... Blake failed to appreciate the true balance of power and the deep cultural influence of the Athlete’s Advisory Council. He felt that he had his ducks in order, with a board mandate and plan approval to carry out the change that he - and many others - believed was essential. In a corporate setting this may have been relatively straightforward, given the generally clear scorecards of financial and organizational performance. Then again, it may very well have been just as difficult and ultimately unsuccessful. Why? Because whether it’s a powerful group of employees, retirees, restive shareholders, or even customers, a failure to assess the culture and the readiness for change among different interest groups can be lethal.

For example, meeting with senior executives in a large financial services firm in April

2020, I listened as they explained that the current business environment made failure temporarily “off-limits.” Understandably concerned about an economic climate increasingly challenged by a global pandemic, these business leaders wanted everything to go as well as possible. Generally speaking, they were sincere in their desire to learn from failure. But enthusiasm about failing was acceptable when times were good, they told me; now that the future looked uncertain, pursuing unerring success was more imperative than ever. These smart, well-intentioned people needed to rethink failure. First, they needed to appreciate the context. The need for fast learning from failure is most critical in times of uncertainty and upheaval, in part because failures are more likely! Second, while encouraging people to minimize basic and complex failures may help them focus, welcoming intelligent failures remains essential to progress in any industry. Third, they needed to recognize that the most likely outcome of their prohibition on failure wasn’t perfection but rather not hearing about the failures that do occur. When people don’t speak up about small failures—say, an accounting error—these can spiral into larger failures, such as massive banking losses.

Real businesspeople operate in ‘large worlds’, in which problems are ill defined and there are no objectively correct answers. Moreover, the ‘right’ answer will often not be apparent, even in retrospect. Effective decision-makers in large worlds are not maximising; they do not have and never can have the information needed to make the relevant calculations. They confront radical uncertainty. Often they not only do not know what will happen but do not even know the kinds of things that might happen. Although we must abandon ‘the pretence of knowledge’, individuals, institutions and businesspeople need to act in the face of uncertainties.

German law is clear and adopts a stakeholder perspective. American law on corporate obligations is not at all clear; scholarly debate is extensive and continuing, but veers towards shareholder primacy. Britain is, as on so many issues, somewhere in between. But clarification of the legal issue is much less important than it may appear to be at first sight. All three jurisdictions have sensibly framed their law, and the practice of their courts, to make it hard to challenge honestly made business decisions. As a result, managers are left with considerable discretion in practice in balancing the claims of different stake-holders. The manner in which they resolve these questions owes far more to the business climate and the expectations of society than to the precise definition of legal duties. Businesses are social organisations and operate within a particular society.

For an economist who taught that profit could be sustained only as a result of competitive advantage, this diversification raised a simple question. And some businessmen on the board, accustomed to a world in which profit is earned only by meeting customer needs, encountered the same difficulty.