CHAPTER  |  FIFTEEN

Above All, Do No Harm

As I've mentioned earlier in this book, the ancient Greek physician Hippocrates came up with a cautionary note for physicians seeking to improve the state of their patients: “Above all, do no harm,” or, if you prefer the Latin, primum non nocere. In a typical habit of taking something from one field and applying it to another, Drucker incorporated this phrase into his recommendations for the business manager. I suspect that he may have made the connection with consultants before he thought of applying it to all managers, since he himself was a practicing consultant and also because consultants are sometimes referred to as “business doctors.” However, before we adopt this advice, it's well to understand from whence it came.

Hippocrates and His Do-No-Harm Theory

Hippocrates was a Greek physician born in 460 B.C. As Peter Drucker is known as the “Father of Modern Management,” so Hippocrates is recognized as the “Father of Medicine.” In the ancient world, Hippocrates was regarded as the greatest physician of his day. In the same way that Drucker looked at a business, Hippocrates looked at a patient and based his diagnosis on his observations. This was a breakthrough approach at the time. Hippocrates rejected the common view of his time that considered illness to be caused by evil spirits or the disfavor of the gods.

Drucker shared other features with Hippocrates's methods of observation and analysis. For example, Hippocrates believed that the human body must be looked at as a whole, not as individual parts to be analyzed, diagnosed, and treated separately. He was the first to accurately describe and catalog the indications of various illnesses. He developed the Oath of Medical Ethics, now known as the Hippocratic Oath, to guide physicians in their ethical and moral decisions. Many physicians today swear the Hippocratic Oath upon attaining the authority to practice their profession.

The statement “Above all, do no harm” is not included in the Hippocratic Oath, as I mentioned earlier in this book, but a close approximation of the phrase can be found in Of the Epidemics, also written by Hippocrates.¹ In this work, Hippocrates was cautioning that the physician must consider the possible harm that any intervention might cause. One could term such intervention unintended consequences, or a modern physician might call them side effects.

So, Drucker expanded this notion to mean that a leader must consider the possible harm that any action might cause to the mission, the organization, its members, or society. He considered this to be the ultimate guide for ethical conduct in business.

Failure to Follow This Rule Can Be Disastrous

Although a simple reading of Drucker's advice may give the impression that following this caution is easy, it is not so. Not infrequently, the well-intentioned acts of leaders can result in precisely what both Hippocrates and Drucker cautioned against. Sometimes the erring executive can deceive himself into thinking that he was clever, even skillful, when in actuality there was resulting harm done that was much greater than the intended good—sometimes even total calamity.

The Enron scandal is possibly the most notorious example of corporate misdeeds and ethical failure to have occurred in the last twenty-five years, and it came about because one well-educated, supposedly smart executive—CFO Andrew Fastow—thought he had found a way to enhance Enron's position through highly risky manipulations, concealing debts, exaggerating profits, and more. Fastow misled Enron's board of directors regarding these moves and he convinced the major accounting firm of Arthur Andersen to do likewise. The resulting disaster caused the collapse of the corporation, the closing of one of the country's leading accounting firms, the loss of thousands of jobs, and jail terms for many others. And you could even add the death of Enron's president, Kenneth Lay, who succumbed to a heart attack as he awaited sentencing.

It is hard to weigh these results against the supposed gain to the corporation. So while seemingly a simple rule to follow, like all simple rules, it is not always easy to implement. But failure to do so can have terrific, even catastrophic consequences.

Good Intentions Count for Naught

There are several ways that leaders can, with the best of intentions, cause harm to their organizations or to others and thus fall into this ethical trap. Most errors start with the intention to make some situation better. In many cases, the focus of the leader is so much on the good intention that the system as a whole is ignored and the unintended ancillary outcomes are overlooked or diminished. Drucker taught that good intentions were, of themselves, almost meaningless. It is all too common for these actions to have unintended negative impacts, all because this basic injunction was ignored.²

Example: A Good Intention Falls Afoul of the Law of Unintended Consequences

Air pollution from motor vehicles has received a lot of attention over the last thirty years, and Drucker spoke about this in the classroom. Environmentalists hurried to enact laws to help do away with this very real hazard. The solution was a device that would be affixed to the automobile to lessen the pollution caused by the engine's burning fuel. These devices work, but there is an unintended side effect. To eliminate, or at least reduce the pollution, individual states and the federal government passed laws limiting the amount of allowed emissions.

Probably an even more important factor in any overall reduction of emissions is the fluctuating price of gasoline, once 17 to 45 cents a gallon, then rising to as much as $4 to $5 a gallon, sometimes dropping a bit now and then. Most drivers preferred a higher performance car when gasoline cost but pennies. Yet despite laws, engine redesign, and high gas prices, at one point we had more air pollution produced by automobiles than before we started, even though U.S. standards, not to mention those of some states with very restrictive laws, exceeded those of many foreign countries.

True, many factors have been influenced by increases in the number of cars on the road, as well as the increased popularity of inefficient light trucks and sport utility vehicles in use, and the numbers of miles driven each day. However, this causal relationship ignores a basic, important element in Drucker's warning: Until technology eventually came to the rescue, the use of emissions-reduction devices on automobiles had an overall negative impact on the average miles per gallon achieved by these vehicles. So, if an average car is driven the same number of miles, it must burn additional fuel if an emissions-reduction device is added. Therefore, for a given number of miles, more gasoline must be produced to compensate for the effect of the pollution-control device.

More fuel needed to drive the same number of miles also translates to more oil needing to be refined into gasoline. However, it's not just a case of paying more for the miles traveled, or using up more of a scarce natural resource. The sad fact is that oil refining is a greater potential source of pollution than automobiles. With more refining needed, more pollution results. However, don't get the idea that I am against cleaning up the air. It's just that the solutions adopted sometimes make the problem worse—and this is such a case.

Example: Another Good Intention, Another Unintended Consequence

There's another example of how a law passed with good intentions has caused additional problems: water-saving toilets in the home. To help conserve water, some states have laws requiring that newly installed toilets use much less water per flush. (In California, commercial establishments are exempt, so they don't have the problem.) On the face of it, this sounds like a simple solution for problems of growing water scarcity. However, I sure noticed it some years ago when we put new bathrooms in our home.

Now, I've not bothered to do any scientific research on flush designs for these new toilets, but most people who use them say that they frequently need multiple flushes to eliminate waste. And our water bill supports the perception that these additional flushes have added to our water use rather than helped save water (although I've been told by one of my editors that it all depends on the toilet design). It could be I've just been unlucky. However, my point, again, is that for at least us unlucky ones we have a law intended to save water that instead ends up wasting it.

The problem can be that the attempt to make things better leads us to ignore the effect on the overall body or system. This falls under the classification of primum non nocere and it doesn't even depend on malicious manipulation by crooked managers.

Example: The Great Recession Started with Good Intentions

The roots of the recent mortgage crisis that contributed to the Great Recession go deep into the mid-1990s, and to the noble intention of making home ownership possible for more people. To accomplish this end, banking laws were eased and lending standards were lowered. Home mortgages were bundled and sold as investment securities. As a part of this effort, the Department of Housing and Urban Development (HUD) formulated policies that encouraged the issuance of increasingly risky loans, with at least 42 percent of the mortgages they purchased issued to borrowers whose household income was below the median in the area. Meanwhile, low interest rates further encouraged spending and investment. The idea that spending was “patriotic” was widely disseminated to encourage us to buy.³

The economy expanded and housing prices rose by double-digit percentages, with buyers assuming a continued rise in prices. Banking laws were further loosened, which permitted, and even encouraged, people to borrow money, not based on what they could afford but on how much they could spend. These practices also encouraged investors to borrow whenever and wherever possible in order to make money in a market that appeared to be a certainty for profits. In nine years, the number of subprime loans rose by 1,000 percent.⁴

It was always assumed that a lending bank cares about whether the loans it makes are repaid, and therefore it would carefully screen potential borrowers, regardless of hype. In the 1970s and 1980s and before that, this was in fact the case. The banks that originated mortgages usually held them over the long term and derived income from the interest paid as well as repayment of the principal. So banks would permit only those mortgages that were likely to be repaid—otherwise, they would lose money. However, new investment securities were developed that permitted banks to offload these obligations, thereby enabling them to make even more loans. For example, subprime mortgages could be broken into component parts, with the principal separated from the interest, and then both were packaged into securities with common characteristics, such as maturity or perceived risk, to be sold separately in financial markets.

These developments had a number of results that should have been foreseen as potentially harmful, but were not. The high yields at a time of low interest rates were very attractive to Wall Street investors, and these mortgage-backed securities developed quickly into a large market. Thus, the banks and mortgage companies no longer held the mortgages they originated; their main source of revenue was the origination fee, not the repayment of principal or payment of interest. As a result, the banks were no longer concerned about repayment, only with making as many of these loans as possible, under the very lenient lending laws that encouraged them to do so.

So the initial good intention of expanding home ownership and growing the economy ultimately created a toxic mix of incentives that ended when the bubble burst. Home values no longer continued to rise. In the recession that ensued, many new homeowners lost their homes, people who bought the mortgage securities were left penniless, and the general economy ground virtually to a halt.⁵ Above all, do no harm? Many were harmed in this attempt to do good, which sooner or later would inherently lead to real harm when the real estate bubble burst.

And if one interjects human greed, which unfortunately but frequently clouds judgment when “everybody's doing it,” a major disaster was inevitable. On one side, borrowers were encouraged to borrow money to purchase far more than they could afford. It seemed that they couldn't lose! They would make money on the deal as housing prices continued to soar. Lenders were encouraged to approve as many mortgages as possible, since the market was so overheated they could sell the mortgages in these investment packages before any repayment problems would arise, even those of clearly risky borrowers. But remember—this all started with a good intention: to enable more Americans, especially poorer citizens, to own their own homes.

Keep Drucker's Advice in Mind

If you really want to implement Drucker's injunction to “above all, do no harm,” do the following:

• Remember, good intentions don't count for anything.
• Beware of unintentional results and analyze bad things that could happen, because they often will.
• Look before you leap, especially with new concepts and untested ideas.
• Don't be seduced into doing something because “everyone is doing it.”