Everything I Thought I Knew about Leadership Is Wrong

In 1992 Ross Perot asked me if I would join Perot Systems as CEO. It had been five years since he and I had left EDS. I told him I would do it -- with the disclaimer that I didn't know much about the current shape of the business. Ross told me, "Just follow your nose."

That's what I did. It took me six months. I visited with all the associates of Perot Systems and all of our customers. Then I went back to Ross and told him, "Everything I thought I knew about leadership is wrong."

All the reasons he'd asked me to rejoin him for were wrong. The people who had signed on, thinking we'd recreate a new and improved EDS at Perot Systems had expectations that were wrong. They would have to either change or leave.

It was a traumatic meeting. Not that he got mad. It was just a mouthful to tell somebody.

I was telling him that everything had changed. Technology, customers, the environment around customers, the market -- all had changed. The people in the organization and what they wanted from their work had changed.

Organizations must change radically: we are at the beginning of a revolutionary time in business. Not just an evolutionary time. Not a year-to-year change. A fundamental revolution. Many companies that have enjoyed decades of fabulous success will find themselves out of business in the next five years if they don't make revolutionary changes.

Of course, many of these changes are about technology. They're also about the fundamentals of business and people, and they raise elemental questions: How does this business revolution affect the organization? What does it mean to the people in the organization? What changes do we have to make in the way we communicate?

And most important: What is the new definition of leadership?

I can't offer absolute answers to these questions. But I do know from my own experience that the leadership techniques that applied 20 years ago don't apply anymore.

My intense self-examination left me wrestling with two questions:

To get rich, do you have to be miserable?

To be successful, do you have to punish your customers?

To answer these questions, I would have to look deeply into myself, reinvent my concept of leadership. And in the process, we'd all have to reinvent Perot Systems.

To get rich, do you have to be miserable?

In purely financial terms, my seven years running EDS had been unbelievably successful. When I left, I was very proud of the people, the company, and our achievements. From the day I started as president in 1979 to the day I left in 1986, EDS never had a single quarter where we lost money. We never even had a quarter where we were flat -- every quarter we grew like gangbusters. That kind of economic performance made a lot of our people very rich. I used to take enormous pride in the fact that I was instrumental in getting a lot of equity into the hands of the people at EDS.

What I realized after I left was that I had also made a lot of people very unhappy. Our people paid a high price for their economic success. Eighty-hour weeks were the norm. We shifted people from project to project and simply expected them to make the move, no questions asked. We called our assignments "death marches" -- without a trace of irony. You were expected to do whatever it took to get the job done. In terms of priorities, work was in first place; family, community, other obligations all came after.

None of that happened by accident. I had helped design EDS to operate this way, using the compensation system to motivate people: I tied their pay to profit-and-loss performance. If you ran your project very profitably, you were richly rewarded. If you didn't, you weren't. I routinely spent an extraordinary amount of my time on compensation and rewards -- roughly 15%. I did it because I knew that compensation mattered most.

The system worked; that is, we got exactly what we wanted. We asked people to put financial performance before everything else, and they did. They drove themselves to do whatever was necessary to create those results -- even if it meant too much personal sacrifice or doing things that weren't really in the best interests of customers. Sometimes they did things that produced positive financial results in the short term but weren't in the company's long term interest. That's a charge you'd usually apply to a CEO -- but I've never heard it said about individuals down to the lowest ranks of a company. Yet my pay-for-performance approach effectively encouraged that behavior from all of our people.

When I came to Perot Systems, what I saw in my six months of listening inside the company convinced me that we were about to make the same mistake. The emphasis on profit-and-loss to the exclusion of other values was creating a culture of destructive contention. We were about 1,500 people, with revenues of roughly $170 million. Our people were committed to growing the company -- but we risked becoming a company where the best people in the industry wouldn't want to work.