The sum of its parts – Charles Handy and the human factor

Companies should be communities of workers and more than mere commodities or machines focused on the pursuit of profit, says Irish management theorist Charles Handy.

Charles Handy is often mistakenly claimed as a homegrown British management guru. He’s actually Irish, but he did spend most of his working life in Britain and still resides in the UK.

His focus is very much on organisational culture and the way that companies put people to use. Essentially, Handy feels that many companies are too focused purely on the pursuit of profit at the expense of building a community within the workforce. Those of you who read our recent article on Peter Drucker may notice similarities with Drucker’s theories around the importance of culture and the need for companies to reconfigure how they treat ‘knowledge workers.’

Like Drucker, much of Handy’s thinking feels uncannily prescient. He came up with the notion of a portfolio career about 20 years before it actually became a recognised phenomenon. His ideas for how the 21st century company should look forecasted the way that many of the most innovative among the current crop of global companies are structured.

In common with Drucker, Handy is concerned with the way that we conceptualise the organisation. Some have posited that while Drucker legitimised management thinking as a conceptual framework, Handy humanised it with his focus on the interaction of the individual and the corporation. Handy debunks the notion of the corporation as monolithic construct, claiming that the way the corporation is commonly understood – as something impersonal and often mechanistic – is doomed to failure and extinction. Instead, he has argued that companies need to look to more enduring models of organisation for their inspiration.

It takes a village

In his book Gods of Management (1978), Handy posits that the village is the defining model of human organisation for work – one that has prevailed far longer than any corporation. He suggests that the way forward for businesses is via simpler and more flexible forms of private enterprises: ‘Villages are small and personal, and their inhabitants have names, characters, and personalities. What more appropriate concept on which to base our institutions of the future than the ancient organic social unit whose flexibility and strength sustained human society through millennia?’

Interestingly, this sounds like the set-up of many of Silicon Valley’s brightest start-ups. In fact, many of these that have become corporations in terms of size and influence still strive for the feel of a village, partly to attract and retain the best people. Feeling Googley anyone?

On an individual level, many GCs speak of the breakthrough that comes when legal stops being seen as ‘the lawyers’ (who will stop me doing things), and starts to be seen as Bob or Susan who happens to be a lawyer (who can help me with this issue before it becomes a problem). The Network Rail legal team restructured to become more aligned with core business teams. Going out on site to actually see what the business does was a key part of the revamped legal offering, as Natalie Jobling, general counsel of corporate, explains: ‘You may not have arranged any meetings but once you’re there – people want to talk to you. They’ll just bounce something off you because they’ve caught you out in the corridor… it’s getting them into the habit of thinking: actually, there might be a legal issue – I’ll just check.’

A handy man to know

Our resident management guru, Paul Hughes of Cranfield School of Management, gives his thoughts on Charles Handy and his significance to the study of business.

  • The management guru’s natural habitat is the US. Most, if not born there, have made the US their home and have developed most of their work there. The exception is Charles Handy. The UK-based Irishman has cultivated a reputation as steadfast as any of the great ‘historic heavyweights’, including Peter Drucker, Michael Porter and Henry Mintzberg. And while today’s global heavyweights (also mainly US-based) such as Clayton Christensen, Marshall Goldsmith, Jim Collins and co are perhaps more technically literate in their research methodology, none have yet reached the broad level of recognition of Handy or his theories. ‘Thinkers50’ had him ranked second only to Peter Drucker in 2001, though arguably he is becoming less well-known now.
  • His interests lie in the way organisations work and the nature of the way people work within them. Structures, motivation, leadership, coordination, processes, culture and other factors combine to give an organisation a uniqueness, which (when understood) helps those who want to make improvements.
  • He clearly appreciates how the lens used to understand an organisation has to be altered the further down you look. For example ‘laws’ and ‘rules’ that apply to small aspects of an organisation aren’t automatically scaleable to predict the overall behaviour it demonstrates. People can operate cooperatively and warmly within an organisation, but that organisation will not automatically operate as warmly at the corporate level. While this thinking may not seem so unique, what marks Handy out is his underlying belief that at the heart of any business understanding is the need to understand people. And not just people in an organisational sense, but with respect to how they sit within the organisation and in the context of wider societal factors.

Doughnuts, shamrocks and ‘s-curves’

  • Three of his best-known concepts illustrate this. The ‘doughnut’ model (see main feature), exemplifies the relationship between core and non-core responsibilities illustrated shamrock model demonstrating schneider electric's model of operationand employee performance.
  • The second, the ‘shamrock’ model, demonstrates that an organisation’s model of operation is intrinsically linked to the type of people it has employed in key areas. The permanent professional core, the temporary contingent, (often part-time workers) and outsourced vendors are allocated work based on the skills and value that are added by each. Handy argued that ensuring jobs within each area are designed appropriately will lead to enrichment for workers, graphic of Handy's S curveconsequently greater motivation and, therefore, performance. Daniel Pink’s hugely popular work today can be traced to these two simple concepts.
  • The third of his terrifically accessible and powerful models is the ‘sigmoid curve’, otherwise known as the ‘s-curve’. Here he illustrates that all organisations go through peaks and troughs of performance. The ones that are durable are the ones that use the success and graphic of Handy's doughnut modelprofits at the peak (point ‘A’ in the illustration) to pay for stepping back to review what has to change in order for the success to continue (indicated by the coloured curve ‘B’). Those which fail to do this are doomed to find that their own performance starts to stutter and fail over time as the markets move ahead of them. Many are advocating vociferously that stock market ‘quarterly-driven’

Empowerment or subsidiarity?

Humanisation is a theme that can be identified in Handy’s somewhat surprising take on where power actually lies in an organisation. In The Empty Raincoat (1994) he introduces us to the little-used and much-misunderstood word ‘subsidiarity’. And it has nothing to do with subsidiaries. It is, however, according to Handy, at the heart of what 21st century business should be about. Essentially it is the delegation from the parts to the centre. Handy thinks that the classic understanding of the management as keeper of control, with the ability to dole out power to the workers, fundamentally misunderstands what any organisation is about. For Handy, the business entity is comprised primarily of its workers and could not function without them, whereas the management is the means by which the workers can function more effectively. Therefore it is the workers who delegate their power to the centre (the management) and not the other way around.

It is an idea that has gained traction in Europe in recent years, with rising numbers of businesses adopting the model of shared ownership – in many cases inspired by US start-ups, which have the idea at their hearts. Increasingly, economists are viewing empowerment of employees through ownership – or as Handy would term it, subsidiarity – as a way to stimulate productivity in stagnant western economies, and to counter the short-termist focus on profitability often seen in many small businesses. According to a 2010 study by Cass Business School [part of City University London], employee-owned companies are hardier in a recession.

Of course, employee ownership is at the far end of the spectrum of subsidiarity that Handy speaks of. What he is talking about is as simple (or maybe as complex) as a redefinition of what a corporation is, focusing on the sum of its parts (the employees) rather than its leadership.

The in-house lawyer as doughnut

The Empty Raincoat outlines the idea which has become Handy’s most well-known – the ‘doughnut principle’. The doughnut in Handy’s model is actually a solid centre with a less defined outer core, and illustrates that all employees have things they have to do (the hole of the doughnut) and things they choose to do (the ring). In understanding how these things combine we understand how people can be influenced to perform or not. This is a view that underpins much work in understanding individual performance today.

For a legal department, the ring of the doughnut could include the much-discussed concept of adding value – or taking the legal function to be more than what it says on the tin and into the gestalt aims and strategy of the business as a whole. For many general counsel the goal posts are constantly shifting, and what was once discretionary is now a core activity, including functions such as compliance and risk management. Twenty years ago many of these were nice-to-haves; now they are often at the heart of what a good legal department does.

Expectations from the business around what its lawyers should be are impinging more and more into the outside of the doughnut rather than its core. Luis Alvarez, CEO of BT Global, told GC recently, that ‘my expectation [of my GC] is that you are a member of the management team first, and then secondarily you have your role as your sales function or your GC function.’

‘The companies that survive longest are the ones that work out what they uniquely can give to the world.’

For in-house lawyers, the doughnut model may be even more apt than for other functions. The lawyer’s role as an officer of the court, or as an observer or conscience, may be secondary to providing legal advice to the company on a day-to-day basis but it is also fundamental because, like the outside of the doughnut, it is this which keeps the core whole. Or, as Handy puts it: ‘There is, thankfully, the space beyond. This space is our opportunity to make a difference, to go beyond our bounds of duty, to live up to our full potential. That remains our ultimate responsibility in life, a responsibility which is larger than our duty, just as the doughnut is larger than its core.’

An in-house lawyer at a large global bank commented on this: ‘The cultural strength and common sense of strategic mission come from a deeper understanding of how people should interact with each other beyond the strict requirements of their job. When people feel connected and understand directionally where their employer is trying to go, they can come up with ideas beyond the strict remit of their jobs, which can help advance the company’s strategic goals. Similarly, if they care about the company’s well-being – even outside the border of their particular role – they can spot problems and threats and work to address those before they become more severe.’

For many in-house lawyers, it is the ethical component of the role, the judgement about whether something is right (and not just legal) that is the secret sauce of the really good general counsel. Witness the numerous recent examples of global companies whose actions have fallen within the law, but have nevertheless been subject to vociferous censure on social media and other bad publicity. As the excesses of the period before the financial crisis are revealed, they show that now the question is not: can we do this? but: should we do this? or even: why would we want to?

I know you got soul

In The Age of Unreason (1989), Handy sets out what he considers to be elementary to a company’s survival. ‘The companies that survive longest are the ones that work out what they uniquely can give to the world – not just growth or money but their excellence, their respect for others, or their ability to make people happy. Some call those things a soul.’

But, as one in-house head of litigation remarks, not all companies are equal in this respect: ‘I think this notion presumes something – that an organisation has a soul – which is not axiomatic. Organisations, like people, can simply be organisms with a primal goal to survive. They aspire neither to professional excellence nor to a larger, integrated sense of mission.’

He continued, ‘I suspect many would say their organisation has a soul and it is to be the best X, Y or Z in the business. I would imagine that fewer organisations can sincerely say, beyond marketing, that they aspire to and do effect real positive change.’

Handy sets out the need for a bigger purpose and a sense of doing the right thing. This is echoed in the growing need for ethical guidance in running a business, with the general counsel and their team as logical focus for this. Many in-house lawyers use the phrase ‘the conscience of the company,’ but perhaps the word ‘soul’ could equally be substituted to re-frame the debate. It is a chord that is being struck at all types of companies, from big banks to coffee companies, booksellers, car manufacturers to airlines; corporations will be hit by profit losses, regulation and reputational risk if they appear soulless.

As custodian of a company’s soul, the in-house lawyer is much more than a lawyer and more of a risk manager. One US GC told us that: ‘It’s really all risk management – and not purely in the narrow sense of legal risk, but you’ve got to consider risk in its broadest definition.’

Redefining the way people work

As early as the late 1980s and early 1990s Handy was arguing that the classic nine-to-five was defunct. He saw the future models of employment being split between full-time workers (many of whom would work flexibly), part-time workers and outsourced vendors.

The ‘shamrock’ model, as it came to be known, (see boxout) might also serve as an increasingly useful blueprint for many legal departments.

While working hours have crept up across the world, large numbers of corporate counsel still speak about greater freedom and control over their schedules as being key drivers for the move to the in-house side of law. Tom Russo, general counsel of AIG, comments: ‘Freedom to have a life outside of work is the biggest single draw to being an in-house attorney. I look at success as contentment and being happy with who you are. The only thing you have in life is time.’ And for many women lawyers, the choice between in-house and private practice has often been determined by this very ability to have more control and work more flexibly.

But many more in-house teams are using outsourced solutions for manning the workforce and for streamlining processes to make their use of the workforce more efficient. Providers like Axiom, Halebury, Lawyers on Demand et al are defining a new type of company as Handy envisioned, but their mounting influence also means that his notion of the portfolio career can be attainable for lawyers as well.