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July 2, 2009
Leadership in Tough Times
I was a participant in the London Business School’s Global Leadership Summit earlier this week. Five hundred executives, many of them LBS graduates, attended the event. There were heated debates about executive compensation, the role of government in the private sector, the balance between needs of shareholders and stakeholders, and the responsibilities of the CEO as communicator/statesman. Here are some of the more provocative contributions from the CEO panelists:
1) Government and Business—Jeff Immelt of GE said, “We need to embrace public private partnerships. Government has moved in next door and is not leaving. “Paul Walsh of Diageo said, “Pressures of rising unemployment are forcing government to consider job protection, which is actually protectionism.” Lord Davies of the UK Government Department of Trade and Investment, added,”The voice of business in the UK is silent on the issues of the day.”
2) CEO as Communicator—Ian Davis of McKinsey said, “There is nothing in it for CEOs to speak up because they will get slammed. Business should have a collective voice or put forward entrepreneurs such as Branson.” Immelt disagreed, “You need the ability to connect with stakeholders, to explain company strategy. To heck with critics in the business media—tell them what you are doing but then move ahead.” Ben Verwaayen of Alcatel-Lucent said, “You must bring your people along to establish credibility and rebuild trust.” Willie Walsh of British Airways added, “Be honest with your people because they are very intelligent and know the business. Pride in the brand can sustain you in trying times.”
3) Shareholder Value as Primary Task—Ian Davis of McKinsey said, “Shareholder value needs a re-think. The duration is the key point; we cannot succeed in business with such short term targets. Finance faculty has been too dominant at business schools. Incentives should recognize needs of employees and society as well.”
4) Executive Compensation—An entrepreneur in the audience challenged Stephen Hester’s pay package. The UK Government regulator, John Kingman, responded, “His rewards are tied to the taxpayer ROI. We seek to run these partly nationalized banks as commercial investors would; we need to rebuild the bank.” Professor Julian Franks of London Business School added, “Compensation should not be sapped. Align management with shareholders to reward success. It is not a matter of fairness.”
5) The Global Divide—It is not about rich and poor, it is East versus West and state capitalism versus free markets. Professor Kishore Mahbubani of National University of Singapore said, “Don’t universalize Western conditions. Asians feel there has never been a better time. The crisis can be traced to Western managerial incompetence.” Sunil Mittal of Bharti added, “The new generation in India are spenders; their parents are savers.” Xavier Rolet of the London Stock Exchange noted, “We are witnessing the relative humbling of the West and of free market capitalism.” Lord Davis of UK Government added, “The West has lost moral authority for promoting its system. Watch out uncontrolled for anti-business, anti-government sentiment.”
6) The Way Out of Crisis—Stephen Hester of RBS said, “There are powerful forces of recidivism, those who benefited from borrowing against rising house values or easy access to credit cards. We cannot go for quick end of recession and create even more instability.” Professor Helene Rey of London Business School, “It is unclear how we get back to growth. We have nations of big savers (China, Japan, Germany) but no longer the big spenders (US). The US is key litmus test on protectionism. “
7) CEO Job in 21st Century—Jeff Immelt advised rapid adaptability, ability to embrace uncertainty, mobilize decentralized team, make business more personal via engagement and transparency. Ben Verwaayen of Alcatel-Lucent noted that CEO’s must be authentic (be yourself) and be predictable. He cited his experience at the troubled company, where his blog, AskBen.com, received 12,000 comments in the first three months—he responded to each himself, thereby building a relationship with employees.
Edelman and LBS also conducted a survey of participants on the day of the event. The data seems to suggest participants are looking forward instead of worrying about a precipitous decline. They are very nervous about the extent of government involvement in business, especially about the long term implications of higher taxes. They were reticent about becoming visionary public figures, preferring to be transparent communicators.
I left the conference convinced that the CEOs see the need for change, for a more robust regulatory structure, for a stakeholder approach supplanting the Milton Friedman vision that the only social responsibility of business it to make profit. But there is a disconnect around compensation (especially in financial services); witness the chair of Deloitte, John Connolly’s quote, “Those who make a big contribution are entitled to a big reward.” The disparity between haves and have nots, the sense of opportunity for the few and pink slip for the many, are corrosive to a vision of business as a productive partner in society. Paul Polman of Unilever spoke of “a higher level of accountability, a need to balance short and long term.” He concluded with a quote from Viktor Frankl’s In Search of Meaning, “Next to the Statue of Liberty on the East Coast, Americans should have built a Statue of Responsibility on the West Coast.” His advice is worth heeding.
Posted by Edelman at July 2, 2009 1:33 PM |
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Comments
Richard,
I found Don Phillip’s (hemscott.com) 7/31/09 interview of John Bogle, which follows, relevant to you “Leadership in Tough Times” post:
Don Phillips: As a card-carrying capitalist, how do you feel about--or what lessons are there about capitalism from what's happened here, and how do you feel about the increased and expanded role of government?
John Bogle: Well, business brought it on themselves. This is certainly a crisis in capitalism. Judge Posner blames it all on the capitalistic system. He's the great Chicago School man everybody knows. University of Chicago Law School, Chicago Business School all teach us this.
The markets have to clear. They will produce great gains for us. Competition, free markets unimpeded.
So capitalism has basically failed us, and I think even worse--although Judge Posner does not agree with this--I think capitalists have failed us as well as capitalism.
I blame the capitalists actually more than capitalism, which gets to, Don, the endemic part of the system, which means that the idea that capitalism brought this crisis upon itself is even more acceptable, more understandable, in the whole scheme of things.
That is, these businessmen--take the bankers. All the other banks are doing these low loans, so their earnings are growing faster than ours are. So our directors and the analysts on Wall Street say, boy, you better get on the bandwagon and follow.
I've written on this in a number of different contexts, but it's a little bit like the old ethical standard. Think about this, all of you, if you would. There are some things that one just didn't do. That's the way I was brought up. It's not gray; it was black and white.
Now the ethical standard seems to be if everybody else is doing it, I can do it too. Carry that over into the banking. Everybody else is doing these funny loans and having earnings grow faster, building up their margins, leveraging those margins.
The more leverage A gets, the more leverage B feels inclined to get. So the system fed on itself and drove bankers to making decisions that they, presumably, should have known better than to make.
I don't--like Judge Posner does, however--I don't blame government for this. I was at a meeting of CEOs, even though I haven't been to one for quite a while, and someone asked me to sum up the morning. This was a bunch of bankers and other CEOs. They said, what do you think about all this?
I said, you know, what I'm hearing here is you're blaming the government for allowing you to do what you should have had enough brains not to do in the first place. I think there's a lot to that. So it's endemic to the system, and we have to learn to have a better capitalistic system.
I don't call it nationalism. Call it what you will, Don. If the government owns 35% of the bank, it's not their fault they own 35% of it. They had to bail the bank out. Frankly, other than the fiscal issues, I don't see any difference in having Washington, D.C., own 35 percent of Citibank than having Dubai own it except Dubai would drive a much harder bargain.
Phillips: [laughs] Well, it seems at the end of the day, character still counts.
Bogle: Yes, character still counts, and we have lost a lot of that.
Posted by: Hugh Campbell at August 4, 2009 10:16 PM