True North Blog

Many people want to save General Motors, but no one seems willing to do what is required to make it competitive.

GM is like an aging heart failure patient, suffering from decades of physical abuse that is nearing the end.  The medical team has two painful choices: keep the patient alive on life support, or perform radical surgery with a heart transplant.

A $25 billion bailout for GM, Ford, and Chrysler is akin to putting them on life support to stay alive until the money runs out. But it won’t make them competitive. 

GM’s problems have developed for fifty years under a series of short-term, financially-oriented CEOs.  Instead of staring down the unions and taking a strike, they agreed to expensive employee and retiree health care programs, generous pensions, jobs bank, and inflexible work rules that rendered GM non-competitive.

Employee costs aren’t GM’s greatest problem.  The company isn’t making cars the American people want to buy, unless enticed with huge discounts and 0% financing.  Over the last four decades GM management watched its share of the U.S. market decline from 53% to 20%. Management repeatedly cut costs – after the fact – but never deep enough to get healthy. 

Meanwhile, GM lobbyists opposed every fuel efficiency standard and safety improvement, from miles/gallon improvements to seat belts to catalytic converters to air bags.  Yet when GM started losing share, its management lobbied Washington for limiting imports of foreign autos through increased tariffs, only to waste its opportunities by increasing prices and profits instead of investing in competitive products. 

In fairness, current CEO Richard Waggoner inherited these problems from his predecessors. But he is not thinking boldly about drastic actions to fix them. 

The debate in Washington has been framed in stark terms – bail out General Motors or let the company go bankrupt.  The Michigan delegation claims the latter option is untenable to the nation – and it probably is – but a quick fix that doesn’t make GM competitive is equally unappealing.

There is better option, but first the executives, unions, and politicians need to face reality:

1. With high employee costs and inflexible work rules, GM cannot compete with Japanese and German producers in their North American plants.
2. GM cannot afford seven brands, many of them “look-alikes,” and the advertising, dealers, and service networks to sustain them.
3. GM’s products need a massive overhaul to become competitive in fuel efficiency, air pollution, engineering excellence, consumer features, and styling.
4. GM needs new management and a new culture.

Here’s my radical proposal for a heart transplant to save General Motors:

1. Divide GM into two companies, one called Newco, composed of Chevrolet (including trucks), Buick, and Cadillac. 
2. Install new management and board of directors from outside Detroit, move the headquarters to Dallas, and create a winning culture.
3. Negotiate new employee agreements with wages competitive to foreign producers’ U.S. factories (around $50 per hour), progressive health plans with employees absorbing 25% of costs, and “defined benefit” pensions.
4. Retain only GM’s most productive American and foreign factories, operating at greater than 80% of capacity.
5. Embark on an aggressive new product development program to make Newco’s autos fully competitive in engineering, features, and styling within five years.
6. Commit to fleet average of 40 MPG by 2015 and 50 MPG by 2020, competitive with European standards, with a mix of hybrids, electric cars, lighter vehicles, and efficiency improvements.
7. Re-charter the dealer network for these brands with fewer, healthier dealers.
8. Establish a viable capital structure enabling Newco to operate with sound cash balances and reasonable debt-to-equity structure.

The residual General Motors would retain the remaining brands, management, employee agreements, factories, and dealers.  Management would proceed to liquidate the company, on terms that reasonably protect employee rights, dealer rights, and creditor rights, similar to what a bankruptcy court might offer.  When this process exceeds GM’s residual balance sheet, the federal government would fund the balance on a one-time basis.

Who could pull off this radical plan?  For starters, the President should appoint an “auto czar” operating under the President’s Economic Recovery Advisory Board.  My candidate is former Governor Mitt Romney, who recently proposed letting GM go bankrupt.  As CEO of Newco, I would nominate Carlos Ghosn, CEO of Renault, the world’s most successful automobile executive.

Such radical surgery would be difficult to pull off, but it is the only hope to make American automobiles viable in the future.  Creating a viable company is a far better solution than Romney’s bankruptcy proposal, or the slow death of on-going “life support” from American taxpayers.

The devastating financial crisis of 2008 has claimed another casualty: trust in leaders of America’s most important financial institutions.

Gaining the trust of the people is essential for every leader.  Leaders cannot be effective without full confidence of the constituencies that grant their institution its legitimacy, nor can capitalism function without trust. Trust is “the coin of the realm.”

According to the just-released 2008 survey taken by the Center for Public Leadership at Harvard Kennedy School, an astounding 80% of the American people believe we have a leadership crisis in the country today.  Unless we get better leaders, 79% feel that the United States will decline as a nation.

Business leaders rank near the bottom of the list, with only 45% reporting confidence in them, down from 59% last year.  Only Congress and the President fare worse.  In contrast, military leaders have the confidence of 71% of the people surveyed, making it the highest group in the survey.

This decline in confidence in business leaders is extremely worrisome.  Not surprisingly, given the current fiscal crisis, the trust issue is most acute among leaders of financial institutions. If we can’t trust in the people who invest our life savings, who can we trust?

For many leaders, the criticisms are well deserved.  The heads of failed institutions like Lehman, AIG, Bear Stearns, Countrywide Financial, Fannie Mae, Freddie Mac, Wachovia, and Washington Mutual have done a great disservice to their clients, employees, shareholders, and the nation. It is a disgrace that the U.S. government has had to bail out so many firms to keep the financial system from unraveling. 

To their discredit, many of these leaders opposed to mark-to-market accounting rules, regulation of credit default swaps, greater transparency for hedge funds, or insisting that mortgage bankers obtain financial statements before granting mortgages.

These failures were not caused by complex financial instruments.  They result from failures in leadership. Heads of the failed firms forgot two basic principles of business: to sustain success, firms must serve their customers well for the long-term and contribute to ensuring healthy markets. 

These principles have been central to successful Wall Street leaders for generations. Former CEOs Walter Wriston of Citigroup and John Whitehead of Goldman Sachs always believed clients’ interests and sound capital markets were essential to their firms’ success. So did Treasury Secretary Henry Paulson in his investment banking days. Warren Buffett has consistently spoken out about the problems financial firms were getting into, but few were listening to him, in spite of the enormous success of his firm, Berkshire Hathaway.  

In recent years, financial firms engaged in a mad rush to justify high fees for managing clients’ money by producing outsized short-term returns.  This caused many leaders to lose sight of the importance of protecting their clients’ long-term investments and their financial security. In the scramble to make money for themselves, the failed firms underpriced risk and relied upon excessive leverage – in excess of thirty-five times as much debt as equity. Gambling with their firms’ futures, these failed leaders created massive short-term gains, followed even greater losses, and wound up putting their firms out of business.
No wonder the public has lost confidence in business leaders.

The wisdom of President-elect Barack Obama applies here when he said about the war in Iraq, “I don’t just want to get our troops out of Iraq.  I want to change the mindset that got us there in the first place.”  In Wall Street’s case, it’s not sufficient to get out of the mess we’re in.  We need to change the mindset that led to these problems, so we don’t repeat them in the future.

Correcting the system’s immediate shortcomings, as hard as that will be, is insufficient. We need leaders who can envision the way 21st century global financial markets must function to maintain stability and serve all participants fairly.  Wall Street leaders must work with their government counterparts to put in place institutional rules and oversight to guarantee that markets function smoothly in the future, even under the most extreme circumstances.

We cannot solve problems of this magnitude simply by replacing today’s leaders with people who think and act just like them.  We need new leadership and a new mindset for leaders of America’s great financial institutions. Their new leaders should have five characteristics in common:

1. They should be authentic leaders, focused on serving their clients and all the institution’s constituents, rather than charismatic leaders seeking money, fame, and power for themselves.
2. They should place the interests of their institutions and society as a whole above their own interests. 
3. They should have the integrity to tell the whole truth, admit their mistakes, and acknowledge their shortcomings.  Authentic leadership is not about being perfect.  It is having the courage to admit when you’re wrong and to get on with solving problems, rather than covering them up.
4. They need to adapt quickly to new realities, changing themselves as well as their institutions, rather than going into denial when things don’t go as intended. 
5. They need the resilience to bounce back after devastating losses. Resilience enables leaders to restore trust by empowering people to create new solutions that build great institutions for the future.

Some of these leaders have already emerged on Wall Street. The short list includes J. P. Morgan’s Jamie Dimon, Wells Fargo’s Dick Kovacevich, Goldman’s Lloyd Blankfein, and Morgan Stanley’s John Mack. Their firms participated in the same markets as did the failed firms, and used similar financial instruments. 

What’s the difference? They kept their clients’ interests paramount, took a more prudent approach to risk and leverage, kept their accounting conservative and transparent, and focused on long-term sustainability.

This short list is insufficient.  What’s required is a new generation of authentic leaders to step up to leading America’s financial institutions.  These new leaders must be committed to shifting away from short-termism to focus to long-term results for their clients and their firms and to ensure sound, enduring capital markets for our country. 

Only then can the financial community regain vitally needed trust and confidence of the American people. And only then can we be assured that we won’t be back in a similar mess in a few years.

The sweeping victory of Barack Obama ushers in a new era of leadership that will impact every aspect of American institutions and sounds the death knell of top-down, power-oriented leadership prevalent in the 20th century. 

A new style of “bottom-up, empowering” leadership focusing on collaboration will sweep the country. A new wave of 21st century authentic leaders will take over U.S. institutions of every type: business, education, health care, religion, and nonprofits. These new leaders recognize that an organization of empowered leaders at every level will outperform “command-and-control” organizations every time. 

The 20th century leaders focused on money, fame, and power, earning the title of the “me” generation.  Their leadership destroyed many great institutions, as evidenced by the failures of Enron, WorldCom, and dozens of companies like them. The recent fiascos on Wall Street can be traced to the failure of “me” leaders who put themselves ahead of their institutions. 

Unfortunately, the top-down style didn’t stop with business. It bled into K-12 education, which focused more on administrators than on teachers and students, and into health care, with health plans and hospitals so caught up in billing procedures and regulations that they denigrated the vital patient-physician relationship.   

In the nonprofit world, even as venerable an institution as the American Red Cross had such dysfunctional governance that it couldn’t deliver the massive contributions the poured in after September 11 and Hurricane Katrina to people desperately in need. Mainline places of worship have steadily lost membership to newer ones, largely because their priests, rabbis and preachers did not engage their congregants. 

The worst example of top-down leadership is the administration of President Bush, whose “I am the decider” attitude and centralized White House decision-making turned knowledgeable government leaders into mere implementers of failed policies.   

The leadership style of President-elect Barack Obama promises to usher in the “we” generation.  The best evidence is not in his campaign promises, but in the remarkable way he ran his campaign.  In sharp contrast to the “Washington-centric, tops down” organizations of Senators McCain and Clinton, Obama’s organization was derived from his formative experiences as a community organizer. Lessons learned in Chicago’s streets translated into history’s most successful campaign organization.            

Let’s examine his organization to see what leadership lessons can be learned:

• Obama created a “grass roots” movement by building an ever-expanding organization of empowered leaders, who in turn engaged people from their social networks like Facebook.
• The entire organization was aligned around a single goal – electing Obama as president – and operated with common values (“offer messages of hope, don’t denigrate our opponents, refuse to make deals”).
• Campaign leaders subordinated their egos and personal ambitions to the greater goal.  Those who deviated quickly exited.
• Obama set a clear, consistent tone from the top (“No Drama Obama”), and never wavered, even when things weren’t going well.
• Obama’s greater mission transcended internal goals, such as fund-raising, endorsements, and campaign events, but each of these areas had goals tied to the greater mission.
• The campaign team used the most modern internet tools to communicate, motivate, and inspire people and to guide their actions. Each day 5 million people received personal messages from campaign headquarters or even Obama himself.
• This organization collaborated across a wide range of geographies and campaign functions, all tightly integrated nationally and executed locally.

 
In the corporate world, progressive business leaders are adopting this new style and achieving great success.  Look at the remarkable results of Google in harnessing the Internet for vital information and of Genentech in creating life-saving drugs.   

Well-established American icons like IBM, Johnson & Johnson, Avon, and Procter & Gamble have shifted steadily to the collaborative, empowered organization style and have results that prove it works.  IBM’s Sam Palmisano has converted his 344,000-employee organization from a silo mentality to an integrated global network, focused on leading by values. J&J’s Bill Weldon uses the J&J Credo and a decentralized organization to keep J&J growing as compeititors stagnated.   

Avon’s Andrea Jung has quadrupled her organization of six million “empowered women” to sustain Avon’s growth for a decade.  A. G. Lafley has transformed P&G into a global powerhouse by empowering people throughout the world.  

These examples aren’t limited to business.  In religion, the most rapidly growing churches are Rick Warren’s Saddleback and Bill Hybels’ Willow Creek.  Both organizations build around small groups of empowered people who are dedicated to serving people as far away as Rwanda and Zimbabwe.  In education, Wendy Kopp’s Teach For America created a corps of committed teachers achieving great success in inner city classrooms.  

In health care Mayo Clinic’s well-established collaborative model is being adopted by major systems like Allina Health System to fulfill its healing mission. Among non-profits, Gates Foundation is working with local, “on the ground” organizations such as Carolina for Kibera to help people in the Kenyan slum.  

These trends portend massive changes in the 21st century leadership of American institutions, led by the Obama government itself.  The most successful leaders will be those who can align people around common goals of serving people and empower them with a collaborative style.  Their organizations will be the winners in restoring the U.S. to global greatness.

 As the financial crisis continues to whipsaw the markets, the question we need to ask is: “Where were the boards of directors of Lehman, AIG, Bear Stearns, Countrywide Financial, Wachovia, Washington Mutual, Fannie Mae and Freddie Mac?”

Were they lulled into complacency by their CEOs? Or did they lack the insight to see that their firms had placed themselves in great peril if there were major disruptions in financial markets? Or were they looking at computer models rather than applying the judgments they were selected to make?

Regardless of the reasons, the boards of directors of these firms are directly responsible to their shareholders for the firm’s viability and survivability, and they should be held accountable for their failures. Yet no one is focusing on how these boards failed to exercise the fiduciary duties they assumed when elected by the shareholders.

If history teaches us anything, it is that financial markets can and will gyrate wildly from time to time. Of all corporations, financial institutions must keep their balance sheets and cash balances in line to weather the kind of storms we are currently experiencing. The bursting of the housing bubble was predicted back in 2006 and the excessive debt consumers were holding was also evident. Yet, the directors of these firms kept approving higher and higher levels of leverage as the storm clouds grew ever darker on the horizon.

Even the early signs that the housing bubble had burst in early 2007 were ignored. Didn’t anyone notice the filing for bankruptcy protection of mortgage lender New Century Financial? By taking on the same kind of mortgages, wasn’t it obvious that Countrywide Financial would be next – forced to sell itself to Bank of America after its stock declined 85% — and would drag down the banks that were repackaging these mortgages as AAA securities?

My Harvard colleague Ben Heineman, former general counsel of General Electric, writes, “It is clear that the boards of our major financial institutions did not understand the risks the entities were taking.” He further asserts, “The boards of financial institutions did not choose CEOs wisely in recent years. The institutions pursued profits with overleveraged and ill-understood strategies and banished tough risk assessment from the center of decision-making.” Sad, but true.

Confirming Heineman’s thesis, a year ago a former colleague of mine joined the board of one of the world’s largest banks. At his first audit committee meeting he asked to see management’s assessment of the firm’s cumulative risks. He was told bluntly by the audit chair, “This bank is far too large to look at cumulative risks, as risk management is delegated to all our units.” In the following six months, the bank was forced to write off over $20 billion in losses, and the CEO had to resign.

In response to the Enron and WorldCom crises, the Sarbanes-Oxley legislation of 2002 , with its intended improvements in board governance, was rushed through Congress in just thirty-one days. Since then, we have witnessed the growing power of shareholder advisory firms like ISS that aim to improve board governance. Apparently, neither these firms nor Sarbanes-Oxley caused the boards of these failed institutions to step up their oversight of management and the risks it was taking.

Where were the board audit committees when management was rationalizing that their computer models gave the best indication of the value of their holdings, instead of marking them to market as required by “fair value accounting”? Some financial firms and politicians are now arguing that mark-to-market accounting caused the problem and should be abandoned. To the contrary, marking to market is the only way to force managers and boards to face reality and provide shareholders and debt holders with an accurate valuation of the firm’s assets.

If the government accepts this flawed line of reasoning and abandons mark-to-market accounting, we will not have learned anything from this debacle. As a consequence, we will have yet another crisis in a few years. The innovative financial instruments will be new, but the root cause will be the same: a focus on short-term gains enabled by the under-pricing of risk and inaccurate accounting. Doesn’t anyone recall the Nobel Prize-winning economists who brought us the Long-Term Capital Management fiasco in 1998?

In their failure, these boards of directors forced the Federal Reserve and the Treasury Department to step in and take over their responsibilities. As a result, it seems almost certain that the U.S. government will have to impose greater regulations on all financial institutions, and thereby assume some of the fiduciary responsibilities previously held by their boards of directors.

As capitalists, this is certainly not the outcome that any of us would have intended. But it is the logical consequence of what happens when boards fail in their responsibilities. The solution is not to diminish the responsibilities of directors, but rather to hold them accountable to fulfill their fiduciary duties and to enforce negative consequences when they fail to do so.

Last night’s second presidential debate proved that the presidential election is over.

To his credit, Senator John McCain has decided to accept an honorable defeat at the hands of Senator Barack Obama instead of the ignominy of losing the mud-slinging contest being urged on him by his advisors.

Like Roger Federer losing in five sets to Rafal Nadal in this year’s Wimbledon championship, for McCain it is better to keep your head up high and come back to play another day.  This year may mark McCain’s last chance to become president, but he can emulate Senator Edward Kennedy in continuing to serve his country with distinction and honor as a senior U.S. senator.

With a barrage of polls this week indicating that the voting public – especially in key battleground states – is moving steadily to Obama’s side of the ledger, McCain could have come out swinging and thrown everything but the kitchen sink at Obama. As Obama seized the upper hand on the economic issues, McCain’s advisors told him this was his only chance. Governor Sarah Palin had been holding a dress rehearsal for McCain with lines smearing Obama, like “he’s palling around with terrorist who would target their own country.” 

For his part, Obama declared that he would not throw the first punch, but he would counterpunch. He warned McCain that if he threw the “guilt by association” mud ball at him, McCain would get the “Keating Five” mud ball splattered all over his face.  McCain wisely backed down.

In fairness to John McCain, he is up against an extraordinary opponent who is far better organized and calmer in a crisis, and who has a better grasp of complex subjects like the economic mess we are in.  Just as Senator Hillary Clinton learned in the primaries, it is extremely difficult to compete simultaneously with Obama’s unwavering strategy and his unrelenting organization on the ground.

The current economic crisis hasn’t helped McCain’s case either.  Americans are deeply worried about their financial futures and angry about having to bail out Wall Street. Yet all McCain can offer is the trimming of a few earmarks.  During the recent near-panic in the credit markets, Obama has proven himself to be a very good listener and a good learner.  He has steadily supported those in charge of taking action to avoid even deeper problems, without trying to attract attention or credit for himself.

In retrospect, McCain would be in a more competitive position today had he chosen former Massachusetts Governor Mitt Romney as his running mate.  Romney was a successful businessman and leader of one of the nation’s largest states who has a keen grasp of economics and financial markets.  Like Palin, Romney is a social conservative.  

But like the fighter pilot of his earlier years, McCain opted for a diversionary tactic in selecting Palin, in spite of having met her only once at a governors conference.  With that impulsive move, he simultaneously wiped out his experience advantage over Obama and his credibility to address the economic crisis.

No doubt this seemingly endless campaign will take a few more twists and turns before election day.  With a hungry media waiting for any morsel that can be turned into a prime time story, the candidates will probably toss a few bones their way.

But none of this will change the outcome of the election.  On November 4th, Barack Obama will be elected our next president, with more than 350 votes in the electoral college. 

When he takes office in January, Senator Obama will inherit a country with massive economic problems, a failing health care system, an incoherent energy policy, and a declining public education system while being entangled in two wars. Obama will need all the wisdom, listening skills, and thoughtful advisors he can find.

The current crisis on Wall Street is being characterized in technical terms that few Americans understand: subprime mortgages, credit default swaps, mortgage-backed securities, and CDOs.

But this is not a crisis caused by the failure of complex financial instruments. This is a crisis caused by the failure of leaders on Wall Street.

The heads of firms like Bear Stearns, Lehman Brothers, AIG, Countrywide Financial, and Washington Mutual all too often sacrificed their firms’ futures in order to maximize short-term gains. This meant under-pricing of risk in exchange for immediate fees and taking on inordinate levels of debt to invest in complex, highly uncertain instruments.

Compounding their errors, these leaders were unwilling to face reality when the value of their holdings tanked, as many declined to mark these instruments to market.  Instead, they argued that their complex financial models yielded a superior valuation for their holdings. In some cases, this “mark-to-model” approach, or what Berkshire Hathaway (BRK.A) Chairman Warren Buffet calls “mark to myth,” led to their undoing as people inside or outside the firms had difficulty figuring out what their assets were really worth. Had they followed the long-term investing philosophies of Buffet, these firms would be still be around.

A financial failure?  No, this is a leadership failure.

The first job of any leader is to preserve the viability of the enterprise. These leaders focused on short-term gains and large bonuses for themselves, instead of ensuring the survivability of their companies and building them for the long-term. In this sense, their behavior mimicked failed leaders from earlier in the decade like Jeff Skilling of Enron and Bernie Ebbers of WorldCom, except there is no indication here of any illegal actions.

In contrast, five leaders of financial firms stand out for their prudent leadership as they prepared for this crisis by anticipating the impact of systemic risks and emphasizing the long-term health of their firms: Dick Kovacevich of Wells Fargo (WFC), Jamie Dimon of JP Morgan Chase (JPM), Ken Lewis of Bank of America (BAC), Lloyd Blankfein of Goldman Sachs(GS), and John Mack of Morgan Stanley(MS).

• Wells Fargo’s Kovacevich built the nation’s leading mortgage banking portfolio by emphasizing sound lending practices and avoiding the unqualified mortgages that led to the demise of mortgage bankers like Countrywide Financial.
• JP Morgan’s Dimon and Bank of America’s Lewis kept their balance sheets clean and healthy so that they were prepared to purchase distressed firms like Bear Stearns, Washington Mutual, Countrywide, and Merrill Lynch (MER) at bargain basement prices.
• Goldman’s Blankfein and Morgan Stanley’s Mack built liquidity and carefully managed risks as their firms shifted to the bank holding company model.

When it comes to authentic leadership in this crisis, no one stands out more than Treasury Secretary Henry Paulson. As a member of the Goldman Sachs board since 2002, I had the opportunity to observe him at close range. Were it not for Paulson – and his adaptability, tenacity, and ability to get other leaders to face reality – the U.S. financial condition would be in far worse shape than it is.

When he took the Treasury post, Paulson never dreamed of bailing out Wall Street financial firms, because his primary focus was on restoring relationships between the U.S. and finance ministers around the world. As the crisis unfolded, he immediately stepped up to leading the country through it. Using skills honed for decades as an investment banker, Paulson was able to bring the administration and warring political parties to agreement on the $700 billion bailout package approved by the House on Friday.

Paulson is a fervent believer in the free market system, but he recognized that without U.S. government intervention, this crisis could topple our entire financial system.  We can only hope these latest moves, coupled with government takeovers of failed institutions, are sufficiently strong to restore confidence in the market and rid the economy of excessive bad debt.

This is just the latest-–and largest-–in the once-a-decade crises that Wall Street goes through. We shouldn’t forget the savings and loan debacle of the 1980s, the collapse of Long-Term Capital Management in the 1990s, and the bursting of the technology bubble in 2002. Yet creative financial people continue to invent new models and new instruments that create short-term gains, often without understanding the pitfalls they represent.

Many pundits blame these problems on greed, but greed is nothing new. The underlying characteristic of all these fiascos is the same: brilliant managers who thought they could out-smart the market, instead of leaders with the wisdom to build sound firms for the long-term.

The boards of directors of the failed firms bear a heavy responsibility for their failure to select the right leaders and to monitor their actions. All too often they permitted high-profile, ego-driven leaders put their image and drive for power ahead of their responsibilities as leaders.

We will never avoid these problems until boards of directors start selecting authentic leaders to run their firms known for character, substance, and integrity. These attributes are essential if we want to restore the strength and primacy of the U.S. financial system and build our economy for the long-term.

We reviewed 1,132 responses to the following question and chose the best response, the most authentic leader, and the most authentic company. See our results below:

“Which CEO and/or company represents authentic leadership to you and why?”

Best Response comes in from Kurt Hoffmann of Sacramento, CA:

“Bill, my choice would be Warren Buffett. Warren displays authentic leadership in showing a real commitment (both in words and deeds) to improving “stakeholder value” over time. By stakeholders, I mean shareholders, employees, customers, the community, etc. Warren is both a great leader and a great teacher. He is an independent thinker who challenges the conventionally accepted way of looking at things, and explains his reasoning in a sound and uncomplicated way. He sometimes adds humor just to make his perspective a little more interesting and fun. When he became acting CEO of Solomon after its trading scandal in the 90’s, he told employees that if they lost money he would be understanding, but if they were unethical he would be ruthless. He sets a vision and a tone for his subsidiary chiefs, allocates an appropriate amount of capital to them in order for them to perform, let’s them operate with autonomy (although sometimes providing guidance if needed), and holds them accountable for achieving the expected results. His intense focus on increasing the book value (shareholder equity) of Berkshire Hathaway over time has changed the lives of countless families. His selfless gift of his fortune to the Bill and Melinda Gates Foundation (rather than having spent it during his lifetime, or setting up a foundation in his own name) speaks volumes about his character, his humility, and his integrity. I’ve learned a tremendous amount about business and life from his writings, and have benefited significantly from having had the privilege of attending a few of his annual shareholder meetings. As Ben Graham was his mentor, in many ways he has been a mentor to me, although we’ve never met and he’ll never know it. He definitely has my vote!” - Kurt Hoffmann

Most Authentic Leader is Ratan Tata of Tata Group:

“Chairman Ratan Tata of the Tata Group is definitely the epitome of authentic leadership in my opinion because: He has the ability to bring the Globe to India and take India to the Globe, he successfully maintains a fine balance between revenue-driven goals and CSR goals, he lives the Tata life and is a model of inspiration for young managers wthin the Tata Group. It takes only the best leadership aptitude and intuition to hold a Group consisting of 98+ companies together successfully in a unique network and Chairman Tata achieves this on a daily basis.” - Bryan D’Souza

“Mr. Ratan Tata of the Tata Group. He keeps his promises and engages positive change.” - Wendy C. Frye

“A visionary and a true leader who heads the tata conglomerate comprising of 100 group companies… Under his leadership the Tata group — once dubbed as a sleeping elephant woke up in the last decade… He has been able to lead and motivate its CEO/MD of the group companies to be ambitious and “Think Big,Think Ahead.” This resulted in the merger and aqcuisitions of Corus with Tata steel and buying in Jaguar for Tata Motors… Sir Ratan Tata is not only a true leader for his group companies but a visionary who also advises the Governmentt of India” - Rajat Khawas

“TATA has never resorted in taking the easy way and has made the group respected and profitable while inculcating the same culture across organizations…Mr. Ratan Tata is a source of inspiration to other leaders and organizations who believes in the right values” - Sudhir Chaturvedi

“I would nominate Ratan Tata of the Tata Group from India for continuous display of business leadership without compromising on ethics, values, and principles…recently, the Tatas have been embroiled, for no fault of theirs, in a political quagmire called West Bengal in India. The dignity with which they did not step into political discussions on focused on Business and CSR is noteworthy. As I write this, the Tatas have decided to walk out of Bengal citing personnel security as a strong enough deterrent against pursuing projects in the state. What struck me was this - until it involved his company directly, Mr. Ratan Tata never created hype in the newspapers nor added fuel to the fire; he watched and he acted when it was necessary.” - Sudarshan Avadhany

“In India, being a developing country, buying a 4 wheeler is everyone’s dream and the hardest for millions of families. Ratan Tata is the only person who has realised the people’s dream and promised to grant it. Now he is making the $2500 world’s cheapest car called “NANO.” Shortly, it will be available in the market.” - Susanta Roy

“He got ridiculed by the world’s automotive manufacturers when he mentioned the idea of bringing a compact car to the market for $2000. Today, that is a reality, and it will immensely change the automotive landscape of countries like India and China where growth has just reached the middle class…” - Gautam Ganguly

“Mr. Ratan Tata could easily have been amongst the top 10 richest persons in the world, but choose to create an empire that will make his ancestors proud…” - Rohit Shrivastava

“Ratan Tata has consistently refused to break the law or encourage corruption. When we see Ratan Tata refusing to pay bribes, refusing to lick politicians’ boots and refusing to bend the rules and still taking the TATAS from strength to strength, still buying the world’s best companies (Corus, Jaguar), and still reinventing the rules of the car industry — Nano Car priced at Rs 1.0 lac [$2,200 USD]… Ratan Tata is a ‘living legend’ with steely determination proving that its possible to be honest and principled…” - Anjali Jain

Most Authentic Company is Google:

“Google always comes to my mind when I think about leadership and I will tell you why. They are in a tough market (imagine media and advertising companies fighting with search engines for pennies, or even fractions of a penny, per click) but they still grow and innovate – the Android platform for mobiles – a multi-billion dollar market – and their new browser, good examples in my opinion, are something probably making a lot of executives out there lose their sleep. Beyond that one would think that given their relaxed environment the chance of success is marginal to nothing. However, what we see is a company striving at creating new products and inventing new ways to make money where others seem to struggle. That’s darn pretty good leadership to me!” - Robson Felix

“The best company is Google. Why: (1) Their quench to help and better humanity. (2) Consistent innovation. (3) Information and education accessible to ALL. (4) They are great to employees. (5) Equally rewarding to share holders.” - Jason Prescott

“For me, the example to follow is Google. A company that takes care of their customers, external and internal (employees), and keeps bringing constant innovations that it shares with the masses. Thank you Google one more time and Happy 10th Birthday.” - Alex Casteleiro

“…I am prompted to say that Google appears to be a company that exhibits authentic leadership. This occurred to me after reviewing their presentation on the launch of Chrome their new internet browser. While they are proud of the work they have done they have chosen to create a product that is malleable by others. They encourage their users to come have play with them, if you will and improve upon what they have developed. As a company that maintains a close relationship with it’s users it is clear that Google values is stakeholders the end user and takes their input seriously. More importantly Google challenges us, if not inspires us to see the way we interact with the world in ‘cyberspace’ differently. It is an ever changing entity and they are at the forefront every step of the way.” - Sabrina Whiteman

“I would say Google. Starting a company with only $100,000 and building it to what it is today, and in such a short period of time (10 yrs this month) takes not only exceptional business know how, but requires genuine/authentic leadership and deep understanding of people. It is most evident in their employees’ enthusiasm for the company – all you have to do is speak to someone at Google and you will see what I mean.” - Ben J. Darling

For the next two weeks the American public will be besieged with political rhetoric, as voters try to decide who should be the next president. This week it’s all about Barack Obama, and next week the focus will be on John McCain. Honestly speaking, we may get a good look at the politics of these candidates, but we won’t get much insight at all into the kind of leaders they would be. What should matter is the authentic leadership of the next president, not political skills in projecting an image for voters.

We’ve been fooled before by political rhetoric. Remember the “compassionate conservatism” campaign in 2000 of George W. Bush? He proved to be neither compassionate nor conservative. In 1992 Bill Clinton ran on a health care platform of “managed competition” that turned out to be anything but competitive and almost sank his presidency. Going farther back in history, Lyndon Johnson envisioned in 1964 a Great Society and instead got us mired in Vietnam. In 1968 Richard Nixon promised to “win the peace in Vietnam,” and wound up extending the war to all of Southeast Asia until 1974.

Bottom line: don’t judge politicians on their promises. Judge them on their leadership.

What kind of leaders would John McCain and Barack Obama be as president? The good news is that both of them are authentic leaders. They have openly shared their life stories with the American people. Both have dealt with severe crucibles: McCain with his ordeal as a prisoner-of-war in Vietnam, and Obama with the absence of his father and confusion over his racial identity as a teenager. With the notable exception of McCain’s marital infidelity to his first wife, both candidates have lived lives of integrity and operate from a clear set of principles.

Before we can decide who to vote for, we need to know much more about the kind of leader each would be in the world’s most powerful office. By examining their backgrounds and their campaign organizations, we can gain crucial insights into this question.

All his life John McCain has been a solo performer: as a fighter pilot, a prisoner-of-war, a Congressional aide, Congressman, and U.S. Senator. In the U.S. Senate he has frequently stood against the Republican Party on issues like campaign financing and sided with Democrats like Senators Edward Kennedy and Joe Lieberman. Thus, he has developed the well-earned image of a maverick.

Since announcing his candidacy for president, McCain’s campaign has been anything but well-organized. His organization has experienced lots of turnover, frequent resignations, terminations, and regular shifts in focus. McCain the candidate has often agreed on strategy and positions with his staff, only to abandon them the next day. Only recently has his campaign seemed to enjoy some clarity with the addition of former members of the Bush-Rove

team. In the past few weeks, they have successfully shifted McCain’s focus to attacks on his opponent and to national security issues, as his statements have become clearer and more concise.

Through all this, McCain operates more like an entrepreneur than an executive: outspoken, direct, and creative, but often leaving a trail of messes that need to be cleaned up after him. Projecting McCain into the White House, one could expect a few clear messages emanating from the president, who would react quickly to crises. However, this would likely be accompanied with lots of turnover and instability in his cabinet and White House staff.

In contrast, Barack Obama got his early training as a community organizer. He has translated that experience into a massive field team that reflects a bottoms-up, empowered organization. His key central staff members have been with him since the beginning of his campaign, as his team has experienced virtually no turnover, dissention, or organizational problems. Obama himself set the standard of operation at the outset, telling his people he wouldn’t tolerate dissertation and internal squabbles, earning the label, “No Drama Obama.”

As his candidacy progressed, he has expanded his central team and successfully married it to his field organization. His organization looks more like a growing corporate organization like Google or Intel: a strong central core married to a creative group of individuals building off the internet.

Projecting this forward into the White House, one would expect a disciplined staff around Obama, linked to empowered people throughout the government carrying out multiple initiatives. Taking on a broad set of initiatives, Obama’s messages would be more nuanced and more complex than McCain’s. Whereas McCain is a pragmatist, Obama is a visionary.

How would these two men respond to the pressure of surprise events like September 11, Hurricane Katrina, or the Cuban Missile Crisis? McCain would rely heavily on his own instincts, rather than the advice of his team, and would be decisive and possibly impulsive. Obama, in contrast, would quickly gather a group of experts around him, listen carefully to their advice, integrate it into his own thinking, and make decisions that were more nuanced.

Comparing these candidates to previous presidents, McCain will operate more like Harry Truman or Ronald Reagan, while Obama will operate more like John F. Kennedy or Dwight Eisenhower.

In deciding their choice for the next president of the United States, voters should ignore the rhetoric and determine what kind of leader our country needs at this crucial time in our history.

John Edward’s confession of marital infidelity is a sad, but common, story: outstanding leader gets caught up in his power, and loses sight of why he is leading in the first place. If Edward’s situation were unique, it wouldn’t be worth a column. But so many leaders lose sight of their True North, it is worth probing the question, “Why?”

Just in the past two years, we have witnessed:

• United Health Group William McGuire forced to resign and give back hundreds of millions in stock option gains due the backdating scandal;
• Merrill Lynch CEO Stan O’Neal losing billions of dollars and placing his entire firm in jeopardy;
• New York Governor Eliot Spitzer admitting he secretly arranged a liaison with prostitute in Washington, DC;
• Siemens Chairman Heinrich von Pierer acknowledging his firm had paid over $2 billion in bribes that he “knew nothing about”;

These examples are hardly unique. Many leaders get so caught up in the spoils of leadership that they lose sight of the reason they are leading in the first place. They commit the cardinal error of placing their personal interests ahead of their institution. As Peter Drucker wrote, “Leadership is not about money, fame, and power. Leadership is responsibility.”

Leaders have a special responsibility to preserve and build their institutions. They should be role models for all their stakeholders as well as for society at large. This is an awesome responsibility, but certainly not too much to expect from our leaders.

After studying both successful and failed leaders, I have reached the conclusions that the difference between success and failure is not competency, characteristics, or ability to lead. In fact, all of the leaders I have studied who have failed did not fail to lead others; rather, they failed to lead themselves.

The only discernable difference between successful and failed leaders is how well grounded they are within themselves, which includes a high level of self-awareness and an understanding of their motivations.

Successful leaders know who they are. They like themselves and are proud of their life stories. They have dealt with difficult times, faced their own failures, and admitted their weaknesses and vulnerabilities. People often observe “they are good within their skins.” Beyond that, they feel an inner calling to lead with a clear purpose in mind.

Their rewards are not external symbols like compensation, rising stock price, acclaim of the media, or admiration of the powerful. Instead, their reward comes from the knowledge that their leadership enables their organizations to make important contributions to the world. They find their fulfillment in the success of their teammates and the contributions they can make through others.

Admitting their weaknesses, they focus on their strengths, while surrounding themselves with others who make up for capabilities they lack. They are always striving to develop their leadership. They are open to constructive feedback about their shortcomings and ways to improve. They operate from a clear set of beliefs, principles and values, and understand the purpose of their leadership.

Failed leaders, on the other hand, often feel a sense of deprivation or emptiness within. They use aggression and power to mask these feelings, which in turns separates them from others. They need admiration and adulation of those around them and the outside world. Titles, compensation, and perquisites are symbols of power they need to make up for the emptiness within.

When they stumble and are criticized, they turn inward and become bitter toward their critics, rather than seeking to use that criticism to improve their leadership. They resist negative feedback and surround themselves with sycophants who reinforce them in spite of their shortcomings.

How can leaders avoid losing their way? It isn’t easy, but it can be done. First, they need to examine their life stories and the crucibles they have experienced in their lives in order to understand why they want to lead and their calling to lead. Next, they need to develop self-awareness – the ability to see themselves as others see them – by getting honest, in-depth feedback from people who know them well.

They should focus on understanding their “True North” – their beliefs, values, and reasons for leading. Then they need to take steps to cope with the pressures of leadership and resist its seductions. That includes building support teams of people who care about them and will offer feedback when they start going off track. Finally, they need to focus on leading an integrated life so that their work life and personal and family lives are in relative balance.

If leaders do these things, they can engender the trust required to empower others to step and lead. As a result of building organizations of empowered leaders, their institutions achieve superior performance and the satisfaction of making a positive impact on the world through their leadership.

Just yesterday, I paid $4.80 per gallon for regular gas in San Francisco. But as cruel as it sounds, the biggest problem with skyrocketing oil prices is not the high cost at the pump.

Far more serious is the massive wealth transfer that high oil prices are creating from the United States to not-so-friendly governments like Russia, Iran, Nigeria, and Venezuela. Sensing their increased power in the world, leaders of these “new rich” nations are distancing themselves from the U.S. and moving steadily away from democracy, as their leaders accumulate massive personal wealth.

This wealth transfer has staggering implications for the relative power of the United States in the world. A nation’s strength is based the strength of its economy, much more than its military might. Witness the collapse of the old Soviet Union in the 1980s. If our country’s leaders do not respond aggressively to skyrocketing oil prices by reducing consumption and increasing supply, the power and influence of the U.S will inevitably decline, coupled with comparable reductions in our standard of living.

Spending last week in Russia, I was struck by the aggressiveness of Russian leaders in reasserting their power. The signs were everywhere: the forced takeover of TNK-BP (British Petroleum’s joint venture), aggressive messages from Russia’s leaders to “respect our power,” and the more than one hundred billionaires in the country who rank among the world’s wealthiest people. Even Russian sales of General Motors’ gas-guzzling Hummer are up 60%.

The U.S. has had no energy policy for the past decade. Instead, we ignored the desperate need for conservation, let energy markets follow their own course, and denied the linkage between U.S. foreign policy and the price of oil. Instead of addressing these issues, Republicans and Democrats are locked into a decades-old argument: should we expand supply or reduce demand through conservation? The answer is obviously both.

The U.S. desperately needs an integrated energy policy, but the intransigence of the politicians only ensures the stalemate will continue. Instead of devising comprehensive solutions, politicians focus on finding scapegoats for the high gas prices. It is the oil companies? The speculators? In the tradition of American politics, there must be someone responsible whom politicians can make the scapegoat.

Before we can solve these problems, we have to face economic realities about oil prices. At the present, oil supplies are well balanced with the worldwide demand. The increase in oil prices from the low $50s in January, 2007 to $140 per barrel today is not being driven by current supply-demand imbalances, but rather byexpectations of rising demand coupled with expectations of supply limitations.

Speculators – and there are plenty of them around the globe – are simply betting that long-term imbalances will occur. For all the talk about controlling speculators, it is impossible to legislate their behavior. Speculation in future prices is normal behavior for investors in all markets, but it is not the same as market manipulation.

The only way to bring down the price of oil is to increase supply and reduce demand. It is not an “either/or” choice.

Let’s start with demand. While U.S. demand for energy is not increasing significantly, there is much more we can do to reduce energy usage without hampering economic growth. Here we can learn a great deal from the Europeans, who make energy conservation a way of life.

The obvious starting point is gas consumption. For decades U.S. automakers have successfully lobbied against increases in fuel efficiency, while the Japanese and Europeans moved ahead with hybrids and more efficient vehicles. Now the chickens have come home to roost. U.S. auto sales dropped 20 per cent last month, as Detroit shutters plants making gas guzzlers.

The technology already exists to increase fuel efficiency from the U.S. average of 24 miles per gallon to the 40+ mpg achieved in Europe and Japan. Comparable improvements can be made in industrial efficiency as well as consumer energy usage if governmental standards are mandated and the next president leads a national campaign for energy efficiency.

Major increases in energy demand over the next decade will come from China and India. China, for example, is building 438 new coal-fired electrical plants – one per week – that are highly inefficient and will create an environmental disaster. Chinese growth in auto production will result in more cars on its roads by 2016 than the U.S. The only way the U.S. can influence this situation is to clean up our own house by setting new standards for energy efficiency with advanced technology, and providing the Chinese and Indians our technological expertise.

On the supply side, both presidential candidates are urging increased research investments into renewable sources of energy. I would go further and propose a National Institute of Energy (NIE), built on the model of the National Institutes of Health (NIH). The NIE should be funded at $20-30 billion per year from the savings in reducing war expenditures in Iraq. NIE would lead government investment in a wide array of energy technologies, fund research at the leading universities and private research institutions, and encourage start-up companies to develop these new energy sources into cost-effective vehicles.

Cellulosic ethanol, hydrogen, clean coal, nuclear, solar energy, wind power, and geo-thermal are just a few of technologies where genuine research is required to make these energy sources safe, cost-effective, and scalable to mass production. Without this basic research, these renewable sources will continue to account for only a small fraction of the world’s energy demand. This approach is far better than subsidizing high-priced alternatives, as the U.S. has done with corn-based ethanol, wreaking havoc in corn prices.

In reality, no matter how much research goes into renewable energy, these sources can supply only a small fraction of the world’s growing energy demand in the next twenty-five years. We simply cannot wait that long to expand supply. Instead, the U.S. and Canada should open up sources of oil and gas within North America and in off-shore waters. With today’s technology, these sources can be explored with minimal environmental impact. This will keep these funds at home, instead of putting another $4-5 trillion into the hands of less friendly governments. Just the announcement of new sources being opened up will put a significant dent in oil prices.

The same goes for restarting the U.S. nuclear program, our best intermediate option. The French nuclear program, funded aggressively since the 1970s, accounts for over 80% of French electricity. Nuclear energy presents issues with waste storage and safety assurance, but these problems can be solved, as the French have done, if we have the national will.

Only an integrated energy plan like this one can restore our economy and stem the flow of U.S. dollars into the coffers of foreign governments.