This morning I was a guest on Minnesota Public Radio's Mid-Morning show with Kerry Miller. Chirs Pinney, Director Research and Policy at The Center for Corporate Citizenship at the Carroll School of Management at Boston College, and I discussed business ethics and the Gulf oil disaster. Below is a link to the audio from that discussion:
The activist investor Carl C. Icahn continues to challenge the biotechnology industry. His latest target is Genzyme, one of the most successful companies in this innovative field, where he is seeking four seats on its board.
This is Mr. Icahn’s sixth biotechnology target, and these moves epitomize the struggle between investors like Mr. Icahn, who advocate maximizing short-term shareholder value, and an industry in which enormous investments and extended time frames are required to create long-term shareholder value.
Genzyme is the biotech industry’s second-largest company, with revenues of $4.5 billion and a market capitalization of about $13 billion. Previously, Mr. Icahn has taken on smaller companies: Biogen-Idec, MedImmune, ImClone Systems, Amylin Pharmaceuticals and Enzon Pharmaceuticals.
The biotechnology industry is one of America’s most promising and innovative, and one in which this country has a clear competitive advantage. It has benefited from billions of dollars in government-sponsored research at the National Institutes of Health and leading research universities. Even so, new biotechnology drugs take 12 to 15 years to bring to market, with the attendant risks of high failure rates in research trials.
Early pioneers like Genentech and Amgen created breakthrough drugs that saved millions of lives while amassing shareholder value of $98 billion for Genentech, after its sale to Roche, and $50 billion for Amgen. Both companies spent more than a decade investing billions of dollars in research before marketing their pioneering products.
In contrast, investors like Mr. Icahn believe shareholders should maximize their short-term value by selling biotech companies to pharmaceutical companies hungry for new drugs. In recent years, the large pharmaceutical companies have struggled to create life-saving drugs in their own laboratories and are often reluctant to tackle the complex diseases that the biotechnology industry has pursued.
What are the implications of these shareholder challenges? No doubt, investors like Mr. Icahn can yield quick profits for investors, but they come with a potentially high cost. In the end, will there be a biotechnology industry capable of the long-term investments required to thrive?
Mr. Icahn made his first move in biotechnology in 2002 with an attempted takeover of ImClone Systems. Following an insider trading scandal that sent the company’s chief executive, Sam Waksal, to prison along with his close friend, Martha Stewart, Mr. Icahn won a 2006 proxy contest to elect four members of ImClone’s board. The interim chief executive, Joseph Fischer, was replaced by Dr. Alex Denner, a genetics professor at Harvard Medical School. In 2008, the company was sold to the pharmaceutical giant Eli Lilly for $6.5 billion.
MedImmune was next in line in 2007. After a short battle, the company was purchased byAstraZeneca for $15.6 billion.
When Mr. Icahn focused on Biogen-Idec in 2007, its board offered the company for sale. When no bids came in, the sale was withdrawn. In 2008, Mr. Icahn again challenged Biogen’s board and its chief executive, James Muller, and began an unsuccessful proxy contest. A second proxy contest succeeded last June in electing two of Mr. Icahn’s candidates to the Biogen board, including Dr. Denner. Mr. Muller resigned in January as Mr. Ichan won board approval to appoint two additional board members.
Meanwhile, two smaller biotechnology companies, Enzon and Amylin, have also experienced Mr. Icahn’s challenges. Since he urged the spinoff of Enzon’s biotechnology business in 2007, Mr. Icahn has been successful in adding two directors and Dr. Denner was elected chairman of Enzon’s board. At Amylin, its chief executive, Joseph Cook, was forced out in 2009 after Mr. Icahn won two board seats.
Now Mr. Icahn has shifted his focus to Genzyme and its longtime chief executive, Henri A. Termeer. Over the past quarter century, Mr. Termeer has built a formidable company respected for its portfolio of drugs. A year ago, Genzyme’s Cambridge., Mass., plant encountered contamination problems and Mr. Termeer immediately shut down the entire facility.
Last fall, Mr. Icahn purchased 4.9 percent stake in Genzyme. In May, he began a proxy contest to replace four Genzyme board members, including Mr. Termeer, with candidates including himself, Dr. Denner and Richard Mulligan, a Biogen board member, along with one other nominee.
Mr. Termeer isn’t sitting still. He has recruited the activist investor Ralph Whitworth to Genzyme’s board and granted him the right to appoint another director. The company is also buying back $2 billion in stock and spinning off certain business units.
Genzyme is also promoting its blood cancer drug Campath for multiple sclerosis in competition with Biogen and challenging Dr. Denner’s and Mr. Mulligan’s potential conflicts of interest in serving simultaneously on the Genzyme and Biogen boards.
These differences will come to a head at Genzyme’s shareholders meeting on June 16, but the longer-term issues will remain. The industry’s scientific approach to drug development has saved many thousands of lives and created enormous long-term shareholder value. The real question is whether the biotechnology industry with its extended time horizons will continue to make the long-term investments required to pursue these life-saving drugs.
Originally Posted on the New York Times' DealBook
Over the past few months there have been a number of books released reviewing, analyzing, and discussing the past two years of economic and governmental change. Here are some of the best of those.
On the Financial Crisis:
How We Got through it:
Two well researched books using first-hand accounts of the 2008 crisis as it unfolded. They both read like fast-paced, exciting novels – except everything here is both real and accurate.
- “Too Big to Fail” by Andrew Ross Sorkin
- “On the Brink” by Ex-Treasury Secretary Henry Paulson
How We Get out of it:
- “The Road from Ruin” by Matthew Bishop and Michael Green – a thoughtful set of ideas of how to get out of our financial peril
- “Too Big to Save” by Robert Pozen, another HBS colleague – a scholarly approach to prevent future crises
Best book on 2008 Presidential campaign:
- “Game Change” by Mark Halperin and John Heileman – fast-paced, inside account of the most dramatic Presidential campaign of our lifetime
- “Winning in Emerging Markets” by Tarun Khanna and Krishna Palepu – excellent new book by my HBS colleagues about succeeding in building businesses in the emerging markets
America finds itself confronting a host of problems – from environmental crises to reform on Wall Street, Congress has no shortage of pressing issues to tackle. One issue stands out to me, however, as particularly important in the effort to attract America’s next generation of global leaders: America needs immigration reform for legal immigrants.
Ever since September 11, 2001, America has been making life extremely difficult for legal immigrants who want to stay in this country, start companies and contribute to the growth of the U.S. economy. In recent years all the focus has been on the 13 million illegal immigrants currently in the country.
From 19th century industrialists like Scottish-American Andrew Carnegie to Yahoo’s Jerry Yang, PepsiCo’s Indra Nooyi, Google’s Sergey Brin, or Harvard Business School’s recently nominated dean Nitin Nohria, immigrants continue to occupy important positions of leadership in creating and driving the next generation of American businesses to success. Many foreign students come to the U.S. to study at our great universities and stay to study medicine, science or business in America’s leading graduate schools. Yet they are sent back home as their student visas expire. It pains me to see so many of my Harvard Business School students who are sent back to China, India, Africa and many other countries and watch them found dynamic countries there instead of doing so in the U.S.
Leaders who come to America from abroad play a key role in driving companies forward – they fuse together ideas from different cultures, help to disseminate best practices from across the globe, and import new models of innovation from abroad. Moreover, the multinational business networks that these immigrants bring with them can also enable companies to tap into new supply chains and access customers in previously unreachable markets, key competitive advantages in an increasingly interconnected economy.
New York Times columnist Thomas Friedman, who writes frequently about immigration reform, hits the nail on the head when he describes immigration as a key generator of new and innovative ideas, products, and people that infuse and enrich America’s business community. Critical outside perspective, along with knowledge of foreign markets and best practices outside our borders, are keys to successfully navigating today’s global marketplace.
Politicians would do well to focus on immigration reform for these legal immigrants by expanding the H1b visas for graduates of American graduates, rather than mixing these straightforward issues with the highly complex issues like border security and amnesty. Congress needs to pay particular attention to the following core issues in considering immigration reform:
Retaining students. America’s higher education system is unrivaled in attracting the world’s top engineers, doctors, lawyers, and businessmen to study at its universities. A reformed system should ensure that those who come to the US to study and earn advanced degrees receive a fast-track to citizenship.
Increasing the number of skilled worker visas. Increasing the ceiling on the number of H-1B visas for skilled workers ensures that America continues to attract the top set of leaders. A 2006 study by Duke University found that immigrant entrepreneurs in the United States founded 25.3% of all engineering and technology firms over the past decade, generating an estimated $52 billion (in 2005 dollars) in sales and creating 450,000 jobs. Today only 65,000 H-1B visas are issued per year, despite some 163,000 applications in 2008. These rejected applications represent almost 100,000 workers every year who could dynamically contribute to our nation’s economy and help launch the next generation of entrepreneurial start-ups.
Involve the business community. With such high stakes in an immigration reform bill, Congress needs to ensure that all voices are heard in the debate, particularly those of the business community. To this end, major companies like Cisco, Genentech, and Coca-Cola have formed a coalition, Compete America, to advocate for immigration reform on behalf of the business community.
The bid to attract the world’s top intellectual capital is escalating. Australia, Canada just completed immigration reform overhauls to boost their attractiveness to would-be migrants to the United States. Moreover, countries like China, India, and South Korea, long exporters of their country’s top talent, are fast becoming major centers of innovation and reversing the diaspora of intellectual capital. While ideas like the recently introduced “Start-Up Visa Act” in the Senate are positive starting points on the road to reform, America urgently needs to retool its immigration system to retain and attract the next generation of entrepreneurs and leaders. Without reform, we could very well face a future void of the next Intel, Sun Microsystems, or Google.
I have been traveling quite a bit this first part of the year and it’s a guarantee that I’ll over pack on reading. I wanted to share some of the books that continue to make the packing list. The first set I want to share looks at leadership and personal development.
- “Reorganize for Resilience” by Ranjay Gulati – organizing for customer-focus, based on 600 in-person interviews
- “Love Leadership” by John Hope Bryant – straight talk from founder of Operation Hope, leader on financial literacy for everyone
The books below are to enhance your development as a leader and a human being.
- “Ethics for the New Millenium” by the Dalai Lama – brilliant insights into the nature of humanity and how society should develop
- “Emotional Intelligence” by Daniel Goleman – developing your EQ, not just your IQ
- “On Becoming a Leader” by Warren Bennis – classic book on leadership by the world’s best leadership scholar
- “5 Minds for the Future” by Howard Gardner – on the developing of our minds, tailored to our unique ways of approaching life
- “The Sermon on the Mount” by Emmet Fox – the spiritual classic on the greatest sermon ever delivered – and the most relevant to our 21st century lives
- “MBA Oath,” by Max Anderson and Peter Escher – about the need for business leaders to have a professional oath comparable to medical doctors and lawyers.
Minnesotans have long recognized the value of individual freedom and the merits of initiative and creativity. Yet we live by the collective -- our schools, our security, our environment, our parks and lakes, our safety. We know we cannot thrive without it, either nationally or locally. But many people resent its intrusion into their lives and its claim on their earnings.
The political parties in recent years have sharply divided: to the left -- in support of the collective, largely through government actions and laws -- and to the right -- in support of the rights and freedoms of individuals. Those of us in the middle are in "no man's land," trapped in the crossfire between left and right and between increasingly strident voices in politics and in the media.
Most people desire both individual freedom and the support of the collective, even if they don't articulate it that way.
There is a better way that offers the promise of enhancing individual initiatives while providing "common" benefits for all citizens. I call it "community-building through collaboration and creativity."
Last October, Indiana University Prof. Elinor Ostrom became the first woman to win the Nobel Prize in economic sciences. The Nobel Committee cited her breakthrough research in the management of common resources like forests, fisheries and oil fields.
Commonly pooled resources
In her book "Governing the Commons," Ostrom outlines a thoughtful approach that she labels "commonly pooled resources." Her work stands in sharp contrast to several Nobel laureate economists of the past decade who have argued that people only operate in their self-interest.
Originally Posted in The Star Tribune on May 16, 2010
Harvard President Drew Faust’s announcement that Nitin Nohria will become Dean of Harvard Business School is indeed welcome news. President Faust has made a visionary choice in Nohria. He is a transformative leader who has the depth and insight to understand the role of business education in developing global business leaders who recognize that their responsibilities transcend immediate requirements for short-term results.
Nohria is a scholar, a leader, and a remarkable human being who represents the best of Harvard Business School. He has mentored more faculty members, myself included, than anyone can count. His research has centered on critical questions such as what drives human motivation and what shapes leaders and sustained achievement.
Nitin and I have taught together for seven years, first in the new required course, Leadership and Corporate Accountability, then in the Seminar for New CEOs, and most recently in the new elective course, Authentic Leadership Development. During our years as colleagues, Professor Nohria has consistently taught students and fellow faculty members the principles and practice of authentic leadership.
American business is emerging from a crisis of leadership. After a lost decade in which many leaders focused on maximizing short-term shareholder value, the American economy needs to refocus on reestablishing the trust in business as a sector that contributes to the well-being of society. Nohria will lead the new generation of leadership at the helm of Harvard Business School during a period in which the business world cries out for authentic leaders focused on creating long-term sustainable value.
Nohria’s remarks upon the announcement are characteristic of his leadership: “With business education at an inflection point, we must strive to equip future leaders with the competence and character to address emerging global business and social challenges.” He is focused on what matters most: developing authentic leaders who can empower thousands of others to lead. The world needs innovative leaders who can master the complexities of the global economy.
Congratulations to Nitin, and the faculty, administration, and classes of future leaders at Harvard Business School who will join with him in transforming business education and leadership to create a better society.
Harvard Business Review is hosting a six-week long blog series on how leadership will look in the future. They've brought together many different perspectives and conversations on the topic of leadership and posted them on their site. These conversations will help shape the upcoming Leadership Colloquium, “Imagining the Future of Leadership,” that will be hosted by Nitin Nohria, Rakesh Kharana, and Scott Snook at Harvard Business School in June 11-12. This symposium is a great opportunity to bring together a broad range of ideas on leadership.
My contribution to the conversation looks at New 21st Century Leaders. Some of these thoughts and conversations steamed from my March Wall Street Journal - "The New Leaders: Collaborative, Not Commanding."
For the full article:
It’s no secret I have been critical of General Motors management, right up to its bankruptcy filing a year ago. For decades, GM management focused on short-term profits, while it was steadily losing market share – from 53 percent of the U.S. market all the way down to 19 percent. Along the way it was unable to keep pace with international competitors or shifting customer demand and concessions in work rules, health care and pensions to its union that caused the firm to fail when the market collapsed in the fall of 2008.
All that changed rapidly when the Obama administration appointed Ed Whitacre as its chair in July 2009. Whitacre, the highly successful ex-CEO of ATT, took over as CEO as well last fall and immediately started transforming GM into a modern auto company that could compete in both the U.S. and world markets.
He went out on a limb and promised GM would return to profitability within two years and repay its debts to the United States government within seven years. At the time GM was still in the red, while Ford was thriving and Toyota was outpacing both in worldwide production and sales. Furthermore, American consumers were distrustful of General Motors quality and angry that their tax dollars had been used to keep the company on life support.
When Toyota encountered its quality problems earlier this year, Whitacre moved in high gear to capture the available market share. Now he has taken action to fulfill his promises. Not only has General Motors repaid its loan with interest from the United States government, it has continued to improve customer service. Currently, GM is projecting ambitious global growth in 2010 and 2011. In the coming months, the company plans to initiate a public sale of stock, allowing the automaker to regain its independence from the U.S. government.
How did this turnaround happen so rapidly? How did Whitacre restore a bankrupt giant, repay billions to the government, and make bold growth projections for the future?
Whitacre made the tough internal decisions. He shed unprofitable brands like Saturn, Hummer, Saab, and Pontiac, eliminated layers of management, abandoned the company’s fossil-like committee structure, reduced excess global inventory, and closed 1,350 underperforming dealerships. Those were not popular decisions internally or with GM’s bloated dealer structure. But they were necessary steps to shed its losses and transition away from the finance-driven “analysis paralysis” that dominated its management for four decades.
He became the face of the company with the public. With public speeches, press interviews, and even starring in company ads, Whitacre put himself on the line with the American public. Americans wanted a real leader at the helm of GM, and Whitacre was willing to be that person.
He regained trust in the company. By backing up his public promises – and offering himself up as the new face of GM, Whitacre lent personality and warmth to a brand that had become a concrete monolith of stagnation. At risk to his impressive professional career, Whitacre put his reputation on the line. He fought for new customers by making promises about GM’s autos and trucks and their quality, even offering a “money back guarantee.” If nothing else, Americans respect a confident, trustworthy leader who is trying to restore respect for a tattered institutional brand.
He’s not done yet. Whitacre is not one who rests when a preliminary goal is met. In his recent television spot and speeches, it’s clear that he and GM management are focused on improving GM’s product lineup while fulfilling its promises to its customers.
At a time when so many leaders have failed, Americans are pleased to rally around a corporate comeback story built on trust and quality assurance. With Ed Whitacre still at the helm, it’s a comeback story that could keep going for years to come.
Penny and I just returned from Zurich where we spent a remarkable three days with His Holiness the Dalai Lama. We were there as part of the Mind and Life Institute meeting of economists, scientists, contemplatives, and concerned citizens trying to make the world a better place. The subject was a first-ever dialogue on "Compassion and Altruism in Economic Systems."
The first day we heard some impressive new research that refutes what the classical economists have been telling us for three decades, which is that people only operate in their self-interest. Quite to the contrary, new economic research demonstrates conclusively that most people express empathy and compassion for others, even when they incur a considerable cost. Furthermore, new findings in neuroscience using fMRI technology indicate that actual changes take place in the brain when people express compassion and empathy and that this tends to reduce their destructive emotions.
On the second day we witnessed some remarkable practical applications, from micro-finance, to educating illiterate women, to powering small villages using only solar power. Very inspiring.
On the third day I was given the opportunity to engage the Dalai Lama in a discussion about compassionate authentic leadership and the essential role that leaders must play in bringing a much stronger sense of compassion and altruism to organizations and the economy as a whole. After 15 minutes, I asked him how we could develop more leaders who were both compassionate and authentic and could sustain successful outcomes over an extended period of time.
He stated clearly that people are not born angry or hostile, but develop that way because of their inability to address their destructive emotions that exist due to difficulties they have faced in their lives. To overcome these negative feelings and be genuinely compassionate, leaders need to have a set of practices that they do routinely. Meditation is the obvious candidate, as I have experienced in my own life, but yoga, tai chi, physical exercise, massage, and other forms of relaxation therapy can achieve the same result.
The notion of contagion - that is, people drawing from the emotional state of others - that we heard about on the first day is relevant here as well. As leaders exude compassion and empathy in leading others, they cause other people to do the same, creating organizations that are more compassionate overall and able to sustain effective results.
The key to doing so is having a common sense of purpose, or mission, and practicing what the Dalai Lama terms "secular ethics." In using this phrase, he makes it clear that he is not talking about the Buddhist religion, but rather the practices that enable leaders to act in a manner consistent with their values, even under extreme pressure.
For all the challenges we face in the world, I believe there is much that non-Buddhists can learn from Buddhist practices that will enable us to lead more effectively and develop compassionate organizations that can sustain high levels of performance.