By Christopher Farrell The stock market is rallying, the economy slowly reviving. But the effort to restore investor confidence after Enron, WorldCom, Adelphia, and other business scandals is far from over. Widespread chicanery among executives as well as their hired professionals shocked and dismayed the individual investor struggling to save for retirement, as well as the employee trying to do a good job at work and raise a family.
Reform measures have been taken. The Sarbanes-Oxley Corporate Responsibility Act improved financial-disclosure requirements and put pressure on boards of directors to exercise better oversight of management. The Securities & Exchange Commission has been reinvigorated under the leadership of William Donaldson. The SEC is stepping up the severity of sanctions against malfeasance and is campaigning for greater shareholder power as a means of improving corporate governance. The most important sign of change: Skeptical investors are less trusting of management and Wall Street.
Still, one set of authoritative voices has been all too quiet during this troubling time -- that of chief executives. The managers who attend the World Economic Forum, the annual gathering of the elite usually held in Davos, Switzerland, eagerly lecture politicians on how to overhaul countries' regulatory and legal institutions. Yet they remain curiously mute when it comes to reform in executive suites.
RARE TOME. One exception to adhering to the CEO code of omerta (the Sicilian "vow of silence") has been Bill George, former head of Medtronic (MDT), the pacemaker and medical-devices behemoth. George has now authored a book geared toward future corporate leaders, written with the hope of staving off future shame in publicly traded companies. I've found few books penned by former CEOs worth reading, at least cover-to-cover. But anyone interested in management and leadership will get a great deal from investing some time in Authentic Leadership: Rediscovering the Secrets to Creating Lasting Value.
Among the things George scorns are the CEO cult of personality, the 24/7 workday, the gaming of earnings, the excesses of ego, and the breach of trust by far too many corporate leaders in the 1990s. George wants to see people of integrity, committed to building organizations over the long haul, in leadership positions. True, his call for authentic leadership could have easily deteriorated into yet one more exhortation for top executives to act more like Boy Scouts or Girl Scouts. Certainly, that's what I expected when I first cracked the book. But I was pleasantly surprised.
George deftly illuminates his five dimensions of authentic leaders -- understanding why you want to lead, practicing solid values, leading with a heart, establishing connected relationships, and showing self-discipline. All are peppered with striking examples from his own experience and those of other CEOs he has either admired or disdained. One reason the book works so well is that George is a tough critic of his own actions. Clearly he is driven and uncomfortable with the status quo. He's also by his own admission impatient, intimidating, and tactless.
PERSONAL TOUCH. Take, for example, George's argument that balance between work and personal life is critical. Sounds like a typical CEO bromide, right? Yet the message gets across because George is willing to share the strains his demanding job put on his marriage and family, and what his family did to stay together.
He also believes how leaders handle a very personal career crisis is key to their development. George says he "hit a wall" when he had almost achieved his dream of running a major multinational corporation. Yet he was bored and unhappy at slow-moving, change-resistant Honeywell (HON). So, after many long walks, he abandoned his lifelong ambition of leading a giant corporation and joined the much-smaller Medtronic. And, of course, Medtronic grew by leaps and bounds over the next several years.
It's clear that George has little patience for the shareholder-value mantra of the '80s and '90s. He argues that taking good care of employees and customers will result in a higher stock price. And his arguments are persuasive. During his tenure as CEO at Medtronic, revenues grew from $750 million in 1989 to $5 billion in 2001. The company's market capitalization rose from around $1 billion to more than $60 billion -- a 37.5% growth rate compounded annually.
PIGS AT THE TROUGH. Over the years, I've met a number of executives who have worked for George. During our off-the-record discussions -- when it's easy to slip in criticisms or emphasize failings -- the comments were uniformly laudatory about his leadership abilities. George walked the talk.
George's concern with the individual leader is at the heart of both the book's strength and its weakness. Authentic Leadership doesn't go far enough either in grappling with the failings of the current system of corporate governance or in coming up with ways to prevent future business scandals. Yes, individuals make a difference. But so do systems, and the overall system of corporate governance remains in need of more reform.
Case in point: CEO pay. The stock market has been abysmal the past three years. Millions of workers have lost their jobs. Health-care and pension benefits have been eliminated or scaled back. Yet between 2000 and 2002, the median CEO pay at major corporations has been $15 million a year, according to Graef Crystal, a benefits consultant and columnist for Bloomberg News. That is a scandalous sum. Until CEO compensation becomes completely transparent to the average shareholder and boards of directors enforce tough pay-for-performance guidelines, corporate governance has a long way to go.
Nevertheless, Authentic Leadership offers genuine insight for current and future managers. It's a good addition to any executive's bookshelf. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online