According to Bill George, business leaders should tell the truth to investors all the time — no matter the consequences.
The leadership style of the 1980s and 90s — when many executives were spin doctors primarily focused on maximizing shareholder value in the short term — is not one to which up-and-coming leaders should aspire, he says. Rather, George believes the goal should be transparency and building sustainable enterprises that are ultimately more beneficial to all stakeholders, including investors.
In other words, Jack Welch wannabes won’t cut it today — and that’s okay, according to George, because a new generation of leaders is coming into its own. He (along with co-author and Millennial entrepreneur Zach Clayton) writes about them in True North: Emerging Leader Edition, a follow on to his bestselling True North.
These days George, the former chair and CEO of Medtronics, hangs his hat in Cambridge, Massachusetts, at Harvard’s business school. II caught up with him last week as he was (among other things) preparing for a presentation to Institutional Investor’s Legal Forum and U.S. Institute (for CEOs) peer-to-peer memberships. A video of that presentation is embedded in this story.
The quality of governance is extremely important to investors who allocate assets to businesses through public or private markets. Generally speaking, how are leaders doing on behalf of investors?
Bill George: I strongly believe leaders must build trust with all their constituents. Investors are important, but successful business leaders need to build trust with their employees, customers, and communities, too. And I think too often many leaders have felt they could spin their way out of trouble. The key element of trust is transparency — telling stakeholders everything there is to know. Tension between investors and companies is caused by a lack of transparency: Leaders don’t want to tell investors when the company has problems. But investors own your company, so you have an obligation to build trust. That means telling the truth no matter how painful it is. As an investor, you’d rather hear a leader admit mistakes, lay out a plan to fix them, and focus on having the highest quality products in the market.
Do business leaders recognize that?
The baby boomer generation of leaders were trained in the 1980s and 90s in an era of spin. Spin doesn’t cut it. The only thing it accomplishes is to create more pressure on the investor relations team and CFO. If you’re looking to hype the stock for a few quarters and then move on, that’s not true leadership. You can see that with AMC right now. Adam Aron is just trying to hype the stock and he’s already lost 70 percent of its value. It’s not going to work over the long-term. Investors are not fools — but why make them guess? Tell them what they need to know.
Do you think younger generations of leaders get the idea that spin won’t cut it?
Why? Is it because investors know all the tricks of spin now?
No. The biggest change has to do with the employees. The spin generation of leaders don’t understand their Millennial employees. Employees today have agency, and that’s a huge change. Previous generations were just happy to have a job. Today, there are significantly more open jobs than unemployed people. Employees and potential employees are making it known they don’t want to work for leaders who can’t or won’t lay out a clear sense of purpose and values. If you’re not addressing climate change and diversity and inclusion in a measurable way, they’re moving on. If you’re not making them feel included in the organization, they are leaving you behind. Maybe the executives are committed to making X number of dollars per share, but Millennial employees want to save someone’s life, make a great product, pursue breakthrough ideas, open up new markets. That’s what excites them, and that’s what investors should be trying to identify and go along for the ride on.
In a sense, you think investors should ride the coattails of the employee movement you describe because they are changing the type of leadership companies require.
It’s not just me — investors are thinking it and demanding it, too. Investors are much more astute now. If a drug comes along that will make a big difference in people’s lives and do well by a company, investors are more willing to look at longer term factors and not worry so much about discounting them like they used to. They aren’t just in and out.
To take it a step further, a wise investor gets to know the leaders of a company, and ascertains whether they can be trusted to tell the truth. Investors aren’t just looking at quarterly earnings anymore, and nor should leaders be. Both should be focused on whether the leader can and will build a company the success of which can be sustained. Take Microsoft. Steve Ballmer was about charisma and all that blowhard stuff, and the stock went down for 14 years under his leadership. Now Satya Nadella comes in — and maybe it’s down a little bit now — but he’s grown shareholder value eight times! He achieved that only because he changed the culture and approach, and everything became transparent. That’s a very big change, and exemplary leadership.
What should investors look for in the new generation of leaders?
Look beyond the externals, the charisma, the fancy statements, and see what’s at the core. Are they going to build something for the long-term? You want to know that when they have a problem all the stakeholders know they have a problem — and that’s okay. Everyone has problems from time to time. Business never goes upward in a straight line. Jack Welch made his earnings 60 quarters in a row or something like that. That’s not natural. That just means you have a lot of cookie jars of money you can go to when you have problems. Investors should aspire and demand to see beyond that. For example, earnings per share of the company are going up — they beat their numbers by a penny every quarter — but there’s no cash flow. That may reveal things company leadership doesn’t want to talk about. Maybe they just found a way to pull some reserves out to hit the number and look good. Investors should explore beyond quarterlies to the underlying fundamentals. I realize quarterlies are an indicator, but they’re just reporting history, not the culture of the company.
You’re not afraid to say you think Mark Zuckerberg is a leader who has lost his way. What about Elon Musk?
He is a bit of a conundrum. There’s no question Elon Musk is the most brilliant inventor of our time. Who else could create a car that is virtually perfect right out of the box the first time? Other companies will have trouble catching up with what he’s done in electric vehicles. He’s broken the back of technology. But there’s a lot of turnover in his management team, and now he’s tweaking Twitter and playing games and trying to be political. I have reservations about him as a leader. He could be on the verge of going the Zuckerberg route. Should investors ignore his foibles? It’s hard to say right now.
Can a bad leader become a good leader?
If they want to ground themselves in a sense of purpose and values and discover a moral compass, but they really have to go back and do that work. It’s very hard to lead other people until you know how to lead yourself — that’s how people get to be bad leaders. I’m not optimistic that mid-career toxic leaders can change their ways.
So, you can’t just flip a switch one day and become a better leader?
No, you can’t.