Remarks Prepared for Delivery by The Honorable Elaine L. Chao For the Mahindra Universe Program

May 12, 2015

Thank you for that warm welcome!

It is a pleasure to be here with Anand, Ulhas, a classmate, and with Professors Reinhart and Trumbull, Beth Neustadt, and the Mahindra senior leadership.  And it is wonderful to be in the beautiful Loeb House, to share some thoughts on transformational leadership.

We’re fortunate to be living in exciting times, filled with great challenges but also great hope.  Technology is rapidly transforming our world, making economies and countries more interdependent than ever before.  This program—a week- long dialogue taking place in Boston for a company headquartered in Mumbai—reflects the momentous changes taking place in our world.  Rapid change is disruptive, but it also offers new opportunities for leadership.  Leaders who are comfortable with change, who anticipate and adapt, will be the winners in the new global economy.

Today, the old style transactional leadership—based on a system of rewards and punishments—is being tested against a new style of transformational leadership, which is more attuned to the needs of others.  Transformational leaders work on earning the trust, respect and admiration of employees and customers. They inspire and motivate.  They build organizations that are communities, committed to a set of core values that empower others.  This scenario is not only the result of a generational shift in the workplace.  It’s the result of technology, which is spreading democratic ideals all around the world, and democratizing the world place as never before. In fact, transformational leadership is leading in an organizational democracy.

This morning, you looked at Alibaba as a case study, so let me use it as an example of transformational focus on others, in this case, on the customer.  In a recent interview, Jack Ma mentioned that Alibaba has many e-commerce customers in Russia.  They noticed, however, that it was taking about four months to fulfill orders destined for Russia.

Let me digress here and share a favorite story that Ronald Reagan used to tell about the Soviet empire.  A Russian was filling out the bureaucratic paperwork required to get a washing machine.  He was very happy to finally be in line to be considered for a washing machine—he had waited years.  Nevertheless, he asked the state authorities, when will the washing machine be delivered?  The bureaucrat behind the desk very impatiently retorted:  you’ll get it 10 years from today.  The Russian asked:  is it coming in the morning or afternoon?  The bureaucrat angrily answered:  what difference does it make?  The Russian answered:  well, I need to know because the plumber is coming in the morning.

Alibaba’s Russian customers were apparently happy with a four-month delivery time frame—they were used to delays—but Alibaba thought it could do better.  So the company launched a campaign to identify the logistical challenges in Russia and solve them.  The result was Alibaba brought fulfillment time for Russian orders down to two weeks, instead of four months.

Now they could have said to themselves—four months is not great, but if it’s OK with our Russian customers, it’s OK with us.  But that wasn’t good enough. They challenged themselves to make the customer’s experience better, and they succeeded.  That’s a competitive advantage in today’s global marketplace.  If you listen to Jack Ma and other transformational leaders, their focus is always on empowering others—employees, customers and entrepreneurs alike.  They see their job as creating a win-win- situation for everyone.

Another fact of leadership today is that higher skills are more valuable than ever before.  In manufacturing, rote jobs are being replaced by higher skill sets requiring some knowledge of technology.  So managing and nurturing human capital are key responsibilities of today’s leaders.  It used to be capital was the scarce resource.  Now capital chases deals; employers chase skilled labor.  Labor is the scarce resource.  The income inequality we hear so much about can really be defined as a skills gap.  Over 80% of new jobs require some understanding of technology.  So continuing education and upgrading skills are increasingly critical to income and long-term employment viability.  There is a shortage of skilled workers so their wages are often bid up higher than workers with lesser skills.  This skills gap is what contributes to the income gap.

In this era of tumultuous change in every aspect of the workplace, managing others still begins by assessing one’s own behavior as a leader, and working to improve weaknesses, which we all have.  Transformational leaders don’t stifle feedback from others.  They encourage it, whether it’s positive or negative, and learn from it. This can be a challenge for leaders used to more traditional business relationships.  But it is nothing new.  It’s part of the age-old paradigm that the catalyst for growth, as a person, a professional, and a leader, is to constantly challenge yourself.  Modern leaders are challenging the idea that leadership is conferred by a position or a title.  For them, it is a behavior that can be cultivated in any situation.

In today’s global environment, managing human capital involves not only understanding yourself and other people, but understanding other cultures.  That’s because a growing number of solutions to global challenges are being addressed by teams bridging a variety of cultures and approaches to problem solving.

That’s a challenge Mahindra is well positioned to tackle, since you operate in 100 countries.  In fact, we see some of your little red tractors down in Kentucky—my home state.

Implementing a transformational style of leadership, however, can be especially challenging when dealing with different cultures.  As an immigrant, I am acutely aware of this.  Here, in America, everyone feels free to express his or her feelings and opinions, even if they are junior members of the team or they have critical comments. Mistakes are not only tolerated, they are expected. And risk taking is encouraged and rewarded.  In addition, western millennials have accelerated these trends.  They change jobs frequently, trying out new things before they choose a career path. They want maximum flexibility in working arrangements, a flattened structure, and they expect their opinions to be solicited.

As we all know, technology is the ultimate disruptor.  So for an organization to survive in today’s rapidly changing environment, it must be a community of people who pull together and have a commitment to the long-term.  Yet this is a challenge with a new generation of workers who want more autonomy, more impact, quicker feedback on personal performance.

And building a company with a strong sense of community can really make a difference. Let me share one of my favorite examples.  DaVita Healthcare Partners is an American healthcare company that provides out- patient hemodialysis in a network of nationwide clinics – real serious business.  The company went from an organization that was hemorrhaging staff, being investigated by the SEC, earning $1.50 per share and couldn’t meet its payroll, to a respected, profitable corporation earning $75 per share.  This didn’t happen overnight.  It took eleven years to turn it around, and there were many contributing factors.  But a key catalyst for change was its new CEO, Kent Thiry, HBS Class of 1983 Baker Scholar no less – whom some of you may know.  He was determined to remake DaVita into a community of people who felt ownership in the company and cared about its health.  Without ownership, he is fond of saying, employees are like the owners of a rental car—no one washes a rental car, because they don’t own it!

The DaVita leadership put a tremendous amount of time and energy into creating a new mission statement and set of core values.  Every single employee—from the top on down—was invited to training sessions to learn about these new principles and how to implement them.  The organizational culture was built around the idea of operating as a community first, a company second.  Initially, this was met with ridicule.  It seemed trivial and a waste of time compared with the enormous challenges facing the company.  But it turned out to be the key to engaging the employees, building their confidence, earning their trust and dramatically reducing attrition rates.

Kent Thiry stressed that embracing DaVita’s strong corporate culture was not an option.  Managers were given the time and the data to make up their own minds about whether or not they could buy into a new way of doing business.  But once they had been with the company long enough, each person had to make a decision one way or the other.

When managers and employees believe the mission and values of the company are worth fighting for, they will stick with the company during difficult times.

And, that’s a lesson I also learned as the leader of a large government department.  At the Department of Labor, we took on difficult tasks:  updating the regulations on overtime, for example, which hadn’t been done since when Elvis was a teenager.  We also updated the regulations on union transparency, including requiring labor organizations to file annual financial disclosure reports and self-dealing conflict of interest statements.  These reforms were resisted by the leadership of organized labor—even as they advocated for Sarbanes-Oxley legislation that imposed many of these conditions on corporate entities.  But the rank and file union members supported our reforms, because they fostered union democracy.  In the public arena, there are always opposing viewpoints.  The Department became the focus of unwanted criticism and attention from the media, Congress, outside interest groups – it became an issue in 2004 presidential campaign.  Now, that’s pressure!

I wondered whether my team was willing and able to sustain the relentless daily incoming fire.  What I learned was that the team believed in what they were doing.  The cohesiveness of our team made it possible to work together on these outdated regulations which were making America’s workforce uncompetitive in the face of withering criticism.  These outdated regulations were tying down employers and workers with rules that no longer made sense, and held them back in a global environment.

Kent Thiry also learned another key lesson that Mahindra has already put into practice: in a large, complex organization that is geographically dispersed, you have to integrate the company’s values into every single aspect of business—from the logo, to the products, to the compensation policies. His leadership model also relied strongly on empowering frontline workers to take ownership of their workplaces, and in painstaking attention to operational details.
I know Mahindra is very proud of its own mission statement and core values, which are based on one simple but powerful word, “rise.”  One of the most popular sayings in American culture is the idea that “a rising tide lifts all boats.”  It’s been evoked by philosophers, writers and politicians, even presidents, throughout American history.

Let me finish by noting that in today’s rapidly changing world, there is no one-size-fits-all solution to every management challenge.  My own career has spanned the public, private and non-profit sectors.  And I can tell you that each of these sectors poses its own unique challenges.  Still, there are some leadership principles that remain universal.  A laser-like focus on the positive customer outcomes, and empowering your workforce, are two investments that will always yield dividends.  I’m not saying it’s easy.  In fact, it’s quite hard.  I focused every day on how I can be a better leader, to motivate others toward a common vision and goal – to make the country better.

That’s why you are fortunate to have programs like this and a leader—Anand Mahindra—who is committed to building a community and views all of you as a family, who leads with the loftiest of ideals, dedicated to making the company one of the most admired companies in the world, with ethical business practices, and employee friendly policies.

Before I finish, I would like to mention that the next time you visit Harvard, you may be meeting in the newly completed Executive Education Center, the Ruth Mulan Chu Chao Center.  As you may have heard, my father, Dr. James S. C. Chao, was honored to be able to help HBS realize its vision to expand the Executive Education Program through the construction of this building which will be completed in June 2016.

This will be the first building named after a woman, and a person with a Chinese surname.  Over 10,000 executives will participate in courses every year, many from overseas.

My parents are Americans of Chinese descent.  They came of age in China in an era which saw successive wars, foreign invasions, domestic political upheaval and where peace and stability were not easily found.

Yet they never lost hope or their optimism and were sustained by their love for one another and their family.  My father was an early practioner of transformational leadership.  He did not seek financial gains.  As a young man, he wanted to contribute to Society.  He wanted to empower others, to be the best they can be; to facilitate world trade in environmentally sustainable ways; to build bridges of understanding; to help contribute to a more peaceful, harmonious, and safer world.

So, in helping to make this building a reality, my father hopes the Ruth Mulan Chu Chao Center will be a vibrant hub for future leaders of integrity and principle to gather together, learn from one another, and better understand the international environment in which we now work and live – to cultivate tomorrow’s leaders who will create greater opportunity and prosperity for others.  This is why you are here as well.

Now I’ll be happy to take a few questions.

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