Peter Drucker on CEO Pay

Peter Drucker, who passed away early this month, is widely regarded as the father of Management Theory. Besides being an academic, he actively consulted with both Corporations and Non-Profit agencies.

From my favorite Business publication's excellent profile:

In the 1980s he began to have grave doubts about business and even capitalism itself. He no longer saw the corporation as an ideal space to create community. In fact, he saw nearly the opposite: a place where self-interest had triumphed over the egalitarian principles he long championed. In both his writings and speeches, Drucker emerged as one of Corporate America's most important critics. When conglomerates were the rage, he preached against reckless mergers and acquisitions. When executives were engaged in empire-building, he argued against excess staff and the inefficiencies of numerous "assistants to." In a 1984 essay he persuasively argued that CEO pay had rocketed out of control and implored boards to hold CEO compensation to no more than 20 times what the rank and file made. What particularly enraged him was the tendency of corporate managers to reap massive earnings while firing thousands of their workers. "This is morally and socially unforgivable," wrote Drucker, "and we will pay a heavy price for it."

• It was Drucker who introduced the idea of decentralization -- in the 1940s -- which became a bedrock principle for virtually every large organization in the world.

• He was the first to assert -- in the 1950s -- that workers should be treated as assets, not as liabilities to be eliminated.

• He originated the view of the corporation as a human community -- again, in the 1950s -- built on trust and respect for the worker and not just a profit-making machine, a perspective that won Drucker an almost godlike reverence among the Japanese.

• He first made clear -- still the '50s -- that there is "no business without a customer," a simple notion that ushered in a new marketing mind-set.

• He argued in the 1960s -- long before others -- for the importance of substance over style, for institutionalized practices over charismatic, cult leaders.

• And it was Drucker again who wrote about the contribution of knowledge workers -- in the 1970s -- long before anyone knew or understood how knowledge would trump raw material as the essential capital of the New Economy.

He had numerous important admirers: Jack Welch, Andy Grove, Newt Gingrich, etc. Funny how his views on CEO pay never got widely implemented.