The Future of Leadership
April 2010
Abu Dhabi Chicago Kuala Lumpur New Delhi Stuttgart Amsterdam Cologne Lisbon New Jersey Sydney Athens Copenhagen London New York Taipei Atlanta Dallas Los Angeles Oslo Tokyo Auckland Detroit Madrid Paris Toronto Bangkok Dubai Melbourne Philadelphia Vienna Barcelona Düsseldorf Mexico City Prague Warsaw Beijing Frankfurt Miami Rome Washington Berlin Hamburg Milan San Francisco Zurich The Future of Leadership Boston Helsinki Minneapolis Santiago Brussels Hong Kong Monterrey São Paulo Budapest Houston Moscow Seoul Conversations with Leaders about Their Challenges and Opportunities Buenos Aires Istanbul Mumbai Shanghai Canberra Jakarta Munich Singapore Casablanca Kiev Nagoya Stockholm bcg.com The Boston Consulting Group (BCG) is a global manage- ment consulting firm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep in- sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet- itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 69 offices in 40 countries. For more infor- mation, please visit www.bcg.com. The Future of Leadership Conversations with Leaders about Their Challenges and Opportunities
Grant Freeland
Kimberly Powell
Rolf Bixner
Andrew Dyer
April 2010
bcg.com © The Boston Consulting Group, Inc. 2010. All rights reserved.
For information or permission to reprint, please contact BCG at: E-mail: [email protected] Fax: +1 617 850 3901, attention BCG/Permissions Mail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA Contents
INTRODUCTION Lessons from the Leaders 4 It Takes a Village 5 A Tale of Two Cities 6 Cross-Fertilization 7
INTERVIEWS James M. Cornelius, Chairman and chief executive officer, Bristol-Myers Squibb 8 Jeff M. Fettig, Chairman and chief executive officer, Whirlpool Corporation 12 Jürgen Hambrecht, Chairman of the board of executive directors, BASF 17 Alan Joyce, Chief executive officer, Qantas Airways 21 Uday Kotak, Executive vice-chairman, managing director, and principal founder, Kotak Mahindra Group 25 Liu Jiren, Chairman and chief executive officer, Neusoft Corporation 28 Indra K. Nooyi, Chairman and chief executive officer, PepsiCo 32 Deepak S. Parekh, Chairman, Housing Development Finance Corporation 36 Alessandro Profumo, Chief executive officer, UniCredit Group 39
NOTE TO THE READER Acknowledgments 42 For Further Contact 42
T F L INTRODUCTION
Introduction
n developed markets, the Great Recession shred- same in good times and bad and in changing environ- ded income statements, shuttered factories, and ments.”1 trimmed workforces. While its eff ects were less se- vere in developing markets, the downturn still sent The nine leaders we interviewed serve in a wide range of shock waves through China, India, and other industries and both developed and developing markets. Iemerging economies. Despite the relatively small sample, key themes nonethe- less emerged: Chief executives in China and India are For several months spanning 2008 and 2009, the global concerned about accountability, communication, motiva- economic system was teetering on the edge. Employees tion, and talent development. So are their peers in the everywhere were looking to their leaders to make sense West. Furthermore, even though leaders in diff erent in- of the chaos. Leadership was then—and remains—a huge dustries may require unique knowledge, all the inter- challenge, even for companies relatively unscathed by viewees share common leadership qualities. economic turmoil. Today, employees continue to seek guidance from their leaders, who must fi nd time to reas- The developed and developing markets, of course, dif- sure their people while trying to establish a pole position fer—and leaders need to tend to those diff erences. Lead- for the future. ers of companies in developed markets, for example, will likely need to chase growth in places such as China and Over the past six months, as the economy has started India. Conversely, leaders of companies located in those to stabilize, we have talked to leaders from around the emerging markets will need to defend their local busi- world about leadership in order to understand how they nesses against Western assault. led through the Great Recession and whether they see leadership roles and styles changing. (The Future of Lead- Strategies for leadership succession also diff er widely, de- ership, a companion content suite at the Web site pending on the age of the company. The leaders we spoke www.leadership.bcg.com features videos of fi ve of our with in developing markets are running young compa- interviews with senior leaders.) nies, while the leaders in developed markets oversee es- tablished institutions. The Chinese and Indian leaders Lessons from the Leaders worry about leaving a permanent legacy. They want to create the next Microso , not the next Netscape. Leaders are stuck in the middle of a rapidly changing world: Government intervention and protectionism are These corporate leaders navigate in economies where rising; employee engagement and trust are declining. So government involvement, uncertainty, and volatility are did the leaders we interviewed tell us that they feel the ways of life. As Jeff M. Fettig, Whirlpool Corporation’s need to change their style and way of leading? chairman and CEO, puts it: “I used to tell our Brazilian
Not really. James M. Cornelius, Bristol-Myers Squibb’s 1. Cornelius will retire as CEO on May 4, 2010; he will remain chair- chairman and CEO, explains that “good leadership is the man of the company.
T B C G employees that some day, as the country emerges as While the leaders from developed markets set direction a market, it will become more like the United States or from the center during the crisis, they also emphasized Europe. The reality is that the rest of the world is becom- the need for the middle and front lines of the organiza- ing more like Brazil.” tions to act on their own and adapt, as necessary, to the volatile environment. This was—and continues to be—a The demands of the job are clearly greater than ever. tricky balancing act. Indra K. Nooyi, PepsiCo’s chairman and CEO, explains, “Aspiring CEOs have to understand that The desire for decisive action and clear they are signing up for a lot more than There will always be responsibility and responsiveness is just as CEOs did in the 1970s, 1980s, 1990s, and apparent among CEOs of companies in differences of opinions even four or fi ve years ago.” developing markets, even though their about opportunities, businesses have not been thrown into tur- It Takes a Village but as a leader you moil over the past 18 months. Of course, these CEOs have lived in the crucible of The nine chief executives we interviewed need to make a choice. risk since they started their companies. As head up organizations in industries as Uday Kotak, the executive vice-chairman, diverse as banking, pharmaceuticals, consumer goods, managing director, and principal founder of Kotak Ma- and outsourcing. Some of their companies, such as BASF, hindra Group, says, “The ability to seize opportunity is a chemical company, and Whirlpool, a consumer dura- critical. . . . But there”s a thin line between conviction and bles company, operate in industries hit hard by the reces- foolhardiness.” sion. Other companies were much less aff ected. The com- panies are headquartered around the globe, from Milan, Liu Jiren, who started his career as a computer science Italy, to Shenyang, China. But despite these diff erent start- professor and is now Neuso Corporation’s chairman ing points, the executives share common views on sev- and CEO, also recognizes the need to be decisive in the eral leadership challenges. They worry about instilling face of confl icting choices. “There will always be diff er- decisiveness and accountability into their organizations ences of opinions about opportunities, but as a leader and getting the most out of their people. These are the you need to make a choice,” he says. At the same time, common strands in leadership DNA. Liu wants his managers to have the confi dence and con- viction to act on their own. “If people are allowed to Decisiveness and Accountability. Two qualities were in make their own decisions, if they have an obligation and high demand during the Great Recession: decisiveness accountability, then they will become smarter,” he says. and accountability. Jürgen Hambrecht, BASF’s chairman of the board of executive directors, talks about the need People, Talent, and Culture. People drive performance. “to act on the spot, decisively, and in a structured way.” This has always been a recognized truth in service indus- tries such as investment banking, but it has become ac- Alan Joyce, Qantas’s CEO, echoes the sentiment: “In cri- cepted wisdom in manufacturing and other asset-inten- ses, you need to make quick and rapid decisions without sive businesses as well. As Hans-Paul Bürkner, president perfect information. You need to make a decision and and CEO of The Boston Consulting Group, says, “All com- then correct it, if necessary.” panies are people businesses. Whether you are a manu- facturer, a pharmaceutical company, or a consulting fi rm, Whirlpool’s Fettig brings the picture into greater focus: it is people who make the diff erence.” “For us, the fi rst step was to institute greater control. By narrowing our focus, relying on the right metrics, and do- All the leaders emphasized the need to tap into the res- ing a good job communicating with our top 800 leaders, ervoir of creativity and energy that engaged employees we have been able to focus on the things we can control. can provide. Nooyi’s PepsiCo, a consumer goods compa- But the second step was to deploy that control. Every em- ny, and Liu’s Neuso , China’s largest outsourcing fi rm, sit ployee in the company has a personal cost-reduction ob- at opposite ends of the business spectrum, but both chief jective. Everyone who touches any aspect of our cash executives talk about the need for employees to be emo- chain has a cash objective.” tionally attached to their work and for the companies to
T F L INTRODUCTION
develop their people. “We try to build a good career plat- up organizations that have survived the test of time. The form for our employees and give everybody enough room businesses all were operating during the Great Depres- to realize their potential,” Liu says. This is especially im- sion and have passed through several generations of lead- portant, says BASF’s Hambrecht, in order to address un- ership. (Arguably, UniCredit Group, the bank based in certainty: “The world is changing. It’s becoming quicker, Italy, is a more recent creation of mergers and acquisi- less predictable, and more complex. We need to have the tions, although its original banks are old, established Eu- best people working together and forming a real team.” ropean institutions.)
It is not enough, however, to have the best The way that the Their stability and durability can be a dou- people; companies also need the glue of a ble-edged sword. On the one hand, they CEO projects himself strong culture. Hambrecht, for example, have established talent-management and says that culture can continue to provide a or herself on the leadership-development programs and performance boost a er a company has organization sets the other signs of permanence and longevity. squeezed all the effi ciency gains out of an On the other, they can be slow moving. At organization. “At some point, we will reach mood for the company. large, established organizations, “there are diminishing returns on improving effi cien- people who have made an art form of cy. The next step is to engage our people even more in avoiding accountability and responsibility,” says Qantas’s order to earn their full support and buy-in,” he explains. Joyce, who previously launched and ran Jetstar, a low-fare subsidiary with a nimble start-up culture. At UniCredit Group, a bank based in Italy, a series of mergers has created the need to unify culture. “Through Now turn that picture upside down. Two of the three acquisitions, we expanded into more than companies we looked at in China and India are still run 20 countries and acquired both expertise and diversity. by their founder—and the third, HDFC, was founded by But we now have diff erences in culture, vocabulary, and the current chairman’s uncle. These are all young institu- ways of interpreting events,” says Alessandro Profumo, tions that have not yet passed the endurance test. One of UniCredit’s CEO. their primary leadership tasks is to create permanence without sacrifi cing vitality. They are giving employees In India, founders of two fi nancial institutions talk about ownership stakes while also recognizing the size of the the importance of culture to future growth. Kotak, the multigenerational challenge they face. founder of Kotak Mahindra Group, says that creating a “one-fi rm culture” is critical to the bank’s success. Deepak As Parekh of HDFC says, “Success is what you leave, not S. Parekh, a founder of Housing Development Finance what you have achieved. You have to leave the organiza- Corporation (HDFC), says that the mortgage lender has tion better and stronger than when you began.” Kotak been able to keep its senior leadership team intact not by reinforces this sentiment when he says, “If what you cre- paying top wages but by maintaining a strong culture. ate cannot outlive you, then you have failed.” Both Kotak and Parekh, however, worry that the cultures of their institutions will be hard to maintain as young, Two Sides of Employee Engagement. In developed ambitious employees join. markets, recent challenges have centered on the need to communicate and give confi dence to employees. During A Tale of Two Cities the Great Recession, “we were very visible, doing as much walking around as possible,” PepsiCo’s Nooyi says. “The Leadership qualities may be universal, but markets are way that the CEO projects himself or herself on the or- far from uniform. Leaders in the developed and develop- ganization sets the mood for the company.” ing markets must apply their leadership skills in very dif- ferent contexts. These diff erences shape their view of In developing markets, chief executives are more con- challenges relating to business, people, and the future. cerned with how they can maintain the organization’s entrepreneurial spirit as it grows and how they can hold Ensuring Continuity versus Seizing Opportunity. All on to young employees who are more impatient than six of the chief executives from developed markets head workers from the older generation are. Young employees
T B C G “want success to happen quickly and are much less loyal and nongovernmental organizations (NGOs), and they to institutions,” Kotak says. “One of our challenges is put themselves in our shoes,” PepsiCo’s Nooyi says. “We overcoming the gap between the culture in society and can’t have an adversarial relationship.” the culture we want to build in the fi rm.” For the leaders in developing markets, the economic The Millennial Generation also exists in developed mar- downturn has infl uenced their views but not fundamen- kets, of course, but the challenges presented by job mobil- tally altered them. They expect greater competition from ity and declining loyalty are not new, espe- Western fi rms, but they have not radically cially in the United States. And, for the One of our challenges revised business plans based on the recent time being, many employees in developed performance of the global economy. Their is overcoming the gap markets are content to have a job. domestic economies are still strong and between the culture in business models are intact. A View of the Future. The Great Reces- society and the culture sion was a mind-warping event for leaders Cross-Fertilization in developed markets but barely a blip on we want to build... the radar for many companies in develop- Leadership has become a two-way street. ing markets. Neuso , for example, reported record profi ts Leaders from the East have long been avid students of in 2009, and Kotak Mahindra and HDFC—whose fi scal Western leadership practices. HDFC’s Parekh worked in years end on March 31—are on track to achieve new London before returning to India. Kotak absorbed many heights in profi tability. lessons about culture and leadership during the years that his fi rm partnered with Goldman Sachs. Neuso ’s The radically diff erent fi nancial performances infl uence Liu competes directly with Western companies and says how leaders in the two regions view the future. For lead- that he tries to learn from their practices. And developed ers in developed markets, the economic turmoil has tur- markets still have more to teach developing markets bocharged trends already under way. If, as conventional about institutionalizing practices such as succession and wisdom suggests, growth rates in developed markets slow, culture building. companies need to develop new products and expand in developing markets. Leaders in China and India, however, can also teach their peers in developed markets a few things. They have Western leaders we interviewed say they maintained achieved rapid growth, even with the visible hand of gov- their research-and-development budgets during the ernment in their economies—and operations. downturn and are doubling their attention on globaliza- tion. Globalization will force companies to be more nim- Doing business in China and India also requires creativity, ble in order to take advantage of fl eeting opportunities. adaptation, and experimentation. Leaders there conduct strategy in real time. HDFC built a mortgage business “Our business is not just driven by the United States any- with low default rates by coming up with creative ways to more. We are operating in a truly global economy assure repayment. Kotak Mahindra’s fi rst fi nancial prod- in which volatility and the speed of change have radi- uct took advantage of market ineffi ciency. Neuso ’s fi rst cally increased,” Whirlpool’s Fettig says. “We are moving so ware product was quickly pirated, so the company from a plan-forecast-and-deploy model to a read-and-re- adapted and began selling services. These opportunistic act model. You cannot predict a lot of this stuff , but you moves paid off . In developing markets, risk management better be good at reading market signals and reacting is a way of life, not a back-offi ce function. really fast.”
The Western leaders predict that a greater role for gov- ernment in economic aff airs will be a lasting legacy of the ut don’t take our word for it. In this report, you’ll Great Recession. “The world has become much more fi nd excerpts from our conversations with nine complex, and the only way companies can function ef- Bchief executives. Let the leaders speak to you fectively is if we put ourselves in the shoes of lawmakers about leadership in their own words.
T F L INTERVIEWS: JAMES M. CORNELIUS
Leading Through Uncertainty James M. Cornelius Chairman and chief executive offi cer, Bristol-Myers Squibb
ames M. Cornelius was hired as interim chief ex- tion of its patent on Plavix, its blockbuster blood-thin- ecutive of Bristol-Myers Squibb in 2006 and ex- ning drug. pected to stay three months. Years later, he is still there, leading the pharmaceutical company as In his conversation with Grant Freeland, a senior partner Jchairman and CEO through the toughest econom- and managing director of The Boston Consulting Group, ic times in decades and managing to beat Wall Street’s Cornelius describes how he has grappled with leadership expectations in the process.1 issues over the course of his long and successful career.
We talked recently with Cornelius about leadership, as Cornelius is not one to chase the latest leadership fads part of our series of conversations with chief executives. and fashions. He believes that leadership qualities are We asked the CEOs, representing a broad range of indus- enduring, but that strategy in uncertain times is not. Bris- tries, not only what they did to pull their companies tol-Myers Squibb has fundamentally reshaped its strategy through the Great Recession but also what they are plan- during his tenure. Excerpts from the discussion follow. ning to do in the recovery period. The last 12 to 18 months have been traumatic for the Cornelius has been a leader in the health care industry world economy, maybe a little less so for the pharma- for many years. He spent 28 years at Eli Lilly and Com- pany, rising to chief fi nancial offi cer and board member 1. Cornelius will retire as CEO on May 4, 2010; he will remain chair- before becoming chairman of Guidant, a medical devices man of the company. company and Lilly spinoff , for fi ve years. He retired in 2000 but was pulled back into service in 2005 when Boston Scien- JAMES M. CORNELIUS Born in Kalamazoo, Michigan tifi c and Johnson & Johnson were bat- Year Born: 1943 tling for control of Guidant. A er Corne- Education lius negotiated Guidant’s sale to Boston 1965, Bachelor’s degree, magna cum laude, Michigan State Scientifi c in 2006, he retired again. University 1967, Master’s degree in business administration, Michigan But then Bristol-Myers Squibb came State University knocking, following the abrupt resigna- Career Highlights 1983–1995, chief fi nancial offi cer and director, Eli Lilly and Company tion of its CEO. Cornelius, then a mem- ber of the board, was asked to step into 1995–2000, chairman, Guidant the chief executive’s job. At the time, 2006–present, CEO, Bristol-Myers Squibb the company was under the supervision Outside Activities of a court-appointed monitor in order to President, Cornelius Family Foundation avoid prosecution for manipulating Fan of Indianapolis Colts football team earnings. It was also facing the expira-
T B C G ceutical industry. What are some of the key challeng- get ready for that kind of showdown, it probably takes a es you are preparing for? full year of strategic-planning meetings.
We have not been faced with the drop in demand expe- We have agreed to target serious unmet medical needs rienced by other companies. On the other hand, we’ve in fi ve or six therapeutic areas. We have an active busi- been facing a “patent cliff .” Our blockbuster, Plavix, will ness-development program, called the “string of pearls,” go off patent in 2011 or 2012 [an application to extend to aimed at those therapeutic areas. So our strategy setting 2012 is pending]. Our competitors face is literally around the clock. Once we get the same cliff with some of their block- one acquisition done, we move to the Times are less certain busters. We are all facing questions like, next therapeutic class. “What’s the right size of the company, today than ever before— and how do we get through this period?” so you go back and As you refl ect on your career, what This situation has been exacerbated by are some of the keys to being a good the possibility of health care reform, so re-examine your strategy leader? we’ve been trying to get ready for both multiple times... the patent cliff and the changing environ- You’re not going to be successful without ment here in the United States. teamwork, so you need a strong support- ing cast. You need to have the right team and give the The expiration of the patent on Plavix must be emo- members the responsibility to carry out the strategy. tionally tough for your employees. How are you pre- paring them? During this period of turmoil, it can be tempting for a leader to tighten the controls and get more involved We’ve been very public with employees, Wall Street, and in what’s going on. How do you maintain tight con- every other constituency, explaining that this product trols while encouraging people to be innovative and could go from $6 billion in revenue to zero, literally in empowering leaders? months. I think that we’ve gotten high marks from Wall Street about being the fi rst to admit that there was a cliff . I once had a boss who was very involved in everything We’ve taken a couple of strategic actions to change the that I did, and I didn’t like that. Senior people are paid cliff into a platform for growth. But there’s no way we can senior wages and given a great deal of responsibility. fi ll in for the $6 billion in revenue. Making the necessary They must perform, and only when they need help do I changes now puts us in better shape than just waiting for get directly involved in the things they do. If you asked it to happen. my team members, they’d say, “If he’s not asking me a bunch of questions, I’m doing okay. If he’s helping me, Could you compare this period versus fi ve or ten then there are things I need to improve on.” years ago? What have you had to do diff erently? Sometimes, however, I need to be more involved. For ex- Times are less certain today than ever before—so you go ample, for the past few years, you could not hire an em- back and re-examine your strategy multiple times during ployee anywhere in the world without my signature. Why the year. You have to be much more adaptive. did I do that? Not because I enjoy signing my name, but I wanted people to be more cognizant of the importance How do you become more adaptive? Who do you in- of hiring and its eff ect on profi tability. In that process, we volve? How does the board get involved? How do you have raised the hurdle—we are interviewing better peo- involve your senior leaders? ple and slowing down hiring. Before, the attitude was, “We have a job open, let’s fi ll it.” Over the last 36 months, Early in my career, strategy sessions with boards of direc- total head count worldwide has declined every month— tors lasted 30 to 90 minutes. Now, at Bristol-Myers Squibb, and yet sales have increased by probably 50 percent. we might take two to three days of board time to review every element of strategy so that board members are fa- In this environment, how do you keep the best peo- miliar with it, can question it, and infl uence it. In order to ple? What are you doing about talent management?
T F L INTERVIEWS: JAMES M. CORNELIUS
As I mentioned earlier, the keys are having a good team Our CFO has added the concept of cash fl ow manage- surrounding the CEO and being able to execute the strat- ment, which has allowed us to build a $7.8 billion cash egy. The retention, promotion, and development of those balance to help fund the acquisition of new technology. people are critical. It’s a matter of getting people into the right kind of jobs, giving them the right direction, and We have moved from an income-statement orientation then leaving them alone to perform. to a balance-sheet orientation. We literally had to do tu- torials with some of our most senior management about Even though we have been shrinking the what a balance sheet is and why those size of the company, we’ve been uniquely accounts are important. It was something My personal style, successful at attracting talent from other that our industry has never looked at. large pharmaceutical companies. regardless of the environment, is to And as you refl ect on your time work- What portion of your current execu- ing at Bristol-Myers Squibb, if you tives were able to manage the transi- meet face to face with could have done one thing diff erently, tion to this new way of working? executives. what would you have done?
I’d say the bulk of them. I’m not sure that I started out in the job with the shackles we have a 100 percent buy-in, but it feels a lot better to- of a government program, which made us move at a day than it did three years ago. People are being handed much slower pace. If I had to do it all over again, I would these stretch goals, and I think we’re getting much better speed up the clock and do the things we’ve done now, but eff ort today. do them even faster.
Can you discuss the benchmarking that was conduct- Do you fi nd that you’re spending more time dealing ed shortly a er your arrival at Bristol-Myers Squibb? with the external world? How did that start, and how did the journey go? Yes. We do most of our lobbying through our trade group, When I joined, I had been out of the pharmaceutical in- PhRMA [Pharmaceutical Research and Manufacturers dustry working in medical devices for many years, and I of America], and that probably takes 15 percent of wanted to identify the best performers in this industry. I my time. had come from two companies that had been in the up- per quartile of performance. We hired BCG to help us We’re spending a lot of time trying to persuade Congress benchmark the best performance on almost every line of to give us periods of market exclusivity on patents that the income statement. The exercise showed that we were run at least 12 years and to stay away from getting in- o en below the median, so we set targets that could volved in setting prices in the United States. make us a leader. Are you spending more time working together with It took us 12 to 24 months to reach those goals. It was a your executives as a senior team? real stretch and created dissonance. But, along that jour- ney, we decided that we did not need our nonpharmaceu- My personal style, regardless of the environment, is to tical businesses. In fact, we needed to sell them in order meet face to face with executives. Almost every Friday, to fund our string-of-pearls strategy. Today, Wall Street we spend a half day together, sometimes a full day, ad- would say that we’re the best performing biopharmaceu- dressing both operations and strategy. tical company. And was that a practice of yours 10 or 20 years ago? The key to success in the pharmaceutical industry used to be revenue. These days, pricing is tougher, Yes. I inherited that from a very good boss at Lilly, and I and costs are more important. How did you change have continued it throughout my career. So even though the culture so that your people are not focused just I’ve never mandated attendance, it’s amazing how many on revenue? of the direct reports show up on Fridays.
T B C G Have you found that any senior roles have changed In our case, stock options have not delivered the target over the last couple of years? Has the CFO role, for values that are set by the compensation consultants, and example, become more important? we’re in the process of eliminating those and moving to a kind of quasi-restrictive stock that has both a fl oor and I was a practicing CFO for a decade or more, and I think a ceiling. I think we will be the fi rst in our industry to do the relationship between the CEO and the CFO has to be this. I doubt that the restricted stock would ever go to very good. We hired a younger CFO from a medium-sized zero or infi nity. We have 28,000 people, and this would company. As we made cultural changes, cover probably the top 10 percent. he’s been a real asset. So I think our team- Good leadership is work, particularly between the CEO and How do you motivate and what are you the same in good CFO, has gotten stronger in this last year doing for the other 90 percent? or two.2 times and bad and in changing You must make sure that you have a com- Has your relationship with the board petitive pay package. In our case, our changed? Since this crisis occurred, are environments. short-term performance has been extraor- they more involved? dinary. We’ve been growing, at the bottom line, probably by about 15 percent, so our cash-bonus I’ve sat on maybe a dozen boards over time, and there’s program has paid above target. We have been able to certainly a trend for boards to be more active—and they make up somewhat for the lack of stock option apprecia- are more involved here. Before becoming CEO, I was an tion with cash bonuses. independent board member and so, as the new CEO, I probably had the advantage of being viewed as one of As we move into a world where growth is likely to be them. I’ve gone out of my way to inform them about slower, how do you keep employees motivated? what’s going on in the company, and I think the relation- ships are as good as they can be. There is a tendency We struggle every day with trying to keep people with active, interested board members to occasionally performing beyond their capabilities, or at least at their cross over into management roles, but part of the CEO’s capabilities. Our strategy is built around targeting the job is to manage that involvement and to direct it in the most serious diseases, and we think that’s a great rally- right way. ing cry. We bring in patients who have been cured or who have had their life extended, and half the audience As a leader, how do you encourage ethical behavior? has a tear in their eye a er they hear these speeches. The things we do are critical to human life, and I think You must have a strong belief in doing the right thing. that gives us an extra degree of motivation during these I’ve preached over my career that you never want to tougher times. see your ethics being questioned in the right-hand col- umn in The Wall Street Journal. And it really boils down to Is the essence of good leadership timeless? having the leader walk the talk. Every day, you have to behave ethically, do the right things, be fair, and hope I support the thesis that good leadership is the same in that that trickles down to the rest of the organization. good times and bad and in changing environments. I have had the advantage of working in a very successful Are you harder now on unethical behavior than you large company, a very successful medium-sized company, were before? and in start-ups. I think that experience and consistency are critical. I’ve seen other companies trying to adopt the Yes. Our company has had a checkered history of being in fl avor of the month, and I don’t believe that works. The and out of trouble. We paid enormous fi nes. I think people consistency that I bring to our management approach today understand that you cannot go into the gray area. should be a plus for our team.
Executive compensation is in the spotlight. Are you 2. CFO Jean-Marc Huet left Bristol-Myers Squibb at the end of 2009, doing anything to better match risk with reward? after this interview was conducted.
T F L INTERVIEWS: JEFF M. FETTIG
Read and React Jeff M. Fettig Chairman and chief executive offi cer, Whirlpool Corporation
or most companies, economic turmoil struck shares his insights on leadership during the downturn in 2008. By then, appliance maker Whirlpool and beyond. Excerpts follow. Corporation was already coping with a full set of economic challenges, notably stiff com- Could you describe your approach to leadership and petition from several of their global competi- defi ne a few characteristics of leadership? Ftors and severe commodity inflation. In the United States, Whirlpool’s largest market, the collapse of the Every role that you have throughout your career helps housing bubble had sharply cut into demand for new build that foundation of leadership. You learn the busi- appliances long before the offi cial start of the Great Re- ness and the industry and build your network. You also cession. have diff erent experiences that shape your core leader- ship beliefs. Leadership is earned, not given. It’s hard to Jeff M. Fettig, who became Whirlpool’s chairman and be a leader if you have no followers. The respect that you chief executive officer in 2004, is a believer in the earn over time enables you to lead. adage that the best thing to do with lemons is to make lemonade. He has JEFF M. FETTIG used this rolling series of economic Born in Elwood, Indiana shocks to dramatically reduce the com- Year Born: 1957 pany’s costs, while maintaining its glob- Education al presence and commitment to innova- 1979, Bachelor’s degree, Indiana University tion. Whirlpool’s senior leaders quickly 1981, Master’s degree in business administration, Indiana seized control and narrowed the com- University pany’s focus—and almost as quickly Career Highlights 1981–1989, positions in operations, sales, and planning and delegated responsibilities to middle and product development, Whirlpool line managers through rapid and fre- 1989–1990, vice president of marketing, KitchenAid Appliance Group quent communication. 1990–1992, vice president of marketing, Phillips Whirlpool Appliance Group of Whirlpool Europe B.V., Whirlpool’s European subsidiary One of the lessons of the last year has 1992–1994, vice president of group marketing and sales, North American been that Whirlpool must be far quicker Appliance Group to respond to uncertainty and fast-mov- 1994–1999, executive vice president of Whirlpool and president of Whirlpool ing events. The company is now able to Europe and Asia react more swi ly to change than it was 1999–2004, director, president, and chief operating offi cer, Whirlpool just a few years ago. 2004–present, chairman and CEO, Whirlpool Outside Activities In a conversation with Grant Freeland, Director, The Dow Chemical Company senior partner and managing director of National Board of Governors, Boys & Girls Clubs of America The Boston Consulting Group, Fettig
T B C G Everyone has diff erent defi nitions of leadership. For me, models didn’t work, our experience was not relevant, and leadership is the ability to be a catalyst for positive change. we were in new, undefi ned territory. We tried to step back Each of those words is important. You need to be a cata- and take a very critical view of the business. lyst or a change agent for the company. You need to be positive and not lead by fear. And change is a constant in The fi rst thing we did was narrow our focus. The most any organization. If you are not changing, you are proba- critical thing a business has is liquidity. So our number- bly falling behind. People who take initiative, who strive one priority was cash. What did we need to do to gener- for positive outcomes for the organization, ate cash, preserve our liquidity, and ensure and who enable and motivate an organiza- You need to be a suffi cient funding? The second thing we tion to change are leaders. instituted was radical cost reduction. We catalyst or a change needed to lower our breakeven point fast- Are those characteristics of leadership agent for the company. er than sales were falling. We will take out perennial? You need to be positive two times more costs in 2009 than we ever have before. Although the conditions change, I think and not lead by fear. the fundamental traits of leaders have not The third thing we did was respond to a changed. Leaders deal with reality. Leaders initiate and diff erent consumer environment in North America and help drive change, which leads to a positive outcome in Europe. We diverted our consumer-advertising spending their organization. Leaders inspire others to achieve. to the point of sale. We believed that we were not going Leaders enable others to achieve. And as a whole, the to attract consumers to the market to buy appliances organization achieves. Those fundamental principles are through advertising. This was going to be a replacement true in tough times and in good times. In times when market, so we wanted to ensure that when consumers vis- leadership is most tested, those characteristics show up ited a store they would buy our appliances. the most. Your top leaders emerge in tough times. I am glad to say that all three approaches are working. So Could you describe what Whirlpool experienced over by narrowing the focus, we have been able to adjust our the last 18 months of the Great Recession and the business to levels we would not have thought possible leadership actions that you took? two or three years ago.
Our industry was already going through several challeng- During crises, it’s rather common for leaders to want es prior to the fi nancial crisis—specifi cally globalization to take fi rmer control of the business. Did you do so? and commodity infl ation. The cost of steel, oil, and pre- Did you change your leadership style in other ways cious metals doubled, tripled, and even quadrupled from during this period? 2004 through 2008. The housing boom in the United States was a bubble and peaked in 2005. We had already For us, the fi rst step was to institute greater control. By experienced negative demand in 2006, 2007, and 2008 narrowing our focus, relying on the right metrics, and do- prior to the recession. ing a good job communicating with our top 800 leaders, we have been able to focus on the things we can control. So, by September 2008, we were facing three things: an But the second step was to deploy that control. Every em- incredible cost shock that began several years earlier, a ployee in the company has a personal cost-reduction ob- new demand shock caused by fi nancial destabilization, jective. Everyone who touches any aspect of our cash and a currency shock as investors fl ed to what were per- chain has a cash objective. It is crystal clear to every sales- ceived as safe currencies. We could not forecast how this person in the world what we are trying to accomplish. In was going to play out, but we did believe that this world- terms of pure execution, 2009 is the best year we have wide fi nancial deleveraging would have a profound im- ever had. pact on every aspect of business. During this period, did your board of directors be- In September 2008, U.S. appliance demand dropped come more interested in what was going on? Have more than at any time since World Wars I and II. Our you been spending more time with the board?
T F L INTERVIEWS: JEFF M. FETTIG
Just as we did with our employees, we increased the fre- What about the importance of brands in the future? quency of communication with our board. In a normal You have been focused on the point of sale in this cycle, we have six face-to-face board meetings a year. Be- environment. Are you going to move back to more ginning in October 2008, we also scheduled telephonic general advertising? board meetings every other month, so we were meeting every month until August 2009. This frequent communi- The mediums through which we reach consumers today cation helped us execute faster when a decision required are so radically diff erent from those of fi ve to ten years board approval. ago. We are continuously looking at all the We [operate] in a truly diff erent ways of reaching consumers, in- Do you think that your relationship cluding television and online advertising. global economy in with the board has permanently But the point of sale will always be impor- changed, or will it revert to the way it which volatility and the tant. Appliance consumers are usually in was fi ve or six years ago? speed of change have the market for less than two weeks, so it is important for us to be strong at the point I would say more timely communications radically increased. of sale. Over the past year, it was especial- with the board is a new norm—and frank- ly important, because we did not think we ly, a good norm. were going to attract people to the market who were not ready to buy anyway. We trained salespeople very well Has your relationship with other senior leaders and have done an even better job of communicating ben- changed? efi ts to the fl oor. We’re converting those consumers when we have an opportunity. Not really. We probably had more meetings for the fi rst six months, but we have the same operating style and use As we get into a more normal environment, consumer the same management systems to help us review the advertising and online activities certainly will be part businesses and our priorities. of the mix. Our distribution of mediums will be more balanced. But in the current environment, we feel What did you do over the last year or so to keep your pretty good about where we are directing our invest- employees informed about how things were going? ments.
We share the results of our cost-reduction program every Are you resetting your business in response to the quarter with employees. This year, 50 percent of every- recession? one’s bonus worldwide is based on achieving our cost- reduction goals, so it’s of very high interest to all our em- It’s pretty profound what’s really going on around the ployees. world right now. In Europe and the United States, I think there will be a slow and long recovery, and we need to It can be diffi cult to keep people motivated over a reset our expectations for demand. At the same time, the long period by just focusing on cost. If you look out recession appears to be long over in Brazil, India, and two or three years, how will you keep your employees China. We’re seeing growth rates that we’ve never seen motivated? before in these markets.
I would say it’s hard to keep employees motivated when Our business is not just driven by the United States any- you’re not delivering good results. Dealing with cost in more. We are operating in a truly global economy in this environment is a key to delivering better results, but which volatility and the speed of change have radically it is not the only thing we’re doing. We’re still investing increased. in great new-product innovations. We have not reduced our research-and-development or product-development We are moving from a plan-forecast-and-deploy model to expenses. I think 2010 will be the biggest year ever for us a read-and-react model. You cannot predict a lot of this when it comes to new-product launches in the market- stuff , but you better be good at reading market signals place. and reacting really fast.
T B C G How are speed and volatility changing how you lead product development to capture consumer insights any- your company? where in the world.
It’s more important than ever to have great leaders Executive compensation is a hot issue. Is Whirlpool throughout the organization who understand local mar- rethinking how it compensates its executives? kets. We have been in Brazil for more than 60 years. Through the country’s ups and downs, we’ve always We’ve always believed that aligning executive compensa- made money because we have always had tion with shareholders’ interest is the right great general managers there. I used to tell Volatility can mean thing to do. We have a heavily weighted our Brazilian employees that some day, as pay-for-performance system for executives. opportunity, and speed the country emerges as a market, it will Short-term bonuses and long-term incen- become more like the United States or Eu- of change—if [you tives are both tied to specifi c shareholder rope. The reality is that the rest of the are fast]—can be a metrics. If we succeed in delivering on world is becoming more like Brazil. Vola- those metrics, we are rewarded. If we do tility is harder for people in North America competitive advantage. not, we are not. Last year is a great exam- and Europe to handle than it is for people ple. Both of our bonus plans paid out at in an emerging market. We need to be able to radically only 25 percent of their targeted payouts. It was the right reposition our business in three months rather than three thing to do, given that we did not meet our performance years or fi ve years. metrics. Of course, we will watch and listen and learn from what others are doing or proposing to see if we can Can speed and volatility be catalysts for change rath- improve, but overall I feel very comfortable that our plans er than negative infl uences? line up well with our shareholders’ interest.
I think that’s the only positive way to look at it. You can Ethics has also been a big issue in the press. Some either choose to be a victim of the environment or you companies and some sectors in particular have been can take advantage of changes in the environment. Vola- hit very hard by ethical issues. Are you doing any- tility can mean opportunity, and speed of change—if thing diff erently in this arena? your company is faster than others—can be a competi- tive advantage. We have had a long history, dating back to the beginning of the company, of being a very ethical and morally re- Speed and volatility are realities. The fi rst thing a leader sponsible company. It is part of our culture. We evaluate has to be able to do is face reality. In the past, speed and people on ethics. We have a very broad compliance and volatility have probably had a negative impact on our training program. We have a saying at Whirlpool: There’s business, but we have learned. We have parts of the busi- no right way to do the wrong thing. At the same time, we ness that excel in these environments. Increasingly, we are a big global company. We have 70,000 people in 170 see speed and volatility more as opportunities than as diff erent countries. You always worry that someone some- detriments to our business. where could do something that is not appropriate.
Is working globally part of the new norm? Is Whirlpool experiencing greater government regu- lation and intervention? Absolutely. You have to be comfortable doing business in the United States or China or India or Brazil. There is no Without a doubt. Historically, depending on the business substitute for seeing what’s actually going on in China, or country, government involvement could have more or India, or Brazil. To do that, it’s best to work in one or two less of an impact on your business. But over the last fi ve other parts of the world at some point in your career. Of years, it has been increasing. In China, any investment course, you can’t work everywhere. I personally would has a level of government involvement. In places such as not profess to have a great understanding of the Indian the United States and Europe, governments are becoming consumer, but I know we have the processes, the market more involved. Energy regulation, effi ciency, and compli- research, and the approach to brand management and ance are all large issues that have been positively sup-
T F L INTERVIEWS: JEFF M. FETTIG
ported by government incentives or consumer labeling Over the last ten years, we’ve seen a move from regional systems. competition to global competition. There are four, fi ve, or six global companies that are getting bigger and stronger. More broadly, in the United States and Europe, it is un- The growth of the Asian market has spawned a handful certain what role government will play in businesses at of Asian companies that are very competent global com- large—whether the issue is taxes, health care, or funda- petitors. We have European competitors, and we are cer- mental costs of doing business. But in my 28 years at tainly the largest U.S.-based competitor. But we are all Whirlpool, the government has never been more involved global companies. In Brazil or Russia or China or India, than it is today, and I think that involvement will in- we are going to face those same competitors. In the end, crease. I think it’s leadership, talent, and execution—as well as the strength of the brand and business model—that will Has the nature of competition changed over the last determine who succeeds and who fails. fi ve years or so, and what has that meant for lead- ership?
T B C G INTERVIEWS: JÜRGEN HAMBRECHT
Straight Talk Jürgen Hambrecht Chairman of the board of executive directors, BASF
ürgen Hambrecht, the chairman of chemical What are some of the key leadership lessons you have giant BASF, has a simple but powerful motto— learned over your 30-year career? What makes a good “say what you think, and do what you say”—that leader? sums up his approach to leadership and commu- Jnication. The chemical industry was hit hard by A leader needs to make decisions based on solid analyses the global recession. BASF acted quickly to reduce pro- and experience. I have had a lot of diff erent positions at duction and inventory—and to be honest and up front BASF, which allow me to look at an issue from diff erent with employees about the need to make tough choices. angles and come to my own conclusion a er listening At all times, Hambrecht strives to be authentic, to show very carefully to people. respect and empathy for BASF’s employees, and to be decisive. It is also important to prepare leaders for future roles. I started my career at BASF in research, was given purchas- Based in Germany, BASF, the largest chemical company ing responsibilities, and then acquired operational, re- in the world, is a truly global company. More than 40 per- gional, and segment responsibility. Over the years, I have cent of its sales originate—and one-third of its employees had quite a lot of exposure to many employees from dif- are based—outside of Europe. Hambrecht joined the ferent cultures around the world. This experience helped company in 1976 as a chemist and, a er a series of promotions, became a mem- ber of the board of executive directors JÜRGEN HAMBRECHT Born in Reutlingen, Germany in 1997. He rose to chairman in 2003. Year Born: 1946 Education In his conversation with Grant Freeland, 1975, Ph.D. in chemistry, University of Tübingen a senior partner and managing director Career Highlights of The Boston Consulting Group, Ham- 1976–1985, chemist, BASF brecht discusses how BASF managed 1985–1990, head of research and purchasing, BASF Coatings through the recession. While many se- (Following positions held at BASF) nior leaders have been centralizing de- 1990–1995, president, engineering plastics division cision making, Hambrecht and the 1995–1998, president, East Asia division BASF board sought information from and provided guidance to its business 1997–2002, member of the board of executive directors leaders—but let them make key deci- 2003–present, chairman of the board of executive directors sions. As Hambrecht looks to the future, Outside Activities he says he expects to rely even more on Member, Daimler AG supervisory board the contributions of employees through- Member, Lu hansa AG supervisory board out the company to drive performance. Chairman, Asia-Pacifi c Committee of German Business Excerpts from the discussion follow.
T F L INTERVIEWS: JÜRGEN HAMBRECHT
prepare me to become chairman. At the beginning, you say that was too late, but it was very early in our industry, think maybe the job is too big. But at the end of the day, which was still on the upswing. October 2008 was the you realize it is possible. best month that we ever had.
Are you saying that the ability to make the right deci- Did your leadership team share your concerns? sions develops over time? Do you think it would be diffi cult for an outsider to lead a large company? Not entirely. We had very intensive rounds of discussions. At the time, our business was constantly I am absolutely convinced that it would be You have to act on the improving. I was convinced that something a big mistake to have an outsider lead was wrong, but it was diffi cult to argue spot, decisively, and in BASF. The company is very complex, very that position. Our top leadership team— diversifi ed. You need to understand the a structured way. You the 40 top people—meets every month. diff erent businesses. You need to under- need to make clear And in July 2008, I told them that there stand the culture. At BASF, there is no were risk indicators and that they should single culture. We have a lot of diff erent and solid decisions. start to look into those indicators very cultures that you must understand and re- carefully and reduce their inventory. spect. How did you communicate with your employees? Is having global experience necessary to become a leader these days? In general, we do quite a lot of communication; but in the crisis, we had to intensify it. We followed the motto: Say Absolutely. International experience is a crucial part of what you think, and do what you say. And we did this our long-term career-development program at BASF. Ex- equally for both external and internal audiences. I think posure to diff erent cultures helps our people appreciate this is of the utmost importance. diversity and learn that there are many diff erent routes to Rome. I have three basic rules for myself: be authentic, have respect for everybody, and have empathy for everybody. There has been tremendous turmoil in the global In the middle of this triangle is courage. Once you are economy and the chemical industry over the last 12 done thinking, just do it. Do not debate forever. to 18 months. What have you learned about manag- ing in a crisis? During this period, did you interact diff erently with your executive board than you had two or three years You need to have your own early indicators. You also before, when growth was still strong? need to have a gut feeling about what’s likely to happen. If you rely on offi cial statistics—or even statistics that We probably met more frequently. We implemented task might be developed within the company—you might be forces, and we asked for more information about, for ex- too late. You have to act on the spot, decisively, and in a ample, inventory and production. But we did not make structured way. You need to make clear and solid deci- major changes. sions. What were you doing with the information? Was the What were some of the early indicators that gave you executive board making more decisions, or were you a gut feeling that changes were necessary? asking for information in order to encourage other people to act in diff erent ways? One of the signs was the off -balance-sheet activities of banks. And then I became sensitive to the performance The board did not make more decisions or take over deci- of our customer industries. sions, which need to be made by the responsible people, such as division heads. However, we did off er them more I started to talk about the fact that something was wrong information from around the world and provided guid- and that we needed to be careful in March 2008. You may ance about, for example, reducing inventory.
T B C G If you could have done one thing diff erently during We have a saying within BASF: Everyone counts. Espe- this last year or so, what would it be? cially now in challenging times. Communicating diffi cult decisions is not easy, but it has to be done. You need to Being even more courageous by saying even earlier that talk to employees so they understand the decisions. things are changing fast. Some may not like them. But if they understand the un- derlying reasoning, it’s better. These are exactly the Given the slow-growth environment we appear to be things that we are doing at this moment. We try to talk in, do you plan on changing how you more o en and deeply with one another lead in the future? We will reach throughout the company. It’s not always easy because we are concentrating on diminishing returns on I don’t think my leadership style will running the business as effi ciently as pos- change, but as an organization, we need to improving efficiency. sible and o en wonder where we can fi nd address the so factors more than we do The next step is to the time to talk, but you need to fi nd a now. We need to change the culture. way to do it. engage our people... At some point, we will reach diminishing Some leaders say that they are spend- returns on improving effi ciency. The next step is to en- ing more time with the external world—shareholders, gage our people even more in order to earn their full governments, unions, and work councils. Have you support and buy-in. This enables the team to better found that to be true? exploit its potential. Therefore, you need to have the em- pathy to understand what is really going on with your I have been more internally focused than externally fo- people. cused—especially now. Before I talk to the outside world, I talk to the inside one. When it comes to closing plants Are you emphasizing the need to change the culture or sites, when it comes to major changes, before anything and listen to and engage with your people because happens, we will inform employees fi rst. I think this is of you think that engaged employees will be more pro- the utmost importance. ductive? Executive compensation is a big issue, at least in Absolutely. We have the best team in the industry already. North America. Are you planning to make any chang- However, we need to become even better. The world is es related to executive compensation? changing. It’s becoming quicker, less predictable, and more complex. We need to have the best people working This is an issue in Europe as well. We are in the process together and forming a real team, as we did during the of adjusting the contracts of the members of the execu- crisis. Flexibility and solidarity are real values for BASF. tive board to refl ect a new German law on executive com- pensation. However, these are not fundamental changes; BASF has a high-quality workforce. Do you think that we already have a system that works. We are making makes it easier or more difficult to form strong changes in order to evaluate and reward performance teams? O en, as you know, stars can be more diffi cult over several years. to manage. The performance part of our pay for all employees is This is a very interesting question. We are in a rather based on return on assets. It will go down very, very sub- advantageous situation because people like to work at stantially this year. So that tells you it works. We did not BASF. We can select the best people in their respective have the hugely exaggerated pay that you found in banks disciplines. But we also look at social skills and whether and in some other companies in North America. people can work together in teams. The issue of ethical behavior raised its head again Cultural change is something companies talk about and again in the crisis, certainly in the fi nancial sec- doing but o en don’t actually achieve. How are you tor. Is that something that you think you’ll increase thinking about changing the culture? your focus on in the future?
T F L INTERVIEWS: JÜRGEN HAMBRECHT
We have an ethics system, which has worked very well for You have a broad perspective because BASF serves a long time. We have a chief compliance offi cer, for ex- so many industries and because of your involvement ample, who reports directly to me. Our values and prin- on supervisory boards and other organizations. Have ciples are strong, so there is no reason for change. Our the past 18 months changed your perspective on any employees around the world are living these values. issues?
How do you keep people motivated when growth is If growth slows dramatically and unemployment rises slower than it once was? signifi cantly in Europe, social unrest could become an is- sue. A related issue is the shi in growth to Asia. People I do not think that money provides motivation. Of course, in the highly developed economies will have to accept you have to off er a fair, competitive pay system. But at the that there is cheaper, plentiful labor available elsewhere. end of the day, you need to motivate employees with Germany’s social-market-economy system is performing something else. You need to talk to them, listen to their well and is taking care of this issue, but it is diff erent in ideas and concerns, and off er guidance and advice. For other countries. example, this is what I do on a regular basis with the top 50 managers. You also need to develop a vision of your Do business leaders need to play a more active role people and their careers. You need to talk, eye to eye, than they have been playing? very openly and honestly. You need to tell them the truth. I think industry needs to raise its voice more. There is the temptation to lean toward protectionism and bureaucra- Do you think there’s a need for a new vision, a reset- cy, especially in Europe. We need to have the freedom to ting of the business, given the new reality? operate, and we need to explain why this is important to the public. Industry leaders have to be more outspoken. Partly yes, partly no. We have businesses that we do need We need to jointly speak out and recognize that we have to reset and other businesses in which our existing strat- a responsibility beyond the company—a social responsi- egy is working. bility. I think we need to improve in this area.
Many people believe that global growth rates are Are good leadership practices universal, or has there slowing. Will this trend change how you manage the been a fundamental change because of the crisis? company? I don’t think there has been any change. You need to say I think we should be confi dent that the world will con- what you think, and do what you say—and keep both tinue to grow and that people will strive to have a better feet on the ground. life. There will be shi s. Growth will mostly come from Asia. Highly developed economies will probably grow more slowly. We need to address these issues in our strat- egy. But we are a global, transnational company. We are everywhere, so our strategies are not for Germany, they are not for the United States—they are for the world.
T B C G INTERVIEWS: ALAN JOYCE
Two Companies, One Leadership Style Alan Joyce Chief executive offi cer, Qantas Airways
lan Joyce took over as chief executive at of The Boston Consulting Group and global leader of its Qantas Airways in November 2008. The Organization practice, Joyce discusses leadership chal- then-42-year-old leader had just completed lenges. Excerpts from their conversation follow. a successful fi ve-year run as founding chief executive of Jetstar, Qantas’s low-cost car- In your 20 or so years as a business leader, what are Arier. He was being called upon to spin his magic at the some of the leadership qualities that have helped parent company, no easy trick during the darkest days of guide you? the Great Recession. Air travel was in decline, and Qan- tas—the second oldest airline in the world—was not The aviation industry is subject to, as one of my predeces- nearly as nimble and entrepreneurial as Jetstar. sors said, constant shock syndrome. Something is always changing. One of my philosophies—and one of Qan- Despite this challenging start, Qantas reported pre-tax tas’s—has been to maintain fl exibility and the ability to profi t of U.S.$146 million for the fi scal year ending June 2009 and U.S.$81 million for the fi rst half of fi scal year 1 1. We converted Qantas’s reported results of A$181 million and 2010. (By comparison, the global airline industry was A$90 million using currency conversion rates at the end of the re- projected to lose several billion dollars in 2009.) spective reporting periods.
As chief executive of both a start-up ALAN JOYCE and an incumbent, Joyce has relied on Born in Tallaght, Ireland classic leadership qualities—decisive- Year Born: 1966 ness, communication, accountability, Education and teamwork—to drive results. Deci- 1986, Bachelor’s degree in physics and mathematics, Trinity College in Dublin sions may take longer at Qantas than at Jetstar, but Joyce says he’s used the 1987, Master’s degree in management science, Trinity College in Dublin same leadership style at both fi rms. Career Highlights 1988–1996, positions in sales, marketing, IT, network planning, operations Over the next several years, Joyce has research, revenue management, and fl eet planning, Aer Lingus ambitious goals to boost the level of 1996–2000, responsible for network planning, schedule planning, and network employee engagement and innovation strategy functions, Ansett Australia at Qantas. He does not want simply to 2000–2003, responsible for network planning, schedule planning, and network import what worked at Jetstar but to strategy functions, Qantas call upon the traditional strengths and 2003–2008, CEO, Jetstar proud heritage of Qantas. 2008–present, CEO, Qantas Outside Activities In his conversation with Andrew Dyer, a Fellow, Royal Aeronautical Society senior partner and managing director
T F L INTERVIEWS: ALAN JOYCE
adapt. Those two characteristics have helped both Qan- reached decisions pretty fast—everybody got behind it, tas and my own personal development. even the dissenters. We did not have anybody behind the scenes trying to undermine it. I am also a big believer in people and in the need to com- municate. You cannot overcommunicate. An important The board was unbelievably supportive. When manage- part of my job is bringing together great people and giv- ment presented a proposal, the board did what a board ing them the ability to do their jobs. should do: They pressure-tested it and gave their view of what they were hearing from other busi- How have you managed to think about A lot of organizations nesses, but they did not try to interfere in the balance between the longer-term day-to-day management. Through this may go into their shells perspective and the here-and-now ur- process we reached even better conclu- gency of defl ating demand and rising during crisis, but we sions. fuel prices? made big, long-term The global economy seems to be in an When you go through a crisis, it is your strategic investments... upturn, but there is still a lot of uncer- immediate concern. We are very good at tainty. Developed markets are growing handling crises. Qantas is probably one of the best air- more slowly than developing markets. How will this lines in the world at dealing with adversity because we aff ect the way you lead Qantas? have been in business 90 years, longer than any other airline. We are trying to maintain that fl exibility I talked about earlier. The Australian economy is performing well, and In crises, you need to make quick and rapid decisions our brands are making money in the Australian domestic without perfect information. You need to make decisions market. But internationally, there’s still a lot of uncer- and then correct them, if necessary. There needs to be tainty. Our international operations are losing money, so clear direction on what the organization needs to do. we are not assuming that the worst is over. We think that the global economy will get stronger, and we have the At the same time, as President Barack Obama’s chief of fl exibility to grow if that occurs. But if things do get worse, staff said, “You never want a serious crisis to go to waste.” we are also capable of being able to manage it. It gives you an opportunity to make signifi cant changes in the business. The crisis was a great opportunity for us We believe that, compared with our competitors, we have to accelerate our people agenda, our change agenda, and a robust business model and a lot of strengths. We have several important strategic issues. a clear vision of where we want to go. That vision is to be the world’s best premium and low-fare airline. We feel A lot of organizations may go into their shells during cri- that we are unique in that we can have both, and we have sis, but we made big, long-term strategic investments created a strategy for how we are going to get there while while managing the cash and profi t-and-loss position of also dealing with the crisis. the airline. You run a global organization with more than 35,000 How did you get alignment with your board and your employees. How do you bring them along with your management team to make those bigger, bolder, lon- bold plans when the business environment has been ger-term decisions? so hard?
During this period, I had the opportunity to enhance the For us to achieve our vision of running the world’s best management team. A few people had retired, so we hired premium airline and best low-fare airline, we need a some people and also leveraged the existing team. That great people strategy and engaged people. We are a large helped in building a collaborative approach. Our execu- organization, with more than 35,000 employees spread tive committee was the decision making body, and we out geographically. We have been fl ying for 90 years. Big had long and fruitful debates about the right direction for organizations like our own sometimes lose engagement, the company. Once we had reached a decision—and we and we did. We had gone through industrial relations dis-
T B C G putes with engineers and had problems with some of the It is like moving from driving a speedboat to being cap- other employee groups. Over the last 18 months, we have tain of the Queen Mary. They are very diff erent in several begun to focus on engagement and have begun to turn it ways but also similar. They are both airlines. They both around. have industrial relations, people communications, and people management issues that are similar. But Qantas is We conducted a big benchmarking study to understand a lot bigger and more complex. Given its legacy, you have how engaged our people were across diff erent job catego- to recognize that things move a little bit slower, in some ries and age groups. In overall engage- cases a lot slower. That can be frustrating ment, we were ranked in the lowest [Moving to Qantas] at times. quartile among thousands of companies. is like moving from We said, “We can do better than that.” The exciting thing is that the Qantas brand driving a speedboat to is very well known. Qantas is one of the In terms of pride and passion, we were ac- being captain of the top ten airlines in the world. There is no tually in the top quartile. We had people other airline that I would want to run, par- who felt extremely passionate and had Queen Mary. ticularly through the environment that we great pride in the company. We felt that have gone through. Why? We have the we could tap into that pride and turn overall engagement fl exibility and ability to adapt. We have unbelievably around. great people, and we have two brands, which gives us more strategic options than any other airline in that top- We have given ourselves the target that, over the next ten category. four years, we will go from the bottom quartile to the top quartile in overall engagement. We are developing a wide Have you had to change your leadership style or your range of strategies, focusing particularly on communica- decision-making style, or has Qantas caught up with tions. If we can do this, we believe absolutely that it will the nimbleness that was the hallmark of your success massively help us and will be a core part of our achieving at Jetstar? our vision. The styles are the same. Your leadership style is your You’ve talked about the importance of bringing your leadership style. You need a fantastic team. You need to people along and the need to raise engagement lev- have a clear vision. And you need collaboration and els. Are there values and behavioral issues that are teamwork. And you need to reward people for being de- also absolutely critical to the next leg of success of cisive. In a start-up organization, it’s very easy to assign Qantas? accountability and responsibility. In an organization that has existed for 90 years, there are people who have made We have been working on what we believe are the right an art form of avoiding accountability and responsibility. sets of behaviors and leadership styles that the business It’s very important that you hold people responsible for should demonstrate. We have identifi ed the characteris- what they’re doing and you give them the ability to make tics of Darth Vader, the manager who you do not want, the decisions. and of the ideal manager. Historically, we have been an outcome-driven business. We still demand excellence but I am very big believer in innovation and creativity in we also want people to have some level of enjoyment in business. Jetstar has a great philosophy of innovation, what they do. This is a critical leadership issue that we and it’s there in spades in certain areas at Qantas. People spend a lot of time on. forget our history. Qantas was the fi rst airline to create business class. Qantas has been at the forefront of You came from a start-up, Jetstar, where the team was the design of aircra . The innovation’s there in the or- young and dynamic and had an attacker mentality. At ganization. We need to tap into it and take it to the next Qantas, you inherited a very proud organization with level. a rich history. Can you talk about your transition and how the expectations and leadership styles may be There’s a trend toward a greater role for government diff erent at the two companies? in regulating business activities. How do you balance
T F L INTERVIEWS: ALAN JOYCE
your time between managing these internal issues You have many things to do as the CEO. Stakeholder and the external environment? management—dealing with customers, government reg- ulators, employees, unions, and the general media—is a The aviation industry is probably still one of the world’s big part of the job. But so is making sure that the team most regulated industries. Many nations are still protect- has the right environment in which to thrive to take the ing and regulating their own national airlines. Qantas organization in the right direction. That’s the part that I does not have governmental support, so it is important like the most; actually, that’s the part I think is the most that we have a level playing fi eld. We have been continu- exciting, because it is the core of running an airline. ously talking to governments in diff erent jurisdictions about our belief in open skies.
T B C G INTERVIEWS: UDAY KOTAK
Seizing Opportunity Uday Kotak Executive vice-chairman, managing director, and principal founder, Kotak Mahindra Group
day Kotak entered the fi nance business in the fi rm faces its own challenges. India is a competitive the early 1980s, shortly a er his gradua- hothouse. Young employees are restless. And the bank tion from business school, by spotting an itself is a young institution that has yet to pass leadership arbitrage opportunity. Kotak noticed that reins to a new generation. banks were paying depositors interest Urates of 6 percent but making short-term loans at 17 per- In his conversation with Janmejaya Sinha, a senior part- cent. He built a fl ourishing trade-fi nance business by bor- ner and managing director of The Boston Consulting rowing money from family and friends at 12 percent and Group, Kotak outlines his views on leading a dynamic providing short-term trade credit to suppliers of a subsid- organization. Excerpts from their conversation follow. iary of Tata, one of India’s strongest companies, at the bank rate. How have your thoughts on leadership changed over the past 20 to 30 years, and what have you learned? From that humble start in trade fi nance, Kotak built one of India’s largest fi nancial institutions by being quick, First, you need to be brutally honest with yourself. The nimble, and willing to take risks. The Kotak Mahindra members of the leadership team need to be brutally Group, as the fi rm is now known, entered the auto leasing honest with one another. We also try not to be too self- business when it was a novelty in India. In the 1990s, it congratulatory. As a fi rm, we have gone through many formed a joint venture with Ford and with Goldman trials by fi re, and we have come out of each of them hav- Sachs. In 2003, Kotak Mahindra Finance became the first Indian company to convert to a commercial bank. UDAY KOTAK Born in Mumbai, India Year Born: 1959 Today, Kotak Mahindra has the second Education highest price-to-book ratio among ma- 1980, Bachelor’s degree, Sydenham College jor global banks, and the bank’s market 1982, Master’s degree in management studies, Jamnalal Bajaj capitalization has grown by 30 times Institute of Management Studies since going public in 1992 to about Career Highlights $6 billion. Kotak owns 48 percent of the 1986, Kotak Mahindra Finance Limited is founded stock. Even so, he wants the bank to 1992, Kotak Mahindra goes public continue its hungry search for the next 2003, Kotak Mahindra Finance Limited is converted to a commercial bank great opportunity and retain its up- 2006, Kotak Mahindra repurchases Goldman Sachs’ stakes in two subsidiaries from-the-bootstraps culture. Outside Activities Board member, Indian Council for Research on International Economic Relations Although Kotak Mahindra did not teeter Board member, Mahindra United World College of India on the brink of extinction, as many Board member, Indian School of Business Western banks did in 2008 and 2009,
T F L INTERVIEWS: UDAY KOTAK
ing learned something. One of those lessons is, “If some- Did the team members always get along with one an- thing seems too good to be true, it is too good to other? be true.” No. The world is never perfect, but I think we have the Other than honesty, what attributes would you see in ability to be frank with one another. We have conducted a leader? several organizational and developmental workshops that helped us think through roles and responsibilities. The ability to seize opportunity is critical. The trouble with opportunity is that it The ability to seize How do you see your role changing in never announces itself when it is there. As the future? opportunity is critical. a fi rm, we have done fairly well at recog- nizing opportunities in bill discounting, ...But there’s a thin line One of the big leadership issues is how car fi nance, the Goldman and Ford joint between conviction you balance the big picture with detail, es- ventures, asset management, life insur- pecially as the fi rm grows. A leader who ance, and banking. But there’s a thin line and foolhardiness. only sees the big picture and forgets the between conviction and foolhardiness. I small trading unit taking disproportion- think our culture of brutal honesty has helped us avoid ately large risks will encounter trouble, as we saw in 2007 entering businesses that may have looked appealing but and 2008. At the same time, if a leader is too hands-on, would not have been a good fi t. he or she will not be able to manage the institution ef- fectively. The balance also needs to change from time to The world is a diff erent place because of the fi nancial time. During a crisis, you need to pay attention to the crisis. How has the crisis aff ected Kotak Mahindra? details. The ability to get that balance right is a very im- Will you lead diff erently in the future? portant aspect of leadership.
The bank of the future must have three qualities. The In 1996 and 1997, for example, business was strong, and fi rst is prudence. Banks should not take on excessive it required me to be out front and public. I realized then leverage. The second is simplicity. The bank of the that the fi rm needed to be institutionalized. An individu- future will have simpler products that rely less on de- al can have a reasonable dominance for a while, but over rivatives. The third is humility, or a lack of arrogance. time that dominance will limit a fi rm’s progress. One of Financial services should be a business that serves the the biggest challenges for managers is letting go. real world. Do you see the role of government changing in your If you had one thing to do diff erently in terms of lead- business? ership, what would it have been? No. We have a strong banking regulator in India, and we I wish I had a much better grasp on the speed of the have a constructive relationship with the regulators. My evolution of technology; it always amazes me how my salary, for example, is set by the regulator. As a fi rm, we kids are much smarter than I am in this area. Technology have respect for regulation and regulators. One key to our will likely play a key role in bringing banking services to success has been that we watch the regulatory environ- the unbanked in India. ment very closely. If we had a hostile relationship with regulators, it would have been much more diffi cult to Why has your team stayed together for so long? achieve what we have achieved.
We have spent a lot of time working together. Through- Do you think it will be easier or harder in the future out the 1990s, during every crisis we would huddle to- to attract talent, especially young people? gether like a cricket team. Growth also has helped to keep the team together. As we grew, the team took on more The leaders of our fi rm all possess middle-class values. responsibilities, so there was a signifi cant growth path for We grew up together and share many of the same beliefs, everybody. especially hard work, loyalty, and shared sacrifi ce. To-
T B C G day’s younger people are very diff erent. They want suc- One of the big lessons I have learned from Goldman ex- cess to happen quickly and are much less loyal to institu- ecutives is how brilliantly they manage their “one-fi rm tions. One of our challenges is overcoming the gap culture.” We are deeply committed to building one fi rm. between the culture in society and the culture we want It is getting tougher. Somebody told me the other day, to build in the fi rm. On the positive side, the new genera- “Uday, we have 18,000 people, and you probably know tion is signifi cantly more tech savvy and much more 500.” Connecting, communicating, and having processes ready to change than previous generations have been. that encourage people to think of the medium-term rath- er than then the short-term horizon are all What are the leadership challenges If what you create critical. These challenges are becoming in- as Asia continues to gain economic creasingly diffi cult as the gap between our cannot outlive you, power? fi rm’s culture and the culture of civil soci- then you have failed. ety grows. We have not found the perfect Let’s look at 2010 and beyond. There are Our ideal outcome is solution, but the future of this fi rm is deep- three possible global scenarios, particu- ly dependent on this issue. larly for the West. Scenario one is an even that we keep growing... deeper crisis; scenario two is sluggish Western banks may be a bit shaken growth; and scenario three is sharp recovery. I would bet now, but they will eventually try to expand in Asia- on sluggish growth for the West. Pacifi c. How will their attempts to move into this re- gion aff ect Kotak Mahindra? How would that aff ect India? Global liquidity would be adequate, and interest rates would be low. Capital would If what you create cannot outlive you, then you have chase growth and would fl ow to India, which would con- failed. Our ideal outcome is that we keep growing and tinue to have strong domestic consumption. We would, that family ownership will dilute. We need to make sure however, see an impact on trade fl ows. So, I think it is our employees own more and more of the company. reasonable to assume that in 2010 and beyond, domestic When we need capital for growth, we need to be willing GDP will grow around 8 percent annually. to dilute the family ownership. Eventually we will reach a point in time when Kotak Mahindra will be a widely Mountain climbers have a diff erent view the higher held institution, charting its own destiny and largely in- they climb. What do you see now that you did not see dependent of the original owners. ten years ago in terms of confi dence, aspirations, peo- ple, or any other issue? What advice would you give to a new leader in his or her fi rst year on the job? I think that today we have much greater confi dence in our ability to achieve sustainable growth, but we need to I have fi ve rules of leadership. One, have the courage of make sure that we do not become complacent. We need your convictions. You need to be really convinced of what to make sure that we stay nimble enough to spot and you are doing because people are o en of two or even grab opportunity. We want to have the stability of an in- three minds. Two, face reality. If there is a problem, do stitution but maintain the nimbleness of a start-up. not wish it away. You have to deal with it. Three, think long term. Four, understand the new generation and what How will you retain your culture in the face of a it wants. Five, stay the course; yes, importantly stay the changing society as you continue to grow? course.
T F L INTERVIEWS: LIU JIREN
Managing Rapid Growth Liu Jiren Chairman and chief executive offi cer, Neuso Corporation
iu Jiren and two colleagues at Northeastern expanded in the United States and European markets University in Shenyang, China, founded Neu- through mergers and acquisitions. soft Corporation in 1991. Its first software product was quickly pirated, so the company The company also formed a joint venture with Philips in switched gears and started selling so ware 2004 to develop and manufacture medical imaging sys- Land services. In less than 20 years, the company has tems. The company went public on the Shanghai stock grown to more than 16,000 employees and become Chi- exchange in 1996, creating a wave of millionaires among na’s largest provider of IT solutions and services, with its employees. $600 million in revenue. While most of the rest of the world suff ered through a recession in 2009, profi ts at Neu- In his conversation with David Michael, a senior partner so grew by 30 percent. In order to gain the skills it needs and managing director of The Boston Consulting Group, to fuel this growth, Neuso has created a powerful talent Liu discusses leadership. Excerpts from their conversa- network with several IT education and training insti- tion follow. tutes. What are the leadership secrets, or the most impor- While Liu may not face the same business environment tant factors, behind the success of Neuso ? his Western peers do, Neuso ’s chair- man and chief executive still must ad- dress universal leadership challenges: LIU JIREN Born in Dandong, Liaoning Province, China How do you motivate and retain your Year Born: 1955 staff , and maintain your corporate cul- Education ture as you expand globally? How do 1980, Bachelor’s degree in computer applications, Northeast- you set strategy and develop business ern University models in the face of uncertainty? 1982, Master’s degree in computer applications, Northeastern University In 2009, Liu was named one of the top 1987, Ph.D. in computer applications, Northeastern University ten Economic Persons of the Year in Career Highlights China by China Central Television, the 1987, professor of computer applications, Northeastern University national TV station of the People’s Re- 1988, cofounder, Computer So ware & Network Engineering Research Lab at Northeastern University public of China. He oversees a company that now serves customers in a wide 1991, founder, Neuso Corporation range of industries, from mobile tele- Outside Activities Vice-chairman, China So ware Industry Association communications and utilities to health Inductee, Outsourcing Hall of Fame, International Association of Outsourcing care. About 30 percent of Neuso ’s rev- Professionals (inducted in 2009) enues are generated overseas, a large CNBC Asia Innovator of the Year, 2008 proportion from Japan. In 2009 Neuso
T B C G I have not taken MBA courses. My educational back- cannot formulate one strategy to serve for 10 or 20 years, ground is not business, but computer science and engi- especially when the company is a start-up. At fi rst, our neering. So my leadership is mainly based on practice. At goal was just to survive. We started with three people. Neuso , we compete against companies that have a lot You must have one single dream, and our dream was, of capital and talent, so we need to understand our “We want to be the best so ware company in China, and unique position to diff erentiate ourselves, and we need then we want to be the leading so ware company in the to know how to execute. Because we are a relatively world.” But we needed to move one step at a time. young company, we need to prove our- selves. I am happy to say that 2009 was You cannot formulate Initially, we used half of our cash just to our best year ever, with profi ts rising by 30 develop a small piece of so ware. But by one strategy to serve percent. We will also try to grow aggres- the second year, everybody was pirating sively in 2010. for 10 or 20 years, our so ware. So at that time we decided especially when the that, in China, being a consumer so ware How do you separate the good opportu- company probably was not the right mod- nities from the bad ones and balance company is a start-up. el for us. your broad portfolio of businesses? Our conclusion was that Neuso should sell so ware and You need to be very careful and recognize when you are services to large companies. We started to develop so - too early or too late for opportunities. There will always ware in document management, multimedia manage- be diff erences of opinions about opportunities, but as a ment, and CAAD [computer-aided architectural design] leader you need to make a choice. Generally, we try to for big companies and state-owned companies, which enter a business before everybody else thinks it is a good need our continuous services. We also developed so - idea. The best opportunities generally come from new ware for facilities management, power management, and and emerging sectors. But no matter how wide we broad- telecom operations. We also embedded our so ware in en our business portfolio, we will focus on our core com- hardware or systems. petency in so ware. So ware is our core, just as coff ee is the core of Starbucks, How do you think about the risks of entering new and it is a very stable model. We now have around 6,000 businesses? engineers, for example, developing embedded so ware for mobile phones, automobiles, and health care and Opportunities are always accompanied by risks. When other industries. entering new businesses, we need to predict the risks and prepare to overcome them. We try to learn from history. So, to answer your question, we tried to be fl exible and A er World War II, for example, Japan focused on manu- develop strategies based on our resources. We did not facturing low-priced goods. Later, Japanese companies copy other organizations’ models. The leader needs to began to focus on quality and innovation. In China, we learn from other people and companies and try to make need to learn from this example and focus not just on the right decisions. costs but also effi ciency, quality, and innovation. Also, as a company, we need to learn from the past success and You must know yourself. Sometimes you have one small failures of our competitors, and try to draw valuable les- success and another small success and you start to think, sons from their experiences. “I am great.” But sometimes you are just lucky or you get a great opportunity. Neuso has grown rapidly and evolved its strategy over time. How have you adapted your leadership Today, what is the strategy for many typical Chinese en- style, especially as Neuso has become larger and terprises? They make money fast, easily. They know how more diverse? to grow by 20 percent a year—but that growth may be driven by the government stimulus plan and overall ris- You need to be open-minded, listen to all sides, be sensi- ing demand. In fact, many of them may not know how to tive to the environment, and then make decisions. You survive if the market’s growth rate suddenly drops.
T F L INTERVIEWS: LIU JIREN
One of the strengths of Neuso is your people. How When employees get a new job, I tell them, “I trust you has the people-management challenge evolved as can do this. I know you are not good today, but I trust you Microso , Intel, and other foreign companies have will be capable if you work hard.” come to China and tried to acquire talent? How do you maintain your advantage in terms of people and We also try to share the fruits of our growth with employ- culture? ees. If our goal is to become a leading global IT solutions and services provider, our employees must earn income First, if you trust people and give them an that is similar to what they would receive opportunity to show their value, people I do not want people at a multinational company. It is okay if will be passionate about their work. Mon- we pay 20 percent under the market be- who just agree with the ey is important to employees, but it is not cause we have a good working environ- as important as some people think. CEO all the time. They ment, values, and culture. But we cannot must be free to make pay 50 percent under the market. Second, I do not want people who just agree with the CEO all the time. They must their own decisions. One of the things we need to start prepar- be free to make their own decisions. We ing for is hiring non-Chinese employees. try to build a good career platform for our employees and Eventually, 15 to 20 percent of our employees may be give everybody enough room to realize their potential. from outside China and we need to have a culture that also appeals to these workers. In the traditional Chinese company, everybody waits for the CEO to make a decision. How do you create What is your overall outlook for the Chinese econo- the culture in China where low-level people can make my, and what are the biggest challenges for the Chi- decisions and the CEO can learn from them? nese economy and for Chinese companies?
I am professor. I am not a manager, I did not know man- I think China has 10 to 20 years of healthy growth ahead agement at fi rst, but I knew one thing: If people are al- of it. Domestic demand is huge, and there is a lot of vigor lowed to make their own decisions, if they have an obliga- and potential in the country. The rapidly rising middle tion and accountability, then they will become smarter. class in the country will create a huge consumer market We expect our managers to be responsible for profi t, rev- in the near future. People work like crazy in China. If you enue, and market share. They have a responsibility to ask young people, “Do you want to work eight days a hire people, lay off people, and to make decisions. This week?” many would say, “Yes.” open culture motivates our managers and unleashes their creativity, which will lead to better performance. Developed countries will also continue to send work to China because of our country’s talent and lower costs. I understand that your senior management team is China and India are the only countries with large and very loyal? young populations.
We have a very low attrition rate, so I think they are hap- We can handle large volumes of low-cost manufacturing, py with their jobs. They get a sense of accomplishment but we are also quickly climbing the global value chain. from their work. I am proud of them, and they are proud Innovation is moving from developed countries toward of themselves. emerging countries. China will become a major innova- tion center in the world. You have a very young workforce. The average age for your employees is 28 years old. How does your cul- The biggest challenge for the Chinese economy will be ture enable people, especially young employees, to how to transform from an export-driven to a consump- demonstrate their value? tion-driven economy. We need to optimize our economic structure, invest more in infrastructure and green tech- If people are smart, they will get promoted and face new nologies, and build effi cient social-safety nets. This will challenges at Neuso . This is exciting for employees. ensure sustainable growth and long-term prosperity.
T B C G For Chinese companies, I think the biggest challenge is The world needs a new and more eff ective global gover- how to strengthen their unique competitiveness through nance system to accelerate the optimization of resources innovation. Innovation is not only about technology, but and collaborative innovation. Without a shared vision, also about business model, cost, speed, and cooperation. objectives, and eff orts, the world economy cannot achieve In the rapidly changing business environment, compa- balanced and sustainable growth. Also, we need new nies that can perfectly balance cost, speed, and techno- drivers of growth. Innovation will be one of the most im- logical innovation will win. portant drivers for the global economy.
The global economy is still not stable. What do you One of the big themes that emerged from this fi nan- think are the biggest risks for the global economy, cial crisis is that the government is going to become and what are your biggest concerns? very involved in the economy. Does this change the way you have to do business? I think the biggest risk for the global economy is whether it can be successfully transformed to a balanced and sus- In China, that is not a big problem, because many sectors, tainable growth model. I worry that people in developed such as railroads, fi nance, and telecom, have never been countries have not changed their behavior and will con- private. We know how to manage in this environment tinue to consume too much, while people in developing very well. countries will save too much because they do not yet trust social safety nets.
T F L INTERVIEWS: INDRA K. NOOYI
Performance with Purpose Indra K. Nooyi Chairman and chief executive offi cer, PepsiCo
bout three years ago, shortly a er Indra K. of The Boston Consulting Group, Nooyi elaborates on her Nooyi became chief executive offi cer, Pep- views about the changing nature of leadership. Excerpts siCo embarked on a corporate mission— follow. “performance with purpose”—meant to marry fi nancial success and social respon- Could you briefl y describe your personal background Asibility. The Great Recession has only strengthened and your professional background? Nooyi’s belief that performance and purpose mutually reinforce each other. PepsiCo’s emphasis on environmen- I’ve been at PepsiCo for 15 years and became chairman tal sustainability, for example, is more relevant than ever and CEO about three years ago. Before my time at Pep- today, because going green can actually save money and, along with other acts of citizenship, attract and retain the tal- INDRA K. NOOYI Born in Chennai, India ent needed to succeed in difficult Year Born: 1955 times. Education 1974, Bachelor’s degree, Madras Christian College If Nooyi says that she has not changed 1976, Master’s degree in business administration, Indian her leadership style during the recent Institute of Management Calcutta economic turmoil, it is mostly because 1980, Master’s degree in public and private management, Yale she has believed for several years that University tomorrow’s leaders must have funda- Career Highlights mentally diff erent skills from those re- 1980–1986, consultant, The Boston Consulting Group quired of executives in the past. These 1986–1990, business development executive and vice president and director of include the ability to work closely with corporate strategy and planning, Motorola public offi cials and to exhibit emotional 1990–1994, senior vice president of strategy and strategic marketing, Asea Brown Boveri intelligence toward employees. She also stresses the need for leaders to have di- 1994–1996, senior vice president of strategic planning, PepsiCo rect personal understanding of the mar- (Following positions held at PepsiCo) kets and cultures in China, India, and 1996–2000, senior vice president of corporate strategy and development other growth spots. Nooyi herself spent 2000–2001, senior vice president and CFO two weeks in China last summer, mak- 2001–2006, president, CFO, and director ing sure to get out of conference rooms 2006–2007, president and CEO and into the countryside and people’s 2007–present, chairman and CEO homes. Outside Activities Director, Lincoln Center for the Performing Arts In a conversation with Grant Freeland, Chairman, U.S.–India Business Council senior partner and managing director
T B C G siCo, I was at Asea Brown Boveri and Motorola, and be- During this downturn, people realized that it’s even more fore that, I cut my teeth at BCG. I am married, have two important to focus on portfolio transformations and to be kids, and am trying to juggle being a CEO, a mom, a wife, green, because being green actually saves you costs. And a daughter, and a daughter-in-law. in today’s environment, people still want to eat healthy foods. The downturn has reinforced all the elements of You talk about performance with purpose. Could you performance with purpose. describe this idea? In a recent speech, you talked about Performance with purpose is what I’d like You have to focus on fi ve ways in which the role of the CEO PepsiCo to stand for. I’d like that to be the will change. Could you elaborate on the long term. The way we do business. My honest belief is those fi ve characteristics? that corporations are little republics in notion of focusing only their own way. Look at PepsiCo. Our mar- on short-term earnings I based these observations on my wander- ket capitalization is almost $100 billion. ing around the world and leading our We’re bigger than many countries. We is a thing of the past. company. First, you have to focus on the have enormous infl uence in the world. But long term. The notion of focusing only on we cannot be guided purely by the earnings cycle, or we short-term earnings is a thing of the past. Too many com- might end up adding costs to society. We have a profound panies have not done right by their shareholders by fo- role to play in society, and we have to make sure that we cusing strictly on the short term. are constructive members of society. Second, you need to understand that public-private part- Was performance with purpose challenged during nerships are critical for companies to be successful. The this last 18 months as the economy worsened? world has become much more complex, and the only way companies can function eff ectively is if we put ourselves I have to go back and explain to you the origins of perfor- in the shoes of lawmakers and nongovernmental organi- mance with purpose to explain why it was untouched by zations (NGOs), and they put themselves in our shoes. We the events of the last 18 months. In fact, I’d say that it was can’t have an adversarial relationship. reinforced by the downturn. Purpose has three elements. The fi rst is human sustainability. How do we make sure Third, you must be able to think globally and act locally. that we provide products that range from treats to health This is an old notion, but we must take it to a whole new foods and allow customers to make balanced, sensible level. Half of humanity lives east of the Middle East. choices? The second element is environmental sustain- Western models cannot simply be applied to those mar- ability. How do we make sure that, as a company, we re- kets because they diff er culturally. The civilizations are plenish the planet and leave the world a better place vastly diff erent. They speak diff erent languages, and their than it was when we began playing around with it? The religious backgrounds are diff erent. Our businesses in third element is talent. How do we make sure that people those markets need to tailor products, business models, who work for PepsiCo are able not just to make a living and people practices to the local market. but also to have a life? Fourth, you must become much more open-minded. The most important part of performance with purpose is CEOs have to become learning CEOs. Not only do we the use of the word “with.” It’s performance with purpose, have to learn the next leadership principle or the next not performance and purpose, or performance management practice, but we also have to learn about or purpose. Unless you focus on purpose, you cannot de- technology and the younger generations. To be able to liver performance. And unless you deliver performance, manage these young kids who are coming to PepsiCo, we you can’t fund purpose. This is a very closely linked eco- have to be able to think digitally and be able to manipu- system. If we do not transform our portfolio, we cannot late all this new technology. sustain performance. If we do not become greener than we are today, young people are not going to come to work Fi h, you must develop emotional intelligence. Today’s for us. young people do not want to be wedded to a job like the
T F L INTERVIEWS: INDRA K. NOOYI
people of my generation were. If you do not treat them younger and older people there, trying to understand right, people today will say, “Goodbye, we’re going to the how they live, what they think about products, and what next job.” The only way you can hold onto these employ- we should be doing diff erently as a company. I visited a ees is by hooking them emotionally to the company, school of traditional Chinese medicine to understand through our business model and what we stand for. But how the Chinese practice prevention and cure and how you also need to be able to look at that person and say, our products might play a role. “I value you as a person. I know that you have a life be- yond PepsiCo, and I’m going to respect You talked about public-private part- you for your entire life, not just treat you You cannot just swoop nerships. Are you spending more time as Employee Number 4,567.” with the external world now than you like a seagull into and were before? Has the recession exacer- You talk about thinking globally and out of a country or a bated that trend? acting locally. How do you make that a city...make sure you reality at PepsiCo? Governments have gotten more intrusive. spend quality time. They’re challenging corporate governance Many companies take a global product issues in every which way, and the trust in and send it to Asia painted in a local color or given a local companies is at an all-time low. I am spending a lot of fl avor. But the way people live east of the Middle East is time with lawmakers, presidents, prime ministers, com- vastly diff erent from how they live in the rest of the world. merce ministers, health ministers, and NGOs. That’s the As a Western company, we at PepsiCo have to make dou- new reality. bly sure that we don’t just export a model and say, “Give it some local colors or local fl avors.” We actually have to Let’s just focus a little bit more on the last 18 months. tell our people, “Develop a model in your country that’s What were some of the actions that Pepsi took to right for your country.” manage a drop in demand?
Let’s take PepsiCo’s beverages. In the developed markets, Early on, we realized that we were going to have a slow- we work with large stores. We can develop hundreds of down. We launched a restructuring program in October new products, and stores have enough space for them. 2008, and we made some fairly deep cuts to create some Now let’s consider India, which has tiny stores. How can breathing room, because we wanted to keep reinvesting we introduce lots of new products there? We can’t do it. in the business through the downturn. We did not want So the question is, How do you still give the consumer in to cut back on all of our long-term investments. We actu- India a choice? ally thought this might be the right time to make some long-term bets. We need to think about the needs of a country and the way people live and behave in that country. How can you Did you cut research and development? stay true to the business you’re in while delivering choice in a completely diff erent way—one that’s sensitive to the We increased R&D through the downturn. The economy unique needs of a country? enabled us to hire great people and make investments with external companies at a much lower cost since there You talked about needing to be open to cultures and were fewer companies competing for those resources. customs. How do you fi nd the time when you’re run- ning a company the size of PepsiCo? In periods of crisis, leaders can be tempted to take greater control and drive change from the top. Is that First, you surround yourself with great people, who run what happened in this situation? the businesses. Then, you start traveling. You cannot just swoop like a seagull into and out of a country or a city. In We set the agenda very, very carefully. First, we were the key markets and cities, you need to make sure you very visible, doing as much walking around as possible. spend quality time. This summer, I spent two weeks in The way that the CEO projects himself or herself on the China. I went to consumers’ homes and visited with both organization sets the mood for the company. So by being
T B C G visible and not hiding myself in my offi ce, I was tell- Among the senior leadership, it is. But I think it will take ing people, “Hey, things are okay. We’ll come out of time for the rank and fi le to understand that internation- this okay.” al growth is a critical part of our future.
Second, we kept on trying to practice what I call realistic You wrote the parents of your 29 senior executives. optimism. Be realistic, but don’t project doom and gloom. Why did you do that and what did you learn? I kept saying to our employees, “The economy’s bad, un- employment is going up, but we’ll do okay. When I was visiting India two years ago, And the reason we’ll do okay is because of We kept on trying to I went to visit my mum, and she wanted A, B, C, and D. And the good news is that me to dress up and sit with her as she en- practice what I call we’re a consumer staple company, so we tertained all her friends, neighbors, and won’t be aff ected as much.” realistic optimism. Be second through fi h cousins, who were realistic but don’t project coming to visit. When all her guests came Third, we undertook brutal prioritization. in, they ignored me. They didn’t even say At the beginning of the year, we started doom and gloom. hello. They went to my mum and said to with fi ve priorities and we kept hammer- her, “You brought up such a good kid.” ing on those priorities every quarter, in every town-hall They complimented my mother and didn’t really focus meeting, in every interaction we had with the employees, on me. and in every piece of communication. That’s when I realized that I had not told the parents of Fourth, once we gave the line managers their agendas, we the executives who do such an extraordinary job for Pep- let them loose and said, “Go make it happen.” And the siCo that they themselves did a great job bringing up only time I got intrusive is when a business needed to be their children. When I came back from India, I wrote to turned around. In a downturn, it’s even harder than usu- those parents and told them how much they contributed al to turn around a business because the rules are chang- to the success of PepsiCo through the gi of their son or ing, the marketplace is changing, and the consumer value daughter. And it unleashed emotions that were unbeliev- proposition is changing. So I picked my battles. able, creating an emotional bond among the executives, their parents, and me. We are likely entering a period of low growth. His- torically, growth has been a very good motivator for As you refl ect on the last couple of years, what have people. How do you keep employees motivated in a you learned that surprised you? slower-growth environment? Being a CEO is not that much fun a er all. [Laughter.] If you look around the world, there’s still growth, but we This is more than a job—it’s a calling. It’s 24/7. And it’s have to view our portfolio diff erently. Although devel- no longer about dealing with the traditional cast of char- oped markets may not grow as fast as they have in the acters—your employees, customers, suppliers, investors. past, developing and emerging markets will grow faster. You are dealing with governments, with NGOs, and with We have to make sure people understand that growth any interested party that decides to take on the com- patterns will shi . We also must give people the opportu- pany. So this is a whole new environment, and the role of nity to work in international markets if they’re so inclined the CEO has forever changed. Aspiring CEOs have to un- and have the capability. And as long as PepsiCo keeps derstand that they are signing up for a lot more than doing well, people will be okay. CEOs did in the 1970s, 1980s, 1990s, and even four or fi ve years ago. Within PepsiCo, do you think that the importance of the global market is recognized?
T F L INTERVIEWS: DEEPAK S. PAREKH
Home Builder Deepak S. Parekh Chairman, Housing Development Finance Corporation
eepak S. Parekh may be India’s number- suite is about as low as HDFC’s default rate. Senior execu- one business executive–statesman. At the tives do not leave. Still, Parekh acknowledges that his suc- start of 2010, Parekh retired as chief execu- cessor, Keki M. Mistry, may need to alter some of the tive of Housing Development Finance Cor- HDFC’s practices as an accommodation to the restlessness poration (HDFC), a $22 billion mortgage of younger employees and the relentlessness of growth. Dlender, but his wings are still spread wide. He has served as the Indian government’s unoffi cial crisis counselor for Parekh discusses leadership in his conversation with The decades, appearing on the scene most recently when an Boston Consulting Group’s Janmejaya Sinha, a senior accounting scandal erupted in 2009 at Satyam Computer partner and managing director, and Vikram Bhalla, a Sciences. Parekh continues to serve on so many govern- partner and managing director. Excerpts from their con- ment committees and corporate boards that his resume versation follow. has begun to look as thick as the Mum- bai telephone directory. DEEPAK S. PAREKH His accomplishments in public service, Born in Mumbai, India Year Born: 1944 however, should not overshadow his Education leadership of HDFC. The institution has 1965, Bachelor’s degree, Sydenham College enabled 3.3 million middle-class Indi- 1969, Fellow, Institute of Chartered Accountants in England ans to buy homes—while never experi- and Wales encing a cumulative default rate of Career Highlights more than 0.04 percent. Although its 1970–71, management consultancy division, Ernst & Ernst stock price suff ered during the Great 1972–1975, fi nance offi cer in merchant banking, Grindlays Bank Recession, HDFC’s balance sheet re- 1975–1978, assistant representative–South Asia, Chase Manhattan Bank mained strong because Parekh and his 1978–1983, deputy general manager, HDFC lieutenants never engaged in the go-go (Following positions held at HDFC) practices of so many mortgage lenders. 1983–1985, executive director Parekh worked at several Western fi rms 1985–1993, managing director before joining HDFC in 1978. One year 1993–2009, chairman and CEO earlier, his equally legendary uncle, Has- 2010–present, chairman mukhbhai Parekh, founded the fi rm as Outside Activities India’s fi rst mortgage lender. Deepak Perennial designee, India Today’s “50 Powerful People,” an annual list Parekh became chairman in 1993 and Youngest recipient, Lifetime Achievement Award, The Economic Times Awards for oversaw the fi rm’s cautious diversifi ca- Corporate Excellence tion moves into other fi nancial services. Awarded Padma Bhushan, India’s third-highest civilian honor, in 2006 Remarkably, turnover in the executive
T B C G You have managed to keep your team and culture in oped our reputation by providing service, even when we place at HDFC during the recent economic crisis. Do were the only player in town. We did not have to give you feel that there’s been any fundamental change in good service—people would have still come to us—but the basic tenets of leadership? we did.
I think the basics have been reinforced. The crisis woke Why did you think about service in those years? everyone up. We always have had a policy not to go for market share. If you go for market share, We had seen it work abroad, and it was you get in trouble. We always were cautious You cannot sit in an inculcated in some of the senior peo- and conservative. When we started, we had ple who worked here in the early days. ivory tower. You have to a 100 percent share of the market. So we That was very important in shaping our have seen our market share drop from 100 be accessible. Walk the culture. percent to 33 percent of new business. office. Make people You recently retired as chief execu- Even though our market share has come feel at home. tive. How important is succession down over the years, it has not bothered us. planning for a leader? We pay attention to return on equity. We are representa- tives of our shareholders. There are not many companies You must have a good succession plan. I know many lead- in India that are owned entirely by public shareholders. ers who are one-man bands, and they make all the deci- Most large companies have a foreign partner, are part of sions themselves. Although I retired on January 1, for the a multinational, or are owned by a large private in- last two or three years, I have not been looking at day-to- vestor. day, nitty-gritty details. We have competent people who have been doing that. We are a diff erent business. It’s a lending business—with only limited or no security. When we started, there were Did you give your successor, Keki M. Mistry, any spe- no foreclosure laws. Now there is a law, but it is not very cial advice when he became chief executive? eff ective. I told him that cautiousness and conservatism pay off in We had to be innovative about making collections and the long run. We have all grown up with that philosophy. managing risk. We went to companies and asked them to Most of the senior leaders at HDFC have been here 25 deduct monthly payments from paychecks. In the fi rst ten years, so we all have the same beliefs. years, about 50 percent of monthly payments were com- ing through salary deductions. We also accepted postdat- Why did your team stay with you? ed checks. We accepted personal guarantees from people who knew the borrower. We had to do things that brought I think most people stay because of the way we treat down the risk of lending. Imagination was more impor- them. It’s not that we are paying the highest salaries. For- tant for us than strategy. tunately, our employees have generated capital gains be- cause we gave them stock options. What would you say are the key attributes of a leader? People have stayed, I guess, because the environment is very important to them. There’s no cutthroat competition There are many qualities of a leader. One is vision, and, or backstabbing. It is not easy to create a culture like that. in a lending organization, another is conservatism. You Not all institutions in India have such a culture. cannot sit in an ivory tower. You have to be accessible. Walk the offi ce. Make people feel at home. Perhaps you You have a very public profi le in India, serving on need a little bit of competence, too! several government commissions. When did you rec- ognize the need to be a public citizen? Do you think Another thing is service. We recognize that we are in a it’s important for a leader to understand the external service industry and need to give good service. We devel- environment?
T F L INTERVIEWS: DEEPAK S. PAREKH
I think a leader’s expertise and reputation grow if he is I don’t see them as very diff erent except for their expecta- involved in public activities. Unfortunately, many people tions. They are impatient, and they do not want to wait are fully tied up in their own businesses, in their own to be promoted. People have become more ambitious. cocoons. At HDFC, we needed to be involved. We were building a business in a new sector. Culture is something that cannot be bought or sold. It has to be inculcated over a period of time. We have a culture You rarely hire senior managers from the outside. that we should try and keep, but it is becoming more dif- Why is that? fi cult to do that. We always say that we The logic has been that we recruit 50 to 60 What was the biggest risk you took? hire ordinary people MBAs every year and promote from with- in. If we bring people from outside, it will and make them do Leaving Chase Manhattan Bank and join- demotivate our current staff . We want to extraordinary things. ing HDFC at half the salary was a big risk give people within the organization a when I did it. chance. That’s been our policy. You have taken some big risks in busi- You promote people more slowly than at some other nesses that you have entered, such as insurance and companies and pay them a little less. But they do not mutual funds. How have you made those decisions? leave. How do you do that? We have a good board, and we discussed our strategy We always say that we hire ordinary people and make with them and then we went into it with full steam. You them do extraordinary things. That’s been our policy. We have to put your heart and soul into it. Otherwise it don’t necessarily hire the candidate who wants to be doesn’t work. chairman in ten years. That slot is not open. Honestly, we don’t go to the A-list colleges. We would rather go to a Any fi nal thoughts on leadership? B-list MBA school and get the top students from there. The leader is a role model. If you misbehave, others will As India continues to grow and as your business con- misbehave. If you cheat, others will cheat. If you are us- tinues to grow, can you sustain your hiring prac- ing foul language, others will use foul language. So I think tices? moderation at the top is important. This even applies to your temper. You have to control your temper. You need Probably not. The world is changing rapidly. Younger to show your displeasure if someone does not do a good people have diff erent expectations. So we may need to job but not use bad words. make changes—increase starting salaries, hire laterally, or use some combination of these strategies. How do you defi ne success?
We traditionally have been a one-product company, but Success is what you leave, not what you have achieved. now we are involved in banking, mutual funds, and insur- You have to leave the organization better and stronger ance. I think the present management will have to re- than when you began. evaluate our policies. They are probably more broad- minded than I was in terms of recruiting.
How do you see the younger generation as diff erent from the earlier?
T B C G INTERVIEWS: ALESSANDRO PROFUMO
Addressing a Legacy of Growth Alessandro Profumo Chief executive offi cer, UniCredit Group
lessandro Profumo has served as CEO of The crisis has forced us to understand who we are. We UniCredit Group for 13 years, an eternity grew quite rapidly through mergers and acquisitions, and compared with the tenure of most of his the recent events have off ered us a new understanding of peers. During that time, he has transformed our strengths and our weaknesses. a regional Italian bank into a continental Apowerhouse with nearly $1 trillion in assets, through a For example, we realized that the quality of some of our series of acquisitions and a relentless focus on sharehold- processes and systems was not necessarily aligned with er value. The bank has grown from about 700 branches our scope and aspirations. in 1995 to 10,000 branches in 22 countries today. The crisis has also forced us to have a clearer defi nition UniCredit has been able to weather the recent global of our core businesses and capital management process- economic crisis without resorting to government aid and, es. We have had to pay more attention to the balance remarkably, the bank has reported profi ts each quarter sheet, rather than the profi t-and-loss statement, and bet- throughout it. But fi nancial success is only one of Pro- ter understand the link between capital and risk. We have fumo’s measures of success. He would also like to create now begun to amend our processes. a stronger, more capable organization.
At the beginning of the crisis, Profumo consolidated decision making within ALESSANDRO PROFUMO the executive suite. One of his challeng- Born in Genoa, Italy Year Born: 1957 es now is to redelegate decision mak- Education ing. He would also like to accelerate the 1987, Bachelor’s degree, Bocconi University work of changing selected processes Career Highlights and organizational behaviors that are 1977–1987, branch clerk, manager and director, Banco Lariano relics of past mergers. 1987–1989, consultant, McKinsey & Company 1989–1991, consultant, Bain Cuneo & Associati In a conversation with Ron Nicol, a se- 1991–1994, general manager, Riunione Adriatica di Sicurtà nior partner of The Boston Consulting Group and the global leader of all its 1994–1997, deputy general manager, chief general manager, and CEO, Credito Italiano (became UniCredit in 1997) practices, Profumo discusses the chal- 1997–present, CEO, UniCredit lenges he confronted in building Uni- Credit—and those that remain. Excerpts Outside Activities President, European Banking Federation, Brussels from their conversation follow. President, International Monetary Conference, Washington, D.C. What have the last 12 months meant Awarded the Cavaliere al Merito del Lavoro, an Italian knighthood, in 2004 to you and to UniCredit Group?
T F L INTERVIEWS: ALESSANDRO PROFUMO
The fi nancial crisis has also forced us to confront the fact Only the names have changed. I think that all of us—in- that we are a large organization that was created by M&A. cluding governmental authorities and the media—missed Through acquisitions, we expanded into more than 20 what was going on. countries and acquired both expertise and diversity. But we now have diff erences in culture, vocabulary, and ways How much do you think securitization contributed to of interpreting events. It is very diffi cult to manage such the crisis? an organization with subtlety. Not so much. More than securitization, I I’ve talked with several CEOs of very In order to speed up think the risk management culture and large organizations who think that they systems contributed to the failure. In gen- are driving a speedboat instead of a the change, we tend eral, banks were comparing their perfor- tanker. While the CEO is saying, “Le to send very strong mance with other banks on such measures full rudder, right full rudder, le full as revenues to risk-weighted assets, rather messages across the rudder,” the crew is standing behind than analyzing their assets as closely as him saying, “What is this guy doing?” organization. they should have. Large organizations need to turn right and stay there. As a leader, how do you aff ect what people in the branches, in diff erent parts of the country, and in dif- I think we have a slightly diff erent problem. I may want ferent countries do? How do people in the middle of to go right, but not 90 degrees. I would like my tanker to the organization get the message? go 45 degrees, or 30 degrees. It is an issue involving cali- bration. This is a key issue—how do you move the leadership model down the pyramid? People management, process, In order to speed up the change, we tend to send very procedures, and systems are part of the answer. Value strong messages across the organization. In doing so, the systems are also very important. Value systems and peo- risk is that we go too far and miss the desired outcome. ple management are connected. The way that you evalu- Calibrating the strength of the signal you send to thou- ate people has a very strong eff ect on an organization’s sands of people is crucial. culture. Let’s say that an employee is a higher performer but a disaster at people management. If you ask this em- Also, given our internal diff erences, you have to be very ployee to leave the company, you send a very strong mes- simple in your messages in order to have people react in sage to other people. the same way. And you risk oversimplifying the message. How do you institute change within an organi- In summary, it is diffi cult managing an organization that zation? has been mainly created by M&A, rather than one that has existed for 50 years, where people are more likely to I don’t like to talk about organizational changes any have a common understanding and treat topics in the more, because then people have the opinion that you can same way. improve the eff ectiveness of an organization by changing the structure. I want to focus more on so er elements What else have you learned? such as behavior, decision making, and culture, which are equally important in shaping an organization. All of us in fi nance focused too much on microeconomics and not enough on macroeconomics. For that reason, we Are you leading differently now than during the did not foresee the fi nancial crisis. Almost no one else did worst of the fi nancial crisis? either. If people had stepped back to look at the big pic- ture, they would have seen this coming. My involvement has always been very high. I live for the company. However, before the crisis, I had appointed In 1857, Karl Marx covered a banking crisis as a journalist. three deputies to handle many of my responsibilities. The What he described back then is what we are seeing today. idea was to have an offi ce of the CEO that would manage
T B C G the company as a single group, with each deputy having The problem is that even when you plan over three years, a specifi c area of oversight—retail; corporate, investment, legacy systems and practices can constrain strategic think- and private banking; and operations. ing and innovation. I believe that going forward we should fi rst imagine the bank in ten years, free of con- But then the crisis came, and I had to become more in- straints, and then plan in three-year cycles in accordance volved to speed up the decision-making process and en- with this longer-term perspective. I think this is the best sure the best alignment between the bank and the board. way to cope with shi ing consumer behaviors, regulation, Since I was so involved in managing during the crisis, my and technology, which are driving profound change in challenge now is to step back once again so that the three our industry. deputies can do their jobs. How are you going to address the succession issue? Do you think the crisis has changed the strategic How are you going to determine your successor? horizon of banks? I am very transparent with the board. We have a very I believe it’s appropriate to shi the time horizon for well-organized process. The fi nal choice will be made by strategy development. We traditionally managed our the board. company through three-year plans and annual budgets.
T F L NOTE TO THE READER
Note to the Reader
The Organization practice embarked Acknowledgments For Further Contact on this project almost a year ago. We We would like to thank the execu- If you would like to discuss our had a hunch that talking about the tives for their time and insight. This observations and conclusions, please Great Recession with leaders who report and the companion content contact the authors listed below: lived through it would yield a wealth suite, www.leadership.bcg.com, of insights. The exercise did not would not have been possible Grant Freeland disappoint. We hope you enjoyed without their willingness to discuss Senior Partner and Managing Director reading their insights as much as we the toughest aspects of their job. BCG Boston enjoyed gathering them. +1 617 973 1008 Furthermore, we thank the following [email protected] people for their help in coordinating and conducting interviews: Vikram Kimberly Powell Bhalla, Davide Corradi, Andrew Global Topic Specialist, Change Dyer, Matthew Krentz, Joe Manget, Management Fiona McIntosh, David Michael, Ron BCG Atlanta Nicol, Ignazio Rocco, Janmejaya +1 404 877 5279 Sinha, Peter Strüven, Peter Tollman, [email protected] and Tom Von Oertzen. Rolf Bixner We thank the editorial and produc- Senior Partner and Managing Director tion team that worked on this BCG Amsterdam report—Barry Adler, Katherine +31 20 548 5912 Andrews, Gary Callahan, Mary [email protected] DeVience, Kim Friedman, Gina Goldstein, and Mark Voorhees—and Andrew Dyer the members of the Web team who Senior Partner and Managing Director helped launch it online: Torrey Card Global Leader, Organization Practice and Corrie Maguire. Finally, we BCG Sydney would like to thank the members of +61 2 9323 5644 the global media unit who helped [email protected] prepare the accompanying Web video: Jon Desrats, Federico Fregni, Melanie Jarzyniecki, and Patrick McCaff rey.
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4/10 The Future of Leadership
April 2010
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