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the man who invented management

Peter Drucker pioneered the study of management as a discipline. The very fact that we are discussing adding strategic value and getting closer to business colleagues is a direct result of his work. Catherine McGregor explores his relevance to GCs and legal departments.


W H A T   P E T E R   D R U C K E R   M E A N S  T O   G C S

CATHERINE McGREGOR

EDITOR-IN-CHIEF
E-mail Catherine

Businessweek gave Peter Drucker the moniker “the man who invented management”. He has long been considered one of the most influential management thinkers, and each year his namesake the Drucker Institute hosts a conference in Vienna that continues to attract the cream of business thinkers and leading CEOs. Legendary CEO Jack Welch of GE was highly influenced by Drucker’s work as were other major companies such as Ford, Dell and Toyota. Recently it has been suggested that many of the tech industry’s new generation of CEOs are also looking to Drucker’s thinking to inform their strategic direction. Mark Zuckerberg reportedly consulted many of Drucker’s principles in building Facebook from a start-up into the global brand it is today.

We know that many of you, our readers, increasingly see yourselves operating at the management and business nexus rather than solely as lawyers. But how relevant are Peter Drucker’s insights to an in-house legal department? We asked some GCs to consider how Druckers’ thinking relates to what they do.

Drucker’s first book, The Concept of the Corporation, was written in 1945 and is an account of how General Motors was organised and run. In it, he explained the concept of decentralisation and why he felt it was key for modern businesses. Drucker believed that decentralisation was fundamental to the success of corporations because it allowed people to feel that their contribution mattered and allowed them to grow as workers and executives. GM didn’t like the book, but it became very popular in Japan and by the mid-eighties, decentralisation was the buzzword in US companies and globally.

After defining the concept of management, Drucker went on to tell people how to practise it in The Effective Executive. This book employed what became a theme in Drucker’s writing, where he asks some very basic questions about what a business is and should be. He posited that all businesses need to have a sense of purpose, and that purpose should not be merely profit. Organically linked to an organisation’s sense of purpose is its culture, which Drucker felt was more fundamental than its aims or strategic objectives. Indeed, without an essential macro sense of purpose and culture, companies cannot really come up with the right aims and strategies.

For Drucker, a company’s purpose must lie in society, “since business enterprise is a function of society.” He goes on: “There is only one valid definition of business purpose – namely to create a customer.”

A road map for managers – a blueprint for leaders

Drucker was the first person to set out a practical road map for managers to function effectively in their roles. The building blocks still resonate today and echo how many general counsel describe the way they run their departments.

  • A manager sets objectives.
  • A manager organises.
  • A manager motivates and communicates.
  • A manager measures results.
  • A manager develops people including themselves.

Drucker draws a line between managers and leaders, however, stating that “management is doing things right; leadership is doing the right things.”

Faris Alsagoff, general counsel and founder of the legal function of Marina Bay Sands in Singapore, feels very strongly that the successful trajectory for a GC involves being a leader and not merely a manager. For Faris the distinction hinges on how you treat your team: “Successful leadership often boils down to your personal relationship with your team members and how you motivate them. My view of leadership has been that a leader is only as good as their team.” And yet, he adds: “Some people forget that. But once you lose sight of that you stop being an effective leader.” Transitioning from management to leadership, says Faris, involves “understanding your team’s needs and ensuring that they feel supported and motivated. Really it’s a case of being down in the trenches with them, not merely barking orders from above.”

forcedlabour

Mark Jenkinson, head of legal for Petroleum Geo-Services’ Asia Pacific business based in Singapore, recently completed an MBA and is a fan of Peter Drucker’s work (he even has one of his quotes taped to his computer). Drucker’s notions around managing by example and objective, as well as being embedded in the big picture and company strategy seem pertinent to Mark, particularly Drucker’s views on the subtle distinction between management and leadership. As Mark explains, “while effective leaders also need to do things right, and effective managers also need to do the right things, Drucker’s logic is unarguable. A leader should be ‘big picture’, paying attention to macro factors relevant to the whole business in formulating strategies which ensure the business does all the right things necessary to effectively navigate the prevailing wider climate.”

A sense of purpose

Mark sees Drucker’s notions of decentralisation and the need for the business to have a sense of purpose as key tenets for both himself and his team. For his own function, he makes a distinction between the roles of manager and leader: “Management is focused on ensuring the implementation of the strategy is done right. In my role as the head of a small regional legal team, as a leader, I need to ensure that my team prioritises work in the organisation’s key areas for strategic growth (such as asset-light investments); whereas as a manager, I must ensure that my team perform such work effectively and efficiently.”

Global perspectives

A hugely prophetic prediction of Drucker’s was his theory that the world would move to a global economy and that companies could not afford to think locally. The truth of this can be seen all around us. The challenges of globalisation are very keenly felt within legal departments, as teams often co-ordinate on a pan-regional or even a completely global basis. Most of the compelling challenges that companies are dealing with on the legal front are without borders, such as regulation, anti-corruption, data protection and privacy. But for legal departments and for companies generally, it’s a delicate balancing act between these overarching global concerns and distinct local issues.

The need to maintain this equilibrium was something that Drucker saw as a trait of modern business – “the need to operate in both a global world economy and a splintered world polity.” Linked to his theory of globalisation was his maxim that companies need to change and keep their ideas and the way they implement those ideas fresh. Drucker stated that, “if you want something new, you have to stop doing something old.”

Mark Jenkinson agrees and sees it as indicative of the balancing act between the global and the local perspectives performed by those operating in economies like Asia. “When a company introduces a new strategy or implements organisational change, the strategy or change will encounter road blocks if the whole organisation is not prepared to embrace it,” he says. “This means not only adopting the new way of working but also ceasing the old way of working.” Letting go of old methods is easier said than done however, in Mark’s experience. “For many companies, the latter proves to be the real challenge. I worked through an organisational restructuring several years ago when the existing regional localised control structure was changed to a business unit-focused centralised control structure,” he explains. “While the new structure was logical and comprehensively rolled out across the organisation, the seeming inability of many individuals to stop working in the manner they had become accustomed to led to duplication of efforts and left other responsibilities unmanaged. It meant that resources were dedicated to resolving these problems, which could have been better employed elsewhere in the company.”

Why Peter Drucker?

We asked management guru Paul Hughes of Cranfield School of Management to distil Drucker’s importance for students of business.

Compared to other disciplines, management science is a field in its infancy. But despite its tender age, it has been growing in a time where many a great many can become “gurus” very quickly. Yet one name towers above them all and retains a credibility that, although perhaps not quite in the Aristotelian or Socratic vein, is still pretty impressive. That name is Peter Drucker. Even if you haven’t heard of Peter Drucker you’ve probably heard of his work or writings. His 39 books have been translated into 36 different languages. He was a prolific contributor to Harvard Business Review and his work permeates the language of business to a huge degree. Rub shoulders with anyone who’s had even rudimentary management education and you may come across terms such as “management by objective”, “knowledge worker”, “command and control”, “decentralisation”, “human assets”, “innovation” and “outsourcing”. They are all terms that are directly from, or are a clear evolution of his research into management and organisations.

“Okay,” you may say. “So he had an impact on management ‘speak’, but what impact has he had on management ‘practice’?” Good question. He was a pillar of New York University Stern School of Business for many years before relocating to California in 1971 to the Claremont Graduate School [now Claremont Graduate University]. His approach influenced corporate heads from the ‘60s onwards. His works underpinned management teaching throughout the latter half of the 20th century. And they still do. His name is still the most referenced, even in textbooks being printed now. Oh, and he predicted the glut of privatisations that have set the tone for the last 40 years in European politics and industry in his book The Age of Discontinuity – so you can add “governments” to the list of those he has influenced.

Aristotelian or Socratic he isn’t quite yet. But he’s only been dead since 2005. Come back in a few centuries and I suspect like these figures, “Drucker” will no longer be a name but an adjective. That’s impact.

A culture of compliance

A key Drucker critique of companies is that they base all microeconomic theory on price, viewing that and value as the key determinants of what they do and how they do it. This seems especially germane to the notion of the legal department as a cost centre which needs to demonstrate its value to the business. “What exactly are the lawyers there for? Why do we need an in-house legal team?” are commonly heard questions. But a company that defines itself not purely in terms of profit or loss but in terms of culture, purpose and the idea of the global customer will not ask those questions; rather it will see the legal and compliance functions as being integrated parts of the organisation’s culture and areas which constitute its very lifeblood.

For global outsourcing company Genpact, a “culture of compliance” has contributed to organic and rapid growth. European general counsel Orijit Das explains: “What we peddle is data. What flows through our pipes is not water, it’s not crude oil, it’s data. With 66,000 people across the globe, how do we make sure that we are compliant? We can’t police all 66,000 of our employees, but we can create a culture of compliance which makes people want to comply.”

forcedlabour

This segues into another of Drucker’s hypotheses – that of respect for the worker and an appreciation of the knowledge economy as the key driver in business. According to this view, every worker is an asset, and so the perception of the lawyer as a cost centre is alien. For the Genpact team, the company culture has been fundamental to building a strong and stable legal team which has then been able to deliver the culture of compliance across the business. That is a culture based firmly on trust and respect, says Orijit. In his 1959 book The Landmarks of Tomorrow, Drucker anticipated that the arrival of knowledge industries would produce new types of workers. One of the greatest challenges for management would be finding these knowledge workers and keeping them motivated. These problems are all too familiar to many of our readers running teams and legal departments. In Genpact it has been a question of building a culture that allows lawyers a working environment based on outcomes, and encourages the team to work as they choose, not as cogs within a predetermined pattern. As Orijit describes the working culture for the legal team, we are reminded of Drucker’s blueprint for motivating and retaining knowledge-based workers via a strong company culture and outcome-based management, as opposed to an inflexible and prescriptive model: “Coming from another large technology company, I was surprised at how trusting Genpact was. Sometimes people confuse trust with a lackadaisical attitude. It isn’t that, it’s a very smart company and we figure out very quickly who is adding value and who isn’t. Each of the lawyers has their own projects, their own clients, their own stakeholders. If they are successfully managing their clients, stakeholders and projects, I don’t care if they are in the office or sitting on a beach,” he explains. And, he adds, “what makes Genpact so successful is that this culture and attitude is a tone which is set right at the top, where the global general counsel, and his manager the CEO, follow the same principles.”

Culture eats strategy for breakfast, lunch and dinner

One of Drucker’s most quoted maxims is “culture eats strategy for breakfast.” There’s some doubt as to whether Drucker actually said this, but it does seem to embody the crux of his thinking: that the big picture is most important for companies, and a sense of purpose and value is what produces the type of global knowledge worker most needed. Mark Jenkinson agrees that culture is definitely the defining aspect of what makes a company work: “No matter how well-conceived a strategy may be, if it’s put into practice without due regard to the prevailing organisational culture(s) it risks falling flat on its face, as it may not attract the necessary buy-in from those intended to implement it,” he explains. And there is plentiful evidence of this, he adds. “Corporate history is littered with examples of failed M&A and joint ventures, a significant proportion of which were due to an inability to equalise conflicting cultures of the previously distinct entities.” Mark recalls putting together a strategic joint venture between two oil service companies in Indonesia: “One partner had a locally registered entity necessary to operate, but needed the other’s vessels and equipment. The partner with the equipment needed the other’s locally registered entity to operate (the requirements to set up its own entity being rather challenging).” A logical strategy in theory, surely? A contractual joint venture was set up, and the partners commenced bidding for projects as a consortium. “But,” says Mark, “no bid was ever submitted, due to mismatches in their respective cultures, one being much more risk-averse than the other, which inevitably led to impasses on the final bid content. The strategy failed.”

Risk Management

A belief that taking action without thinking is the cause of every failure, is another Drucker concept which seems relevant to the risk management responsibilities of today’s in-house lawyer. Indeed, as we explored in our whistleblower feature (see GC Winter 2014 issue), many of the worst excesses of the financial services industry post-Lehman resulted from actions that were inadequately thought through, and driven by profit, not greater purpose.

On the other hand however, for Drucker, the glass was half full: “Results are obtained by exploiting opportunities, not by solving problems.” This might encapsulate the dilemma faced by in-house teams battling to balance risk and reward. There is often a learning curve for both the legal and the business teams, which involves revisiting the overarching purpose of the business. Leslie Zhang, in-house counsel at China National Offshore Oil Corporation (CNOOC) gives us an example: “As Chinese companies and SOEs [state-owned enterprises] have had greater involvement in overseas investments, Chinese in-house lawyers have become more knowledgeable and more accountable as they have participated in very high profile transactions in the market,” he says. He also notes that “commercial people are often opportunity-orientated and don’t think strategically, but as time goes by the commercial side has become more strategically-orientated. Chinese commercial people are now looking at deal opportunities with a long-term perspective.”

That long-term perspective can be equated to Drucker’s warning for companies to keep in mind their real purpose and reason for existence. Many in-house are painfully aware that problems cannot be ignored, but focusing too much on the empty part of the glass and missing out on being an opportunity facilitator can mean that lawyers are not seen as part of the business culture. In many of the stories from in-house counsel recounted here, the real value lawyers can bring is to ensure that risk management is a positive skein within the fabric of the company – tightly woven into the culture.

It’s remarkable how forward-thinking and prescient many of Drucker’s theories were and how they now pervade so much of the way we think about business, even when we are not aware of it. When approaching GCs to talk about Peter Drucker, I received many worried looks. Yet when speaking to those interested in their role as part of the whole business, and their department within the broader company, their comments would resoundingly echo many of the words written by Peter Drucker 50 or more years ago. Perhaps he really was the man who invented management.

Peter Drucker: A short biography

Born in Vienna in 1909, Peter Drucker was raised in an intellectual liberal household and grew up listening to the sound of many ideas being discussed. After graduating from Döbling Gymnasium he left Austria to live in Germany, where he completed a postgraduate degree in Law at the University of Frankfurt. He then left for London and worked in insurance and also as an economist at a private bank. After his marriage in 1934, Drucker and his wife Doris moved to the United States, where he was to spend the rest of his life. He began teaching and also worked as a writer and business consultant. He taught at a number of institutions, including Bennington College and NYU, but spent most of his career teaching at Claremont Graduate University in California. Drucker continued to teach, write and consult well into his 90s. He died in 2002 at the age of 95.

Peter Drucker’s Books

  1. The End of Economic Man (1939)
  2. The Future of Industrial Man (1942)
  3. Concept of the Corporation (1946)
  4. The New Society (1950)
  5. The Practice of Management (1954)
  6. America’s Next Twenty Years (1957)
  7. Landmarks of Tomorrow (1957)
  8. Managing for Results (1964)
  9. The Effective Executive (1966)
  10. The Age of Discontinuity (1967)
  11. Technology, Management and Society (1970)
  12. The New Markets and Other Essays (1971)
  13. Men, Ideas and Politics (1971)
  14. Drucker on Management (1971)
  15. Management: Tasks, Responsibilities, Practices (1973)
  16. The Unseen Revolution (1976; reissued in 1996 under the title The Pension Fund Revolution)
  17. People and Performance: The Best of Peter Drucker on Management (1977)
  18. Adventures of a Bystander (1978)
  19. Managing in Turbulent Times (1980)
  20. Toward the Next Economics and Other Essays (1981)
  21. The Changing World of the Executive (1982)
  22. The Last of All Possible Worlds (1982)
  23. The Temptation to Do Good (1984)
  24. Innovation and Entrepreneurship (1985)
  25. Frontiers of Management (1986)
  26. The New Realities (1989)
  27. Managing the Nonprofit Organization: Principles and Practices (1990)
  28. Managing for the Future (1992)
  29. The Ecological Vision (1993)
  30. Post-Capitalist Society (1993)
  31. Managing in a Time of Great Change (1995)
  32. Drucker on Asia: A Dialogue between Peter Drucker and Isao Nakauchi (1997)
  33. Peter Drucker on the Profession of Management (1998)
  34. Management Challenges for the 21st Century (1999)
  35. The Essential Drucker (2001)
  36. Managing in the Next Society (2002)
  37. A Functioning Society (2002)
  38. The Daily Drucker (2004, with Joseph A. Maciariello)
  39. The Five Most Important Questions (2008; posthumously released)

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