Mr. Bossidy was interviewed by Stern alumnus Geoffrey Colvin, who is Senior Editor-at-Large of Fortune and co-anchor of “Wall Street Week with Fortune” on PBS.

GC: Larry, your book is called Confronting Reality. Great idea, but it's always been a great idea, right? So what is the reason for writing a book like this now?
LB: We've always been asked to confront reality. But the price for not confronting reality is a lot higher now because of three mega-events. First, because globalization has brought a lot of excess capacity in some industries, pricing has become more difficult. Margins have been compressed and the commoditization of products occurs much faster now. That has made business more competitive. The second is that there's been an enormous over-extension of credit. Usually, companies fail and go out of business and it restores the supply-demand balance. Now companies go bankrupt but they don't go out of business, so the balance never gets restored. And third, the arrival of mega-retailers like Wal-Mart and Lowe's creates a lot of disruption. So the point of Confronting Reality is that you’ve got to know where you are, and if you wait too long, it might be too late.

GC: This notion would seem to apply equally to people who are managing their careers. Aren’t most people’s jobs threatened by globalization today?
LB: Jobs will go to low-cost locations, to the extent that's the most efficient way to get them done. People have to think about how they can make a competitive difference.Can you, for example, do something in information technology or in science? And the way you keep jobs in the United States is to continue to pioneer things that are new to the world. We've generated more jobs in this country than anybody in the history of the world, and we'll continue to. But they'll be different jobs.

GC: You mentioned a lot of companies go bankrupt nowadays, but they don't go away. And one can't help thinking about the airline industry. You've got some very pointed things to say about the airline industry, as well as a few other industries.
LB: There's a number of industries we say in the book that are structurally defective: airlines, steel, rubber and commodity chemicals. If you're a big airline – United, American, Delta – it isn't clear how you're going to compete with Northwest, or Jet Blue. Delta got an enormous wage concession from their pilots just the other day, 32 percent. They still are way over JetBlue in terms of cost. You look at the amounts General Motors pays in health care and pensions – that’s three thousand dollars a car. The point is, you've got to stand up to these issues sooner, when you have options. The longer you wait, the fewer options you have.

GC: We can say they should face reality, but it's still hard to imagine what General Motors can actually do?
LB: It isn't clear to me. We say in the book that at some point in time the government might decide that it's in the nation's best interests to have at least one automotive manufacturer, or maybe two. And they might be able to help create a securities offering that will take General Motors over the hump. These legacy costs do subside over time. It seems to me that in the absence of that, these companies are going to be in further disrepair.

GC: You know, a big part of what you did at AlliedSignal, and at General Electric, was evaluating people. You must have formed some opinions about what characterizes the winners above all else?
LB: You learn to be humble because you make mistakes. I can remember promoting people to a certain level, and being concerned about the promotion, and then seeing them blossom. And I can also remember placing people in higher responsibilities with a sure fire conviction that they would succeed and they didn’t. Executives at every level have to continue to grow. I always say that CEOs either grow or they swell. You want to stay away from the ones who swell. I’ve got to continue to be interested in education. I've got to have a broader set of interests than just my job, because I become a significant dullard if that's all I do. And I've got to expand my intellect in a way that makes me valuable. At the end of the day, the most difficult decision you reach in terms of who to select is not their intellect or integrity, but how much more will they grow?

GC: When people get evaluations that aren’t good, and they have to face that reality, what should they do?
LB: When you get an appraisal that you disagree with, the question is, who's right, you or the person giving you the appraisal? We started what we call a 360 review about 10 years ago, and they're quite prevalent now. You’ve got to make sure you’re considering the evaluation in a way that allows you to grow. And you have to get past your disagreement. You've got to do something about it. You just can't accept it. You can say I would like to have people do a 360 on me, and see what the viewpoints are. Or that I'd like to be assigned to another manager to see what that manager's view of me would be.

GC: Now what about the job of the manager in this situation?
LB: When somebody came to me and said others weren't doing the job, I’d ask what have you done to help this person do the job? A manager's responsibility is not just to hire but it's to coach, it's to develop, it's to try to make people better.

GC: When you came to AlliedSignal, in 1991, it was a company that needed a lot of help. When you got in the door, what needed to be done first?
LB: There was no self confidence. People were disappointed in their careers. Because when you don't do well, the place doesn't expand, and new jobs don't open up. I asked a lot of questions; what do you think we should do? As a consequence of those discussions, we put together a plan, and I said I'm going to take this plan to Wall Street now. Everybody who finds that their knees are a little bit weak, stand up, because after tomorrow, we're going to do this. And it got people excited. We told the Street what we were going to do, and we delivered on it, and it was great to see people’s self confidence improve.

GC: Many managers say they want to hear the straight unfiltered view from the people working for them. But the people might believe, perhaps because of a corporate culture, that there is nothing to be gained and much to be lost by putting their hands up in the meeting and speaking honestly.
LB: Well, I think that's one of the things that a 360 can help. If people don't trust you, or they think you have an ulterior motive, then obviously people are going to be careful. So it's your job to make yourself trustworthy so you can get at some of these issues.

GC: And now let's take the point of view of the employee, who wants to give his straight unfiltered views to the manager, but in fact believes, with good reason, that that is not a career enhancing thing to do.
LB: That's a harder question. This employee can perhaps express this viewpoint to an HR person. But I think over time, if that condition persists, you ought to get another job. You can't waste your time in an environment that you know isn't the way it should be, and where there's no interest in changing it. If you're not being allowed to grow and flourish, go to an environment where you can.

GC: When you look back on your years as a CEO, is there anything you wish somebody had told you back when you started?
LB: This question of evaluation is an important one. When I consult, I go to CEOs and I ask to see the appraisals of their direct reports – the ones I'm consulting with. And invariably, I see pages of circumlocution. In other words, lots of words trying hard not to say anything. It's hard for people to think that appraisals can be a constructive process. It's supposed to identify the things you do well, and it's supposed to identify the things you should be doing better. And it takes a long time to get that through an organization. At AlliedSignal people thought that if they appraised people accurately, it somehow will get in a file and cause that person everlasting harm. I said, no, this is not an appraisal. This is the beginning of a debate. It took a series of years before it got down in the organization where people would finally be honest enough to put down what they believed, and then gave that person a chance both to improve and recover and go on. It’s terrible to find a person at mid-career with a series of deficiencies that have never been pointed out.

Now as far as myself is concerned, I come from a small town. I never knew anything about corporate life. I was very frank to the point of probably being caustic. So somebody finally took me aside, and I was probably 28, and said, you know, it isn't what you say but how you say it, which was a wonderful comment. And I thought about it. And I tried to not be withholding of viewpoints, but to express them in a way that was more positive and constructive. And some people still, after having said all that, still say I'm blunt.

GC: An issue for everybody who works is balancing work and family. Now, you had a long career where you managed these things, it would appear, incredibly well. A, you've been married to the same person for a very long time. B, you have nine children. How did you think about these issues as you went through your career?
LB: While I picked a remarkable, talented woman to marry, the fact is you have to make time too. I used to come into work sometimes at 4:30 in the morning, because I wanted to be home for dinner. When you have nine children, you don't just interface with them, you manage them. I used to post a board as to who was supposed to do what. I coached the Little League baseball team. I ruined more suits because I didn’t have time to go home before I went to some ball game and was in the dust pit. I’m not trying to impress you about what I did. It made me think in a broader dimension than I otherwise would have. I saw what was going on in young people's lives, and you know, I always say to them, you're the best thing that happened to me. I still feel that way; I just feel like I got so much more from them than I gave.

GC: The company you were in most of that time, General Electric, is famously demanding. And for 11 years your good friend Welch was the CEO, and he was about as demanding as they come. How did it all work out with your employer?
LB: I didn't ask for special dispensations. With Welch, if you got done what you had to get done, if it takes you four hours a day, you didn't have to stay for the sake of staying. And he was helpful and responsive. At AlliedSignal among the first things I did was put in a day care center. We couldn't keep women who wanted to have children. Well, we put a 90-person day care facility on site, and we didn't lose a woman from our employ for the next three years.

GC: What was your attitude towards people who had been to business school?
LB: Well, first of all, not many people who graduated in my class went to business school. GE had vaunted training programs, and you were told that this was the same thing as business school, but you get paid. I thought it was a reasonable proposition. If you look at our educational system, you can make the case that in grades one through 12, there are systems that might be better than ours, including the one in Japan. But there is no system that compares with the graduate education that we have in the States. I also think business schools have worked harder to try to stay contemporary. Ten years ago business schools always taught yesterday's war, instead of trying to fight tomorrow's war. Today, they’re better in terms of preparing people for what they might face.

When I went to Allied, we had a shortage of talent, and we hired a lot of MBAs and they saved my life. We were able to give them more challenging positions relatively early in their career, and it was a major assist to build the management team that I was able to build.

GC: CEO pay is an issue that was big in the headlines when you got the job, and it's still big in the headlines today and it seems that nothing ever changes despite all the talk that goes on. What's going on?
LB: If your company does well and your share price does well, no one begrudges you to earn a piece of that progress. On the other hand, if your company doesn't do well, or you get fired and you leave and you still get a lot of money, that is going to be an ever growing concern and I think it should be. So, I think it's improved as a consequence of this uprising. You'll still see cases where it gets abused, but by and large it's better.

Audience Questions:
Q: Could you talk a little bit about the challenges CEOs face these days in terms of meeting Wall Street's expectations in the short-term, versus taking a long-term management approach?
LB: You've got to deliver for the current share owners, and you've got to plant seeds for the long-term. If you have people who are unbalanced, who just drive for the short-term, there's a day of consequence. And if you have a person who does the opposite and doesn't plant seeds, they run out of steam as well. But you can’t get caught up in what Wall Street thinks. I mean, somebody comes out and looks at your company for 20 minutes and tells you what you’ve got to do, and people listen to them. I mean, come on. I always felt that if I got fired, I want to get fired on my own mistakes, not on what somebody told me to do.

Q: You're on the Board of Merck. It must be very hard for people without your stature to be telling CEOs who are leading companies what to do from a Board perspective. Are Boards really strong enough to have an effect on management?
LB: That's a great question. You know, Sarbanes-Oxley has done some good things, and it has done some bad things too. But it did call a lot more attention to the quality of Boards. And it has made Boards more introspective and increased the Board's involvement with the company. But a Director's role is not to tell the CEO what to do. Directors are there to listen to various strategies and comment on them in terms of their own personal experience. So on the Merck Board, for example, there are a number of scientists who speak very knowledgeably about the science involved. I probably speak more knowledgeably about the business aspects. I’m not trying to tell the CEO what to do, but to make sure that there's a good dialogue that's inclusive. And I don't think you have to be a CEO to be a very good Board member.

Q: A lot of the problems on Boards seem to arise from what some people have called the Boardroom culture, and the idea of not speaking up if it's contrary to the prevailing view. Even Warren Buffett has said that he has failed to speak up sometimes in a Boardroom because it was just sort of socially or culturally too difficult. Have you observed this?
LB: I have, but I think one of the corrections with Sarbanes-Oxley is that there are now mandatory Executive Sessions of the Board, where the Board convenes in the absence of the CEO. A lot more gets said that might not have been said. And then somebody is appointed to relate this to the CEO. I think it's happening a lot less now, in the presence of these Executive Sessions.