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Responsible leadership in the business world

Author Bill George on why we do need new leaders, not just new laws, to bring us out of the current corporate crisis.
/ Source: TODAY

In the wake of continuing corporate scandals there have been few, if any, CEOs that have stepped forward as models of "doing things right" -- except the former chairman and CEO of Medtronic, Bill George. George has become the unofficial spokesperson for responsible leadership -- in business, the media, and academia. Here's an excerpt of "Authentic Leadership:"

Introduction: Where Have All the Leaders Gone? Thank you, Enron and Arthur Andersen. The depth of your misconduct shocked the world and awakened us to the reality that the business world 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, we needed this kind of shock therapy to realize that something is sorely missing in many of our corporations. What's missing? In a word leadership. Authentic 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 begin to understand these same issues at a deeper level, we realize that the missing ingredients in corporations are leaders committed to building authentic organizations for the long term. Every generation has corporate thieves who break the law to reward themselves. This time around the excesses are not limited to a few. I believe deeply that the vast majority of corporate CEOs are honest leaders dedicated to building their companies. Unfortunately, far too many leaders got caught up by the short-term pressures of the stock market and the opportunities it brought for personal wealth. Under these pressures and enmeshed in the quest for personal gain, they wound up sacrificing their values and their stakeholders. 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. A Time/CNN poll taken in the summer of 2002 reported that 71 percent of those polled feel that “the typical CEO is less honest and ethical than the average person.” In rating the moral and ethical standards of CEOs of major corporations, 72 percent rated them “fair” or “poor.” A similar survey by the Wall Street Journal Europe reported that only 21 percent of European investors believe that corporate leaders are honest. 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, John Whitehead of Goldman Sachs, and David Packard of Hewlett-Packard? These people not only built great enterprises but were statesmen in the business community and leaders in addressing societal issues as well. In contrast, most leaders of today's best-run corporations remain silent. Are they afraid that by speaking out they may invite scrutiny of their companies? In so doing, they give the impression that they have something to hide or are also part of the problem. 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. Andy Grove, chairman of Intel, commented recently, “I find myself embarrassed and ashamed to be a businessman.” These sentiments were echoed by a rising star at Medtronic, the medical technology company I led for a dozen years. He told me how angry he was at the executives who had damaged the reputations of all business leaders, saying he was reluctant to tell friends that he too is a corporate executive.

Capitalism Becomes the Victim of Its Own Success How did we get in this situation? Is this a recent phenomenon, or have these activities been going on all along? We are witnessing the excesses of the shareholder revolution that began fifteen years ago. In its early stages, pressure from shareholders did much to improve the competitiveness of American corporations, as companies trimmed unnecessary expenses, improved profitability, and increased cash flow. However, the financial rewards from their actions, both corporate and personal, were so great that companies and shareholders alike developed an inordinate focus on short-run results. In a booming stock market, it all seemed to be working. Then capitalism became the victim of its own success. Instead of traditional measures such as growth, cash flow, and return on investment, the criterion for success became meeting the expectations of the security analysts. Investments were cut back to reach earnings targets, limiting the company's growth potential. Driven by speculators and security analysts, expectations kept rising, just as companies were struggling to make their numbers. Companies that met or exceeded the “magic” earnings number were handsomely rewarded with ever-rising stock prices. Those that fell short, even if they recorded substantial increases, were inordinately punished, and shareholders demanded replacement of the CEO. No wonder many CEOs went to extreme measures to satisfy shareholders! However, revenues and earnings do not escalate forever, especially in the face of economic downturns, events like September 11, and operating problems. To offset financial problems, many executives stretched the numbers and the accounting rules well beyond their intended limits. Some of these accounting schemes, like calling operating expenses “capital equipment” to avoid the P&L and booking revenues before they were earned, violated even the most basic rules of accounting. Now the chickens are coming home to roost. In the past five years stock options went from modest perks to mega-grants for top executives, especially CEOs. Because options had no cash impact and were not charged against profits, many executives and boards viewed these grants as free. The effect was to shift CEOs' focus almost entirely to getting the stock price up -- by whatever means necessary. Realizing they could not sustain their earnings, many CEOs cashed in their options for huge gains just before their stock collapsed. The general public played a role in this tragedy as well. In idealizing the high-profile personalities that ran these companies, we made them into heroes. We equated wealth with success and image with leadership. To our dismay, we have learned that these celebrity CEOs have been filling up their personal coffers at their shareholders' expense, while destroying the pensions and life savings of thousands of people. The media turned these short-term earnings artists into the folk heroes of the business community. While aking wealth, image, and star power the criteria for success, the media overlooked the many solid corporate leaders building quality companies for the long term. Ken Lay, Bernie Ebbers, and Dennis Koslowski were the focus of intense media worship before their fall. Just one year before he was led off to jail in handcuffs, Business Week named Koslowski “CEO of the Year” for being first on its Nifty Fifty list of top stock performers. These three executives alone have destroyed over $300 billion in shareholder value. Back in 1998 I met with one of these leaders to talk about acquiring one of his companies. In our brief meeting he explained how his offshore headquarters enabled his company to avoid U.S. taxes, how he automatically issued pink slips to 25 percent of the workers on the day he acquired their company, and how he shut down every research project or investment that didn't pay off in the first year. As I walked out of his office, I held onto my wallet and decided to cancel further talks with him. You cannot do business with people you do not trust.

The Case for New Leadership In response to the violations, policymakers and politicians have crafted new laws and regulations to close the loopholes. But although some changes in regulations are appropriate and necessary, they do not address the deeper issues at stake here. It is impossible to legislate integrity, stewardship, and sound governance. Somewhere along the way we lost sight of the imperative of selecting leaders that create healthy corporations for the long term. The lessons of building great companies like 3M, Coca-Cola, Johnson & Johnson, General Electric, Pfizer, and Procter & Gamble were lost in the rush to get the stock price up. We forgot that those of us who are fortunate enough to lead great companies are 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 stock prices in the short term instead of their character, and we 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 leadership. 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 who have the courage to build their companies to meet the needs of all their stakeholders, and who recognize the importance of their service to society. If you yearn for authentic, moral, and character-based leaders, read on. If you aspire to be an authentic leader, this book is written for you. My objective is to offer a fresh approach to the business leaders of tomorrow, refined in the crucible of real-world experience. I believe it is an approach that not only will produce better leaders for our organizations but also will ensure the long-term viability and success of their companies.

Challenges Confronting Emerging Leaders In recent years, I have gotten to know many rising leaders. Almost without exception, they have solid values and a sense of purpose. They are looking for something different in their lifetimes -- the opportunity to contribute to a worthwhile cause through their work, to make a difference in the world, to find a reasonable balance between their work and home lives, and, most of all, to work for a company where they trust the leaders and share a common set of values. In my discussions with them, I hear a common set of questions: What's the purpose of my leadership? Do I really want to devote my talents to business? How can I find a job where I can make a real difference? Do I have to check my values at the office door? Is it possible to have a meaningful career and a successful family life? Is it worth it to work so hard? How can I stay true to my values when there are so many pressures to compromise? How do I balance the conflicting needs of my customers and my employees with the requirement to make the bottom-line numbers? Can I develop close relationships with my subordinates and still achieve my objectives? Do I have a responsibility to our society, for the environment, for global sustainability, for the gap between rich and poor? What can I do? There are no easy answers to these questions, yet that shouldn't keep us from talking about them. These are precisely the questions that I have wrestled with throughout my life, as have so many of my peers. The real difference between my generation and the next is that the aspiring leaders of today are demanding answers to these questions before they commit to a company and a career path. To that I say, “Bravo!” Unlike the many books on leadership written by observers of leaders, this one is written by someone who has spent his entire life on the playing field, learning how to lead and working to become a better leader. My purpose is not to hold myself up as a model of virtue or success. Rather, I want to share how I dealt with the tough issues throughout my life and what I learned to be true. In describing the kind of leaders we need, I hope to address the difficult challenges that future leaders will face. First, I will describe authentic leaders and how they develop. Next, I will look at how authentic leaders build authentic companies, because that is the crux of leading. Third, I will show how authentic companies compete more effectively in the market, and, finally, how authentic leaders look beyond the bottom line. I hope to show all leaders, new and old alike, that there is a better way to lead than we have seen in the past decade -- by pursuing your mission, living by your values, and getting superior results for all stakeholders. Now more than ever, we need to reflect on these issues. Excerpted from , by Bill George. Copyright © 2003 by Bill George. Published by Jossey-Bass. All rights reserved. No part of this excerpt can be used without permission of the publisher.