Chief Executive Magazine March/April 2018

Cybersecurity: IoT Horror Stories

CEO Poll: Happy Days Again

Maker 20: Manufacturing’s Future

MARCH/APRIL 2018

SPECIAL REPORT

Leading In 2030 Laszlo Bock made Google the workplace of tomorrow.

Now he’s helping the rest of us.

PLUS:

How to Fix the Future

By Andrew Keen

C ONTENT S

March/April 2018 No. 293 FEATURES COVER STORY 26 THE SECRET SCIENCE OF TALENT As head of people operations at Google, Laszlo Bock’s research helped create a legendary workplace culture. Now CEO of tech startup Humu, he’s asking new questions about the future of work, technology and leadership that could—and perhaps should—change the way you run your company. By Dan Bigman 26

CYBERSECURITY 34 YOUR COFFEE MAKER HAS BEEN HACKED Smart devices bring benefits but also introduce new vulnerabilities. How to navigate the dark side of the IoT revolution.

By Russ Banham

MANUFACTURING 40 CHIEF EXECUTIVE’ S MAKER 20 From reshoring to robotics, these CEOs are mastering the hard stuff with innovation and ingenuity. Want to see where U.S. factories are going? Watch them. By Dale Buss

BOOK EXCERPT 46 HOW TO FIX THE FUTURE Tech investor and CEO John Borthwick came of age and made his fortune with the rise of the Internet. Now he’s deeply concerned about where technology is taking us—and proposing radical solutions to avoid the worst. By Andrew Keen 34

CEO2CEO SUMMIT 62 LEADING CHANGE If you’re not deploying talent and technology to win the future readiness race, you’re speeding toward obsolescence.

By C.J. Prince

CEO ROUNDTABLE 66 THE INFRASTRUCTURE OF INNOVATION To drive growth, improve technology and deepen your talent pool.

By C.J. Prince

CEO ROUNDTABLE 70 LEVERAGING BUSINESS INTELLIGENCE How to use employee data to boost business operations—and your bottom line. By Jennifer Pellet

MEETINGS & RETREATS 74 DESTINATION DECISIONS 46

When it comes to hosting events, finding the right local partners is as critical as the location itself. By Jeff Heilman

COVER PHOTO BY JEFF SINGER

PURE PRODUCTION

While automotive design and technology are constantly changing, the place that leads the world in automotive manufacturing remains the same. Michigan. Home to 27 assembly plants and 63 of the country’s top 100 automotive suppliers, we produce more vehicles than any other state in the country. Which makes Michigan the best place for your business to manufacture success.

michiganbusiness.org/pure-production

C O N TE NT S EDITOR-IN-CHIEF

Dan Bigman

EDITOR-AT-LARGE

Jennifer Pellet

MANAGING EDITORS

Kimberly Crowe Patrick Gorman PRODUCTION DIRECTOR

Rose Sullivan

CHIEF COPYEDITOR

Rebecca M. Cooper ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford RESEARCH EDITOR

Melanie Nolen

CONTRIBUTING EDITORS

DEPARTMENTS

56

Russ Banham Dale Buss Daniel Fisher Craig Guillot Jeff Heilman C.J. Prince Jeffrey Sonnenfeld EDITOR EMERITUS

6 EDITOR’S NOTE

J.P. Donlon PUBLISHER

11 LEADERS 11 Interesting Times A 15-Year CEO Confidence Index Retrospective 12 Law Brief After Wells Fargo, Ignorance Is No Defense

Christopher J. Chalk 847-730-3662 | cchalk@chiefexecutive.net PUBLISHER, CORPORATE BOARD MEMBER/ DIRECTOR OF EVENTS, CHIEF EXECUTIVE GROUP

Jamie Tassa 615-592-1506 | jtassa@chiefexecutive.net VICE PRESIDENT

14 Crash Course The Culture Quotient

Phillip Wren 203-930-2708 | pwren@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

16 Dealmasters Do Ask, Do Tell

Lisa Cooper 203-889-4983 | lcooper@chiefexecutive.net

25 On Management The ESP Needed for ESG

DIRECTOR, BUSINESS DEVELOPMENT

Liz Irving 203-889-4976 | lirving@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

56 REGIONAL REPORT The Northeast Home to bustling urban hubs and seven Amazon contenders, the area continues to gain momentum.

By Craig Guillot

Gabriella Kallay 203-930-2918 | gkallay@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

Marc Richards 203-930-2705 | mrichards@chiefexecutive.net MANAGER, STRATEGIC PARTNERSHIPS

Rachel O’Rourke 615-592-1198 | rorourke@chiefexecutive.net

80 LAST WORD ‘You Have to Suppress Your Ego’ Without self-awareness, your career is in dire risk of derailing.

By Carter Cast

MARKETING DIRECTOR

Debra Menter 203-889-4978 | dmenter@chiefexecutive.net CLIENT SUCCESS MANAGER

Ashley Gabriele 203-889-4989 | agabriele@chiefexecutive.net

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 293 March/April 2018. 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 2018 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.

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1 Federal Reserve, June 30, 2017, https://www.federalreserve.gov/releases/lbr/current/.

2 According to Thomson Reuters LPC as of 1Q17.

3 Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 7078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. Harris Williams LLC is a subsidiary of The PNC Financial Services Group, Inc. 4 Equity capital markets advisory services are provided by Solebury Capital LLC. Solebury Capital LLC is a registered broker-dealer and member of FINRA and SIPC and a subsidiary of The PNC Financial Services Group, Inc. PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). Banking and lending products and services, bank deposit products, and treasury management products and services are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC and Member FDIC. Investment banking and capital markets activities are conducted by PNC through its subsidiaries PNC Bank and PNC Capital Markets LLC, a registered broker-dealer and member of FINRA and SIPC. Certain banking and lending products and services may require credit approval. ©2018 The PNC Financial Services Group, Inc. All rights reserved.

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F R O M TH E CHIEF EXECUTIVE E-NEW S L E T T E R

AD INDEX

REWARD THE ROCKSTARS

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Sorry, but everyone should not be treated equally.

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IF YOU WANT TO FOSTER MEDIOCRITY (or worse), I suggest applying the “peanut butter” approach, in which everyone receives approximately the same percentage salary increase each year. Seriously, spreading annual pay increases around equally is my greatest frustration with compensation. It diminishes motivation at all levels and sends a message that individual performance is unimportant to the organization.

Everyone should not be treated equally.

Rockstars should receive far better raises, promotions and recognition than B- or Cplayers. Rather than giving everyone a 2 to 5 percent raise, why not give a 20 percent raise to top performers and no raise at all to your worst performers? That sends a powerful message. Your rockstars will be motivated to stay, and your C- players will be motivated to move on.

In my view, that’s the perfect outcome.

I like to say that compensation is just one of the five Cs that are vital to getting the most out of your rockstars and providing them with the fulfillment and growth experiences that will encourage them to stay with your company. The others are: Challenge: Provide rockstars with interesting work. Give them a problem to solve, like how to do things faster, better and cheaper. Countless studies show that challenge (not compensation) is the most important factor to job satisfaction for high performers.

Career Path: Rockstars want to progress to higher levels of responsibility and take on more important roles. Understand their aspirations and provide them with a viable path upward. In some cases, that might mean lateral moves to broaden their experiences or putting them into a role that they may not be quite ready for yet and providing them with intense mentoring to get them up to speed.

Candid Coaching: Most rockstars respond well to candor because they recognize that continual improvement is key to rising in the organization. Provide feedback frequently—I prefer monthly—and focus on just two or three things they need to develop for their next career move.

Contacts: Open up your personal network of contacts to your rockstars. Introduce them to people outside the organization who might be great mentors or role models. Your rockstars will appreciate that you are helping them to broaden their knowledge and introducing them to people who may prove very helpful to their careers. This builds loyalty.

12/11/2017

preview

Monday, December 11, 2017

Did Jeff Immelt fumble the GE handoff? Once considered the best-managed company in America, General Electric has suffered a series of crushing blows to its reputation. What lessons can be gleaned for the rest of American industry?

The CEO parent trap. You've made it to the corner office, but you want your kids to understand the value of work and to have compassion for humanity. Here's how to make sure your kids turn out to be productive, empathetic members of society.

From SaaS to XaaS. Cloud computing is transforming the way business is done and this model is sweeping across B2B sectors from transportation to printing and jet engines. As the playing field levels, the only difference is how you treat the customer. Here's how to move forward in this XaaS-based world.

Manage risk by betting small and often. Growth requires taking and managing risk. The most successful leaders do not simply mitigate risk, they also identify and assess the risks that will fuel their next expansion or acquisition. Three key things can help you create processes that identify, scope and manage risks in your business.

We'll challenge you to think differently and move beyond what's comforable.

The age of smart manufacturing requires new ways of leading. At the 2018 Smart Manufacturing Summit, we'll recharge your imagination as you engage with some of the most innovative industrial minds of our time. SMS18 is the place for manufacturing CEOs who are looking to create a fearless culture of constant learning and innovation, embrace new digital technologies, attract and develop extraordinary leaders for their company and create growth and profitability in a

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BOARDROOM SUMMIT boardmember.com/boardroomsummit 61 THE BROADMOOR broadmoor.com 77 CAESARS FORUM caesarsforum.com 10, Inside back cover CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES chiefexecutive.net/compreport 8, 9 CEO TALENT SUMMIT ceotalentsummit.com 73 CHIEF EXECUTIVE NETWORK chiefexecutivenetwork.com 69 CYBER RISK FORUM www.boardmember.com/cyberforum 51 ENTERPRISE FLORIDA floridathefutureishere.com/possibilities 45 E-NEWSLETTER

www.chiefexecutive.net/briefing

73

INDIANA ECONOMIC DEVELOPMENT astatethatworks.com 13 LEADERSHIP CONFERENCE chiefexecutiveleadershipsummit.com 79 MICHIGAN ECONOMIC DEVELOPMENT CORP. michiganbusiness.org/pure-production 1 NATIONAL SHOOTING SPORTS FOUNDATION nssf.org 7 PHILADELPHIA CONVENTION & VISITOR’S BUREAU discoverphl.com/meet 75 PNC FINANCIAL SERVICES GROUP INC. pnc.com 3 RECRUITER.COM recruiter.com 5 RHODE ISLAND whereareyou.us 31 SENIOR EXECUTIVE NETWORK www.SeniorExecutiveNetwork.com

79

By Jeff Hyman, chief talent officer at Chicago-based Strong Suit Executive Search. Read the full version at: ChiefExecutive.net/paying-top-dollar-doesnt-mean-top-talent

4 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

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F R O M T H E E D I TO R CHIEF EXECUTIVE OF THE YEAR

A CASE FOR REBUILDING BRIDGES

Steve Kelley

IN 1931, IN THE TEETH OF THE WORST ECONOMIC collapse in modern American history, the George Washington Bridge was completed. Connecting upper Manhattan with Fort Lee, New Jersey, the 4,760-foot span was a muscular and optimistic symbol at a time when we needed one.

If what a society builds is what a society values, then you’d be hardpressed to find a better icon for America than the GWB. Some 103 million vehicles a year use the GWB’s 14 lanes of I-95. It is the most traveled vehicular crossing on Earth. England has Big Ben, apropos for an empire that once kept time for the world.

China has a Great Wall, still the right metaphor for that nation 2,300 years after construction. We have our bridges—connecting us, binding us, freeing us to range across our sprawling continent in search of opportunity and commerce.

Too bad they—and the rest of our infrastructure—are in such rough shape. The American Society of Civil Engineers estimates that U.S. roads will be underfunded by $1.1 trillion through 2025.

Airports? $42 billion. Water systems? Underfunded by $105 billion. Failing infrastructure will be a $4 trillion drag on the U.S. economy through 2025, growing to $14 trillion by 2040.

Given the stakes, you’d think Republicans and Democrats, voters and senators and congressmen alike, could figure a way forward. In a time of poisoned politics and deepening identity tribalism, our failing infrastructure remains one of the things we all still have in common. Our potholes, delayed trains, circling airplanes and, yes, rusting bridges are what passes for a mutual national experience in 2018.

Gridlock is particularly galling when you recall the divisive items we’ve found a way to pay for: some $800 billion in economic stimulus under President Obama; over $6 trillion worth of wars in Iraq and Afghanistan (and counting); $1.5 trillion in tax cuts and $300plus billion in spending approved by Congress in the middle of the night. And then there’s the plan for $686 billion in defense spending in 2018. How can we find time to contemplate a $15 billion border wall without somehow spending a tenth of that on tunnels under the Hudson River, critical to a region that still accounts for more than 20 percent of U.S. GDP? No matter the politics, we cannot let the work of generations decay and fail, handicapping and humbling the nation. No sensible person likes deficit spending or potentially spiking inflation— but at least we’d be investing in the future. Rising interest rates will close the window quickly.

Let’s find a way to fix what’s broken. Let England have its clock and, please, leave the walls to China. As for us, let’s rebuild the bridges, and let’s do it now.

—Dan Bigman, Editor, Chief Executive

6 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

2018 SELECTION COMMITTEE STAN BERGMAN Chairman and Chief Executive, Henry Schein 2017 CEO of the Year

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

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

MARK WEINBERGER Chairman and Chief Executive, EY Exclusive Adviser To The Selection Committee

TED BILILIES, PHD Chief Talent Officer, Managing Director, AlixPartners

CONTACT US Corporate Office Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 | Fax: 203.930.2701 ChiefExecutive.net Letters to the Editor letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 | Fax: 847.730.3666 advertising@ChiefExecutive.net Reprints Phone: 203.889.4974 hdewing@ChiefExecutive.net

AMERICA’S FIREARMS INDUSTRY

DEDICATED TO SAFETY Our award-winning Project ChildSafe program has distributed more than 37 million free gun locks to communities nationwide since 1999.

Safety has long been one of the industry’s highest priorities.

Manufacturers have included a gun lock with each new firearm sold since the mid-1990s.

DEDICATED TO

More than 3,500 companies and organizations use our “Own It? Respect It. Secure It.” logo to help keep safety top of mind.

We’re pleased that our safety programs and others have helped reduce fatal firearms accidents to historic low levels.

From 2006-2015, they dropped 24% and now make up less than 1% of all fatal accidents.1 1

National Safety Council

We’re working to lower incidents of suicide by firearm through a ground-breaking partnership with the American Foundation for Suicide Prevention.

By working together with our partners, we are helping to save lives.

NSSF.ORG | PROJECTCHILDSAFE.ORG

A NEW REPORT

2017-2018 CEO & SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES Compensation benchmarks, strategies and tactics to attract and retain key executive talent.

The most authoritative, reliable source of private company compensation data.

TO LEARN MORE OR TO ORDER, VISIT

ChiefExecutive.net/compreport

T H O U G H T L E A D E R S H I P P R O V I D E D BY C A E S A R S E N T E R TA I N M E N T

FACE FORWARD

When the business mission is critical, meeting in-person is the only way to go. Here’s why—and how.

M

agna Carta. Continental Congress.

Yalta Conference. “Nothing good ever happened until first there was a meeting,” says Michael Massari, Las Vegas-based chief sales officer for Caesars Entertainment Corp., citing some all-time greats, and a favorite Roman dictum. Another maxim he lives by: “If it’s not that important, send an e-mail. If it’s important but not mission critical, pick up the phone. But if it’s mission critical, go see somebody.”

ballrooms, at 108,000 square feet each.

CEOs similarly should take bold charge of their meetings design. “Every meeting is different, defined by its specific purpose,” says Massari. “Each is an opportunity to lead and create pathways to success.

Optimizing outcomes requires strategic choices about the location, the venue and the agenda—setting context and environment are key. Above all, state objectives up front, for ready measure against the back end.”

Informed Decisions

Don’t Debate, Meet

The good things start with a stage set for open dialogue. “Communication is much easier when you are in the same room,” says Massari, whose team books some 16,000 meetings and events annually at Caesars’s 40-plus North American properties. “People share more information when together, and the likelihood of finding alignment and agreement are enhanced. The dynamics of engagement improve, especially when meeting away from home—and it’s harder to say no face-to-face.”

For CEOs, it’s prime time for critical messaging. “Leaders get to personally communicate their vision, goals and expectations,” Massari continues. “From the general session or boardroom through breakouts, meals and afterhours events, in-person gatherings are structured to actively take discussion and understanding from the big picture down to nuances. What is our strategy?

Where are the pitfalls? How to measure success? The end result is a deep, shared understanding of how to execute against the vision—and that only happens when convening face-to-face.”

No stranger to critical missions is Roger Dow, president and CEO of the D.C.based U.S. Travel Association. Routinely joined by Massari, Dow champions the organization’s Meetings Mean Business initiative, an industry-wide coalition promoting the critical business value of face-to-face meetings.

“One month after 9/11, we went ahead with our biggest customer event of the year,” recalls Dow, then with Marriott.

“Right after Katrina, we brought the U.S. Travel Board to New Orleans. Cancelling would have sent the wrong message

Meetings Mandates Massari has built his career on innovation, including spearheading game-changing investments such as the forthcoming CAESARS FORUM in Las Vegas. Slated for 2020, this new, $375 million conference facility in the heart of the Strip will feature the world’s two largest pillarless

entirely. In each case, there was a positive, agenda-changing business result that would not have happened had we not met.”

With a host of business leaders already on board with the coalition as advocates and ambassadors, including senior executives at Deloitte, Edward Jones and Levi’s, his message to CEOs is unequivocal. “It’s not complicated,” says Dow. “Meetings are the most efficient and effective way to create alignment around corporate objectives, priorities, culture, best practices, direction—you name it.

Memos and technology won’t move the mission and the team along—you have to be in the same room to know where people want to go and how to get there.”

Michael Massari Chief Sales Officer Caesars Entertainment

THE ECONOMY OF FACE-TO-FACE MEETINGS Companies depend on face-to-face meetings to win new customers, close deals and develop high-performing talent.

Business travelers are twice as likely to convert prospects into customers with an in-person meeting than without one.

74% of frequent business travelers reported that in-person meetings with clients deliver a high impact on customer retention.

Business travel converts every dollar spent into nearly $10 in new revenue for companies.

Government travel contributes nearly $33 billion to our economy and employs nearly 300,000 people.

Nearly 445 million domestic business trips were taken just last year.

In 2013, business travel added more than $265 billion to the U.S. economy-employing 2.3 million Americansprovided $42 billion in tax revenues and generated $67 billion in total payroll for the industry.

L E A DE R S CEO CONFIDENCE INDEX \ MELANIE C. NOLEN

INTERESTING TIMES Congratulations. You survived one heck of a 15-year stretch.

OCTOBER 2002. A YEAR AFTER 9/11. The House votes to authorize the use of force in Iraq; terrorists kill 182 people in Bali. The Dow Jones Industrial Average spirals down to a multi-year low of 7,286. Amid the turmoil, Chief Executive launches a monthly poll of U.S. CEOs asking about your outlook for business and the economy.

We’re all familiar with that old Chinese curse: May you live in interesting times. Well, these times have been nothing if not interesting.

From spiking in late 2003 on word that the Iraq war was won (“Mission Accomplished!”) only to sink to an all-time low in 2008 as we plunged into the Great Recession, our CEO Confidence Index has reflected the era. Yet, somehow, through innovation, pluck and just sheer luck, we’ve survived, and sometimes even thrived. Ten years after TARP, revenues are shaping up nicely and CEO confidence is nearing all-time highs.

CEOs tell us growth is being fueled by the corporate tax cut, which is freeing up cash for investments that have been back-burnered for a decade. Eight out of 10 CEOs we polled in February say they expect both revenues and profits to rise over the next 12 months. But it isn’t just that.

The momentum we’re seeing is built on years of hard work. These have been tough, transformational times for CEOs, and you responded.

So it seems as good a time as any to take a breath, take stock and look back for a minute. Congratulations. You made it. But if the last decade-plus has taught us anything, it’s this: Enjoy the good times while you can. You never know when things will get interesting again.

WILD RIDE Annual readings from Chief Executive’s monthly CEO Confidence Index reflect one of the most turbulent periods in U.S. history.

7.29

5.79

4Q 2004 2004

2Q 2012

Dow ends year near 11,000

Moody’s downgrades the credit rating of 15 major world banks

7.47

2006 2003

2005

5.98

6.60

6.88 6.20

3Q 2006

4.97

2014

4.02

3Q 2008

Housing bubble bursts

6.23

2011

Lehman Brothers 5.62 files for Chapter 11 2012 2010 5.54 5.37

2007

5.70

U.S. invades Iraq

2009

2008

3.44

3.43 6.06

7.59

7.08

2015

6.31

7.11

4Q 2017

Tax cuts and Jobs Act of 2017

2016

2013

6.02

5.78 6.07

1Q 2014

1Q 2003

YTD 2018 2017

13 states increase minimum wage; Obamacare’s major provisions go into effect

6.46

4Q 2016

Trump elected President

2Q 2007

Apple introduces iPhone

1.89

4Q 2008

Obama elected President; TARP signed into law

MARCH/APRIL 2018 / CHIEFEXECUTIVE.NET

/ 11

LE AD ER S LAW BRIEF \ DANIEL FISHER

AFTER WELLS FARGO, IGNORANCE IS NO DEFENSE LAST FALL, YOU COULD ALMOST feel the shudder passing through boardrooms. A federal judge in California refused to dismiss lawsuits against 15 present and former directors of Wells Fargo & Co. over its massive fake-account scandal. “It is implausible the

U.S. District Judge Jon Tigar’s decision to hold Wells Fargo directors accountable for missing signs of fraudulent practices is shaking up boardrooms.

Daniel Fisher is a writer, communications consultant and former senior editor at Forbes.

Director Defendants were unaware of the account-creation scheme given the extent of the alleged fraud and the number of red flags,” U.S. District Judge Jon Tigar wrote.

Tigar’s decision to allow plaintiffs to sue directors was a chilling reminder that executives aren’t the only ones who can be held accountable. In rare circumstances—which may become less rare if his ruling stands— directors can be found liable for failing to heed obvious signs of trouble.

For more than two decades, directors took comfort in a Delaware Supreme Court decision involving a bribery scandal at prescription-benefit company Caremark. In the early 1990s, shareholders hit Caremark with a so-called derivative lawsuit on behalf of the corporation itself, seeking damages from officers and directors.

The Caremark decision left a narrow opening for lawyers to sue directors personally over misconduct. If the board failed to make sure reporting systems were sufficient to detect serious misconduct, then maybe, just maybe, they could be liable for the resulting damages.

“If you’re really that insidiously cavalier and willfully ignorant about what you’re supposed to be doing, yeah, it can be a breach of duty,” said Lawrence Hamermesh, professor of corporate law at Wid-

12 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

ener University’s Delaware Law School.

Directors of Massey Energy learned this in 2011 when Delaware Judge Leo Strine Jr. said that they may have violated their duties by overlooking a long record of safety violations and CEO Don Blankenship’s public taunts of the Obama administration’s mining-safety regulators. Massey Energy pled guilty to criminal violations of safety laws and established a safety committee to settle a derivative suit in 2008 after a 2006 fire that killed two coal miners. Yet, the company racked up a record 10,653 citations in 2009 in addition to an explosion at its Upper Big Branch mine that killed 29 in 2010.

“Delaware law does not charter law breakers,” Strine wrote in the Massey decision. “As a result, a fiduciary of a Delaware corporation cannot be loyal to a Delaware corporation by knowingly causing it to seek profit by violating the law.”

Where does Wells Fargo fall between Caremark and Massey Energy?

“It’s all about red flags,” Hamermesh said. “What kind of notice is enough to persuade a court a director could be held liable in retrospect?”

The plaintiffs in Wells Fargo will point to whistleblower complaints and an article in The Los Angeles Times that basically outlined the fraudulent scheme. Directors will point to an independent investigation by lawyers at Shearman & Sterling that concluded the board was misled by managers and responded forcefully once it discovered the magnitude of the problem.

Under the old rules before Caremark, courts generally held directors had “no duty to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists.” Caremark changed that in a subtle but important way: Now they have to make sure internal detectives are on the beat. And if they don’t hear anything? Then they need to ask again.

Take your business to the

NEXT LEVEL.

LE AD ER S CRASH COURSE \ JENNIFER PELLET

THE CULTURE QUOTIENT SINCE DARCY HORN DAVENPORT stepped into a leadership role at Emeryville, California-based Premier Nutrition, sales have soared, climbing 24 percent in 2017. Her secret? A culture of empowerment that’s led to lunchtime yoga classes and a bring-your-dog-to-work policy. In a recent interview, Davenport shared her initial reluctance about certain initiatives— and how she became a believer.

Embracing employeedriven initiatives energized growth for power bar maker Premier Nutrition.

Premier launched several employee-driven workplace initiatives during your leadership tenure. Was that purposeful?

Those things were organically added over the course of the last three years. One of the first things I did was work on creating a purpose for the company. We had four brands that had similarities, but we didn’t have a guiding light as the purpose of the company. So we developed that, and it is all about bringing good energy to the world through our products and the way we treat our customers and our employees. These programs are part of that.

For example, about a year and a half ago, somebody came to me and said, “Hey, we have a lot of employees who have dogs and are very passionate about their dogs. Would you be open to a dog policy where people can bring their dogs to work?” Personally, I’m not a dog person. I’ve never worked in an environment where they had dogs. My first reaction was no.

I thought it would be distressing.

Were you thinking, “I’ll let them have their say,

It’s interesting to me that your initial reaction was “no” and yet you were open to having your mind changed. That’s unusual.

It’s unusual, but it happens a lot around here. One of the things I’m proud of is that this culture is not my culture. This is the company’s culture, and I always impress on people that it’s everyone’s responsibility to help create it, foster it, build it and make it a place where we all want to work.

I never pictured myself in the CEO role because I had preconceived notions of a CEO being someone who called all the shots, always had to have the right answers and was the center of attention—which is not me. But I’ve realized what my leadership style is and how I can make that work within our company. It’s not about me.

It’s about creating an environment where people feel empowered. There’s actually power in not having the right answers and making sure that everyone else feels the comfort and ability to act as a team. That’s a foundation of the culture here now.

Do you think these policies—yoga at lunch and dogs in the office—have had a material impact on the company?

Since we’ve focused on building the culture, our results have skyrocketed. We are the highest-grossing division within Post Holdings, with over $700 million in net sales last year. For me, the best barometer is employee satisfaction and [succeeding at] becoming certified as a great place to work in 2017.

and then I’ll say no?”

They surprised me with a really thorough proposal that addressed a lot of my concerns. They presented it to our leadership team, and we said, “Fine, let’s do it for three months and see how it goes.”

Sure enough, it was a success, and we implemented it. And it’s great. Not only is it an incredible retention tool for employees who bring their dogs in, but there’s a sense of good energy. People like petting the dogs.

14 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

As the CEO of a division, do you ever get pushback from your parent company about the policies you’ve put in place?

Post Holdings’s philosophy is that its divisions know what they’re doing, and it doesn’t try to synergize too much across divisions. So we’ve never gotten any pushback.

That might be different if our results weren’t as great as they are, but as of now Post is incredibly supportive.

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FEATURED SPEAKERS: MG JOHN BATISTE (U.S. Army Retired), Retired President & CEO Klein Steel Service, Inc. JOE DEPINTO, President & CEO, 7-Eleven, Inc. SJORD GEHRING, Vice President, Talent Acquisition & Employee Experience, Johnson & Johnson LTG KENNETH HUNZEKER (U.S. Army Retired), Retired President & CEO, Vectrus, Inc. ROBERT LEDUC, President, Pratt & Whitney DAN SCHAWBEL, Author, Back to Human: How Great Leaders Create Connection in the Age of Isolation JENNIFER SCHOPFER, Vice President, GE Transportation Digital Solutions M. ROBERT WEIDNER, III, President & CEO, Metals Service Center Institute (MSCI)

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LE AD ER S DEALMASTERS \ PATRICK GORMAN

DO ASK, DO TELL

Transparency paves the way for a smooth deal—and a smooth post-purchase transition.

David J. Morse, President, Growth Paradigm; Chairman and CEO, MultiCam

FOR DAVID J. MORSE, president at acquisition specialist/ consultant Growth Paradigm LLC, transparency is critical when finalizing M&A deals— and helps pave the way for a smooth transaction. Growth Paradigm works with Rosewood Private Investments to acquire manufacturing companies that Morse oversees (and sometimes runs, as with CNC cutting solutions manufacturer MultiCam, where he serves as chairman and CEO). Over the past two years, he acquired and integrated two companies and inked deals for several distribution centers in North America and Europe.

In a recent interview, he shared four steps that can minimize the risks inherent to deals and integrations: Avoid Unhappy Surprises. Tell them what your goals are, tell them how you’re going to invest in them and bring them into the conversation, because it’s the year or two down the road where things get shaken up, when you’re doing things differently than you promised or you pitched.

Start with modeling out the three-year plan and how the different companies will fit into that plan. Obviously, you’re not going to disclose all of your moves, but you need to be transparent with the general plan so that nothing’s a surprise.

Make a People Plan. Put milestones and metrics in place for every leader, have roles and responsibilities defined for each person and, between yourself and the company you’re acquiring, make sure you know the plan. If you have a founder and you need to protect him for three years, put him into a three-year agreement so that he sticks around. Secure your top executives so that you know you’ve got

16 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

them on a go-forward basis.

Vet the Cultural Fit. You need to understand the culture you’re acquiring, or acquiring into, to make sure there’s a good fit. That’s where most of the failures happen—when you’re trying to merge two different types of cultures. You can have a high-growth company on one side, but the other side may solely focus on support and customer-centric activity [rather than] on a growth culture.

If you hear signs of a “not my problem” attitude, or things like “we’ve tried that before” or “we can’t do it because…,” to me, those are pretty big red flags to a culture. It doesn’t mean they can’t be fixed, but they’re usually fixed by replacement.

Find the Red Flags. Every company being sold has a book, either done internally or through an investment banker, and it’s not unlike selling a house, where they are going to highlight the things that are most likely to help them sell. I’m not saying they’re misleading or lying, but they will highlight the things that make them shine.

Put someone on your team who has experience growing a company, has seen a company like this and can go in there and look beyond the deck and see some of the “gotchas”—like the healthcare plan, 401k plan. Look at how they build their products; look at the safety inside their facility. Look at the culture and how they treat people, with benefits and management styles. Interview a list of top employees in the business—they’re not always managers.

When you consolidate all of that information, it will give you a pretty good picture of the kind of company you’re stepping into. The number one red flag is if you feel a sense of dishonesty or you don’t trust the data that’s being presented, then you should probably walk away.

THOUGHT LEADERSHIP PROVIDED BY RHR INTERNATIONAL

YEARBOOK 2018

Are you

READY? Opportunities and Challenges for CEOs in 2018 As the new year gets underway and we are all back to leading our respective businesses, what is it that CEOs need to lean into in the coming year to deliver to their shareholders and to society?

By Paul Winum, Senior Partner, Practice Leader Co-Head—Board & CEO Services, RHR International

What are the opportunities and challenges that need to be faced and met? To answer these questions, we reached out to a number of CEO clients and to colleagues in our firm who collectively advise the boards, CEOs and executive leaders of more than 200 organizations. Here are some of the headlines from their input.

Drive inclusive growth. “Our companies cannot grow without a prosperous middle class and that requires a careful strategy to balance growth in a way that achieves that end. From dedicating resources to [drive] inclusion to working our way very carefully through the challenges and opportunities of new technology and their impact on

training and jobs, these will all require our attention.” So says Ajay Banga, CEO of MasterCard, which does business across the globe, who has led an impressive chapter in that company’s history over the past seven-and-ahalf years, reading and responding to trends. With the current sociopolitical and demographic trends in the U.S., Europe and many other parts of the world, developing and delivering products and services that consider and respond to the needs of many is an imperative. The companies that do this best will be most successful.

Foster innovation. “CEOs need to foster internal and external innovation at a pace to stay competitive,” says Dante Capitano, RHR International’s CEO. The speed of business and technological advances means new opportunities, but the windows to capture those opportunities will open and close faster than ever before. CEOs need to infuse the cultures of their organizations with the right balance, leveraging their core revenue streams and high urgency to ensure compelling products and services for the future.

Double-down on technology and cybersecurity. Nearly every CEO and executive we spoke with mentioned the disruptive and enabling effects that technology is having and will continue Continued on back page

Industry View A breakdown of CEO 1000 companies by sector, size and performance.

Top-Performing CEO

TIMOTHY COOK Apple

$2.5

Consumer Goods

TOTAL REVENUE ($ TRILLION)

180

NUMBER OF COMPANIES

BY INDUSTRY Top-Performing CEO

GREGORY HENSLEE O’Reilly Automotive

$2.0

Top-Performing CEO

GARY GUTHART Intuitive Surgical

Retail

102

Healthcare

73

Financial Top-Performing CEO Top-Performing CEO

$1.5

117

JEFFREY SPRECHER Intercontinental Exchange

HAROLD HAMM Continental Resources

Top-Performing CEO

LARRY PAGE Alphabet

Energy

Technology

112

101

Top-Performing CEO

WALTER NICHOLAS HOWLEY TransDigm Group

Industrial Goods

$1.0

105

Top-Performing CEO Top-Performing CEO

CHARLES DRUCKER Vantiv

Top-Performing CEO

STEPHEN ANGEL Praxair

Business Services

$0.5 Basic Materials

50

Top-Performing CEO

CHRISTOPHER NASSETTA Hilton Worldwide Holdings

-2%

0%

JOSHUA SAPAN AMC Networks

2%

4%

42

Top-Performing CEO

COMPOUND ANNUAL GROWTH RATE -4%

Transportation & Logistics

51 Entertainment Other 14 19 Top-Performing CEO

$0 -6%

WILLIAM DOUGLAS PARKER American Airlines Group

6%

8%

DAVID ZASLAV Discovery Communications

10%

Media

18

12%

Who They Are

Performance Top 15 Performers

Examine the backgrounds of the CEO 1000, and you’ll discover there’s no single path to the top of America’s biggest companies.

CEOs in CEO 1000 By State WA

City with the Most CEO 1000 Headquarters

11

ND

1

OR

5

26

5

8

112

UT

5

CO

KS

6

OK

14

18 2

TX

24

5

11

19

WI

IA

NE

AZ

HI

69

MN

ID

NV CA

NYC

99

32 IN

MO

KY

29

TN

LA

3

8

MS

1

AL

3

48

MD VA

35

NC

25

AR

8

PA

IL 50 66 15

SC GA

VT NH 94 MA CT NY

MI

OH

1

23

NJ

RI

22 6 31

COMPANY

Walter Nicholas Howley

TransDigm Group

0.96

Jeffrey Sprecher

Intercontinental Exchange

0.96

Larry Page

Alphabet

0.93

Harold Hamm

Continental Resources

0.93

Timothy Cook

Apple

0.92

Mark Zuckerberg

Facebook

0.91

Joshua Sapan

AMC Networks

0.91

Rodney Cyril Sacks

Monster Beverage

0.90

Gary Guthart

Intuitive Surgical

0.90

David Zaslav

Discovery Communications

0.89

James Taiclet Jr.

American Tower

0.89

Ajaypal Banga

MasterCard

0.88

Charles Alutto

Stericycle

0.88

Charles Drucker

Vantiv

0.88

Debra Cafaro

Ventas

16 2 4

FINANCIAL PERFORMANCE SCORE

0.87

*Financial performance rankings a combination of CAGR, profit margin and other metrics vs. the full list and industry peers.

Rankings based on company financial performance during the tenure of the CEO. Only CEOs with a minimum tenure of three years were analyzed. Sources: Chief Executive/RHR; Company financial data via Barchart.com.

Previous Position of Top 50 Performers

DE

CEO (Outside Company) (3) CFO (4)

D.C.

5

29

Founder (13)

EVP (5)

President (8)

FL

35

PR

1

Chief Excec gatefold CS.indd All Pages

3 34

CEO

Divisional President/CEO (9) COO (8)

Education Degree Level

Fastest Growing CEO

COMPANY

5-YEAR CAGR

CEO

COMPANY

Bradley Jacobs

XPO Logistics

Elon Musk

Tesla

Michael Krimbill

NGL Energy Partners

65.73%

Leonard Schleifer

Regeneron

Michael Neidorff

5-YEAR CAGR

141.74%

John McReynolds

Energy Transfer Equity

35.57%

102.76%

Barry Zyskind

AmTrust Financial Services

35.26%

Jay Levine

OneMain Holdings

32.98%

61.25%

Marc Benioff

Salesforce.com

29.93%

Centene

50.77%

Anders Gustafsson

Zebra Technologies

29.44%

Mark Zuckerberg

Facebook

49.42%

Stuart Miller

Lennar

C. Howard Nye

Martin Marietta Materials

48.60%

Steven Hilton

Meritage Homes

Weston Hicks

Alleghany

44.24%

Douglas Yearley Jr.

Jay Bray

Nationstar Mortgage Holdings

38.35%

Peter Dameris

On Assignment

36.47%

17 No Degree Undergraduate Degree Graduate Degree

Do Won Chang

Forever 21

Paul Marciano

Guess

Toll Brothers

28.49%

David Green

Hobby Lobby

Jeffrey Sprecher

Intercontinental Exchange

27.66%

Robert Pittman

iHeartMedia

Kevin Plank

Under Armour

26.79%

Sheldon Gary Adelson

Las Vegas Sands

Tom Love

Love’s Travel Stops & Country Stores

Todd Jones

Publix Super Markets

Gregg Mollins

Reliance Steel & Aluminum

72

NUMBER

AGE 50

55

60

CEO Years Tenured 20-30 10-20

4% 4% 13% 15%

65

70

75

80

87

CEO Gender

30+ New ('17 + '18) 1-5

942

5-10

18%

25 Most Popular School UPenn

CEOs With a 3rd Degree OLDEST Warren Buffet 87

10 45

Dr Pepper Snapple Group

28.71%

20

40

Continental Resources

Larry Young

28.75%

YOUNGEST Mark Zuckerberg 33

33

Harold Hamm

Expeditors International of Washington

Most Popular School Harvard

0

AbbVie

Facebook

70

30

COMPANY

Richard Gonzalez

Mark Zuckerberg

CEO Age Dispersion

40

593

32 Further Education

Demographics

50

983

CEO

Jeffrey Musser

Sources: Chief Executive/RHR; Company financial data via Barchart.com.

60

CEOs Without Degrees

45%

58

CEO

COMPANY

DEGREE

Brian Moynihan

Bank of America

JD

Larry Page

Alphabet

PhD

Steven Kandarian

MetLife

JD

Darius Adamczyk

Honeywell International

Doctorate

Mark Weinberger

Ernst & Young

JD

Kimberly Lubel

CST Brands

JD

Heather Kreager

Sammons Enterprises

JD

Lisa Su

Advanced Micro Devices

Doctorate

Scott Rowe

Flowserve

JD

William Gisel

Rich Products

JD

Michael Haefner

Atmos Energy

JD

Edward Shoen

AMERCO

JD

Charles Phillips

INFOR

JD

John McConnell

Worthington Industries

JD

Roger Rawlins

DSW

Doctorate

Constance Hee Lau

Hawaiian Electric Industries

JD

Robert Mehrabian

Teledyne Technologies

ScD

Sean Michael Healey

Affiliated Managers Group

JD

Peter Dameris

On Assignment

JD

Nicholas DeIuliis

CONSOL Energy

JD

Peter McMahon

Shopko Stores Operating Co.

Michael Kneeland

United Rentals

John Mackey

Whole Foods Market

Bradley Jacobs

XPO Logistics

Grad Degree Type PhD (3%)

MD (1%)

LLB (4%)

ScD (1%)

MA (5%)

JD (10%) MS (13%)

MBA (62%)

2/12/18 11:23 AM

The most successful companies will figure out how to activate and inspire their workforce by leveraging inclusion, diversity and engagement around purpose.

Continued from front page

to have in their businesses. Turning data into insights that can inform and serve customers is a prevalent theme. The empowering and threatening capabilities of technology can pose a particular challenge to bigger companies where technology platforms leveraged by small competitors can level the playing field and disintermediate traditional businesses and institutions. Also, the larger the company, the greater the exposure to data breaches that can be devastating.

Boards are getting strong messages that they need to step up their oversight of cyber risk. CEOs need to be on top of this, identifying and shoring up vulnerabilities before an attack happens.

Unleashing talent. Getting back to the inclusion theme, the most successful companies will figure out how to activate and inspire the best performance of their workforce by leveraging inclusion, diversity and engagement around purpose. The best CEOs will cultivate followership by championing those themes and preparing their employees for the future, as robotics and automated tasks will have replaced some processes and will require new skill sets.

Condoleezza Rice, who has served on the

boards of Chevron, Charles Schwab and the Rand Corp. among others, has gone on record to say that companies have an obligation to put in place a human-capital plan that prepares the workforce for the irrepressible march toward increased automation of jobs.

Wisely ride the economic tailwind. The global economy is doing better than many might have expected. The recent reduction in the U.S. corporate tax rate is generating some windfalls that need to be invested thoughtfully with a longer-term perspective.

The enormous pressure on CEOs to deliver in the short term can often lead to compromises in investments that have a longer return-on-investment horizon. This is a time when some of those investments can be made and protected.

So, with those opportunities and challenges on the horizon, boards and CEOs can partner to belly up and figure out how not only to survive but thrive, how not only to generate profits for shareholders but produce benefit to society and fellow citizens as Larry Fink entreats us in his annual letter to BlackRock’s investors. Are you ready?

RHR International is an independent, global firm of management psychologists and consultants who understand the distinctive challenges and pressures that CEOs, board directors and senior executives face. Its singular focus on senior leadership effectiveness, business outcomes and research-based practice sets it apart from other executive and organizational development consultancies. For more than 70 years, RHR has been helping leaders and their teams transform themselves and, in turn, the performance of their organizations. Visit rhrinternational.com.

For more information about RHR International, visit rhrinternational.com or call +1 312 924 0800.

LE A DERS ON MANAGEMENT \ JEFFREY SONNENFELD

THE ESP NEEDED FOR ESG

Larry Fink as arbiter of environmental and societal governance? also urged, “Don’t give our money to the opera and your favorite museum. Give us the business profits back in dividends, and we’ll decide what causes to support with our money.”

Clearly, CEOs responding to Fink’s call to action must walk a fine line, watching for often-overlooked execution pitfalls in their pursuit of virtue. The ESG “debate gap” requires ESP (extra sensory perception) regarding these key caveats: Timeframe Traps. The payouts may not be in today’s stock price. Even skeptic Friedman noted “it may well be in the longrun interest of a corporation… [to] devote resources to providing amenities” to the community. Michael Barnett and Robert Salomon’s research in the Strategic Management Journal shows a strong relationship between ESG and financial performance.

Philanthropic Focus. Instead of dabbling in support of the CEO’s favorite pastime, Minow supports ESG moves that reinforce the brand and “align with your company’s direction.”

Constituent Conflict. Longstanding CSR funds like Domini Social and Calvert have very different priorities among sustainability, health, product safety, work practice and governance cultures.

Greenwashing Returns. With the ESG fund entry of Janus and other activists notorious for short-term priorities, we are reminded of the pre-emptive expropriation of “sustainability” by firms such as BP before the revelation of its massive misconduct.

Mindless Metrics. Even Fink’s BlackRock has made misguided calls, voting with avaricious activists based on mechanical governance checklists, violating its own better-informed expert judgment. Like the Heisenberg Principle in physics, they’ve confused the phenomena with its measurement tools.

Michael Cohen / Stringer

IN 1979, THE INDUSTRIALIST George Weyerhaeuser told me, “We have a license to operate from society, which can be revoked if we violate its terms,” referencing a corporate social responsibility movement popular at the time. BlackRock CEO Larry Fink’s 2018 letter to CEOs is a new clarion call for CEO attention to a similar sentiment, rebranded as ESG (environmental, social, governance).

This mega-investment firm manages $6 trillion in investments through pension funds, mutual funds and exchange-traded funds, ranking it as the largest investor in the world—a platform that makes Fink hugely influential in governance dynamics.

In Fink’s words, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”

It’s not a new argument. From utopian 18th-century industrialists to the 1970s founders of the Business Roundtable (BRT), many have argued that doing good is not antithetical to doing well. While the BRT has fluctuated, the philosophy is evident in the practices of progressive business leaders like Howard Schultz of Starbucks; Ron Shaich of Panera; Indra Nooyi of PepsiCo; as well as Larry Page and Sergey Brin of Google/Alphabet.

In calling on today’s businesses, Fink referenced the need to fill a void. “Society increasingly is turning to the private sector and asking that companies respond to broader societal challenges,” he wrote.

TPG Capital’s James Coulter agrees: “It is time for us to engage in a social mission.”

But, investor Sam Zell’s response to BlackRock was to ask, “Who made Larry Fink God?” As Chicago economist Milton Friedman famously decried in 1970, “The only responsibility of business is the bottom line!”

Pioneering investor activist Nell Minow has

BlackRock CEO Larry Fink called on S&P 500 companies to do more than just pursue profits.

Jeffrey Sonnenfeld is senior associate dean for leadership studies and Lester Crown professor in management practice at Yale University and president of the Yale Chief Executive Leadership Institute.

MARCH/APRIL 2018 / CHIEFEXECUTIVE.NET

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C OVE R STORY

26 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

As head of people operations at Google, Laszlo Bock’s research helped create a legendary workplace culture. Now CEO of tech startup Humu, he’s asking new questions about the future of work, technology and leadership that could—and perhaps should—change the way you run your company.

The Secret Science of Talent sk CEOs what’s keeping them up at night and you hear two things lately: There’s talent, that near-mythical quest for the best and brightest who can drive transformation and lay the foundation for the future, and there’s technology, oscillating between boundless opportunity and disruption without end.

That’s why Chief Executive figured it was a good time to check in with Laszlo Bock. Few people have had as much influence over the current thinking on the intersection of technology and talent as Bock, who led “people operations” at Google for a decade, helping to create one of the legendary corporate cultures in business history (he told the story of how they did it in his bestselling book, Work Rules!: Insights from Inside Google That Will Transform How You Live and Lead). Through painstaking data collection and analysis (it is Google, after all), Bock and his team unearthed insights into what actually creates a workplace that brings out the best in people and put those ideas into practice. It was a data-driven HR laboratory with scale and ambition not seen since Henry Ford, and it revolutionized the relationship between Google and its employees, from their first interview

MARCH /APRIL 2018

/ CHIEFEXECUTIVE.NET

/ 27

PHOTOGRAPHY BY JEFF SINGER

A

BY DA N B I G M A N

Leadership in 2030 To manage tomorrow’s workforce, you will need to deliver on three fronts, says Bock: Authenticity. ”By that, I just mean dealing in truth rather than, ‘Here’s what my gut says every time.’ I don’t mean replacing good leadership. I mean actually dealing in truth. Because of social media, because of websites like Glassdoor, it’s really easy for disgruntled employees as well as happy employees to make very public what they think about leadership. That means it’s harder to be a leader because if you’re faking it, the truth will come out.”

Expertise in the Digital Arena. ”In the digital world, everybody has a certain expectation of what using technology should feel like that’s driven by the consumer experience. In Spotify, you can make custom playlists; Amazon recommends products to you. Not only do they seem to know you, but they actually then give you recommendations that are helpful. On top of that, the interaction is pleasant. Compare that to what technology is like in most companies, particularly small and medium-size companies.

What your employees expect is an experience that’s just as smooth and silky as a consumer product. So, offering your employees a digital experience of what it’s like to work for you that feels as nice and intimate as your personal consumer technology is increasingly important. In 10 years, it will be essential.”

A Scientific, Fact-Based Approach. ”The truth is most people are kind of average at management. There’s science around how to be a better leader. I once got into a debate with Jack Welch about this. He was visiting and he’d read my book and he said the one thing he didn’t agree with me on was a chapter called ‘Don’t Trust Your Gut.’ He said, ‘You absolutely have to trust your gut.’ What I allowed was that if you’re Jack Welch, that’s fine. If you’re Steve Jobs, absolutely trust your gut. Most of us are not. We’re going to want to hire people we like, who went to the same schools, who played on the same teams, who follow the same sports and who dress like us. That’s the wrong thing to do. You should hire people because of their potential and because of a thoughtful, objective assessment of what they will add to your organization.”

2828/ /CHIEFEXECUTIVE.NET CHIEFEXECUTIVE.NET/ MARCH/APRIL / MARCH/APRIL 20182018

to their last day, and beyond.

The child of Romanian immigrants, Bock was influenced by stories of life under communism. “Literally the kind of stories you hear about North Korea today were the ones I grew up with about Romania,” he says. The experience of his parents left him suspicious of overarching authority, concerned about privacy and deeply committed to the idea that every individual has value and deserves freedom, especially at work, where we spend most of our waking lives.

He was also shaped by a pell-mell work history: stints as a waiter, librarian, actor, McKinsey consultant and an HR vice president at General Electric under Jeff Immelt. “I worked for large companies, small companies, private, public,” he says. “And the one thing that struck me across all of it was that in way too many places, work’s miserable, and it doesn’t have to be.”

Bock—who will keynote Chief Executive’s CEO Talent Summit at West Point in October—left Google just over a year ago to launch a tech startup called Humu, where he’s still getting used to being a CEO. He won’t say much about the project—just yet—except that the goal is to use technology and behavioral science to make work, and life, better.

Here’s an excerpt of our conversation, edited for clarity and length: Some people spend their entire lives trying to get into a leadership position at a company like Google, or more specifically, Google. After a decade, you walked away.

Why? What were you looking for?

One reason was I wanted to keep learning and growing. And even in a place as dynamic and exciting as Google—where we’d gone from 6,000 people to almost 75,000 people, from a few billion in revenue to something like $90 billion—the idea of going from 75,000 to 100,000 just didn’t feel like I would be learning and growing as much as I could in another environment.

If you’re in the right place, you can have a disproportionate impact on the world around you through HR. Larry [Page] was kind enough to support open sourcing and sharing what we were doing at Google on

the people side. But I found I really wanted to keep having a bigger and bigger impact and take a lot of those lessons learned not just from Google, but from all kinds of other companies that I was privileged enough to interact with, like small, medium, private, family-owned, every kind, and see if there was a way to actually then make work better for everyone everywhere. And the only way to do that was to build it myself.

“If you screw up privacy, you lose. They will never work with you again.”

I know you’re in stealth mode right now, but what can you tell us about what you’re working on?

One of the biggest things that struck me was that it’s incredibly difficult to change behavior. We all know what we want to do, and we all know what we should be doing, you know, whether you want to be a good leader or a good manager or a good employee. It’s just really hard day in and day out to do all those things we know we ought to be doing—to be our best selves every day.

And I, together with my co-founders, had this idea that if there was a way to take all that people science and people analytics that we’d developed and combine it with machine learning, there’d be a way to figure out how to, for every single person, help them get a little bit better every single day. So that’s what we’re setting out to do.

In the work you did at Google with people, what did you learn about technology?

The number one biggest lesson is that privacy and what is personal is incredibly important. Any time you’re dealing with people, that’s the most important thing to get right. You’re going to have all these bells and whistles about science and technology and beautiful products. If you screw up privacy, you lose. They will never work with you again. They’ll never use your products again.

It’s particularly true when you’re trying, for example, to build a great team. One of the things—and this was a Google lesson from some work we did called Project Aristotle— one of the things that makes great teams work is a sense of psychological safety, that people feel comfortable raising their voices. If you want to get benefits from having a diverse team—and diverse, however you slice it, by

gender, ethnicity, orientation, educational background or socioeconomic background— you need safety in teams. And if you’re trying to bring that out, you actually need to be really respectful of what people want to share.

But the number one thing is privacy and respecting personal data.

It’s not just staying within the law; it’s staying within people’s expectations. An employer can legally read everyone’s e-mails in the company. An employer can legally match your name with whatever you’re doing on LinkedIn or Facebook. I actually think those things are wrong to do because they violate an expectation of privacy that you as an employee have. So, that’s number one.

Number two is that based on what people are doing publicly, you can infer all kinds of interesting things. So, for example, you know that if people in your company stop

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“If you feel you’re giving people a little more freedom than you should, you’re doing it right.” doing interviews, that suggests they’re a little less excited about being there. They might be more likely to quit. If people at your company stop organizing events, stop attending events at your company—and I’m not saying you should force people to come to events, like a holiday party—but they used to come and now they don’t. Again, that’s a visible public signal. With technology, you can look at all these kind of behaviors and start figuring out who’s likely to leave and who’s likely not to.

The third is that if you try to solve human problems with purely a computer science approach, you’re going to screw it up.

There’s a lot of subtlety to the way all human beings react, relate to one another, the way we think, the way we feel, so if you just do brute force computer science machine learning, you’re going to get it wrong. We did a study on who should we hire [at Google].

At the time, Google was very focused on academic pedigree. Harvard, Stanford, Wharton, Chicago. You had to have high grades.

You had to have high SAT scores. And the view was those are the people the company should hire.

It turns out that was wrong because, as a lot of your readers know, the best people don’t always go to the best colleges. In terms of what seems to be true about really high-performing people, number one, they come from all kinds of backgrounds. Where you went to school, where you worked—truly non-predictive.

The opportunity that creates, if you’re not one of these Fortune 100, incredibly famous companies, is those companies aren’t looking for people in non-traditional areas like state schools and things like that. So,

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number one, there are amazingly talented people everywhere.

Number two, the way you interview them and hire them—most people don’t do a great job of it. The short version is you want to use something called a structured behavioral interview. If anybody looks it up online, there’s plenty of stuff on it.

The third thing, though, is it’s not enough to find great people. You actually want to grow and keep them. And people want a couple of things out of work. They want meaning, they want to be trusted and they want to feel empowered. They want to feel like they have some kind of freedom.

Whatever size company you are, look in unconventional places for people, assess them correctly and then create an environment where they feel trusted and empowered and connect to meaning. The shorthand rule of thumb in making sure people feel that if you, as the CEO, feel like you’re giving people a little more freedom than you should, if you’re a little uncomfortable, then you’re doing it right.

We talked a little bit about AI and machine learning. What’s overblown and what’s real?

There’s absolutely a lot of hype. A lot of companies developing AI machine learning solutions say they’re going to solve all kinds of problems. But they are actually replicating a lot of the errors that were historically there because of the data they train on. And so, as a result, they’re not going to be able to deliver on the promises they’re making because there will be bias or privacy issues, or they’ll just get it wrong.

The second thing, which I don’t think enough people are paying attention to, is that the growth of machine learning and automation is going to destroy a lot of jobs in the short and medium term. And there’s not an obvious path out for people in those kind of industries. The single most common job title in the U.S., or job type, is driver. There’s a good chance that [job] is not going to exist in 5 or 10 years—and it certainly won’t exist in 15 years.

The way to think about it is just because technology can do something doesn’t mean

TA L E NT SU MMI T

“The way to think about it is just because technology can do something doesn’t mean that it should.”

the first six weeks after starting Humu, I literally woke up at 3:30 a.m. every day in a panic because we had a team of people who had left amazing companies like Microsoft, Airbnb, Gusto, Google and so on. They left all these companies to join this thing we were building. If we weren’t right, if I didn’t deliver and if I didn’t lead, they weren’t going to eat, you know?

I have a friend named John MacFarlane who’s the former CEO of Sonos. He was the founder of the company, and he said, “That’s perfectly normal, and that’s just your body accepting the reality of the responsibility you’ve taken on.” So, the scale of that responsibility and the weight of it is something that your readers will understand. your customers—and each other.”

The second is it’s underscored to me the Just how of tobeing find the people importance ableright to learn andto adapt, deliver on your promise, and I didn’t fullycompany’s appreciatebrand that, either.

I and themJack during thestepped ongoing was then at GEretain right after Welch talent wars, was the subject of lively disdown and Jeff Immelt took over.

Jack was cussion at the summit co-hosted known for Six two-day Sigma and talent stuff, and by Executive aerospace JeffChief got known for and salesBrazilian and marketing.

That company Embraer.a theory As Gary Spulak, kind of developed that when presyou ident of aEmbraer, more become CEO, youpointed becomeout, CEOthe because refi the company’s the easier youned have a skill set thatculture, fits the problem it is to identifyhas theatbest “Inare the that company the candidates. time. So, there interview process, we can CEOs, pretty marketing much growth CEOs, turnaround fi gure out within to 15CEOs. minutes if they’re CEOs, sales CEOs,10 talent going to be able to in work in Embraer’s What I learned becoming a CEO culture,” he said. that I didn’t expect is that one of the rarest with the paceskills of change andBut hardest andbreakneck most valuable is to and across all indusbe a ongoing learning disruption CEO, where, whatever your tries, the requirements fortotalent pools strengths are, if you want stay in this are job, changing theto time.

Spulak and others and if youall want serve the people in your discussed the challenges of hiringbeskilled company, you need to constantly learning labor in the gig economy, well as matter reskilland pivoting and shifting.as It doesn’t ing existing workers, while the sameneeds if you’re a sales CEO. If yourat company time creating a culture of engagement for a talent, you’re going to shift.

If you’re a turngenerationally diverse work force. around CEO and now you’re a growth CEO, The got ultimate goal fortoCEOs? ToAnd empowyou’ve to learn how do that. most er employees tothat. be brand ambassadors who people can’t do willThe then inspire among only otherlifelong thing I’dloyalty add is that this customers.

“In today’s interconnected question of culture—what is a good culture world, everything is shared—positive and how do you build it?—matters moreand than negative,” said Omar ever as well.

If you lookSoliman, at Wells CEO Fargoof and the College Hunks Junk.

“Weand want to price they paid, Hauling if you look at Uber what move people emotionally through positive they’ve been through, having a greataculture experience.

If you canjust make people happy, matters. It’s no longer an internal thing they’ll keep back.” that you can coming keep to yourself.

YOUR TEAM IS YOUR

FUTURE

that it should. And there are a lot of things There’s no substitute for great talent—but how do you where you want to be very careful about and applying technology, even find, nurtureintroducing and retain the people capable of delivering if that, in the short term, makes them more on your vision, your goals and your growth strategy? efficient.

Disney’s Jeff James says that how you treat employees translates to how they’ll treat your customers.

West Point, NY, will be the site of the next CEO TALENT SUMMIT OCT. 1-3, 2018 To register: CEOTalentSummit.com

How do you see the nature of work itself changing?

There will be two models. One is what I personally aspire to. I’d call it a high-freedom environment. The people feel empowered.

People are learning and growing. The reason that’s a successful model is because the very best, most talented people want to be in an environment like that. So companies like that will draw great talent to them because people will say, “Oh, my God. That’s amazing. I want to be a part of that.”

IT’S extreme NOT EASY TO LIVE UP to The other is a low-freedom entheYou tagline, Place vironment. know,“The kindHappiest of the traditional on Earth,” yearstructure after year.

But The 1960s organization-man where it’s Walt Disney Company’s theme top-down, hierarchical, come-in-here, dohave managed to maintain your-job,parks get-your-job-done, leave-at-the-endtheir magical patina for of-the-day, you’re-expendable.

Thenearly reasona century, thrilling customers young that model will exist for a long time as well and old by consistently exceeding is that despite all the changes in technology, expectations. there are enough [people] who are hungry behind theoutside magic?the U.S., but for What’s work, particularly Employees, or cast members, said Jeff certainly inside the U.S. as well.

James, vice and general There arepresident so many people who aremanhungry ager of the Institute, in a can. keynote for work thatDisney they’ll take what they address tobe attendees at the and 2017execuCEO There will people—CEOs Talent Summit Orlando.

Each tives—who makein a ton of money ontime the a customer interacts with the it’s brand, he but or backs of those people.

I think wrong, she must walk away having experienced I think it will persist. the brand promise: “Disney is special entertainment with heart.”

That, hethe added, Last question.

What’s it like to be CEO all comes down people.it “The to versus what youto thought mightextent be like? which genuinely careOne forisyour people I guess you a couple of things. the level is extent to which they will of the responsibility went through thecare roof.for For

i

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CY B ERS E C URI T Y

YOUR COFFEE MAKER HAS BEEN HACKED Smart devices bring benefits but also introduce new vulnerabilities.

How to navigate the dark side of the IoT revolution.

BY RUSS BANHAM

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W

esley McGrew is a white hat hacker at HORNE Cyber, where he directs cyber operations.

His job is to find security flaws in company systems by hacking into them.

Lately, McGrew and his team have been exploiting the vulnerabilities of Internet-connected smart devices like, well, pretty much everything.

From thermostats and coffeemakers to security systems and garage door openers, many commonplace things are embedded with electronics connecting them to smartphones via wireless protocols like Bluetooth. These devices can be connected to the Internet to exchange data, making the work of business more efficient—except when they do dumb things like let hackers exploit them to shut down corporate networks or steal sensitive data. “Any business today has some sort of smart device on its network, either for pure business reasons, like a printer, or for ease of use, like my crockpot,” says McGrew.

His crockpot, which he relies on occasionally for in-office meals, is a demon in disguise. Inside it is a miniature, multi-purpose computer like a circuit board with untold powers—of the bad kind. “The manufacturer of the crockpot has no idea about this computer, other than it switches things on and off,” McGrew explains. “But it is really quite remarkable, with the same power and capabilities as a full desktop workstation from 10 years ago.”

Suddenly, a prosaic crockpot is also a computer designed to automatically connect in the cloud to a company’s wireless network. However, this computer is vastly easier to hack because it was not designed with strong, configurable security in mind.

“A lot of them have a hard-coded password that can’t be changed without a firmware update by the vendor,” says McGrew. “The

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problem is vendors rarely, if ever, update the firmware.”

A worse problem is that this password is instantly available to hackers. “Default passwords of all these devices are available on the search engine Shodan, which allows anyone to find specific devices connected to

THREE SECONDS OF THOUGHT ARE GIVEN TO SECURITY. THE GOAL IS TO MAKE THE DEVICE SUPER EASY. the Internet,” says Harri Hursti, the famed Finnish programmer whose studies of voting systems unearthed serious security flaws. “You simply type in the name of the device, and it’s amazing what you can find.”

Not Exactly Fort Knox Blame economics for many smart devices’ shoddy security. “The challenge in selling many smart devices is the need to hit a price point low enough to encourage people to buy the device,” says Irfan Saif, a principal in the cyber risk practice at consultancy firm Deloitte. “To help achieve this price point, manufacturers may limit features around security.”

He is not alone in this alarmist view.

“Three seconds of thought are given to security,” says Dottie Schindlinger, vice president and governance technology evangelist at Diligent, a provider of enterprise governance management solutions. “The goal is to make the device super easy to connect to a WiFi network and other devices—to make them ‘idiot-proof’ for anyone to deploy. Yet, the moment the device connects to a network, it becomes a giant wormhole for hackers to penetrate.”

This was the case with McGrew’s crockpot. “It was incredibly simple to exploit its security flaws,” he says. “Once in the back door, I used it as my base of operations to scan the rest of the network looking for vulnerabilities in our internal systems.

Basically, I had a foothold into our network to do whatever I wanted next.”

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A hacker with malicious intent can do the same thing, albeit with devastating consequences—compromise the network, steal sensitive data, hold the organization ransom and crimp the flow of business.

Midsize and smaller companies with tight resources to invest in a chief information security officer and trained IT security staff are most at risk, although even the largest enterprises are not immune.

“Our company is dependent on IT systems, data and our employees for our operations and securing these systems and data is a fiduciary responsibility of management and directors,” says Ken Asbury, CEO of CACI, a provider of information solutions and services for defense, intelligence and federal civilian government customers. “Just like we have to be sure our facilities and our people are secure, we now need to ensure our employees are informed about the importance of and necessary steps to secure smart devices like surveillance cameras, door locks and printers that are on the network....The Internet of things (IoT) is a new area for cybersecurity, one that increasingly poses the greatest amount of risk.”

Awakening the Zombies This threat was made frighteningly clear in August 2016, when hackers created malware called Mirai that scanned the Internet continuously looking for the IP addresses of smart devices vulnerable to the default password security flaw. The hackers then commandeered these smart devices into a botnet (robot network) that unleashed DDoS (distributed denial of service) attacks on hundreds of websites, shutting them down and causing extraordinary business interruption losses. In a DDoS attack, a website is besieged with so much traffic, it can no longer accommodate legitimate users.

The smart devices-turned-zombies were primarily inexpensive, mass-produced CCTV video cameras designed for security purposes. Two months later, the same malware was used against Dyn, a managed domain name system provider of Internet services to Twitter, Reddit, CNN, Spotify and thousands of other websites, shutting many of its clients down. Approximately

THE IQ OF SMART DEVICES

N

o one would argue that the risks of smart devices outweigh their value to businesses. Benefits include more efficient processes, improved productivity, better utilization of assets and enhanced risk management— to scratch the surface.

Smart machines on the factory floor provide continuous streams of data on when best to schedule maintenance and to increase or decrease production based on demand.

They connect to supply chains to order inventory only when needed, based on real-time Big Data analytics. In retail, smart devices connect purchasing, inventory tracking and consumer buying preferences together into a continuous loop of supply and demand insights.

The devices also present wide-ranging benefits for society. Smart devices attached to or worn by patients provide data on body temperature, perspiration and heart rate, and smart inventory systems interface with patient data to automatically order medicines. Smart thermometer manufacturer Kinsa, for example, is tracking the geographic progress of this year’s flu epidemic by analyzing data coming in from hundreds of thousands of smartphone-connected oral and ear thermometers that the company has sold.

Both business and everyday life are given a lift by these smart tools, says the Ponemon Institute’s Larry Ponemon.

“The IoT is having a huge, positive impact on society.” —RB

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500 companies that relied exclusively on Dyn suffered extensive downtimes.

“In the old days, hackers used powerful IT systems to carry out a DDoS attack,” says Vance Brown, CEO of the National Cybersecurity Center, a provider of cybersecurity training. “Today, it’s much easier to marshal thousands of network-connected smart devices to do the same thing.”

Another eye-opening hack of a smart device involved the hospitality industry. In 2017, a hacker infiltrated the wireless key card system at an Austrian hotel, locking all the doors and shutting down the computer system that operated them. “A ransom in bitcoin was demanded to turn the system back on,” says Jody Westby, CEO of Global Cyber Risk, a provider of cyber risk management services. “The hacking was publicly reported, exposing the hotel to potential reputational damage.”

Smart printers have also been hacked.

In 2017, a bored teenager in the UK built a program that hacked into 150,000 Internet-connected printers to print out reams of paper. The clever hacker signed his work “Stackoverflowin.”

Schindlinger cited a more devastating hack. “A certain brand of wireless printer has been shown to have a gaping security loophole, allowing hackers to reprint anything that has ever been printed on the device,” she says. “That may include every legal contract the company has signed, new product information, payroll data, employee names and Social Security numbers—you name it.”

What’s more, once a hacker breaks into the printer, a back door to the rest of the network is opened. As Brown puts it, “As soon as you’re in the house, you have access to all the rooms.”

Even some of the best-selling technology products today may do things users are in the dark about. Brown points to smart speakers like Amazon Echo, noting, “If the device is always listening to you, it also could be spying on you.”

He’s right. A security researcher recently demonstrated how to insert malware into a pre-2017 Echo to stream audio from it to a server, turning the device into a personal eavesdropping microphone.

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I

nternet-enabled wireless smart devices are multiplying at an exponential rate. In 2020, it is estimated that more than 30.7 billion smart devices will connect to the Internet, double the 15.4 billion of connected devices in 2015. Wearable smart devices alone are expected to rise from 28.3 million units sold in 2016 to 82.5 million units in 2020.

According to a survey by the Ponemon Institute, the average business has approximately 23,000 mobile devices in use by employees within their organizations. Not surprisingly, Intel projects that by 2025, the global value of smart devices will reach $6.2 trillion, with the lion’s share of this amount being spent in the healthcare and manufacturing sectors. —RB

While there is no software patch available to repair the problem in older units, the vulnerability has been addressed in post2017 Echo models.

Sending in the Guards

Russ Banham is a Pulitzer-nominated business journalist and author who writes frequently about the intersection of business and technology.

How concerned are corporate risk managers about IoT-related attacks? The answer is extremely. An astonishing 94 percent of cyber risk professionals responding to a study by the Ponemon Institute stated that a security incident related to an unsecured smart device would be “catastrophic,” with 74 percent expressing concern over the loss or theft of valuable data.

What can CEOs to do ensure their companies’ networks and systems are protected? It’s not an easy question to answer.

As McGrew points out, “In many midsize

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AN UNSTOPPABLE FORCE

and smaller businesses, the IT security staff is 100 percent focused on keeping the network running. They don’t have time to chase all these smart devices that are connecting to it; they’re at capacity. And most companies don’t have a team of (network) penetration testers—white hat hackers who love to break into devices and pinpoint their vulnerabilities.”

Westby from Global Cyber Risk agrees, noting that it is difficult to sell the firm’s assessments to companies with under $1 billion in revenue. “Compared with the enormous expense of a business interruption, a forensic investigation is a pittance, yet many CEOs downplay the need,” she says. “This is ridiculous since they have a fiduciary responsibility to investors and shareholders to pay attention to these risks.

A big attack can literally do them in.”

The Ponemon Institute study drew a similar conclusion. The respondents cited boards of directors not fulfilling their oversight responsibilities and making management accountable as one of the three major barriers to addressing the risks of smart devices. The other two barriers were insufficient resources and a lack of priority in their approach to cyber risks. “Because it is not a priority and leadership is not engaged, the necessary resources are not being allocated,” says Larry Ponemon, chairman and founder of the Ponemon Institute. “While smart devices promise good things by sharing information for good purposes, there is a dark side—hackers using the information for nefarious purposes.”

Asbury from CACI says that CEOs must take the risk of connected smart devices seriously and lead the charge in their organizations to do something about it. “Companies must develop a culture of cybersecurity, and that begins with the tone from the top set by the executive team and board,” he says. “A strong culture of cybersecurity makes the security of systems, data and smart devices the responsibility of all employees, not just the IT and security teams.”

He adds, “It takes everyone to keep a company secure, at every level of the workforce, all the way up to the boardroom. But someone has to lead the way.”

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MA NUFACTU R I NG

CHIEF EXECUTIVE’ S MAKER 20

FORGING A FUTURE FOR From reshoring to robotics, these CEOs are mastering the hard stuff with innovation and ingenuity. Want to see where U.S. factories are going? Watch them. BY DALE BUSS

T

HE FUTURE OF AMERICAN manufacturing isn’t only “Made in America.” Accelerating the rebound in U.S. factories depends on what they make and how they make it, not just where. And so Chief Executive is initiating our list of 20 Makers for American Manufacturing.

We wanted to identify a core group of leaders making a significant difference to American manufacturing on their own or that represent dynamics providing vigor to this crucial sector of the economy.

By definition, they’re faring well.

“There’s new construction in nearly every major market,” says Andrew Philipp, president of Clarus Glassboards, which supplies the office market. “We see cranes, and we see opportunity. ” Despite the rising economy, plenty of challenges remain for our 20 Makers and for American manufacturing in general. Will growth raise commodity prices so high that some of our Makers will be crimped? How will changes in trade policy impact access to growth markets?

And how will U.S. manufacturers possibly fill the estimated 2.5 million jobs that are expected to go begging by 2025? The Makers are working on the answers.

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MEET THE MAKERS

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DAN ARIENS / ARIENS BRILLION, WI The mid-market lawn equipment competitor to Toro and Honda has leveraged outsized R&D investments to come up with innovations such as a zero-turn mower that muscled its way late into the market and has chomped up a big share. Ariens recently put up a $10 million R&D center and design studio and has tried to fill out its vital pipeline of new skilled workers by funding a technology center at a local high school, an elementary school STEM education center that engages kids as early as the third grade and a new Ariens Academy at the front of its original factory. “Education is a journey in itself,” Ariens says. “Learning continuously in the plant with our employees, developing leadership and teaching our principles to people who come out of high school and technical colleges are now just extensions of the business we are in.”

MARY BARRA / GENERAL MOTORS DETROIT, MI First, she handled the faulty ignition debacle with determination and elan, putting to rest any doubts about a woman running a carmaker. The former manufacturing chief is taking an aggressive approach to transforming the company, as the industry faces the rise of electrification and autonomous driving.

She has made GM a surprising leader in each.

Meanwhile, Barra streamlined the company by shedding its money-losing European plants, favoring profits over scope.

AMERICAN MANUFACTURING SCOTT DUNN / URBAN MINING SAN MARCOS, TX A leader in the growing circular economy, Dunn figured out that there’s a mother lode of rare earth material sitting in discarded hard drives, old Prius hybrids and sundry scrap heaps across America, more than enough to fuel his raw startup recycling business—and maybe give his country leverage in strategic commodities. “We thought we’d be able to decentralize this supply chain that otherwise is dominated

by China by using recycled or end-of-life applications as raw material feedstock for remanufacturing an entire range of performance grades,” Dunn  says. “And even improve performance in some critical end-use applications.

We’ll do better than virgin materials.” The material cost advantage to customers of Urban Mining is huge—and timely—in view of supply concerns. “We want to stabilize this and add an element of sustainability on our shores, from missile systems down to future electrical propulsion devices,” he says.

Automation is crucial because of the variety of its products that need to be controlled and closely monitored. Even Urban Mining’s standalone quality inspection systems are as cutting edge as it gets.

DAVID FARR / EMERSON ELECTRIC ST. LOUIS, MO A chief medium for the economy’s renewed “animal spirits” under President Trump, Farr chairs the National Association of Manufacturers, pushing for tax reform and deregulation, championing American factories and leading his $41 billion maker of automation and processing technology in an ambitious restructuring. Emerson also supports many STEM education initiatives to renew its workforce, including efforts to bring new jobs to Ferguson, Missouri, after the riots.

VICKI HOLT / PROTO LABS ST. PAUL, MN A pioneer spreading the gospel of Industry 4.0 among traditional manufacturers, Proto creates prototypes digitally and performs small-batch fabrication to help customers get up and running fast with custom parts. “With shorter product life cycles, everyone has to innovate,” says Holt. She also works with manufacturers to develop their own IoT capabilities, automated inspection and other aspects of a “digital thread.”

“About 50 percent of companies’ annual revenues come from products they came out with in the last three years, and life cycles are getting shorter.”

—Vicki Holt, Proto Labs

Holt estimates that “about 50 percent of companies’ annual revenues come from products they came out with in the last three years, and life cycles are getting shorter. To be able to address that, we’ve got to be taking advantage of manufacturing technologies and Manufacturing 4.0, or we won’t be able to compete.” The $300 million company employs 2,300 in three U.S. cities, Europe and Japan.

DEAN KAMEN / ADVANCED REGENERATIVE MANUFACTURING INSTITUTE MANCHESTER, NH The legendary inventor of the Segway and iBot, a motorized wheelchair, also invented an inexpensive water purification system for developing countries and co-founded the FIRST high school robotics competition. Now he’s turning lab breakthroughs in bioscience into large-scale manufacturing of engineered tissues that could be used by humans needing organ transplants, for instance.

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CHIEF EXECUTIVE’S MAKER 20 JAMES KEANE / STEELCASE GRAND RAPIDS, MI Predecessor Jim Hackett may now be running Ford, but under Keane, the world’s largest office furniture maker keeps innovating in its R&D labs and on the factory floor to match fast-changing market dynamics and increasing customer demands for configurability and customization.

Keane asked CIO Bob Krestakos to shift to a new role as head of global operations. “I wanted to capture the opportunities presented by data-driven manufacturing,” Keane says of Krestakos’s challenging assignment. “That is helping us rede-

 “I wanted to capture the opportunities presented by datadriven manufacturing. That is helping us redefine what worldclass manufacturing means.”

—James Keane, Steelcase fine what world-class manufacturing means at Steelcase.” But while Steelcase has been bringing AI and machine learning to its plants, Keane’s philosophy is to blend automation with increasingly skilled employees to ensure maximum flexibility.

ALY KHALIFA / OCEANWORKS RALEIGH, NC Where most people might see the millions of tons of plastic, non-biodegradable “ocean waste” that has become the biggest bunch of jetsam in history as an environmental disaster, serial entrepreneur Khalifa saw an unexploited raw material base ready for harvesting. Oceanworks’s innovative supply chain does more than just create sunglasses and surfboards. It also helps companies that want to help the earth. “They know it’s a problem, and brands want to connect, but they didn’t have the bandwidth or mechanisms to get there,” Khalifa said.

“We did.

“We’ve found ourselves in this niche of innovating products and as a result, having to innovate manufacturing,” he says. “Ultimately, you can’t design things to be innovative unless you’re innovating the methods and materials used to make them.”

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MAXIM LOBOVSKY / FORMLABS SOMERVILLE, MA Three MIT whiz kids, Lobovsky, Natan Linder and David Cranor, founded Formlabs in 2011 with a celebrated Kickstarter campaign that raised a then-record $3 million. They used the funding to develop an easy-to-use and affordable desktop stereolithography 3D printer.

Already, Formlabs is pushing from prototypes and one-off, high-value parts into mass-customized products, including dentures and dental crowns. At CES, Formlabs demonstrated individualized earbuds 3D-printed from a scan of your body. “Ears vary a great deal—more than any other part of the body,” Lobovsky says. “So these are more comfortable and provide better sound.”

Formlabs is working on making a “retail experience” out of having a consumer’s ears scanned and form-fitting buds printed on the spot.

He has high hopes for U.S. leadership in additive manufacturing, but warns that China and other competitors are catching up. “The capabilities there are really growing, and we’re actually behind in some areas. It’s important for the U.S. to incentivize manufacturers to modernize their equipment.”

DAVID MACNEIL / WEATHERTECH BOLLINGBROOK, IL Through his company’s Super Bowl ads over the last five years, MacNeil has emerged as an original and significant champion of “Made in America”— before it was cool. He and his employees even produce and star in their own Big Game ads.

WeatherTech uses digital processes to make highend, customized car floor mats and other goods.

Next, MacNeil promises to make over the sleepy pet bowl market, too, with a stainless steel line that leverages advanced manufacturing.

FREDERICK MARCELL / STANDBY SCREW MACHINE PRODUCTS BEREA, OH The mid-market manufacturer of precision fasteners and other parts is third generation family-owned. Two robots that can run safely among workers throughout the plant ease the demands for low-skilled labor so Standby can redeploy workers in value-added tasks. Yet, even this doesn’t make Standby price competitive in commodity segments, so it also owns a plant in Guangzhou, China, for low-cost output.

CHIEF EXECUTIVE’S MAKER 20 ELON MUSK / TESLA PALO ALTO, CA He’s actually an underperformer as far as manufacturing goes, describing the messy ramp-up of the Tesla 3 as “production hell.” But as the manufacturing chief with arguably the world’s grandest ambitions, Musk already has revolutionized the auto industry— and space travel—and likely won’t stop until he’s turned at least a couple of other sectors upside down. His biggest imminent contribution may be lowering the cost of lithium-ion batteries.

GREGORY OWENS / SHERRILL MANUFACTURING SHERRILL, NY In 2005, Owens and partner Matt Roberts assumed the industrial carcass of the iconic Oneida flatware brand, which once employed 2,800 people in upstate New York, and used a new business model based on high-quality manufacturing and cost-saving e-tailing instead of traditional department store distribution. Making Liberty Tabletop brand utensils, the factory now employs more than 40 people and mixes advanced automation with a human touch.

Oneida had spent years investing in automation but still couldn’t compete with bargain-basement Chinese pricing. “We took this very fundamental business—metal forming and polishing—and mashed it up to web marketing in a direct, modern, simple B2C model,” Owens

says. “We can’t compete by selling it to Macy’s with its mark-ups, but we can certainly sell a box of flatware for 100 bucks, and that’s what we’re doing.”

The revolutionary retail model gives Sherrill financial room to do things right, such as adding skilled artisans to ensure adequate buffing in the area between a spoon bowl and handle. “We’re adding costs and driving quality back into it, which at the end of the day is good business because everyone else is doing the opposite,” Owens says.

“We wanted to bring that level of customization and intimacy to the office furniture world.”



—Andrew Philipp, Clarus Glassboards

ANDREW PHILIPP / CLARUS GLASSBOARDS FORT WORTH, TX The simultaneous U.S. commercial construction boom, along with a rethinking of office space for the millennial workforce, means fast-rising demand for the company that dominates the business of making and installing dry-erase boards. The secret: “With Nike, you can customize your shoe in a week or two,” Philipp explains. “We wanted to bring that level of customization and customer intimacy to the office furniture world.”

That concept is less prevalent among competitors in Europe, so Philipp has been pushing exports to European countries and to both U.S. and home-grown companies there. He’s also targeting Australia and Southeast Asia.

ANTHONY PRATT / PRATT INDUSTRIES ATLANTA, GA The red-haired, Australian-born industrialist has become an unlikely Made in America champion: Pratt regularly takes out full-page ads in The Wall Street Journal to praise President Trump’s policies and to push others, such as boosting food exports. With 6,000 workers and plants spread across 27 states, he’s riding booms in packaged goods and home delivery to become the nation’s fifth-biggest corrugated box maker.

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CHIEF EXECUTIVE’S MAKER 20

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DON ROMINE / WEB INDUSTRIES MARLBOROUGH, MA The mid-market expert in flexible materials processing serves trusted brand names and end products in aerospace, including carbon fibers for next-generation jetliners; consumer products, such as adult incontinence diapers; medical diagnostics, ranging from blood analyzer ampules to diabetes test strips; and insulated wire and cable. Web puts together team-building workshops with leading customers that gather as many as 30 people from all over the world. “This drives our innovation efforts,” Romine says. Web also encourages tenure and loyalty by being 100 percent owned by its 575 employees at six U.S. plants and one in Europe. “Without the hearts and minds of your people being unleashed, you’re going to hobble your potential for innovation,” Romine says. “And if you don’t address the future, you’ll get left behind.”

“Without the hearts and minds of your people being unleashed, you’re going to hobble your potential for innovation.”

—Don Romine, Web Industries

ANDRA RUSH / RUSH GROUP DETROIT, MI A leading female entrepreneur in U.S. manufacturing, Rush added auto component production after building a huge logistics business 30 years ago into the teeth of trucking deregulation and the industry old boys’ club. She established a highly automated integrator of automotive subsystems and a joint venture with Faurecia that makes interior components and instrument panel systems for Ford in Detroit.

Rush Group likes to feed its employment needs with dual-skills certifications, which offer technical training and college credits in high school, leading directly to mid-level journeyman jobs. With Native American roots, Rush favors factory sites that help disadvantaged workers. The $2 billion company now employs more than 3,000 people at 20 plants in Detroit, Toledo and near Native reservations.

Minority-owned companies like hers “are the fastest-growing businesses in the U.S., hire more people sooner and recover faster than other enterprises, given access to capital and opportunity,” says Rush, who is an active national advocate in groups such as the U.S. Manufacturing Council.

She fears that concerns about the future of U.S. manufacturing may be regionalized. “I’m not sure if that Made in America mindfulness is as prevalent along the coasts as in the Midwest,” she says.

AUSTIN RUSSELL / LUMINAR PALO ALTO, CA To get to the era of autonomous vehicles, auto and digital tech companies need to demonstrate the reliability of their sensing and vision systems. While

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approaches vary, so far the industry has favored the use of LIDARs: detection systems that use the principles of radar but with lasers. Luminar is an early leader in LIDAR production and has the potential to ride its technology and manufacturing prowess to big things if driverless cars become commonplace in several years.

BILL SCHAHUBER / WATSON METAL MASTERS REPUBLIC, MO Watson epitomizes the crucial awakening of mid-market, mid-continent makers in the U.S. manufacturing renaissance, building high-quality stainless steel tanks, from one gallon to 250,000 gallons, for verticals ranging from specialty chemicals to food processing.

Having left poor-quality and remote Chinese competitors behind, Schahuber doubled the size of Watson’s plant four years ago and then again two years ago. And he’s just broken ground on a $13 million investment in factory automation to help Watson and its 115 skilled employees keep up with domestic demand. “With rising competitiveness, we’ve been able to bring in new business as we ride the curve of the resurgence in U.S. manufacturing,” Schahuber says. “We’re reaching out to larger and larger Fortune 100 companies, and we’ve had some very large orders in this last year.”

Automation has cut Watson’s costs and also helped finance compensation increases for the skilled workers that the company must retain to keep growing. “We’re keeping pace in pay and benefits and staying ahead of the other local manufacturers that we have to be competitive against,” Schahuber says. “And as consumers, our workers have additional money to turn over in the local economy.”

ROGER VARIN / STÄUBLI N.A. DUNCAN, SC The U.S. arm of the Swiss-based industrial giant participates in two huge, ongoing trends: robotics and foreign direct investment. Stäubli’s “co-bots,” collaborate with humans on production lines.

“With these new robots,” Varin explains, “you can be close by—even have a person hand a robot an application or part, [it does] something with it and then hands it to another person. [Robots are] driven by sensors and able to see movements. That makes it safe.” Stäubli’s 25 percent expansion of its 100,000-square-foot factory exemplifies the surge of foreign direct investment in U.S. manufacturing that’s sure to pick up after the cut in U.S. corporate tax rates to compete with European rates.

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B OOK E XC E R PT

HOW TO FIX THE FUTURE JOHN BORTHWICK HAS EVERY reason to rationalize the system that has him squarely on top. As CEO of Betaworks, his exposed-brick, New York tech incubator, Borthwick amassed a fortune by presciently backing hits like AirBnB and Twitter. It always came easily to him: Just a few years out of Wharton, in 1997, the young entrepreneur sold his first company to America Online and has barely looked back.

But Borthwick is anything but satisfied.

In fact, he is deeply disturbed. He believes that today’s atmosphere of social divisiveness, political distrust, economic uncertainty and cultural unease is—in part, at least—a consequence of the digital revolution. And he has an idea about how to fix things...

The 19th-century neighborhood is full of 21st-century things. I’m with my old friend John Borthwick, the founder and CEO of Betaworks, a New York City– based venture studio that incubates technology startup companies.

We are at the Betaworks studio in New York’s

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Meatpacking District—the downtown Manhattan neighborhood named after its industrial-scale slaughterhouses—which is now one of the city’s most fashionable areas.

Borthwick’s studio is located in a cavernous, old brick building that has been converted from a decaying warehouse into an open-plan workspace.

The place is lined with young computer programmers— Betaworks’s so-called “hackers in residence”—peering at electronic screens.

It’s a

Tech investor and CEO John Borthwick came of age and made his fortune with the rise of the Internet. Now he’s deeply concerned about where technology is taking us—and proposing radical solutions to avoid the worst. BY ANDREW KEEN

kind of renaissance. The analog factory has been reborn as a digital hub. These hackers are manufacturing the 21st-century networked world from inside a 19th-century industrial shell.

But this new world is still in beta—the word the tech industry uses to describe a product that’s not quite ready for general release. And it’s this emerging place— betaland, so to speak—that I’ve come to talk about with Borthwick. We’ve been friends for years. Like me, he was a startup entrepreneur during the first Internet boom of the mid-90s.

In 1994, fresh out of

Wharton business school, he founded a New York City information website called Ada Web, in honor of Ada Lovelace.

Borthwick sold Ada Web and several other Internet properties to the Internet portal America Online in 1997 and became their head of new product development. He then ran technology at the multi-national media conglomerate Time Warner before founding Betaworks in 2008, and there he’s made his fortune investing in multibillion-dollar hits such as Twitter and Airbnb.

“I fell in love with the idea of the Internet,” Borthwick says, explaining why he became an Internet entrepreneur, articulating the same faith as such mid-20th-century pioneers as Norbert Wiener that networked technology could pilot us to a better world.

It was the idea that a new, networked world could be better than the old industrial one.

The idea that the Internet could transform society by making it more open, more innovative and more democratic.

Over the last quarter century, however, Borthwick’s youthful faith in

Excerpted and adapted from HOW TO FIX THE FUTURE, copyright 2018

by Andrew Keen.

Reprinted with the permission of the publisher, Atlantic Monthly Press, an imprint of Grove Atlantic.

All rights reserved.

MARCH/APRIL 2018 / CHIEFEXECUTIVE.NET

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this idea has evolved into a more ambivalent attitude of local entrepreneurs, city regulators and urban toward the transformative power of digital technolactivists. Borthwick says it’s critical that what he ogy. As we sit in one of the studio’s meeting rooms, calls “the stack”—the manifold layers of technology surrounded by his hackers in residence, we speculate making up a networked operating system—is open to on the networked world on the horizon. The innoevery type of developer and application. To borrow cence of the ’90s, the faith in the Internet’s seemingly some language from the Berlin venture firm BlueYard unlimited potential—all that openness, innovation Capital, Borthwick wants to “encode” the “value” of and democracy—has been replaced by the realization openness into the architecture of the Internet. It’s a that things aren’t quite right in betaland. kind of network neutrality for the AI age. And his As we talk, we realize we agree that today’s vermodel for this is the World Wide Web, the open plattiginous atmosphere of social divisiveness, political form so generously donated to the tech community mistrust, economic uncerby Tim Berners-Lee in 1989, tainty and cultural unease on which innovative first-genis—in part, at least—a coneration Internet companies THE INNOCENCE OF THE sequence of the digital revolike Skype, Amazon and ’90 S , THE FAITH IN THE lution. In contrast, however, Borthwick’s own Ada Web INTERNET’S SEEMINGLY with the crusading Edward nourished. And that’s why, UNLIMITED POTENTIAL—ALL Snowden, Borthwick is realBorthwick tells me, he is adTHAT OPENNESS, INNOVATION istic rather than pessimistic vising the non-profit Knight AND DEMOCRACY—HAS about the future. He underFoundation on its Ethics and BEEN REPLACED BY THE stands as well as anyone the Governance of Artificial IntelREALIZATION THAT THINGS remarkable achievements of ligence Fund—a $27 million AREN’T QUITE RIGHT. the digital revolution, but he fund announced in 2017 that is cognizant of the problems is dedicated to researching too. He is—like me—a maybe. artificial intelligence for the So, how to rebuild the fupublic interest. ture and manifest the human But as Borthwick acknowlagency that Snowden says edges, for every public-spirwe’ve lost? “Five fixes, John,” ited Berners-Lee or Knight I say. “Give me five bullet points on how we can fall Foundation, there is a private corporation seeking back in love with the future.” to dominate the market through its complete control of the technology stack. Hence the need for antiBorthwick’s Five Bullets trust regulation—his second x. As the head of new A cheerful, boyish-looking fellow with a mop of dark products at America Online, Borthwick was involved hair, Borthwick grins at my challenge. Rather than in the U.S. government’s 2002 labyrinthine antitrust the personal computer or the Internet, for him the case against Microsoft, and he is under no illusions new thing is artificial intelligence—the technology about the cost, in both time and money, of battalions behind networked smart machines, smart cars, smart of high-priced lawyers squabbling over the legal algorithms, smart homes and smart cities. It’s the and technological minutiae of computer operatsuperintelligent technology that some people fear ing systems. And yet, as an investor in early-stage could destroy humanity, and that’s what preoccupies innovation, he understands the need to protect his Borthwick at first when he addresses my question. hackers in residence from contemporary leviathans “Look, so much of our business is reality distorlike Google, Amazon and Apple. Antitrust matters to tion,” he confesses about the tech industry, “so we investors in innovation such as Borthwick. Startup don’t fucking know what AI is going to be.” entrepreneurs and technologists, he says, need the But he does know what AI shouldn’t be—a proprotection of government against winner-take-all prietary operating system owned and operated by a multinationals. Regulation, the venture capitalist sugsingle, winner-take-all company. So his first x is what gests, sometimes is essential to protect innovation. he calls an “open AI platform,” a public space for His third x also focuses on the importance of the technologists, not unlike the Meatpacking District’s public sphere. As an early investor in Twitter, he is High Line—the public park built on top of the New acutely aware of the social media company’s struggle York Central Railroad that was created by an alliance to find a compelling business model, as well as its

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increasingly central role in our culture and in making news. Twitter’s value, he suggests, is more than just economic—particularly in our “post-truth” Trumpian political world, with its infestation of fake news and its nefarious trolls whipping up the online mob.

So, he says, we should approach prominent media companies like Twitter as if they are public television or radio networks.

“It’s important to run Twitter on the same public principles as Harvard University or The Guardian newspaper. Its societal worth can’t be quantified purely in terms of financial value,” the Betaworks CEO insists. What he’s saying is that—given the corrosive impact of fake news and other ridiculously biased or corrupt information on a culture that is already suffering a dearth of trust—some of our most influential new media platforms, like Twitter, might be too important to be treated like other for-profit companies.

The Morality of Technology Borthwick’s next x focuses on the increasingly blurred distinction between people and smart machines, particularly in an age of augmented reality, when it will be increasingly hard to distinguish between a human body and networked devices. The venture capitalist shuffles in his seat and addresses the existential dilemma at the heart of smart technology.

“At what point are we no longer human?” he asks tentatively. It sounds as much a plea as a question.

Today’s technology, he says, comes with great moral responsibility. Such great responsibility, in fact, that we need to establish “criteria for human-centric

design in order to retain our identity as a species.”

Borthwick doesn’t explain where these “criteria” for determining humanness will originate. Maybe from the designers of today’s existentially disruptive technology. Maybe from new governmental laws. Maybe from concerned citizens like Edward Snowden or public interest groups like the Knight Foundation.

Maybe from investors like Borthwick himself.

But there’s no absence of human agency, nothing quizzical about Borthwick’s final bullet. When a Wharton graduate and successful venture capitalist approvingly quotes The Communist Manifesto, you know something very odd is going on in the world.

Yet, that’s exactly where Borthwick begins his fifth x.

Roll back the clock to the middle of the 19th century, he says, and we would find a similar world of radically disruptive new technology, deep inequalities between rich and poor, grossly unsanitary working conditions, high unemployment and monopolistic capitalist companies.

The gaping inequalities and injustices of the mid-19th-century industrial world have been well documented by everyone from Marx and Engels to Thomas Hardy and Charles Dickens. The “exploitation,” The Communist Manifesto claimed, was “naked, direct, shameless, brutal.” By 1848, the industrial revolution had wrought what the Hungarian economist Karl Polanyi—author of The Great Transformation, the classic 1944 account of the shift from an agricultural to an industrial economy—called “unprecedented havoc with the habitation of common people.”

In the mid-19th-century English economy, Polanyi says, “the laboring people had been crowded together in new places of desolation, the so-called industrial

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towns of England; the country folk had been dehumanized into slum dwellers; the family was on the road to perdition; and large parts of the country were rapidly disappearing under the slag and scrap heaps vomited forth from the ‘satanic mills.’”

The end result, he says, was the creation of “Two Nations,” one of “unheard-of wealth,” the other of “unheard-of poverty.”

Polanyi traces what he calls the “catastrophic dislocation of the lives of the common people” back to the same 16th-century enclosure movement in which capitalist practices created mass agricultural unemployment that Thomas More critiqued in Utopia. “Your sheep that commonly are so meek and eat so little,” More WHAT SEEMED BEYOND wrote acidly REACH TO MOST PEOPLE IN about 16th-cen1850—BANNING CHILD LABOR tury England, “have become IN FACTORIES... OR FREE so greedy and PUBLIC EDUCATION AND A fierce that they GRADUATED TAX SYSTEM—IS devour human NOW TAKEN FOR GRANTED IN beings themALMOST EVERY COUNTRY IN selves.”

THE WORLD. The problem with both enclosures and early industrialization, Polanyi argues, is that a “common sense attitude toward change was discarded in favor of a mystical readiness to accept the social consequences of economic improvement, whatever they might be.” The ideal of the free, self-adjusting economic market, Polanyi says, “implied a stark utopia” that couldn’t exist “for any length of time without annihilating the human and natural substance of society.” Rather than being against capitalism itself, Polanyi’s attack was against a cult of the free market, which viewed any kind of regulation or interference in it as a fundamental assault on freedom.

‘We’ve Done the Unthinkable’ Borthwick reminds me of what’s broadly changed over this time in industrial society.

“Fast-forward a century, and we’ve done the unthinkable. Eight out of 10 of the goals

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of the Manifesto were peacefully realized,” he says, referring to what Marx and Engels described as the 10 “measures” that would create the conditions for a classless society in advanced industrial countries. These goals included the imposition of a progressive or graduated income tax, the creation of a national bank, the establishment of publicly owned land, government control over transportation and communications, free education for all children in public schools and the abolition of child labor in factories.

His point is that what seemed beyond reach to most people in 1850—banning child labor in factories and the creation of a national bank, for example, or free public education and a graduated tax system—is now taken for granted in almost every country in the world. These reforms weren’t always ideally implemented, Borthwick admits, but over the last 150 years they’ve slowly established themselves as the essential foundations of a civilized society.

So, for example, in the 1880s, 30 years after Marx and Engels published their Manifesto, Otto von Bismarck, the chancellor of the newly established united Germany, introduced a mandatory national program of social welfare that included health, accident and old-age insurance for industrial workers. These reforms were then developed and adapted by every industrializing country to conform to its own political culture—from the German corporatist model to the Scandinavian social democratic tradition to the more market-based social security systems of Anglo-Saxon countries like the UK and the U.S. Today, Borthwick explains, we are faced with a new set of dramatic challenges that may require similarly unthinkable solutions. No, he acknowledges, the digital revolution hasn’t re-created the “satanic mills” of Northern England, with its armies of child laborers and appalling working conditions. History never repeats itself. Not exactly, anyway. But the great transformation of the early 21st century is, nonetheless, equally challenging—particularly in terms of economic inequality and the future of employment. Karl Polanyi’s

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Two Nations are back.

Today, however, these nations are being shaped by digital technology rather than by steam or electricity. Today, it’s smart machines—rather 47 PERCENT OF JOBS COULD than Thomas BE ELIMINATED BY SMART More’s enTECHNOLOGY OVER THE NEXT closed farmTWO DECADES. A MCKINSEY land or Marx & CO. REPORT PREDICTS THAT and Engels’s mechanized 49 PERCENT OF ALL THE TIME factories—that WE SPEND WORKING COULD are radically BE AUTOMATED BY CURRENT disrupting not TECHNOLOGY. only employment but the very nature of working life itself. A 2013 Oxford University white paper, for example, forecasts that 47 percent of jobs could be eliminated by smart technology over the next two decades, and a 2017 McKinsey & Co. report predicts that 49 percent of all the time we spend working could be automated by current technology.

The Fifth X And so, on to Borthwick’s fifth and most ambitious x. We need, he tells me, to create completely new entitlement programs, educational institutions and social security systems designed for today’s networked society. Just as the 19th-century industrial revolution resulted in the reinvention of the relationships between employees, employers and the government, he says, so today’s digital revolution needs to spark the same radical rethinking. One early example of this, Borthwick says, is what’s known as the “minimum guaranteed income”—an idea designed to provide a minimal amount of economic security at a time of technology-driven unemployment. “We can’t have a stable society,” he insists, “unless you have a fair part of the community employed.”

So that is John Borthwick’s manifesto, his own five bullets to x the digital future: • Open technology platforms • Antitrust regulation

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• Responsible human-centric design • The preservation of public space • A new social security system But none of these bullets is magical, he explains. In comparison, for example, with many late 19th- and early 20th-century Marxists, who believed that every problem of industrial capitalism would be instantly fixed by a global proletarian revolution, Borthwick is under no illusion that any single reform will automatically solve all the problems of the great digital transformation. There is no grand Hegelian synthesis in his narrative. No end of history. No island of Utopia on the horizon.

Borthwick’s vision of the future is, to borrow a word from Immanuel Kant, crooked. He uses the metaphor of the stack—the layers of technology supporting an effective platform—to explain how all his disparate ideas could fit together in the future. He is suggesting that they are all interchangeable pieces of a new 21st-century operating system, one that is constantly evolving and adapting to fresh technological innovation.

He acknowledges that the combined effects of the Internet, cloud and mobile technology, artificial intelligence and big data are dramatically changing the world. In response, the venture capitalist says, we need to foster equally powerful combinations of public policy, ethical responsibility, legal reform and technological innovation. These reforms shouldn’t exist in silos, isolated from one another, he insists.

Like the stack of products supporting a successful technological platform, they are most effective when working in combination with each other.

Five Tools For Fixing The Future What is striking about Borthwick’s five bullets is that, in spite of the radically disruptive nature of digital technology, none of his points are new. From English cotton mills to Manhattan slaughterhouses, from the inequities of 19th-century Lancashire mill towns to those of 19th-century New York City, from the enclosures of Thomas More’s 16th-century England to the Two Nations of Marx and Engels’s 19th-century Europe,

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we’ve seen this show before.

Not identically, of course.

As I just noted, history never repeats itself exactly. But many of the problems of the industrial past resemble many of those now confronting us in our digital present. And so the essence of John Borthwick’s tools for solving these problems—the civic value of openness, the need for public space, the symbiosis of innovation and regulation and, of course, the need to reinterpret what it means to be human in times of radical technological upheaval—are anything but new.

Nor are the strategies new for achieving this change. There are, after all, only so many peaceful ways of going about solving the world’s problems.

The first category, as John Borthwick suggests, is through legal regulation—the establishment, for example, of antitrust regulations to protect competition or the creation of public media to guarantee the free flow of reliable information. Hardcore, free-market libertarians, both inside and outside Silicon Valley, will strongly disagree, of course. But they are wrong.

Innovation and regulation are symbiotic, and the future never gets fixed without new laws. As Thomas More reminds us, good government has been critical throughout human history. That will never change.

The second method is through the work of such innovators as Betaworks’s hackers in residence or the entrepreneurs at BlueYard Capital’s Encrypted and Decentralized event, who invent new technologies and products to improve people’s lives.

This doesn’t mean that every innovator or innovation is good. Much of the digital innovation of big tech companies like Google and Facebook isn’t currently working. Yet, that isn’t an excuse to write off innovative

HISTORY NEVER REPEATS ITSELF EXACTLY. BUT MANY OF THE PROBLEMS OF THE INDUSTRIAL PAST RESEMBLE MANY OF THOSE NOW CONFRONTING US IN OUR DIGITAL PRESENT.

Andrew Keen is the author of three additional books: The Cult of the Amateur, Digital Vertigo and The Internet Is Not the Answer. He is executive director of the Silicon Valley innovation salon FutureCast.

54 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2018

entrepreneurs altogether in terms of creating products that realize the promise of the digital revolution. Utopians might dream up economic systems theoretically superior to free-market capitalism, but none exist in the real world.

The third is through the behavior of consumers, whose choices on what they want and how much they are willing to pay for it reshape markets and products.

The consumer isn’t always right, of course, particularly in our digital age of absurdly low-priced or “free” products. But it has been consumers who have played a central role in fixing many of the early problems of industrial capitalism by demanding higher quality and healthier products.

The fourth is through the initiatives of trade unions, philanthropists, nonprofits or committed individuals like Edward Snowden. Strategies to realize this include strikes and other direct labor action, public work, donations and pressure on both government and industry. This is the category most singularly driven by More’s Law—by people’s will to improve the lives of their fellow citizens.

The fifth is the role of education—from parents, teachers, mentors, policy makers— in helping people shape their own histories and determine the best outcomes for their society. It requires not only new kinds of teachers and schools, but also a new way of thinking about the purpose of education itself.

These, then, are our five tools for fixing the future: • Regulation • Competitive Innovation • Social Responsibility • Worker and Consumer Choice • Education Betaworks CEO John Borthwick is right.

There isn’t a single magic bullet to fix the future. But these five reform strategies— when implemented creatively—can together transform betaland into a better land.

What’s essential is that they exist together— as part of a stack enabling a new operating system for 21st-century society.

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Photo credit: GE

EC O N O M I C D E VE LOPME NT

REGIONAL REPORT

THE NORTHEAST Home to bustling urban hubs and seven Amazon contenders, the area continues to gain momentum. BY CRAIG GUILLOT WHILE THE NORTHEAST TRAILS other regions in GDP growth, there are notable bright spots. Massachusetts continues to grow as a hub of disruptive innovation. Life sciences companies are flocking to New Jersey to tap its talent pool, and in Vermont, the clean energy sector offers new opportunities. Across the region, urban hubs are cultivating thriving tech sectors. Of the 20 possible locations Amazon identified for its new HQ2 location, seven were in the Northeast.

16 DELAWARE

#Ranking in the 2017 Chief Executive Best & Worst States for Business (ChiefExecutive. net/2017-Best-Worst-States) *Unranked

NEW PATHS TO ECONOMIC DEVELOPMENT Delaware recently restructured and divided its economic development office into the non-profit Delaware Prosperity Partnership and state-run Delaware Division of Small Business Development and Tourism. The

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new structure ensures every company interested in the state “gets direct and personalized assistance” regardless of their market share, says division director Cerron Cade.

Notable deals in 2017 included DuPont’s merger with Dow Chemical in September.

Sallie Mae, which moved its headquarters from Washington, D.C., to Newark, Delaware, in 2011, announced an expansion with nearly 300 new positions. And in April, Del Monte Fruit announced a new distribution center in Newark.

Yet, the Diamond State still struggles with anonymity, which Cade says requires it to “work harder at promotion.” One strategy has been highlighting the state’s proximity to major cities such as New York, Washington, Baltimore and Philadelphia. “We’re a small state, but companies can get the best of both worlds. We like to say that if you left first thing

BOSTON, MA A strong talent pool lured GE to Boston’s seaport district. in the morning from Delaware, you could probably have breakfast in one of three large cities and be home for lunch,” Cade says.

29 PENNSYLVANIA

31 NEW HAMPSHIRE COURTING MILLENNIALS New Hampshire has the third-oldest population in the country, according to 2016 data from the Census Bureau’s American Community Survey. Yet, that’s finally starting to change, says Taylor Caswell, commissioner of the New Hampshire Department of Business and Economic Affairs. Younger workers who migrated to the Northeast but are seeking a lifestyle outside of the major

35 MAINE NEW OPPORTUNITIES FOR NATURAL RESOURCES Peter DelGreco, CEO of Maine & Co., says cross-laminated timber, a new technology that combines planks, is a new opportunity for Maine to make up some losses from the declining paper industry. “You’re seeing new ideas starting to bubble [as developers are] looking for opportunities to repurpose this really abundant and viable natural resource,” DelGreco says.

The University of Maine System received a $500,000 grant from the U.S. Economic Development Administration last year to create the Maine Mass Timber Commercialization Center. Acquisition of 300,000 acres of Maine’s North Woods may fuel development of a CLT plant.

Other recent developments include Portland-based biopharma Vets First Choice’s receipt of a $223 million investment, and e-commerce company Wayfair’s opening of two back-office operations that will eventually employ 1,000 workers. “With the election coming up, I think you’ll see a lot of new ideas to spark economic growth,” DelGreco says.

Adam Kuykendall, University of Maine | BDN

BUILDING THE NEXT GENERATION WORKFORCE The Keystone State has been cultivating the next generation of workforce through the Workforce and Economic Development Network of Pennsylvania (WEDnetPA), which has been training incumbent workers on new technologies. The state also increased apprenticeship programs and outreach in K-12 programs, says Dennis Davin, secretary of the Pennsylvania Department of Community and Economic Development.

“Part of it is ensuring there’s exposure to manufacturing jobs, that younger people know there are tremendous opportunities out there,” Davin says. “Apprenticeship programs can help train the next generation of workers.”

New projects are already putting people to work. Pipe joining manufacturer Victaulic announced in January a state-of-the-art, 400,000-square-foot manufacturing facility in the Lehigh Valley. Silgan Containers, a food packaging manufacturer, also announced an expansion in Upper Macungie Township. And President Trump visited H&K Equipment in Coraopolis to highlight how the tax bill will help manufacturers.

Pennsylvania has been promoting its shale reserves as companies that acquire land in the state also own the rights to the natural gas resources below those facilities. “It’s a big advantage. Some companies can save millions per year in energy costs,” Davin says.

cities are starting to eye New Hampshire, spurring a “new vibrancy,” Caswell says.

The state’s economy has outperformed the rest of New England, boosted by strategies around workforce development, tax rate reductions, regulatory reform and statewide collaboration. Allegro MicroSystems, a manufacturer of semiconductors, recently announced an expansion at its facility in Manchester. And in May, Québec-based manufacturer Deflex Composite broke ground on its first U.S. facility in Berlin.

Attracting those younger workers and cultivating talent will be key to maintaining the momentum. Last summer, Gov. Chris Sununu founded the Millennial Advisory Council to promote initiatives to attract additional younger workers. “We have good companies here, and they want to expand.

We just need more people,” Caswell says.

MAINE The growing demand for cross-laminated timber and engineered mass timber technology represents a growth opportunity for Maine.

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Renewable energy Vermont

VERMONT In addition to offering area businesses energy solutions, Vermont’s energy sector affords the opportunity to export that technology across the country.

40 VERMONT CAPITALIZING ON CLEAN ENERGY Vermont is quietly becoming a leader in renewable energy. The state’s clean energy sector grew by nearly 30 percent over the past five years and employs one in every 16 Vermonters, says Olivia Anderson, executive director of Renewable Energy Vermont. The Union of Concerned Scientists ranks the state second in the nation for clean energy momentum. “We have a comprehensive plan that commits to 90 percent renewable energy by 2050,” Anderson says.

Two of Vermont’s utilities, Burlington Electric Department and Washington Electric Co-op, qualify as 100 percent renewable. In addition to offering sustainable and cost-effective energy solutions for businesses, this affords the opportunity to export that technology across the country. Three energy storage manufacturers, Dynapower, Northern Reliability and Northern Power Systems, are gaining national attention for their technologies. Waterbury-based SunCommon recently developed a solar parking lot canopy, and AllEarth Renewables of Williston announced an innovative solar tracker to keep panels following the sun.

“From manufacturing to engineering and installation, we have many sectors working collaboratively in the clean energy community, and the state commitment gives security to these companies and investors,” Anderson says.

41 MARYLAND THE CYBER CAPITAL Maryland continues to expand its reputation as a leading center for cybersecurity, says

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Mike Gill, secretary of the Maryland Department of Commerce. At Fort Meade alone, there are more than 62,000 employees working in the industry for such companies as Cisco and Tenable.

The hub is also spinning off private startups. Startup studio Data Tribe set up a base in Fulton in July 2016 to bring Silicon Valley expertise to new companies emerging from cybersecurity, Big Data and analytics labs in the Washington, D.C., beltway. “There’s a lot of investment of capital by the government and private industry,” Gill says.

And there’s continued growth in biotech and life sciences, with more than 1,000 sector companies holding a presence in Baltimore, including GSK, AstraZeneca and Medlmmune, Gill says. To maintain momentum, Gov. Larry Hogan introduced Excel Maryland, a comprehensive, statewide, collaborative economic development strategy to develop new ways to accelerate growth in the cybersecurity and life sciences industries. “The moment we stop doing the things that have put us in this position to capitalize on these industries, it could be a problem.

We’re not lucky. This didn’t happen by accident. We can’t rest on our laurels,” Gill says.

42 RHODE ISLAND INNOVATION IN THE OCEAN STATE Government, businesses and academia are joining forces to grow the new Providence Innovation & Design District. The 191,000-square-foot Wexford Innovation Center broke ground in the district last year and has already secured tenants such as the Johnson & Johnson Health Technology Center and the Cambridge Innovation Center.

It’s a big development for a state that struggled to emerge from the Great Recession, says Stefan Pryor, Rhode Island secretary of commerce. A 2016 report by the Brookings Institution noted that despite the large number of educational institutions, the state hasn’t realized its potential for commercializing knowledge. But that’s changing. “Over the course of roughly two years, 22 companies have landed or expanded or announced their intent to come to Rhode Island,” Pryor says.

Another possible game-changer is CVS

Health’s plan to buy Aetna. Should the deal be approved, it would become the country’s third-largest company. As of mid-January, Aetna had put off a plan to move its headquarters from Connecticut to New York City. CVS already employs 8,000 people in the state and will retain its headquarters in Woonsocket, but there is speculation that Aetna could also move some resources to Rhode Island.

Now, the main challenge is getting all stakeholders on board, building enthusiasm and pushing the state to reach its full potential. “Despite the presence of these universities and committed companies, Rhode Island has not, in the past, demonstrated the kind of economic growth this state is capable of,” Pryor says. “These developments could change that.”

45 MASSACHUSETTS

46 CONNECTICUT RESURGENCE IN MANUFACTURING After years of decline in manufacturing activity, companies such as Electric Boat, Pratt & Whitney and Sikorsky are sparking a resurgence in the sector, says Catherine Smith, commissioner at the Connecticut Department of Economic and Community Development. In 2017, the number of manufacturing jobs in the state increased for the first time in seven years.

Five years ago, Connecticut laid the groundwork with notable investments in its community colleges. It has since doubled the number of graduates in STEM fields. The state also created the Manufacturing Innovation Fund, which offers matching funds for federal grants for job training and assistance with business development and technical needs. To date, approximately 900 compaStocktrek Images

THE PLACE FOR DISRUPTION At a time when companies are disrupting their business models to find new opportunities, Massachusetts is becoming the place to do it. GE broke ground on its new headquarters in the Seaport District in Boston in May, largely motivated by the strong talent pool. Former GE CEO and Chairman Jeff Immelt told investors in 2016 that the city’s culture of innovation would put the company in “a world of ideas, so that we remain contemporary and paranoid.”

“We’re at the forefront of technological conversions, and we provide that very unique environment for companies to be able to break out of their silos,” says Susan Houston, executive director of MassEcon.

Toyota announced in May 2017 that it is working on a number of autonomous vehicle projects with MIT, and cloud services provider Akamai Technologies announced a new headquarters in Cambridge’s Kendall Square in January. “There’s a combination of disciplines in a compact geographical area that all of these leading companies need to call on,” Houston says.

Growth in biotech is also surging. Medical device company Insulet broke ground on a $100 million facility in Acton in August, and Alexion Pharmaceuticals announced plans to move its headquarters from Con-

necticut to Boston’s Seaport District by 2018.

In October, MilliporeSigma opened its new Burlington life science center to serve as a regional hub for scientific advancement and customer collaboration.

nies have taken advantage of the program.

“We wanted to make the investments alongside these companies to make sure they could actually compete, and we think it’s working,” Smith says.

One challenge Connecticut faces is the perception of its business climate, Smith says. The state ranked #46 in Chief Executive’s 2017 Best & Worst States, with CEO survey respondents citing high taxation and regulation. “The business climate is actually pretty good but the perception isn’t, and we need to keep working on it,” she says.

CONNECTICUT Groton, Connecticut-based Electric Boat builds submarines for the U.S. Navy.

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47 NEW JERSEY

49 NEW YORK REBUILDING THE EMPIRE The federal Bureau of Economic Analysis reported that New York had one of the lowest GDPs in the nation in Q2 2017. Its GDP of 1.2 percent was well below the national average of 2.8 percent and ranked it #45.

In late December, New York Gov. Andrew Cuomo announced more than $750 million in economic and community development funding as part of a strategy to jumpstart the economy. Funds will go toward more than 1,000 projects in the state and “are critical to building the foundations for New York’s future and ensuring that our economic momentum continues,” said Cuomo.

New York still lands big investments in many sectors, notably in information, real estate and professional services. MasterCard announced in late November it would expand its operations in Manhattan with a

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212,000-square-foot center and nearly 500 new jobs by 2024. Ed McLaughlin, president of operations and technology for MasterCard, called it “an exceptional gateway for NY governors office

MOMENTUM IN BIOPHARMA AND LIFE SCIENCES The Garden State continues to reign as a top hub in the life sciences and biopharma industry, says Michelle Brown, CEO of the New Jersey Economic Development Authority. Brown attributes that to the state’s high educational attainment rate and strong transportation connections to the rest of the Northeast. New Jersey is home to more than 12 of the top 22 R&D companies and 3,000 life sciences companies that employ 120,000 people.

“It’s probably the best place in the country to come and commercialize a [life sciences] business....It’s a talent very few locations have, but we have it here, and we’re trying to get the word out,” Brown says.

In August, Novartis received FDA approval to treat patients with Kymriah, a medicine it will manufacture at its facility in Morris Plains. UK-based Mallinckrodt opened a campus in Bedminster in October 2017 with 500 employees to provide support for the company’s hospital therapies and autoimmune and rare disease businesses. And Allergan is consolidating the operations of many of the companies it has acquired over the last few years at its new headquarters in Madison.

talent, innovation and collaboration.”

Strategic Financial Solutions, Discovery Communications and EY are all also expanding operations in the state.

* WASHINGTON, D.C. A NEW CAPITAL FOR TECH STARTUPS Venture capitalists invested more than $1.55 billion in D.C. tech startups in 2017. One of the biggest deals last year was Mapbox, a mapping and location platform for developers, which announced $164 million in Series C funding in October. Aledade, a value-based healthcare tech firm, also raised more than $60 million.

Washington, D.C. was one of seven Northeast locations that Amazon identified for its HQ2 project. Some analysts speculate the city has a strong chance, noting that Jeff Bezos owns a major media company based in the region and purchased a house there in October 2016. Northern Virginia is also home to the country’s largest concentration of cloud computing infrastructure.

Mayor Muriel Bowser released a fiveyear D.C. Economic Strategy Report in 2017 and noted that the city must do more to embrace innovation, inclusiveness and resilience. The goals are to grow the private sector 20 percent by the end of 2021 and to cultivate more economic prosperity by creating more jobs and lowering unemployment levels. “Washington, D.C. is no longer a one-company government town; we are a leader in innovation and tech, brimming with top talent and endless opportunity,” said Bowser in a statement.

NEW YORK Despite sluggish GDP growth, New York is still landing investments in IT, real estate and professional services.

Craig Guillot is a New Orleans, Louisiana-based business writer specializing in technology and economic development.

2018

BOARDROOM SUMMIT

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C EO 2 C E O SU MMI T

LEADING CHANGE

A

AMAZON UPENDED RETAILING. Google and Facebook transformed advertising.

Uber turned the taxi and limo industry on its head. In the age of digital-born companies, traditional businesses have no choice but to rethink value propositions and quickly capitalize on new opportunities or risk losing significant market share—or simply becoming obsolete.

The biggest change over the past decade, according to Rodolpho Cardenuto, president of SAP’s Global Channels and General

Chief Executive’s Dan Bigman and SAP’s Rodolpho Cardenuto discussing the challenges of ubiquitous disruption.

Business, is the ubiquity of disruption.

“Where before, you would see disruption in one or two industries, now it is across the board,” Cardenuto told CEOs gathered for the annual CEO2CEO Summit in midtown Manhattan in December.

New technologies, such as Big Data, Internet of Things, blockchain and the digitization of matter, are impacting every business, whether large or small, B2B or B2C. CEOs who sit too long on the sidelines

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If you’re not deploying talent and technology to win the future readiness race, you’re speeding toward obsolescence.

BY C.J. PRINCE

will pay a steep price, said Cardenuto. “If you see it as a threat, and you get scared and don’t invest, that’s a big danger. I’m not saying you have to become an expert in blockchain, IoT or machine learning, but you have to be open to new technology.”

The question of how to go digital using the latest technology to create entirely new value propositions was the subject of discussion at the all-day summit, which was held at the Apella Alexandria Center. For CEOs of small and medium-sized businesses, who lack the expertise and deep pockets of larger competitors, the options seem overwhelming. But Cardenuto pointed out that what SMEs lack in budget size, they make up for in agility and the freedom to pivot more easily when new tools become available.

“They don’t have huge legacy investments with a balance sheet to pay off, so it’s easier to adopt,” he said, adding that SMEs are competing for the same customers, who now, thanks to Amazon, demand more seamless, cost-effective, autonomous solutions. “If you’re focused on customer acquisition or expansion, you have to be able to provide a frictionless experience,” he noted, pointing to the example of Marriott offering hotel check-ins via app and making room keys downloadable. “As customers, we don’t want friction. That’s the reality of our society today.”

Most businesses today are still mired in the “silos-and-spaghetti” phase.

—MEADE MONGER, MANAGING DIRECTOR, ALIXPARTNERS

THE PERILS OF THE DIGITAL DIVIDE IT’S NOT EASY TO BE A LEGACY COMPANY these days. You’re facing off against more nimble, digital-born upstarts fluent in IT language and unhampered by years or decades of bricks, mortar and mainframes. And you’re expected to do everything better.

But if that’s where you find yourself, you’re in good company. Most businesses today are still mired in what Meade Monger, managing director of AlixPartners, calls the “silos-and-spaghetti” phase: a patchwork of antiquated systems that don’t work well together, with one or more heroic IT managers trying to respond to current demands by putting a better face on the front end. “But on the back end, it’s still a legacy mess,” Monger said.

“Future-ready” companies, on the other hand, that have embraced digital and invested in infrastructure that enables operational excellence and a great customer experience, are surging ahead. Future-ready firms boast net margins 16 points higher than their industry peers, while the net margins of those in the silos-and-spaghetti phase are 5.1 points lower, according to data from AlixPartners and MIT’s Sloan Center for Information Systems Research.

One of the key differences is how the IT budget is allocated. “High-performing firms are investing much more in infrastructure today,” said Leslie Owens, executive director

and MIT CISR senior lecturer. Lower-performing companies are spending more than 70 percent of IT budgets running the business rather than investing in the future. “And they’re falling further and further behind,” added Monger.

Another key difference between the leaders and laggards is how they view IT. Future-ready companies don’t centralize all IT decisions in one siloed department, but rather see IT spend as a part of every department’s budget and strategy. “In a lot of companies, you have the business people and technology people not as connected as they should be—the CEO gives the CIO the budget, and the CIO makes decisions,” said Monger. “But that’s not the way it should be. It should be a collaborative process around how you invest in technology.”

The pathways from silos and spaghetti to future ready range from gradual slope to more radical spike, depending on the company’s business, its customer experience and the threat level from digital-born competitors. But there’s no question all companies have to make the leap, sooner rather than later, to keep pace with digital natives, said Monger, adding that retailers could take a lesson from industrial companies, which are focusing more on building digital infrastructure in warehouses and supply chains. “As a result, they’re actually more future ready than retailers.”

“It should be a collaborative process around how you invest in technology.”

—LESLIE OWENS, EXECUTIVE DIRECTOR AND MIT CISR SENIOR LECTURER

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“As a country, we value competition and the idea of allowing free markets to force everyone to up their game.”

—ADENA FRIEDMAN, PRESIDENT AND CEO, NASDAQ

DISRUPTION AS OPPORTUNITY NASDAQ IS ONE COMPANY THAT UNDERSTANDS DISRUPTION. As the first electronic market in 1971, it launched as a disrupter of trading.

But by the late ’90s, Nasdaq found itself the dinosaur among scrappy startups that were able to adopt new technology more quickly. Not knowing quite how to respond to the new competitive climate, Nasdaq lost ground. “I was there at the time, watching our market share go from 97 percent to 14 percent in trading,” Nasdaq’s president and CEO, Adena Friedman, told attendees gathered for the CEO2CEO Summit. “We didn’t weather that well.”

After Friedman’s predecessor, Robert Greifeld, bought its nearest competitor, Instinet, Nasdaq began reinventing itself as a technology company. Friedman continued on that path, and today, the company provides underlying trading technology to 100 different markets around the world. Nasdaq reported record net revenues for third quarter 2017 of $607 million, up 4 percent from the year before. The market is still highly competitive, but Friedman sees that as an opportunity. “The U.S. capital markets can handle a lot more competition than other markets around the world,” she said. “We’re a better company and a better market because we have to compete.”

Friedman offered three lessons for dealing with disruption: 1. Live in reality. “You can’t look the other way and pretend it’s not happening to you. We had to understand that this was the new world, that the guys competing with us were the best technologists in our space, and we had to change the way we did things.”

2. Don’t place all your bets on one killer app. “Instead of being incremental and solving problems one at a time, we had this big project that we thought would solve everything. Don’t assume there is one panacea.”

3. Regulation is not the answer. “We went to the regulators to get them to solve our problem for us by complaining,” Friedman said. But in the end, the only way forward was to compete to prove Nasdaq was the best at what it did. “As a country, we value competition and the idea of allowing free markets to force everyone to up their game.”

In that environment, no company can afford to be overconfident because there will always be a competitor around the corner waiting to eat your lunch. “Complacency is the killer of every great company,” she said. “In the blink of an eye, things can change around you. Be ready for the change and embrace it.”

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CHIEF EXECUTIVE 2017 CORPORATE CITIZENSHIP AWARD: SAINT-GOBAIN FOR SAINT-GOBAIN, ONE OF THE WORLD’S LARGEST manufacturers of building materials, giving back to the communities where it operates offered a potential solution to the looming U.S. skills shortage—or as president and CEO Tom Kinisky calls it, “the tsunami that’s about to hit U.S. manufacturing.”

The 350-year-old company developed a partnership with YouthBuild USA, which runs a green building education and job training program for disadvantaged youths. The plan? To offer young adults the training and skills needed to secure careers in the manufacturing and construction industries. At the same time, the plan is helping Saint-Gobain fill its pipeline with skilled workers specifically trained to work with its building materials. That couldn’t have been done by writing a check to YouthBuild, said Carmen Ferrigno, chief communications officer for Saint-Gobain, who developed the partnership and accepted the 2017 Corporate Citizenship Award at a luncheon at the CEO2CEO Summit. “It has to be a real partnership and a long-term investment.”

The initiative offers a sense of purpose to employees that today is critical to attraction, engagement and retention. “It’s become a point of discussion with millennials, but it’s true of every generation,” Kinisky said.

“Our employees love it because they get this chance to help disadvantaged youth. And as a company, it aligns with our business model.” He added that it is, in part, the fact that corporate citizenship is built into the core culture that has sustained Saint-Gobain through 350 years. “It’s really a part of our DNA.”

“It has to be a real partnership and a long-term investment.”

—CARMEN FERRIGNO, CHIEF COMMUNICATIONS OFFICER, SAINT-GOBAIN

Above from top: Henry Schein CEO Stanley Bergman and Saint-Gobain’s Carmen Ferrigno; Chief Executive’s Dan Bigman, BDO CEO Wayne Berson, Ferrigno, Bergman, Chief Executive’s Wayne Cooper and Marshall Cooper; Berson

DISHING UP DIGITAL TO FIGHT AND WIN IN ONE OF THE MOST competitive industries, Michael Osanloo, CEO of P.F. Chang’s, broke all the rules of restaurateurs, embracing data science and digital engagement to get his customers what they want before they even know they want it. But while the deployment of new technology has been key to P.F. Chang’s success in recent years, Osanloo told CEO2CEO Summit attendees that his most important agenda item as CEO is making sure his people are happy. “I’m a big believer in servant leadership. The server on the front line is most important. If my servers and my bartenders are all doing well, then my guests are doing well. If my guests are doing well, my investors are doing well— and they’ll take care of us.”

HOW P.F. CHANG CEO MICHAEL OSANLOO SPENDS HIS TIME: 60% on employees 20% on finance 10% on marketing 10% on IT

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C EO RO U NDTAB LE

THE INFRASTRUCTURE OF INNOVATION

To drive growth, improve technology and deepen your talent pool.

BY C.J. PRINCE

FOR THE FIRST TIME IN A HALF century, the future home of innovation is up for grabs. The geography of American industry is upside down. Traditional capitals of the vast swath of the nation’s heartland, like Indianapolis, Detroit, Columbus and Des Moines, have become hot hubs for tech workers, as millennial talent flees the high-cost coasts. Meanwhile, traditional information enclaves like New York and California are rediscovering their passion for manufacturing.

Wherever a company is based, it needs a solid infrastructure to thrive in an increasingly technological and talent-driven economy.

But infrastructure means far more than roads and rails, noted David Roberts, CIO of the State of Indiana, at a roundtable sponsored by the Indiana Economic Development Corp.

“We think about the ethereal, as well. What are the ideas driving economic development in our state? Where does the money come from for resources? What about the people piece, the culture piece? And how can we influence that?” asked Roberts, who added that the state takes a hands-off approach when it comes to individual companies’ organizational structures. “We want to enable the winners to win, not pick winners and losers in our state.”

One of those winners, ClearObject, is the fastest-growing IT company in Indiana. It works with companies across the Midwest

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to develop Internet of Things (IoT) solutions for existing products, which are often ordinary items that have been around for decades, from kitchen appliances to table lamps to car radios.

“What’s happening is that everyday devices are getting smarts built into them, and they’re connecting and sending data— data we can use to understand how that device is being used,” explained ClearObject CEO John McDonald.

As an example, McDonald recalled being approached by the CEO of a small manufacturer that had recently been awarded a 10-year contract to provide gas stove igniters to appliance maker Electrolux.

The catch? Electrolux wanted the manufacturer to put something in the igniter that would talk to the circuit board and help to predict when the igniter would fail.

“Because ultimately, what Electrolux wants to do is one day, the doorbell will ring, and there will be a man with a box.

Inside will be an igniter because your stove called and said it needs a new one,” said McDonald. “This is happening all over the world now, ordinary devices becoming smart.”

IoT is boosting flagging industries that had previously relied heavily on human sweat, such as farming. Driverless tractors, robotic dairies, drones to spray and

monitor crops—all are being implemented to phase humans out of the agricultural process. “There are fewer folks out there who want to work as hard as you have to in order to run a farm, so we’re seeing this technology continue to be used,” said Peery Heldreth, CEO of Farm Credit of the Virginias. “For us on the lending side, that means that our clientele will demand more from us in how they want their services when it comes to use of the technology.”

But IoT is only one of the disruptive forces companies must grapple with today, said Larry Walsh, CEO of The 2112 Group.

“It’s the cloud, it’s mobility, it’s automation, it’s Big Data, it’s artificial intelligence. You have to put all these together,” he said. “But if you think that IoT is not applicable to you, then you’re just going to watch the world pass you by. It’s not a matter of, ‘Is this going to touch you?’ It’s ‘When is it going to touch you? And to what degree?’”

Size Matters

For some companies, though, size can be a barrier to adoption, even when the CEO recognizes the importance of the innovation.

Pureflow, which designs and builds water purification systems, already has invested in technology to monitor its mobile water filtration trailers, collect data and use that data for limited reporting.

“Now we need the ability to have a really robust system in place that is easier to set up from the start and easier for our customers, who are large companies, to log in and see their data and get reports that predict when the system will need to be cleaned, for example,” said David Ferguson, CIO of Pureflow. “We know we need to be there, but we’re a relatively small company, so we don’t have that in-house.”

Even when IoT tools are made available to consumers, adoption often still lags innovation. Take autonomous parking, for example, said Lior Arussy, CEO of Strativity. “Anybody want to guess the level of utilization of that feature, which is already in cars today?

It’s 1 percent. We are selling tools to customers who get frustrated because they don’t understand the technology,” he said. “We need to integrate it with some kind of human

strategy to get the majority of people not to be afraid of it. That’s the missing part.”

“I would have said less than 1 percent,” said Vlad Shmunis, CEO of VoIP company RingCentral, which has 350,000 businesses on its cloud-based system. “If we look at all our features, the vast majority have limited utilization.” On the flip side, he added, when a feature is removed, a vocal minority of customers are disappointed. “One thing we have going for us is that we have a lot of customers, and they are very vocal. So, we listen, and we try to react.”

The easiest technology for consumers to adopt is the kind they don’t have to understand because the technology is thinking for them, said Moreton Binn, CEO of Spa Here.

“Pittsburgh’s airport is installing a system where when you walk in, your phone will ring and ask if you want to check in,” he said. Once you respond, the system knows where you are and knows the route you will take to your gate. “[It starts] to tell [you] everything that’s available—where to drink, eat, shop.” For Binn’s company, which offers express massages to airport travelers, that could be a big boon to business.

Other companies will use IoT to make their operations more efficient and safer.

Many of the 4,000 employees at Lewis Tree Service work in bucket trucks near dangerous, high-voltage power lines, sometimes in inclement weather. “I don’t need self-parking on my car, but the concept of parking a bucket truck in the proper orientation to something that could get them into trouble, that is fascinating to us,” said Gregory Reitz, Lewis’s vice president of IT.

“We want to enable the winners to win, not pick winners and losers in our state.”

—David Roberts, State of Indiana

Invasion of Privacy

While IoT can help companies work better or offer products or services to customers before they even know they need them, that same technology raises privacy concerns that slow adoption. ClearObject’s McDonald offered the example of a car

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radio that contains software that can detect subtle chang- Most don’t understand the rights they are waiving es in driving patterns and knows when you’re not keep- when they sign terms and conditions forms online. ing to your lane as effectively as you were an hour ago. “We all rush to click ‘yes’ to everything, but then the “It knows that it’s 3 a.m., and you might be tired. It also moment that data is created, you really have no control knows that two exits up is a 24-hour Starbucks. So, on over it,” he said. “So the issue starts earlier, with a the car radio screen, up pops a message, marketing education for consumers.” And ‘Would you like a chai latte?’” McDonald it may eventually take regulation to solve “Regulation is said. “I can tell you with great confidence the problem, he added, with Europe leadcounterintuitive to that most cars that come off the proding that charge. innovation. You can’t uct line today have the ability to do just The group agreed that the generational regulate your way that. So, why doesn’t your car order your divide in how people use technology is a to greatness, right? coffee? Because you don’t want it to. Bechallenge. Older consumers often favor You’ve just got to cause, who else do you not want to know privacy over convienence, and younger [that] you’re weaving in your lane at 3 in Internet users are more open to sharing innovate and create the morning?” their data, perhaps without understanding more market value.”

What customers really want is control the potential risks. Giving people more in—Sri Navalpakkam, over who has access to that data. Since formation about what companies are doing The Ascend they don’t have control, “instead, they with their data will likely be crucial in the just shut it off,” said McDonald. The years to come. other thing holding back adoption is security, although “Wouldn’t that be the real innovation?” asked Cabot some of those fears are unfounded. McDonald offered Earle, CEO of Microbac Laboratories. “Not to access all the example of using a credit card online versus in per- this information and spam people and do all the things son at a restaurant. that drive us bonkers—but to actually do it with integri“Humans don’t trust computers, at least not yet. In ty and respect.” that moment with the waiter, even though it’s fleeting Blockchain technology may be one answer to that and simple, you’ve created an interpersonal bond bedilemma, said Pureflow’s Ferguson. Blockchain is tween you,” he said. Yet, Amazon is actually the more essentially a publicly auditable, digital ledger of every secure method of payment by far. “There are technolstep that a cryptocurrency, like Bitcoin, takes. “Apogies we can put in place to deal with real security plying that concept to data streams and data packets issues, but it’s very difficult to put technologies in place could be very useful,” he said. “That’s a way you can to deal with perceived security issues.” Strativity’s give customers control over where their data streams Arussy pointed out, however, that many of the privacy are going and even potentially ascribe value to it as it concerns that have made consumers wary are real. transfers.”

The problem, he noted, is that it’s still all theoretical.

Implementation will require regulation—or for companies to see it as a competitive differentiator, he said.

“Those companies that do offer it are likely to grab market share over those [that] don’t,” Ferguson said, adding that, in all likelihood, the solution would have to include ROUNDTABLE PARTICIPANTS Neerav Shah, CEO, Aerotronic both carrots and sticks—regulatory penalties and the Bottom row, from left: Top row, from left: potential for customer acquisition.

John McDonald, CEO, ClearObject Tom Gesky, CEO, Resourcive Cabot Earle, CEO, Microbac David Ferguson, CIO, Pureflow But Sri Navalpakkam, managing partner at The AsLaboratories Larry Walsh, CEO, The 2112 Group cend, disagreed with regulation being an answer. “This Moreton Binn, Chairman & CEO, Gregory Reitz, VP, Information Spa Here is 2018. The problem of Big Brother, of privacy, that’s Technology, Lewis Tree Service David Roberts, CIO, State of Indiana Sandy Littman, CEO, American Glass a given. You’re not going to solve that,” he said. The Timothy Moonan, CEO, The Hibbert Light Group successful companies he works with are using these Dan Bigman, Editor and Chief Content Sri Navalpakkam, Managing Partner, Officer, Chief Executive Group tools only to know their customers more intimately The Ascend Vlad Shmunis, Chairman & CEO, and to serve them better. The rest—i.e., the hundreds of Alan Kravetz, President & COO, RingCentral Leveraged Marketing Corp.

Alitia Faccone, Director of Business spam emails we get each day—is noise. “Regulation is David Morris, CEO, The HiPER Development, Jackson Lewis P.C. counterintuitive to innovation. You can’t regulate your Solutions Group Peery Heldreth, CEO, Farm Credit of Not Pictured: Lior Arussy, CEO, the Virginias way to greatness, right? You’ve just got to innovate and Strativity create more market value.”

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C EO ROUNDTAB LE

LEVERAGING BUSINESS INTELLIGENCE How to use employee data to boost business operations—and your bottom line. BY JENNIFER PELLET WE’VE ALL SEEN WHAT DATA analytics can achieve on the consumer side of business. Insights gleaned from demographic, behavioral and contextual data about potential and current customers are being used to tailor messaging and inform marketing and customer service efforts— delivering greater customer engagement and strengthening brand loyalty. But what about employees? What if the data that companies already collect on their work-

What if the data companies already collect on their workers could help identify top job candidates, reduce turnover and enhance company culture?

“We’re talking about Moneyball for the workplace.”

—Eric J. Felsberg, Jackson Lewis P.C.

ers could help identify top job candidates, reduce turnover and enhance company culture?

“We’re talking about Moneyball for the workplace,” Eric J. Felsberg, a principal at Jackson Lewis P.C., told CEOs gathered for a recent roundtable discussion on leveraging employee data, co-sponsored

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by the law firm. The concept behind the movie Moneyball, using data analytics to gain a competitive edge on the baseball field, is just as applicable, if not more so, to managing talent in the business world, he pointed out. “Employers collect robust labor and employment data on applicant flow, compensation, promotion, attrition, termination. These are all examples of the kinds of information collected in the ordinary course of doing business that can be potentially drawn upon and analyzed to address whatever burning employment issues you have.”

While many companies use electronics to track personnel activity, few are realizing its full potential, added K. Joy Chin, another principal at Jackson Lewis P.C., who likened the untapped opportunity of employee data to the unused computing power most consumers carry around in their pockets.

“Technology is part of all of our daily lives,” she noted. “I have a smartphone, a tablet, a smart TV, and yet, I’m only using about 20 percent of the capability of my own personal electronic devices. That’s probably true for a lot of organizations that are embracing employment technology. How many are fully utilizing it for things other than just record-keeping? What would it take to start relying on that data that companies are already tracking to try to improve or increase operating efficiency?”

Addressing Attrition

Thomas Rogers, CEO of Lewis Tree Service, was one of several CEO participants who expressed enthusiasm for that idea, particularly the potential for reducing turnover

by enabling better hiring decisions. “Is there a model we can develop based on our people who have stayed for a long time and embraced the corporation versus those who have left?” asked Rogers, who noted that his company’s turnover rate is over 70 percent. “What are the contrasts between the two that would help our frontline people make better hiring decisions and reduce the termination rate? Those are things that are getting more difficult as attracting labor becomes more challenging.”

TransForce reported success doing just that. The transportation and trucking company was losing one out of five field employee hires within their first year, reported CEO David Broome. “Now we keep 99 out of 100, and a lot of it has to do with the hiring process,” he said. “Instead of hiring the first person who walks in, we established criteria based on our best workers. For our office workers, we go even further, giving all potential hires a personality profile test administered by a psychology firm. We haven’t lost an office person in about five years.”

But while business leaders recognize that collecting data and crunching numbers unlocks talent management opportunities, many also find the prospect daunting—and for good reason. From understanding what type of data is needed and having the mechanism to capture that data to performing the analysis and interpreting the results, challenges abound.

Several CEO participants reported struggling to reconcile multiple pools of data.

“One of the biggest challenges we’ve faced when we’re looking to acquire or manage a portfolio company is that most companies have siloed legacy systems that aren’t accessible from a data and workflow standpoint,” noted Doug Mellinger, managing director of Clarion Capital Partners, whose firm uses data analytics to manage the workforces of companies in its portfolio. “Often, due to those silos, it can be really hard to get to that information in a reasonable period of time.”

Jeff Daugherty, CEO of SPBS, echoed that sentiment, noting that his company has struggled to pull the data together to help inform hiring of field service technicians for hospitals, surgical centers and clinics.

“We’re running analytics to compare the success rates of those trained in the military and those who were not,” he said. “We also stratify by background, such as whether they’re able to work on imaging equipment or anesthesia machines. But all of the systems are disparate and in different silos, so I’m struggling to find a resource that can put it all together.”

“How many are fully utilizing employment technology for things other than just record-keeping?

What would it take to start relying on that data that companies are already tracking to try to improve or increase operating efficiency?”

—K. Joy Chin, Jackson Lewis P.C. Unfortunately, there’s no easy way to merge multiple data sets, said Jackson Lewis’s Felsberg. “You need to take the two systems, have an analyst marry the data and then look for and correct mismatches. It’s the dirty work in all of this, but once you do it, performing the analytics becomes much easier, and the results are more reliable.”

Getting Started

To unlock the value hidden in employment data, Felsberg suggests CEOs start by identifying their objectives rather than delving into what, broadly, the data can offer. Are you looking to understand why people leave the organization? Trying to identify the right skill set and knowledge base to fill a certain position? “For example, if you’re looking into attrition—you can look at who’s leaving the organization,” he said. “Are they [predominantly] coming from a particular business unit or a certain position? And if so, would it help to add a training component or change the work environment?”

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When designing and applying data analytics, it’s also critical to be mindful of pitfalls that could skew results or cause your company to run afoul of employment laws.

Many companies get started with employee data analytics in talent acquisition—using algorithms to speed up and add objectivity to the process of scanning thousands of job applications in search of candidates with the characteristics and qualifications the company has identified as ideal. But while that process can streamline the search process and remove hidden biases that human talent professionals might bring to the process, it comes with its own set of risks, noted Felsberg.

“You have to be careful about criteria having a disproportionate impact on certain groups,” he explained. “If you base qualifications on your current management team and that team is predominately male, you’re not necessarily searching for gender, but the underlying qualifications might unintentionally correlate with a certain gender or race.”

Companies also run the risk of defining the ideal applicant too narrowly, noted Daniel Johnson, CEO of Pureflow, whose company uses analytics to recruit.

“Sometimes we interview for a position, but a person comes in, and we might have to change the job description a little bit to accommodate them because they’re a great hire,” he said. “I had one CEO tell me, ‘We hire athletes.’ I love that analogy because in reality, business is always changing, and you want somebody who fits the culture and can adapt and continue

to add value as you grow. Really, that’s the characteristic we try to hire for. [With analytics,] you run the risk that your search results will only be as good as the criteria you plug in.”

Predicating criteria around legacy skills is another pitfall to guard against. Banks, for example, traditionally test prospective tellers on their ability to count currency, a job skill that is virtually obsolete. “When you’re testing for criteria, you need to make sure that each one you feed into the model makes sense,” noted Felsberg.

“If you suddenly see someone updating their LinkedIn page, that’s a trigger that [he or she] may be looking for employment.”

Roundtable Participants Top row, from left:

Michael Clements Jr., Vice President, Energy Weldfab

David Broome, President and CEO, TransForce

Bottom Row, from left:

Bob Petrone, Vice President of Finance, Lewis Tree Service

Doug Mellinger, Managing Director, Clarion Capital Partners

Jeff Daugherty, Chairman, President and CEO, SPBS

J.P. Donlon, Editor Emeritus, Chief Executive

K. Joy Chin, Principal, Jackson Lewis P.C.

Thomas Rogers, President and CEO, Lewis Tree Service

Eric Felsberg, Principal, Jackson Lewis P.C.

A.C. “Fred” Engelfried, Chairman, Lewis Tree Service

Christopher Valentino, Office Managing Principal, Jackson Lewis P.C.

Phil Weser, CEO, March-Westin

Daniel Johnson, President and CEO, Pureflow

Lauren Holt, Vice President, Pureflow

Not Pictured: Debbie Durban, President, F360

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Data Dangers

Debbie Durban, president of F360, was one of several CEOs who asked about drawing on social media for insights about applicants. “Since social media is in the public domain, do algorithms being built for talent acquisition take social behavior into account?” she asked.

While acknowledging that some employers may be trolling social media for insights about applicants, Felsberg sees the practice of screening employees based on social activities that are perfectly legal as potentially problematic. “Let’s say I’m over 21, and there’s a picture of me getting completely inebriated on my Facebook page, and you think, ‘Well, that’s not the employee I want to have,’” he said. “Now you as the employer are taking that into account... that’s an issue that the federal government is increasingly concerned about.”

However, companies can monitor social media activity for signs of employees becoming restless. “If you suddenly see someone updating their LinkedIn pages, that’s a trigger that [he or she] may be looking for employment,” noted Clarion Capital’s Mellinger, who suggested that companies alerted to such activity early on could take steps to retain the employee.

Ultimately, with any analytical approach, it’s essential to have a plan in place to deal with the potential issue or opportunity it might unveil. In fact, having a plan of action from the outset is just as key to success as ensuring your data is accurate and your model is sound, said Felsberg. “Before you embark on these analyses, you have to be prepared organizationally to deal with the output, what remedial action or steps you’ll take. Acting on the results sounds like the last step in a data analytics model, but it really should be the first. Because you can run the most beautiful analytical model, but it won’t help the organization unless you’ve discussed what you’ll do with the results.”

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M EET I N G S A N D EVE N T S

Boston prides itself on its reputation as one of the world’s great technology and innovation cities.

DESTINATION DECISIONS

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When it comes to hosting events, finding the right local partners is as critical as the location itself.

in fact, that we booked our 2018 meeting right there and then.”

As most CEOs know, conferences, conventions, meetings and incentive travel are crucial for relationship building these days amid the growth of remote workers and continuous, decentralized management via electronic communication.

Ninety percent of executives surveyed by the D.C.-based Meetings Means Business Coalition (MMBC) reported that in-person meetings improve their own ability to network, and 88 percent cite their ability to increase professional development.

To be successful, CEOs must get involved with planning, especially selecting a venue.

But that doesn’t mean you need to go it alone—or should. “If selected correctly, the meeting location and destination partner can positively impact these kinds of outcomes and serve as a catalyst for the event’s overall

RICHARD WILLIAMS PHOTOGRAPHY/GETTY IMAGES

I

n April 2013, the Ambulatory Surgery Center Association was about to hold its annual four-day meeting when the worst happened.

On the eve of the event, scheduled to be held in Boston that year, terrorists attacked the finish line of the Boston Marathon, killing three people and injuring hundreds more. As the nation reeled and the city shut down for one of the most intense manhunts in American history, ASCA CEO William Prentice wondered how on earth they were going to bring thousands of attendees and exhibitors into the city safely and somehow pull off the conference.

Luckily, he had some help.

“We were able to proceed with a successful event, thanks in large part to the support and environment created by our Boston partners,” says Prentice. “It was so positive,

BY J E F F H E I L M A N

THE POPE IN 2015.

THE DEMOCRATS IN 2016.

THE DRAFT IN 2017.

(SO YEAH, PHILADELPHIA CAN HANDLE YOUR CONVENTION.) We are what we are. And what we are is a city that’s unapologetically candid–about everything from bid estimates and event details to the best way to navigate our streets. (It’s called shoe leather.) Bring your meeting to Philadelphia and let street smart meet smart smart.

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DENIS TANGNEY JR/GETTY IMAGES

Cultural attractions like the Philadelphia Museum of Art help make the city a contender for meetings.

success,” says Julie Coker Graham, co-chair of MMBC and president and CEO of the Philadelphia Convention & Visitors Bureau.

“Beyond basic needs such as space and technology, key destination assets such as arts and culture, academic institutions and even dining can critically shape the benefit and value that attendees can extract from any given meeting. Our customers often say that the experiences wrapped around their meetings help them connect with the content being delivered.”

Where, and Who The key, of course, is having the right partner. Cheryl Travis-Johnson, executive vice president and COO of Carrollton, Texas-based VRM Mortgage Services, discovered that when bringing the inaugural Financial Services Expo to nearby Irving, Texas, located halfway between Dallas and Fort Worth.

Home to Fortune 500 titans, including ExxonMobil, as well as some 11,000 hotel rooms, Irving squarely fit the bill, and the Irving Convention Center’s location between DFW International and Love Field, both of which offer shuttle service, made it the ideal choice.

“Easy access for local and out-of-town attendees was also important,” says Travis-Johnson. “Also, I did not want our delegates to feel like they were at a typical conference. We’ve hosted thought leadership events locally, and attendees appreciate the

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“Our customers often say that the experiences wrapped around their meetings help them connect

opportunity to get out of the boardroom and meet in unique settings with their peers.”

She’d bounced ideas off other senior leaders in her organization and got their buy-in for the location as well. “Executives know what their peers are looking for when making the decision to attend events or send others,” she says.

The next step was calling on the Irving Convention and Visitors Bureau, and Irving CVB Executive Director Maura Allen Gast was happy to help. Her goal, after all, is to build long-term relationships with businesses.

“Irving’s reputation as a city ‘built for business’ is not something we can afford to take lightly,” says Gast, an industry veteran who has led the development of Irving’s multi-venue convention campus and meetings standing in the competitive DFW Metroplex market.

Travis-Johnson welcomed their expertise. Her advice for getting the most out of the relationship with a convention bureau or other local partner? “Meet with the bureau and participating venues to understand their level of commitment toward making your meeting or event a success,” she says. “With their local relationships, including hotels and restaurants, they are a ready resource for creating exposure and participation for your meeting and event, while providing attendees with those requisite great experiences.”

with the

Right Place, Right ROI

content being

With three business development divisions focused on verticals that draw upon key destination assets—PHL Life Sciences, PHL Sports and PHL Diversity—the Philadelphia CVB looks for ways to leverage local and regional knowledge capital for the benefit of clients. “These include suggesting partnerships or relationships of potential value to the CEO,” says Coker Graham. “Or, connecting customers with local contacts that might assist with sponsorship, meeting content or developing relationships that can benefit their organi-

delivered.” ­—­ Julie Coker Graham, Philadelphia CVB

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Back to Boston

What to Ask VISIT Milwaukee President and CEO Paul Upchurch also views evaluating meeting ROI as an invaluable learning tool, allowing both the organization and the destination city to improve on future events.

“Was attendance up compared to previous programs?” asks Upchurch. “Did attendees stay beyond the meeting dates? Did groups and attendees return to the city for business or leisure? As a city, we look to measure outcomes because it’s important to maintain an exceptional reputation as determined by peer reviews in the meetings industry and through positive client and attendee feedback.”

“Must-have criteria, in my view, include airlift, hotel and meeting venue quality at a variety of price points, along with a diverse selection of entertainment options and unique experiences,” says Upchurch.

The decision usually falls at the corner office, he adds. “The CEO often ‘signs the check,’ so he or she, whether from experiencing Milwaukee firsthand or hearing about the city from a colleague or meeting planner, is the ultimate decision-maker,” he says. “CEO buy-in helps to guide the meeting from the outset, creating excitement and anticipation that goes to ensuring a successful outcome.”

COURTESY OF IRVING CVB

zation down the road.”

To assess options, she suggests evaluating the ROI that participants would gain from the experience and education that attendance provides. With high-level meetings, accessibility is more critical. “Careful selection can greatly increase travel efficiencies, while providing a seamless and high-quality experience to busy executives with little time.”

Conducting a post-event assessment from a destination perspective is also helpful.

Would attendees want to return? What local resources did participants engage with and how did those impact the meeting?

“Irving’s reputation as a city that’s ‘built for business’ is not something we can afford to take lightly.” ­—­ Maura Allen Gast, Irving CVB

Five years after the Boston Marathon bombing, Prentice and ASCA will be back in Boston this April. Once again, the city offered the right mix of a centralized meeting complex, as well as historical allure and a wealth of off-agenda options. Being one of the world’s great medical capitals was certainly crucial. “While the healthcare industry is a big employer in every market, not every city meets our needs,” he explains.

“Boston, however, is the ideal fit.”

But faith that his local partners would help make the event a success, no matter what, was a big reason to return as well.

His advice for CEOs and other leaders in getting the most from them? “Open the lines of communication, and get to know each other,” suggests Prentice. “Dig in and ask questions to ensure you are getting what you need from the destination and venues. And, be clear in setting high expectations, which is the best way of producing the meeting that you want and that your attendees expect.

“In my view,” says Prentice, “it’s a mistake for CEOs not to be involved in that process. Unfamiliarity with the location and its upsides—and potential downsides—is a risk to avoid. Even with our great planning staff, I would disserve them and our members by not actively participating in constructing our meetings.”

Brooklyn, New York-based journalist Jeff Heilman has been covering the global meetings and events industry since 2004.

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To Get Your Company to the Next Level...

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The Senior Executive Network (SEN) is a peer organization for your senior team that helps them to improve company performance, avoid costly mistakes and gain strategic wisdom by meeting with other senior executives who have comparable roles at non-competing firms.

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‘YOU HAVE TO SUPPRESS YOUR EGO’ Without self-awareness, your career is in dire risk of derailing.

BY CARTER CAST

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about having competencies and more about engendering trust.”

How do leaders uncover and address their blind spots? Here are a few best practices.

Those with an inflated sense of their own skills are six times more likely to fail.

Take a 360-degree feedback review.

Get confidential, anonymous feedback from people you work with on leadership, communication, team development, peer group alignment and interpersonal skills.

To know it is to manage it.

Work with a coach. Give the results of the 360-degree review to a coach (or at least a trusted associate) who can help you delve deeper into your negative behaviors.

Examine your “overused strengths.” Nearly all of us have a strength that, when used in excess, becomes a real liability. What’s yours?

Just listen. Adopt the attitude that everyone has something to teach you. Actively listen—rather than instantly judging or responding to the other person’s point. Good listeners first seek to understand, and then to be understood.

Carter Cast is the former CEO of Walmart.com, a partner at Pritzker Group Venture Capital, a professor at Northwestern’s Kellogg School of Management and author of The Right (and Wrong) Stuff: How Brilliant Careers Are Made and Unmade.

Maintain your self-possession. Strive for calm self-possession—regardless of circumstances. Self-defeating behaviors are most likely to pop out in charged situations, often when you lose your bearing in the heat of the moment.

No matter where you sit in the org chart, the time to self-evaluate is now. Retrench, seek counsel and effectively address a wayward personality trait. The price of ignoring it is far too high.

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WE LIVE IN A business environment that focuses on celebrating strengths. But new and growing evidence suggests personal weaknesses, the things we don’t know about ourselves as leaders, are what’s most likely to cause our careers to go off track.

I recently surveyed 100 executives who had been fired, demoted or plateaued in an effort to understand why so many talented people—between 50 to 67 percent of all managers and leaders—falter. The answer?

Personal blind spots—being unaware of a debilitating weakness in interpersonal behavior and being unwilling, when confronted with evidence, to make adjustments. Research indicates that those with an inflated sense of their own skills and who understate these interpersonal issues are six times more likely to fail.

Getting things done through others—the essence of leadership—requires a combination of technical skills (proficiency in areas important to the business), intrapersonal skills (strong self-management skills driven by self-understanding and self-control) and interpersonal skills (the ability to develop strong relationships and gain the enlistment of others). Job proficiency simply isn’t enough. Without self-awareness and the ability to work well with others, your career is in dire risk of derailing.

As Stuart Kaplan, the director of leadership recruiting at Google, told me recently: “As you progress in your career, your relationship with others is more important than your knowledge of the relationship to the data. You have to suppress your ego, let go of having the answer and embrace the relational world. [Leadership] becomes less

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