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 / Winter 2003 / Issue 33(originally published by Booz & Company)


Best Business Books 2003: Management

It is but a short step from this chilling thought to Orwell’s notion of doublethink: “To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them.” Indeed, the whole of 1984 can be read as a cautionary tale on what organizations look like if managerial power is unchecked.

The subtitle of The Machiavellians is Defenders of Freedom, and Burnham’s lack of concern for the ethical issues distressed not only Orwell but also Peter Drucker, who had begun his American writing career at about the same time as Burnham. In The End of Economic Man: A Study of the New Totalitarianism (John Day Company, 1939) and The Future of Industrial Man (John Day Company, 1942), Drucker underlined the need for the wielders of power to justify their behavior as benefiting their subjects, indicating that the lack of such justification would lead inevitably to tyranny. Drucker suggested that, in a functioning, sustainable society, brute force was a last resort: In normal times power had to be exercised as authority, which he defined as “the rule of right over might.”

Managerial power did not meet this test, Drucker suggested: “In the modern corporation the decisive power, that of the managers, is derived from no one … controlled by nobody and nothing and responsible to no one. It is in the most literal sense unfounded, unjustified, uncontrolled, and irresponsible power.”

Corporate Power in Society
In their early writings, both James Burnham and Peter Drucker drew heavily upon The Modern Corporation and Private Property (Commerce Clearing House, 1932), by Adolf A. Berle and Gardiner C. Means. In this monumental classic, which is still in print, the duo offered extensive statistical data to document the decline of the individual owner/proprietor and the rise of the corporation. The separation of ownership from control, or the “agency problem,” as it came to be known, was to have profound consequences that continue to play out to this day. In their new book, The Company, John Micklethwait and Adrian Wooldridge supply a broader perspective in a marvelously compact, well-written survey, framing Berle and Means’s seminal work in the process.

The authors — writers for the U.K. weekly The Economist — show that from the beginning the corporation has been both an economic and a political animal: The economic benefits it has delivered are incontestable, but its political legitimacy has always been a problem.

Indeed, over the centuries there seem to have been several cycles of innovation, success, excess, and abuse, followed by political outrage and reform. These cycles were often catalyzed by either the exploitation of new resources (spices, slaves, and precious metals) or the emergence of new technologies (canals, railroads, and communications technologies). These cycles are most marked in the U.S. and the U.K., where the economic role of the corporation has been emphasized, in America almost to the exclusion of consideration of its political franchise. In contrast, these cycles seem less noticeable in Germany and Japan, where corporations are far more embedded in the community and the political process. As the current economic and social pressures on Germany and Japan indicate, however, social stability may have been bought at the price of reduced economic benefits and a sluggish societal response to change.

From their high-level perspective, Micklethwait and Wooldridge are unfazed by the latest crop of corporate shenanigans. This is just part of the evolution of the corporation, and compared with the bloody excesses of England’s East India Company and the brutalities of the concessionaire operations in what was to become the Belgian Congo, the misdeeds of Enron and WorldCom do seem trivial. But if executives can today extract millions of dollars from shareholders and employees without resorting to such mayhem, the question is, Why would they bother?

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