Drucker Called these Two Organizational Qualities Essential

October '20 | William A. Cohen, Ph.D., Major General, USAF, Ret.

teamwork.jpgDrucker 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 which differed significantly from hundreds of other definitions which focused primarily on results or 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 accomplish 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 and 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 with and met many leaders at all levels of organizations. Some have demonstrated great personal integrity and gone on to great things. Others have demonstrated great integrity and it cost them their careers. And 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 him (or her) for 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 lead an organization successfully.

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 in class as an example, was Julius Rosenwald. Rosenwald was 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 had founded the Tuskegee Institute and University. Washington made Rosenwald aware of the plight of African Americans in America: 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 material all of which were overseen by the Tuskegee Institute and in which Rosenwald became a permanent board member. This continued even after Washington’s death and eventually Rosenwald contributed $4 million towards the construction of more than 5,000 schools, shops and teacher’s homes throughout the South.
Writing 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 its leaders must always do, in fulfilling its responsibility to society, a company must not endanger its being profitable, for a company must be profitable to survive.  If a company practiced social responsibility  such that it was no longer profitable, this was not good 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. On the other hand, the danger of too much oxygen includes vision damage, hearing loss, organ damage,  seizures, and even death. So while recognizing the essential of social responsibility, the leader must not ignore the organization’s need to remain 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 of offering lower prices by purchasing in large quantities and selling them in numerous areas not being served by other retailers and he forecast a win-win for everyone by fulfilling an unfulfilled need. Walmart was remarkably successful and quickly expanded beyond a single original store of the chain.

Walmart exploded outside Arkansas in 1962, and by 1968 throughout the rest of the Southern United States. By the 1980s it was in every state of the United States. By 1990 it was the largest retailer in the U.S. Five years later it built its first stores in Canada and then on to over 11,000 stores in 27 countries and revenues of $524 billion a year.

But an unexpected thing happened 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 wrote that Walton’s class action lawsuits had become so common that they should be termed “business as usual.”

Drucker said that these issues (and this was ten years ago when Drucker was still alive) grew at least partially because though 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, the same action put smaller, especially “mom and pop” merchants out of business because they couldn’t compete with the quantity of products or their prices. Further as geographical areas grew and Walmart dominated the geographical areas they served,  Walmart seemed to assume 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, United Food and Commercial Workers International Union, to stop it from organizing. The Arkansas Supreme Court ruled against Walmart. Then Walmart 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 ten 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 wasn’t Walmart’s fault, and arguably not Walmart's responsibility which was its initial response claiming that Bangladesh factory employees weren't Walmart employees, so they weren’t Walmart’s responsibility. True, but this was irrelevant. They were making Walmart’s product weren’t they? A lot of bad press resulted.

Some geographical areas made it clear that despite advantages they weren’t 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 they affect the image of the organization held of itself by its own members. Throughout history  and right on up to modern times and even in the case of individuals performing any task or facing any challenge, researchers have found that what the organization and its members feels and knows about itself is even more important than what others may think. An organization which 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. Tithing essentially means giving for charitable purposes. Many who have given to good works 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 for an individual is a common theme.

You don’t need to abandon organizational efficiency or profitability. You just need to be ethical and to be socially responsible as a part of good leadership.

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William A. Cohen, PhD
Major General, USAF , Ret., President
wcohen@stuffofheroes.com
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