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Howard Dresner recently spoke with Dr. Thomas Malone, who is the Patrick J. McGovern Professor of Management at the MIT Sloan School of Management. Professor Malone is also the founder and director of the MIT Center for Coordination Science and was one of the two founding co-directors of the MIT Initiative on "Inventing the Organizations of the 21st Century". Their discussion centered around his book, "The Future of Work" and covered a broad range of topics dealing with emerging organizational structures and their impacts. Interview conducted 8 March 2005
Howard Dresner: In your book, "The Future of Work," you took some positions regarding the structure of future organizations. And I would like you to spend a moment, if you would, describing those positions and also talk about the trend toward decentralization and the anticipated benefits of that. Thomas Malone: OK. I think we're in the early stages of an increase of human freedom in business that may, in the long run, be as important a change for business as the change to democracies has been for governments. The reason I think that's happening is because for the first time in human history it's now possible to have the economic benefits of very large organizations — like economies of scale — and at the same time have the human benefits of very small organizations — things like freedom, flexibility, innovation and creativity. And the reason that's possible is because a new generation of information technologies — like the Internet, the World Wide Web, e-mail and business intelligence — is now making it possible for huge numbers of people, even in very large organizations, to have enough information to make sensible decisions for themselves instead of just following orders from someone above them in the hierarchy. So, it's the technology that's making it possible. But just because something is possible doesn't mean it will happen. What will drive these changes is what people want. And so, if we want to predict these changes — and especially if we want to shape these changes — we need to think much more deeply than we usually do about what it is that we humans really want.
You talk about communication costs as an enabler. But it seems to me there are probably other things that would be necessary — maybe as a result of lowering communication costs -for this to be successful. What would those be? Malone: Well, the thing that is changing, from a technological point of view, is that the costs of communication are going down to a level that's never in the history of humanity been anywhere nearly approached. I view that as an enabler rather than a driver. So we couldn't have these very large decentralized organizations without cheap communication, but the drivers will be the things we want and that we can often get in these more decentralized organizations. It turns out that when people are making decisions for themselves instead of just following orders, a bunch of good things often happen. They're often more highly motivated, they're often more dedicated, they're often more creative. They're able to be more flexible and respond to the individual local situation in which they find themselves rather than following some rigid rules set down from on high. And finally, they often just plain like it better. Now, those benefits of decentralized decision making are not always important. In some cases, like making semiconductor chips, the most important thing by far is the economies of scale. And in cases like those, where there aren't particular benefits from decentralized decision making, I would expect cheaper communication cost to lead to more centralization rather than more decentralization. But in our increasingly knowledge-based and innovation-driven economy, the critical factors for success are often precisely the things that are the benefits of decentralized decision making: creativity, innovation, motivation, and so forth. So, that's why, in more and more places in our economy, technology would make it possible for — and our desires for flexibility and innovation will drive the change toward — more and more decentralized decision making over the next few decades. Dresner: Clearly, there are some industries that you cite and that I think most people would say, "That makes great sense for any decentralized or very loose organization — consulting or retail in some instances." And then, there are others like certain kinds of discrete manufacturing where that probably wouldn't make sense. What are some other examples where it clearly makes sense and others where it absolutely doesn't make sense? And then, within an existing enterprise that may be somewhat centralized, which units or which functions would it make sense to decentralize? Malone: The answer is complex, but in general we should expect to see more decentralized decision making in places where its benefits are important and where its costs can be overcome. For example, most things we would call knowledge work, most things that depend on innovation and creativity, are places where we should expect to see this kind of decentralized decision making. You mentioned high-tech consulting. The R&D parts of many companies, even when the manufacturing parts of those companies may be more centralized, are places where I would expect to see these changes happening sooner rather than later. But that doesn't mean that there are places where it couldn't possibly happen because, in many situations, you, as a manager have a choice about what strategy you want to follow. If you're running a factory, for instance, you could choose to run that in a highly regimented, highly centralized, rigidly controlled way. And you might be successful. But you could also take the very same factory and try to run it in a much more decentralized way — a way that relied on the creativity of individual workers on the factory floor, etc. In fact, things like quality circles, which were a big deal a decade or two ago, are an example of precisely that — of trying to draw on the creativity and innovation of the first-line factory workers to make the work better. And if you followed that strategy, you might also be very successful. So, to some degree, the decision of whether one should use decentralized decision making is not just a function of the industry or the business function. It's also a function of what strategic positioning you want to use to try to capture benefits and advantages in your situation. Dresner: So, if we take a look at some of the more extreme models — democracy or the market scenario — what would be the things that would accelerate that process? And what might inhibit it? Malone: Well, let me back up a minute and give a perspective before I answer the direct question. One of the things that I did in my book, as you know, is look at the whole sweep of human history and how human societies have been organized. Doing an exercise like that is very sobering. It gives you a much deeper perspective on how non-linear these changes are. It's not the case that things advance monotonically and steadily in one direction, and that's the end of it. If you look at human history and the rise of things like democracy, you see a much more complex pattern. Democracies, for instance, were tried on a small scale in ancient Athens and then died out and weren't really tried in any serious way again for almost a couple of thousand years. Then, with the American Revolution and the French Revolution, we saw the beginnings of large-scale democracies for the first time. But the trend — which I think most people would agree is at least, in general, a trend toward more democracies — is still going on. It's been going on for a couple of hundred years. There is a lot of violent conflict in the Middle East right now about whether, when, and how a number of countries are going to move in a more democratic direction. It's even been the case that democratic countries have elected leaders who became dictators. So, it's certainly not a steady progress in one single direction. There's a lot of back and forth, up and down, false starts, and all kinds of things that happen as these changes are occurring. And I don't think there's any reason to think that the changes in business will be any less complex than the equivalent changes in governments have been. So, we'll see plenty of ups and downs, back and forth, and false starts over the next few decades as our economy and our society move in the direction that I think is likely, which is toward more and more of these decentralized decision-making structures, including loose hierarchies and democracies and various kinds of markets. Now, all that being said, what's likely to accelerate, encourage or facilitate that transition? There are three kinds of things. One is things that increase the desirability of the changes. Another is things that decrease the costs of the changes. And the third is individuals who have the vision to make them happen. So, things that increase the desirability would be desires for innovation, desires for satisfying work and desires for flexibility in one's lifestyle. Those are choices that we, as individual people and as workers, make. Our own values will influence the rate at which these changes occur. Another thing that will affect the rate at which these changes occur is the costs. In some sense, one of the main points of my book is that information technology is reducing one of the most important costs — the cost of communication. But there are also some costs of figuring out how to structure organizations in more decentralized ways. Just because you have the technology to do it doesn't mean you know who is going to make what decisions, what rules you'll follow and how responsibilities will be divided. And there are a lot of organizational inventions that we need to make to figure out how to do these things in more situations. Dresner: You used a term — "organizational invention." Can you explain what you mean by this? Malone: Well, it's a term I've used before. In fact, you might not remember it, but one of the things that led to the writing of this book was the work I did for the last five years of the 20th century co-leading an initiative called, "Inventing the Organizations of the 21st Century." So, I think that there really is an opportunity to apply an inventive mindset to not just technologies, but to organizations. In fact, we often think in the IT industry about a kind of technology stack. At the bottom level, you've got hardware. And then you've got various levels of system software and application software. I think there's also a higher level to that stack, which is not the technologies themselves but the organizational structures and processes that use those technologies. And my opinion is that, while there's not likely to be any decrease in the inventions at the technological layers of that stack, some of the most important innovations in the coming decades will not be in the technologies, but in the organizations that use those technologies. So, an example of an organizational invention would be one of the scenarios I talk about in the book, which we developed working with Intel. The problem that we worked on was how Intel decides which products to make in which factories at which times. That decision is today made in a very complex, hierarchical process that involves plant managers, factory schedulers, strategic planners, division managers, product managers and many, many other people. The possibility we explored was that that same decision might be made much more efficiently and flexibly by a market-like decision-making process. The basic idea is that the plant managers could become sellers. They would sell the rights to have a certain type of product available at a certain time in the future. And the Intel salespeople would be buyers who would buy the rights to have a certain product at a certain time in the future with the expectation that they could then resell those products to external customers. Then, from the interaction between those internal sellers and those internal buyers, the prices for different products at different times in the future could be continually fluctuating as new information became available. For instance, if Dell decided to postpone a plant order from January to June, then the salesperson dealing with Dell would sell the rights for products in January and buy them for June. This would make the prices for January go down and those for June go up. And through all those decentralized interactions, the prices in this internal futures market, if you will, could be continually varying. Then, as you approach the time at which the factory needs to start the creation of a given product for a given date, the prices in the internal market would essentially say which products would be (in the collective judgment of everyone participating in this internal marketplace ) the most profitable for the company as a whole. And those are the ones the plant managers should actually make. Dresner: That's a great example. Thanks. Malone: It's an example of an invention. It's a way of doing things very differently from the way we would usually think of doing them. It requires a fair amount of detailed design and planning. In fact, we've done some of that working with Intel so far, but there's still a significant amount to be done to make things like this usable in the real world. And it's very much equivalent, I think, to inventing a new kind of technology. But in this case, you're inventing a new kind of organizational process. Dresner: Excellent. Now, there are going to be visionaries out there, or some who think they're visionaries, who say: "This is a great idea. I'd like to find ways to decentralize my organization to delegate a lot of the authority of decision making." And some may succeed. I suspect others may fail. What's the proverbial 12-step program, if you will, to make the transition from centralized to decentralized? Malone: I don't think there's a simple 12-step program. These processes of organizational change are very complex. They require skill and art as well as vision. In some cases, big, centralized companies will succeed in making these changes. My suspicion is that they'll be the exceptions rather than the rule, because for this to happen, somebody who has power has to voluntarily give it away. Lou Gerstner at IBM is an example. He went into an organization that was famous for its hierarchical centralization and changed it in important ways. It's not the most decentralized company in the world today, that's for sure. But I think most people who know IBM would agree that it's less centralized now than it was when Gerstner took over. So he had the vision to see what was possible and the power to make it happen. But people who do that, who spend their lives rising to positions of significant power in highly centralized organizations and then when they get there say, "What the heck. I'm going to give this power away," will be the exceptions rather than the rule. Dresner: You use IBM as an example. And in your book, you suggest that it might have been better off breaking up into multiple independent companies than being centralized, though you give Lou Gerstner credit for having done a pretty good job. My question is, if you're trying to provide a solution to a customer that draws from these different units or divisions, does it make sense to break those up as independent units? Doesn't that make it more difficult to coordinate a single solution for the customer? Malone: Let me go back and slightly amend something you said. At the time Gerstner took over IBM, the vast majority of analysts and business journals were convinced that he should break up the company. He went against that common wisdom and was very successful in doing so. I did, in my book, make a comment in passing that even though we know he was successful with what he did, we don't know what would have happened if he had done the opposite. It's possible that could also have been successful, maybe even more so. But he certainly was very successful in the path he did choose. So, the question of how to coordinate things if they're not all part of the same company is a very important one. And it gets to what I call the centralized mindset that many of us have. Many of us assume that if there's a problem, the way to solve it is to put someone in charge. If there's coordination that needs to be done, the only way we can imagine doing it is to have a hierarchy with a boss who does the coordination. But if you think about it for a minute, there are other situations which we completely take for granted where that's absolutely not the case. Anywhere there's a free market, for instance, coordination occurs, but no one is in charge of it. Consider, for example, the worldwide market for cotton, or for blue men's dress shirts. There's no CEO of the worldwide market for cotton. There is no CEO of the worldwide market for blue men's dress shirts. The decisions about how many bales to produce, how many blue shirts to create and where to sell them are made by the interaction of thousands of independent buyers and sellers all over the world. And yet, most people would agree that those decisions are made pretty well — that, on the whole, we get about as many men's shirts made as people want to buy and about as much cotton produced as people want to use without any centralized control occurring anywhere. So, it's certainly possible to have very effective coordination done in a marketplace without any individual person or company being in charge of it. One example is what's happened in the PC marketplace, where you have a whole ecology of vendors creating hardware and software that work quite effectively, more or less, together with a couple of companies playing a leading role — Intel and Microsoft, in this case — in orchestrating this ecosystem of companies. Microsoft and Intel certainly are not the owners or the controllers of all the other companies in the world that make PC software and PC hardware. But they help create the architecture and the ecology in which many other companies and their products can work together. So, it's certainly possible that IBM or other companies like it could do something similar. Dresner: It's a great example and a good lead-in to another couple of questions. The reason that the PC industry, or ecosystem, succeeded was due to the de-facto standards which IBM established. What sort of standards would we need at a business level to do that for businesses to easily interoperate and become more centralized? Malone: Excellent question. In fact, it speaks to one of the two paradoxes I have in my book. The first of those paradoxes we've already talked about, which I didn't label it as such in our conversation today, but it's what I call the Paradox of Power: sometimes the best way to gain power is to give it away. The other paradox is what I call the Paradox of Standards, which says that even though you may assume that rigid standards and flexibility are opposed to each other, sometimes rigid standards at one level of a system promote more freedom and flexibility at other levels of the system. The best example of that is the Internet itself, where the protocol called IP, the Internet Protocol, is an extremely rigid standard. It is absolutely the same everywhere in the world, anywhere anyone connects to the Internet. And in part, it's precisely because of the rigidity of the definition of that standard that all the other flexibility and all the other decentralization that we associate with the Internet are possible. So, you're absolutely right that one of the key things to make decentralized coordination possible is standards. And in particular, there is a very interesting and not yet widely recognized opportunity for developing a new set of standards — not at the level of the technologies, but at the level of the business processes that are involved in using those technologies. We've done some work over the last almost-decade and a half now in a project at MIT that we call the Process Handbook. It's an online repository of knowledge about business activities and business processes organized in powerful ways that take advantage of the ideas of specialization and inheritance as we know them in object-oriented programming, but applied here not to objects, but to actions. So, in a sense, we are not inheriting down a hierarchy of nouns; we're inheriting down a hierarchy of verbs. And we think there are some very interesting possibilities for that approach in helping to define new standards for business processes and business activities in a way that gives both the benefits of commonality and the possibilities of variation at the more specialized levels of this inheritance hierarchy. One sense of the vision for what's possible there is that we could have plug-and-play businesses, not just plug-and-play technologies, and that any of a wide number of businesses could be able to easily interoperate with any of the other businesses in those groups. In some ways, this is the vision underlying Web services. But the perspective on it I'm suggesting here focuses not just on the technologies, but on the businesses themselves - the business processes themselves. Dresner: Precisely. And I know that things like XBRL [Extensible Business Reporting Language] as sort of an early example of how this could work. And that's merely the tip of the iceberg. I suspect a tremendous amount of work still needs to be done so that we have a common language business, which is, I think, what you're talking about with your Process Handbook. Malone: Absolutely. Dresner: OK. Let's talk a little bit more about technology, and in particular IT. What becomes of IT in the new world? Certainly, we still need people to create systems, implement systems, manage systems, administer them, etc.? What will IT look like in the future? Probably different, but how? Malone: One of the thought experiments I often do when I'm thinking about the future of organizations is to imagine that communication is free, instant and unlimited. It's certainly not literally true and will probably never be. But it's the asymptote that we're approaching and getting closer and closer to every year. I like to use that as a thought experiment because that makes it easier to think about how you would organize work, how you would structure organizations and how you would design business processes if communication were not a factor, if it were free and unlimited. But I think that thought experiment also gives us a way of imagining the progress of technological development over the next few decades — that at least one important aspect of what will happen in IT over the coming decades is that we'll see wave after wave of technology that gets us closer and closer to that asymptote. So, we're already not too far from that for text-based communication. You can send pretty large - not unlimited, but pretty large - amounts of text anywhere in the world, almost instantly and almost for free once you've paid a basic charge for your e-mail. The same is beginning — it is not quite true, but will probably be true pretty soon — with voice. That is, with voice over IP, we're getting pretty close to the point where you can have essentially unlimited amounts of voice anywhere in the world almost instantly, for free, almost. We're still quite a ways from that for video. So, one important dimension of progress will be to develop videoconferencing that is almost free, almost unlimited, almost instant, anywhere in the world. And in the case of videoconferencing, there are a few other technical problems we'll need to solve to make the video interaction as effective and as satisfying as a real face-to-face interaction. For instance, we need to get gaze awareness to work. With most of today's videoconferencing systems, the cameras are not aligned with the screen, so that when you're looking at the eyes of the person you're talking to, it doesn't look to them like you're looking straight at their eyes. So, there are a few other things like that that we need to get right. But I think it's pretty easy to predict that some time in the next few decades — possibly sooner rather than later in that period, and probably within the working lifetimes of many people who are reading this interview — there will be videoconferencing facilities that will be so good in quality that it will be hard to tell the difference between whether you're talking to someone who is three feet away from you or someone who is 3,000 miles away from you interacting electronically.
I want to be very clear that we're not there yet. And I'm certainly not someone who says there is no need for face-to-face meetings today because we're still quite a way from equivalence of a face-to-face interaction. But over the years, we'll get closer and closer. Many people haven't yet thought hard about how the world will change as that happens. So, that's one vision for technology focused on human-to-human communication — text, voice, and video. Another vision for technology is that all kinds of data will also become available for free — almost free, almost instantly, and in almost unlimited volume anywhere in the world. I'm quite taken by the idea of ubiquitous computing, where at least the manufactured world becomes perceptive and active. In other words, you'll be able to sit anywhere you want and see anywhere else on the world you want. You'll be able to see any street corner, any public room, any factory in the world that your company is working with. You'll be able to see all kinds of data about all kinds of business processes and all kinds of other things. And when that happens, you'll need tools far more advanced than what we have today — not just to transport the information, but also to analyze it - to make pictures of it, to give you some sense of it so you'll know what to do about it. So, there are lots of opportunities for technologies to reduce the costs of communicating in all kinds of modalities and to help human beings analyze, understand and make sense of the huge volumes of information that will then be available. So, in some sense, that's a complete theme of a vision for technology. Notice that I haven't said a thing about intelligence. I've focused on a vision of technology based on communication rather than on thinking or computing. There's also, of course, another path for technological development, which is the path toward greater and greater artificial intelligence. That, as you know, is a technological vision that is notorious for the unfulfilled optimism of its proponents. And I don't want to be someone who yet again naively predicts artificial intelligence long before it will actually occur. On the other hand, the relentless improvement in cost performance of computing technology is going to lead our machines to be able to do some really interesting and surprising things for us in the coming decades, even if it's not what we used to think of as intelligent robots — humanoid robots. Whatever it is, is going to be pretty interesting. Dresner: Oh, I think if one could look back to the comic strips or movies of decades before, we would see much of that vision of the science fiction vision realized today. And much of today's science fiction has to do with artificial intelligence with humanoid robots. So, one has to wonder if 20 years from now that might be realized. Malone: It might be. But I have to say, my intuition is that long before we get really humanoid robots we're going to have some other form of something you might loosely call intelligence. But it will be very surprising. Here's an example that illustrates the point: Google is an amazing thing. It can give you in less than a second links to often incredibly surprisingly relevant pieces of information from a vast pool of billions of sources all over the globe. Is that a humanoid robot? Certainly, not. Is it something amazingly interesting and useful and sort of intelligent? Certainly, yes. So, Google-like intelligence in many new variations is likely to surprise us long before boring old humanoid robots come along. Does that make sense? Dresner: It does make sense. And there's a whole other discussion we could have around embedded intelligence and things like RFID. But I think we'll have that some other time, perhaps. I do want to take up the notion of outsourcing as the future of technology. If communication was instantaneous and free, in theory, that would encourage a high degree of specialization. And, obviously, there are economies of scale associated with that specialization. So, it would encourage, in theory, businesses to outsource a tremendous amount of what they do today internally. There's probably a down side to that, too; maybe you could expand on that a little bit. Where do you see that headed? Malone: Well, you say that free communication encourages specialization, and that's true. But the more specialists you have, the more need you also have for generalists who coordinate the work of the specialists. So, both things would be needed in greater degree in a world where outsourcing has come. I've predicted for some time that the reduced costs of communication enabled by information technology will lead to more outsourcing of non-critical or non-core functions in a company. And I think we've seen quite a bit of that over the last almost-two decades — since I first started predicting that. The most recent version of that that's been a big deal in the past year is outsourcing to other countries — off-shoring, not just outsourcing. That's almost inevitable. The forces leading toward it are pretty compelling as long as there are huge inequalities in labor rates in different parts of the world — but that's a big if, a big qualification, because those huge inequalities in labor rates are getting smaller every week. And it won't be too long — certainly no more than a generation, and maybe quite a bit less than a generation, probably — before the global labor market has more or less come into equilibrium. Now, even in the United States, where you could say that national labor market is in equilibrium, there are still different wage rates in different cities having to do with things like the cost of living in those places, maybe even the desirability of living in those places. So, I don't think that wages will ever become identical all over the globe. But I think that the global labor market will come into equilibrium more rapidly than many people probably assume. There will no longer be easy opportunities for what you might call labor rate arbitrage (moving something to a lower wage place). When that happens, we'll see a continuing of the trend that's already happening within our society, which is that outsourcing leads to the possibility of greater specialization, greater focus and greater efficiencies in many cases. But we'll need to learn how to find and coordinate the increasingly specialized suppliers for whatever it is we need to do in a given business. Dresner: And along those lines, one of the things you talk about is the re-emergence of guilds, which is interesting because we as human beings need to identify with something. We need to somehow align ourselves with some sort of organizing construct. But as you start to organize around guilds based on profession or skills, doesn't that impact business because the guild's goals may, in fact, not be aligned with your goals? How do you, as a business, deal with that? Malone: Well, let me say a little bit about what I mean by "guild" and then try to answer your question. In today's world - or in the traditional world, the world of the recent past - many people got a lot of benefits from being part of large, stable organizations. They got financial security. They got a place to socialize. They got a place to learn, even a sense of identity. In a world of increasingly independent workers — what we call e-lance workers, meaning electronically connected freelancers — there are a lot of benefits in terms of flexibility and efficiency. Companies don't have to hire workers except when they actually need the skill those workers have. And then, they can find the best ones available in the world. Workers have a lot more choice about what they work on, when they work, where they work. So, there are a lot of potential benefits of flexibility and efficiency on both sides of the transaction. But there are some potential disadvantages for workers — an independent contractor, an e-lance worker, in a pure e-lance economy doesn't have any obvious place to get many of those benefits that workers used to get from being employees. So, as we thought about this problem, it occurred to us that there was a fairly obvious but not widely appreciated possibility for solving the problem, and that is to have a set of independent organizations whose job it was to fulfill the needs of their members who were independent workers.
These guilds, for instance, could provide financial security. They could take some percentage of your income in the good times in return for guaranteeing you at least a minimum income in the bad times. They could train and educate you, developing your skills to keep you continually productive and economically attractive in the ever-changing economy. They could give you a place to socialize — physically and virtually. And they could even give you a sense of identity. Some people might get their sense of identity from being a member of the Electrical Engineers' Guild or the MIT Alumni Guild. So, that possibility has the potential to make a lot of things better. Now, you raised the question of whether the interests of these guilds would be opposed to the interests of companies that were employing them. Let me give you two examples of where I think that's not necessarily the case at all. These guilds could come from professional societies, from college alumni associations, from temporary-help agencies and a variety of other ways. But one of the interesting possibilities is that they could come from unions. In today's world, many unions and many union members define the role — and in some sense, even the main reason for existence — of a union as being collective bargaining, that is, to provide a kind of monolithic — you might almost say monopolistic — voice on the side of the table representing workers to counter the power of the monolithic/monopolistic employer company on the other side. But in an e-lance economy, there wouldn't, in many cases, be anyone on the other side of the table to collectively bargain with because there'd be a different combination of companies and people every week. Who would you be bargaining with? So, one of the very interesting possibilities is that the role of unions might change. As unions become more and more like what we call guilds, they might come to see their primary role not as one of collective bargaining, but as one of providing other kinds of services to their members — services like insurance, financial security, education, job training and so forth. In that case, the basic dialogue between companies and unions might change., You might caricature the traditional version of this dialogue as something like this: The unions say, "You owe our members good jobs." And the companies say "But we have to make a profit." And there's a contradiction there. But in a world of ever-shifting companies, and stable guilds, you might imagine that the dialogue would evolve to something like this: The unions say, "Our job is to help our members remain economically productive," and the companies say, "Our job is to use your economically productive members to make a profit." So, there's at least a potential that the interests between guilds and companies could be more closely aligned than the interests of unions and companies have been in the past,. That's one possibility that illustrates the lack of conflict. Another possibility — one that I mentioned in passing at the end of this section in my book — is that companies might come to see themselves as what we have called guilds. That is, in today's world, the management of a company often sees its role as one of directing the work of its employees to satisfy its customers and to make a profit in doing so. You could imagine a company that said, "It's our employees' responsibility to satisfy the customers and to make a profit in doing so. And our job, as a company, is just to provide a good home and infrastructure to help our employees do that." In that case, the role of a company becomes one of providing benefits to its members, and helping them to be economically productive. Dresner: Interesting. You talked a little bit about corporate social responsibility. I think it's something that companies should aspire to, but most don't. And also, you have to take into account that most shareholders are driven by greed and not some higher goal. There are examples, like CALpers, for instance — a tremendous investor in the market that invests carefully, based on certain social goals. But the majority do not. What do you see as changing that, so that companies will be more focused on society and the benefits, or the well-being of their employees, as opposed to where they are today, which is a singular focus on profitability.? Malone: I think it's important to make a distinction between the ideas I was suggesting and a conventional view of corporate social responsibility. There are certainly some responsibilities corporations have to their societies. But what I did in the last chapter of my book was to talk about what I think is, in some sense, a broader concept of what I call the Marketplace for Values. This says that there are a lot of values that are important — or in which businesses could play an important role — about which different people have different opinions about what's good. So most advocates of corporate social responsibility assume that they know what's right. And the only question is how to convince companies to do it. There are many cases where different people have legitimate differences of opinion about what's right. But that doesn't mean that companies shouldn't be able to do anything or shouldn't want to do anything about those things. What it means is that we can let the market - the decentralized, decision-making processes and markets - help direct our societal resources to the different social values that different groups of people think are important. Some people, for instance, think that making any kind of weapons is a bad thing. Other people think making weapons is fine. People have very different views about abortion, birth control, tobacco, alcohol, pornography and things like that. A desirable thing is to make it easier for people to know what social values are represented by and embodied by different companies in making their choices about which companies to do business with — as customers, as employees, as suppliers and even as investors. One example that is very telling is socially responsible investing. Many people would say that the only legitimate purpose of a company is to maximize the financial return for its shareholders. And many people would also believe, as you said, that most investors care only about maximizing their financial return. I don't have a strong opinion about what percentage of investors care about that. But it's very interesting to observe that over 10 percent of all the funds under professional management in the United States today use some form of socially responsible investing. So, 10 percent is not a majority, but it's a pretty significant minority. And it's up from almost nothing about 20 years ago. So, I suspect there's even more potential for socially responsible investing than is currently captured by the funds that do that today. In fact, if you think about who investors are, they ultimately are all people. And people care about money and the things you can buy with money. But every person I know cares about some other things, too. So, it's a misleading simplification to assume that all or even most investors care only about maximizing their financial return. For some people in some situations, that absolutely is the most important thing. But I have a feeling that there's a huge untapped potential for companies to say, "We're going to pursue these social values, these human values, in the context of a for-profit activity or a profit-making company. And if you want to participate in that, feel free to invest in us. And if you don't, that's fine, too." An interesting example of this is Google. In Google's IPO, it made a big deal about doing no evil. And Google did a number of things that were countercultural to Wall Street. It said it was not going to give frequent guidance about what it thought its earnings are going to be. It said it was not going to do a bunch of things that most companies do. And plenty of people were happy to invest in Google. Some of those people probably did it purely for financial reasons. Others may have done it in part for other reasons, too. So I think that's interesting proof that it's possible. For that to become more common and to work better in the future, we need much better transparency - not just for financial things, but also for non-financial things about the company's operations. There's another example I mentioned in my book about a company called IdealsWork. It's a Web site that helps you pick among different products that you might buy as a consumer, like clothing, appliances and so forth. So, if you want to buy an athletic shoe, for instance, you can go to the IdealsWork Web site. And you can check off which of a number of different social values are important to you - environmental issues, worker rights, safety, rights of women, animal rights. Most of the ones that are there now are what you would think of as traditionally liberal concerns. But there's no reason in principle why you couldn't have a site that had a bunch of traditionally conservative concerns or concerns that were important to Catholics or gun owners or Buddhists or practically any interest group you can think of. So the idea is that you can go to this Web site, select which social values are important to you and then it will give you a rating of the different companies that supply whatever product category you're interested in, like athletic shoes or TVs, in terms of the values that you said were important to you. And they say they base these ratings on objective data available to the public. So whether this particular company succeeds in its efforts or not, it seems to me almost inevitable that things like that will happen more and more, and that it will become increasingly easy for you to find out about what companies are really doing — not just financially as reflected in their financial statements, but in terms of what they're doing to the environment, what they're doing to the workers, what kind of place it is to work — all kinds of things that may be important to you. You can find that out and use that in making your decisions about whether to buy from those companies, about whether to work for those companies, about whether to invest in those companies. And I think if that information were widely, easily and reliably available, it would have a big effect on the degree to which companies explicitly try to do things that satisfy a wider range of human values than the purely financial ones. In a sense, what I'm saying is that information technology, coupled with the right kinds of information, has the potential to make markets much more transparent and efficient, not just in terms of economic values, but also in terms of a much wider range of human values as well. Dresner: Excellent. Thank you very much for your time. You were very generous with it.  |
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