Alfred Sloan, Peter Drucker, and their Culture War
Alfred Sloan, the man who presided over the spectacular rise of General Motors to the top of Corporate America from 1920s to 1960s and indeed most credited for creating the modern form of business corporation as we know it, had a very complex love and hate relationship with the man who did the most to promote the GM legacy, Peter Drucker. The latter, arriving in America from Europe shortly before the second world war, was commissioned by GM in 1943 to study the inner workings of its top management practices.
The book or report from his studies, “Concept of the Corporation”, was published two years later. It was an instant classic and established Drucker as the biggest name in an entirely new industry of management consulting. Indeed, Drucker was retained by GM as a management consultant well into Sloan’s retirement. According to Drucker, when the MIT Sloan School of Management was founded in 1950, Sloan invited Drucker to be its management chair (he declined, preferring to stay at New York University).
On his part, Drucker was a great admirer of Sloan’s leadership qualities and devoted an entire chapter to Sloan in his own autobiography. Drucker went as far as stating that “without Mr. Sloan’s personality the (GM) system could never have grown up and established itself”. In other words, someone else would have had to create the modern concept of corporation and someone other than Mr. Drucker would likely have had the opportunity to be its chief evangelist and acquire the reputation of a business management guru.
On the other hand, as Peter Drucker wrote in 1983, “Concept of the Corporation” had an immediate impact on American business, on public service institutions, on government agencies – and none on General Motors!” Worse yet, “Concept of the Corporation” was not only even rejected by General Motors; it was studiously ignored by the company.”
According to Drucker, Sloan told him in 1960, 15 years after the publication of his original study of GM management practices, that “I had thought several times of writing my memoirs but always decided against it as being too self-important, but your book forced me to do the job, it made it clear to me that I had a duty to set the record straight.” The book published by Sloan in 1963, “My Years with General Motors”, also became an instant classic and highly praised and recommended even by Drucker himself. The book made no mention of Drucker’s study of General Motors, not even a word.
There were obviously some fundamental disconnects between these two eminent figures of 20th century business. Indeed, all indications were that the two men respected each other a great deal but clashed at a deeper and philosophical level. The contemporary significance of trying to understand their disconnect lies in the fact that they were the early warriors of the cultural war that has been raging and escalating in this country and around the world ever since, with no end yet in sight.
The core challenge remains the same today as nearly a century ago: how do we sustain the development of an industrial society in a democratic and progressive manner? At least on the surface, the problem has grown much bigger, many more mistakes have since been made, the political rhetoric has become more bitter and polarized and we as a nation of free people are no closer to a satisfactory solution now than then.
Before we dive into more substantial discussions, it is important to note that our current predicament is not unprecedented from a historical perspective. Humanity has more than once suffered long periods of cultural conflicts and deterioration before eventual recovery and renewal. The accumulation of mistakes appeared to be a necessary and preparatory stage for future progress, especially when such progress is of a fundamental nature. We might be living through one of these transformational periods of history.
The only way that we could eventually emerge stronger from the current crisis is if we manage to learn to identify and develop new cultural forms that are capable of transcending and including our past accomplishments – retaining traditional virtues and changing outdated rules and habits. From this perspective, Sloan and Drucker were early pioneers whose experiences and contributions remain an important part of the on-going human journey. We owe them a deep debt of gratitude and share with them solidarity of the human spirit.
While Sloan followed through his policy of “studiously ignoring” Drucker’s study of General Motors, Drucker wrote repeatedly on the subject and gave the impression of a man being wronged by a beloved but old fashioned parent for what he considers as his finest achievement. It is more than sentimental. According to Drucker, “Of all my work on management and ‘the anatomy of industrial order’, I consider my ideas for the self-governing plant community and for the responsible worker to be both the most important and the most original”.
However, again according to Drucker, “Sloan had little use for the responsible worker or for the self-governing plant community”. There, at least from Drucker’s perspective, his quarrels with Sloan centered on the role of big business in lifting up the rest of humanity or fulfilling its social responsibility. However, it is one thing to state that Sloan and GM executives rejected Drucker’s ideas on how to fulfill social responsibility. It is quite another to assert that they abdicated their social responsibility entirely. We must look carefully at Sloan’s track records and his rebuttal (“My Years at General Motors”) in order to arrive at a fair assessment.
As a social conservative, Sloan was very active on the social and political scene and implemented many projects during his lifetime with lasting social impacts, both within and outside GM. For example he labored tirelessly to develop GM dealership networks on the basis of mutual reliance and benefits. He reminisced how he furbished a rail car as a mobile hotel room in order to go around the country and visit 4 or 5 dealerships a day; he was a major philanthropist of the era and a true pioneer in adult education.
He spearheaded the establishment of General Motors Institute in the 1920s with the specific goal of helping assembly line workers to become engineers and managers. He was a major sponsor of the management education programs at MIT which eventually grew into MIT Sloan School of Management; he was a primary driver of the GM executive compensation plan that set the modern standard of aligning the financial interests of business executives with those of the corporation and its shareholders; he was also behind a GM wage formula that tied worker wage increases with cost-of-living indexes, a major instrument for restoring relative peace between labor unions and management across multiple industries after a rocky start early on.
A general pattern could be observed in Sloan’s approach to social responsibility: there has to be proportional responsibility and authority for all partners involved in such relationships. He categorically rejected any form of unilateralism from any one party (e.g. GM divisions, labor unions or government) that would tip the balance one way or the other for, as Drucker himself agreed, such loss of balance would inevitably result in tyranny, whether by a few strong men or the majority (populism in more contemporary terminology).
Sloan and Drucker were in fact on the same wavelength intellectually with regard to the necessity of integrating responsibility with authority. Where they differed was on how to approach such integration from the human condition of disintegration and chaos. Sloan, the quintessential social conservative, had a strong preference for and indeed belief in a more incremental approach, guided by accumulation of past experiences (more mistakes than triumphs) and tried and true principles.
Drucker, on the other hand, saw the need for a more radical approach (relatively speaking for he would surely be considered as a conservative by the standard of today’s progressives!). He believed that “in the complex society of organizations in which we live, the organizations – and that means the ‘professionals’ who manage them – must surely take responsibility for the common weal. There is no one else around who can do it.”
Putting aside Drucker’s specific implementation ideas (e.g., the responsible worker or self-governing plant community), few people today would disagree with him that big businesses are where the real powers reside under political democracy and free market economy. Labor unions could protest and strike, the governments could protect or at most prune. Neither could create as businesses can and must.
As long as our society still cherishes individual initiative and entrepreneurship, whoever organizes the economic resources controls people’s livelihood. Drucker was a true visionary and ahead of his time. It was regrettable that Sloan and Drucker, two men approaching the same summit from different sides, never met at the summit. On the other hand, the works they initiated and the trails they blazed served and continue to serve as invaluable signposts for future generations. As both men realized, we have no choice but to ascend even if we fail again. Our children must succeed us as we succeed Sloan and Drucker. Playing the blame game does no one any good.
So let’s take a closer look at some of the basic premises and findings made by Sloan and Drucker and see how we might be able to build on and extend their legacy beyond the boundaries of their cultural war.
1. Social responsibility has an individual as well as collective dimension
As a self-proclaimed social and political scientist, Drucker’s analysis of social responsibility was rooted in the righteousness of the common good. However, he was vague about what holds the common good together. As Sloan pointed out, “an organization does not make decisions; its function is to provide a framework, based upon established criteria, within which decisions can be fashioned in an orderly manner. Individuals make the decisions and take the responsibility for them.”
The contemporary public discourse on social responsibility suffers from the same vagueness in its theoretical foundations. Each social group tends to attack others in aggregate terms (e.g., Democrats against Republicans) and ignore the significant and vital diversity within each group.
To break the deadlocks of cultural wars in our society, we must honor Sloan’s insight and restore the individual dimension of social responsibility. It is individuals who are capable of overcoming the challenges of their circumstances and bring renewal to himself or herself, first and foremost, and his or her environment. It has happened in the past and can and will happen again in future.
2. Social responsibility requires both power and love
Both Sloan and Drucker struggled with the 19th century intellectual tradition of power ethics, in different ways. Both understood very well that power was king in business and human affairs in general. On the other hand, neither was willing to yield completely to the fate of power politics.
For Sloan, it was too risky to give up control in running a business for “the circumstances of the ever-changing market and ever-changing product are capable of breaking any business”. Therefore, he prized ‘management prerogative’ above everything else. To channel the energy of his free spirit, he devoted himself in philanthropy for adult education and other social and political causes.
Drucker, as we have seen previously, saw no alternative to big businesses taking on such risks in order to foster social change required of an industrial society, precisely because big businesses have their hands on the steering wheel of an industrial society.
History has proven that Drucker was correct in his overcall assessment. However, Sloan’s cautions were not without merit. Merely postulating ideas of the responsible worker and self-governing plant community as Drucker did were insufficient to make them a reality. There has been real progress since the time of Sloan and Drucker but such progresses have been incremental and subtle.
Nowadays, it is much more common and acceptable in Corporate America to talk about social responsibility and some companies are taking more aggressive steps to advance social agendas such as racial equality and environmental protection as they do for profit and loss (management by objectives or MBO as Drucker prescribed). In general, however, social responsibility is still being treated as an ‘add on’ to ‘real’ business objectives and, by default, dispensable when going gets too tough. In fact, despite some bold statements, Peter Drucker himself advocated a ‘business first’ position in most of his works on management.
John Mackey, founder and CEO of Whole Foods Market made an argument that business should differentiate between its profit goals and a higher purpose. A business must make profits just as a person must eat to stay alive. However, one lives for a higher purpose rather than just to have enough to eat. We might as well rename the higher purpose to love since that’s what we most aspire to even if/when we fail badly … We do not tell our loved ones that they matter only when going was not too tough.
In fact, love matters especially when going is tough, that is the hallmark of true love. We need to transform our thinking of social responsibility from an ‘add on’ to ‘true love’. That will require us to redefine social responsibility in terms that reside within the business, not out there in society as Drucker did, often subconsciously.
3. Social responsibility could be fulfilled only in an evolutionary context
Last but not least, our industrial society could not be developed overnight nor homogeneously as Drucker theorized. As an academic, he was entitled to construct simplified models. When it comes to actual implementation, we must deal with multitudes of pre-industrial values, traditions and artifacts that have been part of the human fabric since time immemorial.
It’s both naïve and inhuman to try to wipe away the fruits of past human development in one quick swoop as many business change programs attempt to do in vain and cause much damage. As visionary as Drucker was, he was far ahead of his time and even himself. Sloan and other GM executives were wrong in dismissing his call for big businesses to take social responsibility seriously but were wise in rejecting his premature ideas for implementation.
Since then social scientists have learned much more about the characteristics of the responsible worker and even a little bit more about the self-governing plant community. Our knowledge of human nature and developmental needs is far from complete and much experimentation remains to be done before large scale implementation could become feasible. Central to realizing Drucker’s dream is to be able to combine both power and love in the conducts and dynamics of day to day business.
Like a true noble warrior, Sloan expressed his beliefs and hopes toward the end of his career: “Each new generation must meet changes — in the automotive market, in the general administration of the enterprise, and in the involvement of the corporation in a changing world. For the present management, the work is only beginning. Some of their problems are similar to those I met in my time; some are problems I never dreamed of. The work of creating goes on.”
It might sound strange but the best way for us to honor the legacy of Sloan and Drucker is to continue to fight the cultural war, with more rigor and better precision. In the final analysis, we are not fighting each other but fertilizing the natural soil of evolution.
About the author:
Dr. Yan Song has had more than two decades of professional and executive experience in the Pharmaceutical and IT industry. He is known as a thought leader and practitioner in applying theories of social complexity and systems thinking to business turnarounds and transformations. His current business focus is to help large organizations develop and implement digital transformation strategies that integrate cultural, data, process and technologies within a minimal and viable architectural framework. Dr. Song received his PhD in physical chemistry from the University of Wales in 1989 and MBA from the University of Chicago in 2001.
