Reprinted with permission of the Financial Times.

God's line manager People around the world have been mesmerized by the events surrounding the death of Pope John Paul II and the election of Cardinal Ratzinger, now Pope Benedict XVI, as his successor. Now we wait to see how the new Pope performs in one of the world's most complex and challenging leadership roles. Critically, will he be able to stem the steady decline in the Church's stature, influence and relevance to its faithful that has been evident for at least 30 years?

Pope Benedict recently alluded to perhaps the most important manifestation of this problem when he spoke of the spread of relativism - the tendency of many Catholics, and others, to reject the notion of an enduring truth and to go their own way when they feel the Church is not in touch with their basic needs.

Reversing this trend is high on the Pope's list of priorities. But to do this he needs a cohesive organization capable of attracting and managing human and financial resources effectively and efficiently. Unfortunately, the evidence is that the governance and management structures he is inheriting are not up to the task.

The Catholic Church's problems are evident in many places around the world. In my own country, the U.S., I recently looked at the state of the Church from the standpoint of a McKinsey consultant. This is what I found:

  • The Church has significant human resources problems. Its ability to recruit has declined dramatically during the past 40 years and the workforce is rapidly aging. It is no longer the first choice of the best and the brightest.
  • Many of the clergy (and potential clergy) do not believe that a) celibacy is an essential requirement of the priesthood or b) women should be excluded from the priesthood and other important roles in the Church. And they are frustrated and demoralized by the reluctance of the Church to discuss the issues openly.

  • The Church has serious financial problems. Many of its traditional sources of revenue are drying up, while at the same time costs are rapidly escalating because it can no longer attract high-quality, cheap labor. Also, churches are closing as fewer people attend mass, and maintenance is an ongoing cost. Potential liabilities as a result of the recent sexual abuse scandals are large and growing, and the dismal spectacle of dioceses declaring bankruptcy to protect their assets from legal settlements is further evidence of the problem.
  • I also found substantial changes in the character of the Church's membership - and its potential membership. People are much better educated and better informed than in the past, and many no longer feel committed to the Church's "product line": its teachings on divorce, birth control, abortion, homosexuality or even regular attendance at mass and Communion.
  • Finally, after the abuse scandals, many of the faithful no longer trust Church leaders or believe in their infallibility.
  • In the developing world, recruitment is less of a problem. But there are serious concerns that some of the Church's basic teachings, such as forbidding condoms in areas where AIDS is prevalent and condemning birth control in poverty-stricken, overpopulated countries, are at odds with people's most basic needs.

    Thus the Church finds itself increasingly vulnerable to the more attractive, less demanding and seemingly more practical claims of a variety of other religions.

    From the outside this looks like a Church in disarray. However, most of the faithful remain highly committed to the basic message of Christ and they hunger for sure-handed leadership and dramatic changes in the delivery system.

    Some of the discontent is undoubtedly caused by the tension between a Church based on belief in an immutable body of dogma, and a laity that is increasingly more confident about its capacity to judge right from wrong and act accordingly. However, I believe another cause of the Church's rapid decline is the badly outdated and grossly inadequate system of governance and management. By modern standards of good management, the Church is set back somewhere in the dark ages.

    Is it fair to apply these standards to the Church? While it is not a corporation, the Church's financial assets, spending and workforce dwarf those of the largest companies in the world. In the U.S. alone (with about 7 percent of the world's Catholics), the Church has operating expenses of more than $100 billion a year, employs more than one million people and controls an investment portfolio (including property) which, while not publicly disclosed, is probably of equally daunting proportions. Scaled up, the church could well be approaching a $1 trillion enterprise worldwide.

    So while Pope Benedict might not like to think of himself as a chief executive, he certainly faces many of the same sorts of problems. And his "corporation" is not in good shape.

    The Catholic Church operates as a feudal system with specific geographic areas under the control of a lord (the bishop), who serves at the pleasure of the king (the Pope) and is responsible and accountable only to him. Once appointed, each bishop has nearly absolute power over the operations of the Church in his bailiwick (diocese), subject only to the lightest of oversight from the Pope, unless he attempts to depart dramatically from Church teachings.

    Light oversight is necessary because the Pope has thousands of bishops "reporting" directly to him. The Pope has, of course, the Roman Curia in the Vatican available to him as staff. But there is no supervision (at either national or regional level) to monitor or evaluate the day-to-day operations of the Church.

    This approach may be fine when the Church is dealing with articles of faith that are considered unchanging and unchangeable. But it seems cavalier when the extraordinary level of human, financial and physical resources are taken into account.

    This feudal approach fails to recognise the massive benefits of scale and scope available to a trillion-dollar enterprise, not only financially but in the way it attracts, deploys, evaluates, motivates and rewards the millions of people who serve it every day. A modern management system would bring many benefits to the Church.

    The Church's resources are managed by very small, highly autonomous units with very little transparency. No modern American enterprise of this size could hope to succeed without strong financial management at all levels of the organisation, under the overall direction of a chief financial officer.

    The Church in the U.S. could save billions or even tens of billions of dollars, for example, by using centralized purchasing techniques for such things as transport, telephones, the internet, accounting, computers, stationery, medical supplies, insurance and pension benefits.

    And then there is the Church's annual operating expenses of $100 billion (including all parishes, diocese schools, hospitals and related services and administration). If we assume that between 20 and 40 percent of that $100 billion is to purchase goods and services, and that a concerted effort to professionalize purchasing at all levels in the organization could achieve a 15 percent overall saving (a number frequently used in making such estimates for well managed companies), the Church could save $3bn to $6bn a year. But no one is responsible for managing this aspect of the Church's operations, so billions of dollars of unnecessary expense are incurred each year. With the use of modern business approaches, it might be possible to improve the bottom line of the Church by 15 per cent, or $15bn out of the total budget. And that is in the US alone. Scale these amounts up to the world level and you're talking real money! If we consider human resources, the Catholic Church in the US would rank near the top of the list of the Fortune 500 companies in number of staff. With more than one million employees, it is comparable to Wal-Mart, yet few of its employees are professionally managed. For example, there is no effective performance measurement system at any level.

    And as we have seen, personnel policies seem to ignore the practical problems of recruiting and retaining priests, and other clergy and lay people are expected in many cases to accept non-competitive wages and limited benefits. The result is hugely expensive in financial and human terms, and limits the career and personal development of all members of the Church's workforce - both clerical and lay. It also makes planning and executing any reform programme extremely difficult, if not impossible. No organization of comparable size to the Church could survive in today's world without an effective human resources office, headed by a chief personnel officer responsible for everything from recruitment and training to career planning and compensation. These responsibilities are normally carried out at different levels, with policy making at the top and execution further down. One of the hallmarks of the modern, well designed and well managed enterprise is the ability to make decisions in a timely way, responding to needs and conditions right across the organisation. Making such decisions depends on good information and requires systems for measuring and tracking performance. Developing and implementing such systems is largely the province of the corporate finance and human resources departments, which the Church lacks. The ability to deal with problems before they get out of control also depends on a clearly defined decision-making process, as well as on effective leaders who are willing to make tough decisions.
    More often than not, these problems are personnel decisions that can be made only by a responsible general manager. Unfortunately, very little of this kind of process or leadership exists either within the dioceses, at the national level, or in Rome. There is no systematic review of clergy performance and probably very little review of lay people involved in the ministry or administration of the Church. (Two important exceptions in the US are Church hospitals and colleges, which have independent boards and must compete with secular institutions for patients, students and staff.) The shortcomings of the Church leadership's approach to handling personnel problems were highlighted by the painful consequences of the failure in the US to deal with the sexual misconduct allegations quickly and decisively. What would we think if the retail banking division of a financial conglomerate discovered that 5 per cent of its tellers were embezzling money and simply moved them from branch to branch without acknowledging the problem to their customers, exposing the offenders to the justice system or even informing the employees' new supervisors of their history? And what would we think of a corporate management or board that failed to take action for many years, either out of neglect or by simply being unaware? Shades of Enron? With no established guidelines for behavior or rigorously enforced sanctions for misbehavior, the Church's problems festered over many years, damaged many innocents, ruined untold lives and led to the disgrace and downfall of many well intentioned people.
    These people were asked to handle situations for which they were untrained and where sensible procedures to deal with personnel problems had not been developed or promulgated. If there had been a nationwide professional personnel function in place, with regular performance reviews, good reporting and record-keeping at both diocesan and national level, decisive action could have been taken much sooner. We now know how the sexual abuse crisis in the US - and similar problems in other countries - was mismanaged. It is sobering to imagine what a critical assessment of the Church's overall performance in managing its human, financial and physical resources might reveal. The Church needs to consider its structures and processes for day- to-day operation. Solving these problems will not be easy. But the difficulty of the task is no excuse for ducking it. The most important thing is for the Pope to recognise that the Church is seriously under-managed and that this is a crippling handicap in today's world. Once he has reached that point there are several things he can do to initiate the necessary changes. He can make it clear to all Church members that there is no conflict between the Church's mission and good management and that he expects the people at all levels to manage their resources professionally and effectively. He can talk to people he trusts, who have experience in managing large-scale industrial and commercial enterprises. He can start systematically searching for examples of best practice in management in the Church and encourage their proliferation.
    He can begin thinking with his colleagues and others about some of the more difficult organisational issues, such as how to professionalise the management of the Church and capitalise on its economies of scale - without undermining the autonomy of his bishops. He can begin to think of the differences between the more and less developed regions of the world and how that should affect his organisational approach and strategy for bringing about change. He can undertake a serious study of the problem of building an effective general management structure within the Church. Pope Benedict has an extraordinary record of defending the faith and gaining the confidence of his colleagues. He has spent decades defending the faith against the spread of relativism and knows the issues better than anyone. He could be the ideal person to bring the governance and management structure of the Church to a level of quality consistent with the sublime power and beauty of the basic message it espouses.

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