Apple vs. FBI: A Values Showdown

Leadership

On a September morning in 1982, Johnson & Johnson CEO James Burke was flying high, both literally and figuratively.  At a time when many other businesses were battered by the economy, the $5.4 billion J&J was growing at a steady clip.  Earnings were up 16.7% in 1981, and 1982 was on a steady growth track.  But all that was about to change.

As Burke was reviewing ambitious plans for global expansion while on a routine business flight, he had no way of knowing that his team at the company’s New Jersey headquarters was facing news that was anything but routine.  The Cook County Medical Examiner’s Office had determined that three people had been killed as the result of ingesting cyanide in Tylenol capsules, Johnson & Johnson’s leading product.

The reactions by J&J’s executives while Burke was out of reach has become the gold standard of corporate crisis response.  They did not stall.  Instead, they flew into action.  By the time Burke landed, they had already ordered the removal of every bottle of Tylenol capsules from store shelves across the nation.  Their actions would result in a $100 million loss, and a plummet in stock price from $37 to $7 per share.

“Their decisions,” wrote Jerry Useem in a recent issue of Atlantic Monthly, “weren’t really decisions.”  Instead, the executives were acting more or less instinctively in response to the company’s credo – to put the needs and well-being of people we serve first.   When faced with the biggest crisis in the company’s 96-year history, it was J&J’s credo, not its concern for earnings, that moved its executives into action in the absence of their CEO.

The reason Burke’s team moved so quickly while their CEO was in mid-air was because he had prepared them to do so.  As Useem writes, “Just three years before the Tylenol scandal broke, Burke threatened to destroy the company’s credo.  Although it had been a fixture of the company since 1943, it was regarded as a historical a tool for modern decision making.  ‘If we’re not going to live by it, let’s tear it off the wall,’ Burke told his team, using the weight of his office to force a debate. And that is what he got: a room full of managers debating the role of moral duties in daily business, and then choosing to resuscitate the credo as a living document.”

(Photo: Reuters)

A similar scenario is being played out today.  Apple is resisting the FBI’s request and a U.S. Magistrate’s Order to unlock the Apple 5c owned by Syed Rizwan Farook, one of the two killers in the San Bernardino mass shooting last December.  Apple’s executives are keenly aware that lives have been lost, and that their decisions may result in a backlash including a boycott of Apple products. “Opposing this order is not something we take lightly,” wrote Apple CEO Tim Cook in a February 16 Open Letter to Our Customers.

Apple’s swift reaction stems in part from a deeply embedded core value of Apple – “We believe that we need to own and control the primary technologies behind the products we make.”  Apple executives have made their core values part of the DNA of the company.  Values they turn to when faced with a media firestorm, threats from angry consumers, and a hit to the balance sheet.

On the other side of this techno-political battle are the core values and priorities of the FBI.  Specifically, its first priority, to “protect the United States from terrorist attacks.”  The FBI’s actions are strongly supported by many, including Senator Diane Feinstein who stated, “I believe that as a government we have every responsibility and duty to see that Apple provides that information. And here we have the first court order of a phone owned by the county in which a terrorist act has taken place. And I believe very strongly that this — that Apple should voluntarily agree to it.”

But the former head of the U.S. National Security Agency and former Director of the CIA, General Michael Hayden, expressed his unwavering support for encryption.  Speaking at a cybersecurity conference in Miami Beach, Hayden remarked, “I disagree with [FBI director] Jim Comey.  I actually think end-to-end encryption is good for America.”  This, despite Hayden’s role in the controversial surveillance of telephone communications between people in the U.S. and alleged foreign terrorist groups, and continued belief that the NSA has the “moral responsibility to use all of the authorities” it was given.

Whether Apple or the FBI stand on higher moral ground is not the purpose of this post.  The purpose is to ask yourself where your team would turn in the face of a crisis.  If the proverbial storm hit the fan tomorrow, do you have a credo, a set of values, a list of priorities that have been embedded into the DNA of your organization?  Would your team instinctively know what to do – even if you were completely unreachable – even if it meant a potential hit to the balance sheet?

It’s not possible to have policies and procedures for every scenario that your organization might face.  What is possible – what is imperative – is that your organization have a fundamental set of guiding principles.  Those principles are not to be broken into in case of emergency, but to be used as a filter by which daily business decisions are made.  That’s the only way to hardwire them into the DNA of the organization.  Only then can you be certain that your organization can be prepared for any scenario whether or not the CEO is in the building.  Have you prepared your team to pass the test?

Question:  Does you team know how to respond to a crisis if you are unreachable?   

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Humility and the Art of Losing Well

Leadership

This month, we saw the Broncos defeat the Panthers in Super Bowl 50.  Ted Cruz and Hilary Clinton were on top in Iowa, then got trounced in New Hampshire by Donald Trump and Bernie Sanders just a week later.  These wins and losses remind us that when we put ourselves out there – when we dare to go for our dreams – we’re not always going to come out on top.  Sometimes we’re going to lose, and losing hurts. 

But resilient leaders know that losing can be useful.  It can remind us to keep our egos in check, and not, as Ann Landers wrote, “accept your dog’s admiration as conclusive evidence that you are wonderful.”

Today’s leaders face increasingly complex problems.  No one person can have all of the answers.  That’s why leaders of the 21st century must have the humility to collaborate.  To step back and create space for others to contribute, and to learn from the contributions of others.

Harvard Business Review contributors John Dame and Jeffrey Gedmin called this “intellectual humility.”

Here are three principles of humility every developing leader should be taught:

1. Know what you don’t know. The higher you climb up the proverbial corporate ladder, the greater the temptation it is to believe that you are the smartest person in the room.  But deep down, you know that you don’t have all of the answers.  You may not even have all of the questions.  Know when to defer and delegate.

2. Resist falling for your own publicity. Part of the leadership role is to maintain a positive outlook.  Your confidence boosts that of your team and your customers.  While it’s important to have a positive outlook, it’s just as important to correctly assess reality.  Keep your spirits high, but your judgment at an even keel.

3. Never underestimate the competition. No matter how smart you are, how many hours you are willing to put in, or how creative your team is, do not allow a residue of hubris to set into your culture. There is always competition for your customer’s attention.

The first task of any leader is to assess reality correctly.  You can’t do that without having the humility to know your own limits and be willing to step back and learn from the contributions of others.

Question: What specific actions are you taking to remain humble as a leader?

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executiveexcellence.com/reimagine 

The Bottom Line on Women in Leadership

Leadership

When it comes to leadership roles in publicly traded companies, it’s still a man’s world.  That’s the not so surprising takeaway from a report released yesterday by Peterson Institute for International Economics.  What is surprising is the finding that organizations with 30% female leaders could add up to 6 percentage points to their net margin.

So what’s the correlation between women leaders and profitability?  According to Betsy Berkhemer-Credaire, author of The Board Game: How Smart Women Become Corporate Directors, one of the key reasons is risk aversion.  “Companies with women on their boards tend to be a little more risk averse and have, on average, less debt,” Berkhemer-Credaire cites from a 2012 Credit Suisse report.  The study showed that the net-debt-to-equity ratio at companies with at least one female director was 48%, compared with 50% at all male boards.  Businesses with women on the board also reduced debt faster following the 2008 economic downturn.

“The Credit Suisse research,” says Berkhemer-Credaire, “shows an incontrovertible correlation between significantly better business performance and gender diversity on boards of directors.”  The author finds that a convergence of seven global factors has set the stage for a significant increase in women on Fortune 500 boards:

1. Regulatory requirements. The financial crises that rocked the last decade resulted in the Sarbanes-Oxley (SOX) and Dodd-Frank Acts.  Compliance with these regulations requires, among other things, that companies appoint outside, independent board members to ensure objective oversight.
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2. Quotas in Europe. The simple truth is that U.S. companies lag behind in board diversity.  A 40% quota for women on boards was mandated in six European countries over a decade ago. Though quotas are not likely to be legislated in the U.S., the shift toward gender balance in Europe puts substantial pressure to respond in kind.
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3. Women in government. The number of female world leaders has more than doubled since 2005.  According to the United Nations, there are currently 12 female heads of government and 11 elected female heads of state. Their achievements on the international stage show that women have the capability and public endorsement to lead effectively.
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4. Expanded expertise. Globalization and technology trends require companies to seek a diversity of knowledge and experience.  Corporate boards are actively looking for candidates with global human resources backgrounds and technology expertise.
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5. Investor demand. Institutional investors increasingly push for diverse boards – ones that can bring a variety of perspectives and ideas to handle complex challenges faced by today’s leaders.  In California, CalPERS and CalSTRS manage billions of dollars in retirement investments.  Trustees of these funds partner with gender diversity groups to create 3D (Diverse Director DataSource) a centralized database of viable female board candidates.
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6. Demographic shifts. According to Berkhemer-Credaire, “the retirement age for most corporate directors is 72- to 75-years old.” Although most companies do not impose mandatory retirement or term limits, a number of forward-thinking companies are working on succession plans to create a diverse bench of board members.
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7. Advocacy efforts. Across America, organizations are supporting women who are board ready.  Some, like the Corporate Board Resource, offer a database of viable candidates for members only.  Others, like the one created by Women’s Forum of New York, offer the database free to nominating committees and search firms.

The bottom line is that women in leadership can improve your bottom line.  If your board is looking male, pale, and stale, it may be time to consider whether it truly represents the constituencies it serves.

Question: Is your board improving your bottom line? If not, have your considered gender diversity?

Join me and Dr. Tony Baron April 27th in San Diego for The Re:Imagine Leadership Summit.  Discover how to create a culture that can respond swiftly, communicate freely, encourage experimentation, and organize as a network of people motivated by a shared purpose to meet the demand of the 21st century business environment. To learn more or register, go to:executiveexcellence.com/reimagine