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Leadership Beyond the Crisis: An interview with Professor Robert Reich

Boyden Leadership Series Vol 2: Issue 2

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The Boyden Leadership Series is an ongoing publication that focuses on topical issues regarding leadership, and presents discussions with well-known business, political, and cultural leaders.

In this issue the legendary US cabinet member, Robert Reich, discusses best practices in corporate leadership, CEO compensation, motivating global teams, and the advantage of women in the corner office.

Robert B. Reich has served in three US national administrations, most recently as US Secretary of Labor under Bill Clinton. He also served President-Elect Obama’s Transition Advisory Board.

He has written twelve books, including The Work of Nations, which has been translated into 22 languages; the best sellers The Future of Success and Locked in the Cabinet; and his most recent book, Supercapitalism.

Professor Reich is also Co-Founding Editor of The American Prospect magazine. In 2003, he was awarded the prestigious Václav Havel Vision Foundation Prize, by the former Czech President, for his pioneering work in economic and social thought. In 2008, Time magazine named Mr. Reich one of the ten most successful cabinet secretaries of the century. Reich is currently Professor of Public Policy at the University of California at Berkeley.

Interview with Robert Reich

Boyden: Professor Reich, what do you believe is most important for corporate leaders in the future?

Reich: Context. They need to understand the environment of the companies they’ll be working in. This means the structural changes that are going on in the US and global economy include the changing needs and wants of consumers and the changes in the political environment as well.

Boyden: In Supercapitalism you write that CEOs are not overpaid, but that their compensation is too far removed from pay of average workers. In addition to your suggestion for a more progressive tax structure, does executive compensation need further evaluation?

Reich:
Yes, there should be a say on pay. Shareholders, including large institutional shareholders, should have much more input. I didn’t say, by the way, that CEOs are not overpaid. I said that there is a very ready economic explanation for why they earn what they do. But explanations are not justifications.

Boyden: How can better pay for average workers be fixed other than changing the tax structure? Is it just a matter of the companies understanding there’s a return on investment for paying workers more?

Reich:
Basically, the [US] tax structure does have to be altered, but beyond that workers need more opportunities for continuously upgrading their skills. And companies need to get beyond the quarter-by-quarter mentality that makes it so difficult for them to invest in their workers long-term.

Boyden: Today, if CEOs do not bring results in four or five quarters, in many cases they may believe they and their executive teams will be shown the door. Is there too much pressure too soon for results, which could alter better long-term corporate strategy?

Reich:
This has been going on for 25 to 30 years. The stock market and investors are extremely myopic. One way to change that would be to change tax laws, and particularly, as they apply to capital gains so that the longer a share of stock is held, the lower the capital gains rate.

Boyden: Speaking of gains, what do you think of Goldman Sachs awarding CEO Lloyd Blankfein a 2009 bonus of “only” $9 million in stock? Was it just a smart PR move or was there more to it?

Reich: There is nothing more to it. It was public relations pure and simple. As soon as the American public calms down, Goldman will be back to awarding much larger compensation.

Boyden: What was your view of Britain’s move to heavily tax bonuses of financial company executives?

Reich: It’s completely justifiable if taxpayers are going to bear the burden of bailing out these companies. These measures are often necessary until we get the tough financial reforms that prevent a repeat of the kind of risky behavior that we saw leading up to the 2007 and 2008 crash. It’s entirely justifiable for governments to take a whack at the pay of the big bank CEOs.

Boyden: Many observers believe that in the case of the UK bonus tax, companies are just going to move their operations or transfer their executives to New York, Singapore or wherever to avoid the extra taxes. Does it just come down to responsibility?

Reich: There has to be international coordination. The most important players are the UK and the United States. If a big bank wants to move its executives to Singapore, and executives are willing to effectively lose their citizenship with the UK or the United States for the sake of some more bucks, then, let them lose their citizenship.

Boyden: You once said pay is usually not the most important motivator for employees. Does that still hold true and what’s changed?

Reich: It still holds true by and large. Employees want to feel a degree of autonomy and power over their work. They want to be part of a team and a company that is doing something meaningful, that they can feel proud of. And employees want to learn on the job and they also want a job that allows them to be good parents and good spouses. These are all vitally important, and employees, especially talented employees, are willing to sacrifice some pay at the margin for the sake of these other qualities.

Boyden: Is motivation different for CEOs?

Reich: It’s different for CEOs and top executives in the sense that they are competing for power and prestige with other CEOs. You know, it’s a testosterone contest.

Boyden: And that includes women as well.

Reich: Yes, but, interestingly, less so.

Boyden: Is that because female executives, by and large, are better suited to face today’s economic challenges?

Reich: The new economy depends upon relational skills and empathy. I hate to generalize, but women clearly have the edge.

Boyden: Would you say women have an advantage because of their empathy, relationship skills, and better instincts?

Reich: Absolutely.

Boyden: And sometimes not letting testosterone get in the way?

Reich:
Well, you know, testosterone is a poison. And men are (pausing) . . . you only have to look at foreign policy. Much of the history of the world and much of the bloodshed in the world is due to testosterone poisoning.

Boyden: So like a politician that puts his personal interest ahead of the city or state; in the corporate world, men often prioritize their egos instead of the best interests of the company?

Reich: Right. Women are not immune to this kind of small-minded competitiveness but if you look at the bell curve with regards to the qualities that women and men both possess, clearly the median executive woman is better able to put the company, the workforce and the shareholders ahead of her own individual ambition. And a woman is probably also better able to understand the motives and the drive behind many of the people who work for her and around her.

Boyden: What do you think of corporate rating systems for executives and employees?

Reich: Well, 360 degree rating systems in which feedback comes from everyone who deals with a particular employee can be very helpful. Also, managers have got to look at the help that employees provide to their colleagues, what I call the “relational capital” that employees build up with suppliers and with customers. All of these may not show in the bottom line but they are critically important. And should, and deserve, an acknowledgment.

Boyden: Many believe that board members are at least partially culpable, and in many cases, very culpable for the financial crisis and companies’ underperformance. Do you agree?

Reich: I agree. The only reason for having a board is to look over CEOs’, top executives’ and managers’ shoulders and prevent the kind of short-sightedness that we saw on Wall Street. Boards need to be headed by chairmen who are different from CEOs. Boards need to have an opportunity to meet without CEOs. And boards need an opportunity to get the information they want, not just the information that CEOs are willing to give them. Most important, boards need to develop their own metrics of success, corporate success and analyze those metrics for themselves.

Boyden: A number of experts believe the best corporate leadership opportunities even for Western executives will be in the developing world. What can Western executives learn from the emerging markets?

Reich: First of all, “developing” is a misnomer. India and China are rapidly joining the ranks of the developed. And the main thing that Western leaders can learn is the narrowness of Western thinking. Boards as well as executive teams need to be comprised of some people who are Asian, Latin American, perhaps African, who see the world in different ways.

Boyden: So while many US multinational companies are diverse within US ranks, are we not seeing enough directors who are Asian or Latin American or African nationals?

Reich: Exactly. Given the size of the Asian markets and Brazil as well as other Latin American countries, executive teams need to be much, much more broadly-based than merely European and US-based teams.

Boyden: Are there companies that stand out and have it right in the leadership department and the people management department?

Reich: At different times, different companies have done it right. For example, ten years ago I would have said Starbucks, fifteen years ago I would have included Levi Strauss, but times change. Companies that at one time were leading the pack in terms of leadership skills have stopped paying attention maybe because they’ve had so much success that they feel it’s no longer necessary.

Boyden: Are there other companies that are interesting to watch in management?

Reich: IBM right now is doing some interesting things. Eaton is doing some interesting things. And Google is enormously interesting, but only time will tell.

Boyden: Are these companies that are simply a little more aggressive to try new areas, or what makes them interesting?

Reich: The one benefit from this terrible recession is that it gives top managers the opportunity to try fundamentally new things. The biggest barrier to innovation when it comes to leadership in management is past success. Now that almost everybody is being stressed, it’s possible to exert a different kind of leadership that says essentially, ‘Let’s at least try this . . . we don’t have to be bound by the past.”

Boyden: If you had just a few minutes to give advice to a first-time CEO, Country Manager or Division Head, what would you tell him or her?

Reich: Listen, listen, listen, listen. And then evaluate what you are hearing instead of cramming your calendar full of meetings in which you tell people things. Calm down, take some time, and learn as much as you can.

Boyden: What would be your final thoughts on leadership?

Reich: Just this: We still tend to think of leaders as lone individuals, kind of “cowboy types,” who come in to situations and rough up everyone and push everyone into shape – a kind of John Wayne or Jack Welch. That is not real leadership. Leadership is the art of creating a fabulous team of people who can come up with innovative solutions and spot new problems and opportunities quickly, and no individual can do this alone.

To learn more from Robert Reich’s public commentary, visit his blog at robertreich.org.

The views and opinions expressed here do not necessarily represent the views of Boyden: only those of Professor Reich.