Monthly Archives: December 2015

Is America Abandoning Research? Dow-DuPont Raises More Concerns

Shareholders are arguing that research takes too long, costs too much, and carries too many risks.

America’s vaunted research prowess is under attack. Not from China, Japan, or Germany, but from within, led by impatient investors eager to gain immediate boosts in stock prices.

Spurred on by activist investors, these shareholders are arguing that research takes too long, costs too much, and carries too many risks.

Unfortunately, that’s the very nature of research: despite efforts to accelerate innovation, basic research takes as long as ever because of the thoroughness, rigorous testing, and extended time required for commercialization. Consider the human genome. It was first sequenced during Bill Clinton’s presidency. Fifteen years later, biopharma companies are still working on early applications.

America’s corporate research labs, which have been working with academic research institutions supported by federal funding, have long been the envy of the world. Bell Labs, which produced many of the scientific breakthroughs of the 20th Century, has virtually disappeared as the result of mergers that left it owned by Nokia. I worked in research-based organizations for 35 years and witnessed first-hand the stunning breakthroughs that not only improved our lives but handsomely enriched long-term shareholders.

Now, DuPont’s research labs, which produced discoveries such as nylon, rayon, Teflon, and solar cells, is the target of persistent activist attacks. This week’s announcement of the merger of America’s two leading chemical companies, DuPont DD -5.07% and Dow DOW -4.68% , could spell doom for DuPont’s central research labs and presages further research cuts at Dow as well. To preserve DuPont, former CEO Ellen Kullman won a hard-fought proxy contest with activist investor Nelson Peltz. Six months later, new board member Ed Breen convinced her to retire and took over as CEO.

Only a month after taking the reins, Breen merged the company with Dow and will become CEO of the combined companies. Breen and Dow CEO Andrew Liveris have vowed to cut R&D and break the combined company into three smaller firms, leaving it a weakened player in a competition against global chemical giants like Germany’s BASF and Bayer, and China’s Sinopec and Sinochem. Breen and Liveris were apparently reacting to pressure from activist investors including Peltz and Third Point’s Dan Loeb to resort to financial engineering to create immediate shareholder value. In doing so, they are pleasing short-term shareholders at the potential expense of business fundamentals.

These days, Wall Street cheers every time companies combine or break up and cut their R&D. Buoyed by an unquenchable thirst for short-term stock gains, traders and activist investors are mounting pressure on a wide array of companies to cut research and capital expenditures in order to increase stock buybacks and thus boost stock prices. Activist investors love the “synergies” that result from dismantling R&D. These actions cause short-term profits to rise, but what about a company’s future? Unfortunately, these investors don’t care. They cash in their profits long before a company’s prospects turn sour.

In pharmaceuticals, Pfizer has led the parade of R&D cuts. It acquired Warner-Lambert, Pharmacia & Upjohn, and Wyeth, and then slashed their research budgets by consolidating them. When Pfizer CEO Ian Read began his tenure in 2010, he vowed to make even more R&D cuts and focus on purchasing drugs from others. As this strategy fizzled and British authorities declined Pfizer’s hostile takeover of Astra-Zeneca, Read turned not to drug development but to financial engineering. He recently announced a tax inversion deal to acquire Ireland-based Allergen. Inevitably, R&D will be the big loser here as well.

Meanwhile, aggressive smaller pharmaceutical companies like Valeant openly brag about how they spend less than 3% on R&D and 3% on taxes. Their goal is to acquire larger pharma companies like Allergan and Shire by paying top dollar, and then raising prices on older drugs by 200% to 500% to generate the appearance of revenue growth.

Slashing R&D isn’t limited to pharmaceutical companies. Food giant Kraft was dismantled by Peltz in 2012, leaving a weakened company to seek shelter in the arms of Brazil’s 3G and combine with venerable HJ Heinz. The outcome? 3G is slashing all budgets including R&D, contributing to further revenue declines.

In the struggle between research to fuel growth and cutbacks for short-term gains, financial engineers have the upper hand today. While these financial machinations are pleasing short-term traders, the loser will be America’s superior research machine. As a consequence, the U.S. could lose its global edge in research and badly damage its innovative spirit.

The entrepreneurs of Silicon Valley, whose forte is not basic research but disruptive innovation, are the only ones left standing. Apple, Google, Amazon, and Facebook have all but thumbed their nose at short-term shareholders and continue to invest in research at very high rates. How? Often by keeping control with two classes of stock: voting shares for founders and original investors, and non-voting for everyone else. In the past, this was considered poor corporate governance. Today, it is a pragmatic way for companies like Apple and Google to invest billions in “moonshot” projects such as self-driving cars.

It does not look like the U.S. government is prepared to step in and fund research in Corporate America’s absence. Despite its success, the National Institutes of Health has faced decreasing budgets since 2003, as its purchasing power decreased 30%. Nor has the government invested significantly in developing new forms of renewable energy.

Meanwhile, China is funding research at an unprecedented rate. Its universities churn out 150% more scientists and engineers than America produces. As great as America’s technological universities are, the U.S. is educating far more foreign students than immigration policies permit to stay and work here. Meanwhile, China is building, not dismantling, global champions in every industry to compete for world dominance of their respective fields.

Germany isn’t backing off, either. By concentrating on select industries – automobiles, machine tools, chemicals, and construction – German industry has become the envy of the world in its exporting ability despite its high labor costs.

Where does this leave the U.S.? Barring a change in direction, our industrial base will be gutted as we lose competitive capability on the global scale. Then we will become a nation dominated by financial services, information technology, and service industries. Because of this, we will continue to lose well-paying jobs, further hollowing out the middle class, and creating even greater income inequality.

America can do a lot better, but first we have to overcome our need for instant financial gratification and focus on the long-term.

Bill George is the author of Discover Your True North, senior fellow at Harvard Business School, and former chair & CEO of Medtronic

Harvard Working Knowledge: You Won’t Make It If You Fake It

crossing-fingersThe cover of last January’s Harvard Business Review featured the subhead, “When it’s OK to fake it till you make it.”

“Faking it” is the antithesis of authentic leadership. Following this advice is the most likely path to failure as a leader. You cannot act like a leader until you go through the hard steps of developing yourself from within.

With the visible failures of leaders who tried to fake it, people have developed sensitive “sniff tests” and can quickly identify who is authentic and who is not. If you fake leadership, people will be unwilling to follow your lead and will resent your attempts to exert power over them.

“IF YOU FAKE LEADERSHIP, PEOPLE WILL BE UNWILLING TO FOLLOW YOUR LEAD”

Developing as a leader is hard work. It is similar to the rigorous training and required experience that surgeons, musicians, or athletes must go through before excelling in their fields. Can you imagine doing brain surgery without proper training? Or playing the cello at Carnegie Hall or tennis at Wimbledon without years of training and practice?

Just as you cannot learn these skills solely in the classroom, leaders must undertake rigorous personal development and have multiple leadership experiences before they are prepared for major leadership assignments. Through these processes, they learn about themselves and how to lead diverse people through complex challenges.

Look at the sad case of Theranos CEO Elizabeth Holmes. She is a talented person who rose to fame too quickly, until Theranos was challenged by a Wall Street Journal investigation. On the surface, Holmes’ story seemed to be the perfect narrative. The would-be Silicon Valley entrepreneur dropped out of Stanford at the age of 19 to found Theranos, a company attempting to replace blood-testing draws with single drops from the finger. Holmes’ rapid rise to fame put her on a fast track to success, with high expectations and intense pressures. Yet she hadn’t had adequate leadership experience attacking and leading people through difficult business problems.

Holmes created a $9 billion valuation on paper by selling venture capitalists on her idea and raising $400 million. She assembled a celebrity board, convinced Safeway to spend $350 million to build clinics in its supermarkets, and signed partnerships with Cleveland Clinic and Walgreens. She attracted celebrity media attention with headlines like “Queen Elizabeth: Mystique of Theranos Founder Grows.” She received prestigious accolades, being named Presidential Ambassador for Global Entrepreneurship, youngest winner of the Horatio Alger Award, and one of Time’s 100 Most Influential People (2015).

Then it all came crashing down.

On October 16, The Wall Street Journal reported that the data Theranos submitted were insufficient to prove the accuracy of many of its tests. In spite of her seeking media visibility, Holmes did not offer comments for this article. Five days later, she said the company was in a “pause period.” Subsequently, Walgreens halted expansion of its Theranos blood-testing centers, and in early November, Safeway announced dissolution of its partnership.

A famous quote says: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.” Maybe the “fake it till you make it” leadership approach will work for a while, but it will eventually catch up with you.

Contrast the fake it approach with that of Facebook COO Sheryl Sandberg, an open and transparent authentic leader whom I profile in Discover Your True North. Unlike the “rocket ship” career ladder Holmes pursued, Sandberg’s career path took on the shape of a “jungle gym” that she described in Lean In. “I could never have connected the dots from where I started to where I am today,” she wrote.

After graduating from Harvard Business School, Sandberg worked as a management consultant at McKinsey and for Treasury Secretary Larry Summers for six years before joining Google at 32. When she and Facebook CEO Mark Zuckerberg began working together in 2007, Sandberg requested that Zuckerberg provide her with weekly feedback.

After the tragic death last spring of her husband Dave Goldberg, Sandberg shared a touching Facebook post, hoping her story would help others. She wrote, “I realized that to restore that closeness with my colleagues, I needed to let them in. That meant being more open and vulnerable than I ever wanted to be.”

It takes immense bravery to be so honest and open with the world, but realizing that others accept and love you for who you are liberates you as an authentic leader.

I strongly support young leaders like Larry Page and Zuckerberg who start their own businesses. You can get started with little management experience, but to sustain success, it is essential to surround yourself with more experienced leaders as Zuckerberg found with Sandberg. Google founders Page and Sergey Brin followed a similar course by recruiting Eric Schmidt as CEO. It is also important to seek out wise mentors, as Zuckerberg did with Washington Post CEO Donald Graham and venture capitalist Marc Andreessen.

That’s what I learned to do as the 27-year-old general manager of Litton Industries’ microwave oven division. I recruited an experienced team of appliance industry veterans, including the marketing and sales head who was twice my age and earned twice my salary. Had I tried to fake my leadership and knowledge of the appliance industry, I surely would have failed.

In the research for Discover Your True North, we interviewed 170 leaders from 23 to 93 years old. Not one of them talked about faking it to get ahead. What stood out for every one of them was how hard they had worked to develop themselves, and the painful lessons they learned from their mistakes and failures. Through those very difficult experiences they developed the self-awareness, confidence, courage and resilience to persevere through the most difficult challenges, and imbue their colleagues with confidence in their leadership and ability to succeed.

In contrast, leaders who are faking it only fool themselves, as others see through them and are pained by their acting. Sometimes this approach impresses their bosses, which may be good for a promotion or two, but eventually falls apart when they are unable to win support from peers and subordinates.

All leaders are human, subject to frailties and mistakes, but inauthentic leaders lare often are afraid to face their failures and may try to hide them or blame others. Holmes appears to have talent, ambition, and intellect, but these qualities, unbalanced by authenticity, may have magnified her difficulties.

Authentic leaders are real and genuine. They acknowledge their shortcomings and admit their errors, which enables them to connect with others and inspire teammates. Their leadership is built on their character and values, as they embrace the vital experiences that shape them, and are comfortable in their skin.

That’s why Sheryl Sandberg has been so successful, a great partner for Mark Zuckerberg, and wise adviser to millions who have read Lean In. Leaders like Sandberg understand they won’t make it if they fake it, but they will succeed by being authentic.

Bill George is the author of Discover Your True North, a senior fellow at Harvard Business School, and former chair and CEO of Medtronic.


 

This article was originally published on Harvard Working Knowledge 12/08/15.

LinkedIn: 5 Ways to Develop Emotionally Intelligent Behaviors

Effective leaders are emotionally intelligent. They have the skills to manage and use their emotions. And, like all leadership skills, emotional skills – the attitude and abilities with which someone approaches life and work – can be learned and developed. Brain science shows usdaniel goldman articlehow that learning occurs.

My colleague Richard Boyatzis drew upon three streams of research to design a five-step process for developing emotional skills. Emotional skills are partly inborn, but experience plays a major role in how the genes are expressed. Research suggests that our range of emotional skills is relatively set by our mid-20s and that our accompanying behaviors are, by that time, deep-seated habits. The more we act a certain way – be it happy, depressed, or cranky – the more the behavior becomes ingrained in our brain circuitry, and the more we will continue to feel and act that way.

An emotionally intelligent leader can monitor his or her moods through self-awareness, change them for the better through self-management, understand their impact through empathy, and act in ways that boost others’ moods through relationship management.

The following five-part process is designed to rewire the brain toward more emotionally intelligent behaviors. The process includes:

  • imagining your ideal self,
  • coming to terms with your real self (as others experience you),
  • creating a tactical plan to bridge the gap between ideal and real,
  • practicing those activities.

It concludes with creating a community of colleagues, friends and family – call them change enforcers – to keep the process alive. Let’s look at the steps in more detail.

Ideal Self

Erica, a senior manager at a global telecommunications company, communicated poorly when she felt stressed. For example, she often took over a teammate’s work so the job would be done right. After many complaints, her supervisors encouraged her to attend leadership seminars, read management books, and work with mentors. Nothing worked. She couldn’t shake her bad habits.

As a last resort, Erica started working with a coach. She was asked to imagine herself five years from now as an effective leader. She was urged to consider her deepest values and loftiest dreams and to explain how those ideals had become a part of her everyday life.

Erica pictured herself leading her own tight-knit company staffed by 10 colleagues. She saw herself as a positive force to her colleagues, family and friends.

Erica had a low level of self-awareness. She was rarely able to pinpoint why she was struggling at work and at home. All she could say was, “Nothing is working right.” This exercise opened her eyes to the missing elements in her emotional style. She was able to see the impact she had on people in her life.

Current Self

Leaders can become self-aware by seeing themselves through the eyes of those around them. Hearing the truth about yourself can be uncomfortable. But self-delusion can derail even the most talented professional.

Seek the truth about yourself. Keep an extremely open attitude toward critiques. Seek out negative feedback, even cultivating a colleague or two to play devil’s advocate. Gather feedback from as many people as possible – including bosses, peers, and co-workers.

Such 360-degree feedback will reveal how people experience you. How people rate your listening skills really shows how well they think you hear them. Similarly, ratings about coaching effectiveness show whether or not people feel you understand and care about them. Low scores on openness to new ideas mean people experience you as inaccessible or unapproachable or both.

While identifying areas of weakness is crucial, focusing only on weaknesses can be dispiriting. You must also understand your strengths. Knowing where your real self overlaps with your ideal self leads to the next step – bridging the gaps.

Bridge the Gap

Brain research shows that mentally preparing for a task activates the prefrontal cortex – the part of the brain that moves us into action. More mental preparation translates into doing better at the task. And, the prefrontal cortex is particularly active when someone prepares to overcome a habitual response. Without that brain arousal, a person will reenact tried-and-true but undesirable routines. Learning agendas literally give us the brainpower to change.

John, a marketing executive of a major energy company, was charged with opening and managing a satellite office – a job that would require him to be a coach and a visionary and to have an encouraging, optimistic outlook.

Yet 360-degree feedback revealed that John was seen as intimidating and internally focused. Identifying this gap showed that he needed to hone his empathy. He realized that to help his teammates reach their goals, he needed to get to know them better. He made plans with each employee to meet outside of work in a more casual setting, where they might be more comfortable revealing their feelings and ideas.

John’s efforts to overcome ingrained behaviors are examples of brain science at work. He didn’t realize that his behavior had taken hold over time. He used daily interactions to help him become more aware of his demeanor and practice new responses.

Behavior Change

Making change means rewiring our brains by doing and redoing new behaviors, over and over, to break old neural habits and make a new behavior automatic. Even just envisioning new behaviors will help.

Tom, an executive, used such visioning to help bridge the gap between his real self (perceived as cold and hard driving) and his ideal self (a visionary and a coach). On his way to a breakfast meeting with an employee, Tom imagined asking questions and listening to be sure he fully understood the situation before trying to solve the employee’s problem. He anticipated feeling impatient, and he rehearsed how he would handle these feelings.

Brain research shows that imagining something in vivid detail can fire the same brain cells actually involved in doing that activity. Mental rehearsal and experimenting with new behaviors make the neural connections needed for genuine change, but they aren’t enough to make lasting change. For that, we need help from others.

Teamwork

Improving our emotional intelligence or changing leadership style can’t happen in a vacuum. We need to practice new skills with other people and in a safe environment. We need to get feedback about how our actions affect others and to assess our progress on our learning agenda.

Many professionals use learning groups to support their development. The most powerful groups are ones in which the members develop trust through sharing their goals and discussing their work and personal lives. People we trust let us try out new leadership skills without risk.

Learning to be a more effective leader may be a self-directed process, but our relationships with others help us articulate and refine our ideal self, compare it with reality, assess our progress, and understand the usefulness of what we’re learning.

Gain More Practice

Leadership: A Master Class Training Guide offers more than nine hours of research findings, case studies and valuable industry expertise through in-depth interviews with respected leaders in executive management, leadership development, organizational research, workplace psychology, innovation, negotiation and senior hiring. Each module in the training guide offers individual and group exercises, self-assessments, discussion guides, review of major points, and key actionable takeaway plans. The materials allow for instructor-led or self-study opportunities.


This article was originally posted on LinkedIn on 12/06/15.

 

Faith & Leadership: Leaders must develop the qualities of the heart

Good leadership isn’t about status or power or faking it till you make it, said Bill George.

Instead, good leaders take the time to discern who they are, and to follow the deeply heldBill-George_tp
beliefs, values and principles that guide them, he said.

“What people are looking for is someone who is real and authentic. People know who is authentic or not,” he said.

George is a professor of management practice at Harvard Business School, where he teaches leadership. He is the author of “Seven Lessons for Leading in Crisis,” “True North,” “Finding Your True North” and “Authentic Leadership.”

A former chairman and CEO of Medtronic, George also was a senior executive with Honeywell and Litton Industries and served in the U.S. Department of Defense. He earned a B.S. in industrial engineering from Georgia Tech and an MBA from Harvard University.

He and his wife, Penny, are members of Plymouth Congregational Church in Minneapolis and the founders of the George Family Foundation, which funds the newly established Penny Pilgram George Women’s Leadership Initiative at Duke.

George was interviewed for Faith & Leadership by Sanyin Siang, the executive director of the Fuqua/Coach K Center on Leadership and Ethics at Duke University, while at Duke to give a lecture at the Fuqua School of Business. The following is an edited transcript.

Q: What has changed in how we lead today compared with the past?

Much of what we taught in business school is that the world is predictable, and you can create a strategic plan that will last for five years. Today, the world is volatile. It is chaotic, and it is highly ambiguous. We have to teach leaders to make decisions under the conditions of ambiguity.

They must use their minds and ears to have the courage to make decisions when you really don’t know what is going to happen. They must be ready to adapt to changing conditions; leaders today must be highly adaptable.

Q: What does it take to be a great leader?

To be a great leader today, you have to have a great head and a great heart. As Thich Nhat Hanh said, “The longest journey that you will ever take is the 18 inches from your head to your heart.”

You might have a high IQ, but if you do not have an emotional intelligence, then you are not going to be successful. Qualities like passion, compassion, empathy and courage — those are all matters of the heart, and we can’t teach those in business school classrooms.

You learn those though experience, by going out into the world, by learning those skills, by taking on different roles and then growing. It’s a developmental thing; you must develop the qualities of the heart.

Sometimes you have to go against the grain. When everyone goes left, you might need to choose to go right. That takes real courage — to put everything on the line when you might fail, when the organization might fail.

I believe that everybody has the capacity to be a leader at all levels of the organization. What people are looking for is someone who is real and authentic. People know who is authentic or not. You cannot “fake it to make it.” People see right through you.

I think you have to be real in order to gain the trust of people. At the end of the day, you are asking them to put themselves on the line for a cause, and if they don’t trust the leader, they will never give you their whole hearts.

They might give you their minds. They might give you their hands. But never their whole hearts. They won’t be fully engaged with what they are doing — they won’t be fully passionate.

That is the mark of a true leader.

Q: In your books, you argue that authenticity is crucial for leadership. What does it mean to be truly authentic as a leader?

You have to be real and genuine. There is no magic here. You can’t pretend to be something you are not.

You also have to continue to develop yourself. You grow from your authentic self, and you become a developed self. You gain self-awareness, you solidify your values, you gain confidence and courage, and you gain the willingness to take on difficult circumstances because of your authentic base.

You know who you are based on your story and the crucibles that you have overcome. That is what it means to be an authentic leader.

Q: A major part of your identity and your authenticity is your faith. How has your faith influenced your idea of servant leadership?

I teach at a secular institution. I don’t believe in proselytizing people, but I do believe in sharing my faith if someone asks.

One of the best experiences that I’ve had was when I was a student at Harvard Business School. We brought in a man named Robert Greenleaf, and he brought in his idea of servant leadership. I thought, “That’s right! Authentic leaders are servant leaders. We are here to serve, and people are not here to serve us. We are here to serve other people.”

We have to do this well, and we have to overcome the idea of power and status. Examine whether or not you are really a servant leader. Are you serving a cause?

The good thing about the millennials today is that we are going from the Me Generation, the generation that I was part of, to the We Generation. The millennials are really not focused on self-interest but are much more committed to a cause.

They want to get involved in Teach For America; they want to get involved in social enterprise; they want to get involved in companies like Unilever, which is really committed to global sustainability. I say, “God bless them!” Let’s give them the opportunities to do just that.

Q: In the face of all of this change, traditions are often seen as a hindrance to innovation. But traditions can also ground us. How can we draw on our traditions as a path toward innovation?

Our traditions give us the basis for what we believe. They can be a powerful basis that is tied to our mission and to our values. It is like the roots of the oak tree that we must nourish.

When I went to Medtronic, it was very much a Christian place, and I am Christian. It was very comfortable, but you know, it wasn’t comfortable for all people. We had one Jewish officer that said that he felt very out of place.

We had to broaden that tradition into a much wider range. Today, a devout Muslim heads Medtronic. The important thing is that we were open to diversity. You have to honor people for who they are regardless of their belief traditions. We must come together around a common mission and purpose, regardless of one’s faith or nonfaith or traditions.

Traditions [must] become that of the group, and come out of the mission and purpose of the organization.


This article was originally posted to Faith & Leadership on 12/01/15.