July Aug 2011 Issue by Chief Executive Group

July/August 2011 NO. 253

Front 06 08

Editor’s Note Letters

CEO Chronicles Premier’s Susan DeVore on fixing healthcare. • Ted Lynch’s succession at Southland • CEO Watch: Serial entrepreneur Henry Nothhaft sets out to save American innovation.

CEO of the Year Where Alan Mulally is Steering Ford

CEO Confidence CEO Confidence Drops

Chief Concern

Uncommon Wisdom Designing a China Business Framework by Robert Lawrence Kuhn

Forest Woodward/Vetta/Getty Images

The Customer Connection by Joe Adachi

cover photo/james porto

No longer in recovery mode, Ford Motor Company is building a world-class enterprise. But can Alan Mulally do as well in a boom as he did in a bust? A number of formidable challenges lie just ahead. by J.P. Donlon

july/august 2011

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contents

Digital Vision/Photodisc/Getty Images

David J. Spurdens/Digital Vision/Getty Images

July/August 2011

features

Risk Management

Is Your Company Vulnerable to Cyber Sabotage? Where the biggest threats come from—and what you can do to safeguard your business. by Dale Buss

Technology

Can Cloud Live Up to Its Promise? There’s great potential behind the hype. The trick is delivering on it. by William J. Holstein

Leadership

Finding Your Achilles Heel Even the most successful leaders usually have a weak spot. What’s yours—and what can you do about it? by Cheryl Einhorn

CEO Essentials

The View From Marketing How to get the most from your CMO. by John Kador

CEO Life

Extreme CEOs These leaders thrive flying jet fighter planes, scaling mountains, skydiving and racing motorcycles. by George Nicholas

Executive Life

Must-Have Gadgets The gear you need for the life you lead. by Michael Gelfand

71 Flipside

Gotta Keep Searching

final word

Dieter Spannknebel/ Digital Vision/Getty Images

Kill Economic Freedom; Kill Job Creation

CHIEF EXECUTIVE, USPS # 431-710 (ISSN 0160-4724) is published bimonthly by Chief Executive Group, LLC with executive and editorial offices at One Sound Shore Drive, Suite 100, Greenwich, CT 06830. Wayne Cooper, president. Copyright 2011. Published and printed in the United States. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited. Annual subscriptions are $196. U.S. single-copy price is $13.95. Periodicals postage paid at Greenwich, CT and additional mailing offices. POSTMASTER: Please send change of address to Chief Executive, PO Box 15306, North Hollywood, CA 91615-5306. For subscription inquiries, call 818-286-3119. All reprint and permission requests should be made to The YGS Group. Phone: 800-290-5460, ext. 125.

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contents > chief executive online

July/August 2011

features

Facing the Commoditization Challenge

How Dow Corning’s Xiameter brand beats commoditization by embracing it. by Mark W. Johnson

Why U.S. Telecoms Need to Get Out of the Pipeline Business

Although the Indian telecom market differs from the U.S. market, there are lessons to be learned in outsourcing networks. by Vijay Govindarajan & Jan Timothy Woodcock

Tying Social Software to Business Metrics that Matter

Many CEOs are ambivalent about how social software fits into their business model. Here’s how to realize performance improvement without going crazy. by John Hagel and John Seely Brown

So, You Want To Create a Mobile App

Which phone should you develop for? by Patrick Emmons

Dealing with Public Attacks on Your Company

Toyota severely handicapped itself when prompt direct responses were necessary. by Jeffrey K. Liker and Timothy N. Ogden

Legacy Main Street Solution Proposed for Wall Street

The financial industry needs to fix the identification plumbing before the next financial tsunami. by Allan D. Grody and Timothy P. Smucker

How Social Networking Will Change Air Transportation Delta’s foray into social networks will enable the “ groupthen-go” model of charter aviation. And mobile communication will change the on-demand model of air chartering. by Greg Cirillo

Speeding Up Business Agility

Five powerful ideas that will make a difference. by Emmet B. Keeffe III

Entrepreneurial CEO

Six Questions to Ask Your Real Estate Guru

Lease obligations are now more visible on the balance sheet, right alongside debt. Here’s how to stay on top of them. by Jim Haslem

Tax Credits and Incentives: Are You Missing The Boat?

Half of the nearly 3,000 U.S. federal, state and local tax credits and incentives go unclaimed, and it pays to learn how well your company is capturing these opportunities. by Fred Stiftel

A Step-By-Step Guide for Business Innovation

Here’s how to create a highly functional system to translate ideas into reality. by Randal C. Moss and David J. Neff

Selling the Best Hour of the Day to Yourself

Use your time in clever ways to advance your learning and effectiveness. by Andy Boynton and Bill Fischer

A National Addiction to Deficit Spending

If you can afford a lobbyist and make campaign contributions, you can be immune from the tax collector and be assured your special interests receive federal funding. by Ronald R. Pollina

always available

Executive Compensation: It’s Not Just About How Much You’ll Make

Here’s how to protect yourself when negotiating an employment agreement. by Jon Vegosen

The blog tracker weekly blog picks by, for and on CEos. by Fayazuddin A. Shirazi

The New UK Bribery Act—Legal Minefield for CEOs

The harshest anti-corruption legislation ever enacted poses serious legal risks for corporate officers and directors regardless of nationality or domicile. by Timothy Ashby

ceo transitions a weekly update of ceos on the move. Compiled by Aparna Reddy ceo confidence index

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editor’s note

Editor in Chief J.P. Donlon Editor at Large Jennifer Pellet Art Direction Fastlane Production Rose Sullivan Director

Transformed In his 1972 book on modern art, British art historian Ian Dunlop called it “the shock of the new.” With this issue Chief Executive completes its redesign in its multi-step transformation. We trust the new look and feel of the magazine and the redesigned Web site www.chiefexecutive.net is more pleasing than shocking. But either way we would welcome your thoughts and reactions via editorial@chiefexecutive.net. We’ve redesigned our logo, the seventh redesign since its debut in 1977, for a classic but updated look that fits with contemporary thinking. We’ve also rethought our editorial approach to help the reader. From the beginning of this year, we’ve introduced key takeaway boxes at the beginning of features to help busy leaders glean pertinent points. We’ve taken that a step further by creating shorter, more concise features supported by more sidebars offering case studies or additional related side stories of relevance. In all cases, we’re trying to make the magazine more readable by providing easy-to-find ideas or insights that we believe will help elevate your game. It is a decidedly more tutorial approach, but not one, we trust that is aggressive or overly didactic. We’ve chosen to launch this with the Chief Executive of the Year issue, our franchise annual feature since the award was initiated in 1986. Alan Mulally of Ford is our 26th honoree and the second CEO of Ford to be selected by his peers, the first being Ford’s Don Petersen in 1989. As our cover story and interview beginning on page 31 attests, Mulally’s first exposure to Ford was due to Petersen’s reaching out to the young Boeing executive in the early 1980s to help the Ford Taurus team (Don Petersen was a member of Boeing’s board of directors at the time and was impressed with a presentation Mulally made to the board). Another of our franchise features, last issue’s annual Best and Worst States survey in which we reported on which states CEOs believe are business friendly, has spawned considerable response. It has already generated over 200 blogs that we know of thus far, as well as scores of media stories. Upon its release, we found ourselves speaking with radio stations and newspaper reporters from Sacramento to San Diego throughout the day and for weeks afterward. Reporters from other states such as Texas, Tennessee, South Carolina, Florida and Wisconsin all wanted to know what contributed to their state’s rankings. Even states that didn’t do particularly well, such as Pennsylvania and Illinois, wanted to know what their region needed to do to improve their standing. It even started a friendly feud between governor Rick Scott of Florida and governor Rick Perry of Texas, with the former telling the later that he was putting Texas on notice that Florida would do its best to displace Texas from the No. 1 spot on Chief Executive’s annual ranking. Let the battle of the two Ricks begin.

Copy Chief Rebecca M. Cooper Contributing Dale Buss Editors Cheryl Einhorn Michael Gelfand Fran Hawthorne William J. Holstein John Kador Robert Lawrence Kuhn George Nicholas Joe Queenan Online Associate Karin Moyer Editors Fayazuddin A. Shirazi CEO Entrepreneur Robert M. Donnelly Publisher Marshall Cooper VP, Associate Phillip G. Wren Publisher 203/930-2706 pwren@chiefexecutive.net VP, Sales Central Christopher J. Chalk 847/730-3662 cchalk@chiefexecutive.net VP, Director, Frank Rosa Integrated Sales 203/930-2708 East frosa@chiefexecutive.net Director, Business Cristina Vittoria Development 203/930-2707 cvittoria@chiefexecutivegroup.com

Director, Business Mark Lamborn Development 304/543-2505 WV, VA, NC, SC mlamborn@chiefexecutivegroup.com

Director, Business Catherine Hanson Development 770/569-0825 chanson@chiefexecutivegroup.com

Director, Online Michael Bamberger 203/930-2709 mbamberger@chiefexecutive.net

Wayne Cooper Marshall Cooper Chairman & President Chief Executive One Sound Shore Drive, Suite 100 Greenwich, CT 06830, 203/930-2700

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thank you ad.pdf

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Chief Executive Group

sincerely thanks the members of the 2011 CEO of the Year Selection Committee. Your dedication to excellence in leadership serves as an inspiration to every CEO.

Thank You Hugh Grant

Chairman, President and Chief Executive, Monsanto

Dan S. Glaser

Chairman & Chief Executive, Marsh

Fred Hassan

Chairman, Bausch & Lomb

William Hickey

President and Chief Executive, Sealed Air

C. Robert Henrikson

Chairman, President and Chief Executive, Metlife

Christine Jacobs

Chairman, President and Chief Executive, Theragenics

Kristian P. Moor

President and Chief Executive, Chartis

William R. Nuti

Chairman and Chief Executive, NCR

Steve Odland

Former Chairman and Chief Executive, Oﬃce Depot

Thomas J. Quinlan III

President and Chief Executive, RR Donnelley

Jeﬀrey Sonnenfeld

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

James Turley

Chairman and Chief Executive, Ernst & Young

Special thanks are extended to RHR International and Tom Saporito, Chairman & CEO, for their support and expertise in the CEO selection process.

letters

Chief Executive of the Year 2011 Selection Committee

Restoring Our Industrial Base

Dan S. Glaser Chairman and Chief Executive, Marsh Hugh Grant Chairman, President and Chief Executive, Monsanto 2010 Chief Executive of the Year Fred Hassan Chairman, Bausch & Lomb William Hickey President and Chief Executive, Sealed Air C. Robert Henrikson Chairman, President and Chief Executive, MetLife Christine Jacobs Chairman, President and Chief Executive, Theragenics Kristian P. Moor President and Chief Executive, Chartis William R. Nuti Chairman and Chief Executive, NCR Steve Odland Former Chairman and Chief Executive, Office Depot Thomas J. Quinlan III President and Chief Executive, RR Donnelley

Many of your readers have good suggestions on how to restore the U.S.’s industrial base and grow the economy. Politicians never miss an opportunity to remind us how innovation will take this nation to the next level of economic growth. Well, I have news for them: It’s not going to work. Take Apple, which is one of the most innovative companies in the world, and yet all the products that result from their innovations are manufactured overseas, employing thousands of workers on a long-term basis. I would rather have other countries do the innovative work—saving us billions of dollars in R&D cost— but manufacture the products in the U.S. The day Apple decides to manufacture iPhones, iPads and iPods in the U.S., including any products in its pipeline, would be the day the U.S. has turned a corner towards growth of well paying jobs and real economic growth. Dr. Shangar Nandra, N.J.

comparisons and found that some of the highest-confidence eighth-graders were some of the worst performers, and the contrary case held as well. On international tests, American children rank 25th in math and 21st in science, despite the push for greater accountability through the No Child Left Behind Act. The 2002 law pledged that 100 percent of primary school kids would be reading and doing math at grade level within 10 years, but eight years later the test scores told a different story: only 14 percent of Mississippi students, 30 percent of New York students, and 24 percent of California students proved proficient in math. Nationwide, only 20-34 percent of kids in the U. S. are reading at grade level. Nonetheless, U.S. students rated themselves much more highly than did students in Korea, Japan, Hong Kong, Singapore, the Netherlands and Chinese Taipei, but they scored well behind these groups.

Jeffrey Sonnenfeld President and Chief Executive, The Chief Executive Leadership Institute,

Education’s Failure

Yale School of Management James Turley Chairman and Chief Executive, Ernst & Young

c o n tact us

Chief Executive Group, LLC 1 Sound Shore Drive, Ste. 100 Greenwich, CT 06830 www.chiefexecutive.net Letters to the Editor Address above or letters@chiefexecutive.net Advertising & Custom Publishing 847.730.3662 advertising@chiefexecutive.net Events, Roundtables & Conferences 847.730.3662 advertising@chiefexecutive.net Fax: 847.730.3666 Subscriptions Chief Executive, PO Box 15306 North Hollywood, CA 91615-5306 circulation@chiefexecutive.net Reprints 800.290.5460 x125 chiefexecutive@theygsgroup.com Back Issues & Customer Service circulation@chiefexecutive.net

In Chief Executive’s editorial, Final Word, you draw upon Davis Guggenheim’s documentary film, Waiting for Superman, in referencing the 123 million jobs available for highly skilled educated people by 2020. The documentary notes that the U.S. education system at best might be able to provide 54 million qualified applicants for these jobs. Later in the editorial, you outline the rather dismal proficiency levels of students, eight years after the passage of the No Child Left Behind Act, ending with the statement that our students ranked first in self-confidence. Do you have any idea what the primary source of this information happens to be?. Henry Kopeck, Colchester, Vt. Chief Executive replies: In the 2006 Brown Center Report on American Education: (www.brookings.edu/ reports/2006/10education_loveless) How Well Are American Students Learning?, American students are often wrong but never, seemingly, in doubt. Researchers found an inverse correlation with higher confidence and students’ actual performance when it comes to math scores. The report made international

Best/Worst States for Business As a regular reader of Chief Executive for as long as I can remember, I strongly agree with your special report identifying Texas as the number one state for business. Having worked at various times for IBM, International Harvester, Xerox, and ultimately as CEO for San Antonio-based Datapoint, I have moved to Dallas three times in my career and I am very familiar with the region, and am the proud owner of a Key to the City of Dallas. Bob Potter, R.J. Potter Company former president and CEO, Datapoint, Irving, Tex.

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Can Healthcare Be Fixed? One way or another, healthcare reform will happen, says Premier’s CEO. by Jennifer Pellet No matter how you feel about Obamacare—or what happens with it politically—America’s healthcare system has to change, says Susan DeVore, CEO of Premier, an alliance that represents approximately 2,400 hospitals and 70,000 non-acute healthcare sites nationwide. “We cannot stop, backup or slow down, because the system is not sustainable the way it is today,” she asserts. “There’s also all kinds of bipartisan support for the healthcare delivery system reforms—the things people are still debating are the individual mandate and insurance system reforms.” Admittedly, DeVore has a lot invested in that argument. Her Charlotte, North Carolina-based organization is dedicated to simultaneously reducing operating costs and improving quality of care among for its members. That goal dovetails nicely with an element of healthcare reform looming on the horizon: Medicare payment incentives that will favor successful Accountable Care Organizations (ACOs), or healthcare systems that stem rising health care costs while also meeting performance standards on quality of care and putting patients first. But DeVore is quick to point out that Premier predates healthcare reform by more than a decade and, as an alliance of healthcare providers that is actually jointly owned by the not-for-profit

members it comprises, has its own incentive for meeting the goals proposed for ACOs. “We are essentially a partnership that distributes 70 percent of its net income back to our not-for-profit hospital members, who use it to reinvest in their communities,” explains DeVore, who has been in the CEO seat since the summer of 2009. Initially, Premier’s cost-cutting efforts centered around a hospital purchasing network that united independently owned and operated healthcare facilities in a purchasing network to reduce costs by aggregating volume and negotiating more effectively with suppliers. Having since grown to become the nation’s largest hospital purchasing network with $571 million in annual revenues (2010), Premier now houses one of the most comprehensive repositories of hospital clinical and financial information in the U.S.—a wealth of data its members can use to track performance, identify best practices and ultimately, improve efficiency and quality of care. “We run collaborative programs where we bring a few hundred health systems together, find the high performers and low performers on certain criteria and try to move everyone up,” she explains. “For example, one of the leading causes for mortality in a hospital is sepsis. So we had our automated database pulled data from the collaborative hospitals for those who had higher-that-expected mortality rates and those who had great scores. Then the members shared best practices with each other—things like assessments in the ER for early identification of patients likely to be candidates for sepsis or technology that looks at antibiotic treatments for sepsis.” Hospitals participating in the collaborative receive monthly report card that shows their performance relative to peers,

as well as measurement on performance metrics like mortality rates, patient satisfaction, rate of improvement and costs. In a 30-month period, DeVore estimates that the collaborative’s efforts have saved more than 25,000 lives and $2.5 billion. “The country as a whole, over the last two years, saw a 14 percent increase in inpatient hospital costs, while the hospitals in this collaborative saw a 2 percent increase in costs,” she says. “That’s all work being done without the new health reform regulation. It’s private sector work to try to improve quality, safety and cost.” In anticipation of healthcare reform mandates scheduled to go into effect in 2012, Premier launched an accountable care collaborative in May of 2010. The plan is to engage physicians, hospitals and insurance companies in overcoming the barriers those various players face in building community-based accountable healthcare organization systems in their communities. “The problem with healthcare is that it’s been very fragmented, and the incentive has been around volume,” explains DeVore. “This program is designed to create a system where healthcare providers are incented to keep patients out of the hospital, and put patients where they really need to be to get the care they need to stay healthy.” Patients, too, will need to play a role in driving quality and cost improvements. Consumers today struggle with health care choices in part because of a lack of transparency around both costs of procedures and outcome rates. “Consumers want to know, ‘If I have to go into the hospital, is the hospital safe and is the care delivered of high quality?’” says DeVore,

premierinc.com

Dieter Spannknebel/Photodisc/Getty Images

CEO Chronicles

Premier’s Susan DeVore

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who adds that comparing costs of care at different facilities is also tricky. “Consumers don’t pay for care directly or [cohesively]. They pay the doctor for part of it, the hospital for another part of it and the pharmacy for still another part and that makes it difficult for patients to navigate.” To address those issues, Premier has established top performance standards in six areas it deems essential for superior quality and economic performance in a medical facility—cost, mortality, harm, patient satisfaction, readmissions and evidenced-based care. The idea, ultimately, is that a hospital that can prove that they are good at all five of those things at the same time would be attractive to payers, insurance companies and patients. Over time, DeVore sees community healthcare systems that integrate patient data collected by physicians, hospitals and other care providers in the community. Those databases would then enable the analysis of clinical and economic performance integral to identifying best practices and enabling providers, as well as consumers and payers, to make wiser healthcare decisions. “We want to define, with our members, top performance in healthcare,” says DeVore. “And we want to meet them wherever they are now and move them there. I wake up every day asking, ‘How am I going to make healthcare safer, of higher quality and more affordable; and how am I going to have health systems in communities lead the way and innovate?’”

Succession at Southland: The Seven-Year Stretch Succession plans that overtly pit top executives against one another in a “horse race” for the CEO title often go awry. Not so at Southland Industries, where Ted Lynch recently bested two rivals for the role of CEO-in-waiting at the privately owned $435 million construction and engineering company. Lasting five years, the race was more of a marathon than a sprint to the finish. And the

leadership handoff will continue at a leisurely pace—Lynch will now work closely with outgoing CEO Andrew Fimiano for the next two years before officially ascending to the CEO seat. Stretching the CEO transition over seven years might sound overcautious but it played out well for the Irvine, California-based firm—and for its leadership candidates, says Lynch. “The people who were in the running for the position are all staying with the company,” he points out. “At the end of the day, everyone felt it was a fair process.”

With design-buildmaintain there’s single source accountability. It’s better, faster, smarter. The CEO candidates faced a series of assignments, including essays about competitive strategy and their vision for the future, as well as semi-annual evaluations by the employee-owned company’s board of directors, all of whom own significant stakes in the company. Lynch was their unanimous choice for president and successor to Fimiano, who will take the reigns within two years. But Lynch, who was tapped as a candidate in part for his role in turning around Southland’s floundering Mid-Atlantic division in 1998—is unfazed by the seven-year stretch. “Really, it’s a great luxury,” he says. “It allows me to grow into the position and slowly take on his responsibilities.” Among those is the task of completing the company’s mission—under way since 2003—of phasing out its traditional construction business to become a 100 percent design-build-maintain contractor. In traditional contracting work, a client hires an architect engineer to create a design and subsequently contracts with a construction company. In design-build projects, a single source has full accountability for both design and construction, as well as, in some cases, the ongoing maintenance of that facility. Being able to incorporate construction knowledge early in the design process helps ensure projects

stay on budget, says Lynch. “Anyone who has been through a construction project knows that after the bidding process there are usually safety factors to address or things missing and you price out changes… and the contractor blames the architect, the architect blames the contractor. With design-build-maintain there’s single source accountability. It’s better, faster, smarter.” It’s also a more specialized, and therefore more recession-proof, field than traditional construction, which has been hit hard in the economic downturn. Southland Industries has largely escaped the aftershock effect plaguing some of its competitors. “We’re coming off of our best year ever,” says Lynch, who notes that the company has four regional divisions in Northern California, Southern California, the Southwest and the Mid-Atlantic. “In the Southwest, Las Vegas is in a bad situation, but the other areas are all growing so we’ve been able to keep a presence there while relocating people to our busier offices.” Looking ahead, Lynch’s envisions moving the company back into energy services—a business it abdicated in 1999 with the sale of the division to Reliant Energy. “With our expertise of engineering and construction and operations and maintenance, we can have a real impact on energy use,” he says. “We can take your existing building and, by putting in more efficient lighting and chillers, reduce energy costs significantly enough to fund those capital improvements. Over the next three to five years energy service is going to be the biggest growth area for our business.”

Southland Industries’ Ted Lynch

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CEO Chronicles

InBox: Shareholders Push for “Triple Bottom Line”

Trends in Shareholder Proposals

Beyond profit, today’s shareholders expect corporations to meet standards of social and environmental performance, suggests a recent report by Ernst & Young on a growing trend toward shareholder resolutions focused on these issues. “In 2010, resolutions focusing on social and environmental issues made up the largest portion of all shareholder proposals,” states the report, Shareholders Press Boards on Social, Environmental Risks. What’s more, the percentage of social and environmental shareholder resolutions that garnered at least 30 percent shareholder support, a critical threshold for many corporate board members, rose from just 3 percent in 2005 to 26.8 percent in 2010.

Average voting support

In response to the report findings, Ernst & Young urges CEOs and their boards to be prepared to do the following: •E nhance dialogue with shareholders and improve disclosure in key areas related to social and environmental issues. Robust sustainability reporting can help with this. • Ensure that directors’ skills are relevant to the chief areas of stakeholder concern, including risk management tied to social and environmental matters. Then provide shareholders with a better understanding of how directors’ backgrounds and skills contribute to corporate strategy. •C onsider whether using non-traditional performance metrics—including those related to environmental/ sustainability issues—could help align compensation with risk.

The number of CSR-related shareholder proposals rose from 150 in 2000 to 191 in 2010.

Number of proposals voted

Percent proposals receiving > 10% support

2000

2005

2010

150

155

191

7.5%

9.9%

18.4%

16.7%

31.2%

52.1%

Sources: Investor Responsability Research Center (2000 data); Ernst & Young

The number of social/enviro shareholder proposals gaining 30+% vote is growing rapidly. Those proposals garnered average voting support of 18.4% of votes in 2010, vs. just 7.5% a decade earlier.

cast 30%

25% Not

2000

2005

2006

2007

2008

2009

2010

available

2.6%

8.9%

15.7%

15.2%

18.4%

26.8%

Source: Ernst & Young, www.EY.com/climatechange

20%

15%

10%

2005

2006

2007

2008

2009

2010

InFact: 1 Rank of “business growth” and “investor relations” among 10 00 priorities ranked by 704 CEOs in order of importance: 1, 10

7 Change in the number of tax liens filed by the IRS from 2007 00 (683,659) to 2010 (1.3 million): +61%

2 Percentage of Americans in 2009 who believed the free 00 market is the “best system on which to base the future of the world:” 74

8 Percent of Americans who received at least one federal bene00 fit (excluding tax breaks) in 2010: 46.2

3 Percentage of Americans who believe so today: 59 00 4 Percentage of Chinese who do: 67 00 5 Out of 127 sovereign nations, the number that Standard & 00 Poor’s gives top-notch AAA rating: 19 6 Of these 19, the number, besides the U.S., that has a 00 negative outlook: 0

9 Percent of the 126 largest public pension plans that assume a 00 rate of return exceeding 8% per year: 88 10 Actual average annual compound growth rate of the S&P 500 00 over the past 20 years: 5.69% 11 Median net worth among married couples over age 65: 00 $385,000 12 Median income for Members of Congress: $911,000 00

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CEO Chronicles

13 Total revolving credit-card debt owed by Americans consum00 ers: $826.5 billion

22 Change in the level of philanthropic donations in 2010, the 00 steepest decline in 20 years: -11%

14 Expressed as overhead percentage of government tax reve00 nues: 30 cents on the dollar

23 Percent by which mall goers who have just ridden an up eleva00 tor are more likely to donate to charity as those who have just ridden a down escalator: 50

15 U.S. GDP in 2010 expressed as a percentage relative to the 00 combined GDPs of the other G-20 countries: 42

24 Change in sales of homes priced over $1 million in February 00 2011 year over year: +4%

16 Ten years earlier: 61 00 25 For homes priced between $100,000 and $250,000: -8% 00 17 Number of “Gold to Go” ATMs, vending machines that dispense 00 gold coins and bullion: 17 18 Number of states that have applied for funding under the 2010 00 Affordable Care Act: 50 19 Number that have joined a lawsuit challenging the constitution00 ality of the act: 26 20 Amount that three members of Congress donated to the fed00 eral debt reduction program in 2010: $15,223.56 21 Time it takes for the federal debt to grow by that amount: 00 0.34 seconds

Sources: 1-6, The Conference Board, GlobeScan Incorporated (Toronto), Standard & Poor’s; 7-12, National Taxpayer Advocate, Census Bureau, International Monetary Fund, Wall Street Journal, The Federal Interagency Forum on Aging-Related Statistics, Older Americas, Office of the Chief Administrative Officer, U.S. House of Representatives;13-19 Federal Reserve, FinAid.org; IMF, Arthur B. Laffer, Laffer Center, Rand.com, Gold to Go (Ruetlingen, Germany); 20-23 McKinsey Global Institute, Office of the Attorney General of Florida, Harpers, Tepper School of Business, Carnegie Mellon University, U.S. Treasury Department; 24-25 Chronicle of Philanthropy, Larry Sanna, University of North Carolina, Journal of Experimental Social Psychology, National Association of Realtors, Stanford University.

Well Done. Well Deserved.

Congratulations to Alan Mulally, Ford Motor Company’s President and Chief Executive Officer, on being named CEO of the Year for 2011. Your work and its results are nothing short of inspiring.

- Your friends and partners at Enterprise

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CEO Chronicles

Hal Bergman Photography/ Flickr/Getty Images

of entrepreneurial endeavors, which culminated with his becoming chairman and CEO of Danger, a wireless software company later sold to Microsoft for $500 million. From 2008 to mid-2011 he was chairman, president and CEO of Tessera, a $300 million company that also makes semiconductor casings for companies such as Intel. While Nothhaft claims he has nothing against the Web-based firms personified by Google, Facebook, Twitter and

How to Revitalize Our Innovation Engine Silicon Valley serial entrepreneur Hank Nothhaft outlines how to capture leadership in the next wave of technology industries. by J.P. Donlon

Before he stepped down as CEO of Tessera, a San Jose, Calif.-based NASDAQ technology miniaturization firm, Henry (Hank) Nothhaft, 67, set forth his concerns about revitalizing America’s entrepreneurial leadership in a book, Great Again, where he documents the link

between innovation (chiefly via small and mid-size technology-based companies like his), and prosperity that is diffused throughout society. He worries that there are numerous forces that are severing this link. Beginning in the 1980s, the U.S. began to divorce innovation from production. For example, China now dominates the $30 billion solar power industry even though the first device to convert solar energy to electricity was patented by AT&T’s Bell Labs in 1957. South Korea’s LG Chemical is making the rechargeable lithium-ion batteries that GM uses in its Chevy Volt. Nothhaft points to an Information Technology & Innovation Foundation study that reports that of the 40 most advanced nations the U.S. ranks dead last in the innovation progress it has made over the last 10 years. The son of German immigrants, his father was trained as a lithographer for a U.S. Steel plant near his hometown of Sharon, Penn. Nothhaft attended the U.S. Naval Academy, became an engineer and served in the Marines. He pursued a series

The key to restoring the link between innovation and wealth and job creation is through start-ups. LinkedIn, he sees something missing from the burgeoning social media industry compared with earlier tech-based industries: jobs. Facebook may have 500 million users and a market cap approaching $50 billion, but it employs 1,400 people. By contrast, Sony employs 170,000, Disney 144,000 and Boeing 157,000. Even Google at a comparable stage employed just under 11,000 people when it was seven years old. Since the key to restoring the link between innovation and wealth and job creation is through start-ups and sustainable new businesses, Nothhaft advocates: Liberating entrepreneurs from start-up killing tax and regulations. One solar power entrepreneur in Silicon Valley observes that the taxes and regulations are “stifling.” “We had to pay almost $1 million dollars in tax on $10 million worth of manufacturing equipment that we bought from Germany. That’s not a tax on income; it’s a tax on our business.” A 2008 World Bank study found that a 10 percent increase in the effective tax rate reduces the investment-to-GDP ratio by 2.2 percent and foreign direct investment by 2.3 percent. Fix the VC engine. In the 1990s venture firms were trying to build companies for the long-term. Most VC firms were staffed with executives with operating experience, in contrast to today where many are led by financial types with no

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CEO Chronicles

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horizon beyond flipping companies as private equity firms do. Not exactly a strategy for building companies to last. End the indifference to domestic manufacturing. Other countries understand (even if the U.S. doesn’t) that manufacturing strengthens an economy and sustains a middle class like no other form of activity. Decades of outsourcing have left the U.S. without the means to invent the next generation of high-tech products. China, for example, offers a five-year tax holiday to semiconductor manufacturers. Many other high-tech firms are entitled to a permanent 15 percent tax rate. Also, there’s a flaw in the “R&D and services only” economy. R&D depends upon close contact with manufacturing for its success and will follow if it relocates. Once the most R&D intensive economy in the world, the U.S. now ranks eighth. But the most pressing concern, Nothhaft feels, is fixing our busted patent system. Chief Executive spoke to him about this when he came to New York.

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How long has this been a problem? Since 2002, more and more patents are being filed. The backlog has grown. So, today, there are 700,000 patent applications that have never been looked at. There are 500,000 patent applications that have been looked at, but have not resulted in either a rejection or a patent being issued. So, as we sit here today, the patent backlog is 1.2 billion.

Nothhaft Speaks Out for Reform

What’s the solution? Owing to the fees it charges, the Patent Office is one of the only self-funding agencies in the federal government, but both democrats and republicans have treated it as a petty cash drawer. In the first six months of this year they’ve taken away $150 million alone. Along with other business leaders I would like to see the agency use more of its income to open field offices in locations other than just Alexandria, Va., upgrade their systems and be able to hire more people to sort through the patent backlog. Twenty-five percent of all the patents filed for in the U.S. come out of California. Yet, there’s no representation out there. If you’re a small business and you need to talk to a patent examiner about your patent and you don’t have money, you can’t talk to them. It’s so arcane. It’s really hard to believe that most people in the country are unaware of how we’re running the system.

Why is patent reform necessary and why should other CEOs care? Most of the CEOs who read your magazine have seen a shift in the last 20 years where maybe 20 percent of their balance sheets were represented by intangibles like intellectual property (IP). Now it’s many times higher. IP is the new currency of competitiveness. To us it’s critical. We’re an innovator. We spend a lot of money on R&D, and we license our technology. We have 2,300 patents. We’re sort of like the Edison Labs of the 21st century. Once it took 12 months for a patent to be reviewed. Now it takes anywhere from three to seven years. Any delay in

And what will be the fallout if this doesn’t happen? We’re aiding and abetting our economic competitors. If you file for a patent in Korea, which is emerging as a very severe competitor, you can actually get a patent in way less than a year. And let’s not forget the strong correlation between job creation and patent issuances. Four to 10 jobs are correlated directly with a patent. So, depending on what math you want to use, it’s certainly more than two million jobs as a cost to the economy. So, we’re all saying, “Hey, Congress, stay out of the candy jar. Let the Patent

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securing clear title to a patent allows competitors a chance to look at your patent application, because the patent office publishes your patent application 18 months after you file it.

Henry (Hank) Nothhaft

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ceo chronicles > thorns and roses

Thorns & Roses Thorn The $9 billion LinkedIn IPO, together with the $8.5 billion Microsoft acquisition of Skype, followed by an eye-popping IPO from a Russian company that had barely been on the radar, prompts talk of the dreaded “B” word. Let’s save the bubbles for champagne.

Rose White House regulatory czar Cass Sunstein announced that a review of regulations by government departments found 30 regulations that could be abolished or pared back to ease burdens on business. Well, it’s a baby step.

NOT YOUR ORDINARY CEO.

An extraordinary leader whose enthusiasm and vision inspires us every day. UniWorld Group is proud to be on Alan Mulally’s team as he navigates a better future for Ford Motor Company. Congratulations, Alan.

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CEO Confidence CEO Confidence Drops

Profit/Hiring 65% of CEOs still expect their profits to rise, but only 42% intend to hire over the next 12 months Up less than 10% Up 10 to 19.9% Up over 20%

After a positive jump in April, Chief Exec-

Photosindia

president and CEO of Optimum Performance Technologies, says, “We have seen the collapse of the stock market, the real estate market, the credit markets and we have also witnessed the decline of discretionary spending over the past few years. Despite Wall Street and the current Washington administration saying that the worst is over, I think that either (a) we are being lied to; or (b) both of these groups are in denial. The continued decline of the dollar and the massive increases in government debt do not portend well for the future. I personally believe that, in the next 12-24 months, we will see an economic collapse that will make what we experienced in 2008 and 2009 look like a birthday party.” Smith’s views seem to confirm what ChiefExecutive.net’s columnist and CEO expert, Ram Charan, says about the possibility of future inflation in “Inflation Watch: Are You Prepared?” Richard Pollina’s ChiefExecutive.net article, “A National Addiction to Deficit Spending,” also spotlights the troubles of government debt. While CEOs seem less than optimistic about the future, their outlook on current business conditions continues to rise. Current CEO confidence levels are up 1.5 percent from April to 5.38 percent.

Profit

hiring

expectations

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utive’s CEO Confidence Index fell 2.2 percent in May to 6.09 out of a possible 10. The Index, Chief Executive’s monthly gage of CEOs’ perceptions of overall business conditions, has fallen 5.8 percent from February’s 2011 high of 6.39. Sixty-five percent of CEOs surveyed rate their expectations for business conditions over the next year as at least “good,” a 4 percent drop from last month. Despite the dimmer outlook, CEOs’ expectations for revenue levels at their firms have remained relatively unchanged; in both April and May, 74 percent of CEOs expected to see an increase in revenue over the next year. Along with this increase in revenue, 65.5 percent of CEOs expect to see an increase in profits; 34.5 percent of the CEOs surveyed expect profits to decrease or remain unchanged. Hiring is also a sticking point for many CEOs. In April, 51 percent of CEOs expected that their workforces would stay the same or be reduced; this number jumped to 57.7 in May—an increase of 12.7 percent. And of the 43.2 percent who expect to increase their workforce, 78 percent expect it to grow by less than 10 percent. So chances of serious job creation seem slim. CEOs are concerned about issues such as inflation and government debt. Doug Clark, CEO of AmeriQuest Transportation Services, says, “I consider inflation to be the No. 1 issue that will derail the current moderate growth we are experiencing.” Another CEO echoed Clark’s sentiments by saying, “Inflation is beginning to impact most companies and individuals.” Along with inflation, CEOs are worried about U.S. government debt and the declining value of the dollar. Gary Smith,

online content Chief Executive’s full historical CEO Confidence Index data (from October 2002 to present)

is available at: chiefexecutive.net/ceo-confidence

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Chief Concern Customer Connection Bring customers back to the forefront of customer service.

During the past few years of industry-wide cutbacks and cost containment, customers have become accustomed to subpar purchasing experiences that often begin and end at the checkout line. Any company can sell its product once, but the real opportunities to stand above the competition arise when the consumer requires post-sales support. That customer contact is where a company wins its reputation as a quality brand that provides reliable products, service and support. Additionally, with the emergence of social media, customers—satisfied or dissatisfied—are able to voice their opinions to hundreds, even thousands of other users. Service quality also has a direct impact on the bottom line. Eighty-two percent of U.S. customers who participated in a recent customer experience survey by Harris Interactive reported having “stopped doing business with a company” due to a negative experience. And 85 percent said they would be “willing to pay more over the standard price in order to ensure a superior customer experience.” For seven straight years, PC Magazine and PCMag.com have awarded Canon one of their coveted “Readers’ Choice” awards for “Service and Reliability for Digital Cameras and Printers.” Based entirely on reader’s comments, the award reflects our continued commitment to striking the right balance of efficiency, quality and satisfaction when providing customer service. To achieve it a CEO and his company must consider three key areas: Human Connection: While efficient, and even beneficial, in some cases of customer service, voice automation and virtual agents minimize human interaction and result in a clinical and even intimidating process. It’s critical to enable

Darcy Paterson/Photodisc/Getty Images

by Joe Adachi

customer-friendly, human interaction so as not to overwhelm the customer with electronic hurdles. U.S. companies should consider establishing major U.S.-based call centers, particularly in areas with high customer concentrations. Happy Reps: Many call centers experience attrition rates that exceed 50 percent. Often, this is due to agents whose training didn’t adequately prepare them to deal with customers and their issues. Prior to taking their first call, representa-

Service quality also has a direct impact on the bottom line. tives should be appropriately trained in a specific area of expertise. This enables companies to segment incoming calls based on the customer’s need, product and level of expertise—giving the customer the personalized and expert service they deserve. Additionally, it is crucial to remind employees that you both appreciate and value their hard work and dedication to success. Creating a pleasant work environment and establishing employee recognition programs such as “Winner Circle” or “Representative of the Year”

can help you retain the happy and loyal employees who represent the best of your company. Data Deep Dive: Customer feedback across different channels should be methodically tracked, analyzed and used to benchmark your company’s market position and to implement change. Most companies take the step of soliciting responses through FAQs and satisfaction surveys, but woefully underutilize the results. Analysis of all customer feedback, including detailed reports outlining strengths and weaknesses, is essential in understanding customer needs, developing better products and creating deeper customer relationships. The customer support industry is fiercely competitive and the stakes are great for companies who understand that success or failure in this critical area impacts both customer loyalty and future sales. By creating a customer service organization that balances effectiveness and efficiency and tailoring the customer experience to each user and understanding customer sentiment, any company can foster a sense of loyalty that carries its brand through good times and bad. Joe Adachi is president and CEO of Canon U.S.A.

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Congratulations to Alan Mulally on being CEO of the year. From your colleagues at The Hertz Corporation.

Reg. U.S. Pat. Off.

2011 Hertz System, Inc.

Uncommon Wisdom Designing a China Business Framework Looking to succeed in China? Align your strategy with the agenda of China’s leaders. by Robert Lawrence Kuhn

My work involves frequent and extensive interaction with senior executives of diverse companies doing or seeking to do business in China. During these candid and confidential discussions, I am struck by the common assumption that China’s transformation into a market economy should translate into China’s adoption

of a Westernized style of doing business. Consequently, executives become viscerally annoyed, some even apoplectic, when they find doing business in China is troublesome, irksome and risky. When executives are slow to sense how business and government are intertwined in China with multiple layers of nuance, simplistic thinking can become a self-fulfilling prescription for frustration and failure. In some cases, these executives are from companies entrenched in China. Others are deciding how (not whether) to enter this vast, burgeoning market. All believe that an increasing percentage

Walter B. McKenzie/Digital Vision/Getty Images

A better way to think about the Chinese government is as another corporation— “China Inc.”

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A Politico-Strategic Framework I call my framework for doing business in China “politico-strategic” because I seek the intersection between the corporate strategy of the firm and the political agenda of China’s leaders, which in China has singular significance. Many large companies have “government relations” offices, but in China the term is misconceived and counterproductive because a “government-relations” mindset underrates the pervasive power of Chinese officials who are far more than regulators. A better way to think about the Chinese government is as a large corporation— “China Inc.” The “Office of the Chairman” of “China Inc.” is the Politburo Standing Committee (PSC), comprised of nine senior leaders. Everything in China reports to one of these nine leaders. But the PSC is not like the U.S. Cabinet, whose members the U.S. president can replace for any reason at any time. The president of China—who is more meaningfully the general secretary of the ruling Communist Party—cannot replace PSC members, who are more or less equal, each with his own portfolio. This means that the philosophies and policies of these leaders exert great influence in China. This is why the watchword for doing business in China is “alignment”— and why “politico-strategic” defines this framework. Foreign companies prosper in China to the extent that their strategies and operations facilitate or enhance the agenda of China’s senior leaders. China’s 12th Five-Year Plan (2011-2015) favors businesses that enhance standards of living (i.e. healthcare and education), encourage domestic consumption (i.e. consumer product companies), boost science and technology, serve rural markets, facilitate sustainable development and strengthen environmental protection. It may seem odd that aligning with the objectives of China’s senior leaders can make much difference to companies fighting in the myriad trenches of market

Jack Hollingsworth/Brand X Pictures/Getty Images

of their global revenues will come from China. While all are committed, none are satisfied. By understanding China’s unique structure, culture and political and economic characteristics, savvy CEOs can build a framework for generating meaningful revenues and profits in China.

competition. After all, when doing business in the U.S. it usually makes no matter if a firm’s strategy is aligned with President Obama’s agenda. China is different. Because the Chinese government operates like “China Inc.,” it oversees the activities of state-owned enterprises and even modulates private companies (which must always conform with policy) as well as maintains regulatory functions. All high-level officials, at central and local levels, and all senior

Expect curves in the road: leaders change; agendas change. executives of major state-owned enterprises are selected by the Party’s Organization Department—and they are judged by their track record in achieving the objectives of the country’s leaders. (For example, since leaders want a sustainable economy, governors are judged by how well they increase their province’s ratio of GDP per unit of energy.) As such, to the degree that your company can advance the careers of senior officials or executives, your company can be favored. Change of leadership almost always triggers a reset, major or modest, in overarching principles and policies. This means that assessing, finding and maintaining alignment is a subtle, continuous

and dynamic process, and it must always skew to the number one person. This is particularly true for China’s senior leaders, who in 2012 will undergo a complete change (likely led by China’s current vice president, Xi Jinping). But leadership change also impacts ministries and stateowned enterprises. To the extent that your business is tied to a specific ministry or agency (or company), when the person at the top changes, one must reassess strategy to align with that new person. Personally, I enjoy the creative challenge of figuring out how to align a multinational company’s China strategy with the agenda of China’s leaders. This can be done in two phases. First, seek new profitseeking strategies, stressing core competencies and achieving long-term corporate goals. Second, seek novel ways to reposition current strategies so that they are more aligned with policies. Expect curves in the road: leaders change; agendas change. Even companies who have been in country for 20 years or more are still only partially equipped to compete and win in China, says Sam Fouad, Ernst & Young America’s emerging markets leader. “The China market requires long-term commitment and continuous adaptation to the priorities of the Chinese government.” Doing business in China is ever dynamic.

Demystifying China An understanding of the complexity, dynamism and subtleties of China is critical to building robust businesses there.

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Uncommon Wisdom > Designing a China Business Framework

At a minimum, companies that truly hope to thrive in China should seek to gain a grounding in the following seven areas: •C hina’s Future: Economic Prospects and Political Landscape. (China in 10 to 20 years. Can China sustain its remarkable growth? How fragile is China’s system?) •H ow China’s Leaders Think. (Why senior leaders affect business, and how they do it.) •C hina’s New Generation of Leaders. (Who will take power in 2012-2013? How will new leaders deal with foreign companies? Which industries, geographies, structures will be favored?)

•W orking with Local Government. (Appreciating provincial politics and leadership. Seeking beneficial competition among local governments.) •C hinese Media. (Media’s surprising importance. Opportunities and pitfalls.) •S pecial Issues for High-Visibility Companies. These are not magic bullets. The goal is to shift the probability curve of likely success somewhat in your favor.

Perceived Risks In private discussions with senior executives of major companies doing business

There are always trade-offs and reliable generalizations do not work. in China, I am always asked to address risks. Here are the “favorites” (listed in order of concern): theft of intellectual property; violations of Foreign Corrupt Practices Act; scarcity and turnover of

Hal Bergman Photography/ Flickr/Getty Images

•W orking with the Central Government. (Principles for aligning corporate strategies with China’s leaders’ objectives.)

quality talent; difficulties in running joint ventures; difficulties in integrating acquisitions; enforceability of contracts; repatriation of cash; industrial espionage; government regulation; reliability of information about counterparties; difficulties in valuations; lack of internal consensus within the counterparty’s organization; renegotiation of deals after they close; and export controls. Perhaps my favorite executive comment came from the head of business development at a medium-tech company. He complained vociferously about how tortuous it was to do business in China, but then cheerily reported that of his firm’s last three acquisitions, all were in China. A common question among companies entering China is whether to establish

joint ventures with Chinese partners or to develop wholly owned subsidiaries. There are always trade-offs and reliable generalizations do not work. Each situation needs to be assessed on its own merits, using commercial due diligence and a politicostrategic framework.

Robert Lawrence Kuhn is an international corporate strategist and investment banker who advises multinational corporations on doing business in China. He is senior advisor, office of the chairman, Ernst & Young. A longtime counselor to China’s leaders, he is the author of How China’s Leaders Think: The Inside Story of China’s Past, Current and Future Leaders and The Man Who Changed China: The Life & Legacy of Jiang Zemin.

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ceo of the year 2011 / alan mulally / ford motor

The Road Ahead

No longer in recovery mode, Ford Motor Company is building a world-class enterprise. But can Alan Mulally do as well in a boom as he did in a bust? A number of formidable challenges lie just ahead.

JAmes porto

by J.P. Donlon

When the Chief Executive of the Year selection committee met in March of this year to sift through the finalists nominated by CEOs, presidents and chairmen, there was a general recognition that one candidate stood out. While there were many contenders to respect and admire, Alan Mulally appeared on virtually every member’s mental short list. Having successfully managed a turnaround for an iconic American company like Ford—and without the TARP bailouts given GM and Chrysler—tends to get one noticed. But there were others who had impressive, if less visible, performance records. What set the former Boeing executive apart was, in the minds of his peers, a special blend of behaviors and accomplishments that matched up fairly closely with the selection criteria (See “ Why the Judges Selected Mulally,” p. 37). When Ford overtook GM as North America’s top selling carmaker for the second time in a little more than a year, it underscored the headline-grabbing turnaround achieved by the Kansas-born aeronautical engineer who answered Bill Ford’s call to replace himself as CEO at the Dearborn-based company. Last year, the company made $6.6 billion, a $59 million increase compared with a loss of $639 million in 2009. Five years ago, Ford was in serious difficulty. The fact that it had not only avoided bankruptcy and a federal bailout but turned itself into the most profitable automaker has been well documented, including in Chief Executive (November/December 2010).

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ceo of the year > alan mulally

Going forward, the biggest threat to Alan Mulally and his team is not failure, but success. Ford has seen turnarounds before (although none as grave) only to have the organization drift back to former habits. It’s not due to hubris so much as a reversion to the mean (1989 Chief Executive of the Year Donald Petersen of Ford was honored in no small measure for having faced down the quality threat from Japan’s automakers). Having secured Normandy beach, Mulally’s forces must now regroup to press on to Berlin. Challenges currently on the front burner include: Ford’s weakness in Asia. With just 2.7 percent of the market in China (and less than 2 percent in Asia-Pacific), the company is barely competitive in the world’s largest and fastest growing auto market. Although advancements Ford Revs Up U.S. Market Share* in the U.S. and South American marketsmarket are deservedly noteworthy, last year, Ford has steadily increased share throughout its recovery. Ford’s global market share drifted down to 6.9 percent from 7.8 25.00 percent two years earlier owing to weakness in Asia, particularly India. By putting a tough-minded executive like Joe Hinrichs in charge of Asia, Mulally recognizes the importance of this 20.00 region. Its $1.5 investment in assembly and engine plants in the Chongdoing region of southern China is expected to produce SUVs and other vehicles that Chinese consumers crave. 15.00Lincoln needs CPR or a quick death and replacement. Once at the top in 1999, the brand has fallen to eighth place among luxury brands in the U.S. When Mulally killed 10.00 Mercury last year, Lincoln dealers became nervous. Since 1980, its sales have fallen 63 percent. In 2012, Lincoln will launch a small car that is based on the Focus platform. Other variations 5.00 as a luxury SUV will also debut. But Lexus (Mulally such drove a LS430 before coming to Ford) still outsells Lincoln three to one. A bright spot: Lincoln ranked highest in annual 0.00 vehicle dependability, the first time in four years an American BMW Chrysler Daimler GM Honda Hyundai nameplate took the top spot, in a J.D. Powers survey released 2009 last March. 2010 Clean up the4/2011 balance sheet. At the end of 2010, Ford 1/2011reported debt of $19.1 billion after reducing it by $14.5 billion, a reduction of more than 40 percent that will reduce annualized interest expense by $1 billion. Ratings agencies dropped Ford below investment-grade status in 2005, when its future looked

grim. The following year, the company took out $23.5 billion in loans for a major restructuring allowed it to return to health. However, its fourth-quarter profit fell sharply, hurt by a $960 million charge for debt repayment. Still, the company reported having $20.5 billion in gross case, securing Mulally’s aim of having more cash than debt. S&P raised the credit rating to BB- with an inside chance it could be upgraded later this year. So far, CFO Lewis Booth has kept the petal to the metal in dealing with this. He must be allowed to continue. Extend innovation throughout the enterprise. Ford embraced social media as a way to leverage its brand and get the word out about its new products to key demographic groups. Rather than the usual push-marketing approach, it deployed the Ford Fiesta movement to open an interactive dialogue with real customers about the launch of the car itself. Later, it switched focus from buzz and exposure toward pre-orders and sales having earned the right to close the sale because of the early dialogue. In this way, Ford took social media to a new level as a marketing vehicle. This and related technologies suggest that, for example, traditional auto distribution is, pardon the pun, an Edsel and needs rethinking. Don’t innovate like a car company. At the 2011 Consumer Electronics Show, Mulally said, “We could’ve acted like a car company, introduced an outstanding new electric vehicle, and called it a day. But we’re more than a car company, we’re a technology company.” He expects that a fourth of all vehicles sold by 2020 could be electric or hybrid and is peppering Ford’s lineup to offer a variety of EVs. Don’t stop there. What’s needed is a new energy ecosystem where advances in battery technology need to go hand in hand with new thinking about electricity distribution, natural gas powered systems and possibly even nuclear. It’s been Kia Nissan Subaru Toyota Volkswagen Other 56 years since Admiral Hyman Rickover, father of the nation’s nuclear submarine fleet, launched the Nautilus and revolutionized *Selected nuclear as a safe transportation power source. A Nobel Prize manufacturers Source: WardsAuto.com is waiting for the (Ford?) engineer who does a Rickover for everyman’s transport vehicle. Beware Toyota. Toyota has its woes. Sales have Toyota in the skids due to its recall problems associated with unintended

Asia/Paciﬁc Total Vehicle Market Share* Ford will need to boost its relatively weak share in the Asia-Paciﬁc market, particularly in China. % 14 12 10 8 6 4 2

2009 2010 1/2011 - 4/2011

*Selected manufacturers.

Zhejiang Geely

Volkswagen

Toyota

Suzuki

Subaru

Nissan

Peugeot Citroen

Nanjing

Mitsubishi

Mazda

Kia

Maruti Udyog

Hyundai

Jianghuai Auto Co

Honda

Foton

FAW

Donfeng

Daihatsu

Chrysler

Chery

Chana

BYD

Brilliance

Source: WardsAuto.com

Note: Asia/Paciﬁc is comprised of: Australia, China, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Phillipines, South Korea, Taiwan and Thailand.

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JAmes porto

acceleration. Quarterly profit fell by 75 percent mostly because of productions problems from the March 11 quake in Japan. In the U.S. it’s losing market share, falling to 14 percent from 17 percent in little more than a year, when it should be reaping the benefits of consumer’s interest in fuel-efficient cars. Edmunds. com estimates that Toyota boosted average discounts and other incentives by almost a third last year. CEO Akio Toyoda allowed

recently that executives were “gritting our teeth” to keep everything intact. But Mulally & Co. can’t expect their chief competitor to suffer misfortune indefinitely. There’s little room for complacency. The last time fuel prices spiked in the U.S. Toyota was crowned the world’s No. 1 automaker. Despite its current problems, Toyota’s Asia-Pacific market share is over five times Ford’s. Now is the time to prepare.

Mulally on What’s Next for Ford

Kansas native, Alan Mulally, 65, graduated from the University of Kansas, also his mother’s alma mater, in 1969 with a Bachelor of Science and Master of Science degrees in aeronautical and astronautical engineering. He received a Master’s Degree in management as a Sloan Fellow from MIT’s Sloan School of Management in 1982. He held executive positions at Boeing in his 37-year tenure there. In the early 1980s, Mulally came to former Ford CEO Don Petersen’s attention when, as Boeing chief engineer for the design of the 777, Mulally presented to Boeing’s board the technical and business case for the new airplane. Impressed, Petersen, a Boeing board director (and 1989 Chief Executive of the Year) asked Mulally to meet with Ford’s Team Taurus as it was preparing to design the new 1982 Taurus. “I invited the entire Team Taurus out to Seattle for three days,” he recalls. “We compared notes on technology, on process, and being market-driven and customer-oriented. So when Bill Ford called asking me to come to Ford, I checked in with Don with whom I stayed in close contact. It felt like I was coming home because I knew the environment.” Chief Executive caught up with Mulally during a recent trip to New York.

Having engineered a successful turnaround, you can take a well-deserved victory lap. But what about the challenges ahead? How will you turn an organization that has been, until now, geared toward recovery, focused on profitable growth? We are moving from saving and transforming the company into an era where we are now growing the business worldwide. The future has been established by the big decisions that we have taken to refocus and transform Ford. The important, big decision was to focus on the Ford brand and focus on a complete family of vehicles made available all around the world, where every vehicle is best in class in terms of quality, value, fuel efficiency, safety and smart design, like Sync and MyFord. Going forward, we are wellpositioned in most of the markets around the world. So the real key now is to stay absolutely laser-focused on this. Despite gains in the U.S., South America and Europe, Ford’s weakness remains in Asia, specifically China, where you hold just 2.7 percent of the world’s largest and fastestgrowing auto market. What’s your strategy for addressing this and Asia’s other booming market, India? Asia Pacific is going to be a very important market for us going forward. We have a good position in India and China and throughout the Asia Pacific region, although it is smaller relative to our competitors, because up until now we’ve been focused on the Americas, Europe and also Russia. So the most important thing we do now is utilize our One Ford approach and our family of vehicles that we have designed on our global platforms to bring these vehicles into Asia Pacific as quickly as we can as we increase the production capability in each of the countries throughout the Asia Pacific region. We are now ramping up production with these vehicles to make them available to our customers throughout the Asia Pacific region.

What about the Ford brand in China and India? It’s very interesting about the Ford brand. It’s one of the most recognizable in the world. And even though our presence hasn’t been as large in China as it is in the Americas and Europe, brand awareness is very strong. And so the most important thing we must do now is to help everybody understand that they have great choices for a full family of vehicles available now in the Ford showroom for them. The neat thing about China is that the Chinese invested very significantly in their infrastructure, especially the Internet. Most shopping is done online. So you can imagine how fast we can boost awareness of the choices Ford offers with customers in China. So part of your go-to-market strategy in China and India is to use social networks and the Internet to advance Ford products as you did with the Ford Fiesta in the U.S.? Absolutely. The neatest thing is the movement from paid media to earned media to social media. Increasingly, it’s more about a conversation, because information now is ubiquitous. Everybody wants to know and has access to all the information about vehicles. So for us it is about starting that conversation and making the data available so everybody can see what the options are from Ford. It’s exciting to see their response when they have this brand awareness. And yet the Europeans seem to show no inclination to scale back their production capacity in line with demand. It’s not only about having great products, but also running a healthy, strong business for the long term. It’s important to make a reasonable return for everybody in this business in order to have the ability to continue to invest in the future. Those that do that will get a chance to go forward. Those that do not; it’s not going to work out so well.

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ceo of the year > alan mulally

You describe Ford as a technology company—not just a car company. But technology is a means, not an end. How does Alan Mulally encourage innovation, not just among Ford’s engineers, but with Ford’s 163,000 employees, its suppliers and everybody else that you partner with? Innovation is one of the neatest words, but for me it starts with innovation that has a purpose. It begins with the point of view of the customer? What does the customer really want? What will they really value? Clearly, we all want safe and efficient transportation. We also want the highest quality, we want it to be the most fuel-efficient. We also want all the latest safety technology and the best value. And finally, we want smart design that works for us.

We’ll see more natural gas in our cars as well as more electrification. It will expand from hybrids with more powerful batteries to all-electric vehicles. As we develop fuel, cell technology and develop the infrastructure for electricity and for hydrogen, we’ll see hydrogen vehicles where we take in hydrogen, combined with platinum, creating electricity for the battery with water coming out of the tailpipe. When might we see something like this in a vehicle we can purchase at a Ford dealership? You’re seeing it right now. In Ford’s case, we just announced that we’re going to be electrifying the entire Focus platform, that’s a global platform that we offer worldwide. We’re going to have 10 different top hats off that fundamental platform, so that off the same production line, one could have a petrol, a diesel, a hybrid, a plug-in hybrid with a bigger battery and an all-electric vehicle, all off the same production line. The consumer decides which vehicle and which propulsion system makes the most sense for them.

Innovation and technology must serve these pillars of what customers really want. Consider the things that we have done about safety. For example, the cross-channel alert allowing blind spot monitoring, the collision-avoidance—the roll stability control— these features plus SYNC and MyFord, hands on the wheel, eyes on the road, voice-activated, technology seamlessly connected to our digital world—all of those features not only increase safety, but make us even better drivers.

How are you a different leader from your career at Boeing? Don’t think I’m a much different leader. I’ve been doing this for a long time and, as we’ve talked, I’ve been associated with largescale system integration innovation, whether it’s a commercial airplane with four million parts or a sophisticated automobile with 10,000 parts—they both take a lot of talented people and a lot of different disciplines to come together to create these fabulous products. It’s all about getting people to work together on the team. What’s our plan? What’s the status against the plan? What areas need special attention? Bringing this together is something I feel very comfortable doing. I’m excited for everybody

What other innovations might we see from Ford in future? Expect to see continuous improvement of the internal combustion engine, both diesel and petrol. We’ll see more turbo-charging and direct fuel injection, which allow us to use smaller and lighter weight engines, but also provide the performance capability and the fuel efficiency that we all treasure. Expect to see more lightweight materials, more integrated electronics, more uses of alternate fuels, like cellulosic and biofuels.

Ford Revs Up U.S. Market Share* Ford has steadily increased market share throughout its recovery. 25.00

20.00

15.00

10.00

5.00

0.00

BMW

Chrysler

Daimler

Honda

2009 2010 1/2011- 4/2011

Hyundai

Kia

Nissan

Subaru

*Selected manufacturers

Toyota

Volkswagen

Other

Source: WardsAuto.com

34 chiefexecutive.net july/august 2011

Asia/Paciﬁc Total Vehicle Market Share*

3137_CEOofyear.indd 6

Ford will need to boost its relatively weak share in the Asia-Paciﬁc market, particularly in China.

6/16/11 11:20:10 AM

associated with Ford that we are now delivering not only strong, great products, but also a strong business in addition to contributing to a better world. No one questions that someone like yourself shouldn’t be generously rewarded for your efforts since 2006 in turning around a famous iconic company. But you must allow that $57 million in stock is fairly generous. This begs the question, how should CEOs be fairly compensated? Is there such a thing as some amount being “too much” for one person? The world is moving towards performance-based compensation. It must be tied to creating a profitable, growing business because then everybody benefits. Clearly, the compensation here rewards all of the leadership team based on the team creating value for the shareholders and for all the participants whether they are hourly or salaried. Compensation is aligned to a value creation for everybody. Today we’re providing great jobs and great careers for everybody. And that’s what everybody cares about. You come across as a highly affable, good-natured fellow. Do you ever lose your temper? No, I don’t think so. Maybe someone else might think I was a bit short, but if I ever am, it doesn’t take me very long to apologize because it really isn’t the most effective behavior. I treasure working together with talented people and holding ourselves accountable and working our way through whatever problem arises, whether we’re creating a 777 or a new Ford Explorer. Working together is the most important part and the essential behavior for a high performance team. How do you want to be remembered when the time comes to step down? Hmm. Legacy [pause]. I’m proud about the fact that I helped create products—commercial airplanes or the best cars and trucks—that move people and families around our world safely and efficiently. I love having contributed to making life easier, safer and more efficient, but also like creating fantastic jobs and careers for many people around our world. A strong growing business can do this as well as contribute to a better world by using fewer resources.

Six Things All CEOs Can Learn from Mulally 1 Display courage in the face of adversity. When he arrived on the job in September 2006, Mulally realized that the Ford line-up was in disarray and that transformation would take time. He took a lot of heat for mortgaging all of Ford’s assets for $23.6 billion to protect the company from “unexpected events.” When the Great Recession hit, GM and Chrysler extended their hats in desperation for government bailouts. Ford toughed it out. It’s now a badge of honor. 2 Focus is everything. Ford had dissipated its effort across too many non-core nameplates. (“Nobody buys a ‘house of brands.’”)

How Do CEOs Measure Their Peers? Each year, the Chief Executive of the Year selection committee meets to agree upon the criteria (See “Criteria for Evaluating a Chief Executive of the Year,” p. 37) to be applied to each of the nominated finalists and then to apply that in a way that permits the group to reach a decision. This year we asked Tom Saporito, CEO of RHR International, a firm of management and organizational psychologists, to help frame the criteria in a way that would help members compare and contrast candidates with disparate strengths from different industries. He synthesized our criteria into six distinct areas with the understanding that leadership is the thread that ties all the criteria together. • Future-Forward: Intentional, purposeful positioning of the company for the future. Incorporating vision and innovativeness, this is where a leader sees patterns in the broader environment and acts to innovate on his or her company’s value proposition and to lead its industry. • Drives value by being intimately connected with customer and shareholder needs. Incorporating external benchmarks and customer and shareholder value created, this is evidenced when the CEO knows the business inside and out and knows how the company stacks up relative to the competition. • Unwavering focus on people. Encompassing employee engagement, leadership development and internal people processes, this key aspect is manifest when a leader invests in processes that support the growth and performance of all employees. • Achieves and sustains business results. This is where sustained performance and degree of difficulty intersect. Such a leader relentlessly drives performance and is never satisfied with the status quo. • Breadth of impact that extends beyond the business. To have a demonstrable impact beyond one’s company and industry, a leader needs to focus on the well-being of the communities in which his or her company operates. • Maintains a stable, consistent “moral landscape.” Courage, integrity, reputation and having a coherent high purpose become part of a corporate culture when a CEO honors commitments and is transparent in word and action in putting interests of the organization above personal gain.

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Market Value Added

$27,409

$37,182

$30,798

$24,992

$16,524

$5,976

$17,083

ceo of the year > alan mulally

The decision to sell Jaguar, Land Rover, and Aston Martin, fold Mercury and concentrate on the Ford brand –the One Ford strategy—allowed everyone to direct their energies to what was truly important. 3 Simplify. Mission statements are pretty useless and besides, no one reads them. To let everyone know what he expected Mulally had plastic cards printed and distributed to everyone, headlined “One Ford” with four expected behaviors on one side and a revised definition of the company on the other (One Team. One Plan. One Goal.). Mulally carries spares in his wallet in case you can’t produce yours.

Ford by the Numbers Ford’s strong return on capital and its outstanding EVA profit trend combine for a first rate, 87th percentile profit score.

2006 Q3

2011*

Industry Average

Sales

$148,009

$121,716

$135,499

EBITDAR

$10,656

$18,416

$14,272

NOPAT

-$6,737

$2,435

-$3,895

Capital

$20,707

$22,580

$26,505

Mission statements are pretty useless and besides, no one reads them.

Return on Capital

-25.20%

9.80%

-14.10%

7.50%

6.30%

6.80%

EVA

-$8,655

$922

-$5,694

EVA Spread

-32.40%

3.70%

-20.80%

EVA Margin

-5.9%

0.80%

-4.30%

4 Use the Outsider Advantage. Outsiders often have a mixed track record, especially when confronting a calcified corporate structure like Ford’s, but even insiders when they step outside the box can start to see the business as an outsider would. Mulally discovered early in his tenure that Ford had a culture that indulged in “meetings about other meetings.” It was classic CYA. He insisted on a weekly Business Plan Review System where it was harder to hide unpleasant truths. Executives were held accountable for their performance against a constant stream of data that gave the team a strategic snapshot of where everything stood. 5 Reward transparency and collaboration. Early in his job, Mulally held a meeting of senior managers who were asked to report on how business was going. Most said everything was fine. Some held their breath when Mark Fields, operations chief of the Americas, raised his hand in what might have been an act of career seppuku, saying a defective part threatened to delay the launch of an important vehicle. The room fell deathly silent. Mulally looked at Fields and then to the others around the room and started to clap his hands. Once rivals, executives began sharing sensitive information and helping one another. 6 Stay inventive during tough times. In an industry often slow to embrace new developments or cutting edge technology, the company introduced MyFord Touch, a sweeping redesign in the way drivers interact with their vehicles using graphic display screens, user-friendly controls and expanded voice commands. Its SYNC communications system makes additional vehicle controls voice accessible without the driver having to take her eyes off the road. Premium technology made available to non-premium products.

EBITDAR Margin

7.20%

15.10%

10.70%

Sales Growth

-2.40%

25.40%

-1.70%

EVA Momentum (LEVA/Sales)

-4.60%

8.40%

0.50%

EVA Momentum (LEVA/Capital)

-24.00%

31.30%

-7.40%

3 Year Trend (LEVA/Capital)

-77.20%

9.60%

-15.00%

Cost of Capital

Source: EVA Dimensions LLC Term deﬁnitions: EBITDAR is EBITDAR+Rent+R&D+Ad+Etc.; NOPAT is Net Operating Proﬁt After Tax; Capital - Net Operating Assets; Return on Capital is (NOPAT/Capital); EVA is (ROC-COC) x Capital; EVA Spread is (EVA/Capital = ROC-COC); EVA Margin is EVA/Sales; EBITDAR Margin is EBITDAR/Sales; EVA Momentum is LEVA/Sales; EVA Momentum is LEVA/Capital *As of 2/2011

why the judges selected Mulally

Paul O. Colliton Studio

Of the 11-point criteria (see box, p. 37), the members of the 2011 selection committee greatly valued courage and the degree of difficulty in naming this year’s choice. See the following page for summing-up comments of the judges themselves after their deliberation at the NYSE last March.

The selection committee at the NYSE.

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He inherited a very difficult set of circumstances, even more difficult than he thought when he took the job, and he handled the job with grace and courage throughout. What’s more he single-handedly revived respect for the auto industry in the U.S., which I think is an important ingredient to the success of this country’s future. —William R. Nuti, chairman CEO and president, NCR He created a will to win among his people and through his personal leadership, modeling certain behaviors which showed passion, courage and tenacity. He excited and energized the base, and that’s always very important when you’re dealing with a demoralized situation. —Fred Hassan, chairman, Bausch & Lomb He took the hand that he was dealt, and managed then to take those resources and give them a new sense of purpose. As Fred said, he gave them the will to win, by reframing the situation from one of loss and bereavement in who they were to a sense of excitement about who they are and who they’re going to be, and taking the whole country, if not the industry, with them. —Jeffrey Sonnenfeld, Senior Associate Dean, Yale School of Management The success he showed in the face of incredible difficulty was just extraordinary. The foresight he showed throughout that process, the courage he showed in making some tough decisions on popular brands, the global mindset he showed, and above all, the statesmanship he showed when two major competitors were on the public dole shows he was thinking for the good of the country as well as his company and industry. —James Turley, chairman and CEO, Ernst & Young The turnaround and triumph of Ford is an amazing success story, due largely to his talents, leadership and his courage. It’s a turnaround not only of an American icon but more importantly, a global icon as well. It comes down to the degree of difficulty –what was accomplished in tough times—that I think speaks volumes about his leadership. —Hugh Grant, chairman and CEO, Monsanto, 2010 Chief Executive of the Year Mulally has created a leadership template for all of us to follow going forward for what growing a business in the United States is going to look like. —Christine Jacobs, chairman and CEO, Theragenics Alan rallied the Ford team to support the “One Ford” vision and come together to make the tough, but necessary decisions. The end result is that Ford has delivered market-leading performance in a very challenging environment. —Dan Glaser, group president and COO, Marsh

His leadership style really brought Ford back from the brink. After more than 100 years it is once again, a successful icon of U.S. business. —William Hickey, president and CEO, Sealed Air Alan has led this venerable, prestigious and uniquely American company through a tumultuous period and has set the company on a course for continued success into the future. He’s a statesman not only for the auto industry but also for U.S. business in general. —Steve Odland, former chairman and CEO, Office Depot, former CEO, Autozone He’s a statesman not only for the auto industry but also for business in general. He’s a beacon to us all in how he created shareholder value and customer value, at the same time. —Thomas J. Quinlan III, president and CEO, R.R. Donnelley

Criteria for Evaluating a Chief Executive of the Year. Each year’s selection committee agrees upon the criteria to be used in evaluating finalists. Since 1993, most of the following 11 elements have been in general use recognizing that from year to year committees have emphasized some more than others in reaching their final decision. • Courage • Leadership • Vision • Demonstrable impact on company, industry and business in general • Degree of difficulty • Sustained performance • Employee engagement, leadership development and internal people processes • External benchmarks: Customer value and shareholder value created • Innovativeness • Moral dimension, personal character (Is there a coherent “higher” purpose?) • CEO respect/beacon of excellence/reputation

It’s hard to improve on what’s been said, but let me add to that given these changes and the degree of difficulty involved, he was able to leverage both the talent and the ideas of his leadership team and to make them stronger. Kudos to him! —C. Robert Henrikson, chairman and CEO, MetLife

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Raise and Pray 4045_cybersabotage.indd 2

6/16/11 11:51:49 AM

It may work in poker,

but it’s not an effective talent strategy. Introducing The CEO and Executive Compensation Report for Private Companies, a groundbreaking report that will:

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For additional information on The CEO and Executive Compensation Report for Private Companies, please visit ChiefExecutive.net/research

4045_cybersabotage.indd 3

6/16/11 11:52:08 AM

Is Your Company Vulnerable to Cyber-Sabotage? Where the biggest threats come from—and what you can do to safeguard your business. by Dale Buss

Of all the breaches created by the

explosion in corporate cyber-security threats, the biggest one may be the “consequences gap”—the growing chasm between the fast-accumulating damage wreaked by online invasions of business data and CEOs’ frustrating impotence to stop them. Just ask Sony CEO Howard Stringer, who created a bleak picture in May as he and the company reeled from cyber-sabotage against the PlayStation game network. Analysts believe this cost Sony about $1 billion in tangible damages and an incalculable toll in lost customer goodwill, tarnished brand equity and sleepless nights for the corporate brain trust. “It’s not a brave new world; it’s a bad new world,” Stringer told The Wall Street Journal, with the apocalyptic mien of a CEO who couldn’t bridge the yawning cyber-sabotage consequences gap. “It’s the beginning, unfortunately—or key takeaways the shape of things 1. CEOs must push for systemic cyber security to come.” that is well-funded and companywide. Lockheed Martin CEO Robert Stevens, 2. Preventing breaches may be futile, so an early Fox Networks President David Haslingden detection process is also important and Michaels Stores CEO John Menzer also 3. There is growing pressure on CEOs to be more fell into the digital abyss in May when their transparent about cyber-sabotage incidents, companies were hit by major cyber-security including proposed federal regulations. breaches. In June, Citigroup CEO Vikram Pandit saw hackers access account information for about 1 percent of the company’s North American customers. Dozens of other CEOs have had to parry similar attacks, ranging from Bank of America’s Brian Moynihan—who saw the bank’s market value plunge in January just on the threat of an e-mail exposure by WikiLeaks—to Verizon CEO Ivan Seidenberg, Walgreen CEO Greg Wasson and Best Buy CEO Brian

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risk management > cyber sabotage

Dieter Spannknebel/ Digital Vision/Getty Images

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Tetra Images/Getty Images

risk management > cyber sabotage

The Bad Guys Cyber saboteurs fall into four main camps. CEOs know the faces of the victims of cyber-sabotage against corporations: Their employees, customers and partners. But who are the criminals behind all the digital sleight of hand? “Picture an organized group of individuals whose sole purpose is to generate revenue by stealing from others,” says Bill Edwards, of security consultant Vigilant. “They run the gamut. They’re not all from a certain country or a certain economic class.” But cyber-saboteurs do typically fall into one of four categories: Foreign government-intelligence services . Some foreign government-intelligence services seek digital positions inside U.S. corporations to steal intellectual property and as footholds in case of later national conflict. “They’re the most sophisticated cyber-threat, but the least likely to actually do any stealing,” says Shane Sims, director of advisory forensics for PwC. Transnational criminal

enterprises. Hackers who have formed loosely knit organizations across the globe are especially prevalent in China, Russia and the Ukraine, but also resident in Eastern Europe and Nigeria. These operators primarily want to steal information that they can convert to cash by thieving credit-card numbers or gaming stocks and commodities markets, for instance. Sometimes, they will demand ransom not to perform an act of cyber-sabotage. “This happens more often than people realize,” Sims says. Corrupt competitors. Digital theft and espionage by renegade companies is an inevitable outgrowth of the global economy. Corporate insiders. “This threat group is the biggest,” Sims says, who notes that employees infiltrate systems for a variety of reasons. “Sometimes they do stuff themselves because they’re unhappy. Sometimes they look for an external sponsor from one of these other groups.”

Dunn, whose companies were exposed by a major theft of e-mail data from the same Dallas-based outside marketing company. Cyber-sabotage is a large-company problem, for the most part. Stealing intellectual property increasingly is the goal of data thieves the world over who tend to attack huge financial-services giants and other information-rich targets. And though defense, transportation and energy sectors have top-notch IT security, they tend to be frequent targets for cyber-saboteurs, who also might gain an opportunity through them to attack governments— including acts of cyber-terrorism. Yet, the most vulnerable private-sector entities remain those with treasure troves of customer and credit-card data that are susceptible to “old-fashioned” digital theft, especially companies in the retail, restaurant and hospitality sectors. And the problem has become potentially overwhelming. More than 8,000 new cyber-sabotage “vulnerabilities” in private and public-sector operations around the world were identified last year, up 27 percent from 2009, according to IBM. And the brazen goals of data thieves’ attacks is growing as well as their quantity: About 25 percent of senior IT professionals in seven major countries told a McAfee Security survey that a merger, acquisition or product rollout had been “stopped or slowed” by cyber-sabotage or the threat of it. “Staying ahead of these growing threats and designing software and services that are secure from the start has never been more critical,” says Tom Cross, threat-intelligence manager for IBM’s X-Force cyber-security service.

“ If you can’t be the fastest animal in the whole woods, at least make sure you’re faster than your friends,” so that the digital thieves first pick on other weaker members of your industry. But while the challenge for IT departments is stark, not so obvious is what CEOs should be doing about this. Despite the growing contagion of cyber-sabotage, the first problem with many chiefs is getting them to take it seriously. “There is a lot of lip service about making cyber-security a priority, but the rubber never seems to meet the road,” says Todd Thibodeaux, CEO of CompTIA, a computing-industry association based in Downers Grove, Ill. “Lots of CEOs just roll the dice. They figure they haven’t been hit yet, or at least in a hard way— and ‘the odds are we aren’t going to be.’ And other budget priorities come up. But damages are going to get bigger; regulations are going to get stricter. CEOs need to know how big a risk they’re taking.”

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H-Gall/Vetta/Getty Images

If cyber-sabotage finally has gotten your attention as a CEO— before or after an attack—here are five things you can do to narrow the consequences gap: Become the security champion. There are always other places CEOs can use their leadership capital. But the most effective corporate counter-attacks against cyber-sabotage are being led by CEOs. “Just as companies will rally around cost or qualitycontrol issues, today it’s equally important to rally around security,” says Bill Edwards, chief information security officer for Vigilant, a Jersey City, N.J.-based IT-security concern. “And you need to be very visible with that commitment so that it permeates through the ranks.” Perhaps set limited goals at first. “If you can’t be the fastest animal in the whole woods,” Edwards suggests, “at least make sure you’re faster than your friends,” so that digital thieves first pick on other, weaker members of your industry herd. Put cyber-security visibly at or near the top of corporate priority lists. CEOs should push for systemic and “end-to-end” cyber-security that is well-funded and company-wide. They can also direct IT and HR departments to set up systems that classify internal data on the bases of the damage they could cause if disclosed, and on various levels of the “need to know.” And CEOs can prioritize comprehensive, mandatory training for all employees on cyber-sabotage prevention. Beware of “social-engineering.” CEOs should make upper managers aware of their own vulnerabilities to attacks that exploit the behavior of strategically positioned individuals rather than involve a broad cyber-sabotage campaign. For example, in these so-called “social-engineering” maneuvers, data thieves may sit outside an executive’s home and tap into the household wireless network. C-suite executives can unwittingly expose their companies by sending sensitive attachments with e-mails or even by setting up Google Alerts for specific topics. And in “spear-phishing,” criminals carefully wedge into corporate networks, sometimes over the course of months through a single well-selected victim whose e-mail, search or social-media habits (see sidebar) can provide entry to the one PC required to infect or steal an entire information cache. Draw the difficult lines. One of the big debates in cyber-security is whether prevention, or early detection and countermeasures, is the preferable strategy. CEOs naturally want to thwart all harm. But one problem with too much prevention is that it can interrupt the vital flow of data within a company, says Ted DeZabala, national leader of security and privacy services for Deloitte. Besides, cyber-criminals have become so sophisticated that “there’s a mind-set shift” by companies “from prevention to earlier detection,” argues Shane Sims, director of advisory forensics for PwC Consulting, and a former FBI agent. “You’ve got to transition your IT environment into an early-warning system.” Another tough call for CEOs is when to notify authorities and customers in the event of a breach. Just three in 10 companies report cyber-sabotage incidents at all, McAfee estimates, because they don’t want to make customers and other constituencies worry, or to let hackers to know they’ve been proven vulnerable. “If your house has been burglarized,” as Sony’s Stringer puts it, “you find out if you’ve lost something before you call the police.” Yet there are growing pressures on companies and CEOs to become more candid, more quickly, about cyber-sabotage. Certainly it’s something that customers want and expect. And there’s growing support behind a proposed federal law regarding notification of breaches that would supersede the laws of 47 states

Tweet With Care How to express yourself in social media without risking the family jewels. Your CMO is begging you to start tweeting and to accept all those invitations to join LinkedIn. Your chief lobbyist thinks that writing a blog yourself would really score points on issues with politicians in Washington. And your spouse really believes your personality would come through if you shared more about yourself on Facebook. But when it comes to your personal participation in social media, check with your chief security officer first. You’ll hear a different story. Cyber-thieves love it when CEOs and other C-suite officers plunge into social media because it can provide them with the perfect openings to sabotage companies. “They don’t have to make a lot of digital noise on external-facing systems,” says Shane Sims of PwC. “They can go right for the jugular. It’s easier to target people and to trick them into sharing information that the thieves can use.”

Yes, you can individually express yourself via social media without risking the company jewels. “The key is how to embrace it without undue vulnerabilities,” says Kevin Kalanich, national managing director of Aon Risk Solutions. “Just make sure you have a policy of what you can disclose and what you shouldn’t. Don’t give out the keys to the kingdom.” CEOs should be very wary of responding in the digital or physical worlds to questions that seem to stem from what they might have said in a Tweet or Facebook posting. “All the information [cyber-criminals] glean from these things can make it easier for them to pose as someone you might trust and get you to click onto something you shouldn’t,” Sims says. “Don’t do it.”

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risk management > cyber sabotage

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networks, especially senior IT leaders. “A lot of people are still caught up in credit problems or mortgage difficulties and are financially desperate,” notes Sims. “It makes them easier to recruit by external groups.” Unhappy contractors, customers or partners can turn cyber-accomplices as well. Weak points often are small companies that supply large institutions, DeZabala said. CEOs also should take the lead in visualizing the types of external threats who may be inspired to cyber-sabotage (see sidebar, p. 42) because of the industries a company operates in, or because of its specific political or ideological positions. The attack on Fox, for instance—which yielded personal information about hundreds of employees and contestants in the new fall show, The X-Factor—was claimed by group of hackers who wrote, “We don’t like you very much.” It wasn’t clear whether the hackers incorrectly believed they were attacking the Fox News unit of Fox. “We see an increase in these types of activism-inspired attacks,” says Ilan Kinreich, chief operating officer of Radware, a cyber-security company based in Mahwah, N.J. “And they’re finding more ways to conduct their campaigns through cyber-sabotage.” Survey the changing “threat landscape.” As digital technologies continue to proliferate, they create new potential conduits for cyber-criminal exploitation, and the best place for a

and broaden the types of data thefts that companies would be required to report. Dig to the roots. CEOs can’t keep everyone happy, but they can try to limit the company’s cyber-sabotage exposure to staffers who become turncoats. Not surprisingly, Sims says, the most likely traitors are managers with access to important intellectual property or individuals with physical access to computer

B:16.5” T:16.5” Dieter Spannknebel/ Digital Vision/Getty Images

S:14”

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Security Threats on the Rise Public and private organizations around the world faced increasingly sophisticated, customized IT security threats in 2010, according to IBM’s X-Force Trend and Risk Report. Findings from the report were based on public vulnerability disclosures and the monitoring and analysis of more than 150,000 security events per second during every day of 2010. 10,000 8,000 6,000 4,000

2010

2009

2008

2007

2006

2005

2004

2003

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2,000

1996

CEO to get ahead of the game may be in these emerging areas. While experts believe that cyber-saboteurs have been relatively slow to exploit the security weaknesses of mobiledata networks so far, the rising number of smart-phone “apps” is providing them with opportunities that are too tempting to pass up. But while many CEOs are wary of the corporate migration to “cloud” computing—basically, outsourcing of the operation of online networks—the truth is that “cloud environments such as those that Amazon and Google have are a much more secure environment than any that another company would be able to build on its own,” Thibodeaux says. Sony’s Stringer hasn’t been alone in warning that the sort of cyber-criminals who hacked his company could increasingly turn their aim toward air-traffic-control systems, the power grid or the global financial system. But before he and other CEOs can protect the entire world from cyber-sabotage, they must do a better job of protecting their own companies.

Sources: IBM, X-Force 2010 Trend and Risk Report

B:16.5” T:16.5” S:14”

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From a company with vision. Literally.

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Can Cloud Live Up to Its Promise? There’s great potential behind the hype. The trick is delivering on it. by

William J. Holstein

As CEO of a $5.4 billion company with expensive information technology systems, Pitney Bowes CEO Murray Martin is in a hurry to move many of those functions to the “cloud,” meaning into the hands of vendors that have built huge farms of computer servers. So far, the Stamford, Conn.-based company has moved its email, sales forecasting and some human resources functions. Now, Martin is pushing his Chief Information Officer, Gregory E. Buoncontri, to move even faster in the belief that cloud computing is not only cheaper, but also makes his company more secure and more resilient. Roughly 10 to 20 percent of the company’s IT functions are in the key takeaways cloud now, and Martin sees that 1. View cloud computing as an opportunity number headed toward 50 perto rethink IT infrastructure. cent over the next five years. “If 2. Calculate the real cost of performing functions Google can do it, I can do it,” internally versus locating them in the cloud. he says. 3. CEOs of smaller companies can use cloud Jeff Janer approaches cloud computing to rapidly scale up and enter computing from a different vannew markets. tage point. He is the CEO of a 4. Encrypt data and build in other safeguards rather than pursue the cheapest possible Boston-based start-up called cloud contracts. Springpad, which allows customers to download their personal notes from the web no matter where they are and what device they use. The company has relied on Amazon’s “cloud” to host its website, the heart of its business, but Amazon’s data center in Northern Virginia suffered a still-unexplained shut-down this spring, knocking Janer’s company out of business for days.

John Lund/Photodisc/Getty Images

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technology > cloudâ&#x20AC;&#x2122;s promise

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technology > cloud’s promise

The company’s website was relegated to proclaiming, “Oh no! Springpad is down.” Yet Janer still believes in the cloud. “I absolutely think this is a speed bump in an inevitable path toward the cloud,” Janer says. “Ultimately, we all can do better to guard against these kinds of disasters.”

Reality vs. Hype Some degree of skepticism about cloud computing is understandable. The marketing hype surrounding it smacks of previous campaigns by consultants and technology companies to lure corporate investment. To wit: Y2K paranoia, dot.com hysteria and fiber optic mania. But cloud computing is real, and CEOs of companies large and small, of both “brick and mortar” and Internet-centered businesses, are embracing it. Larger companies face trickier management challenges because many have CIOs and large IT staffs and budgets, not to mention millions of dollars worth of old legacy equipment. Smaller and medium-sized companies often have an advantage in using the cloud because it allows them to ramp up more quickly and cheaply than if they had to build their own systems. Defining “cloud” isn’t easy. The term does not refer to a piein-the-sky IT heaven open to all. The cloud is distinctly proprie-

Six Mistakes CEOs Make In The Cloud • Failing to rigorously evaluate the full cost of performing an IT function internally versus the full cost of going to the cloud. • Allowing business units to buy too many services and too much software independently, degrading the CIO’s ability to manage a cohesive IT infrastructure. • Opting for a cheaper service in the cloud, only to discover that the long-term costs of being “locked in” to that supplier are higher than expected. • Losing control of sensitive data or failing to meet regulatory requirements for storing data. • Moving some systems to the cloud, only to discover that they are no longer compatible with those kept in-house. • Failing to require that a vendor back up software or data in a “mirror” facility in a different geographic area.

tary. Traditional suppliers such as IBM and Microsoft, as well as would-be usurpers such as Amazon, Google and Dell, are allowing customers to use software that the providers maintain and to store large amounts of data in the provider’s server farms. Cloud computing bears resemblance to the old concept of pay-as-you-go utility computing, but is more sweeping in scale and usability. “There’s hardly an article you can read that doesn’t mention ‘cloud’,” says Mal Postings, chief technology officer of Ernst & Young’s IT Advisory Services Group in New York. “You see hype and buzzwords, but in three to four years it will be the modus operandi.” Smart CEOs appear to be taking advantage of the cloud hype to subject their companies’ entire IT budgets and systems to a new kind of tough-minded scrutiny. “It is allowing companies to

take a fresh look at all their IT applications inventory,” Postings explains. “Basically, they’re asking, ‘if we have 600 or 800 applications, how many applications do I really need to run my business? How many are commoditized? How many are aligned with the business’ competitive advantage?’” Surprising as it may seem, many CEOs have not made a complete analysis of how their IT dollars have been spent, but the advent of cloud computing is providing them with a lever to benchmark the cost of everything they do internally versus the cost of farming it out. “IT has always been a black box—no one understood what they were getting,” says Chris Pick, chief marketing and strategy officer at Apptio, an on-demand technology business management software company in Bellevue, Wash., that counts Expedia, Facebook and eBay as customers. The privately held company, itself a provider of cloud services, seeks to help CEOs and their CIOs make more informed decisions about IT functions.

Do the Math The first step is to understand the true fully loaded cost of an IT function, Pick says. That includes how much it costs to use the company’s network and all the devices that operate the underlying software. “When they look at cloud, many CEOs don’t look at the fully burdened cost,” he argues. One example of a hidden cost might be if a company’s web browser is Microsoft’s Internet Explorer Version 6. If the company wants to rely on the cloud, where IE Version 8 is dominant, the company would have to pay for that upgrade of Explorer, for which it might not have budgeted. But once a company has an accurate handle on the cost of each function, the CEO and leaders of individual business units have the power to compare how much an IT service costs internally versus how much it might cost if it were located in the cloud. Those gains can range from 20 percent to 80 percent, says Pitney’s Martin. No capital expenditures are required because cloud providers charge on the basis of service “pay as you go.” CEOs love to squeeze out these savings from functions that have been commoditized because it allows them to concentrate on areas where they can truly innovate and create a differentiated product or service for their customers. “You can take people working on maintenance of an IT infrastructure and put them on things that represent strategic opportunity, not just making the trains run on time,” says Tim O’Brien, senior director at Microsoft and one of the company’s “evangelists” for cloud computing. Microsoft is the largest provider of cloud computing services. This is a sweet spot for many CEOs—using savings from their IT budgets to streamline their workforces and transform their businesses. “Those with a strategy that’s clearly integrated with the business needs will benefit the most from the flexibility and scale that cloud computing can provide,” says Phil Garland, a partner at PricewaterhouseCooper’s advisory practice.

Risky Business? Of course, CEOs must tread carefully in the cloud and not take wild plunges into unknown territory. “The tension in the industry today is between all the benefits and goodness of the cloud versus all the unknowns associated with a new model of computing,” says Microsoft’s O’Brien. “The things that keep

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technology > cloud’s promise

A Big Believer in The Cloud Pitney Bowes CEO Murray Martin argues that cloud computing makes his company more resilient and nimble without compromising security—and that companies need to attract the next wave of new workers. Excerpts from an interview: How do you analyze the pluses and minuses of the cloud from a CEO’s perspective? The advantages of going to a cloud base are both cost and access. In the cloud, if the technology changes, everybody in your company will have it quickly. You don’t have to update devices. It’s much more efficient to move into the cloud. You have to weigh that against security. The security is just as good as what we had behind the firewall and life got a lot easier, and it cost less. You can secure your data by encrypting it on the transmission up to the cloud, while it’s in the cloud and back down to your own systems. Doesn’t having your systems located on someone else’s servers make you less able to adapt and respond to changes in the market? Actually, I think it’s the opposite. It makes you more flexible. It’s not that different than outsourcing components. You’re moving to an outsourcing provider that has more capacity and more expertise in a segment than you have. So if I have a room with a rack of servers in it, why is that better than a campus of racks that is backed up by another campus in real time? The cloud provider has new equipment that’s been upgraded. I think you can gain more flexibility, more scalability and more variability than in the old model.

Don’t you feel that CEOs should own and control systems that are so important to their success? What does the desire to own and control really mean? Do I own and control a system more if I have the hard drive sitting on my desk, in my basement, in my IT center, which is in a different building–or in a cloud that is somewhere else? If you look at that progression, there is not a big difference from my asking, do I have to own my IT center, which is 50 miles away? Do I own the hardware or do I lease it? If I’m renting the building and leasing the hardware, why don’t I just rent the time from somebody else? It’s a very logical progression. Don’t you worry about the risks to your enterprise? To me, this is another benefit of the cloud. I have 30,000 PCs with data on them. I don’t know what data is there. It’s been extracted from my mainframes. How do I enforce rules about destruction of critical data, or how long data is kept? Control is lost. When I centralize it and control it in the cloud, I can now have much better control over enterprise risk than when the data is dispersed. How do employees react to the cloud concept? There will be a convergence between how you operate at home and how you operate at the office. Employees are expecting the same experiences. Legacy applications at the office are not as friendly as what you’ve grown used to in consumer applications. The user interface is not as good. It’s not as adaptable. As the newer generations move in, they have grown up with continuous technology change. They don’t want to be held back. They don’t understand why if I use an iPad at home, why do I have to use your old clunky device at the office, which isn’t very cool? This is the big shift that’s going to happen over the next number of years. Corporations are going to be pushed to deliver the same experience at work as at home.

CEOs and CIOs up at night are security, privacy and availability.” CEOs who have embraced the cloud argue that their data may be more secure in the cloud than in their own hands. The major risk to a company’s data comes from its own employees who may innocently make the data available by transmitting it from the office to their home computers. And companies themselves are not necessarily as sophisticated in defending their data as cloud service providers are. Sony, Epsilon, RSA and NASDAQ all have suffered embarrassing hacking attacks on their systems in recent months, far greater setbacks than reported from any cloud services provider. Sony, in particular, made a beginner’s error—it failed to encrypt its customers’ data. Even though his company’s service was knocked out by Amazon’s failure, Smartpad’s Janer argues that CEOs can take steps to avoid that. One would have

“ The things that keep CEOs and CIOs up at night are security, privacy and availability.” been to use another Amazon data center to “mirror” the Smartpad data and applications in Northern Virginia. Some companies build in a layer of redundancy by asking a cloud provider to maintain a separate set of back-up servers to operate their business in the same data center, a practice known as “co-location.” “From a risk mitigation perspective, you have to weigh the costs versus the benefits,” says Janer. Ultimately, cloud computing represents a new model in how companies manage their IT systems and indeed their overall businesses. Like all the models before it, cloud computing has strengths and weaknesses. But smart CEOs are using it to strip out costs and give their businesses a competitive shot in the arm— and conducting tough analyses to make sure it delivers on its promise. William J. Holstein is the author most recently of The Next American Economy: Blueprint For a Real Recovery.

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leadership

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ICONOCLAST CELEBRITY CULT DAREDEVIL FATHER FIGURE EXECUTIONER GLOBALIST PLAIN VANILLA

Finding and fixing your achilles heel Even the most successful leaders have a weak spot. What’s yours? And what can you do about it?

Recently, several CEOs were sacked or had to step down for not paying enough attention to the downside of their management styles. Time’s Jack Griffin was forced out after less than six months on the job due to a widespread conviction that his brusque management style conflicted with the company’s corporate culture. Dirk Meyer, CEO of Advanced Micro Devices, got ousted for moving the chip maker into mobile devices too slowly, and David Greenwood, CEO of Geron Corporation, abruptly resigned recently over a seemingly similar issue—the sluggish pace at which the biopharmaceutical company’s promising therapies were moving into mid-stage clinical development.

Cheryl Strauss Einhorn

Often CEOs know what they’re good at and spend time to hone those skills, but it can be hard to see the flipside of those strengths. For example, a CEO who sees himself as efficient may be viewed by employees as abrupt or uncaring. Or a leader who strives to be thoughtful and strategic may be perceived as moving too slowly. Being mindful of the narrow line between strength and weakness may be critical to fine-tuning areas of proficiency. But how do you uncover the Achilles heel that your strengths mask? Chief Executive worked with Andrew Gilman, CEO of CommCore Consulting Group, to compile a list of eight CEO management styles and the risks that those styles pose to one’s leadership. The goal is to help CEOs identify—and address—the chinks in their armor.

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leadership

he Style: This type of leadT er is an entrepreneur or visionary who is successful while breaking conventional rules. Who Has It: Facebook CEO Mark Zuckerberg, who singlehandedly changed the way people interact with one another online, built a $50 billion company and replaced casual Fridays with an everyday college-dorm dress code. Mark Cuban, the outgoing Dallas Mavericks owner, who cheers the team from the same seats he had in years past and was cofounder of Broadcast.com.

Who Has It: Revlon’s Ron Perelman is a notable member of this group. The Achilles Heel: At times, these two celebrity facets— being a high-profile executive and living a flashy personal style—can get in the way of one another. In Perelman’s case, his company’s name became inextricably linked with juicy gossip-column items about his five wives and his attempt to sell his yacht for $70 million.

for his outbursts during an overtime loss in Miami. The league cited Cuban for “several acts of misconduct,” including going onto the floor to vent directly to a referee, screaming at commissioner David Stern and other league officials in the stands and then using profanity during a postgame session with reporters.

The Fix: A personal reputation protector for this group would address what to do about distracting news and develop a thoughtful succession plan that would address how a new—and likely less dynamic—chief would connect with consumers.

The Fix: Given that outsized personalities may cause outsized problems, CEOs of this ilk may protect themselves from the weak point in their management style by having clear public relations planning in place and a rapid response team to “clean up” the consequences of being outspoken. Boards may help this kind of chieftain by finding a mentor who will help him or her learn how to navigate the public sphere “without losing the passion, creativity and unbridled idea generation that got him/her this far,” Gilman says.

Mark Hurd

The Daredevil

Steve Jobs

Ron Perelman

David Shankbone

The Cult CEO Achilles Heel: Zuckerberg’s critics—who view Facebook as irresponsibly spreading people’s personal data around the Internet—see Zuckerberg as cavalier rather than creative. While Cuban’s own web site describes him as having a “commitment to winning” that “has everyone’s attention,” his whatever-it-takes attitude won him a $250,000 fine

The Style: A leader who embodies the spirit—and therefore brand—of the company he or she leads. Who Has It: Apple’s Steve Jobs and Martha Stewart of Martha Stewart Living Omnicom.

The Celebrity The Style: These leaders

The Fix: A crisis template should address how a company can decouple its brand from its idealized, but mortal, CEO.

The Iconoclast

that a personal mishap can derail his or her company. Jobs’ image as the rebel leading the good fight against bland, unfriendly tech companies fueled Apple’s success, but the announcement that he was stepping down to battle cancer prompted a sharp selloff. A similar fate befell Martha Stewart Living Omnicom when the company’s domestic doyenne went to jail for lying to investigators about a stock sale. It was not until a full year after her return that the company became profitable again.

are as well known—if not more so—than the companies they head.

The Achilles Heel: The downside of the Cult CEO is

Matt Yohe

Mark Zuckerberg

Guillaume Paumier/Wikimedia Commons

Being a high-profile executive and living a flashy personal style—can get in the way of one another.

Style: This type of leader takes both personal and company risks. Who Has It: Mark Hurd, late of HP, and Eliot Spitzer, once thought of as New York’s most fearless enforcer. The Achilles Heel: Although credited for making HP the first in the sale of desktop computers since 2007 and laptop computers since 2006, Hurd’s obfuscation of inappropriate behavior with a consultant outweighed his substantial business

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leadership

$70 per share from $40 when she took the helm; AOL CEO Tim Armstrong, the former Google executive who was brought in to turn around AOL’s media empire.

Angela Braly

The Executioner Style: This type of CEO puts business results before people. Examples: “Chainsaw” Al Dunlap, known for turning companies around by ruthlessly chopping heads and cutting costs; Angela Braly of WellPoint, who boosted the company’s share price to

Wellpoint

The Fix: While personal behavior is generally not a board issue, company contracts and compensation policies may be written to take egregious behavior into account. Another good move is to ensure management’s incentive compensation isn’t based on short-term performance that may make it more attractive to engage in excessive risk-taking.

The Achilles Heel: While this approach often brings business success, it can backfire. Shareholders initially applauded Dunlap’s efforts at Sunbeam and elsewhere, but the same cost-cutting zeal that put financial results before all else caused illicit behavior as employees struggled to make financial results look better. Meanwhile, Braly’s results lost their shine when she told investors in April 2008, “We will not sacrifice profitability for membership.” In other words, she wouldn’t sell health coverage to more people if it meant losing money. And Armstrong lost ground when he trashed AOL employees in public, calling their work “below par” at a breakfast event, where his comments were picked up by the media. The Fix: Because CEOs are more vulnerable to scrutiny in an age of social media and blogs, this type of leader may benefit from beefing up internal communications about cost-cutting and product turnarounds and monitoring compliance

Warren Buffett

The Father Figure The Style: Often also the company’s founder, this type of leader is paternal. Who Had/Has It: The late Dave Thomas of Wendy’s and Warren Buffett of Berkshire Hathaway. The Achilles Heel: When such successful figures are very admired publicly, transitions to new management become fraught with risk. For example, Buffett’s anointment of 39-yearold Todd Combs, currently a hedge fund manager with Castle Point Capital in Greenwich, Conn., as one of his likely successors at Berkshire Hathaway was greeted with skepticism. Not only is Combs not well-known in financial circles, but he also only has a short track record in the industry. What’s more, although Buffett announced Combs in October 2010, he has said little publicly to bolster

Bertel Schmitt

achievements. Spitzer similarly tarnished his reputation with amoral behavior.

The Fix: Boards can smooth the transition from a Father Figure leader by stepping in before a CEO is ready to leave and creating a clear plan. This enables the current CEO to think about the top tier of the company’s talent pool and how succession may impact them and to work with the board to build confidence in the company’s succession plan. Once the plan is ready, Father Figure CEOs should publicize it, giving the public time to understand and accept it. The White House

Boards can smooth the transition from a Father Figure leader by stepping in before a CEO is ready to leave and creating a clear plan.

the public’s confidence in Combs.

rules. “CEOs might do well to walk the floors and speak more directly with impacted employees,” says Gilman. Boards at such companies should also look out for what may become an aggressive corporate culture where employees try to please the boss by shirking rules to meet sales goals and quotas.

Akio Toyoda

The Globalist The Style: This type of leader runs a multinational company with operations in many countries. Who Has It: Toyota CEO Akio Toyoda; Former British Petroleum CEO Tony Hayward. The Achilles Heel: Globalists are vulnerable to mismanaging local issues. For example, although Toyoda ran a company known for great customer service, he was charged with “dragging his feet” and being “safety deaf” by Transportation Secretary Ray LaHood after being slow to respond to charges of “dangerous” safety defects. The fumbling response to

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mounting complaints about sudden acceleration and brake problems was a travesty—scaring off new customers and angering loyal repeat ones as well.

These are just a few examples of management-style weak points and specific steps to address them. But every leadership style has a downside, and the overarching lesson is that a little self-reflection can go a long way. While it is never fun to contemplate your weaknesses, if you don’t examine and address them, someone else might—to your peril. Already, CEO turnover, which has been trending upward, is expected to spike into the double digits and stay there for the next two years, according to executive search firm Crist/Kolder Associates in Chicago.

British Petroleum’s CEO Tony Hayward proved the wrong spokesperson for the tragedy in the Gulf and the subsequent oil spill. After coming to power at BP after a fatal explosion at a refinery in Texas, Hayward used his first speech after being named CEO in May of 2007 to stress that he wanted to “focus like a laser” on the company’s accident record, readily admitting past mistakes. Yet, he lacked selfawareness when it came to making insensitive public statements like, “Apollo 13 did not stop the space program. The Air France flight that fell out of the sky off of Brazil did not stop the aviation industry.”

“Boards were reticent to make changes during the height of the recession so CEOs stayed in their chairs,” says Crist/ Kolder Chairman Peter Crist. “My prediction is that now with the economy firming, boards will look at top talent and say, ‘Okay, you made cuts that held the ship in the down cycle, but are you growing our company in the upcycle?’ Proxies will show all the comparable competitive information and I think boards will be more prone to make changes over the next 24 months. We’re expecting a lot of volatility in the CEO chair because of this increased scrutiny.” He estimates turnover might jump to 13 percent from an artificially low 9.4 percent in 2010 due to the weak economy.

The Fix: The Globalist needs two levels of planning. For local crises in major markets customers want the “face” of the company to be a compassionate, caring figure. Regulators and key business partners want information from the CEO. Boards need to plan for the “big one” and have two levels of spokesperson.

Change… Or Be Changed

He also says boards are becoming more empowered and are more prone to change CEOs. The proof: The average tenure of the S&P 500 CEO is down to just 4.5 years. “The volatility won’t go away. We think it will only accelerate.” The bottom line? Examining your management style with an eye toward identifying and addressing your Achilles’ heel can help you guard against any vulnerabilities that can jeopardize both your company and your career.

Globalists are vulnerable to mismanaging local issues.

nestle.ua

Eastcott Momatiuk/Lifesize/Getty Images

leadership

Paul Bulcke

Plain Vanilla The Style: This type of leader is not flashy and focuses on shareholders. Who Has It: Reuben Mark from Colgate Palmolive, a true “company man” who worked only for Colgate for more than 40 years and ran the company from 19842007; Nestle CEO Paul Bulcke, who shuns the talkshow circuit and public recognition in favor of focusing on what is going on inside the company and delivering results. The Achilles Heel: There is little downside for this kind of a CEO until a crisis erupts. Then the company may suffer from lack of a well-known spokesperson with some flair. The Fix: The antidote for the Plain Vanilla leader: train and practice for a crisis since shareholders, employees and customers usually look to the CEO for much of their comments. This kind of leader should also allow other employees to share the limelight. Prepare subject matter experts who can comment on specific issues.

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ceo essentials

The View from Marketing How to get the most from your CMO. The fourth of a six-part guide on boosting personal effectiveness. by

John Kador David Malan/Photographerâ&#x20AC;&#x2122;s Choice RF/Getty Images

Action Steps to Leveraging Your CMO 1. Ensure the CMO is part of strategic planning team. 2. Initiate weekly meetings with CMO and top sales officer. 3. Deter executives who think their marketing expertise entitles them to micro-manage the CMO. 4. Everyone, not just the CMO, must be a brand evangelist. 5. Assign each senior executive responsibility for a top-ten customer.

mong the residents of the C-suite, the position of chief marketing officer (CMO) may be the most tentative. The tenure of CMOs at consumer-branded companies has averaged only 23 months over the past three years, according to an annual survey by executive-search firm Spencer Stuart. Some industries are particularly brutal. CMOs in the food industry are looking at about a year; in telecommunications, itâ&#x20AC;&#x2122;s 15 months. These grim statistics mean that the typical CEO (whose average tenure runs 54 months) will go through more than two CMOs.

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Meet a CEO who went through three CMOs in eight years before figuring out that the problem was not with the CMOs but closer to home. “I’ve learned some good lessons and I’m now doing something totally different with my current CMO,” says Joseph “Bud” Haney, president of Profiles International, a Waco, Texas-based provider of human resource management assessment tools. “My biggest sin was that I spent more time with the CSO [chief sales officer] than the CMO because I had the mistaken belief that sales, which drive revenues, was more important than marketing, which was just another cost center,” Haney says. He agrees this is a terrible message for any CEO to send because it sets up a hierarchy that is destructive to both revenue and profitability. Results markedly improved when Haney began to treat the marketing function more as an investment than a cost. “I now not only regard marketing as important as sales, I meet with the CMO one-on-one every week,” he says. That was one of three big changes that Haney implemented when he brought Dario F. Priolo on board as CMO more than three years ago. The first was to include the CMO, along with the CEO, COO, CFO, CSO and corporate EVP, in the strategic planning team. The team meets weekly for a working lunch, focusing on initiatives to take the company to the next level. Making the CMO a full member of the strategic planning team was something Priolo negotiated when he signed on—not that it required much negotiation. CEO Haney was totally on board. “Strategic exposure is critical to CMO success,” Priolo explains. “It’s easy for the marketing role to be absorbed into other organizational functions, but to help the company understand customer behavior to drive revenue and profitability, marketing has to be fully integrated.” In the second change, the CEO meets with weekly with the CMO and the CSO to anticipate and iron out the natural tensions between the functions. (CSO: “The marketing leads suck.” CMO: “The sales reps suck.”) “The meetings remind us that we’re all pulling together to be successful,” says Haney. “My goal is less to show numbers and point fingers, but to solve problems.” Third, Haney meets weekly with just Priolo for at least two hours to talk marketing. Typically, the meetings start with a presentation from the CMO to review performance for the week before they walk through the key branding and promotion initiatives. “This goes to building and maintaining credibility and holding marketing accountable for the goals we set,” Priolo says. “The metrics must be transparent and in place to demonstrate that marketing activity drives sales. If CMOs can’t do that, they are not qualified to do the job.”

Move Over, Don Draper The era of Don Draper, the flamboyant advertising maven of Mad Men, is dead, says James R. Abrahamson, president, the Americas, InterContinental Hotels Group (IHG), the world’s largest hotel group by number of rooms. “The relationship between the CEO and the CMO is, in a true sense, a business partnership. Today, the CMO has to combine an intimate knowledge of business drivers with a strong technical knowledge of the levers available to influence those drivers.” Thus, it is no surprise that IHG’s CMO comes to the position as a domain expert. Previously, Eric Pearson, a 14-year veteran of IHG, was responsible for overseeing the hotel chain’s worldwide channels, including reservation centers, e-commerce and global revenue management. While his degree is in electrical engineering, Pearson describes himself as a hybrid marketer who

manages business interdependencies. “It’s no longer sufficient for the CMO to be the brand evangelist,” Pearson says. “Everyone has to be accountable for developing and driving the brand.” Great CMOs develop analytics that create customer intimacy. They know who is clicking, converting and buying. There is no position within the company better situated to develop the deepest understanding of customer behavior and integrating the voice of the customer across company functions. This requires CMOs who recognize their influence comes not from hoarding information but spreading it around. If CEOs want better brands, they need better CMOs. They need to cultivate CMOs who are respected because they demonstrate that their understanding of customer behavior is comprehensive. Ultimately, in order to succeed, CMOs must be secure enough to strategize for the long-term. Revolving doors keep CMOs focused on short-term fixes and keeping their resumes up to date. The high turnover of CMOs is a complex problem—one that CEOs can combat by deterring other top executive who regard themselves as marketing mavens from micro-managing the CMO. CIOs rarely have this problem. No one notices the CIO in the elevator and says, “Hey, I was thinking about scaling up our data architecture and I’d like to talk to you about an idea I have.” But the CMO is constantly on the receiving end of suggestions and critiques. Ultimately, it comes down to trust. If CMOs believe the CEO has his or her back, they will focus on building the company’s brand and logo instead of their resumes. “Trust is the critical attribute for an empowered CEO-CMO partnership,” says Aaron Magness, brand marketing and business development director of Zappos.com Inc. “If CMOs feel empowered to make decisions that are best for the brand, they will do whatever it takes to make sure the brand is held in the highest regard. They’ll always put the brand first.”

Great CMOs develop analytics that create customer intimacy.

CEO Online Exclusive Visit www.chiefexecutive.net/CMO for additional articles on how to get the most out of your CMO, including:

• Do’s and Don’ts from a Disgruntled CMO. • Good to Great—What Attributes Top CMOs Share. • Where Do CMOs Come From?—The CMO Career Track.

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ceo life > extreme ceos

Extreme CEOs These leaders thrive flying jet fighter planes, scaling mountains, skydiving and racing motorcycles. George Nicholas

David J. Spurdens/Digital Vision/Getty Images

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Like running a successful organization, excelling in extreme sports requires focus and drive. Participants must also stay in top physical form, maintain a rigorous training schedule and make spilt-second decisions at moments of risk. You cannot dabble in this. The CEOs who practice them say that their sports keep them mentally alert, bring business lessons and build confidence: Conquering a mountain also helps conquer self-doubt.

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ceo life > extreme ceos

Never Too Busy for a Triathlon

Spending eight weeks climbing one of the world’s highest peaks is more a mental challenge than a physical one, he says. He ran his marathon across the Great Wall in China without any preparation. “I just showed up and completed the task,” he comments. His next adventure will be a camel ride across Morocco, Algeria, Libya and Egypt, traveling “along ancient trails, just as it has been done for thousands of years.”

Skiing Unforgiving Slopes

Willy Walker runs in last year’s Washington, D.C., triathlon.

Willy Walker is CEO of Walker & Dunlop and chairman of both the DC Water and Sewer Authority and Sweden-based Transcom WorldWide. He nevertheless finds time to compete in international distance triathlons and to train for them almost daily. “I’m a pretty competitive guy,” he says. “If I miss training a couple of days, which is very rare, I get grumpy and lose focus.” Walker began competing in triathlons in 2008 at the suggestion of D.C. Mayor Adrian Fenty, a friend. In last year’s D.C. triathlon, held in near-100 degree weather, he finished 32 out of 5,000-plus racers, or second in his age group. In the Boston Marathon he clocked two hours, 36 minutes. “Lots of CEOs complain about being busy and not being able to exercise. That’s no excuse,” he says.

Into Thin Air

CEO Josh Williams of Gowalla snowboards in Park City, Utah.

Extreme skiing is done off-trail on virgin snow along slopes as steep as 60 degrees, sometimes in dangerous terrain. This does not faze Josh Williams, CEO of Gowalla, who also skis and snowboards in more relaxed settings. “Beyond my family, there is little that will bring as wide a smile to my face as hiking up a ridge as the sun is rising in order to grab first tracks in fresh powder,” he comments. “If I wasn’t hustling a startup, I’d probably be a ski bum.”

Mike Roberts

Bring on the Body-Slamming

John Rost on Mt. Everest.

John Rost, founder and president of Fiesta Franchise Corporation, has scaled the highest mountains on seven continents, or the seven summits. Only the 35th American to have done this, he also has trekked to both poles, sailed around the world, ran a marathon and earned two world speed records for fastest flight in class in an experimental RV10 aircraft that he built from a kit in his garage.

Ryan Hodson, playing flanker, awaits a kick from the opposing team in a Las Vegas game.

Brutal and often bloody, played without pads or helmets, rugby is the rough cousin of American football. Ryan Hodson, managing director at Kodiak Capital Group, has played rugby

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most of his life. He helped organize the new USA Rugby League, which began its first games in May. The teams play rugby league, the faster and more arduous of the two forms of rugby (the other being rugby union). Kodiak employees play with several of the new teams and the sport is embedded in the firm’s culture. “We look at players who have a strong desire to play league as well as a strong desire to gain experience in finance,” Hodson says. The firm has “a workhard, play-hard attitude and ethos,” he adds. “While other financial groups play softball or run races, Kodiak is hard-mouth from 9 to 5 and from 5 to 9.”

A Need for Speed

Orienteering: Beyond Marathons Kate Kohler prepares for swim race at Augusta Half Ironman in 2010.

Phil Martineau punches in at Point 5 of 12 in a 7km orienteering course in Western Pennsylvania.

Orienteering, one of the lesser-known extreme sports, is a race through unfamiliar terrain using a map and compass. Among the sport’s enthusiasts is Phil Martineau, CEO of Pittsburgh Corning Corporation. The sport requires endurance and solving problems like, “Do I go over or around the mountain,” Martineau says. “The mental concentration and challenge is completely engrossing. Definitely a sport that draws Type A individuals.” Experience and cunning can offset youth and enthusiasm, according to Martineau, who is 63. It is experience that can tell you when lost whether to keep going or go back. Over the past 33 years he has run in events all over the world and in extremes in terrain and weather. Martineau crossed a snow-melt bog that looked shallow but became chest-deep near the other side. He encountered 95-degree heat and six hours of intense rain. He has competed in events lasting 14 hours, in night orienteering and on skis in double-digit sub-zero wind chill. When he dislocated some ribs during a fall at a national meet, his doctor said that he had never checked off the “Fall from Cliff” diagnosis code on a form before. Martineau has gotten his whole family involved in the sport and took one of his daughters orienteering at age three in his backpack. Martineau also pursues more traditional ways of testing endurance. He completed five marathons in the last two years and ran in triathlons in the past but says, “after about 15 or so I got bored.” Nevertheless, after watching that same daughter finish second in an Ironman last year he is considering training for another.

Kate Kohler, a former U.S. Army captain who is COO of the Pentagon Federal Credit Union Foundation, has completed seven half-Ironman triathlons and four marathons. She also climbed Mt. Kilimanjaro. Kohler began swimming competitively when she was eight years old and completed her first triathlon when she was 16. At West Point ,she joined the triathlon team because she could bike and run off post, a huge liberty for a cadet. She graduated first in her class in physical fitness. “While I am training and racing, I get a sense of calmness,” she says. “I can tune into my breathing and quiet my thoughts. Many times it is while running or swimming when I actually have business breakthroughs or capture an insight… By 7 a.m. you have a sense of accomplishment that you carry with you all day.” Last year she completed the Augusta Half Ironman at 5:27, faster than her college rate. “I am fired up about racing faster in the next 20 years,” she says.

Joy on Mountaintops and Under Water

Rick Davidson pauses on the Ingraham glacier on a climb on Mt. Rainier in Washington.

Century 21 Real Estate CEO Rick Davidson pursues adventure in many forms. They include mountain climbing, skydiving,

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ceo life > extreme ceos

John Rost enjoys another extreme sport, kiteboarding.

scuba diving, NASCAR racing and jet fighter flying. Mountain climbing helps teach him how to push through mental and physical challenges to meet ambitious goals, he says. He views it as the ultimate team sport because “your teammates are your life.”

It took six months to prepare his 18-person support team, which included two women and traveled 400 miles ahead. Three members collapsed from lack of oxygen. Other bikes crashed, two of them into each other, but Travis made it to the finish line. He also has scaled two of mountaineering’s seven summits, Vinson Massif in Antarctica and Elbrus in Russia.

All-Terrain Motorcycle Racing

Jan Rysavy/Vetta/Getty Images

CEO Challenges: CEOs vs. CEOs

Will Travis on his BMW 1200 GS Adventure motorcycle at the 2011 Dakar Rally.

The Dakar Rally, a 12-day, 3,500-mile motorcycle race that is among the world’s most arduous, crosses the mountains, sand dunes and deserts of the South American Andes. Will Travis, who until April of this year was CEO of Dentsu America, competed in the 2011 event on a BMW 1200 GS Adventure bike. At one point, he had to ride four hours in the dark at two degrees below zero with 70 mph winds howling because of customs delays at a 15,000-foot-high border point between Argentina and Chile. Writing one night on his blog, he reported that he had hit sand pits four feet deep and 100 yards long. “The bike thrashed side to side like a writhing snake and my training of loosening my grip, leaning back and just riding quickly to skim the surface proved critical,” he noted.

Chief executives compete in the marketplace—and against each other in triathlons and extreme biking races. Over the past four years, more than 350 have taken part in events hosted by CEO Challenges, some as many as five times. The events, which take as long as four days, often are attended by the participants’ families. There is spirited competition but also camaraderie. When the contest is over, the executives kick back and share peer-level congratulations or commiseration, depending on how each finished. George Nicholas (georgenicholas@mindspring.com) is a New York-based business writer and communications consultant.

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executive life > gadgets

Must-Have Gadgets The gear you need for the life you lead. By

Michael Gelfand

Stephen Morris/Vetta/Getty Images

Everybody, it seems, wants a piece of you. Your meeting calendar is always full, everyone in your C-suite wants your ear; vendors, investors and board members are all calling, and there’s a company that needs to be run. Yeesh. One way to stay productive when you’re at the top of everyone’s dance card is to really revel in the moments you get to unwind. We’ve rounded up a handful of products specifically made for just those moments. Unlike the latest smartphone, netbook or similar device that increases your connectivity and only further locks you into the grid, each one of these products is made for the moments off the grid that no one else gets a piece of… your private time.

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executive life > gadgets

1 Planetary Design Double Shot French Press Mug

2 Bell & Ross’ BR 02-94 Steel Carbon Fiber Chronograph 3 Panasonic’s VIERA TC-P65VT30 65-inch Flat Panel HDTV

4 Grace Digital Allegro Wi-Fi Radio and Streamer

rigueur, and fact-based decisions can mean the difference between life and death. Bell & Ross’ BR 02-94 Steel Carbon Fiber Chronograph is perfect for the diver in you, whether real or imagined. Stylish and utilitarian, this two-counter chronograph is equipped with a 44mm diameter, 316L glass bead-blasted 18-carat pink gold and steel and vacuum carbon black casing, screw-in push-pieces, crowns, and caseback, plus a decompression valve and photo-luminescence for the dial and the reference point on the graduated unidirectional bezel. Water resistant down to 300 meters, it’s ideally suited for navigating pressure both on the ground and in the water. ($5,900, www.bellross.com)

Sensational Screen Time

Best in Brew

You probably can count the hours of TV you get to watch at home per week on one hand, so when that time rolls around don’t you think you deserve the best? Panasonic’s VIERA TC-P65VT30 65-inch Flat Panel HDTV is just that—it delivers the pinnacle of flat panel HD performance, with breathtaking contrast ratio and unsurpassed color fidelity. An innovative feature called ISFccc enables a properly trained and equipped technician (go to www.tweaktv.com for a list of qualified calibrators in your area) to program reference standard viewing modes for day and night viewing on the P65VT30, giving you the ideal brightness for daytime viewing and a separate calibration picture for movie watching when the lights are turned down. Need icing on that? The TC-P65VT30 is 3D capable at 1080p/24, one pair of glasses is included. ($4,299, www.panasonic.com)

French pressed coffee may be the ideal way to make your morning cup of Joe—you control the grind, the steeping temperature and steeping time—but if you’re a connoisseur on the go, those traditional glass presses aren’t remotely practical. Enter the Planetary Design Double Shot French Press Mug. Designed to fit in your car’s drink holder, this high gloss, scratch-resistant, 14-ounce capacity travel mug—constructed out of double-walled, restaurant-grade stainless steel that keeps your java remarkably hot for up to 2.5 hours—houses an internal press that screws into a base capable of holding enough ground coffee to make an additional 14-ounce cup. A patented double filtration system prevents grounds from muddying your brew. ($29.99, www.planetarydesign.com)

Time to Decompress

CEOs and professional divers have a lot in common: Deep dives are the name of the game, swimming with sharks is de

P D M

T M y w c S i y d w M

Global Tunes on the Go As a CEO, your need to be everywhere at once probably makes it easy to appreciate the Grace Digital Allegro Wi-Fi Radio and Streamer. Measuring 7” x 5” x 4” (h/w/d), the sweet-sounding

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Allegro gives you entrĂŠe to over 17,000 different internet radio stations from around the world (thanks to an easy-to-use interface and intuitively categorized station searches by location and genre). It also delivers easy access to Pandora, Live 365 and Sirius satellite radio services and can stream music from your own music sources, as well. The rear-ported speaker has plenty of punch and boasts surprisingly good response for something so small (a 3.5mm stereo output enables you to connect external speakers if you are so inclined), and thanks to true 802.11g wireless connectivity, a full featured remote, and both AC and battery power (with a recharging circuit for NiMH rechargeable batteries), the Allegro is truly portable, allowing you to take it wherever you are while it takes you wherever you want to be. ($169.99, www.gracedigitalaudio.com)

Give Your Game an Adjustment The pocket on a baseball glove and the curve on a hockey stick are tuned by the unique ergonomics, personal tastes and specific needs of the player, so why shouldnâ&#x20AC;&#x2122;t your driver be just as adjustable? TaylorMadeâ&#x20AC;&#x2122;s R11 Driver represents the companyâ&#x20AC;&#x2122;s third generation of adjustable drivers and comes loaded with technological and engineering innovations that allow you to independently tune the loft, face angle and flight path to your swing for maximum distance. Available in 9 and 10.5-degree lofts (for lefties, too), head volume is 440cc, lie angle is 57 degrees, club length is 45.75 inches and swing weight is D4. Sadly thereâ&#x20AC;&#x2122;s no hole-in-one button option yet, but this will do nicely for now. ($399, www.taylormadegolf.com)

TaylorMadeâ&#x20AC;&#x2122;s R11 Driver

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flipside

Gotta Keep Searching, Searching, Searching Seek and ye shall find… someday. Imagezoo/Getty images

by Joe Queenan

According to a shocking Google statistic

cited in The New York Times, there are now more than one trillion Web pages on the Internet. The actual number may be more like one trillion three hundred and six; these figures tend to have a bit of give in them, and by the time you read this, there will be 45 million more. Rich Skrenta, who runs a search engine firm that competes with Google, told the Times that there are now more Web pages than there are things in the world. This is why he has co-founded blekko, which seeks to bring some order and logic to the whole search engine process. As far as I can tell, this will be accomplished by directing searches to Web pages that actually contain useful information, and not to more Web pages designed with no other purpose than to increase search engine traffic. Just for the record, there are now 112 useful pages on the Internet, “useful” meaning Web pages that are not hoaxes or scams or Easternbloc porn or conspiracy theory blogs run by out-and-out morons. But you can only get to 112 if you include Moviefone and si.com, which is right on the edge there. Also just for the record, there are 1.67 billion things in the world, including 100,000 Lady Gaga changes of costumes and 3,456 excuses why Derek Jeter can’t hit anymore. Yes, excuses are things. With Google, Bing, AltaVista, Lycos, AskJeeves, Cuil, Yahoo, Kosmix, SearchMe and WikiSearch already in existence, some people might ask why the world would possibly need yet another search engine. The answer: you can never have too many search engines, too many people designing search engines, too many people working for companies that

design search engines or too many people designing Web pages so that search engines will have new stuff to search for. Search engine companies will drive economic growth in this country for the next two decades. At the present moment, 1.6 million Americans are employed by companies that design new Web pages for search engines to visit. But by the year 2020, when 600,000 trillion Web pages exist, a full 25 million Americans will be employed in the manufacture of Web pages that can be searched for, or in the design of new search engines that make it easier to sift through 600,000 trillion Web pages in order to find out when the next

Search engine companies will drive economic growth in this country for the next two decades. bus to Schenectady is leaving Buffalo and which of his six wives Henry VIII did not have executed. I personally know 25 people who work in the Internet search industry. My brother-in-law designs search engine software that searches for other people who design search engine software so they can get

together and have a beer or something. My cousin Frances operates a search engine designed for illiterates called HooDat? Two of my nephews work for a British firm that delivers servers to companies whose search engines have been overwhelmed with searches, and two of my neighbors work as lawyers defending search engine companies against lawsuits from unscrupulous search engine companies that claim that their search engine uses a proprietary technology that the accused search firm ripped off. Another neighbor bakes cupcakes for weekly parties held by a small Yonkersbased search engine company—Portal of Yonk—that will only search for things that can be found in Yonkers, like her Yonkers-based cupcake company. Various other friends design graphics for search engine companies, or do the books for search engine companies, or invent new things that search engines can search for. A few weeks ago I went to a party where my wife and I were the only guests who did not work for search engine companies. We only received the invitation because a search engine found our name and confused us with another Queenan family that designs portals. It was a very nice party and I tried to make as much small talk about search engines as I could, but after the host discovered my non-searchengine background, what are the odds that we will be invited back? Search me.

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final word

What is behind the attempt by the National Labor Relations Board (NLRB) to enjoin Boeing from completing its Dreamliner production plant in South Carolina, a year and half after the company announced its decision to build there? The acting general counsel’s complaint that Boeing transferred a second 787 Dreamliner production line of three planes per month from Washington to a non-union site in North Charleston to punish workers who had gone on strike isn’t supported by the facts. The company has a backorder of 850 aircraft. Boeing employs 1,000 workers working on the first line in Everett, Wash., and no one will be laid off. The 1,000 new jobs that are anticipated in South Carolina are being put at risk because in an extraordinary regulatory overreach the NLRB insists that all such production be restricted to the state of Washington. Is it any wonder that the company has had enough of work stoppages that average one every three years, resulting in a million hours of lost labor for 27,000 employees in that state? Boeing selected a second production line in a state where the costs are lower and the business environment is stable—a fact confirmed by South Carolina’s ranking as the eighth best state in which to do business in Chief Executive’s annual survey of Best/ Worst States for Business (May-June 2011). Washington State ranked 34, down from 30 in last year’s survey. Boeing has facilities in 34 states around the country, half of them in right-to-work states. “While this happened in South Carolina, it is also terrible for our country if the government can dictate where American companies can and cannot create jobs,” said South Carolina governor Nikki Haley. “It’s an assault on our economy and all of us.” And perversely such will be the unintended consequence of this regulatory bullying. But surely both the NLRB and President Obama, who refuses to rein the agency in, know that once Boeing joins the legal battle it will prevail. The real point of this maneuver is to intimidate other companies, those with fewer lawyers and lobbyists and pockets not as deep as Boeing’s, to do organized labor’s bidding. In true Chicago-style political persuasion, the administration in effect is saying, “Nice company ya got here. Too bad if something should happen to it.” Trouble is, the effect of Chicago-style bare-knuckle politics in company boardrooms will be quite different than what the administration intends. Ironically, if Boeing had expanded its production in China, Mexico or Canada none of this would have happened. If the forces of aggravated lawlessness prevails, the lesson will not be lost on others.

Source: boeing.com

Kill Economic Freedom; Kill Job Creation

Final assembly begins on first Boeing 787 Dreamliner.

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