e u l a m a 
represents
Bestsellers in Germany
Führen, Leisten, Leben
Wirksames Management für
eine neue Zeit
(Managing Performing
Living. Effective
management for a new age)
Fredmund Malik
Campus, Frankfurt ,
October 2006, new revised
edition now published by Campus,
370 p., 7 ills.
the first hardcover edition (DVA)
sold 70.000 copies; the paperback edition (Heyne)100.000 copies . English language edition
published by DVA, 2003
► this English language version is available
for examination in a .pdf file
rights already sold for Italy Ore
Peter Drucker
declared in 2004 to Manager magazine: «Fredmund Malik has become the leading
analyst of, and expert on, Management in
the book
When Führen, Leisten, Leben
was first published in 2000, the Manager magazin wrote: »Whoever wishes to reconsiderate autocritically his leading style and his leading system,
will probably not find a more stimulating reading than this book« .
Indeed in the past four years it has become a classic book in business
literature. Now Malik offers a revised and updated
version.
Malik tells
readers what they need to know about successful management and the day-to-day
life of an executive specifically, practically and effectively. He
answers the question of how managers can act efficiently in their companies and
achieve success. The book contains a set of effective tools for executives in
business and nonprofit organizations.
the author
Prof. Fredmund
Malik ranges among
Fredmund Malik is known to many from
his work as a lecturer at the universities of St. Gallen,
Malik considers himself a follower of Stafford Beer, who
devoted himself principally to determining the common pattern of effective
organizations. However, a cybernetic understanding of organizations truly calls
for thinking - counter-intuitive thinking - which conflicts with what would
normally be assumed to be the correct behaviour of managers. Fredmund Malik therefore builds
on the work of Beer and, in his research work, includes the manager in the
organization in every way.
As a pupil of Hans Ulrich, Fredmund
Malik is continuing the latter's pioneering work. A
distinguishing feature of this work is the demand that the knowledge that is
needed about management and about the unanswered questions there still are in
the field should be accepted as an academic discipline in its own right. Malik concentrates on the conception and further
development of a scientifically sound theory of management based on the St. Gallen Management Model.
He combines knowledge that is of practical
relevance, that has shown its value in practice and that is widely needed about
organizations and management into a holistic system: the "Malik MZSG Concept". The still not complete works of Fredmund Malik could be regarded
as a "curriculum of general management" that can be used to advise
and train managers of all types in all fields. In other words, it could be
described as the integration of insights about management that can already be
regarded as classic and ones that, in the course of evolution, have the
potential to become such.
Introduction to the English Edition:
Rarely before has a greater
false doctrine been spread in so short a time
than the
American doctrine of shareholder
value and stock-market–related
value creation as the central factors of corporate governance. Rarely before
was anything also proclaimed
with so much smugness and self-righteous-
ness as this false doctrine.
It is wrong
and damaging for the
management
of a
company.
It would have been
possible to have left the question unanswered for a
while as to whether the shareholder value doctrine is suitable
as a manage-
ment philosophy,
at least for the
collapses indicate the opposite, and so far it is also
not possible to see that
the correct steps for corporate management are being
taken.
The damage that has already been done all over the
world is immense;
but even more is probably yet to come. The financial
losses are not even the
most important thing, although these, too, are larger
than at any other time.
It is the immaterial damage that counts. Much more
significant than the
money are top management’s loss of credibility and the
loss of trust in the
senior management of large corporations. Added to this
is the far-reaching
miseducation
of two generations of managers, who have learned nothing
apart from the doctrine of shareholder value and who
are incapable of
imagining that it is false and that there are
alternatives to it. They are so
miseducated
that the necessary retraining is difficult or impossible.
In the meantime, doubts about the magic recipes have
spread. Lack of
orientation and perplexity have arisen; the result is
helplessness. According
to temperament, what follows may be either lethargy or
activism. It is time
to stop imitating American management methods, in
particular those for
corporate governance.
Two errors in reasoning have led to the naïve
imitation of seemingly su-
perior
strong. In fact, it is merely large. The second error
is to believe that the rea-
son for this strength is that the management of US
companies is good and
superior to management all over the world. In fact,
American management
can only be used where it is has to deal with simple
conditions. For com-
plex,
multicultural, or even global tasks it is unsuitable and damaging.
The
ures,
tendentious media reporting, and a dubious economic theory. Neither
the growth rates for the economy nor the employment figures
are correct;
the profit figures for companies are not right and the
economic recovery is
not worth mentioning when it is compared with the six
recessions since the
Second World War. The theory of economics dominant in
the
the “asset-based, wealth-driven economy”, is one of
economic history’s
ironies.
world and stimulate imitation. The
panies
to the quality of their management. US companies are large because
they have something that has never otherwise existed
in a developed coun-
try, namely, a big and largely homogeneous domestic
market. It is no won-
der that large companies arise where there are about
290 million con-
and who, to a large extent, have a mentality which
makes the consumers re-
ceptive
to uniform advertising and promotion and which makes uniform
product design possible. Management is simple when
there are no customs
frontiers to be overcome and where regulations and tax
laws are all the
same. None of this existed in
vy the
Americans their comfortable situation; we shouldn’t imitate them.
The export quota of the typical
of the typical European company is large.
agement
soon ceases to work. For these reasons, the
as people like to believe, the center
of global thought and business activity.
On the contrary, the center
is where more than five hundred years ago busi-
ness relations existed with
and jet planes, and where hardly any fuss is being
made about globalization
because it has long been nothing particularly new.
That center is
For the reasons mentioned, it is much easier to manage
a large company
in the
in order to learn about management for complex
situations. American
management is like doing the standard compulsory
figures in ice-skating;
managing a large company in
freestyle.
As a result of the shareholder value doctrine, a type
of manager has
reached the very top of major companies who previously
would hardly have
had a chance: the money-driven manager, who is unable
to distinguish the
logic of the real, nonfinancial
economy from that of the financial economy,
because for him the only thing that exists is what can
be quantified in mon-
ey. This type
of manager could be described as the monetarist manager. It
has little or absolutely nothing to do with good
corporate management.
Genuine management begins in any case where
quantification, especially
quantification in money, is no longer possible but
where nevertheless deci-
sions and action
have to be taken.
Consistent in his error, the monetarist manager
believes that the
supreme goal of a company is profit, because he is not
able to see that in a
market economy there are essentially no profits but
only costs: the costs of
current business and the costs necessary to stay in
business. This type of
manager is also not capable of distinguishing between
dealmakers and
genuine entrepreneurs or between the company as the
object of crafty fi-
nancial
moves and the company as a productive social system.
The shareholder value doctrine has failed and what is
thought to be its
salvation, the stakeholder approach, is a step
backwards. The Americanized
managers with their MBAs
will now have to change their ideas quickly and
fundamentally. They will have to construct a
completely different notion of
the company which does not focus on interest groups,
either shareholders
or stakeholders, but on the company itself. The
company itself, its health,
and its viability have to form the criterion for
corporate governance.
Those managers holding an MBA will also have to learn
that managing
a company does not consist in solving case studies but
in exactly the oppo-
site, namely recognizing where what case could be
brewing. If everything
can be put down in writing nice and neatly in a case
study, a case is no
longer a problem but merely the carrying out of work.
If a business plan à
la business schools can be drawn up, others have long
done the work, be-
cause they reacted to the faint signals instead of
waiting for the ten-year
cashflow
analysis. Business administration is what the name says it is: ad-
ministration and not
anticipatory, entrepreneurial, or even strategic action.
This generation will find that the orienting factors
propagated around
the world as ultimate truths – shareholders,
stakeholders, value creation –
are in fact the opposite, namely disorienting factors.
For this reason, lack of
orientation and perplexity are already to be seen in
top management; they
are less and less easily concealed, even if still
glossed over with posturing
and showing off.
Preface to
the English Edition
In this book I take a view of corporate governance
that is fundamentally dif-
ferent
from the more or less prevalent view taken in the second half of the
nineties. To a major degree, it is diametrically
opposed to this latter view.
Right from the very beginning, and unlike virtually
everybody else, I have
taken as my point of departure not wealth for the
shareholders but the abil-
ity of the
company to perform. My thoughts have been focused on the
strong, healthy, and viable company and on the question
of how it should
be managed and supervised.
There have been comments on the subject suggesting
that there are no
real but only apparent differences between the two
ideas – shareholder val-
ue on the one
hand, and the high-performing company on the other. It has
been said that in fact they are the same thing or are
very closely related.
Above all, it has been claimed that an orientation to
shareholder value nec-
essarily
and automatically produces a healthy company. I have always had a
different opinion and, for logical and empirical
reasons, have never accept-
ed this latter view.
It is now being shown, in a fairly dramatic way, that
this view is in fact ut-
terly wrong; that
not only is it not correct, but that actually the opposite has
happened: the shareholders have become poor and the
companies weak,
and some of them are in a desperate state.
The inspiration for this book came from
want to confine myself to the situation in
consider the topic of corporate governance on a
broader basis. The legal
context in different countries certainly varies, but
the management issues
are the same everywhere, and to a large extent the
answers are also the
same. Management forms and styles may differ, but in the
end there is on-
ly one kind of
management; namely, good and effective management. In
my view, that can be achieved everywhere regardless of
the differing legal
contexts.
I have thus chosen a general terminology and use the
expressions gov-
erning
body or corporate governance for the German or
Austrian supervisory
board and also for what, in my view, the Swiss
administrative board has in
common with it – and for what they should both be
doing. The term execu-
tive
body relates to the role of the board of German or Austrian
joint-stock
companies, the management of companies with limited
liability, and Swiss
businesses, which are normally joint-stock companies. Top
management
and corporate management almost always mean
both of these bodies unless
it is clear from the context that this is not the
case.
This book necessarily deals with the corporate
management of a busi-
ness, for the governing body cannot be understood nor
logically controlled
without the executive body, and vice versa. It is
however written primarily
from the perspective of and with regard to the
governing body. For this rea-
son, important topics relating solely to the executive
body are not consid-
ered here.
Executive top management alone would of course justify a book
in itself, and thus the aspects examined here are
primarily those regarding
the interaction of these corporate bodies.
The basic premise of this book is that corporate
governance can and
should manage – in
a quite specific sense of course and while upholding the
executive body’s integrity and ability to function. In
countries with a one-
tier corporate management structure, this is
self-evident. What is not al-
ways quite so clear, however, is how this should be
done in practice. In
countries with a two-tier system, this topic may
initially prompt certain
scepticism or even be perceived as provocative.
Nonetheless, I consider it
essential to strive for this solution for reasons that
I hope will be made clear
in this book.
My intention is not to produce another scientific
treatise to add to the
scores already in existence. This book is instead
intended as a practical
guide to the effective design of corporate management
and in particular
corporate governance. Hence, special cases and
exceptional situations are
not discussed.
Since the heart of the trouble as I see it is not the
supervisory bodies as
such but the errors of corporate governance, I have
changed the original ti-
tle of the book
by making what was previously the subtitle into the title. In
that can also be found the starting points for the
required reorientation and
for the restoration of the economy to a healthy state.
However, the key to
right and good corporate governance is, of course, the
top management, its
executive body, and its supervisory body. It is the
supervisory body that has
the final responsibility; it is there that the expert
knowledge is needed; it is
there that the courage has to be shown to take a stand
against the trends of
the day and the idiocies of fashion and, something
that is seldom appreci-
ated, it is the
supervisory body that is the correcting mechanism that oper-
ates in advance
of the market. The market does work, but there are impor-
tant ways in
which it works too late. The market does not prevent mistakes,
it simply punishes them. They have to be prevented by
the top management
and, in the final analysis, by the supervisory body.
The first edition of this book appeared in German at
the beginning of the
period when a whole system of errors and
misunderstandings relating to
the term corporate governance, at the center of which was shareholder val-
ue, was being
generally propagated.
For the second edition, which appeared (also in
German) at the end of
1998 or, in other words, in the middle of the great
stock exchange boom, I
wrote in the preface that the growth in the American
economy appeared to
be an exception to the general stagnation, but that in
fact the potential there
for an implosion or for instability had become not
smaller but greater.
Those were the days when people still believed that in
the “New Economy”
there would never again be any cyclical ups and downs,
and one well-known
economist took the view that “this expansion will run
forever”.
The third edition, which is here translated into
English, appeared at the
beginning of the phase of disillusionment and doubt
about the correctness
of shareholder value as a guiding principle for
sustainable corporate man-
agement.
My view is that that really does mark the beginning of the end for
this economic and management paradigm. I mentioned the
short life that
could be conjectured for it in chapter 4 of the first
edition of this book.
There are more and more indications that its decline
could be accompanied
by a collapse of those economies and companies that
believed this approach
should be followed with particular exactness. There
have already been some
initial cases of this.
I saw no reason to make any amendments to the text of
the book. The
Great Transformation of business and society that is
described in chapter 3
is in full swing. Neither at the time nor now was
there any reason to inter-
pret this as any
sort of “New Economy”, even though, by the time it comes
to an end, we shall probably have a New Society. And
the errors of manage-
ment described
in this book are continuing to be made, though in some
cases under different names. As I mentioned in the
preface to the second
edition, they have also been joined by a few more.
Rather than making amendments to the text, I have
written a detailed
new introduction, in which I start by giving a summary
of the position I
adopt and relate it to the developments since the book
first appeared.
I have also added two appendices, in which I discuss
two particular sub-
jects in detail.
The first of these subjects is the fact that the much-lauded
American economic miracle was not a genuine miracle
but a phony one.
This is an important point because the American
economy, which appeared
to be booming in contrast to the stagnating economies
in
strongest argument in favor
of the claimed superiority, and hence the
spread, of the shareholder value theory, as well as
the sort of corporate gov-
ernance
that was based on it.
The second appendix is a discussion of the other
“miracle” that the ad-
vocates
of the wrong sort of corporate governance appeal to for support, that
of the “New Economy”. Both these miracles have proved
to be deceptive mi-
rages; unfortunately though only after the false
management doctrines
based on them had had their effect.
The book is divided into two parts. The first part
considers the direction
in which corporate governance should develop and why.
Chapter 1 raises
the question of whether corporate governance should
manage. Chapter 2
looks at how the governing body functions today and
where its functional
shortcomings are. The third chapter considers the
question of whether cor-
porate
governance is equipped for the future, even if one feels it has been
so in the past and is in the present. It also looks at
whether corporate gov-
ernance
is properly prepared and effective enough for the radical changes
currently experienced by economy and society in almost
every country, for
what I call the Great Transformation. Chapter 4 is
devoted to the question
of the standards by which an enterprise should be
managed and in whose
interest an enterprise should be run, regardless of
industry and business
area. It is in my view essential that the governing
body should be involved
in clarifying these issues and have the last word in
answering them. Fol-
lowing this, the fifth
*
chapter discusses the variables and benchmarks for
assessing a business, in particular in the light of
the question of what a
healthy business is and how its health can be
assessed.
The second part looks at the “what” and “how” of corporate
manage-
ment. Chapter 6
provides a brief overview of the elements of the company
constitution (also known as corporate bylaws).
Chapters 7 and 8 consider
the issues surrounding the formation of supervisory
and executive bodies,
their roles, how they function, and the principles for
their effectiveness.
Chapter 9 takes a view on the difference between
management and leader-
ship, the latter of which is threatening to become a
fashion trend. It is pre-
cisely
the top corporate bodies that need to look very closely at this differ-
ence, for it is
from the top of a business, if anywhere, that leadership stems.
Chapter 10 goes to the very heart of the problems of
power, responsibility,
and liability. And chapter 11 examines the key issues
of personnel selection
and recruitment to the most senior positions.
The book is thus intended first and foremost for top
managers and for all
owners of company shares. It should further be of
interest to anyone who
has to work with senior managers or those on the
higher managerial eche-
lons. And
finally, it may well be of use to anyone with a broad interest in
general business management or who has to take an
interest in it for pro-
fessional
reasons – for anyone who has any interest in a well-functioning
economy and society.
The economy is unmistakably in a phase of
experimentation. Solutions
need to be found for new problems, and seldom before
has it been possible
to study attempts to do so and the effects of them so
well. The basic tasks of
corporate governance I describe in this book are
therefore still highly topi-
cal.
A brief word about individuals’ and company names:
descriptions of ac-
tual cases and
examples would perhaps have been useful illustrations in the
book, and may also have pandered to the public’s taste
for sensation. How-
ever, I have exercised extreme restraint in this
regard. Although I am quite
familiar with a few real-life examples of dramatic
failure by supervisory and
executive bodies, I do not think it is right to detail
dates, facts, and names.
It is my opinion that name-dropping does not provide
any useful informa-
tion;
furthermore, it could wrongly implicate people whose involvement
was not causal, and in many cases even the person
actually responsible may
previously have produced excellent performances in
other domains. As I
will establish, success and failure do not depend
solely on people but also
and to a considerable extent on the situation in which
they are placed – a sit-
uation
that they all too often did not seek out. In the final analysis, this is
no excuse; the consequences of failure cannot be
ignored. However, people
and situations must be considered in close
relationship with each other.
That is precisely why I make no attempt to improve the
effectiveness of
corporate governance primarily by people-driven proposals,
but instead by
constitutional controls.
This thinking pervades the whole book and is, as I
am often able to see at first-hand, largely a new
concept for business man-
agers with a
technical or scientific background. Lawyers in contrast have no
problem in accepting it. They know from their own
discipline that if any-
thing will work, a constitutional solution will.
Where I do name people in this book, I have abided by
the following
principles: first, the people are no longer
alive – in fact in most cases they
died quite some time ago. I know there is huge
interest in examples of to-
day, but in my view a certain chronological detachment
is needed to be able
to come to a relatively reliable assessment of
someone’s performance. In
the media world of today, judgements – and prejudices
– are, it seems to
me, made too hastily and without proper thought.
Second, other than a few
exceptions, which seem well justified, I have only
mentioned people in pos-
itive terms.
Third, I only use the names of people where I believe I have
studied their lives in sufficient depth to be able to
form an opinion. I have
no truck with the popular game of “name dropping”.
Based on these prin-
ciples,
I hope I have dealt fairly and honestly with a topic that is discussed
almost exclusively in terms of personal categories.
The views expressed in this book come from a number of
sources. They
stem from experience I have gathered in my
professional activity with top
management bodies as a consultant and as an active
member. A further
source is numerous talks with managers who are on
governing bodies or
who work with governing bodies as executive managers.
Furthermore, the
content of all the chapters in this book have formed
the material of count-
less lectures and above all seminars I have held for
thousands of managers
over the past twenty years. I have been able to learn
a great deal from the
ensuing discussions, and in this perspective, the
views expressed here and
the suggestions proffered have most certainly been put
to the test. Without
any false modesty, I would also say that a large
number of current managers
and entrepreneurs have told me that these seminars
have helped them gain
a new and better perspective.
I would like to thank the many managers with whom it
has been possi-
ble for me to
discuss the problems of corporate governance in seminars and
at lectures and whose critical attitude demonstrated
that they had quickly
and rightly become concerned about the direction in
which things were de-
veloping.
They became so because their experience told them there was
something about this loudly trumpeted new type of
corporate management
that could not be right.
Although they were also obliged to pay lip service to
what the stock-ex-
change analysts were saying, they managed their
companies from totally dif-
ferent
and correct points of view. They kept quiet for a time for tactical rea-
sons, because they needed to spend their time on
something more impor-
tant, namely on
managing their companies well. And perhaps they did not
always have their counterarguments ready to hand,
neatly grouped and or-
ganized,
particularly when the “experts” tried to make a big impression with
complicated formulas for calculating things. What they
had instead, though,
was a good sense of what is right and what is not,
which is perhaps the most
important ability that competent managers can have.
Terminological Aspects
The discussion about corporate governance over the
past ten years has been
strongly influenced by the juridical perspective. At
the time when corporate
law in most of the highly developed countries came
into existence, one
knew actually little about corporate management. This
fact dominates the
legal standards and how to deal with them until today.
Particularly the lat-
est reforms,
which have been implemented under the influence of the cor-
porate
governance debate – and above all under the pressure of corporate
governance scandals – show how little modern knowledge
about manage-
ment has been
incorporated into legal reforms.
I wrote this book accordingly from another standpoint,
namely, from the
perspective of management. Only when the question of
what is effective
and good business leadership is answered can a
comprehensive body of leg-
islative
norms within the framework of the general legal system be created.
One of the many results of this book has been hereby
proven: that effective
management is possible under all current legal systems
as they developed,
as different as they may be, especially when one
compares the Anglo-Saxon
and the German laws.
Proper management does not depend on the technical
terminology with-
in the individual legal systems. I have therefore not
paid special attention to
the question of terminology and intentionally use
general concepts, based
on German usage, throughout. Nevertheless, the
English-speaking reader
may find the following definitions helpful:
Top management: The
highest leadership organ or body, including both
the executive and supervisory bodies together,
independent of any particu-
lar juridical
conceptualization.
Corporate governance: The
institution that oversees the managing execu-
tive body of a
corporation to ensure that the latter is fulfilling its mission
and running effectively vis-à-vis internal and
external factors. This term is
used interchangeably with governing body and supervisory
body.
Executive body: In the
German joint-stock company (AG), the board of
managers (Vorstand)
in its entirety; in the company with limited liability, the
top managers (president, chief executive officer,
chief financial officer, etc.)
as a whole. In other legal systems there are other
combinations between the
executives and the advisory board.
Supervisory body: In the
German joint-stock company, this is the adviso-
ry board (Aufsichtsrat), also referred to here as the governing
body. It is com-
parable to the Anglo-Saxon board of directors. In
other legal systems there
are combinations between executives and the advisory
board.
Chairman of the governing body:
In German, the chairman of the supervi-
sory board (Vorsitzender des Aufsichtsrates),
comparable to the chairman of
the board in English. Under German law there is no
connection between
the chairs of the executive and supervisory bodies, as
there is between the
chairman of the board and the CEO.
Board of managers: In German
this is the Vorstand, or executive board.
These managers fulfil their duties as a collective,
and their liability is col-
lective
as well, regardless of their internal organisation.
Chairman of the board of managers:
There is no comparable position in the
Anglo-Saxon community; the best parallel would be the
CEO. The German
Vorsitzender
des Vorstands, however,
is not at all related to the CEO, even
though that is often claimed on business cards and
other documents. The
realm of powers of the CEO are large, nearly
limitless; those of the chair-
man of the board of managers are very small. He leads
the meetings of the
board of managers and coordinates the domain of the Vorstand; he is how-
ever not the superior of its members and has no
supervisory authority over
them. The members are appointed and recalled by the
so-called governing
body (Aufsichtsrat).
Disciplinary questions are handled by the supervisory
board, in most cases in a committee.
New Introduction to the Third Edition
1. Fundamental Reorientation
Economies, business, and management – and consequently
society – are