Obama’s Quest to Renew His Administration

In his first State of the Union address President Obama attempted to regain the momentum of his Presidency and get his agenda back on track.

With deliberate seriousness, pragmatic humility, and an upbeat air, the President spoke of American resiliency, reasserting his leadership and his goals. 

He opened by framing the current crisis as part of a timeline of American adversity, from the Revolution to the Depression to WWII, declaring this moment in a long-line of challenging opportunities for Americans.  He painted a scene of the current socio-economic landscape marred by unprecedented financial crises, historic unemployment, legislative stalemates, lingering conflicts abroad, a general air of distrust in government, and growing national partisanship.

To his credit the President took ownership of the situation – from the economic crisis to pending legislation to international affairs – the President accepted responsibility for the past year, and for the success or failure of the year to come. His speech set forth a clear path moving forward.  He offered the perspective one only obtains taking hits at the helm, and learning from experience. 

He publicly conceded political missteps and miscalculations, all but acknowledging a complete bungling of healthcare.  But, he simultaneously reasserted his fierce commitment to reforming the currently defunct system, vowing to do so more pragmatically and with the support of both parties.

He displayed the confidence to compensate for legislative miscalculations and economic misreading by now focusing primarily on job creation, the economy, and small business growth incentives.

He took ownership of the economy.  Rightfully contextualizing the current state of affairs by laying partial blame on the previous administration and a short-termist mentality on Wall Street, the President then shunned those shortcomings and stepped forward to make the economy, and its eventual recovery, entirely his. 

He outlined plans for the future in a way that was appropriately wonk-ish and “everyman.”  Not everyone liked every proposal.  But everyone could understand every proposal.

This speech was his opportunity for the President to clear the air, press the rest button, and start anew.  He is doing so with a passionate resolve and still-ambitious agenda. It remains to be seen whether the President will move his agenda more to the political center in order to get legislation passed, or whether he will continue to up the populist rhetoric of recent days. Let’s hope it is the former.

Whitacre In For The Long Haul

Interim General Motors CEO Ed Whitacre will assume the position permanently following an announcement this past Monday.  As a long-time proponent of Whitacre as a leader and CEO, and as a watchful observer of the changes he’s already overseen at GM, this development makes me optimistic about the future of the great American car company.

The GM board’s decision to make Whitacre the “permanent” CEO is great news for taxpayers who own 70 percent of GM, GM customers, and GM employees. Here are just a few of the positive things it offers for the company:

• In officially signing on as full-time CEO, Whitacre can devote an extended period of time to overseeing GM’s return to profitability.  He’s already trimmed a great deal of the fat at GM, shedding unprofitable brands, excusing unnecessary managers, and reducing excess inventory, in part by closing 1,350 underperforming dealerships (although 100s of “performing” dealerships will likely re-open in the coming year).  Now, he can continue working to back up his bold – but attainable – projections for profitability in 2010. 

• How will Whitacre hit those profit numbers?  Through an aggressive, innovation-backed strategy focused on introducing smaller, more eco-friendly cars at home and in emerging markets like India, China, and Brazil.  His commitment to GM as full-time CEO enables him to oversee this daunting logistical and strategic hurdle, and his seasoned “turn-around” experience will be immeasurably helpful in that process. Whitacre is the CEO who build Southwestern Bell (SBC) into the leading regional Bell operating company and then salvaged the failing AT&T by consolidating it into SBC (AT&T).

• Installing Whitacre as full-time CEO also ensures that the cultural shift currently underway at General Motors continues.  When Whitacre took the helm, he began to rectify decades of misguided management, misallocated automobile development, and misplaced union concessions.  Now, these improvements can be brought to fruition.  As permanent- CEO, Whitacre can institutionalize a renewed commitment to lean production and product innovation, as well as a continued avoidance of “power point charts, consultants, and the “analysis paralysis” that have plagued GM for decades.”

• The most impactful result of Whitacre’s announcement to become permanent CEO is that it sets the stage for an even longer-term continuation of these changes, and a renewal of trust in GM by the American people.  In staying on with GM for the long-term and executing measurable improvements in products and the company’s bottom-line, he’ll earn prestige for the company and more buy-in from now-wary American consumers.  With that trust and success in place, Whitacre will be in a position to influence the selection of a successor (perhaps his gritty CFO Chris Liddell) to continue on a track of product improvement and profitability.

The bottom line: long-term commitment from Ed Whitacre spells long-term success for General Motors.

On Diversity, Academics Get It Wrong

      Three European academics from IMD International, the Swiss business school where I taught in 2002-03, published a lead story in the January 25^th Wall Street Journal (http://ow.ly/10k3B) titled “Why diversity can backfire on company boards.”  

      They contend that diverse board members ask too many questions and are considered “clueless” or too few questions and considered “insecure.” They worry that diverse board members get labeled, and that “like-minded” board members (read, white males) make judgments about newcomers, compare notes, and engage in “groupthink” about their diverse colleagues. Judging from their frequent use of female pronouns, one senses that they are referring primarily to women. 

      I’m left wondering what boards they sit on. How many diverse directors have they worked with? Have they ever participated in an executive session of a board in crisis? Based on the boards I have served on in recent years – ExxonMobil, Goldman Sachs, Novartis, Target, and Medtronic, to name a few – these academics conclusions could not be further from the mark.  In fact, it is lack of diversity that gets boards in trouble.   

      I’ve sat in board meetings with fine directors like Ruth Simmons (African American on Pfizer and Goldman Sachs boards and president of Brown University), Anne Mulcahy (on Target and Citigroup boards and chair and former CEO of Xerox), Bob Ryan (African American who is lead director of Hewlett-Packard and on General Mills, Black & Decker and Citigroup boards), Ann Fudge (African American on GE and Novartis boards), Reatha Clark King (African American on Wells Fargo and ExxonMobil boards), Marilyn Carlson Nelson (chair of Carlson and on ExxonMobil and World Economic Forum boards), Srikant Datar (Indian on Novartis board), or Sol Trujillo (Latino on Target board and former CEO of Telstra). I've seen these directors' courage, intellect, experience, and judgment inform the actions of the companies they direct.  I understand why King and Nelson are both recipients of the Director of the Year award from the National Association of Corporate Directors. 

      If the authors had participated with any one of these directors or dozens like them, they would quickly recognize they are some of the finest governance leaders in the world. I have personally witnessed their remarkable contributions to the corporations on whose boards they serve, especially when the chips are down and the organization is facing challenges. 

      Instead of worrying about diversity backfiring in the boardroom, we should be researching what happens when there is a lack of diverse experiences at the board table. In my research of boards, many of those that got in trouble were characterized by similarities of experience that not infrequently led to group think and passive support of management. 

      If I could propose a single cure for the governance ills of many boards, it would be to restructure the board with directors from highly diverse backgrounds and diverse life experiences.  That would do far more to improve governance than most of the reform proposals so popular among outside governance experts. 

Obama’s Health Care Conundrum

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

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

Now the President is facing some rather stark choices:

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

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

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

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

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

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

Bezos, Chambers Provide Model for Leaders After Crisis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

About the Author

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