Why the buck stops here

Peter Drucker

A manager is responsible in one way or another for the success of an enterprise. Unfortunately, writes columnist William Cohen, many otherwise very capable leaders try to avoid responsibility. When things go wrong --- they are quick to blame others. Time for all of us to start being accountable for our actions.

One evening when I was Drucker’s student I was sitting at a table for six at an evening meal break from our classroom instruction. I sat in the middle on one side of a rectangular table with Peter sitting on my right. My classmate sitting on my left introduced me to a new student sitting opposite him . "Bill, this is Joe Smith. He’s a vice president at your sister company, Douglas Aircraft."

Douglas Aircraft Company was located in Long Beach, California, only a few miles away from McDonnell Douglas Astronautics Company where I worked, and all the senior executives from both divisions knew one another. This new student was a colleague and at the same vice president’s level as my boss, Paul Smith. Paul was vice president of marketing. Although some months before leaving I did tell Paul of my plans, but with two years to go, I had not yet told my plans to anyone in my company.

Without pausing, my classmate turned to the newcomer and said, "Bill works for the vice president of marketing at your sister company, McDonnell Douglas Astronautics. However, Bill intends to quit and become a professor as soon as he has his doctorate."

I mentally sunk into my chair. I could have decked my big mouth classmate on the spot. Instead, I straightened up and managed a smile. My hand shot out almost automatically. I shook the newcomer’s hand warmly and said: "Hi, I’m Bill Drucker, Peter’s son." Peter was talking to another student sitting to his right and I didn’t think he even heard what was going on or my surprising statement claiming to be his progeny. Years later I met Peter’s real son, Vincent and told him of my not-quite-serious claim to be him.

But back to the time of my story. Peter completed his conversation with this other student. Then, he turned slowly to me and said, "Bill, you may be my son, but I am not your father."

I was embarrassed, although I knew Peter had not taken my comment seriously, nor was he offended by it. On the way back to class I explained what had occurred and why I had in humor tried to claim a relationship as one of his offspring.

"I was not offended," he told me, but you were careless in telling someone of your future intentions who did not keep this information confidential. However, it was your error and it is you who are fully accountable for it. We are, in fact, all accountable --- management, employees, labor, and subordinates and we must all be held accountable for not only what we say, but the actions and decisions which we take or fail to take."

I’m Not Responsible! --- Oh Yes You Are!

Unfortunately many otherwise very capable leaders try to avoid responsibility. Things go wrong --- they are quick to blame others: "It wasn’t me, it was Joe (or Jane). I put them in charge." They fail to understand that they are responsible for giving Joe or Jane the job and that they are responsible for ensuring the job’s efficient and timely completion. Joe or Jane may be responsible to the leader in question, but the same leader is responsible to higher ups, not the individual he gave the job to.

In the same way a manager cannot shirk accountability due to the failures of a predecessor. Some time back a group that I am affiliated with was deciding whether to buy or start a graduate school. Our lawyer informed us we had to be extremely careful in buying a school as the U.S. Government (specifically the Department of Education) did not hold former owners responsible for a violations of the law; they held the owners who currently owned the school accountable. Frances Hesselbein became CEO of the Girl Scouts of the USA after years of decline and neglect. She blamed no one, but completely but completely turned things around, winning the Presidential Medal of Freedom.

Drucker’s Classroom Lecture

In the classroom Peter spoke about responsibilities and accountability in all things. The idea was that a manager is responsible in one way or another for the success of an enterprise and that he or she had to be held accountable. Drucker used executive salaries as his prime example. He said that executive salaries at the top were clearly out of line with the responsibilities of those holding these positions. He said that the ratios of the compensation of American top managers to the lowest-paid workers were the highest in the world. In addition, he said that this difference wasn’t slight, but differed by magnitudes and that we would end up paying a tremendous price for this.

I don’t believe that Peter was specific in quoting ratios, but I do know that by one analysis, the ratio of average CEO compensation in the U.S. to average pay of a non-management employee in the U.S. hit a high in 2001 of 525 to 1. Drucker’s recommendation was that the ratio needed to be something less than 20 to one.

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He went on to debunk the main arguments for such pay differentials: top executives deserved these salaries due to the performance of the corporations they headed, or that such salaries were necessary to attract the most qualified executives. He stated flatly that they were nonsense. He pointed out that top executives in many corporations were paid these ridiculous salaries even when their documented performance was far below par or even as they drove the organizations for which they were responsible into serious financial problems or even bankruptcy.

As far as these salaries being needed to attract the most qualified executives, he gave us examples of several well known companies which were performing very well, but whose chief executives were paid much more modest salaries. The only one I can recall now was Robert Townsend, who had been president of Avis-Rent-a-Car. He was well-known for instituting the "We Try Harder" advertising campaign several years earlier and had had a major effect on Avis’ success during his tenure as president.

Drucker concluded that it was the executive himself who was responsible and accountable for his own salary. He said that Robert Townsend had refused a salary increase from his Board of Directors after his success at AVIS on the grounds that it was simply poor leadership for what he was trying to accomplish. He also told us that the many of the most effective executives took salary cuts in time of trouble.

Peter also noted the U.S. military, where a top general was frequently responsible for life and death decisions, and who in time of war might have several hundred thousand, or even a million or more subordinates and be accountable for millions of dollars of stores and equipment. In those days such an individual was paid a $100,000 a year with no bonuses. Of course, thirty years later, it’s about twice that today. Still, the last time I calculated it, the ratio of the highest ranking general to lowest ranking private was something like 17 to one, below the 20 to one ratio which Drucker recommended.

The Accountable and Responsible Executive

Ken Iverson passed away in 2002. However, when Iverson was CEO of Nucor, this steel company it was the third largest in the nation and it consistently racked up high profits.

When Iverson first became CEO, the business was failing, He built Nucor into a profitable giant, and some indication as to his methods relate exactly to Drucker’s point about accountability, even in corporate salaries.

There was a major recession in the steel industry. At Nucor, they had to cut production in half. Iverson did not, however, "downsize" anyone. How did he avoid doing what every other steel company did? Iverson insisted that management take large pay cuts. Department heads took pay cuts of up to 40%. For top management, Iverson insisted that company officers cut their salaries up to 60%. At a time when Fortune 500 CEOs were taking home millions in compensation, Iverson cut his own pay from $450,000 to $110,000, a salary cut of more than 75%

When that wasn’t sufficient, Iverson cut back work weeks from five to four days, and then, to three days a week. This meant that on average his workers suffered a 25% cut in pay. "You know that had to hurt," said Iverson. "Still, as I walked through our mills and plants, I never heard one employee complain about it. Not one." That’s not too surprising when those workers fully understood that their leaders were taking significant cuts also.

There are lots of ways of demonstrating accountability. Accepting responsibility for everything, including one’s own salary is just one.