This week: California on the edge

February 20, 2009, 11:51 PM UTC

I was in California this past week and I’m happy to report that the Golden State did not fall into the Pacific Ocean.

It seemed it might, as inches of rain drenched Silicon Valley and the state government fought off insolvency. What a disaster California is right now, even after the legislature yesterday approved a plan to close a $42 billion budget deficit and end the “fiscal emergency” that the action-hero governor, Arnold Schwarzenegger, declared last November.

California now boasts the highest sales and income taxes in America, plus red tape galore that drives too many businesses out of the state. Business owners told me that this new budget – which raises taxes, slashes public services, and ushers in big-time borrowing – will enhance the already ripe opportunity for states like Arizona, Colorado and Texas to lure away employers.

The unemployment rate in California is now a whopping 9.3%. This week, a new report showed that employment in Silicon Valley is falling for the first time in years. And as my colleague Jessi Hempel – who has a Fortune cover story about Facebook in the new issue – recently noted, there are no technology breakthroughs, like the microchip or the Internet, to yank the Valley out of its slump this time. While a few giants with mounds of cash – Oracle and Cisco , to name two – are on the trail for acquisitions, some stalwarts are now baring their vulnerabilities. Apple’s computer sales at retail fell in January, for the first time in three years, reports NPD Group. On Wednesday, Hewlett-Packard posted a 13% decline in quarterly profits as sales in its computer and printing divisions tumbled.

I had one unexpected and uplifting encounter on my California visit: On Wednesday evening, I met Doris Drucker, the widow of Peter Drucker, the legendary management guru who died in 2005, one week shy of his 96th birthday. Doris, who was married to Peter for 58 years, is almost 98 years old. She plays tennis twice a week – from 8:30 to 10 a.m., she told me, “though I’m not as fast as I used to be.”

A short and stocky native of Germany, she stands perfectly erect. She doesn’t use a cane. She just renewed her driver’s license. She’d just been to the gym on Wednesday; light weights do her wonders. She has four children scattered about the U.S., but she does just fine living on her own in Claremont, where the graduate school of management is named after her husband. He taught at the school until he was 92. This coming November, he would have turned 100.

Peter Drucker, as you may know, coined the term “knowledge worker” and wrote about the rise of the information society and its implications for companies and workers. Lifelong learning is ever more important, he contended, and his widow is a living testament to this principle. In her long life, she’s been a grad student at the London School of Economics, a law student at the Sorbonne, a masters-degree recipient in physics from Fairleigh Dickinson University, and a scientific inventor. Her memoir, “Invent Radium or I Will Pull Your Hair,” came out when she was 93. Now, she says, she’s writing a book about information overload.

Meeting the remarkable Doris Drucker prompted me to reread a story, “Managing in Chaos,” that my colleague Geoff Colvin wrote in 2006. It’s timely. In the story, Geoff notes that Peter Drucker identified “leading change” as the key management challenge of the 21st century. To lead change, Drucker said, managers must “abandon yesterday.” In other words, get rid of what no longer works.

Now we see leaders – of corporations that he studied like General Motors and Citigroup , of governments, of not-for-profits, and beyond – struggling to abandon yesterday and determine what tomorrow will be. What do you think “the father of modern management,” as Drucker was known, would say if he could see all this tumult and desperation?