How CEOs are Reinventing American Politics, P. 32
Wealth Creators: How You Can Increase Your Score, P. 40
Talking Points: What You Need to Know About Trade, P. 38 JANUARY/FEBRUARY 2017
Chief E xe Magaz cutive ine
THE FIR 40 YEA ST RS
What Changes in Leadership, Governance, Competitiveness and Technology Mean for CEOs
January/February 2017 No. 286
FEATURES COVER STORY
26 From Autocrat to Catalyst:
How CEOs Have Changed, Along with the Businesses They Run
For 40 years, Chief Executive magazine has witnessed—and chronicled—the ways in which changes in leadership style, shareholder value, technology and globalization have framed the CEOs’ world and how they have adapted to it. By J.P. Donlon
32 CEOs Take Center Stage
Looking back at the 2016 presidential campaign and election, it’s become clear that CEOs have an important role to play in reordering politics, fixing the parties, returning to the public square and working in the interest not only of business, but of the country at large. By Dale Buss
Chief Executive Magazine
THE FIRST 40 YEARS Chief Executive Magazine: The First Forty Years Throughout 2017, we’ll be taking a look back at changes in business, society, technology and the role of the CEO during the 40 years since this magazine launched in 1977 (and a look forward at the long-range impact of these changes). We’ll dip into the Archives, take a page from the Time Capsule and visit with some of the people—and ideas—we’ve covered in these pages over the years. On the cover, we celebrate two critical stagesetting events from 1977: the incorporation of Apple Computer and the launch of the Apple II, underscoring the critical role played by the company’s founder and CEO, Steve Jobs.
38 What You Need to Know About: Trade
“Trade” As a Dirty Word: What CEOs must do to defend global commerce. By William J. Holstein
40 Inside the Wealth Creation Index How you can increase your score. By Drew Morris and C.J. Prince
LIFETIME ACHIEVEMENT AWARD
42 Honoring Dow Chemical’s Andrew Liveris Chief Executive’s 2016 Lifetime Achievement Award winner. By Jennifer Pellet
TA L E N T S P E C I A L E V E N T C O V E R A G E
46 Creating a Winning Talent Strategy How to drive a strategic human resources advantage. By Jennifer Pellet
51 Forging a People Strategy for
the Digital Age
How your organization and its culture can adapt to new ways of developing talent in the digital world. By Jennifer Pellet
54 The Future of Work is Here Today
How empathy, teamwork and purpose are shaping the business landscape. By Jennifer Pellet
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COVER PHOTO: TOM MUNNECKE /GETTY IMAGES
Editor-in-Chief Michael Winkleman Editor at Large Jennifer Pellet Creative Director Marne A. Mayer Production Director Rose Sullivan Chief Copyeditor Rebecca M. Cooper Art Director Gayle Erickson Associate Copyeditor Carl Levi Contributing Editors Michael Arena Ross Kelly Russ Banham C.J. Prince Dale Buss Steve Rose Craig Guillot Gordon Schonfeld William J. Holstein Jean Thilmany Online Editor Lynn Russo Whylly Editor Emeritus J.P. Donlon VP, Associate Publisher Christopher J. Chalk 847/730-3662 email@example.com Vice President Phillip Wren 203/930-2708 firstname.lastname@example.org
DEPARTMENTS 4 Editor’s Note
On Our Watch: Changes Over 40 Years By Mike Winkleman
62 Economic Development Regional Report: The Southwest Tech migration is bringing jobs and economic growth to southwestern states. By Craig Guillot
• Dwayne Andreas: Requiem for a Heavyweight • CEO Confidence Soars Post-Election • Regulation Rollbacks • Trump’s Leadership Style • Failed Forecasts • From the Archives • A Business Touch in Washington • Mid-Market Trendspotting • 10 Minutes with… • The Big Story • Read This Now • Compensation Report 2017 • The Courage Quotient • Disuption Alert: Insurance • Corporate Citizenship Grows Up
67 Executive Health
Three Killers and How to Thwart Them Early detection and specialized care are the key to fighting off three lethal health conditions. By C.J. Prince
72 Time Capsule:
57 CEO Tech
Collaborating in the Cloud How collaborative software that lives in cyberspace can help your business. By Jean Thilmany
Chief Executive: The First 40 Years
The Org Chart Gives Way to the Network As they try to keep up with disruptive forces, companies shift their focus from human capital to social capital. By Michael Arena
Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 286, January/February 2017. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group, LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2017 by Chief Executive Group, LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, PO Box 47574, Plymouth MN 55447. Subscription Customer Service: p | 800-869-6882 e | email@example.com w | chiefexecutive.net/magazine
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Strategies for Advancing Manufacturing in 2017 From automation to lean to IoT, 3D and more, digital manufacturing capabilities are advancing at a rapid pace. Here’s a sampling of the latest trends as reported in Chief Executive’s Manufacturing CEO Briefing.
their checks and balances. From audits to certifications, here are tools companies can use to maintain above-board supply chain practices. ChiefExecutive.net/JF17Manufacturing3
4 Ways Manufacturers Are Closing the Skills Gap More than 70 percent of executives say there’s a shortage of adequate technology and computer skills. While education and training may help fill the shortfall in the future, here are four strategies manufacturers are using to fill jobs now. ChiefExecutive.net/JF17Manufacturing4
How D’Addario’s CEO is Tackling Digital Transformation
Manufacturers Must Make Digitization a Top Strategic Priority Digitization can boost efficiency and offer new opportunities across operations, from customer demand and distribution to production, supply chain and warehousing. Manufacturers need a clear strategy for facing this dramatically changing landscape. ChiefExecutive.net/JF17Manufacturing1
How Manufacturers Can Mitigate the Security Risks of IoT Manufacturers have long lagged behind the curve on cybersecurity. But with IoT, major security problems are just around the corner. Manufacturers must protect their patents, designs and formulas, as well as their private company and employee information. ChiefExecutive.net/JF17Manufacturing2
Preventing Supply-Chain Scandals: A Stanford Professor Shares His Tips The problem of unethical supply-chain practices has reared its ugly head again, challenging business leaders to beef up
Rapid advances in technology have changed D'Addario's products and manufacturing process, as well as how the firm enages with customers. CEO Jim D'Addario shares his company's experience driving growth through digital strategy. ChiefExecutive.net/JF17Manufacturing5 ∫ We publish the Manufacturing CEO Briefing monthly, covering topics such as those above. If you want to receive insight like this in your email, go to: ChiefExecutive.net/newsletter-signup ∫ To learn about the benefits and ROI of smart manufacturing and how your peers are staying on the cutting edge, our 5th Annual Smart Manufacturing Summit takes place in May. It features a private tour of Boeing, as well as an in-depth look at talent, additive manufacturing, robotics, distribution and more. To find out more or to register go to SmartManufacturingSummit.com ∫ We also publish monthly e-newsletters that offer a special focus on mid-market companies and on working with boards, as well as a weekly CEO Briefings e-newsletter. Interested? Visit ChiefExecutive.net/ newsletter-signup to sign up.
CHIEF EXECUTIVE OF THE YEAR 2017 SELECTION COMMITTEE EXCLUSIVE ADVISOR TO THE SELECTION COMMITTEE TED BILILIES, PH.D. Chief Talent Officer, Managing Director, AlixPartners CATHY ENGELBERT CEO, Deloitte LLC DAN GLASER President and Chief Executive, Marsh & McLennan FRED HASSAN Chairman, Zx Pharma Partner/Managing Director, Healthcare, Warburg Pincus TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries ROBERT NARDELLI Chief Executive, XLR-8 WILLIAM R. NUTI Chairman and Chief Executive, NCR THOMAS J. QUINLAN III President and Chief Executive, RR Donnelley JEFFREY SONNENFELD President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management RANDALL STEPHENSON Chairman and Chief Executive, AT&T, and 2016 CEO of the Year MARK WEINBERGER Chairman and Chief Executive, EY
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Who will be the 2017 CEO of the Year? 2017
RANDALL STEPHENSON AT&T
JIM MCNERNEY BOEING
BOB IGER DISNEY
DAVID COTE HONEYWELL
Nominated and ultimately selected by a committee made up of their peers, recipients of this honor have been leaders who led the revival of an imperiled business, overcame the threat of disruptive competition and/or economic headwinds or found innovative ways to re-engage a disenfranchised workforceâ€”and, in some cases, all three.
Submit your nomination at: www.ChiefExecutive.net/CEOY2017
On Our Watch: Changes over 40 Years
Diving into our archives, we found an article that underscores another role CEOs have played, that of community pillar.
A look back—and forward—at changes in business, politics and this magazine. By Mike Winkleman ANNIVERSARIES ARE A TIME FOR REFLECTION. And this issue of Chief Executive provides a lot of reflection— past, present and future. For starters, there’s our cover story, an assessment by J.P. Donlon, who sat in this chair for 37 of the past 40 years, of the ways in which CEOs have changed during the time we’ve been covering them (page 26). Diving into our archives, we found an article from 1982-83 that underscores another role CEOs have played, that of community pillar, as E. Mandel de Windt, then CEO of Eaton Corporation, described his efforts to reinvent Cleveland—foreshadowing the work of several CEOs in recent years. On our back page, Michael Arena, GM’s head of talent, looks at the evolution of the organizational chart since 1977, noting a movement from human capital to social capital (Arena’s comments on this topic also appear in coverage of our recent Talent Summit, page 46). Twenty years ago, we commemorated our 20th anniversary with a special issue (which I, during my earlier tour of duty here, edited). Looking back at that, we decided to visit with three of the people we’d identified as emerging leaders to see where their careers had taken them and what they thought of statements they’d made about business at the time (page 18). That article is the first appearance of a new column: “10 Minutes with.…” In each issue, we’ll visit (briefly) with a corporate leader (in this case, three of them) to get insights into key questions with which they’re wrestling. And this column is part of a series of innovations we’ve brought to the
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magazine with this issue. There’s the new Inbox section, which includes our archives column (page 15), a look at the qualifications our selection committee uses when picking the CEO of the Year (page 22), a dissection of a top news item (page 20), one CEO’s annotated reading list (page 24), some insights from our annual compensation survey (page 24) and more. Later in the book, you’ll find Talking Points—a close look (page 38) at a trending business topic (in this issue: trade), as well as Data Dive—two pages of infographics (page 40) that make sense of complicated, and often conflicting, statistics (in this issue: our annual Wealth Creation Index). In addition, we’ve rethought our coverage of economic development, digging into public-private partnerships and other efforts that have helped companies expand in specific states. And we’ve introduced Time Capsule (page 72) where we’ve used 1977 and 2017 as the markers of change. And speaking of both change and a look ahead, this issue has considerable coverage of politics—and business— in the new administration, from confidence (page 14) to regulatory change (page 14), leadership traits (page 15), data reliability (page 15) and CEO involvement (page 16). Building on that theme is Dale Buss’s feature on the role that CEOs can—and maybe should— play in rethinking and rebuilding politics in America, reflecting on lessons learned during the past year. Reach Mike Winkleman at mwinkleman@ chiefexecutive.net.
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IN THIS SECTION › Trump’s Impact 14, 15, 16 › Saving American Cities 15 › 10 Minutes with… 18 › Read This Now 22 › From the Comp Report 22 › Captains Courageous 24 › Corporate Citizenship 24
DWAYNE ANDREAS: REQUIEM FOR A HEAVYWEIGHT AP PHOTO/BORIS YURCHENKO
FOR NEARLY 30 YEARS (1970-1999), Dwayne Andreas, despite his jockey-like stature, stood tall astride
the agricultural powerhouse Archer Daniels Midland, growing it nearly tenfold, with a fortune fueled by such products as corn ethanol and high-fructose corn syrup. Just as importantly, Andreas, who died in November at age 98, wielded an unusual amount of political power for a CEO of his generation. In addition to providing contributions to both Democratic and Republican congressional and presidential campaigns, he was a long-time friend to Hubert Humphrey and maintained close ties not only to the Nixon administration but also to Jimmy Carter, Ronald Reagan, Bill Clinton and Soviet leader Mikhail Gorbachev (with whom he’s pictured above; he helped arrange a meeting between Gorbachev and Reagan in 1985). Though ADM, under Andreas, was often the subject of both controversy and investigation, Andreas, for the most part, remained unscathed, and the company he built remains a global leader today. JANUARY/FEBRUARY 2017 /
CEO CONFIDENCE SOARS POST-ELECTION
Among other factors, CEOs see relief from government regulation DONALD J. TRUMP’S ELECTION has been well-received by both business and consumers, with Chief Executive’s CEO Confidence Index of expectations for business conditions in the next 12 months jumping 11 percent the day after the election to 6.54, its highest level since November 2014 and the second-highest level since July 2007. The CEO Confidence Index’s general tone and direction were echoed by two leading gauges of U.S. consumer sentiment, the Gallup U.S. Economic Confidence Index and the University of Michigan Consumer Sentiment Index. The Gallup index registered its first positive weekly score—+4—in more than a year and a half in its November 20 reading, the first such full-week reading since the election. Respondents had been consistently negative about the economy in the year preceding the election, generating weekly scores ranging from -7 to -17. The biweekly Michigan index jumped 4.4 points to 87.2 from its last pre-election reading to its first post-election reading on November 11 (it’s since risen to 93.8 on November 23). Similar to Chief Executive’s CEO Confidence Index, the Michigan measure had weakened in July and August. At that time, when Trump had clinched the Republican nomination and the UK’s shocking Brexit vote was top of mind, the index dropped to 5.67, its lowest score in a year. In explaining their exhilaration and looking at key priorities for the new administration, respondents to the CEO Confidence Index primarily cited Trump’s plan to reduce government regulations, which have increased dramatically during the past eight years. It’s critical, said one respondent, “that we reduce oppressive regulations by all government agencies.” Expanding on that sentiment, another CEO wrote, “We have a solid businessperson leading the country, making decisions to promote long-term business growth and stability, which must include energy, education, security, trade and health.” Given this, added another respondent, “I think the future looks pretty good.” However, cautioned another, reflecting that policymaking includes Congress, “Republicans now have a chance to make a difference—or they will be ousted in two years.”—Gordon Schonfeld
CEO CONFIDENCE INDEX PRE-ELECTION
REGULATORY ATTORNEYS SUGGEST ACTION…
…but with an eye toward unintended consequences
Source: Chief Executive
GALLUP U.S. ECONOMIC CONFIDENCE INDEX PRE-ELECTION
NOV 20, 2016
NOV 13, 2016
NOV 6, 2016
FUELING MUCH OF THE ENTHUSIASM among businesses about both the Trump presidency and the Republican majority in Congress is the likelihood that many of the regulations imposed over the past eight years will be modified, if not rolled back entirely. Many business leaders, such as Goldman Sachs CEO Lloyd Blankfein, have urged caution, suggesting that some regulations have benefits and some rollbacks have unintended consequences. Elliott Laws, an attorney at the law firm Crowell & Moring, agrees, noting that “there are so many different methods that the administration could utilize to address some of the rollbacks, depending on where the rule is, whether it’s already in litigation, whether it’s a regulation or just a policy.” Though Laws suggests that “every action that the administration takes with regard to regulation is going to provoke a litigation, often from unexpected sides,” he and Crowell lobbyist Scott Douglas predict movement in the following areas:
ENERGY AND ENVIRONMENT First
UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT INDEX PRE-ELECTION
NOV 11, 2016
14 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
HEALTHCARE Don’t enforce the
Affordable Care Act’s individual mandate—“that’s simply a shift in policy at the agency level.” Withdraw from the suit challenging the Obama administration’s decision to send cost-sharing reduction payments to the health plans.
LABOR Take a look at minimum wage for
OCT 28, 2016
order of business? Approve the Keystone Pipeline. “That will set the tone for what Trump’s administration is going to do for domestic energy production.” Also: revisit fracking rules; provide financial incentives for clean coal technology; increase the tax credit for carbon capture; allow exploration in areas such as the Arctic.
NOV 23, 2016
federal contractors to “send a message to where Trump is on this, which a lot of folks in Congress had been clamoring for after a lot of the states have been raising their wages.” —Mike Winkleman
FROM THE CHIEF EXECUTIVE ARCHIVES...
TRUMP’S LEADERSHIP STYLE:
HONED AS A CEO
WITH HILLARY CLINTON WINNING over two million votes more than Donald Trump, added to his flamboyant style and lack of public service experience, many are worried about this unparalleled White House transition. I have studied leadership succession for 40 years and this first CEO to become commander in chief has many worried about the president-elect’s readiness and temperament. We’ve worried before. Anticipating General Dwight Eisenhower’s election, President Harry Truman warned, “He’ll sit here, and he’ll say, ‘Do this! Do that!’ And nothing will happen. He’ll find it very frustrating.” However, Eisenhower did well in the transition and so may President-elect Trump. I have gotten to know Trump over the past dozen years and have spoken with him over the past year about what, as a business leader, he brings to this position. The qualifications and strengths he laid out for me were:
1 2 3 4 5 6 7
Problem framing and communication—expressing complex concepts in simple language. Negotiation expertise—taking tough, informed positions and winning with them. Strategic clarity and focus— snagging the big picture issues and eschewing technical details. Metrics of accomplishment— providing accountable results: money, participation, growth. Plainspoken, direct talk with vivid imagery—drawing in new audiences. Spotting talent for staffing leadership—casting a broad net in Cabinet searches. Resilience and overcoming adversity—never giving up.
In person, Trump has a disarming personality with a surprisingly accessible style. Despite the bravado and grandiosity, there is an authenticity about him. Most of his business team has been with him for their full careers, and he knows them all well. He is eager to make an impression on new constituents and anxious for feedback. While highly sensitive to criticism, he still listens and seeks challenges. —Jeffrey Sonnenfeld, Yale School of Management
Can CEOs help save our decaying cities?
FAILED FORECASTS After the election, what data can you trust?
TWO WEEKS BEFORE ELECTION day, The New York Times gave Donald Trump an 8 percent chance of winning. How did the Gray Lady—and so many respected pollsters—get things so patently wrong? And what does that epic fail say about predictive data analytics? These questions are front and center for the many CEOs who’ve made big bets on the number-crunching technology and increasingly rely on forecasts for big business decisions like allocating capital and managing inventory. After the election, the Times proffered a half-hearted apology blaming predictive analytics as a “young science.” Still, this is no time to toss out the baby with the bathwater, argues Rich Wagner, CEO of Prevedere, a predictive analytics software provider. His point: Not all analytics are the same. “Predictive analytics that leverage fact-based data on economic conditions, the weather and consumer spending behavior, among other business indicators, are extremely reliable in predicting business performance,” Wagner asserts. “If you look at major companies like chemical, steel and industrial product manufacturers, and those in the consumer goods and retail industries that have been around for decades, you can easily identify their leading performance signals, by analyzing what truly causes a change in demand.” Products sold by these businesses are cyclical, ebbing and flowing with market and socioeconomic conditions. “Using predictive analytics, companies can collect and analyze these external signals to produce a more accurate forecast, resulting in increased profits and reduced risks,” maintains Wagner. Less reliable are voter opinions, he acknowledges, which seem to swing almost daily. Ditto fashion trends and innovations with no historical reference. Choose your tea leaves wisely. —Russ Banham
RECENTLY, SUCH CORPORATE leaders as Tony Hsieh, CEO of Zappos, Dan Gilbert, chairman of Quicken Loans, and Kevin Plank, CEO of Under Armour, have received press and praise for their efforts at revitalizing Las Vegas, Detroit and Baltimore. Back in 1982, rebuilding Cleveland was the mission of E. Mandel de Windt, CEO of Eaton Corporation, who wrote, in the Winter 1982-83 issue of Chief Executive: “The city—complete with its deteriorating inner city, a dwindling industrial base, crumbling streets and bridges, icy winters and financial paralysis—can be a CEO’s noman’s land. Or, it can be a challenge of great dimension…. In Cleveland, I have found out that CEOs are in the front ranks of a people determined to bring back the glitter and greatness to an American metropolis.” De Windt goes on to describe a task force he created at the mayor’s request; the support he won from other area CEOs (and what it took to get them to actually participate in the program); the scores of executives who joined the effort, at their CEOs’ behest; and the report they created recommending 650 ways to improve the city and the impact of implementing the recommendations. In suggesting how CEOs can help “any troubled city,” he concluded: “Maintain your sense of humor. I still enjoy a good Cleveland joke. Now, however, I can laugh at the teller, instead of the joke.” —Mike Winkleman
THE NEW ORDER: A BUSINESS TOUCH IN WASHINGTON Trump's CEO Advisory Council is heavy on manufacturing, light on tech. GM’s Mary Barra, JPMorgan Chase’s Jamie Dimon and DONALD TRUMP HAS successfully Boeing’s James McNerney are among the appointees. rounded up some of America’s best and brightest CEOs to either join say on his plan to dismantle regulations his administration or advise him on inspired by the global financial crisis. economic policy matters, promising The tech industry, too, will be eagercorporate America a perhaps unprecly awaiting signs that the incoming edented opportunity to have its voice administration will make good on its heard in Washington. pledge to slash corporate taxes, affordTrump’s selection of Exxon Mobil ing an opportunity to repatriate billions CEO Rex Tillerson as Secretary of State of dollars held offshore. and former Goldman Sachs partner “President-elect Trump is putting Steven Mnuchin as Treasury Secretary together an economic team with an meant the two most powerful posiimpressive record of business accomtions in Cabinet would be occupied by plishment, a deep understanding of the businessmen. They joined a host of U.S. and global economy and a clear viCEOs in Trump’s inner circle, including CKE Restaurant’s Andy Puzder, who was sion of how to help all Americans share in the nation's success,” John Engler, named Labor Secretary, and former the president of CEO peer group BusiWorld Wrestling Entertainment chief ness Roundtable, said in a statement. Linda McMahon, chosen to oversee Some high-profile CEOs have small business. nevertheless continued to criticize key Berkshire Hathaway’s Warren Bufelements of Trump’s policy platform. fett, KKR co-founder Henry Kravis and Current Boeing CEO Dennis Muilenberg activist investor Carl Icahn were also and former Office Depot CEO Steve rumored to be up for Cabinet posts, Odland, for instance, both joined Warren though convincing a bunch of CEOs to Buffett in warning that raising tariffs quit their current jobs and go into politics would have been a challenging task. and turning away from free trade deals Trump did the next best thing by setting could damage the U.S. economy. —Ross Kelly up a 18-member CEO advisory council (see list, as of press time, at right), which includes a number of other indiADVISORY BOARD MEMBERS viduals mentioned as potential Cabinet Paul Atkins, CEO, Patomak Global picks, such as Blackstone’s Stephen Schwarzman, JPMorgan’s Jamie Dimon Mary Barra, CEO, GM Toby Cosgrove, CEO, Cleveland Clinic and former GE CEO Jack Welch. Jamie Dimon, CEO, JPMorgan Chase The amount of sway each will hold Larry Fink, CEO, Blackrock over the president-elect’s sometimes Bob Iger, CEO, Walt Disney controversial policy agenda remains Travis Kalanick, CEO, Uber to be seen, though the individuals Rich Lesser, CEO, Boston Consulting he’s tapped could hardly be described Doug McMillon, CEO, Walmart as pushovers. The advisory council is James McNerney, (former) CEO, Boeing stacked with high-profile personalElon Musk, CEO, Tesla Motors ities from the financial services and Indra Nooyi, CEO, Pepsi manufacturing sectors. Initially, there Adebayo Ogunlesi, Chairman, was a notable absence of leaders from Global Infrastructure Partners top tech companies such as Apple and Mark Weinberger, CEO, EY Google, though Tesla Motors' Elon Musk Ginni Rometty, CEO, IBM and Uber's Travis Kalanick became late Stephen Schwarzman (Chair), CEO, additions to the group. Blackstone Manufacturers such as GM and Kevin Warsh, (former) Federal Reserve Governor Boeing stand to lose or gain much from Trump’s pledge to increase trade tariffs, Jack Welch, (former CEO), GE Daniel Yergin, Vice Chairman, IHS Markit while Wall Street will no doubt want a
16 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
CEOS TAKING CHARGE OF TECH AGENDAS
MID-MARKET COMPANY CEOs are increasingly taking ownership of their companies’ technology agendas, according to results of a recent “Technology in the Mid-Market” survey performed by Deloitte Growth Enterprise Services. Fifty-nine percent of the 500 survey respondents said that company leaders were actively involved in technology in 2016, as compared to just under half in the past two years. The proportion of respondents rating technology spending as “significantly higher” also jumped, nearly doubling that of two years ago. “In the four years we have conducted this survey, we’ve tracked a notable maturation of mid-market companies’ technology agendas and related investments,” reported the study authors. “The responses suggest these executives have reached a new level of technology maturation, moving from mere adoption to deeper integration.” —Jennifer Pellet
MID-MARKET TECH SPENDING ON THE RISE Percentage of survey respondents who say their technology spend is "significantly higher" than prior year
S S 14.6% 2015
Source: Deloitte Growth Enterprise Services, Technology in the Middle Market, August 2016
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10 MINUTES WITH
Yesterday's Emerging Leaders
Twenty years ago, in commemorating Chief Executive’s 20th anniversary, we ran (and published excerpts from) two parallel roundtables focused on what we called “The Millennium CEO,” looking at the challenges CEOs were likely to face in the 21st century and the skills they’d need to succeed. One roundtable was comprised of sitting CEOs, and the other of emerging leaders. This year, as we turn 40, we checked in with three of those emerging leaders to see how their careers have developed—and to ask them to update observations they made at that long-ago roundtable. Here’s what they had to say: 18 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
THEN: Vice President, Commercial Applications, Actra Business Systems, a joint venture between Netscape Communications and GE Information Services NOW: Partner, Altus Alliance THE PAST 20 YEARS: Shortly after our roundtable, Mark moved to the e-commerce company Commerce One, which he helped build to a $23 million market cap. That experience set him up to be CEO for a number of small companies in relatively rapid succession and enabled him to combine his passions as co-founder and CEO of Sports Retail Network, an early example of the in-store advertising model. After the recession hit, he mothballed SRN and headed back to the West Coast, transitioning eventually into venture consulting, working with companies that have received Series A funding on the revenue problems they face. WHAT HE SAID THEN: “The onus used to be on the employees to perform for the corporation. Now there’s an equal onus on the corporation to perform for the employees.” WHAT HE SAYS NOW: Mark’s comment has a new relevance today, but one that is a generation removed from its original meaning. Mark was referring to the breakdown in what had long been seen as a traditional implied contract between companies and employees, where employees believed in lifetime employment and companies were beginning to chafe at that sense of permanence, with long-term loyalty being eroded on both sides. Today, the millennial
generation has no memory of that loyalty bond and instead, as was discussed at the CEO Talent Summit in October (see page 44), companies are often finding themselves needing to sell themselves to employees more than employees are selling themselves to the companies. As Mark puts it, “When I was growing up in the industry, if you left a company at anything less than five years of employment, it was committing corporate treason. Today, they’re bouncing around every few years, asking, ‘Is this the type of company I want to be affiliated with? Otherwise, I’ll pack my bags and go elsewhere.’”
Paula H. J. Cholmondeley
THEN: Vice President and General Manager of Residential Insulation, Owens Corning NOW: CEO, The Sorrel Group; member of several boards of directors, and parttime faculty at National Association of Corporate Directors THE PAST 20 YEARS: A series of personal circumstances led Paula from Owens Corning to Sappi Fine Paper for several years. But what captured and held her attention was board service, starting at Armco Steel and expanding to include Nationwide Mutual Funds, Terex Corporation, Minerals Technologies and several others. Keeping up with her accounting background, she’s chaired five audit committees, as well as a governance committee and a strategy and CSR committee. After she joined the National Association of Corporate Directors, she was introduced to their training programs for directors. “To deepen my knowledge,” she says, “I started teaching for them.” And this, along with her efforts to increase the number of African-Americans and women on boards, led her to
“When I was growing up in the industry, if you left a company at anything less than five years of employment, it was committing corporate treason. Today, they’re bouncing around every few years, asking, ‘Is this the type of company I want to be affiliated with? Otherwise, I’ll pack my bags and go elsewhere.’” —Mark Biestman
create The Sorrel Group, through which she creates a customized program for a handful of new directors each year, helping them “contribute from Day One.” WHAT SHE SAID THEN: “You won’t get the power out of globalization until we figure out how to take the technological capability down to the level of the primary worker.” WHAT SHE SAYS NOW: “This is even more important today. The pace of technological change keeps getting cut in half. Emerging markets are leap-frogging whole generations of technology. The developing countries do not want yesterday’s technology. The worker in India and China wants to use the current technology to build a product customized to their market. And the workforce has the capability to use the technology.”
THEN: President, HBO Home Video, a division of HBO NOW: Senior Lecturer, Harvard Business School, member of several boards of directors THE PAST 20 YEARS: After 34 years at HBO, this former journalist decided it was time to make another transition. His interest in film and his observation that the American documentary film community had
been making films about American business had led him to investigate ways to teach students about business through film, and he put together a syllabus, thinking he’d find a way to teach part time in New York. After presenting his ideas to Harvard Business School, he ended up developing a number of cases and found that he’d fallen in love with teaching and research. HBS asked him to join the faculty, but with a catch—Henry had to make a full-time commitment. “Because I was 60 at the time,” Henry says, “and because I had done well at HBO, I was in a position to take a huge pay cut and follow this great opportunity.” Three years later, Henry, who also serves on a number of boards of directors, still hasn’t taught the film course. But his teaching schedule has remained full, with courses such as the introductory first-year course on leadership and corporate accountability. WHAT HE SAID THEN: “The great CEOs of the future will be the greatest salespeople.” WHAT HE SAYS NOW: “Driven by the twin forces of digitization and globalization, the job of the CEO has become much more complex, moving beyond sales. Selling is still extremely important; it lies at the heart of any enterprise. But the great CEOs of today have to be very good at meeting their responsibility not just to shareholders, but to customers, employees and society, and to do that in a way the creates economic value at the same time that it’s legal and ethical.” —Mike Winkleman
THE BIG STORY Samsung’s Exploding Products
Was this a permanent stain on the company—or will it leave no lasting mark? Was coverage accurate and appropriate? Was Samsung’s response? Three experts comment… FROM THE WASHINGTON POST First it was Samsung Phone. Now it’s Exploding Samsung Washing Machines. One Georgia mom was pulling clothes from the dryer, with her 4-year-old son nearby, when she heard the boom and saw the damage. Another woman thought something had crashed through her roof.... The cause of this carnage, according to a federal class action lawsuit filed last month, is another exploding product made by Samsung. Not smartphones, but washing machines.… The lawsuit alleges that Samsung has known of its exploding washing machine problem for years.… This warning comes just weeks after Samsung recalled its Galaxy Notes 7 cellphone after the gadget began exploding in consumers’ pockets and vehicles and on airplanes.... In its statement, Samsung called these incidents “rare” and said affected units “may experience abnormal vibrations that could pose a risk of personal injury or property damage.”… The lawsuit, however, paints a far more dire picture.… The lawsuit also accuses Samsung of destroying evidence related to the defective washing machines.
“Every big company and major brand will eventually face a crisis like this. It’s always hard to tell from the outside what the causes are and what prevents the management team from responding in ways outsiders think are most effective. The real test is how the company comes through the challenge. ” —Janet Robinson, former CEO, The New York Times Company
“Samsung showed a lack of management responsiveness with its tardy replies and obfuscation. Customers were put through the wringer (or the ringer) following the improbable parallel. One of the highest profile of the opaque Korean conglomerates called chaebol has defied transparent governance accountability.” —Jeffrey Sonnenfeld, president of the Yale Chief Executive Leadership Institute
FROM ADVERTISING AGE Fiery Phones, Exploding Washers Take Samsung Brand Through Wringer. Can It Recover? It’s been a brutal few weeks for Samsung. First, there were reports of Galaxy Note 7 fires, and now comes a warning from the U.S. Consumer Product Safety Commission that its washing machines may explode. Amid the chaos, the marketer has gone dark on the [ad] campaign for its washing machines.… That’s the second ad shutdown in a month for the electronics giant.… And with two major brand lines affected, Samsung’s reputation for overall quality is taking a huge hit.… Samsung declined an interview, sending a published press statement in response to requests. However, the Twitter-verse had plenty to say.… “I think there will start to be some bigger questions about the brand and the overall quality process they have,” said [Russ] Napolitano, senior partner at branding and marketing consultancy Tenet Partners. “We can’t measure it today, but in four to six months, we’ll definitely start to see what impact this has had on brand perception.”
20 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
FROM THE WALL STREET JOURNAL U.S. Announces Recall of Samsung Washing Machines U.S. product-safety officials announced a recall affecting 2.8 million Samsung Electronics Co. washing machines, in another stain on the company’s reputation.… The company has received more than 700 reports of incidents and nine reports of injuries including a broken jaw, the agency said Friday.… The latest consumer problems for Samsung are likely to raise more questions about its response and whether it could have moved more quickly. The company already has faced lawsuits over the appliances. In the highest-profile case, three consumers filed suit against Samsung. Court papers in that suit allege that Samsung has “known that their washers blow themselves apart since at least October, 24, 2013, when one of their washing machines exploded in California, injuring a woman.…” Meanwhile, Samsung remains under fire for its response to explosions of its top-selling Galaxy Note 7 phones. The company exacerbated the situation in the way it communicated with regulators and consumers, said former U.S. officials and people familiar with similar product recalls.
“This story is a reminder that if you have bad news, it’s better to get it all out at once. Instead, Samsung had to endure a series of bad announcements, resulting in heightened and prolonged negative media coverage and, with it, damage to the company’s credibility.” —Amanda Deaver, president, Upstream Strategic Communications
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CEO OF THE YEAR CRITERIA EXPLAINED/ THE COURAGE QUOTIENT
CORPORATE CITIZENSHIP GROWS UP ENTRIES FOR THE FIRST ANNUAL Chief Executive Corporate Citizenship Awards revealed a wide range of innovative giving programs that not only do good in their communities, but also support companies’ missions and align with bottom-line goals. Nominees spanning all industries were judged in the following categories: Culture and Arts, Education (K-12), Education (Higher Ed), Environment, Sustainability, Community/Economic Development, Health/Social Sciences, Disaster Relief, Children and Civic and Public Affairs. Companies were evaluated in each of three categories: small, midsize and large. The winners showed meaningful CEO involvement, a cause both strategically linked to the business and collaborative with the company’s cause and an innovative program design. Innovation was key among large companies, which typically work closely with established nonprofits and schools to deliver critical services to communities—both local and global. Small and midsize programs, simpler and locally focused, typically showed more direct CEO involvement. Top programs included: an environmental initiative that creates jobs and better living conditions for farming communities while harvesting product for the company; an education initiative designed to inspire the next generation of innovators and, potentially, the company’s future employees; and a community-development effort that dispatches skilled employees to communities around the globe for month-long projects. The Corporate Citizenship Awards will take place January 12 at the Yale Club in New York City. For more information, visit ChiefExecutive.net/ Citizenship. —C.J. Prince
IS INSURANCE THE NEXT TOWER RECORDS? MORE THAN 200 TECHNOLOGY startups are gunning for the insurance industry, creating digital solutions looking to improve on underwriting, claims processing, selling, marketing and distributing insurance products. Take the refreshingly named Lemonade, which received a license to sell renters and homeowners insurance in New York State in September 2016. The insurer’s novel peer-topeer (P2P) insurance model brings small groups of people together to share in each other’s insurance risk while benefiting charity. Here’s how it works: A person applies for insurance and then selects a charity. Their premiums are then pooled with those of others who selected the same charity from the policyholder group, with the funds then used to pay claims. Money left over at the end of the annual policy period after all claims are paid goes to the chosen charity. The thinking is that everyone will feel peer pressure to reduce their risks, thereby conserving more money for the charity and keeping premiums low. There are so many insurance startups they’re now bunched together in a category—InsurTech—and gather at conferences like the recent InsurTech Connect 2016 in Las Vegas. They’ve chalked up a reported $1 billion in 47 deals in 2016 from a Who’s Who of venture capital firms. It’s a promising start, but cashrich traditional insurance companies aren’t sitting idly by. Over the past two years, nearly a dozen large insurers have formed venture capital funds to invest their excess capital—in some cases hundreds of millions of dollars—in InsurTech startups with an interesting take on underwriting, claims administration, selling, marketing and distributing insurance. If you can’t build it (or don’t want to), you can always buy it. —Russ Banham
22 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
EACH YEAR, WHEN A SELECTION committee of CEOs meets to choose Chief Executive Magazine’s CEO of the Year, courage tends to factor heavily in their ultimate decision. As RHR International CEO Tom Saporito, a longtime advisor to the committee, explains, “Courage is always a big criterion because it is one of the things that really separates the best of the best. It speaks specifically to the ability to make tough decisions, to put not only the company, but the CEO’s job, rep-
utation and legacy, on the line—often without much of a safety net.” There are three ways that the need for courage, both internally and without, is critical to the CEO role, adds Fred Hassan, the former CEO of Schering Plough and a committee member since 2008. “One is when the unexpected occurs, another is when the CEO needs to be willing to go into uncharted territory and, to some extent, change the business model. And the third is when a CEO goes after a strategy that is not popular—is actually against conventional wisdom—and persevered to stay the course.” As examples, Hassan and Saporito cite two recent CEOs of the Year who epitomize courageous leadership: AT&T’s Randall Stephenson (2016): Many companies fail to thrive when the rules of the game change around them, Stephenson was able to overcome resistance to create a culture that embraced transformative technology. Ford Motor’s Alan Mulally (2011): Mulally spurned the safety net of a government bailout and forged a new future for a company facing bankruptcy in a troubled sector. —Jennifer Pellet
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Read This Now
AN AVID READER, DAVID LEVIN TYPICALLY works his way through multiple books simultaneously. “I’m a bit of a magpie—my wife complains about the piles of books around the bed,” admits the CEO of McGraw-Hill Education, whose tastes skew toward “books about business, but not business.” In other words, he favors reading about people who transformed the economy through their interactions with it or with one another rather than the latest business best-seller, explains Levin, who recently shared some of his favorite reads with Chief Executive.
MEET YOU IN HELL: Andrew Carnegie, Henry Clay Frick and the Bitter Partnership That Transformed America LES STANDIFORD This fascinating read about industrial titans and the evolution of the steel industry was part of a self-prescribed immersion course Levin undertook after relocating stateside for his current post. “In bringing my family here—becoming an immigrant in my 50s—I thought it behooved me to dive in, dig deep and understand more about America,” he explains. THE IMAGE: A Guide to Pseudo Events in America DANIEL J. BOORSTIN “Very much ahead of its time in defining the world we are now living in,” says Levin of a book that he says “introduced the concept of ‘pseudo-events’ like press conferences and presidential debates long before 24hour media and the Internet. My percep-
tion of this election has been completely altered by a book written in 1962.” DEATH OF DISTANCE: How the Communications Revolution Is Changing our Lives FRANCES CAIRNCROSS This 1997 look at how wireless communications would redefine relationships by making distance irrelevant “changed my perception of the world,” says Levin, who read it in 2002 just before taking his first CEO post at the tech company Symbian. “It made a massive impact in terms of helping me redefine the way I saw the planet and the relationship of the different parts to one another.” SMARTEST KIDS IN THE WORLD: And How They Got That Way AMANDA RIPLEY Seeking a primer on education when he joined McGraw-Hill Education in 2013, Levin discovered this “classic
“It made a massive impact in terms of helping me redefine the way I saw the planet and the relationship of the different parts to one another.” —David Levin, CEO of McGraw-Hill Education
mirror book about what’s happening in education in various parts of the world and what it means.” Comparing and contrasting the “high-performing” educational systems of Finland and Korea, he found inspiration in Howe’s exploration of “the many layers of what counts in making great education.” ENOUGH SAID: What’s Gone Wrong With the Language of Politics? MARK THOMPSON “I’ve got this one queued up next,” says Levin. “It’s on how we use rhetoric and language to undermine reality and whether we’re communicating clearly or creating problems for ourselves.” —Jennifer Pellet
COMPENSATION REPORT 2017
The Prevalence of Perks ACCORDING TO CHIEF EXECUTIVE’S CEO & Senior Executive Compensation Report 2017, CEO perquisites matter. While perhaps not as lavish or as prevalent as they are at public companies, there are some perks to which private company CEOs have grown accustomed. Companies that want to remain competitive and attract the best and brightest executive talent should consider perks that are not necessarily costly, but go a long way to making the CEO’s life a little easier. And, of course, CEOs negotiating their own pay packages should consider including these on their lists as well. As the chart shows, the leading perks are personal technology, a company car and parking. All relatively inexpensive—and no doubt well worth it. Employment contracts (#4), may require the board to think a little longer and harder about how to structure the right package. It’s worth considering less expensive perks such as club (#5) and gym (#6) memberships as well. —Steve Rose 24 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
Percentage of respondents citing specific perks received in their most recent packages
Personal technology 93% Company car or allowance 55% Parking 32% Employment contract 31% Golf/country club membership 18% Health/fitness/gym membership 16% Estate and financial counseling 14% Tax gross ups for taxable benefits 12% Spouse travel 12% Personal travel 9% Interest-free loan 5% Personal access to company plane 5% Source: Chief Executive’s 2017 CEO & Senior Executive Compensation Report
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COVER STORY | Chief Executive Magazine: The First 40 Years
FROM AUTOCRAT TO
HOW CEOS HAVE CHANGED, ALONG WITH THE BUSINESSES THEY RUN For 40 years, Chief Executive magazine has witnessed—and chronicled—the ways in which changes in leadership style, shareholder value, technology and globalization have framed the CEO’s world—and how they have adapted to it. BY J.P. DONLON 26 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
NINETEEN-SEVENTY-SEVEN was no ordinary year. A peanut farmer from Georgia became president of the U.S.; Silver Jubilee celebrations were held in the UK to commemorate the 25 years of Queen Elizabeth II’s reign. New York’s World Trade Center was completed. France held its last execution by guillotine. The U.S. population reached a staggering 216 million. With the launch of the eponymous Apple II, the fortunes of the Cupertino-based company, which had incorporated earlier that year, began to take off. And in the middle of 1977, Chief Executive magazine was launched as a quarterly, with President Jimmy Carter on the cover. At its inception, the publication’s founderowner, John Deuss, a Dutch oil trader and entrepreneur, had grandiose dreams of creating a vehicle where leaders in business, government, religion, education and society would advance their thinking on an equal footing. The archbishop of Canterbury graced the cover of issue two, and in later years Saudi Arabia’s oil minister and the sultan of Oman were featured. But before long, the magazine directed its editorial efforts to becoming a voice for chief executives in business, principally international business. Henry Ford II, chairman of Ford Motor, and David Rockefeller, chairman of Chase, held forth in its pages on the importance of international trade and the perils of regulation. In one early issue, U.S. Treasury Secretary Michael Blumenthal, IMF executive director Jahangir Amuzegar, Bank for International Settlements’ Jelle Zijstra, Nestle Director General Eric Gabus, Swiss National Bank President Fritz Leutwiler, Salomon Brothers Henry Kaufman and MIT economist Charles Kindleberger joined other notables to be interviewed on whether the world needed a new monetary system (most said no).
CATALYST: THE GENEEN APPROACH TO LEADERSHIP With a firm focus on leaders and leadership, the magazine chronicled the activities of bellwether CEOs and witnessed how the arc of leadership thinking changed. One key indicator: the retirement in 1977 of a CEO legend: Harold Geneen. Today’s readers can be forgiven for thinking of Geneen, if they think of him at all, as a figure as obscure as Alcibiades during the Peloponnesian Wars. He was not the only major figure of the day. There was Citibank’s Walter Wriston, DuPont’s Irving Shapiro and Reginald Jones of GE. But not since Alfred Sloan ran GM in the 1940s and 1950s had a business leader captured the imagination of other CEOs, with many of them modeling their own management style after his. A former accountant, Geneen ran ITT from 1959 to 1977 with an iron hand. He turned minor acquisitions of the 1950s into major growth during the 1960s. Under Geneen, ITT bought more than 300 companies in the 1960s, including some hostile takeovers, giving impetus to the trend that dominated business 10 years later. (Many takeover activists, such as the Bass brothers and Carl Icahn, would later use Geneen as their model—or excuse—for their appetites. In a 1986 CEO roundtable Icahn admitted as much.) The deals included well-known businesses like the Sheraton Hotel chain, Wonder Bread maker Continental Baking, Rayonier and Avis Rent-a-Car, as well as many smaller operations. ITT became the archetypal conglomerate, a form of business that lost its appeal decades later. For him the numbers meant everything; the actual product that was produced seemed incidental. More than 100 managers were required to furnish him with weekly reports and more detailed filings every month. A month before he retired, 146 reports totaling 2,537 pages poured into his office. He read them all.
THE WELCH MYSTIQUE By the 1980s, the age of the imperial CEO was coming to a close, as was Wall Street’s fascination with conglomerates. Tech startups such as HP, Microsoft, Intel, Cisco and Apple were making their mark on the wider world of business—although entrepreneurs such as Apple Computer founders Steve Jobs and Steve Wozniak were still not yet seen as being experienced enough to be models
for business leaders outside of the hi-tech world. By 1981, when Jack Welch became Before retiring GE’s youngest chairman and CEO, suc- in 1977, Geneen had run ITT with ceeding Reginald H. Jones, the world an iron hand. of management leadership was about to change. Within a year, Welch had dismantled much of the earlier management through aggressive simplification and consolidation. Under Welch’s leadership, GE increased market value from $12 billion in 1981 to $280 billion, making 600 acquisitions while shifting into emerging markets. In contrast to leaders like Geneen, Welch pioneered a policy of informality at the workplace, allowing all employees to have a small business experience at a large corporation. Welch worked to eradicate perceived inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He closed factories, reduced payrolls and cut lackluster units. In their CEO bible of the time, In Search of Excellence, Tom Peters and Robert Waterman found common themes that they argued were responsible for the success of successful companies. Although Welch was not a subject of the book, he soon became identified with a number of the authors’ precepts, namely, a bias for action, getting close to the customer, autonomy and entrepreneurship, productivity through people and sticking to one’s knitting—staying with the business that you know. Welch made unexpected visits to GE’s plants and offices and popularized so-called “rank-and-yank” policies, soon JANUARY/FEBRUARY 2017 /
COVER STORY | Chief Executive Magazine: The First 40 Years
Chief Executive’s inaugural issue featured newly inaugurated President Jimmy Carter.
Saudi Arabia’s oil minister, Sheik Yamani, offered a global perspective on oil.
to be used by other corporations. Each year, Welch would fire the bottom 10 percent of his managers, regardless of absolute performance. He earned a reputation for brutal candor. He rewarded those in the top 20 percent with bonuses and stock options. He also broadened the stock options program at GE, extending availability from top executives to nearly one-third of all employees. Welch’s leadership style would dominate business thinking even after he stepped down in 2001. There was hardly a bylined article by other CEOs that appeared in Chief Executive and elsewhere that did not extol his ideas and methods. Even business school academics were under his spell. Some might argue that there was a cult. For example, Welch adopted Motorola’s Six Sigma quality program in late 1995. Motorola had been using it for years under Paul Galvin, but it was Welch who got the glory. In 1993, he was named (by acclamation) Chief Executive of the Year by Chief Executive. By 1999, he was named “Manager of the Century” by Fortune magazine.
Henry Ford II held forth on the importance of international trade.
Jack Welch popularized so-called “rank-and-yank” policies.
such as Enron’s Jeff Skilling and Tyco’s Dennis Kozlowski were also giving CEOs a bad reputation. CEOs were facing more risks, and business itself came under heavier scrutiny, particularly after the Great Recession in 2009. CEOs with courage, it was argued, were needed more than ever. In addition, the courage to do what’s best for the company along with the humility that comes with realizing that the CEO doesn’t have all the answers was emphasized by Jim Collins’ seminal 2001 work, Good to Great. Collins also stressed getting the right people on the bus, often trying them out in different positions, before driving strategy. No doubt Collins gave a framework for an emerging imperative, emphasizing the importance of employee engagement. The rise of the servant-leader was underway. Target’s Bill Ulrich, Xerox’s Ann Mulcahy, Yum Brands’ David Novak and AT&T’s Randall Stephenson, among others, were singled out for the award in part for their attention to the people and processes they fostered.
COURAGE RISES TO THE FORE Since Welch, there has been no single CEO who has dominated the leadership landscape. The shift in thinking among CEOs was exemplified by the criteria used by the Chief Executive of the Year selection committee. When Welch served on the committee after he won the award, he insisted that vision should be among the most important criteria considered. And for many years this view prevailed. Leaders such as Herb Kelleher, Andy Grove and John Chambers were extoled in no small measure because of the vision they possessed for their companies. By the middle of the 2000s, however, the judges began emphasizing a quality that was present in committee discussions but not expressly included among the criteria: courage (see page 22). After the go-go days of the 1990s, CEOs were facing headwinds from global competition and pushback from government and society. Leaders 28 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
THINKING DIFFERENTLY ABOUT SHAREHOLDERS The rise of employee engagement and the CEO’s attention to talent management also saw a parallel rise in questioning what had been an unquestioned tenet for decades: the primacy of shareholder value. Every CEO since the 1970s repeated the platitude that his company was being run to maximize returns for shareholders. But as Cornell law professor Lynn Stout points out, corporate law poses no enforceable legal duty to maximize profits or share prices for investors. In her book The Myth of Shareholder Value, she argues that corporations have longer-term interests such as providing rising wages, product innovation and customer satisfaction. Reflecting how a growing number of executives have changed their thinking, Stout says that the primacy of shareholder value thinking endangers not only
T. Boone Pickens exemplified the long-held focus on shareholder value.
Leaders such as Tyco’s Dennis Kozlowski gave CEOs a bad reputation.
investors but the rest of us as well, leading managers to focus myopically on short-term earnings; discouraging investment and innovation; harming employees, customers and communities; and causing companies to indulge in non-value adding behaviors such as moving plants and jobs around the world. “It is widely believed that the corporation exists to maximize profits,” says Ralph Gomory, former senior vice president of IBM and now research professor at NYU. “This is not only wrong, but destructive.” Dean Krehmeyer, an executive director of the Business Roundtable, says, “The myopic focus on short-term results not only undermines longer-term value but is legally inconsistent with leading governance principles.” A number of CEOs such as Whole Foods’ John Mackey, the co-author of Conscious Capitalism, have been asserting that CEOs need to climb out of the self-created hole that they have dug for themselves. And this doesn’t even touch the question of who the shareholders actually are. Short-termers have taken over the stock market. In the 1950s, the average holding period for an equity traded on the New York Stock Exchange was about seven years. Now it’s six months. Similar trends can be seen in other markets around the world. In a more recent development, high-frequency traders whose holding periods can sometimes be measured in milliseconds now account for as much as 70 percent of daily volume on the NYSE. Can such a “shareholder” seriously have the interests of the company whose shares he is holding in mind? “What is particularly galling,” wrote Charles Wohlstetter, chairman and co-founder of Contel, an integrated telecommunications company as early as the March 1990 issue of Chief Executive, “is the write-off of individual investors by the technocrats and institutional traders who dominate trading today.” Prior to the 1970s, managers and directors viewed themselves not as shareholders’ servants, but as trustees for
By the turn of the century, it was clear the autocrat approach was gone.
Andy Grove’s vision for Intel helped win him CEO of the Year.
great institutions that should serve not only shareholders but other corporate stakeholders as well, including customers, creditors, employees and the community. Equity investors were treated as an important corporate constituency, but not the only constituency that mattered. Nor was share price assumed to be the best proxy for corporate performance. Activist investors will continue to push for their narrower interpretation of value. The times will require a senior CEO statesman to boldly advance what appears to be a new way of thinking about value creation and the appropriate role of the corporation.
GLOBALIZATION AND TECHNOLOGY CHANGE THE DYNAMIC Forty years ago we saw how most CEOs were autocrats. They micromanaged to make sure everyone was doing what they were supposed to be doing. Since then two powerful forces have greatly altered this: globalization of markets and technology. For example, 20 years ago a company such as Sealed Air, a packaging company at the lower end of the Fortune 500, was typical of most U.S. firms. No more than 35 percent of its sales derived from markets outside the U.S. Today that figure represents almost twothirds of its total. In the 1980s nearly every manufacturer complained about Japan Inc. and how it was eviscerating American manufacturing. Today no one talks about Japan Inc. And even today’s discussions about trade relations with China have been tempered by how globalization and technology have changed the dynamic. Both forces have greatly increased the complexity and the speed of change rendering autocrats as worse than useless; they can be ruinous. What is required to create a great product or service is well beyond one leader. The world is moving so fast now, and technology is changing every industry. Not surprisingly, the role of the CEO has changed along with it. Consider how the nature of technology changed from the perspective of the CEO. Forty years ago, informaJANUARY/FEBRUARY 2017 /
COVER STORY | Chief Executive Magazine: The First 40 Years
The changing nature of technology changed the landscape for CEOs once again.
Cisco’s John Chambers symbolized the importance of both technology and networking.
tion technology counted things. Later it was able to carry out instructions to operate things. As such it was treated as a “black box.” CEOs didn’t need to understand how it worked so long as they could control those who did. What followed was a long simmering dispute between CEOs and CIOs and others. Was IT truly serving the strategic business goals of the company? As IT spending soared this became a non-trivial concern. Throughout the 1990s and into the early 2000s this problem vexed many leaders. In more recent years, the nature of technology has changed the landscape for CEOs once again. Raw computing power has been supplemented by the importance of networks. Online social networks are simply human activities that ride on technical communications infrastructures of wires and chips. And wireless communication is ramping up our ability to connect. The importance has shifted from the “features” that devices offer to the connectedness they provide, as well as the company’s own ability to be agile and responsive. The creators of future technology products and brands will no longer be engineers/scientists but people and teams with multidisciplinary skills such as an engineer-doctor, a psychologist-engineer, an artist-engineer. Squishy, left-brain science is slowly gaining its place alongside hardcore technology, as competitive tech firms try to get an edge on what their users are thinking and buying. The digital revolution is shredding, forever, the curtain that once hid all sorts of information about corporate behavior, operations and performance from public view. Yet, few companies are ready to handle the new scrutiny— and this transparency is proving to be increasingly costly and upsetting for companies struggling with new levels of exposure. Visibility and transparency mean that validation of a claim is rarely more than a click away; blind trust is disappearing.
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Leaders such as Anne Mulcahy were rewarded for attention to people and processes.
A.G. Lafley talks often about the importance of the connection between people and results.
THE CEO AS CATALYST For CEOs this means two things. In the emerging leadership climate they must find ways to create the “uncorporation”—a company where the culture celebrates and nurtures individualism, heterodoxy and entrepreneurialism while continuing to meet demanding targets. Second, as IBM CEO Ginni Rometty told the Council of Foreign Relations, ”the social network will be the new production in a company.” The primary benefit of new social platforms is that today’s knowledge workers have access to each other. She believes that in the future “your value will not be what you know, but what you share.” This includes CEOs. Calling it “the next natural resource,” Rometty predicts that data will be the basis of competitive advantage going forward. She believes it will change how decisions are made, how value is created and how value is delivered. Two years ago, Paul Metselaar, CEO of Ovation Corporate Travel, a $1 billion New York-based travel services firm, told Inc. that the company’s employees are the company’s “special sauce,” and that he sees his role simply: “I am a catalyst for the business.” As early as 2007, GE CEO Jeff Immelt explained to Chief Executive readers his company’s success in terms of the talent it attracts as well as trains and develops internally. “Leadership today demands that people be agile in responding to complex environments. I’m one of the top recruiters,” he said. More recently, at Chief Executive’s Talent Summit this past October (see page 46), former P&G CEO A.G. Lafley, a leader who intuitively understands the connection between people and results, said, “I care about touching people in ways that make their lives better.” How leaders work through teams and develop a culture of trust with others has become the new metric for CEOs everywhere. J.P. Donlon, editor-in-chief emeritus of Chief Executive, presided over Chief Executive magazine for 37 of the past 40 years.
CEOS TAKE CENTER STAGE
CEOs have a critical role to play in reordering politics, fixing the parties, returning to the public square and working in the interest not only of business, but of the country at large. By Dale Buss
Over the course of the past year, voices on both sides of the aisle, across editorial pages and in boardrooms have begun arguing that it’s time for America to rethink its politics. Even many CEOs are shedding their traditional reluctance to engage and, instead, are participating in such a realignment. Donald Trump’s election as president has yanked the Republican Party into unfamiliar philosophical and policy territory, and the Democrats’ losses have left them in profound disarray. One result is that growing elements are trying to force everyone back toward the center of the American political spectrum where they believe the future of the parties—and the nation—must be constructed. “I’m tired of it all because it has become so strident,” says Larry Jensen, president and CEO of Cushman & Wakefield Commercial Advisors, a Memphis-based regional affiliate of the real estate firm. “There are people of goodwill, but their voices have been quashed by this political environment. We need a new way of interacting with political parties.” Like Jensen, many other CEOs are now trying to figure out how they can advance the interests of business—all business, not just their own—through a mastery of the political process, even though so many balls are still in the air. The confusion argues that business
leaders should define what’s important to them now and advocate for it rather than waiting to see how things evolve. “Business leaders and CEOs have the opportunity now to really step up and engage with elected officials in developing policy solutions,” says Steve Odland, CEO of the Committee for Economic Development, a nonpartisan public-policy organization, and former CEO of Office Depot and AutoZone. “Business leaders have had their heads down basically for quite some time. But any time you have a change in Washington—and this is truly a lot of change—it creates an opportunity for re-engagement. Now they should re-engage.” Some political leaders clearly are counting on exactly that. “We’re Americans first, and CEOs play an important role in reminding people that we’re Americans first, and what a great country we live in,” U.S. Representative Debbie Dingell, a Democrat from metro Detroit who used to be a Republican, told Chief Executive. “They need to help pull people together so we’re not looking at the world as a partisan divide.” No doubt the vote rocked CEOs’ worlds. Of course, many are happy with the prospect of a President Trump who has promised to roll back regulations, cut taxes, encourage hydrocarbon production and overhaul Obamacare, among other things. And they’re only a subset of a much larger group of
company leaders who would be happy if precursors of an uptick actually translated into stronger business growth in the first quarter and beyond. But CEOs also realize that the longterm stability of American democracy is even more important than short-run considerations. They recognize that America’s current political system is highly susceptible to being swayed by events, trends and even individual politicians such as Trump. Many business leaders see a yawning challenge in reforming America’s political processes and mustering the wherewithal to ensure the nation’s future. Some business chiefs believe the major political parties are a place to start. After all, the 2018 elections are less than two years away. They see the Democratic Party as having abandoned working-class whites who turned out in huge numbers for Trump. One possible response for national Democrats is to double down. Rather than “look for areas of compromise” in Congress, for example, says Alan Blinder, head of the Princeton University economics department, Democrats may “become what Republicans have been for years: the party of obstruction,” despite their minority status. However, many Democrats are seeing a different message in election results that left them with less power than they’ve held in decades. “Obviously
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Democrats lost the white American worker, particularly those without a college education,” says Harley Lippman, CEO of the New York City tech-staffing firm Genesis10 and a devoted fundraiser for Hillary Clinton who attended her election-night party at the Javits Center. “Democrats have to pay attention to that.” Republicans, too, are in the midst of a potential redefinition of party philosophy along the lines of Trumpism. “Are Republicans going to follow him down the line?” asks Blinder. “I’m not convinced that they will. [Trump] is a deviation from the norm who won the electoral vote narrowly while losing the popular vote decidedly. And it’s a stretch to think he won the election on the issues.” Indeed, the blue-collar workers who helped elect him may pose Trump’s biggest challenge going forward, even as they’ve forsaken the Democratic Party. Most of their manufacturing-job losses have been due to global economics and digital technologies, not the “bad trade deals” excoriated by Trump. But at least the Republicans are addressing a scrambled future from a position of relative strength, now controlling the White House and both houses of Congress, as well as enjoying the party’s biggest advantage in governorships and state legislatures in decades. Besides participating in fixing the parties, here are eight additional ways that CEOs could be putting their shoulders into saving their country:
calls “important caucus formation [in] the ideological center.” This includes No Labels, a six-yearold organization that has created a centrist screed with 60 proposals to stimulate job creation, overhaul the tax code, balance the budget and undergird entitlement programs. No Labels even has an active congressional caucus that boasted more than 80 members before the end of the year, divided relatively evenly between the GOP and Democrats. Cushman & Wakefield’s Jensen joined No Labels, too. “What we’re saying is, it’s time to stop,” he explains. “If we don’t figure out how to create a political center, we’re never going to get anything done. That’s the reason I decided this would be worth my time and effort.” King White is a “diehard Republican,” but even he sees the need for “migrating to the middle. The whole system is screwed up,” says the CEO of Site Selection Group, in Dallas, “and that’s why everyone is voting the way they are.”
2 / Focus on bipartisanship While seeing how a centrist coalition might develop, some CEOs believe they can be most helpful in the early days of the Trump administration by facilitating quick policy action in areas where both parties and the new Administration agree: launching an infrastructure-construction blitz, cutting corporate taxes and regulations and
1 / Help create a new political center For most of 2016, New York Times columnists Thomas Friedman and David Brooks were especially ardent in sounding a drumbeat for the creation of a new American political center, far inward from the alt-right and alt-left, removed from the vitriol and extremism of Bernie Sanders and Trump. But since the election threw the nation’s true political dynamics into alarming relief, more Americans are flocking to what Brooks 34 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2017
reconsidering Obamacare. “The early focus should be on policy areas that need attention and where you can get some things done,” Odland says. “The focus should be on bipartisanship to do it. This requires getting back to regular order in Congress and well-functioning governance. Americans want the logjam broken.” CEOs can help by leading “efforts to compromise,” says Tim Hebert, CEO of Atrion, a Providence, Rhode Island-based IT-services provider. “We are all Americans. We need to do things where the majority overwhelmingly is going to benefit, so compromise is important. That will be viewed with disfavor by people who have a doctrinaire view of things, so it will be difficult.”
3 / Reform business representation One thing many CEOs believe in deeply is corporate lobbying efforts. “While one or two CEOs may advocate a position, their views are much stronger coming from a larger association that represents hundreds of companies in a similar position, employing thousands of workers,” says Dan Sandberg, president and CEO of Brembo North America, a Tier One auto supplier based in Plymouth, Michigan. At the same time, White says, the cover of a group also “can protect CEOs from too much exposure as individuals.” And by being “apolitical, these groups “can be most effective in today’s highly polarized political environment.” Yet Brooks argues that CEOs must
“There are people of goodwill, but their voices have been quashed by this political environment. We need a new way of interacting with political parties.” —Larry Jensen
push to upgrade corporate lobbying organizations such as the Business Roundtable and U.S. Chamber of Commerce. “The business community has been ill-served by these existing organizations, the conservative New York Times columnist told Chief Executive. “They got too close to a version of the Republican Party that has just been displaced” by the electorate’s views on trade and immigration. “These organizations should be a little more distant from the parties and also a little more sensitive to the people who voted Trump in” by re-examining some of their stances.
4 / Educate the president CEOs must step up to the challenge— and the opportunity—to help the Trump Administration understand and appreciate where they’re coming from. “CEOs must make certain their point of view will be front and center and that [Trump] understands their company’s and industry’s point of view on those issues,” says Ron Williams, former CEO of Aetna and current member of blue-chip boards, including American Express, Boeing and Johnson & Johnson. “As a community and as individuals, CEOs have an obligation to present practical solutions that reflect their views and their industry’s views. And most of those views are fairly balanced.” This won’t necessarily be easy, Williams cautions, given Trump’s lack of background on many issues and clear insistence on asserting his own point of view. For example, “When he listens to builders and the real-estate development and hospitality industries, he’ll listen with a level of understanding someone else wouldn’t have,” he says. “But in other spaces—if he’s hearing from pharma, or aerospace or whatever—he won’t have that level of personal interest in it.” Sunnova CEO John Berger, for example, wants to get President Trump’s ear about the importance of deregulating America’s electricity market. “We want to bring consumers choices,” says the head of America’s largest private so-
lar-energy company, based in Houston. “It’s most likely the single biggest way of unleashing job growth and wealth creation in the economy today.” If any cohort of CEOs could expect a brush-off from Trump, it’s those in Silicon Valley who contributed heavily to Hillary Clinton and openly lambasted Trump’s positions on trade. But Kirk Krappe, CEO of Apptus, an e-commerce outfit based in San Mateo, California, insists that even his peers will be able to shoulder into a place at Trump’s table. “Just as a byproduct of the innovation and advancements coming out of Silicon Valley,” Krappe says, “we’ll be able to get the spotlight.”
5 / Get involved closer to home From issues of business climate and regulation to infrastructure and the fitness of the labor force, CEOs typically can have the most impact closest to where they do business, especially mid-market chiefs. This means wielding influence on politicians like city-council members, state legislators and governors, as well as becoming active in metropolitan and regional business groups. This approach also calls for companies and CEOs to act alone when necessary on the community level. “It’s easy to be isolated and look at your business and how good or bad things may be,” Hebert says. But CEOs “need to take a closer look. It’s not about complaining about what’s wrong with the country but about doing things that can make the country and the world better.” For example, because Hebert is concerned about failing public education, more than a dozen of Atrion’s 60 employees mentor a total of 20 students at a charter school in Providence. “My goal is to get them to graduation,” he says. “It’s the sort of thing that every small business could do to have a positive impact on our society.”
6 / Focus on jobs and growth A uniting force for CEOs and politicians on both sides could be their dedication to sparking economic growth and, spe-
BRINGING THE WORKFORCE TOGETHER EXTERNAL CONCERNS will engage CEOs under a Trump administration, but in the early term they may have a more important obligation and even challenge: ensuring post-election peace inside the company. As across the rest of American life, emotions exploded in the workplace after the election results stunned the nation, in many cases exposing fault lines within a corporate culture that had been hidden or minimized. Many who voted Republican couldn’t hide their joy, while supporters of the mostly losing Democratic side vented their sadness and frustration—and workplaces were a natural place to do it. “Our employees are all crying,” PepsiCo CEO Indra Nooyi famously told a conference in Manhattan a few days after Election Day. “And the question that they are asking, especially those who are not white: ‘Are we safe?’ Women are asking, ‘Are we safe?’ LGBT people are asking, ‘Are we safe?’ I never thought I’d have to answer those questions.” But the Indian-born business leader added that “the first thing we all have to do is to assure everybody in the United States that they are safe. Nothing has changed because of this election. What we heard was election talk and we will all come together and unify the country.” “CEOs must recognize that employees will want to hear from them in some sense about what it means for their company,” advises Ron Williams, former CEO of Aetna and a member of multiple Fortune 500 boards. “And they should use it as an opportunity to bring people together. Many companies were split down the middle. It’s an opportunity to say, ‘The election is over. We have only one president at a time. What can we as leaders and companies do to make America a better place?’” Dennis Zeleny, a C-suite consultant and former head of human relations at Sunoco, Caremark CVS and other companies, says that CEOs these days “should focus on positive messages of inclusion and commonality of purpose” and other internal values. “CEO’s can’t control an election, but they can ensure—and should highlight—the values within a company regarding diversity of thought, background, race, religion, gender and sex—and always treating all people with dignity.”
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“Business leaders and CEOs have the opportunity now to really step up and engage with elected officials in developing policy solutions.” —Steve Odland
cifically, job creation and preservation. Trump certainly proved the resonance of this issue. Now Democrats as well as Republicans “must address the needs of the middle class in a better way,” Lippman says. “Job creation tends to do that.” A focus on long-term job creation must include boosting workforce development, White argues. “Whether it’s an automated facility or a low-skilled facility or a call center, we’ve got a labor problem,” he says.
7 / Engage on trade Trump has demonstrated the importance of his stance on trade with preterm initiatives such as pushing Carrier into keeping about 1,000 jobs in Indiana instead of moving them to Mexico. As Blinder puts it, trade-involved CEOs will have to decide “how they will react to potential presidential [pressure]. There will be more cases where companies want to move jobs to Mexico or Vietnam or Europe. These things happen all the time, and we’ve yet to learn how frequently and vigorously President Trump will try to browbeat people on that. And then for CEOs, there will be the huge decision: how do they react to the browbeating?” Yet trade remains “a place where business leaders could engage in a positive fashion,” Odland says. “You can’t export without allowing imports. But CEOs can help focus on fairer trade where people are engaging and following the rules and there’s a level
playing field. Business leaders may be best suited to make this point.” Maggie Wilderotter, former CEO of Frontier Communications. notes, “Trump is a businessman who does business internationally, not just in the U.S. So there is common ground in his background and understanding that companies grow not just at home but also abroad.” In any event, notes Brooks, “Trump won’t be great on trade from most CEOs’ perspectives; but there are degrees of badness”—meaning that business leaders are hoping the new president’s pro-growth tilt will help offset damage that might be created by his trade policies.
IMMIGRATION: A FOCUS ON H1-B IMMIGRATION MAY BE the mostcharged issue that President-elect Trump has to deal with, both politically and economically. And CEOs intend to have their say. For example, digital-tech chieftains led by Google CEO Eric Schmidt backed Hillary Clinton for president, motivated in part by the conviction that she would expand the H1-B specialty-occupation visa program. It gives thousands of jobs to non-Americans who technically aren’t “immigrants” but basically function as though they are. Trump pledged to allow U.S. citizens first crack at all such positions. “Immigration is near and dear to many CEOs’ hearts, especially in Silicon Valley,” says Princeton University economist Alan Blinder. “With skill and luck, they could be a moderating force on how [the Trump administration approaches] that subject.” The problem with Trump’s stance is that “we don’t have enough Americans going into the IT industry,” explains Tim Hebert, CEO of Atrion, an e-commerce software outfit. “We need to rely on these visas and workers coming from different countries, and becoming citizens, and filling those gaps. The idea of building walls because we assume they’re going to take all our jobs is the wrong way to look at it.”
8 / Stick to your knitting Even as they get involved more broadly, CEOs must also be careful not to get distracted from their most important role. “The CEO’s job is to focus on the company, its future and long-term, sustainable value creation,” reminds Williams. “So in most instances, it’s unwise for the CEO to be viewed as a political operative of either party.” Some CEOs believe that their peers should simply stay out of Dodge altogether. “If I were competing with other CEOs to bring a new wave of technology to market, I would love for them to spend a lot of time in Washington,” says T.J. Rodgers, founder and former CEO of Cypress Semiconductor and a libertarian who didn’t vote for Trump
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or Clinton. “Instead, they should stay at home; hire good people; bring excellent technology to market; and dominate the market. Serve it well.” Nevertheless, more CEOs seem to be willing to go where only outlier peers such as Starbucks’ Howard Schultz and Silicon Valley’s Peter Thiel have gone before: out on a limb. Many would like to boost what Odland calls “business statesmanship.” “Business leaders have withdrawn from the public square over the last decade or so and are dealing only with their lobbyists,” he says. “We need to re-engage as business statesmen, rise above our parochial interests and work in the interests of the nation.”
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WHAT YOU NEED TO KNOW ABOUT: TRADE
“TRADE” AS A DIRTY THE VERY CONCEPT OF “TRADE” took a beating in the American presidential campaign from across the political and ideological spectrums. The Trans-Pacific Partnership (TPP), a trade deal among 12 nations in Asia and the Americas, is dead. In Europe, Britain is making its “Brexit” from the European Union, roiling trade relationships across the continent. Pundits are suggesting that after several decades of steady expansion, many nations and regions are seeking
to roll back the tide of trade. They increasingly see it as a destructive force. This is seriously bad news for many American CEOs. We therefore propose a modest agenda that, if embraced, might mitigate the rising anti-trade fervor. CEOs of small and medium-sized manufacturing companies (SMEs) have a particularly good story to tell because these companies comprise 97 percent of all U.S. identified exports and their share of export
WHAT CEOS SHOULD BE SAYING AND HOW AMERICA REPRESENTS JUST 4.4 PERCENT OF THE WORLD’S 7.1 BILLION PEOPLE. Take every opportunity to explain that for any company to be successful and to defend itself against foreign competitors, it must have an international strategy. HELP SPREAD THE MESSAGE THAT EXPORTS ARE A VITAL WEALTH-CREATION TOOL, not just for the wealthy elites but also for average people working in factories or supplying those factories. EXPLAIN A KEY PIECE OF EVIDENCE SUPPORTING THIS ARGUMENT: that wages in export-intensive industries were 16 percent higher than wages in industries that tended to stay at home in 2015, according to International Trade Administration (ITA) of the U.S. Department of Commerce.
TELL PEOPLE THAT TRADE IS NOT A ONE-WAY STREET. Yes, jobs in textiles, furniture, shoes and electronics have been lost, but millions of jobs have been created in niches where American companies play leading roles in their fields. The Commerce Department says that exports supported 11.5 million American jobs in 2015. Of that, the export of goods, as opposed to services, accounted for 6.7 million jobs. ATTACK THE MYTH THAT “AMERICANS DON’T MAKE THINGS.” Aside from jetliners from Boeing, turbines from General Electric and semiconductors from Intel, smaller companies often play leading roles in manufacturing niches such as scientific and medical instruments, fire-fighting and prevention equipment, heating and ventilation equipment, valves, and water-pollution control technologies, to name just a few. These
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products tend to be sold to foreign businesses, not consumers, which is one reason they are not as highly visible as, say, Starbucks or McDonald’s. DON’T USE THE TERM “FREE TRADE.” Completely free trade is just a myth and, in today’s environment, that phrase is seen as the enemy. It’s much the same with the terms “globalization” and “globalism,” which have taken on sinister overtones. Instead, talk about creating winning international strategies for American companies and their communities. NOTE THAT EXPORTS HELP CREATE ECONOMIC GROWTH FOR ALL OF AMERICA. In the third quarter of 2016, exports were cited as one factor that resulted in an annualized GNP growth rate of 2.9 percent. Altogether, 293,000 companies exported goods or services in 2015.
EXPLAIN THAT JUST BECAUSE YOU HAVE BUILT OR ARE BUILDING A FACTORY IN ANOTHER COUNTRY DOES NOT MEAN YOU ARE TAKING JOBS AWAY FROM AMERICANS. It’s quite possible that you are defending their jobs if that factory helps your company achieve greater sales and compete better against foreign rivals. BE VERY PUBLIC ABOUT THE GAINS YOU HAVE ACHIEVED FROM TRADE. Many communities know that factories are hiring and offering great wages, but they may not understand why. Go talk to the Lions Club or the Kiwanis. Brag about it in your annual report. ENCOURAGE YOUR STAFFERS AND OTHER EXECUTIVES TO ALSO TALK ABOUT IT. Invite reporters in to your factories to witness wealth creation. Job losses make headlines but the gains in new jobs don’t.
What CEOs Must Do to Defend Global Commerce
value is rising—a fact that is visible to the communities in which they function. CEOs of companies of more than $1 billion in sales typically locate some manufacturing abroad as part of their go-global strategies. According to a report by American Express and Dun & Bradstreet, 34 percent of firms with $1 billion or more in annual revenues are engaged in exporting products or services. This activity also has clear positive impact at home. The largest companies, however,
have the biggest communication challenge because the economic payoffs of their global strategies are the most subtle. That’s one reason why Apple, for example, is in the political crosshairs for making all its products in China and Ford Motor and the Carrier division of United Technologies have faced criticism for shifting jobs to Mexico. But, ultimately, all CEOs engaged in trade have common cause in defending it. —WIlliam J. Holstein
WHAT CEOS SHOULD BE DOING IN THEIR BUSINESSES OFFER MORE TRAINING and retraining to existing employees to prevent them from becoming “obsoleted.” Explain that if they don’t upgrade their skills, their jobs could be on the line. This discussion doesn’t happen candidly enough or often enough. CREATE ALLIANCES with vocational schools and community colleges to identify young people who might be interested in working for your company. Help shape the curricula of those schools by sitting on advisory panels. Provide old equipment so that students can train on it. Send in executives occasionally to teach a class. Create apprenticeship programs such as the ones that exist in Germany. PAY A PERCENTAGE OF THE COSTS of retraining existing workers and training new
ones. That sends an incredibly positive message not only to employees but also to communities and states. TAKE A HARD LOOK at the complete cost of going offshore. The Chicago-based Reshoring Initiative, a nonprofit that encourages companies to consider bringing jobs back to the U.S., has created a formula for evaluating the complete costs, including the hidden “coordination” costs, or moving factories offshore and sending engineers and executives to manage them. Fewer CEOs would move manufacturing offshore if they did rigorous analysis, the Reshoring Initiative argues. IF YOU ARE CONSIDERING MOVING some manufacturing back to the United States, work with state and
city governments, as well as community colleges, to see what incentives and training programs are available. Finding workers with the right skills sets is key. IF YOU BUILD A PLANT ABROAD, try to help your U.S. suppliers “piggyback” on your efforts. Helping them to go global serves your long-term corporate interests and yields even more benefits to your home geography. IF YOU ARE ONE OF THE CEOS with large profits still held offshore, a figure that amounts to more than $2 trillion in all, take advantage of a long-awaited deal with the U.S. Treasury to bring the money home at a reduced rate of taxation. Average Americans would feel the effects of an infusion of that much capital.
THIS APPROACH, IF EMBRACED, would have a positive impact on the American debate about trade, which appears certain to intensify as Donald Trump takes office. Revving up the success of American companies and their international strategies—and explaining why that is important—would be a far more effective way of generating jobs than imposing tariffs on goods made in China and Mexico. American tariffs could generate retaliation from other governments. It’s an important argument—and there’s no time to waste. Bill Holstein (williamjholstein.com), a New York-based journalist and author of seven books, has been writing about exports and international trade for decades. His most recent book touching on the subject was The Next American Economy: Blueprint for a Real Recovery (2011).
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INSIDE THE WEALTH CREATION INDEX: WHAT IT MEANS, HOW IT WORKS THE FORTUNE 500 HAS LONG BEEN TOUTED AS THE GOLD STANDARD FOR MEASURING TOP COMPANIES. But its key metric, total gross revenue, tells only part of the story. In reality, a business can be growing revenue, yet declining in overall wealth creation. One way to gauge a company’s net value creation is by using EVA, or Economic Value Added. EVA, essentially, is profit remaining after subtracting the full cost of the capital the business uses, including a minimum shareholder return to compensate for risk. Chief Executive’s Wealth Creation Index (WCI) ranks the performance of companies in the S&P 500 index, and their CEOs, based on the EVA model. (Only companies for which the CEOs were in their roles for the three-year period ending on June 30, 2016, were ranked.) For this year’s rankings, the ninth annual, we chose to offer a deeper dive into the metrics used to calculate WCI scores and illustrations of why and how they work. The full list of top wealth creators can be found at ChiefExecutive.net. As the graphs opposite illustrate, and as Drew Morris of Great Numbers! and Bennett Stewart of EVA Dimensions explain, the rankings were calculated based on four criteria: 1) EVA Momentum, which shows the trend in the growth of the firm’s EVA over the past three years; 2) EVA Margin, which calculates how profitable the firm is per dollar of sales, blending pricing power, operating efficiency and how well assets are managed into a single net-margin score; 3) Market-Implied EVA Momentum, which measures the expected future growth rate for economic profit as reflected in the company’s stock price; and 4) MVA Margin, which calculates Market Value Added, or MVA, as a percentage of sales. MVA is the difference between a firm’s stock-market value and the overall amount of capital it has invested, or the shareholder wealth created. —C.J. Prince
TOP 10 WEALTH CREATORS 2016 RANK
CHANGE IN SCORE
Leonard S. Schleifer
Charles W. Scharf
Michael A. Mussallem
Richard K. Templeton
Hock E. Tan
Rodney C. Sacks
GAINING GROUND: 10 Companies with Rapidly Rising WCI Ranks
LOSING GROUND: 10 Companies with Rapidly Falling WCI Ranks
Chipotle Mexican Grill
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Emerson Electric Company
While Emerson’s EBITDA is over $3 billion, its EVA, after deducting the cost of capital, tax and capital charge on goodwill and special items, falls all the way to $579 million. $3,140
EBITDA EBITDAR Add-Backs
EBITDAR Productive Capital Rental Charge
EVA Before Tax
Capital Charge: Goodwill and Special Items EVA
$(3,000) $(2,000) $(1,000)
Source: EVA Dimensions LLP
Emerson Electric Company EVA Margin vs. EBITDA Margin
EVA Margin EBITDA Margin
Over the past four years, Emerson’s EBITDA margin, as a percentage of sales, climbed to 21.6%, while EVA margin fell to 4%.
5.9% 4.8% 4.8%
Source: EVA Dimensions LLP
Emerson Electric Company EVA Momentum 3-Year Trend This metric measures either the growth or, in Emerson’s case, the deterioration of EVA per unit of sales. $1,600 $1,400
Slope = $-303.8M per annum
$800 $600 $400 $200
Trend EVA Momentum = slope / average sales in first three years = -$304 / $23,837 = -1.3%
2016 Source: EVA Dimensions LLP
Emerson Electric Company Market-Implied Momentum
Emerson's MVA—the Market Value premium to Capital—exceeds the value of its current EVA profits and implies that EVA will grow at a long-run Momentum rate of .77 % of current sales. $40,000
MIM = the forecast growth rate for EVA factored into the company's stock price MVA = present value of forecast EVA; solve for EVA growth that discounts to MVA
$25,000 CASH IN
WHAT THE MVA WOULD BE IF THE MARKET EXPECTED CURRENT EVA TO CONTINUE FOREVER
THE IMPLIED PREMIUM THE MARKET IS PAYING FOR THE EXPECTED GROWTH IN EVA
$10,000 $5000 $0
FVA Source: EVA Dimensions LLP
HOW TO INCREASE YOUR WCI SCORE Use EVA and the EVA Margin and EVA Momentum ratio statistics to assess profitability, profitable growth and wealth-creation. Pay managers bonuses at all levels for increasing EVA and give them the tools and training to do so. Avoid overpaying for acquisitions or buying back stock at its peaks. Manage your portfolio of businesses from a wealthcreation perspective. This includes sensing opportunity— entering lucrative or fastgrowing businesses as well as divesting businesses making sub-par contributions or shuttering them. Ensure that the company’s capital structure is right. Equity is more expensive than debt, increasing the cost of capital, but too much debt can kill a company. Find the best ways to boost operating results. Those might include compelling value propositions (e.g., Amazon’s product reviews, broad selection, customer experience, pricing and Prime membership); powerful marketing message (e.g., Memorial Sloan Kettering Cancer Center’s slogan, “The best cancer care, anywhere”); and strengthening the emotional connection with customers (e.g., Apple, American Girl). Finally, don’t take risks that could seriously wound your company’s value (e.g., cheating at Volkswagen and Wells Fargo; slipshod quality at Johnson & Johnson). In other words, are you managing your company's risk, or managing to risk your company?—Drew Morris, CEO, Great Numbers!
LIFETIME ACHIEVEMENT AWARD
HONORING DOW CHEMICAL’S
ANDREW LIVERIS Chief Executive’s 2016 Lifetime Achievement Award Winner
Top: Dow Chemical’s Andrew Liveris (second from right) with Chief E xecutive’s Marshall Cooper, Wayne Cooper and J.P. Donlon
At December’s Digital Transformation Summit event in New York City, Dow Chemical’s Andrew Liveris received Chief Executive’s 2016 Lifetime Achievement Award in recognition of his successful transformation of a 120-year-old company. From the presentation, Liveris headed uptown to meet with the president-elect, who approached him to head a manufacturing council for the new administration. To follow are excerpts from a conversation earlier that day with J.P. Donlon, Chief Executive’s editor-in-chief emeritus, in which Australian-born Liveris described how he transformed his company over the four decades he has been with Dow and commented on broader social and political issues:
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LIFETIME ACHIEVEMENT AWARD
ON DOW’S TRANSITION FROM BEING A BASIC CHEMICAL COMPANY TO A MUCH HIGHER VALUE-ADDED INTERNET-CONNECTED PROFILE: “There have been two pillars of Dow’s digital transformation. The most important is the people piece. And the other is the systems and processes piece. They are interrelated. We came to recognize that culture was the seminal piece. “We are a very process-driven company. We’re all engineers. We have processes and rules. We were quite successful in the end-to-end transformation from a systems point of view.” ON TRANSFORMING THE WORKFORCE: The company faced a basic decision to “rewire or rehire” its people, Liveris said. “Not much of our workforce could be rewired to change the way they worked. A lot of people were not willing to reinvent themselves, which is why today, out of 55,000 employees, about 25,000 have been with the company for less than five years. We had to learn from the people we hired to become more agile with our rules. Leadership is an oxymoron. You are constantly in a tug of war between two critical sets of rules. One set of rules is controls and processes. The other is the imperative to innovate.” ON THE AMERICAN EDUCATIONAL SYSTEM: “We have a 19th century education system and the workforce is skewed into two directions: at the high end, you have people with Ph.D.s and then you have people who drop out of high schools. That big piece in the middle is where we have to upskill to modern technologies and infrastructure. We need to
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rebuild the public education system around the needs of this new workforce.” ON INCOME INEQUALITY: “Income inequality is a huge issue, along with youth unemployment and reskilling. I don’t think the undergraduate college degree does much anymore. It’s about what the high school degree did 10 or 15 years ago.” ON WHY HE SPENDS 200 TO 250 DAYS TRAVELING THE GLOBE: “You have to be inclusive. The only thing you have discretion over is your time. Inclusiveness means I choose to give you time. I value our relationship. I value you as a customer or a partner or an employee. In some ways, I am a chief relationship officer or a chief people officer.” ON THE KEY TO BEING A CEO: “You have to know at all times where your North Star is. Where are you going? What is your purpose? Do you live it? Are you passionate about it? Are you the high priest of it? We are not teaching that at MBA schools.” ON MAINTAINING A PERSONAL TOUCH: “When someone is down, be the first to call them, for whatever the reason. I think we are human. Nothing will replace that. Look people in the eyes, sit down, break bread, do the things we were built to do. Machines will never do those things.” ON THE INCOMING TRUMP ADMINISTRATION: “I am pro-USA. I’m not a U.S. citizen so I can’t vote. But whoever is in charge, we’re going to work to make everything better. That’s America. I, for one, and Dow will be there to help.”
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CREATING A WINNING TALENT STRATEGY How your organization can drive a strategic human resources advantage. By Jennifer Pellet
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ILLUSTRATIONS BY ROBERT PIZZO
IN KICKING OFF THE 2017 CEO TALENT SUMMIT, former Procter & Gamble CEO A.G. Lafley made a comment that resonated with business leaders gathered for two days of discussions on developing a strategic human resources advantage. “When I joined P&G in the mid-’70s they selected me,” he said. “When you hire today, the candidates are selecting you at least as much as you are selecting them. And then every few months, every few years, they are reselecting you.” That fundamental shift is just one of several drivers reshaping the way companies approach hiring, nurturing, developing and retaining talent. It’s increasingly apparent that, in order to build and maintain an effective workforce in today’s intense war for talent, companies need to understand and address these five themes:
1 DIGITAL TRANSFORMATION IS CHANGING EXPECTATIONS ON BOTH SIDES OF THE TALENT EQUATION—EMPLOYER AND EMPLOYEE. The same technological advancements upending business models—the Internet of Things, mobile commerce, robotics and additive manufacturing— are also reshaping the kind of workforce today’s companies need in order to adapt and evolve. As John Minor, president and chief investment officer at JobsOhio, pointed out, “There’s a big disconnect between the skill sets that workers have today and the skill sets that are needed by companies. That’s an enormous challenge in the workforce today.” The demands that digitally savvy employees make on employers are, in turn, redefining the employment equation, noted Carolyn Tastad, P&G’s group president, North America. “Digital transformation is changing our expectations of what we need from our employees, and it’s also changing the expectations that the new talent base has of us,” she said. “This is the hardest part about digital,” agreed Sylvia Metayer, CEO of corporate services worldwide at Sodexo, a global food services and facilities management company with 500,000 employees around the world. “The talent that will enable us to have a different business model and to go out to market differently is not the talent we have now. We have to be able to bring in people who are very technology-oriented. And that means we have to be able to compete with startups for talent.” Workers willing to and capable of embracing digital technologies tend to demand transparency from employers (both in terms of what is expected of them and what they can expect in terms of a career path) and to place a premium on things like work-life balance and a culture of inclusion. At the same time, retrofitting these elements into established companies with hierarchical structures is a challenge many companies are struggling to navigate. “To reach out to that talent set, you have to be completely transparent,” explained Metayer. “As a very hierarchical organization, that level of transparency is not one we are used to.” JANUARY/FEBRUARY 2017 /
TRADITIONAL WORKSPACES AND WORK METHODS NEED TO BE RECONSIDERED.
PURPOSE CAN PLAY A POWERFUL ROLE IN ATTRACTING AND ENGAGING TALENT. Popular perception holds that younger workers place a premium on purpose when it comes to choosing employers—proactively seeking out jobs where they can feel that they’re contributing something worthwhile. Business leaders, however, reported that purpose actually holds broad appeal. Employees, regardless of demographics and across all industries, are increasingly attracted to companies where they can feel that they are doing meaningful work— and tend to stay longer and perform better when that’s the case. Bruce Pfau, Ph.D., KPMG’s vice chair of human resources and communications, experienced this when his company invited workers to participate in an online initiative by sharing their “higher purpose at work” stories. The response was enthusiastic, with 10,000 stories submitted in the first three weeks alone, a number that swelled to 42,000 in the months following. “We thought the responses would come from our younger workers, but when we actually looked at them we found that 50 percent were coming from people over age 35,” he reported. “It turned out everyone wants to have a sense of meaning and impact from their work, not just millennials.” Identifying and communicating a purpose that employees can rally around can be a powerful motivator, noted Dr. Ilham Kadri, president of the Diversey Care Division of Sealed Air, a global leader in food safety and security, facility hygiene and product protection. Engagement among workers whose primary responsibility was cleaning was dismal when Kadri joined the company in 2013—for obvious reasons. “Nobody ever dreams about growing up to become a cleaner,” she acknowledged. Sealed Air addressed the engagement issue head on by asking employees to think about why the company was in business and what it really provides to its customers. “You can’t imagine how many answers I got about what and how rather than why,” she said. “It was interesting to start the conversation and, little by little, begin reimagining the businesses we serve. Are we cleaning your hospital or are we saving lives by reducing the risk of infection? Are we cleaning restaurant kitchens or are we helping them keep people healthy by preventing food poisoning?” Coupled with other initiatives, the conversation helped Sealed Air boost engagement from 50 percent to 76 percent over the ensuing three years, Kadri asserted.
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Beyond purpose, employees increasingly want more control of when, where and how they work—and companies offering such flexibility find it easier to hire and retain top talent. That’s proved the case for Watt Global Media, where CEO Greg Watt adopted a Results Only Work Environment (ROWE) that entirely eliminated the need for any of its employees to come into the office— ever. “It’s about equal parts autonomy and accountability,” he explained. “It comes from the concept that work is not where you go, it’s what you do.” Watt said that “treating people like adults” by performance goal-setting and providing ongoing feedback that “manages the work not the people” has led to greater productivity, as
well as improvements in recruitment and retention. “Our top line has gone up every year since we implemented it, and our operating margins are the best we’ve ever had in the history of the company,” he said. While less dramatic, P&G has also revisited some of its approaches to nurturing talent, noted Mark Biegger, chief human resources officer at P&G, who said that the company has dialed back on its tradition of moving employees into new businesses and new locations every few years. A decade ago, it wasn’t unusual for the head of a business unit to be moved over to manage a completely different business unit in a different country. “In the past we probably overdid that,” he explained. “One of the things we’re trying to do now is balance that out a bit more. People are staying in assignments for a bit longer and, if they are changing, they stay within the same business area so that they’re building mastery over time.” “We found that we made mistakes when we changed too many factors—a new business unit, a new geography, a new level—all at once,” added Laura Mattimore, VP of global talent at P&G. “Instead of bouncing people around, now we try to build sequentially.” Over the past 10 years, P&G also made a big investment in building a talent-planning data infrastructure that informs career planning for all of its employees around the world. “We literally have a talent profile that brings together everything the company knows about every person in the organization,” explained Biegger. “Their assignment and compensation history, what categories they’ve worked on, what markets they’ve worked in, who all their previous managers and mentors have been—it’s all there. That reporting capability gives us easy access to the data we need to make decisions. You really can’t do good talent planning without pretty good data.”
P&G’s Innovation Initiatives
BRIDGING THE GENERATIONAL DIVIDE IS CRITICAL FOR ALIGNMENT. For many companies, aligning workers from multiple generations around a common purpose is proving difficult. Seasoned employees steeped in essential industry knowledge often feel threatened by younger employees eager to bring their skills to the table. Meanwhile, millennials can feel stifled by their more experienced colleagues. P&G uses mentoring programs to encourage collaboration among its multigenerational workforce and to help bring experienced workers up to speed on new technologies. “We do reverse mentoring, matching new people coming in with skill sets they’ve developed organically with those within who have a deep knowledge base,” P&G’s Tastad said. “Unleashing the best of both is something we try to be intentional about.” Sodexo also found mentoring helpful, noted Metayer. “We are not a tech company but we need to be able to bring in people who are very tech-oriented in order to compete at a time when our business model is under attack by startups,” she said. “At the same time, we have a generation that is retiring and that generation has knowledge of a different type.” The company’s intergenerational mentoring program brings people from different generations, different levels and different teams together in a learning forum.
Long lauded for the deeply instilled processes that enabled it to build household-name brands, P&G has struggled to continue that winning streak over the past decade. Under CEO David Taylor, who was charged with addressing that issue when he took the helm in 2015, the company is looking to reignite the innovation engine by accessing ideas from frontline employees who engage directly with consumers of the household products it sells. “It’s the folks who are in homes weekly in the markets we serve—in Japan or China, India or Indonesia, or here in the U.S.—who probably have the best insight in how to delight the consumer,” said Taylor. As an example, he cited a small P&G research group in Japan that came up with a new marketing concept while visiting homes to watch consumers use the company’s cleaning products. Observing several consumers lament the fact that there was no way to clean upholstery as they sprayed the company’s Febreze air freshening product on couches and chairs spawned the concept for an “I Wish I Could Wash” ad campaign. “The U.S. ad showed someone putting a couch on top of a car and taking it through the car wash,” recounted Taylor. “The category went from declining 3 percent to growing almost 10 percent and we particularly prospered. That whole idea came from junior people in homes observing customers interacting with the brand. It would not have come up in our Cincinnati headquarters.”
JANUARY/FEBRUARY 2017 /
CULTIVATING “INTREPRENEURIAL” THINKING IS A NEW IMPERATIVE. Gone are the days when large, long-established companies could count on deeply ingrained processes vetted over time to carry them into the future. Yet that is exactly what most large organizations do, noted Michael Arena, chief talent officer at General Motors. “We grow up these enormous entities, we lock them in, we structure them, we build processes, rigor and procedures,” he said. “And then ultimately, we cannot respond when the market dictates it.” (For more from Michael Arena, see page 72.) Hoping to maintain a competitive edge with incremental improvements is a dangerous game these days, agreed Alan Masarek, CEO of Vonage. “Leaders used to be able to see a competitive threat 10 years out, but today you can’t see where it will come from. It could be three guys and a dog that give you a competitive problem. So we just have to run these companies in a more agile, innovative way.” The concept of continual innovation works for Sydney Finkelstein, professor at Dartmouth College’s Tuck School of Business and author of Superbosses: How Exceptional Leaders Master the Flow of Talent. “To create a company whose entire purpose is to survive is not exactly an exciting idea,” he said. “I think a more powerful metaphor is ‘built to change.’” Finkelstein noted that leaders who excel at developing talent—superbosses—are those who seek out ways to energize, motivate and unleash the creativity of employees. Kadri sees encouraging millennial employees to pilot new ideas as a way to evolve. “The millennials want to take risks and we need that,” she said. “We need to adapt. It’s up to us to unlearn and relearn and adapt to them rather than the other way around.” Yet, encouraging innovation, and the risks it invariably entails, can be difficult for companies like P&G, noted CEO David Taylor, who added that
freeing employees to think and act like entrepreneurs represents a huge shift for a $76 billion global company. Once a process is well-established, a company—and, by extension, its employees—loses the capacity for change, behavior Taylor likens to that of a circus elephant. “Sometimes a chained elephant will fight the chain for a while, but then, if you cut the chain, he will still stay within that circle,” he explains. “If you have processes that encumber people for an extended period of time, then when you change the process they’re like that elephant— nothing changes.” To overcome the self-imposed confinement P&G was exhibiting when Taylor took the helm a year ago, he began traveling the globe to work directly with people on the front lines in the markets P&G serves. Visiting more than 20 countries in 12 months, Taylor spent time in the company’s plants and with junior employees out in the field. “When I fly to Russia, all the
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people between me and the junior person I meet with in the plant won’t be there—that’s the best way to get a real feel for the business, through the tone and directness of the individuals,” he said. “Part of what leaders have to do is not get overwhelmed by their title and experience and instead recognize that those closest to the consumer and the plants have the insights you need to really make the best decisions.” A 36-year veteran of the company, Taylor is convinced that it’s only by proactively nudging employees to question and challenge existing processes and share their ideas freely that a large company like P&G can become more agile and innovative. “We ask people, ‘If you owned the company what would you do?’” he explained. “‘If you started this business across the street, would you do things this way?’ As a leader you have to create the environment that gives people the courage to step out and make the future different than the past.”
Forging a People Strategy for the Digital Age
How your organization and its culture can adapt to new ways of developing talent in the digital world. BY JENNIFER PELLET
MAKING SURE THAT a company has the talent to deliver both today and in the future has always been a critical element of the CEO’s job. And these days, the task is tougher than ever. Emerging technologies are driving seismic shifts in the way companies operate. And leaders must find ways to simultaneously attract digitally skilled talent, help existing employees adapt and integrate a multigenerational workforce. What’s more, all of this is taking place against a backdrop of organizational upheaval as traditional hierarchical corporate structures are gradually replaced by more agile models characterized by faster decision making and wider information sharing. These talent and organizational challenges are intertwined, noted Ted Bililies, managing director of AlixPartners. “If you talk about how to attract, develop and retain talent, people will not be attracted, developed or retained by hierarchical organizations,” he told participants in a roundtable discussion on talent development co-sponsored by AlixPartners. “Good companies are investing time in developing talent and beyond that they’re looking at creating environments that are adaptable, empowered and collaborative.”
effort toward a less hierarchical model nearly derailed Sodexo, recounted Sylvia Metayer, CEO of worldwide corporate services at the food service company. Despite three years of preparation meant to engage employees in the change, “when we flipped the switch, the culture shock was so enormous that for a while I thought the company would go under,” she reported. “For nine months, everything froze. Then it took off again.” In hindsight, acknowledged Metayer, the senior leaders who made that call underestimated the impact the change would have on middle management. “We should have realized that going from hierarchical to multi-dimensional, collaborative,
adaptable and empowered is actually a huge shift, much larger than we imagined,” she said. Alan Masarek, CEO of Vonage, experienced similar pushback when he sought to encourage a move away from top-down management after joining the company in 2014. “I found it difficult enough for my senior leadership team, but the folks who can really kill this are middle management,” he reported. “When you tell them, ‘We have to innovate relentlessly, we have to be customer-first,’ you get a lot of nodding heads. Then, they go back to their desks, where there’s a stack of work to be done, and they go right back to looking at it as, ‘Hey, I’ve got a job to do.’”
“A Fortune 50 CEO once told me, ‘Digital and technology is the easy part; it’s people and the culture and fit that’s hard.’” —TED BILILIES, managing director of AlixPartners
IN PURSUIT OF AGILITY Yet the path to a flatter, faster organizational structure is often bumpy. Embarking on a carefully orchestrated JANUARY/FEBRUARY 2017
Avalon Bay Communities’s Brad Neilley, Chief Executive’s J.P. Donlon, Lewis Tree Service’s Michael O’Connor, Messer Construction’s Tim Steigerwald, Vonage’s Alan Masarek
TAILORING TALENT DEVELOPMENT While seasoned employees may struggle to let go of established processes and a formal structure, younger workers are not only willing to embrace a collaborative, flatter work environment, they often demand one. “Younger professionals want more recognition more quickly and feedback pretty much continuously,” noted Bililies. “Their managers have to be prepared to give them something verbally or symbolically on more of a regular basis or they will lose interest.” At the same time, it’s important to look at workforce needs holistically, pointed out Scott Beck, CEO of CHG Healthcare. “Are we overthinking the needs and preferences of one generation as we’re building our companies?” he asked. “Is there too much focus and energy on what’s happening
with the ‘young professionals’ and not enough around what your people—all of your people—want?” Ultimately, companies hoping to excel at developing talent today need to identify ways to cultivate all of the various factions within a multigenerational workforce. “We spend a lot of time talking about segmentation in the consumer population, but we don’t turn that same science to talent and to understanding the millennial [employee] population from the data we have,” says Karen Crone, chief human resources officer at Paycor. “We know they’re the most educated and that only a quarter of them have grown up in families that have a mother, a father and two children. If you can understand talent the same way you have a fanatical understanding of your customer, you can make
“When you tell them, ‘We have to innovate relentlessly, we have to be customer-first,’ you get a lot of nodding heads. Then, they go back to their desks, where there’s a stack of work to be done, and they go right back to looking at it as, ‘Hey, I’ve got a job to do.’” —ALAN MASAREK, CEO of Vonage
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your culture hum.” “It’s consumerization of HR,” agreed Ken Joel, partner, strategy and transformation at IBM. “As more and more companies start transforming into digital enterprises, we will have very personalized HR programs for the different segments. It will not just be Generation X to Generation Y. It will be single mothers or [however you cut the data]. It will be part of your culture that you can create and develop programs for the populations that are critical to your organization.” Within some companies, the differences are functional rather than generational, noted Michelle Beiter, VP of people operations at Safelite AutoGlass. At Safelite, agility and flexibility are embraced by operational teams, such as marketing and IT groups, while the company’s skilled contact-center associates are more comfortable with a hierarchical structure. “In our survey, year after year, we find that younger workers, particularly in skilled labor, want to know their career paths,” she explained. “They want to know that if they work hard, they can do this or go over here. So, you have to be careful. It’s not one size fits all.” WHAT’S WORKING NOW As companies feel their way toward understanding and adapting to the needs of digital workers, a few early lessons have emerged. Several roundtable participants commented on the need to update training programs by adding multimedia and interactive features to accommodate the different learning styles typical of younger workers. “We’ve been having a lot of conversations about being conscious of the fact that we have four generations in the workplace,” said Brad Neilley, chief human resources officer at AvalonBay Communities. “The learning styles of baby boomers vs. millennials are very, very different.” At Western & Southern Financial Group, HR SVP Kim Chiodi found that introducing shorter, more intense
“For nine months, everything froze. Then it took off again. We should have realized that going from hierarchical to multidimensional, collaborative, adaptable and empowered is actually a huge shift, much larger than we imagined.” —SYLVIA METAYER, CEO, Worldwide Corporate Services, Sodexo
training programs and delivering them online works well for both timepressed, long-tenured managers and younger professionals accustomed to learning in short bursts. “People can’t afford to sit in a classroom for eight hours, and young professionals may have different attention [spans] than more seasoned folks,” she explained. “We’re doing a lot of modularization of our training programs to get them down to two hours or less and to make them more interactive.” HIRE—AND FIRE—FOR CULTURE As critical as having the best talent may be, participants roundly agreed that cultural fit trumps performance when it comes to hiring and retention. “A Fortune 50 CEO once told me, ‘Digital and technology is the easy part; it’s people and the culture and fit that’s hard,’” said Bililies, who noted that pre-hire assessments can help companies screen for cultural fit. At Western & Southern Financial, concern that the company’s culture was being diluted by an influx of new talent led to the company “memorializing” it. The resulting 10 principles it adopted are now shared up front with potential hires. “Some young professionals want the culture to be something different,” explained Chiodi, “but our company culture is what it is. We try very hard to select the people who will best fit the culture—and then
you adapt. We don’t want you to be a different person than who you are, but we do want you to adapt to the culture. And if you can’t, there are lots of other places you can go to work.” At a time when employees choose their employers just as much as employers select employees, culture is a two-way street, observed Tom Marth, VP of WorkDay. “Young people want opportunity, but they really care about culture,” he said. “I don’t remember talking about culture in my first job interview the way that kids do now. So it’s a challenge for organizations to,
first, articulate your culture in a crisp, concise manner across your whole organization and, second, have what you articulate embraced by your whole organization.” A culture shaped by faith has become a competitive strength for Covenant Retirement Communities. “It’s a significant advantage to be able to bring life full circle for people,” reported Michelle Kozloski, VP of HR. “When you walk in, you can really feel it. It’s a place where you can work, serve your spirituality and have a great career.” Done effectively, a strong culture, effectively presented both internally and externally, can be a powerful recruiting tool. “Culture is a topic whose time has come,” asserted Bililies. “A lot of companies haven’t really looked in the mirror and thought about their culture. Maybe you’re in insurance, but when you actually think about what that insurance does—you save families, save communities. When you look at it through that lens, you get a whole different reaction from the people you’re recruiting.”
■ SCOTT BECK, CEO, CHG Healthcare Services
■ GARY HEIMAN, President and CEO, Standard Textile
■ BRAD NEILLEY, CHR, AvalonBay Communities
■ MICHELLE BEITER, VP of People Operations, Safelite
■ KEN JOEL, Partner, IBM
■ MIKE O’CONNOR, VP of HR, Lewis Tree Service
■ TED BILILIES, managing director, AlixPartners ■ KIM CHIODI, SVP of HR, Western & Southern Financial Group ■ KAREN CRONE, Chief Human Resources Officer, Paycor ■ J.P. DONLON, Editorin-Chief Emeritus, Chief Executive
■ MICHELLE KOZLOSKI, VP of HR, Covenant Retirement Communities ■ TOM MARTH, VP, Workday ■ ALAN MASAREK, CEO, Vonage ■ SYLVIA METAYER, CEO, Worldwide Corporate Services, Sodexo
■ DEONNE RIVERA, SVP, Franklin Templeton Investments ■ TIM STEIGERWALD, SVP, Messer Construction ■ SANTOKH SINGH RAM SINGH, Managing Director, Multi TV
■ TIM MOONAN, CEO, Hibbert Group
The Future of Work is Here Today
How empathy, teamwork and purpose are shaping the business landscape. BY JENNIFER PELLET
THE PROLIFERATION OF DIGITAL technologies has already led to fundamental changes in how people work, innovate, engage and produce. Increasingly, we live in an era where more and more roles are becoming automated, not only routine menial tasks but—thanks to digital versions of human intelligence—traditional white-collar jobs. As a result, the jobs of the future will be defined by qualities and skills that technology cannot replicate. Ironically, these include things like empathy, intuition, teamwork and social skills—the very qualities that growing up glued to devices and screens have stunted in our nation’s younger workers. As George Brooks, Americas Leader, People Advisory Services at EY, put it at a recent roundtable discussion co-sponsored by EY, “Technology is robbing us of empathy. We send out one-way information in social media to be liked, to look good, or to be the first one to share something, but we’re not receiving information back. We have a whole generation that has no
concept of a conversation, of getting disappointing feedback. So, there’s a massive lack of empathy.” At the same time, those young employees have expectations around their roles and their work environments. They seek out companies with a purpose that resonates with them and with work environments that offer them flexibility and the freedom to be who they are—not who the company wants them to be—in the workplace. These expectations are
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coming at a time when the employment model itself is changing, with employers embracing new sources of labor, including contingent employees (who come and go on an as-needed basis), digital employees (robots) and mobile employees (who work without a designated office space). What’s more, as the digital revolution streamlines value chains, organizational boundaries are beginning to disappear, with siloes being broken down so that work is being done collaboratively across functions. Collectively, these changes take a toll on employees, who must cope with 24/7 streams of information coming from all directions at once. These are just some of the megatrends companies must adapt to in order to navigate digital transformation, noted Brooks. “There’s a whole new set of levers to drive business productivity and be an employer of choice today,” he explained, pointing
“We’ve all seen the stats on how positive feedback impacts employee engagement. Older generations need to get used to the fact that, yes, now you have to communicate. Feedback and coaching weren’t automatically given when we grew up.” —ADRIANA GAMBOA, Senior project executive, IBM
“Technology is robbing us of empathy. We send out oneway information in social media to be liked, to be the first one to share something, but we’re not receiving information back.”
to things like collective purpose, mind clarity, physical environment, technology experience and performance and rewards as talent-management issues that companies need to get their arms around. “Whether you’re trying to create better ‘teaming ability,’ to move into digital or to improve innovation, these are the new levers that will take you to the results you need.” TACKLING TECHNO-STRESS Already, more and more companies are recognizing that new ways of working call for rethinking both workspaces and work methods. Many are responding by adopting open-plan offices designed to foster collaboration by removing barriers between employees and biophilia-inspired work spaces, incorporating natural light and materials to foster creativity and reduce stress. Others are looking for ways to help employees increase productivity by taking proactive steps to address work-related stress and anxiety. Ford Motor Company, for example, recently launched mindfulness classes aimed at helping employees cope with overstimulation in the workplace. “We received feedback from our employees that they needed some kind of outlet to help them focus to concentrate,” recounted Michelle Puccio, global HR leader, who said the company responded with mindfulness classes and coaching. “It’s been a tremendous benefit to our employees, and another byproduct has been innovation. The
—GEORGE BROOKS, Americas Leader, People Advisory Services, EY
clarity they’re getting from mindfulness actually helped them stimulate innovative new concepts.” In introducing mindfulness training, Ford joins an impressive roster of companies conducting similar programs, including Google, Target, General Mills and Aetna. The classes and coaching offered are geared toward improving employee productivity, helping employees stay on task and reducing “techno-stress.” While formal programs for meditation, yoga and breathing exercises might be out of reach for some, there are less ambitious ways for companies to introduce mind-clarity concepts. Simple practices like putting a time limit on meetings and asking participants to check their devices at the door can make profound differences in the tenor of discussions—and, ultimately, underscore the importance of mindfulness.
“When I meet with my management team, I refuse to have computers or iPads or phones [present], and we actually shortened our meetings and [moved away] from those long days that stretched from 8 a.m. to 8 p.m.,” commented Ilham Kadri, president of Sealed Air’s Diversey Care division, who found the change refreshing. “In the past, I was running after time and thinking, ‘Oh, my gosh, when am I going to do this and that?’ Now, I’m much more relaxed.” Those efforts to address device distraction and over-scheduling had a positive impact across generational employee groups, she added. “It’s not just about millennials. We need to unlearn and relearn ourselves.” EMPATHY AND ENGAGEMENT Investing in helping employees overcome overstimulation ultimately improves customer relationships, noted several discussion participants. “Building self-awareness among your employees is something that can really help them not only be effective from a teaming perspective but in terms of being able to listen to your clients or prospective clients,” asserted John Kronenberger, COO of Vega Americas. “On the mindfulness front, there’s a big benefit to being able to get rid of all the clutter, so that if you’re going into a From left: EY’s Liz Fealy; Messer Construction’s Karen Pawsat
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“Building self-awareness among your employees is something that can really help them not only be effective from a teaming perspective but in terms of being able to listen to your clients or prospective clients.” —JOHN KRONENBERG, COO, Vega Americas
client call, for example, you’re focused on that conversation.” Over time, coaching millennials on mindfulness can also help address the empathy gap, noted Michael Lopez, executive director of EY, who pointed out that, ultimately, empathy is taking active listening to the next level. “Active listening is based on listening and, at the end, repeating back what the other person said,” he said. “The next phase of that is when the person gets another five minutes to finish the story and you say back how you think they felt and are feeling. That’s empathetic skill-building, which can be tremendously powerful.” Typically applied to customer relationships, that process is transferable to employees, posited Puccio, who says that Ford is now applying lessons gleaned from its customer-centric business model to help it identify and address employee needs. “With our Ford F-150 customer, we understand the jobs to be done, the problem to be solved and the tools and processes that support empathy for that customer,” she explained. “Now we’ve taken that framework and shifted it to our people space, to think about the needs of our employees. What are the problems to be solved and the tools and processes to address them? That process has made a tremendous difference in terms of the value we are bringing to our employees.” At IBM, performance evaluations are used as tools to ensure that millennial employees get the continual feedback they crave. “Our managers
are evaluated on how much feedback they give,” said Adriana Gamboa, senior project executive at IBM, who noted that previous generations need to be nudged to adapt to the needs of their younger peers. “We’ve all seen the stats on how positive feedback impacts employee engagement. Older generations need to get used to the fact that, yes, now you have to communicate. Feedback and coaching weren’t automatically given when we grew up.” Bolstering engagement is also a focus for Covenant Retirement Communities, which had success with an initiative that integrated frontline em-
ployees, who provide care for seniors, into team efforts to improve processes. “It’s not glamorous and people aren’t exactly clamoring to be our employees, so we’ve really had to focus on turning our organization upside down and engaging from the bottom up,” reported CEO Terri Cunliffe. “It’s been really interesting to call a nursing assistant up and say, ‘Hey, can you come to Chicago and spend three days on a work team?’ It’s super powerful because it has national influence on our organization and they see their names on the authorship.” Bringing employees into projects that involve creative thinking and social interaction and that tie into an overarching corporate purpose is an ideal way to address the megatrends redefining employee-employer relationships today, noted Brooks. “Employees need to feel that they will be used and used for their best purpose,” he said. “Work is blending into our lives, and it seems that folks want to wake up and go and do something that they’re really excited about that has meaning. It’s something that millennials started, but the reality is we all want it.”
■ GEORGE BROOKS, Americas Leader, People Advisory Services, EY
■ DR. ILHAM KADRI, President, Diversey Care, Sealed Air
■ RICHARD COLLINS, VP, Commonwealth Associates
■ JOHN KRONENBERGER, COO, VEGA Americas
■ TERRI CUNLIFFE, CEO, Covenant Retirement Communities
■ MICHAEL LOPEZ, Executive Director, EY
■ DONNA ELBRECHT, CEO, Easter Seals ARC ■ LIZ FEALY, Partner, EY ■ ADRIANA GAMBOA, Director, IBM
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■ JOHN MINOR, President, JobsOhio ■ DEBORAH NORRIS, SVP, Sinclair Community College ■ KAREN PAWSAT, VP, Messer Construction
■ MICHELLE PUCCIO, Director, Ford Motor ■ EKYI QUARM, COO, The Multimedia Group ■ GEORGE RABLE, VP, Benco Dental ■ AMY ROSS, CEO, HumanKind ■ ELAINE SHANTZ, President & COO, Peoplecare ■ MIKE WINKLEMAN, Chief Content Officer, Chief Executive Group
COLLABORATING IN THE CLOUD How collaborative software that lives in cyberspace can help your business. BY JEAN THILMANY
LORNE CASSOFF, PRESIDENT OF Canadian restaurant chain Ben & Florentine discovered the power of collaborative technology after struggling to keep tabs on the 40 franchise locations in his company’s network. Though the chain is a franchise operation, company headquarters oversees much of the overall operations—everything from hiring managers to supervising a branch’s paint job. Until two years ago, the company was communicating primarily by email, with management using Microsoft Outlook to assign tasks and request updates. “With email, information I needed to PART I OF OUR TWO-PART SERIES see was falling through cracks and not getting to me,” ON CLOUD-BASED explains Cassoff, who notes that his chain had essenCOLLABORATIVE SOFTWARE. tially outgrown the technology. Flagging email threads JANUARY/FEBRUARY 2017 /
“If I’m talking about a certain project or, more specifically, a certain franchisee, I can go into that project and see everything that’s happening with that franchisee and all the information is accessible to all my employees." —Lorne Cassoff, president, Ben & Florentine
and creating inbox folders simply wasn’t getting the job done, he says. He was always struggling to stay organized, to find the right emails and to connect with the people responsible for tasks and organizing projects. Cassoff began looking for a cloud-based solution to provide visibility into how each of the franchisees is performing. He wanted a cloud solution because the number of licenses needed could then easily grow. Franchisees would be able to access the software via the cloud without needing to buy and maintain it themselves. Also, the restaurants— which are scattered across eastern Canada and together serve about 2.5 million customers yearly—could be pulled together via the tool, which resides on the software vendor’s server. Ultimately, he chose Wrike, which provided many of the features Cassoff needed, including the capability to house continuously updated franchise information in one place. Since transitioning Ben & Florentine to Wrike about a year ago, Cassoff has been monitoring all of his restaurants as separate projects and has visibility into the tasks listed under each. “If I’m talking about a certain project or, more specifically, a certain franchisee, I can go into that project and see everything that’s happening with that franchisee and all the information is accessible to all my employees,” he explains. The move also reduced inbox traffic by about 90 percent, he adds. CEO-DRIVEN SOFTWARE SOLUTIONS That Cassoff was able to identify the type of collaborative tool his company needed, that it should be cloudbased and that it required specific capabilities isn’t so unusual, says Joe Cowan, CEO of Epicor, which makes collaborative, cloud-based solutions for retail-related businesses. Increasingly, Cowan finds himself speaking directly with C-suite decision makers at companies looking to adopt the
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type of software Epicor provides. Several factors are driving the swelling interest in collaborative technologies—as well as the need for business leaders to helm decision-making on which technology to choose, says Cowan. The technology can help companies boost productivity and streamline communications across the enterprise, especially when employees are scattered across the country—or even around the globe—yet working together more tightly than ever before. Enabling team members to efficiently communicate and coordinate efforts and to offer feedback is quickly becoming a competitive imperative. And because the executives themselves will be using them for insight into how their entire operation is functioning, they often want a hand in selecting the best tools for their jobs, reports Cowan, who adds that incoming generations of employees are also driving adoption. “The industry we’re in has been older and stodgier, but as my generation starts to retire and millennials come in, they expect to be doing things in a different way,” he explains, noting that younger employees expect the kind of transparency, speed and accessibility these solutions offer. “They don’t want an office. They want an iPad and an iPhone and, if they’re on the floor of a plant, they want to see what’s going on or to check on the status of orders,” Cowan says. “And if someone delivers products to a customer, they want to see where that product is. Collaborative systems need to be able to do that.” Via customized permissions, collaborative software systems allow employees to coordinate on real-time conversations, upload files and comment on and edit resources stored in the cloud, as well as manage projects within a single software tool, regardless of location or department. The systems can be tailored for a variety of needs, including project management and communication—such as real-time, threaded conversations—as well as document management, cus-
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CEO TECH tomer communication, human capital management and project lifecycle management. CAPITALIZING ON THE CLOUD “Cloud collaboration providers are now replacing a complicated mix of email clients, FTP clients and instant messengers,” reports Abdul Salam, a co-author of “Deploying and Managing the Cloud Infrastructure.” Putting tools into one software system reduces complexity for users and helps support task management through solutions like enabling employees to see who is viewing a document and integrating email alerts into collaborative tools. Enterprise cloud applications bring a variety of collaborative tools—all from the same vendor—and tie them together across a common platform. This approach appeals to companies seeking a streamlined way to meet all of their collaboration needs across the enterprise rather than relying on multiple solutions. Companies that choose enterprise applications do so as a business strategy, says Gretchen Alarcon, Oracle group vice president, product strategy. The choice also depends on the culture of an organization and how many departments it seeks to tie together. “You have to look at where you want the collaboration to happen, within what areas, and what you’re trying to accomplish within these systems,” she says. “If collaboration is tied to a business process, then collaboration within the enterprise system makes more sense than using ad hoc systems.” While many companies opt for cloud-based subscription models that take security and update management off their hands, there are pros and cons to that approach, notes Laurence Goasduff, an analyst at business analysis firm Gartner, and author of the research report “The Financial Case for Moving the Cloud.” For example, choosing a cloudbased model saves companies on
“It’s access to data that takes work off of the backs of people. We can remove a lot of nonsense that clutters inboxes." —Tim Trudeau, CEO, Syntex Creative
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both upfront investment in pricey IT infrastructure and ongoing updates. That cash can then be freed up to fund other business needs. However, an expanding company will invariably need to purchase more licenses as it grows, which can become less cost-efficient than developing or purchasing a system outright. Subscription fees also go on forever and may increase over time. Plus, it can be both difficult and expensive to part ways with a provider, given the cost of extricating data collected in the cloud. Choosing wisely can help guard against these pitfalls and, fortunately, there are plenty of tools from which to choose. A large number of vendors have entered the market in the past seven years, offering a range of solutions tailored toward different
company size ranges and industries. Autodesk Fusion Lifecycle, for example, allows engineers and industrial designers to manage their design projects across teams on the cloud, while Basecamp is widely used by website designers and media companies. To find the right tools and to enable smooth implementation, Gartner recommends that companies “document the internal processes that will be affected by the identified cloud services and map applications and workloads to the associated cloud services. The document and the map should be targeted to achieve business outcomes—for example, cost-efficiencies, operational efficiencies and agility.” USE, DON’T ABUSE In addition to finding the right software fit, companies need to train workers on using the technology effectively, notes Syntex Creative CEO Tim Trudeau. His $9.5 million independent digital music distribution company uses a number of independent collaborative cloud technologies, including Google Apps for calendar invites and to share employee calendars. “I travel all the time, so employees can see where I am, what’s going on and whether it would be a good time to reach out,” says Trudeau. “It’s access to data like that that takes work off of the backs of people. We can remove a lot of nonsense that clutters inboxes, like an email saying ‘What are your plans for tomorrow?’” Collaboration software also helped Trudeau keep his company’s head count in check, as the tools can do the jobs staff members carried out in the past. “Maybe one person’s job used to be to manage travel and executive calendars—now, with collaborative tools that do that, you’re able to have a much leaner team,” he explains. However, too much collaboration, or a too firm a focus on collaborative tools can have a downside, warns Trudeau, who considers the potential for misuse as a possible drawback.
Executives may start monitoring every thread and employee conversation, which is rarely necessary and takes time away from more pertinent tasks, he says. “You feel you’ve accomplished something by responding to this or that, but really you haven’t,” he says. Adoption of new, yet ultimately unnecessary technology is also a potential pitfall, he adds. “Sometimes executives get so gung ho about the technology that they’re constantly bouncing around and sort of creating instability for their employees,” he says. “Once someone learns and knows [a tool], you pull the rug out from under them by going to another one and that’s very frustrating. “If you’re running the company you need to be aware of people’s feelings on this stuff,” he says. “There are ways to do it that can be fun and enjoyable and ways to exasperate people with it.” The bottom line? Collaborative cloud software is often a significant investment for most companies. Software choices need to be made with care, but taking the time to choose well and implement the tools effectively can pay off handsomely in the end. Perhaps Cassoff sums up the business benefits best: “There’s nothing falling through the cracks anymore,” he says. Jean Thilmany is a Minneapolis-based technology writer.
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Tech migration is bringing jobs and economic growth to southwestern states. By Craig Guillot RAPID ADVANCES in IT have propelled the growth of almost every industry from manufacturing to agriculture. Yet technology itself has also allowed companies to easily tap the talent of knowledge-based workers virtually anywhere in the world. Firms that rely on software engineers and data scientists are no longer confined to places like Silicon Valley, San Francisco or even Boston. Tech companies of all sizes are quickly moving to lower-cost parts of the country, a migration that is changing the economy in many states by bringing opportunity, diversification and innovation in new industries. In the agricultural state of Arkansas, educational initiatives and the presence of Walmart’s growing global headquarters have given birth to a robust IT industry. Piggybacking off the talent, IT firms from as far away as Massachusetts and California are moving operations to the state. In Oklahoma, billions of dollars worth of urban quality-of-life investments have attracted millennials, who are catapulting the state’s capital into a prime place for opportunity. Next door in New Mexico, Facebook’s decision to construct a worldclass data center in Albuquerque is putting that state on the tech-development map. In Arizona, a robust talent
pool is helping to grow one of the country’s largest hubs for the financial services industry. And in Texas, the country’s fastest-growing metropolitan areas continue to boom despite a fallout in oil prices. NO.1 TEXAS AUSTIN AND SAN ANTONIO ARE MERGING TO BECOME THE COUNTRY’S FASTESTGROWING METROPOLIS While the Lone Star state’s growth has been cooling under the collapse of oil prices, Texas still boasts one of the fastest-growing regions in the country. Joel Kotkin, executive director of the Center for Opportunity Urbanism in Houston, Texas, recently said in an article on Forbes.com that the region between San Antonio and Austin will become “America’s Next Great Metropolis.” According to data from the U.S. Bureau of Economic Analysis, Austin-Round Rock and San Antonio-New Braunfels each had the highest GDP growth of any metropolitan area in the nation last year, 5 percent and 5.9 percent respectively. That’s more than double the 2.5 percent average of U.S. metropolitan areas. With only 80 miles between the two cities, the booming economies are seamlessly blending to encompass the smaller cities between
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them. Places like New Braunfels and San Marcos are now seeing historic economic and population growth. While Austin has had a thriving tech scene for years, San Antonio has been following a similar path in tech and manufacturing. Jenna Saucedo-Herrera, president and CEO at the San Antonio Economic Development Foundation, says the Alamo City is forecasted to grow by 1 million residents by the year 2040. She says growth in many sectors has been fueled by private investment. Graham Weston, founder of Rackspace, also recently helped spark the development of a tech district in the city center since launching Geekdom in 2011. The co-working technology center has created a thriving technology industry that attracted more than $50 million in venture capital. Saucedo-Herrera says San Antonio also boasts a rapidly growing cybersecurity industry that has the second-largest concentration of assets outside of Washington, D.C. Other companies that recently made investments or expansions in San Antonio include GM Financial, Rev-Ignition, MCCI Medical Group, EControls, Dialpad, Liquid Web, Dizzion and Jungle Disk. Some companies are even moving from Austin to San Antonio. Dragonflyware and EasyExpunctions. com both recently announced relocations to San Antonio. “We’ve seen a number of companies moving from Austin to San Antonio. Austin had a big burst of development but that also brings traffic, congestion and the inability to find talent,” says Saucedo-Herrera. Cities between the two are growing even faster. Adriana Cruz, president of the Greater San Marcos Partnership, says the city was ranked fastest-growing for year-over-year growth. Cruz says the city has been serving as a “connector” between the manufacturing hub of San Antonio and the tech hub of Austin. It is also home to Texas State University, which opened an advanced materials incubator in 2012 that will eventually become a 68-acre park. “We’ve had major developments in the past year
by bringing northern San Antonio and southern Austin closer together. The communities along this corridor are seeing rapid growth,” says Cruz. Timothy Burbey, CEO of Blueshift International Materials, moved the base of the company’s operations from San Diego to San Marcos in 2015. Burbey says San Marcos offered an impressive selection of engineers and chemists from Texas State through its application-driven Ph.D. programs. He also says the fact that the city is within equal commuting distance of both San Antonio and Austin offered a prime location. “It’s part of a diversified economic system. You have a lot of different things going on between the two cities. Amazon just put a facility here. Looking out my window, I see new buildings going up,” says Burbey. NO.6 ARIZONA A GROWING HUB OF FINANCIAL SERVICES While Arizona has historically been known for manufacturing, mining and trade with Mexico, its capital city is quickly, and quietly, becoming a major hub for financial services. A recent study by real estate services firm CBRE found that Phoenix is the second-larg-
est market for the advanced business services in the financial sector. Nearly 174,000 residents (8.7 percent of the population) work in financial activities, an increase of 22 percent since 2010. Chris Camacho, president & CEO of the Greater Phoenix Economic Council, says roughly a quarter of the 280 companies evaluating a location near Phoenix as of late-October were in the financial services or IT sector. He says companies are using Phoenix as a way to scale into West Coast markets with cost-efficient operational hubs. Farmers Insurance, USAA, Northern Trust of Chicago, Schwab and Vanguard have all expanded to the area in recent years. State Farm opened a new regional headquarters in Tempe, Arizona, in 2015 with 1,000 employees and plans to eventually base 8,000 employees there. “We’ve seen extraordinary growth in the financial services industry driven by the ability to access talent quickly, scale up, grow revenue and minimize costs of business,” says Camacho. James Lundy, III, CEO of Alliance Bank of Arizona, says the growth in financial services has been fueled primarily by a strong talent pool. The area’s three major universities are also
TEXAS / San Marcos serves as a connector between San Antonio and Austin.
putting a strong emphasis on MBA programs, while more than a dozen two-year institutions are also offering programs in financial services. Lundy says the city’s aerospace and defense sector has also attracted workers that can easily transition to the financial services sector. “We have a good talent pool, especially for mid-level financial services jobs. Obviously the companies have been able to find the talent to staff the expansions,” says Lundy. Financial services companies are also moving their data centers to the area. Arizona passed a law in 2013 that offered enhancements for data center owners and operators by expanding the class of facilities that can qualify as sustainable redevelopment projects. The process for meeting the capital-investment threshold was also eased by adding the cost of improvements and of leased equipment to meet the threshold. The state is now home to more than 50 centers, including ones that serve Charles Schwab and PayPal. In 2015, Apple announced it would construct a $2 billion global command center in Mesa, Arizona, one of the largest single investments it has ever made. Lundy calls Arizona “one of the best kept secrets in the country” and says the growing talent, proximity to California, and “dynamic” downtown is offering a compelling location for new companies. “We’ve recently had some growth in various tech startups and some expansions of companies successfully launched in the Bay Area that seek a more affordable area in which to grow,” says Lundy. NO.18 OKLAHOMA METROPOLITAN INVESTMENTS CREATE A MILLENNIAL MECCA As the main economic driver in the state, Oklahoma City has continually elevated its presence on the national stage through investment in itself as a growing home for millennials. Roy Williams, president and CEO of the Greater Oklahoma City Chamber, says that over the past 20 years, the city has invested billions in revitalization, transportation and quality of life improvements through Metropolitan Area Projects
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ECONOMIC DEVELOPMENT (MAPS). The projects started in the ’90s and have included public works and infrastructure improvements and the renovation of nearly all the city’s schools. MAPS 3, a $777 million program that includes a new convention center, streetcar system and quality-of-life enhancements in the city center, will be completed in 2018. Williams says that projects were primarily aimed at improving quality of life for residents, and companies around the country have quickly taken notice. The Greater Oklahoma City Economic Forecast found that by 2014, the investments had generated a $5 billion economic impact for the city. “We made a conscientious effort to build a better community; and, when you do that, companies will take interest,” said Williams. OKLAHOMA / Devon Energy's new HQ towers above Oklahoma City's skyline. More CEOs have been looking to Oklahoma. In 2012, Devon Energy completed construction of a 50-story, $750 million portive community. She says seemingly Walmart, headquartered in Bentoncompany headquarters in downtown unrelated things like the river walk, bike ville, Arkansas, has also been expandOklahoma City. Boeing has also relocatpaths and activities are making Oklahoing its presence. Mike Preston, executive ed divisions to the area, moving almost ma City “the place” to be. “There’s a great director of the Arkansas Economic 3,000 jobs from Long Beach, California; support system in the innovation district Development Commission, says the Wichita, Kansas; and Seattle, Washington. and the quality of life is really attracting area has seen rapid population growth In October, GE opened its global oil and millennials. You tie in the incentives that in recent years. While 14,000 people are gas research center, the first of its kind. are bringing in companies and there’s a employed at Walmart’s headquarters, Paycom Software is also expanding its lot going on,” says Smith. tens of thousands more work in the headquarters and adding another 423 Other initiatives have also driven region for suppliers and vendors like jobs over the next couple of years. interest in the state. Fred Morgan, presKraft, Tyson, Nestle and P&G. Over the While oil and gas is a critical part of ident and CEO of the Oklahoma State past decade, the activity has also given the state’s economy, Oklahoma has also Chamber of Commerce, says workforce birth to a robust IT sector fueled by been trying to diversify. Urban revicompensation reform helped reduce such companies as Tata Consultancy, talizations around the state have been what were previously some of the highest Cognizant and UST Global. attracting millennials and new sector workers comp premiums in the nation. Preston says strong educational growth. According to data from Realtor. “It’s no longer the number one issue for initiatives and a growing tech workforce com, Oklahoma City is the nation’s businesses in our state, which used to have also attracted other companies like sixth-top city for millennials. WalletHub make us less competitive,” says Morgan. Metova, Big Cloud Analytics and Eyalso declared it the seventh-best city to enalyze. In 2015, Gov. Asa Hutchinson NO.23 ARKANSAS start a career, factoring in such things as introduced initiatives to build awareMOVING BEYOND BIG AGRICULTURE TO availability of entry level jobs, economic ness about the STEM fields, and signed BIG INNOVATION mobility and median starting salary. a bill mandating that every public high One such company the city has As a small, rural state known for its school in the state offer computer scigiven birth to in recent years is WeGoagriculture industry, Arkansas is rapidly ence classes. “We’ve started seeing more Look. The company uses an Uber-style broadening its economy to one of techinterest from data- and software-related business model with 30,000 field agents nology and innovation. The state has companies by educating for a new gento perform inspections of products or seen a number of high-profile corporate eration of jobs,” says Preston. assets virtually anywhere in the country. headquarters relocations and investBoston-headquartered software CEO and co-founder Robin Smith credits ments in recent years as companies engineering services provider Elyxor, tech development in the region to a high continue to leave high-cost places like which serves global clients in healthcare, quality of life, low cost of living and a supSan Francisco, Boston and Silicon Valley. fintech and e-commerce, recently added 64 / CHIEFEXECUTIVE.NET /
45 software engineering specialists to its growing office in Little Rock. Elyxor Chief Strategy Officer Rob Lentz says the company was located in Arkansas to capitalize on the talent pool. He says while they explored multiple locations in the Midwest and South, the incentives and the skilled labor force combined with low cost of living offer a strong value proposition. “In a market like Boston, you’re competing with everyone. We can come [to Little Rock] and be the best. We can have a bigger influence and get the best talent in town,” says Lentz. Preston says the state is also seeing “significant investment” from China. Suzhou Tianyuan Garments Company recently announced a $20 million investment in a manufacturing facility in Little Rock with 400 jobs. Shandong Sun Paper Company is also investing $1.3 billion in a paper goods manufacturing plant. One of the biggest assets attracting CEOs to the state is that it’s “small and flexible,” says Preston, who says the state government can work and negotiate quickly to make larger projects feasible with greater incentives, flexibility and concessions. “If you run into an issue or regulation you’re having a problem with, you’ will get a call back and we’ll move mountains to make sure a company is happy doing business here." NO.32 NEW MEXICO FACEBOOK’S INVESTMENT A CATALYST FOR DATA CENTERS AND TECH The announcement by Facebook in
September 2016 that it would build a massive data center in Los Lunas has sparked a wave of excitement in the state. The social media company said in a statement that the facility will be one of the most advanced energy-efficient centers of its kind in the world. Economic development leaders and CEOs from around the state are hailing it as a “big deal” that significantly raises New Mexico’s prominence on the radar of tech development. Greater Kudu, the company originally launched to build the data center, said in its industrial revenue bond application that large data centers often have a “follow the leader” effect. “When Facebook looks at dozens of potential locations and says New Mexico is the best for their investment, I think that speaks clearly to CEOs,” says Gary Tonjues, president of Albuquerque Economic Development. The deal required substantial investment from the state and Los Lunas including industrial revenue bonds, a $10 million Local Economic Development Act measure and the promise to grant the company a monthly reimbursement of the town’s share of gross tax revenues. The state also offered up to $3 million in Job Training Incentive Program funding. What worked in the Facebook deal could be a model for future investments. Terri Cole, president & CEO of the Albuquerque Chamber of Commerce, says the Facebook deal has set the region “on fire” and offers the potential to create what she says could
soon be “another Silicon Valley.” Technology solutions provider PCM of Segundo, California, announced in June that it would locate a 220-employee sales center in Rio Rancho to serve the West Coast. PCM CEO Frank Khulusi had met with the governor and a development team in California and ultimately said the state’s improved business environment and growing workforce was a “game-changer” in expanding operations there. Fidelity Investments, which opened a 216,000-square-foot regional office in 2008, recently expanded its workforce to 1,125 employees. Atlanta-based Rural Sourcing announced in 2015 it would expand operations to Albuquerque with 125 jobs in software development and support operations. CEO Monty Hamilton says that after evaluating a dozen cities in eight states, they found Albuquerque had a fair amount of “underleveraged and underutilized” talent with a low cost of living that offered competitive advantages for their clients. Rural Sourcing, which outsources IT jobs domestically, works for such clients as Coca-Cola, J.Crew, Georgia-Pacific and Pfizer. Hamilton says the new presence of Facebook in the region is already “putting it on the map” with national companies and chief executives. “There’s a growing immersion in technology that is going to be super cool in the next five or 10 years. I think it could be creating another Austin out of it,” says Hamilton.
RECENT DEVELOPMENT DEALS IN THE SOUTHWEST TEXAS 855,000-squarefoot ecommerce fulfillment center in San Marcos (Amazon); relocation of tech firm headquarters to San Antonio (Easyexpunctions. com); development of new financial services center in San Antonio (GM Financial). NEW MEXICO $250 million state-of-the-art data center in Los Lunas (Face-
book); 29,000-square-foot, 220-employee sales center in Rio Rancho (PCM); 45 new high-tech jobs in communications technology in Las Cruces (X2nSat).
manufacturer headquarters to Phoenix (Carlisle Companies); expansion of financial services operation center with 1,000 employees (Northern Trust).
ARIZONA 271,000-squarefoot regional office expansion with 2,220 additional jobs over the next five years (McKesson Corporation); relocation of $3.5 billion
OKLAHOMA $80 million, 300,000-square-foot. manufacturing facility (Boeing); 125,000-squarefoot oil and gas global research facility (GE); soft-
ware company headquarters with additional 423 jobs in two years (Paycom Software). ARKANSAS $20 million manufacturing facility (Suzhou Tianyuan Garments Company); $230 million steel mill (Nucor); $1.3 billion paper goods manufacturing plant (Shandong Sun Paper Company).
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KILLERS AND HOW TO THWART THEM Early detection and specialized care are the key to fighting off three lethal health conditions. BY C.J. PRINCE
RICHARD KIEF, CHIEF philanthropy officer and senior vice president at MedStar Washington Hospital Center, is the first to acknowledge that he ignored the warning signs of a coming health crisis two years ago. An avid cyclist who had raced competitively, Kief noticed he didn’t feel as fit as he once had been and couldn’t keep the same pace when riding. “But I chalked that up to getting older,” says Kief, who was 63 at the time. Then he began having acid reflux pain when he worked out and an ache in his left shoulder. He ascribed those symptoms to eating the wrong foods and to a rotator cuff injury he’d had years earlier.
JANUARY/FEBRUARY 2017 /
“I ignored the classic signs, I didn’t listen to my wife and I rationalized things,” says Kief. “I guess it was easier to fool myself about me than about anything else.” One day, while out for a bike ride with a group of friends, Kief found himself unable to continue. He finally decided to seek care at his own hospital’s Heart & Vascular Institute and began two weeks of testing, culminating with a cardiac catheterization. One of the three blockages found in Kief’s heart was the classic “widow-maker,” he says. “It was 90 percent blocked. At some point, it would have killed me.” The next day he had a triple bypass, which successfully cleared the blockages. Now, two years later, Kief is back to his active lifestyle, at full speed. “It’s so important to recognize the telltale warning signs. Then don’t wait—go see your doctor.” Of course, not everyone experiences the symptoms that prompted Kief to seek help. And those who are in apparent good health often put off their annual physicals, says Dr. Stephanie Faubion, director of the Executive and International Health Program at Mayo Clinic. “A lot of people are in denial. They think, ‘If I don’t look, I won’t find anything,’” says Faubion, who adds that, all too often, executive physicals reveal a lurking problem that needs to be addressed. But for most serious illnesses, early detection, diagnosis and treatment are key to restoring good health and, in some cases, even survival. That’s particularly true for the three more lethal illnesses in the U.S.: cardiovascular disease, cancer and pulmonary disease. The road following a serious diagnosis can be daunting as the patient grapples with where to go next and how to find the right treatment. Fortunately, the U.S. boasts some of the best specialty care in the world. The following are some of the top options available in the categories that pose the greatest health threat. C.J. Prince is a freelance business writer based in Maplewood, New Jersey.
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Heart disease is the leading cause of death for both men and women in the U.S., according to the Center for Disease Control. Fully 98 percent of all Americans have at least one risk factor, and CEOs, by dint of a busy lifestyle, often have more, says cardiologist Dr. Valentin Fuster, physician-in-chief of The Mount Sinai Hospital and director of the cardiovascular center. Of the six controllable risk factors—smoking, high “bad” cholesterol, high blood pressure, physical inactivity, obesity and diabetes— CEOs are particularly vulnerable in at least four of them, says Fuster. “Many executives smoke because they are stressed. They have no time for exercise, have high blood pressure because of the stress of the job and are prone to poor eating habits that lead to obesity and diabetes.” But caught early, there is much that can be done to turn the tide. The top cardiovascular health centers offer teams with decades of expertise in the field and outstanding reputations, leading-edge technology and treatment strategies, and high success rates. Here are a few of the best: CLEVELAND CLINIC’S MILLER FAMILY HEART AND VASCULAR INSTITUTE has been ranked the No. 1 heart program by U.S. News & World Report for the past 22 years. The Cleveland Clinic’s “group practice” model means physicians are full-time, salaried employees who get paid the same regardless of how many procedures they perform or patients they see, thus eliminating the incentives to perform unnecessary tests or procedures. In 2015, the facility saw more than 540,000 patient visits, over 4,000 cardiac surgeries and 48 heart transplants. MOUNT SINAI HEART, established just 10 years ago, is now among the world’s leading centers for cardiovascular medicine and advanced diagnostic and therapeutic technologies, treating the full gamut of cardiac conditions, from chronic arrhythmias to sudden heart attacks. Led by Dr. Fuster, Mount Sinai Heart’s multidisciplinary effort brings together the expertise of Icahn School of Medicine and The Mount Sinai Hospital in the areas of cardiology, cardiovascular surgery, medical education and research. NEW YORK-PRESBYTERIAN HOSPITAL’s dedicated heart centers offers comprehensive, holistic, interdisciplinary cardiovascular care with top specialists trained in the use of innovative techniques and the latest technology, including robotics for open heart procedures. As part of a major academic medical center, physicians are leading and participating in multicenter clinical trials with the goal of improving treatment for heart disease.
The Economy of Knowledge.
In a healthcare industry focused on consolidation and economies of scale, HSS remains committed to the economy of knowledge. Our research, innovation and patient care are entirely dedicated to musculoskeletal health. Past experience is continually informing future expertise, delivering measurably better patient outcomes. www.hss.edu
Cancer is the second-leading cause of death in the U.S., with an estimated 1,685,210 new cases of cancer expected to be diagnosed this year, according to the National Cancer Institute. But advances in diagnostic methods and treatments have improved life expectancy for a variety of cancers. In 2012, the most recent date for which data are available, the cancer death rate for men and women combined fell 23 percent from its peak in 1991. Early detection, accurate diagnosis and targeted treatment are all critical to a positive prognosis. If you’ve received a diagnosis by your physician, you may want to get a second opinion or pursue treatment at one of these leading centers:
MEMORIAL SLOAN KETTERING's cancer specialists work as part of a multidisciplinary team that includes surgeons, medical oncologists, radiation oncologists, pathologists and radiologists, so that specialists can quickly consult with a leader in another discipline to find the right treatment strategy. Radiologists use the most advanced imaging technologies to safely detect cancer, and the center’s pathologists employ sophisticated techniques to precisely pinpoint the type and extent, or stage, of disease. UNIVERSITY OF TEXAS MD ANDERSON CANCER CENTER also focuses exclusively on cancer and is renowned for using and developing front-line diagnostic technology that allows physicians to pinpoint each patient’s unique cancer and tailor treatment for the best outcome. In addition to expertise and cutting-edge research, MD Anderson also offers integrative and complementary therapies to help relieve pain and stress, including yoga classes, meditation sessions, oncology massage, acupuncture and music therapy. DANA-FARBER CANCER INSTITUTE, an affiliate of Harvard Medical School, is a 30-bed general medical and surgical facility that aims to provide compassionate care to children and adults with cancer. The Yawkey Center, built in 2011, added 275,000 square feet of clinical and support space designed to foster greater collaboration between researchers and clinicians; treatment centers are actually connected by bridges to their related research laboratories. The Center is also home to an expanded Clinical Research Center where patients have access to experimental anti-cancer drug trials.
According to the CDC, chronic lower respiratory diseases rank third on the list of leading causes of death in the U.S. The most common of these is chronic obstructive pulmonary disease (COPD), caused largely by smoking, but the category also includes bronchitis, emphysema and asthma. Again, early diagnosis and treatment gives patients the greatest chance to control the disease and its symptoms. The leaders in this specialty include:
MAYO CLINIC integrates patient care and research to provide the best care available. The Clinic Pulmonary and Critical Care Medicine is further sub-divided into six specialty clinics staffed by physicians with special interest and expertise in those areas. Patients can also take advantage of a robust Pulmonary Rehabilitation Program designed to help patients with chronic pulmonary disease through educational sessions to teach breathing techniques, exercise reconditioning, energy conservation techniques and nutrition counseling. NATIONAL JEWISH HEALTH’S DIVISION OF PULMONARY, CRITICAL CARE AND SLEEP MEDICINE offers a variety of programs, including the autoimmune lung center, the COPD program and the adult Cystic Fibrosis Clinic. A leader in pulmonary care for more than 117 years, NJH also conducts research in the areas of asthma, COPD, interstitial lung disease, sleep disorders and other related conditions. MASSACHUSETTS GENERAL HOSPITAL’S DIVISION OF PULMONARY AND CRITICAL CARE MEDICINE provides all patients with individualized care coordinated by a multidisciplinary team that includes a chest radiologist, lung surgeon, lung cancer specialist and lung pathologist. These specialists work together to offer expert insight into a wide span of medical and surgical therapies. As part of a world-renowned teaching hospital, Massachusetts General’s training programs attract outstanding talent, bringing fresh energy to patient care.
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THOU GH T L E A DE RSH I P P ROV I DE D BY M E M O R IA L S LOA N K E T T E R IN G C A NC E R C E NT E R
Through Innovation, a Focus on the Customer Experience THE IDEA BEHIND THESE EFFORTS IS A BASIC BELIEF: As cancer care evolves to encompass more sophisticated technologies and treatments, the patient-experience side of the equation should keep pace. MSK began by observing and talking to our customers—patients and their families—to see how their experience could be improved. Those insights were then used to create a multichannel approach to the patient experience that brings together processes, digital touchpoints, interpersonal connections and building environments, and uses them to reshape several key dimensions of the experience:
In healthcare, the customer experience is increasingly important to patients and hospitals alike. At the Memorial Sloan Kettering Cancer Center, that reality has led to a series of innovations designed to improve the patient experience. Wendy Perchick
Senior Vice President, Strategy and Innovation, Memorial Sloan Kettering Cancer Center
Learn more about MSK Direct at www.mskcc.org/msk-direct.
• EMPOWERMENT AND AUTONOMY. MSK’s new Josie Robertson Surgery Center is doing more types of procedures on a short-stay basis, and the patient experience is designed to go hand-in-hand with that approach. For example, patients are encouraged to go down the hall to get food or visit family, rather than stay in their rooms. Patients also wear devices that track their movements and count their steps, giving them peace of mind as they move about and allowing them to measure their progress. Such activity helps patients recover and build confidence in their abilities, and makes them less fearful and uncertain about returning home after a procedure. • HUMAN INTERACTION. It’s critical that patients feel that interactions with the hospital and care givers are not just transactional, but relationship-oriented, even personalized. With that in mind, spaces and processes are designed to encourage person-to-person interactions—from available small meeting spaces to distributed nursing stations that put staff and patients in close proximity. Staff training also focuses on engagement and warmer interactions, and in some facilities, a concierge is available at the entrance to greet patients and answer their questions. • “STICKY” COMMUNICATIONS. Traditionally, when patients have been diagnosed with cancer, they have been immediately loaded up with comprehensive information about options and what to expect—an experience that can be overwhelming. MSK has instituted more of a just-in-time approach, providing
an initial overview and then delivering “pieces” of information at various stages of treatment. At the same time, patients have the flexibility to talk to physicians via tablet-based videoconferencing. Overall, information becomes manageable and timely, helping the patient to take it in and understand it. • COORDINATED JOURNEY. In any organization, eliminating silos is key to a good customer experience, and hospitals are no exception. But interactions can seem disconnected from the patient’s perspective. Too often, a patient might wonder: Is my oncologist talking to my surgeon, or are things falling through the cracks? To help, some MSK clinics schedule joint appointments so that physician teams meet with patients together, giving the doctors an opportunity to provide combined feedback. The patient sees that physicians are collaborating and does not have to schedule appointments on different days to see different doctors. And through the MSK Direct program, we partner with employers to streamline their employees’ access to treatment at MSK, providing them with the guidance to the clinical care team that will give them the best possible outcome, as well as ongoing support throughout their treatment. Overall, these changes have been helping MSK balance high tech and high touch in patient interactions. And we continue to pursue such innovations to keep up with evolving patient needs and provide the kind of experience that can support better patient outcomes.
Chief Executive Magazine
THE FIRST 40 YEARS
The Org Chart Gives Way to the Network
As they try to keep up with disruptive forces, companies shift their focus from human capital to social capital. By Michael Arena
IN THE 1970S WE THOUGHT of organizations as groups of individuals aligned and structured to enhance the planning, leveraging and controlling of resources to drive business outcomes. Economies of scale, role definition and specialization ruled the day. Since then, organizations have dedicated much of their efforts to optimizing human capital strategies in an effort to win the war on talent—building out comprehensive talent management systems, validating leadership competency models and designing the best possible leadership development programs. In more recent years, emphasis has turned to enhancing employee engagement, refining performance management systems Moore and leveraging people Vice President analytics. While it is hard to McWatters Miller argue against the need for these Engineering Tech. Support human-capital-centric strategies, Henry Scott Ramirez newSutherland research raises questions Williams aboutCordoza whether they are as effective as currently believed. In particular, research suggests we need to more strongly consider social capital strategies in driving outcomes within complex organizations. By definition, social capital refers to the competitive advantage that is created based on the way an individual is connected to others. Today’s organization needs to be fast, nimble and adaptive to adequately respond to the external disruptions. While organizations have always been confronted by challenges, the speed and velocity with which these disruptions emerge today has intensified. As a result, virtually every major industrial sector, be it telecom with free calling from WhatsApp, au-
tomotive with ride-sharing from Uber, or financial services with free trading from Robin Hood has been disrupted. In response, experts such as Babson University professor Rob Cross (and companies such as General Motors, Juniper, Cisco and Booz Allen) have
individual within a group is to others in the same group. Often referred to as clusters, groups are considered highly cohesive when they have many redundant connections within the group. The benefits of cohesive groups are that individuals are able to quickly share information and typically demonstrate higher levels Moore of trust than less cohesive Vice President groups. Brokerage represents Avery McWatters Miller Manufacturing Engineering Tech. Support the bridge connections from Scott Dicks Cooley Henry Scott Ramirez one cluster to another cluster. Miller Sutherland Williams Smith Myers Henry It occurs as individuals, or Williams Cordoza Keller Dicks brokers, act as connectors from Mitchell Angelo Zaheer Moore one cluster to the next. Myers Smith Klimchuck High performers tend to be Avery Mitchell Schultz Keller THEN... uniquely positioned as brokers Schultz The organizational chart, McWatters Cordoza in the organizational network. circa 1977. Zaheer Angelo Cooley These individuals generally Ramirez performSutherland better, get promoted Klimchuck sooner and are better compensated than others. The implicaScott tions of social capital are even greater when it comes to adapMiller Henry tation and innovation. Brokers Williams Dicks are more likely to discover and Mitchell Zaheer Moore distribute novel ideas across Myers Smith Avery an organization. On the other Schultz Keller hand, ideas within cohesive McWatters Cordoza sub-groups are more likely to Angelo Cooley be developed and adopted. Ramirez Successful innovation and Sutherland Klimchuck adaptation inside an organizational context requires a ...AND NOW Rob Cross’s Organizational thorough understanding of the Network, circa 2017. interplay between cohesion and brokerage. Today’s organinoted the need for organizations to zation must enable brokers to actively more fully leverage their social capital access novel ideas across the network, and act as a network (see charts above). while also leveraging the capacity of Two primary aspects of social cohesive groups to disperse and share capital—group cohesion and brokerinformation. age—are particularly relevant to organizational practices. Group cohesion Michael Arena is chief talent officer at is best described as how connected an General Motors.
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