Obama’s Health Care Conundrum

            Yesterday’s shocking news from the Massachusetts Senate race throws a wrench into President Obama’s #1 legislative priority: providing health care insurance for all Americans.

Without 60 Democratic votes, Senator Reid cannot force through the comprehensive—and somewhat convoluted—bill that is currently in the House-Senate conference committee.  This is just as well.  The bargaining and compromises made in both chambers have produced a bill that has as many unintended negative consequences as positive benefits.  For example, how can one justify protecting union workers from a modest tax on health benefits over $24,000 per family while taxing non-union workers earning exactly the same amount of money?  Is this democracy?

Now the President is facing some rather stark choices:

1. Try to round up 220 Democratic votes in the House to accept the more conservative Senate bill as it is currently written so that it can be passed by a simple majority vote and signed into law.
2. Eliminate the most objectionable provisions of the bill in order to build a bill with enough moderate support (from Republicans like Senator Susan Collins or Senator Olympia Snowe) to gain 60 votes.
3. Change the Senate rules (a la the “nuclear option”) to eliminate the filibuster, and steamroll the moderates with a more forceful bill along the lines of the House version.
4. Start anew and assemble a “bare bones” bill that will include the most important insurance provisions such as portability and no exclusion for pre-existing conditions, and the expansion of community health centers and insurance cooperatives.
5. Shift his focus entirely and work on higher-priority issues like creating jobs for the 25 million Americans who cannot find full-time work.

At this stage either of the first three alternatives seems rather remote.  With the forces in his own party moving in different directions, it will be very difficult to keep everyone together on a comprehensive bill, or to hive off one of the moderate Republican Senators.

Perhaps the President would do well to heed the advice of Senator Jim Webb (D – VA), who declared on Tuesday night, “It is vital that we restore the respect of the American people in our system of government and in our leaders. To that end, I believe it would only be fair and prudent that we suspend further votes on health care legislation until Senator-elect Brown is seated.”

A cooling off process would give the President and members of Congress time to reflect on the real messages from the Massachusetts election.  In the meantime, they could tackle the more urgent issue of job creation.  By next November’s election, jobs will be the issue that will influence votes. (By some measures, it already is.)  Failing progress on this issue, the Democrats will likely face major losses in the election.

The President needs wins right now.  By assembling a credible package that creates sustainable jobs, Obama could go into the spring with the wind at his back, and greater willingness among the more liberal Democrats for a healthcare bill while they still have a large Senate majority.  A rethought health care proposal that expands access and addresses preventative care and other cost-controlling measures, would likely find a more willing audience at that point. 

It’s surprising just how fast the political winds can shift, but adept politicians learn how to read the signals.  In this environment, Obama cannot afford to face a headwind.  

Bezos, Chambers Provide Model for Leaders After Crisis

Originally posted on the Wall Street Journal on January 7, 2010

America faces a deepening leadership crisis. A recent survey by Harvard's Center for Public Leadership found that 69% of Americans lack confidence in our leaders. Worse yet, 67% believe that "without new leaders, America will decline as a nation." Wall Street leaders are at the bottom of the list, closely followed by media, political and other business leaders.

I believe the root cause of America's economic crisis is leaders who practice "short-termism." What we need to get on the road to economic recovery are innovative, visionary leaders who can resist short-term pressures and build sustainable growth companies.

Two such leaders are Amazon's Jeff Bezos and Cisco Systems' John Chambers.

In the past decade both have overcome severe crises to emerge as role models of the kind of leaders America needs to build an innovation economy.

At a 1999 CEO conference at the height of the dotcom bubble, I witnessed a telling exchange between Mr. Bezos and Warren Buffett. On stage, Mr. Bezos was proudly proclaiming Amazon's success (measured in eyeballs) when Mr. Buffett challenged him from the audience.

Having worked the numbers, Mr. Buffett said there was simply no way to justify Amazon's stock price, even assuming remarkable growth and profitability. At the time Amazon was near $105 per share, with no earnings but a growing revenue base. Mr. Bezos protested Mr. Buffett's critique, but suspicious murmurs rumbled through the audience.

Cisco's Mr. Chambers was also on stage that day. Cisco was riding high with a rising stock price. Throughout the next year Cisco stock increased to $77 a share, making the company the world's most valuable in March 2000.

The higher they go, the farther they fall. In 2001 the dotcom bubble burst. Thousands of startups went belly up as the venture capital market virtually shut down. Amazon and Cisco both suffered from aftershocks of the implosion.

Amazon's stock collapsed to $6 per share. Cisco's crash was just as dramatic: from its high water mark, Cisco stock dropped nearly 90%. If Warren Buffett was in the business of shorting stocks, he could have made a killing on his prescient analysis.

Wall Street called for the blood of e-commerce and technology companies. Skeptics projected the end was near. Unlike many of their fallen contemporaries, however, both Amazon and Cisco rebounded.

Amazon's Mr. Bezos simply ignored the stock collapse as he moved forward with his strategic vision. In 2003 Amazon posted its first full-year profit. Throughout the decade Mr. Bezos continued to expand the company's product offerings. Even amidst the current economic crisis, Amazon's third-quarter profits surged 69% as the company established its supremacy in e-retailing.

John Chambers oversaw a similar recovery. Cisco has continued to dominate the market for computer servers and expanded into related products, such as its dramatic new TelePresence offering.

What allowed Amazon and Cisco to persevere as other Web 1.0 contemporaries tanked? How have they successfully navigated another vicious downturn?

The answers can be found in the belief that Mr. Bezos and Mr. Chambers have in their strategies and an unwavering passion for serving their customers. They power their visions with big investments in innovation and manage for long-term growth, even at the expense of short-term profitability.

Mr. Bezos founded Amazon.com in 1994 with secondhand computer stations in his Seattle garage. "There's no bad time to innovate," Mr. Bezos told BusinessWeek in 2008. "You should be doing it when times are good and when times are tough." Currently, Mr. Bezos is transforming the book-reading business with the Kindle e-reader, Amazon's first in-house hardware product.

Mr. Chambers has continued to build Cisco through innovation and long-term acquisition strategies. The company introduced its TelePresence product and focused its acquisitions on video and mobile technologies.

Through their long-term commitments, Mr. Bezos and Mr. Chambers have created tremendous value for their shareholders: Cisco's market capitalization is now about $140 billion, while Amazon's is about $58 billion.

To put the American economy back on the road to recovery, we need more long-term, visionary leaders like Mr. Chambers and Mr. Bezos who can transform entire industries and build sustainable innovation machines.

About the Author

Bill George is author of "7 Lessons for Leading in Crisis" and professor of management practice at Harvard Business School. The former chairman and CEO of Medtronic, he currently serves on the boards of ExxonMobil and Goldman Sachs. He previously was a director of Novartis.

Leadership Summit Video

This past September, I sat down with John Donahoe, Anne Mulcahy, Marilyn Carlson Nelson, and David Gergen for an honest conversation around crisis-time leadership.  (You can read more about the event here, and see behind-the-scenes pictures here.)

My team and I recently obtained the video from that event which we wanted to be sure to share with you.  Simply click the link below, and you will be able to see the conversation in its entirety.  As always, I’m curious to hear your reactions to the discussion topics and opinions – they certainly remain timely as America’s leaders work towards recovery.

Leadership Summit Video

"ReadItFor.Me" Video-review of 7 Lessons for Leading in Crisis

Steve Cunningham, President and CEO of Polar Unlimited, recently created a ”ReadItFor.Me” video-review of 7 Lessons for Leading in Crisis.  I wanted to be sure to share that video here as Steve has done a phenomenal job of capturing the core message of 7 Lessons while interweaving it in a very entertaining forum. 

Complete with music, pictures, and an enthusiastic, engaging voice-over, Steve has managed to condense the pages of 7 Lessons down into a 10 minute video.  He also includes an excerpt from a conversation he and I had earlier this year about crisis-time leadership and the role that 7 Lessons can play.

I encourage you to watch the video in its entirety here.  And be sure to pass along your thoughts to Steve and myself.

Conversations on Leadership, Social Investment with John Hope Bryant and Others

Last week John Hope Bryant, Warren Bennis, and I had a leadership discussion, moderated by Dean Jim Ellis of USC Marshall School of Business.  John wrote a great recap of the event, complete with pictures, which you can read here.  

Back in October John and I had a similar dialogue with former Atlanta Mayor Andrew Young at the Andrew Young School of Policy Studies at Georgia State.  Young has some especially interesting things to say about his relationship with Martin Luther King, Jr.  C-SPAN2 recently aired our conversation, you can see a video of that event here.

GM Doesn't Need A New CEO - It Has Whitacre

The last thing the General Motors board needs is a head hunter to find a new CEO.  It already has one of the best CEOs in the country: a tough-minded Texan named Ed Whitacre.           

Whitacre is exactly what GM needs: an outsider who can shake this complacent culture at its core.  He turned Southwestern Bell (formerly SBC) into the most successful regional Bell operating company.  Then he proved his moxie in turning around large bureaucracies when he acquired the failing AT&T, retained its name, and incorporated it into SBC.  These days the new AT&T is the national leader in telecommunications, thanks to Whitacre’s wisdom and aggressive operating style.

And while great strides still need to be made, Whitacre already has set a new cultural trajectory at GM as chairman and should continue to shake things up as CEO.  For starters, he should ban power point charts, consultants, and the “analysis paralysis” that have plagued GM for decades.  Then he should eliminate all the unecessary committees, excess staff groups, and former finance people masquerading as car guys.

Whitacre says he’s “not a car guy.”  That’s probably a good thing.  He isn’t ingrained with the bland design concepts and faulty strategic planning that caused GM’s share of the U.S. market to drop from 53 percent to 19 percent across the past half century.

This forty-year slide, which famously resulted in bankruptcy this year, was led by a steady stream of financial executives who were more interested in short-term profits than they were in building exciting, quality automobiles.  The worst of these was Roger Smith, who took the helm in the 1980s and saw GM’s market share took its steepest decline (a 10 percentage point drop in 9 years).  Smith seemed far less interested in keeping pace with automotive innovation trends than he was in acquiring Hughes and EDS; both of these proved to be enormous distractions and were later spun off by his successors.  Meanwhile, GM lagged far behind increasingly popular foreign competitors, a trend which has unfortunately continued through today..

Smith also repeatedly gave the United Auto Workers seemingly everything they demanded.  From 100 percent-paid lifetime health care and a “jobs bank,” to  promises not to outsource its parts supply without union approval, he capitulated over and over again.  Smith would do anything to avoid a strike and hit to short-term profits; he even paid former EDS CEO Ross Perot an additional $700 million to leave the GM board and end Perot’s barrage of a questions which revealed embarrassing inadequacies at the car company.

But with Whitacre, bureaucratic waffling – and other leadership and management problems – will not be an issue.  One of his strongest qualities is his impatience with bureaucracy.  He can quickly cut to the core of complex issues and bring the right people together to solve seemingly intractable problems.  At 68 years old, he may not be willing to be CEO for more than 2-3 years, but that’s long enough to make the big moves required to get GM back on track.

To buffer his efforts, Whitacre could recruit a real car guy from outside the U.S. as his chief operating officer.  Since the Germans design better cars than GM ever envisioned, perhaps someone like former Porsche CEO Wendelin Wiedeking would be a fine choice.  Wideking - who rose from the factory floor to build Porsche into one of the most profitable auto companies in the world – has undeniable car knowledge.  Unfortunately though, his career hit a bump when he overreached in attempting to take over much-larger Volkswagen.  The “too clever by half” stock move left Porsche with so much debt that VW took it over (an interesting twist of fate), and Weideking left the company in July of 2009.

However, Wiedeking would be a good partner for Whitacre until GM can develop a new generation of outstanding designers and operating talent to take the helm themselves a few years down the road.

If Whitacre is serious about changing the hidebound GM culture, moving company headquarters to his native Texas (like he did with the old AT&T) might spur the change he needs.  That would shake the GM culture to its core, and send a clear signal that there is no going back to the old ways.  A crazy idea?  Only to the Michigan politicians.  After all, ExxonMobil – the former Standard Oil of New Jersey – successfully moved its headquarters to Dallas, and Boeing moved from its native Seattle to Chicago. 

In my experience an entrenched culture like GM’s cannot change without new blood which posseses the courage to ignore precedents and move swiftly towards making the company competitive.  IBM broke tradition in turning the company around under Lou Gerstner , and today the company prospers.

And as GM’s competitors refuse to stand still these days – innovating, improving, and gobbling up market share – GM must dramatically increase the rate of change to have a chance of catching up.

Ed Whitacre is capable of overseeing such a rapid evolution.  When you have the right leader in place, why hire a search firm?     

After the Crisis: Restoring Trust in U.S. Leaders

 Originally posted on BusinessWeek.com on Tuesday, November 24, 2009.

The stock market seems well on its way to recovering from the financial crisis, but a deep scar from the recession remains. Americans lack confidence in the nation's leadership to address the challenges we currently face.

The Harvard Center for Public Leadership's 2009 National Leadership Index reveals that 69% of Americans think we have a leadership crisis in the country. Another 67% believe that "unless we get better leaders, the United States will decline as a nation."

At the bottom of the index's ranking of confidence in leadership are Wall Street leaders, closely followed by news media, Congressional, and business leaders. It is tempting for leaders to view these dismal results as a public relations issue emanating from the economic downturn. But this is not a PR problem: It's a leadership problem.

We opened this decade with a wave of appalling leadership failures. Ken Lay and Jeff Skilling of Enron, Bernie Ebbers of WorldCom, Joseph Nacchio of Qwest, and Dennis Kozlowski of Tyco blatantly disregarded the ethical and legal responsibilities entrusted to them by their shareholders.

IMPERATIVE: REBUILD PUBLIC TRUST

We are closing the decade with another wave of leadership failures. Dick Fuld of Lehman, Alan Schwartz of Bear Stearns, Angelo Mozillo of Countrywide Financial, and Chuck Prince of Citigroup (C) sacrificed financial prudence for the possibility of extraordinary short-term gains. Their decisions obliterated billions of dollars of economic wealth and almost destroyed the nation's financial system.

This crisis won't be over until a new generation of leaders emerges that understands that long-term institutional stewardship and maintaining public trust are the two imperatives of 21st century leadership.

Far too many leaders fell into the trap of believing that the purpose of business is to maximize shareholder value and reap personal rewards, rather than serve customers and the society they operate in. In my experience, those that focus primarily on maximizing shareholder value—usually with a short-term focus—are more likely to wind up destroying the value they create.

A recent study of the Standard & Poor's index of 700 international stocks from 1998 to 2009 shows that only 3 of the top 15 winners are U.S. companies—Apple (AAPL), Amazon (AMZN), and Oracle (ORCL)—all headed by leaders with long-term focus. The 5 worst U.S. stocks were AIG, Eastman Kodak (EK), Citigroup, Ford (F), and Bristol-Myers Squibb (BMY). All had leaders with a short-term focus. This list excludes GM, K-Mart, Enron, WorldCom, and Lehman because they declared bankruptcy.

VALUING CUSTOMERS BUILDS SHARE PRICES

Long-term leaders recognize that they cannot rely upon cost-cutting, acquisitions, and other short-term moves to create sustainable value. By focusing clearly on long-term missions, values, and strategies, they earn and keep the trust of their customers, employees, and the society they serve.

The key to creating sustainable shareholder value is to provide superior value to your customers. Such companies as Johnson & Johnson (JNJ), Target (TGT), Google (GOOG), Medtronic (MDT) (where I served as CEO from 1991 to 2001), and Wells Fargo (WFC) focus on their mission and values, which is what motivates their employees. When a company does these things well, revenues and profits expand and sustainable shareholder value follows.

A number of emerging progressive corporate leaders recognize the need for long-term focus to create sustainable value. For example, IBM's (IBM) Sam Palmisano embarked upon a seven-year "leading by values" initiative to reposition the firm globally, emphasizing its service businesses. Indra Nooyi committed PepsiCo (PEP) to a long-term focus on expanding healthy food and beverage offerings. Dan Vasella of Novartis (NVS) invested heavily in drug and vaccine research to prevent and treat intractable diseases. John Chambers is making acquisitions during the downturn to prepare Cisco (CSCO) to lead a new productivity expansion. Amazon's Jeff Bezos keeps introducing product innovations such as the Kindle—even though they take five to seven years to pay off.

In an earlier era, Walter Wriston of Citigroup and John Whitehead of Goldman Sachs (GS) (a company on whose board I currently serve) capably steered the financial markets with honesty, intelligence, and dignity. While many firms were failing in 2008, three Wall Street leaders emerged. J.P. Morgan Chase's (JPM) Jamie Dimon created a culture of candor, enabling his bank to successfully navigate the financial crisis. Goldman Sachs' Lloyd Blankfein built effective risk management into the bank's DNA. John Stumpf emphasized Wells Fargo's core strengths and focused on commercial banking, using the crisis to strengthen its franchise.

The path to restoring the public's confidence and trust in business leaders is clear. We need leaders who are committed to sustainable growth over short-term gains and who serve society by creating long-term value.

"Lean Is Good" on 7 Lessons

Bruce Baker, author of the “Lean is Good” leadership blog wrote a post referencing 7 Lessons for Leading in Crisis and I wanted to be sure to share it here.  He highlights the first lesson – “Face Reality, Starting With Yourself”:

Lean thinkers will recognize this as hansei or self-reflection.  Professor George argues that leaders have to be humble enough to admit weaknesses and flaws that they see. Too often, lack of introspection and an abundance of hubris (defined by classicist J. Rufus Fears as “the outrageous arrogance that inflicts suffering upon the innocent”) keep people from effectively leading people and organizations.  The willingness to look critically at yourself and the humility deal with that reality is something contributes to effective lean leaders.

I’d encourage you to read the blog in its entirety as Baker includes a very savvy, brief analysis of how this “self-reflection” is currently playing out in the automobile industry.

Comments on Stephen Gill's Recent Post

Stephen Gill of the “Performance Improvement Blog” wrote a great blog piece yesterday on the economic crisis and the flawed bank and financial institution leadership which helped create it.  He also made reference to 7 Lessons for Leading in Crisis, and I wanted to be sure to highlight his fine analysis here.  Gill very zeroes in on two themes that run throughout the book (about which I am in complete agreement): 

“One is the notion that truly high performing leaders take responsibility in a crisis. They own the organization’s failures, learn from those  mistakes, are transparent about this, and apply that learning to the next crisis. The other theme is that high performing leaders keep an ethical compass pointed at their personal “True North." 

And he concludes with what I think is a very concise and accurate summation of our current situation:

“It’s easy to fix blame for the failure of banks on regulators who face a great deal of resistance when they try to enforce rules and regulations. The more fundamental problem is with the failed leadership of banks." 

Be sure to check out this post in its entirety – a good read for today.

Why Colleges Should Teach Leadership

My HBS student, Jonathan Doochin, has written a timely and important piece for washingtonpost.com, titled “Why Colleges Should Teach Leadership.” Doochin’s rationale for increased teaching of leadership in undergraduate universities is clear and compelling. He perceptively cites the reasons why it is important to develop well-grounded, values-centered leaders and openly challenges the traditional classroom model of learning and advocates the need for experiential learning.

I first met Doochin back in 2005 when he came to my office at Harvard Business School to describe his new Leadership Institute at Harvard College and ask me to speak about leadership to the more than 200 heads of Harvard’s student organizations. Later I interviewed him for my book, True North, where at 23 he became the youngest interviewee among 125 leaders in our study.  He shared his remarkable story of overcoming dyslexia and weight problems, thanks to the untiring efforts of his parents and a dedicated teacher named Ms. Jackson. In living through this severe crucible, he grew in confidence and was successful in being admitted to Harvard College, McKinsey consultants, and Harvard Business School.

Doochin’s ideas, if implemented, would represent an important step toward developing better leaders in America, rather than just focusing on training brilliant students who are seeking instant gratification through better grades and high paying jobs.