This week, I’ve decided to return to a management paradox I first brought up a couple of posts ago.

As you might remember, in “Throw out that management advice book: (Part 3)” I pointed out that management author/expert/guru Peter Drucker couldn’t seem to decide whether the financial interests of a company should be a manager’s top priority, or whether the legal, ethical, and/or moral considerations of society as a whole should come first.

For instance, in The Essential Drucker (2001) he declares that “the manager is duty bound to preserve the performance capacity of the institution in his care. To jeopardize it, no matter how noble the motive, is irresponsibility.”[1] Furthermore, he argues:

“Whenever a business has disregarded the limitation of economic performance and has assumed social responsibilities it could not support economically, it has soon gotten into trouble.”[2]

This would seem to put Drucker squarely in the “profits above all” column – a stance, it is worth noting, that some not-so-unfamous economists have opted to take. This includes Nobel Memorial Prize winner Milton Friedman, who once famously argued that “the social responsibility of business is to increase profits.”[3] Money, in other words, should come above all else.

But Drucker doesn’t seem quite so sure. Consider this next passage from that same collection of his writings:

“One is responsible for one’s impacts, whether they are intended or not. This is the first rule. There is no doubt regarding management’s responsibility for the social impacts of its organization. They are management’s business.”[4]

Great – I couldn’t agree more. Businesses should be held accountable for their societal impacts. The problem for Mr. Drucker, however, is that taking responsibility for one’s “social impacts,” as he insists in this second statement, is to assume “social responsibilities” of the sort he warns against in the first. And so this, as I pointed out in that previous post, is paradox. What he argues for in one statement, he argues against in the other.

Drucker himself appears to be aware of the dilemma here, at least on some level. And yet faced with this obvious contradiction, in the end he only seems capable of equivocating – and unconvincingly at that:

“Management must resist responsibility for a social problem that would compromise or impair the performance capacity of its business…but then, if the problem is a real one, it better think through and offer an alternative approach. If the problem is serious, something will have to be done about it.”[5]

Just what a “serious” problem might be, however, or what might constitute “having done something about it,” is not then directly addressed. Apparently Drucker feels these are things that a manager needs to figure out for him- or herself.

So what do we really know about managing..?

The real-world ramifications of “Drucker’s dilemma” are no doubt obvious to you.

If managers are to be left to their own devices when it comes to choosing between profits and ethical considerations (or worse, feel they have free license to pursue the former), it should come as no surprise that some choose profits—especially in the short-term—over all else. Consider the housing/subprime mortgage crisis of 2008, for instance, or any one of the following, more recent examples:

  • For a time, Amazon appears to have determined that it was cheaper to hire private ambulances to transport workers succumbing to heat exhaustion to local hospitals, as opposed to installing air-conditioning in their warehouses.[6]
  • VW apparently decided somewhere along the line that it was okay to lie to customers about how “green” their new diesel cars are just to make a buck (or euro) or two.[7]
  • At least for the moment, the rider-sharing company Uber seems to have opted for less rigorous (that is, less expensive) screening standards for its drivers than other commercial cab companies, despite the increased risk that might pose for their passengers.[8]
  • And in my own experience, I have seen managers and CEOs struggle with whether to replace outdated, and therefore potentially unsafe equipment in light of the expense, or whether to dispose of hazardous waste improperly, and therefore far more cheaply. (I just wish I could assure you that in both cases Friedman’s argument hadn’t ruled the day.)

To my own mind then, of all the contradictions I’ve come across (and I’ve come across a lot) this particular paradox—the one that pits profits against ethics—is the one that I personally find most troubling. And not just because it explains why some managers and CEOs occasionally succumb to unsavory (or illegal) business practices.

No, I see it as an indictment of management theory, or management science—or whatever you want to call it—on a far broader scale.

How is it that a management expert like Peter Drucker is unable to rectify the single most important precept of capitalism (the maximization of profit) with a business’ obligation to ensure the safety and well-being of its workers, the community, and society as a whole? Nothing, to my mind, would seem to be as fundamental, or as critical, to any supposed theory of management.

Now in Drucker’s defense, he is not the only one to have struggled with this particular paradox. But he is to whom the Economist magazine once referred as “the most important management thinker of the past century.”[9]

And if the great Peter Drucker was unable to unravel it..? Well then, perhaps we should ask ourselves this:

How much is it that we really understand about good management, and its practice, at all?

Endnotes

[1] Drucker, Peter. 2005. The Essential Drucker (First Collins Business Edition), New York, p. 59.

[2] Ibid., p. 59.

[3] Friedman, Milton. “The social responsibility of a business is to increase its profits.” New York Times Magazine, September 13, 1970.

[4] Drucker, op. cit., p. 52.

[5] Ibid. p. 62.

[6] (a) Soper, Spencer. “Workers complain about Amazon warehouse jobs.” The Seattle Times, Sept. 24, 2011. http://www.seattletimes.com/business/workers-complain-about-amazon-warehouse-jobs/. Retrieved Feb. 26, 2016. (b) Freidel, Deborah. Review of “The Everything Store: Jeff Bezos and the age of Amazon,” London Review of Books, December, 2013, p. 17-19. http://www.lrb.co.uk/v35/n23/deborah-friedell/kill-your-own-business. Retrieved Feb. 26, 2016.

[7] Hakim, Danny. “VW Admits Cheating in US, but Says Its Practices Were Legal in Europe.” The New York Times, January 22, 2016, p. B1. http://www.nytimes.com/2016/01/22/business/international/vw-admits-cheating-in-the-us-but-not-in-europe.html?_r=0. Retrieved Feb. 26, 2016.

[8] Kendall, Marisa. “Uber responds after driver charged in Michigan shooting,” The San Jose Mercury News, February 22, 2016.   http://www.mercurynews.com/drive/ci_29548465/uber-responds-michigan-shooting. Retrieved Feb. 26, 2016.

[9] The Economist, 2005, November 19: 71-73. http://www.economist.com/node/5165460. Retrieved Feb. 26, 2016.