Here is my video from the McKinsey website on the need for long-term investing in order to create superior value for their customers and why boards of directors must be prepared to stand up to activist investors urging short-term actions.
Blog > Category: Leadership
The Franklin Institute awarded Bill George its 2014 Bower Award for Business Leadership. The Awards program, founded in 1824, is among the oldest and most prestigious honors bestowed in the United States.
Gayle M. Ober, Executive Director of the George Family Foundation, said: “This recognition of Bill George is well-deserved. The Franklin Institute prize recognizes extraordinary business leadership, and Bill’s selection reflects the contributions he has made in the business, academic, philanthropic, and community realms.”
The awarded citation recognizes Bill George:
“For his visionary leadership of Medtronic Corporation, his promotion and writings on corporate social responsibility and leadership, as well as his extraordinary philanthropic contributions to education and health care through The George Family Foundation.”
Bill George’s business career was characterized by a mission focus. As CEO of Medtronic for ten years, he measured success by the number of new patients the company was able to help each year “be restored to full health”—a number which grew from 300,000 to 10 million today. As a professor at Harvard Business School, he has pursued a mission of building ethical leaders with equal vigor. Bill has written five books on leadership, informally advised numerous CEOs and emerging leaders, and contributed to the advancement of society through leadership on a variety of corporate and nonprofit boards. In addition, Bill has been instrumental in shaping the leadership funding focus of the George Family Foundation. Influenced by his personal involvement, the Foundation has supported national and global leadership programs that train and nurture authentic leaders in all sectors
Past honorees of The Franklin Institute’s Bower Award for Business Leadership include Bill Gates, Gordon Moore, David Packard, James Burke, Roy Vagelos and Michael Dell. Past scientific laureates include Thomas Edison and Albert Einstein.
About The Franklin Institute
Founded in honor of America’s first scientist, Benjamin Franklin, The Franklin Institute is one of America’s oldest and premier centers of science education and development in the country. Today, the Institute continues its dedication to public education and creating a passion for science by offering new and exciting access to science and technology in ways that would dazzle and delight its namesake. Recognizing outstanding achievements in science throughout the world is one important way that the Institute honors its commitment to Benjamin Franklin’s legacy. For more information, please go to www.fi.edu/awards.
About the George Family Foundation
This mission of the George Family Foundation is to foster wholeness in mind, body, spirit and community by developing authentic leaders and supporting transformative programs serving the common good. Founded in 1994 by Bill and Penny George, the Foundation supports innovative ideas in integrative health, leadership development, social justice, and spirituality in everyday life.
Unlike our counterparts in Southern Europe, the United States is blessed to have a fairly steady economy these days. While economic growth is not as robust as it has been in years past, it is at least solid and jobs are steadily returning in the private sector. Financial markets reflect the solid outlook for leading U.S. industries like information technology, health care, energy, automobiles, and basic manufacturing industries. The U.S. has become the world's leading energy producer, helping to ameliorate our long-standing dependence on foreign oil that has led to unfavorable trade balances. Even the enormous government deficits of the last decade are starting to decline, thanks in part to the involuntary sequestration of spending.
A Manufactured Crisis with No Easy Way Out
So why are we flirting with a historic default on U.S. government bonds that will harm the U.S. credit and credibility for decades to come? Simply stated, our political leaders have manufactured a crisis. They know they are playing with fire, but no one seems to know how to put it out.
At this weekend's meetings of the World Bank and International Monetary Fund, world financial leaders like Christine Lagarde, head of the IMF, and Jim Kim, president of the World Bank, were almost apoplectic in their dire warnings about the impact of a U.S. default on the global economy. Even the threat of a default risks “massive disruption the world over,” said Lagarde on Sunday. U.S. leaders like Jacob Lew, Secretary of the Treasury, and Jamie Dimon, chair and CEO of JP Morgan, echoed similar concerns but offered no viable solutions.
In the past two years many U.S. political leaders seemed to enjoy beating up on the Europeans for the fiscal crisis in Greece that threatened to spread to Italy, Spain and Portugal. While Germany's Angela Merkel steadily worked to solve the problems through austerity and restraint, U.S. leaders and commentators like Paul Krugman took potshots at the Germans for not bailing out the Greeks with greater deficits and expanded borrowing.
The big difference here is that Greece's fiscal crisis is real, while the U.S. problems are entirely the result of a dysfunctional political system. The blame can be squarely placed on leaders who fail to put their country ahead of personal political gain. Sadly, there is no easy way to overcome this political crisis, as the sides are so polarized. They are likely to remain so due to the gerrymandered Congressional districts that created the split in the first place.
I feel confident we will find a way to muddle through the artificial debt ceiling, even if President Obama has to violate the law to do so, but the damage being done will stay with us for years to come. The Chinese and other big lenders will eventually find alternative currencies or a reserve currency basket where they can park their funds. Interest rates will rise, giving an upward nudge to inflation.
But what about Washington? When a power vacuum is created in a democracy like ours, other forces take over. Under the leadership of Chairman Ben Bernanke, the Fed has been offsetting the lack of fiscal policy during the last four years by making ever greater uses of monetary tools like quantitative easing. Bernanke's successor, vice chair Janet Yellen, is likely to continue these policies until Congress and the administration get their respective acts together, which could be a long time.
A Solution for this Manufactured Crisis: "Think Local"
The solution, I predict, is that states and municipalities will steadily assume more power. As federal entitlement programs assume an ever-larger share of the federal budget, they will squeeze out spending for most domestic programs. At present no one in Washington seems to have the political will to solve the looming fiscal crises of Social Security, which could actual be resolved quite easily, and Medicare/Medicaid, which will become an increasing sinkhole for funds for the foreseeable future until we get serious about healthcare costs.
This puts the burden for quality of life on the backs of the governors and big city mayors. Given the diversity of the country across 50 states, this may be a good thing. Locally-elected officials are that much closer to the people who vote for them and thus more responsive to their needs. By returning power to states and municipalities, we empower local people and their elected leaders to tailor solutions to their local problems.
Health care and education are essentially local issues. The complexities of health care and education, coupled with the growing diversity of our states, are so great that they defy "one-size-fits-all" national solutions. Ultimately, local leaders will come up with sounder, more practical solutions that fit the needs of their unique populations. They will be more effective at engaging the business community and non-profit organizations to partner with them in seeking these solutions. Instead of spending money and time lobbying in DC for little gain, business and non-profit leaders can focus on making things work locally and on contributing their own resources to enhance quality of life for their employees, dependents and communities.
My bottom line: because of the dysfunctions in the federal government and the growing diversity of the country, we are witnessing nothing less than a historic shift of power to states and municipalities. In the end this will prove healthy for our country as we generate higher levels of commitment and collaboration among the government, business and non-profit leaders that lead to higher quality of life for all Americans.
Last Saturday I had the privilege of delivering the address at St. Martin’s Episcopal Church on the occasion of its 125th Anniversary in the presence of Bishop Prior. Penny and I and sons belonged to St. Martin’s from 1983-1995, and it was a great pleasure to return with so many old friends in attendance. My topic was: “We Are All Called to Be Servant Leaders.” Your feedback is welcome.
"We Are All Called to Be Servant Leaders" Address by Bill George
at St. Martin's by-the-Lake Episcopal Church on its 125th Anniversary - September 21, 2013
What a privilege it is for Penny and me to return to St. Martin's for this special celebration of your 125th anniversary. For us it is like "coming home," as all of you have so graciously welcomed us this evening. The warmth of the congregation and the beauty of this intimate space provides a welcoming home to all who enter through its doors.
Coming back brings with it very special memories of the 12 years we spent as members from 1983-1995. In 1974 we went to Cursillo as members of St. Paul's Episcopal, and there we met so many St. Martin's members who became lifelong friends. When we returned from Brussels in 1983, we decided to come to St. Martin's where we had so many good friends from Cursillo. Our sons Jeff and Jon had many school friends here, went to Sunday School, were confirmed at St. Martin's, and joined the Youth Group.
In those days we were devoted to Rev. Ed Eilertson (and still are); in 1995 Ed led our group of 12 on a once-in-a-lifetime tour of religious sites in Israel. When Ed became the interim at Plymouth Church, we followed him there. We also formed a couples group that included the McCreas and the Pipers. When Penny was diagnosed with breast cancer in 1996, I vividly recall the other six members of our couples group joining with me in a room immediately below where she was having her mastectomy - joining hands and praying for her recovery. Following Penny's breast cancer, she wanted to return to her roots in the Congregational church where her two grandfathers had been ministers so we continued on at Plymouth.
This week many of us were thrilled by the words of Pope Francis as he tries to bring the Roman Catholic church back to its roots of love, serving the poor and preserving the earth. He is returning the church from its doctrinaire head to its heart of love and compassion. As Buddhist monk Thich Nhat Hanh said, "The longest journey you will ever take is the eighteen inches from your head to your heart." Pope Francis is now leading his flock on this long journey. In six simple words, he changed the direction of the world's largest church when he asked, "Who am I to judge another?" Indeed, we are all formed in our unique way by our Creator with our individual differences that we should cherish, not judge.
St. Martin's History
The long and enduring history of St. Martin's, the warmth of this building and this congregation, and the commitment of families over many generations have built an enduring church. In reviewing the history of St. Martin's, I am struck by just how many members of this parish have been great leaders in our community. They have carried the spirit of St. Martin's into great corporations, arts organizations, social service organizations, youth organizations and many others. As was said about Bobby Piper, Tad Piper's father, when he received the Pax Christina award at St. John's, "He practiced his faith in the marketplace."
Today the world, and indeed our community, is crying out for leaders who do just that: they practice their faith in the community by serving others through their work. Just as former Reverend Russ Ewald created Minnesota's greatest foundation in the McKnight Foundation, Virginia McKnight Binger created the St. Martin's Foundation to provide services to the broader community beyond our church doors.
Examples abound from this congregation: For many years Polly McCrea led Opportunity International, which is dedicated to help poor women around the world create their own businesses with the help of micro-financing. Carol Erickson has created the IMAWA Foundation to help the poor in Kenya. Tad Piper not only led Piper Jaffrey, but is currently chair of the St. Olaf board. Closer to home, Toby LaBelle, who grew up in this church, founded the StepUP program at Augsburg College for youth suffering from chemical dependency. They even have their own dorm. Now this program has become a model that is being adopted by many colleges throughout the U.S.
The Legacy of 125 Years
In 1676 Issac Newton said, "We stand on the shoulders of giants." Tonight his words are truer than ever. Indeed, we honor those giants who have built this church for the past 125 years on whose shoulders we now stand.
Narayana Murthy, founder of Infosys, once said, "Longevity is the real test of any organization." St. Martin's has not only longevity, but an abiding commitment to its history, its roots and its traditions. I envision the analogy of St. Martin's to a giant oak tree that has endured storms, winds and draughts for 125 years, yet each year its blossoms return to grow ever more beautiful and reach ever higher toward the sun.
Great oak trees, like great churches and great organizations, are nourished, however, from their roots, which grow deeper and wider under the ground. As the roots grow strong and are healthily nourished that tree will continue to flourish and share its beauty with all who seek it. So it is with St. Martin's: It has been built on the solid foundation of deep roots.
The Parable of the Three Stonecutters
Let me share with you the well-known story of the three stonecutters: "A man asked three stonecutters them what they were doing. The first replied, “I am cutting stones to earn a living.” The second kept on hammering while he said, “I am doing the best job of stonecutting in the entire country.” The third looked up with a visionary gleam in his eye and said, “I am building a cathedral.”
The first stonecutter is simply doing a day’s work for a day’s pay, for the material reward he receives in exchange for his labor. The purpose of his work doesn't matter. The second stonecutter wants to be the best at his craft. His world is competitive and meritocratic. His vision is incomplete because he misses the fundamental interconnectedness of humankind, of communities, and of our world. He fails to see there would be no stones to cut were it not for the community building a cathedral.
The third stonecutter embraces a broader vision. The menial nature of his work is part of a far larger undertaking, a spiritual as well as a physical construction, that aspires to the heavens, transcending the earthbound, for cathedrals are built not in years, but over centuries. His lifetime's work may last for centuries. It ignites past and future, connects humans across generations and becomes part of a purpose that is far larger than himself.[i]
The Challenge for St. Martin's Next 125 Years
That's how it is with St. Martin's: We stand on the shoulders of giants, as we build our own intimate cathedral. The church blossoms like that giant oak by serving not only ourselves but the communities around us and, indeed, like Carol Erickson and Polly McCrea, the people of the world. As you nourish your roots, sustain your values, build on the traditions that have made this church great, and honor those on whose shoulders we stand tonight, St. Martin's can go forth to grow in new directions with new people and new blossoms, reaching ever closer to the Son, Jesus Christ, and our Creator God.
How do you build on your traditions, yet adapt to a new era for your church, your families, your congregation and your community so that you stay relevant with the changing times? In my 2007 book True North, I wrote about leaders who know the True North of their beliefs, their values and the principles they lead by. Organizations like St. Martin's also have a True North. It is built on your history and traditions, but even more importantly on your beliefs, your values and your principles. The discernment you went through in anticipation of calling Rev. Dave Languille to be your rector demonstrated what those principles are.
The challenge I would put in front of you tonight is: How can each of us follow our True North and collectively enable St. Martin's to fulfill its True North? How can you create a greater community that serves a more diverse congregation. How can you bring more children and grandchildren into the church as they grow to adulthood. How can each of us be servant leaders who serve others in our church and in our community?
"We Are All Called to Be Servant Leaders"
In the Gospel of St. Mark, Jesus tells his disciples, "Whoever among you would be great must be a servant. The Son of Man came not to be served but to serve, and to give his life for us all." As Episcopalians, our liturgy calls on us "To love and serve the Lord."
How do we do that? I believe we are all called to be servant leaders, for to lead is to serve, and to serve is to lead. One of the great misnomers is that leaders are people who sit on top of large organization. Actually, this is not true. Each of us is a leader and each of us is called to lead in our own way:
- To teach Sunday School is to lead, just as is coaching a youth sports team;
- To bring an elderly person who is shut in to church is to lead;
- To serve on the altar guild;
- To create small prayer groups;
- To sing in the choir;
- To bring a new friend to church;
- To help someone through a difficult time in their life who may be suffering from depression, illness, the loss of a loved one, or dependency of any kind.
These are all ways we can lead. We are all called to lead, each in our own way. We do so by serving others. As Robert Greenleaf, the creator of the notion of servant leadership, has written: "Good leaders must first become good servants. Individuals are only chosen as leaders because they are proven and trusted servants." He goes on to say: "The only truly viable institutions will be those that are predominantly servant-led."
Max De Pree, former CEO of Herman Miller wrote in his book, Leadership is an Art, "The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant."
Your Calling to Serve
What is your calling to serve? How are you fulfilling your life purpose?
No one can tell you what it is, but each of us can discover our calling to serve through discernment and being part of a community of fellow seekers who are also attempting to serve in the best ways they can.
The one thing I have learned is that our calling is not in our heads, but in our hearts. We must take that long journey of 18" that Thich Nhat Han refers to. Our calling calls forth our passion, our compassion, our empathy and our courage, all of which are matters of the heart. By being part of a caring community of fellow seekers here at St. Martins, we can nourish our hearts and our souls and, in so doing, discover our true calling to serve.
As Nobel Peace Prize Winner Albert Schweitzer once said, “I don't know what your destiny will be, but one thing I do know: The only ones among you who will be really happy are those who have sought and found how to serve.”
The Mission of St. Martin's
The mission of St. Martin's Is "To Transform Lives for the Gospel." Looking ahead to the next 125 years, how do we fulfill that mission? I believe we do it by being servant leaders - all of us. We do it by providing a safe place where people can be themselves; be respected for who they are, not what they are; and find their purpose here to serve the Lord through their work.
Whether their destiny is to be bricklayers or CEOs, all are respected, indeed cherished, for fulfilling their unique purpose in life … a purpose that we are given by our Creator at birth, yet that may take a lifetime for us to discern in order to fulfill our purpose.
In a community of fellow pilgrims, each striving to fulfill their purpose through serving in their own way, we can find that safe space to be our authentic selves. We can discover our true calling to serve the Lord through serving others. In this way our lives are transformed. We fulfill the true meaning of the Gospel:
- To love one another
- To help the poor and those in pain, suffering or any kind of affliction
- To cherish and preserve the earth and God's creation
Let us pray. Lord, let us be thy humble servants, devoted to serving You by serving others. Show us the light that leads us to a greater purpose. Help us to find the way, the truth and the life by following your son Jesus.
Let us close with the familiar prayer of St. Francis:
Lord, make me an instrument of your peace.
Where there is hatred, let me sow love;
where there is injury, pardon;
where there is doubt, faith;
where there is despair, hope;
where there is darkness, light;
and where there is sadness, joy.
O Divine Master, grant that I may not so much seek
to be consoled as to console;
to be understood as to understand;
to be loved as to love.
For it is in giving that we receive;
it is in pardoning that we are pardoned;
and it is in dying that we are born to eternal life. Amen
Thirty-seven years ago Bill George first convened what might be called a feedback and support lunch club for aspiring executives. Ever since, George and his half-dozen compatriots have met almost every Wednesday to discuss their lives and businesses. He now calls this his True North Group. Read full Sky Magazine article here.
Medtronic’s former Chairman and CEO Bill George has been named the “Top Overall Business Leader” of the past twenty years by Twin Cities Business Magazine. George is currently Professor of Management Practice at Harvard Business School, where he has spent the past ten years teaching leadership to executives and MBAs. During this period he has written four best-selling books, including True North, and has been an active commentator on television and in print on business leadership. He currently serves on the boards of directors of the Mayo Clinic, ExxonMobil and Goldman Sachs, and previously on the boards of Target and Novartis. The Twin Cities Business article notes, “Medtronic’s former CEO and current chairman is perhaps the individual most quoted by other corporate leaders, certainly in the Twin Cities, on effective leadership. Boiled to an essence, his message is “Be who you are,” and he is. Self-effacement and candor are primary virtues in the George canon. He says, “What gives me the most satisfaction from my years (at Medtronic) is that we went from restoring 300,000 people a year to good health to restoring 10 million. That, to me, is the measure of the good you have done.”
From NYTimes DealBook, published August 26, 2013.
Activist investors are making waves in the stock market, but their game has changed. Instead of taking on sluggish, poorly managed businesses, they want to restructure many of the world’s most profitable, best-managed companies. Their targets — PepsiCo, Apple, Target, Whole Foods, Procter & Gamble, Kraft and Dell — represent the gold standard of corporate governance. These companies are run by highly engaged, professional leaders. So why are activists like Carl C. Icahn, William A. Ackman, Nelson Peltz and Ron Burkle taking aim at them?
While activists often cloak their demands in the language of long-term actions, their real goal is a short-term bump in the stock price. They lobby publicly for significant structural changes, hoping to drive up the share price and book quick profits. Then they bail out, leaving corporate management to clean up the mess. Far from shaping up these companies, the activists’ pressure for financial engineering only distracts management from focusing on long-term global competitiveness.
These activists have a keen sense of timing, buying up shares when the stock is down because of near-term events. There is nothing wrong with that. Warren E. Buffett does the same. The difference is that Mr. Buffett invests for the long term in companies like Coca-Cola, Wells Fargo and I.B.M. He says his ideal holding period is “forever,” and he leaves management alone to focus on results.
A relevant example is Mr. Peltz’s demands to restructure PepsiCo. After forcing the spinoff of Kraft’s North American business into a company called Mondelez, Mr. Peltz’s Trian Partners is left holding 3 percent of a company that cannot compete with global leaders like Nestlé and Unilever. So Mr. Peltz wants PepsiCo to buy Mondelez and then split into two companies: beverages and snacks, including Mondelez. This financial engineering makes no sense. Rather, it demonstrates Mr. Peltz’s lack of understanding of what is required to run successful global enterprises.
PepsiCo’s results demonstrate the validity of the “performance with purpose” strategy of its chief executive, Indra K. Nooyi. It recently reported its sixth consecutive quarter of solid organic revenue growth as core earnings per share grew 17 percent and gross margins expanded. Its global portfolio of snacks, beverages and healthy foods has high co-purchase and co-consumption levels, generating $1 billion a year in scale benefits. Ms. Nooyi uses cash flow from traditional beverages to finance investments and growth in emerging markets, innovation and healthy brands, which now account for 20 percent of PepsiCo’s revenue. PepsiCo’s stock is up about 25 percent over the last two years, compared with 11 percent for its archrival, Coca-Cola.
Mr. Peltz is not the only activist going after healthy companies. Here are some other examples:
Mr. Burkle moved in on Whole Foods when its stock was at its 2009 low of $4, having fallen from $39. Whole Foods’ leadership ignored Mr. Burkle’s pressure, stayed true to its mission and strategy, merged with Wild Oats and invested in deluxe new stores while expanding sales at stores open more than a year. Today its stock is above $50 and has traded above $55.
In 2009, Mr. Ackman tried to pressure Target to break up its integrated portfolio of retail, real estate and credit card holdings, mimicking Eddie Lampert’s disastrous strategy at Sears. Target fought back, won 80 percent of shareholder votes in a proxy fight over Mr. Ackman’s proposed board slate and focused on its long-term strategy to compete with Wal-Mart Stores. Since then, Target’s stock is up 64 percent.
Mr. Ackman next bought into J.C. Penney with a stake that now amounts to about 18 percent and hired Ron Johnson from Apple as chief executive. They hastily undertook a complete remake, abandoning traditional customers and losing 30 percent of revenue. When Myron E. Ullman, the former chief executive who was brought back, tried to stabilize the company, Mr. Ackman publicly attacked the board. Finally, the board forced Mr. Ackman to resign, leaving him with an estimated $500 million in losses. To his credit, Mr. Ackman is acknowledging his mistakes.
Procter & Gamble
Mr. Ackman also went after venerable Procter & Gamble and its chief executive, Bob McDonald, proposing questionable short-term actions to drive up the stock price. He personally attacked Mr. McDonald even as the company posted two strong quarters. Under pressure, the board decided to replace Mr. McDonald with his predecessor, A.G. Lafley. Meanwhile, P.&G. continues to lose ground globally to its archrival, Unilever.
Michael S. Dell proposed taking private the company he founded at a 40 percent premium so he could operate it without stock market scrutiny. Hoping to squeeze $1 to $2 more a share out of Mr. Dell, Mr. Icahn bought up Dell stock and proposed his own financial structure. Now the company is in limbo, posting declining results while the ownership struggle continues.
Chief executives are responsible for building their companies for the long term, while delivering near-term results. When economic conditions and market changes put pressure on quarterly results, it takes wise and steady leadership at the top to avoid the pitfalls of cutting investments to achieve quarterly targets. Chief executives who “borrow from tomorrow” to meet today’s numbers inevitably jeopardize the future of their companies. For poignant examples, review the histories of Hewlett-Packard, General Motors, Sears and Kodak.
The best chief executives — including Alan R. Mulally of Ford, Paul Polman of Unilever and Ms. Nooyi of PepsiCo — anticipate short-term challenges but don’t react to them by sacrificing long-term strategies. They know how to compete globally by creating sustainable value for customers and their shareholders.
In attacking well-run companies, activists are overplaying their hand. The only way to sustain growth in shareholder value is by creating competitive advantage to provide superior value for your customers. Corporate leaders should stay laser-focused on this goal.
Steve Ballmer’s announcement today that he will retire as Microsoft’s CEO after 14 years at the helm highlights the challenges high technology companies have in sustaining their success. Ballmer’s tenure was marred because he permitted Microsoft’s Office and Windows businesses to dominate the company. Meanwhile, opportunities in smart phones, search, mobile applications, social media, and on-line videos were ceded to emerging companies from Google to Blackberry, Facebook, Twitter, and YouTube (now part of Google). Led by the return of Bill Gates’ old nemesis, Steve Jobs, Apple has far surpassed Microsoft in every category except PC software. Even there, Jobs was able to finesse Microsoft in creating the iPad that has contributed to the steady decline of the PC business.
To his credit, Ballmer invested heavily in R&D – over $10 billion in the past year – but Microsoft has little to show for it. Like many of its high tech counterparts – Hewlett-Packard, Yahoo, Nokia, Dell, Blackberry, Kodak and Motorola, to name a few – Microsoft has been unable to overcome the dominance of its core business. Thus, it is following a similar path to IBM with mainframe computers in the 1980s. Most likely the crowning blow for Microsoft’s founder-dominated board was the fiasco with Windows 8, its mainstream product update.
Microsoft’s problem is not a technology problem but an organizational one. It is the classic issue addressed by my HBS colleague Clay Christensen in The Innovator’s Dilemma. The dominant business that generates most of the profits gets the bulk of the resources and attracts the best people in the company. Meanwhile, the dominant group squeezes resources for emerging businesses, especially when funds are tight, and focuses its R&D on replacement products, not true innovation. Similar things happened in the pharmaceutical industry which, with the exception of Novartis and J&J, missed the biotech, med tech, and generic revolutions.
We had a similar problem at Medtronic with the dominance of our cardiac rhythm business, made up of pacemakers and defibrillators, which used to account for 80% of revenues and 90% of profits. Seeing the eventual saturation of that market, we used its cash flow to spend heavily to build a series of medical technology businesses through internal ventures and acquisitions. These include neurological disease, spinal disease, cardiovascular disease and diabetes, along with emerging businesses in otolaryngology and urology. Today the latter businesses account for more than 60% of Medtronic’s revenues and make up the bulk of its growth.
Ballmer contributed to Microsoft’s innovation problem by personally dominating its organization, not letting anyone have sufficient authority to counteract the power of the mainstream business. The consequence is that after 14 years – which is four years too long for a high tech CEO to be at the helm – Ballmer is leaving Microsoft with no successor in sight. Shame on the Microsoft board for letting this happen.
So the company is turning to Heidrick and Struggles to propose a successor. Let’s hope the Microsoft board is wiser in the selection process than the Hewlett-Packard board, which four times unsuccessfully went outside its ranks for a new CEO, yet never found a leader who could restore the innovative, egalitarian culture of H-P’s glory days. IBM’s approach should be a role model: it recruited Lou Gerstner, who had no computer background but was a superb strategist and leader, to get the company back on track. Gerstner wisely groomed Sam Palmisano as his successor, turning over the reins after only eight years. In the past decade Palmisano remade IBM into a highly successful enterprise systems and solutions company and groomed an internal successor, Ginny Rometty, to carry on the IBM success story.
Fortunately for Microsoft’s board, there are excellent candidates who could rebuild its innovative spirit. Three in particular come to mind: Jeff Bezos, CEO of Seattle-based Amazon; Cheryl Sandberg, COO of Facebook; and John Donahoe, CEO of eBay. It is unlikely Bezos would make the shift, but Sandberg might welcome the opportunity to become CEO rather than COO. Donahoe is less well known, but has done a superb job in remaking eBay after taking over a declining franchise from former CEO Meg Whitman.
At this writing Microsoft’s future is very much in doubt. For the sake of America’s dominant position in the global high tech field, let’s hope its board goes the route of IBM and not H-P. Doing so will require all the wisdom of Bill Gates and his fellow board members.
This morning I joined guest panelists Lou Bellamy (Penumbra Theater) and Trista Harris (MN Council of Foundations) to discuss "How our failures and challenges enable us to be authentic leaders" with Host Kerri Miller. Full program here. Your feedback is welcome!
Enjoyed joining host Brian Kenny on HBS’s podcast, The Business, to discuss the US Supreme Court decision to repeal the Defense of Marriage Act and the role of business and business leaders in social change. Link to podcast here.