The Night Peter Drucker Declared He Was Not My Father
One evening I was sitting at a table for six with faculty. I was in the middle on one side of a rectangular table with Peter Drucker sitting on my right. My classmate seated on my left introduced me to a new student seated across from me. "Bill, this is Joe Smith. He’s a vice president of marketing at your sister company, Douglas Aircraft," he said.
Without pausing, my classmate said to the new student, "Bill works for the vice president of marketing at McDonnell Douglas Astronautics. However, he intends to quit and become a professor as soon as he has his doctorate." With at least two years until graduation, I had told no one in my company that I wanted to be a professor and only a few of my classmates.
I sunk into my chair. I could have decked my classmate. Instead, my hand shot out and shook the newcomer’s hand warmly. "Hi, I’m Bill Drucker, Peter’s son," I said. Peter was talking to another student, and I didn’t think he heard me claiming to be his progeny.
Peter completed his conversation with the other student. Then, he turned slowly to me and said, "Bill, you may be my son, but I am not your father."
I was embarrassed, although I knew Peter was not angry. On the way back to class I explained what had occurred and why I had, in humor, claimed to be one of his offspring.
"I was not offended," he told me. "You told someone something in confidence, and the person did not keep it confidential. However, this was your error, and it is you who are fully accountable for it. We are, in fact, all accountable—management, employees, labor and subordinates, and we must all be held accountable for not only what we say, but the actions and decisions we take or fail to take."
I do not remember the general topic of that week’s lesson. However, when we returned to class that day, Peter lectured on accountability without referring to the incident that had occurred.
Responsibility and Accountability
Peter began to talk about responsibilities and accountability, not just of managers, but of employees as well. The idea was that everyone was responsible in one way or another for the success of an enterprise. Everyone concerned has to be held accountable for their own actions.
He used executive salaries as one example. Peter said executive salaries were clearly out of line with the responsibilities of those holding the positions. Ratios of the compensation of American top managers to the lowest paid workers were the highest in the world, and we would end up paying a tremendous price for this. I don’t believe that Peter was specific in quoting ratios, but I do know that by one analysis, the ratio of the average CEO compensation in the United States to the average pay of a non-management employee hit a high in 2001 of 525-to-1; Peter’s recommendation was that the ratio needed to be less than 20-to-1.
Ken Iverson, the Kind of Executive Drucker Pointed to as a Model
Ken Iverson passed away in 2002. However, when Iverson was CEO of Nucor, the organization was the third largest steel company in the nation and consistently racked up high profits in a declining industry. Nucor’s 7,000 employees were the best-paid workers in the steel business, yet had the industry’s lowest labor costs per ton of steel produced. Although a Fortune 500 company, only 24 people were assigned to corporate headquarters, and there were only four layers of management from the CEO to the front-line worker.
Before Iverson became CEO, the business was failing. Iverson built Nucor into a profitable giant, and his methods relate exactly to Drucker’s point about executive salaries relative to that of the workers. When the steel industry collapsed in 1982, the total number of steelworkers in the industry dropped almost overnight from 400,000 to 200,000.
At Nucor, they had to cut production in half. Iverson did not, however, "downsize" anyone. How did he avoid doing what every other steel company did? Iverson insisted that management take large pay cuts. Department heads took pay cuts of up to 40 percent. Iverson insisted that company officers cut their salaries up to 60 percent. At a time when Fortune 500 CEOs were taking home millions in compensation, Iverson cut his own pay from $450,000 to $110,000.
Peter then turned to labor, focusing especially on unions. He told us there was a time when management ruthlessly exploited workers, and unions were formed to protect the worker from this mistreatment. So the formation of unions was well-justified. The problem today was that most unions saw themselves as accountable only for worker welfare, not for worker performance or productivity.
According to Peter, unions had become accustomed to demanding increased benefits every time a new labor contract was negotiated. The union membership expected this. In fact, the norm was to make demands that everyone knew would not be met, but the final terms would be better than the previous contract. The problem was clearly that while the unions were gaining more compensation and more favorable working conditions for their membership, they were not accountable for worker productivity or manufacturing costs, and any negative impact on the corporation was simply viewed as management’s responsibility.
As Peter saw it, labor had to be held accountable, as did management. Adding benefits without increasing productivity just meant that workers were increasingly less productive and that the company was increasingly less competitive in the marketplace. For a start, Peter thought that boards of directors should include union representatives and voting members.
Working Together for Success
What Peter was stressing was that in an internationally competitive environment, the time was long passed when management and unions in a company should consider themselves as adversaries on opposite sides of the fence. Company managers and workers are not in competition; they are both on the same side and should work together for the good of the corporation. We are all responsible.