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Obama 2.0: The President's Speech

In the State of the Union address on Tuesday, President Obama has the opportunity to recapture the hearts and minds of the American people and unify the country. Will he seize the moment?

He did so brilliantly in the 2008 campaign by integrating visionary leadership with pragmatic politics. When he became president, the American people expected him to inspire us to restore America’s leadership at home and in the world.

Instead, President Obama abandoned any pretense of vision and narrowed his focus down Pennsylvania Avenue to Capitol Hill. Led by Rahm Emmanuel, his “win-lose” chief of staff, he played “inside the Beltway” politics so well he ignored the moderates and independents who elected him.

He used Democratic majorities to force through major legislation: $878 billion stimulus virtually ignoring private enterprise; health care focused on access to the exclusion of cost and quality; and financial services requiring two years of regulation writing just to define derivatives and proprietary trades.

In the process the president failed to convince the American people why these moves would help them. Mr. Obama’s visionary rhetoric of the campaign turned into “political speak” that was both confusing and uninspiring. Not understanding the benefits, people turned against his initiatives, giving Republicans an enormous opening.

Since the November election, President Obama seems like a different leader. He is listening again to a wide range of thoughtful people. He has replaced his hardball chief of staff with a mature, experienced business executive. He upgraded his chief economic adviser to a pragmatic negotiator who gets things done.

He is reaching out to chief executives and responding to their input, while dropping his antibusiness rhetoric. He is focusing on private sector jobs, domestic manufacturing and exports. He even negotiated a centrist tax package with the Republicans that will serve as a major economic stimulus.

Now he has one more task: to present a compelling vision to the American people of where America is headed and how it will regain its stature in the world.

Everyone knows he can do this better than anyone since John F. Kennedy. The question is not “can he?” but “will he?” In Arizona, at a memorial service for the victims of the Tucson shooting rampage, he seemed to regain the touch. Now he has to broaden the issues and set the course for the rest of his presidency.

What should he say on Tuesday night? Here’s the theme I would propose:

“It’s time to invest in America. For decades we have helped the rest of the world. We aren’t abandoning them, but the pressing need is to invest here at home. We must commit ourselves to building America for the 21st century. Here are seven areas for investment to become globally competitive once again.”

Health and Wellness The health reform act granted access to 25 million more Americans, but offers no concrete way to pay for their health care. The president should declare a “national health and wellness campaign” and charge Americans with taking responsibility for their health. Incentives need to be reversed to reward people for staying healthy and holding medical systems responsible for keeping people healthy.

Education The United States is rapidly deteriorating into a two-tier education system, which can only lead to greater unemployment and political rifts. Education Secretary Arne Duncan’s “race to the top” is on the right track, but we need to educate people for 21st century jobs.

Infrastructure The antiquated infrastructure in the United States will take huge investments to bring it up to world-class standards. Are we prepared to raise the bar to the levels of Europe, Japan and even China?

Jobs With 27 million Americans looking for full-time jobs, America cannot have a vibrant economy until people get back to work. This requires investments in retraining and vocational/technical education.

Manufacturing and Exports The manufacturing sector and exports are suddenly showing signs of life, led by the resurgence of the Big Three domestic automobile makers. President Obama’s new Jobs and Competitiveness Council, led by Jeffrey R. Immelt of General Electric, is an important first step. New tax incentives will spur investments in automated, high-tech manufacturing and increase exports.

Innovation Entrepreneurship and innovation are America’s competitive advantages. We need to stimulate investments in research and development, inventions, breakthrough ideas and venture capital.

New companies and small businesses New jobs come from start-ups and small businesses. We need to ease regulations to let companies build their businesses and expand hiring.

If the president begins such an “Invest in America” program and asks Americans to make sacrifices to bring this country back to global leadership, he can set off an American renewal.

It can be done. What is needed is the president’s vision on Tuesday.


 

Posted in the New York Times DealBook on Monday, January 24, 2010

The Obama 2.0 Series

I have written on the importance of investing in America as a way to rebuild the economy and create jobs, not only replace the ones that we have lost.  It is time for Obama 2.0.  Below I've pulled together my series on the emergence of Obama 2.0 as the President. 

 


Time to Invest in America

 

In talking with dozens of chief executives, I hear pragmatic managers focused on building their businesses and earning fair returns for shareholders, yet extremely concerned about government policy. Here are the real reasons they are not investing in America:

  1. They expect no real domestic growth for the foreseeable future. In contrast, they foresee emerging markets sustaining double-digit growth. As a chief executive at a large consumer products company told me: “Half our revenues already come from Asia; within 10 years it will be 70 percent. Naturally, we are shifting more operations there.”
  2. To compete with local companies, global companies are investing overseas in factories and sales and marketing personnel. Foreign governments like China and Singapore make investments very attractive. One chief executive noted that he chose China for his $62 million factory because local subsidies reduced his investment to only $13 million.
  3. Companies are also moving infrastructure support from the United States to lower-cost areas in Asia. Unable to obtain visas for its Indian employees, a major computer software company moved most of its software operations to India, where well-educated employees enjoy higher standards of living at one-quarter of the cost.
  4. Without domestic growth, there is no need for additional employees. Instead, companies are achieving productivity gains by running lean. Mounting costs of doing business and increased benefit costs have created so much uncertainty that chief executives are reluctant to hire, especially small business owners.
  5. Chief executives feel they have access in Washington, but limited influence. Without any business people in the Obama administration, there are no advocates for sound business policies. A successful commercial banker described how open the president appeared to his concerns, yet the next day — without any consultation — the administration announced a new $50 billion bank tax.

Ask yourself: if you were faced with these conditions, would you be investing in America and hiring more people? Unless the climate in Washington changes dramatically, this no-growth, no-jobs environment will continue indefinitely.


 

It's Time for Obama 2.0

In Obama 1.0, the president stabilized the economy with government spending that minimized job losses and personal bankruptcies. But the economy has stagnated as these policies have been ineffective in stimulating private sector growth, jobs and innovation. Relying on monetary policies and deficits to drive consumer spending is not working, because the economy is experiencing fundamental structural changes that are impervious to these macroeconomic approaches. That’s why there are 26 million people — 16.5 percent of the workforce — who would like to be working full time but are not.

Now is the time to introduce Obama 2.0 by initiating pro-growth economic policies that will invigorate job growth. This means investing in America to unlock the $2 trillion currently in corporate coffers and to stimulate private-sector hiring. Mr. Obama also needs to make fundamental changes in relationships with the business community, overcoming the distrust that has developed on both sides.

The president’s Labor Day proposals were encouraging. He offered a 100 percent deduction for capital investment until the end of 2011, an increase in research and development tax credits that would make them permanent, and an additional $50 billion in infrastructure spending. All three initiatives suggest Mr. Obama is finally moving away from trying to cure the economy’s ills with deficit-fueled government spending and beginning to enact policies that foster private-sector investment and job creation.

 


What He Should Say at the State of the Union

 

Health and Wellness The health reform act granted access to 25 million more Americans, but offers no concrete way to pay for their health care. The president should declare a “national health and wellness campaign” and charge Americans with taking responsibility for their health. Incentives need to be reversed to reward people for staying healthy and holding medical systems responsible for keeping people healthy.

Education The United States is rapidly deteriorating into a two-tier education system, which can only lead to greater unemployment and political rifts. Education Secretary Arne Duncan’s “race to the top” is on the right track, but we need to educate people for 21st century jobs.

Infrastructure The antiquated infrastructure in the United States will take huge investments to bring it up to world-class standards. Are we prepared to raise the bar to the levels of Europe, Japan and even China?

Jobs With 27 million Americans looking for full-time jobs, America cannot have a vibrant economy until people get back to work. This requires investments in retraining and vocational/technical education.

Manufacturing and Exports The manufacturing sector and exports are suddenly showing signs of life, led by the resurgence of the Big Three domestic automobile makers. President Obama’s new Jobs and Competitiveness Council, led by Jeffrey R. Immelt of General Electric, is an important first step. New tax incentives will spur investments in automated, high-tech manufacturing and increase exports.

Innovation Entrepreneurship and innovation are America’s competitive advantages. We need to stimulate investments in research and development, inventions, breakthrough ideas and venture capital.

New companies and small businesses New jobs come from start-ups and small businesses. We need to ease regulations to let companies build their businesses and expand hiring.

If the president begins such an “Invest in America” program and asks Americans to make sacrifices to bring this country back to global leadership, he can set off an American renewal.

What the President Should Say Tomorrow Night

Tomorrow night the President addresses the nation.  He's made great strides to rebuild relationships with business leaders over the last four months, but now it is time to reconnect with the American people.  He must address the big issues facing our country:  

  • Health care reform 

  • Education 

  • Infrastructure 

  • Jobs 

  • Manufacturing and Exports 

  • Innovation 

  • New companies and small businesses 

I continue the conversation on what the President should say on the New York Times DealBook.

Revisiting the rights and responsibilities of business

"Businessmen that take seriously their responsibilities for providing employment, eliminating discrimination, avoiding pollution . . . are preaching pure and unadulterated socialism."
Milton Friedman, 1970

Nobel prize-winning economist Milton Friedman penned those fiery words back in 1970 in his influential article "The Social Responsibility of Business Is to Increase its Profits." He continued to defend them until his death in 2006.

Friedman has had a monumental influence on economists and CEOs who have followed his philosophy. Although we cannot attribute the global economic meltdown of 2008 to him, his ideas certainly influenced its root causes.

A short-term focus on shareholder gains has substantially increased the velocity of stock market trading. In the past 25 years, holding periods for stocks have fallen from eight years to six months. CEOs focusing on meeting the demands of short-term investors have led to the destruction of many once-great companies, including General
Motors, Sears and Enron. This culminated in the 2008 global financial meltdown, when over-leveraged financial institutions collapsed as they tried to maximize short-term value.

The havoc caused by the short-term shareholder value ideology has led to a narrow focus on shareholders, the loss of America's innovative edge and the hollowing of communities. As a result, employees have lost their jobs, customers lost their suppliers, communities lost valued supporters and, ironically, shareholders lost a fortune. Collectively, these factors have contributed to the loss of trust in free enterprise companies.

In a sharp rebuke to the Friedman philosophy, my Harvard colleague, Michael Porter, and his co-author Mark Kramer have written a seminal piece in this month's Harvard Business Review: "The Big Idea: Creating Shared Value." They advocate that creating shared value between companies and society "holds the key to unlocking the next wave of business innovation and growth [and] reconnecting company success and community success."

The time is ripe to reassess the true purpose of business. In a free-enterprise system corporations are chartered by society and endowed with certain rights and responsibilities. Those that fail to contribute to society may find their charters withdrawn or their freedom to operate restricted.

The French experience
I had this experience in 1982 while serving on the board of Bull SA, the French computer company. When the Socialists under Francois Mitterrand swept into office, Bull and 10 other large French companies were nationalized, thereby losing their status as capitalist enterprises. In the 2008 collapse, AIG, General Motors, Fannie Mae and others were effectively taken over by the U.S. government.

The public outcry subsequently led to financial services reform legislation restricting the freedom of financial services firms. Across cultures and legal systems, there's an unalterable truth: Business is a social institution that must satisfy society's needs.

Today there's a growing consensus among opinion leaders and many CEOs that it's time to reassess the purpose of business. I propose that, "The role of business is to
increase value for all its stakeholders -- customers, employees, shareholders and communities -- while safeguarding the societal ecosystems in which it operates."

Economists find this definition imprecise, as they prefer a single yardstick for measuring corporate performance. However, elegant theory rarely captures the messy complexities of reality.

The new generation of business leaders recognizes that sustainable value for shareholders, employees and communities can only be achieved by creating superior value for customers. Employees are far more motivated to serve customers with innovative products and better service than they are in trying to get stock prices up. This more-expansive view of creating shared value results in a growing business that can increase its profits, reinvest in the business and reward shareholders while simultaneously fulfilling society's needs. That's the only way to achieve long-term success.


Here in Minnesota this course is being pursued by companies such as 3M, General Mills, Target, U.S. Bancorp, Medtronic, Cargill and others. These companies have grown and prospered for decades -- relying on the community while also contributing to it.

In contrast, recall the case of my former company, Honeywell. Its former CEO sold this global leader to Allied Signal for a modest premium and moved its headquarters to New Jersey. As a result, 21,000 well-paid Minnesotans lost their jobs and the state lost a generous community citizen.

As employment stagnates and the public remains exasperated with business, leaders who don't adopt this broader view of the corporation's role in society are likely to see their free-enterprise prerogatives sharply curtailed. As a fervent capitalist, I believe this would be a disaster. Instead, we need corporate leaders who align their missions with the interests of society in order to innovate, grow and create jobs. Minnesota businesses can provide the proving grounds for this renewal.

 

(Note: This article was originally published in the Minneapolis StarTribune on January 15, 2011.)

Politics Trumps Sound Fiscal Policy (Again)

Yesterday's "compromise" between Republicans and the President proves an old adage: political giveaways always trump sound fiscal policy. Or stated another way, it's easier to agree to increase the deficit $4 trillion over the next ten years than it is to reduce it that amount.

What a difference a weekend can make. Just last Friday the 18-member Deficit Reduction Commission, appointed by President Obama and led by former Republican Senator Alan Simpson and former Clinton chief of staff Erskine Bowles, voted 11-7 to pass a package of deficit reduction items totaling $4 trillion over the next decade. That would have helped the United States get out of the financial ditch we're in right now and back on the road to fiscal responsibility.  Unfortunately, the seven "nay" votes, six of which came from politicians, keeps the majority from forcing a vote on this package in Congress. Now it goes to the White House for "review."

One would have hoped this moderate set of fiscal policy initiatives, backed by a bipartisan majority, would have given the President the courage to recommend adoption by Congress. Quite the contrary. Republican leaders, who historically represented the party of balanced budgets and fiscal stability, instead negotiated with the President increase the ten-year deficit by $4 trillion by extending the Bush-era tax cuts. Granted, this is a "temporary" extension for two years, but who believes in the heat of the 2012 Presidential elections that sixty senators and a majority in the House will vote to kill further extensions. Don't bet your Medicare on it!

For the mathematically inclined, that's an increase of $8 trillion in the deficit in just three days. As they say, not bad for a weekend of work.

There is no doubt that today's American voters favor unlimited tax cuts and unlimited government spending for their retirement and their health care. Instant gratification rules over long-term plans.

The consequence? This generation will pass on an impossible financial situation to the next two generations, which inevitably means their standard of living will decline. Just paying interest on our national debt will absorb the bulk of taxes Americans pay.

To their credit, Bowles and Simpson along with their fellow commissioners tackled the deficit head on.  Esteemed for their independence, they took on a task that nobody in Washington will touch: telling the truth to the American people.  They recommended raising the Social Security age, reducing the number of federal workers, dramatically cutting defense spending, eliminating many tax deductions, and reforming both personal and corporate income tax rates. All sound ideas, mostly containing some short-term pain for long-term gain.

Congress is broken.  An incumbency bias, an increasingly polarized media, and hyper-partisan political parties are destroying the last shreds of civility – and replacing it with an angry, ineffective politics that fans the flames of anger and hostility throughout the country. Thus, our political leaders are contributing to the tendency of Americans to think they are entitled to instant gratification and can blame someone else for their troubles.

Starting in January, the U.S. government will officially have split government. The President and the new Congress face problems of extraordinary magnitude.  Senate Budget Committee Chairman Kent Conrad affirms that the United States borrows 40 cents of every dollar it spends, and the federal budget deficit equaled 8.9% of Gross Domestic Product for the fiscal year ending September 30. 

There is much talk of the problem, but little serious dialogue about how Republicans and Democrats might work together to solve it. Instead, both sides sound like they prefer “gridlock” for the next two years. If President Obama is re-elected in 2012 and the Republicans take the majority in the Senate, gridlock could last for six years.

This country can ill afford gridlock and economic malaise while the deficits continue to grow. Meanwhile, other nations like China, India, Germany, Brazil, Singapore, and even the United Kingdom are moving ahead rapidly to become more competitive in world markets.

In the end, a nation’s strength comes more from its economic strength than its military might. On that score at least, we are steadily losing the battle for global competitiveness as our standard of living is forced to decline.

The real problem is elected leaders looking for short-term solutions – quick fixes, if you will – to long-term, intractable problems. Our problems of fiscal stability, job creation, economic strength, and education can only be solved with long-term solutions that require unified action. 

Politicians who place narrow self-interests ahead of the long-term best interests of the nation imperil our future. It is time for our elected leaders, Democrats and Republicans alike, to treat the American people like adults and tell us the truth about the near-term sacrifices we must make if the country is to regain its economic might and national pride. 

Let’s get on with solving long-term problems with long-term solutions. It is the only way to catapult the U.S. back into global leadership.

Minneapolis Star Tribune Article: Gregg Steinhafel has faced up to many challenges as Target CEO

This morning my article on the turnaround at Target ran in the Minneapolis Star-Tribune. Here’s the article for those of you who don’t see this newspaper. - Bill 


It isn't easy being CEO of a public company. The glamour days of CEO rock stars and high-flying stock prices are gone. Companies are under constant scrutiny by activist investors, aggressive regulators, aggrieved customers and aggravated employees. As the public face of their companies, CEOs bear the brunt of that criticism.

 

Today the Twin Cities are blessed with a bumper crop of CEOs -- the best group in my 40 years here. From U.S. Bancorp's Richard Davis, Cargill's Greg Page, Best Buy's Brian Dunn and 3M's George Buckley to General Mills' Ken Powell, Medtronic's Bill Hawkins and Ecolab's Doug Baker, these CEOs are building great enterprises and leadership in their industries.

But none has faced the challenges that awaited Target CEO Gregg Steinhafel when he stepped into the shoes of predecessor Bob Ulrich. Serving on Target's board from 1993 to 2005, I watched Ulrich transform the company from a multiformat retailer into a focused mass merchant. Thanks to Steinhafel's merchandising genius, Target has found a sustainable niche a cut above Wal-Mart with creative offerings others can't match in value.

Steinhafel became Target's CEO in May 2008, just as the economy was sinking into recession. Hard times caused shoppers to be more frugal. Wal-Mart attacked Target's core merchandising business.

More recently, Target survived what many consider a faux pas in supporting MN Forward's pro-jobs campaign. Funds wound up supporting gubernatorial candidate Tom Emmer, who has taken anti-gay policy positions. GLBT organizations feared Target was abandoning its pro-gay stands.

Steinhafel had barely moved into the CEO's chair when Target's strategy was challenged by activist investor William Ackman. Buying up 7.8 percent of Target shares at retail's peak in July 2007, Ackman watched his holdings slide as retail stocks fell.

Ackman demanded that Target spin off its credit cards. After lengthy discussions, Target's board sold half of its card operations but retained management control. Ackman initially congratulated Steinhafel on the move, but later demanded that Target sell off the remaining 50 percent. Steinhafel and the board refused.

Next Ackman proposed that Target transfer the land and buildings that house Target stores into a real estate investment trust. That would have increased Target's operating costs by $1.4 billion and split control over its real estate and merchandising arms. Steinhafel and the board were steadfast in rejecting Ackman's financial engineering ploys.

Ackman responded with a proxy contest to replace four Target directors with his slate of five directors. While Target took the high road, Ackman went for the jugular, attacking long-standing directors like Wells Fargo Chair Richard Kovacevich for being "complacent." Neither Steinhafel nor the board flinched.

Instead of challenging Ackman, Steinhafel met with Target's major shareholders.

Before the votes were counted at Target's 2009 annual meeting, Ackman gave a speech invoking the likes of John F. Kennedy and Martin Luther King. Shareholders apparently didn't buy his act. More than 70 percent of votes were cast for the Target directors.

Always classy, Steinhafel shook Ackman's hand and said the proxy battle provided him the opportunity to spend extra time with Target shareholders.

The criticisms of Target's contributions to MN Forward were perhaps more painful than either Ackman's attacks or Wal-Mart challenges. Suggestions that Target was somehow "anti-gay" cut deeply. The worst one could say about this incident is that Steinhafel may have been naive. But he admitted his mistake and reaffirmed the company's long-standing support for gay rights. As he told me, "Target has the most gay-friendly policies in this state."

Despite these challenges, Steinhafel never took his focus off merchandising. In the past 18 months, he has led a sharp turnaround from shrinking same-store sales during the recession. Shareholders have responded by driving up Target shares from lows of $26 in 2008 to $59 last week.

For all the challenges it has faced, Target has never lost sight of pleasing its customers, nor has it wavered in its commitment to give 5 percent of earnings to philanthropic causes. Most important of all, Target created 30,000 jobs in Minnesota in the last 30 years.

For CEOs of major companies like Target, there will always be challenges, disappointments, and missteps. The bottom-line measurement is, did you create sustainable value for your customers, employees, shareholders and your communities? The record is clear: Steinhafel is excelling in all four categories.

Bill George serves on the boards of Exxon Mobil and Goldman Sachs and previously served on the Novartis and Target boards. His e-mail is bill@bpgeorge.com.

Ed Whitacre and Alan Mulally: Businesspeople of the Year

As much as I respect Fortune Magazine, I confess that I was shocked to see General Motors’ Ed Whitacre left completely off its list of the top fifty businesspeople of the year.

In a single year Whitacre took an organization with $131 billion in revenues and 209,000 employees from bankruptcy to $8.5 billion EBITDA. In the process he created $50 billion in market capitalization, completing the largest IPO in history. And he restored a healthy balance sheet: GM currently has $33 billion in cash and only $9 billion in debt.

Fortune ranks NetFlix’s Reed Hastings as the #1 Businessperson of the year, probably for a 200% increase in his stock price. In contrast to Whitacre, Hastings runs an organization with $2 billion in revenues, EBITDA of $300 million, and fewer than 2,000 employees. Hastings created less than $7 billion in market capitalization in the last year – an excellent performance but not in the same league as Whitacre.

Ford’s Alan Mulally at #2 is a worthy competitor for the top ranking. Since taking over Ford’s top job in 2006, Mulally has done a spectacular job in restoring Ford to greatness, bringing fuel-efficient cars and trucks with updated designs to market, and increasing its revenues and market share.

So let’s call it a draw between Whitacre and Mulally for the #1 slot.

The two of them deserve enormous credit for restoring America’s automobile industry, just when it appeared that American-owned auto companies were a thing of the past. They are doing it “the old-fashioned way”: not with short-term moves and financial gimmicks, but by making better vehicles that American consumers are eager to buy. Small wonder that after thirty years of declining market shares, these two giants are gaining share on the Japanese, Germans, Koreans, and even the Italians (think of Fiat that owns Chrysler).

At a time when leading policy makers and economists think that American cannot compete anymore in the manufacturing business, Ford and GM are showing that it can be done – right here in our back yard, and with union labor and U.S. health care costs, no less. Who says we can’t turn around manufacturing in the U.S.?

Both Whitacre and Mulally are masters at facing reality and then organizing people to fix current problems while creating growth for the future. Whitacre inherited an organization in complete denial that it had a problem with the competitiveness of its autos, in spite of the fact that its market share slide steadily from 53 percent of the U.S. market to a paltry 19 percent. The former CEO said in October 2007 – a month before he flew to Washington on a private jet to plead for the Bush administration to bail his company out – that the only problem GM had was its mounting health care costs.

Whitacre was recruited to take over as chairman in July 2009 when GM emerged from bankruptcy. He inherited a weak executive team that wouldn’t face reality and preferred shared responsibility through committees and endless Power Point presentations, rather than to focus on car design. It didn’t take him long to remove several layers of management and build a team of people who love the car business more than finance.

Whitacre, who came into GM with an amazing reputation from his days of building AT&T, had the courage to go on television ads and challenge consumers to give GM cars a second look, putting his money on the line with a “30-day money back guarantee.” Although GM was owned by the government and the unions, he never once complained about interference from either the Obama administration or the UAW – although Obama’s pay administrator, Kenneth Feinberg, limited him to a $500,000 total compensation package in recruiting a new CFO.

For half a century GM CEOs have been backing down to the power of the UAW, in order to avoid a strike. In the process they created an impossible set of financial obligations, including 100 percent health care coverage for employees and retirees, a generous company-funded retirement plan, and a jobs bank that paid laid off employees for not working. Whitacre took a different tack: he met privately with UAW president Ron Gettelfinger and reached an agreement to work out solutions that enabled the company to compete on a global basis and the workers to keep their jobs.

Mulally, who left the top commercial aerospace job at Boeing, was equally courageous at Ford. Within ninety days he leveraged Ford’s entire balance sheet to borrow $23.5 billion to give Ford a cushion against further problems and an economic downturn. That gave him the cash position to avoid running to the government for a bailout when the auto market collapsed in the fall of 2008.

To his credit, he used his strengthened balance sheet to get his lineup of cars and trucks more competitive. When Toyota experienced quality problems in early 2010, Mulally was ready to respond with an attractive product lineup that has enabled Ford to achieve consistent U.S. sales increases, and which have exceeded 40 percent in some  months.

At a time when corporate leaders are being criticized at every turn, these are remarkable examples of what top leaders can do to turn around America’s great companies. Credit Lou Gerstner for saving IBM from break-up in the 1990s, but let’s give Whitacre and Mulally the top award for turning around an entire industry and showing Americans that authentic leadership really does matter.

Reflections on WSJ CEO Council 2010

Monday's Wall Street Journal covers the complete highlights of last week WSJ CEO Council in Washington. Here I would like to share some of my own reflections.

I participated as a subject expert on the "Restoring Confidence in Business" task force, one of five CEO task forces to develop the recommendations highlighted in today's paper. The others included 1) health care, 2) global finance, 3) energy and the environment, and 4) creating sustainable jobs.

Throughout the two-day event we heard from significant members of the Obama administration, including Secretaries Gates (Defense), Geithner (Treasury), and Duncan (Education), White House economists Summers and Goolsbee, and Republican and Democratic House and Senate leaders.

The most impressive speaker and most sensible was New York Mayor Mike Bloomberg. He has as keen an understanding of what it will take to get the country and New York moving ahead as anyone I've heard. Too bad he's not running for President in 2012!  As he pointed out, a fiscally-conservative, socially-liberal candidate does not have much chance of getting either party's nomination. Nor could an independent ever hope to garner the majority of electoral votes required to avoid resolution by the House of Representatives.

As for other speakers, Bob Gates and Arne Duncan both made very strong impressions. Gates' departure as Defense Secretary in 2012 will leave a void that will be hard to fill. He has guided DOD skillfully through two administrations and two wars, and was quite clear that he is planning to reduce unnecessary costs to bring budget levels down.

Sounding more like a free marketer than a typical education leader, Duncan is making significant progress in reforming the nation's K-12 education systems. His "Race to the Top" is committed to focusing on rewarding the best teachers and getting rid of those who aren't cutting it, and using federal funds to do so. He's supporting school closures and their replacement with public charter schools.

At the other end of the spectrum were the politicians and economists. The only one of this group that made any sense to me was Republican Eric Cantor, the new House Majority Leader. More typical was Austan Goolsbee, chairman of the White House Council of Economic Advisors, who seemed to be clueless about what steps were required to get the economy growing and create private sector jobs. It was even more discouraging to listen to Rep. Kevin McCarthy, the new Republican Whip, who promised to block every spending bill, reduce the Fed's charter, and generally serve as an obstructionist, without having anything positive to offer. After listening to Goolsbee and McCarthy, I made a mental note not to come back to Washington for anything remotely political during the next two years.

In sharp contrast, the nineteen proposals developed by the one hundred CEOs in attendance were logical, sensible, and hopeful. If only someone in Washington was listening! When it came time to vote on the final recommendations, I found it difficult not to support all nineteen of them as vastly superior to what we were hearing from the politicians.

The business community is blessed with a remarkable group of new corporate CEOs. As a group, they are pragmatic rather than ideological, slightly to the right of center, and willing to put the long-term interests of the country ahead of their short-term self interests.  They have learned the lessons from their predecessors' failures, especially in chasing short-term stock price gains.

They seem committed to using their leadership roles and their company missions to create exceptional products and services for their customers, sustainable, well-paying jobs for their employees, and value for their shareholders. They keenly understand the important role that their companies play in building a growing economy and healthy communities, while preserving the societal ecosystems that have enabled capitalism to flourish for the past century. They too are extremely frustrated that no one in the White House or Congress seems to understand what it will take to get U.S. private-sector economy back to creating jobs and growing.

Bill's Bottom Line: In spite of polls showing the American public lacks trust in its leaders, this new group of CEOs are worthy of trust and support for their ideas.


Additional Wall Street Journal Articles and Video Clips from the Meeting

WSJ CEO Council 2010 Annual Meeting

Earlier this week I had the privilege of participating in the Wall Street Journal's CEO Council Annual Meeting in Washington, DC.  Over the course of two days 100 leaders in the areas of business, finance, and policy came together to discuss and propose solutions to some of the world's largest policy challenges: health care, energy, the environment, jobs, and global finance. 

Two things I wanted to share.  First is an article written by Joann Lublinn, and second is my appearance on CNBC discussing my experience from the meeting.

WSJ: Medtronic Ex-CEO Suggests Steps to Boost Business

Originally Posted in the Wall Street Journal By Joann S. Lublin

William W. George, a former chief executive of Medtronic Inc., suggested steps to stimulate business investment in the U.S., including 100% depreciation on capital equipment through 2012 and a reduction in the 35% repatriation tax rate to 20% for businesses that “invest in tangible assets.”

A lower repatriation tax rate “would have a direct [positive] tradeoff,” Mr. George said in an interview Tuesday morning at The Wall Street Journal CEO Council. He now is a management practice professor at Harvard’s business school. He also sits on the boards of Exxon Mobil Corp. and Goldman Sachs Group Inc.

Mr. George advocates a tax holiday on tangible capital assets for any company that holds assets for a decade — and eventually, a graduated capital-gains tax. And he favors making it easier for foreign graduates of U.S. universities to obtain visas so they can work in the U.S. and possibly start companies here. At the moment, he added, “we are not graduating that many Americans with technical degrees.”

Taken together, such actions will stimulate U.S. job creation and long-term investment at a time when foreign competition is intensifying, according to Mr. George. Other countries see their economies rebounding faster than the U.S., he noted. “Why can’t we get this country moving [again]?”

But split control of Congress could impede passage of certain economic revival steps, Mr. George said. “We’ve had [political] gridlock for two years,” he observed. “We could have gridlock for six years.”

Authentic Leadership with A Long-Term Vision

When Twitter co-founder Evan Williams announced that he would be stepping down as CEO of the company, the news was met with shock and bewilderment.  Why would the CEO of a rapidly growing tech company step down from such a high profile position?  Doesn’t he want the glory? 

Instead of prioritizing his own career advancement and keeping control over the company, Williams made a sound decision for the long-term health of the company.  He has tapped COO Dick Costolo to step into the role of CEO, recognizing that Costolo’s experience makes him more apt to lead the company through its current stage of growth and development.

Costolo has significant experience monetizing a popular consumer Internet product, as he founded Feedburner in 2007 and later sold the company to Google.  Twitter needs to develop a sound revenue strategy to deliver returns for its investors, which have poured more than $100 million into the company.  Williams recognized that the specific skill sets that Costolo has are needed in the CEO to allow the business to succeed.

Williams will maintain focus on developing a great product where he can add the most value, while Costolo’s strength in leadership and vision will propel the company further into profitability.  It took a self-aware and humble leader to recognize that there was a better suited candidate in the company to be CEO in this period.

Many entrepreneurs fail to recognize that different kinds of leadership and skills sets are needed in the sustainable growth phase than was required in their start-up challenges. Keenly recognizing what Twitter needs to power forward in competing with dynamic sites like Facebook and Linked-In, Evan Williams faced reality, avoiding a potential crisis of leadership and vision. 

By choosing someone with Costolo’s skills and experience to lead the company, he demonstrated that he knows his strengths and weaknesses, and is giving the company the best chance to succeed.  Williams showed authentic leadership by recognizing his strengths as a leader and putting the long-term health of the company ahead of personal accolades.