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Fund Manager Jeff Vinik Takes on Tampa, P. 30

Five Ways to Kill Your Reputation, P. 38

Ram Charan on Navigating Nationalistic Fervor, P. 80 MAY/JUNE 2017


CONTENTS

May/June 2017 No. 288

FEATURES COVER STORY

20 2017 Best & Worst States for Business For the 13th year in a row, CEOs weigh in on what the 50 states have to offer businesses looking to grow. Plus: The top 10 rankings by industry, the year’s biggest losers and gainers, and more. By Dale Buss and Craig Guillot

SECOND LIFE

30 Game Changer

Before he decamped to Tampa to run a sports team, Jeff Vinik made billions for investors. Now he’s spending billions remaking his adopted hometown. By Craig Guillot

STRATEGIC LEADERSHIP

38 Beware the Five Deadly Corporate Sins

These perfectly legal business practices will come back to haunt you—and your company’s reputation. By Marshall Cooper with Russ Banham

TALKING POINTS

44 What You Need to Know About: Regulation 30

Leveraging Trump’s regulatory rollback. By Dale Buss

DATA DIVE

46 Middle Market Talent Planning

A strategic approach to succession planning, talent development and performance management translates to faster growth. Here’s how to go about it. By Peter Haapaniemi

CEO ROUNDTABLE

49 Facilitating Digital Transformation

How companies rethink, retool and reboot alongside government partners. By Jennifer Pellet

BUSINESS DEVELOPMENT

38

02 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

52 Does Diversity in the Boardroom Matter?

Why governance gurus say that boosting diversity in your boardroom is worth considering—and how to go about it if you agree. By C.J. Prince

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OWNER/PRESIDENT MANAGEMENT BEGINS 13 MAY 2018 ADVANCED MANAGEMENT PROGRAM BEGINS 10 SEP 2017 GENERAL MANAGEMENT PROGRAM BEGINS 01 AUG 2017 PROGRAM FOR LEADERSHIP DEVELOPMENT BEGINS 10 JUL 2017

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CONTENTS Editor-in-Chief Michael Winkleman Editor at Large Jennifer Pellet Managing Editor Patrick Gorman Production Director Rose Sullivan Chief Copyeditor Rebecca M. Cooper Art Directors Carole Erger-Fass and Gayle Erickson Contributing Editors Russ Banham Dale Buss Ram Charan Craig Guillot Peter Haapaniemi C.J. Prince James Wynbrandt Online Editor Lynn Russo Whylly Editor Emeritus J.P. Donlon Publisher Christopher J. Chalk 847/730-3662 cchalk@chiefexecutive.net

72

DEPARTMENTS 6 Editor’s Note

Changing Lives, Perceptions, Realities By Mike Winkleman

Director, Business Development Lisa Cooper 203/889-4983 lcooper@chiefexecutive.net

64 Plane Advantage

MEET THE NEW CROP OF NEXT-GEN JETS A new wave of new jet models aims to please discerning CEO customers—and their CFOs. By James Wynbrandt

9 InBox

• Trump Tunes Into CEO Concerns • Time to Press Reset • CEO of the Year Criteria Explained/Employee Engagement • Customer-Driven R&D • From the Archives • Workforce Technology • Robotics: The Human Factor • 10 Minutes with Chemours’s Mark Vergnano • Read This Now • Who Approves CEO Pay?

Vice President Phillip Wren 203/930-2708 pwren@chiefexecutive.net

72 Executive Health

WHY WELLNESS WORKS Empowering your employees to improve their health can improve your bottom line. By C.J. Prince

80 Time Capsule

58 CEO Tech

MAKING SENSE OF CUSTOMER DATA How to unlock the value in all those numbers you’re collecting. By Peter Haapaniemi

Stops and Starts Along the Road to Globalization By Ram Charan

Director, Business Development Liz Irving 203/889-4976 lirving@chiefexecutive.net Director, Business Development Gabriella Kallay 203/930-2918 gkallay@chiefexecutive.net Director, Business Development Marc Richards 203-930-2705 mrichards@chiefexecutive.net Marketing Director Jason Golden 203/889-4978 jgolden@chiefexecutive.net Client Services Associate Ashley Gabriele 203/889-4989 agabriele@chiefexecutive.net Vice President, Human Resources Melanie Haniph Controller Steve Hallem Chief Operating Officer Scott Budd Wayne Cooper Executive Chairman

Marshall Cooper Chief Executive

9 West Broad Street, Suite 430 Stamford, CT 06902, 203/93 0-2700 Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 288 May/June 2017. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group, LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Coopewr, CEO. © Copyright 2017 by Chief Executive Group, LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, PO Box 47574, Plymouth MN 55447. Subscription Customer Service: p | 800-869-6882   e | cex@kmpsgroup.com   w | chiefexecutive.net/magazine

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Back Issues Back issues are $33 each. For back issue availability and additional order information, please contact us at: Phone: 203.930.2701 circulation@ChiefExecutive.net Subscription Customer Service Chief Executive Group, PO Box 47574, Plymouth MN 55447 Phone: 800-869-6882 cex@kmpsgroup.com ChiefExecutive.net


PURE AEROSPACE

The state that revolutionized the automotive industry has taken to the skies to become one of the top places in the country for aerospace business. Michigan. Home to more than 600 aerospace-related companies, Michigan is ranked among the top 10 states for major new and expanded facilities. When it comes to aerospace success, the sky’s the limit in Michigan.

michiganbusiness.org


CHIEF EXECUTIVE OF THE YEAR 2017 SELECTION COMMITTEE

EDITOR’S NOTE

Changing Lives, Perceptions, Realities How a famous fund manager—and the adopted city he’s rebuilding—is playing to win. By Mike Winkleman

Also intriguing was Mayor Buckhorn’s claim that the percentage of local college students remaining in the Tampa area after graduation had climbed over the past 10 years from 35 percent to 60 percent. This spoke, we felt, not only to improvements in a quality of urban life that millennials find appealing, but also to the quantity of jobs available for these graduates. Buckhorn’s statistic sheds interesting light on this year’s Best & Worst States for Business rankings. As it has for the past six years, Florida ranked No. 2 overall. Where it shined, in particular, was in living environment, where it ranked No. 5, and in taxation and regulation, where it ranked No. 8. But in workforce quality, where its prime competitor, Texas, ranked No. 4, Florida came in at No. 18. Better than average, but not where you’d think a state with that sort of retention rate would rank. And that sheds light on one of the important differentiators in our survey. It’s based on CEO perceptions, not on the realities. And as Dale Buss points out in our coverage this year, perceptions take a while to change. Chart the changes starting on page 20. Reach Mike Winkleman at mwinkleman@ChiefExecutive.net.

@

ChiefExecutive.net

BLACKROCK TAPS CISCO CEO’S TECH EXPERTISE The fund managers’s new hire is another example of a non-tech company recruiting from the tech sector as the line between the two becomes less defined. ChiefExecutive.net/MJ17blackrock

06 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

WHAT CEOS SHOULD KNOW ABOUT A POTENTIAL BORDER TAX With border-adjustment tax discussions ongoing in Washington, these 10 states could see the biggest impact from higher import tariffs. ChiefExecutive.net/MJ17bordertax

CREDIT: MIKE CARLSON / STRINGER

A FEW MONTHS AGO, a delegation from Tampa visited our offices, bearing lunch. Given, in particular, our ongoing coverage of economic development issues and Florida’s longtime encampment in the No. 2 position in our annual Best & Worst States survey, we were interested in hearing Tampa’s story. Telling it was its mayor, Bob Buckhorn, two representatives from the Tampa Vinik, Buckhorn, and former player Dave Andreychuk join the Thunder Bug Hillsborough Economic Develin front of Tampa’s Amalie Arena prior to a 2015 Stanley Cup Final game opment Corporation and perhaps the city’s most famous adopted son, renowned mutual fund manager Jeff Vinik. Vinik certainly caught our interest. His tale of personal reinvention—leaving behind his business and his Northeast roots to buy a hockey team in Florida—is a dream surely shared by many executives. What was more arresting was the extent to which he jumped into Tampa’s efforts at revitalization by joining forces with Bill Gates’s Cascade Investment firm to purchase 53 acres of prime downtown land and embarking on a mixed-use development project that will soon transform the city. To learn more, we dispatched our economic development writer, Craig Guillot, and photographer Riku to Tampa, where they shadowed Vinik for a day and filed the story you’ll find on page 30.

CATHY ENGELBERT CEO, Deloitte LLC DAN GLASER President and Chief Executive, Marsh & McLennan FRED HASSAN Chairman, Zx Pharma Partner/Managing Director, Healthcare, Warburg Pincus TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries ROBERT NARDELLI Chief Executive, XLR-8 WILLIAM R. NUTI Chairman and Chief Executive, NCR THOMAS J. QUINLAN III President and Chief Executive, RR Donnelley JEFFREY SONNENFELD President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management RANDALL STEPHENSON Chairman and Chief Executive, AT&T, and 2016 CEO of the Year MARK WEINBERGER Chairman and Chief Executive, EY MAGGIE WILDEROTTER Chairman & CEO, Grand Reserve Inns EXCLUSIVE ADVISOR TO THE SELECTION COMMITTEE TED BILILIES, PH.D. Chief Talent Officer, Managing Director, AlixPartners CO N TACT U S 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


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T H OU GH T L E A DE RSH IP PR OV ID E D BY R H R IN T E R N AT IO N A L

TRACKING THE HIGH-PERFORMANCE CEO I N T R O D U C I N G T H E C E O 1000 T R AC K E R

Do top performers tend to come from inside the organization—or outside?

With long-tenured CEOs, does the profitability of companies increase over time?

CEO 1000 IN ASSOCIATION WITH

WHEN LOOKING AT CEOS, A NUMBER OF QUESTIONS NATURALLY COME UP. UNTIL NOW, FINDING THOSE ANSWERS HAS BEEN A CHALLENGE. “The CEO is key to a company’s success, and the importance of that role is only growing,” says Dr. Paul Winum, senior partner, practice leader, Board & CEO Services, at RHR International. “That means that these types of questions can be of tremendous interest to executives and boards.” Now, a new research-based tool, the CEO1000 Tracker, brings a data-driven approach to finding answers—and developing a deeper understanding of CEOs and performance. The CEO1000 Tracker is a collaborative effort of Chief Executive Group and RHR International, the premier firm in the development of top management leadership of Global 1000 companies. In essence, the tracker brings together information about CEOs at the largest public and private companies—their education, work history, salary and more. It also includes data about their companies, such as revenue, share price and profit history. Using this data, the Tracker will provide “actionable information and connect to meaningful outcomes, metrics and issues that CEOs care about—insights that can be applied in the organization and the management team, for everything from development to succession planning,” says Dr. Winum. The Tracker is designed to fill some significant gaps in the information used to understand the CEOs at the largest organizations. For example, media reports on CEO pay will regularly cite “average CEO compensation.” However, that figure is often based on a subset of organizations, such as 350 of the largest companies that report early. In addition, such analyses often exclude private firms and companies from certain industries. The CEO1000 Tracker is designed to provide a more comprehensive view of the 1,000 largest companies, public or private, across industries. For more information about RHR International, visit rhrinternational.com or call +1 312 924 0800.

How do CEOs hired from within the industry compare to those brought in from other industries?

Which undergrad and grad degrees turn out the highest-performing executives?

CEO

THE TRACKER TRACKS Among other indicators

1000

Revenue Gross Profit Operating/Net Income Share Price Market Cap Profit Margin IN ASSOCIATION WITH EBITDA

Number of Employees Previous Positions Compensation Undergraduate Major Graduate Education Executive Team Turnover Executive Coaching

This data will be analyzed on an ongoing basis to uncover links between executive qualities and performance. It will also provide a starting point for more in-depth discussions from RHR International and Chief Executive. Here, RHR International brings to bear its deep expertise in CEO succession planning and executive coaching, its robust research capabilities and its unique perspective developed over the course of seven decades of working with executives. For its part, Chief Executive draws on its long experience as an executive information source, and its relationships with more than 120,000 CEOs. Together, the two organizations will collaborate to assess the backgrounds, personality traits and skill sets that are likely to lead to CEO and company success, and develop lessons and insights that can be used by CEOs, boards and other executives. With its combination of hard data and experience-based insight, the Tracker is designed to provide practical perspectives for CEOs. “This kind of information can help CEOs as they hire people, nurture leaders and plan succession,” says Dr. Winum. “And it can help CEOs understand the kind of top executives that make a difference as leaders of the enterprise.” Look for analyses of CEO1000 data in thought leadership pages in Chief Executive magazine sponsored by RHR International, in coverage on ChiefExecutive.net and on rhrinternational.com.

COMING UP IN FUTURE ISSUES July/August Pathways to Success Previous positions, industry changes, length of tenure

November/December Schooling Types of undergrad institutions, majors, graduate degrees

September/October Inside/Outside CEOs rising from within, hired from the outside

January/February Tenure and Turnover Stats and trends


INBOX Trump is Tuning in to CEO Concerns and Suggestions PRESIDENT DONALD TRUMP’S RECENT FACE-TO-FACE MEETINGS with CEOs have brought executives from across industries together to discuss the country’s business ecosystem, and business leaders are appreciating the opportunity to provide the new administration with some consultative ideas. An April 3rd town hall-style meeting with 50 CEOs focused on the overall American business climate, while an April 11th event brought in 20 CEOs from Trump’s Strategy and Policy Forum to discuss priorities with cabinet secretaries and their agencies—and how those priorities will impact U.S. businesses. The president, Secretary of Commerce Wilbur Ross, Secretary of Education Betsy DeVos, Secretary of Transportation Elaine Chao and EPA administrator Scott Pruitt were all involved in the dialog with CEOs. Chief executive members of the forum (including forum chair and Blackstone Group CEO Stephen Schwarzman, IBM CEO Ginni Rometty, Wal-Mart CEO Doug McMillon and General Motors CEO Mary Barra) have been receptive to these meetings with Trump and his cabinet, with topics such as job creation, infrastructure, tax reform and the potential “streamlining” of the 2010 Dodd-Frank financial regulatory reform bill taking center stage at the meetings. The administration has hosted more than 10 meetings with CEOs from across industries since the inauguration. —Patrick Gorman

IN THIS SECTION › 10 Sonnenfeld on Bosses › 11 CEO of the Year Criteria/ Employee Engagment › 11 Customer-Driven R&D › 12 Workforce Technology › 12 Robotics: The Human Factor › 12 From the Archives › 14 Ten Minutes with Chemours's Mark Vergnano › 16 Read This Now/Appian's Matt Calkins › 16 Who Approves CEO Pay

"With your help and insights, we will use the private sector innovation to drive job creation and reform government—a lot of reform." —President Trump, discussing priorities with CEOs and cabinet members at an April 11 Strategy and Policy forum.


INBOX GETTY IMAGES L TO R: FREDERICK M. BROWN; RICK KERN; SCOTT OLSON; WIN MCNAMEE

TIME TO PRESS RESET?

Fox News's Roger Ailes, United Airlines's Oscar Munoz and Wells Fargo's John Stumpf are among the business leaders under fire for poor behavior on the job.

How to respond when bosses misbehave. LEADING COMPLEX BUSINESSES IS tough enough without the boss imploding as well. But that’s exactly what’s happened recently in back-to-back scandals at the iconic and traditionally consumer-savvy firms of Fox News, United Airlines and Wells Fargo. What’s more, only Wells Fargo has shown the path to correct such breakdowns. Fox: Outed for Enablement The management meltdown at Fox News began at the top, with chairman Roger Ailes forced to step down in late July 2016 following a tardy outside investigation of multiple sexual harassment allegations from employees who said that their careers were endangered if they rejected his propositions. His ouster was catalyzed by a year’s worth of anchor Gretchen Carlson’s concealed iPhone recordings of Ailes’ entreaties and threats. This was followed by the parallel complaints of many other women employees, including star anchor Megyn Kelly. Ailes’s exit did not put a stop to the locker-room culture, and charges against others in management continued to surface. 21st Century Fox Chairman Rupert Murdoch and his sons James and Lachlan missed the opportunity to overhaul the culture of Fox News—a $ 1 billion-a-year profit fountain and leader in cable TV. By April of 2017, The New York Times was 10 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

reporting that five women had received a total of $13 million to settle harassment allegations against Fox’s top star, Bill O’Reilly. Finally, after vividly detailed public charges of abuse by O’Reilly from a Los Angeles radio host cost the company 70 advertisers, the Murdochs hired the same law firm to investigate the charges. The Murdochs similarly hesitated to take decisive action from 2009 through 2011, despite mounting evidence of bribery, phone hacking and other techniques for widespread illegal acquisition of confidential information at News Corp International’s UK sister print media outlets. Eventually one publication was closed and top editors were fired—including a Murdoch favorite, top executive Rebekah Brooks, only after Parliament and various government agencies began investigations that led to criminal convictions. United: Caught on Camera In March of 2017, United Airlines CEO Oscar Munoz was anointed “U.S. Communicator of the Year” by PR Magazine. Just one month later he was skewered for defending his employees when they and airport officials dragged a passenger off a plane, injuring him in the process, to free a seat for an employee. A video of the incident went viral accompanied by comments

like “not enough seating, prepare for a beating” and outrage at comments from Munoz (who later apologized) describing the violent incident as having to "re-accommodate" the customer and the passenger in question as “disruptive and belligerent.” Wells Fargo: Suspect Sales Tactics Wells Fargo’s board, while initially too trusting of former CEO John Stumpf, at least came clean with the April 17 release of results of an outside investigation that criticized its own terminated top leaders for deceitful high-pressure cross-selling sales tactics that led to the creation of 2.1 million unauthorized accounts. The company clawed back $183 million in bonuses and hired back 1,000 wrongfully terminated employees who refused to comply with the improper sales schemes and revealed how new leadership was fortifying its ethical foundations. As U.S. Navy Commodore Oliver Perry famously proclaimed in 1813, “We have met the enemy, and they are ours.” (Cartoonist Walt Kelly later parodied that pronouncement through character Pogo the Possum, declaring “We have met the enemy and he is us.”) Woefully, this admonition has been forgotten. Too often, bosses make a bad thing worse— while boards collude by watching from the sidelines. —Jeffrey Sonnenfeld, Yale School of Management


CEO OF THE YEAR CRITERIA EXPLAINED

EMPLOYEE ENGAGEMENT IT’S NO SECRET THAT THE MOST important asset most companies have is their people. Whether a business is predicated on providing fabulous service, pursuing rigorous production goals or maintaining an innovation edge, it’s often employees who, at the end of the day, determine whether it will thrive. That simple fact is borne out by the emphasis that Chief Executive’s CEO of the Year Selection Committee places on a leader’s ability to foster engagement among his or her employees. “The higher your employee engagement the better performance you will achieve in every aspect of the business,” notes Bill Nuti, CEO of NCR and a longstanding member of the Selection Committee. “From how you create personal loyalty to how you deliver great solutions to your customers, be it innovation, process or technology, the real key to attaining all of that [comes from achieving a] higher level

of discretionary effort. People will make extraordinary efforts if they want to— not because they have to.” The most effective CEOs find ways to nurture engagement by rallying employees around a common purpose, making that purpose feel attainable, motivating the extra effort that requires and modeling the behavior they seek. Reflecting on CEO of the Year award recipients, Nuti cites two leaders who demonstrated an extraordinary ability to drive employee engagement: Ford Motor’s Alan Mulally (2011): After taking the helm of the troubled automaker, Mulally worked quickly to align employees behind defined goals and encourage honest assessments of progress. “His ability to engage employees allowed the company to navigate a very difficult transformation more seamlessly that otherwise would have been possible,” says Nuti. “As a result, he was able to significantly

improve the performance of the company— the innovation that came out of the design team was phenomenal and they were more productive, more efficient and achieved higher quality due to that higher engagement.” Walt Disney’s Bob Iger (2014): Tasked with restoring a tarnished brand to greatness, Iger told Chief Executive that his biggest challenge was fixing the culture of “a company that did not believe in itself.” “Bob Iger really understands how employee engagement makes a difference,” says Nuti, who praised the Disney CEO’s success at energizing “cast members” to become external ambassadors of engagement. “In fact, Disney even teaches other companies how to drive a higher level of customer intimacy.” —Jennifer Pellet

CUSTOMER-DRIVEN R&D

Sometimes the best product ideas come from the people who will buy them.

IN 2004, THERESE TUCKER, founder and CEO of BlackLine, then a provider of wealth management software, had an unexpected visit from a customer. An accountant at First National Bank of Nebraska expressed frustration over the bank’s manual processes to reconcile the books. Tucker, a software programmer at heart, took notice. The next year she reimagined BlackLine, coding its first product to automate the financial close. In the years since, Tucker has institutionalized customer listening as a core tenet of publicly traded BlackLine’s software development. “Several new product enhancements actually

began with a customer’s completely original use of an existing product,” Tucker says. An example is a digital cable TV company that was using BlackLine’s account reconciliation tool to detect fraud, matching up different accounts to see where the balances might be out of whack. This was not the product’s intended use. “Learning how they did this, we extrapolated the process to a larger platform and then packaged it for a wider user base,” Tucker says. Other B2B companies also are finding that their customers are a form of free R&D. By nurturing close relationships with these businesses in a user group, the companies acquire instant knowledge of a new product’s plusses and drawbacks, enabling a rapid redesign of the item to achieve the deepest market penetration. “There is much more of a symbiotic relationship nowadays between companies and the businesses that

buy from them,” says Robert Ployhart, Ph.D., professor of business administration at the University of South Carolina’s Darla Moore School of Business. The fruits of this collaboration are enticing. “Customers are completely honest and frank in their product assessments, making their feedback potentially more valuable than comments provided from inside the company, where product developers may become overly attached to their creations,” says Ployhart. BlackLine’s Tucker relies on her customers’ candor. “The honesty of the people you trust to tell you the truth about their product experience often sparks an interactive cycle of creativity,” she explains. In return, these customers get products that closely approximate their needs and expectations. As Prof. Ployhart says, “Who wouldn’t want a supplier that’s responsive to your preferences?”—Russ Banham MAY/JUNE 2017

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INBOX

CEOS OPTIMIZING WORKFORCE MANAGEMENT THROUGH TECH A SURVEY BY KORN FERRY FOUND THAT MANY chief executives have a lack of confidence in the people in their organizations, while putting a higher value on technology and tangible assets. More than 60 percent surveyed said technology would be the firm’s greatest source of competitive advantage in the next five years, while almost 70 percent said this technology will soon create greater value than people will. Jean-Marc Laouchez, global managing director of solutions at Korn Ferry, said leaders can have a “tangibility bias” that encourages them to prioritize thinking, planning and execution on tangible assets rather than people. “Soft skills such as the ability to lead and manage culture, will become critical factors of success for companies in the future of work as they need to maximize their value through people,” says Laouchez. Organizations can use new technologies not only to optimize processes, but also to optimize their human capital. Advanced HR departments are now using analytics at the C-suite level to optimize human potential and labor through precise scheduling and understanding employee motivations. They’re also testing new organizational structures and philosophies around management. Timothy Manhardt, practice manager at Kronos, says leaders should look to automation, accessibility and education as primary drivers of improvement and optimization. Businesses also can tap into new solutions to deliver work-related information directly to the smartphones

of employees. Mobile self-service tools also can boost engagement tools and enable employees to have more ownership in daily decisions. The key is to leverage technology not for the sake of technology, but to enable people. “Optimization isn’t just about technology, it is more about supporting the people who use the technology…Combining systems, processes and people to achieve meaningful change, especially when the intended outcome is to improve productivity and support employee engagement, is a complex task that must be nurtured,” says Manhardt. Leveraging technology to optimize workforce management may require CEOs to influence some changes in organizational structure. Biro says that with the growing millennial workforce, there are more flat organizations with little hierarchy where “managing up” is part of the workforce management system. “It is clear that large, slow moving, siloed organizations are susceptible to disruption—and they may never see it coming. Companies that embrace a more streamlined, fast-moving culture already are reaping the benefits,” says Biro. —Patrick Gorman

HUMANS STILL PLAY A CRITICAL ROLE IN AUTOMATION THE RISE OF AUTOMATED and robotic-driven manufacturing has changed the way many suppliers view production, but it hasn’t made the human touch obsolete just yet. “The people are always going to be there in one way or another,” says David Mindell, professor of Aeronautics and Astronautics, and Dibner Professor of the History of Engineering and Manufacturing at the Massachusetts Institute of Technology (MIT). “The more we think about that, the better off we’re going to be when we design these systems.” Mindell’s book, Our Robots, Ourselves: Robotics and the Myths of Autonomy, highlights the importance of integrating people into automated systems. According to Mindell, who will be speaking at Chief Executive's Smart Manufacturing Summit in May, the technologies expanding and transforming the capabilities of robotics will do the same for people, allowing the two to evolve together. “Sometimes [robots] actually increase the human workload, sometimes they reduce it, but very rarely do they come in as a substitute for a human 12 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

task,” Mindell says. Collaboration between robotics and humans in manufacturing is beginning to gain steam. For example, when a human and a robot are working on a collaborative assembly task, they can alternate putting parts onto a system. “The robot can hand the human a tool… work on an area that the human is not working on, or the robotic work can be rescheduled when a human comes in and the robot stays out of the way,” Mindell says. Direct human input in the manufacturing process isn’t going away anytime soon, as issues in areas such as dexterity, precision fitting and assembly orientation just make people a better fit for some jobs. Prohibitive costs are another factor in hastening a complete robot takeover. “There are certain industries that just don’t have the volume to put the capital into all robots, all the time,” Mindell says. “And the robots are going to be able to do things that people do, but people still have to design those systems, put them somewhere and figure out what the task is.” —P.G.

CHIEF EXECUTIVE ARCHIVES

EARLY DAYS OF THE TECH TSUNAMI IN 1998-99, AS THE INTERNET was becoming a force to be reckoned with, Chief Executive published a series called “Technology & the CEO.” What was striking—most clearly in the roundtable discussions— was the range of experience and acceptance among turn-of-the-century CEOs. As one article put it, “Think CEOs don’t know a mouse from a rat, the Net from the Nets, a Web from a web? Think again. … [many are] pushing mightily ahead, showing technological prowess that confounds the conventional wisdom.” Two decades later, those discussions seem remarkably quaint. But, seen in the context of today’s conversations about robotics, automation, Big Data and AI, there are lessons to be learned. Consider what Jakob Neilsen, the former Web usability guru at Sun Microsystems said in 1999 about websites: “Most companies still don’t have websites. … Companies manage their websites as if they were marketing promotion. … That’s 100 percent the wrong approach. …On the Web the customer goes to you … to accomplish something. … They are there to buy. They are there to give you money if only you would take it. Most companies don’t want to do that. They want to brag about how good they are, but they don’t want to actually do any business. A website can bring your salesforce right into the customer’s office. … It becomes your sales force, your storefront and your service department all rolled into one.”—Mike Winkleman


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INBOX

10 MINUTES WITH

Mark Vergnano CEO of Chemours

WHEN CHEMOURS SPUN OFF FROM DuPont in July 2015, it immediately found itself in hot water, saddled with debt, non-performing businesses, and far more employees and facilities than it could support. Running this new company was Mark Vergnano, a longterm DuPont executive, who had asked for the assignment. Chief Executive’s editor-in-chief, Mike Winkleman, spoke with Vergnano about how the new company dealt with its initial challenges, its plans for the future and the experience Vergnano has had building—and rebuilding—this company. MIKE WINKLEMAN: Chemours is a startup that’s not a startup. You were faced with issues a regular startup would not have had.

VERGNANO’S KEY PRINCIPLES

1 2 3

Put a plan together that’s clear to your organization and focused on what you can control. Build massive transparency, making sure the organization understands where you are at every step, even when you have flips. Deliver on your commitments and on the promises you’ve made to employees, customers and investors.

MARK VERGNANO: We talk about ourselves as a startup with a 200-year head start. We had a great legacy, but we’re a brand-new company. We started with $4 billion of debt and other liabilities, and one of our businesses was in the bottom of its cycle. On the day we launched, we had a lot of excited employees, but the next day, we realized we had a lot of challenges. We had to cut costs significantly, and to focus on the businesses that were leaders in the fields we played in, we sold three businesses that were not. In the process, you faced criticism as you laid off chemistry PhDs, closed plants and watched your stock price fall. We were in a tough market environment and decided we had to focus on the things we could control. We reduced about 15 percent of our workforce and shut down facilities that were not going to be part of our future. We had to focus on the 8,000 people who were going to be staying with us, to make sure we’d take care of the customers that were dependent on us and make sure our investors got the return they deserved. How has it worked? There were worry points at the beginning. We were not a proven leader-

14 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

ship team. We didn’t have a track record. But as people started seeing us execute on our plan and deliver on our promises quarter after quarter, confidence started coming back. Now we’re on our path. Our transformation plan goes through the end of this year. The next step is what’s beyond 2017. It’s all about growth, organically and inorganically. How have customers responded? We told our customers they might have had a relationship with DuPont, but Chemours was going to be a different company. It was going to be more customer-centered. Like DuPont, it was going to have high integrity and an obsession around safety, but we want to be more entrepreneurial and simpler, quicker on decisions and nimbler in dealing with customers. We’ve not only been able to retain customers, but also to build new customers who have seen a little different attitude from us. In seeking to retain and renew talent, have you had to do business differently? Yes, in a couple ways. One is a value we set up the first day: collective entrepreneurship. We want to have the flexibility to do different things. We found this has been extremely attractive, especially for millennials. The other value we call “refreshing simplicity,” making things not complex, not hierarchical. Chemours has a lot of the benefits of DuPont in terms of technology, of integrity, of a culture of safety, but we’re very different in terms of this entrepreneurial spirit and simplicity. Given what you’ve faced and that this is your first time as CEO, how has the experience been? It’s been great. Despite the tough start, being able to set a course on values, to create a culture with like-minded folks has been really positive. Our executive team is really small. There are only eight of us and three came from the outside, so we were able to blend experience from DuPont but also mesh that with folks who’ve thought about things a different way.


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Ask Appian’s Matt Calkins for book recommendations and he’ll happily reel off a lengthy list—none of which you’ll find on a list of best-selling business books. “I don’t think many business books are worth reading,” says Calkins, who instead seeks business lessons in historical accounts. “If you go to a popular book to learn about how businesses succeed, the business in question is described, but you don’t end up knowing why they won or get the information you need to replicate that success.” Calkins, who also uses books as fodder in creating board games (his hobby), shared a handful of favorite and recent reads with Chief Executive. —Jennifer Pellet CASE STUDIES IN CONFLICT War in European History Michael Howard The Guns of August Barbara W. Tuchman Books like Michael Howard’s overview of European conflicts and Barbara Tuchman’s close-up account of the first year of World War I can offer conflict-resolution lessons, says Calkins. “The best way to understand how the world resolves its conflicts and its tensions is by looking at how a conflict that has been studied thoroughly, like World War I, unfolded and resolved,” he explains. “Business is like this too. If anyone were to ever get to the heart of Coke vs. Pepsi, they would see a parade of mistakes in the same way World War I looks in retrospect—so many ways you could have done better.” DECODING INNOVATION The Double Helix: A Personal Account of the Discovery of the Structure of DNA James D. Watson The scientist’s memoir about the race to beat Linus Pauling to unravel the mysteries of DNA “gives you an insider’s look at how innovation happens, the strug-

gles in it and the rivalry in the race to get to the heart of molecular structures,” says Calkins. “It felt like a business story but it’s really about science and innovation.”

Who Approves CEO Pay?

IN SEARCH OF TRUTH The Great Philosophers: An Introduction to Western Philosophy Bryan Magee “Philosophy makes you think about what it is you are really seeing,” says Calkins. “One of the keys to running a winning business is to relentlessly pursue the truth. Don’t kid yourself about how good the business is. Understand your competitors, the fundamental trends that exist in your space and what the next opportunity is, which may not be what you are selling.” Rather than being about telling a good story, books like Bryan Magee’s interviews with leading philosophers are about questioning assumptions and getting to the truth—a valuable lesson for CEOs.

LEADERSHIP LESSONS Titan: The Life of John D. Rockefeller, Sr. Ron Chernow “This is how a creative and intense person wrestled with the emergence of an industry,” says Calkins,

Approval of CEO compensation packages varies by both company revenue and ownership type, according to Chief Executive’s CEO & Senior Compensation Report 2017. Here we look at who’s in the driver’s seat when it comes to the CEO’s paycheck at private companies with revenue ranging from less than $2 million to more than $1 billion. As the chart shows, at 54 percent of the smallest companies, the CEOs themselves determine their own compensation, with boards, partners and parent companies making the calls in other cases. For $1 billion-plus enterprises, however, boards are firmly in control, approving 90 percent of all pay packages. Generally speaking, the survey found that the larger the company as measured by revenue, the greater the role the board plays in setting compensation. In the $2 million to $4.9 million range, the board makes the call at 46 percent of companies, while in the $50 million to $99.9 million range, the board weighs in 58 percent of the time. And for companies with $250 million to $499.9 million and $500 million to $999.9 million in revenue, the board determines CEO pay 67 percent and 79 percent of the time, respectively. —Steve Rose

WHO APPROVES CEO COMPENSATION PACKAGES? PERCENTAGE OF COMPANIES BY COMPANY REVENUE

<$2M

$2–$4.9M

$5–$9.9M

BOARD OF DIRECTORS

$10–$24.9 M

CEO

$25–$49.9M

$50–$99.9M $100–$249.9M $250–$499.9M $500–$999.9M $1 BILLION+

PARENT COMPANY CEO

For more information about the Chief Executive CEO & Senior Compensation Report, visit ChiefExecutive.net/compreport 16 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

INDUSTRY: Software Solutions

who came away from Chernow’s biography of the oil magnate liking Rockefeller, despite the titan’s relentless pursuit of a monopoly and ruthless treatment of competitors. “By owning the oil refining stage, he figured he could protect oil from the otherwise inevitable boom-and-bust cycle that would tear up investments made in the industry. It was a business feat to put together Standard Oil, and this history makes it clear what kind of person it took to achieve that feat.”

UNDERSTANDING INDUSTRIES Hard Landing: The Epic Contest for Power and Profits that Plunged the Airlines into Chaos By Thomas Petzinger Jr. Calkins recently undertook a reading-informed immersion course on the airline industry. “I grabbed a bunch of books because I was writing a board game on building an airline in the 1930s,” he explains, noting that the airline industry is a case study in overcoming structural challenges. “The dependence on experienced labor, and thus the vulnerability to strikes; the dependence on the cost of fuel, an enormous input that fluctuates; and nationalism, the fact that nations subsidize their airlines—these factors make the airline industry so vulnerable.”

CEO COMP REPORT

WHO: Matt Calkins, Founder and CEO, Appian

PARTNERS AND CEO


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18 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017


For the 13th year in a row, CEOs weigh in on what each of the 50 states has to offer your business. WHILE THERE IS A LEVEL OF

constancy when it comes to the very best and very worst states for business as ranked by CEOs, there is plenty of jockeying for position within the ranks, and even some leaping and plummeting. Because of how CEOs view business climates, because states themselves have varying priorities and because of the slow pace of change in many state governments, the same states have held top five spots for six years running. Texas was ranked No. 1 for the 13th straight year in 2017 by the hundreds of CEOs surveyed by Chief Executive. Florida was No. 2 for the fifth year in a row. Five of the remaining eight top-10 states were the same as in 2011, albeit shuffled a bit. On the other end of the spectrum, California anchored the bottom of the list at No. 50 for the sixth consecutive year, New York wallowed at No. 49 and Illinois listed at No. 48. Yet this consistency at the top and bottom ranks occurred at the same time as dynamic movement by those in the middle 30: Ohio leaped to No. 11 from No. 22 just two years ago and No. 41 in 2011, for instance, and Louisiana slid to No. 33 this year from No. 7 just two years ago. Others, such as Wisconsin, have gradually edged upward. (Gov. Scott Walker explains the Badger State’s rise at ChiefExecutive.net2017-BWStates.) Nonetheless, the very best and very worst states have remained the same at a time of unprecedented attention by CEOs, governors, state economic development departments (EDCs) and others to the importance of landing new and expanded factories, offices and warehouses as America climbed out of the recession and competition for jobs became fierce. One big reason for stasis in the rankings is that Chief Executive surveys CEOs, not corporate site-development special-

ists. Company leaders usually choose to focus on the big picture, so their perceptions often trump statistical minutiae. “CEOs don’t get involved in the numbers that much, and we seldom meet with them,” says Dean Uminski, a site-selection specialist with Crowe Horwath in Chicago. “But it’s their perceptions that really matter, because usually they end up making the ultimate decision.” And, while perceptions can take a long time to change, reality may be even more resistant. “The top-ranking states have continued to implement public policy supporting economic development to ensure that they remain as leaders,” says Larry Gigerich, executive managing director of Ginovus, a Fishers, Indiana-based site-selection concern. Meanwhile, adds Kathy Mussio, managing partner of Atlas Insight, a site-selection consultant based in Freehold, New Jersey, the bottom-dwelling states “have consistently high tax burdens and onerous regulatory environments—so they’re not only perceived as being business-unfriendly, they are. It’s reality.” Change also takes time. “To abruptly change a state’s tax structure or labor laws is a two- to four-year event at a minimum, mainly because of electoral cycles,” notes King White, president of Site Selection Group in Dallas. In addition to presenting CEOs’ views on how states rank, the pages to follow highlight some of the economic efforts and initiatives going on across the country. —Dale Buss

TOP TEN STATE

2017

2016

TEXAS 1 1 FLORIDA 2 2 NORTH CAROLINA 3 3 SOUTH CAROLINA 4 7 INDIANA 5 5 NEVADA 6 9 TENNESSEE 7 4 GEORGIA 8 8 9 6 ARIZONA WISCONSIN 10 11

BOTTOM TEN (REVERSE ORDER)

STATE

2017

MARYLAND RHODE ISLAND HAWAII OREGON MASSACHUSETTS CONNECTICUT NEW JERSEY ILLINOIS NEW YORK CALIFORNIA

2016

41 43 42 41 43 44 44 39 45 45 46 46 47 47 48 48 49 49 50 50

For more detail on Chief Executive’s 2017 Best & Worst States for Business, including state-by-state profiles and related articles, visit ChiefExecutive.net/2017-BWStates

ILLUSTRATION BY ROBERT PIZZO

MAY/JUNE 2017

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CHIEFEXECUTIVE.NET

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STATE-BY-STATE RANKINGS 2017 RANK

TEXAS FLORIDA NORTH CAROLINA SOUTH CAROLINA INDIANA NEVADA TENNESSEE GEORGIA ARIZONA WISCONSIN OHIO UTAH COLORADO IOWA VIRGINIA DELAWARE OKLAHOMA IDAHO ALABAMA NEBRASK A SOUTH DAKOTA KENTUCK Y ARK ANSAS WYOMING MISSOURI MONTANA K ANSAS NORTH DAKOTA PENNSYLVANIA NEW MEXICO NEW HAMPSHIRE MISSISSIPPI LOUISIANA ALASK A MAINE MICHIGAN WEST VIRGINIA MINNESOTA WASHINGTON VERMONT MARYLAND RHODE ISLAND HAWAII OREGON MASSACHUSETTS CONNECTICUT NEW JERSEY ILLINOIS NEW YORK CALIFORNIA

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

CHANGE 2016-2017

0 0 0 3 0 3 -3 0 -3 1 -1 4 2 3 -3 -3 1 3 1 7 -2 2 0 -10 4 -1 -1 -6 7 2 -3 10 4 -4 -2 4 -2 -4 -8 -2 2 -1 1 -5 0 0 0 0 0 0

2016 RANK

1 2 3 7 5 9 4 8 6 11 10 16 15 17 12 13 18 21 20 27 19 24 23 14 29 25 26 22 36 32 28 42 37 30 33 40 35 34 31 38 43 41 44 39 45 46 47 48 49 50

TAXATION AND REGULATION

5 8 16 9 14 2 7 10 13 26 24 15 30 18 28 11 17 19 21 12 3 22 25 1 31 20 23 6 34 29 4 27 33 37 32 35 36 39 38 45 41 49 48 40 47 42 43 44 46 50

WORKFORCE QUALITY

4 18 6 19 8 28 13 9 16 14 11 3 20 2 10 21 22 5 32 7 17 38 37 33 30 25 15 26 39 31 1 48 46 50 44 41 45 12 35 47 29 27 49 40 23 24 43 42 36 34

LIVING ENVIRONMENT

13 5 7 6 16 22 12 10 9 15 17 8 14 3 18 32 24 4 26 11 24 35 37 20 29 1 21 46 34 43 19 42 41 50 38 48 31 28 30 45 40 36 2 23 39 33 47 49 44 27


DEVELOPMENT AGENCIES UNDER THE MICROSCOPE SOME STATE LEGISLATURES ARE DEMANDING MORE

LOSERS STATE

DECREASE

WYOMING WASHINGTON NORTH DAKOTA OREGON ALASKA

2017

-10 -8 -6 -5 -4

2016

24 14 39 31 28 22 44 39 34 30

GAINERS STATE

INCREASE

2017

2016

10 32 42 MISSISSIPPI NEBRASKA 7 20 27 PENNSYLVANIA 7 29 36 UTAH 4 12 16 MISSOURI 4 25 29 LOUISIANA 4 33 37 MICHIGAN 4 36 40

transparency into the use of funds and incentives by economic development corporations (EDCs), and new rules from the Government Accounting Standards Board will require local and state EDCs to report more information on their tax breaks. Many such agencies—including those in Indiana, Ohio, North Carolina, Michigan and Missouri— have had success attracting and retaining companies by offering incentives like tax breaks, job training grants and access to capital for entrepreneurial ventures. Yet EDCs in many states are coming under fire. Florida’s economic development organizations have been fighting legislation seeking to eliminate tax incentives, while Virginia was rocked by a state audit that revealed misuse of funds by an economic development group. Greg LeRoy, executive director of policy resource center Good Jobs First, questions some EDC’s lack of transparency, doling out of “corporate welfare” and failure to deliver returns. Designed and managed well, however, EDCs can give state economies—and employment rates—a boost. Jeff Finkle, CEO of the International Economic Development Council, concedes that qualifying a return on investment can be “a difficult measurement issue,” but adds that EDCs can point to metrics like the number of companies moving to the state, capital investments and wage growth. An IEDC report says that “high-performing” EDCs tend to be driven by their customers, operate with a strong strategic plan, constantly evaluate and adjust and are efficient with funding and resources. —Craig Guillot

METROPOLITAN MECCAS WHILE STATES REMAIN CRITICAL TO

location decisions, the lure of a bustling metro area can inspire choices CEOs might not have made based on state data alone. In Chief Executive’s February 2017 CEO Confidence Index, 72 percent of respondents rated metro areas as somewhat or very important to location decisions. There are more than 50 metro areas in the U.S. with more than 1 million residents, according to the Census Bureau. Among the fastest growign are San Antonio-New Braunfels and Austin-Round Rock in topranked Texas. But even in states viewed as less hospitable for business, having a strong talent pool in a specific sector can be a draw for businesses, as with finance in New York and technology for California. In fact, a Brookings Institution analysis ranked two California cities among the

22 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

top 10 best-performing metro areas in the country, with San Jose taking the top spot. Los Angeles County also remains a powerhouse. And the recent IPO of Snap has been hailed as a game changer that could spur further tech growth in “Silicon Beach.” Lawren Markle, director of public relations for the Los Angeles County Economic Development Corporation, says large metro areas offer scale, talent infrastructure industrial companies crave. “You just have a lot of creative collisions, where these industries overlap, that drive new industries, new business concepts and growth,” he said. Maryland ranked 41st on the list but that hasn’t stopped Under Armour CEO Kevin Plank from reaffirming his commitment to Baltimore with a $5 billion

urban development project and new headquarters at Port Covington. And while Massachusetts came in at No. 45, GE is just one of many companies choosing to flee a less urban locale for Boston. Software company Acquia, sneaker manufacturer Converse and marketing firms like Racepoint and Allen & Gerritson all chose to relocate from more sedate settings to the Boston area in recent years. At the same time, the pricey real estate and congestion in top metro areas drive some CEOs to seek smaller cities. While Arkansas ranked 23rd overall in the rankings, Northwest Arkansas was recognized as one of the top 25 growing metro areas in the country by population. Bentonville, home to the headquarters of Walmart, has seen increased investment in recent years from supply and tech companies. —C.G.


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TALE OF FOUR STATES Four states provide some interesting wrinkles in our 2017 Best & Worst States for Business:

FLORIDA keeps ranking No. 2 in part because CEOs find it the No. 5 living environment. CEOs ranked its workforce quality a relatively low No. 18. And the state’s economic development efforts are in question due to infighting between Republican Gov. Rick Scott and the Republican-controlled legislature. ILLINOIS is facing by far the biggest fiscal crisis of any state but remained atop New York and California. The politically divided Land of Lincoln suffers from huge public-worker pension costs, an $11 billion backlog of bills and a $13 billion budget deficit that could hit $20 billion in the next fiscal year.

TOP FIVE WORKFORCE OVERALL RANK 1 NEW HAMPSHIRE 31 2 IOWA 14 3 UTAH 12 4 TEXAS 1 5 IDAHO 18

RANK

STATE

TAXES/REGULATIONS OVERALL RANK 1 WYOMING 24 2 NEVADA 6 3 SOUTH DAKOTA 21 4 NEW HAMPSHIRE 31 5 TEXAS 1

RANK

STATE

LIVING ENVIRONMENT OVERALL RANK 1 MONTANA 26 2 HAWAII 45 3 IOWA 14 4 IDAHO 18 5 FLORIDA 2

RANK

STATE

24 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

NEW HAMPSHIRE seems to suffer

more than any other state from simple negative perceptions by CEOs. In the survey, it’s ranked 31st overall even though the Granite State came up a shiny No. 1 in workforce quality, No. 4 in taxation and regulation and No. 19, its lowest ranking, in living environment.

NORTH CAROLINA may face an es-

timated $4 billion in economic losses because of its decision on transgender bathrooms, including PayPal’s cancellation of a planned facility there. But CEOs kept the state at No. 3 this year, including No. 7 for living environment and No. 6 for workforce quality. And since the Tar Heel State recently caved to pressure and rescinded the law in part because, as Gov. Roy Cooper said, “it caused great economic harm,” now it is poised for a comeback. —D.B.

BALANCING OUT WHAT MATTERS UP WITH PEOPLE.

This seems to be the attitude of CEOs when it comes to how they balance various attributes in their assessments of state business climates. Increasingly, “human capital”—the availability, cost, flexibility, even comfort of employees and potential employees—is eclipsing taxes, regulations and incentives. That’s not surprising in an economy where talent has taken primacy over all other factors in business success. Consider “right-to-work” laws, which restrict unions. A total of 78 percent of CEOs surveyed by Chief Executive said that they “will only hire” or “prefer to hire” in a right-to-work state (see page 26). “If you have that going against you from the beginning,” says King White, head of Site Selection Group, “it’ll minimize the amount of projects and capital investment you even get a look for.” Indeed, each in the cluster of states in Flyover Country that recently flipped to right-to-work—Kentucky, Iowa, Wisconsin, Indiana and Michigan—either climbed in the 2017 Best & Worst States rankings or held its spot. The causal

relationship isn’t verified, but CEOs didn’t seem to like the fact that voters boosted minimum wages in four states last fall, bringing the total number where increases will take place to 20. The rankings of Arizona, Maine and Washington took big hits, while Colorado edged up two places to No. 13. Meanwhile, all of the bottom 10 in this year’s Best & Worst States fared poorly in CEOs’ evaluation of workforce quality. Yet, even bottom-languishing states with relatively low workforce quality ratings, such as California, New York and Massachusetts, can attract businesses seeking talent in a specific sector. Also, CEOs’ views can shift when it comes to potential corporate relocations. “Quality of life tends to be more important [when locating your headquarters] than if you’re building a manufacturing plant,” notes Dean Uminski, a Crowe Horwath site-selection partner who recently studied the HQ-location phenomenon. “They tend to want good education and social aspects like entertainment for employees and good transportation systems to get them to and from work.” —D.B.


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HOW CRITICAL ARE INCENTIVES? WHILE MANY STATES DOLE OUT

incentives intended to boost their appeal to business, recent research raises questions about their effectiveness. In fact, of the five states that a report from W.E. Upjohn Institute for Employment Research identified as offering the highest levels of business incentives, only one—Tennessee—ranked among our top 10 Best States for Business. Two—New Jersey at No. 47 and New York at No. 49—languished at the very bottom, while the others, New Mexico and Louisiana, were at No. 30 and No. 33, respectively. Site-selection experts, however, still say incentives are important, particularly for states that need to offset issues like onerous regulation. Mark Sweeney, senior principal with McCallum Sweeney Consulting in Greenville, South Carolina, asserts that incentives can be “critical” at the end of a site-selection decision and can help states mitigate disadvantages like high property taxes. In his view, cash grants are the most effective incentive because they are typically flexible. “There aren’t any blank checks but [cash grants] can really get on the company’s side of the table for land purchase, preparation and building,” Sweeney says.

26 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

To boost effectiveness, states may need to look harder at what kind of incentives to offer, how they should be structured and what sectors to target. The W.E. Upjohn Institute report found that job creation incentives and property tax cuts comprised 70 percent of all incentives used. Yet job training programs may generate better and longer-lasting employment boots than property tax abatements, reports Timothy Bartik, senior economist for the W.E. Upjohn Institute for Employment Research, who also notes that it can often make more sense for states to target incentives at more high-tech and high-wage businesses, which will be more likely to offer residents desirable jobs, and to frontload incentives. In competing for the attention of businesses, states are starting to look harder at what incentives cost and how effective they are with an eye toward identifying the programs that produce the strongest returns, says Bartik. “I think we’re entering a new era of transparency and accountability in incentive policy,” he notes. “We should expect that there will be more publicity on what incentives are given and more demands for results and evaluation.” —C.G.

HOW FAMILIAR ARE CEOs WITH A STATE’S INCENTIVES?

TOP FIVE RANK

STATE

OVERALL RANK

1 IOWA 14 2 NEBRASKA 20 3 NEW MEXICO 30 4 WEST VIRGINIA 37 5 OHIO 11

BOTTOM FIVE OVERALL RANK 50 IDAHO 18 49 KANSAS 27 48 NEW JERSEY 47 47 TENNESSEE 7 46 PENNSYLVANIA 29

RANK

STATE


TOP TEN RANKINGS BY INDUSTRY

HEALTH CARE WHILE STATE RANKINGS BY

industry tended to mirror overall rankings (Texas and Florida generally at the top, and New York and California at the bottom), in certain industries, real growth seems to belie the statistics. This is particularly true in three coastal entrepreneurial hubs— the New York City Tri-State area, the San Francisco Bay Area and Southern California. Manhattan (and even

Brooklyn), with its primacy in finance and marketing, and Silicon Valley, with its digital dominance, are so powerful that they draw site decisions despite their states’ business negatives. And now New York City and California are emerging as engines for other kinds of entrepreneurship. Better-for-you food and beverage startups, for instance, are proliferating in those place­s. —D.B.

TECHNOLOGY/ TELECOMMUNICATIONS 1 TEXAS 2 FLORIDA 3 NORTH CAROLINA 4 NEVADA 5 SOUTH CAROLINA 6 ARIZONA 7 KENTUCKY 7 NEW MEXICO 9 DELAWARE 10 MICHIGAN 10 OKLAHOMA

28 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

1 TEXAS 2 FLORIDA 3 NORTH CAROLINA 4 ARIZONA 4 IOWA 6 IDAHO 7 OHIO 8 OKLAHOMA 8 WISCONSIN 10 GEORGIA 10 MONTANA 10 NEVADA 10 SOUTH CAROLINA

1 TEXAS 2 FLORIDA 3 IOWA 4 NORTH CAROLINA 5 TENNESSEE 6 SOUTH CAROLINA 7 UTAH 8 VIRGINIA 9 SOUTH DAKOTA 10 WYOMING

5 NEVADA 6 WISCONSIN 7 GEORGIA 8 NORTH CAROLINA 9 ARIZONA 10 VIRGINIA

RANK/STATE

1 TEXAS 2 KANSAS 3 MISSISSIPPI 3 NORTH CAROLINA 5 ALABAMA 5 ARIZONA 5 MISSOURI 5 OKLAHOMA 5 WYOMING 10 FLORIDA 10 INDIANA 10 TENNESSEE

MANUFACTURING RANK/STATE

RANK/STATE

1 FLORIDA 2 TEXAS 3 DELAWARE 4 TENNESSEE

ENERGY/UTILITIES

FINANCIAL SERVICES

RANK/STATE 1 FLORIDA 2 TEXAS 3 NORTH CAROLINA 4 COLORADO 5 NEVADA 6 PENNSYLVANIA 7 ARIZONA 8 GEORGIA 8 VIRGINIA 10 SOUTH DAKOTA

RANK/STATE

PHARMACEUTICALS AND MEDICAL PRODUCTS

RETAIL

RANK/STATE

RANK/STATE

1 TEXAS 2 INDIANA 3 SOUTH CAROLINA 4 NORTH CAROLINA 5 FLORIDA 6 OHIO 7 WISCONSIN 8 GEORGIA 9 TENNESSEEE 10 ALABAMA


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SECOND LIFE

GAME CHANGER PHOTOS OF JEFF VINIK BY RIKU

Before he decamped to Tampa to run a sports team, Jeff Vinik made billions for investors. Now he’s spending billions remaking his adopted hometown.

F

By Craig Guillot

rom the 25th floor of the SunTrust building in downtown Tampa, Jeff Vinik scans the city streets below and says he sees “tremendous potential.” That’s a big accolade coming from a man who previously lived in Boston and New York and who made investors billions of dollars by finding value. Vinik says the Florida city is poised for such growth that most people won’t even recognize it in 10 years. “Sitting in this office, looking out that window, you’re going to see another 30 or 40 high-rises,” he says. “It is going to be bustling.... We’ve got all the potential in the world down here.” Since buying the Tampa Bay Lightning, the city’s professional hockey team, in 2010 (and its arena football team, the Tampa Bay Storm, a year later), the former mutual fund manager has invested hundreds of millions of his own dollars in the region. In recent years, he moved beyond the ice to become one of the area’s biggest

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SECOND LIFE

players and philanthropists. Vinik’s latest endeavor, a $3 billion live-workplay development, is one of the largest of its kind in the state and is positioned to transform the urban core of one of the country’s fastest-growing cities. At 57, Vinik is living proof that executives can reinvent themselves at any age. Whether as a fund manager, sports team owner or developer, Vinik

10 years, SPP is projecting 9 million square feet of development with 5,000 new residences, 650 hotel rooms and 2.6 million square feet of office space. Already infrastructure and street work is under way in preparation for a massive revitalization of the southern end of downtown Tampa. Phase 1 is scheduled to break ground in late 2018. Vinik’s vision is a live-work-play

“Sitting in this office, looking out that window, you’re going to see another 30 or 40 high-rises. It is going to be bustling.”

KIMMINS CONTRACTING CORP./ KERRICK WILLIAMS

says he has always been driven by passion and intellectual curiosity. And while his latest endeavors may just be a form of fun, they’re having a tremendous impact.

development that will include residences, hotels, a medical school, an entertainment complex, retail space and, hopefully, a major corporate headquarters. In 2015, he added to his team city planner and nationBuilding a City from the al new-urbanism proponent Jeff Ground Up Speck, who says that walkable cities Just outside of Amalie Arena, where and more carefully designed urban the Lightning play, Vinik is spearareas can prove to be not only more heading one of the biggest new urban sustainable but also more economidevelopments in Florida. Not long after cally successful. Vinik’s development buying the Lightning, Vinik started is also aiming to achieve WELL scooping up prime real estate near Certification from the International the arena. In 2014, he acquired the Well Building Institute, which would 719-room Tampa Marriott Waterside make it the first community in the Hotel & Marina and the Channelside world to receive the designation, Bay Plaza entertainment complex. The which indicates that work and living project is being developed by Strategic environments address seven areas Property Partners, a partnership bethought to significantly impact health tween Vinik and Cascade Investment, and wellness: air, water, nourishment, a holding and investment company light, fitness, comfort and mind. controlled by Bill Gates, and currently Vinik says he’s using the area as a encompasses 53 acres of land along the “blank canvas” to rebuild a developTampa Bay waterfront in and around ment that is uniquely Tampa. It’s an the Channelside District. Within five to ambitious effort for a city that hasn’t 32 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

Infrastructure and street work will pave the way for the $3 billion live-work-play development Vinik envisions will transform Tampa into a vibrant, walkable urban area.

built an office tower in 24 years. Vinik says he originally had “no plan to build half a city in downtown Tampa” and that the idea evolved over time with the nationwide trend of movement back to urban cores. The goal is to now create an “ecosystem” that will attract millennials from outside the region with high-paying jobs that can spark further economic growth. While cities frequently unveil ambitious projects, they often fall apart due to lack of funding or will. With the backing of Vinik and Cascade Investment, those two elements are already secured. “It just comes down to passion. As you get older, you do what you want to do, right?” Vinik says. “There’s just an incredible opportunity to build a vibrant, walkable, amenity-rich, mixed-use development here. We can really make a difference.”

Fund Manager to Sports Team Owner The married father of four took an unlikely path to the role of real estate developer. In the early and mid-’90s, he managed the Fidelity Magellan Fund, then the world’s largest mutual fund with more than $56 billion in assets in 4.4 million accounts. He stepped down in 1996 and later start-


dispute his intentions. Lightning fans and management credit him with turning around the team’s performance and profitability. When he took ownership, he immediately cleaned house and brought in Detroit Red Wings legend Steve Yzerman as GM. He also invested $71 million of his own money in Amalie Arena, making it one of the most state-of-theart arenas in the nation.

Leading with Knowledge and Strategy Vinik’s second act as sports team owner and developer may be just “fun” for him, but it’s serious business in Tampa. From the new development and the turnaround of the Lightning to the millions in charitable donations, the ripple effect of his presence is felt throughout the region. Craig J. Richard, president and CEO of

ed his own hedge fund, Vinik Asset Management, to serve select institutional and private clients. Vinik came to Tampa in 2010 when he purchased the Tampa Bay Lightning for a price tag that ESPN estimated at $170 million. There were nearly 10 teams for sale at the time, but Vinik picked Tampa for what he saw as “underappreciated” potential. The purchase raised some eyebrows, with some speculating it was just a financial investment for the out-ofstate multimillionaire. Vinik, however, says his foray into sports was “for fun” and that he had a long-term commitment to the community. “It’s just really underappreciated and undervalued. I really thought there was an opportunity for myself and my family here, in conjunction with the community, to hopefully make this an even better place and better city,” he explains. Seven years later, it’s hard to

The team went from having one of the worst records in the NHL to making the playoffs the past three seasons. ESPN.com readers voted the Lightning at the top of its Ultimate Standings 2016, which ranked 122 professional sports teams on things like ownership, coaching, players, affordability and stadium experience. As the sole owner of the team, Vinik doesn’t have to worry about other interests or partners. He manages his current projects the same way he’s managed billions of dollars for investors, perhaps just with a bit more passion and personal interest. Vinik didn’t retire when he left the fund industry, he started a whole new career. “You say, ‘What would be the most fun on a day-to-day basis?’ And I tell you, there’s nothing more fun than owning a hockey team and trying to rebuild half a city,” says Vinik.

the Tampa Hillsborough Economic Development Corporation, says Vinik cares deeply about the future of the community and is a great ambassador in national recruiting efforts. “Jeff’s vision for city building and community engagement has helped take Tampa to a whole new level,” says Richard. With no previous experience in sports management or real estate, Vinik says a key to his success has been hiring the right people. Unlike in the investment business, where he was a hands-on manager, his goal as an owner is to “set the tone” on the values of the organization and let others lead with specialized knowledge and experience. Executives who work for him say he gives them what they need yet has a hands-off approach to day-to-day management. Vinik says he finds great leadership and “gives them the resources to be successful, not meddle MAY/JUNE 2017 /

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Plans call for 9 million square feet of development along the Tampa Bay waterfont, including the Channelside Bay Plaza.


SECOND LIFE

“Out in the investment field, I’ve lost thousands of times... but you just try to keep your eye on the long-term objectives.” in what they’re doing, and then holds them accountable at the end of the day.” He’s extremely patient and methodical in finding the right talent. SPP President and CEO James Nozar says he had roughly 20 touch points with Vinik before he was hired. As a self-proclaimed “knowledge consumer,” Vinik is a prolific reader. When he started his quest to buy a hockey team, he spent nearly 10 hours a day for three months reading everything he could about sports business and ownership. He even read the collective bargaining agreement of the National Hockey League multiple times. “Anything that I get involved with, I try to immerse myself in the field and learn everything I can,” he says. Jim O’Connell, CEO of his charitable organization, Vinik Family Foundation, describes Vinik’s management style as “intellectual curiosity-driven leadership.” The former fund manager’s latest deep immersion is urban development. There’s often a pile of neatly pressed, bound reports stacked on his desk, and, on a typical day, Vinik is in back-to-back meetings with his chief executives and partners from 10 a.m. to 7 p.m. Most of these take place at a small conference table in his personal office. From transportation and entrepreneurial incubators to the cost of the rents and marketing strategy, 34 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

Vinik has insight into all aspects of the development. He enjoys continually shifting course during the day between philanthropy, hockey and urban development. At one meeting, Vinik and Nozar jumped straight into an evaluation of potential partners and consultants for the Channelside project. A few hours later, O’Connell updated him on ideas for charitable donations. Later that evening, Vinik watched the Lightning play from his personal suite. Vinik may provide guidance, solicit updates and have a final say, but it’s clear that he has strong confidence and faith in his executives. While Vinik has a strong sense of confidence and expects the best, he also leverages losses as learning experiences, something he ties back to youth sports where he “learned how to lose.” Recently, the SPP team thought they had a tenant of nearly 300,000 square feet of an office building before the deal fell through. After a couple of glasses of wine that night, Vinik went back to the office the next morning and straight back to work. “Out in the investment field, I’ve lost thousands of times, made thousands of mistakes in my life.... That’s the way it goes,” he says. “There are ups and downs, but you try to keep your eye on the long-term objectives.... and just keep moving in that direction.”

Sincerity and a Desire to Boost Tampa Transitioning from fund manager to sports team owner and developer has taken Vinik from his cherished private life into the spotlight. His management style may be the same, but he says becoming a public figure has been a big change. A relatively reserved man who doesn’t showboat his success, Vinik describes himself

Jeff Vinik presenting a $50,000 check to veteran Peter Watkins, founder of the New Horizons Group Home for developmentally disabled adults.

as a “quiet leader” who solidifies his leadership by respect earned through relationships and sincerity. He has been known to try to talk to everyone who works in the arena and makes employees feel welcome while also reminding them of their mission. “I think leadership is just subtle in taking advantage of opportunities to hopefully send nuanced messages that make people want to run through walls for you, and for each other, more importantly,” says Vinik. Vinik’s corner office, which reflects his personality and leadership style, is functional and surprisingly ordinary for a man of his stature. There aren’t any self-glamorizing photos of him


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SECOND LIFE

with dignitaries or trophies, beyond a football helmet, a basketball from his alma mater, Duke University, and a 1993 Fund Manager of the Year Award from Morningstar. Waist-high file cabinets wrap around the perimeter, and his desk holds two large monitors, a smartphone and a stack of reports. Framed in one corner are the “Ten Commandments” of Vinik Asset

STRATEGIC PROPERTY PARTNERS/ AERIAL INNOVATIONS

A DIFFERENT KIND OF BOTTOM LINE CEO INVOLVEMENT IN URBAN revitalization has a long tradition. In 1982, for example, E. Mandel de Windt, CEO of Eaton Corporation, was part of a group of local executives spearheading an effort to rebuild Cleveland. More recently, Under Armour CEO Kevin Plank, Zappos CEO Tony Hsieh and Quicken Loans Chairman Dan Gilbert have helped bring new life to parts of Baltimore, Las Vegas and Detroit. Less heralded has been the impact of Shinola, which opened its Detroit watch factory in 2011. As journalist David Sax recounted in The Revenge of Analog, Shinola started up when Tom Kartsotis, founder of Fossil, “realized that Detroit had untapped luxury potential, and a ‘Made in Detroit’ watch brand had much more upside than a factory making watches for other companies.” At present, Shinola has 625 employees, 350 in Detroit, with 200 of those working in manufacturing and the rest in the front office. Part of the secret of Shinola’s now almost legendary success is its current CEO, Tom Lewand. Detroit born and bred, Lewand is the former president of the Detroit Lions and was key to that team’s move back home from the suburbs in 2002. For him, he says, “it’s really about being a person in a position of influence in any company that’s involved in contributing to the community to create jobs. It’s a tide that lifts all ships, a welcome mat for people looking to come back to a community. It’s another type of bottom line for CEOs to focus on.” —Mike Winkleman 36 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

million to expand youth hockey in the area with the Build the Thunder campaign, and last year they gave $2.5 million to the Boys and Girls Club of Tampa Bay to renovate a recreation center. “My wife and I have tried to be charitable throughout our lives, and owning the team has really allowed us to give back and participate in the community,” he says.

“We want to benefit the entire community, economically and quality of life-wise.” Management. Those guiding principles include “Have an edge,” “Limit greed” and “Respect risk—live to fight another day.” Since his arrival in Tampa, Vinik’s charitable giving has been legendary. In 2011, Vinik and his wife, Penny, introduced the Lightning Community Hero program, which identifies and donates $50,000 to a local charity for every home game. It has since donated more than $11 million to 400 different nonprofits in the Greater Tampa Bay area. At a game against the Edmonton Oilers in late February, for example, Vinik handed a $50,000 check to Peter Watkins, a Vietnam War veteran and founder of the New Horizons Group Home that serves developmentally disabled adults. The two men spent time in a locker room talking about how the money would be used, while Watkins’ family looked on. From the elevator operators in Amalie Arena to the fans, there’s a deep respect and appreciation for Vinik. Tampa Bay Lightning President and CEO Steve Griggs says Vinik is the only owner for whom he has seen fans wearing a jersey with his name on it. In 2015, the couple committed $6

Last year, he hired two twenty-something Rhodes Scholars to lead his charitable foundation. O’Connell says Vinik is very methodical about how he donates his money. Jeff and Penny Vinik want to ensure they’re making an impact not just in the immediate term but 20 or 30 years from now. O’Connell and Meredith Wheeler, VFF’s senior policy analyst, have been tasked with doing a 360-degree assessment of how the fund should deploy its resources. Yet Vinik knows that beyond his charitable giving, his development project in downtown Tampa has the potential to spur development across the entire city, far surpassing the millions he has already donated. He says there’s an immense feeling of satisfaction from being able to use hockey, philanthropy and now urban development to create what he calls a “rising tide to lift all boats.” “We want to benefit the entire community economically and quality of life-wise,” he says. “We hope it’s a rising tide that will help everyone.” Craig Guillot is a business writer based in New Orleans, Louisiana.


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STRATEGIC LEADERSHIP

BEWARE THE FIVE DEADLY CORPORATE SINS


These perfectly legal business practices will come back to haunt you—and your company’s reputation. BY MARSHALL COOPER WITH RUSS BANHAM

MAY/JUNE 2017

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ILLUSTRATION BY NEIL WEBB

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ubious corporate tactics that were once considered arcane business shenanigans are now consumed and broadcast on social networks as widely as the latest celebrity scandal. The public’s sudden interest in corporate mischief is driven by a confluence of emergent populism, growing mistrust of institutions and the bully pulpit of social media messaging. People who were indifferent or oblivious in the past now take notice. Behaviors that smack of irresponsibility or hubris—like the unimaginably rich CEO of a ride-sharing company who recently belittled an employee in a video that went viral—can have immediate and far-reaching negative consequences. “Business news is no longer just business news,” says Edgar Baum, CEO of the brand measurement firm Strata Insights. “If CEOs are perceived as doing something fishy, the public knows about it immediately, even if the underlying business details are beyond comprehension. The problem is one of hyperbole, sensationalism and speed.” “Fishy” is not necessarily illegal. Much of the public has raised the bar when it comes to the standards to which they expect both CEOs and the companies they lead to adhere. Small wonder at a time when a whopping 63 percent of the population does not trust CEOs, according to Edelman’s 2017 “Trust Barometer” survey. Do something with a whiff of impropriety, and people become hashtag activists, instantly expressing their protests or echoing others’ complaints across large swaths of the global population. This information then finds its way into apps like DoneGood, aVOID, Glia and BuyPartisan, which were created to steer consumers away from “objectionable” companies. How bad is it for companies portrayed as sinners?


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“The forest of rhetoric is so thick right now that corporate actions that are not illegal, but appear to be deceptive or unfair, can ignite a brushfire that’s not easy to put out,” says Hampton Bridwell, CEO and managing partner at brand and marketing consultancy Tenet Partners. In addition to personal and corporate risk, bad behavior is undoubtedly tarnishing the overall reputation of capitalism: a 2016 Harvard survey showed that 51 percent of millennials do not support capitalism, while just 42 percent said they support it. We’ve compiled five corporate “sins” that CEOs should do their best to avoid committing—not because they’re illicit per se, but because the short-term gain may not be worth the long-term pain.

Dual Shares, Double Trouble Dual-class shares are a great way for a visionary founder of a company with voting rights to guide its long-term strategy, without the quarterly short-termism views that more ordinary shareholders might exact. But the structure, which on average calls for giving 10 votes to insiders versus one vote to public shareholders, has its share of detractors. “Some CEOs think they know better than anyone else what is best for the business, but this is a very shortsighted view,” says Thomas Quinlan, chairman and CEO of LSC Communications, a global provider of digital and traditional print-related services and office products. “A poorly performing CEO should not be immune to disciplinary actions that may even include the person’s ouster.” Absent the threat of external discipline from institutional investors and other stakeholders, a CEO’s omnipotence can result in incautious decisions, like voting down a takeover offer that would provide a significant premium for shareholders, Quinlan adds. “Personally, I believe it is unconscionable for a company to sell shares to the public but keep voting control through dual-class shares.” He is far from alone in that view. “By not listening to outside investor viewpoints, you run a big risk of destroying long-term value,” says Rahki Kumar, managing director and head of ESG (environmental, social and governance) investments and asset stewardship at State Street Global Advisors. Peter Kimball, head of advisory services at governance consultancy ISS Corporate Solutions, agrees: “By definition, you’re creating an insular environment with less accountability to shareholders, which can increase risk.” Kimball raises the example of SnapChat parent Snap’s

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recent IPO, which took dual-class shares to a new extreme—offering no voting rights at all to shareholders. “It’s resulted in the rare move by the Council of Institutional Investors to request that S&P Dow Jones Indices and other index builders exclude the company from their indexes,” he explains. “Otherwise big stock portfolio managers would be obliged to buy Snap’s shares, without having any say in its direction.” Kumar also questions the Snap voting structure. “Companies with dual-class shares argue that it allows for more long-term focus,” he says. “But what if the focus is wrong?” Such leadership arrogance can backfire, as it suggests a company that has no interest in the concerns of others. “Shareholders have ownership of something, but no ability to protect their interests,” says Baum, a former investment banker. “Meanwhile, those with voting powers are not held accountable to anyone but themselves. That’s not exactly a comforting message.” Perhaps worst of all, such structures do not necessarily enhance shareholder returns. “All else being equal, shares that have dual voting rights generally are less valuable,” says Chris Ruggeri, national managing partner of strategic risk and brand management at Deloitte. “Ordinary shares often trade at a discount to their theoretical value, the spread tending to narrow in bull markets.”

Rigging CEO Compensation Public outcry over CEO compensation has been around for a while, resulting in the widespread use of peer groups by board compensation committees to justify high pay packages. But what if the peer groups were judiciously selected to artificially inflate the pay of senior executive leaders? Jun Yang, an associate professor of finance at Indiana University’s Kelley School of Business, and Michael Faulkender, an associate professor of finance from the University of Maryland’s R.H. Smith School of Business, collaborated on a report in 2010 demonstrating that many board compensation committees had benchmarked their CEO pay to that of higher-paying peers. “Needless to say, we were surprised,” Yang says. The eye-opening study was a factor in changing the rules to require boards to disclose the names of the CEOs they had benchmarked against. Nevertheless, Yang, who continues to study the subject, says the problem has not gone away. “It’s just not as severe as it was in the past,” she explains. “Boards are more careful, given the heightened risk of discovery and

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“JUST BECAUSE YOU CAN DOESN’T MEAN YOU SHOULD. LEGALITY IS DIFFERENT THAN LEGITIMACY.” revelation. But some peer selection bias still exists.” Kimball affirms that peer group “cherry-picking” continues. “Compensation committees select what I call ‘aspirational’ peer groups composed of CEOs from companies that are much larger, have rising total shareholder returns and a more successful mix of businesses,” he asserts. “Such companies simply tend to pay [their CEOs] more, which can lead to inflated compensation.” Yang’s current research has opened up another can of worms—a possible nexus between the charitable donations a company makes to nonprofit organizations and the compensation of its CEO. “We found that 5 percent of Fortune 500 companies donate to the charities of their independent directors,” she explains. “It appears that when such donations occur in a company, the compensation of the CEO is higher by about 10 percent.” The donations are not disclosed in the annual report or the 10-K, Yang notes. “They’re pretty much under the carpet,” she says. “Obviously, this brings into question the directors’ ‘independence.’” Yang and Kimball agree that high CEO compensation is not inherently wrong—so long as an outsized pay package is based on provable performance and market value. But when very wealthy people become even richer based upon manipulated data, the public is more likely to condemn the person and the employing organization.

Inverting Corporate Inversions

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Corporate tax inversions are another dubious tactic worth a reappraisal. Last year, U.S. companies avoided paying nearly $135 billion in corporate taxes by registering their profits overseas. Yet they continue to derive the benefits of American “citizenship” by claiming that their operations are headquartered in the U.S. If American citizens pursued the same practices, the IRS would go after them for tax avoidance. “Corporate tax inversions produce the most significant brand and reputation risks for U.S. companies,” says Bridwell. “To ordinary people,

it’s a clear statement that a company doesn’t want to pay its fair share, even though the U.S. helped make it what it is.” Despite an anti-inversion bill passed by Congress in 2004, many companies deftly find workarounds. When portrayed negatively in the press, they blame the migrations on the country’s 35 percent corporate tax rate, griping that it puts them at a competitive disadvantage with businesses in ares with lower tax locations. President Trump has pledged to indirectly end inversions by decreasing the tax rate to 15 percent at home. Until then, tread lightly. “If an iconic national brand is considering an inversion to better their tax situation, expect substantial blowback,” Bridwell says. “Just because you can doesn’t mean you should,” chimes in Jonathan Knowles, CEO of Type2 Consulting, a B2B consultancy. “Legality is different than legitimacy,” he explains. “In the short term it may result in lower effective tax rates and an uptick in the stock price, but in the long term it can erode the company’s trust, legacy and reputation. I’d be very cautious. You simply cannot get around how unfair and unethical it looks.”

Restricting Stock Access to Pandering Analysts

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It’s hard to believe in this era of increased corporate transparency that a company would restrict its management team’s access to stock analysts who have and will most likely continue to provide favorable “buy” recommendations. Yet this shady practice was unveiled recently by The Wall Street Journal. Much of the fault lies with the analysts: they earn business from institutional investors by helping them access a company’s leadership. This results in undeserved fawning, flattery and recommendation “inflation” by analysts. One study that looked at more than 16,000 earnings conference calls, indicated that analysts had uttered the phrase “great quarter” approximately 3,000 times. One Wall Street analyst, Dan Davies, skewered the typical earnings call with this spoof: Analyst: “Great quarter, guys! I’d like to drone on for a bit, and make it perfectly obvious that I had a meeting with MAY/JUNE 2017

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“ONE OF THE QUICKEST WAYS TO DESTROY MARKET VALUE IS AN INCIDENT THAT CAUSES CUSTOMERS NOT TO TRUST YOU.” you before the close to discuss my numbers. I’d also like to remind all the other analysts on this call that I’m the most experienced analyst with a ‘buy’ recommendation, which is why you took my question first. So my question is, what do you think about how the quarter went?” Management: “We thought it went pretty good, Jim! Thanks! See you at the conference in Boca!” As for those analysts less likely to provide a “buy” recommendation, they experience greater difficulty accessing company management teams—to their investors’ chagrin. Certainly, this is no way to build confidence in the investment community. “Companies should have a very cohesive way of describing how they are going to create value for shareholders over the long term, and should be proud to tell that story and support it with facts,” says Ruggeri. “You either push the envelope of transparency in your narrative by opening access to all analysts, or you end up ignoring relevant stakeholders to your long-term peril.”

Abusing the Patent System to Restrict Competition Companies that file overly broad patents or acquire patent rights merely to restrict competition are guilty of committing our fifth and final sin. Such “patent trolls” used to roam the backwaters of business until President Obama outed them in his 2014 State of the Union address as “phony patent filers” costing “some of our best innovators tons of money in court.” While thousands of legitimate patent infringement lawsuits are recorded each year, a few are filed solely to limit competitors in their development of innovative products. “Some companies have asserted patents pretty blatantly to restrict competition,” says Josh Becker, CEO of Lex Machina, a provider of legal analytics to companies and law firms. He pointed to giant Honeywell’s 2012 patent complaint against tiny thermostat-maker Nest, claiming the startup’s smart thermostat violated its

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intellectual property. After Google acquired Nest in 2014, the two businesses settled the dispute out of court, reaching a cross-license agreement. Was it worth it for Honeywell to be perceived as a Goliath picking on a David, particularly one with a highly innovative product? “It was pretty obvious that Honeywell sued with the purpose of putting the young punk startup out of business,” says Becker. “I understand when a company files a patent infringement complaint for defensive purposes—it would be a dereliction of duty not to do that. But if the public perceived you doing it with the purpose of restricting competition, you’re in for a backlash.”

BEWARE THESE FIVE CORPORATE SINS as they can be deadly, corporate reputation experts warn. “Negative news travels fast, meaning you better have a credible response ready if you’re caught with your pants down,” says Knowles. “It’s so easy now [for customers] to quickly switch to a competitor.” Thanks to hashtag activism, when people turn their backs on a business they are likely to do so in droves, posing an immediate threat to the organization’s revenue stream. “Companies have to be more careful in their rhetoric and decisions, particularly in this era of rising populism and instant social messaging,” says Bridwell. To deter the risk of poisonous tactics infecting the workforce, he advises that CEOs establish, disseminate and champion permissible behaviors. “Clarify your organization’s purpose and values, and communicate these tenets aggressively,” Bridwell says. “Your reputation and brand depend on it.” Quinlan provides a similar perspective, which rings especially true in light of United Airlines’ April fiasco: “One of the quickest ways to destroy market value is an incident that causes consumers not to trust you,” he says. “You only have one reputation. Protect it at all costs.” As the embattled CEO of the aforementioned ride-sharing company would attest, removing the tarnish that attaches to a reputation is hard work. Better to keep it sterling. Marshall Cooper is the CEO of Chief Executive Group. Russ Banham is a Pulitzer-nominated business journalist and author of more than two dozen books.


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TALKING POINTS

WHAT YOU NEED TO KNOW ABOUT: REGULATION

Leveraging Trump’s Regulatory Rollback BY DALE BUSS

Though he was frustrated by early failures to overhaul the Affordable Care Act and to restrict immigration from a handful of mostly Muslim countries, President Trump started out with wild success in carrying out one of his other priorities: slashing regulations on business. In a flurry of early actions, he took down much of President Obama’s regulatory edifice and began attacking the “administrative state” that he said exists in Washington, D.C., to perpetuate itself at the expense of American businesses and to the detriment of the U.S. economy. Trump wants to shake things up and get more things done in the regulatory realm, an ambition that provides a huge opening for CEOs who may have felt they’ve been waiting eight years for just this moment. Yet even in light of his determination, the new president is likely to find some major differences between his rhetoric and promises and the actions that his administration actually ends up being able to take. With deregulation becoming such a dynamic force already in 2017, here are some ways that CEOs can think, talk and act in this important arena: 44 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

TAKE RESPONSIBILITY FOR THE CHANGES YOU WANT TO SEE: During the Obama years, CEOs often cited regulatory overreach as one of the biggest obstacles to growth for both their companies and the domestic economy. So naturally they’ve welcomed Trump’s promises and the new policies to match, and are encouraged to see Republicans—and even some Democrats—in Congress get behind the deregulatory push as well. But now CEOs will have to help guide the president’s anti-regulatory impulse in the most productive way for business, because Trump’s convictions alone won’t determine what happens in the long run. The deconstruction of the regulatory state will be thwarted in some ways by Democrats, by progressive advocacy organizations, by judicial precedents, by opponents’ lawsuits and by the inertia behind regulation that the federal government has

created over decades. Amid this din, CEOs will have to make sure Trump keeps listening to their voices as he did during his campaign. LEVERAGE THE ONCE-IN-AGENERATION OPPORTUNITIES BEFORE YOU: Every new administration brings significant shifts in its approach to regulation. Ronald Reagan, for instance, took a big axe to the federal regulatory apparatus, deregulating airlines, as well as savings and loans, with tremendous consequences for each industry and for America. And Barack Obama pushed the pendulum the other way with titanic additions, ranging from Obamacare to a series of executive orders. But President Trump already has shown that he’s sui generis when it comes to the size of his zeal for changing the government’s approach to regulation. He listened to the complaints of CEOs and others during his campaign, and he’s


PHOTO CREDITS (FROM LEFT): JUSTIN SULLIVAN, AARON P. BERNSTEIN, SCOTT OLSON, AND CHIP SOMODEVILLA/GETTY IMAGES

Left: With a 2018 budget proposal that seeks to slash the EPA’s budget by 31 percent and the choice of climate change-denier Scott Pruitt to lead the agency, President Trump is clearing the way for a more business-friendly regulatory environment on issues ranging from energy to carbon dioxide emissions. Right: President Trump leads a White House strategy session with business leaders IBM CEO Ginni Rometty, PepsiCo CEO Indra Nooyi, Blackstone Group CEO Stephen Schwarzman, GM CEO Mary Barra, National Economic Council Director Gary Cohn and Walmart Stores CEO Doug McMillon.

acting directly on them. There are several venues open to businesses wanting to tap into Trump’s general thrust in order to benefit their companies and industries specifically. Trump has made his druthers clear in a number of regulatory areas by signing executive orders, such as his clearance of the Keystone XL and Dakota Access natural gas pipelines, his overturning of President Obama’s Clean Power Plan to curb carbon dioxide emissions by coal-burning utilities and his rollback of the moratorium on leasing federal lands for coal production. In the financial arena, Trump wants to reverse much of the Dodd-Frank legislation that the Democratic Congress passed in the wake of the 2008 global collapse, because he believes it’s choking financial institutions and growth. Specifically, he wants to rein in the Consumer Finance Protection Bureau. Through his choice for running the Federal Communications Commission, Agit Pai, the new president also wants to take a whack at the “net neutrality” law passed late in Obama’s second term. However, there is plenty of room for business influence in exactly how the regulatory state will carry out the president’s early order for them to eliminate two existing regulations for every new one they institute. Agencies are looking for creative ways to fulfill that mandate. And CEOs can engage fed-

eral agencies, which now have a deregulatory orientation, to interpret legacy regulations in a more favorable way to their business.   TAKE ADVANTAGE OF PRESIDENT TRUMP’S FIXATION ON CEOS: Perhaps no other president has demonstrated this level of determination to accomplish policy aims by buttonholing CEOs. From tweet-shaming CEOs into making job commitments in the U.S. to taking on business leaders who opposed his proposed immigration bans, the president has focused on the important roles CEOs can play in helping him achieve his goals—or in thwarting them. The conduits through which the president is dealing with CEOs early in his administration mainly have to do with job creation and deregulation. On regulatory issues, savvy CEOs will take advantage of the fact that Trump, himself a CEO, likes dealing with them and understands their world. Among those who seem to get this are the many CEOs who’ve joined the White House councils of business leaders formed by Trump, covering manufacturing, technology and other areas. Not all who accepted his invitation agree with Trump’s policies or politics—some are outright opponents—but they recognize that the best way to influence regulatory reform and other business-related initiatives is to take a seat at the table. Other CEOs can take advantage of Trump’s openness to them

by proposing ways in which a deregulatory idea that hasn’t occurred to him might benefit their companies and industries. LEARN HOW TO DEAL WITH THE NEW ERA FROM AUTO CEOS: If there’s one industry whose leaders could have gone into a funk after Trump’s election, it was automakers. On the campaign trail, Trump repeatedly thumped Ford for CEO Mark Fields’s decision to move smallcar manufacturing to Mexico, and after the election he frightened many an industry leader by persisting in his promise to slap 35 percent tariffs on all cars coming into the U.S. from Mexico. But auto CEOs also foresaw how Trump’s approach could benefit them. They knew they needed more robust growth in the U.S. economy to keep record levels of American car sales from sliding off the peak. And they figured the new president would be friendly to their concerns that the ramp-up in federal requirements for improved fuel economy and emissions reductions was too steep for them to meet—especially considering that consumers aren’t all that interested in electric cars yet. This strategy is paying off. In one of his biggest regulatory actions thus far, Trump moved to give automakers more time to meet their environmental targets, reversing an 11th-hour acceleration in the timetable by the Obama administration. Rising

consumer confidence has helped keep U.S. auto sales essentially steady. And, so far, Trump has soft-pedaled the idea of slapping a 35 percent tariff on cars coming in from Mexico.   DON’T ASSUME YOU KNOW WHAT PRESIDENT TRUMP WILL DO: You may not. Trump is a pragmatist above all and is syncretistic in his thinking. For example, despite campaign complaints about how the North American Free Trade Agreement was a “disaster” for the U.S., the Trump administration has signaled to Congress that it will seek mostly modest changes in that deal in negotiations with Canada and Mexico. And in the battle royale of environmentalism, climate change, Trump may yet disappoint even some of his own people, such as Scott Pruitt, the new Environmental Protection Administration chief, who has said that carbon dioxide is “not a primary contributor” to global warming. Trump himself hasn’t reflexively called for the U.S. to exit the so-called Paris Agreement on climate change in which signatories pledged to do what it takes to stem a rise in global temperatures. He may be influenced on this score by some of the CEOs on his councils. They include Walmart CEO Doug McMillon, PepsiCo CEO Indra Nooyi and General Electric CEO Jeffrey Immelt, each of whom has launched his or her company on its own agenda to battle climate change.

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DATA DIVE

MIDDLE MARKET TALENT PLANNING Talent Management: Planning Is Key —By Peter Haapaniemi

FINDING AND KEEPING THE RIGHT TALENT IS NOT GETTING ANY EASIER, and that makes a comprehensive approach to talent planning critical. However, a recent study from the National Center for the Middle Market (NCMM) found that less than half of medium-sized businesses (annual revenues between $10 million and $1 billion) are implementing key talent planning processes such as succession planning, development and performance management. There is “clear room for improvement,” says Thomas A. Stewart, executive director of the NCMM, which is based at the Fisher College of Business at The Ohio State University. The study “underscores something that has been said again and again, which is that talent planning is a strategic process in which top management should be deeply engaged—starting with the CEO.” Design by Alex Reardon

Importance of Talent Planning Compared to Other Business Priorities

11%

Talent planning is our top business priority

50%

Talent planning is important and on par with other top priorities

26%

There are a few business priorities that are more important than talent planning

13%

Talent planning is less important than most other business priorities

Talent Planning Is Seen as a Priority...

About 6 out of 10 middle-market executives said that talent planning is one of their main business priorities, including 11 percent who said it was their top priority. The talent-planning activities that they cited as most important included identifying key positions in the business, regularly assessing employee performance and potential, identifying best performers and retaining critical employees.

... But Companies Often Struggle to Plan Effectively

Grade of Overall Effectiveness

Total Middle Market

A B C D F

14%

When asked to rate the effectiveness of their companies’ talentplanning efforts, only a relative handful of respondents gave themselves an “A” grade. Forty-one percent graded themselves a “C” or lower. Less than one-third said that their organizations were fully committed to talent planning.

Talent Planning Is Good Business

Executives from fast-growing companies (those with annual revenue growth of 10 percent or more) were more likely than those from slower-growing companies to think talent planning is extremely or very important. They were also more likely to report that their companies excel at talent planning.

4%

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11% 2%

Note: Numbers may not equal 100% due to rounding

10%

15% 21%

Data Source: “Mastering Talent Planning,” National Center for the Middle Market

28%

Extremely/Very Important Somewhat Important Not Very/At all Important

Importance of Talent Planning 8%

46%

24%

71%

81%

Total Middle Market

Greater than 10% Growth

66%

Less than 10% Growth


Missing: Systematic, Formal Planning

Guidelines for Taking Action

The researchers found that fast-growing companies are more likely to have a well defined talent-planning process. A majority of middle-market firms do indeed have a somewhat clear process, but only about one in five have a highly formal process with defined rules and guidelines. Among companies that excel at talent planning, about one out of four have formal talent-planning processes.

Companies’ Approaches to Talent Planning Mostly informal with few if any aspects documented

22%

26%

Align talent planning with corporate business strategy More than two-thirds of respondents said that aligning talent planning and business strategy is important, but just 29 percent of firms do so. Meanwhile, 40 percent of top-performing companies do take steps to align the two.

Highly formalized with written rules and guidelines

Somewhat formalized with some aspects of process documented

52%

Implementation Lags in Key Areas

Middle-market companies recognize the value of solid talent planning, but they do not always follow through with action. Even with the activities that executives ranked as important, actual implementation is relatively low, with about 4 out of 10 companies—or fewer—having those activities in place. TALENT PLANNING ACTIVITY Identifying key positions Processes to assess employee performance/potential Identifying best performers Tools and processes to retain critical players Identifying internal talent pools

Cited as important

Actually implemented

77%

46%

74%

39%

73%

42%

73%

33%

73%

42%

Researchers looked at companies’ implementation of 16 talent-planning activities, such as identifying retention risks, identifying skill gaps and retaining critical employees. They found a clear correlation between companies that use more types of activities and those that report high levels of talent-planning effectiveness.

Lead by example Top leadership needs to be involved in talent planning—it should not simply be delegated to HR. Senior leaders at higher-performing middle-market companies are more likely to be a part of talent-planning efforts, compared to lower-performing firms.

7 to 8

Number of Talent Planning Activities Implemented

38%

Build processes to enable successful talent planning Stewart points to “the need to put in the right amount of process.” The right amount changes as companies grow. “You don’t want to overburden things with bureaucracy,” he says. “But you also don’t want to under-support things and continue being loosey-goosey when you’ve grown too big for that.”

Engage the organization Get employees involved and ensure that they recognize the value of talent planning. Nearly three-quarters of firms where employees are engaged report that they handle talent issues well or extremely well, as opposed to about one-third of firms where employees are merely “compliant” with talentplanning processes.

The More, the Merrier

0 to 2

The researchers developed a framework to help executives develop talent-planning programs, known as ABLE (Align, Build, Lead, Engage). “Senior executives often don’t have a way to approach the problem,” says Stewart. The framework, he says, can provide just that, and companies can “use it as the basis for a day or half-day piece of talent-planning work by the executive team.”

80%

3 to 4

5 to 6

54%

53%

Give company “A” or “B” for Talent Planning

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Smart Manufacturing Summit May 15 â&#x20AC;&#x201C; 17, 2017 Seattle, Washington

Co-Hosted by The Boeing Company

The Manufacturing Revolution is here. At the fifth annual Smart Manufacturing Summit, meet with industry experts and your peers to discover the tactics needed to accelerate growth in your manufacturing business.

TICKETS ARE ALMOST SOLD OUT. RESERVE YOUR SPOT TODAY www.SmartManufacturingSummit.com LEARN WITH INDUSTRY INNOVATORS

DENNIS MUILENBURG CEO, President and Chairman, The Boeing Company

RAJ BATRA President of the Digital Factory Division, Siemens USA

PETER RIEHLE CEO & President, WITTENSTEIN North America

SUJEET CHAND Senior Vice President, Rockwell Automation

ALAN AMLING Executive Vice President, UPS Corporate Strategies, UPS

HERBERT LADE Vice President, Global Solutions and Service, Cognex

BRYAN DODS CEO, The Institute for Advanced Composites Manufacturing

DUANN SCOTT Head of Business Strategy for Digital Manufacturing, Autodesk

Review our full agenda, speaker list and exclusive tours online: www.SmartManufacturingSummit.com


CEO ROUNDTABLE

Facilitating Digital Transformation How companies rethink, retool and reboot alongside government partners. By Jennifer Pellet THE DYNAMICS OF THE WIN-WIN THAT public-private partnerships can offer are clear: Faced with the need to embrace technological advances to stay competitive, companies need both access to capital and workers with the skills to help them leverage the capabilities of innovations in areas like data science, cloud computing and smart manufacturing. Meanwhile, state and local governments looking to spur economic growth need to attract new businesses, as well as nurture existing ones. Recognition of that potential for mutual benefit is the driving force behind a growing number of public-private partnership initiatives. In Indiana, that process starts with a dialogue with the CEOs of companies operating in the state or considering expanding there about what would move the needle, Ian Steff, executive vice president and chief innovation officer at the Indiana Economic Development Corporation (IEDC),

told CEOs gathered for a recent Chief Executive Magazine roundtable co-sponsored by the IEDC. “These are industry-driven partnerships centered on areas like energy storage, cybersecurity and the Internet of Things,” said Steff. “We ask industry: ‘What do you need in terms of matching resources or shared infrastructure to ensure that Indiana continues to lead in the sectors we’ve led for so many years in advanced manufacturing, life sciences and information technology?’” Often, the answer is a skilled workforce. Farooq Kathwari, CEO of Ethan Allen, pointed out that while tax incentives get a lot of media attention, skilled labor and a friendly regulatory environment are the real deal-breakers for his company. “For us, the right labor is number one, and then the overall environment for working with the government needs to be good. After that it’s always good to get some benefits, but that will be

third or fourth on the priority list.” SEEKING SKILLS Ensuring that the skills being taught at local colleges and universities are those the companies based there need is one way to address the workforce issue, noted Steff, who cited efforts in his state as an example. “Our former lieutenant governor, Sue Ellspermann, is now the president of Ivy Tech Community College, our largest college system,” he said. “She’s been transforming that place to ensure that we’re keeping up [by] changing curriculums to meet the skill set needs of companies.” Companies, too, can spur academic change at the local level. Danbury, Connecticut-based Ethan Allen is among an increasing number of companies working directly with colleges and universities to develop the talent it needs. “We are next-door neighbors to Western Connecticut State University, and we have utilized MAY/JUNE 2017

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CEO ROUNDTABLE that quite well in terms of internship programs and recruiting,” said Kathwari. “We’re deeply involved with the university.” ProspEquity Partners has also been building relationships with schools around the country over the past decade in order to find and nurture talent. “We think the relationships we’ve developed with five or six engineering schools give us very solid insight into where the talent lies and the ability to develop successful internship programs,” reported Chris Ramonetti, CEO and managing partner, who added that academic partnerships can also bring insights on innovation. “We have an academic board of advisors from various universities who provide a touchpoint for what’s coming next in technological innovation.” However, as important as educating locals in industry-specific skills is to many companies, it’s just one piece of the equation, the roundtable participants agreed, citing regional ecosystems that can offer talent, shareable resources and access to

“We have an academic board of advisors from various universities who provide a touchpoint for what’s coming next in technological innovation.” —CHRIS RAMONETTI, CEO, ProspEquity Partners

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“We ask industry: ‘What do you need in terms of matching resources or shared infrastructure to ensure that Indiana continues to lead in the sectors we’ve led for so many years in advanced manufacturing, life sciences and information technology?’” —IAN STEFF, EVP and Chief Innovation Officer, IEDC financing as ideal environments in which to locate. These were defined as “communities where collisions of resources and relationships build for greater innovation overall.” Over time, those pockets of progress have the potential to develop into thriving, self-sustaining ecosystems, in the same way that Silicon Valley became a mecca for both talent and investment capital. Young, talented workers flock to clusters populated by promising companies able to offer them potential career stepping stones. “In the 1990s there were so many firms [in Silicon Valley] that a person could progress in his or her career while staying within that area,” Ramonetti noted. “If you don’t have enough firms locally, it’s not only harder to bring someone to an area, it’s also harder to maintain a

workforce and spread knowledge from one place to the next. No turnover is actually bad because you don’t have cross-utilization and growing through collision.” As essential as an adequate pool of labor is, financial incentives, access to capital and other resources are also critical for many companies. Growing enterprises, especially early-stage ventures, often need financing to expand, noted Rick Nui, CEO of Star Strategic Partners. “Social financing is also key, especially for small and medium-size enterprises,” he added. “When you have less than $5 million in revenue, the struggle is cash flow, initially. [Locations that are] able to give them some help in that regard will benefit.” Indiana is among a growing number of states looking for ways to support new ventures centered around high-growth sectors. The state recently unveiled a plan to invest $1 billion in innovation and entrepreneurship in Indiana over 10

“When you have less than $5 million in revenue, the struggle is cash flow, initially. [Locations that are] able to give them some help in that regard will benefit.” —RICK NUI, CEO, Star Strategic Partners


years, an initiative that will focus in part on accelerating investment in early-stage, mid-market and highgrowth companies. The state also offers a Venture Capital Tax Credit that aims to prompt investment by offering those who invest in qualified Indiana companies a state tax credit of up to 20 percent of that investment. “We are now proposing making that transferable so that those who can’t claim the credit because they don’t have a tax liability in Indiana can sell that credit to someone who does,” explained Steff.

“Sometimes you see 10-year tax holidays for new companies—what message does that send to the companies that have been part of that ecosystem for many years?”

INCITING INCENTIVES Indiana made headlines in December when then–President-elect Donald Trump stepped in to forge a deal to help prevent 1,000 jobs at air conditioning company Carrier’s Indianapolis facility from going to Mexico. While the incentives offered by the state in return, which involved significant tax credits, spurred some controversy, “at the end of the day, the

package put together was very fair and very much performance-based,” noted Steff, whose state will conduct an audit to ensure Carrier keeps its end of the deal. “All of our incentives are performance-based—you actually have to deliver in order to claim the incentives,” he added, noting that incentives doled out without careful consideration can backfire. “Sometimes you see 10-year tax holidays for new companies—

what message does that send to the companies that have been part of that ecosystem for many years?” Kathwari agreed, noting that the states in which Ethan Allen has manufacturing facilities tend to take the company’s presence there for granted. “We are manufacturing in North Carolina, Vermont, New Jersey, Connecticut, many places, and we see those states spend a lot of effort on attracting new folks,” he noted. “There’s no interest in those of us already there until we decide to leave or threaten to leave, which is not how it should be.” Acknowledgment of Kathwari’s point is reflected by a shift in how states like Indiana are approaching economic development and incentives, noted Steff. “Increasingly, we are looking to leverage state resources in ways that benefit not just one company, but many companies,” he said. “Public-private partnerships are a tool in our quiver as we look to accomplish that.”

Roundtable Participants

TOP ROW, FROM LEFT:

Michael Purchase, Vice Chairman, Dayton Lamina

Michael Cole, COO, AirBorn

Farooq Kathwari, CEO, Ethan Allen

Christopher Ramonetti, Managing Partner, ProspEquity Partners

Robert Petrone, VP, Finance, Lewis Tree Service

Ian Steff, EVP and Chief Innovation Officer, IEDC

Mike Winkleman, Editor-in-Chief, Chief Executive

Richard Rowe, CEO, Arkema

Edward Henderson, Managing Director, U.S. Trust

Kenneth Cutshaw, CEO, Garden City Group

Jay Desai, CEO and Founder, Institute of Global Competitiveness

Eric Felsberg, Principal, Jackson Lewis P.C.

Doug Hultquist, CEO, QCR Holdings

Rick Niu, CEO, Starr Strategic Partners

BOTTOM ROW, FROM LEFT:

Aaron Vigil-Martinez, Senior Advisor for Small Business and Entrepreneurship, IEDC

Peery Heldreth, CEO, Farm Credit of the Virginias

Ted Anderson, Managing Director, U.S. Trust (not pictured)

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BUSINESS DEVELOPMENT

DOES DIVERSITY IN THE BOARDROOM MATTER? By C.J. Prince

While driving gender and ethnic diversity among directorship roles has gained traction at large, consumer-facing companies, movement has lagged across corporate America as a whole. Yet a growing body of research suggests boosting diversity in your boardroom is worth considering.

I

IF YOU’RE THE CEO OF A CONSUMER PRODUCTS COMPANY, it’s not hard to make a case for diversity. After all, the market you’re after is more heterogeneous than ever, so strategically it makes sense to have an executive team and a board that reflects that mix of cultures, genders and ethnicities. But what if you head up an industrial B2B company? Does pursuing a more diverse board do anything more than show the world you’re keeping up with 21st century social trends? Given how few sitting CEOs are women and minorities, does this mean you should abandon a long-standing strategy of seeking out experienced CEOs to serve as directors? In principle, you might agree with the value of a diverse culture. But in practice, does it make sense for your business? “The role and responsibility of the board is to the shareholder, and the shareholder doesn’t care about diversity,” says Paula Cholmondeley, CEO of The Sorrel Group, a director education consultancy. “They want the best ‘team’ that can deliver and enhance the value of the organization.” Cholmon-

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deley would know; she has served on eight corporate boards and on just about every committee, as well as held senior financial and strategy positions at a variety of large companies, including Owens Corning, The Faxon Company, Blue Cross of Greater Philadelphia and Westinghouse Elevator Company. In her view, diversity isn’t something you seek because you want the positive PR or because it’s the nice thing to do, but rather, because you want to fill out the mix of skills the company needs in the boardroom to succeed in its mission. “The fallacy that has, I think, turned into a belief and is wrong is that the only team or the best team to produce results is a team of CEOs,” she says. “But companies don’t run based on teams of CEOs, and a CEO doesn’t surround himself with duplicates of himself. Every corporation that excels at anything is structured to bring a multiplicity of topical skills to the team.” Boards, too, need a multiplicity of skills. Regardless of the type of company or the industry in which it operates, a lack of diversity in the boardroom—based on gender, ethnicity, age, background, nationality, etc.— could hurt, even if everyone sitting around the table is a CEO. “The stronger boards are composed of a mixture of CEOs and of people with senior functional skills, which will vary based on the company and the industry,” says Cholmondeley, noting that contrary to long-held tradition, previous board experience shouldn’t necessarily be a prerequisite. “Once you say you want a senior functional skill, you’re not talking about the CEO.” While many companies have Source: McKinsey & Co.

responsive to our diverse population,” says Kesner, who sits on the board of Berry Plastics, a global manufacturer of packing solutions. “One of the things Berry does is design containers. If you can imagine, at the most mundane level, a container that fits a woman’s hand or a container that’s more appealing to various diverse groups—that definitely has sales implications to it.” Ronald C. Parker, president and CEO of The Executive Leadership Council, agrees, adding that the customers of B2B companies are looking for diversity in their vendors. “They’re now insisting that the reps who call on them look like the population they serve.” Companies like DuPont, MasterCard, Coca-Cola, Ford, P&G and The Walt Disney Company have all taken steps to actively engage diverse suppliers. As DuPont pledges

embraced this point of view, others feel that they can’t afford to prioritize diversity in the boardroom and/or question the business case for doing so. Yet a growing body of research suggests that diversity at the top correlates with greater innovation and success. A global study by McKinsey & Co. found that returns on equity for companies ranking in the top quartile of executive-board diversity were 53 percent higher, on average, than they were for those in the bottom quartile. EBIT margins at the more diverse companies were also 14 percent higher, on average, than those of the least diverse companies. Another study by the Center for Talent Innovation found that employees at companies with more diverse leadership were 45 percent more likely to report that their firm’s market share grew over the previous year PERCENTAGE OF INCREASED and 70 percent more likely LIKELIHOOD THAT COMPANIES IN THE TOP QUARTILE FOR to report that the firm capRACIAL AND ETHNIC DIVERSITY tured a new market. And consensus around the senWILL HAVE FINANCIAL RETURNS ABOVE THEIR RESPECTIVE NATIONAL INDUSTRY MEDIANS timent that boardroom diversity matters is building among business leaders. In the 2016 update of its governance principles, the Business Round- as part of its formal commitment to table strongly endorsed a link between maintaining a diverse supply chain: racial and ethnic diversity in boards “Ensuring our supply base reflects and board effectiveness and the cre- our customers, employees and the communities where we live and work ation of long-term shareholder value. is a key business strategy.” Given the growing body of evidence, few companies, even B2B, Making It Happen industrial, non-consumer-facing Despite this building momentum, manufacturers, can afford to ignore progress on moving the needle with the growing diversity of workforce boardroom diversity has been slugand consumer populations, asserts gish. According to a study by Deloitte Idalene Kesner, dean of Kelley School of Business at Indiana University, who and the Alliance for Board Diversity, women and minorities held 30.8 spent many years researching board percent of Fortune 500 boards seats in diversity in the ’80s and ’90s. “I would say there are very few industries today 2016—up from just over 25 percent of board seats in 2012. When compared that aren’t touched by the need to be

35%

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BUSINESS DEVELOPMENT with the exclusively male, all-white boards that once held the lion’s share of boardrooms in Corporate America, that’s a significant change. But compared with the fast pace of changing demographics in the U.S.—and noting the fact that women make up over half Source: PwC

24%

percentage of men who believe diversity on the board enhances company performance,

COMPARED TO 89% OF WOMEN

54 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

1) Problem: Lack of Buy-in. A PwC survey of 2,300 directors from 46 different countries found that when asked the question, “Do you believe that diversity on your board enhances company performance?” only 24 percent of men said yes, compared with 89 percent of women. That isn’t necessarily because men are discounting women, says Coco Brown, CEO and founder of Athena Alliance, a nonprofit that helps small and midsize companies find female executives to fill board seats. In fact, Brown says she has received overwhelmingly positive feedback and support from male individuals at prospective corporate clients. But, perhaps not surprisingly, male directors are not as likely to be aware of the positive correlation, and they may not want to fix something they don’t perceive as broken. “They may not be tuned in as well as women are about the benefits of diversity. They may not be paying attention to it.” Solution: Look at the numbers. Proponents of diversity at the boardroom level and beyond say the goal isn’t to achieve parity for its own sake, but rather to grow U.S. advantage in an increasingly competitive global market. As mentioned earlier in this article, an expanding body of data suggests a strong correlation between such diversity and a better bottom

line. Catalyst, for example, found that companies with the most women board directors outperformed those with the least on both return on sales (by 16 percent) and return on invested capital (by 26 percent). In the aforementioned update to its Principles of Corporate Governance to reflect the connection between diversity and performance, the Business Roundtable acknowledged such findings, asserting: “Diverse backgrounds and experiences on corporate boards, including those of directors who represent the broad range of society, strengthen board performance and promote the creation of longterm shareholder value.” The newly updated principles encourage boards to “develop a framework for identifying appropriately diverse candidates that allows the nominating/corporate governance committee to consider women, minorities and others with diverse backgrounds as candidates for each open board seat.”

2) Problem: Lack of Qualified Candidates. Solution: In fact, experts say, the notion that qualified female and ethnic/ racial minority candidates for board positions can’t be found is simply a

31%

percentage of board seats at Fortune 500 companies held by women and minorities in 2016—

UP FROM JUST OVER 25 PERCENT IN 2012

persistent myth. “Sometimes I will talk with people who want to get women on their board and they’ll say, ‘I can’t find them.’ And I don’t mean to be disrespectful here, but my answer

Source: Deloitte and the Alliance for Board Diversity

of the consumer population—some argue women and minorities are still significantly underrepresented. “When you look at the progress of women on boards over the long haul, the index looks impressive and you can say, ‘Yes, we are making progress,’” says Deb Henretta, former global president of e-business at Procter & Gamble and current senior advisor at management consulting firm SSA. “But if you look at the compound annual growth rate that you see each year, it looks less exciting. And when you look at the last couple of years, it’s stagnant.” Kesner agrees. “To be honest, I’ve been surprised that progress has been much slower than what I would have predicted years ago,” she says. While there has been some movement for African-American women, who gained 19 seats since 2012, the increase in the number of board seats held by African-American men over the same four-year period was nearly

flat, with just three seats added, says the Executive Leadership Council’s Parker. “Collectively, looking at women and minorities, we are at an all-time high, but when you consider our collective spending power of about $4 trillion, when you look at Latinos, Asians, women and blacks, to have that few board seats represented is really disappointing,” he notes. Why the disconnect? Experts point to five roadblocks hampering movement toward more gender and ethnically diverse corporate boards—and offer solutions to CEOs and chairmen seeking change about what can be done to break them down.


is, ‘Look harder.’ There are a lot of women out there in C-suite and other leadership positions,” says Henretta. One of the problems is that when a board seat opens up, sitting directors are often called on to put forward potential candidates, which leads to a vicious cycle. “Men are leveraging Source: McKinsey & Co.

10% = 0.8% for every 10 percent increase in racial and ethnic diversity on the senior executive team, earnings before interest and taxes (EBIT)

RISE 0.8 PERCENT

their networks,” says Brown. “So what I run into over and over again is not, ‘I love my old boys’ club and I want to keep the women out.’ What I hear is, ‘Honestly, Coco, I don’t know women.’ From a business/professional perspective, they leverage their executive networks, and those are still mostly men.” Margot McShane of Russell Reynolds says that more boards are beginning to recognize that they have to go outside their comfort zone to deliberately seek out a diverse slate of candidates rather than relying on their own limited Rolodexes. “The days of just networking at a board level seem to have passed for the more sophisticated clients,” she says. Those that put women on nominating and governance committees may have an edge because “women know women,” says Henretta, who, together with Kim Whitler at the Darden School of Business at the University of Virginia, has just completed research looking at not only women on boards, but specifically the small numbers of

women on what she calls the “power committees,” such as nom/gov, compensation and audit.

3) Problem: Bias Toward Sitting or Retired CEOs. Solution: As noted earlier, many boards are still, as they have been for decades, more inclined to seek either sitting CEOs or retired CEOs who have experience on boards and are ready to tackle governance issues from day one. But that predilection may blind boards to other, better options given how few CEOs today are women and people of color. “If you start with that as the criteria, right away you have a problem,” says Miguel Quiñones, management professor at the Cox School of Business at Southern Methodist University and director of the school’s Latino Leadership Initiative. The traditional pipeline for CEOs and chairmen is not as robust as it could be, he says. “So you have to ask yourself, is that really the most important criterion today?” Increasingly, companies are recognizing that the skills they need to fill out board expertise go beyond what retired CEOs might be able to contribute. According to the Spencer Stuart 2016 Board Index, only 19 percent of new independent directors at S&P 500 companies are active CEOs, chairs, presidents and COOs, compared with 49 percent in 1998. Boards are prioritizing specificity of skills vs. a high-profile CEO role. “The ultimate responsibility of the board is to skate where the puck is going,” says Steve Klemash, Ernst & Young partner and director of EY’s Center for Board Matters. The complex challenges companies face today are leading boards to seek specific finance, digital, cybersecurity, marketing, social media and global experience. That’s where executives lower down in the organization can represent some low hanging fruit, he notes. “There are plenty of quality women and ethnic minorities who have been coming up the ranks who have bene-

PENN MUTUAL: Diversity-Driven Success

It would be easy to look at Penn Mutual’s board, 42 percent of which is now held by women and minorities, and credit Eileen McDonnell, the first female CEO in the company’s 170-year history. But McDonnell is quick to point to her predecessor, Robert Chappell, who chose her as his successor. “Bob always sought out the best talent to fill roles at headquarters, so our leadership today is over 40 percent female,” she says, noting that two of Penn Mutual’s subsidiaries are run by women and that when Chappell left in 2011, women already accounted for four of 11 board seats. “He had been, throughout his career, gender-neutral and color-blind. He’s just always sought to surround himself with the best talent for the time.” McDonnell says that for each of Penn Mutual’s recent successes—the company just reported the best sales and earning numbers in its history— she can point to ways each member of her diverse board contributed, typically by agitating for some change or focus that otherwise might have been neglected. “There is a direct link to our directors who, because of their discipline and experience and thought process, come at each opportunity and challenge differently,” she says. As a private company, Penn Mutual isn’t under the same scrutiny and pressure to diversify the board as it might be if it were public. But in McDonnell’s view, it shouldn’t be done out of a sense of obligation or to appease critics, but rather because having divergent views around the boardroom table is the best path to success. “I view that I become better and stronger as an executive and as a board member by surrounding myself with very talented people, in some cases more talented than myself, and learning from them,” she says, adding that CEOs who are reluctant to surround themselves with people who think differently, and who may challenge them, are at a competitive disadvantage. “Because the reality is we all have our blind spots and if we don’t have people like that around us, we may miss something.”


BUSINESS DEVELOPMENT fitted from more open-minded organizations. There are plenty of SVPs who have varied skillsets. The only one they’re really missing is that first board, but you can coach them up.” “Governance is a teachable skill,” agrees Cholmondeley. “I can teach somebody to be a board member. But I can’t teach somebody cyber. I can’t teach them the depth of the 10, 20 or even five years of functional expertise they need to bring. So instead of worrying about whether a person has been on a board before, they ought to be looking at, does this person bring the emerging functional skillset that we need?” Given all the liability issues for directors today, boards may also be skittish about uncharted territory, says Brown. “It’s really challenging to ask boards to start using a process today that they haven’t used before.” But a host of talent firms and universities now offer robust governance training to help ready new directors for board service.

Changes in Board Diversity 2010

84% 15%

2012

83% 16%

4) Problem: Difficulty Attracting Top Candidates. “The companies that have that challenge are the small to mid-cap public companies and private companies,” says Brown. “They just aren’t known.” Solution: Those that lack both the marquee brand name and the budget to do a pricey search still have options. First, be willing to reach down further into successful company ranks to find up-and-comers who have not had board experience, but who have expertise specific to your industry or near-term expansion goals. Look to successful entrepreneurs or CEOs of private companies, who can also offer valuable insight and expertise, particularly related to rapid growth. Tap the networks of organizations such as Athena Alliance, Catalyst and the Executive Leadership Council, among others.

5) Problem: Slow Turnover. With no tenure limits, and the average director 56 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

13%

14%

2016

80% 20%

MEN

15%

WOMEN

MINORITIES

Source: Deloitte

term at roughly 10 years, board positions for independent directors simply don’t come open up that often. Last year, the number of new independent directors declined slightly, to 345 from

376 in 2015, according to Spencer Stuart’s annual study. Even when a board member has finished serving a term, the company may see a greater advantage to retention than trying to get someone new up to speed. At theBoardlist, a Silicon Valley talent marketplace designed to match highly qualified women candidates with tech board opportunities, a dearth of open seats has been a barrier. “Business leaders have been incredibly receptive to the message,” says Lesley Grossblatt, COO of theBoardlist. “They say, ‘That’s fantastic, but unfortunately, no one is leaving our board.’” Solution: Consider adding a board member. It may not work for every company, but for those whose directors are already swamped with unfinished tasks, it’s a good time to start thinking outside the box, says Klemash. “There isn’t an audit committee chair out there who wouldn’t say he or she is overwhelmed.” Given that, there may be an opportunity to solve several challenges simultaneously by adding a director seat and filling it with a minority or female candidate. To be sure, U.S. company boardrooms are less diverse than those in Norway, Sweden, France and others that have legislated diversity ratios. But there is clear movement toward achieving parity. “I don’t have a crystal ball,” says Mel Lagomasino, CEO and managing partner of the financial advisory firm she founded, WE Family Offices, and a board member at both Coca-Cola and Disney. “But I do think one of the really good things out there is millennials and how they think.” Gen-Y prioritizes family and worklife balance more than the previous generation, she says, which may lead to changes that enable women to achieve the same rates of ascension in corporate America as their male counterparts have. “As they start to come on boards, I think they’ll have a positive influence on the future of companies. So I kick the ball forward to the next generation of leaders.”


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CEO TECH

MAKING SENSE OF CUSTOMER DATA How to unlock the value in all those numbers you’re collecting.

C

BY PETER HAAPANIEMI

ompanies today have a wealth of data about their customers, and executives know there is a lot of value in that data. It can be a key to everything from finding new prospects and upselling to effective product innovation and a superior customer experience. However, recognizing that potential value and actually realizing it are two different things. As companies amass more and more data, they often find themselves struggling to make effective use of it all. “The big challenge is trying to tease actionable insight out of the data,” says Tom Harrison, chairman emeritus of the Diversified Agency Services division of Omnicom, the global communications 58 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

group. “Generally there is so much data available, but slicing it, dicing it, and transforming raw data into precise, direction-oriented knowledge that powers corporate or brand strategy is not a simple task.” The technology for doing exactly that has evolved rapidly. “Think of what we were able to do two or three years ago from a data storage and processing standpoint,” says Marc Singer, senior partner at consulting firm McKinsey & Co. “We can do twice as much today for the same amount of money.” However, he adds, “most companies will not tell you that they’re twice as effective at using customer data as they were two or three years ago.”

For CEOs, it’s important to understand that getting value out of their data involves much more than hiring data scientists and launching big data initiatives. Often, the stumbling block is not the technology itself, but how companies approach the technology. “This is as much an organizational challenge as it is a technical challenge,” says Singer. And that’s where CEOs can play a vital role—giving the organization focus and providing direction for taking advantage of customer data.

What’s the Goal? Just how well companies make use of their data varies. Often, large companies serving extensive consumer markets—where huge amounts of data are the norm—are doing more with their customer data than middle-market firms and B2B companies. But that breakdown is not absolute, and companies of all types struggle to make the most of their customer data. One common problem: taking too broad an approach. “There’s a misconception that all the data they have is good data. The reality is, it’s not,” says Joe Benson, president of Knowledge Marketing, which helps companies work with their customer data. “The vast majority of what they are collecting today is not useful for any marketing purposes. That doesn’t mean it couldn’t be in the future. But it means that they are not collecting data with a specific purpose to create revenue. They are just collecting it.” What’s needed is a more systematic approach. That starts with the upfront identification of the company’s goals for using the data, such as finding new prospects, reducing marketing expenses or increasing customer satisfaction. “You need to know how this is going to create value for your customers and for the company,” says Harrison. “CEOs today


"The data will help in the decision process. But rarely should you rely on data exclusively." —Joe Benson, President, Knowledge Marketing don’t have the luxury to go off on wild goose chases. Wall Street just doesn’t allow that. So everything needs to be focused on why the corporation wants to do this.” That focus allows the company to essentially target its collection and analysis efforts on data that will help meet those goals. It also makes it possible to establish solid metrics for gauging the success of the data initiative.

At the same time, companies need to consider the quality of data itself. Customer data is often kept by different corporate “owners” in disparate formats across various systems. Companies need to find ways to consolidate that data and clean it up so that it is accurate, consistent and up to date. “There needs to be a data strategy and a data governance model,” explains Singer. “You need to treat the data as an asset, not just a byproduct of your transaction systems.” Without unified data, the company will be working with a flawed view of the customer. Bad data is “a hijacker of your company’s time,” says Knowledge Marketing’s Benson. “You spend a lot of time chasing dead-end leads that are never going to go anywhere, because you don’t know any better.” In addition, salespeople and marketers are likely to stop trusting the data MAY/JUNE 2017

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STEPHANIE CARTER/IMAGEZOO

Building the Data Foundation


CEO TECH

4 THINGS YOU CAN DO WITH YOUR DATA NOW and start ignoring it—which could lead to missed revenue opportunities. Also, says Benson, “you will tend to gravitate toward the same types of people over and over—fatiguing your best customers because you’re targeting them with every offer, not the right offers.” Having good data may also mean including data from third-party sources to complement the company’s own customer information. Doing so can create a broader perspective that makes it possible to validate the company’s own data and, even more important, uncover new prospects and potential markets. None of this is to say that the CEO needs to be involved in day-to-day data issues. But he or she should be asking the right questions of marketers and analytics teams. What data assets do we have? Who is responsible for them? Have we integrated our customer data? “If you had a one-pager describing the end result you want, what would that look like?” says Benson.

Balancing Science and Art Customer data can tell companies a lot, but it can’t shed light on every aspect of the customer. “You can see who is buying, when they are buying, where they are buying and even predict when they are going to buy again,” says Harrison. “But the data can’t tell you why they do it.” For that, companies need to bring the judgment of people to bear on the data. To gain a better understanding of the “why” factor, Harrison once employed a cultural anthropologist “who spent a lot of time in stores and in people’s homes observing people and talking to them. It was really eye-opening.” Analyses can also include input from business people who understand the company’s goals, who 60 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

In deciding what they want to achieve with their data, companies can usually begin by looking for ways to do more business with existing customers. For example, says Andrew Mahler, CEO of Mx Group, a digital marketing company, companies can use their customer data to: ACCELERATE REPLACEMENTS. A manufacturer of industrial equipment might look through its data to find customers who are buying more spare parts to prolong the life of their purchases. The manufacturer can analyze purchasing trends to help customers understand how replacing equipment can be more effective than continuing to repair it. They can also develop best practices and policies for proactively contacting customers when replacements are appropriate. OPTIMIZE UPGRADES. Companies can look for customers who are likely to want a higher-end version of products. When customers buy a given product, says Mahler, “they may not realize that there is a more optimal product that you have for them.” Based on the usage and type of business involved, a company may find that upselling

work with customers and so forth. In short, those who can provide business intuition and gut instinct gained through experience. “The data will help in the decision process. But rarely should you rely on data exclusively,” says Benson. “It should be used in conjunction with the human perspective and business experience.... Never underestimate the importance of human intervention with the data.” CEOs can make sure that that human perspective is taken into account. As part of that, they can keep the orga-

may meet certain types of customers’ needs more effectively. EXTEND THE PRODUCT FOOTPRINT. Where can the company offer customers ancillary products? For example, customers ordering server hardware may be interested in purchasing bundled networking equipment as well. Or, customers using a company’s product in one area of an industrial plant may have other areas where that same product could be used in entirely different applications. LEVERAGE CUSTOMER RELATIONSHIPS AND SUPPORT ACCOUNT-BASED MARKETING. Companies can combine internal and external data to gain a more comprehensive view of an entire customer organization. Thus, a manufacturer selling to one division of a company might uncover opportunities to offer its products to other division. It could then work through its existing contacts to gain referrals for the new business and use the data-driven insight to support the new sales effort. The data, says Mahler, “can help you connect the dots and leverage the relationships you have to gain credibility.”

nization focused on getting results and on turning insights into effective action. “I suspect we have all seen people who do the research, do the research, and after that they do [more] research, without committing to a direction,” says Harrison. “One of the opportunities that a CEO has is to focus people and get them into the data and out of the data when they have enough insight. Make a decision, pick a direction and go for it. Because at the end of the day, we are trying to sell product and be profitable—not get locked into a quagmire of data and analytics.”


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PLANE ADVANTAGE

MEET THE NEW CROP OF NEXT-GEN JETS

a

64 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

n all-flagship fleet of next-generation business jets coming on the market over the next year or so is setting a course to transform business aviation. New aircraft from Bombardier, Cessna Aircraft, Gulfstream Aerospace and Pilatus Aircraft raise the bar on performance, efficiency, comfort and connectivity for executives on the go, whether flying nonstop to cities halfway around the world or landing on a dirt airstrip astride remote opportunity. Moreover, after several years of relative stasis, these clean-sheet models mark the first in a wave of in-development aircraft nearing their


Upping the game in aviation, a wave of new jet models aims to please discerning CEO customers—and their CFOs.

BY JAMES WYNBRANDT

Pictured here:

initial delivery dates. They also illustrate the increasing segmentation of the super-midsize, large-cabin and ultra–long-range categories as OEMs compete fiercely for customers in an arena where annual unit sales are measured in the dozens. “Everyone’s eager to seize the high end,” says Richard Aboulafia, vice president, analysis at the aviation consultancy Teal Group, “and what’s new [in these categories] really does redefine that part of the market.”

The Coming Fleet When it enters service later this year, the super-midsize Citation

Longitude will be the largest and longest-range—a true transcontinental 3,500 nautical miles (nm)—jet that Cessna has produced, and offer the lowest direct operating cost in its category. The combination of performance and economy “allows us to speak to both sides of the C-suite,” says Rob Scholl, senior vice president, sales and marketing at Cessna’s parent company, Textron Aviation. “For the CFO, it’s an efficient use of company resources. For the CEO, it will make people more productive.” Gulfstream’s 5,000-nm G500, though not the biggest or longest-legged of the company’s fleet

CITATION LONGITUDE Manufacturer: Cessna Aircraft Co.; Wichita, Kansas Category: Super-midsize Enters service: Q4 ’17 Max passengers: 12 Max range: 3,500 nm Full fuel payload: 1,600 lbs. Max cruise speed: Mach 0.85 What’s new: Cessna’s largest, longest-range jet incorporates improved interior furnishings and signals the OEM’s designs on the large cabin market. Price: $23.9 million

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PLANE ADVANTAGE

BOMBARDIER GLOBAL 7000 Manufacturer: Bombardier; Montreal, Canada Category: Ultra–long-range Enters service: 2nd half ’18 Max passengers: 19 Max range: 7,400 nm (8 pax at M0.85) Max cruise speed: Mach 0.90 What’s new: The world’s largest business jet and the first with a four-zone cabin, gourmet galley, double bed and standup shower Price: $72.8 million

(the G650/650ER holds that title), builds impressively on its popular G450 predecessor’s performance, and introduces new cockpit technology and cabin environmental comfort levels to business aviation. It will enter service at the end of 2017, a year ahead of schedule—virtually unheard of in aviation—yet “more mature than any product that Gulfstream has ever developed,” says Dan Nale, senior vice president, programs, engineering and test. The Short Takeoff and Landing (STOL) Pilatus PC-24, occupying a category that Oscar Schwenk, chairman of the privately owned Swiss company, calls the “super versatile jet,” will open the world’s short, unpaved airstrips to business jet operations while ensuring comfort aboard en route. The multitasking turbine amalgamates the ruggedness of a turboprop, the nimble performance of a light jet and the cabin space of a midsize model. And when Bombardier delivers the first ultra–long-range (7,400 nm) Global 7000 in the second half of 2018, it will be the world’s largest business jet, a “game-changing aircraft that will define a whole new category,” predicts CEO Alain 66 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

Bellemare. Its four-zone cabin (first in a business jet) offers room to stretch on nonstop flights that can link New York and Shanghai or San Francisco and Sydney. Industry analysts and business aviation users cheer the new entrants.

“It’s exciting to see the OEMs investing in their future and pushing their product line offerings to meet anticipated demand,” says Jeff Agur, CEO of aviation consultancy VanAllen. “Whether it be capability, technology, comfort or reliability, when the bar is

DESIGNED TO PLEASE Gone are the days when a visionary aeronautical designer drew a sketch on a napkin and a new plane was born. Today OEMs largely get their ideas for aircraft from current and prospective customers. When designing the Longitude, with no super-midsize jet of its own Cessna convened an advisory board comprising customers of its competitors, including Bombardier, Gulfstream and Embraer, “to really understand what their expectations were,” says Christi Tannahill, senior vice president of interior design and engineering. Gulfstream harnessed its Advanced Customer Advisory Team, comprised of some three dozen pilots, maintainers and flight attendants employed by a cross-section of Gulfstream owners. The group reviewed G500 program progress and provided feedback on a quarterly basis. Bombardier spent four years

researching customers’ needs before unveiling the Global 7000 interior and cockpit layout, and continued gathering feedback from customer-based focus groups throughout its initial production work. Likewise, in developing its STOL twinjet, Pilatus listened closely to customers, whose most common request was for an aircraft as rugged as the PC-12, but with an additional 100 knots of airspeed. The PC-24’s projected 425 ktas (knots true airspeed) gives customers much more than that, and Chairman Oscar Schwenk says the actual top speed “exceeds published performance figures.” But new jets may not achieve all benchmarks an OEM targets. VanAllen’s Jeff Agur advises “early adapters” who buy new models to seek “performance guarantees in the purchase agreement.”


PLANE ADVANTAGE

raised, the consumer wins.” Adds Rolland Vincent of Rolland Vincent Associates, “We are bullish on the role that these new business jets will play in the industry bounceback.”

Evaluating the New Jets Most customers judge business jets by three primary criteria: cabin, performance and cost of operation. These aircraft bring new dimensions to all those metrics. Next-gen jet cabins are growing not only bigger and wider, but also more comfortable and capable. The Global 7000 offers a double bed and stand-up shower—both firsts for Bombardier’s Global jet family. Well-equipped galleys allow preparation of gourmet meals in place of re-plated catering, while improved environmental and pressurization systems finely control temperature and humidity and maintain lower cabin altitudes. The G500 will boast business aviation’s lowest cabin altitude—4,875 feet at its 51,000foot service ceiling—while fresh air is completely replenished every two minutes. (By comparison, airliners are pressurized to about 8,000 feet.)

GULFSTREAM G500 Manufacturer: Gulfstream Aerospace; Savannah, Georgia Category: Large-cabin Enters service: Q4 ’17 Max passengers: 19 Max range: 5,000 nm (8 pax, at M0.85) Full fuel payload: 1,800 lbs. Max cruise speed: Mach 0.925 What’s new: A wider, bigger cabin, more range and speed, active sidestick controls and the industry’s lowest cabin altitude in a clean-sheet replacement for the popular G450. Price: $45.1 million

68 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

With new foam cushioning materials and electronic control capabilities, cabin seating is another area of OEM focus. The Longitude’s fully berthable seats will be the largest yet in a Citation, allowing passengers to sleep comfortably in flight. Cessna has brought all interior back-shop completion capabilities—seat fabrication, upholstery, leatherwork and cabinetry among them—in-house, to ensure greater control over the quality of its cabins. Even the rough-and-ready PC-24 offers a choice of executive interiors developed with BMW Group’s Designworks, designed for quick change from executive to cargo, medevac or combi configurations. All these jets boast large baggage compartments with in-flight access, another feature in growing demand. The PC-24, however, will be the only business jet with a standard pallet-sized baggage door, for quickly loading and unloading heavy gear—a feature borrowed from the PC-12. No amenity today is more important than connectivity. These jets take advantage of new satellite and terrestrial networks and the OEMs’ proprietary cabin management sys-

tems to offer true broadband access to the web, seamless communication via passengers’ own smart devices and virtually limitless entertainment options. The G500 will offer worldwide (polar regions excluded) high-speed Internet access through Inmarsat’s new JetConneX Ka-band satellite network and Honeywell’s JetWave onboard hardware, which support online streaming and videoconferencing.

Peak Performance As comfortable as private jets can be, the idea is to spend as little time aboard them as possible. Optimized airframe design, more powerful and efficient engines and digital flight decks combine to imbue these aircraft with faster cruise speeds, lower costs of operation and improved systems over comparable in-service models. The Longitude fuselage uses transonic area rule design, while the Global 7000, powered by new GE Passport 20 engines, incorporates a transonic wing. Both innovations reduce drag as the aircraft approach the speed of sound. That boundary is tantalizingly close to these models. The G500’s top operating speed is Mach 0.925


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PILATUS PC-24 Manufacturer: Pilatus Aircraft; Stans, Switzerland Category: Light/Mid-size/STOL hybrid Enters service: Q4 ’17 Max passengers: 8 + 1 Full fuel payload: 915 lbs. Max range: 1,950 nm (4 pax) Max cruise speed: 425 ktas What’s new: Short Takeoff and Landing (STOL) jet can land on dirt airstrips, climb to its 45,000-foot ceiling in 30 minutes and is certified for single pilot operations. Price: $8.9 million

and high-speed cruise is Mach 0.90, saving a key executive “a week or more [per year] compared to flying on an aircraft that can’t fly at pointnine-oh,” says Gulfstream’s Nale. Meanwhile, the G500 burns almost 25 percent less fuel than the G450 it replaces, thanks in large part to the efficiency of its Pratt & Whitney Canada PW814GA engines. All four cockpits have advanced digital flight decks with autothrottles and enhanced vision systems. The three larger models also have fly-bywire controls that modify pilot inputs to optimize aircraft performance. The G500 is the first business jet with active sidestick controls and with a data concentration network, which acts like the aircraft’s central nervous system. The PC-24’s Advanced Cockpit Environment (ACE) avionics suite helps make the aircraft so easy to manage that it is certified for single pilot operations. OEMs have also made these aircraft more reliable and easier to maintain, further reducing the cost of operation. The Longitude, for example, incorporates a LinxUs onboard diagnostic and fault isolation system that provides constant monitoring of aircraft systems, quickly identifying incipient problems and the source of squawks. 70 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

Inbound Innovation More new business jets are on the way. Later this year Brazil’s Embraer Executive Jets will deliver the updated version of its large cabin Legacy 650, the 650E. Enhancements include a 10-year/10,000 flight-hour warranty—the industry’s longest—restyled seat upholstery and numerous cockpit upgrades. This for an aircraft in a product line whose cabins are already “future proofed,” in Embraer’s words, thanks to interiors designed to be easily removed and remodeled. Both Gulfstream and Bombardier will introduce longer-range follow-on models (G600 and Global 8000, respectively) a year after their predecessors enter service. Cessna now focuses on the Citation Hemisphere, its first large-cabin aircraft, whose maiden flight is expected in 2019. Dassault Falcon’s 5X, which will have the widest and tallest cabin of any business jet (8 feet 6 inches by 6 feet 6 inches), is slated to enter service in 2020. Larger windows and a “de-cluttered” cabin are among updates to the 7X and 8X interiors the Dassault Interior Design Studio plans for the 5,200 nm-range jet. Meanwhile the HA-420 HondaJet, which entered service in late 2015, is

shaking up the entry-level category. With its highly efficient, patented Overthe-Wing Engine Mount (OTWEM) configuration, engines developed in a joint venture with GE and advanced cabin features, including electronically dimmable windows, the HondaJet serves as both an exemplar of business aviation’s spirit of innovation and a major automaker’s faith in its future. The question now is how the market will respond to these offerings. Cessna says it’s “excited by order activity” for the Longitude, and Bombardier reports demand for the Global 7000 “is very strong.” Gulfstream doesn’t release order information for its models, but if Pilatus is any indication, the future is bright. The Swiss manufacturer opened its PC-24 order book amidst fanfare at Geneva’s European Business Aviation Convention & Exhibition in 2014, and had sold out its first three years of production (84 jets) and halted further sales by the end of the show. The order book reopens this fall at the National Business Aviation Association’s annual trade show. James Wynbrandt is a pilot and aviation expert, author of Flying Hgh and a contributor to Air & Space and Business Jet Traveler, among others.


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EXECUTIVE HEALTH

72 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017


WHY WELLNESS

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Empowering your employees to improve their health can improve your bottom line. BY C.J. PRINCE

W

HEN MICHAEL SCHRAGE, CEO OF Centier Bank, was first pitched on the idea of opening an onsite health clinic at the bank’s 72,000-square-foot headquarters in Merrillville, Indiana, he was skeptical, to put it mildly. It wasn’t that it was out of character for the family-owned bank, which had for years invested in employee health-related perks, such as an onsite gym and fitness classes, a cafeteria with healthy options and a robust healthcare plan. Schrage himself was a believer in preventative health and has for years had annual physicals at an executive health clinic in Chicago. But opening an onsite clinic seemed the first step toward self-insuring and, many years earlier, Centier had a bad experience with that. “We took horrendous hits on it,” he says. “It was one of those things where I said, ‘I’ll never do that again.’” Plus, the numbers just didn’t seem possible. How could providing free care to 800 employees and their families possibly cost less than a traditional health insurance plan? “I had a very persistent team in human resources who pursued me, saying this will pay for itself,” says Schrage, who finally relented after a year and a half of convincing. “I said, let’s try it—but no promises.” Four years later, Schrage is a believer. Since the clinic opened, the number of catastrophic claims has declined substantially and the bank has seen an overall savings of about 20 percent on its healthcare costs. “It really has paid for itself,” he says. The clinic also might have saved Schrage’s life. “I went in for a sore throat and found out I had a basal cell carcinoma. Fortunately, it was caught very early,” says Schrage, noting he has heard many similar life-saving stories from employees, who thank him constantly for opening the clinic. “With early detection, you don’t have many of the big astronomical bills that you might have with diseases as they become more evident and prevalent.”

THE WELLNESS PAYOFF A recent study by HERO (Health Enhancement Research Organization) followed the stock performance of 45 publicly traded companies that were identified as following best practices in employee health and well-being from 2009 through 2014. This simulated portfolio of companies outperformed the S&P 500 in the following areas: Appreciated 235 percent compared to 159 percent for the S&P 500 Outperformed the S&P 500 in 16 out of 24 (67 percent) quarters during the study period Produced a comparable dividend yield of 1.97 percent by the end of the study period, compared to a 1.95 percent yield for the S&P 500

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EXECUTIVE HEALTH Reducing Healthcare Pain Lowering expenses associated with chronic disease and catastrophic care is one of the most common reasons for investing in employee wellness programs. The U.S. currently spends over 17 percent of GDP on healthcare—the highest percentage of any country in the world, according to the most recent World Bank figures. More than three-quarters of that is spent on chronic diseases, many of which could be prevented with diet and exercise. Around half of all Americans live with at least one chronic disease and a quarter have two or more, per the Centers for Disease Control and Prevention. Plus, productivity losses associated with workers with chronic diseases—in the form of disability, unplanned absences, reduced workplace effectiveness, increased accidents and negative impacts on work quality and customer service—cost 400 percent more than the cost of treating chronic disease, according to a report cosponsored by the World Economic Forum and PwC. “Metabolic syndrome is massive,” says David Roddenberry, cofounder of HealthyWage. “Between diabetes, heart disease and musculoskeletal disease for aging populations, health-

Geokinetics CEO David Crowley weighing in for his company's weight loss and exercise program.

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Centier Bank CEO Michael Schrage (far left) at a ceremony to celebrate the opening of his company's on-site health clinic. care costs are crazy. So what can you do? You can either push the costs to employees, or you can empower employees to improve their health.” HealthyWage administers outcomes-based wellness challenges for companies like Geokinetics, a Houston-based geophysical solutions company that serves the oil and mining industries. Given the price of oil, Geokinetics has had a rough go of it over the past few years, including a Chapter 11 restructuring in 2013 and a significant reduction in headcount. “At a time when we’re asking employees to wear two and three hats, we have to acknowledge that we’re creating a stress level that didn’t exist before,” says CEO David Crowley. That exercise and healthy diet can help mitigate stress was just one of the reasons Crowley began looking for a program three years ago that would incentivize a healthy lifestyle among his employees. He also needed something low-cost. With HealthyWage’s solutions, companies can spend almost no cash if they choose not to subsidize. Employees pay a small fee to participate, but then get it back if they meet their stated weight loss or fitness goal. They can also win prizes from HealthyWage. “It helps morale and the camaraderie that goes along with that,” says

Crowley. Plus, Cigna, the company’s health insurance provider, said that participants will earn a discount on premiums down the road. Humana offers a similar premium discount to participants in its Go365 wellness program, up to 15 percent off based on level of engagement. The company rolled the program out internally in 2011 and then set out to measure the impact on those who more actively used the program vs. those who did not. Over a three-year period, engaged users had a 20 percent reduction in sick time; health claims costs decreased 10 percent among engaged users, while increasing 17 percent for unengaged employees. On the other hand, unengaged users had 56 percent more emergency room visits and 37 percent more hospital visits than engaged users, says Stuart Slutzky, chief of product innovation at Go365, an entity set up by Humana to offer its members wellness programs. At the Cooperative Educational Service Agency (CESA 1), which uses Humana’s Go365, 86 percent of 175 employees have reached the engagement level needed for a reduction in premiums. “As an agency, we’ve saved $300,000 in premiums over the last five years,” says Mary Gavigan, executive director. Reported cases of diabetes have fallen 55 percent, and sick


THOU GH T L E A DE RSH I P P ROV I DE D BY M E M O R IA L S LOA N K E T T E R IN G C A NC E R C E NT E R

Streamlining Employee Access to Care

Cancer may not affect a large percentage of our employees, but when it does affect someone, it’s traumatic—not only for the person and their families, but also within the workplace. And it obviously impacts our costs. Stephen Mirante CBS Corporation

A FEW YEARS AGO, EXECUTIVES AT CBS, the New York-based multimedia company, were thinking about the complexity of the healthcare system and the problems it created for employees—and especially, for those dealing with cancer. “Cancer may not affect a large percentage of our employees, but when it does affect someone, it’s traumatic—not only for the person and their families, but also within the workplace. And it obviously impacts our costs,” says Stephen Mirante, executive vice president, Human Resources and senior vice president, Specialty Services at CBS Corporation. “We saw the struggles involved in navigating the system to get people connected to the right places, and we felt that this was a gap in overall care. “ Coincidentally, experts at Memorial Sloan Kettering Cancer Center(MSK) in New York were thinking along the same lines. They approached CBS with a new program called MSK Direct, in which the hospital collaborates with employers to help employees cut through the complexities of the healthcare system. CBS signed on in February 2016, becoming the first company to participate in the program. And a year later, says Mirante, “MSK Direct has proven to be an incredibly valuable resource for CBS employees whose lives have been impacted by cancer.” MSK Direct streamlines access to the institution, making it easy for CBS employees to do everything from setting up initial evaluations and getting second opinions to working through treatment and getting counseling. For the employer, there is no cost associated with the program because it is built into the organization’s existing payer arrangements.

Learn more about MSK Direct at www.mskcc.org/msk-direct.

Because each organization is different, MSK works with employers to customize MSK Direct. In CBS’s case, executives wanted to make sure the program encompassed not only medical diagnosis and

treatment, but also the needs that arise around the illness. Having cancer can be emotionally and physically demanding, and patients often need guidance in dealing with daily activities, psychological effects and social issues. CBS chose to offer employees a range of such services, along with a dedicated care advisor who helps each patient throughout their MSK experience. “Our employees get guided access to MSK,’” says Michelle Martin, vice president, Specialty Services, Human Resources at CBS Corporation. “They talk to a live person on the phone who’s experienced with their diagnosis, who can help them get their medical records transferred, make appointments, connect with social workers, and so on.” CBS also chose to include parents and parents-in-law of employees, recognizing the burden that caring for relatives can put on employees. For CBS employees, MSK Direct provides a way to find the right experts and the right support more quickly—which is often key to effective treatment. It also brings a less tangible, but nevertheless important, benefit. “The program gives employees greater peace of mind,” says Martin. “Feedback from employees has been very positive. They tell us that they’ve felt cared for, that they trusted the support and care they were getting, and that they received information that was easy to understand and help that was really valuable.” By providing that kind of value for employees, the MSK Direct program has helped CBS as a company, as well. “Healthcare is a large part of what we offer in our compensation packages. We want people to make use of it and, ultimately, get good outcomes. We think the program helps with that,” says Mirante. “Better outcomes help us manage our costs. They also translate into healthy employees who feel good about CBS—and that’s important to us as a company.”


EXECUTIVE HEALTH time fell 15 percent over the last year alone. “It’s been great for our staff, it’s great for the agency, and it brings a positive, healthy sense of well-being into the climate of the agency. This has become a part of who we are now.” CEO Bill Donnell reports similar positive results from investment in employee wellness at the National Council on Compensation Insurance (NCCI), which provides information and services to insurance providers related to workers’ compensation. In addition to a fitness facility and onsite cafeteria with healthy choices, employees can visit a wellness center to get their blood pressure reading, annual biometric screenings, nutrition counseling and personal health coaching. While healthcare expenses have gone up over the past eight years, NCCI has seen a lower increase relative to the market, which Donnell is satisfied with—because saving on healthcare isn’t the main driver for him. “Some of the soft factors that are perhaps more difficult to measure but more important, like the engagement of employees and the energy level they

TELUS International CEO Jeff Puritt pitching in during TELUS's annual Days of Giving program.

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NCCI's Bill Donnell with employees Maria Snow, Tim Smith and Sean Cooper at a 5K "Run for the Ribbons" fundraiser.

have when they’re here—you get payback from that, in my view,” he says.

Beyond Wellness to “Well-Being” That notion has gained considerable traction in recent years, leading some companies to expand their focus beyond healthcare and basic wellness to take a more holistic view of employee well-being. Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions, says some well-intentioned programs have fallen short of expectation because their focus has been too narrowly on risk mitigation or cost reduction, which isn’t all that motivating to employees. Even when it works, physical health only takes you so far, he says. “When you’re approaching it with a broader ‘people agenda,’ people will be more engaged in taking care of themselves physically. And the interplay between mind, body and spirit really resonates. When they are into being at their best, they not only take better care of themselves, but they can really appreciate an organization that cares about them at that level.” StayWell, a company that designs solutions for a range of company sizes,

even those with just a handful of employees, posits that well-being encompasses financial security, professional development, social connectedness, emotional resilience and physical health. “These concepts interconnect and are mutually reinforcing,” says David Anderson, cofounder and chief health officer. “And as employers begin to think about the well-being of their employees more broadly, the connection with performance becomes immediate.” It’s a simple enough idea: If your employees are healthier, happier and love to come to work, they’ll work harder with greater energy and stay longer at your company. That’s been Jeffrey Puritt’s view for years. The CEO of TELUS International, an outsourcing firm that employs just shy of 26,000 people in eight countries, estimates that he outspends his competitors two to one on facilities and amenities at his call centers around the world. In fact, the figure was so high relative to revenue compared with his public-company competitors that it caused some concern for Baring Private Equity Asia, which was looking to buy a 35 percent stake in TELUS


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EXECUTIVE HEALTH

last year. “They asked me how I justified that,” recalls Puritt. “I said, my growth rate is more than double—in fact, last year, four times higher than my nearest competitor.” Baring ended up coming in on the deal. Puritt admits he was fortunate that TELUS began as a wholly owned subsidiary and that cost savings was not one of his charges; he was expected to deliver great levels of service to customers in Canada and given latitude to find ways to enhance that. “I’ve been spoiled in this role. Contrast that with, if you’ve been doing things the traditional way and you’re trying to figure out whether you can afford to divert budget and you don’t have the runway, as so many CEOs of public companies don’t have,” he says, referring to the short-term focus on quarterly results prevalent among public companies. For Puritt, however, the math is simple. “In outsourcing, the holy grail metric is attrition,” he says. “If you can’t keep your team members long enough, they can’t get good enough, and if you have to keep rehiring and retraining to backfill high levels of attrition, your costs are unsustainable. So there is this vicious cycle where the single most important thing you can do after attracting the best talent is to retain them. The best way to retain them is to engage them, and in my view, the best way to engage them is to provide them with all the amenities that help to inspire them and that demonstrate you’re committed to them as individuals.” He adds that TELUS’s engagement scores, most recently at 81 percent, are almost double that of its nearest public competitor and its attrition rates are half as high. “Those are not coincidence in my view—they are inextricably connected,” Puritt says. He acknowledges that plenty of CEOs are not yet sold on that, mainly because the numbers are somewhat “squishy” and a definitive causative link has yet to be found. But, he counters, it isn’t any more difficult to establish than the notion that, say, product sales are a direct result of a specific marketing campaign. “I would argue that that is just as specious a formula. It’s unfortunate that a lot of folks in my position continue to point to the absence of empiricism to defend or rationalize the failure to make these investments.” The bottom line for Puritt, as it is for others who have had success with wellness efforts, is about making employees happy and proud to be with you, so they see no reason to look elsewhere. Healthy lifestyle, support programs, treating employees with respect and dignity and helping them to support their families, says Puritt, “those are all part and parcel of driving the levels of engagement that are a prerequisite to success.” 78 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

MAKE A HEALTHY START You don’t have to build a fitness center or hire a full-time wellness coach to bring healthy changes into your culture. In fact, it’s best to start small and then make additions or adjustments based on employee feedback and your budget. Here are five ways to begin putting your employees on a path to wellness without breaking the bank: 1. START A GROUP CHALLENGE. Thanks to social media and health-related consumer technology, it’s easier than ever to get the team moving together. Challenge your employees to a step-off, using pedometer technology such as Fitbit, to measure the number of steps they take each day and encourage lunch time walks. “Or it can be done based on heart rate or calories burned, whatever is motivating for them,” says Stuart Slutzky of Humana’s Go365 program. 2. SUBSIDIZE HEALTHY OPTIONS. If you have an onsite cafeteria, consider subsidizing the nourishing choices more heavily than the junk. At NCCI, employees have a wide range of choices, from hamburgers and French fries to soups and salads, but the latter enjoy a bigger percentage of subsidy, says CEO Bill Donnell. “If you want the French fries, you’re going to pay full price.” Another option would be to secure a group rate at a local gym for employees. 3. CAN THE SUGARY SODA. According to the American Diabetes Association, nearly half (46.4 percent) of added sugar in American diets comes from beverages, contributing to obesity and chronic diseases such as diabetes. In April, New York Presbyterian, as part of its NYPBeHealthy employee wellness program, launched an initiative to phase out all beverages with an added caloric sweetener containing more than 25 calories per eight ounces. 4. OFFER INCENTIVES. At Geokinetics, employees receive a cash reward for healthy behavior. “If you get a full physical in a calendar year, we will give you $1,000 back just for doing that,” says CEO David Crowley. At NCCI, Donnell is looking at ways to incentivize employees who take advantage of the biometric screening offered at the company’s health clinic; one option, he says, is to increase the company’s contribution to that employee’s medical deductible. 5. TAKE THE LEAD. Your program will have significantly more buy-in if you make it clear you’re involved and that you value the time spent on the activity, says David Roddenberry of HealthyWage. “Overall, the more engaged the CEO, the easier it is to attract and retain employees around health and wellness.”


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TIME CAPSULE

Stops and Starts Along the Road to Globalization Hitting the pause button before moving full speed ahead. BY RAM CHARAN

Beijing 2017

IT MIGHT SEEM, FROM RECENT DEVELOPMENTS, that the natial changes not only in the U.S and the UK, but also in France, tionalistic fervor behind such global forces as Brexit, the U.S. Germany, Brazil and India—taking actions during their presidential election, the defeat of major international tenures that decide globalization’s speed and magnitude. trade deals and the emergence of country-first leaders The NDCs should change their mindset and realize Chief Executive Magazine throughout Europe has led the nations of the world to that it is in their interest to focus on increasing their THE FIRST 40 YEARS turn their backs on what had appeared to be the inevproductivity and innovation. For its part, the U.S. itable rise of globalization. The truth, however, is that should use its core strengths—its edge in technological these nations have just hit the pause button. What innovation, ability to analyze and absorb risks, its we’re seeing is not a reversal but a correction—a academic institutions and access to capital—to create Over the past 20 years, necessary rebalancing and search for equilibrium a rising tide that lifts all boats. American companies China has that’s almost always necessary when the forces of should take a long-term approach and start thinkbecome change move at the sort of speed we’ve seen over the ing particularly about the concept of local for local: the world’s past 20 years. manufacturing locally for local markets (using 3D second largest Consider that just 20 years ago, China, now the printing, for example), putting the supply chain close economy. second-largest economy in the world, was sufferto the market, giving consumers what they want ing from extremely poor economic conditions. here and now. There was little evidence that it was a country destined to be Trade flows will likely be managed on a product-by-prodan economic super-power. The speed with which China—as uct basis rather than through blunt instruments like acrosswell as Singapore, Taiwan and South Korea—have become the-board tariffs. U.S. Secretary of Commerce Wilbur Ross “near developed countries” (NDCs) and major economis taking a fact-based analytic approach to understanding ic players has amazed the world. Their progress calls into exactly what is happening in the global economy—and what question both internal and external barriers that were put in paths should be taken. He will be examining both positive place and approved by the World Trade Organization back and negative trade flows and, with the assistance of artificial at the turn of the 21st century. It’s time for those countries to intelligence, provide insight that President Trump can use to accept their new place in the world by competing on the badrive future plans and policies. sis of real advantages in innovation and productivity rather In hitting pause, the Trump administration hasn’t set back than artificial ones. the forces of globalization. Along with other countries, AmerWhat we’ve seen—and will continue to see—is that globalica has just taken the time to step back and level the playing ization is, in fact, unstoppable. The human drive, combined field. Globalization will resume, innovation and productivity with the era of the Internet and digitization, makes it inevitawill increase and the standard of living will rise worldwide. ble. During the past 200 years, globalization has moved in fits Ram Charan is a world-renowned business advisor, author and and starts, picking up speed, pausing to reset itself and then speaker who has spent the past 35 years working with many top picking up speed once again. Leaders of national governments will come and go—as evidenced by recent and potencompanies, CEOs and boards. 80 / CHIEFEXECUTIVE.NET / MAY/JUNE 2017

Photo: Dong Wenjie, Getty Images


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