By December, sit-down strikes had spread to a number of plants including the crucial Fisher body plant at Flint. To Sloan, this represented a direct challenge. “The real issue,” he told his workers, was “will a labor organization run the plants of General Motors Corporation or will the management continue to do so?”20 This all confirmed his fears about the New Deal, as good economic order was being sacrificed to misguided, collectivist notions. Now workers were engaged in an illegal occupation of company property and should be removed. But how? Under the law, force could be used but what if there was resistance? Was the company prepared to sanction serious violence? Moreover, it was apparent that at the state and federal level, the pressure was to find a negotiated way out of the situation. Though Roosevelt could not condone the workers’ actions, there was no doubt where his private sympathies lay. Sloan had not exactly gone out of his way to curry favor with the President.
For the unions, the vital thing was to maintain their position. So long as they stopped the plants operating properly General Motors was hurting. This required not only repelling anybody trying to expel them by force but also ensuring that they had heat and food. In practice, the plants were often occupied by very few men, because the union initially did not have many members to call on and also had to make supplies last. In one of the key plants which employed around seven thousand workers, there were at times no more than ninety in occupation, not all of which were General Motors employees. So in January, when the company first tried to turn the heat off and prevent food being delivered, the “sit-downers” took the offensive to capture the plant gates so they could ensure the supplies kept coming. The crisis escalated as the men fought back against the police’s gas canisters with stones and fire hoses. The next round involved guns leading to injuries but not deaths. The union added to the pressure by going after Chevrolet production. A decoy sit-down was staged in a secondary plant diverting the attention of the company police, making it possible to seize a far more important plant where the engines were made.21
The company obtained an injunction confirming the illegality of the trespass, but the strikers refused to leave. Attempts were made to get negotiations going, but the company baulked at the union’s key demand of sole collective bargaining rights for the United Auto Workers (UAW). Sloan claimed to be prepared to consider this but only after the sit-ins had ended. Lewis had no intention of losing his leverage or agreeing to a compromise. Before the strike, General Motors had been producing some 50,000 vehicles per month; by February, this was down to only 125. Politically, Sloan was becoming isolated, the Roosevelt administration was accusing him of going back on his word, and commentators were describing him as out of touch with the times.
The responsibility for the use of force to dislodge the strikers lay with new Michigan governor Richard Murphy. He took the lead in trying to broker a dispute. He was conscious that he had to uphold the law yet was horrified about the possibility of violence and major loss of life and then going down in history as “Bloody Murphy.” If he needed to step up the pressure on the union he was more likely to tighten the cordon already ordered when the Chevrolet engine plant was seized than to order in the National Guard to evacuate the buildings. Such a strategy would require patience, easier for him than for General Motors, which was losing serious money. Even the company was wary about possible violence. They could see how they would be blamed for substantial loss of life when a conciliatory move on union recognition might have brought the dispute to a close.
Toward the end of the confrontation, Murphy issued a formal warning to Lewis about how the law must be enforced. This was followed by some grandstanding by Lewis, who told the governor that he would go into the plants and prepare to be shot with the others. In language that captured exactly Engels’s hopes for such a standoff, when there was no doubt about the superior physical force of the authorities but real doubt about whether it could be used, Lewis taunted Murphy. Without a settlement he was not going to withdraw the strikers. “What are you going to do?” he asked.
You can get them out in just one way, by bayonets. You have the bayonets. What kind do you prefer to use—the broad double blade or the four-sided French style? I believe the square style makes a bigger hole and you can turn it around inside a man. What kind of bayonets, Governor Murphy, are you going to turn around inside our boys?
In fact, by this time a settlement was close. It was negotiated by one of Sloan’s lieutenants who agreed to direct talks with Lewis, using the request of the president to sort out the conflict as an excuse for going back on the company’s previous position. On February 11, 1937, General Motors signed an agreement ending the sit-down strikes. UAW got exclusive collective bargaining and had four hundred thousand members by October.
The administration was not yet finished with the company. In 1938, the Department of Justice secured an antitrust criminal indictment against General Motors, as well as against Ford and Chrysler. The charge, which did not stick, was that the manufacturers had illegally restrained trade by requiring their respective dealers to only use the company-associated finance company. Unlike Chrysler and Ford, Sloan decided to fight, not only because he considered this to be unwarranted interference in business matters, but because he sensed a larger vulnerability—the company was moving toward a 50 percent share in the car market. “Our bogie,” he observed in late 1938, “is 45 per cent of each price class … We don’t want any more than that.” This meant that—against all corporate instincts—he had to keep market share down.
One of the New Deal figures with whom Sloan was tangling was Adolf Berle, who had been a professor at Columbia Law School but was also a key member of Roosevelt’s Brain Trust before the 1932 election and a regular adviser to him in government. In 1932, he published a landmark book with Gardiner Means, entitled The Modern Corporation and Private Property, demonstrating the divergence between the ownership and control of large corporations, with the result that the management conducted affairs with little shareholder scrutiny. They also showed how the means of production in the United States had become concentrated in some two hundred large corporations, of which General Motors was a prominent example. Economic power was being concentrated in the hands of a few people who controlled these giant corporations. This was power that could “harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another.” With a social role far beyond anything implied by the term “private enterprise,” this was an economic power that could compete on its own terms with the political power of the state. A new form of struggle was developing: “The state seeks in some aspects to regulate the corporation, while the corporation, steadily becoming more powerful, makes every effort to avoid such regulation.”22
In the run-up to the Second World War, the sure touch which Sloan had showed in his handling of the competition with Ford and the internal structure of General Motors had deserted him when dealing with the government and the unions. In key respects, these were the big strategic issues facing large corporations during the 1930s and there was no reason to suppose that they would subside in the future. It was, however, the areas in which Sloan had been successful, rather than those in which he had failed, that led him and his company to provide the vital raw material for the next generation of management theorists.
CHAPTER 30 Management Strategy
Most of what we call management consists of making it difficult for
people to get their work done.
—Peter Drucker
DISAFFECTED MARXISTS BECAME an important source of management theory as they updated their concepts of class struggle to take account both of their distress at Soviet totalitarianism and new developments in industrial society. The previous section mentioned Burnham’s The Managerial Revolution, regularly cited because of its title rather than its content, as the neatest description of how emerging structures of power were confounding the expectations of communists and free-marketeers al
ike. A surprising number of former Trotskyists, including Herbert Solow and John McDonald, joined the business-oriented Fortune Magazine. McDonald retained a fascination with conflict and strategy. We have already met him as an important writer on game theory.1 Another member of the Fortune editorial team was William Whyte, author of the Organization Man, reflecting the magazine’s critical edge at this time. Yet another was liberal economist John Kenneth Galbraith, who observed that the magazine’s right-wing owner, Henry Luce, had discovered that “with rare exception, good writers on business were either liberals or socialists.”2
Galbraith also became associated with the thesis that power in society now rested with the management class. This challenged neoclassical economics (which assumed highly competitive markets) as much as socialism. Instead of individual firms being small in relation to the total market, and therefore limited in their individual influence, in the most important sectors a few firms enjoyed commanding positions. Instead of being caught between the conflicting interests of owners and customers, the managers had been able to restructure the relationships so that, if anything, owners and customers found themselves geared to managerial interests. They also had discovered ways of preventing potential competitors from mounting effective challenges and of bargaining on almost equal terms with the state. Business success and failure depended less on market conditions and more on the organizational capacity of the large corporations. Arthur Chandler captured the claim neatly when he wrote of the role of management as the “visible hand” as a contrast with Adam Smith’s “invisible hand.”3 There was perhaps also another thought, which had been around since Plato, that there was something to be said for bright, educated people running things.
The most mature formulation of the thesis came in 1967 with Galbraith’s The New Industrial State, at almost the last point when it could carry conviction. He had been influenced by Berle and Means and, as acknowledged in later editions of the book, Burnham. Galbraith reported on the declining influence of stockholders and the growing influence of the experts in development, production, and management—which he labeled the “technostructure.” Power no longer resided with “anonymous shareholders or in a board of directors that is now largely subservient to senior management.” It resided with “the association of men of diverse technical knowledge, experience or other talent which modern industrial technology and planning require. It extends from the leadership of the modern industrial enterprise down to just short of the labor force and embraces a large number of people and a large variety of talent.” Yet only a small segment of this new class actually wielded power at the commanding heights of organizations. In doing so they might reflect broader interests and attitudes, but their basic responsibility was to the interests of the organization upon which they depended for their livelihood. The key texts were not always clear on this point. Galbraith’s technostructure covered a large number of people. Burnham seemed to point to chief executives, but his analysis risked tautology as managers became defined essentially as those who wielded power.
In this scheme, planning played a decisive role. It was the means to overcome the laws of supply and demand. Despite suffering through association with Soviet economic organization, the necessity for a forward look and preparation for coming problems and opportunities was accepted by Western governments and companies. Only by planning could priorities be set and functions coordinated. Size and planning were now essential to ensure continual technological advances. “It is a feature of all planning that, unlike the market, it incorporates within itself no mechanism by which demand is accommodated to supply and vice versa. This must be deliberately accomplished by human agency.”4 This was a time of fear of unconstrained market forces and optimism about the rational exercise of control over human affairs, informed by the miserable experience of the 1930s.
One of the first academics to explore what it meant to manage a modern corporation was Peter Drucker. His background was cosmopolitan. Born in Austria, he arrived in the United States in 1937, via England, to get away from the Nazis. A 1942 book on The Future of Industrial Man, which inclined to managerialism, was noticed by General Motors, and Drucker was invited to undertake what was described as a “political audit” of the company. He was given full access, including to Alfred Sloan. For eighteen months he attended meetings, interviewed employees, and analyzed all the inner workings of the company. He viewed the company as a distinctive sort of power structure, not at all, as had been assumed, like a large army with the chief executive cast as the general, issuing commands. At least as far as Drucker was concerned, The Concept of the Corporation was the first book to consider business as an organization and “management” as “a specific organ doing a specific kind of work and having specific responsibilities.”5 He was later proud to be “credited with having established management as a discipline and as a field of study” and, even more important, “organization as a distinct entity, and its study as a discipline.”6
In a 1954 book, The Practice of Management, he noted how the managers had become “a distinct and leading group in industrial society,” displacing capital when it came to a relationship with labor. Nonetheless, it remained “the least known and least understood of our basic institutions.” At the time (he later broadened the scope), he linked management specifically to business enterprises, which meant that it would be judged by economic performance—outputs rather than professional inputs. He was skeptical of scientific management, for good results might be achieved by intuition and hunch. Moreover, while he acknowledged Taylor’s contribution, Drucker blamed Taylor for separating planning from doing. This reflected a “dubious and dangerous philosophical concept of an elite which has a monopoly on esoteric knowledge entitling it to manipulate the unwashed peasantry.” This elitist philosophy led Drucker to class Taylor with “Sorel, Lenin and Pareto.” It was wise to plan before doing, but that did not mean that different people need be involved, with some giving orders and others doing what they are told.7 In strategic terms he recognized the limits of managers, unable to “master” the environment as they were “always held within a tight vice of possibilities.” The job of management was “to make what is desirable first possible and then actual.” The keystone of his philosophy was to seek to alter circumstances by “conscious directed action.” To manage a business was to “manage by objectives.” In this respect he understood that whatever the long-term vision, it had to be translated into proximate and credible goals when it came to implementation.8 Drucker’s philosophy was therefore rationalist—set ends, find means—but took due account of the complexities of both organizational structures and business environments. From the start he saw the dangers if companies paid insufficient attention to their staff. Later on he became more enthusiastic about the rhetoric of “empowerment,” though he always recognized that management required someone to take decisions and be accountable, and so in that respect had to be top down.
These two books (followed by many more) set Drucker up as the first contemporary management theorist. He became a consultant to leading companies, such as Ford and General Electric. Yet General Motors gave The Concept of the Corporation, and thereafter Drucker himself, a frosty reception. In some respects this was surprising: he accepted the virtues of large corporations and the inefficiency of small businesses, and praised General Motors’s decentralized structure to the point of urging it as a model for others to follow. The reason for the reaction, Drucker concluded, was that senior managers disliked even constructive criticism (for example, of their tendency to take short-term profits rather than make long-term investments). They were wedded to a set of successful and durable core principles that had served them well and had been elevated to much more than an expedient response to circumstances. “The GM executives, for all that they saw themselves as practical men, were actually ideologues and dogmatic, and they had for me the ideologue’s contempt for the unprincipled opportunist.” Their differences were also relevant to the two large and contentious issues tha
t had shaped general management thinking during the first half of the century—antitrust and the “labor question.”
It was because of the antitrust issue that General Motors was anxious about Drucker’s notion that big businesses were “affected with the public interest.” He also got embroiled in a critical strategic issue directly linked to antitrust. He shared the view of some managers that Sloan’s decision to keep market share below 50 percent to avoid further antitrust suits had removed the incentive to grow and was draining the company of initiative. One proposal was to accept a split, following the Standard Oil example. A new company could be created around Chevrolet, the largest division, which could readily survive on its own. Senior management, however, strongly objected to this idea.
With regard to the labor problem, Drucker observed the dire legacy of the sit-down strikes of 1937, including years of “sniping and backbiting,” and how this prevented the management and unions getting together to find common solutions in a spirit of understanding and sympathy. Too many in management were prepared to see workers as an almost subhuman race, while the workers saw management as fiends.9 Drucker was unimpressed by the unions, but the company had failed to integrate workers by providing them with more status and opportunities. The dominant assembly-line methods did not make the most of their creativity. The shift to war work had shown how workers could take responsibility, learn, and improve methods and product quality. So he urged that they should be seen as a “resource rather than a cost.” He encouraged the idea of the “responsible worker” with a “managerial aptitude” and a “self-governing plant community.” When Charles Wilson became chief executive of General Motors, he was interested in exploring this idea, but the main union, the UAW, objected on the familiar grounds of blurring the necessary divisions between management and labor.
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