A Massive Generational Change In Leadership

Posted On Forbes.com

Bill George On A Massive Generational Change in Leadership
Ethisphere staff 07.06.10, 12:30 PM ET

Ethisphere recently spoke with William W. George, a professor of management at Harvard Business School who is the former chairman and chief executive officer of Medtronic and currently a director of both ExxonMobiland Goldman Sachs. He talked about how leadership in business is going through a huge and dramatic transformation as the baby boom gives way to younger executives with very different ways of seeing the world, connecting and working. He also talked about what it takes to be a strong leader in a challenging time. (In an earlier part of our conversation, available here, we discussed leadership, ethics and compliance in the health care industry.)

You have said that the younger generation, people under 45 or so, should be taking over in business because they are showing stronger leadership and more focus on their “true north” than their seniors. What do you mean by that?

I think we are going through a massive generational change in leadership. We baby boomers were raised in an era coming out of two world wars and the Depression that our parents had experienced. We didn’t live through that, but our parents’ experience was very real to us. From that we developed a command-and-control mentality of how to run an organization.

The great corporations of the world in the 1950s and ’60s were command-and-control organizations. With this new century, that concept of command and control has totally gone out, because employees today are knowledge workers, they have options, and they don’t stay around. Most important, they’re looking for meaning, not just money. I think today’s great leaders will know how to empower people, all of us, to step up and lead. So it’s not a command-and-control type situation, and it’s not exerting power over the people. It’s aligning people to a mission and values and getting them to step up and lead, and getting them to recognize that their job is to serve a certain customer first and not the shareholder.

That’s what I think the younger generation, those under 40 or 45, really understands. I think particularly for my students who are in their late twenties this is a great opportunity. The global economic meltdown of 2008 and 2009 was a crucible experience for them in that they recognize that the way we were going until then was headed for sheer destruction. They have a chance to recover, whereas a lot of the older leaders of Wall Street are passing from the scene and have no chance to recover.

I think the decade of 2000 to 2010 will go down as the lost decade of leadership. It started with the collapse of the dot-coms, which were our great hope for the future. We went from venture capitalists starting up great companies like Intel, Google, Microsoft and Starbucks to trying to make money on paper. People thought they could quickly develop a business plan, take it to the market, run an initial public offering and make a lot of money, all in 12 to 18 months. It was all nonsense, and it all collapsed.

That started the decade, and then right behind it came Enron, WorldCom, Tyco and some real ethical problems. You see people like Bernie Ebbers and Jeff Skilling behind bars, but the real story is that there were 200 major companies like Bristol-Myers and Xerox that had to restate their numbers by some 2 to 3 billion dollars in income because of ethical deviations, because of inappropriate accounting driven by ethical considerations.

And of course we closed the decade with the financial meltdown of the last two years. That really came, in my opinion, from Wall Street, which had been pressing its leaders for short-term outcomes, playing the short-term game so much that they self-destructed. You had great financial institutions like Citigroup, which was the greatest bank in the world when I was growing up, self-destruct. They had to go to the government for a combination of bailouts and loan guarantees of around $350 billion. These financial institutions were all built like a house of cards. Someone pulled out the bottom card and the whole place collapsed.

I think in leadership terms that’s a huge wake-up call. After Enron and Sarbanes-Oxley, corporate leaders got the word. Wall Street didn’t get the word.

Very often ethics and compliance problems are said to be caused by just one employee. A single person makes a misguided decision, perhaps to bribe a foreign official or make a false claim. How can leaders let people know that their ethical standards really apply to the entire organization from the top down, and don’t just exist to satisfy regulatory requirements?

Today’s leaders need to be directly engaged with their people all around the world. It takes an enormous amount of time. They need to be asking questions: How do we do business? What happens when you get asked for favors? What do you do? How do you handle this? You need to trust but verify. You need to have a verification and compliance system.

When there are any deviations, it should be a zero-tolerance policy, with no second chance. If you make mistakes, if you make poor business decisions, you should get a second chance. If you have quality problems, you should get a second chance. If you have operational problems, you should get a second chance. On questions of company values there is no second chance. Everybody needs to know that. You need to publicize it. You need to not cover it up.

It’s really important in organizations that you not just blame people at the lowest levels. You have to look at the whole chain of command. That was Shell’s problem in Nigeria. They didn’t look at everyone. You can’t just blame the low-level people, you have got to look at what the management is doing and saying, because they’re there, too.

I felt that responsibility every day. We had ethical violations at Medtronic. I had to fire the head of Europe. I had to fire the head of Japan. I had to fire the head of China. It was very embarrassing for me that it took so long to clean up, but we went right at it and we finally got the message across that this is the way we do business.

Ed Breen did a very good job cleaning up Tyco. I don’t have as high regard for Dennis Koslowski, because it was kind of anything goes in his era. But I think Breen has sent a clear message: This is how you do business. Just as Anne Mulcahy did at Xerox. There were some ethical questions there, and she did a really good job cleaning things up.

So I think we need to vet, not just criticize, people who violate ethical standards. We also need to uphold those leaders who really do want to make a difference.

In 7 Lessons you have a lesson titled “Don’t Be Atlas.” In that lesson you mention that it’s good for leaders to have an outside team that can help them get through a crisis. Do you have your own outside team that has helped you get through crises?

It starts with having one person with whom you can be entirely open. That person for me is my wife, Penny. If I get too high on myself, she’ll pull me back down, and if I get really down, she’ll give me a practical view of things. She’s just great and extremely helpful. I also have a men’s group that I meet with every Wednesday morning, and we talk about really important issues in life. When you have challenges, you can talk to them. And when I have tough questions I have three or four mentors like Warren Bennis and David Gergen who I can call up and solicit their advice and counsel.

That’s extremely helpful to have because it’s very easy to fall into a group think mentality in an organization. You tend to all talk about the same issues, and you tend to think about them the same way. It’s really important to have outside exposure. When you have that external team they can help you bring perspective on things and tell you it’s not that bad.

Broadly speaking, what makes you most hopeful about today’s leaders?

I’m very hopeful about the younger leaders who are stepping up and taking over. I hope that the generational change in leadership will come quickly, and I hope it will give younger people an opportunity to step up and lead major organizations as well as start-ups and new organizations. I’m most hopeful about the new leaders who have been appointed in the last three or four years at corporations large and small. I’m hopeful we can get a whole new generation that will step up and lead with a higher sense of ethics and values, not just for its own sake but for recognizing that that’s the best way to build an organization and the right way to sustain success.

The first part of this interview appeared here