July/August 2019 Chief Executive Magazine

Defending Capitalism | Turnaround Wins | C-Suite Marriages | Lencioni on Company Killers

JULY/AUGUST 2019

ARNE SORENSON Marriott International

CEO OF THE YEAR

BO CHENG President, Altovista Technology Inc.

“ WHAT EXCITES ME THE MOST ABOUT THE FUTURE OF MICHIG AN IS THE INNOVATION HERE. ”

Innovation isn’t new to Michigan. Our state hosts some of the world’s top engineering and tech talent as they build the future.

And they’re having a lot of fun living here while doing it. If Michigan doesn’t come to mind when you think of the future, think again. Get here or get left behind.

Visit michiganbusiness.org/pure-opportunity

MICHIGAN. PURE OPPORTUNITY.

C ONTENT S

J U LY/A U G U ST 2019 No. 301

FEATURES 2019 CEO OF THE YEAR 30 ‘WE WELCOME EVERYBODY’ Megadeals! Hacks! Protests! Airbnb! In a very crazy time for Marriott International, CEO Arne Sorenson excels by focusing on his people—and sticking to his principles.

By Dan Bigman

MANUFACTURING 48 MEET AMERICA’S MAKERS Thriving despite global competition, these 25 CEOs defy conventional wisdom that producing goods in America is no longer feasible.

By Dale Buss

30

FAMILY & CAREER 56 DOUBLING DOWN Life-work balance is tough enough for dualcareer families, but what about when both spouses are corporate leaders? One couple that made it work shares their secrets for success.

By Ilene S. Gordon and Bram Bluestein

SMART MANUFACTURING SUMMIT 62 THINK BIG, START SMALL For mid-size manufacturers, the task of adapting to transformative technologies is best tackled bite by bite—and person by person.

48

CEO ROUNDTABLE 66 MAN AND MACHINE—

NOT MAN VS MACHINE People—finding, onboarding and keeping them— may be the single biggest technology challenge facing manufacturing companies today. CEOs share insights into how they’re coping.

By Dale Buss

56

COVER PHOTO BY CELESTE SLOMAN

Leading brilliantly.

Congratulations, Arne M. Sorenson, on being named CEO of the Year. Your spirit of innovation and outspoken leadership inspire us all.

Š2019 AT&T Intellectual Property. All rights reserved.

All marks used herein are the property of their respective owners.

C O NTE NT S EDITOR

Dan Bigman EDITORS-AT-LARGE

Jennifer Pellet Jeffrey Sonnenfeld Jeffrey Cunningham DIGITAL EDITOR

Gabe Perna PRODUCTION DIRECTOR

Rose Sullivan CHIEF COPYEDITOR

DEPARTMENTS 8

Rebecca M. Cooper

66

EDITOR’S NOTE

RESEARCH EDITOR

Moonshot

Melanie Nolen CONTRIBUTING EDITORS

11 LEADERS 11 Selling Capitalism Time for CEOs to step in and make the case for free enterprise.

14 CNEXT Interview Former Campbell CEO Doug Conant on turnaround wins.

20 Transformation / Patrick Lencioni The Dangers of Bad Forensic Analysis

Dale Buss Daniel Fisher Craig Guillot Patrick Lencioni EDITOR EMERITUS

J.P. Donlon PUBLISHER

22 Law Brief / Daniel Fisher Litigators: Let’s Make a ‘Deal Tax’

Christopher J. Chalk 847-730-3662 | cchalk@chiefexecutive.net VICE PRESIDENT

24 Black Swans / Jeffrey Cunningham Arrogance Abroad

Phillip Wren 203-930-2708 | pwren@chiefexecutive.net

26 On Leadership / Jeffrey Sonnenfeld Flak Attack!

DIRECTOR, BUSINESS DEVELOPMENT

Lisa Cooper 203-889-4983 | lcooper@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

68 ECONOMIC DEVELOPMENT

ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford

Regional Report: The West Innovation and technology are driving some of the nation’s fastest-growing state economies.

By Craig Guillot

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

74 PLANE ADVANTAGE Flight Time If you’ve always wanted a jet, now may be your window.

By Dale Buss

MANAGER, STRATEGIC PARTNERSHIPS

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

Jake Holmon 203-889-4974 | jholmon@chiefexecutive.net

80 LAST WORD Leading a Pivot Battling margin pressure, Avnet needed to transition from distributing technology solutions to designing them.

By William Amelio

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

Wayne Cooper CHIEF EXECUTIVE OFFICER Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 301 July/August 2019. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2019 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.

Marshall Cooper DIRECTOR OF EVENTS / PUBLISHER, CORPORATE BOARD MEMBER

Jamie Tassa CHIEF CONTENT OFFICER

Dan Bigman MANAGING DIRECTOR

Scott Budd Subscription Customer Service Chief Executive Group, PO Box 47574, Plymouth MN 55447

p: 800-869-6882 e: cex@kmpsgroup.com w: chiefexecutive.net/magazine

VICE PRESIDENT, HUMAN RESOURCES

Melanie Haniph

CH I EF E XECUT IV E RE SE A RCH AD INDEX ACCENTURE 9 accenture.com

CEO OUTLOOK DARKENS ON TARIFF FEARS

AIMBRIDGE HOSPITALITY 45 aimbridgehospitality.com ALIX PARTNERS 5 alixpartners.com

Insights from Chief Executive Group’s CEO Confidence Index, a widely followed monthly poll of CEOs, and discussion topics from the Chief Executive Network (CEN), our nationwide membership organization that helps C-Suite executives improve their effectiveness and gain competitive advantages. For more information, visit ChiefExecutiveNetwork.com.

AMID ANNOUNCEMENTS OF NEW TARIFFS ON CHINA and Mexico, CEOs’ outlook for future business conditions plunged 6 percent in June, according to our most recent reading of CEO confidence. After a record year in 2018 (unparalleled only to 2004), forward-looking confidence is now 10 percent below what it was at this time last year.

Overwhelmingly, CEOs we talked to blame their loss of confidence on uncertainty from President Trump’s intensifying trade battles. Despite strong economic fundamentals in the U.S. and potential rate cuts by the Fed, CEOs are concerned about fallout from the president’s moves against China and, at the time of polling, Mexico.

After hitting a high for 2019 in May, Chief Executive’s June reading of CEO confidence in business conditions 12 months out dropped to 6.5 out of 10 from 6.8/10 in May. It was the same with confidence in current business conditions.

The index showed current sentiment at 7.0 out of 10, versus 7.4 out of 10 in May. That’s the biggest monthly drop of the year and the lowest level of confidence in current conditions since October 2017, when a Congressional standoff created uncertainty over the outcome of the tax reform. The reading is down 3 percent since the beginning of the year and 8 percent since the same time last year.

Overall, fewer CEOs now expect increases in profits, revenues and expenditures over the coming year than they did even a month ago. Some 69 percent now anticipate an increase in revenues and just 64 percent expect an increase in profits, on par with expectations in the fall of 2016.

—Melanie Nolen, Research Editor About the CEO Confidence Index The CEO Confidence Index is America’s largest monthly survey of CEOs. Each month, Chief Executive surveys CEOs at organizations of all types and sizes, to compile our CEO Confidence Index data. The index tracks confidence in current and future business environments, based on CEOs’ observations of various economic and business components. The results are used as key indicators by media outlets throughout the world.

AMERICAN EXPRESS 25 americanexpress.com ASSOCIATED AIRCRAFT GROUP 75 flyaag.com AT&T 3 ATT.com BAKERHOSTETLER 43 bakerlaw.com CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES Inside back cover chiefexecutive.net/compreport CEO TALENT SUMMIT 61 chiefexecutive.net/ceotalent CHASE 53 Chase.com CHIEF EXECUTIVE LEADERSHIP SUMMIT 65 chiefexecutiveleadershipsummit.com CEO TRUSTED ADVISORS 46, 47 ceotrustedadvisers.com CNEXT 54,55 CNext.us DELOITTE R.E. AND LOCATION SERVICES 13 deloitte.com/us/locationstrategy DELOITTE DEVELOPMENT LLC 23 deloitte.com EY 35 ey.com FALCON JET 77 dassaultfalcon.com GALT & COMPANY 28, 29 galtandco.com GULFSTREAM 33 gulfstream.com HEALTHCARE CEO SUMMIT 73 chiefexecutive.net/healthcaresummit INVEST IN ISRAEL 21 investinisrael.gov.il KEURIG DR. PEPPER 41 keurigdrpepper.com MCGARRY BOWEN 27 mcgarrybowen.com MICHIGAN ECONOMIC DEVELOPMENT CORP. Inside front cover, 1 michiganbusiness.org/pure-opportunity

CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW

MICROSOFT 39 microsoft.com

7.19

NASDAQ 7 nasdaq.com

7.14

7.11 6.95

7.02

7.00 6.60

6.72

PURE INSURANCE 19 pureinsurance.com/

6.66 6.46

6.44

June '18

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan. '19

Feb.

Mar.

Apr.

May

Note: Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. June data had 384 responses.

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PEPSICO 17 pepsico.com

6.84

6.78

June

RHR INTERNATIONAL 10 rhrinternational.com TRUE OFFICE 79 trueoffice.com WHITE LODGING 37 whitelodging.com

REWRITE TOMORROW Nasdaq is committed to the success of our Corporate Services clients who, through the leadership of CEOs like Arne Sorenson, are setting the pace of tomorrow.

Congratulations to the 2019 CEO of the Year, Arne Sorenson, Marriott International

www.rewritetomorrow.com

F RO M THE E D I TOR CHIEF EXECUTIVE OF THE YEAR

MOONSHOT

NASA IMAGE AND VIDEO LIBRARY

IN 1961, AS NASA WAS TRYING TO SPEC OUT THE COMPUTER needs for taking a man to the moon, there was only one commercial supplier for computers that could do the needed real-time calculations—IBM—and the only machines that could do them filled an entire room.

By 1969—just eight years later—the computer that took Apollo 11 to the moon and back fit in about one cubic foot of space, weighed less than 100 pounds and featured pioneering integrated circuts from Fairchild Semiconductor that didn’t exist five years earlier.

The development of the Apollo computer, as retold in One Giant Leap, Charles Fishman’s great new history of the Apollo missions, was the moonshot within the moonshot. Funded by NASA and designed and prototyped at Charles Stark Draper’s legendary Instrumentation Lab at MIT, it is Apollo’s true legacy, ushering in not The Space Age but The Digital Age that has transformed human existence.

With moonshots in mind, I sat down in June with another MIT visionary, Nicholas Negroponte, to talk about emerging technologies, from quantum computing and A.I. to augmenting people with both genetic and machine mutations. He founded the school’s vaunted Media Lab and has an uncanny ability to see the future long before it happens. What one technology would he pick for an all-out development effort by the United States?

Negroponte didn’t blink. “Fusion,” he said. Fusion? “Absolutely.”

Surprised? That’s understandable. Unlike the race to space during the Cold War, autonomous cars or who will roll out 5G, there’s zero mainstream attention being paid to the idea of forcing together hydrogen atoms to harness the limitless energy source that powers the stars. Nuclear fusion research— despite huge gains in recent years—isn’t going to make a presidential debate anytime soon, let alone garner Apollo-like funding.

And that, says Negroponte, is a pity. Because no other technology would transform our lives in the same way fusion would. In an age where we quibble over how many solar panels you need to run a hair drier, this would upend everything.

“Think for a moment if power were costless and limitless....What if we all used 20 times more power than we do on a per capita basis?” he says. “A different equation where power is infinite, it’s not polluting, you have no fuels that you need to replace.” To Negroponte, fusion isn’t about going green. It’s creating a new world based on unlimited energy consumtion, filled with new kinds of machines, new businesses, new industries, new ways of being.

Crazy? Hardly, says Negroponte. “I remember when we would say to each other, ‘Imagine when computing is free and memory is infinite’,” he says. It sounded dotty in the ’60s and ’70s, but now “we’re almost there.”

So, will fusion happen, even with a zero chance of moonshot funding?

Yes, he predicts. “It’s definitely going to happen in your life.” Wow. Now just imagine if we treated it like Apollo. —Dan Bigman, Editor

2019 SELECTION COMMITTEE DAN GLASER President and Chief Executive, Marsh & McLennan

FRED HASSAN Former Chairman, Bausch & Lomb; Partner, Warburg Pincus

MARILLYN A. HEWSON Chairman, President and Chief Executive, Lockheed Martin 2018 CEO of the Year

NEAL KEATING President and Chief Executive, Kaman

TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries

MAX H. MITCHELL President and Chief Executive, Crane Co.

ROBERT NARDELLI Chief Executive, XLR-8

THOMAS J. QUINLAN III Chairman, President and Chief Executive, LSC Communications

JEFFREY SONNENFELD President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management

MARK WEINBERGER Global Chairman and Chief Executive, EY Global Limited Exclusive Adviser to the Selection Committee

TED BILILIES, PH.D. Chief Talent Officer, Managing Director, AlixPartners

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

T H O U G H T L E A D E R S H I P P R O V I D E D B Y R H R I N T E R N AT I O N A L

CEO THE LIFE CYCLE OF THE CEO 1000 AT THE EXIT

BY DR. DEBORAH RUBIN, SENIOR PARTNER AND CO-HEAD, RHR INTERNATIONAL BOARD & CEO SERVICES This is the last in a series focusing on the different stages of the CEO lifecycle—the CEO’s exit. This phase is the simplest conceptually, yet can be surprisingly challenging. Handled well, a CEO can create an enduring legacy through enabling the effective transition of his/her successor. Handled poorly, the contributions of an otherwise successful CEO can be overshadowed by missteps at the end, hampering the next leader and causing the organization to lose focus and momentum (Inside CEO Succession: The Essential Guide to Leadership Transition by RHR on the topic covers this in much more detail).

116 CEOs HAVE EXITED CEO1000 SINCE JUNE 1, 2018

There are three key elements in this phase: Assist the board in the selection of the successor. The board is ultimately responsible for selecting the next CEO, and it is one of their most important responsibilities. However, for planned successions, the incumbent CEO can help frame the process, partnering with the board, serving as a catalyst for action when needed and providing input. The CEO typically has considerable influence when the focus is on internal candidates, but less of a voice when the likely source is external, although there are exceptions. Supporting the selection process without attempting to dictate the results is the CEO’s role at this point. The CEO also generally has the greatest insight into the individual sensitivities of the internal candidates and how best to communicate with them in order to maximize retention.

Supporting the succession with a full orientation to the organization, board and all stakeholders. Once the selection has been made, there are important aspects to consider.

First is the timing regarding the hand-off of responsibilities.

Staged transitions, such as creating a time-limited COO role, can signal an upcoming transition and allow the organization and the external world time to adjust, as well as allow the successor to learn parts of the organization that may be less familiar to him or her. However, business requirements, personal situations and the dynamics between the incumbent and the successor should also factor into the decision.

At least three months of overlap between the two executives allows some time for the incumbent to provide insights into the senior team, the organization, competitors and the industry. Second, it is important to generate a robust and compelling communication plan that encompasses internal stakeholders as well as a proactive outreach to key external constituents such as customers, suppliers, investors, analysts and the media.

Source: Chief Executive CEO1000 data

organization and the new CEO need to be successful, and what the outgoing CEO is willing or able to do. When the organization must make a radical shift in strategy, the presence of the prior CEO can impede the new leader’s ability to dismantle what was previously built. The dynamics between the two individuals will also impact the decision, as well as how well-defined the proposed roles and responsibilities are.

This time is fraught with emotions and a sense of loss for the departing CEO, requiring considerable balance, grace and maturity to navigate well. As demanding as the role of CEO is, it also comes with a sense of purpose, power, status, compensation and perks that begin to diminish virtually as soon as a successor is identified. Even those who believe they are prepared can be surprised by the mixed feelings this phase inevitably evokes. Ensuring the outgoing CEO has trusted sources to help him or her navigate each of the steps in this stage can help provide support and maintain a sense of perspective, focusing on building his or her legacy through leaving behind a sustainable, successful organization. A summary of RHR’s research on CEO transition is available at www.rhrinternational.com.

Working with the board on whether and how the departing CEO will be involved with the organization in the future.

The views are mixed regarding whether or not the incumbent CEO should remain involved with the organization in a time-limited role as board chair or another role, or to make a clean break. This decision should be based on what the

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

®

LE ADERS

SELLING CAPITALISM Amid the rising populist political tide, CEOs must make the case for free enterprise. Here’s how.

PHOTO ILLUSTRATION: GAYLE ERICKSON; PHOTO SOURCES, L TO R: REUTERS/BRIAN SNYDER; REUTERS/BRYAN WOOLSTON; REUTERS/BRIAN SNYDER; REUTERS/ANDREW KELLY.

BY DALE BUSS ALEXANDRIA OCASIO-CORTEZ wants the government to pay those “unwilling to work” and to end air travel as part of her Green New Deal. Kamala Harris likes the idea of free medical care for all Americans; Bernie Sanders would throw in free college. And Elizabeth Warren seeks to upend hundreds of years of U.S. legal tradition by making CEOs subject to personal criminal prosecution for misdeeds in their companies. This follows two years of President Donald Trump publicly assailing CEO decisions ranging from GM plant closings to Twitter algorithm tweaks.

So should CEOs be battening down the hatches amid all this populist campaigning against business leaders—and even calls for outright socialism?

Not exactly. “You can’t overreact to the shrillness you’re hearing out of Washington and other places,” says Mark Hogan, a global advisor to Toyota and a member of its board. “You control what you can control. You do your best in supporting the communities where you work. You can’t wring your hands about the other stuff.

These things go in cycles.”

But that doesn’t mean CEOs should stay silent. Instead of simply kissing off the threat of fundamental changes to our economic system, some business leaders understandably want to engage their constituencies in defending free enterprise and address their concerns, especially among young consumers.

“We need to be telling that positive story to make sure all the things that business represents today are clear and understood and put in a historical context,” says Idie Kesner, dean of the Indiana University business school in Bloomington, Indiana.

The trick, of course, is how.

MAKE A CASE FOR BUSINESS

CEOs can begin by highlighting the current U.S. economy that—despite recent hiccups— includes low unemployment, rising wages, increasing consumer confidence and productivity that is finally climbing. Worldwide, standards of living are rising as never before, thanks to industry-led revolutions in technology, medicine, manufacturing and more.

Many icons of modern life also illustrate these benefits. For Apple, it could be as simple as explaining how a government committee couldn’t have created the iPhone. And Uber and Lyft wouldn’t exist in a socialist straitjacket of overregulation and union control.

CHIEFEXECUTIVE.NET / JULY/AUGUST 2019

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LE A D ER S

Fifty percent of millennials surveyed said they would prefer living in a socialist country.

“Unlike a college professor who has to rely on blackboard economics to tell the story of market discipline,” says Emily Chamlee-Wright, president of the Institute for Humane Studies at George Mason University, “companies can actually tell the story of how they’re creating value.”

WARTS AND ALL

Capitalists’ toolboxes must include more than just defiant salesmanship. The case for free markets must also acknowledge that the past few decades have shown an ugly side of capitalism. “Corporate executives launched the greatest epidemic of executive corruption in American history in the early 2000s,” which soured middle America on the Fortune 500 and Wall Street, argues Chuck Underwood, a management consultant and speaker on generational differences.

These days, it behooves companies to adjust to the new reality that younger generation consumers and employees expect companies to stand for—and embrace—sublime purposes beyond merely generating sales and profits for shareholders, including social and even political causes. This shift is taking place mainly through greater consideration of ESG issues. Evansville, Indiana-based Berry Global, for instance, has joined about 30 other companies, including P&G, in the Alliance to End Plastic Waste to help end plastic waste in the environment, a cause célèbre among consumers.

It’s smart strategy. Since 2014, there have been nearly 300 ESG-related proxy campaigns in the U.S., according to FactSet. From 2009 through 2013, there were only about 80. CEOs have long relied on robust philanthropy to even out capitalism’s rough edges, but they may need to overhaul corporate giving as well. Many younger Americans seem unimpressed by traditional charities like United Way. Kesner argues that it may be a matter of refashioning philanthropy to appeal to younger generations. “They must know where their money is going before they give it,” she says.

“They must be able to relate to the cause it supports; they don’t see the generic benefit of philanthropy like previous generations do.”

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THE PAY THING

Topics like income inequality can be even gnarlier. The issue ties into what many Americans identify as most offputting about capitalism—and most appealing about socialism.

Actual data can help here. Chief Executive’s annual study of C-level pay in the U.S. found median CEO comp in 2017 was around $350,000, just 6.7 times the median income for all U.S. workers, not 275 times, as is more widely reported.

Still, “On the fringe these days are people like Sanders and, on the other end, those who want to go back to the gold standard,” says Gary Tobin, a Fortune 500 communications veteran. “Both don’t work. But if you don’t self-regulate, you’re going to get regulated.

Look at what happened to Wells Fargo.”

That serious consideration is being given to such ideas underscores the level of distrust in business right now. Fifty percent of millennials and Generation Z members surveyed by the Harris Poll earlier this year said they would prefer living in a socialist country, with huge majorities expressing support for government-provided universal healthcare and tuition-free college. They will make up 37 percent of the 2020 electorate.

“I hope that, like most young idealists, once they get through the learning curve of life and put their skills to work... they’ll start to sort all of this out and do some of their own learning on socialism and free enterprise,” says Dan Ariens, CEO of lawn equipment manufacturer Ariens. “That’s when reality may set in. I’m hoping they’ll decide that all their hard work shouldn’t be given away to a government that is going to be about as wasteful as any on earth. Keep it for yourselves, or donate it if you feel that sort of responsibility.”

Die-hard progressives warn against overreacting. Even they find it difficult to picture America turning into Sweden anytime soon.

“Every generation when they’re 18 to 26 is more idealistic and liberal-leaning,” says Tim Hubbard, a University of Notre Dame business professor with liberal affiliations.

“Is there something fundamentally different now? Maybe. But I don’t think in this election cycle or even six years out we’re going to see it. I’m not holding my breath.”

THOUGHT LEADERSHIP CONTENT PROVIDED BY DELOITTE

HOW LOCATION STRATEGY MUST EMBRACE

THE FUTURE OF WORK

Location selection and footprint optimization must shake historical norms around workforce composition and skillset profiles.

They must consider a rapidly evolving landscape around the Future of Work: its implications on the nature of work (what is done by humans or machines), who does the work (drawing from an open talent continuum), and where the work is performed.

softer, human skills of which machines are currently incapable.

These include: • Customer centricity • Problem solving • Communication • Agile thinking and growth mindset • Cross-discipline collaboration and influence

Location strategy has traditionally leveraged historical business norms and technical workforce profiles as a template for use in As such, companies selecting new sites must seek evidence of the selection of new sites, or optimization of existing sites. Expoan additional component to STEM – the “A”… “Art”, makes nential developments in technology are dictating that, STEAM. The increasing pressure on companies to prior to selecting new sites, business leaders must source a set of skills less technical in nature, and now ask themselves “what is the Future of Work able to drive broader business acumen has led To prepare their for my organization, how will it affect how to a more complex profile of skills to recruit we work, and how will it impact where we organizations for the for and build within organizations. It will work?” likely require seeking new talent pools,

future, CEOs need to

Organizations are being pushed to reinvent such as college graduates with liberal arts nurture a workforce how they think about work tasks, the geobackground, to complement recruits with that strikes the balance graphic work location, and the work envianalytical backgrounds. ronment. To prepare their organizations for between human and The evolving nature of the workforce dicthe future, CEOs need to nurture a workforce tates that companies must seek locations machine talent that strikes the balance between human and that enable them to access talent with a diverse machine talent, and which expands the definiset of skills. This requires assessing both the talent tion of the human workforce. CEOs and their leadersupply and demand for those skills in a selected locaship team should consider: tion. It requires not simply looking at the current workforce 1. How to orchestrate workforce augmentation by integrating machines to increase productivity, automate routine tasks, and leverage human skills to drive unique competitive advantages.

Business leaders need to determine the intersection between human activity and machine activity to elevate capabilities and increase productivity.

2. How to leverage the emerging continuum of talent. The workforce of the future will be made up of full-time employees, freelancers, gig workers, the crowd and robots working side-by-side. Simultaneously, the diversity of the workers in terms of experience and viewpoints is increasing as Millennials and Gen Z already make up almost 40% of the workforce and are demanding evidence of this diversity as they select employers. This complexity has implications for employee engagement, inclusion, talent development and productivity. Ultimately, it should lead to uniquely more interesting and challenging work.

The scarcity of STEM (Science, Technology, Engineering and Mathematics) talent, not only in the United States, but across the globe, is well publicized – however many companies are awakening to the reality that they should equally source the

in a location but building a projection three to five years out on what the available talent will be with proficiency in critical skills, considering the desirability for population growth in that location. CEOs frequently share stories that site selection decisions made based on low cost eventually turn out more expensive, as the time to fill critical roles drags out beyond expectations since there is a lack of available talent needed to meet business need.

Preparing for the future of work means being prepared to continuously pivot to meet unknown workforce challenges. Location remains a critical lever for companies to use to their advantage as the type of skills needed tomorrow continues to evolve.

Matt Highfield (mahighfield@deloitte.com) is a Managing Director at Deloitte Consulting LLP and leads the firm’s Location Strategy practice.

Laura Shact (lshact@deloitte.com) is a Senior Manager at Deloitte Consulting LLP and a key leader in the firm’s Workforce Transformation practice.

As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure.

Certain services may not be available to attest clients under the rules and regulations of public accounting.

Learn more at www.deloitte.com/us/locationstrategy ABOUT DELOITTE: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

T HE CN E X T IN T E RVI E W

COMEBACK KING Doug Conant, who brought Campbell’s Soup back from a near-death experience, shares strategies for tackling turnarounds.

This is the second in a series of discussions with CNEXT Leaders.

In partnership with Chief Executive, CNEXT matches some of the world’s most respected former CEOs with current leaders to help solve critical problems. If you are interested in a confidential conversation about CNEXT and its services, e-mail Inquiries@C-NEXT.com

PHOTOS BY STEVEN FREEMAN

No stranger to overcoming adversity, Doug Conant is best known for stepping in to save the nation’s iconic soup company from seemingly certain demise. But he also played a significant role helping post-LBO Nabisco regroup and surmounted his share of personal setbacks during a career that spanned stints at consumer packaged good companies General Mills and Kraft. Chief Executive recently had the opportunity to talk with Conant about tactics and tips he’s amassed over the course of his action-packed career. Excerpts of that conversation follow.

Before Campbell’s, you were at Nabisco in the aftermath of the leveraged buyout made famous by Barbarians at the Gate. In that high-pressure environment, how did you go about getting the right people on the bus?

There were five pieces to that proposition.

First, you need to attract the right people.

Then, you need to develop them. You need to get them engaged in the work. You need to leverage them so they work more as a team, and you need to retain them so you can harvest all the investment you make in them. But it starts with attracting. We found we could create a special sense of mission, if you will, of trying to turn around the world’s largest LBO with a

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bunch of Young Turks.

So, we tended to go after people who were ready to be promoted and hungry for more responsibility but sort of bogged down in their blue-chip consumer packaged goods companies. We created this sense of doing something special and making an extraordinary foods company again. Between reaching down to get the talent and giving them an opportunity to contribute at a higher level with a great sense of mission, we were able to invite and cajole a team in that just shot the lights out. Of my direct reports there, I wanna say probably 80 percent of them went on to be CEO somewhere in meaningful jobs.

You don’t typically hear people celebrating the cultures created when private equity companies take over organizations and pile a bunch of debt on. What are the keys to being able to pull that off?

If you look at it from 30,000 feet, three key things had to come together. We needed people who were highly competent in what they did. They had to have a track record of accomplishment that was second to none. And then they had to have demonstrated character, where you could take it to the bank that when they committed to doing something, it would happen. So, there’s competence, character and

the third C is chemistry.

And embedded in that chemistry were some common values. Once we had thoroughly assessed the candidate for those things, our batting average was very high. And one other thing: You get a few stars, and stars attract stars. So, once we got four or five real bluechip athletes, it became even easier.

With all this technology-led disruption happening, do you look for different qualities than you did 15-20 years ago?

The situation has changed but people haven’t. If you’re gonna become a trusted leader of an organization, you’ve got to know what you’re doing, you’ve got to be competent and you’ve got to have character.

You’ve got to do what you say you’re gonna do, and you have to be good with the chemistry within the organization. You have to play well with others.

Whether I’m talking to somebody at Google or someone at a 125-year-old company, those conditions still have to be met.

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T HE CN E X T IN T E RVI E W There are nuance changes, but people are still people. Followers need to have trust and confidence in their leaders. And if a leader wants to inspire trust, they have to be people of good character who know what they’re doing and do it well with others.

That hasn’t changed.

After Nabisco, you were recruited to Campbell’s and once again thrown into a firestorm.

I thought I’d seen it all after Nabisco…. then I got to Campbell’s and found a whole new level of discontent. Everyone had a friend to the left or the right of them who had been let go, and the company was headquartered in the poorest, most dangerous city in the U.S.—Camden, New Jersey, with 75,000 people and 70 murders a year.

We were also an old-economy canned soup company, and the analysts were comparing us to a buggy whip, which was not wrong.

The good news was I had a plan…. I interviewed with six directors at once for the Campbell’s job. It was like a firing line where they were just shooting questions at me.

I thought, “Well, this is a disaster.” Two days later, I got a call, and they said, “That went great. We wanna do it again.’’ I thought, “There’s no way I’m gonna do this again.”

So, I got some of my friends together, we studied all the available information and put together a transformation plan. When I went in and they started shooting questions at me again, I pulled out a PowerPoint presentation and said, ‘’Frankly, you asked me a lot of questions last time, and I didn’t have a chance to thoughtfully respond to all of them. I think this will help.’’

I took them through how the challenge should be approached, the kind of things we ought consider doing. After that, I received an offer. I think you need to have a plan, knowing that it will have to evolve and change, before you go into any of these situations. These challenges today are too

When you go in as a leader, you’ve got to be clear about two things: the what, which is the plan, and the how, how are we going to do it?

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big and complex. If you don’t have a framework for navigating them, the odds are you won’t do it well.

Conventional wisdom used to be that a new CEO observe and then develop a plan over the first year. It feels like we just don’t have that much time anymore.

Right. I’m gonna say I have three years, and the first year is the other guy’s fault. The second year it’s our fault, we’re learning.

The third year you own it. So you can’t be fiddling around for one-sixth to one-third of the time walking around, shaking hands and learning. You gotta be ready to hit the ground running.

I was hired January 8. In July, at the end of our fiscal year, we launched our transformation plan, so seven months in we had a plan for the next three years. I wish it could have gone faster, but we were building for longterm success. We knew it was just a fool’s errand to over-promise and under-deliver.

Stephen Covey had a great line: ‘’Doug, you just cannot talk your way out of something you behaved your way into. You have to behave your way out of it.’’

When you go in as a leader, you’ve gotta be clear about two things: the what, which is the plan, and the how, how are we going to do it? And quite frankly, the how is almost more important to the people in the organization then the what because they’re walking on eggshells. You have to tell them the behaviors you expect… and put everyone on notice that you’re gonna be evaluated against the what and the how. We’re gonna look at your results, and we’re gonna look at how you get them. It’s the what and the how together that start to bring stability to the process for all the people working there.

How did that work at Campbell’s?

For the how, we created a Campbell’s leadership model where we said, “There are six expectations of our leaders.” By the way, everybody in the company was a leader. The first one was that you inspire trust. If you have a high-trust team, you can do almost anything. Once you start building trust, you have permission to create strategic direction, which was the second expectation. The third

LONGTIME PARTNER PEPSICO CONGRATULATES

ARNE SORENSON CEO MARRIOTT INTERNATIONAL

FOR BEING NAMED

CEO OF THE YEAR

BY CHIEF EXECUTIVE MAGAZINE

T HE CN E X T IN T E RVI E W

eight things that are going well.... I got known for writing thank-you notes to people about specific contributions. When I retired, we did the math and I had written at least 30,000 notes over 10 years to Campbell’s employees—and we only had 20,000 employees. This is about building a performance ethic in the company where you call people to account for what they’re not getting done and you celebrate what they do get done when they do it well.

expectation was to get everybody aligned to execute that direction, and the next was to build organization vitality and support the people trying to get this thing done.

The fifth expectation was that we would execute with excellence because we believe that a good plan well executed beats a brilliant plan poorly executed every time. And the sixth expectation was that we would produce extraordinary results.

Those expectations were engineered into our performance review process. We found that as you went through those six steps, it got easier to inspire trust, create direction, align the organization the next time because you had produced results.

What was behind your habit of personally writing between 10 and 20 thank you notes a day to Campbell’s employees?

As a leader, if you’re not tough-minded on standards, you won’t be a leader very long.

I would also tell you in today’s world with the millennials and Gen Xers, if you’re not also tender with people, you won’t be a leader very long either, at least not in the same place because you won’t have followers. So I advocate being tough-minded and tender-hearted same time.

You have to call out the two things that aren’t going well in a tough-minded way, but you’re also obligated to celebrate the

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You’ve dealt with significant adversity at different points in your career. What did you learn from those times?

We all have crucible moments when we are challenged in the most significant way we can imagine. I’ve had several, from getting fired from a job, totally unprepared, after working for the company for 10 years and with a large mortgage, a wife and two small children. It was not pretty.

Then, I was in a near-fatal car accident.

Coming back from all that, hell, I’m just happy to be here right now.

I’ve been knocked down several times and gotten back up, and actually blossomed from the experience because I’ve really gone down into the dark spaces of my being and landed on a perspective that helped me with the next leg of my journey. When I was fired, man, was I motivated to get back on the horse again after being out of work for a year and desperately trying to find a job that would be fulfilling. That led me back to the consumer products industry, where I ended up working for Jim Kilts and learning so much from him.

The car accident was extraordinarily difficult. Then, I found out I could get up and resume most of what I wanted to do with my life. I’ve had a new lease on life ever since, and I’ll be celebrating 10 years recovery from that accident on July 2 of this year of 2019. We all have those crucible moments, it’s what we do with them that defines our legacy or contribution. We need to say, “Okay, how can I learn and grow from this experience so that I can be an even better contributor tomorrow than I am today?” And the lessons are there. You just have to be looking for them.

LE AD ERS TRANSFORMATION \ PATRICK LENCIONI

THE DANGER OF BAD FORENSIC ANALYSIS

A deep dive into the sausagemaking at any company reveals a fundamental truth: human behavior is as critical to success as smart strategy.

Patrick Lencioni, president of The Table Group, is the author of 10 business books, including The Five Dysfunctions of a Team.

THE OTHER DAY, I WENT INTO MY office with two colleagues, gave each of them a section of The Wall Street Journal, and we spent the next 45 minutes reading whatever captured our interest.

When we were finished, we discussed the various articles we found, from finance to marketing to strategy to international business.

Much to our chagrin, though not our surprise, none made any mention of the impact that the human behavior of executives had on the performance of their organizations.

For example, one article covered a large, international private equity firm that had purchased a variety of branded companies in the U.S. Not long after the transaction, the markets softened and the firm lost a great deal of money.

The authors of the article focused on how the PE firm had misjudged the market and made poor decisions around financial trends in the industry, and then explored how it could recoup its losses through additional transactions. What they did not do was provide any insight or express any interest in how the leaders at the firm came to the decision in the first place. Did they trust one another, argue freely before making the decision, hold one another accountable for following through on the transaction?

In my 30 years working within and consulting to organizations, I’ve learned that these behavioral questions are not only relevant to the success of any strategic decision, they are central to that success.

I learned this lesson more than 20 years ago while working with a client run by a famous CEO leading a well-known technology company. Anyone with a view into the sausage-making at the company could

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see that the leaders there, taking a cue from the CEO, lacked trust and rarely told each other the truth about difficult issues, choosing instead to protect themselves from possible blame.

Of course, the company eventually imploded and was sold to a competitor for a fraction of its previous value, devastating a regional economy and damaging the lives of thousands of families. When the media analyzed this catastrophe, what did they cite as its causes? Strategic miscues and bugs in the product. While those issues existed, they were merely inevitable downstream symptoms of the real underlying problem—the lack of candor and interpersonal rigor among executives.

So, what is the lesson here for CEOs? First, be extremely skeptical about what you read in business media. That’s not to demean journalists who attempt to give readers compelling and digestible morsels using a limited number of words. It’s just the nature of media. And when you consider that those journalists don’t have the benefit of watching the sausage-making, they can hardly be blamed.

Second, and most important of all, do not let yourself fall into the same trap of bad forensic analysis when addressing problems in your own organization. It is both tempting and dangerous to take an intellectually lazy approach to identifying the root causes of our company’s successes and failures. But when we overlook the impact of interpersonal issues and behavioral shortcomings, we fail to see the full picture and leave ourselves vulnerable to making the same mistakes again and again.

While journalists might have an excuse for their misguided and incomplete analysis, CEOs do not. After all, they were witnesses to the messy processes that led to the decision-making and had their hands in the sausage all along.

THOUGHT LEADERSHIP PROVIDED BY INVEST IN ISRAEL

FERTILE SOIL FOR LIFE SCIENCES INNOVATION

Known as the “startup nation,” Israel has the right ecosystem for partnerships aimed at leveraging technology to improve patient care.

LAST YEAR, GE HEALTHCARE, a leading provider of medical imaging equipment, and Roche, a global pharmaceuticals company, decided to work together on some sizable challenges facing the healthcare industry. They launched a strategic partnership to build an integrated digital diagnostics platform that would help medical professionals diagnose patients more quickly and accurately, specifically in acute care and oncology.

Currently, there are vast amounts of patient data stored in electronic medical records (EMRs), but, without the right technology application, medical professionals can’t really use it, says Paul Mullen, a longtime GE executive who now leads the collaborative team. “What we’re trying to do is augment access to the official patient record in the EMR so that caregivers can operate at the top of their license.”

For example, a doctor evaluating a patient’s potential risk of sepsis or other life-threatening infection will be able to ask the system for help. “At that point, our A.I. will dig into the EMR for similar patient cases and find all the evidence that it might be an infection, which will appear on the left side of the screen, and all the evidence that it’s not an infection on the right side of the screen,” Mullen explains. Then the caregiver can make an informed—and relatively quick—decision.

The government is aiming to capitalize on the number of companies flocking to the region by establishing northern Israel as an ecosystem for life sciences technology development Given Mullen’s experience shepherding entrepreneurial ventures within GE, he knew this effort would require a location where startups thrive and where advanced technology is routinely given real-world application. A number of countries made the short list, but Mullen’s previous experience in Israel for another GE venture convinced him that the relatively tiny Mediterranean country had just the right ecosystem for GERoche’s biotech startup project.

“If you need to sort out a problem, you need to start with the science, but you don’t want just a laboratory, because you have to turn that into a product,” says Mullen. “That combination was relatively easy to find in northern Israel.”

The country’s small geographic footprint enables a tight ecosystem of technology, engineering and biotech professionals, most of whom trained in the military, and many of whom have already worked together and collaborate regularly, says Mullen. “It’s maybe an exagger-

ation to say everybody knows everybody, but you’re not very many degrees of separation from really gifted folks.”

With the highest concentration of PhD’s and engineers per capita in the world, Israel has been known for more than a decade as “the startup nation”: currently there are more than 6,000 active startups and more than 70 VC funds.

For every 1,000 people, the country has approximately 140 engineers and 120 scientists. “That’s the highest in the world,” says Aviad Tamir, head of life sciences & healthcare at Invest in Israel, a foreign direct investment initiative of the Israeli Ministry of Economy and Industry.

“From a government perspective, we try to invest as much as we can in disruptive innovation.”

Last March, for example, Israel approved a plan to build a national personalized digital health system, a five-year program with a budget of $264 million.

“We already have a huge advantage” as far as breadth of patient data, says Ziva Eger, CEO of Invest in Israel. “And the diversity of the data is also very unique because, unlike some more homogenous countries, we have people from all over world.”

The government is aiming to capitalize on the number of companies flocking to the region by establishing northern Israel as an ecosystem for life sciences technology development, just as the southern Be’er Sheva region has become a hub for cybersecurity R&D. Ultimately, says Eger, Invest in Israel is hoping to provide fertile ground for all companies, in any industry, seeking new ways to capitalize on A.I., IoT and other new technology. “There is no such thing as a traditional sector any longer,” she says. “Innovation is no longer nice to have—it’s a must.”

LE AD ERS LAW BRIEF \ DANIEL FISHER

LET’S MAKE A ‘DEAL TAX’

‘Mootness fees’ enable lawyers to continue cashing in on M&A litigation.

Daniel Fisher, a former senior editor at Forbes, has covered legal affairs for two decades.

THEY CALL IT THE “DEAL TAX”: When a public company announces a merger or acquisition, it is greeted with one, two or half a dozen lawsuits, sometimes drafted and filed within hours of the announcement.

Lawyers sued over 73 percent of all M&A deals for more than $100 million in 2017, according to a recent report by Cornerstone Research, down from a high of 94 percent in 2013.

They filed an average of 2.8 lawsuits per challenged deal. That was down from more than five lawsuits per deal in 2013 but still a surprising number given these M&As are lawyered by some of the top attorneys on Wall Street. Can they really be getting it wrong so consistently?

Of course not. M&A litigation is a symptom of a legal system that encourages lawyers to file suit in hopes of negotiating a settlement— and a rich fee. That can be a good thing when shareholders challenge a truly smelly deal, as when Grupo México used its control over then-Southern Peru, a NYSE-traded mining company, to swap $3 billion in Southern Peru stock for its interest in a troubled Mexican copper mining business. The Delaware Supreme Court in 2012 upheld $2 billion in damages for Southern Peru’s minority shareholders and $304 million in attorney fees.

Over the years, Delaware judges have gotten adept at spotting such deals. They’ve also learned how to identify less meritorious cases, including “deal tax” lawsuits where the plaintiff lawyers are really only using the threat of holding up an otherwise legitimate deal to earn a quick fee.

The most egregious example of this was “disclosure-only” settlements, where lawyers sued over supposed omissions in the proxy statement discussing a transaction and agreed

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to settle in exchange for minor wording changes and a fee. Shareholders got nothing, while the defendant company got a release from all claims, dubbed an “inter-galactic release” by disgruntled Delaware judges. Many defense lawyers considered it a prudent trade.

“Ask yourself: Would I rather have a world where 90 percent of the transactions result in a lawsuit, and I can just write a check and call it a cost of doing business?” says Abby Rudzin, a partner with O’Melveny & Myers.

“Or a world where only the ‘meritorious’ cases go forward, and I end up writing a very large check at the end?”

Delaware largely ended the disclosure-only game in 2016 with a landmark decision, In re Trulia. Rather than give up, entrepreneurial plaintiff lawyers took their business to federal courts. And while the rules in federal court can make it harder to sue and get a court-approved settlement, lawyers found a way around that, too. Instead of negotiating a legal settlement, they agree to dismiss their case in exchange for a “mootness fee.” Because once a case is dismissed, the matter is moot. Get it?

Plaintiff lawyers received a mootness fee in 63 percent of M&A cases in federal court in 2018, according to research by Professor Steven Davidoff Solomon at the UC Berkeley School of Law, with fees typically ranging from $50,000 to $300,000. Mootness dismissals “appear to have displaced formal settlements entirely in federal court litigation,” Davidoff writes.

How can lawyers trade a valuable claim on behalf of shareholders, their supposed clients, for nothing more than a fee? Ask the federal judges who approve these agreements, which have sprouted like mushrooms after their colleagues in Delaware shut down the disclosure-only settlement racket.

Defense lawyers are under no illusions about what they’re getting: an end to another meddlesome M&A lawsuit.

“It is effectively a settlement, it’s just not a formal settlement that gets anyone a release,” says Rudzin. “It’s a little bit wink-wink, nodnod. Everybody knows what’s going on.”

Leading the way Deloitte congratulates Arne Sorenson, President & CEO of Marriott International, on being named Chief Executive’s 2019 CEO of the Year! We celebrate your outstanding leadership of Marriott around the world and wish you continued success! We are proud to collaborate with you on the journey.

Learn more about us at www.deloitte.com.

Copyright © 2019 Deloitte Development LLC. All rights reserved.

LE AD ERS BLACK SWANS \ JEFF CUNNINGHAM

ARROGANCE ABROAD ON A RECENT SWING THROUGH China and Japan, I couldn’t help but notice the disparity between the sanctuary-like atrium style lobby of the Aman Tokyo and the young American executives strolling and lounging around in it. These young professionals looked like they were dressed for a football game.

Traveling through the region in the hope of building global business relationships, they seemed ill-prepared, ill-suited and ill-mannered.

Do Not Bare Your Sole

When traveling in Asia, leave the sneakers at home.

Jeff Cunningham is editor-at-large at Chief Executive Group and a professor of leadership at ASU’s Thunderbird School of Global Management. He was formerly publisher of Forbes and CEO of Zip2, Elon Musk’s first startup. He is founder of business trend poll Thunderbird Opinions and YouTube interview series IconicVoices.tv.

At the $1,000 per night Waldorf Astoria in Shanghai, one young American executive was shrieking multiple “OMGs” about the view as she ate breakfast with her feet perched on the opposite chair, displaying the soles of her sneakers to the world, a cultural faux pas. The couple next to me turned on a white noise app to drown her out. The next day, a bearded male reclined on a lobby couch as if it were a frat bro living room, shoes propped on the furniture. These are some of the reasons we are called “the ugly Americans.”

American cultural arrogance blinds us to our manners and appearance. But the ugliness runs deeper than New Balance sneakers.

When we travel abroad, we bring an attitude that is as obnoxious as our dress habits. CEOs who assign young executives the challenge of building business relationships may not be aware of how poorly their companies are being represented. Yet, all it takes is some good old-fashioned cultural retraining.

New Ball Game

Michael Witt, a professor of Asian business and comparative management at the INSEAD business school, is an expert in the emerging field of “Comparative Business Systems.”

Witt’s work takes him into each of the major Asian economies, where he gains insights into Asian markets and applies them to a global business strategy. As he told Fortune, “Everyone is playing ball in Asia, but they’re

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playing a very different game.” After all, Asia now accounts for roughly 75 percent of total global GDP, according to the IMF. The quality of the teams we send as envoys should reflect this level of importance.

Rice Over Rights

The global scoreboard suggests Americans take a dose of humility before thinking about Asia. In China and Japan, longevity exceeds that of U.S. citizens. China has been building universities at the rate of one per week and has lifted more people out of poverty than any other country in human history. It isn’t just these statistics, courtesy of The New York Times bureau chief’s report about Tiananmen Square, but the fact that the Asian economies as a whole will make every Western nation save the U.S. a rounding error.

In Asia, progress is defined in industrial metrics, as in how many homes, hospitals, universities you have built or how many rice bowls per day you have added to the average diet, instead of how many protests or boycotts you have waged. These are simplified versions of two cultural traditions, but the age in which we transport our values abroad is a colonial-era meme whose time has come and gone.

The Americans I witnessed were oblivious as they pranced around in sneakers and barbarian beards in a region where there is no facial hair or casual Friday dress code.

They are bringing their home game abroad, and it isn’t going to work. “Culture is not how you pick up the chopsticks,” says Witt.

“It’s how you make sense of the world.” As Americans, when we travel through Asia, everything from our manners to our dress code is on display, and people are asking us if that’s how we make sense of their world.

We can do better.

There are fantastic consultants more than willing to retrain young execs in the ways of the Asian world. It would behoove American CEOs to take their global teams aside to be sure they have a deep and solid understanding of Asian ways. Remind them to reserve the American centric view for football games.

LEADER. PARTNER. VISIONARY. We’re thrilled to sponsor the Chief Executive of the Year Award Celebration honoring Arne Sorenson, President and CEO of Marriott International, as 2019’s CEO of the Year.

From all your friends at American Express, congratulations.

LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

FLAK ATTACK!

Do your PR mavens have your back?

Or are they shielding you from more good than bad?

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

FORTY YEARS AGO, IF I WANTED TO reach a CEO of a major firm, I could often get a direct phone number and call at 7 a.m. to find them free, unguarded and eager to talk.

Those days are gone.

PR people and GCs are often called “flaks” as they seek to protect corporate reputations the way military flak jackets shield soldiers in battle. If the jackets are too tight, however, they do more harm than good by restraining nimble responses. The pathologies that follow overprotection involve: denial, deflection, tardy reflexes to misconduct, tin ears to consumer grassroots initiatives, over-lawyering, bland word parsing, attacks on the legitimacy of critics, denial, obfuscation etc.

Observers may wonder whether this practice contributed to the crisis management challenges of otherwise great firms.

In reality, the haze of battle conceals more complicated dynamics in the context of each situation, where good guys have been intentionally conflated with bad guys and international regulations have hobbled leaders from immediate transparency.

Thus, some legal protection and careful phrasing is often vital. Rapacious plaintiff lawyers, short-term activist hedge funds and grandstanding politicians intentionally blur the truth, creating legal traps and career jeopardy while endangering shareholder wealth. At the same time, the history of Chiquita, Takata, the U.S. tobacco industry, some opiate makers, BP, Equifax, Enron, Worldcom, Global Crossing, Drexel, Facebook and Volkswagen remind us that the motives of corporate titans are not always pure, nor their messages always clear.

In fact, the field of corporate communications is barely a century old, and its controversial pioneering spinmeisters—the boastful Edward L. Bernays and Ivy Lee of the 1920s— were critiqued for deceptive practices and intentional manipulation of mass communica-

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tions even as they were credited with refined techniques of propaganda and psychological research. Now “professionalized” with degrees, trade associations, journals and protocols, their occupation is also rife with clunky orthodoxies, “run-of-show” requirements for hit-and-run speeches, barricaded bosses and other overprotection from swelling armies of pervasive PR platoons. This bureaucratization of PR demands that CEOs battle their own flaks to ensure: 1) Authenticity and warmth: Antiseptic, scripted, teleprompter-driven comments and rehearsed video pronouncements are uniformly disastrous for the boss.

2) Accuracy and alertness: Panicked PR flaks block the magnitude and urgency of grassroots campaign and viral attacks, leading to misguided, delayed responses. Messengers should be encouraged to bring bad news without worrying they will be shot.

3) Cost and convenience: Spending more doesn’t equate to spending smarter. Beware of large-budget proposals aimed at protecting the firm; less pricey strategic online and in-person exposure can be far more effective.

4) Collaboration and image: Image handlers frequently make CEOs appear arrogant or rigid by demanding unknowable details about spontaneous events or missing opportunities to mix with peers and constituents.

5) Feedback and learning: PR flaks and many general counsel fear CEOs will melt if they are criticized rightly or wrongly by shareholders, media, investors or legislators, but leaders need to hear how they are being interpreted to know how to adjust their practice to improve performance.

Academic critic Jonathan Haidt has challenged the “coddling of the American mind” as students are insulated from criticism and learning from public failure. That same spotlight of scrutiny might be directed towards the C-Suite, where top executives are often coddled by palace guards who insulate them from the learning opportunity raw, unscripted face-to-face exchanges with customers, employees, investors and regulators afford.

T H O U G H T L E A D E R S H I P P R O V I D E D B Y G A LT & C O M PA N Y

RETHINKING DIVERSIFICATION

MUCH INK HAS been spilled about the merits of diversification strategies, such as top-line growth, reduced earnings volatility and increased scale.

However, the most meaningful measure of the success of any strategy is the Total Shareholder Returns (TSRs) it produces.

Recent divestitures and breakups remind us that greater focus, rather than greater diversification, drives superior TSRs. Among recent announcements, the spinoffs of GE’s power business sent shares up 6.7 percent.

Similarly, investors cheered Gap’s spinoff of Old Navy with an 18 percent jump in share price. And while still in progress, the combination of Dow and DuPont and subsequent spinoff into three separate, focused businesses is expected to unlock significant value.

More diversification simply does not lead to greater value creation.

There is no correlation between the number of business segments report-

ed by S&P 500 companies and their TSRs. In fact, we have found that in the majority of S&P 500 corporations, less than 40 percent of employed capital generates returns above the cost of capital, while 25 percent or more consistently earns returns below the cost of capital. This is primarily the result of undisciplined efforts to diversify into new markets and business segments.

This hidden concentration of economic profit1 offers significant opportunity to improve the shareholder value of most companies. Informed decisions about where and how to diversify, and how a diversified business is managed are what drive TSR performance relative to peers.

whether the market is attractive. For most people, an “attractive” market is one that is “large and growing.” But it is the size and growth of the market profit pool, not just revenues, that determine economic attractiveness. This is a starting point that determines whether a new entrant will have a headwind or tailwind in generating returns above its cost of capital and sustaining economic profits over time.

In an all too familiar a story, a business expands into a new market with large and growing demand, only to struggle year after year to generate returns above its cost of capital. General manager after general manager is blamed for “not executing well,” until it is recognized that the market is structurally unattractive and most other competitors are also generating returns below their cost of capital. As Warren Buffett cautions, “When management with a reputation for brilliance tackles a business with

Evaluating New Diversification Opportunities Market Economics The first question any leader should ask when considering diversification is

S&P 500: 10 Year TSRs vs. # of Reported Segments 10 Year TSRs 25% 20%

15%

10% 75th Percentile Average 25th Percentile

5% 0% 1

2

3

4

5

6

7

8

9

10

# of Reported Segments

Source: FactSet; Galt analysis 1

Economic profit (EP) is earnings less a charge for the capital required to produce those earnings.

a reputation for bad economics, it is the reputation of the business that remains intact.” Businesses should focus on markets that offer attractive economic profit potential (i.e., returns above the cost of capital), not just revenue growth or earnings stability.

Competitive Position Besides choosing economically attractive markets, companies must also have, or establish, a basis of advantage that results in increasing share of market profits. While product, service or cost advantages all come into play, true competitive advantage is ultimately measured by the sustainable share of economic profits a business is able to generate.

Understanding where a company can leverage its competitive advantages into new adjacencies starts with identifying current sources of competitive advantage. This requires factual understanding of where and why the current business generates economic profits, and how the underlying competitive advantages translate to potential new markets.

As an example, an industrial equipment manufacturer was looking to diversify into smaller, lighter-duty equipment, having identified that as a profitable and growing market. The company entered this new segment relying on its historical sources of competitive advantage: quality, durability and access to repair parts and service. Yet, customers in this segment valued affordability, availability and easy self-service maintenance. To gain share of market profits, the diversification strategy had to be adjusted to do a better job at satisfying these customer needs than competitors and doing so profitably.

Managing a Diverse Business One of the dangers of diversification is the risk of masking differences in performance across segments.

Putting a poor-performing business together with a high-performing one rarely makes a company worth more than the sum of its parts. It can also mask the underlying performance of each business and encourage managing to the averages. The result is that high-performing units are starved for resources, while poor-performing ones are sheltered from pressure to improve. The solution is to maintain clear line of site into the economics of each business segment.

Conclusion Poorly managed diversification has been one of the primary contributors to shareholder value destruction.

However, properly managed diversification offers profitable growth beyond the core that can significantly improve shareholder value. Value creating diversification:

ONE OF THE DANGERS OF DIVERSIFICATION IS THE RISK OF MASKING DIFFERENCES IN PERFORMANCE ACROSS SEGMENTS

• Starts with having the right objective, which is to increase the company’s economic profit growth, not to increase scale or minimize earnings volatility; • Is achieved by expanding into economically attractive markets with a competitive advantage that enables the business to capture a share of those profits; and • Is sustained by managing profit growth at a granular level.

Over time, such economically profitable diversification can result in increased cash flow going to a reinvestment advantage that becomes increasingly difficult for competitors to match.

The Authors Jonathan Lippincott, and Julian Millikan are managing directors of Galt & Company. Galt helps Fortune 500 Companies develop the strategies and organizational capabilities to achieve and sustain superior shareholder returns. The firm has been associated with notable corporate transformations of the last two decades.

C EO O F THE YE AR 20 19

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‘ WE WELCOME EVERYBODY’ Megadeals! Hacks! Strikes! Protests! Airbnb! In a very crazy time for Marriott International, CEO Arne Sorenson excels by focusing on his people—and sticking to his principles.

W

hen you’re talking about the past few years for Marriott International and its CEO, Arne Sorenson, it may be easier to talk about what hasn’t happened than what has.

A $13 billion deal—the largest in the company’s history—for rival Starwood? Check. A cyberhack that resulted in unauthorized access to hundreds of thousands of customers’ data—and acres of painful headlines? Check.

A series of painful labor strikes across the U.S.? Yup, that too.

That’s not all. There’s Airbnb, which is fast disrupting the travel business; the rise of anti-globalism, anathema to a company with hotels in 131 countries; and, of course, an endless series of highly public brushfires that come along with welcoming guests of every stripe, such as the LGBT community erupting in protest at the President of Brazil hosting an event at a Marriott in

New York’s Times Square (he ultimately cancelled), to name just one.

The worst news came on May 3, when the company announced Sorenson, 60, had been diagnosed with stage 2 pancreatic cancer and would soon begin treatment.

All this would be enough to tank even the toughest CEO. Yet, on Sorenson’s busy watch, Marriott International has exploded in value. Revenue jumped from $12.7 to almost $21 billion over the past five years (through the end of 2018), while adjusted earnings per share were up 178 percent during that time.

Total shareholder return? 154 percent versus 60 percent for the S&P 500.

Sorenson—who spends some 200-plus days on the road each year—is also one of the most high-profile and outspoken CEOs today. He’s put himself on record advocating for infrastructure investment, tax reform, LGBT rights, immigration, diversity—and simple decency (political and otherwise).

Yet, somehow, he’s largely avoided the public

JULY/AUGUST 2019 / CHIEFEXECUTIVE.NET

PHOTOS BY CELESTE SLOMAN

INTERVIEW BY DAN BIGMAN

/ 31

tar-and-feathering that keeps many CEOs on the sidelines in these bruising times.

Taken together, it’s a bravura performance that led our selection committee (see p. 8) to name Sorenson Chief Executive’s 2019 CEO of the Year. “Marriott’s exceptional EPS growth track record in a rapidly changing sector is a testament to the leadership and strategic vision Mr. Sorenson has provided throughout his tenure,” said CEOY selection committee member Dan Glaser, CEO of Marsh & McLennan Companies.

“The complexity and globality of his business—with a major acquisition—demonstrated his leadership,” said Bob Nardelli, CEO of XLR-8 and former CEO of Home Depot. “His presence among other CEOs and recognition among peers was a real standout. Arne is a real role model for all CEOs.” That’s especially true in this disruptive era.

Trained as a lawyer, Sorenson had an unusual path to the corner office. He was personally recruited into the company in 1996 by Bill Marriott (our 1988 CEO of the Year) after representing Marriott in a lawsuit a few years ear-

You’re Welcome Under Sorenson, Marriott’s five-year total shareholder return has far outrun both peers and the S&P bull market. $350 — $300 — $250 — $200 — $150 — $100 — $50 — $0 —

12/31/13

12/31/14

12/31/15

12/31/16

Marriott International S&P 500 Hotels, Resorts & Cruise Lines Index S&P 500 Index Source: Marriott International. All figures through 2018.

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12/31/17

12/31/18

lier. By 1998, he’d been named CFO (“a risky move even in a pre-Sarbanes-Oxley world,” he says) and was named CEO in 2012—the first nonfamily member to hold the job in the company’s history. We sat down with Sorenson in late May at the company’s headquarters in Bethesda, Maryland, to hear more about how he takes on the turbulence—and maybe how the rest of us can do it better, too. What follows is edited for length and clarity: The past few years for this company and for you have brought extraordinary change. Starwood, Airbnb, the data breach, your own personal health. How have you led through all of that?

It starts with a great team. Almost none of these things do you face alone. If you’re facing them alone, you’re probably in a dangerous place. Some of them, I think, require more of a singular decision, maybe, and some of them less. So, as an example, if you think about the last three years, we jump into trying to buy Starwood in October of 2015, that was a very intense period where the leadership team of the company was gathered around the table.

But, ultimately, a decision had to be made.

It had to be made by me. Now, the board, of course, approves everything, but was I going to present to the board the biggest transaction by far that the company had ever done? The prior deal would have been $1 billion. This was $13 billion and change.

The conversation around the table was robust, transparent—but not uniform. In that kind of classic circumstance, the CEO ultimately has got to say, “Okay, how am I going to resolve this less-than-totally-synthesized bit of input I’m getting and decide what kind of bet the company should make?”

Contrast that to the fall of 2018. We get a cyber hack that surfaces in September. We really couldn’t confirm that anything was taken until November. So, you’ve got a period of six weeks or so where you’re working like dogs to try and figure out as much as you possibly can and, then, ultimately, get to a place where you decide to disclose and what the strategy is around disclosure. There, in some respects, I am involved in the conversations daily but not necessarily bringing more expertise to that set of challenges and questions than a whole

“WE CAN’T STAND IN JUDGMENT ON THE PEOPLE WHO MEET IN OUR HOTELS... YOU WOULDN’T WANT US TO STAND IN JUDGMENT ON THEM.” bunch of people at the table.

In both circumstances, you’re bred first to listen. So, even when the decision, ultimately, has to be made where the buck stops, if you haven’t gotten input from a team that feels like they can be transparent with you, you’re going to be supremely harmed in the decision that you make. So, in that sense, there’s a similarity, but the decisions made in the cyber context, the ones that I felt closest to, were more philosophical. We’re going to be transparent with our customers. We are not going to pay attention to the short-term ramifications of this because the name of the game is to maintain the trust that we have, and maybe even build on the trust we have by telling them what we know, by telling them as we learn more, what more we learn.

Very different kinds of decisions, but every one fundamentally dependent on the right team around the table.

How have you been able to speak your mind and engage on divisive topics and not end up immolated as other folks have?

There are two things I would say. One is a great cultural legacy. Some of these crises obligate us to reach into a well of goodwill built up over decades and decades. There are a lot of folks who say, “Marriott is a good company.

They’ve been in business a long time. They seem thoughtful.” That well of goodwill that’s been built up over the years is helpful.

The second thing is to be transparent and not just to say, “Here’s why we’re defending our decision, but here’s why we reached the decision we did.” I woke up five years ago to 5,000 emails that had come in the last three hours. That one was about folks objecting to the CAIR, Center for American Islamic Relations, meeting at a hotel in Crystal City near Reagan Airport. There was a group

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that basically decided that [CAIR] was too Muslim a group to meet in our hotels, and we should ban them. Within a month, we had a group from the left complaining about a much smaller group who believed in reparative therapy. There was the LGBT community basically saying, “How on Earth could you have these people show up?”

In both instances, what we said was, “We can’t stand in judgment on the people who meet in our hotels. You wouldn’t want us to stand in judgment on them. We are in the hospitality business. We welcome everybody.”

You travel more than 200 days a year, but still, how do you bring this company together when you’re trying to lead it? There are a lot of people in a lot of places.

Very deliberately. There are a whole bunch of tools used. The most important is probably to stress that the principal responsibility is not Bill Marriott’s. It’s not mine. It is the [hotel] general managers who have got to pull through the culture. So we tell them.

We pull them together. We measure what their people say about their work, do a global associate satisfaction survey every year where we get a department-by-department, hotel-by-hotel input into the way our associates feel about the work that they’re doing, the way they’re paid, about opportunities and about inclusiveness.

It’s an important question, and it’s part of the compensation plan. Last week, we had an Awards of Excellence event, our sort of internal Academy Awards, where we bring in about 15 associates from around the world and honor them with an award and a video that tells their story, and they speak for a couple of minutes. Most of them have never been in the U.S. before, maybe never been on an airplane before. It’s simulcast around the company, and it is to tell stories of folks who have made a powerful impact, typically both with guests and with associates, and typically in hotels. You keep pushing those.

One of the reasons I travel so much—and Bill Marriott traveled so much before—is that even though it’s the general manager’s responsibility, we get out there and the senior team gets out there, and they can see us interacting with our people. Every

Š 2019 Ernst & Young LLP. All Rights Reserved. ED None. 1905-3174167

Forward thinking got you here. And it’s what will fuel a future of possibilities.

Congratulations to the 2019 CEO of the Year, Arne M. Sorenson. ey.com #buildingabetterworkingworld

single hand in a hotel, I will shake. Kitchens, housekeeping, wait staff, front desk, and half the time I think they are looking at me like, “Who the hell is this guy?”

Overwhelmingly people will say, “You know, he looked me in the eye and shook my hand, and I’m a housekeeper.” If you treat people like they deserve to be treated, as human beings with the same kind of dignity that you would treat senior people, it will flow through the organization.

How does that set of values help you shape the selection process for senior leadership? How do you develop that?

The measurement system is going to tell us something about it. You can look at the associate satisfaction directly, but you can also look at the results of the hotel. Turnover is going to be way down if you’ve got somebody who is able to build teams that really work. The guests will tell you it’s a much, much better run hotel because, ultimately, when people feel good about their work, they will welcome you better than they would if they were sour.

You’re in the business of making people feel welcome, and open borders and free trade seem to be something Marriott would support. Are you seeing a pushback against that in recent years?

I guess this is a place where I’m more optimistic, although it depends on exactly how the question comes in. Because if you think about policy, about reading the news, about trade wars or conflict in the Middle East, or the rise of nationalism around the world, it’s

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easy to get distressed. But if you think about people traveling, people wanting to explore the world, people eager to collect experiences, maybe a bit more than stuff, new members of the global middle class who, for the first time, have the ability to get around and see things, I think there’s a lot more to be optimistic about than pessimistic about.

In 1979, I went to Beirut. My father was a churchman, and he came back and said, “There’s this group getting together in Beirut next summer. You should go.” It was in Lebanon, [when], of course, the U.S. was a great ally of Israel. But everybody who was there was as welcoming as could be. Some of them occasionally would say, “I hate America, but I love Americans.” I think today you pick up some of that in some places, but when you get to a hotel—hopefully, a Marriott hotel—people are still interested in seeing the globe. People are interested in working in the business.

How do you assess the technology landscape—and a competitor like Airbnb—and how do you lead and manage in the face of that kind of technological challenge?

We’ve got lots of technology threats and opportunities, obviously. Technology has helped us a great deal in the way we interact with customers, apps and .com sites. And we’re selling a massive amount of rooms online through our own digital channels, which has been huge both in terms of ability to know customers and ability to service them cost effectively.

So there are real positives here. There are also folks that either are directly disruptors—Airbnb would come up first in that—and folks that have been partners but complicated partners for a while—Expedia, Booking.com or folks that are juggernauts for whom the relationship is still evolving. Think of Google maybe as the easiest example of that, but there are a few others around the world. They all present different issues.

Many of those are digital-first companies, which make them a bit threatening for a company like us learning the digital space, hopefully quickly. We’ve done a lot already, but we’re not a digital-first company. We’re an operating company first. So, we’ve got to figure out how to marry that with our historic culture, and learn and gain from that without

CONGRATULATIONS TO ARNE SORENSON 2019 CEO OF THE YEAR | CHIEF EXECUTIVE MAGAZINE Bruce White and the White Lodging team applaud your accomplishments

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“IF YOU REPLAYED EVERY STEP THAT AIRBNB TOOK AND SAID, ‘IMAGINE MARRIOTT TOOK THAT STEP,’ WE WOULD HAVE BEEN CRUCIFIED.” giving up this service culture.

We’ve had one advantage, but it’s not ironclad, and that is, unlike a lot of retail, you can’t ship a trip to somebody in a box.

We own the stay, we would say, and that’s a positive thing. I say it’s not ironclad because if you’re Expedia and you can get yourself in the middle of our relationship with our customer and extract a tax in order to deliver that customer to us, we might still own the stay, but we’ve just changed the economics of our model. Now, of course, Expedia has a home rental platform. Booking.com has a home rental platform. There are some smaller players, but Airbnb is the first one to take technology and deliver a different product and, to some extent, invent the so-called shared economy in the hospitality space.

If you replayed every step that Airbnb took and said, “Imagine instead Marriott took that step,” we would have been crucified, right?

The taxing authorities in these jurisdictions would have said, “The hell you’re not paying taxes. Of course, you’re paying taxes.” We would have had to comply with laws that Airbnb never had to comply with early on because they were a new shared-economy platform. And politicians love that, and nobody really knows where it’s going.

I met with the Airbnb founders very early in this process and was thinking about it in these ways in the first conversation probably six years ago. We couldn’t do this. Nobody would let us get away with what they’re doing. So, we’re watching, trying to figure it out. Maybe we can be blamed for moving too slowly, but, ultimately, what we decide is there is a place in the home rental market for quality. I want something where a brand is going to stand behind it. If it doesn’t go well, I want to be able to call somebody. It’s not going to be selling the cheapest room—which

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is never where our business has been—but it’s probably going to be in the middle of the market and a whole-home product. We think we can deliver the technology solution, the loyalty linkage and a branded experience in a way that will allow us to offer a product that is different.

How do you help the culture absorb a change like this?

It’s not hard. People want to be involved in change. People can be threatened by change, of course, particularly if it’s about contraction. The bulk of our change has not been about contraction. It’s been about the opposite. In that context, you see people just drawn to it. The bigger challenge is ensuring that you get the right people drawn to it and not too many people drawn to it. Because we’ve still got a core business, and you can’t all run off and get after the new shiny penny.

People like innovative change. They like to win. Everybody likes to win.

How do you make sure they know that they’re winning—all the way down to folks who are cleaning rooms?

Probably the more you tell them directly you think you’re winning, the more damage you do. We are deliberately fairly humble in the way we talk about what we’ve accomplished.

For example, when we closed the Starwood deal, there was a lot of self-congratulation.

We had general managers’ meetings in every market, and we said, “We have not done anything to be congratulated for. We paid more for Starwood than anybody else would pay for it.

That is not victory. Victory is what we do with this deal, and that work is just starting.”

One of the things that the Marriotts have talked about for decades is success is never final. The more you convince yourself that you’ve really gotten good enough, if you really think that, you’re probably [in trouble].

How do you keep from doing that? How do you keep from feeling too successful?

It’s not a temptation for me, maybe sometimes to the frustration of some. I’m convinced we can always do better. I’m not really wired to do a commercial. I was just having a conversation with the folks about our next board

Congratulations

Arne Sorenson

for being honored as Chief Executive’s 2019 CEO of the Year.

Microsoft admires your outstanding global leadership and dedication to putting people first.

meeting, and I’ve been saying for years, “We don’t go into the board with an advertisement of how well we’ve done on something. We go into the board with the things that we’re worried about.” There are always things we’re worried about. Because that’s where the risk is, that’s where our emotional energy is focused, that’s where their counsel is going to be most relevant. It’s who I am, but I think it’s who the company is, too.

What are those conversations like? How how do you engage the board?

We’re sort of old fashioned in some respects.

We meet only four times a year. They are fairly efficient. It’s a 24-hour, maybe a little longer, thing. We’ve got a board of 14. When I became CEO, I said to Mr. Marriott, who is still the chairman, “I’d like my entire team at every board meeting because I think the board needs to know who they are, which you only get from repeated interaction with folks, give them the ability to always have a line towards succession, which is the board’s fundamental responsibility. And give them their own read about the way the team is working and a

Big Numbers Thanks to Sorenson’s Starwood acquisition, Marriott exploded to now include 30 brands with operations in 131 countries.

$21B Revenue

730,000

Workers Wear Marriott Name Badge

7,000+ Properties

1.3+ million Rooms

Source: Marriott International. All figures through 2018.

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chance at the dinners or lunches or wherever to hear more.”

Bill Marriott said to me 25 years ago, “The board’s job is to hire and fire the CEO, period.

There’s nothing else that they can do for you.”

He doesn’t think that anymore. I think today he would say, “The board, they are smart people. They have got good breadth. We should be getting their counsel.” That doesn’t mean you go to them and say, “What should we do about this problem?” We should say, “Here’s what we’re worried about and working on, but here’s also what our strategy is,” or, “Here’s when our strategy will be ready.” So that you’ve got the ability to get some input and reaction without pretending that the board will have a better set of solutions.

How do you spend your time? What do you focus on?

I focus on people, on strategy and on the decisions that usually, obviously, would need to be made by the CEO. They’re not always obvious because sometimes the decision is not that big, but there’s something about it which is controversial enough that the organization is going to have sort of built-in biases that conflict with each other. So, those decisions might need to percolate up. Sometimes they’re like the Starwood example, which is sort of an obvious decision that needs to get made.

But the focus on people is a big deal. There’s another story with Bill. The Marriott transition for Bill Marriott was moving much more authority outside of this building because you can’t make the kind of decisions here that were made here even 15 years ago.

We were [opening] 20,000 rooms a year or something like that. We’re now doing 120,000 rooms a year. We’re opening about one room every 14 or 15 hours, but we’re signing even at higher volumes than that. Bill Marriott might have been able to say, “I want to approve designs, not necessarily of the Fairfields but of the full-service hotels.” Today, you couldn’t do it if you wanted to do it. By the way, you shouldn’t want to do it because if you’ve got one person approving designs, you will have a sameness across the system that you really don’t want—and you’ll end up without the breadth of leadership that you need to have spread around the world.

Arne Sorenson, Congratulations, we raise a mug to you!

Cheers, The Keurig Commercial Team

Brewing Success for Businesses

Commercial.Keurig.com | KeurigDrPepper.com

FLASHBACK 1988:

Bill Marriott, CEO of the Year Marriott is the first company to have produced two Chief Executive of Year winners in the award’s 34-year history. Back in 1988, it was Bill Marriott on the cover, celebrated by his fellow CEOs for his ability to lead the sprawling, fast-growing hotelier with $6.5 billion in annual sales and franchises in 24 countries. The secret, Marriott told Chief Executive: “We’ve developed a climate of listening,” he said. “The more I listen, the more effective I am—and the more my people will contribute to solving company problems.”

All you have to do is let go.

You have to let go, but you have to let go in a way that doesn’t suggest you don’t care. One of the things I’ll get traveling or when the team comes back here is a deep conversation, including about individual hotels. You hear the way the decisions are being made, I get a chance to have input into them. It doesn’t mean I’m making those decisions necessarily, and it doesn’t mean that I’ll be engaged with the next one that comes along the next month. But it does communicate that the details are still really important. And I think that works fairly well.

You’ve put a lot of emphasis on diversity and inclusion. Can you talk a bit about why—and how?

I’ll say a couple things, particularly about gender. I’ve gotten more credit and more attention for the number of women on my direct report team than maybe I deserve, or we deserve, and maybe more than is really important. We were 50/50 until January, when one of our senior women execs retired.

We’re now 60/40 basically, six men and four women, and that’s good inclusiveness around the table. But much more powerful is that 42 percent of our 873 senior executives—a bunch of VPs—are women. We’re global where gender actually can be sometimes more difficult in many other markets around the world.

We’ve got a real shot at gender parity for a community that’s that big.

Why does all this matter to you so much?

We are literally a community of people from

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everywhere, welcoming a community of people from everywhere. To do that well, we’ve got to be that as well. I actually think the smaller you get—this gets me into maybe more dangerous space—but the more you start to say, “Okay, but around your [leadership] table 50/50, or 60/40, don’t you get more diversity of view because of that inclusiveness?” I actually think in the smaller group, there is no similarity of the points of view of the women, no similarity of the points of the view of men. I don’t see our chief commercial officer, Stephanie Linnartz, as expressing a woman’s view about a particular issue any more than I see David Rodriguez, our HR lead, communicating any Hispanic view.

They are fundamentally creatures of their own sets of talents, capacity and points of view. Yes, some might be influenced by who they are or their gender, but none are coming with that agenda to the table. They’re coming with the agenda of, “What is the CFO’s role?

What’s the right thing for us to do?”

When you get to a bigger community, I think you start to see the power of those different voices coming together.

The real power of diversity is in getting it baked in throughout the company.

The real power is in making sure that you can deliver a fair expectation of people that they can grow, no matter where they come from, and that the opportunity is available for them.

It didn’t require them to look a certain way. It didn’t require them to go to a specific school.

It didn’t require them to have a particular background. Everybody has got a fair shot at

Congratulations We congratulate Arne Sorenson, Marriott International President and CEO, for being named “CEO of the Year.”

BakerHostetler is proud to travel along with Marriott as it expands our world, improves the communities it serves and opens doors to new opportunities. bakerlaw.com

Recognized as one of the top firms for client service, BakerHostetler is a leading national law firm that helps clients around the world to address their most complex and critical business and regulatory issues. With five core national practice groups – Business, Intellectual Property, Labor and Employment, Litigation and Tax – the firm has more than 970 lawyers located in 14 offices coast to coast.

“I THINK THERE IS A BIT ABOUT FAITH...WHICH PREVENTS US SOMEHOW FROM THINKING WE ARE UNIQUELY GIFTED...” it. If you get that and it’s about substance leading, you will get diversity in the ranks because people will be drawn to it. Then you’ll get those voices, too, that are there because when you get to a bigger community, particularly, those voices will come in. This diversity of experiences will come in. And you’ll make sure that you’re not blinded to some things that you might be blinded to otherwise.

You had an unusual upbringing. Your father was a Lutheran minister, a missionary. You traveled a fair amount. How much did that upbringing influence the way you lead and the way that you see the world?

I don’t have a real sense of that. We traveled.

Even when we came to the U.S., my father was on the road all the time around the world and with people in the house from around the world. There is one thing that I know to be the case—I love travel. I love seeing what’s happening around the world. I love seeing the cultural differences. I love all the food. There are folks who are in international business who hate to travel. You can see it. They’ll get to India or they’ll get someplace else, and you can just sort of see the scowl on their faces, and you know they’re not having a good time. I’m the opposite.

I think the faith thing, it was comforting to the Marriott family that we were traditional in that sense. My wife and I have four kids. We’ve been together all our lives. There’s comfort in knowing that maybe the lifestyle is not too far towards the edge, and faith is a piece of that.

Again, I’ll apologize for sort of self-analysis here, but I think there is a bit about faith that keeps us in our place, which prevents us somehow from thinking that we are uniquely gifted, that we deserve credit for so many things that happen. It’s not as if I feel passive.

I’m intensely competitive and put a whole

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lot of effort into trying to make sure we do as good a job as we can.

But I don’t think it’s my work alone. I’m not suggesting for a second that I mean it’s the divine hand that’s working on it. But I do think there is a strong recognition that a whole bunch of people are engaged in this and things happen that you can’t necessarily take credit or even blame for.

What do you tell your kids about business and about leadership?

The youngest is 24, and the oldest is 31. I think probably more important is what happens earlier in life. What do they see you doing?

How do they see you balancing your work with your attention to them? How do they see your relationship with your spouse or partner, and what lessons do they pick up from that?

I’ve always been a hard worker. I [was] when I was practicing law, and I’ve been traveling here a lot. But when I wasn’t working, I was basically with them. I wasn’t off on the golf course on weekends without them when they were growing up. I worried that they would think, “Well, you weren’t around enough.” They don’t have that sense at all.

Their sense is, “Yeah, he was hardworking, and he proved something about the importance of effort and discipline. But he was also there for us.”

Since you were diagnosed, how has it changed the way you approach your job?

It’s been just about a month since the diagnosis came in, so it’s still early to take much on board as lessons. I’m certain that it’s about looking forward. I’m certain that I’d like to keep doing what I’m doing. It’s too soon to know whether there will be lasting changes to the approach I take.

I’ve probably directly heard from 5,000 of our associates, something like that, with prayers in every faith and picture postcards and little videos that come in with hotel teams singing, various things like that. It’s really gratifying to know that a whole bunch of people are fighting with me.

That says something about you.

Something about the company, too. Something about who we are.

Congratulations Arne!

Congratulations from Aimbridge Hospitality on your well deserved selection as the 2019 CEO of the Year.

We are proud to be Marriott’s largest Franchisee with almost 400 Marriott branded hotels.

www.AimbridgeHospitality.com

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MA N U FACTU R I NG

MEET AMERICA’S MAKERS EPENDING ON WHAT YOU hear and whom you believe, American manufacturing either has begun a fundamental renaissance that will outlast the vicissitudes of geopolitics—or it is enjoying a last gasp before being finally laid low by trade wars, labor mismatches and a recession.

Numerous signals support each view.

President Trump likes to declare how his America First policies—including corporate tax cuts, regulatory rollbacks and new tariffs—led to the creation of a half-million manufacturing jobs over the previous two years. And more U.S.-based CEOs now are considering “reshoring” some factory work.

At the same time, Trump’s tariffs are hitting some U.S. manufacturers hard, even while the trade deficit continues to balloon. High-skill factory jobs go begging, as many millennials turn up their noses at the opportunities. The dire need for rapid digitization confounds

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many factory owners. And plant closings and layoffs in the auto sector could be a precursor of a broader manufacturing slowdown.

“The next five to 10 years will be pretty good for U.S. companies,” David Farr, CEO of Emerson Electric and member of the executive committee of the National Association of Manufacturers, told CEOs gathered for the recent Chief Executive Smart Manufacturing Summit in Dallas.

“U.S. manufacturers are globally very competitive right now, and there’s the chance to do more…. But there needs to be a resetting of global trade [and] that’s not easy to accomplish.”

Whatever the big picture, expect our 25 “Makers for American Manufacturing” to fare well. For the second consecutive year, Chief Executive has selected a handful of people who are really successful, whose companies represent robust trends in the U.S. manufacturing economy, or who are reshaping their industries or manufacturing as a whole.

Here are our Makers for American Manufacturing for 2019:

Thriving despite global competition, these 25 CEOs defy the idea that manufacturing in America is no longer feasible.

BY DALE BUSS

SCOTT WINE / CEO, POLARIS INDUSTRIES, MEDINA, MN

He was doing everything right for America, opening a new plant in Huntsville, Alabama, in 2016 to make snowmobiles, motorcycles and ATVs, and boosting company sales by 14 percent last year while doubling net income. But Wine’s company has gotten badly nicked by retaliatory tariffs in China and Europe that threatened to erase 25 percent of Polaris’s profits. He addressed the latest skirmish in the ongoing trade war, musing that Polaris might have to move some U.S. output and jobs to Mexico now.

ANDI OWEN / CEO, HERMAN MILLER, ZEELAND, MI

She’s not only the first woman to head one of the world’s premier office furniture makers but also someone whose experience lies entirely in the branding world, most of it with The Gap— not in manufacturing. She’s a digital maven

whom the board hoped could bring Herman Miller into a new era.

“There’s not as much of a leap as one might think from one industry to the other,” Owen says.

“But in the fashion industry, we made a lot of landfill. [Miller] is in an industry where we tend to make heirlooms and things that last. And while I spent my career in fashion trying to shorten supply chains and get as much control over them as possible, at Herman Miller we have a ton of control and suppliers right around the corner from us. It’s nice to have local production.”

“It’s nice to have local production.”

—Andi Owen, CEO, Herman Miller

DARRELL JOBE / CEO, VERICOOL, LIVERMORE, CA TOM BICKES / CEO, EMPLOYBRIDGE, SANTA BARBARA, CA

During an unprecedented labor squeeze in manufacturing, these two owners have helped expand the national workforce—to great results. Jobe has relied largely on ex-cons to

CHIEFEXECUTIVE.NET / JULY/AUGUST 2019 / 49

“I always told myself that if I had an opportunity to start a company, I would hire individuals in need and help them reestablish.”

—Darrell Jobe, CEO, Vericool

keep up with the company’s rapid growth, supplying earth-friendly food and pharma coolers, as home delivery has boomed. Bickes has built the largest industrial staffing provider in the United States, as he has helped close the skills gap for ordinary workers.

About one-third of his 45 employees are ex-prisoners, says Jobe, himself a former gang member who was plucked off the streets by a friend’s father and whisked into a career in packaging. “I always told myself that if I had an opportunity to start a company, I would hire individuals in need and help them re-establish,” he says. “If you give these people opportunity and hope, and value them as individuals, they’ll actually give you a much better return on your dollar than a standard employee who can get a job anywhere else.”

Bickes says EmployBridge has developed proprietary testing and screening tools so that its recruits fit well with each manufacturing client, fueling company growth up to three times the industry average over its 20 years in business.

“This also has allowed us to open doors for individuals who maybe hadn’t thought about a manufacturing career before but had the skill sets to succeed,” he says.

JOHN KRAFCIK / CEO, WAYMO, MOUNTAIN VIEW, CA MICHAEL MANLEY / CEO, FIAT CHRYSLER, AUBURN HILLS, MI R.J. SCARINGE / CEO, RIVIAN AUTOMOTIVE, PLYMOUTH, MI EVAN LYALL / CEO, ROUSH ENTERPRISES, LIVONIA, MI TOM BROAD / PRESIDENT, MIDWEST STEEL, DETROIT, MI

Each leader is making a huge statement about the future of automotive manufacturing in Motown amid the industry’s evolution to “mobility.” Manley has begun building a Jeep plant in the central city, the first new assembly plant in Detroit in nearly 40 years. Broad is leading digital disruption of a perceived low-tech industry with a modeling platform that accelerates project planning, while aggressively tackling the labor shortage with apprenticeship programs.

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Krafcik has committed Google’s automotive unit to build its first generation of self-driving cars in a supplier plant in the city. Scaringe is partnering with Ford and Amazon for his startup to produce electric trucks and SUVs in the area. And Lyall’s specialty-vehicle company is applying what he calls the area’s “tribal knowledge” to the new era—first by building an autonomous-weeding vehicle for farm fields that was sprouted by a startup in Silicon Valley.

JULES PIERI / FOUNDER & CEO, THE GROMMET, SOMERVILLE, MA

She democratized manufacturing with her e-commerce platform that has allowed more than 2,000 “makers” to launch their consumer products online over the past decade, including eventual big winners Fitbit and SimpliSafe.

“Only 10 percent of small business owners have any experience in the area where they’re now creating a company,” Pieri says. “But it’s much easier for a small company to be radically innovative in consumer products. They don’t need to defend legacy products or shelf space that was hard-earned; they’re trying to get the shelf space. Their hurdle rate for success in financial returns is much lower. And they don’t have to go negotiate with seven different internal department; they just say, ‘This is how it should be,’ and so that’s how they make it.”

BRANDON MAIN / CEO, XTREME MANUFACTURING, HENDERSON, NV

A leader in the rapidly emerging area of construction-module manufacturing. Main’s outfit uses shipping containers to make structures from backyard indoor gardens

to military blast shelters to multi-unit housing complexes. “On the typical construction site, there is a tremendous amount of waste and labor overlap,” says Main, whose company is approaching $100 million in annual revenues, doubling or tripling each year recently, capping off a decade of its modular approach.

HADLEY AND DANA WENDT / CO-FOUNDERS, JOUZGE, OREGON, WI

This daughter-mother team started a fast-growing maker of high-protein, low-sugar snack bars for girls that is representative of the women-led startups revolutionizing the food business—and also stands for a female-empowerment trend among makers.

Hadley Wendt insists that she began with a purpose rather than a product per se. “I wanted to build strong and confident girls from the inside out,” she says. “I wanted to give girls a healthy option that hit a taste profile for them instead of for a 42-year-old woman who puts kale in her smoothies. So we covered the bars in chocolate. Girls love chocolate.”

ANTONIO PIETRI / CEO, ASPEN TECHNOLOGY, BEDFORD, MA

The company has mastered asset-performance management software for process manufacturers.

Pietri has led AspenTech from a Nasdaq delisting 10 years ago to a new era of growth by helping customers to digitally transform their operations by leveraging the Internet of Things and machine learning.

TOM SHORMA / CEO, WCCO BELTING, WAHPETON, ND

Innovation—even in an unglamorous industry—is how Shorma has kept this 65-year-old family manufacturing business growing in diverse markets for its rubber-based products.

“Everything we do in our plant is unique, and literally no one else in the world can do what we do,” he says.

Plus, WCCO Belting braves export markets with a sales team that can speak 14 different languages. Trump’s tariffs have been a hindrance, but the company now ships to more

than 20 countries. “We’re based in a very small, rural town about as far away as you can be from ocean ports and still be in the U.S.,” Shorma says. “But we embrace global trade and innovation.”

RIC FULOP / FOUNDER & CEO, DESKTOP METAL, BOSTON, MA CLAY GUILLORY / CEO, TITAN ROBOTICS, COLORADO SPRINGS, CO

Each is a leader in the rapidly evolving world of additive manufacturing. Guillory is a young entrepreneur representative of this fast-growing ecosphere of players, in which Titan makes 3D printers and 3D prints everything from prosthetics to footwear to auto parts. “Companies are moving past incubation and putting these [printers] on the floor,” Guillory says. “It’s truly happening.”

Fulop’s company is attempting to revolutionize 3D printing of metals and counts Ford and BMW among investors. “So far, 3D printing hasn’t been an applicable technology for mass production of metal parts,” Fulop says. “We’ve developed a high-performance process that lets manufacturers take advantage of the freedom of geometry and elimination of tooling... in the future, people will manufacture for design.”

“In the past, everyone designed for manufacturing; in the future, people will manufacture for design.”

—Ric Fulop, CEO, Desktop Metal Masters

BOB PATEL / CHAIRMAN AND CEO, LYONDELLBASELL, HOUSTON, TX

The head of the $40 billion global chemical, plastics and fuel company represents the new triumph of the American oil patch, as it innovates in packaging and aims to double exports of its natural gas liquids in the next few years.

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to help other companies break the cycle of employee disengagement and disaffection by building a healthy culture through what he calls “Truly Human Leadership” (See page 64.)

“More and more companies are keen to improve the sustainability of their supply chains...”

—Laura Nador, President, CHEP North America

ANDREW INGLIS AND SARAH BAKER / CO-FOUNDERS, SILVERSIDE DETECTORS, CAMBRIDGE, MA

LAURA NADOR / PRESIDENT, CHEP NORTH AMERICA, ATLANTA, GA

The greening of the manufacturing supply chain is the sweet spot for this company that provides durable, high-quality pallets to many industries, and then transports and refurbishes them instead of trashing them. “More and more companies are keen to improve the sustainability of their supply chains, to reduce their footprint in carbon dioxide and source materials that never end up in a landfill,” Nador says.

SHARAD AND SAHIL TAK / CO-FOUNDERS, ST TISSUE, ISLE OF WIGHT, VA

The father-and-son combo is consolidating and revitalizing a commodity category—production of paper towels and toilet paper—in an industry that got old and lazy. ST Tissue refurbished or built new mills to become the cost and quality leader in supplying the market’s commercial segment, where price-competitiveness is king.

“We built a series of new mills close to suppliers and customers, and made the mills standardized so they could share parts,” Sahil Tak says. “It’s similar to the mini-mill concept in steel. It’s about costs and how you run the operation in a lean fashion, and the technology you’re using to that end.”

BOB CHAPMAN / CHAIRMAN & CEO, BARRY-WEHMILLER, ST. LOUIS, MO

The company is a highly diversified industrial manufacturer and an agglomeration of more than 100 acquisitions. But Chapman’s biggest contribution is speaking and consulting to try

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They make arguably some of the most important equipment in America: radiation monitors that detect radiological and nuclear threats entering the U.S. Yet, they’re not running a multibillion-dollar defense contractor. A seven-year-old startup stemming from the minds of whiz kids, Silverside represents some of the best fruit of America’s growing movement of manufacturing incubators, the rising implementation of 3D printing and a penchant for vertical integration right down to subjecting these crucial national security devices to extreme temperatures in the company’s own testing area.

ANDY ROMJUE / PRESIDENT, HOFFMASTER GROUP, FORT WAYNE, IN

The paper-straw business is going crazy because American consumers now hate single-use plastic waste, and Hoffmaster snapped up the Aardvark paper-straw brand—America’s largest—last year so that it could ramp up production rapidly to take advantage of the soaring market.

“There’s been a flurry of demand with plastic-straw bans and with people looking for alternative options,” Romjue says. “As that expands, and more cities announce bans and the movement spreads [around the world], we will be able to add capacity commensurate with the demand increase.”

Leader. Creator.

Visionary.

Congratulations, Arne Sorenson, for being named CEO of the Year. Your leadership and unwavering efforts to expand the world and open doors through travel inspires us all.

Š 2019 JPMorgan Chase & Co.

ROOSEVELT HAD CHURCHILL

WHO DO YOU HAVE? CNEXT matches the world’s most successful former CEOs with today’s top executives to solve critical challenges

LEADERS HELPING LEADERS

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in partnership with Chief Executive

FA M ILY & CAR E E R

Life-work balance is tough enough for dualcareer families, but what about when both spouses are corporate leaders? One couple that made it work shares their secrets for success.

DOUBLING DOWN

BY ILENE S. GORDON AND BRAM BLUESTEIN Ilene S. Gordon served as CEO, president and chairman of Ingredion and was the 21st female CEO of a Fortune 500 company.

She now serves as an independent director of the board of Lockheed Martin and International Paper.

Bram Bluestein is founder of Bluestein & Associates and a senior advisor at McNally Capital, after a 35-year career as a management consultant at Booz Allen Hamilton, A.T. Kearney and the Boston Consulting Group.

Bram retired as a senior partner from both Booz Allen Hamilton and A.T. Kearney.

C

ouples juggling two careers are now the norm—they make up 60 percent of couples in the U.S., and two-thirds of couples in Canada and the UK. Being in the majority, of course, doesn’t make it any easier to pull off.

Many are essentially winging it. Especially once they have children, couples often negotiate career decisions and work-life balance in response to short-term pressures rather than stepping back and constructing a sustainable framework for their lives. Some of those decisions cause later regrets, whether one partner or the other gave up too much time with the children or too much lifetime earning power.

Certainly, there is still a lot that companies could do to ease the stresses and burdens of dual-career family life. But couples themselves—especially those, like us, where both partners are in corporate leadership roles—

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can also take on some trailblazing responsibility in charting this path, discovering how to maintain a balance that works for them and how to ask for what they need.

To be sure, our exact experience is hardly common—Ilene ultimately became CEO of a Fortune 500 company, and Bram has held senior leadership positions at top consulting firms. The number of women who are CEOs of Fortune 500 companies peaked in 2017 at 32, or 6.4 percent. Last year, that number dropped by 25 percent, to 24. Women hold only 19.2 percent of board seats at companies in the S&P 500.

But if our exact situation is unusual, the experience of having both partners pursuing high-powered careers and trying to enjoy a successful marriage while raising a family is not. Some might wonder if that’s even possible. Women are usually the ones expected to make trade-offs between career and family.

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The data overwhelmingly shows that you need to have a supportive partner in order to achieve great success.

Yet, clearly, it can be done—we’re just one example. We’ve been married four decades and raised two children. In our experience, it requires focus, knowing when to be flexible, when to be rigid and what to prioritize.

Chief Executive asked us to look back over how we managed to successfully navigate marriage, careers and family, and share what worked. We hope it helps.

Marry the right person. Certainly, this may be easier said than done, but nothing is more vital. The right partner lays the foundation for everything that follows. Spouses must be highly supportive of each other’s careers and celebrate each other’s successes.

The data overwhelmingly shows that you need to have a supportive partner in order to achieve great success. But finding it on both sides, male and female, is challenging.

Especially because a lot of men aren’t willing to make trade-offs or sacrifices with their careers to support their spouse’s career.

Shared values. Of course, it’s crucial to share a set of values and really connect with each other. We first met at work, at Boston Consulting Group (BCG). When Ilene joined the firm in Boston, Bram was based in South Africa, so we didn’t get to know each other until a year later.

The people at BCG who had gotten to know us saw similarities. We were both outgoing, smart, ambitious, very professional— and adventurous. They were placing bets on how long it would take for us to become an item. Once we met, it took all of 30 days before we started going out.

We both grew up in families with strong, successful women and men. Ilene’s father was a CPA, and he’d ask Ilene to help him with work he took home. Her mother

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instilled the habit of serious planning. She would ask her in January, “What are you going to do this summer? You can’t just sit around for three months.” Ilene thought she’d be a high school math teacher, but then she got into MIT, and her father encouraged her to go. At MIT, where she got her degree in mathematics, she met women—fellow students—who became her role models.

Bram’s entrepreneurial education started early. His dad was an estate attorney and had a lot of checkbooks because he maintained estate accounts for people. Bram was taught to balance a checkbook and draw his allowance using one. His grandfather grew vegetables on his property, so Bram would sell tomatoes out of a wagon, going door to door.

Bram’s mother, meanwhile, was working for the National Opinion Research Center as an interviewer and project manager.

Non-competing careers. It’s very important to be able to celebrate each other’s success without any jealousy. This is easiest when you don’t have competing careers. One approach would be to work in complementary industries, like consulting and the corporate world, which is what we did. Another approach would be to work in completely different professions, so direct competition becomes impossible to gauge—say, business versus medicine or science. In our case, we chose the former, but it was easier not to compete because Bram is five years older, so he was always one level ahead.

Find a city where both careers can thrive. When we started dating, BCG was still a small firm with only a few offices.

They were encouraging more people to go to Europe, and Bram had just returned from South Africa. So, we both put in for London.

They were happy to get anybody who would get on an airplane and sell all their belongings and move there. So, we did. And that’s how we ended up in London together.

We’ve lived in Chicago for decades because it works for us both. It’s essential to live somewhere that presents equal opportunities for both partners. You want both careers to thrive. You don’t want either spouse to have to basically sacrifice career-wise because of the

city in which you live. There have been times when one of us turned down a promotion that would have meant moving to a smaller city that was lacking in opportunities for the other spouse.

Build a great support system. We believe in outsourcing everything you can. Hire lots of help for the kids and household jobs. The choices we made won’t be right for everyone, and these days there are many more options available. But we recommend a nanny— we’ve watched a lot of people struggle with daycare and who’s picking the kids up.

Because Bram was a consultant and always traveling, Ilene called herself a single mother, and said, “We need a live-in nanny.”

That way, she never had to worry about being home at 6 p.m. She could travel. She didn’t have to check with anybody. We found someone who lived in Monday through Friday. (A nanny needs weekends off or she’ll burn out. Also, we believe you can have only one set of parents at a time, and, on the weekends, we were the parents.)

We arranged to have a different sitter on weekends for our date night. She would stay over Friday night to Sunday morning and do chores like laundry, so we were free to run around with the kids during the day. Then, we were on our own Sunday.

Establish rules to ensure a work-life balance. Bram would often come home Friday night at 6 p.m. and say, “I have to leave Sunday at 4 p.m. to be at a client meeting Monday morning.” Ilene instinctively knew that the family needed 48 hours or two full

days to have a real weekend.

And so, we put in this 48-hour rule: On weekends, you had to be home 48 hours before leaving on another business trip. If somebody was close to violating it, you’d have to ask the other person, “Do you mind?” Some of Bram’s clients used to set meetings Monday morning at 8 a.m., which would mean leaving Sunday night instead of catching an early flight Monday.

When they’d ask him to be there for an 8 a.m. meeting, he’d say, “You really don’t want to ask me to do that because then I’m going to violate the 48-hour rule,” and he’d explain what it stood for. Every one of them would at least say, “I can wait an extra hour, it’s not that important.” So, people respect it if you ask, if you explain it to them.

A lot of people complain about companies, the glass ceiling and the culture. But we were boldly going there. It seems millennials want companies to create a supportive environment. They don’t want to have to ask. We always asked, and everybody was supportive. If it works for the couple, then the company will support it.

Sunday nights became our family meeting nights. Every Sunday, we’d meet as a family and go over the plan for the week, who had what conference, who had what project.

We’d cook dinner, and we’d all sit down.

We’d plan the kids’ homework, so they wouldn’t end up having a big project due on Monday and start it on Sunday. They had to start it a month before. So, we would instill this planning, what are your projects, how are you going to plan for them? Of course, we always had a special dessert. The kids

Family valued: Ilene and Bram on their wedding day in April, 1979 and with their kids, Andrew and Emily, in 1988 and 2018.

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There is more potential for conflict because work-life balance issues can add another layer of disagreements. would go through the meeting and then get a cupcake, so they loved it. And that’s what they remember from it.

Advocate for each other and celebrate each other’s successes. This may seem obvious to some, but people frequently overlook it. For example, when we attended each other’s business events, we’d assume different personas as appropriate. If Bram was attending one of Ilene’s business functions as her husband, he would go as “Mr. Gordon.” The idea was that his role was not talking about his work but about hers; same thing the other way around. It was not about being at the event with each other but for each other—check your ego at the door.

In fact, we were interviewed recently by an ex-McKinsey consultant now working in academia. His wife was also in academia, and she was getting an award. He had planned to do something work-related that night. And when he heard this rule, he changed his plan and decided to be there for her instead.

Take vacations with the kids, someplace where the entire family will have a great time. We took every one of our vacations with our kids. Occasionally, we went away alone, if we had a business meeting, but not on vacation. We loved Club Med for family vacations, because they were pioneers in terms of being kid-friendly and having built-in babysitting.

Now, many hotels have kids’ clubs and such, but back then, it set Club Med apart.

Set a date night and keep it sacred. This is especially important when a couple travels a lot. In 40 years, the number of Saturday nights we’ve been apart is fewer than 10.

Once Bram had to be at a partner meeting in Colorado Springs, and Ilene flew out there,

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even though spouses weren’t included. Of course, she didn’t attend any of the business meetings or functions, but we were together afterwards.

Communicate often, every day, and set priorities together. Ilene spent three years based in Paris, so we had to deal with the seven-hour time difference. But we figured out how to touch base about what was happening four or five times a day. Good, frequent communication is a big help for everybody, no matter what you’re doing, so you never have to catch up.

In fact, as Bram likes to say, never go into a “cold house.” He developed this routine when coming home from a business trip. As soon as he landed and climbed into the car, he’d call. We’d get engaged in the conversation, and it made the ride home go faster for him. He’d pull into the driveway as quietly as possible. And then, Ilene would ask a question, and Bram would say, “Do you mind if I come inside and answer that in person? I’ve been sitting here for 15 minutes.” So, he’d walk in and we’d have a good laugh. And we’d feel that we had already caught up.

Never go to bed angry or until the issues have been addressed, or set a time to address them. There’s conflict in any relationship. In case of two working spouses, there is more potential for conflict because work-life balance issues can add another layer of disagreements. Until we had all the rules, there was a lot of conflict. So Ilene would say, “I know we’re angry, let’s kiss and go to sleep and we’ll figure it out tomorrow.”

But it was important to acknowledge that there was a conflict, not just go into another room. It gets you to resolve conflict as quickly as possible and not let it linger.

Never lose your sense of humor. This is critical for a healthy relationship. There will inevitably be rough times and various family crises, and nothing helps to see each other through these more than humor. Don’t take yourself too seriously. You have to be able to poke fun at yourself and at each other. If you ever lose your sense of humor, then you know you’ve got to rebalance everything.

Mastercard congratulates Arne Sorenson on receiving the 2019 CEO of the Year award.

Mastercard is proud to work with Arne Sorenson and his team around the world.

Mastercard and Priceless are registered trademarks, and the circles design is a trademark, of Mastercard International Incorporated. Š2019 Mastercard. All rights reserved.

SM A RT M A NU FACTUR I NG SU MMIT

THINK BIG, START SMALL

For mid-size manufacturers, the task of adapting to transformative technologies is best tackled bite by bite.

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ID-SIZE MANUFACTURERS across America are facing the twin imperatives of digitizing their enterprises and of ensuring they have enough qualified workers onboard to run everything.

But as they deal with these two vast undertakings, here’s an approach that could help: Start small and try something.

That was one of the overriding messages at the Chief Executive Smart Manufacturing Summit in Dallas recently. Attendees learned about big-company digital initiatives such as Siemens’s investment of $10 billion largely so the Germany-based industrial giant could construct “digital twins” of its manufacturing plants and supply chains before making physical investments. And they heard tales of wholesale human-capital revolution at huge companies such as American Airlines.

Even mid-size manufacturers shouldn’t be daunted by the seeming enormity of the tasks in front of them. Raj Batra, president of Siemens Digital Industries, urged companies to “get ahead of the curve” noting, “The key is to start small: You can simulate automation systems by connecting your assets to the cloud for a few hundred dollars.”

“Don’t do wholesale changes,” agreed David Farr, CEO of Emerson Electric, an $18 billion engineering-services company based in Ferguson, Missouri.

“The best solutions aren’t necessarily the biggest ones, but the ones that work for your needs.”

In 3D printing, for instance, Lou Rassey, CEO of Chicago’s Fast Radius suggests foregoing entirely new products

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in favor of something smaller “to get the flywheel turning. Getting those at-bats makes all the difference.”

The same goes for improving culture and employee engagement. Cambridge Engineering’s transformation began five Emerson Electric’s David Farr (top left) and Siemens Digital years ago with a list Industries’s Raj Batra (above) of 157 projects, “none advised leaning into the learngetting accomplished,” ing curve. recounted Marc Braun, president of the maker of industrial HVAC equipment in Chesterfield, Missouri.

So the company focused on just one goal—completing its budget on time. “We found that when we executed one thing at a time and did it well, every time we could knock out anything,” Braun said.

And keep trying. “Stick to it,” said Jim Radous, CEO of forklift manufacturer UniCarriers Americas, based in Marengo, Illinois.

Farr also urged manufacturers to look for opportunities emerging under President Trump’s America-first policies. “Maybe you were kicked out when we off-shored....

You need to strike quick and get in the door again.”

NEW TECHNOLOGY WITHOUT TEARS IT’S NEARLY IMPOSSIBLE FOR manufacturers to implement important new technology without tears along the way. Jim Radous, CEO of UniCarriers Americas, and Sue Hwang, COO of Hollman, shared ways to cut Kleenex usage.

Irving, Texas-based Hollman has been undergoing a huge transition from a commodity supplier of lockers for sports teams and manufacturing plants to a provider of design-oriented, high-end, complex and extremely customized locker systems for marquee clients including the Dallas Mavericks of the NBA and corporations ranging from AT&T to Apple.

Revenues have surged, but Hollman’s transition has involved messy ERP adoption and other bumps in the road from its embrace of customization.

UniCarriers manufactures and supports a complete line of forklifts and other material-handling equipment that is known for reliability, high productivity and low operating costs. Competing on an international scale, UniCarriers emphasizes customization as a huge advantage over rivals.

The 600-employee company had to undergo its own huge ERP conversion, a wrenching process complicated by the abrupt departure of Radous’s predecessor—who had ordered the change.

Hwang and Radous shared four lessons for leading a manufacturing enterprise through such wrenching technology transitions: Radous: “Lead from the top. It has to be an all-company effort, but the leaders need to get buy-in and support.”

Hwang: “Find key [employees who are] drivers and influencers at each level, who are

doing the work and have the vision for how to do it better and more efficiently.”

Radous: “We’ve been working closely with community colleges on apprenticeship programs, for new kinds of technicians. We’re grooving our own flow of graduates.”

Hwang: “Communicate constant reminders [of your goals]. There can be dips in the valley or even despair when you realize the work and tasks involved. But you have to get people out of there.”

Top: Chief Executive’s Dan Bigman, Hollman’s Sue Hwang and UniCarriers America’s Jim Radous; Bottom: Summit attendees

Smart Manufacturing Summit attendees got an up-close look at cutting edge 3D printing technologies at the Additive Manufacturing Lab at the University of North Texas. Then they heard an in-depth chalk talk by Plant Manager Chris Davis and received a personal tour of the massive Peterbilt Motors truck-cab assembly facility in Denton, Texas.

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FROM ST. LOUIS WITH LOVE IN A WORLD WHERE THEY’RE PUSHING the boundaries of human capital for every advantage—and actual humans are hard to come by—most manufacturers still have unmotivated workforces.

Bob Chapman is on a crusade to change that with his “Truly Human Leadership” platform.

An arm of the company he runs, Barry-Wehmiller, a St. Louis-based, $3 billion diversified manufacturer, consults with companies to help engage their employees.

“Business is where people spend most of their life,” Chapman said. “It could be the most powerful force for good in the world if we cared as much about people as numbers.”

At his company, for instance, “79 percent of our people feel we care for them,” Chapman said,

after Barry-Wehmiller applied simple principles such as managers emphasizing listening, and recognizing and celebrating employee contributions and personal milestones. One mid-market manufacturer client, Liberty Industries, a trailer maker in Fillmore, Indiana, reduced turnover by 39 percent.

Meanwhile, also in metro St. Louis, Cambridge Engineering has spent the last five years overhauling its culture so that “every single employee is engaged every single day,” said Marc Braun, the company’s president. The results have included 13 percent annual growth over that period.

Braun and founder and CEO John Kramer started with a mandatory 15-minute morning meeting that is led by volunteers from among the 140-person workforce. They stretch, talk about quality and safety and other metrics of the business—and then take time for “Grateful Appreciation,” during which a handful of people share from their professional and personal lives.

“When people are grateful for something bigger than themselves, it’s a simple technique that changes the way we do business,” Braun said. “When you celebrate employees every single day, you can build a culture of courage.”

From top: Barry-Wehmiller’s Bob Chapman; Cambridge Engineering’s Marc Braun; Summit participants

ADDITIVE MANUFACTURING: NOT JUST INCREMENTAL FAST RADIUS’S LOU RASSEY and Scott Parent, vice president of enterprise engineering and technology for Baker Hughes, the Houston-based maker of oil-field products, probed the promise and practicalities of additive manufacturing and 3D printing.

While these disciplines already are “good enough or better than legacy production methods like injection molding or CNC machining,” Rassey observed, Parent said that additive advocates now seek to change “the future of design in manufacturing.”

Tapping 3D printing for “virtual inventory” is one cutting-edge application. Fast Radius has a partnership with UPS to explore digital manufacturing of parts wherever they’re needed instead of having them shipped from

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somewhere else in the world.

And Baker Hughes can replace drill bits anywhere with specific properties customized to the local geology. “Folks in the field now can look at the worn bit, tie it to the operation and how it performed on the rig, and to vibration and wear patterns—and with an algorithm and A.I. print a new part within a day—in Saudi Arabia, not Houston,” Parent said. “That’s three days, not three months.”

Fast Radius’s Lou Rassey and Baker Hughes’s Scott Parent

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MAN AND MACHINE— NOT MAN VS. MACHINE

People—finding, onboarding and keeping them—may be the single biggest technology challenge facing manufacturing companies today.

Some insights. BY DALE BUSS MANUFACTURERS MAY BE NEARING the ultimate primacy of maker machines.

But that era won’t arrive without human collaborators, because there’s still no technological substitute for the experience, ingenuity and adaptability of the men and women who work in America’s fast-evolving factories.

Sophisticated technologies such as A.I., the IoT and Big Data are disrupting practically every industry these days. Yet, a more urgent concern for most mid-size manufacturers is

IEDC is really connecting with community colleges and technical schools to figure out that talent pipeline.”

—Elaine Bedel, Indiana Economic Development Corporation

having enough human makers to run the new stuff, agreed business leaders gathered for a Chief Executive roundtable cosponsored by the Indiana Economic Development Corporation (IEDC).

“There’s got to be a mindset change in manufacturing today to opportunity and innovation,” said Brad Rhorer, senior talent programs officer for Conexus Indiana, a not-for-profit organization promoting advanced manufacturing and logistics in the state. Manufacturing workers “aren’t just welders any more. There are all these

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technologies and so many things they can do with them.”

Sparse Labor Getting Sparser

Manufacturers face two huge obstacles in that regard: a sparse labor market and the retirements of their most experienced workers. Many are retraining workers to harness the new technologies that will keep their companies in business. But first they had to sell employees on automation.

“We said that no one would lose their jobs through automation,” said Nick Santoleri, COO of Rockline Industries, maker of coffee filters and wet wipes. “We would do it through attrition, reskilling and training. You do that instead of letting equity go. No one believes it, of course. Then you walk the talk and you continue to put all of your investment in training and retraining of the workforce.”

Derrick, a maker of slurry separators and other solids-control equipment, wanted to multiply its 10 robots to automate more painting and assembly. “We explained we had to be competitive,” said Tom Silvestrini, executive vice president. “By doing this we were going to grow the company. But we created our new department for robots out of six guys, including four former welders, who are designing the next generation of fixturing for them.”

Another challenge has been figuring out how to transfer the priceless institutional knowledge of internal processes, operations and factory-floor hacks of upcoming retirees.

“We experienced that in the tool room,” said Jeff Waechter, CEO of Wegmann Automotive, a maker of wheel-balance weights. “The folks there were pretty senior. So we started

an apprenticeship program, and they took to teaching the younger guys. But it also worked the other way. It was a huge success.”

Yet, many companies still face a dearth of skilled senior workers, such as Schleifring Medical Systems, a medical-equipment manufacturer. “The equipment we have is technical, and the problem we have is when we bring in new people, they don’t understand machining or materials or cutting tools,” explained CEO Mark Swisher. “We offer [high wages], but that doesn’t mean they come.”

Addressing Absenteeism

Many manufacturers also struggle to get employees to show up on time—or at all. “But you can’t drop your standards or expectations because when you do that for one or two people, then you’ve lowered the standard for other people as well,” said Matt Jones, Wegmann’s vice president of operations.

Such challenges are leading CEOs to cast their recruitment nets ever wider. MPW, a provider of industrial-cleaning equipment and services, hired a handful of people out of halfway houses and also seeks potential employees with language barriers. “These are pools that have talent, will be loyal and work hard for you if you’re willing to deal with some of the issues,” said Jared Black, president.

Indiana has helped widen the pipeline in various ways, including a pilot program to train female ex-convicts for welding jobs, and an initiative called Invets that helps fresh military veterans find and train for manufacturing jobs—and nixes state taxes on veterans’ pensions.

Governor Eric Holcomb also established a “workforce cabinet to create the right education and put in place a system where, if you graduate from high school in our state, you’re employable,” said Elaine Bedel, president of the IEDC. The state is also working with community colleges and technical schools to fill the talent pipeline and helping manufacturers expand paid high-school internships.

Demonstrating that factories aren’t the dirty, backward workplaces of the past is another way manufacturers are working to lure talent. In Elkhart, Indiana, local employers sponsor a “manufacturing day” to

expose kids as young as eighth grade to tech-enabled facilities. Wellsville, Pennsylvania-basePennex Aluminum distributes information about jobs and salaries to middleschoolers and their parents.

And Wegmann is helping create a new tool-and-die-making class at its local high school in Tennessee.

Accessing Ambition

Keeping current workers on track is equally critical. Some employers are trying tough love tactics. Rite-Hite Products established a 90-day probation period that checks new workers weekly on metrics such as quality and attention to detail. “If they’re not making progress toward that, we have to cut them loose,” said Pat Ginn, director of manufacturing for the maker of loading-dock equipment.

Others encourage workers to envision themselves as leaders. Allied Mineral Products worked with a community college to create a course of training on the company’s equipment and processes. “It also gave us a carrot with [workers] to say, ‘Show us you want to be a leader and we’ll put you through this program and advance your knowledge and skills,’” said Andy Ferguson, plant-engineering manager for the company. “Younger folks especially were all over it, and it’s helped us to identify some good potential leaders.”

MPW celebrates and promotes managers who specifically “develop people beneath then and promote from within,” Black said. And Heraeus Medical Components has launched an internal executive-leadership program that includes internal mentoring, “It gives people a chance to partner with colleagues in the course of their work,” said Tamara Longsdorf, quality director. Efficiency is key, she said, “so you don’t have to dedicate a lot of time each week to the program.”

There’s got to be a mindset change in manufacturing today to opportunity and innovation.”

—Brad Rhorer, Conexus Indiana

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EC O N O M IC D E VE LOPME NT

REGIONAL REPORT

THE WEST Innovation and technology are driving some of the nation’s fastest-growing state economies. BY CRAIG GUILLOT FROM THE THRIVING “micropolitan” success stories of Montana to the new cryptocurrency legislation in Wyoming, Western towns are landing a new foot on the national stage. For the second year in a row, Idaho has been named the fastest-growing state in the country, and Nevada recently led the nation in income growth. Meanwhile, in California and Washington, industries are finding new opportunities in sustainability and mitigating climate change.

NO. 6* NEVADA

*No. ranking in the 2019 Chief Executive Best & Worst States for Business (ChiefExecutive.net/2019Best-Worst-States)

THE JACKPOT OF DIVERSIFICATION Fueled by advanced manufacturing in the north near Reno and a surge of new investments in the south near Las Vegas, Nevada is finally returning to its pre-recession growth rate. The Bureau of Economic Analysis reports the state led the nation in personal income growth in Q3 2018.

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There is more than $10 billion in new investment and construction underway in the Las Vegas area alone, including the $1.8 billion Raiders stadium and the 3,400room Resorts World set to open next year.

Construction of the Tesla Gigafactory near Reno is now roughly a third complete and is projected to have 20,000 employees when finished. The Tahoe-Reno Industrial Center has grown to be the largest industrial park in the world with more than 15,000 acres.

Nevada’s continued growth in new jobs and economic activity is attracting an estimated 5,000 new residents every month, says Kris Sanchez, interim executive director of the Nevada Governor’s Office of Economic Development. Project Neon, a $1 billion infrastructure and interstate upgrade in the Las Vegas area, is also nearing completion and is estimated to reduce commute time in the region by 30 percent

NEVADA The $1.8 million Las Vegas Stadium in Paradise, Nevada, is expected to open in time for the 2020 NFL season.

for many workers.

“There’s a lot happening in Nevada and it’s all helping build a more diversified economy,” Sanchez says.

The focus is now on continuing the economic momentum by enabling and helping small businesses grow. Part of that strategy is to use the State Trade Expansion Program (STEP) grant administered by the SBA to support the expansion of Nevada small businesses into export markets. They will not only diversify the state’s economy but help make it more resilient against recessions, Sanchez says. Last year, the state also launched the Nevada Global program, an ecosystem and clearing house to attract international businesses. The group made its first recruiting trip to Poland in June and is now looking to Japan, Korea, Taiwan and other EU states.

NO. 14 WYOMING EDUCATION AND INNOVATION IN THE COWBOY STATE Wyoming is driving its economy with education and innovation. Last year, former Gov. Matt Mead signed an executive order outlining goals of 67 percent of residents holding a post-secondary certificate by 2025, and 82 percent by 2040. This past spring, the legislature passed the Boot UP Wyoming 2022 initiative to add computer science to the core curriculum for the K-12 system. In addition, the Hathaway Scholarship program has also been expanded to include technical career training and to better align with industry needs.

“There’s a lot of work going on right now to figure out how we can tie in with what industry needs, not just immediately but in the long term as well,” says Shawn Reese, CEO of the Wyoming Business Council.

The Council is also working hard to activate some of the underrepresented sectors in the state, such as healthcare, information technology and advanced manufacturing,

Reese says. Part of that effort puts more time and money to develop startups and entrepreneurial ecosystems. The Council is working with the University of Wyoming, which hosted the third annual UW Entrepreneurship Summit in March.

The state is also backing up its commitment to entrepreneurship with incentives.

The new Kickstart: Wyoming grants offer up to $50,000 to innovative startups with high growth potential and massively scalable products or services, and the SBIR matching program offers up to $200,000 to companies that received federal research dollars through the SBIR grant program. So far, Wyoming has offered $1.3 million to 21 companies that have 65 management team members and project 157 new jobs in the next three years.

“We’re really trying to market Wyoming to individuals as a place to develop companies in these new economic sectors and in some respects our strategy is moving away from companies to people,” Reese says.

Adding to last years’ passage of House Bill 70, which exempts specific cryptocurrencies from state money transmission laws, 13 new bills have made it the only state with a clear legal framework for blockchain technologies and cryptocurrencies to operate. Blockchain company ActiveAether announced relocation of its headquarters from New York to Jackson, and Cardano is preparing to move its home base from Hong Kong to Wyoming.

WYOMING Host of the annual UW Entrepreneurship Summit, the University of Wyoming works with the state’s Business Council to foster startups.

NO. 19 IDAHO GROWTH IN THE GEM STATE In December 2018, the Census Bureau officially named Idaho the fastest-growing state in the country for the second year in a row. The Gem State’s population grew by 2.1 percent between July 2017 and July 2018, and has grown a total of 12 percent since 2010, putting it on track to break 2 million

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MONTANA Plans to combat wildfire risk by harvesting timber are expected to give the state’s natural resources industry a boost.

residents by 2025. The influx of residents is being fueled by economic growth and new jobs with a high quality of life in the area, says Tom Kealey, director at the Idaho Department of Commerce.

“The economy is good. The weather is good. The recreational opportunities are accessible and not crowded… It’s easy to do business here,” Kealey says.

The state’s economic momentum is making it easier for CEOs to set up shop and for transplants to return home. Two of the founders of Clearwater Analytics who grew up in the area came back from New York and Chicago to Boise in recent years, Kealey. Albertson’s announced in March its new CEO will move to Boise, and fintech company Kount is doubling down and expanding its headquarters in the city.

Gov. Brad Little, who was sworn into office in January 2019, previously served as Lieutenant Governor since 2009 and focused heavily on economic development.

Tourism continues to grow. Part of his mission now is to use natural attractions and quality of life to draw students back home and to attract CEOs, many of whom already have second homes in the Sun Valley, McCall or Coeur d’Alene areas.

“People come here and say, ‘Why do I have to keep traveling here for vacation? Why can’t I live and work here as well?’” Kealey says.

NO. 27 MONTANA TECH AND NATURAL RESOURCES Natural resources are making a comeback in Big Sky Country, says Bridger Mah-

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lum, government relations director at the Montana Chamber of Commerce. While the state’s forestry industry has declined in the past couple of decades, the U.S. Forest Service is aiming to significantly increase timber harvest in some areas to reduce the risk of wildfires. The Montana Forest Action Advisory Council is assessing the land and is set to create a plan by 2020 that will identify areas in need of management.

Some mining has also been coming back.

According to a study by the University of Montana Bureau of Business and Economic Research, hard rock mining supports more than 12,000 permanent jobs with average earning of $86,030.

“Despite some of the rhetoric that it’s fading away, we’re starting to see good forest management again and some growth in the natural resources industries,” Mahlum says.

This year, Montana also passed House Bill 52, which reauthorized the state’s integrated economic development plans until 2027. It included funding and grant programs for technical assistance, small business development centers, regional development corporations, export trade programs and the Montana Manufacturing Extension Center at MSU. While the state may have a small population with small cities, it continues to make a big name for itself in tech. Research firm Policom analyzed 551 micropolitan statistical areas with populations under 50,000 and ranked Bozeman No. 1 and Kalispell No. 14 for economic growth. While many of the companies in the state may not be household names, the volume and growth generated more than $2 billion in revenues in 2018, according to the state Bureau of Economic Research. The rapidly growing Montana High Tech Business Alliance now has more than 370 member firms.

“High tech has been booming here.

Venture capital firms have had more of a presence in the state, and they’re investing in some of these startups,” Mahlum says.

New efforts are also aiming to position Montana as a natural, yet connected, place where entrepreneurs, remote workers and techies can enjoy professional and econom-

ic opportunity along with low costs, high quality of life and access to the outdoors.

Last year, the state launched Make Montana Home, a website and initiative to bring native Montanans back home and to recruit young talent to the region.

years, while the Washington Clean Energy Transformation Act will drive a 100 percent clean energy grid by 2045. The state’s clean energy economy is already growing twice and fast of the rest of the economy, especially in rural areas, Brown says.

NO. 43 WASHINGTON

NO. 44 OREGON

ECONOMIC OPPORTUNITY IN COMBATING CLIMATE CHANGE As the Evergreen State strives to address climate change, it’s discovering new opportunities and making “decarbonization” a key part of economic development strategies across multiple sectors, says Lisa Brown, director of the Washington State Department of Commerce.

One such example is harvesting what was previously unusable timber to manufacture crosslaminated timber (CLT). In December 2018, the Washington State Building Code Council enacted code changes that made it the first state in the nation to allow buildings as tall as 18 stories to be constructed from the material. As strong as steel, crosslaminated timber is already popular in Europe, and a report by Researchandmarkets.com forecasts annual industry growth of 13 percent through 2024.

“It creates jobs, economic development, it’s a sustainable building material that helps our economy, and it improves forest health by harvesting what was not formerly harvest grade timber,” Brown says.

The state is also generating economic opportunity through climate change mitigation in the shipping industry and ocean economy. Washington Maritime Blue, the state’s maritime sustainability strategy, aims to create the country’s most sustainable maritime industry by 2050 through innovation in electric ferries and sustainable port and shipping development.

The initiative has attracted the interest of seafaring countries, and, at the May 2019 Nordic Innovation in Seattle, Washington and Norway signed a memorandum of understanding with shared economic and environmental goals.

Clean energy and climate legislation will cut the state’s annual greenhouse gas emissions by 14 million metric tons in the next 15

NEW CAPITAL IN THE BEAVER STATE Last year, Greater Portland Inc. helped recruit more than 10 new companies to the region, with 1,300 jobs and $74 million in added income. An influx of talent from neighboring high-cost cities and growth in the software industry are fueling new levels of innovation in Portland, says Matt Miller, interim president and CEO of Greater Portland. Venture capital is also on the rise, and

in 2018 the Portland MSA received $519 million in investment across 96 deals.

“The VCs are really starting to acknowledge this is a place that is growing in the software realm. We were starting from a low base, but we’re seeing fast growth,” says Miller.

Intel recently announced an expansion at a new Hillsboro factory that could add more than 1,000 jobs. Synthetic diamond manufacturer Element Six is planning a $94 million advanced manufacturing facility in Gresham, while Genetech is expanding a new office space in Portland’s Lloyd District.

Cryptocurrency platform Coinbase revealed in June 2018 it would open an office in Portland with as many as 100 workers.

Tina Bhatnagar, VP of operations and technology at Coinbase, said in a press release that the move would enable the company to tap into the “incredibly talented, innovative

OREGON Daimler Trucks plans to produce electric trucks in Portland, which will host the World Electronic Vehicle Symposium in 2020.

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CALIFORNIA Headquartered in Hawthorne, commercial space travel company SpaceX is helping to drive the state’s thriving aerospace sector.

open-source and blockchain communities” in the city.

There’s also growth in the electric vehicle industry. Portland is set to host the World Electric Vehicle Symposium next year, and Daimler Trucks North America will start the production of electric Freightliner trucks in the city in 2021. “We’ve seen a number of other small and medium-sized companies in the space in the pipeline and we’re working with a handful of them right now,” Miller says.

One challenge Portland now faces is rising housing costs. Last year, home sales figures crossed into “unaffordable” territory, according the National Association of Realtors’ formula where a family earning the median family income would struggle to make monthly payments. “Policymakers are keenly focused on how we address affordability before we get to the point where we turn into a Seattle or San Francisco,” Miller says.

NO. 50 CALIFORNIA

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

RIDING THE WAVE OF CLEAN ENERGY The Golden State’s ambitious drive towards clean energy is baring more economic fruit.

The SB-100 California Renewables Portfolio Standard Program, which requires that all utility companies have 100 percent renewable energy by 2045, is fueling the renewables sector in Los Angeles County.

Research and development in solar and battery power is also ramping up as startups look for ways to help the state move to renewables, says Lawren Markle, director

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of public relations for the Los Angeles Economic Development Corporation.

“It’s a good time to be in California if you’re in that industry because there’s such a demand for it, especially on the storage side,” Markle says. “There’s a robust forecast for all kinds of innovation and implementation work across a wide slot of occupations, most of which are well paying jobs.”

Aerospace is also “running on all eight cylinders” in the region, Markle says, with more than 50,000 workers employed in the sector at the SoCal Aerospace Industry Cluster. And as the city prepares to host the 2028 Olympics, new infrastructure projects will also spur new economic activity and opportunities. The Twenty-Eight by ’28 initiative aims to complete 28 infrastructure projects by 2028, including light rail, new rapid bus lines, Interstate 5 enhancements, new express lanes and things to improve traffic flow in the area.

Foreign investment remains a strong economic driver with more than 10,000 foreign-owned firms employing over 425,000 workers, but it has declined in the past year, Markle says. Part of this may be attributed to Washington’s stance towards international partners and the perception of increased uncertainty and risk, Markle says. “Many have a wait and see attitude, but I think L.A. County is well positioned relative to the rest of the country because people know we are an international city, and there is a large international business community here,” Markle says.

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P L A N E ADVANTAG E A change in the tax code gives business executives even more reasons to explore new and used plane purchases.

FLIGHT TIME If you’ve always wanted a jet, now may be your best window for buying.

BY DALE BUSS

TIMING IS EVERYTHING—particularly when it comes to deducting big-ticket purchases against your tax bill. And, thanks to the biggest tax overhaul in decades, the time is ripe for would-be jet buyers to start seriously shopping. Part of the Trump Administration’s Tax Cuts and Jobs Act of 2017 entailed the revival of a huge benefit of 100 percent “bonus depreciation,” enabling aircraft buyers to potentially write off the full purchase price of a new or used private jet.

“If you meet the requirements and buy a plane, regardless of the dollar amount, now you can write off everything instead of doing it over many years without any specific limits,” explains Jeffrey Palley, partner at accounting firm Anchin, Block & Anchin. “Based on the time value of money—and the fact that people want all deductions currently—you’re generally better off taking the whole deduction today.”

Let’s say an S Corporation makes $5

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million of ordinary income in 2019 and purchases a $2 million aircraft this year to travel among multiple cities. If the aircraft is eligible for 100 percent bonus depreciation, the company would issue a federal tax Form K-1 to the sole owner or stockholder, who may then deduct $2 million on his tax return for the 2019 tax year. At a 37 percent tax rate, the highest under the tax reform act of 2017, the owner can effectively reduce such taxable income by up to $2 million to a net taxable income of $3 million. That yields a tax savings of about $740,000.

“This was never allowed before,” says Janine Iannarelli, founder and president of Houston-based Par Avion, an aircraft broker.

“You could use straight-line depreciation methodology, but it was never accelerated.”

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Taking time savings, comfort and productivity into account, private aviation is an economical alternative to commercial travel.

“Those who did good planning saw fruits, and those who didn’t do proper planning realized what they missed.”

went into effect in August. The sales bump especially reduced inventories of previously owned planes that were causing a drag on new-plane sales, because the ability to write off 100 percent of a used property purchase was “a bit unexpected at the time,” said Michael Kosnitzky, a partner at the law firm Pillsbury Winthrop Shaw Pittman. But sales momentum was curbed somewhat by the simultaneous elimination under the new tax code of tax-free exchanges of “like kind” planes. Previously, some taxpayers who sold an aircraft used in his or her business could defer any gain on the sale when the property was exchanged for another that was “like-kind.”

However, bonus depreciation can be very advantageous for companies with the right kind and amount of business income to offset. Under the new tax law, 100 percent of the cost of an aircraft used in a trade or business may now be depreciated during the first year of ownership. What’s more, Congress made the provision retroactive to September 2017 and extended it through the end of 2022.

The advantage, particularly for first time buyers, is clear, yet not all would-be purchasers moved quickly enough to take advantage of the deduction in 2018. “We’re seeing a lot of remorse,” said Kosnitzky.

“Those who did good planning saw fruits, and those who didn’t do proper planning realized what they missed. But you can’t put toothpaste back into the tube.”

However, companies and owners can take

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full advantage of the provision if they’re purchasing a new or used jet in 2019. “I’ve urged clients to evaluate it for use for this year sooner rather than later, because there are planning aspects that require time and can’t necessarily be adjusted if they wait too long,” says David Mayer, partner in the law firm Shackelford, Bowen, McKinley & Norton.

NAVIGATING AIR POCKETS However, there are several caveats for would-be plane buyers attracted by bonus depreciation. For one thing, the write-off can only be used against business income, not capital gains, dividends or interest income. “Those who thought they could write $45 million off those items were sadly mistaken,” Kosnitzky said. “They could only write off $250,000, or $500,000 if they’re married. The other $44.5 million is carried forward into subsequent years and you can’t utilize it in the year of purchase.”

Use of the deduction may also have stateincome-tax consequences. “Not every state has conformed to the new federal rules,” notes Brenda Taylor, a Las Vegas partner with the Dickinson Wright law firm. “Some states have actually specifically carved out bonus depreciation.”

Other potential issues include the fact that the owner can’t use the aircraft predominantly outside the United States. “This can be an important restriction for buying a large-cabin aircraft that you want to fly globally,” Mayer says.

Finally, the accelerated bonus-deprecia-

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To qualify for the accelerated deduction, an aircraft must be used primarily for business.

“The IRS doesn’t want taxpayers trying to use the business benefit in the form of depreciation if it’s really disguised personal use.”

tion write-off can only be taken by owners who “predominantly” operate the aircraft in “qualified business use.” In general, this refers to the requirement to fly the aircraft in a “trade or business” rather than personal use 50 percent or more of the time it’s in the air.

The IRS also gets picky about how owners calculate personal use. Aircraft owners must document personal use relative to business use for each flight by noting the names of each person on board, the reason for the travel, the hours and miles of travel, and other information. “The IRS doesn’t want taxpayers trying to use the business benefit in the form of depreciation if it’s really disguised personal use,” explains Mayer.

Because of this rule, advisors say plane purchasers should exercise an abundance of caution in the year of purchase and steer clear of using the craft for personal reasons. Take advantage of leases and fractional ownership to get through the year that the aircraft goes into service if you must. “If you take title late in the year, use the plane for business clearly a few times, with no ambiguity of personal usage, you should be entitled to the full deduction of the cost of the aircraft in the year of purchase,” Kosnitzky says.

FINAL APPROACH The personal-use restriction is made more complicated by other rules of the 2017 tax reform that tighten the definition of business-related entertainment expenses. “If you take a client to the Super Bowl, it’s likely

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that will be considered non-business-related entertainment, and that flight wouldn’t be deductible,” Palley says.

And there remains a snare in the writeoff known as “recapture.” If qualified business use of the aircraft falls below 50 percent in years after it is purchased, the owner must recognize recaptured income.

It’s the amount equal to the “excess depreciation” over straight-line depreciation, beginning with the year the aircraft was placed in service.

Other tax restrictions continue to challenge the overall utility of owning planes.

For example, there is the “ordinary and necessary” standard for use of the plane as a business expense; this means that, while it might pass IRS muster for the president of a company to use a jet because of the value of his time, the agency likely would look askance at a company footing the bill for a six-figure flight that carries a lower-level accountant to a far-flung plant when he could have flown commercial—even first-class— for far less. Owners also can’t list commuting with their planes as a business use.

Bonus depreciation could be targeted by Congress if Democrats take over in 2020, some advisors believe. “I think it would be on a hot list to be eliminated because it’s another corporate perk,” Kosnitzky says. The argument would be, “You’ve reduced the corporate tax rate to 21 percent—and on top of that you’re giving a write-off for planes? This is one reason large companies don’t pay any taxes.”

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WILLIAM AMELIO / TRANSFORMATION

LEADING A PIVOT

Battling margin pressure, Avnet needed to transition from distributing technology solutions to designing them.

William J. Amelio is CEO of the global technology solutions company Avnet, which supports companies of all sizes at every stage of the product development lifecycle.

WHEN I JOINED AVNET AS CEO IN 2016, the company was clearly in need of change. The past 10 years had seen a lot of consolidation in the technology distribution industry, and gross margins were under pressure. We faced a choice: keep squeezing down costs or find another revenue stream.

We created a transformation office, we hired a chief transformation officer, and a strategy and innovation officer. We took eight weeks for a deep dive diagnostic on how to unlock value inside each of the different workstreams—HR, finance, operations and logistics—in order to find that new revenue stream.

We decided to pivot to follow the Internet of Things (IoT) trend. By the year 2020, 20 billion devices will be hooked up to one another; by 2025, 50 billion devices.

But customers still have problems implementing their own IoT strategies, and a lot of them get stuck in proof-of-concept purgatory. Meanwhile, at Avnet, we have thousands of engineers working in 140 different countries around the world. We can take an idea off the back of a napkin, turn it into a full-fledged product for any customer and do it to scale. There aren’t too many players that can do that.

So, we created a comprehensive ecosystem to give customers the tools and resources to bring their products to market, putting the pieces of IoT together like nobody else can: the device, the gateway, the network, the cloud, the applications and the A.I. that brings them the insights from all of those connected devices.

That level of transformation starts with getting buy-in because a scenario of a slow decline of gross margins isn’t an immediately compelling change story. It’s like the proverbial frog in the hot water and the temperature is rising so gradually, they don’t realize they need to jump

80 / CHIEFEXECUTIVE.NET / JULY/AUGUST 2019

out. So, we needed to paint that story for our team, to explain, “The market is changing faster than we are, and that means the end could be near. We need to do something.”

We started laying out that compelling vision for the rest of the company. Getting that buy-in is the biggest challenge, and you can’t be fearful of the fact that some people will leave because they are not going to buy into that vision. We asked, “What don’t you buy into this? What can we do to change your mind?” In some cases, you’ll get them to change, but there are also cases where they won’t.

Fast-forward to today, and we have essentially accomplished what we expected to accomplish. Through a rigorous transformation initiative, including four acquisitions, Avnet turned its business model into an ecosystem so we could provide more value as trends like IoT and A.I. reshape our world. One of those acquisitions was a software company with a platform that allows our customers to connect every device [they implement] to the cloud in a seamless fashion. That’s key because if they don’t have a platform for that, they need to build it themselves, and then it’s not scalable. So, we made a platform that’s scalable, that anybody can use.

We also partnered with Microsoft to provide customers with a highly secure device that ensures a safe and secure experience from the intelligent edge to the cloud: Azure Sphere. That’s huge because you don’t want an IoT-enabled thermostat in your home that someone can hack into to get access to your bank account.

We’ve been able to unlock significant value and to create a real innovation engine inside the company. The journey is ongoing, but a lot of the heavy lifting has been done. Now we’re on other the side of the coin, where we have an opportunity to really excel.

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