After a long career with Procter & Gamble (PG), Bob Herbold became president of Microsoft (MSFT) during some of its highest-growth years. Now he consults to a variety of companies and is the author of the recent book on leadership, What's Holding You Back: 10 Bold Steps that Define Gutsy Leaders. I sat down with Herbold shortly after Japan's horrifying earthquake and tsunami hit the country. What with Paul Allen's new book out telling the early story of Microsoft, Herbold's candid observations about a later era add to the story. An unedited transcript of the complete conversation follows, as well as a video excerpt.
FORTUNE: You have a new book out. It offers advice on gutsy leadership, could you explain?
Bob Herbold: Well most people as they get higher and higher in an organization, the decisions they face get tougher and tougher, and all of a sudden they're facing decisions where there's no ideal solution, you can't get all the data you want in order to make a decision. It's a guarantee you're going to disappoint some group of people, OK, and a long-term perspective is needed. It's easy to make a Band-Aid decision, but the real decision is are you going to solve that long-term problem or not? And when people are faced with those kinds of decisions for the first time once they get high enough in an organization, what happens is they often times will wimp out, basically.
FORTUNE: Now wimping out is another euphemism for doing what's best in the short-term interest, which is going to make the quarter look good, as opposed to doing what's right for the company, right?
Herbold: Or doing nothing, or delaying. Or thinking about it, thinking about it, thinking about it, driving your people nuts because nothing is happening. You're basically lacking self-confidence, you're lacking the sense of urgency to get on with life and the like, and this is extremely detrimental to an organization.
FORTUNE: Now, do you give examples in the book of companies that have done this?
Herbold: Tons. There are about...
FORTUNE: What's an egregious one that comes to your mind?
Herbold: Well Fiat would be a classic, that I start out with in the book--it's a 100-year-old-plus company. And if you looked at the period from '95 until 2004, basically it was family members trying to hold this thing together. During the period from 2000 to 2004, there are four different CEOs. They're all family members or friends of family members. Nobody is making the tough decisions. Their cars are ugly, their costs are out of whack. And you look at it, and say, these decisions are obvious as to what needs to be done, but they're not being done. 2004, right at the brink of bankruptcy. Finally they go outside, they hire a hard charger, a guy named Marchionne, he's the CEO today. He puts some key people from the middle level of the company that he sees are strong performers, puts them in charge of the key units, lets go a lot of people who are basically not taking the job seriously, and turns the thing around. And Fiat today is one of the best run automobile companies in the world.
FORTUNE: Now it seems like your ideas are tailored toward managers, especially top managers, but it also seems to be a direct message to the board of directors. Usually the board, of a public company anyway, pressures managers to make these tough decisions, or it doesn't. Right? More
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