GEOFF: Welcome guys. Welcome to viewers around the world. Our topic is leadership. We can start in a million different places, but I figure we might as well start at the beginning. Mayor, your book is called Leadership, so I'm going to ask you straight off: What is it?

RUDOLPH GIULIANI: Oh, it's a combination of a lot of things. I think the most important part of it is to have ideas that people will follow, that people can understand, that makes sense; having an ability to look into the future, give people confidence that you move forward -- and I think the word that was used in the introduction, "optimism," is a very, very important part of it.

Nobody follows a pessimist. I mean, if -- Winston Churchill was mentioned before -- if Winston Churchill had come out on one of those mornings after a terrible bombing, you know, during the Battle of Britain, and said, "There is no hope. We can't get through this. Follow me." [laughter] -- everyone would have said, you know, "Goodbye, Winston. "

The reality is, you have, you have -- a leader has to be able to look at a problem and try to figure out how to solve it, and be offering solutions to problems. And the more realistic those solutions, the more effective they are. I think that's one of the characteristics of a leader: either being an optimist or forcing yourself to be one.

GEOFF: Jack, does that ring true?

JACK WELCH: Why, yes, that's about it. Today's CEO's challenge is Winston Churchill's challenge. Today's CEO challenge, for all the people that are out here, is to do what he did, what Rudy did on Sept. 11, is to give the people in the organizations a vision of where you're going to take them.

The people in your organizations are frightened. The scandals have, in general, permeated business. Not their companies -- I've talked to tens of thousands (of people), and they don't feel their part of it. But they don't feel right about it they're uncertain, and they need, from you, great optimism, that Rudy portrayed. They need from you direction, where you're going to go, how you're going to win, and each one of you has a responsibility to cushion what they're feeling in terms of the negative side, and to take them over the mountains into the winning land, and that's what you've got to do. You can't be sucking your thumb. You've got to be taking risks. You've got to be out front. You've got to be going at it, and explaining the rationale "Why?" There's too much hunkering down.

» Video of the full 57-minute discussion » Profile of Welch and Giuliani » Should you bet on the CEO? » Fire the bottom 10% just because Jack did? » Sept. 13 Jack Welch interview » Welch agrees to pay for perks » Colvin: The inside story on Welch's decision » Non: Welch earned it

GEOFF: Well, look guys, I mean, these are tough times. I mean, the economy is going nowhere. The stock market has gone worse than nowhere for two-and-a-half years. People are very concerned now about the prospect of war. There's a lot of well-founded worry out there. What is a leader to say to people, to your point, Jack? All right, you're supposed to be out there charging people up, getting them excited about winning, where do you find a positive message?

WELCH: Very clearly in the fact that when you look at these economic times, yes, they are difficult, but just go back to Ronald Reagan's time. We had prime rates of 21 percent. We had unemployment rates of 12 percent. We had impossible times. The Japanese were going to take over the world, America was done. All those things. And yet people, LBOs, leaders, restructured America and took it to the next level. That's what we have to do now.

We've had a dip. It's not a crazy dip. I mean, GDP, let's argue whether it's minus 1 or minus 2 or plus 2. Ronald Reagan had nine straight quarters of negative 2 to 3. Nine straight! We haven't had one. So these are not the worst of times.

Now what we have to have are people that are telling their people how they are going to win, how they're going to combat the Chinese challenges that are everywhere, how are they going to innovate, to drive products. Look, the facts are there is enormous pressure on price, everywhere. So you've got to innovate, you've got to differentiate, you've got to add services, you've got to provide a value product, but you've got tens of messages to tell these people, your team, how they can win, and why this is temporary, and why this -- we've been through times like this before, and how they can get out of it. And you cannot be silent in the corner office and become, instead of chief executive officer, you can't become chief compliance officer. You've got to be out doing things. Now you've got to do it right, and all of you have been doing it right. There are millions of people that go to work every day in America and do the right thing. Remember that. Stop feeling bad about business.

Business is great; it's the heart of a whole system. The Mayor, God bless him, as good as he is, wouldn't have a nickel to spend if you didn't make the money to pay the taxes. [laughter] It all is built around this free market enterprise engine that requires winners. And each one of you have got to go back and rally your people around how you're going to be winners. And that's what leadership is.

GEOFF: I want to ask about where it comes from, and I mean the motivation to act, to get up and go out and do this. And one way to get at it, Mayor, is through this thing that is now the cathartic, the catalytic event in your life, I presume, which was 9/11, which - if you think back on what happened then, it would have been entirely reasonable for you to of taken a much lower profile; your personal safety was in enormous jeopardy, here was a national security problem that was going to be addressed by national authorities, you didn't have to be, on the surface, you didn't have to be out there, everywhere, as you were from the very first moment, and yet that's what you did. When you look back, where did it come from?

GIULIANI: I think you have to ask yourself, you know, why you want to be a leader, or why you want to run a company, or why you want to be a mayor. And from your very first question and Jack's answer: sure, we're going through difficult times, but somebody who is a leader sees that as a challenge. I mean, it's not, there's no great art or science in being a leader when everything is going really well. You know, when profits are coming in and they're just happening and, a robot could be running the company. The art of being a leader is getting things -- getting a city, or a business, or school, or whatever -- through difficult times, and I think maybe you don't think about it that way, but if the right person has been selected to be the leader, they're going to do even better when things are difficult.

I remember saying to myself, in the middle of that day (Sept. 11), or really in the early part of that day, I remember thinking for a very short while what you just said. Here I am seven and three-quarter years into being mayor, city was doing really, really, well, I was writing my book and thinking about what I was going to do next. (And I briefly thought to myself on Sept. 11) "Isn't this terrible that this happened?" And then I said to myself, "This is what I was prepared for."

I mean, this is, I was mayor for seven and three-quarters years, this is what I know how to do. I know how to manage a crisis. I know how to manage an emergency. I can't conduct an orchestra and I can't -- there are things I don't have talent for, but this I knew I could do. And I think that's -- if you really do run your company, then you're going to shine when things are worse. That's the time in which -- and maybe if you can sum it up into one thing, I think the quality is -- people who look to solve problems.

We can all spend -- we can spend the next hour talking about all the problems we face, in the economy, in society, and the real art is being able to look at a problem. There are five bad parts to it, and there's one possible way of solving it, and your mind has to go to solving the problem. And I knew I didn't have time on Sept. 11 or the 12th or the 13th or the 14th just to keep thinking how terrible this was. It was terrible. It was awful. I had to keep thinking about, "How do we get ourselves out of this? What are the realistic things we can do to get ourselves out of it?"

GEOFF: Jack, when you got the job as the CEO of General Electric, 20 years ago, 21 years ago, you were handed one of the great jewels in all of American enterprise. The most -- even at that time -- the most admired corporation in America. Your predecessor Ray Jones was the most admired CEO in America. It was a great hundred-year-old, almost hundred-year-old company, and you decided you wanted to revolutionize it. It would have been entirely reasonable for you to say, let's just keep this winning story going the way it's going. But you did something completely different. How come?

WELCH: Well, I had the enormous benefit of running smaller businesses there that were global. I was an internal person. It's so much easier to take over a company when you've been in it, groveling your way up from the first job starting out of school. You know every jerk that's there. You can see them where they are. And if you ever get your hands on it, man, you want to do this. You know, I mean, you're just thirsting for it, and finally it's yours. And you can go do it, and you can get rid of the bureaucracy and the stupid reports, and the dumb stuff that goes on and you just flush it out. And you become -- and I saw the threat. I mean, we were making -- it didn't take a genius (to see) we were making television sets in Syracuse, NY that Mitsubishi and Panasonic and others were selling below our manufacturing costs, in the same malls in Syracuse. Now, that doesn't take an IQ of over the chart to say, "Get the hell out of televisions!" So we had a whole series of these things. Well, that -- but I saw that as an opportunity to take that money, trade television for a medical business, and we got a great medical business and we built it.

Now my successor's in there, and he's been chomping at the bit for 20 years, and he sees what silly things Jack was doing and he's going to whack here, and whack there, and do this and do that, and things that I walked by down the corridor, he's going to say were so stupid. And that's what change is good for. I mean, the mayor's successor will look at things the mayor did and do different things. It's not because we get old, or out of energy, or out of gas that you change jobs; you change jobs so fresh eyes can look at things and see the opportunities that you had taken for granted. And I, to me, it was the most obvious thing in the world. Now, today, if I was to take over as CEO, I would be driving to find services for every product that I sell...

GEOFF: Services?

WELCH: I would want to have an add-on service so I have a continuing revenue stream. I would be trying to find the answer to what I think is the biggest threat facing, I would try to find the answer to China, how I'm going to participate, not just in China, but in a global trading arena with China as a partner. I'd understand coal. I'd have every possible -- and then I would absolutely get my team, right now, focused on opportunity.

There are more deals out there. The crazy thing about this thing is, think of all the deals that were made four years ago, when trees were growing to the sky. We were paying big numbers, huge multiples, everybody was doing a deal, Wall Street was busy. Wall Street's dry as bone right now. They don't have any business. Why? Because everyone's hunkered down. Equity prices are a fraction of what they were before. There's more deals out there now for those that want to grab them than we've ever seen. This is the rich time to do things. This is not the time to go hide.

The mayor was commenting on this incredible (question), what leadership really means. Leadership means seeing opportunities in tough times. And that's what's out there. Every one of you can go look at a screen of businesses that you could have bought four years ago that would have cost you three times what they are now and you were lusting after them. Today you're scared to death to go buy them at a third of the price. Now tell me why? Tell me why? That's what we need. We need you to think about how to capitalize on these weak markets that present opportunities for you.

GEOFF: I want to push a little further on this topic of where it comes from, because anybody who didn't know it before the last few minutes, knows now that you guys are just two remarkable people. And I want you to think back, early in your lives, I want you to think about where, whatever you are today came from, because it's got to be valuable for the rest of us to know.

GIULIANI: For me it comes from having been a Yankees fan in Brooklyn. [audience laughing]

GEOFF: For the non-New Yorkers that may require some explanation.

GIULIANI: Okay. When I, when I was, when I was little and growing up I lived less than a mile from Ebetts Field.

GEOFF: Home of?

GIULIANI: Home of the Brooklyn Dodgers. And I was a Yankee fan because my father lived in Manhattan, my mother lived in Brooklyn. My mother required my father to live in Brooklyn, and my father resented it all of his life. [laughter] You asked a deep psychological question, right?

GEOFF: Well, I, I, I tried. I mean...

GIULIANI: So this about as Freudian, almost as Freudian as it gets, that I can repeat here. So my father's revenge on my mother and her entire family was to make me into a crazy Yankee fan. Before I even knew what I was doing, what I was thinking...

GEOFF: No, you were innocent. You had no idea what...

GIULIANI: He put me in pin stripes when I, before I -- the first thing I saw were pin stripes. And then he used to whisper in my ear about Babe Ruth and Lou Gehrig and Joe DiMaggio. So I became a Yankee fan and I would go out and play with the other kids and they would throw me in the mud and they'd do all -- and so I developed this fierce independence. So you think this is a joke. It really is true.

GEOFF: I can -- No, look, I, I, I...

GIULIANI: This is true. I mean…

GEOFF: It's funny, but it's not a joke.

GIULIANI: No, it's not a joke. I think things like that form you, and I always found a great deal of satisfaction in running things and improving things and not, and also looking at things from a contrary point of view.

And I suspect that when Jack took over GE, when I listen to his answer, basically, he wasn't content just to leave it the way it is, he was going to put his mark on it, he was going to change it, and a big institution needs to change. It cannot stay the same. If it stays the same, it's going to start moving behind, which is what happens to most government agencies. They start off new - now, the FBI starts off as a great agency, it's a terrific idea, it's very entrepreneurial, and two or three generations later it's repeating what it did in the past rather than reinventing itself. And what Jack did for GE was to reinvent it. That's what you have to keep doing. You have to have that tendency inside yourself to do that, to keep challenging yourself.

GEOFF: Jack, who you are, where did it come from?

WELCH: Well, I certainly can't say it comes from my fan behavior because I've been a diehard Red Sox fan all my life, and he'd kill me.

GEOFF: Well, but it mean, it does mean you've suffered. [audience laughing]

WELCH: I've been through pain. I've been through pain. No, I think it comes from a kid that didn't have two nickels to rub together, that played ball with taped bats with nails in them, and wanted to win.

And I think -- I always had my nose against the glass -- and I think winning, I happen to believe fielding the best team, played every sport there was. When we had the best team we won. When we had a lousy team we didn't win. And I think business gets down to the same simple thing: You're up all day trying to field the best players.

The mayor had a great staff when he ran New York. No matter how good the mayor was on Sept. 11, if he had a bunch of bums in the fire commissioner, and the police commissioner, and everybody else, he would have gone -- that would have been a mess. But he had a team. I had a team at GE. It wasn't Jack Welch, it was a team, and we kept building the team and making them better and making them better, because all my life I saw that was how you won. And in the end -- the thing that kills me about the story we're not getting across is how good winning is to society. When winning companies exist they give back; employees give back, they're not frightened for their jobs, they mentor kids in inner cities, they do all kinds of things. Taxes are paid, people thrive and think about new ideas. People are growing, they're better at home, their relationships, everything is better.

What happens when a company loses? Employees hang on by their fingernails, people are frightened, the company doesn't -- I've gone around as chairman of United Way drives for years in the Tri-State; in good times, they give to you, in bad times, when companies are losing, "Sorry, can't afford it. Can't help you out. Can't do this. "

So the idea of winning should never make anybody feel anything but proud. Do it right, do it fair, do it aggressively, but damn it, win. Because when you win you give back to society, you make the free market work, you make government work. Everybody has the resources to give everybody a chance.

And there's this enormous sort of feeling now that business isn't quite good. I don't know where it ranks, below lawyers or wherever they are. And winning isn't a very important thing, and business isn't critical. Understand that business makes the whole thing work. The free market system we have isn't perfect, it has its flaws, it has its excesses, it swings back and forth, but be proud of it. And don't be ashamed to take risks to win and to give back to your communities and to give back to your employees, and you'll have a hell of a time. But that is what it's about. It's about constantly doing that. That came from the streets, if you will.

GEOFF: Well, you talk about teams. I mean athletics were obviously a huge part of your life growing up. Choosing teams is something that you have then devoted a whole career to and became arguably as good at is as anyone ever was. You referred to the mayor's team also, and I want to ask both of you what you have learned from whole careers of trying to evaluate people, trying to spot the future leaders for your organization, whatever your organization may be?

GIULIANI: For me it starts with analyzing my own weaknesses, and I think, I try to think about, what are my weaknesses? Where do I need help? When I -- as an example, when I became the Mayor of New York City, we faced a number of problems. Two big ones were crime, out of control, or at least viewed that way, 2,000 murders a year averaging, New York City considered the "crime capital of America," and we had an economy that was in bad shape at the time. A budget that was in bad shape, arguably as bad or worse than it is right now, depending on, you know, different factors. So, two big problems. One I knew a lot about, one I didn't know a lot about.

I knew a lot about how to reduce crime. I spent two-thirds, three-quarters of my life in the Justice Department, lowest levels, highest levels. I knew the philosophy I was going to employ. I knew the computer programs I wanted to use. I knew the mapping programs I wanted to use. I, I, I had great confidence that I could reduce crime, and I selected good people, but I felt my judgment about that was as good, maybe better, than theirs. I probably had more experience than many of them.

The other area, what to do about the economy, what to do about taxes, the interplay of those things, I did not have a great deal of experience in. I had a little bit but not a lot. So I hired more people in that area and I listened to them more, and I deferred to them more because I knew I had to learn from them.

So I think you begin putting a team together by figuring out how to balance strengths and weaknesses. And it's got to start with you, your weaknesses, your strengths. And then once you do that, you can start seeing the strengths and weaknesses of other people. And Jack is absolutely right. I mean, people would come to me after Sept. 11 and say, "You did a great job," or "You're doing a great job " And I would say, the phrase I would use is, "I'm resting on the shoulders of giants. " It's really the -- whatever I did, right or wrong were the people I selected. And right after Sept. 11 happened we started to think about biological attacks and chemical attacks as being the next thing they would do, once we got through the 11th and the 12th and realized that the attacks by airplanes had run their course, because there was a time on the 11th when we thought there would be seven or eight attacks that day. So we began thinking about biological and chemical attacks. I had people who, for several years, had planned for that, thought about that, and had anticipated it. I didn't -- I would have never thought of that, that it wasn't my background, but it was the people that I selected; the head of public health, the head of emergency management. So I think teamwork is an absolutely vital part of it. But it begins with analyzing yourself and seeing your weaknesses and balancing those weaknesses with the people around you.

GEOFF: Jack, when you were CEO, you spent a lot of time on evaluating and choosing people. How much time? How much of your time?

WELCH: Well, almost 75 percent.

GEOFF: 75 percent?

WELCH: See, I didn't -- the mayor ran a city, I ran a whole series of different things, so I didn't know as much about anything as the mayor knew about the city. I couldn't design a Friends show. I couldn't build a jet engine. I couldn't build a CAT scanner. I couldn't do any of those things, but I could get people, or at least I'd try to get people who could do all those things. So I guess it's the same thing, finding what you can't do and going out and getting them.

So my job, the job in a multi-business company -- one of the problems single business companies have is, everybody gets promoted and does the job they used to have, because they know what they were doing, so they'd tell the guy that they put in the job, "Here's how to do it. " I mean, you start in a car company, you start with fenders, you move to hoods, then you move to wheels. And you got an idea. I mean, I can remember standing in the parking lot 20 years ago at the Greenbriar with two CEOs of a car company saying that Ford has just gone to rounded fenders, in the back and the tail. And the guy from the other company is saying -- this is the other CEO -- arguing like hell that that was a total failure, that this would never work. Now, what are CEOs talking about the fender for, whether or not it's a fender. That isn't their job.

So, my job was constantly to go out, and I did this thing, which you know about, which causes all kinds of grief, the 10/70, the top 20 percent, the middle 70, and the bottom 10. And I would make people evaluate them every single time. I asked people when I went around to sell this book -- I gave the money to charity so I was able to go hock it -- and when I was hocking it, I'd ask these MBA students, "How many of you work for a company with integrity?" They all raised their hand. I said, "How many of you have worked four or five years?" They all raised their hand. And then I asked them, "How many of you got an honest, candid appraisal of your strengths and weaknesses in the last, in the five years you were there?" Honest to God, you don't get 5 percent. The corporate con game that still exists today, 3,000 people, last Monday night (I) asked and we didn't get 20. "How many have gotten a candid appraisal?"

The corporate con game is the nice manager never tells the employee their weaknesses -- that's a good manager -- and never tells the stars that they're the stars. So you don't win on either end. You don't win on either end. So a company that's not differentiating with a candid appraisal system and telling people where they stand in their organization so everyone knows where they stand.

If they're in the bottom 10, you don't have to fire them, just don't give them raises, you don't give them options, you don't do any of those things. They'll go on their own. They'll leave and they'll go find a place and you'll get a phone call two years later, "Thank you so much for getting me to an environment where I can win. " And then the top 20, who you lavish raises on, and you lavish options on, and you take care of, and you hug them and kiss them and love them, and tell them every day that they're important, they love the place. They're on fire, and they're your stars. And if you're losing them, you've got to have a system that finds who's losing them. Who is losing them? Because the manager that's losing them is a bad manager, and that manager can't hang around.

So this idea of 10/70/20 is not Darwinian. It's making a better team. It's building a better organization. And it's -- I don't care which way you want to differentiate, you pick your own way, but one thing you have to do is differentiate. I hate the flat raise system. Let's freeze, let's have a tough appraisal system.

There's a competitive magazine of yours that's out there now with a tough appraisal system. Everyone is getting straight appraisals, candor is the name of the day. People are getting stars, people are getting bum ratings. Then they come up with, "Times are tough in the advertising market, all salaries are frozen." That's real motivating. That feels great for the people who got the great appraisals. I mean, it's crazy. You've got to find ways to take that money and give it to the best and not care of the weakest.

GEOFF: Mayor, I can tell you from experience that when you go out and talk about some of these ideas Jack is talking about, afterwards there will be people in the audience who will come and say, "This is great, but I work in government. And the rules are different, you can't do what he's talking about."

GIULIANI: Of course you can. And that's the reason we reduced crime. And that's the reason we got 680, 690,000 people off welfare. And (you do it) by setting up accountability systems, slightly different ones, actually different ones for different agencies.

The Comstat program for reducing crime in the police department, it conceptually is exactly the same thing Jack is talking about. We measured crime every single day in every single precinct, and measured it in every way we could: pin-mapped it, looked at it and tried to figure out who was succeeding in reducing crime, what programs did they have, what were they putting into effect, who wasn't succeeding, and we moved people around based on that program. It was a very, very strict accountability system. And the first year that it was in the police department it led to a total change in culture. I mean, people, people would be afraid to come to the Comstat meetings; one commanding officer showed up drunk for a Comstat meeting because he stayed out all night getting drunk, because he had never been appraised before. Another one got into a fistfight with one of the comman -- they're boys. I mean they have, you know, you have to get them. But after a year of imposing accountability, they accepted it, embraced it, and the good people rose to the top and the weaker ones moved on, retired.

We really couldn't fire anybody. I mean, literally, because of the laws and the collective bargaining, you'd have to do something far worse than not perform well to get fired. But by peer pressure, by evaluating, by moving people around -- so a commanding officer who was doing a good job, those would be the people who would be promoted to borough commanders. The ones who didn't, would go back to being the number two or number three person at a precinct -- and it created a kind of focus on accountability that hadn't existed before. And of course you can do it in government. And maybe it's even more important that you do it in government because it's a little bit harder to measure success and failure in some government agencies because they don't quite know what they're for, what they're supposed to accomplish. But you have to keep trying to do it, and you have to keep trying to create measures of success successfully.

WELCH: When we had that lunch, you and I, a couple of months before Sept. 11, and your system was no different than the system we're talking about. That crime -- we got all excited over the table on the way you've gone at that, and you got rid of weak performers by peer pressure, and that's what these evaluation systems do.

GIULIANI: Absolutely. We took that system, the Comstat System, adapted it to 25 or 26 other city agencies: the Corrections Department, Welfare Department, the hospital system (and so on). It improved every single one of them.

The only one that would not accept that system was the New York City school system. And, in fact, one of the newspapers, it was the Post or the News, had a headline that I thought was one of the funniest. It said, "Board of Education: No stat. " They wanted no evaluation. And what Jack is describing is one of the things that burdens American public education: that you can't distinguish performance. The good teacher is treated the same way as the bad teacher, evaluated the same way, protected the same way and compensated the same way. So the system becomes a system about protecting everybody's job and not educating the children.

GEOFF: But you're confident after eight years as mayor that if you had free reign, you could do it?

GIULIANI: A school system with an approach like Jack is talking about, or what I'm talking about, evaluating performance, tying performance to the improved education of children and putting the children first -- yes, sure, it could turn around very, very quickly.

WELCH: Geoff, I think we ought to stay here for a second, because I think the issue is, at one level, there's no one in the room that's going to argue this. The real question is to ask this audience: How many of them do it? How many of them do it rigorously? How many of them have follow-up mechanisms?

You have as a leader in a business, you have at least four chances to give somebody a hand-written evaluation during the course of a year: You have a raise; you have an annual review process; you have a bonus system; you have an option plan. How many of you sit down each time -- four or five times formally, 20 minutes, 30 minutes -- and say, "Here's what you're doing that I like, here's what you're doing you can improve on." And everybody knows where they stand, and there's feedback loops that go down into the organization that do it. Computer programs that don't allow anybody that's in the bottom 10 to not get out -- let me tell you, the bottom 10, for getting people to do, that is the hardest thing you can imagine.

We actually had, in our company, for the May review, go around to look at deep in the organization, top 10, middle 7 -- I mean top 20, middle 70, bottom 10 -- we actually had a person in the bottom 10 that was put in there by a senior person. The person (in the bottom 10) was dead, had died in April. But they (managers) were able to mathematically go into the box so that they covered their tails by doing it. They had somebody in the bottom 10 and they didn't have to deal with anybody who was real.

GEOFF: But he was a poor performer?

GIULIANI: Did that person vote? [audience laughing]

WELCH: They may have.

GIULIANI: I remember some of those.

WELCH: No, but I think this is an easy -- this can be an easy conversation. A couple of -- the three of us can sit here and chat about it, and we can all agree on it, but the real question is, "How many people are driving it deep in their organization?"

If I did one thing with that book of mine, I would have put a big red flag up, because some people put 10/70 and 20 in without having candid appraisals. Now, the last thing you want to do is to put in an evaluation system, like a stat system, and have no criteria to measure it. So everybody in these companies shows up, and that's what happened to me in 1980 when we had to let go 100,000 people over two-and-a-half years: they all came in with beautiful evaluations. They had been told for 20 years that's the way the system worked, you filled out a form. The form said, "What's your career ambition?" Your career ambition was your boss's job. You checked that in the box, your boss checked "fully qualified" in the box. In the file it went and you saw them again next year.

And how many of you are running systems where the HR person is the dork of the organization, isn't the most important person? You know, I went to a conference and I asked 5,000 HR people in Mexico City, "How many of you are perceived by your organization as equal at the table as the CFO?" I didn't get 20 people out of 5,000.

Now, let me ask you for a second. How many people that run companies here could raise their hand and say their HR, their human resource leader, is equal to their chief financial officer in voice at the table? There you got it: Seven or eight. Now, how are you going to build a winning team if the bean counter is the guy with the voice and the people, and the person evaluating people and helping you build the winning -- the coach, if you will, the Joe Torre -- is not on, doesn't have voice? Or the guy counting the tickets has the voice. The guy counting the revenues. It's ass-backwards. I mean, shame on you that we get seven or eight of you with your hands up. It's just plain wrong. Let's have a real fight over it. I mean, let's go at it. [audience laughing]

GEOFF: Jack, you, I mean you would evaluate, I don't know how many people, a lot of people, yourself personally, four times a year, or more.

WELCH: Several hundred.

GEOFF: Several hundred. No wonder it took 75 percent of your time or more. But what it really says is you loved doing that. You personally got some kind of fulfillment from doing that. Yes?

WELCH: Yeah, we had 28 people to go on and become CEOs of other companies. Lots of people reached their dreams that they never thought. I mean, the greatest thing about the job that we both had is seeing people flourish. I mean, watch the President today. If you were his dad, or anybody else, watch the President today in a press conference and compare him to a year ago at a press conference. To see that happen in a -- he's the big, the big picture that we can all see. But that happens countless times in companies all day. It happens in governments as you see department heads get self-confidence, grow and flourish. It's such a kick. It's the biggest kick going. You can get thousands reaching dreams they never thought possible before. What could be better? What is better in life? And so if you're out doing that and you're building these teams and they're going on, some of them go elsewhere, run other companies, they steal some of your people, and those people flourish. That's what it's about.

GIULIANI: You think about the analogy to sports, that's really what marks the great football coach. The football coach who develops three or four others, or five others, and everybody wants their offensive coordinator or their defensive coordinator. It really means their building an organization that's much deeper than that because, sure, you lose some people, but they've also trained people and they're right behind them and they come up, and if you're running a large organization you realize you have to do it through other people.

I ran a, I ran a United States attorney's office of about 350 people. An office like that, I knew every single person. I literally knew every single person. I could evaluate what they were doing, could go into court and watch them do it, could read the briefs they wrote. Then, all of a sudden, I had to run a city that had 250 to 300,000 employees. We never were actually sure how many employees we had. [audience laughing] With a budget of $35, $36 billion, and I realized I had to make a transition to -- I could not run this personally. I wasn't going to know every 250, every one of the 250,000 employees, so I had to do it through other people, which is what Jack is describing, and that's why the evaluation of the people that are closest to you, and the people that are around you is so important.

The second point I would like to make, because Jack was talking about following-up on accountability: the Comstat Program worked -- and maybe I gave the impression it was just a statistical program -- it worked not because it gathers statistics and analyzed statistics in all different ways, including mapping it and trying to figure out where crime was going up and where it was going down and where the police were when it was going up when they should have been someplace else. The key to the system -- because all of those statistics, and we've shared that system with a number of other cities, and some don't do it well, and they don't do it well because they take the reports and they put them in drawers -- there was a meeting every single week, sometimes twice a week, and a precinct commander knew that every month, month-and-a-half, they were going to show up at that meeting and they were going to have to explain those statistics. And that was invariable. You never went more than about a month-and-a-half without showing up in police headquarters at a big meeting, in a room this size, and your precinct, every single statistic about your precinct was going to be on the board, and you were going to have to explain why in your precinct in the Bronx auto theft went up when in the precinct right next to it, it went down by 10 percent. And maybe the reason it did, because this is an interesting part of it, maybe the reason it is, is because the police commissioner moved police officers out of your precinct and put them somewhere else, and you got a chance to say that. Now the police commissioner was accountable. The police commissioner would put more police officers back in that police precinct, while the next time you showed up, auto theft better go down, otherwise you were held accountable. But the meeting, the Comstat meeting, was just as important as the statistics because it created linkage in performance.

GEOFF: We've got a room full of CEOs and business leaders from around the world, and I suspect there are some comments and questions that people might have here. We have people with microphones to get to you. They're intimidated. [audience laughing]

GEOFF: Right there.

AUDIENCE MEMBER: I'll address this to actually both of you. My question is, where do you find your mentors? Where do you find the people who will give you the honest feedback and the honest appraisal inside your organizations, and in the broader community you serve?

WELCH: I would start out by saying we had a board of very independent folks who would punch you right between the eyes on their own views of things. As far as a ment -- on your own performance, get a very straightforward, very challenging discussion about where you were going and how you were going. I would say as far as learning is concerned, for me, by orders of magnitude, the best thinker in the country at the time I started doing it was (Peter) Drucker. I loved Drucker's stuff. Everything he writes in some way comes to me as a very simple thing: If you weren't already in this business, would you enter it today? And if not, what are you going to do about it? Pretty straightforward stuff. Never have a back room. Always make your back room somebody else's front room. That gets you into outsourcing. That gets you to -- and outsourcing is good because it gives employees a chance to go and thrive in an environment where that's their front room. It's not bad. It's not cruel. None of the things that people like to describe it as. It's all good. But those are Drucker thoughts. And he's got a whole list from the -- and every one of you should ask yourself today, if you weren't already in the business you're in now, would you enter it today? And if you wouldn't, what are you doing about it?

GIULIANI: I think there's probably two different questions, mentors and people that honestly tell you how you're doing and how you have to change it. I had to put together a cabinet, you know, as Mayor of New York City: four deputy mayors, a council, corporation council, police commissioner, fire commissioner.

I tried to select people who are independent. I also tried to select people who balanced each other, that had somewhat different points of view. I had, the first group of deputy mayors I had, I had a Republican who was quite conservative, a member of the Liberal party who was quite liberal, a Democrat who was a conservative democrat, and a Democrat who was probably a moderate. I probably did that somewhat on purpose so that I would listen to every point of view. When I wanted to lower taxes, I'd hear the argument against it, and if somebody were arguing for raising taxes I'd hear the argument on the other side. So I tried to have balanced people around me, you know, who have different points of view.

You know, right now when some of the criticism, I guess, in the last month or two about there being a disagreement in the President's Cabinet over how to deal with Iraq, how to deal with the U.N., how to deal with Congress -- I had a very different reaction to that. I said, "Thank God." I mean, that's what you want, you want a President to be sitting there with five to 10 to 15 people who have a somewhat different view of the world. Otherwise, the President might as well just sit there all by himself with one person. And I think you have to think about that when you're -- and the larger organization you lead, the more, the more diverse team around you you have to create, and people who are willing to tell you, "That's a mistake. That isn't the way to go. "

I had three police commissioners in the time that I was mayor, all three of them were independent people, strong people. Bernie Kerik, the last police commissioner that I had, I had a lot of the same feelings that Jack was talking about. Bernie, I first appointed him as deputy commission of corrections. He eventually became commissioner of corrections. New York City has the largest jail system, I think in the country. It would have to be. Maybe Los Angeles is a little bit larger, the county system, and it used to be one of the most violent. He brought violence down by 90 percent in the system, and when I selected him as police commissioner, he had never been anything other than a detective, which is a high rank, but it isn't, usually you select your police commissioner from the people with all the stars on their shoulders. And I had the great satisfaction when I chose Bernie because I knew what a great manager he was. To know he would be like an exceptional police commissioner, and within weeks he was, but it was a big surprise, and I had a great deal of satisfaction. And then I had Bernie's shoulders to lean on, on Sept. 11 and Sept. 12, and he was somebody who had been a great corrections commissioner, a great police commissioner, a New York City detective, who as police commissioner used to go out making arrests, and then spent four years in Saudi Arabia and understood terrorism in a way that very few people really did, but that's something I knew, and that's part of bringing people along. It's a great satisfaction.

WELCH: It's the kick of the job.

GIULIANI: Yeah.

GEOFF: Right there.

AUDIENCE MEMBER: This is for Giuliani. I understand that you're going to do some work in Mexico. Mexico happens to be one of my biggest areas in Latin America in the area of the police department, and one of the questions that comes up, just putting some content is the corruption in the police -- overall in Mexico. How do you plan to go about that? And how did you even get into this project in Mexico?

GIULIANI: We're going to share with them the system -- it's a little more, it's a little broader than that, but largely it's the (Comstat) system I talked about. We're going to share with them and help to teach them that system.

And Bernie Kerik, who I just mentioned, is the one who's heading, heading that project, the Comstat System, modifying it to fit Mexico, which is focused on reducing crime, but it also helps show where corruption exists, because those are the places in which you're not having success in reducing crime, and it puts everything out on the table. I mean, it puts out on the table where you're having success, where you're having failure, how you have to move police around, and then if you're moving them around and they're not performing, it keeps raising the question, why, why, why? And then you have to go take a look and see, is it a question of morale, is it a question of discipline, or is it a question of corruption? So we're going to share with them an accountability system.

The difference is, in New York City, if you're the mayor, you get to implement the system. In a situation like this, you get to give it to them, but then they have to implement it. But the system can work. You know, it really is basic common sense, in any kind of management, and the system can work if you want it to.

GEOFF: Right here.

AUDIENCE MEMBER: Yeah, this is for Mr. Welch. You know, in America, we get gold stars as children when we win the spelling bee, and red stars if we don't, you know, on a weekly basis, but in Sweden or Japan, all the children are punished if the crayons are left out on one table. In parts of the Islamic world where I work, I'm frequently reminded that the nail that stands up gets hammered the hardest. So I guess my question is about these behavioral systems, how much -- what are the limitations that GE has run into abroad trying to export behavioral systems that are essentially based on meritocracy? And how do you push meritocracy in places where it isn't necessarily endemic?

WELCH: Well, I think, in general -- I've been asked that a thousand times, whether it's India or China or Japan, or anywhere else. In Japan, for example, young people have to wait in turn for their job -- it's opportunity for you. You can go in and get the best and brightest and the youngest because they don't want to wait.

If you have a fundamental value system that says you value voice and human dignity, that's what people want in any single culture. So if you give people voice, they can speak out, they know where they stand. If you give them dignity so that their ideas count, and don't forget as a leader, your idea, your job is to get out of every person in that organization, ideas. You're only as smart as how much you can get out of all the minds that you engage in your institution. So your job is to put mechanisms in all day that are encouraging people to bring their ideas forward. So you give voice and human dignity, and then you go to places that value age over rigor and ambition, and you capitalize on that. You grab the people that don't want to wait and you put them in your company and you beat the system locally. I don't find it to be a problem anywhere. Absolutely.

In India, for example, we have 33,000 employees: thriving, best jobs, enormous number of PhDs, and what do we give them? Dignity, great office space, great cafeterias, treat them with great respect, make them part of the team, make them part of the decision process, give them voice. They don't have voice normally. Give them voice in the organization and you get an enormous breakthrough.

I don't think this is complicated. If your values are all a bunch of gobbledygook businessese, then you aren't going to get anywhere. But if your values are really around voice and dignity, you don't have much problem in any culture, any culture, getting the best and the brightest. Go ahead.

AUDIENCE MEMBER: [inaudible]... Once they're in a -- sorry -- once they're in a working mode together and having them actually critique each other in the sort of honest and regular way that you're talking about --that's where we sort of run into a sociological hurdle, even amongst the good people.

WELCH: I think that's true. I think that is absolutely -- but it's true here, too, okay? I think that's a universal trait. It's to degrees where we're talking about here now, and I think you have to be patient with them. You've got to keep pushing it.

When you look at a ranking system, the people that want to criticize it, ask them one question, "Give me a better system. Give me a better way to get honesty and fairness into an organization." And they look at you with a blank stare. A ranking system, an evaluation system forces people to do things that are unnatural, and yet they end up being the most valued things for an organization.

GEOFF: Gentlemen, we're almost out of time, but I need to ask you this, about a leader's legacy. The author Jim Collins has said, he's often asked, "How good was Jack Welch?" And his answer is, "It's too early to say. We won't know for a few years until we can see how his legacy has played out." As you neared the end of your term as mayor, and as you neared the end of your term as CEO, what were you thinking about what you were going to leave?

GIULIANI: Well, this is before Sept. 11?

GEOFF: Yeah.

GIULIANI: Yeah, I thought the major thing that a mayor can leave behind is a standard of performance, and the thing that I was the proudest of was that New York City used to be considered the "ungovernable city." And it was a copout. I mean, it was a way in which the mayor didn't have to perform. If there was too much crime all I had to do was tell you it was ungovernable. If there was too much welfare, it was ungovernable. And I thought what we replaced it with was a city that at least showed a great deal of success in certain areas, and that in the future, the mayors were going to have to show success, they weren't going to be able to retreat into "It's an ungovernable city." And that's what I thought was the legacy I could leave behind.

GEOFF: Jack?

WELCH: I think I hoped to leave a place where a boundaryless -- that was a word we used -- culture existed, where everyone's idea counted, it wasn't the number of stripes on your shoulder, it was the quality of the idea that counted, where we rooted out horses' asses, those people that knew how to kiss up and kick down. Those Type 4 managers that delivered but didn't have the ideas about people that you wanted. That we left a system, a meritocracy, where everyone had a shot, where business was fun, where opportunity existed for everybody in an organization that desperately wanted ideas. If I leave this place with one, with one thought, I'd leave it for all of you to go back and think today how much fun is going on in your organization? How are you energizing your place to win in a fun way?

GEOFF: Guys, I wish we could go on forever, but we can't. Those of you in the room, please sit tight, but to the audience around the world we want to say, so long from the FORTUNE Global Forum in Washington, DC, and most of all, we want to say thank you to Rudy Giuliani and Jack Welch.