Consulting Drucker

by William Cohen

  His second example concerned Hitler’s Germany. Under Hitler, Germany passed the Nuremberg Laws, which denied German Jews the rights of German citizenship and passed other restrictions on them. As a German citizen, if you attempted to circumvent these laws or violate them directly or failed to report Jews who violated these laws to the authorities, you would be sent to prison or worse, because you were in violation of the law. These actions might include marrying a Jew, officiating at such a marriage, assisting a Jew in the practice of his profession, or failing to report any violation of the laws that were restrictive in other ways, from teaching in schools to the practice of the professions. These were the law of the land. Clearly the violators of these laws were not unethical. Again, it was the laws that were unethical. Still, we can expect to be punished if we fail to obey a law whether it is a good law or a bad one, but it has nothing to do with ethics.

  Drucker on Extortion or Bribery

  Drucker noted that bribery was hardly desirable from the viewpoint of the victim, from whom a bribe was extorted. However, the payment of bribes overseas had recently been made illegal in the United States by an act of Congress, The Foreign Corrupt Practices Act in 1977. Soon after, an American company, Lockheed Aircraft, was charged with bribery. Senior Lockheed executives had paid bribes to members of the Japanese government when money was demanded in exchange for subsidizing the purchase of the L-1011 passenger jet for All Nippon Airways. As a result, Lockheed chairman Daniel Haughton and vice chairman and president Carl Kotchian were forced to resign from their posts in disgrace in early 1976.4 Yet these executives gained nothing personally from the sales of the L-1011 in any way. Why then did these two Lockheed executives commit such a stupid act? In the years 1972-1973, 25,000 Lockheed employees had faced a significant threat of unemployment after cutbacks in the US government order of military aircraft and missiles. Because of delays due to difficulty with the foreign supplier of the L-1011’s engines, airlines had cancelled L-1011 orders.

  If a major contract to buy the L-1011 could not be obtained, many jobs at Lockheed would be lost. The two executives gained not a cent in monetary or any other advantage from their act of bribery; this was committed solely to help workers keep their jobs and, one could say, in the interests of social responsibility. Furthermore, stock price analysts determined that had Lockheed simply abandoned the L-1011 instead of paying the bribe, company earnings, stock price, bonuses, and stock options for the two Lockheed executives involved would have substantially increased. Everyone knew that because of the engine delays the L-1011 aircraft was a financial loser and could no longer make money. In fact, the project never made any money despite these and other sales. Drucker was very clear on this: he thought it stupid to pay bribes. He thought that the L-1011 project should have simply been abandoned out of good management decisions. But was this a violation of the law or of business ethics?5 Drucker noted again that the two Lockheed executives had nothing to gain and everything to lose by agreeing to pay bribes. They were victims. One doesn’t punish the victims of a robbery or any other crime. Why in bribery?

  Most countries have laws against bribery. Yet it is a fact that bribery, as we define it, is routine and expected in some of these countries. Many would perceive that the promise, or at least the understanding, of the Japanese CEO mentioned in Drucker’s earlier example is that his company would reward government officials who helped his company while they were in office to be a form of bribery. But everyone in Japan understands the difference. Other countries that expect “baksheesh” as the traditional way of doing business in their country ignore any laws that may have been enacted as “window-dressing” for countries not having this as part of their own culture, such as the US. One marketing executive from a major Western exporter of aircraft told me how the company routinely paid bribes to secure business and that, in one case, they had to pay twice when the official they paid the first time had been deposed.

  Drucker also noted that a private citizen who was extorted to pay a bribe to a criminal, say for “protection,” would be considered a helpless victim of intimidation. Certainly extortion privately or corporately is never desirable. But this was clearly not an ethical issue on the part of the individual forced to pay. Drucker did not think that a corporation should be viewed differently, and he strongly objected to this “new business ethics”, which asserted that acts that are not immoral or illegal if done by private citizens became immoral or illegal if done in the context of a business organization. They might be stupid, they might be illegal, and they might be the wrong things to do; however, they were not necessarily “business ethics”.

  Drucker’s Analysis of Ethical Approaches

  I said that Drucker took his examination of ethics seriously, and he did. He looked at the determination of right and wrong in questions of conduct and conscience by analysing cases that illustrated general ethical rules. This might be called cost-benefit ethics or ethics for the greater good. Essentially it means that those in power – CEOs, kings, presidents – have a higher duty if their behaviour can be argued to confer benefits on others. So it is wrong to lie, but in the interests of “the country” or “the company”, or “the organization”, it sometimes has to be done. This approach carries the name of “casuistry”. Drucker called it “the ethics of social responsibility” and it had to do with his dislike of the term “business ethics”.

  Recently, the Hollywood movie Bridge of Spies starring Tom Hanks was released. The movie recounts the story of the negotiation for the release of captured American U-2 aircraft pilot Francis Gary Powers in exchange for Soviet spy Rudolph Abel, held in the US. Before it was known that Powers had survived and had been shot down over Russia and captured, President Eisenhower publicly lied about the fact that Powers was on a spy mission. I don’t think that President Eisenhower’s ethics were ever challenged on this issue. He had lied for the greater good, a higher responsibility.

  In the same way, from a casuist’s view, the bribe paid to the Japanese officials by Lockheed executives was a duty, a higher responsibility since Lockheed’s leaders were trying to take care of Lockheed employees, not to benefit themselves. This sounds very high-minded, but Drucker maintained that it was too dangerous a concept to be considered in business ethics because it could easily become a tool for a business leader to justify what would clearly be unethical behaviour for anyone else.6 Drucker continued his search.

  The Ethics of Prudence

  To be prudent means to be careful or cautious. It is a rather unusual philosophy for an ethical approach, but admittedly it has some benefits. When I first became an Air Force general, we were sent to complete a special course for new generals. During the course, we were given lectures and advice by senior military and civilian leaders. I do not recall if what was said on this subject was by the secretary of defense or by a senior general, but it struck us as pretty good advice. “Never do anything you wouldn’t want seen on the front page of The Air Force Times,” he said. That certainly was a strong motivation for ethical behaviour of his listeners.

  Drucker gave a somewhat similar example. He said that Harry Truman, at the time a US senator, gave this advice to an army witness before his committee in the early years of World War II: “Generals should never do anything that needs to be explained to a Senate committee—there is nothing one can explain to a Senate committee.”7

  Now, this approach may be pretty good advice for staying out of trouble, but it is not much of a basis for ethical decision making. For one thing, it doesn’t tell you anything about the right kind of behaviour. For another, there are decisions that a leader must take that are risky and may be difficult to explain, especially if things go wrong. No serving Air Force general would like to see a controversial action coupled with his or her name on the front page of The Air Force Times, much less be subject to adversarial questioning by a Senate committee. Nevertheless, these may be the correct decisions, which lead to these undesirable results.

  The Ethics of Profit<
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  Drucker also thought through what he called, “The Ethics of Profit”. This is not what you might think. Drucker did not say anything about limiting profits. We’ll talk about Drucker’s views on maximizing profits later. Much to the contrary, Drucker wrote that it would be socially irresponsible and most certainly unethical if a business did not show a profit at least equal to the cost of capital, because failing to do so would waste society’s resources.8

  Drucker believed that the only logical rationale for the justification for “profit” was that it was a cost. He exhorted business leaders as follows: “Check to see if you are earning enough profit to cover the cost of capital and provide for innovation. If not, what are you going to do about it?”9

  Drucker stated that profit as an ethical “metric” rested on very weak moral grounds as an incentive and could only be justified if it were a genuine cost and especially if it were the only way to maintain jobs and to grow new ones.10

  I found it interesting that the rise in gas prices (prior to their dramatic fall) in 2008 prompted the following response by one refining company CEO when challenged by a Congressional investigating committee: “There is no ‘profit’. Every dollar goes into exploration or research and development and is needed to run this business.” If accurate, Drucker would have certainly agreed with the concept, although this would have probably been extremely difficult for someone not in the oil business to understand or accept (and clearly did not satisfy the committee, confirming Truman’s advice to generals).

  Confucian Ethics

  Drucker called Confucian ethics “the most successful and most durable of them all.” In Confucian ethics, the rules are the same for all, but there are different general rules that vary according to five basic relationships, all based on interdependence. These five are superior and subordinate, father and child, husband and wife, oldest brother and sibling, and friend and friend. The right behaviour in each case differs in order to optimize the benefits to both parties in each relationship. Confucian ethics demands equality of obligations, of parents to children and visa versa, and of bosses to subordinates and visa versa. All have mutual obligations. Drucker pointed out that this is not compatible with what is considered business ethics in many countries, including the US, where one side has obligations and the other side has rights or entitlements. Though he clearly admired Confucian ethics, which he called “The Ethics of Interdependence”, they cannot be applied as business ethics, because this system deals with issues between individuals, not groups. According to Confucian ethics, only the law can handle the rights and disagreements of groups.11

  Drucker’s Conclusions

  Drucker concluded that business ethics, as we know them today, are not that at all. If ever business ethics were to be codified, Drucker thought they ought to be based on Confucian ethics, focusing on the right behaviour rather than misbehaviour or wrongdoing. The bottom line is that Drucker believed that consultants should adopt the following into their personal philosophy of ethics:

  1. The ethics of personal responsibility from the physician Hippocrates: “Primum Non Nocere,” which means, “above all (or first) do no harm.”12, 13

  2. The mirror test: what kind of person do I want to see when I look into the mirror every morning?14

  1 Drucker, Peter F., Management: Tasks, Responsibilities, Practices, (New York: Harper & Row Publishers, 1973), p. 367.

  2 Cohen, William A., A Class with Drucker, (New York: AMACOM, 2008) p. 114.

  3 Adamopoulos, John and Walter J. Lonner, “Absolutism, Relativism, and Universalism in the Study of Human Behavior,” citing a translation of Padcal by G. Hofstede in his book Culture’s Consequences: International Differences in Work Related Values, accessed at http://eyewitness.utep.edu/3331/Lonner&Malpass1994%20Chap%2018.pdf, 25 May 2015.

  4 No author listed, “Lockheed Bribery Scandals,” Wikipedia Free Encyclopedia, accessed at http://en.wikipedia.org/wiki/Lockheed_bribery_scandals, 25 May 2015

  5 Drucker, Peter F., The Changing World of the Executive, (New York: Truman Talley Books, 1982), pp. 242.

  6 Drucker, Peter F., The Changing World of the Executive, p.245.

  7 Ibid.

  8 Op. Cit. Drucker, Peter F. and Joseph A. Maciariello, The Daily Drucker, p.126.

  9 Ibid.

  10 Ibid.p.86.

  11 Ibid. pp. 248–254.

  12 Ibid.pp.366-375.

  13 Although Drucker, and others, declare to be part of the Primum Non Nocere part of the Hippocratic Oath, this is not true. See Wikipedia at http://en.wikipedia.org/wiki/Primum_non_nocere

  14 Drucker, Peter F., Management Challenges for the 21st Century, (New York: Harper Business, 1999), pp.175-176.

  Chapter 7

  Drucker’s Consulting Model Was to Ask Questions

  Since Drucker’s model for his consulting engagements was to ask questions, consequently there was much that differentiated his consulting method from that of other consultants of all types. True, Drucker was an acknowledged genius. Most consultants are thought to be and frequently termed “very smart”, a “good communicator”, “charismatic”, “an innovator”, or perhaps “a born salesperson”. But Drucker was a genius. Period. Probably this in itself caused differences in Drucker’s approach to carrying out the function of consulting in a certain way, but there is more. Most very successful singleton consultants seem to partner, hire associates, and other employees. In short, they expand. It was a fact noticed by others looking at Drucker’s consulting practice that he did not expand. Taking a look at the largest firms will help illustrate what I am talking about and what it means in reference to Drucker’s consulting, and especially to his modus operandi.

  The Big Three Consulting Firms and How They Got that Way

  Many huge consulting firms are born of a single consultant. McKinsey & Company, the most prestigious and the largest with an annual revenue currently of $8.4 billion, is harvested by 20,000+ employees worldwide. Yet it all started with one man, James O. McKinsey, a University of Chicago accounting professor, who founded the company in 1926 with the idea of applying the principles of accounting to general management.1 There are similar stories with other major firms. The Boston Consulting Group, or BCG, was founded by Bruce Henderson, a former Bible salesman, in 1963, the company’s first month’s billings were just $500.2 In 2014, the company had revenues of $455 billion and 6,200 consultants included in a total staff of 9,700.3 Bill Bain partnered with six others to form Bain & Company in 1973. He was a little different from the other two founders in that he had been a vice president of the Boston Consulting Group and resigned to establish Bain & Company. Before that, he had been a director of development at Vanderbilt University. Today, the company has 51 offices in 33 countries,4 and along with the other two consulting firms mentioned, claim status as one of the “Big Three” consulting firms.

  Others noted that, even when alive, Drucker easily could have started Drucker and Associates or the Drucker Consulting Group, leveraged his abilities and his name, and multiplied his income a thousand times over. He died wealthy, but not the level of wealth of the three consultants mentioned. He never expanded past a single employee, and that one employee was Drucker himself. And while McKinsey quit teaching accounting in Chicago to devote himself full time to developing his consulting firm, Bruce Henderson had long since quit pushing Bibles, and Bill Bain surrendered his job at BCG to start his consulting giant, Drucker continued as a management professor almost until the end of his life. Yes, Drucker was a highly paid and much sought-after management consultant throughout his life. However, he defined himself as a scientist, specifically a social ecologist. Meanwhile, maintaining his practice as a “one-man band” may have led to the primary difference in his model of consulting, which even practitioners in “The Big Three” might apply beneficially today. A single independent consultant cannot possibly accomplish the output of the teams of consultants assigned to single-client projects of a large consulting firm. So Drucker may have been driven to a dramat
ically different approach by this single fact.

  I have noticed that sometimes a more optimal model, whether physical or cerebral, is the accidental result of some constraint. When a senior cadet at West Point, I was in the audience when Walter Dornberger – former major general in Germany’s World War II Luftwaffe, and then an employee of Bell Labs in the US, but once Werner von Braun’s boss at Peenemunde, the secret German rocket centre during World War II, and the actual father of the V-2 Rocket – was questioned by a fellow cadet regarding the missile’s dimensions. “We had no choice,” Dornberger answered. “We spent an enormous effort on this because we knew the routes the missiles had to follow to be transported to the launch sites. They had to travel through several medieval German towns to avoid allied air strikes and the narrow, curving roads dictated the missiles’ dimensions. In the end, this turned out to be a significant advantage not only in transportation, but also in storage, propellant, and other factors. It was worth the effort for what we at first considered a really side issue.”5

  The Primary Difference in Drucker’s Consulting Model

  Most consultants seek to solve a client’s problems by themselves, or at least with the client acting primarily as a catalyst. But Drucker went beyond simple communication and basic interaction with the client as the engagement progressed. Most seem to agree that this is what consultants get paid for. There are two old jokes about this. I’m certain if you’ve been around consultants, either as a practitioner or a client for any length of time, you’ve heard one and maybe both previously. But just in case you’ve escaped these trivialities, here they are. The first is a definition of a consultant. There are variations of this one. In one version, a consultant is defined as an individual who borrows your watch to tell you the time, and then charges you for the privilege.