What Drucker Taught Us about Social Responsibility and Leadership
By William A. Cohen, PhD Peter Drucker, “The Father of Modern Management” was a genius whose interests and contributions extended into many areas of economics and social endeavor as well as both business and nonprofit management. His many contributions and amazingly effective advice and accurate predictions became legendary. Forty years ago Drucker predicted nearly every major change in management that has occurred since. He saw the need for a new name for workers and so he coined one himself that is in common usage today. The term is “knowledge worker” and he predicted that this new class of worker would dominant the workplace of the future. He invented management by objectives (MBO) and showed executives how to approach problems with their ignorance and questions rather than relying on their knowledge and experience. He predicted the tremendous rise in the health care market, yet taught us that while we may not be able to predict the future, we could create it and he taught us much more.
All of his predictions, theories, and exhortations to managers had an important fact at their root. Drucker really cared about people and the society in which they work and live. He spent considerable effort in exploring, analyzing, writing, and teaching ways not only of making workers more effective in the workplace, but also showing how businesses and other organizations could improve the lot of workers as individuals and for society as a whole. Moreover, Drucker recognized that accomplishing this depended on competent, maybe even extraordinary, leadership by managers. He integrated the requirements of leadership which the requirements of fulfilling social responsibilities would demand. Drucker’s Views about Economics and Social Responsibility at the Macro Level.
Peter Drucker recognized and preached that people were not a cost; they were a resource. He was one of the first to do so as an aspect of management. He concluded that considerations for workers in and out of the workplace were the responsibility of the corporate leader just as much as the profits, survival, and growth of the business or organization. Therefore, it should come as no surprise that Drucker wrote and taught us about the social responsibilities of business and how these responsibilities could best be satisfied.
As a result, Drucker, “the Father of Modern Management” was also called a pioneer of business social responsibility. It was said that he had begun to write about social responsibilities as early as the 1940’s and 1950’s. This is incorrect. In his first book The End of Economic Man written in the early to late 1930’s and published in 1939, Drucker had already documented and began to develop his theories of social responsibility. As Drucker saw it, the age of mercantilism in which economics was the only force that need be considered was dead. Although The End of Economic Man was primarily an attack on fascism and Nazism, its very title predicted the end of a society based solely on the economic objective. Drucker even stated that impoverishment, a clear and critical economic issue, was “a far lesser evil” than the complete collapse of freedom and liberties. Drucker went on to write that it was no good pretending that just any policy of social benefits might be “good for business” and could be judged on this criterion and weighed against the economic sacrifice they might involve. He argued that a destruction of economic assets might be socially beneficial and necessary, but it could still be harmful economically. Therefore, we shouldn’t deceive ourselves with “purchasing power” or “spending” theories. Meeting social needs might cost something, but it should be done anyway.
Of course at this point Drucker was analyzing economic and social responsibility at the macro level and there are differences from those elements which became a part of Drucker’s concepts of social responsibility for individual organizations. This early theme of the fading of economics as the sole consideration was continued in 1942 with the publishing of his second book, The Future of Industrial Man. “We have already abandoned the belief that economic progress is always and by necessity the highest goal,” he wrote. While these early writings on the subject seemed to favor the universal importance of social issues over economic ones, Drucker made clear that the first responsibility of management was to produce satisfactory economic results since without this, the organization could not fulfill its social responsibilities.
Drucker Begins to Focus on the Responsibilities of Business and Organizational Leader
In Concept of the Corporation, written after World War II, Drucker continued to develop his ideas about management’s social responsibilities. An entire chapter of this book was devoted to the corporation as a social institution. Since the corporation had power and authority, and as Drucker noted throughout his writing, there can be no authority without responsibility or visa versa, it was clearly implied that a corporation, as a social institution must also have social responsibilities. Were that not sufficient to show the importance to which Drucker attached to this issue, an entire section was devoted to social wants and needs. From then on as he began to view practicing managers as his intended audience, he was increasingly specific about what needed to be done about social challenges by business and those who led business organizations. Eventually he expanded his ideas on business social responsibility to include all organizations. In his first book written focused on managers in business, The Practice of Management, his views were absolutely explicit: “This, however, imposes upon the business and its managers a responsibility which not only goes far beyond any traditional responsibility of private property but is altogether different. It can no longer be based on the assumption that the self-interest of the owner of property will lead to the public good or that the self-interest and the public good can be kept apart and considered to have nothing to do with each other. On the contrary, it requires of the manager that he assume responsibility for the public good . . .”
This and other of Drucker’s writings regarding the responsibilities of the organizational manager for social issues were not written at a time when the idea that business had a social responsibility was unpopular. For the most part, this concept was simply unheard of and not discussed. Few could conceive of why social issues should have any connection with business. If anything it was thought that social issues, if anybody’s task, was the responsibility of government and no one else’s.
Moreover, Drucker’s writings about social responsibility appeared mostly during a period in which the world was either about to go to war, engaged in World War II, or recovering from the war. This was a process with which even the victors were struggling. Britain was a prime example. This country was so weakened that rationing continued to be a necessity and economic recovery was so slow that food continued to be rationed until 1954. In that year meat finally came off the ration list. It was nine years after the war ended.
While business in the U.S. recovered rapidly, the major issue in the U.S. before the Cold War concerned assisting the world’s economic recovery. Few gave a thought about business having a social responsibility, certainly not the managers of business operations. This attitude of business was so obvious, it was satirized in a popular contemporary cartoon strip in the United States, L’il Abner, written and drawn by cartoonist Al Capp. In Capp’s cartoon strip an executive by the name of “General Bullmoose” was the owner of a large fictitious American corporation. Bullmoose’s motto was: “What’s good for General Bullmoose is good for the U.S.A.” This expressed the attitude of most business managers perfectly: whatever the corporation did eventually benefitted society anyway and was therefore responsible. There was no special social responsibility. Drucker thought differently and was one of the few who said so publically.In his autobiography, Adventures of a Bystander, Drucker wrote: “In the complex society of organizations in which we live, the organizations – and that means the ‘professionals’ who manage them – must surely take responsibility for the common weal. There is no one else around who can do it.” In this, he was referring primarily to corporations. His statement even put him at odds with the philosophy of General Motors legend, CEO Alfred P. Sloan, and Drucker had the intellectual honesty to say so. Drucker realized that all organizations, not just businesses, must assume responsibility for social issues. Almost twenty years after Bystander was published, he wrote: “Every organization must assume full responsibility for its impact on employees, the environment, customers, and whomever and whatever it touches. That is social responsibility. But we also know that society will increasingly look to major organizations, for profit and nonprofit alike, to tackle major social ills.” Drucker saw that a healthy organization, be it business or non-profit, could not exist in a sick society. Therefore the management of all organizations, both business and nonprofit, had a self-interest in operating in a healthy society, even though the cause of the sickness had nothing to do with the management or its organization.
Drucker Makes a Distinction between Social Responsibility Approaches
However, Drucker drew an unusual distinction between two differing categories of social responsibility. This was represented by two American businessmen. Drucker considered both of them revolutionary in their concern with the public welfare. One was Andrew Carnegie. Carnegie was a poor Scottish immigrant to the United States who had made millions in the steel industry and had become the richest man in America by the late 19th century. He was the Bill Gates of his day. Carnegie believed that the sole purpose of being rich was to be a philanthropist, to give the money away in worthwhile causes. He was retired at the time he started his major philanthropy and began a crusade of his philosophy to the American public. The money he gave to public causes was from his personal fortune. It had nothing to do with his company. No one can deny that his acts of philanthropy were socially responsible.
The other man was Julius Rosenwald. In the late 19th century as Carnegie began to give away his money, Rosenwald took over a failing business, Sears Roebuck and Company, and built it into one of the largest retailers in the world. Previous to these two individuals, wealthy men had basically spent money building monuments to their achievements. Both differed from their predecessors in spending their money in the public interest and practiced social responsibility. However, there was difference between the two. Whereas, Carnegie responsibly gave his money away from his private fortune for social good, Rosenwald practiced social responsibility as a part of his business, Sears Roebuck and Company. No one else had ever done this previously. The largest part of Sears Roebuck’s market in those days was in agriculture, and Rosenwald spent millions to bring scientific knowledge of this field to his customers, most of whom were farmers. This also benefitted the business as Rosenwald knew that his business depended on the welfare of his customers. One famous example was the 4-H Club movement in the U.S. which taught competency and promoted the prosperity of various aspects of agriculture. Sears Roebuck founded the movement and funded it totally and independently for ten years. Eventually it grew to teach more, focused on youth, was funded by many corporations, integrated locally in more than 3000 local counties across the U.S., and connected to more than a hundred universities for research. Today, the organization serves over 6.5 million members in the United States from ages 5 to 19 in approximately 90,000 clubs. This was the kind of social responsibility that Drucker saw as the responsibility of organizations in the community to initiate.
Both Carnegie and Rosenwald were good men and both practiced social responsibility. However, Drucker made this distinction: Carnegie believed in the social responsibility of wealth. Rosenwald believed in the social responsibility of business. The social responsibility of business was something truly something different and a notion that was totally new and different even from philanthropy. Drucker firmly embraced it. Drucker’s concept of business social responsibility incorporated that of Rosenwald’s, and it was indeed revolutionary. Drucker credits Rosenwald with being the first to put business social responsibility into practice in the United States, but there were corollaries to the basic concept which Drucker developed and promoted and which remain revolutionary, and some would consider radical, even today. These are his lessons.
The Drucker Difference
Peter Drucker differed with most of those who thought and wrote about the social responsibility of organizations. His corollaries to the basic concept were in six separate areas: 1. The inability of government to solve social problems. 2. The important caveat concerning an organization’s implementation. 3. The unlimited liability clause. 4. The ethics of social responsibility. 5. The opportunities for competitive advantage in social responsibility. 6. The critical importance of leadership.
Government Can’t Do It
Drucker analyzed the issue and found increasing disenchantment with government’s ability to successfully initiate or successfully implement social programs. Although Government coordinates 4-H activities today, it was business, Rosenwald at Sears Roebuck, who initiated and developed this concept. In 1984 Drucker noted: “There is now no developed country – whether free enterprise or communist – in which people still expect government programs to succeed. He stated a number of reasons for an increasing failure of government to assume responsibilities for social problems and to be successful in achieving worthwhile results.
First, he stated that there simply weren’t enough first-rate people to do the job while government was already involved in many other areas requiring the scarce human resource of highly talented people. Drucker noted that the men behind two of the most successful social programs in the United States, Arthur Altmeyer, the father of the U.S. Social Security Program and David Lilienthal, builder of the Tennessee Valley Authority (TVA) had both written independently that at most there were a sufficient number of highly qualified people in any single country to accomplish only one major social program at a time. Drucker pointed out that in four years President Johnson’s Administration had tried to accomplish a half a dozen major programs simultaneously, including “the War on Poverty,” while fighting a major overseas war. No wonder these efforts had stumbled!
Drucker felt that the time factor did not favor social programs for government either, since elections demanded immediate results for an administration implementing them, whereas the history of social programs indicated that the time required for a social program to demonstrate results could be twenty years or even longer. Furthermore, for political reasons unsuccessful government programs were rarely abandoned, but instead budgets and human resources were increased significantly to try and make them work. This drained limited resources and resulted in tremendous waste. As Drucker pointed out, these wasted resources might profitably have been employed elsewhere for the benefit of society.Worse, Drucker said that government was hampered in its ability to experiment before committing major resources. Previously successful governmental programs started small, usually locally in cities or states and then were fine-tuned or dropped. This is how he recommended any new social program be started. However, the politics of today changed all that. Unlike earlier governmental social programs begun in the Great Depression of the 1930’s, new programs had to be initiated nationwide right from the beginning. There was little chance to work the problems out before going national and committing major resources. Drucker wrote that anything new had a guaranteed rate of failure.” Differing conditions in modern times meant that even programs that succeeded in the past shouldn’t be viewed as models.
Possibly the overriding reason for Drucker’s belief that government did not have the ability to take on social problems was that government, by necessity, served too many constituencies. This made it extremely difficult, if not impossible, to set specific goals and objectives, since powerful constituencies had different goals, and different values. Frequently their goals and objectives are mutually exclusive. Without specific goals and objectives that are agreed upon, any social program was hopeless from the start. For years I’ve written that you can’t get “there” until you know where “there” is. Drucker saw that when seeking to solve social problems, government is frequently confronted with conflicting “theres” which cannot be easily resolved.
Social Responsibility by the Government Gone Wrong
Various aspects of the U.S. Welfare system provide an important example. Started during the Great Depression of 1929 – 1941, the idea was to help the poor and enable them to persevere during this time of extreme economic trauma. However, once started and successful or unsuccessful, it is extremely difficult to terminate any government program of social responsibility,. Moreover, their initiation provided the motivation for ever increasing attempts to assist society and each presented problems confirming Drucker’s criticisms and cautions regarding the limitations and dangers of government management in these areas.
As the U.S. came out of the depression, the most common form of welfare payment was rendered through a program called Aid to Families With Dependent Children (AFDC). This was originally designed to help children whose fathers had died. However AFDC evolved into the main source of regular income for millions of poor American families to the extent that it began to encourage out-of-wedlock birth, especially among the teenage poor.
Finally even many who had previously supported these programs were forced to recant. In his 1992 presidential campaign Presidential candidate Bill Clinton promised to "end welfare as we know it." By 1995, an unmarried woman with no income could have a child and receive on the average, depending on need, as much as $688 per month. One factor determining need was the number of dependent children. So the more children these teenage women could have, the greater their income. Increased benefits correlated with an increase in unwed teenage pregnancy. For many poor, having children was perceived as a source of income and an alternative to work. The government, in attempting to assume social responsibility in this area was not only failing, but encouraging teen pregnancy and the breakdown of the family, discouraging work, and was accustoming generations of poor to living on welfare as their sole source of income. It goes without saying that the program was doing little to reduce poverty. In 1996, a new law replaced AFDC with local programs financed by federal grants. The new law limited lifetime welfare assistance to five years, required most adults to work after two years on welfare. It did not solve the problem, but it did lessen its impact.
Assuming Responsibility with an Important Caveat
If the effort to achieve a positive benefit resulted in harm to the organization initiating it, this is not socially responsible, regardless of the good intent. According to Drucker, the organization’s first responsibility is always to its own mission regardless of other factors. On the business side, the first “social responsibility” of business is to make a profit sufficient to cover operational costs in the future. The logic in this is that if the organization failed in its own goals because of misallocation of time, resources, or personnel in attempting to fulfill a particular social responsibility, not only would it be prevented from solving any particular social problem, or future social problems, but would fail society in the organization’s main mission as well. Once the organization failed in its primary mission, there was no need for it and it would go out of existence. So if this basic “social responsibility” of fulfilling the organization’s purpose is not met, no other “social responsibility” can be met either. This was controversial when conceived by Drucker and is still controversial today. Advocates for various causes frequently demand and pressure organizations to resolve social issues or solve social problems which are totally outside the organization’s area of expertise or ability to comply. These demands are made even though the actions desired by these groups, if adopted, would hurt the organization of which the demand is made and in some instances, society as well. Failing to take the action desired, these organizations are sometimes termed “greedy” or “unethical” or worse. Health care provides an important example since it so clearly of societal, worker, and company benefit. Moreover, the costs of health care are rising substantially. Few would deny that health care has become, not only a general social responsibility of business in the United States, but expected by employees of most business and other organizations. It is also abundantly clear that providing health care may help the organization through keeping employees healthy and presumably more productive. The problem is how much and what kind of health care? Health care costs, mainly due to administrative costs, are rising to such a degree that an advocate for reform of the nation's health care system reported that medical bills will become the number one cause of bankruptcy in America if administrative costs were not curbed. So despite needs, demands, and the clear benefits of the best health care possible costs must also be considered.
This isn’t just true for business. The U.S. armed forces once provided complete health care not only for military members, but also for dependents, spouses, children and dependents of those serving. Moreover, for those retiring after a minimum twenty-year career, or retired due either to service incurred injury or ill-health, this care was for life. However, eventually even this giant organ of the U.S. government could no longer afford the cost without compromising its mission and the care provided after leaving the military was significantly reduced.Drucker recognized that while non-governmental organizations were to assume responsibilities for solving social problems, this was to be accomplished with an important caveat: they must above all do nothing which would impede their own capacity to perform their obligations, whether in mission or in profits.
The Unlimited Liability Clause of Unintended Results
Drucker taught that good intentions were of themselves not necessarily socially responsible. This of course is true of accepting social responsibilities which hurt the organization’s ability to accomplish its mission and we saw this in the preceding section. However, it is more common, and even more serious, for organizations to take actions with the intent of improving a social condition only to have the result be tremendous and unintended negative impacts.
An unlimited liability clause means that the organization taking the action assumes the responsibility for the outcome, no matter what and into the future. In his writings Drucker related the sad history of a Union Carbide plant, built by the company with the very best of intentions. Union Carbide is one of the oldest chemical and polymers companies in the United States. Seeking to fulfill its social responsibilities, it decided to locate one its new plants in a depressed area where unemployment was a major social problem. For various reasons, the area was uneconomical for manufacturing, and probably always will be. Nevertheless in 1951, Union Carbide opened one of its most up-to-date plants in a small isolated town and instantly created 2000-2500 new jobs. It even installed the latest anti-pollution equipment which trapped 75% of the ash from its smokestacks, at a time when trapping 50% was the best anyone could achieve. Union Carbide was a big hero when the plant was opened. However, its hero status did not last.
Ten years later the country had become much more aware of the dangers of pollution. A new city mayor was elected on the platform, “Fight Pollution.” The only pollution came from the Union Carbide plant. Union Carbide defended itself vigorously with the citizens, the state government, the federal government, the environmentalists, and the media. After all, the plant was barely economical and Union Carbide had only established the plant as a part of its social responsibilities. Its good intentions were done at considerable cost to the company. It never intended to be a polluter and had even used the latest anti-pollution equipment. It made little difference. The federal government made threats, and Union Carbide received little support from anyone, including those in the town who had benefitted. Even the friendly business media did not support Union Carbide. Business Week published an article in February 1971 under the title, “A Corporate Polluter Learns the Hard Way.” In frustration and retaliation Union Carbide announced that the plant would have to be closed as it could not be brought up to environmental standards and remain economically feasible. Too late! Union Carbide was criticized for this decision also. Public opinion forced Union Carbide to keep the plant open at great cost to the company. Drucker’s conclusions were that Union Carbide could have avoided a lot of its problems by simply accepting responsibility when pollution became an important factor, but primarily that the plant should never have been built in the first place. Its location insured that any kind of plant built in the area would be uneconomical.
More recently, none other than the world’s largest retailer provided an example of this unwritten, but expected, unlimited liability clause. Most advocates and consumers view high prices as a social responsibility which must be addressed and reduced. Sam Walton recognized this need and in the process built his company Wal-Mart into the world’s largest retailer. Of course, Walton didn’t seek low prices for reasons of social responsibility alone. He recognized that low prices were wanted by the consumer and sought them as a competitive advantage. By focusing on the low prices demanded, Walton transformed retailing. And much of what Wal-Mart did by adopting this as a business strategy had a positive social impact. For example, Wal-Mart's made the decision early in its corporate history to save costs by the elimination of paper packaging for personal products. That single decision helped to save millions of trees globally. It changed how manufacturers packaged and sold their products to retailers and it saved labor and waste. Through Wal-Mart’s rigid low margin, big quantity purchasing, it forced its suppliers to alter its own environmental and cost saving practices and a focus on low pricing.
Unfortunately, for the company, there were unintended results for which Wal-Mart was held accountable. The same strategies which brought profit, success, and cheers from customers earlier, also eventually brought worldwide legal problems, governmental interference and bad press. Although Wal-Mart sought to build away from cities where competitors were not located, years later, the cities grew and expanded. As a result Wal-Mart was accused of forcing out smaller local business which could not compete with Wal-Mart’s low prices. Also Wal-Mart kept prices down partly by closely controlling the pay and benefits practices of its employees. Suppliers who felt obligated to deal with the colossus that Wal-Mart had become accused the company of squeezing them into to bankruptcy. Other studies claimed that Wal-Mart’s practices had forced jobs into overseas markets to ensure low prices.
Drucker taught that impacts are inevitable. So the first thing that needs to be done to be socially responsible is to minimize them and not to do foolish things in the name of “doing good.” Once again we must “look out the window” to observe what is likely to happen as a result of our actions and to note both intended and unintended results. The same kind of gathering of facts, analysis, trade-offs, and thoughtful planning needs to be done as with any major investment of time, resources, and personnel for the organization’s primary mission. Potential impacts must be identified and analyzed. Potential negative impacts, or impacts which could negatively impact on the organization’s primary mission should be dropped, or at least minimized or the decision made not to go forward with the particular action no matter how potentially beneficial in supporting the social responsibility of the organization. Union Carbide should never have opened the plant in the poor location they chose in the first place.
The Ethics of Social Responsibility
Ethics has to do with doing the right thing. At times the right thing is very clear. The Korea Power Corporation (Kepco) is Korea’s biggest public utility company and provides a good example. The company responded to the difficult problem of children that have difficulty expressing themselves or with a disability frequently become stray from there homes and are missing, sometimes indefinitely. Kepco has been working with the Korea Welfare Foundation to help solve this problem. Every month photos of three missing children along with contact information are printed on the company’s monthly electricity bills sent to customers. In addition the information is included in the company’s bi-monthly magazine. The program has proved remarkably successful. As a result of the extensive publicity achieved with this approach more than 40 percent of the children have been returned to their parents. One could say the whole business of social responsibility has to do with doing the right thing. The problem, as Drucker noted, is that the “right thing” in dealing with social responsibility is not always clear. Drucker pointed out that casuistry which he called “the ethics of social responsibility” by itself simply wouldn’t work.
Casuistry has to do with the application of general principles of morality or ethics to specific cases of human activity, for the purpose of determining what one ought to do, or ought not to do. That is, social responsibility in this case is to serve the higher good. The problem as, Drucker stated, was that casuistry doesn’t always work. Drucker cited an example both in a class and in a book. The case had to do with an American company, Lockheed Aircraft. Senior Lockheed executives paid bribes to members of the Japanese government in exchange for subsidizing the purchase of the L-1011 passenger jet for All Nippon Airways. As a result Lockheed Chairman Daniel Haughton and Vice Chairman and President Carl Kotchian were forced to resign from their posts in disgrace early in 1976. They gained nothing from the sales of the L-1011 in any way. Why did these two Lockheed executives commit such a stupid act?
In the years 1972-73, 25,000 Lockheed employees faced a significant threat of unemployment after cutbacks in the U.S. government order of military aircraft and missiles. Because of delays due to difficulty with the foreign supplier of the L-1011’s engines, All Nippon Airways was the only major airline which had not already made a commitment to purchase a wide-body jet from a competitor. If a major contract could not be secured for the L-1011, many jobs at Lockheed would have been lost.
The two executives gained not a cent in monetary or any other advantage from their act which was committed solely to help workers and in the interests of social responsibility. Had Lockheed simply abandoned the L-1011, instead of paying the bribe, stock price analysts determined that company earnings, stock price, and bonuses and stock options for the two Lockheed executives involved would have substantially increased. Everyone knew that because of the delays the L-1011 was a loser and could no longer make money. In fact the project never made any money despite these and other sales. But according to a casuist, the action of the two Lockheed executives of paying the bribes was an ethical duty and the higher social responsibility.
Drucker struggled with the concept of the ethics of social responsibility. He did not find an exact solution which would cover all contingences. He did feel that several basic Confucian concepts provided general guidelines which would meet the requirements of the ethic of social responsibility. These were:
Finally, Drucker gave us one general guide in applying the difficult task of ethics to social responsibility. It is in Latin: “Ethics and integrity should be measured primarily by the oath of the Greek physician Hippocrates - Primum non nocere – First, do no harm.”
The Opportunities for Competitive Advantage in Social Responsibility
Today social responsibility is the “in thing.” Many corporations have entire departments to encourage social responsibility, look at company actions causing negative actions which need to be attended to, uncover opportunities, and develop and run social responsibility programs. It is easy to forget that this was not always so, and that once, even Alfred P. Sloan, General Motors legendary CEO, claimed that social responsibility was not the responsibility of business and that the two should remain completely and forever separate. In one of the very rare disagreements from Sloan’s management precepts, Drucker proclaimed that fulfilling social responsibility was not only a duty but could result in competitive advantages for a company far and beyond mere public relations with the general public or customers. As Drucker saw it, even a company’s negative impacts could and should be examined and if possible to turn something that the company was doing that was causing harm into something positive. He saw that in the early 1920’s DuPont, a major chemical industrial company, set out to eliminate some of the poisonous and unwanted side products of its manufacturing. In the process it invented a new system of toxin control which was so successful that it developed it as a separate business. DuPont was not alone. The Dow Chemical Company, another leading U.S. chemical firm, identified air and water pollution as problems that the company was causing. This was long before environmentalists began to protest the harmful impacts that American industrialists were causing to the environment. On its own, and without coercion, Dow decided to do something. It not only adopted a zero pollution policy for its manufacturing facilities, but focused its considerable research muscle on turning pollutants, including smokestack gasses, into salable products which it was able to sell profitably.
Julius Rosenwald, became first vice president and treasurer, and then president of an ailing and unprofitable Sears Roebuck and Company in 1895. Under his leadership, sales climbed from $750,000 a year to over $50 million. Yet, Rosenwald invested a lot of money over the course of his life for society. This included 70 million dollars for schools, colleges, and universities and included endowing the famous African-American Tuskegee Institute in 1912 at a time when prejudice was more in vogue than equal opportunity for American minorities. Although he implemented the many policies of social responsibility because it was the right thing to do, he also saw that the welfare of the company was primarily based on the knowledge, skill, and wellbeing of the company’s primary customer, the American farmer. Accordingly, Rosenwald’s social responsibility had a dual purpose. It not only helped people, it built Sears Roebuck’s customer base and developed its market. Within ten years the company went from near bankruptcy to the largest merchant in the world and one of America’s most profitable and fastest growing companies. Social responsibility was a major competitive advantage!
Handling the issue associated with workplace diversity has been a major issue of social responsibility for many years. This is true not only in a multi-cultural society like the United States, but because of the growth of multi-national corporations and globalization, it is a major requirement for any organization with dealings outside of its own cultural boundaries. There are specific advantages unique to diversity which overall constitute a major competitive advantage. These include:
One example is IBM. IBM’s original approach to eliminating discrimination was to simply ignore cultural, racial, and other differences among its worldwide workforce of more than 150,000 employees. When Lou Gerstner became CEO in 1993, he dropped this concept and initiated a diversity task force with a different approach and a different objective. The new objective was to uncover and understand the differences among the groups making up the IBM workforce and the markets they served. Then the task force was to use what was learned to find ways to appeal to a broader set of employees and customers. It worked and understanding and its using its diversity became a major competitive advantage for IBM. As a result of Gerstner’s initiative the number of female executives in the company grew 370 percent and the number of ethnic minority executives increased by 233 percent. All of this had a major effect on bottomline profits. It led to efforts to develop a broader client base among businesses owned by women, Asians, African-Americans, Hispanics, senior citizens and Native Americans. This in turn resulted in a dramatic growth in revenue in the company's small and medium-sized business sales from $10 million to hundreds of millions of dollars in just five years. Not only American companies have secured significant competitive advantages through social responsibility initiatives. Toyota introduced the Prius, a hybrid electric/gasoline automobile after experiments to control harmful emissions. The vehicle it developed reduced emissions to 10% of what was formerly acceptable. At the same time, the Prius’ gasoline consumption decreased by as much as 50%. This put Toyota so far ahead of its competitors that other automobile companies licensed Toyota’s technology. At Toyota itself, the system is a feature on more than one million vehicles sold. Through social responsibility as a competitive advantage, Toyota surpassed General Motors as the world's largest automaker.
The Critical Importance of Leadership
Drucker knew that nothing could be done effectively about social responsibility without good leadership at the top of the organization. Without Rosenwald’s leadership, there would have been no example to follow of social responsibility at Sears Roebuck. More than fifty years ago Drucker wrote in his first book devoted entirely to management: “Leadership is of upmost importance. Indeed there is no substitute for it.” He believed that an organizational leader was responsible for everything his organization did or did not do. Although he wrote no book specifically on leadership, this subject ran through all of his writings and teachings. In an article in The Wall Street Journal in 1988 Drucker outlined several requirements for effective leadership. These included thinking through the mission, goals, and objectives of the organization and developing the plan for reaching them, acceptance of responsibility above personal privilege or wellbeing, and above all integrity. These concepts were repeated in a book in 1992.
I had not read Drucker’s article when I began my own research regarding the application of battle leadership to business and other civilian organizations. Although, my research probably had its beginning with Drucker. He wrote that the first systematic book on leadership was written by Xenophon more than two thousand years earlier and was still the best. When I read Xenophon, I discovered that Xenophon had written at least two books with numerous leadership lessons and that Xenophon was a general and that he wrote essentially about battle leadership.
Having not read Drucker’s article was probably beneficial in the end as it allowed me to confirm his concepts independently. My research was complete by the late 1990’s and I reviewed it with Drucker at a lunch we had together in the fall of 1997. I completed surveys and interviews with more than 200 battle leaders of all ranks and different military services who had gone on to extraordinary success leading other organizations once they had left the military. I wondered if they had learned principles during their military careers which had helped them to success as civilians. Surprisingly, most of their responses boiled down to only eight categories. I called these “the Eight Universal Laws of Leadership.” The idea was that leaders in all organizations could use this information to help them to lead. Drucker was very enthusiastic about this project and encouraged me in my intent to publish my research in an applied book for managers. The resulting book was The Stuff of Heroes: The Eight Universal Laws of Leadership (Longstreet Press, 1998). It was on the Los Angeles Times best seller list, though the book is now out of print.To get some idea of Drucker’s feelings about leadership, I would like to share his responses to each “law” at the time that I showed them to him in 1997. You’ll note the similarity in many instances to his principles.
Conclusions
Professor Drucker is no longer with us. Fortunately his spirit lives on in the tremendous impact he has had and what he taught us about management and how we practice it. He thought, taught, and exhorted managers of all types regarding social responsibility for over seventy years. These lessons have stood the test of time. They require us to think and the courage and effort to take action. As always, Drucker’s lessons are simple, but they are not always easy:
Those who follow these Drucker ideas will not necessarily have an easy time, but the contributions to the organizations of which they are members and to society will be of immense benefit and will help to build on Drucker’s visions and commitment.
1. First and foremost, each enterprise must be a strong contributor to a collectively resulting healthy society – without a reliable and sustainable economic engine, the society is one of despair, not hope and opportunity. 2. In doing so, the enterprise must create a healthy, motivated, and proud community (or society) of workers, where the individual worker is respected and the “whole” of the collective group of workers is greater than the “sum of its parts”. 3. The enterprise must also take full responsibility for mitigating the “by-products” or “social impacts” of its operation – such unintended by-products include air and water pollution, consumer waste generation from excessive packaging of products, land degradation from mining, sourcing from locations where workers are underpaid and/or underage, etc. Mitigation costs money, so the enterprise must build this need into its financial model without penalizing the consumer for these costs. 4. Finally, because of the success of business (and perhaps, the cumbersome bureaucracy of many governments), corporations are being called on to tackle “social problems” that exist independently of the domain of a given enterprise. Such problems would include poverty, malnutrition, obesity, widespread diseases, human rights violations, global warming (a problem that the social impacts of business have clearly contributed to), etc. Here, there is much that businesses can do, especially when they parse the challenge into opportunities that are consistent with their purpose and strategy. However, in doing so, management has to be very careful to not take on problems beyond its competence and to not inadvertently take accountability away from government and other organizations whose special purpose is to solve social problems.
