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Published: November 29, 2005

 
 

Best Business Books 2005: Management

Charles Ponzi remained irrepressibly optimistic as he twisted and turned to find legitimate, profitable businesses that would allow him to restore his fortunes and repay his creditors. When his business model was criticized by Clarence Barron, owner of Dow Jones & Company and doyen of the era’s financial journalists, Ponzi replied that Mr. Barron just didn’t have sufficient knowledge of foreign exchange to understand it. When a last-ditch attempt to sell his company to another group of shady investors failed, Charles Ponzi was doomed. Twenty thousand investors received 37.5 cents on the dollar in the largest and most complex bankruptcy that Massachusetts had ever seen. Ponzi himself served four years in a state prison and seven years in a federal penitentiary before being deported to Italy. He died penniless in Rio de Janeiro in 1949.

Ponzi’s thoughts on ethics in business from his 1937 biography echo down the years: “The [American business] environment had made me rather callous on the subject of ethics…. Then, as now, nobody gave a rap for ethics. The almighty dollar was the only goal. And its possession placed a person beyond criticism for any breach of ethics incidental to the acquisition of it.”

The Fundamental Error
In business, executives usually take personal credit for success and blame any mistakes or failures on circumstances beyond their control. Cases of outright fraud such as those at Enron, WorldCom, and Adelphia, and the recurrent abuses of the public trust on Wall Street, are usually ascribed to the actions of a few bad apples rather than problems with either the barrels that store them or the trees that grew them. The tendency to attribute outcomes to personal predispositions rather than situational factors is so widespread that in social psychology the phenomenon has been named the “fundamental attribution error.” In American management, where the belief in the powers of individual effort and of the entrepreneurial spirit are articles of faith rather than hypotheses for testing, the fundamental attribution error seems to be endemic. At some level of abstraction, this is as it should be: Fatalistic cultures that do not believe in the ability of individuals to control their own lives typically struggle to develop vibrant economies.

At finer scales of analysis, however, the power of context cannot be dismissed so lightly. There are numerous instances of industries in which companies and managers are clearly constrained — the Big Three auto companies, integrated steel mills, and the major airlines come to mind immediately. In such firms and many others like them, there is little talk of activist, optimistic strategy making; managers are bound by the laws of the situations in which they find themselves. Lost in a maze of constraints, at times they appear to be waging a zero-sum game. It’s a battle in which combatants make use of every stratagem available to them, from government support to the bankruptcy laws, to shed obligations incurred during better times and to avoid having their bones picked clean by the vulture capitalists circling overhead.

What executives in these industries, as well as others in less extreme competitive situations, need above all is to understand the contexts in which they operate. The most interesting new theories in management are those that are rooted in contextual analysis (Clayton M. Christensen’s “Innovators” series, for instance, or, as a more recent example, “Format Invasions: Surviving Business's Least Understood Competitive Upheavals,” by Bertrand Shelton, Thomas Hansson, and Nicholas Hodson, s+b, Fall 2005). The most interesting business books of the future will be those that keep in mind the unvarnished reality: Sound management advice needs to be based on real business situations.

 
 
 
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