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#04 December 2021

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[ Foreword ]

Let’s change for the better

A

Illustration: Jörn Kaspuhl

round the world, leaders are struggling with “The Great Resignation” – employees quitting in droves, often without a replacement job lined up. A recent McKinsey survey found that 40% of employees in Australia, Canada, Singapore, the UK, and the US say they are “at least somewhat likely to leave their current job in the next three to six months.” In a world in which talent is arguably the number one success driver, this is understandably unnerving executives. What should send tremors across C-suites, however, is not that employees are rethinking their priorities – after all, we observed something similar after 9/11 and know that life-altering experiences, such as a global pandemic, tend to have this effect. Rather, it is that employers’ assessment of the causes is way off. Employers point to transactional factors such as compensation, a “better job” elsewhere, and employees’ desire to work remotely, according to McKinsey. In contrast, employees say their decision to stay or go depends much more on the quality of relationships – how much they feel valued by the organization, how much their manager values them, and whether or not they have a sense of belonging and potential for advancement.

Dynamic labor markets are generally a good thing. Indeed, some organizations are deliberately seeking to turn the current upheaval into “The Great Attraction” as they lure talent with clear corporate purpose, values-based leadership, and stepped-up commitments to diversity, equity, and inclusion. But attracting top talent is only the first step, as this fourth issue of I by IMD demonstrates by spotlighting new research, fresh voices, and dispatches from the frontiers of leadership and talent development. In his contribution to this issue, Wharton professor and human resources expert Peter Capelli calls on leaders to return to in-house talent de-

velopment rather than de-facto outsourcing it by prioritizing talent attraction. My IMD colleagues Ric Roi and Misiek Piskorski offer an ambitious roadmap for organizations to develop their top talent into ambidextrous leaders who can optimize today’s business while creating tomorrow’s. The key, they argue based on extensive research, is to tightly integrate all aspects of talent assessment and development, and to deeply enmesh them with company strategy. Herminia Ibarra and Kathleen O’Connor reach a similar conclusion when it comes to gender equity – internal sponsorship programs for women work best when they focus in equal parts on talent development and on organizational change. Tomas Chamorro-Premuzic brings us full circle in his contribution – to “fix gender diversity programs,” he argues, organizations should “focus on talent rather than gender” – and Kate Waters turns this into a post-pandemic action agenda that de-genders “great” leadership.

This fourth issue of I by IMD is full of novel and practical insights on how to ensure that today’s top hire does not become tomorrow’s high-profile departure. Capelli argues that employers cannot expect employee commitment unless they reciprocate. He’s right.

David Bach, Dean of Innovation at IMD December 2021 • I by IMD 1

[ CONTENTS ] 04 [ In good company ]

Shareholder capitalism and not corporate monopolies are the real problem, argues Jerry Davis.

08 [ Family business ]

Alvanon, a Hong Kong based company, is using digital technology to transform the world of fashion.

13 [ Leadership progression ]

Talent management programs need to be tightly coordinated if they are to succeed, write Ric Roi and Misiek Piskorski.

24 27 [ Leadership progression ]

Action is needed if we are to address the gap between the leaders we need and the leaders we actually get, argues Tomas Chamorro-Premuzic.

29 [ The human factor ]

Hybrid working has many advantages, but steps must be taken to ensure it offers equal opportunities for all.

32 [ In my view ] 18 [ Leadership progression ] Conflicting tensions in the workplace are inevitable, but ‘embracing the paradox’ might offer a solution, according to research.

22 [ Leadership progression ] A candidate for promotion may not tick the obvious leadership boxes, but Maikel Klomp is proof that this may not be a bad thing.

24 [ Leadership progression ]

08 2 I by IMD • December 2021

Mentoring programs all too often fail to propel women into senior roles, powerful sponsors with specialist training could be the answer.

The attributes that make a great leader should be de-gendered, argues Kate Waters.

34 [ Talent management ]

The traditional model of developing talent in-house has been largely supplanted by outsourcing. Peter Cappelli examines if it’s time to go back to the future.

37 [ In the mind’s eye ]

Today’s leaders need to train to become more open, flexible and agile, advises George Kohlrieser.

38 [ CEO dialogue ]

Alain Dehaze, CEO of the Adecco Group, and his young protégé Jordan Topoleski discuss the lessons

learned from each other.

42 [ C-suite dilemma ]

Research shows that CEOs start to decline, on average, after 14 years in the job, but some may be let go soon, writes Markus Schmid.

Cover: Zeta Cobb by David Howells / Illustration: Jörn Kaspuh / Photos: Alvanon, Cristian Tarzi via Unsplash

29

45 [ C-suite dilemma ]

Becoming a CEO is tough and represents the peak of a business career, but what to do next can be just as challenging. Read our expert advice on how to handle the transition.

48 [ The leading edge ]

To ensure success, newly appointed leaders must move quickly to get the right team around them, writes Michael Watkins.

51 [ World view ]

Digital ‘nomads’ are traveling the world in search of a new home. Arturo Bris gives a rundown of the countries that offer the warmest welcome.

57

42

54 [ Sustainable action ]

Illustration: Jörn Kaspuhl / Photo: Shutterstock, www.blueorigin.com, Fredi Lienhard, ZVG, Press Corner, google.com

IMD experts identify key trends that will drive sustainable business transformations in 2022.

34 61 56 [ Office life ]

Visit Alyson Meister at the Help Desk to find evidence-based solutions to your workplace problems.

57 [ Future directions ]

Technology giant Siemens is using artificial intelligence to drive brand awareness and customer engagement. Mark Seall, the company’s Head of Digital, explains how it’s done.

61 [ The forecaster ]

Howard Yu unveils The Future Readiness Indicator, a tool to help companies prepare and respond quickly to future challenges.

45

64 [ Managing change ]

Many experts insist recent supply chain disruptions are evidence that the system needs a complete overhaul, but the truth is more complex.

More analysis and opinion in the March issue.

66 [ Counterpoint ]

Josef Joffe assesses the legacy of Angela Merkel and what to expect now from Europe’s biggest economy.

December 2021 • I by IMD 3

[ In good company ]

Biden’s anti-monopoly crusade won’t fix our economic woes The tools that tamed corporate monopolies a century ago will not save us today and creating more competition will not help.

The real problem remains shareholder capitalism, argues Jerry Davis

platforms creating a safe space for sedition.

By some measures, Big Tech companies have acquired an unprecedented amount of economic clout: at the time of writing, the combined market caps of Alphabet, Amazon, Apple, Facebook and Microsoft make up one-third of the value of the S&P 500. But while it is true that a few corporations have become immensely powerful in recent years, we are not living through a re-play of the Gilded Age, and the tools that tamed corporate monopolies a century ago will not save us today. Big Tech is different in kind from Big Business and requires new tools to check its power.

The executive order’s buffet of initiatives follows on from a familiar diagnosis: economic and political power has become too concentrated in the hands of monopolists. The cure is straightforward: ensure more competition and we will see lower prices, higher wages, less inequality, and more opportunity.

The return of monopoly power?

It is certainly long past time to take on corporate power, but the problem is much deeper than monopoly. We are in the midst of a massive technology-driven re-organization of the economy that requires a comprehensive reassessment of the categories we use to understand the economy. The definitions of employee, firm, industry, income and nationality are all in flux. After the broad adoption of work-from-home edicts during the COVID-19 pandemic and the passage of California’s Proposition 22 (which granted app-based transport and delivery firms the right to classify their drivers as independent contractors, rather than employees) we are likely to see a further shift in labor markets away from employment and toward gig and contract work. This will make labor markets much more competitive, but it will not leave Americans better off.

The monopoly narrative goes like this: corporations grew large and concentrated at the turn of the 20th century through a combination of economies of scale, Wall Street dealmaking, and questionable business tactics. Congress sought to tame these new giants through progressive antitrust legislation that saw monopoly as a threat to liberty and democracy: the Sherman Act of 1890 and the Clayton Act of 1914. New Deal legislation further constrained the power of corporations and Wall Street and empowered organized labor as a counterforce.

There is no end to the catalog of business misbehavior in recent times, from Purdue Pharma fomenting the opioid epidemic to social media 4 I by IMD • December 2021

The three years since Tim Wu published his book, The Curse of Bigness, have seen dozens of other titles published on the resurgence of corporate monopoly power. Most adapt variations on Wu’s diagnosis, including the Biden Administration’s executive order.

The resulting post-war detente supported economic growth, opportunity, and mobility, with a corporate sector safely held in check by vigilant antitrust measures. But in 1978 Robert Bork published an infamous book, The Antitrust Paradox, which argued that the true goal of antitrust was to keep prices low for consumers, and that only those schooled

Illustration: Jörn Kaspuhl

T

he Biden White House is challenging corporate power more aggressively than any administration since the Progressive Era. Biden has appointed prominent anti-monopoly activists to crucial posts: Lina Khan to chair the Federal Trade Commission, Tim Wu to the National Economic Council, and Jonathan Kanter to direct the Department of Justice’s Antitrust Division. On 9 July the President signed an executive order that included 72 initiatives aimed at reining in corporate power across the board.

in the economic arts were qualified to judge corporate behavior.

Reagan-appointed regulators and judges were mesmerized by Bork, and antitrust enforcement went dormant for 40 years. As a result, a centripetal force overtook nearly every industry, and through mergers and shady corporate behavior we found ourselves with monopolies everywhere (but especially in eyeglasses, airlines, and beer). This has raised prices, lowered wages, and undermined liberty. In the words of Barry Lynn, “Whatever you are angry about, somewhere in the chain of blame you will almost always find a monopolist.” Fortunately, if we just returned to Louis Brandeis’s vision of antitrust circa 1914, America would be redeemed through the magic of open and competitive markets.

What the monopoly narrative gets wrong

At the center of the monopoly narrative is the claim that most industries and markets have become dangerously concentrated, largely due to the malign influence of Robert Bork. But how factual is the narrative of the anti-monopolists?

Ronald Reagan’s DOJ did indeed relax its guidelines on horizontal mergers in 1982. But his biggest impact on corporate organization was to allow the largest wave of hostile takeovers in history. The industryspanning conglomerates that were built up in the 1960s and 1970s (thanks in large part to antitrust restrictions on horizontal and vertical mergers) were chronically undervalued by the stock market. The whole was worth less than the sum of the parts. With the availability of new forms of bridge financing such as junk bonds and a favorable regulatory climate, it became possible for raiders to buy bloated corporations from their shareholders, fire their managers, and sell off the parts for a quick profit.

A lasting legacy of the takeover wave was the ascendance of shareholder primacy; the idea that corporations existed first and foremost to create shareholder value, and that any corporate deviation from this mission should be punished. The shift from traditional defined benefit pensions to 401(k) (defined contribution) plans, and the growing popularity of retail investment in mutual funds, meant that most American households were at least somewhat invested in the stock market by 2001, which further reinforced the idea that shareholder value was the North Star.

Has industry been dominated by monopolists since 2000? The second paragraph of Biden’s executive order “fact sheet” opens, “For decades, corporate consolidation has been accelerating. In over 75% of US industries, a smaller number of large companies now control more of the business than they did 20 years ago.” Most of the anti-monopoly tracts cite this same figure, taken from a recent article in finance. But the study relies on global sales data for US-based corporations listed on American stock markets, with industry defined at the 3-digit NAICS level (I know, bear with me). Why is that a problem? First, corporations routinely operate in many different industries. In 1980 Westinghouse built nuclear plants, locomotive engines, wrist watches, high school curricula, financial services, and bottles of 7Up, among many others. Attributing all of a corporation’s revenues to just one industry gives a distorted picture of that industry’s concentration.

Second, American corporations have been global for generations, and are even more global now. Between 30% and 40% of the S&P 500’s revenues are from outside the US. Two-thirds of Netflix’s subscribers are outside North America; 67% of Apple’s revenues come from overseas; and 100% of Yum China Holdings’ sales of KFC and Pizza Hut are in China (but because Yum China is incorporated in Delaware and listed on the New York Stock Exchange, it is an “American” restaurant chain).

Global sales are irrelevant for American market concentration. Likewise, some American giants have foreign parents, including Anheuser-Busch and Chrysler, which removes them from the data. And some evidently American corporations like Accenture and Medtronic are incorporated overseas for tax reasons. Third, since 2008 dozens of major corporations have left the stock market, either for a few years (GM, Dell, Hilton) or for longer (Albertsons-Safeway). Private equity has grown by several trillion dollars and owns many of the biggest firms in several industries; it is simply not possible to assess concentration using only listed companies.

Lastly, 3-digit industries can be quite broad. Coach, Nike, and Skechers are all in the same NAICS industry, but are in no real sense competitors.

‘Is Zoom a giant corporation?

Should we break it up? And how did a pipsqueak like Zoom out-compete monopolists like Google, Facebook and Microsoft, all of which have rival products?’

The evidence that industry has become dangerously concentrated in recent years is weak, unsystematic, and inconsistent, and doesn’t always tell us very much about the actual state of competition.

An industrial organization economist would point out that national sales revenues are not very informative about rivalry on the ground.

Olive Garden’s corporate revenues say nothing useful about the rivalry among Italian restaurants in my town. Indeed, retail and other services are among the industries that have seen the greatest consolidation at the national level, driven in part by new technology-enabled economies of scale, yet at the local level these industries have often become even more competitive, as national chains move in to contest local markets.

Rivalry among car repair shops, funeral homes, therapists, and real estate agents are also mostly local.

But there is a more fundamental difficulty in figuring out whether the “curse of bigness” has led to industry monopolization: the digital revolution has left basic categories such as size and industry hard to parse. Put plainly: if a monopoly is a giant corporation that dominates an industry, what happens if “industry” and “giant” and “dominance” no longer scan? » December 2021 • I by IMD 5

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