• Strategy
  • The Economist

Survey: The Near Future

Peter Drucker explains how it will differ from today, and what needs to be done to prepare for it.

Crucially, the claim to the absolute primacy of business gains that made shareholder sovereignty possible has also highlighted the importance of the corporation’s social function. The new shareholders whose emergence since 1960 or 1970 produced shareholder sovereignty are not “capitalists”. They are employees who own a stake in the business through their retirement and pension funds. By 2000, pension funds and mutual funds had come to own the majority of the share capital of America’s large companies. This has given shareholders the power to demand short-term rewards. But the need for a secure retirement income will increasingly focus people’s minds on the future value of the investment. Corporations, therefore, will have to pay attention both to their short-term business results and to their long-term performance as providers of retirement benefits. The two are not irreconcilable, but they are different, and they will have to be balanced.

Over the past decade or two, managing a large corporation has changed out of all recognition. That explains the emergence of the “CEO superman”, such as Jack Welch of GE, Andy Grove of Intel or Sanford Weill of Citigroup. But organisations cannot rely on finding supermen to run them; the supply is both unpredictable and far too limited. Organisations survive only if they can be run by competent people who take their job seriously. That it takes genius today to be the boss of a big organisation clearly indicates that top management is in crisis.

Impossible Jobs

The recent failure rate of chief executives in big American companies points in the same direction. A large proportion of CEOs of such companies appointed in the past ten years were fired as failures within a year or two. But each of these people had been picked for his proven competence, and each had been highly successful in his previous jobs. This suggests that the jobs they took on had become undoable. The American record suggests not human failure but systems failure. Top management in big organisations needs a new concept.

Some elements of such a concept are beginning to emerge. For instance, Jack Welch at GE has built a top-management team in which the company’s chief financial officer and its chief human-resources officer are near-equals to the chief executive, and are both excluded from the succession to the top job. He has also given himself and his team a clear and publicly announced priority task on which to concentrate. During his 20 years in the top job, Mr Welch has had three such priorities, each occupying him for five years or more. Each time he has delegated everything else to the top managements of the operating businesses within the GE confederation.

A different approach has been taken by Asea Brown Boveri (ABB), a huge Swedish-Swiss engineering multinational. Goran Lindahl, who retired as chief executive earlier this year, went even further than GE in making the individual units within the company into separate worldwide businesses and building up a strong top management team of a few non-operating people. But he also defined for himself a new role as a one-man information system for the company, travelling incessantly to get to know all the senior managers personally, listening to them and telling them what went on within the organisation.

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