Harry C. Stonecipher
Chief Operating Officer
The Boeing Company
"Making Good Decisions in Bad Times"
Young Entrepreneurs Organization (YEO) Annual Conference
Elliott Grand Hyatt Hotel
August 17, 2001
"Optimism is high moral courage."
So said Ernest Shackleton, the great polar explorer, and a personal hero of mine. Shackleton planned to cross the Antarctic continent on foot. However, after battling through thousands of miles of floating ice, his ship, the Endurance, became locked in an ice pack and then crushed. Casting tents on the ice, the 27 men in Shackleton's party subsisted on a diet of penguins, dogs and seals from January of 1915 through April of 1916.
When the ice pack finally began to break up, they set sail in three lifeboats, finding an uninhabited island in the howling south Atlantic. Two weeks later, Shackleton took five men and set out once again in an open boat - this time on an eight-hundred-mile trip across the stormiest sea on the globe. Their goal was an island no more than 25 miles across at its widest point. Upon landing, Shackleton and two of the men had to cross a steep and uncharted mountain to reach the nearest outpost of civilization, a small whaling village. Once there, they obtained another boat and immediately turned around to go back and rescue the others.
Under Shackleton's leadership, every man survived - not only in good health, but in good spirits as well. Remarkably, eight members of the expedition re-joined Shackleton on another Antarctic adventure a few years later. One of them called Shackleton "the greatest leader that every came on God's earth, bar none."
When he spoke of optimism as high moral courage, I believe the Shackleton was thinking of three kinds of optimism. First, there is the optimism that allows a person to dream an impossible dream or to pursue an improbable goal. All of you exemplify that kind of optimism. You would not have started businesses of your own without it.
As I see it, optimism as high moral courage also involves a willingness and determination to deal with great difficulties. Still further, it involves the capacity to radiate confidence. In difficult times, you need the kind of optimism that rubs off on others. As Napoleon said, "a leader is a dealer in hope."
I expect that some of you have already been tested in the second and the third elements of optimism. How many of you have experienced a downturn in the last year? How many of you have friends or competitors that have faced declining demand or falling prices for the first time? Have they maintained a capacity for bold and decisive action?
According to an ancient curse, whom the gods would destroy, they first punish with 20 years of success. Without a doubt, long success usually leads to complacency. And when growth comes to be taken for granted, it covers up a multitude of sins - inefficiencies, bad business practices and a certain carelessness or lack of foresight.
Look at the shifting role of the Japanese in the world economy over the past several decades. For 20 years or more, Japanese companies were the envy of the world. It seemed that the Japanese way was the only way. The rest of us studied the heck out of it, and, in fact, a number of their businesses were, and are, great. However, about a decade ago, severe weaknesses began to appear in Japanese economy. Consensus, it seems, had given way to paralysis. The inability or unwillingness of Japanese government and business leaders to take needed action has resulted in continuing stress in Japan - and not only in the financial sector, but in society at large.
Now, the United States has enjoyed two decades of almost uninterrupted growth, led by the extraordinary performance of a multitude of smaller companies - with the most visible being those in high tech industries such computers and telecommunications. But ever since the collapse of the Dot.coms about a year ago, there have been multiplying signs of weakness in the U.S. economy. This leads to the question: Is the so-called New Economy a flash in the pan? Has anything really changed in the widely heralded transition from the industrial to the information age?
Let me give you my opinion . . . and this is the opinion of a capitalist war-horse of the old school - one who has carried the banner for large corporations into many a campaign. Regardless of Etoys, Kozmo, Webvan and other Dot.coms that have fallen by the wayside, I am convinced that we are just at the beginning, and not at the end, of a golden age for entrepreneurship. What's more, I believe that the small-business boom that began in this country is destined to spread to many other countries. I believe that it will have a bigger impact in lifting living standards and alleviating hunger and poverty than anything than that big multi-national corporations have done in the past.
The true wellspring of capitalism has always been the creation of new businesses. And there has never been a better time for starting your own business than right now. Today anyone can buy a computer for $800 that has more power than the main frames of 40 years ago. And you can plug that computer into the world, thanks to the Internet. Without a doubt, small groups of talented people have access to all the information they need to run complex businesses of their own. I know that for a fact because we at Boeing work with scores of these companies all over the world.
In addition, there has been a true revolution in expectations in the business world. Young people starting a career today see going into business for themselves as one of several viable options. When I graduated from college in 1960, that was certainly not the case. Back then, if you contemplated a career in larger world of business, you looked to the Fortune 500, because that was where the action was. Large corporations of that era grew up in the shadow of two great events - World War II and the Great Depression that preceded it. The war reinforced a belief in the mobilization and organization of human resources on a very large scale, while the Depression contributed to a decidedly risk-averse mentality across most of society. The fictionalized image of the big corporation as a citadel of conformity was not too far from the truth.
Today, we have a growing culture of risk-taking and entrepreneurship, and this new culture extends all across businesses of all sizes. In the last five years alone, I am told, there has been a 400% increase in college courses on entrepreneurship. And there are, of course, all kinds of role models to choose from when it comes to entrepreneurs who have won both fame and fortune.
Speaking as the Vice Chairman of Boeing, I can assure you that big companies today are keenly aware of the need to stimulate risk taking, entrepreneurship and unconventional thinking within their own organizations. At Boeing, we have set up a $200 million in-house venture capital firm. It is there to encourage people to come forward with new ideas for starting businesses. We want the stream of new businesses generated from within to be truly endless. As Jack Welch, my old boss at GE, put it, "What we are trying relentlessly to do is to get the small-company soul - and that small-company speed - inside our big-company body."
If the Dot.com collapse teaches us anything, it is not the impracticality of entrepreneurship in today's world; rather, it is that fundamentals are fundamentals, for young enterprises no less than long-established companies. There has to be a reasonable relationship, for instance, between the price of a company's stock and its actual earnings, or at least its near-term earnings potential. Another fundamental is a proper allowance for ordinary or inevitable business risk - including the risk of a downturn.
The fact is, downturns are a recurring fact of life in all businesses - young and old, high tech and low - and they can happen at almost any time in any given industry, regardless of the state of the economy as a whole. According to a recent article in the Harvard Business Review, no fewer than 20% of all U.S. industries battled downturns in every single year over the past two decades, with the exception of 1984, when GDP growth soared to more than double the norm. It is a telling fact that more businesses fail after a downturn than during one. They fail because they are too weak to handle the demands of renewed growth. Yet, almost always, both during and after downturns, some companies do exceptionally well. The point is, when companies fail, it is usually because of bad decisions, and not because of impossibly harsh or unpredictable conditions.
What are some of the secrets to making the right decisions in hard times? Here, then, are some of the things that I have learned in more than 30 years in corporate management. During this time, I have been personally involved as CEO or president in three major corporate turnarounds. There is nothing particularly original about any of my five rules. I believe that Shackleton's extraordinary grace under pressure teaches the same lessons. So I will take the liberty of speaking for him as well for myself.
Rule #1 - Do not tolerate complacency at any time. Complacency is the worst of dangers because it is the one danger that obscures all of the others. Soon after they abandoned ship and pitched tents on the ice, Shackleton overheard two men ordering tea from the cook. One wanted his tea strong, the other weak. Shackleton was appalled that they could be concerned with trifles at such a time. To remind them of the gravity of their situation, he immediately cut the food allowance for all hands to a mere 9.5 ounces per day. Feeling that he had made his point regarding the seriousness of their situation, he rescinded this order a few days later.
When I first joined McDonnell Douglas, which later merged with Boeing, the company was struggling financially and it had succeeded in antagonizing some its best customers. Even so, up and down the organization, people regarded the company as almost indestructible by virtue of its long-held position as the nation's top defense contractor. It is fair to say that I struck fear in more than a few hearts by exposing the fallacy of that assumption whenever and wherever it surfaced. But it had to be done - hard and fast.
Rule #2 - Change the people, or change the people. Shackleton had no choice but to work with the crew with which he began. Knowing of the deadly consequences of internal dissension on earlier polar expeditions, he was rightly obsessed with the need for maintaining unity of command. He kept the few malcontents close to him - inside his own tent or his own boat - to contain their effect upon the others and to try to win them over.
Whenever I have joined a new company in a leadership position, I have always started with the attitude that every existing member of senior management should have a fair chance to prove his or her worth as part of a high-spirited and unified team. But I have always been prepared to change the people who cannot or will not change, or who cannot or will not act as team players.
Rule #3 - Don't try to please everyone. To do so is to confuse popularity with leadership. Though he sought out advice, Shackleton made final decisions on his own. As he wrote in one of his two books, "Leadership is a fine thing, but it has its penalties. And the greatest penalty is loneliness." I would simply add that this loneliness is indispensable to the impartiality and even-handedness that are demanded of a leader. Further, in bearing the burden of making the most difficult decisions, a leader lightens the load on everyone else. Shackleton's way of dealing with potential malcontents is a further illustration of that. Though he cheerfully delegated many responsibilities to his second and third in command, that was one responsibility that he kept to himself, because of the extreme importance of disciplinary action and decision-making in this area.
Rule #4 - Maintain a clear-eyed view of reality, no matter how unpleasantly it may differ from what you expect, and be prepared to alter your plans and make new ones without delay or regret. This seems obvious, except that it is so often ignored in the behavior of companies and people alike. This comes, I think, from a fear of making any kind of decision until all of the facts are in, by which time it may be too late to act. Looking back on the key decisions that you have made in your life, how many times have you wished that you waited another six months to make this or that decision?
Shackleton earned the nickname of "Old Cautious" because of his constant attention to what I would call the "fundamentals." Certainly, he never took foolhardy risks. In fact - and this is a lesson that many Dot.coms have ignored to their cost - he was almost fanatical about drawing up contingency plans to cover the widest possible assortment of external conditions. Shackleton's motto was "prospice," or "look forward." That would seem to be an excellent motto as well for anyone who is running a business.
But plans were never just plans for Shackleton - to be filed away and forgotten. When the time came for action, he never hesitated. This was best illustrated in the final descent from the mountain that he and two members of his crew had crossed on their way to being rescued. Late in the day, they came to the edge of a steep crevasse. Convinced that the alternative would be by death by freezing, Shackleton made a quick decision that stunned the other men. At his insistence, they linked legs and pushed off from a sitting position, descending like three tobogganers without a toboggan. In a wild, accelerating rush, they plunged down more than 2,000 feet in about a minute and half. Coming to an abrupt halt in snowbank, they broke out laughing uncontrollably. A terrifying prospect had turned into a breathtaking triumph, thanks to what was literally a seat-of-the-pants decision.
Rule #5 - Have fun; it's an important part of being alive, and it can only help you succeed in whatever you are doing. I won't belabor you with Shackleton stories here, except to say that the diaries of all the crewmembers who kept them attest to the high spirits and high morale that prevailed almost throughout their two-year ordeal. Optimism was a great part of the bond that held them together, and that optimism did, indeed, amount to true moral courage.
I believe very strongly that business as a profession should be exciting and fun as well as rewarding in a financial sense. Since life is short, why not enjoy what you are doing? I give the rise of entrepreneurship a lot of credit for bringing a renewed sense of exhilaration to the art and science of business. Even in big corporations people are learning to have fun and to relish the challenge of forging coherent, high-performance teams out of the diverse elements of which they are made. If optimism is not a part of the makeup of any business - big or small, young or old - a key element is missing.
In closing, I am not going to offer you the wish of smooth sailing in your future endeavors. Better than that, I would like to wish you the fortitude and foresight to both endure and prosper - not just in good times, but in hard times as well. You can survive against long odds and you can do some amazing things, especially if you are having fun.