Adopted CEO

More companies in Europe and Asia are family-owned. Among them, performance of Japanese family-owned corporations shows higher performance than the others. 

How the Japanese corporations avoid the common fall-down of dynastic corporations? The Economist in the last week's issue proposed an interesting hypothesis: custom of adult-adoption keeps their successfulness. Adult adoption is more common in Japan: out of 81,000 adoption made in 2011, 90% of them were adult adoption. 

At a glance, the argument may seem absurd, but spending some time for contemplating on it, I now think the argument may be plausible due to three reasons: 

First, the adult-adoption works as a strong commitment mechanism. Usually, when we come up with commitment mechanism of ordinary corporations, we use stock options. Stock option works well to some extent, but influence on manager's incentives will be far stronger in adoption. It easy to imagine the reason: if you have no way to escape around, you would spend much more to make the company successful. 

Second, the custom may contribute to hire better qualified CEOs. Recruiting a right CEO is always difficult and time-consuming. The adult adoption mechanism helps corporations to take more time to find out the right person.

Third, adopted CEOs are fresh-minded outsiders and can bring about turn-around if needed. According to some studies, outsider CEOs are more successful when they are in corporations which are not performing well and need changes. 

Verbalize motive

When I make a presentation, the most typical question I get from the audience is : why you do this? It is the hardest one to answer.

Whenever I start something new, the honest reason I can currently tell is "my whole body asks me to do it". Quite simple, but assuming that most of the people would be puzzled by this answer, I try to come up with an easy story, quoting my life experience. This easy story, however, won't convince me throughly, and I feel a bit guilty.

Sometimes I think about why explanation of one's motivation is that difficult. Perhaps one potential reason is that one's motivation is a complex mixture of various experiences one had in her/his life. One's motivation may only be understood as a whole, and explaining each motivation-shaping factor may drop something very crucial. If that is the case, to explain one's real motive would be a brain teaser.

Difficulty of verbalizing one's motivation does not mean that we ought to skip the question of "why you do this?". I believe only by throughly examining one's own reason, he / she can understand him/herself more profoundly and can make his /her discipline more solid.

Not to end the self-search journey, one should not deceive oneself by the easy story. Once I stop pursuing the goal, I won't be able to see the vast story inside your mind, and that is regrettable to me.  It's more challenging than we usually think, but we can try.

Distinction

It seems that major modern philosophers at 70s and 80s had a same issue – social contexts of something dominant, e.g. Foucault talked about social context of prison and punishment, and so did Said about social context of orientalism. Pierre Bourdieu did the same in his book “Distinction – A Social Critique of the Judgement of Taste”.

Bourdieu argues that even our judgment of taste is not free from social context. We think we know what is culturally noble, but it is just the reflection of power of social classes, according to Bourdieu. He reckons that the definition of cultural nobility is the product of a struggle between groups differing in their ideas of culture and of the legitimate relation to culture and to works of art. In his definition, social class is more than the “class” that Marx mentioned long before. The classes are defined based on education, origin of birth, jobs, income, social status, etc. 

The logic is understandable. All social classes follow their incentive structures, and try to glorify cultures which are close to them. For instance, aristocrats in Japan may want to emphasize the ascendancy of traditional arts, because in this way they can keep their cultural dominance in the society.

What is interesting in his argument is that he gathered as many data as possible to prove his idea. For example, Bourdieu made survey to see how the cultural preferences differ among social class and made “preference distribution” of cultural products. According to this distribution, “Well-Tempered Clavier” is less popular among manual workers, domestic servants, shopkeepers, and the other people with low-paying jobs (approx. less than 3% of people preferred), but more popular among secondary teachers and higher-education teachers (more than 30%).  His book is full of this kind of facts showing certain relationship between social class and tastes.

Artists may disagree with the idea. However, even though the pure intention of artists is that of a producer who aims to be autonomous, they are following the old hierarchy of doing and saying – the interpretations superimposed a posteriori on his work.

Remark

The concept that Bourdieu argued doesn’t sound new, but what is conspicuous in his work is the solid facts to prove his argument. His works show that even sociological argument can be proved through facts and numbers, and tell us that we should not abandon ourselves to despair that somewhat vague concepts cannot be measured. 

Reference

Pierre Bourdieu, “Distinction: A Social Critique of the Judgement of Taste”, Harvard University Press; Reprint edition, 1987/10/15

The Logic of Scientific Discovery

Opposing to inductive logic as the methodology of science, Karl Popper proposes the theory of the deductive method of testing. In his book “The Logic of Scientific Discovery”, he argues that scientific hypothesis should be empirically tested and falsified in cases. It is easy to test the validity of a chain of logical reasoning. Just break it up into many small steps, each easy to check by anybody who has learnt the mathematical or logical technique of transforming sentences.

Falsifiability as essence of science

Popper argues that what distinguishes the empirical science from pseudo-science is that the former theory intrinsically falsifiability.

“I shall certainly admit a system as empirical or scientific only if it is capable of being tested by experience. These considerations suggest that not the verifiability but the falsifiability of a system is to be taken as a criterion of demarcation. In other words: I shall not require of a scientific system that it shall be capable of being singled out, once and for all, in a positive sense; but I shall require that its logical form shall be such that it can be singled out, by means of empirical tests, in a negative sense: it must be possible for an empirical scientific system to be refuted by experience.”(18)

The reason why he emphasizes falsifiability, not verifiability, is that it is not possible to prove something in empirical science. Through the history, every scientific theory has been denied by the new facts and then updated. Popper took a radical example to explain his idea: “Let us suppose that the sun will not rise tomorrow. Should such a thing occur, science would have to try to explain it, i.e. to derive it from laws. Existing theories would not merely have to account for the new state of affairs: our older experiences would also have to be derivable from them. “(250)

Granted, the best thing is that we can just jump into immortal truth, but that will not come true forever. That is why human beings have taken paths that seem to be beating around the bush.

Probability of hypothesis and probability of events

Popper also strictly differentiates probability of hypothesis from probability of events. He argues that probability of hypothesis should not exist in science, although probability of events do and contribute for testing the validity of hypothesis.

Hypotheses regarding probabilities are not verifiable because they are universal statements, and they are not strictly falsifiable because they can never be logically contradicted by any basic statements. (259) I believe that physics uses probability statements only in the way which I have discussed at length in connection with the theory of probability; and more particularly that I uses probability assumptions, just like other hypotheses, as falsifiable statements. (260)

Science in evolutionary process

Popper believes that the essence of science is its falsifiability and thus its evolutionary process which lasts forever. One driving force of the evolution is craving for the truth, although the goal will never be attained. Another driving force is one’s intuition: although new facts have always transformed science, those facts do not come to those who passively experience it; it comes to someone who believes in his/her anticipation, idea, speculative thought and so on. In other words, the facts that change the world are visible to only those who want to do it.

“Science is not a system of certain, or well-established, statements; nor is it a system which steadily advances towards a state of finality. Our science is not knowledge (episteme): it can never claim to have attained truth, or even a substitute for it, such as probability.

  Yet science has more than mere biological survival value. Although it can attain neither truth nor probability, the striving for knowledge and the search for truth are still the strongest motives of scientific discovery.

  Marvelously imaginative and bold conjectures or “anticipations” of ours are carefully and soberly controlled by systematic tests. Once put forward, none of our “anticipations” are dogmatically upheld. Our method of research is not to defend them, in order to prove how right we were. On the contrary, we try to overthrow them. Using all the weapons of our logical, mathematical, and technical armoury, we try to prove that our anticipations were false – in order to put forward, in their stead, new unjustified and unjustifiable anticipations, new “rash and premature prejudices”, as Bacon derisively called them.

The advance of science is not due to the fact that more and more perceptual experiences accumulate in the course of time. Nor is it due to the fact that we are making ever better use of our senses. Out of uninterpreted sense-experiences science cannot be distilled, no matter how industriously we gather and sort them. Bold ideas, unjustified anticipations, and speculative thought, are our only mans for interpreting nature: our only organon, our only instrument, for grasping her.

The old scientific ideal of episteme – of absolutely certain, demonstrable knowledge- has proved to be an idol. The demand for scientific objectivity makes it inevitable that every scientific statement must remain tentative for ever. It may indeed be corroborated, but every corroboration is relative to other statements which, again, are tentative. Only in our subjective experiences of conviction, in our subjective faith, can we be “absolutely certain”.  (Page 278 – 280)

Remarks

The idea proposed in this book is still the fundamental idea in problem solving in business fields. We always begin with a hypothesis when we tackle problems. After coming up with the hypothesis, we test it by collecting facts and checking the chain of reasoning. If we find the facts or logical fallacies which reject the hypothesis, we turn down the original one and try to find out the new.

What this book is missing unfortunately is how the motivation and intuition that change the structure of science come to us. People now are striving to find out the more systematic way to get to the world-changing idea. Granted, that part is not the scope of this book, but I just wanted to know how Popper thought of the process of the idea generation.

Reference

Karl Popper, “The Logic of Scientific Discovery”, Routledge (2nd edition), 2002/3/29

The Art of the Long View

I would like to write what I heard from and learned through a book authored by Peter Schwartz, an amazing futurist I met at Summer Davos. The gray-hair guy whose face is always full of beaming smile gave me great implications for thinking about the future.

1. Why we need scenario

Scenario is a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out. Scenario writing is not for the prediction about the future, but for the good preparation for the uncertain future. In the real world, we don’t know ahead of time which scenario would take place. However, if we prepare for all scenarios and train ourselves, we will be able to deal with the situation better.

In a sense, scenario works as a vehicle for helping people learn. Granted, we can learn or prepare for the future even without scenarios, but we might need to take a look at pitfalls of human cognitive behavior - we human beings tend to deny the possibility of unwanted future, and developing scenarios are useful tools to avoid missing important factors.

2. How to make scenarios

Alternate focus of questions

Scenario builders should consider both narrow questions related to specific situations and broad ones the world at large. Otherwise, it’s easy to lose sight of issues that could be important.

Think with groups

If you think about the future, it is easy to be caught by one’s mental cycle. Discussing the questions with diverse people help us avoid failures.

See interactions between driving force and status quo

The world evolves through the dialectic process of something new and old. Schwartz mentioned about key sources of the driving forces that shape the new world, which he call “STEEP”:

- Society: Changes in the society could affect the future state of the world. Population growth, literacy rate, cultural diversity, etc need to be taken into considerations

- Technology: This force is one of the most important driers of future events. Politics can change, but a scientific innovation, once released into the world, cannot be taken back

- Economy: Economic phenomena do shape the future as well. The change in transportation costs changed the state of oil industry, for example. Fiscal deficit of developed countries would be the recent powerful driving force to influence the future of the world

- Environment: The impact of ecological damage on human affairs and the increasing public perception of ecological harm will have impact on the state of the future

- Politics: Regulations and foreign affairs do affect the state of the world.

Needless to say, the relative importance of each factor varies from state to state. Thus we need to rank them and concentrate more on crucial factors.

When you want to see where the new forces are generated, one way is to go fringes. At the outer edge are the ideas which the majority rejects. Albert Einstein was a patent clerk in Geneva who couldn’t get a university teaching job. The two “Steves” who founded Apple had roots, respectively, in Eastern mysticism and the “hacker” outlaw computer subculture.

Another way is to meet remarkable people. When you ask questions to youth, conventional thinkers and specialists, you’ll be able to understand more about the generating forces that will eventually shape the world.

To see the current situation, or the voice of the majority, the best ways are:

- See TV programs (not news), because they represent what people perceive and produce.

- Listen to popular music, because those songs show the public feeling

- Poll data also help us understand what people are thinking of

- Meeting people and asking questions help as well

Over the interaction between status quo and new forces, we see the breaking points, or perception-shaping events. For instance, global warming became the issue for millions of people, when a NASA meteorologist testified before Congress on long-term climate changes as the result of pollution in a slow news day. These perception-shaping events matter, because the changes in public perception can pivot the direction of history more swiftly and irrevocably than money or military power.

Critical uncertainties

Predetermined elements (driving force and status quo) are not enough to write scenario. In every plan, critical uncertainties exist. Scenario planners seek the critical uncertainties out to prepare for them. These critical uncertainties provide nodes for the scenario making trees.

3. Others

Let me share some interesting remarks that he made.

About network

Network exists thanks to generosity. The powerful network is created by powerful idea, strong relationship and generosity. It is fundamentally unique that being generous creates value and that some key driving force of the society exists thanks to generosity.

Future of lives

Biotech is making significant progress. In 20 years, 80 years-old people would look like 40s. We may be able to live longer than 200 years. This means that the timeframe of our lives will undergo dramatic changes. One initial but important advice is to choose spouses wisely.

Magazines worth reading as an information source

The Economist is in his opinion the single best source of information about what is happening in the world. The other good sources are Discover (science), Wired magazine (tech), Foreign Affairs (international relations), etc.

4. Remarks

I found that scenario writing is very akin to what investment professionals usually do in case analysis. When we make investment decisions, we come up with several cases to evaluate how the future could be and to see if we can manage even the worst situation. Investors’ case studies often are narrow-minded, and this book offers me a bird’s-eye view in scenario planning. As the interaction of various forces shapes the world, we ought to take more factors into consideration to prepare well for the future.

Reference

Peter Schwartz, “The Art of the Long View”, Crown Business (reprint edition), 1996/4/15