Question: What are the “Seven Lessons” and where do they come from?
Bill George: Well I wrote this coming back from Davos in the winter of 2009, kind of in the aftermath of the financial crisis because I started thinking about why leaders often fail during a crisis and I came to the seven lessons like face reality starting with yourself, although you’re in the spotlight follow your true north. What I decided was that these are kind of universal lessons, not just you know that deal with the financial crisis, but that often leaders under pressure fail to do what one would think would be very obvious like you need to face the reality that we’re facing right now like people don’t have jobs. Getting to the root cause of this financial crisis has to do with the short term game and too much liquidity, too much leverage and people often don’t do that and so thought it might be useful to leaders in all walks of life and all the crises they may be facing, including personal crises to have a set of kind of universal lessons that I could get out there and share with people.
Question: Are any lessons derived from your own experience as head of Medtronic?
Bill George: Well I think all of them have. Certainly at Medtronic we had huge quality issues before I joined the company and we had to get to the root cause of what those were and dig in and find out how much denial there was in the system and I talk about a story in the face reality starting with yourself where I had promoted a new president in Europe about nine months after I joined the company. I was still COO and not CEO and reorganized the whole corporation from an operating point of view and four months after I did this person was seemingly doing well. We found out that he was running a bribery scheme for the last ten years, came from a subsidiary company. That’s where the scheme was and I had to terminate him, which was the easy part. The hard part was saying to myself, looking at myself in mirror and saying, “Bill, why did you appoint him without checking out his values?” “Why did you appoint him strictly on the basis of his competence and his… my perceived opinion of those abilities?” And rather than thinking about hey, this is a guy that’s not in sync with our standards.
I didn’t check out his values closely enough and I didn’t ask enough people about that. I was too eager to get a bottom line businessman in there who knew the business very well and could bring some discipline to Europe and it my error and I had to go back to the board of directors, which I had just joined less than a year before and my own new executive committee and explain the mistakes I had made and I think that’s why a lot of people have trouble facing reality is because it’s easy to clean up somebody else’s messes, to deal with somebody else’s problems. It’s very hard to deal with the ones you created and face it’s not going well. Dick Fuld in the Lehman Brothers, it’s fairly obvious he wouldn’t face his own crises and wouldn’t deal with the reality of what trouble he was in and I think I’ve seen that in case after case where leaders are fearful of doing that.
Clearly you see it among politicians and policymakers that they don’t want to acknowledge your mistakes. A lot of economists are now having trouble recognizing that jobs are not just a lagging indicator that we have a fundamental jobs crisis in the United States and it’s very structural and it’s very deep and the jobs are not just going to come back like they were in 2007 for example. We see it in other walks of life, nonprofit leaders have the same problem while facing reality, so it’s I think you see it wherever you go. It’s a human characteristic. If your marriage is failing it’s hard to face the reality that you’re a big part of that failure. It’s not just your spouse.
Question: Are there any current leaders who you think events a lesson in the same way that Dick Fuld does?
Bill George: Well certainly I think Ben Bernanke was quite willing to face the reality of what was going on and he was like a rock during this crisis and serving on a board at Goldman Sachs I get what I call a front row seat to this or felt like I was in a locker room listening to the conversation and Bernanke was there. He and Paulson were very solid. People now are critiquing their mistakes, but I really believe that it was a good thing we had such solid leaders. I think the president was largely removed himself from this and they protected the president, but I would say with Allen Greenspan now for all the notoriety and fame that he has achieved he did not face reality back in 2003, 2004 that we had too much liquidity and that this so-called model he had of the world that he didn’t need any regulations was going to blow up in our face someday and a lot of people were trying to tell him that and he wouldn’t hear that and I think even today he is not acknowledging that fully.
Question: There was a report that shareholders were angry that such a large portion of Goldman’s profits were going to employee bonuses. As a board member, where do you stand? (Dan Indiviglio, the Atlantic Business Channel)
Bill George: I’m very concerned about the compensation issues and the public’s reaction to that. I frankly think that the public perception is a much bigger issue than the shareholder issue. I think that is a limited group of shareholders. Shareholders seem to be quite pleased with Goldman and there is a linkage between pay and performance and I think as long as we follow our principles of long term pay for long term performance then the firm is going to do well. If it gets back to play, if it goes to a short term game like Citigroup did of paying out large cash bonuses I think that would be a disaster and I don’t think you’ll see that happening. There is always a question of the amount and I think one has to look at that in relationship to the profits and I think you’ll see even that percentage coming down. It’s been very high on Wall Street, much higher than any industrial corporation that I know of, but I think those percentages need to be re-looked at and I know the Goldman board and compensation committee in particular are taking a hard look at that right now.
Question: How does this pay reflect real value added to the real economy?
Bill George: One of the statements at Medtronic mission is that employees should have a means to share in the company’s success and to me that meant a lot more than salary or wages and benefits and so what we tried to do at Medtronic was to spread the wealth around. When the company is successful everyone got stock. In fact, we made sure every employee had stock. Now it was in a restricted plan, but still, everyone had stock because we wanted them to be the beneficiaries to the extent the stock went up they benefited and we gave out, converted a lot of profitability into stocks spread broadly across the company in stock options. I was a beneficiary of that, but only because the shareholder value went from $1.27… went from 1.1 billion to 60 billion while I was there, so everyone else had a chance to benefit and I think that is the way it should be. Now you can’t say in a firm like Goldman that they don’t do that. I think just the numbers are so much larger on Wall Street and it’s not just Goldman and if you think they’re large on the publically held firms where you know all the numbers then look at what the hedge funds pay and you can just add a zero on that and one of the characteristics there is it is a fairly free market for traders. I’m not saying that the top executives are going to move into hedge funds, but it’s a fairly free market for traders moving from publically held firms into privately held hedge funds and private equity and so this is one of the sensitive issues I think that one feels like the shareholder value is made up in people and you need the people there to do the job and if you don’t pay them for their performance you’ll lose them and It’s much like professional athletes and movie stars I think. I can’t justify the relationship between a trader’s bonuses and what a school teacher makes for instance. I think we have much societal issues. It’s hard for me to justify that or what an athlete makes you know who plays basketball compared to what you know what a school teacher makes or even an engineer, so I worry about these a lot, but I haven’t figured out how to solve them either.
I don’t buy the market efficiency argument. I’ve heard that from The Economist for a couple of decades. I don’t really buy that argument. The argument I would buy is that we need strong financial institutions to finance business, to finance individuals and right now that is a huge problem. The credit crunch may be over for big business and may be over for Wall Street, but it’s certainly not over for small business and individuals still having a lot of problems getting financing and I would be the first to say that financial institutions like Countrywide Financial and New Century Mortgage went way overboard in offering it to everyone in totally inappropriate ways, but I do think we depend upon strong financial institutions to facilitate the start up of business with venture capital, to facilitate the growth of business, small business and this is where the jobs come from. 70% of all jobs in this country are created by small business and most of those are newer companies. My company started with two people and had it not been for some venture capital. Now admittedly it was only $200,000 in 1962, but it saved the company from going bankrupt and gave the company the wisdom and the focus to go forward, but I think I know lots and lots of young people that would like to start companies today and can’t get financing and don’t have a lot of money personally and I think that is the fuel behind the system, so now do you put that pay in proportion and does it payoff with hedge funds trying to say they’re providing efficiency when they make their money selling short? I think that’s a stretch as an argument.
Question: How does one go about determining how much the CEO of Goldman Sachs should get paid and has that changed in the wake of the crisis? (Felix Salmon, Reuters Finance)
Bill George: Well I think this is a very tough question. I think it’s got to be looked in relationship to peers and what they’re paid. First it starts with performance. Is the performance there? Lloyd Blankfein and the top six members of management including Blankfein were the first company to take no bonuses last year in the top six, not just top person, took no bonuses because they felt it was a very rough year and they had had a lot of support getting through the year. When they perform they should be paid. Now how much that is I think it should be spread around at Goldman so it isn’t just the CEO getting the money. I don’t like this idea the CEO is way up here and the executives are up here and everyone else is down here, so I think there has got to be a relationship internal, that internal equity and I think that amount that needs to be looked at in relationship to profitability, but I don’t think it should be paid out in cash. I think it should be long term pay for long term performance. If you payout for fourth quarter performance or one year performance and let people cash out you’re just creating more of the problem. You’re asking people to get more fee based income to enrich themselves today and walk across the street to somebody else tomorrow.
Question: Should the government impose a fixed time frame on bonuses?
Bill George: I think it’s very hard for the government to legislate compensation. Every time they do there are unintended consequences. A good example right now is Robert Benmosche. The CEO of AIG is making 7.3 million dollars in a firm that is 80% owned by the U.S. government. Is this right? He is the highest salary of a publically held corporation in history. Why are we doing this? Just because of the Dodd Amendment you couldn’t pay more than 50% in bonus. This is ridiculous. You know the CEO at Goldman Sachs gets paid $600,000 salary, okay. That’s more inline and I think you’ll see that people like Blankfein and others at Goldman, all the top group will take it all in long term stocks just like Paulson did. Paulson never took any cash. He took it out in stock, so if the firm does well he does well. If the firm collapses they collapse and you know there was a lot of net worth loss in the fall of 2008 on the part of a lot of top people and some of them like JP Morgan and Morgan Stanley and Goldman Sachs bounced back and some of them like Lehman Brothers and Citigroup and Wachovia never came back and probably won’t.
Question: Why did shareholders fail to curb some of the excessive risk taking of banks and finance companies that led to the crisis? (Dan Indiviglio, Atlantic Business Channel)
Bill George: Well first of all I think shareholders were blinded themselves. They were so caught up in the short term game. I have identified the root cause of this crisis as leaders who practice short termism, but the shareholders were caught up in the same game, how much can you get outright now and I think it was deeper than greed. It’s getting caught up in the fervor of we’re all going this direction. Everyone is doing well and no one was really taking a hard look at the risks and the naysayers were kind of pushed aside and so it was go, go, go and as Chuck Prince of Citigroup said famously, “You know we couldn’t stop dancing while the music was playing.” Well somebody needed to stop dancing and shareholders could have done that, but they chose not to.
Question: Should the U.S. follow the lead of Canada and Denmark by discouraging mortgages with less than 20 percent down payments? (Scott Sumner, the Money Illusion)
Bill George: The answer is absolutely. Show me the cash. You need to have skin in the game. By the way, I’ll apply this to healthcare. I apply it to every walk of life. You shouldn’t be able to get a 105% mortgage on a new house that is way beyond your means and it’s got to be you know show me the 20% you can come up with, absolutely. I was up in Canada at the Canadian Housing and Mortgage Corporation and also talked to Gordon Nixon, the head of Royal Bank of Canada. They didn’t have all these subprime problems because they kept their standards up. Does it benefit your citizens for people to get cars they can’t afford and have to default on the mortgage? No, it just causes untold misery. Better to stay in a rental facility. Yes, everyone wants to own their own home, but we need to save money to do that. Now back to the savings and consumption argument. This is a huge argument right now and I think it’s an indictment of the last ten years, our focus on consumption and it feels good. It’s one of these things it like a drug. It feels good while it’s happening. Everyone is spending. Great, the economy is going up. We’re racking up GDP points. We’re hiring more service workers. There is a price you pay just like the day after that drug and we’re paying a huge price because people haven’t saved and as a country we haven’t invested. We haven’t invested in infrastructure publically and privately we haven’t invested enough in manufacturing and research and develop and all those things that make this country great. I don’t think we can become just a service economy and we need to get back not trying to drive consumer spending to a higher percentage of the GDP. We need to lower that and put some money out there for investment and that’s a complex issue because it’s going to require restructuring of our capital gains tax so that you get greater benefits for starting a company or holding an entity for ten years than you do for a year and a day. Right now you get long term capital gains treatment for a year and a day. That’s not long term. I’m on the board of Exxon. We look at 25, 50, 75 years for those investments to payout. That’s what it should be, but we’re making 29 billion dollars in capital investments this year too and I think we need more companies focusing on how can they invest in the company and invest and create an investment economy and an innovation economy.
Question: Do we need to fundamentally reevaluate how we tax consumption versus savings?
Bill George: Well as you know the Europeans have a built in consumption tax in the VAT and the argument against that is it’s like a sales tax. It’s somewhat regressive. Your idea of putting a higher tax on luxury items, sure, why not? Why try to drive evermore materialistic society and I think we can get more a building society. What are we building here? Are we building a great country? This country was built on investment and in the eighties and nineties it was built on entrepreneurial companies growing up. I mean if you go back 20, 25 years companies like Microsoft, Intel, Walmart, Target, Cisco, Google they didn’t exist. They’ve grown up in the last 20, 25 years. Those are the big job creators and they’re also the big wealth creators. Genentech in the biotech field was just taken over by Roche for 98 billion dollars was the post market capitalization of the company, stunning. You know they turn out more drugs for a period of three or four years than all the U.S. pharmaceutical industry did. Why? Because they’re so innovative, they’re so creative. Isn’t that what we want? Don’t we want the YouTube’s out there and the Skype’s and the Google’s to be creating ideas for us? Same in healthcare, my company was basically an innovation machine. That was the proudest thing when Business Week said that because we’re treating so many more patients and helping save lives. I think that’s the key to the economy, so it’s a combination of investment and innovation, which are one in the same, but I think we need then to change the tax laws to favor those long term investments.
Question: Does Goldman Sachs deserve the credit as some have given it for avoiding most of the crisis?
Bill George: Well Goldman recognized some of the problems early on. I can’t say they understood all that was coming, but certainly they recognized the subprime mortgage crisis early in 2007, long before the crunch, 18 months before the big crunch hit in the fall 2008, so you had a lot of firms like UPS, a Swiss firm, continuing to invest heavily is subprime mortgages and losing tens of billions more. I think Goldman lost about 70 million in that crisis, but then in August of 2007 a very significant event took place and I talked about it in my book Seven Lessons and that’s three of the quantitative funds Goldman has went way down, 30 to 40% as did all the quantitative fund that day and it the volatility was so extreme that the management saw that there is something odd going on in the markets an our models don’t predict what is going on and as a result they pulled back and said, “We’re going to start accumulating cash.” You could say hoarding cash. Accumulating cash and so they spent a full year accumulating a lot of cash, so they came into the crisis in September 2008 with over 120 billion dollars in cash. If Lehman had had another 20 billion they probably would have been saved, but they didn’t take those kind of moves and so yes, there was a run on cash. Yes, there was liquidity crunch, but they had the capacity to stand into that and I think that’s a good lesson for all of us. One of the things I talk about in my book, get ready for the long haul because if you think things are bad today, they’re going to get worse, not better and so you need to be ready for a long haul problem and have the cash reserves to pull you through it.
Question: Is Goldman becoming more of a technology company and less of a human driven financial firm?
Bill George: I think a firm like Goldman-- it’s human capital that matters and that’s why you have to be so sensitive. The board spends an enormous amount of time on the human capital, getting to know the people at all levels. Who are the rising stars? Who are the people coming up in the system? I got a surprise as did the rest of the board when Hank Paulson changed his mind and decided to accept President Bush’s offer to become secretary of the treasury. That was May of 2006 and thank goodness we not only knew Lloyd, but we knew all the other top people and we could make considered decision not just about the CEO, but who the other structure were, a Gary Cohan or John Wanko where he could step up and other people could take on greater responsibility in the awake of Hank’s departure. Had we not know these people we couldn’t have done that. Now we’re asking who is going to be the next CFO? Who is going to be the next chief personnel officer? Who is going to be the next general counsel? Who are all these people? And so we have dinner with these people. We get to see them live and in action. They present to the board. A very good system. If the board doesn’t do that you’re in trouble, but it is human capital. You do the technology, but everyone does the technology. That’s nothing unique about that. The only thing unique is the human capital.
Well there is no reason that you can’t setup a hedge fund with half a dozen people and get access to those tools. You may go right back to Goldman Sachs and ask them to setup the tools for you, but these are commonly available. This is like saying I have these great computer systems from ASP. Yes, so does everyone else, so there is nothing about it. The only thing unique is two things. It’s the people, but it’s also the system. The reason Goldman didn’t get in trouble last fall is because it had very good risk management systems. That’s what uncovered the subprime mortgage problem. Goldman marks its books to market everyday and people say, “What about class 3, class 4S and what about these complex assets?” They get marked too and it’s those marks that are very realistic and one of the reasons the company bounced back and made so much money is they had reasonable marks whereas other of the big banks are still taking huge write offs a day in their consumer and commercial portfolios, particularly on real estate.
Question: Has the crisis changed your thinking about how we need to build a successful and resilient business? (Ryan Avent, The Economist)
Bill George: With the timeframe compressed for technology, change and operating in global markets they are going to be more crises. This is hardly the last and so I think firms need to be resilient and the system needs to be resilient. I’m waiting for Secretary Geithner and Ben Bernanke to put in some complete policies including regulations and ensure the system’s resilience. They keep talking about it. Here we are a year later. Nothing has been done unlike Sarbanes-Oxley was done in 31 days. I think firms need to have the resilience. One of the ways to have resilience is never to get so much leverage and drive your firm so hard that you don’t have the cash to fall back on when you hit a crisis. That’s why General Motors went bankrupt and that’s why Ford came through the crisis because they’d taken out 24 billion dollars in loans and that has allowed Ford to come through this very strong whereas GM and Chrysler had to get bailed out by the government.
Question: Some say we haven’t developed sufficient management talent to deal with a global economy. What do you think? (Robert Linzer, Forbes)
Bill George: Well I spend every day at Harvard trying to help develop the next generation of leaders and I think there is no shortage of management talent. I think there is a short of leadership, shortage of leadership and really sound thinking leaders who are committed to their institutions first and put that ahead of their self interest, that will always put their institution ahead of their self interest and I think we’ve created far too many baby boomers who are interested in what they can get out of themselves including a lot of CEOs and I think we need to get back to a much longer term perspective and what am I building. Back to your word resilience, my job as CEO of Medtronic was to build a resilient institution. Yes, there are going to be products that don’t make it through the FDA. Yes, there are going to be quality problems in the future. Yes, there are going to be government regulation. We have to be resilient enough to adapt to those and still come out the winner and I think the financial firms that figure that out, Goldman happens to be one, JP Morgan happens to be another. Those are the two I’d cite as being very resilient to changes. There will be big changes coming and it is global. It’s one global economy, one global workforce and one global market. And going back to the Lehman come down people say, “Why didn’t Paulson and Bernanke do something?” They ran out of time on Sunday because the Asian markets opened at 6:00, not the next morning. They just ran out of time. That time factor: it’s really a 24/7 world and you can never escape the markets.
Question: Why do you think so many executives were important when it came to leadership? (Mark Thoma, Economist’s View)
Bill George: Because they were thinking about themselves first, and back to my book Seven Lessons they weren’t facing the reality that they had caused the problems. They were being too aggressive. Ken Lewis went way out on a limb doing Merrill Lynch and getting himself heavily leveraged and taking some huge losses and so there were others that got in similar problems, the Fannie Mae, Freddie Mac leadership as well and I think the problem is that these leaders thought about how they can gain in the short term and they weren’t really thinking about building their institution for the long term and always having a fallback position. I tell you, as CEO of Medtronic I thought everyday, what is our fallback? It’s going well now, but what happens if I get that phone call and we’ve got a huge quality problem or where are we going to fall back to? What if a major product that we are going to produce three billion in revenues goes down at the FDA and doesn’t get accepted by them? You always have to be thinking like that. Lloyd Blankfein talks about being paranoid and so does Andy Grove at Intel and that’s why they’re so effective because they’re thinking about what can go wrong. I don’t describe myself as paranoid, but you got to always be thinking about what can go wrong and prepare yourself with an escape hatch, that if the absolute worst happens and it comes much worse than you can imagine you’re going to come out of it. You’re going to be strong and you’re going to have enough position to go and invest in the crisis.
Question: What is the lesson to be learned here?
Bill George: Their boards were not looking carefully enough at the selection process. They were choosing people based upon their perception of their position power and their aggressiveness relative to other people in the firm and they weren’t really looking at the kind of building type leaders we need, the kind of authentic leaders that are putting the concern of their clients ahead of their personal concerns or putting the concern of their employees ahead of the concern of their shareholders, that they weren’t building sustainable shareholder value. That’s the goal of any CEO, but that only comes from creating better value for your customers and creating an employee environment in which people are highly motivated to do that.
Question: Do you think HBS and its peer institutions had any hand in cultivating a class of leaders who failed? (Mark Thoma, Economist’s View)
Bill George: I think we did. This is the end of my sixth year and I’m very proud of the people I’ve worked with, but yeah, I think there was too much focus on finance and the financial community and too many people are looking at what their short term compensation was from private equity and hedge funds and all headed that way and a group of my students last May and these were what are called George Leadership Fellows at Harvard Business School in Kennedy School created this MBA oath that you’re alluding to that’s very parallel to what you have, the Hippocratic Oath in medicine. One of my sons is a doctor who took that oath that lawyers take as part of their admission to the Bar. Gosh, I think it’s totally appropriate to put integrity ahead of all else and I think we lost sight of that. Now there is even some controversy still at the business school among the student body about this, but I do think corporations are chartered by society and society can lift that charter or change it and if business is not recognized in we’re doing good for society. If the financial community is not providing real value for companies and helping them get financing and building the kind of strong capital markets we need that solid and keep turning this kind of volatility it will all be put in the hands of the power of the federal government and I don’t think that would be a healthy thing, but that’s up to us to recognize just like Medtronic has extreme responsibility to the patients we serve. Medtronic serves ten million patients a year with its products, new patients and if the products aren’t of quality or they don’t restore them to full life and health the company has failed and I think each company has that societal obligation. We need to recognize that’s preeminent and only by fulfilling that that we create sustainable value for our shareholders. We cannot create shareholder value in the short term on the backs of society and expect it to be sustainable.
Question: How does a board go about selecting a CEO?
Bill George: It starts with the mission of the company. Does the leadership of the company are they committed to the mission and the values of the company? Goldman Sachs for instance, John Wraith had written the mission and values of the company in the early 1980s, 25 years ago, and he wrote about the client’s interest always come first. Is the leadership committed to that proposition? We believe in teamwork over stars. Is the leadership committed to that? Don’t choose a leader who is not, who wants a start system. If you believe in creating meritocracy, which Goldman is, which Medtronic is, which Exxon Mobil where I serve on the board is then you better choose someone believes in meritocracy and not pushing up a lot of his political buddies and playing a power game and that’s what you’ll see in a lot of these failed leaders. They’re more interested in personal power accumulation and their own personal self aggrandizement. And by the way, I don’t even think it was money. I think the money conveyed a certain status that they were looking for and it was a way of offsetting some internal feelings that weren’t so good and so I think we’ve chosen the wrong leaders for the wrong reason. I mean choosing people based on their charisma instead of their character. When choosing people based on their image instead of their integrity. choosing people more for style and substance. If you choose people for that, why are you surprised when don’t get people of great character and great values? And so I think boards have failed in many, many cases. Now the corporate boards are finally waking up and I hope the Wall Street boards are going to wake up. The Citigroup board was totally asleep when it didn’t manage Sandy Weill and let him create the kind of instability he did and then chose Chuck Prince the lawyer to take over.
Question: Is that an argument against “too big to fail?”
Bill George: Yes, I don’t believe in the big bank supermarket. I don’t think you can argue its absolute size. Like take Exxon. It’s the world’s largest company. I don’t think you can say Exxon is too big, let’s break it up. Exxon is focusing on what it does well, oil and gas, okay. Delivering it in the most efficient way to the most people and you know and doing it with the least amount of energy usage. It’s very committed to that. And Goldman Sachs is focused on being an investment bank. You know I’m not even sure. I think you can’t put the genie back in the bottle, but I’m not so confident that was a good thing. Dick Covosovich, a very successful CEO of Wells Fargo for 20 years, the most successful commercial bank. He would never again do investment banking. He was going to stay the course and I talked to him about Wachovia. Why did he do Wachovia because he took a huge hit from some of their trading activities? He said, “We wanted it for the franchise.” And that’s what they’ll get. You watch. They’ll have that east of the Mississippi franchise with the west of the Mississippi. They’re be a great commercial bank is what they’ll be, but they understand their mission. They didn’t try to be all things to all people and I think that was the failing of Sandy Weill at Citigroup.
Question: How should companies learn to hire better in light of the crisis?
Bill George: I think we need to hire people less on their IQ and more on their EQ, more on the values, how well grounded they are, how good team players they are, how well they relate and do they have the self awareness? Do they have a good sense of themselves so that they can understand it’s not all about me? It’s about “we” and as long as they’re hiring leaders and putting leaders in place that think it’s all about them we’re just going to have more upsets and more destroyed corporations. It isn’t just on Wall Street. That’s what happened to General Motors. That’s what happened to the old AT&T. We’ve seen a lot of companies go down because the leadership was not focused on how to build a long terms institution.
Question: What are the steps you would take to make sure that leader possesses emotional intelligence?
Bill George: I would do a much greater in depth assessment of his values and his emotional intelligence. Send him off for a psychological assessment, which we do before we hire people, so if we’re promoting someone internally shouldn’t they have it too? I think it’s totally appropriate. 360 feedback, one of the best things ever been created. I made a lot of promotional mistakes because I was basing them on my impression of the people and some of these people looked very good upward. They could do a great job making presentations. They always were on top of their game, but when they went down and talked to the people that worked for them they couldn’t stand them and I’ll tell that people always tell you, 360 evaluation is one of the most important tools at any organization. Goldman does this religiously, Medtronic does, Novartis does. I think it’s essential that companies do this. I always did it as CEO. I got an evaluation from my executive committee. It was always considerably harsher than what the board said to me.
Question: How does a company approach 360 evaluations?
Bill George: It starts at the top. The CEO has got to want it. At that same Davos meeting last year I had Jamie Diamond on a panel and he told a story about a woman that said to him in a management meeting, “Mr. Diamond we need one person on your staff who is a truth teller, tells you the truth at all times.” And he said, “Well with all due respect, if I have only one truth teller I need to fire the other nine people.” “I need ten truth tellers.” “Everyone has got to tell the truth.” He creates that kind of environment. Tell me what I’m doing wrong? I had people coming in my office and tell me when I was going off base, off track and they helped me stay on track. They helped me realize what was going on. You need people like that and if it doesn’t start with the boss it’s not going to start further down. I think you’ve got to have that and then spread it throughout the system and the strong firms have resilient management like Johnson & Johnson, like Mackenzie, like Goldman, like General Electric have this kind of system where they do very good a job on performance evaluation and feedback on a regular basis and straight up honest conversations.
Recorded on December 9, 2009