Governance in the Participative Organisation: Freedom, Creativity and Ethics

Jane Collier Rafael Esteban

ABSTRACT. Organizations in changing environments need to become flexible, responsive and participative. We develop an understanding of governance in these organizations by drawing analogies between organization theory and theories of nonlinear dynamics. We identify freedom and creativity as driving principles in chaotic participative organizations, and explore the ethics of their exercise within organizational communities of practice, communities of discernment and communities of commitment. KEY WORDS: chaos theory, creativity, differentiation, freedom, governance, integration, open systems, organizational change, participation

rather that, as a chaotic principle, it is entirely compatible with order, and that the survival of organizations in a turbulent environment depends precisely on the extent to which freedom can be harnessed creatively in purposeful and responsive interaction with a changing environment. We describe this process metaphorically in terms of accessing the order in chaos by a process of taming chaos by chaos, and we argue that it is this process which represents governance in organizations which are genuinely participative. The paper develops a model which illustrates this principle, suggests organizational characteristics which contribute to its realisation, and identifies a framework for analyzing the ethical aspects of participative governance.

1. Introduction The last ten years has witnessed a profound shift in theoretical and practical understandings of organization. The shift from mechanistic models of organization, which design freedom out of the system because it represents disorder, to participative organizing models which harness freedom 1 and its potential for creativity,2 is compared in this paper to the movement from a linear dynamics which seeks to control all sources of non-linearity to the discovery of the potential usefulness of chaotic behaviour. This paper suggests that freedom within organizations does not imply disorder, but
Jane Collier is University Lecturer in Management Studies at the Judge Institute of Management Studies, University of Cambridge. She is Editor of Business Ethics, a European Review. Rafael Esteban M.Afr. is Lecturer in Missiology at the Missionary Institute London.

2. Governance The academic literature on governance can be divided into two broad streams. The first of these understands governance as the co-ordination of productive activities and the transactions necessary to exchange their final products. In the case of simple economic systems governance is automatic, because production and exchange function by means of well-developed social relationships. In other words, simple economic systems are self-governing. However, once simple systems become complex3 governance requires formal institutionalisation. Complex economic systems may in general opt for governance either by the market or by hierarchy.4 In theory market governance functions in an automatic manner, but Coase (1937) argued that markets cannot be relied on as effective mechanisms of governance due to the

Journal of Business Ethics 21: 173188, 1999. 1999 Kluwer Academic Publishers. Printed in the Netherlands.

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Jane Collier and Rafael Esteban However, opportunism which leads to failure on the part of managers to maximise shareholder returns i.e. owner interests will be effectively punished by the operation of the market for corporate control whereby owners sell their shares, the company is taken over, and the firms management is ousted by the new owners. The transactions cost view of governance is well enshrined in the economics literature. However, it is of little use when we come to try and understand governance as an organizational reality essential to corporate survival and success. In fact, it can be argued that the presupposition of universal opportunism on which this view is grounded has had negative and damaging effects in those organisations where it has been introduced by consultants as a ruling assumption (Ghoshal and Moran, 1996). It can also be argued that the perception of governance as confined to the options of market or hierarchy is culturally specific, economics-driven and thus impoverished (Turnbull, 1997). Alternative modes of governance exist in a multiplicity of world-views and social mechanisms communities, clans (Boisot and Child, 1996), associations (Hirst, 1994), or networks (Craven et al., 1996). Nor is the ruling view of governance ethically sensitive; its conception of human nature is deeply pessimistic, its view of relationships cynical, and its understanding of responsibility and accountability so narrow as to be inappropriate in any but the most hard-bitten organizational setting. The second view of governance is pragmatic in that it has emerged over the last decade in response to concerns in both the U.S. and the U.K. which have been triggered by a variety of issues merger mania, restructuring, fat-cat salaries for top management and directors while workers lose their jobs (Conyon, Gregg and Machin, 1995), inequalities of power in boardrooms, non-transparency of information vital to shareholders, suspicions that accounting and auditing procedures are inefficient in exposing corporate weaknesses, and a host of other problem, some structural, some deliberately created (Blair, 1995). This view sees governance as concerned with the control and regulation which needs to be exercised in order to ensure that the interests of stakeholders as principals

costs of making and monitoring the market transactions necessary to support production and exchange. These transactions costs arise because of the existence of what we now term market failure. Reasons for market failure include economies of scale and externalities, but they also include asymmetric information in the market (Williamson, 1985), complexity (Simon, 1962), uncertainty as to future outcomes, bounded rationality which reduces the ability of agents to interpret market signals (Simon, 1957) and asset specificity due to small numbers (Williamson and Winter, 1991). Complexity, inadequate information and uncertainty as to future outcomes render governance by the market inefficient and hence inappropriate. Governance by hierarchy, which involves the supersession of the price mechanism (Coase, 1937), is both rationally and legally supported. The rational basis of hierarchy stems from the fact that within firms self-organization has little chance of fulfilling the necessary co-ordinating functions due to system size, competence limitation and the structuring of information (Alchian and Demsetz, 1972).5 The legal basis of hierarchy is to be found in the property rights vested in the owners of productive capital, which need to be protected by managers who act on their behalf. The overall objective of hierarchical control is to ensure that those with property rights i.e. owners of capital get the maximum possible return on their investment. However, human property rights remain vested in employees, so that contracts are necessary to establish conditions of employment. These contracts are formal in the legal sense, but they are not fully specified. To the extent that the provisions of these contracts are implicit (Kay, 1993) as opposed to explicit and enforceable, it is possible for those under authority to be opportunistic (Williamson, 1979, 1985) and to take advantage of the system.6 The fact that information is asymmetric as between principal and agent makes possible shirking, reneging and other self-serving behaviours. The resulting moral hazard and adverse selection (Akerlof, 1970) will give rise to agency costs because of the necessity to provide incentives and monitor agent conduct ( Jensen and Meckling, 1976).

Governance in the Participative Organisation are safeguarded by corporate agents, and their rights and wishes as principals respected (Demb and Neubauer, 1992) Governance as control and regulation has negative and positive aspects. The negative side sees good governance as dependent on the ability of companies, or their regulators, to remove the institutional obstacles to proper accountability. The Cadbury, Greenbury and Hampel committees in the U.K. have taken this approach. On the other hand, there is the more positive activist view, represented by the voice of Bob Monks in the U.S., that responsibility and accountability are two-way, and that governance, as the relationships among various participants in determining the direction and performance of companies (Monks and Minow, 1995, p. 1) should involve all key stakeholders in ensuring good management and corporate competitiveness. Monks refers specifically to shareholder activism, which he terms relationship investing, as the mechanism whereby key principals can be held to their responsibilities.7 This pragmatic view of governance is represented in the literature by four types of approach: (a) The first of these is the narrowly specified finance view of governance based on the premise that the fundamental concern of governance is to ensure that those who finance the company get a proper return on their investment (Shleifer and Vishny, 1997). This view is based on institutional assumptions of publicly traded securities, unitary boards, opportunistic managers and institutional investors who have a fiduciary duty to ensure returns on their clients money. (b) The stewardship model of governance sees managers as stewards or caretakers of organizational interests, but it does not, as might be expected, imply managerial altruism. On the contrary, the model assumes that there will be a strong relationship between the success/profitability of the organization and managerial satisfaction in terms of achievement and selfactualisation (Davis et al., 1997).

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(c) The stakeholder view of governance widens the constituency of interests to include stakeholders other than shareholders, but assumes that their interests are served primarily by wealth maximisation (Donaldson and Preston, 1995; Jones, 1994). An alternative version sees those in power in organizations i.e. both directors and managers as trustees (Kay and Silberston, 1995) with the duty of sustaining corporate assets and acting in the interests of present and future stakeholders. (d) The political model of governance envisages active investors mustering voting support from dispersed shareholders in order to change corporate policy (Pound, 1992). An example is provided by the increasing incidence of shareholder activism at corporate AGMs; however, another aspect of this is the position taken by the financial institutions who on the one hand have a fiduciary duty to their own clients, and who on the other hand have to balance the expediency of voice against exit in their relations with companies. Whereas the basic stance of the model one view of governance is defensive in that it is concerned with combating opportunism, the thrust of the model two view is aggressive in that it seeks to achieve the protection of interests of one kind or another. Both models share two common deficiencies. The first is that they neglect the contextual realities cultural, technological, and global which must inevitably introduce context-specific factors into any governance situation. The second is that the model of organization on which these views are based, and the organisational world they describe has, like Newtonian physics, increasingly limited applicability to the reality of a changing world. We now address these issues. 3. The organisational perspective of 3. corporate governance theories The model of organization which underpins both co-ordination and control-and-regulation

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Jane Collier and Rafael Esteban as flux and transformation (Morgan, 1986), and where change has become overwhelming to the point where traditional linear organizations have become dysfunctional (Ghoshal and Bartlett, 1998). Globalization, increased communication possibilities, technological change and financial innovation have introduced flexibility into world economic structures. Regional trading blocs have led to freer flows of goods and services and increased global competition for market shares. Product change and the drive for quality have forced organizations to adapt in ways which have triggered both profound structural changes and fundamental theoretical and practical reassessment of the assumptions and values on which traditional organizational structures and functions have been built (Bartlett and Ghoshal, 1994; Belbin, 1996). The whole idea of organization is more accurately defined as organizing in situations where advances in information technology allow knowledge workers to work anywhere and anytime without supervision (Tetenbaum, 1998) and the importance of knowledge power (Grove, 1997) has shifted the centre of organizational gravity to the boundaries of the organization. In a changing environment mechanistic linear models of organization and associated understandings of governance based on Newtonian logic are no longer appropriate. Environmental turbulence has forced organizations to abandon the strategic linear planning which relies on forward projection in particular, the reengineering of bureaucratic structures because it has been proved to be ineffective in a climate of continual change.11 Organizations now have to learn and plan as open systems in order to survive, and this requires a shift from tightly coupled to loosely coupled organisational structures in other words, to greater flexibility. One of the effects of the shift to more flexible structures, combined with the continuous drive for quality improvement and innovation, has been the implemention of more participative ways of organising, and the construction of self-managed teams where control and co-ordination are located with the people who actually do the work (Aughton, 1996).

views of governance is hierarchical, authoritarian, and mechanistic. Such organizations are tightly coupled integrative systems, where control is maintained by monetary and non-monetary sanctions. Knowledge and information in these organizations belong to the privileged, so that decisions are always made at least one-up from the level on which they are implemented, and thinking and doing constitute separate tasks done by different people at different levels of the organization. Governance is exercised by the few in the interests of the few, responsibility is limited to the duty of senior managers to ensure the rights of shareholders to the best possible return on their investment, and accountability is narrowly specified in terms of owner-manager relationships.8 This snapshot view of the mechanistic organization can be conceptualised in terms of a linear system.9 Order is seen as contingent on the maintenance of control, and any loss of control carries the risk of disorder which threatens established structures and modes of functioning. In tightly coupled systems such a threat is unlikely to arise from within the organization, so that the synchronicity of linear organizational systems becomes in practice dependent on the extent to which they can be insulated from disruptive external influences. In other words, they must be maintained as closed systems. It follows that the linear organization will perceive challenges arising from changes in the external environment as threatening its stability. It will react to change by attempting to manage the environment, to transform it, adversarially and competitively, rather than seeking to respond to it.

4. But this model is now no longer 3. appropriate The above stylised view of organization represents the reality of complacent organizations which are functional only when the environment is static and control is complete.10 However, it becomes anachronistic in a world where the organizational environment is no longer static, but has become turbulent and is experienced

Governance in the Participative Organisation 5. The participative organization12 In participative organizations people are not merely part of the organization, but actually take part in every aspect of its existence. In other words, the notion of organizing is no longer associated with structuring into some fixed pattern of order, but rather with the generation and facilitation of relationships (Wheatley, 1994). The dualism of thinking and doing is replaced by a fusion whereby decisions are made by those who implement them. Authoritarianism is replaced by a leadership which facilitates self-management. Control is replaced by trust, privileged information by managerial transparency. Learning is an integral part of organizational processes: people learn together and teach each other, so that knowledge belongs to all. Responsibility and accountability are thus shared by all stakeholders. Creating a participative organization involves fundamental changes in every aspect of organizational life in structures, practices, relationships, pay systems, values, competences and leadership (McLagan and Nel, 1997). The overall aim is to create an organizational climate that supports and enhances human productivity and creativity. This in turn involves transforming management practices and reforming workplace processes and procedures so that organizational members can use their own intrinsic motivation to learn, to achieve, to improve, and thereby increase productivity, efficiency, innovation, their commitment to the organization and service to the customer (Pojidaeff, 1996). When responsibility for the control and co-ordination of work is located with the people doing the work those people are enabled in the sense that they are given back the autonomy which in linear organizations is taken from them by fear, by oppressive supervision, by mindless control procedures, and by alienation in the sense of separation from the outcome of their efforts (Bushe, Havlovic and Coetzer, 1996). Personal autonomy combined with the common identity which develops in a task environment of shared responsibility and ownership of work leads to the satisfaction of affiliation and achievement needs, to a growth in self-esteem, self-actualisa-

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tion, and ultimately to a shared leadership (Kanungo and Mendonca, 1996) and a release of human potential and creativity which can enhance organizational effectiveness.13 Participative organizational processes create flexibility: this in turn allows the organization as a system to become adaptive and open rather than rigid and closed. The environment then becomes no longer something other, but an integral part of the organization. The organization responds to and interacts with the environment, develops a symbiotic relationship with it, in such a way that both are transformed. The centre of organizational gravity and the focus of organizational meaning is located not at the core of the organization but at the interface, the point of encounter, between the organization and the environment. The key characteristic of that interface is the notion of adaptiveness. An organization becomes meaningful in the measure that it answers adaptively to the needs existing in the environment. These needs are not simply for products, but for quality, service, non-invasive use of resources, and collaborative partnerships with stakeholders. The quality of adaptiveness will pervade the whole of the organization, so that there will be a continual process of re-organizing in order to keep pace with changes in the environment.

6. Modelling the participative organization We need a heuristic by which to understand organizations which are both participative and open to the environment. Characterisations of the traditional organization rely on the evocative power of Newtonian mechanistic thinking and linear dynamics. The metaphor for the tightly controlled organisation is the machine (Morgan, 1986): this metaphor enables us to see the organization as through a lens in a way which is both cognitive and emotional (Black, 1962, p. 236). The participative organization is more complex, and does not lend itself to simple metaphorical description, but rather to an analogical mode of representation which highlights the relational aspects of a complex organizational reality (Tsoukas, 1991). An analogical

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Jane Collier and Rafael Esteban organisations learn from the environment which changes the system, system plans and action in turn change the environment. Thirdly, in spite of the apparently chaotic pattern of interaction, organizations as complex adaptive systems are emergent and self-organizing, although the path over time may be characterised by punctuated equilibrium rather than smooth progression (Polley, 1997).16 The best examples of complex adaptive systems are to be found in the natural world, where the growth of complexity of life forms happens by a process of simultaneous differentiation and integration. Organizations as open systems mirror this biological process analogically. In dynamic, complex and uncertain environments organizations have to be able to differentiate in order to attend to all the elements of their environment (Lawrence and Lorsh, 1969). But at the same time high levels of differentiation create a need to integrate across the organization in order to continually align with organizational purpose. In other words, the radical thrust of differentiating co-exists with the conservative process of integrating. The mechanistic organization, by contrast, sought to dictate the conditions of its interaction with an environment which was stable (you can have any car so long as it is black), and as a culture of control, compliance and constraint it neither attempted to differentiate nor had it need of integration (Ghoshal and Bartlett, 1998). In differentiated organizational structures agents have autonomy and the opportunity to respond to the demands of the environment within the context of relationships which serve to maintain organizational purpose and integrity. In participative organizations team-working and group decision-taking constitute this relational context. Organizational members are collectively entrusted with the care of the two complementary referential aspects of the organization the interaction with the environment and internal interactions. In the process of responding to the demands of the environment and purposing to reinforce integrity they contribute through their values, interactions and expectations to changing the systems of which they are a part, and in turn they learn from experience and continually adapt

model does not simply provide mental pictures, it is essentially structural in that it reproduces the pattern or web of relationships in a new medium (Black, 1962, p. 222), and by so doing generates not merely insight but also the framing of further questions (Black, 1962, p. 239).14 There is thus a cognitive development which takes analogical perception forward from insight to the creation of conceptual models which with further insight can become isomorphic with the object of understanding (Tsoukas, 1991), so that from that point it may be possible to move to the development of genuine scientific models. This implies that metaphor and analogy can assume a significant role in the creation of knowledge in that they may bridge the gap between Kuhnian paradigms and puzzle-solving activities by providing a strong conceptual foundation for communities of theorists subscribing to relatively coherent perspectives (Morgan, 1980, p. 607). We suggest that an analogical understanding of governance in the participative organization can most usefully be based on non-linear dynamics and chaos theory, or more properly complexity theory.14 The grounding for this approach is initially to be found in open systems theory (Scott, 1992; Flood and Jackson, 1991). The key feature of open systems is that they generate the conditions for their survival and renewal by interacting with their environment, so that the wider environment is implicate in the system (Bohm, 1980). As in the case of mechanistic understandings of social reality, open systems thinking is a heuristic methodology rather than a privileged account of reality, but its value is that it is non reductionistic, non-atomistic, and it gives full weight to context (Garnsey, 1993). Organizations in a rapidly-changing environment mirror the characteristics of open systems (Beinhocker, 1997). Firstly they are open dynamic systems in the sense that patterns of interaction with the environment are continually changing. Secondly they are complex systems groups of agents whose interactions, although rule-governed, have unpredictable outcomes in terms of system effects. If the rules of interaction are such that these rules evolve in response to system changes then the system is both complex and adaptive:

Governance in the Participative Organisation their behaviour. These creative responses to a changing environment will by their very nature involve an element of unpredictability. Both organizational processes of differentiating and of integrating will thus be non-linear and chaotic in the sense that the outcomes in either case will be unpredictable. It is important to note that the fact that organizational processes are chaotic does not imply that they will be disordered, since chaos and disorder are not synonymous. In order to understand the way in which complex processes in the participative organization can be at the same time chaotic and ordered we need the metaphor of chaos theory. Consider the cycle of process in complex adaptive organizations. Agents take initiatives based on motivation, experience, rational understanding and the rules and roles relevant to their situation. What they do affects others inside and outside the organization, and these effects feed back, immediately and over time, in terms of information which will affect future decisions and action (Stacey, 1996). If the response is considered favourable by the agent, the behaviour and action will be repeated, and there will be a stable pattern of action and response. If the response is not considered favourable agent behaviour will be modified: feedback may then be negative if the gap between desired and actual outcomes has been narrowed by corrective behaviour modification. However, feedback may also be positive if agents decisions amplify the process of change and destabilise the system. Both positive and negative feedback may generate simple single-loop learning, but as a result of outcomes agents may also choose to radically alter the basis of choice and action the next time round. This will then constitute double-loop learning, reflection in action (Argyris and Schon, 1978; Schon, 1987). In participative organizations we may expect that both negative and positive feedback processes coexist, that forces which push the system towards order and stability coexist with forces which push the system towards instability. In this way the initial conditions are created for the characterisation of organisational processes as chaotic.17 Chaotic processes are set in motion at the

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precise point in time when the nature of the relationship between the counteracting forces of stability and instability changes, whether because of external change or by virtue of organizational learning. The characteristic of chaotic situations, once established, is that small changes may have unpredictably large consequences. However, although chaotic processes appear random and subject to ever increasing variation (as in the frequently-quoted example of meteorological effects), they can also be bounded or limited by what in chaos theory is called an attractor a pattern of variation which exhibits regularities, and thus governs the chaotic process, producing bounded chaos. In participative organizations, purposeful and responsive processes as sequences of random variations shape themselves as attractors inside boundaries which function as basins of attraction (Gleick, 1988). 18 In the model outlined here, chaos is bounded by the way in which each organizational process acts as attractor for the other. The differentiating responsiveness to the environment is bounded by organizational purpose, the integrative pull of organizational purpose is bounded by the needs of the environment. The model of organizational collaboration is thus a taming of chaos by chaos which holds in check both the tendency to emphasise purpose at the expense of responsiveness and the impulse to respond to the external environment in a way which disregards purpose.19 The system continually changes, but in such a way as to remain congruent with its already established identity, its sense of competences, values, aspirations and culture. Many of todays businesses can tell stories which confirm the reality of chaotic processes in organizations. One such is Intel, the worlds largest semiconductor manufacturer. The CEO, Andrew Grove, compares the situation faced by companies today to the flow of a river where change is continuous, but where occasional change events which introduce a new instability can be compared to deadly and turbulent rapids (Grove, 1997). These strategic inflection points can originate with competitor behaviour, with customers, with suppliers, but in Intels case they have in the main come from changes in the

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Jane Collier and Rafael Esteban is diffused throughout the organization. Governance becomes a quality of the boat itself and the shared responsibility of all in it. The steersman keeps the rudder, the lookouts look for obstacles, others measure the depths, read the currents and the winds, trim the sails, balance the ballast, drop the anchor to steady the ship, row, repair the damage, and finally redesign the ship with the lessons learned from their last adventure. It is only through being responsive, adaptive and by continually learning, that organizations can settle in a rapidly changing environment in the same way that a boat settles and becomes stable in a raging storm. The model of participative governance is thus cybernetic. Cybernetic governance demonstrates the characteristics of complex adaptive systems. The interface with a changing environment demands flexibility and adaptability. Adaptability requires continuous differentiation. This responsiveness to the needs of the environment creates a capacity for learning which develops the organization in new creative ways, and ensures that the next opportunity for responsiveness will embody the lessons learnt from the previous experience.20

industry which required them to do business in a completely different way. The trick is to be able to distinguish between change which is transitory from change which represents the beginning of a new era, and the way to do this is to create a climate where constant collaborative exchanges can take place between the holders of knowledge power at the periphery and the holders of organizational power at the centre. The way forward then requires a combination of letting chaos reign resolution comes through experimentation: only stepping out of old ruts will bring new insights (Grove, 1997, p. 121) and reining in chaos clarity of direction, which includes describing what we are going after as well as describing what we will not be going after, is extrememly important (Grove, 1997, p. 137). Grove argues that a pendulum-like swing between the two types of actions is the best way to work through a strategic transformation (Grove, 1997, p. 161). In other words, the central issue for such organizations is the question of governance.

7. Governance in the participative 6. organization Existing models of governance governance as co-ordination and governance as control are essentially reductionistic in that they remove complexity. In order to understand the nature of governance in the participative organization we need to use as heuristic the complexity which is of the essence of open systems. In this context, governance can be defined as the quality or capability of the organization to stay on course in an unstable and changing world. The metaphor is that of the Ulysses myth, where Ulysses is the kubernetes who steers between the rock and the whirlpool (Hampden-Turner, 1994). Staying on course in this context involves avoiding the two extremes the rock of excessive control, and the whirlpool of excessive disorder. But while in the authoritarian organization governing in the sense of steering the organization would be the exclusive responsibility of the steersman, in the participative organization the capability of governing

Figure 1.

But continuous differentiation will lead logically to complete dispersion unless it is accompanied by a corresponding process of integration within the organization itself. To what extent is it possible to maintain an organizations identity and direction (i.e. integrity) while accepting the principle of differentiation? The answer is that identity is determined by purpose, and purpose is an integrating principle in the measure that it

Governance in the Participative Organisation is shared by all the members of an organization. Purpose is the essential element in the foundation of an organization; it is like the keel in a ship which keeps it upright in the water and determines its general direction. In a changing environment, an organization can avoid dispersion through purposefulness that is, by its ability to align itself internally while simultaneously responding to challenges from the environment.

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Figure 2.

In order for a responsive and differentiating organization to maintain an integrating unity of purpose the experience and the information gained by responding to the changes in the environment must be able to circulate throughout the organization. In the course of this process it is interpreted in the light of the common purpose, the purpose itself becomes clarified and reinforced and then is fed back, reinterpreted, into the whole system. In this way the system stays open and accountable. It is thus the connectedness of the organization which assures that the inner coherence of its members around a developing common purpose is maintained.

The dynamic unity of such a system can only be maintained by an efficient communications network which carries information flows from the interface with the environment to the inner core, and from the centre of the organization to the periphery. It is connectedness and communication which allow organisational processes to assume the character of continual conversations, whereby the members make sense of changes happening in the organization and the environment, and give renewed meaning to organizational purpose in the light of those changes. All members share the responsibility for the functioning of this network, although it is the specific responsibility of the leadership to provide resources for its maintenance. The way in which the chaotic exercise of freedom and creativity produces the practical synchronicity of processes of integration and differentiation will be unique to each organization. In other words, each organization has its own distinctive pattern of chaotic processes, or butterfly shape, which will be determined by differences in purpose, in environment and in internal practices. 21 However, to achieve this practical synchronicity, it is necessary that the particular pattern created by the interplay between purposefulness and responsiveness must be mirrored at different layers throughout the organization. To borrow another concept, all levels of the organization must be fractal; they must have the quality of self-similarity, of symmetry across scale (Gleick, 1988).22 The fractal quality of the organization implies that responsiveness, purposefulness and connectedness are characteristics that are not only diffused throughout the macro level of organizational policy formulation and culture but are also embedded in all decisions and actions at all the micro levels into which organizational life is structured. These characteristics are in turn based on the exercise of freedom and creativity not only in the systemic organizational sense, but also at the group level and at the individual level.

Figure 3.

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Jane Collier and Rafael Esteban tiating, but it also potentiates creativity in integrating, thus allowing the leadership to use the knowledge and understanding of overall organizational needs to creatively reshape the organization so that freedom and creativity are continually enabled at the interface. However, freedom and creativity, although ethical principles, are abstractions which require to be contextualised both in terms of organizational realities and in terms of ethical theories. Organizations are moral agents 24 not merely in the consequentialist doing sense, in terms of outcomes produced by corporate action, but also in terms of purposes, practices and processes (Collier, 1998). The ethical quality of the participative organization can be understood with reference to three frameworks of ethical thought which not only respect the particular nature of the organizational model we have outlined, but define and locate the significance of freedom and creativity within the ethical organization. Firstly, freedom and creativity are not simply qualities which are exercised by individuals liberated from hierarchical controls and thus free to do their own thing. These qualities are exercised and developed within communities of practice. Although our view of organizations in this paper has been systemic, an on-the-ground view of organizations will conceptualise them as networks of practices technical, administrative, managerial (Reed, 1992). Organizational practices are not simply work, but rather interrelated and interdependent activities of working, learning and innovating (Brown and Duguid, 1991). The more participative the organization, the greater the scope for the exercise of freedom and creativity, the more generative will be communities of practice, not only in terms of production, but in terms of the development of human capabilities. The conception of practice in this sense lies at the core of Alasdair MacIntyres ethics of virtue. Participation realises what MacIntyre terms the goods internal to a practice because human powers to achieve excellence, and human conceptions of the ends and goods involved, are systematically extended (MacIntyre, 1985, p. 187). It is in the context of practice, too, that the notion of virtue gains meaning, since for MacIntyre virtue is defined

8. The ethics of participative governance We have argued that participative organisations can be conceptualised as chaotic self-organizing systems, where organizational processes are driven not by hierarchical control but by the freedom of organizational members to participate in autonomous decision-taking, and to pursue and achieve outcomes which they and others value (see note 1). These are organizations where the principle of self-organisation is generated by the creativity which exists at the edge of chaos i.e. at the boundaries between control and disorder (see note 2). Freedom and creativity are not only essential elements of the self-organization which produces emergent patterns of good governance, they also form the basis of the ethical quality of participative governance. It is first necessary to note that freedom and creativity do not exist as separate organizational qualities they are inextricably linked one to the other in a continually reinforcing interative process. Creativity, as the innovative, adaptive and imaginative response to change, demands an organizational climate of autonomy, immunity from interference, trust, openness, encouragement of risk-taking and tolerance of failure;23 in other words, it demands the existence of freedom in Sens process sense (Sen, 1992, see note 1). But freedom is not simply permissive, not merely process; Sen emphasises that it is also to be seen as opportunity. Freedom as opportunity represents the driver of creativity, but opportunity can only arise in a situation where there is knowledge, and knowledge comes into being firstly on the ground, where creativity happens. So that it is knowledge as the fruit of creativity which generates opportunity and thus freedom: it is knowledge which creates the organizational opportunities to pursue and to achieve those outcomes which are defined as valuable in terms of organizational purpose. Freedom and creativity thus stand in a continual dialectical relationship. This virtuous circle of creativity, knowledge and freedom is in turn allowed to function freely by means of the communication networks which create organizational connectedness and accountability. Freedom generates creativity in differen-

Governance in the Participative Organisation as the qualities necessary to achieve the goods internal to practice, in other words, the qualities, both personal and collective, which are necessary to sustain collaboration within communities of practice (Collier, 1998). Secondly, freedom and creativity within the participative organization must be exercised with reference to the communication framework which connects organizational purposing and organizational responsiveness. The ethical dimension of that communication framework is found in the continual requirement to exercise moral judgement in decision-taking so that morally right outcomes are generated. In participative organizations all voices are heard, and because there is no overriding set of moral principles which will inform all individual judgements, participative organizations must become communities of discernment, where freedom and creativity are directed to the search for what is right and just in a climate of conflicting value stances. Jurgen Habermass discourse ethics (Habermas, 1993) suggests that the essence of this problem is procedural, and that with effective procedural ground-rules for communal discernment it will be possible to achieve consensus without the necessity for participants to be converted to the value stances of others. Moral argumentation takes place in a climate of openness, where the freedom to express views is paralleled by the obligation to hear those of others, and where difference demands creative empathy, insight and intuition (Collier, 1997). The underlying implication of discourse ethics is that the process of moral argumentation will generate consensus. But the reality of decisiontaking in participative organizations is likely to be characterised less by consensus and more by the constructive management of value dilemmas, so that value differences are allowed to create the richness of diversity rather than to destroy the fragility of collaboration, and virtuous learning circles are created (Hampden-Turner, 1994). This requires a sensitive, altruistic and charismatic leadership which is capable of nurturing the integration of a diverse and flexible organization by supporting the process of dialogue and working for the emergence of shared values while simultaneously listening to diverse view-

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points and affirming their potential contribution to consensus (Kanungo and Mendonca, 1996). Thirdly, freedom as the basis of participation within organizations is not arbitrary, not self-justifying, but is continually challenged by its very nature to reflect on its origins. Freedom does not constitute world; it allows participation in a world which is already given, and for which we are already responsible. Ethics, in other words, is prior to ontology, responsibility defines our freedom, so that in order to understand the nature of our freedom we must seek the source of our responsibility. For Emmanuel Levinas that source is not simply to be found in our coexistence as beings in a social world where men find themselves side by side rather than face-toface (Hand, 1989, p. 212). Mitsein may engender solidarity, but responsibility is something more profound than solidarity. Nor is responsibility based on Kants categorical imperative or revealed in Bubers reciprocal relationships. The source of responsibility, argues Levinas, is to be found in alterity, the otherness of the Other. The Other is other than self , and constitutes self by its radical difference; without the other self would not exist. The Other is encountered as Face, and the meaning of this face is irreducibly ethical, because it imposes a command on me to ensure its survival and its welfare as a human person. Responsibility is born in this encounter: this responsibility is limitless, it is my responsibility, and it shapes and defines the nature of my freedom. The Other is not knowable because it is not same, but my responsibility is not contingent on who the Other is, and the responsibility is not reciprocal. In a moral sense, therefore, I exist not with but for the Other. Responsibility in organizations is defined by roles and functions, responsibility for initiatives and achievements, and to a greater or lesser extent shared responsibility for outcomes. But participative organizations are also grounded by a more foundational responsibility, a deep commitment of each member to the good of the other whose very existence defines her own self and with whom she shares a commitment to the overall task. The recognition of and respect for otherness is an ethical glue which in

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agents: Marx, too, saw the alienation associated with industrial production as limiting human freedom. 2 In organisational terms the importance of creativity is that it is the source of differentiation, of uniqueness, of new initiatives and outcomes. In terms of the model presented in this paper, the exercise of creativity happens at the edge of chaos that space between control and disorder where risk, initiative and the ability to learn in complex ways generate the self-organising properties of the organizational system (Stacey, 1996). 3 The notion of complexity here refers both to technology and to size. 4 This generalisation characterises the system level. Subsystems within the wider system may opt for selfgovernance e.g. kibbutzim, Mondragon, the cooperative movement. 5 Again, the exceptions exist, generally as smaller collaborative units. 6 Opportunism as a mode of behaviour is not confined to agents in the principal-agent relationship. It is also possible to envisage opportunistic behaviour by principals. 7 More recently Monks has argued that top management is now taking the place of stockholders as owners of corporations, mainly through their holdings of option stock (unpublished talks to MBA students, Judge Institute of Management Studies). 8 Not every organisation is a joint-stock company. This analysis also, or perhaps particularly, applies to organisations in the voluntary sector where hierarchy is institutionalised. 9 In linear systems relationships between variables are such that any change in one variable has consistent and predictable effects on other variables. 10 The environment in this sense is separate and distinct from any system within it (Cabana, Emery and Emery, 1995). The global environment of the organization is made up of the structures, institutions, groups, rules and relationships which constitute its boundaries. Systems and their environments coevolve: organisations as open systems engage with their environment, and this is seen as an essential factor in their survival (Scott, 1992). The manner of this engagement depends on systems and circumstances: one increasingly important example is the variety of networking arrangements with other organisations designed to achieve the benefits of shared functioning while maintaining flexibility. 11 It is important to conceptualise organizational change as a process rather than as a discrete from-to event, and also to realise that the implementation of change as a process has its difficulties. Reasons for this

affirming difference strengthens integration and participation, and in this way supports communities of commitment, where in learning to be committed to each other people also learn how to translate that commitment into their relationships with their environment. In this way, internal practices and external relationships are ethically aligned. This paper has argued that participative structures are needed if organizations are to survive and succeed in rapidly changing environments. In such environments governance becomes a question of choice of direction, of navigation in the face of competing and conflicting demands inside and outside the organization. Effective governance relies on the ability of the organization to trust freedom and to encourage and support the creativity of its members. Participative governance is not only effective in organisational terms; it is also ethical because it allows freedom and creativity to flourish in the context of organisational communities of practice, communities of discernment and communities of commitment. In such organizations people are nurtured and encouraged to carry the attitudes and practices learned through participative governance into the complex interactions and relationships which shape human existence. Notes
Our understanding of freedom is based on that developed by Amartya Sen in his work on welfare economics (Sen, 1992). Sen distinguishes three aspects of freedom (a) the opportunity both to pursue and to achieve what is valued, (b) freedom as process, within which it is possible to distinguish (bi) autonomy of decision-taking, and (bii) immunity from interference. This is a more precise and therefore more useful set of distinctions than Berlins positive and negative freedoms (Berlin, 1969). The ethical character of freedom derives from the fact that the absence of restrictions on freedom allows autonomy, achievement and thus human flourishing. Human potential can be realised in agency; and the actualisation of this potential contributes to the satisfaction of needs and the development of capacities (Swanton, 1992) and capabilities (Sen, 1992). The argument of this paper suggests that tightly coupled modes of organization limit the potential of human beings as
1

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include inertia, managerial bounded rationality, political constraints imposed by managerial elites, problems of contextual and institutional embeddedness (Granovetter, 1985), and weak organizational learning mechanisms. See on this general issue Miller et al. (1997). 12 The following analysis argues that flexibility in responsiveness to the environment is a key characteristic in other words, there is a downsize to size. It therefore implicitly assumes that the organization is sufficiently small to function as a communication unit, so that in the case of very large organizations we are talking about e.g. business units, divisions or subsidiaries. Newer, smaller entrepreneurial companies are prime locations for the study of self-organisation and emergent change (Tetenbaum, 1998). 13 It might be thought that the release of control results in anarchic individualism, where people use their creativity and freedom for the achievement of their own agendas, thereby destroying the organisation itself. However, when control is replaced by trust people respond with commitment and a self-discipline which harnesses their creativity in the service of the organisation. The release of creative energies serves also to fulfil personal needs for self-actualisation (Ghoshal and Bartlett, 1998). 14 Use of a dominating system of concepts to describe a new realm of application by analogical extension seems typical of much theorising (Black, 1962, p. 240). 15 Arguments can be made against the use of chaos theory to model social systems in general and organizations in particular (see e.g. Johnson and Burton, 1994). Note that in this paper chaos theory is used analogically as a heuristic to model governance in participative organizations; it does not have the status of scientific explanation. 16 This understanding has much in common with theories of dissipative structures whereby random changes in a system lead to new patterns of order and stability (Prigogine and Stengers, 1984), also with notions of autopoiesis, where systems are self-referential, defined as systems through a circular pattern of interaction (Maturana and Varela, 1980). However, autopoeisis seems to promise little as a heuristic for social systems (Mingers, 1995). 17 Non-linear dynamic systems can be of three kinds (Thietart and Forgues, 1995). Where feedback is negative the system will always return to its initial state (example: controlled system). Where feedback is always positive change is amplified exponentially and the system becomes explosive (example: revolution). If there is a combination of positive and

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negative feedback the system may (a) return periodically to its original state, (b) be completely erratic, (c) be chaotic in the sense that fluctuations are random but orderly in the sense that they are bounded. Which of these options obtains depends on the relative strength of the relationships between the variables and the ways in which they are combined (Feigenbaum, 1978) In other words, chaotic systems are characterised by sensitivity to initial conditions. 18 Overall boundaries to chaotic processes in the model developed here are set by the limits to organisational identity on the one hand and the limits to opportunities for interaction with the environment on the other. Resources form an overall constraint. 19 The participative organisation shows all the characteristics of the bounded instability of low intensity chaos: it has global structure but is specifically unpredictable over the long term (Stacey, 1996, p. 284). Organisational processes navigate at the edge of chaos, avoiding both the whirlpool of randomness and disorder of high-intensity chaos constituted by anarchic individualism and the rock of authoritarian control. 20 The following three diagrams are adapted from Kapitaniak (1996). 21 Every organization works with its own concrete, historical constraints or boundaries. Organizational change gives those boundaries an organic and adaptive quality, so that constraints may change in a way which in turn alters the way in which organizational processes are enabled. Looking at this from another theoretical angle, there are links to be made here with the manner in which processes are enabled and constrained within the duality of agency and structure (Reed, 1997; Giddens, 1984). 22 The concept of fractal refers to the similarity of pattern at different levels of magnification. Organizations demonstrate a fractal quality when an observer.. can tell what the organizations values and ways of doing business are by watching anyone, whether it be a production floor employee or a senior manager. There is a consistency and predictability to the quality of behaviour (Wheatley, 1994, p. 132). 23 These are the ways in which the human risks of freedom are minimised. In human terms the exercise of organisational creativity moves us away from the known, from the stability of defensive routines and preferred behaviours into a region where because the unknown is perceived as ambiguity and paradox, anxiety is created. An important requirement for the ability of organizations to learn by exercising freedom and creativity is that anxiety is contained (Stacey,

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Judge Institute of Management Studies, University of Cambridge, 32 Trumpington St., Cambridge CB2 1AG, U.K. E-mail: j.collier@jims.cam.ac.uk Missionary Institute London, Holcombe House, The Ridgeway, Mill Hill, London NW7 4HY, U.K. E-mail: rafael@esteban.freeserve.co.uk