Editors' note: The article that follows comes from the second chapter of Marvin Bower's 1966 book, The Will to Manage. Bower, who passed away on January 22 at age 99, was a legendary business figure who served as McKinsey and Company's managing director from 1950 to 1967 and as its guiding influence for more than 60 years. This excerpt features his insights into building a corporate philosophy based on ethical behavior, objectivity, and competitive drive.

I have an abstract painting in my office that I bought in London off the Piccadilly fence. In that open-air mart, which operates on weekends, the artists sell their own works. Judged by the $43 price, my painting is not great art. But it has delightful swirls, angles, and other abstract forms, all in bright colors. And when Mr. Eves, the artist, told me the title -- Forces at Work -- I bought it immediately.

With a little metal plate bearing the title and the artist's name, the painting is a constant reminder to me that any successful organization must give continuing attention to keeping adjusted to the forces affecting it -- that is, to the forces-at-work element of its philosophy. But before discussing that element, let us examine the whole concept of company philosophy as a system component and identify other important elements of a successful philosophy.

Meaning and elements of company philosophy

Over the years, I have noticed that some executives -- particularly top-management executives in the most successful companies -- often refer to "our philosophy." They may speak of something that "our philosophy calls for" or of some action taken in the business that is "not in accordance with our philosophy." In mentioning "our philosophy," they assume that everyone knows what "our philosophy" is.

As the term is most commonly used, it seems to stand for the basic beliefs that people in the business are expected to hold and be guided by -- informal, unwritten guidelines on how people should perform and conduct themselves. Once such a philosophy crystallizes, it becomes a powerful force indeed. When one person tells another "That's not the way we do things around here," the advice had better be heeded.

The literature on company philosophy is neither very extensive nor very satisfactory. But one dictionary definition of philosophy does apply: "general laws that furnish the rational explanation of anything." In this sense, a company philosophy evolves as a set of laws or guidelines that gradually become established, through trial and error or through leadership, as expected patterns of behavior.

Some typical examples of basic beliefs that serve as guidelines to action will clarify the concept. Although such basic beliefs inevitably vary from company to company, here are five that I find recurring frequently in the most successful corporations:

  1. Maintenance of high ethical standards in external and internal relationships is essential to maximum success.

  2. Decisions should be based on facts, objectively considered -- what I call the fact-founded, thought-through approach to decision making.

  3. The business should be kept in adjustment with the forces at work in its environment.

  4. People should be judged on the basis of their performance, not on personality, education, or personal traits and skills.

  5. The business should be administered with a sense of competitive urgency.

High ethical standards

The business with high ethical standards has three primary advantages over competitors whose standards are lower:

  • A business of high principle generates greater drive and effectiveness because people know that they can do the right thing decisively and with confidence. When there is any doubt about what action to take, they can rely on the guidance of ethical principles. Inner administrative drive emanates largely from the fact that everyone feels confident that he can safely do the right thing immediately. And they also know that any action that is even slightly unprincipled will be generally condemned.

  • A business of high principle attracts high-caliber people more easily, thereby gaining a basic competitive and profit edge. A high-caliber person favors the business of principle and avoids the employer whose practices are questionable. For this reason, companies that do not adhere to high ethical standards must actually maintain a higher level of compensation to attract and hold people of ability.

  • A business of high principle develops better and more profitable relations with customers, competitors, and the general public because it can be counted on to do the right thing at all times. By the consistently ethical character of its actions, it builds a favorable image. In choosing among suppliers, customers resolve their doubts in favor of such a company. Competitors are less likely to comment unfavorably on it. And the general public is more likely to be open-minded toward its actions.

Too often, these values tend to be taken for granted. My point in mentioning them is to urge executives to actively seek ways of making high principle a more explicit element in their company philosophy. No one likes to declaim about his honesty and trustworthiness, but the leaders of a company can profitably articulate, within the organization, their determination that everyone shall adhere to high standards of ethics. That is the best foundation for a profit-making company philosophy and a profitable system of management.

Related Links from The McKinsey Quarterly:

Just-in-Time Strategy for a Turbulent World
Uncertainty and rising levels of risk make it impossible for companies to determine the future. But a portfolio-of-initiatives approach to strategy can help ensure that companies take full advantage of their best opportunities without taking unnecessary risks.

Developing Leaders in Business
Marvin Bower, McKinsey's managing partner from 1950 to 1967, passed way this year. In his book, The Will to Lead (Harvard Business School Press, Boston, Mass., 1997), he urges senior managers to abandon command-and-control structures and adopt a program to develop leaders, starting with themselves. In this excerpt, he explores the attributes of leadership.