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Bill George

Harvard Business School Professor, former Medtronic CEO

Lessons in Ethical Leadership: An Interview with Bill George

Originally posted in the Ethisphere on May 25, 2010.

E: You say leaders should lead by using their “True North,” or by leading with integrity and their values. Can you give an example of a leader in the health care industry that is exemplifying True North?

BG: One person who I served with on a board, and who recently stepped down from his company, is Dan Vasella, CEO of Novartis, a Swiss pharmaceutical company. Novartis has a large generics business, they’ve got the H1N1 vaccine and a large vaccine business, and they have a consumer health business. But the significant thing about Dan is that he recognizes all corporations exist first to serve society. If a corporation doesn’t serve society by using its strengths, then in the end it will have very difficult times.

If a corporation focuses only on maximizing shareholder value, as Milton Friedman erroneously told us, eventually a corporation will probably implode or self destruct—as General Motors did, and as Sears Roebuck did—by focusing entirely on shareholder value and not recognizing their job to serve the customer. But, I think part of that serving the customer is a societal concern. For example, Vasella also recognizes that not all patients have the wherewithal to pay, so Novartis has also had a big focus on malaria in Africa where they are giving away a drug called Coartem.

They also recognize the need to collaborate with NGOs and to collaborate with governments, because Novartis can not deliver the drug to Africa by itself. So it’s a whole team effort, it’s a whole collaboration and I think Dan Vasella recognizes that.

E: Are there any compliance/ethics risk areas in the healthcare industry that you see requiring particular focus from leaders in that industry? How can leaders prevent those risks within those companies?

BG: If you start with, broadly speaking, the provider side of healthcare, we have a huge issue and the incentives are all misaligned—even through this latest healthcare reform bill which is yet to be signed but will be by the time of your publication. The current incentives are for doing more procedures, giving more tests, seeing more people and not for keeping people healthy. And so I think there is a huge ethical dilemma in healthcare in general.

But so how do we get to a healthcare system designed to keep people healthy, and not just treat them while they’re sick? That gets to the really tough ethical question of lifestyle. Seventy percent of all healthcare costs emanate from people’s inappropriate lifestyles. Obesity is number one and is the most rapidly growing disease. Of course, you don’t hear it as obesity you hear it as type two diabetes. So I think there is a real ethical question in terms of providers of health care.

In terms of the suppliers—the pharmaceutical and medical technology companies—it’s hard to think over the long term that companies are going to be successful selling into an unhealthy system. So I think it is incumbent upon the pharmaceutical, biotech and medical technology companies to start trying to create a healthy system.

Certainly insurance companies are a big contributor to an unhealthy system. They are not helpful right now. We need insurance companies to start insuring companies and people for staying well, rather than just insuring them for staying sick. We have to get upstream of the problem. I don’t see a lot being done right now.

We need to look at the whole person, and that’s what my wife is talking about with the [George Family] Foundation. There are huge mind-body connections. Placebo effects are real. It’s a positive thing, even though most look at it as a negative thing. If you think you’re going to be healthy your odds are greater. How do we create that kind of sense of well being and how do we keep the commitment on people to exercise and diet to stay healthy and all those things?

That’s what John Mackey in Whole Foods is trying to do. But who is doing that in the healthcare industry? Who is taking the lead on that and really trying to make a difference in people’s health? We did a lot of things in Medtronic but Medtronic is just one player. What are other companies doing to make a difference in terms of the health of their employees? I think it’s essential that healthcare companies take a lead and create a healthier health care system. That means a healthier population, not just promoting their own products, drugs or insurance plans.

E: Now speaking more broadly than just the healthcare industry in particular, you have said that the younger generation (i.e. those under 45 or so) should take over because they are showing stronger leadership and more focus on their True North. Can you expand on the qualities that you see in that younger generation?

BG: I think we are going through a massive generational change in leadership. The baby boomers were raised in an era of coming out of two world wars and a depression that their parents experienced. Even though we didn’t live through it, our parents’ experience was very real to us. From that we developed this “command and control” mentality of how to run an organization.

The great corporations of the world in the 1950’s and 60’s were command and control organizations. With this new century, that concept of command and control has totally gone out because employees today are knowledge workers, they have options and they don’t stay around. But most importantly they’re looking for meaning, not just money. I think today’s great leaders will know how to empower people, all of us, to step up and lead. So it’s not a command and control type situation, and it’s not exerting power over the people, it’s aligning people over mission and values, and getting them to step up and lead, and getting them to recognize their job is to serve a certain customer first and not the shareholder.

That’s what I think the younger generation, like I said those under 40 or under 45, really understands. I think particularly for my students who are in their late 20’s, this is a great opportunity for them because the global economic meltdown of 2008 and 2009 is like a crucible experience for them in that they recognize that the way we were going was headed for sheer destruction. They have a chance to recover whereas a lot of the older leaders of Wall Street are passing from the scene and have no chance to recover.

I just read this new article called “Leadership’s Lost Decade.” I think this decade of 2000 to 2010 will go down as the lost decade of leadership. It started out with the collapse of the dot-coms, which were the great hopes for the future. We went from venture capitalists starting up great companies like Intel, Google, Microsoft, Starbucks and people like that, to trying to make money off of paper product. People thought they could quickly develop a business plan, take it to the market, run an IPO and make a lot of money and it will all happen in 12-18 months. It was all non-sense and it all collapsed.

That started the decade, and then right behind them came Enron, Worldcom, Tyco and those with real ethical problems. You look at the people behind bars like the Bernie Ebbers and Jeff Skillings, but the real addition there is that there were 200 real major companies like Bristol-Myers and Xerox that had to restate their numbers by some 2 to 3 billion dollars in income because of ethical deviations, because of inappropriate accounting which was driven by ethical considerations.

And of course we closed the decade with the financial meltdown of the last two years. That really resulted, in my opinion, from Wall Street, which had been pressing leaders for short term outcomes, actually playing the short term game so much themselves that they self destructed. So you had great financial institutions like Citigroup—which was the greatest bank in the world when I was growing up—literally self destruct. They had to go to the government for a combination of bailouts and loan guarantees of around $350 billion. These financial institutions were all built like a house of cards and someone pulled out the bottom card and the whole place collapsed.

I think in leadership terms that’s a huge wake up call. I think that in the advent of Enron and Sarbanes-Oxley corporate leaders got the word. Wall Street didn’t get the word. Now you have a whole generation of leaders passed from Wall Street, and the question is whether or not the next generation will. It’s still too soon to tell. The jury is out.

E: Very often ethics and compliance problems are caused by “Just One Employee,” i.e. one employee that makes a misguided decision (such as bribing a foreign official or making false claims). How can leaders let people know that their Codes of Ethics and Compliance and other ethical statements really do apply to the entire organization from the top down, and do not just exist to satisfy regulatory requirements?

BG: Today’s leaders need to be directly engaged with their people all around the world. It takes an enormous amount of time. They need to be asking the questions, “How do we do business? What happens when you get asked for favors? What do you do? How do you handle this?” You need to trust but verify. You need to have a verification and compliance system.

When there are any deviations, it should be a zero tolerance policy, no second chance. If you make mistakes, if you make poor business decisions you should get a second chance. If you have quality problems you should get a second chance. If you have operational problems you should get a second chance. On questions of company values there is no second chance. Everybody needs to know that and needs to be exposed. You need to publicize that. You need to not cover it up.

By the way, what’s really important in organizations is that you can’t just blame people at the lowest levels. You have to really look at the whole chain of command. That was Shell’s problem in Nigeria. They didn’t look at everyone. You can’t just blame the low level people, you have got to look at what the management is doing and saying because it’s there, too.

I felt that responsibility everyday. We had ethical violations at Medtronic. I had to fire the head of Europe. I had to fire the head of Japan. I had to fire the head of China. It was very embarrassing for me that it took so long to clean it up, but we went right at it and we finally got the message across that this is the way we do business.

Ed Breen did a very good job cleaning up Tyco. I don’t have as high regard for Dennis Koslowski because it was kind of anything goes in his era. But, I think Breen has sent a clear message, “this is how you do business.” Just like Anne Mulcahy did at Xerox. There were some ethical questions there and she did a really good job cleaning things up.

So I think we need to vet, not just criticize, people that are violating ethical standards but we also need to hold up the leaders that really do want to make a difference.

E: In 7 Lessons, you have a lesson titled, “Don’t be Atlas.” In that lesson you mention it’s good for leaders to have an external team that can help you get through a crisis. Can you expand a bit on your own external team and how they have helped you get through crisis?

BG: It starts with having one person with whom you can be entirely open with. That person for me is my wife, Penny. If I get too high on myself she’ll pull me back down and if I get really down she’ll give me a practical view of things. She’s just great and extremely helpful. I also have a men’s group that I meet with every Wednesday morning and we talk about really important issues in life. When you have challenges you can talk to them. And when I have tough questions I have three or four mentors like Warren Bennis and David Gergen that I can call up and solicit their advice and counsel.

That’s extremely helpful to have because inside an organization it is very easy to fall into a group think mentality. You tend to all talk about the same issue and you tend to think about them the same way. It’s really important to have outside exposure. When you have that external team they can help you bring perspective on things and tell you, “It’s not that bad.”

E: Broadly speaking, what are you most hopeful about with today’s leaders?

BG: I’m most hopeful about the younger leaders stepping up and taking over. I hope that this generational change in leadership will come quickly and I hope it will give younger people an opportunity to step up and lead major organizations as well as start ups and new organizations. I’m most hopeful about the new leaders that have been appointed in the last three or four years from large corporations and small corporations. I think you’ve seen a remarkable job. I’m hopeful we can get a whole new generation that will step up and lead with a higher sense of ethics and values, not just for its own sake but for recognizing that’s the best way to build an organization and the right way to sustain success.