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Why top down management gets a thumbs down

Do we need an Arab Spring in Canadian corporations? Would they benefit from a Maidan-like revolution, the protests in Ukraine that toppled the former regime?

Our immediate impulse, given the resulting chaos, might be no. But both movements were a call for freedom, and corporations, while defenders of free enterprise, are often top-down, control-minded organizations that are anything but free.

A new report from LRN, a global performance consulting firm, suggests corporations would benefit from the breath of freedom. It calls freedom the 21st-century competitive advantage.

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"Conventional methods of managing and governing organizations are too programmed and inflexible for today's world. They are inadequate to address strategic and operational complexity, the lightning speed of change, and the imperative to tap deeper levels of human innovation," the LRN report says.

"Legacy controls, processes, and organizational designs have become an albatross around the neck of business. We have grown too reliant on structure and hierarchy. At no point has the need to address such an imbalance been more urgent," it says.

That's not just rhetoric. There are statistics to back it up. After developing an index to assess the levels of freedom in companies, the consulting firm found that those with high levels of freedom were 10 times more likely to have high financial performance than low-freedom companies, and 20 times more likely to have strong innovation and long-term success.

Corporate freedom comes in two forms, "freedom from" and "freedom to."

"Freedom from" refers to the liberation of people from hierarchy, oppression and rules. It involves removing stultifying structures and creating space so people can make a full contribution to success. "It is a key first step in creating the ability of individuals to achieve and fulfill their potential – whether they are establishing freedom from a tyrannical government or a top-down corporate management style," the LRN report says.

"Freedom to" is a condition in which people are able to act in the common interest. It's a values-based approach to corporate success, creating alignment around shared objectives.

"Freedom To goes beyond Freedom From. More than the absence of constraint, it inspires individuals to contribute fully, to express themselves, to share values, and to extend trust. In sum, freedom does not mean simply dissolving rules and limits. That would be anarchy. This is not about jettisoning obligations and responsibilities because they happen to be inconvenient. Appropriately calibrated rules – and the rule of law – create space for progress and innovation," the report states.

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LRN determined that 51 per cent of companies had low freedom while 21 per cent had high freedom. Freedom is not only for employees, but also for customers, supply-chain partners, and the community in which the company operates. Freedom was found to be lowest in the corporations' relationships with employees and customers. Yet the biggest boost in financial performance, innovation and long-term success was traced, statistically, to having freedom for employees and customers.

Caterina Bulgarella, a New York-based leader in the governance, culture and leadership branch of LRN, said this shows companies must have a strong, humanistic set of values underpinning their operations.

"It pays off to shift the focus from rules to values," she said in an interview. And while the report refers to the Arab Spring and compares it with young people flocking to startups where they can be free of conventional corporate trappings, she is more cautious, noting the chaos that revolution can bring. The idea is to eliminate obsolete controls and rules – but not all rules. That allows you to deal with complexity in a different way, unlocking potential.

"It is a controversial report – a controversial set of findings, as the notion of freedom is not at the centre of conversations in organizations. It's a new idea. Some companies are grappling with it better than others," Ms. Bulgarella said.

If you want to grapple with it, she advises you to look honestly at the DNA of your company, probing why you do what you do and how that relates to rules, freedom and values. Don't just consider employees, but also the other stakeholders – customers, supply chain partners, and the community. How do they relate to your firm? Are they tied up in rules, or do they have autonomy that might be to your benefit?

In Canada, Ms. Bulgarella noted, the regulatory environment has been changing, which allows companies to act in a more liberated way. But companies can't simply complain about outside rules that shackle them. They have to look inside, at the rules they create. "I see companies spending so much time on procedures that are just patches – when a problem arises, they put [on] a patch," she said. "But the problems keep coming back as the root causes aren't addressed."

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The root causes are the lack of freedom from and freedom to.

Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter

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