NOW Interview

Transcript posted in PBS on March 16, 2007.

ANNOUNCER: Once again, Public Broadcastings David Brancaccio.

BRANCACCIO: You’re going to start seeing headlines next week stemming from one of the biggest accounting scandals of the decade. The insider trading trial is set to begin Monday in Denver of Joseph Nacchio, once upon a time the CEO of the telephone company Qwest. Qwest retirees are among the many who were left holding the bag after what the government called a massive accounting fraud.

Among the issues raised by the trial is to what extent corporate CEOs are prone to abandoning the rules of right and wrong that apply to the rest of us…sometimes destroying their companies, their communities, and the environment in the process.

For a critical look at the larger issue of what is wrong with capitalism and how to fix it, we turn to a player in this realm…Bill George was the CEO of the fortune 500 medical products company Medtronics and teaches ethics and leadership at the Harvard Business School. George has done a lot of thinking and writing about what he sees as a crisis in corporate leadership. His new book is called “True North.”

BRANCACCIO: Bill, thanks for coming in.

GEORGE: Great to be here David.

BRANCACCIO: You’ve written that you can’t legislate, and this means regulations, you can’t legislate integrity in a business leader. You can’t legislate stewardship or—or sound governance. I want to ask you about that. It’s a central thesis of your writing. Is it really true? I mean you can legislate against robbing banks, and people tend not to.

GEORGE: But people find ways around that. And that—if the whole game is how do you beat the rules, that’s the wrong game to play. And I think the real problem in the 90s, the thing—the reason I’m writing books, and—and speaking out and teaching at Harvard and things like that, David, is because I’m so concerned with those CEOs in my generation who—stretched it—again to play the game.

And I think we’ve been choosing boards of directors and choosing many of the wrong leaders for the wrong reason. We choose people for their image, their charisma—their style.

BRANCACCIO: Well, where does that lead, if it’s all about charisma and the—the—the recognition factor of the single CEO?

GEORGE: But that’s not what it should be—what it—you know, that’s leading right to a destructive tendency. Leadership is not about having everyone follow you over the hill. You know, leadership is about empowering people in your organization to lead. That’s not by charismatic. That’s having character. People trust you ’cause you have character. They trust your integrity. They believe in you that you know what you’re doing. And they’re gonna be empowered to lead inside the organization. Great organizations have thousands, tens of thousands of leaders. Not one great person at the top.

BRANCACCIO: I mean, isn’t—leadership something that’s built very early in somebody’s life, if it’s not inherited?

GEORGE: Well, I don’t think people go into business to be corrupt. And so it’s not like the—we—we have people with bad values going into business. I think what happens is a lot of people, very well intentioned, who know what they believe in, get, if not corrupted by the system, they get seduced by it, or they—they yield to the pressures.

BRANCACCIO: But this notion that people don’t go into business to do the wrong thing, let me just slightly push you on this.


BRANCACCIO: A buddy of mine recently retired from a brand name business school. He was on the faculty.


BRANCACCIO: At a big one, ’til recently. And he said something that verges on the obnoxious. And I’m gonna run it past you. He’s of the mind that business schools too often train, reward and nurture and promote, he says, listen to this word: sociopaths. People who are so focused on success narrowly defined that they ultimately will move on to —have antisocial effects.

GEORGE: Well, there surely has been some of that. And that’s what—of course that’s my courses at Harvard, I’m trying to teach to offset that. Not to teach, but to get people to get grounded in what they believe in.

And it is tempting when the recruiters come and wave hundreds of thousands of dollars in front of them for—just for signing on the dotted line. And you can be seduced. But the end of all that, you’re not gonna wind up being fulfilled.

And you may go off and you may lose your way, and you may destroy everything you’ve built up. And so I think it’s the role of business schools to rethink this issue, and to focus on leadership, and how do you build leadership for the future?

BRANCACCIO: Do you sometimes feel like a lone voice on this issue?

GEORGE: Well, there are a lot of forces going the other way. There are a lot of forces arguing for big money being made in the short term. The hedge funds are certainly—an example of the high pressure, fast money.

BRANCACCIO: But you—did some investigations, you looked around, and, you actually did find some people out there, in positions of power in American business, who —took a different path.

GEORGE: Well, we found a lot. We interviewed 125 people. And I find, particularly among those CEOs that have become CEO since the fall of—of Enron if—if you will, since the—Sarbanes Oxley bill, they get it. And they realize leadership is not about aggrandizing themselves.

They’re in it to build for the long term. They’re not there for the short term. They want a ten year run to build a really great organization.

BRANCACCIO: But what’s the argument? I thought capitalism was about maximizing the return for shareholders.

GEORGE: The question is in what time frame. Unfortunately, it’s not taking any less time to transform an organization to produce a drug, to create great new technology, whether it’s the iPod, or the microprocessor that Intel creates. They’ll still take a long time. A new biotech drug coming out of Amgen. That takes ten, 12, 14 years.

That hasn’t shortened. But if the shareholders are only in the game for the short term. And they’re really interested in short term bump in your stock and come back down, you have a collision of forces.

And that’s what’s concerning. But if you got people just buying and selling stocks everyday, looking for a quick short term gain, you don’t have that old time shareholder commitment.

BRANCACCIO: I heard a—fascinating—legislative solution to some of this the other day from—none other than the CEO of Whole Foods Markets. He’s kicking around this idea of you want to promote the notion of holding shares longer term, and to get away from the short term stuff? Why not get rid of the capital gains tax on stocks that you hold for a—a longish time, say five years. Essentially assessing a penalty for those people trading quickly.

GEORGE: I—I think it’d be great if capital gains tax started out high. If you sell, by and sell in less than a year, and go all the way to ten years and you have no capital gains tax, I think that would really encourage long-term holding. Because I’m convinced that it’s only through the long-term investments that you build great value.

BRANCACCIO: Let’s talk about executive compensation i
n this country. Some of the figures I saw, fairly recently, was that CEOs in America were being paid about 400 times the average working salary. Many Americans think things are getting a little out of whack.

GEORGE: What really upsets me is people getting rewarded for failing. For, you know, you go out and hire a charismatic high profile CEO. Wall Street loves it. Stock price goes up. You bring someone in, and he fails. And the next thing you know you’re paying him a couple hundred million dollars so that he’ll go away. Now that’s a disaster. Everyone loses in that. And I think it’s—it’s a big concern. Now I don’t want to legislate it, but I think boards have to be very, very responsible about compensation of their executives.

BRANCACCIO: But you don’t want to legislate to fix this problem. What you’re arguing for is some sort of enlightenment to happen among, for instance, boards of directors.

GEORGE: Right.

BRANCACCIO: Is it really possible?

GEORGE: It is. And you’ll find that the CEOs that get promoted from within are quite—much more reasonably paid. Because they came up from within. but I think boards haven’t done the job in finding leaders inside the company.

But that’s what we need. We need people who know how to motivate and inspire people to step up and lead inside the organization.

BRANCACCIO: But an enlightened CEO, as you see it, needs to operate within a system that doesn’t—give out rewards for bad behavior. It has to set up a system that makes it possible to succeed if you have this wider vision.

GEORGE: And are there rewards given for short-term behavior or long term? And I—I would contend that the higher up you go, the longer term the rewards should be

But I think it’s a good thing to have a long-term game. And I think, you know, you never sell a share of your company stock until after you leave. And you hold onto it after that because you ensure that you have a good successor. That’s what real capitalism is about. Creating long-term value.

BRANCACCIO: You want people in power, in corporate America, who have this wider view of the purpose of a company, longer term view. And, to some extent, you’re arguing for well adjusted grown ups to have the reins of power.

GEORGE: Leaders, first of all, have to develop themselves. And all the leaders that I’ve seen, who have failed, have failed to lead themselves. Not they can’t lead other people. They aren’t well grounded. And I think staying grounded is one of the hardest tasks any leader has to do.

BRANCACCIO: Grounded? What do you mean?

GEORGE: Well, you’re grounded in your values. You know what you believe. And if you get pressure from the outside world, do this, do that, (NOISE) you say no. I know what I believe.

You need people around you who will reinforce. Will tell you—tell it like it is. Tell you when you’re going off. I have a wife who does that for me. And she says, “Bill, you know, why are you trying to impress these people? You know, just be yourself.” And I think if we can just be ourselves, be our authentic selves, we’re gonna be much more effective as leaders.

BRANCACCIO: Is it—an age thing that you sort of grow into this more enlightened view of business, as you see it?

GEORGE: Not necessarily. I —I find my young students in their 20s are very enlightened. The question is did—their—their big challenge is can I stay true to my True North? Can I—follow my course and not have to compromise who I am?

You know, I had one student who’s been working for his company two months after he graduated, and he said, “I’m ready to quit.” I said, “Why?” “‘Cause they’re forcing me to move the numbers around. I won’t do that.”

I said, “Stay with it. Do not bend. Because you’re doing the right thing.”

BRANCACCIO: But that—it’s a great story that you’re telling, because look at the pressure on this person. That you get within a large organization, they’re telling you what they expect from you.

GEORGE: Right.

BRANCACCIO: And they’ll just—turf you out if you don’t obey.

GEORGE: Well, Maybe he should go somewhere else where his qualities will be appreciated. At a certain point in time, I—I don’t recommend bailing out —but maybe he should go to find a place where he’s gonna be appreciated. Because there are a lot of organizations that appreciate—appreciate that strength of character.

I think people realize that if you deal ethically, you deal fairly, you’ll win in the long run. And, yeah, if you want to play a short term game, you can get caught up in that, you’re gonna lose it.

BRANCACCIO: But so I’m clear. You think a person who has—lost his or her sense—of what you would argue is True North, the right way, the just way to go about practicing business, they can reorient? There’s hope for that?

GEORGE: Absolutely. We have this great story of Kevin Sharer who tells the story, when he left GE, flew out of there, he’s gonna be CEO of MCI. It didn’t work out. He made a big mistake. And he recognized he was being driven by his ego and his arrogance. He got in touch with that, and he—he—he—then went to Amgen and he became a student, he became a learner. He said, “I don’t know anything about biology, I’m gonna learn it.” And these are the kind of CEOs that—I think are really leading our companies today

BRANCACCIO: But what case —does capitalism and, just say American business, have to make to the public at large in order to—get to a healthier place, as you see it?

GEORGE: That we are serving society through good jobs, ok. Creating wealth for shareholders, for employees. And we’re creating value for customers for the long term. We create quality products. We create great value for our customers. We’re doing things in addition to that that help society. You know, we’re funding Teach For America. Some of the boards I’m —are on are helping out.

Or Target. I was on their board for 12 years, gives away five percent of its pre-tax profits. I think it was great. Because they’re helping build educational systems.

We don’t have an educational system in this country, and where are we? Where are we gonna get our employees in the future? You know, where are we gonna get our customers? And so this becomes very critical that companies see that they have a broader role in society.

In many ways you could argue the corporate model’s become the dominant model in the world today. And so that puts a huge burden on us as corporate leaders to take responsibility.

BRANCACCIO: That’s the problem of a CEO? Trying to make the world a better place?

GEORGE: How do we serve society? We serve society by good jobs. We serve society by creating wealth for people. We also mostly serve society by creating great services and products for customers.

BRANCACCIO: You didn’t have shareholders saying, “Why are you robbing us of our profits by practicing philanthropy? Give us the money, we as the shareholders will give it away.”

GEORGE: Sure we did. Sure we did. But the philanthropy Medtronic did has done a world of good. The philanthropy of Target—you know, when Target was going through the tough times against Wal-Mart, they never —Bob Ulrich never wavered once about that five percent
. Giving away five percent of the profits.

In fact, he saw this is the way to build our company. This can really help us. We saw it the same way at Medtronic. We created educational programs for the inner city schools.

Because we knew that’s where our employees are coming from. And so if we don’t do that, if we aren’t in sync with society. And I think this new generation of authentic leaders I’ve been talking about really sees that they have to be in sync with society. They have to be in sync with the environment. They have to be in sync with concerns about health concerns. They have to be in sync and go with the flow, not go against the flow.

BRANCACCIO: Business with purpose—when they answer the purpose question, not just maximizing shareholder value next month.

GEORGE: Employees, the key is what motivates people. And they are not gonna be motivated about maximizing shareholder value. I can tell you that. You can make them all shareholders, and that will help. But they’re—only gonna be motivated about a sense of purpose.

Howard Schultz is trying to create a culture at Starbuck’s, you know, where people are really excited about creating a wonderful environment inside a Starbuck’s store for their customers. That’s what—if that’s what the game is all about, that’s where the shareholder values—comes from.

BRANCACCIO: What’s at stake here? What if we don’t get it right in the way that you see it?

GEORGE: That’s the key question. Is capitalism gonna survive in a form—it—if it goes off, like it did in the 90s, if we hadn’t had that check, in fact, I think—and I wrote in my first book, Enron and—Arthur Andersen did us a huge favor. ‘Cause they realized we’ve gone so far off we had to restructure and we had to get back on track.

But what’s at stake is whether our system can go forward, and have the confidence and trust of the American people. And I think we need to rebuild that trust.

BRANCACCIO: Well, Bill George, thank you very much.

GEORGE: Good. Thank you David.

BRANCACCIO: Bill George was a card carrying CEO and now teaches at the Harvard Business School. His book is called “True North.”

BRANCACCIO: And that’s it for NOW. From New York, I’m David Brancaccio