Bill George: Crisis of Confidence: Restoring Trust in Our Leaders

By Bill George

This is a special guest article by Bill George (see bio at bottom). Any opinions are those of the authors and not necessarily those of The Commonwealth Club. Mr. George will be speaking at The Commonwealth Club December 2 in San Francisco.

The stock market has recovered from the financial crisis, but a deep scar from the recession remains. Americans lack confidence in the nation’s leadership to address the challenges the nation currently faces.

The Harvard Center for Public Leadership's 2009 National Leadership Index reveals that 69 percent of Americans think we have a leadership crisis in the country. Another 67 percent believe that “unless we get better leaders, the United States will decline as a nation.”

At the bottom of the index’s ranking of confidence in leadership are Wall Street leaders, closely followed by news media, Congressional, and business leaders. It is tempting for leaders to view these dismal results as a public relations issue emanating from the economic downturn. But this is not a PR problem: it’s a leadership problem.

We opened this decade with a wave of appalling leadership failures. Ken Lay and Jeff Skilling of Enron, Bernie Ebbers of WorldCom, Joseph Nacchio of Qwest, and Dennis Kozlowski of Tyco blatantly disregarded the ethical and legal responsibilities entrusted to them by their shareholders.

We are closing the decade with another wave of leadership failures. Dick Fuld of Lehman, Alan Schwartz of Bear Stearns, Angelo Mozilo of Countrywide Financial, and Chuck Prince of Citigroup sacrificed financial prudence for the possibility of extraordinary short-term gains. Their decisions obliterated billions of dollars of economic wealth and almost destroyed the nation’s financial system.

This crisis won’t be over until a new generation of leaders emerges that understands that long-term institutional stewardship and maintaining public trust are the two imperatives of 21^st-century leadership.

Far too many leaders fell into the trap of believing that the purpose of business is to maximize shareholder value and reap personal rewards, rather than serve customers and the society they operate in. In my experience, those that focus primarily on maximizing shareholder value, usually with a short-term focus, are more likely to destroy the value they created.

A recent study of S&P 700 international stocks from 1998 to 2009 shows that only three of the top fifteen winners are American – Apple, Amazon, and Oracle – all of which are headed by leaders with long-term focus. The five worst U.S. stocks – AIG, Kodak, Citigroup, Ford and Bristol-Myers – had leaders with a short-term focus. This list excludes GM, K-Mart, Enron, WorldCom, and Lehman since they declared bankruptcy.

Long-term leaders recognize they cannot rely upon cost-cutting, acquisitions, and other short-term moves to create sustainable value. By focusing clearly on their long-term mission, values, and strategies, they earn and keep the trust of their customers, their employees and the society they serve.

The key to creating sustainable shareholder value is to provide superior value to your customers. Companies like Johnson & Johnson, Target, Google, Medtronic, and Wells Fargo focus on their mission and values, which is what motivates their employees. When a company does these things well, revenues and profits expand and sustainable shareholder value follows.

A number of progressive corporate leaders are emerging that recognize the need for long-term focus to create sustainable value. For example, IBM’s Sam Palmisano embarked upon a seven-year “leading by values” initiative to reposition the firm globally and emphasize its service businesses. Indra Nooyi committed PepsiCo to a long-term focus on expanding healthy food and beverage offerings. Dan Vasella of Novartis invested heavily in drug and vaccines research to prevent and treat intractable diseases. John Chambers is making acquisitions during the downturn to prepare Cisco to lead a new productivity expansion. Amazon’s Jeff Bezos keeps introducing product innovations like the Kindle—even though they take five to seven years to payoff.

In an earlier era, Walter Wriston of Citigroup and John Whitehead of Goldman Sachs capably steered the financial markets with honesty, intelligence, and dignity. As many firms failed in 2008, three Wall Street leaders emerged. J.P. Morgan’s Jamie Dimon created a culture of candor enabling his bank to successfully navigate through the financial crisis. Goldman Sachs’ Lloyd Blankfein (on whose board I serve) built effective risk management into the bank’s DNA. John Stumpf emphasized Wells Fargo’s core strengths and focused on commercial banking to use the crisis to strengthen its franchise.

The path to restoring the public’s confidence and trust in business leaders is clear. We need leaders who are committed to sustainable growth over short-term gains and serving society by creating long-term value.


Bill George is professor of management practice at Harvard Business School and author of 7 Lessons for Leading in Crisis,True North, and Authentic Leadership. The former chair and CEO of Medtronic, he currently serves on the boards of ExxonMobil and Goldman Sachs. Read more at www.BillGeorge.org, or follow him on Twitter @Bill_George.

Commonwealth Club Names Pioneering Businesswoman Dr. Ruth Shapiro First "Social Entrepreneur in Residence"

SAN FRANCISCO (September 28, 2009) --- Following the momentum generated by The Commonwealth Club’s annual dinner earlier this year honoring three Bay Area social entrepreneurs, the Club has officially named Dr. Ruth Shapiro its first Social Entrepreneur in Residence. After having successfully launched several socially responsible businesses herself, including the Hong Kong-based Asia Business Council, Dr. Shapiro will now contribute to the Club’s ongoing mission of creating and developing positive social change at home and abroad.

“Venture capital firms often have entrepreneurs in residence, who work on their own ideas and help foster entrepreneurship within the firm. We believe that model also applies to the non-profit world and social entrepreneurship. We are delighted that Dr. Ruth Shapiro, herself a seasoned social entrepreneur who has started several programs and organizations, will take on this role,” said Club President and CEO Dr. Gloria Duffy.

“The term social entrepreneurship is used widely today but few would define it in the same way," added Shapiro. "The Commonwealth Club applauds social innovation. This year, the annual dinner celebrated the work of three funders -- Bill Draper, the Skoll Foundation and Google.org -- for their landmark efforts to promote social entrepreneurship and innovation. The Club realizes, however, that more public awareness of social innovation models and approaches would go far to increase public support and, ideally, increase funding and activity in this area.”

As the social entrepreneur in residence, Dr. Shapiro will focus on three tasks. First, she will orchestrate a year-long series of programs, including talks by social entrepreneurs, funders, academics, and corporations, focusing on social entrepreneurship. As in the venture capital model, Dr. Shapiro will also work on the business plan for her own non-profit start-up, which will focus on the relationship between business and society. She will also help The Club find new and entrepreneurial ways to promote its goal of educating the public on a wide-ranging set of issues and subjects.

Dr. Ruth Shapiro has built several successful businesses around social missions. Her latest and largest achievement was to create and run the Asia Business Council, a Hong Kong-based membership organization of top CEOs in Asia, committed to sustainable economic development. As its founder, Dr. Shapiro raised the startup capital from private foundations and individuals, recruited key chief executives to develop the initiative, and built the council into the organization it is today. On a day to day basis, Dr. Shapiro oversaw the council’s strategy, management, membership, program and finances. Through this work, Dr. Shapiro gained expertise on issues such as corporate social responsibility, scenario planning, education, training and innovation, corporate governance, energy efficiency, trade policy and regional economic growth.

Before creating the Asia Business Council, Dr. Shapiro worked in the field of international development. In this capacity, she held various management positions and established new program areas at the Academy for Educational Development, and the Harvard Institute of International Development and Global Outlook.

Dr. Shapiro, a Palo Alto resident, recently relocated back to the United States after living in Hong Kong and London for the last six years. She holds a doctorate from Stanford University and Masters degrees from Harvard University and George Washington University. She completed her undergraduate work at the University of Michigan.

For more information or to schedule an interview with Dr. Shapiro, contact Riki Rafner, director of media and public relations, at 415-597-6712.