Which responsibilities do organizations bear for society? Is it enough for them to fulfill their respective purpose to the best of their ability or do they also have responsibility beyond that? Who takes care of the whole if everyone only takes care of their own? In view of the pressing social challenges of our time, above all the threat of the global climate crisis, these questions concern us all more than ever. They are by no means new, however, but have already been answered in detail and unequivocally by Peter Drucker: Leadership does not end at the walls of the organization, but also assumes responsibility for the community.
The Purpose of the Organization and Its Responsibilities
Even if it sometimes feels like that when you look at the business news, the purpose of companies is not to make profit or even maximize profit. Peter Drucker used this beautiful analogy: Profit is important for the survival of the organization in the same way that oxygen is important for human beings. However, a fulfilled life is not just about breathing for the sake of breathing. And in the same way, the purpose of the organization is not profit for the sake of profit.
Profit for a company is like oxygen for a person. If you don’t have enough of it, you’re out of the game. But if you think your life is about breathing, you’re really missing something.Peter F. Drucker
But what is the purpose of an enterprise? Peter Drucker is quite clear on that point, too. This purpose always lies outside and therefore in society, and it essentially consists of having and keeping customers. The customer ultimately decides whether the company fulfills its purpose.
To know what a business is, we have to start with its purpose. Its purpose must lie outside of the business itself. In fact, it must lie in society, since business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer.Peter F. Drucker, Management Rev Ed
However, the conclusion that the customer justifies any means is too short-sighted. Companies cannot steal from responsibility that easily. Not everything that serves the customer is permitted and justifiable. This particularly is the case for the treatment of their employees. That’s why Amazon has had to face accusations of exploitation over and over again in recent years, Apple has been and continues to be accused of irregularities at Foxconn and the textile industry still has a huge problem with its sweatshops.
Neither can the responsibility for possible negative effects of the products, especially on society and the environment, be completely passed on to the customer (by saying the it was his choice!). This is why particularly harmful products, although there are customers, are completely banned, such as drugs, or only available under more or less strict conditions, such as alcohol, tobacco, weapons (at least in most civilized countries) and much more. Other products must be labelled clearly and uniformly to support the customer’s decision, for example with the EU energy label (and particularly inefficient products such as light bulbs will then be banned altogether).
Society or the economy can put any business out of existence overnight. The enterprise exists on sufferance and exists only as long as society and the economy believe that it does a job, and a necessary, useful, and productive one.Peter F. Drucker, Management Rev Ed
In addition to shareholders, employees and customers, there is also society as a whole in which an organization produces and sells their products and in which these products are used and discarded. Organizations also have a responsibility towards this society, because they exist only because society tolerates them. And the heated debate about SUVs in Germany (which is perhaps only so heated here, because the car in Germany is a holy cow for many people) shows impressively how quickly the public mood can change these days.
Primum non nocere
In chapter 21 of his book Management Rev Ed (Amazon Affiliate-Link) Peter Drucker compares the distribution of power of our time with the pluralism of the Middle Ages, which neglected the overarching community due to the strong focus on particular interests of different independent rulers (bishops, lords, universities, etc.). Everyone cared for his or her own, but no one cared for the community beyond that. According to Drucker, this lack led to the emergence of the modern state over the course of 500 years, where these individual parties became organized and arranged into a large whole.
The individual manager, even the chief executive of a giant corporation, has become anonymous, unassuming—just another employee. But together the managers of our institutions—businesses, universities, schools, hospitals, and government agencies—are the leadership groups in the modern society of organizations. As such, they need an ethics, a commitment, and a code. The right one is the code developed more than 2,000 years ago for the first professional leadership group, physicians: “Above all, not knowingly to do harm.”Peter F. Drucker, Management Rev Ed
With the rise of large industrial companies around 1860, the new pluralism originated. The companies increasingly gained (more independent, because not centrally, but by the markets regulated) power and state organizations were increasingly privatized, so that today there is again a more or less uncoordinated coexistence of authorities as in the Middle Ages. Together, the leaders of these different organizations manage modern society, whether they are aware of it or not. Following the ancient maxim of physicians, they should at least not knowingly do harm to the community: Primum non nocere.
This pluralism is generally required and useful, because only through this specialization and focus performance and progress can be achieved – industrialization has also shown this. However, this focus needs a counterweight in commitment and responsibility for society as a whole. Peter Drucker therefore goes one step further and demands that leadership always goes beyond the walls of the respective organization: in form of money, for example, by companies not evading their tax burden or even voluntarily supporting projects, in form of personnel, by employees having the opportunity to get involved in the community (this requires fair payment and flexible working models as well), and in the form of overarching cooperation on challenges that can only be mastered together. And here we are again with the challenges of the impending climate crisis.
Yes, each institution is autonomous and has to do its own work, the way each instrument in an orchestra plays only its own part. But there is also the score, the community. And only if each individual instrument contributes to the score is there music. Otherwise there is only noise.Peter F. Drucker, Management Rev Ed