A Passion for Leadership

by Robert M Gates

  If the objective is to reduce the number of employees, the best approach is to focus on weeding out the poorest performers. This has the dual benefit of likely improving overall performance and improving the morale of those who remain. Two other available, but less attractive, mechanisms for reducing numbers are attrition (not filling positions as they become vacant) and a hiring freeze. There are downsides to using either. Above all, attrition takes personnel decisions—who should stay, who should go—out of the leader’s hands and leaves him at the mercy of the decisions of others. Using attrition also means the fewer remaining employees will be asked to work harder and do more unless the way the work is done is changed. A freeze on hiring, especially in a big organization, disrupts the recruitment and training process that continually feeds new blood into the institution. A leader ought not to keep it going too long—say, more than a year.

  I have used all these techniques to reduce personnel. Predictably, weeding out poor performers was the most effective but also the most difficult on both employees and supervisors. Telling someone smart enough to be hired by the CIA and perhaps work there for years that he isn’t good enough to stay is painful for both the employee and his supervisor. Although we reduced staff by nearly four hundred at Texas A&M, we managed all but about three dozen through attrition and a yearlong hiring freeze. I imposed a force cap at the Pentagon in 2010 as part of the broader effort to reduce overhead costs, and there weren’t too many yelps.

  Whether in the private or the public sector, a leader should use any reduction in workforce to reform the way the organization does its work. Don’t maintain the status quo structurally and operationally, simply asking fewer people to do more work in the same old ways. That is not fair or efficient. It also represents a missed opportunity. Look for a better way.

  As with the reform agenda itself, transparency in budget cutting is the only way to build trust in a bureaucracy.

  How much transparency is possible depends on the nature of the organization. Disclosure of details in the CIA budget, for example, could reveal major new allocations for a covert operation or new investments in satellites. Too much transparency by a company could expose investments in new products or changes in strategy that would provide advantages to competitors.

  Still, broadly speaking, when it comes to budget cutting in public or private bureaucracies, it is important to remember that uncertainty creates anxiety and saps morale. Whether the question is which programs will be eliminated or which employees let go, everybody is stressed until the final decisions are made and announced. As long as the uncertainty continues, efficiency will plummet as rumors fly and people are distracted by speculation on what will happen—and whether they will soon be out of a job.

  On budgetary matters, I told the senior leadership at Texas A&M, we need have no secrets, no “black boxes.” We briefed deans, faculty, and students on the budget options we were considering, how we would pay for new initiatives, how much tuition and fees might rise, and the impact of state appropriations on our choices. All basic budget options, recommendations, and decisions were examined by the Finance Council mentioned earlier, and its ideas and recommendations were taken into account.

  At the CIA and Defense, there were obvious security and other practical constraints on how much budgets could be discussed in detail with the entire workforce. That said, within the intelligence community, at my direction the Community Management Staff shared information and options widely with the agencies, and I sought the views of those agencies’ leaders frequently as we formulated decisions. Even with so many highly sensitive programs, I tried to run, at a senior level, as open a process as possible.

  Both Congress and various military service and Defense staffs were highly critical of what they termed my excessively secretive approach to major budget decisions, especially the major initiatives in 2009 and 2010. Guilty as charged. As described earlier, I did exclude many staff people in Defense from the process and even required the senior-most officers to sign nondisclosure agreements (as did I). Otherwise, as always before, options under consideration would have quickly leaked and given the opposition on the Hill and elsewhere the opportunity to thwart decisions affecting their parochial interests. That said, I involved virtually all of the senior military and civilian leaders of the department in developing every option and in formulating recommendations for my decisions. There was ample and open debate in 2010 in the course of some sixty meetings on every subject under review. And every senior civilian and military leader had multiple opportunities to weigh in. The openness of the process (at least at senior levels), I believe, played a big role in the absence of leaks and the support of the military services for my decisions in congressional deliberations. (I acknowledge that all involved also knew that after their intensive involvement and chance to be heard in the process, I would not have tolerated them undercutting my subsequent decisions.)

  Few institutions require the secrecy of the CIA or the Defense Department on budget matters. Involving as many senior personnel as possible and making the process open to them are important to their support of a leader’s subsequent decisions—and to their ability to inform and reassure their employees. The more information a leader shares, the more he can inform his people about the choices the institution faces and the options he is considering, the more he can allay some of the uncertainty that inevitably accompanies tough budget decisions. The more he can say about the size of personnel reductions, and how those decisions will be made, the more he can reduce anxiety. The worst of all possible worlds is a black box approach, where a leader and a small group of his staff make budget decisions without broad involvement of others in the organization and then spring decisions on people without warning. Even on budgets, trust is the coin of the realm. More information equals more trust in any organization.

  Salami-slicing budgets—each component gets a thin cut—is a formula for broad institutional mediocrity and is the antithesis of reform and striving for excellence.

  Too many leaders faced with budget cuts give directions as though they were talking to their barber: “Just a little off the top.” Across-the-board cuts to accommodate a budget reduction are, for a leader, by far the easiest because each department is cut roughly equally, leaving everyone a little unhappy and everyone experiencing some pain. Congress—all elected officials, in fact—loves this salami-slicing approach because it fulfills the law of the conservation of enemies: no one gets too pissed off. Too many leaders of institutions like it for the same reason.

  There is just one problem: It is the worst possible approach from the standpoint of accomplishing an organization’s mission and for carrying out reform. It is, I reminded people, managerial cowardice.

  The journalist Thomas L. Friedman has written, “What is leadership if not the framing of concrete choices for the public and then urging one over another.” I opposed across-the-board cuts in every institution I led. This was demonstrated most vividly in the spring of 2011 when President Obama “asked” me to cut an additional $400 billion from Defense over the following ten years. I told him the only way to do that responsibly was to commission a strategic review by the department of the choices that would need to be made. We had to be able to tell the president and Congress what military missions we could no longer carry out with reductions of that magnitude and assess the risks associated with those choices. In short, he and we needed to make hard choices about strategic priorities and military capabilities; we could not rely on across-the-board cuts that would weaken critical capabilities. (That, by the way, is just what has happened under “sequestration,” which is congressionally mandated salami slicing: everything is cut the same, from the smartest and most important things the military does to the dumbest and least important.)

  When it comes to budgets, and especially cutting them, the leader must establish priorities; some activities are core to the mission of the organization, and others are not. But establishing priorities, saying one program or one part of th
e enterprise must be protected from budget cuts, is tough because you will antagonize everyone not included in the highest-priority category. Establishing priorities sends the message that some functions aren’t as important as others, and that too creates ill will. Even so, a leader needs the intestinal fortitude to make the cuts where they should properly be made, come what may.

  Waste, fraud, and abuse are favorite targets of politicians and the media and are usually lumped together as a single category of bureaucratic malfeasance. All three exist in every bureaucracy, but each is quite different from the other, and so is the remedy.

  Of the three, waste is by far the most universal and costly. When it comes to eliminating waste, given the forces arrayed in opposition to change, a leader must be fearless. I don’t think anyone intentionally sets out to waste money. It is just inherent in the nature of bureaucracies, both public and private. People get committed to programs, and when those programs are no longer needed or go off track, they probably rightfully believe that their jobs depend on keeping their program alive—even if on life support. People also get comfortable doing business in particular ways, and when, over time, those ways become increasingly inefficient or fail to provide quality service, they have no interest in changing the status quo. Or senior officials see others of similar rank with certain perks and privileges and want the same and then push the envelope to get a little more. Others just think that a posh office or house is their due. Or folks recognize that a particular program is wasteful, but because it is a pet project of a powerful member of Congress or a state legislator, or of a higher-level boss in the private sector, it continues to be funded. In other words, one man’s “waste” is another man’s job or useful project.

  A reformer looking for waste in bureaucracies has a target-rich environment. Examples abound. I suspect more university presidents have lost their jobs because of overspending on building or decorating their official residence and/or their office than all other causes combined. (Of course, the luckiest university president is the one whose predecessor has been fired for such excesses: the successor gets all the benefit with none of the grief. Still, the money is gone, wasted.) Less blatant is the money wasted because managers are preoccupied with protecting their turf and sole control of their own support functions. Too often, each college or administrative unit in a university insists on having its own computer model, its own external support contract for office equipment like copiers, and the like. It’s as much about control as anything—that, and a lack of confidence that centralized support will be as responsive as needed. Consolidation and outsourcing of support services would save most schools—and many other organizations—a great deal of money, and a large number have taken this road. (But somebody had better pay attention to quality and speed of service from that low-bidding outsourcer.)

  When it comes to waste, the all-time champion is the Department of Defense. The biggest waste of all, of course, is in the form of major acquisitions that are unneeded or have been poorly managed and the cost has exploded. Programs I canceled for those reasons included a new presidential helicopter, six years behind schedule and the cost of which had doubled to $13 billion; the missile defense “kinetic energy interceptor,” a five-year “development” program in its fourteenth year whose cost had nearly doubled to $8.9 billion; an airborne laser, deployed on ten to twenty Boeing 747s at a cost of $1.5 billion each, with a range of just fifty miles; and nearly thirty more such programs. These and dozens of other acquisitions gone wrong cost the taxpayers many billions of dollars. Each had its defenders inside the Department of Defense, as well as in industry and in Congress.

  Then there is congressionally mandated waste. A good example is the first-generation C-5A Galaxy cargo aircraft, which the air force cannot afford to keep flying—and it doesn’t—but which Congress won’t allow to be decommissioned. The only time these giant planes move is when they are towed around the tarmac. Even as Congress cut the defense budget by hundreds of billions of dollars and manpower by the tens of thousands, its unwillingness to allow the department and the military services to close unneeded bases and facilities all across the country is mind-boggling. The military estimates that nearly a quarter of its facilities are unneeded and should be closed. The list of legislatively required waste is a very long one.

  Needless to say, there is enormous waste internal to the Defense Department as well. When we could identify $180 billion in overhead cuts in five months of work, the potential for dramatically greater savings is evident. As I said at the time, we had to go from a culture of spending to a culture of saving. Figuratively speaking, as the deputy defense secretary Gordon England was fond of saying, there is a river of money that runs through the Pentagon—hundreds of billions of dollars in routine spending that rarely gets close scrutiny. Some is in large chunks, but much of it is in relatively smaller accounts that are nearly invisible given the size of the overall budget. To get at those funds, and decide what is necessary and what is not, is very hard work. But it can be done.

  To make the cuts we did in a number of areas, the department and the military services had to rethink how we did our business and make significant structural and procedural changes. The only way Defense could manage the additional $400 billion in cuts directed by the president—and even more through congressional sequestration—without seriously weakening America’s national security was through radical reform and getting at that river of routine spending, both efforts that could only be led from the top.

  Abuse and fraud demonstrate a lack of honor and integrity and, as such, can cast the responsible individuals, an entire organization, and its leadership in an unfavorable light. Both are, at minimum, violations of a trust and cannot be tolerated.

  Allegations of fraud and abuse make for stirring political rhetoric, but I think their significance in contributing to misspent money and poor performance is greatly overdrawn. Fraud is taken very seriously and regularly punished. In every institution I have led, I have seen employees—including some fairly senior officials—fired and some prosecuted for falsely reporting time and attendance, for false claims relating to travel and other expenses, for misuse of official aircraft and vehicles. More broadly, there are many documented cases of government officials who have taken bribes or been guilty of conflicts of interest, been caught, and sent to jail. Interestingly, government seems more willing to prosecute small-scale thieves (and even more significant ones) than business, where there is a penchant simply to fire a miscreant rather than invest the time, trouble, and money to take him or her to court.

  In the overall scheme of things, I suspect the dollar cost of abuse is not significant (especially when compared with waste). I think the term, in the context of “waste, fraud, and abuse,” applies mainly to rule breaking and violations of fiduciary responsibility that do not rise to the level of fraud or criminality. This term applies, in my view, especially to a number of the cases in recent years of senior military officers exceeding propriety when it comes to use of staff for personal errands, improper use of government resources, lavish entertainment, and questionable use of government aircraft for personal purposes. But many others in every bureaucracy—public and private—indulge in these and similar abuses. No one goes to jail for these offenses, as in the case of true fraud, but people do get formal reprimands, lose their jobs, and sometimes must pay restitution.

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  Leaders in the public sector face multiple budgetary challenges their counterparts in business are spared. Foremost is that the budgets of virtually all public sector organizations are subject to approval by elected bodies. That means great uncertainty from year to year as to how much money a leader and his organization will get. Such uncertainty makes even medium-term planning and strategy formulation tough. Also, elected overseers usually provide little flexibility to change ways of doing business, to deal with new priorities, or to restructure organizations—a particular challenge for the reformer. Perversely, efficiency and careful stewardship of taxp
ayer dollars more often than not are penalized, not rewarded. If a leader manages carefully and ends the fiscal year without having spent every dollar he was budgeted, the powers that be will likely conclude he was given too much money and will therefore cut his allocation for the next year. On the other hand, the lousy manager who spends his entire allocation and perhaps then some will likely get a sympathetic hearing for an increase in budget next time around.

  These challenges are not insurmountable. With patience and the investment of a lot of time, a leader can overcome these obstacles.

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  Not many leaders see budget cuts as an opportunity, but, to paraphrase the English writer Samuel Johnson, “Nothing focuses the mind like a hanging.” Budget stringencies offer a leader of reform the best chance to refocus the organization, redefine priorities, and—especially when cuts are involved—change outdated, inefficient, and wasteful ways of doing business. All these actions can be done while an organization’s budget is stable or during those rare periods when it’s growing. But it’s a lot harder to make big changes in fat years than in lean years. Because most public bureaucracies are going to have a lot of lean years ahead, reformers will have ample opportunities to put the above-mentioned suggestions to work.

  9

  Reform: The Never-Ending Story

  The reality of reforming bureaucracies is that when a leader thinks he is done, he probably is done. If a leader has implemented everything on his list of reforms and has nothing else to propose, it is time for him to leave. Transformation is an unending process, not a once-in-a-lifetime experience, and that is how a leader must think of it.