October 16, 2019

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Ethical Leadership: The Corporation Loses Its Way. Again.

Tracing the fall and resurrection of corporate leadership.


By James Hoopes

Part five of a series based on the book Corporate Dreams: Big Business in American Democracy from the Great Depression to the Great Recession (Rutgers University Press, 2011).

As large corporations mushroomed in the early 20th century, staff positions working for CEOs provided a speedy success route for ambitious youth. But recruitment of top executives from high level staff positions meant that a company could end up with a management team knowing little about operations. The danger could be seen in the career of Robert McNamara (1916-2009).

Corporate Management Gets A Bad Rep

McNamara, a Harvard Business School accounting professor, worked during World War II as a systems analyst for an Army Air Force staff officer named Tex Thornton. After the war, both McNamara and Thornton went to work for Ford. Thornton ended up running one of the era’s glitzy conglomerates, Litton Industries, which turned out to be a fast numbers game and fizzled. McNamara, too, managed by the numbers as Ford’s president and then Secretary of Defense (1961-68) under Presidents Kennedy and Johnson. There he helped put the United States through its first experience of losing a war, the needless and wasteful Vietnam conflict.

Corporate management took a reputational hit from McNamara’s loss of the war in Vietnam, the collapse of the conglomerates, and America’s soon-to-be-apparent loss of supremacy in automobile manufacturing. The collapse of corporate prestige seemed to anti-corporate liberals like economist John Kenneth Galbraith a chance to create a new version of the American Dream, focused on higher Robert McNamaraeducation and scientific research instead of corporate marketers’ manufacture of desire for pointless products.

Galbraith’s New Industrial State (1967) argued that conservatives were right to fear a planned economy, but they guarded the wrong flank. The planned economy, he said, would come from corporations, not government.

But Galbraith had lost his potentially most important audience, leftist university students, who had been radicalized by the Vietnam War. Interested in Marx’s macroeconomic indictment of capitalism, they had no interest in how firms operated or in Galbraith’s idea that corporate control lay far down in what he called the “technostructure” – that is, the technical, financial, and marketing staff.

The Japanese Introduce Quality Management

Meanwhile, the Japanese quality movement was making Galbraith’s supposedly revolutionary insight about the technostructure passé almost before he spoke.

By giving responsibility for quality to assembly workers, Japanese corporations extended management responsibilities to the rank and file.  As high quality Japanese imports increasingly penetrated the market, American liberals’ hopes for a higher and nobler version of the American Dream went smash. Instead of focusing on higher education and pure science, voters focused ever more intently on the state of the economy and their own increasingly insecure place in it.

President Johnson’s antipoverty program, “The Great Society,” showed how far Americans had drifted from the anti-corporatist tradition of the Great Depression.

The New Dealers had aimed their bolts directly at corporations. But the Great Society rested on welfare and, especially, education programs with the implicit expectation that once the poor were equipped with middle class skills, corporate America would be ready to hire them. It was not an impossible dream but to make it real liberals would have had to accept some responsibility for helping to improve corporate operations and move them in the direction of social responsibility.

American liberals had rested their cultural and political self-confidence on the supposed strength of the President Johnsoncorporate sector they held in contempt. Americans, thanks to the purported superiority of their corporate economy, were supposed to dream less and less of economic success, which was more or less guaranteed. Instead of longing for more manna, they were to turn their reveries toward higher things.

But the middle class, faced with reduced economic opportunity, lost patience with the liberal hope to move the American Dream past economic concerns. American corporations, in their hour of economic defeat by the Japanese, had achieved an ironic cultural victory. The bottom line now mattered to the populace in general.

Shareholder Value Movement Revives Corporate Moral Leadership

During the late 1970s the groundwork was laid for corporations’ cultural comeback by the rise of a movement for “shareholder value.” Burnishing managers’ reputations as agents of shareholders, this school argued that managers were not plunderers of their companies after all. Rather, it was asserted, the corporate economy’s long-term record of profitability showed that managers had, on the whole, done a good job of returning value to shareholders.

And managers could do still better if their interests were aligned with shareholders via stock options.

Behind the movement for shareholder value lay an academic notion of firms as spheres of freedom Corporate Dreamsrather than top down hierarchies. In this view, relations within the firm among shareholders, managers, and employees were as unfettered as relations among buyers and sellers in the free market. Unrealistic as this might seem to frontline corporate employees, it served the interests of managers by enabling them to conceive of themselves not as un-American top bosses but as inspirational leaders rallying followers from the bottom up.

By the end of the 1970s managers were once again finding a way to present corporate life as a worthy adventure. Once again, managerial power was to be downplayed in favor of the American admiration for freedom.

Corporations, far from being potentially oppressive and stifling employers, were a series of voluntary relations. Managers, far from acting only in their own interests, were effective builders of shareholder value. The immense fortunes that many CEOs were about to shower upon themselves were made all the sweeter by their newfound ability to claim they had earned them.

Next: The contemporary cult of corporate leadership


CSR & the Rise of Moral Leadership: What Manner of Man(ager)?

The Corporation Strikes Back on Moral Ground: Restoring Corporate Hegemony

Corporate or Government Failure? Creating the American Dream

The Corporate American Dream At Its Height: The History of Capitalism

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