Winning (29 page)

Back to the quota question about Norway.

The only quota that I ever thought worked was the exposure quota we used at GE—that is, we made sure there was a woman or minority candidate on every slate for the top two thousand jobs. That guaranteed every manager saw the diverse candidates out there and that diverse candidates had a shot.

I spent the first half of my tenure as CEO focused on changing the portfolio and competitiveness. Diversity for me didn’t come into play until the ’90s.

But today, if you want to field the best team, you simply can’t afford a delay.

I’ve received this question numerous times, from audiences from New York to Sydney:

How did you pick your successor, Jeff Immelt, and how do you think he is doing so far?

I am always thrilled to answer the second part of this question—it’s such a layup. Jeff is doing amazingly well, even exceeding my expectations for his leadership. I couldn’t be more proud of where he has taken GE and where it is going.

Jeff became chairman and CEO of GE on September 10,2001, so it was technically his second day on the job when the terrorist attacks changed the game for everyone. Jeff handled the new uncertainty of the business environment with characteristic thoughtfulness and determination. Despite the resulting downturns in the airline, power, and reinsurance industries, he masterfully navigated the company to modest annual earnings growth from 2001 until 2004.

At the same time, Jeff has made significant changes to the portfolio that positioned GE for future growth. He made major media, medical, financial services, and infrastructure acquisitions, while disposing of slower-growth industrial and insurance assets. He reinvigorated GE’s research and development activities with large facility investments in Munich, Shanghai, and Schenectady, New York. And Jeff has put enormous emphasis on diversity at GE, with immediate and positive results.

Several times in this book, I’ve said that change is good. Jeff sure proves that point.

As for how and why I picked Jeff, I just don’t ever talk about that. There were three terrific people to choose from—Jeff, Bob Nardelli, and Jim McNerney. There is no reason to conduct a public autopsy on the process—it’s past. Both Bob and Jim have gone on to have spectacular runs in their new roles—Bob as CEO of The Home Depot and Jim at 3M.

What I will say is that at the end of the day, the board and I picked whom we believed to be the best leader for GE, and Jeff is making us all look very good.

This question was posed at a management conference in Reykjavik, Iceland, and during a twelve-person business dinner in London:

What’s the future of the European Union?

Long-term, it’s very good.

With all the sound and fury about China, some people see the EU as a huge, lumbering bureaucracy that will never get its collective act together fast enough to reach its full potential in the global economy. Maybe that’s true in the short run, but in time, the EU will prove naysayers wrong.

Remember, the economic EU is less than fifteen years old. It’s already come a long way. Imagine trying to put together the fifty states of the United States today. Now imagine doing that if each state had operated for centuries with a separate government, set of laws, language, currency, and culture, as the members of the EU have. That the EU has done so well in so short a time is actually sort of amazing.
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Without question, the EU still has a way to go before it realizes the economic hopes and dreams of its supporters. But its current statistics are enough to give you a sense of the potential to be unleashed. With twenty-five countries, the EU has 450 million people, 50 percent more than the United States, and a GDP of $11 trillion, about the same as the United States, two and a half times Japan, and about seven times China.

These numbers are impressive, but they’ll only get better as the EU feels the impact of its newest members, Poland, Hungary, Slovakia, the Czech Republic, and the other nations of “New Europe.” In the past decade, from Budapest to Bratislava, from Prague to Warsaw, I’ve seen the excitement, optimism—and the remarkable achievements—in these countries. A new generation of entrepreneurs and small-business people are thirsting for opportunity and success. Their governments have responded in kind, reducing taxes and providing other probusiness incentives. The result has been significant economic growth, especially in comparison to what’s going on in Old Europe.

Yes, Old Europe has problems and a long history. Brussels is filled with bureaucrats, and the individual governments of many countries are fighting tooth and nail to hang on to their hard-earned sovereignty. With their entrenched cultural traditions, France and Germany in particular are lukewarm about the EU, and often act with blatant self-interest.

But these problems are not insurmountable. Washington, Tokyo, and Beijing have plenty of bureaucrats too. And as new generations of political leaders emerge across Europe, and the leadership of the EU itself gains increasing stature with every passing year, the pull of parochial, old-economic-order governments will give way. For example, the French government recently began to ease its rigid support of the thirty-five-hour week and is now proposing that companies be allowed to negotiate directly with employees about work schedules.

In time—and perhaps sooner than many expect—global competitive pressures and the energy of New Europe will have a powerful combined effect. The paralyzing weight of socialism will gradually give way, and the EU will move steadily forward, fueled by an ever-increasing acceptance of capitalism.

This question came at a technology and innovation conference in Las Vegas that spanned three days and featured about twenty speakers. I was one of them.

How do you think corporate boards will change because of the Sarbanes-Oxley Act?

This question, which I heard in various forms and in many locations, including Australia and Europe, reflects a growing attention on governance, a topic for discussion that used to be reserved for shareholder meetings and business school classrooms.

Then, of course, came the postbubble corporate scandals, and people began to ask, “Where the heck were the boards in all these messes? Why didn’t they see the funny business?”

Very quickly, laws and regulations were passed to make boards and senior executives more accountable for any corruption that might occur on their watch. In general these rules, such as the Sarbanes-Oxley Act, are a good thing, necessary to restore economic confidence.

But laws will never guarantee good corporate governance. There is no way that a board’s finance committee, comprised of a finance professor, an accountant, and several busy CEOs, all from far-flung locations, can spend a couple of days every month studying a company’s books and verify that everything is on the up-and-up. Imagine being a board member of a multinational bank. You have people trading everything, swapping Japanese yen for euros in London, and others betting on U.S. commodity futures down the hall. But even most small companies have too much complexity for a committee to track, with hundreds of transactions every day, near and far.

While boards cannot be police, they must assure themselves that companies have auditors, rigorous internal processes, tight controls, and the right culture for that purpose.

Boards play other roles as well. They pick the CEO and approve the top management. In fact, they should know members of the top team as well as they know their own colleagues. Boards also monitor the mission of the company. Is it real? Do people understand it? Is it being executed? Can it win?

Boards also gauge the integrity of the company. That’s huge. They must visit the field operations and conduct meaningful conversations with people at every level, eyeball to eyeball. It is in this subtle, nuanced integrity watchdog role that boards can make a real contribution.

For some boards, Sarbanes-Oxley will require a real change in behavior. They will need to stop thinking about their jobs as eight, ten, or twelve closed-door meetings a year with lovely catered lunches.

For others, it will only reinforce their existing approach.

Now, in the rush to deal with the scandals, perhaps some aspects of Sarbanes-Oxley went too far, for example, the rules that imply the superiority of independent directors over directors who have some sort of stake in the company, either as investors, suppliers, or any other form of business partner.
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This new requirement needs a re-look with a big dose of common sense.

There is nothing wrong with directors having skin in the game. For the shareholders’ sake, directors should really care about how the company is doing. But the notion that independent directors are better for the company is having the unintended consequence, in some cases, of removing good judgment and experience from where it is needed most.

Take the case of Sam Nunn, the distinguished former U.S. senator from Georgia. Or Roger Penske, the automobile industry entrepreneur. Both were required to leave key GE board committees. Why? After leaving the Senate, Sam joined King & Spalding, a law firm that GE had done business with for decades. In Roger’s case, he had a minority interest in a small GE truck-leasing joint venture. Or take the case of Warren Buffett. Activists wanted him off the audit committee at Coca-Cola because of his large ownership stake.

Who would represent the share owners better on key committees than these three people? A professor? An accounting expert? The head of a charitable foundation? Why would share owners ever want company executives answering to people who might need a director’s salary to make ends meet? Those kinds of directors are less likely to challenge anything—they’re more likely to duck tough issues in the hope they get reappointed.

Let’s not forget that boards exist to support and guide, as well as challenge, management. It would be unfortunate indeed if Sarbanes-Oxley ends up making boards primarily adversarial in their approach. Board members can never forget their main job is to make the company work better, not to get into an us-versus-them dynamic with the very people they are supposed to help.

In the final analysis, the best directors share four very simple traits: good character, common sense, sound judgment—particularly about people—and the courage to speak up.

Laws are all well and good. But it is people, culture, processes, controls—and strong directors—that ultimately put compliance in a company’s blood.

This question came at a breakfast meeting in Copenhagen with about thirty European managers doing business for their global companies in Scandinavia:

I’m about to be transferred to run our operations in West Africa, and I’ve been told to expect that 40 percent of my workforce have AIDS or a family member suffering with the disease. Any suggestions for dealing with this problem?

No question ever floored me like this one.

And as if it wasn’t disturbing enough on its own, another person at the breakfast, an executive from a consumer goods company, spoke up right afterward. “I’m just back from our operations in Africa,” he said. “Try closer to 60 percent.”

What can a leader do in such a dire situation? What can a company do?

It is in confronting a societal problem that the results of a winning company and a good culture really come together to make a difference. At the outset of this book, I tried to make the case that winning is great because it inspires people to be happy, creative, and generous.

That was me talking from 20,000 feet. This question brings you right into the trenches.

The manager who asked this question worked for a highly profitable oil company, and I could feel that he really wanted to do something. He’ll be able to because his company is winning. He can launch programs to educate the workforce about AIDS. He can provide medical facilities and subsidize the expensive drugs the disease requires. He can really improve the lives of hundreds of people. I’ll bet he does.

Winning companies help all the time.

There are more than fifty thousand active volunteers among GE’s employees, involved in four thousand projects a year, from mentoring in schools around the world to participating in countless other programs for the disadvantaged. Because of the efforts of GE volunteers, there have been amazing community projects in Hungarian towns, Jakarta slums, and inner-city schools in Cincinnati. Not only were these projects great for the people who were helped, they were equally beneficial for the people doing the helping. Their volunteering in the streets gave their work at the office more meaning and vitality.

In Slovakia, Chris Navetta showed up in 2002 to manage U.S. Steel’s newly acquired sixteen-thousand-employee plant in Kosice, a city with 23 percent unemployment in the impoverished eastern region of the country. Chris and his team took a real relic of Communism—a money-losing state-owned enterprise—and with a $600 million investment, turned it into a highly profitable operation. While they were doing that, they poured time and money into Kosice. The list of their contributions is too long to print here, but it includes building an oncology wing at the local children’s hospital, remodeling primary school classrooms and providing them with computers, and refurbishing several orphanages and a facility for the blind.

Consider also the outpouring of support from businesses around the world after the tragic Christmas tsunami of 2004. In a matter of days, healthy companies and their people donated billions of dollars in cash and supplies to help people in ravaged communities. It was generosity of the highest order.

I’m not talking here about motherhood and apple pie, or trying to sound like the typical annual report. This is how good business really works. Winning companies give back and everyone wins.