The Moral Obligation of Management

As the price of oil continues to rise, and with it, the profit earned by the major oil companies, populist politicians are jawboning to increase the taxation on the earning power of those companies. You can argue that it is right to force successful enterprises to pay more in taxes, or the opposite side of the coin, that successfully profitable enterprises should carry unreasonable taxation burden. Politicians with an eye on reelection are making much of the argument for the increased taxation.

What are the responsibilities of management? Most would argue that management's sole responsibility is to increase shareholder value. I believe that that is a flawed argument in that it only addresses one group of stakeholders.

This boils down to a question of the objectives of business. I turned to my ever worn copy of Peter Drucker's "The Practice of Management" for guidance.

Drucker teaches us that to emphasize only profit misdirects managers to a point where they may endanger the survival of the business. We see that in the behavior of our modern public companies, that in an effort to satisfy short-term stock traders, they work to obtain a current profit that undermines the future of the company. Those companies shortchange research and promotion and postpone other investments. They will shy away from any capital expenditure that may increase the capital base against which profits are measured. Therefore, the pure profit motive will direct managers to the worst practices of management. Why that motivation? Personal gain.

Managing a business means balancing a variety of needs and goals. Managers must employ judgment. No magic formula replaces judgment. Managers must review a total range of available alternatives, narrow that range, place a clear focus on the options and use sound foundations of facts and reliable measurements to make their decision. Some businesses must have multiple objectives. The right judgement requires a clear balance of objectives.

Drucker teaches us that objectives are needed in every area where performance and results directly and vitally affect the survival and prosperity of the enterprise. He outlined eight areas in which objectives of performance and results must be set:

  1. Market standing
  2. Innovation
  3. Productivity
  4. Physical and financial resources
  5. Profitability
  6. Manager performance and development
  7. Worker performance and attitude
  8. Public responsibility

The first five of these objectives should not be controversial. Almost all marginally successful businesses and managers pay attention to the first five. Some managers will not even argue about items six and seven because they see those as contributing to the productivity and profitability of the company.

Public responsibility is a much broader issue. The successful and sustained enterprise is a community of human beings. The performance of the human beings creates the performance of the enterprise. The people within the company must have cohesion and common principles. Otherwise, the company will become paralyzed and unable to obtain performance.

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