explanation, buttressed by the report, is that what was unseemly was not simply or only his behavior, but his obvious lack of discretion and poor judgment. After all, as the audit committee’s report suggests, people knew about the pair’s relationship, and it is likely that some people observed moments when the couple sought out a setting for a private meeting. Perhaps what upset people the most is that Dunn allowed a sexual attraction, which is never reasoned and is always arbitrary, to undermine his good judgment.  

Why is this upsetting, why does it create a negative work environment? According to this line of thinking people did not imagine that the woman was being favored. Rather, they saw the CEO succumb to sexual impulses, strong enough that they ruled out discretion. As a result he became a poor representative of organizational rationality. As the saying goes, he “fell head over heels.” Of course, there are many times when a CEO may give way to his or her impulses, for example in fits of anger. But these instances are often linked to the tensions of the work itself. In this sense they can be explained, even if they are unreasonable. Succumbing to a sexual attraction has no such explanation. 

This account provides a plausible explanation for the board’s willingness to be so bold as to stage a “palace coup.” They saw Dunn’s behavior and Schulze’s behavior as cut from the same cloth, as part of a single episode.  Just as Dunn failed to represent organizational rationality, Schulze violated it. He did not follow company policies and board rules. Instead, he failed to report the complaint against Dunn to the audit committee, and told Dunn the name of the employee who had lodged the complaint. It is a cardinal rule of organizational rationality that people who lodge complaints against senior executives have the right to remain anonymous. Otherwise they might be punished for their truth telling. Dunn’s poor judgment and lack of impulse control colored the board’s estimation of Schulze’s behavior, which in other circumstances they might have forgiven with a reprimand.  

In this context it is no accident that Schulze wants to take the company private. As a private company Schulze would be less shackled by the “rule of law.” The company would become his private domain. It is also likely that his decision to attempt an LBO has some of the same impulsive qualities that shaped Dunn’s behavior. After all analysts are very skeptical he can succeed. Moreover, taking on too much debt could jeopardize Best Buy, just when it has to restructure its entire operation to remain competitive.  Schulze may be trying “to get even,” a sorry basis for a rational investment decision. One wonders if board members experienced Schulze as increasingly impulsive even prior to the Dunn affair.

There has been a tendency in management literature to poo-poo organizational rationality, as if it were an ideological description of the organization that bears no relationship to real organizations.  Of course there is much irrationality in organization life, as this very case suggests. But that does not mean that the ideal of rationality, when conceived of as the “rule of law,” should be dispensed with.

Tuesday, August 14, 2012

Romney's choice of Ryan as his running mate: A psychodynamic look.

Presidential candidate Mitt Romney has chosen Paul Ryan as his vice presidential candidate. Journalists and bloggers consider the choice to be a bold one since it links his candidacy to the most conservative wing of the Republican Party, and therefore risks losing voters in the center who may still be undecided. Ryan stands for fiscal astringency, reducing social welfare programs, privatizing elements of Medicare and Social Security, all joined to a stout opposition to abortion rights, gun-laws and same-sex marriage. The decision is bold presumably because Romney can now draw a clear line of demarcation between himself and Obama, rather than arguing that he is better able than Obama to pull the economy out of the “Great Recession.” Romney in this sense has “drawn the line in the sand,” highlighting, to the greatest degree possible, his differences with Obama.

There is of course a political discourse to consider in assessing Romney’s choice. For example, does Romney risk losing undecided voters even as he invigorates his base. But I want to propose that we can also look at this decision from a psychodynamic point of view, as a case of how emotions shape executive level of decisions.

Perhaps the most important issue to ask is, to what degree, by selecting Ryan, does Romney now depend on him to define his own place on the political spectrum? The day after the announcement a member of Romney's campaign staff saw fit to tell reporters that the ticket is “Romney/Ryan, not Ryan/Romany.” Similarly, one journalist wondered if, by choosing Ryan for the reasons he did, Romney has to some degree diminished his own stature. It is common for presidential candidates to choose their running mate on the basis of the latter’s distinctive strengths. One is reminded here of Kennedy’s choice of Lyndon Baines Johnson as his running mate. The latter had a political base in the South that Kennedy lacked. But it is less common for a presidential candidate to choose his running mate based on his own weakness or limitations.

I am drawn to a “slip of the tongue” Romney made when first introducing Ryan as his running mate in front of an enthusiastic crowd. Describing Ryan before he joined Romney on the dais, Romney called Ryan, "The Next president of the United States!” The psychoanalytic perspective presumes that slips of the tongue such as this one have meaning, that is, they are motivated rather than random.

Now one simple explanation for this slip is that Romney had imagined hearing, in a kind of daydream or fantasy, the phrase, “The next president of the United States,” over the course of his campaigning. This fantasy would be a simple way of anticipating the relish he would feel upon being introduced in this way after his victory. His slip is simply a way of expressing this relish. Indeed, Obama made the very same slip when introducing Biden as his running mate in 2008. But there was a difference between the two slips. Obama corrected himself immediately, as most people do after a slip, saying “the next president, uh vice president..” Romney corrected himself only after he had left the dais, and returned– to interrupt Ryan - clearly having been coached by aides who let him know what he had said. 

In looking at such a slip are we making a “mountain out of a molehill?” Freud spoke of the "psychopathology of everyday life" to describe how moments of emotional gravity can be revealed in apparently trivial ways.  It is useful in this context, to think how psychoanalysis parses such “Freudian slips.” The slip is the intrusion of an idea or wish that the person considers unacceptable, that is, something you would not acknowledge in public, but that nonetheless is a source of considerable gratification. For example, I recently spoke with a practicing physician, who in describing the outcome of a clinical trial he was conducting for a drug company, referred to its “secondary income.” A slip such as this is funny because the unacceptable idea, in this case he was making extra money by working for a drug company, rides on the back of the acceptable idea, his research had an outcome. In this case, the word “in” sneaks past and displaces the word, “out.”

One hypothesis about slips is that the longer it takes the person to correct the slip, if he ever does, the more powerful is the gratifying idea or wish. The ego, which monitors one’s self-presentation constantly, can’t resist the intensity of the wish. It fails as a censor. But the pleasant day-dream of hearing the phrase, “The next president of the United States,” is an unlikely candidate for such a powerful wish, particularly for a man like Romney who has great self control and tremendous discipline. So if we proceed along this line of argument we are led to speculate about what wish could be powerful enough to escape an ego’s ability to censor it. What wish is gratifying enough for Romney to imagine Ryan, rather than himself as president? 

I am drawn here to Mitt Romney’s very close relationship to his father, George Romney. He regarded him as his mentor and guide and it appears that they had a loving relationship. George Romney was a great success in business, as was Romney, was the governor of a state, as was Romney, and like Romney, campaigned in the 1968 Republican primaries to be the party’s presidential candidate. Though a fiscal conservative, he was a firm supporter of civil rights for African-Americans and therefore opposed Barry Goldwater’s bid for the Republican nomination in 1964. At the time, Mormon Church-doctrine held that African-Americans were inferior, and one church leader wrote George Romney a personal letter warning him of his failure to support church teachings. While he endorsed many “law and order” measures and believed that crime was the result of moral decay, as governor, he also introduced Michigan’s first state income tax. In addition, “he held a series of governor's conferences, which sought to find new ideas from public services professionals and community activists who attended. He opened his office in the Michigan State Capitol to visitors, spending five minutes with every citizen who wanted to speak with him on Thursday mornings, and was always sure to shake the hands of schoolchildren visiting the capitol.  He almost always eschewed political activities on Sunday, the Mormon Sabbath.” Upon withdrawing from the primaries and ceding victory to Richard Nixon, he wrote to Mitt, then a missionary in France, "Your mother and I are not personally distressed. As a matter of fact, we are relieved. We went into this not because we aspired to the office, but simply because we felt that under the circumstances we would not feel right if we did not offer our service. As I have said on many occasions, I aspired, and though I achieved not, I am satisfied."

The picture one gets is of a man who lived on a moral plane, who believed in his own agency, as well as his obligation to serve, who took his religion seriously, had a dramatic conception of his life, and took up the complexities and contradictions of his own background and experience with zest and commitment

There is reason to believe that Mitt shares many of these features, that he has indeed followed in his father’s footsteps. He is a devout Mormon, by all accounts personally very generous, pragmatic, focused on social justice, but also committed to the idea of personal responsibility. These characteristics certainly shaped his attention and commitment to health care insurance reform in Massachusetts. Poor people needed help, but everyone had to contribute. If you were uninsured but used hospital services when sick, you were irresponsible.

One hypothesis is that because politics is now polarized, Romney has been unable to express the complexity of his own political and personal makeup. Political discourse is too black and white. Moreover, the electorate may not tolerate a man motivated by his Mormon beliefs.  This may explain why Romney has appeared stiff and uncomfortable in public and why his candidacy lacks a certain passion. He cannot be wholly himself. By choosing Ryan, he borrows the latter’s single-mindedness and the zeal of the conservatives who see Ryan as their representative. In this sense, we could say that choosing Ryan was not bold, and indeed may have been made out of fear. In this way of thinking, to act courageously, he has to be fully himself in all his complexity, and take the risk that a polarized electorate might reject him. Indeed, it appears that Romney father’s lived out this choice, and this was one reason for his own political defeat. If Romney experiences his father as an ideal, then it makes sense that his own choice, to be evasive and withdrawn, is an act of bad faith and a disappointment to the “father in his mind.”

This line of thinking may shed some light on his slip of the tongue. In describing Ryan, many have noted that, with the difference in Romney’s and Ryan’s age, Ryan could be Romney’s son. Journalists have also commented on how Romney often likes to surround himself with young hard-working men. In other words, he thrives in settings where he is a father figure to sons. Perhaps his slip expresses the wish that he is no longer in the position of a son who needs to follow the example of a father, but that he is now the father whose primary obligation is to support and nurture a son. This wish, to be the father rather than the son, relieves him of the bad faith he feels in not following in his father’s footsteps, since he forgoes his own striving. The more he idealizes his father, the more powerful would this wish be. Perhaps this helps explain why he made his slip of the tongue and did not correct it. It also lends a psychological truth to some observers’ conception that the ticket is Ryan-Romney rather than Romney-Ryan. If this analysis is sound, it suggests that Romney’s choice, even if it were politically astute, was in some degree psychologically compromised.  

My skeptical readers may look askance at this kind of speculation. But I want to emphasize that many observers use an unexamined psychology, we can call it “common sense” psychology, to understand political figures. For example, political figures are regularly presumed to be ambitious, fearful, self-interested, generous, crafty etc. I call it common sense psychology because we often see no reason to justify our inferences. But since we cannot observe any of these traits, only people’s actions, it is fair to say that this kind of psychology is speculative as well.  What is discomfiting about a psychoanalytic psychology is that, as a depth psychology, it presumes that motives are many sided, that people can express contradictory feelings, that family influences on a person are formative but often out of awareness, and that actions, like a slip of the tongue, are unconsciously motivated. So the issue is not whether or not we can speculate, but on what grounds and through what methods we come to our conclusions. I would be interested to hear what people think of this kind of reasoning about political figures.