”Performing, responsible management is the alternative to tyranny and our only protection against it” - The Unfinished Legacy of Peter Drucker
After the Cold War, in his 1995 article "Can the democracies win the peace?", Peter Drucker pointed out that history is teaching us that political freedom and democracy follow economic development but “without human rights there is unlikely to be lasting economic development.”
In a modern society, which became a society of organizations, management played a crucial role for Drucker. The development of democracy was reflected for him within the structure of the organizations. In the next society (Drucker 2002), which would be a knowledge society, the organizations will change. Without the autonomy of the knowledge workers and their self-organization, it would become difficult to cope with the increasing complexity. On the other hand efficient organization, which is based on social values, with the everyday practice of its decentralized decisions is the decisive guarantee for a robust democracy, which will always be jeopardized, especially in economic crises.
Drucker's management theory thus went far beyond the economic approach. Management has a social function and is a liberal art. Management is about people and social responsibility. Educated managers are one of the most important instances against the increase in totalitarianism.
In early 1939 with his book “The End of Economic Man” Drucker was one of the first authors who was analyzing totalitarianism as a phenomenon of a society which has lost its belief in the power of economic rationale and on progress. “Central to the Modern Age had been the belief that society could be made rational, could be ordered, controlled, understood.” The tragedy with fascism in Europe, Nazism in Germany and Stalinism in the Soviet Union was the result of a loss of political faith and an alientation of its citizens. In this turbulent time emerged a shift, replacement of “hope by despair, reason by magic, and belief by the frenzied, bloodthirsty violence of the terror-stricken.” The heroic Man replaced the Christian Man. The mutually reinforcing of freedom and equality collapsed. It prepared the ground for mass-suggestion and a willingness for political hysteria.
Management as a social function
Drucker knew what he was talking about. He grew up in an intellectually inspiring Viennese family with a distinctive network. In the salons of his family’s network famous artists such as Elias Canetti, Robert Musil, Oskar Kokoschka or Arnold Schönberg and great thinkers such as Ludwig Wittgenstein, Joseph Schumpeter and Karl Popper came together. As a child and young man he witnessed the disintegration of the Viennese Belle Époque, and the totalitarian collapse of his homeland from London and American exile.
The approach that the function of management in particular is to encourage individuals and to encourage lifelong learning can already be traced back to the early influence of Drucker's teachers Eugenie and Hermann Schwarzwald. The Viennese couple had founded an innovative school and educational institution, the "Schwarzwaldschule", around the turn of the century. The couple encouraged the students to concentrate on their individual strengths. They asked their students to grow beyond their potentials. "Supporting people and challenging them", we would say today. "Genia" (Eugenie) and "Hemme" (Hermann) had already been the teachers of Peter Drucker's mother Karoline. The adolescent Drucker appreciated Hemme's enthusiasm and clear feedback to his students. Clear-cut feedback should become one core task of management for Drucker. Hemme said to his student Peter: „I have always liked your willingness to go it alone and your refusal to run with the crowd, even with ours.“
Drucker's humanist education laid the cornerstone for his later management theory. Managers like teachers, as we know today, motivate best with enthusiasm, inspiration and an animated spirit. They also operate with cognition but far less successfully.
According to the Drucker's paradigm shift, management, in the Socratic sense, is not to say what is to be learned and what is to be done but to teach learning to provide for an inspiring learning atmosphere and for organizational learning opportunities.
From the roots of his inspiring elementary education, Drucker drew the core elements of his breakthrough management model. In his autobiography he points out, „I was at that time professor of management at the Graduate School of New York University – and suddenly whole swarms of middle-aged ex-officers descended on me for advice and help. … I did exactly what Genia had done. I found out what each man had done and could do. I checked out every story. … and I had to be scupulously honest about the applicant’s qualifications and disqualifications.”
Teachers and managers are faced with the same task of using Socrates' insight, "teaching is a gift, learning is a skill." Humans are learning organisms that are "programmed" for lifelong learning. Therefore organizations as learning systems need a leadership that promotes change and recognizes and supports the strengths of its members. Classical-hierarchical organizations with solitary decisions at the top-management level are no longer up-to-date in the complexity era. Appropriate or satisficing (satisfying and suffice, Herbert Simon) decisions can only be made in knowledge organizations by self-organized and autonomous people at the organizational level where the impact on the environment is visible. As Ross W. Ashby already noted, "only variety can destroy variety". Like a winning chess player is supposed to have more variety than his losing opponent. Only if the internal variety is complex enough, the organization can deal with the disorder from the environment.
Executives cannot be seen then anymore as those with skills, but the founders of an organizational culture in which knowledge is shared and everybody is looking for its applicability. If knowledge is withheld (as in corporate cultures with strong internal competition), and if in a knowledge organization inadequate structures and incentives lead to knowledge being hoarded or filtered, no organization survives long-term in the complexity era.
When the society of the organizations was still in an infancy stage, a hierarchical concept was sufficient for the efficient organization, which was primarily profitable with mass products. Drucker's concept of management was a paradigm shift. This is particularly evident when Drucker observed and commented on the models of important economists and their students: „I suddenly realised that Keynes and all the brilliant economic students in the room were interested in the behaviour of commodities, while I was interested in the behaviour of people.“
Drucker is considered by many to be the father of management. His famous landmark is "Concept of the Corporation", published in 1946, with his insights of General Motors and the conversations with Alfred Sloan and middle managers, with whom he was caught between two stools. His colleague and at that time president of the Bennington College, Lewis Jones, congratulated and warned Drucker at the same time: "You're on a highly promising academic career, either as an economist or a political scientist. A book on a business corporation that treats it as a political and a social institution will harm you in both fields."
It turned out that Jones was right. In the academic world, Drucker is still regarded as an outsider. His paradigm shift, management as a social and political function, is ignored there. But in the world of the practitioners of management, however, Drucker came across with an overwhelming resonance.
In the organization, which Drucker anticipated, and which he described in his last book "Managing in the Next Society" published in 2002, the knowledge worker is led to autonomy. Keywords such as holacracy, internet of things, flat hierarchies, integration of millennials refer to the Drucker-triggered debate of a next society and its management. As never before, company success is based on the sovereignty of employees. Practically, Drucker's radically new management models already work. Just look at companies with flat hierarchies such as W.L. Gore & Associates, HCL Technologies, Morningstar, or Buurtzorg. Or go back to the roots of modern production and service companies with group work and Hoshin Kanri - the joint formulation and implementation of goals – they go back to Peter Drucker and the Toyota managers he advised. Not least many German medium-sized industrial champions are experimenting with new models of managing.
Management as a political function
Liberalism and free market economy created the economic basis for a democratization processes in many countries. Currently, just 12 percent of the world's population live in democracies. But democracies do not become self-sustaining. Economic crises are perpetual and democracies get challenged by political frictions. A considerable part of the American white middle class has been exposed to an economic downturn. For a modest standard of living, both partners often have to work full-time. In order to send the children to college, however, loans must be borrowed. The situation is similar in Europe; in some countries the downturn there is even more serious. In some of these countries, nationalist groups are emerging because growing parts of citizens do no longer see their home in the established parties and their free-market approach. The world has also an employee engagement crisis when employees identify less with their organizations, if we follow the Gallup studies during the last years. Many citizens have the impression that the economy is shifting – in contrast to its profiling - not towards an economy with social responsibility but to an economy which is avoiding social responsibility. In many regions of the industrialized countries there has emerged a gap between educated people and workers or parts of the middle class. At the center of criticism is the political elite, but also the economic elite.
Crises, creative destruction and decay are, however, at any time part of modernity and, if we are optimistic, can be the trigger for new functions and sustainable social developments. As sociologist Niklas Luhmann put it: "As in an unintentional perverse effect, it is gradually becoming clear that the crisis is not crisis, but it is society itself."
The precondition for this optimistic attitude is that democracies remain defensive and self-confident. However, many signals indicate that in many of these countries large parts of the population cannot resist the "authoritarian temptation" (Ralf Darendorf).
Populists begin to fondle with the authoritarian models, to confine plural society and diversity, or to build up or save a "state capitalism". Those who have relativized democracy, just in view of the authoritarian challenges, did not understand the lessons of history. Peter Drucker has repeatedly pointed out that a free economic operator cannot be held unfairly in politics, nor are a few elite people able to decide on market opportunities.
In the meantime, the citizens of the more mature democracies cheer seldom when there are achievements of their civil society and the diversity in the economy or variety in culture and new ways of life. The Open Society and its future has become so self-evident that the historical achievements and the persistence to build up this civil society is not seen any more. It is the same with your health, only when you get sick, do you recognize its value.
In "Can the democracies win the peace?" The central concern of his oeuvre is formulated: the most important power that should be advocated to build up the civil society development is management. Only with strong organizations and good management can modern society be enhanced and stabilized.
Daily actions of individuals in organizations that share social responsibilities have been the key to securing and developing the democracies for Drucker. For him, modern organizations are going a similar way as the democracies. When the democracies overcome the dangers of "tyranny of the majority" (Tocqueville) or the organizations overcome the concentration on profitability and bossy or patronizing organizational cultures, they develop a separation of powers in politics or a redesign of their organizational and managerial structures with a sense of giving leeway, feasibility, alliances and autonomy to the knowledge worker.
When once asked why he expended so much energy on the subject of management, Drucker replied in his old age, "because it is important". Management is "the organ that transforms a horde into an organized entity and human efforts into achievements." When an organization is well managed, it contributes to social progress through economic development and social cohesion.
Leadership was based on a moral grounding for Drucker. Decisions should be weighed with regard to the public good.
This essence of Drucker’s management philosophy has been easily missed and ignored in the noisy and faddish management setting. We owe Drucker the insight that the manager's job can never be reduced to an economic function. For Drucker a leader has to be oriented on two poles. Managers contribute to the society by building a powerful organization that stands out in the competition. But this pole must never, as Frank Schirrmacher has pointed out, ignore the other side of the Janus face of the economy. In a non-sustainable economy the uncooperative player acts in a way to maximize his advantage and to minimize any cooperation. His strategy is to be unpredictable and to reject all responsibilities. Uncooperative players, who are also found in Silicon Valley today, are both new and old leading authorities of a future we already know and who tends to destroy their own foundations.
The second pole directs managers to the task of accepting social responsibility within the society. The mission is to build up organizations where management is about human beings. To be a member in an organization is more than just to make a living. People also look for meaning in organization, they want to identify with the purpose of the business. The tasks of management are holistic. Management includes questions such as, "what is the meaning of life?", "Based on which ethical principles do we act and how do we do it?", "Which contributions do we make for the society?"
After years of economic rise and after new demands for an ecologically compatible industry, Drucker urged managers to set a new focus. The economic elite can no longer just be economically legitimized. Apart from the ecological questions, which had rightly gained a greater weight, the central task of management in future would be to feel responsible for the further development and stabilization of a "good society". The social responsibility of management will be to become the main counterweight to authoritarian movements and totalitarianism.
„Performing, responsible management is the alternative to tyranny and our only protection against it.” (Drucker, 1973, pp. x)
For decades, modern society had a period of differentiation and developed a wide range of unknown opportunities in open processes. However, modern society could now enter a phase of de-differentiation and simplification. In some countries of the "free world" human rights and the constitutional state are already under pressure. Its values must be defended. They are not negotiable. And yet economic development without these values is not possible in a long-term view. In his last speech, the German Chancellor Willi Brand reminded us, "Nothing comes by itself. And very little is permanent in our society."
The current populist movements are a warning sign, which must have a resonance in sectors outside politics. The entire civil society with its thousands of organizations have to bring up this issue. For Peter Drucker, decision-makers have the task of giving orientation to people in organizations. Drucker called this a "social ecological" task. The ecology of man is the social world. His balance is maintained by social relations. They determine his ecology. People have a need to give their lives a meaning and to be valued for their actions and actions of fellow human beings. Organizations are concerned not only with results and achievements in competition, but with questions of human nature and social legitimacy. Moral, ethical and spiritual issues also play a role in human ecology. Each organization has to find its own solutions to meet the civil society expectations of its members as well as their customers, clients or other stakeholders.
According to Niklas Luhmann, this task of management could be described as the transformation of the "cultural form" (in "Theory of Society") of an organization. While the organization and its management are more indifferent towards society and social issues and are focusing on the organization's decisions, it is also a matter of allowing communication on "cultural" themes, in which members have lost their connectivity with world’s complexity. Culture as the social memory of a society had the task of establishing an equilibrium. From it, the individual drew orientation and meaning. If, however, there is hardly any certitude of orientation, then cultural memory is losing its function to provide clues. It is thus all the more important for the modern individual to see the “life world” (Mittelstrass) and the cultural form of the organization in which it spends almost half its lifetime. Amidst the small talk in the emotional zone of the company cafeteria, the imbalance of modernity and its virtual reality can be observed. A topic is often, explicit or implicit, how the boss will see the facts.
Luhmann's hypothesis that the communication media today are producing much more sense than the society can currently process, underpins Drucker's injunctions. When in the computer and internet era everything is available much faster and at the same time, the cafeteria communication can build up new (cultural) forms and patterns with which we can find an appropriate connectivity. What fits, what is appropriate and what is not? The future is constantly challenging us with new problems. In the next society orientation will have a shift from balancing to comparability. To learn to adjust continuously to another connectivity will be the cultural form of the future. Sociologist Dirk Baecker points out that our society is in any situation comparable to Noah's Ark: "It collects those who have recognized and acknowledged their helplessness in the Flood. Then the ark set sails and anchors somewhere else provisional. The only thing we must be able to rely on is our mobility."
Drucker’s epigram “I never predict. I just look out the window and see what’s visible—but not yet seen” opens up the communicative vision that management has to irritate the organization routines and enlighten its members to those windows around them.
Management with the focus on a social ecology has to make a revision of its development and education. Executives of today and tomorrow need a comprehensive education in liberal arts in which virtues such as judgment, responsible self-limitation or role-model function are developed and the dangers of de-differentiation, abuse of power and loss of trust are discussed.
Drucker's injunction does not mean that the future of democracies should be replaced by a technocratic, elite-determined variant. Drucker was not looking for an intellectual elite that would renew the practice and philosophy of organizing. He was concerned with a down-to-earth management, on actions with a long-term orientation and dedicated to society. Just as an avant-garde of factories in Europe’s, America’s and Asia’s medium-sized industry that have achieved decades of increasing their productivity, empowering employees and focusing on the value-added process; a social-ecological-oriented management can make a social contribution in the future.
It will be a Herculean task for managers to follow Peter Drucker’s encouragement. However, if important institutions and their leaders behave passively, many democracies are threatening an era under the rule of authoritarian figures who claim to defend Western values, but restore “justice and order” with the surrender of freedom. David Remnick, chief editor of the New Yorker, puts it this way: „To combat authoritarianism, to call out lies, to struggle honorably and fiercely in the name of American ideals—that is what is left to do. That is all there is to do.”
Managers from all sectors, from for-profit, non-profit or public organisations have a deep impact on a civil society. Drucker’s legacy is unfinished. Dedifferentiation, Nationalism, authoritarianism or collectivism can destroy democracies and its economies. Drucker’s legacy should not be frayed.