Peter Drucker's Way to the Top

by William Cohen

  At a time when CEOs of bigger, wealthier, and financially stronger companies were firing employees simply to cut costs and improve their profit picture, Feuerstein pledged to continue paying wages and health benefits for as long as it took to rebuild even though many of his workers had no work to perform. This cost him $1.5 million a week just to meet his payroll. He even paid the previously announced holiday bonus of $275 to each employee. Rather than take the insurance money and run, he vowed to rebuild on the same spot.

  Many bean-counting managers at larger companies said he should have pocketed the insurance money, and if he wasn’t going to retire or take the money and run, have rebuilt down south where labour costs were lower. That would be a good business decision. I’m not so sure. I know it would have been a poor leadership decision. Feuerstein agrees. “Why would I go to Thailand to bring the cost lower when I might run the risk of losing the advantage I’ve got, which is superior quality?”

  But Feuerstein was a businessman and nobody’s patsy. Drawn into a discussion of Al Dunlap who about the same time fired a third of the work force at Scott Paper when it was in trouble, Feuerstein said, “If one-third of the people of that company were wastefully employed, then Dunlap did the right thing. Legitimate downsizing as the result of technological advances or as a result of good engineering? Absolutely. I’m in favour of it. And we do it here all day long … We try to do it in such a way as to minimize human suffering, but the downsizing must be done.” However, Feuerstein said that the trick is to do it “without crushing the spirit of the work force.” He continued, that if all you are after is cutting costs, if you “just have a scheme to cut people – that sort of thing is resented by labour and never forgiven.”3

  Speaking at MIT, Feuerstein said, “Within four months, we had 85% of the people back. Were it not for the slow payments of the insurance company, we would have over 100% back today.” At first, the company made an amazing recovery. As an example, Feuerstein said, “The fourth plant, which prior to the fire had never produced more than 130,000 yards a week, is producing more than 200,000 yards.”4 It would be nice if this kind of thing always had a happy ending. But that’s not real life. Despite Malden Mills’ recovery, it was only temporary. In 2001 Feuerstein had to declare bankruptcy and eventually sell the company. A new company, Polartec LCC was created which purchased its assets in 2007. The company was honoured by Time Magazine sometime later as the inventor of synthetic fleece.

  Feuerstein’s actions didn’t cause the bankruptcy and we all face challenges of health and age which may have contributed to his latter business and personal decisions. However, when it counted, Feuerstein took care of his people when things went wrong, and he could do something about it. There is no doubt that both his example as well as synthetic fleece was part of his legacy. Drucker knew that our legacies are an important part of what we leave behind whether we are 100% successful or not.

  WHAT IT MEANS TO GIVE OTHERS’ NEEDS PRIORITY OVER YOUR OWN

  Dave Whitmore was my classmate at West Point and my flying partner in flying school. After the Air Force, Whitmore joined IBM. Later he was promoted and became an IBM marketing manager for a new region in New York that serviced utilities and telephone companies. The two largest accounts in Whitmore’s area were serviced by two of his most senior marketing team leaders. These accounts represented a considerable amount of money, and the pressure was incredible. If any of the computers went down, Whitmore could lose his job.

  One day, Whitmore became aware of a fundamental problem concerning his two senior marketing team leaders. Neither one had ever held a staff job. So what, you may ask? Well, it could seriously affect the IBM careers of both. Whitmore was told that if they weren’t assigned staff positions outside of his organization within the next few months, the chances were they would never get them. Many large organizations have personnel policies in place to encourage the best employees on their way to the top to seek assignments which will ensure they have the right experience for higher level positions. But sometimes these policies backfire and for one reason or another, employees don’t get the required experience that the company has decided is needed to keep being promoted. Sometimes companies have emergencies and employees miss out on moving into the right jobs. Then for no reason of their own certain employees may miss out on promotion for top jobs, when they are compared to competitors who have the experience. That’s what the danger was here. It was unlikely that either could ever get promoted to a more senior position without the experience in certain types of staff jobs. Yet, these were talented hard-working people who deserved the shot at higher positions, their timing was just bad.

  First Whitmore talked to his two team leaders. He explained the situation to them. What did they want to do? Both expressed a willingness to stay if they had to, but both understood the necessity for obtaining the required staff experience. Both wanted a chance at future promotion if it were possible.

  Whitmore was inexperienced in his work and had only recently assumed his own new job. He had no other experienced team leaders, and none would be available if Whitmore let these two go to staff positions elsewhere in the company. But it was Whitmore’s decision, and it was his responsibility to take care of his people.

  Whitmore’s boss, a branch manager, counselled him. “Who cares whether they become managers or not? It’s your fanny that’s on the line. If you let them go, you’re taking a chance on losing everything you’ve worked for. Screw up, and I can’t guarantee whether you can ever become a branch manager. Your sending them to these staff positions may help them, but it may limit your own future chances at promotion in the company.”

  Whitmore knew what he had to do. He saw that both team leaders were offered staff positions in IBM immediately. They both accepted and left.

  What happened to Whitmore? He made do without the two experienced team leaders. Later, due to his success at this job, he was offered what he called “my dream job”: international account manager in Brussels. Before retirement from IBM, he was promoted to branch manager and served in that capacity in Saudi Arabia.5

  AVOIDING LAY-OFFS: A SURE ACTION THAT SHOWS YOU CARE

  Minnesota Mining and Manufacturing Company in St Paul, Minnesota, better known as 3M, was a $14 billion business when, back in the early 1980s, it had to address the possibility of lay-offs for the first time. To avoid or at least minimize them, company leaders came up with a system called the unassigned list.

  The unassigned list allowed employees whose jobs had been eliminated through no fault of their own six months to find another position within 3M. Meanwhile, workers continued to receive full salaries and benefits. Within the first four months, they had the option of taking an unassigned severance package. This included a week and a half ’s pay for every year of service, plus six months of paid benefits. Those who were over the age of 50 but hadn’t yet reached retirement age could receive a pre-retirement leave package that continued until retirement. Those over age 55 received a special bridge to social security. For those who couldn’t find a position within the company, 3M also offered extensive help in finding new employment.

  The senior vice president of human resources said that this plan was all due to some thought that also benefited 3M, “We’re a company of long service employees. That long service translates into less than a 3% turnover among the salaried staff. And pride.”6

  That plan for taking care of employees translated into real results. Revenue increased by 11.7% after the plan was implemented, and there were record sales and earnings in 3M’s two business sectors in their US and international operations.7

  Lands’ End, Inc., the catalogue giant, was in trouble several years ago. Paper prices had doubled, and apparel demand collapsed at the same time as a significant postal hike. As a result, third quarter profits were down 60% and falling. Advisors told the then CEO, 34-year-old Michael J. Smith, that he should think about laying off employees to improve his bottom line. That should boost stock prices and please stockho
lders.

  To Smith, that was an integrity issue. Laying off employees simply to make himself look good when business conditions were tougher was not doing the right thing.

  Smith added benefits. What kind of benefits? He added an adoption assistance service and mental health referrals. And part-time employees received full health care benefits. He refused to lay anyone off. “If people feel squeezed, they won’t treat the customer as well,” explained Smith. Results? To everyone’s surprise, the following year first quarter profits more than tripled to $4.4 million compared to the previous year. Sales rose 2.3%. Stock price of Lands’ End shares increased 85%.8

  Another company that avoided lay-offs by sharing the pain was Nucor. Ken Iverson was the CEO of the Nucor Corporation. Nucor consistently had high profits in what can only be termed a declining industry, steel manufacturing. Nucor’s 7,000 employees were the best-paid workers in the steel business but had the industry’s lowest labour costs per ton of steel produced. Nucor was a Fortune 500 company, but there were only 24 people assigned to corporate headquarters, and four layers of management from the CEO to the front-line worker. Nucor had no R&D department or corporate engineering group. Yet, the company was the first major operator of ‘mini-mills’ and the first to demonstrate that mini-mills could make flat-rolled steel, the first to apply thin-stab casing, which ‘Big Steel’ had determined couldn’t be done, and the first to commercially produce iron carbide.

  Iverson took over the company in the decline and built it into a highly successful giant. How did he do it? What happened during a period when times got worse might give us some insight.

  Suddenly things got much worse and total number of steelworkers dropped like a stone from 400,000 to 200,000. At Nucor, they had to cut production in half. Iverson did not downsize anyone. How did he avoid doing what every other steel company did? Department heads took pay cuts of up to 40%. Iverson and other more senior company officers cut their salaries up to 60%.

  It wasn’t enough. So, Iverson cut back workweeks from five to four, and then, three days. This meant that on average his workers suffered a 25% cut in pay. “You know that had to hurt,” said Iverson. “Still, as I walked through our mills and plants, I never heard one employee complain about it. Not one.”9 That’s not surprising when those workers fully understood that their leaders were taking significant cuts also.

  Iverson knew what he had to do to show his people that he really cared: “I took a 75% pay cut from $450,000 to $110,000,” he said. “It was the only right thing to do.” But Iverson noted that nothing was written in stone. Of course, if lay-offs were necessary, he would do it, but not before he tried everything else first. Iverson called that “pain sharing”. When times were good, they shared the benefits, and when times were bad, Iverson maintained that senior management, right up through to the president, had to share that as well. He believed in the success laws and that there is a duty that comes before personal interest, and certainly before any personal interest in times of crisis.10 Not surprisingly, Iverson’s legacy lived on, years after Iverson’s retirement, and Nucor was ranked as the largest steel producer in the USA11 and so it is as these words are written today (summer 2018) with revenues as high as $16 billion and more than 23,000 employees.12

  IF YOU REALLY CARE, TREAT PEOPLE AS THEY SHOULD BE TREATED

  Cutco Corporation manufacturers and markets some of the highest quality kitchen knives in the world. It was this company that first manufactured the KA-BAR knife, the official knife of the US Marine Corps during World War II. Its sales today are over $200 million worldwide.

  But when Erick Laine took over as CEO in 1982, sales were only $5 million. That’s a 2,000% increase in a field that older, established brands from Europe dominated. When Laine became CEO of Alcas (the old name of Cutco), his manufacturing arm was in disarray. In a nine-year period prior to his becoming boss, there wasn’t a single contract that was settled without a strike! There were no less than 270 outstanding grievances on the books!13

  Laine was tough. He was born in Finland, and in addition to integrity, his parents taught him something that doesn’t translate easily into English. The word in Finnish is sisu. Sisu means a sort of stubborn persistence wrapped up with sheer guts. He knew what he was doing, and he was no pushover. But he truly cared about his people and he insisted on treating them fairly.

  From early on Laine met with his union in a spirit of openness and listened. And when the union was right, he acknowledged it. And when he thought they were full of wrong, he was willing to tell them that, too. But then, a strange thing happened. This openness, honesty, and the willingness to treat people as they should be treated led to a spirit of camaraderie. They proceeded to work things through together. Over time they developed an unusual trust, and when they had a problem, they worked together to solve it.

  Does your union present you with a yearly gift of cash collected from your workers? Every year at Christmas time during most of Laine’s tenure, the union initiated an unusual act. It wasn’t mandated, and neither Laine nor any of his managers recommended nor initiated it. No, this came from the workers and their union. What happened was this. The union leaders called Laine on the phone and requested a meeting. At the meeting, the union representatives presented a gift: money they collected from the workers on a volunteer basis. Ever heard of something like this anywhere else? The money was always used by management to purchase something that would benefit the workers – a TV for the cafeteria or a clock, that type of thing.14 This practice lasted throughout Laine’s tenure as president and CEO until his retirement.

  Now why do you think the workers and their union did this? Obviously, they could just collect the money and go out and buy something themselves. Laine didn’t tell me this, but I believe this informal ceremony during which Laine was presented with this money was a symbol of the trust between the union and its management, between the company leaders and their workers. It was rare and unprecedented. It happened only because Laine really cared.

  TAKE PERSONAL RESPONSIBILITY

  Whenever something went right, these leaders at IBM, 3M, Malden Mills, Cutco, and others gave credit to their people. But when something didn’t go right, they took personal responsibility. Sometimes, taking personal responsibility must be expressed in the physical sense. At other times, in the moral sense. The leaders of these organizations did whatever was necessary in taking care of others. These were all organizations, but I’m certain that if we were to investigate we would see that these leaders treated friends or even someone they had never met in the same way. That’s one reason that the customers of these organizations rarely complain and are usually the first to recommend their products and services to others. Former employees probably do the same. It’s part of the reason that personal relationships are an important part of the way to the top.

  YOU CAN BANK ON THIS BANKER

  Marshall Carter was Chairman and CEO of The State Street Corporation. The State Street Corporation is a bank. Well, not exactly a bank: known as State Street, it is an American worldwide financial services company. State Street was founded in 1792 and is the second oldest financial institution in America. It is the largest processor of pension funds in the world. It has some $4 trillion under custodianship. Yes, that’s trillion, with a T.15

  When Carter took over State Street, there were severe challenges. There were talks of deep cost-cutting. There were talks of lay-offs. But Carter didn’t see things that way. He expected positive results. And he declared his expectations, “We told people, We’re going to change, but not by losing people. Who cares about losing people? I’m interested in hiring.” He did everything necessary to make sure his ideas of expansion worked. And when they did, he gave the credit to his subordinates who worked to carry out his vision.

  “I knew I was on the right track,” he said. “If we were wrong, it would have been my fault, my responsibility. I didn’t want to be wrong, but if I were, I would have taken responsibility. I would have done whatev
er was possible to take care of my people. A leader doesn’t have that as a choice.” In the years that he ran State Street, revenues tripled while the number of employees doubled.16 No wonder Drucker considered taking care of people so important for success and that this was so high on his own list of must-do things on the way to the top.

  THIS LEADER SHARES THE GAIN THROUGH TRAINING

  But sharing the gain doesn’t need to be in ownership or bonuses. It’s the concept of sharing the gain that I am talking about. Donald Weiss became CEO of White Storage and Retrieval Systems in Kenilworth, New Jersey. White Storage is a manufacturer of automated retrieval systems for the storage of small parts and documents. It is a small but profitable company. Through good leadership, the company grew.

  Weiss decided to share some of the gains of raising the quality of life in his company by teaching his employees advanced management and professional subjects. At this point he discovered that most of his employees didn’t have basic English skills. Weiss saw it would be rather difficult to teach them if they didn’t understand English. So Weiss began by hiring teachers to come in and teach basic English. He started teaching after hours, but soon expanded to work hours as well. Before long, more than 100 employees were involved, and all sorts of topics, including mathematics, blueprint reading, manufacturing techniques, and team building were being taught. He started preparing employees for high school equivalency diplomas. Then he began inviting customers in to train his employees. IBM instructors came to White Storage and taught quality. At one point, they offered 7,000 hours in training.