Bill George is the author of two books, True North and Authentic Leadership. He is the former CEO of Medtronic  (NYSE:MDT). During his 10-year tenure, he instilled values, inspired employees, delighted customers, and led the company to a 60-fold increase in its value -- equivalent to 35% investment returns per year. Motley Fool CEO Tom Gardner interviewed Bill several months ago to get his thoughts on what makes for great leaders. This is part four of six in our interview series. Please click here to read Part 1, and to find links to the rest of the series.

Tom Gardner: How important is it for a company to have its mission and its values everywhere inside a company, and what are some places that they should show up that maybe at most companies they don't?

Bill George: Well, I think if you want to have sustainable success, people need to know the purpose of the company. Call it the mission. Johnson & Johnson (NYSE:JNJ) calls it the credo. It doesn't matter what you call it. What is important is to ask: What do people live every day? What values do they live by? In global companies, how do people who have different cultures know what to do? Basically, you can't set enough rules for them to follow. All you can do is get clear about the purpose of the company, and be clear about the values, and go through some values tests so that they understand what are the values that we operate under. Here is what we do.

I think the thing that really stands out is if your people know the values well enough that they can convey them to the customers, and so in fact they bring the customers into the mission of the company. Howard Schultz tried very hard to do that at Starbucks (NASDAQ:SBUX). He is back, trying to do it again. I have seen Bill Weldon do it at Johnson & Johnson. He tries to bring the doctors and the nurses and all these people into the purpose at J&J and the J&J credo.

I tried to do that at Medtronic. And now, I'm on the board at Goldman Sachs (NYSE:GS), which has this incredible financial network they operate with, including all the ex-Goldman Sachs people who are treated pretty well. They even have an alumni office inside the company because they want them all to be part of the Goldman Sachs network, even if they are no longer employees. They treat their former partners extremely well because they want that sense of "We are something special. We are something unique." McKinsey has always done that with their former colleagues; they have very high turnover among their consultants, but they keep them in the McKinsey family.

Gardner: I want to give you two scenarios, and they are hypothetical, so you obviously don't have all the factors, and if you don't feel you can make a call on them for the fun of it, I totally understand, but here is scenario one. You have a hard worker. Somebody who follows the values of the company. However, the team hired him at a position beyond his capabilities and a salary beyond the value he is creating. He also has a tough family situation in terms of, let's say, a health issue at home. Finally, he is in a position that is a pretty mission-critical role for the company, so the fact that he is underperforming is a problem. People are covering for him, but again, he is working hard and follows the values of the business. What sort of actions would you take, given that?

George: Well, the most important thing is to have an honest conversation. There is nothing better than straight talk. Jack Welch always emphasized that. People need to know where they stand. And frankly, people do know when they are failing. They know it. Sometimes they feel like they have to fake it for fear they are going to get fired, so you see that long look. They come into work with that look of fear on their face, asking "Is today the day I am getting fired?" People don't like being in a job they can't handle. They are over their heads. If it is the wrong fit, it is the classic square peg in a round hole.

The best thing you can do for them is to pull them out of that job, particularly if it is mission critical. Get someone else in there that can do the job. Then give them another shot. Put them in something you think they can do or if they are really having a tough time on the personal front, put them in kind of a holding-pattern job, maybe a staff role that is not mission critical that they can recover and come back and maybe they have a lot more capability. Some people that look bad in one job are just going to be fantastic performers in another.

It's very much like a sports team. I told you I coached soccer. You wouldn't want to have your top defender playing striker, and you wouldn't want to have your striker in the goal. Each person has to have their own position and do it well. And so if you put people in the wrong positions, they are going to perform poorly. The job of the coach or the leader -- and I think being a leader is very much like being a coach -- is to get people in the right positions. Get them so that you have got an organization where all the people are in the right positions.

The wiring diagram, who reports to whom, doesn't matter so much at all, but what really matters is that you have got people in the right jobs and that they can work together from those positions. Competence matters a lot because people have a sense of mutual respect if each person can do their share of the work. If you have got one person that can't pull their weight, it may work in the short term to have people covering for them, but I don't think it works in the long term.

Gardner: Would it be appropriate, if you were to move that person into a less impactful role, that their compensation is changed as well, or are you inclined to keep people at the same comp?

George: Sure, compensation has got to go with the job.

Gardner: OK, scenario No. 2 is a more troubled scenario. It is somebody who is steering her career. She has got unhealthy ambition. She's jealous of others, but she is highly productive. Prior to your coming as leader, she has gotten a lot of promotions for performance and therefore has advocates who are solid performers at the company. What do you do in that scenario?

George: And she is over her head or …

Gardner: No, think of that person that you, maybe as a board member today, see and you hear how high a performer they are, but you have got some suspicion that something isn't right there. You are not getting the full story, or they are beating up their subordinates, but by virtue of having gotten a lot of promotions and worked with a lot of teams, they do have advocates inside of the company. What then?

George: I would like to see the 360 feedback. I would like to see how their subordinates feel about them in those jobs. How good are they at developing other leaders within their organizations? What kind of turnover do they have in their organization? Do you find that they perform well but they always move quickly? I would put that kind of person in a job where she didn't move regularly. I would put her in a job where she had to stay in the same job for four our five years and see if could she sustain success.

Some people who are quick-hit artists can do very well for nine months, 12 months, 18 months, but they can't sustain it. I would want to test that person in a job where they had to stay with it for a long time. I would put them a long way from the corporate headquarters. I would send them out to Australia or Japan and let them run our company out there and build it up and see how they do. Let them stay there four or five years, long enough to build it up. So, that is the real test. You can't get a lot of those fixed in your career, but a couple of them, one or two, maybe one, let's say, in what I call a seminal experience, will be very, very defining about how effective that person can be for the long term.

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