The Principled Bill George Primed Medtronic’s Pump

Two and a half years after the 2008 financial meltdown, business types are adapting to more regulation.

For Bill George, the former biz whiz turned scholar of leadership, the crisis brought a new audience for what he’s been saying all along: Obsessing over short-term shareholder value leads only to disaster.

“I think more than ever, we need to have leaders who are willing to take a long-term approach to meeting customer needs and creating long-term shareholder value,” he told IBD. “We’re seeing among corporate leaders a fundamental reassessment of how they approach their business.”

George, 68, draws from his experience as head of medical device giant Medtronic (MDT), where for 13 years he held executive positions, including CEO from 1991 to 2001.

During his time there, the company’s market cap went from $1 billion to $60 billion.

Meanwhile, the share price rocketed 1,800% from 1993 to 2000 .

Since then, he’s joined the faculty of Harvard Business School and has written several books on leadership based on his achievements and his study of successful CEOs of many other companies.

His most recent, “Seven Lessons for Leading in Crisis,” came out in 2009 at the recession’s bottom.

George’s Keys

As he recounts in the book, he’s had plenty of experience with crisis in his own life. After obtaining his Master of Business Administration from Harvard in 1966, he worked for three years as special assistant to the Navy secretary in the thick of the Vietnam War. George describes seeing colleagues manipulate the numbers of enemies killed to please their boss, Defense Secretary Robert McNamara.

Many CEOs also lose touch with reality when they are surrounded by sycophants, he says.

“(It taught me) how hard it is in a large organization to know what’s really going on unless you’re out there on the ground,” George said. “All the good leaders I know are on the ground with their customers, figuring out what’s going on, not sitting in meetings in their office to talk about customers.”

On The Go

George applied these lessons when he took over Medtronic. During his CEO tenure, he regularly visited the labs and factory floors making the products and the physicians and patients who used them.

The people he spoke to weren’t always happy; one doctor was so angry about a malfunctioning device that he threw a bloody catheter at George. But that, he wrote, “lit a fire under me to ensure that our company produced only perfect products.”

Such criticism can be hard to take, especially when it comes from what many businessmen regard as their traditional enemy: government regulators.

George’s own tangles with the Food and Drug Administration started way back in 1970, when he worked for microwave-oven pioneer Litton Industries. Soon after George’s arrival at the firm, the surgeon general called the ovens hazardous to consumers’ health.

George writes that his first instinct was defiance, since the company believed the ovens were safe. But he realized that the regulatory issue underscored Litton’s real lack of quality control.

“I learned firsthand the importance of understanding the mind-set of regulators and government officials and building a cooperative, problem-solving relationship with them instead of being defensive,” he wrote in “Seven Lessons.”

In the 1990s, as chairman of industry association AdvaMed, George helped work out a deal that led to passage of the Medical Device User Fee and Modernization Act.

It helped speed up the review process and set clearer performance standards for medical devices seeking approval. In exchange, applicants must pay a user fee, which companies opposed because they viewed it as a tax, George says. He contends that the result is better quality.

He isn’t a big fan of many of the new regulations that have come down under the Obama administration. George, in his media appearances, has sometimes sharply criticized the president’s policies.

Still, he believes that, even under regulatory duress, business leaders can make choices. He points out that some financial firms — like Goldman Sachs, on whose board he now sits — saw the danger of overplaying the real-estate bubble and were willing to sacrifice short-term gains for long-term survival.

And while businesses may justly complain that bad rules — like the Community Reinvestment Act — set the conditions for the meltdown, George argues that making the wrong choices only brings more rules and more interference.

“In a free-enterprise system, corporations are chartered by society and endowed with certain rights and responsibilities,” he wrote in the Jan. 16 entry of his blog at BillGeorge.org. “Those that fail to contribute to society may find their charters withdrawn or their freedom to operate restricted.”

For George, “corporate responsibility” isn’t just doing charity work on the side, but must be in the core of every business.

Death And Life

He points to when he joined Medtronic and how he recalled a traumatic time 15 years earlier, when illnesses took both his mother and his fiancee within 18 months of each other. He had wanted to be CEO of a big company, which Medtronic was not back then. Yet its mission to save the lives of sick people brought him into a cause larger than his personal ambitions.

Over and over, George found that other great business leaders see their work the same way. CEOs with big egos may flourish for a while, but their companies often suffer from low morale, corruption and sometimes spectacular flame-outs. A relationship of mutual trust among managers, employees and customers leads to success in the long run, he firmly believes.

Warren Bennis, chairman of the Leadership Institute at the University of Southern California, author of “Still Surprised: A Memoir of a Life in Leadership,” and a George friend and editor, told IBD: “I think Bill George, perhaps more than any other CEO, has made the best case I know of for leadership to create the social architecture where people will be open and candid with one another, and where the CEO realizes that leadership and being a fully integrated person have something in common.”

George illustrated this during the 1993 attempt at government-mandated universal health care.

Fears of price caps on Medtronic’s devices led the company to massive cost cuts, including a companywide salary freeze. It also eliminated executive perks like company cars and airplanes, reserved parking spaces and club memberships. Those particular items didn’t cost that much money, but the move emphasized to all employees that management wasn’t profiting at their expense.

After The Health Care Flop

Medtronic’s sacrifices weren’t in vain. The cost cuts put the company in a good position to take market share and fund future expansion. With the help of buyouts in the late 1990s, it became a major global player.

“Bill led the company through a complex and vibrant period of growth and global expansion, and he continues to serve as a great ambassador of the Medtronic Mission with his passionate advocacy for innovation and ethical leadership,” current Medtronic CEO Bill Hawkins wrote in an email to IBD.

Operating in a worldwide market brings its own ethical hazards. As firms find more growth coming from emerging markets like China and Brazil, their managers are often tempted to “go native” in practices like bribery and worker treatment as well, George noted.

“The key is creating a cultural ethic for your company that all employees agree supersedes their own cultural norms,” he said. “This is a big challenge. I had to go through some different managers in Latin America and Asia who didn’t seem to understand this. But eventually we got it right.”

During the boom times, like the dot-com bubble of the 1990s and the real-estate explosion of the past decade, George’s message of ethics and near-term sacrifices could seem like a wet blanket.

He says he hopes new leaders learn from their elders’ mistakes: “We’ve had this era where we had very short-term CEOs — three or four years — and you can’t get the job done in that time. I think most people coming into the job today are looking forward to trying to build the company for 10 years and they’re very focused on how they can change their organization. That’s a big change from 2007.”

 

Source: Investor’s Business Daily
March 31, 2011