A Functioning Society and Management as a Liberal Art — Peter Drucker’s Beliefs and Values

Minglo Shao

PUBLISHED:

June 20, 2020

“To make our institutions perform responsibly, autonomously, and on a high level of achievement is thus the only safeguard of freedom and dignity in the pluralist society of institutions. Performing, responsible management is the alternative to tyranny and our only protection against it”. - Peter F. Drucker


World-renowned as “the father of modern management”, Peter Drucker believed that although he was famous for establishing management as a discipline, he was actually a “social ecologist”, and his real concern was the individual’s existence in the social environment. In Drucker’s view, management was a newly emerging tool for improving society and life. He was the author of 39 books, only 15 of which dealt with management. The others were related to community, society, and polity. Only two books —Management for Results and Innovation and Entrepreneurship —were devoted to business management.


Drucker knew that human nature is imperfect, so nothing humans create, including the societies they design, can be perfect. He didn’t hold high expectations or ideals for society; he only hoped that it could be less painful and more tolerant. However, a society still has to have basic functions; it has to provide the people living in it with the conditions for normal life and work, and it has to give individuals identity and status. These functions or conditions are necessary for a society in the same way that normal functions are necessary for a living body.


It is worth noting that society is not the same as nation-state, because “nation-state(government)” and “family” cannot provide the necessary functions of a society. This is evidenced by the fact that some powerful countries have only fragile and fragmented societies. In Drucker’s view, in the industrial age, a normal functioning society must consist of at least three types of institutions: government, business, and non-profit, each of which plays a different and unique role. Individual organizations within each of those categories must have distinctive performances, which requires them to have power centers and decision-making mechanisms. The power centers and decision-making mechanisms should give each individual a place within the organization, allowing them to use their strengths, to play a part and contribute, therefore obtaining livelihood, identity, and status. In the past, nation-state did not have such power centers or decision-making mechanisms; in other words, “management” is the new “polity”. (Drucker collectively refers to all three power centers as “polity”: management systems of business, management systems of nonprofit institutions, and governmental systems of nation-state, because these three sectors all hold power but each has different objectives. Business and non-profit organizations have the power to allocate society’s resources in order to provide specific products and services; the government has the power to arbitrate and intervene to maintain fairness and justice throughout society).


Near Claremont University in the United States, there is a small Drucker memorial — the Drucker House Museum — in what was once Peter Drucker’s California home. On entering the museum, one sees a famous quote in a prominent place facing the entrance of the living room:


“To make our institutions perform responsibly, autonomously, and on a high level of achievement is thus the only safeguard of freedom and dignity in the pluralist society of institutions. Performing, responsible management is the alternative to tyranny and our only protection against it”.


When the museum opened, the Drucker Institute’s colleagues asked themselves, if they were to choose a quote from Drucker’s publications that sums up the significance of his work to the world, what would it be? They eventually chose the above passage.


If you are familiar with Drucker’s life and how his beliefs and values were formed, you’ll surely agree with their choice. From The End of Economic Man, his first book, to A Functioning Society, the last volume that he completed independently, a common thread runs through all his work: resistance to totalitarianism and defense of the individual’s freedom and dignity.


There is a great difference between totalitarianism and authoritarianism. It was not until the 20th century, with the rapid advancement of human knowledge and capabilities, that conditions arose for the centuries-old tradition of authoritarianism to mutate into totalitarianism. Totalitarianism seeks to thoroughly manipulate and control every human being, flesh and spirit, to expunge their compassion and conscience, transforming them into humanoid machines that fulfill the dreams of individual totalitarian rulers. Under totalitarian rule, loyalty to leaders is everything; personal thoughts, feelings, desires, and goals are superfluous and must be eliminated. The 20th century brought wars, revolutions, and movements that caused unprecedented disasters and human suffering. Whether Nazism (National Socialism), Fascism, or Communism, all are “masterpieces” of totalitarianism. The rise of Hitler and Nazism, which the young Drucker lived through, is among them. To best understand how Drucker’s experiences influenced his beliefs and values, read his Adventures of a Bystander. To see what totalitarianism is and why the masses support it, read his The End of Economic Man, with the subtitle “The Origins of Totalitarianism”.


Fortunately, history’s evolution has not always been so dispiriting. Since the Industrial Revolution, especially from the 1800s onward, in the last 200 years, productivity has increased dramatically, not only creating vast material wealth but also bringing profound changes in the social structure. Eighty years ago, Drucker perceived and pointed out the formation of a new pluralistic, organizational society: Emerging enterprises and nonprofit institutions fill the gaps and empty spaces between “nation-state” (government) and “family” in the social structure of the past.


Based on that foundation, universal education and the rise of the knowledge worker are creating a knowledge economy and a knowledge society, and information technology has accelerated all these changes. It should be noted that “knowledge society” and “knowledge worker” are terms Drucker coined. “Knowledge workers” broadly refers to those who possess and apply specialized knowledge and work to create useful products and services for society. This includes entrepreneurs and executives, professionals, and technicians in any organization, as well as independent professionals, such as accountants, lawyers, consultants, trainers, and so on. Today, in the 21st century, owing to the development of knowledge and the ever-widening area to which it is applied, individuals and individual institutions are no longer alone and helpless. Having mastered certain types of knowledge, they have freedom of choice to decide where and how to work and the power to influence others. Knowledge workers and the knowledge-based organizations they formed no longer resemble traditional intellectuals. Knowledge workers’ unique characteristics are their independence and autonomy. They can integrate resources, build their own organizations or start new businesses, create value, and foster economic, social, cultural, and political changes. Traditional intellectuals depended on and were subject to government authorities, and could only act on platforms provided by those authorities.


This is an epoch-making, far-reaching change that has taken place not only in Western developed countries, Japan, and other democracies but also in many developing countries still under authoritarian or even totalitarian rule, such as in today’s China. In totalitarian countries, rulers instinctively and inevitably treat independent and autonomous organizations and knowledge workers as potential threats, suppressing or even banning them. But this can have only one consequence: the hollowing out of society and the economy, which in turn will undermine the basis on which any regime depends, ultimately leading to totalitarianism's collapse. To put it in popular terms, the wave of freedom and democracy now sweeping the world is irresistible; totalitarian rulers, no matter how ostensibly powerful and arrogant, will inevitably be drowned by it.


A healthy modern society is made up of pluralistic organizations. Of the three organizational categories — government, business, and nonprofit; businesses and nonprofits are comparatively more constrained by the market, the public, and the government. Therefore, their managements are less likely than the government to take the road to totalitarian rule (except for businesses and nonprofits that are de facto government proxies). That’s why, in Drucker’s view, businesses and nonprofits are more important and worthy of hope than governments. Nonetheless, they may still fail to achieve the “performing, responsible” operation that Drucker expects, either due to lack of management or mismanagement, providing space and opportunity for totalitarian governments to monopolize social resources and strip individuals’ rights. The rise of knowledge workers in all organizations, including the Internet-era’s virtual work community, has provided the foundation and conditions for a new era of management, posing a challenge to the traditional “carrot-and-stick” approach to management. In response to this reality, Drucker researched, established, and constantly strove to improve the discipline of modern management.


On January 18, 1999, when he was almost 90 years old, Drucker answered the question, “What is my most important contribution?” This is what he wrote:


“That I focus this discipline (management) on People and Power; on Values, Structure and Constitution; AND ABOVE ALL ON RESPONSIBILITIES - that is focused the Discipline of Management on Management as a truly LIBERAL ART”.


Dubbing management discipline a “liberal art” was Drucker’s brainchild, reflecting his unique perspective on management. This is obviously important, but in his many works, there is little further explanation of it. The most complete exposition is found in the fifteenth chapter of his book The New Realities, entitled "Management as Social Function and Liberal Art”:


“Thirty years ago, the English scientist and novelist C.P. Snow talked of the ‘two cultures’ of contemporary society. Management, however, fits neither Snow’s ‘humanist’ or his ‘scientist.’ It deals with action and application; and its test is results. This makes it a technology. But management also deals with people, their values, their growth and development—and this makes it a humanity. So does it concern with, and impact on, social structure and the community. Indeed as been learnt by everyone who, like this author, has been working with managers of all kinds of institutions for long years, management is deeply involved in spiritual concerns—the nature of man, good and evil.


Management is thus what tradition used to call a liberal art: ‘liberal’ because it deals with the fundamentals of knowledge, self-knowledge, wisdom, and leadership; ‘art’ because it is practice and application. Managers draw on all the knowledge and insights of the humanities and the social sciences—on psychology and philosophy, on economics and on history, on the physical sciences and on ethics. But they have to focus this knowledge on effectiveness and results—on healing a sick patient, teaching a student, building a bridge, designing and selling a ‘user-friendly’ software program”.


As one who has many years of practical management experience and has read nearly all of Drucker’s works, I have often pondered why Drucker called management a “liberal art”? I finally realized that this was not just a beautiful and unconventional act but was a characterization of management; it revealed management’s essence and pointed out the proper direction for managerial efforts. At a minimum, this includes the following implications:


First, the most fundamental management issue, or the key to management, is how managers and individual knowledge workers regard and handle the relationship between people and power. Drucker was a Christian. His faith and his life experiences were mutually confirming and had a profound impact on his research and writing. In his view, man should not have power. Only humankind’s creator, God, master of all things, has power. The Creator is always superior to humans. After all, human nature is weak and cannot resist the temptation to acquire power or withstand its trials. Therefore, a person can only possess authority. He is authorized by the Creator because of his character, knowledge, and ability, which are effective only at a certain stage and in certain actions. This is true not only for individuals but for the entire human race. In democratic countries, “the people are sovereign”; their power is also a kind of authorization granted by the Creator. Under this authorization, human beings are only “tools”—they have free will but must also accept responsibility. Human beings are the Creator’s tools and they cannot become masters; They cannot manipulate and control fellow humans according to their own intentions, nor should they become tools for the manipulation and control of others. Only by recognizing this will people gain both humility and a sense of responsibility; only then will fairness and justice—which the Creator alone commands and which can only summon and be revealed to humans—guide their actions. Moreover, people must constantly examine themselves and willingly conform to society's norms and constraints. 


Second, although human nature is imperfect, every person comes from the Creator and bears his image and good intentions. In this sense, they are all equal to each other, all have their value, their creative abilities, and their functions, and should be respected, and encouraged to create. As stated in the American Declaration of Independence, all men are created equal, and every person has innate, self-evident and inalienable rights. The fundamental reason why “Drucker’s” management discipline can make a difference stems from just this conviction. Does one believe that every person has goodwill and potential? And does one thus really treat people equally? These core values and convictions ultimately determine whether one can respond to Drucker’s management knowledge and whether one can understand and implement it.


Third, in knowledge societies and knowledge organizations, every worker, to some extent, is both a knowledge worker and an executive. In that, they can use their expertise to authoritatively influence other people and organizations — knowledge is power. But power must be governed by responsibility. And performance and results indicate how effective an executive has been in exercising responsibility. Power that accounts to performance and results is legitimate, that is, it is represents authorized authority; otherwise, it becomes “might”, which Drucker is firmly opposed to. The importance of performance and results lies not only in economic and material aspects but also in the psychological aspects that people tend to overlook. If managers and leaders continually fail to solve real issues, a despairing public will irrationally choose to rely on and obey powers that promise a “perfect society”, and willingly surrender their freedom and dignity. This is why Drucker repeatedly warned that if a management fails, totalitarianism will take its place.


Fourth, does management have other responsibilities besides getting organizations to achieve performance and results? Or to put it another way, are performance and results limited to quantifiable economic gains and wealth? In addition to providing customers with inexpensive, high-quality products and services, and earning reasonable profits for shareholders, can an industrial or commercial enterprise become a good, responsible “social citizen”? Can it help its employees enhance their character and competence, turning the organization into a “moral community”? This might seem too demanding, but it is reasonable. More than ten years ago, I worked with a multinational logistics corporation that asked itself and found it was possible to put it into practice. This means that we must learn to design moral and ethical demands and economic goals into the same workflow, the same set of weighing systems, and into every method, tool, and model of operation. Today, it is gratifying that more and more organizations are beginning to take this issue seriously and responding positively to it in their respective fields.


Fifth, “博雅技藝的管理” (management as a liberal art) or “博雅管理” (liberal-art management) are lovely Chinese translations, but they’re a bit problematic. Judged from the three requirements of translation — 信 xin (fidelity), 達 da (clarity and flow), and 雅 ya (elegance), the rendering is elegant but is not faithful enough to the original. Translated directly into Chinese, “liberal art” would be “free art” (自由的技藝); that is, freedom from restraints, a liberal art that lets people throw off restraints and attain spiritual and physical freedom. To put it another way, to become a free person, one must master an art. In ancient Greece and Rome, only “freemen” were permitted to learn such knowledge and skills; slaves neither needed nor were permitted to study them, because only “freemen” bore the exalted responsibilities of a citizen. However, in the earliest traditional Chinese-character editions of Drucker’s works, “liberal art” was translated as 博雅藝術 boya yishu, probably to take advantage of the positive connotations that terminology has in the Chinese language. I feel that “自由的技藝” (free art) is closer to the original English meaning. “Liberal” is freed. “Art” can be translated as 藝術 yishu, but management must be applied, it must perform and produce results, so it is first and foremost a “skill (技能)”. On the other hand, the management’s object is people’s working. When dealing with people, managers must face the good and evil inherent in human nature, as well as people's ideas — emotional and rational — which can change on a moment’s notice. They also must face the same issues within themselves. When viewed from this angle, management is an “art” involving subjective judgment. Therefore, “art” is more suitably interpreted as技藝. “Liberal” (自由) and “art” (技藝) combined is “liberal art” (自由的技藝).


Finally, I’d like to say, the reason I've taken such pains in translating “liberal art” is not just to produce a “correct” Chinese equivalent. More importantly, it’s to stress that management is not what people commonly mistake it for: a study of how to succeed, either personally or organizationally. Its aim is not to help an enterprise make money or achieve the highest efficiency in production; nor is its aim to help a non-profit organization win a good public reputation. Management aims to allow every person to live in a healthier, less harmful and painful human society and community. It is to allow every worker to freely choose the responsibility one is willing to bear in that society or community, according to one's innate goodwill and potential, to freely use one's talents to create value that is useful to others, thus fulfilling one’s responsibility. Moreover, in the process of that creative work, to live out human dignity and grow into a better and more capable person: They have pragmatic knowledge and skills, but are not arrogant or vain; they pursue psychological and spiritual sublimation, but are not jaded or cynical; they revere the sanctity of natural creation, but are not callous or cold-hearted. As a “social ecologist”, this is what Drucker defined and anticipated —"Management as a Liberal Art” or “liberal-art management”, the terms’ true meaning.


Minglo Shao

Licensee of the “Peter F. Drucker/Peter Drucker” brand in Taiwan and China

On Leadership, Legitimate Power, and Influence

By Byron Ramirez, Ph.D. and Bo Yang, Ph.D. • April 23, 2025
When we describe leaders, we often cite the importance of their ability to influence others. For decades scholars have focused their work on studying and describing how this capacity to influence works and why it tends to elicit a positive response from people, who are inspired to follow the leader’s vision. We have read about that mystifying ability to persuade others and guide them towards a common purpose. However, when analyzing the leader there is another aspect we ought to also consider - where does their power originate from, and is this power considered legitimate? What these questions intend to imply is that when we analyze the interactions of leaders and their followers, we should contemplate how their relationship is built, and moreover, how the power of the leader is used to shape those relationships. Let us first discuss what power is and why it is important. Power in its general sense is the capacity to influence, lead, dominate, or impact the actions of others. The German sociologist, Max Weber referred to power as the capacity to create a desired outcome within a social relationship. As such, power enables the leader to influence and lead the actions of people. Legitimate power is often referred to as power that the person derives from formal position or office held in the organization's hierarchy of authority. And it is this notion of authority that helps legitimatize power in the eyes of the follower. For instance, a manager has legitimate power over their subordinates, allowing them to assign tasks. Teachers possess legitimate power in the classroom, enabling them to assign grades and set learning objectives. We can then surmise that legitimate power is based on the authority granted by a position or title. And individuals will comply with requests or decisions made by the person with authority because they recognize the authority of the person holding the position. However, unlike authority, which implies legitimacy, power can be exercised illegitimately. As history shows us, there are plenty of examples where power did not originate simply from a place of authority and legitimacy, and instead flowed from coercion. Joseph Stalin and his Great Terror campaign certainly comes to mind. And although Stalin did have a position of “authority”, much of his power and influence were coercive and deceptive in nature. In fact, Stalin had used his political positions throughout his life to “remove” opponents while bolstering his image in the pursuit of greater personal power. According to biographer Robert Service (2005), Stalin took pleasure in degrading and humiliating people and kept even close associates in a state of "unrelieved fear”. Of course, there are other instances in which coercive power is used to elicit compliance. A more common example of coercive power is a manager who uses threats of demotion or termination to get employees to comply. And so, when we consider the influence a leader (manager) has, we ought to consider the very nature and source of their power. Do people follow the leader because they are truly inspired by the leader’s vision? Or do they follow because they have no other choice? Managers who threaten the job security of others to ensure compliance, leaders who exploit their positions for personal gain, or individuals who rise through favoritism rather than merit – are manifestations of illegitimate power. Regardless of context, illegitimate power tends to erode morale, limit creativity, and foster toxic environments where people operate out of fear rather than purpose. Illegitimate power wields influence without moral justification, ethical values, or the consent of those affected. And because this form of power often derives from manipulation, coercion, intimidation, or exploitation rather than genuine respect for people, it undermines trust, breeds fear, and corrodes the ethical foundations of organizations and communities. Coercive leaders who use threats, punishment, or psychological pressure to force compliance, may certainly achieve short-term results, but at a significant long-term cost. Coercion strips individuals of their autonomy and creates environments of resentment and disengagement. People may comply outwardly, but internally they may withdraw, resist, or leave. Furthermore, coercive leadership discourages open dialogue and constructive feedback, which are essential for innovation, growth, and continuous improvement. When fear becomes the primary motivator, organizations and societies become stagnant, rigid, and vulnerable to collapse. And this brings us to an important question – what does legitimate power look like? On this issue, Peter Drucker offers unique insights. In his first book, The End of Economic Man (1939), Drucker discussed the issue of legitimate power (although he did not use the term legitimate power, but rather the justification of authority). Drucker believed that the power of rulers must possess legitimacy, a tradition that has continued in Western civilization since Plato and Aristotle. In Drucker’s view, legitimate power involves a functional relationship between power, social beliefs, and social realities: does power commit to social beliefs? At the same time, can it effectively organize social reality based on that commitment to create order? In his books, Concept of the Corporation (1946) and The New Society (1950), Drucker began to use both terms legitimate power and leadership simultaneously. Drucker would go on to argue that a government that commits to the well-being of its people can be said to have legitimate power. Over time, Drucker shifted his analysis of legitimate power from the political realm to social organizations. According to Drucker, if the management of a social organization (such as a company) claims that its principal purpose is to benefit employees, this particular focus would constitute an abuse of power. Instead, Drucker argued that the primary mission of an economic organization is to always achieve economic performance, thereby contributing to society – and this is in fact, the source of the legitimacy of corporate management's power. Of course, a company is also a community. For employees, management undoubtedly holds power and must exercise it. However, the legitimacy of management’s power does not come from the commitment to benefit employees, but rather from two functions: 1. Through institutional design and innovation, shaping effective community communication, thereby enabling middle-level and lower-level employees to gain an overall vision of the organization. This allows employees to have a managerial attitude. 2. By setting clear and reasonable performance standards, prompting employees to take responsibility and achieve success through effective work. If management can perform these functions within the organization, then it is considered to exercise legitimate power. In Drucker's early works, exercising legitimate power was almost synonymous with leadership. Drucker was not enthusiastic about discussing the personal style or charm of leaders, and he was even less inclined to associate leadership with a mystifying ability to persuade others, especially if such persuasion appealed to propaganda, indoctrination, or mental manipulation. For Drucker, discussing leadership primarily meant enabling power to function effectively. Therefore, leadership is not a matter of individual leaders' techniques and styles, but rather a matter of the responsibility and function of power itself. We can surmise from these functions that legitimate power aligns with the goals, beliefs, and aspirations of the people being led. Leaders who wield this kind of power do not need to resort to threats or manipulation. Instead, they inspire, guide, and collaborate. Their authority is accepted because it is seen as fair, earned, and beneficial to the collective. It is vital to foster leaders who operate from legitimate power—power that is granted through trust, expertise, shared values, and recognized authority. Legitimate power is grounded in the formal authority granted to a manager through their role within an organization, but its true strength comes from how that authority is exercised. Unlike coercive power, legitimate power is perceived as rightful and appropriate because it is based on clear expectations, mutual respect, and established structures. When managers consistently act with fairness, integrity, and transparency, their authority is more likely to be accepted and trusted by their teams. This creates a healthy power dynamic where employees feel secure in leadership decisions, understand their roles, and are motivated to contribute toward shared goals. Managers can build legitimate power by aligning their actions with the organization's values and demonstrating competence, consistency, and accountability. For instance, making decisions that reflect the organization’s mission and treating all team members equitably strengthens a manager’s credibility. Communication is also key—leaders who listen actively, provide clear direction, and explain the rationale behind their decisions foster trust and buy-in. Investing in personal growth, staying informed, and modeling a strong work ethic all reinforce the perception that a manager has earned their position and is acting in the best interest of the team and the organization. When managers lead through legitimate power, the benefits to the organization are substantial. Teams are more engaged, morale improves, and collaboration increases because people trust the leadership and feel aligned with the organization’s purpose. This creates a positive feedback loop where employees are more likely to take initiative, innovate, and remain committed, reducing turnover and boosting overall performance. In essence, legitimate power forms the foundation of a sustainable leadership culture—one that empowers individuals, strengthens organizational integrity, and drives long-term success. Developing leaders who influence through legitimate power requires a shift in how we define and nurture leadership. It involves prioritizing emotional intelligence, ethical reasoning, transparency, and empathy. Such leaders model integrity and authenticity, aligning their decisions with shared values and long-term visions. They create environments where people feel valued, heard, and empowered. In turn, this fosters loyalty, engagement, and a strong sense of purpose. To build healthier workplaces and more just societies, we must champion leaders who embody legitimate power: those who influence not by fear, but by vision, credibility, and alignment with shared values. This approach not only promotes ethical leadership but also cultivates trust, innovation, and collective well-being. References Drucker, P. F. (1946). Concept of the corporation. New York: John Day Company Drucker, P. F. (1939). The end of economic man: A study of the new totalitarianism. New York: John Day Company Drucker, P. F. (1950). The new society: The anatomy of the industrial order. New York: Harper Service, R. (2005). Stalin: a biography. Belknap Press of Harvard University Press. Weber, M. (1965). Politics as a vocation. Fortress Press.

Helping Civilization Understand Business

By Bo Yang Ph.D. • April 23, 2025
In China, you can see countless interviews with successful entrepreneurs on TV, online, or in magazines. The same is true in the U.S.—probably even more so. I imagine this stylish trend must have originated in America. These interviews often show entrepreneurs sincerely talking about childhood dreams and beliefs they’ve held for decades. They’ll share how they stayed committed to those dreams and step by step made them come true. Over the past few years, I’ve had the chance to meet a few Chinese entrepreneurs—some of whom I had previously seen on TV or in magazines. Once we got to know each other better, they started sharing stories that were quite different from their media narratives. They admitted that their childhoods were hardly filled with grand dreams. What truly pushed them into business were hunger, poverty, cunning—or sometimes, just luck. I am not a nihilist, nor am I trying to say that dreams and beliefs are nothing but marketing gimmicks, exposed through off-the-record conversations. What I mean is: this is a realist world. It’s entirely possible for people to achieve business success through the pursuit of profit, intelligence, hard work, and a bit of luck. Many people don’t fully understand how they even became successful—until they already are. Of course, the world isn’t just about realism. Some people, once successful, begin to seek meaning in their lives. They want to keep doing valuable things—not just by luck, but through genuine understanding. At this point, they need to go back and reexamine what business really means. So what does business really mean? If you asked a Chinese scholar from a thousand years ago, he would most likely say that business is linked to something like original sin. Of course, Chinese culture doesn’t contain the Christian idea of original sin, but when talking about commerce or merchants, scholars would often describe businesspeople as inherently tainted by something spiritually corrupt. If you asked a classical economist like Adam Smith, you’d get a much more generous answer. Classical economists openly accept the profit motive as part of human nature, and they’d go further to say that this motive is a major driver of civilization. The accumulation of social wealth, improved quality of life, and progress of civilization all rely on individuals—driven by profit—to create rules, use their talents, and generate value. After classical economics, this line of thinking became the default lens for understanding business and commercial civilization. Even though Marxism and Nazism have violently attacked the profit motive, modern commercial civilization has not only survived—it has thrived. The great achievement of classical economics was to build a causal relationship between the pursuit of profit and the progress of civilization. But the question remains: is that all there is? The entrepreneurs I know, who fought their way through tough business landscapes, would never doubt the role of the profit motive. But some of them also have a vague sense that business isn’t just about making money. After a few successful ventures, some start to long—consciously or unconsciously—for cleaner businesses, meaningful businesses, even beautiful ones. They may not be able to articulate this impulse, so instead, they go on TV or into magazines and talk about childhood dreams and ideals. These aren’t real memories—they’re symbolic stories. What exactly drives commercial civilization? Peter Drucker agreed with the classical economists, but only halfway—because they only got it halfway right. Drucker never denied the profit motive. But he believed that all successful business activity is a discovery and creation of order. And that’s what makes it so important. Not only do entrepreneurs and managers need to rethink the meaning of business, but ordinary citizens in modern society do too. Drucker’s book Managing for Results, published in 1964, is still seen by many as a hands-on business guide—and rightly so. Few of his works are as focused on practical application, packed with diagrams and terminology. But what’s truly interesting about the book is how, while walking readers through practical operations, Drucker is also helping them rethink what business actually is. He starts right where most businesspeople do—with the desire to make money. But he warns: not every boss who makes money actually understands how they made it—or which products brought in the profit. To figure that out, they have to understand their business as a whole. But doing that means stepping out of personal ego and illusions of success. It means knowing which accounting method reveals the truth. It means identifying which products are making money—and then asking why. And the right way to find out why a product makes money isn’t to ask the product manager, engineer, or designer—it’s to understand the customer’s needs. If the boss and the product manager are serious about understanding the customer, they’ll realize the customer isn’t buying a product—they’re buying value, value that meets a particular need. And customer needs change constantly—just like the weather. Even the smartest people can only partly predict these shifts. The wise approach is to treat change as a given and figure out how to deal with it, manage it, and adapt to it. Once they accept this truth, bosses and managers begin to see the market differently. Results are not things created inside a company—they’re things selected by customers in the marketplace. Profit isn’t wealth created by the company and kept by it; it’s a risk buffer that allows the company to stay in the market. Innovation isn’t a CEO suddenly struck by inspiration; it’s people with entrepreneurial spirit using new combinations of resources to meet customer needs and produce performance. A boss who’s serious about business—and honest about reality—can start out wanting to make money and end up with an entirely new perspective, and a deeper understanding of business. At the end of Managing for Results, Drucker wrote something striking. He believed that not only entrepreneurs and managers need to understand business—they have a responsibility to help the public understand it too. They must become educators in civil society. Even today, in modern, industrialized nations with booming economies, many well-educated citizens still don’t understand business. They look down on it. Some even hate it. They don’t lack conscience—if anything, they’re overflowing with it—but they lack imagination and understanding. They don’t see that business is actually a form of rational exchange and creative mutual benefit between people. And because they don’t understand this, they not only despise business—they become impatient with any kind of rational exchange or creative collaboration. Instead, they get used to imposing their moral preferences on others. That kind of moral arrogance keeps producing hatred and division in modern society. Of course, Drucker didn’t believe business could solve all of society’s problems. But he did believe that the motive behind commercial civilization isn’t only about profit. He also believed that civilized business itself is a form of education for modern society. Because civilization—no matter where it appears—always involves understanding, creating, sharing, and exchanging organizational frameworks. As he wrote: “The economic task, if done purposefully, responsibly, with knowledge and forethought, can indeed be exciting and stimulating, as this book has, I hope, conveyed. It offers intellectual challenge, the reward of accomplishment, and the unique enjoyment man derives from bringing order out of chaos.” Drucker often quoted the British philosopher Alfred North Whitehead (1861–1947). As far as I know, Whitehead may be the only modern philosopher—besides Drucker—who truly understood the beauty of business. In his 1925 book Science and the Modern World, Whitehead wrote something strikingly similar: “Art is not limited to sunsets. A factory—by virtue of its machines, its community of workers, its service to the general public, its reliance on organizational and design genius, and its potential as a source of wealth for shareholders—is a living organism rich with value.” But Whitehead also said something even more important, in The Adventure of Ideas (1933): “Plato was right: The creation of the world—the world of civilized institutions—is the victory of persuasion over force.” And business civilization—especially the kind that Drucker and Whitehead envisioned, one that creates order and beauty—is perhaps the most brilliant demonstration of how persuasion can triumph over conquest.  As Drucker said, it’s not just businesspeople who need to understand this. Every citizen of the modern world should too. Because even now, the opposite impulse is still alive—the desire to replace persuasion with conquest and turn business into a game of domination.

Satya Nadella and the Liberal Art of Management

By Robert Kirkland Ph.D. • April 21, 2025
When Satya Nadella assumed the role of Microsoft’s Chief Executive Officer in February 2014, the company was experiencing the early symptoms of organizational sclerosis. Though still profitable, it had lost ground to more agile competitors in the mobile and cloud sectors. Internally, Microsoft had become fragmented—defined more by turf battles than innovation. The challenges Nadella inherited resembled those Peter Drucker articulated decades earlier in his conceptualization of the Functioning Society of Institutions (Drucker, 1946). Drucker’s view—deeply shaped by the failure of social cohesion in interwar Europe—called for institutions to reorient themselves not just around efficiency, but around meaning, moral purpose, and self-development. Nadella’s Microsoft has arguably become one of the clearest corporate embodiments of Drucker’s philosophy of Management as a Liberal Art (Drucker, 1989). Much of Nadella’s success can be attributed to his emphasis on empathy and cultural reinvention. Prior to his appointment, Microsoft was widely seen as a combative, insular organization (Lohr, 2014). Nadella moved swiftly to change this. In his internal communications and public interviews, he spoke often of empathy—not as a rhetorical flourish, but as a managerial imperative. This commitment mirrored Drucker’s belief that management must engage the whole human being, acknowledging both rational capability and emotional complexity (Drucker, 1989). Drucker emphasized that organizations ought to be places where people grow in both skill and character. Nadella’s redefinition of leadership as empathetic listening and continuous learning operationalized that belief in a modern, corporate context. At the center of Nadella’s early cultural transformation was the introduction of a "growth mindset," a concept he borrowed from psychologist Carol Dweck (Dweck, 2006). Employees were encouraged to ask questions, seek feedback, and approach problems with humility. Drucker had long argued that a functioning institution required the cultivation of self-awareness and wisdom (Drucker, 1993). Nadella, in fostering a company-wide learning orientation, aligned Microsoft's trajectory with the MLA principle that personal development and organizational mission must progress hand-in-hand. The result was an environment that encouraged intellectual humility without sacrificing performance. Equally important in understanding Nadella’s alignment with Drucker’s MLA framework is the redefinition of Microsoft's mission. Under Steve Ballmer, the mission had been tightly product-focused: "a PC on every desk and in every home." Nadella’s version was broader and more aspirational: “to empower every person and every organization on the planet to achieve more” (Microsoft, 2017). Drucker might have called this a shift from a narrow economic mandate to a wider societal purpose. In The Concept of the Corporation, Drucker (1946) warned against corporations existing as islands of profit, detached from community responsibilities. Nadella’s mission reframed Microsoft not just as a tech vendor but as a social actor—a stakeholder in global development. Drucker’s emphasis on function and status within a functioning institution also finds modern expression in Nadella’s restructuring of Microsoft's performance evaluation system. The previous stack-ranking model—which pitted employees against each other—was scrapped (Wingfield, 2013). It had rewarded individual performance over team cohesion, eroding trust and stifling creativity. Nadella implemented a performance system that rewarded collaboration, curiosity, and contributions to others’ success. This pivot acknowledged Drucker’s claim that organizations succeed not when individuals compete within them, but when their actions contribute meaningfully to a shared mission (Drucker, 1989). In accordance with Drucker’s MLA principle that organizations must exist within society—not apart from it—Nadella also led Microsoft into a new era of corporate social responsibility. Under his watch, Microsoft committed to becoming carbon negative by 2030, developed AI tools for accessibility, and began publicly advocating for ethical technology development (Microsoft, 2020). Drucker (1999) asserted that institutions must balance individual rights with societal duties. Nadella’s policies gave concrete expression to this ideal, embedding corporate ethics into strategy, not as appendages but as essential elements of long-term resilience. Crucially, Nadella has approached leadership with the recognition that authority alone does not confer legitimacy. Drucker emphasized the importance of persuasion over coercion, process over fiat (Drucker, 1990). Nadella, rather than enforcing top-down directives, frequently invites employee participation in major shifts. Microsoft’s move into open source software—once unthinkable—was carefully socialized within the organization and presented not as an edict, but as a necessary cultural and business evolution (Miller, 2018). The broader implications of Nadella’s leadership can be understood through Drucker’s transdisciplinary lens. Drucker saw management as a “liberal art” because it required the application of ethics, psychology, history, and even theology in decision-making (Drucker, 1989). Nadella frequently cites literature, philosophy, and biography in his public remarks. His personal reflections often involve moral and philosophical introspection, underscoring Drucker’s belief that leadership is a humanistic endeavor requiring breadth of thought and emotional depth (Nadella, 2017). Despite Microsoft’s technological focus, Nadella’s management philosophy resists technocratic reductionism. His belief that people—not platforms—are the key to innovation affirms Drucker’s warning that effective management is not merely quantitative but judgment-based (Drucker, 1990). Microsoft’s market capitalization under Nadella has more than tripled, underscoring that an ethical, human-centered organization is not incompatible with economic success (Nasdaq, 2024). As Drucker argued in The New Realities, leadership in a knowledge society must move beyond command structures and embrace complexity, diversity, and continual learning (Drucker, 1989). Nadella has not only embraced these values—he has embedded them into Microsoft’s organizational DNA. His leadership demonstrates that Management as a Liberal Art is more than a theoretical framework; it is a viable, proven, and necessary strategy for organizational renewal and social relevance in the 21st century. References · Drucker, P. F. (1946). The concept of the corporation. New York: The John Day Company. · Drucker, P. F. (1989). The new realities: In government and politics, in economics and business, in society and world view. New York: Harper & Row. · Drucker, P. F. (1990). Managing the non-profit organization: Practices and principles. New York: HarperBusiness. · Drucker, P. F. (1993). Post-capitalist society. New York: HarperBusiness. · Drucker, P. F. (1999). Management challenges for the 21st century. New York: HarperBusiness. · Dweck, C. S. (2006). Mindset: The new psychology of success. New York: Random House. · Lohr, S. (2014, February 4). Satya Nadella, Microsoft’s new chief, is a company man. The New York Times. https://www.nytimes.com/2014/02/05/technology/satya-nadella-named-chief-of-microsoft.html · Microsoft. (2017). Our mission. https://www.microsoft.com/en-us/about · Microsoft. (2020). Microsoft will be carbon negative by 2030. https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/ · Miller, C. C. (2018, October 22). How Satya Nadella remade Microsoft as an open source company. The New York Times. https://www.nytimes.com/2018/10/22/technology/microsoft-open-source.html · Nadella, S. (2017). Hit refresh: The quest to rediscover Microsoft’s soul and imagine a better future for everyone. Harper Business. · Nasdaq. (2024). Microsoft Corporation (MSFT) stock performance. Nasdaq.com. https://www.nasdaq.com/market-activity/stocks/msft · Wingfield, N. (2013, November 12). Microsoft alters employee review process. The New York Times. https://www.nytimes.com/2013/11/13/technology/microsoft-alters-employee-review-process.html
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