Crisis in Corporate Ethics:
We Need New Leaders!
An Address by Bill George
Former Chairman & CEO
Medtronic, Inc.
June 12, 2003
INTRODUCTION
For those of us who have devoted our lives to leading businesses and those of you envisioning a successful business career, the events of the last two years have been shattering - challenging our vision of a meaningful career in business. There can be no doubt that the wrong-doing of certain business leaders, from improper accounting to outright criminal acts, has shattered our ideals about the noble purposes of capitalism. Many more good leaders found themselves abandoning their core values, caught in the vortex of a system driven by short-term gains and outright greed, that led to a steady decline or even the long-term demise of their companies.
We find ourselves in the worst corporate crisis since the Great Depression. In its wake this crisis has left behind abandoned customers, cynical employees, angry investors, and a general public that has lost confidence in business leaders.
For good reason. We have been following the wrong leaders. We have confused image with leadership, charisma with integrity, and manipulation of stock prices with the creation of long-term value.
In response to this crisis, our corporate leaders have largely remained silent. A year ago when I urged them to speak out against the abuses, several CEOs told me, "We don't dare to, for fear they will come after us next." To which I replied, "Do you have something to hide?" Only a few CEOs, such as Henry Paulson of Goldman Sachs and Henry McKinnell of Pfizer, have been willing to condemn these practices publicly, recognizing the larger issue is one of public trust in the capitalist system. Paulson's acts were doubly courageous, as he risked not only criticism from his peers but his customers as well.
So we created a leadership vacuum, leaving the field to the politicians, regulators, and lawmakers to step in and attempt to correct the abuses and shortcomings of our governance systems. We passed new laws and new regulations to prevent future abuses and send the so-called crooks off to jail.
While I am supportive of these new laws and regulations, they alone will not correct the multiplicity of problems we face to regain the credibility of our corporations and the confidence of our investors. Simply stated, you cannot legislate integrity, stewardship, or good governance.
At this stage, we don't need new laws. We need new leaders.
Unless a new generation of leaders steps forth to run our corporations, we will simply find ourselves going through the motions to respond to the new requirements of Sarbanes-Oxley and the New York Stock Exchange listing requirements, but nothing fundamentally will change about the way we do business. And several years from now, we will find ourselves back in this crisis once again.
For the new generation of leaders which you represent, I am reminded of the famous Chinese symbol representing both crisis and opportunity. Indeed, the current crisis represents a special opportunity and challenge for each of you to lead in a far better way than my generation of leaders has.
My generation was deeply inspired by the words of President Kennedy's inaugural address, "Ask not what your country can do for you. Ask what you can do for your country." As Kennedy said back then, "The torch has been passed to a new generation of Americans."
Many of us idealistically took the torch that Kennedy spoke of and to set out to show what we could do for our country. I was one of them. I decided to concentrate my efforts on the world of business because of the enormous capacity of the free enterprise system to organize people to make a difference in the lives of the people it serves. In those days I had a vision of becoming an ethical, values-centered leader running a major corporation, and, rather immodestly, influencing my peers to be ethical and values-centered.
Looking back at my thirty-two years in business, I realize just how fortunate I was to have the opportunity to reach my first goal in leading such a special company as Medtronic, and just how little influence I had in influencing others in my generation. The complete collapse of corporate governance and the extreme greed of certain corporate leaders exposed in the past year made that all too clear.
Ironically, Enron and Arthur Andersen did the business world a great service. The depth of their misconduct awakened us to the reality that business was on the wrong track, worshiping the wrong idols, and headed for self-destruction. Like the proverbial frog that dies when temperatures are gradually increased, but immediately jumps out when tossed into a boiling pot of water, it took this kind of shock therapy for us to realize that something is sorely missing in many of our corporations. What is it? Ethical, values-based leadership.
What began as a few executives charged with violating the law morphed into issues of corporate governance and the failure of our governance systems. As we understand the issues at a deeper level, we realize that the missing ingredients in corporations are authentic leaders committed to building authentic organizations for the long-term.
Our system of capitalism is built on trust – trust that corporate leaders and boards of directors will be good stewards of their resources, providing investors with a fair return. There can be no doubt that many leaders have violated that trust. As a result, investors lost confidence and withdrew from the market. In the process, many people got hurt, not just the perpetrators.
In the midst of the current crisis, we must ask ourselves, where have all the leaders gone? Where are today’s versions of James Burke of Johnson & Johnson, Walter Wriston of Citicorp, Ken Dayton of Dayton-Hudson, John Whitehead of Goldman Sachs, David Packard of Hewlett-Packard, and Max DePree of Herman Miller? These people not only built great enterprises but were statesmen in the business community and leaders in addressing societal issues as well.
AUTHENTIC LEADERS: THE CASE FOR NEW LEADERSHIP
Somewhere along the way we lost sight of the imperative of selecting ethical leaders that create healthy corporations for the long-term. The lessons of building great companies like 3M, Coca-Cola, Pfizer, Johnson & Johnson, Target, and P&G were lost in the rush to get the stock price up. We forgot that those of us fortunate enough to lead great companies are but the stewards of legacies we inherited from past leaders and the servants of our stakeholders.
The lessons from this crisis are evident: if we select people principally for their charisma and their ability to drive up their short-term stock price instead of their character, and shower them with inordinate rewards, why should we be surprised when they turn out to lack integrity? We do not need executives running corporations into the ground in search of personal gain. We do not need celebrities to lead our companies. We do not need more laws.
We need new leaders.
We need authentic leaders, people of the highest integrity, committed to building enduring organizations. We need leaders who have a deep sense of purpose and are true to their core values. We need leaders with the courage to build their companies to meet the needs of all their stakeholders, and who recognize the importance of their service to society.
THE TEMPTATIONS OF LEADERSHIP
Leading an organization, large or small, is no easy task. It can be lonely at the top. Leaders are pulled in many different directions, yet must keep a clear vision of where they are headed.
Amory Houghton, one of the most thoughtful members of the U.S. Congress, tells the story of his predecessor's advice as he was taking over as CEO of Corning Glass. "Think of your decisions being based on two concentric circles. In the outer circle are all the laws, regulations, and ethical standards to which the company must comply. In the inner circle are your core values. Just be darn sure that your decisions as CEO stay within your inner circle."
We are all painfully aware of corporate leaders that pushed beyond the outer circle and got caught, either by the law or by the financial failures of their companies. More worrisome are the leaders of companies who moved outside their inner circles and engaged in marginal practices, albeit legal ones. Examples include cutting back your company's long-term investments just to make the short-term numbers, bending compensation rules to pay executives in spite of marginal performance, using accounting tricks to meet the quarterly expectations of security analysts, shipping products of marginal quality, and booking revenues before they are shipped in order to pump up revenue growth. The list goes on and on.
All of us who sit in the leader's chair feel the pressure to perform. As CEO, I felt it every day as problems mounted or sales lagged. I knew that the livelihood of tens of thousands of employees, the health of millions of patients, and the financial fortunes of millions of investors rested on my shoulders and those of our executive team. At the same time I was well aware of the penalties for not performing, even for a single quarter. No CEO wants to appear on CNBC to explain why his company missed the earnings projections, even by a penny.
Little by little, step by step, the pressures to succeed can pull us away from our core values, just as we are reinforced by our "success" in the market. The irony is the more successful we are, the more we are tempted to take shortcuts to keep it going. The rewards – compensation increases, stock option gains, a myriad of executive perquisites, positive stories in the media, admiring comments from our peers – reinforce our actions and drive us to keep it going.
In a recent interview with Fortune magazine, Novartis CEO Daniel Vasella talked about these pressures: "Once you get under the domination of making the quarter – even unwittingly – you start to compromise in the gray areas of your business. Perhaps you'll begin to sacrifice things that are vital for your company over the long-term. . . The culprit that drives this cycle isn't the fear of failure so much as it is the craving for success. For the tyranny of quarterly earnings is a tyranny that is imposed from within. . . For many of us the idea of being a successful manager is an intoxicating one.
It is a pattern of celebration leading to belief, leading to distortion. When you achieve good results, you are typically celebrated, and you begin to believe that the figure at the center of all that champagne toasting is yourself."
Like Vasella, who is one of the finest leaders I know, all leaders have to resist these pressures while continuing to perform, especially when things aren't going well. The test I used with our team at Medtronic is whether we would feel comfortable having the entire story appear on the front page of the New York Times. If we didn't, we went back to the drawing boards and re-examined our decision.
DIMENSIONS OF AUTHENTIC LEADERS
Let’s examine the essential dimensions of authentic leaders, the qualities that true leaders must develop. Through many experiences in leading others, I have determined that authentic leaders demonstrate these five qualities:
- Understanding their purpose
- Practicing solid values
- Leading with heart
- Establishing connected relationships
- Demonstrating self-discipline
UNDERSTANDING YOUR PURPOSE
To become a leader, it is essential that you first answer the question, “Leadership for what purpose?” If you lack purpose and direction in leading, why would anyone want to follow you?
In Wonderland, Alice comes to a fork in the road where she sees a cat in a tree. Alice asks the cat, "Which road should I take?" "Do you know where you want to go?" inquires the cat. "No," says Alice. To which the cat replies, "Then any road will get you there."
Many people want to become leaders without giving much thought to their purpose. They are attracted to the power and prestige of leading an organization and the financial rewards that go with it. But without a real sense of purpose, leaders are at the mercy of their egos and are vulnerable to narcissistic impulses. There is no way you can adopt someone else’s purpose and still be an authentic leader. You can study the purposes others pursue and you can work with them in common purposes, but in the end the purpose for your leadership must be uniquely yours.
To find your purpose, you must first understand yourself, your passions, and your underlying motivations. Then you must seek an environment that offers a fit between the organization’s purpose and your own. Your search may take experiences in several organizations before you can find the one that is right for you.
One of the best examples of a leader with purpose was the late David Packard, co-founder of Hewlett-Packard. I met him in early 1969 when he was the new Deputy Secretary of Defense and I was the special assistant to the Secretary of Navy. Packard had taken a leave from H-P to serve his country. A big, powerful, yet modest man, he immediately impressed me with his openness, his sincerity, and his commitment to make a difference through his work.
He returned to H-P a few years later to build it into one of the great companies of its time through his dedication to the company’s mission, known as “The H-P Way,” and to excellence in R&D and customer service. He inspired H-P’s employees to incredible levels of commitment. At his death he was one of the wealthiest people in the world, yet no one would ever have known it by his personal spending. Most of his money went into funding philanthropic projects. Dave Packard was a truly authentic leader, a role model for me and for many in my generation.
Then there's John Bogle, who for fifty years has been a man with a mission to transform the management of investors' funds. Bogle created the first no-load mutual fund in 1974 and founded Vanguard, the nation's leading purveyor of index funds. Bogle has not only been a pioneer in financial services, he has been the leading advocate of financial funds as stewards of their investors' money. His values and his integrity stand in stark relief with those in the financial community who seek to use investment funds for their personal gain.
DEVELOPING SOLID VALUES
Leaders are defined by their values and their character. The values of the ethical leader are shaped by one's personal beliefs, developed through study, introspection, consultation with others – and a lifetime of experience. These values define the leader's moral compass. Ethical leaders know the "true north" of their compass, the difference between right and wrong and have a deep sense of the right thing to do. Without a moral compass, leaders can wind up like those executives facing possible prison sentences.
While the development of fundamental values is crucial, integrity is the one value required in every leader. Integrity is not just the absence of lying, but telling the whole truth, as painful as it may be. Without complete integrity in your interactions, no one can trust you. If they cannot trust you, why would they ever follow you?
I once had a colleague who would never lie to me, but often he shared only positive parts of the story, sheltering me from the ugly side. Finally, I told him that real integrity meant giving me the whole story so that together we could make sound decisions.
When asked about their ethics, most leaders espouse solid values. Many of them meet regularly with their employees and implore them to practice these values or risk losing their jobs. Under pressure, these same leaders may behave in an entirely different manner. There is nothing worse than leaders who preach good values but fail to follow their own advice, or who set double standards for their employees and themselves. If you want to see employees become cynical, just watch what happens when the top executives behave in ways inconsistent with company values.
As Enron was collapsing in the fall of 2001, the Boston Globe published an article by a classmate of Enron CEO Jeff Skilling. The author described how Skilling would argue in class that the role of the business leader was to take advantage of loopholes in regulations and push beyond the laws wherever he could to make money. As Skilling saw the world, it was the job of the regulators to try and catch him. Sound familiar? Twenty-five years later, Skilling's philosophy caught up with him, as his company tumbled into bankruptcy.
Max DePree, the former CEO of furniture maker Herman Miller is a superb example of an ethical, values-centered leader. DePree is a modest man guided by a deep concern for serving others who is true to his values in every aspect of his life. His humanity and values can be seen through the exemplary way in which his company conducts itself. DePree describes his philosophy of values-
centered leadership in his classic book, Leadership Is an Art. DePree says, “The leader’s first job is to define reality. The last is to say thank you. In between the leader must become a servant and a debtor.”
LEADING WITH HEART
Over the last several decades, businesses have evolved from maximizing the physical output of their workers to engaging the minds of their employees. To excel in the 21st century, great companies will go one step further by engaging the hearts of their employees through a sense of purpose. When employees believe has their work has a deeper purpose, their results will vastly exceed those who use only their minds and their bodies. This will become the company’s competitive advantage.
Sometimes we refer to people as being “big hearted.” What we really mean is that they are open and willing to share themselves fully with us, and are genuinely interested in us. Leaders who do that, like Sam Walton of WalMart and Earl Bakken of Medtronic, have the ability to ignite the souls of their employees to achieve greatness far beyond what anyone imagined possible.
One of the most heartfelt leaders I know is Marilyn Nelson, chair and CEO of the Carlson Companies. When she became CEO several years ago, she inherited an organization that was driven for growth, but not known for empathy for customers and employees. Shortly after taking over as CEO, Nelson had her "epiphany" while meeting with the group of MBAs who were studying the company's culture. In asking for feedback, Nelson got a stony silence from the group. Finally, a young woman raised her hand and said, "We hear from employees that Carlson is a sweatshop."
That incident sent Nelson into high gear. She immediately set out to change the environment, using her passion, motivational skills, and sincere interest in her employees and her customers. She created a motivational program called "Carlson Cares," and became the company's role model for caring and empathy. She took the lead on customer sales calls and interacted every day with employees in Carlson operations. Her positive energy has transformed the company's culture, built its customer relationships, accelerated its growth, and strengthened its bottom line.
ESTABLISHING ENDURING RELATIONSHIPS
Indian philosopher J. Krishnamurti says, “Relationship is the mirror in which we see ourselves as we are.”
The capacity to develop close and enduring relationships is one mark of a leader. Unfortunately, many leaders of major companies believe their job is to create the strategy, organization structure, and organizational processes. Then they just delegate the work to be done, remaining aloof from the people doing the work.
The detached style of leadership will not be successful in the twenty-first century. Today’s employees demand more personal relationships with their leaders before they will give themselves fully to their jobs. They insist on having access to their leaders, knowing that it is in the openness and the depth of the relationship with the leader that trust and commitment are built. Bill Gates, Michael Dell, and A. G. Lafley of P&G are so successful because they connect directly with their employees and realize from them a deeper commitment to their work and greater loyalty to the company.
In Eyewitness to Power, David Gergen writes, “At the heart of leadership is the leader’s relationship with followers. People will entrust their hopes and dreams to another person only if they think the other is a reliable vessel.” Authentic leaders establish trusting relationships with people throughout the organization as well as in their personal lives. The rewards of these relationships, both tangible and intangible, are long lasting.
DEMONSTRATING SELF-DISCIPLINE
Self-discipline is an essential quality of an authentic leader. Without it, you cannot gain the respect of your followers. It is easy to say that someone has good values but lacks the discipline to convert those values into consistent actions. This is a hollow excuse. None of us is perfect, of course, but authentic leaders must have the self-discipline to do everything they can to demonstrate their values through their actions. When we fall short, it is equally important to admit our mistakes.
Leaders are highly competitive people. They are driven to succeed in whatever they take on. Authentic leaders know that competing requires a consistently high level of self-discipline to be successful. Being very competitive is not a bad thing; in fact, it is an essential quality of successful leaders, but it needs to be channeled through purpose and discipline. Sometimes we mistake competitive people who generate near-term results by improving operational effectiveness for genuine leaders. Achieving operational effectiveness is an essential result for any leader, but it alone does not ensure authenticity or long-term success.
The most consistent leader I know is Art Collins, my successor as CEO of Medtronic and a Wharton MBA. His self-discipline is evident every day and in every interaction. His subordinates never have to worry about what kind of mood Art is in, or where he stands on an important issue. Nor does he deviate in his behavior or vacillate in his decisions. He never lets his ego or his emotions get in the way of taking the appropriate action. These qualities make working with Art easy and predictable, enabling Medtronic employees to do their jobs effectively.
SHOOTING STARS ANDGOLDEN BOYS
Some rising leaders avoid challenging experiences that really test them. I refer to them as Shooting Stars and Golden Boys. The Shooting Stars move up so rapidly they never take time to learn from their mistakes or look themselves in the mirror. A year or two into any job, they are ready to move on, long before they have to pass the test of living with their decisions. When they see an experience like the crucible coming, their anxiety rises and so does the urgency to move on. If their employer doesn’t move them upward, they are off to the next company. Then some day they find themselves at the top, confronted with ethical challenges and an overwhelming set of problems. Without the wisdom of the crucible, they cannot cope and are prone to do bizarre things on their way to self-destruction.
The Golden Boy follows a similar path to success, using his charm, style and good looks to get ahead. He always sets the bar of performance low enough to insure that he can exceed it. To outsiders and board members, he always appears in control. Insiders observe that he never gets his hands dirty wrestling with problems. When he reaches the top, he is unprepared for the real-world challenges he will encounter. When faced with them, he is vulnerable to making major mistakes and putting his company at risk.
IN THE CRUCIBLE
In his recent book, Geeks and Geezers, author Warren Bennis observes that most of his interviewees passed through a crucible that tested them to the depths of their being and empowered the successes they realized later in life. At some time in your journey you too will find yourself in a crucible that really tests your values. Only there will you learn how to cope with pressures to compromise your values and deal with potential conflicts between them. This is not easy when there is a lot at stake and the outcome is uncertain. In these situations you find the "true north" of your moral compass. Without them, you cannot be certain whether you will be true to your values under extreme pressure. Having survived the crucible, you know you can take on any challenge and come out of it a better person.
My wife Penny experienced her crucible in 1996 when she was diagnosed with breast cancer. She went through a modified radical mastectomy, seven months of chemotherapy, five years of hormonal therapy, and a lifetime of not knowing whether the cancer would recur. Gradually, she overcame her fears and took back control of her life by creating her own healing path.
One of the steps on her journey was to participate in a Vision Quest in southwestern Utah. A Vision Quest is an experience based on the rituals of indigenous people in which participants seek to understand their purpose in the world. Fasting alone for four days and nights in the desert, Penny found a new power within her and a renewed sense of purpose for her life. Several months afterward, she gave up her practice of psychology and devoted herself to the cause of integrative medicine, using the mind, body, heart and spirit on one’s healing journey. With passion and purpose, she is now working with medical leaders throughout the U.S. to change the way medicine is taught and practiced. Her inner power is enabling her to take on leadership roles she never believed she was capable of.
"HITTING THE WALL": MY TIME IN THE CRUCIBLE
My most agonizing time in the career crucible came when I least expected it. I call this “hitting the wall,” something that happens to most leaders at least once in their careers. As painful as it was, this experience provided the basis for growth and change that transformed my career. It caused me to look inside myself, acknowledge my shortcomings, and realize I was on the wrong path.
In the mid-1980s I was on my way to the top of Honeywell. What began as a huge promotion turned into a decision to reassess my career and to move in a new direction. By 1988 I had been promoted several times, each time taking over more responsibility for Honeywell’s most challenging businesses. At the time I was responsible for three groups, nine divisions, 18,000 employees, and a raft of problems.
I had developed a reputation as “Mr. Fixit,” the guy who could get Honeywell’s troubled businesses turned around. I knew how to turn businesses around, but it never excited me. During this period I started questioning whether Honeywell was really the place for me. I felt out of sync with Honeywell's slow-moving, change-resistant culture. I was becoming more concerned with appearances and attire than just being myself. Reluctantly, I faced the reality that Honeywell was changing me more than I was changing it.
I felt in a trap from which I couldn't escape. I had “hit the wall,” but was too proud to face it. On a beautiful fall afternoon when the maple trees were blazing red, I had a daydream driving around the lake near my home. But this dream was not pretty. I saw myself staying at Honeywell for a few more years, becoming increasingly frustrated, and then deciding to accept a CEO position at a large company in some other city. This would mean uprooting my family, Penny giving up her job, our sons changing schools, and all of us leaving the community we loved. Why would I do that? Just to satisfy my ego? I had a lot of self-explanation to do.
My experience that day enabled me to realize that I had to overcome my fixation on being CEO of a very large corporation. I realized I was letting my ego get in the way of my values. If indeed I was in a trap, it was a trap of my own making. When we are in this position, it is difficult to see things clearly, and we may miss the opportunity staring us in the face.
Over the years I had three opportunities to join Medtronic, dating back to 1978. I turned them all down, mostly because I didn't feel Medtronic was a large enough company for me. Yet the opportunity kept nagging at me. Had I done the right thing? It finally dawned on me that I was so caught up in my drive to run a major corporation that I was in danger of losing my soul. In the process I realized I had sold Medtronic short, and maybe myself as well.
I kept thinking about the vision I had in my teenage years: leading a mission-driven, values-centered company where I was passionate about the opportunity to serve others. What better place to do that than Medtronic? I called Medtronic CEO Win Wallin and reopened the door. Five months later I walked through Medtronic's door as the new president. Rarely in life do we get the opportunity four times.
At Medtronic I was able to lead a company that changes people’s lives. I feel a deep sense of good fortune in finding a confluence of interests between my personal desires and the needs of Medtronic. The Medtronic mission to restore people to fuller health inspired me from the moment Medtronic Founder Earl Bakken described it to me. Fourteen years later, it inspires me even more.
THE AUTHENTIC COMPANY
Authentic leaders strive to develop enduring companies just as authentic as they are.
What makes a company authentic? It is guided by a mission and vision and practices a consistent set of values. It empowers its employees to serve customers with innovative products and superior service. The authentic company is characterized by an enduring organization that is disciplined in producing results for all its stakeholders.
These five characteristics of the authentic company parallel closely the five dimensions of the authentic leader:
Purpose: Mission and Vision
Values: Company Values
Heart: Empowering Employees to Serve Customers
Relationships: Enduring and Committed Organization
Self-discipline: Results for All Stakeholders
It would be most unusual to have authentic companies not led by genuine leaders. Disingenuous leaders in an authentic company simply will not survive. Eventually, the organization will force them out because their behaviors are inconsistent with the company's purpose and values. This was the case a few years ago at Procter & Gamble and Coca-Cola when the boards of both companies terminated recently appointed CEOs. Having replaced them - with A. G. Lafley and Douglas Daft - both organizations are responding positively and are thriving once again.
VALUING THE CORPORATION
It is only through a sense of purpose that companies can realize their potential. It is their raison d’etre that animates employees and inspires them to turn purpose into reality. In recent years many companies "sold out" to the financial community in a never-ending quest to drive their stock prices higher. Once a company does so, it is extremely difficult to regain a sense of purpose. These companies eventually get sold off, incorporated into a larger company, or go into a long-term state of decline. It is a paradox that by focusing on pleasing shareholders they wind up pleasing no one – not their customers, their employees, their communities, and ultimately not their shareholders.
The best path to long-term growth in shareholder value comes from having a well-articulated mission that inspires employee commitment. Companies that pursue their mission in a consistent and unrelenting manner will create greater shareholder value than anyone believes possible. The success of such companies as 3M, Wells Fargo, Merck, Wal-Mart, Nokia, and HP attests to the value of the mission-driven company.
In mission-driven companies employee motivation comes from believing in the purpose of their work and being part of creating something worthwhile. There are simply no short cuts to creating long-term shareholder value. Sustainable growth cannot be achieved by a series of short-term actions. Real value can only be created by the hard work of dedicated, motivated employees that develop innovative products and services, establish intimate customer relationships, and build organizations over an extended period of time. This is precisely the approach we used at Medtronic that led to a 150 times increase in shareholder value over the last eighteen years.
THE PATH TO LONG-TERM SHAREHOLDER VALUE
The authentic way to increase shareholder value is with a mission that inspires employees to create innovative products and provide superior service to customers. Product innovations and superior service translate into increased market share and expanded market opportunities, creating growth in revenues and the ability to sustain price levels. This is the basis for sustained competitive advantage, increased levels of profitability and higher profit margins. Consistent profit growth forms the basis for sustained increases in shareholder value. This is why the stock market in the past decade has valued companies like Microsoft, Intel, General Electric, and Pfizer so highly.
To turn this strategy into a virtuous circle that is self-sustaining, companies must rigorously reinvest a significant portion of their increased profits in R&D, market development, and future growth opportunities, and not let it all go to the bottom line. The success of this approach reinforces the commitment of employees to the company's mission and provides them with ongoing motivation to sustain it. Companies that stay true to their mission through good times and bad can sustain their growth indefinitely.
At Medtronic I witnessed the success of this approach first-hand. When the company consistently provides employees with a sense of meaning and purpose – without deviating and without vacillating – then they will make the commitment to go the extra mile in serving customers. That may mean working well into the night to accelerate the introduction of an important new product, or responding on the weekend to a customer’s urgent call for service.
In my experience motivating employees with a sense of purpose is the only way to deliver innovative products, superior service and unsurpassed quality over the long haul. Competitors will eventually copy an innovative idea for a product or service, but creating an organization of highly
motivated people is very hard to duplicate. The motivation will last if it is deeply rooted in employees' commitment to the intrinsic purpose of their work.
Not only do authentic leaders convey a clear purpose and mission to their employees, they also strive every day to instill the company's values in every aspect of the business, practicing those same values in all their decisions, whether they be major decisions about the kind of companies to acquire or whom to promote.
Today's business leaders can no longer expect their employees to be loyal to the company when companies demonstrate little or no loyalty to their employees. But those that are able to empower their employees with a sense of purpose and a clear set of values will gain a sustainable advantage over their competitors that focus solely on the bottom line. In leading with their hearts, authentic leaders inspire employees to go the extra mile in creating new innovations, finding better ways to run the business, and providing their customers with superior service. These qualities are the basis for building an enduring, committed organization.
The final characteristic of the authentic company is its ability to serve all its stakeholders - its customers, employees and shareholders - and generate outstanding results for each group simultaneously. Many leaders have erroneously taken the viewpoint that serving all stakeholders involves a trade-off with providing value to its shareholders. Actually, just the opposite is the case: by inspiring employees to produce superior results for customers, the company's growth will be increased and sustained, profits will growth as will long-term shareholder value, and adequate funds will remain to continue investing for growth.
These five qualities - pursuing a clear mission, practicing your values, empowering employees to serve customers, building an enduring, committed organization, and serving all your stakeholders - are the essential ingredients of an authentic company.
THE NEW GENERATION OF LEADERS
The good news is that a new generation of authentic corporate leaders is already emerging to lead in an authentic manner. Although this group needs time to prove the merits of their new approaches and their sustainability, there are many encouraging signs. Let's look briefly at a dozen authentic CEOs who are making a difference every day in building authentic companies:
- IBM's new CEO, Sam Palmisano, turned over $4 million from his bonus to incentivize the rest of his management team, and has taken on the role of personally transforming IBM's innovation process, all as part of his new strategy of "e-business on demand."
- GE CEO Jeff Immelt has undertaken the transformation of General Electric's governance system, long thought of as a model for the rest of industry.
- Pfizer CEO Hank McKinnell not only catapulted his company into the world's largest pharmaceutical maker by acquiring Warner-Lambert and Pharmacia, but led Pfizer to the award as "the best governed company in America."
- Speaking of pharmaceuticals, Novartis CEO Dan Vasella personally uncovered the drug Gleevac in his labs and turned into a life-saver for cancer patients and has created a multi-billion research headquarters in Cambridge MA, right on the campus of MIT.
- Procter & Gamble CEO A. G. Lafley is turning P&G into a global powerhouse by personally visiting homes in developing countries like Chile to better understand the needs of his customers.
- Using her personal motivational skills, Carlson Companies CEO Marilyn Nelson has transformed the company and its 142,000 employees into a highly customer-focused hospitality powerhouse.
- Target CEO Bob Ulrich gets directly involved with the creators of new products to turn Target into the "hip" center for fashion-forward products at very affordable prices.
- Goldman Sachs CEO Hank Paulson was the first CEO to take a leadership role in advocating governance reforms and then he later led the resolution of the investment banking industry's separation of research from banking.
- Warren Buffet of Berkshire Hathaway fame has the courage to speak and write against the President's tax cut proposals that would personally save him hundreds of millions of dollars.
- Lord John Browne, CEO of British Petroleum, is a leading advocate for the environment while negotiating multi-billion natural gas deals with the Russians.
- Wells Fargo CEO Dick Kovacevich has built the best bank in America by focusing on consumers while ignoring his competitors' stampede to acquire investment banks.
- My successor at Medtronic, Art Collins, has already pioneered new life-changing treatments for heart failure, spinal disease, incontinence, and diabetes while upping R&D budgets over 40%.
I believe we are on the verge of a new generation of authentic leaders prepared to step forward to build enduring, authentic companies. In the end they will create far more lasting value for all their stakeholders. They may not be as glamorous or as charismatic as their predecessors, or devote as much of their time to meeting with security analysts and appearing on CNBC, but their results will be far better in the long-term.
CONCLUSION: IF NOT ME, THEN WHO? IF NOT NOW, WHEN?
Let me close with these lines from “Four Quartets” by T.S. Eliot:
"We shall not cease from exploration,
And the end of all our exploring,
Will be to arrive where we started,
And know the place for the first time."
It won't be long until each of you will be asked to step up and take charge - or perhaps you already have been. My advice is, don't wait to be asked. Don't wait until you get the top job. In thinking about whether to step up and lead, ask yourself these two simple questions:
If not me, then who? If not now, when?
The world needs your leadership today.
As a leader, you have to have the moral courage to step up and take a position, and then be prepared to suffer the wrath of those who disagree or lack to courage to stand alone against the tide.
Just as President Kennedy said forty years ago, the torch of leadership is again being passed to a new generation. To this generation, the trumpet has sounded. If you listen carefully, you will hear the clarion call to lead in a different way than many in my generation have:
To be motivated by your mission, not your money.
To tap into your values, not your ego.
To connect with others through your heart, not your persona.
To live your life with such discipline you would be proud to read about your behavior on the front page of the New York Times.
Consider these challenges society faces as you think about where to devote your passions:
We live in a world of enormous wealth, yet three-quarters of the world's population has barely enough to survive.
With our greater affluence has come increased mental and physical abuse of the helpless and vulnerable.
Forty years after the civil rights movement began, discrimination is still rampant at all levels of our society.
We have the greatest medical technology in history, yet the rate of disease continues to grow.
We abuse our natural resources and ignore the growing contamination of our rivers, our open spaces, our cities, and our environment.
We no longer feel safe or secure in our cities after dark.
We stand idly by as our leaders focus more on serving themselves than their customers.
We merge companies to create ever-larger organizations and then treat the people who made them successful like robots.
We treat quality of life as if it were a distraction from the real work of people.
We ignore the deeper meanings of life and the source of all joy.
As an authentic leader, you can change these things. You only need to be your own person, lead with purpose and passion, be true to your values, and lead with your heart.
As much as we want happy, secure futures for our families and ourselves, we have learned the hard way that money alone is insufficient to provide either security or happiness.
But making a difference in the lives of others can bring unlimited joy.
Leading a life of significant service can bring unlimited fulfillment.
Sharing yourself with others authentically can bring unlimited love.
What is more important than joy, fulfillment, and love? When we experience them, we will arrive where we started and know the place for the first time.
"Authentic Leadership" by Bill George
Chart 1: The Authentic Leader
Chart 2: The Authentic Company
Chart 3: How Mission-Driven Companies Create Shareholder Value
Copyright 2003. All rights reserved.
Published by Jossey Bass (August 2003)
