2003, Volume 7, Number 5
the Turnaround: Lou Gerstner
in Corporate Ethics: Where Have All the Leaders Gone?
Lou Gerstner of IBM
Sheppard, Wharton MBA Student and Deputy Editor, Wharton Leadership
Lou Gerstner, retired Chairman and CEO of IBM,
recently spoke at Wharton about his experience of leading one of the most
celebrated turnarounds in corporate history.
a pragmatic and modest speech, Gerstner was weary of drawing platitudes of
leadership that could be applied to every situation. Rather he wanted to
describe what happened at IBM and draw lessons from it.
When Gerstner took over in 1993, IBM had just
announced a $8.1 billion loss; the largest in US history. He had 100 days
of cash left and IBM was already being written off by commentators as a
dinosaur and an also-ran. Not surprisingly, IBM’s workforce was
demoralized and hostile.
Gerstner’s first task was to analyze the problem.
Despite having good people, great technology and a sound strategy, he
found that IBM was suffering from a “success syndrome.” Gerstner
described IBM in the 1960s, 70s and 80s as “the greatest commercial
institution ever created.” But instead of continuing to build on this
legacy, it had become insular, inward-looking and rigid.
Organizationally, it had become a decentralized
fiefdom in which none of the business units communicated with each other.
Gerstner realized that his overarching task was to lead a massive
organizational and cultural change.
Gerstner quickly found ways to stop bleeding cash and
identified the company’s principal growth engines. He wanted to break
the assumption that customers would always buy IBM because of its past
achievements. He then started to rebuild the company around the customer.
To reintegrate the organization, he sought to provide
total solutions to customers. To do so, he needed to transform almost
every business process conducted by IBM.
He cautioned his audience of star struck MBAs that managing a
complete turnaround was not as glamorous as they might think. He quoted
one of his senior managers who likened the implementation of the
reengineering process to going to work every day and “setting your hair
alight and then putting it out with a hammer.”
Painful as the process was, it was successful. The
business units had been reintegrated and Gerstner made $14 billion of cost
savings. Gerstner said that he learnt three fundamental lessons from his
time at IBM; the importance of:
Gerstner stressed the how
imperative it was for a leader to love their business and to “kill
yourself to make it successful.” There is no substitute for hard
work and the desire to win. CEOs face a multitude of choices, often
peddled by a multitude of self-interested advisors, but they need to
focus on exploiting competitive advantages in core businesses.
Accordingly, it is the CEO’s responsibility to manage consultants,
investment bankers and advertising agencies so to best serve their
business rather than let them set the agenda.
Gerstner said that execution is what really separates business
leaders. As an ex-McKinsey Director, Gerstner said that consultants’
“dirty little secret” was that it is not that difficult to come up
with attractive strategies in public markets in which everyone has
good information. The true differentiator was how you implement them.
leadership. Gerstner said that
despite the volumes of business books written on leadership recently,
he still thought that this was the most undervalued element of
institutional change. When asked later for his advice of how MBA
graduates should behave to strive to emulate his success, Gerstner
said that as a start you should always strive to do the job you are
doing better than the guy before you.
Finally, Gerstner wanted to discuss the importance
and challenges of transforming corporate culture. For him, institutional
culture is not what is said but it what is done. As an example of cultural
change, Gerstner discussed abolishing IBM’s notorious dress code. He
said that at the time the public reception was as if he “had sold the
company to the Russians.” But for Gerstner, it was common sense for
IBM’s salesmen to dress as their customers were doing.
Gerstner said that changing the attitude and behavior of thousands of
people is hard to accomplish but key to success. The work environment is
the crucible for individuals’ productivity. Management cannot change
culture through words and policies alone. All leaders can do is create the
conditions for transformation and invite employees to respond. Not
surprisingly, he attributed IBM’s success to the thousands of employees
who were willing to react to his initiatives and work hard to make the
elephant dance again.
Paul Sheppard can be reached at firstname.lastname@example.org.
in Corporate Ethics:
Where Have All the Leaders Gone?
George, former Chair & CEO, Medtronic
The following draws from Bill George’s forthcoming book, Authentic
Leadership, and his commentary will be further developed at the annual
Wharton Leadership Conference on June 4, 2003 where he will be appearing
as a keynote speaker (http://leadership.wharton.upenn.edu/l_change/conferences/conf_060403.shtml)]
tragic loss of the Columbia brought back vivid memories of my teenage
years when the Soviet Union launched Sputnik.
Not long thereafter, the United States made a major commitment to
exploring outer space. A
vital young President, John F. Kennedy, had the vision and foresight to
commit our nation to a challenge no one knew how to do: putting a man on
the moon by 1969.
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, “The torch has been passed to a new generation
of Americans.” No one in my generation will ever forget where we were on
that fateful day in November 1963, when we learned that the President had
been assassinated, just as the younger generation will always remembers
where they were on September 11, 2001.
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.
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
a graduate student at Harvard, I led the Musser Seminars on “Business
and Christian Ethics” with students from the Business School, Divinity
School, and the Episcopal Theological Seminary. We met regularly to
discuss weighty ethical topics. One person that had an influence on me was Robert Greenleaf,
then an AT&T executive, who presented his ideas on “servant
proposed that the role of leaders was to serve their followers.
At the time this was a radical idea, because we looked at leaders
back then as powerful people running large organizations, often in a
rather autocratic manner.
out of business school in 1966, a number of us went to Washington to work
in the federal government and help our country.
As the Vietnam war escalated, it didn’t take long for our
idealism to be shattered. Vietnam was followed in the 1970s by Watergate and in the
1980s by takeovers and junk bond scandals.
But for business, all
of these events pale by comparison to the corporate ethical crisis we have
experienced in the past year.
you, Enron and Arthur Andersen
depth of their misconduct shocked the world and 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,
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 ethical leaders committed to
building authentic organizations for the long-term.
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 got caught up by the short-term
pressures of the stock market and the opportunities it brought for
personal wealth. Under these
pressures and the quest for personal gain, they wound up sacrificing their
values and their stakeholders.
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.
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, 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.
contrast, most of today’s leaders of our 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. As
Andy Grove, chairman of Intel, commented recently, “I find myself
embarrassed and ashamed to be a businessman.”
Becomes The Victim Of Its Own Success
did we get in this situation? Is this a recent phenomenon, or have these
activities been going on all along?
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 focusing on traditional measures such as growth, cash flow, and return
on investment, the criterion for success became meeting the expectations
of security analysts. Investments were cut back in order to make earnings,
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
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 are earned, violate
even the most basic rules of accounting. Now the chickens are coming home
the past five years stock options went from modest grants to mega-grants
for top executives, especially CEOs. Because they had no cash impact and
were not charged against profits, many executives and boards viewed these
grants as free. The effect was to shift the CEO’s 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.
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.
media turned these short-term earnings artists into folk heroes. While
making 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 Kozlowski were the focus
of intense media worship before their fall. Just one year before he was
led off to jail in handcuffs, Kozlowski was on the cover of Business Week
as the top executive on its Nifty Fifty list of top stock performers.
These three executives alone have destroyed over $300 billion in
in 1998 I met with one of these leaders to talk about acquiring a company
from him. In our brief
meeting he explained how his off-shore headquarters avoided U.S. taxes,
how he automatically issued pink slips to twenty-five per cent 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
response to the violations, policy makers and politicians have crafted new
laws and regulations to close the loopholes. While 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.
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, 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.
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.
need new leaders.
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
Temptations Of Leadership
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.
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
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.
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.
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.
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.
There is a natural tendency to believe that what is written is
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.
Developing Solid Values
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
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?
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.
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.
For one example, look at Dennis Kozlowski of Tyco, who set up an
endowed chair in corporate governance at Cambridge University, just as he
was demolishing any semblance of sound governance on his own board.
business schools and academic institutions do not teach values as part of
leadership development. Some offer ethics courses, often in a theoretical
context, but shy away from discussing values. Others assume erroneously
their students already have well solidified values. What they fail to
realize is the impact that your environment has in shaping your values and
the importance of solidifying your values through study and dialogue.
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.
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
also subscribes to Greenleaf’s ideas on servant leadership, and expands
them by offering his own advice, “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.”
believes that a corporation should be “a community of people,” all of
whom have value and share in the fruits of their collective labor.
DePree practices what he preaches.
While CEO, his salary was capped at twenty times that of an hourly
worker. In his view tying the CEO’s salary to his workers helps
cement trust in leadership. Contrast
that with today’s CEOs, who are earning – on average – four to five
hundred times their hourly workers. As
DePree said recently, “When leaders indulge themselves with lavish perks
and the trappings of power, they are damaging their standing as
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.
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.
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 had an
organization that was driven for growth, but not known for empathy for
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.”
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
Theresa is a compelling example of a leader who led with her heart.
Many think of her as simply a nun who reached out to the poor, yet
by 1990 she had created an organization of four thousand missionaries
operating in one hundred countries. Her
organization, Missionaries of Charity, began in Calcutta and spread to 450
centers around the world. Its
mission was “to reach out to the destitute on the streets, offering
wholehearted service to the poorest of the poor.”
I doubt that any of us will ever be like Mother Theresa, but her
life is indeed an inspiration.
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
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.
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.
Tour de France winner Lance Armstrong makes a dramatic – almost
unbelievable – statement in his book, It’s Not About the Bike, about
his battle with life-threatening cancer.
“The truth is, if you asked me to choose between winning the Tour
de France and cancer, I would choose cancer.”
He goes on to explain, “Odd as it sounds, I would rather have the
title of cancer survivor than winner of the Tour, because of what it has
done for me as a human being, a man, a husband, a son, and a father.”
fall I had the opportunity to bike with Lance up to the Maroon Bells near
Aspen and to ask him about his views on cancer.
He explained how his battle had transformed him as a person and
opened up his opportunities for marriage, fatherhood and, yes, giving him
the focus and discipline to win the Tour four times in a row.
He told me he wrote the book not to glorify his achievements –
“those will soon be forgotten” – but to give hope to millions of
Stars And Golden Boys
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
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.
The Wall”: My Time In The Crucible
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.
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.
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
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.
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.
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.
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.
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.
Dilemmas: When In Rome, Don’t Follow The Romans
leaders believe ethics is a topic that is discussed in business schools
but not a part of everyday business.
In fact, ethical dilemmas and pitfalls surround most significant
decisions a business leader makes. Sometimes
these issues are moral, sometimes legal, and sometimes personal.
Often the most significant challenge in dealing with ethical
dilemmas is recognizing them to begin with.
companies have clear statements of values and ethical codes of conduct
that their employees must sign. In
spite of these declarations, neither the organization’s nor its
leaders’ ethical practices are established until they are tested under
difficult conditions in the market. How leaders respond to these challenges, as painful as they
may be, sets the ethical tone for the entire organization and establishes
the company’s true values, much more than written statements, compliance
documents, and training sessions.
in my time at Litton Industries the corporate board visited our microwave
oven division to understand the reasons for our exceptional growth.
As I was presenting our worldwide standard of ethics, I noticed the
independent directors were nodding in agreement, but the new CEO was
scowling as though he wished I would move to another topic.
At the coffee break I found out why, as I overheard a conversation
the CEO was having with the head of the company’s oil exploration
business. “Charlie, the audit committee is very upset about your
audit report,” he said. “I know you have to do what you have to do to
get the business, but if you ever put it writing again, you’re fired!” The message was clear as a bell: it’s okay to make payoffs,
but just don’t get caught. That
incident convinced me I working for the wrong company.
excellent companies fail to respond to an ethical crisis because they do
not grasp its depth or severity, or their leaders choose not to get
personally involved. When failures of Firestone tires led to several
deaths of people driving the Ford Explorer, the leaders of the two
companies choose to blame each other rather than addressing the loss of
human life. When the Exxon
Valdez ran aground off the coast of Alaska, Exxon’s top management
isolated itself in its New York offices and failed to go the scene of the
problem. Later a jury
assessed $5 billion in damages against Exxon, in part due to its lack of
sensitivity to the impact of the tragedy.
Even a great company like Intel was slow to recognize its users’
reactions to the flaw in the Pentium chip.
Once it did, however, Intel’s positive response preserved its
I was discussing the Enron/Arthur Andersen debacle with my MBA students at
IMD in Switzerland. I described the tragedy of Arthur Andersen, saying that
“you can spend fifty years in establishing your reputation and values
and lose it all in a day.” One
of the Dutch students responded by saying, “No, Bill, Andersen didn’t
lose it all in a day. They
sold their soul to their clients over the last five to ten years by
compromising their values more and more, just to make money.
What looks to you like a giant step in destroying documents was to
them just another step in sacrificing values for greed.”
a classic case study of how to handle these kinds of crises, look at how
the leadership of James Burke, then-CEO of Johnson & Johnson, enabled
his company to respond quickly and responsibly to the deaths of several
people from terrorists lacing its Tylenol caplets with arsenic.
Although J&J bore no responsibility for the incidents,
Burke’s very open public response to pull all the product off the market
until new packaging could be designed not only saved the brand, it wound
up enhancing J&J’s reputation as a responsible company.
Challenge In Europe
my surprise, I faced a severe ethical test during my first year with
Medtronic. As part of my
first reorganization, I appointed a new president of Medtronic Europe, who
had previously been president of Medtronic’s Dutch pacemaker subsidiary.
after taking over, he proposed the acquisition of the subsidiary’s
Italian distributor. During due diligence, Medtronic’s auditors uncovered
inappropriate accounting for a sham contract for Italian marketing
services. When the controller
was asked what the account was for, he refused to answer, saying that it
was integral to doing business in Italy.
our general counsel brought the issue to me, we hired a special legal
investigator. His preliminary
report indicated that the funds were traced to a secret Swiss bank
account, set up on behalf of the Italian distributor.
There the trail stopped. Although
he could not prove it, the investigator believed the funds were being used
to pay off Italian physicians.
called our European president and told him to come to Minneapolis
immediately. When asked about
the promotion account, he replied, “You don’t want to know about that
fund.” I told him that
indeed we did. At this point
he got very defensive, even hostile, saying, “That’s the trouble you
Americans. You’re always
trying to impose your values on Europeans.
Business is done differently in Europe.”
Finally, I said, “These are not American values.
They are Medtronic values that apply worldwide.
You violated them, and you must resign immediately.”
this point we notified all concerned government bodies of our findings and
put out a press release making it clear that these actions were completely
contrary to Medtronic policy. The announcements caused an upheaval among the employees of
the Dutch subsidiary. Many
felt the terminations were a political action by Medtronic management
designed to eliminate their autonomy.
After a few weeks, things settled down.
For the last twelve years the subsidiary has been an outstanding
affair was difficult for me to handle because I had appointed the new
European president. I had to acknowledge that I made a huge mistake in not
checking out his values beforehand. Correcting
someone else’s mistakes is a lot easier than facing your own.
It is then that you have to look yourself in the mirror and
recognize that you blew it, not someone else.
When In Rome?
Ethical Dilemmas And Global Standards
a student at Harvard Business School, I got into heated debates with
classmates about whether U.S. ethical standards should be applied
internationally. In the cases
we studied it was clear that many non-U.S.
companies used a different set of ethical standards in doing
business around the globe. We
referred to this as, “When in Rome, do as the Romans do.” In these
debates I was a vigorous proponent of a common worldwide ethics standard,
arguing that a company would lose business in certain cases, but also gain
from having a clean reputation. Looking
back, I realize my views haven’t really changed.
thing that has strengthened my advocacy for a single worldwide standard of
ethics is the global nature of business today.
Your company’s reputation for integrity, or the lack thereof,
travels with you wherever you do business.
Having clear standards is easier for international employees to
follow than a flexible standard that adapts to local market conditions.
With ultimate responsibility for the actions of employees
throughout the world, leaders can sleep a lot better if they know that
employees are adhering to a common ethical standard.
the temptations to stretch the rules to meet competitive practices are
always there, especially in the developing countries.
We learned the hard way that upholding an ethical standard takes a
lot more than written statements and clear verbal messages.
It requires a detailed system of compliance, enforcement, and
punishments for improper actions.
key is having open lines of communications with people on the firing line
at the country level. They need to know that top management will support them when
they adhere to the standard and lose a contract or a customer.
There also has to be a vehicle such as a hot line for employees to
inform management confidentially of deviations without fear of
I arrived at Medtronic, I was unprepared for the business conduct problems
we encountered. Confronted
with them, we took an aggressive, pro-active approach and got them
corrected permanently. It
took several years to get 100% compliance with our standards of conduct.
These efforts enhanced Medtronic’s reputation around the world
and made it easier, not harder, to do business and gain share.
retrospect, these ethical problems provided an excellent opportunity to
establish clear standards for employees throughout the world.
In addressing them before Medtronic’s growth spurt, we were able
to expand Medtronic’s global operations with the confidence that the
business being generated was sound and all employees were on the same page
in terms of ethical standards.
If Not Me, Then Who? If
Not Now, When?
me close with these lines from T.S. Eliot,
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.”
(from “Four Quartets”)
May 1992 my father died in peace at the age of 93 and my older son
graduated from high school, both in the same week.
For me it was the passing of a generation.
As a close friend told me, “Bill, you just moved up to the front
won’t be long until you are asked to move to the front pew 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?
world needs your leadership today.
an ethical person in today’s world is not sufficient in itself.
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.
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.
a young leader complained that his generation seemed to lack any causes to
be passionate about. I
suggested that he open his eyes and observe the world around him.
Seeing human needs doesn’t take a magnifying glass.
You don’t have to look far to see:
The pain and suffering
caused by poverty, abuse and discrimination.
The need for healing, in body and in spirit.
The desire for healthy families.
The decline in our environment and our natural resources.
The hunger for security and a sense of well-being.
Do any of these
challenges strike a resonance deep within you? Can you find your passion
and couple it with your ability to make a difference in the world?
poverty . . .
Eliminating abuse . . .
Stopping discrimination . . .
Helping others heal . . .
Restoring our environment . . .
Building organizations dedicated to service . . .
Feeling safe and secure . . .
Helping people develop themselves . . .
Improving quality of life for others . . .
Bringing joy to the world?
these challenges society faces as you think about where to devote your
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.
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.
an ethical, values-centered 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.
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.
making a difference in the lives of others can bring unlimited joy.
a life of significant service can bring unlimited fulfillment.
yourself with others authentically can bring unlimited love.
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.
Mr. George’s comments were delivered on February 13, 2003 at the
Westminster Town Hall Forum, Minneapolis, and they are drawn from his
forthcoming book, Authentic Leadership, to be published in
September 2003 by Jossey-Bass.
© 1996-2002, Wharton Center for Leadership and Change Management
University of Pennsylvania