NTREPRENEURSHIPNTREPRENEURSHIP EE ANDAND INNOVATIONINNOVATION................................................................................................................................ The Need to Innovate An Interview with Donald Keough, Chairman of the Board, Allen & Company, Inc. EDITORS’ NOTE Prior to assuming holding the mortgages, fl ipped them With the automobile companies, for in- his present post at Allen & Company, upstream and received fees on them, stance, my view is we should have let the hard Don Keough served as President, all of a sudden, there was a problem. reality of the bankruptcy take place sooner than Chief Operating Officer, and People like Warren Buffet were warn- we did, but there were too many political issues Director of The Coca-Cola Company ing about this situation, but not many involved for that to happen. But ultimately, they from 1981 to 1993. He was re- people listened. When the crunch hit, did fail, and taxpayers’ money insured that it elected a director of the company in it really was a hurricane. was a softer fall than the harder fall it would 2004. He has served on several com- The amazing thing to me is the have been. panies’ boards, including the H.J. panic that existed in the fi nancial There are many well-run companies Heinz Company, The Home Depot, community, the panic that existed with high integrity that do great things USA Network, and McDonald’s in Washington, and over a period of within the community, but public percep- Corporation. He currently serves on time, the resilience of the American tion of business has often been negative. Is the board of Berkshire Hathaway Donald Keough people. I watched my six grown chil- that frustrating? and is a trustee of numerous educa- dren adjust to the reality of the econ- It’s usually the way. You only get vivid ex- tional and charitable foundations. Keough was omy, which is a symbol of what’s happening amples of excess, failure, stupidity, and crime. educated at Creighton University in Omaha, all across the country. Frankly, the attitude in You rarely see a newscast with a report on all Nebraska. America is better than the basic economy we’re the great things that happened on a given day. living in. I’m surprised that the market has been Business, particularly big business, always tends COMPANY BRIEF Founded in 1922, New so vigorous, but my sense is that we’re a long to be a target and especially so when there is York-based Allen & Company, Inc., is a closely way from moving with any great speed into a some abuse within the industry. Pure logic, held investment banking fi rm that serves some recovery that people will notice. however, tells you that you don’t take a specifi c, of the leading names in entertainment, tech- With regard to the steps that have been limited situation and turn it into a general state- nology, and information. The company has taken, many say the government did what it ment, implicating the entire industry. brokered numerous prominent deals, includ- had to do with the stimulus, but true recov- Coca-Cola, a brand you led for many ing the Disney-Capital Cities/ABC merger, ery needs to come from the private sector, years, is known as one of the leading in- Westinghouse’s $5.4 billion acquisition of CBS, specifi cally entrepreneurship and innova- novators, but many talk about innovation and Seagram’s $5.7 billion purchase of 80 per- tion. Do you agree with that? today coming from China, India, and other cent of MCA from Matsushita. Its annual re- There is no question about it. Anyone who emerging markets. Do you worry that the treat in Sun Valley, Idaho, has attracted such believes that the federal government using tax- U.S. is losing its edge, and from a global luminaries as Bill Gates, Michael Eisner, Rupert payers’ money can turn this economy and cre- point of view, may lose its leadership Murdoch, and Warren Buffett. ate a very positive long-term trend, really doesn’t position? know what he or she is talking about. The stimu- The U.S. won’t lose its innovation edge. Are you surprised at how deep the eco- lus had to happen, and it wasn’t tidy. By its very The innovation in places like China and India nomic crisis is and the speed at which it nature, there will be an enormous amount of will insure that the American business com- came on, and where are we today in terms waste. But the government had to do something munity will continue to innovate. Competition of recovery? and the stimulus became “the something.” The is a great motivator. I’m very excited about For somebody who was born before the adjustment people have made in living has had emerging nations like China, India, Brazil, and Depression, who grew up during the Depression, a lot more effect on the sense of optimism that is others. We have seen a billion people crawl and went through every single economic turn developing than the stimulus money. into the edges of the middle class in the past through all these decades, surprise is a word While the American people were spend- 10 years, so there is a whole new market for that you don’t say casually, especially when you ing and not saving, we now see the savings that billion people in the next 20 years. It also get to be my age. The fact is, anybody who rate going up. Do you believe this change means, with the continuing growth of these was watching carefully at what was happen- will be long term? economies, that we will see another billion ing to the price of every form of real estate in I don’t believe we will be returning to that people added to the middle class in the next the United States, posting unbelievable num- free-spending-come-what-may-everything-is-go- 10 or 15 years. That’s a very positive thing bers higher than the infl ation rate, had to real- ing-to-be-perfect society for a long time. We may for America, and for American business. Is ize there would be a day of reckoning and an not even know we’ve had a recovery when it ar- the day over when we’re the lone king stand- inevitable crash. Banks started to lend money, rives. People obviously will be more cautious, and ing on the top of the hill? Probably. Is that a not on the basis of the fi nancial ability of the the symbols of excess, which were getting quite bad thing? Absolutely not. We live in a global person who was asking for the money, but on outrageous, will not be seen very soon in society, community, and we know pretty well how to the basis of the presumed value of the land or either here or anywhere else in the world. deal with it. the building that was involved. The assumption Do you agree with the premise that Having led a large company, can you was that the land or the building would always some companies are too large to be allowed maintain an entrepreneurial spirit and cul- be worth more. Then when banks stopped to fail? ture within a company regardless of size? 62 LEADERS POSTED WITH PERMISSION. COPYRIGHT © 2009 LEADERS MAGAZINE, INC. VOLUME 32, NUMBER 4 We’re moving into an era where CEOs are going to be more aware of board governance than in the past, and there will be more shareholder interest in the performance of the management of the company, and that’s a good thing. I believe that you can, but in a way, it’s the future, will you need to be a certain size his background. His predecessor was born much easier to innovate in smaller companies and scale to compete? in Ireland, raised in South Africa, and did his than it is in bigger ones. That is not to say that A lot of it depends on what industry you’re work in Australia, the Philippines, Germany, larger companies can’t benefi t from a smaller in. It’s going to be hard to build a great com- and Europe. company’s innovation. In the past few years, pany unless it’s able to cross borders, and fi nd With great companies now, the nationality The Coca-Cola Company acquired a small com- markets around the world. It means that you of the leadership doesn’t have anything to do pany called Glaceau. It started with a young have to have size. That doesn’t mean you have with it. The important thing is to be sure you man who took vitamins and enjoyed soft drinks. to be ridiculously big. It just means you have have a person who has the natural intelligence He put the two together and created a prod- to have enough size that you will be able to to deal with the issues that come before him, uct called Vitamin Water. He organized a small establish the kind of credit you need in order to a person who has the energy and passion to group of people, hired some distributors, and take advantage of the opportunities that present deal with the business, and a person who has it became a very interesting business, attract- themselves. It’s like what’s happening with the complete integrity. In addition to those three ing The Coca-Cola Company and others. The Internet world where the asset is not a heavy qualities, you need a person who thinks not young man and a few of his associates ended asset – it’s brainpower, so small companies can only of the expected consequences of particular up with $4 billion and the big company ended become large companies in a big hurry.