True North Groups - a safe place for executives to work on self-awareness - can help build the types of leaders we so need.
By Bill George, contributor
FORTUNE -- In the past ten years there has been a dearth of corporate leadership -- as evidenced by the dot-com bust, the collapse of such companies as WorldCom and Enron, and the financial crisis. This period could be characterized as "leadership's lost decade." This is in sharp contrast to the go-go '90s when business leaders were hailed as heroes, with some like Jack Welch and Bill Gates assuming rock star status.
Almost overnight, leaders became villains, as the media and the public demanded scapegoats and villains. Since 2008's global economic meltdown, we've been looking for someone to blame, rather than recognizing the larger systemic issues shaping the future of business leadership.
It's easy to blame economists for their flawed maxims of shareholder value maximization, perfect market theory, and excessive leverage, but business people have only themselves to blame for adopting them. Far too many business leaders, lured by enormous short-term incentives, were willing to place their self-interest ahead of the best interests of their institutions. In chasing higher stock prices, they lost sight of their customers, abandoned their employees, and wound up destroying shareholder value.
Boards of directors bear their share of the blame by searching for charismatic CEOs outside their ranks rather than developing leaders internally. Hewlett-Packard (HPQ) is a tragic case in point. Since 1999, its board has gone outside its 300,000 employees four times in searching for a savior as CEO. All of them brought in their own strategies and executives and tried to remake HP's culture in their own image. Instead they destroyed HP's strengths in innovation and abandoned the unique culture that built the company. Today HP is adrift without a valid strategy or mission that inspires employees.
Contrast HP's fate with that of IBM (IBM) under CEO Sam Palmisano, who has emerged as an exemplar for 21st century leadership. After IBM was saved from breakup by Lou Gerstner, Palmisano built a modern-day powerhouse based on IBM's core values of client-focus, innovation, trust, and personal responsibility. Taking the helm in 2002, Palmisano launched a "values jam" that engaged over 300,000 employees around the world in refining the company's values.
Envisioning a new architecture for corporations in an era of globalization, Palmisano created an integrated global enterprise based on collaboration rather than structured around product and market silos. The results have been dramatic: Since 2002, IBM's strategy of innovation and customer focus has resulted in earnings per share increases of 273% and a doubling of its stock price in the past two years.
Often it takes crises like the ones experienced in the past decade to pave the way for fundamental change. It is becoming clear that the 20th century model of all-powerful leaders who rely on rules, processes, and bureaucratic hierarchies does not work anymore, especially in far-flung global organizations. Emerging in its place is a new kind of leadership -- one rooted in alignment around shared mission and values rather than shareholder pressures and short-term gains.
Palmisano is not alone his approach. Unilever's (UL) Paul Polman, Novartis' (NVS) Dan Vasella and Joe Jimenez, PepsiCo's (PEP) Indra Nooyi, Ford's (F) Alan Mulally, Avon's (AVP) Andrea Jung, and Siemens' (SI) Peter Loescher are proponents of mission-driven, values-based leadership.
Decentralized, collaborative leadership requires talented leaders at all levels, not just a few powerful leaders at the top. This raises the question of how companies can develop this next generation of leaders. Historically, large companies have focused on development of a select group of leaders, usually drawn from the headquarters country, based on processes that favor selection over long-term development.
These new requirements impact these processes dramatically. Global companies will require hundreds, even thousands, of collaborative leaders effective in working in cross-cultural teams based in multiple locations. A number of leading companies, including General Electric (GE), Unilever, and Novartis, are developing much broader programs to develop large numbers of diverse leaders throughout their global organizations.
This will require entirely new forms of leadership development that focus on EQ -- emotional intelligence -- rather than IQ. Emerging research by EQ pioneer Daniel Goleman and others has shown that for leaders with IQs above 120, EQ rather than IQ is the distinguishing factor in successful leadership. Unlike IQ, EQ -- which is based on high levels of self-awareness, self-control, social awareness, and relationship skills -- can be improved. In my experience I have never seen a leader fail for lack of IQ, but have witnessed over one hundred leaders fail who lacked EQ.
In interviews with 125 authentic leaders for True North, we learned that self-awareness: comes from having a deep understanding of one's life story and crucibles. The life of Steve Jobs bears witness to these findings. Jobs dropped out of college to start Apple (AAPL) in 1976, was fired in 1985, and lived under the shadow of a fatal illness the last seven years of his life.
As he said in 2005, "Getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life." No doubt Jobs was a far better CEO of Apple when he returned to the company in 1997.
Gaining such self-awareness requires three things:
The missing link in leadership development is having a safe place where people can share their experiences, challenges, and frustrations and get honest feedback. This link can be provided by True North Groups -- small, intimate groups of peers where people can talk openly in confidential settings.
True North Groups provide the feedback that enable people to understand their blind spots, open up their hidden areas, and gain a deeper understanding of who they are at their core. They offer unique environments for people to develop self-awareness, self-compassion, and authenticity.
True North Groups help people grow as human beings and leaders, as they learn to accept themselves -- their strengths along with their weaknesses -- and gain confidence that others will accept them for who they are. The group serves as a support system that gives people the confidence to navigate difficult situations at work and in life.
During the past seven years my Harvard Business School colleagues and I have pioneered these groups. Over 1,500 MBAs and mid-career executives have experienced them with profound results that many participants consider transformative. Former Marine captain Rye Barcott says his small HBS group was invaluable in thinking through career options. "Our group discussions were intimate and deeply personal -- the most valuable thing I did at HBS. They encouraged me not to jump into consulting or banking but pursue my passions of renewable energy and writing a book on my experiences in Iraq and founding Carolina for Kibera in the Kenyan slum. It Happened on the Way to War was published last spring and now I'm working for the CEO of Duke Energy (DUK) in Charlotte."
Companies like Unilever are finding them useful for leadership development. Notes CEO Paul Polman, "Forming True North Groups is an integral part of the Unilever Leadership Development Program to prepare our future leaders for an increasingly volatile and uncertain world where the only true differentiation is the quality of leadership of all." Because there is minimal cost to these groups and limited staff required to support them, True North Groups are scalable for organizations that want to use them to develop large numbers of authentic leaders.
Just as True North Groups can be an effective force in profoundly changing people's lives -- professionally and personally, they can also be instrumental in changing the way organizations work. Widespread use of these groups could lead to a deep bench of the kinds of leaders needed for the future -- and create the new generation of leaders that will transform global corporations.
In my view that's what's required to overcome the leadership deficit that is harming capitalism and to build global corporations that will be high-performing and sustainable, eventually restoring our trust in free market enterprises.
Bill George is professor of management practice at Harvard Business School and former chair and CEO of Medtronic (MDT). He is the author of four best-selling books. True North Groups, his latest book, was published in September 2011.
A shorter version of this article appeared in the November 21, 2011 issue of Fortune.
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