Rick Wartzman: All Publications, Events and Press

A Time for Ethical Self-Assessment

Cecille Isidro — Tue, 23 Dec 2008 13:15:00 -0500

This may be the season of giving, but it sure feels like everybody is suddenly on the take.

Siemens, the German engineering giant, agreed this month to pay a record $1.6 billion to U.S. and European authorities to settle charges that it routinely used bribes and kickbacks to secure public works contracts across the globe. Prominent New York attorney Marc Dreier--called by one U.S. prosecutor a "Houdini of impersonation and false documents"--has been accused by the feds of defrauding hedge funds and other investors out of $380 million.

When Cutting Costs Is Not the Answer

Cecille Isidro — Fri, 05 Dec 2008 16:51:00 -0500

The layoff announcements are mounting by the day: 50,000 at Citigroup, 12,000 at AT&T, 6,000 at Sun Microsystems, 2,500 at DuPont, 1,200 at United Airlines, 850 at Viacom .

Auto Bailout: What Drucker Would Have Said

Cecille Isidro — Fri, 21 Nov 2008 16:27:00 -0500

In the mid-1970s, Peter Drucker stood before a group of executives at New York University and listened to one of them gripe about his struggles in a difficult economy. Drucker offered a bit of advice, but the executive evidently was not persuaded.

"I don't think that will work for me," the man said in an exchange recounted in John Tarrant's book, Drucker: The Man Who Invented the Corporate Society.

"Then you had better go out of business," Drucker replied. "There is no law that says a company must last forever."

I imagine Drucker would have said pretty much the same thing had he been able to spend a few minutes with the CEOs of the Big Three automakers as they trekked to Capitol Hill this week to plead for $25 billion in federal relief.

He wouldn't have done this cavalierly, mind you. For Drucker understood all too well the personal pain and social dislocation that can result when an industry implodes.

Six decades ago, he watched the mechanical cotton picker begin to sweep across the South, obviating the need for labor in the fields. "No doubt," he wrote, "the replacement of the economically most inefficient sharecropper by the efficient machine should eventually result in a higher income for all, including the displaced sharecroppers or their descendants.

Lessons from Cotton

"But where will the 5 or 8 million sharecroppers go, and what will they do?" Drucker went on. "And what about the social and economic fabric of the South of which they have been the warp? Surely a sudden displacement of sharecroppers would be a social and political catastrophe not only for the South but for the whole country."

And yet Drucker also recognized that trying to stand in the way of the machine--in the way of the future--by implementing some sort of industrial policy would "result eventually in even worse catastrophe; with every year, the adjustment will become more difficult, the status quo less tenable."

The analogy between cotton and cars is far from perfect. But the painful conclusion is inescapably the same: Giving a crutch to a group of companies that can't compete on their own will only delay the inevitable and make it tougher to adjust down the road.

Drucker's relationship with the auto industry was long and at times quite strained. His words of warning about the Cotton South, in fact, were penned as part of his 1946 book, Concept of the Corporation, which was first and foremost a study of the most troubled of the automakers today, General Motors.

Advice Anathema to GM Brass

At the time GM sat atop the world, and Concept of the Corporation was more than respectful. "Most reviewers," Drucker would later remember, "considered the book to be strongly pro-GM." But among the company's senior managers, it became anathema immediately upon publication.

Drucker's work was reviled, he explained, because he'd had the temerity to say that GM might want to review some of its core policies and strategies, especially those that had been in place for 20 years or more. The fact that these approaches had been so successful, he added, made it all the more urgent that they be reevaluated.

"It was not so much my specific suggestions for changes that upset the GM executives, but my suggesting that policies must be considered as temporary and subject to obsolescence," said Drucker. "To the GM executives, policies were 'principles' and were valid forever, or at least for very long periods."

By the 1990s, Drucker took another look at GM and concluded that, on some level, not much had really changed--although now, instead of being highly profitable and widely admired, the company was faltering badly (especially against its Japanese rival, Toyota), which had welcomed many of Drucker's ideas, particularly in the area of human relations). The Detroit giant, as Drucker saw it, was as slow-footed and resistant to fresh thinking as ever.

The reasons for GM's "inability to pull itself out of the mire," Drucker wrote in a new introduction to Concept of the Corporation, "are largely the problems...pointed out 50 years ago."

The question today is: Why would anybody think anything's suddenly going to be different because of a $25 billion infusion?

Invest in Job Training

Still, just saying no to the automakers' bailout bid isn't responsible, either. Behind every Hummer, after all, stand the humans who've built it. So instead of $25 billion in aid for the companies, why not a $25 billion investment in those autoworkers and others who may be displaced as abruptly as the sharecroppers of the old South?

The federal government currently spends about $20 billion on all its various job-training programs combined, according to the Workforce Strategy Center, a New York-based think tank. It's the right time for a big boost in that budget, especially with millions of green jobs expected to be created over the next 30 years.

"Protecting aging industries does not work," Drucker asserted in his 2002 book, Managing in the Next Society. "That is the clear lesson of 70 years of farm subsidies." Whatever is being spent on propping up failing enterprises, he wrote, "should instead go to subsidizing the incomes of older laid-off workers and to retraining and redeploying younger ones."

Money won't solve everything: Many workforce development initiatives are poorly managed and need to be overhauled. But there are some promising models out there, and the general thrust is pure Drucker: providing access to increased knowledge while putting the past in the rearview mirror.

What Obama Shouldn't Do

Cecille Isidro — Fri, 07 Nov 2008 13:52:00 -0500

President-Elect Barack Obama has made plenty of promises about what he's going to do: provide tax relief to the middle class, rebuild our crumbling infrastructure, invest in renewable energy, ensure that all children receive a first-rate education, and make health care accessible and affordable for every American--all while taming the nation's monstrous deficit.

But as Peter Drucker made clear, Obama's success may well hinge on what he chooses not to do.

It is absolutely crucial, Drucker wrote in a 1993 piece in which he dispensed a little management advice for the Oval Office, that any new President "not stubbornly do what he wants to do, even if it was the focus of his campaign."

He noted that Harry Truman came into the Presidency convinced, "as were most Americans," that he should begin tackling a string of domestic problems, what with the end of World War II at hand. "What made him an effective President," said Drucker, "was his accepting within a few weeks that international affairs, especially the containment of Stalin's worldwide aggression, had to be given priority whether he liked it or not (and he didn't).

"There seems to be a law of American politics," Drucker continued, "that the world always changes between Election Day and Inauguration Day. To refuse to accept this--as Jimmy Carter tried to do--is not to be 'principled.' It is to deny reality and condemn oneself to being ineffectual."

Of course, in Obama's case, the upending of the world has already happened. Strengthening the economy, and especially bringing some relief to battered homeowners, has to be his No. 1 aim. Should Obama splinter his efforts and concentrate on much more at the outset than fixing the financial system, he is likely, as Drucker put it, to "achieve nothing."

No "Sure Thing"

Another what-not-to-do rule for the President-elect: "Don't ever bet on a sure thing," Drucker wrote. "It always misfires." Drucker recalled that no President has enjoyed more of a popular mandate than did Franklin Roosevelt heading into his second term. Indeed, he had "every reason to believe that his plan to 'pack' the Supreme Court and thereby remove the last obstacle to…New Deal reforms" would be a slam dunk. His move, however, immediately backfired--"so much so," Drucker pointed out, "that he never regained control of Congress."

Obama's gracious victory speech, in which he reached across the aisle and expressed "a measure of humility and determination to heal the divides that have held back our progress," was a good and important first step. As he moves along in the months ahead, he must continue to take that same tack in both words and deeds.

What else shouldn't Obama do? "An effective President," Drucker wrote, "has to say 'no' to the temptation to micromanage." The most promising paradigm, he suggested, might be FDR's cabinet, where "nine of 10 members (all but the Secretary of State) were what we would now call technocrats--competent specialists in one area." "I make the decision," Drucker quoted Roosevelt as saying, "and then turn the job over to a cabinet member and leave him or her alone."

By contrast, Drucker asserted, trying to have a single White House chief-of-staff spearhead an Administration's biggest programs "has never worked" very well. Neither, he said, does the Clintonesque model of bringing into the room "dozens and dozens of deputy secretaries, undersecretaries, assistant secretaries, special assistants, and so on." That merely turns the highest levels of government "into a perpetual mass meeting."

Of all the things for the President not to do, though, Drucker left little doubt: He must never assume that government can--or should even try-- to solve every ill.

Government Ineffectiveness

"There is mounting evidence that government is big rather than strong; that it is fat and flabby rather than powerful; that it costs a great deal but does not achieve much," Drucker wrote 40 years ago in The Age of Discontinuity. Three decades later, in an article in The Atlantic, Drucker's frank assessment hadn't changed much: "Government everywhere--in the United States, the United Kingdom, Germany, the former Soviet Union--has proved unable to run community and society."

Drucker didn't just lash out, however. He also offered up his share of prescriptions. Among them: building "the habit of continuous improvement" into all federal departments and introducing "benchmarking," in which the performance of various agencies would be compared annually, "with the best becoming the standard to be met by all the following year."

But, as Drucker saw it, the thing that government needs to do, most of all, is to stop doing. "The purpose of government is to make fundamental decisions and to make them effectively," Drucker declared. "The purpose of government is to focus the political energies of society. It is to dramatize issues. It is to present fundamental choices. The purpose of government, in other words, is to govern.

"This, as we have learned in other institutions, is incompatible with 'doing.' Any attempt to combine government with 'doing' on a large scale paralyzes the decision-making capacity. Any attempt to have decision-making organs actually 'do' also means very poor 'doing.' They are…not equipped for it."

Obama, for his part, seems to have embraced this philosophy. It makes no sense to push for "an era of no government," he told The New York Times Magazine last summer. "What we need to bring about is the end of the era of unresponsive and inefficient government and short-term thinking in government, so that government is laying the groundwork, the framework, the foundation for the market to operate effectively and for every single individual to be able to be connected with that market and to succeed in that market."

In the end, the surest route to "Yes We Can" will be for the President sometimes to say, "No, I'm afraid I can't."

No Magic Bullet for the Economic Crisis

Cecille Isidro — Fri, 24 Oct 2008 12:57:00 -0400

With the economy sputtering and the future unclear, managers everywhere are looking for answers. Or, more precisely, many are bent on finding the answer--the single strategy that will allow them to weather these turbulent times.

Is this the moment to scale back? Or is this an opportunity to swallow up assets on the cheap? Should the organization stay the course? Or should it tack in a new direction? To Peter Drucker, the answer to such questions could always be summed up in three words: It all depends.

That may sound dreadfully wishy-washy, especially during a period when so many are groping for a bit of certainty that they can hang on to. But for Drucker, determining what a business should do next was something that only the business itself could figure out through a continuous, "systematic analysis of all existing products, services, processes, markets, end uses, and distribution channels."

When scrutinizing all these dimensions of the operation, one has to ask, "Are they still viable?" Drucker wrote in his 1973 masterpiece Management: Tasks, Responsibilities, Practices. "Are they likely to remain viable? Do they still give value to the customer? And are they likely to do so tomorrow? Do they still fit the realities of population and markets, of technology and economy? And if not, how can we best abandon them--or at least stop pouring in further resources and efforts?"

Think Carefully

With things so shaky in the world today, companies should be working methodically through these complex issues. The tendency, however, is to do just the opposite. As Drucker remarked in a 1997 interview, whenever people are "caught in a period of very rapid change...the feeling is that there must be a right answer" that everyone can easily turn to.

This feeling stems in part from peer pressure. "If a fellow CEO on the golf course says, 'We are using this, and we wouldn't do without it,' you have to do it too," Drucker observed.

Drucker hastened to add that it isn't only executives who fall victim to this sort of lazy thinking. "When I was growing up in Vienna, everybody felt the need to be psychoanalyzed," he recalled. "And there was a time when every child older than 4 years had to have his tonsils out. ...The search for the one quick fix is a universal human failing."

In the realm of business, it is a failing that manifests itself in a ceaseless succession of management fads and fashions offered up by a parade of self-styled gurus. "Each evangelist," Drucker asserted, "is quite sure that his own patent medicine cures everything. And it's very hard to get management to ask, 'Is this for us?'"

"Bandwagon Psychology"

But in truth, there is no panacea. "The stuff that is good for my arthritis," Drucker said, "would not help me at all with a broken leg, even though it's in the same general area."

Notably, it's this "bandwagon psychology," as Drucker called it, which contributed to the crisis in which we're now mired. Rather than diligently tackle the tough questions Drucker suggested--Is what we're doing viable? Does it fit reality?--far too many banking executives were happy to ignore the risks and plunge into the subprime cesspool. The reason for this was obvious: It seemed like a way to get rich fast. And, besides, everybody else was doing it.

Well, not quite everybody. William Taylor, co-author of the book Mavericks at Work, pointed out recently that online banker ING Direct "managed to avoid the march of folly in its industry" by sticking to "plain-vanilla mortgages rather than exotic instruments that sounded too good to be true (and were)." According to Taylor, ING has generated 100,000 mortgages worth $26 billion, while suffering a mere 15 foreclosures.

ING Direct's Chairman and CEO Arkadi Kuhlmann takes pride in being a recusant, building his business on inexpensive, no-frills services and high interest rates. Still, he conceded to Taylor that following the crowd has a definite appeal sometimes. "Every person who tries to do real innovation is going to be tempted by money, greed, acceptance, being in the middle of the action," Kuhlmann said. "But at the core," he explained, "there is one fundamental difference: I know why I'm here. I want to make a difference."

As Taylor sees it--and surely Drucker would have agreed--this is one of the most important and courageous things a manager can do: "resisting an innovation that takes hold in your field when that innovation, no matter how popular with your rivals, is at odds with your long-term point of view."

So what's a manager to do amid such a fragile economy? Take a hard look at your business and, in the context of your mission--and nobody else's--decide what is ripe to pursue and what makes sense to give up. In the end, maybe you'll zig. Maybe you'll zag. Or maybe you'll just stand pat.

"Nine times out of 10," said Drucker, "when you make the diagnosis, you don't operate. You just wait"--and let the bandwagon roll by.

Financial Leadership, the Missing Ingredient

Cecille Isidro — Wed, 15 Oct 2008 14:23:00 -0400

As the financial crisis went from bad to worse last week, policymakers and business executives fussed and fretted over the drying up of credit around the world. The bigger problem, though, is a severe shortage of something else entirely: leadership. Peter Drucker--who began writing on the topic in the 1940s, long before it became fashionable--considered true leaders those who bring accountability, consistency, and a sharp sense of what must be accomplished to all they do. When it comes to the current mess, those in charge on Wall Street and in Washington have failed to deliver on all three fronts.

Most appalling, perhaps, were the performances on Capitol Hill by the former heads of Lehman Brothers and American International Group, who blamed devious short-sellers, unpredictable regulators, and careless colleagues for their firms' woes--just about everybody, that is, but themselves. "Looking back on my time as CEO," Robert Willumstad, AIG's former chief, told a House oversight committee, "I don't believe AIG could have done anything differently."

The Height of Prudence?

Richard Fuld, who presided over the downfall of Lehman, told the panel that all of his decisions "were both prudent and appropriate" given the information he had at the time. Yet if this is true, it indicates that his organization was ill-equipped to get him the information he required--a horrendous management breakdown in and of itself.

"Harry Truman's folksy 'The buck stops here' is still as good a definition as any" of leadership, Drucker wrote in his 1967 classic, The Effective Executive. Willumstad and Fuld made a mockery of the buck-stops-here standard.

Meantime, public officials haven't displayed many exemplary leadership qualities, either. "The leader's first task is to be the trumpet that sounds a clear sound," Drucker wrote. "Effective leadership--and again this is very old wisdom--is not based on being clever; it is based primarily on being consistent."

But clarity and consistency have been largely absent from the government's response to the crisis. At first, the Bush Administration had an awful time explaining why its $700-billion rescue plan wasn't simply a taxpayer-funded bailout for the companies responsible for the disaster. And all along, the Administration's efforts have seemed haphazard and uncertain, as if it isn't exactly sure what notes on the trumpet it should try to play. At one point, for example, Treasury officials belittled the idea of the government taking an ownership stake in the nation's banks. Then they reversed course and announced Tuesday that they'd invest $250 billion in the sector.

Their action helped spur a stock-market rally after shares were completely battered last week. But it remains to be seen whether the government's plan is even focused on the right things. It's quite possible, after all, that it could succeed in shoring up the banking system in the short term while neglecting to ensure that another financial meltdown doesn't materialize down the line.

One of the most serious issues that hasn't been adequately addressed, for instance, is mandating that financial institutions divulge precisely what kinds of risks they face today and going forward.

"There have been lots of halfhearted attempts at improving this over the years, most of them driven by big credit or trading losses, concerns about systemic stability or damage to clients," Merrill Lynch veteran Erik Banks wrote in his disturbingly prescient 2004 book The Failure of Wall Street: "Something bad happens, regulators ask for more risk information, banks produce it for a while, no one finds it particularly useful because it is couched in such oblique terms that nothing is actually conveyed, and then it gets buried in unreadable form in the financial statement footnotes; regulators, clients, and investors forget about it, and it's back to the status quo till the next blowup."

This time, we must do better--but that calls for leaders who have the courage to treat not only the current calamity but also its underlying causes, including a lack of transparency.

Expanding the Boundaries

Indeed, the way Drucker saw it, one of a leader's most important jobs is to frame carefully what he or she hopes to accomplish with every major decision. "What are the objectives the decision has to reach?" Drucker wrote. "What are the minimum goals it has to attain? What are the conditions it has to satisfy?"

Drucker pointed out that in science, these are known as "boundary conditions." And falling short of them can be dire. "A decision that does not satisfy the boundary conditions," Drucker asserted, "is worse than one which wrongly defines the problem."

He recounted that President Roosevelt expanded his own boundary conditions after the "sudden economic collapse" between the summer of 1932 and the spring of 1933. Earlier, Roosevelt had pursued a relatively conservative policy of economic recovery. But when the situation deteriorated, his goal necessarily became not just recovery but comprehensive reform.

It is a path we'd be wise to walk again. The question is, will anyone provide the leadership to take us there?

Rick Wartzman in Bloomberg News | 'Lehman, AIG Chiefs Should `Man Up,' Stop `Kissing the Mirror' '

Cecille Isidro — Fri, 10 Oct 2008 15:51:00 -0400

At no point did the witnesses acknowledge errors in judgment, a management ``travesty,'' said Rick Wartzman, director of the Drucker Institute at Claremont Graduate University in Claremont, California. He is also a former Wall Street Journal reporter, editor and business columnist.

``Being a leader is about being responsible and not passing the blame. True leaders step up,'' Wartzman said. ``To say you're acting on the best information available is a failure of leadership that reflects a failure of the system.'' LINK

CA EVENT: Censorship and Politics

Communications — Fri, 10 Oct 2008 11:00:00 -0400

A New America Event
10/10/2008 - 12:00pm

Come hear more about the book that Studs Terkel calls "revelatory and stunning"; that Anthony Lewis praises for providing "a dramatic glimpse of a dark American past"; that Publishers Weekly says "artfully weaves the personal and the political" in a way that "readers will find engaging on more than one level." Rick Wartzman, Irvine senior fellow at the New America Foundation, will lecture on his new book, "Obscene in the Extreme: The Burning and Banning of John… more

The Financial Crisis: What Drucker Would Have Said

Cecille Isidro — Fri, 26 Sep 2008 09:09:00 -0400

Peter Drucker didn't have a whole lot of nice things to say about those on Wall Street, at one point likening them to "Balkan peasants stealing each other's sheep."

Given the magnitude of the latest crisis to grip Fannie Mae, Freddie Mac, American International Group, Lehman Brothers, and their friends, one can only imagine what kind of acid analogy he might have used today.

Or perhaps he would have simply said, "I told you so." After all, so much of the trouble that has befallen these giants of the investment banking, mortgage, and insurance sectors--and that threatens to "undermine the financial security of all," as President George W. Bush put it--comes from a foolish disregard for the kinds of fundamental lessons that Drucker taught about risk, reach, and responsibility.

Some prefer to complicate things. Indeed, there is a temptation, in certain quarters, to fuzzy up what has happened here--to mask the basic management failures that are at the root of this disaster by pointing to the intricacies of credit-default swaps, "naked shorts," and other arcana.

Luck Doesn't Last

But as Drucker knew so well, none of this is really very complex: If you make enough dangerous bets--and amassing your fortune on a foundation of laughably loose lending standards and mountains of debt is nothing if not dangerous--you're eventually going to run out of luck.

"No matter how clever the gambler," Drucker asserted, "the laws of probability guarantee that he will lose all that he has gained, and then a good deal more." He wrote these words in the 1990s, as a different group of once-illustrious institutions--Barings, Bankers Trust, Yamaichi Securities--were felled by their recklessness.

Drucker noted that top management professed to be shocked by some of the activities that had taken place at these firms, and it won't be surprising if we hear similar talk this time around--especially if people wind up going to jail. It was reported that the FBI has opened more than two dozen probes into possible fraud connected to the financial meltdown, including investigations at Fannie Mae, Freddie Mac, AIG, and Lehman.

But Drucker didn't buy that senior executives were blind to their employees' egregious behavior a decade ago, and he wouldn't buy it now. "In the first place," he wrote, "there is a limit to coincidences. Such widespread breakdowns cannot be blamed on 'exceptions.' They denote systems failure."

Too Big to Hide

Besides, Drucker added, "in every single one of these 'scandals,' top management seems to have carefully looked the other way as long as trading produced profits (or at least pretended to produce them). Until the losses had become so big that they could no longer be hidden, the gambling trader was a hero and showered with money."

Of course, the pressure to produce these profits--and, in turn, prop up a company's share price--has become unrelenting. It used to be, veteran financial journalist Bob Reed remarked recently, "the stock price was an important component of something more grand: how well the company was managed, product quality, innovations, customer satisfaction--you know, the business." But over time, those pursuits have become largely overshadowed by just one: maximizing shareholder value.

To Drucker, this mentality was anachronistic. "One thing is clear to anyone with the slightest knowledge of political or economic history: The present-day assertion of 'absolute shareholder sovereignty'...is the last hurrah of 19th century, basically preindustrial capitalism," he wrote in a 1988 article. "It violates many people's sense of justice."

Perhaps even more important, Drucker said, this lack of balance is unsettling in a world in which large institutions have such an enormous effect on so much--on the portfolios of shareholders, yes, but also on the lives of millions of other people, as we're seeing right now.

Long-Term Thinking

In this day and age, "modern enterprise, especially large enterprise, can do its economic job--including making profits for the shareholders--only if it is being managed for the long run," Drucker wrote. "Altogether far too much in society--jobs, careers, communities--depends on the economic fortunes of large enterprises to subordinate them completely to the interests of any one group, including shareholders."

All of which leads, in the end, to the biggest thing missing today on Wall Street and in much of Corporate America: an ethic of responsibility.

Drucker believed strongly that every business must contribute to the general health of society. This means doing "good works" where appropriate. But above all, it means ensuring that the business itself is well-managed and built to last.

"The institution's performance of its specific mission is...society's first need and interest," Drucker wrote in his 1973 book Management: Tasks, Responsibilities, Practices. "A bankrupt business is not a desirable employer and is unlikely to be a good neighbor in a community. Nor will it create the capital for tomorrow's jobs and the opportunities for tomorrow's workers."

I often tell people that there are a million reasons to read and reread what Peter Drucker had to say. This week, it's more like 700 billion.

The Joneses and the Joads

Cecille Isidro — Tue, 16 Sep 2008 09:24:00 -0400

After storms ravaged Iowa last summer, devastation wasn't the only thing that people found amid the flood waters. Scores of out-of-work electricians from Michigan, hard hit by auto industry cutbacks, spied opportunity.

Trekking hundreds of miles from home, where the unemployment rate of 8.5% is the highest in the U.S., they were eager to scoop up jobs rewiring Cedar Rapids -- even if it meant sleeping in a tent for weeks on end.

To some observers, the desperate scene evoked an unmistakable image. "The Joads leaving Oklahoma is exactly what we are seeing coming out of Detroit now," UC Berkeley labor expert Harley Shaiken told reporters.

Nearly 70 years after it was published, John Steinbeck's "The Grapes of Wrath" -- which tells of the dirt-poor Joad family's epic migration from drought-plagued Oklahoma to fruitful (if unfriendly) Central California -- continues to resonate as few novels have. In fact, the book may well be more relevant today than at any time since it first appeared in April 1939.

"The Grapes of Wrath" has always been extraordinarily popular. More than 400,000 copies flew off the shelves its first year in print, making it the nation's No. 1 seller. So powerful was Steinbeck's portrayal of the Joads' plight that people began referring to the fictional clan as if it were real. "Meet the Joad Family," read one newspaper headline. "What's Being Done About the Joads?" asked another. "The Joads on Strike," declared a third.

Before long, thanks in part to Henry Fonda's performance as Tom Joad on the big screen and Woody Guthrie crooning about the Joads in his "Dust Bowl Ballads," Steinbeck's characters had become permanently etched into popular culture. When Bruce Springsteen and Rage Against the Machine sang about "The Ghost of Tom Joad," legions of fans were already tuned in to the generations-old reference.

Indeed, wherever people exhibit tremendous strength amid terrible anguish, the Joads are a potent symbol. "I suspect I met a few Ma Joads and Tom Joads in Kabul," said Afghanistan-born author Khaled Hosseini as he described the process that led him to write "The Kite Runner."

Yet these days, especially, it's more than just the Joads' strength in the face of adversity that makes "The Grapes of Wrath" so pertinent -- and poignant. Steinbeck's story echoes particularly loudly because, just as in 1939, the deficiencies of an unfettered free market are so plainly on display.

Only a fool, of course, would suggest that America is in anywhere near as bad shape now as it was then. The U.S. jobless rate stood above 17% in 1939, and personal income and total economic output were no higher than they had been a decade before, at the start of the Great Depression. Misery was ubiquitous.

Nor is anybody seriously hinting at the kind of radical solution that some of the country's leading intellects were openly advocating in the 1930s: a scuttling of the capitalist system in favor of some form of socialism. "There is little question in my mind that the principle of private ownership as a means of production is not long with us," Steinbeck himself proclaimed -- the kind of thinking that led officials in Kern County (the very place the Joads settled in the novel) to ban "The Grapes of Wrath" from libraries and schools until 1941.

Nonetheless, there are some striking parallels between the Joads' era and ours. Most notably, income inequality today is at its highest level since the late 1920s. Adjusted for inflation, median household income was actually lower last year than in 2000. Hunger is on the rise. Fueling a considerable amount of hardship is the mortgage industry crisis -- an episode that brings to mind Steinbeck's depiction of banks as rapacious monsters.

As in the 1930s, the issue is what to do about all this. In "The Grapes of Wrath," Steinbeck pointed to government intervention as an important piece of the answer; it was in a New Deal labor camp that the Joads found a needed measure of comfort and support.

Much of the New Deal -- both in substance and in spirit -- has long since been dismantled. But the notion that "government is not the solution to our problem; government is the problem," as Ronald Reagan so memorably put it, may also be running its course.

For many, polls show, it's becoming increasingly clear that the public sector has a role -- and a responsibility -- to help lift up those who are being left behind, as well as to more tightly regulate the corporations that, if left unchecked, can inflict so much damage throughout the economy. Even the Bush administration has warmed up to the notion of more vigorous oversight of business.

After he read "The Grapes of Wrath," President Franklin Delano Roosevelt remarked that "there are 500,000 Americans that live in the covers of that book." They may not exactly live there anymore, but millions can surely relate to the uneasy question that lies at the heart of Steinbeck's classic: How come so many are mired in poverty in a country blessed with so much prosperity?

Put a Cap on CEO Pay

Cecille Isidro — Fri, 12 Sep 2008 10:09:00 -0400

For a guy whose astute counsel helped to make so many CEOs rich, Peter Drucker had an intense loathing of exorbitant executive salaries.

He hated high CEO pay on every level: what it said about the individual as a leader, how it undermined the smooth functioning of the organization, and the way it tore at the fabric of society as a whole.

Drucker's strong feelings on the subject—he once termed sky-high CEO compensation "a serious disaster"—are well worth revisiting in light of the news that the men who sat atop Fannie Mae and Freddie Mac (BusinessWeek, 9/10/08) could be eligible for as much as $24 million in severance and other benefits after being ousted from their positions. Last week the federal government was forced to step in and rescue the faltering mortgage giants in a move that could cost taxpayers billions.

Although it wasn't immediately clear whether the two departing CEOs, Fannie's Daniel Mudd and Freddie's Richard Syron, would actually walk away with all that dough, the prospect of such a windfall has resonated on the Presidential campaign trail and helped to stoke a national debate about executive pay.

Drucker's stance on the issue, articulated consistently over many years, was controversial. But it was rooted in his belief that the best leaders are those who understand that what comes with their authority is the weight of responsibility, not "the mantle of privilege," as writer and editor Thomas Stewart described Drucker's view. It's their job "to do what is right for the enterprise--not for shareholders alone, and certainly not for themselves alone."

Last year, according to a report just issued by the Institute for Policy Studies and United for a Fair Economy, S&P 500 CEOs received pay packages worth, on average, $10.5 million. That was 344 times the earnings of the average American worker.

What Drucker thought was more appropriate was a ratio around 25-to-1 (as he suggested in a 1977 article) or 20-to-1 (as he expressed in a 1984 essay and several times thereafter). Widen the pay gap much beyond that, Drucker asserted, and it makes it difficult to foster the kind of teamwork that most businesses require to succeed.

"I'm not talking about the bitter feelings of the people on the plant floor," Drucker told a reporter in 2004. "They're convinced that their bosses are crooks anyway. It's the midlevel management that is incredibly disillusioned" by CEO compensation that seems to have no bounds.

This is especially true, Drucker explained in an earlier interview, when CEOs pocket huge sums while laying off workers. That kind of action, he said, is "morally unforgivable."

Notably, Drucker wasn't opposed to rewarding some people like kings. "There should, indeed there must, be exceptions," he wrote. "A 'star,' whether the super salesman in the insurance company or the scientist in the lab who comes up with a half-dozen highly profitable research breakthroughs, should be paid without any income limitation."

But the chief executive has a special duty to show that he or she is "just a hired hand," Drucker said, invoking the words of J.P. Morgan. "That's what today's CEOs have forgotten."

Not all of them, of course. Last year, Costco Wholesale CEO Jim Sinegal made $3.2 million, including a $350,000 salary, an $80,000 bonus, and stock grants and options valued at $2.6 million. While hardly chump change, that was far less than what his peers raked in--and far less than what Costco's compensation committee wanted to give him. But the panel said in a regulatory filing that it was willing to respect his "wishes to receive modest compensation, in part because it believes that higher amounts would not change Mr. Sinegal's motivation and performance."

Setting pay for top executives can be tricky, even for those whose instinct is to nip their remuneration. In the mid-1980s, after consulting with Drucker, furniture maker Herman Miller agreed that its CEO's pay would be restricted to 20 times the average of all its employees. "The subtle part of this limit was the message to the CEO: If you want to get more pay, you need to do it by raising the average pay" of everyone at the company, the man who used to hold the post, Dick Ruch, recalled in his book Leaders & Followers.

But in 1997, Herman Miller ditched Drucker's model. "From a competitive standpoint," Ruch said, "we needed to eliminate the cap to attract and retain the right people."

Drucker himself conceded that compensation formulas are inherently difficult to develop. "I would be the last person to claim that a 'fair,' let alone a 'scientific,' system can be devised," he wrote. Yet at the same time, he never gave up on the 20-to-1 rule for CEOs, touting it as the right thing for the good of the organization, as well as for the general health of society.

Allowing an enormous disparity in income to exist "corrodes," Drucker warned. "It destroys mutual trust between groups that have to live together and work together."

And, on occasion, bail each other out.

Obscene In the Extreme

Ron Tang — Mon, 01 Sep 2008 09:08:00 -0400

Few books have caused as big a stir as John Steinbeck’s The Grapes of Wrath, when it was published in April 1939. By May, it was the nation’s number one bestseller, but in Kern County, California -- the Joads’ newfound home -- the book was burned publicly and banned from library shelves. Obscene in the Extreme tells the remarkable story behind this fit of censorship.

When W. B. “Bill” Camp, a giant cotton and potato grower, presided over its burning in… more

Organizations Need Structure and Flexibility

Cecille Isidro — Fri, 29 Aug 2008 08:50:00 -0400

There is certainly no shortage of management lessons to be gleaned from Michael Phelps's record-shattering performance at the Beijing Olympics--the importance of setting firm objectives and staying sharply focused perhaps chief among them.

Nevertheless, I suspect that Peter Drucker would have been more intrigued by the blows suffered in the boxing ring than by the gold gathered in the swimming pool. It was there, in the square circle, that the U.S. turned in its worst-ever showing, winning but a single bronze medal and sending disheartened fans scurrying to figure out what went wrong.

Interestingly, the answer appears to have relatively little to do with the fighters' athletic prowess and quite a lot to do with the way the team was run. Those in charge of the nine-man Olympic squad ignored a couple of basic principles that Drucker--though more a student of social science than of the sweet science--pounded home: the need for clear direction and yet, at the same time, a certain degree of organizational flexibility.

Too Many Coaches

In large part, the pugilists' problems can be traced to a move made last year: Members of the U.S. team had to leave their homes--and the care of their personal coaches--to live and train for 10 months as part of a new residency program at the U.S. Olympic Committee facility in Colorado. This, in turn, led to several major miscues--the kind that can plague any enterprise, if it's not careful.

The first was that, once in Beijing, at least several U.S. boxers didn't seem to know whom to listen to: the Olympic coach, Dan Campbell, or their longtime personal coaches. The Olympic staff told light flyweight Luis Yanez, for instance, to be aggressive from the opening bell of his big bout. But his hometown coach, to whom he felt tremendous fidelity, counseled patience. "You have the kid caught in between," Campbell told reporters. Yanez lost.

Drucker, for one, wouldn't have been surprised at the outcome. "In any institution, there has to be a final authority," he wrote in his 1999 book, Management Challenges for the 21st Century, "someone who can make the final decisions and who can expect them to be obeyed."

Conflict of Loyalties

But unless it's made plain whose role that is, confusion can arise. To be successful, any organization "has to be transparent," Drucker explained. "People have to know and have to understand the…structure they are supposed to work in. This sounds obvious--but it is far too often violated in most institutions (even in the military)."

The toughest situation, he added, is when people feel pulled in two directions, the way the boxers did. "It is a very old principle of human relations that no one should be put into a conflict of loyalties," Drucker asserted, "and having more than one 'master' creates such a conflict."

Yet Drucker recognized that rigidity isn't the right course, either--and it's here that those directing the U.S. boxing team (and surely a great many other managers) could profitably reconsider their approach.

Organize Flexibly

A common mistake in both management theory and practice, Drucker noted, is that we tend to become fixated on organizing things one way--and one way only. Depending on the era, we make it all about collaboration or all about decentralization or all about command-and-control.

But in truth, "there is no such thing as the one right organization," Drucker wrote. "There are only organizations, each of which has distinct strengths, distinct limitations, and specific applications. It has become clear that organization is not an absolute. It is a tool for making people productive in working together. As such, a given organization structure fits certain tasks in certain conditions and at certain times."

Frequently, it's assumed that "institutions are homogenous and that, therefore, the entire enterprise should be organized the same way," Drucker continued. "But in any one enterprise…there is need for a number of different organization structures coexisting side by side."

Tricky Coordination

For the boxers, this suggests that the best way forward may well be a blend, with weeklong periods of training at the Olympic site combined with personal coaching at home that is designed to reinforce the strategy set by the national team. Making this work would require deft coordination--and constant communication--among the different coaches to ensure that everyone is on the same page, but there's no doubt that it's doable. In fact, the women's gymnastics team operates under just such a model.

Jim Millman, the chairman of USA Boxing, has already indicated that he's interested in making some changes--though just how extensive remains to be seen. If Drucker is any guide, Millman and his colleagues shouldn't hesitate to be bold, especially given how high expectations were for the U.S. boxing team in Beijing. Some observers even thought this group might snare the most medals since 1984, when the U.S. collected 10 golds and two silvers in the ring.

"Unexpected failure…should be taken as seriously as a 60-year-old man's first 'minor' heart attack," Drucker wrote. What's more, good leaders "do not dismiss unexpected failure as the result of a subordinate's incompetence or as an accident but treat it as a symptom of 'systems failure.'"

That's vintage Drucker, never pulling a punch.

Why Manners Matter at Work

Cecille Isidro — Thu, 14 Aug 2008 09:25:00 -0400

For those of you who never bothered to pay attention to your mother, perhaps you'll listen to Peter Drucker, the father of modern management, instead.

This cheeky thought has crept into my head a couple of times in the last few weeks as I've noticed a run of stories about etiquette (or lack thereof) in the workplace. Most recently, there was the case study posted on this Web site (BusinessWeek.com, 8/12/08) about a worker who had to deal with a boorish boss.

And just a couple of weeks ago, I saw that officials in Anaheim, Calif.--home to Disneyland (DIS)-- were set to hold classes for cabbies, hotel employees, and other service workers in town to ensure they act as knowledgeable and enthusiastic hosts for tourists, while also minding their p's and q's. The hope is that the lessons they learn--to be professional and gracious--will be noticed not only by visitors but by their colleagues, too. "We teach them that they're part of a team, and that what they do rubs off on the team," says Mickey Schaefer, president of Mickey Schaefer & Associates, the Tucson, Ariz., firm overseeing the training. "We've become such an informal society that we all tend to slip. We want to get back to the basics.… Your attitude, your cleanliness, your friendliness all matter."

Drucker, who recalled watching his grandmother confront a young thug on a Vienna streetcar in the early 1930s and lecture him about the virtue of good manners, would certainly agree. "Manners are the lubricating oil of an organization," Drucker wrote. "It is a law of nature that two moving bodies in contact with each other create friction. This is as true for human beings as it is for inanimate objects. Manners--simple things like saying 'please' and 'thank you' and knowing a person's name or asking after her family--enable two people to work together whether they like each other or not."

Day In and Day Out

As the last part of his comment makes clear, Drucker was never particularly sentimental about all this. He wasn't interested in fostering friendships; he was, as usual, trying to enhance performance.

"Warm feelings and pleasant words are meaningless, are indeed a false front for wretched attitudes, if there is no achievement in what is, after all, a work-focused and task-focused relationship," Drucker cautioned in The Effective Executive, his 1967 classic. "On the other hand, an occasional rough word will not disturb a relationship that produces results and accomplishments for all concerned."

Yet Drucker knew that, day in and day out, maintaining a sense of decorum is an important ingredient in any well-managed enterprise. "Bad manners," he said, "rub people raw; they do leave permanent scars."

Maybe even literally. Last month, the Joint Commission, an accreditation body for the U.S. health-care industry, ordered 15,000 hospitals, nursing homes, laboratories, and other facilities to implement standards that spell out what is considered "acceptable and unacceptable" personal conduct and to establish "a formal process" to manage things when the rules get broken.

"Health-care leaders and caregivers have known for years that intimidating and disruptive behaviors are a serious problem," the commission said. "Verbal outbursts, condescending attitudes, refusing to take part in assigned duties, and physical threats all create breakdowns in the teamwork, communication, and collaboration necessary to deliver patient care."

Civility is Crucial

It isn't just medical personnel that could stand a reminder of this. A study released last year, based on a survey of more than 54,000 employees from 179 organizations across Australia and New Zealand, found that one in five employees experiences an incident of bad manners at work once a month.

People who exclude co-workers from situations, interrupt them when they're speaking, make derogatory remarks, withhold information, and disparage others' ideas, can have "a large impact on employee engagement," Barbara Griffin, an organizational psychologist from the University of Western Sydney and the co-author of the study, said at the time it was released. In fact, she noted, this kind of atmosphere may well determine "whether you stay in an organization, speak positively about your job, or go that extra mile. It can also cause psychological distress and poor physical health."

As commonsensical as this may seem, many managers fail to grasp just how crucial civility is. "Bright people, especially young bright people, often do not understand this," Drucker wrote. "If analysis shows that someone's brilliant work fails again and again as soon as cooperation from others is required, it probably indicates a lack of courtesy—that is, a lack of manners."

People Skills Trump Talent

This, of course, undermines not only the organization but the individual. In his acclaimed book What Got You Here Won't Get You There: How Successful People Become Even More Successful, executive coach (and fellow BusinessWeek.com columnist) Marshall Goldsmith points out that "people skills," more than smarts or technical talents, frequently "make the difference in how high you go" in your career.

Among the challenges in interpersonal behavior (BusinessWeek.com, 5/6/08) Goldsmith says many of us must strive to overcome: speaking when angry, being overly negative, making excuses, claiming undeserved credit, not listening well, and "failing to express gratitude—the most basic form of bad manners."

And with that, there is but one thing left to say: Thank you for reading.

What Drucker Would Say About Mervyns

Cecille Isidro — Thu, 07 Aug 2008 09:21:00 -0400

Mervyns portrayed itself as a victim of the crummy economy and a miserable retail environment last week as it filed for Chapter 11 bankruptcy protection. But in truth, a key part of the department store chain went bankrupt long ago. It's what Peter Drucker called the "theory of the business."

Every organization rests upon a set of such premises--fundamental notions about customers and competitors, about technology, about a company's own strengths and weaknesses. When an enterprise fails, Drucker explained, it is often because "the assumptions on which the organization has been built and is being run no longer fit reality."

As obvious as this may seem, it can be surprisingly hard to see. Many times, managers become preoccupied with how they are doing things. But what's equally important--maybe even more important--is what they are doing in the first place. As Drucker noted: "There is surely nothing quite so useless as doing with great efficiency what should not be done at all."

In a 1994 Harvard Business Review article, Drucker asserted that when a valid theory of the business is "clear, consistent, and focused," it's bound to be "extraordinarily powerful."

Naming the Mission

It all starts with mission. Drucker cited, for example, Sears Roebuck (SHLD), which "in the years during and following World War I defined its mission as being the informed buyer for the American family. A decade later, Marks and Spencer (MKS) in Britain defined its mission as being the change agent in British society by becoming the first classless retailer."

Mervyns, launched in San Lorenzo, Calif., in 1949, once had its own compelling vision of what it should be: a store that would provide high-quality products at a good value, filling a niche between Sears and Montgomery Ward at the lower end of the market and fancier, white-glove merchants at the upper end.

Through the 1950s and '60s, Mervyns prospered under this formula, even in the face of heavy competition from J.C. Penney and others. In 1971, the company went public, and it soon boasted dozens of stores bringing in hundreds of millions of dollars in revenue. Seven years later Dayton Hudson (now Target (TGT) acquired Mervyns and pushed it into Arizona, Louisiana, New Mexico, Oklahoma, Oregon, and Washington. In 1983, Mervyns opened its 100th store. (It has 177 now.)

But all the while, its basic theory of the business stood still; in fact, Mervyns continues to tout itself as "the prototype for the mid-range department store."

The trouble is, all around it, things changed. More and more players barged into the space that Mervyns had comfortably occupied--Kohl's, most prominently. Meanwhile, the whole idea of "mid-range" had itself become blurry, as those considered lower-tier began carrying trendier goods and designer labels. "There is no middle anymore," says retail consultant George Whalin. "It doesn't exist."

Under such challenging conditions, what should Mervyns' theory of the business have become?

‘That Emotional Connection’

There are no easy answers. But Tom Kelley, a branding expert with Concept Group USA who briefly worked at Mervyns, expressed little doubt when I posed the question to him. He believes that each store should have accentuated its "homespun feel," deeply integrating itself into the community where it operated. He would have recruited store managers from local colleges, encouraged them to be active in civic affairs, and had them serve as a highly visible and welcoming presence for shoppers. "It's all about building that emotional connection with your customer," Kelley says.

In a sense, this is a page from the past. Being community-minded was originally a big part of Mervyns' culture.

In essence, it had been baked into its theory of the business from the get-go. But here, too, Mervyns faltered--so much so that it lost its distinctive identity both inside the organization and among consumers. "Think of Mervyns and what image comes to mind?" asked a 1997 newspaper piece on the company. "If you draw a blank, you're not alone."

Drucker pointed out that it's not uncommon for a company to slip in this way, to take its theory of the business for granted as time passes. Management grows "less and less conscious of it," Drucker wrote. "Then the organization becomes sloppy. It begins to cut corners. It begins to pursue what is expedient rather than what is right. It stops thinking. It stops questioning. It remembers the answers but has forgotten the questions."

It would be unfair to suggest that Mervyns has done nothing to try to remedy its sagging fortunes over the years. It has highlighted its California roots, featured $1 to $5 in-store shops, and fiddled with its mix of name-brand versus private-label goods. But none of this amounted to what the company needed most: a thorough overhaul of its theory of the business. And, as Drucker cautioned, "patching never works."

A Desultory Nature

In 2004, Target sold Mervyns to a consortium of investment firms. Since then, Mervyns has had four chief executives--another sign of its desultory nature when what is called for is decisive action.

The current CEO, a highly regarded Levi Strauss veteran named John Goodman, has spoken in recent months of taking a tack similar to the one Kelley favors: In an era of faceless corporate behemoths, he has indicated that he'd like to turn Mervyns into a real "neighborhood department store" by catering to Latino customers, making strategic hires and investments in staff training, and directing sourcing and buying accordingly.

My fear is that it's too little, too late--that Mervyns didn't recognize soon enough that when a theory of the business becomes obsolete, it is, as Drucker put it, "a degenerative and, indeed, life-threatening disease." And that requires surgery, not Band-Aids.

When 2008 Feels Like 1968

Cecille Isidro — Thu, 17 Jul 2008 14:36:00 -0400

It's been a bummer of a summer, hasn't it?

At the gas station the other night, I found myself staring in disbelief—as I have for weeks—while the numbers on the pump kept spiraling higher and higher. The total: $67.83 to fill my Passat. I hopped back in my car and flipped on the radio, figuring a little music might take my mind off the lightness of my wallet, but the news came on instead: Fannie Mae (FNM) and Freddie Mac (FRE) were reeling. Nervous depositors had stormed IndyMac Bancorp, looking to pull their money. General Motors (GM) was poised for another round of cuts.

Sigh. You don't have to be much of a sourpuss to feel like things are falling apart these days—much of it the result of terrible management across a wide range of institutions. We've been undermined by corrupt mortgage brokers and bankers, lax financial regulators, myopic auto executives, and visionless politicians. Lord knows, there is plenty of blame to go around.

Yet it's worth considering that these problems—the mortgage crisis, $4-plus gasoline, the ongoing struggles of an American icon like GM—reflect more than deep failure. They also say a lot about our future: "the future," as Peter Drucker put it, "that has already happened."

Looked at this way, we may be mired less in the Summer of Our Discontent than we are still coming to grips with what Drucker called The Age of Discontinuity.

It was 40 years ago when Drucker used that phrase as the title of his 10th book. It foretold an era, then just dawning, that promised to bring "a period of change—in technology and in economic policy, in industry structures and in economic theory, in the knowledge needed to govern and to manage."

Shifting Foundations

This time of transformation—which we remain in the middle of—stands in stark contrast to the one that came before it. During the previous period, which Drucker marked from the end of World War I to the mid-1960s, trends in production and income across the globe had been altered so slightly that a "Rip Van Winkle economist" who fell asleep in 1914 and woke up 50 years later would have been stunned to discover how much had stayed on track. Fewer major modifications in the economic landscape occurred during this span, Drucker said, than at any time in the preceding 300 years.

"Every single area that is today a major industrial power was already well along the road to industrial leadership in 1913," he explained. "No major new industrial country has joined the club since." Similarly, "most industrial technology" in the 1960s was merely "an extension and modification of the inventions and technologies" that had blossomed during the half-century after the Civil War.

But all this calm, all this stability, Drucker knew, was about to end. "The foundations," he wrote, "have shifted under our feet."

Among the most profound changes Drucker saw unfolding was the move away from a traditional "international economy"—one characterized by individual nations acting as disparate units, each with "its own economic values and preferences, its own markets, and its own largely self-contained information." What had suddenly emerged in its place, he said, was a true "world economy" in which "the differences no longer lie in what people have or want, but in how much of the same things they have and can afford to buy."

We see aspects of this playing out now at the gasoline pump. Although speculation and manipulation may have had some hand in the recent runup in prices, it's escalating petroleum demand by developing countries that will keep them high. The International Energy Agency tells us that China and India are on pace to import a combined 19 million barrels of oil a day by 2030, up from about 5 million in 2006. Nevertheless, we have no concrete national energy policy to deal with the pressure this will invariably put on supplies.

Season of Gloom?

Meanwhile, the mortgage meltdown—which continues to be felt not only in the U.S. but also in Europe and Asia—underscores the world's interconnectedness, as well as our failure to adequately manage the system. "There is greater need…to regulate the global international financial markets," Joseph Stiglitz, a Columbia University professor and former chief economist of the World Bank, told a conference in Frankfurt earlier this year. "But we have neither the institutions, nor the mindsets, with which to do this effectively and democratically." We are still acting as if this were 1968, not 2008.

As for GM, its plans to accelerate the closure of some truck and SUV factories and shed thousands more blue-collar jobs is, in the largest sense, a sign of another monumental change that Drucker explored in The Age of Discontinuity: "On the eve of World War II," he wrote, "semiskilled machine operators, the men on the assembly line, were the center of the American workforce. Today the center is the knowledge worker, the man or woman who applies to productive work ideas, concepts, and information rather than manual skill or brawn."

This is all the more true now, of course. Once again, though, we're not behaving accordingly. Between 1940 and 2000, the proportion of those 25 years and older in the U.S. with at least a college diploma swelled from less than 5% to more than 25%. But in the last few years, the Peter G. Peterson Institute for International Economics has shown, this growth has stagnated. What's more, the U.S. is set to experience a decline in the number of workers holding master's, professional, and doctoral degrees. Is this really how we want to prepare ourselves to succeed in a knowledge-based economy?

It has been a full four decades since The Age of Discontinuity appeared. We better start absorbing its lessons, lest the summer turn into a season of gloom that never ends.

Cartooning Obama's Economics

Cecille Isidro — Wed, 16 Jul 2008 06:46:00 -0400

Among the things I admire most about Barack Obama is the way that he’s able, without sounding wishy-washy, to capture issues in their full complexity – to explain them not in the obtuse terms typical of so many politicians but in a manner that recognizes nuance, that allows for shades of gray.

It’s too bad that the same can’t be said of John R. Talbott’s Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics. Instead, much of it presents an overly simple, cartoonish view of the world.

Trumpeting any politician’s platform while he’s still out on the campaign trail can be perilous. Still, I had high hopes for this book, thinking that Talbott would provide some valuable context to the senator’s call to restore a better sense of balance between “self-interest and community, markets and democracy.” There is no doubt, after all, that something is terribly out of whack for millions of hard-working Americans who’ve seen their wages largely stagnate and their health and retirement benefits erode over the last 35 years.

I’d anticipated that Talbott would explore the history of these struggles – the way that Robert B. Reich does so cogently in Supercapitalism or my former colleague Peter Gosselin, The Times’ national economics correspondent, does so compellingly in High Wire – and then link how we got here with Obama’s plans for leading us to a better place.

I had figured too that Talbott might serve up an astute, if tendentious, analysis of Obama’s blueprint for change. Take, for instance, healthcare. Can we really achieve meaningful reform without a government mandate for every individual to obtain medical insurance? (Obama would require only children to have coverage and employers to offer health benefits or toss money into a public pot.) Can Obama actually garner the huge savings he claims – $2,500 per family per year – through the use of electronic health records and other means? (Many experts are skeptical.)

Yet Talbott addresses none of these pertinent questions, delivering little more than a cut-and-paste job from the candidate’s website interspersed with a slew of shallow (and sometimes silly) generalities. Talbott tells us how Obama is bent on expanding opportunity for people, how he’s poised to give “the average American” a shot at “a fair wage, with the chance for personal growth and advancement and the ability to give his children a superior education.” It’s Obama, he says, who can return “decency, honesty, and justice to Washington.” Amen to all that. But Talbott doesn’t go much deeper, giving many parts of Obamanomics the feel of a quick-and-dirty blog entry, with snippets of Obama’s speeches and writings tucked among the author’s trite ramblings. (“We are our brother’s keepers. We are our sister’s keepers. No man is an island.”)

Talbott, a former investment banker who has been a visiting scholar at the UCLA Anderson School of Management, proclaims at the outset that he “was guided by a philosophy practiced by Barack Obama, namely, it does little good to try to assign blame for our current problems.” He then proceeds, over the next 200 pages, to blame a series of one-dimensional boogeymen for our nation’s troubles. Chief among them: the big businesses that are “bribing our public officials with campaign donations.”

Now, God help Corporate America when I’m the one thrust into the position of rising to its defense. More than a couple of executives have accused me over the years of being reflexively “anti-business” after I’ve written pieces expressing the need for a government-prescribed “living wage” or urging the adoption of some pro-union policy.

However, I would never go so far as to assert, as Talbott does, that companies are so completely focused on the bottom line that “there is no room for community, environmental, charitable, employee, neighborhood or patriotic concerns. Profit maximization is it.” One can certainly argue that there is too much emphasis on short-term profits and not enough on social responsibility (aside from hollow sloganeering). But “no room” whatsoever?

I can rattle off plenty of companies – such as Procter & Gamble, Google, Timberland and Costco – that have demonstrated a genuine commitment to their employees, their communities and the environment. Are these enterprises perfect? No. Do they all face pressure to maximize profit? Absolutely. But are they as malevolent as Talbott would have you believe? Not even close.

At times, Talbott seems so determined to condemn the business sector that he goes off half-cocked. For example, he rants about the “monopolies and collusive behavior” in our “corporate-dominated economy,” decrying the “price wars” in which giant companies “match each other’s price increases dollar for dollar.” Hmmm. Most of the price wars I’m familiar with occur when companies match each other’s markdowns dollar for dollar.

Indeed, while the last few decades have been dreary in many respects for American workers, they’ve been generally fantastic for consumers, who today enjoy an unprecedented array of choices, and sizable savings, on a variety of goods and services. Cars, computers, TVs, refrigerators, airline tickets, telephone calls – they’re all markedly cheaper than they were 20 or 30 years ago (using constant dollars).

The best part of Obamanomics – and I use that word only in the relative sense – deals with the current mortgage crisis. Talbott has won praise in the past for his early prediction that the real estate industry would tank, and one must take him seriously when he suggests that we’re a mere 18 months into what promises to be a five- to seven-year downturn. “[W]e can expect real home prices to decline further, some 25 to 30 percent nationally, and 40 to 50 percent on the coasts and in Las Vegas and Phoenix,” he warns. “Everything to date has been prologue.”

But such insights are all too rare. Barack Obama has a lot to say about how to achieve economic justice in this country. Unfortunately, in trying to help make the case, Talbott doesn’t do his chosen candidate any justice whatsoever.

Leveraging the Strengths Of the Disabled

Ron Tang — Thu, 03 Jul 2008 07:30:00 -0400

When the House passed legislation in late June that expanded protections for disabled people, it marked an important step forward on an important issue. But what the workplace needs, even more than a new law, is an old insight -- one first offered by Peter Drucker more than 40 years ago.

"To make strength productive is the unique purpose of organization," Drucker wrote in his 1967 classic, The Effective Executive. "It cannot, of course, overcome the weaknesses with which each of us is abundantly endowed. But it can make them irrelevant."

This holds true for everyone, of course. As Drucker noted, "Strong people always have strong weaknesses too. Where there are peaks, there are valleys. And no one is strong in many areas. Measured against the universe of human knowledge, experience, and abilities, even the greatest genius would have to be rated a total failure. There is no such thing as a 'good man.' Good for what? is the question."

The Barrier of Workplace Attitudes

But this perspective has particular resonance for the disabled -- a substantial and growing population. Across the globe, the U.N. estimates, some 650 million people live with disabilities. In the U.S., the Census Bureau counts more than 50 million people with some level of disability.

And many of these folks find themselves struggling to land a job, even though they have skills to offer and are hungry to work. The Disability Funders Network, a nonprofit group, reports the unemployment rate for people with disabilities is 10 times higher than for the nation as a whole. A 2003 study by researchers at Cornell University leaves little doubt as to why that is: "Workplace attitudes," it concluded, "are a continuing barrier to the hiring and retention of people with disabilities."

The bill that just passed the House, after months of negotiations between business lobbyists and advocates for the disabled, should help. Upset that the Supreme Court had eroded the original intent of the 1990 landmark Americans With Disabilities Act, lawmakers made plain that people with epilepsy, diabetes, cancer, multiple sclerosis, cerebral palsy, and other ailments should be afforded anti-discrimination protection under the ADA, even if they control their conditions with medication or are in remission. The Senate is expected to pass a similar measure.

Channeling Unique Talents

But what's required most of all is a fundamental shift in thinking among employers. Too often they are preoccupied with what they see as a disabled person's limitations. Instead, the focus should be: "How do you leverage the person's strengths?" says Jonathan Kaufman, president of DisabilityWorks, a New York consulting firm that counsels public- and private-sector clients. "Drucker's concept," he adds, "is critical."

Kaufman, who was born with cerebral palsy, says he knows of disabled people who possess all sorts of amazing talents that would be a boon to the right company -- individuals with Asperger's syndrome, for example, who are capable of "multiplying 12 or 15 digits in their head, faster than a calculator. The question is how you channel this, how you manage it."

In his autobiography, Copy This!, Kinko's founder Paul Orfalea recounts how being dyslexic made certain things difficult for him, including reading and writing. But he also discovered he had a natural advantage over his copy-shop rivals.

Human Diversity

"Dyslexics are extraordinarily empathic," he explained. "Perhaps dyslexics are so empathetic because, as kids, so many of us became accustomed to not being listened to. They suffer and pick up on the suffering of others. That was the case with me. I became a good listener to cope." Years later, Orfalea realized that this made him unusually attuned to "understanding and attending to our customers' and workers' emotional needs."

Kaufman believes companies can reap other benefits from signing up, retaining, and advancing the careers of the disabled. For one thing, such an approach can help provide "the human diversity" that Drucker believed was vital to the wellbeing of every organization.

What's more, hiring the disabled can engender customer loyalty among the employee's friends and relatives -- a potentially huge market when you consider that of the 70 million families in the U.S., more than 20 million have at least one member with a disability. The ranks of the disabled constitute an enormous market in their own right, boasting more than $1 trillion in aggregate annual income.

The end result, says Kaufman, is that if a company learns to value the disabled, it can "affect the bottom line" in a positive way while, at the same time, "it can have a real social impact" -- Drucker's favorite one-two punch.

Viewed this way, the disabled aren't a liability; they're an opportunity.

Stubbornly Unconvinced

Some businesses get it. Virginia Commonwealth University has developed 20 case studies, including sketches of Alaska Airlines, Bank of America, and Hyatt, that highlight "corporate models of success" for dealing with the disabled. Of the 485 workers at a Walgreen's distribution center in South Carolina, more than 35% are disabled. And the drugstore chain is now recruiting disabled workers for a new distribution facility in Connecticut.

"In fact," the company says in its outreach material, "we are actively seeking qualified people including those with cognitive and intellectual disabilities. Why make an extra effort to hire workers with cognitive and intellectual disabilities? Because this is a group that is seldom offered real jobs. We want to change that. We think we can."

Still, many businesses remain obstinate. They say they worry about the possibility of increased costs, safety issues, the specter of legal liability, and how colleagues and customers will react.

But all of these things are simply excuses for shoddy management. "As the Bible tells us in the parable of the Talents," said Drucker, "[The manager's task couldn't be clearer: It's to] multiply performance capacity of the whole by putting to use whatever strength, whatever health, whatever aspiration there is in individuals."

Drucker's Take On Making Mistakes

Ron Tang — Thu, 19 Jun 2008 11:29:00 -0400

Lyndon Johnson occupied the White House when KeyCorp first began raising its dividend. The Beatles topped the pop charts. Martin Luther King Jr. led tens of thousands of civil rights marchers through Alabama.

For 43 straight years, the company's annual payout climbed, "a record we were extremely proud of," in the words of KeyCorp Chief Executive Henry Meyer. That is, until earlier this month. The Cleveland bank, slammed by the weak housing market and an adverse tax ruling, announced that it would halve its dividend to 75 cents in a bid to save $200 million a year. It also said it would seek to raise $1.5 billion in capital.

"We think hope is a bad management strategy," Meyer explained. "We're trying to admit where we made mistakes."

Mistakes are part of life; they're part of business. But far too many enterprises spend time hiding them and running from them, rather than owning up to them.

Capitalizing on Candor

Given that, KeyCorp deserves much credit. Whether the company can now capitalize on its candor will depend, in large measure, on how management deals with those responsible for its stumbles. The smartest organizations, according to Peter Drucker, are those that turn lapses into learning opportunities.

"Nobody learns except by making mistakes," Drucker wrote in his 1954 landmark book, The Practice of Management. "The better a man is, the more mistakes he will make -- for the more new things he will try. I would never promote a man into a top-level job who has not made mistakes, and big ones at that. Otherwise, he is sure to be mediocre. Worse still, not having made mistakes he will not have learned how to spot them early and how to correct them."

Drucker's tolerance for mistakes shouldn't be confused with him cottoning to incompetence. There are plenty of occasions, he believed, when employees should be let go. "Management owes this to the enterprise," Drucker said. "It owes it to the spirit of the management group, especially to those who perform well. It owes it to the man himself, for he is likely to be the major victim of his own inadequacy."

But he cautioned against overreaching: "That a man who consistently renders poor or mediocre performance should be removed from his job also does not mean that a company should ruthlessly fire people right and left." And he made clear that those in charge can't just turn around and blame those who work for them. "Whenever a man's failure can be traced to management's mistakes," Drucker declared, "he has to be kept on the payroll."

Batting Average

Among management's most common errors is putting a good person into the wrong job. After all, Drucker noted, "there is no such thing as an infallible judge of people, at least not on this side of the Pearly Gates." Whenever such a slip-up is made, Drucker counseled, it's incumbent on the boss to say: "I have no business blaming that person, no business invoking the 'Peter Principle,' no business complaining. I have made a mistake."

In the end, Drucker defined success not as being right every time. Rather, he wrote in his 1973 classic Management: Tasks, Responsibilities, Practices, performance must be evaluated on terms more akin to a batting average. (Slugging percentage might even be a more apt way to look at it: Sometimes you hit a single or a double, and occasionally a home run. But other times, you strike out. Maybe even with the bases loaded.)

In Drucker's view, not always getting a hit is not only acceptable; it's part of what it takes to be an organization of excellence. "A management which does not define performance as a batting average is a management that mistakes conformity for achievement, and absence of weaknesses for strengths," Drucker asserted.

Different Performances

A batting-average mentality, he added, allows for companies to accommodate different kinds of talent. "One man will consistently do well, rarely falling far below a respectable standard, but also rarely excel through brilliance or virtuosity," Drucker wrote. "Another man will perform only adequately under normal circumstances but will rise to the demands of a crisis or a major challenge and then perform like a true 'star.' Both are 'performers.' Both need to be recognized. But their performances will look quite different.

"The one man to distrust, however, is the one who never makes a mistake," Drucker continued, "never commits a blunder, never fails in what he tries to do. He is either a phony, or he stays with the safe, the tried, and the trivial."

Drucker not only penned these words; he lived them. By the 1950s, Drucker had concluded there was only one way to manage people correctly: by assuming that all of them will be responsible and self-directed as long as they find their work fulfilling. In 1960 a competing theory was articulated, which held that managers treat each and every employee as if they are inherently self-centered, lazy, and resistant to change.

But then along came psychologist Abraham Maslow, who in 1962 maintained that, either way, a single approach is silly. Drucker was quickly persuaded. "Maslow's evidence is overwhelming," he wrote, that "different people have to be managed differently."

The bottom line for Drucker was that he and others who'd shared his one-size-fits-all view of human motivation "were dead wrong." If only more people had the courage to say that -- and then learn from it -- a lot more things would go right.

No Gay Weddings In Kern County

Ron Tang — Tue, 10 Jun 2008 08:14:00 -0400

A few years ago, I heard writer Gerald Haslam explain his struggle to describe the difference between the Kern County burg of Bakersfield and the Bay Area city of Mill Valley, both of which are settings for his novel, "Straight White Male."

"Then it suddenly occurred to me," he said. "There was nobody in Bakersfield who cared whether Tibet was free."

Haslam's remarks came rushing back to me last week with the news that the Kern County clerk will stop performing all civil marriages before June 17, the first day same-sex couples in California can legally apply for licenses.

The clerk, Ann Barnett, cited financial concerns and space limitations. But e-mails and other records obtained by the Bakersfield Californian suggest that the decision stems from her personal discomfort with gay and lesbian unions.

Barnett's action -- and the debate it has triggered over whether she is flouting her responsibilities as an elected public official or rightly "following the dictates of her conscience," as one supporter put it -- serves as a stark reminder that California is not just a liberal, blue-state bastion, as so many see it. It's a right-wing redoubt as well.

In 2005, the Bay Area Center for Voting Research studied ballot-box patterns in 236 cities, and it counted Berkeley, Oakland, Inglewood and San Francisco among the 10 most liberal metropolises in America. But just as notably, Bakersfield was ranked No. 8 among the most conservative cities in the country, and seven other California locales also made the Top 25. No other state exhibited this kind of political schizophrenia.

Some of this, of course, simply speaks to California's vastness. But Texas, 100,000 square miles bigger, displays far greater ideological coherence. Three of the five most conservative U.S. cities were in Texas; not one city there made the liberal top 25.

That California has long been a place of extremes, culturally and politically, is not terribly surprising. All sorts of people have felt the Golden State's utopian tug. Dreamers don't come in a single flavor.

California has found itself the home of both the Free Speech Movement and Fred Schwarz's school of anti-communism, of the Grateful Dead and Merle Haggard, of the porn industry and (for many years) Focus on the Family's James C. Dobson. In its selection of political leaders -- think Rep. "B-1 Bob" Dornan on the right, Rep. Phil Burton on the left -- the state has shown "a dichotomous diversity verging on the eccentric," as historian Kevin Starr has written.

Kern County, interestingly, took a while to figure out precisely where it would land on the spectrum.

Its public officials and others in positions of power have always exhibited a fierce conservative bent. In the 1930s -- when California's left-right divide was at its most pronounced, with communists and quasi-fascists sparring not only with words but sometimes with bricks and guns -- the Kern County Board of Supervisors banned "The Grapes of Wrath" from local schools and libraries. In doing so, the supervisors attacked John Steinbeck's novel for its profanity, as well as for its depiction of "class hatred." But the people about whom Steinbeck had written so eloquently, the hundreds of thousands of down-and-out migrants who had fled the parched states of the Plains and the Southwest and settled in California in search of a better life, were not necessarily of the same mind.

Kern County saw the largest influx, with its population rising about 64% from 1935 to 1940. In 1938, these newcomers helped propel into the California governor's office the first Democrat of the 20th century: Culbert Olson, an atheist and political protégé of socialist Upton Sinclair. He carried Kern County with nearly 59% of the vote, far eclipsing the 52% he captured statewide. His first official act was to free from prison Tom Mooney, the labor leader and anarchist whose wrongful conviction for a 1916 bombing in San Francisco was a cause célèbre of the far left.

But Olson didn't last long (voters drummed him out after one feckless term), and neither did the migrants' receptiveness to liberal prescriptions. As the community's economic lot improved in Kern County and throughout the San Joaquin Valley, its values -- what scholar James Gregory has called "plain-folk Americanism" -- crystallized. By the late 1960s, having turned the word "Okie" from a pejorative into a point of pride, Kern began to swing further and further to the right, solidly backing Ronald Reagan for governor and voting more conservatively than the rest of the state on a range of issues: the death penalty, marijuana legislation, school busing and gay rights. It has never tilted back.

The result is that in the coming days, as San Francisco officials marry hundreds of gay couples, the wedding bells at the Kern County clerk's office will cease to ring. And most of those who live there, in this other California, will bask in the silence.