With the events of 2016—Brexit, the election of Donald Trump, threats from terrorists and cybercriminals, climate change—business leaders have entered a new era requiring new ways of leading. Traditional management methods seem no longer sufficient to address the volume of change we are seeing. I label this VUCA 2.0.
In a 1998 report designed to train officers for the twenty-first century, the United States War College presaged a world that is “volatile, uncertain, complex, and ambiguous” —VUCA, for short. VUCA describes perfectly what is happening in the global business world today.
Business is not running as usual. Leaders must deal with growing uncertainty, complexity, and ambiguity in their decision-making environments. CEOs have little idea what to expect in terms of health care policy, financial transactions, national security, and global trade—all of vital importance to themselves, their employees, and their stakeholders.
Managerial training in the classic techniques of control systems, financial forecasting, strategic planning, and statistical decision making have not prepared them for this amount of flux in the environment.
In short, these rapid-fire changes are putting extreme pressure on business leaders to lead in ways not heretofore seen.
The VUCA manager
Now is the time for authentic business leaders to step forward and lead in ways that business schools don’t teach. Let’s examine these different ways of leading comprising VUCA 2.0:
Vision – Today’s business leaders need the ability to see through the chaos to have a clear vision for their organizations. They must define the True North of their organization: its mission, values, and strategy. They should create clarity around this True North and refuse to let external events pull them off course or cause them to neglect or abandon their mission, which must be their guiding light. CEO Paul Polman has done this especially well by focusing Unilever’s True North on sustainability.
Understanding – With their vision in hand, leaders need in-depth understanding of their organization’s capabilities and strategies to take advantage of rapidly changing circumstances by playing to their strengths while minimizing their weaknesses. Listening only to information sources and opinions that reinforce their own views carries great risk of missing alternate points of view. Instead, leaders need to tap into myriad sources covering the full spectrum of viewpoints by engaging directly with their customers and employees to ensure they are attuned to changes in their markets. Spending time in the marketplace, retail stores, factories, innovation centers, and research labs, or just wandering around offices talking to people is essential.
Courage – Now more than ever, leaders need the courage to step up to these challenges and make audacious decisions that embody risks and often go against the grain. They cannot afford to keep their heads down, using traditional management techniques while avoiding criticism and risk-taking. In fact, their greatest risk lies in not having the courage to make bold moves. This era belongs to the bold, not the meek and timid.
Adaptability – If ever there were a need for leaders to be flexible in adapting to this rapidly changing environment, this is it. Long-range plans are often obsolete by the time they are approved. Instead, flexible tactics are required for rapid adaptation to changing external circumstances, without altering strategic course. This is not a time for continuing the financial engineering so prevalent in the past decade. Rather, leaders need multiple contingency plans while preserving strong balance sheets to cope with unforeseen events.
With external volatility the prevalent characteristic these days, business leaders who stay focused on their mission and values and have the courage to deploy bold strategies building on their strengths will be the winners. Those who abandon core values or lock themselves into fixed positions and fail to adapt will wind up the losers.
Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.
This content was originally posted on HBS.edu on 2/14/17.
This content was originally posted on CNBC.com on 2/10/17.
This content was originally posted on CNBC.com on 2/9/17.
The world turned upside-down last week when, within just seven days, the United States and China each reversed a posture they held for the past 70 years. In his inaugural address, U.S. President Donald Trump announced his newest slogan, “America First,” which effectively withdraws the nation from its global leadership role. Meanwhile, China is stepping up as the new leader of world economic order as President Xi Jinping accelerates China’s efforts to do business with the world, albeit one where it writes the rules to its own benefit. The consequences of these sudden changes will be profound and far-reaching with uncertain outcomes.
Xi Jinping, the first Chinese president ever to attend the World Economic Forum at Davos, opened the annual gathering last week with a full-throated endorsement of globalization, free trade, and cooperation between nations. "It is true that economic globalization has created new problems,” he said, “but this is no justification to write economic globalization off completely. Rather, we should adapt to and guide economic globalization, cushion its negative impact, and deliver its benefits to all countries and all nations.”
Xi warned that populist approaches can lead to war and poverty. "Pursuing protectionism is like locking oneself in a dark room. While wind and rain may be kept outside, that dark room will also block light and air," he said. "No one will emerge as a winner in a trade war."
Meanwhile, Trump took precisely the opposite tack in his inaugural address. “From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families,” he announced. “We will follow two simple rules: Buy American and hire American."
While other nations have long looked to America for global leadership, the new president has made clear he will pursue a level of isolationism not seen since Col. Charles Lindbergh and the America First Committee of 1940-1941. Demonstrating that he plans to follow through on his campaign promises, President Trump formally withdrew from the Trans-Pacific Partnership on Monday, which in turn, will force reluctant Asian nations to negotiate their own bilateral agreements with China.
During the World Economic Forum last week, I had the opportunity to speak privately with several dozen corporate CEOs from America, Europe, and Asia, all of whom are scrambling to adapt to these sudden changes in the global order. Many of them have invested billions in building up their businesses in China. Now, they fear their plans are in jeopardy. Major global manufacturers from the automotive, pharmaceutical, chemical, medical technology, and consumer products worry that Trump’s new policies could disrupt their global manufacturing plans, which have been carefully constructed to optimize the efficiency of their supply chains based on free trade policies.
Retailers like Walmart (WMT, -0.64%), Target (TGT, -0.69%), and Best Buy (BBY, -1.90%)—which import most of their clothing and electronic products from China, Korea, and other Asian countries—worry that Trump’s threats of tariffs on imported goods or House Speaker Paul Ryan’s proposal for a 20% border tax would force them to raise prices by that amount, thereby curbing consumer spending. Their greater fear is that Trump’s policies could set off a global trade war in which countries retaliate with restrictive tariffs of their own.
For all the sturm und drang over job losses caused by imports, the reality is that 85% of lost jobs from 2000 to 2010 were actually “outsourced” to technology, a point cited by Secretary of State John Kerry at Davos. Under an “America First” scenario, these losses will likely accelerate as more companies automate their manufacturing plants and also service operations.
The greater concern—if there are indeed trade wars—is the loss of international revenues and the jobs they have created. The Commerce Department reports that in 2014, U.S. trade with the countries in the now-cancelled Trans-Pacific Partnership created 15.6 million American jobs, and an additional 6.9 million with the European Union. Exports to Mexico and Canada in 2015 accounted for 2.2 million jobs—a number that has grown during the last five years. Collectively, the number of jobs created by exports exceeds the 7.5 million Americans who are unemployed.
American farmers are especially concerned. In 2015, they exported $133 billion in farm products, which accounts for more than one-third of their total production, much of it to Mexico and Canada. Also overlooked in the debate over globalization is the fact that 98% of the 300,000 U.S. exporters are small and medium-sized businesses, not just large, global companies.
There is no doubt that President Trump is getting his message across, as he meets directly with CEOs of major global companies and sends out tweets threatening those that move jobs offshore. His approach offers the carrot-and-stick: He promises incentives like reductions in corporate taxes and regulations, while asserting he will punish those that go offshore. CEOs—including Ford’s (F, +0.81%) Mark Fields and Amazon’s (AMZN, -0.90%) Jeff Bezos—have found it enticing to join hands with the new president. The leaders of foreign companies like Fiat Chrysler (FCAU, +0.90%), Alibaba (BABA, -1.33%), and SoftBank have also tried to appease Trump with promises of U.S. investment and job creation. Such moves may work in the near-term to ease the political pressure, but are unlikely to bridge the widening gulf between Trump’s policies and the rest of the world’s opportunities.
Automobile makers are in a particularly difficult spot. In recent years, they have optimized their global manufacturing footprint and supply chains to produce large, profitable vehicles in the U.S., while shifting small vehicles, where margins are paper thin, to the lower-cost markets of China and Mexico. With the U.S. auto market at its peak, they are unable to expand U.S. production, especially when the greater opportunities for General Motors (GM, -0.32%) and Ford are in China with its large and fast-growing market.
While Trump is gaining short-term reinforcement for his “America First” policies, in the longer term, basic economics will dominate the thinking of U.S.-based global companies. These companies can ill afford to pursue uneconomic decisions without loss of their international business, which in turn will create increased pressure from shareholders demanding improved earnings.
The larger concern is the U.S. retreat from its 70-year role as the leader in global trade. This leadership has largely enabled us to set the rules governing trading transactions. If the U.S. steps aside, it will enable China to aggressively fill this vacuum, setting its own rules. If this occurs, America’s global companies and their employees will be the biggest losers, ceding leadership of their industries to emerging Asian and European companies.
The Trump administration is still making its opening moves. Nobody can predict how these early efforts ultimately play out. However, if the Trump administration focuses entirely on U.S. domestic manufacturing under its new “America First” moniker, the U.S. will hand China the leadership reins in a new era for the global economy.
Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.
This content was originally posted on Fortune.com on 1/27/17.
Discussing the Trump policy ideas around trade and taxation, with Bill George, CNBC contributor and former Medtronic chairman & CEO, and Gary Hufbauer, former U.S. Treasury deputy assistant secretary for international trade.
President Trump summoned the titans of American business to the White House on Monday for what was billed as a “listening session,” but it was the new president who delivered the loudest message: Bring back domestic manufacturing jobs, or face punishing tariffs and other penalties.
The contrast between Mr. Trump’s talk and the actual behavior of corporate America, however, underscored the tectonic forces he was fighting in trying to put his blue-collar base back to work in a sector that has been shedding jobs for decades.
Many of the chief executives Mr. Trump met with have slashed domestic employment in recent years. What is more, their companies have frequently shut factories in the United States even as they have opened new ones overseas.
Mr. Trump said he would use tax policy, among other means, to deter companies from shifting work abroad. “A company that wants to fire all of its people in the United States and build some factory someplace else, then thinks that product is going to just flow across the border into the United States,” he said, “that’s just not going to happen.”
Union leaders also met with Mr. Trump on Monday afternoon, the same day that Mr. Trump withdrew the United States from the Trans-Pacific Partnership trade agreement. While unions often ascribe the shift of manufacturing jobs abroad to “corporate greed,” the migration is a result of a more complex corporate calculus.
Wall Street is pushing industrial companies to increase earnings at a double-digit rate when the American economy is growing by only 2 percent, and the quickest way to deliver higher profits is by reducing labor costs, whether through automation or by moving jobs to cheaper locales like Mexico or China.
In some cases, Gordon Gekko-like hedge fund managers are to blame, but much of the time, it is the drive for bigger returns on 401(k) accounts, pension plans and other retirement vehicles that depend on steadily rising corporate profits and, in turn, a buoyant stock market.
Just as significant is the desire by multinational corporations to go where the growth is, and many emerging-market economies, as well as China, are growing at more than twice the rate of the United States.
“Global capital doesn’t have a social conscience,” said Kevin W. Sharer, who teaches corporate strategy at Harvard Business School and served on the boards of 3M, Northrop Grumman and Chevron, in addition to running the biotech giant Amgen. “It will go where the returns are.”
A case in point is Dow Chemical, whose chief executive, Andrew N. Liveris, leads a panel on manufacturing that Mr. Trump created. Mr. Liveris was at the White House on Monday.
At the end of 2015, Dow employed 49,500 people, about half of them in the United States, nearly 5,000 fewer than it did at the end of 2012. During the same period, the number of domestic Dow manufacturing locations fell to 55, from 58, but increased by five in Latin America and Asia.
Not that Mr. Liveris is necessarily to blame — he and the company were targeted in 2014 by the activist investor Daniel S. Loeb, who called for splitting the company in two to bolster profits and for the ousting of Mr. Liveris. After a multiyear battle, Mr. Loeb essentially prevailed, and Mr. Liveris will exit Dow after it completes a merger with DuPont later this year, with a breakup to follow.
Dow is hardly the only company to reduce its head count in recent years. International Paper, whose chief executive also attended the White House meeting, had its work force in the United States fall to roughly 34,000 in 2015, about 2,000 fewer than at the end of 2010.
The final piece of the manufacturing jobs puzzle is technology, said Bill George, who formerly ran Medtronic, a producer of pacemakers, stents and other medical devices, and who now teaches at Harvard Business School.
Mr. George noted that Ford Motor, which Mr. Trump has tangled with and whose chief executive was at the White House on Monday, employed a fraction of the workers it did two decades ago because its production lines were now highly automated.
Even boosters of the factory sector, like Scott Paul, president of the Alliance for American Manufacturing, an advocacy group, reacted cautiously to Mr. Trump’s initial approach Monday.
“It’s easy to get C.E.O.s to come in on the first day of his presidency and warn them they are on watch,” Mr. Paul said. “I believe a lot of the C.E.O.s in that room want do the right thing and create jobs in America, but the realities of Wall Street pressure and a globalized economy leads them to offshore a lot of these jobs.”
Mr. Paul added that “there are a lot of villains to go around” and that he hoped Mr. Trump would send a similar message to Wall Street chiefs like Stephen A. Schwarzman, chief executive of Blackstone, and Jamie Dimon of JPMorgan Chase, both of whom sit on an advisory panel of private-sector leaders Mr. Trump created last month.
Mr. Trump made clear on Monday that his plan to reshape the economy and revive the manufacturing sector went beyond exhortations, however. Taxes are up next, he suggested, and when it comes to tax policy, one of his top priorities is to punish American companies that move jobs abroad.
To curb such behavior, Mr. Trump said, he plans to impose a “substantial” border tax on such firms. In the past, he has said the tariff could be as high as 35 percent.
The logistics of such a tax continue to befuddle both Republicans and Democrats. Many wonder what penalties companies such as General Motors, which already has a plant in Mexico, might face, or what would happen to a technology giant such as Apple that has contracts with manufacturers in China but does not manufacture there itself.
It also remains unclear whether the threat would be carried out as part of a broader tax overhaul or would be imposed through executive powers. While Congress generally sets tax policy, the president does have authority to impose tariffs under certain circumstances.
Michael R. Strain of the conservative American Enterprise Institute said that Mr. Trump’s idea to punish companies for sending jobs abroad was a protectionist proposal and that he anticipated corporate backlash if it came to fruition.
“Everything he’s said about this has been so vague and ill defined, it’s hard to think about it sensibly,” Mr. Strain said. “It could be that the business community really starts pushing back against this stuff and it becomes a broader fight.”
During the meeting on Monday, Mr. Trump also made the case that building in the United States would soon become a more cost-effective proposition because of his plans to cut the corporate tax rate to 15 or 20 percent and to reduce regulations.
He pointed to onerous environmental regulations as one area where changes could be on the way, and he insisted that, despite the more lax regulatory environment, protections would improve under his administration.
“There will be advantages to companies that do indeed make their products here,” Mr. Trump said.
Of course, financial considerations like taxes and regulations alone do not guide corporate decision making.
Terry Gou, the chairman and founder of the Foxconn Technology Group, the largest contract electronics manufacturer in the world, is weighing a major investment to build a factory in the United States.
Mr. Gou, speaking at a company event in Taiwan on Sunday, suggested that the factory, a $7 billion plant making flat-panel screens, could create 30,000 to 50,000 jobs and that Pennsylvania was the front-runner as a likely location.
Technology analysts were puzzled by the job projections Mr. Gou described because flat-panel displays, like computer chips, are produced in highly automated factories. But if Foxconn does proceed with a factory in the United States, it will be as much a matter of the politics of trade as the industrial economics of high-tech manufacturing, analysts said.
Foxconn is based in Taiwan, but its largest operations are in China. Apple is its biggest customer, representing about half of Foxconn’s sales, and opening an American plant might be a way to alleviate White House pressure on Asian exporters like China and Taiwan.
This article was originally published on nytimes.com on 1/24/17.
Donald Trump’s presidency isn’t yet a week old, but he has made it clear that business leaders matter in his White House—and chief executives say it’s about time.
Former Exxon Mobil Corp. chief executive Rex Tillerson is primed to lead the State Department, and Mr. Trump’s transition team has tapped a panel of executives to provide the president with economic insight and advice. On Monday, Mr. Trump began his first full week on the job in a breakfast meeting with corporate chiefs.
For CEOs, the moves have sent a message that their stock is rising in Washington, with some betting that they will have a louder say in running the country.
To be sure, Mr. Trump’s Twitter pronouncements targeting companies and threats to punish firms with tariffs are causing anxiety among corporate chieftans, many of whom didn’t support his candidacy. Yet corporate leaders welcome his willingness to tap CEOs for important jobs and advice is a welcome change.
Going forward, “it’ll be different voices heard,” said Delos “Toby” Cosgrove, the chief executive of the Cleveland Clinic, who has met with the president twice since the election. Dr. Cosgrove, who was offered the top job at the Department of Veterans Affairs, will serve on the President’s Strategic and Policy Forum, a group of business leaders convened to advise Mr. Trump.
Dr. Cosgrove said he felt frustrated by the health-care industry’s lack of involvement in the shaping of the Affordable Care Act during President Barack Obama’s time in office. “I got three minutes in the Roosevelt Room,” he said. “The input into the legislation was very little.”
Mr. Obama sought executives’ advice during his tenure, appointing corporate leaders such as General Electric Co. CEO Jeffrey Immelt and Facebook Inc. operations chief Sheryl Sandberg to his council on jobs and competitiveness, which met four times. Some executives say they felt the financial crisis stigmatized big business during the Obama years.
“I’ve had a sense in the last eight years that big business is not popular,” said David MacLennan, CEO of agricultural giant Cargill Inc. “Perhaps there will be a different attitude that’s more understanding and appreciative.”
Bill George, a former Medtronic Inc. chief who teaches leadership at Harvard Business School, has advised CEOs not to be naive and to focus on running their companies. This president is unlike the business leaders corporate executives are used to.
Mr. George said he generally knew what to expect when Medtronic negotiated with Bill Clinton. “We felt like there was much greater clarity,” he said of working with past presidents. “Now, we don’t know.”
Another danger: if Mr. Trump doesn’t make good on his campaign promises for economic growth, business leaders acknowledge that could hurt them, too.
Ralph Stayer, the chairman of Sheboygan Falls, Wis-based Johnsonville Sausage LLC, believes perceptions of business leaders will improve only if the administration is successful and creates jobs. Still, he is pleased to see corporate executives ascending to the highest ranks of government. “I’ve been waiting for it for a long time,” he said.
If his picks are approved, Mr. Trump’s cabinet will have the greatest number of high-level executives coming directly from the private sector since the Reagan administration, according to Anne Joseph O’Connell, a University of California, Berkeley law professor who tracks political appointments. Along with Mr. Tillerson at State, billionaire investor Wilbur Ross, former Windquest Group chairwoman Betsy DeVos,Andy Puzder, chief executive of CKE Restaurants Holdings Inc. and former World Wrestling Entertainment Inc. CEO Linda McMahon have been tapped to play big roles in his administration.
Scott Gittrich, whose Toppers Pizza Inc. restaurant chain counts 76 restaurants in 15 states, said he has felt cast as a villain in recent years. He mentioned a speech Mr. Obama gave in Wisconsin regarding overtime pay, which in his view accused restaurant bosses of making money at workers’ expense.
Although Mr. Gittrich didn’t vote for Mr. Trump, he has taken the election as “an endorsement of what I do and my chosen vocation.” He is also heartened by Mr. Puzder’s nomination. “Holy smokes, one of us is going to be on the cabinet. Wow.”
“There is a buzz in the business community,” said EY CEO Mark Weinberger, who will join Dr. Cosgrove on the policy panel. Instead of being at loggerheads, corporate leaders may be more trusted to work alongside public-sector officials, he said.
“There’s a feeling that somehow, while we’re not going to get everything we want...our ideas will be heard and vetted,” he said.
Mr. Trump has made room on his schedule for executives, hosting dozens of business leaders since his election. In a Dec. 14 meeting with Silicon Valley executives, the president struck a conciliatory tone with tech leaders who didn’t necessarily support his campaign stances.
Mr. Trump declared an open line to his office. “You call my people, you call me. It doesn’t make any difference,” he said, according to a video of the start of the meeting. “We have no formal chain of command around here.”
by Rachel Feintzeig
This article was originally published on wsj.com on 1/24/2017
If the Roman emperors ruled by edict, President-elect Donald Trump appears poised to rule by tweet. Even before taking office, Trump has discovered he can move the world’s largest global corporations with simple, 140-character tweets. And though his aggressive approach is winning politically, good politics doesn’t necessarily mean good economics.
Voters see Trump fulfilling his campaign promises to close America’s borders and bring jobs back home. He is using the bully pulpit to stand up for workers by taking on the most powerful American companies, including Ford (F, -0.24%), General Motors (GM, -0.88%), Toyota (TM, -0.03%), Boeing (BA, +0.20%), Lockheed Martin (LMT, +0.89%), and United Technologies (UTX, -0.61%)/Carrier.
Thus far, no CEOs have had the courage to stand up to Trump. General Motors CEO Mary Barra has said the company’s small-car production will remain in Mexico, but it could only be a matter of time before she’s forced to change course. Trump’s sudden tweets likely worry many CEOs who fear they may be his next target. Right now, most have just tried to stay out of his way. Some, like SoftBank’s Masayoshi Son and Fiat’s Sergio Marchionne, have put forth peace offerings to invest more in the U.S.
Most striking was Ford’s recent decision to reverse plans to build a $1.6 billion plant in Mexico to produce small cars. Then Trump rattled Japan’s leading automobile producer, Toyota, and its CEO, Akio Toyoda, by threatening to slap a “big border tax”—which he has referred to as 35%—on any automobiles the company assembled in Mexico and imported into the U.S.
Shortly thereafter, Marchionne committed to invest $1 billion in two existing U.S. plants and create 2,000 new jobs—investments that were already part of Chrysler’s plans. He said it is “quite possible” his company will abandon Mexican production altogether if Trump’s tariffs are too high.
Trump didn’t stop with the automakers. He jawboned Carrier into keeping jobs in the United States, threatened Boeing for the cost of Air Force One and Lockheed on its F-35 aircraft, and pharmaceutical companies on their high drug prices.
There is no doubt that Trump is winning the political game and shaking up America’s largest companies. But there is real danger that his pressure may corrode the competitiveness of U.S.-based global companies and cause retaliation by foreign governments.
One of America’s greatest strengths is having global companies that dominate their markets around the world through innovation, quality, and marketing. That’s why American companies lead a wide range of industries, from information technology, e-commerce, and social media to finance, pharmaceuticals, medical technology, consumer products, automobiles, farm equipment, and aircraft. They do so profitably with global supply chains that enable them to design and produce products to achieve optimal costs and deliver the greatest value to their customers around the globe. In many countries, they are required to produce a portion of their products locally.
The global strategies of our corporations have enabled them to compete effectively with Chinese, Japanese, German, and Korean manufacturers—all vigorous competitors striving to win share in global markets. At the same time, they have been profitable enough to reinvest substantial portions of their profits in research, innovation, and product development. When they do so, they stay ahead of their global competitors and increase their market shares. This positive cycle allows them to justify large capital investments in their facilities and provide substantial returns for their shareholders, as share prices for these global companies are at all-time highs.
Trump has learned how to reach the American people directly through his tweets, thus bypassing mainstream media. With his threats of large tariffs on imported goods, he has succeeded in forcing these giants to make uneconomic decisions—such as Carrier paying $25 per hour to its workers in Indiana to do work that can be done by Mexican employees for $2.50 per hour. However, in the long run, this will be a losing strategy for American workers if it forces Carrier to sell its air conditioners on the world market at non-competitive prices, or replace its production workers with robots, as Tesla (TSLA, +2.72%) has done in producing its electric cars. In either case, Carrier will be forced to reduce its Indiana workforce, with its workers ultimately becoming the losers.
The same logic applies to Ford, General Motors, Chrysler, and Toyota. Toyota has created 136,000 American jobs through direct employment, and has invested $21 billion in the U.S. What appear now to be significant “wins” for Trump may turn into pyrrhic victories, as America loses its competitive edge and hiring declines instead of increasing.
Trump has also repeatedly threatened to levy large tariffs on imports from Mexico and China. If he is serious about doing so, he will quickly learn that other countries can also play this game, and are quite willing to do so. This could trigger a trade war that will disadvantage American companies and their employees. Decades of progress in opening up foreign markets to American-made goods could quickly vanish.
Behind all of the threats and CEO responses lies a much deeper issue: the vital need for America to upgrade its workforce so that American employees can compete for jobs of the future. While there are 7.5 million unemployed Americans as of December 31, 2016, the irony is that there are 5.5 million jobs unfilled, many due to a lack of skilled workers. This situation will get worse in the years ahead as jobs become more complex and require more education and training. Filling these jobs with qualified Americans is essential for the competitiveness of U.S. companies.
Rather than jawboning companies to make uneconomic decisions, Trump and Congress should instead work with major employers to train and educate workers. Americans might even find a real strategy that emphasizes preparing for the jobs of the future vs. trying to save the jobs of the past.
If Trump’s tweets turn into an industrial policy, this may signal that the U.S. is headed into an era of “crony capitalism,” similar to the systems of France and Russia. In contrast, American business has been built on free market principles of market-based competition, free trade, meritocracy, and diversity. For five decades, the U.S. government has worked to ensure U.S. companies are free to sell their goods around the world on a level playing field with local competitors.
Now it appears the focus may shift to negotiation with the U.S. government over jobs, factory sites, and a host of other issues. If this becomes the prevailing norm, global companies will be reluctant to create new jobs and invest in new factories for fear of being locked into unprofitable decisions. This is a primary reason why France’s current unemployment rate of 9.5% is more than double the U.S.’s relatively modest 4.7% rate.
Let’s hope the bark of Trump’s Twitter (TWTR, -0.20%) account is worse than its bite. If Trump and his new team are wise, they will use his rising popularity to create transformative policy that fosters real growth for the next generation by making America truly competitive in world markets.
Bill George is senior fellow at Harvard Business School, former chair and CEO of Medtronic, and author of Discover Your True North.
This article was originally published on 1/14/2017 on fortune.com.
Bill George, CNBC Contributor and former Medtronic chairman, discusses the news that President-elect Donald Trump is taking credit for creating 8,000 jobs in the U.S.
Bill George knows all about pressure from big government.
When he was chief executive of medical device giant Medtronic Inc. in the 1990s, he decided to close a plant in France and move jobs to more cost-efficient sites in eastern Europe. He was promptly told by French political leaders that he would have to continue paying wages to idled workers in France for a year. It hurt, but that’s the price he had to pay.
Today, from his perch as a senior fellow at Harvard Business School, he is watching Donald Trump strong-arm and threaten companies. And like others at the business school, he is trying to gauge how to handle a president-elect who has castigated Carrier for moving jobs to Mexico, ripped into Boeing Co. for making too much money on an Air Force One contract, and rattled drug makers by vowing to bring down prices of medicines.
George’s advice to today’s chief executives? “Right now, you just want to stay out of the line of fire,” he said. “Carrier was willing to absorb a noneconomic decision for a period of time by keeping jobs in Indiana. I see this as more of a symbolic move by the president-elect to make a statement. There’ll be two or three more of these moves. Then we’ll get back to business.”
Others see Trump’s bluster as part of his personality and longer-term strategies, and say captains of commerce should learn to adapt. Some believe the downside could be offset by Trump’s proposal to lower taxes which, if enacted, would prove a boon to business.
“You have to decide how important the presidential crankiness is going to be to your company’s future,” said Harvard Business School professor Joseph Fuller, former chief executive of the global consulting firm Monitor Group. “When the president-elect of the United States calls and says, ‘I need a favor’ — and it’s not material to your business and you know he’s going to be cutting your corporate tax rate — I’m going to say, ‘Yes sir, I’ll do everything I can.’ ”
Still, the former business leaders say chief executives will resist proposals that would force their shareholders to lose money, or thwart a company’s business strategy. One test could come soon, they say, if Trump follows up on his stated opposition to the merger of AT&T Inc. and Time Warner Inc. and tries to block the $85 billion deal.
“CEOs aren’t going to be cowed by being called out in tweets,” said Kevin Sharer, another Harvard business professor who was chief executive of biotech Amgen Inc. “If they think a move is fundamental to the company, they’re going to go forward with it.”
At the same time, Sharer said, business leaders should recognize Trump’s tweets carry a message — US jobs will be valued by the new administration.
“He is certainly laying down a marker to the country, saying he cares about jobs in America,” Sharer said. “He’s saying one of his priorities is saving jobs. He’s not doing it in a skillful or elegant way, but he’s saying it’s a priority. Companies will think harder about moving jobs out of America. And there’ll be policies that will make it attractive to keep business here.”
On Wednesday night, Trump expanded the ring of his business wrath beyond the executive suites. After Chuck Jones, head of the Indianapolis local of the United Steelworkers Union, said Trump had “lied” in talking about how many Carrier jobs had been preserved, the President-elect tweeted that the union should “spend more time working — less time talking.”
Trump’s use of social media has amplified his messages, but there’s a long history of presidents pressuring businesses or wading into the marketplace, Fuller said. He cited President John F. Kennedy forcing steel makers to roll back prices in the 1960s and, more recently, President Barack Obama’s bailout of Chrysler and General Motors Corp.
“You can go back to Teddy Roosevelt and see frequent interventions by political executives in business decisions,” Fuller said. “We used to call this jawboning. The president would use the bully pulpit to cajole both employers and unions in the national interest.”
While Trump’s focus has been on outsourcing and foreign trade deals he says have sapped American jobs, ex-Medtronicchief executive George said the larger issue is technology advances that have made many manufacturing jobs obsolete. George said the new administration should focus on German-style industrial policy to upgrade the skills of US workers and prepare them for jobs in fields like robotics and computer programming that match the needs of domestic businesses.
Manufacturers in Massachusetts appear to betaking a wait-and-see attitude toward the incoming administration.
“My guess is that he might continue doing this from time to time, parachuting into these situations,” said Christopher Geehern, executive vice president at Associated Industries of Massachusetts, a trade group concerned with costs and regulations. “It won’t solve the problem, but it focuses attention on manufacturing issues, and that’s OK. Manufacturers are pleased he’s shining a light on some of the issues that are driving companies overseas.”
Christopher Anderson, president of the Massachusetts High Technology Council, which represents computer software, hardware, medical device, and robotics companies, said no company wants to be singled out — but Trump’s actions appear to be purposeful.
“I don’t know who he’s going to be tweeting about tonight or tomorrow,” Anderson said. “But when people see 1,000 jobs [at Carrier] not leaving the US, they say he’s off to a good start, and he’s not even president yet. There’s a high expectation that there’s going to be a reduction of barriers and regulations in the Trump administration. And that’s going to make it easier to bring cash back into the country and expand the manufacturing base here.”
This article was originally published by Boston Globe on 12/9/16