April 28, 2009

How the Economic Crisis Will Groom Leaders

Maybe there´s a silver lining in the global economic meltdown after all. I believe all the economic misery, financial disasters, and millions of lost jobs will produce a new generation of leaders who are battle-tested in crisis and ready to get the global economy pointed in a healthier long-term direction.

Having learned the lessons of this crisis, these new leaders will think differently than their predecessors about how to build great institutions. As President Obama said during the presidential campaign, “I don´t want just to get us out of Iraq. We need to change the mentality that got us there in the first place.” The same lessons applies to healing our economic ills: We need to change the mentality that got us there in the first place.”

This global meltdown wasn´t caused by subprime mortgages, credit default swaps, or even excessive greed. These are only symptoms of the real problem. The root cause of this crisis was failed leadership.
Many leaders in the Baby Boomer generation did not comport themselves well in the years leading up to the crisis. They bought into the mantra of maximizing short-term shareholder value, and got stunning rewards for financial transactions that ultimately destroyed more wealth than they produced. As Jack Welch said recently, “Shareholder value as a strategy is the dumbest idea in the world. Shareholder value is a result, not a strategy. … Your main constituencies are your employees, your customers, and your products.”

These leaders found they could not keep this game going, no matter how much risk they took, and it all came crashing down. Some knew their activities weren´t sustainable, but they kept dancing faster and faster until the music stopped. In so doing, they let self-interest trump their responsibility to create lasting value and destroyed great institutions in the process.

We need a new generation of leaders who have learned the lessons of this crisis the hard way–by being in the midst of it. These leaders will bring a new mentality to building lasting value through innovation and growth that creates sustainable wealth in the global economy. Their rewards will be for performance, not just for transactions. This economic crisis is providing the best training ground to develop a new generation of leaders. MBA programs don´t teach you how. Crisis-simulation exercises are just that–simulations, not the real thing.

Leaders who never get tested until they reach the top may be unable to cope with a crisis. Some buckle under the pressure. Others become immobilized. Still others make big mistakes, but learn from them to become better leaders the next time around.

As a new 27-year-old general manager of Litton Microwave Cooking, I encountered my first major crisis when the FDA threatened to pull our only product, microwave ovens, off the market. We learned a painful lesson about the importance of adhering to proposed government safety standards, lessons that proved highly beneficial in my years as CEO of Medtronic.

An old English proverb says, “A smooth sea never made a skilled mariner.” Managing a stable business is a lot easier than leading it through a crisis. Growth periods don´t test your intestinal fortitude like a crisis does, nor do they determine whether you will stay on track in the heat of battle.  As in war, crises tests leaders to their limits because the outcome is rarely predictable. They not only have to use all their wisdom to guide their organizations through it, but must dig deep inside themselves to find the courage to keep going forward. As GE´s Jeff Immelt said about a crisis he faced earlier in his career, “Leadership is a long journey into your own soul.”

Some great leaders are already emerging from this crisis. Goldman Sachs´ Lloyd Blankfein, on whose board of directors I serve, and JP Morgan´s Jamie Dimon have proven their leadership not only in guiding their firms through the crisis, but by showing the way toward sustainable capital markets.

In the corporate world IBM´s (IBM)Sam Palmisano, Avon´s Andrea Jung, Xerox´s Anne Mulcahy, Novartis´ Dan Vasella, PepsiCo´s (PEP) Indra Nooyi, and Immelt are demonstrating the kind of visionary leadership that will reshape the U.S. economy. Behind them are young leaders stepping up to the top roles, like 43-year-olds Andrew Witte of pharmaceutical giant GSK and Kasper Rorstad of German chemical maker Henkel.

Robert F. Kennedy once said, “Few will have the greatness to bend history itself. But each of us can work to change a small portion of events, and in the total of all these acts will be written the history of this generation.” Just as the “greatest generation” did in World War II, this new generation of leaders is learning leadership lessons they will use the rest of their lives. It´s time to let them take over leadership and focus their organizations on pressing problems that have been festering for a decade. By concentrating on health care, education, energy and the environment, and job creation through innovation, creativity and entrepreneurship, they will build a sustainable global economy while making the world a better place for all its citizens.

As they do so, they will write the history of this generation.