LOOKING AHEAD, CEOS VOICE CONCERNS ABOUT:
GROWTH POLITICS TERRORISM CLIMATE CHANGE INNOVATION AND MOREâ&#x20AC;¦
NOVEMBER/ DECEMBER 2016
CEO OUTLOOK 2017
The Search for Normalcy in a Volatile Age
November/December 2016 No. 285
FEATURES COVER STORY
26 CEO Outlook 2017
Heading into 2017, Chief Executive asked business leaders from across industries and the nation for a gut check on today’s operating environment and their hopes and fears for the year ahead. Here’s what they had to say. By Dale Buss
34 The Gig Economy: Value and Risks
Can contingent workers help solve the country’s skills gap? By Russ Banham
FAMILY BUSINESS: SUCCESSION PLANNING
38 Do I Turn the Business Over to My
Children—Or Sell Out?
Baby boomer CEOs face the question of how to dismount the tiger. By William J. Holstein
42 Imperatives for Optimizing the
How companies can use exceptional customer service as a key competitive advantage. By William Freedman
45 Regional Report: The Midwest
Governor Pence’s $1 billion plan prioritizes entrepreneurship and innovation. By Warren Strugatch
52 CEO’s Guide To Private Jet Travel
Here’s how to navigate the myriad options making private and business jet travel more affordable and practical than ever. By Mark Patiky
MEETINGS & RETREATS
68 Board Meeting
Proper planning can help you make the most of time spent with the advisors, industry experts and investors who serve on your board. By Marilee Crocker C O V E R I L L U S T R AT I O N BY T O M E R H A N U K A
Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 285, November/December 2016. 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 2014 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 Greenwich, CT and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, PO Box 47574, Plymouth MN 55447. Subscription Customer Service: p | 800-869-6882 e | email@example.com w | chiefexecutive.net/magazine
02 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
THOUGHT LEADERSHIP CONTENT PROVIDED BY JACKSON LEWIS P.C.
ONE STEP AHEAD
TECHNOLOGICAL ENHANCEMENT FOR CLIENT SERVICE AND BUSINESS RESULTS
By Vincent A. Cino
Law firms, like all businesses, will need to find new ways to embrace the limitless possibilities of the digital revolution to enhance productivity and deliver superior products and excellent client service. AS THE CHAIRMAN OF A NATIONAL LAW FIRM with clients
from a vast array of industries spread across the country, my goals are often the same as yours as CEOs—to be a leader for change, to create new efficiencies, and, ultimately, to find innovative ways to better meet clients’ (and customers’) needs. Like any organization, a law firm that continues to do business the way it always has without engaging in critical self-analysis will be left behind. The key to effective leadership, I believe, is to spot industry trends before others and offer an efficient solution before any clients even ask for them. One significant area where I believe my firm has modeled innovation and creativity was to embrace the digital age, collaborate to develop digital tools and harness technology to deliver digital products that drive effective business results for our clients. We recognized that companies wanted digital
solutions that addressed and connected various facets of their organization through the infinite power of technology. For solutions, we listened to dozens of creative ideas from our attorneys and conferred with consultants to develop a unique and burgeoning suite of digital tools and cutting-edge Big Data applications that enable clients to overcome workplace challenges through technology, human capital and analytics. We can now, for example, empower clients with a digital tool to conduct a detailed self-assessment to determine their organization’s privacy and data security risks. We are working with a number of our national clients to help them utilize their own “big data” through predictive analytics. Our Analytics Group, in particular, helps companies harvest data to drive future business growth and success.
Some of the services we provide include:
• Monitoring employee engagement by analyzing large volumes of readily available data, such as
computer activity, door card swipes, telephone usage, and global positioning system information • Using classification techniques to identify the attributes possessed by successful applicants • Assessing policy decisions to determine if goals were obtained • Guiding policy decision-making to incorporate prior information to predict future success. And that is just the tip of the iceberg with our digital offerings, which span our practice groups, including wage and hour, immigration, labor and preventive practices, disability, leave and health management, and affirmative action compliance, OFCCP defense. I firmly believe that our clients and those with whom we do business realize tangible benefits from our digital offerings and enhanced efficiencies as we handle their matters. I am also confident this is just the beginning, and law firms, like all businesses, will need to find new ways to embrace the limitless possibilities of the digital revolution to enhance productivity and help us achieve our ultimate goal: delivering superior products and excellent client service.
VINCENT A. CINO is chairman of Jackson Lewis P.C., a law firm with 800 attorneys dedicated to representing management exclusively in workplace law.
For more information, visit www.jacksonlewis.com
CONTENTS Editor-in-Chief Michael Winkleman Editor at Large Jennifer Pellet Creative Director Marne A. Mayer Production Director Rose Sullivan Chief Copyeditor Rebecca M. Cooper Art Director Gayle Erickson Associate Copyeditor Carl Levi
DEPARTMENTS 8 Editor’s Note
24 Mid-Market Report
How International is the Mid-Market? CEOs broadly are optimistic, although some are concerned about the impact of Brexit.
10 CEO Watch
• Roland Dickey, Jr. of Dickey’s Barbecue Restaurants on transforming a family legacy • CEO Inbox: Cyber attackers target SMEs • U.S. Concrete’s Bill Sandbrook on shoring up a floundering materials company • Is CEO Confidence finally improving?
61 Executive Life
CEO Guide to Health & Wellness Programs for Business In the everyday race to keep your company going strong, it can be hard to find time to focus on your own well-being. Here’s a look at programs across the country that can help you take a proactive approach to maintaining your health. By C.J. Prince
20 Chief Concern
Becoming a New CEO... Through the Eyes of Long-Term CEOs How to cope with the top three challenges that vex new leaders. By Dr. Thomas J. Saporit o
Giving Washington the Business: The Myth of the Monolith Divergent interests are muffling the voice of American business in politics. By Jeff Sonnenfel d
72 Flip Side
Fun While It Lasted After a 20-year run, Chief Executive columnist Joe Queenan signs off with a few choice comments about our changing (or not) times. By Joe Qu eenan
Clarification: In Chief Executive’s September/October 2016 issue, we covered economic development in the Southeastern states, including Florida. Some readers may have found our description of an action by Florida’s state legislature misleading. To clarify: The Florida state legislature voted down Gov. Scott’s $250 million economic-development funding request earlier this year. While Gov. Scott is chairman of Enterprise Florida, the vote did not impact Enterprise Florida’s government funding. Enterprise Florida continues to operate its programs. STATEMENT OF OWNERSHIP U.S. Postal Service Statement of Ownership, Management, and Circulation 1. Publication Title: Chief Executive. 2. Publication No. 431710. 3. Filing Date:10/1/15. 4. Issue Frequency: Bi-monthly. 5. No. of Issues Published Annually: 6. 6. Annual Subscription Price: $99.00 7. Complete Mailing Address of Known Office of Publication: 9 West Broad Street, Stamford, CT 06902 . 8. Complete Mailing Address of Headquarters or General Business Office of Publisher: same. 9. Full Names and Complete Mailing Addresses of Publisher, Editorial Director, and Managing Editor: Marshall Cooper (Publisher); Mike WInkleman (Chief Content Officer/Editor-in-Chief); address same. 10. Owner: Chief Executive Group, LLC, 9 West Broad Street, Stamford, CT 06902; 11. Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or More of Total Amount of Bonds, Mortgages, or Other Securities: Marshall Cooper and Wayne Cooper. 12. Not Applicable. 13. Publication Title: Chief Executive. 14. Issue Date for Circulation Data Below: July/ Aug. 2015.15. Extent and nature of Circulation: Requested Mail Subscription a. Total No. of Copies (Net Press Run): 44,418; 43,798. b. Paid and/or Requested Circulation: (1) Paid/Requested Outside-County Mail Subscriptions Stated on Form 3541 (Includes Advertisers’ Proof and Exchange Copies): 22,420; 22,716. (2) Paid In-County Subscriptions: None. (3) Sales Through Dealers and Carriers, Street Vendors, Counter Sales, and Other Non-USPS Paid Distribution: 197; 0 . (4) Other paid or requested distribution outside USPS: 25; 20. c. Total Paid and/or Requested Circulation [Sum of 15b(1), (2), (3), and (4)]: 22,642; 22,736. d. (1) Nonrequested Distribution (By Mail and Outside the Mail): 20,563; 19,854. (4). Free Distribution Outside the Mail (Carriers or Other Means): 877; 656. f. Total Distribution (Sum of 15c and 15e): 44,082; 43,246. g. Copies Not Distributed: 336; 552. h.Total Distribution (Sum of 15f and 15g): 44,418; 43,798. i. Percent Paid and/or Requested Circulation (15c/15fx100): 51.4%; 52.6%
04 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
Contributing Editors Dale Buss C.J. Prince Russ Banham Joe Queenan Marilee Crocker Dr. Thomas J. Saporito William Freedman Warren Strugatch William J. Holstein Prof. Jeff Sonnenfeld Online Editor Lynn Russo Whylly Editor Emeritus J.P. Donlon VP, Associate Publisher Christopher J. Chalk 847/730-3662 firstname.lastname@example.org Director, Business Development Lisa Cooper 203/889-4983 email@example.com Director, Business Development Liz Irving 203/889-4976 firstname.lastname@example.org Director, Business Development Marc Richards 203-930-2705 email@example.com Vice President Phillip Wren 203/930-2708 firstname.lastname@example.org Marketing Director Jason Golden 203/889-4978 email@example.com Vice President, Human Resources Melanie Haniph Controller Steve Hallem
Wayne Cooper Executive Chairman
Marshall Cooper Chief Executive
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No. 1 in Brookings Report for advanced industry job growth in New England: Rhode Island.
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Source: Brookings Report, America’s advanced industries: New trends, August 4, 2016
CHIEF EXECUTIVE OF THE YEAR 2016 SELECTION COMMITTEE CATHY ENGELBERT CEO, Deloitte LLC
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THOMAS SAPORITO Executive Chairman, RHR International, is an advisor to the Selection Committee CO N TACT U S Corporate Office Chief Executive Group, LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 | Fax: 203.930.2701 www.chiefexecutive.net Letters to the Editor email@example.com Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 | Fax: 847.730.3666 firstname.lastname@example.org Reprints Phone: 203.889.4974 email@example.com
The CEO2CEO Digital Transformation Summit highlights digital transformation best practices and provides the opportunity to improve your company by learning from the hard-won experience of peer CEOs. DISCUSSION SESSIONS INCLUDE:
•New Business Models and Strategies for the Digital Economy •The CEO’s Role in Leading Digital Transformation in an Established Business •How to Exploit the Internet of Things •What CEOs Need to Know about Cybersecurity Now •Leveraging Technology to Better Serve Your Clients and Customers
What a Difference a Year Makes
When speaker after speaker talked about struggling to be seen as an employer of choice, participants shared similar stories.
TOWARD THE END OF THIS YEAR’S CEO Talent Summit, held in October at Procter & Gamble’s headquarters in Cincinnati, David Enloe, CEO of the biotech company Ajinomoto Althea, drew an interesting contrast between this year’s Summit and the 2015 Summit. Last year, Enloe noted, the CEOs in attendance “were in denial” when it came to discussions about changes that speakers said businesses need to make in the ways they attract, hire, onboard and retain an increasingly millennial workforce—and integrate it with their legacy workers. As presenter after presenter talked about rethinking office design, hierarchies, annual reviews, recruiting practices, workdays, team structures and more, last year’s attendees, Enloe said, folded their arms in front of their chests, indicating not only their lack of agreement but their resistance through their body language. Just a year later, the world has changed. When Watt Global Media CEO Greg Watt described his company’s migration to a Results Only Work Environment—in which employees don’t even need to show up at the office—the audience was rapt. When Carolyn Tastad, group president, North America, of P&G’s Selling & Marketing Operations, described her company’s radical redesign of office space in Toronto, it was clear through nods of approval that this approach was more than a little familiar. When Sealed Air’s Ilham Kadri discussed the challenges her division is facing as it morphs from a product-driven to a data-driven company and Vonage’s Alan Masarek talked about the “Old Vonage/New Vonage” split that had emerged in the wake of his company’s movement from a B2C to a B2B focus, the audience was thoroughly engaged, looking for hints at how to deal with their own evolution. And when speaker after speaker talked about how they’re struggling to be
08 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
seen as an employer of choice, convincing recruits to choose them over competitors, selling employees on taking the assignments they’re given (rather than assuming that grateful employees will just run with what they’ve been handed), participants shared similar stories, eager for suggestions on how to win what has become a very different war for talent than they’ve experienced before. We’ll delve deeply into these issues in our next issue, when we’ll review the Summit and two of the roundtables held there. In the meantime, we’re supplementing our usual extensive coverage of talent issues with extensive Summit coverage on www. chiefexecutive.net. In this issue, Russ Banham explores the emergence of what’s come to be known as the gig economy (p. 34), looking closely at some of the legal distinctions between independent contractors and employees. And echoing some of the comments that John Minor, president and chief investment officer at JobsOhio, made at the CEO Talent Summit, economic development professionals in a number of Midwestern states (p. 45) discuss the challenges—and opportunities—they’re facing as they look to use their workforces to foment business growth. Enloe, himself, did not sit through last year’s CEO Talent Summit with his arms crossed. He was too busy taking notes and getting ready to rush back to San Diego, where he used those notes to help him rethink almost everything about his company’s approach to talent management—with sensational results. He was happy to share those results with anyone who asked at this year’s Summit—and, given the level of acceptance this year’s presentations received, that was pretty much everyone. Reach Mike Winkleman at mwinkleman@ chiefexecutive.net.
I LLU ST R AT I O N BY T I M TO M K I N S O N
Attendees at this year’s CEO Talent Summit were more ready than ever to embrace change. By Mike Winkleman
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CEO WATCH CEO PROFILE | ROLAND DICKEY, CEO OF DICKEY’S BARBECUE RESTAURANTS
Transforming a Family Legacy How a third-generation CEO grew his family’s franchise operation from 22 locations to 560. By Jennifer Pellet
ASKED ABOUT HIS GOALS for the future of Dickey’s Barbecue Restaurants, CEO Roland Dickey, Jr. has a twoword answer: “World domination.” Given that his family’s 75-year-old franchising business has extended its reach to encompass 43 states over the last five years and continues to sign several single- or multiple-location franchising agreements a week, he’s only half joking. Clearly, a lot has changed since the CEO’s grandfather, Travis Dickey, opened a Dallas storefront selling traditional Texas barbecue. But a lot has also stayed the same—and that’s a big part of how this slow-smoked barbecue company is succeeding on a fast-growth track. Dickey’s Barbecue has stayed true to the principle ingredient of its success—a simple menu devoted to delivering great barbecue— while adapting virtually everything else about the company. A Fast-Casual Focus “The easiest thing to do is to develop your model and then just grow it forever,” acknowledges Dickey, Jr., who has spearheaded a series of changes since succeeding his father as CEO in 2010. “That sounds good but it doesn’t really work because consumer tastes are changing and the market is changing. If you don’t adapt, your competitors will and, the next thing you know, you’re a tired, anachronistic brand that is beginning to struggle.” Setting the stage for what would become a nationwide franchise rollout, one of the first—and biggest— adaptations was a retooling of the original cafeteria-style Texas barbecue buffet into fast-casual-style locations
Roland Dickey, Jr., CEO, Dickey’s Barbecue Restaurants
WHERE Dallas, Texas
150 employees; 7,000 including franchisees
“This is more than a business to us—it is our identity, it is a lifestyle, and our team is like our family.”
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that played better in new markets. “When the recession hit, it really showed the vulnerability of having those big-footprint, high-overhead concepts,” explains Dickey, Jr. “So we came up with a much leaner, meaner and more profitable approach. It took two years to get it all proofed out, but by 2011 we were solid and we’ve been expanding ever since.” Every Dickey’s Barbecue location still slow smokes all its menu items—beef brisket, pulled pork, St. Louis-style ribs, barbecued honey ham, polish sausage, spicy cheddar sausage, smoked turkey and marinated chicken—on-site and always will, he adds. “We will always be all about great barbecue. That’s our core. But with everything non-core—from the equipment and technology we use to our décor and the music we play—we need to continually improve to make sure we’re cooler, more energetic and more profitable than our competitors.” This year, that mandate led to a “No B.S.” (aka No Bad Stuff) initiative toward using more wholesome, natural ingredients. Dickey’s now serves only antibiotic- and hormone-free chicken raised cage-free. The company will also be increasingly seeking out responsibly raised ingredients for the rest of its protein needs and removing harmful ingredients like nitrates. “It’s more expensive, but it’s the right thing to do—and it’s also what people want today,” says Dickey, Jr., who hopes to wield the company’s considerable protein-buying power to nudge market practices with the shift. “We have a bit of leverage to help transform the meat industry and we want to use it.”
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Franchising Secret Sauce While a hip image doesn’t hurt when it comes to appealing to prospective franchisees, ultimately it’s the potential for profitability that drives someone to plunk down their life savings to launch a barbecue restaurant. Dickey’s looks to keep these newbie franchisees happy with constant communication and aggressive marketing and sales support, such as a call-center catering hotline that books catering jobs and hands them off to franchise-owned stores. The company is in the midst of rolling out a proprietary new “Smokestack” enterprise management system
developed over the last year to help its franchisees operate more efficiently and market more effectively. Among other things, the system will analyze usage patterns among loyalty club members so franchisees can tailor email marketing messages to specific customer types. Lunchtime regulars, for example, might get an attractive offer for a “meal replacement” family pack to lure them to buy dinner. Ultimately, it’s efforts like these— plowing money back into “boots-onthe-ground” support for its stores—that drives expansion, notes Dickey, Jr. “We are restaurateurs, not financial people
looking to squeeze every nickel out,” he says. “If our stores are doing well, they recommend us, we open more stores and the whole thing works.” With annual revenues currently in the $480 million to $500 million range, Dickey, Jr. plans to continue pursuing domestic growth while also eyeing international opportunities. Wooed by potential partners in Europe, the Middle East and Asia, he’s homing in on Asia but plans to take a slow and steady approach. “Having the right supply chain will be critical,” he says. “We want to make sure that when we expand we do it right.”
CEO CONFIDENCE INDEX
Is CEO Confidence Finally Improving? CEOS HAD MORE CONFIDENCE IN FUTURE BUSINESS conditions in September than they did in August, and this is the second month in a row that their confidence rating has improved, after 21 months of near-steady decline. On a scale of 1 to 10 with 10 being the highest, participants in Chief Executive’s September CEO Confidence Index survey rated future business conditions (12 months out) a 5.90, 2.0 percent higher than their 5.70 rating in August and 2.1 percent above their 5.69 rating in July. Leaders of large businesses continued to have the least confidence, with a 5.63 rating, well below the average 5.90.
No doubt they are very concerned that the next administration will affect their business, with regard to both taxation and other legislation. Conversely, small businesses have the most positive outlook, with a future-business rating of 6.01 overall, compared to mid-marketers, who rated future business conditions 5.89. In addition, the majority of respondents (67.7 percent) expect their company’s revenue to increase over the next 12 months, while 35.5 percent expect profits to grow. Just 23.9 percent anticipate higher capital expenditures, while 33.2 percent expect to hire more staff.
...With Large Business Having the Weakest View of Future Conditions
CEO Sentiment Ticks Up After 21 Months of Near Decline... On a scale of 1-10, with 9-10 being excellent and 1-2 being poor. 7.0 6.8 6.6
6.4 6.2 6.0
5.8 5.6 5.4
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WHAT HAPPENS WHEN
perfect Fruit processor makes the most of cherries in Michigan. Shoreline Fruit LLC, located in northwest Lower Michigan, is the largest tart cherry operation in North America, spanning nearly 7,000 acres of cherry orchards and a 137,000-square-foot production facility. Most recently, Shoreline developed CherryPURE®, a nutraceutical supplement produced with the leftover cherry skins from the juicing process. “It’s made from 100% tart Montmorency cherries, proven to be a rich source of powerful antioxidant flavonoids which promote health and recovery benefits,” said CEO John Sommavilla. Which shows how you can make the most of any business in Pure Michigan.
CORPORATE CITIZENSHIP | TOM GIMBEL, CEO OF LASALLE NETWORK
Lessons from Giving Getting involved in employees’ charities has taught Tom Gimbel a lot about LaSalle’s work force—and about himself. By C.J. Prince
TOM GIMBEL, CEO OF NATIONAL staffing and recruiting firm LaSalle Network, describes himself as a middle-of-the-road centrist. “I’m the stereotypical urban, socially liberal, economically conservative person who believes we shouldn’t have too high tax rates and people need to work to help themselves.” On the other hand, he says, “I also feel there are a lot of issues the private sector just needs to help on. And the better you do, the more you should give.” Gimbel didn’t come to that completely on his own. “I was a horse led to water by my staff,” he says. A few years back, one of his employees, who was active in a charity event called the Dance Marathon, began recruiting colleagues at LaSalle to join her at the annual event, where participants dance for eight hours to raise funds for Lurie Children’s Hospital in Chicago. Last year, she asked Gimbel for corporate sponsorship and he agreed.
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This past February, Gimbel, along with his family, joined more than 60 employees at the event, where LaSalle raised $45,000 for the cause. As a sponsor, LaSalle’s group received a tour of the hospital, and that had a big impact. “We help people find jobs and that’s very important work and I’m passionate about it,” Gimbel says. “But you go to a hospital and see sick kids and the facilities they’re building for families and it really hits home. You realize you can benefit people in so many different ways.” That experience inspired him to do more. This past August, as part of a week-long celebration of the company’s 18th anniversary, Gimbel introduced a new philanthropic initiative to give $1,000 each to five charities in five days. Employees were invited to write essays about their favorite charities, making a case for why theirs should be chosen. But Gimbel was
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CEO WATCH CEO WATCH so moved by the essays submitted—17 in all—that, after the initial five were chosen, he announced they would reallocate funds to give an additional $250 to each of the remaining causes. “I learned so much about my employees, so much I didn’t know, even about those who have been here for years,” he says, adding that the vulnerability expressed in those personal essays brought coworkers closer and increased the bond between employees and their employer. “When a company is willing to hear your passion outside of work, you’re more willing
“You realize you can benefit people in so many different ways.” to do more for coworkers internally and that builds a connection.” Gimbel says the benefits have been tangible for the company’s culture. And although direct results of LaSalle’s philanthropic work are hard to quantify, for the past three years, it has been named to numerous workplace superlative lists, including No. 4 on Crain’s Chicago Business’s “Best Places to Work.” Gimbel says he’s changed, too. He recalls watching a “60 Minutes” episode about 9/11 this past September with his two teenagers. “I had tears coming down my face,” he says, noting that being more philanthropically minded “has made me a lot more vulnerable, more open to different thinking.” And that, he adds, is nothing but good.
CASE STUDY | BILL SANDBROOK, CEO, U.S. CONCRETE
Bill Sandbrook: Shoring Up U.S. Concrete How a rollup-fueled strategy put a struggling company back on solid footing. By Jennifer Pellet THE CHALLENGE You’re leading the U.S. operations of an Irish company where you’ve worked for 15 years when a headhunter comes calling about your dream job: the CEO role at a large, public company in your industry. The hitch? The company in question is just emerging from Chapter 11 and hampered with virtually no credit, low-margin contracts and only a three-month grace period on its considerable debt. Plus, you’ll be agreeing to swap a big chunk of guaranteed comp for incentive- and equity-based pay. THE BACKDROP Bill Sandbrook opted to grab the opportunity to lead Euless, Texasbased U.S. Concrete, jettisoning a role leading a stable $7 billion materials company, Oldcastle’s Americas Products & Distribution. “Foreign companies are generally run by someone of local national descent and I was ready to be a public company CEO,” explains the 59-year-old, who spent 13 years in the U.S. Army before entering the private sector. “The timing was right for me from a career
16 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
standpoint—and there aren’t many U.S.-domiciled public companies, even bankrupt ones, in the [building materials] industry.” It turned out to be a bigger gamble than Sandbrook knew. Like many materials companies, U.S. Concrete had been snapping up small, local concrete companies in an effort to gain both operating efficiencies and local-market pricing power. Then the recession hit and the building business flatlined, prompting financial trouble. By 2011, recovery was gleaming on the horizon—a factor in Sandbrook’s decision to take the job. Soon, however, he discovered that a rebound in the construction market alone wouldn’t solve the company’s issues. “It had grown to the point where the dots on the map added up to
During Sandbrook’s tenure, U.S. Concrete’s stock price soared from $1.99 in 2011 to
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CEO WATCH an $800 million company, but they were too scattered,” he explains. “There’s no competitive advantage in a regional market [in this business] unless you’re in the No. 1 position.” THE SOLUTION Soon after taking the helm, Sandbrook embarked on a more strategic strategy—buying up only those local companies that would bring the company pricing power and benefits of scale. Since the end of 2014 alone, U.S. Concrete has bought 23 local materials companies, 12 in the New York City area. “The premise is that we want to be a No. 1 supplier in very densely populated markets with barriers to entry and difficult operating conditions,” he says. In short, the company would thrive by becoming the go-to materials company in the hardest possible places to build— urban markets plagued by traffic congestion and street navigation challenges—and on the most sophisticated building projects—high rises, bridges and tunnels. Customers in markets like New York City, where a building delay can be devastating, are willing to pay a premium for a reliable supplier, says Sandbrook, who is currently supplying concrete for the LaGuardia airport rebuild project and the Second Avenue subway, among others. “We have more than 200 trucks there, so while we have competitors in every borough, no single one can cover the entire buildout of the New York City metro market. The risks for a contractor to go solely on low price or solely with some small mom-and-pop supplier are significant.” THE HURDLE In addition to the need for a strategy overhaul, Sandbrook discovered early on that the centralized culture of previous management had squelched employee morale. “Everyone was afraid to even sneeze
WHO William Sandbrook, CEO, U.S. Concrete WHERE Euless, Texas SIZE $975 million, 165 plants BIGGEST INFLUENCE My father, “he taught me everything” PERSONAL PASSION “I believe that people always have more potential than sometimes they’re allowed to give or that they want to give. And I invest in and try to unharness that potential in every individual.” without asking Houston if they could spend $5,000 to fix a truck,” he recalls. “On my first listening tour, half of our equipment was broken. They were fighting with two arms behind their backs.” To address the issue, he moved the corporate headquarters from Houston to Euless and embarked on a vigorous campaign to instill more employee initiative. THE RESOLUTION Shedding unprofitable business lines, exiting markets that didn’t fit the new strategy and strengthening the concrete company’s foundation
18 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
in key geographic areas, as well as empowering employees, all paid off handsomely. Revenues, margins and cash flows have all been on the upswing, as has share performance. During Sandbrook’s tenure, U.S. Concrete’s stock price soared from less than $2 in 2011 to $49.50 (at press time). THE OUTLOOK Rather than set a revenue-growth target, Sandbrook is now guarding against a hiccup in the building market’s recovery. “This recovery has gone on so long that I have to be prepared for slower or even a downturn in growth—to make sure that we’re not overextended in our debt profile and that I can take costs out if necessary,” he explains. “I’m setting it up as more defensive than offensive right now, because this is a cyclical business so at some point—whether it be two years, three years or five years or next year—I need to prepare this company for that [change].” THE LESSON Convincing employees to tackle issues themselves takes time and communication—lots of communication. “Even experienced managers were somewhat hesitant to take responsibility so I had to teach them how to have initiative to go out and be proactive and take care of things,” reports Sandbrook, who invested time in coaching and communicating the empowerment message. “I had to say, ‘Listen, you guys have been around a long time and you know to operate. Within reason, I don’t want you to ask anybody, just go get your equipment fixed.’” Eventually the message took. “Now I’m there to help and coach and teach and motivate and hold them to high standards, but it’s very decentralized,” he reports. “I demand a huge amount of responsibility from everybody.”
Cyber Attackers Size Up SMEs THE THREAT: From viruses to criminally minded efforts to steal valuable private data that can be ransomed, sold or otherwise employed for gain, cyber attacks are on the rise. Among the most prevalent are spearphishing campaigns—malicious emails to employees that appear to be from a known contact—which increased 55 percent in 2015. What’s more, attackers are increasingly setting their sights on small and medium-size businesses, presumably because larger firms tend to have stronger shields in place, according to Symentec’s 2016 Internet Security Threat Report. Data suggests that targeted companies often face as many four attempts per year. “The attackers only have to succeed once, whereas the businesses must thwart each and every attack to remain secure,” warns the report. “Businesses should already be thinking about what to do when (not if) such a breach occurs.”
© 2016 Ernst & Young LLP. All Rights Reserved. 1609-203965_NE ED None.
INBOX | SPEAR PHISHING
Spear Phishing Attacks by Company Size
35% 22% 43%
■ Large Enterprises (2,500+ employees) ■ Medium-Size Businesses (251 to 2,500 employees) ■ Small Businesses (1 to 250 employees)
25% 34% 30%
19% 31% 32% 18%
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Becoming a New CEO...Through the Eyes of Long-Term CEOs How to cope with the top three challenges that vex new leaders. By Dr. Thomas J. Saporito
THERE ARE HARD REALITIES TO BEING A NEW CEO. First, there is the mythology of what to expect, and then comes the actual experience of being at the top. As senior executives assume new CEO roles, they would do well to take the advice of seasoned CEOs who speak from that experience firsthand. Over the decades, I’ve asked questions that tend to reveal the unspoken challenges of new CEOs. Through research and interviews with seasoned CEOs, we have identified three issues that often vex new leaders. Let me share their experiences, as well as my own, in dealing with these realities.
1. “I didn’t decide soon enough on who stays and who leaves.” When you ask CEOs what they would do differently if they could turn back time, most claim they would have moved sooner in finalizing their executive team. CEOs share that the challenge is not about making those tough decisions but not having made them much earlier, so they could have moved forward on their initiatives sooner and with more resolve. In our survey of 100 long-term CEOs, when asked, “What advice would you have for a new CEO?” the second most offered tip—next to the CEO’s personally getting involved—is to move fast to ensure the right team is in place and to build a high degree of trust with that team. Not making the people decisions delays aligning the senior team and enlisting them in driving change. Moreover, not moving decisively on the senior team can make this next reality an even harder “lesson learned.”
2. Getting the over and under right on power. New CEOs often overestimate how much power the office has to dictate change. They overestimate their titles’ ability to push through resistance inherent in any organization. John Rowe, former chair and CEO of Exelon Corporation, illustrates it this 20 /
way: “It’s a lot like being a little person on top of a huge elephant. If you’re lucky, the elephant goes where you want, but never think you’re bigger than the elephant.” New CEOs often underestimate the importance of an aligned team driving change. Only through hindsight do they realize that the speed at which their initiatives cascade through the organization is a function of the certitude, unity and trust of the senior team.
3. “It really is lonely at the top.” Not having an aligned team and misjudging positional power often leads to a sense of aloneness. When you consider the magnitude of the responsibility, the job can become increasingly isolating when a new CEO doesn’t have a trusted senior team pulling together as one. Eighty-eight percent of CEOs we surveyed for our research say that the sense of loneliness they feel is much greater than in any previous role they had held. Up to 50 percent express feeling isolated. Taking a step back, what applies to all of these issues is the importance of timing—that you, as a new CEO, should address each concern early on. At the start, you want to make an assessment of the senior team and deal head-on with people decisions. It’s what I often call the “pay-me-now-or-pay-me-later” dynamic. Next, dispel the notion that you can do this alone. Get the senior team engaged as a collective lever of change. Discuss the pace that’s needed, the barriers that exist and coalesce around what your team will do as one united force for change. To perform at their best, CEOs need to be decisive about the team they will trust; they need to have a deeper appreciation for the limits—and power—of the office and they need to develop close confidants to assuage their frequent sense of loneliness. The most successful CEOs I’ve observed over the years are the ones who come to terms with these private yet pivotal trials of leadership early on in their careers. DR. THOMAS J. SAPORITO (firstname.lastname@example.org) is chairman and CEO of RHR International, a global firm committed to the development of top management leadership.
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Giving Washington the Business: The Myth of the Monolith 70 percent of the CEOs we surveyed said that the voice of business is not being clearly heard in Washington. THE EXPRESSION “What’s good for General Motors is good for the U.S.,” was attributed to President Eisenhower’s secretary of defense, Charles Wilson (formerly the CEO of General Electric) in his Senate confirmation hearings. This somewhat distorted quote was emblematic of the sense of alignment U.S. business leaders believed they enjoyed with the American public. By contrast, among the unconventional aspects of the 2016 presidential election, politics has been the attack on mainstream business by the candidates of both parties. Political action committee funds from corporations and their employees are overshadowed with individual mega donors. Anti-corporate backlash is registered in hostility toward federal bailouts, diluted financial system reforms, globally competitive tax reform, immigration reform, unfair trade agreements, tax base inversion and U.S. trade promotion. These business priorities have been condemned as “crony capitalism” equally by voices on the left—such as Joseph Stiglitz, Bernie Sanders and Elizabeth Warren—and voices on the
right—such as Bill Kristol, Sarah Palin and Rush Limbaugh. Recent shareholder letters by CEOs ranging from GE’s Jeff Immelt and JPMorgan’s Jamie Dimon to Apple’s Tim Cook and Starbucks’s Howard Schultz increasingly voice open frustration over limited policy influence. In Immelt’s words, “The difficult relationship between business and government is the worst I have ever seen it.” Fully 70 percent of the several hundred major CEOs we surveyed at our Yale CEO Summit this past spring said that the voice of business is not being clearly heard in Washington. Similarly, roughly 80 percent of these CEOs complain that “business trade associations do not fully represent my company’s interests in DC.” With unprecedented business investment in trade associations and lobbying, the problem is not due to lack of resources. The research for my first book, Corporate Views of the Public Interest, in 1980 chronicled the very first corporate government affairs being opened in DC over the prior decade. In their book, Winner-Take-All Politics, Jacob Hacker and Paul Pierson report a 700 percent increase in corporate lobbying expenditures over the past 25 years. Despite some favorable financial service deregulation in the 1990s and pharmaceutical pricing deals with the government in the past decade, some CEOs are questioning the effectiveness of current lobbying. A second theory is that once-non-partisan corporate leaders draped themselves in Republican Party politics where the alignment of interests was far weaker than promised. A recent Washington Post article entitled “How Big Business Lost Washington” highlighted divergent interests, such as when the business com-
munity sought infrastructure investments while the Tea Party-sensitive politicians ushered in government shutdowns and spending sequesters. A third theory involves the public backlash against the costly corrupt governance breakdowns and the financial industry misconduct over the past two decades. And a fourth has to do with the destabilizing effects of income inequality and underemployment at a time when CEO compensation has soared disproportionately to corporate performance. The fifth theory, one that lobbyists often bury, is that the U.S. business community does not have uniform interests on far-ranging areas, including energy, the environment, trade, healthcare, privacy, defense and immigration. The Business Roundtable, the U.S. Chamber of Commerce, the National Association of Manufacturers, the Committee on Economic Development, the Business Council and the National Federation of Independent Business do not find easy agreement within their own ranks, let alone across trade groups. Even within healthcare alone, providers, insurers, big pharma, biotech and device makers have very different interests. In forest products, interests vary depending upon their reliance on federal lands, global sourcing and exposure to downstream converting versus lumber. U.S. blue chip firms, family enterprises, subsidiaries of non-U.S. firms, banks, hedge funds, entertainment, food producers, retailers, heavy industry manufacturers, biotech, infotech, fintech—each specific sector has unique key priorities that are nearly as different from one another as they are from those of non-business sectors. The U.S. Business Monolith is a myth.
JEFFREY SONNENFELD is senior associate dean for leadership studies and Lester Crown professor in management practice at Yale University, and president of the Yale Chief Executive Leadership Institute.
22 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
I LLU ST R AT I O N BY T I M TO M K I N S O N
Divergent interests are muffling the voice of American business in politics. By Jeffrey Sonnenfeld
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How International is the Mid-Market? CEOs broadly are optimistic, although some are concerned about the impact of Brexit.
MORE THAN HALF of middle-market companies (54 percent) export to foreign markets and 48 percent import, according to “Winning in the Americas,” a recent report from the National Center for the Middle Market at Ohio State University’s Fisher College of Business. For most, international operation is a two-way street—58 percent of those doing business in foreign markets export as well as import. Middle-market exporters tend to concentrate their international efforts, with the majority (43 percent) selling to one or two foreign markets, 19 percent selling to three, 13 percent to four and just 9 percent to five. Canada and Mexico rank as the first and second most important trading partners among these exporters, likely due to the North American Free Trade Agreement launched in 1994. Sixty-three percent of middle-market exporters send goods to Canada, while 39 percent sell to Mexico. By comparison, just over a third of middle-market exporters sell to Europe and only 28 percent sell to China. Those who succeed in international markets report taking a disciplined approach to global growth by sequencing market entry carefully and monitoring progress. Forty-three percent report ongoing planning and 26 percent conduct periodic reviews of international operations and expansion plans. Top hurdles cited by those successfully operating abroad include transport costs, political risk and finding the right partners. The degree of difficulty varies by country, with Western Hemisphere countries tending to be viewed as easier markets to enter (see chart at right). Free Trade Agreements (FTAs) are widely viewed as facilitating market access; nearly half of middle-market executives report that FTAs helped boost their exports and imports. Going forward, 92 percent of internationalized companies plan to sell more overseas, with more than a third considering new markets as a result of the provisions of the possible Trans-Pacific Partnership (TPP). 24 / CHIEFEXECUTIVE.NET
Where They Go
Top Export and Import Markets for Mid-Market Firms EXPORTS
How Foreign Markets Rate on Ease of Entry
Canada, the English-speaking Caribbean, Costa Rica, Belize and El Salvador are viewed as relatively easy to enter. % companies with sales to or from a market
NORTH AMERICA CARIBBEAN 73%
CENTRAL AMERICA 9%
CENTRAL AMERICA COSTA RICA 76%
EL SALVADOR 65%
SOUTH AMERICA 20%
SOUTH AMERICA CHILE 50%
How Will the TPP Affect Your Business?
Most welcome the prospect of a trade agreement between the U.S., Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. Negative Impact
9% No Impact
Major Positive Impact
OTHER 38% OTHER LOCATIONS AUSTRALIA 63% EUROPE 52% AFRICA 50% OTHER EAST ASIA 40% INDIA 38%
SOUTHEAST ASIA 36% 37%
40% Minor Positive Impact
MIDDLE EAST 29%
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Heading into 2017, Chief Executive asked business leaders from across industries and the nation for a gut check on today’s operating environment and their hopes and fears for the year ahead. Here’s what they had to say.
BY DALE BUSS
AMERICA’S CEOS ARE SENDING THREE MESSAGES AS THEY HEAD INTO 2017. They’re wary
about the course of the U.S. economy no matter the White House occupant. They’re concerned about the uncertainties created by issues such as regulatory over-reach and geopolitical volatility. And they’re even more worried about the sure things of the new year, which they see as more terrorism and cybercrime. In fact, the 17 diverse CEOs surveyed by Chief Executive about their outlooks for the new year (see sidebar at right) collectively fear that the completion of a nasty political season won’t salve many of the substantial doubts they have for their companies, their industries and the American economy as 2017 unfolds. Several of our interviewees expressed apprehension about both business investment and consumer sentiment and spending.
STUCK IN NEUTRAL “We have not seen much change in the general economy in North America,” Dave Farr, CEO of industrial and electronics giant Emerson Electric, told investors recently. “On the consumer side of our businesses, we’ve seen growth, but even the consumers are being cautious…. On the industrial side, companies continue to cut.” Adds Steve Jones, CEO of Allied Universal, the newly merged, largest physical-security company in America: “We were seeing the economy grow previously. But now I think it’s in maintain mode.” Underscoring that sentiment, Cheryl Black, CEO of digital-coupon leader You Technology, suggested that “economic uncertainty will drive people to be frugal and cautious, which will probably cause a slowdown.” CEOs in the Business Roundtable
ROSTER OF CEOS CHERYL BLACK
CEO, You Technology, Brisbane, California: A $41-million digital-coupon company.
U.S. chairman and chief executive, KPMG, New York: A blue-chip business advisory firm.
J. PATRICK DOYLE
CEO, Domino’s, Ann Arbor, Michigan: The No. 2 global pizza chain has more than 12,000 franchised stores around the world.
CEO, Emerson, St. Louis: The $22 billion company is a technology- and engineering-heavy diversified global manufacturer.
Chairman and CEO, International Flavors and Fragrances, New York: A $3-billion provider of ingredients.
CEO, Allied Universal, Santa Ana, California, and Conshohocken, Pennsylvania: The $4.5 billion security company formed by a merger.
CEO, LexisNexis Risk Solutions, Dayton, Ohio: A provider of cybersecurity services and part of RELX Group.
CEO, Talking Rain, Seattle: Owner of Sparkling Ice, one of the fastest-growing beverage brands in the U.S.
CEO, FastSigns, Carrollton, Texas: A major franchisor of display signs and graphic services for retailers and others.
CEO, Russell Reynolds Associates, New York: One of the world’s largest executive-search firms.
CEO, Sharp HealthCare, San Diego: The city’s largest healthcare provider has seven hospitals and more than 16,000 employees.
CEO, Penske Automotive Group, Bloomfield Hills, Michigan: Major operator of auto and commercial-truck dealerships.
CEO, Newell Brands, Atlanta: The $16 billion consumer-goods giant recently acquired Jarden.
CEO, Workiva, Ames, Iowa: The company is a mid-market cloud-tech outfit with $145 million in revenues.
CEO, Crystal, Century City, California: The $300 million company is an innovator in luxury cruises.
CEO, SunTrust Bank, Atlanta: A major financialservices firm especially strong in the Southeast.
Co-CEO, TransPerfect Translations, Cleveland: At $500 million, the world’s largest privately owned language-services provider.
I L L U S T R AT I O N BY T O M E R H A N U K A
Top Four Concerns for the Future
CEOs interviewed by Chief Executive cited four main areas of concern as they gaze into their crystal balls for 2017.
SEARCHING FOR NORMALCY AND GROWTH
CEOs wonder if either will ever come back, given uncertainties that confound business around the world. ROGERS “The uncertainty around taxes, healthcare and regulation means that there’s an economy of 2 to 4 percent more growth that sits on the sidelines that wants to get into the game, but some of this uncertainty is keeping them from doing it.” KLOCK “Growth is slowing down, so that has me a little concerned. And productivity is down. The general flow of goods is slowing, maybe signaling that it’s going to be a softer year next year.” DOUGHTIE “CEOs are conveying to me that they’re concerned about macro issues,” such as lackluster business investment and shaky consumers, “but they feel well-positioned over the next 12 to 18 months. But there’s more uncertainty about getting to growth at the same levels as the last few years.” MONSON “The U.S. economy will continue at this lackluster, tepid kind of pace. We’ll probably come in at about a 2 percent increase in GDP next year. Economists keep revising their forecasts downward.” KELSEY “The overall economic environment in the U.S. looks quite good, the confidence is good, and the metrics are good. Especially if you look at the U.S. from a European perspective.” FIBIG “We aren’t just dealing with election results in the United States. They are also in France and Germany” in 2017. “There are [vacillating] raw material prices.” JONES “The world’s not becoming a safer place.” Threats of terrorism “are a topic with our customers every day. And it’s getting more expensive to try to guard against them.”
28 / CHIEFEXECUTIVE.NET
reflected this same glum prospect for 2017 in the group’s third-quarter Economic Outlook Survey. The chiefs expressed lower predictions for sales, roughly unchanged plans for hiring and nearly flat expectations for capital spending through the first quarter of the new year, while their consensus projection for GDP growth for 2017 was just 2.2 percent, or no better than the average gain during the sevenyear-old, wheezing economic expansion. As Doug Oberhelman, chairman and CEO of Caterpillar and chairman of the Business Roundtable, put it, the survey results reflect an “unfortunate new normal—where the U.S. economy is pretty much stuck in neutral rather than moving forward.” Layer on top of such domestic worries the unmitigated worldwide volatility being imposed by jihadist terrorism, immigration surges, anxieties about climate change, more invasive cyber attacks, the spread
“ We aren’t just dealing with election results in the United States. They are also in France and Germany” in 2017. “There are [vacillating] raw material prices.” — ANDREAS FIBIG, INTERNATIONAL FLAVORS & FRAGRANCES
of the virulent Zika virus and other factors. “We will have movements and epic sways,” says Andreas Fibig, CEO of International Flavors & Fragrances, a huge ingredients supplier to CPG companies around the world. “We believe volatility is here to stay.”
POSITIVE PREDICTIONS Despite these gloomy outlooks, some business chiefs are more sanguine, expressing hope that strong and stable growth could possibly take hold next year and in the years ahead. Domino’s CEO J. Patrick Doyle, for example, is “fairly optimistic” about growth in 2017 because he expects the continuation of a huge positive for the U.S. economy that he believes has been under-appreciated: the boom in U.S. oil and gas production and the resulting softness in prices. “We’ve all underestimated the extent to which lower energy costs have driven manufacturing gains, income
gains and so on,” Doyle says. “I think it’s been very powerful globally, and particularly in the United States. In particular, it’s helping to fuel job growth.” Certainly gasoline prices that have fallen by nearly half in the last few years are one big reason that U.S. auto sales reached a record level in 2016, climaxing
in demand, sales and prices, many CEOs also cite fears that 2017 will present continued difficulties in getting proceeds to the bottom line. One of the biggest challenges they see is the costs of dealing with ever-expanding regulation by the fed-
“There’s more government and global uncertainty, which will increase potential regulation—and that will be bad for business.” —CLARKE MURPHY, RUSSELL REYNOLDS
Top Four Concerns for the Future
GOVERNING AFTER THE ELECTIONS
CEOs are concerned about the nation’s hangover from the 2016 campaigns, as well as the state of regulation. KLOCK “The elections were really about attacking, not ultimately about agendas that will truly be relative to business. So as people are unsure of the broad impact of this election, [CEOs] will go into a hold mode until we get a sense of where we’re headed.” MURPHY “There’s more government and global uncertainty, which will increase potential regulation—and that will be bad for business.”
an eight-year recovery. And Roger Penske, CEO of Penske Automotive, one of America’s largest car-dealership chains, believes the heady times will roll into 2017. “I feel good about a continuation of this sales level,” he says. Bill Rogers, CEO of SunTrust, the financial-services giant, also has a positive outlook, observing that “credit quality remains strong and the consumer is in good shape right now.”
REGULATORY FEAR FACTORS Beyond top-line concerns about an economy that can support increases
eral government. And it’s no surprise that CEOs in healthcare seem among the most distressed, as Obamacare continues to transform their industry while failing at this point to achieve the democratization of care and reduction in medical costs that was promised with the overhaul. For example, toward the end of 2016, every medical provider in the country was dealing with the impact of freshly minted rules for physician reimbursement from Medicare, causing “a lot of consternation,” says Mike Murphy, president and CEO of Sharp HealthCare, the largest hospital
MONSON “The single biggest concern I have about my company and my business and franchising in general is government over-reach.” POLK “The government could do its part to create incentives for companies to invest. But we’re not counting on material changes there in 2017.” MIKE MURPHY “I’m concerned about uncertainty that was created by the elections, not only for president but also the House and the Senate, and continued uncertainty related to the Affordable Care Act.” ROGERS “I’m not sure we put our finger up in the air and say that one political thing or another is going to dramatically change the environment we work in.”
Top Four Concerns for the Future
GRASPING FOR GOOD LEVERS
Whether it’s capital spending, digital innovation or talent recruitment, business leaders are seeking new paths to growth. PENSKE “We’re investing $200 million this year in capital expenditures throughout the world, and that’s twice our depreciation.” DOUGHTIE “There’s never been a time when investing in the business has been more important. The topic that comes up most within our own organization and in talking with clients is the need to continue to innovate, to deal with new technologies to improve their business models.” RIZAI “Innovation is going to be better for business as they optimize technology. When the tide rises, all boats rise with it.” CLARKE MURPHY “We find that corporate boardrooms are confident in investing in people and in their businesses; our pipeline is the best it’s ever been in the U.S. But everyone is cautious.” JONES “Higher wages we pay are driving our customers to look at using more technology to try to find ways to offset labor costs,” such as doing more remote monitoring and hiring fewer patrol personnel. BLACK “Mobile will continue to be a huge growth driver.” SHAWE: “The gig economy is powering our growth as we work with 20,000 contractors as part of our own ecosystem, increasingly linking them together through training and the use of technology.”
30 / CHIEFEXECUTIVE.NET
operator and medical provider in San Diego. And overall, he says, “The industry is continuing to be more and more challenged. Cost increases are significantly outpacing the revenue increases, and the industry will be challenged next year to be more cost-effective while also delivering higher-quality service to consumers and stakeholders. It will continue to get more difficult.” Other CEOs complain about a costly wage squeeze at the same time that consumer and business demand remains tepid. A companion problem is their inability to find and keep truly qualified workers even if they are paying higher wages. “We’re having to respond to all the rising minimum wages at the federal, state and city levels,” says Jones, whose company employs thousands of low-wage security guards around
“ Mobile will continue to be a huge growth driver.” — CHERYL BLACK, YOU TECHNOLOGY
the country. “Unfortunately, raising wages really doesn’t help you get people, because if you’re paying the new minimum, it doesn’t mean anything to anyone you’re hiring; everyone’s paying it.”
ANSWERS—AND ANTIDOTES In an environment they expect to be challenging again in 2017, CEOs are turning to a number of expected antidotes, including innovation. Newell Brands CEO Mike Polk, for instance, is counting on “innovation, brand development, insights and e-commerce” to enable his company—which owns dozens of popular marques, including Calphalon, Elmer’s, Oster, Rawlings and Sharpie—to “outperform the macros” in the wake of its 2016 merger with Jarden, another big manufacturer of consumer goods.
May 16 – 17, 2017 Seattle, Washington Co-Hosted by The Boeing Company Join peer CEOs at Chief Executive’s 5th annual Smart Manufacturing Summit. Manufacturing CEOs will discuss the key strategies, tactics and opportunities in 21st-century manufacturing.
2017 AGENDA TOPICS INCLUDE:
• Lean Manufacturing and Continuous Improvement:
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• Automation Advances: How Companies Are
Leveraging Robotics, Sensors, and Data
• Smart Design: Designing for Manufacturability
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• The Distribution Revolution • Supply Chain Trade-Offs: Buy vs. Build,
and Scale vs. Diversification
• The Impact of IoT on Your Business Model • New Ways to Improve Plant Safety • Reinventing Your Manufacturing Business
FOR MORE INFORMATION:
Top Four Concerns for the Future
GAUGING THE GLOBAL ECONOMY
Brexit’s mainly a yawn, but CEOs aren’t counting on overseas to bail their companies out of slow-growth mode. KELSEY “China is not as strong as it was. And with Brexit, there are too many people with no clue about it. There’s some uncertainty, but it’s settling down now.”
Meanwhile, International Flavors & Fragrances spent more than 8 percent of its revenues on R&D in 2016, about the same as in 2015. One of its biggest innovation plays is a “modulator” that will help food and beverage companies reduce sugar content by up to half as they cope with greater global demand for ways to reduce sugar content. As always, change and even uncertainty are also creating new opportunities for just about every industry. For many CEOs, just the glimmer of such openings is enough to generate optimism for the year ahead.
RODRIGUEZ “Regardless of world occurrences—whether it’s Zika or terrorist activity—the luxury sector feels that it’s still their right to travel. And so we’re bullish on them for 2017.”
“Europe is going to do well, and the UK will do well in the long term,” after Brexit.
SHAWE “I’m not concerned about Brexit: Switzerland has never been in the EU, and not every company is going to move its offices to Amsterdam. The UK already had its own immigration policies and currency.” RIZAI “Europe is going to do well, and the UK will do well in the long term,” after Brexit. FIBIG “China’s GDP is still growing 6 to 6.5 percent a year, which is still more than Europe and the U.S. And a hot area for us is Africa and the Middle East, with good double-digit growth rates despite all the political turmoil.” POLK “You have to be prepared to ride the rollercoaster if you want to access double-digit growth, like the Brazil experience, Venezuela now, Turkey in 2005 or Argentina in 2002. You have to absorb those hits.” ROGERS:“I don’t think we’ll see one particular region breaking out dramatically disproportionate to anywhere else, like we saw in the past with Brazil and China. We’ll see more of a reversion to mean, and the mean being a little bit lower.”
32 / CHIEFEXECUTIVE.NET
er languages, says CEO Phil Shawe, “but if you want to sell services to Goldman Sachs, for example, they want the highest level of security possible.” And, for audit, tax and advisory services firm KPMG, business quandaries only boost demand, says Lynn Doughtie, U.S. chairman and chief executive. “The major headline for our clients is transformation,” she says. “And that translates into more opportunities for KPMG across all our businesses.” Clarke Murphy, CEO of executive-search titan Russell Reynolds,
—MATT RIZAI, WORKIVA
For example, growing safety concerns pressing from all around are boosting demand for security services. Damages from identity theft rose by 43 percent in 2015, and companies are trying to cope, fueling sales for LexisNexis Risk Solutions, for instance. Meanwhile, clients of TransPerfect Translations are “very interested in the translation of material” into oth-
also sees heightened demand as boards continue to seek great leaders to take them into an uncertain 2017. “If someone can grow revenue faster, be more agile in adapting their company to a changing world, or take a longer-term horizon for a family business, [boards] want that person,” Murphy says. “That’s separate from any economic decision. So the people business is a good business.”
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THE GIG ECONOMY: VALUE AND RISKS
By William J. Holstein
Can contingent workers help solve the countryâ&#x20AC;&#x2122;s skills gap? BY RUSS BANHAM
34 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
The swelling ranks of contingent workers—a category comprising a wide range of non-salaried, freelance specialists and independent contract workers—are a boon to the bottom line. For a lot less money than hiring someone on a full-time basis, companies can acquire top-notch talent to quickly fill skill-set voids on an as-needed basis, without having to make contributions to Social Security, unemployment insurance and workers compensation or manage tax withholding. They also save on healthcare, sick leave, overtime and paid vacation time—not to mention the other benefits that highly skilled, full-time workers expect these days, such as dental plans, life insurance, disability insurance and gym memberships. These various expenses add up. According to MIT Sloan School of Management, the total cost of an employee can equate to as much as 1.4 times the person’s base salary. The financial benefits of contingent workers and the growing interest of many people in such work arrangements have combined to create today’s “gig economy.” Like neighborhood rock bands playing a wedding one week and a bar mitzvah the next, contingent workers take on short-term gigs, offering their unique talents to multiple employers. They choose how much they want to work and for whom, enhancing their worklife balance. That’s the upside. Like everything else that seems too good to be true, there are sobering downsides to the gig economy. Contingent workers may not align with the hiring organization’s culture, their independent natures rubbing up against a business with a collaborative workforce or a hierarchical command-and-control structure. They also tend to make older, full-time workers uneasy. Plus, they impose major employment and labor law compliance risks. Woe to the company that misclassifies a full-time employee as a contingent worker. (See “Is Your
Contractor Really an Employee?,” p. 37.) Still, the sheer growth in the size of the contingent workforce appears to affirm that the benefits are well worth the risks. According to a 2015 report by the U.S. Government Accountability Office (GAO), 40.4 percent of the U.S. workforce is made up of contingent workers. As defined by the GAO, these include independent contractors who provide a service or product, part-time workers, self-employed workers, contract company workers, agency temps and on-call workers who cycle in and out of companies on an as-needed basis. One of the biggest bumps in the category is in people working as independent contractors. These individuals include skilled specialists, such as computer programmers and software application designers and developers, as well as workers with creative writing, graphic design and similar talents, among others. In 2005, such workers made up 11.9 percent of the labor force. Ten years later, they made up 16.2 percent, a 36 percent leap.
GIG GENERATIONS Entrepreneurial and independent-minded Millennials, who prefer to provide their talents on a short-term basis to multiple takers, account for a significant number of such workers. These members of the workforce shun spending their careers with one, two or three employers like their parents and
grandparents. “Millennials tend to have high-level ideals they want to pursue, working to live and not living to work,” explains Sean Monahan, a partner with consulting firm A.T. Kearney’s operation and performance transformation practice. Even when Millennials take full-time positions, they don’t last long. According to the Bureau of Labor Statistics (BLS), the median job tenure for workers aged 20 to 24 is shorter than 16 months. For those aged 25 to 34, the tenure is three years. Everyone else works longer than 5.5 years. “Millennials often look for jobs where they can pick up some expertise and knowledge and then move on to the next opportunity to continue learning,” Monahan says. Younger workers aren’t alone in this sentiment. However, more seasoned gig economy participation is not always by choice; many Baby Boomers not yet ready to retire and other experienced workers were casualties of the Great Recession. “A lot of people, such as software engineers, were laid off and started working part-time,” says Josh Bersin, principal at HR consultancy Bersin by Deloitte. Some grew to prefer that arrangement; others were simply unable to find comparable salaried work. Retirees with singular expertise that can only be developed over long careers are also being lured back into the workforce to offer short-term service.
GIGGING ON THE RISE
51% of companies will increase their usage of contingent workers over the next 3-5 years 10% INCREASE SIGNIFICANTLY
NO CHANGE DECREASE
} 51% 50%
DECREASE SIGNIFICANTLY 3%
Percentages may not equal 100% due to rounding / Source: Deloitte University Press
NOVEMBER/DECEMBER 2016 /
A SKILL SET SOLUTION For companies, contingent workers represent a potential solution to today’s high turnover rates and dearth of skilled workers. Resourceful businesses are countering these issues with “total workforce solutions,” a term referencing the different types of salaried and non-salaried workers needed to realize business strategy. Among them is Hallmark Cards. “We have the need for talent in a variety of skill sets, such as technology, creative and industrial,” says Fred Wise, the greeting card manufacturer’s HR director. “To fulfill these needs beyond our salaried personnel, we will leverage alumni, former Hallmarkers, in addition to freelance, independent talent for variable or less predictable work.” Cisco Systems also turns to contingent workers to address talent gaps. “When we can’t find someone with a particular skill set through traditional recruitment, we’ll reach out to contingent workers,” says Jeanne Beliveau-Dunn, the technology giant’s vice president and general manager. “We’ll pay a lot of money to get the person’s expertise and like it when they want to stay on in a more permanent capacity. As part of the arrangement, we also expect them to help us develop our internal people.”
For more information on the gig economy, including a look at which industries use it most, visit: ChiefExecutive.net/ND16GigEconomy
A cottage industry of open sourcing talent platforms has cropped up to introduce employers to a broad spectrum of contingent workers. Such intermediaries as Upwork, OnForce, WorkMarket, Shiftgig and FieldNation are to contingent workers and employers what yentas are to the marriage business. “The accessibility of talent has changed enormously,” says Christopher Dwyer, research director at Ardent Partners, a research and advisory firm. “Companies have instant, on-demand access to this pool of incredibly talented freelancers and other independent professionals. You contact them directly when you need them and set the parameters of what you want and are willing to pay.” “It’s the uber-ization of the workforce,” agrees Neil Shastri, leader of HR consulting firm AON Hewitt’s global insights and innovation practice. “It’s so easy nowadays to recruit high-skilled freelancers across diverse professional disciplines when you need them.” “Companies want specialists, people with particular skills, as opposed to the well-rounded generalists that business schools historically graduated,” adds Mike Mulder, senior vice president, program management, at Bartech Group, a contingent workforce and staffing solutions provider. “When
of the U.S. workforce is made up of contingent workers 36 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
they can’t find these skill sets in a full-time context, they have little choice other than to source them on a contingent basis.” Both parties benefit, with skilled freelancers getting to choose when to provide their talents—and for whom—and employers securing talent at a lower overall cost.
NAVIGATING THE GIG ECONOMY Leveraging contingent workers, however, requires some finesse. Full-time employees often resent the presence of their independent-contractor peers, believing they’re taking work away from other full-timers or given greater flexibility or higher pay rates. “For older, longtime employees, it’s intimidating to know that the way the work has always been done is changing,” Dwyer says. “From a cultural perspective, they’re not sure how to collaborate with these people.” Centralization of employment is one way that companies can address such issues. Many companies secure contingent workers through both their HR and procurement functions, with each group pursuing its own agenda. Recruitment is often left to different hiring managers across the company. Either finance or legal departments are tasked to contract contingent workers. There’s no transparency in this siloed approach, and thus no visibility into overall workforce management. More sophisticated companies, however, are creating governance committees consisting of individuals from HR, procurement, finance, legal and IT to work with managed services providers like Bartech in creating a comprehensive workforce policy. “We function as a liaison between this ownership team and the staffing providers, handling the contractual issues to ensure compliance
IS YOUR CONTRACTOR REALLY AN EMPLOYEE?
The rules are murky, but the penalties for breaking them are severe. WHAT, EXACTLY, constitutes an independent contractor depends on who you ask. Even the Labor Department’s website notes that the National Labor Relations Board, the Civil Rights Act, the Fair Labor Standards Act and the Employee Retirement Income Security Act—each major labor and employment statute, in fact—“has its own way of drawing the line between employees and independent contractors.” Their language is often “vague or circular,” the department concedes, “leaving them open to a broad range of interpretations.” What is clear, though, is that companies are required to make that distinction, to offer employees statutorily required benefits and to pay the required employment taxes. Those who make a mistake in employment classification risk running afoul of tax law, wage and hour regulations, as well as other employ-
ment laws like OSHA (Occupational Safety and Health Act) and FMLA (Family and Medical Leave Act). A wide range of penalties may be imposed and there’s even the possibility of benefit plan disqualification. Reputations can crumble. Various government agencies, including the Internal Revenue Service, offer guidance to help companies narrow the interpretation, but even these differ slightly from agency to agency. Not surprisingly, according to a study by Deloitte, only 19 percent of executives believe their businesses fully understand the labor and employment laws that govern contingent workers. While many companies employ a work-hour threshold—with workers logging more than 30 hours a week considered employees—this approach is too simplistic. The most important aspect in determining if a worker is full-time
and worker security,” Mulder says. Hallmark pursues this route, utilizing a Managed Services Provider (Guidant) as its contingent talent central request and control function. “They work with managers who have shortterm, variable or on-demand work assignments to identify the right type of contingent talent to meet these needs,” says Wise. “They’re also responsible for ensuring appropriate employment classification of contingent workers.” Cisco takes a different tack, managing its own workforce needs and compliance obligations in-house, as
or contingent—for legal purposes—is control. “Who controls the where, when and how of a particular task—the employer or the worker?” explains Nicholas Woodfield, principal and general counsel of The Employment Law Group, a law firm representing people with legal claims against employers. Woodfield cites restaurant and retail workers as examples. “If these people must keep strict hours in a particular location and must dress and act in very specific ways; then, no matter how you cut it, they will almost certainly be considered employees and not independent contractors. In employment law, if it looks like a duck, walks like a duck and quacks like a duck, most authorities will decide it’s a duck.” The upshot for employers is to proceed cautiously. “You can’t just decide to call someone an ‘independent contractor,’” warns
opposed to outsourcing it. “We have a stream of authorized staffing companies we work with, which is determined by our HR leader,” says Beliveau-Dunn. “We also directly source contingent talent through online platforms like Upwork.” In either case—insourcing or outsourcing—companies that effectively manage the pros and cons of contingent workers will outpace their competitors, since people are the most important business assets of all. “In a way, the use of contingent workers is a return to how people worked prior to the Industrial
Woodfield. “This isn’t something that parties can settle purely between themselves. An ‘independent contractor’ is a legal term that either applies to a situation or does not apply.” To ensure the status of an independent contractor from a regulatory standpoint, employers must be ready and willing to relinquish control, insofar as how these workers dress, what tools they use, how long they work and who else they might do work for. “The more rules you want to set, the less likely you’ll have an independent contractor,” Woodfield warns. The bottom line? Employers looking to leverage the gig economy should play it safe. “If you’re not sure whether it’s okay to treat someone as an independent contractor, ask an attorney,” says Woodfield. “If the attorney isn’t sure, just treat the worker as an employee. Any other decision is asking for trouble.”
Age, when everyone had a particular skill learned under an apprenticeship,” says Pete Sanborn, global practice leader of AON Hewitt’s Talent and Organization practice. “For efficiency reasons, mass scale employment replaced this concept.” Now, thanks to technology and the desire for more meaningful work experiences, the efficiencies of the old artisan economy compare quite well with traditional employment. Russ Banham is a Pulitzer-nominated business journalist and author.
NOVEMBER/DECEMBER 2016 /
FAMILY BUSINESS: SUCCESSION PLANNING
DO I TURN THE BUSINESS OVER TO MY CHILDRENâ&#x20AC;&#x201D;
OR SELL OUT?
Baby Boomer CEOs face the question of how to dismount the tiger. By William J. Holstein
SUMNER REDSTONE MAY HAVE BEEN A BRILLIANT BUSINESSMAN.
After all, he used his privately held firm, National Amusements, to acquire controlling stakes in both Viacom and CBS, a media empire valued at more than $40 billion. His personal wealth has been pegged at $5 billion. But Redstone flunked the fundamental test of when and how to make an exit. At age 93, with his mental and physical competence in question, his daughter, granddaughter, former live-in girlfriends, directors of Redstone’s private trust and other participants are engaged in a nasty multi-sided fight for control of his assets. Lawsuits costing millions of dollars are under way, and billions of dollars of market value are at risk.
Redstone is not a Baby Boomer, but his predicament should serve as a wake-up call to the many thousands of CEOs in the demographic bulge in the snake’s neck, meaning those born between 1946 and 1964. The leading edge of the generation that popularized the hula hoop, rock music, marijuana and the sit-in protest has been turning 70 this year. They may have inherited closely held businesses from their parents of the World War II generation or they may have started the businesses themselves. Either way, it’s high time to figure out how to retire. But only 37 percent of them have a formal plan for orderly succession, according to a survey by U.S. Trust, a unit of Bank of America. There are many permutations as to what can go wrong. As in Redstone’s case, CEOs can reach a point that they either die or become enfeebled without leaving a succession plan in place. Others find themselves locked in struggles with children inside the business, who are eager to take it over and push the parent out. If the parent is pushed out of the CEO’s slot and takes a position on the board, what happens if that parent looks to intervene in management? “Founders are great at running a business but terrible at letting go of authority,” says Leslie Dashew, president of the Human Side of Enterprise consultancy in Scottsdale, Arizona. “A lot of times, they will make someone president but won’t
let him make any decisions.” In other cases, the kids are in the business but aren’t interested in—or perhaps not capable of—running the company. Faced with that scenario, a founding CEO may be tempted to sell the business to either a strategic investor or a financial investor—running the risk that the company could be consolidated or flipped, with both children and long-term employees losing their livelihoods. “I think for almost all the privately owned or family-owned businesses that don’t make it to the second or third generation, the reason is poor succession planning or no succession planning,” says Warren Stephens, a second-generation CEO of Stephens, an investment bank and financial services firm based in Little Rock, Arkansas.
Take It to Your Team Employee Stock Ownership Plans (ESOPs) offer one solution to difficult succession issues. That’s the tool that Achyut “Doc” Setlur used. Setlur, who immigrated from India more than half a century ago, spent two decades working for Fluor, a big engineering company in the nuclear power plant business. In 1990, he decided to go out on his own by creating a one-man consulting firm called Automated Engineering Services. The business grew rapidly. At age 68, Setlur started thinking about how to make an exit. He and his
KEY TAKEAWAYS IT’S NEVER TOO SOON
Starting early is the single most important way to smooth a transition
TIME YOUR EXIT
Decide at what age you will step down from your CEO position
FORGE YOUR FUTURE
Figure out your “next act”—what can you hope to do now that will motivate and drive you?
NOVEMBER/DECEMBER 2016 /
FAMILY BUSINESS: SUCCESSION PLANNING
$61 MILLION INCREASE IN ANNUAL SALES OF CASTLE WINDOWS SINCE THE FOUNDER’S SONS (LEFT) TOOK THE HELM
wife, also an engineer, had one son, who was studying to get a Ph.D. in material sciences, an unrelated field. “My business was very different; he was just not into it,” Setlur recalls. “I was quite respectful of his decision to continue his research because that was what excited him. I wanted to keep the company in the family and continue the legacy, but that was not to be.” That’s a powerful word—“legacy”—that many CEOs talk about in facing the decision regarding how and when to step aside. Setlur did not want to sell out to a larger company that might fire or demote trusted long-term employees. Instead, in 2006, he consulted with his financial advisor at Merrill Lynch, Sharon Oberlander and other experts and opted to create an ESOP. There are many different variations of ESOPs, but this type did not require that employees invest any of their own money or borrow from a bank. It was internally funded. “Maybe Doc left something on the table,” Oberlander says. “But he left money for others.” As a result, each employee now had skin in the game and the company grew even more rapidly. By 2013, it had 220 employees and five district offices around the U.S. Setlur left in 2014, but the story doesn’t end there. A British nuclear engineering firm looking to expand into the U.S. agreed to buy Automated Engineering later that year. Setlur and his former employees were able to sell their shares at high valuations with all 40
the top employees remaining in place. Now 78, Setlur lives in Naperville, Illinois, and his son remains happy in his research role.
An Early Start One takeaway from Setlur’s experience is that CEOs need to have candid conversations with their families early and often. “You can’t assume your children will want to go into the business if they are not already,” says Oberlander. “Or, if they want to do so, that creates other issues that should be on the table. Who is in the business and who isn’t in the business? That affects everybody.” She argues that families need to include non-family members in their discussions at some point because those outsiders bring a certain measure of objectivity. “If you go into these family meetings, you can quickly see that the kids are very different people,” she says. “One daughter is a risk-taker. Another daughter is extremely conservative. The son is totally disinterested. That’s not a recipe for three people to work together.” One of the lessons of successful transitions to children is that they should, by design, take a long time. CEOs who wake up at age 65 and start trying to figure out how to retire are at a severe disadvantage. Chris Cardillo, who worked 364 days a year for many years to build Mount Laurel, New Jersey-based Castle Windows, had two sons, an older one also named Chris and a younger one, Nick. Chris junior started working for the company in high school during summers, unloading trucks in the warehouse,
NOVE MBER/DECEMBER 2016
and continued part-time during four years of college. Mom took care of the bookkeeping. The younger brother went to art school. The elder son shadowed his father’s movements for years. Meanwhile, his younger brother started to transition into the business to take the mother’s role. Then, one day in 2001, the father decided it was time to test his sons. The company decided to move into the market for windows in New York State, where it did not operate. “My father said, ‘You’re basically going to run this New York market,’” Chris recalls. “It was a testing ground for whether we could handle the business.” The sons passed the test and the father sold them the business in 2005 when he was 52 and they were 29 and 27 respectively. “My father is a planner,” Chris says. “He is an extremely detailed individual. He knew exactly what he was preparing me for from the day I graduated from college. It was a process he had in his mind.” The sons have expanded the business from $14 million in annual sales to $75 million. The elder Cardillo has remained engaged in the business from the sidelines, offering advice and helping manage important business relationships. The sons are just fine with that. “Children have a natural tendency to not want to listen but, ultimately, you know you have an individual there who knows what to do,” Chris says. “You’d be foolish not to listen.”
Consider Your Second Act Figuring out what you want to do next is one of the biggest challenges of any
Stephens: Successful Next-Gen Succession WARREN STEPHENS’S UNCLE, WITT, started Stephens in 1933 during the Great Depression in Little Rock, Arkansas, to trade highway bonds. It morphed into an investment bank and financial services firm, and Witt handed the company to Warren’s father, Jack, in 1956. He ran it for 30 years before realizing one day that he needed to establish a succession plan. So, in 1986, at the very tender age of 29, Warren found himself sitting in the CEO’s chair. “Dad remained at the firm as chairman, and if I messed up, he could fire me or clean up the mistakes,” Stephens recalls. “Thankfully, he didn’t have to do that.” Today, at age 59, Stephens is contemplating who among his three children will be involved in running the firm and in what capacity. They all have experience working at the firm, and, even more importantly, at other companies. The eldest son has worked for a money management firm on the West Coast for three years. The middle son worked for a Stephens-owned management group in Houston. His daughter worked at a public relations and marketing firm in New York before returning to Little Rock to her family’s firm. “Exactly how it all takes place, I don’t know,” Stephens says. “But they will be the next generation to run the firm. Whenever you can think about things over a longer period of time, you almost invariably have a better outcome.” One of the ways Stephens is planning the transition is by borrowing a page from what his father, uncle and he did in the 1980s. They made equity investments as individuals in a commercial bank because they were barred by law from buying the bank through their securities firm. “It provided a flow of
business owner’s exit strategy, experts agree. Jean-Marc Laouchez, who advises companies on behalf of the Korn Ferry Hay Group, says it’s relatively easy to figure out how to transition ownership of a company and the management of it. But the emotional piece is toughest. “It’s something called ego,” Laouchez says. “Founders have been very successful. It’s not easy to give it away to a successor. They believe they are the only ones who can do it. Letting go is admitting that we
funds for all of us individually,” Stephens says. “We said, ‘That’s a pretty good idea.’” Now, the firm’s private equity group finds interesting investment opportunities and forms a company in the name of each child to hold and manage those investments. Each child can make other investments, but they have been guided into solid personal bets by the firm’s professionals. “That gives each individual a source of wealth and money outside the firm,” Stephens explains. “None of them should feel that even if they’re not involved in the business, they could put pressure to effect some sort of transaction so that they could have liquid assets. It’s not acceptable for them to say, ‘Hey, I’m not involved in the business, but I have all my assets tied up in the business.’ We wanted to create vehicles that relieve that pressure on the main business.” To a very large extent, this individual investment strategy separates decisions about what is best for the firm from what is best for any of the three children personally. How precisely will Stephens manage the transition? “It won’t be a competition,” Stephens says. “I suspect all three will be involved in managing the firm. As time goes on, they will gravitate to the areas they enjoy the most. Those will be the areas they run. They’ll have to make joint decisions if there is anything big and strategic they want to do.” And their own personal financial goals will not be part of the mix.
can die. Many owners hate that idea.” Often, the best transitions happen when departing CEOs feel they are developing a new legacy. CEOs who pursue these new legacies may think, “even though as a person I may not be around in however many years, part of me will still be around,” explains Laouchez. “I’ll be leaving my name, my business, my foundation, my philanthropic projects, my children. I’m going to hand down something that is valuable.”
It’s almost preparing for death as if it were a new entrepreneurial project. The bottom line? Baby Boomer CEOs need to decide what their own goals are with their businesses and undertake long-term planning with both family members and outsiders to come up with a viable exit strategy. Bill Holstein (williamjholstein.com) is a New York-based business writer and author of seven books, including The Next American Economy: Blueprint For a Real Recovery.
NOVEMBER/DECEMBER 2016 /
Imperatives for Optimizing the Customer Experience
How companies can use exceptional customer service as a key competitive advantage. BY WILLIAM FREEDMAN
ARGUABLY THE BEST differentiator for companies in today’s competitive and, for many industries, increasingly commoditized marketplace is to deliver exceptional, memorable customer experiences. Done well, stellar service can build customer loyalty, boosting retention rates, market share and new business referrals, agreed CEOs gathered for a recent roundtable discussion sponsored by Chief Executive and Walker Information. Both anecdotal and quantitative research underscore the point, noted Steven Walker, chairman and CEO of Walker Information. “In our work with companies, we continually see that those companies that are really successful with customer experiences have better financial results. And when we recently worked with Chief Executive to survey 400 CEOs, 40 percent of respondents listed the customer experience as their top strategy for differentiating their companies in the market-
place. What’s more, the next-ranked two methods—talent and product—are typically the main components of what you deliver in a customer service.” At the same time, providing exceptional experiences isn’t always as easy as it sounds. “How to know what consumers really want is one challenge,” pointed out Alfredo Timermans del Olmo of Telefonica Internacional USA.
42 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
“Because sometimes they lie. They tell you, ‘What I love is a great price,’ but then you change the price and they don’t respond the way you expected.” OrthoNet CEO Roger Shedlin is addressing that issue by seeking ways to quantify the service equation. “It’s a little hard in the healthcare space, but we look for ways to track how we’re doing,” he reported. “Renewal rates are
“In our work with companies, we continually see that those companies that are really successful with customer experiences have better financial results.” —STEVEN WALKER Chairman and CEO, Walker Information
one metric, but we’re trying to dig down in the areas of provider abrasion and insured friction to identify and measure the pain points for our customers.” At a time when a massive amount of information is increasingly available, companies able to collect and analyze data to predict, rather than respond to, customer needs will have an edge in the service game. “The question is, what is the next generation of innovation and features that we will bring to the customer?” said Patrick Dempsey, CEO of Barnes Group, whose company recently began serving end-consumers in addition to providing parts to industrial manufacturers. “To understand what the [end] customer really would like to see, we’re going very forcefully after that voice of the customer with surveys and through the use of third parties to collect data.” As important as data can be, simply listening to customers and acting on what you hear can make all the difference, noted Paul Greig, CEO of FirstMerit, who recounted having a revelation after meeting with a customer early in his tenure. “I’m sitting in a meeting with the owner and the banker, and they’re talking back and forth about playing golf when the CFO comes in, sits down and, within the first eight seconds she says, ‘When am I going to get a response back on my loan? I’ve been asking you for a month, and I haven’t heard back,’” he recounted. The comment prompted the discovery that turnaround times on loan requests at the bank were far too long. “Within literally 30 days, I put a new policy in place that there should be a 24-hour turnaround on those
financing requests,” said Greig, who reports that by addressing issues like that one by one over time the bank brought its poor customer experience scores into the top 10 percent. “I went into a company that had very bad customer experience and the executive team had to substantially change systems, processes and really just behavior in the field to change that customer experience. Today, we’re viewed as one of the best in the industry.” To deliver a consistently strong customer experience, companies
FROM LEFT: OrthoNet’s Roger Shedlin, FirstMerit’s Paul Grieg and Barnes Group’s Patrick Dempsey
engineering and manufacturing and also the delivery of the product.”
TOP-DOWN IMPERATIVE CEO engagement and involvement is critical to delivering on that promise, added Kathwari, who is proactive about encouraging a customer focus. “Every week, I have 30 of our manage-
“I have 30 of our management associates give me examples of how they have wowed the customer in different parts of the country. Something small, but it focuses everybody to think about how they can wow the customer.” —FAROOQ KATHWARI Chairman, Ethan Allen
must extend their efforts across every touchpoint, noted Farooq Kathwari, chairman of the home furnishings design company Ethan Allen. “In our business, you can do a fantastic job, create a terrific product and then, if you don’t do the delivery aspect well, everything is lost,” he said. “Customer service encompasses the entire integrated chain, every element of the business, from the concept of the design through
ment associates give me examples of how they have wowed the customer in different parts of the country. Something small, but it focuses everybody to think about how they can wow the customer.” At Synovus Financial, Chairman Kessel Stelling employs a similar practice. “We start every one of our weekly executive management committee meetings by going around the table and
“The world’s expectations for customer service are increasing every couple of months now. That combination of perception, creation and expectation increasing doesn’t make this a question of can you afford to do this. It’s just a must.” —TOM ROGERS Former CEO, TiVo
asking, ‘What happened in your area that caused us customer impact this week?’” he explains. “We don’t wait till the end of the meeting if we have time; it’s first thing.” While the conversation unearths some uncomfortable truths—a slowdown in response time, for example—the overarching impact is a raising of consciousness about service across the organization broadly, he says. Tom Rogers, former CEO of TiVo, finds personally monitoring customer service complaints helpful. “The thing that I’ve found most valuable in terms of staying on customer service experience issues is having your name as CEO on the website for customer complaints,” he told his peers. “People use it. If you’re not getting firsthand exposure and aren’t able to put problems forth at meetings and be totally conversant with the nitty-gritty of the issues, they just don’t get the focus and spotlight they deserve. They’re a pain in the ass when they come into your box, but really it’s the only way to stay on top of that stuff.” “From top down, it’s very important [to] put the CEO’s name or address somewhere for the customers to access,” agreed Tianquan “Vincent” Mo of the Internet real estate company SouFun Holdings, who pointed out that web-based companies often struggle to excel at service. At the opposite end of the spectrum, the perception that a CEO is shirking his or her role in the customer experience can scuttle a company’s reputation, noted Peter Verrengia of
FleishmanHillard. “Micky Arison was pilloried as the head of Carnival Corporation when they had two fires and they [capsized] a ship and killed 32 people,” Verrengia recounted. “He didn’t go personally because he had a chief operating officer who knew a lot more than he did and was a lot closer to the situation. But that did not turn out to satisfy anybody involved at the time.” In fact, thanks in part to companies like Amazon, Zappos and Uber, customers are demanding higher degrees of service on more levels than ever before. “The world’s
expectations for customer service are increasing every couple of months now,” summed up Rogers, who pointed out that Amazon, alone, has upended service expectations. “You’re dealing with people touching a company that has such extraordinarily ability to deliver on customer experience that the bar is being raised in ways for every other company exponentially, compared to the speed of which it was raised before. That combination of perception, creation and expectation increasing doesn’t make this a question of can you afford to do this. It’s just a must.”
■ KEVIN CASSIDY Chairman, K.C. Company
■ FAROOQ KATHWARI CEO, Ethan Allen Interiors
■ MARSHALL COOPER CEO, Chief Executive Group, moderator
■ ALAN MASAREK CEO, Vonage
■ PATRICK DEMPSEY CEO, Barnes Group ■ SCOTT FREIDHEIM CEO, CDI ■ PAUL GRIEG CEO, FirstMerit
44 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
■ TIANQUAN “VINCENT” MO, CEO, SouFun Holdings ■ TOM ROGERS former CEO, TiVo ■ ROGER SHEDLIN CEO, OrthoNet ■ KESSEL STELLING CEO, Synovus Financial
■ ALFREDO TIMERMANS DEL OLMO CEO, Telefonica Internacional USA ■ PETER VERRENGIA President and Senior Partner, FleishmanHillard’s CCW ■ STEVEN F. WALKER CEO of Walker Information
Governor Pence’s $1 billion plan prioritizes entrepreneurship and innovation. By Warren Strugatch INDIANA’S ENTREPRENEURIAL COMMUNITY seems to be thriving.
The Kauffman Foundation recognizes the Hoosier State as one of America’s best places to launch a business. Plus, Indianapolis has made the Top 10 of IT per-capita job growth rankings for most of this century, as calculated by New Geography. Its economic-development chief talks of a record-setting economy two years running. In early summer, just days before being named Donald Trump’s vice-presidential candidate, Gov. Mike Pence announced a $1 billion plan to accelerate entrepreneurship over the next decade by addressing the innovation economy’s long-term growth needs: namely young workers and enterprise funding. Unveiling the plan to a business group, Governor Pence said: “We must build on this economic momentum and increase collaboration between educators, community leaders, industry partners and, most importantly, idea generators (so as) to further propel innovation.” The governor’s plan promises to double funding available to small businesses and growth companies over a 10-year span and to boost services. Goals include: idea-economy programs created at the high school level; advance research initiatives and best-practices sharing at the university level; money to build co-working spaces, incubators and innovation centers; scaling-up assistance for companies; support for industry-driven strategic initiatives; cluster-based company support and increased micro-lending to small businesses. To line up funding, the governor plans to tap the state legislature, venture capital funds and Indy investment group Elevate Ventures. His big ask was for $500 million—representing half the plan’s total budget—from the Indiana Public Retirement System. The pension fund, whose mandate includes supporting Indiana businesses as well as optimizing investment returns, has not yet formally responded. In contrast to the usual state emphasis on corporate recruitment, the programs sketched out in the new plan are best described as talent nurturing, said Jim Schellinger, the IEDC chief who’s coordinating statewide efforts. “We’ve proven Indiana can be a destination for business. Now we have to make Indiana a destination for talent.”
NO.5 INDIANA MOST MANUFACTURING-INTENSE STATE Indiana Gov. Mike Pence and running mate Donald Trump touted the governor’s track record lowering taxes and creating jobs in Indiana during the presidential campaign. The new tax structure “puts Indiana at a much more competitive advantage,” says Indianapolis site selector Larry Gigerich. “It’s a very easy state for doing business, not a lot of bureaucracy to deter.” As for job growth, the Hoosier State ranked 19th in the nation during Gov. Pence’s administration. Indiana job growth is “heavily dependent on the strength of the national economy,” observed the hometown Indy Star. “As the most manufacturing-intensive state in the nation, we make lots of things. When consumers and companies are buying those things, the factories run fast and hard and… need workers.” Workforce quality, said Gigerich, “is the biggest challenge Indiana faces.” State programs such as the Skills Enhancement Fund help bridge the skills gap, he said. Business leaders describe a pro-startup culture and a business climate that favors quality of life and sense of place. After Salesforce’s 2013 acquisition of homegrown ExactTarget, many departing execs invested their payouts to launch small businesses near home. The growth of these startups “has been a huge part of Indiana’s renaissance,” said Tim Cook, CEO of KSM Location Advisors in Indianapolis. “Also, the low tax climate, balanced budget, strong incentives and solid business climate” add appeal. NO.10 OHIO HELLO, COLUMBUS On the campaign trail this spring, Gov. John Kasich touted Ohio’s manufacturing sector growth and overall job-creation success to mostly positive local reviews. Roger Geiger, head of the NFIB’s Ohio chapter, praised the governor’s tax reform policies, which lowered the top tax bracket below 5 per-
OHIO / CEOs liken the cultural scene in Columbus to Austin's a decade ago
cent and made Ohio more competitive with neighbors like Michigan and Kentucky. Tax reform has also encouraged entrepreneurs to start new businesses, Geiger said. “Ohio is most definitely business-friendly,” said site selector Gigerich. Cities like Cleveland and Toledo are shedding Rust Belt images and attracting tech and financial firms. Columbus and Cincinnati are more aggressively using incentives to recruit CEOs. Quality of life is a major draw. “Columbus is like Austin was 10 years ago,” said Brian Billingsley, CEO of Klarna in North America, a payment-systems company. A transfer from New York and Stockholm, Billingsley finds the lower cost of living, local arts and culture scene, and vibrant downtown help sell the company to recruits. A convenient benefit: Columbus is a popular test market for consumer product and service companies. Like many, he finds Ohio’s strength is the middle market. According to Ohio State University’s Fischer College of Business, mid-sized companies’ revenues grew
nearly 11 percent between May 2015 and 2016, overshadowing the 6.3 percent national average. NO.11 WISCONSIN GETTING MORE LOOKS Wisconsin “has benefitted from Right to Work legislation,” said site selector Cook. “That gets them looks they didn’t used to get.” The looks may not lead to deals. Insufficient job creation incentives, a weak entrepreneurial culture and misguided tax policies have produced a “shrinking middle class” (Pew Research), created a “shrinking manufacturing sector” (Think Progress) and turned the Badger State into “an economic basket case” as the Wisconsin Gazette put it. Some beg to differ. Noah Williams, professor of economics at the University of Wisconsin-Madison, argued that “the state of the economy in Wisconsin is strong and improving” in an editorial for the Milwaukee Journal-Sentinel. Wisconsin’s middling 1.6 percent increase from May 2015 through May 2016 trailed Michigan, Indiana and Ohio
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but outpaced Minnesota, Illinois and Iowa in the highly competitive Midwest job-creation market. Filling jobs can be more challenging than creating them. “Our primary concern is access to talent,” said Jerry Murphy, executive director of the New North, an economic development organization serving northeast Wisconsin. Worker recruitment “is on everyone’s mind.” NO.17 IOWA MORE THAN CORN Well-trained workers—attracting them and retaining them—looms as the primary business challenge for Iowa employers. Nearly two out of three bosses polled by the Iowa Business Council this summer ranked staffing as their top priority. Hawkeye cities like Des Moines and Iowa City “have their acts together” in terms of attracting business, said site selector Cook. Des Moines and other cities with vibrant downtowns, workplay-live appeal and a growing employer base are appealing to Millennials,
a key job recruitment attribute, said Gregory Burkart, a specialist in negotiating incentive packages and a managing director of Duff and Phelps’ Detroit office. “Companies choose to expand here because, number one, we have a very educated, productive workforce and second, the cost of doing business here is about 18 percent below the national average,” said David Maahs, executive vice president of the Greater Des Moines Partnership. Recent expansions and new construction include buildings put up by Merchants Bonding, Holmes Murphy and Mercer Consulting and LightEdge Solutions. NO.19 SOUTH DAKOTA ROSY OUTLOOK Last year’s robust third-quarter propelled South Dakota into the spotlight as the nation’s fastest-growing state. That ranking disappeared the next quarter, but the brief moment in the sun energized local business owners. Four out of five employers saw economic growth ahead over the next 12 months, according to a Minneapolis Fed poll last winter, signaling the rosiest outlook in the Great Plains. Earlier this year, the state’s first-quarter 2.6 percent job growth rate led the region amidst labor market contraction; unemployment dropped to a barely-there, lowest-in-U.S. 2.5 percent. Business leaders agree the region must begin training and recruiting significant numbers of young workers. Regionally, the Sioux Falls metro area keeps growing, as younger workers relocate and fill jobs in healthcare, financial services and biotech. Earlier this year grading and roadwork began on Foundation Park, an ambitious 800acre site aimed at high-tech, finance and other industries developed by a public-private partnership joining employers, municipal and state officials. Craig Anderson, CEO of DataSync, a local software engineering firm, plans to move in as soon as the park opens.
Anderson returned to his South Dakota roots after building his career in Silicon Valley; he calls Foundation Park the “latest in a series of initiatives that will stimulate the region’s economy by helping businesses grow.” NO.22 NORTH DAKOTA QUIET TIMES ON BAKKEN PATCH Thanks to the rigs pumping out over one billion gallons a day from the Bakken oil patch, North Dakota possessed the nation’s fastest growing economy through the early 20-teens. Since 2014, the bottom has fallen out of the oil barrel, erasing over 6,300 mining and natural resources jobs. North Dakota’s 11.4 percent GDP decline last year was the biggest statewide drop in the U.S. In Williston, a quintessential oil-boom city located near the patch’s center, nearly one-sixth of the city’s population has recently departed. The economic carnage has decimated municipal and county budgets, a pattern playing out in dozens of small and mid-sized cities. In Bismarck, the governor and legislators face a looming billion-dollar deficit. Al Anderson, Commerce Department commissioner, says most
employers will wait out the cycle. Until then, “We emphasize keeping the business environment friendly, keeping taxes low and balancing regulatory restraints with the needs of economic development.” His office continues to foster entrepreneurship and encourage exporting, he added. NO.26 KANSAS GETTING BACK ON TRACK Gov. Sam Brownback’s highly touted 2012 tax reforms first delighted business leaders and then disappointed them. Last year, the Sunflower State’s economy essentially flatlined, losing ground to archrivals Nebraska and Missouri. Overall, Gov. Brownback’s reform raised taxes slightly for the poor and working class, slashed taxes for the rich, and cut back on education funding. The result was stagnation. In June, Kansas’s GDP dipped below end-of-2011 levels. “You’ve got policymakers at this point who are unable to embrace the fact that… a mistake was made,” Annie McKay, head of the Kansas Center for Economic Growth, told the Washington Post this spring. Others disagree, citing historic new-business formation rates
SOUTH DAKOTA / Plans are under way for "megasite" Foundation Park
ECONOMIC DEVELOPMENT and pointing to a 3.7 percent unemployment rate as proof of success. Historic aerospace, defense and food-processing clusters remain vital. Site selectors give thumbs up to state and local economic-development programs but note local community opposition can torpedo expansion and new-construction projects. “The area where we see the greatest economic activity is metro Kansas City on the Kansas side,” said site selector Gingerich. “There’s been a build-up of telecom, fintech and insurance companies moving into the area.” NO.27 NEBRASKA OPTIMISTIC ABOUT GROWTH The strength of Nebraska’s services sector, largely concentrated in the Cornhusker State’s three most populous counties—Douglas, Lancaster and Sarpy—helps masks a more brackish rural economy. On the surface, Nebraska’s labor market enjoys excellent health, boasting the nation’s third-lowest unemployment rate and its fourth-highest labor force participation rate (70 percent in the spring). Business leaders polled by the Greater Omaha Chamber feel optimistic about
revenue growth, but worry where the new workers will come from. Another concern: most of the new crop of jobs are low-wage positions in hospitality, education and health services. “Economic growth in Nebraska has become increasingly unbalanced,” said Nathan Kauffman, assistant vice president and Omaha branch executive of the Kansas City Fed. “Some industries are growing while others are less robust.” Last year, job growth slipped 1 percent in rural areas and along the previously-vibrant Interstate 80 corridor. GDP has been hurt by slumping global agricultural markets. University of Nebraska economist Eric Thompson forecasts net farm income will drop about 11 percent this year, after a 39 percent plunge in 2015. The rebound, he said, comes next year.
investment in education and infrastructure as well, hoping to bolster mediocre payroll expansion. “Job growth is lousy. The state economy is among the nation’s weakest,” complained the Kansas City Star in February. “Missouri is in a world of fiscal hurt in so many ways right now.” Site selector Burkart likes Missouri’s business climate and its workforce and says their incentive programs are pretty good. Seeking to bolster efforts to retain home-grown companies from leaving the state, legislators are weighing a bill that would reduce capital gains taxes when a business owner sells to employees rather than out-of-state investors. Legislation could reach Gov. Nixon’s desk for signature this winter. NO.34 MINNESOTA FORMERLY FACING RECESSION Minnesota entered the fall facing recession, declared Twin Cities Business magazine. TCB editors made their forecast in September, based on poll responses from 228 business leaders around the state. Local economic pessimism has reached a five-year high in the Gopher State, said Dale Kurschner, editor-in-chief. About 28 percent of
NO.29 MISSOURI SHOW ME THE OOMPH Is Missouri a hotbed of entrepreneurialism? Kansas City-based Kauffman Foundation says yes indeed. In fact, the Show Me State paces the nation in business start-ups. Missouri business leaders applaud the entrepreneurial instinct; many also call for increased
How The States Stack Up CEO Rank (1-50) (1)
GDP Rank (1-50) (2)
GDP Value (Millions of chained dollars) (2)
Business climate (3)
Relocation/ expansion incentives (HQ/ Job Creation) (3)
Workforce quality (readiness and availability) (3)
Unemployment rate (July 2016) (4)
Economic Performance Rank (1-50) (5)
Business Tax Climate Rank (1-50) (6)
Education Quality K-12 (7)
Community College Performance (meeting employer expectations) (8)
A / A-
B+ / B-
B+ / B+
B / B-
B- / B
B+ / B
A- / B+
C+ / C+
B+ / B+
B+ / B+
SOURCES: 1 Chief Executive magazine reader poll; 2 Bureau of Economic Analysis; 3 Site selector advisory committee: Gregory Burkart, Duff & Phelps; Larry Gigerich, Ginovus; Tim Cook, KSM Locations Advisors; 4 Bureau of Labor Statistics; 5 American Legislative Exchange Council; 6 Tax Foundation; 7 Wallethub; 8 U.S. Chamber of Commerce Foundation
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tax exemptions and other incentives. It wasn’t enough; this spring, local officials ceded an additional $1 million in exemptions.
MICHIGAN / Downtown Detroit's revitalization continues to gain momentum TCB readers expect conditions to weaken in the months ahead, more than double the percentage from one year ago. There’s another side to the picture: Minnesota is a thriving state with low unemployment and a growing rate of new business filings. Unemployment lingers at near record lows, while overall wage payments continue to rise. “They’ve got a very well-educated workforce and a high quality of life in the Twin Cities and elsewhere,” said site selector Cook. Traditionally passive users of incentive programs, the state has restructured several, making them easier to use, said site selector Gigerich. There’s still room for improvement. A Brookings Institution report calls for the governor and legislature to cooperate in setting a clearer vision for economic growth, better align existing programs and improve coordinating investments in innovation, trade and training. While they’re at it, said Brookings, they can fix the state’s benchmarking programs too. NO.40 MICHIGAN WELCOME TO GILBERTSVILLE Michigan’s economic rebound continues. The Great Lakes State has averaged 74,200 new jobs a year for seven years running, generating professional, construction, trade, transportation and utility positions. Employers are more optimistic than they’ve been in a long time. Gov. Rick
Snyder’s administration has cut back on the red tape, said Michigan Chamber CEO Rich Studley, who praises the governor’s fiscal stewardship—along with previously-passed Right to Work legislation—for the sunnier business climate. A prolonged auto sales boom generated positive ripples through the economy, although the boom began fizzling out this past summer. In Detroit, the great municipal comeback continues as Quicken Loans chairman and founder Dan Gilbert sweeps up once-derelict Motor City commercial properties while giving rise to Detroit’s newest nickname: Gilbertsville. Detroit’s “bankruptcy and recovery are really a model for other cities in other states,” said Studley. In Grand Rapids, buoyant economic growth has led George Erickcek and Brian Pittelko, labor market analysts at W.E. Upjohn Institute for Employment Research, to declare: “It may not get any better than this.” In Midland, however, business leaders fret that the proposed $122 billion merger combining DuPont with local global giant Dow Chemical will produce vast layoffs. For now, the deal’s status remains uncertain as European regulators step up antitrust efforts. In the state’s western region, unemployment has dipped below 3 percent, the lowest in recent memory. In Kent County, economic-development officials lured Las Vegas data-processing giant Switch Ltd with a vast bundle of
NO.48 ILLINOIS FACING OFF FOR TAX CUTS Moody’s Analytics labels Illinois’ economy “the weakest of the underperforming Midwest.” Poor financial stewardship, a cratered downstate economy and undesirable demographics hamper recovery. The Prairie State started the summer burdened with the nation’s highest unemployment rate. Job-loss data “show Illinois’s economy remains stagnant… with a net job loss and significant workforce dropout,” according to Illinois Policy, an independent research and advocacy organization. Producers here feel the full impact of the national manufacturing slump, as well as fallout from low crop and livestock prices. Employers are speed-dialed by economic-development officials from six neighboring states. Business climate? Don’t ask. “When you say ‘Illinois,’ emphasize ‘annoy,’” half-jokes a Midwest site selector. Business leaders coalesced last year around second-term Republican Gov. Bruce Rauner’s efforts to slash taxes, cut spending and overhaul liability funding. Those efforts have floundered due to partisan bickering in the Legislature. Increasingly, the state’s manufacturing sector shows its age. Notes Moody’s: “The manufacturing slump has been pushing to export-oriented manufacturing centers, such as Decatur, Peoria and the Quad Cities.” Chicago has largely skirted the economic headwinds, thanks to long-standing reputation and association with services rather than goods or agriculture. Recently such firms as ConAgra Foods, Oscar Mayer and Kraft Heinz moved into Chi-town from suburban outposts; the moves did nothing to expand the Illinois economy. With that in mind, business leaders can only watch the Republican governor they overwhelmingly supported face off yet again with Democratic legislators, with no resolution imminent.
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*2,700 nm 4 passengers high speed cruise, 2,850 nm long range cruise **Preliminary, subject to change
CEO GUIDE TO
PRIVATE JET TRAVEL
Hereâ&#x20AC;&#x2122;s how to navigate the myriad options making private and business jet travel more affordable and practical than ever. BY MARK PATIKY 52 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2016
THE HUGE DISCREPANCIES
between commercial and private flying from an experience and all-in cost perspective have already motivated tens of thousands of companies around the world to embrace the advantages offered by business aircraft. At the same time, the sheer number and variety of options available—charters, jet cards, membership programs, fractional ownership and hybrids of all of the above— can be overwhelming. Here’s a guide to the wide range of private aviation options and inventive companies that are changing the business-travel landscape.
THE INS AND OUTS OF CHARTER TRAVEL Charter is one of the easiest ways to gain business and private aircraft benefits. You book the airplane, not the seat, so six or eight can travel for the same price. There are no long-term commitments, capital investments, flight-hour quotas or ongoing obligations. You fly as little or as much as you like, and you pay only when you fly. You arrive at a local airport 10 minutes before departure, board the plane and take off on your schedule, not an airline’s. You can fly halfway across the country, have meetings in three cities and still be home with the family that night. But, charter also has a downside. Not all charter is equal, and the scale ranges from superb to perilous. The FAA charter regulations are bare minimums, so look to charter companies that integrate professional training, operations and maintenance programs that far surpass FAA requirements. These companies receive the highest safety ratings from independent auditing firms such as ARGUS, Wyvern or
the Air Charter Safety Foundation. According to Francine Brasseur, associate publisher of the Air Charter Guide, the worldwide charter print and online publication, there are approximately 1,065 charter operators in the U.S., but only 418 have had an ARGUS audit. Less than one-quarter of those qualify for the ARGUS Platinum safety rating, which is considered the most exacting standard in the industry. Typically, charter requires a same or next-day return. If you stay longer, you will still pay the round-trip price for the one-way trip because the plane needs to return to its home base. What’s more, if you depart from an airport other than the plane’s home base, you’ll also pay repositioning fees. There is a consistency factor as well. Most charter companies do not own their aircraft. Instead, they manage aircraft owned by individuals or large corporations that make their planes available for charter when they are otherwise not required. That means the Falcon Jet or Learjet that you fly today could be different in age and looks compared to the same model you fly tomorrow. Also, the flight-hour rate for the same model could vary from placeto-place or day-to-day. Furthermore, charter flights are not guaranteed, so you could learn on short notice that your aircraft is no longer available and a more costly one is substituted or the trip is cancelled entirely.
THE FRACTIONAL ADVANTAGE Fractional ownership brought consistent pricing and quality, guaranteed availability plus an exemplary level of professionalism to the world of private jet travel. Why buy an entire airplane when all you want are the benefits an airplane can provide and for just part of the time? Fractional ownership made that possible. With fractional ownership, your plane (or one exactly like it), is only a
INNOVATIVE COMPANIES OFFER A NEW WAY TO TRAVEL NEW COMPANIES, INNOVATIVE CONCEPTS AND DIFFERENT
aircraft are changing the face of charter, jet cards and fractional ownership. While time rather than the cost of an airline ticket remains the dominant factor in calculating value, hybrid models are actually bringing the cost of private travel benefits down to the level of commercial airfares. The organizations profiled below boast top industry safety ratings and offer a range of small-cabin aircraft perfect for short to medium-range trips.
Executive AirShare, with its unique day-based— rather than hour-based—fractional program, carved a niche throughout Kansas, Missouri, Nebraska, Texas and the Great Lakes region. While the company’s fleet of twin-turboprop King Air 350s and four-passenger Embraer Phenom 100 jets offers economy and agility serving these regional markets, Executive AirShare’s fleet of six-passenger PHENOM 300s, seven-passenger Cessna CJ2s and nine-passenger Learjet 45XRs can reach anywhere across the nation, the Caribbean, Mexico and Canada. Although Executive AirShare fractional owners are limited to a specific number of flying days annually, they can fly as many hours and to as many locations as they like in a day just by paying the fixed hourly rate. The smallest fraction available is a one-sixteenth share, giving owners their choice of 20 flying days per year over the five-year contract period. A one-eighth share equates to 40 annual days. Conventional fractional programs offer 50 and 100 hours, respectively, for similar share sizes. If you flew more than one hour—15-minute, out-and-back trips on average for each of 20 travel days—for example, you would easily exceed a conventional program’s 50-hour allocation. So, the day-based idea offers exceptional value by allowing owners to visit more places in a day without concern for an arbitrary hour-allocation. Most Executive AirShare owners use that opportunity to great advantage.
PlaneSense, based in Portsmouth, New Hampshire, is a regional-based, fractional ownership program that offers some of the lowest aircraft acquisition costs in the nation. The company, which operates one of the world’s largest fleets of PILATUS PC-12 single-engine turboprops throughout the Northeast and as far south as Florida, chose this unique aircraft because of its low operating cost, superior reliability, exceptional short field performance and comfortable seating for nine passengers. The PC-12 can land on some of the shortest runways and unprepared landing strips inaccessible to even the smallest jets. Owners in the Northeast fly regularly into the 2,300-foot runway on Fishers Island, off the Connecticut coast, and the 2,500-foot runway at Block Island. While the PC-12 cruises about 125 mph slower than many small jets, most flights around the Northeast are less than 500 miles so, compared to faster jets, trip times differ by mere minutes. To serve owners needing longer trip capability, PlaneSense placed orders for Pilatus’s recently developed, small-cabin, seven-passenger PC-24 twinjet, which will debut in 2017. This new jet is the ideal complement to the PC-12 turboprop fleet. With remarkable versatility and short-field performance combined with non-stop range two-thirds of the way across the nation, the PC-24 will rival anything in its class.
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phone call away and guaranteed available anytime, anywhere you need it. If you need a plane for only 50 or 100 hours a year, you pay one-sixteenth (50 hours) or one-eighth (100 hours) of the whole aircraft price, plus a fixed monthly management fee to cover crews, maintenance, insurance, hangarage, etc. In addition, you pay a fixed per-flight-hour charge, but it applies only for the time you are onboard. There are no positioning fees or empty return flight charges, and you can choose a larger or smaller aircraft depending on trip requirements—so you gain an entire fleet for a fraction of the price of a single airplane. At the end of the five-year contract, the fractional company buys back your investment at “fair market value.” For Mace Pinchal, founder and chairman of Houston-based private investment firm Pinchal and Company, switching from full ownership to fractional offered a double benefit. Gone were concerns over insurance, hangarage, crews and maintenance. “I quickly realized that with a fractional share I could eliminate a lot of that responsibility. It’s a fraction of what my capital cost would be, and I have all the benefits of owning my own aircraft.” He can also select an aircraft in the fleet best suited for the specific trip. “When I owned my own airplane, that option wasn’t available unless I wanted to charter, go commercially or just flat out cancel my plans.”
JET CARDS Jet cards, available in dollar or flighthour amounts, require an initial deposit and operate like debit cards. They eliminate the large capital investment, long-term commitment, monthly management fees and market risk that fractional owners face, but, like fractional ownership, they offer consistent, nationwide one-way pricing and guaranteed availability. Most fractional companies offer jet cards in 25-hour increments,
Based in the Northeast, Wheels Up is a unique membership program that offers flexible options and guaranteed availability on its fleet of KING AIR 350i TWIN TURBOPROPS, which are ideal for regional flights, and Citation Excel/XLS jets offering near coast-to-coast range. Wheels Up members pay an initiation fee followed by an annual renewal plus a fixed pay-as-you-fly rate for occupied hours flown. Members can book flights using the Wheels Up mobile phone app, manage their accounts or select value-priced, short-notice “hotflights,” which are otherwise-empty repositioning flights that are advertised online. In addition, Wheels Up offers a card program with attractive hourly rates lower than rates on the regular membership plan, but it does require a deposit on future travel.
Nicholas Air, which specializes in jet cards, jet leasing and jet shares, offers an enhanced level of consistency, service and safety by using its exclusively owned and operated fleet of single-engine Pilatus PC-12 turboprops, Embraer Phenom 100 and Phenom 300 jets, plus the new CESSNA CITATION LATITUDE. The company offers two jet card varieties, each with all-inclusive pricing, no repositioning fees and guaranteed availability. Uniquely, both card programs require a minimum of only one-hour usage per day, not per flight. The Blue Jet Card, available in 15-, 30- or 60-hour increments, is designed for members who utilize the same aircraft type for most of their travel, but occasionally need to exchange hours for a larger or smaller aircraft. The Rise Card is designed for those whose needs vary from trip to trip. Rise members can select any aircraft type in the fleet for any trip; however, they pay a slight premium to gain that flexibility. The Rise Card is deposit-, not hour-based, the cash balance is reduced as you fly, and larger deposits accrue a lower per-hour cost.
ASSOCIATED AIRCRAFT GROUP
Associated Aircraft Group (AAG), owned by helicopter manufacturer Sikorsky Aircraft, operates, manages and maintains the largest fleet of SIKORSKY S-76 helicopters in the Northeast. In addition to on-demand charter, AAG is an exclusive provider of fractional shares in the S-76. This quiet, spacious twin-jet helicopter offers seating for six to seven passengers in an interior resembling a corporate jet. All AAG helicopters, which are always flown by two pilots, feature latest-generation avionics that enhance safety in virtually any weather conditions. AAG’s unique fractional ownership program, called Sikorsky Shares, makes helicopter flying practical and affordable. For the cost of a share, your helicopter is guaranteed when and where you need it, anywhere between Boston and Washington, DC. The AAG Excalibur Card eliminates the need for a capital investment and long-term commitment, but it does require a prepayment for desired flight time. Availability is guaranteed and fixed, one-way, per-hour rates apply.
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while charter jet cards are typically dollar-based. You choose the aircraft model desired for each trip, and the contracted flight charges are deducted as you fly. Hourly pricing for occupied hours in each aircraft type remains the same nationwide. Like fractional ownership, there are no return-flight or repositioning costs, but jet card hourly rates are higher than fractional or charter. Jet card buyers are willing to pay that premium in exchange for convenience and flexibility. Unused balances are typically refundable, and when your balance runs out, you walk away without further obligation. David Thorson, CEO of California-based Thorson Specialty Insurance Company, tried both private jet ownership and charter before deciding that a jet card suited his unpredictable schedule, desire for consistent service and safety and the uncertain economic climate. “With a jet card, I know what I am going to get,” he says. “I can get a bigger plane when I need it.” He can take as many as six associates to visit multiple clients and assess new opportunities in a day. When his card runs out, he can buy another or not, depending on current needs.
MAKING THE MOST OF MEMBERSHIP PROGRAMS Membership programs typically require an annual non-refundable membership fee, which entitles members to access a particular aircraft type or group (small, midsize or large cabin) for an agreed upon number of flight hours per year. Members can purchase pre-paid, flighthour cards that allow them to fly at a fixed hourly rate until the card balance runs out. Then, if desired, they can purchase another card up to the limit of their membership hour allocation. If membership provides 75 hours annually, for example, buyers are entitled to as many as three 25-hour cards. There are variations from operator to operator, but the membership fee is an additional expense on top of the individual, per-hour flight charge.
Created by JetBlue co-founder Alex Wilcox, JetSuite debuted six years ago with an innovative charter service that brings a new level of accessibility and affordability to the skies. Like an airborne Yellow Cab, JetSuite democratized private air travel. Now, the company is taking off with a new service that allows booking a seat instead of an airplane. JetSuite operates an all-WiFi-equipped fleet of 10 identical four-passenger Embraer Phenom 100 jets, which are available for charter between any locations across the West, Southwest and Texas. A WiFi-equipped fleet of eight longer-range, six-passenger CESSNA CJ3 jets provides service east of the Mississippi. The aircraft types were chosen for speed, reliability and economy, which are essential elements in JetSuite’s economical charter rates. Exact one-way pricing between nearly 2,000 airports across the U.S. is available instantly through JetSuite’s website. Click on your desired itinerary and departure time and your trip is confirmed and guaranteed at the price shown. In addition, since you are paying for the plane, not the seat, four (or six) can fly for the same cost. Although any city pairs are available, if you fly between hundreds of favored JetSuite airports, your cost will be lower. Flying roundtrip gets you a larger discount; and, if you become a SuiteKey Member, the deals get even better. With SuiteKey, there are no membership fees or annual charges. Simply deposit funds in advance for future travel. The larger the deposit the greater the discount, and members also receive a range of additional benefits. For truly rock-bottom pricing, try SuiteDeals—something that JetSuite pioneered. Ultra-low-cost, short-notice, one-way trips are announced in real-time via social media for repositioning flights that would normally be empty. If the flight fits your schedule, you won’t find a lower cost to fly anywhere. JetSuite’s latest innovation is JetSuiteX, which offers scheduled bythe-seat charter aboard Embraer ERJ 135 airliners reconfigured with an executive jet interior and seating for 30 passengers. The new service offers private flying amenities with airline seat pricing. While you can book a seat at JetSuiteX.com just like an airline flight, the commercial travel similarity ends there. JetSuiteX passengers depart from a private terminal, and they need to arrive only 15 minutes before the flight. By year-end, five E135s will be operating three times per day between Burbank, California, and Las Vegas as well as Concord, in the East Bay and San Jose, California, with fares ranging from $129 to $290 each way. Additional flights are planned between San Jose and Bozeman, Montana, and Wilcox expects similar service in the Northeast within a year. Even Trae Chancellor, co-founder of ExpertCity, the company responsible for GoToMeeting (virtual meeting software designed around the idea that maybe you really don’t need to travel), is a big believer in JetSuite. “We have gotten so involved in technology [that] what we’ve forgotten is the most important thing: the human element,” he says. “We need to interact, but commercial travel makes that so difficult.” JetSuite helped Chancellor see the light. The simplicity of the model offered what he needed: affordability and efficiency, plus fast, comfortable, nonstop flights. “The personal service and attention to detail is enormous,” he explains. “This gave me time back. It is invaluable. I can take my team with me, prep for a meeting and, with WiFi on board, I have easy access to wherever I need to go. The added efficiency and the opportunity pay for the flight many times over.”
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Fostering Health–More Than Wellness–with Precision, Personalization and Prevention AS HEALTHCARE EXPENDITURES CONTINUE to rise, companies are seeking health solutions that increase productivity, minimize healthcare costs and reduce risk. But improving health in the workforce starts at the top with a solid executive health program. Research conducted in July 2016 for The Mount Sinai Hospital by Chief Executive Group found that nearly 70 percent of companies do not offer yearly health and wellness programs in addition to their regular health coverage. At those companies that do offer such programs, 66 percent of executives said they don’t participate because they are too busy or find the programs inconvenient. Nearly half of surveyed executives said comprehensiveness and convenience were the most important factors in a health and wellness plan. An effective health program should promote preventative care with personalized medicine and health improvement solutions geared to each person’s lifestyle. It should also maximize efficiency, minimize the waste of resources and merge core services with low reimbursement into overhead. Mount Sinai’s Comprehensive Health Program— developed by Dr. Valentin Fuster, director of Mount Sinai Heart and physician-in-chief at The Mount Sinai Hospital, based on his 40 years of experience—gathers comprehensive health metrics and delivers actionable recommendations in a single day. Enabling executives to obtain a holistic view into their health and creating a detailed road map for improvements serves as a model for company wide health initiatives. The program shifts the focus from disease treatment to disease prevention, moving beyond simple testing and interpretation of data by giving patients a customized health plan. Patients receive highly personalized care from senior physicians who help them become proactive about their health. The program uses comprehensive, state-of-the-art tests to screen for risk factors of preventable diseases such as diabetes and heart disease. Doctors use test results to make individualized recommendations that address current or potential future health issues. Completing all the advanced testing on the same day eliminates the need for multiple visits and increases the likelihood the patient will take an active approach in improving health outcomes.
A key principle of the Mount Sinai’s Comprehensive Health Program is that patients are given a highly personalized level of care throughout the day. As each test is completed, a team of expert medical professionals rapidly processes the information and produces a comprehensive health evaluation. Rather than generic advice such as “eat better” and “exercise more,” patients are given specific, personalized courses of action for improving their health outcomes. These recommendations can include dietary and lifestyle changes but are often tailored to the patient’s preferences and individual characteristics. The personalization also helps motivate and “activate” patients early in the program to prepare them for change. The program engages patients quickly with a “two-sided approach” that makes healthcare more streamlined, effective and efficient by motivating patients in personalized ways that appeal to their own individual patterns and humanistic attributes. Doctors can be matched with patients or assume styles that fit the patients’ needs. The program also calls for quarterly to annual follow-ups, depending on the age and health status of the patient. Patients repeat all, or major parts, of the testing in an efficient, day-long evaluation to compare their new measurements with the original. These follow-up sessions deliver annual quality metrics that create accountability and durability in the success of the program. And this strict, almost mandatory, follow-up helps the patient change behavior and make persistent health improvements.
CEO'S GUIDE TO
HEALTH & WELLNESS PROGRAMS In the everyday race to keep your company going strong, it can be hard to find time to focus on your own well-being. Here’s a look at programs across the country that can help you take a proactive approach to maintaining your health. BY C.J. PRINCE
CEOS WHO ARE ADEPT AT MONITORING AND CARING FOR THE HEALTH and well-being of their companies are not always on the ball when it comes to their own health. Some theorize that they don’t fully understand the risks or are in denial about their own mortality. Dr. Walter Gaman, partner at Executive Medicine of Texas believes it’s a lot simpler than that: They literally don’t have time. “C-level executives are highly intelligent and they are aware of how important their health is. They’re just too busy to get to it.” To be sure, running a global business has never been more demanding. Fifteen-hour days and back-to-back meetings force executives to put exercise on the back burner. Grueling road trips that continue for days or weeks at a time leave few options for healthy eating. As the days NOVEMBER/DECEMBER 2016 /
PROGRAM PRIMER With such a wide variety of executive health programs available it can be hard to know where to start. The capsule descriptions that follow offer a look at the facilities and services offered by some of the top offerings around the country. CLEVELAND CLINIC EXECUTIVE HEALTH PROGRAM CLEVELAND, OH
get longer, sleep suffers and mounting stress takes its toll on the body. That leaves CEOs paradoxically at greater than ever risk for heart disease, diabetes and other illnesses, but with less time than they have ever had to deal with it. CRISIS WAKE-UP CALL “For a lot of people, when they have a major health event, suddenly time opens up a bit,” says Kevin Dunsky, MD, director of the Executive Health Program of Mount Sinai Heart at The Mount Sinai Hospital. “What we want is for them not to wait for the event to get religion. Let’s get to it beforehand because there are no do-overs in health.” Mt. Sinai’s executive health program is one of a growing number that cater to the busy manager by packing a smorgasbord of tests, screenings, nutrition and fitness counseling into a single, highly efficient day. When patients leave they take with them an overview of their health and recommendations for next steps to address specific health issues that were uncovered, as well as tools to improve their risk via diet, exercise and other lifestyle changes. Over the past decade or so, executive health programs have prolifer-
ated, giving CEOs literally dozens to choose from. The following five questions can help you narrow the field and find the executive health program best suited to your needs. 1. IS THE PROGRAM AFFILIATED WITH A WELL-KNOWN MEDICAL CENTER? The integration with a hospital, university or other robust medical center gives clients immediate access to an array of top specialists and the latest in medical technology. It also saves considerable time if a physical uncovers something that needs a closer look by specialists—say, a skin lesion that requires a dermatological consult. According to Dr. Richard S. Lang, vice chairman of the Wellness Institute at Cleveland Clinic and a physician in the executive health program, it’s that kind of coordination that separates real expertise in the field from what has increasingly become a commodity—the executive physical. “That’s the no-brainer,” says Lang. “The real-brainer is, what happens after that? Really well done executive health programs have the rest of the medical expertise available and can mobilize it that day,” he adds, noting that Cleveland Clinic, which was founded in 1921, boasts more than 3,000 physicians and scientists and
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Cleveland Clinic has decades of experience with the unique health challenges faced by CEOs. The integrated, head-to-toe evaluation includes screenings and risk assessments for numerous conditions and offers priority access to more than 120 medical experts, as needed. The Women’s Executive Health Exam focuses on unique gender-based health considerations. C|A|W|F clevelandclinic.org COOPER CLINIC EXECUTIVE HEALTH DALLAS, TX You won’t feel rushed at Cooper Clinic, where physicians see no more than three patients per day, spending up to two hours consulting with each patient to discuss the same-day exam and lab results. Cooper Hotel also offers out-of-towners respite after a day at the clinic. C|W|F cooperaerobics.com JOHNS HOPKINS EXECUTIVE & PREVENTIVE HEALTH PROGRAM BALTIMORE, MD Patients at Johns Hopkins feel pampered in a new executive lounge with leather seating, coffee bar and open views of the Baltimore skyline. Throughout the day, executives have access to private meeting rooms, lockers with charging stations and posh private bathrooms with heated floors and rain-head showers. C|A|W|F hopkinsmedicine.org
Key C - Customized program A - Affiliated with medical center/hospital W – Women-centered exam offered F – Fitness/nutrition/stress management counseling
THOU GH T L E A DE RSH I P CON T E N T P ROV I D E D BY M E M O R IA L S LOA N K E T T E R IN G C A NC E R C E NT E R
The Importance of Offering Access to World-Class Cancer Care to All Employees
My time at Memorial Sloan Kettering (MSK) is split between administrative, clinical and research responsibilities. As an executive, I am aware of the value of a productive workforce and the benefits we can offer our employees to help them maintain their health. As an oncologist, I also understand the advantages that patients have when they are treated at a center that provides comprehensive cancer care. José Baselga, MD, PhD
Physician-in-Chief and Chief Medical Officer, Memorial Sloan Kettering Cancer Center
Learn more about MSK Direct at www.mskcc.org/msk-direct.
Why Quality Cancer Care Matters Where a person gets their cancer care significantly impacts how well they will do. In fact, studies have shown that people who are treated at a comprehensive cancer center have better survival outcomes compared with those who are not. With more than 1.6 million Americans expected to receive a new cancer diagnosis this year, it stands to reason that offering all employees — regardless of where they are on the organization chart — access to the highest quality cancer care is a worthwhile investment. But there are a number of misconceptions that affect where people with cancer choose to receive treatment. For example: • Employees are often unaware that their health insurance includes a top-ranked cancer treatment center like MSK in their network. • Some people believe that they are not eligible for or wouldn’t benefit from care at a dedicated cancer center like MSK because they don’t have a rare or advanced cancer. The reality is that our specialists offer unsurpassed comprehensive care to people with all stages and types of cancer, from the rarest to the most common. Peace of Mind for Your Employees To address these misconceptions we created MSK Direct, an innovative program that enables you to offer your workforce access to unparalleled cancer care and peace of mind when it’s most needed. People are often thrown into emotional turmoil when they are diagnosed with cancer. They are faced with having to make major decisions about their work and financial situa-
tion, caring for their family and, most importantly, where to turn for treatment. There is a sense of security knowing that they have access to exceptional cancer care should they ever need it. We collaborate with employers via MSK Direct to simplify how their employees and their families engage with any of our multiple facilities for initial cancer treatment and ongoing care. MSK Direct allows employees streamlined access to MSK at any stage, whether it’s for an initial diagnosis, a second opinion or to begin treatment. A Partnership to Suit the Needs of Your Workforce MSK Direct creates a relationship between MSK and its employer partners, ensuring simplified, guided access to the benefits of cancer treatment at our center. A menu of options is available to serve the specific needs of employees and their family members. For example, employers can extend eligibility for the program not only to their employees and dependents, but also to their parents and other relatives (subject to health insurance coverage for care at MSK). And there is no additional cost associated with the program – it operates under your existing health plan’s contractual arrangements. We encourage patients to seek care at a dedicated cancer center like MSK at the earliest suspicion of cancer, rather than as a last resort or after other treatment options have failed. By offering your employees access to our expertise via MSK Direct, they can access optimal care early on so they can achieve the best possible outcomes.
EXECUTIVE LIFE integrates clinical and hospital care with research and education. 2. ARE PHYSICALS CUSTOMIZED? While some programs give the same standard tests to all patients, others customize based on age, gender, medical and family history, and other risk factors. “The key to any good executive health program is that it’s not cookie cutter,” says Lang. “If you take five executives from the same company, they will have five different protocols based on those factors.” You should be asked to fill out a comprehensive medical history questionnaire well in advance of your visit and, more importantly, participate in an intake call with the physician who will coordinate your care. “That happens four to six weeks in advance of their visit, so we can go over the questionnaire, make sure we address any concerns and prioritize what they are going to do on the day,” says Dr. Lorrie Elliott, medical director of Northwestern Executive Health at Northwestern Medicine. This gives you an opportunity to let the doctor know if you’ve been having any symptoms or problems in any specific area and to make sure an appointment with a specialist is scheduled for that day. Once the lab work and screenings are done, you should receive a customized risk profile, based on the
results, your age, family history and lifestyle. “Our goal is not only to give you a current state of where you are now, but to say, here is how you can maximize your health for the next 30 years,” says Elliott. 3. WHAT IS THE PROGRAM’S TESTING PHILOSOPHY? Some programs will test you for everything under the sun. That may sound good, but it may not ultimately be what you need or even what’s best for you, says Elliott. Northwestern, for example, does not order up scans for arterial blockages unless the patient fails the stress test or presents with other symptoms. “Because let’s say you do a C.T. scan and find you have two 10-percent blockages,” she says. “We won’t start you on meds for that and we don’t really know how to follow up on it, so you end up with this information that doesn’t change your management and then you just get anxious about it.” Over-testing can also lead to more invasive tests that are often unnecessary, she adds. “Look for a program that practices ‘evidence-based medicine.’ And beware of over-testing.” Other patients, however, will only feel better once they’ve tested for everything and come up negative or dealt with the results. And some problems lurking beneath an asymptomat-
MAYO CLINIC EXECUTIVE HEALTH PROGRAM ROCHESTER, MN; SCOTTSDALE, AZ; JACKSONVILLE, FL At Mayo Clinic’s program, in existence for more than 40 years, executives choose from one-, two- or three-day itineraries, with each patient receiving an individual “game plan” for healthy living and expedited access to Mayo’s wealth of experts in all medicine subspecialties. C|A|W|F mayoclinic.org MDVIP ANNUAL WELLNESS PROGRAM MULTIPLE STATES As a member of MDVIP, a CEO receives not only a comprehensive annual physical, but year-long care by their physician, including 24/7 access via email and mobile phone. The program’s national footprint means that CEOs having a health issue while traveling can get in the same day to see any of MDVIP’s doctors. C|W| F mdvip.com MT. SINAI’S COMPREHENSIVE HEALTH PROGRAM NEW YORK, NY Mt. Sinai’s program offers executives two tiers of comprehensive evaluations: the corporate executive physical, which can be completed in half a day; and the premier full-day program that includes additional assessments in ophthalmology, dermatology, audiology and pulmonary function, among others. All patients are evaluated by senior-level physicians at Mt. Sinai. C|A|W mountsinai.org EXECUTIVE HEALTH AT NEW YORK-PRESBYTERIAN/WEILL CORNELL MEDICAL CENTER NEW YORK, NY Executives at this one-day program receive a customized itinerary in advance and access to a private lounge and fully equipped conference room to use between appointments. A concierge can coordinate any additional appointments needed same-day with one or more of the more than 5,000 affiliated physicians. Members pay an annual administrative fee, utilizing insurance for all clinical services. C | A | W nyp.org
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The Power of the Network Effect Allow your team to benefit from the experience of peer senior executives with comparable roles and responsibilities at noncompetitive companies. Let your them find solutions in Senior Executive Network (SEN) group sessions designed to explore issues and clarify options and actions steps, including: • Benchmarks for projects and outcomes • Clarifying what’s working (and what’s not) • Developing individual skills, and management methods, learning from shared experience Imagine a more effective and motivated team with enhanced skills and new relationships, focused on driving your bottom line.
We have networks for the following key executives in your company: • Finance • Operations • Marketing • Controllers • Sales • Product Development • Engineering & Technology
Candidates must be nominated and sponsored by their CEO and/or President.
Tap into the Power of the Network Effect >> Visit www.SrExec.com Or call Rob Grabill at: 785-832-0303
EXECUTIVE LIFE ic surface require a course correction, says Gaman. “We’ve seen patients who had no symptoms or pain, but ended up having critical blockages.” If a small blockage is found, the patient may not need surgery or stenting, but would certainly benefit from intensive dietary counseling to prevent the small blockage from becoming a life-threatening one. 4. WHAT KIND OF WELLNESS/PREVENTION COUNSELING IS OFFERED? Education is as important as discovery, and you should leave any executive physical armed with the information and tools you need to improve your risk profile for the future. Look for a program that provides
fitness tests, customized nutritional counseling and other consultations for healthy living. Mayo Clinic, for example, includes stress management consulting. “Stress impacts the immune system, which then impacts not only whether you get that cold, but how your body fights off cancer,” says Dr. Stephanie Faubion, director of Mayo’s executive and international health program. For CEOs, who are tasked with running complex businesses that employ hundreds or thousands of employees and who must cater to demanding stakeholders, it’s impossible to say, “reduce your stress,” says Faubion. “You can’t always change the external stresses happening. You can’t change who needs to be fired. But you might be able to change the way you react to that stress. It’s learning to reframe things.”
5. DO YOU HAVE A PRIMARY CARE DOCTOR OR ARE YOU LOOKING FOR ONE? Most programs provide executive physicals and will then deliver all testing data and reports to your primary care doctor for follow-up. “But often your doctor won’t have the time to read the results, let alone manage them,” says Bret Jorgenson, CEO of MDVIP, a personalized healthcare program with a network of 870 doctors around the country who work exclusively with MDVIP’s more than 250,000 members. Each of the doctors has a network of specialists he or she calls on for follow-on treatment when needed, and MDVIP maintains partnerships with medical institutions around the country, including the Cleveland Clinic, MD Anderson and Memorial Sloan Kettering. One of the big selling points at MDVIP is access to doctors. While most doctors require a visit to give feedback, at MDVIP, patients can text questions to their doctors and get a quick response back. Patients can also get in to see doctors anywhere in the country on short notice, which was a big draw for Greg Lucier, CEO of NuVasive, an $800 million medical device company. “I travel about 60 to 70 percent of the time. So the national footprint was very important to me,” he says. Perhaps most critically, the program you choose should have plenty of experience dealing with CEOs, their unique stressors and their tendency to put their companies, clients and employees ahead of themselves. As too many have learned the hard and painful way, losing a CEO to a sudden health event is not only tragic for the victim and his or her family, but devastating for the company. “The most important thing I can convey to executives,” says Lang, “is that their most important client, most important business project and most important matter at hand is their own personal health.” C.J. Prince is a freelance business writer based in Maplewood, New Jersey.
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NORTH MEMORIAL EXECUTIVE HEALTH PROGRAM MINNEAPOLIS, MN; MINNETONKA, MN Executive patients can choose from two packages—the silver and the platinum—and additional testing can be added à la carte, including stress management, sports medicine consultation and even plastic surgery. Bloodwork is tested in advance to better inform the exam. C|A|W|F
NORTHWESTERN EXECUTIVE HEALTH CHICAGO, IL This comprehensive physical is fully customized based on an in-depth call with the internist six weeks prior. Patients receive all diagnostic and lab results the same day, leave with a plan for addressing issues and can reach both the physiologist and registered dietician for a full year of follow-up via phone and email. C|A|W|F northwesternexecutivehealth.com OCHSNER’S EXECUTIVE HEALTH PROGRAM BATON ROUGE, LA; COVINGTON, LA; NEW ORLEANS, LA All tests and screenings are performed in a single morning, with additional testing available as needed. With Ochsner's state-ofthe-art electronic medical records system, the physician can access results during the exam, explain and interpret them and make recommendations on lifestyle changes. A|F ochsner.org VIRGINIA MASON EXECUTIVE HEALTH SEATTLE, WA Virginia Mason focuses on evidence-based, age/gender-preventative screening, and patients can choose to enroll in Executive Care 365 for ongoing primary care, including cell phone and email access to the doctor, same-day appointments and coordination of specialty care. C|A|W|F virginiamason.org
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MEETINGS & RETREATS
A CEOâ&#x20AC;&#x2122;S GUIDE TO
BOARD MEETING BEST PRACTICES Proper planning can help you make the most of time spent with the advisors, industry experts and investors who serve on your board. BY MARILEE CROCKER
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THE BEST BOARD MEETINGS,
says Ninan Chacko, CEO of Travel Leaders Group, are those where the board helps the chief executive “refine, adjust and pressure-test where the company is heading.” Making that happen is as much art as it is science, notes Chacko, whose $21 billion-company is headquartered in Plymouth, Minnesota. For Chacko, planning a successful board meeting begins with building an agenda that is both engaging and instructive. But the agenda is just one piece of a puzzle that involves a surprising number of decisions—everything from choosing the right venue to planning seating arrangements. “For board meetings, the smaller details really come into play,” notes Terri Woodin, senior director of global meeting services for Meeting Sites Resource, a meetings-management firm headquartered in Irvine, California.
LOCATION, LOCATION, LOCATION When John F. Barrett, CEO of Western & Southern Financial Group, sits down with his team to plan the Cincinnati firm’s board meetings, one not-sosmall detail that’s top of mind is venue. “When working with very busy board members, it is extremely important for our meetings to be held in locations that are easily accessible,” he says. That translates to a hotel, resort or conference center relatively near an airport served by frequent direct flights. “Second, we want our board members to be relaxed and comfortable in the facility, so they can bring their full focus to the specific agenda items but also continue informal discussions throughout the meeting schedule,” adds Barrett.
CHOOSE ONLY THE BEST, BUT . . . Given the status of board meeting attendees, the venue must be of the highest caliber—generally four-diamond or better. “It’s not just because they’re executives and they deserve it,” notes Woodin. “You need to be guaranteed a certain level of quality. You can’t have the Internet breaking down; the conference
phone has to work. You want things to run smoothly, efficiently and effectively.” But high-caliber doesn’t necessarily mean lavish. “The venue needs to be upscale and fresh—but not too upscale,” says Paul Tessitore, director of American Express Meetings & Events, citing current concerns about the optics of such meetings. “It can’t give the perception of being too over the top.” The need to avoid the perception of opulence is especially true if your company or industry is getting a lot of attention in the news. As Woodin says, “You don’t want to end up on CNN.” When it’s necessary to fly under the radar, Woodin favors independent hotels or independents associated with a chain. Tessitore prefers smaller properties for board meetings for a different reason. He wants to make sure that the gathering is the hotel’s primary focus, “so we’re not vying for their attention or overpowered by large meetings nearby.” Typically, Western & Southern Financial Group will choose an executive retreat-style property that has golf and tennis and perhaps a spa onsite. “The majority of the time is used for business and collaboration, but we do try to go to a location where there’s a little leisure activity,” says Kathy Roche, director of meeting planning, travel and events.
THE MEETING SPACE: MORE THAN A ROOM The meeting space itself is of paramount importance. Because of the confidential nature of board meeting proceedings, privacy is crucial. Ideally, the meeting room is situated apart from other meeting rooms in an area where there’s not a lot of foot traffic, such as at the end of a corridor, on its own floor or even with a private entrance. “You need to make sure there aren’t people within earshot of anything going on,” says Tessitore. “These conversations tend to come out into hallways during breaks.” Some meeting planners look for boardrooms that have a sitting area off to the side to allow for sidebar conversa-
tions. Roche usually books two meeting spaces—one for the meeting itself and a separate room nearby. “I keep that a private, high-level conference room, with a phone, so that any time the board needs to step away, they have a room handy.” Atmosphere counts too. You and your board members don’t want to be stuck in a cramped boardroom, which can happen even at the nicest hotels. “The environment needs to be stimulating enough that participants can get away from day-to-day business and think clearly, without distraction,” says Lisa Meller, director of Worldview Events, a division of Worldview Travel Corporate Services in Irvine, California. “Our clients look for a high-end resort property where there’s a lot of natural light and a pleasant view from the meeting room. The room needs to be warm and residential; the lighting needs to be conducive.” Access to nature is a big plus, says Chacko. “Especially for multi-day meetings, finding an environment where you’ve got the ability to see the outdoors breaks up the monotony of board meetings. Encouraging people to gather outside, have sidebar conversations and take a breath of fresh air gets the best out of people and promotes dialog.” Depending on your organization’s culture, you may want to opt for a less formal meeting setting and room setup. “Many groups like traditional boardroom settings, but we’ve seen some meet in a more casual living room setup,” says Rhonda Chesney, Chicago-based regional director of worldwide sales at Four Seasons Hotels and Resorts. She’s even seen groups use beanbag chair seating. “At resorts, the sky’s the limit as far as different offerings,” adds Chesney. “In our Orlando resort, we have a couple of spaces where you can do meetings by the lake, meetings on the beach, so it’s more casual. That sets the tone for engagement, where the attendees are a lot more comfortable, where they can get up and walk around and have more connections than they would sitting around a board table.”
MEETINGS & RETREATS CRAFTING A POWERFUL AGENDA While many aspects of planning a board meeting will be left to the meeting planner, when it comes to designing the agenda, the CEO plays a pivotal role. It’s a task worthy of time, energy and attention, cautions Chacko. “The folks who sit on boards bring a wealth of experience along with them. The worst thing one can do is have a rote, one-way flow of information. If you’re going to get the best out of people, you want them to participate in a way that leverages what they bring to table.” Rather than something to dread, board meetings can—and should—be fun. “It has to have pace, to move along; the materials have to be interesting; and, hopefully, the board members will get something out of it,” says Chacko. “That involves focusing on the things that matter, whether that’s raising money, the structure of the company, strategy or the competitive aspects of the business.” When there are controversial or hot-button topics on the agenda, board members should be prepped ahead of time, so they’re not taken by surprise. “The worst thing you can do is discuss an issue with which board members are not familiar. You want them to reflect in advance,” advises Chacko. Even when the list doesn’t include controversial topics, the agenda and related materials should be sent to board members early so they have time to do their homework. “There needs to be a clear expectation that the board will do the requisite work prior to the meeting— to read and digest materials in advance— so they’re prepared to have an engaging discussion,” notes Chacko. “That’s really one of the most important dynamics.” Meller echoes that view, noting that board members need to come to the table prepared to discuss solutions, “so people feel like they’re actually accomplishing something.” Balancing the itinerary so that attendees don’t end up sitting for hours on end is also key. “It’s important to get up, to move, to change the environment,” says Meller, who suggests consider-
ing breaking for an outdoor lunch or scheduling an early morning netwalking event where attendees pair up with a partner to walk and talk about a topic that needs to be resolved. Some board meetings build in short teambuilding or creative-thinking exercises. During the meeting itself, it’s incumbent upon the CEO to manage the flow of discussion, giving everyone an opportunity to speak and adapting the agenda as needed, rather than sticking to a fixed timeline. “It’s a little bit of a ringmaster act,” Chacko says.
FEEDING BODY & MIND Rather than an added expense, consider great food and drinks an investment. “When you’re sitting in a meeting and trying to give it your best, it’s important to be happy and comfortable there,” says Chacko. Travel Leaders Group typically hosts a board dinner the night before the meeting itself, using the occasion to set the tone for the entire event. “It’s promoting open, interactive conversation in an environment where the board gets a sense informally of where the company is and where it’s headed,” says Chacko, who urges CEOs to take the time to get the dynamics of the board dinner—from table shape to ambiance—right. “Picking the right venue, the right kind of quiet place that’s fun, having the right participants and deciding who sits where, all matter. Sometimes, when we’ve had multiple tables, we’ve encouraged people to move around between courses. It’s all a means of changing the dynamic.” The quality of the food, drink and downtime activities also shouldn't disappoint, adds Tessitore. “These are folks used to nice restaurants, good wine,” he says. “We need to manage food and beverages to that standard.” Offering healthy menu selections, including vegetarian fare, and exercise options is increasingly important to today’s attendees—and has a side benefit, notes Roche. “When you eat a healthier breakfast and lighter lunch, your mind is more effective. The trends are more exercise, healthier food and more vigorous activity.”
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BOARD MEETING KNOW-HOW DO... …attend closely to technical concerns. Tech requirements (i.e. glitch-free A/V, video and telephone conferencing) tend to be straightforward, but you still have to get them absolutely right. …be vigilant about security. Your firm’s director of security should meet with his or her counterpart at the hotel to address privacy, confidentiality and security. …arrange for private car transfers. “Very often, folks are getting off a plane and getting right on a call, Therefore, it’s wise to have private cars, so they can take these calls,” says Paul Tessitore of American Express Meetings & Events.
DON'T... …take a single thing for granted. Even when staying at five-star hotels, you can’t assume the property will do everything right, warns Tessitore, who advises covering “every detail, from arrival to departure.” …get shut out of the hotel you want. Booking early is essential. To help secure space, consider being flexible on dates, entering into a multi-year or multi-event agreement or working with a site selection firm that can leverage volume and expertise. …don’t make attendees ask. Build profiles of repeat attendees’ food preferences, dietary restrictions and other likes and dislikes so that hotels can accommodate those needs.
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After a 20-year run, Chief Executive columnist Joe Queenan signs off with a few choice comments about our changing (or not) times. By Joe Queenan
IN 1991, WHEN I STARTED WRITING this column, a man named Clinton was all set to go toe to toe with a man named Bush. He was hoping to become the first president of the United States to have previously inhabited the governor’s mansion in Little Rock. In 2016, a woman named Clinton was all set to go toe to toe with a man named Bush. She was hoping to become the first female president of the United States to have once lived in the governor’s mansion in Little Rock. But the scheduled set-to never materialized because an extraordinarily persistent man named Trump got in the way. Some things change. Some things don’t. In the past 25 years, there have been several recessions, two of them quite brutal, but there have always been brutal recessions in this boom-and-bust economy, so this is nothing to get terribly worked up about. What is entirely new is the Internet, a thrilling innovation that has managed to completely change the way we lead our lives without making the economy noticeably more productive. As one wit pointed out, the average person would rather give up the Internet than give up indoor plumbing, and the same is probably true of cars, television, air conditioning and airplanes. It may even be true of the microwave. The Internet has made it easier for people to do their jobs, but it has also made it easier for people to waste time at their jobs. It is a technology filled with potential, but at present its contribution to national productivity is just about zero. Maybe the Bronze Age got off to a slow start too. Exciting new technologies came and went in the quarter century since I started writing for Chief Executive. VHS, fax machines, Zip Drives and compact-disc players all strutted and fretted their hour on the stage and then were heard no more. The DVD player, which sent VHS to the sidelines for good, is now about to join it. Few people can even remember Betamax, nor do the terms CPM,
MS-DOS or Kay-Pro immediately leap to anyone’s lips. And most young people think of land lines as the technological equivalent of the breech-loading rifle. As for Kodak film loaded into a camera, what’s that? In my early days at Chief Executive, these words from Apple Computer’s John Sculley appeared on the cover: “The first hurdle that management must cross is not what technology to choose, but what business process to install that will give it a competitive advantage in the global marketplace.” Actually, as Steve Jobs would subsequently demonstrate, what technology you choose does make a difference. Especially if you’re running Apple. Big, gas-guzzling cars still exist, but there are a lot fewer of them around today and there is something of a social stigma attached to driving them. After a long period of building mammoth, hideous houses, builders now find that the public wants smaller, less hideous houses. This is mostly because young people cannot afford big, ugly houses. Young people need to spend less time texting and looking at kitten videos on Facebook and figure out how to get this economy percolating. The Baby Boomers did their job; the torch has now been passed. Back in 1991, people got interest on their money when they deposited it in a bank. This was before the Great Recession and our bizarre era of negative interest rates. The American people now spend half their time wondering who Taylor Swift will date next and the rest wondering when the Fed will raise interest rates. The first book I reviewed for Chief Executive was Trumped: The Inside Story of the Real Donald Trump—His Cunning Rise and Spectacular Fall. It’s interesting that all these years later, Trump has risen once again, this time to even headier heights. Perhaps there’s truth to that old maxim: The more things change, the more they stay the same...
Q U E E N A N I LLU ST R AT I O N BY T I M TO M K I N S O N
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