Good Governance Creates Lasting Value

A Call for Authentic Leadership:
Reflections of a former CEO
CEO Magazine – December 2003

An open letter to my fellow CEOs:

I write this letter with all due humility, recognizing that I’ve been out of the CEO’s chair for more than two years and knowing just how much the job has changed in that short period of time. I miss the daily interaction with my former customers and employees, but I sure don’t miss the quarterly earnings call. Good performance never seems to be good enough, even in a recession.

The last two years – ever since the Enron scandal broke and the economy turned down – have been rough ones. People are coming at us from all sides, and no one seems to appreciate just how tough it is to satisfy all our constituencies. The media seem to be more interested in uncovering yet another set of misdeeds than they are in reporting real business news.

While we are taking extraordinary steps to comply with Sarbanes-Oxley, the governance gurus are focused more on their own ratings systems and their latest proposals for additional laws. Most of those voices sniping at us out there have never been in the pilot’s seat. They have never had to get the plane off the ground, stay on a steady course, or make a smooth landing.

The same applies to our shareholders. When the experts talk about serving your shareholders, which shareholders should you listen to? The most vocal of them are the speculators, the hedge funds, and the day traders. Or the short sellers who love to work with their favorite news writer to start an insidious rumor to get your stock price to go down ? Or the security analysts who aren’t shareholders at all ?

Each of these groups has its own motivation and its own agenda. Most of them are interested only in short-term results, not the fundamentals of building the business. Nor are they responsible for the outcomes, or for preserving and building the enterprise.

We know how to play this game, but it’s a game we can’t win in the long run.

Perhaps we’re playing the wrong game. Focusing on “maximizing shareholder value” will never create lasting value for the long-term. And it certainly won’t motivate employees to provide customers with innovative products and superior service.

The time is long overdue to stop trying to manage the business to meet their expectations and to focus on building our businesses and our organizations for the long-term. We should forget about flying coast to coast to speak at security analysts’ conferences and drop the quarterly modeling calls. (Let the analysts figure out their own models.) With the benefit of 20/20 hindsight, I realize now that I spent way too much time while I was CEO speaking at analysts’ meetings and being on CNBC and CNN – and it never moved Medtronic’s stock one dime.

As CEOs, we don’t design anything, make anything, or sell anything. Our job is to create the strategies for building the business and to create the kind of positive environment that enables our employees to do their jobs. The only way to build lasting value in our companies is to focus on our missions, our customers and our employees. Ironically, by focusing less on getting the stock price up, and more on our customers and employees, in the end we will create far more lasting shareholder value.

How is lasting shareholder value created?

•  By building your business for the long-term by pursuing your mission with a passion.

•  By being out with your customers looking for great ideas for growing your business.

•  By being true to your core values in your every decision.

•  By connecting every day in a meaningful way with your employees.

•  By building an enduring organization of authentic leaders from top to bottom.

•  By getting results for all your stakeholders, not just the shareholder of the last five minutes.

That’s what I call authentic leadership. I wrote my book, “Authentic Leadership,” to say to the emerging leaders in your company that there is a better way to lead our companies than many in my generation have demonstrated. In doing the six things listed above, authentic leaders provide the role model for their employees every day of the kind of leaders they should be.

To sustain increases in shareholder value, we need to spend a lot more time developing the next generation of authentic leaders within our companies. Failure of management to develop outstanding successors has forced far too many boards to look outside for the next chief executive. While there have been some notable successes with outside hires like Lou Gerstner at IBM and Jim McNerney at 3M, far more have failed because they do not fully understand the business or appreciate the organization’s culture and history.

In leadership development programs far too much attention is being paid to evaluating and honing leadership style and image, managerial techniques, and communications skills of our high potential people. In many organizations we even force our highest potential leaders to conform to the organization’s norms, thus draining them of their best leadership qualities. Earlier in my career, I received a lot of coaching along these lines, but I cannot honestly say it helped me become a better leader.

Instead, we should focus on identifying and developing those internal leaders that have the character, values, wisdom, and depth to lead the organization in the future. We should encourage them to be their own person and lead in their unique style, while following their values and the “true north” of their moral compass.

We need to transform our leadership development programs, providing experiential learning courses focused on developing the leader within. To solidify Medtronic’s values among our leadership team, we created two educational programs to reinforce the values-centered culture. For executives, we initiated the Medtronic Values and Ethics Seminar, focused on great books and the discussion of modern ethical issues, like universal health care and euthanasia. Based on the program’s success, we made it the capstone of Medtronic’s education programs for all officers.

For high talent managers around the world, Medtronic created an educational course called The Medtronic Leader. The program focuses on leadership from the heart and developing the qualities of a leader, utilizing experiential learning. Enabling people to go inside to learn more about themselves, their strengths and weaknesses, and their impact on others is an important element of their leadership development.

In addition to off-site education, we should be putting high potential leaders in those crucibles that give them the seminal experiences to learn their own mistakes and failures, and find their true leadership capacity from within. This means leaving them in challenging jobs much longer and judging them by their ability to build businesses and face their own mistakes, not just produce short-term numbers.

When I joined Medtronic, we had a talented rising leader that had been promoted every twelve to eighteen months throughout her career. Instead, we asked her to build Medtronic’s defibrillator business, which she did for six years with spectacular results. Had she continued to “move through the chairs,” she would not have learned nearly as much as she did in taking a very complex business from ground zero to $1 billion in revenues.

This approach to developing authentic leaders has worked for decades in the top twenty leadership development companies like Johnson & Johnson that were highlighted in this October’s issue of CEO Magazine . Not surprisingly, these twenty companies are ranked at the top of the great shareholder value creators of the past decade, even after the fallout from the recent recession.

Building lasting shareholder value results from building a team of authentic leaders throughout your company, much more so than hitting someone else’s expectations every quarter.

Thanks for listening.


Bill George

Former Chair & CEO of Medtronic and

Author of Authentic Leadership