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Wharton Interview: Authentic Leadership and Letting Your Strengths ‘Bloom’

During the Franklin Institute awards day, I had the opportunity to discuss leadership with Wharton's Michael Useem, one of the world's great leadership thinkers. My emphasis was on "being who you are: letting the authentic leader within you blossom, rather than trying to emulate other leaders." Here is the video and text of my interview:

Video: http://knowledge.wharton.upenn.edu/article/authentic-leadership/

Text: 

Michael Useem: You ran one of the great medical equipment makers of the world, Medtronic, for a decade. You’ve been on the faculty at the Harvard Business School for a decade. You served on the boards of ExxonMobil, Goldman Sachs [and] the Mayo Clinic. Today, we’re going to talk about your own leadership at Medtronic and what you’ve been doing in more recent years to help others develop their leadership. Let’s start with a day at the office [at Medtronic]. When you walked in, the security person was happy to see you. You got a cup of coffee, sat down in your office – and then, some people might say, “it’s all downhill” from there. So, what was a day like? A week?

George: For me, I’d have to say it was all uphill. It just was an amazing time. I became very quickly engaged in the life-saving mission of Medtronic and how we were engaging with patients and what we were doing in our labs to try to save lives — whether it was cerebral palsy or with the drug pump or Parkinson’s disease. [It] took us 10 years to get there, Mike, but it was so exciting to see people who were just locked inside their brains with Parkinson’s disease, and all of a sudden they had their lives transformed by these miracle treatments.

Useem: I would add the pacemaker [to that list]. There are some people out there walking down the street today who [could not do] that without that particular product.

George: Right. But [with] the implantable defibrillator, we were locked out by patents. We had to go to the Supreme Court to get into the game. We had huge competition from Guidant, which was an [Eli] Lilly spin-off.

It was an amazing experience with the lives saved. My mentor in the last decade has been Warren Bennis (leadership expert and professor of business administration at the University of Southern California). I was with Warren last week, and he said he had his life saved six times by his Medtronic defibrillator.

Useem: Let’s talk about Warren Bennis a bit — an author and a well-known commentator on leadership. He’s written probably a dozen books on the topic. Bill, I’ve heard you say previously that you were not a natural born leader. You learned how to lead at Medtronic. You took the company from $1 billion to $60 billion in market cap over [your] 10 years [there]. What are some of the events, some of the people, some of the mentors, some of the books and some of the experiences that changed you from the person you were at age 20 to the chief executive of Medtronic?

George: Part of it was having a negative experience at Honeywell before I came, where I’d felt like I’d hit the wall, so to speak. I wasn’t being myself. I was the heir apparent to become CEO of this giant company. But I just wasn’t happy. I wasn’t passionate about the business. [It had] great people, but it was so bureaucratic, and it wasn’t me. I had to face that in order to go to a smaller company. Like one of my mentors once said, “Sometimes you have to take the elevator down a floor to go up further.” That’s what I learned at Medtronic. It was like an open, free culture. You could breathe the air. I could be myself [and feel] the passion, the excitement. I saw 700 medical procedures [including] a defibrillator implant. I saw somebody’s life saved in brain surgery. [I saw] a stent put in their heart.

That’s where I really learned about the business. I then tried to integrate that into the company. Instead of the internal bureaucracy we had to bring much more of an external look. You’d sit around the lunch room and dream up new ideas. You’d sit in a business meeting and say, “Is this product good enough to go to patients — so 100% of all patients who get it are going to have their lives improved? If it’s not, we’re going to have to go back to the drawing board.”

Useem: Did you have a mentor along the way?

George: I’ve had a lot of mentors. Win Wall (Winston Wallin, former Medtronic CEO), my predecessor, was one of my mentors when I was CEO. And I’ve had a lot of mentors. My mentors are different today. Warren Bennis is one of them but also Nitin Nohria, our dean at Harvard Business School, [who] has shown me the ropes at Harvard. I look at them as wisdom people — wise people whom you can consult.

Useem: Let’s take you into a year or two at Medtronic. I’ve often heard it said that in the corner office, your day is just one darned decision after another, and all the easy decisions somebody else took care of at a lower level. Think back on your 10 years there. What was among the toughest decisions you made? What went into it? How did you resolve it? Looking back with the benefit of hindsight, what might you have done differently?

George: Well, there were some big decisions. The toughest one I had was in 1998. We’d had a growth front started by my predecessor [Winston Wallin] 1985. And so we had a 13-year unblemished run of 18% growth in revenues and 22% in earnings. Yet that year (1998), we weren’t growing. We had one business losing $50 million — a vascular business. We had a lot of people inside the company from the old line core business — pacemakers, defibrillators — that wanted me to pull back and not get into so many new businesses. We had a lot of ventures losing money.

We had to make the call because we weren’t growing. We had a 15% growth goal, and we were lucky if we were growing 7% that year. We were working hard to keep the earnings up, but you can only do that a while. We had two choices. We could pull back to what we were really good at, [where] we knew we could make a lot of money, but probably be acquired by a larger company like a GE or a Johnson & Johnson. Or we could go for it and take some risks, take advantage of our high priced earnings ratio and expand the company.

We chose the latter course. Even though a number of members of our executive committee were opposed to doing that, we decided to go out and expand the company. We did five acquisitions — $13 billion in sales that transformed the company. I remember having a problem after that. One of the acquisitions didn’t go well. The stock market beat us. [It was the] first time we’d missed quarterly earnings [forecasts] in 10 years. They beat us up pretty bad. I said, “Look, there’s a great company; it’ll come back.” And we did. Two years later, the market cap had tripled from $20 billion to $60 billion because we did the right thing.

But it could have gone the other way. The whole thing could have backfired on us, and we could have made some really bad deals and blown up the company.

Useem: You’ve got to take a risk. That’s what business is. [You’ve] got to live a little bit on the edge.

George: Sometimes you have to go against the grain. You have to go against what prevailing wisdom is telling you. And certainly go against what securities analysts are telling you.

Useem: The U.S. Army for long had a phrase abbreviated as AAR — the After Action Review. [It is] always good to look back when things have gone well or not well and ask what you might have done differently. Anything you would have done differently on that one with the benefit of looking back?

George: When something goes well, you wish you’d done it sooner. We did a pretty good job of integrating [acquisitions]. So, I don’t have a lot of regrets about that call. It’s interesting that the first acquisition Medtronic [made was] eventually spun off. It was interesting because it was not a fantastic [deal], but it opened the door to a lot of other things and put us in the game and gave us self-confidence. So, I don’t even regret doing that [one]. We were in chains and we had to bust loose from those chains. So I don’t have a lot of second thoughts about those deals.

Useem: Bill, when you became chief executive, you, like all first-time chief executives, were doing it for the first time. Thinking back about becoming chief executive, was there anything that was surprising, even shocking, that you didn’t anticipate until you got into that corner office? Was there anything that really seemed counter intuitive, [or] even shocking, as you took up the mantle of leader of the firm?

George: Well, I was fairly new to Medtronic at the time. I’d been with the company [for about] two years as president and chief operating officer. My predecessor stayed on as board chair. I always said he was one of my wisdom advisors. It took a while [to get] our whole team fully on board. A lot of them weren’t quite sure. A couple of them had wanted the job. [I had to] get them to fully embrace the company. Then what really shocked me was that [despite our company’s] great values, we ran into huge ethical problems outside the United States. I appointed the president of [Medtronic’s European operation] … and it turned out he was running a bribery fund. He’d come from a subsidiary company [and] was running it there. But still, he had to be fired. I had to admit my mistake and say, “I made the mistake [of] appointing this guy.”

It took a long time to get our team up to speed [while facing these] ethical problems around the world. [We had to] change out our manager in Italy. We had to change out people in China and Argentina and Brazil. [We] had to shut down every operation we had in Korea back in 1992 or 1993, because we ran into some significant ethical problems there, and just start over.

But I was shocked [at] how a company with such good values could tolerate such actions around the world. I think tolerate is the right word. One of my closest colleagues was a Frenchman who was head of international [operations]. He wasn’t unethical, but he looked the other way. He was passive. He had to be replaced so that we could take the lid of all these operations and make a lot of changes. But that took longer than I thought.

Useem: Bill, let me reference maybe one of the miracles of the modern universe. You come to work in the morning, but at that time another 5,000 people come to work.They’ve all got to get their job done [and] work together, pull together. That has to be aligned with where you’re going. If there was one thing you did to keep the 5,000 people working for you all over the world pointed in the right direction, above that ethical line, productive, [and] ultimately profit-producing, what was maybe the most important secret of your own leadership?

George: Talk about the mission — every day, every minute, every hour — till you sound like a broken record. Travel around the world. Do mission and medallion ceremonies and give people that Medtronic medallion that says, “Our job is to restore people to full life and health.” You start to say, “My gosh, people must be really bored hearing this.” No, they want to hear it every time. Bring in role models. Bring in examples. They want to know why quality on the production line is so critical. It’s not to satisfy some quality inspector over there. It’s because we know a human life hangs on the end of this heart valve. Or when you’re in the operating room, you know that if you don’t provide the right product to the doctor at the right time, someone’s going to die. I watched somebody die in Paris in an operation once in a venture we had. Or he died later that night. [The message needs to] pervade every aspect of what you’re doing.

We turned down some very large acquisitions because in the end, there was not a coming-together around the mission and the culture — Boston Scientific, U.S. Surgical — companies we spent a lot time talking to, visiting with, talking to the CEO. But it was clear that there was not going to be a meeting of the minds around those points. That was what counted. That was the thing I always tested people for.

At the end of my tenure, I had to fire a chief information officer because he didn’t get it. He wanted to know where his reserved parking place was. We don’t have that. We don’t have any company planes. Get over it. He didn’t get the mission. He’d only been there a week or two. I said, “This isn’t going to work.” So he went away because it was clear I made a mistake. I’m not blaming him. I’m blaming myself.

Useem: You’ve written four books since you were there. Two of them have the following titles: Authentic Leadership — that’s the first book you did and [it] became a bestseller, [and], a little bit later on, True North. A question I’m often asked as I reference the concepts [in those books] is if you don’t feel that you’re being the authentic you, and if you don’t really have a North Star yet, how can you develop that authenticity?

George: When I first started writing, I was in Switzerland. I’d just given up being CEO of Medtronic about a year before. I [had] realized we were losing sight of what we were called to do. I thought that all the leadership literature was going the wrong way. It was talking about how we can pace the trade characteristics, competency and models, and all the HR community was going this way. I just felt it was wrong. I felt leadership has to be coming from who you are. You have to be authentic and the genuine you. You have to follow your true north. You have to be the real person that you’re called to be. That was the year of emulating Jack Welch. And how would you like to be a female executive emulating Jack Welch? It can’t be done.

You’ve got to be yourself. We’ve got to get away from this “great man” theory of leadership and get down to [the fact that] everyone has qualities of leadership, but they have to be developed. That was the whole thesis of everything that I did. That’s what I always told people: “Just be yourself. You can’t be something [else]. If you’re a tulip, be a tulip. If you’re a rose, and you’ve got some [thorns], it’s okay. You can produce beautiful buds. But you’ve got to be who you are. And then bloom from that position.”

Useem: Bill, you’re optimistic in that if we are being ourselves and we’re not performing to the level that we know we have to, we’ve got to take ourselves and we’ve got to build out what works, what’s strong. How should people go about doing that?

George: [The] first thing you have to do is accept yourself. You have to know yourself and have self-awareness. Then you have to accept yourself. That requires compassion for your weaknesses. You’ve got to realize that’s the core. A lot of people say, “I don’t want to deal with it.” [However, you] can’t be a leader until you do it. That’s who you are. You have to accept who you are. There’s nothing wrong with that. Until you can accept that you came from poverty, you came from a broken family or whatever it was, until you can gain that level, you can’t be a leader. Helping people walk through that process is just amazing in how it frees people up. It’s exciting.

Useem: Once we’ve got that, we need to go where we’re going … and that metaphor of a point of light that’s always there, your true north.

George: Your true north is, “What is your purpose in life? What are you called to do? I’m just one of seven billion people on the planet — how can I make a difference in the world? That’s what I’m passionately [exploring] today with young leaders coming in. How can each of us make a difference in the world through our work – [and it is] not that one is greater and one is lesser. [It is about] having a sense of your true north and what you really believe in, and following that. We all get pulled off course, but you have to find a way of coming back to true north, to what really is you.

Useem: Somebody says, “I want to find my true north. I’m 22 years of age. I’m still trying to get that direction figured out. How do I go about figuring out what my true north should be?”

George: Very straight forward. First of all, let’s review your life story and the various phases. What are the high points and low points, really in depth? What is the greatest crucible of your life? What did you learn from that experience? Let’s understand. What do you believe [in]? What are your beliefs? What are your deepest held values? What are your principles [regarding] humankind and people? Put those things together, and now we’re ready to talk about the purpose of [a person’s] leadership.

I learned the hard way [that] you can’t start out talking about [true north]. People don’t know. Until you go through [this kind of questioning process], it doesn’t come into focus. “What are the gifts I have? What are my greatest strengths? What are the things I’m most motivated by?” That’s what we call your sweet spot — because it’s intrinsic motivation, not just money, fame and power, [which are] extrinsic. And it’s your greatest strength.

I had people trying to fix my weaknesses in previous jobs at Litton and Honeywell for 20 years. They were always unsuccessful because you couldn’t fix them. I’m still impatient. I’m still too direct. I still lack tact. I still have all those weaknesses I’ve had all along. I hope I’ve moderated them a little bit and they aren’t quite as strong, but they’re still there. They are part of who I am.

Useem: Bill, a question to shift gears ever so briefly here. You’ve been a chief executive who has had a board, and now you serve on the board of Goldman Sachs and ExxonMobil, among others. How does a chief executive go about getting the most from the amazing people in most board rooms — or if you’re a non-executive director, as you are at Goldman [Sachs] and ExxonMobil, how do you work to ensure that the board can give the chief executive and his or her team what they need — which is strategic guidance and much more?

George: Well, the best boards are made up of diverse people who’ve had a lot of experience. [At Medtronic] we had doctors on the board, we had business people — we [executives] just tried to have the dialogue and discussion and listen to what they had to say.

Sometimes [board members] get it wrong. Or sometimes they don’t say things quite right. That’s fine. But what insights can we get from our board and really use? …Make sure you’re getting everyone engaged and that you have private time to do it. You can’t do it with the whole management team in the room. Use your board, in the sense of gaining from their wisdom, knowledge and experience.

That’s the only reason I would serve on a board. The best board I was on was Novartis, where former CEO Dan Vasella really used the board and really appreciated our input. He would give us unformed decisions and say, “What do you think about this?” We’d give him inputs, and he’d come back a few months later and say, “Okay, now we’re ready to take the next step.” I’ve encouraged the boards I’m on to do the same thing.

Useem: What advice would you have for a young person just coming into their career in the light of what you’ve done?

George: Don’t do what I’ve done! (Laughs) You should do what you feel called to do. What turns you on? What are your passions? What gets you really excited? How do you want to make a difference in the world? When you get on your death bed and you’re 97 years old and your favorite granddaughter asks you, “What did you do to make a difference?” What are you going to tell her? Think about that now when you’re 22. How are you going to make your mark? There are seven billion people. How are you going to make a difference? What can you leave behind? What’s the legacy? Who is the real you? I guarantee you it’s not going to be how much money you make, because there will always be somebody who makes more money. What did you do to make a difference?

I found it really gets down to the lives you touch every day in your life … and people you don’t even know sometimes whom you’ve impacted by who you are, what you stand for, by being true to what you believe. If you can just do that — follow your own passions — you can fulfill every dream you have. It doesn’t matter what your title is and how much money you make. It doesn’t matter how famous you are. But what does matter is: Did you make a difference? Did you use your greatest gifts that your creator gave you to make a difference in the world — to make this a better place, to solve problems?

5 Lessons Business Leaders Can Learn from German Soccer

On Sunday, Germany became the champion of the soccer world, winning the World Cup for the 4th time, defeating a rugged Argentina team with Lionel Messi as its star. Germany’s surge through the tournament – undefeated in seven games with only a tie with Ghana marring its record – wasn’t a fluke, nor was it lucky. It was the result of 14-year rebuilding program that began in 2000 when soccer was at a low point in Germany’s vaunted history.

In 2000, Germany had been embarrassed by being ousted in the group stage of the European Cup, finishing in 14th place. Its aging greats were retiring and no young stars were emerging. When Coach Erich Ribbeck resigned, the German Federation decided it needed to overhaul its entire player development system. It took 14 years for these decisions to pay off fully. On Sunday Germany’s dreams were fulfilled, thanks to 22-year-old Mario Götze’s brilliant goal in overtime, assisted by 23-year-old André Schürrle, both of whom entered the game as substitutes.

Here are five lessons that business leaders can learn from the German soccer experience that apply to running your business.

#1 - The team is more important than any individual. This maxim was evident throughout the tournament as Germany prevailed over such extraordinary individuals as Lionel Messi and Cristiano Ronaldo, holding both scoreless. The German victory was definitely a team effort, thanks to the coaching of Joachim Löw, who took over in 2006. Germany was such a well-unified team that FIFA could not single out one player as MVP, so it gave the award to a disappointed Lionel Messi. Is your organization truly a team effort, with the leader as coach, not director, or is it directed from the top? If the latter, you will never get the best efforts from your teammates or enable them to develop fully.

#2 – Develop a broadly-based cadre of emerging stars for the long-term. Germany’s youth movement was launched by former star Jürgen Klinsmann, now coach of the U.S. national team, when he became coach in 2004. It has been carried on by his former assistant and now head coach, Joachim Löw, for the past 8 years. They deserve credit for producing such great players as Thomas Müller (24), Mesut Özil (25), Toni Kroos (25), Jérôme Boateng (25), Mats Hummels (25), and Benedikt Höwedes (26) as well as Götze and Schürrle. Business leaders need to think less about immediate succession plans and more about long-term development of outstanding future leaders. That takes intense work with young leaders in their twenties and thirties who will have the breadth and depth of leadership experiences to be prepared for top-level assignments.

#3 - Rely on your veterans, but give emerging stars their chance to shine. Unlike Klinsmann who dropped Landon Donovan, America’s all-time leading scorer at age 32, Löw moved 36-year-old Miroslav Klose, Germany’s all-time leading scorer into the starting lineup, for the final two games. He responded with the winning goal against Brazil, making him the leading goal scorer in World Cup history. Yet when Germany desperately needed a goal with the clock ticking down, Löw called on young Götze, who responded with the goal that won the Cup. All too often, business leaders fail to take risks on their best young leaders by giving them the big opportunity to step up in the most challenging situations. An exception is former Novartis CEO Dan Vasella, who promoted two leaders in their thirties to run the company’s most challenging divisions.

#4 – As the coach, position your players in their “sweet spot” on the field. The key to leading a business organization or team is very similar to soccer: the leader needs to ensure that the players are positioned on the field in their optimal positions, where their strengths can be maximized and their weaknesses not exposed. That’s what Germany’s Löw did in starting three forwards, while keeping his rock-solid defenders in place. Midway through the tournament he made a key tactical move to get Captain Philipp Lahm back to his “sweet spot” at left defense, moving Bastian Schweinsteiger to center midfield, which strengthened both positions. Business leaders need to ensure they get their key leaders into the right positions so their strengths can be fully utilized.

#5 – You’re building for the long-term, but you must win today’s game. Business leaders often complain about the pressures of quarterly earnings reports while they are investing for the long-term. Every great soccer coach knows you have to win today’s game to have a shot at building for the long-term. As well as Germany has done in developing its cadre of talented players, it still had to beat Argentina to establish its success. Had it lost in a shootout, I doubt everyone would be hailing German soccer today. It’s the same for companies: performance matters. But the key is not to win a single tournament or have a great year; it’s to sustain that performance year-after-year. As in soccer, that’s hard to do with new competitors constantly nipping at your heels. Most important of all, it is essential to invest in your people for the long-term, and to know how to use an aging star like Klose and when to trust a young star like Götze.

Vail Valley Scenery: Walking Mountains ‘Reach for the Peak’ honors Bill and Penny George

From Vail Daily, July 14, 2014

“The mountains are calling and I must go,” wrote naturalist and writer John Muir.

And the mountains called and the people came, despite showers and reverberating thunder, to celebrate Walking Mountains Science Center at the Reach for the Peak award dinner held on Thursday at the school’s campus in Avon. “Nature Nurtures” was the theme, and several stations were set up with experiential learning for the guests on meditation, local plants as aromatherapy and healing plants.

Penny and Bill George were the honorees. Through the support of the George Family Foundation over the past eight years, the school built a state-of-the-art educational facility, the George Meadow Learning Center.

Penny’s passion is in transforming medicine with a holistic approach focusing on the integration of mind, body and spirit. She has started programs, including the Penny George Institute for Health and Healing in Minneapolis. Bill has led several companies, including Litton Industries, Honeywell and Medtronic. He is passionate about leadership, has published several books on leadership and is a professor of management practice at Harvard Business School. They believe in giving back to the communities where they live and visit.

“It’s very important that the students of the valley and those from out of state have an appreciation for the environment,” said Bill George. “Without the young people learning about our land, there may be no environment in the future.”

Penny concurred. “Everyone needs a chance to experience what nature is all about,” she said. “The children will be running the valley. It’s important they have a sense of place of here.”

Originally founded in 1998 by Kim Langmaid, Walking Mountains took root in the county as Gore Range Natural Science School in a small building in Red Cliff. The magnificent campus, which opened in 2011 is located in a pristine setting north of Interstate 70 in Avon on land donated by the Tang family. Not only the county’s school children but also adults and visitors benefit annually from their many programs including the STEM Leadership Academy, programs for graduate students, nature hikes, winter snowshoes and much more.

Nancy Ricca, who splits time between New Jersey and Vail, was drawn to Walking Mountains early in her Vail residence.

“There are a lot places to put your dollars in the valley, but this is one organization that lines up what I love: hiking, nature and learning. Walking Mountains puts me in touch with the reason I came here in the first place.”

Alpine Bank stepped up as a major sponsor. Claggett-Rey Galleries donated the exceptional wines being poured from Twomey Cellars and Silver Oak. After the presentations and dinner provided by Vail Catering Concepts, the guests danced to the music of the Diamond Empire Band.

The Boston Globe: More US firms chase mergers that yield overseas address

Good article from The Boston Globe on the renewed interest in "tax inversions," and my thoughts on why acquisitions must never be just about driving deals.

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From The Boston Globe, by Robert Weisman, Tracy Jan, and Jack Newsham (July 13, 2014)

When Flemming Ornskov was named chief executive of Shire PLC last year, he moved his office from the drug maker’s Dublin headquarters to its Lexington campus so he could scout for biotechs to buy here.

Now Shire itself is a takeover target. It rebuffed a $46 billion bid from pharmaceutical giant AbbVie Inc. of Chicago late last month, but the suitor hasn’t given up. It’s not only after Shire’s drug portfolio, but also the company’s address in Ireland, where corporate taxes are lower.

The AbbVie move came less than a week after Medtronic Inc. agreed to pay $42.9 billion for Covidien PLC., a supplier of health care products that bases its corporate staff and US headquarters in Mansfield. But like Shire, Covidien calls Ireland home for tax purposes. 

“It’s becoming increasingly disadvantageous to be a US-based multinational,” said Eric Toder, codirector of the Tax Policy Center, a nonpartisan Washington, D.C., think tank. “So what’s the solution? You stop being a US-based multinational.”

And that’s what many American corporations are doing. Over the past decade, 40 of them have moved abroad to save money — hundreds of millions of dollars annually, in some cases — while keeping the bulk of their operations here. Covidien, for instance, has nearly 14,000 employees in the United States, including 1,800 in Mansfield, but only about 1,400 in Ireland. Shire, for its part, has about 1,500 workers in Massachusetts and just 100 in Ireland.

At a time when merger activity is rising, tax professionals are reporting a “renewed interest” in so-called tax inversions, under which US companies shift their corporate bases to Ireland or some other tax haven, said Daniel Berman, a principal at the Boston offices of accounting firm McGladney LLP and a former US Treasury official.

But there is also a backlash building in Congress and among some business leaders against businesses shopping for tax-light locales.

Two members of the Massachusetts delegation, Senator Elizabeth Warren and Representative Richard Neal, have signed onto Democrat-sponsored bills in the Senate and the House that would tighten rules for companies that reincorporate overseas to avoid paying US taxes.

“This is one more example of Washington working for those who can afford to have armies of lobbyists and lawyers,” Warren said. “Big corporations are using the tax inversion loophole to juice their profits and avoid paying billions of dollars, while working families are forced to foot the bill.”

The bills on Capitol Hill call for a two-year moratorium on tax inversions. Michigan Democrat Senator Carl Levin, the Senate bill’s primary sponsor, describes them as “tax avoidance, plain and simple.” The legislation would also prohibit companies from shifting their tax addresses overseas if management and significant business operations remain in the United States. Republicans, who have not signed on to the bills, say it makes more sense to instead cut US corporate tax rates.

Meanwhile, at a Harvard Business School gathering last month that included chief executives from about three dozen top US companies, former Medtronic chief executive Bill George, now a Harvard management professor, called on businesses to rethink tax inversions.

“You have to run your global company for all its stakeholders,” George said in an interview. “That means the customers, the employees, the shareholders, and the communities you reside in. You have to be a pragmatist. These tax inversions are driving some deals. If that’s the primary rationale, you’re asking for trouble.”

George criticized pharmaceutical giant Pfizer Inc., which opened a large research center in Cambridge this month, for citing a planned tax inversion as a major reason for its $119 billion offer in April to buy London-based drug maker AstraZeneca plc, an overture that was rejected. AstraZeneca also has a Massachusetts research lab in Waltham, so had the deal gone through, the combination could have resulted in consolidation and layoffs there.

“If you’re just cutting jobs to reduce costs, that’s a one-time thing,” George said. “An acquisition has got to be good for your employees. Otherwise, you kill their motivation.”

Another growing Massachusetts biotech, Waltham-based Alkermes, bought Ireland’s Elan Drug Technologies in 2011 and promptly shifted its own headquarters to Dublin. Chief executive Richard Pops said at the time the deal wasn’t done to lower taxes — Alkermes wasn’t profitable then — but he acknowledged there would be future tax benefits.

Ireland maintains a corporate tax rate of 12.5 percent compared with the United States’s 35 percent, one of the highest rates in the world. Because of that, US companies hold about $3.5 trillion in corporate cash in offshore accounts, according to George. The money comes from sales of their products in foreign countries.

To use that cash in the United States for building plants, buying equipment, or hiring workers, companies would have to pay the 35 percent rate as a “repatriation” tax. The former Medtronic chief has called for a one-time holiday on repatriating money held abroad, but he admits it would be a temporary solution.

“Our tax rates are out of line with the rest of the world, so companies are leaving,” George said. “It’s tragic.”

Many believe a long-time solution must revolve around reforming US corporate tax policy.

“The problem is caused by US taxes being higher than everybody else’s,” said Joseph B. Darby III, a partner at Boston law firm Sullivan & Worcester. If you’re a US company, you’re a “tax prisoner,” he said.

As for the Democratic bills in Congress, few think they stand much of a chance. “I don’t think people are paying much attention to legislative proposals,” Berman said. “Congress is not in much of a position to enact tax law these days.”

Ireland also is examining ways to discourage mergers that do not involve “real substance in terms of jobs and investment in the Irish economy,” Ralph Victory, spokesman for the Irish embassy in Washington, D.C., said in an e-mail.

Covidien, formerly known as Tyco HealthCare, set up shop in Ireland shortly after former parent Tyco International spun it off in 2007. But unlike their counterparts at Pfizer, Covidien and Medtronic executives downplayed the tax benefits, saying the merger was driven by “complementary” businesses.

Neal said he spoke with Covidien chief executive Jose Almeida recently and is convinced the takeover was not based solely on tax savings.

“Seeking a favorable tax treaty is a bit different than going to Bermuda and renting a post office box,” said Neal, who in 2004 sponsored legislation that was able to stop many inversions from occurring at the time. “There is a difference between tax avoidance and tax evasion. But . . . the imminent danger here is you now have up to 50 other companies considering the same inversion process.”

Thanks to Jürgen Klinsmann, U.S. Soccer is America’s Team

Credit German-born Jürgen Klinsmann for turning U.S. Soccer into America’s Team.

While the Australians have their national rugby team and the Brazilians, Spanish and Germans have their national soccer teams, Americans have only had professional sports teams representing their cities. No wonder Europeans are so passionate about their national teams while Americans focus on the Dallas Cowboys, New York Yankees, Boston Celtics and Chicago Blackhawks.

Now that has changed. In less than a month, the gritty, determined 23 athletes chosen by Klinsmann to represent America in the World Cup have captured the hearts of America. Never before have Americans turned out in such record numbers to watch any team – pro or national – play four consecutive games. Never before have so many fans gathered in groups to watch an American national team. And in a country 5,000 miles away no less! Over 40,000 watched the games on large screens in Chicago’s Grant Park. America’s first game against Ghana attracted 16.9 million television viewers, making it the second-most-watched sporting event of the year. Tuesday’s game against Belgium attracted over 23 million viewers – an all-time record.

Klinsmann did so by cobbling together a group of players from all over the world, including seven dual-nationality players, into a cohesive fighting force that battled to the very end of every contest, including an exhausting, non-stop 120 minutes against Belgium in last Tuesday’s 2-1 overtime loss. They learned to play “The Klinsmann Way” – attacking the ball all over the field with non-stop running and collective defense.

In reality, America’s soccer talent cannot come close to comparing with the world-class stars fielded by Germany, Belgium, Ghana or Portugal. Yet the U.S. survived the most difficult group in the tournament, the so-called “Group of Death,” and advanced further than more talented teams like Spain, Italy and England. All because Klinsmann instilled the tactical discipline, physical conditioning, positive psychology and teamwork necessary to compete toe-to-toe with the best players in the world. The team performed strongly even without without striker Jozi Altidore, who played only 22 minutes of the Ghana game before pulling his hamstring, and Landon Donovan, who would have added much more offensive punch than side midfielders like Brad Davis, Graham Zusi and Alejandro Bedoya.

When he took over U.S. Men’s National Team in 2013, Klinsmann knew he didn’t have the talent to compete at the highest level. So he challenged America’s best players like Michael Bradley, Tim Howard, and Clint Dempsey to elevate their games, while integrating no fewer than seven dual-nationality players into the national team: German-Americans Jermaine Jones, Fabian Jones, and youngsters John Brooks and Julian Green; Norwegian-American Mix Diskerud, Icelantic-American Aron Jóhannsson, and Alejandro Bedoya of Columbian descent.  

Unlike his predecessors Bob Bradley and Bruce Arena, Klinsmann isn’t just preparing for World Cup competition, but building American soccer for the long-term to the level of the best countries in the world. With his new four-year contract which adds the role of “technical director” for the first time, America has someone responsible for developing the cadre of talented youth players who can compete with the best in the world. In an encouraging sign of what’s to come, the U.S. Under-17 team has won four international competitions.

The good news is that Americans won’t have to wait four more years to see their new national favorites in action. Next July the U.S. will compete in the CONCACAF Gold Cup, a tournament it won in 2013, with a chance to qualify for the Confederations Cup in 2017 against the world’s best teams. Thanks to Klinsmann’s negotiating skills, the U.S. will host Copa America for the first time in June 2016 against the best national teams from South America (e.g., Brazil, Columbia, Argentina, Chile, Uruguay), the Caribbean and North America. All of this action with Klinsmann at the helm will prepare America to advance further in the 2018 World Cup in Russia. Meanwhile, thanks to Don Garber, Major League Soccer continues to grow in quality with the addition of Bradley, Dempsey, and Brazilian star Kaka as well as fan attendance and the addition of more franchises in cities like Miami and Orlando.

The future of soccer is brighter this summer. For the first time we can say with confidence that professional soccer is here to stay, and that Klinsmann’s troops have become America’s Team!

StarTribune: Counterpoint: Medtronic's move will benefit all

From StarTribune, June 23, 2014

COUNTERPOINT

Medtronic’s move will benefit all

The headline in the Opinion Exchange section June 22 trumpeted: “It’s shareholders over stakeholders for Medtronic.”

Nothing could be further from the truth.

Commentator Stephen B. Young fails to comprehend that Medtronic’s acquisition of Covidien is being done precisely to benefit all of its stakeholders: customers, employees, shareholders and communities. Medtronic CEO Omar Ishrak justifies the Covidien acquisition because it extends Medtronic’s mission to 5 million more patients annually. Let’s examine the actual impact on stakeholders:

Customers: Since 1989, Medtronic has expanded from restoring 300,000 patients annually to 10 million today. With Covidien, 15 million patients will be restored annually. Combined R&D budgets of $2 billion per year will produce breakthrough therapies to help more patients. The combination gives Medtronic nearly $4 billion in emerging market revenues to make its therapies more affordable and this enables it to serve U.S. hospitals more efficiently.

Employees: The acquisition gives Medtronic 87,000 employees who enjoy good-paying jobs, health care and retirement, including 9,100 in Minnesota. Ishrak also committed to adding 1,000 more jobs locally, causing Gov. Mark Dayton to applaud the deal.

Shareholders: Since the announcement, shareholders have signaled their approval, bidding up Medtronic stock 5.2 percent. Since Ishrak became CEO in 2011, Medtronic stock is up 65 percent.

Communities: Medtronic has long been dedicated to building its communities, giving 2 percent of its income to philanthropic causes. Additional profits will expand its giving.

Much attention has been focused on Medtronic’s decision to relocate its legal domicile to Ireland. This shift won’t change its 18 percent tax rate, but gives Medtronic access to $14 billion in cash trapped overseas plus future cash flows of $7 billion annually. Medtronic already has paid local taxes on these earnings, so it isn’t avoiding taxes on them, and it continues paying U.S. taxes on all U.S.-generated revenues.

Medtronic has committed to reinvesting $10 billion of these funds in new ventures and technology acquisitions, because management believes the U.S. is the world’s best place to invest in medical technology and entrepreneurs pursuing innovative medical therapies.

The litmus test for me is: Would I have done this deal if I were still CEO of Medtronic? My answer is an emphatic “yes.” Credit Ishrak for having the courage to seize this golden opportunity to extend Medtronic’s mission and be a powerful voice in improving health care globally.

Bill George

The writer is professor of management practice at Harvard Business School, author of “True North” and former chairman and CEO of Medtronic.

Medtronic Deal Benefits All Its Stakeholders

The headline in the Op-Ed in Sunday's Minneapolis Star-Tribune blared, "It's shareholders over stakeholders for Medtronic." Nothing could be further from the truth. 

Medtronic's acquisition benefits all of its stakeholders: its customers, employees, shareholders, communities and society as a whole. I spoke at length with Medtronic CEO Omar Ishrak on Friday evening about these issues, as well as prior to the acquisition announcement. Omar is as committed to the Medtronic Mission as any CEO since founder Earl Bakken, myself included. For Omar, the Covidien acquisition expands the Medtronic Mission of contributing “to human welfare by the application of biomedical engineering to alleviate pain, restore health, and extend life” - to more patients. When Bakken penned the Mission in 1960, he intentionally covered all aspects of human health.

A Deal That Benefits All Stakeholders

Let's look at the impact on each group of Medtronic stakeholders:

Customers: When I joined Medtronic in 1989, the company was restoring 300,000 new patients every year to health. During the past 25 years that number has grown to more than 10 million patients per year. Now, with the Covidien acquisition, Medtronic will be able to restore more than 15 million patients annually. Patients will benefit enormously from therapies originally created by Covidien that treat cancer, gastro-intestinal, respiratory, peripheral vascular and neurovascular diseases. The combined company will have a Research & Development budget of more than $2 billion per year (5x the annual revenue of Medtronic when I first joined). This R&D capability will produce a wide range of new therapies that help patients in the years ahead.

To be clear, many of these therapies are innovations that create entirely new markets – restoring patients who otherwise had few alternatives. Adding Covidien's $1.6 billion revenues in emerging markets to Medtronic's $2.1 billion will enable the company to serve emerging markets at scale, making these therapies more affordable for all and expanding patient access to life-saving therapies.

Employees: When the acquisition is complete, Medtronic will employ 87,000 people with well-paying jobs and full health care and retirement benefits. Its home state of Minnesota will benefit from an additional 1,100 Covidien employees currently in Minnesota. All of these employees, regardless of origin, will be brought into the Medtronic Mission that offers them "a means to share in the company's success."

Moreover, the improved competitive position of the combined company will increase the long-term opportunities available for employees.

Shareholders: Since the announcement, Medtronic shareholders have enthusiastically embraced this deal, bidding up Medtronic stock $3.16 to $63.86, or 5.2%. That's in sharp contrast to most deals where shareholders sell the acquiring company's stock and buy stock in the acquired company. Six of the twelve security analysts recommending "hold" for Medtronic upgraded their recommendations to "buy." Of the 24 firms covering Medtronic, 18 now have "buy" recommendations, 6 "hold," and none "sell." Since Ishrak took over as CEO three years ago, the company's stock is up 65%. 

Cynics may say gains to shareholders don’t matter, but I respectfully disagree. Strong financial performance sustains a company’s ability to invest in the long-term.

Communities: Medtronic has long been dedicated to the Minneapolis community and all communities where it has large concentrations of employees, consistently giving more than 2% of its pre-tax income to philanthropic and community causes. In addition, Medtronic committed to add 1,000 new jobs in Minnesota as a result of the Covidien acquisition, bringing its Minnesota employment to 10,100. This caused Minnesota Governor Mark Dayton to say the deal is "good news for Minnesota."

The one community that will suffer is Boston, where Covidien headquarters will be closed, an inevitable consequence of acquisitions. However, Covidien's main business locations along with Medtronic's locations can anticipate continuing increases in employment through growth in their businesses. This projection is borne out by the three major acquisitions Medtronic did over a decade ago - Sofamor-Danek, Arterial Vascular Engineering, and Mini-Med - whose employment and R&D investments have tripled in Memphis TN, Warsaw IN, Santa Rosa CA, Galway, Ireland, and Northridge CA.

Society as a Whole: Throughout its 65-year history Medtronic has been dedicated to serving society by improving health for people with chronic disease through its innovative therapies. This acquisition will enable Medtronic to accelerate its new therapies through an expanded R&D budget, extend them to more people in emerging markets, and expand its commitment to make the health care system more efficient.

Addressing the Critics

There has been much focus—too much focus, I’d argue—on the tax structure of the deal, through which Medtronic will relocate its legal domicile to Ireland. In its latest fiscal year Medtronic paid $640 million in taxes, 18% of profits. By changing its domicile to Ireland, its tax rate will not change materially. Medtronic did not do the Covidien deal to reduce its tax rate: it will still pay full taxes on all income earned in the United States.

The change in domicile enables Medtronic to utilize the $14 billion in cash trapped overseas as well as invest the $7 billion in annual free cash flow it anticipates in the future. Medtronic had already paid tax on these earnings in the countries where revenues were generated so it is not avoiding taxes on them. Rather, it avoids a form of double taxation – paying the added 35% U.S. tax in addition to foreign taxes on the same revenues, an approach being followed by all other global corporations. Medtronic’s situation is quite common. U.S. companies—including Apple, Google, and others—have more than $2 trillion trapped overseas by the inability to repatriate their earnings without added taxes.

In an interesting twist, Medtronic has committed to reinvest $10 billion of these funds in the U.S. in new ventures, technology acquisitions, and venture capital - over and above its current strategic plans. Medtronic management believes that the U.S. is still the best place in the world to invest in medical technology and support entrepreneurs pursuing innovative medical therapies.

In contrast to the Star-Tribune column, the one group that could experience a burden from this deal are current Medtronic shareholders who will owe capital gains taxes when the acquisition is complete. Depending on the cost basis of their stock, this could be significant, as it is for my wife and me. We have devised a solution to this problem that other Medtronic stockholders may want to consider: give Medtronic stock away to philanthropic causes.

In our case we plan to give our Medtronic stock to the Penny George Institute for Health and Healing at Allina Health and to the George Family Foundation, which gives grants for integrative health, authentic leadership, and vital organizations in our community. To continue to invest in Medtronic's future, we plan to buy additional Medtronic shares as soon as the deal closes.

The Star-Tribune Op-Ed columnist has the logic exactly backward. Medtronic's acquisition of Covidien is being done precisely to benefit all its stakeholders and to further the Medtronic mission. For me the litmus test is this: If I were still CEO of Medtronic, would I have done this deal? The answer is an emphatic "Yes." Omar Ishrak has demonstrated great courage with this step, making Medtronic an even more powerful voice in improving health care globally.

HBS Working Knowledge: Fixing the ‘I Hate Work’ Blues

From HBS Working Knowledge, June 5, 2014

The New York Times ran a troubling story, "Why You Hate Work," in last week's "Sunday Review." The article indicated that employees work too hard and find little meaning from their work. The anecdotes we all hear about this topic are reinforced by the Gallup Poll, which shows that only 30 percent of employees are engaged in their work.

The issues raised are ones I have worked on for many years. With the drive for higher productivity in the workplace, there is little doubt that people are putting in longer hours than they did two or three decades ago. In part, this drive comes from never-ending, short-term pressures of the stock market. An even greater factor is the global nature of competition today, which pits American organizations directly against counterparts in Asia, where work days are long and onerous.

The much greater issue raised, however, is that many workers do not find meaning in their work. A shockingly low 25 percent of employees feel connection to their company's mission. (Contrast that to the 84 percent of Medtronic employees who feel aligned with the company's mission.) In my experience, if employees don't feel a genuine passion for their work and believe that it makes a difference, engagement drops off dramatically. When engagement falls, so does productivity.

MESSAGE NOT BEING HEARD

Many senior executives have been focused on building mission-driven organizations for the last decade. The CEOs I know are fully committed to getting everyone focused on mission through regular engagement with employees—much more so than CEOs in my generation. So if CEOs are focused on the mission, why aren't these messages getting through to employees?

I believe the answer lies in the highly bureaucratic, multilayered organizations that companies are using to execute their plans. There is so much pressure to realize short-term results that middle managers are consumed by making this month's numbers rather than building teams that focus on achieving their company's mission. Innovating under intense operational pressure is nearly impossible.

In addition, the heavy burden of compliance with government regulations and internal corporate requirements is taking a toll on people, limiting their creativity, and causing them to be risk-averse. In this environment, desired qualities like empowerment, engagement, and innovation are subordinated to control aspects. No wonder people aren't engaged and having fun!

Finally, we have lost sight of the importance of first-line employees—the people actually doing the work—and have given all the power to middle management. We have driven down compensation for first-line employees, increased their hours, and taken away their freedom to act with myriad control mechanisms. When it comes to layoffs, it is the first-line people who get laid off, not the middle managers, as senior leaders protect the people closest to themselves.

What's the solution to this dilemma? I believe we need to restructure large organizations by giving much more responsibility and authority to first-line workers and paying them accordingly—with appropriate performance incentives. We need to trust employees, not control them, by empowering them to carry out the company's mission on behalf of customers. They should be given full responsibility for performance, quality, achievement of goals, and compliance with company standards.

To realize this change, organizational structures need to change. Dramatically. For starters, companies have far too many layers of managers. The best way to address this is to widen the span of control for everyone between the CEO and first-line employees. Instead of six to 12 direct reports, all managers should have 15 to 20 people reporting to them. For many managers, this violates traditional management principles, but it also dramatically reduces the number of layers between the CEO and first-line staff. I know many extremely effective executives, including Mayo Clinic CEO John Noseworthy and Medtronic CEO Omar Ishrak, who have more than 18 direct reports and handle the load extremely well. It just requires ensuring that all your direct reports are competent to do their roles and that you use a superb system of delegation, so that you're not over-managing subordinates.

REQUIRED: LEADERS WHO INSPIRE

Next, the role of middle management requires fundamental changes. Instead of managers who control, we need leaders who inspire in these roles. They should work alongside their employees, doing more than their fair share of the most challenging aspects of the work. Their leadership role is to champion the company's mission and values, and to challenge others to meet higher standards on behalf of their customers. It is the job of these leaders to facilitate the work of the people they lead by making their jobs easier, and removing bureaucratic impediments and other obstacles. Middle managers who cannot make this shift may have to move on to new roles elsewhere. All of these actions make these leaders more like partners and coaches than bosses and controllers in the traditional sense.

Finally, the most senior executives in the organization should be engaged every day with the first-line: working with them in the marketplace and in customer meetings; roaming around the labs, quizzing innovators, scientists and engineers about their latest ideas; visiting production facilities and service centers to check on quality and customer support. That means far less time holding lengthy business reviews in their conference rooms or having 1:1 meetings in their offices. Executives who are fully engaged with first-line employees every day will have a much better sense of how their businesses are running, and their presence will be highly motivating and even inspiring.

As a result of these changes, the employees will be more engaged and more productive, overhead costs will drop dramatically, and customers will report a much higher level of responsiveness. The executives will make better informed, more thoughtful decisions about the business because they are so much closer to their markets and the people doing the work.

Mayo Medical School Commencement Address - Challenges For The New Generation

On Saturday I was deeply honored to receive an honorary doctorate from Mayo Medical School and to give the commencement address. My subject was “Challenges for the New Generation of Physician and Scientific Leaders” in which I challenged the graduating class of MD/PHDs, MDs and PHDs to step up to leadership roles to transform the nation’s health care system. The text of my remarks can be found here.

Honored by The Franklin Institute

Last night I was deeply honored to receive the Bower Award for Business Leadership from The Franklin Institute along with eight very distinguished scientists. This was the greatest recognition of my professional life.

Looking over the list of previous winners of this award – which includes many of my roles models like Jim Burke of J&J, David Packard of H-P, Roy Vagelos of Merck, and more recently, Bill Gates and Mike Dell – I don’t feel deserving to be recognized among them, but I am deeply humbled.

During the day I also had the opportunity to give an address on “Becoming a Global Leadership” and to talk about the changing role of capitalism and the responsibilities of global companies in the 21st century, plus make a visit to Wharton.

All in all, it was a very special day, and I was very pleased to have Penny be there for the entire time.

Full Press Release

Franklin Institute Awards Bower Award for Business Leadership