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BEST IDEAS 2020: A 21-PAGE SPECIAL REPORT

JANUARY/FEBRUARY 2020

LIFE AFTER GE Leading $15 billion consumer finance spinoff Synchrony, Margaret Keane is on a mission to transform a stodgy industry. Here’s her playbook.


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C ONTENT S

JA N UA RY/F E B RUA RY 2020 No. 304

FEATURES COVER STORY 24 LIFE AFTER GE Serious about embracing digital technology—and diversity— Synchrony’s Margaret Keane is on a mission to transform a stodgy industry. By J.P. Donlon

THE CNEXT INTERVIEW 12 CULTURE CURATOR Former CEO of Frontier Communications Maggie Wilderotter on navigating transformational acquisitions.

24

33 THE BEST IDEAS FROM CEOS

FOR 2020 How to win in the year ahead? Love your people, fix their finances and think in threes. You’ll see.

34 LOVE YOUR PEOPLE

Bob Chapman, CEO of $3 billion Barry-Wehmiller, has a radical idea: Treat your people like your actual family, he says, and they’ll transform your organization. Welcome to the leadership-by-caring revolution. By Dale Buss 40 FOLLOW THEIR MONEY

Your employees’ financial life is none of your business— but maybe it should be. By Dale Buss 48 THINK IN THREES

Harness a million years of human evolution to bring clarity and order to your planning. By Fred Hassan 50 TRUST FIRST

Your colleagues must be able to count on you before you can truly be able to count on them. By Joel Peterson 52 EMBRACE YOUR WEAKEST LINK

Identify cycles, not where to place blame. By Fred Engelfield 54 PAY UNEQUALLY

Not everyone in your C-Suite is a superstar—and that’s okay. By Melanie C. Nolen COVER PHOTO: CELESTE SLOMAN


L E A RN MOR E A ND A PPLY

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YOUR COMPANY HAS REACHED A CRITICAL JUNCTURE. SO HAS YOUR CAREER.

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C O NTE NT S EDITOR

Dan Bigman EDITORS-AT-LARGE

Jennifer Pellet Jeffrey Sonnenfeld DIGITAL EDITOR

C.J. Prince PRODUCTION DIRECTOR

DEPARTMENTS

Rose Sullivan 68

CHIEF COPYEDITOR

Rebecca M. Cooper

8

EDITOR’S NOTE

ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford

Three for the Road

10 LEADERS

RESEARCH EDITOR

10 Not OK, Boomer Each month, some 10,000 of America’s most experienced workers retire, stampeding decades of expertise out the door with them. How to make the transition less painful for your business? Some ideas. 16 Transformation / Patrick Lencioni One Bad Apple

Melanie Nolen CONTRIBUTING EDITORS

Dale Buss Fred Engelfried Daniel Fisher Craig Guillot Patrick Lencioni EDITOR EMERITUS

J.P. Donlon

18 Law Brief / Daniel Fisher Courtroom as Coffer

PUBLISHER

20 On Leadership / Jeffrey Sonnenfeld China Syndrome

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

ECONOMIC DEVELOPMENT 58 REGIONAL REPORT: THE SOUTHWEST Silicon Valley’s loss is this region’s gain, as tech companies migrate to lower-cost states. By Craig Guillot

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

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

CEO EVENT 64 FORGING HEALTHCARE’S FUTURE At Chief Executive’s Healthcare CEO Summit, business leaders discussed strategies for attracting and retaining the right talent, creating a culture of continuous innovation and continuing to create value for stakeholders in the process. Some takeaways.

CEO ROUNDTABLE 68 TOWARD HEALTHIER HEALTHCARE: INNOVATION FOR EVERYONE Business leaders share ideas on overcoming the hurdles to delivering affordable, quality medical care. By Dale Buss

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 MANAGER, STRATEGIC PARTNERSHIPS

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

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

CHIEF EXECUTIVE GROUP

LAST WORD

72 THE MINDFUL ADVANTAGE

EXECUTIVE CHAIRMAN

The tenants of mindfulness can help manage stress, maintain focus, enhance cognitive performance and improve relationships. By Dinesh Paliwal

Wayne Cooper CHIEF EXECUTIVE OFFICER

Marshall Cooper DIRECTOR OF EVENTS / PUBLISHER, CORPORATE BOARD MEMBER

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 304 January/February 2020. 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.

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Scott Budd VICE PRESIDENT, HUMAN RESOURCES

Melanie Haniph


Are you looking beyond the obvious? A sound location strategy is a critical component of a company’s overall business strategy. As such, careful consideration of site selection up front can help ensure that your organization’s real estate footprint will serve future generations for years to come and, ultimately, help drive profits. From country analysis to detailed labor market and site due diligence, Deloitte’s Location Strategy practice brings rigor, objectivity, and multi-disciplinary analytics to corporate location decisions.

Learn more: www.deloitte.com/us/locationstrategy

Copyright © 2019 Deloitte Development LLC. All rights reserved.


CH I EF E XECUT IV E RE SE A RCH AD INDEX

CEOS: OPTIMISM AND CAUTION FOR 2020

CHIEF EXECUTIVE NETWORK chiefexecutivenetwork.com 67

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. WHAT A YEAR. THE LONGEST GOVERNMENT SHUTDOWN in U.S. history. Historic labor shortages. A trade war with China. Election campaigns threatening the very notion of capitalism. The impeachment of the President. Yet, the 228 U.S. CEOs participating in Chief Executive ’s December’s CEO Confidence Index were asked to select TOP CONCERNS FOR 2020 Respondents rated their confiall that apply Presidential Election Outcome 68% dence in the business China-U.S. Trade Agreement 54% environment one Talent Availability 50% year from now a 6.6 Business Cycle 39% Regulatory Environment 34% out of 10—considHealthcare Costs 30% ered “good” to “very Consumer Spending 28% USMCA 25% good.” Interest Rates 25% Many participants M&A Opportunities 23% Brexit Unfolding 16% cite the strength of Foreign Exchange/U.S. Dollar 9% the economy and consumer spending to justify their positive outlook. Robust economic conditions, solid consumer demand, strong earnings and easy access to capital, all add up to a stellar business climate, one they haven’t experienced in more than a decade. There’s plenty of uncertainty, though. While three-quarters of those surveyed forecast increases in revenues, and two-thirds also expect greater profitability, fewer than half plan to create new jobs or increase their capital expenditures in the year to come. The Presidential election looms large, with 68 percent of those polled saying the outcome is their top concern in planning for 2020, followed by the U.S.-China trade negotiations. —Melanie Nolen, Research Editor Top December CEO Discussion Topics From our recent CEN meetings of large manufacturing company CEOs. Change leadership; Innovation in practices for onboarding new employees; Upgrading talent in an organization with lots of inherent knowledge and few systems; Cost savings initiatives: Ideas and best practices; Utilization of technology in quality improvement. CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW

CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES chiefexecutive.net/compreport 22, 23 CNEXT CNext.us 56, 57 CYBER RISK FORUM chiefexecutive.net/cyberforum 62, 63 DELOITTE R.E. AND LOCATION SERVICES deloitte.com/us/locationstrategy 5 DISRUPTIVE TECH SUMMIT chiefexecutive.net/disruptivetech 32 ENEWSLETTER ChiefExecutive.net/Briefing 71 ESGR esgr.mil 19 HARVARD BUSINESS SCHOOL Exed.hbs.edu 3 INSPIRATO Inspirato.com 9 MANUFACTURING BENCHMARKS ChiefExecutive.net/KPIreport 7 MORE FROM LESS andrewmcafee.org 21 NEXT LEVEL LEADERS NextLevelLeadersSeminar.com 31 OCEAN REEF CLUB oceanreefclubmagazine.com OUTSIDE BACK COVER RHR INTERNATIONAL rhrinternational.com 17

TRAILING 12 MONTHS

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SENIOR EXECUTIVE NETWORK SeniorExecutiveNetwork.com INSIDE BACK COVER SMART MANUFACTURING SUMMIT chiefexecutive.net/SMS 46,47

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ED I TOR ’ S NOTE CHIEF EXECUTIVE OF THE YEAR

THREE FOR THE ROAD OVER DINNER AT THE CHIEF EXECUTIVE NETWORK’S annual Leadership Summit in Dallas last fall, the CEO of a mid-sized manufacturing company bestowed the most coveted award possible on Chief Executive. Oscar? Pulitzer? Nobel? Nah—better. “I always get one or two things in there that I can use,” he said, between bites of salmon. High praise indeed—and this issue, with our “Best Ideas 2020” feature, was created in exactly that vein. It led me to reflect on what tips stuck with me from the past few months—really stuck. Here are three I hope you’ll find useful: Google Your Network Speaking at our Leadership Summit, keynote Verne Harnish shared a ton of useful ideas—as you’d expect—but what really nailed me were a pair of simple, essential networking hacks. First: Make a list of the 25 or 50 or 100 essential people in your professional world and set up a Google Alert for each of them. This way, you can keep track of their milestones—and not miss a reason to reach out and say hi. Second: Send each of them a book you read over the past 12 months that had an impact on you, with a handwritten note explaining why. Thank Spouses Prior to Thanksgiving, GeoStabilization International pays a cash gift—think two zeros, not three or four—to spouses and partners of their employees as a way of saying thank you and acknowledging the sacrifices borne by the whole family in helping the employee succeed, especially due to the constant travel involved in their work repairing critical geologic hazards across North America. The gift is accompanied by a letter outlining the accomplishments of GeoStabilization employees in preserving the lives of the traveling public during the year. The idea, says CEO Colby Barrett, stems from his time serving as a Marine sniper, where he saw how his battalion commander and their spouse worked as a team to create the culture for both Marines and their spouses to succeed in demanding circumstances—especially during extensive deployments—and to understand the important mission of the battalion. Take Time Out to Think Bill Gates famously takes a week a year to hide out and read. Former Aetna CEO Mark Bertolini swears by his daily meditation practice, as he told a room full of CEOs at the Leadership Summit. Heck, even John D. Rockefeller, as Harnish reminded me, worked alone from home until noon every day so he could have time to see his business more clearly. Perhaps 2020 is the year that we all start to take seriously the idea of making time to think. So here’s a challenge: Can you find one 24-hour block in the coming year when you will hide from everyone, not come into the office, not look at your phone, not boot up your laptop, not cheer from a soccer-field sideline—perhaps not say a single word to anyone at all? Just one day in a year to be alone with your thoughts to see what comes up? Sounds tough, huh? I agree. And that’s why it’s the single best idea I heard all year. —Dan Bigman, Editor

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2020 SELECTION COMMITTEE DAN GLASER President and Chief Executive, Marsh & McLennan

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

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

ARNE SORENSON President and Chief Executive, Marriott International 2019 CEO of the Year

CARMINE DI SIBIO Global Chairman & CEO, EY 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


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L E ADERS

NOT OK, BOOMER

Each month, some 10,000 of America’s most experienced workers retire, stampeding decades of expertise out the door with them. How to make the transition less painful for your business? Some ideas. BY DALE BUSS “This is a significant problem and not talked about as much as it should be.” —Megan Gerhardt, author, Gentelligence

AS THE MASTER OF MACHINING THE tricky part of a spoon where the handle meets the bowl, Toby Leonard has been integral to the success of Liberty Tabletop, the last remaining maker of flatware in America. But Leonard is nearly 70 years old and would like to retire, so his singular command of the “grade roll” also poses a dilemma for Sherrill Manufacturing, the company that makes Liberty Tabletop. “This is not something you can just go down to the local vocational college and learn,” says CEO Greg Owens. “It’s a particular skill involving automation that is unique to our factory.” So far, Owens has prevailed upon Leonard to keep coming to the plant in Sherrill, New York, at least two days a week. Not only does Leonard need to keep turning spoons, but the he’s also still training his two successors. Welcome to the flip side of a prosperous U.S. economy, where baby boomers are feeling comfortable retiring from their longtime employers in droves. Yet, CEOs simply can’t afford to let some of these people go, especially at a time of general labor scarcity. Or, if they do, companies face a greater need than ever to absorb the vital knowledge of processes and procedures, hack improvisation and institutional memory that retirees otherwise simply would take out the door with them. “This is a significant problem and not talked about as much as it should be,” says Megan Gerhardt, a business profes-

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sor at Miami University of Ohio and author of Gentelligence, a new book about how generational differences play out at work. “We’ve given a lot of attention to what older workers can learn about technology from younger generations, but the other side of that coin has been lost in the conversation.” Here are some ways to make the transition easier: Help them stay longer. “We treat people well and provide them with hope that things will get even better,” Owens says. “We hand out ‘attaboys’ and bonus checks based on productivity increases, and we’re always improving our work environment.” Manufacturers, for example, can make simple ergonomic improvements, such as better seating on the assembly line and more cushioning on the floors, as well as implementing pre-shift stretching routines, and turning breakrooms into “wellness” havens, suggests Michael Stephan, U.S. human-capital leader for Deloitte Consulting. Mesh the generations. Gerhardt says many boomers are predisposed to want to mentor and guide rather than invest in their own personal gain or prove themselves. “They’ve already done that,” she says. Thankfully, “What younger generations need is coaching and feedback.” To help with this, Nissan established a “digital-acceleration” office at its plant in Smyrna, Tennessee, to pair what David Johnson, vice president of production engineering for Nissan North America, calls the


From left: A construction engineer uses Viewpoint software; machining a spoon at Liberty Tabletop

“donkeys and pulleys” generation with the “1’s and 0’s” generation. At Siemens USA, CEO Barbara Humpton faced a challenge in her energy-management division where many salespeople were reaching retirement age “all at once,” she recalls. “So we created a multi-generational team” for the handoff, she says. “The newer generation felt like the [older] folks were investing their time and interest in them, and the folks who’d been around for a while loved the interest and energy from new entrants into the field.” Show them respect. Workplaces increasingly dominated by millennials and members of Generation Z can transmit messages to boomers that essentially amount to an invitation to leave. “OK, boomer,” for instance, has become a meme for younger workers to dismiss their elders as hopelessly outdated. “That doesn’t do any more good than older workers stereotyping millennials as incredibly unproductive,” Gerhardt says. Capture their knowledge. Specialized software is available for companies in nearly every vertical for logging, sharing and manipulating vital information for knowledge transfer, often with features such as social-media collaboration tools and artificial-intelligence engines. Asset-Map, for example, is an online platform that helps senior financial advisers “who have high relationship and experiential currency bring in a junior adviser

who has strong technological capabilities,” as they work together with clients, says Adam Holt, CEO of the Philadelphia software company. Another platform, called Viewpoint, helps construction companies capture the knowledge that “the average 55-year-old” has about building a road or a bridge, says Jeremy Larsen, VP of products for the Portland, Oregon-based outfit. Remember the soft skills. Still, Stephan says, “It’s often a mistake for organizations to think that technology will solve everything.” Older workers can help younger peers understand that not every skill can be reduced to an app. “The younger generations are great at communicating with e-mail but not so great at face-to-face,” says Zachary Russi, vice president of Western Allied Mechanical, a San Francisco construction firm. “They can learn some of those soft skills from our senior people.” Bring them back. Finally, when your would-be retirees are ready to go, transition them to part-time work or retain them as consultants. Or just offer free lunch in the company cafeteria so they’ll come back regularly—and be available as an informal resource to their former colleagues. Free coffee is a small price to pay to retain knowledge built up over decades. The older generation is “where the DNA of the company lies, our best practices, our knowhow,” says Nissan’s Johnson. “We can’t give that knowledge up.” CE

“The newer generation felt like the older folks were investing their time and interest in them.” —Barbara Humpton, CEO, Siemens USA

CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2020 / 11


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

CULTURE CURATOR Former CEO of Frontier Communications Maggie Wilderotter on navigating transformational acquisitions.

This is the third 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 mentoring and advisory services, e-mail Inquiries@C-NEXT.com

PHOTOS BY STEVEN FREEMAN

Maggie Wilderotter is best known for leading troubled Frontier Communications’s journey from a regional player with $750 million in revenues to a $10 billion national broadband, voice and video powerhouse. Joining Frontier as CEO in 2004, she drew on experience leading Silicon Valley startup Wink Communications and tenures at Microsoft, AT&T and McCaw Cellular to steer a growth track that entailed acquiring and integrating systems from Commonwealth Telephone, Verizon and AT&T. Since leaving the company in a planned transition in 2015, Wilderotter has been the consummate board member, serving on dozens of public, private and nonprofit boards. She is currently a director at Costco Wholesale, Hewlett Packard Enterprise, DocuSign, Juno Therapeutics and Lyft. CNext’s Rick Smith recently sat down with Wilderotter to talk about leadership in an age of disruption. Excerpts of that conversation, edited for length and clarity, follow. What was the state of Frontier in 2004 when you joined the company as CEO? When I got there, our revenues were around $750 million, and it was a compa-

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ny that was in trouble. It had sort of lost its way. There had been a falling out between the previous CEO and the board. They tried to sell the company, but no one would buy it. So I came in with, you know, high expectations on what we could do, but there were pretty low expectations of the outcome for the company at that point and that does give you time from an expectation perspective of your shareholders. So for the first couple of years, all I did was right-size the business, get people in the right seats on the bus, develop a new strategy for the company and build the board. I replaced 10 of the 12 board members in the first 18 months. The [new] board could provide me with capability that I wouldn’t have had with the previous board. It also allowed us to build processes and capabilities in the company that would give us a right to win to do more.  What phases of the journey of growing Frontier from $3 billion to $10 billion stand out for you? I think about Frontier in three phases. One was the stabilize phase, which for the


first three years included a go-to-market for growth opportunities and initiatives. Then, the next three to four years, it was starting to mix organic growth and partnership growth because we took on the Dish Network as our video partner and expanded video to every one of our markets. We also started to do acquisitions, and we bought basically all of the rural properties from Commonwealth Telephone in the

state of Pennsylvania as our first company. Then, we integrated that successfully. In telephone, nothing was ever integrated when people did acquisitions, whether that was AT&T, Verizon or others. So you had a bunch of disparate systems, which doesn’t provide a lot of efficiency or effectiveness. Because I came out of the IT area for billing and management information systems, what I did is I took the half dozen systems

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

as CEO, I announced another multibillion-dollar deal to buy the rest of what we would call the GTE assets from Verizon that we didn’t buy in that first big Verizon acquisition, which were the states of Florida, Texas and California, their kind of prime properties that were Fios or fiber-based. That integration actually took place after I retired, but I stayed on to close the deal and help the board with a leadership transition to my number two person, Dan McCarthy, before exiting the business after being executive chair for a short period of time.

that Frontier had through acquisition before I got there and consolidated those all into one system. And then we bought Commonwealth Telephone and consolidated that into our current systems, which freed up about 50 percent of costs that we would have had as overhead, which went away. So part of our acquisition strategy was a cost play, and that made a big difference. Then, we started doing larger, more transformational acquisitions for the company. We bought 14 states from Verizon, which tripled the size of our company. We did a flash cut and integrated every single one of those states and their systems into our systems on day one when we closed the acquisition. That had never been done before in telecom. We transformed the company again, and it took us probably three years to kind of digest that. Then, we bought the state of Connecticut from AT&T, did exactly the same thing. Finally, at sort of the end of my career

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Having successfully integrated a number of different acquisitions, what have you learned along the way? You know, it’s not for the faint of heart. You can never anticipate everything that will go wrong. But what you wanna do is to put the right kind of processes in place to react quickly when you do have issues and to have checks and balances of being able to escalate those issues quickly, to resolve them as fast as you possibly can. And to be proactive with your customers about what they can expect and what they should expect. The other thing is culture. When you double and triple sizes of companies and you take on lots of employees... When we did our first big Verizon transformational acquisition, we had 2,500 employees in the company. And we bought, I think, close to 7,000 employees as part of the acquisition. And it was a matter of resetting the culture to take the best of what we had at Frontier and couple that with the best that we were buying. Was there a process to determine proactively what that meant?? Yes. Day one of the cutover, we had our senior leaders in every single market that we were purchasing with an all-hands meeting with all the employees. And it was a culture meeting. It was a welcome meeting. It was, “This is who Frontier is, this is what we’re all about. This is what we’re excited about you from a culture perspective, but this is how we wanna integrate and work together to make the new Frontier.”


That’s what we called it, the new Frontier, a combination of the best of both. And it was an open-door policy with our employees. It was very proactive communication. We had planned the cultural transformation for a year before we closed on the acquisition. In our business, we have a lot of regulatory approvals by state and federal. So, we also had the time to do that and to do it right. And it made a huge difference once we did that integration in getting people on the same page so we could all move forward appropriately. You’re on the boards of Lyft and HPE, companies that compete in high growth, disruptive environments where the assumptions are constantly changing. What leadership traits does a CEO of those types of entities need? I look for CEOs who know that talent is the most important asset in their company. It’s not technology, it’s not their products. It’s not their ideas. It’s the people that they work with and the culture that you create to get the best talent possible to help you be successful that is the most important thing that CEOs do. I also think that CEOs have to be paranoid. You can never be satisfied about where you are, and you can’t get comfortable in the job you’re in. Having that healthy dose of paranoia and fear keeps you sharp and looking around corners for what’s gonna come at you. Great CEOs are inside out and outside in. So not only do they spend time running that company from an inside-out perspective, but they’re out there in their industries, in their markets, with their customers, listening, learning what they need to incorporate back into their organization so they stay relevant and value added. These jobs are not for the faint of heart. They are where the buck stops. You have to make tough calls on talent, on people, on direction, on organization and on the products and services that you deliver every day. You have to keep an eye out for what the risks are and how to make the right kind of calculated risks that don’t, you know, don’t kill your business. So, surrounding yourself with great

people who work for you and tell you the truth and keep you being better every single day and with a great board, who have seen different things than you have, that can help you make good decisions and bring different perspectives, those are all part of this sort of secret sauce of building great companies that have sustainability and a right to exist. What’s your view of the Business Roundtable statement that you have to have a broad and active impact on a much larger playing field? The intention is really good. They didn’t articulate it in a way that I would. I still think that the reason companies exist is to create long-term sustainable shareholder value.

“CEOs have to be paranoid. You can never be satisfied about where you are, and you can’t get comfortable in the job you’re in.” Serving constituents, like our employees, our supply chain, our communities, etc., are all ways that we build sustainable shareholder value. You can’t leave those constituents behind and still be successful. I know when I ran a Fortune 500, I took care of all those constituents. That was part of our competitive advantage in the marketplace. So, Corporate America has been doing that. We don’t talk a lot about how that relates to shareholder value and how important those constituents are. We should talk more about that. I really do believe that’s what the Business Roundtable was trying to communicate. I’m a servant leader, I have always been a servant leader. I know I sat on the shoulders of my employees every day as I was CEO of these companies. And I had gratitude to the customers and partners who helped us be successful. Because our success is tied to those that work with, for and around us and who use our products and services. We should never forget that. CE

CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2020 / 15


LE AD ERS TRANSFORMATION \ PATRICK LENCIONI

ONE BAD APPLE

Have the courage to take problem executives to task—or suffer the consequences.

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

AN EXECUTIVE TEAM CERTAINLY isn’t a bunch of apples, and an executive who causes problems on a team isn’t necessarily “bad.” But the analogy holds: one difficult member of a CEO’s team will spoil the entire team, if not the company it leads. Most CEOs understand this in theory, which provokes the big question: why do so many of them keep destructive team members long after they know there is a problem? The answer is twofold. First—and I don’t make this claim lightly—many chief executives lack courage. In my two and a half decades of working with CEOs, I’ve seen so many of them make bad excuse after bad excuse for not getting rid of a destructive team member (okay, I’ve done it too). “He’s actually a pretty good guy once you get to know him.” “She’s really talented in her area of expertise; we need that.” “The board might think something is wrong with the team if I let him go.” There are only two honest excuses for not firing a destructive leader, only one of them valid. The invalid one is, “I don’t want to have such an uncomfortable conversation with him. It will be too painful for me, uh, I mean him.” The valid one: “It wouldn’t be fair.” Sometimes a CEO is right when he or she says that firing a problematic executive is unfair. That’s because, without having been brutally honest about the need for behavioral or performance-related change, taking decisive action cannot be justified. And few CEOs practice the kindness of brutal honesty. Why? Again, it’s the courage thing. Without courage, none of this can change. But the second reason that CEOs don’t take decisive action is worse than the first, because it plagues even courageous CEOs: they don’t fully understand the impact that one, just one, problematic executive can have. Even the most intelligent chief executives don’t seem to grasp how drastically a defensive, self-centered or political person can alter a discussion and affect a team’s decision.

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To be fair, it’s hard for them to notice all of the micro-moments during a meeting when good team members withhold or slightly modify a comment or suggestion to avoid provoking a reaction from that difficult person. And it’s impossible to accurately measure how much that person’s presence and behavior mutate a team’s decision-making, but that doesn’t make it any less real. The impact can be devastating. If this weren’t bad enough, the impact that a problematic executive has on a company outside of team meetings may be even worse, because CEOs aren’t even around to witness it. They don’t see or hear about the confusion, discouragement and frustration that the executive’s behavior causes with his peers, direct reports and employees in the rest of the organization. And that’s to say nothing of the devastating impact on morale that comes about when people assume that the CEO actually approves of that person’s behavior. CEOs who want to eliminate the problem of keeping destructive team members have to start by being more direct about any attitudes or behaviors that break down trust on their teams. They must quickly, consistently and persistently call out team members who are disingenuous, evasive or passive aggressive. There is no alternative. And, of course, they must invite others to call them out too. When a difficult member doesn’t change his or her behavior after being reminded again and again, CEOs must sit down with that executive, in kindness and respect, and let him or her know that the decision is clear: you can commit to change or you can choose to leave. If that sounds harsh, consider the harshness of that person’s impact on your organization’s morale, performance and bottom line. And consider that he or she has been adequately advised and forewarned. And perhaps most convincing of all, consider that he or she will be better off in a different bunch of apples, one where he or she actually belongs. CE


NUMBER

873 JEFF SIMMONS CEO, ELANCO ANIMAL HEALTH

‘WHO WILL FOLLOW YOU?’ In this latest installment of our new series of interviews with high-performing members of the CEO1000, Jeff Simmons, CEO of Elanco Animal Health, tells Chief Executive how he’s navigated a tumultuous time for the company—and is readying his top people for the changes to come. THE PACE OF CHANGE IS FAST AT ELANCO ANIMAL HEALTH, and it’s set by Jeff Simmons. In just the last 18 months, the president and CEO of the $3.1 billion (revs) industry giant based in Greenfield, Indiana, has presided over an IPO, the company’s spinoff from parent Eli Lilly and Elanco’s $7.6 billion acquisition of Bayer’s animal-health business, a major rival. Yet, more than huge strategic gambits, Simmons believes longterm success depends on thousands of lower-caliber transactions that occur daily. “We ask everybody to know why we do what we do—that’s more important than the ‘how’ and the ‘what,’” says Simmons, who was president of Elanco for 11 years when it was 80 percent owned by Lilly. The purpose of Elanco is to promote the health of livestock for human food and pets for companionship with its pharmaceutical and dietary products and related services. “But we understand that we’re in the people business,” says Simmons, number 873 on our CEO1000 list, “not the animal business, because we enrich people’s lives in big ways” by expanding supplies of animal proteins for food to meet escalating global demand and by enhancing the health and longevity of pets that are part of a record number of households. In this excerpt from a recent interview, Simmons discussed his approach to performing and leading effectively as well as with purpose. (The full interview is available at ChiefExecutive.net/ ceo1000.) You recently finished a meeting of Elanco’s top 100 global leaders. What was your message to them on leadership? Leaders are measured by followership, and followership is only as good as your influence. So our opening question is, “Who will follow you?” and they’re supposed to list names. And then we ask, “Why will they follow you?” and that gets to the heart of the leadership recipe. We ask them if they know their leadership recipe. Can they put it on the back of a business card? There should be just a few ingredients, and everyone uses their gifts a little differently. But knowing what your gifts are and what your recipe is strengthens your following.

The fourth ingredient is courage: I like to put myself in a position where my courage is critical to my influence and where people see me as courageous. Disruption has been the way of life so far for Elanco as an independent company. How do you lead people through that? When I walked into a room of Bayer employees, I talked about the impact we’re going to have on society in the next one, five and 10 years, and how the world needs Elanco in it for our physical, mental and environmental health—how we’re relevant. People’s pride to be in their industry really matters. And creating a world leader in our business is absolutely critical. I also take people to a place they wouldn’t normally go. When I described the 2023 Elanco to our 100 leaders, I showed them a Business Week article from 2007 about what we believed we were going to be in 2012, and it happened. Now we’re writing the story of what people are going to say about us in 2023, and it’s not about numbers and profits but about the impact on people’s lives. What performance hacks can other CEOs learn from you? It’s simple stuff. As I told our 100 leaders, we need to stay small. People want to be authentically known and cared for. So I showed a slide picturing a cell phone and said that no one was to leave that meeting without everyone else’s cell-phone number inside their phones. Be call-text fast-fluid and address issues immediately; don’t be passive-aggressive, awaiting a meeting. I send personal handwritten notes every week and drop people texts on Friday afternoon; it’s a way to authentically know and recognize people, and it creates a level of connection that’s different. And I had everyone [at the meeting] stand up and tell the story of who they are: If our top 100 authentically care for one another and for the members of their own leadership teams, we’ve got about 6,000 people taken care of right there. Everything we do is what we model.

What’s your leadership recipe? The first ingredient is to talk to reality and use the resolve that goes with it. I also know what to expect and will inspect what I expect. And my third principle is vision-casting: getting people to see beyond what’s in front of them and putting stories and pictures in front of them to fill out that vision. ®

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


LE AD ERS LAW BRIEF \ DANIEL FISHER

COURTROOM AS COFFER JUST WEEKS AFTER U.S. DISTRICT Judge Dan Aaron Polster convened the first hearing to discuss thousands of opioid lawsuits concentrated in his Ohio court, he announced who would lead the plaintiffs’ team.

For an emerging class of lawyer kings, litigation is a cash cow.

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

It was hardly a surprise. Like most judges in charge of multidistrict litigation, Judge Polster selected from a small group of lawyers who control the game. Leading the list was Joe Rice of the South Carolina law firm Motley Rice, famous for his role in negotiating a $260 billion global settlement with the tobacco industry in the late 1990s. He was joined by Elizabeth Cabraser of Lieff Cabraser, a San Francisco firm also involved in the tobacco settlement; Baron & Budd, a famously pugnacious Dallas asbestos law firm; and Chris Seeger, a New York lawyer who played a lead role in a concussion settlement with the NFL criticized for underpaying players and overpaying their attorneys. With their position secure at the top of the pecking order in the opioid MDL, these lawyers are assured of winning billions of dollars in legal fees if the cases settle, on top of the $14 billion many of them shared from the tobacco settlement. The money will come, as always, from the companies they sue—and, ultimately, from the consumers who buy their products and services. This litigation tax is an increasingly predictable supply of cash enriching an increasingly entrenched class of lawyer-kings who have figured out how to turn the U.S. court system into a money-making ma-

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chine. Civil trials are supposed to be highrisk affairs. But the combination of mass advertising to drum up clients and recruiting government entities as plaintiffs has driven much of the risk out of this business. Many of the same lawyers leading the opioid litigation are investing hundreds of millions of dollars in television ads to recruit plaintiffs to sue over common products like Johnson’s Baby Powder and Roundup weed killer. Even the federal judge overseeing Roundup litigation said some of the plaintiff experts strayed into “junk science,” and the evidence in the talc lawsuits consists mostly of contested testing on samples from unsealed old bottles plaintiff lawyers say they purchased on eBay. But with tens of thousands of plaintiffs at their command, those lawyers almost certainly will extract lucrative settlements in both cases. This shock-and-awe approach to litigation is especially effective when government is the client. Plaintiff lawyers who were heavy campaign contributors to Oklahoma’s Republican Attorney General Mike Hunter collected $70 million in fees from opioid settlements before J&J decided to take the state’s case against it to trial. It seemed like a good gamble: J&J never had more than about 2 percent market share in Oklahoma, and its two products were particularly abuse-resistant. No matter: A state judge socked the company with a $465 million penalty. If upheld on appeal, the state’s outside lawyers will collect another $90 million in fees. Perhaps this feeding frenzy will be self-limiting. The same public-nuisance theory plaintiff lawyers are using to sue over opioids is perfectly suited for alcohol and cell phones, both of which can be directly traced to countless vehicle crashes. Maybe when consumers realize they are paying a small king’s tax to lawyers every time they buy a beer or make a call, they will rebel. More likely, they’ll call the number on their TV screen and see if they, too, have a claim. CE


LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

CHINA SYNDROME

An increasingly authoritarian regime poses risks to the values of any U.S. company doing business there. Some thoughts on how to handle.

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Morey deleted his tweet and apologized. This cave-in to the Chinese by an American institution sparked outrage among U.S. fans—and from politicians on both sides of the aisle, from President Trump and Texas Sen. Ted Cruz to former Congressman Beto O’Rourke and Congressman Julian Castro. Silver, who was flying from Mumbai to Tokyo without WiFi when the drama unfolded, soon found himself trapped between the two most powerful nations on earth. American politicians pressured him to suspend business with China. Chinese state-run television threatened retribution. The three things Silver did next are as good a playbook as any: First, defuse immediate tension—The next day in Shanghai, Silver had private conversations with key people and avoided engaging in public grandstanding. He ensured the game between the Lakers and Nets took place. Then, fortify your values—Refusing to discipline Morey, Silver fortified the NBA’s position as an American institution with respect for freedom of speech. After all, it is U.S. principles—at least in part—that make the NBA so appealing to Chinese fans. Finally, find strategic common ground— Last, Silver quietly reminded partners that the $4 billion of Chinese NBA commerce benefits Chinese enterprises such as Tencent and CCTV as well as the NBA. Smart leaders will remember their Kipling: East is East, and West is West, and never the twain shall meet, Till Earth and Sky stand presently at God’s great Judgment Seat; But there is neither East nor West, Border, nor Breed, nor Birth, When two strong men stand face to face, tho’ they come from the ends of the earth! Only a human-level exchange can break down cultural and ideological barriers— and create real respect. CE

REUTERS / ALY SONG - STOCK.ADOBE.COM

Jeffrey Sonnenfeld is senior associate dean, leadership studies, Lester Crown professor in management practice at Yale School of Management, president of the Yale Chief Executive Leadership Institute and author of The Hero’s Farewell. Follow him on Twitter @JeffSonnenfeld

WHEN IT COMES TO RISK, CEOs have plenty to worry about: Cyber, #Metoo, digital disruption. Not to mention growing a business during a time of stunning uncertainty. Here’s another to put on your radar in 2020: Relations with China. In the years to come, corporate chieftans doing business there will be challenged in new ways as an increasingly authoritarian regime flexes its muscles internationally. From trade and human rights to politics and social media CEOs will struggle as never before to balance the desire for market access without compromising their values. It won’t be easy—just ask Google, Apple, Facebook, et. al. That’s why it’s worth taking a look at how the National Basketball Association, and its able Commissioner, Adam Silver, handled its recent run-in with the country. For those who missed it, on the eve of a game between the Los Angeles Lakers and Brooklyn Nets in Shanghai, Daryl Morey, GM of the Houston Rockets, tweeted in support of Hong Kong’s pro-democracy demonstrators, precipitating a crisis for the NBA, which has 500,000 fans in—and billions of dollars of revenue—from China. The resulting firestorm was swift. Beijing immediately condemned the comments, as did Yao Ming, chairman of the Chinese Basketball Association (who, ironically, used to play for Houston). Then Rockets owner Tilman Fertitta—clearly terrified of a potential economic hit for his club—reprimanded Morey on Twitter. LeBron James, with millions in personal merchandise sales at stake, piled on as well. “I believe he wasn’t educated on the situation at hand, and he spoke,” James said, referring to Morey. “So many people could have been harmed, not only financially, but physically, emotionally, spiritually.”


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“For anyone who wants to help create a future that is both sustainable and abundant, this book is essential reading.” —Reid Hoffman, cofounder of LinkedIn and coauthor of Blitzscaling


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RESEARCH


C OVE R STORY

LIFE AFTER GE Serious about embracing digital technology—and diversity—Synchrony’s Margaret Keane is on a mission to transform a stodgy industry. BY J.P. DONLON PHOTOGRAPHS BY CELESTE SLOMAN

M

argaret Keane is no stranger to personal hardship. Raised in a tight Irish-Catholic community in New York’s borough of Queens where those who didn’t grow up to become policemen usually went into the priesthood, Keane worked two part-time jobs while putting herself through college. Three of her brothers were, in fact, policemen or married to someone in law enforcement, carrying on a public service tradition started by her grandfather. Money was tight. When her father fell ill, Keane took on a third job working for Citibank as a bill collector. Her father hoped she might join the force, but she had other ideas. After graduating from St. John’s University in Queens, she took a fulltime job with Citibank partly because the company paid for her MBA. Over the next 16 years, she learned the ropes of consumer finance, eventually running U.S. retail operations before being recruited to GE Capital, where she became CEO of its credit card unit in 2011. Plainspoken and down-to-earth, Keane earned respect in the male-dominated U.S. financial sphere, where few women rise to the top. She won high marks in the aftermath of the financial crisis, when GE Capital Retail Finance, as the division was known, was grappling with

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regulators pressuring credit card companies to lower fees at the same time that retailers were suffering from consumers’ cutbacks. Keane saved strained relationships with store-brand credit card partners by explaining the company’s moves and working out compromises with unhappy retailers. In 2014, GE initiated a spinoff of what became Synchrony Financial, and Keane became the new entity’s president and CEO. Today, the $15 billion Stamford, Connecticut-based firm she leads is the country’s

“We were not going to be a GE... We didn’t have the same level of panache when we sat around a negotiating table, so we had to adjust our egos accordingly.” largest issuer of private label credit cards, powering the credit offerings of retailers like The Gap and JCPenney, as well as those of e-commerce giants like Paypal, eBay and Amazon. It’s a sector growing by 3 percent annually, according to Packaged Facts, which reports that private label cards account for $210 billion in purchases annually—and that approximately half of those purchases are made using Synchrony cards. Since the company’s IPO, Keane has made it a critical mission to drive growth by leveraging technology. Early on, she created Innovation Stations consisting of cross-functional teams focused on digital, data analytics and enterprise operations. Based in Stamford, Connecticut; Chicago, Illinois; Kettering, Ohio; and Hyderabad, India, the centers seek to optimize the use of technology at the point of sale. The concept of an innovation center originated after a trip Keane took to Silicon Valley, where she saw how digital technology was being used and recognized its potential for the financial world. One result is Sydney, an AI-powered virtual assistant available 24/7 that covers more than 500,000 chat requests monthly. Trained to answer questions about opening accounts, payment options, log-on issues and rewards programs, Sydney also leverages machine learning on calls in order to en-

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hance its consumer needs knowledge base. Linking with big partners outside traditional retail, such as airlines and car companies, is also a focus. And Keane is steering expansion into new industries. Synchrony’s CareCredit arm offers point-ofsale financing at medical offices, veterinary clinics and day spas. In 2019, Synchrony acquired Pets Best to help CareCredit edge into the large and growing pet care financial services market. Keane’s decision to diversify comes at a crucial time. In 2018, Walmart opted to move its credit card programs from Synchrony to Capital One Financial, prompting a dip in the bank’s share price. The company recovered swiftly, buoyed in part by a deal to develop a Venmo card for PayPal, already a customer, and news of an extension of its card partnership with Sam’s Club. In addition to strengthening its retail partnerships and driving toward diversity, Keane has worked to forge a culture of inclusion at Synchrony. There are eight diversity networks, and 10,000-plus employees are part of at least one. The company ranks among Fortune’s 100 Best Places to Work and won similar recognition from Glassdoor and the National Association for Female Executives (NAFE). As of last year, 18 percent of its senior executives were women, and women accounted for 63 percent of its U.S. workforce and a third of its board. “I can’t change the world,” Keane told an audience at an Elevate Action Summit conference, “But what I can change is how we treat employees inside the company; understanding what they’re going through when they walk outside of their house and come to our office.” Chief Executive’s J.P. Donlon recently spoke with Keane about her experiences leading Synchrony since its inception. Excerpts, edited for length and clarity, follow. What were your priorities and challenges when Synchrony was spun off from GE? The hardest thing was just time. The Fed put fairly stringent requirements on us to make sure we were ready, and getting all this done in a tight timeframe was hard. It meant that we had to work seven days a week for quite a


Synchrony ’s Five-Year Financials By the end of Q3, Synchrony’s 2019 net income had already surpassed total net income in 2018.

$14.810B

Net Income

$13.570B $12.124B

$11.651B*

$10.833B

$10.126B

5-year CAGR (2013-2018) 7.11% 4-year CAGR (2014-2018) 7.25%

Net Income

$2.109B

2014

Total Revenue

Total Revenue

$2.214B

2015

$2.251B

2016

while. But in some ways it energized us and brought the team together. Having this big goal and knowing that GE was dependent on us doing it was a rallying cry for the team. To get approval from the Fed, we had to build out a number of capabilities that we would have been getting from GE. For example, we needed our own tax department, certain finance functions, the separation of our IT and new data centers. We hired around 2,500 people in that one year to get us ready. And the Fed was actually doing reviews of all of our functions to ensure we were ready. So it was just an enormous amount of what I would call real roll-up-your-sleeves tactical kind of work to make sure that we were successful in the split-off and getting the approval. At the same time, we had to think through starting our own board. Initially, we had three external directors and five GE directors. So we had to continue to hire directors so that when the split-off happened, those directors were well-versed in the com-

$2.790B

$3.016B*

4-year CAGR (2014-2018) 7.70%

$1.935B

2017

5-year CAGR (2013-2018) 5.88%

2018

2019 (YTD)

*through Q3 2019

pany. So, there was a period of time where we had a lot of people in the boardroom as we were getting ready for the spin-off. Afterward, we had to think through what our culture would be like ex-GE. This meant spending time on our purpose, our mission and our values, which we continue to drive and refine. In fact, we just went through another exercise recently to make sure everything still made sense. We’ve made some refinements to our mission, but our purpose is still whole, and our values are still the same. And that’s really how we’ve led the company since we separated. How would you contrast the culture of the company today from that of GE? We tried to take the best of all worlds. There were certain things that GE did really well. They are a performance-driven company. But on the other hand, we were not going to be a GE. We were a much smaller company. We didn’t have the same level of panache when we sat around a negotiating table,

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so we had to adjust our egos accordingly because we weren’t GE. We had to change our focus from B2B to B2C and think through how best to serve our partners and what investment this would require. We knew everything was going to digital, so we really tripled down on getting the company ready for digital technology. How did your tenure at GE, known for leaders like Jack Welch and Jeff Immelt, among others, influence your leadership style? I’m not going to choose any particular CEO, but one of the things I took away from my GE experience is the importance of listening. It’s important for a CEO to listen, have a pulse about what’s really happening and not think you’re the smartest person in the room because then it’s easy for you to talk yourself into things.

“What people are looking for is for institutions to be clear and transparent with their customers, and there’s no reason we shouldn’t want to do that.” Considering how fast the pace of change is today, a leader must stay open to new ideas and where the future’s going. A CEO must create an environment where people are able to have that dialogue, so that you’re not the one forcing certain things just because you happen to be the CEO. It’s important that the organization and leadership team are very competent, but also, you need to make sure you’re pushing each other enough to get the best answer. I came to GE in mid-career, but one of the things that I always admired was that its leaders were very decisive. Once they made a decision, they made sure it was resourced, and they went forward. The worst thing you could do in an organization is not be decisive and not have a clear vision of where you want to be. I definitely took those lessons from GE. You’ve said that credit cards—your largest source of revenue—are going away within five years. What does that mean for Synchrony?

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Plastic. Plastic cards will go away as more people use devices such as mobile phones. There will always be underwriting and some form of a credit line. That will not change, but what will change is a customer’s experience at the point of sale, whether it’s on your phone, sitting at home or shopping at a physical location. We’re already seeing this with Apple Pay, Amazon Pay and the like, where it’s just a lot easier to click a button than to actually pull out plastic and swipe. As a result, people will pull out plastic less. But the actual process of credit is going to be similar. We made an acquisition called GPShopper that helps integrate payments into a retailer’s mobile app. More customers want to shop in a mobile environment. Amazon is a great example. Shopping on Amazon allows you to click your payment. We will see more of this as apps are embedded, making it easy for customers to pay. Do you see fintechs as a competitive threat? It’s hard to say because I still think you need credit at the end of this process. And to issue credit, you need a bank. So, without a big change in banking regulation, which I don’t think will happen, it’s more about how do we partner with the fintechs and less about them. Consider PayPal as an example. We’re behind PayPal, that’s a real positive for us. It’s a growing fintech payment company with Synchrony in the background. This is where the world is heading. The public’s trust in financial institutions has been on the wane. How are you addressing that? I can’t speak for the whole banking world, but the Wells Fargo situation hurt the whole industry. It’s more important than ever for us as an industry to make sure we’re treating our customers well with respect to whatever product we’re selling. We have certain values as a company that we live by. These include being honest and responsible. It’s not beneficial for us to put credit in the hands of someone who’s not ready for credit or shouldn’t have that credit. We have an even bigger responsibility because in many cases we represent our


partners’ brand. So, we have to make sure we’re delivering not only for that end customer but also living up to the brand of the partners that we work with. It’s something that we talk about all the time. Remember also that we have human beings involved and sometimes mistakes happen. So then the question is, how do we fix it? How quick do you make that customer whole? How do you treat that customer through your customer service experiences? Elizabeth Warren is determined to put consumer finance in the government’s crosshairs in 2020. What are you doing to prepare for the possibility of her becoming President? We’ve been in this business for 85 years. We’ve seen a lot of change in the industry itself, and I think we know how to adjust and change if that needs to be done. We went through the CARD Act, which was probably one of the biggest transformations that occurred in the banking industry for credit cards, and we came through that just fine. What people are looking for is for institutions to be clear and transparent with their customers, and there’s no reason we shouldn’t want to do that. We’ve been here a long time. We started in the depression. There will always be consumer credit. People need credit. That’s how the economy rolls. It’s just a question of us making sure we continue to deliver in a fair and transparent way for consumers. How is AI changing your industry? It’s still early days on AI. Its immediate impact is the leveraging of data more effectively to do our models better, find fraud more easily, authenticate a customer more easily. Down the road we will employ AI in our back office, such as using chatbots to allow customers to talk to us so that, over time, easy customer service questions will get answered that way. We’re always going to have to have people who talk to people. The goal is to have the simple calls go away, and the more complex calls stay. In some cases, we can combine the roles and create better jobs for people in the

future. We want to make sure we’re preparing our organization for that shift and training and developing them in new technologies. Every company has a responsibility to step back, look at how this will change their workforce and make sure that they have the right programs for development. We take skill development very seriously. You’ve observed that half the workforce will need to be reskilled over the next five years. What are you doing at Synchrony? We’re doing a lot of things. We have technology boot camps. We’ve partnered with third parties to come in and teach our employees coding. In the future, we may or may not need as many people as we have today. So, we expanded our tuition reimbursement program to include areas like healthcare and teaching because we think those are two important areas. We pay for their college, and they go on to new roles outside the company. We want to ensure that we’re taking care of our employees as we go through this transformation. What steps have you taken to protect Synchrony from cyber breaches? We’re always on guard. We had to build our whole [cyber] team when we split from GE because it was something GE took care of

Keane is “tripling down” on getting Synchrony ready for digital technology.

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for the most part. Ours is a talented group of people. We have partnered with the University of Connecticut, giving them a $3 million grant and helping them build out their cyber curriculum. We have UConn graduate students helping us build and strengthen our cyber safety net. Cyber is a new type of warfare that requires you to be on your game every single day. We train our employees to look for phishing and malicious software. But vigilance has to happen at all levels of the organization—not just the cyber team. We’re constantly training people

“Are you as the CEO spending your time in the most impactful way every single day? My job is not just to be internally focused but to be externally focused.” not to open things they don’t recognize. It has to become a part of the culture of the company that thinks about how we protect our consumer and our consumers’ data going forward. In addition to engaging experts, we have experts in the field on our board who are constantly helping us with our strategy and techniques, who we are hiring and where we’re hiring. Is cyber the thing that keeps you up at night? Yes, because it’s just a scary world out there. I’m sure all these companies that have had problems thought they had all the right tools in place, right? It’s something you can never get too comfortable with. This is why my team repeatedly undertakes exercises on what would happen if there was a cyber event, how we would lead, what we would do. Last August, the Business Roundtable issued a statement positing that a wide array of stakeholder interests are as important as shareholders’. What is your view? Our number one job is to deliver for the shareholder; that will remain number one. But in light of that, we have to make sure

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as leaders that we’re looking out for other constituents and making sure we’re taking care of those as well. It’s not an either-or situation. You need to take care of them all. At the end of the day, shareholders are the primary people who are keeping us in business, so we have to make sure we’re delivering for them, but... Look, we’re responsible leaders. We’re CEOs. I have to take care of my employee base. I have to take care of my customer base. I should be thinking about what we can do about the climate. These are all real issues. And as a leader, I should be addressing them. But I also have to make sure I’m taking care of my shareholders at the same time. So I don’t disagree. We have responsibilities as CEOs to be good in our community. True, but the question is what gets the highest priority? It still has to be the shareholder that gets the highest priority because that’s why we’re here. But that doesn’t mean we should forget about everything else. As leaders we have to be able to make sure all boats rise. In my opinion, a leader should be thinking about your community, your employee base and making sure you are paying a good wage so that people are coming to work every day. In addition, you should be thinking about the environment. You have to play a role in all of these things, but it’s not either-or. It’s all of them. But at the end of the day, the shareholder is critical. How do you feel you have changed as a leader from your early career to your present experience? It’s hard to say, but probably the biggest is having greater self-awareness of being a leader where you have big impact on everything and everyone. It makes you think about how and where you spend your time. Are you, as the CEO, spending your time in the most impactful way every single day? My job is not just to be internally focused but to be externally focused. Also, as a woman, I have a responsibility to represent diversity. I’m a role model for what could be. Having self-awareness around all this is really important. CE


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BEST IDEAS

THE BEST IDEAS FROM CEOs FOR 2020 How to win in the year ahead? Love your people, fix their finances and think in threes (you’ll see). Oh—and try putting away the phone for a bit. WELCOME TO 2020. To help you get off to a great start, Chief Executive reached out to some smart people in the CEO community and came up with 21 pages of ideas—big, small, contrarian, odd and otherwise—to get things underway. First up: To get the best out of your people, show them love (page 34) the way Bob Chapman, CEO of Barry-Wehmiller, does, trying to treat every one of his employees as if they were his family. A good way of showing that love—one that will become, I predict, a sought-after employee benefit in the coming decade—is to help them get a better grip on their personal finances (page 40), especially in this era of mounting personal debt and rising financial anxiety. Of course, you should also build trust with employees. Joel Peterson, chairman of JetBlue, will tell you how—its a topic he literally wrote the book on (page 50). If you’re up for contrarian tips, try embracing your weakest link (page 52) or paying your top executives very unequally (page 54). When we asked Fred Hassan, the legendary CEO-dealmaker behind the rise of pharmaceutical powers Pharmacia and Schering-Plough, for an idea, his response was “think in threes” (Fred explains what he means on page 48). A host of other CEOs were kind enough to share what’s top of mind for them in 2020 as well, from saying “good morning” to Vietnam (page 51) and asking millennials to put down their phones and talk to people (page 53) to making yourself a bit less reachable in the year ahead (page 55). We thank all of them for sharing—and hope you find something in here to spark your own ideas for the year to come. —Dan Bigman, Editor

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LEADERSHIP

LOVE YOUR PEOPLE

Bob Chapman, CEO of $3 billion Barry-Wehmiller, has a radical idea: Treat your people like family. Do that, he says, and they’ll transform your organization. Welcome to the respect revolution. BY DALE BUSS

B

OB CHAPMAN IS GLAD TO SEE the folks at the Business Roundtable are woke. The group’s recent redefinition of the purpose of corporations—to include the needs of stakeholders such as employees as well as shareholders—got the work-culture guru opining that it’s about time America’s most august collection of CEOs caught up to him. “Bravo!” Chapman wrote on a public post on LinkedIn, a few days after the Business Roundtable proclamation. “Now the real work must begin. Moving from intention to action to indoctrination will require significant resources and a great deal of courageous patience.” Who is this guy inviting the captains of capitalism to follow a path he first trod? The 74-year-old Chapman is a mild-mannered former accountant, not a new-age digital-tech entrepreneur. His manufacturing company fabricates old-school metal things like pressure-sensitive labeling machines in Minneapolis and facial tissue-making equipment in Germany. Chapman wears a Western-style string tie and talks about employees being “someone’s precious child.” His company, Barry-Wehmiller, is headquartered in St. Louis—geographically near the center of America but considered the boondocks by coastal cognoscenti when it comes to sophisticated, global-level thinking

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JANUARY/FEBRUARY 2020 / CHIEFEXECUTIVE.NET

PHOTO BY HOYOUNG LEE

about leadership and management. Yet, Chapman attracts disciples from every corner of business and around the world. He built a privately held, $3 billion diversified manufacturing empire by acquiring low-hanging fruit in 110 separate transactions over 45 years. He’s also spearheaded the transformation of the culture of Barry-Wehmiller and its 12,000 employees, as well as that of each new company he brings into the fold. His basic notion is that business leaders must recognize that work life is the single biggest determinant of how a person performs not just vocationally but also personally, and that the way to ensure a happy, productive workplace is to treat every employee like family. Not only does this approach transform what happens on the job, but it can have profound effects outside work and on an employee’s overall satisfaction with life. Chapman distilled his approach into a broad formula he calls Truly Human Leadership and in that he encourages business leaders to enact in their own ways (see sidebar, p. 37). How to do so begins, in his view, with creating a robust enterprise. “You need to have a resilient business model, because if you don’t, you’ll hurt the very people you want to help,” Chapman says. “You can also have a profitable business model but really hurt people getting there.” With that base, practitioners of Truly Human Leadership conduct what Chapman calls “business visioning,” which encourages stretch goals, and “cultural visioning,” in which leaders get hopeful about transforming the workplace with values and behaviors. He recommends creating a “leadership checklist” of the actions managers and executives should take every day. Lean thinking and continuous improve-

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ment play roles, too—although aimed not at replacing jobs but at enhancing outcomes. Leaders should encourage their charges to exercise “responsible freedom” to make choices without fear of second-guessing. They must also continually look for opportunities to recognize and celebrate achievements, awarding “firefighting” and “firelighting.” SPREADING THE WORD Chapman began sharing his employee-centric management philosophy in a popular TED talk in 2012, codified it in a book in 2015 and now spreads the gospel in about a dozen speeches and appearances around the world each year. Meanwhile, consulting wings of Barry-Wehmiller help enact culture-change at eager clients that range from American Airlines to Meijer to the San Francisco 49ers. Chapman’s results “prove that it’s not the work that matters—it’s where and with whom and who our leaders are,” says Simon Sinek, the Start With Why organizational consultant and Columbia University professor who was an early booster of Chapman’s philosophy. “It’s a better way of doing business than the current bastardized system of capitalism, with short-term thinking that is good for Wall Street but bad for companies and the workers themselves.” “Bob has found ways to get enormous things out of average people, and most of us are average,” adds John Stroup, CEO of Belden, a St. Louis-based, $2.6 billion manufacturer, and a member of Barry-Wehmiller’s board since 2008. Putting people first, as in Chapman’s book, Everybody Matters: The Extraordinary Power of Caring for Your People Like Family, is hardly a new idea. But the fact that it’s gone largely underutilized is borne out by damning statistics on American employee disengagement even amid a strong U.S. economy and nearly full employment. “I experienced three revelations that my

“We constantly ask business leaders, ‘Where is the unit going? Why? When you get there, how will this have taken people to a better place?’”

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ideas are built on,” says Chapman. “First, why can’t business be fun? Second: business is the most powerful force for good in the world. And, third, everyone who works for you is someone’s precious child.” This kind of philosophizing was far from Chapman’s mind in 1975 when, at the age of 30, he took over as CEO of Barry-Wehmiller after his father, the previous chief, died of a heart attack. The company had diversified from supplying bottle-washing equipment to breweries to making other packaging systems. But it was flirting with bankruptcy. Chapman launched a company turnaround and began getting good ROI—but with a poor culture. “At one point he told me he thought our executive team got along pretty well,” remembers Rhonda Spencer, Barry-Wehmiller’s chief people officer. “I asked him, ‘Where are you working? We’re killing each other out here.’ It was like most other companies. It was never a bad place to work; it just wasn’t special. It was exciting because of all the growth, but there was nothing purposeful about the culture.” Chapman continued on the first of what he calls his two journeys: value creation. Following the philosophy of the late Charles Knight, the iconic leader who was still CEO of Emerson Electric at the time, Chapman diversified his company away from its historic business, concentrating growth in no single market or technology. He focused on hardluck potential acquisition targets, forswore banks for financing the deals and hoarded cash to get them done. The result: year after year of double-digit growth in revenues and profits. “If he weren’t so good at what he did, there would be no way for him to create the environment he’s created,” Stroup says. “He has great business insight.” For example, “I can’t remember a time where he’s overpaid for a company. If he can’t buy a company on terms that he thinks are good for shareholders or employees, he just walks away.” PARENT LEADERSHIP LESSONS Chapman’s “human journey” is his other trek. As he built Barry-Wehmilller, he found himself relying on insights from raising six children with his wife, Cynthia Chapman,


THE HOW OF HUMAN LEADERSHIP Few CEOs argue with Bob Chapman about treating employees better, and many marvel at his recounting of the results of his philosophy at companies across America. But they wonder: How do I do it? We asked Chapman and CEOs who’ve tried Truly Human Leadership for tips: Start simply: Chapman writes in Everybody Matters, “People often ask, ‘Bob, how can we do this? Where do we start?’ It starts with caring about the people you lead, which means listening deeply to them and inspiring them to share their gifts fully. We then celebrate their journey toward our shared goals, in ways that are thoughtful, timely, and proportional.” Succeed in business: “It’s not as simple as just caring,” Belden’s John Stroup says. “That’s incredibly important, but without a successful business you can’t create what they’ve created at Barry-Wehmiller. What [Chapman] demands is a commitment to culture, then makes big investments in training to help people learn to be more effective.” Joe Wilhelm, president of BW Design Group, says that adherents should “never compromise the fundamental sustainability of the business as you try to implement your vision. People are counting on you to have a safe place to work.” Get serious: Sinek complains, “Every CEO says people are important; they just don’t make decisions that prioritize their people or make their culture stronger. You need to be a true student of leadership, actually out there talking and learning and asking for advice.” Also, advises Chapman, apply discipline during good times. “If you never gain weight,” he says, “you never have to lose weight. The best time to transform a culture is when the business is healthy.” Assume difficulty: Chapman gets many requests for what amounts to a detailed handbook for Truly Human Leadership. “It’s like, ‘What do you want from me?’” Sinek says. “Bob’s frustration is that there are no ‘five steps to achieving great culture.’ It’s practice; it’s lifestyle. It’s not a two-day off-site. So Bob isn’t going to give you a checklist, because it wouldn’t work.” And there are no shortcuts. “It’s the

layer of leaders at lower levels who need to be about discipline and process and market leadership and all the things that bring people along and engage them in the vision,” Spencer says. “You have to engage people in creating their own future but through continuous improvement, making things better and changing things that are frustrating to them.” Use common sense: “How do you treat a loved one? With respect,” says Matthew Whiat, a Leadership Institute partner. “It doesn’t mean you don’t let people go, but if you do, you do it in a respectful manner.” Adds Lippert Components CEO Jason Lippert: “Everyone who has common sense knows what empathy is. And we also hold people accountable.” Apply first aid: To revive a struggling organization, Chapman advises communicating a strong message of hope, taking immediate and tangible actions to “get the patient healthy,” such as fixing the most compelling problems and removing obvious bottlenecks, starting to build teamwork and a sense of oneness, and catching people “doing things right” instead of wrong. Vow to share sacrifice: Don’t overpromise. “You can’t say that you’ll never lay anyone off—that would be a bit of a fallacy,” Wilhelm says. “But the key is to do everything possible to protect [employees], because we’re in this for the long term.” Tap into “visioning”: Chapman calls visioning “the most powerful tool in leadership, forcing an organization to articulate its assumptions and aspirations and helping paint a vivid picture” of what they want the company to become. “We constantly ask business leaders, ‘Where is the unit going? Why? When you get there, how will this have taken people to a better place?”” says Chapman. Check your motives: Truly Human Leadership isn’t meant as a cudgel for achieving specific results. “If you start with the wrong reason, you end up with the wrong result,” Chapman says. “You don’t do this to make more money or improve retention. It’s—if you look at the people you have the privilege of leading, how can you not do this?”

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more than anything else. “Bob’s thinking grew as his family and the complexity of dealing with them grew,” says Raj Sisodia, Chapman’s co-author. “I was trying to fix this 100-year-old business with what I learned in business school and graduate school,” Chapman recalls, “but I came to define the word ‘management’ as ‘the manipulation of others for your success.’ What I learned about being a good parent was about leadership. And everything I had learned in business school was wrong.” Still, it wasn’t until 1997 that holding a March Madness bracket competition in the headquarters office opened his eyes to the transformative power of fun in the workplace. “We saw a significant improvement in performance and a dramatic change in joy from that one exercise,” he says. From there, he and Spencer began collecting maxims that already littered Chapman’s office walls, and a 2002 summit of the company’s 20 top leaders produced a seminal manifesto. “We came up with a foundational document that guided us, and then we said we have to go out and preach this in the company,” Chapman says. “Where we were not living these values, employees would point it out.” A copy of Barry-Wehmiller’s Guiding Principles of Leadership still hangs in the headquarters’ lobby. The journeys began converging in places such as at Paper Converting Machine Co. in Green Bay, Wisconsin. In the early 2000s, the family-owned, $200 million maker of giant machines for tissue-manufacturing companies was a dysfunctional mess with wild swings in business, market-share losses to foreign competition, counterproductive micromanagement on the factory floor, unpredictable layoffs, a top executive layer that was financially insulated from its own poor leadership and, not surprisingly, a toxic culture.

“I experienced three revelations that my ideas are built on. First, why can’t business be fun? Second: business is the most powerful force for good in the world. And, third, everyone who works for you is someone’s precious child.”

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Barry-Wehmiller acquired the company in 2005, and Chapman went to Green Bay to promise a revival to the 1,000 employees. “I said, ‘We believe in you. We can turn this business around, and we can do it with the people who are here today.’” Barry-Wehmiller extended the operation’s customer base, embarked on a continuous-improvement process, boosted quality and applied Chapman’s people philosophy. Turnaround ensued within two years, and a few years later, Paper Converting Machinery Co. stood as a model of a transformational culture. CARE IN MOTION For Barry-Wehmiller as a whole, the rubber met the road during the Great Recession, when its business suddenly plunged by nearly 40 percent for a time. “Before we’d published our guiding principles, I would have done exactly what everyone else did: dehumanize, downsize, make layoffs, rightsize,” Chapman says. “So we said, ‘What would a caring family do?’ We’d all pitch in and take a little pain.” The company furloughed everyone for a month and suspended 401(k) matching to spread the sacrifice. “People were more than willing to do it so their friends at work didn’t get hurt,” he says. “Senior leadership members volunteered to take weeks off for someone else. Caring for each other was amplified dramatically. Morale went up.” Another benefit of handling the pain without layoffs was that Barry-Wehmiller was fully coiled when the economy recovered, and the company enjoyed its fastest growth from 2011 through 2013. It has continued to report double-digit performance gains year after year. Eight years ago, Chapman reached out to Sinek to see if he would be impressed. “I went to visit four factories and was blown away,” recalls Sinek. “But I told [Chapman] until they shared the means for providing this culture where people love coming to work, it’s pointless. That really shook Bob, and he committed shortly thereafter to being much more public and open and willing to share what they’d learned.” The proactive thrust included spreading the Truly Human Leadership philosophy through its internal “university;” through


business units such as BW Design Group, a technology-consulting arm that alone has 1,500 professionals serving clients worldwide; and by creating, in 2016, the BW Leadership Institute, recently renamed the Chapman & Co. Leadership Institute. A committed Episcopalian, Chapman resists making his philosophy an instrument of proselytization, even though he says he’s “blessed by a higher calling to spread this message. I don’t want to exclude anyone from the tent. I use the word ‘care’. It’s universal.” DEVELOPING DISCIPLES One of the Leadership Institute’s first clients, Webasto Roof Systems, an auto-sunroof supplier in Rochester Hills, Michigan, began its Truly Human Leadership journey with a company-wide, weekend-long “summit” at a casino in Detroit, where employees spent hours in exercises such as openly celebrating small achievements by their fellow workers, face-to-face around banquet tables. Other leaders took a DIY approach to embracing the philosophy. After looking up Chapman’s TED talk, Lippert Components CEO Jason Lippert decided to apply Chapman’s ideas to the 800 leaders in his RV component manufacturing company of 9,000 employees. He hired 10 leadership coaches and six “personal development” coaches for those leaders to help them live out a corporate philosophy Lippert called “Everyone Matters” and to drive it down through the ranks. “We created five clear leadership values, and if [leaders] don’t live by those values, they can leave,” Lippert says. Among results: Attrition shrank to about 28 percent from 115 percent in five years, even amid fierce labor demand in the RV business. Marc Braun, president of St. Louis-based Cambridge Engineering, flew with Chapman to a Barry-Wehmiller operation in Wisconsin, where he interviewed a handful of employees. “Real people shared real stuff,” says Braun, whose HVAC-equipment manufacturing company has succeeded in its own cultural transformation. “It’s what allowed me to know that the heart behind it is real.” Not every company scores immediate or broad success after unwrapping Chapman’s

precepts. American Airlines, for example, struggled with union-contract disputes last year, three years after welcoming in Leadership Institute consultants to reprogram top management, under CEO Doug Parker. The airline is “improving systems and operations as the culture moves along, but it’s a challenge when you’re trying to work with 130,000 people,” says Matthew Whiat, an Institute partner. With the next economic slowdown, whenever it comes, companies that have embraced Chapman’s approach—including his own—may face a huge test of their commitment to Truly Human Leadership. Meanwhile, Chapman continues to expand his personal efforts to spread a philosophy he believes can improve both businesses and the work lives of their employees—one that originated with a relatively obscure manufacturer in St. Louis. “We’re actually known more already now for our culture than our products,” Chapman says. “I’m incredibly proud.” CE

“What I learned about being a good parent was about leadership. And everything I had learned in business school was wrong.”

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WELLNESS

FOLLOW THEIR MONEY

ART HELTON’S HOUSEHOLD finances were confused by a bunch of factors, including student debts, sparse savings and a budgeting style that was vastly different from his wife’s. So, when Helton’s employer, True Homes USA, offered him $250 to take a company-paid financial-planning course online and complete it within a year, he jumped at the opportunity. And it paid off in ways he hadn’t imagined. “We finally started putting aside some money for a honeymoon after almost 27 years of marriage,” says the 56-year-old help desk technician for the Monroe, North Carolina-based home builder. “And we were able to go to Hawaii for eight days and seven nights last year.” Les Gleaves, the company’s executive partner, says

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the company’s program has had a “life-saving impact” for some employees. “People who didn’t have their finances under control now have a handle on them and understand them,” says Gleaves. “We’ve had people paying off car loans and setting up rainy-day funds; it’s created great discipline.” Such anecdotes help explain why an increasing number of U.S. companies are extending “financial literacy” benefits to their employees to help them more wisely manage, spend, save and invest the money they’re already earning. More than 4,000 client companies with a total of more than two million employees, including Costco, have engaged Dave Ramsey’s SmartDollar program over the


Your employees’ financial life is none of your business— but maybe it should be. BY DALE BUSS

last several years, for example. And 200-plus companies have contracted SunTrust Financial to teach its Momentum onUp program, up from only a dozen just three years ago. One of the newest providers is BrightPlan, a lender that has veered into the financial literacy space. “One of our goals is to be a No. 1 place to work,” says Kevin Greiner, CEO of Gas South, a mid-market utility based in Atlanta. “So we’re looking at needs and financial stresses that we see even as an employer. We felt there was a need for a service around building financial confidence.” PROGRAM PAYOFFS

“Fin lit” can be a helpful way for employers to engage the financial insecurities that many rank-and-file

Americans feel despite a robust economy and record employment. Programs can help companies hold on to their workforces. They’re said to boost productivity and cut healthcare costs because employees are less stressed personally. BlackRock CEO Larry Fink called out the problem of Americans’ financial insecurity and illiteracy in his widely read annual letter to shareholders last year, which said that workers’ “lack of preparedness for retirement is fueling enormous anxiety and fear, undermining productivity in the workplace and amplifying populism in the political sphere.” His recommendation? “Companies must embrace a greater responsibility to help workers navigate retirement, lending their expertise and capacity for innovation to solve this immense global challenge,” Fink wrote.

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“During the last recession, people woke up to the need to be financially literate...There was a psychological aspect to their desire to be better and not make the same mistakes again.” —Brian Ford, SunTrust Even a financial services outfit has found value in helping its employees with financial literacy. “We’re a bank, so we thought our employees would be much more advanced than not in thinking of setting up an emergency fund,” says Joseph Rizzuto, administrative vice president of retirement programs for M&T, a bank holding company headquartered in Buffalo. “Then folks from [investment firm] T. Rowe Price told us they have a program, and that was a two-by-four to the head for us.” Financial literacy curricula are online and provide modules that cover topics such as budget making and keeping, establishing an emergency fund, reducing debt, saving for current expenses and retirement, and affording big life phases such as buying a home and paying for kids’ college educations and weddings. Content includes quizzes, expert lectures and the stories of successful students. The programs track progress and may integrate an individual’s entire financial portfolio. They typically cost companies roughly $10 to $30 a month per employee, plus any signing or completion bonuses employers offer. Both providers and clients describe big paybacks for employees. M&T, for example, so far has tallied a “financial turnaround” amounting to $5.1 million, which represents the sum of resulting debt reduction and savings increases by employees. Using a similar formula, Nashville-based Ramsey says that the average Smart-

Dollar participant experiences a turnaround of $16,200 in the first year. San Jose, California-based BrightPlan says there’s a three-dollar return in hard savings by employees for each dollar invested by one of its client companies. The need—and CEOs’ responses–came up in the rearview mirror because the U.S. economy has been humming lately and at least growing minimally for a decade now. “But during the last recession, people woke up to the need to be financially literate, things were so bad,” says Brian Ford, who created the financial literacy program used by Atlanta-based SunTrust and is now the financial wellness executive for the banking giant. “There was a psychological aspect to their desire to be better and not make the same mistakes again.” THE COMING STORM

Indeed, a number of frightening statistics attest to the financial burdens Americans still carry and to the insecurities they still feel. Consumer debt is at a record inflation-adjusted $4 trillion, not including mortgages. Auto debt is up nearly 40 percent in the past decade. The cost of living keeps rising, of course. Meanwhile, about half of Americans don’t have any money for an emergency. Many are filching from their 401(k)s. And millions confront the scourge of student debt (see sidebar). Yet, despite decades of concern, there remains little financial literacy education for young people. Just 19 states require a personal-finance class for high-school kids to graduate, and that’s only after a recent spurt of new legislation. More than half the students at Georgia Tech University lack fundamental knowledge of savings, investing and compound interest rates, says business professor Jonathan Clarke, who teaches Personal Finance 101 at the school. Millennials are the focus of the problem, as the most populous generation and the backbone of today’s American workforce. They also tend to be the shakiest when it comes to money, beyond the mere tendency for humans to get more financially responsible as they age. For one thing, their


IS THEIR DEBT YOUR PROBLEM? THE $1.56 TRILLION AMERICANS are carrying in education-related debt is major ballast in our national indebtedness, a huge drag on the economy and depressing grist for politicians. Most important, for millions of workers, it’s an individual albatross that fuels financial insecurity and skews everything from what kind of job they take to whether and when they get married. Helping employees with student debt is becoming a component of talent management. Survey data suggests 90 percent of young workers would commit to a company for five years if it gave them some loan relief, and that workers with student debt stay at their jobs 36 percent longer if employers help pay off loans. According to American Student Assistance, 23 percent of employers are considering such programs. “It’s a combination of competition and making sure companies are doing the right thing for their employees,” says Lydia Jilek, director of voluntary benefits for Willis Towers Watson. Fidelity Investments, for instance, now offers $2,000 a year, up to $10,000 lifetime, for most full-time employees in payments directly to the loan provider, and about 6,000 of the eligible 24,000 employees are taking advantage of it. Mid-size employers also are stepping up: Hodges-Mace, for example, contributes $1,000 a year to employees for student-loan repayment. Abbott Laboratories introduced a plan in mid-2018 to contribute 5 percent of pay to a tax-deferred 401(k) plan for each full- or part-time worker who directed at least 2 percent of pay toward reducing student-loan debt. The Internal Revenue Service approved. “When employees have invested in their education so they’ll get hired, we don’t think they should be penalized,” says Mary Moreland, divisional vice president of compensation and benefits for the Abbott Park, Illinois-based drug maker. “So we wanted to come up with an innovative way to address student-loan issues and help them save for retirement. It shows we deeply care about them.” Here are tips for considering help for employees with student debt: Make sure it’s a need: “Don’t do this just because it’s the next hot thing,” Jilek says. “Assess first if it’s critical to your employees and prospects. It may feel to companies that everyone else is doing this and they need to do it right away, but so far that isn’t the case.” Only 7 percent of workers rated student debt as their No. 1 personal concern, but about 70 percent identified “comprehensive financial wellness” as their biggest need, in a study of 7,500 people by BrightPlan.

Consider a narrow focus: Because these programs aren’t regulated by the federal government, companies are free to create customized student-debt programs that target only particular types of workers they face difficulty recruiting, such as engineers or nurse-anesthetists—or only workers in certain parts of the country. Beware tax implications: Employers like PwC, Fidelity Investments and Aetna are giving employees cash to help reduce loan debts. But one downside of that approach can be that it raises workers’ income taxes. Don’t ignore older workers: Student-loan struggles aren’t restricted to young people: Many of their parents and grandparents are wrestling with the debt because of defaults by their offspring, who are graduates and dropouts. Plus, older employees have other financial burdens that millennials won’t experience for decades. And some boomer and GenX employees are wrestling with their own student debt for a graduate degree or for taking on the cost of retraining in the wake of the Great Recession. Abbott was surprised to find that 10 percent of the enrollees in its debt-relief program are 45 or older, showing that “student debt lingers,” Moreland says. Raise awareness: Employers can educate workers and their families about how to avoid student debt in the first place, by, for instance, advising them of loan costs and promoting alternatives to college. About half of 2,400 student borrowers surveyed by LendKey said they didn’t know while they were in school what their monthly payments would be when they got out. “They need to go in with their eyes wide open,” says Michael Stallmeyer, COO of the New York City-based lender. Watch for new rules: The U.S. Treasury was expected to rule as early as this year on whether all employers legally can contribute a match into a 401(k) for every student-loan payment an employee makes. Also, student-debt programs could be made taxfree for employees through legislation introduced by Senator Mark Warner (D-Va.) that has bipartisan support. Companies already can contribute up to $5,250 per employee in tax-free tuition assistance each year.

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boomer parents aren’t credited with doing a great job of teaching them to become financially literate. “For millennials, there’s an added issue similar to what happened to the Great Depression generation: They lived through a period of time when they saw their parents maybe lose half of their 401(k) or lose their house or have to delay retirement,” says Brad Klontz, co-founder of the Financial Psychology Institute. “So they have a deep distrust of financial institutions and traditional investment vehicles. They’re saving even less and putting less toward 401(k)s and the stock market.” Yet, the problem “cuts across all employee demographics, whether you earn $50,000 or $300,000,” says BrightPlan CEO Marthin De Beer. About 46 percent of employees participating in a BrightPlan survey said personal finance is their No. 1 source of stress and that they spend three to four hours a week dealing with those issues while at work. So, in this regard, it’s logical for employers to provide help. “Work is where their pay and benefits come from—why not, from that same source, learn how to manage their pay and benefits?,” says Ford. At the same time, M&T has even found that employees are willing to impinge on personal time to take advantage of a fin-lit benefit. The company got Ramsey to design a customized webinar that M&T presents in live webcast at 6 in the evening, “so employees can go home and watch it on their iPads and be able to discuss it with their spouse or partner or children,” Rizzuto says.

“How could we improve the work performance and environment while reaching into the home in a positive, non-intrusive way?” —Ken Huesby, CEO, Hillhouse

THE NEW LUNCHTIME YOGA

Now, financial wellness is emerging as a hot benefits perk on the back of the physical wellness movement by companies over the past 25 years. “For someone to be at peak performance is a matter of health, wellness

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and a positive work environment,” says Ken Huesby, CEO of Hillhouse Construction, mid-market general contractors headquartered in San Jose, California. “But what we can’t always control is the home. So, how could we improve the work performance and environment while reaching into the home in a positive, non-intrusive way, and in that way reduce distractions because the person is feeling financially secure? Let [employees] understand they’re getting some kind of benefit here and let us help architect their financial future.” Indeed, workers tend to step up to the opportunity. More than 150 of Gas South’s 225 employees have at least started Momentum onUp, and more than 60 have earned the $200 completion bonus. About 100 of True Homes’s 250 employees signed up right away, with the promise of a $250 “emergency fund” bonus to those who complete the course. Nearly a quarter of M&T’s 17,000 workers have enrolled in SmartDollar, even without a monetary bonus, although for 2020 the company plans to add financial incentives such as contributions to an employee emergency fund or a health savings account. Participation rates are typically about 20 to 30 percent for employees at large companies, maybe 50 percent for employees of mid-size companies and up to 70 or 80 percent for small companies. Ford credits Momentum onUp for nearly doubling the number of employees at the average company who do home budgeting, to about 80 percent, and the number who set up emergency spending funds, to about 90 percent. Participants end up boosting contributions to their retirement accounts by about 35 percent on average. Hodges-Mace used Momentum onUp, made initial meetings mandatory and saw the average participant add $2,500 to their emergency fund and reduce debt by $516 in the first month. “People kind of had their heads in the sand about credit card debt and interest,” says Peter Mace, co-CEO of the employee-benefits consultancy that employs about 280 people in Atlanta. “It’s a big number for folks. These are real-world problems people face.” CE


STARTING THE CONVERSATION HERE ARE SOME TIPS FOR CEOS considering the establishment of a financial literacy program: Talk about it: Mix the generations in a workplace discussion of the idea before launching. “It’s great to have a millennial say, ‘I’m not putting any money’” into a 401(k), Brad Klontz says. “Then someone from the older generation will talk and help them realize they have a very narrow frame of reference.” Create an arm’s length: Third-party vendors are the way to go, not an internal program, CEOs say. “I question how open an employee might be if they’re sitting there talking with someone close to the organization,” says Hillhouse CEO Ken Huesby, Decide on bonuses: More than half of Momentum onUp clients offer an incentive for enrolling or completing the program, which can range from gift cards to home safes for documents. Says Gas South CEO Kevin Greiner: “It gets everyone on board.” About one-third of companies provide cash incentives, which average $250. SunTrust has paid out a total of $18 million in $1,000 bonuses to its own employees who have completed Momentum onUp. SmartDollar rewards with points for completing activities that enrollees can convert into iPads, vacations and other prizes. Start with a big bang… : This can include hullaballoo about a company-wide rollout with mandatory attendance. “That helped us get good buy-in initially, though some sat on the sidelines,” says Huesby. “There was sincere appreciation for our introducing it.” …But take baby steps: Millions of people have heeded the advice in Lampo Group Founder Dave Ramsey’s book about personal debt reduction through small but continual steps, and such diligence is a central precept of SmartDollar as well. “Employees want to be told what to do, and in the world of certified financial planning, the answer always is, ‘It depends,’” says Brian Hamilton, vice president of Ramsey Solutions. “But we have built tools into our program that help people build habits into their lives.” Engage newcomers: Follow up the big splash with ways to engage subsequent recruits. “We try to build in refresher courses that will allow us to introduce newer team members to the program,” Greiner says. “That’s our biggest challenge: making sure we keep it top of mind and keep our new team members in the mix.” Rely on visualization: To generate enthusiasm for enrolling in the program, consider sessions using

art supplies and a vision board. “It’s one thing to say, ‘Save for the future,’ but it’s not motivating to our brain,” explains Klontz. “Weave in some experience that is personalized so people can get in touch with the passion for saving in the first place.” Close some gaps: In addition to education programs, consider making 401(k) programs for new employees “optout” instead of “opt-in,” so their savings are stickier from the start, rather than having to induce their participation. Making at least some financial literacy training part of the new-employee orientation process also could help. Open the books: Some CEOs boost employees’ financial savviness with “open-book management” that makes the company’s own accounting transparent. “If we want everyone to think and act like owners, they need to understand how that works,” explains Karim El-Gamal, co-founder and chief financial officer of a group of restaurants including Rail Trail Flatbread, in Boston, which shares profits with employees. “Now everyone in our business knows what our costs are, and when we talk about stuff like food waste, they understand immediately what the impact is. Plus it helps them understand credit cards and other aspects of their own finances.” Start younger: Some employers sponsor “family financial literacy nights” at local schools and work-study programs for kids, through the Council for Economic Education. Fidelity and other companies are funding professional development of more personal-finance teachers. “We need to introduce them to the grammar and logic of money when they’re young,” says Nan Morrison, president of the Council for Economic Education. “If they understand the power of compound interest, how to make good choices about savings versus spending and how to keep a budget, it becomes less of a headache for their future employers.”


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COMMUNICATION

THINK IN THREES

Harness a million years of human evolution to bring clarity and order to your planning. BY FRED HASSAN TWO THOUSAND YEARS AGO, “I came, I saw, I conquered” came from Julius Caesar of Rome. Two hundred years ago “Life, Liberty and the Pursuit of Happiness” came from the U.S. Declaration of Independence. Today, people in large parts of the world start an event, such as a race, with “Ready, Set, Go!” Why? Because the human brain is wired to process information in patterns, and the smallest, most easily memorized and most easily repeated pattern is a pattern of three elements. This makes the “Rule-of-Threes” a component of the toolkit for most executives, especially CEOs. In my present role as board member and chairman of two companies, as well as in past roles as chairman and/or CEO of six companies—one large, one small and two mid-size—I’ve used this Rule-of-Threes to help bring clarity and order, even as the world becomes increasingly complex and turbulent. Here are a few practical examples in my toolkit: As a board member, when I hear a presentation on a strategic plan, I ask,

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“What are the three levers that will really move the needle? What are the three potential plan-busters? And, what contingency mitigators do we have in place?” In assessing priorities for the company, I ask, “What are the three priorities that really matter, and how do we communicate those?” In companies where I am the chairman, we use the Rule of Threes to very clearly indicate the individual behaviors and team behaviors we are looking for from our people. The individual behaviors we value are: Passion, courage and tenacity. People can contribute through their team behaviors to our high-performance culture by: being mindful, being likeable and rooting for the person next door. In looking for potential successors to C-level jobs, we look for IQ, EQ and values. We acknowledge that the “values” part is the hardest to assess. Being trustworthy is only part of “values.” Three special questions we ask in assessing “values” are: “Will he do the right thing, even if it comes at a personal sacrifice?” If nobody says “thank


you” after she did the right thing, will it matter to her or not? After successful wins, will he continue to show humility, keep learning and keep building energy for future wins? In looking for the best leaders, we look for the individuals who are liked, trusted and respected. It is very common to see leaders have two of the three—and those few who have all three are the leaders we truly value. Also, in my present family company, Caret Group, we regularly present three goals to our employees and discuss them in forums— again and again. They are sales, profit and culture, specifically, “Grow sales—strong double-digit; drive margins to strong double-digit by 2023; build a special high-performance culture.” In selecting people for our field force and, for that matter, for any job, we look for will, skill and fit. At Schering-Plough, after the $16 billion Organon acquisition in 2007, we laid out three clear objectives: Make the merger work; secure the topline, the bottom line and the R&D pipeline; save costs and invest wisely. We repeated these goals again and again until we were able to get more than 80 percent of our 8,000 frontline managers to spontaneously repeat and emphasize these common global goals to their people. By repeating these three goals, we got our 50,000 people in 60 countries to make them their own big goals and to then to help the newly merged company move in the same direction. Our merger turned accretive in the first quarter. Our R&D pipeline later produced a cancer breakthrough, Keytruda. Keytruda is now worth several tens of

billions of dollars in value to Merck, which later acquired Schering-Plough. CEOs can use this Rule-of-Threes to simplify, to prioritize and to communicate. Often, three big objectives can help CEOs create clarity and resonance when they communicate with their people. As we transition into the Digital Age, there can be a tendency to declare old management principles obsolete. Some principles, however, are timeless. The human mind is wired to work naturally with the “Rule of Threes.” Former chairman and CEO of Schering-Plough and Pharmacia, Fred Hassan is chairman of Caret Group. He also serves on the boards of Amgen and Intrexon.

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TEAMS

TRUST FIRST

Your colleagues must be able to count on you before you can truly be able to count on them. BY JOEL C. PETERSON

THE MOST COMMON REASON PEOPLE leave jobs is their boss—often because of low trust. The good news is that leaders can be intentional about building high-trust organizations. Based on nearly a half-century devoted to leading teams, I’ve frequently written and spoken about this topic. The thesis of the second edition of The 10 Laws of Trust (HarperCollins, September 2019) is that by understanding the nature of trust, one can be intentional about building a high-trust brand, healing from a betrayal and building a culture that is more fun and delivers more predictable and durable results. The first law of trust is integrity. The difference between what a leader says and what she does is a “say-do gap” that, if allowed to persist, will not only destroy the trust others have in her as a leader but will infect the organization and begin to damage its brand. Closing this gap is easier said than done. Building trust is hard work. It happens one decision, one conversation and one promise fulfilled at a time. Improvement starts with a leader asking, “Am I delivering the results others expect of me?” “Do I need to promise less or deliver more, as a starting point?” “Or some of both?” No spin allowed. Honestly assessing the current gap between expectations

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and reality is the starting point for laying the foundation for building a high-trust organization. This can be a challenge unless the ground is adequately prepared. First, set the standard for people that the best ideas win. Demonstrate that great ideas come from less senior team members by giving the spotlight to unexpected contributors. This kind of celebration encourages people to come forward even if the feedback is unpleasant or unwelcome. In trust-poor enterprises that frown on debate or unvarnished feedback, the tranquil veneer of equanimity may reign, but it’s the type of quiet that one might find at a hospital—just below the surface simmers a much worse kind of disease. Early in my career, I developed a few mantras that I would repeat to remind myself of the changes I was trying to make in my “personal operating system”—the lens through which I saw people and problems. I may be the leader, but I won’t confuse my identity with the organization’s. I would repeat to myself the mantra, “It’s about the mission, not about me.” As I repeated these reminders, sometimes several times a day when faced with challenges, they became second nature to me. Eventually, I didn’t need them anymore to react more predictably and appropriately to events. As my “say-do gap” began to close, others saw me aligning my behavior with principles I was articulating and delivering on promises. When I began to act more predictably, the team began not only to count on (trust) me but to make more—and better—decisions on their own. Their confidence levels rose as their trust in shared principles increased. Joel Peterson is the chairman of JetBlue Airways, the founding partner of Peterson Partners, a Salt Lake City-based investment management firm, a faculty member at the Graduate School of Business at Stanford University and author of The 10 Laws of Trust (HarperCollins Leadership).


PLANNING

TRADE

SEE THE GLASS AS HALF-EMPTY

SAY GOOD MORNING TO VIETNAM

John Schlifske, CEO Northwestern Mutual, Milwaukee

Justin Kittredge, Founder and CEO ISlide, Boston

While the economy and markets keep humming, Schlifske says now is the time for business leaders to reboot their perspectives on longterm growth patterns and prospects. “The big thing we’re working on,” he says, “is the notion of whether, from a demographic and global perspective, we’re in a very long period of low interest rates and low growth, and how do we, as a company, thrive in that kind of environment? This requires all sorts of changes in thinking in terms of what many of us have been through over the last 30 or 40 years.” The likelihood that economies, markets and nest eggs will falter at some point “requires shifts in how people prepare for their future and retirement. The market alone isn’t going to create enough wealth.” Everyone from Northwestern Mutual customers to national governments, Schlifske says, must approach decisions about spending and investments through this new lens.

Supply-chain disruption has become endemic in manufacturing these days because of President Trump’s tariff wars piled on top of pre-existing trends, such as rising labor costs in China, that made U.S. companies increasingly wary of depending on factories there. So, it’s evident now, Kittredge tells CEOs, that they should explore alternatives like the one he has been implementing to ensure continued supply of his company’s customized “slides” footwear. He began moving production to Vietnam from China about three years ago, after a lot of legwork found him a reliable factory partner there. “It might be an alternative within the country you’re sourcing from, or you might want to look outside it, but you’ve got to have that backup plan,” Kittredge advises. “And do it now, because it is becoming harder, not easier, to find efficient and low-cost but high-quality manufacturing partners in a place like Vietnam.”

FUTURE-PROOFING

DUMP YOUR APPLE CART Bob Wheeler, CEO Airstream, Jackson Center, Ohio Airstream has achieved top-of-the-market positioning in recreational vehicles on the back of its iconic “silver-bullet” profile, aluminum shell and visible rivets that lend an artisanal touch. But Wheeler believes CEOs should disrupt even winning formulas. For him, that means reimagining Airstream’s proven recipe to snag the next generations of RV buyers with lighter-weight and less-expensive models. “We really have to bear down and understand how Airstream is going to be relevant to millennials and generation Z in coming years,” he says. “I’m not convinced that it’s just a variant of our classic Airstream trailer. We have to shift direction in at least one of those things, maybe two.” Airstream also will be helping owners plan trips, book accommodations and connect with Airstream “communities” as they travel. “That will help us create a pretty good formula for carrying us ahead for the next decade or so.”

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METRICS

EMBRACE YOUR WEAKEST LINK

Identify cycles, not where to place blame. BY FRED ENGELFRIED MOST OF US THINK OF “weakest link” as a negative expression; but it isn’t necessarily. My first executive job taught me many lessons, one of which was that a weak link in an organization can be a sign of positive growth. My responsibilities there covered a manufacturing arm structured around multi-year customer orders and a make-to-order shop that worked from order to order for many customers, some orders taking six days to produce, others six months. Just before my arrival, one of our top make-to-order customers decided to source its requirements elsewhere. The shop immediately suffered. Job overruns spiked, which made no sense since labor was underutilized, quality slipped and so did deliveries; work tended to fill the time. In the eyes of others, the shop was now the weakest link! But was it? From my perspective, the shop was not the weakest link; the sales department got that award. There was virtually no pipeline of pending orders to fill the gap created by the customer that had exited. And so began our journey—the process of strengthening the weakest link. The sales department re-energized, developed new customer targets and paid far more attention to those already on

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board, soon creating an abundance of opportunities needing to be estimated and priced. The department was now the strongest link, and engineering, responsible for estimating and pricing, became the weakest link in that it couldn’t keep up. Resources were added, and estimates, pricing and order input began to “hum” again. And—you guessed it—when the shop was at full throttle, if the backlog showed a major dip, the sales again became the weakest link. Consider the opposite: a client retained me on the premise that his sales department needed corrective action. I spent a week or two looking at the metrics and then sat down with the president to give him the bad news. The sales department was not the weakest link! In the prior three years, sales had grown an average of 5 percent but, over the same period, the company had lost about 10 percent of its customers. The customer losses were due to recurrent quality issues, and, as you might expect, the president knew that. So, manufacturing was the weakest link, and our focus turned to creating positive energy and positive results. The emerging cycle left targets of blame behind. What’s the point? A weak link isn’t always a source of blame. The distinction could be earned by other links having gained in strength. If your organization is spiraling up through growth and continuous improvement, it is highly unlikely that each link in the chain will be of equal strength. Some functions will run ahead only to find themselves behind as others progress. Carry the message: if the enterprise is spiraling up, let your team know that sometimes they’ll lead the pack and other times they’ll follow. You’re an extraordinary executive if you’re able to guide all functions at the same pace. If you’re spiraling down, e.g. 2008/9, the same is true but in reverse, namely the goal for all is to not replace others as the weakest link on the way down, but rather to reverse course and strengthen the enterprise’s links… one at a time. Fred Engelfried is a director/chair of North Coast Holdings and its subsidiary Lewis Tree Service, and president of Market Sense.


SKILL GAPS

GO TALK TO PEOPLE Steve Skinner, CEO KemperSports, Northbrook, Illinois Golf is a declining industry, and the number of U.S. golfers continues to fall off, even as vacationers keep flocking to KemperSports’ top-shelf courses, including Bandon Dunes and Streamsong. In a business where success depends on creating memorable experiences, Skinner is pushing a simple strategy down through the ranks of the company’s 6,000 employees: Talk to people. “We have new generations of workers who’ve grown up tied to a device,” he says. “So, we’re focusing on getting front-line staff members to put their phones down and interact with guests.” Skinner is overhauling both new-employee orientation and worker-refreshment training to emphasize human-interaction hacks as simple as paying attention and making eye contact. And Skinner will be booting execs out of their headquarters chairs to get in the field more. Travel expenses will grow, he says, “but it will be well worth it.”

AMAZON YOURSELF

TECHNOLOGY

PULL NEW IDEAS OUT OF STORAGE

EMBRACE ALL THE UPHEAVAL

Hasan Dandashly, CEO Dematic, Atlanta

Steve Jones, CEO Allied Universal, Santa Ana, California

Dematic is leveraging distribution to help retailers compete effectively in the e-commerce era. For example, this year, Dandashly is expanding capabilities for installing “micro-fulfillment” warehouses in stores that are trying to keep up with consumer demand for curbside pickup and home delivery. “E-commerce has gone from being a two-day delivery window to, now, as little as two hours,” Dandashly says. “But retailers have got to optimize delivery costs end-to-end to stay profitable when their margins already are very low.” Micro-fulfillment employs Dematic warehousing equipment to turn unused real estate at existing stores into decentralized distribution depots. Retailer CEOs also need to do more integration of what are now “disconnected ecosystems” of their warehouses, Dandashly says. And with shoppers accustomed to easy-breezy merchandise returns, companies must figure out “how to get such items back to being sellable very quickly,” he says.

Fewer businesses are based more on human beings than the traditional security industry, which for decades has featured flashlight-wielding uniformed guards languidly making their way around a protected facility. That’s why Jones keeps pushing a technology overhaul of Allied Universal that features remote-video devices, security robots, a new app and an artificial-intelligence-based platform combined into a repositioning as a “one-call security-solutions company.” He believes CEOs should scout out and use game-changing technology before it changes their companies. “We’re learning how to take a sleepy guard industry and the integration industry, and put them together and create this disruptive new service and a unique company,” Jones says. Artificial-intelligence-powered heat maps can even analyze criminal activity patterns “and tell you where you should shift your staff to reduce liability or risk,” Jones says. “This is creating significant opportunities for growth for us in 2020.”

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COMPENSATION

PAY UNEQUALLY

Not everyone in your C-Suite is a superstar—and that’s okay. MELANIE C. NOLEN FAIR OR NOT, IN BUSINESS, CERTAIN functions are more important than others, and their compensation should reflect that. Yet, Chief Executive’s CEO & Senior Executive

in every C-Suite position. For instance, at an early-stage biotech company, the head of research and development may be the most critical person, so you’ll need a superstar vs. just a good or very good PERCENTAGES OF COMPANIES THAT SET SALARY RANGES FOR SPECIFIC performer. The vice president of POSITIONS, BY COMPANY REVENUES sales and marketing? Maybe not 59% $1B+ as important in this type of orga65% $500 to $999.9M nization at this stage of the game 57% $250 to $499.9M (though that could change when 46% you’re ready to go to market). $100 to $249.9M There’s no set rule as to what 46% $50 to $99.9M that blend is or which position 37% $25 to $49.99M warrants top-quartile or decile 32% $10 to $24.9M compensation—every company 25% $5 to $9.9M will need to figure out the right 29% $2 to $4.9M formula—but a good starting 43% <$2M point in getting the formula SOURCE: 2019-2020 CEO & SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES right entails weighing the following: Compensation Report for Private Companies, • Your company’s growth stage which reports on compensation practices at • Your industry and business model more than 1,600 private companies, shows • Compensation benchmarks for your that too many firms do just the opposite, averindustry and specific roles aging out executive compensation across their • Your ownership model entire team in search of “fairness.” • Your overall balance sheet According to our research, companies Once you do that, you can figure out who across all revenue sizes—and more so at the on your team should be given a superstar salahigher end—report setting specific salary ry and who just needs to be a good performer. ranges for specific positions. The problem That, in turn, will enable you to better underwith this compensation strategy? You lose stand how you should divvy up the executive your ability to reward, retain and motivate compensation pie by further benchmarking superstars for key positions. And you need what your rivals are willing to pay. This can superstars to win. also lead to potential opportunities to recruit But—contrary to what you may think—you superstar executives to fill specific needs. don’t need all your top people to be superstars. The trick is to determine where you need For more best practices on executive compensation them—and pay what you need to pay to get strategies, visit CompReport.ChiefExecutive.net. them—and cut back where you don’t. A topdecile executive (paid a superstar top-decile Melanie C. Nolen is Chief Executive and executive salary) is not going to be warranted Corporate Board Member’s research director.

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SALES

PERSONAL PRODUCTIVITY

DON’T BE FULLY DIGITAL

SEE THE FOREST FOR THE TREES (AND ALSO SEE SOME TREES)

Andi Owen, President and CEO Herman Miller, Zeeland, Michigan

Vince Benedetto, President and CEO Bold Gold Media Group, Honesdale, Pennsylvania

Less than two years into her tenure as head of one of the world’s largest furniture makers, Owen has brought an urgent attitude from her career in fast-forward fashion to an industry giant that has been high on product design and quality, manufacturing prowess and reputation ­—but lacking in branding, marketing and recognition by end shoppers for its home furnishings. One of her responses is to boldly push Herman Miller further into retail—an option that she believes other CEOs of B2B companies should consider. The company will be consolidating its control of Hay, a Dutch brand that aims directly at young urban consumers and excels at integration of bricks-and-mortar and online commerce. “A handful of players have managed to understand the connection between the two types of experience,” Owen says. “We see an excellent white-space opportunity for us.”

CEOs must communicate continuously, but this year Benedetto is determined to be a bit less reachable than during the 14 years he’s built a chain of local radio stations in Pennsylvania and upstate New York. That way he can focus on leading his company. “You need to make sure you’re running your organization and not the other way around,” Benedetto says. “That means spending 80 percent of your time on your goals and objectives instead of minutiae and distractions. The productivity increase will be enormous. And, as a leader, if you get one or two big things done, that’s a good day.” So, increasingly, Benedetto is “compartmentalizing things” by deciding what “needs to be responded to now or not until the next hour, or until the next day.” And he more often is silencing his cell phone entirely.

WORKFORCE

SEEK TALENT AT HOME David Stern, CEO Experity, Rockford, Illinois Experity needs lots of digital talent to finalize the merger of the two top players in software for urgent-care clinics, to develop more telemedicine technology for clients and to complete a new software platform by January 2021 that will comply with changing federal standards for electronic medical records. But Stern plans to find all the tech talent he needs in Experity’s digitally unassuming hometowns of Rockford, Illinois, and Sioux Falls, South Dakota. “We have an advantage because we’re not known as hotbeds of tech talent,” he says, “but people move back here or are willing to commute from 50 or 60 miles away.” A key is to build a willowy company culture on the plains. “We may not be as expressive as some West Coast companies, but there is remarkable positive energy when you come into our building,” Stern says. CE

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EC O N O M IC D E VE LOPME NT

REGIONAL REPORT

THE SOUTHWEST Silicon Valley’s loss is this region’s gain, as tech companies migrate to lower-cost states. BY CRAIG GUILLOT FROM THE PLAINS OF TEXAS TO THE peaks of Colorado and Arizona, the Southwest recorded some of the highest GDP growth rates in the country in 2019. While there’s a diverse mix of industry, tech is a common tie that binds cities like Salt Lake City, Denver, Austin and Phoenix. 1 * TEXAS

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

GO BIG In a state where everything is big, it’s not surprising that Texas generated a big GDP growth rate of 4.7 percent in the second quarter of 2019. That makes it the fastest-growing economy in the nation, with a rate more than twice the national average of 2 percent, according to the Bureau of Economic Analysis. Many companies are doubling down on big investments, and tech is gaining momentum across the state. From medical technology in Houston and fintech in Dallas to cybersecurity in San

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Antonio, tech startups and new offices are expanding like never before. “There has been tremendous movement in technology and innovation…We’ve done a phenomenal job of diversifying, and it continues to set us apart. At the end of the day, we’re now the tenth-largest economy on the face of the planet,” says Robert Allen, president and CEO of the Texas Economic Development Corporation. In August 2019, Uber announced it would invest $75 million and create 3,000 jobs at a new U.S. General and Administrative Hub in Dallas. And in October 2019, Microsoft announced it would expand its operations in Irving with an additional $31 million investment and more than 575 new jobs. In recent years, the state has been rolling out the red carpet for California companies looking to escape high costs. Apple announced a $1 billion campus and 5,000


TEXAS Uber plans to sink $75 million into its new U.S. General and Administrative hub in Dallas.

new jobs in Austin in December 2018. A year before that, Toyota moved its longtime headquarters from Torrance, California, to Plano. And, in February 2019, a delegation of economic developers and Texas executives traveled to California to encourage companies to expand or relocate in the Long Star state. 7 ARIZONA ECONOMIC MOMENTUM The Index of State Economic Momentum by State Policy Reports recently ranked Arizona third best in the nation for economic momentum as a measure of personal income growth, employment growth and population growth. The Grand Canyon State’s economy boasts one of the fastest growth rates in the country, and median household incomes recently reached a record high of $61,125, according to the Federal Reserve Bank of St. Louis. There has been a diverse range of notable announcements and groundbreakings over the past year. AgJunction relocated its corporate headquarters to Scottsdale at the end of 2018. Window and door manufacturer Andersen Corporation established a $105 million manufacturing facility in Goodyear in January 2019. Progressive insurance announced 375 new jobs at its Phoenix office in February, and, in April, Zillow established a Southwest hub in Phoenix for 300 employees. What is attracting these companies is a pro-business and pro-innovation environment, along with the strong talent base and high quality of life, says Sandra Watson, president and CEO of the Arizona Commerce Authority. “Talent is always a top driver of business success, and companies are easily and quickly finding the workforce they need to support their growth here…Our state’s unmatched quality of life and affordable cost of living make attracting and retaining talent very easy,” Watson says.

11 UTAH FLYING TO NEW HEIGHTS IN AEROSPACE While the growth of the Silicon Slopes has been dominating the state’s economic development headlines in recent years, aerospace is growing stronger on the radar. Since Northrop Grumman completed its acquisition of Orbital ATK in June 2018, the industry has grown at a “very impressive rate” in the northern part of the state, says Val Hale, executive director of the Governor’s Office of Economic Development. More than 900 aerospace industry facilities in the state now support over 31,000 jobs, Hale says. The Hill Air Force Base north of Salt Lake City, which is a primary depot for aircraft maintenance and repair, has served as a catalyst for growing much of the industry in the region, Hale says. Meanwhile, tech is still booming in the Salt Lake City area. Fintech company Brex announced in September 2019 it would open a new location in Salt Lake Valley and create up to 1,000 jobs over the next seven years. SAP also completed its acquisition of Provo-headquartered Qualtrics in January 2019, the largest SaaS purchase in history. Online education company Pluralsight, which was founded in Farmington in 2004, went public on the Nasdaq in May 2019. The attention of recent IPOs and acquisitions has also helped spur the migration of more California tech companies to the Salt Lake City area, many of which are seeking lower costs and a higher quality of life for employees. “We’ve seen an increase in potentially thousands of new jobs here, and it continues to grow as there’s an exodus out of California from a lot of tech companies,” Hale says.

UTAH Salt Lake City is luring tech companies seeking lower living costs and a high quality of life for employees.

12 COLORADO OPPORTUNITY FOR ALL In Colorado, economic prosperity is no longer just about jobs and deals, but about people and places. Gov. Jared Polis took office in January 2019 with a “Colorado for All” strategy that considers education,

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COLORAD0 VF Corporation is recently relocated its headquarters from North Carolina, citing the state’s ability to attract and retain talent.

healthcare, rural prosperity and new energy as part of what economic development should support. While companies are increasingly attracted to Colorado’s cost-effective, politically predictable and forward-looking business climate, talent is also coming for the growing opportunities and high quality of life, says Michelle Hadwiger, global business development director at the office of economic development and international trade. Colorado recently ranked 10th on U.S. News & World Report’s best states to live in 2019. “This is a place where they can access ideas, leadership and collaborate with their peers, a market that they can easily travel in and out of for commerce and a place where they can raise a family and live in a dynamic state that values culture and recreation,” Hadwiger says. OEDIT’s global business development team has been taking more action to raise the state’s profile on the global stage by educating foreign investors. There have been several notable announcements in the past year, including the relocation and consolidation of VF Corporation’s headquarters to Denver. A recent state report found the value of the state’s outdoor industry has now grown to more than $62 billion. IT is also a fast-growing sector in the state as companies from high-cost markets such as the Bay Area increasingly look to Colorado for its talent, lower costs and high quality of life. Several companies, such as Slack, Checkr and Snapdocs, have opened facilities or headquarters in the state in the past year. 18 OKLAHOMA ALL BUSINESS While many states claim to have a business-friendly climate that’s in tune to the needs of site selectors, Oklahoma is taking things to a new level. There’s almost a sense of pride that the new governor and

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cabinet officials have more experience in boardrooms and quarterly meetings than they do in elected positions and government buildings. “We have a cabinet and a governor who are all businesspeople, and it has been an unbelievable sea of change where literally every person involved in leading the state comes from [the private sector],” says Sean Kouplen, Oklahoma’s secretary of commerce and workforce development. Gov. Kevin Stitt, former chairman and CEO of Gateway Mortgage Group, took office in January 2019 with a goal of transforming Oklahoma into a “Top Ten state” through greater government accountability, economic diversification and generating new solutions to address things like education. Kouplen, who previously served as the chairman and CEO of Regent Bank for 12 years before his own inauguration, says one big change has been to put workforce development and commerce under the same department. The Oklahoma Works Together framework is a new program that brings together industry councils to identify their industry’s needs, the required skills and how they can align with educational institutions, Kouplen says. The state will then solicit proposals and select winners to become Centers of Excellence, which are eligible to receive additional funding. It’s an initiative intended to significantly improve Oklahoma’s low labor participation rate. “Our belief is that we’re connecting industry and education like no one else in the country is doing and we can turn that around,” Kouplen says. Aerospace remains a hot sector, much of which is driven by the presence of Tinker Air Force Base in Oklahoma County. Boeing is currently adding 3,500 engineers to its operations in the state, and Kratos announced in April it would be producing its XQ-58A Valkyrie at the new Kratos Unmanned Aircraft production facility in Oklahoma City. Ferra Aerospace broke ground in September 2019 on a 50,000-square-foot expansion of a manufacturing facility in Grove and expects to create 150 new jobs within three years. Of the 45 new company announcements in the state in 2019, roughly half were related to aerospace, Kouplen says. “We have reached critical mass and a


tipping point where it just keeps growing. We now have about 1,100 aerospace companies and 120,000 aerospace jobs here,” Kouplen says. 21 ARKANSAS ACCELERATING DEVELOPMENT IN THE LAND OF OPPORTUNITY While Arkansas’ recent statewide GDP growth has been less than impressive, development abounds in several parts of the state. This past summer, Lockheed Martin announced a $142 million expansion and 326 new jobs in Camden. Global IT company DXC Technology announced in October an expansion and 1,200 new jobs in Conway. And that same month, Nucor cut the ribbon on a $230 million facility in Hickman. The Northwestern part of the state is also continuing to grow as a logistics hub for Fortune 500 companies. The new Plug and Play program, which is supported by such partners as Walmart, Tyson Foods and J.B. Hunt, recently established one of its 23 global locations in Northwest Arkansas. The accelerator will focus on things like supply-chain optimization, blockchain, lastmile delivery warehouse automation and machine learning. Saeed Amidi, founder and CEO of Plug and Play, said in a press release that participating organizations and the infrastructure will help cultivate a culture of entrepreneurship in the region. One such example is startup digital supply-chain platform SupplyPike, which announced in May it will locate operations in Fayetteville and create nearly 180 jobs in the next five years. “With our startups, we can bring efficiency and cost savings in the supply chain. Through this new operation here, we will be able to connect Northwest Arkansas to Silicon Valley, China, Singapore, Germany and the rest of our global network,” Amidi said. 31 NEW MEXICO DISRUPTION IN THE LAND OF ENCHANTMENT The Land of Enchantment is quickly becoming a magnet for free-thinking innovators and disruptors, says Alicia Keyes,

cabinet secretary of economic development at the State of New Mexico. In May 2019, Richard Branson’s Virgin Galactic moved its operations and more than 100 employees from Mojave, California, to a remote facility in Sierra County. Mark Johnson, a Silicon Valley entrepreneur and self-proclaimed “quirky guy,” founded Descartes Labs in Santa Fe in 2014 after meeting some scientists from Los Alamos labs. The company has since raised more than $50 million and now has more than 140 employees. And Santa Febased art collective Meow Wolf, which just a few years ago was a small group of struggling and broke creatives, now has more than 400 employees and recently raised $158 million in a fundraising round. Stories like this attract more disruptors and non-conformists. “The trend is that disruptors don’t want to [make] do with the way others are, and they see something in New Mexico. It’s attractive to them, their employees. There’s a good quality of life here. They can go skiing, live on a river. They’re not going to be stuck in traffic,” Keyes says. The state is aiming to capitalize on some of this newly gained momentum. Since the inauguration of Gov. Michelle Lujan Grisham in January 2019, New Mexico has gotten “incredibly aggressive” in economic development and in attracting companies to the state, Keyes says. “We’re looking for the right kind of companies that pay their employees and offer good benefits… many of these disruptors are doing that.” CE

NEW MEXICO Lured away from California, Richard Branson’s Virgin Galactic relocated to a remote facility in Sierra County.

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H E A LT HCAR E E VE NT

FORGING HEALTHCARE’S FUTURE At Chief Executive’s Healthcare CEO Summit, business leaders discussed strategies for attracting and retaining the right talent, creating a culture of continuous innovation and continuing to create value for stakeholders in the process. Some takeaways.

Dr. Thomas Mihaljevic, CEO of Cleveland Clinic TOP: CEOs tour the Cleveland Clinic

LEADING INNOVATION IS LITERALLY vital for the health industry, as medicine and device manufacturers, care providers, tech companies, insurers and governments scrum in a crucial area of the economy that determines quality of life and longevity for millions of American—and, to a great degree, dictates our progress as a nation. How to create and harness innovation and effectively disperse its fruits were the subjects of the 2019 Healthcare CEO Summit in Cleveland, held in partnership with Cleveland Clinic, where 50 CEOs from around the country shared experiences and ideas. Given that their industry sits on the cutting edge of so much innovation in this economy, CEOs in nearly any vertical could learn from what they discussed—including the primacy of digital technology in determining the future. “There’s an explosion of [medical] knowledge and of the ability to share it,” Dr.

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Thomas Mihaljevic, CEO of Cleveland Clinic, told the conference participants. “It will be the big differentiator for healthcare delivery five years from now.” And while major providers may be able to afford the technology and the capital to harness it, he said, smaller standalone health systems “will need to use economies of scale” just to survive. Cleveland Clinic has done just that. Now one of America’s biggest healthcare brands, the Cleveland, Ohio-based medical center was a novelty when it was founded in 1921 as a not-for-profit. Every physician remains on one-year contracts. The clinic mastered heart-bypass surgery and made it a springboard for today’s explosive growth that now includes outposts around the U.S. and the world. It has spun off more than 80 companies in the past decade and is now looking to partner with outside providers to create greater commercial value from its burgeoning storehouse of IP—and, as Mihaljevic put it, “to improve patient outcomes and as many lives as possible.”


STRYKER: ACQUIRING SCALE STRYKER HAS NEARLY DOUBLED REVENUES to about $15 billion over Kevin Lobo’s nine years as CEO of the Kalamazoo, Michigan-based medical-devices giant, by combining the benefits of a culture of innovation with an aggressive acquisition strategy. The company, which makes everything from cranial implants to inflatable heel boots, looks for add-ons that “fit right into an existing business,” said Lobo, who also has been Stryker’s chairman since 2014. “We want to bolster and strengthen our position wherever we play. We want to be absolute leaders in the field.” R&D competence is central to that acquisition ethos because, “if you don’t have [that], how can you assess what’s a good technology and what’s not?” he said. The company spends about 6.5 percent of its revenue on R&D. Lobo also continually scours the world in search of external opportunities, preferably “de-risked” buys. “I’d rather pay more money for something that works,” he said. The company

can scoop up the brainchilds of small, innovative companies and leverage its expertise to fine-tune and manufacture at scale. At the same time, Lobo allows each division of the company a fair amount of functional autonomy, in part to be as innovative as possible. “It’s a culture of being driven, focused on sales growth that’s focused on your customer,” Lobo explained. Each division is empowered to sniff out its own deals and present the possibility to headquarters. “The question is, can they make the economics and the business model work?” Lobo said. “And if we pass on something at corporate, they know they can just come back the next week with another deal.”

Stryker CEO Kevin Lobo

QUANTERIX: POWERED BY PURPOSE

Quanterix CEO Kevin Hrusovsky

QUANTERIX LAUNCHED ONE OF THE MOST successful IPOs in recent history for a life-science tools company, in 2017. But it wasn’t the chance to create 10X value through commercial disruption that got CEO Kevin Hrusovsky most juiced. Instead, he points to a “greater purpose”: helping people live better and longer lives. Purpose is inextricably linked to profits, Hrusovsky said, because it helps operationalize the innovation that is the lifeblood of any science-based company, especially one like Quanterix, which digitizes biomarker analysis to advance precision health. “You feed technologies that feed into your purpose,” he said. “Creating excitement within the business is really easy for people in [life sciences] because we can link what we’re doing to extending life expectancy, reducing pain and bringing more productivity to life,” he acknowledged. “When you’re making toothpicks, that may be a little harder.” However, some aspects of the company’s culture that play a crucial role in enabling and optimizing innovation can translate to any organization: Emphasizing accountability, teamwork and trust. “I used to be driven by financials,” he said, “but now everything I do is emotional

stuff. I try to surround myself with people I can trust [or I’ll] get screwed.” Vigilantly vetting prospective employees. Would-be newcomers endure six months of being blind-copied on relevant e-mails from Quanterix before being hired to ensure that they’ll fit into the team. Hrusovsky is also adamant about fending off fiefdoms within the company. “We don’t allow anyone to divide and conquer down low,” he said. Adopting innovation accountability. Quanterix enforces accountability as a precondition for the zest to innovate, Hrusovsky said, but it doesn’t condemn failure per se. “If someone stands up and says, ‘I screwed up,’ they might get an award,” he said. “You can’t point to someone else’s failure; everyone has issues.” Vibrant messaging on culture. Quanterix training employs lots of animal metaphors to illustrate cultural memes. The company urges employees to act like “canaries” to spot issues early and move collectively like “minnows when a predator comes,” the CEO said. “We note how a lobster has to shed its shell to grow and then is incredibly vulnerable” for a while, Hrusovsky said. “The point is that if you don’t point out your weaknesses, we can’t trust you.”

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BRAVE, NEW, CONSUMER-DRIVEN HEALTHCARE THE NEW BOSS IN THE HEALTHCARE industry is the consumer, thanks to changes in technology, culture and economics. And this growing primacy of the patient is creating new, multi-billion-dollar market opportunities, a diverse panel of healthcare executives told the conference. “This is both good news and a challenge,” said Michael Crupain, chief medical officer of Sharecare, an Atlanta-based online health-andwellness platform co-founded by Mehmet Oz of The Dr. Oz Show fame. “The good news is that the consumer is more interested in understanding health [and] is taking much more ownership.” But as Rita Johnson-Mills, former CEO of UnitedHealthcare Community Plan of Tennessee put it, “We’re giving consumers access to far more information, but no one is really deciphering it and providing education around what it means.” For example, new toothbrushes with sophisticated sensors can tell patients where they brushed—and did not brush—their teeth and then link that information to electronic medical records. “That’s exciting, said Stanley Bergman, CEO of Henry Schein, a distributor of healthcare products, “but first we need to make sure the public understands it’s important to brush your teeth.” Other challenges include the fact that caches of medical record information repose in incompatible

digital formats owned by a variety of independent— and sometimes hostile—organizations. Obstacles range from CEOs’ concerns about cybersecurity to doctors’ worries about malpractice suits to industry concerns about a “digital divide” that would leave out populations, such as the elderly, who are often uncomfortable with electronic records. “The technology exists to solve this issue, so we have to do it,” Johnson-Mills said. Neither has the healthcare industry been able to help Americans realize the potential of wellness care. “We need to focus much more on public health,” Bergman said. “Taking care of the environment where people live is far more important than giving them another prescription.”

United Healthcare’s Rita Johnson-Mills, Sharecare’s Michael Crupain and Henry Schein’s Stanley Bergman

CULTURE QUOTIENT

Humu CEO Laszlo Bock

BEFORE SILICON VALLEY GOT CAUGHT UP IN controversy over how it uses its endless troves of information about individuals, digital-tech outfits became known for building workplace cultures that were highly effective in creating innovations that changed the world. As former head of people operations at Google, Laszlo Bock was a pioneer in that endeavor. And now, as CEO of tech startup Humu, Bock is trying to help companies maximize employee happiness and organizational health using AI and behavioral psychology. Part of that entails busting myths like the one holding that “high-performing teams are comprised of smart, diverse, proven performers.” Instead, Bock offered, the culture of corporate teams is more important than their composition, and they succeed based on five pillars: First, “psychological safety,” which allows

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members to speak up freely. Second, dependability—to the point where “you don’t even have to assign things” because team members organically do what needs to be done. “Structure and clarity,” “meaning” and “impact” are also key. Driving cultural change that affects performance often fails with conventional methods, such as leadership training, individual coaching and corporate “academies,” said Bock, who suggested leaders work to gauge truly how employees are feeling and use “nudging” to influence behavior. One way to get employees to do more of what’s good for them is by making it easier. In the Humu cafeteria, management put junk food items in opaque containers to dampen their merchandising allure. Consumption plummeted. “We didn’t restrict choice or force anything,” Bock said. “We just offset the alluring power of the shiny bright things that are literally designed to make you consume garbage.” CE


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C EO ROU NDTAB LE

TOWARD HEALTHIER HEALTHCARE: INNOVATION FOR EVERYONE Business leaders share ideas on overcoming the hurdles to delivering affordable, quality medical care.

Innovation provides that opportunity where everyone can win, but it has to drive better healthcare outcomes and drive down costs.” —Ohio Lt Governor Jon Husted

THE REALITY OF INNOVATION IN healthcare is that “everyone agrees” it’s necessary “but no one changes,” Ohio Lieutenant Governor Jon Husted said in kicking off a session at the Healthcare CEO Summit at Cleveland Clinic in October. Husted’s expression of frustration got a lot of heads nodding agreement during a roundtable discussion between healthcare CEOs sponsored by the state of Ohio. “Government is good at providing access but not efficient services, and we need better outcomes,” he said. “And now we’re having conversations about ‘Medicare for all.’ That’s the context in which we live today. Innovation provides that opportunity where everyone can win, but it has to drive better healthcare outcomes and drive down costs.” A big part of the problem is that healthcare’s “economic model is so different from any other sort of transaction,” said Howard Edelman, chief revenue officer of Product

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Realization Group, a product-development consultancy. “Every day I see an article where someone goes in for a procedure and gets a [humongous] bill. But the people paying the bill aren’t the ones getting the service. And there’s no negotiation. How come this system is like that at its core?” Douglas Boothe agreed that America is “way out of balance with every other society because there are no price controls” for healthcare. The CEO of Akorn Pharmaceuticals said, “We need more consumerization of healthcare. So many consumers believe in a doctor as God… There’s no visibility or transparency to costs.” For example, while federal Medicare and state Medicaid programs “may be negotiating with healthcare providers, the person getting the services has zero responsibility,” said Danilo Coité, CEO of Independence Plus, a home-health-services provider. “If a person doesn’t have charge of his own health, what incentive do they have to do anything different?” If more negotiation of healthcare expenses were empowered, “and people could negotiate and get awarded some percentage of the savings, you would see costs driven down,” Edelman said. Alfan Jetha observed that making primary care more universally available could help. “Everyone has access to even basic care, and if you need something urgent and decide to go to the Cleveland Clinic, the


system allows for that too, but you have got to pay,” said the president and CEO of RxSource, a pharma-procurement specialist. “I would be curious to see the outrage if you were to socialize the doctor system in the U.S., and some doctors got paid to go to less-desirable areas.” Husted argued that “we already kind of do that, but you can’t say that—or no one wants to say that. We have freedom of association. Different areas get different economic incentives, but the bottom line is that hospitals now are closing in poor areas and opening in wealthier areas so they have more private-pay customers. They’ll open great facilities right across the street from each other to have that access.” Another big reason innovation gets logjammed on the way to lowering costs is the huge regulatory burdens that new medical devices and drugs must overcome, Edelman noted. At the same time, it’s much more difficult to find capital to fund early development beyond the seed stage of innovative healthcare startups than, say, it is for a fintech firm, said Balaji Rajan, CEO of Ceannate, which has launched a “teletherapy” smartphone app for college students. And then, when it comes to commercialization, such difficult paths “can stop a lot of these innovations from ever getting into the hands and benefits of patients,” said

Vincent Ho, CEO of VGH Solutions, an online provider of pain-relief devices. “We were lucky” that a professor at the University of Waterloo in Ontario was intrigued enough by VGH’s technology that the school supported its development. The CEOs agreed that a bigger emphasis on innovating for prevention would get tremendous results compared with the current focus on diagnosis and cure of conditions and diseases after they’re manifested. “Japan and France have gotten big into prevention, with results,” said Kevin Hrusovsky, chief of Quanterix. But in the United States, he complained, there are still government subsidies for food ingredients such as sugar that end up playing key roles in healthcare scourges such as the obesity and diabetes epidemics, treatment of which comprises a huge portion of the nation’s medical bill. “We should at least stop subsidizing sugar or corn syrup,” Husted agreed. “We have to look at some of the root causes, and diet and exercise are tougher conversations to have than talking about [cancer-research] moonshots because it requires everyday people and systems in our country to change… And if you can’t force people to change their behavior, it doesn’t matter.” Also, in Europe as well as Singapore, noted Michael Crupain, chief medical officer of the Sharecare online health plat-

Focusing on preventative care, agreed participants, has the potential to improve healthcare outcomes and reduce costs.

CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2020 / 69


When it comes to advances in healthcare, the cost of R&D and FDA approval “can stop a lot of these innovations from ever getting into the hands and benefits of patients,” says Vincent Ho, CEO of VGH Solutions.

form, life expectancies are longer in part because of their emphasis on “public health. Singapore has the longest life expectancy but spends the least” per capita on healthcare. “They’re super-efficient. But they spend a lot of money on social goods like housing. There’s a lot of order in that society, and they’re good at planning.” Husted noted also that “there’s not so much illegal drug use in Singapore” because of its tough approach to crime. The Ohio lieutenant governor also blamed some CEOs for not caring about social goods—“just the subsidy” that their companies might get from a government for expanding or locating a facility somewhere. “They’ll just go to the other place,” he said. Kimberley Lewis brought up another lifestyle behavior that ultimately stems from the decisions of CEOs in one industry and that increasingly is viewed as a medical threat: sleep deprivation from kids’ addiction to content on mobile phones. “The computer industry is absolutely making apps today that prevent kids from sleeping and is causing mental-health issues,” said the corporate manager of appeals for AmeriHealth Caritas, a managed-care provider based in Philadelphia. Roundtable participants also agreed

that America’s opioid epidemic is another major weight carried by the healthcare industry as well as society in general. “Life expectancy of kids being born here today is shorter than their parents’,” Lewis said. “Opioids have brought it down.” Meanwhile, the bulk of medical expenses in the U.S. are racked up at the end of life. “And I don’t think we’re willing to impose certain conditions on that,” Edelman said, “because of our freedoms.” More education of consumers could modify behavior, extend mortality and reduce costs, Lewis argued. Consumers even in the current system would become savvier. “We need to educate consumers more about how much services will cost them when they may not really need it,” she said. “We need to take the time to educate the consumer so they’ll be informed not just about resources but about their recourses…” For example, many healthcare providers don’t engage their patients on ways to manage chronic health issues, such as providing “daily tips for eating if they’re in disease management,” she says. But Crupain maintained otherwise. “Media is how we change our culture; education doesn’t,” said Crupain, who also remains medical chief of staff of Dr. Oz. “That’s what we do at the show. No one talked about Greek yogurt or kale before [Oz] did. When it comes to our health, we don’t care about the future but about now. How do we better incentivize people to care now?” CE

ROUNDTABLE PARTICIPANTS Douglas Boothe CEO, Akorn Pharmaceuticals

Kevin Hrusovsky Chairman & CEO, Quanterix

Danilo Coité CEO, Independence Plus

Jon Husted Lt. Governor, Ohio

Michael Crupain Chief Medical Officer, Sharecare

Alfan Jetha CEO, RxSource

Howard Edelman Chief Revenue Officer, Product Realization Group

Kimberley Lewis Corporate Manager, Appeals, Amerihealth Caritas

David Harrington President & COO, Centre for Neuro Skills

Susan Rahe Senior Director, Celanese

Vincent Ho CEO VGH Solutions

Balaji “Raj” Rajan CEO, Ceannate

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DINESH PALIWAL / HARMAN CEO

THE MINDFUL ADVANTAGE

The tenants of mindfulness can help manage stress, maintain focus, enhance cognitive performance and improve relationships.

Dinesh Paliwal is president and CEO of Harman, a wholly owned subsidiary of Samsung Electronics.

WE’VE ALL FELT OVERWHELMED during a hectic workday, particularly in our age of constant connectivity. When we contend with high demand and tight deadlines, quality can be sacrificed for efficiency, creating a lose-lose situation for businesses and employees. Active mindfulness may be the solution to work-related anxieties and higher quality output that many seek. Mindfulness is the practice of being aware of your body, mind and feelings in the present moment. It can be exercised through techniques like meditation, focused workouts and “single tasking.” The benefits are proven. Peer-reviewed research in Mindfulness Journal states that employees of organizations that encourage mindful thinking report less emotional exhaustion, more job satisfaction and better performance. In my roles as a CEO and board director, I integrate active awareness into my daily interactions and encourage my colleagues to do the same. Leaders looking to reach their full potential at work and empower employees to succeed should consider these six tenants for mindfulness in the workplace. Learn how to single-task. Create a to-do list and focus on one thing at a time. Setting work intervals is a good place to start. The Pomodoro Technique time management method divides work into 25-minute periods of intense focus, separated by short breaks. When shifting activities, such as right before a meeting, take a few minutes to meditate. Count your breaths, close your eyes or even use an app like Headspace to clear your mind and transition to the next task. Take a break! When you take a moment to reflect and let your mind wander free from distractions, it absorbs information faster and opens up channels for creativity. Managers can help by making break-taking a cultural imperative, encouraging employees to participate in mindfulness exercises such as walking around the block or taking a few minutes to

72 / CHIEFEXECUTIVE.NET / JANUARY/FEBRUARY 2020

listen intently to the noises around you. Embrace the art of listening. At Harman, we believe in creating immersive listening experiences—both in day-to-day interactions and through our high-quality speakers and headphones. Our recently launched “How to Listen” program is improving employees’ emotional wellbeing and productivity through exercises that help them connect with our audiences and tune in to their own emotions. Become comfortable with uncertainty. Know how to pivot quickly, and pivot often. Accomplished executives easily adapt to new situations where the only constant is change. Introduce yourself to diverse learning methods to develop the skills to maximize adaptability. Mindfulness training helps manage whatever is happening as it comes, rather than switching to autopilot. Lead by example. I have increasingly adopted mindfulness techniques in my life. I heightened consciousness regarding what I eat and, instead of rushing through a workout, try to stay focused and controlled in the moment. I find meditation builds resilience and vitality and opens my mind to the insights and breakthroughs I’ve been seeking (sometimes creative, sometimes analytical). Hold employees accountable. Harman recognizes Awareness Ambassadors— employees at any level who share their enthusiasm and skill for mindfulness with their colleagues. We have regular reminders of the advantages of mindfulness through events like group meditation sessions—activities that rejuvenate teams’ commitment and offer them tools to be present at all times. I encourage you to “stop,” evaluate your routine and determine how you can integrate mindfulness into the day-to-day. A small change could have a significant impact on your professional and personal life. It certainly has for me. CE


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