Bill George, Harvard Business School professor, former Medtronic CEO and CNBC Contributor, weighs in on the Valeant Pharmaceuticals leadership change and gives his pick for who should replace Michael Pearson as CEO.
They’re know-it-alls and braggarts. They rule with an iron fist. It’s their way, their idea, their direction – or nothing at all.
No doubt we’ve all encountered a dictator boss, or one with so little humility, we’re really not sure they had any to begin with. Is there any way to tame these characters at the office? It’s a topic several LinkedIn Influencers weighed in on this week. Here’s what two of them had to say.
Daniel Goleman, co-director of the Consortium for Research and Emotional Intelligence in Organizations and co-founder of the Collaborative for Academic, Social, and Emotional Learning
Is there any hope for a dictatorial leader? Goleman tells the story of a manager named Allen. Behind his back, his “staff called him ‘Mr. My Way or the Highway’… Allen ruled his department with an iron fist, making every decision big and small with little input from others.” Allen’s staff didn’t dare make suggestions, he wrote in his post How to Coach a Dictatorial Leader.
With so much evidence showing that dictator leaders negatively impact team performance, it’s not just a personality problem. Executive coaches say dictatorial leaders can be tamed, sometimes. Goleman cited the work of Daniel Siegel, author of Mindsight and executive coach and speaker who tries to understand what makes a person a dictator leader.
According to Siegel, people need three “S’s”: To be seen, to be soothed, and to be safe. “When you’re safe, soothed and seen in a reliable way, you get the fourth S, security.”
The bottom line, Goleman wrote, is that when people don’t have these three S’s, they lack a sense of security, a state of mind that can make them prone to acting like a dictator in an organisation.
But changing a dictator’s style only starts with understanding why they behave that way. Goleman would ask a dictator two questions — first, do they care, and second, do they want to change? If they do want to change, dictators have to see themselves the way others do, he wrote. Yes, the dreaded 360-review (where the employee’s closest workmates are asked to provide feedback on him or her) can be a useful tool for homing in on the problem, Goleman wrote.
Next, he wrote, find a positive career model for your dictator. This could be “someone in their own career they loved as a leader… a very positive model rather than the way they’re being. Then, help them practice steps that will make them that kind of person … where they see the value of a different form of leadership.”
Ready to give up on a stuck-in-his-ways dictatorial boss because you think it’s no use changing someone so set in their path? Not so, wrote Goleman. “It’s never too late.”
Bill George, former chief executive officer at Medtronic and professor at Harvard Business School
Every day, news headlines seem stuffed with examples of not-so-humble leaders.
“Listening to the media these days one would think that our leaders have lost all sense of humility, if indeed they ever had it,” wrote George in his post Are Our Leaders Losing Their Humility?“ Donald Trump brags that he used a $1m inheritance to create $10bn net worth” and chief executives “hype their quarterly results by focusing only on the positive aspects, only to see their company’s stock prices collapse at a later date."
“Whatever happened to humility as a virtue for leaders?” George asked. The finest leaders, he wrote, “are keenly aware of their limitations and the importance of teams around them in creating their success. They know they stand on the shoulders of giants who built their institutions.”
They also exhibit humility, he wrote, not just in their interactions with others, but also in the actions everyone can see. Perhaps it’s the concept of humility that’s been lost, he added.
“The word humility is often misunderstood. Dictionaries define it as ‘a modest opinion of one’s own importance’, ‘the quality of not thinking you are better than other people’, and ‘self-restraint from excessive vanity’”. But most importantly, “humility derives from an inner sense of self-worth….Ultimately, they know to lead is to serve their customers, employees, investors, communities, and ultimately, society through their work.”
But, he wrote, leaders who lack humility don’t seem to have that sense of self-worth. “Leaders who brag and tout their achievements often do so from a deep sense of insecurity. Outwardly, they act like bullies and try to intimidate people, but inside they feel like imposters who may be unmasked at any time.”
This article was originally posted to BBC.com on 3/11/16.
During the past year I have been a consistent critic of activist investors seeking to take over or influence well-run companies including Apple, PepsiCo, Amgen, DuPont, Dow, eBay and Allergan. However, I have supported activists who have challenged moribund management teams backed by complacent boards of directors.
The new challenge to United-Continental Holdings, known as United Airlines, fits the latter description perfectly. United deserves to be challenged. This week, PAR Capital and Altimeter Capital, two hedge funds with years of experience investing in the airline and transportation industries, have assembled 7.1 percent of United's shares and seek to name six board members.
Leading their charge is none other than Gordon Bethune, the successful former chairman and CEO of Continental (1994-2004) and career veteran of the airline industry.
Bethune, in an appearance on CNBC this week, criticized the airline's performance and lack of airline experience on its board and in its executive leadership.
"The current board has a country club atmosphere," Bethune said.
Having Bethune at the helm would be a refreshing change for United's leadership, which has been non-existent since CEO Oscar Munoz's heart attack in October and subsequent heart transplant. Prior to Munoz's appointment last September, the board ousted former CEO Jeff Smisek who had created "the chairman's flight" to South Carolina to win favor with the chief regulator of the Newark International Airport in order to gain concessions for United.
United's troubles existed long before Smisek's termination. The 2010 merger with Continental was plagued by poor integration, battles with its unions and computer problems that led to persistent delays, missing luggage, and poor customer service. Its first-line employees were angry at how they were being treated, and their attitudes impacted United's passengers. According to the Bureau of Transportation statistics, over one-quarter of its flights arrived late last year – by an average of 65 minutes! That was well above other airlines, includingDelta and American.
The contrast is marked between United's woeful performance and the stunning leadership of Richard Anderson, Chairman and CEO of Delta Airlines. Anderson is an airline industry veteran who revived the former Northwest Airlines as its CEO, before a brief sojourn as executive vice president of United Health Group. Anderson became Delta's CEO in 2007 to lead it out of its 2005 bankruptcy. The following year he merged Delta with Northwest, which had also gone through bankruptcy, and quickly created a unified culture, sound relations with the pilot's union, and an integrated route structure. He took the unusual step of changing ID numbers on employee security badge to erase any identification with Northwest or the old Delta.
Anderson is a hands-on leader who meets regularly with employees and is often found on the flight line talking with the maintenance crew or in the cockpit jump seat chatting with pilots. He eliminated the bottlenecks in flights by boarding passengers forty minutes early, ensuring minimal lost baggage, and enabling many flights to arrive early – all of which have led to high levels of customer and employee satisfaction. Since the 2008-09 recession, Delta has experienced strong profitability and is using its cash flow to invest in updated aircraft and improvements to in-flight customer service.
As a frequent flyer on Delta and a reluctant passenger on United, my experiences with the two airlines differ dramatically. It is a pleasure to fly Delta where the pilots and flight attendants seem to genuinely enjoy flying and serving passengers. Delta is so efficient that I have come to expect to arrive early, and walk away feeling very satisfied. In contrast, the morale at United seems low. Do employees care whether the flight arrives on time or not? In a way, you cannot blame them as their systems are so poor that flight delays are inevitable.
Thus, United is a perfect target for an activist takeover that could benefit from a board and leadership team of airline veterans. Who better than Bethune to lead the transformation? For the sake of United's passengers and employees, this is one battle the activists deserve to win.
This article was originally posted to CNBC.com on 3/9/2016.
Listening to the media these days one would think that our leaders have lost all sense of humility, if indeed they ever had it.
Donald Trump brags that he used a $1 million inheritance to create $10 billion net worth. CEOs like Valeant’s Mike Pearson hype their quarterly results by focusing only on the positive aspects, only to see their company’s stock prices collapse at a later date. Activist investors like Carl Icahn and Nelson Peltz act like they understand complex businesses better than experienced leaders with decades of experiences. Then they use media appearances and public pronouncements to bully CEOs and their boards into “quick fix” solutions.
Whatever happened to humility as a virtue for leaders?
In his 2005 Harvard Business Review article, author Jim Collins postulated a higher level of leader characterized by humility and fierce resolve. This indeed corresponds with my experience: the finest leaders are keenly aware of their limitations and the importance of teams around them in creating their success.
They know they stand on the shoulders of giants who built their institutions. Their job is to build teams of leaders capable of taking their organization to higher levels in order to cope with today’s fierce demands. They exhibit humility in their actions and interactions, yet are passionately committed to the success of their enterprises.
The word humility is often misunderstood. Dictionaries define it as “a modest opinion of one’s own importance,” “the quality of not thinking you are better than other people,” and “self-restraint from excessive vanity.” It is certainly not false modesty or disavowing one’s accomplishments.
Humility derives from an inner sense of self-worth. Humble leaders are grounded by their beliefs, their values, and the principles by which they lead. Ultimately, they know to lead is to serve their customers, employees, investors, communities, and ultimately, society through their work.
Humility is an essential quality for authentic leaders. People trust them because they know they are genuine, honest, and sincere. Lacking those qualities, people live in fear and doubt – not exactly the ingredients to bring out the best in people. In difficult times, people rely on humble leaders even more to get them through crises.
Every day leaders are closely scrutinized for their words and their actions, as they become role models for people inside and outside their organizations. In contrast, leaders who brag and tout their achievements often do so from a deep sense of insecurity. Outwardly, they act like bullies and try to intimidate people, but inside they feel like imposters who may be unmasked at any time.
This is not to suggest that humble leaders are soft, weak, or unwilling to take tough actions such as terminating poor performers or laying people off. They do so with clarity about the impact of their actions, not for themselves but for the greater good of their organizations.
For much of my life, no one would have considered me humble. To the contrary, I felt the need to push myself forward through my accomplishments, to be recognized for my achievements, and to express confidence that I could solve any problem presented to me. In part, these characteristics stemmed from fear of being rejected by others or bullied by powerful personalities. In my early years it was hard to admit my mistakes without rationalizing them or to say simply, “I don’t know.”
As my inner confidence grew, I no longer needed to have all the answers or try to impress others with what I had done. I freely admitted my mistakes, and learned that doing so enabled others to acknowledge their errors. I recognized vulnerability is power, not trying to appear invulnerable. As I did so, people gained greater confidence in my leadership and expressed increased desire to join me in common pursuits.
I still don’t like bullies, and want to challenge them, rather than let them get away with intimidating others. When I witness them trying to overpower others, I defend people against them. At least now I confront them with facts and rational arguments, not emotional responses.
Ultimately, we connect with others not through our words, our intellect, or having the right answer, but through our hearts – our humility in the challenges we face, missteps we have made, our weaknesses, and our acceptance of not knowing. As the Bible says, “With pride comes disgrace, but with humility comes wisdom” (Proverbs 11:2). This is the wisdom of experience tempered by judgment.
Trust is the foundation of American capitalism. Many activist investors have damaged that faith.
The media heaped adulation on activist investors. Bill Ackman graced the cover of Forbes with the moniker “Baby Buffett.” Nelson Peltz headlined big conferences. CNBC held off its commercial breaks when Carl Icahn called in.
In recent weeks, however, the activist movement appears to have peaked. Investors who entrust their money to activists do so for one simple reason: they anticipate higher returns than they obtain from index funds. After all, why would they pay activists a flat 2% management fee plus 20% on their gains, when they can invest in Vanguard index funds for only 0.15%?
The performance of activist funds in 2015 and January 2016 was anything but impressive. During 2015, activist targeted stocks declined 8%, compared to gains of 1.4% for the S&P 500. And in January, activist funds declined an additional 6.1%. These results are causing investors to reconsider investing in activists and voting with them in proxy fights.
Rise of the Activists
During 2014 and 2015, the prominence of activists exploded. More than 200 American companies were publicly subjected to demands from activist investors in the first half of 2015 and approximately two-thirds of those demands were successful. The win rate of activists battling for a seat on a company’s board rose from 52% in 2012 to 73% in 2014. And within 18 months after an activist investor joined their board, 44% of companies replaced their CEOs.
Activists posted strong returns from 2012 to 2014, buoyed by the S&P’s post-recession performance. Activist funds gained 9.3% in 2012, 19.2% in 2013, and 8.5% in 2014, compared to -0.5%, 15.8%, and 2.1 % for the S&P 500 Index. Activist coffers swelled from $23 billion in 2002 to $166 billion in 2014. Some activists like Icahn have even taken relatively inactive positions in well-managed, large companies like General Electric, a move that makes “activist investing” sound more like stock picking with very high fees than a balanced investment strategy.
Activists recorded some big wins in the last two years in struggles with major companies like DuPont, Dow, Procter & Gamble, eBay, and Microsoft. Their influence grew as they toppled leading CEOs like Microsoft’s Steve Ballmer and P&G’s Bob McDonald. Icahn was even able to pressure mighty Apple to let go of part of its enormous cash hoard by buying back $140 billion of its stock.
At the end of 2015, activist Nelson Peltz recorded one of his biggest “wins,” just six months after he lost a hard-fought proxy contest to DuPont CEO Ellen Kullman. After DuPont DD -1.04% beat the market by 100% during Kullman’s first six years, the company reported two weak quarters, largely on account of factors that affected all commodity producers: China’s slump, collapsing commodity prices, weak agricultural markets, and negative currency comparisons. The company’s stock price dropped nearly 30%, and Peltz’s team renewed its pressure on DuPont’s board.
Ed Breen, who joined DuPont’s board in January, and the company’s other board members relented. Kullman resigned under pressure, and Breen became DuPont’s new CEO. During his first month on the job, Breen accepted Dow CEO Andrew Liveris’ proposal to merge DuPont with Dow and then split the combined business into three smaller companies. They were following the activist’s script to near perfection.
Liveris himself was under pressure from another activist investor, Dan Loeb’s Third Point. Just a year before, Liveris agreed with Loeb to add four new board members in exchange for a standstill in the activist pressure. Liveris and Breen announced their plan just two days before that détente was set to expire. Loeb was furious that he was not consulted about the deal, and he called for Liveris’ immediate resignation.
Anticipating short-term results, DuPont and Dow DOW -0.88% stocks both jumped 12% with the announcement. But the euphoria didn’t last. Investors questioned the validity of the merger and subsequent three-way breakup, causing both stocks to drop 22% since then, more than 10% below their pre-merger levels. After their complex restructuring is completed, the three baby DuPont-Dows will struggle to keep up with global giants like Germany’s BASF and China’s Sinopec. And DuPont is closing its corporate research center that invented nylon, Teflon, and solar cells in favor of near-term product development, all while BASF invests €1.88 billion annually in R&D.
By the end of 2015, the lessons learned from DuPont-Dow were causing leading law firms to recommend settlement with activist investors rather than risk costly proxy fights. AIG AIG -1.42% was the most recent to react, adding board members from Carl Icahn’s team and investor John Paulson himself, in order to avoid a break-up following a losing quarter.
Wither the Activist Movement?
The veneer of invincibility is wearing off for activists. “Investing King” Carl Icahn has lost money on bets, as Hertz HTZ 0.82% and Chesapeake Energy’s CHK 5.32% shareholder return fell 43% and 39%, respectively, since his interventions. Bill Ackman’s firm, Pershing Square Holdings, reported a 20.5% dip in 2015, its worst performance in 11 years, and has slid an additional 18% in early 2016.
Activists are currently facing the true test for any investor in a volatile, even declining, market: can they create value for investors while avoiding big pitfalls? In spite of their billionaire status, outsize egos, and media images, activists do not have investing superpowers. Instead, they have taken advantage of a simple strategy: buying volatile stocks in a rising bull market. Activists learned to avoid troubled companies and instead invested in high performers like PepsiCo, eBay, Apple, and Allergan. Then they focus on short-term financial “fixes” such as stock buybacks or splitting a company.
That’s what happened to Kraft when Peltz pressured CEO Irene Rosenfeld to break the global company into a North American company retaining the name Kraft and an international company named Mondelez MDLZ 0.38% , based in Chicago and run by Rosenfeld. The financial engineering created short-term value for shareholders, but Mondelez has since been in a period of malaise. Meanwhile, Kraft collapsed due to a lack of leadership, fled into the arms of Brazilian investment firm 3G, and was merged into Heinz. Unsurprisingly, the Brazilians are looking to cut costs at Kraft by 40%, as its revenues fall sharply. Ackman has recently joined the fray, recommending Mondelez also be merged into Kraft-Heinz.
The Real Activist Strategy and Results
Activists often act like they understand their target’s business better than its managers, charging in with MBA-like presentations. While a company’s stock price frequently rises when an activist buys minor fractions of its stock, their recommended moves often fail to create sustainable shareholder value. By this time, however, it’s hard to put a company back on course.
Activist investors are outsiders who are focused too much on stock analysis and too little on understanding the strategy and culture of organizations. Meanwhile, they often hurt company performance by forcing the abandonment of investments in long-term initiatives like research and development (R&D) and capital expenditures. For all their brilliance, they are in no position to make deep qualitative judgments about a company’s R&D pipeline, quality of innovation, and cultures.
Activist investors frequently bail out once they are able to increase the share price of a company through financial engineering. This will ultimately hurt America’s competitiveness. Since 2010, the 1,900 companies that repurchased their shares allocated an average 113% of their capital spending to buybacks and dividends, compared to only 60% in 2000. Previously, these funds were spent on innovation, R&D, and marketing. Underneath the façade of inflated share prices are underinvested assets.
Despite the significant media attention devoted to activists, their overall long-term financial impact remains unclear. An October 2015 review of activist investors by the Wall Street Journal concluded, “Activism often improves a company’s operational results—and nearly as often doesn’t.” That’s based on short-term measures, not the ability of the company to compete through 10 to 20-year business cycles and emerge on top.
CEO Larry Fink, whose BlackRock funds have more than $4 trillion in assets under management, recently sent another one of his powerful letters to S&P 500 CEOs, warning them about favoring financial engineering over sound strategy and management. He argued:
“Many companies continue to engage in practices that may undermine their ability to invest for the future. Dividends paid out by S&P 500 companies in 2015 amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months…. We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”
Trust is the foundation of American capitalism. Unfortunately, many activist investors have damaged that faith. The staying power of activists will depend on whether they are able to regain our confidence through sustained financial performance, heightened innovation, and greater long-term investments, not just immediate gains.
Bill George is Senior Fellow at Harvard Business School, former Chairman & CEO of Medtronic, and author of Discover Your True North.
This article was originally published 02/18/16 on Fortune.com.
William George, Sr. Fellow at Harvard Business School and Former Medtronic CEO, weighs in on the latest action coming from Twitter and their business strategies.
This article was originally posted to CNBC.com on 01/25/16
At the World Economic Forum in Davos, Switzerland, a lot of people were palpitating about the decline in stock prices since the start of 2016, the precipitous drop in oil prices, the slowdown in China, war in the Middle East – even the prospects of Donald Trump or Ted Cruz in the White House. The stock market tends to overreact to perturbations like these, just as it did to Greek concerns in 2014 and 2015.
For the two dozen CEOs I talked to at Davos, it is "full speed ahead." Not that they aren't concerned about these geopolitical factors. Rather, they have already anticipated this kind of volatility and designed their corporate strategies to adapt rapidly to changing global conditions.
No doubt the slowdown in the global economy is a significant factor, but it certainly does not impact everyone equally. Rather, in Warren Buffett's infamous words, "When the tide goes out, you find out who is swimming naked." In my view, times like these separate the well-run companies from the short-term players that are caught unprepared.
Let's look at contrasts in several industries between companies with the best leaders who have long-term strategies and those who choose to react to short-term events. Here are some of the winners where investors might place long-term bets:
Unilever vs. Procter & Gamble: Since becoming CEO in early 2009, Unilever's Paul Polman has built a diversified strategy to pursue the world's markets with vigor. He's rapidly adapting to changing conditions using the banner of "sustainability," which he sees as Unilever's growth engine in spite of troubled markets. Meanwhile, archrival P&G struggles without a clear strategy. It seems focused mostly on paring back by selling off brands as new CEO David Taylor takes over. In 2015, P&G's stock dropped 15 percent, while Unilever's was up 4 percent.
PepsiCo vs. Coca-Cola: PepsiCo's Indra Nooyi put her strategy in place even earlier than Polman. Soon after being named CEO in late 2006, she declared PepsiCo's strategy of "Performance with Purpose" to focus on healthy foods and beverages. By 2020, PepsiCo plans to reach $30 billion in nutritional product sales, up from $10 billion in 2010. Pepsi's archrival, Coca-Cola, led by CEO Muhtar Kent, elected to double down on sugar-based Coke. Initially, Coke appeared to be winning, but in the last four years, PepsiCo has steadily pulled ahead. Meanwhile, Kent has painted Coke into a strategic corner, appealing to a declining demographic as millennials eschew sugar-based drinks.
Exxon vs. British Petroleum: What will happen to oil companies as oil prices drop from over $100 to under $30 a barrel? Having served on Exxon's board for a decade, I saw first-hand how veteran CEO Rex Tillerson prepares the company for major downturns. Exxon keeps its balance sheet flexible, which gives it the capacity to take advantage of financial stress. Meanwhile, BP's balance sheet never recovered from the Deepwater Horizon incident in the Gulf of Mexico, and it lacks the cash to take advantage of current investment opportunities.
Delta vs. United Airlines: On the opposite side of the oil price decline, Delta is benefiting from lower fuel costs. It is using savings to invest in the higher-revenue business traveler and to reward its high-frequency travelers. CEO Richard Anderson has figured out the basics of appealing simultaneously to both the value-conscious traveler and the business market while achieving superior operational efficiency and high load factors. Meanwhile, United continues to struggle with both service and efficiency. Since 2012, it has ranked near the bottom in delays, cancellations, and mishandled bags. With newly appointed CEO Oscar Munoz recovering from a heart transplant, United may not be in a position to make necessary changes.
Starbucks vs. McDonalds: The growth that Starbucks has enjoyed since founder Howard Schultz returned as CEO in 2009 is nothing short of phenomenal. Meanwhile at McDonalds, new CEO Steve Easterbrook has made much needed changes and the stock market has hailed his initiatives. Nevertheless, it will be very difficult for McDonalds to return to sustained growth as it is trapped with a declining demographic. McDonald's has yet to shake its reputation of serving unhealthy, highly modified foods, which is limiting its appeal to health-conscious consumers.
Target vs. Wal-Mart: Target's new CEO Brian Cornell has moved rapidly to appeal to the younger generation. Cornell has focused on mothers, babies, families and wellness with an omni-channel strategy that is paying off in rising same-store sales. Wal-Mart is trapped with an old demographic and has yet to attract large numbers of millennials. It has too much space as many consumers shift to online purchases. If anyone can turn around giant Wal-Mart, it is new CEO Doug McMillon, a highly progressive leader who is making all the right moves and deserves a long runway to complete the turnaround.
Medtronic vs. Pfizer: Under CEO Omar Ishrak, Medtronic is on a roll. It has successfully integrated its $50 billion merger with Covidien, and its innovation pipeline is paying off in higher growth. Recently, Medtronic announced an additional $1.5 billion in high tech acquisitions. Recently, Pfizer purchased Allergan for $160 billion – more than five times Allergan's revenues. Unlike Medtronic, Pfizer is financially strained and its pipeline is paltry. Allergan won't help much in that regard as it too has a limited pipeline. Expect Pfizer CEO Ian Reed to reach the limits of financial engineering soon after he realizes the cost savings from consolidation of Allergan.
While I don't expect these sharp comparisons necessarily to manifest themselves in the near-term stock performance, they will become evident over the next 3-5 years. In a challenging market, investors will be well advised to be highly selective in their investments and focus on the quality of leadership. It is in difficult times that leadership makes the largest difference and becomes evident. The winners above have leaders who have proven their capacity to take advantage of the current challenges and come out on top.
Commentary by Bill George, a senior fellow at Harvard Business School and the former Chairman and CEO of Medtronic and previously served on the board of Novartis. He is author of the book "Discover Your True North" (Wiley: August 17). Follow him on Twitter @Bill_George.
Disclosure: Bill George holds stock in Exxon and Medtronic, but none of the other companies listed above.
For more insight from CNBC contributors, follow @CNBCopinion onTwitter.
This article was originally posted to CNBC.com on 1/25/16
Bill George is professor of management practice at Harvard Business School, where he has taught leadership since 2004. Mr. George is the former chairman and chief executive officer of Medtronic. He is the author of the new book, Discover Your True North, an updated version of his bestseller True North. In this interview, we discuss how to become an authentic leader.
In This episode, You’ll Learn:
- How to define your values
- How to Build your support team and lead an integrated life
- How to make journey from “I” to “We” as an empowering leader
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This interview was originally published to davidburkus.com on 1/19/15
AMERICA’S PHILANTHROPISTS AREN’T WAITING ANY LONGER FOR POLITICIANS OR BUSINESSES TO SOLVE THE WORLD’S MOST PRESSING PROBLEMS.
To those optimistic, persistent souls who have a vested interest in seeing positive social change in the U.S., here’s a sobering message: if you are looking for meaningful government support, don’t hold your breath.
Political gridlock and mounting federal debt have effectively rendered the U.S. government impotent, robbing it of its historic ability to spur social change. Americans give Congress a miserable 11% approval rating, and when the government does take action, it seems to bungle the job. President Obama’s Affordable Care Act promised to transform health care. After debacles in the rollout of the law, many Americans are accepting penalties versus buying insurance due to the increases in health insurance premiums. Meanwhile, rapid escalation of drug prices continues unabated.
Can business step into the void and champion meaningful change?
Many companies are making important contributions, but CEOs have less leeway than ever to make bold investments in their communities. Due to growing pressures from short-term shareholders and increasing regulations, companies have been severely constrained in making targeted, long-term investments that drive social change.
America’s philanthropists aren’t waiting any longer for politicians or businesses to solve the world’s most pressing problems. They are committing massive amounts of their own money to solve the most difficult challenges in health, education, job creation, and the environment.
In doing so, they are elevating the importance of philanthropy in American society and across the world. By targeting their funds to achieve tangible results, philanthropists are demonstrating they are indeed “the passing gear of society.”
Following a long line of benefactors like Andrew Carnegie, John D. Rockefeller, and Henry Ford, Microsoft founder Bill Gates ignited the current philanthropic revolution. In 2000, he and his wife Melinda announced they were creating a foundation worth $44 billion—half his net worth. Inspired by Gates’ passion and effectiveness, his friend Warren Buffett announced in 2006 he would contribute $30 billion of Berkshire Hathaway stock and have it managed by the Gates Foundation. Since 2000, the Gates Foundation has given away $39 billion to eradicate diseases in developing countries, enable people to emerge from poverty, and improve K-12 education.
Bill and Melinda Gates are anything but “checkbook philanthropists.” They are devoting the bulk of their time traveling the world searching for opportunities to make a difference with their funds. Their focus on overcoming disease, improving education, and lobbying for climate change initiatives is having a powerful impact. They have also built an organization of 1,200 talented people who manage their grants.
In 2011, Gates and Buffett decided to recruit other philanthropists by launching “The Giving Pledge.” By the end of 2015, they had persuaded 141 wealthy couples and individuals to give away at least 50% of their fortunes—a clear indication of the growing power of philanthropy.
Their efforts have borne fruit in the case of Facebook founder Mark Zuckerberg and his wife, Dr. Priscilla Chan. After giving $100 million to Newark, New Jersey schools,$120 million to Bay Area schools, and 18 million Facebook shares (now worth $1.9 billion) to the Silicon Valley Community Foundation, they made the audacious announcement that they would give away 99% of their Facebook stock during their lifetime, an amount currently valued at $45 billion. They decided to make these contributions through a limited liability company (LLC) to have greater flexibility to make grants, lobby for causes, and invest in promising innovative ideas. If Facebook continues its remarkable growth, the ultimate value of the Zuckerbergs’ giving could easily exceed $100 billion.
The Chan-Zuckerberg Initiative makes clear the dedication of Millennials to drive social change. Millennials have a deep passion for making a difference in the world and are focused on making a difference throughout their lives, rather than waiting until their death. At 31, Zuckerberg’s commitment comes at a much younger age than even Gates and Buffett. As he wrote in his inspiring letter to his newborn daughter, “We must make long term investments over 25, 50, or even 100 years.”
In Zuckerberg’s case, it didn’t take long for the cynics to pounce. Because their investment vehicle is an LLC rather than 501(c)(3) foundation, writers like Jesse Eisinger inThe New York Times accused Zuckerberg of a public relations coup, saying, “we are turning into a society of oligarchs.” Eisinger apparently fears the power of the wealthy to influence social change, as Rockefeller, Ford, and Carnegie did in the early 20th century.
Eisinger even had the audacity to assert that he could do a better job of distributing this money than Zuckerberg. Without a touch of humility, he wrote, “I think I might do a good job allocating $45 billion. Maybe even better than Zuckerberg.” Eisinger ignores one simple fact: it’s not his money.
Critics like Eisinger are missing a critical point. Rather than hoarding their money or creating family dynasties as many of their predecessors did, a growing number of wealthy Americans are pledging their fortunes to benefit society.
The critics argue the allocation of these funds is the proper role for government. As Eisinger wrote, “Society can’t rely on the beneficence and enlightenment of the super-wealthy. We need to take a portion uniformly—some kind of tax on wealth.”
This perspective is misguided. The technological and organizational genius of leaders like Gates and Zuckerberg can bring tremendous contributions to the improvement of social welfare. The critics’ apparent alternative—to redesign the U.S. tax system by instituting additional levies on income, capital gains, and estates—would inevitably backfire. They ignore the reality that excessively high tax rates would shut down the incentives that have made America the world’s most entrepreneurial nation—and also the most generous. Because European countries do not permit deductions for philanthropic gifts, philanthropy in those countries pales in comparison to charitable giving in America.
The magnitude of giving by these philanthropists marks a turning point in American society. Rather than criticizing leaders who are stepping up to help solve the most pressing problems of global society – devoting not just their money but their time as well – we should be venerating them. As a result of their remarkable generosity, philanthropy in 2016 is poised to stand alongside government and business as one of the most powerful forces influencing social change.
Bill George is Senior Fellow at Harvard Business School, author of Discover Your True North, and former Chairman and CEO of Medtronic
This article was originally posted to Fortune Magazine on 1/17/2016
On the third Monday in January, the United States holds a federal holiday to commemorate Martin Luther King, Jr.’s birthday and, more important, to honor his immense contributions to this country’s civil rights movement.
Bill George, a senior fellow at Harvard Business School and an expert on leadership, took time ahead of the holiday to reflect on Dr. King’s lasting legacy and to discuss his case “Martin Luther King, Jr.: A Young Minister Confronts the Challenges of Montgomery.”
What compelled you to write this case?
Bill George: I went to college in the early 1960s in Atlanta, where Dr. King lived and had grown up. This was during the height of the civil rights movement he was leading, his “I Have a Dream” speech, and the marches on Washington and in Alabama. King’s legacy of staying true to your beliefs, pursuing your purpose, and exhibiting courage under pressure are profound lessons for leaders in all walks of life.
How do you teach it?
BG: The most powerful moment in the case – and perhaps in Dr. King’s life – occurs in 1958 in Montgomery, Alabama. He was a young preacher with his first parish, and he was chosen at a town meeting one night to lead the protests against racial discrimination. It was a role he neither sought nor was prepared for, since his whole education to that point (including obtaining his doctorate from Boston University) had focused on a scholarly approach to religion aimed at becoming senior minister at his father’s large church in Atlanta. But he could not ignore this new calling.
Traumatized by his predicament, King gets down on his knees and prays for guidance. This is King’s crucible, something that presages all that lies ahead. It represents the turning point in his life. As we all know by now, he decides to accept the call to lead the fledgling civil rights movement. From this point forward, events lead inexorably not only to Memphis and his tragic assassination, but also enormous progress toward racial equality in the United States.
While perhaps not as dramatic as King’s, all of us experience crucibles. It is important that we understand their meaning for our lives, and how they shape our future direction. The key to coping with your crucible is to reframe it in terms of a learning experience and an opportunity for personal growth that will prepare you to deal with the challenges that lie ahead.
Looking back at Dr. King’s legacy, what are some of the most applicable lessons for leaders today?
BG: The most important lesson that all leaders can draw from Dr. King is to recognize how you can make a difference in the world through your leadership, and then to step up to the challenge when opportunities present themselves. When you do so, undoubtedly you will encounter roadblocks and opposition. That’s when it becomes imperative to have the courage and resilience to persevere in order to fulfill your mission. In a very real sense, the character you demonstrate in achieving your purpose is the legacy you leave to those leaders coming along behind you.
“IN A VERY REAL SENSE, THE CHARACTER YOU DEMONSTRATE IN ACHIEVING YOUR PURPOSE IS THE LEGACY YOU LEAVE TO THOSE LEADERS COMING ALONG BEHIND YOU.”
Education laid the foundation for many of Dr. King’s great ideas. How important was that in terms of his leadership and his development of innovative approaches to difficult problems?
BG: Unlike many other civil rights leaders of his era, Dr. King was a scholar who not only pursued depth in his religious studies, but became a student of Gandhi and his approaches to non-violent civil disobedience. Gandhi’s philosophies form the heart of King’s non-violent marches on behalf of racial equality. In its time this was a highly innovative approach to challenging racial discrimination in the American South.
Coretta Scott King is an important figure in this case. Can you talk about her role in Dr. King’s success?
BG: Coretta Scott King was an incredibly strong woman who was at Dr. King’s side throughout his challenging civil rights protests. She knew the dangers he faced and feared for his loss as a husband and father. Yet she was supportive and faithful throughout his ordeals until the very end. After his death, she did her best to further his mission, which was truly their mission, and to carry on his legacy.
One of the issues that I intentionally chose to leave out of the case is King’s relationships with other women – something that FBI Director J. Edgar Hoover kept files and photos of and for which King has been criticized. While King’s lack of fidelity to Coretta does not diminish him and his legacy, it was clearly one of his greatest weaknesses. On the other hand, I think this illustrates that all leaders are imperfect. We should not excuse their failings, but those shortcomings should not cause us to lose sight of their accomplishments and the greater good that they do.
This article was originally posted to HBS.org on 1/15/16