Has Greenbury tamed the fat cats?

Charles Hampton-Turner explains why downsizing is dumb

When the American Indian tribes realised their civilisation was dying they would dance away their remaining years in a ritual stomp. This ghost dance symbolised their inward turning and their crumbling hold on social reality. Reading the report of the Greenbury committee gives one the same eerie feeling of disconnection. Nothing being said will make much difference to this problem and Sir Richard, who runs a formidable organisation, seems to know this. Regulation is the genuflection of our time, the magic incantation.

For the problem cannot be regulated. It is moral, conceptual and cultural. Massive pay rises in privatised utilities will fail in their avowed aims. Their executives are not dauntless risk-takers who chose challenging lifestyles, but men who dozed off in the safety of nationalised utilities and awoke to discover that the Conservative Party needed them to showcase privatisation. They were used. They are now using us.

In the "bad old days" you showed how important you were by hiring more and more people to report to you (empire-building). In the "lean and mean days" you show how dynamic you are by firing more and more of those you earlier hired, improving profits and then helping yourself to what used to be their wages. Cedric Brown has even suggested that the toughness of such decisions merits his pay rise! Our current feel-bad factor mirrors such disastrous decisions.

The fact is that the best managers do not work for money but for a sense of achievement. In North America money came to symbolise achievement in a continent of strangers. Downsizing a corporation is not an achievement but a very temporary expedient which improves results while eroding morale. You can try to put rewards to shareholders, the City and yourself ahead of your own employees and customers, but the strategy does not succeed. This is because staff only feel like serving customers well if they themselves are well served by supervisors. Concern is passed on; so is indifference. No wonder customer complaints are soaring in privatised utilities.

Downsizing is dumb for another reason. If you are serious about cutting costs, you can do this only with the active assistance of your employees. They know where the surplus inventory is hidden, where duplicate files lurk, what silly routines could die unlamented. But if they sense that the first target is their own jobs, because the high priests of accounting can only see that far, then they go to earth and desperately simulate efficiency, lest the axe fall.

Larger salaries for the axe-men are counterproductive for another reason. These hugely exaggerate the "brilliance" of top people and asset-shufflers and escalate our expectations of what can be done in less than 15 years. For the truth is that the top managers are further away from customers than anyone else in the organisation and are entirely dependent on subordinates for accurate information.

For a corporation to improve its effectiveness it has to learn. How do you cope with part-timers, with huge gaps torn in the fabric and hence the memory of the corporation? No top manager can be better than the information he receives or the relationships he has forged. Some 25,000 implemented changes climb the Matsushita hierarchy every year. How many make their way up British Gas, with its executives wafted upwards by perks and bonuses? In the fast-developing "tiger" economies of South-east Asia, the ratio of top to bottom salaries is 9:1 or less. Britain's 25:1 and America's 100:1 are a major threat to integrity and communication.

As for regulating runaway individualism - the disease of our time - the task is akin to netting cats. The more you try to regulate, the more Heroic Individualism cuts through the net with legal weapons and the more regulations are needed. The American Federal Register now exceeds 5,000 pages, so that the Land of the Free has more regulations than any other, with 45,000 lawyers in Washington designing nets and cutting holes around the clock. Is that what we want?

The writer is senior resident associate, Judge Institute of Management Studies, Cambridge, and co-author of 'The Seven Cultures of Capitalism', published by Piatkus at pounds 20.