Business’s Humanistic Approach Paying Off, Expert Says

Despite the fact that the idea has been around for 30 years or so, Jim O’Toole still calls it “new management.” Old or new, it seems to be catching on.

Basically it involves a humanistic approach on the part of corporations to doing business, an approach that recognizes that people-oriented policies can result not only in a more harmonious workplace but in bigger profits.

Almost a Crusade For James O’Toole Ph.D., who holds the University Associates chair of management in the USC Graduate School of Business Administration, promoting new management concepts has become almost a crusade. He speaks about it in corporate offices as well as university classrooms, writes articles and books (a new one due in August already has a pre-sale of 40,000 copies) and pushes New Management magazine, which he edits for its publisher, the USC Graduate School of Business Administration.

He senses a trend: “Almost all of the Fortune 500 companies have tried some of these concepts,” he said.

To define new management, O’Toole began with an explanation of traditional management--epitomized in past years, he said, by General Motors--as a concept that a corporation is in business to make money, not cars--or any product.

“That philosophy was the basis of corporate finance, corporate accounting, marketing, general management,” he said. “It dominated for as long as 40 years. After World War II it became the curriculum in the nation’s business schools.

“There was little question of these techniques. American business was very successful in the ‘50s and ‘60s . . . so successful that some Europeans feared that the great American corporations would take over the European economy. It was a period of growth of multinational corporations, and the fear was that Europe would lose out.”

The change in philosophy came about, O’Toole said, because the system was failing.

“In the ‘70s we had the oil crisis, the Japanese success in entering U.S. markets, the changing of our values domestically, including the Vietnam protest,” he said. “These things led to an entirely different world situation. Once we were no longer the envy of the world, the model of success, we had four or five years of lower productivity.

“By 1980 things had gotten bad enough that a great number of corporations were forced to change. They took on a more humanistic management.”

In 1972, then-Secretary of Health, Education and Welfare Elliot Richardson appointed O’Toole--a Rhodes scholar with a doctorate in social anthropology from Oxford University and work experience with a management consultant firm and in journalism--as chairman of a task force on “Work in America.”

Workers’ Involvement One of the task force’s major findings--and not necessarily a new idea--was that American industry should involve workers in productivity, a notion, O’Toole said, that the Wall Street Journal regarded as a “neo-Marxist plot” to turn business over to workers.

While O’Toole fears that an economic turn-around could send corporations back to their old ways of management, he takes heart in some of the success stories that he recounts in his New Management magazine. Two of his favorites are the Dayton Hudson Corp. and Motorola Inc.

He spoke first of Dayton Hudson, a Minneapolis-based retailer that owns, among others, Target stores, B. Dalton booksellers and Mervyn’s.

“Dayton Hudson epitomizes the new management changes in terms of philosophy,” O’Toole said. “It leads all retailers in the country in terms of consumer orientation. It has a no-questions-asked returns policy; 90% of customer complaints are handled by the first person to receive them. It has a fetish of serving customers.

‘Serving Society’ “Dayton Hudson says it is in the business of serving society, of pleasing the customer and treating employees decently. It has probably the largest number of part-time employees (of any company), which has provided a tremendous amount of jobs, jobs for women with children, for people who are going to school. Dayton Hudson says it hires part-time people because it gets the very best employees that way.

“It is also probably the only major U.S. corporation that has consistently given 5% of its pre-tax profit back to the community. My guess is that most major companies give 1%; Arco, which has a reputation for community involvement, gives 2%.”

Asked about a recent strike at Target Stores, O’Toole said that unions and management differ substantially on the matter of part-time work, unions preferring full-time jobs and benefits for its people and retailers needing to staff stores during certain peak hours. A call to the striking union, Local 770 of the United Food and Commercial Workers, ascertained that the strike has not been settled, “but we’re not doing anything on it right now.”

Dayton Hudson and Motorola share the view that the employee is a stakeholder in the company, just as the shareholder is, and that the corporation should be run to benefit both, O’Toole said. Motorola not only views the employee as a stakeholder but has a contractual arrangement to make him one.

“Motorola has 60,000 employees and every one is part of a profit-sharing plan,” O’Toole said. “They can earn up to 40% more monthly (through increased productivity). It is agreed upon in advance so there is no question of a magnanimous management that gives you a turkey at Christmastime.

“It is different from the past when management thought first of the shareholders, then gave themselves big bonuses. Motorola, for instance, sees its employees as entitled as its shareholders to benefit.”

New management companies also try to provide steady employment, O’Toole said. He cited as an example the Olga Co. of Van Nuys, manufacturer of ladies’ undergarments. Despite the fact that Olga chairman Jan Erteszek’s competitors are either low-paid workers in foreign lands (Taiwan, Hong Kong, Korea) or in American sweatshops, Erteszek pays considerably better than most garment manufacturers and manages to provide steady employment through careful planning.

O’Toole also spoke of opinion surveys taken in the 1970s that indicated almost 80% of employees felt they could work harder--and that nearly the same percentage said that management created a situation in which they could not.

“Another complaint was that benefits went to management and not to the workers,” O’Toole said. “Bucks and power--two things managers try to hoard for themselves. Corporations with the new management, by sharing bucks and power, increase the overall size of the pot.

“It was considered good management if the company had a plan for executives to share in stock ownership or bonuses. There has been a breakdown in the class system. . . . Executive perks are really being done away with--the executive dining room, the executive washroom, the executive parking places are all going.”

One of the hallmarks of new management is better communication between managers and employees. O’Toole told of two personal experiences, one at Cowles Publishing Co. where he began a presentation by asking top management--with the chief executive officer present--to give him a word or phrase to characterize the company. No one answered. He asked the question again.

“Finally, someone passed me a note that said, ‘Dummy, don’t you see we’re all afraid to talk? Ask for written replies,’ ” O’Toole said. “There was fear and nobody could speak up.

“By coincidence I had a meeting soon after at Federal Express. I was five minutes into my talk when one young manager spoke up and asked that, in the light of what Prof. O’Toole had just said, the group reopen an issue that had been decided a month or two before.

“It was a matter of the younger managers making the older ones justify a decision or change it. These people were free to speak up. They took off their coats and went at the issue. I never got to finish my speech--and they forgot to pay me!”

Some corporations err in thinking that a kindly solicitude for the employee is adequate personnel technique, O’Toole said.

“Companies make a big mistake when they feel that all the employee needs is to be loved,” he said. “Managers are told that if they treat people nicely, inquire about their families, give them hugs and kisses, everything will be OK. The employees’ choice is that they prefer cold cash.”

Viewed as Stakeholders O’Toole emphasized that new management involves much more than employee relations: “The great companies view the customer, the union, suppliers, their local communities, the broader society as stakeholders, each having a legitimate claim on the company.”

And only recently did O’Toole realize what makes new management work.

“It’s courage,” he said. “It’s leaders who are willing to stand up to the investment community, to the Wall Street analysts, to form a long-range plan.

“It’s Walter Haas of Levi-Strauss telling people in the South in the ‘50s that he would hire black workers and that some of them would supervise white workers. It’s Thornton Bradshaw at Arco facing his entire industry and telling them they were not behaving properly. It’s Honeywell, one of the largest defense contractors, not lobbying on defense issues.

“In some companies it’s people down the line who are willing to tell upper management, ‘We’ve got to change.’ I have found more and more in the last couple of years that middle managers are saying, ‘I’ve got to educate top management.’ The attitude for too long has been that only top management can effect change.”