May/June 2019 Chief Executive Magazine

2019 BEST AND WORST STATES FOR BUSINESS

MAY/JUNE 2019

THE LESSONS OF NEW YORK Business and Politics in the New Urban America

PLUS FEDEX’S FRED SMITH FIGHTS FOR FREE TRADE AETNA’S MARK BERTOLINI ON DOING DEALS AND SAVING HEALTHCARE STANLEY BLACK & DECKER’S JOHN LUNDGREN SHARES M&A SECRETS BESTSELLING AUTHOR PATRICK LENCIONI REVEALS CEO BLINDSPOTS

BO CHENG President, Altovista Technology Inc.

“ WHAT EXCITES ME THE MOST ABOUT THE FUTURE OF MICHIGAN IS THE INNOVATION HERE. ”

Innovation isn’t new to Michigan. Our state hosts some of the world’s top engineering and tech talent as they build the future.

And they’re having a lot of fun living here while doing it. If Michigan doesn’t come to mind when you think of the future, think again. Get here or get left behind.

Visit michiganbusiness.org/pure-opportunity

MICHIGAN. PURE OPPORTUNITY.

C ONTENT S

M AY/J U N E 2019 No. 300

FEATURES COVER STORY BEST & WORST STATES FOR BUSINESS 2019 22 AFTER AMAZON What happened in New York isn’t just about New York.

By Joel Kotkin

26 WHERE TO BE Technology is disrupting economic development along with every aspect of business. Here’s our annual look at how CEOs say the 50 states stack up.

By Dale Buss

22

LEADERSHIP 36 FRED’S WORLD Wall Street, China, trade, tariffs, technology, leadership, politics, socialists—and why a business is not a family.

A candid conversation with Fred Smith, the CEO and founder of FedEx.

By Dan Bigman

TOOLBOX 48 MAKING THE HARD CALLS How to weigh options and muster resolve? Listen to those who’ve done it—and thrived.

By Brett Nelson 36

BOOK EXCERPT 54 FIXING HEALTHCARE I sold Aetna to fix a broken healthcare system.

Here’s why.

By Mark Bertolini

STRATEGIC SUPPLY CHAIN & LOGISTICS SUMMIT 64 ‘A BACKUP PLAN FOR YOUR

BACKUP PLAN’ Transformative technologies are revolutionizing supply chains worldwide. Here are strategies for competing in today’s complex, interconnected ecosystem of global business.

By C.J. Prince

CYBER RISK FORUM 67 CYBER REG REVOLUTION With hacks and privacy missteps on the rise, a surge in rules and regulations—often confusing—is underway.

What’s next? Plenty, say experts.

54

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C O NTE NT S EDITOR

Dan Bigman EDITORS-AT-LARGE

Jennifer Pellet Jeffrey Sonnenfeld Jeffrey Cunningham DIGITAL EDITOR

Gabe Perna PRODUCTION DIRECTOR

Rose Sullivan CHIEF COPYEDITOR

Rebecca M. Cooper ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford RESEARCH EDITOR

Melanie Nolen CONTRIBUTING EDITORS

DEPARTMENTS

66

8 EDITOR’S NOTE

Dale Buss Daniel Fisher Joel Kotkin Patrick Lencioni Brett Nelson C.J. Prince EDITOR EMERITUS

His Loss

J.P. Donlon

10 LEADERS 10 CNEXT Interview / Stanley Black & Decker’s Stan Lundgren Making Mergers Work 14 Law Brief / Daniel Fisher Second Sight

PUBLISHER

Christopher J. Chalk 847-730-3662 | cchalk@chiefexecutive.net VICE PRESIDENT

Phillip Wren 203-930-2708 | pwren@chiefexecutive.net

16 Transformation / Patrick Lencioni Three Dangerous Biases

DIRECTOR, BUSINESS DEVELOPMENT

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

18 Black Swans / Jeffrey Cunningham Speaking in Twitter

DIRECTOR, BUSINESS DEVELOPMENT

Liz Irving 203-889-4976 | lirving@chiefexecutive.net

20 On Leadership / Jeffrey Sonnenfeld Under the Bus

DIRECTOR, BUSINESS DEVELOPMENT

Gabriella Kallay 203-930-2918 | gkallay@chiefexecutive.net

68 PLANE ADVANTAGE Frequent Fliers Three executives-turned-pilots who ferry themselves around the nation say it’s more efficient, more secure and just plain fun.

By Dale Buss

72 LAST WORD Hiring for the Digital Age Mentor your next-gen employees and they’ll mentor you.

By Tom Harrison

DIRECTOR, BUSINESS DEVELOPMENT

Marc Richards 203-930-2705 | mrichards@chiefexecutive.net MANAGER, STRATEGIC PARTNERSHIPS

Rachel O’Rourke 615-592-1198 | rorourke@chiefexecutive.net CLIENT SUCCESS ASSOCIATE

Jake Holmon 203-889-4974 | jholmon@chiefexecutive.net

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

Wayne Cooper Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 300 May/June 2019. Established in 1977, Chief Executive is published bimonthly by Chief Executive Group LLC at 9 West Broad Street, Suite 430, Stamford, CT 06902, USA, 203.930.2700. Wayne Cooper, Executive Chairman, Marshall Cooper, CEO. © Copyright 2019 by Chief Executive Group LLC. All rights reserved. Published and printed in the United States. Reproduction in whole or in part without permission is strictly prohibited. Basic annual subscription rate is $99. U.S. single-copy price is $33. Back issues are $33 each. Periodicals postage paid at Stamford, CT, and additional mailing offices. POSTMASTER: Send all UAA to CFS. NON-POSTAL AND MILITARY FACILITIES: send address corrections to Chief Executive Group, PO Box 47574, Plymouth, MN 55447.

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Melanie Haniph

CH I EF E XECUT IV E RE SE A RCH

AD INDEX

CEO OUTLOOK CONTINUES SLIDE

ASSOCIATED AIRCRAFT GROUP flyaag.com 69

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

For more information, visit ChiefExecutiveNetwork.com.

CELEBRITY CRUISES celebrity.com Inside back cover

CHIEF EXECUTIVE’S PRELIMINARY READING OF CEO confidence in future business conditions continued to slip in April, clocking in at 6.7 out of 10, down slightly from March and February—and sharply lower than where it was a year ago.

Confidence in current business conditions also showed a small decline when compared to the first three months of the year, at 7.1/10 in April from 7.3 the month prior, and far below where it was in April 2018.

Both numbers remain in “good” and “very good” territory, according to our 1-10 rating scale.

CEOs who responded to our survey said unresolved tariffs issues and slowing global growth are their primary concerns at this time. Bolstering sentiment: The Fed’s decision to halt interest rate increases and hopes that the U.S. will reach a trade deal with China.

On the home front, many CEOs say they worry about how the 2020 campaign will impact the business climate and increase market volatility. Still, they remain optimistic overall, with the proportion of CEOs anticipating increases in revenue, profits, capital expenditures and headcount over the next 12 months rising significantly since March.

—Melanie C. Nolen, Research Editor

DELOITTE R.E. AND LOCATION SERVICES deloitte.com/us/locationstrategy 19

ARKANSAS ECONOMIC DEVELOPMENT COMMISSION ArkansasEDC.com/land Outside back cover

About the CEO Confidence Index The CEO Confidence Index is America’s largest monthly survey of chief executives. Each month, Chief Executive surveys CEOs across corporate America, at organizations of all types and sizes, to compile our CEO Confidence Index data. The Index tracks confidence in current and future business environments, based on CEOs’ observations of various economic and business components. The results are used as key indicators by media outlets throughout the world.

CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW (12-month trailing, as of April 2019) 7.16

7.29

7.19

7.14

7.11

7.00

6.95 6.78

6.44

JUNE

JULY

AUG

SEPT

OCT

NOV

DISRUPTIVE TECH SUMMIT ChiefExecutive.net/DisruptiveTech 41 ECONOMIC DEVELOPMENT PARTNERSHIP OF NORTH CAROLINA EDPNC.com 33 ENTERPRISE FLORIDA floridathefutureishere.com/freedom 29 HARVARD BUSINESS SCHOOL exed.hbs.edu 3 INDIANA ECONOMIC DEVELOPMENT CORPORATION AStateThatWorks.com 21 INVEST IN ISRAEL InvestinIsrael.gov.il 17 IOWA ECONOMIC DEVELOPMENT iowaeconomicdevelopment.com 25 JOBS OHIO ECONOMIC DEVELOPMENT JobsOhio.com 9 LOUISIANA ECONOMIC DEVELOPMENT LouisianaWorksWithYou.com 41 MICHIGAN ECONOMIC DEVELOPMENT CORP. michiganbusiness.org/pure-opportunity Inside front cover, 1 NASDAQ nasdaq.com 45 NATIONAL SHOOTING SPORTS FOUNDATION NSSF.org 15 ORLANDO ECONOMIC PARTNERSHIP orlando.org 34, 35

RHODE ISLAND COMMERCE CORPORATION WhereAreYou.us 5

6.72

6.60

MAY

CEO TALENT SUMMIT ChiefExecutive.net/CEOTalent 71

PURE INSURANCE pureinsurance.com/ 7

7.02

APR. ‘18

CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES ChiefExecutive.net/compreport 63

DEC

6.33 JAN’19

FEB

MAR

APR

Note: Chief Executive’s CEO Confidence Index is measured on a scale of 1-10. April preliminary data had 357 responses.

RHR INTERNATIONAL rhrinternational.com 13 RYAN, LLC ryan.com 41 THAYER LEADER DEVELOPMENT GROUP thayerleaderdevelopment.com 46, 47

6 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

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F RO M THE E D I TOR CHIEF EXECUTIVE OF THE YEAR

2019 SELECTION COMMITTEE

HIS LOSS

DAN GLASER

AS A BROOKLYN-BORN KID who’s lived in four of the five boroughs of New York, it’s fair to say that I’ve got a bias for my hometown. “Going into the City” (as if there was one city, and no other on Earth) and walking through Grand Central still charges my spirit in a way no cathedral can. That’s why, in the wake of the Amazon debacle, I want to take a sec to stick up for my hometown, even as the bad news piles like garbage on a sweltering sidewalk:

President and Chief Executive, Marsh & McLennan

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

MARILLYN A. HEWSON

1. Amazon Was Abnormal! First, you should know that Amazon was victimized by politicians, not policy. It was done in by a couple of local backbenchers who couldn’t resist the opportunity to get their names in The Post (Washington, not New York). They’ve now slithered back under their rocks in Queens.

If you’re not THE RICHEST MAN IN THE WORLDTM, you’re safe.

Chairman, President and CEO, Lockheed Martin 2018 CEO of the Year

NEAL KEATING President and Chief Executive, Kaman

TAMARA LUNDGREN

2. New Yorkers Wanted Amazon! Some 56 percent of all New Yorkers polled were in favor and aren’t thrilled with what happened, with 70 percent of black voters and 81 percent of Latinos approving of the deal. The state’s powerful Democrat governor, Andrew Cuomo, was cheerleader-in-chief for Amazon. Even as we speak, he is under a volcano, plotting revenge.

President and Chief Executive, Schnitzer Steel Industries

MAX H. MITCHELL President and CEO, Crane Co.

ROBERT NARDELLI Chief Executive, XLR-8

3. New Yorkers Adore Capitalism! Democratic Socialists? Bahahahahaha.

Real New Yorkers—from hot dog cart guys to I-Bankers—are all about making a buck. I just paid $14.50 at a Duane Reade drugstore for a wire to charge my phone. “Do you have anything cheaper?” I asked the cashier. She smiled at me like a lost child. “It’s Manhattan, baby. What can I say?”

Chairman, President and Chief Executive, LSC Communications

4. New Yorkers Are Tough! (Or Crazy? Or Tough and Crazy?) Living and working in New York is such a trial that it weeds out the meek and the sane.

It’s so expensive (median Manhattan apartment cost >$1 million), so heavily taxed (#1 state and local tax burden in the U.S.), so in-your-face (27,000 people per square mile, densest place in the U.S.), that you have to be either mildly brain damaged or really, really obsessed to stay—or maybe both. Darwin would have loved this place. Employers should, too.

Global Chairman and Chief Executive, EY Global Limited

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

MARK WEINBERGER

Exclusive Adviser to the Selection Committee

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

CONTACT US Corporate Office Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 Fax: 203.930.2701 ChiefExecutive.net

REUTERS / LINDSEY WASSON

5. Opportunity Lives Here! Finally, there’s this: Despite the negative reputation, newcomers still swarm here. New York City has more people than 40 of 50 U.S. states and more than three million New Yorkers—the equivalent of 4.2 Bostons—are foreign born (more than 25 percent of them have come here since 2000). Just imagine a place where three million people—people hungry and scrappy and ambitious enough to leave their countries and put up with the subway—have all come, sniffing opportunity. Imagine a labor pool speaking more than 200 languages, all voting with their feet to come to one single city. Now add the millions more from all over the U.S. who self-select this place—the smartest kid you knew in middle school? Yeah, she moved here. She runs a trading desk at Goldman.

Now put all that against the decision of one man—even if he is THE RICHEST MAN IN THE WORLDTM—not to come. As fake New Yorkers say in the movies: fuggetaboutit.

So don’t worry, Mr. Bezos, we understand. Not everyone is cut out for New York. And somehow, some way, we’ll get along without you. —Dan Bigman, Editor

THOMAS J. QUINLAN III

Letters to the Editor letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 Fax: 847.730.3666 advertising@ChiefExecutive.net Reprints Phone: 203.889.4974

Where innovation secures your future: Make Ohio home.

It takes more than innovation to hold together an 82-year-old adhesives company. In the case of Franklin International, Midwestern values have helped this family business grow through four generations. With strong Ohio roots and a desire to raise families here, the polymer science company credits its success to a strong workforce as well as a state that fosters innovation and provides companies the support necessary to create new and superior products.

JobsOhio.com

Welcome to Ohio.

T HE CN E X T IN T E RVI E W

MAKING MERGERS WORK

Stanley Black & Decker’s John Lundgren shares some secrets for beating the odds in M&A.

This is the first in a series of discussions with CNEXT Leaders.

In partnership with Chief Executive, CNEXT exclusively represents an active community of former CEOs with extensive experience within respected, multi-billion dollar organizations.

If you are interested in a confidential conversation about CNEXT and its services, e-mail Inquiries@C-NEXT.com

PHOTO BY CELESTE SLOMAN

Over 30 years, multiple attempts to combine hand tool supplier Stanley Works and power tool manufacturer Black & Decker blew up, floundering over tricky but typical negotiation hurdles like agreeing on valuations and post-deal leadership. Then came John Lundgren, who took the helm of Stanley Works in 2004 and managed to finally bring the merger to fruition six years later. Widely viewed as one of the most successful integrations in decades, the merger exceeded its original target of $350 million in cost synergies by 43 percent within three years and created a platform for growth that has tripled its share price. In the interview to follow, Lundgren, who retired as chairman and CEO of the combined entity in 2016, reflects on the experience of combining two American icons.

ON MERGING COMPANIES We were rigorous in terms of focusing on people, process, profits. Every Monday morning, like death and taxes, we held an integration meeting that might go as long as four hours. Attendance was not optional.

We had 13 focused teams, each consisting of a Stanley executive, a Black & Decker executive and a subject matter expert. We’d do a deep dive on one or two areas at every meeting

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with bowling charts. There was a lot of green and a little yellow, and if something was red, we talked about it. Was it a bad estimate, or did you need more resources? What was the problem? There was obviously accountability, these were people’s full-time responsibility.

A lot of their variable compensation would be based on achieving these objectives, which were audited internally and externally.

The beauty of it was—this sounds tough but it can happen in any big organization, particularly with a lot of moving pieces and matrices—there was nowhere to hide. If a distribution center hadn’t been moved, a piece of equipment hadn’t been installed, there really were no excuses. If we heard, “Well, we haven’t gotten this or that approval,” I’d say, “Excuse me, you have the CEO and the CFO on the phone once a week. I don’t recall being asked to approve that.” So there was no excuse other than, “Hey, we made an estimate on a project or a program that just wasn’t any good.” Okay, let’s cut that in half and figure out where we’ll find the rest to fill the gap.

ON PICKING THE TEAM We’ve done acquisitions and integrations

where people spent a third of their time on that and two-thirds on their day jobs. With this deal, we pulled a handful of senior people out of their day jobs to work on integration 100 percent, made it clear what they were to focus on and aligned their compensation to achieving those goals. That created a lot of opportunities for their No. 2 or their rising stars to step up. It didn’t always work out perfectly, but more often than not it allowed people to realize their full potential.

In terms of building a team, about a third of the people, particularly those from Black & Decker, said, “I was a director running

this big business. I won’t be doing that anymore. I’m going to cast my net elsewhere.”

Another third expressed interest, but about half realized very quickly it wasn’t for them, and they were managed out of the company—gracefully, we think.

The last third said, “This is what I’ve been waiting for all my life. It’s a meritocracy. If we achieve objectives, I’ve got both economic and career growth. Put me in, coach. Where do I sign?” Seven, eight years later, they’re half of the people running the company.

The folks who stepped out of their day jobs, particularly those with experience on

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T HE CN E X T IN T E RVI E W the Stanley side, realized it wasn’t forever and it might even be better than the job they left. That’s the beauty of how profitable growth creates an opportunity for everyone.

ON SELF-EVALUATION In the midst of the merger and working on the senior team, without informing the board, I had 360-reviews done on myself, my COO and the senior management team. When I shared them with the board they were absolutely stunned.

As CEO, I always did a self-assessment, “Here’s how I think I did relative to the goals, here’s how I think we, as a team, performed as a company, here are some things I wish we’d done better,” every year just to help them in their assessment. Then I would commission 360s on myself and the No. 2 person and share the results with the board. Now, had they turned out horribly, I might not have been quite as eager to share the results, but I didn’t have to make that decision because it seemed like we were doing what was expected of us and were respected as leaders.

I didn’t know it was in the envelope before it was opened, I had no idea. But once the envelope was opened, I was much more comfortable sharing with the board that I had it done—let me say it that way.

“I don’t care who you are or how comfortable you are in your tenure, there are always times when you’re looking for that objective third-party view.”

ON CUTTING COSTS On day one, I was stunned to find out that R&D, advertising, promotion, sponsorship, etc. were all part of SG&A at Stanley. I said, “Guys, it’s like cholesterol, there’s good cholesterol and bad cholesterol. R&D, sponsorship, promotion, brand building—that’s good cholesterol. Money we spend because we have to report earnings, maintain a legal function, run our systems—costs of doing business that don’t directly touch customers or build our brand—that’s bad cholesterol. It does nothing but reduce our margins.”

So I said, “For every dollar you cut out

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of the bad, we can spend 50 percent on the good and still save a lot of money.” I’m grossly oversimplifying, but we truly approached it that way.

You cut the horrible systems inefficiencies causing us to duplicate and triplicate efforts, save $3 million and reinvest half of that in growing the business. Over time, we created a culture of investing against organic growth in terms of product development, innovation, brand building, brand support.

And, however many years later, a $2 billion business was $12 billion.

ON HAVING PEOPLE TO TALK WITH Early on in my tenure at Stanley, I was very, very fortunate to have a seriously experienced and capable board, given the relative size of the company. I had Jack Breen, the CEO of Sherwin-Williams, an incredibly experienced, high-integrity guy who really knew the difference between a director’s role and the CEO’s role. I had Emmanuel Kampouris, who ran American Standard, an incredibly successful CEO, and Stillman Brown, who was the CFO at United Technologies in both the Harry Gray and George David era. Also John Opie, one of Jack Welch’s vice chairmen, who ran GE Lighting.

These were serious people. These guys were all on my board, day one. They were incredibly valuable throughout that period and, most importantly, during the merger.

“Let’s go forward,” they said. That helped.

In addition to a supportive board during the merger I had a guy named Steve Jobs, who I had known earlier in my career, a very senior partner at Bain. He passed away a few years ago. He was a Baker Scholar at Harvard Business School, he was in W’s class at Yale, he was a pilot in Vietnam. He was always someone I felt I could get the unvarnished truth from. He was just a good sounding board, essentially a privileged insider but outside my board.

I don’t care who you are or how comfortable you are in your tenure, I think there are always times when you’re looking for that objective third-party point of view, it’s an opinion you respect, you know. And Steve, for years, filled that role for me, for which I’m eternally grateful.

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

CEO THE LIFE CYCLE OF THE CEO 1000

STAGE FOUR—CLOSING

BY JEFF KIRSCHNER, PARTNER, RHR INTERNATIONAL

This is the fifth article in a series addressing the imperatives and challenges CEOs face through the entire spectrum of the role—from job preparation to exit.

THERE ARE FOUR MAJOR CHALLENGES in the “closing” stage of the CEO life cycle: Providing increased responsibility and coaching to prepare for succession CEOs are keenly aware of the capabilities represented in their leadership team members and can offer a clear vision of suitability of candidates for succession. It is their responsibility to build the candidates’ leadership skillsets by setting up a series of increasingly challenging on-the-job experiences and coaching to improve their effectiveness. Delegating stretch work responsibilities and providing ongoing feedback helps ensure a qualified pool of succession candidates. Our recommendation is to start the process at least five years before the succession target date and involve at least two job rotations.

Some CEOs may want to avoid the topic of succession, lest they prematurely signal to the board that they are winding down their tenure, but this is far from the truth. Taking on responsibility for succession planning demonstrates that CEOs have the best interest of the company at heart and is a sign of confidence. For many CEOs, the process begins when they assume the role and succession planning remains a top priority throughout their tenure.

Working with the board to develop leadership criteria for the CEO role Engaging in a meaningful dialogue with board members about criteria for the role can take several months and is best facilitated with a consultant experienced in succession planning and competency modeling. Gaining agreement on the assessment criteria will help avoid disagreements about selection decisions later in the process.

CEOs often guard access to the board in an attempt to maintain their position of power. While most leaders would like to name their successor, selecting the next CEO is clearly the responsibility of the board. Providing the board with ongoing access to senior management will be critical to helping the board fulfill its fiduciary responsibility.

Continuing personal and leadership growth, fighting complacency and protection of the status quo Having spent much of their careers fighting through adversity to achieve the top job, CEOs will also grapple with the personal sense of loss in stepping away from such a powerful and impactful role. Since much of a CEO’s sense of identity is linked to work life, the prospect of giving up the job is daunting and requires introspection. Renewing a personal commitment to lifelong learning and personal growth will help weather this transition.

256 OF THE CEO 1000 HAD 10+ YEARS IN THEIR JOB

Source: Chief Executive CEO1000 data

to anticipate industry trends, identifying opportunities to drive change within the company and empowering leaders to execute the change.

Preparing for post-CEO life In planning for the next phase in their career journey, CEOs can revisit their personal mission and values while starting to identify opportunities to serve on boards, teach, write and/or travel in retirement. They will also want to think about whether or not to stay on in an advisory role or in a formal role as chairman or board member in their present company.

Retirement from a CEO role may also involve relocation and changing the mix of activity from a career to a recreational focus.

Like all life transitions, this requires planning and forethought.

CEOs can engage their spouse or significant other in a discussion about how their relationship will change in the future. For many people, stepping into this next stage of life involves giving back to their family and community through increased participation in philanthropic activities. Taking the time up front to try out new roles will help ease the transition and set the stage for a fruitful and personally satisfying retirement.

Successful CEOs are committed to a continuous improvement philosophy, constantly revisiting their vision for the company as the external marketplace shifts. Facilitating dialogue to drive innovation for the organization will remain an ongoing priority. This requires great effort in maintaining connection with customers ®

For more information about RHR International, visit rhrinternational.com or call +1 312-924-0800

LE AD ERS LAW BRIEF \ DANIEL FISHER

SECOND SIGHT

Recent lawsuits suggest courts have a new requirement for manufacturers: clairvoyance.

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

FOR A FEW YEARS in the 1930s and 1940s, California farmers spread nitrate-rich fertilizer from Chile on their fields, little knowing they were sowing the seeds for litigation that would test the limits of whether companies can be liable for risks they could neither anticipate nor control.

The fertilizer from a company now known as SQM North America contained tiny amounts of perchlorate, a toxic chemical also used in rocket fuel that can leach into groundwater.

In 1997, California regulators developed technology capable of sensing previously undetectable levels of perchlorate as low as four parts per billion and ordered cities to upgrade their water-treatment facilities to deal with the risk.

Thirteen years later, the City of Pomona sued SQM, seeking to stick the Chilean fertilizer company with the $8 million bill for its upgrade. SQM won the first rounds of the lawsuit, but the case is currently on appeal before the Ninth Circuit Court of Appeals, which well may reverse a lower court and hold SQM liable for a product that was completely legal and believed to be risk-free when it was sold.

Dow Chemical faces a similar lawsuit by the City of San Diego, which blames the manufacturer for selling PCBs that local companies dumped into the municipal sewer system decades ago. Brushing aside the fact that Monsanto stopped making PCBs in 1977 or traditional notions that companies can’t be liable for a “nuisance” they had no control over, a federal judge allowed the case to proceed. A trial is set for February 2020.

And in one of the scariest applications of liability-by-hindsight, a California court delivered a $400 million verdict against Sherwin-Williams and ConAgra for selling lead paint and pigment more than 70 years

14 / CHIEFEXECUTIVE.NET / MAY/ JUNE 2019

ago that California cities now say must be removed as a public safety hazard. Nevermind that the product was legal and the risks of lead have been widely known since the days of the Roman empire. The judge found that based on a few snippets of advertising and some communications with an industry trade group in the 1930s, the companies were guilty of a conspiracy to inflict a deadly product on the public.

What’s going on here? Is it just crazy California courts up to their old tricks again?

To some extent, yes. The Golden State has always been hospitable to trial lawyers seeking to expand the boundaries of tort law. In the case of decades-old products, they want courts to apply backward-looking concepts of risk and utility, under which companies can be held accountable for injuries that were either unknowable at the time or considered well worth risking in exchange for the usefulness of a product. (The federal government specified lead paint for healthcare facilities, for example, because it was easier to clean.)

“The theory is you made it, you have to clean it up,” says Phil Goldberg, a partner with Shook, Hardy & Bacon who defends toxic-tort cases. “That’s not traditional liability theory.”

Goldberg likens it to making manufacturers insurers of long-tailed risks—retroactively and without the benefit of ever having collected a premium. There’s a certain rough justice to it all, since somebody will have to pay to clean up Pomona’s drinking water and San Diego Bay. But if courts can assign liability to anybody who ever sold a product that turns out to be dangerous in some way, we’re in trouble. Imagine how much a sixpack of beer would cost if Anheuser-Busch had to pay for every drunk-driving accident and case of domestic abuse attributed to its products.

“Liability law is about incentivizing the right behavior,” Goldberg says. “If somebody cannot avoid liability, then they shouldn’t be liable.”

MAKING A DIFFERENCE FOR A SAFER AMERICA The firearms industry welcomes participation in the national conversation to make our communities safer.

Our trade association, THE NATIONAL SHOOTING SPORTS FOUNDATION, has long advocated for effective solutions to prevent access to firearms by criminals, children and the dangerously mentally ill. We run programs that make a real difference.

NSSF has led the way in improving the FBI National Instant Criminal Background Check System (NICS) through our FixNICS® initiative that has reformed the law in 16 states and improved the reporting of disqualifying records.

The Don’t Lie for the Other GuyTM program helps firearms retailers prevent illegal straw purchases and is conducted in cooperation with Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).

Project ChildSafe® has distributed more than 37 million free gun locks since 1999.

Our partnerships with federal and state agencies, as well as a leading national suicide prevention organization, are building public education resources for firearms retailers, shooting SUICIDE PREVENTION

ranges and the firearms-owning community.

Operation Secure StoreSM is a comprehensive joint initiative with ATF to help Federal Firearms Licensees make wellinformed security-related decisions to deter and prevent thefts.

Practical solutions that protect lives and preserve our citizens’ liberties – making a difference for a safer America.

LE AD ERS TRANSFORMATION \ PATRICK LENCIONI

THREE DANGEROUS BIASES

Leaders who want to transform their organizations must make decisions with one thing in mind: impact.

Patrick Lencioni, president of The Table Group, is the author of 10 business books, including The Five Dysfunctions of a Team.

MY WORK FOCUSES ON helping CEOs and their teams make their organizations healthier and more effective. I’m not afraid to admit that most of what I advocate is ridiculously simple.

Clients who buy into it are always shocked that such basic concepts can have such a transformational impact on culture and performance.

Yet, some CEOs can’t seem to embrace the simple disciplines of organizational health. Years ago, I discovered that there are three biases, mental blocks, that prevent leaders from taking advantage of revolutionary opportunities that are readily available. Understanding these biases and making an honest self-assessment is the first step that CEOs can take to overcome them.

The Sophistication Bias. Many CEOs struggle to embrace practical concepts that they deem too simple to be difference-making.

They ignore simple disciplines in search of something more complex, innovative or intellectually clever. They are like the high school football coach who would rather implement a trendy new offense than teach his players how to block and tackle.

Simple disciplines that “sophisticated” executives overlook include things like building a functional team of leaders who trust one another, over-communicating key messages to employees and running focused meetings.

CEOs who struggle with sophistication bias prefer to focus on more complex solutions to what they believe to be complicated problems (e.g., A.I., CRM systems and Big Data).

Again and again, I’ve found that successful CEOs are those who humble themselves to master the simpler disciplines.

The Adrenaline Bias. Many CEOs struggle with patience. (Count me as one of them.)

They are drawn to solutions that will have the most immediate impact, even if those solutions don’t address the underlying issues in the organization. For instance, instead of

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taking a few months to build a team and establish a real culture of accountability, they opt to let go of an underperforming executive and bring in someone new. Or instead of rebuilding a product to meet the needs of customers, they acquire a company to get to market faster.

When the solution falls short of expectations, they search for another short-term fix and another. Instead, they need to embrace the racecar driver axiom, “you have to slow down to go fast.” They need to take the time necessary to address underlying causes of problems rather than settle for immediate remedies that only address symptoms.

The Quantification Bias. It always amazes me that many leaders will cast aside good ideas simply because they can’t reliably calculate their ROI. That’s like refusing to exercise because your scale is broken and you can’t measure how much weight you’re losing.

What metric-focused CEOs fail to understand is that the most important undertakings cannot be easily justified by quantitative analysis.

They require intuition, judgment and risk, things all great leaders can learn to embrace.

Some executives struggle with this even after they’ve implemented a new program and experienced its benefits. Still, they demand a metric, and if there is none, they look for more measurable solutions. This leads them to avoid critical endeavors around cultural and behavioral matters because their results are impossible to quantify precisely.

Leaders who want to transform their organizations must make decisions with one thing in mind: impact. They must pursue opportunities for impact regardless of whether it satisfies the biases in how they think. If they are bent on solutions that seem sophisticated, can be immediately implemented or are naturally easy to quantify, they will miss out on some of the most reliable and simple avenues for organizational improvement. Unbiased executives will be humble enough, patient enough and intuitive enough to embrace the simple but powerful concepts that transform ordinary companies into extraordinary ones.

THOUGHT LEADERSHIP PROVIDED BY INVEST IN ISRAEL

ISRAEL: WHERE INNOVATION LIVES Looking to supercharge your business? Here’s where to do it.

To find the right geography for foreign direct investment, CEOs need to know what they’re looking for. “If you’re going to the Middle East to look for oil, you can skip Israel,” Berkshire Hathaway CEO Warren Buffett once said. “If you’re looking for brains, look no further. Israel has shown that it has a disproportionate amount of brains and energy.”

He should know. He’s purchased stakes in Israeli companies such as industrial and aerospace equipment manufacturing company Iscar, wireless network software provider eVolution Networks, electronic component distributor Ray-Q Interconnect and agricultural electronic control unit designer AgroLogic.

Brains and energy are certainly high on the list for U.S. CEOs facing a skills shortage stateside—and that’s why so many are turning to Israel. With the highest concentration of Ph.D.’s and engineers per capita in the world as well as more than 6,000 active startups and hundreds of VC funds, the country has long been known as “the Startup Nation.”

“But that story is evolving,” says Ziva Eger, chief executive at Invest in Israel &

“If you’re looking for brains, look no further.

Israel has shown that it has a disproportionate amount of brains and energy.”

—Warren Buffett, CEO, Berkshire Hathaway

ICA, a foreign direct investment initiative of the Israeli Ministry of Economy and Industry. “With mature companies being sold for billions of dollars.” As an example, she points to the 2017 sale of autonomous driving tech company Mobileye to Intel for $15.3 billion.

While Israel’s R&D activity is certainly a draw—more than 300 multinationals have R&D centers there—the country isn’t just for idea incubation anymore. Manufacturers, both highand low-tech, are benefiting from the nation’s advanced manufacturing capabilities. And by co-locating R&D

and production in Israel, companies stay more nimble and adapt more quickly to new technology developments that might otherwise disrupt their businesses. “It makes the production process much more dynamic and enables a far more efficient ‘learning-by-making’ process,” says Eger.

The financial incentives don’t hurt, either. In January, Intel—which saw exports from Israel rise by $300 million, or 8 percent, in 2018 on the heels of similar growth the previous year—announced it had chosen the country as the site for a new $10 billion chip-making plant. Numerous countries where Intel has a presence, including Ireland and Singapore, had thrown their hats in the ring. But with its new deal in Israel, Intel will enjoy a corporate tax rate of 5 percent and will receive a government grant of approximately $815 million, or 9.1 percent of the total investment.

Capital grants will be a common theme for future companies considering FDI in Israel, particularly those in life sciences, automotive, aerospace and heavy industry. “You can get up to a 30-percent subsidy of investment in fixed assets when building a factory here,” says Eger.

CEOs can also enjoy a very stable economic climate; in the face of persistent global economic volatility over the past decade, Israel’s economy has seen consistent GDP growth above the average for OECD countries, and unemployment below 4 percent.

Foreign investment is not without its challenges, including legal and logistical hurdles and regulatory red tape. But Invest in Israel can help businesses navigate every step of the process of finding a new home on foreign soil—and access to innovation makes the potential return well worth the effort.

LE AD ERS BLACK SWANS \ JEFF CUNNINGHAM

SPEAK TWITTER

On the digital media battlefield, speed beats truth every time.

Jeff Cunningham is editor-at-large at Chief Executive Group and a professor of leadership at ASU’s Thunderbird School of Global Management. He was formerly publisher of Forbes and CEO of Zip2, Elon Musk’s first startup. He is founder of business trend poll Thunderbird Opinions and YouTube interview series IconicVoices.tv.

THE FINANCIAL CRISIS was a gift to anti-business activists. But former Wells Fargo CEO Tim Sloan was still caught by surprise. Although Sloan was a consummate CEO who looked and sounded like someone out of central casting, his credits fell short in one area: he lacked digital savvy.

Just before announcing his retirement, Sloan had a grueling exchange with the progressive left’s reigning heroine, Alexandria Ocasio-Cortez, who ranted, “Why was the bank involved in the caging of children?”

Sloan’s response: “I don’t know how to answer that question because we weren’t.”

AOC: “Ok, I’ll move on.”

The tweets began about two nanoseconds after this, and AOC knew she had hit a vital organ. She began retweeting to her nearly 3.5 million followers while sitting on the panel.

That her accusation was egregiously inaccurate wasn’t important in the digital world. Wells Fargo’s only mistake was lending to a company that worked with the federal government dating back to the Obama Administration. But the facts didn’t matter. In the digital age, disinformation sells, feelings beat facts and sad stories beat shareholder returns.

We are so inundated with data no one knows what to believe anymore. The simple answer is to believe what we can remember.

So sensationalism sells in the social media space because it’s pithy, easy to digest and easy to share. Starting your day with a dollop of pop virtue isn’t bad either, so people who had no beef with Wells Fargo lined up to condemn the company and its CEO, despite having no knowledge of the issues or Congresswoman AOC’s mendacity.

But AOC’s digital skills have taught her how to make things stick online (she was chosen as the Twitter tutor for the new class

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of Democrats). As a result, she is the most powerful person in Congress and Wells Fargo’s Sloan is now a former CEO. Do we need more proof that the digital age is upon us, and business executives are not prepared?

For those hoping for a different outcome when dealing with a coalition of business enemies that now includes not just activists but mainstream media, online trolls, disgruntled employees and politicians from Donald Trump to Maxine Waters to Elizabeth Warren, there are remedies.

First, understand that your role as chief executive is to be a transformational leader.

Your company can’t toss off its past like old lizard skin; it has to transform into a company that matters to people.

Second, understand the digital terrain.

Most millennials and Gen Zers get their news online. They will never subscribe to the The Wall Street Journal or The Economist. Asia has the highest growth in digital use in the world.

It’s no longer a channel, it’s the world.

Third, know how to avoid the Digital Danger Zones like appearing at a Congressional hearing without your own oppo research and talking points that are as hard hitting as the accusations.

Finally, use sentiment analysis and social listening to hear warning signals and preempt the attacks by providing what I call “platform hygge” to your networks. Give people a reason to love the company by making it loveable. That may sound gooey to some, but when you are judged by a 140-character soundbite, that’s what flies.

Communication in the digital era is not just faster, the rules are new, including that old bright line between falsehood and truth. Twitterese is a very different language than legalese. It is also the language people remember because what matters now is what’s first. What’s first is what’s right, and that beats what’s true. Then the news cycle moves beyond the facts in short order.

You could say there is no actual truth anymore, just the truth that’s shared on Twitter.

THOUGHT LEADERSHIP CONTENT PROVIDED BY DELOITTE

How to Receive Incentives for Corporate Projects (while enabling positive outcomes for all parties) ECONOMIC DEVELOPMENT INCENTIVES HAVE BEEN around for decades. Country-level, state, and local investment promotion authorities have long used a myriad of inducements to help achieve their objectives of attracting new jobs, increasing income, and growing the tax base through corporate projects. Thousands of corporate investments for new or expanding headquarters, manufacturing plants, research and lab sites, distribution centers, and back office locations are announced each year, many of which are heralded in the receiving communities as a boost for the local economy. Yet, some investments can receive quite the opposite reaction.

How can CEOs and their teams obtain the incentives necessary to position projects for success and make them financially viable in their preferred community, while avoiding negative blowback on the company and its investment plans? Where is the fine line that separates a company receiving its “fair share” of incentives from negotiating too hard for too much?

To be an effective steward of the company’s ability to receive economic development inducement, the CEO’s team should consider several “guiding principles of incentives”: Incentives…

1. Are possible for more than new deployments– Corporate expansions, retention projects, and equipment investments are examples of projects that can receive incentives. Every greenfield project should consider and potentially pursue incentives, but most companies do not realize that the same can be said for investments and job creation projects in existing locations. These should be applied for judiciously and remedy a challenge the company faces in its current location that may make future operations untenable, or other locations materially more attractive.

2. Go beyond tax credits– Tax credits often get the press, but tax abatements, infrastructure assistance, training support, low-interest loans, cash grants, and much more are often possible. With rigorous site selection and due diligence on candidate locations, companies are able to uncover site needs that can be addressed with incentives such as land preparation, utility extensions and improvements, expedited permitting, and other inducements.

3. Are not always of value– Companies may be offered incentives that are all but useless to them, such as tax credits that are unlikely to be claimed. Some incentives have onerous compliance requirements that make it difficult to monetize the inducement over time. Others are subject to fiscal realities; they may be tied to budgets that are depleted and may not be funded in the future.

4. Often are tied to performance– Economic Development leadership have elected officials and the general public to answer to. Incentives are granted after careful calculation of the net benefit of the outlay – all must deliver a return on investment, and mandates exist that a company receiving incentives will, over time, achieve its job creation and investment numbers. Many incentives may be subject to clawbacks, the notion that the company may need to surrender some portion of the package if the promised metrics are not achieved.

Be mindful of clawback requirements and how they are calculated in the negotiations process.

How can CEOs help ensure that teams pursuing incentives are optimizing the financial outcome for the company while considering the potential perception issues by local stakeholders? Here are a few tips from my 20+ years of helping companies with incentives.

QUICK TAKE: COMPETITION MATTERS Without a competitive location, incentives negotiations become reduced to a simple question by the company: What can you do for us? A meaningful alternative for the investment unlocks an entirely different discussion with investment promotion officials in both locations, conversations oriented to finding mutually agreeable solutions to the company’s needs.

First, go where you are wanted. That sounds obvious, but companies are likely to encounter more backlash to incentives deals in communities that have shown resistance to the investment during the site selection process. Second, know when enough is enough. Pushing boundaries is not uncommon, but companies that push for incentives to levels that defy any rational benchmarks, that are perceived to “take” from the community, or that place elected officials in untenable situations, place the company’s and local partners’ reputations at risk. Even if the deal is welcomed by the community, we have seen some incentives deals negatively impact the borrowing capacity and debt rating of communities, jeopardizing needed improvements to schools and infrastructure.

Finally, be visible – articulate and celebrate how the project will bring positive change to the community. Many projects are truly transformational for communities, often delivering multi-generational positive impact. However, some communities sour on companies that appear for the signing but disappear once the ribbon cutting is over; remaining engaged in the community is a wise practice. Some ideas include co-investing in a program or equipment at the local tech college, quantifying the economic and social impacts of the project, giving something back to a local charity, and driving employee engagement through community-based volunteerism.

Done well, incentives can create undeniable win-win scenarios. They bring meaningful value to companies as they make investment and job deployment decisions, helping to reduce up-front cost, ongoing expenses, and development risks, all while delivering jobs, income, and other community benefits. CEOs and their teams must work to optimize outcomes for all parties to help ensure that the pursuit of incentives does not come at the cost of something more precious.

Darin Buelow (dbuelow@deloitte.com) is a principal at Deloitte Consulting LLP and leads the Real Estate & Location Strategy practice As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure.

Certain services may not be available to attest clients under the rules and regulations of public accounting.

Learn more at www.deloitte.com/us/locationstrategy ABOUT DELOITTE: Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

LE AD ERS ON LEADERSHIP \ JEFFREY SONNENFELD

UNDER THE BUS

Who needs Wells Fargo’s Tim Sloan anyway?

(We did.)

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of government bank examiners on site through the Office of the Comptroller of the Currency, the Federal Reserve or Senator Warren’s brainchild, the new Consumer Financial Protection Bureau, nor any legislative bodies. Instead, Sloan and his new management team were the singular force turning over rocks to discover and address old problems. He led the bank to the highest profit in its 161-year history, a 75 percent jump over the previous year, a surge of rising genuine new bank accounts and an independent consumer rating by JD Power that placed it No. 3 among U.S. retail banks.

Yet, all those agencies and legislators formed a chorus condemning the very management installed to fix the problems they had missed. Senator Sherrod Brown, Congresswoman Maxine Waters and Senator Warren joined Republican legislators, such as Congressman Patrick McHenry of the House Financial Services Committee, in a bipartisan hanging party. Even President Trump and Mick Mulvaney, as new head of the CPPB and budget director, weighed in with threats of tougher sanctions.

Similarly, punitive regulatory moves like the $1.95 trillion asset cap imposed by the Fed last year and the Office of the Comptroller of the Currency’s recent public rebuke were ingratiating acts meant to please politicians rather than the consequence of any new misconduct.

The failed boards of Enron, WorldCom and Freddie Mac wrongly installed insiders with mud splattered on their shoes, immediately after the fall of corrupt CEOs. These ill-considered successors quickly failed. At the same time, informed insiders have brilliantly risen to save the enterprise following scandals at such far-ranging settings as General Motors, Xerox and Penn State. Bipartisan political grandstanding has created a dangerous haze confusing the good guys with the bad guys, which could have the unhappy effect of discouraging future heroic insiders like Tim Sloan from stepping up to the plate.

REUTERS / AARON P. BERNSTEIN

Jeffrey Sonnenfeld is senior associate dean for leadership studies and Lester Crown professor in management practice at Yale University and president of the Yale Chief Executive Leadership Institute.

AT THE END OF MARCH, Wells Fargo CEO Tim Sloan took a voluntary early retirement. Despite a stellar track record and support from his board chair, Sloan felt he had become too much of a distraction to the bank as the target of misplaced political attacks.

“About damn time,” tweeted Senator Elizabeth Warren in response, adding, “By the way, getting fired shouldn’t be the end of the story,” implying jail time should follow.

Her tirade was reminiscent of the disdainful and reckless grandstanding of Maximilien Robespierre, the bloodthirsty lawyer/politician who gleefully slayed the innocent along with the guilty following the 1792 French Revolution. The quiet hero of Wells Fargo, Sloan led reforms after taking the reins from former CEO John Stumpf, who presided over the creation of millions of false accounts, wrongful foreclosures on hundreds of homeowners, auto loans overcharges and other misdeeds, including the unjust termination of whistleblowers.

While Senator Warren properly called for accountability, including the firing of Stumpf, she wrongfully concluded that Sloan, then CFO, was guilty by association.

Sloan had replaced most of the company’s top management, sparking profound shifts in business practices and culture.

Any scandals that came to light in the past two years were not the result of continued deceit under his leadership but rather the internal investigations that he led. The bank’s 110-page independent outsider investigators, in fact, cleared Sloan of any knowledge of or complicity in his predecessor’s wrongdoing.

Interestingly, the Stumpf-era misconduct originally surfaced in 2016 due to bold journalists at the Los Angeles Times and crusading Los Angeles prosecutors—not internal bank processes or board oversight. Nor were more recent revelations unveiled by the platoons

MASTERS OF MANUFACTURING

MAKING THE TURN Bob Martin, CEO of RV maker Thor Industries, on how navigating changing consumer tastes—again—plays out in his marketing strategy. BY DALE BUSS

O

ur new series, “Masters of Manufacturing” presented in partnership with The Indiana Economic Development Corporation shares insights and ideas from innovative, growth-minded manufacturing CEOs from across the nation as they navigate this tricky time in history.

Thor Industries CEO Bob Martin is just coming off the recreational-vehicle industry’s biggest annual exhibition, and the RVX show in Salt Lake City earlier this month underscored two major ways in which the business that Thor leads is changing.

Overall, RV sales are leveling off after a decade-long boom, posing challenges to Martin and his counterparts that they haven’t faced since the industry debacle during the Great Recession. And the marketing targets for brands such as Thor’s Airstream, Keystone, Entegra and Jayco vehicles are becoming broader, especially embracing the millennial generation that has become key to the industry’s future.

“Retail [sales] haven’t been incredible” recently, Martin told Chief Executive.

“So we’re managing inventory and production in a cautious way. Dealers are feeling this year can be a flat year, which still would be very good. For 10 years, our industry has been on a growth spurt.

“So we see a little slowing—we’re not looking at a major falloff, just kind of a slowing. And dealers are trying to stay healthy by getting their inventories in line.”

Throughout the winter, Martin said, Thor Industries remained “conservative” about its output awaiting the onset of the crucial spring retail season. “We’ve been trying to make sure we’re not pushing dealers to bring inventory” they don’t need yet.

“We’ve had weird weather this year, too,” Martin said, including the famed “polar vortex” in February and “strange” conditions in the Pacific Northwest. But now that spring has sprung, RV dealers “are optimistic and their inventories are coming more in line as they prepare for on-lot sales in April.”

Meanwhile, industry leaders have executed a big change in how they use shows such as RVX—the RV Experience—to market to dealers and consumers. “This is a new look to our national RV show,” Martin said. “We changed the time of year and the whole premise of the show. Before, we would invite dealers in and the goal was to sell them products for the year … The goal is to reach new demographics, the younger buyer, more effectively.”

“

Previous big annual shows in the industry, he said, were largely business-to-business affairs where major manufacturers including Thor and Winnebago Industries showed off their wares to dealers and curried wholesale orders. But beginning with RVX, he said, the industry pivoted toward a “more automotive-style show” aimed primarily at generating consumer and media interest.

“We showed off more prototypes and innovative products rather than to sell to dealers,” Martin said. “We wanted to connect to consumers and to people who may not understand what the RV lifestyle is.” And indeed, he said, of the 150 media members who covered the Salt Lake City show, “almost none were RV-related.”

The goal is to reach new demographics, the younger buyer, more effectively…This time, we brought in fewer products and instead emphasized some unique trends, including technology trends.” —Bob Martin, CEO, Thor Industries

“This time, we brought in fewer products and instead emphasized some unique trends, including technology trends.”

For example, at RVX, the KZ unit of Thor debuted an environmentally friendly Sonic X RV prototype that features a lightweight carbon-fiber body and “endless” solar power. Thor also announced an exclusive and industry-first deal for its Keystone brand with General Motors for an app-based system that will allow purchasers of new Chevrolet pickup trucks to monitor and control functions in a trailing RV from the dashboard of the truck.

Thor and other industry leaders will continue to have their own B2B-focused shows and individual geographic markets stage RV exhibitions as well.

Whatever happens in RVs, as the leading seller, Elkhart, Indiana-based Thor is a main driver. The company also has overhauled its marketing approach with a new website and content for the parent company, more robust social-media efforts for Thor and brands such as Airstream, and a new tag line, “Go Everywhere, Stay Anywhere.”

Check out Masters of Manufacturing each month: ChiefExecutive.net/masters

B E ST & WOR ST STATE S FOR BUSINE S S

AFTER AMAZON

What happened in New York isn’t just about New York.

BY JOEL KOTKIN

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crats, like Chicago’s Rahm Emanuel, are being replaced by ever more stridently progressive politicians.

Rising Socialism in Cities

Jeff Bezos should have seen this coming. He had already tussled with Seattle’s effort to tax his and other large firms to address homelessness and the lack of affordable housing.

The city council-imposed homeless tax on large corporations was only repealed when Amazon—responsible for nearly 20 percent of the city’s office space—responded by stopping construction on a downtown office tower.

Even so, Bezos loosened his ties to the ever-more-progressive Emerald City. Amazon announced expansions in suburban Washington, D.C., and Nashville, places where costs are lower and politics far less pink. The online giant has also announced plans to lease out most of the new high-rise it is constructing in downtown Seattle and reportedly plans to move employees to the less politically fraught and more affordable confines of nearby edge city suburb Bellevue.

Amazon’s experience reflects the emerging new norms of locating jobs in inner cities. Companies in America’s most favored and bluest cities increasingly face a cascade of regulation that may make them

REUTERS / NANDITA BOSE

HE FIASCO SURROUNDING Amazon’s recent escape from New York reflects a broader, potentially devastating trend. By driving the Seattle-based behemoth out of the Big Apple, New York’s increasingly militant progressives have created a political paradigm that could resonate in cities across the country.

Simply put, after decades of trying to lure businesses, many cities are adopting political agendas—from minimum wage hikes to rent control and threatened tax boosts—that make them less attractive to both big firms and smaller businesses.

This new development is being driven by demographic shifts as cities become more dominated by hipster radicals and increasingly polarized with little room for a middle ground between the very rich and the very poor.

Cities have traditionally been more left than the rest of the country, but now that ideological gap is widening. Chicago, New York and Los Angeles seem destined to embrace ever-more radical politics as the young, single population and the poor dominate the electorate.

Only a handful of major city mayors, including Miami’s Francis Suarez, are Republicans, while pro-business Demo-

CHIEFEXECUTIVE.NET / MAY/JUNE 2019 / 23

think twice about expanding there—e.g., the limits to terminating employees currently being considered by New York’s City Council. Much of this reflects a sort of hubris. Mayor Bill de Blasio, who helped craft the original deal, lambasted Amazon for missing out on what he described as “the best talent in the world.”

In the past, tech firms sought to win over progressives by adopting their agenda on issues such as gay and transgender rights, climate change and racial redress. In New York last year, Amazon and its fellow oligopolies poured $600,000 in donations into Democratic campaigns, 10 times what they gave to Republicans.

Increasingly, the tech elite seems more like Lenin’s “useful idiots.” Appearing “woke” on social issues does not cut it with progressive firebrands like New York’s Alexandria Ocasio-Cortez, who openly regards tech and Wall Street billionaires as “immoral” class enemies deserving of being systematically stripped of their wealth. When Amazon withdrew, the country’s most glamorous democratic socialist trilled: “Anything is possible: today was the day a group of dedicated, everyday New Yorkers and their neighbors defeated Amazon’s corporate greed, its worker exploitation and the power of the richest man in the world.”

This is not just a New York phenomenon.

An increasing number of millennials— soon to be the nation’s largest voting bloc— say that they prefer socialism to capitalism, threatening the future profits of Silicon Valley plutocrats. This sentiment is particularly marked among the educated young workers so coveted by tech firms.

Some of the “best and brightest” still migrate, as they have for generations, to “superstar” cities, but many don’t stay long.

Demographic Truths and Lies Joel Kotkin is the presidential fellow in urban futures at Chapman University and executive director of the Center for Opportunity Urbanism. His most recent book is The Human City: Urbanism for the Rest of Us.

As a rationale for choosing New York for its second headquarters, Amazon cited the city’s talent base—one reason Gotham and other big, dense expensive cities are promoting themselves as destined to become “tech towns” due to their young, motivated labor pool. Yet, new migration trends suggest that educated workers are

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headed elsewhere, and in increasingly large numbers. As they age, millennials are moving decisively away from core urban centers and expensive metro areas. A recent study by Brookings’ Bill Frey found that the largest gainers of millennials (ages 25 to 34) are now solidly in the Sunbelt— led by Houston, Orlando, Dallas-Ft. Worth and Austin—while traditional urban “hot spots” like New York, Los Angeles and Chicago are the biggest losers.

At the same time, as they enter their 30s, millennials are fleeing for the suburbs. All this runs counter to the decree that companies must head to inner cities to find young talent. Some of the “best and brightest” still migrate, as they have for generations, to “superstar” cities, but many don’t stay long. In fact, the average resident in the downtown areas so popular with post-college millennials has lived in the same house for approximately 2.4 years, compared with seven-plus years in the suburbs and exurbs.

What High-Tech Employees Want

To be sure, some high-tech firms will cluster in dense urban cores. These will tend to be those most closely associated with city-oriented industries like advertising and media. Google’s recent expansion in Manhattan needed no subsidy and made estimable sense. But for much of the tech employment base—and many high-end services as well—locating in a less dense, more affordable location, often in the suburbs, may be vastly preferable.

Ali Modarres, professor and director of urban studies at the University of Washington Tacoma, suggests firms that rely on long-term mature engineers and managers need to follow a different course. This is why most of what he calls “the first wave” of tech firms—companies like Intel, Cisco, Hewlett-Packard and Apple—still cluster in suburban locations.

Modarres points to Apple’s creation of its second-largest employment center in suburban Williamson County, Texas, outside less costly Austin. Apple already has more than 6,000 employees there, roughly half the size of the company’s spaceship headquarters in suburban Cupertino.

Significantly, the Texas location hosts the

company’s hardware engineering division.

In contrast, what he labels “second-wave” tech firms like Amazon tend to be short-term employers, with many young people earning their spurs before heading out to other areas.

“The new information-peddling economy,” notes Modarres, “creates nomadic labor pools, who have to embrace ‘place-lessness’ to survive.

They move where their skills take them.” These firms may create pools of instant wealth, when companies go public, but they do not seem to create a long-term middle class.

“The new economy, epitomized by Amazon, neither requires nor offers loyalty to its employees,” he notes. “They need the largely youthful ‘creative class,’ to give a few stressful years of their lives to innovate, pad their CVs and leave for the next job, hopefully in less expensive places. They work hard, live fast and burn out in a few years, ending up often in more suburban and other less costly areas.”

Where Is Best for Innovation?

One can appreciate the enormous economic benefits that firms like Uber, Lyft, Salesforce.com and others have brought to San Francisco, Seattle and other tech cities. Yet the concentration of high-end businesses has also created something of a Dickensian reality—a city with sky-high housing prices, massive homelessness and a rapidly diminishing middle class. San Francisco now has more hard drug addicts than high school students, streets filled with fecal matter and a burgeoning homeless population.

The kind of conditions seen in San Francisco, and increasingly Seattle, are not ideal for people seeking stable long-time employment. Engineers generally seek to buy houses and often raise families, meaning they tend to move to more affordable locales. Over the past several years, engineering-oriented firms such as Bechtel, Jacobs Engineering, Occidental Petroleum and Parsons have all moved, largely to Texas or Virginia.

This suggests a surprising future for the tech economy, particularly if the progressive tide continues to mount. An aging millennial population, growing dysfunction in centers like San Francisco and political radicalism all work against business investment and the migration of educated middle-aged adults to cities. The bad old days of urban decline may not return, but the bright high-tech future predicted for our urban cores may be far less promising than widely heralded.

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B E ST & WOR ST STATE S FOR BUSINE S S

WHERE TO BE

Recent deals gone awry suggest technology is disrupting economic development along with every aspect of business. Here’s our annual look at how the 50 states stack up. BY DALE BUSS

Visit ChiefExecutive.net/best-states-19 for more detail on the Best & Worst States for Business, based on a poll of 350 CEOs.

26 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

and chairman of District New Haven, a tech-startup campus in New Haven, Connecticut. “Imagine the repercussions of having all these citizens cheering for the team that lost.”

Amazon’s Big Apple disaster had little effect on New York’s standing in the Chief Executive “Best States and Worst States for Business 2019” survey of CEOs because the Empire State already has been stuck at lowly No. 49 for years.

But the fact that Virginia managed to land the other main Amazon HQ2 facility helped boost the state two spots in this year’s rankings, to No. 13, while Amazon’s consolation-prize plan to put a big facility in Nashville assisted a rise of three spots by Tennessee, to No. 4.

And the Foxconn unraveling helped drop Wisconsin by four spots, to No. 17, after a strong climb by the Badger State from No. 41 in 2010.

REUTERS/SHANNON STAPLETON; REUTERS/JEENAH MOON; REUTERS/KEVIN LAMARQUE - STOCK.ADOBE.COM

THE BIGGEST SITE-SELECTION DEALS of the past two years—a pair of the largest ever—have blown up in the faces of the CEOs and politicians who consummated them. What follows is likely to be a new era demanding greater accountability by business chiefs and more transparency by government leaders when it comes to expansion agreements that seem too good to be true.

In Amazon’s abandonment of its “HQ2” plans for New York City, an ad hoc tribe of local political activists prevailed over the carefully considered business strategy of one of the world’s dominant companies, headed by the richest person in the universe. And in Wisconsin, voter unrest over generous financial incentives for a Foxconn flat-glass mega-factory helped oust the governor who granted them and wobble the CEO of one of the biggest electronics companies on the globe.

“New York City lost; the entire Northeast lost” in the Amazon debacle, says Dave Salinas, founder

RANKING 2019 BEST & WORST STATES FOR BUSINESS The top and bottom states seem frozen in place for good reasons.

No. 1 Texas, for example, beckons young, educated residents to stay and work in its cities in vibrant energy, manufacturing and tech sectors.

Plus the administration of Governor Greg Abbott stays ahead of things. “It takes relentless effort, focus and persistence to do what needs to be done to succeed,” he tells Chief Executive. “And we use good strategies.”

One of them is reasonable regulations.

“There is a good dose of pragmatism and understanding of what’s needed to attract investment in new facilities but still look after the environment,” says Bob Patel, chairman and CEO of LyondellBasell, a petrochemical giant based in Houston.

But No. 48 Illinois, for instance, remains mired in fiscal hell. And new Democratic Governor J.B. Pritzker wants to layer on a progressive income tax.

“Chicago is very business-friendly and they’ve got a great culture there, but the tax structure in Illinois is tough,” says Jim Fish, CEO of Waste Management, which recently considered moving its headquarters to Chicago, Denver or Nashville, but ultimately kept it in Houston. “That even makes it tough to attract employees.”

<<LOSS FROM 2018

RANK

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

North Carolina

South Carolina Georgia Colorado

Wisconsin

Iowa

Delaware Alabama

New Hampshire Montana

Kansas Michigan Pennsylvania Rhode Island Mississippi West Virginia Vermont Hawaii Washington

-10

-8

-6

-4

-2

0

GAIN FROM 2018>>

Texas Florida Tennessee Indiana

Nevada

Arizona Ohio Utah Virginia Wyoming South Dakota Oklahoma

Idaho Nebraska

Arkansas Kentucky

Missouri

North Dakota Louisiana New Mexico Maryland

Maine

Minnesota Alaska

Oregon Massachusetts Connecticut New Jersey Illinois New York California 2

4

6

8

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CHIEFEXECUTIVE.NET / MAY/JUNE 2019 / 27

Once again, Texas finished No. 1 overall for 2019, and once again was followed by Florida at No. 2. North Carolina fell to No. 4. Indiana remained No. 5. The ranking of the worst seven states—No. 44 Oregon, No. 45 Massachusetts, No. 46 Connecticut, No. 47 New Jersey, No. 48 Illinois, then New York and California in last place—remained unchanged.

Now CEOs, politicians and the economic development community are absorbing ramifications—and lessons— from the Amazon and Foxconn sagas.

For Rod Robinson, who watched the goings on in New York from afar as CEO of ConnXus, a Cincinnati-based digital-tech company, one obvious lesson is how to manage public expectations.

“It’s a matter of making sure voters have an understanding of economic development and how government can play a key role as a catalyst,” he says.

Still, pulling themselves together to compete in the Amazon HQ2 beauty pageant helped unify long-term development efforts in many cities other than New York.

“Amazon did something good by reviewing strengths and weaknesses with every community,” says David Brown, president and CEO of the Greater Omaha Chamber of Commerce, which joined Nebraska in pitching. “And it was a rallying point for us as a local tool to convince people to do some big things in the community that we might not have thought of otherwise.”

Also, Amazon’s commitment to spread the jobs once aimed for New York City to the rest of North America, instead, can be expected to juice development in those 17 locales, including Atlanta. “Amazon already employs more than 4,000 people in Georgia, and they’ve had a good experience here,” says Pat Wilson, commissioner of the Georgia Department of Economic Development.

Meanwhile, Amazon’s nod to Nashville—a promise to locate up to 5,000 jobs there in a new operations center—

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TECH IN THE HEARTLAND AMAZON ASIDE, HEARTLAND LEADERS ARE INCREASINGLY confident that they can create and sustain their own tech ecosystems. In addition to a lower cost of doing business than their coastal peers, mid-American cities demonstrate multiple strengths as sites for homegrown and imported tech companies.

These include a much lower cost of living than in places like Manhattan and San Jose, strong educational institutions, a pace and quality of life that appeal to many, logistical advantages and, as their denizens see it, the absence of wayward values displayed in coastal tech enclaves that range from abuse of privacy to political extremism to misogyny. “We believe fundamentally that individuals shouldn’t have to be forced to trade off location for vocation,” says Monty Hamilton, CEO of Rural Sourcing, an Atlanta-based startup that employs coders and other tech workers in six interior cities: Augusta, Georgia; Oklahoma City; Albuquerque; Mobile, Alabama; Jonesboro, Arkansas, and Fort Wayne, Indiana. “We also believe clients shouldn’t have to pay extraordinary prices in places like Silicon Valley or go offshore.”

Here are four ways that heartland cities are leveraging these and other attributes and developing their own tech ecosystems: INDIGENOUS CAPITAL: More entrepreneurs are investing in their own heartland communities as initial digital successes pile up around the country. State and metropolitan governments are upping their efforts too.

Cincinnati is an example. There, Don Wright recently launched a new startup, Clarigent Health, just a few years after he sold his first healthcare company, Assurex, for about $410 million. “Guys like Don cash out and become part of our tech ecosystem to build a next generation of entrepreneurs,” says Rod Robinson, CEO of ConneXus, a Cincinnati-based firm that connects minorityand women-owned suppliers with customers worldwide.

TOP-NOTCH UNIVERSITIES: Many heartland cities can take advantage of the outsized achievements of colleges and universities that include land-grant giants such as the Big Ten and Big 12 colleges, as well as standout independents and some great community college systems. To wit: 25 percent of the world’s best research universities are located within 750 miles of one another in the U.S. midsection, says consultant Larry Gigerich.

ATTRACTIVE LIVING: They can’t offer ocean views, but many inland cities have combined legacy advantages in quality of life with new vibes that attract young tech workers. Nashville and Austin, for instance, have risen to the top of new-era tech ecosystems in large part because their college graduates like to stay and live where they went to school.

GREAT LEADERSHIP: As in business generally, sometimes individual leaders can make a huge difference. Stephen Moret, for example, spent 13 years building up the economic development capabilities of Louisiana before taking over as president and CEO of the Virginia Economic Development Partnership—just in time for northern Virginia to make its winning Amazon HQ2 bid.

“If you look at his strategy, it’s not just financial incentives but building up the educational infrastructure to help not only the business he’s incenting but other companies too,” says economic development consultant Dennis Cuneo.

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will accelerate the Music City’s rise. “Nashville has become one of the ‘it’ spots in the whole country right now,” says Kathy Mussio, managing partner of consultancy Atlas Insight.

The Foxconn saga disquieted CEOs, politicians NEVADA #6 and the economic develRose six spots, to No. 6, in part as a convenient alternative to the highopment community for tax, anti-business environment of different reasons than the neighboring California.

Amazon arc. The partnership started as a test of how far a state and its IDAHO #19 Shot up nine places, to No. 19, on leaders could reasonably its quality of life and focused efforts stretch to guarantee not to develop Boise into a capital of just a huge investment by business-friendliness. a foreign company but also one that, as then-Wisconsin NEW MEXICO #31 Governor Scott Walker Rose three rungs, to No. 31, as new hoped in 2017, would be Governor Michelle Lujan Grisham transformative. pledged to “end a decade of lost job “Wisconn Valley” would growth.” arise in the southeastern corner of the state as a ALABAMA #25 complete technology-enPlunged by eight spots, to No. 25, terprise ecosystem around as sluggishness in the south offsets a $10 billion Foxconn robust manufacturing growth in the investment in a factory to north of the state. build the largest class of flat glass screens for the KANSAS #29 latest consumer elecDown 10 rungs to No. 29, seems in tronics, employing up to meltdown mode after a business-tax 13,000 people directly reduction failed to spark growth, and and tens of thousands then teachers struck. more indirectly.

Wisconsin promised a RHODE ISLAND #36 state-record-shattering Down four places to No. 36, is doing $4 billion of incentives many things right fiscally but is still to Foxconn. But not long trying to overcome decades of hostility after the Foxconn groundto business. breaking in Wisconsin that involved President Trump in 2018, that ground started shaking instead, as irresistible global industry dynamics began making themselves felt.

Foxconn CEO Terry Gou began sending messages that the company would make smaller screens than planned because it couldn’t be expected to set up the same kind of supply chain in Wisconsin that helps it dominate manufacturing in Asia.

Gou also was spooked by the budding trade

30 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

war between the United States and China because Foxconn makes most of its smartphone screens in China.

Meanwhile, the state’s educational institutions openly fretted about being able to provide enough qualified technical workers for Foxconn. Rumors flew that Foxconn already had decided to import engineers from Asia. Skeptics claimed that Walker hadn’t protected Wisconsin adequately against underperformance by Foxconn.

And when it came time to judge Walker’s generosity in the 2018 election, there were not yet any Foxconn workers to show up at the polls. He lost re-election in November.

Foxconn still promises to honor its commitment with some combination of assembly and engineering jobs. “Foxconn still has big plans, and, of course, the scale they’re talking about won’t happen overnight,” says Len Koren, CEO and owner of International Mold and Production, who moved his injection-molding company last year from Grayslake, Illinois, over the border to Kenosha, Wisconsin, to get closer to Foxconn—and after getting $110,000 in income-tax credits over three years to create 25 jobs in the state.

In any event, the Foxconn controversy disturbed some CEOs in the Chief Executive survey because Walker was a Republican who had helped solidify the Upper Midwest for economic investment over his two terms. Now Wisconsin is led by Democrat Governor Tony Evers, a former career school administrator. “There’s concern about how much of a priority economic development will be now,” says Larry Gigerich, head of consultancy Ginovus.

Michigan’s governorship also has flipped to a Democrat after Republican and former Gateway Computer CEO Rick Snyder helmed the state for eight years and led a remarkable turnaround in a once-woeful business climate.

But while Amazon and Foxconn stirred the pot, the impressions of CEOs in the Best States & Worst States for Business survey remained relatively stagnant when it came to their very most favorite, and very least favorite, locations. The rankings once again showed a huge red-state-blue-state political cleft: This year’s

STATES STEP UP ON INFRASTRUCTURE CEOS AND POLITICIANS ACROSS the country were disappointed that President Obama never came through on his promises to remedy the nation’s infrastructure problems with federal largesse, and they’re doubly disturbed that President Trump hasn’t done it either. So, more states are taking it upon themselves to—as new Michigan Governor Gretchen Whitmer put it during her 2018 election campaign—“fix the damn roads.”

Residents are in an uproar over her plan to raise gasoline taxes by 45 cents a gallon over three years to finally address the problem in a comprehensive way after the GOP administration of former Governor Rick Snyder, and a Republican legislature, seemed to kick the can down the pockmarked road. But many Michigan CEOs are warm to the idea of doing whatever it takes to overcome the ruinous freeze-thaw cycle that just keeps ravaging the state’s streets and highways.

As Patti Poppe, CEO of major utility Consumers Energy headquartered in Jackson, Michigan, says, “A sustainable funding source” for infrastructure upgrades is “very important. The fact that [Whitmer] is focusing on it is a good thing, and it looks like [legislative leaders are] playing well in that sandbox too.”

Meanwhile, Ohio Governor Michael DeWine wants an 18-cent-a-gallon increase in the next two-year budget, which would make the state’s 46-cent gas tax the fifth-highest in the country. And in Wisconsin, Governor Tony Evers wants to nudge up gas taxes and impose other fees to raise $600 million in new revenue.

“Roads are so important, especially in a lot of places in Flyover Country, where manufacturing and logistics are more intense,” says Larry Gigerich, an Indiana-based development consultant. “And with the economy doing well, some governors are saying let’s do this now.”

top 12 “Best” states are considered Republican red, and the bottom 11 “Worst” states are Democrat blue.

But the results weren’t simply a reflection of the political preferences of the surveyed CEOs. For example, many of the red states are headed by governors who were CEOs, including Florida Governor Rick Scott. In Tennessee, former Governor Bill Haslam, scion of the Pilot Flying J truckstop empire, has been followed by family-business owner Governor Bill Lee. “They know what it’s like to put a signature on a check,” says Charles Wood, vice president of economic development for the chamber of commerce in Chattanooga, Tennessee. “They’re business-minded leaders who put business-friendly policies in place.”

Meanwhile, blue states typically are led by career politicians and dominated by public-sector unions and other progressive elements that similarly ensure high corporate and personal taxes and strict regulations that by themselves discourage many CEOs. For such reasons, while the middle of the rankings were typically fluid, there wasn’t much change at the top and bottom this year. Texas, for instance, just purrs along as No. 1, wearing its pro-business credentials on its sleeve. And California remains at No. 50, all-in with its anti-business identity.

The divergent fates of California and Texas are illustrated in a single development.

Toyota is very happy that it yanked its sales and marketing operations from Southern California two years ago and consolidated its nationwide U.S. staff of 4,000 people at a new headquarters in the Dallas area.

“I want to be an employer where people want to come, and in the case of California, the cost of living was eroding the quality of life,” says Jim Lentz, CEO of Toyota Motor North America. “In Texas, the hospitality of the South and the pioneer spirit of the West and the values of the Midwest all blend together to create this very positive climate that results in a great quality of life.”

Dale Buss is a regular contributor to Chief Executive and other business publications.

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ITH THE NATIONAL UNEMPLOYMENT RATE hovering around 3.8 percent, there is no question the advantage belongs to job-seekers. Attracting and retaining the best and brightest means going well beyond attractive salary and benefits. To gain an edge in one of the most contentious wars for talent we’ve seen in decades, employers must showcase a culture that encourages constant innovation.

And it’s not just the Googles, Facebooks and Amazons that are differentiating themselves through exciting new tech development; all companies are having to transform themselves in the digital age, lest they be disrupted by savvier competitors. Mitsubishi Hitachi Power Systems (MHPS) has been able to stand out in an industry that has struggled with an archaic, industrial-era image. “We have the type of manufacturing that interests people,” says CEO Paul Browning. “Maybe I’m a bit biased, but our product is so advanced.

It’s basically a jet engine that, instead of flying on a wing of an airplane, is on the ground and being used to produce electricity.” Currently, MHPS engineers are working on perfecting an autonomous power plant, which, with the help of artificial intelligence (AI), will allow machines to monitor themselves, detect potential problems, fix those problems and even plan their own inventory. “It’s very exciting,” says Browning.

It helps that MHPS is headquartered in Orlando, which is home to more than 2,000 technology companies, including heavy-hitters such as Siemens Energy, Lockheed Martin,

From left: A surgeon and da Vinci surgical robot in AdventHealth hospital room; Mitsubishi Hitachi Power Systems engineer in company’s workroom; Universal Orlando works with local colleges, offering internships in a variety of fields

Northrop Grumman and SAIC. Over the past decade, Orlando’s tech corridor has seen a growth surge, thanks to a combination of factors including advanced infrastructure investments, a lower cost, business-friendly climate, and proximity to numerous universities with engineering and technology programs. The area’s pace is a good match for MHPS, which had just five employees in 1999 and two decades later boasts more than 2,000, says Browning. “When you’re in a high-growth mode like we are, living in a part of the country where the population is increasing and people are sort of flocking to this area, that’s a great dynamic for us.”

Rich in Tech Talent By promoting a culture of innovation, Universal Orlando Resort President and COO Bill Davis hopes to attract some of the talent flocking to Orlando to the theme park and entertainment resort complex. The Universal Creative team adapts technologies, such as augmented reality and AI, from other industries to enhance the immersive experience at the company’s theme parks. Its latest attraction, Hagrid’s Magical Creatures Motorbike Adventure, will open this June at the Wizarding World of Harry Potter, introducing a new level of storytelling and innovative coaster technology with

T H O U G H T LE AD ER SH I P PR OV I D ED BY O R L AN D O ECO N O M I C PAR T N ER SH I P

In a tight labor market, the best strategy for luring top talent is to brandish an exciting culture of innovation. Oh, and sunshine doesn’t hurt, either—at least according to three top business leaders from Universal Orlando Resort, Mitsubishi Hitachi Power Systems (MHPS) and AdventHealth.

rich environments and sets, designed to give riders the thrilling experience of flight. The ride was created by the Universal Creative team. “They’re the ones who come up with the ‘next big thing,’” says Davis.

To usher in the next generation of talent, Universal Orlando works with the University of Central Florida (UCF), Valencia College and other local schools, offering a variety of internships in all fields, from sales and marketing to data analytics to human resources. But the company doesn’t limit exposure to the university level. The “Art of Tomorrow,” for example, is a ground-breaking program that allows eighth graders to explore media and entertainment industry careers in hands-on learning labs at the Universal Orlando campus. “That gets us into the middle schools, and the kids can stay all the way through high school,” says Davis. Another onsite program called the Universal Education Center offers young people who might benefit from an alternative approach to high school the opportunity to simultaneously attend classes and work at Universal.

Being able to show off exciting innovation can also help attract top candidates, particularly in industries not known for bleeding-edge development, such as healthcare. “When you look at technology adoption across industries, healthcare is just ahead of hunting and agriculture,” jokes Daryl Tol, president and CEO of AdventHealth, which recently changed its name from Florida Hospital.

The company made headlines with plans to unveil a new AI command center at its Orlando campus that will func-

tion like NASA’s mission control and, using algorithms, help staff prioritize patient-care activities and discharges, make short-term staffing decisions and generally increase the efficiency of care.

AdventHealth also uses technology to hire and retain talent, says Tol, who estimates that he spends at least a quarter of his time as CEO focused on talent strategy, including acquisition, retention and especially leadership development. For positions such as first-year nurses, for which turnover can be as high as 40-50 percent, AdventHealth uses interviewing technology with predictive AI. “That gives us the percentage chance of an individual nurse staying with us for two years vs. another that has a lower percentage chance, based on facial responses and answers to questions,” Tol explains, adding that Advent Health does “significant recruiting” from UCF, one of the country’s largest schools.

Partnering to Nurture Next-Gen Talent MPHS has also kept its talent pipeline full by partnering with UCF, offering a robust internship program that produces a new roster of outstanding engineering candidates every year while, at the same time, offering the next generation of engineers a sense of what the day-to-day will be like. Unlike the more typical “gofer” style internships, MHPS interns are “designing the piping for a power plant or the control system for a customer’s application,” says Browning.

“This is real hands-on engineering work.” The company typically hires more than 50 percent of the interns who have worked with them. “They tend to like us and we tend to like them,” Browning adds.

Given that companies like MHPS, AdventHealth and Universal need to recruit not only from local schools and competitors across the street but from around the globe, Orlando’s world-renowned weather, large international airport and advanced infrastructure are solid selling points, says Browning. “It’s not difficult to convince people that a move to Orlando is a good thing.”

By fostering a culture that prizes innovation, companies can both attract and retain the kind of talent that will give them a competitive advantage in any business climate.

ST R ATE GY

FRED’S WORLD For almost a half-century, FedEx founder and CEO Fred Smith has shown an uncanny ability to see— and navigate—the future, building one of the most innovative and powerful companies in history. In the midst of a pitched battle with Wall Street, rising global trade tensions, growing anti-business sentiment and incredible technological change, we asked him about his company, his leadership—and what to watch for next.

INTERVIEW BY DAN BIGMAN It’s been a tough year for FedEx and for its founder and CEO, Fred Smith. Battered by a softening global economy, rising trade tensions, an ongoing frenemy fight with Amazon and grumpy investors looking for outsized earnings growth, the company has seen shares fall 25 percent in the past year.

Hardly a cake walk, but Smith, of course, has seen worse. Since founding the company in 1971, he’s weathered an endless storm of transformations, each one potentially existential. Oil shocks.

Recessions. Wars. 9/11. E-mail.

36 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

Through it all FedEx has survived, thrived and grown to a centrality in the global economy perhaps unmatched by any other company. Visiting the night shift at the Memphis hub of FedEx Express (as we did during Chief Executive’s recent Supply Chain and Logistics Summit, see page 64) is to witness one of the most astounding feats of daily human ingenuity: 150 planes and 7,000 employees across 900 acres sorting 1.3 million packages. Every day.

A day after FedEx’s most recent earnings call, in which the company was repeatedly questioned

PHOTO BY STEVE JONES

CHIEFEXECUTIVE.NET / MAY/JUNE 2019

/

37

about its spending on new planes and new systems, as well as the headwinds of the economy, Chief Executive talked with Smith onstage at the historic Peabody Hotel in downtown Memphis. The conversation ranged from Wall Street and free trade to his outlook for China and how he sees the future—at FedEx and beyond.

What follows is a transcript of that conversation, edited for length and clarity.

The global economy is, perhaps, downshifting somewhat. Can you tell us what you’re seeing out there, the macroeconomics around the world, and how it’s impacting not just your business, but business in general?

First, let me give you a little context about FedEx. FedEx will end up this fiscal year just shy of $70 billion of revenue. Now, we don’t have any cost of goods sold. So, that $70 billion is all EVA, economic value added.

We went into the year thinking we were gonna grow about $6 billion, and we actually grew about $4.5 billion. So even though we didn’t hit our goal, we’re still going to have earnings year-over-year that are probably flat or slightly up… We’re still gonna have, you know, a reasonably good year, is the point that I’m saying to you.

It’s not like FedEx is facing existential challenges. We’re just not making as much money as we had planned and hoped. On June 1 last year, we thought that the year was gonna be strong enough that we could make some very important changes and investments in our business. So we opened up two enormous ground hubs, in Allentown, Pennsylvania, and Middletown, Connecticut. Huge things, 300 acres.

Second, because of the e-commerce revolution, which is a part of our business but certainly not the main part of the business, people want items delivered six and now even seven days a week. So, we went to a six-day operation. So that means we’ve put a bow wave of capacity and expense out there.

And then third, one of the big things about e-commerce nobody talks much about is the tremendous explosion in oversized packages. These aren’t little bitty packages. They’re refrigerators, furniture

38 / CHIEFEXECUTIVE.NET / MAY/JUNE 2019

and stuff like that. So we’ve put a significant new network of oversized annexes in our ground system.

So, then the international revenues did not materialize because of the Brexit situation in Europe and the trade dispute with China, none of which was predictable when we went into the business plan. So, I just wanted to give you that context that we made these expansions to the business, we’re glad we did, and now we’re working hard to make sure that we put the revenues in the systems that justify the expansion.

How do you deal with the short termism of Wall Street when you’re trying to build out a capital-intensive business for the long term?

That’s at the heart of one of the most serious problems with the U.S. economy. Wall Street has this army of analysts trying to figure out our business better than we can figure it out and, more importantly, better than the entire mosaic of the global economy can figure it out. We do 14.5 million shipments a day worldwide with half a million people, 700 planes, 180,000 vehicles, 5,000 facilities. You can’t run a business like FedEx quarter-for-quarter.

Yesterday, we got hammered on an analyst call because we’re not making as much money as we planned, but we just put our goals out there and run the business. We’re making investments for 25 and 30 years, not for the next quarter, but it is very tough on a company run by a CEO who has [only] been in place for four or five years. They feel such pressure to deliver these shortterm results, which is a real problem in terms of the growth in the country because it makes management and those CEOs riskaverse and afraid.

The stock market is no longer smart people running pools of capital and investing.

It’s mostly run by algorithms. And you’re not talking about little small perturbations.

You miss the quarter, and wham, the stock goes down 25 percent. It’s very unstable.

Add the private equity phenomenon on top of that, and that’s why you’ve seen the number of publicly held companies decline by half over the last 25 years. And it will

continue to decline because nobody can operate in that type of short-term focus when running a long-term business, particularly when it gets to any scale.

What changes have you seen in the global supply chain that make you think, “That will be a real challenge”?

The biggest thing that’s happened is the rise of China. In 1979, Deng Xiaoping figured out what they were doing wasn’t working, and he began to open up China’s economy.

With this enormous amount of productive labor available, they became the manufacturing centerpiece of the world, and almost all supply chains were either in the middle of the growth of China or they were peripherally affected by the growth in China.

By the time of the meltdown in the Western financial markets in 2008… other countries started criticizing China. They take people’s intellectual property. They engage in cyber-espionage. They force JVs inside the company. They’re mercantilists.

They put lots of tariffs on our products.

They use non-tariff barriers. When the tariff fight started, they, as an example, held up hundreds and hundreds of Ford cars coming into China at a port by making some outrageous claim that the catalytic converters or something weren’t up to standard. The net result was the value of those cars went to zero.

They’ve done all of those things, and at the same time, they’ve militarized the South China Sea. They started their so-called Belt and Road Initiative. And, probably most problematic, they have their Made in China 2025 initiative, which identifies a number of industries where they say quite openly, “The state will be involved in these sectors, and we will be the leaders in these sectors by 2025.” China has overstepped, and that has created an enormous economic problem.

What’s your view of U.S. trade policy with regard to China?

I don’t agree with the way the Trump administration has approached the problem, but I do agree that the problem has to be addressed. President Trump’s response was

“The best way to have dealt with China was through the multilateral process; walking away from TPP was a mistake of the highest order.” to become protectionist. He unilaterally put tariffs in place, and I think that that was a bad decision. The best way to have dealt with China was through the multilateral process; walking away from TPP was a mistake of the highest order.

We’re now in the middle of this re-adjustment. China will try to solve this on a transactional basis, and President Trump is, as we’ve all seen, very transactionally oriented. So, my guess is we’ll get a trade deal, [but] will it solve some of these fundamental problems?

We’ll see how it plays out, but there are lots of moving parts at the moment, and lots of people have been hurt by this.

President Trump’s view was, “Well, they sell us $400 billion worth of stuff, we sell them $100 billion, and so if we’re tough enough, we win.” That may be true in the long run, but [not] if you’re a farmer in Midwest selling soybeans or whatever. Our exports to China were very concentrated.

CHIEFEXECUTIVE.NET / MAY/JUNE 2019

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“You’re going to have to constantly adjust, so if you can’t do that, you should go someplace where there’s less change, teach history or something.”

Their exports to us are very diversified. So, as you’ve seen, our deficit with China has actually increased, while our exports to China have actually decreased.

A better approach would have been to establish a rules-based system with all of the other trading partners in the Pacific and across the Atlantic and bring China into conformance with the liberal trading system, WTO-based trading system, that way, rather than bilaterally trying to use tariffs.

In a market constantly being reshaped by market shifts and disruptive technology, how can business leaders stay on top of change?

The fundamental thing that everybody in business has always got to realize in a market-driven economy is that you’re in the process of being commoditized. Commoditization always leads to sustenance earnings at best, so you have to innovate and find those blue ocean opportunities.

That’s hard because you’ve attracted a set of skills to pursue your core competencies, and now things have changed, so how do you manage that? That is, I think, quasi-art and quasi-science. And the really good CEOs know how to do that, and the CEOs who are not so good don’t. It’s just a messy process of trying to see where that opportunity is and how to protect yourself from commoditization in your existing business. Many companies simply cannot make that adjustment so they become obsolete, fodder for an acquisition or whatever the case may be.

FedEx was a tremendous disruptor, and now you’ve weathered recessions, fuel

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spikes, 9/11, the rise of China, Amazon, predictive analytics, A.I. How did you instill adaptability in the company’s culture?

Change is inevitable. If you don’t like change, don’t work here, because I can’t promise you that two, three, five years from now, what you’re doing is gonna be the same, that the market is gonna be the same. You are going to have to constantly adjust, so if you can’t do that, you should go someplace where there’s less change, teach history or something. I’m not being facetious.

There are some people who perform poorly when they’re stressed, and other people, it’s a kick to ’em. They’re adrenaline junkies. If you’re in a marketplace that’s changing or has the potential to change dramatically—and all markets are going to change, it’s just a matter of the rapidity— you’ve got to make sure you have those people in your organization.

How much of your leadership philosophy and strategy comes out of your background as a Marine?

It’s directly related. The Marine Corps is the only organization you can think of that has lasted for over 200 years and whose performance is almost always exemplary and without duplication. There is this mistaken belief that it’s all, “Yes, sir. Aye-aye, sir.”

It’s not. It’s always the other way around.

The first thing they teach you in the Marine Corps is that if you’re going to be an officer, when you eat, you eat last. And if there’s nothing left, you don’t eat.

It’s that culture that I tried to put into FedEx because it’s the tried-and-true method of running a high-performance organization that requires a lot of flexibility, mission change, adaptation and flexibility. I never went to business school.

When people ask “What business school did you go to?” I always say, “U-S-M-C.” They think it’s University of Southern California, but the Marine Corps was my graduate school. It was during the Vietnam War, so it was a tough way to make a living at the time. But I’m very grateful to the Marine Corps.

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You have said that your company philosophy is people, service, profit.

How is that evident in your approach to performance?

It just tries to synthesize that we’re in the service business. People don’t see me or my son. What they see are those first-line people. Just like in the Marine Corps, we turn the whole thing upside-down. Management is at the bottom. We’re out there to support those people who you see at your doorway, the pilots you saw getting on those planes, or whatever the case may be.

The culture is very important, but FedEx’s culture is not family. It’s team, and it’s high performance at the highest level.

You almost can’t conceive of the way these operations take place until you see it, the choreography of these people, machines, time and motion, automation and A.I., and all of these disciplines coming together to create this mosaic of commerce.

A lot of companies say, “We’re all family,” but I’ve never tried to portray FedEx that way. You won’t fire your son or your daughter, but the relationship on a team or a high-performance organization is different. You can’t afford to carry dead weight or have somebody who can’t play. So FedEx is much more like a team, and that’s the reason we call people team members and teammates. If you don’t do your job at FedEx, we will fire you. We’ll try to do it in a dignified way, but if you can’t play at the varsity level, you can’t play at FedEx. We don’t make any apologies about that.

You recently introduced the idea of the

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same-day robots, and you’re building a $1.7 billion expansion out at the campus, where there will be a lot more automation there. What’s your take on emerging technologies and their place in global commerce?

We’re heavily involved in Blockchain, which is going to revolutionize supply chains. You will have a trusted ledger of the entire life of a dozen eggs, the part that goes on a 777, the medicine that was produced in Japan, whatever it is. Blockchain is going to be a big deal.

We’re also heavily involved in A.I., which is analytics on steroids and will allow you do have much more discrete information and be able to operate things with much more precision. And what makes the FedEx same-day bots possible are sensors and digital storage that cost virtually nothing. So you have the map of the universe, if you want to, in the palm of your hand, and a sensor which can tell you, “Uh-oh, I’m about to run into something. It’s a human being.” All of these things are very important, which goes back to that strategic management process of trying to see what technology is on the horizon and how you can adapt and use them to your competitive advantage.

How has the drive toward sustainability changed FedEx’s Future?

Over the last 10 years, we’ve done a remarkable job in reducing our carbon footprint. Our miles per gallon of our vehicular fleet has gone up 40 percent. We’re introducing 1,000 electric vehicles in California, largely because of the regulatory requirement to do so. These vehicles, by the way, are built in China, which will be an electrification leader.

We’re spending billions of dollars on new, more modern airplanes. We get criticized about this by Wall Street. I dealt with it yesterday. We’re not gonna stop. And part of the motivation for that is because they’re more fuel-efficient than the older planes that they replace. Electrification is a much bigger deal in terms of sustainability for the world than people give it credit. So, between natural gas substitution for coal and power

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“No credible economist that I know of has written about an economy that becomes government-driven and is successful... It just doesn’t exist.” generation, and perhaps in maritime power and maybe even over-the-road power. We have natural gas over-the-road vehicles, you know, on an experimental basis.

The world is using about 96 million to 97 million barrels of oil per day. The traditional forecasts are that it will go up to 106 million barrels by 2025. But I think that because of electrification and natural gas displacement, you might see that actually gravitate back down to 70 million to 75 million. And there are a lot of efforts underway in terms of carbon sequestration and carbon capture. So I’m much more of an optimist that the sustainability of the world due to human ingenuity is much more likely than some of the people who view it in more dire straits.

The world will become more sustainable not because of fear of global warming, but because of economic advantage. We’ll get to the right place—and that’s the history of the world, quite frankly. London used to be enveloped in a coal fog every day. That stopped when they stopped burning coal.

And I think the same thing will happen.

Carbon emissions are down in the United States over the last 15 years. So, I think the world will get there, particularly China, which is putting a lot of time and effort into this.

How do you defend our economic system at a time when people are openly critical of business and capitalism?

Capitalism has become a pejorative in many circles. People have in their minds a Scrooge McDuck character on Wall Street that’s crushing the little people. And there’s merit to that to some degree. There

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are a few hundred people with these incredible incomes and, of course, that’s what everybody focuses on. It’s a tiny number of people.

Capitalism has a brand image problem, in my mind. That’s why I use the terms market-driven and government-directed. No credible economist that I know of has ever written about an economy that becomes government-driven and is successful in improving the living standards of its people. It just doesn’t exist.

At the end of the day, the market is what brought China out of poverty. It certainly wasn’t any state-directed or government-directed system. They’ve forgotten that or ignored it in order to perpetuate the power of the Communist Party, and they will suffer consequences because of that. They’d be better off just saying to the state-owned enterprises, “You will have to compete with JPMorgan or MasterCard” or whatever the case may be.

Regarding socialism, most of the youngsters talking don’t know what it means.

Bernie Sanders recently said, “They’re gonna love it when they find out what I’m really talking about… free education, free medical care.” Well, that’s government-directed, and it’s not gonna be any more successful [here] than it has been anyplace else.

I think what’s happened here is we’ve gotten so sophisticated in being able to parse the electorate that…when [politicians] get into office they are incapable of doing the fundamental thing that the people who designed our system had at the heart of our government, and that is compromise. They can’t compromise because they won’t get re-elected, and every word they ever said lives forever and can be pulled out of the ether to be used against you out of context.

I’ve been going up to Washington for 43 years, and the system as it was designed is overwhelmed by the technology.

So, somehow, I think there will have to be a reconciliation back to the center that forces some kind of compromise. Somehow or another, I have confidence the American system will find some kind of middle ground.

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THOUGHT LEADERSHIP PROVIDED BY TLDG

THE MISSION

How a band of West Point brothers and sisters came together to save a historic hotel—and ended up building a new model for training America’s leaders.

B

y the time Rick Minicozzi heard about the problems at the Thayer Hotel—civilian gateway to the United States Military Academy at West Point—it was almost too late. Operated and run by the government from 1926 until 1999, when it was privatized, the hotel was in existential financial distress in the wake of the global financial crisis, an aging, tattered embarrassment to the nation.

It was also, Minicozzi learned, in need of immediate mezzanine financing in order to cover $20 million in debt. Was Minicozzi, an Austin-based real estate developer and 1986 West Point graduate and Desert Storm combat veteran, ready to jump in? “Yes,” he said, sight unseen.

“It was a no-brainer.” He did the deal on a handshake.

That decision, taken with a sense of duty to the institution that shaped

him and done with trust in his fellow alumni—would change the trajectory of his life and those of his fellow investors and West Pointers Bill Murdy (USMA 1964) and Timothy Tyson (USMA 1974).

It would set them on a mission to rebuild The Thayer—and ultimately to develop a new kind of executive education, one based on West Point’s 200-plus-yearold method for creating leaders of character.

“We were committed as a group of graduates to return the hotel to its once distinguished position,” says Tyson, who Minicozzi and Murdy later recruited into the deal, “and to give back to West Point, knowing that we might lose money but willing to commit to that as graduates, hoping that with the business minds around the table we could figure a way to make a profitable go of it and turn it around. We all know that West Point is the most inspirational place on earth,

PHOTO CREDIT: FRANK MARI PHOTO

TLDG Founders: President Dan Rice, CEO Rick Minicozzi, Chairman Bill Murdy, Executive Director Dr. Karen Kuhla McClone, Ph.D. and Vice Chairman Timothy Tyson.

we just had to find a way to show the world—and the business would follow.”

Easier said then done. A Canadian bank was threatening to foreclose on an overdue note. Murdy, Minicozzi and another partner, Fred Malek (USMA 1959), personally covered the debt. Then they bought back all the outstanding stock at a 5x valuation to infuse more capital and give the hotel the operating cash it needed. They fired the ineffective management company, and Minicozzi took over as CEO, commuting from Austin and living in the hotel part of each month to oversee renovations. They brought in a board of governors—roping in Tyson along the way—and raised an additional $2.3 million from other West Pointers.

Ten years, many sleepless nights and many millions of dollars in capital improvements later, they’ve largely succeeded in turning things around.

The Thayer is now a luxury, 151-room destination in the heart of New York’s spectacular Hudson River Valley, with robust cash flow and renewed vibrancy.

The goal of being a world-class conference and leader development center is coming to fruition. Thayer is one of only eight New York hotels to meet the rigorous standards required to be admitted into the prestigious International Association of Conference Centers, and it was ranked #3 hotel in the Mid-Atlantic by Conde Nast Traveller. It is also

home to the Thayer Leader Development Group (TLDG), an innovative leadership institute led by an elite faculty of former Army officers—many of whom taught at West Point while in uniform—who work to infuse civilian business executives with military experiences and techniques developed over centuries.

TLDG was born of necessity. The Thayer, the new owners discovered, was in financial trouble for a reason. Located more than 50 miles north of New York City, it had no problems filling rooms on weekends. Weekdays were a different story. Monday to Thursday, the hotel was empty, and cash flow was nonexistent.

The answer was tapping West Point’s strength as the premier leadership development institution and brand in the world. In 2010, they launched TLDG, recruiting a who’s who of retired high-ranking officers as faculty, including General Dennis Reimer, Brigadier General Becky Halstead, Lieutenant General Frank Kearney, Colonel Sean Hannah, Colonel Pilar Ryan and dozens of others, each with specific expertise in their respective leadership fields.

“They’re practitioners of the content they deliver. They’re not just academia,” says Minicozzi. “They’re not just people who are theorizing stuff. They’ve actually done what they’re talking about.”

They also recruited from the best of the civilian world, luring Dr. Karen Kuhla McClone, Ph.D. from General Electric’s legendary Crotonville corporate university to develop the TLDG curriculum. “It’s a high-touch kind of way to work with clients,” says Murdy. “And she’s somehow figured out a way to scale that.”

Over the next few years, a growing roster of clients like 7-Eleven, Deloitte, Morgan Stanley, Wyndham and Pratt & Whitney discovered—to their surprise—that the Army way of doing things was extremely effective in this volatile, uncertain era of disruption in business.

TLDG was ranked as one of the top 40 leader development companies in the world by Training Industry—for the third year in a row—and conducts programs in Europe, Asia and across the U.S. “There’s a perception about the military that it’s very hierarchal and in order for someone to do something, they have to go up seven levels in order to get

permission,” says Minicozzi.

“But it’s actually the opposite of that. The Army teaches empowerment and pushing down authority. We’ve taken many of these processes and created a unique model that resonates with senior executives and is qualitatively and quantitatively proven to work.

Many of our clients engage us TLDG features a unique blend of leadership training—in to help create cultural change in and out of the classroom—with longtime military leaders. their organizations of all sizes.”

Even basic Army practices like after-action reports and “red-teamClients come away impressed. “TLDG ing”—role-playing how rivals will act has had a profound, transformational in reaction to your strategies—are impact on our firm,” said Doug Sieg, revolutionary in corporate settings, Managing Partner of the financial firm says Murdy, who, after serving two tours Lord Abbett. “The incredible characin Vietnam, graduated from Harvard ter and knowledge of the faculty and Business School and spent decades as a ownership; the awe-inspiring location CEO and public company director. “When of the Thayer Hotel; and the world-class I got into a position of leadership in curriculum are second to none.” building a business and started introThat’s the mission. “There has been ducing those things, I was flabbergasted a need for what West Point’s basic that people didn’t do that,” he says. “I premise is, and that’s building leaders thought everybody did that already. And of character for a selfless service to our it truly does make a difference.” nation,” says Tyson. “We thought we More than anything else, TLDG prides could help to educate and catalyze the itself on developing the “whole” leader, business community with an underbased on West Point’s character-based, standing that you want to build leaders ethics-based training. How do you teach of character for a selfless service to your character? “By example, mostly,” says organization, and it has been incredibly Murdy. “The one thing our faculty have well received.” that is unique is that they had experi“There’s a thing about West Pointences where they’ve been leaders under ers,” he adds. “We do not accept failure. extreme duress, leaders who had to So we always know that we can depend build trust or make incredibly difficult on each other to keep fighting until the decisions. There are principles that we end to find a way.” Ten years later, The use to teach leadership to senior execu- Historic Thayer Hotel is once again wortives who are experienced and educated thy of West Point and our nation. leaders. Our programs are part classroom, part experiential and part pure For more information: storytelling that has a lasting impact.” thayerleaderdevelopment.com

TOOLBOX

Watchfire Technologies CEO Steve Harriott spent a harrowing 21 months chasing a $30 million deal.

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MAKING THE HARD CALLS How to weigh options and muster resolve?

Listen to those who’ve done it—and thrived.

BY BRETT NELSON

F

ormidable tools like cheap computing power and Big Data promised to ease the guesswork in business decisions. That’s true for myriad tactical maneuvers.

Should the “Buy” button on a company’s website be green or red? Test, measure, move on.

But for CEOs navigating a wrenching global economy running at web speed, the really hard calls—what markets to attack, which deals to chase, when to raise capital— might be harder than ever.

Even oracles whiff. When Warren Buffett orchestrated a $36 billion megamerger between H.J. Heinz and Kraft Foods in 2015, he could taste the synergies. Buffett’s Berkshire Hathaway amassed 27 percent of Kraft Heinz stock, even as more consumers were junking processed foods. The bet curdled in February when Kraft Heinz wrote down $15 billion worth of intangible assets, erasing $16 billion in market value. So much for sober analysis and sound judgement.

“There is so much change going on, owners aren’t on solid ground,” says Joni Fedders, president of Aileron, a Dayton, Ohiobased boot camp for middle-market growth companies, who has worked with hundreds

of CEOs on their decision-making skills.

“We talk about this all day long because it’s at the core of most people’s lives.”

Most people have trouble making clearly considered choices. In his award-winning Thinking, Fast and Slow, Princeton University psychologist Daniel Kahneman merrily exposed our most common cognitive biases, while Wikipedia catalogs a humbling 200 of them (including, of course, the tendency to think we are less biased than others). The hardest decisions also tend to have longrange consequences that are tough to quantify—and you’ll only experience the outcome of the path you chose. In the end, you may never truly know if you made the right call.

To recap: Increasing uncertainty, biological handicap, low measureability. If Buffett can miss, how can mortal CEOs hope to compete?

We sought decision-making inspiration from battle-tested execs willing to relive their toughest calls. Their stories follow— along with Aileron’s handy six-step decision framework (p. 51) and five habits to keep on track (p. 52).

Our advice: When in doubt, trust the process—and make the call.

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The challenge was not just knowing the right decision, “but needing to muster the courage to make it in a swift, decisive, complete fashion.”

—ANDREW GEANT, CEO, WYZANT GO WEST, YOUNG MAN? In late 2013, Andrew Geant, founder and CEO of Wyzant, was riding high. His Chicago-based online tutoring and coaching service company had just raised $21 million from the VC firm Accel Partners. To hit his backers’ aggressive growth targets, Geant needed a new marketing chief. “The rewards were massive,” says Geant, 35. “If we could accelerate our growth, we saw a path to 10X-ing the business.”

The problem: All the best candidates were in San Francisco and feared Windy City winters. Months passed, pressure mounted. What if he hired the wrong person?

What if the team couldn’t coalesce from two locations? Finally, Geant made the hard call, opening a new West Coast office with a $5 million personnel and marketing budget.

Shutting it down 18 months later—and laying off 18 people—would be much harder.

The cracks formed within a few months.

The new team’s Silicon Valley swagger irritated their Midwestern colleagues. Cultures clashed, productivity suffered—and cash burned. Based on his projections, Geant recalls, he’d have to raise more money in just a couple of years: “We couldn’t rationalize it.”

But Geant couldn’t just pack it in, either: “These were good people, whom I had sold on the opportunity.” Revenue, meanwhile, was growing 40 percent a year—not a moon shot, but still impressive. Would shuttering a new office harm the company’s reputation?

Would the core crew in Chicago get nervous and bail?

Geant leaned on his team. His co-founder, Mike Weishuhn, a computer-science major and dear college pal, reminded him it was the CEO’s job to make the tough calls and think

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long-term. Geant’s five-person advisory board (including bankers, VCs and a vice president of product at Groupon) also chipped in, as did his confidants at YPO, a leadership organization for CEOs under age 45.

Breaking the news in San Francisco was draining, but Geant also took pains to justify his decision back home—even sharing proprietary financial data to support his argument. “The numbers help people calibrate, but that’s uncomfortable,” he admits. Many projects had to be scrapped, and there were gaping holes in the operation—the entire performance-marketing team, for example, was gone. At least the talent pool in Chicago had expanded over those 18 months; Wzyant’s rebuild, for the most part, could be locally sourced. Looking back, Geant says the challenge was not just knowing the right decision, “but needing to muster the courage to make it in a swift, decisive, complete fashion.”

Five years later, it looks like the right call. Now with 70 employees, $60 million in revenue and some black ink, Wyzant is investing in longer-term projects, such as selling tutoring services directly to universities aiming to boost student performance and shrink dropout rates. The San Francisco “experiment,” as Geant calls it, also forced the company to revisit core values like “enjoy the journey” and “always be learning.” Those words mean a lot more since the crisis, he concedes, but having them already in place fortified morale.

All in all, “[the team] appreciated having a CEO who was willing to make a tough call and be transparent about the reasoning behind it,” says Geant. “In some ways, it was galvanizing.”

HARD CALLS IN SIX STEPS Founded by Iams pet-food billionaire Clay Mathile, Dayton, Ohio-based business boot camp Aileron aims to bring big-time management techniques to smaller companies, with instruction from business owners and experts (not academics). Clear decision-making is core to the curriculum, says President Joni Fedders, who outlines a six-step approach for tricky conundrums. “Don’t be afraid to go back a step or two, depending on what you discover,” she adds. “It’s an iterative process.”

Step 1. Unwrite the rules. Think you can’t fire the owner’s son? Maybe you can. “We have a lot of rules in our heads,” says Fedders. They may no longer apply—or never did. Quiet your fears by questioning your assumptions.

Step 2. State the broader goal.

Be perfectly clear about what you’re ultimately trying to accomplish. Is the

each path’s probability of achieving the broader goal—and at what cost. If the owner’s son was promoted without the necessary skills, maybe the best option, all variables considered, is to give him back his old job.

Joni Fedders, President, Aileron

goal to appease the owner—or to delight customers, hit growth targets and build a world-class company?

Step 3. Define the decision. Executives get this one wrong a lot, says Fedders. The ostensible choice might be whether or not to fire the owner’s son—but it could be something else.

Maybe his role should be redefined, or his performance incentives adjusted.

Step 4. Weigh the options.

Brainstorm, analyze and estimate

PULL THE PLUG? Watchfire Technologies, a family-owned sign-maker in Danville, Illinois, has made everything from sports video displays to large commercial billboards—60,000 around the globe—since 1932. Steve Harriott had been at the helm for six years when, in mid-2016, his job took on a whole new light.

Word had leaked that Fremont Street Experience, a Las Vegas entertainment company, was looking to upgrade the giant digital canopy shielding its downtown pedestrian mall. Harriett’s engineers started roughing out possible designs.

When Fremont issued a formal request for proposal a year later, Harriott’s industry was ablaze about the $30 million project. Most new jobs attracted five bids; Fremont’s pulled in 50. For Watchfire, which generates $150 million in annual sales, it was a huge opportunity—and perhaps an even bigger risk. “A onetime, $30 million job is great,” says Harriott, 50. “But it can really break a company.”

Harriott sized up the project—as he does

Step 5. Make the call. You must not only execute the decision—be it drawing up a severance letter or rewriting a job description—but also let the team know you made it, and why.

“Communicating the decision is as important as making it,” says Fedders.

Step 6. Assess the outcome.

Post-mortems of big decisions are often muddy. “You can make numbers say anything you want,” warns Fedders. Personnel changes can be easier to assess, she adds: “You’ll know if meetings are more energized, or if people are hiding in their cubicles.”

all new business—by asking: “Do we have the right to win this job?” A third of Watchfire’s 330 employees work in engineering and R&D, bringing technical firepower to intricate projects like Fremont’s canopy. The 1,500-foot-long, curved circuit board—with 130,000-square-feet of digital screen—will be slathered with 49 million tiny LED bulbs, trimmable to shape and vivid in daylight.

It will let air flow through the top while shedding rain, and tourists may be allowed to flash messages across it via smartphone app. “No existing product met the spec,” says Harriott. “That was a nice starting point.”

Harriott’s other criteria: margin. “We weren’t going to buy the job” just for the marketing buzz, he adds.

Turned out Harriott’s hard call wasn’t to chase the deal, but to keep chasing it.

Fremont winnowed the field to five bidders.

A month later, Harriott got the unofficial word that Watchfire was the favorite, but nothing in writing. “Every 60 days I thought we were 60 days away,” he says. Another five months

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“Everybody hated me for months.

The developers were like: ‘What did we spend a year of our lives doing?’”

—MARC CENEDELLA, CEO, LADDERS later, a story in the Las Vegas Review-Journal reported Fremont was “contracting with Watchfire.” Still no contract.

Meanwhile, Harriott had to plead with his suppliers—thanks to a global shortage of electronic components—to hold his inventory until the deal was inked. His engineers, intoxicated by the scope and complexity of the project, were clamoring for a green light, while his private-equity investors were tallying “hundreds of thousands of dollars” in sunk development costs.

It took 21 months from the initial design work for Fremont to sign. (The canopy will be unveiled in December.) “The project touched a lot of people,” says Harriott, who made company t-shirts celebrating the team’s big win.

“By the end of it, I had welders say to me: ‘Did we sign?’ It became a rallying cry.”

WILL THEY HATE ME? Cenedella, 48, launched Ladders with a partner in 2003. The Manhattan-based job site, which pairs seasoned professionals with six-figure salaries, quickly raised $7 million in venture capital. It opened a UK outpost with 35 people in 2006, and revenue was doubling annually. Clones had sprouted in Germany and Japan, and there was urgency to launch in continental Europe: “[Everyone thought] if we want world domination, that’s what we gotta do,” recalls Cenedella.

In October 2008, Cenedella gathered 14 members of his leadership team for an offsite meeting to decide if they should open a German operation. They had already spent a year preparing an assault: A dozen developers beavered away while Cenedella hunted for office space and a managing director.

FIVE HABITS OF GREAT DECISION-MAKERS CEOs need clarity and confidence to make hard calls. But as with any skill, sound decision-making takes practice.

These habits—if a bit uncomfortable at first—are worth grooming.

Habit #1: Be curious. While many CEOs feel they need to have all the answers, this unreasonable expectation inhibits innovation—and even instills fear. Curiosity is the cure: Ask your team open-ended questions and help them find the right answers.

Habit #2: Make a decision only when you need to. This one is so important it’s splayed on the “decision wall” at Aileron’s 70,000-square-foot coaching center. Reason: While over-

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achieving CEOs have a bone-deep drive to get stuff done, leadership isn’t about making as many decisions as possible—it’s about taking the time to be conscious of the assumptions in the choices you do make.

Habit #3: Experiment. Decisions feel more manageable when you can test them. Experiments are common in product design, but there are other applications.

Fedders cites a client that ran a test to choose a successor. After five candidates were given a project to demonstrate their desire and qualifications, three backed out, realizing they didn’t want the job.

Habit #4: Focus on what I want versus what I’ve done.

Most business metrics—sales, profits, cash flow—are backward-looking.

But we all know the rule about past performance. Making choices about the future means not losing sight of your vision and financial goals. Start with what you want, build that and don’t be afraid to adjust along the way.

Habit #5: Prosecute the process. Much of Aileron’s curriculum is rooted in the teachings of industrial-management guru W. Edwards Deming. The central tenet: process over people. Say you set a sales goal and the regional manager hits it. Without a clear view of the sales process, you won’t know what matters most: that she’ll be able to hit it again.

Meanwhile the global financial system was teetering. By the day of the team’s vote, the subprime-mortgage crisis had claimed the likes of Bear Stearns, Fannie Mae and Lehman Brothers. Despite the scary headlines, Cenedella’s co-founder, who was French, and others wanted to push ahead. But Cenedella was losing resolve: The company already had “two or three million bucks” into the project, and the total initial investment would likely hit $5 million.

They voted. Result: 7 to 7. An hour later they voted again: another dead heat. “It was clear who was making the decision at that point,” says Cenedella. “It was all on me.”

Cenedella pulled the plug. “Everybody hated me for months,” he says. “The developers were like: ‘What did we spend a year of our lives doing?’”

Vindication arrived a year later with the Great Recession. Today, Ladders sticks to the U.S. and Canada, where compensation tends to weigh more heavily in career decisions.

(Cenedella sold the UK division to its manager.) While the company is thriving, with nearly $30 million in revenue and 200 employees, world domination will have to wait.

“When I look back, it seems crazy to think you’d try to establish a new operation in Germany at that time,” chuckles Cenedella. “But internally, it was a close-fought thing. How was I even remotely persuaded? And clearly I was, because it was painful.”

WHAT’S IT ALL WORTH? In early 2015, Brian Reale was weighing the possibility of raising money for his software startup, ProcessMaker, which automates document workflow. Oklahoma’s Tulsa Community College, with four campuses and 2,700 employees, uses the software to share forms that require multiple signatures—like system-access permissions, staff-performance reviews and student-leave requests. Result: better productivity, fewer errors.

Reale, 48, started his company on the side while earning a living running an Internet service provider in Bolivia. Seven years, four name changes and many pivots later, the company had built a handful of custom workflow applications, using open-software

“There were never moments of clarity.”

—BRIAN REALE, CEO, PROCESSMAKER to entice clients. By 2015 ProcessMaker had a scalable subscription model, $5 million in revenue and growth dreams.

Time for a cash infusion—or was it? “I felt we needed the money, but we didn’t have a clear path for success,” Reale recalls. “If you’re pivoting on someone else’s dime, you get into trouble.”

Another concern: As earlier-stage investments go, ProcessMaker was too big for angel investors but too small for growth-equity firms that prefer targets with $10 million to $20 million in sales. One distributor offered to invest, but after a few meetings, Reale demurred. “When you’re dealing with non-professional investors, it makes it even harder,” he says. “There’s no common language for valuation.”

The cap table was complicated, too. While Reale had majority control of the company, his two main investors—one a close friend from high school—together owned a significant chunk. Neither was involved in daily operations, and both saw a chance to cash out. On the one hand, Reale wanted new teammates who could add strategic value; on the other, he couldn’t afford to burn long hours brokering a deal for his partners’ shares—and risk getting sued if the company took off and they felt stiffed. “There were never moments of clarity,” he confesses.

After six months of soul-searching, Reale says, “I defaulted to what I knew well, which was running a business.” It proved wise. Four years later, ProcessMaker has 140 employees and over $10 million in sales. The growth-equity crowd is calling, but Reale has no plans to take on new money anytime soon.

“We think we make better, healthier decisions when forced to do it with less capital,” he says. “At the same time, you see other companies moving into nicer offices, outspending you on advertising. It’s always knocking at you.”

Brett Nelson is an investment strategist and former executive editor of Forbes.

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B O OK E XC E R PT

I SOLD AETNA TO FIX A BROKEN HEALTHCARE SYSTEM. HERE’S WHY.

BY MARK BERTOLINI

Excerpted from Mission-Driven Leadership: My Journey as a Radical Capitalist,

by Mark Bertolini, 2019, Currency, an imprint of the Crown Publishing Group, a division of Penguin Random House.

EDITOR’S NOTE: In 2014, after CVS CEO Larry Merlo announced the decision to stop selling cigarettes at its 7,700 retail pharmacies, Mark Bertolini, then CEO of healthcare giant Aetna, called to congratulate him. They agreed to meet to discuss business strategies and the future of the healthcare industry. In the conversation that ensued, Merlo referenced the estimated $2 billion revenue hit the decision would cost. “You make money on a fee-for-service basis,” Bertolini recounts responding. “I make money by keeping people healthy. You need a different revenue model, and if you continue doing the things that you’re doing, our revenue model is the right one.”

The discussion that ensued laid the groundwork for possible partnerships, including the idea of combining the two companies. Bertolini, who was in the throes of Aetna’s attempt to acquire Humana at the time, left the meeting with a mission: wrap the Humana deal, buy CVS—and change the healthcare industry.

“That a health insurer would buy a pharmacy chain is certainly unconventional—such a merger, as far as I knew, had never been contemplated—but it fit precisely with what I was envisioning for the future of healthcare,” he writes in his new memoir, Mission-Driven Leadership (Currency Books, April 2019).

That plan went south when the Department of Justice blocked the Humana acquisition, claiming it ran afoul of antitrust laws. But Bertolini, who had a harrowing firsthand experience with healthcare when his son, Eric, was fighting a rare form of cancer, didn’t give up on the vision. In this excerpt from the book, he lays out the healthcare system’s flaws—flaws that are not only spiraling costs, but resulting in our dying younger and killing ourselves more often. And he tells us how to fix it.

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PHOTO: EMMA MCINTYRE / STAFF

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ETNA’S MISSION IS to “build a healthier world,” and it starts at home.

I view our healthcare system through a unique prism. I’ve been a worker, a manager or an executive in the industry for more than four decades. I saw it up close, in its glory and its failings, with Eric.

And I continue to experience it firsthand, intensely, gratefully and inadequately, with my own injuries.

Consider how our health system works.

You buy insurance and you get a card. You pull out that card when you get sick or sustain an injury, and you go to a clinic or a hospital, and then the system throws you back into your life. That’s how we take care of people—no sustained engagement in you as an individual, no effort to understand what your needs might be. Our system is mainly reactive: it responds to illness or injury but is otherwise detached from the daily lives of most Americans. That approach may have been adequate at one time, but our country’s social and economic ruptures have exposed its unsuitability to our current needs.

In 2015, researchers Anne Case and Angus Deaton published a paper documenting the dramatic rise in deaths among middle-aged white Americans, driven not by conventional disease but by suicide, drugs, alcohol and loneliness. The report stunned many commentators, as these “deaths of despair,” as they were called, seemed beyond the reach of our $3.3 trillion medical-industrial complex.

Opioid abuse rightfully drew much of the attention. Eighty percent of all opioids produced in the world are consumed

by Americans, or enough to keep every American stoned for six weeks. The scourge is only getting worse. According to the National Center for Health Statistics, opioids were blamed for 34,572 deaths in 2016, a 52 percent increase from 2015. Drug fatalities overall in 2016 reached a staggering 72,000.

That number does not reflect the millions of Americans who have been compromised, incapacitated or removed from the workforce due to drugs. According to a study by the American Action Forum, nearly 1 million

A

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people were not working in 2015 due to opioid addiction.

The cumulative toll, from opioids and other threats, is grim. According to the National Center for Health Statistics, death rates are ballooning across virtually all major diseases and rising or staying the same for every demographic. This defies everything we thought was true about our healthcare system, in which extraordinary advances in medical technology, diagnostics and individual therapies were lifting us to ever higher plateaus of wellness. Instead, we are dying younger, and we are killing ourselves more often. In 2018, the CDC reported that suicide rates rose steadily in nearly every state from 1999 to 2016; the CDC attributed this increase to social isolation, lack of mental health treatment, drug and alcohol abuse and gun ownership.

If you’re in pain, if you’re not clearheaded, if you’re addicted to drugs, if you’re sluggish or depressed or lonely, you don’t care about anything else. You won’t have a steady job. You won’t have an intact family.

You won’t be economically, socially or physically mobile, and the American Dream will be something that you read about in a middle school history book.

That’s why I believe if we’re going to solve the big economic and social problems in our country, we have to start with healthcare.

Toward that end, we need to rethink what our healthcare system should do and even redefine what health is.

Redefining What “Health” Means I’m partial to the World Health Organization’s definition of health, from 1948, as “a state of complete physical, mental and social well-being and not merely the absence of disease” (my emphasis). That definition grasps the deeper and more holistic nature of health, yet very few people describe it in that fashion. Maybe the WHO’s language does not speak directly enough to outcomes.

We need something that is more affirmative and reflects the broader good of wellness, so I like to say that “a healthy person is productive; a productive person is socially, spiritually and economically viable, and a viable person is happy.”

How we get there begins by changing our Wood Johnson Foundation found that babies understanding of healthcare from something born in Montgomery County, Maryland, and provided by your employer or the governneighboring counties in Virginia (Arlington ment to a journey that you are in charge of. and Fairfax) have a life expectancy six to Consider how you buy a car. You don’t go to seven years longer than those of babies born GM’s headquarters and order one, and you in Washington, D.C., just one zip code away. don’t go to GMAC or to some other lender.

Washington, of course, is a much poorer You go to a dealership, and you tell the dealcommunity. Those kinds of jarring socioecoer what you want: the size, the color, the innomic disparities between adjacent comterior, the sound system, the trunk space, the munities can be found in cities and suburbs seat covers, all the bells and whistles. You get across America. In 2018, the Aetna Foundathe car that meets your needs, and then you tion worked with U.S. News & World Report to develop a plan for how to pay for it. assess 3,000 communities in America and to Our healthcare system does the exact oprank the 500 healthiest. My home composite. In most cases, we tell you about your munity in Michigan, Wayne County, didn’t health plan, and then you figure out whether it meets your needs. We To solve the big economic and social problems need to flip that. What if we had a system in which your health insurer in our country, we have to start with healthcare... asked first about your health status we need to rethink what our healthcare system and your life goals? Those goals may be to watch your grandchild should do and even redefine what healthcare is. graduate from college, to climb Mount Kilimanjaro or to see your 50th wedding anniversary. We could then even make the list of 500, while the adjacent say, “Based on your current health and your counties of Oakland and Washtenaw were in long-term goals, let’s design a set of benefits the top 300. and a way to pay for them that would take It’s why I believe that as far as morbidity care of you for life.” That would be a much and mortality rates go, your zip code matters better experience than for you to buy a more than your genetic code. Or as David health insurance policy and wait until your Nash, the dean of the Jefferson College of knee is broken or your lungs don’t work.

Population Health, said, “Where you are on Next, let’s recognize the importance of the map predicts your lifespan.” what most influences health. We know from We should be investing in those parts of our own research that 10 percent of your life the map that need the most help, but our expectancy is associated with clinical care, overall spending is too low to make a differ20 percent is related to where you live, 40 ence. In the U.S., our expenditures on social percent is influenced by your lifestyle and determinants, as a percentage of GDP, are 30 percent is related to your genetics. That ranked 12th out of the top 13 OECD counmeans that 90 percent of the factors affecttries, according to 2013 data compiled by ing premature death occur outside the docthe Peterson-Kaiser Health System Tracker. tor’s office, hospital or pharmacy, where we We underinvest in the very things that can spend most of our healthcare dollars. What have a big impact for the same reason that we don’t invest in are social determinants, companies underinvest in their employees or a failure that only commands our attention customers—their costs are immediate, their during a crisis—such as the unsafe drinking benefits long term. water in Flint, Michigan, that, starting in Focusing on social determinants lies at the 2014, exposed more than 100,00 residents core of prevention, whose benefits should be to high levels of lead and where residents toself-evident. Fifty percent of the American day still refuse to drink the cloudy tap water. population has a chronic disease, and they We see the practical effects of this failure drive 86 percent of all healthcare costs. For in other ways. A 2014 study by the Robert that cohort, healthcare is not episodic; it’s

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continuous. The goal is to intervene early to deter bad outcomes down the road. Even delayed interventions can be valuable. At Aetna, we had a 78-year-old female client with asthma who made 405 visits to the emergency room in one year (yes, more than once a day) at a cost of $2.7 million. We sent

ples. In 2018, Congress, with support of Republicans, Democrats and the Trump administration, passed a law that provides additional social and medical services to Medicare beneficiaries with multiple chronic illnesses. These services include home improvements such as wheelchair ramps and bathtub railings, transportaHow do we motivate individuals to care about their tion, home visits by nurses and home delivery of meals. David well-being and how do we make that engagement Sayen, a longtime administrator for CMS, told The New York Times meaningful? This is the Holy Grail of healthcare. that this new federal policy will give health plans “a whole new a nurse to see her, and it turned out that she toolbox to address social determinants of kept her thermostat at 60 degrees, so she health.” often wore sweaters. Her friends made her We want to move the conversation about angora sweaters, which she liked very much, your health from the exam table to the kitchexcept that she was allergic to angora! en table. When you visit your doctor, you It’s a perfect demonstration of how might get 10 or 15 minutes, and if the doctor preventive measures—in this case, a simple asks you how much you’re eating, exercising home visit—can improve people’s health or drinking, you’ll probably offer misleading while reducing overall costs. Once you visit statements on at least some of those questhe person and make a health assessment, tions—assuming, of course, you even have a you can invest to improve outcomes. But as doctor. Surveys indicate that between 20 and a country, we don’t get close enough to the 25 percent of people don’t. community or the home to generate better That’s why I want to bring the conversaresults. tion to the kitchen table, where you’re with people who know you and where people Making it Personal find out what’s really going on: who’s got a Personal engagement also needs to be a top new job, who’s selling their car, who’s getting priority: how do we motivate individuals to married or divorced. care about their well-being, and how do we That was the idea behind our partnership make that engagement meaningful? This is with Meals on Wheels, whose volunteers the Holy Grail of healthcare. Progress will notify us of changes in health status. Those not happen at annual checkups (too infrekinds of jobs require transferring data or quent, too perfunctory) or at the hospital other communications among payers or (too expensive, too late). Progress also won’t providers, and all of that is now possible occur through some “wellness program.” with smartphones and other communication Many organizations have wellness prodevices. Just as the digital age has changed grams, and frankly they don’t do much. The the workplace, it is now allowing for new real question is, what motivates someone to kinds of home engagement. act differently than they ordinarily would?

Aetna, for example, has a program with The answer, in my opinion, is to become our congestive heart failure patients, who more local. We need to meet people in their are our most expensive. When they leave homes and communities, and find out what the hospital, we give them a scale and install matters to them. In putting the individuit with Bluetooth technology. We ask that al first, we need to integrate the power of they weigh themselves each day, and when community and technology to engage that their weight rises to “out of tolerance,” we person in ways the current system does not. see that and call their doctor, who can then The federal government is gradually intervene so that care is provided before the beginning to accept some of these princinext episode.

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Delivering Data-Driven Healthcare The FDA has already approved wearable sensors that can continuously monitor all vital signs: blood pressure, heart rate, body temperature, breathing rate, oxygen concentration in the blood and blood sugar. “The cost to do this for weeks would be a tiny fraction of the cost for a day in the hospital,” said Dr. Eric Topol, a cardiologist who is a professor of molecular medicine at the Scripps Research Institute.

We’ve barely scratched the surface of consumer analytics in healthcare, and that data will personalize—and revolutionize— the industry.

The challenge is how we distribute, connect, wear and exploit that information for each person’s health journey, but with the likes of Google, Apple, Amazon and many other companies entering or expanding into this market, those challenges will be met.

Patients are sick and tired of being sick and tired, but personalized data will empower them, in concert with their providers and their insurer, to build a health plan that works for them. A consumer revolt is coming, and it’s easy to foresee. In employer-based health plans, workers are now paying for 41 percent of their overall healthcare costs, including premium and benefits. At some point, employees will demand a greater say in how their money is being spent, and they will want coverage that applies to their needs—the curated experience.

In describing what our healthcare system should be, note that I’m not talking about “single payer” or “private payer” or any other kind of payer, nor how we provide coverage for the uninsured. Those issues relate to how we finance care, which is undoubtedly important, but not most important. We can change the financing of healthcare all we want, but if the system is broken, we’ll still be financing poor outcomes at ever-higher costs.

In sum, we need a system that promotes health and wellness, and that system should do the following: • Enlist the resources of the community, including storefronts and pharmacies, as the first line of defense against disease or sickness.

• Deploy friends, neighbors and relatives

in persistent, caring engagement.

• Recognize that social determinants are driving huge disparities in health outcomes across the country and invest accordingly.

• Invest in the prevention of disease, not just the treatment of symptoms.

• When people need care, provide a personal solution aimed at improved quality of life. I had been thinking about these ideas ever since Eric’s illness and had consulted any number of experts. At Aetna, we began implementing a more consumer-oriented journey for our members. (Our new motto was, “You don’t join us, we join you.”) We were making progress, but we needed to make deeper inroads into our communities, which brings me to CVS. We can change the financing of No matter how healthcare all we want, but if many individuals we could the system is broken, we’ll still enlist to reach our members in be financing poor outcomes at their homes or ever-higher costs. apartments, we could never reach enough of them. We needed retail outlets in towns across America that would serve as the front door to our healthcare system. We weren’t going to build them, so we needed a partner.

Partnering for Progress On July 3, 2015, Aetna announced that it would purchase Humana for $37 billion, combining the country’s third- and fourth-largest insurers. Once the two companies were integrated, we’d have a big enough balance sheet to buy CVS, which would have made us America’s second-largest publicly traded company by revenue, behind Walmart.

But the Department of Justice blocked that merger; and did the same to stop the merger of two other large health insurers, Anthem and Cigna. The ruling was a setback, but it did not deter us from our goal of broadening our footprint and finding new and better ways to engage patients. In that regard, one of the first calls I received after this setback, in February 2017, was from Larry Merlo at CVS.

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“Do you still want to talk?” he asked. I did.

Our early conversations envisioned any number of partnerships between CVS and Aetna, including contractual agreements, joint ventures and a merger. My team and I also talked with two other companies about possible combinations, but CVS represented the greatest opportunity. The company now has 9,700 retail locations and 1,100 clinics, and nearly 80 percent of the U.S. population

unmet needs of our customers. What exactly did they want?

The healthcare system was the problem: It’s confusing. It’s impersonal. It’s the largest line item in most people’s budgets. And the whole process is horrifying.

I would also add, it doesn’t keep people healthy. Its focus is to fix unhealthy people.

Larry and I gathered our teams and began developing a model that would make healthcare more accessible, more If we could build a model that reduces costs—in greater patient convenient, more intelligible and more affordable. It centered engagement, increased adherence to medication, preventative on transforming the role of the stores in the community: They care, and early intervention—everyone would win. are currently pharmacies that are attached to crowded aisles of lives within five miles of one of its stores. potato chips, batteries, deodorant, greeting If our goal was to move healthcare into the cards, gift cards, playing cards and a whole community, CVS was the most direct path to lot more. Let’s turn them into community get there. health centers instead.

My team and Larry’s team had numerous When I initially broached this idea with meetings and conversations about what the the CVS team, someone asked me if I wanted two companies could do together. It took to expand the CVS MinuteClinic. I said, “No, time. We didn’t understand their business, we don’t need three more plastic molded they didn’t understand ours. But I told chairs and a countertop. We need something Larry the same thing that I told Apple when much more radical. We need to create a venwe were discussing a partnership with the ue that people actually want to visit.”

Apple Watch: every 50 basis points that we Ron Williams used to say, “No one goes reduce healthcare costs is $480 million in into a store and buys an Aetna.” Instead, an underwriting margin; so, in CVS’s case, if we Aetna product is sold to people because it’s could build a model that reduces costs—in something they need. Similarly, most people greater patient engagement, increased adgo into a CVS to buy something they need. herence to medication, preventive care, and The store serves a function, but it could early intervention—everyone would win. aspire to something greater. Other retailers Academics talk about “disruption” in the take that approach. market, and an alliance between CVS and George Blankenship designed the stores Aetna could certainly be disruptive. But it’s for the Gap, Apple, Microsoft and Tesla, worth remembering that companies don’t all of which create a positive, even exciting disrupt anything. Customers do. Amazon experience. Blankenship once told The New created an online platform, but it was the York Times that at Tesla showrooms, the customers who disrupted the market. They goal was “to never sell a car from there.” He wanted products that were fast, reliable and wanted people to ask to buy a car. It’s a simcheap, and Amazon recognized that need ilar concept with Apple. You enter the store and filled it. and you’re so engaged in what you’re seeing, Like every brick-and-mortar retailer, CVS so mesmerized, you want to buy something must now compete against Amazon and oth- from Apple. Apple doesn’t need to sell you er low-cost, high-quality online businesses. anything.

But as Larry and I talked about this chalA CVS store will never sell an electric car lenge, we agreed that a successful outcome or a smartphone, but it can still be a place had little to do with Amazon and everything people want to visit and say, “Wow, this is to do with whether we could satisfy the cool.” As we envisioned this future CVS

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store, it will continue to sell health and beauty products and have a robust pharmacy, but most consumer items will be cleared out, and the space will be devoted to improving the health of the community.

When you walk in, a greeter will ask, “How can we help you today?”

If you say, “I want to start running again, but I need a brace for my knee,” the greeter will say, “Great, let me take you over here to get you fitted for one.” We’ll have a durable medical equipment area, and we’ll have a professional who can fit you with a knee brace. We’ll have a partnership with a retailer like REI, and we’ll have stairs that you can practice on before leaving.

CVS MinuteClinics already provide a wide range of health services, but the new stores will expand those and also offer procedures or exams that have long been done in hospitals. For example, when a woman receives a mammogram, her doctor sometimes orders a CT scan. But the patient may have to wait two weeks, as the CT scan operators are only available from eight to five. The CVS stores could have a 24-hour CT scan available.

Women could receive the scan sooner, and because it’s close and accessible, women would be more likely to get it in the first place. The same is true for other kinds of X-rays, with infusions or even dialysis. Aetna has oceans of data about our members, and we’re developing models that tell us where the greatest opportunities are for investing in their health, be it through digital communication, personal visits or other outreach efforts. As we continue to expand these efforts, the CVS locations will become an accessible front door for the system at large.

The conversations between Larry’s team and mine continued into the fall of 2017.

Our focus remained on the strategy, and we agreed that the best way to achieve our goals—a shift to lower-cost sites of healthcare services, improved quality of care and improved care management—was for CVS to acquire Aetna.

We next talked about whether the cultures of the two companies would support those efforts, and finally we talked about price.

On October 11, I received a formal offer from Larry for CVS to buy all the shares of Aetna.

News of our negotiations leaked to the press, but we continued on, with a small army of investment bankers and lawyers trying to iron out the many details. Merger agreements are always a bear, and we were nearly complete when my team came to me and said that CVS wanted the ability, starting in May 2019, to change our benefits package for our employees. That included everything from healthcare to tuition reimbursement to yoga. They asked me what I thought. I told them I didn’t care about the benefits for the executives—they would be fine—but I would not sign any agreement that changed the benefits for our frontline employees. That was a commitment that we had made, and we would not renege on that promise. I was willing to walk away from a $69 billion deal on that principle. CVS retained the benefits.

On December 3, the announcement was issued that CVS would be acquiring Aetna for $207 a share in a deal that could “reshape the health industry,” according to the Times.

That’s certainly the goal.

Convulsive change has always been part of capitalism, but technology and globalization have accelerated I’m tired of people talking endlessly the shocks. Artificial intelligence about “healthcare reform,” alone could drafting white papers, holding have the same conferences and expressing dismay. effect, in both economic and It’s time to act. social change, that electricity or computers once had. All manner of companies across all kinds of business, from manufacturing to finance, from publishing to retail, adhere to business models that may soon be obsolete, if they aren’t already.

Who wins and who loses? It starts with the courage to challenge the status quo, even if that displeases existing stakeholders or puts the business itself at short-term risk.

The role of the CEO is to paint a clear picture of what the future holds, and that includes an honest assessment of the company’s capabilities, a catalog of the changes necessary to be relevant tomorrow and a willingness to make the difficult decisions to proceed.

That was our mindset at Aetna. During

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our negotiations with CVS, my board asked me why we should sell a company that was performing so well and was delivering to its customers and its shareholders.

Leaders Must Lead I told them that it wasn’t about the past or even the present, but it was about the future, and the future of healthcare is a huge unknown. No one likes the system. Big insurers are routinely blamed for its ills, and we don’t know what changes or reforms are coming that could dramatically change our business model. I also told the board that I believe our healthcare system is fundamentally broken, and all the players involved—hospitals, providers, drug and device companies, regulators and insurers—fight to maintain a status quo from which they are benefiting. While Aetna has figured out how to prosper in that system, we should be leading the inevitable change, not responding to it.

“If we’re not influencing healthcare and are just paying claims,” I said, “we’re dead.”

Skeptics of the CVS deal understandably wondered how we could truly transform such an ossified, complicated system.

We’ve been receiving healthcare the same way for so many decades, it takes some moxie—or maybe blind faith—to imagine that it could be done any other way.

I have absolutely no illusions about how difficult the task will be, but I’m tired of people talking endlessly about “healthcare reform,” drafting white papers, holding conferences and expressing dismay. It’s time to act. If leadership means anything, it means seizing the moment, embracing a bold strategy to solve big problems and executing on it. That’s what the CVS deal was all about. It may take a generation, but it’s an opportunity to redefine how we deliver care and reconsider the very meaning of health and wellness.

For the effort to succeed, the implementation will be critical.

A thousand details will have to be monitored, and you’ll need a maniac with the focus, the tenacity and the urgency to resolve them all.

I won’t be that maniac. There was only room for one CEO, and Larry Merlo was it. He had the bigger balance sheet, and his is the acquiring company; so he deserves to lead the new organization. If the Humana deal had gone through, I probably would have been in that spot, and I would have relished the opportunity. But that’s not how the cards played out. I could have maintained Aetna as an independent company and continued as its CEO, but it’s not about me or my legacy, and it’s not about what my predecessors had built. It’s about the future.

I spent 15 years at Aetna, and I consider my departure one more example of how sometimes leaders have to lose attachments for the greater good. It may hurt, but it was the right thing to do. New challenges await.

Mark Bertolini was the CEO of Aetna, a Fortune 50 diversified healthcare benefits company with over $60 billion in revenue, until Aetna was sold to CVS on November 28, 2018.

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FedEx Logistics CEO Richard Smith

‘A BACKUP PLAN FOR YOUR BACKUP PLAN’

BY C.J. PRINCE

The supply chain business is not getting any less complicated.”

—TKKKKKp

TRANSFORMATIVE TECHNOLOGIES like IoT, artificial intelligence, blockchain and robotics are changing the face, and future, of supply chains worldwide. But if a single word could sum up what companies need to compete in today’s complex, interconnected ecosystem of global business, it might be flexibility. As FedEx Logistics CEO Richard Smith explained to attendees of the 2019 Strategic Logistics & Supply Chain Summit, FedEx owes its success to an organizational culture that can pivot quickly and nimbly shift strategy to delight the customer in the face of inevitable surprises. “You need to have a backup plan for your backup plan,” Smith explained.

How to navigate the fast-changing, consumer-driven, tech-enabled supply chain, which today encompasses every-

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thing from design and manufacturing through delivery and returns, was the subject of the two-day conference held at FedEx HQ Memphis, where attendees also got an inside look at the “evening sort” at the FedEx World Hub, an intricate ballet involving 84 miles of conveyer belts, 150 cargo jets and 7,000 employees ensuring that 1.5 million packages a day get where they need to go.

With Gen Z’s expectations higher than those of any previous generation, all companies—and especially logistics providers— must be operating several moves ahead to meet consumer need, or risk being replaced by fast-moving upstarts. “The supply chain business is not getting any less complicated,” Smith said, “and the competition has never been higher.”

CASE STUDY: AUTOMATION DONE RIGHT A FEW YEARS AGO, RANDY TUCKER, president and CEO of the Americas region at GEODIS, a leading third-party transport and logistics company that operates in more than 120 countries, spotted two trends likely to test his company’s resources: “You’ve got limited access to labor and then you have this opportunity of ecommerce growing at a tremendous rate,” he said. “Necessity is the mother of invention, and it became quite necessary for us to really think about how we were going to be able to meet the expectations of our customers.”

The answer for GEODIS was an investment in robots that would increase efficiency and fill the labor gap at his customers’ warehouses, said Tucker, who shared three takeaways from his implementation experiences: 1. The time to ROI is shrinking. While the average time to a return-on-bot investment is still 18 months, GEODIS saw a payback in just four at one facility. “The robots are getting materially more affordable,” said Tucker, who

recommends working with a robotics vendor that has a real-world track record. “I would not experiment... the supply chain is just not something you want to put at risk.”

2. Robots can make training faster.

While bots are complex and implementation has to be tailored, they can dramatically cut training time for employees—65 percent in one facility GEODIS operates. “We don’t have to train everyone in English,” Tucker noted. “The bots speak their language, whatever country they’re from.” The robots also continuously learn as they work, which increases efficiency.

3. Employees don’t fear bots. Tucker anticipated hand wringing from existing talent, despite the fact that the bots did repetitive tasks that people didn’t really want to do. Instead, he said, “They’ve learned the bots have actually made their jobs easier, which is very positive. They’ve also learned that they’re part of something that’s pretty cool, at the front end. The robots have some sex appeal.”

The robots are getting materially more affordable.”

—Randy Tucker, GEODIS

F

F

TALENT ON THE LINE HR plans must be integrated with business strategy today, said Meghan Shehorn, leader of Bain’s supply chain practice. “Once you have a plan, the line must own the plan... not to diminish the importance of your CHRO, but if your line is constantly deferring talent questions to HR, you have a problem.”

THE KEY TO BIG DATA IoT data is abundant in the “experience economy,” said Danny Halim, vice president, industry strategy, Americas for JDA Software, in a roundtable on digital transformation. “But if we don’t understand what we’re seeing, it’s meaningless. Visibility is the first step to getting value out of it.”

CHIEFEXECUTIVE.NET / MAY/JUNE 2019 / 65

F

F

HEALTHCARE TECH

KNOW WHAT CREATES VALUE—AND WHAT DOES NOT Companies with a keen understanding of how to create value in the supply chain, using technology to support that, will be the ultimate winners, said the University of Tennessee’s Shay Scott, “as opposed to getting caught in the swirl of, ‘oh, blockchain is hot, I’m going to use it somewhere.’”

For Quest Diagnostics, logistics failure impacts a lot more than revenue or EBITDA, said Robert Severini, executive director for national logistics operations. When awaiting biopsy results for a newborn, “I don’t want to be the person who has to look at parents in the eye and tell them their child has be operated on again because the sample was lost.”

TECHNOLOGY: STAYING ON THE OFFENSIVE “IT NEARLY BROUGHT US to our knees,” said Avnet CEO Bill Amelio, recounting a failed ERP implementation that shut down operations for a week and cost the technology distributor $1 billion in supplier revenue. In recovering, Avnet’s leadership realized that the company needed to pivot to become a technology

Inmar’s David Mounts and Avnet’s Bill Amelio

solutions provider to ensure its long-term survival. Today, it works with a wide range of customers, helping to bring their customers to market and managing not only distribution “but design, manufacturing, the whole lifecycle,” said Amelio.

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Inmar, a technology and data analytics provider, had a similar come-to-Jesus moment, when CEO L. David Mounts realized the company had become complacent. “The fat-and-happy markets we were in were going to go away,” he said.

Founded as a coupon clearinghouse in the 1980s—Inmar operates technology platforms for more than 100,000 retail locations “and we overlaid those with an analytics service that includes descriptive, predictive and prescriptive analytics with high amounts of automation to drive decision-making and execution.”

Mounts and Amelio outlined two imperatives to making offensive moves like these possible: A Change Story: Since people are naturally change-averse, CEOs will need to counteract resistance with a convincing story. “Our compelling change story was, we were the proverbial frog in boiling water and, if we didn’t jump out soon, the end was near,” Amelio said.

Transformation Resources: “When everything is cruising along smooth and happy, you get focused on preservation, not innovation,” Mounts said. “That’s the toughest thing for CEOs, to really allocate the time and resources to innovation. But you have to make that decision.” To ensure its innovation engine continues to hum, Inmar runs an in-house venture capital group called Inventures that funds employee ideas at different stages.

CY B ER R I SK FORU M

CYBER REG REVOLUTION With hacks and privacy missteps on the rise, a surge in rules and regulations— often confusing—is underway. What’s next? Plenty, say experts.

ALWAYS TOUGH to navigate, the cybersecurity landscape is about to get even tougher, as attendees of our Cyber Risk Forum in San Francisco—held in partnership with RSA Conference—recently learned. Business leaders should brace themselves for increasing rules and requirements, especially on disclosure and consumer privacy.

“When it comes to cyber, there are no secrets,” Robert Jackson Jr., commissioner of the U.S. Securities and Exchange Commission, warned.

Breaches invariably become public. Yet, nine out of 10 times a public company faces a cyber threat, they don’t immediately file a form 8-K disclosing that to investors, Jackson said, creating imbalanced information and opportunities for insider trading. He urged directors and CEOs to lean toward more disclosure, even where they have imperfect information about what’s happening. “It’s tempting to say, ‘We’d rather not disclose this. It will hurt our stock price,’” he said. “That’s not good enough for the SEC.” Regulation and privacy were hot topics at this year’s Cyber Risk Forum. Above: NTT Security Americas John Petrie with Adm. Mike Rogers (Retired).

LIVING WITH GDPR Privacy is another area where regulatory risk is increasing. Europe’s GDPR is now, by default, the de facto global privacy standard— whether or not you have European customers. That means new GDPR requirements warrant “continuous attention,” said Kalinda Raina, head of global privacy for LinkedIn. For example, any new digital product must be analyzed—and documented—from a “privacy standpoint,” she said, and every company must develop a system to handle requests to see or delete personal data from any individ-

ual requesting it. “That takes a large group of people constantly updating your data maps and your systems to make sure that you’re able to provide those responses to people on a very quick timeline,” she said.

A CULTURE OF SECURITY The biggest issue with security itself, said Anthony Dagostino, global head of cyber risk for insurer and consulting firm Willis Towers Watson, is people. The bulk of cyber claims filed with his company have to do with employees—not technology. Cheryl Conley, who helps oversee cybersecurity awareness at Lockheed Martin, agreed. “I’m all about the technological advances, trying to protect the keys of the kingdom,” she said. “But still, it just takes one click or one bad decision. So it’s a continual challenge to educate them.”

The blurring between people’s personal and professional lives online demands attention.

Lockheed encourages employees to pay as much attention to, say, guarding their LinkedIn passwords as they do their Lockheed passwords. It’s also about conditioning people to simply slow down and read before they click.

Still, cybersecurity risks will continue to grow. The best hope for companies, said Admiral Mike Rogers, former director of the National Security Agency and Commander of U.S. Cyber Command, may be shielding them from litigation by requiring that details of any cyber attack be disclosed to law enforcement in the same way the National Transportation Safety Board requires examination of “black boxes” after aircraft accidents.

“The thing I like about that aviation model, the pain of the one leads to the benefit of the many,” he said. “Why can’t we build a framework that enables us in cyber to have the pain of the one lead to the benefit of the many? The way we do this now, we keep repeating the same problems over and over again.”

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P L A N E ADVANTAG E

Hurricane Group CEO Brandon Webb says flying helps keep him mentally sharp.

FREQUENT FLIERS Three CEO pilots who ferry themselves around the nation say it’s more efficient, more secure and just plain fun. BY DALE BUSS DAVID MACNEIL LIKES to do things the right way, which is why the CEO of Bolingbrook, Illinois-based WeatherTech flies his own planes­—and helicopters—for business travel. “The ability to come and go as I please is fantastic,” he says. “It’s the same freedom you have when you walk out of the house and into a car and go somewhere. I’m not wasting two hours of time... sitting in the Southwest terminal in the midst of a bunch of strangers.”

MacNeil is far from alone. Though it isn’t clear how many business leaders ferry themselves by plane, Brandon Webb, CEO of New York City-based Hurricane Group, says there are about a dozen pilots in his local chapter of the Young Presidents’ Organization.

Elaine Hodgson, CEO of Vernon Hills, Illinois-based Incredible Technologies, adds that piloting activities are “a great conversation starter.” “[People] do a double take and ask a lot of questions,” she says. “They respect the kind of effort it takes. And employees—a lot of them want to fly with me.”

WeatherTech CEO David MacNeil

PILOTING PRODUCTIVITY Now 60, MacNeil started flying at age 40,

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hurrying through pilot training all the way to multi-engine instrument certification.

He’s since learned to fly helicopters as well as jets—even achieving airline transport-pilot status in 2003—“the same rating the guy flying the [Boeing] 777 has.”

While his first plane was a modestly sized Beechcraft Baron, MacNeil currently owns Citation CJ4 and Gulfstream G280 jets, as well as an Airbus H145 twin-engine helicopter and two Airbus H125 choppers. He has piloted flights to 48 states and more than 30 countries, rotating through his aircrafts depending on his company’s needs.

“I can use [helicopters] to visit people in the Midwest and fly from my parking lot to theirs,” he says. “You can literally go somewhere, have a two-hour meeting and be back at the company in five hours versus making a huge all-day affair out of it. It’s really the efficiency of time.”

MacNeil, who flies about 500 hours a year, says the flexibility piloting offers helps him land business for the customized floormats and other molded plastic products business his $500 million company makes. “They say

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Elaine Hodgson flies herself, and sometimes employees, in a Cirrus SR22.

“A commercial flight takes three and a half hours, but that doesn’t include the time you’re in the airport and waiting to get on flights.”

the early bird gets the worm—the first one to get where you need to be to close the deal,” he says. “The real way to do business, and the way to close deals, is to be eyeball-to-eyeball with the customer.”

He also prefers the airtight security that flying team members in his own plane offers.

“We know who’s on the plane with us and what the cargo is,” says MacNeil, who bristles at criticism of corporate aviation as wasteful.

“Every waking minute of an executive’s time needs to be fully utilized for the company, not standing in a TSA line somewhere.”

FLYING FAN Hodgson was bitten by the flying bug as a daughter of the Space Age growing up within sight of Chicago’s O’Hare Airport. “It was always in the back of my mind,” she says.

But Hodgson didn’t act on her impulse until 2010 when she and her husband Larry Hodgson, who also works at Incredible Technologies as the company’s vice president of engineering, each earned a private pilot’s license.

Until she stepped up from the Cessna 172 to a Cirrus SR22, flying was just recreation. “[The SR22] was faster, allowed longer missions, could carry more weight, and I could take people with me, so I could do some business flight,” says Hodgson, 64.

The convenience of flying became more important after her company, which makes coin-operated video and casino games, opened a Las Vegas office. “We can do Las Vegas to Chicago in five and a half hours with one fuel stop,” says Hodgson, whose husband often flies with her—and also pilots the SR22 to his own appointments. “A commercial flight can take three and a half hours, but that doesn’t

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include the time you’re in the airport and waiting to get on flights. And I can fly on my own schedule.”

Another edge is that Hodgson and her husband can fly themselves to small airfields for business meetings in less-traveled locales.

“Going from Chicago to Biloxi, Mississippi, I’d have to fly commercial into either Atlanta or Houston and take another flight,” she says.

“But I can go direct. And in that case, I can really beat commercial.”

Hodgson takes airlines for longer flights.

But it’s more efficient—and ultimately more productive—to fly herself. “Sometimes you obsess too much on something in the business, and flying the jet gives my mind a break,” she says. “I’m fresh again.”

PILOT FIRST, CHIEF NEXT As a U.S. Navy pilot, sniper and SEAL, Webb earned his chops as a flyer long before founding New York City-based Hurricane Group. He flies vintage aircraft, including an TB-30 Epsilon French Air Force jet trainer, taking them up regularly in the service of his media and e-commerce company for men.

Whether it’s getting the feel for an old military plane like the Russian Yak-52 light attack aircraft or pondering specs for a new touchscreen or other upgrade to an avionics panel, Webb says adapting to aircraft technology helps him as a CEO. “The mental exercise involved keeps me sharp and forces me to look at the world as an early adopter. I can’t just sit there and not upgrade my avionics panel.”

Plus, his flyboy persona is perfect for a company appealing to adventurous young men with online interests ranging from extreme sports to serious discussions of foreign policy.

It’s difficult to excite someone who grew up on a sailboat in the South Pacific with “hippie” parents, has been trained in special ops and whose best friend was Glen Doherty, the CIA officer killed in the raid on the U.S. embassy in Benghazi in 2012. “He nudged me over the edge into flying,” Webb says.

Webb, 44, enjoys sharing his passion with business associates, sometimes lifting clients from a Long Island airport into the skies over Manhattan. “It’s a pretty cool experience for them,” he says. “Some have lived in New York their whole lives and not seen that.”

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HIRING FOR THE DIGITAL AGE

Mentor your next-gen employees— and they’ll mentor you.

Tom Harrison is chairman emeritus of Omnicon Group’s Diversified Agency Services division.

NOT LONG AGO, WHEN HIRING, I would simply search for candidates with experience—someone with the specific skills necessary to do the job. Someone who had a consistent resume demonstrating a linear path leading from his or her college years to the position that I wanted to fill. How constraining and intellectually convergent is that thinking now? How irrelevant is that in the post-digital revolution environment? To today’s multi-generational workforce?

Millennials entered the working world with a completely different mindset and skills base. Now Gen-Zs, purposeful, opportunity-attracting disrupters, are arriving. To some leaders, the business world might seem turned upside down, but it is actually right-sided. Today’s fast-paced, A.I.-catalyzed, consumer-enlightened, data-underpinned, problem-solving and solutions-oriented entrepreneurial and large corporate businesses either already are or eventually will be run by a new species of leader: homo disruptiens.

The business world is evolving at a speed never experienced, and current leaders are being called upon to keep up, maintain pace and learn and listen—or become extinct long before their time. As with the science of evolution, natural selection will methodically occur until we leaders of today are displaced.

We are, right now, hiring our successors—if not our successors, our successors’ successors. As we should be. As it happened for us.

So, how should leaders approach hiring in a feverishly fluid business environment?

We should hire for talent before experience, unique, exciting, moldable brilliance rather than the comfortable candidate. We should hire millennials and Zs whose resumes may not be terribly linear but suggest a stunningly bright, maybe impatient, but open-minded, generally conscientious and somewhat extro-

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verted candidate. If we hire for talent, we gain teachable DNA, an intellectual spark—someone who might devour the job, not just get it done. These candidates have the potential to be more than 9-to-5, yes-sir employees.

We already have experienced personnel across all levels in our companies, so we can mentor, or choose mentors for, that newly hired talent. We can invest the time to expose them to the hard-gained industry knowledge amassed over years and nurture all the positive DNA-expressed attributes necessary to survive—actually, to excel—in the constantly and almost instantaneously evolving business world. The result will be a hybrid of old and new skills—agile and intellectually aligned with the pace and tone the new business world demands, able to intuitively sense and solve for the unknowns—and equipped with expertise, through this collaborative mentorship model, absorbed from their more seasoned, more experienced mentors.

Along the way, we mentors can learn from those we are mentoring, if we simply listen and take note of who they really are, how they think, want to work, perform and purposefully lead. As they learn from us, we will learn from them how to mold our businesses for the future.

I have referred to this as “reciprocal mentorship.” The concept’s revelance is even greater today than it was when I instituted it at my company. Because we should now “hire for talent” as we steer our companies toward their evolving futures, current leaders need to share the experiences they have digested along their linear career paths to help nextgen workers, who often arrive by dislinear circumstance, be the successes they must become. Our role is to identify, select and guide the new talent. And, to do this with ample time to groom those who will succeed us over time. Welcome, homo disruptiens.

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