Peter Drucker's Tenets

Peter Drucker, a writer of 39 books and a management consultant, was considered the “father of modern management”. An avid student of managing complex businesses, he was the advisor who helped mold many corporations into industry leaders which forged this country’s ability to become an economic super power.

A Sampling of Mr. Drucker's Tenets:

“In most business failures, the board was the last to realize that things were going wrong.”

“Managers should make a decision no later than you need it, but as late as possible, because you always have more information.”

“Do reported profits exceed the cost of capital? Review and audit capital allocation decisions of the past year.”

(I suggest random sampling of capital expenditures for prior years and reviewing several to determine if the forecasted return on investment was achieved.)

“Above all management is responsible for producing results. Profit is a requirement for a company…profitability is not the purpose but rather the test of their validity.”

“Management is about human beings. Create an atmosphere where people are permitted to make mistakes.”

(His simple advice to clients: “It’s all about the people.” He was concerned with retaining “knowledge workers” which today most companies describe as the “A” level employees.)

“Never promote an employee on the basis of his or her potential, but based only on performance.”

“Picking a leader: would I want my son or daughter to work under that person?”

Source: “The Daily Drucker” by Peter Drucker, 2004

General Motors – Has It Lost Its Credibility?

The news is full of criticism of General Motors’ announcement that it has repaid the money it owes the United States government for bailing GM out with TARP money (Troubled Asset Relief Program).

General Motors' April 2010 announcement: “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse.”

The facts:

General Motors' April 2010 repayment totaled $6.7 billion.

The United States government gave General Motors $49.5 billion in 2009 to finance its bankruptcy. Thus only 14% of the total aid GM received from the government has been repaid. Not a full repayment.

Further complicating the issue comes from Mr. Neil Barofsky, the Inspector General overseeing the troubled asset program, when he testified before the Senate Finance Committee on April 20, 2010 that G.M. was using taxpayer money to make the loan repayment – not General Motors’ earnings.

Apparently the $6.7 billion came from the $13.4 billion of the United States government’s TARP money that had been put in a General Motor’s escrow account when GM was in bankruptcy. Thus the company is using US government money--to pay back the US government loan.

Further complicating the issue is the General Accountability Office’s December 2009 report that: "The Treasury is unlikely to recover the entirety of its investment in Chrysler or GM, given that the companies' values would have to grow substantially more than they have in the past."

Also coloring GM’s financial condition is that:

● It has applied to the Department of Energy for a $10 billion loan to retool its plants.
● In 2009 it was unprofitable with deficit gross profits and operating losses.
● In the first months of 2010 its market share declined.

Is all of this true? If it is, the real issue is General Motors' loss of trust and credibility. Will consumers figure out that General Motor’s announcement is not true? That it was a misleading public relations ploy? If consumers do not trust a manufacturer, will they stop purchasing its product? For this short-term gain, will GM lose in the long run?

Sources:
New York Times.
Power Line.
Reason Foundation.