Most people reading today’s New York Times article titled “When Business Has Questions, Drucker Still Has Answers” wouldn’t expect Peter Drucker to have had legal literacy or legal compliance in mind when he wrote his 1967 classic The Effective Executive: The Definitive Guide to Getting the Right Things Done.  But the lessons contained in his newly reissued paperback (HarperCollins 2006) are as timeless in their application to today’s business as they are to corporate governance and legal compliance.  That’s because the legal aspects of business area an integral part of an effective executive’s responsibility. 
 

     According to a Harvard study executives spend nearly 20% of their time on legal issues.  That’s a lot.  If fewer problems rose to the top there would be less drain on senior resources.  But to keep problems from moving up the chain of command requires that they be properly resolved in the ranks below.  Integrating more legal literacy into front line decision making would afford senior management the freedom to redirect their horsepower toward building the business and achieving goals – not housekeeping problems. 

     But let’s get back to Drucker and how his teachings can be used to keep corporate governance and legal risk management on track.  A few nuggets among the many jewels he left us are the following:

     1.     Effectiveness can be learned.  Okay, . . . and?  What does that mean for legal risk?  Do we all need to become lawyers?  No. 

     Drucker recognized that sound processes and systematic thinking were more important than relying on a flash of brilliance.  Applying his concept to legal risk management means that sound knowledge management systems combined with good decision making processes will help organizations avoid predictable surprises that detract from their bottom line, their reputations, and their ability to delight customers.  
    

     Look at how your organization is spending its time.  If too much time is being diverted from it’s long-term goals something is amiss.  Sure, when a customer complains or a lawsuit is filed the short term goal is to fix the problem and make it go away.  But, that’s a short-term goal.  The real question to ask is how the company wants to focus its time and resources in the long-run?  If you’d rather grow the business instead of defending it you need to reevaluate what went wrong, where it went wrong, and find ways to improve the decision making quality to avoid repeating the same mistake.
 

     2.     Knowledge workers and labor are assets, not costs.  Drucker was the first to recognize the pivotal role of office workers in decision making and how poor information and incomplete know-how detract from the quality of their decisions.  When it comes to legal risk management, employees who do not understand the legal aspects of their jobs are really gambling with their portion of the value chain and your organization may have more legal exposure than it realizes or wants.  That uncontrolled risk is a wild card.  When Murphy’s Law intervenes and bad things happen you’ll spend more time getting out of trouble than staying out of trouble (see further #1 above).  That’s why legal literacy is an investment in human capital that enhances management effectiveness.

     3.     Office politics detracts from customer focus.  Organizations that are more interested in form over substance develop a corporate culture that chills the free flow of information.  Bad news is suppressed.  Who you know is more important than what you know and the boss is made to look good at any cost.  Such lack of information breeds incompetency and cramps effective decision making until latent legal problems surface and can no longer be denied.  At that point we’re back to square one again.  Neutralizing office politics with appropriate incentive structures and processes, however, promotes good corporate governance and facilitates efficient resource allocation.

     Even though the passing of Peter Drucker last November robbed us of his future insights, the rich legacy he left behind can be applied to build a foundation of good corporate governance and effective legal risk management – but only if we allow ourselves to make the connection between business and law.