The Pygmalion Effect on Responsible Management

Otis Baskin


As Henry Higgins expectations of Liza Doolittle transformed her image of herself, our expectations of those in top management positions may explain their behavior.  

The ongoing revelations about the failures of chief executives to manage the companies they serve in the best interests of shareholders and society has caused many to pronounce greed as the driving force of business itself.  Yet, those of us who work closely with family businesses see a different picture.  We see executives, both family and non-family, who are loyal to the organization, its mission, the communities in which they operate, their employees and the owners.  Great leaders whose concern for others is demonstrated in everything they do.   

Of course, it is overgeneralization to say that all family business CEOs are somehow better and nobler than their public company counterparts.  There are truly excellent managers in all types of companies regardless of industry, size, or ownership structure.  But it has been my observation that family companies are better at spawning these “servant leaders”.  

One explanation may lie in the expectations that are communicated to executives when they accept positions and as they work their way into roles of greater responsibility.  As modern organization theory developed the problem of agency theory emerged as a chief tenent taught in every business school and economics course.  Agency theory depicts top managers in the modern corporation as “agents” whose interests may be different from those of shareholders because both are attempting to maximize their own personal gain.   

If executives understand their role as maximizing their own personal gain it is no surprise when they take unreasonable risks with the capital of shareholders to increase the potential of their own bonus plans.  Therefore, complex compensation schemes and onerous accountability mechanisms have been devised to assure that executives manage with the interests of their shareholders in mind.  However, these mechanisms only serve to highlight the underlying theme that “agents” are not expected serve the interests of shareholders.  Thus, the more “protections” we put in place the more we may be contributing to the cause of the problem.  

Why the difference in family business?  I propose that, at least one reason is the generally accepted concept of stewardship.  In successful family businesses executives assume their roles as heirs of a great tradition and understand that their primary responsibility is continuity.  The same is true for good owners of family businesses.  They understand that this is not “my business” but rather ours to nurture, grow, and deliver to another generation.  The expectations communicated in a successful family business are shared values and a common future that serve to align the interests of executives and owners.


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