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Social Crisis and Corporate Response

BY DONALD P. KIRCHER

CORPORATE PARTICIPATION in solving

the problems of race, the central city, education, and minority employ- ment IS a currently popular topic which has attracted the attention of some stu- dents of the subject and many orators. The more extreme examples of grandiose rhetoric would have one believe that, all else having failed, business was the last best hope for solving every problem that besets our society. Much of the hyperbole which has attended discussions of the subject is due to the striking contrast between private affluence and public squalor. Corporate business, as the prin- cipal mechanism which has produced private aflSuence, is seen as successful, capable, vigorous, confident, optimistic.

The public sector simultaneously pre- sents many unedifying vistas. The streets of our cities are jammed and filthy; chil- dren in the ghettos are badly educated; the nationalized and semi-nationalized

transport systems in and around tbe cities are barely operative; welfare systems, while relieving distress, have institution- alized poverty and dependence; and even the relatively simple matter of delivering the mail seems to strain both the capaci- ties and the budget of the Federal Gov- ernment. And hanging over everything is the ominous cloud of the race problem.

The 1969 McKinsey Foundation Lectures, entitled "Of Men and Markets—Diversi- fication in a Worldwide Setting," were delivered recently at Columbia University by DONALD P. KIRCHER, President of The Singer Company. They will be pub- lished next fall by the McGraw-Hill Book Company. This article, drawn from the last of the three lectures, appears here by courtesy of the publisher and of the Graduate School of Business, Columbia University, co-sponsor of the lectures.

Is battling poverty, racism, and urban blight really the business of

husiness, as tbe rhetoric of tbe day suggests? This chief executive thinks

so—but he nams that corporate action programs must be kept consistent

with basic business disciplines, purposes, and performance criteria.

streaked occasionally with lightning flashes of violence and riot. The public sector thus presents many aspects of mal- aise and decay, of uncertainty and pes- simism, and areas of disruptive changes and demoralization.

The contrast leads to the assumption that corporate business can and should bring its disciplines and capabilities more precisely to bear upon tiie solution of these social ills. I agree emphatically that it can and should, but the manner of its doing so requires more exact definition than it has commonly received.

Tha Need to Keep in Character

In attacking social ills, business should act within the framework of its proven special abilities, skills, and dis- ciplines. Only by acting in the manner which has made it successful in its previ-

ously more narrowly defined sphere can it be a meaningful force on the larger stage upon which it is now called to play a major role. This point is critical. All in- stitutions have distinctive characteristics which differentiate them from others and which enable them to act effectively in a certain specialized way. They have or- ganic aspects—the fish out of water is an apt analogue of the institution trying to behave in a noncharacteristic manner. For example, Jacques Barzun in his work on the modem university ascribes no small part of the present problems in the large universities to the fact that society has tended to use them as a convenient dumping ground for a variety of essen- tially noneducational problems, with the resdt that their sense of identity and com- mon purpose has become diffused, and their ability to perform their prime func- tions has been diluted.

What are the essential characteristics

of corporate business that make it an effective mstrument"' These are critical to assessing its proper role in a broader sphere.

Shareholder Power

To begin with, I think corporate man- agement has shown itself to be responsi- ble in serving its prime constituency— the owners of the enterprise. It is not an uncontrolled mechanism serving the self- aggrandizing ends of the individuals who head it. Since the time of Berle's early work on the modem corporation, it has been recognized that the general separa- tion of ownership and control of large corporations has created at least the danger of divergent interests as between owners and managers.

The control of management by share- holders is, in fact, a complex process which operates on a ntmiber of different levels. First, there is the electoral process itself, the process by which shareholders elect the directors, who in tum appoint the management While this is an im- perfect process, the concurrence of stock- holders in the selection of management and on many important specific matters must be sought and obtained. The efficacy of this electoral process is aided by the fact that responsible managements are highly sensitive to the views and opinions of individual shareholders, exactly as politicians take quite seriously the views of individual voters back home.

A second mechanism of control by shareholders over management, and one which is highly effective, derives from the public reporting procedures. No other body of men is called upon to report so frequently, so publicly, ui such detail, and

in such precise quantified terms as are corporate managers.

Furthermore, this detailed and fre- quent reporting is against standards which center around the necessity for the enterprise to perform well. It must grow in volume; it must grow in earnings; it must grow in earnings per share. These performance standards have been ac- cepted not only at the top levels of the corporate enterprise, but they have also been disseminated throughout the entire firm, with the result that they are a part of the fundamental thinking of the mem- bers of the organization—a thing given, an accepted axiom, a major premise that permeates the entire apparatus and influ- ences daily action. The influence of fre- quent and detailed public reports, com- bined with commonly accepted standards of performance in terms of growth, pro- duces in effect a kind of public score- board which makes highly visible the success or failure of corporate manage- ment-visible not only to shareholders but to the financial community and the public generally.

The influence of this process in guid- ing the action of management is highly effective in practice. It is also effective in bringing about desirable changes in man- agement and the requisite changes are commonly made, by direct action of di- rectors or as a consequence of dissatisfac- tion in the ranks of management itself, long before stockholder dissatisfaction reaches the point of organized revolt.

It is perhaps not beside the point to note that business is quite unique in this respect. No other institution accepts as normal the need to report and justify both its actions and results so continually and precisely. While other institutions, such as foundations or universities or even de-

partments of the Government, may report publicly, they are not required to account for results in specified, quantified terms, and it is this latter requirement which is distinctive to business.

Explicit Endi and Diiciplined Means

The next attribute of corporate busi- ness, which is important in the current context, is the fact that corporations are disciplined entities. I do not use the term "disciplined" in a military or hierarchical sense, but ratiier in the sense that corpo- rations function by setting specific goals and objectives and then acting in an or- ganized manner to attain them. The en- tire planning/budgeting/reporting cycle in modem business operates to make the enterprise a results-oriented mechanism. It is the attainment of goals that is re- garded as critical, not the steps which are preliminary to this. No responsible busi- nessman confuses the making of an appropriation, for example, with the at- taitunent of the objective of the appro- priation, which may be a new and better product on the market, or a new plant in operation, or whatever. Another example is the fact that the appointment of a com- mittee to study some matter is not re- garded as an end but a means, and usually not a very good one.

Pervading everything in the modem corporation is the discipline of the eam- ings statement, the final, precise, unchal- lengeable Scoreboard which tells whether it is winning or losing. The discipline of the earnings statement applies not only to the total enterprise but also, in a well-run company, to each of its operating seg- ments. One of the most effective steps we took in the rehabilitation of Singer was to

restructure the entire company into a large number of profit-centered operating units, thus bringing the discipline of the earnings statement to all the segments and units of the enterprise. In the per- formance environment of the modem corporation what counts is results, and it is only seldom that the rhetoric of excuses and explanations is accepted as a substi- tute for performance.

Capacity for Change

An allied characteristic is the fact that modem corporations are pragmatic and, therefore, flexible. As they are concemed with results, their structure and hierarchy are regarded as means which are subject to being rapidly changed when found not to be suitable. In Singer, for example, each of the recent years has seen one or more major structural reorganizations as we accommodated to some extemal or in- ternal change, or to some new perception of how we could more effectively accom- plish the corporation's purposes.

A concomitant of this characteristic is that circumstances in recent years have made it necessary for corporate business to acquire the ability to manage change in an orderly fashion. Someone has ob- served that the great social changes which have occurred in history have tended to destroy the societies in which they oc- curred. Our problem today is to bring about major changes in our society with- out destroying the fabric in the process. A principal reason that corporate busi- ness has a large measure of the ability to bring about major change in an orderly fashion and without destmctive effects is that in the postwar period it has had to accommodate itself and all of its pro-

cesses to a period of the most rapid tech- nological change in human history. This broad statement is frequently made but little understood outside the ranks of business and those engaged in the phys- ical sciences and technology. For ex- ample, in the recent past, the entire large segment of industry concerned with elec- tronics has twice revolutionized itself technically. The replacement of the vac- uum tube by discrete solid slate devices was the first revolution. The second is only now occurring—the replacement of transistors and other discrete solid state units by integrated circuits. In previous periods a change of the magnitude of either one of these would have occurred only over the period of a generation. To- day the periodicity of such fundamental changes has been reduced to a few years.

Another example is the following: In one of our own major operations we have planned for and are currently introducing a major new product, the product life of which is planned to be precisely 18 months, at which time it will be succeeded by another major product change These are not mere model changes, but the products mvolved are fundamentally dif- ferent and of new design. Corporate man- agement lives with rapid technical change as a daily condition and, as a re- sult of this, has learned, sometimes pain- fully, how to manage such change without tearing apart the fabric of the organiza- tion itself. This means that large corpo- rate organizations must always be pre- pared to transform themselves in terms of organization structure, in terms of in- dividual managerial responsibilities, and, of course, in all the marketing and other functional areas of the business.

In our own company a decade ago a change in one of the principal sewing

machine models was a convulsive event for the entire organization. Now in the course of a year, across all our various product lines, we make a hundred prod- uct changes of equal or greater magni- tude with hardly an organizational ripple to mark these events

The importance of this almost unique and recently learned ability is that the societal problems in many areas cry out for basic and rapid change, and the so- cietal danger is that such change will have a destructive effect upon society itself, the fabric of which is already seen to be torn and rent in places and cer- tainly tattered at the edges.

Influence for Liberalization

The next characteristic of the mod- ern corporation to note is that, in action, it may well be the most potent liberaliz- ing force in the society. This may seem a startling idea to some—especially those whose views of large corporations were formed in the prewar period or from the history of the era I myself have never been able to read the history of the New Deal era without a feeling almost of despair that the business attitude at that time was so universally one oi negativ- ism. Although the condition of the coun- try was desperate, the business position was one of opposition to nearly every project which emanated from Govem- ment or other groups to attempt to deal with the situation. Whatever the reasons may have been for this attitude of the Thirties, the picture today is entirely dif- ferent. The ideological conflicts of the Thirties have largely been resolved and there is little disposition today to oppose, merely for the sake of opposition, the

current efforts to attack the social prob- lems of today.

More importantly, the business en- vironment has become increasingly lib- eral. It is preeminently an open society. Its need for talented men is great and in- creasing. Its emphasis upon performance is one of its principal characteristics and the entire thrust of its personnel policies is to ask not who a man is or what his background is, but simply whether he can perform or not. As a result, the busi- ness society is open and mobile, with pro- motion, influence, and power coming rapidly to those who can perform. In the old phrase, it is a "career open to talents." It is open not only to talented men but to new ideas. Accommodation to constant change means that dogma and conven- tion have insufficient time to take root and exert their stultifying influence. Its emphasis upon problem solving and the pragmatic attainment of measured re- sults are liberalizing influences. Structure and status give way to accomplishment. Its current state of optimism and confi- dence in the future are exemplary of the liberal idea that the condition of man can and should be improved.

We must never forget that we are the heirs and practitioners of the Industrial Revolution and its current phase—the Technological Revolution—and that these have been truly revolutionary in the im- provement they have brought in the con- dition of man in all the Western coun- tries. In the long reach of history it was only a brief time ago that poverty was the almost universal condition of man The industrial system has been so successful in elevating man from poverty that our society and those of other Western na- tions are now able seriously and practi- cally to decide that we intend to elimi-

nate poverty from the relatively small areas of our society where it remains. This is no mean or ignoble task, nor is it an overstatement to call it the most liber- alizing movement in the modern era.

I would assert, therefore; (1) that modem large corporations have shown themselves to be responsible and respon- sive to the interests of their prime consti- tuency, their stockholders; (2) that they are accustomed to act in a disciplined and orderly fashion for the attainment of specified goals; (3) that they are prag- matic and structurally flexible; (4) that they have shown themselves to be ac- complished in managing rapid change, and, finally, that in action, if not in stated philosophy, they are a major liberalizing influence.

Strategy for Success

In many respects these can be seen as characteristics that would make them effective instruments in attacking our major social problems; and, generally, I would agree, with one important proviso. If they are to be effective in this en- deavor, they must bring to the task the special characteristics which have brought them their current success; and, most importantly, they must brmg their primary internal and external discipline, that of the earnings statement. It has been suggested by some that in the attack on current social problems, corporations should organize a separate nonprofit de- partment or division which would then function, I suppose, somewhat similarly to the manner in which a charitable foun- dation functions To me this would re- quire a corporation to act in this field like something which it is not. It is no more

capable of acting effectively as a founda- tion than would a foundation be able to act effectively as an industrial corpora- tion. If it attempted to do so, a corpo- ration would lose its discipline and one of its principal sources of strength.

An example of btisiness functioning effectively in one current problem area is that of minority employment. Bringing people into the labor force and training them is an essential part of the regular functioning of any enterprise. In our own case we have done this not only in the U.S. but in all the countries abroad. We have established new factories in up- country areas in underdeveloped lands where the entire labor force which had to be recruited and trained came from im- poverished and illiterate farm workers in the neighborhood.

As a world enterprise whose employ- ees and customers were of every color, race, and nationality, the Singer Company had for a long time maintained a policy of nondiscrimination in employment. In the early Sixties the policy was restated in more precise terms and its enforcement was organized in a more vigorous way. As a result, minority employment in- creased, but some time ago, in common with many other companies, we realized that the results of even a rigidly enforced nondiscrimination policy were unlikely to meet the requirements of the situation. We therefore organized an affirmative effort to bring into our employment ranks minority people who, in the absence of special training, could not have qualified. This effort was meticulously organized with training programs for personnel peo- ple and supervisors and vigorous follow- up by the top management of the com- pany.

The results of this affirmative, or-

ganized effort have been to accelerate the rate at which members of minority groups are entering our work force. Simulta- neously, we have provided support for a variety of new minority businesses and for such ventures as day care centers for the children of working mothers. Other large companies have had similar experi- ences, and I cite ours here not because it is so distinctive, but as evidence of the fact that when a large corporation organ- izes an effort such as this and establishes it as a visible program, it can attain re- sults. Furthermore, it is important to understand that this is not a charitable effort, even though it is quite costly. Rather it is business performing, with sharpened focus and effort, its traditional function of recruiting and training new employees with the intention of making them fully productive employees who will eam their way and make their con- tribution to the success of the enterprise.

Tha Singer Eiperience

Needs create markets and corporate business exists to serve markets. One of the needs of our society is vastly im- proved vocational training and educa- tion. What our company is doing in this field provides an example of how I be- lieve large corporations in serving mar- kets within their competence can con- tribute effectively to the solution of social problems. Singer has had a long back- ground of experience in a narrow seg- ment of vocational training. As the dis- tributor of the first mechanical device to be used in the home, our predecessors had long ago organized sewing schools and provided instruction for generations of girls and women all over the world.

We taught the world to sew, and today the newest generation of family seam- stresses is leaming the sewing skill from thousands of Singer teachers around the globe.

Less than a year ago, against this his- torical background, we analyzed the total training and education market and our own diverse capabUities in this field. As a result, last fall we established an Edu- cation and Training Group as one of our seven operating groups and gave it a broad charter in this field. The initial composition of the Group consisted of a number of operating units serving seg- ments of this field which had formerly been organizationally separated. These included a unit operating in the field of audiovisual equipment; another which prepared and distributed to schools film- strips, instructional material, and similar educational software; a unit which oper- ated a Job Corps Center at Camp Breck- inridge in Kentucky; another in the field of designing and producing closed circuit TV equipment for school use; and the Link Division, with a long record of leadership in computerized simulation equipment for training pilots, astronauts, and auto drivers.

Since the organization of the Group, we have been awarded the task of oper- ating the Delta Project in Mississippi, which is a retraining program for dis- placed agricultural workers, largely black. Organized as a centrally directed operating Group, the corporation thus has a very wide range of ability in this total field with prime emphasis upon vo- cational training. It ranges from very complex large computer systems for sim- ulation all the way to the less technical but equally difficult techniques of bring- ing high school dropouts back into pro-

ductive society. We have learned a lot and are leaming more, not only about the standard aspects of training and educa- tion, but also about the specialized prob- lems of training disadvantaged people. At our Job Corps Center at Camp Breck- inridge we have been able to train high school dropouts with greater effective- ness and at less cost than the university which managed the camp before we did.

We believe that we are making a con- tribution to the solution of the country's educational problems, and we intend to make a greater contribution in the future. In addition to expanding our existing op- erations, we are now studying the possi- bility of establishing Singer Schools or Leaming Centers to which we would bring all of the latest techniques to bear upon the problem of obtaining more ef- fective education at lower costs. We are also studying the question of whether we can effectively participate in the vast training and educational requirements of the underdeveloped countries in the Southern Hemisphere.

The essential thing to note is that our Education and Training Group is a fuUy operational profit-making segment of the total company, which is serving markets resulting from society's need for better education and training. It brings to this field the same disciplines that our other operating groups bring to their respective markets. We are acting like a business corporation, not like a charity or founda- tion, or a welfare department; and our effectiveness in this area will continue to be dependent upon our doing our own thing and not somebody else's.

To sum up, we can hardly over- stress the importance of every corpora- tion positioning itself in a positive and interactive way with the basic economic

and social trends of the present and future. There is no doubt in my mind that today this requires positive partici- pation by large corporations in serving actively the current and emerging needs of our society, but acting always within the framework of its special skills and

disciplines. The large modern American corporation is a powerful and effective instrumentality, and those of us who have leadership responsibilities in this area will be called upon in future to face even more complex problems of exercis- ing that power responsibly.

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