VOLUME IV, CHAPTER 7, SECTION 2

VOLUME IV, CHAPTER 7, SECTION 2

Two Tracks, Why Selection in Business and in Government Differ

Last section saw a strange thing: government can do only the half dream of the examination, yet there is a kind of organization that must do the whole, the enterprise. This section makes that two-track division clear, sets out a line proven again and again in today's business world, a CEO who staffs by kinship will perish, and then makes clear why the enterprise can select fully by merit while government cannot.

Government cannot let the examination run through to the top, but an enterprise can, and must. Why? Because an enterprise and a government are at bottom not the same kind of organization. A government is enfeoffment, and the essence of enfeoffment is that a position is lifted up within the group, and being enfeoffment, it will protect vested interest and hand down vested interest, and enfeoffment will not let a full merit selection abolish itself. An enterprise is a working venture, and the essence of a venture is to get work done, and getting work done relies on real ability, and being a matter of doing work, ability is the highest standard, and any way of enfeoffment, using family, using connections, using faction, harms the root of the venture. This is why an enterprise can adopt the examination fully, from the lowest employee to the highest head, in principle all by merit selection. The lowest employees hired and assessed by hiring exam, interview, and performance. The middle managers promoted by results and leadership. The upper levels promoted by strategic vision, executive ability, and the power to integrate people. The highest head assessed, advanced, and removed by strategic judgment, crisis handling, and the ability to shape culture. At any level, any favoritism of staffing by kinship starts the enterprise on its decline. To put a son in an important position is dynastic enfeoffment, and the other able people begin to leave. To put friends, classmates, and fellow townsmen in key positions is enfeoffment by connection, and the able outsiders are squeezed out. To cultivate one's own faction inside the company is party enfeoffment, and the other factions are held down, the inner split spending the enterprise's strength. A CEO who staffs by kinship will perish, and this is not a moral lesson, it is a law. Any favoritism of staffing by kinship draws talent loss, inner division, a decline in the quality of decisions, and a weakening of competitiveness, and over the long run the enterprise perishes.

History and the present show this law again and again. The family enterprise where wealth does not pass three generations, the great majority declining by the third generation, the third-generation heir not necessarily able, the able non-family talent held down or gone, the enterprise losing its vitality, the necessary result of dynastic enfeoffment. The startup with faction infighting, many startups, once grown large, the founder beginning to cultivate his own faction and standing against the other executives, the inner drain heavy, the enterprise falling into stall or even collapse, the necessary result of party enfeoffment. The decline caused by nepotism, the decline of many great companies often beginning when some head starts making heavy use of his own people, the able non-own-people leaving, the company becoming a circle of mutual flattery, losing its outer competitiveness, the necessary result of enfeoffment by connection. So for an enterprise to be long-lived, the highest head must select fully by merit, from hiring to promotion to succession, all by real ability, not staffing by kinship. This is the deepest dividing line between the enterprise and government.

Why can the enterprise manage full merit selection and government cannot? The answer is in the root purpose of the organization. The purpose of an enterprise is to get work done, so ability is the highest standard. An enterprise that cannot keep getting work done goes bankrupt and vanishes, the market the enterprise's final judge, and the market does not care about the highest head's family background, political faction, or personal connections, the market cares only whether the enterprise can keep getting work done. So the enterprise has both the drive and the pressure to move toward full merit selection, because not doing so means it cannot live. The purpose of government is to keep order, so stability is the highest standard. The root task of a government is to keep the group from falling apart, from falling into chaos, and keeping order needs enfeoffment, needs the handing down of a bloodline, the continuation of a party, the balance of factions, these enfeoffments supplying the stability of order. If government adopted the examination fully, all the highest positions changed to people who tested in, then the stability of enfeoffment would vanish and the government itself might shake. So government has neither the drive nor the pressure to move toward full merit selection, because doing so might collapse the government itself. This is the root difference between the enterprise and government: the enterprise runs on the logic of the work, so it can select fully by merit, and government runs on the logic of enfeoffment, so it can select only in part.

This layer has its other side, each side with its cost. The enterprise selects fully by merit, so it has stronger vitality, higher efficiency, more innovation, but the enterprise is also less stable, many vanishing in twenty or thirty years, the average life of even excellent companies only a few decades, only a very few lasting over a century. Government runs on the logic of enfeoffment, so it is stronger in stability, many governments lasting centuries or even a thousand years, and though the dynasty changes in between, government's vitality, efficiency, and power of innovation are all less than the enterprise's. This is an inner tension, full merit selection bringing vitality but instability, partial merit selection bringing stability but a lack of vitality. Each side has its cost, and see both sides, do not think either one is absolutely better.

Set a warning here: if an enterprise begins to run on the enfeoffment logic of government, the enterprise perishes. Look at today's business news and you find many once-brilliant enterprises going into decline, often from the same starting point, the highest head bringing the enfeoffment logic of government into the company. Turning it into a family affair, making the enterprise's succession a succession of bloodline, putting sons, daughters, and sons-in-law into core positions regardless of real ability, is dynastic enfeoffment entering the enterprise. Turning it into factions, cultivating a group of one's own people inside the company, standing against the other executives, spending the inner resources on factional contest, is party enfeoffment entering the enterprise. Turning it into nepotism, placing friends, classmates, and fellow townsmen in key positions, forming a web of connection, the able outsiders squeezed out, is enfeoffment by connection entering the enterprise. Turning it corrupt, using the enterprise's resources for private gain, profiting through rent-seeking and the funneling of interest, is the corruption law of a dynasty's end entering the enterprise. Every enterprise run this way has entered the cycle of enfeoffment of Part One, ability wearing down, private wants magnified, a web of interests forming, information cut off, the four problems of the enfeoffment of power arriving at once, and within a few years to a dozen, the enterprise goes from its peak into decline or even collapse. So the enterprise's way to live is to hold to the logic of the work and not let the logic of enfeoffment in. The truly long-lived enterprises, Japan's Kongo Gumi over fourteen hundred years, several Swiss watchmakers, several British banks and universities, share the feature that their governance is near the venture type and not the enfeoffment type, what they hand down being craft, culture, and reputation, not bloodline or faction, their management valuing merit selection and not staffing by kinship.

By here the shape of the twenty-first century world slowly clears, and it is two tracks side by side. The enterprise runs on the logic of the work, adopts the examination fully, strong in vitality, high in efficiency, unstable, a typical life of a few decades. Government runs on the logic of enfeoffment, adopts the examination in part, strong in stability, relatively weak in vitality, a typical life of centuries. The two tracks each do their own and also influence each other, the talent from an enterprise sometimes entering government, the people in government sometimes leaving to enter an enterprise, the talent of the two sides flowing, but the running logic of the two sides staying different. In the world today many things are done by the enterprise and not by government. The ones truly doing technical innovation are enterprises, not government. The ones truly moving talent across borders are enterprises. The ones truly reacting fast to market demand are enterprises. But many things are still done by government, and the enterprise cannot do them. Keeping social order is government. National defense is government. The base part of education, medicine, and social security is government. Law and the courts are government. The two tracks each do their own, cooperating at times and grinding at times, and this is the real thing of how the world runs today. You might look back at yourself too. On which track do you work? In your position, does the logic of the work dominate, or the logic of enfeoffment? And if your enterprise begins to move toward the logic of enfeoffment, can you see it?

So here is the position this section lays down. We finished the claim of the present-day examination and set one layer firm: the examination breakthrough of the ancestors fourteen hundred years ago is a dream of political structure, a dream China completed only half of, not running through to the highest position, because enfeoffment will not abolish itself. Today's world keeps unfolding that dream in the form of the global civil-service exam and professional-qualification exams, still not running through to the highest position in politics, for the same reason as thirteen centuries ago. The one that truly adopts the examination fully is the enterprise, not government, because the enterprise runs on the logic of the work with ability the highest standard, and government runs on the logic of enfeoffment with stability the highest standard. A CEO who staffs by kinship will perish is the inner law of the enterprise, and once an enterprise brings the logic of enfeoffment in, it enters the cycle of enfeoffment at once, turning to family, to factions, to nepotism, to corruption, any one of which takes it from its peak into decline. In the world today enterprise and government coexist, the two tracks each doing their own, each with its cost, each with its use.

Having covered how the examination runs today, one perhaps most unexpected question remains. Many think the examination is a Chinese thing and that the West walked another road. But the fact is that Westerners today have been inside the examination all their lives, only they have not noticed. The next section walks into the West to see a thing of the sharpest contrast, from the SAT to the Pendleton Act, the West still living inside the examination today.

Credit to the ancestors; the mistakes are mine: Tiger Lyon.