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On Values and Responsibility

Why Manners Matter at Work

For those of you who never bothered to pay attention to your mother, perhaps you’ll listen to Peter Drucker, the father of modern management, instead.

This cheeky thought has crept into my head a couple of times in the last few weeks as I’ve read a run of stories about etiquette (or lack thereof) in the workplace. Most recently, there was the case study posted on the BusinessWeek website about a worker who had to deal with a boorish boss.

And just a couple of weeks ago, I saw that officials in Anaheim, Calif.—home to Disneyland—were set to hold classes for cabbies, hotel employees, and other service workers in town to ensure they act as knowledgeable and enthusiastic hosts for tourists, while also minding their p’s and q’s.

The hope is that the lessons they learn—to be professional and gracious—will be noticed not only by visitors but by their colleagues, too. “We teach them that they’re part of a team, and that what they do rubs off on the team,” says Mickey Schaefer, president of Mickey Schaefer & Associates, the Tucson, Ariz., firm overseeing the training. “We’ve become such an informal society that we all tend to slip. We want to get back to the basics. . . . Your attitude, your cleanliness, your friendliness all matter.”

Drucker, who recalled watching his grandmother confront a young thug on a Vienna streetcar in the early 1930s and lecture him about the virtue of good manners, would certainly agree. “Manners are the lubricating oil of an organization,” Drucker wrote. “It is a law of nature that two moving bodies in contact with each other create friction. This is as true for human beings as it is for inanimate objects. Manners—simple things like saying ‘please’ and ‘thank you’ and knowing a person’s name or asking after her family—enable two people to work together whether they like each other or not.”

Day In and Day Out

As the last part of his comment makes clear, Drucker was never particularly sentimental about all this. He wasn’t interested in fostering friendships; he was, as usual, trying to enhance performance.

“Warm feelings and pleasant words are meaningless, are indeed a false front for wretched attitudes, if there is no achievement in what is, after all, a work-focused and task-focused relationship,” Drucker cautioned in The Effective Executive, his 1967 classic. “On the other hand, an occasional rough word will not disturb a relationship that produces results and accomplishments for all concerned.”

Yet Drucker knew that, day in and day out, maintaining a sense of decorum is an important ingredient in any well-managed enterprise. “Bad manners,” he said, “rub people raw; they do leave permanent scars.”

Maybe even literally. Last month, the Joint Commission, an accreditation body for the U.S. health-care industry, ordered 15,000 hospitals, nursing homes, laboratories, and other facilities to implement standards that spell out what is considered “acceptable and unacceptable” personal conduct and to establish “a formal process” to manage things when the rules get broken.

“Health-care leaders and caregivers have known for years that intimidating and disruptive behaviors are a serious problem,” the commission said. “Verbal outbursts, condescending attitudes, refusing to take part in assigned duties, and physical threats all create breakdowns in the teamwork, communication, and collaboration necessary to deliver patient care.”

Civility Is Crucial

It isn’t just medical personnel who could stand a reminder of this. A study released last year, based on a survey of more than 54,000 employees from 179 organizations across Australia and New Zealand, found that one in five employees experiences an incident of bad manners at work once a month.

People who exclude coworkers from situations, interrupt them when they’re speaking, make derogatory remarks, withhold information, and disparage others’ ideas can have “a large impact on employee engagement,” Barbara Griffin, an organizational psychologist from the University of Western Sydney and the coauthor of the study, said at the time it was released. In fact, she noted, this kind of atmosphere may well determine “whether you stay in an organization, speak positively about your job, or go that extra mile. It can also cause psychological distress and poor physical health.”

As commonsensical as this may seem, many managers fail to grasp just how crucial civility is. “Bright people, especially young bright people, often do not understand this,” Drucker wrote. “If analysis shows that someone’s brilliant work fails again and again as soon as cooperation from others is required, it probably indicates a lack of courtesy—that is, a lack of manners.”

People Skills Trump Talent

This, of course, undermines not only the organization but the individual. In his acclaimed book What Got You Here Won’t Get You There: How Successful People Become Even More Successful, executive coach (and fellow BusinessWeek.com columnist) Marshall Goldsmith points out that “people skills,” more than smarts or technical talents, frequently “make the difference in how high you go” in your career.

Among the challenges in interpersonal behavior Goldsmith says many of us must strive to overcome: speaking when angry, being overly negative, making excuses, claiming undeserved credit, not listening well, and “failing to express gratitude—the most basic form of bad manners.”

And with that, there is but one thing left to say: Thank you for reading.

August 14, 2008

Put a Cap on CEO Pay

For a guy whose astute counsel helped to make so many CEOs rich, Peter Drucker had an intense loathing of exorbitant executive salaries. He hated high CEO pay on every level: what it said about the individual as a leader, how it undermined the smooth functioning of the organization, and the way it tore at the fabric of society as a whole.

Drucker’s strong feelings on the subject—he once termed sky-high CEO compensation “a serious disaster”—are well worth revisiting in light of the news that the men who sat atop Fannie Mae and Freddie Mac could be eligible for as much as $24 million in severance and other benefits after being ousted from their positions.

Last week the federal government was forced to step in and rescue the faltering mortgage giants in a move that could cost taxpayers billions.

Although it wasn’t immediately clear whether the two departing CEOs, Fannie’s Daniel Mudd and Freddie’s Richard Syron, would actually walk away with all that dough, the prospect of such a windfall has resonated on the Presidential campaign trail and helped to stoke a national debate about executive pay.

Drucker’s stance on the issue, articulated consistently over many years, was controversial. But it was rooted in his belief that the best leaders are those who understand that what comes with their authority is the weight of responsibility, not “the mantle of privilege,” as writer and editor Thomas Stewart described Drucker’s view. It’s their job “to do what is right for the enterprise—not for shareholders alone, and certainly not for themselves alone.”

Last year, according to a report just issued by the Institute for Policy Studies and United for a Fair Economy, S&P 500 CEOs received pay packages worth, on average, $10.5 million. That was 344 times the earnings of the average American worker.

What Drucker thought was more appropriate was a ratio around 25-to-1 (as he suggested in a 1977 article) or 20-to-1 (as he expressed in a 1984 essay and several times thereafter). Widen the pay gap much beyond that, Drucker asserted, and it makes it difficult to foster the kind of teamwork that most businesses require to succeed.

“I’m not talking about the bitter feelings of the people on the plant floor,” Drucker told a reporter in 2004. “They’re convinced that their bosses are crooks anyway. It’s the midlevel management that is incredibly disillusioned” by CEO compensation that seems to have no bounds.

This is especially true, Drucker explained in an earlier interview, when CEOs pocket huge sums while laying off workers. That kind of action, he said, is “morally unforgivable.”

Notably, Drucker wasn’t opposed to rewarding some people like kings. “There should, indeed there must, be exceptions,” he wrote. “A ‘star,’ whether the supersalesman in the insurance company or the scientist in the lab who comes up with a half-dozen highly profitable research breakthroughs, should be paid without any income limitation.”

But the chief executive has a special duty to show that he or she is “just a hired hand,” Drucker said, invoking the words of J.P. Morgan. “That’s what today’s CEOs have forgotten.”

Not all of them, of course. Last year, Costco Wholesale CEO Jim Sinegal made $3.2 million, including a $350,000 salary, an $80,000 bonus, and stock grants and options valued at $2.6 million. While hardly chump change, that was far less than what his peers raked in—and far less than what Costco’s compensation committee wanted to give him. But the panel said in a regulatory filing that it was willing to respect his “wishes to receive modest compensation, in part because it believes that higher amounts would not change Mr. Sinegal’s motivation and performance.”

Setting pay for top executives can be tricky, even for those whose instinct is to nip their remuneration. In the mid-1980s, after consulting with Drucker, furniture maker Herman Miller agreed that its CEO’s pay would be restricted to 20 times the average of all its employees. “The subtle part of this limit was the message to the CEO: If you want to get more pay, you need to do it by raising the average pay” of everyone at the company, the man who used to hold the post, Dick Ruch, recalled in his book Leaders & Followers.

But in 1997, Herman Miller ditched Drucker’s model. “From a competitive standpoint,” Ruch said, “we needed to eliminate the cap to attract and retain the right people.”

Drucker himself conceded that compensation formulas are inherently difficult to develop. “I would be the last person to claim that a ‘fair,’ let alone a ‘scientific,’ system can be devised,” he wrote. Yet at the same time, he never gave up on the 20-to-1 rule for CEOs, touting it as the right thing for the good of the organization, as well as for the general health of society.

Allowing an enormous disparity in income to exist “corrodes,” Drucker warned. “It destroys mutual trust between groups that have to live together and work together.”

And, on occasion, bail each other out.

September 12, 2008

A Time for Ethical Self-Assessment

This may be the season of giving, but it sure feels like everybody is suddenly on the take. Siemens, the German engineering giant, agreed this month to pay a record $1.6 billion to U.S. and European authorities to settle charges that it routinely used bribes and kickbacks to secure public works contracts across the globe. Prominent New York attorney Marc Dreier—called by one U.S. prosecutor a “Houdini of impersonation and false documents”—has been accused by the feds of defrauding hedge funds and other investors out of $380 million.

And then, of course, there’s financier Bernard L. Madoff, who is said to have confessed to a Ponzi scheme of truly epic proportions: a swindle of $50 billion, an amount roughly equal to the GPD of Luxembourg.

All told, it begs the question that Peter Drucker first raised in a provocative 1981 essay in the journal The Public Interest and that later became the title of a chapter in his book The Ecological Vision: “Can there be ‘business ethics’”?

Drucker didn’t pose this to suggest that business was inherently incapable of demonstrating ethical behavior. Nor was he positing that the workplace should somehow be exempt from moral concerns. Rather, his worry was that to speak of “business ethics” as a distinct concept was to twist it into something that “is not compatible with what ethics always was supposed to be.”

What Drucker feared, specifically, was that executives could say they were meeting their social responsibilities as business leaders—protecting jobs and generating wealth—while engaging in practices that were plainly abhorrent. “Ethics for them,” Drucker wrote, “is a cost-benefit calculation . . . and that means that the rulers are exempt from the demands of ethics, if only their behavior can be argued to confer benefits on other people.”

It’s hard to imagine that a Madoff or a Dreier would even attempt to get away with such tortured logic: an ends-justify-the-means attitude that Drucker labeled “casuistry.” But we all know managers who’ve tried to rationalize an unscrupulous act by claiming that it served some greater good.

The Mirror Test

In his book Resisting Corporate Corruption, Stephen Arbogast notes that when Enron higher-ups sought an exemption from the company’s ethics policy so that they could move forward with certain dubious financial dealings, the arrangement was made to “seem a sacrifice for the benefit of Enron.” Reinhard Siekaczek, a former Siemens executive, told The New York Times that the company’s showering of foreign officials with bribes “was about keeping the business unit alive and not jeopardizing thousands of jobs overnight.”

For Drucker, the best way for a business—indeed, for any organization—to create an ethical environment is for its people to partake in what he came to call in a 1999 article “the mirror test.” In his 1981 piece, Drucker had a fancier name for this idea: He termed it “The Ethics of Prudence.” But either way, it boils down to the same thing: When you look in the mirror in the morning, what kind of person do you want to see?

The Ethics of Prudence, Drucker wrote, “does not spell out what ‘right’ behavior is.” It assumes, instead, “that what is wrong behavior is clear enough—and if there is any doubt, it is ‘questionable’ and to be avoided.” Drucker added that “by following prudence, everyone regardless of status becomes a leader” and remains so by “avoiding any act which would make one the kind of person one does not want to be, does not respect.”

Drucker went on: “If you don’t want to see a pimp when you look in the shaving mirror in the morning, don’t hire call girls the night before to entertain congressmen, customers, or salesmen. On any other basis, hiring call girls may be condemned as vulgar and tasteless, and may be shunned as something fastidious people do not do. It may be frowned upon as uncouth. It may even be illegal. But only in prudence is it ethically relevant. This is what Kierkegaard, the sternest moralist of the nineteenth century, meant when he said that aesthetics is the true ethics.”

Time to Reflect

Drucker cautioned that the Ethics of Prudence “can easily degenerate” into hollow appearances and “the hypocrisy of public relations.” Yet despite this danger, Drucker believed that “the Ethics of Prudence is surely appropriate to a society of organizations” in which “an extraordinarily large number of people are in positions of high visibility, if only within one organization. They enjoy this visibility not, like the Christian Prince, by virtue of birth, nor by virtue of wealth—that is, not because they are personages. They are functionaries and important only through their responsibility to take right action. But this is exactly what the Ethics of Prudence is all about.”

Now is the time of year when many of us find ourselves sitting in church or in synagogue, or, if we’re not religious, simply taking stock of who we are and where we want to be as the calendar turns. But what’s even more critical is that we continue this sort of honest self-assessment when we return to our jobs in early 2009.

“I have learned more theology as a practicing management consultant than when I taught religion,” Drucker once said. This, he explained, is because “management always deals with the nature of Man and (as all of us with any practical experience have learned) with Good and Evil as well.”

So take the mirror test now—and then keep taking it well after the Christmas ornaments have been packed away and the Hanukkah candles have burned down to the nub. In the meantime, happy holidays to all.

December 23, 2008

Obama’s Call to Duty Echoes Drucker on Ethical Organizations

When Peter Drucker was asked toward the end of his long life to list his greatest contributions, he pointed to his pioneering insight that management had extended beyond the realm of business to become “the governing organ of all institutions of modern society.” He also noted, without embellishment or false modesty, that “I established the study of management as a discipline in its own right.”

And then he added this: “I focused this discipline on people and power; on values, structure, and constitution; and above all on responsibilities.” For extra emphasis, he typed the last part of the sentence in capital letters.

I thought about Drucker’s list this week, as President Barack Obama summoned the R-word in an inaugural address that was by turns soaring and sober. “What is required of us now,” he declared, “is a new era of responsibility.”

Ethical Leadership

But what are these “duties to ourselves, our nation, and the world” that Obama has asked us to “seize gladly”? What, really, can we be expected to do at a time when as the President himself put it, “our economy is badly weakened. . . . Homes have been lost, jobs shed, businesses shuttered.” How can each of us, in our own way, help provide for the common good?

Part of the answer lies in Obama’s call for service and volunteering—a force that Drucker also viewed as “a powerful countercurrent” to the “decay and dissolution of family and community and . . . loss of values” in America.

But for Drucker, there was something even more fundamental to the notion of responsibility. It begins with the recognition that over the last 150 years we’ve become a society of big organizations. And when these organizations aren’t effectively managed and ethically led, society as a whole stands to suffer.

Foresight Matters

Who could doubt that these days? What’s good for General Motors may be good for the country, but the corollary is surely true: When things go bad at GM (or Citigroup or Fannie Mae), it’s lousy for us all.

“Economic performance is the first responsibility of a business,” Drucker wrote. “Indeed, a business that does not show a profit at least equal to its cost of capital is irresponsible; it wastes society’s resources. Economic performance is the base without which a business cannot discharge any other responsibilities, cannot be a good employer, a good citizen, a good neighbor. But economic performance is not the only responsibility of a business. . . . Every organization must assume full responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. This is its social responsibility.”

What’s more, it can’t do this after the fact. “It is the job of the organization,” Drucker explained, “to look ahead and to think through which of its impacts are likely to become social problems. And then it is the duty of the organization to try to prevent these undesirable side results.”

What’s Socially Responsible?

And yet organizations must do more than simply keep the negative from happening; to be truly responsible, they must leave a mark on the positive side of society’s ledger sheet.

The best way to accomplish this, Drucker advised, is for the organization to convert “into opportunities for its own performance the satisfaction of social needs and wants.” This approach, Drucker noted in the late 1960s, another time of intense anxiety for the nation, “may be particularly important in a period of discontinuity.”

If there is a danger in satisfying social needs, Drucker recognized, it occurs when organizations fall prey to the temptation to overreach—to try to take on tasks for which they’re not properly equipped. “Organizations . . . do not act ‘socially responsible’ when they concern themselves with ‘social problems’ outside of their own sphere of competence and action,” he said. “They act ‘socially responsible’ when they satisfy society’s needs through concentration on their own specific job. They act most responsibly when they convert public need into their own achievement.”

So what does this come down to for you and me?

Although Drucker wrote about “social responsibility” in the context of the organization, he was quick to remind that “the organization itself, like every collective, is a legal fiction. It is individuals in the organization who make the decisions and take the actions which are then ascribed to the institution, whether it be the ‘United States,’ the ‘General Electric Company,’ or ‘Misericordia Hospital.’”

Mindful Managing

It is up to us, then, to be mindful of our impact, no matter what kind of work we’re engaged in, to do no harm, and to actively look for ways to solve social ills whenever it makes sound business sense to do so.

Finally, it’s up to us to perform. Otherwise, the organizations in Drucker’s “society of organizations” will never be healthy and stable.

This holds true for both managers and other workers, especially the knowledge workers whose ranks continue to swell. “The well-being of our entire society,” said Drucker, “depends increasingly on the ability of these large numbers of knowledge workers to be effective.”

Being responsible not only means doing the right things. It means doing the right things well.

January 23, 2009

Trust: Effective Managers Make It a Priority

Last week, in describing how she has turned around Kraft Foods, Chief Executive Irene Rosenfeld highlighted the way the company has stepped up its marketing and spurred product development. But there’s an additional ingredient that Rosenfeld mentioned, which far too many managers miss: inspiring trust throughout the enterprise.

As Kraft’s restructuring has played out over the past few years, executives have made a real effort to be “straightforward, open, and honest”—even in the midst of plant closings and job cuts, Rosenfeld told the World Business Forum in New York. The strong sense of trust that this has fostered, she said, has “been a critical part of our ability to get things done.”

Peter Drucker had a similar recipe for success. “Organizations are no longer built on force,” he wrote in his book Management Challenges for the 21st Century. “They are increasingly built on trust.”

No company, nonprofit, or government agency can “prevent a major catastrophe,” Drucker added, “but you can build an organization that is battle-ready, that has high morale, that knows how to behave, that trusts itself and where people trust one another. In military training, the first rule is to instill soldiers with trust in their officers, because without trust they won’t fight.”

Plenty of businesses understand this, of course. Each year, the Great Place to Work Institute surveys tens of thousands of employees through its “Trust Index” and then extols those companies that offer extraordinary environments of “credibility, respect, fairness, pride, and camaraderie.” Topping its latest roster are NetApp, Edward Jones, Boston Consulting Group, Google, and Wegmans Food Markets.

Lack of Trust Leads to Dysfunction

The stunning thing, though, is how many companies clearly don’t get it. Polls in recent years by Watson Wyatt, BlessingWhite, and others have found that fewer than half of all workers trust what senior management is telling them. Too many executives try to hide things or spin them.

And once trust is undermined, everything else is prone to unravel. Patrick Lencioni, the author of The Five Dysfunctions of a Team, points out that for any organization to be effective—with results driven by employees who feel truly engaged in, and committed to, their work—there must exist an atmosphere where people can air opposing views, even passionately.

But without trust—without people willing to be vulnerable to one another and admit their weaknesses and mistakes—that’s impossible. “Conflict without trust is politics,” Lencioni remarked during his own World Business Forum presentation.

Drucker, who warned against reaching quick consensus when tough decisions have to be made, would certainly agree. “There is a very old saying—it goes all the way back to Aristotle and later on became an axiom of the early Catholic Church: In essentials unity, in action freedom, and in all things trust,” Drucker wrote. “And trust requires that dissent come out into the open, and that it be seen as honest disagreement.”

How Managers Can Establish Trust

As important as trust is, it’s not easy to establish. It takes a while, which is why Drucker counseled companies not to thrust a brand-new hire into a major assignment. Even if this person is highly skilled, he or she won’t yet have earned the trust of coworkers.

Wrote Drucker: “As Winston Churchill’s ancestor the great Duke of Marlborough observed some three centuries ago, ‘The basic trouble in coalition warfare is that one has to entrust victory, if not one’s life, to a fellow commander whom one knows by reputation rather than by performance.’ In the corporation as in the military, without personal knowledge built up over a period of time there can be neither trust nor effective communication.”

But how does one win trust as a manager?

In Drucker’s view, it’s crucial to be able to set ego aside and do what’s best for the organization. “The leaders who work most effectively . . . never say ‘I,’” he noted. “And that’s not because they have trained themselves not to say ‘I.’ They don’t think ‘I.’ They think ‘we’; they think ‘team.’ . . . There is an identification (very often, quite unconscious) with the task and with the group. This is what creates trust, what enables you to get the task done.”

Still, by far the biggest way to gain trust is simply to be consistent—to do what you say you’re going to do, to act in ways that are in step with what you profess to believe in, to advance projects that are in harmony with the organization’s mission and values. “Trust means that you know what to expect of people,” Drucker declared. “Trust is mutual understanding. Not mutual love, not even mutual respect. Predictability.”

Hypocrisy probably wouldn’t rank very high on most managers’ lists of the biggest missteps they could make. But it should. Your colleagues are watching closely. Trust me.

October 16, 2009

Executives Are Wrong to Devalue Values

McKinsey & Co. released a survey this week on “leadership through the crisis and after.” Had Peter Drucker parsed the poll, however, I think he would have found it most revealing in terms of how we got into such a mess in the first place.

When asked what are the most important organizational capabilities for managing corporate performance, the 763 executives who responded—representing a range of regions, industries, and functions—picked two more often than any other. The first was “leadership,” which was described as the facility to “shape and inspire the actions of others.” The second was “direction,” or the “capacity to articulate where the company is heading and how to get there” in an aligned manner.

Stuck at the very bottom of the list, meanwhile, was the ability to “foster a shared understanding of values.” A mere 8 percent of respondents cited this factor as crucial, compared with 49 percent for leadership and 46 percent for direction. What’s more, those taking the survey indicated that ensuring shared values has become less vital since the economic crisis began, while the other two qualities have become more significant.

For Drucker, these numbers surely would have been troubling. The way he saw things, any organization needs to demonstrate achievement in three major areas if it’s to be successful: generating “direct results,” “developing people for tomorrow,” and the “building of values.” If a business is “deprived of performance in any one of these areas, it will decay and die,” Drucker warned in The Effective Executive, his 1967 classic. “All three therefore have to be built into the contribution of every executive.”

Leadership and Values: Bound Together

Of course, it is tempting to dismiss any discussion of values as pure pablum—the mushy stuff written into corporate social responsibility reports and uttered at the company’s annual awards banquet. But that’s a misreading of what values are all about. Every employee knows, deep down, what his or her organization stands for. And unless it stands for the right things, it is terribly easy for its people to go astray.

“We hear a great deal of talk these days about the ‘culture’ of an organization,” Drucker noted in a 1988 Harvard Business Review piece. “But what we really mean by this is the commitment throughout an enterprise to some common objectives and common values. Without such commitment, there is no enterprise; there is only a mob. Management’s job is to think through, set, and exemplify those objectives, values, and goals.”

Perhaps the oddest aspect of the McKinsey findings is the suggestion that providing leadership is somehow separate from promoting values. In fact, the two are bound together—the double helix of any corporation’s DNA.

As Drucker wrote: “Leadership is . . . example. The leader is visible; he stands for the organization. He may be totally anonymous the moment he leaves that office and steps into his car to drive home. But inside the organization, he or she is very visible, and this isn’t just true of the small and local one; it is just as true of the big, national, or worldwide one. . . . No matter that the rest of the organization doesn’t do it; the leader not only represents what we are, but, above all, what we know we should be.”

Which goes a long way to explain why so many banks exhibited such a high degree of recklessness in the run-up to the financial meltdown. In a report this year on lessons about corporate governance gleaned from the crisis, the Organisation for Economic Co-operation and Development cited “tone at the top” as a big part of the problem. In looking at remedies, the OECD highlighted standards calling for directors not only to approve a bank’s strategic objectives but also its “corporate values,” and to ensure that they “are communicated throughout” the firm.

For Every Business, a Choice

The same analysis concluded that in addition to lacking sufficient systems and procedures for properly evaluating certain types of securities, “soft factors were also at work” at some institutions. At French bank Société Générale, the study said, “an imbalance . . . emerged between the front office, focused on expanding its activities, and the control functions which were unable to develop the critical scrutiny necessary for their role.”

In other words, like many others, Société Générale became so intent on ringing up “value,” it forgot about its values. Now, according to the OECD, the bank is trying to “move towards a culture of shared responsibility and mutual respect”—one in which risk managers are as prized as traders.

Richard Ellsworth, a longtime colleague of Peter Drucker’s at Claremont Graduate University, makes clear that, on some level, every business faces a similar choice. “The company can be viewed either as a money-making machine or as a vehicle for satisfying human needs,” Ellsworth writes in a new book, coauthored with a group of Claremont faculty members, called (just like this column) The Drucker Difference. “By definition, if the central end value is not shared—if employees do not believe in its intrinsic worth—then this foundation and the resulting corporate culture are weakened, and corporate values lose much of their power to influence and direct actions.”

Never mind the survey. Without setting values, offering leadership and supplying direction are hollow gestures at best.

October 30, 2009

Authentic Engagement, Truly

Whenever something is labeled “authentic,” it’s a good bet that it’s anything but. Nevertheless, every manager would be wise to consider what FSG Social Impact Advisors, a Boston organization cofounded by Harvard Business School’s Michael Porter, is calling “Authentic Engagement.” The idea is for companies to take on social problems but in a competitive context—to look for ways to contribute to the larger community while tackling key business objectives.

“Many progressive companies . . . are seeing social issues through this new lens,” FSG reported in its latest newsletter, citing a number of examples, including Toyota’s targeting “zero emissions mobility,” Unilever’s promoting good health practices through its Lifebuoy soap, and the fragrance and flavor giant Firmenich’s working with poor vanilla farmers on sustainable growing techniques.

One can easily imagine what Peter Drucker’s response to this flash would have been: It’s about time.

In his 1973 book, Management: Tasks, Responsibilities, Practices, Drucker urged companies to see social ills “as major sources of opportunity.” What’s more, he counseled them to make sure these opportunities were “built into the strategy” of the enterprise, not viewed as some philanthropic afterthought.

The Ultimate Responsibility

Yet it was even earlier, in 1954’s The Practice of Management, when Drucker began to argue that meeting a corporation’s mission and helping to transform society positively are not only compatible but also mutually reinforcing. “It is management’s . . . responsibility to make whatever is genuinely in the public good become the enterprise’s own self-interest,” he wrote.

Drucker didn’t view this as some quixotic exercise. Indeed, he believed it essential that a seamless blending of public and private gain become a common feature of corporate life. “In this lies the real meaning of the ‘American Revolution’ of the twentieth century,” Drucker declared. “That more and more of our managements claim it to be their responsibility to realize this new principle in their daily actions is our best hope for the future of our country and society, and perhaps for the future of Western society altogether.

“To make certain that this assertion does not remain lip service but becomes hard fact,” he continued, “is the most important, the ultimate responsibility of management: to itself, to the enterprise, to our heritage, to our society, and to our way of life.”

Ersatz Engagement

A half century later, we can only shake our heads and wonder what went wrong. That we now feel compelled to use a term such as “Authentic Engagement” is a measure of just how far from Drucker’s original vision we have strayed.

To start with, there is an awful lot of ersatz engagement out there. For many companies, invoking “corporate social responsibility” has become a halfhearted statement of noble intentions or, worse, a PR stunt.

Tellingly, the marketing firm TerraChoice announced last April that companies were guilty of some form of “greenwashing,” or misleading the public about their environmental qualities, in 98 percent of the 2,219 products it had examined.

In addition, too many executives have become focused on doing well, with little regard for doing good—a mind-set that helped trigger the global financial crisis that continues to hurt so many people.

Some theoreticians and practitioners contend that the persistent pursuit of maximum profit will, in the end, accrue to everyone’s advantage. But Drucker held this Gordon Gekko–like logic to be nonsense, dangerous even. “A society based on the assertion that private vices become public benefits cannot endure,” he warned. “For in a good, a moral, a lasting society, the public good must always rest on private virtue.”

Customer Creation

Still, discovering ways to satisfy corporate goals and society’s needs simultaneously—what FSG describes as “shared values”—isn’t necessarily easy. A survey released last summer by IBM found that only 30 percent of executives receive adequate data on carbon emissions, labor standards, product composition, and the like to figure out how to make a societal contribution in these areas, even if they want to.

Companies, meanwhile, must also guard against being pushed or pulled into projects that don’t make sound financial sense. “Whenever a business has . . . assumed social responsibilities that it could not support economically, it has soon gotten into trouble,” Drucker wrote.

Yet Drucker, as well as others who share his philosophy, would also encourage companies to recognize that, as globalization accelerates and technology spreads, there is an ever-increasing chance—if not an obligation—to both further economic performance and make the world a better place.

“Business, as the most powerful institution in society, must be the instrument of social justice,” management scholar C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid, proclaimed a couple of weeks ago in Vienna, at a forum marking what would have been Drucker’s 100th birthday. At the same time, he stressed “the practical value” of this approach—namely, how 5 billion underserved and unserved people across the globe present an extraordinary opening to carry out what Peter Drucker said was the primary purpose of any business: creating a customer.

Opportunities Everywhere

For many, looking at things this way requires an adjustment in thinking—a lesson David Cooperrider, a professor at Case Western Reserve University, learned when he visited Drucker in 2003, two years before Drucker died at age 95. “Can social responsibility also be profitable?” Cooperrider asked.

Drucker smiled and told his guest that he had it backward: The question is not whether social responsibility can be profitable to a company, but how profitable a company can make social responsibility. “Every single social and global issue of our day is a business opportunity in disguise,” Drucker told Cooperrider, echoing comments he had first made decades earlier. The insight helped spur Cooperrider to launch the Center for Business as an Agent of World Benefit, which is advancing the concept through research and action.

Let’s just hope he resists the temptation to rename his venture the Center for Business as an Agent of Authentic World Benefit.

December 4, 2009