Managing America

GUEST: Lester Korn
VTR: 6/21/1986

I’m Richard Heffner your host on The Open Mind. Now I gave a commencement address last month, and as I sat on the university stage smiling, I hope broadly, while a few hundred undergraduates filed by, shook hands, and became college graduates, I was quite shocked even though I’ve been a teacher for forty years now and have seen for myself the changes that have taken place in academia, I was still shocked at how very few of these youngsters had majored in what I think undergraduates should focus on. Namely, history, literature, political science, languages, philosophy. Instead, most of these 1986 graduates quite clearly had early on agreed with Calvin Coolidge that the business of America is business, had determined to study it rather than the liberal arts. For their majors mostly and quite clearly seemed to be business related. Merchandising, accounting, business administration, finance, and so on. And to the extent that as a teacher I needn’t go with the flow as the kids say, but should know where it is going, every once in a while I try to determine here on The Open Mind what, after all, are the making the breaking trends in American business. What shall be the future business climate in which these young people I try to teach something else shall in fact grow, and I do hope, flourish. That’s why my Open Mind guest is once again today a friend who very much has an understanding of business directions. Lester Korn, Chairman and Chief Executive of Korn/Ferry International, the world’s largest executive search firm. I do thank you for joining me again, Lester, and you know I read your recent piece on the “Twenty-First Century: The Era of the Mega-Manager” as you called it, the speech you gave at Town hall in Los Angeles, June 1986. And I’m continuously amazed by the vitality and the enthusiasm and the optimism that you express there, and I want to ask you if you’d share with me and with our audience some of what you see to be the trends for the mega-manager.

Korn: Well, I think that the term mega-manager which I used for the first time in June of this year is my redefinition of the changing senior executive and the changing CEO. So much has happened, Dick, in the last five or ten years. So much more is going to happen before the year 2000, which is after all less than fourteen years away, that I took some time to rethink what the mega-manager is going to look like in the year 2000. And I think there are some very interesting environmental changes that executives are going to have to deal with. For one, the Pacific rim is going to be very close to the crux of the heart of the world and there is no doubt in my mind that the Pacific rim is represented by Los Angeles, Beijing and Tokyo….will be at least as important as the New York/London axis that exists today.

Heffner: That’s not your California tilt?

Korn: Oh no. as you know, I spend almost as much time in New York as I spend in California. I think that is the demographic tilt of the United States and the demographic tilt of the word. And I think as an amateur historian talking to one of the great historians of our time I think that many people feel that the East, movement to the East and the incorporation of the cultures of the Orient, is certainly the wave of the future. I happen to agree with that. Certainly Los Angeles would be the largest city in America by the year 2000. Most forecasters have indicated that. Now just as importantly I anticipate a telecommunications revolution comparable or in excess of what we’ve had with the computer over the last fifteen years. In many ways the computer revolution is behind us. Look what that has done to make our life style. I foresee the day that the telecommunications…and very shortly that telecommunications will do over the next fifteen years what the computer did to American and worldwide business over the next fifteen years. and then finally combining that , Dick, with the fact that the world is a global world and that the major corporations of the united states must take their places in the global scene the way the mega-corporations of other countries have done and as we are beginning to do and have been doing for the last five years. I believe there’s a new kind of a CEO coming down the track.

Heffner: What does he look like or she look like?

Korn: Well, for one thing it is either a he or a she. You know, some of them are already with us and perhaps by giving a couple of examples of people that I think are looking into the future and in fact are developing global mega-corporations that are already starting on the pattern, I think we’ll be able to identify what they are going to look like. I think of Jack Welch of General Electric and the reshaping of General Electric that is going on under his direction and the incorporation of RCA, that kind of an amalgamation. I think of people like Jim Robinson at American Express who has made that company a truly global company of enormous importance. I think of people like Marshall Manley at the Home Insurance Group and the co-managing director of Finley-Kumblel is the president of the Home Insurance Group and also a co-managing director who has reshaped and is reshaping the thinking of the insurance industry. And I think of people that have a concept of a world-wide impact and a world scope for their marketplace because the marketplace for the mega-corporations is indeed world-wide.

Heffner: But Lester, if we had been sitting at this table, and we might have been a decade ago, two decades ago, we might still have been very much involved with a kind of social position that said that bigness is not quite by definition bad, but it veers in that direction. What’s happened with that idea? I mean what happens to that traditional American notion, you get pretty big and then we break you up, we bust you down?

Korn: Well, simplistically, we in fact invented the idea of bigness and the mega-corporation. ITT and so forth twenty years ago ran around the world absorbing as many corporations as they could and putting them under the units of American corporation. Other nations learned the same trick and imitated us very well the idea of bigness is consistent with your opening remarks about the students being interested in business. The idea of largeness is not onerous, Dick, and you and I talked about this before. It’s a fact of life. Now thanks to the Reagan Administration and the deregulation and the understanding of the global realities of life, bigness is no longer the onerous term. And after all what are corporations? They’re creators of jobs. They’re creators of economic opportunity. They’re creators of products, hopefully useful ones. But they are creators. And once we understand that you cannot have a thriving healthy America without American business thriving and healthy, then we’ll understand that we should be working very hard to protect and help protect in the free market and help American business whether it’s large or small. There are mega-managers in small companies too. Jack Goldman, the famous inventor who was with Xerox is creating a company called Kousen Research. It has, if the product turns out to be as good as I think it will be, a breakthrough product that is of enormous importance. This country is full of people who can create new technology, who can develop it. So it is in fact, in my view, the climate that has evolved over the last six to eight years that has changed so much.

Heffner: I understand that, and I wanted somehow or other to draw it out of you as you stated so excellently and eloquently. What happens, though, to the older ideals of this country that accompanied a very different perception of what business should look like. Not mega-business. Not mega-managers, but something much more, well, let me say controlled. Something much more in the kind of size that we could manage. I mean, at the beginning of the century we spoke about the promise of American life and admittedly the promise of American life was to be told in large part in our productivity. In what we could create. What we could build. But also in terms politically of small units. Also in terms of the politics of smallness, rather than the politics of bigness. What happens to us?

Korn: Oh, I think it will continue. I don’t mean to indicate that they are mutually exclusive. I think the mega-corporations, I think we would have sat here five years or six years ago as we have from time to time and said that City Corporation was a mega-corporation then as it is now. It has expanded under John Reed. It is growing and changing in many ways and going in different directions. But the fact of the matter is that there are thousands and thousands of small banks in this country that are thriving and are also providing opportunity. Now what I’m trying to say is that there is a new level being imposed upon what we understand American business to be today. And that is that there are going to be approximately fifty, as best I can tell, American mega-corporations of enormous world-wide global importance that will match another one hundred and fifty or two hundred non-American such as Mr. Ishihara at Nissan Motors and the incredible marketplace that they have developed for themselves in world-wide market. So that superimposed on what we have as, what we call the American way of life today will in fact be a new larger global corporation that through telecommunications, through a different type of CEO and through a different scale of management, will in fact have a very important part in protecting the American way of life. Because if we don’t do that we are going to lose to the other mega-corporations.

Heffner: All right. I hear you very clearly. But if we do do that, do you see that we run the risk at all of changing our own politics? For instance, wouldn’t these mega-corporations have the kinds of power within our own country that we simply have not tolerated in the past?

Korn: That potential does exist. And it would be foolish to indicate that it does not. There have been times when corporations have thought that they have transcended the law of attempted to, but you know we are a very Puritanical, ethical group of Americans. And I cannot think of very many corporations in the united states or for that matter in most parts of the world that don’t rank integrity and ethics very high up in the mind of the CEO and the leadership of the country. I think you will see enormous power concentrated in these corporations. But, Dick, they’re already with us. It’s in the style of what they’re doing that is changing. General Motors is a mega-corporation. What it’s doing now is joint venturing in parts of the world that did not joint venture because the American product manufactured in the united states can’t simply be shipped overseas and sold the way it could five or ten years ago.

Heffner: Sure. No, I remember when Roger Smith sat where you are sitting now and spoke just like any good old-fashioned business executive. But you’re also saying that there is a new kind of CEO. There is a new kind of mega-manager (inaudible). What does the training have to be? What does the attitude have to be that’s different?

Korn: Well, I think first of all and perhaps primarily what will not change is the need to make profits, to protect the balance sheet and the human resources of the corporation. No CEO in America or for that matter around the world can survive unless they do that. What is changing though, is the ability to communicate and to manage. For instance, I foresee the day before the year 2000 where corporations will have more than one headquarters. They will have, for instance, a headquarters for finance and general management…(inaudible)… Los Angeles. They will have for manufacturing headquarters in Beijing and for sales it could be Frankfort or some such place as that. Why? Because you have to be near the natural resources. And you have to be near your markets. You can’t do that sitting here in New York and directing it. But you will be able to manage because…you know television sat around on the shelves for thirty years before it was taken out and put to commercial use. My friends in Pacific Telesis and some of the other telephone companies and ATT tell me that there is equipment today that if the regularly body is, would allow it, and if there were a demand for it, we could be communicating just as we are across the table via communications devices that exist today. Now that’s going to change the way a CEO manages. He’s going to have to be able to communicate. He’s probably going to have to communicate in several different languages. He’s going to have to communicate to several different cultures. He cannot run a corporation that is perhaps in three parts for its headquarters, in three different countries, and not be able to speak the languages. One of the great failings of the American educational system is that all these young and bright and attractive graduates who are so motivated at the moment speak English. Do they speak another language? Perhaps. But very likely they do not. Now you go to the Orient as I do, or you go overseas to Latin America or wherever you are, their counterparts are speaking Chinese and Korean and the fact of the matter is that Americans are lagging.

Heffner: Lester, how successful then are we going to be in this world competition if the fact of the matter is, and it is the fact, that we’re so abysmally poor at languages and our attitude is so abysmally poor, too, in terms of learning those languages?

Korn: Well, there is, I think, a very very major need for the business schools and for that matter the universities…as you know, both you and I are involved in more than one university at the board level, have to face into that curricula problem and impose it. And I think that is coming. Some of the brighter people that I’ve talked with in the university situations are simply going to change the curricula. And that, I think, is something that we will overcome. Of equal interest, I think, is the fact that the manufacturing facilities are going to be probably not in the United States. I read a very interesting galley of Peter Drucker’s new book a couple of nights ago. And in it he says that he believes that the employment in the United States can no longer be linked to the manufacturing capabilities of the United States. I’m paraphrasing. I happen to agree with him. Enough has changed in this country that you no longer can look at the manufacturing and say, as goes manufacturing, so goes employment in this nation. However, I would not want, I do see manufacturing, for instance, moving overseas to non-industrial countries where they, where the plants will be near the natural resources with two or three major exceptions. Obviously our defense, our electronics, and certain of our basic industries deal…defense related industries, will be protected. Those manufacturers will grow and so forth.

Heffner: And the rest?

Korn: Oh, I think that you will see more and more manufacturing outside of the United States.

Heffner: No, no, I mean what will be left…

Korn: Oh.

Heffner: …for us here in continental United States?

Korn: Oh, I anticipate, first of all, major technological breakthroughs. And I think those breakthroughs, which by the way has sustained this nation the last hundred years, just think again about the computer revolution, the steam and so on and on and on. I mean we’ve had a technical revolution of one sort or another every thirty years in the history of this country. I have no question in my mind. Now I can’t tell you where it will come, but I do think it will come either in oceanography or in space, notwithstanding the current problems. Or it may come in agriculture. We are the breadbasket of perhaps the world. But no tin an economic sense the way it is today. So I am very, very optimistic about the employment picture which underlies that question.

Heffner: Lester, there’s another question that’s to me very, very important. And I don’t raise it in a partisan way or a negative way, but rather I’m curious as to what you see happening. You talk about the mega-corporation. You talk about fifty such mega-companies…

Korn: In the United States.

Heffner: In the United States. You talk about the concentration of economic power, and you say, well it’s here. It’s not a question of whether we’re going to grow such giant corporations or whether we should, but they have been growing.

Korn: And how they will continue to grow globally around the world and how they will expand. Yes. That’s right.

Heffner: Suppose one said then almost by definition if democracies stem from the kind of economy and society and small-unit development of Jeffersonians…of Jefferson’s times…mustn’t you assume that plutocracy will stem from this kind of economic organization? That almost by definition there’ll be a different kind of political organization to parallel it?

Korn: No, I don’t honestly think so. I think that what we will see and continue to see is a better understanding of the interrelationships between government and business. And I think that we will and have seen for the last five or six years through the various deregulations that it works. The telephone deregulation is going to work.

Heffner: My telephone works a hell of a lot less well than it did before deregulation or before the disruption of Ma Bell.

Korn: So does mine, but five years from now we’re going to have products and we’re going to have competition that we didn’t have before and we will be competitive once again with Siemens and we will be competitive once again with other world telephone companies. And the products will not be locked up in the back room someplace.

Heffner: So, deregulation is the promise of American life, of American business life in your estimation?

Korn: Yes, it’s the future. But let me also say that as far as American business is concerned, American business is beholden to its shareholders. You know we’re not talking about an aristocracy or a group of executives who are beyond the pale of whatever. American corporations are managed by boards of directors. CEOs report to them. Boards of Directors are responsible to the shareholders. They have over the last five years as directors become, and CEOs too, for that matter, become people of intense interest to the media. many of the executives today are on the verge of being household names, certainly everybody today knows who Iacocca is just as they did twenty years ago who Henry Ford was. But we’ll have fifteen or twenty of those people. But those people are responsible to their boards, to their shareholders. They have responsibilities defined. The media is watching them with a scrutiny they never saw before and I think that the political situation is such and the innate Puritan ethic of the American workplace that you will see not a change for the worse, but a change for the better because these large corporations will have a responsibility that is absolutely enormous. Now, I don’t for a minute want to leave without saying that there is always going to be a place for the small emerging corporation or the corporation that is operating strictly in the United States. There’s an entire school of thought that the future for America lies not globally, but in this hemisphere, North and South. Opportunity, corporate opportunity, exists at all sizes, but the mega-manager will also be in those companies. They’re going to have to communicate. They’re going to have to make profits. They’re going to have to protect their employees. They’re going to have to protect their shareholders.

Heffner: We only have a minute and a half left or something like that, but it does sound to me, Lester, that Calvin Coolidge and the estimation of people involved in this revolution was right. The business of America seems to be business.

Korn: Well, I think that in the sense that that statement is one that I would agree wit, I’m not going to comment about Calvin Coolidge, but I think that today America and American business is restructuring. By the year 2000 we will have more jobs, more prosperity. The economy will be healthier than it is today. And American corporations of all sizes will be thriving. I couldn’t have told you that, and I probably didn’t when we last met. I’m very optimistic about American business and where we are going.

Heffner: Do you think that the estimation, in the estimation in which we hold American business will be so much more positive by the end of this century than it was let’s say when you went to college?

Korn: I certainly hope so. I think the geopolitical realities of America today are such that if American business is not successful, then we’re all in trouble. To be approved, that will mean that integrity is part of the definition of the mega-manager of the next decade.

Heffner: You know, Lester, it never occurred to me that I’d want so much to talk about business. I don’t share the point of view from which you begin, but it is a fascinating subject. Come back and join me again.

Korn: It’s always a pleasure.

Heffner: And thanks, too, to you in the audience. I hope you’ll join us again next time. And if you care to share your thoughts about today’s program, please do write THE OPEN MIND in care of this station. Meanwhile, as another old friend used to say, “Good night and good luck.”

Continuing production of this series has generously been made possible by grants from: The Richard Lounsbery Foundation; the M. Weiner Foundation of New Jersey; the Mediators and Richard and Gloria Manney; Mr. and Mrs. Lawrence A. Wein; Pfizer Inc.’ and the New York Times Company Foundation.