Our Blog

Obliquity and Compensation: Getting Rewarded by Focusing Elsewhere

  

 delicious  

  

“Obliquity” describes the process of achieving complex objectives indirectly.  So says British economist John Kay in his intriguing recent book of the same name.

I’ll let Mr. Kay describe the notion in his own words.  “In business, in politics and in our daily lives, we do not often solve problems directly.  The objectives we manage are multiple, incommensurable and partly incompatible.  The consequences of what we do depend on responses, both natural and human, that we cannot predict.  The systems we try to manage are too complex for us to fully understand.  We never have the information about the problem, or the future, we face that we might wish for.”  (p.157)  As for commerce, “The most profitable businesses are not the most profit oriented.  The wealthiest people are not those most assertive in the pursuit of wealth.”  (p.12)  In truth, “[The] direct pursuit of wealth, whether as an end in itself or for the possessions it brings, tends to damage both the individuals and organizations that seek it.”  (p.41)

Mr. Kay offers illustrations drawn from corporate and individual reward examples.  For example, Boeing thrived when its purpose was the production of exemplary aircraft, such as the 747.  It lost sales to Airbus, saw its share price suffer, and faced the taint of corruption charges when its culture shifted to one centered on unit cost, return on investment, and shareholder return, and it pursued defense sales.  It recovered its footing and, perhaps more important, its shareholder value, when it returned to civil aviation and the 777 and Dreamliner (787) models.  Similarly, Merck had traditionally emphasized medicine over profits.  However, Merck came to identify itself as a “top-tier growth company” and threw its weight behind Vioxx, which it had to withdraw from the market when it was found to aggravate heart problems in some patients.  According to Mr. Kay, Merck has been eclipsed by Johnson & Johnson, with its stated commitment to doctors, nurses, patients, and patients’ families.  And the consequences were distressing for Citigroup and Sandy Weill, whose primary goal of increasing shareholder value carried an accompanying risk of improprieties that ultimately toppled Mr. Weill and undermined Citigroup’s share price.

Mr. Kay extends his gaze to individuals in a chapter in Obliquity subtitled “How the Wealthiest People Are Not the Most Materialistic.”  And here he observes that it is only in more recent times that the path to wealth has led through business rather than politics (although politics still works for some people) or the military.  Indeed, Mr. Kay finds the qualities of “exceptional talent and hard work, a devotion to business and to the detail of business” fully opposed to greed and materialism (p.37).  Who best personifies these traits?  Well, Henry Ford was passionate about cars, less so about paying dividends to shareholders, including himself, yet reaped a fortune.  Sam Walton declared that he was devoted to “building the finest retailing company that we could.  Period.  Creating a huge personal fortune was never particularly a goal of mine.”  (p.36) His family remains active in Walmart and among the richest people in the country.

A few other individuals are so obvious that comment is almost unnecessary.  Warren Buffet pursued investing and business, with brief detours for philanthropy, and still resides in a house he bought in 1957.  His total reward now amounts to about $50 billion.  So with Bill Gates, whose ambitions propelled Microsoft to the upper tiers of the era of the PC (which his products helped define).  His take?  A little north of Warren Buffet’s, give or take a few billion.

Sure, author John Kay mentions other notables who support his thesis, as well as those poor souls who exemplify the dark side, people like Hetty Green, whose accumulation of wealth for its own sake produced a quality of life not unlike that of Gollum, late of The Lord of the Rings.  But you get the picture.

Ditch your copy of The Secret (I shouldn’t have to tell you this, folks).  Obliquity, by John Kay, is the real deal.  At the least, Kay’s book further (if it were needed) gives the lie to the discredited management conceits of managing by the numbers and managing for the quarter.  But more to the point, Obliquity validates what many executives have already suspected: that business is a complex and fluid undertaking, seldom with a direct line to success, and that enterprises prosper when they tend to their business purposes.  Moreover, this prosperity is due to the stewardship of the business’s executives and employees.  Such stewardship, not personal greed or obsessing over compensation, delivers the salaries and bonuses and long-term rewards that we all know constitute compensation.

Paul Creasy