Monthly Archives: March 2016

CNBC: Time for a shake-up at United Airlines

During the past year I have been a consistent critic of activist investors seeking to take over or influence well-run companies including Apple, PepsiCo, Amgen, DuPont, Dow, eBay and Allergan. However, I have supported activists who have challenged moribund management teams backed by complacent boards of directors.

Denver Airport United Airlines

The new challenge to United-Continental Holdings, known as United Airlines, fits the latter description perfectly. United deserves to be challenged. This week, PAR Capital and Altimeter Capital, two hedge funds with years of experience investing in the airline and transportation industries, have assembled 7.1 percent of United’s shares and seek to name six board members.

Leading their charge is none other than Gordon Bethune, the successful former chairman and CEO of Continental (1994-2004) and career veteran of the airline industry.

Bethune, in an appearance on CNBC this week, criticized the airline’s performance and lack of airline experience on its board and in its executive leadership.

“The current board has a country club atmosphere,” Bethune said.

Having Bethune at the helm would be a refreshing change for United’s leadership, which has been non-existent since CEO Oscar Munoz’s heart attack in October and subsequent heart transplant. Prior to Munoz’s appointment last September, the board ousted former CEO Jeff Smisek who had created “the chairman’s flight” to South Carolina to win favor with the chief regulator of the Newark International Airport in order to gain concessions for United.

United’s troubles existed long before Smisek’s termination. The 2010 merger with Continental was plagued by poor integration, battles with its unions and computer problems that led to persistent delays, missing luggage, and poor customer service. Its first-line employees were angry at how they were being treated, and their attitudes impacted United’s passengers. According to the Bureau of Transportation statistics, over one-quarter of its flights arrived late last year – by an average of 65 minutes! That was well above other airlines, includingDelta and American.

The contrast is marked between United’s woeful performance and the stunning leadership of Richard Anderson, Chairman and CEO of Delta Airlines. Anderson is an airline industry veteran who revived the former Northwest Airlines as its CEO, before a brief sojourn as executive vice president of United Health Group. Anderson became Delta’s CEO in 2007 to lead it out of its 2005 bankruptcy. The following year he merged Delta with Northwest, which had also gone through bankruptcy, and quickly created a unified culture, sound relations with the pilot’s union, and an integrated route structure. He took the unusual step of changing ID numbers on employee security badge to erase any identification with Northwest or the old Delta.

Anderson is a hands-on leader who meets regularly with employees and is often found on the flight line talking with the maintenance crew or in the cockpit jump seat chatting with pilots. He eliminated the bottlenecks in flights by boarding passengers forty minutes early, ensuring minimal lost baggage, and enabling many flights to arrive early – all of which have led to high levels of customer and employee satisfaction. Since the 2008-09 recession, Delta has experienced strong profitability and is using its cash flow to invest in updated aircraft and improvements to in-flight customer service.

As a frequent flyer on Delta and a reluctant passenger on United, my experiences with the two airlines differ dramatically. It is a pleasure to fly Delta where the pilots and flight attendants seem to genuinely enjoy flying and serving passengers. Delta is so efficient that I have come to expect to arrive early, and walk away feeling very satisfied. In contrast, the morale at United seems low. Do employees care whether the flight arrives on time or not? In a way, you cannot blame them as their systems are so poor that flight delays are inevitable.

Thus, United is a perfect target for an activist takeover that could benefit from a board and leadership team of airline veterans. Who better than Bethune to lead the transformation? For the sake of United’s passengers and employees, this is one battle the activists deserve to win.

Bill George is Senior Fellow at Harvard Business School, former Chairman & CEO of Medtronic, and author of Discover Your True North.


 

This article was originally posted to CNBC.com on 3/9/2016.

Huffington Post: Are Our Leaders Losing their Humility?

Listening to the media these days one would think that our leaders have lost all sense of humility_bg_dytnhumility, if indeed they ever had it.

Donald Trump brags that he used a $1 million inheritance to create $10 billion net worth. CEOs like Valeant’s Mike Pearson hype their quarterly results by focusing only on the positive aspects, only to see their company’s stock prices collapse at a later date. Activist investors like Carl Icahn and Nelson Peltz act like they understand complex businesses better than experienced leaders with decades of experiences. Then they use media appearances and public pronouncements to bully CEOs and their boards into “quick fix” solutions.

Whatever happened to humility as a virtue for leaders?

In his 2005 Harvard Business Review article, author Jim Collins postulated a higher level of leader characterized by humility and fierce resolve. This indeed corresponds with my experience: the finest leaders are keenly aware of their limitations and the importance of teams around them in creating their success.

They know they stand on the shoulders of giants who built their institutions. Their job is to build teams of leaders capable of taking their organization to higher levels in order to cope with today’s fierce demands. They exhibit humility in their actions and interactions, yet are passionately committed to the success of their enterprises.

The word humility is often misunderstood. Dictionaries define it as “a modest opinion of one’s own importance,” “the quality of not thinking you are better than other people,” and “self-restraint from excessive vanity.” It is certainly not false modesty or disavowing one’s accomplishments.

Humility derives from an inner sense of self-worth. Humble leaders are grounded by their beliefs, their values, and the principles by which they lead. Ultimately, they know to lead is to serve their customers, employees, investors, communities, and ultimately, society through their work.

Humility is an essential quality for authentic leaders. People trust them because they know they are genuine, honest, and sincere. Lacking those qualities, people live in fear and doubt – not exactly the ingredients to bring out the best in people. In difficult times, people rely on humble leaders even more to get them through crises.

Every day leaders are closely scrutinized for their words and their actions, as they become role models for people inside and outside their organizations. In contrast, leaders who brag and tout their achievements often do so from a deep sense of insecurity. Outwardly, they act like bullies and try to intimidate people, but inside they feel like imposters who may be unmasked at any time.

This is not to suggest that humble leaders are soft, weak, or unwilling to take tough actions such as terminating poor performers or laying people off. They do so with clarity about the impact of their actions, not for themselves but for the greater good of their organizations.

For much of my life, no one would have considered me humble. To the contrary, I felt the need to push myself forward through my accomplishments, to be recognized for my achievements, and to express confidence that I could solve any problem presented to me. In part, these characteristics stemmed from fear of being rejected by others or bullied by powerful personalities. In my early years it was hard to admit my mistakes without rationalizing them or to say simply, “I don’t know.”

As my inner confidence grew, I no longer needed to have all the answers or try to impress others with what I had done. I freely admitted my mistakes, and learned that doing so enabled others to acknowledge their errors. I recognized vulnerability is power, not trying to appear invulnerable. As I did so, people gained greater confidence in my leadership and expressed increased desire to join me in common pursuits.

I still don’t like bullies, and want to challenge them, rather than let them get away with intimidating others. When I witness them trying to overpower others, I defend people against them. At least now I confront them with facts and rational arguments, not emotional responses.

Ultimately, we connect with others not through our words, our intellect, or having the right answer, but through our hearts – our humility in the challenges we face, missteps we have made, our weaknesses, and our acceptance of not knowing. As the Bible says, “With pride comes disgrace, but with humility comes wisdom” (Proverbs 11:2). This is the wisdom of experience tempered by judgment.

Bill George is Senior Fellow at Harvard Business School, former Chairman & CEO of Medtronic, and author of Discover Your True North.


 

This article was originally posted to huffingtonpost.com on 3/9/2016.