Best Ideas 2020: Finance | Diversity Reality Check | Raise Your EQ | New Tort Madness
THE VOICE OF AMERICA’S CEO COMMUNIT Y | SEPTEMBER/OCTOBER 2020
COTE AND CRISIS Honeywell’s legendary former CEO David Cote on making the most of extreme challenges BY RAM CHARAN PLUS: Marshall Goldsmith’s best advice for CEOs right now Patrick Lencioni: 4 skills the great executives master
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C ONTENT S
S E PT E M B E R /O C TO B E R 2020 No. 307
FEATURES COVER STORY 20 ‘THE THINKING COMPANY’ What happens when corporate sage Ram Charan and 2013 CEO of the Year David Cote sit down for a candid conversation? A prescription for delivering short- and long-term results—at the same time. Interview by Ram Charan 20
LEADERSHIP 30 ‘BE HUMAN’ Marshall Goldsmith is the among the world’s most revered CEO coaches. His best advice for you right now? It has nothing to do with business or financial strategy. By Dan Bigman
CEO TOOLBOX 36 RAISING YOUR EQ Looking for emotional investment from your employees? Show them that you care. By Dale Buss
BEST IDEAS 2020 42 MONEY MATTERS Getting financials right is a big part of what will get you through a crisis. Some ideas. By Dale Buss
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SMART MANUFACTURING 50 EMBRACING INDUSTRY’S
NEW REALITY Leaders share strategies for adapting to supplychain upheavals, Industry 4.0 and safety practices post-Covid.
CEO ROUNDTABLE 52 BUILDING YOUR FACTORY 4.0
WORKFORCE Covid-19 both helped and hindered the challenges of retaining and retraining skilled workers, say CEOs.
42 COVER PHOTO: MATT FURMAN
C O NTE NT S EDITOR
Dan Bigman EDITORS-AT-LARGE
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EDITOR’S NOTE
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Candid on Covid
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8 LEADERS 8 Diversity and Inclusion Reality Check Not where you want to be with your D&I program? Here’s why.
EXECUTIVE CHAIRMAN
12 Law Brief / Daniel Fisher Tort Fatale
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14 Transformation / Patrick Lencioni The Mystery of the ‘E’ in CEO 16 On Leadership / Jeffrey Sonnenfeld CEOs and Racial Inequity
54 ECONOMIC DEVELOPMENT Regional Report: The Southeast Green shoots in the nation’s Southeastern states. By Craig Guillot
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PLANE ADVANTAGE Fly Buying Prices are down and interest is piqued in the postpandemic marketplace. By Dale Buss
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64 LAST WORD The ‘Miracle’ Formula Gold Medal Olympian Jim Craig on getting your team ready to win, not just compete. By Jennifer Pellet
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Insights from Chief Executive Group’s CEO Confidence Index, a widely followed monthly poll of CEOs, and 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. NEARLY 500 CEOS SHARED THEIR ECONOMIC OUTLOOK WITH us in August. The consensus: a return to growth in 2021. CEO optimism is clearly on an upward climb, and our CEO Confidence Index is now back to pre-Covid levels (and 8.6 percent higher than it was this time last year). In fact, more than half of the CEOs we surveyed told us they’re expecting increasing revenues and profits by Q3 of 2021, and more than a third are positioning for growth by increasing capital expenditures and adding to their workforce. That’s a significant boost from the lows we observed in April and May. Not everyone agrees on the journey there, however, and some of you remain concerned that we could face more hurtles before we come out on the other side. And while a lot of uncertainties remain, there are also opportunities to make a difference and help speed up the recovery. Peter Altschuler, president of Wordsworth & Company, says this is indeed the perfect time for corporate leaders to assume control of the healthcare, economic, social and education situation in the country. “If business executives address the dynamics of the pandemic, combine forces to provide access to employees with the skills to help devise workable solutions (office/worker safety, testing programs, work scheduling, remote capabilities, transportation, medical/preventive care, mental health options, housing, etc.) and coordinate with willing government officials, a gradual return to effective operations is likely to happen sooner,” he says. His opinion was echoed by several other CEOs who feel business leaders must find the resolve to succeed against this crisis by bringing back furloughed workers and having the confidence to risk capital on new products and services to get the economy back in gear. In the words of Casey Mahon, president and CEO of St. Cloud Window, if we play our cards right, “the comeback could be in the form of a tsunami.”—Melanie Nolen CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW TRAILING 12 MONTHS
7.00
6.99
6.74
6.65
6.61 6.36 6.18
6.59
6.24
Aug.'19 Sept.
6.64
6.71
6.50 6.40
Oct.
Nov.
Dec. Jan.'20
Feb.
Mar.
Apr.
Chief Executive’s CEO Confidence Index is measured on a scale of 1-10.
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ED I TOR ’ S NOTE CHIEF EXECUTIVE OF THE YEAR
CANDID ON COVID IF YOU’RE A MOVIE BUFF, YOU MAY KNOW SANDY CLIMAN AS one of Hollywood’s most respected executives, President of Entertainment Media Ventures and a key architect behind the rise of Creative Artists Agency, which once represented elite talent, including Robert De Niro, Robert Redford, Kevin Costner, Danny DeVito and Michael Mann. But if you’re a close friend of Climan’s—and you’re a CEO—you probably think of him as something else lately: A clearinghouse for Covid information. That’s because, before he was a Hollywood power player, Climan got a masters from the Harvard T.H. Chan School of Public Health (where he now advises the Dean) and later served on the Advisory Committee to the DirecSandy Climan tor of the Centers for Disease Control and Prevention. As you’d expect, his phone’s been ringing lately. Mostly, he puts F500 CEOs in touch with the right expert to help with a specific question. Given his unique perspective, I was curious what he makes of the current situation. So, in early August, I gave him a quick call. Bottom line: He’s longterm optimistic, because he knows we’ll beat Covid in time. Shorter term? Not so much. A LONG ROAD
“I think we’re looking at another year,” he told me. Why? Because America has simply not been able to get control over the virus so far, and the virus has proven to be far more contagious than scientists first believed. “The more that we delay the activities that are the hard shutdown, maybe not of the economy but of behavior that will flatten the virus, the longer we will be in a continuing state of the virus being omnipresent.” “My sense of it is that we are holding out a lot of hope for therapies and remedies, as well as for a vaccine,” he said. “And the thing that worries me a great deal about the biotechnology of the vaccine development is that to some degree, we are reviewing it in the public eye more than we ever have but we’re also feeling an enormous need to deliver a positive answer. Only time will tell whether you can deliver a positive answer.” In the meantime, he worries about a burgeoning mental health crisis fed by the stalled economy and exacerbated by shut-down schools. How can CEOs help? By rethinking perks, for instance. “Is a perk that you get a bunch of granola bars? Or is the perk that I give you a mental health program and some coaching, and access to telemedicine and therapy for you, for your kids? Can I give you tutorial support for your children?” Moves like this will be essential for the country to come back, he said. Business can—and should—lead the way. “Americans have always taken the position that we are responsible for more than that which we look out the door and see every day,” he said. “We are responsible for each other and, in a way, we have to set an example for the world about how we behave. Business has been part of that presentation to the world. We need to show the world that we can do more.” —Dan Bigman, Editor, Chief Executive
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2020 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.
ROBERT NARDELLI Chief Executive, XLR-8
THOMAS J. QUINLAN III Chairman, President and Chief Executive, LSC Communications
JEFFREY SONNENFELD President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management
ARNE SORENSON President and Chief Executive, Marriott International 2019 CEO of the Year
CARMINE DI SIBIO Global Chairman & CEO, EY Exclusive Adviser to the Selection Committee
TED BILILIES, PH.D. Chief Talent Officer, Managing Director, AlixPartners
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LE AD E R S
DIVERSITY AND INCLUSION
REALITY CHECK
Not where you want to be with your D&I program? Here’s why. BY JOHNNY C. TAYLOR, JR. RECENTLY, I RECEIVED A CALL from a Fortune 250 CEO who said, “Johnny, I’m tired, and I’m frustrated. We have spent more money, I’ve spent more of my own time, and we’ve worked on this diversity issue for longer than just about any other program we have, but we’re just not making any progress. What am I doing wrong?” Like those of so many other well-intentioned leaders, this CEO’s efforts to increase diversity ultimately failed to move the needle on the company’s ability to recruit and retain diverse employees. He is hardly the only CEO who has come to me with that problem. From our work here at the SHRM—the Society for Human Resource Management—and my own experience, I advise CEOs that, if their D&I investments aren’t getting a return, it’s typically due to one of these three errors: 1. YOU’VE PICKED THE WRONG PERSON.
In many companies, when a D&I program first gets going, the CEO chooses someone internally to head it up. It’s typically an individual who happens to be a member of the diverse community the company is trying to reach and someone who seems to feel passionately about the issue. That
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individual is taken off of whatever team they were on and put in charge of D&I. (Or worse, they’re given a D&I assignment in addition to their day job.) I would argue that if one of your people is heading up, say, an IT group, and you’re willing to give them up to go run D&I, they’re probably not the star performer you thought they were. Even those companies that go outside the organization for a D&I lead often don’t give the search process the same level of scrutiny and rigor they would demand from any other critical role. They find someone who checks all the boxes, give that person a budget and hope for the best. That’s a recipe for failure. I’m a CEO, and, while I think I’m pretty smart, I wouldn’t know a good technology infrastructure if it hit me in the face. That’s why I go through an exhaustive and thorough process to hire a chief technology officer who can tell me what a good security infrastructure looks like and ensure that someone doesn’t take our system down. The same is needed for CEOs who know little about building diversity. Diversity is hard, and inclusion is harder. The fastest way to screw up a D&I initiative—or any business initiative, for that matter—is to
choose the wrong person to design your strategy and operationalize it. 2. YOU UNDERINVESTED RESOURCES.
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Another CEO I worked with found the right person for the job but starved the initiative. Remember Y2K? As early as January 1998, when we saw that impending threat of a potential shutdown of our systems, we were willing to put whatever resources we needed to ensure our businesses were operating at 12:01 a.m. on January 1, 2000. A czar was brought in to head up the effort, and we gave them free access and whatever budget they asked for—because we knew how much was at stake. So, the question is, how important is D&I
to you, to your workforce, to your company’s future? In the weeks following George Floyd’s brutal murder, I heard a lot of concern and interest from company leaders. But will they still be as interested in six months? Statements of support for equality are fine, and they’re needed, but—and this may sound cynical—we’ve been here before. Tamir Rice. Freddie Gray. Eric Garner. The level of investment a company makes in solving a problem is how I judge how seriously they take the problem. It’s where the rubber meets the road. To be fair, we’re battling a global pandemic, coping with recession, and some of us are worried about keeping the lights on. So, spending is understandably reined way
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LE A D ER S
in. But if you truly believe that a lack of diversity in your organization is an existential threat to your business, and if you are as fed up with inequality as you say you are, then, platitudes and statements aside, you need to put the resources into it that you would for any existential threat to the business. It’s not just money. Organizations need to invest time and effort to learn all they can about racism and bias in their own organizations. In short, they need to courageously commit to change. But they don’t need to do it alone. At SHRM, we have created a new initiative, Together Forward@Work (shrm. org/tfaw), that provides a multi-faceted platform designed to help the business community drive racism and social injustice from their workplaces by adopting specific actions and measurable outcomes. This is an open platform—anyone can access the data and tools—so all it requires is a commitment to learn. When Covid-19 hit, not one company that was an essential business and needed people to come to work every day said they could not afford to invest in PPE—it was critical. So, the question is fairly simple: Are you as committed to D&I as you are to your other business problems and the necessary investment to fix them? Of course, a key question CEOs sometimes fail to ask is, “Why are we doing this?” If you’re investing in diversity simply because “it’s the right thing to do,” it will likely fail. As a CEO, you can’t afford to invest heavily in anything that’s “the right thing to do” but isn’t aligned with your business goals. Do it because you need access to top talent (which means having your share of access to underrepresented groups), because you need to mirror your customer base, because your company’s future success requires it—or don’t do it at all.
For those who think white males are the only people suffering from implicit bias, I have news for you: we’re all susceptible.
Johnny C. Taylor, Jr. is president and CEO of SHRM, the Society for Human Resource Management.
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3. IT’S NOT A “CULTURAL TRUTH.”
At many companies, the CEO believes in D&I, but you don’t have to look very deeply into the organization before you realize that not a whole lot of the folks lower down in the organization get it or have the same passion about it—and so it fails. In those cases, even if the company manages to recruit some diverse employees, they can’t retain them because they haven’t created a culture of inclusion, one that not only tolerates diversity but embraces and celebrates it. Consider the twin cultural values of honesty and integrity. As CEO, if I conclude through any number of data inputs that an employee is not trustworthy—that he would cheat if given the opportunity, I wouldn’t care if he was the most talented guy in the world—he can’t work here. Are you willing to part with talented executives who don’t share your passion for creating a diverse organization? Are you prepared to say D&I is one of our Cultural Truths and, if you’re not on board, go elsewhere? Because that’s how you get true inclusion. Without that commitment, it’s just an empty statement. Some have tried to incentivize the right behavior through compensation. It won’t be enough—and, in some cases, we’ve seen it backfire badly. Wells Fargo showed us how poorly misplaced incentives can play out; they ultimately incentivized their people to open fake accounts—and the bank’s brand still hasn’t recovered fully. You can tell your direct reports that, over the next year, you want a 5 percent increase in hires of diverse employees, but you’ll likely have a manager who hires 8 percent to go above and beyond, and he won’t necessarily screen for the technical competency or the right cultural alignment. He’ll do it because that’s what you’re rewarding him on. Thinking you can bonus your way to the right results is, frankly, naïve. D&I works when it is literally a part of the way business operates, when it’s a Cultural Truth and everyone who comes through understands it and buys into it, or they don’t work for you.
LE A DE RS
GETTING BETTER AT D&I Here are a few more key points for CEOs looking to improve their program: DIVERSITY MEANS ALL DIVERSITY, EVEN IF YOU DON’T AGREE. It’s understandable to focus on the underrepresented, which often means race and gender, but for diversity to really become a part of your culture, it can’t be limited to those groups. If you say diversity, you have to mean real diversity—race, gender, national origin, sexual orientation, disability, gender identity, age, political affiliation. You have to be very intentional about that because oftentimes, when people say they value diversity, they mean, “I value diversity as long as I agree with it.” But if one of your Cultural Truths is to respect diverse perspectives, then we have to follow that whether we agree or disagree. Obviously, we don’t tolerate hate or violence, but excepting that, we have to respect diversity and inclusion broadly. I’m not saying ignore the current situation, and my intention is not to water down the very real need for racial justice in this country. If my doctor calls and says, “You have lung cancer,” I don’t want him to start treating other parts of my body. I’d like him to focus first on my lungs. We are at a reckoning point with race, and we do need to deal with this very pressing issue in front of us—but we can’t neglect other areas of inclusion. If we really are going to have sustainable change, we should tackle the issue of race while building an infrastructure to make the entire organization better at respecting diverse groups and perspectives. THIS HAS TO COME FROM A PLACE OF EMPATHY. If you have diversity training and you bring people into a room and beat up on them for their biases, you’ll get nowhere. But if you ask them to imagine walking a mile in someone else’s shoes, that moves the needle. When I’m talking to people about what it’s like to be Black in America right now, I try to explain the fear that a young Black man experiences when a police car approaches them. I say, “Imagine, just for a moment, if your 12-year-old son had that same fear every time they heard a siren.” They get that. The empathy muscle has atrophied over time in this country. We have to exercise it, rebuild it,
challenge ourselves to walk a mile in each other’s shoes—that’s when we will understand each other’s pain. To the extent CEOs can build up that atrophied muscle within their organizations, that’s when we will start seeing the kind of cultural change we’re after. It’s also when you’ll be able to spend fewer resources over time because you will have solved for this problem. We don’t spend any more money on Y2K because we solved for that immediate crisis and now are in maintenance mode to protect the systems we have. THIS IS A JOURNEY—FOR ALL OF US. For those who think White males are the only people suffering from implicit bias, I have news for you: we’re all susceptible. We all have biases. We can’t assume that someone is open-minded and embracing diversity and inclusion because it’s a Black guy with a Harvard degree. It would be easy to turn this is into, “White people have to do better,” but everyone in the workplace has work to do when it comes to D&I. All of us are evolving because societal norms are evolving. That’s why we have to think of this as a journey that has no absolute end point. We (all of us) are evolving as a society together, and, as long as we stay open to it, we can move the needle. But we can’t leave it to government to fix this problem. Having Barack Obama as president didn’t save Freddie Gray. Corporate leaders have to play a role, along with government and civil rights advocates. And the human resources profession, teaming up with America’s CEOs, can lead the way. Putting aside the Covid-related unemployment, nearly 160 million Americans go to work every day— that means we’ve got our people captive for eight to 12 hours a day (even if they are working remotely). Imagine how we could influence the mood and actions of this country if we really stepped up. Imagine the influence on the narrative and on our collective actions if we created better workplaces that led to a better world. As the Chinese proverb goes, every journey begins with a single step. We just have to be willing to take it. CE
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LE AD ERS LAW BRIEF \ DANIEL FISHER
TORT FATALE
An attempt to rationalize Roundup litigation gets stuck at the gate.
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Because nearly everyone except plaintiff experts and the WHO considers Roundup safe, Bayer has no plans to take it off the market. Farmers around the world depend on glyphosate to keep weeds down and crop yields up, and long-term epidemiological studies of agricultural workers find no correlation between glyphosate and NHL. The EPA even prohibits Bayer from putting a cancer warning on the label because that would be misleading. Bayer’s solution was innovative. With the help of a prominent class-action law firm, it would form a special class of everyone who had been exposed to Roundup but hadn’t yet sued. They’d get $1 billion up front, including payments to people diagnosed with NHL, in exchange for dropping their right to sue while a “science panel” composed of experts from both sides reviewed the literature and decided once and for all whether glyphosate is dangerous. If the panel ruled for Bayer, the litigation would go away. If it ruled for the plaintiffs, they could still sue but without the right to seek punitive damages or medical monitoring, two of the most potent claims in the plaintiff lawyers’ arsenal. Anyone who didn’t like the terms could opt out up front. It seemed like a brilliant solution—but then the U.S. Constitution got in the way. The asbestos industry faced a similar problem in the 1990s and tried to solve it with a global settlement that would bind present and future claimants into one massive agreement. But the U.S. Supreme Court’s landmark 1997 decision in Amchem v. Windsor said lawyers for present-day claimants couldn’t negotiate away the rights of future claimants so easily. Soon, rival lawyers were crying “Amchem,” the judge overseeing federal Roundup litigation expressed his skepticism, and the futures class was off the table. That leaves Bayer stuck halfway through the door, with an agreement to end most of the present litigation against it but no apparent solution, other than slugging it out in court, to put to rest the question of whether the most popular herbicide on earth actually causes cancer. CE
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Daniel Fisher, a former senior editor at Forbes, has covered legal affairs for two decades.
BAYER AG INHERITED A FESTERING mass-tort problem when it agreed to pay $66 billion for Monsanto in 2016. Monsanto’s ubiquitous Roundup herbicide—active ingredient: glyphosate—was considered safe by virtually every national regulator, including the U.S. Environmental Protection Agency. But, in 2015, an agency associated with the World Health Organization added Roundup to its list of likely carcinogens that includes everything from cellphones to coffee. American lawyers swung into action and, by the time the Monsanto deal closed, Bayer faced thousands of lawsuits claiming Roundup had caused non-Hodgkin’s lymphoma (NHL), a common cancer that physicians say has no known cause 75 percent of the time. The lawyers soon had three courtroom victories under their belts, including a $2 billion jury verdict. So far, so typical in the American system of tort law. Instead of relying on government experts, jurors decide whether Substance A caused Disease B in a specific plaintiff. It results in haphazard verdicts, but it’s how our courts do business, and companies have learned to adapt. Once courtroom vulnerability is clear, settlement talks usually begin. Plaintiff lawyers who spent millions of dollars on advertising and expert witnesses are only too eager to earn a return on their investment. Legal advertising consultants X Ante estimate plaintiff lawyers spent more than $100 million on television ads to recruit some 100,000 clients, or $1,000 per plaintiff, for the Roundup litigation. Bayer entered negotiations last year under ace mediator Kenneth Feinberg and announced a $10 billion agreement to settle most of the 100,000 outstanding Roundup lawsuits this year. It would deliver around $60,000 per plaintiff and some $3 billion to their lawyers. Here’s where the story takes a twist.
THOUGHT LEADERSHIP CONTENT PROVIDED BY DELOITTE
Footprint Planning and Location Strategy in Light of the Pandemic By Matt Szuhaj THE COVID-19 PANDEMIC IS CHANGING HOW PEOPLE longer-term deployment implications, including potentially work, and companies, based on their specific operations, rebalancing footprints between urban core and suburban may need to make location decisions to align their real estate locations to mitigate any future issues with high-density facilifootprint with their future work models. Going forward, a ties, such as elevator capacities and multi-tenancy. fully remote workforce deployment model is unlikely to be Distribution and logistics centers: Distribution adopted by most large corporations, but a hybrid and logistics centers are becoming increasingmodel may be a reality, with a percentage of the ly important, as consumers have adopted workforce working remote permanently and new purchasing habits during the the remaining managing alternative work There are a multitude Covid-19 pandemic. Organizations arrangements. Furthermore, employees’ reliant on distribution and logistics of factors that affect a level of comfort with returning to ofcenters need to evaluate their company’s ability to fices and the potential for increased facilities networks and confirm that surveillance such as antibody testing, successfully transition to this their facility locations are optitemperature screening and contact mized to mitigate business disrupnew model of work, and a tracing should be considered. There tion impacts and ensure efficient are a multitude of factors that affect a future-thinking corporate delivery while protecting the health company’s ability to successfully tranand safety of employees. location strategy sition to this new model of work, and a Data centers: To support the growing is paramount. future-thinking corporate location strategy digital commerce and logistics demand, is paramount. data center location strategy and mainteManufacturing facilities: The Covid-19 pandemic nance will be an area of ongoing capital investprovides an opportunity for manufacturers to reconsider ment across a number of industries. Now more than their supply chain resiliency and decentralize their manuever, organizations are looking for secure and reliable data facturing capabilities to multiple regional facilities to reduce storage infrastructure to ensure seamless and secure data acdependency on a single geography. Although this approach cess to maintain business continuity and mitigate productivity may contradict recent centralization trends, in the wake of this losses. For some organizations, owning and operating captive pandemic, companies that have continued to thrive are likely cloud-enabled data centers will empower effective manones with geographically diverse manufacturing footprints. agement of their entire data-connectivity pipeline, and site These companies can ramp up operations in locations not selection to help optimize for weather, energy, maintenance heavily impacted by the virus and dial back or shut down in and connectivity is critical. locales that have outbreak concerns. The breadth and depth of impacts of the Covid-19 pandemic Corporate offices: For organizations that depend on in-office have yet to be fully realized; however, one component that interactions to maintain productivity, leadership will need could set companies apart is the willingness to make capital to determine and implement clear policies and procedures investments in facilities to increase operational footprint resilprior to returning to the workplace to ensure the health and iency and mitigate business continuity risks. safety of their teams. Organizations that have more flexibility to adjust to a long-term increase in remote work can explore reducing and repurposing their physical office space as well as Matt Szuhaj is managing director in the Location Strategy practice at renegotiating leases. Corporate leaders should also consider Deloitte Consulting LLP | maszuhaj@deloitte.com
ABOUT DELOITTE: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright © 2020 Deloitte Development LLC. All rights reserved.
LE AD ERS TRANSFORMATION \ PATRICK LENCIONI
THE MYSTERY OF THE ‘E’ IN CEO
What’s in a title? Everything.
IT’S AMAZING THAT AN ACRONYM as ubiquitous and commonly used as “CEO” can remain so poorly understood. After two decades of working with chief executives, I have to say that there is still far too much ambiguity about what the word “executive” means and what the role really entails. This is not merely a semantic problem; it leaves organizations confused about what is expected of the person in charge and leads to gaps in responsibility and performance. Believe it or not, it leaves plenty of well-intentioned CEOs unclear about their most critical responsibilities. So, let’s define the “E.” Einstein’s theory of relativity was E = MC2. When it comes to the E in CEO, I’d say E = LMC2. I promise I wasn’t trying to force fit the letters to match the scientific theory. I believe there are four primary responsibilities that encompass the CEO’s role, and these four letters—L, M and two Cs—capture those best. L Stands for Leadership
M Stands for Management
There is nothing vague about this. I’m referring to the discipline of managing
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The First C Stands for Culture
It is the CEO’s job, and no one else’s, to ensure that the culture of the organization is clearly defined and strictly adhered to. That means he or she must lead the effort to establish the organization’s values and make the behaviors that align with those values clear. This is no mere exercise in choosing words for posters or t-shirts, but drawing clear lines around what behaviors are acceptable and unacceptable for all employees. The Second C Stands for Communication
(This is starting to sound like a Sesame Street song from my childhood). The CEO is the primary vessel of communication for employees, providing clarity and context about where the organization is headed, what challenges it faces, what its priorities are. All of this leads me to focus on another “C” in the CEO acronym, the one that stands for “Chief.” The CEO is not the “sole” leadership, management, culture and communication officer. He or she is undoubtedly the primary arbiter of those critical responsibilities. But a big part of leadership is inspiring others to lead. Too many CEOs unwittingly take on the sole responsibility for pushing the organization forward and ensuring accountability around performance and values. This is a recipe, and a popular one, for burnout and resentment. Ironically, one of the most important aspects of leadership is ensuring that other leaders in the organization, especially those toward the top, share in the burden of leadership. But that cannot and will not happen if the CEO doesn’t understand and embrace the L, M, C and C. CE
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Patrick Lencioni, president of The Table Group, is the author of 10 business books, including The Five Dysfunctions of a Team.
I realize this word can seem vague or soft. For a CEO, leadership is about inspiring others to care about the purpose of the organization and the well-being of customers or constituents. It’s about taking risks and being accountable for the success of the organization and the future of its people. It is the most broad of the four, and it could be said that every other responsibility falls beneath it. I would agree. In fact, I honestly believe that the term Chief Leadership Officer would be a much better title for the person at the top. The other three letters clarify the key components of the L.
one’s direct reports, knowing what they’re doing, how they’re doing, and ensuring that they get what they need to succeed in the event of problems. If the CEO of a company does not actively manage his or her team members—this is far, far more common than one would think—it sets a tone for the way people deeper in the organization will or will not be managed.
LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD
CEOs AND RACIAL INEQUITY
What business leaders can— and should—do to steer social change.
DOING GOOD WHILE DOING BUSINESS has long been a goal of business leaders, but recent events have many questioning the efficacy of their efforts. As Ford Foundation CEO and former investment banker Darren Walker pointed out in a recent op-ed, $100,000-a-table philanthropic galas may raise funds for the economically disadvantaged, but have failed to move the needle on underlying institutionalized bias that perpetuate inequities. In July, roughly 300 business titans gathered for Yale CEO Summit seemed in agreement, spontaneously opting to shelve the planned Covid-19-related agenda to instead share unscripted, instinctive responses to recent high-profile racial incidents. They discussed setting up a fund for small businesses impacted by looting, donating to community cleanup, conducting racial sensitivity training and contributing to social justice causes. They also identified three roles leaders can take in furthering social change: Institutional Ambassadors
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Messengers of Meaning
IBM CEO Arvind Krishna said that CEOs must push their companies to create a safe environment where people are comfortable having straightforward dialogues. Goldman Sachs CEO David Solomon shared takeaways from a town hall where three Black partners shared their personal experiences. “We see an enormous imbalance in the way capital is allocated to people of color... these are [areas] where we can make a difference through actions over a long period of time by consistent investment,” Solomon said. Marriott CEO Arne Sorenson stressed “trying to understand the complexity of people’s feelings. Then, beyond listening, it is important to take concrete steps on things that the company can control.” Personal Modeling
Doug Parker, CEO of American Airlines shared his experience talking about the book White Fragility with a flight attendant from a rival air carrier who didn’t know who he was at the time but later tweeted about the exchange. “We do have an obligation,” Parker said. “Sometimes we can convince ourselves that it’s not really my responsibility as a CEO to opine on this or make a statement on this... because who am I to be making these statements? It does matter.” Former PepsiCo CEO Indra Nooyi warned, “It’s commendable that CEOs are taking positions… but as many people that laud you, an equal number will criticize you.” As true as that may be, it’s a risk that more and more leaders seem willing to shoulder. CE
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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.
Memorably, Merck CEO Ken Frazier quit the president’s Business Advisory Council after the lack of condemnation of the Nazi violence in Charlottesville. Commenting as a Black American, Frazier explained that when African-Americans view the video of George Floyd, they see a man being treated as less than human. “This African-American man could be me or any other African-American man,” Frazier said, commenting on the outcry the incident provoked. “And the officials in Minneapolis didn’t take any action for four days until the community took to the streets.” The private sector can help address inequities, he added. “[This is] a defining moment for our country when it comes to the issues of race… The business community can take leadership when it comes to concrete actions around things like police reform and around
things like access to capital... of all the issues the business community can unilaterally make an impact on, it’s the issue of joblessness; it’s the issues of opportunity in the African-American community.” Paul Polman of Unilever agreed, saying business leaders must be public advocates. “Business cannot be a bystander… We have some courageous CEOs who speak up, but I wish more would speak up.”
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T H O U G H T L E A D E R S H I P P R O V I D E D B Y G A LT & C O M PA N Y
REVENUE GROWTH MANAGEMENT: COMMON PITFALLS & HOW TO WIN “We have identified five levers to protect and bolster the company’s financial vitality in 2020… The first lever is that we are working diligently to maximize revenue in the retailers and categories that are growing.” —Ravichandra Saligram, President & CEO, Newell Brands “By creating one operating sector… we believe we can enhance our focus on accelerating topline growth.” —Ramon Laguarta, Chairman & CEO, PepsiCo Like Newell and Pepsi, many companies are looking to restart and accelerate top-line growth to recover lost sales as the initial economic shock from Covid-19 begins to ebb. Many will rely on traditional revenue growth management (RGM) strategies focused on pricing, promotions, assortment and trade investment. “High-growth” categories, customer groups or regions will be targeted, typically defined by their potential to generate incremental revenue and, sometimes, by their incremental gross profit or contribution profit. Unfortunately, the evidence suggests that many of these efforts—despite growing amounts of data and advances in analytics—will unintentionally lead to reductions in cash flow and shareholder value at a time when cash is critical. Companies that avoid
the pitfalls of traditional RGM strategies can minimize their risk. Optimizing the Wrong Metrics: For all companies, shareholder value is driven by investor expectations of future cash flows and economic profits (profits earned in excess of the opportunity cost of capital). When looking at the companies in the S&P 500, there is a very high correlation between their intrinsic value (the discounted value of their future cash flow based on Valueline forecasts) and their actual share price and market value. However, few, if any, RGM practices attempt to link top-line growth strategies directly to maximizing cash flow and economic profits (earnings less a charge for the capital investment required to produce those earnings). There is an underlying assumption that if companies grow the top line and manage costs, profits will naturally grow as well. But this approach to growing profits by managing these line items individually, rather than through changes in strategy, is just as likely to fail as it is to succeed, according to empirical data. In fact, almost 50 percent of companies in the S&P 500 that delivered top-quartile revenue growth also delivered below-average economic profit growth—and more than 40 percent had bottom-quartile economic
profit growth. The unfortunate result is that these companies had less cash to reinvest in new products, capabilities and technologies that could help build competitive advantage. On the other hand, strategies that drive long-term economic profit growth as the primary objective are more likely than not to generate above-average top-line growth. In the S&P 500, nearly 80 percent of companies delivering top-quartile economic profit growth also had above-average revenue growth. In other words, maximizing economic profit growth over time will also lead to advantaged revenue growth. However, on the flip side, maximizing revenue growth over time is just as likely to destroy value as it is to create shareholder value. This is because economic profitability is a good signal that customers place a higher relative value on a company’s products, which is likely to drive demand and decrease price sensitivity (e.g., Apple iPhones). In the long run, only RGM strategies that grow cash flows and economic profits will succeed in growing shareholder value. While calculating economic profit requires a bit more effort than traditional measures, there are few initiatives with a higher ROI. Insufficient Granularity: A focus on economic profits is a strong first step, but RGM strategies can still fall short if measurement occurs at too aggregate a level. Most IT systems and reports only provide insights at a net revenue or gross profit level. Few reveal how cash flow or economic profitability varies across a company’s SKUs, outlets, customers and channels, let alone the intersection of one or more of those dimensions. As a result, management often makes RGM choices
Satisfaction with Granularity Companies’ satisfaction with accessible financials decreases as the level of granularity increases: • BU: 67% Satisfied • Geography: 46% Satisfied • Product: 42% Satisfied • Customer: 27% Satisfied • SKU: 12% Satisfied
for a broad segment of the business, unaware of the dramatic profit differences that exist at a granular level (e.g., customer, outlet, SKU, etc.).
System Limitations and Inadequate Procedures: One reason that few companies perform RGM analytics at an economic profit is inadequate systems and procedures. Fortunately, gaining visibility into economics at a more granular level does not require a complete overhaul of IT systems or standard reports. The capability can typically be built within an existing finance organization with the right training, oversight and access to existing data systems. The exact requirements vary across industries and companies; however, all organizations should: • Assign singular accountability for overseeing the development and ongoing quality control of granular profitability metrics. Often, unofficial and redundant “side books” send conflicting profitability signals.
• Decide on the desired level of granularity by considering the level at which customer decisions and cost-to-serve requirements will vary materially, as well as the level at which go-to-market strategies can be meaningfully and cost-effectively differentiated in practice. • Set timing and accuracy expectations and requirements upfront (i.e., quarterly vs. monthly, linked to budgets, reconciled to reported financials). • Align internally on business rules and required allocation
drivers to push indirect costs and capital down to the desired level of granularity. Insufficient Governance: Beyond developing a granular view of profitability, maximizing the value of this data over time requires proper governance, training and incentives. For example, it is not unusual for companies to say they want profitable growth but then compensate RGM teams on incremental sales or volume. Once visibility into granular profit concentrations are available and the drivers understood, incentive practices must evolve to compensate management for successfully capitalizing on these concentrations. In addition, simply having better data and incentives is not sufficient for long-term success. Employees using this data must understand the
impact of assumptions, look for the underlying drivers of profit concentrations and develop RGM strategies with a more thorough understanding of the ripple effects on the business (e.g., impacts on the supply chain, distributors, net working capital, etc.). Creating Long-Term Differentiation through RGM: Companies that develop RGM practices that are disciplined, granular and economic-profit-driven position themselves not only for short-term improvements but also for long-term outperformance in the capital markets. Economically profitable growth generates incremental cash flow that can be reinvested in the business to continue driving competitive differentiation or returned directly to shareholders. Yes, overhauling RGM strategy with these practices involves shifts in mindset, culture and capabilities, but that is precisely why those that make the journey enjoy a competitive advantage over peers. Establishing Successful Governance Conditions • Awareness – business unit and line management must understand the implications of active portfolio management and how their day-to-day decisions impact company objectives • Education – developing and reinforcing trainings to ensure all stakeholders understand company objectives and how to make decisions that enhance them • Adoption – understand that a variety of barriers, intra- and inter-business unit, are in place, and align rewards and structure action plans such that they are addressed by accountable parties • Advocacy – share the “success” story throughout the organization to ensure buy-in is achieved
The Authors
Jonathan Lippincott is managing director at Galt & Company; Garrett Amaru is a director at Galt & Company.
C OVE R STORY
Anyone can set a strategy and direct people to follow it. It’s alignment with the leader’s intent that you must strive for, say renowned consultant Ram Charan and former Honeywell chief David Cote. A candid conversation between two masters of the craft of leadership.
‘CREATE A THINKING
20 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020
COMPANY’ A CONVERSATION WITH DAVID COTE AND RAM CHARAN FINDING WAYS TO PURSUE SHORT—AND LONG-TERM results at the same time has never been easy—and a drawn-out crisis of cataclysmic proportions doesn’t help. It’s a challenge David Cote managed to surmount when he took the helm of Honeywell in 2002. Cote—who peers named our Chief Executive of the Year in 2013—succeeded in growing the troubled company’s market cap from $20 billion to $120 billion during his tenure, despite the financial crisis of 2008 that spawned the Great Recession. To help parse lessons for today’s CEOs from Cote’s Honeywell journey, Chief Executive asked author and business sage Ram Charan, a longtime sounding board for Cote, to dig into strategies and tactics outlined in Cote’s new book, Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term. Excerpts, edited for clarity and length, follow. CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 21
PHOTO BY MATT FURMAN
RAM CHARAN: During the Covid-19 crisis, many leaders have adopted a bunker mentality. As a CEO who went through the financial upheaval of 2008
the front line. You gotta know what’s going on, but you can’t be out there doing it all yourself. You still need that overview of are you doing the right stuff?
and 2009, what’s your view on how
David Cote, former chairman and CEO of Honeywell, is the author of Winning Now, Winning Later: How Companies Can Succeed in the Short Term While Investing for the Long Term (HarperCollins Leadership, 2020), WinningNowWinningLater.com.
people should be dealing with the
Let’s talk about what you found when
dilemma of managing crises while also
you entered Honeywell and the things
needing to think about the future?
you installed that developed this won-
DAVID COTE: It can be particularly difficult during a time like this. When you’re up to your butt in alligators, it’s easy to forget that the original goal was to drain the swamp. But, as a leader, it’s important to keep in mind that your job is still to drain the swamp, even if you’re going through a difficult time. It can sound impossible when you’ve got 120 hours worth of work and 80 hours to do it in, but take an hour or so a week to just put your head above the fray, and ask, “Is what I’m doing right now positioning myself to be successful once I come out of this?” Because if you survive the short term, but you don’t survive the long term, then it hasn’t really done much for you. As a leader, you have to be able to put your head above the fray. It’s no different than a general running a battle who can’t be at
derful engine for creating and measur-
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ing customer centricity. At the same time, you increased the market value from $20 billion to $120 billion, which is particularly remarkable because you did it through the very difficult period of 2008 to 2010.
Well, there’s a lot to talk about there. Let’s just say that when I got to Honeywell, it had been through years of turmoil and there were a number of issues. First, we had three competing cultures. legacy AlliedSignal, legacy Honeywell, legacy Pittway, each of whom thought the other two were fools. We had a significant amount of aggressive bookkeeping, and, for a decade, our free cash flow conversion had been only 69 percent, meaning only 69 cents of cash for every dollar of earnings. We had unrecognized liabilities
and issues like environmental, asbestos and an underfunded pension. I could go on, but I would just add, I couldn’t trust my board, and I couldn’t trust my staff, three of whom had either interviewed or expressed interest in my job. So, they were predisposed to thinking that I didn’t know what I was doing. On top of that, investor expectations were low for me because I was viewed as having not made it to the first tier in the GE succession race and not even been the first choice to run Honeywell, both of which were true. So, I went and did a bunch of town halls around the world to kind of get a pulse of what was going on. And it became very clear that I had to do something culturally first. You know the old saying about the way to unite people is to have a common enemy? Well, I expanded that to a common cause, instead of a common enemy. I said, “By focusing on the customer, we can make all of our discussions a lot more objective, rather than emotional.” The second piece was to define the culture we wanted, and that’s where we took the time to develop our 12 [Honeywell] behaviors. When we were working on what those ought to be, one of my staff members asked, “Dave, why are we wasting all this time on behaviors and culture when we have all these strategic issues to address?” My comment was, “I can make all the strategic decisions you want, but if nobody does them because we don’t have a culture where people actually go and make it happen once we’ve decided on something, then it’s never gonna get there.” The other aspect of culture is that while you have to make jobs financially remunerative so that people feel they get paid fairly, you also want the work fulfilling. People want to be able to go home at night bragging to their spouse and kids about what they accomplished that day. I wanted to create an environment where that could happen. The last piece was to focus early on how to accomplish things in the short term, but also be investing for the long term. I knew a lot of things needed to be fixed. All the accounting issues, the cultural issues, all that stuff had to get fixed quickly. And I was gonna have to take a hit. But I was also
going to have to perform in the short term because investor and media expectations, along with board expectations, were not that high of me. If I wanted to survive, I needed to make sure that I performed well enough in the short term that I would at least earn some regard. I knew that if I didn’t fix some of this stuff and fill the pipeline when it came to new products and services, geography, processes, I’d just be in the same boat every single year, every single quarter. And I didn’t want to live that way. So, I had to constantly answer investors, who would say, “On this kind of sales growth, why aren’t you generating more margin rate improvement?” My answer was always, “I need to fill the pipeline, and that takes three to five years.” That’s why you saw us perform so differently coming out of the recession—we had done all the right things in the recession to handle the recession and prepare for recovery. You were seeing the culmination of six or seven years’ worth of seed planting suddenly coming to fruition. And man, that sure was nice when it all came together.
“I had to put a stop to all that, and that didn’t go over so well at corporate.”
What you did was very courageous. You took a lot of hits on shows like Squawk Box, but you made a clear decision to change the allocation of resources for the short term, take a little beating and then put the money toward building this pipeline. Tell us how you got your team and board to vote with you.
In the beginning, I can’t say that I had total team support because everybody was used to making meeting the quarter work through potential accounting transactions, supplier transactions or getting a deal done. I had to put a stop to all that, and that didn’t go over so well at corporate. Getting back to the fact that I couldn’t trust my board or staff, I found myself saying, “I’ve got to be careful about declaring my view on things until I learn what everybody else’s opinions are because the information I get
CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 23
will be jaundiced. I need the right facts and opinions.” So, I came up with this line: My job here is to make good decisions and that means I need to be right at the end of the meeting, not at the beginning. Over time, I found that I was becoming a better leader and making better decisions, because I hadn’t declared what I wanted to do, and that really developed a much fuller argument about the pluses and minuses of each issue or potential decision. I was getting a lot more people involved, so that it wasn’t just three out of 10 people in a meeting who talked. I would call on people, look for body language, facial expressions, etc. Also, at the end of the meeting, I would start with the most junior person in the room and say, “Okay, based on everything we all just heard, what do you think I ought to do?” In the beginning, you would see this total look of panic on their face. The first thing they did was look at their boss, who would go to interject. And I would say, “No, no. I’ll get to you. I want to know what this person thinks.” I went around the table that way and at the end, I’d say, “Okay. Here’s what my decision is” and explain it, so it was clear to all the people who had a different point of view that I had listened and understood but just disagreed. Because there’s a big difference between listening and agreeing, and too many people feel that if you don’t agree with them, then you didn’t listen. I wanted to make it very clear that I had. As a result of all that, I started to make better decisions, and it struck me that this is a much better way to do things.
“There’s a big difference between listening and agreeing.”
You put a system together to keep the fixed costs fixed, creating cash and resources from which you could then fund more R&D for the future. Take us through that.
It’s a conundrum most people face, “Look, every nickel I’m making is going into earnings, so I don’t have any room to invest.” But for most companies, if you have an
24 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020
operating margin rate of 10 percent and you get just 3 percent sales growth and hold your fixed costs flat, you get a significant amount of income. Why doesn’t everybody do it? The answer is because it’s difficult. If you look at fixed costs, 60 percent to 80 percent of that is people. People want raises every year, so if you have 1,000 people, and you give them a 3 percent raise, your costs are 3 percent higher than the previous year and 3 percent sales growth just keeps you flat. So, to hold your fixed costs constant, you need to find a way every year to get that fixed cost job done with 3 percent fewer people, even while you’re growing. That’s why we spent so much time looking for ways to give people more efficient processes so they can get the job done with fewer people. That made a huge difference. We doubled the size of the company, and our total headcount went from something like 115,000 to 135,000. That’s because we just gave everybody much more efficient and effective processes every year. There was never any big bang. It was just that continuous focus, and it makes a heck of a difference. Another thing you did was put in a rigorous Honeywell operating system. That’s a very critical part of delivering value and having better customer preference than competitors.
Absolutely. During one of my blue book exercises (see sidebar, p. 25), it struck me, “Jeez, half of our total population—half our brain power—is in manufacturing.” I started casting around for the best way to engage them. I had always admired the Toyota Production System, so I sent a group of about 60 people to Georgetown Kentucky Toyota for two weeks. They came back absolutely filled with the Holy Spirit. They wanted to go out to all our 250 factories at the same time and expand it to all of the other functions because it applied everywhere. It was a great idea, and they were right, but we would be going into plants that were 80 years old, with average lengths of service 25 years. You don’t go into a plant and tell all the hourly employees, “Look, you can keep working the way you are through Friday,
but Monday we’re doing something entirely different, so come prepared.” A huge cultural change has to accompany that. So, we tested the idea in 10 plants for six months...it worked in five, didn’t in five others. Reexamined, went out again to five plants for another six months; it worked in three. Came back and refined it again, said, “Okay, now we got this thing down.” Then, we picked 25 plants and resourced the hell out of making sure it worked. From there, we started to get pull, where the good people in the other plants wanted to do it. When you push something because the boss made a decision, you get what I call “compliance with words, rather than compliance with intent.” They’ll put in the processes, use the terms, but productivity, quality, delivery three years later will look the same. I wanted the other 225 plants to say, “Jeez, I want to do that. That plant is doing great now, and they were always a basket case.” You also made significant changes to the talent development and review process. Give us some insight into how and why.
One big change involved appraisals. First, we started measuring everybody on the 12 behaviors. Second, employees used to do their own appraisals, and then the manager would agree, disagree or modify, which makes no sense because it puts managers in the uncomfortable position of telling an employee, “Look, you’re wrong about this.” So, we required that managers do it themselves. We also redid the management resource review process. I conducted three a year instead of just one. What you find in any large company is HR issues a bunch of templates and business and functions dutifully fill them in. So, we had succession planning charts full of names, ready now, ready in one to two years, in three to five years, that kind of a thing. I started pushing on the “ready now.” I’d say, “Okay, so if this person left the job, would you actually put the ‘ready now’ person in that position?” About half the time the answer was, “No.” Again, that was compliance with words instead of compliance with intent. You’re looking for a robust succession plan with
TOOLS YOU CAN USE: Cote’s ‘Blue Notebook’ Exercise “Early in my tenure at Honeywell, it struck me that I was becoming a victim of my calendar, with one-hour meetings at 9 a.m., 11 a.m., 2 p.m., 4 p.m. and 6 p.m. every day. When you’re only allowed an hour break between meetings, that leaves you no time to really think. So, when we laid out the corporate calendar for strategic planning sessions, management resource reviews, budget reviews, board meetings, all that stuff, I started going through and putting an X through two to three days a month, where I could do whatever I want to do. “You lose some as you go along because things happen, but you still end up with one or two days a month. I used some of that time to visit particular customers or do a surprise plant visit—surprise as in nobody knew I was showing up. But I would also allocate two to three of those days to just free-thinking about the company. “I might ask for some information ahead of time, like census breakouts, sales or about a particular business. But I would literally just sit there with a blue notebook—I called them my ‘blue notebook days.’ I’d say, “Okay, geographies, macrotrends, people, processes, particular businesses...” and just think about the things that I ought to do. “I did this because for the first time in my life, I was gonna have a job that would, with any luck, last 10 to 15 years. Up to that point, growing up in a big company, you have a kind of a natural stimulator to think anew each time you get promoted into a new job. I thought, “I don’t want to get stale after two to three years. So, how do I make sure I stay fresh?” “I came up with this, and it worked. It was painful—well, let’s say not easy—for somebody like me because I have a predisposition to be action-oriented. So, it wasn’t always convenient, but it ended up being really important, and some big ideas came out of that. The Honeywell operating system, Functional transformation and the Honeywell user experience all came out of that. It was important, because it was a way of getting my head above the fray.”
names that you would actually do something with. Instead, it became, “I need to fill in the blanks.” By changing that and seeing that there were a lot of blanks, we had a better understanding of where our issues were and ended up significantly better off with succession planning. We got to the point where when someone left, we were saying, “No, we don’t need the two weeks. Appreciate it. We’ll be ready in the next two or three days.” The last change was that nobody went into the top 200 positions unless both I and my HR leader interviewed the final candidate. It gave us three advantages. The first was quality control. In the beginning, we probably rejected, you know, a quarter to a third of the candidates sent in. That got down to only 5 percent to 10 percent. Second, it gave me the chance to say,
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“Here’s how I want you building on what your predecessor did, here are the issues.” Third, it impressed upon whoever was coming in, “Wow. I really gotta think about what I’m doing here, because both the CEO and the HR leader are making the time to spend an hour with me just to talk about it.” That significantly upgraded our leadership core, the top 600 people or so. One of the things I’ve picked up from you a long time ago is your art of asking very penetrating questions. Tell us more about this.
Rather than say, “Here’s what I think you need to do,” I would go through a series of four or five questions, depending on what the situation required. It would create a logic path and cause people to have to think through things themselves so that I’d have more buy-in at the end. One of my favorites was increasing R&D spending. I would go through: Why is it worth spending this kind of money? How much do you think you’re gonna get for the amount of spending you put in? How are you gonna go through the ideation process to come up with all the ideas? How will you pick which ideas to support? How will you discern between the person who puts a big sales forecast on so that you fund their program, versus somebody who puts the small forecast on, even though it’s a great program because they don’t want to be held to it? How will you monitor it and make sure you’re getting something from it, so that if you have a really good program, you accelerate it or fund it more, but if you have one that doesn’t seem to be delivering, you can tell whether it’s a bad idea or it’s just not being done very well? Going through that causes people to spend more time thinking, “how am I going to actually get the results I’m looking for, which is more sales, not more spending?”
“I was trying to create a thinking company...”
In most companies, people come in front of the CEO with 150-page polished presentations. But you asked for something different.
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Yeah, I did. I can’t say that everybody always found it a pleasant experience, but I had always been a big believer that if somebody can’t explain their strategy in just a few minutes, that’s a good indication they don’t really understand it themselves. As a result, there would be ambiguity in the organization, and organizations do not handle ambiguity well. I put limits on how long a pitch could be, and I required an executive summary up front. More than once, we spent the first four hours of our all-day strategy session on the executive summary. We’d have 50 people in the room because the more people who hear all this, the greater the chance that we make something happen. So, they’d think, “My God. We have 100 pages, and we just spent four hours on the first four.” Only we’d get through the next 96 pages in three hours because we’d talked about all this stuff already. In the beginning, people found it disconcerting because they really wanted me to watch a performance. I’d say, “If the point is for me to watch you perform, then we can do that, but I think the point is for me to understand your business and whatever issues you’re facing better, so whatever helps me learn better and faster is how we ought to do it.” People got used to thinking, “I better know my stuff when I get in there because we jump around all over the place.” As a result, we ended up with much better discussions and decisions, and people knew it wasn’t a big deal if I disagreed with them. You also upgraded people’s capabilities because you got them to see the root causes.
Right. It’s not just making the decisions, it’s having people learn in the process. How do I think about things to exercise judgement rather than just implement decisions?” I was trying to create a thinking company, not one where people just executed whatever they were told from the top. Sometimes I did want that, but even then I wanted people to understand why. And I always felt like I did a better job if I understood the purpose of something and why we were trying to accomplish what we were. It just created better buy-in all around.
Let me go to something you did that I don’t see anywhere else: transforming functions to add value, short term and long term. You had a very clear way of pursuing that.
MATTHEW GILSON
It struck me that all the corporate functions would be involved with the business strategic plans and feel comfortable opining about what businesses were doing well or not so well or needed to do differently. But no business ever got the chance to opine on how the staff functions were doing. So, I started to require that every corporate function—primarily finance, HR, legal and IT— also had to do a strategic plan that showed their costs going down, or at least staying flat, over the planning period, and how they would increase internal customer service levels at the same time. I’d say, “Every one of you will conduct twice-annual, anonymous surveys of your internal customers, and it needs to be showing improvement. The only way you’ll get at this is to improve all your processes.” It changes how those staff functions do their jobs because too often, the general counsel can be a terrific lawyer. But they don’t realize that a big part of their job is making sure all the other lawyers working for them are able to work effectively and efficiently. The only way they do that is to reexamine processes. The same thing is true for the CFO, the IT leader and the HR leader. It just created a much better dynamic and much better staff interplay because we were all in it together.
three or four levels down would be talking to me about something and say, “ I don’t know if you’ve ever heard this, but this is the same as accomplishing two seemingly conflicting things at the same time.” It always brought a big smile to my face because it meant the organization gets it. You took a large organization through one of the most difficult times in business
What else about your experience do you
history. What advice do you have for
think would benefit other CEOs?
today’s CEOs managing a difficult time?
People, by their nature, want to know, “What’s the one thing, boss, you want me to do?” Once you start looking at that, you see it’s always two seemingly conflicting things. You want lower inventory but customer delivery to be just as good or better. You want people empowered, but you want good controls so nothing bad happens. You want lower functional costs, staff costs, but you also want better internal service. I was not the first person to discover that. But it’s something I talked about a lot. And it was always rewarding when somebody
The big piece of advice that I would like to give is, so far, we have not experienced a forever recession. In other words, the good times do come back, and any leader who forgets that is spending all their time on the alligators and not looking at the swamp. In the middle of the recession, be thinking about recovery and reevaluating your business model. This is an important time to say, “Do I need to reexamine my business model? And when recovery comes, am I prepared for it?” You gotta find the opportunity in the disaster. CE
Ram Charan is a worldrenowned business adviser, author and speaker who has spent the past 35 years working with many of the top companies, CEOs and boards of our time. His latest book, The Amazon Management System (Ideapress, 2019), was a Wall Street Journal bestseller.
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T H O U G H T LE AD ER SH I P PR OV I D ED BY T HAY ER LE AD ER SH I P
A NEW WAY TO INSPIRE LEADERS During the pandemic, Thayer Leadership found a new niche—delivering proven, practical leadership lessons digitally. LONG BEFORE A PANDEMIC SENT companies around the globe into a rethink-everything-we-do scramble, Thayer Leadership was training corporate leaders to cope with disruption. Thayer’s mission is to inspire and build leaders of character by offering leadership and ethics education grounded in time-honored military principles and values-based leadership delivered by proven leaders. Founded in the volatile economic year of 2010, with the goal of bringing the best of military leadership principles to the private sector, Thayer Leadership designed a cutting-edge, proprietary educational experience and recruited top retired U.S. Army officers and West Point faculty who were “battle and boardroom tested” to share with corporate leaders practical applications of how to navigate during times of unprecedented and unrelenting disruption. The concept is based on VUCA—Volatile, Uncertain, Complex and Ambiguous—a term the U.S. Army coined to describe characteristics of the post-Cold War world. “The military excels at training leaders to lead in a complex, volatile scenarios—things like a focus on mission and values, pushing authority and decision-making empowerment down to the lowest levels, learning from mistakes, the importance of clear communications and leading dispersed teams” explains Dan Rice, president of Thayer Leadership, a West Point graduate, combat veteran and author of West Point Leadership: Profiles of Courage. “These are the same leadership principles that help companies during a crisis…and beyond.” To aid the faculty team—like General Dennis Reimer, Brigadier General Becky Halstead and Lieutenant General Frank Kearney—in translating military leadership experiences and principles into curriculum that would resonate with, and be useful to, corporate leaders, Thayer Leadership recruited Dr. Karen Kuhla McClone, Ph.D. from GE’s legendary Crotonville corporate
university to launch Thayer Leadership. “Coming from leading one of the legacy, top-tier executive education programs at Crotonville (Manager Development Course), under the direct purview of Jeff Immelt (CEO), and having other corporate and educational experiences was a great foundation for me to do justice to sharing military leadership lessons,” says Kuhla McClone. “I was able to, with the faculty team who have first-hand practice in successfully leading through VUCA, design curriculum and experientially based programs that were grounded in a strong educational underpinning and also helped executives cross the bridge between military and corporate application.” Over the past decade, Thayer Leadership developed custom programs for more than 400 companies in diverse industries and trained more than 100,000 executives around the world. Companies like Deloitte, Mercedes-Benz, Pratt & Whitney, Synchrony and Lord Abbett & Co. (see sidebar) tapped Thayer Leadership to develop programs to address strategic planning, leading in a VUCA environment and building leaders of character. Many were hosted at Thayer’s leadership institute at the iconic Thayer Hotel, the historic property located on the grounds of the U.S. Military Academy at West Point. Others were held at corporate headquarters or other locations
Thayer Leadership sponsored the 2019 Nasdaq Closing Bell for Veterans Day. L-R: Caroline Staudle, Jennifer Heckel, Becky Saxe, Ed.D., Mimi Garcia, Karen Kuhla McClone, Ph.D., Jennifer Wright, Tim Tyson, Brenda Besteiro, William Murdy, Dan Rice, Rick Minicozzi, LTC (Ret.) Todd Gile, Jody Berg, and LTC (Ret.) Casey Thomas
around the globe, with some employees attending by video and participating online. “Clients are telling us they are much better prepared to lead during Covid due to the training they have received, which is incredibly rewarding for our team,” says Kuhla McClone. For the first 10 years, the economy was booming and VUCA was not as significant in many industries as it is now. However, when Covid-19 hit, Thayer Leadership was uniquely positioned to continue to train leaders in helping their teams adapt to the threats it posed, as well as to change how those lessons were delivered. “Fortunately, we had been building our technology platform since 2014, with the goal of being able to deliver excellence digitally to our clients around the world,” says Rice. “We already had depth and breadth of content, from which we can now create digital programs for groups as small as 20 or as large as 500 or more.” With in-person gatherings no longer feasible, Thayer Leadership pivoted to focus exclusively on building bespoke digital leadership development programs
that incorporate virtual and online applied academics sessions, experiential activities, keynote addresses, mentoring, coaching and 360 assessments. It was the right move at a time when leaders are struggling to manage suddenly decentralized workforces through a lengthy period of upheaval and disruption. “It’s a combination of live and prerecorded sessions that offers an immersive digital experience, which we customize for each client’s unique needs, and has some unanticipated benefits,” says Rice. “We’re finding the upside of an digital experience spread out over weeks is that people have the ability to try things they learn about and, if they fail, come back and get feedback on what to do differently.” It’s also more economical and easier from a logistics perspective. The cost of flights and hotel stays are eliminated, as are the difficulties of trying to take hundreds or thousands of employees offline for an in-person meet spanning several days. Despite those advantages, in-person learning still trumps remote alternatives for most companies due to the highly personal interactive nature of the former, says Rice, who sees an eventual return to onsite leadership development programs or a hybrid format that combines onsite learning for designated employees with a digital program for the remainder. Kuhla McClone agrees. “I believe digital programs will be part of how organizations will offer development now that companies have found it’s a great way to give more employees exposure to valuable learning experiences,” she says. “But I believe in-person experiences will still be embraced and valued, possibly even more so than before, when companies are ready to have people gather again—and there’s no more meaningful place to physically be for a leadership experience than the Thayer Hotel at West Point. Corporate leaders are more likely to be very selective about where they choose to gather their teams in the future, and we are uniquely positioned in the one of the most inspirational places in the world at West Point.”
www.thayerleadership.com
Lord Abbett’s VUCA Lessons “When I first heard about the concept of applying military leadership principles to training and development, I was apprehensive,” says Doug Sieg, managing partner of Lord Abbett & Co. “I’m not a big command-and-control guy.” Five years and dozens of engagements later, Sieg is a convert, having discovered that military leadership practices today are nothing like the obey-your-commander-without-question doctrine he imagined. “The reality is that they do things like instilling mission and values, strategic planning, pushing decision-making down through the ranks and creating leaders really well,” says Sieg, who highlighted three practices gleaned from Lord Abbett’s leadership development work with Thayer Leadership, which Lord Abbett has internalized, embraced and institutionalized in its own way. Clarifying Communications: Getting clear messages to your team about what’s happening and what to do about it is never more critical than in a crisis, says Sieg, who saw a huge payoff from his work with Thayer Leadership during the pandemic-induced stock market downturn. “Thayer had spent a lot of time working with us on how to communicate clearly as a leader in a volatile, uncertain, complex and ambiguous environment,” says Sieg. “They taught us a great saying: ‘I won’t know what I said to you until you tell me what you heard.’ When our team was operating remotely for the first time after the pandemic, these lessons in communication really paid off with communication up and down the chain of command working more efficaciously.” Red Teaming: The military uses red teaming or assigning individuals or teams of individuals to find and highlight potential pitfalls of a plan, to vet ideas. It’s an idea that helped Lord Abbett address a cultural issue where team members were taking such challenges personally. “When we go through a strategic planning exercise now, we’ll assign someone to be the red teamer, to say, ‘what about this aspect?’” says Sieg. “It sharpens people doing the plan, and it doesn’t create conflict, because it’s not personal; it’s just this person’s job.” Lord Abbett’s executive team at a Thayer-led strategy session in Normandy, France.
After-Action Reviews: Post-mission reviews are routine practice for the U.S. Army, which has long embraced continual learning for leaders. Lord Abbett adopted the practice of regularly revisiting situations to consider what went well and what didn’t, says Sieg, who finds the exercise invaluable. “For example, you might look at how information flowed across the organization after an event; what issues did we handle well and what did we miss? We forget about rank, and it’s all done in a non-confrontational and non-judgmental way.” It’s a philosophy that ties back to a commitment to continual learning that enables the military to turn out leaders on a consistent basis—and that companies would do well to emulate, notes Sieg. “I always say that you manage expenses, but you lead people. There aren’t a lot of people who have the history that the military has had tapping into that, particularly at West Point creating generations of leaders. It’s a unique skill that the Thayer team brings to the table for corporate executives.”
L E A D E R SHI P
‘BE HUMAN’ Marshall Goldsmith is among the world’s most revered CEO coaches. His best advice for you right now? It has nothing to do with strategy. INTERVIEW BY DAN BIGMAN
IN ANY TIME BUT THE CURRENT ONE, this is the last place Marshall Goldsmith, one of the most in-demand CEO coaches in the world and bestselling author of leadership classics like What Got You Here Won’t Get You There and Triggers, would be. Back in B.C.—Before Covid—Goldsmith was a legendary road warrior with 11 million frequent flier miles, tracking how many nights a year he was at home with his family, rather than vice versa, in the hopes of improving that KPI. Yet, here he is, with a green screen behind him, chunky Sony earphones locked on snuggly, ready to talk from his home in Covid-subdued La Jolla, California. And, as you’d expect from someone who is obsessed with prepping leaders for change, he’s okay with it. “I’m a Buddhist,” he shrugs. “What is is, so you just make peace with what is and do the best you can and move on.” This kind of equanimity takes work, of course. Lots of it. In the midst of crisis, Goldsmith is practicing what he preaches, meeting with a group of 50 or so high-performing people each weekend (virtually, of course), talking about issues, feelings—and fears. He’s working with his own coach, trying to improve his behaviors, checking in nightly on how he’s doing relative to expectations. And, more than anything else, he’s listening and trying to help his clients—many of whom are household names in global business— tackle a very, very tough time. In a conversation with Chief Executive, Goldsmith, who will be the keynote speaker at our upcoming annual CEO Leadership Conference on November 5, talked about how Covid is disrupting his clients, what he’s counseling them and why this period of unparalleled change and challenge is an essential time to work on your own behavior and improve your emotional intelligence. The conversation was edited for length and clarity.
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Today, it is lonelier at the top. The advent of social media, the fact that anything you say can be taken out of context, and thousands of people can see it within a few minutes—it’s created a very lonely world.” How are you finding this time impacting the emotional and behavioral life of the CEOs that you deal with?
There’s an old saying, “It’s lonely at the top.” Today, it is lonelier at the top. The advent of social media, the fact that anything you say can be taken out of context, and thousands of people can see it within a few minutes—it’s created a very lonely world. In your work, you talk a lot about the importance of having structure, the importance of routines. This has disrupted a lot of that for all of us, but especially for CEOs. What advice do you give them about rethinking the way they go about
in the past. The people who are being led need more structure, too. There is more of a sense of ambiguity, of uncertainty, confusion. So, one thing I talk about with the people I coach is to not only provide structure for your own life but realize that people that you work with need structure, too. They need more communication, just because things are changing so rapidly. I suggest that every leader have a dialogue with every one of their direct reports and cover six basic topics (see sidebar). As a coach, I’ve worked with seven CEOs using this process, and I only get paid if they get better. I got paid seven times. So, you know, you can change the words around a little bit, change the questions any way you want to, yet, the results on this are pretty much uniformly positive if you do it. It’s even more important, though, during periods of rapid change. Too often, in companies, people say, “I’m not clear where we’re going. There’s too much ambiguity.” Well, why? To me, that’s inexcusable. I’m the CEO, right? Talk to me. I may not have a great answer, but we’re going to come up with an answer. By the way, “I don’t know” is not an acceptable answer.
their business?
In our meetings, we all begin with six basic questions. Then everybody writes their own questions, and we discuss these every week. The six questions are: Did I do my best to set clear goals today? Now, you might think they’re all gonna get a 10 out of 10. They don’t. People just get lost. You do an email, another email, phone rings, next thing you know, the day’s over. The next questions are: Did I do my best to achieve the goals I set? Did I do my best to find meaning? Did I do my best to be happy? Did I do my best to build positive relationships? And finally, Did I do my best to be fully engaged? Because you want everybody else to be fully engaged. If you’re the CEO, you need to be fully engaged. And the scores on this are probably not what you would expect. People are busy, preoccupied, things happen in life. It’s very hard to maintain focus. In many ways, [CEOs] have to create their own structures more than they have
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What are clients asking you these days? What are they coming to you with?
They’re just buried with stuff to do. Some are doing great, and others, it’s reinvention time. Some things are going to go back to the old days and some aren’t, and you’ve just got to make peace. The other thing is, and this is very hard, sometimes you lose. One of my clients, he’s one of the most famous restaurant guys in the world. Three of his restaurants just went bankrupt. Maybe more will. Sometimes you lose. Sometimes you just have to say, “We cannot succeed in this environment, and you have to pull the plug,” and it’s not easy. There’s no amount of happy talk that’s going to make this go away. What do you counsel people about how to take that on as a leader?
Tell the truth. I think the key and most important thing I could recommend is authenticity. You just have to tell people the truth.
SIX QUESTIONS FOR YOUR TEAM Goldsmith suggests every leader have a dialogue with every one of their direct reports and cover six basic topics: Where are we going? “So,” says Goldsmith, “as the CEO, you’d say, ‘Here’s where I see us going as a larger organization.’ Then you ask, ‘Where do you think we should be going?’” Where are you going? “Here’s where I see you and your part of the business going. Where do you think you should be going?” Because you want a connection two ways, one between the CEO and them, the person; and two, the bigger picture and smaller picture. What are you proud of? “A very good question because what happens is we often forget to give recognition because things are so crazy. It’s very important to ask them, what are they proud of? What do they think they’re doing well? And, sometimes, you may learn things you didn’t know.” What are your suggestions for the future? “I’m a believer in something called feedforward rather than feedback. Feedforward is you are where you are. Let’s talk about how to get forward more than just let’s rehash what you did wrong. I have the person say, ‘Look, moving forward, here are some ideas or suggestions I’d have for you.’ And then, ask the person a question: ‘If you were the coach for you, what ideas and suggestions would you have for yourself?’ A very good question. And they own it. It’s their idea, they own it.” How can I help? “Ask: ‘How can I help? What can I do to help you in the team?’” What suggestions for the future do you have for me?
MAKING IT WORK The key to making this process work is mutual responsibility, says Goldsmith. “How does that work? Let’s say I’m the CEO. I would say, ‘You know, Mr. Direct Report, on a regular basis, I’m going to cover these basic topics with you.’” “Then, I would say, ‘If you ever feel confusion, lack of clarity, you’re over-committed, I want you to immediately take responsibility to talk to me because at any second in time, you should have complete clarity in terms of where are we going, how’s it going, how are you doing, where are you headed, what are your ideas, what should change, at any second in time.” “Then, I would say, ‘Given this period of rapid change, I’m not going to say that where we’re going now is going to stay the same for next five years. It may not stay the same for the next five weeks. I want you to know that. Yet, at any second in time, I want you to have clarity, and I want you to take the responsibility to talk to me now.”
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so many CEOs I know like to deal with. It’s outside of their control.
The thing about fear, it doesn’t last. It’s impossible to stay afraid. Even people who live in environments where bombs are dropping every five minutes, you can’t stay afraid. After a while, you adjust. So, what you have to do with fear is face it. I am afraid. Here’s why I am afraid. Make peace with the fear that you have. Don’t hide it from yourself, at least. Just realize it’s just part of being human because when you deny it and block it, it’s worse. Can you talk a little bit more about what you see for CEOs
There’s a term I like to use called pragmatic optimism. It’s very good to be optimistic. On the other hand, today, people are very sensitive to show, to fake. It’s very important to be honest, realistic and pragmatic as well. You just have to tell people, “Here’s the situation that exists. Here’s what we need to get to.” You do your best, pragmatic optimism, to help them get there. The real world is hard. In some cases, not all, but some, you’ve got to face hard reality and say, “Okay, here we are. This is it. The numbers are the numbers. The reality is the reality. Now, how can we make the very best of this that we possibly can?” That’s what you do. One of the guys that I work with was asked a very hard question: How do you live with yourself when you have to make these hard decisions? You’ve had to lay people off. You’ve had to fire people. How do you live with yourself? He said, two questions: One, did I do what I thought was right? And two, did I do my best? I love that advice. If the answer is yes and yes, take a deep breath and make peace. I’d love to know how you talk to CEOs about dealing with fear and uncertainty. Because it really is the opposite of what
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right now when it comes to their behavior? What should they be concentrating on? What’s most overlooked?
It’s very hard to keep focused on now. You could just watch the news all day and watch how many people died and this trauma and that trauma. Also, you have to not only keep focused on now, but you have to realize it keeps changing. The most famous poem in history is probably the Bhagavad Gita. And the Gita has very good advice for this. Basically, you have a person who’s got two decisions to make. One is bad, and the other is worse. The message is: First, you accept what is. You don’t hide from what it is. Then, you don’t get fixated on the outcome. You can’t control the outcome. You have a goal, but if your ego gets attached to the goal, you’re in trouble. Then, you focus on what are you doing? What’s my strategy? What am I doing now? Am I doing the right thing? Am I doing my best? One of the things that I have people ask is: Am I engaged? It’s so hard to stay focused and present. They’re on one of these Zoom calls. They’re on their email. They’re distracted. They’re not really paying attention. It’s very hard to stay fully present. Another good suggestion one of my clients had: She always asks herself, am I be-
ing the person I want to be right now? Am I being the leader I want to be right now? Who am I being now? Anything you can do to remind yourself of this stuff is good. What are some opportunities for CEOs to become better CEOs right now?
Be a role model. That’s the key. How do you want them to act, right? And then, you act that way. What values do you want them to exhibit? You exhibit those values. If you don’t believe it, don’t put it as a plaque on the wall. You’ve got to start with yourself. What I always recommend is that leaders get confidential feedback. They find out how they’re perceived by all the people around them. They publicly acknowledge what they need to improve. They apologize for their mistakes. They involve all those people. And then they follow up and measure, did they get better? My research on it is pretty clear. If you do this stuff, you become more effective. It’s very hard to do this. Why is it hard? One, it takes courage. Two, it takes humility. I’ve never helped anyone improve who was already perfect. Three, it takes discipline. Everything I teach takes discipline. It’s hard to do. If you read any of my books, it’s not hard to understand. It’s hard to do. Anybody that says the stuff I teach is easy to do has never done it. What is the biggest risk CEOs are overlooking right now when it comes to leading other people?
The challenges in the family. So many people have family challenges right now. You’ve got
kids at home. You’ve got your parents. You’re worried that they might die. In our calls, I’d say half the issues people talk about are family issues. They’re not business issues at all. They’re: I didn’t get to see my mother before she died. My kid’s sick. I’m afraid to go to the hospital. I’m afraid not to go to the hospital. Should my kids go to school or not? I’m a mother and how can I do this? Realize that it is very hard for a lot of people right now on the personal side. Very hard. What do you counsel them?
If possible, meeting with other [CEOs] like themselves every week is very helpful. It’s not like that they necessarily give each other answers, but at least knowing I’m not the only person that has the problem. The thing that they find most common is the issues of humanity, that we’re all humans and we all are dealing with stuff. Also, be human. It’s perfectly appropriate to say things like, “Here’s what I’m trying to improve, personally, not just business-wise. I want to listen better, or I want to be more present. I want to be more patient,” or whatever it is for you. Just being a role model. Stand up and publicly say, “Here’s what I’m trying to improve.” It’s hard to do. It’s a whole lot more fun to blame everybody else and make excuses. That’s really much, much more pleasant than looking in the mirror at ourselves and saying, “Wait a minute.” The reality is if I look at my own problems, about 99 percent of the time, I don’t really have to look far to find the source of the problems. Look in the mirror. CE
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BRIGADIER GENERAL (RET.) BERNARD BANKS, PH.D.
PETER ZEIHAN Expert in Geopolitics Author, The Accidental Superpower
MARY KELLY Economist
GARRY RIDGE CEO, WD-40 Company
CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 35
C EO TOOLB OX
HI-EQ
LEADERSHIP
Rallying employees in difficult times requires forging a true emotional connection with them. How do you do it? BY DALE BUSS
KARA GOLDIN HEADED INTO A LOCAL Target store one evening in March and executed a corporate duty she’d left behind a decade ago: merchandising. In the teeth of an unfolding pandemic, the CEO of San Francisco-based Hint Water decided to go where she wouldn’t send her sales team, slipping into the stockroom to assure the startled grocery manager that she would personally make sure his empty shelves would bow again with dozens of cases of Hint Water within days. “I wanted to show my executive team that this is what should be done,” says Goldin. “I should lead by example—not lecture people on what they should ultimately be doing. They appreciated that. And then, they were like, ‘If Kara is doing that, maybe we should be doing that, too.’” In June, Pam Maynard, CEO of Seattle-based Avanade, offered all of the IT-services company’s 38,000 employees and contractors worldwide the opportunity to take the day of George Floyd’s funeral off. “I knew that speaking up in this way and having the team come together was the key to drive real change,” she says.
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In August, Egnyte CEO Vineet Jain checked in with an engineer in Dallas, and the phone call led to an impromptu 20-minute Zoom presentation to the boss about a new AI initiative for the Mountain View, California-based software outfit—and much more. “He was talking about his wife, a nurse practitioner, and how stressed she is during Covid-19,” Jain says. “I really enjoy that kind of conversation, so the empathy was genuine.” Call these high-EQ moves—EQ as in “emotional quotient”—for a moment that demands them. Essentially, EQ, or emotional intelligence, describes an individual’s capability to recognize his or her own emotions and those of others, discern and label them appropriately, use emotional information to guide behavior and decisions, and manage or adjust emotions to achieve goals. Popularized by Daniel Goleman’s 1995 book, Emotional Intelligence, EQ has since gradually worked its way into executive-education curricula and corporate human-relations programs. CEOs have also adjusted to the greater expectations for EQ by an ever-younger workforce. But Covid-19 and the disruptions it
wrought have given CEOs a crash course in the importance of EQ—whether they were ready or not. Add to the pandemic the widespread social unrest and epochal political polarization, and 2020 is re-setting nearly every business relationship. Proven high EQ is helping some CEOs fare well, while other leaders may be embracing the importance of EQ for the first time. “It’s how you really grab employees’ hearts and minds,” says Ted Bililies, managing director of AlixPartners in New York City and adviser to Chief Executive’s CEO of the Year selection committee. “Personal values, authenticity, vulnerability, integrity and character are critical pieces in keeping people engaged and working harder and staying with the company and not giving up and getting other jobs. And the whole notion of diversity and inclusion that is so important today arguably rests on EQ as well.” In fact, Bililies puts high-EQ front and center with four other critical capabilities for creating a “powerful CEO who’s custom made for leadership through business and
social disruption.” The other four are creating a compelling, inspiring vision; setting a strong personal example; articulating values and purpose; and emphasizing accountability and continuous learning. Of course, there’s lots of room for mumbo jumbo in a concept as broad and mushy as emotional intelligence. Isn’t this just what used to be called “leadership”? “No,” says Andrew Panzo, a former CEO and a general partner at NewSpring Capital in Radnor, Pennsylvania. “You hear of CEOs who scream and swear and pound desks, and people act out of fear. Then, you hear of leaders who come in and have to reprimand someone, but that person leaves feeling good.” Empathy is the biggest component of EQ, but it also requires self-awareness and the “intelligence” part of it, the execution—what Bililies calls “the ability to utilize social skills to influence and persuade others.” Or, as Mark Mallon, CEO of Ironwood Pharmaceuticals, puts it, “Once you’ve shown understanding and caring, what do you do with it?” Maynard channels Maya Angelou for that.
Our goal for our team is to feel inspired, confident and cared for. If they do, I know that it will translate tenfold when they engage with our clients, partners and recruits.” —Pam Maynard, CEO, Avanade
CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 37
I should lead by example—not lecture people on what they should ultimately be doing.” —Kara Goldin, CEO, Hint Water
Describing herself as one of the few Black, female chiefs in the tech industry, she applies a well-known aphorism of the late poet. “She said, ‘I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel,” Avanade’s CEO recounts. “So, I’m passionate about the experience that our employees have, and our goal for our team is to feel inspired, confident and cared for. If they do, I know that it will translate tenfold when they engage with our clients, partners and recruits.” Tim Hebert says he learned what to do about EQ during 9/11 when he was leading Atrion, an IT-services firm in Cranston, Rhode Island. “We changed our business model in essentially 35 days beginning that night,” he says. “I had to become a stronger leader versus just a more effective manager. I focused on establishing more trust within the organization, having teams collaborate more and developing people so they’d be more empowered to take on the challenges we were facing. Then I identified when people were being over-stressed and backed them off the ledge.” A big hurdle to effective EQ is how humans are wired: the brain’s empathic capability toggles with its analytical, problem-solving side, researchers say. “These two networks literally suppress each other,” says Melvin Smith, an organizational-behavior professor at Case Western Reserve University in Cleveland. “So, leaders may intend to help but instrumentally solve problems in a way that doesn’t make that emotional connection or create the space that employees really need.” This challenge sets up the risk for CEOs to fall backward on EQ, as they cope with today’s potentially tectonic shifts in the economy, their industries, their companies, their customers, their communities, their employees and their own careers.
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THESE TIPS CAN HELP CEOS OPTIMIZE EQ: Wear a SCARF: David Rock, CEO of NeuroLeadership Institute, based in New York City, came up with a framework to help keep leaders’ mental switch flipped to “EQ” and “activate their people networks to understand others’ goals, motives and intentions,” plus give them “levers” to operate. SCARF is his acronym for the employee needs that high-EQ leaders must recognize. “S” is for “status, feeling you’re equal to other people,” Rock says. “C” is for certainty, which the brain craves. “A” is for autonomy, the feeling of having control and choices. “R” is relatedness, “a feeling of safety with others, a core human need.” And “F” is for fairness. Put employees first: High EQ helps with customers, investors, suppliers and other CEO constituencies. “But employees always come first,” Jain says. “It doesn’t mean we’re building a charitable organization and we’re all kum-ba-yah; we want to make money and have a big enterprise. But if you don’t treat your people right, how will you treat your customers right?” Xactly goes so far as to close the San Jose, California-based software company for a mental-health day occasionally. “If wellness days are made optional,” explains CEO Chris Cabrera, “many employees won’t feel comfortable asking for them or going fully offline when they do.” Man—and woman—the barricades:
During Covid-19, says Stew Leonard Jr., “the best leaders walked the talk.” The CEO of Stew Leonard’s, a regional supermarket chain based in Norwalk, Connecticut, says “they didn’t stay home under quarantine; they were on the store floor, every day, in the middle of the battle. Your people want to see you doing that, not staying at home on a Zoom call all day.” Flow authenticity: It’s a sine qua non for high EQ. For example, amid the Covid-19 fiasco, Alex Bingham fielded a video-conference question from an employee: What if The Little Gym International, a Paradise Valley, Arizona-based-franchisor of fitness gyms for kids, had to close its doors? “I said I didn’t foresee a scenario where we wouldn’t be able to stay in business,” he re-
calls, “but that we could lose some franchisees and team members. Being able to have that kind of conversation in a public setting on the spot makes people feel that we can get through this.” And lace transparency with optimism. “You have to be a merchant of hope for your people,” Leonard says. “You have to stay positive. Maybe you relay some experience in your life where everyone said there’s no way to get out of this one. You’re able to say to everyone that you’ve been counted out. And look where you are today.” Switch moccasins: Walk a mile mentally in another’s shoes. “Put yourself in my place as an employee: Help me understand how my efforts and what I struggle with every day will help the organization,” Bililies advises. “Leaders need to be able to connect and understand what it’s like for a 30-yearold mother of three who’s now working from home and whose partner may have lost their job.” But don’t over-reach. “You can only do so much,” says Samantha Ettus, founder and CEO of Park Place Payments in New York. “If you’re running an organization, you can’t solve everyone’s problems, and you probably have your own problems. You have to set boundaries to focus on helping people with their problems and also focus professionally.” Communicate deliberately: Don’t just check in more often, check in effectively. Be purposeful and set an actual agenda for online “town halls” for employees, for instance—and be prepared for interruptions like a six-yearold coming in and sitting on someone’s lap, says Boston-based Mallon. “Say hello to the child, ask their name and acknowledge what’s happening and ask the [employee], ‘Do you need a minute, or should we continue?’” Celebrate and commiserate: Capture and leverage employees’ moods. Globalization Partners, a Boston-based global-recruiting outfit, recently established “Rock Star Awards” in which employees nominate co-workers for special recognition and a monetary bonus. “It pulls the team together and gives them an opportunity to show gratitude to colleagues,” says CEO Nicole Sahin. Spread out the feelers: Take pulses
everywhere. Jain drills down into his workforce of 700 to many individuals—such as the engineer in Dallas—via text, Slack, email or a phone call to update them and solicit their thoughts. “I don’t set up scheduled meetings,” he says. “That takes the formality out of it, and people appreciate that.” Hebert gathered small clusters of Atrion staffers. “Get them together and talk about what they’re feeling, what’s working and not working—and don’t spend a lot of time on what you think,” he says. He also checked in with five or 10 key employees regularly, one on one. “Share where the business is going, where some of the challenges are. Don’t sugarcoat it.” Change up just one question:
Switch from asking, “How are you?” to, “How are you feeling?” That was “a big moment” for Hebert. “There were people who I thought had things handled who would break down when I would ask them that.” Wield purpose: Reaffirming a company’s “purpose,” an exercise that has been so important to millennials and Gen Z-ers, is crucial. “It’s still important that CEOs understand the values of their organization and promote and inform the values of their organization besides making a profit,” Bililies says. “Connect an individual’s efforts with the purpose and motivation of the company.” Hone your EQ skills: High EQ may come more naturally to some but, like any other leadership competency, “can be developed and sustained in a significant way by being broken down into behaviors,” Smith says, “and it’s about engaging more consistently in these behaviors.” Charlie Young, CEO of Gilbert, Arizona-based Synergy HomeCare, agrees. “All CEOs can hone their emotional-intelligence skills, just like they perfect other skills.” CE
If you don’t treat your people right, how are you going to treat your customers right?” —Vineet Jain, CEO, Egnyte
CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 39
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BEST IDEAS 2020
MONEY MATTERS
Getting financials right is what will get you through a crisis. Some ideas.
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financial tactics and resources to use the most effective ammunition. A strong majority of them, 72 percent, are planning to conduct more regular strategy and portfolio reviews post-pandemic, according to a recent survey by EY consultants. Once normality has returned, 42 percent of them will focus on prioritizing capital allocation across their portfolio, the survey said. Many company leaders also are quickly and thoroughly evaluating the breadth, depth and pace of digitization and how to finance it. “While it was on their agendas before, now it’s a matter of survival,” says Brian Salsberg, EY’s global buy and integrate leader. “They know they need to accelerate digital transformation to build resiliency under a broader set of situations, for this pandemic or the next one.” Merger and acquisition activity also is re-awakening. After a first half of 2020 that was the slowest year since before the last recession, M&A will “recover ahead of the overall U.S. economy,” according to PwC’s Deals Industry Insights report. “We expect the momentum to build in the coming months, with the number of divestitures and other deals likely to increase as government aid supporting businesses and households throughout the pandemic dissipates.” Here are ideas for using financial strategies and tactics to navigate the post-pandemic environment from a dozen CEOs and CFOs interviewed by Chief Executive:
ADOBE STOCK.COM
DEALING WITH COVID-19 has been about many things for business leaders: assessing damages, navigating crisis, rethinking business models, establishing makeshift new digital networks, reckoning with the value of human capital and physical facilities alike and confronting a future so rife with uncertainty that the questions themselves—much less answers—have no precedents. But, as always, it’s been about the money more than anything else. Companies’ financial resources, strategies, strengths and weaknesses have been tried and tested as never before by the abrupt shutdown of the global economy, untangling of government financial life lines, the strange needs of trying to keep operations going amid the health scare and the requirement for business leaders to plan how to get to the other side of the recession regardless. “Obviously, a lot of businesses have benefited from this environment, but for all of those who haven’t, CEOs who are thinking outside of the box about their finances and thinking about creative ways to save and make money are doing best,” says John Mackel, managing partner and CEO of Weaver, a regional accounting firm based in Texas. “Companies that are the most flexible and changing course most quickly are doing pretty well.” But while it’s one thing to decide to pivot, it’s another thing for CEOs and CFOs to aim at the right targets and to leverage
BEAUTY CARE PRODUCTS & SERVICES
TURN TO REVENUE-BASED FINANCING MARYANN GUERRA, CEO Aesthetics Biomedical, Phoenix We were successful but wanting to bring additional dollars into the company. Some VC folks were looking at us, but they want to dilute you. We also looked at debt financing, but we didn’t want to dilute ourselves further when we had a pretty solid revenue base. And when you have something unforeseen happen to you—like Covid-19— it’s good to have money in the bank. That’s why we considered financing based on revenues. You negotiate a deal for paying back a percent of your revenue every month. If you feel good about your revenues, you feel good about this, though there’s a little fluctuation in your payments. There’s risk involved on the lender’s side, in figuring out what your revenues are going to be, and on your side because there are penalties if you don’t make your revenue targets. But it allows us to keep our money in the bank. And it allows us to accelerate some development work on new products.
INDEPENDENT PHYSICIANS’ GROUP
SHRINK YOUR REAL ESTATE FOOTPRINT SCOTT HAYWORTH, CEO CareMount Medical, New York We have 650 physicians, and we were in the heart of Covid-19, taking care of 665,000 patients. In two weeks, we completed what should have been a three- to six-month project and rolled out televisits to the entire provider group, so we were doing 2,500 of them a day—compared with roughly six a day before. We had to furlough back-office people, and a lot of others are still working from home. So, we realize that we aren’t going to need all of our commercial real estate on the back-office side. We’ve non-renewed 8,000 square feet already, and we’ll continue to non-renew—and not take on more space—as we continue to grow. We can probably reduce our commercial real estate needs by 50 percent, getting rid of about 60,000 square feet over time. We’re trying to maximize the use of clinical space, so that will take up some of the back-office space. Some of it we can sublet. But, unfortunately, a lot of it we’re just going to have to burn off over time.
REGIONAL BANK
ACCELERATE DIGITIZATION JOHN WOODS, CFO Citizens Bank, Providence, Rhode Island We had a highly conservative view about capital and liquidity going into the crisis, and it has served us well. So, we are keeping the same amount of investment for funding innovation while rates are falling and revenue headwinds are rising; so, in a sense, we’re increasing the percentage of revenues we’re allocating to innovation. If we don’t, we could lose our standing as we exit the crisis to competitors that were bold enough to maintain their investments. That means digitization. Through initiatives that we launched last year and early this year with consumers and small businesses, we actually were ready for the colossal changes in customer behavior—the whole uptake in digital—during the pandemic. If you hadn’t been thinking about it, you’d have called it alarming how quickly consumers behaved differently than before. Post-pandemic, we are accelerating these initiatives in areas like digital deposit-gathering and subscription-style payments. But we haven’t digitized down into the core of our organization through our operations. We have way too much paper and way too much manual interface and way too much automation that isn’t connected. So, [by this fall] we’re launching a digitization, from front to back, of our consumer banks. It will be a multi-quarter program that will significantly increase the $300-plus-million that we’ve already committed to. It’ll be responsive to the post-pandemic environment, and, in banking, it will be table stakes to have a fully digitized, operational back office.
CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2020 / 43
TRANSPORTATION-INDUSTRY PAYMENTSYSTEMS OPERATOR
LEVERAGE LIQUIDITY FOR M&A STEVE GREENE, Executive Vice President, Corporate Development and Strategy FleetCor Technologies, Atlanta We’ve done 86 acquisitions and invested almost $9 billion of capital since 2000, improving market positions for business we’re currently in and gaining positions in markets we aren’t in. We remain committed to deploying $1 billion of capital a year, and M&A will be the cornerstone of that strategy. Covid-19 put a lot of competitors under stress and their business volumes came down dramatically. Folks might need capital or look to a partner where they otherwise might not. So, we’re on our front foot. We’re hoping valuations will tick down a bit. We’re cautiously optimistic we might be able to do more deals on the back end of this than we would otherwise have been able to. And we’re studying companies that might have been out of reach pre-Covid. For us, it has been important to keep our leverage low. We’re pretty conservative. That allows us to be more opportunistic when things like this happen. This is an environment where cash is king for being able to do deals. Seller are always worried about certainty, but a [proven] track record—that’s worth more than ever. Others have seen debt markets get pretty choppy during Covid. For private-equity funds using the LBO market to fund their acquisitions, those markets haven’t fully recovered. So, that should give us the upper hand.
AFTERMARKET AUTO PARTS
TALK WITH YOUR BANKERS LEV PEKER, CEO DAVID MENIANE, CFO CarParts.com, Torrance, California MENIANE: We’ve learned a lot about the importance of talking with vendors and other partners—especially our bankers, JPMorgan Chase, with which we also have an asset-based line of credit. We overcommunicate with them; we have weekly calls with them, letting them know how the business is doing and going over contingency plans with them. That’s kind of unusual, but it has ended up serving us well. If you give them the bad news up front, there’s only upside. And it has gotten us better terms and has nurtured our relationship with them. PEKER: Plus, during the pandemic, other companies
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REGIONAL MOVIE THEATER OPERATOR
ROLL WITH THE PUNCHES PAUL GLANTZ, CEO Emagine Entertainment, Troy, Michigan We’ve seen the complete shutdown of our business for several months. We went into this in very good financial condition, with a very good balance sheet, but we are restructuring it to replace some equity with debt. It’s about bobbing and weaving and rolling with the punches. Certainly, that’s also the case with cash preservation. We’ve been talking with landlords and entering into deferral arrangements on some leased facilities. We’ve battened down the hatches in other ways. We’ve turned off all of our exterior lights; there’s no sense illuminating signs that no one is going to see. But, at the same time, there are many things that we can’t just shut off. The way we buy electricity is called “primary means,” which is designed for large users. But now that we’re using so much less electricity, we’re subject to a penalty for not using it. It’s analogous to, “No good deed goes unpunished.”
were drawing down their [revolving lines of credit] to get as much cash as they could into their accounts. We couldn’t fully understand why that was happening because we haven’t been through a real cash crunch since I’ve been at the helm of the company. So, we got on the phone and asked Chase if we should be drawing down ours. They explained that all these companies were acting on what they remembered from the recession in 2008, when there was a big liquidity crunch, and they weren’t going to let that happen to them this time around. Chase advised us not to do it because we had plenty of cash on the books already, even though it would have benefited them in terms of fees if we’d drawn down our revolver. MENIANE: Some other companies, multi-billion-dollar corporations, might think they know better; they’re not going to ask Chase what to do, they’re just going to do it.
ACCOUNTING FIRM
SOFTWARE COMPANY
SHIFT YOUR SPEND
USE RECEIVABLES FOR COMMUNICATING
JOHN MACKEL, CEO and Managing Partner Weaver, Houston We are rethinking our marketing programs and reallocating marketing spending around that. We spend a lot of money on sponsorships, and we were somewhat guilty historically of a “just show up” attitude toward business development—sponsor conferences or agree to speaking opportunities, and investment managers and CFOs will show up, and we’ll be there too. But now, none of those events are happening. So, we decided to move those dollars to spending on a branding campaign, doing more advertising and focusing our advertising dollars on places we know our clients are online. We also are doing more industry webinars. Before we would get 25 to 50 people on a webinar, but now it’s 200 to 1,000 people. For example, we’ve made a big push in healthcare in the last several years, and now there’s been a ton of disruption there, so we’re trying to help doctors and practices and hospitals get through this. We’ve got a pretty large banking practice—and community banks and credit unions are working through PPP loans and evaluating their loan portfolios. Our real estate developer clients are getting asked by retailers and restaurants for concessions on rent. It’s paying off. Our partners who have good networks and are close to clients and have deep industry expertise are selling a lot of work in this market because [customers] on the other side are still available. Nobody is traveling or going to kids’ school events; they’re available. We can get them on Zoom or in a phone call and solve their problems and add revenue for it. But we’re changing how we budget these marketing expenses. In the past, we targeted our spending at three to five percent of revenues, but our revenues were down by 10 percent for the year ended in May. So, now for this year, we’ve set it up that, as we hit revenue targets for each quarter, we’re going to increase or decrease our marketing budget. We’ll spend a certain amount, and then, as we hit certain goals, we’ll spend more. It’s a more conservative approach.
SUZANNE COLVIN, CFO Egnyte, Mountain View, California We learned from the dot-com crash 20 years ago that you need to move fast and you don’t know what’s going to happen with customers. So, with the pandemic, we very quickly took a line of sight on accounts receivable. We wanted to move fast, but we also wanted to build relationships with customers through it and build loyalty that will keep them for the long term. We reached out as we were billing them to make sure they have what they need. Do they need a purchase-order, for instance? Do they need us to bill annually? To have a subscription? We wanted to get paid right away and before these invoices turned bad. And we were able to bring down past-due ARs and make more timely payments. Yes, that’s in the style of best practices, but more important in a time like this is that if you blink, there might be an issue. Only about 10 percent of our customer base was rattled by Covid, but we didn’t know that going in. And we also let them know we were there for them. We wanted to build a relationship mindset. Going forward, now, we are always keeping a touchpoint when we send out a bill. Did that bill go to a person who can approve it? Is it going to sit there for 30 days or six weeks until someone figures out if it’s going to get paid? We monitor days’ sales outstanding more diligently, and I can see at my level if there’s a deterioration in KPIs like that. We also are building in a culture shift around this. Not only is our finance organization reaching out to these customers, but when we don’t get a quick response, we’ll work with our sales colleagues. We’ll say, “We just sold this, and we’re trying to confirm that the bill got to the right place.” And the salespeople may have just been talking to them, and they want their commissions. But they won’t if the customer doesn’t pay.
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THOUGHT LEADERSHIP PROVIDED BY SEGAL
THE STATE OF M&A Fred Hencke leads Segal’s mergers and acquisitions solutions group. We asked him what the first six months of 2020 tells organizations about M&A today.
Has Covid-19 effectively put mergers or acquisitions on hold? We normally see M&A activity rise and fall on a five- to seven-year cycle, and we began to see activity slowing down during the second half of 2019—even before Covid’s full effect hit. Covid-19 then accelerated the drop off in activity, but it has not brought all activity to a halt. Think of it more as a plateau in the cycle’s wave, with a number of organizations now in “wait-and-see” mode rather than completely walking away. Is that the case for the majority of organizations? Not at all, and, in fact, some have actually sped up their plans or at least their inquiries. Buyers may be seeing some opportunities in terms of pricing or as a way to diversify, become more resilient or consolidate their supply chains. On the one hand, some sectors are heating up, but many remain in a wait-and-see mode. Some sellers that have been hit hard by Covid-19 are seeing sales or mergers as their best chance to survival. There is no question that the pandemic has affected pricing, with valuations declining and valuation methods adjusted to account for the shortand long-term impact. Covid-19 has decelerated and re-focused traditional M&A activity, and, because of that, we will likely see a spike in divestitures and financially distressed sales, especially in the industrials sector. On the positive note, we are witnessing technology and technology-heavy organizations leading the way in the recovery. Price aside, would integration of operations of two companies be any harder now? It can be harder in some situations. The first place I would look would be at the current operations of the two organizations. Are they operating at pre-Covid capacity and with pre-Covid staffing? Or are they still adjusting to a business-continuity-plan reality? If stability was only recently achieved, news of a major change can again cause disruption and make employees anxious. In that situation, a longer-term and staged integration plan may be wise.
Can you give an example? There are primarily three ways to bring two organizations together: • The lead organization can impose its culture and processes on the other organization, • There can be a blending of the culture and processes (which may include an opportunity for improvements that are new to both), or • The two organizations can operate as they had for a time or even permanently (like a portfolio company under a private-equity firm). The situations at the companies involved should be used to determine the best course of action. Good and frequent communication from the leader is important because people become disengaged from their work when they fear the unknown and do not know what tomorrow will bring. A goal should include managing the risk inherent in the deal. Risk often can be mitigated by ensuring the “fit” of the organizations through examining the cultures and workforce and then planning their optimal integration. How important is culture to success? In our view, which has been borne out repeatedly, that is one of the three key internal factors: people, culture and leadership. Organizations can make adjustments for external factors, which is what we are seeing now, but getting people, culture and leadership right goes a long way to achieving initial success and sustaining it. A successful M&A deal should not be judged as a snapshot in time. Rather, how is the combined organization doing a year or two or five later? If you get people, culture and leadership right, and you made a smart decision in choosing the other organization, the results should stay positive or, better yet, grow year after year. Supporting all three is communication—what’s coming, why, when and how will it affect me (including what will I need to stop, start and continue doing). Think of it this way: culture sets expectations and a common denominator by which people prepare for and respond to the changes a merger or acquisition brings. Then, in the midst of organizational change, culture and workforce differences drive new
challenges in employee engagement and commitment, which need to be anticipated and addressed. So, people, culture and leadership need to be integral in all planning. What else? We always advise that organizations looking to buy, sell or merge should have a clear understanding of their readiness before the first conversation with an intended suitor or target. We take our clients through a readiness assessment diagnostic—a series of questions that go beyond the balance sheet, that start with people, culture and leadership and go a bit deeper into how these categories play out in terms of products or services, sales and customers, governance and organizational operations. This includes workforce planning, forecasting and management processes. What is the practical benefit of the readiness assessment? What we are really doing here is documenting the factors that lead to sustainable synergy so that the integration planning can focus on business optimization. Before you can judge how well you will integrate with another, you have to understand yourself, including your motivations for considering a deal. Think of it this way: if you can document and, to some degree, measure the potential synergy before you start the deal, you have a greater likelihood of accelerating value creation once the integration begins and, more important, a much greater likelihood of sustaining that value. So many deals aim low because they are trying to account for the “unexpected” and then fall off because it is harder to make course corrections once the deal is well underway. You mention motivations. Do you see common motivations occurring? Motivations can be proactive or reactive. For example, proactive motivations are led by the desire to increase market share as well as access new regions and new capabilities. This may include a desire to offer whole-product solutions. Reactive motivations right now are fueled
by Covid-19, and they include lowering operating costs or even survival. In a less pandemic-driven market, we often see eliminating a competitor and improving customer service and quality as reactive motivations. These motivations inform the questions we ask during a readiness assessment, and we help organizations keep these in mind during the entire lifecycle of the deal. Does your work typically end with the readiness assessment? By no means. We are regularly asked to be in an advisory role throughout the integration, and, many times, we set up the project management office and help to run that. A mistake that happens too often is that people in the organizations who already have full-time jobs are tasked with due diligence, developing the integration plan and, then, managing its execution. They may have never faced these roles before and may not have the experience necessary. Nor do they have the time if their current responsibilities are not reassigned. We bring a “design thinking” approach and use workforce analytics to drive workforce planning and forecasting. We also examine culture and quickly surface the differences that can be issues and integration impediments. Last, we work with leaders to develop change management and communications strategy and plans that emphasize five keys: clear, concise, contextual, relevant and often. Keeping the people informed helps to allay fears and build confidence in the organization and the plan.
FRED HENCKE is a senior vice president and Segal’s mergers and acquisitions solutions leader. He has more than 35 years of consulting experience, and his M&A leadership includes buy-side, sell-side and private-equity deals in many industries.
HEALTHCARE PROCESSOR
TAKE ADVANTAGE OF A FLUSH BALANCE SHEET Russ Thomas, CEO Availity, Jacksonville, Florida We’re looking at how to grow our business organically and inorganically. And we can because we’ve been pretty conservative in our M&A approach beforehand, not willing to overpay for assets in a very frothy space and not over-leveraging our balance sheet. A number of competitors don’t have nearly the scale or strength of balance sheet that we have. Now, we’re looking at acquiring some of them, and there are very few transactions that we couldn’t facilitate in our space. We have opportunities to acquire more scale, and we’re in a scale business.
REFRIGERATION AND HVAC SERVICES
PAYMENT SYSTEMS PROVIDER
BE AGGRESSIVELY OPPORTUNISTIC
DIVERSIFY FINANCING INSTRUMENTS
ADAM COFFEY, CEO CoolSys, Brea, California
BARRY MCCARTHY, CEO Deluxe, Shorewood, Minnesota
We have 70-plus offices in 44 states doing repairs at buildings. We’ve had all sorts of issues, from retail customers shutting down to trying to service Starbucks in cities where they’re essentially burning down during the riots. We’ve had to decide whether to roll trucks into what amounted to combat zones. Through it all, we’ve tried to take advantage of the fact that the Department of Homeland Security declared our business essential. First, we looked for strategic pivots where we could turn the global pandemic into an opportunity. We started installing sneeze guards for some of our customers that were also deemed essential, such as grocery stores. Then, we signed big deals, including 1,000 Walgreens locations. We took some lumps but offset them with new revenue streams. Our competitors aren’t able to get the credit capacity that they need. One went bankrupt, and a big chunk of their workforce came to work for us. We bought their tools and equipment and a lot of their assets for pennies on the dollar, and many of their customers came to us by default. Then, we turned on our M&A engine. We completed two deals, and, within 90 [more] days, we [hoped] to complete two more. Our credit lines are still there, and, because of arbitrage between the prices I’m paying and the value of the business I’m running, we’re buying things at 5X that I value at 14X. And they’re highly accretive, with the rollover investment from previous owners, they’re actually de-levering.
We’ve had the great fortune of being financially stable before and through the pandemic. We’re healthy and vibrant, and we’ve done all the reasonable things you’d expect to secure cash. But this market also has created interesting opportunities for us to contemplate alternate financial structures. We haven’t executed on them, but we’ve certainly looked at a number of them, from unsecured bonds— very classic, but a place where our company hadn’t played in the past—as well as more-hybrid financial instruments, such as PIPEs [private investments in public equity] and convertibles that are out there, such as where you’re basically borrowing money and you’ll pay it off in the future with equities or cash at your discretion. They’re at very attractive rates compared with what’s historically been available; we’re noting that some of them are very attractive relative to unsecured lending in the bond market. We’re considering them because we want to be well-positioned and have our hands on the levers to move quickly if the opportunity presents itself, either customer lists that become available or young companies that are M&A or investment candidates. We’re exploring the options and building our capabilities and relationships should we want to execute on those. We think the market may create some chances for us to be very opportunistic and acquire, perhaps, some larger assets with even more EBITDA. CE
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CHIEFEXECUTIVE.NET / MAY/JUNE 2019 / 59
S M A RT M ANU FACTUR I NG
EMBRACING INDUSTRY’S
NEW REALITY
Leaders share strategies for adapting to supply-chain upheavals, Industry 4.0 and safety practices post-Covid. IN CRUCIAL AREAS, including leadership, automation, workforce development and company culture, manufacturers are approaching the post-Covid-19 era with hopefulness, determination—and a lot of creativity. About 200 leaders from across the country shared ideas for dealing with a time of unprecedented disruption as they joined the Chief Executive Virtual Smart Manufacturing Summit, sponsored by the Indiana Economic Development Council, in June. “This pandemic may be the toughest challenge any of us have had to face in our careers,” Tom Bell, CEO of Rolls-Royce North America, told partic“Good leadership always ipants. “It will shape us.” At separates winning from losing the same time, Bell said, “Good teams. And this becomes most leadership always separates winning from losing teams. acute at a time of challenge, And this becomes most acute at whether it’s anticipated or a time of challenge, whether it’s unanticipated.” anticipated or unanticipated.” —Tom Bell, CEO, Rolls-Royce As an essential builder of North America engines for aircraft and submarines, the Rolls-Royce plant in Indianapolis remained operational through the pandemic. That tested Bell in what he called the two most important jobs of leaders: “inspiring those around them” and “building a team around them.” Bell is big on delegation because “I don’t have all the answers, and I don’t have enough bandwidth to be thinking about everything all the time.” “I try to have a leadership team too big to be micromanaged but big enough to lead,” he said. “Leadership, not management, inspires others. So, I build a team
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capable of leading me.” Other leaders noted the need to move swiftly and be prepared to adapt. “You also must take action and be agile; you don’t have to have the perfect answer,” noted Lou Rassey, CEO of additive manufacturer Fast Radius. “Start taking steps. [And leaders must] display a sense of optimism.” Mary Barra leaned into pandemic leadership as CEO of General Motors, delving into the details of a 48-page company “playbook” for restarting production after the pandemic eased. She panned an early draft as “too leadership-driven and said we needed something from the employee standpoint,” reported the co-author, Jim Glynn, GM’s vice president of worker safety. “It’s about them feeling safe, she said. [Barra] had a global call with every executive from the company and said, ‘You each need to know this playbook. It’s that important. You can’t say let me get back to you. You need to answer on your feet and be able to explain why these protocols work.’” Barra also wrote, to every person who works for the company in North and South America, a letter that included an explanation of how she personally was affected by Covid-19. “She wanted them to know that we understood their worries and, ‘Let’s work together to address those,’” Glynn said. “It helped reduce some of the anxieties.” But plenty of anxiety still looms. Much of it relates to personal health and safety in plants, which has spiked. CEOs have been responding. “If you were focused on having a safety culture pre-Covid, you were in a great place,”
said Rick Tobin, CEO at Bongarde, parent company of SafetyNow. “If you weren’t, that’s still OK because a lot of the tools and procedures you might have needed before Covid are there now—and you need to implement them now.” But creating a safety culture, he added, is more about “changing behavior than about giving employees tools, and it’s about making sure they have the procedures to implement those changes.” Chiefs also had to acknowledge that many people “working from home don’t have ideal home environments for that,” Tobin noted. “They may be nervous or distracted, working at the same table with their kids learning.” Executives “used to managing by walking around need to be more proactive in how they communicate, such as conducting weekly calls with employees, with goal setting,” he said. “More companies are moving to the habit of daily check-ins in the morning and some at the end of the day, too.” At the same time, Bell said, chiefs need to respect boundaries. Working from home “shouldn’t just be a day extender for your employees. It should empower your employees. It will be up to us as leaders to decide to deliver on one of these futures or another.” Yet, Bell sees remote work as a temporary measure. “One reason we were able to be productive during the pandemic was that we shared the experience of having been in the office together; we trusted one another,” Bell said. “It’s difficult to build that trust on the phone. So, I doubt seriously that we’ll eliminate the office environment in the future.” While the long-term effects of the pandemic are up in the air, it’s already prompting some leaders to rethink what keeping their workers healthy and safe means. “It’s changed our view of safety not just being about injury reduction but about health and safety more broadly,” Glynn said, including the conditions that made GM employees more vulnerable to the virus. “Why not care about high blood pressure or hypertension or diabetes?” he asked. “Those should be equally important. The virus will come and go, and we’ll be better prepared for the next one. But in the meantime, why can’t you be healthier because you
“It’s changed our view of safety not just being about injury reduction but about health and safety more broadly.” Jim Glynn, VP, GM
“You also must take action and be agile; you don’t have to have the perfect answer. Start taking steps. Display a sense of optimism.” Lou Rassey, CEO, Fast Radius
Manufacturing executives who are “used to managing by walking around need to be more proactive in how they communicate.” Rick Tobin, CEO, Bongarde
“Manufacturers should attach Industry 4.0 to “the few remaining human advantages.” Gary Bertoline, Dean, Purdue University
work at GM? That’s engaging at a completely different level, showing that we care about you, you are a valuable member of the team and we want you to be not only safe but also healthier at GM.” There are also other sources of anxiety for workers, one being the relentless advance of “Industry 4.0,” featuring AI, IoT and data analytics making more automation implementable. “This is by far going to stress our human systems more than any of the previous sea changes in manufacturing because now machines can do cognitive tasks that were the exclusive domain of humans,” Gary Bertoline, a dean at Purdue University, said. “Industry 4.0 changes the equilibrium.” As a result, he said, it’ll be crucial for manufacturers to make sure digitally fluent young workers have the right skills. Purdue is opening its third polytechnic high school with just that in mind, Bertoline said. It’s also key that manufacturers persuade new workers that the company’s purpose is meaningful—like Caterpillar, whose equipment enables development projects across the Third World, or SpaceX, whose rocket shots—and outspoken CEO in Elon Musk— excite students, the professor said. Yet, existing workers view the possibilities of automation loom more as a dystopian threat. Bertoline said manufacturers should attach Industry 4.0 to “the few remaining human advantages,” which include things like “cognitive tasks that take great leaps of logical imagination or emotional intelligence. That’s the separator between us and the machines.” Also, there “will still be demand for skills to program, test and oversee the machines.” That’s the thinking behind Rolls-Royce’s $400 million investment to revitalize its Indianapolis complex and “create the most modern and competitive aerospace manufacturing facility in the world,” Bell said. The company agreed to allow natural attrition to absorb most of the job losses and, with the United Auto Workers union, designed a “productivity index” and attached bonuses for workers tasked with optimizing the performance of a highly automated “super cell.” “That’s truly becoming an unlock for increased productivity across the whole company,” Bell said. CE
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C EO ROU NDTAB LE
BUILDING YOUR FACTORY
4.0 WORKFORCE Covid-19 both helped and hindered the challenges of retaining and retraining skilled workers, say CEOs. EVEN AS AMERICA STRUGGLES TO recover from a deep economic decline and the rapid loss of tens of millions of jobs, manufacturing CEOs are still greatly concerned about training, retaining and finding the best people. That’s because, despite the new prospect of double-digit U.S. unemployment stretching into 2021, many chiefs are still starved for good workers. “On the people side, our biggest challenge is that we’re a high-tech industry, requiring 24/7 operation, Alan McLenaghan, CEO of SageGlass, told a roundtable of fellow manufacturing chiefs sponsored by the Indiana Economic Development Council (IEDC) at the Chief Executive Virtual Smart Manufacturing Summit. “And people “The steps manufacturers don’t want to work the night are taking have created a shift. They’re 9-to-5 people.” competitive advantage for some McLenaghan was joined companies. There’s definitely by a chorus of other CEOs an opportunity from how they whose main concerns about the availability and quality of leaned into best practices.” workers seemed to belie the —Brock Herr, IEDC sudden availability of vast new pools of job candidates across most of the country. They worried about labor-related challenges that pre-dated the pandemic and that would still be there afterward, such as hanging on to skilled and experienced workers, training them in new technologies and continuing to build workplace cultures that appeal to demanding new generations. At the same time, CEOs roundtable participants were interested in applying lessons learned during the pandemic about handling remote work, keeping their people
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engaged and safe on-premise and generally being better employers. Typical was the commment of Paul Lantz, COO of A. Rifkin, based in Wilkes-Barre, Pennsylvania, a maker of security bags for banks, governments and businesses that struggles with retention. “Being a sewing operation, it’s a challenge to get people who want to keep doing that,” Lantz said. “We’re trying to make it easier for elderly workers to stay with us longer and to make it exciting for some of the younger people coming in.” In With the New
While holding tight to their best people, some CEOs expressed frustrations about aging workforces that may have grown comfortable with the status quo during the decade-long U.S. economic boom. Too many workers aren’t eager to embrace new requirements for their companies to continue to compete, they say. Steel, for example, is pretty much what steel was 150 years ago, said David Zalesne, president of Owen Steel, based in Columbia, South Carolina. But his company is always applying new processing techniques to differentiate its products in a highly competitive, commodity-based industry. “It’s still a labor-intensive industry, so from a workforce-development standpoint, the biggest challenge is trying to figure out what technologies are feasible and implementing them in a very blue-collar environment.” Badger Magnetics makes electric-transformer products “that have been around for a long time, and the workforce has been around for a long time,” said Ed West, COO
of the Milwaukee-based outfit. “A lot of them don’t use computers on a regular basis [off the job], so technology and training and getting them to do things in a new way is a challenge.” Chryss Crockett, CEO of Carus, said that her Peru, Illinois-based maker of chemicals used in municipal drinking water was introducing a new product for the first time in over half a century. “Wrapping the workforce around the challenge of doing that after being comfortable with the old product—and even with a new plant—it was hard to get the workforce to understand that this was a good thing,” she said. “It’s been met by a lot of resistance.” At Cummins, the giant engine maker based in Columbus, Indiana, leaders are “about to introduce Industry 4.0 concepts to 22,000 people on the shop floor” in 120 facilities around the world, each of which is in a somewhat different state of readiness for adoption, said Elizabeth Hoegeman, executive director of global manufacturing engineering. That would be a daunting enough communications and logistics obstacle, but “out of that population, 16,000 don’t have any kind of company-issued electronic device,” said Hoegeman. “So there’s no way to connect with them easily to get the information campaign to them. That all makes it a challenge creating a roadmap for pulling them in and getting them engaged and trained and excited about tomorrow.” McLenaghan, whose operation is a unit of Francebased Saint-Gobain, offered hope to Hoegeman. SaintGobain offers a downloadable, free app to employees using any email address they wish. It replaced a clunky system of churning out emails. “You can start with the basics of a tornado warning that might affect operations, all the way up to executive communications on a weekly basis,” he said. Usage rates are about 82 percent of eligible employees, including about 75 percent of hourly staff. Covid-19 still could roil everything from markets and revenues to operations for months to come. Nadav Goshen, for instance, worried that the rise of remote work already has created “a new environment that will challenge our hiring strategy.” The president and CEO of MakerBot Industries, a maker of 3D printers in Brooklyn, New York, said that “it’s hard to maintain a culture remotely. It’s a new era in terms of the workforce, specifically for a tech company.” Yet, the consensus of the roundtable CEOs seemed to be that at some point they’ll be able to get back to the culture-building that has become so crucial for business success in the long run. Several predicted the trend
will swing back toward physical locations where even white-collar employees will gather, though remote working will continue on a greatly expanded basis. The best answers to how to balance these factors, and solve the dilemma of retaining and managing workforces and nurturing culture, continues to be strong and innovative leadership, CEOs agreed. “We’re a 75-year-old company that has been in the Murray family since 1990,” said Susan Murray Carlock, vice president of business development for Mursix, the Yorktown, Indiana-based maker of metal components. “The leadership team can be hard-pressed to change the way they’ve done things, but the openness is there. And it’s up to that team to allow the challenges to be met by the managers who are on the floor.”
Several CEOs predicted that the trend will shift back toward physical locations, where even white-collar employees will gather, though remote working will continue on a greatly expanded basis.
Covid Lessons
Manufacturers can leverage how they dealt with their employees amid the pandemic, said Brock Herr, vice president and counsel for the IEDC. “The steps manufacturers are taking have created a competitive advantage for some companies,” Herr said. “There’s definitely an opportunity from how they leaned into best practices.” Zalesne confirmed that workers’ impressions of his leadership of Owen Steel were solidified by how he handled the Covid-19 outbreak. “The outside news was so overwhelming that employees were really looking to one person for an answer: me, the senior leader,” he said. “They wanted someone to digest the information and translate it into language for the guy getting up at 5:30 a.m. to go into work. They were looking for guidance in a sea of noise. It was a great way to build more credibility.” Likewise, his company’s efforts to keep employees safe during the pandemic will pay future dividends, Lantz said. “People in the community hear what we’ve done to keep people safe, and also that we made PPE; that will help us attract people versus the major companies that are laying people off and don’t have environments that are as safe,” he said. Still, McLenaghan isn’t counting on Sage’s goodwill toward employees during Covid-19 to count for anything in the long run. “I’m under no illusion that, when the new factory up the street wants to start hiring 500 people and is offering $1 more an hour than we are, that employees aren’t telling us about it,” he said. “I’m not expecting, ‘Your communications videos were so compassionate that we’re willing to take a hit in our pay.’” CE
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EC O N O M IC D E VE LOPME NT
REGIONAL REPORT
THE SOUTHEAST Green shoots bode well for the nation’s Southeastern states. BY CRAIG GUILLOT THERE ISN’T A SINGLE STATE IN THE country that hasn’t experienced a major economic blow in the past few months due to the Covid-19 pandemic. Yet, EDCs in the Southeast say behind the “doom and gloom” headlines, many industries are holding up. Surprisingly, states are even reporting new investments in recent months as manufacturers, life sciences and tech companies seek to capitalize on growing healthcare needs and the “stay-at-home” economy. 2* FLORIDA
*No. ranking in the 2020 Chief Executive Best & Worst States for Business (ChiefExecutive.net/ the-best-worst-states-forbusiness2020)
POWERED BY ECONOMIC DIVERSIFICATION Recent diversification efforts have helped keep Florida’s economy in a far better place than it would have been in the past, says Jamal Sowell, CEO of Enterprise Florida. Able to shift to telecommuting models, the financial and business services industry held up well. Manufacturing has also stayed busy with companies like Lockheed Martin, Northrop Grumman and Embraer resuming operations on the Space Coast. Florida even continued to ink some new
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deals. In May, high-speed jet manufacturer Aerion announced 675 new jobs and a $300 million investment in a new headquarters in Melbourne. Healthcare companies MPLT and Forcura both announced corporate headquarter relocations to the state. “We have a number of other announcements that we look forward to sharing in the coming weeks,” Sowell says. EFI took steps to help businesses, including suspending the initial fee for its Microfinance Loan Guarantee Program early in the pandemic. In May, the organization rolled out a virtual trade grant programs to help Florida companies conduct business overseas without physical travel. In early June, the agency launched the Virtual Trade Shows Grant Program to allow companies generate new export opportunities. 4 TENNESSEE BIG REOPENING PLANS To better organize the volunteer state’s economic recovery effort, Gov. Bill Lee created in April 2020 the Economic Recovery
FLORIDA New deals include Aerion’s $300 million investment in a Melbournebased headquarters.
Group (ERG), a public-private partnership that fosters collaboration, connection and communication across industries. The ERG drafted guidelines that cover responsible reopening in virtually every industry. It also features a PPE vendor directory, printable guidelines and additional resources. “It has been a model and is a handbook that covers the gamut and how to open over various stages,” Bob Rolfe, commissioner of the Tennessee Department of Economic and Community Development. One Tennessee industry that has held up is the 3PL logistics market. Home to the FedEx hub in Memphis, Tennessee is a one-day truck drive from 60 percent of the country’s population. Manufacturers like Black and Decker, Delta Faucets and LG maintained operations and employment numbers due to increased demand from “stay-at-home” orders. Tennessee has an impressive 20 projects in the pipeline with more announcements coming, says Rolfe, who notes that there is no playbook for the current environment. “We have never been here, each day brings new challenges.” 6 NORTH CAROLINA GROWING OPPORTUNITIES IN LIFE SCIENCES Industries like IT, financial services and life sciences are not only holding up but growing, says Chris Chung, CEO of the Economic Development Partnership of North Carolina. In June, Global healthcare company Grifols Therapeutics announced a $351 million expansion and 300 new jobs at its Johnston County campus. GRAIL also announced a $100 million investment and nearly 400 new jobs at a new lab in Durham to develop a blood test that detects more than 50 cancers. “I don’t think anyone is seeing a 100 percent rosy picture, but it’s not all doom and gloom,” Chung says. “There will be a big focus on preventing
the next pandemic, identifying a vaccine and cures. This all makes North Carolina well-positioned in the sector,” Like many EDCs, the EDPNC has had to redirect its efforts. The state suspended tourism advertising to focus on surveying consumers on when they are ready to travel. A new area the agency is targeting is remote work. “If we can get the people living here and spending income from their job across the country, we are still getting the vast economic impact of that,” Chung says. 8 SOUTH CAROLINA PROMISE IN THE PALMETTO STATE South Carolina is trying to move ahead by focusing on its strengths, says Alex Clark, director of marketing and communications for the South Carolina Department of Commerce. “We’d like to think we’re in a good starting position because of the sustained economic development success we’ve had over the past 10 years,” Clark says. Several sectors, including life sciences, medical devices and PPE, have seen strong demand in recent months, Clark says. Many life science companies are shifting focus to new products and services needed in the fight against Covid-19. In addition, the logistics sector benefited from the rise in e-commerce. Ross Stores announced in June the creation of 700 new jobs at an $68 million distribution center in York County. Kontane Logistics and Lowcountry Kettle also recently announced expansions in the state. Activity is starting to pick up, Clark says. Many projects are larger in terms of investment and jobs, and the FDI ratio is as strong as it was in 2019. “It makes us feel optimistic,” she says. 11 GEORGIA
GEORGIA “Manufacturing, financial services and life sciences are continuing to grow.” —Pat Wilson, Georgia Department of Economic Development
SILVER LININGS While Georgia’s tourism industry has been “devastated,” manufacturing, financial services, life sciences and other sectors have been growing, says Pat Wilson, commissioner of the Georgia Department
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VIRGINIA “The pandemic has disproportionately impacted non-traded sectors—traditionally a sector on which state-level economic developers are not focused.” —Stephen Moret, VEDP
of Economic Development. Since issuing a stay-at-home order in mid-March, the state announced 13 projects, adding more than 7,700 jobs and $2 billion in investment. “That really helps us head to where we’re going to go after we come out of this crisis,” Wilson says. As more of the economy moves online, the state’s thriving cybersecurity industry is also poised to benefit, Wilson says. In June, U.S. government services provider Perspecta announced 178 new jobs at a regional office at the Georgia Cyber Center in Augusta. The governor created an Economic Recovery Task Force, and legislators have been working on legislation to assist companies seeking to reshore or bring PPE production to the state. “There are a few pieces of the puzzle that we are strongly positioned in as companies look to grow and expand their capacity,” Wilson says. 16 VIRGINIA FEDERAL STABILITY Virginia’s level of federal government employment and professional services helped it weather the economic storm, says Stephen Moret, CEO of the Virginia Economic Development Partnership. The VEDP team is focusing on 20 sectors expected to experience sustained growth in a post-Covid world, including tech, PPE manufacturing, online retail, warehousing and cloud computing. VEDP adopted “virtual site tours” to cater to the new norms of attracting businesses. Most existing projects in the pipeline are also moving forward, Moret says. Microsoft announced in May it will invest $64 million to establish a new R&D regional hub in Fairfax County that will create 1,500 new jobs. ASGN is also investing $12.4 million to relocate its headquarters from Calabasas, California, to Henrico County. “The pandemic has disproportionately impacted non-traded sectors—traditionally a sector on which state-level economic developers are not focused. VEDP’s target industries have certainly been hit, but they are faring much better than hospitality or retail, for example,” Moret says.
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23 LOUISIANA BETTING ON RECOVERY IN THE BAYOU STATE After the Bayou State was hit hard early in the pandemic, Gov. Edwards created the Resilient Louisiana Commission that includes 15 task forces covering every sector of the economy and working to develop safe reopening strategies. Louisiana Economic Development’s Business Expansion and Retention Group also transitioned to a virtual model to stay in touch with companies through Zoom and to offer guidance on things like disaster loans and the PPP. “We have seen an uptick in new business startups,” says Louisiana Secretary of Economic Development Don Pierson. One area where the state sees opportunities is the entertainment industry. The new Quality Entertainment Company Program creates sustainable well-paid jobs focusing on film, digital media and other entertainment jobs As the industry prepares to resume activities, Pierson notes that travel restrictions and other Covid-related issues appear to be placing a greater emphasis on domestic production. “Louisiana finds itself particularly well-positioned to respond to these opportunities and help entertainment production companies hit the ground running with a deep, talented crew base, state-of-the-art facilities located throughout the state and film-friendly communities,” Pierson says. 25 ALABAMA MANUFACTURING A POST-COVID FUTURE Alabama’s restaurants and the tourism industry experienced a major Covid-19-related hit, but most of the state’s manufacturers quickly adopted new safety measures to resume production. “For the most part, demand for their products is still there, despite the global downturn,” says Secretary of Commerce Greg Canfield. Mazda and Toyota are hiring more than 4,000 workers and are still on track to open their joint venture assembly plant in Huntsville in 2021. As the pandemic has exposed weaknesses in global supply chains, many manufacturers will likely shorten those networks by looking to OEMs in the state, Canfield says. “Alabama
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MISSISSIPI Shipbuilding is a bright spot for the Magnolia State, where Ingalls recently won a U.S. Navy contract.
is well-positioned to take advantage of this trend, thanks to an extensive infrastructure network and available sites.” The state also created the Alabama Workforce Stabilization Program, a collaborative effort between the state and educational institutions, to connect companies and displaced workers. 27 KENTUCKY BENEFITING FROM E-COMMERCE Emerging from the pandemic, Kentucky’s outsized manufacturing presence positions it for recruiting onshoring projects and further direct foreign investment, says Jack Mazurak, communications director for the Kentucky Cabinet for Economic Development. In addition, big players like Amazon, UPS, DHL and FedEx are experiencing shipping volumes normally only seen during the holidays. “As e-commerce continues trending upwards, ample opportunity exists for Kentucky and its more than 540 logistics and distribution facilities that employ about 75,000 people statewide,” Mazurak says. Manufacturing continues to gain ground. In May and June, the state announced 19 new expansions and location projects, totaling more than $406 million in new investment and 1,549 new jobs. Mazurak notes the continued commitment to investment and creating jobs and growth in e-commerce are “encouraging signs that provide hope for the future during this time of great economic strife.” 36 MISSISSIPPI LOOKING UP IN THE MAGNOLIA STATE Many of Mississippi’s manufacturing operations have resumed their pre-pan-
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demic numbers, says John Rounsaville, Mississippi Development Authority Interim Executive Director. While some transitioned to producing PPE to fill market needs, bedrock companies in the aerospace and defense manufacturing sector are experiencing combined growth. In June, Spaceflight company Relatively announced another expansion at the NASA Stennis Space Center, and Associated Wholesale Grocers announced a $300 million facility to be constructed in DeSoto County. The shipbuilding industry is also faring well, and, in May, Ingalls Shipbuilding in Pascagoula was awarded a $188 million contract from the U.S. Navy to provide procurement activities for an amphibious assault ship. “While some projects were temporarily put on hold, the fact that companies are still announcing projects proves that our economy is growing and is not all ‘doom and gloom,’” Rounsaville says. 37 WEST VIRGINIA MAKING DO IN THE MOUNTAIN STATE Like many states, West Virginia started shutting down in mid-March. Coal production, a big driver in the state, dropped approximately 30 percent. Many of the state’s homegrown manufacturers converted their operations into filling pandemic-related needs. Appalachian Distillery in Ripley started making sanitizer, and thread manufacturer Kreinik Manufacturing started making elastic for protective masks. In June, Amsted Industries announced it became the majority owner of Advanced Graphite Materials in Clarksburg, and that it would retain 140 jobs. Aiming to help its self-employed population, the state opened applications in mid-July for the West Virginia CARES Act Small Business Grant Program. It offers a grant of up to $5,000 for any business in the state with one to 35 employees. “We’re going to continue to work to try to figure out a way that we can also help our self-employed West Virginians who have no additional employees,” Gov. Jim Justice said in a press release. CE
T H O U G H T LE AD ER SH I P PR OV I D ED BY O R L AN D O ECO N O M I C PAR T N ER SH I P
BUILD THE TALENT PIPELINE Companies serious about building future bench strength are starting their recruiting much earlier—in elementary and high school. IT’S A NATURAL REACTION, WHEN CRISIS HITS, TO PUT longer term strategic planning on hold, whether intentionally or unintentionally. Few crises have been as all-consuming as the Covid-19 pandemic and the chaos it has wrought on the economy, and, consequently, the labor pool. But even as companies cope with those short-term challenges, if they hope to be competitive in the future, they also must focus on pipeline development. Complacency now can easily put a company in a weakened position once the economy rebounds and resumes at full throttle. Regardless of current employment levels, the gap in science, technology, engineering and math (STEM) skills is real—and growing—which is why U.S. companies serious about acquiring those skills are beginning their search much earlier. Lockheed Martin’s Orlando-based Missiles and Fire Control (MFC) division, for example, sees college recruiting as just one piece of the talent puzzle, says the company’s vice president of human resources, Monet Nathaniel, who estimates that she spends about 30 percent of her time thinking about pipeline strategy. “Once you reach the college level, a lot of career decisions have been made,” she says. “So we’ve really been focusing our efforts on how do we start shaping students at that K-12 level, helping them understand the fields they have an opportunity to go into, and what a career path might look like in the STEM field.” Lockheed Martin builds relationships with local schools in Central Florida. Engineers advise teachers on curriculum development and visit classes for special presentations on robotics, science experiments and other engaging activities. The Lockheed Martin STEM Scholarship, launched in 2019, awards up to $10,000 in renewable funds to current or prospective undergraduate engineering and computer science majors. This year, the Lockheed Martin Vocational Scholarship was launched to provide up to $6,600 for degrees at accredited vocational-technical schools to prepare students for careers in technology and/or advanced manufacturing that do not require a bachelor's or advanced degree. “We still need to reach more women and minorities,” says Nathaniel, whose daughter learned through the company’s “Take Your Child To Work Day” that engineering is an option for her. “She thought science and math was just for boys. Then she had an opportunity to connect with some of our female engineers and that changed.” Electronic Arts (EA), a leader in digital interactive entertainment, also sees the dearth of women in STEM careers as both a problem and a potential opportunity. Two years ago, the company launched “Get in the Game,” a one-week, hands-on,
NeoCity is a 500-acre technology district located in Osceola County, Florida, inspired by an ethos of collaboration and designed to transform the way we ideate, create and innovate. The district is home to a state-of-the-art microelectronics fabrication facility, as well as NeoCity Academy, an inquiry-driven, project-based STEM magnet high school. NeoCity Academy currently has 323 students enrolled and continues to grow its enrollment and curriculum to support the burgeoning tech district.
intensive summer camp at its Orlando studio, where high school girls learn what it takes to be a game developer. Each year, students from the prior year are invited back for the next level. “So, it’s not just, come to camp and then leave,” says Daryl Holt, general manager, EA SPORTS Orlando, Austin and Madrid. “You start a relationship with us as a company and with the mentors you work with. That’s why we created it, so we could start to build this pipeline of interaction that evolves year over year.” Participants selected for the program get a guaranteed internship interview once they are in college. Ruby Nunez, a high school senior who attended the camp for two years, can now visualize herself as an employee at EA. “Before, when I thought about a computer science job, I always imagined somebody sitting on their laptop, programming for 10 hours, but it’s not like that—they actually collaborate with other people to fix bugs in the code,” she says. Nathaniel and Holt agree that companies can’t leave it to schools to fill their pipelines. At a minimum, the private sector must partner with public education to ensure the talent will be there. One such collaboration is NeoCity Academy, a public high school in the Osceola County district that aims to partner with STEM-related companies to teach real-world applications for math, science and technology, with a focus on “inquiry-driven learning,” says Principal Michael Meechin. “It's really about pushing kids to the highest level of learning during their high school ages, so that when they tackle a curriculum program at University of Florida or Cal Tech or MIT, etc., no matter what's thrown their way, they will have a really solid problem-solving foundation.” Nathaniel acknowledges that by investing in the talent pipeline this far out, she has no way of knowing what kind of return Lockheed will see from it. “But we’re interested in touching as many students as we can to help educate them about opportunities in the STEM field because when you think about technology and how we continue to evolve as a nation, we’ve got to ensure we’re turning over every stone and optimizing all the talent that’s out there,” she says.
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FLY BUYING Prices are down and interest is piqued in the post-pandemic marketplace. BY DALE BUSS
Plunging flight activity in early 2020 opened opportunities for buyers.
HE FUTURE MARKET FOR corporate planes is just as uncertain as everything else amid the pandemic. But some postCovid-19 trends in business-aviation purchasing already are emerging: Prices are lower. Sales and lease activity is recovering. More company owners are concerned about the health risk of flying commercial. And after an industry struggle with pilot shortages, suddenly plenty of capable commanders for business planes are available. Joe Mullings has been trying to take advantage of these trends in his search for a Hawker 800, a mid-size twinjet aircraft originally produced by British Aerospace and now fetching $1 million and up, previously owned. The founder and CEO of Mullings Group, an executive-search firm in the medical-device industry, travels so much that he’s long held ConciergeKey status on American
Airlines. Mullings has also chartered flights for himself and his Delray Beach, Florida-based staff. When the company’s charter bill hit $1 million in 2019 and Covid-19 came, he began searching for a plane to buy. “I had been looking because of the accessibility the plane would give me, saving wear and tear on my body, and the value of time,” says the 58-year-old Mullings. “But now, prices are more interesting. Time is money for me. If I can get in front of more customers because I have a better tool—my own plane—it will create more opportunities for me and my employees. The plane also can end up being a flying conference room.” “Even when we return to a post-Covid environment, [airline] routes are going to be dramatically reduced anyway,” Mullings posits. “So, they won’t be able to offer rates and flexibility. And I don’t want to waste two
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Softening prices coupled with safety concerns have some proclaiming 2020 the year of the small jet.
and a half hours at airports in Palm Beach and Raleigh-Durham, sitting on a couch eating Ding Dongs.” The Year of the Newbies
Despite prospective buyers like Mullings, business-airplane deliveries dropped by 21 percent in the first quarter of 2020 compared with two years earlier. Industry experts blamed Covid-19, which grounded air travel worldwide and created unprecedented uncertainty for business decision-makers. The giants of the industry—Bombardier, Textron and Gulfstream—responded by slashing production. But while large companies are standing down on purchases, owners of medium-size and small companies, and other high-net-worth individuals, are testing the plane market for the first time. “I’m actually calling 2020 ‘the year of the small jet,’” says Janine Iannarelli, head of aircraft broker Par Avion, in Fair Lawn, New Jersey. “They’re perfectly suited for regional travel within the U.S. At $1 million to $5 million, they’re within the reach of a broader cross-section of [company owners] who may not have a travel budget that large but who are willing to expand it now in exchange for what’s provided by corporate aviation: safety, security, eliminating a huge number of touch points and literally being able to control your environment. What’s that worth?”
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Such buyers are benefiting from prices that have softened from 10 percent to 20 percent compared with early 2020, depending on the segment. The wing-tappers and tire-kickers include “a return of some owners of small and mid-size companies who actually fled the business-aviation marketplace” after the industry debacle of 2008 and 2009, Iannarelli says. Charter and fractional-jet services are also getting closer looks by business travelers getting thwarted by airlines’ service cutbacks—and lured by how the plane-rental services are cutting prices to widen their market. “At four times the price of an airline first-class seat,” says Joseph Smith, leader of the aviation-management division of Miami-based investment bank Cassel Salpeter, “these services were never going to get most business owners. But now that they’re seeing one-and-a-half or two times prices for a first-class seat—and you throw in the health considerations—it starts to become a value proposition for them.” Bring on the Bandwidth
Unlike the past few years, when the Trump administration’s approval of immediate 100 percent depreciation of major purchases, including corporate aircraft, goosed sales, there’s no huge regulatory or legislative development spurring interest. Technology upgrades, however, continue to intrigue buyers interested in trading up for the newest bells and whistles. In addition to advances in propulsion and avionics that make corporate aviation faster and safer, the biggest lure continues to be digital connectivity in the passenger compartment. Makers already are offering so-called Ka-band satellite-based Internet capabilities in larger and expensive jets, which provide home-like speeds and make simultaneous high-definition streaming possible. Some buyers are paying $70 million or more for a jet in Bombardier’s Global series that includes Ka-band—a system that often, in itself, costs a half-million dollars to include. “The flying passenger wants to stay connected just like at home,” Iannarelli says. “That’s the most important thing to them.” CE
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JIM CRAIG \ CEO, GOLD MEDAL STRATEGIES
THE ‘MIRACLE’ FORMULA
CEOs need to get ready to win, not compete, says Jim Craig, who defended the net for the 1980 U.S. Olympic hockey team. Here’s how.
Jim Craig, 1980 U.S. Men’s Hockey Olympic Gold Medalist; CEO, Gold Medal Strategies; Author, We Win! Lessons on Life, Business & Building Your Own Miracle Team.
JIM CRAIG’S REPUTATION as a winner was cemented 40 years ago when, as the 1980 U.S. Olympic hockey team’s keeper, he blocked 36 out of 39 shots to help bring an end to a six-year winning streak for the Soviets. The team went on to take the gold medal, and newscasters dubbed the upset a “miracle on ice.” But for Craig, author of We Win! Lessons on Life, Business & Building Your Own Miracle Team, the victory was also a testament to the power of instilling team members with the right motivation and preparing them to win. “In life, there are underdogs and winning underdogs,” he says. “And a winning underdog just figures out a way to win.” It’s a lesson he applied to a successful post-hockey career in sales and marketing and to launch Gold Medal Strategies, a corporate coaching and marketing consultancy business. Craig recently sat down with Chief Executive to share strategies leaders can use to help their teams win bigger and more consistently—regardless of the odds.
you’re saying you don’t know what to plan for; but you do. It’s just more work. You have to plan for both having spectators and for not having them. So just do it.”
There’s always, always a way to win. No
Own your team-building process. “Making
matter how dire things look, how huge the obstacles ahead, never accept defeat. Take it from a gold medal Olympian who suffered a career-ending injury just before signing a lucrative NHL contract. “I went from being viewed as the best in the world to spending four hours a day for the next 40 days getting back to where I could walk again,” says Craig. “But instead of feeling sorry for myself, I decided I wasn’t going to let myself be the victim.” Instead, he brought his zeal for winning to a new career and was soon racking up awards in sales and marketing.
sure you hire the right people is one of the most important things you do—HR should be helping, but not driving that process,” says Craig. “There are people you probably know you should be recruiting for three years from now, and you need to stay in contact with them and nurture that relationship.”
Hope is not a strategy. While there’s no
denying that the pandemic has ushered in an era of uncertainty, leaders can make a plan and work that plan, even as they continue to reevaluate and adapt it. Craig cites a client struggling to plan an event, not knowing if spectators would be able to attend. “I said,
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Be continually coachable. Even the most
talented professional athletes should constantly focus on upping their game—and the same is true for leaders. “The biggest thing sports taught me is that you have to be coachable,” says Craig. “You have to learn how to compete, and to make your weaknesses into strengths and your strengths even stronger.” Drive change, don’t follow it. The most ef-
fective leaders understand the need to redefine winning over and over rather than count on strategies and tactics that worked in the past. “Either you’re creating the future, or you’re living in the past,” says Craig. “Success can be your biggest enemy in getting your team to earn its position every year. It falls to leaders to know how to adapt and then develop their people and inspire them to pursue a goal.”
Prepare your team to win, not compete.
What’s the difference? Golfers who head to the course a little early, practice putting and meet up at the first tee to try their hardest are playing to compete. “If you’re preparing to win, you analyze your opponent, you analyze the course and then you practice the things you’re most worried about failing,” says Craig. “Once you’re comfortable that in any situation you would be able to succeed you have prepared to win. That doesn’t mean you’ll win— but you’ve gotten to that different level where you’re prepared to win.” —Jennifer Pellet
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WE ARE BEING TESTED. AND WE WILL TEST BACK. This virus is testing us—and testing people on the front lines most of all. Abbott is getting new tests into their hands to deliver the critical results they need. And until this fight is over, we will never quit. Because they never quit.
