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

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

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

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

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

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

IMPERATIVE: REBUILD PUBLIC TRUST

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

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

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

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

VALUING CUSTOMERS BUILDS SHARE PRICES

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

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

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

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

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

"Lean Is Good" on 7 Lessons

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

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

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

Comments on Stephen Gill's Recent Post

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

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

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

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

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

Why Colleges Should Teach Leadership

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

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

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

Washington Post Video Interview with Steve Pearlstein

I recently sat down with The Washington Post's Steve Pearlstein for a conversation on the hard realities of leadership in crisis.  I've included a few bullet point higlights below, but encourage you to watch the brief interview.  I would greatly enjoy hearing your feedback.  Once again, my thanks to Steve Pearlstein and the Washington Post.

Podcasts & Reviews: 7 Lessons For Leading In Crisis

At the World Business Forum this past September, I had the pleasure of hosting a reception with the top business bloggers in the country who in attendance cover the events.

I’ve remained in contact with many of them, and recently connected with Jonathan Fields for a podcast to discuss my latest book, 7 Lessons for Leading In Crisis.  We also took a deeper dive on crisis-time leadership and social media. 

Here’s what Jonathan had to say about the conversation:

“In this candid interview, Bill and I cover everything from leading in a time of crisis to the true meaning of success on a personal level. He reveals not only his thoughts on business, but on family, life, passion and people. And, you’ll never believe what he’s been doing twice a day since the 70s; it’s something he says has been instrumental in his success.”

You can listen to the entire conversation here: Behind The Leader: A Candid Conversation with Bill 

* * * * * *

WBF alum, Steve Todd was gracious enough to review 7 Lessons for Leading In Crisis.  I’ve included a few excerpts below:

“Overall I enjoyed the unique point of view on the financial crisis, as well as the framework for evaluating leadership. It's a good reference book to keep handy during tough times.”

“If I want to evaluate my own leadership skills during a crisis, the book is an excellent place to turn. If I want to evaluate a public official, or a corporate executive, and formulate a thoughtful opinion of their performance during a crisis, I would refer to this book.”

You can read the rest of the review here: Book Review: 7 Lessons For Leading In Crisis.

Many thanks again to Steve and Jonathan!

The 10,226.94-Point Dow Doesn’t Matter, Either

Last month the Dow hit 10,000 for the first time since the 2008 financial crisis.  That same day I wrote a blog cautioning those who celebrated the number as a sign of post-recession resurgence.

Last Friday the Department of Labor released its latest report.  The news is decidedly grim.  Despite a climbing Dow and increased investor confidence, unemployment currently hovers at 10.2% (17.5%+ if you consider underemployed workers).

Last night the Dow rallied again to close at 10,226.94, its highest finish since Oct. 3, 2008.  Meanwhile, the predicament of the American worker remains the same.  By year’s end, 9.36 million men and women will be out of a job.  The Dow’s showing, though encouraging, doesn’t reflect the struggle to survive on Main Street.  In fact, there is an unfortunate inverse relationship emerging: as the Dow increases, the number of jobs decreases.  As financial markets improve, the real economy’s condition worsens.

It is not that the Dow increase doesn’t reflect any improvement – it’s a positive sign that investor confidence is on the rise.  But to tout it as the first charge of an 18-year bull market (as pundits are doing in likening our situation to the 1983 market upswing) is irresponsible and misleading.

Henry Blodget wrote an insightful piece yesterday to explain why 2009 is so vastly different from 1983, and why we’re not necessarily on a repeat course.  On top of stocks already being expensive and consumers staring down nearly 100% more debt, interest rates are currently at rock bottom (it was a decrease in record high rates beginning in 1983 which helped usher in the Bull Market).

What concerns me is the speed with which the media, certain economists, and many on Wall Street assume that one minor improvement is the first flake in a growing snowball of profit.  By hastily taking advantage of rock-bottom interest rates and a falling dollar – and betting on governments’ sustained stimulus-supported economy – investors risk creating a recovery bubble that has the potential to burst when stimuli are removed. 

In effect, this latest jump could become the spike before another lull; or worse, a plummet. 

It’s imperative we not assume that Dow jumps or dollar rebounds will automatically spark an inevitable recovery.  At this point, nothing is inevitable – neither the speed of recovery nor the shape of the recovery itself.  We must continue to look for long-lasting solutions, such as abstaining from short-term investing and incentivizing responsible behavior. 

Make no mistake – it’s not 1983.  Don’t uncork the champagne just yet.

Great Conversation On Leadership By James Heskett

Here is the best dialogue I've seen yet on authentic leadership and the perceived need many leaders have to wear "The Masks of Command." My thanks to Jim Heskett and HBS Working Knowledge for engaging these issues

Originally on posted on Harvard Business School - Working Knowledge by James Heskett, a Baker Foundation Professor, Emeritus, at Harvard Business School.

Summing Up

Do authentic leaders need "masks of command"? Instructors seek case studies posing issues that provoke discussion on both sides of an issue and raise many questions. We seem to have found such an issue this month: Can the "masks of command" coexist with authentic leadership?

Those arguing that the two can coexist cite situations, generally involving adversity, in which the "greater good" is served by masking a leader's feelings. Frances Pratt argued that "… we must be careful (and caring) in the way we tell people difficult things. I do not believe that this makes us inauthentic." As Marlis Krichewsky put it, "Playing with the mask when the situation allows it strengthens the team spirit." Dan Erwin commented, "… rather than a single underlying, authentic and true self, individuals are a collection of masks tied to particular social or work settings." While agreeing in general, Ann Parker voiced a note of caution: "All leaders at times mask their feelings, especially fear or uncertainty. The danger is that for some they begin to believe that the mask is who they really are."

Others were not so sanguine. Richard Neff offered the opinion that "The(re) is no right or one way to lead … It should, however, always be authentic. Otherwise it's not leadership at all." Kamal Gupta pointed out that "Speaking the truth with your team always helps. It builds trust." Shadreck Saili commented, "When a leader builds a mask around him/her … you close yourself from learning." Joe Schmid had no doubt, saying, "I'll simpl(ify) the question substituting 'two faced' for 'mask.' Can a two faced leader be 'authentic'? … Absolutely not." M. Mushato was even more emphatic: "The mask concept explains most if not all of mankind's woes of today."

Those arguing a middle ground put forth some interesting suggestions, such as Leamon Duncan's: "… sometimes leaders must mask feelings and emotions in order to exhibit calm in the midst of chaos…. It's after the battle when the leader shares how they actually felt or the range of emotions they were experiencing…. Be who you are, lead how you prefer to be led."

The importance of self-awareness in the use of "masks" was stressed repeatedly. As Richard Strasser said, "… to lead with authenticity, a leader needs to be very comfortable with who he is as a person." Brian Woodward put it this way: "The most important and powerful conversations occur between the individual leader and his/her leader's mask."

Questions raised were as interesting as the comments. Although she didn't pose it as a question, Dianne Jacobs challenged us to think about whether "the experience and consequences of practicing leadership (and the use of masks) will be different for women"? (She believes they are.) Dr. Kervokian asked whether what is authentic is relative to "environmental and cultural norms." Then there were those who asked just what functions "masks" serve? David Broderick said, "The main reason masks exist is for leaders to hide their flaws from their followers." Srini commented that "'Authentic Leaders' do not have the need for a mask." What do you think?

Click Here to read the entire article.