Harry Kraemer: From Fortune 500 CEO To A Favorite Kellogg Professor

The new Kellogg Global Hub sits on the shores of Lake Michigan.

For me, personally, I can’t think about these things while I’m doing 10 other things at the same time. Taking a little time to think about this helps me separate out activity from productivity. It helps me get from the roots to the trees to the forest. It helps me put things into perspective. What is important and what isn’t important? Why am I doing the things that I am doing? Basically, this is what my first book, From Values to Action, was about. This becomes critical because once you start to think about that, then everything else starts to become pretty clear.

When it comes to the second principle after self-reflection — balance — let’s be real honest about this: A lot of people we know will say, “You know what, to be honest, I’m having trouble balancing things.” My observation, after talking to a lot of people, is that most people who are having trouble balancing their lives haven’t taken the time to try to figure out what they’re trying to balance. How important is your family? How important is your spirituality? How important is your health? How important is fill-in-the-blank? I always tell my students, “I’m not in a position to tell you what your values ought to be, but do you know what they are?” If you don’t know what they are, how can you possibly impact other people? Each one of these things becomes much more clear when you’ve taken the time to figure out what you’re doing and why.

You hear all the time about work-life balance. I always say to my class, “Now that you’re becoming a little more self-reflective, let’s say that expression in our minds really slowly. Work…Life…Balance. It’s sort of a bizarre term. You’re either working or you’re living. Some of us are working enough that it’s not living.” I realized in my first book that I’m not going to think about work-life balance, I’m going to think about life balance. When you think about life balance, you start to ask, ‘What are you trying to balance in your life?’ When I was doing the research for the first book, I ended up talking to several hundred people and asked them, “What are you trying to balance in your life?” That ended up becoming the six buckets of the areas that people think about when they want to balance their lives. Some may not use all six. Some may only use two or three. Some may have ten. In any kind of normal distribution, six buckets seemed to fill out pretty well.  The buckets go like this (in no particular order):

  • Work, career and education
  • Family, friends and people you care a lot about
  • Spirituality (Whatever that means to you)
  • Health (Sleep, exercise, taking care of yourself)
  • Entertainment and fun (Going to games, playing tennis, whatever you are into)
  • Being a best citizen (Being socially responsible and making a difference in the world)

Interestingly enough, taking the time to think about what percentage of your time you want to spend on each one of those becomes really, really key. It has a big impact on the students because this whole idea of self-reflection is something that the great majority of students have just never done before. They’re in the race. They’ve worked for four to five years. They’re in their MBA. They’re interviewing. They’re part of clubs. No, wait a minute. You need to ask, What really matters to you? You want to go into consulting —why? How does that impact your life? What are your goals? How does this fit in?

Kellogg students are defined by collaborating in teams.

What gives this a little bit of credibility is that every week in my value-based leadership class, students have to write a one-page, double-spaced self-reflection on something that they’re dealing with in their lives related to value-based leadership, self-reflection, balance. It’s absolutely fascinating to me that it’s the first time the majority of these students have ever taken the time to think about these things. It’s interesting to see what happens over a ten-week period, too. The first couple of weeks, the reflections are almost third person and fairly superficial. Over time, it becomes, ‘Why am I getting an MBA?” What responsibilities do I have? What does being a value-based leader really mean to me? Is it literally about success or is it about significance? Am I thinking about doing my resume or my eulogy?’ It’s literally getting people to think about what they’re doing and why.

Some people will say, “For a guy who studied mathematics, economics and accounting and was a CFO, this self-reflection thing sounds a little qualitative here. Where’s the calculus? Where’s the quantitative side?” In the first book, I literally put together three simple equations that condenses how everything related to value-based leadership starts with self-reflection. It goes like this:

Step 1: If I’m not self-reflective, is it possible for me to know myself? (I would doubt it.)

Step 2: If I don’t know myself, is it possible for me to lead myself?  (I don’t think so.)

Step 3: If I can’t lead myself, how can I possibly lead other people? (You can’t.)

What becomes really important — and the reason that this has a lot of credibility — is that people start to realize that when you typically talk about leadership, you think, ‘Yeah, I’ve got to lead people. I’ve got to motivate and be charismatic.’ Wait a minute —maybe before I talk about all of that stuff, maybe I’d better figure out, how do I lead myself. What are my values? What is my purpose?’ That’s how this whole thing all fits together. Interestingly enough, since I think the current generation is much more focused on making a difference — and being more focused on significance rather than success — I don’t think they’ve taken the time to think about that. It’s like, ‘I’m in business school. I guess I just have to focus on the job.’ Wait a minute…no! Maybe you really do need to figure out what matters and why. There’s a much greater emphasis on this, particularly where they’re given the tools to really think about it.

P&Q: What is the biggest decision you made as an executive and what does it illustrate about leadership?

HK: This was pretty significant. It is hard to believe it was 16 years ago. One of the things we went through at Baxter is referred to as the “Dialysis Crisis.” One of the major products that Baxter developed was dialyzers. If you’re an individual who has kidney failure, if you don’t get dialyzed to get all the poisons out of your blood system, you die. Baxter was one of the companies that originated dialyzers 50-60 years ago. There are a lot of different types and models of dialyzers. We had bought a company that made a different type of dialyzer. In 2001, we found out that several people in a clinic in Spain had died. Immediately, the thought was, ‘Was that the Baxter Dialyzer that was the cause of it?’ The immediate reaction of some folks was, “Oh, we don’t know whether it was the Baxter Dialyzer because if someone has been dialyzed, it requires a significant amount of sterile water and maybe the water in that center wasn’t sterile” Some of the physicians on site even said we don’t necessarily think it was sterile.

I love to use this as an example of leadership in a crisis because our whole view was, ‘Wait a minute, you don’t know if it was the Baxter Dialyzer, but guess what you don’t know if it wasn’t the Baxter Dialyzer.’ So we should immediately stop selling it and recall the product — which is exactly what we did. We did an investigation and, to make a long story short, it was never clear what the cause was. We basically took the tact that we should close the facility. We ended up writing off $185 million.

If you wait until you are in the middle of a crisis and you start to figure out what you’re going to do then, it’s almost a little too late because you have pressure, press and stakeholders. One of the big benefits related to self-reflection is that if you are pretty self-reflective, you’re not going to be surprised very often. You may not know what or when a crisis will happen, but you can predict that some bad things are going to happen. If you have 50,000 employees, you’re going to have a couple of bad actors who are going to do bad things. If you have a lot of facilities, there is probably going to be a fire in a facility despite all the best quality control.

So what I think you do if you’re a value-based leader is that you ask yourself the big, big question: “What are we going to do when we have a crisis? Because it isn’t if, it’s when. Part of my daily self-reflection is “If something bad happens, what are we going to do?”It really came down to two things.

Number one, we’re going to do the right thing. That has a big asterisk on it because what is the right thing? I’m not going to figure that out myself, so I’d better be surrounded by a team of value-driven people who will literally help me figure out what the right thing is.

Number two, we’re going to do the best we can because that’s all we can do. If you can absolutely convince yourself that no matter what happens — and I mean picture your worst nightmare — you say to yourself, ‘I know what we’re going to do. We’re going to try to do the right thing and do the best we can do. I would then argue that dealing with a crisis really isn’t that difficult because you already know what you’re going to do.’ It was very interesting because after this whole thing occurred, I ended up going through a lot of interviews. They’d say, “That must have been very difficult, Harry.” To be honest, it wasn’t really difficult because we did the right thing. If we had done the wrong thing — if I had said we’re not going to take responsibility and it’s someone else’s fault or you’ll have to prove this, whatever — I would’ve had 50,000 people who’d probably want to lynch me. But I had a team of people who expected that we were going to do the right thing.

By the way, what I always mention to students — which probably demonstrates why I am an eternal optimist — when we did this, the initial implication was the stock fell and we wrote off $185 million. To me, the amazing thing was that within six months we started to get phone calls from clinics that used dialyzers (and had never bought a Baxter Dialyzer) that said they wanted to buy Baxter Dialyzers. We’d say, “Why is that?” They’d respond, “The only thing we know Harry is that when you guys have a problem, we know you’re going to do the right thing.” I thought, ‘Wow! There’s a significant reinforcement.’

It turned out that despite the fact that we had an issue, the company had such a great year on all of our other products that we ended up beating our plan. The CEO and the management team had the ability to receive a pretty good bonus for the year. I sat down with the top 16 officers and I said, “People have died because of this dialyzer thing and I think we should cut our bonuses by 60%. Every one of them said, “You’re right. That’s the right thing to do.” Those kind of things send a signal to 50,000 people around the world that these guys really get it. Quite frankly, that’s why they work for Baxter.