Summer 2021 Chief Executive Magazine

TALENT 2021: 21 PAGES OF PRACTICAL STRATEGY, TESTED TACTICS AND WINNING IDEAS

THE VOICE OF AMERICA’S CEO COMMUNIT Y | SUMMER 2021

THE CEO S AND THE SYSTEM THAT SAVED THE WORLD PLUS: BUSINESS, LEADERSHIP AND THE POWER OF GRATITUDE A SPECIAL REPORT

Average low of 60 degrees F. 4 of the top 10 beaches in the U.S. 1,350 miles of coast line. #2 infrastructure in the U.S. 20 Commercial Service Airports.

Largest Air Traffic Hub in western hemisphere.

WITH THE NATION’S 3RD LARGEST WORKFORCE, FLORIDA IS WHERE YOUR BUSINESS BREAKS THROUGH.

JACKSONVILLE, FL

15 Deepwater Seaports. #1 ranked state for higher education.

3rd largest overall workforce in U.S. No Manufacturing equipment sales tax.

20-Year Capital Investment Tax Credit.

4th ranked US state in foreign-owned firm employment. $153.6 billion in international trade (airport and seaport).

Second largest FTZ network in the country.

EnterpriseFlorida.com

C O NTE NT S

S U M M E R 2021 No. 311

FEATURES COVER STORY 24 THANK YOU A few thoughts about the CEOs—and the system—that saved the world over the past year. By Dan Bigman 24

26 BEING GRATEFUL Showing gratitude and recognition has always been an essential leadership tool. Now it may be the essential leadership tool. By Dan Bigman and Dale Buss

CORPORATE COMPETITORS 34 ‘THE VALUE OF WILLPOWER’ Walt Disney CEO Bob Chapek is still driven by the values and techniques he developed as a high school distance runner.

“Never underestimate the power of one person’s will to get something done.” Interview by Don Yaeger

TOOLBOX 42 FUTURE NUMBERS To see around corners, CEOs are getting creative with KPIs— and looking beyond the usual measures of success.

By Russ Banham

CEO DEALMAKER SUMMIT 48 THE NEW DEAL FOR DEALS The surge in M&A activity means opportunity for every CEO. Business leaders shared perspectives at Chief Executive’s Dealmaker Summit. By Dale Buss

52 MAKE FOR YOUR EXIT

34

The strong economy, low interest rates, huge cash reserves and fears about rising taxes are making for a silly season in M&A across nearly every industry. Looking for a sale? Some suggestions. By Dale Buss

REMOTE WORK 56 WHY WHERE MATTERS Where your employees or contractors live and work could have unforeseen and, in some cases, significant implications for your business. Here’s what to ask your HR people now.

By C.J. Prince and Craig Guillot

CEO TALENT SUMMIT 68 GETTING IT ALL TOGETHER

56

Leaders gathered at Chief Executive’s CEO Talent Summit to share ideas on making the most of an organization’s greatest asset. By Jennifer Pellet

C O NTE NT S EDITOR Dan Bigman MANAGING EDITOR Jennifer Pellet DIGITAL EDITOR C.J. Prince PRODUCTION DIRECTOR Rose Sullivan CHIEF COPYEDITOR Rebecca M. Cooper ART DIRECTORS Gayle Erickson, Carole Erger-Fass CONTRIBUTING EDITORS

Dale Buss, Ram Charan, Daniel Fisher, Craig Guillot, Kara Goldin, Marshall Goldsmith, Kelly Goldsmith, Patrick Lencioni, Matthew Scott, Jeffrey Sonnenfeld EXECUTIVE EDITOR, STRATEGICCXO360

Emily DeNitto

DEPARTMENTS 4 CEO NOTE

Union, Now?

6 RESEARCH CEO Confidence Is Fading

PUBLISHER

60

Christopher J. Chalk 847-730-3662 cchalk@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

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

MANAGER, STRATEGIC PARTNERSHIPS

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

8 LEADERS 8 The Turnover Tsunami Is Real

By Johnny C. Taylor, Jr.

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

12 How to Fight Poaching

By Ram Charan and Geraldine Willigan

Wayne Cooper

16 Law Brief \ Daniel Fisher The Impossibility Paradox

DIRECTOR OF EVENTS & PUBLISHER, CORPORATE BOARD MEMBER

18 Coaching Yourself \ Kelly Goldsmith & Marshall Goldsmith Do You Want to Be Mindful?

CHIEF CONTENT OFFICER

20 The Undaunted CEO \ Kara Goldin Living Undaunted Is Addictive 22 On Leadership \ Jeffrey Sonnenfeld Making a Difference

62 REGIONAL REPORT:

NORTHEAST & SOUTHEAST While employment still lags in some states, much of the country is on an economic rebound. By Craig Guillot

72 LAST WORD

‘What I Learned from Covid’ Leading New York’s largest healthcare system through its biggest, longest crisis wasn’t easy—but it was educational.

By Michael Dowling

CHIEF EXECUTIVE OFFICER

Marshall Cooper

Jamie Tassa

Dan Bigman

PUBLISHER, STRATEGICCXO360.COM

KimMarie Hagerty

DIRECTOR OF MARKETING

Simon O’Neill

VICE PRESIDENT Kendra Jalbert HR MANAGER / OFFICE ADMINISTRATOR

Patricia Amato

RESEARCH DIRECTOR Melanie Nolen DATA SERVICES DIRECTOR Jonathan Lee DIGITAL DIRECTOR Leigh Townes CONTROLLER Brittney Smith MARKETING MANAGERS

Simone Bunsen, Nicole Shorette COMMUNITY MANAGER Kenzie Jones EVENTS SPECIALIST Rachael Gaffney DATA ANALYST Denise Gilson CLIENT SUCCESS COORDINATOR

Aftan Walls

BUSINESS DEVELOPMENT ASSOCIATE

Lara Morrison Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 311, Summer 2021. 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 2021

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. singlecopy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT, and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, LLC, 9 West Broad Street, Suite 430, Stamford, CT 06902

Subscription Customer Service Chief Executive Group, LLC, P: 615-592-1380 9 West Broad Street, Suite 430 E: subscriptions@chiefexecutive.net Stamford, CT 06902 W: ChiefExecutive.net/magazine

RESEARCH ANALYST Isabella Mourgelas DIGITAL PRODUCER Alessandra Cooper

CHIEF EXECUTIVE NETWORK PRESIDENT Rob Grabill DIRECTOR OF MEMBERSHIP EVENTS

JoEllen Belcher

EXECUTIVE DIRECTOR Chuck Smith MARKETING DIRECTOR Janine O’Dowd

THOUGHT LEADERSHIP CONTENT PROVIDED BY DELOITTE

Solving for the Post-Pandemic Office

BY DARIN BUELOW

AS VACCINATION RATES INCREASE across the U.S., many will support those who wish to continue to work remotely. They companies are shifting focus from “when to return” to anticipate capitalizing on opportunities to reduce the the longer-term question of “how” they should best amount of office they need, given their expectation configure the office footprint. Indeed, several for lower post-pandemic space utilization.

Choice and culture are key CEOs have spoken publicly regarding their Those companies and leaders who adopt a variables in determining the views on the future of work, hybrid working Visionary Workplace Archetype go a step post-pandemic office. How much models, and the importance of in-person further. They believe that their people choice will we give people regarding interactions. have proven they can work remotely, and where and how they work? Is the Throughout the pandemic, Deloitte has had wish to make significant changes to their in-person contact enabled by the the opportunity to speak with hundreds approach to work and the workplace. workplace of greater value than of companies about how they view the These leaders anticipate that the vast the flexibility of hybrid or future of the office, what they are hearing majority of their teams will adopt a “virtual from their employees, and how management first” work style, perhaps only coming in to a work-from-home is planning for the post-pandemic return to company workplace infrequently. They indicate models? workspaces. Opinions about the workplace are that their post-pandemic workplaces may likely widely dispersed, in part due to numerous work-related require less space, while still enabling opportunities paradoxes that the pandemic has revealed: for collaboration and innovation for when employees do choose to commute in.

• Many employees report being more productive at home, yet many suffer from videoconferencing “fatigue” Note that for some companies, these archetypes may represent the workplace approach for the entire office population, while • A number of leaders want workers back in offices, yet employee others may allow for workstyle variations for different functions surveys consistently reveal that a significant percentage would and locations. prefer hybrid or work-from-home options As they plan for the return to office and the longer-term future of • Many employers want to optimize the office footprint, yet are the workplace, CEOs may wish to consider: not sure how many team members will come back—or who still resides within a commutable distance to the office 1. Whether the company’s culture will allow for employees to choose where and how they work and if that culture should be In our discussions with companies, we are observing three distinct applied evenly across functions and locations. “workplace archetypes” that company leaders and cultures appear to fall into: Traditionalist, Progressive, and Visionary.

2. Directing their teams to reflect on the purpose of the office— what are the workplace “moments that matter” for staff, those The Traditionalist Workplace Archetype includes leaders who hold key interactions that employees seek to have face-to-face that the view that the company’s work is best delivered in the office. would motivate them to make the commute to the office?

They strongly prefer to return to a pre-pandemic condition, valuing the in-person interactions that the office enables. Traditionalist 3. Undertaking more detailed employee surveys regarding Workplace Archetype adopters expect to communicate to their productivity, work styles, and preferences to enable teams to employees that their job is in the office, and are unlikely to support better prepare the post-pandemic workplace. large-scale adoption of virtual work, work-from-home, or hybrid 4. Utilizing analytics and scenario planning to reconfigure the models. As they seek to promote the return to the workplace for office footprint according to how employees will work, with the most if not all of their office staff, they are likely to retain many, if not right mix of innovation, collaboration, and individual work places. most, of their office spaces.

Every company’s approach to the future of the office must be nuanced Those who fit into the Progressive Workplace Archetype believe the to suit their culture. Taking the time to assess the opportunities and pandemic has revealed that many workers prefer to choose where adopt the right workplace archetype(s) to fit the needs and wants of and how they work. These leaders believe that employee surveys leadership and associates will be key to successfully navigating the demonstrate that workers may fit into work-from-home, hybrid, transition to a post-pandemic workplace. and office-based categories, as well as other variations. Progressive Workplace Archetype adopters plan to provide places and spaces Darin Buelow (dbuelow@deloitte.com) is a principal at Deloitte. for those who wish to work in offices some or all of the time, and Consulting LLP in the Real Estate & Location Strategy practice.

ABOUT DELOITTE: As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2021 Deloitte Development LLC. All rights reserved.

C EO’ S NOTE CHIEF EXECUTIVE OF THE YEAR

UNION, NOW? WHEN AMAZON WAREHOUSE EMPLOYEES in Alabama overwhelmingly voted down an April unionization vote, it seemed nothing more than a sign of the times. After all, labor unions have never had less appeal among private-sector workers than they do now.

In 1945, an estimated 35 percent of U.S. workers belonged to a union.

By 2020, just 6.3 percent of wage and salary earners in the private sector were members, according to the U.S. Bureau of Labor Statistics.

Except in a few industries, it’s the rare CEO today who deals with unions.

That will change if the White House has anything to say about it. President Joe Biden has made it very clear that he intends to aggressively honor his campaign promise to be “the strongest labor president you have ever had.” And then some. Biden officially launched his presidential campaign from a union hall in Pennsylvania. The love was returned, with $27.5 million in labor union political dollars flowing to his campaign (compared to less than $360,000 that went to the incumbent, Donald Trump).

Since his inauguration, Biden fired National Labor Relations Board general counsel Peter Robb and deputy general counsel Alice Stock, both Trump appointees, and named Jennifer Abruzzo to the top post. Abruzzo was most recently legal counsel for the Communication Workers of America, which gave 98.5 percent of its political donations to Democrats in 2020.

Biden then appointed Boston mayor Marty Walsh, the former president of the Boston Building and Construction Trades Council, as his Secretary of Labor. Perhaps most significantly, the president set up a White House “task force” to “mobilize the federal government’s policies, programs and practices to empower workers to organize and successfully bargain with their employers,” according to a White House statement.

Signaling the group’s importance, Vice President Kamala Harris was tapped to run the operation. Members include 13 cabinet officials and various agency heads. “The President and Vice President believe that the decline of union membership is contributing to serious societal and economic problems in our country,” says the White House.

For CEOs, this isn’t about wages. This is about agility. In a dynamic, fast-changing economy, unionized organizations and industries can be painfully sclerotic—problematic for both companies and workers.

Research shows that union operations cost 25–35 percent more than nonunion operations, even before accounting for union-negotiated increases in wages and benefits due to expenses related to grievances, regulatory compliance issues, legal costs, coverage to pay for employees attending to union business and more.

Unions couldn’t be happier as the Biden administration is paying back the support it received from them in a big way. The new Administration is not merely throwing unions a lifeline, but firmly putting its thumb on their side of the scale. President Biden has declared unions a public good deserving of broad governmental support. So far, he’s been as good as his word. —Marshall Cooper, CEO, Chief Executive Group

2021 SELECTION COMMITTEE ADAM ARON President and Chief Executive, AMC

DAN GLASER President and Chief Executive, Marsh & McLennan

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

NEAL KEATING President and Chief Executive, Kaman

TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries

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

BRIAN MOYNIHAN Chairman and Chief Executive, Bank of America 2020 CEO of the Year

ROBERT NARDELLI Chief Executive, XLR-8

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

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

CARMINE DI SIBIO Global Chairman & CEO, EY Exclusive Adviser to the Selection Committee

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

CONTACT US CORPORATE OFFICE Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 Fax: 203.930.2701 ChiefExecutive.net LETTERS TO THE EDITOR letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 Fax: 847.730.3666 advertising@ChiefExecutive.net REPRINTS Phone: 203.889.4974

4 / CHIEFEXECUTIVE.NET / SUMMER 2021

You don’t have time to be worried about talent. Let an expert recruit for you.

Recruiter.com On Demand is a flexible, monthly solution to quickly add recruiters to your team without the commitment of hiring staff. Let a team of experienced professional recruiters handle your search.

Change Anytime No long-term commitments.

Fast Ramp Up Work with seasoned, certified recruiters who can start sourcing talent immediately.

Consistent Feedback Track recruiter results with transparent reporting and metrics.

Monthly Delivery Pay a simple, flat monthly or hourly price with no success fees.

Go to www.Recruiter.com Mention “Chief Executive” for 5% off!

Recruiter.com: Recruit talent faster.

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

FADING OPTIMISM

AWS EXECUTIVE INSIGHTS aws.amazon.com/executive-insights 40, 41

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

THE CEO 100 chiefexecutivenetwork.com/ceo100 INSIDE BACK COVER CHIEF EXECUTIVE NETWORK chiefexecutivenetwork.com 33

AFTER A STRONG START TO THE YEAR, propelled by hopes of an end to Covid-related restrictions, the reopening of business worldwide and a surge in consumer demand, CEO optimism about the direction of the economy appears to be stalling.

Soaring materials costs, rising labor expenses (if hires can be found at all), supply-chain snarls and increasing taxes and regulation are all reasons chief executives participating in our most recent CEO Confidence Index polls said they no longer expect business conditions to improve as much as they once did over the coming 12 months.

Business leaders we surveyed still rate current—and future—conditions as “good” at 6.9 out of 10 on our 10-point scale, but that’s down from a high of 7.3 in April. To put things into perspective, in June 2020, when the Covid-19 pandemic was still at its peak, CEOs rated their outlook for business a year from then at 6.5 out of 10.

According to our June 2021 polling, fewer CEOs are now planning for growth. The proportion forecasting increases in revenue and profits over the next year dropped 7 percent from May to June, to 82 percent and 74 percent, respectively.

The proportion of CEOs who expect to increase capital expenditures over the next 12 months also declined from May to June—down a whopping 18 percent. Just 51 percent of those we polled now expect their capex investments to rise in the year to come.

One area that continues to gain ground is hiring. Some 68 percent of CEOs now say they will need to bolster their workforces, and plan to do so in the months ahead. That’s if they can find the people, of course.

—Melanie Nolen, Research Editor, and Isabella Mourgelas, Research Analyst CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW 7.18

6.89

7.07 7.08

6.90

6.87

6.92 6.64 6.50

July

Aug

DDI ddiworld.com 21 DELOITTE R.E. AND LOCATION SERVICES deloitte.com/us/locationstrategy 15 ECONOMIC DEVELOPMENT PARTNERSHIP OF NORTH CAROLINA edpnc.com 11 ENTERPRISE FLORIDA enterpriseflorida.com INSIDE FRONT COVER FLORIDA POWER & LIGHT COMPANY poweringflorida.com 23 FOUNDATION SOURCE foundationsource.com 15 KENTUCKY CABINET ced.ky.gov OUTSIDE BACK COVER LEADERSHIP CONFERENCE chiefexecutive.net/leadershipconference 61

PE BACKED SUMMIT chiefexecutive.net/pebackedsummit 71 RECRUITER.COM ON-DEMAND RECRUITING recruiter.com 5

6.71

6.43

June

CORT 4SITE 4sitebycort.com 19

MISSOURI ONE START missourionestart.com 17

7.27

6.97

CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES chiefexecutive.net/compreport 51

Sept

Oct

Nov

SMART MANUFACTURING SUMMIT chiefexecutive.net/sms 7 Dec

Jan '21

Feb

March

Chief Executive’s CEO Confidence Index is measured on a scale of 1-10.

6 / CHIEFEXECUTIVE.NET / SUMMER 2021

April

May

June

STAND UP TO CANCER standuptocancer.org 47

SMART MANUFACTURING SUMMIT September 9-10, 2021 Indianapolis, IN Virtual Participation Option Available

Tackling Today’s New Manufacturing Challenges Come together with fellow manufacturing executives to solve for the new challenges we face coming out of the pandemic at Chief Executive’s 9th annual Smart Manufacturing Summit.

Solve labor shortages and embrace the multi-generational workforce Overcome supply chain disruptions Redefine lean and resiliency Optimize data and automation Implement customer-centric design Adopt new market strategies Improve M&A outcomes

EXCLUSIVE BEHIND-THE-SCENES FACTORY TOURS Walk the floors of innovative manufacturing plants to gather insights on implementing new technologies, streamlining processes, reducing costs and improving speed, including: • MAJOR TOOL & MACHINE • ENDRESS+HAUSER • DALLARA INDYCAR FACTORY

42

Register by July 30 to save $300 off the standard in-person rate with code CELive300 To learn more and register, visit ChiefExecutive.net/SmartManufacturingSummit / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

LE AD E R S

THE TURNOVER TSUNAMI IS REAL A brutal new battle for talent begins. Thoughts on strategy.

BY JOHNNY C. TAYLOR, JR.

RECENTLY, I MET WITH THE CEO OF

a Fortune 500 financial services company about something that was keeping him “up at night.” He said that while he has plenty of access to financial capital, thanks to flush markets and eager investors, he is extremely worried about his ability to access sufficient human capital to grow his business. “My number one job,” he said, “is to get talent to run my business—period.”

CEOs across the country, and across industries, are experiencing similar anxiety.

In a knowledge-based economy with an aging workforce and a slowing birthrate—not just in the U.S. but also around the globe—leaders face a perfect storm when it comes to talent acquisition and retention.

I really am not being hyperbolic when I say that, as CEOs, this is the challenge of our time. Because for all the talk about the worries over digitization, transformation and disruption, the best-laid plans to address those issues can be derailed by failures in talent acquisition and talent retention. Say, for example, your team develops an innovative new product that promises to take the market by storm. You have a 12-month calendar for roll-out. Suddenly, you learn that a compet-

8 / CHIEFEXECUTIVE.NET / SUMMER 2021

itor has poached your star brand manager tasked with taking your product to market.

Now, you’re going to spend 60 to 90 days finding a replacement with the right technical skills and cultural fit/alignment—and then you have to get that individual up to speed.

You’ve lost a critical four to five months in a 12-month window, derailing two years of planned growth that should have come from that new product—which is now at risk for obsolescence before it even hits the shelves.

And the turnover tsunami is real. Yes, 30 percent annual turnover might just be the new norm. That is partly thanks to the pandemic, which gave people a year-plus to reflect on what they’re doing, whether it’s truly fulfilling, and what else they might like to do with their lives, now that they’ve been spared a deadly disease.

The year of remote work has also made it a lot easier to court talent—and for other companies to court yours. Before last year, it would have been difficult, if not impossible, to imagine hiring a six-figure executive without ever personally meeting them; that has become standard practice in the post-Covid era. Meanwhile, unemployment continues to drop, which is

heating the war for talent to epic levels.

The solution? We need to have people strategies that are every bit as sophisticated and complex as those we have for technology, sales and marketing, finance and so on. Your people strategy is what ensures that the organization not only survives but also thrives long term.

If you have a business strategy that’s reliant on people, but you don’t have a serious people strategy, that’s a really big problem. People are an enterprise risk—they literally mean business—and CEOs and boards need to view them that way.

Your people strategy should include:

More than half

of employees in North America plan to look for a new job in 2021.

1. Retention tools. How do we take care

of the people we have? What are the ways we’re assessing people? Investing in them?

Developing them? How are we measuring all that and making sure our best people are happy in their roles and feeling motivated and appreciated?

It’s worth noting that the answer to retention is no longer simply more money and “making my people happy.” Employees themselves don’t even necessarily know what they want anymore. They ask for stuff, they get it, and they still leave. Time was, you could keep somebody thinking of leaving by giving them another 10 percent to 20 percent.

Nowadays, the war is so serious, people are literally doubling salaries. The former CHRO of a major Silicon Valley company told me the company’s strategy when they want to retain someone is to give them so much money, “we dare any other company to beat us.” That’s fine for deep-pocketed tech companies, I said, but what about the rest of us? His answer: “That’s your problem.”

And it is. Tactics like that have led to salary escalation and wage inflation and to problems inside companies, because when you raise one person’s salary, you risk demoralizing your other valued people who are looking around, thinking, “Where’s mine?”

If you’re the CEO of a small-to-midsize company, you obviously can’t compete with the Googles in your industry, so your comprehensive talent strategy has to compensate,

Turnover has cost U.S. companies over

$223 billion

in the past five years.

Automation will displace 85 million jobs in the next five years but will create

97 million new ones.

Source: Society for Human Resource Management

CHIEFEXECUTIVE.NET / SUMMER 2021

/

9

LE A D ER S

and you need to lead with your strengths.

For example, you may need to take risks on people who may not be quite ready for the job but who’ve shown potential; they don’t have enough experience to land that plum Fortune 500 role, but you may be able to get them there with some careful grooming. You can tell them, “You can do things here you won’t be able to do anywhere else.”

the spot, but rather, you’ll have a roadmap already devised.

Put simply, the level of discipline, intentionality and focus you put on anything else in your business has to also be on your talent, which means a serious and comprehensive labor strategy that is not year to year, but rather proactively five to 10 years out.

3. The backup generator. Your strat-

2. Recruitment plan. What is our strategy

for replenishing people? How are we ensuring that we have the right pipelines in place to replace those who have retired or left for other opportunities? This is critical because, of course, you will lose people, regardless of how much you pay them or perks you offer.

The CEO of a logistics business can hope her trucks last longer than average, but they may not.

So she needs her people to be proactively examining the fleet, checking mileage to see which trucks are vulnerable to breakdown, the one they’re most at risk of losing, and then ask, “What is our plan to replace this truck?” Similarly, you have to be constantly reviewing your top performers and future leaders, asking, “What is our plan to replace this person?”

We don’t like to do that because it makes people sound fungible. It sounds harsh—but it’s not. It’s reality. Some of your best people are going to leave and, if the first time you’ve contemplated that is the day they resign, you’re going to be in serious trouble. Just as hospitals have to have a backup plan if the electricity goes out, you need a backup plan for each of your high performers; and the moment the electricity goes out is hardly the time to head for the hardware store to purchase a new generator.

Your CHRO and his or her team should be keeping tabs on potential hires in the industry, holding a short list of possible replacements for key roles should the need arise. That way, you’re not reactively responding when someone announces their departure and then scrambling to fill

“What is our strategy for replenishing people? How are we ensuring that we have the right pipelines in place to replace those who have left?”

Johnny C. Taylor, Jr. is president and CEO of the SHRM, the Society for Human Resource Management.

10 / CHIEFEXECUTIVE.NET / SUMMER 2021

egy should include not only a shortlist of candidates who might fill a role but other ways to tackle that need in the interim.

This is where I often think of the people strategy as a “work strategy” because, after all, it’s the work that needs to be done; your employees are one way that work gets done, but they’re not the only way. So, what are the other ways to do the work? Those can be part of your toolbox, either to stop-gap the loss of a key role or to replace it, where appropriate. For example, if you lose your in-house counsel, your immediate thought is to go hire a new one. Not so fast. You should ask yourself whether you might be better to outsource that work to a law firm or use on-demand workers in platforms like Upwork.

And it may not be about finding new people at all to do the work. Maybe you should consider incorporating artificial intelligence, machine learning, robotics and other technology that can effectively do “the work.”

Your in-house people, your contractors and outsource partners, and the technology you invest in are all part of your combined workforce. It’s HR’s job to figure out how they best fit together.

Ultimately, regardless of the industry, the talent war will be won by those companies that have a comprehensive work strategy that is proactive rather than reactive—and realistic rather than denial-fueled. In the same way we have to work with our boards to identify our potential successors—much as we hate the thought of letting go of the reins—we also need to be practical about our best people.

And if we accept that no CEO can grow his or her business without the right human capital on board, we will elevate our people strategies so they get the attention, resources and visibility they deserve. CE

IT’S ALMOST UNFAIR TO THE OTHER 49 STATES. Work. Life. And everything that makes both fulfilling. You’ll find it in the nearly 54,000 square miles of open minds, open spaces and open opportunities in North Carolina.

Ranked #1 for business three years running. Go to EDPNC.com/ALLinNC

ALL IN NORTH CAROLINA

In partnership with:

LE AD E R S

HOW TO FIGHT POACHING It’s about to get even uglier in the unrelenting war for high-value-adding people.

These four steps will help you be preemptive and play offense to retain and recruit the critical talent you need. BY RAM CHARAN AND GERALDINE WILLIGAN

MOST COMPANIES ARE GEARING UP FOR

exponential growth after Covid, but a harsh reality could destroy their plans. The breakneck speed of economic recovery and the emergence of SPACs have unleashed a severe talent shortage and a poaching frenzy that could rob you of the talent you are counting on to grow.

My daily contact with business leaders across the globe shows that no company has all the talent it needs internally, and every company is vulnerable to losing the talent they have. Competing for talent is a necessity, and it is not a level playing field.

Businesses owned by PE firms and SPACs are snatching talent by offering huge upsides tied to increases in market capitalization. Now, some specialized headhunters are also upping the stakes by investing in companies they conduct searches for, thus benefitting from equity increases, not just fees, when they dedicate themselves to recruiting the right talent—perhaps from your company.

In fact, the more successful you are, the more likely you will become a target of talent poaching. Business Insider reported that between January 2020 and April this year, Amazon lost some 10 percent of its VPs and above, and its finance executives are in high demand.

A headhunter may see your company as a source of talent for multiple clients. Or another company may

12 / CHIEFEXECUTIVE.NET / SUMMER 2021

simply see your key person as the best fit for their needs. Losing one key person may mean losing many more if the person takes his or her team along, as is common in financial services firms. It has happened with marketing and sales teams and in the semiconductor industry.

You must be preemptive in acquiring and protecting talent, meaning that you have to anticipate and act now. Who in your company might be targeted?

What gaps do you need to fill? Where will shortages intensify?

It’s not enough to guard against the poachers. You must overcome your hesitation to do some poaching of your own. Here are some specific actions that will help.

1. Identify your critical talent.

Being preemptive means knowing who is central to your company’s value creation and preventing them from becoming susceptible to outside offers. It may mean breaking conventional HR practices to promote someone two levels or to double their compensation.

Segment your talent by thinking about skills and the market cap they could create in the future. Those who are critical to the company’s digital transformation, and in particular its money-making model, represent one clear segment. A second segment is comprised of those

who use social media to enhance their brand and target customers. A third is leaders of technical experts in a team-based structure. The need for organizational agility is pushing companies to organize work into teams, as Fidelity Personal Investing did. Every cross-functional team needs a leader. Talent shortages are likely in each of these segments, and you may have others.

Identify important individuals too. Steve Jobs recognized the outsize role designer Jonathan Ive played at Apple. Similarly, Mehmood Khan, an endocrinologist whom then-Pepsico CEO Indra Nooyi recruited to a newly created role of chief scientific officer, was key to making Pepsi more health oriented. One biotech company I work with put extra effort into retaining a Ph.D. who was a magnet for other researchers. His diverse pool of scientists were at the heart of the discovery that investors were banking on.

As you consider the value of segments and individuals, ask: What is the trajectory of revenues these people will help generate or costs they will save, and how will that translate into market capitalization? A great talent creates enormous value compared with those who are mediocre. In some cases, losing even one team member can disrupt the development of a high-revenue-generating product and put the company at a devastating competitive disadvantage. Think, too, about what value the person or team could create for a competitor that poaches them.

Be sure your KPIs and financial incentives are appropriate, especially in relation to the market value the person will create. But monetary rewards are often not the break-point. People want to be in an environment

where they can grow and be recognized.

Chemistry with the boss is a top concern for many people, or being listened to, or opportunities for personal learning. Bill Conaty, the long-time head of talent at GE, says he and former CEO Jack Welch never tried to match an offer dollar-for-dollar when a high-potential person was at risk of leaving. They focused on how bright the person’s future career would be if they stayed.

Take a risk on people who have high potential by giving them a much broader scope sooner. It not only creates excitement for the person, it also shows others they don’t have to leave to progress. Worry less about fairness. If you think you have to change compensation plans, assignments or company practices to keep key talent, don’t hesitate to do it.

2. Move quickly on the outside talent your future depends on.

If you are expecting fast growth and/or the loss of talent, and especially if your growth is based on new kinds of expertise, you need to move fast. Put scouting and recruiting in high gear. Keep the faith that even in a time of talent scarcity, the talent exists somewhere on the planet, and don’t think of poaching as a dirty word. Where expertise is scarce, as it is in artificial intelligence and machine learning, go after people with that highest level of expertise. Moving ahead of peers will help. I know of one digital consulting firm that is trying to preempt others by moving on its plan to recruit 10,000 people in the coming years.

Acquiring talent should get as much time and

CHIEFEXECUTIVE.NET / SUMMER 2021

/

13

LE A D ER S

attention as acquiring customers. The CEO and CHRO should put a laser light on the recruiting function to be sure its methodology, activities and judgments are up to par.

The acid test of any recruiting effort is whether it brings the caliber of talent the company needs.

That scrutiny should extend to headhunters. You will likely need an ecosystem for recruiting talent. If you already use search firms, you may have to change how you work with them. Look for someone you can have a long-term relationship with, who will understand your issues and build a list of talent ahead of specific needs. If your company is sufficiently large, headhunters might even take an office on your site. You should clarify whether poaching from you is fair game, and be prepared to switch firms if results don’t materialize. I know of some recent cases where the agreed-upon fees were negotiated down because the client was so disappointed.

Elevate recruiting for key positions by having whoever is in charge interact regularly with the executive team, not buried in the HR hierarchy. That person should have a written strategy for pursuing top talent and be an expert in tailoring KPIs, compensation, assignments and reporting relationships. Recruiting metrics should be on a dashboard monitored by the CEO and maybe the board. And keep the CFO in the loop so the funding is there.

It helps to make talent scouting continuous. Anish Batlaw, an operating partner and head of human capital at private equity firm General Atlantic, keeps a reserve of high performers around the world and gets to know people far ahead of a particular job opening. A large part of his job is to help identify the talent needs of the companies GA invests in. When the organizational diagnosis is done, GA has a go-to list of excellent people to pursue.

Speed matters, so be prepared to move from first interview to closure quickly when

If your talent is running strong, you should be able to increase pricing because you will be creating something of greater value.

Ram Charan, a worldrenowned business advisor and bestselling author, has spent the past 35 years working with CEOs and boards of many top companies.

He has served on a dozen boards.

Geraldine Willigan is a former editor at Harvard Business Review, content developer and longtime associate of Ram Charan.

14 / CHIEFEXECUTIVE.NET / SUMMER 2021

you’re hiring from outside. And overcome the psychological hurdle: Will this person have our values? While a deep dive on people before recruiting helps, assimilation is also important. You can’t just say, “People from outside have not worked out before.”

3. Offset the higher people costs.

Count on rising costs for talent and prepare to offset the increase. If you simply absorb it, you could become uncompetitive. Higher productivity will help you, but most of the return on talent will take other forms. Link the anticipated cost increase to outcomes in product development, pricing, marketing and even the portfolio mix.

If your talent is running strong, you should be able to increase pricing, perhaps selectively, because you will be creating something of greater value. You should be innovating more or creating a better, higher-margin mix of products.

Recruiting talent to apply digital technology to various parts of the business will lead to things like higher inventory turns and operational efficiencies that will reduce costs and improve cash generation.

4. Be ready to fight—and to concede.

If talent has been high on your agenda, you’ll know when someone’s threatened departure creates a critical hole in your business. You can’t prevent other companies from coming after you. Anti-poaching agreements are illegal; indeed, Apple was once fined $10 million for such a pact.

Of course, you should fight for your talent, but you must also know when to give up. There will be a point at which you let talent go because you just can’t afford to double or triple salaries, or it’s just not worth it in terms of value creation potential.

Prepare for the loss emotionally. Live with it, and keep the door open. In the old days, people who left a company were considered disloyal. There was a stigma associated with it. But there were situations where people left, then wanted to come back because they liked the old environment better. Keep contact with your people after they leave you and periodically test the waters. CE

T H O UG H T LE AD ER SHIP PR OV ID ED BY FO UNDAT I O N SO UR CE

Selling a Major Business Asset Can Be the Gateway to a Life of Philanthropy THE SALE OF A MAJOR BUSINESS ASSET OFTEN represents the culmination of many years of work.

It might be a family business, a real estate investment or holdings in a publicly traded company where there will be significant income or capital gains from a sale. By creating a private foundation, the seller may avoid or reduce taxes while retaining control over the proceeds to be used for charitable activities.

The following case studies illustrate potential opportunities to mitigate taxes during a wealth creation event while earmarking certain assets for charitable use.

CASE STUDY #1: ENTREPRENEUR WITH A CASH BUYOUT OFFER

CASE STUDY #2: SUDDENLY VALUABLE STOCK OPTIONS

Craig founded and operated forprofit career colleges through a privately held corporation. After years of successful operations, Craig received an all-cash offer to sell. This presented Craig with a dilemma: should he contribute corporation stock to his family foundation prior to executing a sale agreement or sell the stock and make a cash contribution to his foundation?

A long-time executive at a public company, Patricia held nonqualified stock options (NSOs) to purchase 100,000 shares of her company’s stock at $20 per share.

Due to the profitability of a new product line, the stock suddenly increased in value to $50 per share.

Patricia wanted to capture this runup and—since she didn’t need it for retirement—decided to donate it to her private foundation.

After consulting his tax advisor, Craig concluded that selling the stock and making a cash contribution to his foundation was the optimal choice. Had he contributed the privately held stock, he could only claim a charitable deduction for his adjusted basis in the stock, not its fair market value as reflected by the sale. From his foundation’s standpoint, although gifts of stock aren’t treated as excess business holdings (EBH) for 60 months, the foundation eventually would have to sell most of the stock to fall within EBH limits and avoid a violation, even if the anticipated sale didn’t close.

With her tax advisor, Patricia considered several alternatives: • Contributing the NSOs themselves to her foundation • Exercising the NSOs, selling the stock, and donating the after-tax cash proceeds to the foundation • Exercising the NSOs, selling only as much stock as needed to cover taxes on the exercise, holding the remaining stock for at least a year to obtain long-term capital gains treatment, and then donating it to the foundation • Exercising the NSOs and donating other appreciated

property of similar value to the foundation to offset the tax triggered by the exercise Although some types of stock options cannot be transferred by law and many stock option plans do not allow transfers or only permit them to family members, Patricia’s company’s plan permitted transfers to charity. Patricia ruled out donating the NSOs to the foundation after her tax advisor pointed out that, she—and not the foundation—would owe ordinary income tax when the foundation exercised them. Therefore, it was preferable for Patricia to exercise the NSOs herself under one of the other alternatives.

Patricia ultimately decided to donate to her foundation $3 million of publicly traded stock she had obtained years before and in which she had a low basis. She received a charitable deduction for the fair market value of the stock (avoiding tax on the significant gains), which offset the taxes she owed on her NSO exercise and resulted in a larger donation to her foundation than the other alternatives.

As these case studies illustrate, thoughtful tax planning can help philanthropically minded individuals achieve their charitable objectives when they monetize a major business asset. To learn more, visit foundationsource.com/tax-advantages.

LEADERS LAW BRIEF \ DANIEL FISHER

THE IMPOSSIBILITY PARADOX

When federal and state laws conflict, companies pay the price.

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

JOHNSON & JOHNSON HAD a problem in the early 2000s when physicians started prescribing its anti-psychotic drug Risperdal to children as a treatment for emotional disturbances and antisocial behavior.

The Food and Drug Administration had approved Risperdal for use in adult schizophrenics, with a warning against side effects, including gynecomastia, or abnormal swelling of the breasts. But while J&J knew from clinical studies that Risperdal stimulated even more pronounced gynecomastia in boys, it couldn’t say so on the label because the drug wasn’t yet approved for use in children. The FDA strictly controls the wording on drug labels, and anything suggesting an unapproved or off-label use could violate federal law.

Soon, young boys started complaining about embarrassing breast growth, and their parents turned to that all-purpose American solution: They sued. Presented with an embarrassed kid, angry parents and a giant corporation that knew about a side effect but didn’t warn doctors, juries handed down spectacular verdicts. In October 2019, Philadelphia jury ordered J&J to pay $8 billion in punitive damages in a Risperdal case (the judge later slashed it to $6.8 million).

Those verdicts pose a question as old as the Republic itself: When state and federal laws conflict, which one controls?

In theory, the answer is simple. Article VI of the U.S. Constitution states that federal law is “the supreme law of the land.” To companies like J&J, that means lawsuits like the Risperdal cases should be preempted since they can’t obey state tort law by adding language to the warning label that is prohibited under federal law. Lawyers call this “impossibility preemption,” for obvious reasons. Courts have also tossed lawsuits where state-law claims conflict with federal policy, as with climate litigation against big international oil companies over global

16 / CHIEFEXECUTIVE.NET / SUMMER 2021

warming, a quintessential question of federal policy.

Preemption is a powerful doctrine that flips the normal positions occupied by corporations and trial lawyers. Instead of arguing against federal regulation, when it comes to preemption, corporations love it.

And whenever a corporation cries, “Preemption!” plaintiff lawyers find themselves arguing strenuously against federal regulators in favor of vague concepts of state tort law enforced by fickle juries.

The U.S. Supreme Court’s record in this area is less than clear. In the 2009 decision Wyeth v. Levine, the court’s liberals, joined by conservative Justice Clarence Thomas, rejected a drugmaker’s claim of impossibility preemption to uphold a Vermont jury verdict of liability for failing to change an FDA-approved label. In that case, the court cited a provision of federal law known as “changes-being-effected,” or CBE, that allows the makers of brand-name pharmaceuticals to update their labels when they receive new information about side effects.

The court followed that up in 2011 with PLIVA v. Mensing, this time with Justice Thomas joining the conservatives to rule that generic drug makers were protected against state-law claims because they cannot utilize the CBE process.

The Supreme Court famously tends to decide important questions in triads, and J&J had high hopes that would be the case with impossibility preemption. It appealed another $70 million Philadelphia Risperdal verdict to the high court this year with the support of the pharmaceutical industry and tort-reform groups but in May, the justices declined review.

So, as things stand, the Supreme Court has decided that state-law claims over on-label prescriptions of brand-name drugs aren’t preempted, but claims over on-label, generic drugs are. Perhaps another case will come along to finally decide whether off-label uses of brand-name drugs deserve the awesome protection of the Supremacy Clause. CE

LE AD ERS COACHING YOURSELF \ KELLY GOLDSMITH & MARSHALL GOLDSMITH

DO YOU WANT TO BE MINDFUL?

Get on the right path by asking yourself one question.

Kelly Goldsmith is a professor of marketing at Vanderbilt University’s Owen Graduate School of Management.

Marshall Goldsmith has been ranked as the world’s #1 leadership thinker and coach.

His 44 books include the New York Times bestsellers What Got You Here Won’t Get You There, Triggers and MOJO.

AS A LEADER, IT IS CRITICAL TO BE mindful and present in interactions with your many stakeholders throughout the day. While this is very easy to understand in theory, it is incredibly difficult to do in practice.

Mindfulness, a key component of Buddhist philosophy, has become quite in vogue today.

In looking up “mindfulness seminars” on Google, I found countless programs ranging from a day to eight weeks in duration.

Our great friend, Dr. Carol Kauffman, was recognized by Thinkers50 as one of the Most Influential Coaches in the World.

Kauffman teaches her clients to repeatedly ask themselves one simple question. This question is the most useful tool for increasing mindfulness that we have ever tried: “Am I being the person who I want to be right now?”

To us, this question is the perfect summary of what it takes to be mindful.

Nobel Prize-winning behavioral economist Daniel Kahneman has a profound saying that he repeats in his bestselling book, Thinking, Fast and Slow: “What I see is all there is.”

As Dr. Kahneman says, our lives tend to be determined by what we keep in front of us. In today’s frenetic world, it is hard to keep focused on anything. If we do not “keep it in front of us,” it just gets lost.

Garry Ridge, the CEO of WD-40, is one of the greatest leaders we have ever met. One of his secrets of success is to keep whatever he wants to accomplish IN LARGE LETTERS in front of him and visible. Ridge practices this every day of his life.

18 / CHIEFEXECUTIVE.NET / SUMMER 2021

If you want to be mindful, keep a large poster at work and home that asks, “Am I being the person who I want to be right now?”

CEOs often attend multiple meetings in a day. The presentations start to blur together. No matter how tired or distracted they may be, great leaders need to communicate with interest and respect to people in the room.

As Margo Georgiadis, the successful CEO of Ancestry, noted, “While this may be the least important meeting of the week for me, it may be the most important for them.”

For busy leaders, mindfulness can be even more difficult at home than at work. In our coaching, we have interviewed many family members of CEOs. In one memorable interview, our client’s twin daughters said, “Dad says he wants us to be there to have dinner with him, then he stays on his smartphone during the entire meal. Please tell him to practice what he is asking us to do.”

Our client still considers this feedback one of the most meaningful moments of his life. More important than becoming a better CEO, he learned to put away his smartphone and became a better Dad. Wherever you go, keep this great question in front of you: AM I BEING THE PERSON THAT I WANT TO BE RIGHT NOW? When you feel that you are not being mindful at work or, even more important, not being mindful at home, keep going back to this question.

When do we stop being mindful? When we forget!

When can we return to mindfulness?

When we remember to ask ourselves this one question.

When asked who he was, Buddha replied, “I am awake.”

As Kauffman so eloquently points out, continually asking ourselves this one simple question can wake us up from our distraction and help us become the person we want to be. CE

T H O UG H T LE AD ER SHIP PR OV ID ED BY 4SI T E BY CO R T

REINVENTING THE OFFICE The pandemic upturned both where and how we work—and now its aftermath offers an opportunity to optimize your real estate.

THE PANDEMIC DISRUPTED where and how we work—but it also brought an opportunity for businesses to rethink real estate. While debate about the future of remote work continues to rage, one thing seems clear: CEOs are seizing the moment to rethink not only their time-in-the-office requirements, but their workspaces. Only a handful of companies report intending to go fully or significantly remote, but many see the upheaval of the past year as an opportunity to reimagine workspaces, realizing savings in the process.

In fact, 87 percent of executives expect to make changes to their real estate strategy over the next 12 months, according to a

does seem that the majority of companies are going to be requiring their workforce to be in office at least a portion of time. And, as a result, they are not going to be managing their real estate in the same way they did historically with dedicated spaces for each of their employees. That one-to-one ratio is changing to many-to-one.

With some exceptions, companies seem to be heading toward a hybrid model where employees will spend some, but not all, of their time in the office. Does that mesh with what you’re seeing?

The variables are all new to everyone but it

Is whether you own or lease the space a factor in whether a space optimization study is warranted?

In both cases it’s about mitigating exposure to unproductive real estate, but it is a different conversation when you lease versus

How is that shift affecting the configuration of office space?

First, it’s important to understand that this is not a one-and-done thing. Companies that modify their offices to create environments conducive to this new normal will want to understand how their workforces are engaging with that workplace.

It will be important for “Companies that modify their them to gauge whether offices to create environments it’s as productive as they conducive to this new normal anticipated or if they will want to understand how need to continue to their workforce is engaging with modify the footprint for that workplace.” the way their employees work.

—Allison R. Ballard, Vice President and Sensors that collect Executive Director, 4SITE by CORT data on how space is being used can recent survey by PwC. Plans range from conhelp them make informed decisions about solidating office space in premier locations restructuring their existing configuration. to opening satellite locations where small That data can be used to optimize space. groups can gather to collaborate. Some For example, they may want to flex up on expect to reduce space, others anticipate lounge areas and small huddle rooms used needing more. Chief Executive recently spoke by people who only go in for team meetings with Allison R. Ballard, vice president and and down on large conference rooms and executive director of 4SITE by CORT, about individual offices. Data can also be aggregatwhat companies should be considering and ed to evaluate potential changes to the office the role technology can play in planning a footprint and eliminate expenses that are not real estate strategy for the future. productive.

own. For example, with office space that you own, an optimization study might lead you to sublet an area so that you gain a revenue stream from space that isn’t being used.

In a lease situation, it may make sense to release the space or negotiate a restructuring of your lease or to sublet. If those options aren’t possible in the short term, you can still explore reducing your cash burn by closing that area off and reducing the operational expenses—air conditioning, lighting, plumbing, cleaning—related to that floor or square footage.

How long do sensors need to be in place for the data to be a reliable indicator of your real estate needs?

We have found that the entirety of the portfolio needs to be monitored for 12 months. However, you can take utilization and occupancy sensors and redeploy them into other areas of your real estate after six months and compare and contrast the analytics. Generally, you need at least six months in each area to account for variation in usage over, for example, the holiday season or other anomalies.

The good news is that it’s never been easier to get objective data to drive real estate decisions. The technology is more affordable than ever to implement and operate, and the data can be sliced, diced and analyzed far more easily. Real estate is one of the most expensive operating costs for most companies, so an inexpensive approach to increasing efficiency can offer a pretty significant quantifiable return on investment.

There are also intangible benefits, such as the value of enhancing engagement as well as the ability to more effectively collaborate and share knowledge. Taking the time to look at the normal ebb and flow of how your workforce uses your space can help companies make informed decisions that will lead to real benefits as we all learn to navigate the new normal.

| 4sitebycort.com

LE AD ERS THE UNDAUNTED CEO \ KARA GOLDIN

LIVING UNDAUNTED IS ADDICTIVE

It’s not comfortable, and it isn’t always easy—but you can learn to embrace, and even enjoy, risk.

20 / CHIEFEXECUTIVE.NET / SUMMER 2021

forward, and I got to work, mindful of the challenges that might try to stand in the way of progress.

As I started to knock down one set of fears, I gained the confidence to move on to the next ones and the next ones. At some point, I got accustomed to operating outside of my comfort zone. Once that became a place that was familiar to me, I actually started to thrive on the queasy feeling telling me that the challenge in front of me was not going to be easy. I knew that whether I succeeded or failed, I would learn, and I would be able to better confront the next hurdle in my path.

Uncertainty is scary. No doubt about it.

I wasn’t born with a CEO or founder gene either—if that even exists. I was well into my 30s when I started Hint, and at the time, I could have taken a much more predictable route in tech. Maybe. But what that kind of opportunity lacked for me at the time was the desire to create something new and exciting with mission and purpose.

I may not have known it then, but when I launched Hint, I was choosing curiosity as my North Star. Along the way, I’ve encountered risk and unpredictability, which I got used to. And I got better at tackling those challenges when they presented themselves. I decided to live undaunted.

Living undaunted means staying curious and being okay with not having all the answers—being vulnerable and humbled more often than not. When you don’t have all the answers. When you’re up against the odds. When you must figure out how to move forward. All of this takes practice and a lot of perseverance. And those moments shape who you are as a leader.

And that’s what I plan to explore in this column. How have I—and fellow CEOs—navigated through those murky periods of unforeseen danger? What kinds of painful choices are you forced to make? What kinds of lessons do you learn that only come from lived experience?

And ultimately, what is the mindset and mentality of The Undaunted CEO? CE

ADOBE STOCK.COM

Kara Goldin is founder and CEO of Hint Water, author of Undaunted: Overcoming Doubts & Doubters and host of the podcast Unstoppable

YOU KNOW THAT FEELING. That queasy, pit-of-your-stomach sensation.

When it comes on, it’s familiar, but it’s still uncomfortable.

I’ve had that feeling more times than I can count since launching Hint nearly 20 years ago. My stomach was in constant knots back in the early days of Hint, when I risked my entire ownership stake in Hint in order to raise capital at the height of the Great Recession. A few years later, I had it again when a major retailer gave us two weeks’ notice that they were removing Hint from their cold cases in 10,000 stores in order to make room for higher-margin items like sandwiches.

That account made up for nearly half our revenue at the time.

It’s that creeping sense—which every CEO experiences at some point—of operating just outside your comfort zone. You’re confronting a situation with no ideal answer or, worse yet, one that you don’t feel fully equipped to solve. But here’s the thing I discovered over time: I love it.

In fact, I wrote a book about it last year called, Undaunted: Overcoming Doubts & Doubters. One of the inspirations for writing the book was a recurring comment I’d often hear from audience members during the Q&A at speaking engagements.

“Would you say courage has been your secret weapon?”

“I’m not a risk-taker like you….”

“Have you always been fearless? Were you born this way?”

It’s true in some sense. I didn’t let fear or doubts hold me back from taking on challenges throughout my career. That’s different from being fearless, though. I’ve had plenty of fears. I’ve had plenty of people tell me that I wouldn’t succeed. But I confronted my doubts. I heard my skeptics. I pushed

THOUGHT LEADERSHIP PROVIDED BY DDI

FIVE SUCCESSION PRACTICES CEOS AND BOARDS NEED TO ADOPT NOW “I LITERALLY WROTE OUR SUCCESSION PLAN On the back of a napkin over a drink with the chairman,” one CEO told us.

When it comes to choosing successors, CEOs and board members often rely on their instincts. After all, their judgments have served them well. Why cloud gut instinct with too many extraneous inputs? But executive leadership is fraught with failure. Gut feel and back-of-thenapkin succession plans don’t have a good track record.

One reason is boards and CEOs rely on their instinct to make these decisions, despite high rates of failure in C-Suite roles. In other cases, the board doesn’t want to make succession a priority if things are going well. According to one former CEO, “They really didn’t take my interest in retiring seriously!”

These casual approaches open up vulnerability that may sink companies in the ultra-competitive post-pandemic economy. Already, departures across the C-Suite are rising rapidly, with few internal successors ready to step up.

What can you do to prevent a C-Suite disaster? The most successful companies follow five critical practices: 1.Take a supply chain perspective on C-suite succession.

A strong C-Suite succession plan is a competitive differentiator—more controllable than markets or the global economy. A supply chain perspective with an emphasis on speed and practicality can turn a weak bench into a strong one in 2 years or less.

Still, we recommend exploring options at least three years before an anticipated C-Suite transition. This affords time to identify and groom a diverse slate of leaders with varied background and profiles. It also supports focused candidate development and demonstrated growth against future requirements.

2.Conduct context-driven scenario planning.

Every piece of your succession planning strategy has to answer the question “Who is ready for what.” Executive skill sets are highly differentiated, and so are business and cultural contexts. Fit matters—a lot.

It’s essential to play out the context of your future business strategy, and weigh potential successors’ strengths against those circumstances.

Consider various strategic directions depending on changing market, financial, operational and R&D investments. As strategies evolve, your board should routinely re-evaluate and agree on the top few business drivers that frame C-Suite success profiles.

3.Demand objective and predictive data.

C-suite selection may seem like a brief moment of decision making, but of course each is a long- term investment in an organization’s future.

These decisions can’t be made on gut feeling from the board, nor based on past performance alone.

Making the right executive selection decisions requires data that is both objective and predictive. Structured board interviews capture relevant examples of industry knowledge, experience, and cultural indicators. More rounded methods, especially immersive role simulations, heighten objectivity and predictability because candidates must demonstrate what they are capable of versus relying on claims. Adding in personality measures also provide insight into enablers, derailment risks, and motivation that support or hinder success.

4.Assess the “whole leader.”

At the C-Suite level, there’s very little margin for error. Some lack the personal temperament to succeed, while others may struggle more with strategy or culture. Success in prior roles may not predict success in the next.

As a result, your board’s due diligence needs to include a well-rounded assessment of the whole leader so you know the full portfolio of assets and risks they bring to a C-Suite position. Again, fit matters. While no executive is 100% ideal, it’s critical to know that they have the key strengths to be successful in your context, and can mitigate their weaknesses.

5.Declare leadership growth to be a board imperative.

C-suite succession is about far more than a “point in time” decision. It is a vital, dynamic business process designed to ensure leadership capability and continuity. Your Board’s commitment, time and resources are visible across your organization, customers, and shareholders. Defining explicit roles across the Board, executive leadership team, and CHRO will create broader ownership for success.

As with other core business processes, you need to clearly articulate your succession strategy with objectives, accountabilities, and metrics. This strategy should outline “the hows,” including: 1) identification and recruitment of high-potential leaders from inside and outside the organization, 2) profiles of C-suite roles and anticipated challenges, 3) evaluation of candidates’ leadership capabilities, and 4) acceleration tactics for targeted leaders toward C-suite roles.

CONCLUSION The most dangerous thing for CEOs and boards to do right now is to focus only on the business at hand, and not the people. In today’s rapidly changing post-pandemic environment, playing offense around c-suite agility and capacity is truly about survival. NOW is the time to begin creating a data-driven succession strategy that will set up your company for strength for the future.

Matt Paese, Ph.D. leads DDI’s Executive Services business.

To learn more about how DDI’s suite of executive services to support your succession needs, contact us at info@ddiworld.com.

LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

MAKING A DIFFERENCE

So many issues, so little time.

How to apply your voice where it will matter.

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

Follow him on Twitter @JeffSonnenfeld.

SOME 2,500 YEARS AGO, the Chinese military strategist Sun Tzu offered advice on winning a fight that remains relevant in business today: “Choose your battles wisely.” But at a time when today’s business leaders are being called upon to address a dizzying array of divisive societal issues, that’s easier said than done.

According to a recent Edelman Trust Barometer survey of 17,000 people in 14 countries, business leaders tower over other figures in society as sources of public trust. Majorities in every country reported urgent social problems would not be solved without business involvement. Workers expected their employers to take action on pressing societal problems ranging from vaccine hesitancy (84 percent), climate change (81 percent), automation (79 percent), the “infodemic” (79 percent) and racism (79 percent).

CEOs, too, are urging their peers to be more proactive. Merck CEO Ken Frazier has encouraged private corporations to help “stabilize society” amid rising economic inequity and racial injustice. He stated, “It’s really critically important for us to not only think about what’s good for our individual businesses but what’s also good for the societies in which our businesses operate.”

The responsibility can, however, feel daunting. Voting access, immigration, safe workplaces, sustainability, gun safety, gender equality, privacy, product safety, skill retraining—are all of these societal concerns equally critical? How do you address controversial issues while remaining sensitive to the varying viewpoints among your different constituencies?

These guidelines can help CEOs address an emerging leadership imperative—knowing when to weigh in and how best to go about it: 1. Act in the national interest. Business

leaders supported every war in our nation’s history. Last year, CEOs took on major

22 / CHIEFEXECUTIVE.NET / SUMMER 2021

issues regarding immigration, racial justice, election security and voting access. As Michael Dell commented, “If CEOs can’t speak out on voting access, what can they address?” The collective voice of CEOs provides them protection from political reprisals and adds force.

2. Seek board guidance. As shareholder ac-

tivist Nell Minow advised, “It is time for every board of directors to develop new policies on how corporate money and messaging decisions are made on political issues. Like almost every other answer on corporate strategy, these decisions rest on corporate identity, or branding…. Corporate reputation is of increasing importance, particularly to millennials and the generation that follows, a priority not just as consumers but as employees and investors. The fastest-growing category of investment is ESG, with every major financial institution and every significant institutional investor having one or more ESG options.”

3. Examine the enterprise’s strategic needs. Management teams must study

specific business impacts, as when U.S. auto and energy company CEOs challenged the Trump administration regulatory rollbacks that undermined the EPA while jeopardizing progress on global clean air standards.

4. Choose areas that fortify your brand and culture. Nike famously leveraged

the controversy over banned NFL player Colin Kaepernick to bolster its slogan by featuring the former football player in an ad campaign with the tagline: “Believe in something. Even if it means sacrificing everything. Just Do It.” 5. Model your values. Before Merck CEO

Ken Frazier triggered a mass walkout from President Trump’s Business Advisory Council, he first alerted his board. Frazier took care to note that he was acting on his own principles and not compelling them to agree—but they did. CE

T H O U G H T L E A D E R S H I P PR OV I D E D BY P OW E R I N G FLO R I DA

TRADING RED TAPE FOR THE RED CARPET: Why Companies Are Choosing Florida SCOTT ABSHER, CEO OF GIG ENGAGEMENT PLATFORM PROVIDER SHIFTPIXY, wasn’t planning to move the company’s headquarters from California to Florida—at least, not at first. At the time, in 2019, ShiftPixy was having trouble penetrating the thriving East Coast restaurant industry and Absher figured a hub somewhere on the Atlantic, preferably close to Latin America, which already had been in the expansion plans, would help. “But as we got into the [Florida] market, we started to see there would be some strong benefits for the company to be headquartered here.”

would not expect to see that in West Coast institutions.”

That is intentional, says Henry Mack, Chancellor of the Florida Department of Education’s Division of Career and Adult Education, who notes that the state was already heavily focused on how to deliver on collective workforce needs when Covid-19 struck—and hit Florida’s hospitality industry especially hard. As soon as CARES Act funds became available, the state set aside $35 million for immediate reskilling and retraining of workers in those impacted industries.

“We only allowed colleges to apply for

“As we got into the Florida market we started to see there would be some strong benefits for the company to be headquartered here.”

—Scott Absher, CEO, ShiftPixy The friendly business climate was one benefit, as were the favorable personal economics for employees transitioning from high-priced California. But there was also something less tangible, though equally compelling: a sense of optimism and excitement that reminded Absher of Silicon Valley in the 1990s. “We were seeing a really vibrant business culture here,” he says. “It was a very exciting place to be.”

With talent as scarce as it is, CEOs are understandably looking for locations where they can be assured of a deep pipeline of future employees with the requisite skills. Academia traditionally has operated independently of business, but some states, like Florida, are incentivizing universities to consider business needs when devising curricula—something that gives Absher confidence about his human capital strategy going forward. “There is some very innovative thinking happening at the university level in terms of, what do we need to do to help more people come here to Florida to build businesses and create jobs?” he says. “I

those monies to be used for high-value credentialing programs,” says Mack, who estimate that about 17,000 impacted Covid workers have been trained in the short-term certification programs, which demonstrated “the institutions’ ability to basically reverse-engineer and adapt their curriculum on a dime” to fill employment gaps. He adds that those curricula were developed “with industry at the table” and says it has led to the expanded Get There Florida Initiative, a program in partnership with the state’s 28 Florida College System institutions and 48 technical colleges. It accelerates students’ time to completion of an in-demand, high-value industry certification or postsecondary workforce credential, and programs include advanced manufacturing, transportation and logistics, healthcare and information technology.

That enthusiasm for working with business—not against—won over Michael Martocci, CEO of branded promotional products maker SwagUp. The company still has a 40,000-square-foot warehouse in

New Jersey, but Martocci is doubling down on building roots in Miami “and making this the innovation hub for us.” He was especially impressed when he saw Miami’s Mayor Francis Suarez tweeting to different companies about how the city could better embrace business and attract more people.

“I reached out to him right away,” says Martocci, adding, “I couldn’t even tell you the name of the mayor of the city where we were based in New Jersey.”

Tom Hoverson, CEO of food manufacturer Comarco Products, had a similar experience when he attempted to purchase a building in Camden, New Jersey, and got caught in a red-tape nightmare. Instead, he purchased a building in Palatka, Florida with enough space for a 1,200-pallet freezer, eliminating the need for the third-party warehouse they previously contracted and simplifying the steps in production.

Since the move last year, Comarco has added 60 employees, almost doubling his workforce. “One of the pleasant surprises is how welcome we’ve been made to feel by everyone—local government, state government, the county,” says Hoverson. “It’s just a real change from our [previous]—like day-and-night different.”

“People forget,” Absher adds, “money goes where it’s treated best. There are some states that have become hostile to the business community and what you’re going to see is this erosion in some of the time-honored markets. If you want to anchor your business somewhere, stability is really important.”

For more information on locating your business in Florida, visit www.poweringflorida.com.

W ITH G R ATI TUD E

k n a Th

THERE IS A TENDENCY IN A MOMENT LIKE THIS,

Honoring the CEOs and the system that saved the world.

in the lee of a long, hard time, to move on. It’s understandable, it’s human, it’s healthy. The Covid year was an extraordinary event—one that lingers in too much of the world. We’d just as soon forget it. As a society, we’re doing so at a rapid clip.

In a blink, we’ve passed from fights over the PPP to fights over inflation. From mask shortages to chip shortages. Banging pots and pans to celebrate the work of front-line healthcare workers to grumbling about doctor bills.

Vaccinations, once miraculous, are now mundane and, sadly, the powerful innovations that brought them into existence, the smarts, drive, investment, risk and effort behind one of the great achievements in all of American history—yes, it is true—have been fully taken for granted by government and citizens alike.

But the intent here isn’t to fight or even bemoan that battle—there are other times and places for that. Our hope here is to focus on something bigger and more elemental. Something we worry is being forgotten in the headlong rush to take the next hill, make the next sale, win the next election.

And that is to simply say thank you.

Every religion humanity embraces teaches us that gratitude is among the most powerful spiritual practices. For leaders charged with stewarding the lives and treasure of others, it’s perhaps even more essential (for more on that, see p. 26).

So, before moving on to whatever comes next, Chief Executive, on behalf of the nationwide community of CEOs we serve, would like to offer up thanks, first, for the heroic efforts of the doctors, nurses, scientists, police officers, delivery drivers— everyone who helped move us through this horrific time, those who served others directly in a year of peril. You will be forgotten too quickly. You should not be.

THE CEOS WHO SAVED THE WORLD

It is also the moment to honor three exceptional men, essential members of our community, three CEOs who deserve our particular gratitude. Without them, without their efforts, our nation, our world, would be in a far worse place. That isn’t hyperbole. That is fact.

With their uncanny ability to marshal science, capital, labor and imagination to a cause with implications for all of humankind, they demonstrated the irreplacable power of business leadership in our world. So let us thank:

24 / CHIEFEXECUTIVE.NET / SUMMER 2021

Photo Illustration : Gayle Erickson; Photo credits: Gorsky, REUTERS / Lucas Jackson - stock.adobe.com; Borla, Phizer; Bencel, Getty Images, Bloomberg / Contributor

ALBERT BOURLA, CEO OF PFIZER, who took the

breakthrough work of BioNTech’s team and scaled it with unprecedented speed and vision, with no guarantees of success. Bourla stepped into the breach when the world needed someone to step into the breach, pushing his team to meet demands they couldn’t imagine. He acted—personally—as the project manager for the development of their Covid-19 vaccine with passion and unique energy, a tour-de-force of leadership.

STÉPHANE BANCEL, CEO OF MODERNA, who—

seemingly overnight and against all odds—exploded a small biotechnology company into a global health defense system. Their pioneering work developing the mRNA technology that brought about the Covid vaccine is only in its infancy—potentially ushering in a new era for human health. He will help lead that revolution.

ALEX GORSKY, CEO OF JOHNSON & JOHNSON. Un-

der his leadership, the traditional development work of a decade was compressed into a single year, a year of overwhelming risk, humbling setbacks and, in the end, incredible scientific achievement worthy of the company’s storied legacy. For those who know Alex and the company, none of this is a surprise.

In March, Adam Aron, CEO of AMC Theatres, summed up the feelings of all of us in a conversation with analysts. “The most important person

in our business is Albert Bourla," he said. "He and his talented colleagues, and those at Moderna and Johnson & Johnson, are who have given us our newfound fortitude.”

Their historic achievement is also a reminder of something else, something crucial, something that our society seems to be forgetting at exactly the wrong moment. In the fight against Covid, American capitalism—and the people who practice it well—proved to be the difference-maker.

As a community, we should be rightfully proud of that fact. No, it isn’t perfect. But by and large, it works. There is not now, nor has there ever been, a more powerful system for aligning the needs of the world with the inventiveness of the human spirit for the betterment of mankind.

As is always the case when the worst recedes, it will be too easy to forget the Covid year, the details, the struggles, what was at stake and how—and who—made the all the difference when it mattered most. England’s voters ousted Churchill before VJ day, after all.

And yet, in the case of Albert, Stéphane and Alex, we think this may not be the case, at least not among their peers. We will long remember what they—and their teams—did for us. For all of us.

Albert, Stéphane, Alex: On behalf of America’s CEO community and the workers, investors and citizens whom we serve, we say: thank you.

—Dan Bigman, Editor, Chief Executive

CHIEFEXECUTIVE.NET / SUMMER 2021 / 25

e t a r G S P EC I AL R E PORT

BEING

In the post-Covid rough-and-tumble battle for top talent, where young workers are seeking far more than a paycheck and convincing boomers to stick around is critical, showing gratitude and recognition are essential leadership tools—perhaps the essential leadership tools.

This isn’t soft.

This is strategic.

BY DAN BIGMAN AND DALE BUSS

26 / CHIEFEXECUTIVE.NET / SUMMER 2021

FOR MORE THAN 20 YEARS, CHESTER

Elton and his co-author Adrian Gostick have been studying and writing about corporate culture while coaching thousands of CEOs at businesses large, medium and small. Across all of this, they’ve stumbled upon a single constant among all the top performers, one that might not be what you’d expect.

“As we studied the best teams, the best leaders, the best cultures, there was always this thread of gratitude—always,” he says.

“And so it became very apparent that it wasn’t a nice-to-have if you were to be a great leader. It was an absolute must-have.”

That insight led to their book Leading with Gratitude (Harper Business, March 2020), which was—in a stroke of unbelievably good or bad timing, depending on your perspective—published just as Covid hit the U.S. last year.

While showing gratitude has always been important for leaders, says Elton, in this post-Covid era it may be the most essential thing you can do right now—for very pragmatic reasons. In the ever-tighter talent market CEOs are now facing, hanging on to great people is everything.

And when it comes to retention, says Elton, gratitude is the most powerful tool

ful available—far more so than money. “You don’t leave people who love you,” he says.

“The number one reason people leave a job is the relationship with their immediate supervisor. If you want turnover, don’t use gratitude. If you want people to stay, let them know that they matter.”

For executives facing down the rest of 2021 and looking into 2022 and beyond, the battle for great people is the whole ballgame. In survey after survey by Chief Executive and our sister publications Corporate Board Member and StrategicCFO360, the race to grab or retain key people is cited as the most important challenge the nation’s business leaders say they are facing.

Meanwhile, what younger workers are looking for in an employer is changing. Cliché or not, they want employers who give them a sense of purpose—or whose purpose aligns with their own. They want to understand why they are doing what they do, and why it matters. And they want to matter to their employers.

“The data is very strong,” says Dr. Bob Nelson, who has studied the psychology of gratitude and recognition in the workplace for decades. “If you have a culture of recognition, research finds that your employees

will feel five times more likely to be valued than if the culture was not a strong culture of recognition. They’ll be six times more likely to recommend the organization as a great place to work. They’d be seven times more likely to stay with the organization for their career, if possible—which is huge. And then they’ll be 11 times more likely to feel completely committed to their job, their manager, the mission of the organization. So just some huge, huge benefits from doing this soft, fuzzy notion of an idea.

“This isn’t just feel-good fun and games,” he says. “This actually does matter to people.

And if you want the best from people, it needs to matter to you.”

So, how do you show gratitude? How can you be more grateful? In the pages that follow, Chief Executive talked to CEOs and other experts for tips and ideas. It isn’t just about thank you notes and cards—but those play a part. It doesn’t have to be super-sophisticated, either. But it will take effort. “The reason a lot of people aren’t doing it is because that sounds like a lot of work,” says Elton. “And you know what? It is. And why do it? Because it’s worth it. Because you’ll keep your best people. You’ll attract great people— and they’ll produce for you.” It's also a better way to live life.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 27

Chief Executive reached out to CEOs to learn how they lean in to gratitude.

LAW FIRM

PROPERTY-RESTORATION SPECIALISTS

WRITE 9,400 CARDS A YEAR Sheldon Yellen, CEO Belfor Holdings, Birmingham, Michigan

Expressions of gratitude should be both personal and specific. I strive to build a strong personal connection by asking how a person is doing— how they are really doing—before jumping into the business at hand.

For gratitude to be specific, we need to describe what we’re thankful for and why it was impactful.

The most effective expressions of gratitude are authentic, personal and unrushed. Expressing gratitude should be given in a timely manner but not squeezed in between meetings or other obligations. For gratitude to improve a relationship, we need to give people our time, unencumbered by distractions. We must be fully present in the conversation and communication.

People tell me this works, and I see the generative impact of gratitude. When people feel seen and appreciated, I see behaviors that lead to more expressions of gratitude. An intentional approach to gratitude isn’t just about being a good human but about being a good business strategist as well.

For more than 30 years, I have hand-written birthday cards for every employee and associates of our company beyond employees. I’m up to 9,400 a year. I write a message on the inside, not just sign my name. I’ll write, “Wishing you a happy birthday.” Or if I’ve recently seen the person, I’ll write, “Great seeing you in Texas” or “three weeks ago in Nevada.”

I have a stash of birthday cards with me everywhere—in my office, at my house, on my airplane. Every time I get a free 15 to 20 minutes, I’ll do “X” number of cards. Each time on my plane I probably get 100 cards done.

We try to capture people I meet along the way. I just did an interview with a journalist and the guy said, “How do I get one of those birthday cards?” Without his realizing it, we found out his birthday and a card showed up for him.

I also show gratitude by handwriting notes to people when I find out about random acts of kindness. I just met a young man at a car dealership in Arizona, and he called to give me an update. In the middle of the call, I said, “Stop: Tell me what random act of kindness you did today.” He told me about opening a door for a lady. And I said, “God bless you.” Then I wrote a note to him and said, “Keep it going.”

DIGITAL-SOLUTIONS PROVIDER

FINANCIAL SOFTWARE PROVIDER

SOCIALIZE GRATITUDE

GIFT A TIME OUT

Pam Maynard, CEO Avanade, Seattle

Eric Friedrichsen, CEO Emburse, Los Angeles

Earlier this year, we offered employees a thank you bonus equal to one week’s pay.

This wasn’t tied to business performance but rather to show them appreciation for their resilience over the past year and their commitment not only to our company but to each other and their communities.

We've also designed programs that embed gratitude into our day-to-day, such as a digital platform that allows employees to recognize colleagues based on criteria that align with our values at different levels of impact. Once posted in the platform, the employee is given an award with public recognition in a social stream—where their colleagues can comment—and their career advisor is notified as well. Those awards translate to points that have a monetary value.

And we celebrate employee-appreciation day, when we encourage everyone in the organization to send e-cards to colleagues. I’ve heard time and time again how much people enjoy sending and receiving these messages.

Now, more than ever, employees are struggling with time management. They are juggling their work commitments with family and community commitments. Just simply acknowledging the importance of this balance goes a long way with employees.

As a measure of gratitude to our employees, we created an “unplugged” day each month for people to focus on mental health and catch up on life. Many of our employees highlighted what they did with their time on social media and internal company Slack channels, and it was inspiring.

You could tell how much it meant to them.

While I try to cultivate a daily practice of gratitude, I also block a day on my calendar once per month to call employees to thank them for their specific accomplishments. I intentionally do not schedule the calls. I embrace the “old-fashioned” nature of that impactful and human moment when picking up the phone to make that dedicated one-on-one time.

MAKE SPACE TO BE THANKFUL Angela Sebastian, CEO Levenfeld Pearlstein, Chicago

28 / CHIEFEXECUTIVE.NET / SUMMER 2021

‘GREAT COACHES KNOW THEIR TEAM’ We asked Chester Elton, author of Leading with Gratitude and Anxiety at Work and a top CEO advisor, why gratitude is such a powerful tool—especially now. Here’s some of what he said: There’s so much change in the workplace. What is gratitude’s role in leading today?

The number one skill that leaders have got to have coming out of Covid is empathy. So, how do you express that empathy? You know your people’s stories. You do lots of one-on-ones.

American Express is doing the most incredible employee surveys right now, asking people, “Where do you feel safe? How do you feel safe? Where are you working? How do you feel about coming back to work? How do you feel about people in the workplace who are vaccinated or unvaccinated or masks?” And on and on and on.

They’ve gathered all this data. They know their team. Great coaches—they know their team. And then that filters down to the line managers, and then the line managers are going to have one-onones with their people. The number one cause of anxiety is uncertainty.

So, what is gratitude in a business setting?

Gratitude in a business sense is an emotional affirmation that what you did mattered and by extension, that you matter. I think it’s that simple.

What does your research show you about the difference between grateful cultures and not-as-grateful cultures? What are the hallmarks?

In a culture of gratitude, it’s safe to make mistakes. I’ll give you a perfect example: Garry Ridge at WD-40. They don’t make mistakes. They have learning opportunities. Right? Their name WD-40 comes from trying 40 formulas. So were there 39 mistakes? Well, they’d say they had 39 learning opportunities. When you’re grateful for the effort, regardless of the outcome, and you express that gratitude, it makes it safe to innovate. It makes it safe to try new stuff.

You can’t be in a state of gratitude and a state of anxiety at the same time. Simple practices of expressing gratitude lower anxiety levels. One of the things that gratitude does in a magnificent way is communicate what it is you value most. Because if I’m celebrating it, it’s valued. If you want to be a better communicator, lead with gratitude.

What does it do to the leader themselves when they practice this behavior?

The thing about leading with gratitude is all the data that we’ve got about more productivity, more retention. Yeah, it’s all great. What it doesn’t really measure is the fact that the leaders become not just better leaders, they become better people.

The younger generations coming into the workforce don’t want to just be more efficient workers. They just don’t want to figure out ways to make better and faster widgets. They want to have impact. They want to know that they matter, and they want you to treat them as whole people. “These are my dreams, my aspirations. I want to go to the moon. Will you help me get there?”

When you get into that kind of a relationship at work, why would you leave? Why would you not come to work excited every day?

—Interview by Dan Bigman

CHIEFEXECUTIVE.NET / SUMMER 2021 / 29

MAKER OF TEMPORARY OUTDOOR STRUCTURES

ONE-ON-ONE WITH SUPERSTARS Matt Bulloch, CEO TentCraft, Traverse City, Michigan We built time for “kudos” into the daily huddle agenda (for all first-shift employees). This is a public opportunity for anyone within our organization to show appreciation to anyone else within our org, for reasons large or small. Public kudos aren’t everyone’s thing, so we also have a quarterly employee survey that goes directly to the senior leadership team that provides a forum to thank someone that is going above and beyond.

As part of my monthly one-on-ones, I also ask all my direct reports to identify one “superstar” on their teams.

I then, right after my one-on-one is done, take that opportunity to go find that person, thank them, pass along the great message from their supervisor and just let them know how much I appreciate them.

HVAC-EQUIPMENT SUPPLIER

‘GRATEFUL APPRECIATIONS’ Marc Braun, President, Cambridge Air Solutions, Chesterfield, Missouri We practice gratitude every day in our daily morning meeting where we have a slide that says “Grateful Appreciations.” It is a dedicated time for anyone in the company to share anything in their life that they are grateful for.

Additionally, we meet weekly as an executive team—and many of our departments do the same—and share what we are grateful for from other employees inside the organization and from each other.

We also have a private chat channel where our executives have been sharing gratitude with each other, stretching from personal to professional. This daily practice builds the skills inside the organization to express gratitude in many other interactions.

I believe that gratitude, and expressing genuine gratitude, leads to enhanced performance and improved relationships. I also believe that if you are expressing it in order to gain improved performance, it loses its genuine feel and its power. Gratitude is a selfless act of giving to another—and therefore doing so without any expectation in return is where the power lies.

Over Covid, I also strengthened my own practice of daily “gratitude journaling,” and there were several groups of business leaders who started sharing gratitude with each other on a daily basis. It built strong relationships through the time of separation, and I can point to strengthened marriages, better mental health and so much more.

30 / CHIEFEXECUTIVE.NET / SUMMER 2021

HOW TO SAY THANK YOU Gratitude doesn’t have to be complex to be powerful. Dr. Bob Nelson, author of 1,501 Ways to Reward Employees and a host of other books on employee recognition, offers seven simple tips.

1. It isn’t about money. “Money is compensation,” says Nelson. “Compensation is a right, recognition is a gift. Part of why recognition means so much is you don’t have to do it.”

2. Timing is everything. Nelson urges leaders to lose no opportunity to praise swiftly, sincerely and proactively. “You can do a great praising in 10 seconds in the hallway. The sooner you can catch people doing something right, the more you reinforce it, the more likely they’ll be repeated. So, if you see something, say something.”

3. Be sincere. “It has to come from the heart to be sincere, which sometimes is a difficult thing to teach someone. Some of the sincerity comes from specifics. Use specifics. Tell them what you heard, what you saw, what came to your attention. That gives it more credibility.”

4. Make it personal. “Which of course is tough because you can’t be everywhere all the time. But when you can add the personal touch, when you can do it face-to-face or with a direct phone call, that’s going to have more power.”

5. Praise, then stop. “A lot of executives…they’ll say something nice and then, they’ll take it away with what was wrong with the project, that there were typos or whatever it might be. My advice is to just stow that for now. Keep it 100 percent positive. Managers and leaders do this so infrequently—so don’t mess it up when you do it, keep it pure.“ 6. Make it a habit. “I like to think of ways you can work it into your daily pattern, for instance, at a staff meeting Monday morning, that type of thing. You can use that initial start time to call out recognition of good things individually for the team, for the company. That’s very powerful.”

7. Be proactive. “You’ve got to actually look for opportunities to acknowledge and be grateful for people. If you’re just reactive, you end up being reactive around the mistakes. If you’re an executive, it has more punch, more power. Often it’s more symbolic, CE and it sends a message to other people that this is something we all need to do.”

CONTRACT-MANAGEMENT SOFTWARE PROVIDER

BUILD YOURSELF A GRATITUDE CHANNEL Jerry Ting, CEO Evisort, San Mateo, California We have a dedicated team specifically focused on client-appreciation events such as networking opportunities, shared resources and access to company management to deepen our partnerships with their leadership teams and organizations.

Taking people I appreciate out to dinner or to an event goes a long way to show them I care. The shared experience pays dividends in deepening that partnership beyond the Zoom screen. Or sending lunch when you meet with someone over Zoom goes a long way. If I can’t take someone out, I send them company swag that’s tailor-made to them and has daily utility so they feel connected to the Evisort journey.

We've also started a company-wide gratitude board on corporate communication channels. This allows employees to show their gratitude with the teammates who helped them out. This gratitude channel is used across departments and builds a sense of gratitude as a core company value.

HOSPITALITY SOFTWARE DEVELOPER

FOCUS ON THE INDIVIDUAL Derek Pacque, CEO Chexology, New York City Whether it’s in our weekly team meetings or randomly picking up the phone, I always acknowledge team members directly. I make a point of calling out their names and specifically detailing what they accomplished.

I never say thanks to the “products team” or “Sally and her team” because it’s too general and sounds generic.

It also does not name the specific people involved in the task. I dig deeper because I want people to genuinely know the positive role they played in that initiative, understand I know they went above and beyond and hear from me that their actions didn’t go unnoticed.

I like to celebrate office milestones through experience-driven events and outings. For example, when we close on new projects, we may go out together for dinner to share the success. I always make a toast and go around letting everyone know specifically how they helped the project come to fruition. I try and use as many details as possible and personalize why I am grateful for their efforts, contribution and leadership.

It brings the team together.

ACCOUNTING FIRM

START WITH THE BOARD Jen Leary, CEO CliftonLarsonAllen, Minneapolis All of our board meetings start with 20 to 30 minutes of sharing what we are grateful for and of positive experiences recently shared at CLA. Our board chair, Scott Dietzen, introduced this concept to us, and it’s been one of the most impactful contributors in building closeness.

With employees, we’re doing some specific things to communicate deep, genuine gratitude. June was CLA Family Appreciation Month, where teams celebrated in ways they felt would be most impactful, across all 120 of our locations. Some hosted community-service events, breakfast events or happy hours. Many shared stories about employee impact. Others hosted gratitude meetings with clients. And the ideas keep flowing.

On July 2, we had CLA Family Appreciation Day. It’s always good to take a vacation day, but it’s even more powerful when you know others are taking time away as well. We all slowed down a bit. Not to mention that it helped us get right into a nice, long Fourth of July holiday weekend.

Personally, I carry gift cards when I travel and write short notes to people when I can. I’ve always loved doing that because I’ve been on the other side of such a gesture and know how special it feels.

HEALTHCARE PROVIDER

FORGET THE GIMMICKS Mike Baker, CEO Heritage Health, Coeur d'Alene, Idaho We send personalized thank you cards to the homes of team members. It is fun to see these come back to work and be hung at workstations. We utilize our internal website for a “Kudos” section where everyone can thank or recognize another team member for being amazing.

We highlight employees of the month, which we share in our newsletter, with our board and on social media. We do a summer and winter party, and all supervisors are empowered to share bonus bucks with people they would like to recognize.

But when people feel supported and loved in the workplace, you don’t need gimmicks to enhance performance.

Expressions of gratitude must be genuine. There is nothing worse than fake gratitude. Teams can spot that easily—and it demotivates people every time. Sometimes, an expression of gratitude gets lost in the messaging or the logistics of getting it out to folks. When this happens, we regroup and do it differently the next time.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 31

THE RECOGNITION CULTURE IN ACTION: ESPN AND NASA “I worked with ESPN,” says recognition expert Dr. Bob Nelson. “They said, ‘Whenever we start a meeting, we always list five things that are going well. Even if we’re busy, we always do that first. We don’t skip that step because it reminds us of what we’re able to achieve working together.”

When Nelson worked with NASA’s Johnson Space Center, it was ranked as the best place to work in all of the U.S. federal government.

They paid similar attention to developing a recognition culture. Whenever they would have a meeting of managers, they’d save 10 minutes at the end to go around the room and ask everyone to share one thing they’d done to recognize someone since they had last been together.

“You could just see the pride and the energy rise from the group,” says Nelson. “What else I noticed is that inevitably someone would say, ‘That’s a great one, Fred. I’m going to try that.’ And they’d jot it down. They’d take notes on each other’s ideas and in so doing, they became a self-learning organization where they got better and better at this key attribute they knew was important. They didn’t get too busy to do it. They got stronger at doing it.”

IOT TECHNOLOGY PROVIDER

MAKE KUDOS ‘KORE’ Romil Bahl, CEO Kore Wireless, Alpharetta, Georgia I’ve worked closely with our CHRO to develop and roll out formal approaches we call Kore Salutes and Kore Kudos.

Salutes enable peers to celebrate and recognize their peers. Any IoT-er can nominate anyone in seven categories: “Consider It Done,” “Customer Whisperer,” “GEM (Going the Extra Mile),” “Constant Contributor,” “Continuous Improvement,” the “All-Star Team” and the “Spotlight Award.” The executive leadership team decides who the winners are from the nominees, so people at all levels are getting exposure in front of the company’s top leaders every quarter.

Kore Kudos allow leaders and people managers to nominate employees from their teams for an award based on performance. We celebrate these at our quarterly global all-hands meetings. Sometimes I’ll pick up the phone and call an IoTer who has done an outstanding job, thank them and delve into a conversation with them that helps me to get to know them as a person better than before. Or I’ll write a personal email to a new customer and thank them for selecting Kore.

Recently, I extended a surprise invitation for dinner to one of the vice presidents on our team to personally celebrate the fact that he had taken on more responsibilities as the company heads toward its public listing. He had been working long hours, on weekends and on vacations, all the while helping others throughout the company. I was not only grateful for his dedication but also his brilliant problem-solving skillset, his humility and his focus on doing the right things to help the company grow.

DIVERSIFIED MANUFACTURER

START WITH A VISION Bob Chapman, Chairman and CEO, Barry-Wehmiller, St. Louis Our vision is to measure success by the way we touch the lives of people. Letting people know they matter, showing gratitude for who they are and what they do, is a very natural extension of that vision.

And it applies not just to our team members but also to their families, our customers, suppliers and the people in the communities in which we work and live.

The core principles we teach in our internal university—empathetic listening, recognition and celebration, and adopting a service mindset—have helped create a culture where expressing care and gratitude are the norm rather than the exception. In our organization, gratitude is shown in many ways, from face-to-face conversations, letters written to a team member’s spouse or parents about the great work they did on a project or large-scale celebrations during which we recognize team members for embodying the tenets of our culture. It happens regularly and routinely, and that’s because we’ve created an environment where people feel safe to express their emotions and appreciation. CE

32 / CHIEFEXECUTIVE.NET / SUMMER 2021

Your Goals.

Achieved.

What could your organization accomplish if you could peer into the future?

Profit from the experience of your industry-specific CEO peers.

Peer into the future and spot new opportunities.

Maximize your effectiveness in minimal time.

Chief Executive Network (CEN) allows you to profit—personally and professionally—from peer CEOs in your industry who have first-hand experience with the challenges and opportunities you face and are committed to your success.

As the CEO, you are uniquely responsible for synthesizing technology, customer, competitor, societal and economic trends. CEN provides peer and expert perspectives that can help drive your organization’s future.

In just a few days a year, you will identify and concentrate on those initiatives that can have the greatest impact.

Are you ready to take your business to the next level?

Each peer group meets in person and online several times per year—and members also have access to world class conferences, a network of over 500 members as well as personal coaches and subject matter experts.

Call Rob Grabill at (201) 323-3716 or visit ChiefExecutiveNetwork.com

This enables our busy members to tap the collective experiences and knowledge of the network to make better decisions, faster, and to avoid costly mistakes.

Find out more today.

C O RP O R ATE C OMPETI TOR S

34 / CHIEFEXECUTIVE.NET / SUMMER 2021

‘THE VALUE OF WILLPOWER’ When it comes to leading disruption in one of the world’s most creative, competitive industries, Walt Disney Company CEO Bob Chapek says he’s still driven by the values and techniques he developed as a long-distance runner in high school.

“Never underestimate the power of one person’s will to get something done.”

INTERVIEW BY DON YAEGER

W

HAT DO MOST Fortune 500 executives have in common? They learned important lessons on the fields and courts of their high school and collegiate sports teams.

In partnership with Chief Executive, former Sports Illustrated editor Don Yaeger hosts our weekly Corporate Competitor podcast, diving into the convergence of sports, business and leadership.

A recent episode featured Bob Chapek, CEO of the Walt Disney Company. Before becoming the seventh CEO in Disney’s nearly 100-year history, Chapek served as chairman of Disney Parks, Experiences and Products. During his tenure, Disney Parks saw the largest investment and expansion in its 60-year history, including the successful opening of Shanghai Disney Resort and the near doubling of the Disney Cruise Line fleet.

Now, as he grapples with the digitization of his industry, powerful new competitors like Netflix and Apple and growing the most storied suite of entertainment

brands—from Star Wars to Pixar to ESPN—ever assembled under one roof, Chapek says he leans into his training as a distance runner in high school. That’s where he learned the essential values of preparation, hard work and, above all else, grit. What follows are excerpts from the conversation, edited for length and clarity. (You can listen to the full episode at ChiefExecutive.net/how-to-prepare-likethe-ceo-of-disney.)

You grew up in industrialized Hammond, Indiana, both of your parents worked, and you were responsible each afternoon for getting both schoolwork and chores done, but you still loved sports. How did athletics play a role in young Bob?

I ran track and cross-country in high school. And this was not an idyllic meadow that I was running from. I was going from under the smokestacks of the steel mill to under the smokestacks of an oil refinery, past the soap plant that was belching out stuff that I’m sure they’re not allowed to belch out these days. And to some extent, I think it was really symbolic of my whole life. It was about perseverance.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 35

Where I grew up, not everybody went to college. It was all about metal shop, wood shop, machine shop and getting a job upon graduation and going to work for the union at one of those factories.

But I sort of persevered and wanted more. I wasn’t the greatest runner in the world, but I did what I could. And every time I wanted to stop because I was tired, I kept going, and that did become a bit of a metaphor for me trying to run to some place that I’d feel more comfortable and my trying to break the cycle and be one of the few kids who went on to college and did something different and found something else in the world.

Do you have a lesson that you remember from one of those teams you were on, even in this individual sport, that maybe has impacted you over time?

Well, it’s sort of endemic to any team sport.

You’re not turning a double play. It’s not that kind of coordinated teamwork, but it’s support because after all, someone gets the trophy at the end of the meet, and it’s who’s got the most team points. Everybody was supportive of each other even though you’re not three guys turning a double play.

I found that to be as important as the coordination of a double play. Because for every mile you log in a meet, you’re logging 50 miles in training, right? Especially there in the winter, you know, we didn’t have an indoor track, so if there’s a foot of snow, you ran every day. It didn’t make any difference.

You ran every day. It takes some support to log your eighth mile in a foot of snow.

I do overprepare for everything. It gives me more confidence going into it, but it’s also just part of who I am.”

When you were out there running, was there something about what it took for you to not stop in that fifth mile and that internal power, that internal drive that you would use as you would progress in life?

36 / CHIEFEXECUTIVE.NET / SUMMER 2021

One of the greatest strengths in the world is willpower, individual human willpower.

I got a taste of it in those situations, you know, when you’re running for the finish line and there’s someone right next to you and you’re trying to cross first. But it really is, I believe, the greatest power in the world. I’ve seen it through my friends battling illnesses. I’ve seen it through my own family battling challenges. I’ve seen it in my own career. I’ve seen it everywhere, in countless places. Never underestimate the power of one person’s will to get something done.

My first job after grad school was with J. Walter Thompson in their Chicago office.

They were an ad agency, and they put all the new hires in a cubicle bullpen, essentially, without the walls. So I guess it wasn’t even a cube, it was just a bunch of desks.

It was a place where you would either rise up or you would wash out. That was the first time I realized that not everybody starts at the same starting line but through perseverance, hard work, determination, dedication, willpower, you can even things up pretty quickly.

You’ve said, “Luck is what happens when preparation meets opportunity.

To this day, I overprepare for pretty much everything.” You create your own luck by doing the hard work.

I do overprepare for everything. It gives me more confidence going into it, but it’s also just part of who I am.

Can you share an example?

I had a habit that I used to do anytime I had to go from a teleprompter, where even though I had a teleprompter in front of me, I had a copy of my speech folded vertically in half in my jacket pocket, just in case the teleprompter would go out. I did this for decades and never ever needed it, but I kept doing it. I still do it.

As luck would have it, I was in a very large room doing a presentation. As the speakers changed, my speech popped up and then it disappeared. I’m standing in front of 1,000 people and all I’ve got is whatever’s baked into my brain. So I very

calmly dip into my jacket pocket, unfold my speech, and just gave it a little differently than I would have had there been a prompter. It was the preparation to have that speech ready to go just in case, backup plan.

To this day, I prepare for third-derivative questions.

In other words, say you prepare for a board meeting.

There’s the first question, how’s XYZ doing in China? A follow-up question goes one level deeper and then a follow-up question that goes another level deeper, I call it the third derivative, taking someone’s calculus.

The third-derivative question, that’s the level—I’m only satisfied when I’m prepared to that extent.

cy, I think, of mine. Not disruption for disruption’s sake, but always thinking what’s next. Like it’s been said, skate to where the puck’s gonna be.

How do you develop that as a core competency, especially when you’re

Do teammates ask you those questions,

in such a massive organization, where

or are you just breaking them down and

sometimes it’s got to feel like steering

asking them yourself?

the Titanic?

I have, as you might suspect, plenty of support from people who make me look good.

But what happens is I have a process I go through one week before whatever event I’m preparing for that I call “pencils down,” then I just internalize. I stop reaching out, I stop diverging, and I started converging. I start doing my third derivatives. Five questions in. I’ll go and make an ad hoc call to find out the answer to my question.

I use a very social process in the weeks leading up to the event, but then the last week is very internal with me just playing devil’s advocate, what would I ask myself?

That’s how I’ve been doing it for years.

Yeah. It’s curiosity. It’s about curiosity. You know, there’s this whole thing with cryptocurrency, NFTs and blockchain. I’m not gonna kid anybody to say I’m an expert in that. But if you have the curiosity to ask the questions, then you become fluent, at least more fluent in it, and you start the cycle that you catalyze that quest for awareness and knowledge. Then you do the next step, which is assimilation, which is where you see what’s possible and then you apply that with vision in terms of where you think you wanna go.

All of a sudden, curiosity turns into vision. If you don’t know what’s possible, how could you know where you wanna go? So it would be real easy if everything furrows in the world and all you had to deal with is the here and now, but that’s not the case, right?

Everything changes, changes real fast, particularly now. It’s really about that curiosity to vision cycle that I think is our job.

How do you train yourself to embrace new, cutting-edge things?

I call it being on the front end of the wave, not on the back of the wave. In order to succeed in a very rapidly changing world, you have to be a disruptor. You can’t wait for something to happen to you and be the victim of change. You’re best prepared for it if you’re on the front end of that wave and you are creating the change. Disruption is a core competen-

Don’t stop: Chapek, top right, credits cross-country running for instilling him with a lasting perseverance.

“Every time I wanted to stop because I was tired, I kept going... it became a bit of a metaphor for me.”

One of the things you are looking for in people around you is to keep you curious.

It’s a real enabler to stay current. I mean, it’s real easy for folks who have have been

CHIEFEXECUTIVE.NET / SUMMER 2021 / 37

doing this as long as I’ve been doing it to assume that, “Well, okay, I’m not gonna go through the extra effort to figure out what XYZ is.” It’s easy because you can save a third of your time, but you start dating yourself immediately once you do that. I’m not ready to do that yet.

It’s one thing to connect 20 members of an athletic team, another to do it with 175,000. How do you connect 175,000 people?

I always say there’s only two things you do as a leader, you pick the hill you wanna take, what’s that vision, what’s my goal, and then you lead a whole bunch of people up that hill with you. Those are the only two things we do. At its core it’s very simple, if you distill it down.

In big organizations, the toughest thing is what we like to refer to as the frozen middle.

In other words, it’s easy to promote change or cause disruption, create transformation amongst your direct reports. Then the question is how you create ambassadors out of them. So eventually, within a short period of time, you’ve got a complete transformation throughout the entire company. That middle is where it’s really tough because you’ve got people who are invested in “the old way of doing things” and you’ve got to get them thinking differently, but they feel they’ve already got an investment in the way it was.

The middle of the organization is generally always the toughest. So you’ve got to get into the organization, you’ve got to create ambassadors out of all of your directs and all of your support teams, the corporate functions, so that you’re not the only person trying to push this.

Everything you do, you have to repeat it, repeat it, repeat it, repeat it, and then act in accordance.”

We talked about curiosity earlier. Are there other aspects of how you keep

38 / CHIEFEXECUTIVE.NET / SUMMER 2021

the imagination required to lead a place as fantastic as Disney?

Well, there are certain qualities that we look for, and the most important one is integrity. But I also celebrate diversity, diversity of thought, diversity of everything. Because if you’ve got 12 people in a room and they all think the same, you may come to an expedient decision, but you will not necessarily come to the best decision. And in a creative endeavor like we have at Disney, oftentimes that diversity sort of sets itself up as, “I’m a business person” vs. “I’m a creative person,” but everything that we do sort of involves the mixture of the two things. It’s not necessarily fine art, it’s commercial art.

So the two blend together.

At the same time, if somebody spends five years animating a movie or creating a movie, they’re pretty invested in that. That teamwork, that ability for the folks who tend to be predominantly left-brained or right-brained or whatever, to work together—that’s always been important, but it’s more important now than ever.

What are the ways you go about finding and making sure that you’re bringing in someone who shares an experience different from yours?

To be that effective leader, you can’t just make a statement that we want to celebrate diversity and end there. So one of the very first things I did in this role was establish our six pillars of diversity, things like representation, transparency, things like accountability, community, different factors that we would use to help define our dimensions of this. And now you’re gonna give people something really tangible.

You give them a way to talk about it, you give them a specific goal, and then you can measure that goal. So it’s really important to sort of define it beyond just a visionary statement, but not go so far that you cut off the creativity.

There’s a term I like to use—strategically consistent and tactically divergent. Everybody should be strategically consistent, but diversity in India might look a lot different than diversity in Chicago or a business initiative

may look different. But everyone needs to know that direct-to-consumer is an important initiative for the Walt Disney Company.

What have you learned about storytelling during your years at Disney?

The most important thing we do at Disney is tell stories, but there are good stories and better stories. And the key is to take what’s a good story and make it a better story. To some extent, that’s letting creative people do what they’re best at, and then gently shaping it to make sure that, from a variety of standpoints, it achieves your commercial goal.

So, you’ve got to give lots of degrees of freedom to the people who are the experts at this and not get in the way of their expression. But at the same time, understand that this is something that needs to work commercially for our shareholders. And you have to make a connection with people.

Oftentimes, that connection is done through music, sometimes it’s done through character, but it really is always done through a story. It is about personal connection. When you make a personal connection, it’s about the network of individual connections that then creates like a matrix with other people in their family unit. Take Frozen, look what something like a song “Let It Go” did. It created a fabric, a matrix, throughout the world of a unified experience, a unified idea, permanently burned into the zeitgeist.

What elements do you believe allow a collection of people to gel and become a team?

Shared values. And this starts in the recruiting process. You have to have shared values. As a matter of fact, sometimes the toughest hires you do to fill a role, it’s people from outside the company, particularly the more senior they are, because they haven’t necessarily grown up with the same shared values if they come from a different company. There’s a direct correlation between the long-term success of somebody with how long they practice their art and function outside the company, because it’s a strong

culture and we have a lot of shared values.

I don’t know what the average is, but we have many, many, many people with 20, 25, 30, 35 years at the company.

So, we’ve got shared experiences and shared values. That is the essence of what a culture is, that frankly is going to way outdate me. This company is way bigger than me, and I inherited those cultural values from the people who came before me, Bob Iger, Michael Eisner, who all created this entity that is going to outsurvive all of us.

We’ve got to be specific about what it is, again, that you’re trying to build and define.

I usually try to keep things to six or fewer items because after that the rope becomes too frayed. Everything you do, you have to repeat it, repeat it, repeat it, repeat it, and then act in accordance with it because it will come off as disingenuous if you say it but you don’t do it. You could talk about accountability all you want, but if it comes time for you to be accountable for something and you do some pointing of the fingers in both directions, then you’re not practicing what you preach.

Is there a habit that you’ve built into your daily routine that you think is elemental to who Bob Chapek is?

I don’t think there’s a habit, but there’s a value, and it’s the value of willpower. I don’t have a secret that I wake up early or I do X, Y, Z before I go to bed. It’s not that.

It’s about a value. It’s about something to me that’s much deeper, that perseverance, that willpower, that never say no.

There’s been a bazillion things in my career, in my Disney career, where it could have been very easy to throw in the towel.

And, by the way, I’m not saying that you chase things that you believe in that obviously aren’t ready for prime time.

There are millions of things I’ve tried to do that have been before their time.

Even with a good idea and vision, you could be before your time and have something fail, even though you know 20 years from now it’ll work. But when you know something’s important, have a dogged determination to get ’er done. CE

Former Sports Illustrated editor Don Yaeger is an 11time New York Times bestselling author. He hosts the Corporate Competitor podcast in partnership with Chief Executive.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 39

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

Innovating Through Disruption More than ever, companies are beset by challenges–and surrounded by opportunities. To thrive, companies are going to have to do (even) more with (even) less. In our experience, innovating successfully depends on rapidly determining where to innovate, what solution to focus on, and how to build.

BY RICHARD HALKETT, WORLDWIDE LEAD, DIGITAL INNOVATION AT AMAZON WEB SERVICES

CRISES DRAW US BACK TO WHERE WE ARE COMFORTABLE. Through the recent global crisis, many companies focused on preserving capital and hurrying to protect their core business. At times like these, adjustments can be modest; change is more incremental and plans for broader innovation can be cast aside. But the innovation imperative continues, and those who innovate now will thrive in the recovery.

First, let’s take a trip down recent memory lane. During the 2007-2008 global financial crisis, when many were concerned about the future of the travel and hospitality industry, innovations in business models, customer engagement, and technology emerged to create the marketplace we have today. Airbnb launched in August 2008, Uber in March 2009, followed

by Square later that year. By 2010, we were able to use our third-generation iPhones to conduct business that was not even possible when the first model was launched three years earlier.

But these companies were startups with little at stake and everything to gain. What is an established company to do? According to a Harvard Business Review article titled “Roaring Out of Recession,” only 9% of established companies emerged stronger after the Great Recession while 17% went bankrupt, and the rest performed roughly the same as pre-recession. So what did that 9% do differently? They ‘reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets.’

Through the ongoing pandemic, companies are beset by challenges–and surrounded by opportunities, too.

To thrive, companies are going to have to do (even) more with (even) less. Amazon’s approach to innovation is one way of tackling the challenge. Our customers often ask us how Amazon innovates, and it’s possible that our approach may contain elements helpful to others. In our experience, innovating successfully depends on rapidly determining where to innovate, what solution to focus on, and how to build.

To determine where to innovate–the ‘innovation space’–it is vital to rapidly differentiate between one-way and two-way doors. One-way doors are those decisions that are hard to undo–those impacting life and health, major capital investments, or decisions that could damage customer trust. Even during times of crisis, those decisions should be carefully thought through. By contrast, two-way door decisions are easy to undo and offer great potential for learning–more so by taking action than by further analysis. We encourage leaders to walk through the two-way door and see what may be on the other side. Put more bluntly, if your team is motivated to experiment,

36 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

CE

the cost is low and there is the chance to learn– why not give it a try?

When you have determined where you’re going to innovate, investing in the right innovations is more important than ever. Moving fast can also mean moving further in the wrong direction if you make an early error. At Amazon, we focus relentlessly on our end customer to guide our innovation. In his 2016 letter to shareholders, Amazon founder and CEO Jeff Bezos said, “Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”

So–very practically–we ask ourselves some searching questions. First, who is the customer?

Not a segment of people or a generic persona that could be anyone’s customer, but who is our customer? Next, what is their most pressing problem or opportunity? Again, we try to be very specific. Given the already-massive challenge of innovating successfully, our chances of solving two or more problems at once is vanishingly small. We choose one and focus on it. At this point we have not–yet– even thought about a solution. We are just understanding, empathizing, considering.

Then, given this customer with that problem or opportunity, how can we delight them? We enter a process of iteration. We sketch out a solution and–again being specific–describe what the main benefit or opportunity would be to this customer. Have we delighted them?

Perhaps not. Does that mean the solution is not yet right? Probably. Or perhaps we have learned something new about by looking at them and their problem in this way and need to go back to the previous step.

As we think deeply and iterate, we should end up with a customer, a problem, and a solution.

At Amazon, the next step in our process is to produce a document. First, we write a press release as if the product or service has been launched. This helps frame the issue at hand.

We focus on the customer’s need and how we believe this solution will delight them, and not how it keeps us competitive or drives profit.

We are careful not to use industry jargon as

everyone should be able to understand it. The one-page press release is accompanied by ‘Frequently Asked Questions’ (FAQ), where we list all of the questions a customer or internal stakeholder may have–and then answer them one by one. This sharpens the idea, and saves time because a single document should answer most questions a reader may have. We then add visuals which brings the solution to life showing the desired customer experience and workflow.

This document is the PR-FAQ, and underpins every innovation at Amazon. It guides our experimentation–which is what comes next.

To experiment quickly you need to defray the costs of innovation. This means making experimentation fast and easy by using tools, automation, and agile development to rapidly build, validate, test, scale, or abandon experiments. It helps a lot when you use cloud services where you pay only for what you use rather than capacity that sits idle. And it also means that once you have a winner, you can scale securely and reliably to all your customers at once–without complicated and costly roll-out plans. With these in place, only one’s pride is at stake when an experiment does not work out. But you can embrace the rich lessons obtained at low cost and apply those lessons as you move on to the next project.

There is no surefire way to innovate, but you can improve your chances of success. As Jeff Bezos said in his 2015 letter to shareholders, “Given a 10 percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of 10.” However, taking those bets is crucial because, “Big winners pay for so many experiments.” Looking at the world right now, there has never been a time when this is truer.

For more insights and strategies, visit AWS Executive Insights online.

RICHARD HALKETT Worldwide Director, Digital Innovation at AWS

TOOLB OX

FUTURE NUMBERS To see around corners, CEOs are getting creative with KPIs— and looking beyond the usual measures of success.

BY RUSS BANHAM

J

im Eickhoff was blindsided by Covid. The chief executive of Creative Dining, a privately held provider of cafeteria-style food management services to large businesses, universities, hospitals and senior citizen centers, with approximately $100 million in annual revenues, he saw his business almost totally evaporate overnight in April 2020.

Cafeterias at universities, colleges and corporate facilities shut down by the thousands, as students transitioned to distance learning, and employees to remote work.

Creative Dining’s 2,000-strong full-time workforce across 14 states dwindled to about 400 employees, the remaining workers serving up food at hospitals and senior citizen centers. As for the other 1,600, they were furloughed for an undetermined period.

Now, as he looks to plot a course forward, the kinds of traditional metrics he’s monitored can’t tell him much about where he’s going—or how to get there. “The classic financial indicators like revenue and profit trends didn’t tell us much of anything last

42 / CHIEFEXECUTIVE.NET / SUMMER 2021

year, other than things were not good, not good at all,” he says.

And so, like a lot of CEOs reading the tea leaves for the remainder of 2021 and beyond, Eickhoff is breaking from the traditional financial metrics he relies on to comprehend business opportunities and risks. As a result, this year may prove to be a turning point in the decade-long rise of nontraditional “soft” ways of evaluating performance.

“Our client CEOs are grappling with trying to sense the extraordinary shifts that are underway, to know if the choices they’re making or not making are appropriate for the circumstances,” says Lara Abrash, chair and CEO of Big Four audit firm Deloitte & Touche. “The KPIs they typically rely on to sense these shifts don’t always tell the whole story.”

Traditional KPIs are lagging indicators that may come in too late to make a needed pivot, says Abrash. “To sense trends in the behaviors of employees and customers, you need leading indicators.”

For Eickhoff, that means calculating the percentage of non-working managers and employees attending an ongoing series of bimonthly and monthly virtual gatherings.

“The classic financial indicators like revenue and profit trends didn’t tell us much of anything last year.”

— Jim Eickhoff, CEO, Creative Dining

He came up with the idea for the conferences to openly discuss Creative Dining’s future business conditions and employees’ personal lives. Why was the number of people at a videoconference an important performance indicator? Because it suggested how likely the company would retain workers to serve its customers’ needs when they reopened their dining facilities. In other words, Eickhoff didn’t want to competitively be at the wrong end of an employee-retention debacle.

“Close employee relations are crucial to us, especially as we journey through continuing economic uncertainties,” he said.

Tale of the Tape While the use of softer non-financial metrics to evaluate the success of a CEO’s strategy is nothing new, prolonged business uncertain-

ty has resulted in the development of highly creative and even singular performance metrics, several falling into the category of key performance indicators.

As Jim Clifton, longtime chairman and CEO of global polling and consulting firm Gallup, puts it, “We need to measure something different.”

The “something different” that Clifton is measuring is employees’ anonymous opinions about Gallup’s managers, given the new flexible and hybrid ways of working, and concerns over employees’ mental health and well-being in transitioning to these models.

“Employee stress is through the roof, with many people experiencing symptoms of burnout and depression,” he says.

Clifton directed a redesign of the firm’s traditional engagement survey to include a

CHIEFEXECUTIVE.NET / SUMMER 2021 / 43

consider to be optimal work conditions in the future.

“It’s just a much more The data is deconstructed agile way to understand across client sectors, geogwhat employees need raphies and generational demographics. “It’s just a to efficiently and much more agile way to productively perform.” understand what employees need to efficiently and — Lara Abrash, Chair & CEO, productively perform their Deloitte & Touche jobs going forward, and what they’re not getting in these regards,” she says.

“The metric informs us on the choices we need to make.”

series of new questions about managers. The new survey questions were blunt. To paraphrase: Does your manager care about your well-being? Do they treat you with respect?

Are they helpful when you express a problem? Does the manager listen? The response data was turned into a metric that Clifton uses to make workforce decisions. “One thing we’re doing is changing the function of our managers from administrative supervisors to coaches,” he says.

Based on the manager-related responses in the revised engagement survey, Gallup managers are now advised to ask questions about an employee’s mental health and wellbeing. “If someone is feeling subpar, it’s the manager’s job to find someone else on the team to pitch in,” he says.

Abrash has a similar perspective. Like Clifton, she is entrusted to manage the future of work at Deloitte & Touche. “We see our employees are our key stakeholders, as do an increasing number of our clients,” she says. “We need to ensure the work our people do is productively aligned with clients’ performance expectations. To do this, we have to ensure our values and the workforce culture are aligned.”

Abrash recently launched a series of pulse surveys that elicit from employees what they

44 / CHIEFEXECUTIVE.NET / SUMMER 2021

What’s Next?

The drive for forward-looking metrics is hardly limited to HR. At Myplanet, a 12-year-old provider of customer experience software with revenues in the $50 million range and a client list that includes Google, Salesforce and Sun Life, “we need to reinvent the company to maintain consistent growth,” says Jason Cottrell, Myplanet founder and CEO. In early 2020, Myplanet ditched its former product-centric sales methodology to compete against new rivals on a softwareas-a-service (SaaS) basis, deriving recurring revenues from annual subscriptions. While the shift helped lock in key customer relationships, Cottrell sensed the sudden market saturation posed a shake-out ahead. “We needed a way to stay ahead of this development,” he says.

The solution was the creation of a metric comparing the number of completed tech deployments by competitors with Myplanet’s own completed deployments. “The metric helps me define which competitors are winning and have the most credibility [in the marketplace],” Cottrell says. “I now have information to respond to our market pressures.”

Getting there wasn’t easy. He decided to track his competitors’ press releases and media coverage, augmenting this data with information from the company’s channel partners and the MACH Alliance, a recently formed industry group. “We triangulated the different data elements into a metric we’re

using to distinguish our specialties from our competitors’ use cases,” he says.

As a result, Cottrell made the decision to focus on customer segments with a partial direct-to-consumer sales strategy, where he felt competitors were vulnerable. At the same time, he is actively deprioritizing marketing efforts aimed at companies with a purely business-to-business sales methodology. “We now have a roadmap with a new marketing narrative aimed at fewer customer segments where we strongly believe we can deepen the relationship, rather than our previous strategy of spreading ourselves thin,” he says.

is able to discern which segments offer the best opportunity to reposition the company’s capital and marketing resources. “The only way to prevail and thrive is to grow revenues from our existing customers but with money tight, I needed to know which ones offer the most promise and which ones don’t,” he says.

The decision is working to OpsVeda’s benefit, as these businesses continue to shift a large number of employees to remote work.

“Suddenly, there is a need for real-time information provided by digital software,” Gupta says. “And we’ve got it. What began as an existential risk for us has turned into an opportunity.”

Beyond ARR OpsVeda is confronting a different dilemma: Know Thy Customer Data continued survival. The 10-year-old provider Scott Settersten, CFO of Ulta Beauty, sees simiof operational intelligence software optimiz- lar opportunity in his data. The cosmetics, fraing supply chains has endured a substantial grances and skin care products retailer closed slowdown in new business. “We experienced more than 1,250 stores in March 2020. All the vanishing prospects,” says Sanjiv Gupta, brick-and-mortar stores have since reopened, CEO of OpsVeda, which tallies about $5 and Settersten is presently tracking the return million in annual revenue.

As new business continues to evaporate, Gupta is building out the number of SaaS services OpsVeda provides existing customers, a dozen or so large enterprise businesses with annual revenues in the $500 million range. To determine which customers are most likely to be interested in expanding their current offerings, the CEO is diving deeper than ever into a common SaaS metric: annual recurring revenue.

As you know, ARR is based on the amount of recurring revenue from different subscription components, normalized to a one-year period. For example, if a customer signs a 30-month subscription for a single service at $30,000 ($1,000 “We triangulated the per month), the annual different data elements ARR would be $12,000. into a metric we’re If the customer adds more services, the ARR using to distinguish our increases; if it abandons specialties.” a service at renewal, the ARR decreases. By — Jason Cottrell, CEO, analyzing subtle shifts in Myplanet each segment’s monthto-month ARR, Gupta

CHIEFEXECUTIVE.NET / SUMMER 2021 / 45

MEASURE TWICE, CUT ONCE THERE ARE NO hard and fast rules when it comes to developing a metric providing insight into business performance and the continuing efficacy of the strategic plan. At some companies, one metric can be revised into a new metric that tells a more thorough story of prospects ahead.

This was the case at online and mobile bank Upgrade. Since its U.S. launch in 2017, Upgrade has delivered more than $5 billion in consumer credit, boosting its valuation to more than $1 billion to become a so-called “unicorn.” Then, in March 2020, the stock market crashed.

“It was a big day of reckoning for us and every other business that what we feared had now come true,” says Renaud Laplanche, Upgrade CEO. “Within a few days, more than 7 million people lost their jobs and unemployment rose from there. We became very worried about our customers’ ability to pay back their loans and the money owed on the credit cards we’d provided.”

At the time, Upgrade measured loan and credit delinquencies on a

Russ Banham is a Pulitzer-nominated financial journalist and bestselling author.

90-day and 30-day period, respectively. The longer periods were prudent since people “sometimes forget to pay their bills,” Laplanche says.

As the economic situation worsened, the metric lost its value as a risk measurement. “We decided for the first time to move to a short-term, 10-day delinquency metric, which would help us better determine why people were getting behind on their payments,” he says. “This way, we could figure out ways to potentially help them.”

Laplanche did just that, unveiling Uprade’s first-ever customer hardship program. “If a customer lost his or her job for Covid-related reasons, we allowed them to postpone payments for three months without any penalties. We then extended it another three months,” he says. “We didn’t want to push people to default. Frankly, we wanted to help them through to the other side. Looking back, it was the right thing to do, as the situation improved faster than we expected.”

He chalked up the turnaround to a combination of government unemployment benefits and federal stimulus legislation, in addition to the bank’s primary customer demographic—white-collar workers earning about $100,000, on average. “We watched that 10-day delinquency rate metric each and every day, and as quickly as it went up it started to go down,” he says. “Had we not measured it, we’d be operating in the dark.”

rate of customers to determine omnichannel spend considerations.

“Our digital platform handling e-commerce, direct home deliveries and curbside and store pickup certainly helped offset the weakness in our store fleet,” he says. “But as an omnichannel retailer, we wanted to track the number of return shoppers to understand how everything is counterbalancing.”

In addition to tracking and comparing the sales metrics in each of Ulta Beauty’s shopping channels, Settersten is assessing how customers are engaging with its stores through the lens of its highly successful loyalty program, Ultamate Rewards, which tallies more than 32 million members. “As we open new stores in 2021, we’re monitoring metrics on both new and reactivated loyalty members to see how frequently they are going to our physical stores and comparing the data against their other omnichannel shopping patterns,” he says.

46 / CHIEFEXECUTIVE.NET / SUMMER 2021

Mike Speetzen, CEO at Polaris, the publicly traded manufacturer of motorcycles, snowmobiles, boats and ATVs, also wants to get a better understanding of customer sales trends. The company has long relied on Net Promoter Score to calculate the inclinations of buyers to recommend its products.

“During the pandemic, we were watching NPS intently, as we were concerned about late deliveries impacting customer satisfaction and loyalty,” he says. To get in front of the issue, Speetzen tracked an on-time supplier delivery KPI. “When it looked like a delivery was going to come in later than planned, we told the supplier to send the product to our distribution centers or dealer outlets for immediate installation, instead of to the plant, to reduce overall transportation times,” Speetzen says.

“By combining the NPS and on-time delivery metrics, we were able to preempt possible customer impacts.” And keep them happy. CE

CANCER DOESN’T STOP. NEITHER DO WE. FOR ONE NIGHT. WE STAND TOGETHER.

SATURDAY 8/21 8 ET/7 CENTRAL

American Lung Association’s LUNG FORCE, Amgen, Cless Family Foundation, Fanconi Anemia Research Fund, Farrah Fawcett Foundation, Jazz Pharmaceuticals, Laura Ziskin Family Trust, Legacy Circle, LUNGevity Foundation, Mirati Therapeutics, Pancreatic Cancer Canada, Sara Schottenstein Foundation, Society for Immunotherapy of Cancer, Lew, Jean, and Kari Wolff Stand Up To Cancer is a division of the Entertainment Industry Foundation (EIF), a 501(c)(3) charitable organization.

C EO M & A SU MMI T

THE NEW DEAL

FOR DEALS

A surge in manufacturing M&A activity is underway. Business leaders shared perspectives at Chief Executive’s Dealmakers Forum 2021. Some takeaways.

BY DALE BUSS THE APPETITE FOR MERGERS AND acquisitions on both sides of the manufacturing business is immense these days.

It’s fueled by pent-up demand from the Covid pause, the robust post-pandemic U.S. economy, the continued availability of ample and cheap capital, the rethinking of supply chains, the imperative for digital transformation, the fast-rising ESG agenda and the arrival of thousands more business owners every year to the portals of retirement.

So, when Chief Executive hosted Manufacturing M&A: Dealmakers Forum 2021 recently, we found an engaged group of mid-mar“We’re bullish on this being a ket manufacturing owners strong M&A year.” and executives who were —Dena Jalbert, Founder and CEO, eager for inspiration and Align Business Advisory Services guidance about how to navigate this surprisingly fertile new era for selling and buying companies.

The value of global M&A activity dipped below $2 trillion in 2020, to about $1.7 trillion, for the first time in several years. But particularly for manufacturing, the second half of 2020 brought a rebound in activity.

“And we expect that to continue in 2021,” said Dena Jalbert, founder and CEO of Align Business Advisory Services, a con-

48 / CHIEFEXECUTIVE.NET / SUMMER 2021

sulting firm in Winter Park, Florida. “We’re bullish on this being a strong M&A year.” In particular, she said, volume has grown for “downstream” transactions in lower, mid-lower and mid-market segments whose share of deals has grown versus larger deals.

Shearman & Sterling’s George Casey concurred. “The M&A market now is up and running again,” said the global managing partner of the New York-based business law firm.

While coronavirus-related production halts and supply-chain disruptions basically ground manufacturing M&A to a halt a year ago, Jalbert added, a second-half rebound last year is continuing its climb in 2021.

A snap poll of Forum attendees ratified these prospects: fully 38 percent of them said they’re “ready to buy,” with an acquisition in their crosshairs at the moment, and a significant additional cohort responded that they’re “waiting and watching for now.” And the aim of 56 percent of attendees, answering another poll question, is to use M&A to enter new markets, geographies and customer groups; the second most popular reason is to cut costs, build economies of scale and enhance products suites to sell to existing customers. Nearly one-quarter of respondents were seeking to purchase access to a key technology.

Seizing Control Supply chains have burgeoned as a focus of M&A activity because so many companies

were disrupted last year. “We’re going to see a lot of investment there,” Jalbert said. “Folks want to take control of that and not be so dependent.” Similarly, she said, the pandemic proving ground accelerated the urgency of digital transformation. “There’s going to be a lot of investment in technology to make manufacturing more efficient,” Jalbert said.

Many CEOs are leaning into such bullish expectations, some with an eye toward the ultimate significance of today’s field of M&A dreams. “In moments like these when we’re facing true disruption, we get to ask the question: What value do we bring to the society in which we live and work?” said Barbara Humpton, president and CEO of Siemens USA, the Washington, D.C.-based American arm of the German industrial giant. “What role will we play?

“Will we do it ourselves, with an expanded company built out of mergers and acquisitions, or will we partner and create ecosystems? All of those tools are available to us today.”

Time to Move Jalbert described factors that combined to create the strongest manufacturing M&A market in some time. One on the demand side is the availability of capital, both cash and debt, to eager buyers, including strategic corporate acquirers, private-equity firms, special-purpose acquisition corporations and more. Interest rates are at an all-time low “and will be for the foreseeable future,” she said.

“Financial sponsors are sitting on trillions of dollars of capital that has been raised yet not deployed,” Jalbert noted. “And as shareholders expect renewed growth in 2021 after what was a down year for many companies, the fastest way to growth is through acquisition. It brings speed versus organic growth.”

A second deal driver on the demand side is that most PE firms remain anchored to a “buy-and-build” strategy of consolidating a number of acquisitions into a larger entity for better return on equity after the fact, rather than making one huge buy.

“The idea of being kind of the aircraft carrier and the speedboat,” she said. “Speed boats

are more flexible and nimble, and there’s more ocean to travel at a faster clip, whereas the big aircraft carrier [isn’t able to grow as fast or] get as much ocean because it moves slower.”

A major bullish factor for M&A activity on the supply side is that Covid was a litmus test for many operations, illuminating for CEOs that some didn’t or can’t perform and no longer fit. “Corporate divestitures are going to become a key trend in M&A, and organizations might divest non-core assets that [weren’t] benefiting them the way they thought they would,” Jalbert said.

So much competition from buyers awash in capital means that sellers can get strong valuations and demand cash. “When sellers are looking at term sheets and they have four or five of them that are 100 percent cash and one’s got an earn-out, you’re just not competitive if you’ve got an earn-out,” Jalbert said.

But mid-market buyers can help equalize the playing field significantly by how they leverage debt. “Many organizations want to partner with growth-minded [companies] and help fund” acquisitions, she said. “Traditionally, people think of going to their banker and getting a line of credit, but [there are] many different types of private lenders that have different types of facilities in terms of structures and ways of doing things.”

“Do not fall in love with the assets of the deal.”

—George Casey, Global Managing Partner, Shearman & Sterling

Doing the Deal Casey advised that negotiating a good deal begins with both sides understanding their own interests—and those of the other side. “The key to this is really listen more and talk less,” he said. “Very often we may project, and we may assume, that they want something that actually they are not focused on. They may [even] take less than what we are willing to give.”

To get to a win-win deal, he said, a side might have to “let them win some so that we can also win [the] points that are important to us.” A party may even “not start from the most extreme position” but instead “find a middle-of-the-fairway approach.” He explained, “Start where it would be good for you but at the same time where the other party will look and say, ‘You know what? This is

CHIEFEXECUTIVE.NET / SUMMER 2021 / 49

USING THE CEO’S VOICE Siemens grew its footprint and strategic position in the U.S. market by leveraging some important acquisitions and divestitures, positioning the 173-year-old company ideally for a new economy that emphasizes digital capabilities, adaptable human capital, sustainability and flexibility.

In 2007, Siemens acquired UGS, a Texas-based industrial software company, for $3.5 billion. “That provided the core that ultimately enabled us to bring manufacturers the ‘digital twin’ platform, Siemens’ capability to create a virtual simulation of an entire factory,” says Barbara Humpton, CEO of Siemens USA. “We’ve continued to leverage that foundation of software,” she said, adding that Siemens has invested about $40 billion over the past 15 years to expand on it.

“In the process, we’ve reinvented ourselves into the largest industrial software Barbara Humpton, company in the world, which President and really is what brings us today CEO, Siemens USA to where Siemens [supports] 90 percent of the Fortune 500 industrial companies,” she said.

Siemens acquired big properties in the oil-and-gas-infrastructure business while also divesting operations in health care—and then, last year, moving to divest its energy business including the petrochemical parts.

At the U.S. helm since 2018 after a seven-year rise at Siemens, Humpton advised the Forum on how she lends her voice to negotiations. Often, Siemens forms an M&A arc with a customer or a supplier organically, where the companies work together, teams get to know each other, and then say, “‘Hey, we’ve been selling together. What if we just made this a package?’” Humpton said. “’This is actually something that would be stronger as a single entity.’”

But the relationship may fray amid the reality of negotiating an actual deal, and that’s when a CEO should come in. “I like to use my voice to overcome what appears to be friction,” she said. “Sometimes you need that sort of different perspective that says, ‘Oh, folks, these are surmountable issues we’re dealing with.’ Or perhaps you come to a point where you say, ‘These are insurmountable issues.’ And that can be an outcome, too.”

50 / CHIEFEXECUTIVE.NET / SUMMER 2021

actually reasonable. I can work with this counterparty.’”

Other advice from Casey: Embrace auctions. Sellers may fool themselves into thinking they’ve got the upper hand because, after all, the asset in question is theirs. They may believe they can strike a quick deal, particularly with a familiar counterparty. But buyers can always delay or even walk away.

“Auctions are the seller’s best friend,” said Casey, explaining that auctions allow sellers “to really control the process and the timing, keep the competitive dynamic and [make] sure the deal gets done.” Plus, they minimize the time that the M&A process might take.

Buyers should ensure they’ve conducted complete due diligence so they don’t get tempted to overpay in an auction. If they really want the target, buyers should try a “preemptive” [offer] to pay “the fair price.

It will be a full price. And the seller may be willing to do that,” Casey said. “Being straightforward and honest with full integrity [can lead] to a great deal in that type of situation.”

Understand total value. It’s also critical to take a holistic approach to determining the value of the transaction and the risks, rather than focus only on the purchase price. Long-term supply agreements, for example, can actually have more value than the purchase price. On the obverse, a liability exposure “may actually derail the deal [or] bring the buyer to his knees after the deal is done.”

Also, Casey said, some buyers exploit this reality by taking a “salami-slicing” approach in which they agree on a purchase price and then “break the negotiation into pieces where, at the end of the day, [the buyers] actually come out from salami-slicing with a better value for them and much less value for our side of the table.”

Read the room. CEOs deal with people all the time, but M&A speaks its own body language. “Maybe they get puzzled and you see the expression on their face,” Casey said. “Maybe they’re closing down; their arms get crossed. There must be something you’re saying triggering that reaction, and you need to figure out what it is.

Also be aware that we are signaling [to] the other side.

“Aggressiveness really comes across in a very negative way and tends to backfire,” he added. “[It’s] better to really project charisma [and positivity], making sure that we come across as somebody who wants to build that relationship, who wants to build trust with our counterparty.”

Be prepared to walk away. “Is it a must-do deal at any price?” Casey advises clients. “Do not fall in love with the assets of the deal. Try to stay as objective as you can in the transaction.” CE

RESEARCH

CEO & SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES

The information you need to make informed compensation decisions to support your recruitment and retention plans.

The CEO & Senior Executive Compensation Report for Private Companies helps you benchmark and structure the right combination of salary, bonus, benefits, perks and equity incentives to attract top talent and retain the talent you have.

With more than 140,000 data points, there isn’t a more comprehensive, timely tool around to help you budget and plan your talent strategy. This report reveals how the absolute dollar amounts and mix of components vary by position and: • Company annual revenue • Number of employees • Industry • Geographic region • Type of ownership • Revenue growth • Profitability margins • and other key factors

1,780 Companies Surveyed

AVAILABLE NOW! Order the 2020-21 report, or pre-order the 2021-22 report (available early Fall)

by July 30 and SAVE $500 with code CESMR21

To order your copy of the report visit: ChiefExecutive.net/CompReport

D E ALS

MAKE FOR YOUR EXIT The strong economy, low interest rates, huge cash reserves and fears about rising taxes are making for a silly season in M&A across nearly every industry. Looking to sell smarter?

Some suggestions.

BY DALE BUSS

F

elix Yiu built Apricot Designs into a multibillion-dollar company over 32 years and then sold the maker of pharmaceutical liquid-handling equipment to SPT Labtech in January. It was a strategic sale within the industry, and the 65-year-old Yiu is staying on only for a year as a consultant.

“At my age, there are things I would like to do that I consider more meaningful and interesting,” says the Covina, California-based entrepreneur. “Now that I have a little bit of capital, one thing is to give opportunities to entrepreneurs or small businesses who really want to do things.”

Many more mid-market business owners will exit their companies this year. The M&A market is robust—even frothy—driven by the strong economy, low interest rates, ample cash available to acquirers, fears that the Biden administration will boost tax rates, the reluctance of millennials to take on the family business, and a certain “Covid exhaustion among business owners that’s accelerating plans to sell,” says Alan Scharfstein, president of The DAK Group, a middle-market investment bank.

52 / CHIEFEXECUTIVE.NET / SUMMER 2021

But while the golden ring may loom closer than ever, grasping it in this environment requires a founder’s strategic thinking, due diligence, stamina and good life planning.

Strategic transaction consultant Marshall Rowe says the exit decision requires a framework he calls “the three clocks.” One gauges the level of performance and liquidity in an industry prospect for its continued success and the availability of buyers. The second “clock,” says the founder of Harvest Capital Management, which is now part of the Colony Group, tells how well the company itself is positioned.

The third is the “personal and family clock” about whether it’s time to sell an entity that has “provided financial security and probably a sense of identity in the community,” Rowe says.

“It’s a very significant emotional decision. And more than likely, if a deal is going to fall apart at the eleventh hour, it’s for that third reason.”

Chief Executive reached out to a host of CEOs, advisors, bankers and other experts for some quick, savvy suggestions on selling into this magic moment for deals. Here’s some of what they shared.

Preparing the Sale

Owners often must do “counter-entrepreneurial work” to make their company sellable, says Patrick Ungashick, CEO of financial advisory firm Persium. For instance, they “must develop successor talent and leadership that isn’t in the day-to-day focus of even very successful enterprises” because the founder is used to addressing customer-relations, troubleshooting and problem-solving challenges himself. And then “use golden handcuffs to create that incentive for the non-owner leaders to stay with the work for the long term.”

Carrie Kerpen sold her New York-based marketing agency, Likeable Media, to 10Pearls this year but only after “productizing our offerings.” Services companies should “create packages that can be sold over and over again by salespeople, versus making everything on a custom basis—so you can scale and take ‘you’ out of the business.

It should be able to run without you, though you’re an asset.”

EBITDA is usually buyers’ focus—and re-

mains so these days—so nurturing it must be sellers’ focus. “It’s easy to make the mistake of focusing on growing the top-line revenue because your ego gets built on that: how many employees you have, and at a trade show you’re comparing sticks,” says Stephen King, CEO of GrowthForce advisors.

So, grow the top line as expressed in gross profits and gross profit percentage, he urges. “Are you pricing your jobs right to make sure your gross profit is covering overhead and generating the net profit you need to get the valuation you want? And increase the bottom line by replacing lower-margin businesses with higher-margin clients and services.”

Ideally, a rule of thumb is to be plotting a sale at least three to five years out. “Once you learn more about your company, the changes you have to make that will increase value aren’t flip-the-switch kind of changes,” says Shawn Regan, CEO of Rhythmlink, a medical-device maker in Columbia, South Carolina, that he sold in 2018. “There will be things structurally, culturally and process-wise that

“It should be able to run without you, though you’re an asset.”

— Carrie Kerpen, CEO, Likeable Media

CHIEFEXECUTIVE.NET / SUMMER 2021 / 53

“Every dollar of surplus cash you leave in the business is a dollar you might not see in the sale.”

— Patrick Ungashick, CEO, Persium

will take some time to change.”

John Jungk began gifting shares in Old World Spices & Seasonings to offspring in 2009; the next year, the owner of the Overland Park, Kansas-based outfit began assessing his company in preparation for his retirement; three years later, Jungk developed an advisory board; then he recruited a board member to update the accounting system. He finally sold to Chicago-based Shore Capital Partners last year.

Ungashick advises owners to use a presale countdown to focus on cash and working capital “years before you’re planning on selling. You want to get that number down low because every dollar of surplus cash you leave in the business is a dollar you might not see in the sale.”

He also urges owners to “eliminate customer or supplier concentrations because they create significant risk.” Ideally, no single customer on an annual recurring basis accounts for more than 10 percent of the annual revenue or profits.

Chris Kampitsis says that “often, owners don’t consider the tax ramifications or don’t consider how their month-to-month lifestyle costs might change if the company is no longer part of their lives, such as deductions

54 / CHIEFEXECUTIVE.NET / SUMMER 2021

for auto leases. They have to bring all those expenses back to the personal side,” explains the advisor at Barnum Financial Group.

In any event, it pays to always be ready for sale. “Owners often don’t plan their exit or think about selling until a catastrophic event hits: partner disputes, divorce, pandemic or a death,” says Michelle Seiler Tucker, author of Exit Rich: The 6 P Method to Sell Your Business for Huge Profit. “The worst time to sell your business is when it is trending down and you’re at risk.”

In the Homestretch Before Howard Lind sold Cicoil, his Los Angeles-based specialty-wire maker to TPC, a strategic buyer, last year for more than $50 million, he projected that earnings hadn’t yet peaked. TPC could see there was more value to come.

“Selling in the middle of a growth path is the best thing to do versus trying to time a peak or something,” Lind says. “That’s difficult to do. And buyers want a company that has a lot of growth in it.” Also, he advises, “Be more optimistic in the out years—but make sure you kill the numbers” in the here and now.

“You have to have everything bulletproof.

You can’t have things not lined up correctly, because buyers will just shoot holes in it. And that’ll slow down the process and ultimately hurt the sale and hurt your valuation.”

In the effort, Lind says, he spent nearly $200,000 to hire a contract CPA who specializes in preparing a company for sale.

Then this person stayed with the company after the deal closed “because, as questions come in, you need someone who can respond quickly.”

The current moment also brings new issues that sellers only a couple years ago didn’t need to consider. For one thing, digital transformation, often accelerated by Covid, may be determinative these days.

“If a company has resisted the adoption of technology in its business processes, and it’s in a business where tech is starting to have more of an impact, the owner has a few questions to answer,” says Ted Gavin, founding partner of Gavin/Solmonese advisers. “Do

they want to invest before a transaction or sell without investing? You’ll pay for the work to be done whether you do it or a buyer does it.”

Similarly, companies are facing an unprecedented labor squeeze. “It’s a problem now,” Gavin concedes, “but it actually could be a huge opportunity later.

If a company can run well with a small staff and that’s the bottleneck to greater production, rather than business demand, when the [labor] cycle changes and you can bring in more workers, it’s all upside for the company. Sellers should be conscious of that because you don’t want to lose out on potential value in the sale.”

Other potential deal killers to think about include environmental issues and a company’s treatment of gig workers in the face of stricter regulations. “Every deal has them, but they can be controlled if you plan for them and control the narrative around them,” Scharfstein says.

Selling Your Buyer The sheer volume of dollars chasing opportunity today can be a siren song for owners.

But be sure your goals—not theirs—determine the buyer you choose. “What do you want to be doing the day after you close?” says Mitch Woolery, an M&A lawyer for the Kutak Rock firm. “Sitting on a beach—or do you want to be an integral part of the company? You can go with a particular type of buyer because you want a particular role post-closing.”

Shawn Regan talked with potential strategic buyers of Rhythmlink “in case there was some ungodly valuation that would be hard to say no to. But we were concerned about the company, the employees and the culture and wanted to keep things going.”

So, in 2018, Regan sold to New Heritage Capital, a Boston-based PE group that touted its approach as a “private IPO.” And sure enough: New Heritage bought a big minority stake in the company while letting Regan and his partner maintain control of the board, helping Rhythmlink grow organically and through acquisitions. Sales have risen to more than $30 million from about $25 millon at the time of the sale.

Sellers can leave some money on the

table in the expectation that the company’s continued growth will make the stake more valuable in the future. Jungk, for instance, structured his sale so that his two daughters and his president would keep a combined total of 22 percent. “They’ll have another dip in the bucket because this investment group will hold on to the company for about five or six years,” he says.

And while Lind “had to roll over a significant chunk” of his ownership with TPC, “I’m fairly happy with that,” he says. “I don’t have my house or my personal guarantee on it. So it’s a nice, nice investment in a nice, nice future.”

Another possibility: Consider an ESOP. By selling to an employee stock-ownership plan, you “control how rapidly turnover occurs,” notes King.

Plus, sale to an ESOP is “very advantageous right now, with deferred income and a bunch of ways to capture the tax advantage today and push the bill out to the future,” says Robert DePalo Jr. of National Financial Network. “There’s also speculation that there could be lots of changes coming in Biden’s final tax bill.”

If you do stay with the company you’ve just sold, be ready for a big change—one that’s a struggle for many former owners.

“You have to be able to collaborate with people, to take advice and to understand your role in the organization­— and that you did sell,” says Fred D’Alessandro, who sold a majority stake in his Kenilworth, New Jersey-based broadcast-services business, Diversified Systems, to Tailwind Capital, then remained as CEO. “A lot of CEOs can’t handle this because they’re not calling the shots now in every case. It’s a big change.”

Keep in mind that exiting your company isn’t the only option for achieving your goals. Rajiv Khaneja, for instance, enjoyed the company he started up, ActivBoard, an online-forum outfit in Seattle, “and being part of it,” he says. “But I didn’t enjoy being essential or having obligations. I didn’t need the capital or immediate liquidity to do something else. So I ended up putting a general manager around the company and was able to move on without having to vend it, and continue to make profits on it.” CE

“We were concerned about the company, the employees and the culture and wanted to keep things going.”

— Shawn Regan, CEO, Rhythmlink

CHIEFEXECUTIVE.NET / SUMMER 2021 / 55

R EM OTE WOR K

WHY WHERE MATTERS Going remote with your workforce? Where your employees or contractors live and work could have unforeseen and, in some cases, significant implications for your business. Here’s what to ask your HR people now.

BY CJ PRINCE AND CRAIG GUILLOT

56 / CHIEFEXECUTIVE.NET / SUMMER 2021

F

OR DECADES, Tom Mercaldo, president of Aquinas Consulting in Milford, Connecticut,

relied on a combination of full-time employees and independent contractors around the U.S. to serve client needs, scrupulously following longstanding guidelines from the IRS to avoid trouble—and keep everyone happy.

Then came California Assembly Bill 5. In January 2020, the state passed the new law reclassifying who counted as a contractor and who was, at least in the Golden State, now an employee. The law was passed to rein in big tech companies and regulate the emerging “gig” economy, but it swept up plenty of others, like Mercaldo. “They’re a legitimate business according to the IRS, but under the...rules in California, they’re not a legitimate business anymore,” Mercaldo says of his contractors. “The law is so broad. It is being applied in many areas that don’t make sense at all.”

Now, Mercaldo is fighting a rear-guard battle to figure out who is what, based entirely on where. Worse, be-

CHIEFEXECUTIVE.NET / SUMMER 2021 / 57

cause the company hires people across many industries, he’s concerned he could be forced to re-classify an independent contractor who works as an accountant for the consulting firm, even though a business in another industry wouldn’t have to. “The definition of whether [someone] is a contractor or an employee should not have anything to do with what my business does,” says Mercaldo. Aquinas no longer operates in California.

It may not have been part of your pre-, or even post-Covid human capital plan, but remote work seems to be here to stay. By 2025, more than 36 million Americans will be working remotely, an 87 percent increase over pre-pandemic levels, according to the 2020 Future Workforce Pulse Report

by Upwork. In an ever-intensifying war for talent, companies will need to incorporate some remote work in order to attract and retain the best.

But when it comes to employment law, all states were definitely not created equal—and where your remote employee or contractor lives and works could have unforeseen and, in some cases, significant implications for your business. These likely aren’t dealbreakers, by any means.

But they will add complexity. It pays for you and your CHRO to get smart now about the diverse rules around remote employment, so you can adjust your hiring strategy to reap the rewards of a wider talent pool, while minimizing the costs and administrative burden. “I don’t think anyone thinks we’re going back to the way it was,” says Michael Cardman, a legal editor at Reed Elsevier who specializes in employment law. Here are some places to start:

“The law is so broad. It is being applied in many areas that don’t make sense at all.”

—Tom Mercaldo, Aquinas Consulting

nexus, and have not waived those statutes during the pandemic.

Regardless of where your company is based, you typically will need to withhold in the states in which remote work is being done and pay into unemployment in those states as well. That means if you hire a remote employee in one of the nine states that have no income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming—no payroll tax on that worker will be due, even if your company is based in a high-tax state, such as California, New Jersey, Oregon or Minnesota.

Your HR department should also be familiar with any reciprocal tax agreements your state has with other states. Illinois and Wisconsin, for example, have a reciprocal tax agreement stating that if an Illinois employer hires an employee who lives in Wisconsin, that business can withhold income tax from the employee’s state of residency.

Therefore, if your company were based in Illinois and you hired Wisconsin employees to work remotely, payroll taxes will be deposited with the state of Wisconsin.

Changing rules around salary disclosure could also add administrative challenges for HR. For example, a new Colorado state law requires companies advertising a job to disclose the expected salary or pay range for that position, including for remote work positions. To avoid having to add pay ranges to job descriptions, some employers instead began adding language that excludes applicants from Colorado from applying. Johnson & Johnson recently posted an ad recruiting a senior manager, noting that, “Work location is flexible if approved by the Company except that position may not be performed remotely from Colorado.” HR managers will need to keep up with similar changes made by other states going forward.

Many Questions for HR

Because employment laws apply in the state where the employee is actually doing the work, having even one remote worker could create a “physical nexus,” akin to setting up a satellite office, depending on the state.

Colorado and Virginia are examples of states that treat telecommuters as constituting a tax

58 / CHIEFEXECUTIVE.NET / SUMMER 2021

Here Comes SCOTUS

It’s worth noting that the rules governing nexus may change based on the outcome of a lawsuit that could go before the U.S. Supreme Court later this year. In 2020, when residents of New Hampshire who previously worked in offices in Boston started working from home

into during Covid, they should have stopped incurring income tax because New Hampshire doesn’t have one. But Massachusetts issued guidance temporarily superseding its existing laws, such that income earned by nonresidents working in Massachusetts before the emergency declaration would be taxable as Massachusetts-source income.

New Hampshire sued, claiming the move was an unconstitutional tax grab. If SCOTUS agrees to hear the case and decides for the plaintiff, things may get easier for employers of remote workers. But Randle Pollard, attorney in Ogletree Deakins’s Employee Benefits and Executive Compensation group, says that we should expect to see more state maneuvering as they realize they will be losing tax income. “They’re saying, ‘Uh oh, we’ve got to protect our tax space.’”

‘Convenience of the Employer’

One way they can do that is to strictly enforce rules that extend the reach of a state’s taxing jurisdiction beyond its borders. Seven states—New York, Connecticut, Pennsylvania, Arkansas, Nebraska, Delaware and Alaska—have “convenience of the employer” rules stating that out-of-state employees can only be considered remote for tax purposes if the employer can prove it’s due not to employee choice, but the employer’s necessity, such as insufficient office space. But that’s not always simple, says Pollard. “Even during Covid, New York has never found that a governmental order to stay at home constitutes the necessity of the employer—which is incredible. You would think that would meet the requirement because you have to shut down and your employees can’t come to work—but no.”

Meanwhile, some cities and states are becoming even more proactive about bringing in remote workers, offering significant incentives for relocation. Ascend West Virginia is a campaign by the state to lure remote workers with promises of $10,000 or more and free coworking space. Maine is offering tax rebates totaling up to more than $15,000 to transplants with college degrees.

Alaska is paying new arrivals $1,000 per year for three years. Individual cities, such as Baltimore, Maryland, Tulsa, Oklahoma, and Topeka, Kansas, are floating subsidies such

as cash lump sums, home loan down payments and even mountain bikes to lure new out-of-state workers. If these campaigns are successful, employers could find they have newly transplanted workers suddenly in states with a host of different rules.

In addition to payroll tax, companies need to understand all local employment regulation related to wage and hour rules, termination of employment, noncompetition and sick and family leave rules. For example, California, Florida, Michigan and New Mexico are just a few of the 30-plus states with a higher minimum wage than federal. Different states also have differing interpretations of wrongful termination, breach of contract and discrimination, among others. Family leave regulation also can vary widely, says Amber Clayton, director of the knowledge center at Society for Human Resource Management.

“Someone in California might be eligible for the pregnancy discrimination leave and somebody in another state might not be eligible for anything other than the federal family medical leave,” she says, adding that companies with more general policies may need to publish new employee handbooks drilling down to the state level, “especially those companies that may not have been multi-state employers previously.”

The Contractor Conundrum

Companies won’t necessarily be able to avoid the administrative and financial complexities associated with remote employees by trying to increase the percentage of contract workers. The line between employees and contractors has been become more complex since the start of the pandemic and is poised to only grow more challenging as more of the workforce goes remote, says Patrick Anderson, CEO of Anderson Economic Group. “[Flexible and remote work] now encompasses a substantial portion of our workforce, including many people who always thought of themselves as owners of their own business, as well as people who thought of themselves as employees,” says

CHIEFEXECUTIVE.NET / SUMMER 2021 / 59

Anderson.

Legislators have sought to address worker classification in recent years. AB5, the California law that swept up Mercaldo, uses the “ABC” test. To remain a contractor, it says: (A) the worker is free from control of the hiring entity, (B) the worker performs work outside of the usual course of the entity’s business, and (C) the worker is engaged in an independently established occupation or business of the same nature as the work performed.

At the federal level, the Protecting the Right to Organize Act of 2021 passed the House in early March and now sits with the Senate. One of its most contentious parts amends Section 2(3) of the National Labor Relations Act to redefine employee status using the ABC test. In an effort to prevent misclassification, the Biden administration has indicated it would like all labor, employment and tax laws based on the ABC test.

While these laws targeted companies like Uber, opponents of the ABC test say the “B” prong will eliminate independent contracting in many industries and harm small businesses and workers. Until AB5 passed in California, the definition of a contractor was “pretty clear,” says Mercaldo. Typically, contractors have a separate business identity (and are often incorporated), a federal tax ID number, business registration, a web presence, multiple clients and perform services outside of the employer’s control.

“I hope that people in Washington don’t do things to make us less competitive.”

Crushing Small Businesses

If the PRO Act were to pass with the ABC test in place, some companies would be forced to make their contractors employees.

Just as likely, says Mercaldo, many employers will consolidate those roles, hire less or outsource positions overseas. “When you have policies that make it more economical or reduce an employer’s risk to work in a location other than the U.S., you will see

60 / CHIEFEXECUTIVE.NET / SUMMER 2021

more of that,” says Mercaldo.

A bigger issue is that it would limit small businesses that rely on contractors to reduce overhead and have the ability to scale up when they’d never be able to bring on employees. Small businesses use independent contractors to perform critical tasks in their line of work, says Eric Groves, CEO of Alignable. An Alignable survey found nearly half of small companies who hire contractors said 25 percent of the time they are doing work performed by in-house employees.

Rantoul, Illinois-based Taylor Studios designs exhibits and installations for museums, visitor centers and corporate facilities.

The company has been in business for nearly 30 years and has worked on more than 700 projects around the country. Taylor occasionally uses freelancers because the work is project-based, often in different locations and has peaks and valleys, says Betsy Brennan, owner and president of Taylor Studios.

However, because these contractors work in the field of design and Taylor Studios is in the design business, it would likely fail the ABC test as proposed in the PRO Act. Brennan is hoping such legislation won’t pass, but she’s not yet sure what she will do in the event it does. It is unlikely that Brennan would be able to bring on many contractors as employees.

“You’d just bring them on, lay them off, bring them on, lay them off. It wouldn’t make sense. And many don’t want to be employees,” she says.

Groves forecasts a further rise in flexible work models due to younger generations placing a higher value on work-life balance.

Many independent workers now report not only greater flexibility but better pay and more security than through traditional jobs.

Among full-time independents, the portion saying they wouldn’t go back to a conventional job rose from 53 percent in 2019 to 61 percent in 2020, according to a report by MBO Partners. “They’re going to want more flexibility. They’re going to want to be creative with their careers in new ways that are good for the economy,” says Groves. “I hope that people in Washington don’t do things to make us less competitive.” CE

LEADERSHIP CONFERENCE NOVEMBER 4-5, 2021 | Phoenix, AZ and Online FEATURED SPEAKERS:

Unlock Your Team’s Full Potential

The Secret to Managing Others

Is your approach to leadership evolving as you and your organization adapt to new norms and pivot for post-Covid success?

5 Steps to Transform Your Business and Enrich Your Life

Chief Executive’s 23rd annual Leadership Conference offers peer-tested strategies that will help you and your executive team work smarter to protect your core and capture new opportunities.

Take two days to “work on your business” with compelling speakers, engaging peer roundtable discussions and fun networking experiences— plus, come a day early and take advantage of a pre-conference activity: Golf outing at TPC Scottsdale, home of the PGA Tour’s Phoenix Open Women in Leadership seminar and peer discussion Next-Level Leaders Seminar for your up-and-coming leaders

KEN BLANCHARD Bestselling author and CEO coach

GREG BRENNEMAN The CEO who turned around Continental Airlines, PwC, Burger King, Quiznos and more What Comes Next: Economic Outlook and How to Plan ALAN BEAULIEU Renowned economist/forecaster

Hot Seat: What I Learned Leading a Great American Company JEFF IMMELT Former CEO of GE Improve Your Company’s Critical Decision- Making and Negotiation Outcomes VICTORIA MEDVEC Leading global expert in negotiation strategy and decision-making What Makes Great Teams Great DON YAEGER Sports Illustrated writer and performance analyst

Register by July 30 to save $100 off the in-person rate with code CELive100 To learn more and register, visit ChiefExecutive.net/LeadershipConference15 CHIEFEXECUTIVE.NET / MAY/JUNE 2019 /

EC O N O M IC D E VE LOPME NT

REGIONAL REPORT

NORTHEAST & SOUTHEAST While employment still lags in some states, much of the country is on an economic rebound. BY CRAIG GUILLOT

*State’s rank in the 2021 Chief Executive Best & Worst States for Business (ChiefExecutive.net/ the-best-worst-states-forbusiness2021)

FROM NEW YORK TO FLORIDA, states in the Northeast and Southeast are rebuilding their economies and landing exciting projects in tech, manufacturing and logistics.

gies is adding 300 jobs in Jacksonville. And Scotlynn USA, a logistics subsidiary of Canada-based Scotlynn Commodities, opened a new headquarters in Fort Myers.

2 FLORIDA*

3 TENNESSEE

WHERE THE SUN IS STILL SHINING While Gov. Ron DeSantis’ moves last year often went against CDC guidelines, it helped the state weather the storm. “Florida’s economy was blindsided by a sudden recession and prolonged disruptions to supply chains because of Covid-19,” said Florida Secretary of Commerce and CEO of Enterprise Florida Jamal Sowell. “But jobs are coming back, commerce is on the uptick, and Enterprise Florida is in lockstep with Gov. DeSantis’s bold mission to retake the high ground of prosperity for all corners of Florida.”

The Sunshine State, which ranked #2 in Chief Executive’s 2021 Best & Worst States for Business, landed several notable projects in the past year. Aviation manufacturer Aerion announced a $300 million capital investment that will create 675 jobs by 2025. IT consulting firm Synergy Technolo-

ELECTRIC GROWTH The Volunteer State maintained a spirit of resiliency in working to rebuild the economy, says Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development. One promising area is electric vehicles. The state is now home to three OEMs and over 900 suppliers in an automotive industry that employs more than 123,000 residents. Tennessee produces more than 16,000 electric vehicles annually. GM announced in October 2020 a $2 billion facility in Spring Hill to build electric cars. “Tennessee’s central location, skilled workforce and pro-business climate are a few of the advantages we offer companies,” says Rolfe.

62 / CHIEFEXECUTIVE.NET / SUMMER 2021

4 NORTH CAROLINA CONTINUING MOMENTUM IN TECH With tech assets in the Research Triangle

FLORIDA Bucking CDC guidance seems to have paid off for the Sunshine State, which landed a $300 million capital investment by Aerion.

and the growing life sciences sector, the Tar Heel State has been on a roll in the past year.

Thermo Fisher Scientific announced in December 2020 a $500 million investment and 500 new jobs in Greenville. Fintech company Robinhood added in March nearly 400 jobs in Mecklenburg County. And in April 2021, Apple announced a $1 billion R&D campus in Wake County that will create 3,000 jobs by 2032. “As a North Carolina native, I’m thrilled Apple is expanding and creating new long-term job opportunities in the community I grew up with,” said Jeff Williams, Apple’s chief operating officer. “We’re proud that this new investment will also be supporting education and critical infrastructure projects across the state.”

6 SOUTH CAROLINA PROSPERITY IN THE PALMETTO STATE The Palmetto State won 126 economic development products, accounting for more than $4 billion in capital and more than 11,100 new jobs. “To increase our year-overyear recruitment totals while navigating the impacts of Covid underscores the adaptability and resiliency of our team across the state,” says Alex Clark, CMP, director of marketing and communications at the South Carolina Department of Commerce.

Life sciences, logistics and agribusiness performed exceptionally well. The pandemic underscored the importance of the life sciences sector and led to a surge in distribution activity through e-commerce. In July 2020, Walmart announced 1,000 new jobs at a $220 million distribution center in Dorchester County. Agriculture Technology Campus announced a $314 million technology campus in Hampton County, and Mark Anthony Brewing announced 300 new jobs at a $400 million facility in Richland County.

9 GEORGIA FORWARD MOMENTUM IN THE PEACH STATE Georgia experienced substantial growth in the past year with economic development projects yielding 24,000 new jobs and $8.43 billion in new investments. Many companies took advantage of the state’s “rapid and rational” approach to the pandemic, says Brittany Young, COO at the Georgia Department of Economic Development.

Both Microsoft and Airbnb recently committed to making Atlanta one of their biggest national tech hubs. Georgia is also positioning itself in the electric vehicle supply chain.

In November 2020, Turkish company TEKLAS announced its first North American facility and headquarters in the state. Germany’s GEDIA Automotive Group also announced an advanced manufacturing facility. “This industry segment is really growing in Georgia, and from R&D to location, to the workforce, we are positioned to capitalize on this growing trend,” Young says.

GEORGIA In February, Atlanta won tech hubs from Microsoft and Airbnb.

13 VIRGINIA FEDERAL SECURITY The large portion of federal jobs that can be performed remotely helped Virginia’s economy weather the pandemic, says Stephen Moret, CEO of the Virginia Economic Development Partnership. Unemployment has remained comparatively low, and VEDP has several initiatives to accelerate economic recovery, including capitalizing on new supply chain opportunities and reskilling the unemployed workforce. “Virginia recently has been making historic investments in broadband access, which the pandemic has shown to be more important than ever,” Moret says.

Driven by the growth in e-commerce, the logistics sector was a bright spot in 2020. The state also saw significant interest in capital investment projects in technology and remains the leading data center market in the world.

Moog, CMA CGM and Crown Holdings all announced projects here in the past year.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 63

14 DELAWARE

DELAWARE Delmarva Corrugated is bringing 159 manufacturing jobs to Central Delaware.

PROMISING PROSPECTS AHEAD Delaware is more optimistic than ever about its future, says Kurt Foreman, CEO of the Delaware Prosperity Partnership.

“Our pipeline has never been stronger, with particularly strong activity among science and technology companies and in manufacturing and logistics,” Foreman says.

At the start of the pandemic, some of the state’s primary sectors, like financial services and professional services, transitioned to remote work. Trade and transportation also expanded due to the growth in e-commerce. Last year, Delaware attracted 10 new projects, including a 3.8 millionsquare-foot Amazon facility that will employ more than 1,000. Delmarva Corrugated Packaging also announced 159 new jobs at a $80 million manufacturing facility in Central Delaware, and Barclays is adding 323 jobs at its financial services hub in Wilmington.

19 LOUISIANA RIDING OUT CHALLENGES WITH RESILIENCY The Bayou State never let the pandemic impede its economic development momentum. It secured 58 new projects representing more than $12.7 billion in new investment in the state, the second-highest since 2016. The investments will retain 8,600 jobs and create 11,600 new ones, says Louisiana Economic Development Secretary Don Pierson.

At the start of the pandemic, Gov. Edwards created the Resilient Louisiana Commission, an 18-member panel that includes a task force dedicated to strengthening certain sectors in the state. It recently published A Comprehensive Game Plan for a More Resilient Louisiana, which recommends positive changes in every sector of the economy. In addition to solid growth in chemical manufacturing, other areas of promise include renewable fuels, process industries,

64 / CHIEFEXECUTIVE.NET / SUMMER 2021

logistics and IT. Diamond Green, Mitsubishi Chemical and Shin-Etsu Chemical all made significant announcements in the past year.

23 KENTUCKY BOOMING IN LOGISTICS Kentucky announced 223 new location and expansion projects in 2020 that will create more than 8,000 jobs and inject more than $2.28 billion into the commonwealth. The Bluegrass State is doubling down on its agricultural strengths. The Kentucky AgriTech Initiative brings the state’s advanced manufacturing sector and agricultural roots to the global stage. Last year, Kentucky signed an international agritech agreement with 16 other partner organizations, including the Dutch government.

The logistics and distribution sector is also growing and now includes more than 540 facilities that employ 75,000 people.

The three global air-cargo hubs by UPS, DHL and Amazon all saw significant growth in 2020. “As Kentucky rebuilds its economy stronger than ever, ongoing logistics and distribution industry growth position the state for long-term success,” says Jack Mazurak, executive director of the office of marketing and public affairs for Team Kentucky.

24 NEW HAMPSHIRE LOOKING UP IN LIFE SCIENCES Putting its pro-business economic growth strategy to work during the pandemic, New Hampshire dedicated nearly 40 percent of its relief programming toward keeping businesses open and liquid, says Taylor Caswell, commissioner of the NH Department of Business and Economic Affairs.

The state’s life sciences sector saw extensive growth in the past year. Lonza Biologics in Portsmouth is producing 100 million vaccine doses under an agreement with Moderna. Lydall began expanding its facility in Rochester last summer to meet the growing demand for N-95 masks, and MilliporeSigma added 160 jobs in Jaffrey to ramp up production of components for Covid-19 treatments and vaccines. The state also landed projects from companies like Integra Biosciences and LSNE.

30 ALABAMA MANUFACTURING RECOVERY Alabama’s economic development initiatives helped it land more than 230 new projects in 2020, resulting in almost 9,500 new jobs and $4.8 billion in new capital investment. The state’s strength in manufacturing also keeps it on the international radar. Half of the investments came from 13 foreign countries.

The auto industry remains a primary growth engine. Mazda Toyota Manufacturing announced an additional $830 million investment in its Huntsville assembly plant, and Mercedes-Benz is investing $54 million in a logistics center in Tuscaloosa. Canfield notes a total of eight Mazda Toyota suppliers have also announced sites in the state for a total investment of $750 million and 2,000 new jobs.

31 ARKANSAS SECURING AN ESSENTIAL ECONOMY Taking the stance that “every business is essential” helped Arkansas entice several companies to expand or relocate there since the pandemic. Amazon announced a fulfillment center and 1,000 new jobs at the Port of Little Rock. Emerson announced a $35 million facility in Ash Flat that will create about 245 jobs, and Butterball announced more than 360 new jobs. Companies are coming to the state not only for the labor but following a national trend of migration to the South, says Arkansas Secretary of Commerce Mike Preston. “As business leaders reaped the benefits of the leadership in Arkansas, people around the country became more open to moving to a location that offers a lower cost of living and a higher quality of life.”

32 MISSISSIPPI WORKING THROUGH THE CHALLENGE Mississippi generated more than $1.9 billion in capital investment in 2020, 45 percent more than the previous year, says John Rounsaville, executive director of the Mississippi Development Authority. “[Last year] was a home run for our state and reflective of our “theme” during this recovery—we never stopped working toward our mission

of building stronger communities through economic development,” Rounsaville says.

One growth area is agribusiness and forestry. Biewer Lumber, Vicksburg Forest Products, Idaho Forest Group and Mission Forest products all announced new mills and expansions that will create jobs. Amazon announced it would locate its third fulfillment center in Madison County, creating more than 1,000 jobs. Associated Wholesale Grocers announced a $300 million distribution hub in Hernando. “Mississippi won approximately 40 economic development projects in 2020,” Rounsaville says.

ALABAMA Mercedes-Benz’s $54 million investment in a Tuscaloosa logistics center will support electric vehicle production.

34 WEST VIRGINIA OUTDOOR OPPORTUNITIES The Mountain State is striving to attract remote workers through the Ascend WV program. It offers a generous incentive package that includes $12,000 and a year’s worth of free outdoor recreation activities through more than a dozen outfitters. It also offers free coworking space and networking events with business leaders, guided outdoor excursions and access to WVU’s entrepreneurship ecosystem. “Everything that makes West Virginia a great place to visit makes it an even better place to live and work,” said Secretary Chelsea Ruby of the Department of Tourism. “With remote work becoming a permanent option for more and more professionals, we’re excited to introduce them to the blend of adventure and serenity that makes life in West Virginia a permanent vacation.”

36 MAINE FEDERAL FUNDS FOR NEW HORIZONS In May 2021, Maine Gov. Janet Mills unveiled a $1 billion economic recovery plan funded

CHIEFEXECUTIVE.NET / SUMMER 2021 / 65

RHODE ISLAND Fidelity, which employs 3,200 in the state, is opening a new regional center in Smithfield.

by the federal America Rescue Plan. The Governor’s Economic Recovery Committee and the State’s 10-Year Economic Development Strategy calls for investment in skills training, R&D and new worker attraction.

Strategic investments include $80 million to jump-start innovation through public-private partnerships and $105 million to support infrastructure and equipment upgrades in higher education systems.

Department of Commerce.

Maryland landed several significant projects in the past year. Aurinia Pharmaceuticals announced 500 new jobs at its new U.S. commercial operations in the state, and TCR Therapeutics added 175 new jobs in Montgomery County. Novavax, Qiagen and Vigene Biosciences all also announced new investments in the state.

37 RHODE ISLAND

JUMP-STARTING RECOVERY In April 2021, Vermont Gov. Phil Scott unveiled a plan to strategically invest $1 billion in one-time federal money. The administration proposes using the funds in five key areas: broadband and wireless connectivity, housing, climate change mitigation measures and water infrastructure. The $143 million allocated for economic development would go to economic recovery grants and include $90 million in capital investments. Part of that would consist of a capital co-investment program to incentivize transformational projects that build new facilities in the state. “By investing in infrastructure, broadband and housing, we can increase economic equity from region to region, helping communities across the state attract more jobs, families and private investment,” said Scott in a press release.

NEW OPPORTUNITIES IN THE OCEAN STATE Things are looking up in the Ocean State.

Fidelity Investments announced in April 2021 the creation of 500 jobs at its campus in Smithfield as part of a new regional center for Fidelity’s personal investing business. “Expanding in Rhode Island gives us access to a talented and educated workforce in the Ocean State to fill these positions that are new to this market for us,” said Mark Barlow, SVP of personal investing at Fidelity Investments.

In September 2020, Infosys announced it would hire an additional 500 tech workers by 2023. The company opened its Digital Innovation and Design Center in Providence in 2019, something Infosys president Ravi Kumar credited to the state’s “strong leadership, positive business climate and innovative spirit.”

38 MARYLAND ONGOING RECOVERY IN THE OLD LINE STATE With strong ties to federal employment and contracting, Maryland was fortunate that one part of its economy was less impacted by the pandemic. As a result, the state has added 2,700 professional, scientific and technical services jobs since February 2020. “Although government employment has seen an overall decline, the strong federal workforce means our growth rate in the industry over the past year has still been the fifth-best in the nation,” says Kelly Schulz, secretary of the Maryland

66 / CHIEFEXECUTIVE.NET / SUMMER 2021

39 VERMONT

41 PENNSYLVANIA BACK TO WORK The Keystone State landed several notable projects in the past year. Sharp, a global leader in clinical supply chain services and pharmaceutical packaging, announced a third facility in the state that will create 335 full-time jobs.

BNP Paribas also announced in February 2021 an expansion in the southeastern part of the state that will create 300 jobs.

Gov. Tom Wolf’s proposed 2021-2022 budget prioritized economic recovery and growth through business tax cuts and investments in workforce development. Department of Community and Economic Development Secretary Dennis Davin noted that the governor’s plan would lead to a tax cut of more than $240 million, with more than 400,000 business owners paying less in tax than they currently do.

“These actions will create a more level playing field and lessen the burden on businesses to

operate in our commonwealth—a burden that has only become more increased and complicated due to the Covid-19 pandemic—and make our taxation system more equitable,” Davin said.

43 CONNECTICUT A SMALL STATE MANUFACTURING A BIG FUTURE Connecticut’s economy grew 7 percent in Q4 of 2020 and, thanks to rising tax receipts and flat spending, the state now projects a general fund surplus for the year ending June 2021. “Connecticut has done a good job managing the pandemic, leading to rebounding growth and better-than-expected fiscal position as we approach the end of the state’s fiscal year,” says Peter Denious, CEO of AdvanceCT. Electric Boat, one of the largest manufacturers in the state, recently secured a $9.5 billion contract to build submarines and announced 2,000 new jobs. The state has also seen several company relocations from New York, including the 500-employee headquarters of Nuvance Health Systems. In addition, Amazon opened three centers in the past year, and Infosys announced 1,000 new jobs. “There’s newfound energy and enthusiasm in both the public and private sectors to put Connecticut on a long-term growth plan,” Denious says.

45 MASSACHUSETTS BOOMING IN THE BAY STATE In the first quarter of 2021, Massachusetts state economy grew by 11.3 percent, more than double the rate in the last quarter of 2020, according to MassBenchmarks. That’s well above the national average, something economic development officials credit to vaccine rollouts, small business support and good business policies. In February 2021, Gov. Charlie Baker signed off on House Bill No. 5250, An Act Enabling Partnerships for Growth. The law features more than $626 million in capital authorizations and a fiveyear roadmap to support economic growth and improve housing stability across the state.

This includes money to support advanced manufacturing and new emerging opportunities to strengthen the state economy. There

are also resources for micro-businesses and low-to-moderate income and minority entrepreneurs.

47 NEW JERSEY MAKING BIG BETS The Garden State is climbing the ranks in the sports wagering and fintech industries. In the three years since legalizing sports betting, New Jersey has become one of the largest sports wagering markets in the U.S., with nearly $1 billion per month wagered toward the end of 2020. The New Jersey Economic Development Authority Board recently approved a memorandum of understanding with New Jersey City University to support the creation of a Sports Wagering and Financial Technology Workforce Development and Innovation Center. NJEDA CEO Tim Sullivan notes the state offers a highly talented technical workforce with proximity and connectivity to New York City and Philadelphia.

49 NEW YORK RECLAIMING THE EMPIRE Hard hit at the start of the pandemic, the Empire State is experiencing a notable rebound, both in New York City and across the state. In February, Plug Power announced 68 new jobs at a $290 million hydrogen fuel production facility and electric substation in Genesee County. President Container Group broke ground in April 2021 on a $40 million expansion in Orange County to create 50 new jobs. Unite USA also announced plans to add at least 300 new jobs in New York City.

Beam Suntory announced in January 2021 it will relocate its global headquarters from Chicago to Manhattan, bringing more than 150 new jobs to New York City over the next five years. “As one of the world’s greatest global cities, New York provides a unique environment to help us accelerate our premiumization strategy and growth ambitions,” said Albert Baladi, CEO of Beam Suntory. CE

CONNECTICUT Electric Boat will be assembling two classes of submarines in a 200,000-squarefoot facility in Groton.

CHIEFEXECUTIVE.NET / SUMMER 2021 / 67

C EO TALE NT SU MMI T

GETTING IT ALL

TOGETHER If there’s one thing we learned over the past year, it’s that able teams and a tight-knit culture can make all the difference in volatile and uncertain times. Leaders gathered at Chief Executive’s CEO Talent Summit to share ideas on making the most of their organization’s greatest asset. Some takeaways. BY JENNIFER PELLET

DOES TALENT DEVELOPMENT CREATE REAL VALUE?

Deanne Kissinger, Director of Talent Management and Engagement, Duke Energy

LOTS OF COMPANIES think they take training seriously, but many don’t really know if efforts are working. Proof?

When budgets need cutting, “it’s an easy target,” notes Deanne Kissinger, director of talent management and engagement at Duke Energy. “When it’s difficult to quantify the impact of a development program, it’s hard to find the reason to keep it.” So how do you make sure leadership development enhances the business? Kissinger offers three steps: Audit your “value agenda.” Where does the company make money? Where will its revenue come from in the future?

Identify critical roles. Which roles are critical to that value agenda? What does success in them mean? What skills or competencies are needed in that role?

Look to the people. Who holds those roles? Is that person qualified for the

68 / CHIEFEXECUTIVE.NET / SUMMER 2021

task? What risks does any gap in qualifications represent to the organization?

“You can assess the risk in a quantifiable way by starting with a commercial lens, rather than asking, ‘Who’s on our high potential list?’” says Kissinger.

“Then, if your HR or talent leader can show you how much risk was reduced or how much value was supported by implementing the process, that’s where you see the returns.”

Perhaps more importantly, the process helps ensure that development efforts align with business strategy. “It really breaks down where the future value will come from what we’re protecting and/or growing,” says Kissinger. “I think of the quote, ‘If you don’t know where you’re going, any road will take you there.’ If you aren’t aligned to the business strategy, any development program you put in place will count as employee development. It just may not be strategic.”

LOVE LESSONS FROM CHIPOTLE’S RUN TO $38 BILLION FIRST THE BAD NEWS: We’ve been doing leadership all wrong. Now the good: That can change—easily and fast. So says former Chipotle co-CEO Monty Moran, who catapulted the regional burrito chain to a Fortune 500 superstar with a market cap near $40 billion. Ditch the carrots-and-sticks approach to incenting talent, he says, and replace it with love. Yes, love.

“Truly caring about your employees means wanting them to become the best possible versions of themselves and to achieve their Monty Moran, Author, own dreams,” says Moran, author Former Co-CEO, of Love is Free, Guac is Extra: How Chipotle Mexican Grill Vulnerability, Empowerment, and Curiosity Built an Unstoppable Team, “which also happens to advance the leader’s organization.” it sounds soft. He swears it isn’t. How to start: Would you follow you? People follow those they respect and feel will guide them to a better place. “Look in the mirror and make sure you’re someone worth following, someone with a vision that can take them someplace they want to be,” says Moran.

Forge a connection. Moran urges leaders to take the time to sit down with employees one-on-one and get to know them. “Everyone in the world wants exactly the same thing, and that’s to be seen, valued, loved and understood,” he says. “Get vulnerable and curious with them; then they’ll get vulnerable and curious with you, and you’ll build a real connection.”

Plan a time when you can turn off your cell to focus on the conversation—if you can’t make the person in front of you your priority during your time with them, you’ll do more harm

than good. Your goal: to build a connection and to understand their vision for their lives and how it overlaps with yours for the company. “When people feel valued, understood and loved, they know that you care about them, and they’re going to be there for you,” says Moran. “This stuff is powerful.”

Create encouraging circumstances. People feel empowered when they feel confident in their ability and encouraged by their circumstances. Experienced with training and development programs, companies tend to be adept at the former, but far less so with the latter. “In most workplaces, when things go wrong it’s almost always due to lack of empowerment,” says Moran. “And within that, it’s almost always due to lack of encouraging circumstances.”

This is where understanding your people and being able to articulate your vision and how each of them fits into it is critical. “You need to explain that you need them and that each and every one of them is critically important to achieving what you want to achieve,” says Moran. “And you need to dedicate yourself to helping them succeed.”

Get them to share the love. For Moran, how well a person did at elevating the people around them was a factor in talent decisions around hiring, promotions and raises. “At every place I’ve led, I instill as a foundational principle that each of us will be rewarded based on our effectiveness in making the people around us better,” he says. “Because you need other people to spread this culture. HR has to become everyone’s responsibility.”

Set in motion, a culture of empowerment builds over time. People grow accustomed to helping team members grow and improve, recognize the value it brings and appreciate the rewards it brings. “Nothing in this life is more powerful or gratifying than being the source of another person reaching their full potential,” says Moran.

AVOID 2021’S HIDDEN TRAP: UNDERPAID HR LEADERS WHILE SENIOR HR EXECUTIVES are the lowest paid members of the C-Suite on average, their pay is rising far more quickly than that of their peers, according to Chief Executive Group’s CEO and senior executive compensation research data. Between 2014 and 2019, HR chiefs’ total cash compensation grew on average by 19 percent, significantly more than the 11 percent bump CFOs received over the same period.

Only salaries of COOs have grown at a relatively similar rate of 18 percent, says Wayne Cooper, executive chairman of CEG. “The larger salary increases for the two positions demonstrates the growing importance of the roles talent and operations play in corporate strategy,” says Cooper. “However, while we are seeing that pay gap closing, far too many private companies are still underpaying for that important HR position.”

CHANGE IN TOTAL CASH COMPENSATION (2014-2018) 20% 18%

19%

15%

10%

11%

5% 0%

0% COO

CFO

CMO

3% CSO

CHRO

Source: Chief Executive’s CEO & Senior Executive Compensation Report for Private Companies

CHIEFEXECUTIVE.NET / SUMMER 2021 / 69

MAKING INCLUSION PAY: HOW THE U.S. ARMY DOES IT COL. (RET.) DIANE RYAN served in a variety of command and staff assignments during 29 years as a U.S. Army officer. Now a professor and management coach, she shared insights on three challenges businesses face in unleashing the power of diversity and inclusion.

On adopting a people-first mentality…

The army that I came up in always COL (Ret.) Diane Ryan, Ph.D., U.S. impressed upon us mission first in Army; Faculty, Thayer Leadership everything—that the mission is the most important thing and the people sort of fall into place behind that. But I think the army has adopted more of a people-first mentality recently. They recognize that we’ve had 20 years of war and now we have a pandemic and all these different stressors on our people. We need to take care of people first and recognize that the mission will follow along afterwards.

And it’s important to recognize that what we’ve gone through is impacting people differently. There’s been a lot in the press about how the pandemic and working remotely has disproportionately affected women as they try to balance work and home. And racial incidents have been really difficult for people of color. So, companies should be thinking about helping women stay in the workforce and having open and honest conversations with people who have been disproportionately affected by social justice issues and by health and welfare issues. It’s really important for you to think about what kind of load individual people are carrying and what you can do to lighten their burden.

On training leaders to become more inclusive…

In the army, we certainly had formal training, but you will not improve your organization by giving people 40 PowerPoint slides and saying, “Read through this and understand it.” It’s by having personal conversations.

I had zero experience with racial or ethnic diversity from my upbringing or where I went to school. So my first experience was my first duty station and the first platoon that I led—

70 / CHIEFEXECUTIVE.NET / SUMMER 2021

about 60 people. All of my next-line leaders were African-American men whom I’d never worked for or with. I learned to be a really good listener, to ask questions and to be interested in their lives and the experiences that they had, and to think about what was different and what was the same and find ways to bridge gaps and capitalize on shared experiences.

The higher up you get, the harder it is to devote time and make an effort to take stock of who’s there. You won’t be able to do it to the same degree with every person in your organization, but creating a culture where first-line leaders do that is really important.

On handling divisive topics in the workplace…

It goes back to listening to diverse perspectives and trying to understand why people might feel the way they feel. We couldn’t talk about partisan things, but in 2016, I was teaching my class and we were having a conversation about diversity in the army and different policies. One of my students started to pop off about affirmative action programs and how the minority admissions at West Point meant that his friend who had all the qualifications did not get in. The best kid I had in my class was this guy named Isaac who happened to be an African-American from Alabama.

He was always the most prepared and contributed the most illuminating insights. Isaac said, “I know I benefited from that, and I feel badly about it.” I said, “Don’t. Everyone in here should be thanking you that a policy existed that helped you to get here because everyone in class is smarter as a result of your contributions to this class.”

Another student said, “Huh, nobody ever explained it that way. It was always explained as if you were taking something away from my group of people and not the fact that I’m better off as a result.” So, it was a great conversation. Approaching things with kind of a calm head, establishing some ground rules, trying to get to the understanding of why people feel the way they feel, and sticking to facts while having leaders who are able to definitely read the room and help control the emotion—doing all of that is better than not talking about it at all. CE

PE-BACKED CEO SUMMIT DECEMBER 6, 2021 | Nasdaq Marketsite, New York Navigating the Unique Leadership Challenges of Private Equity-Backed Companies Join your CEO peers of other PE-backed companies to establish new relationships and learn strategies to help you win in 2022 and beyond.

Discussion topics will include: • Working within the constraints of shortened timelines to create value • Building a winning M&A strategy • Negotiating against PE firms for your compensation • Navigating cultural challenges within a “flip” mentality • Managing the unique relationship with your PE investors • Determining the right exit strategy

CE

60 /

Register by July 30 to save $100 off the in-person rate with code CELive100 To learn more and register, visit: ChiefExecutive.net/PEBackedSummit CHIEFEXECUTIVE.NET / MAY/JUNE 2019

L AST WOR D

MICHAEL DOWLING \ NORTHWELL HEALTH CEO

WHAT I LEARNED FROM COVID

Leading New York’s largest healthcare system through its biggest, longest crisis wasn’t easy—but it was educational.

AS THE LARGEST HEALTHCARE provider and private employer in New York state, we were at the epicenter of Covid-19 from the very beginning.

By April, we had almost 3,500 Covid patients in our hospitals on a day-to-day basis, which put an awful lot of pressure on the organization. Over the past year, we treated more than 200,000 Covid patients. As horrific as it was—we had days with 100 deaths—we learned some valuable lessons that every organization should be considering in preparation for the next crisis that will call: Develop a basic emergency management disaster preparedness infrastructure.

It’s imperative that you have a plan with all the processes and the people in place so you’re able to turn it on quickly when something bad happens. We created our infrastructure prior to 9/11, and we had to activate it, of course, during 9/11, hurricanes Sandy and Irene, as well as during the H1N1 and SARS epidemics.

The tabletop exercises we do on an ongoing basis became unbelievably important to allow us to be as prepared as we were, even though we got lots of surprises along the way.

Integrated systems are key. If that the

Michael Dowling is president and CEO of Northwell Health and author of Leading Through a Pandemic.

idea was ever in doubt, Covid showed that having hospitals, long-term care, primary care, ambulatory care and the academic side of our organization all working together in unison on an ongoing basis in an integrated fashion was absolutely key.

We did a lot of what we call load balancing, moving patients from one hospital to the next so that none of them got overwhelmed. I cannot imagine how you could have dealt with a lack of connection and coordination in the middle of Covid. You cannot be figuring these kinds of things out during a crisis,

72 / CHIEFEXECUTIVE.NET / SUMMER 2021

particularly one like this that came on so quickly and has lasted so long.

You need a good supply chain infrastructure. We have our own GPO. We

had our own warehouses. We were the first to require everybody to put masks on, yet we never ran out of PPE, not even close. We had plenty of equipment, not everybody was in that situation, but that was because we had built up a supply chain infrastructure.

Take extraordinary care of your people.

We provided daycare, hotel rooms, a $2,500 bonus to every staff person who engaged with Covid and seven days paid time off for every employee. That was a big investment at a time when all of our other business was curtailed and we were losing revenue. But during Covid, we had the largest increase in employee engagement in our history. We got to the 91st percentile nationally, and we actually got No. 19 in Fortune 100 places to work recently, which tells you something about the importance of what you do on frontline staff.

Be visible. The leadership of the orga-

nization has to be out on the floor on an ongoing basis. I personally walked the floors of every unit. I was in every Covid unit, in every hospital on a regular basis.

If you’re going to ask your frontline staff to go into the trenches, you’ve got to go there with them. It develops this sense of unity and that support that became absolutely invaluable.

I’m a big believer that it’s not what happens to you that matters. It’s how you react to it. This has been a transformational year.

It has definitely changed our individual perspectives and the perspectives of our organizations. I believe firmly that we will, at the end of the day, learn and adapt from it and be better off for that. CE

CH I

E IV

EXECUT F E

CEO100 mentor John Lundgren (former Chairman & CEO of Stanley Black & Decker) speaking with a CEO

NE

T WORK

The peer group exclusively for CEOs who run companies with $100M+ in revenue

The CEO100 network offers members: • A personal board of advisors running like-sized companies • CEO mentoring from battle-tested CEOs of billion-dollar companies • VIP access to top events • Research /Intelligence

Find out how to become a member of the CEO100 today and what it can do for you.

ChiefExecutiveNetwork.com/CEO100

The Fastest Route to Market Runs Through Kentucky From Build-Ready Sites with permits and plans on file to at-the-ready workforce training partners, Team Kentucky approaches your project with the same urgency as you. We want to get you to market quickly and seamlessly, which is why Kentucky’s state agencies, local officials, utilities and higher-education institutions collaborate to save companies time and money.

Located within a day’s drive of more than two-thirds the U.S. population and with 500-plus automotive suppliers in-state, Kentucky is prepared to speed ahead in today’s ever-evolving auto industry. Learn more about how the Bluegrass State can help your business grow.

(800) 626-2930

CED.ky.gov