Peter Drucker's "Unfinished Chapter:" The Role of the CEO

In 2003, I was lucky enough to be summoned by Peter Drucker for a series of conversations about management. In our first conversation, he commented that the CEO role needed to be the next focus of management research. Procter & Gamble's CEO, A.G. Lafley, called the CEO role "Drucker's unfinished chapter."

An important topic in "Drucker's unfinished chapter" is the need for today's knowledge workers to be self-managing CEOs. As Drucker explained, "Knowledge workers are neither bosses nor workers, but rather something in between--resources who have responsibility for developing their most important resource, brainpower, and who also need to take more control of their own careers."

Amid the turbulence of the 21st century, Peter rightly saw CEOs as more important than ever. They had to provide leadership--strategic leadership, moral leadership, human leadership--and strike a balance. He mused about how CEOs could affect more than just corporations and foundations--they could even shape the course of countries. In fact, in 2006, of the hundred largest economic entities in the world, 46 were countries and 54 were companies. And Peter worried about how CEOs could harm all sorts of people if they were less than ethical.

If I were to distill into one word Peter's thoughts on what makes a truly great CEO, I would choose courage. It takes courage to do what is right, such as turning away from the temptation of quick short-term profits at the expense of investments for the long term. It takes courage to trailblaze change in an industry. It takes courage to redefine the theory of the business. It takes courage to face reality and get out of any product lines or businesses that "you wouldn't get into if you were not in the business today." It takes courage to break the rules in an industry still in its infancy, as Google's CEO Eric Schmidt did when the company transformed the Internet.

In our conversations, Peter defined three traits unique to a CEO:

• A broad field of vision combined with the ability to ask and answer what needs to be done.
• Accountability for the CEO's own imprint on the organization's character, values, and personality.
• The influence the CEO has on people--individually and collectively.

Let me take you through each of these and illustrate them in action at three companies--Donaldson, Lufkin & Jenrette (DLJ), Cott Beverages, and Electrolux--and then look at how they translate to the self-managing knowledge worker.

Field of Vision

The CEO is uniquely positioned to see the whole. Engineers may tinker away at a particularly knotty technical or design problem, but they don't look at 50-year trends in buying habits. The vice president of marketing keeps close tabs on competitors but may have no idea how or at what cost the officer's own company makes components. In any organization, the CEO links the organization, or the inside, with the society, the economy, technology, markets, customers, collaborators, the media, and public opinion, or the outside. Inside there are only costs. Outside there are meaningful results.

This view of the whole--the inside and outside of the organization--is both the fact base for what doesn't work and the opportunity base for what could work. Critical to an honest and robust view is the CEO's willingness to challenge and abandon assumptions. When CEOs fail to question long-standing assumptions or listen to evidence that says, "These assumptions are no longer relevant to the opportunity that is our future," their companies are guaranteed to have short lives. In 1999, at his 90th birthday celebration, Peter predicted that by his 100th, in the year 2009, there would be five global automobile companies and that GM would not be one of them.

Not long ago, Dan Lufkin ushered me into his conference room overlooking Fifth Avenue in Manhattan. I didn't even notice the astounding view until I was leaving because Lufkin was so engaging. In reminiscing about the spectacular rise of DLJ from a minuscule company to a Wall Street heavy hitter, Lufkin gave much credit to Peter Drucker. "In the early 60s, he helped the three founders see the future was not in brawn but in brains, through an information society." In the late 60s, "He forced us to think with the assumption that we could change the rules of the New York Stock Exchange. He forced us to think about the issues created by the lack of permanent capital against a growing base of business, and how to solve that problem. We honestly believed that this was in the best interest of the New York Stock Exchange itself. We needed more permanent capital and so did the whole Exchange. And that led to what was a very courageous act."

While customs had changed in the rest of the world, tradition still prevailed at the intersection of Wall Street and Broad Street, where members of the NYSE such as DLJ were not allowed to sell shares to the public and be traded on the Exchange. This was viewed as a conflict of interest. When DLJ announced it was going public, the Exchange went ballistic. Richard Jenrette has clear memories of that moment, "In reality, the member firms were afraid that institutional investors, their best customers, would gain access to the New York Stock Exchange. There was a fear of big, institutional customers like the banks."

The printed prospectus of the original offering of DLJ contains a puzzling line. Essentially it says, "If the rules of the New York Stock Exchange are not changed to allow this offering, DLJ will, at the stroke of the first share's sale, lose 70 percent of its revenues." If you read that in 1970, you might have said "are they crazy?"

Finally, after DLJ threatened to resign from the Exchange and take its trades to a third market, officials caved. In 1970, DLJ was allowed to go public and raise new equity capital, becoming the first brokerage firm to trade on the New York Stock Exchange. With that move, DLJ changed Wall Street forever. The permanent capital raised through public ownership is a major reason why Wall Street has remained the financial capital of the world. Donaldson, Lufkin, and Jenrette redefined their business and their industry with courageous actions that answered "what needs to be done" given the fact base and the opportunity base that were DLJ's landscape at the time.

Just as DLJ looked hard at the broader landscape and had the courage to "go where no man had gone before," Cott Beverage and the Swedish-owned Electrolux made bold changes based on their own honest confrontations with reality. In the case of Cott, Frank Weise took the second-tier private label player to a recognized competitor of the top-ranked players--Coke and Pepsi. At Electrolux, CEO Hans Stråberg boldly transformed the company from a stellar engineering and industrial company to a customer-driven producer.

Imprint and Accountability

Good or bad, Peter maintained that the CEO sets the tone for an organization while in office and often thereafter as well. When we think of the early days of the Ford Motor Company and IBM, we inevitably think of Henry Ford and Thomas Watson--even those of us who can't recall their first products.

As a consultant and adviser, Drucker observed and helped a remarkable diversity of leadership personalities, from Jack Welch at GE to Frances Hesselbein, from President Eisenhower to Doug Ducey, chairman of Cold Stone Creamery, leave their imprints. Likewise, as I visit clients and gain a sense of a company's history, I'm always struck by how a particular leader, whether of a small family company or a multinational, shapes the future of the company, leaving a clear personal imprint. For example, at Campbell's Soup, there is the Dr. John Dorrance era--when condensed soup was invented and introduced to the mass market--and condensed soup remains the identity of the company today. Then there's the James McGowan era, when Campbell's expanded into key ingredients--chickens, mushrooms, tomatoes--and the philosophy of caring about every ingredient is ingrained in the culture today. And there are many more--the William B. Murphy era of international expansion; the Gordon McGovern era of acquisitions, growth, and low profits; the David Johnson era of back to basics; the Dale Morrison era of revitalizing brands; the Doug Conant era of revitalizing the business.

In 1988, when Frank Weise became CEO of Cott Beverage, the leading provider of private label sodas--including Sam's Choice--he needed to very rapidly change the personality of the business. The company's relationships with customers were deteriorating because of persistent stock-outs and unfulfilled commitments. Cott was regarded as a company with great products and impressive selling skills, but one that constantly failed to deliver on its promises.

I started consulting with Frank Weise shortly after he stepped into the turnaround position at Cott. Weise is one of the nicest people I know, and initially I wasn't sure if he had the stomach to do what would be required at Cott.

He told senior executives that they would keep their jobs only if they demonstrated their confidence in the company by not cashing in their stock options. He lost six of the top eight executives. Weise shared with every customer what he was doing to make the company live up to its potential and restore its good name. He invested in operations, brought in a head of quality with Six Sigma experience, and put in tracking mechanisms that provided a daily snapshot of what was happening at every plant and with every buyer. The stock rose as high as $35 and settled in at around $25 before he retired in 2004. The CEO is the brand, and Weise knew it from the day he took over.

The DLJ co-founders likewise put themselves on the line, risking personal assets while betting on the passion of their employees to carry the company through difficult times. Electrolux CEO Stråberg faced the dual challenge of continuing the sometimes brutal restructuring and cost cutting undertaken by his predecessor "Mike the Knife" Treschow while becoming a more customer-driven provider, as discussed in the next section.

Influence on People

The impact CEOs can have on people, their actions, and their lives is unmatched. As Peter Drucker wrote to Bob Buford, the CEO of a cable television network, in 1990, "Your first role . . . is the personal one. It is the relationship with people, the development of mutual confidence, the identification of people, the creation of a community. This is something only you can do." Drucker went on: "It cannot be measured or easily defined. But it is not only a key function. It is one only you can perform."

In conversations, Stråberg told me, "At Electrolux, we aspire to be the world leader in each of our businesses. To do this, it's absolutely necessary that we retain, develop, excite, and attract highly talented people."

In late 2000, when Electrolux sought to become more driven by consumer insight and marketing, senior management knew that the new strategy would require a new approach to managing the company's pool of talent. As Stråberg noted: "We found that we had good talent in the company but not for the positions that we needed. And we also had a number of people who would have been suited for those jobs leaving with entities that we sold off, or for other reasons. . . . As a result, external recruitment was substantial, and we had to bring in many of the new divisional leaders from the outside."

Today, each of Electrolux's top 3,000 managers undergoes a rigorous talent review process that aims to identify areas for further development, to make employees better known to managers in other sectors of the company, and to identify and weed out underperformers. Managers are rated not only on their operational performance but, equally important, on their strategic orientation and people leadership and team-player attitude. This process cascades down the organization, with each layer of management reviewing the next management layer, and so on.

As Stråberg explained, "We are actually creating a culture . . . in which managers talk with employees about their careers. . . . In the annual appraisal talk or when people have an interest, they go to their boss and say, ‘Hey, I've been in my job now for three years, I see this great opportunity, what do you think?' This atmosphere is an essential aspect of having employees think of their careers as ‘Electrolux careers.'"

Stråberg also stressed the value of the increased transparency and insight developed about the talent pool: "After two or three years, people who were previously known only within their own divisions were known to other people in the organization as well. So that when a recruitment need came up, it was much easier because we had already reviewed people in the management group. It really helped that management could talk about these people, and they shared a common reference."

With Drucker's encouragement, DLJ embraced a people policy fundamentally different from that of any other Wall Street firm. As Donaldson remembered, "DLJ worked hard to create a collegial atmosphere where colleagues also considered each other friends--certainly not the convention at the time. We wanted to like the people we were working with. That made for teamwork." And at Cott, Weise's courage in turning the company around, while resulting in some initial loss of talent, created a thriving business and a real pride for those who stayed on.

Each of Us as CEO

The knowledge worker's professional life will typically span five or six or seven decades--far surpassing the life expectancy of most institutions and encompassing a variety of situations given the new mobility in space and time. It is both a great freedom and a responsibility to keep the bounce in our work and the spark of curiosity in our brain. What can the self-managing knowledge worker learn and apply from the three characteristics--vision, accountability for imprint, and influence?

Maintaining a broad field of vision requires having a sense of where you are going and what you are building, whether a company of one or a grand enterprise employing thousands. One of my clients had a great analogy: "Have you ever been behind the elderly driver who is looking three feet ahead at a time? The car starts, and stops, and swerves. Compare that with a race-car driver who is looking at the whole track as well as feeling the immediate ground beneath the car." That is the difference in vision in your career--are you going one step at a time, or are you heading somewhere? As Peter repeatedly noted, motion is often mistaken for progress. We have to place bets on ourselves, learn, and bet again. To make the greatest contributions, we have to put our heart and mind into it and be able to respond to the unexpected opportunities.

For the self-managing knowledge worker, the second characteristic--accountability or imprint on organizational personality--means knowing yourself, what gives you passion (or what puts you to sleep). As Peter wrote in 1999, "Throughout history, the great majority of people never had to ask the question, what should I contribute? They were told what to contribute, and their tasks were dictated either by the work itself by a master or a mistress." Knowledge workers have to learn to ask that question based on an understanding and melding of their strengths and passions. And the question must be revisited periodically, or as Drucker would ask: "If I were not in this career today, would I have gotten into it? If not, what am I going to do about it?"

Finally, the knowledge worker is both influenced by and influences others. We are influenced by the CEO and other leaders we encounter, hopefully in a positive way. Peter always said that if we are going to be passionate about our jobs, we must get the right signals from the top. And throughout our careers, our own passions and strengths influence those many other knowledge workers with whom we connect.

Successful careers are not planned; they are managed. And to manage them, we need to put on our CEO hat. The way we manage our careers--switch from company to company, or become consultants or contractors, or start our own business--will be the next revolution. Managing our own life and career takes courage. We have to take calculated risks as individuals if we are going to make the most out of the cards we've been dealt.

As the CEO managing his own career, Peter Drucker was quite clear on what he wished his legacy to be. During one of our last conversations, he told me that he wanted to be remembered for one single accomplishment: "Enabling a few people to get the right things done. I mean that literally. I think the specific concepts for which most people know me, management by objectives, or what have you, are of very limited importance. My contribution, such as it is, is to highlight the concept of the responsible and effective executive of management--contrary to the traditional definition of a manager as somebody who's got subordinates. My contribution is the definition of a manager as somebody who has results. That's very different. Most organizations staff their problems and starve their opportunities. When people begin to start talking about problems, I say, ‘No, wait a minute. Let's first look at the opportunities.' Those are my contributions. I try to make them look forward instead of backward."