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Posted Feb 23, 2010 by Bill George |
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This morning a beleaguered Akio Toyoda will appear before the U.S. Congress to testify on the rash of quality and safety issues which now plague Toyota, once the leader in sales and reputation for quality of the worldwide auto industry. Though Toyoda is no stranger to the spotlight – his grandfather founded the car company, and he climbed the ranks for decades – this will be his first U.S. appearance before a likely hostile Congressional committee
While other automobile CEOs in similar positions – Lee Iacocca at Chrysler in the 1980s, and Ed Whitacre at GM in the past year – are veterans of the public spotlight, Toyoda has never faced such a challenging situation. Like it or not, CEOs are the definitive voice for every company’s reputation and brand image. The longer they wait to respond, the more difficult it is to resolve the crisis.
As I explore in 7 Lessons for Leading in Crisis, a leader staring down the barrel of a full-blown crisis must own the problems internally, quickly go on the offense to form a resolution, and take his word to the public. In the court of public opinion, judgments are handed down by consumers the moment that news breaks of a flaw in quality or service. In the case of Toyoda, he has ducked the public eye and hesitated for so long that many people have already made negative judgments about his leadership and his company’s handling of the crisis.
Don’t get me wrong here: I am not negative about Toyota as a company. My wife and I have driven its cars for forty years, and have had exceptionally good experiences with their quality, features and longevity. I feel confident it will recover from this episode to be a great company once again, possibly better for having had this horrendous experience. My questions have to do with Toyoda’s leadership and whether he is up to the challenges of leading the company through this crisis.
Wednesday’s hearing provides an opportunity for him to convince the American public of his commitment to fix the problems and make restitution for the damage done to consumers. Yet it could become a disaster that causes Toyota’s reputation for crisis management to go from bad to worse if Toyoda freezes under the pressures of the spotlight like a deer in the headlights. It’s all up to Mr. Toyoda and how he handles the questions that will follow his prepared remarks.
Toyoda’s dilemma is reminiscent of the situation faced several years ago by Bridgestone Tire of Japan when the failure of its tires caused hundreds of fatal accidents from the rollovers of Ford Explorers. In his testimony before Congress, Bridgestone CEO Ono at first tried speaking in English, became flustered with questions he had trouble understanding, switched to speaking in Japanese through a translator, and finally turned to his subordinates to answer the questions. His appearance gave the impression of a CEO who either didn’t know what was going on or didn’t care. After that disaster, Bridgestone appointed an American as CEO of its U.S. operations and let him go on talk shows with Ted Koppel and others. But the damage was done.
No doubt Toyoda has seen the tapes of Ono’s appearances. That’s probably why he declined at first to testify and only agreed under extreme pressure from the U.S. and Japanese media.
The best thing that a leader can do in the spotlight is to come across as authentic – taking full responsibility for the problems, offering sincere apologies, and proposing genuine solutions. That’s what earned Johnson & Johnson CEO Jim Burke such high marks for his handling of the 1982 Tylenol crisis. Another role model for Toyoda is David Neeleman, founder of JetBlue, who masterfully handled his company’s stranding of hundreds of passengers at New York’s JFK airport on Valentine’s Day 2007. For the first time in airline history, Neeleman installed the Passenger’s Bill of Rights that offered monetary compensation for delays caused by his airline.
The worst thing leaders can do in this situation is to offer canned remarks or to say what they think Congress and the public wants to hear. That’s the impression created by Toyoda’s Op-Ed in Tuesday’s Wall Street Journal, which reads more like a press release written by an American PR agency than the sincere apology of an apologetic leader.
To come across as authentic and caring, Akio Toyoda must take full responsibility for the crisis, from the malfunctioning brakes, accelerators, and onboard computers, down to the poor handling of the media circus by Toyota once news of the crisis broke. The buck stops with him. His testimony offers the opportunity to be an authentic leader who recognizes that reality.
At the same time, he needs to anticipate the hostile questions that may come from lawmakers, many of whom will take a hard line with Mr. Toyoda and grandstand for their constituents. Toyoda should anticipate some curveballs coming his way, and must be prepared to remain cool and collected throughout the process.
Since it appears Toyota’s quality and safety issues have existed for a number of years, members of Congress will justifiably want straightforward answers as to why the delays occurred in acknowledging them. Or why the company at first blamed loose floor mats and panicky drivers for the sticking accelerator problems rather than acknowledging product defects. Or why, after so many weeks, Toyota still does not know the root cause of the problem, as U.S. CEO Jim Lentz said in his testimony on Tuesday.
After making public apologies, Toyoda needs to explain what led to the crisis, both at the technical level as well as on an operational basis, and then present a comprehensive plan for getting the problems permanently fixed. He should reassert Toyota’s core values of safety, quality, and value that made Toyota so appealing for so long.
As grandson of Toyota’s founder, Toyoda will feel the pressure of having his family name on every car the company produces. He may also be wary that in spite of his family heritage, his job is on the line after less than nine months as CEO.
Much more importantly, Toyoda needs to recognize, as J&J’s Burke did long ago, that what’s at stake here is not his personal future, but the very survival of Toyota as a respected leader in the American market. Toyota has been a great company for decades. It is up to its leader to bring it back to greatness.
Congress and the American public are waiting for him to finally step and lead authentically.
Mr. Toyoda: You are the definitive leader of one of the largest and (once-) most trusted brands in the world. People expect you to act like it on Wednesday. This is a prime opportunity to right the ship. Don’t shirk the spotlight. Embrace it.
Originally Posted in Harvard Business School Working Knowledge on February 22, 2010
Toyota's ever-widening problems are a tragic case study in how not to lead in crisis.
Under the media spotlight, Toyota CEO Akio Toyoda, grandson of the founder, went into hiding and sent American CEO Jim Lentz to make apologies. (Editor's note: Toyoda has agreed to appear before a Congressional inquiry this week.) Meanwhile, he let serious product quality issues spiral out of control by understating safety risks and product problems. This left the media, politicians, and consumers to dictate the conversation, while Toyota fumbled the responses.
Disingenuous quasi-apologies and disjointed plans for resolution have been Toyota's substitute for crisis response. As accounts pour in about declining quality, the company parades out relatively unknown mid-level managers to quell the firestorm.
It won't work. "You live by the sword; you die by the sword." Toyota's weapon of choice has always been quality, a competitive advantage that prompted many Americans to stop buying GM and Ford brands. Toyota can only regain its footing by transforming itself from top to bottom to deliver the highest quality automobiles.
When terrorists laced Tylenol capsules with cyanide in the mid-1980s, Johnson & Johnson CEO Jim Burke understood his company credo challenged him to put the needs of customers first. Although J&J was not responsible for these problems, Burke nevertheless recalled every Tylenol product from the market.
This is not a crisis of faulty brakes and accelerators, but a leadership crisis. During Chrysler's 1980s crisis, CEO Lee Iacocca took charge, restoring consumer trust and prosperity. When General Motors emerged from bankruptcy last summer, Chairman Ed Whitacre became the trustworthy, determined face of the company's comeback.
Toyota needs a credible leader with a strong, cohesive plan. Mr. Toyoda is anything but. His uninspired words of optimism from Davos only unnerved customers and U.S. regulators. Meanwhile, Ford and GM are working hard to regain the market share they lost at Toyota's expense.
How can Akio Toyoda get Toyota back on track? I offer recommendations based on my recent book, 7 Lessons for Leading in Crisis.
1: Face reality, starting with yourself. Faced with multiple reports of accidents from sticking accelerators, Toyota blamed the problems on stuck floor mats and panicky drivers. Instead, Toyota should acknowledge that its vaunted quality system failed. CEO Toyoda should take personal responsibility by saying that he pushed too hard for growth and neglected quality. By admitting his errors, he gives every Toyota employee permission to acknowledge mistakes and to get on with correcting them, instead of denying reality.
2: Don't be Atlas; get the world off your shoulders. Toyoda cannot expect to solve problems of this magnitude himself. Instead, he needs a crisis team reporting directly to him, working 24/7 to get problems fixed—permanently. He also needs outside counsel, as he appears to be listening only to insiders who are defensive about criticism. He should add the world's top quality experts to his fix-it team and listen carefully to their advice.
3: Dig deep for the root cause. When Toyota's problems first surfaced, the company blamed a symptom—loose floor mats—and exonerated the accelerators. Instead, management should have required its best engineers to get to the root cause of this problem and every other quality problem being reported. This is basic engineering and quality discipline.
4: Get ready for the long haul. These problems won't just fade away. In fact, they are likely to get worse before getting better. Just as the seeds were sown over the past ten years by placing growth ahead of customer concerns and quality, digging deep into problems will likely uncover more quality concerns that will take years to resolve. Toyota must invest heavily in corrective actions while its sales shrink and profits implode, requiring major cash resources until its reputation can be restored.
5: Never waste a good crisis. For all the pain Toyota is experiencing, this crisis provides a unique opportunity to make fundamental changes required to restore Toyota quality. The crisis is melting away the denial and resistance that existed in recent years. Employees are ready for new direction, and they are willing to make radical changes to renew the company. With Toyoda's leadership, Toyota automobiles can be restored to the world's highest quality.
6: You're in the spotlight: follow True North. In a crisis, people insist on hearing from the leader. Akio Toyoda can't send out public relations specialists or his American executives to explain what happened. Having lost sight of his company's True North—its values and principles—Toyoda must come out of hiding, take personal responsibility, and subject himself to intense questioning by regulators and the media. Then he should make a personal commitment to every Toyota customer to repair the damage, including buying back defective cars.
7: Go on offense; focus on winning now. Coming out of this crisis, the market will never look the same. GM and Ford are rapidly regaining market share, while the confidence of Toyota's loyal customers is badly shaken. Toyota cannot wait until all its quality problems are resolved. It must play defense and offense simultaneously. To win, Toyota has to offer advanced features and superior quality, better value for consumers, greater safety, and improved fuel efficiency.
This is a challenging menu, and this crisis is the true test of Akio Toyoda's leadership. Is Toyota up to these challenges? I believe this is a great company that will resurrect its reputation and restore its leadership.
I was very excited to hear about the Pepsi REFRESH project when it was announced at the beginning of the year. CEO Indra Nooyi’s decision to allocate marketing dollars to a community-reinvestment effort deserves great applause as it stands as a prime example of progressive, conscientious 21st centruy leadership. By shifting Super Bowl advertising dollars to philanthropy, Pepsi is making a smart investment in marketing and in communities.
The program is simple. Pepsi REFRESH invites anyone to submit a grant proposal for a project - all proposals are then judged by the Pepsi's online community, from their dedicated Facebook fans and Twitter followers, and beyond. Grants of $5,000 to $250,000 are awarded to dozens of applicants every month.
This project is exciting on multiple levels. First, it marks an encouraging departure from a dated era where corporate philanthropy and community empowerment was seen
as a “nice-to-do," only done to enhance a firm’s public image. Over the past generation, corporate philanthropy has been impacted by Milton Friedman’s view that business is a “profit maximizing” entity, rather than an institution chartered by society as a steward of its financial and social well-being. But now, the idea that philanthropy is better left to shareholders is fading away - and I am glad to see Pepsi reinforcing a new ideal.
Second, Pepsi Refresh represents a marketing innovation. Indra Nooyi has long been at the forefront of progressive leadership, but green-lighting this project shows that she and her team at Pepsico are committed to exploring new ways of engaging customers. Instead of bombarding viewers with Super Bowl advertisements, Pepsi is seeking out their customers where they live – offline and online – and delivering value to their communities. Millions of Pepsi customers are engaging in social media and connecting online, actively seeking company engagement on this level. People want companies that seek out their advice and ideas, companies that talk with them in the way they want to communicate.
Third, this project is an investment in the next generation of leaders. The Pepsi REFRESH project empowers community activists, students, small business owners, and non-profit overseers in an unprecedented way - with no-strings-attached investments in their projects and complete corporation-backed empowerment. Not only is Pepsi providing funding for these projects, they’ve left the decision-making in the hands of the masses. Votes online will dictate what project - what up-and-coming leader - receives funding, not votes around a boardroom.
The Pepsi REFRESH project represents a monumental effort to be a trend-setter by redefining corporate marketing and customer engagement. If Pepsi is “the choice of a new generation,” then Pepsi REFRESH may well be “the empowerment of a new generation.”
Kudos to Secretary of Defense Robert Gates and Admiral Mike Mullen, chairman of the Joint Chiefs of Staff, for advocating repeal of the 1993 “Don’t Ask, Don’t Tell” law. This hypocritical act forces honorable military men and women to be inauthentic by hiding their sexual identity or be forced out of the U.S. armed forces.
Admiral Mullen was especially forthright when he stated, “Allowing gays and lesbians to serve openly would be the right thing to do.” He went on to say eloquently, “I cannot escape being troubled by the fact that we have in place a policy which forces young men and women to lie about who they are in order to defend their fellow citizens. . . For me personally, it comes down to integrity – theirs as individuals and ours as an institution.”
Mullen said what every military person knows, “I have served with homosexuals since 1968. Putting individuals in a position that every single day they wonder whether today’s going to be the day, and devaluing them in this regard, just is inconsistent with us as an institution.”
Since the passage of the 1993 law, the U.S. has officially accepted gays in the military as long as they hide their identity. In other words, your sexual identity is acceptable if you don’t tell anyone about it – or more baldly, just don’t be authentic about who you are. It’s hard to see what harm could be done to the armed forces if troops were allowed to be open, since every soldier already knows there are gays in the military. Are U.S. officials really that threatened by people who are gay or lesbian?
Last week I had the privilege of delivering the keynote address on “Authentic Leadership” at the U.S. Naval Academy’s annual leadership conference in Annapolis. This event included leaders from more than fifty universities and academies in addition to hundreds of cadets. As I got to know many future officers, it never occurred to me to wonder which of them might be gay. But it troubled me greatly to think that U.S. law forces those who are to be inauthentic – precisely the opposite message of my talk.
In my “Authentic Leadership Development” classes at Harvard Business School, I have had several retired military officers share with me their deep fears that every day their sexual identity might be exposed by a former partner or someone who didn’t like them. It is not surprising, but very sad, that these graduates of our military academies gave up their careers because they could no longer tolerate living a lie and living in fear.
It is worth noting that it isn’t just gays who are forced to compromise their honor. Many straight officers have confided their worries about having some of their best troops exposed and not wanting to begin the process of their expulsion from the military.
Most disappointing of all was Senator John McCain, who reversed his 2006 position when he declared, “When the military wants to change the policy, we should consider seriously changing it.” Now, he is accusing Secretary Gates of being “clearly biased.” Before making such accusations, McCain should look in the mirror and ask himself, “Who’s biased here?”
Sixty years ago – long before the passage of the 1965 Civil Rights Bill – the armed forces led the nation in integrating its ranks from top to bottom. What a loss it would have been to this nation had General Colin Powell not been permitted to serve his country as chairman of the Joint Chiefs. It’s about time that the military catches up to the rest of the country in openly accepting gays throughout its ranks. Might there be a gay person who could rise to the top as General Powell did?
One of the cases in my HBS course is on Lisa Sherman, a talented executive who felt forced to resign from Verizon in 1994 because she couldn’t safely reveal her sexual identity. Her departure caused former CEO Ray Smith not only to change the Verizon culture but to campaign for passage of the Employment Non-Discrimination Act.
I open the class by talking about our “hidden differences” and asking students to write down one thing about themselves they don’t want anyone else to know. This simple exercise enables them to “walk in Lisa Sherman’s shoes,” rather than objectifying her as a lesbian that many cannot relate to. All of us have hidden differences. Shouldn’t we work toward a society where we can share them openly without fear of rejection?
Thanks to Admiral Mullen and Secretary Gates for bringing us one step closer to the time when all Americans can reveal their hidden differences without fear of retribution and become truly authentic leaders.
Originally Posted in the Wall Street Journal February 3, 2010
The grim news on jobs confirms the reality that many economists are unwilling to face: American jobs continue on a steady downward slide, with no tangible signs of recovery. As if to epitomize this trend, UPS – that bell-weather of the American economy – raised its 2010 earnings projections as it announced layoffs of 1,800 more of its 405,000 employees.
The first decade of the new millennium will go down in history as “the lost decade” in business. Consider the ugly facts:
- At decade’s end, 25 million Americans – 17.3 percent of the workforce – are searching for full-time work but cannot find jobs.
- In the past decade, the U.S. lost fully one-third of its manufacturing workforce.
- Information technology – the bright spot of job growth in the 1990s – was down 21 percent.
- The only growing sectors – education (up 32 percent), health care (up 30 percent), and government (up 9 percent) – are all funded primarily with taxpayer dollars. As the U.S. continues to shift away from the private sector, government deficits mount.
- The stock market began the decade with the S&P 500 index at 1,469 and ended at 1,115 – down 24 percent. This marked the first decade of declining stock prices, even after the S&P turned in a 24 percent gain in 2009.
- Real wages declined for the first decade since the Great Depression.
“Quick fix” programs like those included in last winter’s stimulus bill will not curb these long-term structural trends. Getting a significant proportion of those 25 million unemployed Americans back to work requires us to shift from a spending economy focused on “instant gratification” to an investment economy willing to support long-term programs that restore America’s economic dominance. If we fail to do so, the U.S. will enter an extended period of stagnation much like Europe and Japan.
Is there a culprit for these trends? Finger-pointing abounds, but I believe the root cause is leaders practicing short-termism.
In the 1980s and 1990s, America looked up to business leaders who created growing companies, dominated world markets, and employed millions in well-paying jobs. Today’s business leaders are so poorly trusted that they rank near the bottom of every poll.
Looking back at the last decade, it’s not hard to see why. The 2000s began with the Enron scandal and ended with global financial market meltdowns. In between, we were treated to the mischief of Bernie Ebbers of WorldCom, Richard Scrushy of Health South, Dennis Koslowski of Tyco, and the infamous Bernie Madoff, all of whom have joined Enron’s Jeff Skilling behind prison bars.
The leadership issues go much deeper than a few high-level crooks tossed in the clinker. As I wrote in Authentic Leadership, capitalism became the victim of its own success. In the early part of the decade, hundreds of corporations restated their revenues and earnings as their leaders were exposed for accounting manipulations that hyped stock prices to maximize shareholder value. In the process many formerly great companies like General Motors, the original AT&T, Sears, and K-Mart were destroyed.
Following the 2003 passage of Sarbanes-Oxley, many corporations cleaned up their acts. They replaced their CEOs with new leaders who have a long-term perspective on serving customers and building shareholder value.
Unfortunately, many Wall Street leaders never got the message. They continued to play the short-term game with excessive risk-taking and leverage. In the infamous words of Citigroup’s Chuck Prince: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In 2008 the boomerang Wall Street threw at the corporate world came back and hit it in the head, knocking out Lehman Brothers, AIG, Bear Stearns, Fannie Mae, and Citi, just to name a few.
In the 20th century, the United States became the world’s dominant economy thanks to leaders like Ford’s Henry Ford, General Motors’ Alfred P. Sloan, IBM’s Thomas Watson, General Electric’s Jack Welch, and Hewlett-Packard’s Dave Packard and Bill Hewlett. In recent years it was sustained by the dynamism of entrepreneurs like Microsoft’s Bill Gates, Intel’s Gordon Moore and Andy Grove, Apple’s Steve Jobs, Wal-Mart’s Sam Walton, and Starbucks’ Howard Schultz.
All of these leaders – and many more like them – believed their task was to build great corporate institutions that could dominate world markets by serving their customers with innovative products and superior services. But many people bought into Milton Friedman’s view that the purpose of the corporation is to maximize shareholder value. They were handsomely rewarded for delivering short-term results, but their collective behavior led to the destruction of long-term shareholder value, and in many cases their institutions as well.
What’s ahead for the next decade? Often a severe crisis is required to lay the groundwork for a major transformation in leadership. That’s exactly what is happening now. A new generation of corporate leaders is stepping forward that recognizes their responsibilities go well beyond enriching their shareholders and themselves. These new leaders recognize their corporations are chartered to serve society by creating value for their customers, sustainable jobs, and lasting value for their owners.
These new leaders face the challenge of building their corporations while at the same time rebuilding America’s dominance of the world economy. Rather than criticizing them, we should get behind their efforts.
Posted Feb 1, 2010 by Bill George |
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(The complete video of panel, “Rebuilding Market Capitalism” )
The mood at this week’s World Economic Forum in Davos, Switzerland was considerably more upbeat than last year’s somber event. Rising expectations of many developing countries offset concerns about stagnation in the U.S. and Europe.
Most striking about this year’s meeting was the growing acknowledgement that we have emerged from the crisis as a multi-polar world. As a result of the 2008-09 global financial meltdown, Wall Street and London no longer dominate the financial world as they did in the past. Rising financial centers in China, India, the Middle East, Singapore and Russia can make rightful claims to being legitimate powers in the financial world as they now hold much of the world’s currency reserves. Not that they are trying to use their newfound power for political reasons. To the contrary, they want to use it to build their own capital markets and their domestic economies.
On the panel I chaired on “Rebuilding Market Capitalism,” there were no Americans or bankers, but that didn’t hold the panelists back from offering keen insights on where market capitalism needs to go to regain its footing. In contrast to the U.S. mood that vilifies American bankers for causing the collapse, panelists from Bahrain, Singapore, Belgium, France and Sweden took a much more constructive tack, as did speakers on other panels I heard.
Bahrain’s Crown Prince H.R.H. Salman Hamad Al-Khalifa, who runs his country’s sovereign wealth fund, stated unequivocally that market capitalism is the only solution to the world’s economic problems, as it has lifted billions of people out of poverty. This was somewhat surprising since his government maintains very centralized control over its own financial resources and wealth funds. But Prince Salman went on to say, “Capitalism without social responsibility creates unstable situations that lead to either an economic collapse or social disorder.”
The other panelists, including Dr. Tony Tan, head of the Singapore sovereign wealth fund, heartily agreed. Dr. Tan noted that Asian banks and nations were largely unscathed by last year’s problems, in part due to their more conservative fiscal management.
In the multi-polar world in which we now live, Guy Ryder, who leads the world’s largest trade union confederation (170 million members), argued the world needs a system of global regulations or a global regulator operating much like the World Trade Organization in order to prevent future meltdowns. Investor AB Chair Jacob Wallenberg said that without a global regulator, banks would continue to take advantage of regulatory arbitrage.
Other panelists worried that such regulations could become bureaucratic and wind up constraining the very investments required to fuel sustainable economic growth. Nevertheless, no one seemed to believe that an ad-hoc approach such as that used in the fall of 2008 would work in the future, with so much uncertainty about where the next crisis might arise.
That led the panel naturally to a discussion about the purpose of capitalism. The panelists generally agreed with Ben Verwaayen, CEO of France’s Alcatel-Lucent, as he proposed a “cohesive capitalism” through which corporate and government leaders would coordinate their efforts to ensure their organizations served society. He expressed the pressing need to restore leadership and trust among workers and the general population to ameliorate the damage done during the 2008-09 collapse.
The panelists argued that aggressive pursuit of shareholder capitalism over the past twenty-five years has devolved into rampant short-term focus that precludes the kind of long-term investments required to produce better standards of living, sustainable jobs, and a cohesive society. This is especially a problem for U.S. firms where the pressures from Wall Street are the greatest. It is far less of an issue in Asia where historically firms operate with a much longer time horizon. Verwaayen made it clear that companies must perform in the near-term, but that can’t preclude long-term investments that enable them to win in the marketplace and sustain their growth.
If corporations are not created solely to serve their shareholders, then whom do they serve? Panelists agreed with the proposition that corporations are chartered by society and must serve society by providing useful products to their customers, good jobs for their employees, and good returns for their owners. One questioner from the audience suggested that companies should focus solely on providing jobs for their employees, causing Verwaayen to respond, “That’s exactly with General Motors did, and look at the outcome.”
In reflecting back on this intense discussion, one can see how far we have come in accepting globalization and in understanding the risks of unfettered market capitalism. There is broad acceptance that we live in a global world, with open trade, a global labor market, and global capital markets. That said, the world desperately needs coordinating bodies for anticipating and overseeing global problems when fast-moving issues arise. This need becomes acute as financial power diversifies from Wall Street and London to emerging financial centers in Asia and the Middle East.
The open question deserving much more discussion is who does market capitalism serve, its shareholders or all constituents in the society that charters it? I believe this will become the most important question as we attempt to rebuild market capitalism.
