Bill George, Harvard professor management practice, weighs in on the dire state of today’s business leadership and how we can cultivate a better class of managers.

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.

Recorded on December 9, 2009