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Bill George

Harvard Business School Professor, former Medtronic CEO

Category: Press

Are CEOs Overpaid?

Not if they create great value for their shareholders. Here´s why:

The controversy over CEO pay will continue to heat up as corporations announce their CEO´s pay according to the new transparency tables mandated by the SEC. That´s a good thing. But we need to distinguish between CEOs who create value for their shareholders over the long-term and those who destroy it.

What really upsets me is the number of CEOs who destroy shareholder value and walk away with tens or even hundreds of millions of dollars for failing. Remember Bob Nardelli´s $210 million payout for his failures at Home Depot? Today´s poster child for an overpaid CEO is John Antioco, who presided over Blockbuster Videos´ loss of market share to Net Flix and led his company into the red during his ten-year tenure. Why did the board sit idly by as Antioco´s failure to lead destroyed 75% of the company´s shareholder value over the past five years?

It took the election of a dissident shareholder by the name of Carl Icahn to get the board to act. And now they have acted responsibly in using “negative discretion” to reduce Antioco´s contractual termination pay from $21 million to $8 million. My question is this, why did the board fail to act until pressured by Icahn? Why did Antioco have a contract that guaranteed him termination payments in the first place? I have served on the boards of some of America´s leading companies, and none of their CEOs, myself included, have contracts. They serve at the pleasure of the board, which in turn is elected by the shareholders to protect their interests, not those of the management.

Contracts for CEOs are the root cause for the inequities in executive compensation, precisely because they are designed to protect the CEO in case of failure. Of all people in the organization, the CEO should be the most at risk when the company fails to perform and the best rewarded when it succeeds, not the reverse that we have seen in recent months. First-line employees at Blockbuster and other companies have no contracts guaranteeing their jobs or their pay, so why should the CEO?

Some will argue that boards recruiting CEOs from outside the company have to guarantee their pay with a contract. That problem just highlights the real cause of the problem: when the board has to look outside its ranks for a new leader, it has failed in its responsibility to provide adequate succession for management. In other words, the board has failed to do its most important job in ensuring the company´s continuity of leadership.

In sharp contrast to Blockbuster´s failed CEO, look at these two examples from today´s news:

  • Delta Airlines CEO Gerry Grinstein, who shepherded the company through its reorganization to come out of bankruptcy, will not receive any severance, incentive payments or stock when he retires and a new CEO is chosen.
  • Ken Lewis, chair and CEO of Bank of America, one of America´s largest banks, received $23 million in compensation last year, only $1.5 million of it in salary. Too much? I would argue not, because he and his organization have performed so well for their shareholders. During the last five years B of A´s shareholders have been handsomely rewarded as its returns have been 2.5 times greater than the Dow Jones Industrial Average. Lewis exercises his stock option gains not to maximize his gains, but on a pre-programmed earnings basis.

The time is long overdue for corporate boards to “pay for performance,” not for failure. For increasing long-term shareholder value, not destroying. And for building succession into the ranks of management to ensure leadership continuity.

I welcome your comments and feedback to these ideas.

True North and Valentine’s Day

It is just four weeks and a day until the official launch of True North, and the excitement of our team as well as my own excitement about the launch is growing rapidly.

(For those of you who would like the first copies off the press, I suggest you pre-order True North at a handsome discount from or We guarantee that you will have your copy prior to the March 15 launch date.)

Why did I write True North (with wonderful help from Peter Sims)?

After I wrote Authentic Leadership, many leaders asked me, “How can I become an authentic leader?” Admittedly, I never answered that question, as one critical reviewer pointed out. Jim Collins, in his best-selling Harvard Business Review article on Good to Great rhetorically asks a similar question, “How can you become a Level 5 leader? The answer is, we do not know.”

Over one thousand studies done in the last fifty years have failed to produce verifiable answers to that question. My colleagues at Harvard Business School encouraged me to find out the key characteristics, skills, competencies, and styles of authentic leaders that made them so successful.

With the assistance of my colleagues Diana Mayer and Peter Sims, I set out to find out. In the space of just six months we interviewed 125 authentic leaders from business and non-profit organizations, ranging in age from 23 to 93, about how they developed as leaders. These in-person interviews lasted an average of seventy-five minutes, resulting in 3,000 pages of transcripts. All in all, it represents the largest, in-depth study ever conducted on how leaders develop.

The results were striking. These 125 leaders did not identify any characteristics or competencies that made them successful. Instead, they talked about their life stories and the people and the transformative events (which we call “crucibles”) that enabled them to find their passions and the purpose of their leadership and to lead authentically. They shared their motivations, the ways their values were tested, and the many things they did to sustain their leadership, in spite of the pressures and seductions they faced in their leadership roles.

Most importantly, they talked about their “True North,” which many described as their inner compasses that enabled them to stay true to who they are and to their deepest beliefs when faced with the enormous pressures and seductions they faced in their leadership roles. That´s why we decided to title the book, True North, and to use the metaphor as a compass to guide you on your leadership path.

In True North we share well over one hundred stories told to us by these authentic leaders – some short and some quite extensive – that capture the essence of how you can discover your authentic leadership. And we include a series of exercises that I have used in my course at HBS, “Authentic Leadership Development,” to give you the tools to guide you on your way.

A warning: there are no quick fixes here, no easy answers. (If you want easy answers, pick up a book of fables at the airport the next time you are taking a flight. By the time you arrive, you will feel a lot better, but you won´t know any more about how to become an authentic leader.)

Becoming an authentic leader takes a lot of work on your part because ultimately you are responsible for developing yourself as a leader. Mentors, courses, and books like True North can serve as a guide, but there is no way to get there other than taking responsibility for developing yourself. But doing so is a heck of a lot more rewarding.

I hope you will go on-line and pre-order True North, and then send me your reactions and your stories to this website. I will take the best of them and use them in the many speeches and media appearances coming up as a way of illustrating your True North – without violating your confidentiality.

Good reading!

‘The Takers’ Part II – The Executive Compensation Uproar

Two weeks ago President Bush had the audacity to say that executive compensation should be based on “pay for performance” and long-term incentives. As reported by the media present at this event, the business executives in his largely Republican audience sat in stunned silence. No one spoke in support of his proposal.

As often as I disagree with the President in matters of foreign affairs and government budgets, I think he is right on the money here. Who can argue with “pay for performance”? Only the “takers,” I guess. Why didn´t the business community rise up in support of the President on this point? Were we too focused on getting whatever we could take from the system?

The President was simply stating a basic principle of capitalism: those of us engaging in capitalistic businesses get rewarded for creating value. In my experience, those capitalists that create long-term value for their organizations and their shareholders claim the greatest gains. Think of Bill Gates, Warren Buffett, the late David Packard, Michael Dell, and Oprah Winfrey.

Are we so enamored with people like Bob Nardelli, Bill McGuire, Donald Trump, Marc Rich, and Michael Milken and their enormous wealth that we are prepared to abandon even the most basic principles of capitalism? If we are, I predict that capitalism is doomed. We will have regressed to Russian-style capitalism: take all you get for yourself legally, and then take whatever else you can get illegally, and ship your spoils out of the country. Be sure to keep your passport with you and your private jet available at all times so you can get out of the country before the law catches up with you, as it did with Jeff Skilling, Bernie Ebbers, Dennis Koslowski, Richard Shrushy and their compatriots.

It´s about time the rest of us who care about the future of capitalism speak out on behalf of “pay for performance” and not leave the President standing alone.

Let me know your views on these thoughts.

P.S. If I have offended any of you who are “takers,” please look in the mirror before responding.

Takers and Givers

Today I am initiating the True North Blog as a vehicle to engage leaders interested in their development and all those who are interested in seeing better leaders throughout organizations. I welcome your inputs, challenges, inspirations, and critiques of these ideas, all with the intent of having “honest conversations,” something that is too often missing in businesses and non-profit organizations.

Back in 2003, the year after I retired as chairman of Medtronic, I wrote Authentic Leadership for two reasons: first of all, I was disgusted with the many business and non-profit leaders in my generation who were focused on “taking” rather than “giving.” Far too many leaders – not just who wound up in jail – took advantage of their power and position to reap personal benefits rather than building their companies and creating lasting value.

Cheered on by Wall Street and the neo-classical economists, they focused on maximizing shareholder value in the short-term, even if they wound up destroying it in the long-term. American icons like AT&T, Sears, General Motors, and K-Mart went into a long-term state of decline or ceased to exist, at least in recognizable form.

My second reason was to share with a wide range of leaders the insights I had gleaned from thirty-five years in the business world, and to encourage the new generations of leaders to become better leaders than my generation was.

After studying hundreds of business leaders – and personally knowing many times more – I have decided that you can divide them basically into two categories: “takers” and “givers.” The “takers” are out for themselves. They want you to support them in maximizing what they get, while you and your teammates get the crumbs left over. They want to get whatever they can, regardless of whether they perform as leaders and create lasting value.

The “givers” recognize they were chosen to lead for the purpose of serving others: their customers, their employees, their investors, and all those citizens that have a stake in the success of the organizations they lead. If you work for a “giver,” you will find that he or she is interested in your success, your ability to help fulfill the organization´s mission, and your development as an empowered leader. I call the givers authentic leaders because they are genuine people, true to themselves, who understand the purpose of their leadership, practice their values consistently, lead with their hearts, build enduring relationships, and have the personal self-discipline to produce sustainable results.

Of course, the “givers” reap big rewards as well, usually over a long period of time. Their rewards come because they have created value for others – customers, employees and shareholders. I believe their rewards are fully deserved, even when the accumulated financial gains appear quite large to the average person. The people on their teams can accept this because they too are handsomely rewarded over the long-term.

I confess that I was a large beneficiary of this approach. When I joined Medtronic the market value of its stock was $1.1 billion. It wound up at $60 billion. My original 25,000 shares of stock options split six times, giving me sixty-four times as many shares. We ensured that all Medtronic employees became shareholders as well, and they too reaped the benefits.

But the greatest benefit of all to my fellow employees and me was the intrinsic satisfaction of seeing how Medtronic products helped restored millions of people to full life and health. When I joined the company in 1989, around 300,000 new people were being restored every year. These days that number has grown to more than 8 million new people each year. That´s our real reward!

Please send me your reactions to these notions of “takers” and “givers.”

Why The 10,000 Point Dow Doesn’t Matter

The Dow is at 10,000.  Reporters glow.  Retirees relax.  Investors sigh: “Whew, we’ve made it.”

They’re wrong.  This purported milestone isn’t a victory.  It’s nonsense. 

The market is the wrong place to look when measuring the health of our economy.  The collective wisdom of mutual fund analysts was wrong in 1999, wrong in 2006, and it’s wrong right now. 

The best investor in the United States basically ignores Wall Street.  Warren Buffett has billions he could trade in and out of stocks.  Thousands of analysts would clamor to give him hot tips.  But Buffett ignores it all.  Serene, he sits in his office, reading annual reports, newspapers, and thinking about opportunities for growth.  He isn’t drinking champagne tonight.  And you shouldn’t be either.

We are far from out of the woods.  Large companies are still laying off employees.  When we cross the 10% unemployment line, consumer spending (now down to 70% of GDP) may contract even further.  It should probably should.  Consumer spending in the UK is 65% and in China it’s only 40%. 

Haven’t we learned something from this crisis??  Wall Street sold the world worthless securities, trillions of dollars of wealth evaporated, and now Wall Street is cheering this “new” bull market.  Now the bulls say it’s all okay again?! 

What you’re watching now is a bull market on government spending.  What you should be watching is the real report card: 

  • Inflation: There is $50T in unfunded liabilities on the country’s balance sheet.  If the USA played by corporate America’s accounting rules, we’d be bankrupt.  The laws of gravity still apply.  We will experience significant inflation within 3 years. 
  • Job Growth: Since the start of the recession in December 2007, we’ve lost 7.6 million jobs.  Millions more have stopped looking for work.  The analysts keep saying this downward trend will stop.  But it hasn’t.
  • Innovation: The credit contraction makes it harder for entrepreneurs and small businesses to invest in growth.  This segment of the economy is where a rebound will start.  Don’t watch the Dow, watch small business credit (contracting) and patents filed (contracting).
  • Education:  The important word is “Gross Domestic Product” is product.  We must have highly skilled knowledge workers to compete against other economic innovators.  A third of high school students aren’t graduating.  This is the HR pipeline??

Yes, we have stepped back from the abyss.  But some very smart people thought the same thing in 1932.  Then 1933 happened.  Not so fast, Wall Street…

This battle is far from over.  Let’s dig deep, focus on the long haul, and make the substantive policy and business improvements the economy needs to really rebuild.  Then, the Dow will take care of itself.  

Live Blogging from WBF09 Day 2