|Mr. Bossidy was interviewed by Stern alumnus Geoffrey
Colvin, who is Senior Editor-at-Large of Fortune and co-anchor
Street Week with Fortune” on PBS.
Larry Bossidy has led
three Fortune 100 companies. After graduating from Colgate University
in 1957 with a B.A. in Economics, he joined General Electric.
In a 34-year career at GE, he served in a number of executive
and financial positions, and was named vice chairman and executive
officer of General Electric Company in 1984. In 1991, he became
CEO of manufacturer AlliedSignal and engineered a transformation.
After AlliedSignal and Honeywell merged in 1999, he became chairman
of Honeywell International. He retired in April 2000 but returned
in July 2001 as chairman and CEO to stabilize the company following
General Electric's unsuccessful attempt to acquire Honeywell.
Since stepping down from both positions in June 2002, he has
spent time consulting and writing. Both his books, Execution:
The Discipline of Getting Things Done (Crown Business, 2002)
and Confronting Reality: Doing What Matters to Get Things Right
(Crown Business, 2004), co-written with consultant Ram Sharan,
have been best-sellers. He serves on the Boards of J.P. Morgan
Chase, Merck & Co. and
Berkshire Hills Bancorp.
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
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
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.
“I always say that
CEOs either grow or they swell. You want to stay away from the
ones who swell.”
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
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
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.
“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 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
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.
“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.”
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
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.
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.