Blog

CNBC: DuPont win over Peltz is a victory for long-term investors

From CNBC, Posted May 14, 2015

In the seminal proxy contest of the year, DuPont CEO Ellen Kullman and her board prevailed over an aggressive attack by activist investor Nelson Peltz and his Trian Fund, who nominated himself and three other directors. The re-election of all 12 members of the DuPont board is a significant victory for long-term investors who supported Kullman's transformation of this 212-year-old company, one of America's crown jewels of science and innovation.

In an era of growing focus on near-term gains, the proxy contest raised an important issue: could an activist investor holding less than 3 percent of the company's shares prevail over a highly successful management team overseen by a united and prestigious board?

In recent years, activist investors have been gaining support. Actively-managed funds that are struggling to beat index funds in order to justify their much higher fees have been voting for the activists. Support for the activists from the media and academic circles has been growing as well. In today's shareholder vote, the majority of DuPont shareholders backed continuation of Kullman's leadership and her strategy that is transforming DuPont and creating great results in the market. The wisdom of long-term investors prevailed as they ignored the proxy-advisory services and made their own decisions to vote for the DuPont board and Kullman.

This proxy contest also reflected the shifting focus of activists to challenge highly successful companies like Apple, Amgen, Allergan, PepsiCo, eBay and DuPont, rather than attempting to go after poor performers that lack clear strategies. Perhaps the activists learned the pitfalls of attempting to transform these poor performers from Bill Ackman's enormous losses incurred in trying to run J.C. Penney. On the other hand, they may feel there is little downside to investing in these top performing companies.

Whatever the reason, Kullman's tenacity may cause activists to think twice about starting a proxy contest against well-run companies led by successful CEOs with capable boards. Let's hope so, as these fights are enormously distracting for both the management and the board. In Peltz's case nothing was contributed that wasn't already being done by Kullman in leading the transformation of DuPont.

I support activist investors who work quietly with managements and board to improve struggling companies. Such was the case with Jeff Ubben of ValueAct in encouraging Satya Nadella's replacement of Steve Ballmer as CEO of Microsoft, and Ralph Whitworth of Relational Investors in encouraging Home Depot to replace Bob Nardelli with Frank Blake. As chair of Hewlett-Packard, Whitworth skillfully led Meg Whitman and the H-P board to split the company into a hardware company and a systems/software company. The contributions of these behind-the-scenes activists are already apparent in these companies. But their strategies are vastly different than the very public attacks on successful companies that other investors have waged. Peltz's defeat could be the Waterloo of the latter, as more CEOs may be emboldened not to capitulate to their bullying tactics.

The defeat of Trian's nominees also reflects the waning influence of the proxy advisory services like ISS and Glass Lewis, both of whom supported Peltz and his slate. Today the leading institutional investors have formed committees that carefully weigh the pros and cons of each side's arguments and reach their own conclusions. This is all for the better. Unlike the advisory services who hold no shares in these companies, institutional investors have a large stake in their long-term success, as well as a fiduciary duty to vote their shares in the best interests of the actual owners of the stock. Not being short-term traders, they have to live with the long-term consequences of their decisions.

There is also a growing recognition from institutional investors that all the great value-creating companies of the last 25 years are led by CEOs and boards with long-term visions and strategies. Hence, companies like Berkshire-Hathaway, Wal-Mart, Intel, IBM, FedEx, Microsoft, Genentech, Amgen, Medtronic and Exxon give their owners consistently strong gains, and are now being followed by newer companies like Apple, Google, Starbucks, Amazon, and Facebook. But reaping the rewards requires long-term investments that pay off over decades.

In the end, however, the success of DuPont over Trian comes down to one exceptional and highly authentic leader: Ellen Kullman. A 27-year veteran of DuPont who was raised in Wilmington, she has repeatedly demonstrated the vision and the courage to transform one of America's greatest companies into a highly competitive specialty chemicals firm that can compete effectively on the world stage. In the face of withering attacks and enormous pressure to change course, Kullman did not deviate from her True North. In the end, she deserved to prevail.

The DuPont Proxy Contest Is a Battle for the Soul of American Capitalism

The sub-title in Saturday’s New York Times op-ed by Joe Nocera jumped off the page, “Why shareholder value has become a disaster for the country.” Nocera was writing about the seminal proxy fight that will be settled on Wednesday, May 13, at DuPont’s annual meeting.

On one side is the DuPont board of directors, one of the most distinguished of any U.S. corporation, which recommends the re-election of its 12 members. On the other is the activist investor Trian Fund that proposes a new slate of directors, led by Trian CEO Nelson Peltz, to replace four current DuPont directors.

The two strategies for the company could not be more different. The DuPont board proposes to complete the divestiture of its performance chemicals business into a new company, Chemours, and concentrate on its three high growth, high margin businesses: agriculture & nutrition, advanced materials and bio-based industrials, all anchored by DuPont’s famed central research laboratories. Trian and Peltz, on the other hand, have contemplated separating DuPont into three companies and eliminating central research, which spends just $220 million per year (0.7% of sales).

Outside activists play a useful role when they recommend transformation to poor management teams at under-performing companies. At DuPont, CEO Ellen Kullman is an outstanding executive running a high-performing company. Upon her election to CEO in 2009, she immediately began to streamline DuPont and transform it into a competitive chemicals company focusing on its high margin businesses. During her first six years, DuPont’s stock rose 266% compared with 165% for the S&P 500. Kullman has positioned the company for sustainable growth and profitability while the market has recognized the progress. Where is the need for an activist in this equation?

Trian’s proxy attack is perplexing, yet is one of a number that activist investors have launched targeting healthy companies. In his recent forays, Peltz has been successful in taking over H.J. Heinz and splitting apart Kraft. Both efforts led to mediocre results and wound up with both companies being sold to Brazilian private equity fund 3G. Meanwhile activists have also attacked many of America’s greatest companies, including Apple, Amgen, PepsiCo, Dow, Allergan, and Target. This can only make America’s business focus even more short-term – damaging the country’s long-term competitiveness.

Of great concern to me is that these activist pressures will result in significant reductions in long-term corporate performance. The playbook for many of these activists is to cut research, throttle back on new businesses, eliminate thousands of jobs, and leverage the balance sheet. These actions almost always improve the financial numbers in the next reporting period, but they weaken the long-term earning power of the company. Worse, they put the entire enterprise at risk when unpredicted events occur, such as the next economic downturn.

As a professor at Harvard, I have been an outspoken advocate of creating sustainable shareholder value by balancing near-term performance with long-term investments. The right long-term investments drive future growth and profitability. While leading Medtronic, we transformed the company into the leading medical device company and grew the company’s market capitalization from $1.1 billion to $110 billion today.

I have no problem with activist investors that challenge poorly managed companies without viable long-term strategies. Rather, I am a critic of corporate boards and executives and activists who only focus on the short-term stock price. Recently, Larry Fink, CEO of Blackrock (the world’s largest fund manager), wrote all 500 of the S&P 500 CEOs and urged them not to respond to these pressures for financial engineering and to continue to invest for their long-term futures.

Wednesday’s vote will be seminal in determining how aggressive activists will be in taking on major global corporations. Peltz and Trian have run a very effective proxy campaign for their nominees, using the media and working closely with many investors to persuade them to vote for their slate. This effort convinced both proxy advisory services, ISS and Glass-Lewis, to back all or part of its slate. DuPont, led by Kullman, has also worked extremely hard to tell its very positive story. CalPERS and the Canadian Proxy Fund recently endorsed management’s efforts. The vote appears to be extremely close, with half of the shareholder votes still not in.

Peltz has some investors asking, “What’s the harm in electing Peltz to the DuPont board?” A great deal. Peltz’s presence will not only disrupt DuPont’s long-term strategy for sustainable success, it will signal “open season” to activists launching proxy fights. If DuPont gets broken up and its central research labs shut down, it will mark the loss of a national treasure, just as it did the demise of the famed Bell Labs. Beyond that, it will give momentum to the short-term shareholder activists.

The DuPont proxy vote is a part of a battle for the soul of corporate America. The venerable Martin Lipton, quoted in Nocera’s column, has it right: this form of shareholder value is “a disaster for the country.”

New York Times: Even at the Top, Making Plans for Life’s ‘Third Chapter’

From The New York Times, posted May 1, 2015

When Sherry Lansing, the former chairwoman of Paramount Pictures, decided to end a 40-year career in the rough-and-tumble of Hollywood, the question she faced was where to direct all the energy and drive that had propelled her to the top of the industry.

Lounging about in the suburbs of Los Angeles at age 60 was not going to be an option. So instead, she turned her attention to medical research — cancer research in particular, a subject that had taken hold of her years earlier when her mother died of ovarian cancer at age 64.

“For me, it’s something I always had inside of me, something I always wanted to do,” Ms. Lansing said. Acting on that passion, she started the Sherry Lansing Foundation, which funds cancer research, about 10 years ago, and is a member of the California Institute for Regenerative Medicine, which promotes stem cell research.

“They had to explain things to me and I had to learn things,” she said of the medical experts and scientific researchers with whom she began associating. “I felt young. I felt curious. Everything was new because I didn’t know,” she said. “If you keep curious, you keep young.”

Whether closing that next deal or creating that next film, high-powered executives thrive on the next big thing. Without it, some are left searching for meaning or another challenge. To that end, a growing number of Americans are creating a new phase of life, sometimes called a “third chapter.”

Often leading the way are those at the top, who typically have the most options but can also face struggle and rejection as they grapple with trying to find a meaningful role in the later years of life. Many who have achieved considerable success in one field want to reach new heights in another field. 

Whether they make money or not, the most driven search out stimulating ways to live life, including new areas of work. If you have a passion for something, they say, figuring out what to do next can be easier. Yet changing the pace of life brings with it adjustments, no matter how extraordinary, or ordinary, that life may be.

“I think the most important thing is to be brave, not to be afraid of failing,” said Stephen J. Friedman, 77, who has been president of Pace University since 2007. Before that, he was dean of the Pace University Law School for three years, senior partner at the law firm Debevoise & Plimpton and a commissioner at the Securities and Exchange Commission.

“I just didn’t think of myself as an education person,” Mr. Friedman said. “I never thought I could become a law school dean.” It was actually a younger lawyer in his firm who had a doctorate in history who suggested that Mr. Friedman talk to Pace about the law school deanship, he said.

Mr. Friedman emphasized that being “comfortable when you are on a learning curve” is at the core of making transitions. You must “have the confidence that you can get to the point reasonably quickly where you know enough,” he said, even if you are missing some of the context. “A lot of people are afraid of that, of being in a situation where they don’t have the full context, and saying the occasional stupid thing.”

Therein lies the satisfaction of beginning anew later in life. “We’re looking for new meaning and purpose,” said Jeri Sedlar, co-author with her husband, Rick Miners, of the book “Don’t Retire, Rewire!” She is also a personal transition guide who ran an executive search firm. “Do your planning in advance so you won’t get blocked out of something.” Ask yourself, if you had infinite time and money, what would you want to do? “Write these things down,” Ms. Sedlar said. “Start to look now.” What does it take to get there?

Those who have had high-level careers can be role models for others who are 60 or 65, as well as for those who are much younger.

Joseph McInerney, who was president and chief executive of the American Hotel & Lodging Association in Washington for 12 years, until September 2013 — after years of private sector leadership roles in the hospitality industry — is developing another chapter. He continues to consult and serves on the advisory board of Attract China, which markets and promotes destinations to Chinese tourists, and other hospitality industry businesses such as the Hotel Inventory, a website for the buying and selling of hotels.

“The day you’re no longer the C.E.O., your life changes — so you have to decide what you want to do to move forward,” Mr. McInerney, 75, said. “The important thing to do is network with all your connections. I started talking to a lot of different people and opportunities arose.”

Mr. McInerney, who also was chief executive of the Pacific Asia Travel Association for four years, based in Bangkok, is leading a training program for the World Bank for the Municipal Development Fund of Georgia in the former Soviet Union. The program’s mission is to train hotel and restaurant workers, tour guides and retail wine clerks in customer service skills. “I enjoy going to work,” he said. “I’m not making a lot of money but I’m having a lot of fun making a difference in people’s lives.”

Many who have had high-powered careers look for opportunities to help others, particularly in guiding the next generation. Sometimes they find advisory roles for themselves in start-up companies, other times they teach at the highest level, write books and serve on the board of major corporations.

Bill George, the retired chief executive of Medtronic, the medical device company, finds nurturing and mentoring the next generation of leaders brings significant meaning to his life. The author of several books, including “Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value,” Mr. George is on the board of the Advanced Leadership Initiative at Harvard, and serves on the board of more than one company.

In his 70s, Mr. George finds satisfaction interacting with people who are “doing challenging work,” and derives “vicarious pleasure in their success,” he said. In addition, “becoming a learner” later in life brings additional satisfaction when you are “no longer carrying the organization’s responsibility.” 

John Seffrin, who was C.E.O. of the American Cancer Society for 23 years, has a plan for the next part of his life. In an interview just days before he retired on Friday, Mr. Seffrin, 70, kept returning to the same theme: battling cancer as a major public health problem.

“We can make this cancer’s last century,” he said.

As he leaves his current position, Mr. Seffrin expects to go through a period of change. “It’s a transition,” he said. He already has some teaching opportunities he is considering, having spent two decades in academia earlier in his career at Indiana University. “I might become a consultant, do some teaching,” he said.

As a chief executive, “real work-play balance is not possible,” Mr. Seffrin said. Instead, he said, the answer has been “finding play in your work when you have to work all the time.”

Mr. Seffrin recommends finding, or in his case having, a mission when you retire: “You need to find a way in which you are committed to something other than your ordinary self.” In short, he said, find a role in which you are making a difference in this world, and that’s what he intends to do. He is passionate about battling cancer as a public health problem. One of his grandmothers and his mother died of cancer. His wife is a breast cancer survivor.

Looking ahead, Mr. Seffrin spoke about anticipating becoming a grandfather this month for the first time. In fact, those in high-level careers often spoke of a desire to deepen relationships with family and other loved ones.

“Sixty is young enough for a whole third chapter,” Ms. Lansing said. “I didn’t dislike my job, but I had done what I set out to accomplish. I didn’t have the same passion for it. I wanted a whole new chapter. In terms of my life, too, I wanted a different kind of life, where I could actually be on vacation and stay another day.”

She added: “I used to read scripts during a concert. I loved it at the time. There is a season for everything. You need to be interested and curious until the day that you die.”

DealBook: Peltz’s Attacks on DuPont Threaten America’s Research Edge

From The New York Times DealBook, April 9, 2015

Since its founding in 1802, DuPont has been at the center of American scientific breakthroughs in chemistry. Among its research triumphs was the black powder that supplied 40 percent of the Allied needs in World War II.

In 1912, DuPont founded the first industrial science labs in the United States. Since then, the company has produced a remarkable number of innovations that have had wide-ranging and long-lasting effects on society. These include DuPont’s patented chemicals like rayon in 1924, Teflon in 1938, Kevlar in 1965 and Solamet solar cells in 2007.

Today, DuPont is facing an activist attack from Nelson Peltz. His Trian Fund seeks to replace four DuPont board members with Mr. Peltz and three other candidates.

Mr. Peltz has openly declared that his goal is to shut down DuPont’s central research labs and split the company into three parts — moves that would directly dilute scientific progress that DuPont has worked to develop.

DuPont is just the latest victim of Mr. Peltz’s boardroom assaults. In 2012, he persuaded Kraft’s chief executive at the time, Irene Rosenfeld, to abandon its global marketing by spinning off its North American food business and renaming the international company Mondelez. Since the separation, both companies have seen their revenues and profits largely decline or remain stagnant. In the wake of weak financial results, Kraft’s board agreed to sell the company last month to the Brazilian private equityfirm 3G to be merged into Heinz.

In mid-2013, Mr. Peltz attacked PepsiCo, trying to force it to buy Mondelez, combine it with PepsiCo’s Frito-Lay business, and break the company in two: beverages and foods. PepsiCo’s chief executive, Indra Nooyi, with the full support of her board, strongly opposed Mr. Peltz’s financially driven plan. Ms. Nooyi’s strategy flourished as she significantly outperformed archrival Coke. Gaining little traction, Mr. Peltz backed off this year.

Mr. Peltz’s latest attack on DuPont is especially peculiar given its current management. Since becoming chief executive in January 2009, Ellen Kullman has done everything an activist might propose. She has reshaped the company’s portfolio to focus on its high-growth, high-margin businesses.

First, DuPont sold its performance coatings business to the Carlyle Group. Now, it is spinning off its performance chemicals business as Chemours, providing DuPont shareholders a one-time cash dividend of $4 billion.

These moves provide a clear strategic focus in three high-tech businesses: advanced materials, bio-based industrials, and agriculture and nutrition. DuPont has used its central research labs to support all its businesses, providing the breakthroughs that have spurred their growth.

In 2014 alone, $9 billion of DuPont revenue, or 32 percent, came from internal innovations. Without the steady stream of scientific breakthroughs coming from its central research labs, where will DuPont’s future revenue come from?

The Peltz proposal is troubling because it mirrors a disturbing trend in which financiers are gutting American research labs that develop tomorrow’s innovations. In reality, they want to increase short-term earnings, see an uplift in the stock price and close out their positions. They are speculators, not investors.

When a hotel chain increases its short-run profit by neglecting to make necessary repairs, customers eventually stop coming to stay in dilapidated rooms. Similarly, for science-driven companies like DuPont, research and development is at the heart of their growth. Today’s investments lead to tomorrow’s breakthroughs and profits. Cutting R.&D. investments that create innovative new products will leave these companies lagging global competition in years to come.

From time to time, investors conveniently ignore this fundamental business law. Financial engineers convince managers that they can generate short-term gains and not worry about the future. Allergan, which increased shareholder value 29 times in 16 years, was forced by Valeant to sell to Actavis this year to avoid being dismantled.

The pharmaceutical giant Pfizer has openly declared it is moving away from basic science. IBM has cut R.&D. the last several years.

This rarely ends well. Without new products from R.&D., all of them will struggle.

DuPont currently has a strong, independent board that includes 10 current or former chief executives, chief financial officers or chief operating officers — many of whom have deep scientific and regulatory knowledge.

What then is the basis for replacing four of these directors with nominees loyal to Mr. Peltz? Among those Mr. Peltz seeks to replace is DuPont’s lead director, Alexander M. Cutler, who is chairman and chief executive of the Eaton Corporation and a highly regarded corporate leader.

In reality, all that seems to matter to Mr. Peltz is a higher stock price so he can make some money, close out his position and let others pick up the pieces.

In contrast, DuPont’s chief, Ms. Kullman, is making all the right moves for the company’s customers, employees and shareholders. During her first six years at the helm, DuPont provided a total return to shareholders of 266 percent with more than $13 billion in dividends and stock buybacks to its shareholders. Ms. Kullman’s results far exceed the Standard & Poor’s 500 index and Mr. Peltz’s own Trian Fund.

It’s time for DuPont shareholders to give Ms. Kullman a resounding vote of confidence at DuPont’s annual meeting, scheduled for May 13. If they don’t, one of America’s great science companies will be at risk.

Harvard Life Hack: 5 Steps to Authentic Leadership with Bill George

Recently, I had dinner with the Franklin Fellows at Harvard College, which led to a very stimulating discussion about life and the purpose of their leadership. Here is an interesting blog about authentic leadership written by one of the group's leaders, Stephan Turban:

From HarvardLifeHack.com, March 23, 2015

“Each day, as you are tested in the world, you yearn to look at yourself in the mirror and respect the person you see and the life you have chosen to lead.”

- Bill George, True North

Bill George is the uncle you wish you had. With his quick smile, bright blue eyes, and perpetually-tanned skin, he is cooler than any professor should be.

This week the Franklin Fellows had dinner with Bill. And, as we quickly realized, he’s much more than a pretty face. Within moments of meeting, he’d asked for each of our name, shook each member’s hand, and began inquiring about our life’s stories.

For reference, Bill George is a professor at the Harvard Business School, former CEO of Medtronic, and author of “True North”. Over the past decade, Bill dedicated his life to discovering the qualities of the world’s top leaders.

Bill joined us for a whirlwind dinner. During our talk, he focused on the lessons of his newest book. In particular, he pushed us to answer a number of questions.

How do you lead with heart? How do you become an authentic leader?  And finally, how do you find your true north?

We can’t cover it all. But, as a teaser, here are five lessons from his book, our talk, and his life-story.

1. Discover your leadership in your life story

“Asked what motivates them to lead, authentic leaders consistently say they find their motivation through understanding their own stories.”

How do you enter other’s life stories? You give your own first.

Bill George began dinner by talking about his childhood. Growing up, his father pushed him to become a CEO. So, as Bill admits, he grew up driven, but self-focused. Bill’s earlier years were characterized by success. He graduated with high honors from Georgia Tech and became Baker scholar at HBS. But, as he shared, there were many losses along the way. Weeks before his wedding, Bill learned his fiancé died from a malignant brain tumor.

Bill’s vulnerability set the foundation for other member’s to share their stories. Bill had told this story before. But, it hadn’t lost authenticity in retelling.  It was intentional, but not rehearsed. Logical, but not mechanic. His story contextualized who he was and how we fit into the story.

To become an authentic leader, you need to be vulnerable. Understanding your own narrative is the first step. Find your story in your life. Develop it. Then share it with others.

2. Embrace Your Greatest Crucible

“While many leaders have a deep-seated fear of failure, the irony is that they learn the most from their failures”

How do you respond in the face of crisis? When your true north is challenged, how do you change? Bill’s largest challenge came with an election for Georgia Tech’s student body president. He lost miserably.

Losing the school election setback his public confidence. But, Bill didn’t respond by moping. Instead, he took the defeat as an opportunity to improve. He met up with fraternity brothers, friends, and rivals to talk about why they didn’t elect him. In doing so, he began a journey of self-reflection.

During dinner, Bill pushed us to reexamine our life’s challenges. We can all pinpoint turning points in our lives. As he urged, there are many more to come. To find “True North” we shouldn’t avoid setbacks . Rather,  we should embrace them. Good leaders understand crises are just opportunities for growth.

3. Transform from “I” to “We”

“You have to realize it’s not about you”

- Jaime Irick

We all begin as heroes of our own story. But, to become an authentic leader, your mission must focus on elevating others.  As Bill George writes, “ Only when leaders stop focusing on their personal ego needs are they able to develop other leaders… how else can they unleash the power of their organizations unless they motivate people to reach their full potential?”.

As Adam Grant’s research shows, individuals who focus on elevating others  lead more effectively than individuals who focus on themselves. Reframing leadership as for others isn’t easy. But, it’s vital to becoming an authentic leader.

4. Practice your values and principles

“Leaders with principles are less likely to get bullied or pushed around because they can draw clear lines in the sand"

- Narayan Murthy, founder and former CEO, Infosys

As Bill George explains in True North “Those who develop a clear sense of their values before they get into a crisis are better prepared to keep their bearing and navigate through difficult decisions and dilemmas when the pressure mounts”.  The first step to prioritizing your values is to understand them. (link). But, only by practicing them, do they become real.

Bill George didn’t tell us this during dinner. He showed it. In True North, Professor George argues the third stage of life (60 – 90 years old) should focus on “wisdom and giving back”.  He didn’t need to have dinner with a group of undergraduates. But, because he values the growth of others, he did. In doing so, he became a mentor and an inspiration to many.

5. Hone your leadership effectiveness

“The final step in… (becoming) an authentic leader is to hone your leadership style.”

Bill George argues that great leaders work to find their authentic selves. But, this doesn’t happen all at once.  Reflect on your leadership style.  Develop your strengths.  And constantly seek feedback.

Here at LifeHack, we love 5 step lists. But, becoming an authentic leader is never that easy. Nonetheless, with grit, a dash of lifehacking, and dazzling blue eyes (link to Bill George). We have no doubt you can begin on this path.

To learn more deeply, I highly recommend purchasing (or checking-out) True North by Bill George.

As well, Bill provided a number of free exercises online. These are a great way to reflect and to learn more about his method. You can learn more by going to www.billgeorge.com

Until next time,

Stephen Turban

Speaking Out Against Discrimination

Laws being passed this past week by Indiana and Arkansas to make discrimination legal on basis of religious freedom have stirred up a hornet’s nest of protests across the country, causing the Republican governors of these two states to ask that the legislation be modified.

While LGBT obviously oppose these laws, many of the most criticism has come from CEOs of the nation’s leading companies. Last Sunday, Apple CEO Tim Cook led off the debate when he penned a powerful op-ed decrying Indiana’s religious freedom law. His decision to speak out was not without risk. Apple products exist in 76 countries where homosexuality is illegal. He wrote:

“On behalf of Apple, I’m standing up to oppose this new wave of legislation… regardless of what the law might allow in Indiana or Arkansas, Apple will never tolerate discrimination.” 

Other CEOs, wary of similar risk, might have avoided the debate. In the past they have been reluctant to engage in these discussions, for fear of being criticized by their customers and employees, especially those who are evangelical Christians. The business response could have begun and ended with Apple.

But not this time.

In the past week, CEOs Doug McMillon of Walmart, Arne Sorenson of Marriott (a Mormon-founded company), Marc Benioff of Salesforce, and John Lechleiter of Eli Lilly (based in Indiana) have come out vigorously against similar laws.  Walmart’s McMillon tweeted about a similar law being considered in Arkansas, 

“Every day, in our stores, we see firsthand the benefits diversity and inclusion have on our associates, customers and communities we serve. For these reasons, we are asking Governor Hutchinson to veto this legislation.”

A few years ago, such public protest would have been surprising. For five years, I sat next to Lord John Browne, then chief executive of British Petroleum (BP), as we served together on the Goldman Sachs board. Browne is gay, yet this was a subject we never discussed. As he wrote in his poignant 2014 book, The Glass Closet, “My refusal to acknowledge my sexual orientation publicly stemmed from a lack of confidence… It is difficult to feel good about yourself when you are embarrassed to show who you actually are.” 

Increasingly authenticity is seen as the gold standard for leadership. Fortunately, we see more courageous CEOs – willing to take stands for what they believe and for the diversity of their employees. Now, more than ever, it is essential our society treat everyone equally regardless of religion, national origin, race, or sexual preference.

Discrimination for any reason gives a rationale for all forms of discrimination.  If the law permits business owners to discriminate against gays based on their religious views, what prevents them from discriminating against Muslims or Indians?

I know firsthand that wading into these debates has its downsides. As CEO of Medtronic in 2000, I spoke out against the Boys Scouts’ decision to prevent gay scouts from joining their ranks. I also supported the Medtronic Foundation’s decision to withhold grants to the Scouts because the Foundation does not fund organizations that discriminate for any reason. I received a lot of criticism from evangelical Christians and former Scouts among Medtronic employees, but it was worth it. Eventually, the local chapters amended their policies to accept all boys regardless of sexual preference, and years later the national organization followed suit.

It is encouraging that CEOs have taken an active role in this debate. But they can’t do it alone. Leaders from all walks of life, from government officials to civic leaders, need to embrace diversity in all forms. Speaking publicly against discrimination is the first step in that process. 

As Tim Cook wrote in his op-ed, “Men and women have fought and died fighting to protect our country’s founding principles of freedom and equality. We owe it to them, to each other and to our future to continue to fight with our words and our actions to make sure we protect those ideals.”

To the CEOs who have already spoken out, thank you. Your voices are powerful, and have already forced the states of Indiana and Arkansas to amend their laws. As this national debate shows, there is much work left to do for Americans to accept all people as being equal under the law.

30 Questions to Help You Discover Your True North

If you follow my blog, Twitter feed, or Facebook page, you’ll notice a constant theme: Discover Your True North. Both leaders and corporations have to develop a True North that follows their unique principles. If you try to ‘fake it until you make it,’ you won’t just be unsuccessful; you’ll also be miserable.

How can you discover your True North so you can take steps to get where you want to go in life? You have to know what your values are and what’s important to you. To that end, I’ve come up with this list of 30 questions to help you find your True North. Don’t answer them all at once. Take a day to carefully think each one through. Remember, if you don’t know where you’re going, any road will take you there.  

  1. What do you want your legacy to be? 10, 20, 50 years from now, what will your name mean?
  2. What one word do you want people to use to describe you? What do you think they’d currently use?
  3. If money was no object, how would you spend your time? What would your day look like?
  4. Fill in the blank: My life is a quest for _______. What motivates you? Money? Love? Acceptance?
  5. If you were to donate everything you have to a cause or charity, which would it be?
  6. What is your biggest regret? If you could go back and have a ‘redo,’ what would you change?
  7. When was the last time you told a lie? Why? What would have happened if you had told the truth?
  8. If you accomplish one thing by the end of the year, what would make the biggest impact on your happiness?
  9. What do you think is the meaning of life? Do you live your life accordingly?
  10. What would others say is your biggest asset? What would they say is your biggest flaw? Be honest.
  11. What did you like to do when you were 10 years old? When was the last time you did that activity?
  12. What do you love most about your current job? What do you wish you could do more of?
  13. What do you think you were put on this earth to learn? What were you put here to teach?
  14. What keeps you awake at night when you should be sleeping? What gets you out of bed in the mornings?
  15. List your core values. Use your company’s mission statement to list its core values. Do they match up?
  16. What skills do people frequently compliment you on? These may not be what you think you’re best at.
  17. If you had the opportunity to get a message across to a large group of people, what would you say?
  18. What do you not want others to know about you? Use your answer to find and conquer insecurities.
  19. List the five people you interact with most frequently (not necessarily friends). How is each helping you to reach your goals (or not)?
  20. If yourself from ten years ago met you today, would he/she be impressed with where you’ve gotten? Why or why not?
  21. What bugs you? If it makes you mad, you’re passionate about it! Can you make your anger productive?
  22. Fast-forward ten or twenty years. What is the one thing that, if you never pursued, you’d always regret?
  23. When was the last time you embarrassed yourself? You have to be vulnerable to find your purpose.
  24. Who or what energizes you? What makes you feel depleted? Do you thrive on chaos, or prefer order?
  25. Who do you look up to? Who are your mentors, both those you know personally and those who inspire you from afar?
  26. Think about your talents, passions, and values. How can you use them to serve and contribute to society?
  27. Why do you want to find your purpose? Write the answer down and put it somewhere you can see it. The journey isn’t always easy.
  28. What in your life is ‘on hold’? Until you lose weight, until you retire, etc. What are you waiting for?
  29. What price would you take to give up on your dreams? What price would you be willing to pay to achieve them?
  30. Now that you’ve answered these questions, what is your action plan? What steps will you take today?

For more insight and exercises to help you find your True North, read Finding Your True North. It offers a full, comprehensive approach to identify and develop your own unique direction in life.  

Inc: Why You Need Emotional Intelligence to Succeed

The following is an outstanding article on the importance of EQ = Emotional Intelligence. 

While IQ has historically been thought of as the determining factor in the performance of leaders, new research from Dan Goleman and others demonstrates conclusively that for people with IQ above 120, EQ is the more important factor in predicting leadership effectiveness. This article shows that people with high EQ on average earn $29,000 more per year. The good news is that your EQ can be developed and improved, whereas IQ is relatively constant over your lifetime. By Discovering Your True North, you can begin to improve your EQ. Try it!

By Travis Bradberry for Inc., posted March 12, 2015

When the concept of emotional intelligence was introduced to the masses, it served as the missing link in a peculiar finding: people with average IQs outperform those with the highest IQs 70 percent of the time. This anomaly threw a massive wrench into what many people had always assumed was the sole source of success--IQ. Decades of research now point to emotional intelligence as the critical factor that sets star performers apart from the rest of the pack.

Emotional intelligence is the "something" in each of us that is a bit intangible. It affects how we manage behavior, navigate social complexities, and make personal decisions that achieve positive results. Emotional intelligence consists four core skills that pair up under two primary competencies: personal competence and social competence.

Personal competence comprises your self-awareness and self-management skills, which focus more on you individually than on your interactions with other people. Personal competence is your ability to stay aware of your emotions and manage your behavior and tendencies.

  • Self-awareness is your ability to accurately perceive your emotions and stay aware of them as they happen.
  • Self-management is your ability to use awareness of your emotions to stay flexible and positively direct your behavior.
  • Social competence is made up of your social awareness and relationship management skills; social competence is your ability to understand other people's moods, behavior, and motives to respond effectively and improve the quality of your relationships.
  • Social awareness is your ability to accurately pick up on emotions in other people and understand what is really going on.
  • Relationship management is your ability to use awareness of your emotions and the others' emotions to manage interactions successfully.

Emotional intelligence, IQ, and personality are different.

Emotional intelligence taps into a fundamental element of human behavior that is distinct from your intellect. There is no known connection between IQ and emotional intelligence; you simply can't predict emotional intelligence based on how smart someone is. Intelligence is your ability to learn, and it's the same at age 15 as it is at age 50. Emotional intelligence, on the other hand, is a flexible set of skills that can be acquired and improved with practice. Although some people are naturally more emotionally intelligent than others, you can develop high emotional intelligence even if you aren't born with it.

Personality is the final piece of the puzzle. It's the stable "style" that defines each of us. Personality is the result of hard-wired preferences, such as the inclination toward introversion or extroversion. However, like IQ, personality can't be used to predict emotional intelligence. Also, like IQ, personality is stable over a lifetime and doesn't change. IQ, emotional intelligence, and personality each cover unique ground and help to explain what makes a person tick.

Emotional intelligence predicts performance.

How much of an impact does emotional intelligence have on your professional success? The short answer is: A lot! It's a powerful way to focus your energy in one direction with a tremendous result. TalentSmart tested emotional intelligence alongside 33 other important workplace skills, and found that emotional intelligence is the strongest predictor of performance, explaining a full 58 percent of success in all types of jobs.

Your emotional intelligence is the foundation for a host of critical skills--it impacts most everything you do and say each day.

Of all the people we've studied at work, we've found that 90 percent of top performers are also high in emotional intelligence. On the flip side, just 20 percent of bottom performers are high in emotional intelligence. You can be a top performer without emotional intelligence, but the chances are slim.

Naturally, people with a high degree of emotional intelligence make more money--an average of $29,000 more per year than people with a low degree of emotional intelligence. The link between emotional intelligence and earnings is so direct that every point increase in emotional intelligence adds $1,300 to an annual salary. These findings hold true for people in all industries, at all levels, in every region of the world. We haven't yet been able to find a job in which performance and pay aren't tied closely to emotional intelligence.

You can increase your emotional intelligence.

The communication between your emotional and rational "brains" is the physical source of emotional intelligence. The pathway for emotional intelligence starts in the brain, at the spinal cord. Your primary senses enter here and must travel to the front of your brain before you can think rationally about your experience. However, first they travel through the limbic system, the place where emotions are generated. So, we have an emotional reaction to events before our rational mind is able to engage. Emotional intelligence requires effective communication between the rational and emotional centers of the brain.

Plasticity is the term neurologists use to describe the brain's ability to change. As you discover and practice new emotional intelligence skills, the billions of microscopic neurons lining the road between the rational and emotional centers of your brain branch off small "arms" (much like a tree) to reach out to the other cells. A single cell can grow 15,000 connections with its neighbors. This chain reaction of growth ensures it's easier to kick a new behavior into action in the future.

As you train your brain by repeatedly practicing new emotionally intelligent behaviors, your brain builds the pathways needed to make them into habits. Before long, you begin responding to your surroundings with emotional intelligence without even having to think about it. And just as your brain reinforces the use of new behaviors, the connections supporting old, destructive behaviors will die off as you learn to limit your use of them.

Jeff Sonnenfeld for WSJ: Activist Shareholders, Sluggish Performance

Here’s an important article from my former colleague Jeff Sonnenfeld, who demonstrates that returns from activist funds are less than 50% of the S&P 500, and result in dismantling some formerly great companies. DuPont, in particular, does not deserve the kind of activist proxy attack Nelson Peltz is waging. It is a great company that is well run by CEO Ellen Kullman.

From Wall Street Journal, “Activist Shareholders, Sluggish Performance,” posted April 1, 2015.

For all the talk about activist shareholders—usually large hedge funds—getting seats on company boards and pushing to make strategic, value-enhancing changes, these activists haven’t fared especially well. Investing in index funds would have yielded better returns over the past few years than most activist funds.

How much better? In 2013 the HFR Activist index posted a total return of 16%, less than half the S&P 500 Index’s total return of 32.4%. In 2014 the HFR Activist Index saw returns of 4.8%, far below the S&P 500’s 13.7%.

Contrary to their rhetoric, many activist investors lack the Midas touch. Their recent returns may exceed the performance of other hedge funds, but they still lag behind the broader market. Ironically, the major companies targeted today, including Apple, PepsiCo, Dell, Dow and DuPont, generally deliver returns that soar above that of activist funds.

Some funds, such as Third Point, Relational Investors, Starboard Value and TPG-Axon Capital, have driven constructive outcomes at Yahoo, Office Depot, Hewlett-Packard, Home Depot and SandRidge Energy. Yet too often activists pressure companies to cut costs, add debt, sell divisions and increase share repurchases, rather than invest in jobs, R&D and growth.

They do all this in the name of creating shareholder value. But that value is often short-lived and sometimes comes at the expense of long-term success, if not survival. Despite Carl Icahn’s successes—such as Chesapeake Energy (Netflix and Apple were great investments but they resisted his advice)—his overlooked failures include TWA, WCI Communities, Blockbuster and Dynegy, all of which are either out of business or have filed for bankruptcy.

Nelson Peltz’s Trian Fund Management and its activist assaults on the Bank of New York, PepsiCo and DuPont are an interesting case in point. Trian delivered only an 8.8% return in 2014, nearly five percentage points below the S&P 500. In 2012 Trian was up a scant 0.9% while the S&P 500 was up 15.9%. Clearly, this undermines Mr. Peltz’s argument that DuPont’s board needs Trian and Mr. Peltz to drive better returns.

Five of the 11 companies where Trian has a seat on the board underperformed the S&P 500 between the time Trian got its seat and the end of last year—Wendy’s, Legg Mason, Mondelez International, Family Dollar and Chemtura, which went bankrupt in 2009 after two years of Trian board involvement. Contrast these companies with State Street, which rejected Trian’s breakup and board-seat demands and has handsomely outperformed the S&P 500 (129.5% to 80.5%) over the past four years—without Trian’s help.

Even better returns were available to those who invested in companies that activists sought to topple. Suppose on Jan. 1, 2010, you put $100 each in DuPont, an S&P 500 mutual fund and Trian. Your investment in DuPont would be worth roughly $240 today. Your S&P 500 fund would be worth roughly $200. And your investment in Trian would we worth roughly $190. DuPont’s returns handily beat those of Trian in 2010, 2012 and 2014.

Mr. Peltz now is waging a costly, distracting proxy battle to break up DuPont to deliver short-term gains while demanding he personally have a seat on the company’s board. This despite Trian’s poor showing versus DuPont and the latter’s recent hiring of two new directors, Edward Breen and James Gallogly, two former CEOs and tough industrialists whom Mr. Peltz unsuccessfully solicited in 2014 to serve on Trian’s board of directors.

Given DuPont CEO Ellen Kullman’s success since taking the reins in 2009, it’s not surprising that Trian’s assault has been thwarted. Nevertheless, DuPont has offered to accept a current Trian board nominee—other than Mr. Peltz—out of respect for Trian’s 3% stake.

As Securities and Exchange Commission Chairman Mary Jo White said in a March 19 speech at Tulane University’s Corporate Law Institute: “Reflexively painting all activism negatively is... using too broad a brush and indeed is counterproductive.” Activists and their target companies, she said, should “step away from gamesmanship and inflammatory rhetoric that can harm companies and shareholders alike.”

But with activist funds now boasting $120 billion under management—up 30% in the past year—there is no harm in asking what their own investors are getting back. The most aggressive activists court governance advocates and state pension funds with costly media campaigns against target companies that, paradoxically, outperform them. Perhaps they should be more active in raising their own shareholder value.

Mr. Sonnenfeld is a professor of management and senior associate dean of leadership studies at the Yale School of Management.

World Economic Forum: How to find strength in admitting your weaknesses

By Daniel Goleman for World Economic Forum, March 20, 2015

The willingness to admit your weaknesses and your vulnerabilities is actually very powerful. You can gain strength by admitting your faults to yourself and your peers. When you admit it, you make it a part of what we share as information about ourselves. It makes it okay for me to bring it up, which is crucial for working through conflict. You can even joke about it to ease tension. “You’re doing that thing again.”

But if you keep it to yourself or worse, are unaware of your own faults, then people don’t know what to do. You become the elephant in the room.

I spoke with Bill George, Harvard Business School professor, for my Leadership: A Master Class series about authentic leadership. Bill talks about the dangers of only putting your best foot forward. Here’s what he had to say.

“I lead small group discussions with my students at Harvard. Everyone tells their life story. They share the good, the bad and the ugly. We also talk about how they “lost their way.” It’s liberating for everyone. It’s a relief to hear someone admit they’re not perfect. It allows me to share a similar experience, and how I bounced back.

I remember when I started playing the corporate CEO game. I thought I was on track. I thought I was a valued leader. But early on, it was hard for me to admit that I was losing the race. I had to come to my senses and get real about what was working and what wasn’t.

My greatest crucibles are now part of my story. I noticed that in telling my story, warts and all, people not only know who I am, but they don’t “reject me” when I tell them a less than flattering aspect about myself. People understand because chances are they’re been to some difficult places, too.

That level of acceptance gives me a sense of well-being. I’m okay. I’m not a failure. I don’t have to hide. That weight lifted allows me to focus on the things I’m good at. I don’t have to worry about all the things I’m not so good at because I know I can surround myself with people who can pick up the slack, so to speak.

You can’t be comfortable in your skin until you know who you are, and you’re willing to open up and admit who you are. I’ve never met anyone who didn’t have weaknesses. But I’ve met a lot of people who have blind spots. They won’t acknowledge or admit where they fall short.

 

Of course, in moving through a career, people are rather tacitly encouraged to present their best parts. Asking people to include their faults into the mix is a tough sell. But in every course I teach, I ask a simple question: When are you going to stop chasing the world’s adoration and admiration and follow your own deepest internal desires? The world is a fickle partner. You can be hero one day and a bum the next. You have to be solid to withstand the rocky roads ahead.”

Learn How to Share Your Story

Here are ways to help you become more comfortable with telling your whole story.

  1. Read Bill George’s book, True North, which debunks the myth of the superhero top executive. Over 100 executives talk about their failures and personal tragedies, and how these setbacks shaped them as leaders.
  2. Keep a journal. Not ready to go public with your faults and failures? Write them out first. According to Teresa Amabile, work diaries offer people a new perspective on themselves as professionals and what they needed to improve.
  3. Find a mentor. We’ve all hit roadblocks in our career. It helps to talk with someone who has “been there” to guide you over the hurdles.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

Author: Daniel Goleman is the author of The Triple Focus: A New Approach to Education