America’s top state for talent
Ranked No. 1 in America for both talent and education by CNBC, Virginia continues to raise the bar when it comes to talent development. Virginia Talent Accelerator Program: offers world-class, fully-customized workforce recruitment and training solutions — at no cost to eligible companies Tech Talent Investment Program: commits more than $1 billion to produce 31,000 new graduates in computer science and related fields in the next 20 years (in excess of current levels) Computer Science in K-12: Virginia is the first state to incorporate computer science, including coding, as a mandatory part of the curriculum for all public school students, from kindergarten through graduation
C ONTENT S
N OV E M B E R /D E C E M B E R 2020 No. 308
FEATURES COVER STORY 20 AMERICA’S BANKER Analytical, deliberate and deeply principled, Bank of America CEO Brian Moynihan led one of the most impressive turnarounds in Wall Street history. And he did it just in the nick of time. A conversation with our 2020 Chief Executive of the Year. By Dan Bigman
20
LEADERSHIP 36 THE MOTHER OF REINVENTION In sector after hard-hit sector, corporate leaders forged paths through the last eight months, with pluck, luck and a whole lot of ingenuity. By Jennifer Pellet and Dale Buss
COVID-19 46 AMERICA, A.C. Covid is sure to reshape our country in profound new ways, but the most powerful will be accelerating trends that were already underway. A look at a sped-up future with big implications. By Wendell Cox and Joel Kotkin
46
TALENT 2021 SPECIAL REPORT 54 BEST IDEAS: PEOPLE HACKS Unemployment is up, but great people are still in scarce supply for many companies. CEOs share strategies. By Dale Buss
62 LEADING TEAMS, BUILDING
CULTURE In September, CEOs, authors and talent gurus gathered to discuss strategies and experiences tackling the thorniest people challenges at Chief Executive’s virtual CEO Talent Summit. Some takeaways. By Jennifer Pellet
66 CEO ROUNDTABLE: WORK SHIFT Engaging an evolving worforce amid all this disruption isn’t easy. But it can be done. A discussion. By Jennifer Pellet
68 INSIDE THE COVID CUT
56
Chief Executive’s 2020 CEO & Senior Executive Compensation survey finds two private companies out of five in the U.S. reduced their CEO’s base salary in 2020 in response to the crisis. A deeper look. By Wayne Cooper and Melanie Nolan
COVER PHOTO: SIMON DAWSON/BLOOMBERG VIA GETTY IMAGES
AT&T CONGRATULATES
BRIAN T. MOYNIHAN AT&T congratulates Bank of America CEO Brian T. Moynihan for being named Chief Executive of the Year.
Š 2020 AT&T Intellectual Property. AT&T, Globe logo, and DIRECTV are registered trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks are the property of their respective owners.
C O NTE NT S EDITOR
Dan Bigman EDITORS-AT-LARGE
Jennifer Pellet Jeffrey Sonnenfeld DIGITAL EDITOR
C.J. Prince
DEPARTMENTS
PRODUCTION DIRECTOR
70
Rose Sullivan CHIEF COPYEDITOR
8
Rebecca M. Cooper
EDITOR’S NOTE
ART DIRECTOR
Avoiding the Next Covid Crisis
Gayle Erickson CONTRIBUTING EDITORS
10 LEADERS How to Talk Politics at Work In a time of deep political division in our society, the potential for seemingly innocuous conversations between employees degrading into fracturing—and morale sapping—confrontations looms large. Your instinct may be to shut it down. Don’t. By Johnny C. Taylor, Jr. 14 Law Brief / Daniel Fisher A Class-Action Win
Dale Buss, Wendell Cox, Daniel Fisher, Joel Kotkin, Craig Guillot, Patrick Lencioni EDITOR EMERITUS
J.P. Donlon PUBLISHER
Christopher J. Chalk 847-730-3662 | cchalk@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT
16 Transformation / Patrick Lencioni The Silent CEO 18 On Leadership / Jeffrey Sonnenfeld Pandemic Pivots
70 ECONOMIC DEVELOPMENT Regional Report: The Midwest The nation’s heartland is weathering tumultuous times with determination. By Craig Guillot
77 PLANE ADVANTAGE The Plane Truth Does the pandemic have you ready to make the jump to private aviation? Some caveats. By Dale Buss
Lisa Cooper 203-889-4983 | lcooper@chiefexecutive.net MANAGER, STRATEGIC PARTNERSHIPS
Rachel O’Rourke 615-592-1198 | rorourke@chiefexecutive.net
CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN
Wayne Cooper
CHIEF EXECUTIVE OFFICER
Marshall Cooper
DIRECTOR OF EVENTS & PUBLISHER, CORPORATE BOARD MEMBER
Jamie Tassa
CHIEF CONTENT OFFICER
Dan Bigman
PUBLISHER, STRATEGIC CFO 360
80 LAST WORD Control Your Calendar Coach Dana Cavalea on the big lesson CEOs can learn from pro athletes. By Jennifer Pellet
KimMarie Hagerty
DIRECTOR OF MARKETING
Simon O’Neill
VICE PRESIDENT, HUMAN RESOURCES
Melanie Haniph STATEMENT OF OWNERSHIP U.S. Postal Service Statement of Ownership, Management, and Circulation 1. Publication Title: Chief Executive. 2. Publication No. 431-710. 3. Filing Date: 10/1/20. 4. Issue Frequency: Bi-monthly. 5. No. of Issues Published Annually: 6. 6. Annual Subscription Price: $99.00 7. Complete Mailing Address of Known Office of Publication: 9 West Broad Street-Suite 430; Stamford, CT 06902 . 8. Complete Mailing Address of Headquarters or General Business Office of Publisher: same. 9. Full Names and Complete Mailing Addresses of Publisher, Editorial Director, and Managing Editor: Christopher J. Chalk, (Publisher); Dan Bigman, (Editorial Director/Editor-in-Chief); Dan Bigman (Managing Editor); address same. 10. Owner: Chief Executive Group, LLC, 9 Broad West Broad St.-Suite 430; Stamford, CT 06902; Wayne Cooper, 10 Woodside Dr. Greenwich, CT 06830; Marshall Cooper, 35 Anderson Road, Greenwich, CT 06830 11. Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or More of Total Amount of Bonds, Mortgages, or Other Securities: None. 12. Not Applicable. 13. Publication Title: Chief Executive. 14. Issue Date for Circulation Data Below: Sept/Oct. 2020. 15. Extent and nature of Circulation: Requested Mail Subscription a. Total No. of Copies (Net Press Run): 45,188; 44,387. Paid and/or Requested Circulation: (1) Paid/Requested OutsideCounty Mail Subscriptions Stated on Form 3541 (Includes Advertisers’ Proof and Exchange Copies): 23,340; 12,517. (2) Paid In-County Subscriptions: None. (3) Sales Through Dealers and Carriers, Street Vendors, Counter Sales, and Other Non-USPS Paid Distribution: 0; 0 . (4) Other paid or requested distribution outside USPS: 0; 0 b. Total Paid and/or Requested Circulation [Sum of 15b(1), (2), (3), and (4)]: 23,340; 12,517. d. (1) Nonrequested Distribution (By Mail and Outside the Mail): 20,442; 31,052. (4). Free Distribution Outside the Mail (Carriers or Other Means): 0; 0. f. Total Distribution (Sum of 15c and 15e): 43,782; 43,569. g. Copies Not Distributed: 1,406; 818. h. Total Distribution (Sum of 15f and 15g): 45,188; 44,387. i. Percent Paid and/or Requested Circulation (15c/15fx100): 53.31%; 28.73%. Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 307 September/October 2020. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2019 by Chief Executive Group LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT, and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, LLC, 9 West
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Congratulations to
BRIAN MOYNIHAN, CEO OF BANK OF AMERICA Winner of Chief Executive Magazine’s CEO of the Year Award AlixPartners is a results-driven global consulting firm that specializes in helping businesses successfully address their most complex and critical challenges. WHEN IT REALLY MATTERS. ALIXPARTNERS.COM
CH I EF E XECUT IV E RE SE A RCH AD INDEX
CEO CONFIDENCE RISING (WITH SOME CAVEATS)
ABBOTT LABS back cover Abbott.com ACCENTURE 51 accenture.com ASSOCIATED AIRCRAFT GROUP 79 flyaag.com ALIXPARTNERS 5 alixpartners.com
Insights from Chief Executive Group’s CEO Confidence Index, a widely followed monthly poll of CEOs, including members of the Chief Executive Network (CEN), our nationwide membership organization that helps C-Suite executives improve their effectiveness and gain competitive advantages. For more information, visit ChiefExecutiveNetwork.com.
AT&T 3 att.com
AMERICA’S CEOS ARE INCREASINGLY CONFIDENT that the worst of the Covid-19 crisis is behind us, sparking growing optimism in their outlook for business in 2021, according to our September polling of 606 CEOs. Participants in the poll say they recognize that some sectors are still struggling with the effects of the pandemic but note that the U.S. economy in general is rebounding, with many reporting renewed growth in sales and demand. Overall, four out of five CEOs predict a positive business environment by this time next year—so positive that the majority are forecasting increasing profits and revenues, along with growing capex and headcounts. But there’s a caveat: that outlook, they say, is reliant upon a vaccine being made available and the presidential election going smoothly. If those conditions are not met, it’s anybody’s guess, they say. On one hand, the vaccine is the only thing that will allow workers to reenter the workplace, further reducing unemployment and increasing demand for products and services across industries. On the other, a great proportion of CEOs taking part in the poll say they are betting on the reelection of President Donald Trump or Republicans retaining the Senate—either of which would alleviate their fears of increased taxes and regulations. Regardless of political affiliations, though, some say we’ll be in a much better business environment, one with less volatility and a stronger focus on recovery, once the elections are behind us—and the result accepted—no matter the political outcome. As Jim Evans, CEO of global multi-site construction provider Sevan Multi-Site Solutions, said: “Once the elections are over in November, there will be a lot more emphasis on back-to-work, regardless of the political outcome… the market is raring to go.”—Melanie Nolen, Research Editor
CIGNA 57 cigna.com
CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW 7.0
7.0 6.9
6.7 6.6
Nov.
Dec. Jan. '20
Feb.
Mar.
Apr.
May
CME GROUP 27 cmegroup.com CVS HEALTH 15 cvshealth.com DELL TECHNOLOGIES 33 delltechnologies.com DELOITTE R.E. AND LOCATION SERVICES 17 deloitte.com/us/locationstrategy DISCOVER FINANCIAL SERVICES 19 discover.com FISERV 43 fiserv.com GALT & COMPANY 39 galtandco.com IBM 23 ibm.com INSPIRATO 13 inspirato.com JOBSOHIO 49 jobsohio.com/findithere LEADERSHIP CONFERENCE 75 chiefexecutive.net/leadershipconference MASTERCARD 59 mastercard.com MICHIGAN ECONOMIC DEVELOPMENT CORPORATION 73 michiganbusiness.org NASDAQ 29 nasdaq.com NATIONAL SHOOTING SPORTS FOUNDATION 41 nssfrealsolutions.org NEXT LEVEL LEADERS SEMINAR 7 nextlevelleadersseminar.com PE BACKED CEO SUMMIT Inside back cover chiefexecutive.net/pebackedsummit PITNEY BOWES 25 pitneybowes.com PURE 9 pureinsurance.com
SENIOR EXECUTIVE NETWORK 76 seniorexecutivenetwork.com
6.4
6.2
CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES 44, 45 chiefexecutive.net/compreport
RAYTHEON TECHNOLOGIES 53 rtx.com
6.6 6.5
6.6
6.4
Sept. ‘19 Oct.
6.7
6.7
CHIEF EXECUTIVE NETWORK 65 chiefexecutivenetwork.com
STRATEGIC CFO 61 strategiccfo360.com
June
Chief Executive’s CEO Confidence Index is measured on a scale of 1-10.
July
Aug.
Sept.
TATA CONSULTING SERVICES 31 tsc.com UNITEDHEALTH GROUP 35 unitedhealthgroup.com VIRGINIA ECONOMIC DEVELOPMENT PARTNERSHIPINSIDE inside front cover, 1 vedp.org
6 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020
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LEADERS CHIEF EXECUTIVE NET WORK
ED I TOR ’ S NOTE CHIEF EXECUTIVE OF THE YEAR
AVOIDING THE NEXT COVID CRISIS REGARDLESS OF THE ELECTION’S OUTCOME OR THE FALLOUT that follows, the United States could be facing a powerful, if less discussed, crisis this Spring. Because when it comes to getting through Covid-19, the vast majority of CEOs we talk to are betting that a vaccine will soon be available, allowing for the resumption of normal life for billions of people globally and putting the economy back on track. But that assumption has a big hole in it: What if there’s a vaccine, but people aren’t willing to take it? If recent poll results are to be believed, that’s a distinct possibility. Even as the potential for an effective vaccine increases by the day, the prognosis for Americans taking a vaccine is diminishing by the month. According to Morning Consult, a Washington, D.C.Pfizer CEO Albert Bourla based market research outfit, the number of Americans who say they are likely to take a Covid-19 vaccine has fallen sharply over the past few months. Fewer than 50 percent of those polled now say they would be willing to take a vaccine, versus 70 percent in April. And just 31 percent of Black adults say they would be willing to take a vaccine. The numbers don’t appear to be driven by political affiliation, either. Amid dwindling faith in public health officials and the government’s response to Covid, both democrats and republicans are now equally unlikely to take a vaccine. How to fix it? Obviously, physicians and other medical personnel are going to need to be on the front lines in the push. And Big Pharma is pledging to deliver on the product itself. “Our number one priority here is to demonstrate safety, to make sure this is accessible,” Johnson & Johnson CEO Alex Gorsky told a group of big-company CEOs back in September at a session hosted by Jeffrey Sonnenfeld, who runs Yale’s Chief Executive Leadership Institute and is a longtime columnist for Chief Exectutive. “And frankly that’s the best hope we have of making a significant difference with the virus as we move through the rest of this year and into next year.” But it will take a lot more than doctors and science to get people vaccinated. If business wants to get past Covid, business leaders are going to have to step up to make it happen. “Obviously, scientists are the ones who need to speak,” Pfizer CEO Albert Bourla said at the Yale summit, “but the profound impact that vaccination— or not—will have on economic, social and political life means it’s extremely important. Businesses need to step up and also add their voice because people right now are confused. They don’t know what to believe and who to believe. The decision to vaccinate or not is not affecting only your health, which, at the end of the day is your decision, but it affects the health of others. Because if you don’t vaccinate, you’re becoming the weak link.” You can bank on CEOs like Gorsky and Bourla to do their part in the months to come. But you’ll have a role to play, too. Get ready. —Dan Bigman, Editor, Chief Executive
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
CONTACT US CORPORATE OFFICE Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 Fax: 203.930.2701 ChiefExecutive.net LETTERS TO THE EDITOR letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 Fax: 847.730.3666 advertising@ChiefExecutive.net REPRINTS Phone: 203.889.4974
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LE AD E R S
HOW TO
TALK POLITICS AT WORK
In a time of deep political division in our society, the potential for seemingly innocuous conversations between employees degrading into fracturing—and morale sapping—confrontations looms large. Your instinct may be to shut it down. Don’t. BY JOHNNY C. TAYLOR, JR. WHEN PRESIDENT TRUMP CALLED out Goodyear Tire in a tweet, “canceling” the company for not allowing employees to wear “Make America Great Again” hats, CEO Rich Kramer was no doubt surprised. “To be clear,” Kramer tweeted soon after, “Goodyear does not endorse any political organization, party or candidate. We have a longstanding company policy that asks associates to refrain from workplace expressions in support of any candidate or political party.” But he was learning the hard way what many CEOs have come to know in these politically divisive times: Such policies, however even-handed they seem, don’t work in a 21st century workplace. To many CEOs, shutting down all political conversation may seem like the smart, or at least the safe, thing to do; taking the risk of sanctioning such fraught discussion may seem absurd. But success depends, at least in part, on team trust and the free exchange of ideas to innovate and grow—simply tamping down speech risks corroding the essence of your operations. It also negates a value many corporations have been claiming for their own: the importance of bringing one’s whole self to work. Companies that, on the one hand, say they value diverse identities but, on the other, ask employees to leave their politically diverse views at the door, risk
10 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020
being seen as disingenuous—and may garner negative attention on social media and, as Goodyear did, watch their share price take a hit. And here’s the thing: the conversations are happening, anyway. According to a recent survey by our organization, The Society of Human Resource Management, more than half of working Americans say discussion of political issues has become more common over the past four years, not less. The majority reported having had at least one political disagreement at work. The notion that you will be able to prevent those conversations from happening with an HR directive is naïve. At the same time, employees report that they feel insecure talking about these issues at work. More than a third say their workplace is not inclusive about differing political opinions, and one in 10 say they have personally experienced either differential treatment because of political views or political affiliation bias. Given the cost of turnover—about $223 billion collectively over the past five years—companies can ill afford to allow the kind of toxic culture that makes top employees think about going elsewhere. With one-quarter of all employees we surveyed saying they dread going to work, there is clearly room for improvement around culture.
It’s about diversity, not politics
Creating a culture that is inclusive and welcoming is high on the agenda in every C-Suite and boardroom. We’ve realized over time that inclusivity means allowing people to bring all aspects of themselves openly into the workplace. Yet, not very long ago, companies frowned on discussions of racial or gender equality. Today, in the wake of MeToo and George Floyd, we couldn’t imagine preventing such expression. I would argue that the expression of political belief is no different. Diversity means all differences, not only the ones we’ve grown comfortable with. That’s where companies need to be honest with themselves—if you truly want diversity, you must embrace those rules more broadly. We need to get out in front of issues and stop waiting for a crisis to force us to address them. George Floyd’s death didn’t make me think, “it’s time to have these conversations about race.” We should have been having them all along. We need to stop being reactive. Given the divided nature of our country, we know that however the election results turn out, a segment of your employees will be unhappy— likely for a long time to come. As CEO, you need to make sure your people are able to work together regardless of the outcome at the ballot box—and that should start now.
We have to remind our employees that this is a part of our culture. It’s not about politics—it’s about diversity. People are different and have a right to different political views—that’s why we have two parties. In the 21st century workplace, you simply can’t say, “I want you to bring your authentic and true self to work” and then impose negative consequences when they do. That’s no different than hiring a Black person and then telling them, “We don’t want you to talk about being Black in the workplace.” If we mandate that our culture be committed to diversity, we must accept political affiliation as simply another aspect of that diversity. Rules of engagement
Practically speaking, how do you navigate such a potentially fraught dialogue at such a tricky time? How do you keep discussion from devolving into disrespect? I would argue that you do it the same way you do with issues of gender equality, race and other diversity topics. These are uncomfortable conversations, no question. Our human instinct—and the way many of us were taught—is to be conflict avoiders. But the 21st century workplace demands that you manage conflict, not avoid it—that you force people to be uncomfortable to get to a better, more
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020
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11
LE A D ER S
authentic place. This is where CEOs need to lean heavily on the skills of HR professionals trained to have difficult conversations and to facilitate them. At SHRM, we use four “rules of engagement” for tough conversations on race, gender or politics. That allows us to have discussions while ensuring that no employee feels bullied or punished for their political views.
The 21st century workplace demands that you manage conflict, not avoid it—that you force people to be uncomfortable in order to get to a better, more authentic place.
1. Discuss, don’t debate. When you’re
driving open and honest dialogue, you should emphasize that the purpose of getting together is discussion and a free exchange of ideas—it’s not about debating, winning, shouting down or disproving the other person’s position. It is a discussion to put all people’s perspectives on the table. 2. Abide the rules of civility. If you can’t get yourself comfortable hearing something that will make you uncomfortable, then don’t participate. If it’s going to devolve into incivility, disrespect, name-calling, then we’re not going to have the conversation. Know that you will have disagreement, but how you disagree matters. And just to be clear, we’re not talking about hate speech. This is about the respectful expression of views. 3. Create a welcoming environment free of retaliation and judgment. I’ve never
Johnny C. Taylor, Jr. is president and CEO of the SHRM, the Society for Human Resource Management.
been comfortable with “safe space” language because it buys into the concept of victimization. Frankly, if we didn’t want anyone to feel unsafe, we would never have conversations about race in the workplace, because they make some people feel very unsafe. The goal is a space free of judgment—will I be seen or treated differently? And will this impact my ability for promotion? It is critical for these discussions to take place in a welcoming environment free of retaliation and judgment. 4. Leaders cannot push an agenda.
CEOs have political views, and they shouldn’t
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have to hide them. I should be able to say, “Listen, guys, I’m not telling any of you who you should vote for. What I am telling you is that I’m supporting Joe Biden. You vote for whomever you want.” Same thing if I was supporting Donald Trump. But as CEO, I have to make it clear that a) I’m not taking a position on behalf of the company and b) you don’t have to agree with me. Leaders must make it crystal clear that their employees do not have to support their candidate and will not be penalized professionally for expressing views that differ from theirs. Back in 2007, I was a big Hillary Clinton supporter. I had a large staff, and I had to be conscious of my influence and careful to ensure I wasn’t using it. I had a responsibility to clarify to my employees that they should vote their own consciences. And I got plenty of flak. Imagine: the first Black man to run for office and I’m supporting the White woman? It got ugly. I caught hell from the right and the left. But that was my choice, and I wasn’t going to hide it. I hosted a $2,300-a-plate fundraising dinner at my home in North Carolina, and you would have thought I was fundraising for the Grand Wizard of the KKK. But I didn’t care because that’s what I believed. Fast forward—when I accepted an appointment by President Trump to represent the historically Black colleges and universities (HBCU) community as his advisor on Black colleges, the left lost their minds, too. I didn’t care—I did what I thought was right. As CEO, you don’t have to tell your employees who you’re voting for, but neither should you nor anyone else have to hide it. We have to get past this idea that you must 100 percent agree with me 100 percent of the time—or there’s something wrong with you. As CEOs, we must look at this as an opportunity to demonstrate our cultural values. People judge us by what we do, not what we say. If we say we believe in diversity, our employees will be watching to see if, in fact, we do what we say. This is an opportunity to really live your culture. If we can wrestle this bear to the ground, then all the other dimensions of diversity will benefit. If you can truly create an inclusive, welcoming culture, you’ll be in a position to win—no matter who is in the White House. CE
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LE AD ERS LAW BRIEF \ DANIEL FISHER
A CLASS-ACTION WIN
Have old cases doomed the new?
Daniel Fisher, a former senior editor at Forbes, has covered legal affairs for two decades.
IN 1966, THE U.S. SUPREME COURT approved changes to the federal rules of civil procedure that created what has become a multibillion-dollar business for lawyers and a major irritant for corporate defendants: the class-action lawsuit. In September of this year, a federal appeals court in Atlanta dealt a potentially serious blow to the entire class-action industry by ruling plaintiff lawyers can no longer pay “incentive awards” for people to serve as representatives in those class actions. And to justify the ruling, the appeals court cited Supreme Court decisions dating back to the 1880s, long before the modern class action even sprang into existence. To understand how Supreme Court precedent from the 19th century could substantially alter how lawsuits are conducted in the 21st century, we must start with the inherent conflict embedded in every class action. Mass litigation that emerged after the Industrial Revolution made it possible for a single company to defraud or injure thousands or millions of people at a time. It gave courts a way to resolve all those claims at once, by abandoning the idea of requiring every individual plaintiff to hire his own lawyer. One lawyer representing a single named plaintiff could claim to represent everybody with a similar claim. In practice, the class action quickly became a money-making racket, since plaintiff lawyers could threaten companies with astronomical damages simply by claiming to represent a group of “clients” who typically had no idea they were suing anybody. William Lerach and Melvyn Weiss of Milberg Weiss, a leading securities class-action firm in the 1990s, went to jail on charges they paid millions of dollars in kickbacks to plaintiffs in exchange for serving as representatives for their cases. The conflict between the lawyers and the people they claimed to represent became glaring.
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Enter Trustees v. Greenough and Central Railroad v. Pettus. These two cases from the 1880s involve what is known as a “common fund,” where lawyers pull their fees from a single pot of money they win for multiple clients. In both cases, the Supreme Court ruled that while it was OK to cover a representative plaintiff’s legal costs lawyers couldn’t pay incidental expenses or anything like a salary. The question came before the 11th Circuit Court of Appeals after a class member objected to an utterly commonplace settlement of a Telephone Consumer Protection Act lawsuit against a medical-debt collector. As usually happens in these cases, the defendant agreed to settle all claims for $1.4 million, including $429,000 in legal fees and $6,000 for the class representative. The objector—represented by Eric Alan Isaacson, a former Milberg Weiss lawyer— dredged up the old Supreme Court cases, and a three-judge panel led by Judge Kevin Newsome took the bait. In a ruling that undoubtedly will be appealed to the Supreme Court, Newsome said he didn’t fault the lower court for rubber-stamping this settlement, with its incentive fee. Courts around the country have done the same thing for decades, ever since the rules of civil procedure changed in 1966. “But, so far as we can tell, that state of affairs is a product of inertia and inattention, not adherence to law,” Newsome wrote. The decision hardly dooms the class action, but it will make it harder for lawyers to pay one or two of their clients to approve a settlement that offers little to the rest of the class, Isaacson says, especially in consumer cases where settlements often recover next to nothing for individual class members. “It’s clear these payments are made to induce class representatives to agree to a settlement they would never approve if they were treated like other members of the class,” he says. “It was wrong for my former colleagues at Milberg Weiss and it’s wrong today.” CE
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LE AD ERS TRANSFORMATION \ PATRICK LENCIONI
THE SILENT CEO
When was the last time you engaged in quiet contemplation?
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is a good thing. The real issue is that we no longer want to be silent; we do our best to avoid it because it makes us uncomfortable. Thousands of years after Aristotle, the French philosopher Gabriel Marcel said, “Contemplation and wisdom are highest achievements and man is not totally at home with them.” And that was 100 years before smartphones found their way into our pockets. See, it’s not that we have too much to distract us, but rather that we have come to prefer those distractions to being alone with our thoughts. The cost of avoiding silence and contemplation is as undeniable as it is varied. On a personal level, we lose our peace, experiencing much greater anxiety than we should or that circumstances warrant. That alone should provide enough incentive for us to make a change. Beyond that and related to it, we aren’t optimizing our decision-making. It is ironic that with all the data and information available to us, our lack of thoughtfulness and reflection prevents us from fully using that information. In essence, we’ve become smarter but less wise. Finally, as a result of all this, our organizations suffer. When a CEO lacks peace and wisdom, no amount of knowledge can sufficiently make up for the frenzy and confusion that comes about. So what is the answer? Well, it won’t be found in a theoretical column—like this one— about the dangers of over-stimulation. After all, we’ve been hearing about and talking about this for years. The only solution lies in a chief executive’s simple discipline and willingness to stop, at least once each day, and sit in uncomfortable silence. Thinking. Five minutes. Ten minutes. Over time, muscle memory will improve, and a leader will start to crave a half-hour here and 20 minutes there. But more important than their desire to satisfy that craving will be their practical understanding of the benefits for themselves and the people they lead that comes from peace, silence, contemplation and reflection. Perhaps we can start right now. 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.
IMAGINE THAT THERE WAS AN activity that every CEO agreed was critical to maximizing their success and that almost none of them did. And imagine that this activity cost absolutely nothing, took just 10 to 15 minutes per day, and brought about obvious and even immediate benefits. Now, imagine that when you asked those CEOs why they didn’t do this particular activity, they shrugged their shoulders and said things like “I don’t have time” or “I don’t enjoy it” or, in a moment of greater honesty, “it makes me uncomfortable.” Okay, it gets worse. Imagine that those executives regularly lectured their children about doing that activity and lamented young people’s inability and unwillingness to do it! What I’m referring to here is the simple act of contemplation, sitting in silence, without distraction, thinking—doing nothing. Alone. I know. I know. There is nothing even remotely novel about this. For centuries people have understood the importance of contemplation. Aristotle wrote, “The ultimate value of life depends upon awareness and the power of contemplation rather than upon mere survival.” And yet we don’t do it, which is what makes all of this so amazing, and why we need to step back and look at it within a larger context. It is no exaggeration to say that in the entirety of history, human beings have never been so easily and readily distracted, occupied, entertained and inundated with information. We’ve all heard this before, but most of the chief executives I know haven’t come to terms with why this happened, and what it costs them. Contrary to popular belief, the root of this problem isn’t that we have access to information all the time. Information itself
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Is Your Company Prepared for the Shifts Impacting the Workforce and Workplace? By Darin Buelow, Principal at Deloitte Consulting LLP, Real Estate & Location Strategy Practice Shift 4: The corporate footprint is probably suboptimal. The panCOVID-19 HAS TRANSFORMED THE DYNAMICS BETWEEN work, demic has accelerated reflection about the purpose of the office, includworkforces, and the workplace. The early months of the pandemic ing why and when employees will choose to spend a day commuting (May-June 2020) saw many companies focused on reentry planning, and working outside of home. This, in turn, has driven an evolution of determining how and when they could get office workers back into how some companies are thinking about their footprint, such as buildings. Having established playbooks for health and safety, concentrated versus distributed, high-rise versus low-rise, floorplan modifications, lobby management, and new poliand suburban versus urban. Furthermore, many workers cies for reentry, many companies have since turned their Target dates for have relocated, some temporarily and others permaattention to more strategic matters. more substantial reentry nently. Redfin has noted that suburban and rural Along the way, several workforce and workplace waves continue to slip. home sales are on the rise.2 Given all of these dytruisms—long held dear by many organizations— Management teams would be namics, the corporate footprint needs a location have been cast aside: it turns out that many offices wise to use this time to assess the and talent access strategy that balances cost, can keep functioning with large numbers working shifts in workforce and workplace accessibility, flexibility, and risk. from home, some employees may actually prefer dynamics to inform plans for how remote work, and providing an assigned workShift 5: Post-pandemic, many companies will the company will emerge more space to employees might contribute to less office likely need fewer seats. Before COVID-19, the smoothly from utilization, not more. average daily office utilization was about 63 the pandemic. percent3, with rates even lower in the consumer Discussions with hundreds of companies during this business, financial services, and utility industries. Postperiod have revealed several shifts in workforce and pandemic, if companies have more remote and hybrid workplace dynamics. While many offices have returned with workers, they will need even fewer seats. Untethering workers from 10 percent, 25 percent, or even higher occupancy, target dates for more assigned locations can further reduce how many seats are needed on substantial reentry waves continue to slip. Management teams would an average and peak day. Savings in real estate requires investment be wise to use this time to assess each of these shifts to inform plans and a little patience; most workplace strategies will require some for how the company will emerge more smoothly from the pandemic. reconfiguration and leases will often (but not always) limit how early Shift 1: Increased work from home is here to stay. Many employees savings can be captured. They key is developing the new strategy to have demonstrated they can be effective working from home. The improve the employee experience while also enabling cost reduction. sentiment on working remotely continues to evolve, with some workers If the company’s culture is ready for one of the several varieties of a expressing increased engagement while others are burning out. From tech-enabled flexible workplace, it can analyze how to optimize the our discussions with companies, the trend appears to be a significant post-pandemic use of space in order to re-densify and reduce the total uptick in the percentage of employees that would prefer to work from cost of occupancy. home long-term. A May 2020 Gallup survey revealed that half of remote The impact of each of these shifts will be different and nuanced workers indicated if it were up to them, they would continue to work for every company; some firms will seek to return to a pre-COVID-19 1 from home because they prefer it. world with little change to their workforce or workplace strategies. Shift 2: New talent markets await. If the enterprise embraces remote Others are speaking openly about the “Future of the Office” and work, especially for hard-to-find positions, it may open up new sources questioning whether employees would ever need to return. For of home-based talent locations not close to an existing office. Word to many companies, their reality will lie somewhere in-between, trying the wise, however: there may be potential tax and regulatory issues to balance what worker surveys are revealing about remote work and associated with hiring workers in states where the company doesn’t return-to-office while preparing to increase the staged return. have a presence. Also, recruiting, on-boarding, and training all needs to In the longer term, solving for the optimal and flexible set of workforce be managed differently for remote workers, bringing us to… and workplace solutions requires commitment from the top, crossShift 3: Managing remote work requires work. Mastering a distributed functional analytics, and collaboration between HR, Real Estate, IT, workforce means being disciplined and purposeful about strengthening Finance, and the business functions. Getting it right can unlock an culture, improving learning and development, and monitoring the improved employee experience, access to new talent, and significant right performance indicators along the way. New sets of management cost reduction opportunities that can help the enterprise thrive. behaviors must be developed and then taught to leaders across the enterprise to help teams focus on outcomes, not effort. One of the Darin Buelow (dbuelow@deloitte.com) is a principal at Deloitte Consulting biggest challenges is to deploy tech-enabled enterprise collaboration LLP in the Real Estate & Location Strategy practice that fosters spontaneous connections and spurs innovation. [1] Adam Hickman, Ph.D., and Lydia Saad, “Reviewing Remote Work in the U.S Under COVID-19”, Gallup, May 22, 2020 https://news.gallup.com/poll/311375/reviewing-remote-work-covid.aspx [2] “Homebuyer Interest in Rural Areas Rises, With Prices Up 11% in July”, Redfin, August 17, 2020 [3] Occupancy Benchmarking Guide, JLL, 2019 https://www.us.jll.com/content/dam/jll-com/documents/pdf/research/jll-research-occupancy-benchmarking-guide-2018-2019.pdf
ABOUT DELOITTE: As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2020 Deloitte Development LLC. All rights reserved.
LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD
PANDEMIC PIVOTS
Resilience doesn’t happen on its own. It takes leadership.
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first—and always. The result: There was never a day of lost production, and thousands of workers did their jobs successfully. GM CEO Mary Barra retrofitted—in weeks, not months—factories and plants to produce up to 10,000 ventilators and 1.5 million masks a month, with no prior equipment or experience. She personally worked with GM’s medical director and heads of safety and manufacturing to create a “playbook” of protocols with back-to-work safety packages for employees. “What in normal corporate speed would take months was getting done in days,” she told me recently. “When you engage your team and then set them free to do what they can do, they can accomplish amazing things.” Stuart Millar, chairman of U.S. homebuilder Lennar, and his team are developing new ways to show and do quality inspections on the 50,000 homes they build a year remotely. “It is now a safer, faster, more efficient experience not having to match schedules for homeowners to let strangers in,” he says. Carmine Di Sibio, CEO of global consultant EY, says the firm has surprised itself with what it has been able to accomplish. EYs renowned Entrepreneur of the Year event, for instance, migrated from a three-day extravaganza in Monte Carlo to a 70-minute show on CNBC that garnered 2.5 million viewers. To interact with clients, they created high-tech meeting rooms around the world. Not only have they shown that they can serve clients and win new business, but they’ve shrunk the company’s carbon footprint from travel by 94 percent. “We’ll certainly have more of that in the mix in the future,” says Di Sibio, “while saving hundreds of millions of dollars.” Maintaining the company’s culture is, of course, the biggest challenge. But it isn’t insurmountable. “With so many of our people facing challenges around issues like home schooling their kids, we put in place a lot of support mechanisms,” says Di Sibio, “including increased parental leave if people need it, to help them deal with this crazy year. It’s things like that that help maintain and build a culture.” And create opportunity from crisis. 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.
THE TWO-STROKE CHINESE language character for crisis is made of one stroke that represents danger and a second that represents opportunity (or change crossroads). In parallel with the crushing toll on humanity of lost lives, shattered families and economic collapse brought about by the pandemic, it’s no surprise that we’re also seeing the power of human resilience and resourcefulness. They are two sides of the same thing. But that doesn’t mean resilience happens on its own. It takes leadership. Take Kroger. CEO Rodney McMullen put safety first, quickly installing procedures to protect his 450,000 employees and ramping up his e-commerce systems. Business soared, with Q2 profits nearly tripling. Online sales are up 127 percent. Even same-store sales are up—an astonishing 14.6 percent—because customers and employees, treated as essential workers, felt safe. Jim McCann, founder and chairman of 1-800-Flowers, said the pandemic forced every retailer he knew to compress their five-year path of change into five months. Early in the pandemic’s onset, McCann and his team pulled back from plans to acquire a division of retail giant Bed, Bath & Beyond, in the end consummating the deal in August. 1-800-Flowers, which had already closed most of Harry & David’s locations, shuttered the remaining 40, but still managed to boost business by reconfiguring its hugely successful brand-building experiences, such as classes in floral design, into digital events. In my home state, Connecticut, great manufacturers such as Lockheed’s Sikorsky Aircraft division, General Dynamics’ Electric Boat, Stanley Black & Decker, Raytheon Technologies—formerly United Technologies—and Pratt & Whitney, a division of Raytheon Technologies, retrofitted production lines with safety shields, masks and other PPP immediately last spring. Working with Governor Ned Lamont, they ensured public health came
Discover Financial Services congratulates
Brian Moynihan
2020 CEO of the Year | Chairman & CEO of Bank of America
Š2020 Discover Financial Services
2 0 2 0 C E O OF THE YE AR
AMERICA’S
BANKER
Analytical, deliberate and deeply principled, Bank of America’s Brian Moynihan led one of the most impressive turnarounds in Wall Street history. And he did it just in the nick of time. A conversation with our Chief Executive of the Year. BY DAN BIGMAN
A
s we move through the final months of this tumultuous year, the news is almost unimaginable: 200,000-plus dead of Covid in the U.S. alone, crushing unemployment, hundreds of thousands of shuttered businesses across the nation. Given where we’ve been, it is easy to overlook the crisis that did not happen: Another global financial meltdown. A good bit of the credit for that belongs to Washington, of course, but more than a little also goes to Brian Moynihan, the low-key leader of Bank of America, the nation’s second-largest commercial bank. Over the past 10-plus years, Moynihan and his team—most of whom have remained with him through this entire period— chipped away at the legal issues plaguing BofA in the wake of the Great Recession and instilled rigor and discipline to the institution’s approach to risk. As Moynihan
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incessantly preached a mantra of “responsible growth,” they shed more than $75 billion in costs, refocused on their consumer businesses, navigated endlessly shifting regulatory requirements, oversaw a $35 billion investment in new technology, and made talent development—especially diversity and inclusion initiatives—a core focus for his workforce of 208,000. The result: A transformation that grew assets by more than $500 billion (to $2.38 trillion), restored the once-troubled bank to record profitability ($27.43 billion in 2019 versus a $2.2 billion loss in 2010), and, until Covid struck his entire sector hard, generated a 72.9 percent total return for shareholders since 2014—114.1 percent if you exclude 2020. Along the way, he’s become a statesman for the new-look Corporate America, leading highly public efforts to transform capitalism to be more expansive and inclusive.
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 21
Big Decade, Big Numbers
Moynihan’s 10-year transformation efforts at Bank of America led to record profitability, shareholder returns and assets.
$2.38 trillion
Assets 2020 (Vs. $2.26 trillion in 2010)
$27.43 billion
Profit FY 2019 (Vs. $2.2 billion loss in 2010)
160%
Total Shareholder Return, 2010-2019 Source: Bank of America
It was exactly this kind of deliberate, considered leadership, a mix of analytical process-focus and deep-seeded humanism— practiced with meticulous consistency—that led a selection committee comprised of peer CEOs to name Moynihan our 2020 Chief Executive of the Year. “Through thick and thin and thin again, Brian Moynihan has led Bank of America with humility and a focus on the long term, delivering extraordinary results and strong team spirit,” said Arne Sorenson, CEO of Marriott International and Chief Executive’s 2019 CEO of the Year, who served as a member of this year’s selection committee. “Even in difficult times today, he’s making sure that Bank of America stands by its principles and stands by Brian’s principles,” says Carmine Di Sibio, global chairman and CEO, EY Global, who was also a member of the selection committee. “Brian is a courageous leader, but, most of all, he’s a leader who cares about his people and his teammates.”
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Moynihan, an Ohio native who graduated from Brown (where he met his future wife, Susan) and the University of Notre Dame Law School, got into banking through the side door, joining FleetBoston, one of New England’s largest banks, as deputy general counsel in 1993 after nine years as a practicing attorney in Providence, RI. By 1999, he was running Fleet’s brokerage and wealth management arm, and when Fleet was gobbled up by Bank of America in 2004, he became president of BofA’s wealth and investment management—just in time for the global financial meltdown. In Wall Street’s ensuing game of musical chairs, BoA bought Merrill Lynch for $50 billion in 2008 and Moynihan took over leadership of the controversial acquisition. Two years later the reformed lawyer was running the company’s small business and consumer operations when the board named him CEO, and charged him with turning the company around and pulling it through the ruins of the Great Recession. He says he learned a lot about how to lead in that time—and in the Covid era— from leading through 9/11. “It was my first role managing a lot of people, and I had a lot of people right around the World Trade Center,” he says. “I learned about how you had to listen to what was on their minds, and then figure out how to get things sort of worked out over time as opposed to, ‘Here’s what we’re going to do,’ because that doesn’t work over time. You have to have a why. Middle management has to be able to say, ‘We did this because...’ and that it was the right thing for the company, the customer, the shareholder, or whatever. And even if you don’t agree with it, now you understand why. Let’s go do it.” Chief Executive recently spoke with Moynihan at his office in Boston about how he does what he does, tackling transformation and what it means to be a CEO right now. Excerpts from that conversation, edited for length and clarity, follow. What are you seeing in the economy, and what can the country be doing better from your vantage point?
Whenever I start a discussion on this, I
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always remind myself and the people I’m engaging with that, from the broadest perspective, this is a healthcare crisis, and the solution, ultimately, would be a solution to that healthcare crisis. The good news is everybody is facing it. We’re all fighting to win the battle against the virus. And frankly, since last February and March, we’re closer to that outcome than we were then. However far it is away, at least it feels like it’s on the horizon much more than not knowing what was going on. When you think about it from the economic perspective, the second quarter was one of the steepest downdrafts in the U.S. economy in history. The third quarter is now predicted to be one of the biggest increases ever. And when you put it all together, you end up getting back to 90some percent of where you were when you started. The question is: where do you go from here? What we see is our prediction for the U.S. for 2020 is negative 4.3 percent. But that was just upgraded from negative 5 percent to negative 4 percent over the last few weeks. And for next year, the projection, which will obviously continue to shift, is currently 2.8 percent. What that really means is a recovery is coming a little faster than the economy has predicted. Our consumer data shows that. Consumer spending across all the different forms that Bank of America customers spend money is strengthening again. It strengthened dramatically, then went a little flat as you got into the reopening back and forth in July and August, and it’s now kicked back up in the first part of September, so we look forward to that. That is a big sample of the American consumer. And at the end of the day, it drives economies. In our commercial side, except for our customers in the worst industries—travel, airplanes, cruise ships, onsite entertainment venues and things like that—businesses are kind of okay, have plenty of credit availability and they’re doing fine and working their way through. So, we’re cautiously optimistic,
“The good news is that everybody is facing it. We’re all fighting to win the battle against the virus.”
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not about the economy forever, but that most of the bad is behind us. Now the question is how fast the underlying growth rate can eat up the last 5 percent. It’s been a tough year for banks, obviously. But why it isn’t worse? Why didn’t it turn into 2006, 2007 all over again?
The industry is just in much better condition. Due to the amount of capital that the industry had going into this crisis, the amount of liquidity, there was an ability to stand tall and help clients through the issues, whether it was the panic borrowing that went on in March and April when the markets closed down, the PPP product, a distribution of all the benefits and the stimulus bills. Banks were in good shape to withstand that and be there to help, not to be a problem so to speak. Not only do we have the capital and liquidity, but because the stress test has been going on periodically every year, you also had objective proof that we were okay. And then we did a stress test right in the middle of it. Why is that important? Because if you go back and think about the last crisis, what you heard a lot about was, “How big is the hole at institution X or Y? Can they survive?” That wasn’t the case here because we did a stress test and we proved we can survive it. So that’s the major difference—the capital, liquidity and capabilities. The second thing is what Congress, the Administration and the government did through the fiscal stimulus, taking care of the people most affected with the PPP, the $1,200 payment, the unemployment benefits. That helped build a bridge to recovery for people who were affected by the virus. And then the Feds stepping in and dropping rates quickly against the shock also helped stabilize the markets. If you put that all together, it’s just a completely different atmosphere than it was in ’06, ’07, ’08 when people weren’t sure where the bottom was, who was in good shape or not. There was no objective measurement, and frankly the response was not as rapid and pointed by the administration. What did you learn from that last crisis?
There’s a statement that your grandmother
Pitney Bowes, the Craftsmen of Commerce, congratulates
Brian Moynihan
Chairman & CEO, Bank of America on being named the 2020 CEO of the Year by Chief Executive magazine. For all of his outstanding qualities, Brian is a true Craftsman of Leadership.
At Pitney Bowes, we take great pride in crafting precise, innovative commerce solutions based on business needs in mailing, shipping, ecommerce logistics, and financial services, now benefiting over 750,000 clients worldwide.
reserves. Our capital ratios are higher than before this crisis started, and our liquidity is higher. That shows you that we’re handling the risk of the moment. It’s the testimony to how well the management team has run the company, but it really comes back to that question of responsible growth. How did BofA handle the Covid crisis?
REUTERS / RUBEN SPRICH - STOCK.ADOBE.COM
Speaking at the World Economic Forum in 2017, Moynihan reiterated Bank of America’s $300 billion commitment over 10 years to finance environmental sustainabilty efforts.
probably told you when you were probably eating too much candy: “all things in moderation.” That is actually a Roman proverb that goes back thousands of years. I think our view of responsible growth and how my team runs this company is to make sure that we never depend upon the market’s liquidity. We have the capital. We have the [right] balance in our business. We have the responsible growth—meaning we grow the right risk, we grow the right customer bases, we grow with sustainable growth—that we’ve been after for years and years and years, not only because of lessons in the last crisis but the early crises, whether it was the dotcom blowup and the fallen angels in the ’99-2000 era or the real estate crisis in the late ’90s. All the members of the management team, the board, agree with this. We gave up opportunities probably in ’15 through ’18 to make sure that we were positioned so that no matter what went wrong in a crisis, we would be okay, and the proof is in the pudding. In a year in which we had the deepest economic downdraft in the second quarter, we’ve made $8 or $9 billion after tax in a half year so far. We’ve put up $11 billion in
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Our response to this was really delivered with three goals in mind—a teammate-centric approach, a customer-centric approach and a community-centric approach. So, the first thing we said is we have to get our teammates to be able to do their jobs and be safe. That meant getting them home, getting them computers, getting them the technology resources. We took all the high-risk people and got them at home as fast as possible. Many of them had jobs that weren’t doable from home, but we redeployed them to do other jobs. 100,000 laptops and screens and thousands of MyWiFi-type of products to make sure connectivity worked in places like India were deployed. Then we went and said, “Okay, how can it be effective?” That’s when we started on benefits like extra pay for the teammates that still had to come into work, extra commuting benefits so they didn’t have to take public transportation, meals brought in to all our branches. Then we did childcare so people working at home could be effective, $100 a day for persons with children to hire somebody to take care of their kids, so they can be effective at work. And as schools shut down, we’ve done a million and a quarter days of childcare through this thing over the last six months, and we’ll continue that till the end of the year because of the school system being all over the place. We just sat there and asked, “What do our employees need?” The first thing our employees needed was to know they weren’t going to lose their jobs, and we haven’t done any layoffs at all. And we’ve said no layoffs until we got to the other side of this. So, no layoffs, give the right resource to work from home mechanically, give the right benefit structure, free testing, increased mental health capabilities
with Teledoc and other things to make it even more available because we knew it was going to be debilitating. Number one was take care of the employees. Then we went to the customers and said, “How do we take care of you?” And it was, “Help me restructure my debt,” “Help me get my commercial paper paid up,” for larger companies. “Let me draw my lines and keep my liquidity going,” for the mid-sized companies. It was consumer deferrals. We added, at a high point, 2 million consumer deferrals. So, we put together that customer-centric piece and then, ultimately, we started on the community. There was $900 million extra charity to help communities, 4 million masks, $250 million to the CDFI to help them fund their borrowers under PPP. We provided a lot of capital for them to do that, and then that turned into a $1 billion program. So that’s what we did right from the start—protect the risk, run the company well, we’ve also got to protect the people who do that. We’ve got to make sure the customers get what they need out of us, and we’ve got to protect our communities because that’s where the economy comes from.
“The first thing our employees needed was to know they weren’t going to lose their jobs, and we haven’t done any layoffs at all.”
How did you communicate all of this?
We have a function that runs all the time because something is always going on. Even in the middle of the Covid crisis, we’re tracking five tropical storms, wildfires and other things. So, we have a team—the ER team, enterprise response team—whose job is to make sure that the employees are all taken care of and the communications are done. We have a program that we call ENACT where we can contact everybody. We started that whole engine up literally every day saying, “What do people need?” So, you pull a team together. You say, “We’ve got to take care of the people. We’ve got to take care of the customers. We’ve got to take care of the risks. We’ve got to have, at the moment, information.” And then you
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start meeting at a pace that you just don’t usually meet. We met twice a day, 7:30 in the morning, 4:30 in the afternoon. Obviously, we connected in between so the 50 or 60 top managers, we all heard from each other. Now we’re down to one a day just because the urgency is out of it. It’s basically to exchange real-time information to figure out what people are hearing, what resources they might need. As PPP took off, we pulled 10,000 resources from around the company and dedicated it to PPP. It didn’t exist as a product until April 3. And 60 days later, we’ve done 300,000 of those type of loans. You couldn’t do that through one unit. You had to have all the units saying, “I understand the problem. Let me give you this. I got x, I got y.” It’s really that communication, gathering the team, but running along the principles of responsible growth and of our first order of business—to serve our teams, serve the clients, and then make sure we’re taking care of the risk. The key to that is constant communication, constant understanding and driving at that understanding of all the different things going on and trying to make sure we’re managing the company into it. Can you talk us through the transformation that you made at Bank of America coming out of Countrywide in 2008?
I had an advantage when I became CEO January 1, 2010. I’d managed many of the businesses. A substantial number of employees had worked for me at given times in the company. And I had a view of what we needed to do that the board agreed with, so I didn’t have to convince the board or do a strategic review. We sat down and said, “We’ve got to focus on the core business. We have to get out of all the other businesses, those where you took on risks that third parties generated, your correspondent mortgages and things like that, and focus only on the customers we touch and see. We’ve got to really focus on client selection.” We started that in 2010, and we basically separated the company into two pieces. We had a triage group that had to deal with the litigation and those types of issues and
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figuring out a way through this morass of litigation and lawsuits about the mortgages and the foreclosure practices. Then we had the rest of the people who were led by people like [now COO] Tom Montag. His businesses were less affected. David Darnell [who retired in 2015], Tom and others drove the businesses while [former CFO] Bruce Thompson and Geoff Greener [now BofA’s chief risk officer] and Terry Laughlin [who died in 2018] worked more on the mortgage crisis. So we sort of bifurcated. Underneath that were the principles. We said to the board that we’re going to have these eight lines of business. We’re going to get rid of every product that doesn’t add substantial value or that customers don’t expect us to have and then we’re going to invest in technology to drive digitization. We’ll invest in technology to drive our risk management understanding. We’ll invest in technology to drive our ability to get work done faster. We did an initiative called Project New BAC where we took out more than $8 billion in costs. We announced that in 2011. And then we did one called SIM [Simplify and Improve]. These were all improvements against that basic template of eight lines of business core products, drive at it, and drive responsible growth. That team bought into that, and we just drove it. Terry Laughlin at the time was trying to get us out of the mortgage litigation. Tom Montag was basically making sure our international business was well-put because internationally was a place we had to grow. To give an example, we’ve gone from $20 billion in outstanding international loans to $100 billion, and it was all done with the right customers at the right level so we had no issues in this crisis... our loans came down but we were growing them where we wanted them and getting out where we didn’t want them. But underneath that, what I told the
“We sat down and said, ‘We’ve got to focus on the core business. We have to bring the risk down.’”
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board at the time—and it’s true—we have the best franchise and financial services in the world in terms of the positions in the business. The question was I’ve got to get rid of all the stuff that’s distracting just to drive at this. It was all there, you just had to really do it. You had to stick to it. You had to not be distracted. I think my management team did a great job of sticking to it. And it was largely the same team, only replaced by replacements after retirements. We were able to build a team that regenerated itself and drove that competitive advantage, risk management, and responsible growth so that when we hit this thing, we just managed right through it. Now, it’s still ahead of us. Things could go right or wrong, but we’ve managed through a lot of it. How did you measure the culture and whether or not it was moving in the direction that you wanted it to go in?
We have dashboards that are not only the classic operational metrics but also go into responsible growth. You’ve got to grow mean balances and things like numbers of customers, satisfaction of those customers, diversity. It’s all embedded in the metrics and measured at different levels, the risk measurements, etc. It’s all in there. One of the challenges all CEOs have is that, no matter how many times you say the same thing, you have to remember that with a 10 percent turnover rate in your company, 10 percent of people have never heard it, so you have to constantly reinforce the basic principles and north stars. We have a thing we call a placemat, which is our purpose, the eight lines of business, how we go to market, responsible growth, our values, and it’s all in one placemat. I start every meeting, every town hall with that. Frankly there are a lot of people who look at me and say, “Do we have to do that again?” but it’s a reminder of how we run the company. In our employee survey, to make sure that’s getting through, we actually ask questions about people’s understanding of what responsible growth meant for the last five or six years, literally asking, “What do
Tata Consultancy Services congratulates
BRIAN MOYNIHAN Chairman and CEO Bank of America
on his recognition as Chief Executive’s 2020 CEO of the Year
Leadership is bold vision backed by purposeful innovation, outstanding performance, and creating a culture that fosters inclusion and empowerment. Brian Moynihan is the epitome of someone who embodies these powerful ideas. A resilient and transformative leader, he’s adroitly turned crises into opportunities—and put Bank of America on a decade-long path of incredible growth. An advocate of ‘responsible growth,’ Brian has fostered a culture of diversity and inclusion within the bank and ensured workforce development, while working towards reducing the company’s carbon footprint and partnering with local communities to promote mobility and social progress. His leadership capabilities once again shone through during the COVID pandemic and his quick response to the emerging crisis gave con dence to customers as well as the entire global investment community. It is incredible that Brian has been able to achieve all this while working within the risk framework and by embracing and leading the drive towards digital innovation.
From the entire team at TCS, thank you, Brian, for letting us be a trusted partner in Bank of America’s radical journey towards digital empowerment. Congratulations on this prestigious honor.
PURPOSE DRIVEN
RESILIENT
ADAPTABLE
you think? Give us your thoughts on it.” There’s honest debate about, “Are we being too responsible and not growing enough? Should we take this risk or that risk? Are we not taking [enough] risk?” That’s what you want because that means people are actually thinking about it, right? You’ve got to not only put a dashboard, a KPI and a communications platform in place and stick to it, but you have to frankly be introspective and say, “I’m going to actually measure to make sure six to eight layers away from me”—which is the last layer in a company—that people have the same understanding of what responsible growth means to them and how they drive it. That took redesigning our survey process and looking at it. This year, we had all-time highs in teammate satisfaction and [diversity and inclusion], a score we built 15 years ago to measure diversity inclusion in a company. They jumped a lot. We do a peer comparison and we’re 500, 600, 700 basis points ahead on this because of many years of the culture developing in the company even through numerous acquisitions.
“Inside the United States, we’re trying to match the representation in society of all the different ethnicities.”
You’ve been forceful about pushing digital transformation. What did you see that made you say, “we need to move on this”? And then how did you get that to happen?
Well, we were already a leader in digital banking and what became mobile banking because frankly we made decisions early in—on the consumer side especially—about how we built our platform that allowed us to be available on a smartphone when smartphones were invented. That just drove our thinking, and it drives our thinking today. What we really found out is simplification combined with the digitization of practice is just so impactful. We’re high-touch and hightech across the platforms, but we saw early on the benefits of spending money to digitize the platforms and capabilities, while at the same time having extreme discipline on getting the cost structure down through simplification
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and utilizing those products. I’ll give you a stat. In 1999, the Bank of America from California merged with the NationsBank in North Carolina and formed what is known as Bank of America. At the time, it was about $500 billion in total assets and about $400 billion in deposits. It had 4,800 branches. Today, 21 years later, we have 4,300 branches and $1.7 trillion in deposits. That is through digitization. From that time till now, the company acquired FleetBoston. It acquired LaSalle Bank. We acquired a bunch of banks after that. We ended up at the highest peak at 6,100 branches, and we were able to bring that down by digitizing activity. On the commercial side, the same thing. It’s getting paper out of the system of paying bills and stuff, and we’re driving that in wealth management statements. One of your big pushes has been a focus on diversity and inclusion. How do you approach that?
We think of diversity and inclusion as two pieces. Diversity is the representation, and so we look at it at all levels in the company and try to bring it to societal levels. Outside the United States, it’s different, obviously. But inside the United States, we’re trying to match the representation in society of all the different ethnicities. We’ve made massive gains and we’re more diverse than most other companies, but we know there’s room to work. So, we drive analytics and scorecards about everything that happens from me to the last layer of the company through my direct reports, through their business review, whether it transfers in or out of people, hires, terminations, whatever, where are you moving, and we just want constant progress to the goal of getting our teammates to represent the same distribution in society. On inclusion, the way we define inclusion is something we started about 15 years ago before I was CEO. We said we’re going to define inclusion, build metrics against it, measure it. People said let’s hire some firm to look at that. I said forget that. Just go ask people what they want. If we want to be the best place our teammates to work with, what do they want from inclusion?
2020
And a young lady said, “Look, what I really want is I want to be able to come to your office and bring myself through that door and be as successful as I want to be and not have to leave myself outside and pick it up on the way home.” And we have used that as a way to think about inclusion. We want people to feel they can be successful in our company and be themselves at work. That’s how we drive it, and that’s how we measure it. Now how do you that? Well, there has to be governance on it. So, we have a GDIC group. How do you do that? You have to have networks of affinity so people can be supported, whether it’s LGBTQ, African-American, Hispanic. We have networks with 160,000 people in them—disability network, parenting network, intergenerational network, they meet and decide on agenda items and often come to the company with ideas. And then you have to score it. So we actually had measurements and see how people are doing and how they compare. And take D&I scores and see how they rank and then look to push up anyone below the average so the average moves. And you have a method for management of that. Four or five years ago, we started having “courageous conversations,” very raw, very direct conversations with teammates and outsiders about what it’s like for that teammate or outsider of that ethnicity, whether it’s a transgender person talking about the bathroom bill in North Carolina, a Black teammate talking about policing, or parents talking about their disabled kid, about what that’s like and trying to get the rest of the teammates to understand. That helps you drive that inclusive feeling up.
“The point we’re trying to make is that we have to deliver for our shareholders and deliver for society. It’s not ‘or’ because we do one and not the other.”
You’ve been at the vanguard of the push for “stakeholder capitalism.” Can you talk about your sense of what the role of the corporation is in society right now?
From a historical basis, bank institutions have always had a heavy community impact side to them just because of who we are and how
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we, for lack of a better term, make money and have success. We are the product of the economy and the community in supporting itself. From back in the mid-1990s, the plan always had four constituencies—customers, employees, shareholders and communities. So, this is not something that we arrived at lately. The point we’re trying to make is we have to deliver for our shareholders and deliver for society. It’s not “or” because we do one and not the other. You have to deliver for both. That is not a new concept. Jim Collins wrote about it and called it the “Genius of the AND,” and I use his phrase. But why do we need that? Back in 2015, [United Nations Member States] developed sustainable development goals (SDGs), and 192 countries signed on and said, “This is what balanced inclusive growth means for the world.” The problem with that is it costs $6 trillion a year to achieve that. Governments don’t have the money. All the charitable givers in the world, including individuals, give away $1 trillion a year. It’s marvelous. It’s wonderful but it does not hit the $6 trillion. So, the reality is the only way to actually make the progress in SDGs is to align capitalism behind them. The metrics we designed are against those SDGs and measure a company doing something to make progress on delivering SDGs and then also delivering to the shareholder. The way I come at this is that the only way you can solve the problem is to get capitalism aligned [with these goals]. Capitalism is one of the best systems of ingenuity, capital and talent to do it but you have to drive that alignment. And if you drive that alignment incrementally, you will achieve the Paris goals on carbon reduction, the goals on housing development. You are not going to achieve them by charity because there’s just not enough money. You’re not going to achieve them by governments because they don’t have money to spend, especially now. You’re going to achieve them by getting capitalism aligned. And if capitalism aligns to that, the growth in that society, that’s how we make money. It’s mathematical. There’s no way we’re going to achieve balanced, conclusive growth in the world unless capitalism drives it. CE
Brian, Congratulations on being named Chief Executive’s 2020 CEO of the Year. The people of UnitedHealth Group salute your vision and distinguished leadership.
Helping People Live Healthier Lives And Helping Make The Health System Work Better For Everyone.
unitedhealthgroup.com
L E A D E R SHI P
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THE MOTHER OF REINVENTION In sector after hard-hit sector, corporate leaders forged paths through the last eight months, with pluck, luck and a whole lot of ingenuity. By Jennifer Pellet and Dale Buss
When Covid struck in March, Farooq Kathwari, the longtime CEO of Ethan Allen, a leader in home furnishings and design, was given what seemed like the corporate equivalent of a death sentence. Asked by local governments across the U.S. to shutter 200 design and distribution centers, Kathwari was forced to furlough 3,000 associates within 10 days of the news. “The whole world came to a stop,” says Kathwari, who chose to forego his salary through June 30, 2020, setting a tone for senior managers, whose compensation was reduced by up to 40 percent, and other salaried employees, whose compensation was reduced by as much as 20 percent. The company hunkered down to wait out the closures. But then something remarkable happened. The remaining team rallied, leveraging long-run bets they’d made on technology and their supply chain. In the seven months since the Covid crash, Ethan Allen found itself not only surviving the hit to its cash flow after the pandemic’s onslaught, but able to rebound and grow its business in the aftermath.
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 37
“I think about the fact that I want to, as much as possible, control our destiny.” —Farooq Kathwari, Ethan Allen “While our design centers were closed, our business held up because in the last few years our 1,000 designers have worked with new technology to connect with clients online, using 3D and virtual reality,” says Kathwari. “All the innovations we worked on in the last few years turned out to be really important for this crisis because our designers already had the capability to use it at a time when our customer base at all levels was suddenly much more interested in, knowledgeable about and accepting of these tools.” They’re hardly alone. In sector after hard-hit sector, thousands of corporate leaders have found a way through the last few months, through pluck, luck and a whole lot of ingenuity. Even in hard-hit sectors such as food, automotive and entertainment, companies we talked to had inspiring stories of how the past year—as difficult as it has been in so many ways—has also been a catalyst for reinvention. “We’ve drafted a new vision of where to move the company,” says Daniele Schillaci, CEO of Brembo, a brake manufacturer based in Italy with U.S. operations in Michigan. “We need to be even stronger, trusted partners to OEMs. And we need to challenge ourselves to find new solutions and new initiatives to anticipate customer needs and give new support to all partners.” At pizza titan Dominos, Kelly Garcia, chief technology officer, found herself
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forced to somehow deliver dinner without human contact. Rather than shrink from the challenge, she says they used Covid-19 to extend their lead on rivals by, for instance, introducing a new contactless delivery method. Drivers place pizza boxes on top of a ‘pedestal’ outside a customer’s home, notify them and then move six feet away. At stores, drive-up customers describe their vehicles and indicate where they want Dominos workers to place their orders. “We think it’s likely customers will want these kinds of options going forward,” she says. “So we have been making operational changes like these and rolling them out to a system of 6,000 stores in the U.S.” Even minor-league baseball is undergoing a major-league rethink. “We were actually able to create a social-distancing bubble so that the players could play and we could have a few fans in the stadium,” said Andy Appleby, CEO and owner, United Shore Professional Baseball League, which now operates four entry-level, minor-league squads in one stadium in suburban Detroit and played 60 games this summer. “We made adjustments by going to seven-inning games instead of nine innings, to help out the families that maybe wanted only a twohour outing. And Major League Baseball also did that for some games this summer; so we might do that in the future.” Inspired by efforts like these, Chief Executive reached out to top executives across a number of hard-hit sectors, looking for reinvention hiding in plain sight. What we discovered was company after company making the most of the challenges they’re facing—rather than letting themselves be destroyed by them. NEAR BECAME DEARER
For Ethan Allen, the big surprise was how operational decisions made long ago suddenly kicked into gear. It wasn’t just technology. Kathwari’s decades-long commitment to manufacturing in North America—made at a time when most of his competitors were slashing costs by moving operations to Southeast Asia—
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proved prescient in the wake of Covid-19 supply chain disruptions. He has long championed the quality control and shipping time advantages of maintaining facilities in North America (North Carolina, Vermont and Mexico) and Honduras, while acknowledging that they come at cost. “If our focus was three to five years, like most companies, we would do like everyone else and go after higher margins “We learned a lot and are by buying products applying it. Things like agility: made in East Asia,” he says. “But I think long how you design an agile team, term. I think about from the senior leader to an the fact that I want to, individual who’s working on the as much as possible, control our destiny.” line, and how you keep that Manufacturing closteam moving as fast as you er to home provides more control, and also need to move.” allows Ethan Allen —Jim Baumbick, Ford Motor to differentiate by making 70 percent of its items to order, delivering custom-made furniture within four to five weeks. When the product shipments of peers manufacturing overseas came to an abrupt halt, that advantage was amplified. While Ethan Allen’s delivery timeframe crept up to six to eight weeks during the pandemic, the company’s design team was able to largely carry on as usual, consulting with customers and taking custom orders even during the height of the pandemic. “Thinking long-term, treating people fairly, using technology effectively—those are all key steps that helped us through this time,” says Kathwari. DRIVEN BY DISCIPLINE
And while few U.S. industries got through the pandemic as relatively unscathed for the short term as the auto business, that success was hardly an accident. Carmakers played a big role in keeping themselves going with agility—and discipline. Big auto plants were among the leaders in reopening with anti-virus protocols in the spring. By fall, dealers were reporting that the yearon-year sales loss amounted to only about 20 percent—though prices kept climbing.
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“We were able to shift our production quickly and made 100 million pieces of personal protective equipment, ranging from ventilators to face masks, during the pandemic, in an initiative we called “Project Apollo.”’ Says Jim Baumbick, vice president of enterprise product line at Ford Motor. “We learned a lot and are applying it. Things like agility: how you design an agile team, from the senior leader to an individual who’s working on the line, and how you keep that team moving as fast as you need to move.” They’ve begun applying those lessons to reinvent product development, getting agile teams to move at speed and not be encumbered by the traditional organizational criteria in a large company. As a result, Ford plans to launch a vehicle 20 months faster than they would have been able to traditionally. “This is an opportunity to look at our structural costs and adjust,” says Reinhard Fischer, vice president of strategy, Volkswagen North America. “We are learning from not having operated our plant in Tennessee and our many other U.S. locations for three months. We really need all of our locations to condense their footprints, and we’re discussing it. The crisis also showed us very clearly that we focused on cost efficiency and neglected resilience. Because of redundancy we need to build, it’s going to reduce our costs—but it will reduce our dependence on specific suppliers.” This kind of radical disruption has led some automakers to rethink other parts of the company as well. Giuseppe Barile, CEO, Webasto Roof Systems, a sunroof manufacturer in Germany with an America headquarters, has found himself in need of talent as the pandemic recedes. “So, we’ve gotten more proactive to open up more opportunities for the many job seekers, especially in the hardhit U.S. talent pool,” he says. “It’s not acceptable any more to bleed talent. We’re investing in our people’s skills and happiness, and their performance will be in more alignment with our vision and mission.” AN AMAZON ALTERNATIVE
Covid has shifted consumer behavior faster than any other event in business history—
WE ARE THE FIREARMS INDUSTRY
WE ARE ADVOCATING FOR
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and that’s been an opportunity for some. Perhaps no company in the world has made as much headway as Walmart during the crisis. The company just launched its online membership service, Walmart+, for $98 a year, to compete with Amazon Prime. The benefits include same-day delivery of groceries and general merchandise and discounts at Walmart gas stations. “People have gotten more used to using memberships, whether it’s movies or streaming or other things that they enjoy doing,” Brett Biggs, chief financial officer and executive vice president, recently told investors. “We felt like this was the right time to “We were able to give our give customers that sponsors tremendous value for option.” E-commerce their partnerships at a time when wins aren’t just we needed to give them value for juggernauts. back because we had limited Beverage co-op Ocean Spray was attendance.” just about to launch —Andy Appleby, United Shore a new brand of Professional Baseball League herbal tonics called Atoka into stores when the pandemic hit. They switched gears and launched the product through a new web site and promoted it through social media—and only social media—with great results. “We realized that consumers were changing quickly and were more open to doing things differently, online,” says Rizal Hamdallah, Ocean Spray’s chief global growth officer. “Even demographic groups that before weren’t comfortable with e-commerce—seniors, grandparents—are now kind of adapting and adjusting and can operate with it.” For Appleby, the CEO and owner of United Shore Professional Baseball League, Covid prompted a scramble to make up for the lack of physical attendance at games. He quadrupled expenditures on TV-broadcast production, adding lots of cameras and other equipment and also a commentator who does on-field interviews. Much to his surprise, they ended up having 10,000 people viewing the average game—far more than he’d ever considered possible. “With that,” says Appleby, “we were able to give
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our sponsors tremendous value for their partnerships at a time when we needed to give them value back because we had limited attendance. The silver lining is that we now have a full-fledged USBL Network that presumably we’ll be able to grow in the future.” KEEPING THE BETTER
Reflecting on the past few months and the company’s post-pandemic future, Ethan Allen’s Kathwari again and again returns to the issue of adaptability, pointing out noteworthy changes wrought by the crisis, such as the need to provide associates with flexible work hours they need when schools are closed and children are underfoot. “When someone has a young child they need to care for, we have to let them do that,” he says. “You must have the confidence in your people that they have the responsibility of working hard and will do it. And you cannot base your policies on the few who will not do it right; you have to base them on the 97 percent who will.” Placing that level of trust in employees working remotely worked out well for the company. While Ethan Allen’s sales initially dipped by 60 percent during the early days of the lockdown, they began to climb in April and, once design centers began reopening in May, actually came in higher than the year prior. By September, the company had been able to restore 90 percent of its manufacturing employee base and between 70 percent and 85 percent of its retail workforce. Along the way, the company also gained valuable insights that Kathwari plans to continue long after things normalize. Practices like communications with team members and reviews of real estate holdings have all shifted to more technology-centric approaches— methods that the company hopes to continue to leverage in the future. Kathwari, who regularly visited potential design center locations in person, now conducts those meetings via Zoom, viewing videos of communities, roads and design centers. “It’s far more efficient,” he says. “Certainly, personal visit and involvement are important, and when things ease up we will be able to do that as well, but this has been tremendously productive.” CE
Visionary Leadership Fiserv congratulates 2020 CEO of the Year Brian Moynihan.
Š 2020 Fiserv, Inc. or its affiliates. All rights reserved.
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W HAT 'S NE X T
AMERICA,
A.C.
Covid is sure to reshape our country in profound new ways, but, write famed demographers Wendell Cox and Joel Kotkin, the most powerful will be accelerating trends that were already underway. A look at a sped-up future with big implications. BY WENDELL COX AND JOEL KOTKIN
CE
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“When there is a general change in conditions, it is as if the entire creation had changed, and the whole world altered.” —Ibn Khaldun, 14th century Arab historian HE COVID-19 PANDEMIC, it's clear, will help reshape America’s economic and demographic future. Yet, many of the trends that we may associate with this reshaping—the rise of online work, a growing interest in suburbia and smaller cities— were already in place before the pandemic. The pandemic did not originate these trends, but it will likely accelerate them. For years, the conventional wisdom from economic observers like Neil Irwin of The New York Times and echoed by public relations aces and property speculators has been that “superstar cities” like New York, San Francisco and Seattle have “the best chance of recruiting superstar employees. In contrast, rural and interior regions would become home to “behind.” And experts like urbanist Christopher Leinberger predict suburban tracks would become “the next slums.” Yet, in reality, jobs and young people have been increasingly heading toward both the suburban periphery and smaller cities. In fact, a snapshot of America before the appearance of Covid-19 was of a country migrating more to suburbs, exurbs and smaller cities, with the U.S. Census Bureau reporting the fastest growth in domestic migration between 2010 and 2019 taking place in cities with less than a million people—a dramatic change from just a decade earlier. In contrast, our largest metropolitan areas—New York, Chicago and Los Angeles—lost nearly as many net domestic migrants as the population of Arkansas from 2010 to 2019 (2.8 million compared to 3.0 million). New York’s population growth peaked at 130,000 in 2011 but fell to a 60,000 loss by 2019, according to Census Bureau estimates.
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The Geography of Pandemics
The pandemic has been toughest on areas suffering from what we call “exposure density.” Nationwide, the highest fatality rates are in the two highest urban density categories, which are comprised of three New York City counties. Manhattan’s fatality rate, with 2.4 percent of the nation’s deaths, is 4.8 times its proportional share of deaths; Brooklyn and Bronx counties, which have the higher poverty rates associated with higher death rates, do even worse, with a fatality rate 7.5 times the national average. In contrast, less dense counties—those with urban densities between 2,500 and 5,000—have less than their proportional share of deaths (0.8 percent), with 22.4 percent of deaths and 28.1 percent of the population. Lower density areas have even lower fatality rates, despite the occasional spikes in food-processing plants, Native American reservations and extremely poor areas like those close to the Mexican border. Even with the recent surge, fatality rates in states like Texas, Arkansas, Kansas and the Dakotas remain between one-third to one-eighth of those in New York and New Jersey. Pandemics, like changes in climate, often alter how and where people live. In the 14th century, plagues wiped out as much as one-third of Europe’s population, but the wreckage also brought opportunities for those left standing. Large tracks of land, left abandoned, could be consolidated by rich nobles or, in some cases, enterprising peasants, who looked to lower rents and higher pay. “In an age where social conditions were considered fixed,” suggested historian Barbara Tuchman, the new adjustments seemed “revolutionary.”
5% to 20% The likely increase to permanent online work even after the pestilence has receded
Accelerating Dispersion
We already see signs of a huge shift in the increasingly empty New York towers and failed new projects in San Francisco and
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downtown Los Angeles. In the first two months of the pandemic, REIT office values dropped by as much as 25 percent. A recent Harris poll suggested that upwards of two in five urban residents are considering moves to less-crowded places, a finding shared by real estate experts. “New home demand is improving in lower-density markets, including small metro areas, rural markets and large metro exurbs,” notes National Association of Home Builders Chief Economist Robert Dietz, “as people seek out larger homes and anticipate more flexibility for telework in the years ahead. Flight to the suburbs is real.” Technology Accelerates the Trends
Living in dispersion far from the coasts may not save you from contagion, but being away from people, driving in your own car and having neighbors you know considerably reduces the risk. We may debate the true causes of infection and mortality from the pandemic for decades to come, but it seems likely, judging from real estate trends and emerging demographics, that the table is well-set for attractive peripheral areas and smaller, less densely packed cities. Remote working, notes Stanford economist Nicholas Bloom, increased from 5 percent before the pandemic to above 40 percent and may hold firm or even continue. A University of Chicago study suggests it could settle at as much as one-third of the workforce, a finding also confirmed by a recent Chief Executive CEO survey. Sixty percent of people working from home express a preference, according to Gallup, for continuing to do so. Corporate executives have been surprised by how seamless the shift to online work has been, reaping surprising productivity gains. Many companies, including leading tech firms like Facebook, Salesforce and Twitter, now expect a large proportion of their workforce to continue working remotely after the pandemic. Rising disorder in our major cities—exemplified by a shocking rise in homicides in places like Los Angeles, Chicago and New York—is likely to increase insurance costs for downtown shopping and scare middle-class residents
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of all races out of the big cities. The impact may be most intense in the tech industry, which already has high rates of telecommuting and jobs that are intrinsically easy to do remotely. Two out of three tech workers are now willing to leave San Francisco, according to Redfin, with many seeking suburban locations or even a shift to the countryside.
90%
New jobs that have been located in the suburbs since 2010 in 34 of the 53 metropolitan areas with populations of more than 1,000,000
The shift to online, some observers fear, will take away the “serendipity” so critical to Silicon Valley’s emergence. But, in the age of tech oligarchies, much of the grassroots “garage” valley economy has been consigned to the past. States and localities from Oklahoma to Vermont, Maine to Iowa have adopted programs to promote this environmentally friendly policy. These include providing cash incentives for companies and workers, as well as housing subsidies. Who Wins?
Covid is likely to accelerate the shift to suburbia, which already accounts for 82 percent of all new jobs. In 34 of the 53 metropolitan areas with populations of more than 1,000,000, 90 percent or more of new jobs have been located in the suburbs since 2010, according to research by Indeed Hiring Lab. Meanwhile, the fastest drops in job postings
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have not been, as expected, in tourism-dominated economies (outside of Hawaii) but in the elite regions such as San Francisco, New York, Chicago, Boston and San Jose. Over the next few years, growth will likely continue to shift to large Sunbelt metros such as Dallas-Ft. Worth, Nashville and Phoenix. Perhaps more surprising, dynamic growth will also spread to smaller areas such as Madison, Wisconsin; Des Moines, Iowa; Fayetteville/Northwest Arkansas; and Huntsville, Alabama. Over the past decade, these have generally outperformed the large metros—New York, Chicago and Los Angeles—in creating new jobs in fields such as business services and technology, according to the Bureau of Labor Statistics. Even before Covid, the concentration of tech jobs was creating what the Brookings Institute described as “ruinous degree of territorial concentration” in cities like Seattle and San Francisco, resulting in hyper-inflated real estate, mass homelessness and monumental traffic congestion. A shift to more diverse locales could be better for the country, the tech industry and the people who work in it. The process has already begun, as evidenced by Lyft’s move of many key operations to Nashville, Uber’s move to establish its second-largest office in Dallas-Ft. Worth and Apple’s establishment of its second-largest facility in the suburbs north of Austin. Elon Musk started shifting more Space X operations to Texas, including building his next electric vehicle factory in Austin, Texas. Suburbs or small cities with the best infrastructure will benefit most. Good medical care will be a big determinant, suggests Dan Young, former president of the Irvine Company, in terms of where people and
Congratulations Accenture congratulates Brian Moynihan for being named Chief Executive magazine’s CEO of the year. We applaud his outstanding leadership of Bank of America.
60%
Amount of Manhattan’s CSA population now accounted for by its surrounding suburbs
companies choose to locate. We cannot suggest that these trends will turn around the decades-long decline in older Midwest industrial centers such as Cleveland, Detroit and even Chicago. But the South, the Great Plains, the mountain West and parts of the Midwest are attracting two key demographic groups—millennials and immigrants. More millennials, including those Richard Florida, a professor and head of the Martin Prosperity Institute at the Rotman School of Management at the University of Toronto, identifies as the creative class, are heading to the Cincinnati and Grand Rapids metropolitan areas than to New York, Los Angeles or Washington, D.C. Renewed interest in single-family homes after the pandemic may accelerate these trends. Despite media accounts about young people not wanting to start families or buy homes, most surveys show this remains the preference of the vast majority. To many of these young families, affordable single-family housing is a top concern. Housing costs based on the price-to-income ratio (median prices divided by incomes) in places like Indianapolis, Des Moines, Cincinnati and Kansas City are one-half to one-third of those in Los Angeles or the Bay Area. Commute times are also 20 percent to one-third lower in the lower-density, affordable cities. What About America’s Big Cities?
Core cities like New York and Chicago, of course, will not disappear. Instead, they will likely revive, albeit in a less grandiose way than generally imagined by urban pundits. And, for those who can afford rents—young, affluent, childless—the walkable parts of core cities, such as much of Manhattan, downtown
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San Francisco and the Chicago loop, may remain enormously attractive. With the reduction in tourism—driven by cratered international air travel—city dwellers can rediscover the pleasures of urban life. They can thrive, as H.G. Wells predicted well over a century ago, as “places of concourse and rendezvous.” The city, he projected, would be a small percentage of the overall population and would be dominated by the affluent and childless, areas of “luxurious extinction,” as he waggishly predicted. In an era of social distancing, places like Manhattan will need to become less crowded. This happened in the years after the Spanish flu, as well as other deadly outbreaks, most commonly in areas like the Lower East Side, then one of the most crowded places on earth. Manhattan, home to 2.3 million people in 1910, shrank over the next 70 years, became less congested as the population dropped to 1.6 million and people moved to the outer boroughs and surrounding suburbs that now make up more than 60 percent of the combined statistical area (CSA) population. Yet, for the most part, the future belongs most to the suburbs and less expensive areas. This is reflected by the number of households with school-aged children (6-17), which average more than a third higher in suburbs and exurbs than in dense urban cores. The difference is even greater in places like Manhattan and San Francisco, where the share of households with school-aged children is less than one-half that of the rest of the metropolitan area. Societies with low birthrates—as we now see in much of Europe and East Asia—inevitably suffer a kind of cultural and economic stagnation. Young people, notes economist Gary Becker, are critical to an innovative economy, and more of them are likely to come from the Heartland. In the end, America will adjust to the pandemic as it always has to crises—slowly and incompetently at first, but decisively meeting the challenge by allowing citizens to adjust their ways of life geographically. We may despise what providence has brought us with this miserable disease, but the blessings of our vast and varied country will see us through to a better day. CE
Bravo. Raytheon Technologies congratulates Brian Moynihan for being named Chief Executive’s CEO of the Year. We are inspired by — and salute — the high standard of leadership you represent. RTX.com
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TALENT 2021 SPECIAL REPORT
PEOPLE HACKS Unemployment is up, but talent is still in scarce supply for many companies. CEOs share strategies.
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remote has reshaped entire industries. The acceleration of companies’ technological transformations has made digital talent more important than ever, as if that were even possible. “Companies have to do even more with less after Covid-19,” says Rishon Blumberg, a tech-talent marketplace analyst. “So, they need the best of the best; they don’t have the luxury of just throwing bodies at things.” And several hard-luck industries—including airlines, hotels and entertainment brands—have been bleeding talent from the open wounds created by governments’ responses to the virus. Most hotel owners had less than half of their typical pre-crisis staff currently working full-time, and about three-quarters said they’ll lay off more employees without further government aid, in a September survey of members by the American Hotel & Lodging Association. In fact, many CEOs now are seeing their companies not as “haves” and “have-nots” when it comes to talent but as “needs” and “doesn’t-needs.” Tyler Read, founder of fitness consultant PTPioneer, says, “New talent is readily accessible and not difficult to find. We’re able to find incredible talent at fair prices.” Here are ideas from 14 CEOs for dealing with today’s talent challenges and opportunities:
ADOBE STOCK.COM
WHILE COVID-19 LEFT CEOS UNSURE about many things, the pandemic’s verdict is already in regarding one crucial area: the demand for talent. The shutdown of much of the U.S. economy crimped and even cratered many businesses, but it’s apparent that the sudden recession and nascent recovery still left most companies short of the people they need to grow as the economy gains traction again. “Our need for talent now is as acute as it’s ever been—our hire-in need hasn’t changed dramatically,” says George Mathew, CEO of Kespry, a drone maker. “And we’re still hiring for resources across multiple capabilities.” Meanwhile, government assistance may be comforting individual Americans, but it’s not helping the supply of workers. “Before the pandemic, I thought what could be worse than this labor squeeze, with 3.5-percent unemployment?” says Barry Zekelman, CEO of steel maker Zekelman Industries. “But now it’s actually worse. And part of that is some people are getting enough money from government coffers, being spoon-fed and probably working a job under the table.” But the disruptions of 2020 did rewrite the talent equation in some significant ways. Making most white-collar work
SEMICONDUCTOR MANUFACTURING
ADAPT HIRING TO REMOTE TIMES David Su, CEO Atmosic Technologies / Campbell, California We are still hiring through the pandemic, but the Covid-19 restrictions have put a big obstacle in front of us: hiring people without physically seeing or meeting them. We are humans. When you bring in a candidate and have that person talk to a team of people during the day, you get to meet the whole person, read their body language, get to know a little bit about them. You can evaluate whether they’ll work well with others on an interpersonal level that you can’t get on a video interview. Does this person have energy, and how do they relate to someone when the camera isn’t on? How is that person under stress? Are they fidgety? None of those visual cues are present on the camera. So, background and reference checks become much more relevant. The hiring team reaches out to triangulate candidates more, find people who know the person and ask the right questions: What’s it like to work with that person, and will their personality be a fit with our culture? Unfortunately, this makes it especially hard for new college graduates to be hired. We still haven’t cracked that.
HEALTH-CARE IT
LEAN INTO CONTROVERSY Russ Thomas, CEO Availity / Jacksonville, Florida We’ve had several all-associate meetings during the pandemic, and we’ve talked about the civil unrest. You can’t not talk about these things as a company. People want to know how you think and feel, so we’ve been very communicative about what this means. People in our organization aren’t shy: We have highly trained and skilled developers, engineers, information analysts and data scientists. Their questions haven’t been so much, “Russ, what do you think?” but about what as an organization we think our social responsibility is to make this a better company. I said very clearly, without being political, that it’s clear something has to change in this country, and as an organization we can’t just sit back and do nothing. So, we’ve also expanded our diversity and inclusion committee, with more than 100 people signing up. We have a diverse workforce, at least up through the director level, but we have some work to do for our senior leadership team.
INDUSTRIAL EQUIPMENT SUPPLY
EASE CUSTOMERS’ TALENT CHALLENGES Mike DeCata, CEO Lawson Products / Chicago We have 1,000 representatives who sell maintenance and repair supplies. Our average piece price is 94 cents, but lacking a 94-cent part could shut down your half-million-dollar injection-molding machine or the preemie unit in your hospital. Our customers depend on us. But our customers have a desperate, acute crisis in the availability of people like maintenance mechanics, welders and shop supervisors. They no longer have some in-house person running around and finding this stuff. That’s where we come in. We are the talent for these customers. Our reps come in every 10 days and make sure that when some piece of equipment fails and our customer reaches in the drawer for a fastener or a hydraulic component, it’s there. That means we unpack boxes that we previously shipped to the customer, put stuff away, count everything that’s been consumed. Our customers save their problems for our guy or gal who’s going to show up and keep them ahead. So, our value proposition looks better and better.
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 55
INSURANCE
LOCATE NEAR LEGACY KNOWLEDGE Kyle Nakatsuji, CEO Clearcover / Chicago When we began building our online-only car-insurance company, we had a choice where to locate. We’re from the Midwest, but we could have gone anywhere to design our processes and software. So, we went through an analysis and tried to find the best overlap between a market where we could find world-class tech talent, great insurance talent and where we could raise a lot of capital. It boiled down to Chicago and the coasts, and Chicago won on better access to all the insurance talent from Allstate, State Farm, Kemper, AON and other insurance companies that have made it a capital of the insurance business. Not to mention that elsewhere in the Midwest are great insurance companies, such as Progressive and Nationwide, in Ohio. It worked. We’re doing well and we now employ 150 people in downtown Chicago. We’ve also committed to opening a second, “virtual” location in downtown Detroit and hiring up to 300 people in southeastern Michigan.
MEAL DELIVERY
COLLABORATION SOFTWARE
GIVE THEM PAUSE Peter Jackson, CEO Bluescape / San Carlos, California Since the pandemic started, we’ve found that our employees can only push themselves so far before falling victim to burnout. Paradoxically, the best way to push ahead is by pausing. So, we recently scrapped our traditional paid time off and moved to a model we call “responsible rest time.” Our employees can take time off when it best suits them, and are no longer limited to an arbitrary, finite number of rest days. And to counter the fact that employees’ vacation requests dropped by almost half compared with a year ago, we’re requiring managers to regularly check in on employees and make sure they take time off when necessary. We’ve also made it a priority to schedule company-wide days off, such as by adding days off around holidays to extend natural breaks. That’s what we did with Labor Day.
FEED THEM Mike Wystrach, CEO Freshly / New York Providing food in the office was a win-win: Employees liked it, and it created a more productive environment. So, a lot of businesses reached out during Covid-19 and asked us how we could provide lunch for employees at home. We have 10,000 employees around the country, so on a single platform we can service New York or a tiny suburb outside Des Moines. These are meals that are fully or partly subsidized by the employer. Employers are assigning a number of meals, and how they get consumed—or who eats them—is really up to the employee. It’s just part of the new work-life balance with people working from home, and companies are going to work with employees to find benefits that help them.
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CLOTHING MANUFACTURER
GROW YOUR OWN Linda Hubbard, President and COO Carhartt / Dearborn, Michigan We make uniforms and other occupational clothing for some tough conditions. We are innovating automation around some of the operations, but it’s still a very high-skill and labor-intensive thing to do the sewing and assembling of a garment. There’s a bit of artisanship and a long learning curve. One problem is that Michigan hasn’t been historically an apparel-making center. So, we’re trying to bring more apparel manufacturing here through a relationship with the Industrial Sewing and Innovation Center, a notfor-profit trying to provide skills training to teach people how to sew and reinvigorate an apparel industry in Detroit. We gave them space to create a training center on the third floor of our store in Midtown in Detroit.
BRIAN T. MOYNIHAN CHAMPIONS THE THINGS THAT NEED CHAMPIONING RIGHT NOW. Congratulations on being named CEO of the Year.
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STEEL MAKING
SOFTWARE DEVELOPMENT
REDUCE HIRING STANDARDS
MAKE CODE IN AMERICA
Barry Zekelman, CEO Zekelman Industries / Chicago
Tim Bryan, CEO GalaxE.Solutions / Somerset, New Jersey
We’re an essential industry that only laid off a few people during the pandemic, and now we’re busier than ever and having a hard time finding people. We thought it would be easier by now, but it’s actually worse. We try advertising, social media and in some cases putting flyers on cars. Our people ask others in shops, ask friends, ask family members. But that hasn’t been enough. So, we have had to drop some requirements—we dropped our requirement for some post-secondary education, for example. We also dropped marijuana screening from our drug test. Legalization has screwed us there. We’re not going to hire a guy who tested positive for marijuana to drive a crane; but we’ve opened the book a bit more to take a look.
Our entire proposition is about helping our customers make the most of home-grown digital talent. The pandemic proved that labor-cost arbitrage for IT work outsourced overseas isn’t enough for American companies. They aren’t geared to work from home in many offshore countries, so companies have a major challenge from the standpoint of security infrastructure, electricity, privacy and political upheaval. We have software that greatly reduces the number of human beings it takes to build a software application. So, we have been opening offices in the U.S.—most recently in Milwaukee, Detroit and Hartford, Connecticut—to help clients get outcomes and produce software cost effectively and, most important, with resilience. The fluidity of the workforce inside the borders of the U.S. cannot be matched offshore.
PROFESSIONAL SERVICES
CREATE DIVERSITY PATHWAYS Pamela Maynard, CEO Avanade / Seattle We need to shine a light on social and racial injustice and those aspects of inclusion and diversity agendas. It’s a journey, and one of the challenges that leaders talk about is: Where do you start? Where I start is making inclusion and diversity one of the top priorities for our organization, beginning with the executive committee. It’s important to lead from the front with intentionality and actionable goals, measurable KPIs, results that are visible —and with transparency. Quarterly, I report on these matters to the board, which helps keep my feet to the fire. We encourage teams to take responsibility for educating themselves on anti-racism, privilege and just understanding. We held a company-wide day of reflection on the day of George Floyd’s funeral; the first time we’d ever done something like that. We also held listening forums with people of color to understand their experiences. Then we can make sure we’re putting the right actions in place to drive systemic change. And we amplify our impact by working with partners, such as Microsoft, where we’re partnering to support five not-for-profits focused on African-American and black communities in the U.S., to help accelerate their digital transformation.
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Mastercard congratulates Brian Moynihan on receiving the 2020 CEO of the Year award. Accomplishments that go beyond a year and last a lifetime: PricelessÂŽ
Mastercard and Priceless are registered trademarks, and the circles design is a trademark, of Mastercard International Incorporated. Š 2020 Mastercard. All rights reserved.
ENERGY SERVICES
HARNESS PASSION George Sakellaris, CEO Ameresco / Framingham, Massachusetts We help building owners power their facilities, emphasizing renewables, so climate change has become a great, great driver not only for our customers but for our organization. It’s become a great rallying point. It helps us attract great talent: If you are young and you want to do well for yourself down the road and also be involved with the changes in the environment, we’re the place to go. But it’s not enough. Our people must have not only a passion for the environment but also for engineering. We’re looking for development engineers in solar, gas, wind, microgrids and battery storage. The key is to find people who want to learn and have a technical background and curiosity and want to move things forward, who are continuously evolving. We are a technology innovator, and so we must stay up with what’s going on, because things are moving fast.
DRONE MANUFACTURING
HIRE EVERYWHERE George Mathew, CEO Kespry / Menlo Park, California We’ve started to shift to distribute our workforce, no longer centralizing in the San Francisco Bay area, because it’s so challenging to find the right level of technical and engineering leadership. So now, whenever we’re looking to hire a new person, we have many more options in terms of where the supply of great talent comes from. We’ll look around the country and even internationally. That’s one of the key benefits of a distributed workforce: We don’t have to hire according to where the work is based. That means people can work without having to come into a centralized office. As we’ve been doing this, it’s even less and less of a concern to have to bring people to headquarters to interview. But you’ve got to do some things to make this work. One thing is to make sure there’s a strong set of mentors for onboarding people. For our executives, both mentoring and communicating are key skills. Instead of having a hallway conversation, they’ve got to be able to elicit feedback via Slack and be able to convey their objectives via Zoom, instead of in person. So now we actually have our leaders take training classes for bringing workforces online.
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SOFTWARE DEVELOPMENT
RETHINK THE CONFERENCE ROOM Ed Jennings, CEO Quick Base / Cambridge, Massachusetts It’s hard for a company that creates low-code software to brainstorm in small groups remotely; you can’t take turns at the white board with markers to debate and collaborate. That’s been the hardest thing. So, we’ve been experimenting with outdoor meetings with small groups, and walking meetings. And when we think about going back to work, the reason people want to get back to the office is for that collaboration, not to sit alone at a desk. It’s the cornerstone of innovative companies and the one thing people are craving. So, as we come back, we’re coming back differently, with far fewer open-seating individual spaces and far more collaborating spaces. Also, as we’re prioritizing who comes back first, it’s likely going to be the young inside salespeople, because they benefit from being together, overhearing and supporting each other—and their competitiveness.
FITNESS
REWIRE WITH SENSITIVITY Tyler Read, Owner PTPioneer / Marina del Rey, California We don’t want to be too quick to jump at hiring someone for less than what they were used to being paid. If their new income doesn’t match their lifestyle, and they’re taking the job out of desperation, this stress will translate into their work and morale. So, we aren’t afraid to pay more if we can. That increased investment could turn out to yield a better return in the long run, even if cheap talent acquisition is tempting. It’s a delicate balance. CE
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TA L E NT SU MMI T
TALENT 2021 SPECIAL REPORT
LEADING TEAMS IN TRYING TIMES A GLOBAL PANDEMIC, ECONOMIC UNCERTAINTY, SOCIAL UNREST, POLITICAL UNCERTAINTY— with so many issues clamoring for attention right now, it’s easy to let people processes slip to the side—and a big mistake. As author and gold medal Olympian Jim Craig puts it: “Sometimes when you’re under a great deal of stress and facing something you haven’t experienced before, you forget to show appreciation to your team. But if you don’t show appreciation to those who deserve it, they will stop doing the things you appreciate.” In September, CEOs, authors and talent gurus gathered to share strategies and discuss experiences tackling the thorniest talent challenges at Chief Executive’s virtual CEO Talent Summit. Some takeaways. BY JENNIFER PELLET
THE ROLE OF TRUST IN DRIVING PERFORMANCE WHEN IT COMES TO HOW COMPANIES fare through times of crisis or great change—trust can make all the difference. Workers who have faith in a company’s leadership, and in one another, approach tasks with more energy and confidence, perform better, collaborate more effectively and are able to move “Trust is a learnable skill... more quickly. that leaders can learn, grow, “It changes everything,” establish, extend and even, says Stephen Covey, author in some cases, restore when of The Speed of Trust and it is lost.” cofounder of CoveyLink. “It will make you better at every —Stephen Covey, CoveyLink other competency—and, if you don’t have it, the opposite is true. When trust goes down, speed goes down and cost goes up.” This is playing out in real time in the way various companies are handling concerns like the move to remote working and embracing diversity and inclusion. Covey
points to Seimens’ mobile work policy, which emphasizes autonomy and flexibility, as evincing a level of trust that brings out the best in employees. “I’ve seen many situations where people are doing remote work and, rather than being trusted, are being micromanaged,” he says. The best part? Trust is a learnable skill, a competency that leaders can learn, grow, establish, extend and, in some cases, even restore when it is lost—and times of turbulence are the perfect time to build trust. Extending trust to remote workers, demonstrating empathy and concern for employees’ health and well-being and being candid and transparent are all ways that leaders can “behave their way” into building trust. “There is an enormous opportunity right now for us to demonstrate integrity and our intent, that we trust our people and care about every dimension of their well-being,” says Covey.
Thanks to The Indiana Economic Development Corporation, Society for Human Resource Management, Thayer and Everbridge for making this event possible.
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NAVIGATING THE WORKFORCE IMPLICATIONS OF COVID-19 FIRST THE BAD NEWS: It’s likely to be some time—possibly until Q3 2021—before an effective vaccine for Covid-19 is widely available. On the plus side, however, following effective virus mitigation procedures can “We have gotten caught save both lives and the up in a false dichotomy of national economy, agree lockdown, yes or no.” two panelists serving on Michelle A. Williams, the frontlines of America’s Harvard T.H. Chan School pandemic response effort. of Public Health “We have gotten caught up in a false dichotomy of lockdown, yes or no,” says Michelle A. Williams, dean of the faculty at Harvard T.H. Chan School of Public Health. “But we have the tools—testing, mask-wearing, social distancing—to allow for public safety, worker safety, consumer safety; we just have to be disciplined, meticulous and thoughtful in how we implement and report where the risks are and how we manage them.” With dissonance currently clouding public health
messaging, business has a role to play in whether that happens. “During the early stages of the pandemic, it was the CEOs who managed to maintain the trust, confidence and engagement of their workforces who were able to reconfigure their workspaces to follow social distancing principles, mask wearing and testing principles, communicate that to their people, and stay ahead of outbreaks in the workplace,” says Williams. “If CEOs partner with the scientists and the public health leaders and message effectively to the population, there is traction that is positive that can move public health forward.” Given that safety across the wide spectrum of stakeholders is a key issue in the health of the economy, there is much to be gained from private sector participation in promoting public health. But it also ties into an overarching move toward embracing the concept of leading with purpose. “When you look at the reasons younger workers join companies it’s because they believe in the ethics, the values and the mission of the company,” adds Sandy Climan, CEO of Entertainment Media Ventures and a former member of the advisory committee to the director of the CDC. “So there is a huge recruitment and retention opportunity here.”
BUILDING LEADERS WHO ARE MORE THAN MANAGERS NO ONE DOES LEADERSHIP DEVELOPMENT better than the U.S. military—so what can companies learn and apply to help teams of civilians grow into strong private sector leaders? Lesson one is to start early and invest significantly, says Major General (Ret.) Malcolm Frost, a faculty member at the leadership development institute Thayer. While acknowledging that few companies can afford to invest the literally years of training that the army and other branches of the military provide for career members, Frost advocates starting to treat team members like leaders rather than managers early in their tenures. What’s the difference? Managers ask, “What?,” take direction, organize people, plan short-term and execute on strategy. Leaders ask, “Why,” plan long-term, align people, demonstrate initiative and look to the future. The army employs a philosophy of leadership by intent, where each individual leads the next two levels down, and that cascades through the
whole organization. Missions are doled out at the macro level—what needs to happen and why, as well as any guardrails or constraints around how the operation should unfold. Then it’s up to the subordinate to develop a plan and come back to present it to his or her commander. Clear communication is central to the process. “Before you send them off, get them to give you a confirmation brief,” advises Frost. “Tell me what I said so I know we have a shared understanding, then come back in an hour—or a day, depending on the task—and brief me on your plan.” After each mission, the team conducts an after-action review to examine how the mission played out and capture lessons for the future. It’s a process that that CEOs may want to consider applying to pandemic response efforts, says Frost, who notes that the results can inform advancement decisions. “You probably learned a lot about your folks in this crisis. True leadership shows up during adversity.”
“You probably learned a lot about your folks in this crisis.” —Major General (Ret.) Malcolm Frost, Thayer
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 63
BUILDING A WORLD-CLASS TEAM
“I believe a CEO has to be the chief talent officer and the chief employee officer.” —Doug Conant, ConantLeadership
“VERY OFTEN, THE BEST TIME TO RECRUIT people is before you need them,” says Doug Conant, the founder of ConantLeadership. Long before leaving Nabisco to undertake the massive feat of turning around troubled Campbell’s Soup, Conant had adopted a practice of taking time to set up meetings with people he thought he might want to work with in the future. “I’d been doing that for over a decade when I went into Campbell’s so I was able to hit the ground running,” he explains. “I believe a CEO has to be the chief talent officer and the chief employee officer, as well as a chief executive officer.” Conant advises business leaders to look beyond the typical resume-bolstering accom-
plishments for deeper measures of an individual’s work and performance ethic, what he calls the three Cs: Competence: A high degree of competence in their field or area of interest. Character: Evidence that, time and again, they delivered on what they said they were going to do. Chemistry: Great chemistry between them and the teams they lead. “With every high potential individual who I spoke with, I was constantly poking at the three C’s and looking for evidence of their ability to contribute to a high-performance culture,” he says. “That’s how you set the standard on talent.”
WHY IS WORKPLACE DIVERSITY FAILING?
“Invest in this just like you do everything else that matters.” —Johnny C. Taylor, Jr., SHRM
DECADES INTO VIGOROUS EFFORTS TO foster diversity, companies are still struggling to move the needle on rooting out bias in the workplace. In fact, 20 percent of HR professionals participating in a recent survey by the Society for Human Resource Management (SHRM) reported that there is currently racial or ethnic discrimination or ethnicity-based discrimination in their workplaces. Johnny C. Taylor, Jr., president and CEO of SHRM, shares why that’s the case—and how to fix it: Hire—and Fire—Over Values: “I’ve seen CEOs who believe in a cultural value with every bone in their body, but tolerate people in the organization who do not sharing that value,” says Taylor. “If diversity is something you believe in, then you’ve got to make sure
that every individual who walks in that door subscribes to the diversity inclusion and equity values that you espouse.” Fund It: Like any other transformational change, training up your team to lead with inclusion requires resources. “You’ve got to make sure you invest in this just like you do everything else that matters,” says Taylor. Put a Specialist in Charge: “Someone in your organization has to own this, and it should be someone who knows what they’re talking about, because these are very, very important conversations, and they’re difficult and require someone who is highly trained,” says Taylor. “You wouldn’t put someone without the appropriate experience into a financial function, don’t do that here either.” CE
CONGRATULATIONS TO THE 2020 PATRIOTS IN BUSINESS WINNERS Presented annually by Chief Executive and Thayer Leadership at West Point, the Patriots in Business Award recognizes companies for outstanding contributions to helping America’s veterans, active duty military and military spouses.
Comcast NBCUniversal: A military and veteran affairs team with nine full-time positions leads the mission of developing Comcast as employer of choice for military community and ensuring its policies, philanthropic giving and products and services support the military community.
Drexel Hamilton: Ownership is 100 percent veterans and 81 percent disabled; approximately 60 percent of employees are veterans; company sponsors training for employees to get certified and registered in their fields.
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HumCap: Hosts veteran lunch-andlearn programs offering resume tips, interview coaching, tips on translating activity duty experience in the workforce; offers Monday morning training weekly; established an endowment for veterans’ scholarships.
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C EO ROU NDTAB LE
TALENT 2021 SPECIAL REPORT
WORK SHIFT
Engaging an evolving workforce amid radical disruption isn’t easy—but it can be done. A discussion. BY JENNIFER PELLET
TALENT WAS A TOP CONCERN FOR CEOs long before Covid-19, and the pandemic only exacerbated the myriad workforce challenges that companies face. Operating under heightened restrictions and safety measures, millions of U.S. businesses had to rethink their people processes. For many, proven strategies for finding, hiring and retaining employees were—and, in some cases, remain—upended by the sudden shifts brought about by the pandemic. What’s more, despite rising unemployment numbers and a brief turnover hiatus as employees hunkered down during Covid-19, skilled workers remain in short supply, agreed CEOs gathered for a roundtable discussion sponsored by the Indiana Economic Development “A lot of state resources go Corporation. “We’re trying to fill untapped when it comes to seats, and it’s nearly impossible,” talent attraction and retention.” said Grenee Celuch, CEO of Mesa, Arizona-based Concord General —J. Brock Herr, IEDC Contracting. “The good talent out there already have jobs and they’re not moving, right now especially. It’s a huge pain point for us.” Finding and retaining trade workers also looms large for Merritt Trailers, a manufacturer of agricultural trailers based in Denver, Colorado. “They’re in short supply and everybody’s fighting for them,” said CEO Jim McMaster, who sees talent as the company’s biggest growth hurdle. “We have a huge amount of turnover because of it, and Covid certainly didn’t help.” “I hear that concern from a lot of companies coming into our state,” said J. Brock Herr, vice president of the IEDC. “We try to facilitate getting those folks plugged in to where those candidates are, and we’re also
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working from a state standpoint on building that talent pipeline that will service these technical trades.” Recruiting Review
The talent gap led some businesses to embrace changes geared toward making them more attractive to potential employees. “We’re constantly reevaluating what we offer our employees,” said Saluch, who sees compensation, health benefits and promoting from within as the three top concerns for most employees. “Our health insurance benefits were crap a year ago, so we went out and revised them.” Talent strategies that worked well for decades are also falling flat with younger workers whose priorities are different from those of previous generations. When choosing employers, Millennial and Gen Z workers look beyond compensation and benefits at things like an organization’s mission, the opportunities for growth it offers to employees and how well its culture aligns with their values. “The usual stuff—compensation and benefits—are just table stakes; they want to work for a company where they share the values of the organization,” says Jim Scarfone, CHRO of private equity firm MidOcean Partners. “And when they find out that isn’t the case, they vote with their feet.” But value alignment can also work to a company’s advantage, with employees who identify strongly with their employer’s mission and values being less likely to jump ship. Merritt Aluminum Products, for example, successfully boosted retention by hiring for cultural fit. The company created a list of core work values against which it would assess job candidates, opting to walk away
from those who didn’t fit the profile. “We’ve been pretty have had during all those months,” said CEO David selective with our hiring, which has created some chalEnloe, adding that the wave of departures is having an lenges, but we find that’s better than just bringing on unwelcome impact on morale. “It’s making the existing warm bodies,” said Chris Barton, VP of operations. employees wonder what’s wrong.” Technology is also playing a bigger role in identifying Automation consulting, engineering and training and vetting job candidates. Algorithm-based recruitcompany Horizon Controls Group has only had one ment tools comb through resumes and match compaemployee depart recently, but aggressive recruitment nies with potential hires whose backgrounds meet their is a growing concern. “Every time the phone rings, criteria. Some look even further, delving into social there’s the fear that it will be another resignation,” said media usage, helping determine which prospects are COO Gemma Doyle, who noted that the management most likely to be receptive to outreach. team has ramped up efforts to connect and engage It’s also key to widen your net, said Eva Majercsik, with employees during the pandemic. “We try to have chief people officer at telecommunications software different engagements at least three times a week, not company Genesys, who suggests taking a hard look just email and phone calls but things like face-to-face at whether people who might not water cooler chats,” she said. “I’m at first glance seem like a perfect fit a big proponent of video calls have the potential to grow into a role. because it stops everyone from “It’s not about what it is today that multitasking, which nobody is any you can do for me, but what I see good at. You are very present and that you can bring to the company focused when someone is looking that will help us to grow and at the at you.” —Gemma Doyle, same time develop yourself,” she The need to ward off talent Horizon Controls Group said. “Think about who can come poaching has many companies into your organization and bring doubling down on employee different thinking—because if you’re trying to find engagement efforts, no easy feat at a time when many someone who is exactly like you, chances are you’re workers are working remotely. “What they say about limiting your scope quite a bit.” the importance of communication—that no amount is The shift to remote work has helped some businesstoo much—is true,” said Vincent Mattera, CEO of the es, like B2B specialty company Buckman International, engineered materials company II-VI. “Fortunately, just open up whole new pools of potential talent. “After 19 before the virus came, we put an ICARE [company years, we’ve changed mindsets on being able to make values program] in place—integrity, collaboration, remote working work,” said CEO Junai Maharaj. “Now accountability, respect, enthusiasm—and that bound we have access to a significant amount of great talent us together during this otherwise difficult time.” from around the world.” “When people are isolated physically they feel the Companies still constrained to competing for scarce need to connect, so communications and just being local workers should consider seeking help from there for your employees goes a long way,” agreed economic development organizations, suggested Herr. Majercsik. “We do surveys, have dialogues, hold “A lot of state resources go untapped when it comes to roundtables—and anyone can pick up the phone and talent attraction and retention,” he said. “Your local and call me because we have to communicate about what state economic developers can be a great resource as it is we’re doing and really be there for our employees. you navigate pipeline issues.” When people feel like they’re doing meaningful work and that you’re there for them, they’re much less likely Enhancing Engagement to pick up the phone when that recruiter comes with a In addition to difficulty recruiting, some companies are new job. It goes a long way.” now also suffering spikes in turnover as workers who That’s why, partcipants agreed, the ability to dissemfelt tethered to their employers during the height of the inate messages that resonate with employees may well pandemic begin moving on en masse. Biotech combecome the most powerful tool in a company’s talent pany Ajinomoto Althea is experiencing churn again arsenal. “We have to be cognizant as leaders of the way following a brief respite from employee departures. we—and our managers as well, because you can’t do it “The biggest problem I have right now is an astonishall—represent our companies,” said Scarfone, “because ing exodus over the past three weeks or so as we catch the biggest magnet for retention is how people feel up all at once with the normal attrition that we would about coming in to work for your company.” CE
“Every time the phone rings, there’s the fear that it will be another resignation.”
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C O MP EN SATI ON R E PORT
TALENT 2021 SPECIAL REPORT
INSIDE THE COVID CUT CHIEF EXECUTIVE’S EXCLUSIVE AND PROPRIETARY 2020 CEO & SENIOR EXECUTIVE COMPENSATION STUDY FINDS TWO PRIVATE COMPANIES OUT OF FIVE IN THE U.S. REDUCED THEIR CEO’S BASE SALARY IN 2020 IN RESPONSE TO THE CRISIS. A DEEPER LOOK. BY WAYNE COOPER AND MELANIE NOLEN
EVERY YEAR, THERE’S A LOT of misinformation when it comes to executive compensation. The headlines typically focus on public companies— and, more specifically, on Fortune 500 CEOs. Lumping all chief executives and senior executives in together based on this small subset, as if they’re some homogeneous pack, is, of course, intellectually lazy. But more pragmatically, the lack of information for private companies across all revenue ranges—which form the largest part of American enterprise—means many organizations make uninformed and reactive compensation decisions. Further muddling the compensation landscape, the pandemic has forced companies to adjust their executives’ base pay to navigate the crisis. As businesses begin to adapt to a Covid world, there’s never been a more challenging time to ensure they offer competitive compensation programs to attract, retain and align the top talent that will ensure the health of their businesses. To succeed in a post-Covid environment, companies will need to be proactive with their pay strategy, rather than reacting—often too late—after top talent walks out the door. Enter Chief Executive. In our just-released 2020-21 CEO & Senior Executive Compensation Report for Private Companies, we dug into the immediate impacts of Covid on leadership pay and found that 37 percent of private companies in the U.S. reduced their CEO’s base salary in 2020 in response to the crisis—the majority of which report cuts of 10 percent to 30 percent.
COMPANIES THAT REDUCED 2020 CEO BASE SALARY (In light of Covid-19) Undecided 1%
Reduced Base Salary 37%
62%
No Change
DEGREE OF 2020 CEO BASE SALARY REDUCTIONS (Among the 37% who reduced CEO salaries post-Covid.) 100%
22% 3.2%
80%
7.9% 60%
30.6% 40%
20%
0%
28.3% 8%
n n n n n n
Decreased > 50% Decreased 40-49.9% Decreased 30-39.9% Decreased 20-20.9% Decreased 10-19.9% Decreased < 10%
ABOUT THE REPORT: With data collected from 1,780 companies, the 2020-21 CEO & Senior Executive Compensation Report for Private Companies, available now, showcases more than 140,000 data points—including values by industry, ownership type and company size. Order the report: Compreport.ChiefExecutive.net
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© 2020 Chief Executive Group, LLC. All rights reserved.
COMPANIES ADJUSTING 2020 CEO BASE SALARY, BY INDUSTRY n No Change
n Undecided
n Reduced Compensation
100%
80%
60%
Media
Restaurant
Adv. / Mkt
Entert.
Business Svcs
Archit / Eng.
Transport.
Mfg Cons.
Real Estate
Energy
Retail
Gov/ Non-Profit
Mfg Indust.
Health Srvs
Wholesale / Dist.
Tech
Ag/Forestry
Pharma / Bio
20%
Financial Srvs
40%
Construction / Mining
Perhaps unsurprisingly, nearly 70 percent of companies in the restaurant industry slashed CEO pay. But media CEOs were hit even more often—and advertising/marketing and entertainment industry chiefs were cut as well. Financial services, biotech, pharma and construction leaders were the least impacted, our survey found.
0%
EXPECTED 2020 CEO CASH COMP VS. FULL YEAR 2019 (Overall)
DURATION OF 2020 CEO BASE SALARY REDUCTIONS (Overall) Undecided
Until profitable 19.52%
As a result of the crisis response, median CEO cash compensation for 2020 is expected to decrease by 15 percent: a 5 percent cut to base salary and 60 percent to bonus awards.
16.05%
13.66%
Less Than 3 Months
$600K
n Salary n Bonuses
$200K
$500K
$125K
25.60% 25.17% Until Year-End
$400K
$395K
3-6 Months
$372K
$75K
$300K
$30K
$200K
$242.5K
$12K $185K
$175K
$100K
$0
[ [ [
The research also shows that of those companies cutting their CEOs’ base salary in 2020, the majority were doing so for at least three months—and a whopping 45 percent say the reductions will either remain in place until the end of the year or until such time when the company is profitable again.
$255K
2019
2020E
25th Percentile
2019
2020E
50th Percentile
2019
2020E
75th Percentile
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 69
EC O N O M IC D E VE LOPME NT
REGIONAL REPORT
THE MIDWEST The nation’s heartland is weathering tumultuous times with determination. BY CRAIG GUILLOT WHILE SEVERAL MIDWEST CITIES have been hit hard by the pandemic and civil unrest in recent months, there’s growing optimism about the future. Many states are seeing job growth back on the upswing as manufacturing, tech and life sciences continue to thrive in the region. 5 INDIANA
*State’s rank in the 2020 Chief Executive Best & Worst States for Business (ChiefExecutive.net/ the-best-worst-states-forbusiness2020)
HOLDING STEADY IN THE HOOSIER STATE The Hoosier State is counting on momentum to help push it through the pandemic. While small businesses have held strong, manufacturing and the RV industry experienced a boost in recent months, says Indiana Secretary of Commerce Jim Schellinger. Between January and September, 187 companies announced plans for more than 20,000 new jobs and $3.1 billion in investment. “Indiana’s economy was never ‘closed,’” Schellinger says. “Things have slowed down in some sectors and we’ve certainly had to adjust but we’ve continued to see economic momentum this year.” At the start of the pandemic, the IEDC looked to the state’s manufacturing strength and partly transformed into a PPE procurement agency. It partnered with 18 Indiana
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companies to manufacture and distribute 38 million pieces of PPE, Schellinger says. IEDC also created a critical infrastructure hotline to help businesses navigate the Stay at Home order and subsequent reopening. That momentum led to several new projects. Mission Foods announced in August a new state-of-the-art manufacturing facility and 544 jobs in Plainfield. Palmer Trucks announced 220 new jobs and a $17 million expansion of its facilities in the Indianapolis area. Subaru is also planning a $158 million expansion of its plant in Lafayette. “Overall, we continue to secure commitments from companies in multiple sectors,” Schellinger says. 9 OHIO BUILDING BACK IN THE BUCKEYE STATE At the start of the pandemic in March, Ohio’s state government and JobsOhio authorized up to $500 million to establish a unique and targeted portfolio of economic development programs under the umbrella of “Ohio Safe, Ohio Working.” JobsOhio has since constructed 10 new specialized programs, investing up to $250 million in initiatives
INDIANA Subaru plans a $158 million expansion of its Lafayette plant, which will create 350 jobs.
that impact over 15,000 Ohio businesses and 300,000 workers. Sectors such as automotive, logistics and distribution, IT and agribusiness all experienced moderate growth recently. In January, Hitachi Healthcare announced a new R&D facility and 40 jobs at its North American headquarters in Twinsburg. Carvana announced in August 2020 a $23 million expansion and 400 new jobs in Elyria. Colgate-Palmolive announced in September a $1.2 million expansion and 24 new jobs at its operations in Cambridge. “We are showing the country how we have mobilized and worked together during a time of crisis,” says JP Nauseef, CEO of JobsOhio. 13 MICHIGAN PLANNING AND MANUFACTURING A POST-COVID FUTURE Short-term relief efforts and a new fiveyear strategic plan helped jumpstart the state’s economy, says Mark Burton, CEO of the Michigan Economic Development Corporation. The strategic plan emphasizes attraction efforts in industries where it has a distinct competitive advantage—such as auto manufacturing, mobility research, engineering and design, advanced manufacturing and tech. “We also prioritize pathway jobs to ensure a broader segment of Michiganders have access to high-wage growth opportunities,” Burton says. Manufacturing is one sector that experienced strong growth and attracted several notable expansions and investments. Automotive supplier Magna International announced in June a $35 million expansion that will create 480 jobs in Highland Park. Bridgewater Interiors announced in July a $15 million expansion and 400 new jobs in Detroit. And in August, Detroit Manufacturing Systems announced a $31 million investment that will create 225 jobs. “Michiganders are proving that by leaning into what we do best as innovators, designers and builders,
we can provide access to the goods, services and care that our state and country need as we begin re-engaging our businesses and communities toward long-term economic recovery,” says Burton. The state jumped 19 spots in Chief Executive’s 2020 Best & Worst States for Business—the largest jump in the ranking’s history—which was attributed to growing access to industrial and technical talent. 15 WISCONSIN INNOVATING A NEW ECONOMY Badger State manufacturers responded to the pandemic by shifting focus to new market needs. Exact Sciences, a cancer diagnostics company based in Dane County, refocused equipment that looks for DNA associated with colorectal cancer to look for coronavirus. By May, the company had helped the state reach 85,000 tests per week, and by August the concept had approval from the FDA for home collection kits. The state’s $18.2 billion paper industry also shifted to producing masks, while breweries and other companies started making sanitizer. “We’ve seen a lot of innovation in the past six months from both larger and smaller companies. We’re really reflecting on that and seeing how we can use that to innovate in our next economy. It’s fascinating to watch,” says Missy Hughes, CEO of the Wisconsin Economic Development Corporation. 20 MISSOURI
WISCONSIN Manufacturers in the Badger State quickly pivoted to address the need for sanitizer and other PPE supplies.
SHOW ME STRENGTH Missouri’s “Show Me Strong” recovery plan aims to balance public health and safety with economic goals. Initiatives and incentives include a small business grant program and an online business recovery platform. Tooling Tech Group, the second-largest tooling provider in the U.S., announced in May a $4.5 million expansion in Washington. Chewy announced in July an 800,000 square-foot distribution center and 1,200 new jobs in Belton. That same month, Armstrong World Industries also announced an $8 million expansion of its architectural components
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 71
SOUTH DAKOTA “If business owners are sick and tired of the lockdowns in other states, I want them to know they have another option.” —Governor Noem
group and 130 new jobs in Marshfield. Accenture Federal Services (AFS) plans to open an Advanced Technology Center and create 1,400 jobs in St. Louis. AFS CEO John Goodman attributed the decision to the region’s “skilled talent, vibrant technology ecosystem and strong commitment to collaboration between government, civic, business, academic and community partners.” 21 IOWA USING A RESET TO FIND A BRIGHTER FUTURE The economic momentum Des Moines cultivated over the past decade is paying off. Moody’s Analytics examined the country’s top 100 metro areas in July 2020 and noted the region as one of those best positioned for a quick recovery, citing its educated workforce and the large number of residents working in jobs that can be performed remotely. The region also experienced growth in the logistics industry and pandemic, since disruption forced many American companies to reconsider their supply chains. Des Moines’ central location offers access to four rail lines, two interstates and an international airport. “The pandemic has created an opportunity for a great reset and for everyone to take a step back as they consider the next normal,” says Jay Byers, CEO of the Greater Des Moines Partnership. “Here in DSM... we’re really looking at the strategic investments we need to make in the future and what things we can collectively do better as a region.” 24 SOUTH DAKOTA ALWAYS OPEN FOR BUSINESS South Dakota made the controversial decision to remain open in March to stave off mass failures of small businesses. As a result, the recovery has been stronger and South Dakota has the fewest low-income job losses of any state in the region, according to the Minneapolis Federal Reserve. An aggressive new ad campaign aims to increase business recruitment to the state. Economic development officials note strong growth in the number of businesses interested in moving to the state since the pandemic. “Right now, Governor Noem is unquestion-
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ably our biggest marketing tool,” said Steve Westra, commissioner of the South Dakota Governor’s Office of Economic Development. “The national exposure she has received for how South Dakota handled Covid-19 really resonates with business owners.”
28 NEBRASKA RELYING ON RESILIENCY Now more than ever, the Cornhusker State is counting on its resiliency as a means to carry it through the pandemic, says Anthony Goies, director of the Nebraska Department of Economic Development. The state currently holds one of the lowest unemployment rates in the nation and experienced the lowest rate of GDP contraction during Q1 2020. Goines attributes the state’s resiliency to a diverse economy based on sectors like food production, manufacturing, tech and healthcare. “Couple that with a comparatively low reliance on tourism, and you can begin to see why we have been less severely impacted than many other states,” he says. Since the start of the pandemic, Nebraska has received more than $1.25 billion in federal coronavirus relief dollars, much of which it used to launch small business grant programs, reskill displaced workers, and promote new work and education opportunities. The department’s goal isn’t simply to return the state economy to normal, but to exceed the baseline and promote future growth and opportunities, Goines says. “The benefit of living in a safe state where you have natural social distancing on top of a strong economy and a great quality of life where everyone is welcome, have become even more apparent,” Goies says. 29 NORTH DAKOTA PROMOTING THE PEACE GARDEN STATE With a low population density, North Dakota was one of the few states that staved off an economic hit by opting not to shut down during the pandemic, says James Leiman, director of the North Dakota Department of Commerce. “That, combined with the front-end public private grant partnerships we’re creating, has given us confidence as
MICHIGAN ON THE MOVE The state is luring businesses with a strong tech talent pool and economic development programs.
E
NGINEERS ARE MORE NATIVE TO MICHIGAN than anywhere else in the country, just as coders are to Silicon Valley. But now the Great Lakes State is expanding its credentials with software entrepreneurs by fusing a new emphasis on digital technologies with continued strength in engineering and other automotive-related technical disciplines. Digital technologies and professional services are two of the six industries on which Michigan’s economic development agencies are focusing growth efforts for the next five years. And they’ve already got a head start on tech with the likes of home-grown giants, including mortgage giant Quicken, corporate-performance software platform OneStream and e-commerce marketplace maker StockX. “We’re already one of the top 10 states in terms of technology employment, with more than 85,000 workers across Michigan who are in software-focused and technology industries,” says Josh Hundt, chief business development officer and executive vice president of the Michigan Economic Development Corporation, which markets Michigan as the place to do business, assists businesses in their growth strategies and fosters the growth of vibrant communities across the state, in collaboration with more than 100 economic-development partners. Consider the cases of two “unicorns” that are prospering in Michigan. StockX, based in Detroit, built the leading online destination for Generation Z consumers with its stock-market-model marketplace for highly sought, culturally relevant products ranging from sneakers to speakers, streetwear and collectibles. Co-founder Greg Schwartz is a University of Michigan graduate who departed for a successful software career in New York before returning to Michigan in 2008, lured by “the amount of talent here, the lower costs of doing business and lower cost of living, and the venture-capital scene that was emerging.” In 2015, Bedrock founder Dan Gilbert joined Schwartz and another entrepreneur to launch StockX. “We have an absolutely huge competitive advantage by being based in Detroit,” Schwartz says. “We have access to talent here that we wouldn’t have if we were based in Silicon Valley and competing with Facebook, Google and Twitter. We were able to be a big fish in a smaller pond at an earlier stage and attract a lot of amazing talent.”
TOP: Team members at Ann Arbor, Michigan-based Duo Security. BOTTOM: Testing autonomous vehicle technology at the MCity proving grounds.
Dug Song is another Michigan college grad who applied his tech talents to home-grown enterprises. After several years helping build other cybersecurity companies, in 2010 Song co-founded Duo Security, in Ann Arbor. “We were looking to build the next great software-as-a-service security company and do it in Michigan,” Song recalls. He was betting not only on the state’s talent pool and great research universities but also “the culture of learning and teamwork” in Michigan and “the history of tech success in Ann Arbor.” It worked. In 2018, as Duo was preparing to go public, digital giant Cisco came calling and bought Duo for $2.35 billion. Song praises the “rise of the American middle class that came out of Michigan.” The main engine of that economic boom was the auto industry, a “legacy” that, as Hundt puts it, “is a critical component of our past, present and future. We can build off our strength in manufacturing to look to the future of software development and lead in spaces where those come together. The high concentration of engineers is a critical component to growing the tech scene here.” So is Michigan’s strength in professional services such as accounting, law, marketing and consulting. The state employs about 186,000 workers in these disciplines, the 12th-highest total in the country. Seventeen Fortune 400 companies are headquartered here, stoking demand, and growing. “Michigan also is a great home for professional services businesses because the cost of living is significantly lower here than in many of our coastal competitors,” Hundt says. The growing post-Covid-19 talent exodus from East and West are likely to boost Michigan’s tech and professional-services sectors. “This trend is an accelerant for what was already happening,” Schwartz says. “Plus, the new remote environment gives Michigan’s talent the potential to work from here, for anyone.”
Thought Leadership Content Provided By Michigan Economic Development Corporation For more information on doing business in Michigan, visit michiganbusiness.org/pure-opportunity
ILLINOIS Illinois’s new data center incentive has lured activity from companies like Facebook, which is opening a center in DeKalb.
we move into the colder months.” North Dakota is now taking the opportunity to reinvent itself with a “next gen economy,” he says. The biotech and tech industries have experienced strong growth in the state. Leading antibody innovator Aldevron continues to drive a biotech cluster in Fargo and expanding its global headquarters in the city. “What is a short-term pain will become a long-term gain as we learn to improve on the post-COVID world,” Leiman says. 31 KANSAS DOUBLING DOWN ON DEVELOPMENT While the pandemic presented challenges, it also amplified emerging opportunities for Kansas, says Secretary of Commerce David Toland. Kansas’ central location, combined with its skilled workforce and reliable infrastructure, increased its viability in industries such as food, agriculture, logistics, manufacturing and animal health. Greater centralization of supply chains also made the state more attractive, Toland says. “For Kansas that means opportunities for rapid growth in logistics, distribution, inventory manage, manufacturing, transportation and more. “ Several companies have announced expansions in the state, including Merck & Co., Urban Outfitters, Schwan’s, Great Plains Manufacturing and Bell Textron. The newly launched Kansas Framework for Growth is now integrating the impact and outlook of the pandemic and is the first comprehensive plan to align a state’s economic development approach with the “new normal.” 33 MINNESOTA NEW OPPORTUNITIES FOUND IN THE CHALLENGES Following a big hit in the spring, business activity is on the rise in Minnesota, says Steve Grove, commissioner of the department of em-
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ployment and economic development. The state’s unemployment rate fell from 8.6 percent to 7.7 percent between June and July, and business filings in the state are up 22 percent compared to this period in 2019. “We have added new jobs in the past few months,” Gove says. “Companies are hiring.” Medtech company Maple Grove announced an expansion and 185 new jobs at its facility in Plymouth. Pace Dairy announced an expansion of its operations and 20 new jobs in Rochester. In July 2020, Eastman Kodak unveiled a $765 million expansion of its operations and 60 new jobs in St. Paul. The state is also turning an eye to retraining for workers whose jobs aren’t expected to return. “Reskilling and retraining for employees that may have to find a new career is a big area of focus for us,” Grove says. 48 ILLINOIS DIGGING IN THE DATA A data center incentive Illinois passed in 2019 that exempts data centers and occupants from state and local sales taxes on equipment purchases is starting to bear fruit. The new incentive, combined with its infrastructure, central location and access to a large population, led Chicago to experience the sixth-most data center activity in the first half of 2020, according to the latest North American Data Center Trends Report by CBRE. In June 2020, Facebook announced an $800 million investment in a new data center in DeKalb that will create 100 jobs. It will be the company’s 12th data center in the U.S. and one of the largest in Illinois. In June, Gov. Pritzker announced a $900 million package of equity-driven community and business grant programs that includes business interruption grants and distressed capital programs aimed at mitigating “this virus’s devastating effects on the health and livelihoods of the residents of this state. “We must do so in a way that prioritizes those who were hurting long before we’d ever heard of COVID-19,” Pritzker said in a press release. CE
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P L A NE A DVA NTAGE
THE PLANE TRUTH aviation market as more executives look for transportation alternatives to decimated commercial airlines. Legitimate charter operations are booming—but so is the market’s illegitimate underbelly: so-called gray-market “dry leases.” Dry leases occur when an owner agrees to rent a business aircraft to someone and give them complete operational control of the plane for the extent of the lease, whether it’s for one trip or for a year; in a “wet lease,” the owner also provides a crew and possibly services, such as maintenance. They can be perfectly legal and executed flawlessly. Unfortunately, however, parties to a dry lease often don’t fully understand their obligations under the deal—and outright unethical or even illegal arrangements can involve huge safety, liability and legal risks, including significant government penalties. The growing problem has come onto the radar of federal regulators and industry associations. The Federal Aviation Administration even went to the extent of issuing a special letter last spring and conducting a webinar on dry leasing. “It’s taking business from legitimate air carriers who are following the rules,” says Paul D’Allura, assistant manager for a task force of the Federal Aviation Administration that is cracking down on illegal charters and educating the
COVID-19 HAS BOOSTED THE BUSINESS
business community about them. “And the second and biggest factor is the safety implications: There’s not the same amount of oversight on individuals operating dry-lease programs in terms of pilot qualifications and maintaining the aircraft.” Safety first
The National Air Transportation Association, which represents charter operators, launched an illegal charter task force two years ago because of the “Uberization of the culture and gross assumptions people make” about traveling, says Ryan Waguespack, senior vice president of the group. Covid-19 has “had a tremendous additional impact.” Meanwhile, the National Business Aviation Association, which represents business-aircraft owners, has been warning members about the ins and outs of dry leasing. The growing gray market is a logical response to new obstacles being faced by parties on both sides of these transactions. Airline routes have dwindled, forcing business travelers in a recovering economy to seek new paths to their destinations. At the same time, more business-aircraft owners have sought to monetize planes and capacity idled by the slump. “If you’re the aircraft owner, you’re basically getting your maintenance paid, and if you have a note on the
The pandemic has you ready to make the jump to private aviation? Some caveats. BY DALE BUSS
CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2020 / 77
“There’s been a pretty significant increase in improper dry leases that don’t really meet the requirements.”
aircraft, you’re getting that aid on someone else’s nickel,” says David Nolletti, a managing director for Conway Mackenzie’s aviation practice. “So, it turns out to be a pretty good deal.” On the other side: Circles are small in business aviation, D’Allura says. “CEOs may have a friend who’s been using dry leases and they figure that idea will fit their needs. And, oh, by the way, it’s quite a bit cheaper than using so-and-so charter company.” But as the two sides have gotten together more often, essentially what they’ve been doing is creating de facto, but unauthorized, charter operations. Most corporate aircraft are operated under Part 91 of the Federal Aviation Regulations and aren’t permitted to be operated for compensation or hire. To do the latter, a Part 135 certificate is required—the same certification issued to many airlines and charter operators, with extensive regulatory and operational requirements, including pilot-training and ongoing-maintenance standards. Maintaining charter certification adds about 40 percent to costs, NATA estimates. Airlines require an even more demanding approval that’s known as a Part 121 certificate. “There’s been a pretty significant increase in improper dry leases that don’t really meet the requirements and philosophy behind this mechanism and are essentially charter operations without the charter certification to do that,” says aviation lawyer David Norton. Mark Dombroff, partner in the aviation practice at the Fox Rothschild law firm, adds that “most corporate flight departments don’t have an operating certificate, either 135 or especially 121: They’re simply operating airplanes as part of their business, not unlike how the company operates a computer or a copy machine. So their operations aren’t regulated or surveilled in the same way.” In “sham dry leases, there might be less training of the flight crew, and no drug or alcohol testing,” says Gregory Lander, an FAA attorney. “Maybe the operator doesn’t
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replace certain engine parts regularly because they’re not covered” by regulations. What to watch
Here are some tips for avoiding trouble: Understand what it is: Dry leases “can be a legitimate and valuable tool because you can transfer possession and use of the aircraft to someone else,” Norton, a partner in the Shackelford, Bowen, McKinley & Norton law firm, explains. When a bank buys a CEO’s airplane and leases it to him on an exclusive basis, for example, that’s “a classic dry lease. Operation and control are transferred to the lessee. But even some corporate flight departments don’t understand the nuances because, while “they know how to buy and sell and lease planes for their use,” Dombroff says, “there’s no reason for them to have this experience with Part 135 regulations.” Be wary: You can’t use the owner’s crew because the customer must have full operational control of the aircraft in a dry lease. So, is the crew you’re hiring properly trained for this aircraft? “If you’re in an Uber and the driver is speeding through red lights, you say, ‘Stop and let me out,’” says Ryan Waguespack, senior vice president of NATA. “In an aircraft, you have no idea what’s going on up front and, even if you felt that something was wrong, you can’t say, ‘Pull over and let me out.’” Key on the contract: If you’re going to become party to a dry lease, research contract language from fractional-jet companies that know what they’re doing. “That typically doesn’t raise red flags,” says Wally DeVasier, owner of DeVasi Air, a company-aircraft operations outfit in Fairfield, Iowa. “The FAA has certain trigger things they’re looking for,” such as ambiguity iabout who is the actual operator or controller of the aircraft. Expect FAA monitoring: The agency can “ramp” planes at airports based on random inspections or investigation of specific aircraft after complaints of dry leasing. “There are criminal statutes involved,” Landers says. This fall, thousands of laid-off airline pilots may add to the sham-lease problem. They’ll be “looking for jobs,” Waguespack says. “What better way to [get one] than say, ‘I have experience in these light jets. Sure, I’ll fly you where you want to go.’” CE
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CONTROL YOUR CALENDAR
The big lesson CEOs can learn from pro athletes? ‘People who own their schedules own their lives.’
EVEN HIGH ACHIEVERS CAN be guided to perform better and more consistently, says Coach Dana Cavalea, a man with a proven track record helping top athletes and executives to up their games. Author of Habits of a Champion: Nobody Becomes a Champion by Accident, Cavalea has been coaching CEOs since 2014, after spending 12 years working with players like Derek Jeter as the New York Yankees’ director of strength and conditioning. Chief Executive spoke with Cavalea recently about how the habits of star athletes can translate to huge performance improvements for business leaders and their teams. Excerpts of that conversation, edited for length and clarity, follow. What are some examples of practices that translate from pro sports to business?
Coach Dana Cavalea Author, Habits of a Champion: Nobody Becomes a Champion by Accident; Former Director of Strength & Conditioning and Performance, New York Yankees
“The biggest ones are consistency, discipline and conviction. When you have those three working together, you become a force to be reckoned with. You’re not looking for a public applause, you’re doing what needs to get done because you know that it needs to get done in order to produce the outcome you need.” The performances of professional athletes are constantly tracked, with active stat lines telling them exactly how they’re doing. As a result, players spend a lot of time coming up with routines that allow them to have more predictable outcomes. So we work with leaders to come up with a schedule that works with who they are and in which they can be disciplined and consistent over time. Because if you’re consistent and disciplined with a routine that’s built specifically for you, you will develop such a deep belief in what you’re doing, a level of conviction, that will yield that positive outcome you’re working toward. How do you work that into a schedule that’s already jam-packed?
We do what I call time mapping. Business leaders can’t afford unaccounted-for time because any time that’s being wasted could
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be used for recovery, for family, for personal health and development. We have to know what we’re doing with our time. I build out schedules for my clients based on the same goalposts we’ve all been brought up with. When do we wake up? When do we go to bed? When do we have breakfast? When do we have a lunch? When do we have dinner? Okay, that’s set now. Let’s fill in everything in between. What people don’t know about professional athletes is that their days are mapped out on a board. From the minute they report to the field, they move from station to station all day and that actually keeps them very relaxed and comfortable. It’s the same for CEOs and leaders who are already high performers. This gets them to their next level. And it actually brings a sense of calm, peace and stress-free living because they’re playing offense again in their lives, as opposed to being in a defensive posture reacting to everything. People who own their schedules own their lives. What are you telling your clients to do differently in the current crisis?
Number one, become more visible and have conversations with everyone on your team, even your lowest-level employee. You want to make sure that everyone knows that they’re still on the team and your company is still playing the game. A CMO I was working with recently told me, “Hey, I haven’t heard from my boss in a couple of weeks; I don’t know what to think.” Lack of contact spooks people, and they start to run with their own narrative, which are often very negative, based on fear and scarcity and what-ifs. Always remember that teams are made up of individuals. If you’re only addressing your team as a whole, there will still be people who are not getting the answers that they need to make them feel good. And if they don’t feel good, they will not perform well. As a leader, you need to make people feel comfortable and supported. CE
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