Author Talks: Michael Useem on leading with an edge

In this edition of Author Talks, McKinsey Global Publishing’s leader, Raju Narisetti, chats with Michael Useem, the William and Jacalyn Egan Professor of Management at the University of Pennsylvania’s Wharton School, where he is also the director of the Center for Leadership and Change Management. In his new book, The Edge: How 10 CEOs Learned to Lead—and the Lessons for Us All (Wharton School Press, June 2021), Useem dissects the life and work of CEOs of major companies and chronicles how they approached decisions on everything from management and growth to hiring and the bottom line. An edited version of that conversation, focusing on key leaders mentioned in the book, follows.

Why do readers need this book now?

I teach leadership here at the Wharton School of the University of Pennsylvania. It began to hit me a couple years ago that we absolutely need to think about a curriculum. The content that students are focused on when they’re here—content that’s going to prepare them to lead when they’re rising up at firms or agencies or whatever may be their future—and what they’re going to need five years out or 15 years out unequivocally is not going to be the same as it was this year or ten years ago.

And more specifically, what really got me into this, with a slightly different meaning, is the famous phrase from Marshall Goldsmith, the executive coach, who wrote a book called What Got You Here Won’t Get You There. That’s more focused on individuals who have some bad habits, for example. But the phrase, I think, captures a truth, as well: that if you are leading, for example, Vanguard Group now, it’s a different era from when Jack Bogle created the firm. If you’re leading GE now, it’s different from the era of Jack Welch. Our responsibility is, as university instructors, to get it right for the present and, even more importantly, for the future.

On Bill McNabb, former chairman and CEO of Vanguard

Bill McNabb had a long run, and we’ve had many, many conversations. He described going back to when he took charge of Vanguard—just before Lehman failed, on September 15, back in 2008—and the global financial crisis followed. He said, “It just hit me. I can’t run this firm like Jack Brennan, my predecessor.”

On Mark Turner, former chairman at WSFS Financial Corporation

I’ve come to know him very well. He began to appreciate that financial technologies were just coming as an onslaught into his industry, not to mention that young customers wanted no more than 20 seconds to open up an account. They didn’t want to talk to a teller. They didn’t want to set foot in a store. So to know what his successor—not to mention he himself in his final couple of years—ought to have in their own leadership repertoire, Mark Turner took a learning tour. Academics get that. We call it a sabbatical. It’s one of the privileges of our vocation. Rarely have I seen it in business. But he did this, just to make it more tangible.

He wrote a note to everybody saying, “Hey guys, I’m out of here for three months. Don’t call me unless it’s absolutely necessary. I’m not going to call in. But I’m going to go visit 49 companies, ranging from Apple to Walmart, to understand how technology may be changing.” So Mark Turner took a three-month learning tour, and it was extremely hard on him. He was on the road, in hotel rooms, for three months. When he would visit Walmart, for example, he spent a couple days with the former CEO there trying to understand what Walmart was doing to try to catch up with Amazon. Amazon, at that time, was purely online.

The question for Mark Turner was, is banking going to go totally digital? Is it going to get there halfway? Do we still have to have branch offices? With that sabbatical, that learning tour, three months in the field, he came back with some great answers to those questions. To sum it up—the story’s told in much more detail, obviously, in the book—he concluded, and this has been WSFS’s policy since then, that banking is fundamentally being changed by fintech. We all know that. On the other hand, at some points—say for a very complex home or business mortgage—you actually want to talk with a trusted adviser, maybe on the phone, maybe in an office. So tech, he concluded, was going to come in. He had to make the changes. He had to find savings by closing offices so he could invest in new technologies.

But the point I want to conclude with is this: here was a person who was thinking about his successor, who was going to be enabled, in part by what happened on this learning tour, to take charge in a different era and lead fundamentally differently. So Mark led the way. It’s like pouring concrete—putting down the sidewalk for the new person to walk on and leading in a world that was now more than half fintech and not just old banking.

On William Lauder, executive chairman of The Estée Lauder Companies

The Estée Lauder Companies, as it’s known, is one of the world’s largest luxury fragrance companies. William Lauder, who I’ve spent a lot of time with, is the heir, third generation, of what’s still a family-controlled company. He said to himself when he was chief executive, “I know we’re going to have to become more nimble, less dependent on the cos­metics counters on the first floors of large department stores. We’ve got to get online. We’ve got to sell in China. And airports in Sri Lanka. In my own experience—I grew up in a company that didn’t want to do those things—I know we have to move, but I don’t have the wherewithal to get my senior staff to move with me.”

In an unusual move he said, “I need a comrade in arms. Somebody who understands retail, high-end retail like me, who is not burdened by a past history or cultural blinders that come from growing up in a company.” So he turned to a person named Fabrizio Freda, who had been at Procter & Gamble. He said, “Fabrizio, I’d love to have you come in now as the COO.” William Lauder at the time was CEO. “And if things go well, I’m going to move myself up to be executive chair of the board.”

The two of them have worked as a partnership—an unusual combination: executive chair and a CEO joined at the hip to make changes, to make waves, to turn the place upside down and culturally redirect. Now the majority of sales would no longer come out of department stores at the cosmetics counter. They wanted to lead in a world that has to be led differently.

The resistance in Estée Lauder Companies was pretty strong in making that change. So here was a person who was willing to work in collaboration. It’s a genuine partnership to effect the changes that he could not make himself. He’s done that, and he’s brought Estée Lauder, with great success, into this decade. It took a decade to make it happen, but it’s happened.

On Tricia Griffith, CEO and president, Progressive

Tricia Griffith, who had gone to work for Progressive a long time ago as a claims adjuster, would go out to meet customers who had a car or a truck damaged and try to work up what the insurance company ought to be paying out as a result. She rose through the ranks, did everything very well, and became chief executive—and by the way, three years ago was named by Fortune magazine as the CEO of the year. Not bad for an insurance company. Most people don’t know a whole lot about it.

In part, though, and this was the headline as Fortune put it, Progressive was growing faster than Google or Apple. In the long-standing “big boss” model—think, Jack Welch at GE—he or she commands; everybody else salutes and does. But Tricia Griffith took a different kind of leadership to such a refined state that it put her as number one on the front of Fortune magazine. That’s because the big-boss model does not work with a new generation of employees or American cultural habits any longer. For instance, when I went to visit the headquarters, I was invited to tag along as she was meeting a group of new recruits. Progressive hires like crazy because they’re growing so fast—some 40,000 employees were there at the time I was there, and they’re hiring 7,000 to 8,000 a year.

The custom is to stride to the front, get up on a platform, and tell everybody about the vision for the company and how important our strategy is. But when Tricia walks into a room with newly hired employees, she does what a great politician does: she’ll start shaking hands from the get-go. So these young people, mainly newly hired, are looking three feet away and there is the CEO. They’ve seen her on television. They’ve seen her in the annual report. But there she is saying, “Where were you working before? How many kids do you have?” That kind of personal touch. Tricia Griffith came to the front. There was no riser. There was no stage. She did have a microphone. It was a big room.

She just began to tell everybody a little bit about her life. She went to a state school in Ohio. She came up through the ranks. She was a claims adjuster. But she began to put up her hand along the way and say, “You know, I’ve never done HR, human resources, and I’d love to have a swing at what happens there. I’d love to take a look at how we invest our monies, since people paid in for the insurance and the money sits there, sometimes for decades—I’d love to know about our investment strategy and portfolio.”

And as a result of that, she came to learn about various functions. But she also learned that to be up on a pedestal was to underlead people who were working there. People want to know you value them. You’re willing to come down with them and not stand on high above them. So she is my exemplar beyond the big-boss paradigm, which would have worked ten years ago at many companies. In fact, most. But in the next ten to 15 years, it’s not going to have the traction that it once had.

People want to know you value them. You’re willing to come down with them and not stand on high above them.

On Alex Gorsky, chairman and CEO of Johnson & Johnson

He came up, literally, from the lowest rung and now has the highest rung at a company that has about 140,000 employees. He came all the way up. And this is, to me, so indicative or symptomatic of what anybody with more than five employees ought to be thinking about. When he began at the bottom, nobody reported to him. And when he had three people reporting to him, he could tell them what to do or give them coaching. But when it’s 140,000 far-flung employees around the world, in some 200 separate operating units, he doesn’t see most of them, ever.

He does try to get out and about, obviously. So he doubled down on the famous Johnson & Johnson credo: 300 words that 75 years ago defined what a descendant of the original Johnson brothers said was vital for a company. “We have to make products that people want. We have to treat our employees fairly. We have to work with the community.” The last paragraph, which is quite notable, says, “And if things go well, we’re going to treat our shareholders well, too.” Almost the inversion of the usual emphasis on total shareholder returns. So those are the values. But Alex Gorsky doesn’t see a whole lot of those folks who are producing everything from shampoo to, now, COVID-19 vaccine and hip replacements.

Gorsky concluded that since this company is growing, he’s going to have to double down but make the culture of the firm stronger. The culture is that medium, that invisible ether, which communicates indirectly the values and what he ultimately wants people to be doing when they come to work in the morning. Cultures get tired, though. He quickly recognized that. The wording is often out of date. There were, for example, some references that were gender specific, which is inappropriate in our era. There wasn’t enough in there about the role of everybody helping to lead the firm, not just passively accepting the orders that are given to them.

It took a year, with lots of discussions and lots of testing, to adjust the words. Not a whole lot of words were needed for that culture, that definition of the J&J culture, to become contemporary, not tired and not a cause for people to say, “This doesn’t speak to me. I don’t understand what this is all about.” Culture is a tool if we can use it well. That’s going to be the calling of leaders in the future.

Culture is a tool if we can use it well. That’s going to be the calling of leaders in the future.

On Denise Ramos, former CEO and president of ITT

Denise Ramos is really interesting because she’s, in a sense, the inheritor of one of America’s most famous companies. Some years ago, ITT became the poster child for the diversified conglomerate. It made telephones; it harvested forest products; it had an auto-rental company; it made Twinkies. How’s that for diversified? That’s kind of historic now. We don’t have a whole lot of those left in the US. Other countries do, of course, but it’s a vanishing breed in the US. In part that’s because investors can’t understand them, don’t know how to price the stock and all that.

Denise Ramos, with an MBA in finance from the University of Chicago, worked for several other companies. She worked her way up in the finance function. She became chief financial officer of one of the more recent reincarnations of ITT. It was, however, still very diverse. The board and CEO at the time decided to break up ITT, which had already been broken up several times, to cast off three “children” that were “pure plays.” One CEO was going to be replaced by three. The board chair at ITT, when she was still chief financial officer, said, “Denise, we’d like you to become CEO of one of the three spin-offs.”

It turned out to be the most difficult one, by far, to manage. She did understand that at the outset. Denise said, “Well, why me? I’m in finance. I know how to collect a lot of money and then make certain we count everything at the end of the day correctly and report to the financial markets.” The chair of the board said, “Denise, you’re the kind of person we think is going to be essential in this coming era because you have been ‘CEO before you have been CEO.’” You have to listen to that carefully. “You’re CEO before you’re CEO.”

What he meant, obviously, was that she, as chief financial officer, had met with the board, or sat down with the chief executive, and explained not only everything there was to know about what was creating value and destroying value but also what you ought to do with the free cash that you now had. Should we acquire? Should we build a new plant? Should we open up in Taiwan? Those are leadership decisions for the CEO. And—correctly, I think—the chair of that board said, “Look, Denise, you’re already thinking like a CEO. You’re thinking about everything.”

That gets to the bigger point I would take from this, which is that people in the future who are moving into leadership—not even necessarily toward the very top, but the rungs along the way—have to be specialists. That’s what got you promoted in engineering, finance, operations, maybe marketing. But then to lead the enterprise, there are too many moving parts for you not to appreciate them all. So you have to learn how to work with the mayor of your community. You have to learn, for example, what’s happening to people who are now unable to come to work and are dealing with families shut at home with COVID-19.

From her experience, and watching her up close, I think the board chair’s statement was perfect for what’s going to be required in the future. Whatever your leadership rank or rung, whatever you’re leading, you really have to think like a CEO. One day you may become CEO. What that signifies more broadly for me is that you’ve got to think about everything, from how teams work to why people want to come to work.

On Bo Ilsoe, partner, NGP Capital

Bo Ilsoe took responsibility for a company that was making the lenses that provide photographic images in smartphones. We all carry a smartphone these days. We’re all taking photographs like crazy. This was one of the premier makers, around the world, for the tiny lenses that had to reproduce great detail on the sensors inside.

He came into this venture-capital firm after the VC had already made its investment in this company. But the VC was coming to realize that this company was on the verge of going off a cliff for a lot of reasons, including the fact that it was hit with the 2008–09 global financial crisis. Bo Ilsoe spent a lot of time doing his due diligence on what was the problem. Was it the product? Was it the market? Was it the strategy? Or was it the person who ran the darn thing?

His conclusion was that the problem was not the strategy, not the quality or engineering of the product, and not the market, which was coming back two years after the global financial crisis, but the person who ran the enterprise. The person looked good on paper, but was not fully good. So Bo Ilsoe said, “My recommendation to the other partners is that we bring in a new person who has the complete leadership-talent set—not just two or three capacities, but all the capacities.” This meant understanding the engineering, under­standing why people are staying there and not quitting, understanding the HR side, understanding how to work with big customers like Apple and beyond. He found somebody that fit the bill. The person came in and, lo and behold, turned the company around.

A couple of years later, it was sold at an enormous price as the world unequivocally came to depend on those tiny little lenses in the back of mobile phones. The big point there for me, to wrap it up, is that in the era we’re in, we do have to look carefully at the leaders we are working for or, if we’re on the board, ensure that they have the complete skill set required to lead now. And with the explosion—of smartphones, in this particular case—you want a person who can scale. One month, you get an order for 500,000 lenses; next month, you might have an order for two million. Can you scale? Can you market?

The question, I think, comes down to this: What is the leadership we’re going to need in the years ahead? What are the defining qualities? I develop about a dozen in the book. They don’t replace the traditional qualities—being strategic, an effective communicator, decisive in decision making. But these new qualities, I think, are really helping to define a new era. And I think we’re all going to need them in spades to do well in the days ahead.

On Edward D. Breen, executive chairman of DuPont

Ed Breen is someone who many people will know as the person who turned around Tyco International. Speaking of crisis, Tyco International, then run by a person named Dennis Kozlowski, had a CFO named Mark Swartz. As the company grew from nothing, the two of them did 900 acquisitions over a decade. It was like an acquisition almost every week for nine years. They built an enormous enterprise. Kozlowski was then seen as the next Jack Welch, and he even styled himself as the next Jack Welch. He was on the front of a couple magazines as “The Next Jack Welch.”

Unfortunately, though, for everybody—employees, customers, suppliers, the board of directors, investors, and lenders—Mark Swartz, CFO, and Dennis Kozlowski, CEO, managed to steal, and I use that that term advisedly, about $500 million from the firm for personal, inappropriate purposes, such as a $3 million party for Dennis Kozlowski’s wife in Sardinia. The company paid for that, a purely personal event. Dennis Kozlowski and Mark Swartz spent a number of years in state prison in the state of New York. Meanwhile, Ed Breen came in. He had been number two at Motorola and, boy, was he challenged.

He took over the company in the especially hot summer of 2002, literally an hour after there was a rumor the company was going to go bankrupt. Enron had just gone bankrupt. WorldCom had just gone bankrupt. And Tyco looked like it was heading for the same dust heap. Ed Breen came in, and in one of the most sweeping remakes ever in American business history turned the company around. Its stock was so low that the market value of the company was getting close to zero. It was almost indicted. And he turned it around. The story line on his turning it around is really interesting.

Later on, he was invited in as an outside member of the board of directors at DuPont. This sometimes does happen: to become chief executive officer, to go from the board that picks the CEO to be the CEO. Informed by his time at Tyco, he quickly figured out that because of changes in the chemical and agricultural-product market, DuPont was now becoming a diversified conglomerate. So was Dow. So he and the Dow CEO sat down pretty quickly and decided to merge those two firms, the two best chemical and agricultural-product makers in America. Then—and this was all part of the plan—as soon as the companies were merged, they divided the company into three pure plays. Here’s the point I want to make: Ed Breen learned how to take a struggling company and break it up several times into enterprises that were more market-worthy when they were in more narrowly defined market areas.

I think one of the great dangers out there is that we’re looking back on what we know, what wisdom we’ve had, to inform our next move. But Ed Breen took a totally different view of how to solve the problems at Tyco versus DuPont. At Tyco, for example, he fired, literally, within a year, 290 of the 300 top people. When he came to DuPont, he did his due diligence and he said, “They’re great. It’s just a misguided structure in this modern age.” So the point is to remember that we are a product of our history. There’s a whole academic field called path dependency. We do now what we learned to do five years ago. Ed Breen broke that tendency and said, “I’ve now got to remake DuPont,” and he did that very successfully in collaboration with the people at Dow.

On Jeffrey Robert Lurie, owner, Philadelphia Eagles (National Football League)

Jeffrey Lurie, owner of the Philadelphia Eagles, for many years was determined to take his team into the Super Bowl. And of course, the Eagles ended up in the Super Bowl a couple years ago and managed to pull off the miracle. It was an unexpected comeback in the final minutes with what became known as the Philly Philly Play, in which a person who had never thrown a pass threw a pass to the quarterback, who took it in for the extra points.

Jeff Lurie had been trying to achieve that moment, which is going to define his life forever, of a Super Bowl win, but with people who weren’t going to deliver it to him. He replaced coaches. He tried various measures. But finally, to his great credit, he put together a combination of three parts. The underlying point in leadership is that one thing won’t do it. Your height. Your gender. Your charisma. Your eloquence in front of people. Your strategic thinking. You need it all.

Jeff Lurie, believing you could learn a lot as a coach from players, developed a three-part formula. First, he made certain that he had a coach who was player-centric. It took him a while to get the right guy to do that. Number two, he concluded that the back office was part of the story. If the back office was dysfunctional, players on the field were not going to be able to play and demonstrate their best. Finally, you’re not going to win in a field of 34 teams if you’re not willing to take a few risks. Jeff Lurie said, “I want a coach who is player-centric.” And then, separately, “I want the back office.” By the way, these are big offices. They open the stadium and they do the payroll and they ultimately decide who’s going to be on the field as decision makers in that area. So he wanted that to be in place.

He had to develop a mindset among the coach, the players, and the back office: a willingness to take risks and not be fired for them. It took a while to achieve that risk tolerance, risk willingness. But he put that together with a united inner circle of top people, around the whole enterprise, who weren’t players. Then the coach and players learned from each other. Voilà, they had an amazing Super Bowl.

On George Washington

I finish off with a chapter on no less a person than George Washington, not known for his business experience but, rather, more for his experience in creating the country. And just to remind listeners, he went through either fourth or fifth grade before he dropped out. He never went to a military academy; there wasn’t one at the time. No ROTC.1 He had not been in the ranks for 20 to 25 years to become a general officer, the way it is now in the US, but he put up his hand. The Continental Congress said, “George, you’re the guy. Why don’t you take charge of what we’ll call the Continental Army and see if you can’t get the British out of North America?” It took him seven years. He learned it all from scratch.

So here is my final case in point: this is all learnable. There’s nothing secret here. We just have to find out what’s vital. It’s out there. Then we have to put up our hands and decide to become the leader we know the nation or the company or the community really needs.

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