Applying Peter Drucker’s most essential organizational qualities
William Cohen, first graduate of Drucker’s PhD program, breaks down the revolutionary management consultant’s most essential organizational qualities
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Drucker had a unique concept of leadership that focused on the future capabilities of an organization, to enable its members to do the seemingly impossible and achieve extraordinary results. This led to a concept of leadership that differed significantly from hundreds of existing definitions, that focused primarily on results and how they were to be achieved.
Drucker wrote: “Leadership is the lifting of a man’s vision to higher sights, the raising of a man’s performance to a higher standard, the building of a man’s personality beyond its normal limitations.”
To arrive at this unusual definition, he concluded that the purpose of an organization must be to enable ordinary people to do extraordinary things. Therefore, while others wrote that organizations and the people in them must be properly managed, Drucker emphasized that they must be properly led. While others called integrity and social responsibility desirable characteristics of a good leader, Drucker maintained that they were mandatory characteristics to achieve the leadership that he envisioned.
Over the years, I have interacted and met with many leaders at all levels of organizations. Some have demonstrated great personal integrity and gone on to do great things. Others have demonstrated great integrity and it cost them their careers. In addition, some with little or no integrity got what they wanted, but usually only temporarily. Integrity and social responsibility were only optional and mentioned only in passing, if at all; yet according to Drucker, although followers would forgive a leader much, they would never forgive them a lack of integrity. Presumably, a lack of social responsibility would be similarly damaging.
Practicing integrity and social responsibility are closely involved with self-image. Shakespeare wrote: “This above all: to thine own self be true, and it must follow, as the night the day, thou canst not then be false to any man.” Both, Drucker concluded, were necessary for any leader to successfully lead an organization.
What is the importance of social responsibility?
Practicing social responsibility was of equal importance to practicing integrity and equally essential. Drucker’s greatest hero of social responsibility, who he frequently used as an example in class, was Julius Rosenwald, a self-made businessman from Chicago who had grown wealthy in the clothing industry. He was brought into Sears Roebuck, which was then a failing mail order house, as a vice president and was soon after made president. As president, he built it into what was once the largest retailer in the U.S.
His friend Paul J. Sachs, senior partner at Goldman Sachs, introduced him to Booker T. Washington, the African-American who founded the Tuskegee Institute and University. Washington made Rosenwald aware of the plight of African-Americans in the US and the poor condition of African-American education.
Rosenwald immediately began funding the building of schools in rural Alabama and the acquisition of textbooks and other educational materials, all of which were overseen by the Tuskegee Institute, at which Rosenwald became a permanent board member. This continued even after Washington’s death and eventually, Rosenwald contributed $4mn toward the construction of more than 5,000 schools, shops and teachers’ homes throughout the south of the US.
In explanation of his emphasis on African-Americans, Rosenwald wrote in 1911: “The horrors that are due to race prejudice come home to the Jew more forcefully than to others of the white race, on account of the centuries of persecution which they have suffered and still suffer.”
It is important to note here that unlike demonstrating high integrity, which an organization and it leaders must always do, in fulfilling its responsibility to society, a company must not endanger profits, for a company must be profitable to survive. If a company practiced social responsibility to the extent that it was no longer profitable, then this is poor leadership even if it benefited those to which the company contributed, for without profit the company will eventually fail.
Here Drucker drew a comparison to a human’s need for oxygen to survive. The danger of too much oxygen includes vision damage, hearing loss, organ damage, seizures and even death. So while recognizing the essential nature of social responsibility, the leader must not ignore the organization’s need for remaining profitable to survive, even while it fulfilled this social obligation.
Unintended consequences cannot be ignored either
Drucker went further and made it clear that an organization was responsible for unwanted and unanticipated outcomes, even if its intentions were good.
Sam Walton started Walmart with the idea that offering lower prices by purchasing in large quantities and selling them in numerous areas that are not being served by other retailers would be a win-win for everyone as it filled an unfulfilled need. Walmart was remarkably successful and quickly expanded beyond the single, original store of the chain.
Walmart exploded outside Arkansas in 1962, and by 1968 throughout the rest of the southern US. By the 1980s it was in every state of the US and by 1990 it was the largest retailer in the country. Five years later it built its first stores in Canada and then on to more than 11,000 stores in 27 countries with revenues of $524bn a year.
But something unexpected occurred with this amazing growth. Walmart grew increasingly unpopular with the markets it intended to serve and help, and it even had problems with class action lawsuits by its own employees. One writer noted that Walton’s class action lawsuits had become so common that they should be termed “business as usual”.
Some 10 years ago, when Drucker was still alive, he noted that Walton was correct in establishing stores in underserved rural areas where the demand for Walmart products greatly exceeded supply, and the market was appreciative of the low pricing and the growth brought in additional jobs. However, Drucker said that the issues arose partially because the same action put smaller, especially “mom and pop” merchants, out of business because they could not compete with the quantity of products or their prices.
Furthermore, as geographical areas grew and Walmart dominated those they served, the supermarket chain seemed to assume that as long as it was legal, whether an action was considered ethical or not was unimportant or even not its responsibility. In 1999, Walmart sued the nation's leading retail worker's union, the United Food and Commercial Workers International Union, to stop it from organizing. The Arkansas Supreme Court ruled against Walmart.
Walmart then faced a class action lawsuit in California for failing to provide seating for its cashiers on the theory that if it provided seating, they could not adequately monitor the transaction. It spent 10 times the cost for seats and lost again, this one in trying to prove it was right. More employees sued for various other reasons and Walmart fought them all.
In Bangladesh factory employees died in a fire while producing Walmart garments. Certainly, it was not Walmart’s fault, and arguably not its responsibility, which was its initial response, claiming that the employees were not Walmart employees, so they were not its responsibility. True, but this was irrelevant. They were making Walmart’s products were they not? A lot of bad press resulted.
Some geographical areas made it clear that despite the advantages they were not enthusiastic about a Walmart presence. Walmart was seen less as a friend of the working consumer and more as just another corporate bully. Walmart has overcome many of these issues, but at great cost.
High integrity and social responsibility are not optional
Maintaining high integrity is not only far less costly and affects the image of the organization held by others, but more importantly it affects the image of the organization held of itself by its own members.
Throughout history, and right on up to modern times, even in the case of individuals performing any task or facing any challenge, researchers have found that what the organization and its members feel and know about themselves is even more important than what others may think.
An organization that knows that it practices high integrity and is socially responsible, everything else being equal, usually outperforms one which practices neither. More importantly, when things go wrong, they will support an organization and a leader that they trust and believe in, and eventually abandon one that they do not.
Material benefits for the socially responsible?
In the Holy Scriptures (the Old Testament), there are many mentions of tithing, which essentially means giving for charitable purposes. Many who have given to good causes report that their contribution was followed by unexpected or even miraculous benefits. I wonder whether these benefits are at least partially the result of self-imagery. Certainly “feeling good about oneself” after a social contribution is a common theme.
You do not need to abandon organizational efficiency or profitability. You just need to be ethical and socially responsible as a part of good leadership.
