Keynote Topic Of character, substance and integrity Why companies need authentic leaders and not charismatic stars at the helm To achieve sustained high performance in the THE PAST DECADE has been a rough one for business 21st century, organizations must develop executives. From Home Depot to Siemens, Hewlett- leaders who generate trust and empower their Packard, Boeing, Shell, Procter & Gamble, Xerox, people. But developing leaders with these Sears, Kmart, Coca-Cola, AT&T, Citigroup, Merrill capabilities is not easy. It takes years of Lynch, and Bristol Myers, leaders failed and put great intense effort and robust processes. These companies in grave jeopardy. They not only destroyed days the best leadership development pro- shareholder value but put at risk the entire enterprise and grams are shifting from competency and everyone who has a stake in it. Some, however, like skills training to focus on the leader’s inner Hewlett-Packard, P&G, Boeing, and Xerox, have qualities. bounced back rapidly under new leaders, proving once again that good leadership at the top really does matter. by Bill George What is the root cause of these dramatic leadership failures? It’s not the stock market, dissident sharehold- ers, Sarbanes-Oxley, or the media. The problem is far more basic than that: Many boards of directors have cho- sen the wrong leaders to run their companies. Of course, this is not their intent, but it is the result. As a board member for several corporations – ExxonMobil, Goldman Sachs, and Novartis – I can at- test to the fact that nothing is more important for boards than choosing the right leaders and monitoring their per- formance. If they get that right, everything else will fall into place, even if the corporation’s business goes through a rough patch. If boards choose the wrong lead- ers, the whole future of the corporation may be put in jeopardy, and little can be done to save it until the failing CEO is replaced with a new one. The wrong criteria After interviewing 125 corporate leaders and observing many more during three decades in active corporate leadership, I believe the root cause of the leadership cri- sis is using the wrong criteria in choosing new leaders. Selection committees often emphasize charisma over character, style over substance, and image over integrity. When leaders are chosen for charisma, style, and image, why are we surprised when they turn out to lack charac- ter, substance, and integrity? All too frequently, the selection process aims to im- ILLUSTRATION: MAGDA KARCZEWSKAILLUSTRATION: press Wall Street with a “star” CEO from outside the 24 THE FOCUS VOL. XII/1 Führung Keynote Topic company who knows little about the company’s busi- date and the time to transform the company. Immelt is ness, its people or its culture. That’s what happened proving to be a visionary CEO who has adapted GE to when the Home Depot board looked past its 170,000 the needs of the 21st century, just as Welch did in an employees to recruit GE star, Bob Nardelli, who himself earlier era. was passed over in the CEO sweepstakes to replace Jack Unfortunately, looking outside the company’s ranks Welch. Nardelli’s lack of understanding of the retail doesn't explain every mistaken choice of CEO. Coca- business led to a series of missteps that resulted in his Cola replaced Roberto Goizueta, who led it so success- resignation. fully for fifteen years, with Douglas Ivester and then The key to successful leadership development is to Doug Daft. Over a decade later, after a steady erosion of recognize what kind of leaders will be needed to lead the its market position to rival PepsiCo, the company is still company in the coming decade or two. General Electric, trying to figure out how to get back on track. Long in particular, has had the foresight to anticipate the chal- known for its internal leadership development process- lenges the company will face and then give leaders like es, P&G made its own misstep when it selected Dirk Reginald Jones, Jack Welch, and Jeff Immelt the man- Jager over A.G. Lafley. In this case, however, the board 25 THE FOCUS VOL. XII/1 Leadership Keynote Topic Successful 21st century leaders know how to tap into the power of motivating their employees to sustain peak performance on behalf of their customers. recognized its error in less than two years and replaced formance on behalf of their customers. This brings us to Jager with Lafley, who is emerging as one of the great the new definition of the 21st century leader. The defini- business leaders of the 21st century. tion of leadership that has been prevalent for the past 50 There is a straightforward solution to this problem: years – “Leadership is gaining followers toward deter- Create a robust management development process that mined objectives, with established guidelines and rules” focuses on developing authentic leaders who are team- – is rapidly being replaced with three words, “align, builders known for their character, substance, and in- empower, and serve.” tegrity, and carefully get to know the candidates before Let’s examine each of these three aspects of 21st the choice is made. That’s what companies who sustain century leadership in greater detail: their success decade after decade like Johnson & John- son, Pepsico, General Electric, and Exxon are doing – Alignment: The new leader’s first job is to gain broad and it works. agreement with the organization’s purpose and a In the 21st century, the entire nature of business lead- commitment to a common set of values. This is the only ership must change, precisely because people in organi- way global organizations in the 21st century can bring zations have changed. Having been burned in the past, people together. Johnson & Johnson CEO Bill Weldon today’s employees no longer trust their leaders automat- spends several weeks every year ensuring that people ically. Nor are they willing to accept command-and-con- throughout his global organization are committed to trol leadership, or politically-motivated leaders who put J&J’s long-established Credo. IBM CEO Sam their own interests ahead of the corporation’s interests. Palmisano has transformed his 350,000-person organi- Successful organizations today are made up of zation from task orientation to “leading by values” – knowledge workers who often know more than their values that were created by all IBM’s employees in an bosses. Many of them are eager to get the opportunity to “on-line values jam.” run something on their own, no matter how small it might be. They aren’t willing to wait in line for ten to Empowerment: Many 20th century leaders believed twenty years; if the right opportunity doesn’t come along that leadership meant exerting power over others, as if internally, they are quite prepared to look outside. power were a limited commodity to be hoarded. Today’s More importantly, they are searching for meaning leaders recognize they can only expand the power of and significance in their work. They are quite willing to their organizations by empowering people throughout put in long hours if they believe their work is truly mak- their organizations to take on leadership roles, even ing a difference in the lives of the people the company those who have no direct reports. Avon CEO Andrea serves. This sense of purpose ranges from something as Jung runs the largest organization in the world – 5.5 mil- basic as providing a friendly atmosphere to a Starbucks lion people, most of whom are independent sales repre- customer to restoring people to fuller lives at Medtronic. sentatives. She recognizes that her most important job as As GE's Immelt told me, “In the future the best people a leader is to empower her massive organization with her will only follow authenticity – a person who leads with passion to help women achieve economic self-sufficien- passion and purpose.” cy through their work with Avon. A new definition of leadership Service: High-performing companies realize that sustaining growth and success results from serving their Successful 21st century leaders know how to tap into the customers better than their competitors can. This is what power of motivating their employees to sustain peak per- motivates employees and enables companies to achieve 26 THE FOCUS VOL. XII/1 Leadership Keynote Topic Sustained growth and performance only results from an organization aligned around its mission, empowered to fulfill it, and dedicated to serving its customers with superior products and services. sustainable increases in shareholder value. Ever since Then they went through a deeper development former Goldman Sachs CEO John Whitehead wrote its process to give them the grounding to stay on course, business principles 40 years ago, that company has fol- in spite of all the pressures and seductions they faced. lowed the principle of “the customers’ interests always This meant practicing their values in stressful come first.” In doing so, it has created great wealth and situations, finding opportunities where they could use prosperity for its customers, employees, and sharehold- their motivated capabilities, building support teams ers. Goldman’s new CEO Lloyd Blankfein is using this around them, and leading an integrated life. In same principle to build a truly global investment bank. understanding the purpose of their leadership, they were prepared to be authentic 21st century leaders Some people would claim that the words like “align- who could align, empower, and serve their organiza- ment, empowerment, and service” represent the soft side tions. of leadership, whereas the hard side is getting the num- Developing these authentic leaders at all levels is the bers right.