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Bill George

Harvard Business School Professor, former Medtronic CEO

Category: Crisis

Tragedy at Toyota: How Not to Lead in Crisis

Originally Posted in Harvard Business School Working Knowledge on February 22, 2010

Toyota’s ever-widening problems are a tragic case study in how not to lead in crisis.

Under the media spotlight, Toyota CEO Akio Toyoda, grandson of the founder, went into hiding and sent American CEO Jim Lentz to make apologies. (Editor’s note: Toyoda has agreed to appear before a Congressional inquiry this week.) Meanwhile, he let serious product quality issues spiral out of control by understating safety risks and product problems. This left the media, politicians, and consumers to dictate the conversation, while Toyota fumbled the responses.

Disingenuous quasi-apologies and disjointed plans for resolution have been Toyota’s substitute for crisis response. As accounts pour in about declining quality, the company parades out relatively unknown mid-level managers to quell the firestorm.

It won’t work. “You live by the sword; you die by the sword.” Toyota’s weapon of choice has always been quality, a competitive advantage that prompted many Americans to stop buying GM and Ford brands. Toyota can only regain its footing by transforming itself from top to bottom to deliver the highest quality automobiles.

When terrorists laced Tylenol capsules with cyanide in the mid-1980s, Johnson & Johnson CEO Jim Burke understood his company credo challenged him to put the needs of customers first. Although J&J was not responsible for these problems, Burke nevertheless recalled every Tylenol product from the market.

This is not a crisis of faulty brakes and accelerators, but a leadership crisis. During Chrysler’s 1980s crisis, CEO Lee Iacocca took charge, restoring consumer trust and prosperity. When General Motors emerged from bankruptcy last summer, Chairman Ed Whitacre became the trustworthy, determined face of the company’s comeback.

Toyota needs a credible leader with a strong, cohesive plan. Mr. Toyoda is anything but. His uninspired words of optimism from Davos only unnerved customers and U.S. regulators. Meanwhile, Ford and GM are working hard to regain the market share they lost at Toyota’s expense.

How can Akio Toyoda get Toyota back on track? I offer recommendations based on my recent book, 7 Lessons for Leading in Crisis.

1: Face reality, starting with yourself. Faced with multiple reports of accidents from sticking accelerators, Toyota blamed the problems on stuck floor mats and panicky drivers. Instead, Toyota should acknowledge that its vaunted quality system failed. CEO Toyoda should take personal responsibility by saying that he pushed too hard for growth and neglected quality. By admitting his errors, he gives every Toyota employee permission to acknowledge mistakes and to get on with correcting them, instead of denying reality.

2: Don’t be Atlas; get the world off your shoulders. Toyoda cannot expect to solve problems of this magnitude himself. Instead, he needs a crisis team reporting directly to him, working 24/7 to get problems fixed—permanently. He also needs outside counsel, as he appears to be listening only to insiders who are defensive about criticism. He should add the world’s top quality experts to his fix-it team and listen carefully to their advice.

3: Dig deep for the root cause. When Toyota’s problems first surfaced, the company blamed a symptom—loose floor mats—and exonerated the accelerators. Instead, management should have required its best engineers to get to the root cause of this problem and every other quality problem being reported. This is basic engineering and quality discipline.

4: Get ready for the long haul. These problems won’t just fade away. In fact, they are likely to get worse before getting better. Just as the seeds were sown over the past ten years by placing growth ahead of customer concerns and quality, digging deep into problems will likely uncover more quality concerns that will take years to resolve. Toyota must invest heavily in corrective actions while its sales shrink and profits implode, requiring major cash resources until its reputation can be restored.

5: Never waste a good crisis. For all the pain Toyota is experiencing, this crisis provides a unique opportunity to make fundamental changes required to restore Toyota quality. The crisis is melting away the denial and resistance that existed in recent years. Employees are ready for new direction, and they are willing to make radical changes to renew the company. With Toyoda’s leadership, Toyota automobiles can be restored to the world’s highest quality.

6: You’re in the spotlight: follow True North. In a crisis, people insist on hearing from the leader. Akio Toyoda can’t send out public relations specialists or his American executives to explain what happened. Having lost sight of his company’s True North—its values and principles—Toyoda must come out of hiding, take personal responsibility, and subject himself to intense questioning by regulators and the media. Then he should make a personal commitment to every Toyota customer to repair the damage, including buying back defective cars.

7: Go on offense; focus on winning now. Coming out of this crisis, the market will never look the same. GM and Ford are rapidly regaining market share, while the confidence of Toyota’s loyal customers is badly shaken. Toyota cannot wait until all its quality problems are resolved. It must play defense and offense simultaneously. To win, Toyota has to offer advanced features and superior quality, better value for consumers, greater safety, and improved fuel efficiency.

This is a challenging menu, and this crisis is the true test of Akio Toyoda’s leadership. Is Toyota up to these challenges? I believe this is a great company that will resurrect its reputation and restore its leadership.

After the Crisis: Restoring Trust in U.S. Leaders

 Originally posted on BusinessWeek.com on Tuesday, November 24, 2009.

The stock market seems well on its way to recovering from the financial crisis, but a deep scar from the recession remains. Americans lack confidence in the nation’s leadership to address the challenges we currently face.

The Harvard Center for Public Leadership’s 2009 National Leadership Index reveals that 69% of Americans think we have a leadership crisis in the country. Another 67% believe that “unless we get better leaders, the United States will decline as a nation.”

At the bottom of the index’s ranking of confidence in leadership are Wall Street leaders, closely followed by news media, Congressional, and business leaders. It is tempting for leaders to view these dismal results as a public relations issue emanating from the economic downturn. But this is not a PR problem: It’s a leadership problem.

We opened this decade with a wave of appalling leadership failures. Ken Lay and Jeff Skilling of Enron, Bernie Ebbers of WorldCom, Joseph Nacchio of Qwest, and Dennis Kozlowski of Tyco blatantly disregarded the ethical and legal responsibilities entrusted to them by their shareholders.

IMPERATIVE: REBUILD PUBLIC TRUST

We are closing the decade with another wave of leadership failures. Dick Fuld of Lehman, Alan Schwartz of Bear Stearns, Angelo Mozillo of Countrywide Financial, and Chuck Prince of Citigroup (C) sacrificed financial prudence for the possibility of extraordinary short-term gains. Their decisions obliterated billions of dollars of economic wealth and almost destroyed the nation’s financial system.

This crisis won’t be over until a new generation of leaders emerges that understands that long-term institutional stewardship and maintaining public trust are the two imperatives of 21st century leadership.

Far too many leaders fell into the trap of believing that the purpose of business is to maximize shareholder value and reap personal rewards, rather than serve customers and the society they operate in. In my experience, those that focus primarily on maximizing shareholder value—usually with a short-term focus—are more likely to wind up destroying the value they create.

A recent study of the Standard & Poor’s index of 700 international stocks from 1998 to 2009 shows that only 3 of the top 15 winners are U.S. companies—Apple (AAPL), Amazon (AMZN), and Oracle (ORCL)—all headed by leaders with long-term focus. The 5 worst U.S. stocks were AIG, Eastman Kodak (EK), Citigroup, Ford (F), and Bristol-Myers Squibb (BMY). All had leaders with a short-term focus. This list excludes GM, K-Mart, Enron, WorldCom, and Lehman because they declared bankruptcy.

VALUING CUSTOMERS BUILDS SHARE PRICES

Long-term leaders recognize that they cannot rely upon cost-cutting, acquisitions, and other short-term moves to create sustainable value. By focusing clearly on long-term missions, values, and strategies, they earn and keep the trust of their customers, employees, and the society they serve.

The key to creating sustainable shareholder value is to provide superior value to your customers. Such companies as Johnson & Johnson (JNJ), Target (TGT), Google (GOOG), Medtronic (MDT) (where I served as CEO from 1991 to 2001), and Wells Fargo (WFC) focus on their mission and values, which is what motivates their employees. When a company does these things well, revenues and profits expand and sustainable shareholder value follows.

A number of emerging progressive corporate leaders recognize the need for long-term focus to create sustainable value. For example, IBM’s (IBM) Sam Palmisano embarked upon a seven-year “leading by values” initiative to reposition the firm globally, emphasizing its service businesses. Indra Nooyi committed PepsiCo (PEP) to a long-term focus on expanding healthy food and beverage offerings. Dan Vasella of Novartis (NVS) invested heavily in drug and vaccine research to prevent and treat intractable diseases. John Chambers is making acquisitions during the downturn to prepare Cisco (CSCO) to lead a new productivity expansion. Amazon’s Jeff Bezos keeps introducing product innovations such as the Kindle—even though they take five to seven years to pay off.

In an earlier era, Walter Wriston of Citigroup and John Whitehead of Goldman Sachs (GS) (a company on whose board I currently serve) capably steered the financial markets with honesty, intelligence, and dignity. While many firms were failing in 2008, three Wall Street leaders emerged. J.P. Morgan Chase’s (JPM) Jamie Dimon created a culture of candor, enabling his bank to successfully navigate the financial crisis. Goldman Sachs’ Lloyd Blankfein built effective risk management into the bank’s DNA. John Stumpf emphasized Wells Fargo’s core strengths and focused on commercial banking, using the crisis to strengthen its franchise.

The path to restoring the public’s confidence and trust in business leaders is clear. We need leaders who are committed to sustainable growth over short-term gains and who serve society by creating long-term value.

Podcasts & Reviews: 7 Lessons For Leading In Crisis

At the World Business Forum this past September, I had the pleasure of hosting a reception with the top business bloggers in the country who in attendance cover the events.

I’ve remained in contact with many of them, and recently connected with Jonathan Fields for a podcast to discuss my latest book, 7 Lessons for Leading In Crisis.  We also took a deeper dive on crisis-time leadership and social media. 

Here’s what Jonathan had to say about the conversation:

“In this candid interview, Bill and I cover everything from leading in a time of crisis to the true meaning of success on a personal level. He reveals not only his thoughts on business, but on family, life, passion and people. And, you’ll never believe what he’s been doing twice a day since the 70s; it’s something he says has been instrumental in his success.”

You can listen to the entire conversation here: Behind The Leader: A Candid Conversation with Bill 

* * * * * *

WBF alum, Steve Todd was gracious enough to review 7 Lessons for Leading In Crisis.  I’ve included a few excerpts below:

“Overall I enjoyed the unique point of view on the financial crisis, as well as the framework for evaluating leadership. It’s a good reference book to keep handy during tough times.”

“If I want to evaluate my own leadership skills during a crisis, the book is an excellent place to turn. If I want to evaluate a public official, or a corporate executive, and formulate a thoughtful opinion of their performance during a crisis, I would refer to this book.”

You can read the rest of the review here: Book Review: 7 Lessons For Leading In Crisis.

Many thanks again to Steve and Jonathan!

 

Gergen Gets It Right: “A National Deficit – Of Leadership”

As David Gergen explores in his recent US News and World Report article, the release of the “America’s Best Leaders” list could not have come at a more dire – and consequently, opportune – time. 

America is facing not only a national economic deficit, but a national leadership deficit as well.  Gergen explains that a “crisis of confidence” regarding America’s leadership is widespread as people grow increasingly hostile towards, and distrustful of, the President, members of Congress, and many of our other national leaders.

Though by no means unchartered waters – “confidence in government plummeted back in the ’60s and ’70s and has never really recovered” – this crisis remains a progress-hampering state of affairs.  As David and I discussed during September’s Summit on Leading in Crisis, the political incivility which existed at that time and has continued today holds the potential for violent eruptions (see: 2009 healthcare town hall meetings), and fosters incredible political polarization.  This contentiousness can create political stalemates which risk America’s ability to remain a respectable or capable worldpower across the long-term 

A crisis indeed.

But as we agreed in September, and as I’ve highlighted in 7 lessons for Leading in Crisis, every crisis holds an opportunity for reinvention and improvement.  We should not waste this crisis of confidence; rather we should use it as an opportunity to bare our concerns candidly and see exactly where we as citizens and leaders can improve. 

One way to accomplish this is to highlight the examples set forth by those select leaders who have demonstrated value-driven leadership and maintained track records of accomplishment during this “crisis of confidence.”

Herein lays the timeliness of the America’s Best Leaders List.  We need to see the likes of Eboo Patel for examples of how we can best bring differing faiths together through shared principles.  We should look to folks like Cory Booker as models for effective and diplomatic political leadership.  And we must keep the Greg Mortensons of the world at the forefront as examples of how individuals can have worldwide positive impact.

David Gergen gets it right – we are in the depths of a crisis.  And he gets a potential solution right as well – we need to turn to “America’s Best Leaders” as models for how we can work through that crisis, and come out improved on the other side.

Crisis, Crisis Read All About It!

The New York Times is living in crisis.

The paper announced at 2:49 today that it will cut 100 newsroom jobs.  This comes on the heels of significant cuts elsewhere in the organization, and on top of previous scale-backs and pay cuts in the newsroom already in 2009.

This mass lay-off is just one more sign that the once storied-company has failed to face reality.  The Times in dealing with a cyclical decline in advertising has ignored that its business model has changed.  The advertising losses are a secular trend.  Sales will not rebound once the economy bounces back.  Instead of investing heavily in new markets (like the Washington Post), The Times built a fancy new headquarters business.

What was Sulzberger thinking?  Mark Bowden’s piercing Vanity Fair piece suggests he wasn’t.  The Times’ fall from grace is painful to watch.  Management has never gotten in front of the significant advertising and revenue declines.  Management went on a spending spree at exactly the wrong time (a reason that in January the Times had no choice but to take a $250 million loan from Mexican media mogul Carlos Slim).  And all of this on top of having been forced to sell part of its newly constructed headquarters, the construction of which was the ultimate act of hubris. 

The Times is a weak pulse away from an all-out flat-line, and the newsroom cuts are certainly a symptom—not a cure.  Where were the bold investments in emerging media?  Where was the prudent pull-back from an overly aggressive capital structure?  Where was management’s judgment then? 

Where is management’s judgment today?

For years the Times has refused to face their crisis-stricken reality and dig deep for the root causes of their ills.  Now Rupert Murdoch is going on offense and making significant investments in the Wall Street Journal.  The Gray Lady sits back on her heels. 

We are watching how a giant tumbles.  We are witnessing another great institution imploding.  Where is the leader she needs?