The empty chair on stage was more than symbolic when The Banking and Finance Oath (BFO) was hosting a panel discussion on who holds the responsibility of culture within an organisation. In months of preparation, I had not found one middle manager who was willing or able to contribute to the discussion.

A chairman, director, CEO, HR specialist and a professor settled into their places, ready to give their opinions on the role they played in developing culture. The empty space at this event, three years ago, spoke volumes about the invisibility and voicelessness of those who have been promoted to manage others, but have little actual decision-making power.

Middle managers are often in the crossfire when it comes to apportioning blame for the failure to transform an organisation’s culture or to enact strategy. I have heard them derisively called “permafrost”, as if they are frozen into position and will only move with the application of a blowtorch.

“Culture Blockers” is another well-used epithet.

Middle managers are typically those people who head departments, business units, or who are project managers. It is their responsibility to implement the strategy that is imposed from above them and may have two management levels below them.

Over the past 20 years, the ranks of the middle managers have been slashed as organisations cut out unnecessary costs and aim towards flatter hierarchies. Those occupying the surviving positions may be characterised like this:

• They are often managing people for the first time and offered little training to deal with professional development, project management, time management and conflict resolution
• They may have been promoted because of their technical competence, rather than management ability
• Their management responsibilities may be added on top of what they were already doing before being promoted
• They have responsibility, but little formal authority
• They may have limited budget
• They are charged with enacting policy and embedding values, but may not be given the context or the “why”
• They have little autonomy or flexibility and may lack a sense of purpose.

All these characteristics make middle management a highly stressful position. Two large US studies found that people who work at this level are more likely to suffer depression (18 per cent of supervisors and managers) and had the lowest levels of job satisfaction.

“I don’t know any middle manager that feels like they’re doing a good job”, a middle manager recently told me.

However, the reason we need to pay attention to our middle managers is more than just concern for their welfare. Strategies and cultural change will fail if they are not supported and motivated. They are the custodians of culture and some would argue the creators, as people observe their behaviour as guidance for their own.

“We know what good looks like, but we’re not set up for success”, confided another middle manager.

Stanford University professor, Behnam Tabrizi, studied large-scale change and innovation efforts in 56 randomly selected companies and found that the 32 per cent that succeeded in their efforts could thank the involvement of their middle managers.

“In those cases, mid-level managers weren’t merely managing incremental change; they were leading it by working levers of power up, across and down in their organisations,” he wrote in the Harvard Business Review in 2016.

As more evidence that middle managers are intrinsic to a business’ success, Google founders Larry Page and Sergey Brin decided they could do without managers in the early days of the company in 2002. However, their experiment with a manager-less organisation only lasted a few months.

“They relented when too many people went directly to Page with questions about expense reports, interpersonal conflicts, and other nitty-gritty issues. And as the company grew, the founders soon realized that managers contributed in many other, important ways—for instance, by communicating strategy, helping employees prioritise projects, facilitating collaboration, supporting career development, and ensuring that processes and systems aligned with company goals,” wrote David Garvin, the C. Roland Christensen Professor at Harvard Business School.

With all of this in mind, you may think business leaders would now be seeking the views of their middle managers, to engage them in the cultural change required to regain public trust after the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and other recent scandals. But sadly, no.

Just this month at The BFO conference, I was again presenting a panel discussion on the plight of middle managers. Prior to the day, two of the middle management participants – despite one being nominated by a senior leader – were pulled and additionally, the discussion was ruled Chatham House with journalists being asked to leave the room. Although I saw a glimpse of positivity, my research leading up to the discussion would suggest very little has changed and this issue is not limited to financial services.

While senior leaders are working tirelessly to overcome challenges in this transitional time, part of the answer is right in front of them (well, below them) – their hard-working middle managers. But first, they have to make the effort to engage them with appreciation, seek their views with empathy, and involve them in the formulation of strategy.

Kat Dunn had a big life, but it wasn’t fulfilling. She was the youngest executive to serve on the senior leadership team of fund manager Perpetual Limited, but she went home each night feeling empty.

The former mergers and acquisitions lawyer tossed in the job two years ago and found her way into the non-profit sector, as CEO of the charity and social business promoter Grameen Australia.

Grameen Australia aims to take Social Business mainstream in Australia by scaling and starting up social businesses and advising socially-minded institutions on how to do the same.

Dunn says Millennials are more interested in “purpose” than money and security. She was speaking at the Crossroads: The 2019 Banking and Finance Oath Conference in Sydney in August.

Dunn said Perpetual tried to talk her out of leaving the fund manager. “I think they thought that I was going through some sort of early-onset midlife crisis.

“Because, after all, what sane person would give up a prestigious job, good money at the age of 33 when my priority should have been financial security, even more status, and chasing those last two rungs to get to be CEO of a listed company?”

‘I was living the dream’

Dunn said she was conditioned to believe she should want to climb the corporate ladder and make a lot of money.

“At 32 years old, I was appointed to be the youngest senior executive on the senior leadership team. The year before, I had just done $3 billion worth of deals in 18 months. I was, as some would say, living the dream,” said Dunn.

“So, you can imagine how disillusioned I felt when I went home every night feeling like I was a fraud. I was wondering how I could possibly reconcile my career with my identity of myself as an ethical person”.

Dunn had been put in charge of building the company’s continuous improvement program, but the move proved a disappointment. “I was so green because I thought [the role] meant I had the privilege of actually making things better for my colleagues.

“Later, I realised that it was just code for riskless cost-cutting … and impossible-to-achieve growth targets.”

Dunn said she had childhood aspirations to help create a sustainable future. “But, instead, I found myself perpetuating the very system of greed that I had vowed to change.”

“My whole career, I was told I had to make a choice between making a living or making a difference. I couldn’t do both and I found that deeply unsettling. I had cognitive dissonance.”

A desire to do work that matters

Dunn made the point that her motivations are shared by many – and not just be Millennials (she just scrapes over the line into Generation X).

By 2025, 75 per cent of the workforce will be Millennials (born between 1980 and 2000) and only 13 per cent of millennials say that their career goal involves climbing the corporate ladder, 60 per cent have aspirations to leave their companies in the next three years.

Moreover, 66 per cent of Millennials say their career goals involve starting their own business, according to a study by Bentley University.

“A steady paycheque and self-interest are not the primary drivers for many Millennials any more. The desire to do work that matters is,” said Dunn.

“Growing up poor, I thought that money would make me happy. I thought it would give me

security and social standing. I thought that if I ticked all of the boxes, that I would be free.

“At the height of my corporate career, though, I was anything but. I felt that making profits for profit’s sake was just deeply unfulfilling. For me, it was just the opposite of fulfilling – it caused me fear, distress and this stinging sense of isolation.

“What was strange is that no one else seemed to be outwardly admitting to feeling the same.”

The vision was impaired

Dunn recalled talking to a peer about strategy at the time and saying to him ‘I think our vision is wrong’.

She told him: “Our vision is to be Australia’s largest and most trusted independent wealth manager.  I think it’s wrong. It’s not actually a vision. It’s a metric on some imaginary league table and it’s all about us.

“It doesn’t say anything about creating anything of value for anyone else.”

Her colleague retorted: “Kat, we have bigger fish to fry than our vision”.

She knew, at that point, she would not realise her potential in that environment.

Aaron Hurst, the author of the book, The Purpose Economy, predicts that purpose is going to be the primary organising principle for the fourth [entrepreneurial] economy.

He defines “purpose” as the experience of three things: personal growth, connection and impact.

“When he wrote the book, five years ago, Hurst said that by 2020, CEOs expected

demands for purpose in the consumer marketplace would increase by 300 per cent,” said Dunn.

“Now, what that means is that consumers deprioritise cost, convenience and function and make decisions based on their need to increase meaning in their lives.”

Dunn says that, as Millennials take on more leadership roles, this trend will become more evident in the job market.

“When you talk about how hard it is to find top talent to work in the industry, it is worthwhile knowing that for the top talent – the future leaders of the industry, of our country, our planet – work isn’t just about money.

“It is a vehicle to self-actualisation. They don’t just want to work nine-to-five for a secure income, they actually want to run through brick walls if it means they get to do work that they believe in, within a culture of integrity, for a purpose that leaves the world in a better place than they found it,

And they want to work in a place that develops not only their skills, but sharpens their character.”

Dunn said that when she left her corporate job, she would not have believed that the financial services industry could build a better society and a sustainable future.

However, she changed her mind when she learned about Grameen Bank, microfinance and social business.

As guardians of moral behaviour, company boards continue to be challenged. After a year of wall-to-wall scandals, especially within the Banking and Finance sector, many are asking whether there are better ways to oversee what is going on in a business.

A series of damning inquiries, including the recent Royal Commission into Financial Services, has spurred much discussion about holding boards to account – but far less about the structure of boards and whose interests they serve.

Ethicist Lesley Cannold expressed her frustration at this state of affairs in a speech to the finance industry, saying the Royal Commission was a lost opportunity to look at “root and branch” reform.

“We need to think of changes that will propel different kinds of leaders into place and rate their performance according to different criteria – criteria that relate to the wellbeing of a range of stakeholders, not just shareholders,” she said at the Crossroads: The 2019 Banking and Finance Oath Conference in Sydney in August.

This issue is close to the heart of Andrew Linden, PhD researcher on German corporate governance and a sessional Lecturer in RMIT’s School of Management. Linden favours the German system of having an upper supervisory board, with 50 per cent of directors elected by employees, and a lower management board to handle the day-to-day operations.

This system was imposed on the Germans after World War II to ensure companies were more socially responsible but, despite its advantages, has not spread to the English-speaking world, says Linden.

“For 40 years, corporate Australia has been allowed to get away with the idea that all they had to do was to serve shareholders and to maximise the value returned to shareholders.

“Now, that’s never been a feature of the Corporate Law. And directors have had very specific duties, publicly imposed duties, that they ought to have been fulfilling – but they haven’t.”

It is the responsibility of directors of public companies to govern in the corporation’s best interests and also ensure that corporations do not impose costs on the wider community, he says.

“All these piecemeal responses to the Banking Royal Commission are just Band-Aids on bullet wounds. They are not actually going to fix the problem. All through these corporate governance debates, there has not been too much of a focus on board design.”

The German solution – a two-tier model

This board structure, proposed by Linden, would have non-executive directors on an upper (supervisory) board, which would be legally tasked with monitoring and control, approving strategy and appointing auditors.

A lower management board would have executive directors responsible for implementing the approved strategy and day-to-day management.

This structure would separate non-executive from executive directors and create clear, legally separate roles for both groups, he says.

“Research into European banks suggests having employee and union representation on supervisory boards, combined with introduction of employee elected works councils to deal with management over day-to-day issues, reduces systemic risk and holds executives accountable,” according to Linden, who wrote about the subject with Warren Staples (senior lecturer in Management, RMIT University) in The Conversation last year.

Denmark, Norway and Sweden also have employee directors on corporate boards and the model is being proposed in the US by Democratic presidential hopefuls, including Senators Elizabeth Warren and Bernie Sanders.

As Linden said, “All the solutions that people in the English-speaking world typically think about are ownership-based solutions. So, you either go for co-operative ownership as an alternative to shareholder ownership, or, alternatively, it’s public ownership. All of these debates over decades have been about ‘who are the best owners’, not necessarily about the design of their governing bodies.”

Linden says research shows the riskiest banks are those that are English-speaking, for-profit, shareholder-dominated, overseen by an independent-director-dominated board.

“And they have been the ones that have imposed the most cost on communities,” he says.

 Outsourcing the board

Allowing consultant-like companies to oversee governance is a solution proposed by two law academics in the US, who say they are “trying to encourage people to innovate in governance in ways that are fundamentally different than just little tweaks at the edges”.

Law professors Stephen Bainbridge (UCLA) and  Todd Henderson (University of Chicago) say organisations are familiar with the idea of outsourcing responsibilities to lawyers, accountants, financial service providers.

“We envision a corporation, say Microsoft or ExxonMobil, hiring another company, say Boards-R-Us, to provide it with director services, instead of hiring 10 or so separate ‘companies’ to do so,” Henderson explained in an article.

 “Just as other service firms, like Kirkland and Ellis, McKinsey and Company, or KPMG, are staffed by professionals with large support networks, so too would BSPs [board service providers] bring the various aspects of director services under a single roof. We expect the gains to efficiency from such a move to be quite large.

“We argue that hiring a BSP to provide board services instead of a loose group of sole proprietorships [non-executive directors] will increase board accountability, both from markets and judicial supervision.”

Outsourcing to specialists is a familiar concept, said Bainbridge in a video interview with The Conference Board.

“Would you rather deal with you know twelve part-timers who get hired in off the street, or would you rather deal with a professional with a team of professionals?”

Your director is a robot

A Hong Kong venture capital firm, Deep Knowledge Ventures, appointed the first-ever robot director to its board in 2014, giving it the power to veto investment decisions deemed as too risky by its artificial intelligence.

Australia’s Chief Scientist, Dr Alan Finkel, told company directors that he had initially thought the robo-director, named Vital, was a mere publicity stunt.

However, five years on “… the company is still in business. Vital is still on the Board. And waiting in the wings is her successor: Vital 2.0,” Finkel said at a governance summit held by the Australian Institute of Company Directors in March.

“The experiment was so successful that the CEO predicts we’ll see fully autonomous companies – able to operate without any human involvement – in the coming decade.

Stop and think about it: fully autonomous companies able to operate without any human involvement. There’d be no-one to come along to AICD summits!”

Dr Finkel reassured his audience that their jobs were safe … for now.

“… those director-bots would still lack something vital – something truly vital – and that’s what we call artificial general intelligence: the digital equivalent of the package deal of human abilities, human insights and human experiences,” he said.

“The experts tell us that the world of artificial general intelligence is unlikely to be with us until 2050, perhaps longer. Thus, shareholders, customers and governments who want that package deal will have to look to you for quite some time,” he told the audience.

“They will rely on the value that you, and only you, can bring, as a highly capable human being, to your role.”

Linden agrees that robo-directors have limitations and that, before people get too excited about the prospect of technology providing the solution to governance, they need to get back to basics.

“All these issues to do with governance failures get down to questions of ethics and morality and lawfulness – on making judgments about what is appropriate conduct,” he says, adding that it was “hopelessly naïve” to expect machines to be able to make moral judgements.

“These systems depend on who designs them, what kind of data goes into them. That old analogy ‘garbage in, garbage out’ is just as applicable to artificial intelligence as it is to human systems.”

Glossy highrises form a wall of corporate Australia along the Yarra River. The size of those companies and the magnetism of their brand names easily attract talented people and the attractions of big businesses are obvious.

These giants offer world-leading working conditions and benefits, career advancement, important work for powerful clients and the chance to work overseas.

Even still, people leave these big businesses for smaller ones all the time. And the reasons they quit can provide useful ammunition for those pointy-elbowed entrepreneurs who would love to get them on board.

A few blocks back from the river in Melbourne is the office of professional services firm, BlueRock, which started as an accounting business 11 years ago by five “escapees” from corporate Australia.

Today, the firm has around 170 employees and has diversified into areas such as law, private wealth, finance and insurance. Last year, they made it to fourth place on the Great Place To Work list for companies with between 100 and 999 employees.

It was also a finalist in the employer of choice category of the Lawyers Weekly 2019 Law Awards.

COO of the BlueRock, Dean Godfrey, says the biggest challenge in competing with the big firms is to attract graduates or to recruit people who are in the first half of their careers.

“There is still some prestige in going to some of the other more structured, high profile organisations,” he says. “When people are starting out, they don’t always know what they want.”

However, he says people who have had experience working for the big firms find they enjoy life more at BlueRock. “It is about having fun while you do it, working with like-minded people and understanding that the grass isn’t greener on the other side.”

Reasonable hours

Godfrey says people who make the move to BlueRock from big “churn-and-burn” firms often talk about wanting more purpose in their lives and getting away from the long hours culture.

“It is more about getting the job done than having prescriptive rules around having to be there,” he says.

Godfrey says BlueRock tries to ensure its clients – who are mostly business owners – share its vision for a healthy workplace.

The legal division distinguished itself by having less reliance on hourly-billing, which is the traditional way that lawyers’ time is charged out, but also a contributor to high stress levels in the practice of law.

Variety

One of the benefits of being in a smaller company is that employees are often given a broader range of experiences. “People in those larger firms almost cut their teeth on monotony, doing something really, really, really well,” says Godfrey.

Social purpose

BlueRock aspires to become a social enterprise and achieved B-Corp certification in 2017. This means it is legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

The challenge of B-Corp is that companies have to continue to improve to maintain their accreditation.

Godfrey says people who want to leave large firms often say they want to find more meaning in their work.

“You see people who have been in those businesses looking for something different. They may like the accounting stream or law stream or finance stream, but they want to be part of something that looks after its community,” he says.

BlueRock is working on becoming carbon-neutral and is phasing out its printers, is composting waste and considering more environmental lighting solutions. The firm is also reassessing its supply chain and the B-Corp status of its suppliers.

“We want to make sure they are putting their money where their mouth is,” he says.

BlueRock has partnered with B1G1 (Business For Good), a global giving initiative whereby every transaction made in a business “earns” a donation.

Employee ownership

Any employee of BlueRock is eligible to invest in the company and about one-third of staff have participated.

Unlike larger firms, where is it only the partners or those at senior levels who can become owners, the BlueRock founders determined that the people who work in the business should also be able to have a stake in the wealth and direction of the firm.

“It really does give you a feeling like you are a part of what we’re building,” says Godfrey.

As a firm that is focused on its entrepreneur clients, employees at BlueRock are also encouraged to have their own businesses.

Fun

The funky office space, which includes a giant chessboard and a unicorn sculpture, signals the company does not want to be seen as your usual professional services firm. The website promises fun activities and healthy food options and a range of flexible work options.

Managing director of BlueRock, Peter Lalor, has said people are left to decide how they do their work:

“Our philosophy is quite different: if we just let people get on with the job of working stuff out in a really smart, efficient way, they’ll get the right answer,” he said in a podcast.

“And I think that there’s a little bit of combativeness in people when they’re told they have to do something … They rebel against it. So, by having little to no structure in terms of how we do what we do, and no rules per se, people feel very empowered to get on with the job.”