Inclusive vs. Extractive Leadership:
Over the summer holidays, I read an excellent book, entitled “Why Nations Fail”, by Daron Acemoglu and James A. Robinson. The main thesis of the book was that “inclusive” political and economic institutions have a much greater probability of long term success (i.e., are superior) as compared to “extractive” political and economic institutions which are, ultimately, doomed to fail. In the weeks following reading this book, I began to wonder about the role that this theory could play in describing organisations and how this fits our model of Insurgence. Are organisations (and leaders) that practice extractive methods also doomed to fail? Are insurgents inherently better than incumbents at practicing inclusive methods?
Like nations, organisations have political (organisational) and economic axes which must be optimized over time to ensure longevity and success. Much has been written about the need to balance the needs of multiple stakeholders to ensure the long-term sustainability of an organisation. Typically, this means that the interests of the company, the shareholder, the customer, and the employees are aligned. Increasingly, the community is included in this equation.
An “extractive organisation” could be described as an organisation that disproportionately favors one stakeholder group, most typically senior management and shareholders, at the expense of the others. For example, Sears Roebuck & Co. has been criticized as a company for overly focusing on short term shareholder value at the expense of other stakeholders (e.g., “investing” free cash to buy back shares rather than investing in much needed infrastructure advertising and new retail concepts). Sears may be doomed to fail, we will see. These organisations are also typically extractive (i.e., pay lower wages, provide fewer incentives, etc.) in their leadership and employment practices and are more likely to have command and control management models.
In contrast, an “inclusive organisation” tends to find a healthy balance between internal stakeholders (especially management and employees) and has an inclusive economic model, whereby benefit is shared more equally amongst employees, management, shareholders, customers and the community. The cultures of inclusive organisations tend to be more merit-based and co-creative, with contributing individuals able to participate and share in the organisation’s innovation agenda (and the fruit of this contribution). These organisations are usually more flexible and dynamic and better able to deploy resources where they count the most, as well as to more easily make adjustments as conditions change.
We believe that extractive firms in unstable markets are, over the long-run, more likely to fail and, in the short-run, these organisations will be much more vulnerable to disruption. We also believe that, over time, incumbents tend to become more extractive, whereas insurgents tend to be more inclusive both organizationally and economically. Over the coming months we will write more on this topic. For leaders, the important question becomes – “is your organisation extractive or inclusive?”
To learn more about Inclusive vs. Extractive Leadership, please contact us and we will be happy to share our perspectives with you.