May/June 2018 Chief Executive Magazine by Chief Executive Group

How to Do VUCA

The Negativity Instinct

TrumpTrade Tradeoffs

Navigating Goodism

MAY/JUNE 2018

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PLUS: BEST & WORST STATES FOR BUSINESS EXCLUSIVE: WHERE TALENT WANTS TO LIVE

PURE CYBERSECURITY

As the world becomes dependent on the Internet of Everything, there’s one state that’s developing innovative solutions for protecting the security of both systems and people. Michigan. Home to two world-class cybersecurity testing ranges, we’re one of the few states that actively trains and cultivates cyber talent. Which gives cybersecurity businesses in Michigan a solid lock on the future of the industry.

michiganbusiness.org/pure-cybersecurity

C ONTENT S

May/June 2018 No. 294

FEATURES 18

COVER STORY 18 BOOM! How to make the most of the best times business has seen in decades—and prepare for the inevitable bust. By Dale Buss

CHIEF EXECUTIVE ’S BEST & WORST STATES FOR BUSINESS 2018 26 WHERE TALENT WANTS TO LIVE Every CEO knows that if you want to find America’s best and brightest, you’ve got to move to a big coastal city, right? Wrong. In an exclusive study for Chief Executive, two of the nation’s top demographers examine U.S. Census data—and arrive at a very different conclusion. By Joel Kotkin and Wendell Cox

35 HOW THE STATES STACK UP Surprises abound this year as low-ranking states like Michigan and Rhode Island shake off the doldrums—and soar up the charts.

MASTER CLASS 42 CAN YOU DO VUCA? Six top corporate leaders confront an age of unprecedented and unending reinvention. By Brigadier General George Forsythe (Ret), Daniel E. Rice and Karen Kuhla

SOCIAL RESPONSIBILITY 52 HOW TO DO ‘GOOD’ When it comes to successfully extolling your purpose or speaking out on politics, there’s a right way and a wrong way. A guide. By Dale Buss

BOOK EXCERPT 58 THE WORLD IS GETTING BETTER FACT: People on earth are richer, healthier and better educated than they were just a couple of generations ago. So why do we all think things are going to hell? Blame the negativity instinct. By Hans Rosling with Ola Rosling and Anna Rosling Rönnlund 58

COVER ART BY JACQUIE BOYD

C O N TE NT S EDITOR-IN-CHIEF

Dan Bigman

EDITOR-AT-LARGE

Jennifer Pellet MANAGING EDITORS

Kimberly Crowe Patrick Gorman PRODUCTION DIRECTOR

Rose Sullivan

CHIEF COPYEDITOR

Rebecca M. Cooper ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford RESEARCH EDITOR

Melanie Nolen CONTRIBUTING EDITORS

Dale Buss Wendell Cox Daniel Fisher William J. Holstein Joel Kotkin Jeffrey Sonnenfeld James Wynbrandt EDITOR EMERITUS

DEPARTMENTS

J.P. Donlon PUBLISHER

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

6 EDITOR’S NOTE

PUBLISHER, CORPORATE BOARD MEMBER/ DIRECTOR OF EVENTS, CHIEF EXECUTIVE GROUP

The Truth Is Out There

Jamie Tassa 615-592-1506 | jtassa@chiefexecutive.net

LEADERS

9 TrumpTrade CEOs Weigh in on America First

VICE PRESIDENT

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

12 Law Brief When Your Lawyer Becomes the News

DIRECTOR, BUSINESS DEVELOPMENT

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

14 Crash Course Mountains Man

DIRECTOR, BUSINESS DEVELOPMENT

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

16 Jeffrey Sonnenfeld/On Management Profile in Incompetence

DIRECTOR, BUSINESS DEVELOPMENT

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

69 PLANE ADVANTAGE

DIRECTOR, BUSINESS DEVELOPMENT

Connectivity Takes Wing Bringing high-speed broadband to business jets. By James Wynbrandt

72 LAST WORD

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

Rachel O’Rourke 615-592-1198 | rorourke@chiefexecutive.net MARKETING DIRECTOR

‘Leaders Should Be Warm, Transparent and Sincere’ When driving a nationwide sales force, you get what you give. By Larry Mondry

Debra Menter 203-889-4978 | dmenter@chiefexecutive.net CLIENT SUCCESS MANAGER

Ashley Gabriele 203-889-4989 | agabriele@chiefexecutive.net

CHIEF EXECUTIVE GROUP Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 294 May/June 2018. 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 2018 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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that you can explore and execute your strategic alternatives with PNC.

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1 Federal Reserve, September 30, 2017, https://www.federalreserve.gov/releases/lbr/current/. 2 According to Thomson Reuters LPC as of 1Q17. 3 Investment banking services are provided by Harris Williams LLC, a registered broker-dealer and member of FINRA and SIPC, and Harris Williams & Co. Ltd, which is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 7078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. is a trade name under which Harris Williams LLC and Harris Williams & Co. Ltd conduct business. Harris Williams LLC is a subsidiary of The PNC Financial Services Group, Inc. 4 Equity capital markets advisory services are provided by Solebury Capital LLC. Solebury Capital LLC is a registered broker-dealer and member of FINRA and SIPC and a subsidiary of The PNC Financial Services Group, Inc. PNC is a registered mark of The PNC Financial Services Group, Inc. (“PNC”). Banking and lending products and services, bank deposit products, and treasury management products and services are provided by PNC Bank, National Association, a wholly owned subsidiary of PNC and Member FDIC. Investment banking and capital markets activities are conducted by PNC through its subsidiaries PNC Bank and PNC Capital Markets LLC, a registered broker-dealer and member of FINRA and SIPC. Certain banking and lending products and services may require credit approval. ©2018 The PNC Financial Services Group, Inc. All rights reserved.

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F R O M T H E CH IEF EXECU T IV E E-NEWSL ET T ER

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A CEO’S GREATEST CHALLENGE: SALES AND GO-TO-MARKET EXECUTION By Mike Salvino WHETHER A COMPANY HAS A MARKET cap of $10 million or $100 million, sales and go-to-market execution are among the biggest challenges a CEO will face. As naturally as sales may come to most CEOs, they must accept that they can’t continue playing the head sales role and, instead, embrace the following:

12/11/2017

ASSOCIATED AIRCRAFT GROUP flyaag.com 71 CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES ChiefExecutive.net/compreport 49 CHIEF EXECUTIVE NETWORK ChiefExecutivenetwork.com 65 preview

CHIEF EXECUTIVE RESEARCH PANEL ChiefExecutive.net/researchpanel 67 Monday, December 11, 2017

DELOITTE R.E. AND LOCATION SERVICES deloitte.com/us/locationstrategy 5

Did Jeff Immelt fumble the GE handoff? Once considered the best-managed company in America, General Electric has suffered a series of crushing blows to its reputation. What lessons can be gleaned for the rest of American industry? The CEO parent trap. You've made it to the corner office, but you want your kids to understand the value of work and to have compassion for humanity. Here's how to make sure your kids turn out to be productive, empathetic members of society.

ECONOMIC DEVELOPMENT PARTNERSHIP OF NORTH CAROLINA edpnc.com/ 15

From SaaS to XaaS. Cloud computing is transforming the way business is done and this model is sweeping across B2B sectors from transportation to printing and jet engines. As the playing field levels, the only difference is how you treat the customer. Here's how to move forward in this XaaS-based world.

HARVARD BUSINESS SCHOOL EXED.HBS.EDU 13

Manage risk by betting small and often. Growth requires taking and managing risk. The most successful leaders do not simply mitigate risk, they also identify and assess the risks that will fuel their next expansion or acquisition. Three key things can help you create processes that identify, scope and manage risks in your business.

Hire experienced people with networks. If you don’t have a brand like Apple or a product no one else has, your team members better have connections to get them in the door. What made me successful leading up to my role as CEO is what I call “relationship sales.” Good salespeople build great relationships that stand the test of time by delivering on their promises. We'll challenge you to think differently and move beyond what's comforable. The age of smart manufacturing requires new ways of leading. At the 2018 Smart Manufacturing Summit, we'll recharge your imagination as you engage with some of the most innovative industrial minds of our time. SMS18 is the place for manufacturing CEOs who are looking to create a fearless culture of constant learning and innovation, embrace new digital technologies, attract and develop extraordinary leaders for their company and create growth and profitability in a

http://emailactivity1.ecn5.com/engines/publicPreview.aspx?blastID=1946636&emailID=330525841

Target decision makers. If you hear the words, “I need to check with…,” you are not dealing with a decision maker. As obvious as this sounds, most sales pipelines are full of people who can’t make a decision or don’t want to. Recognize that time kills all deals. If the prospect simply won’t engage, it’s time to move on. You can’t push people who don’t want to buy, no matter how much you think they need what you’re selling. Know your story and make it repeatable. Never miss an opportunity to tell your story. Everybody on the sales team (and in the company) should know how to tell the company story. Cultivate great references. Your team should develop every possible client relationship as a potential reference. The best way to develop advocates is to ask for input. Clients are dying to give you input. Listen to them, write it down and thank them for their candid advice. There is no shortage of challenges CEOs will face as they build and grow their companies, but nothing is more critical than sales and go-tomarket execution. So take the search for your head of sales seriously and give it the time and attention it deserves. Finding, hiring and nurturing the best person for that role—who can bring and build great relationships—is the key to maximizing the sales channel, winning clients and, ultimately, determining your success. Former group CEO at Accenture Operations, Mike Salvino is now an operating partner at the investment firm Carrick Capital Partners. Read the full version at: ChiefExecutive.net/Go-to-Market

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HONDA JET HondaJet.com 7 INDIANA ECONOMIC DEVELOPMENT astatethatworks.com 33 JOBS OHIO ECONOMIC DEVELOPMENT jobs-ohio.com/ OUTSIDE BACK COVER LEADERSHIP CONFERENCE ChiefExecutiveleadershipsummit.com/ 34 LOUISIANA ECONOMIC DEVELOPMENT louisianaworksforyou.com 39 METRO ORLANDO EDC Orlando.org 31 MICHIGAN ECONOMIC DEVELOPMENT CORP. michiganbusiness.org/pure-cybersecurity Inside front cover NATIONAL SHOOTING SPORTS FOUNDATION nssf.org 17 PATRIOTS IN BUSINESS AWARD patriotsinbusiness.com 25 PNC FINANCIAL SERVICES GROUP pnc.com 3 RECRUITER.COM recruiter.com 47 RHR INTERNATIONAL rhrinternational.com 8 SMART MANUFACTURING SUMMIT ChiefExecutive.net/SMS 51 TALENT SUMMIT ChiefExecutive.net/ceotalent 68 THAYER LEADER DEVELOPMENT GROUP thayerleaderdevelopment.com Inside back cover

THOUGHT LEADERSHIP CONTENT PROVIDED BY DELOITTE

Tax Reform Implications for Footprint Decisions H.R.1, THE RECENTLY ENACTED BILL ORIGINALLY KNOWN AS the Tax Cuts and Jobs Act of 2017 (TCJA), provides the largest set of changes to the Federal tax code in several decades. Individuals and companies alike are grappling with the implications of the Act, as the impacts leave few individuals, businesses, and non-profits unaffected.

property now expensed for federal tax purposes continues to qualify for a state investment tax credit.

• Deemed Repatriation Dividend/Actual Repatriation: The law requires certain U.S. shareholders of foreign entities to recognize income related to the foreign entities’ earnings and profits, along with providing a deduction Most CEOs have an array of internal (and sometimes external) for a portion of this deemed repatriation dividend. It is tax professionals to help them navigate the direct impacts anticipated by the proponents of the 2017 tax act that a of tax reform, but CEOs also need to weigh the strasubstantial portion of the foreign E&P subject to the tegic implications that the changes may have on deemed repatriation will be repatriated to and The 2017 the enterprise. reinvested in the American economy. To the tax act contains a extent companies are planning to increase One of these is the corporate footprint: capital spending as a result of repatriation number of significant the deployment of business functions (or full capital asset expensing), careful implications and in specific geographies. The footprint consideration should be given to available opportunities for CEOs includes where the enterprise is headquarstate incentive programs that may augtered, where it engineers and designs its who possess ment any federal benefits. products, where and how it manufactures, delivers services, holds inventory in warehouses, supports customers, and even where it chooses to sell its products and services.

Location Awareness

It turns out that the 2017 tax act contains a number of significant implications and opportunities for CEOs who possess Location Awareness—the recognition that careful planning of the footprint is a key driver of shareholder value. Nearly every company should thoughtfully weigh the new law’s impact on their current and planned footprint of locations. • Corporate Income Tax Rate Decrease: The law reduces the Federal corporate income tax rate from 35% to 21% starting in 2018. While average effective rates are often even lower for many companies, the overall rate reduction may help encourage more companies to invest in the US. • Expensing: For the next five years, the law enables companies to deduct the entire value of their investments from income before paying tax, instead of spreading the deduction over several years. This may favor companies that either have been delaying or are planning significant capital investments in buildings and equipment. The immediate expensing provision provided under the law also has the potential to affect the eligibility of investments for state investment tax credits. State credit provisions in certain states reference “Section 38 property” or “capitalized” tangible personal property. Close monitoring of state rules is advisable in order to determine if

• Limits on State Personal Tax Deductions: The amount of state and local income and property tax that can be deducted from individual Federal returns is now capped at $10,000. This could be a factor of consideration for both individual and corporate relocation from states with higher income and property taxes to jurisdictions with lower income and property tax rates. • Incentives—no longer tax-free: State and local economic development incentives will no longer be treated as contributions to capital, and appear to now be taxable. This may shift incentives away from direct incentives, such as cash or grants of free land, toward in-kind assistance, such as infrastructure improvements, employee recruiting and training support and other indirect inducements. At a minimum, project teams should scrutinize each incentive offered carefully to understand the tax implications arising from the new law.

For any business with capital projects, talent in high-tax jurisdictions, or plans to alter the footprint, tax impacts could likely play a more significant role than in recent memory. The 2017 tax law provides both opportunities and challenges for CEOs exploring ways to grow the business, increase after-tax margins, and find and retain top talent. Darin Buelow (dbuelow@deloitte.com) is a principal at Deloitte Consulting LLP and leads the Real Estate & Location Strategy practice.

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.

F R O M T H E E D I TO R CHIEF EXECUTIVE OF THE YEAR

THE TRUTH IS OUT THERE WITH HELP FROM AN ADRENALINE SHOT OF TAX CUTS, U.S. business is roaring. Pretty much every economic indicator is glowing green (except the ratio of national debt to GDP, but who’s counting?). It won’t last, of course. Not forever. At Chief Executive, we’re firm believers in the immutable laws of the universe: gravity, the speed of light and the business cycle. The current moment is best seen as precious time to grow and ensure survival in the inevitable downturn. That’s why we’ve given significant space in this issue to feature the voices of savvy CEOs who generously lay out their best ideas for making the most of this Goldilocks era. But we’ve also devoted space to focus on something far more important to CEOs over the long term. Lost in our drama-de-jour, 24-by-7 news cycle is this: Life on earth is getting better. Much, much better. That’s not an opinion. That’s a fact. Bringing this unexpected good news to light, in the face of overwhelming skepticism, was the life’s work of the late Hans Rosling, whose just-released book, Factfulness, we excerpt in this issue. A Swedish doctor, professor and adviser to the World Health Organization and UNICEF, he spent his life studying human health and societal trends, and he reached the inescapable conclusion that in nearly every way, life is getting better for people everywhere—and almost no one in what is traditionally called “the developed world” or “the West” is paying attention. If anything, people are feeling worse about the world than ever, despite all evidence to the contrary. There are many reasons for that, including what he dubs “the negativity instinct,” (which is the focus of the excerpt on page 58). But, he says, if we can move past our proclivity to see the half-empty glass, we awaken to larger, more useful insights, chief among them: While four billion people on earth live on less than $35 a day, their trajectory is rising. Their incomes are growing. Their health is improving. Tens of millions more people have access to electricity, mobile phones and education in 2018 than they did in 2010. Taken together, it’s an incredible success story and a huge economic opportunity, one that dwarfs the current U.S. boom, with the potential to enable global growth and prosperity for decades to come. That’s why Factfulness isn’t just a feel-good story. It’s a business story, chock-full of data and insights that will excite anyone looking for new markets and new opportunities, if they just know where to look and what to look for. It’s also something more. Factfulness is a crucial reminder that in an era of endless hand-wringing and Washington drama, the truth matters more than ever, no matter how strange and comforting it may be. —Dan Bigman, Editor, Chief Executive

6 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

2018 SELECTION COMMITTEE STAN BERGMAN Chairman and Chief Executive, Henry Schein 2017 CEO of the Year

DAN GLASER President and Chief Executive, Marsh & McLennan

FRED HASSAN Chairman, Zx Pharma Partner/Managing Director, Healthcare, Warburg Pincus

TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries

ROBERT NARDELLI Chief Executive, XLR-8

THOMAS J. QUINLAN III President and Chief Executive, RR Donnelley

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

MARK WEINBERGER Chairman and Chief Executive, EY Exclusive Adviser to the Selection Committee

TED BILILIES, PHD Chief Talent Officer, Managing Director, AlixPartners

CONTACT US Corporate Office Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 | Fax: 203.930.2701 ChiefExecutive.net Letters to the Editor letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 | Fax: 847.730.3666 advertising@ChiefExecutive.net Reprints Phone: 203.889.4974 hdewing@ChiefExecutive.net

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

CEO1000: WELCOME TO THE CLASS OF 2017-18 In the last 15 months, 128 new executives took the reins at America’s 1,000 largest companies. While the firms may be different, there are a few things every new CEO can do to ensure success, according to Paul Winum and Deborah Rubin, senior partners and practice leader co-heads, Board and CEO Services, at RHR International. They’ve helped hundreds of leaders successfully navigate the transition and offer their insights: MALE VS. FEMALE Female 9

SOURCE OF HIRE External 36

PUBLIC VS. PRIVATE Private 9

Construction 1

NEW CEOs BY INDUSTRY

Basic Materials 2 Entertainment 2 Media 2 Other 4 Transportation 4

Male 119

AGE

Internal 92

REVENUE

Public 119

EMPLOYEES

$16.7 bil

34,000

MEDIAN

AVERAGE ANNUAL REVENUES

AVERAGE WORKFORCE

$237.1 bil

295,000

YOUNGEST

LARGEST REVENUES

LARGEST WORKFORCE

Christopher Ripley

Darren Woods

John Flannery

Sinclair Broadcast Group

ExxonMobil

$1.8 bil

188

SMALLEST REVENUES

SMALLEST WORKFORCE

Joseph Steinberg

Steven Schlotterbeck

Thomas Herzog

EQT

Industrial Goods 10

Consumer Goods 27 Financial 18 Retail 15

Technology 11

General Electric

OLDEST

HRG Group

Business Services 7

HCP (REIT)

Why is the first year so critical for a new CEO? A CEO transition is a critical inflection point in any organization’s history. The first year of that transition presents a great opportunity to propel the organization forward, re-recruiting and re-purposing the senior team and, in fact, the entire organization. The foundational partnership with the board and investment community is also established in the first year of a new CEO’s tenure. If these key objectives are well managed, the new CEO is positioned to lead the organization forward, making important deposits in the metaphorical relationship and credibility bank. Conversely, if these critical tasks are not properly negotiated, it can be an uphill battle for the new CEO. What are key markers of success or failure in year one? There are three primary tasks incoming CEOs have to succeed in doing. First, they must develop clarity of strategic priorities with the board and install the organizational culture and processes that will accelerate progress toward the business objectives, engaging the workforce toward those objectives. Second, they need to ensure that their organization has the necessary talent in key leadership roles to execute the strategy and that those individuals are aligned on key business goals. Third, at the personal level, the new CEO needs to develop a deep understanding of the requirements and expectations for the position and accelerate his/her personal transition into that role.

Healthcare 12 Energy 13

How well the CEO accomplishes these three things can be measured through a combination of pulse checks with the board, leadership team and larger workforce and measurable progress toward business performance measures. An outside resource working in partnership with the CEO, board and CHRO can help immensely through the first year of the CEO’s transition and integration. This transition and integration work is frequently overlooked during the CEO succession process but is as important to the company’s success as picking the right leader. What’s the most common mistake in the first year? Not moving quickly enough to ensure the right people are on the senior team and not focusing sufficiently on building alignment and trust among this group. The first mistake significantly slows down progress toward plans the CEO has for the organization. Underinvesting in the second creates complexity and dysfunction at this level and for those lower in the organization that is harder to reverse than it is to prevent.

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

L E A DE R S

TRUMPTRADE

BY WILLIAM J. HOLSTEIN AND JENNIFER PELLET

Olivier Douliery-Pool/Getty Images

WHEN IT COMES TO PRESIDENT Donald J. Trump, no issue has divided American business like his recent moves on trade. CEOs across the nation may be near-uniformly thrilled with the GOP tax cuts and regulatory rollback promulgated by his administration, but his America First take on global commerce? That’s another story. “The whole idea of this tariff is just bad economic policy,” says Paul Hylbert, chairman of Colorado-based Kodiak Building Partners, who reports that the construction industry has been in chaos since Trump announced steel tariffs in March. “It’s like an additional tax on the American consumer. It will cause inflationary pressure and job losses—and it certainly could lead to a trade war. The only way it could be good is if it’s vintage Trump, and he’s just doing this to unsettle everyone so we can pick up the pieces somehow.” A Chief Executive poll of 212 U.S. CEOs taken in the immediate wake of the tariff announcement found 52 percent of respondents concerned the tariffs would damage

the U.S. economy. But 38 percent said the tariffs would be beneficial in the long run, numbers the Trump administration finds reassuring. “That’s already an improvement over the results you would have had 12 months ago,” says U.S. Commerce Secretary Wilbur Ross. Given the strong divisions, we reached out to mid-market CEOs across the country in a variety of industries to get their take and found some of them anxious, some angry, some wary—and some, like Joe Korff of Salem, Ohio-based iron castings company Korff Holdings, absolutely thrilled. “We’ve been taking a beating for bad trade deals, and we need some relief,” says Korff, who dubs previous administrations “weak and uninformed” for tolerating trade imbalances perpetuated by NAFTA and other U.S. trade policies. “This dumped product coming into the U.S. is killing local industry, destroying communities and creating societal problems [as a result of lost jobs and benefits]. The whole idea is, you want to sell it here? Make

The president’s America First approach to global commerce has the CEO community anxious, divided—and in some cases downright exhilarated. Here’s what you’re saying.

MAY/JUNE 2018 / CHIEFEXECUTIVE.NET

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LE AD ER S

it here. There’s nothing wrong with that. You get muscle back in America.” ‘Why Should We Want to Partner?’

“If we Americans are focused on barriers and a combative environment, you won’t have the strategic relationships.” —MICHAEL ZAPATA, EXECUTIVE CHAIRMAN, PROTOCHIPS

As you’d expect, that attitude is deeply concerning to mid-market technology exporters like Michael Zapata, executive chairman of Raleigh, North Carolina-based Protochips. His company makes an accessory that enables electron microscopes to examine nanomaterials and the liquids in lithium ion batteries. Its biggest market? China. “They are buying more electron microscopes than the rest of the world combined,” says Zapata, whose company has been growing 25 percent to 45 percent every year for the past four years. “They are on a path to leapfrog the West in their energy products.” With more than 75 percent of the company’s revenues outside the U.S., the bulk of which are handled by distributors, relationships with foreign partners are important to Protochips. Zapata says the America First climate is making them harder to forge. “You can’t have these international partnerships if they are not a win-win for everybody. If we Americans are focused on barriers and a combative environment, you won’t have the strategic relationships. Potential partners will ask, ‘Why should we want to partner with an American company when we can partner with a company out of Europe?’” Even some CEOs whose companies have benefited from Trump’s tougher stance on trade express concern about the long-term implications of abrasive policies. In late

2017, the U.S. International Trade Administration ruled against a Chinese company that pirated the unique liquid crystal display technology that Kent, Ohio-based Kent Displays developed. While grateful that the piracy victory forced the Chinese competitor to exit the market, CEO Albert Green worries that Trump’s style will alienate potential customers for his company, which does 23 percent of its $40 million to $60 million in annual sales offshore in 40 countries. “You can have that [getting tougher on intellectual property] and not insult the people you’re trying to sell to,” he says. ‘Washington’s Concern Is Not Canada’

The possibility of NAFTA’s demise is also a worry for Accuform CEO Wayne Johnson, whose Brooksville, Florida-based company sells “Danger High Voltage” warning signs and other safety signage and equipment in 80 countries. Johnson is a fan of Trump’s new tax law, which he feels will encourage U.S. companies to build more domestic factories, but has found himself obliged reassure foreign partners fretting about talk of leaving NAFTA. “People in Canada are very concerned about NAFTA,” he says. “I tell them Washington’s concern is not Canada—it’s much more about Mexico. Canada’s wages are higher for the most part than in the U.S., so they are not competing on the basis of lower wages. If anything does happen with NAFTA, it might be good for Canada and

CEO POLL: IMPACT OF TRUMP TARIFFS ON THE U.S. ECONOMY Very damaging

10.1%

Very beneficial

4.8%

Somewhat beneficial

Very beneficial

Very damaging

13.3%

23.7%

18.8%

Somewhat damaging

41.6%

Somewhat beneficial

LONG-TERM

SHORT-TERM Won’t change anything

24.6%

25.1%

Somewhat damaging

30.1%

Won’t change anything

7.9% 10 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

LE A D E RS

not so good on the Mexican side.” Obviously, a disruption in NAFTA eliminating the 8 percent to 9 percent of Accuform’s sales that are made in Canada would hurt. “It would be significant if something happened to the trade deal,” Johnson says. ‘We Need to Be Part of That Trade Block’

In a similar vein, America First policies are causing Scott Defelice, CEO of Oxford Performance Materials, to rethink his company’s global strategy. The South Windsor, Connecticut-based company has sales of between $5 million and $10 million, 30 percent of which are offshore. Defelice had been exploring the possibility of building a manufacturing facility in Britain but scuttled the plan when the UK’s access to the European market became uncertain after BREXIT. Now, he worries about a similar situation in the U.S. and is changing his plans accordingly. “Before the America First politics came into vogue again, we were thinking we could export our way into [Asian] markets and build more critical mass before we put down a footprint there,” Defelice explains. “But our thinking has changed. We are out of the Trans-Pacific Partnership. Our traditional global partners are questioning what the hell we’re up to. Rather than pushing an export strategy, we’ve decided to put up a manufacturing facility in Japan. We need to be part of that trade bloc.” Shifts in the trading environment are driving companies like Oxford Performance, which recently won regulatory

approval for its medical devices in Japan, to open operations overseas rather than serve foreign markets from the U.S. “This is a critical point as far as the America First policies are concerned,” Defelice says. “If the legal and trade infrastructure allows you to participate globally as a small or medium-sized company, you can do that from a domestic position. What’s happening now is that the trade environment is forcing you out of the gate earlier.” ‘The Chinese Started a Trade War’

Arthur Mann, CEO of the Wrightsville, Pennsylvania-based engineered castings company Donsco, dismisses such worries. “We’ve been in a trade war with China for more than 20 years—we’re just now starting to show up for the fight,” he says. Some 25 percent of U.S. foundries shuttered in the last few decades. “The Chinese started a trade war back in 1994, when they were approved for entry into the World Trade Organization and then devalued their currency 40 percent the next week. Remember that?” It’s an argument Carey Smith, founder of Lexington, Kentucky-based fan manufaturer Big Ass Solutions finds unconvincing. “There are a lot of countries in the world that impose ridiculously high tariffs on products that we as U.S. manufacturers sell to their countries, but just because the guy next door is throwing rocks at your house doesn’t mean you should throw rocks back,” he says. “Somebody has to be the adult in the situation.”

“We’ve been in a trade war with China for 20 years. We’re just now starting to show up for the fight.” —ARTHUR MANN, CEO, DONSCO

CEO POLL: IMPACT OF TRUMP TARIFFS ON THE GLOBAL ECONOMY

Very damaging

Very beneficial

Very beneficial 0.5% Somewhat beneficial

5.8%

5.3%

Very damaging

3.0%

19.1%

Somewhat beneficial

20.1%

LONG-TERM

SHORT-TERM Somewhat damaging

Won't change anything

43.2%

45.2%

Source: Chief Executive poll of 196 U.S. CEOs in March, 2018.

Somewhat damaging

28.6%

Won’t change anything

29.2%

MAY/JUNE 2018 / CHIEFEXECUTIVE.NET

/ 11

LE AD ER S LAW BRIEF \ DANIEL FISHER

WHEN YOUR LAWYER BECOMES THE NEWS

We are in an age where all companies find everything they do politicized.

Daniel Fisher is a writer, communications consultant and former senior editor at Forbes.

THE UNFOLDING SAGA OF the Hillary Clinton campaign’s effort to dig up dirt on then-candidate Donald Trump has illuminated a shadowy world of Washington law firms and “opposition research consultants” specializing in uncovering information their opponents would rather keep hidden. It also illustrated the risks of doing business with law firms likely to wind up on the wrong side of a presidential election. It was a politically connected corporate law firm in Washington, Perkins Coie, that hired former Wall Street Journal reporter Glenn Simpson’s Fusion GPS to dig the dirt on Trump. But the congressional investigation into Fusion GPS soon thrust another prominent law firm into the spotlight: BakerHostetler. The Cleveland law firm founded by President Truman’s secretary of war in 1916 has grown into one of the world’s largest, with clients like Ford Motor, Caterpillar, Walmart and Microsoft. The firm also represented the Cypriot company Prevezon, which U.S. prosecutors accused of involvement in a $230 million tax fraud perpetrated by corrupt Russian officials. BakerHostetler declined comment, but in 2017 Simpson testified to congressional investigators that the law firm hired Fusion GPS to help deflect blame from Prevezon in the U.S. money-laundering case, which Prevezon ultimately settled for $5.9 million. Prevezon’s legal strategy was to pin the blame on financier William Browder, who uncovered the tax fraud after hiring a Russian lawyer, Sergei Magnitsky, to investigate a Mafia-style takeover of his Hermitage Capital Management in Moscow. Magnitsky revealed an audacious scheme where corrupt Russian officials seized Hermitage’s records, created fake companies and fleeced the Rus-

12 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

sian Treasury for fraudulent tax refunds. In typical Putin fashion, the Russians arrested Magnitsky, not the perpetrators, and he died in prison in 2009. Congress passed the Magnitsky Act in 2012 to punish Russian officials believed to be responsible for his death. In June 2016, Prevezon’s Russian lawyer, Natalia Veselnitskaya, met with Donald Trump Jr. in search of post-election relief from the Magnitsky Act. BakerHostetler got another black eye a few months later when the Second Circuit Court of Appeals ruled the firm had a conflict of interest because it had represented Browder and Hermitage back in 2008 and was now trying to make its former clients the scapegoats in the money-laundering scheme. The cascade of news out of Washington, New York and Russia has obviously rattled partner John Moscow, who represented Hermitage and Prevezon. “You have a committee that’s looking into Russian attacks on the American election system, and they go off into Prevezon, and if you’ll pardon my French, well what the f**k do those two things have to do with each other?” Moscow fumed to the National Law Journal. “That comes out of nowhere.” Large law firms—and their clients—had better get used to it. Pressure to increase profits has driven big firms like BakerHostetler to open offices in foreign countries and pursue matters they may have avoided before, says Richard Levick, who advises law firms on public relations and mergers. “The law firm never wants to be the center of the story,” Levick says, adding that CEOs shouldn’t avoid a good firm simply because one of its clients is the subject of bad publicity. On the other hand, “we are now in an age where all companies find everything they do is politicized. Big law firms will find increasingly that the old defense of ‘everyone deserves representation,’ while ethically and legally viable, will become more of a challenge for their brand.” Their brand, and their client’s.

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MOUNTAINS MAN

Rusty Gregory, CEO of ski resort powerhouse Alterra, is banking on a roll-up strategy to hedge against climate change— and take on Vail.

ALTERRA MOUNTAIN CO. is the biggest ski resort company you may never have heard of—yet. That’s because the $1 billion company is an amalgamation of 12 ski properties plus 14 resort partners that came together a scant nine months ago. “We did in months what it took Vail 18 years to do,” says CEO Rusty Gregory, who acknowledges that the acquisitional streak did “feel a little fast sometimes.” But there’s method behind the merger madness. In the idiosyncratic ski resort business—uniquely vulnerable to the whims of Mother Nature—size really matters. Running a mountain, even a relatively small one, requires buying, operating and maintaining pricey ski lift and snow-making equipment, then crossing one’s fingers and hoping for a season that, at a minimum, covers your costs. A few bad seasons in a row can—and has—sent many well-managed but thinly capitalized resorts into Chapter 11. That’s a challenge that Gregory, a former ski lift operator who rose through the ranks to run California’s iconic Mammoth Mountain for decades, knows well. The weather wild card was also a big part of the thinking behind the merger of KSL Capital Partners, the Henry Crown Co. and Intrawest, which created a family of properties that spans five U.S. states and three Canadian provinces. “Being able to create a geographically diverse portfolio of resorts guarantees that we will always have good snow someplace,” says Gregory. “And, therefore, we’ll be able to make sure that our guests, many of whom buy season passes in advance, have good alternatives, regardless of localized weather conditions.” Alterra began leveraging its large footprint with the March unveiling of its $599–$899 Ikon all-resort pass, which gives 2018/2019 passholders access to all 12 of its properties (Steamboat and Winter Park Resort in Colorado; Squaw Valley Alpine Meadows, Mammoth Mountain, June Mountain and Big Bear Mountain Resort in

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California; Stratton in Vermont; Snowshoe in West Virginia; Tremblant in Quebec, Blue Mountain in Ontario; Deer Valley in Utah; and CMH Heli-Skiing & Summer Adventures in British Columbia), as well as to an additional 14 partner resorts. The multi-resort pass offers consumers purchase security while helping Alterra lock in guest loyalty. “Consumers want to know that if they invest in a pass, they’ll be able to ski someplace that season,” says Gregory. “It also plays to the fact that skiing is inherently aspirational. As you move up the experiential ladder, you want to try other areas, so the business proposition for us is to have all these rungs of the ladder wrapped up in one nice, neat package they can access.” Offering the first real alternative to Vail’s Epic Pass, the Ikon positions Alterra to challenge Vail’s dominance as a multi-resort option. Gregory, however, is quick to note that the company’s overarching, customer-facing market strategy is very different. “Vail has done a great job at creating a high-quality brand experience at a lot of different resorts, but our approach is to do exactly the opposite,” he explains. “We intend to celebrate the different personalities of our properties to create a portfolio of brands that provide one-of-akind rather than standardized experiences.” For Gregory, who was an investor in Alterra before his partners convinced him to take on the CEO role, any trepidation about the challenges ahead were more than offset by the chance to pursue a personal passion. “Being able to ski more in a wider variety of places is a big part of what drove my decision to be in this industry,” he says. “There’s a business opportunity in sharing that passion with other people. My goal is to tie all of that together in experiences that families can afford to do more often so that we not only create a successful business financially but also one that grows participation. We want to give families good reasons to come up and experience the best version of themselves in the wonders of the mountains.”

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LE A DERS ON MANAGEMENT \ JEFFREY SONNENFELD

PROFILE IN INCOMPETENCE When missteps veer into mismanagement.

Chip Somodevilla/Getty Images

Whether silent or inappropriately verbal, United’s Oscar Munoz has demonstrated off-the-mark management.

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.

SOMETIMES COMPETENCE SHOULD matter, not just character. Given the #metoo headlines lately and other forms of misconduct, it’s been easy to forget that. So let’s take a second to thank Oscar Munoz for reminding us. His recent no-show performance as CEO of United Airlines is a needed admonition that when it comes to successfully running a large, complex organization, it isn’t enough to just not be Harvey Weinstein. You also have to do a good job. Thanks to Munoz, this old-school idea may yet experience a needed renaissance. On his watch, United and its “Fly the Friendly Skies” tag line have become the go-to punchline for late night comics and industry analysts. Amid animal cruelty charges, battles with its passengers and miscues with the financial community, his response was… silence. It isn’t just dogs stuffed in overhead bins and left to die or sent to Japan by accident. When United infuriated customers by taking away the right to have a single bag stored in the overhead bin, there was no comment from Munoz. When United President Scott Kirby abruptly announced in March that the company would be replacing employee bonus payments tied to operational goals with a new lottery program

16 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

in which qualified employees would be eligible to win prizes, Munoz was similarly silent, even as employees neared revolt. Meanwhile, United’s management confused analysts when it appeared unprepared to explain planned 6 percent increases in capacity that reversed the consolidation plan laid out during a poorly executed merger with Continental. Munoz hasn’t always been silent, of course. When video appeared of a bloody customer being wrestled from a plane because he wouldn’t surrender his seat to a late-arriving United employee, Munoz did speak up. But his first instinct was to defend the abuse and the bizarre corporate policy and horrific employee decision making that fueled it. Make no mistake: This is not about PR missteps. This is about misguided management and the board’s failure to do something about it. Unthinkable as it is now, under the leadership of legendary CEO Ed Carlson, United Airlines once led the industry in reputation, performance, customer service, employee morale and even food service with their own admired in-house catering. Now United ranks last among major U.S. airlines on J.D. Power’s consumer rankings. That’s not mismanaging the message. That’s mismanaging the company. Perhaps the board is gun shy to do something about it. After all, Munoz was drafted by fellow United board members to take over in the aftermath of Jeff Smisek’s failure running the company, and two bad picks in a row might implicate them in the company’s woes. They need to get over it. This is a very sophisticated board that knows its duties of loyalty and diligence are to owners, customers and employees—not management or preserving their own reputations. Circling the wagons to protect their second mistake in naming Munoz would be a terrible error. This isn’t a referendum on character. At this point, it’s just about basic competence.

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C OV ER STORY

st has _ o m ss e t) h e s t . n ke busi ey la bust a th ble o m mes t e w ti hil evita Ho est w ( in sÂ b e e e d h t th S ca r e f US d o o f B n E n i pare AL e D e s re BY p d an

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MAY/JUNE 2018

/ CHIEFEXECUTIVE.NET

JACQUIE BOYD

verything has fallen into place in the Trump Boom. Now CEOs need to figure out how to exploit today’s prosperity for the long term as well. And they’d better be ready for the good times to end, as they inevitably will. For now, all systems are go. Tax cuts and regulation rollbacks—check. Cheap domestic energy—check. Accelerating job creation, including re-engagement of marginal workers—check. Rising incomes— check. Robust consumer confidence—check. Cascading business investment—check. Synchronous improvement in economies around the globe to create demand for U.S. exports—check. Unleashing of pent-up optimism—check. CEOs’ willingness to call a boom a “boom”—check. The Business Roundtable’s CEO Economic Outlook is at its highest level in history, and small business owners have reported their highest optimism in 35 years. “I don’t remember, ever, a more positive economic environment for the right reasons than what I see right now,” says Robert Chapman, CEO of Barry-Wehmiller, a $3 billion diversified manufacturer of packaging and other goods based in St. Louis. “My board has been predicting an economic downturn for several years now, expecting a normal cycle. But there’s nothing normal going on now. I don’t see any red flags.” Larry Harding, president of the consultancy division of Chicago-based TMF Group, says, “We’re tending to see the return of animal spirits that have been missing for a long, long time. It sort of feels like a return to that rarefied air of the Reagan years, which is nice.” But now that they’ve finally arrived at a sort of nirvana perhaps unimaginable during the slow-growth years that followed the Great Recession, two aspects of the boom have CEOs concerned. One is that any of several factors or a combination thereof could bring an unwelcome end to prosperity (see sidebar, p. 20). The second is their obligation to optimize the opportunities presented by the boom while it lasts. “We’re going to go through ups and downs, but where will the opportunities be?” says Shahid Khan, CEO of Urbana, Illinois-based Flex-N-Gate, a $6 billion automotive supplier. “It is a great time to get ready for the non-boom ahead. And be ready to take advantage of it by getting people and money resources ready and securing the leverage you have. It’s Business Leadership 101.” Andy Puzder, former CEO of CKE Restaurants and President Trump’s first nominee for Labor Secretary, urges peers to

/ 19

U.S. CONSUMER SENTIMENT

Index points 105 100 95 90 85 80 75

2014

2016

2018

SOURCE: TRADINGECONOMICS.COM, UNIVERSITY OF MICHIGAN.

invest in their businesses. “Investing in new plants and equipment is crucial,” he says. “Use the extra money to grow and create more jobs, then go out and hire the best people by offering competitive salaries and benefits.” Here are 12 ways that U.S. CEOs are taking advantage of the Trump Boom—or should be:

Believe in It With so long between true boom times, some younger CEOs could make rookie mistakes by misperceiving the zeitgeist. “There’s a level of nervousness about this that you didn’t see in 1999 or 2006 and 2007,” says Clarke Murphy, CEO of Russell Reynolds Associates, an advisory and executive search firm. Today’s younger chiefs, Harding says, “may not be used to seeing the interplay that exists today if they haven’t been a CEO for 20 years. They may see opportunities that look like they’re really there, and yet they may be hesitant to pull the trigger because they haven’t seen things so favorable before.” Fortunately, he notes, CEOs don’t have to go far to check their views with peers and internally. “People aren’t operating in silos these days,” he says. “There are networking organizations and lots of corroborative opportunities to see what the consensus is.”

Boom to Bust What will kill the good times? Here are 10 top CEOs concerns, loosely ranked from most severe or likely, to least so: Trade War: President Trump said that’s exactly what he wanted to start by imposing tariffs on imported steel and aluminum and penalties on Chinese goods. Concern about retaliation immediately swept across the economy. Joshua Bolten, CEO of the Business Roundtable, warned that “missteps on important elements of U.S. trade policy will undermine great economic progress.” But Trump quickly promised tariff exclusions to American allies and top trading partners, and China pushed back only meekly. Brembo North America, for instance, with major operations in Mexico as well as Michigan, isn’t changing its footprint. Trump “is always negotiating,” says CEO Dan Sandberg. “It’s either changes in NAFTA or something else he wants.” Political Upheaval: Some CEOs are concerned that Republicans haven’t accomplished more of their agenda despite control of Capitol Hill and the White House. Now Democrats may wrest control of the House in November. But former CKE Restaurants CEO Andy Puzder says Democrats in Washington have allied themselves with failure

20 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

of Trump’s pro-growth policies, including the tax cuts. “Progressives fear President Trump’s potential to succeed much more than they fear his potential to fail,” he says. Presidential Self-Sabotage: By now, Trump’s habit of working at cross-purposes to his own policies and impulses is well understood. However, that could manifest in unpredictable ways. Still, says Jeff Vinik, chief of the Tampa Bay Lightning professional hockey franchise and a major investor in Tampa-area real estate, “Markets adjust. People adjust. Things change. Trump obviously is controversial, and that could be a wild card. But in the long run, I think that’s a rounding error in terms of our economic growth in general.” Runaway Rates and Inflation: Most CEOs recognize the healthy role that moderate inflation can play in raising their prices and giving them more room for financial maneuvering. But David Heacock, CEO of FilterBuy, a Talladega, Alabama-based maker and B2B distributor of air filters, worries that “input costs rising as much as ours have already isn’t sustainable over a long period of time.” Brandon Spear is wary as well. “If the cost of money goes

Consolidate Gains Many companies were already investing heavily in their operations and their people as economic growth puttered along over the last eight years. Now the bright-blue horizons give them some room for a breather. Brembo North America, for instance, scrambled to quintuple its revenues to nearly $1 billion and its employment to about 1,500 people over the last several years by continually adding capacity to supply auto brakes and components. “That’s a lot of growth and a lot of new people to absorb,” says Dan Sandberg, CEO of the U.S. arm of Italy-based Brembo S.p.A. “We’re going to take all of the inefficiencies left over from our growth, get our house in order and get our systems solidified.”

Diversify the Portfolio Puzder urges CEOs to “expand your business however possible” during the boom.

U.S. UNEMPLOYMENT RATE 9% 8 7 6 5

2014

2016

2018

SOURCE: TRADINGECONOMICS.COM/U.S. BUREAU OF LABOR STATISTICS.

David MacNeil is among the CEOs doing just that: The chief of Bolingbrook, Illinois-based WeatherTech, a $500 million maker of customized automotive floor mats, glorified his construction of a huge new factory addition with a Super Bowl commercial in February. It will manufacture a line of stainless-steel pet bowls made to human-safety standards and integrated into plastic mats.

up, that will slow things,” says the CEO of MSTS, an Overland Park, Kansas-based financial technology provider. “It will slow down the customers we work with and impact the cost of working capital. I worry about that.” Black Swan Visitation: Everyone brings up the possibility of a world-changing event disrupting economic performance. The fright caused by such a possibility is compounded by the fact that many such singularities are completely unforeseen. Productivity Funk: This problem has dogged the U.S. economy—and been blamed for much of America’s recent stagnation. If CEOs don’t find ways to boost productivity during the current boom, such a failure could hasten its end. “There’s the lack of the right skills to fill jobs” already, notes investment firm chief James Cassel. “With AI, a lot of people will be displaced, and I’m not sure how we’ll train them for something else. Underemployment remains a big problem.” Overconcentration of Growth: Three technology titans—Amazon, Microsoft and Netflix—powered about half of the stock market’s advance in early 2018. That’s a proxy

for the unhealthy concentration of growth and prosperity in the tech sector as it relates to the economy as a whole. Budget Deficits: The Trump tax cuts kicked the federal budget–deficit can down the road, in part with the expectation that the current boom will raise more tax receipts. But, as Grant Thornton CEO Mike McGuire puts it, “Deficits are going up, and infrastructure and other spending is going up,” he said. “You’ve got to be cautious.” Lack of Immigration Reform: While the president has been concentrating on the economy, some CEOs maintain that he’s side-burnered one potential source of aid: solving the immigration dilemma and providing U.S. companies with more labor. Drug Haze: Other human capital concerns stemming from America’s soft social underbelly include opioid abuse. “There are parts of the country where the opioid epidemic is so problematic that employers cannot find individuals who can pass drug tests, let alone sustain a 40-hour work week,” says Todd Thibodeaux, president and CEO of CompTIA, a tech-industry trade association.

MAY/JUNE 2018 / CHIEFEXECUTIVE.NET

/ 21

U.S. BUILDING PERMITS

(Thousands) 1400 1300 1200 1100 1000

2014

2016

2018

900

SOURCE: TRADINGECONOMICS.COM, U.S. CENSUS BUREAU.

“It’s right in our wheelhouse because we injection-mold many things already,” he says. “And we’re building another factory in America. Isn’t that the right thing to do?”

Acquire Other Companies M&A activity keeps rising as CEOs look

for bargains and synergies that can exploit the boom. Arby’s CEO Paul Brown, for example, bought Buffalo Wild Wings for $2.9 billion in February, and now the renamed “Inspire Brands” aims to buy more chains to protect against consumers losing their appetite for any one type of cuisine. Meanwhile, Barry-Wehmiller acquired BICMA, a German hygiene technology company, in January for its 100th acquisition. “We did 12 acquisitions last year,” Chapman says. “We continue to find acquisitions around the world, though we’re not in a hurry.”

Reward Employees Companies continue to spread the benefits of the tax cuts and flush business to their employees long after the initial wave of high-profile actions, such as Apple’s bonuses. SunTrust, for example, has raised

Help Really Wanted Jobs that go begging are the biggest problem for most CEOs these days. They have 20, 200 or even 2,000 open positions that they would fill right now with the right people. But since they can’t, and because the problem is only getting worse, the labor squeeze poses distinct challenges to companies that want to make hay while the sun shines. RedSeal is typical. “I have 11 openings right now, and seven have been open for more than six months,” says Ray Rothrock, CEO of the Silicon Valley-based cybersecurity firm. “And I only have 150 people.” To bridge the gap, many of RedSeal’s chief engineers “go home at night and work after dinner for four to five hours. I’m afraid I’m going to burn them out.” Red Seal “de-features” products and postpones fulfillment of orders. The company loses business to competition, sacrificing growth. But it’s not enough—by a long shot. Rothrock says he’s got a three-year road map for software enhancement that he’s shared with key customers; he has the position requests secured in his budget; and the company has the cash to fund the development work. “I just can’t find the talent,” he says. “I fall half a week behind in development for each month that goes by; I’m estimating a 10 percent to 15 percent drag on productivity.” Similarly, Dave Ramsey, CEO of Ramsey Solutions, a Brentwood, Tennessee, financial media outfit, says that

22 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

his company has 250 jobs posted, even though it already employs 700 people. He’ll only be able to hire about half the number he’d like to this year. “We just won’t grow as much,” Ramsey says. “We’ll grow at the speed of the right hire.” But he’d rather leave growth on the table than “insert 250 donkeys into our company who would destroy the company. It’s not about finding people to do the jobs, but finding the right people to do the jobs. If you hire donkeys, your customers lose respect for you, and so do your internal thoroughbreds. You blow up the company.” CEOs are attacking this problem with all the tools they can—boosting overtime, allying with local technical schools, expanding the number of internships and prevailing upon boomers to stick around instead of retire. Still, such human-centered tactics only go so far. That’s why more CEOs are doubling down on automation of both factory and service jobs. Manufacturers are buying more—and more humanoid—robots. Companies like Grant Thornton are automating clerical tasks. “We have compliance work that used to take seven to eight people that we can do with robotics and just one person overseeing it now,” explains CEO Michael McGuire. “Then you apply that principle to a bunch of other areas, ranging from expense management to procurement. All that stuff can be done more quickly and accurately than with humans.”

its minimum wage to $15 an hour, boosted merit pay for about 20 percent of its workers, made a one-percent additional 401(k) contribution for all workers and offered $1,000 bonuses for those who complete its financial literacy program. “There’s nothing more important now than retaining your top performers,” says Bill Rogers, CEO of the Atlanta-based financial services giant. “[For] the cost of just one turn of turnover, you can put a lot of money in employees’ pockets.” There’s another long game at work here for the economy, too, says Puzder, who has codified his bullish views in a new book, The Capitalist Comeback: The Trump Boom and the Left’s Plot to Stop It. “Reward workers with increased compensation to show them that when companies are unshackled from government regulation and taxation and allowed to profit, everyone wins,” he says.

Beef Up R&D Plant today’s seed corn in new innovation efforts for the best return for the long term, advisers and CEOs say, especially in areas of potentially huge technological returns or disruptions. “If I’m in an innovation business where I need to constantly reinvent myself or how I manufacture something or need to expand in a unique way, I want to invest in R&D right now,” says Ray Rothrock, CEO of RedSeal, a Sunnyvale, California-based cybersecurity outfit. “If my margins are improving as a result of the tax cuts, I should put that in R&D. It’ll create new, innovative products and jobs and improve your brands. It’s an opportunity that doesn’t come along that often.”

Throw a Bone to Investors CEOs want to share the fruits of the boom with investors, too, through net earnings, dividend increases and stock buybacks. Buybacks “are a perfectly legitimate use” of profits for companies that “lack the ideas or the potential to grow,” Puzder says. But Michael McGuire, CEO of Chicago-based advisory and accounting firm Grant Thornton, cautions that “if you don’t invest for the long term, your business

U.S. BANKRUPTCIES

Companies (Thousands) 38 36 34 32 30 28 26 24

2014

2016

2018

SOURCE: TRADINGECONOMICS.COM, ADMINISTRATIVE OFFICE OF THE U.S. COURTS.

might be for the short term. And if your investors just want you to distribute everything to them, maybe they’re in it for the short term, too.”

Rethink Your Talent Pool Talent is everything for companies that want to take advantage of favorable business conditions and invest for the future, but the demand for digital skills is running up prices in traditional coastal tech hotbeds. Consider recruiting outside them, McGuire advises. “For the longest time, people wanted to be in a place like Silicon Valley because they could be around the same kind of people,” he says. “But today’s technology means people can work anywhere.”

“If you don’t invest for the long term, your business might be for the short term.”

Plunge into New Technology James Cassel, founder of investment banking firm Cassel Salpeter in Coral Gables, Florida, believes that CEOs “should take X amount of hours per week and just sit and think about technology and read about it voraciously.” Beyond that, McGuire advises CEOs to “overpronate dramatically on investing in technology right now. You may be at a cocktail party where people talk about disruption, AI, machine learning and blockchain, and you may think your company can do it. But if you don’t have the right tech platform and your data aligned, you can’t.”

Boost Exports Now that even Brazil has come out of recession, joining Europe’s recovering economy

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U.S. INDUSTRIAL PRODUCTION 6 4 2 0 -2

2014

2016

2018

-4

SOURCE: TRADINGECONOMICS.COM, FEDERAL RESERVE.

understand uncertainties related to Brexit, for example.”

Speak Out Puzder believes that CEOs can help the boom acquire a self-reinforcing effect “by speaking out about its positive effects. Let people know why things are better, why their compensation is increasing and why the government is taking less out of their paychecks.”

Adapt to Trump

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

and the simmering cauldron of growth in Asia—and with a relatively low dollar—the boom should encourage more U.S. CEOs to consider or expand exports. “There are a lot of companies going into Europe now, and we’re not trying to restrain them,” says Harding, the consultant. “We just want to make sure CEOs

CEOs can brace themselves for future shocks from President Trump on trade wars and other matters but should keep in mind that they’re his No. 1 constituency. “If you only listen to his rhetoric,” Harding says, “you might just hide in your basement. But so far [Trump’s] rhetoric doesn’t seem to be hurting the reality.”

Preparing for the Inevitable The only thing more solid than the boom is the fact that it will end. CEOs should take steps now to make sure they’re well positioned for the next downturn. “We’ll have a recession in the next five years,” predicts Jeff Vinik, owner of the NHL’s Tampa Bay Lightning and a major investor in central Florida real estate. But, he says, “I absolutely don’t see a 2007, 2008 type of recession for a long time to come.” And notes investment banker James Cassel, “We’re one day closer to the next recession than yesterday. Unfortunately, we’ll know that pivotal day probably in hindsight rather than with foresight.” One way CEOs can buttress against that day is to plot where the company should be before the next downturn and move deliberately on a path to get there.“Invest more in the future in this up market than you did the last cycles,” advises Clarke Murphy, CEO of Russell Reynolds Associates. “The pace of change is so fast that you can’t just book revenues, you have to consistently look at how you’re operating and innovate so that your company is here five years from now, or whenever the music stops.” Many legendary companies failed to make sure they were doing this before the Great Recession, including General Motors, Bank of America and even GE, and they

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and their CEOs paid the price for their failures. Industrial stalwart Barry-Wehmiller stayed ahead of the game, and that’s what CEO Robert Chapman is intending to do this time, too. “Our business model is designed around a balance of markets, products and technologies and financial strength,” he says. “And I would never compromise our financial strength.” Also, with the next economic swoon in mind, the boom could be a good time to overhaul personnel evaluation and even realign succession plans. “You need to assess your executives on multiple levels to see how they can succeed in a world of rapid change, rather than just in a single dimension,” says Murphy. “Can they be both disruptive and pragmatic?” It’s also a good time for CEOs to bring their boards more fully into the process of succession planning and long-term development of executives, he says. And, of course, this is a great time to execute another strategy: selling out. “The market is great and is paying frothy prices right now,” says Cassel. “Private equity has so much money; it’s a good time to be selling. And you don’t want to be selling at the last minute, because you want people to buy your company with a view that there’s future runway.”

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B E ST & WOR ST STAT E S

WHERE TALENT WANTS TO LIVE Every CEO knows that if you want to find America’s best and brightest, you’ve got to move to a big coastal city, right? Wrong. In an exclusive study for Chief Executive, two of the nation’s top demographers examine U.S. Census Bureau data—and arrive at a very different conclusion.

BY J O E L KO T K I N A N D W E N D E LL C OX

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urban cores to attract talent, particularly millennials. This assessment needs to be rethought. The labor shortage impacts not only highly coveted tech talent but also those in fields like supply chain management and manufacturing. In fact, according to the Bureau of Labor Statistics, IT is expected to grow by barely 0.2 percent in the next decade, well below health, energy, construction, hospitality and professional and business service sectors. Workers in these fields may not be as willing or able to live in the cramped conditions typical of New York or San Francisco. And even well-educated workers, particularly those in their 30s, appear to be gravitating toward less expensive, more livable metros (see maps). To explore the best future markets for talent, we did a careful examination of U.S. Census Bureau data, both by

MAY/JUNE 2018 / CHIEFEXECUTIVE.NET

HERO IMAGES / GETTY IMAGES

ith unemployment down and wages rising, thereâ&#x20AC;&#x2122;s growing concern that a lengthy and potentially crippling talent shortage will sweep the U.S. Addressing this could become a critical issue for businesses competing with Asian and European firms facing similar and, in many ways, more severe shortages. In the U.S., the shortage has been sparked by both robust economic growth and labor force growth running at about one-third the norm since the middle of the last century. This is leading employers to consider raising wages for all kinds of workers. Some suggest that firms must move to expensive, large

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GENERATION MIGRATION Fastest-growing U.S. metros, all ages

Fastest-growing for 20-29 year olds Seattle, WA 22.7% Portland, OR-WA 19.7%

Raleigh, NC 15.5%

San Francisco-Oakland, CA 23.5% San Jose, CA 21.1%

Denver, CO 28.0%

Austin, TX 15.5% Orlando, FL 12.0% San Antonio, TX 10.7%

Houston, TX 11.8%

metro and within metro, as well as by age cohort. We focused not only on millennials but also older workers, many of whom increasingly tend to remain in the labor force.

City Limits Urban cores have become more successful in attracting residents over the past two decades—a sharp reversal from the late ’70s and ’80s when crime chased workers and companies out. “Legacy” urban cores populated by highly educated millennials, such as New York, Boston, Washington, D.C. and San Francisco, have thrived. Yet, this trend is slowing, according to the U.S. Census Bureau’s American Community Survey (ACS) five-year estimates (2007 to 2011 and 2012 to 2016, the latest data available for such analysis). In fact, growth in urban cores (based on a city sector model analysis) has slowed overall and in every group age 25 and over. Among millennials 20 to 29, the urban core of major metropolitan areas (over 1 million) grew by only 282,000 in the period 2012 to 2016 from the period 2007 to 2011. The percentage of this age cohort living in the urban cores dropped to 19.1 percent in 2012 to 2016 from 19.4 percent in 2007 to 2011. In the later period, over 1.5 million (representing 85 percent of the total growth) headed to the suburbs or exurbs. In April 2016, the real estate website

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75% AMOUNT BY WHICH RENTS HAVE INCREASED IN NEW YORK CITY SINCE 2000

Trulia found more millennials leaving the Washington, D.C. and New York metropolitan areas than expected. In fact, U.S. Census Bureau data indicates that between 2013 and 2014, only 2,662 people between the ages of 25 and 34 migrated to Washington, D.C., compared to 10,430 people in that age bracket who arrived between 2010 and 2011. Costs factor prominently. According to Zillow, for workers between the ages of 22 and 34, rent claims upward of 45 percent of income in Los Angeles, San Francisco, New York and Miami, compared to closer to 30 percent of income in metros like Dallas-Fort Worth and Houston. In Los Angeles and San Francisco, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally. Prohibitive home prices in core cities are driving would-be home buyers out. According to a TD Bank survey, over 80 percent of 18- to 34-year-old renters want to own a home. A Fannie Mae survey of people under 40 found that the vast majority thought owning made more financial sense, offering potential for asset appreciation and a hedge against rent increases. Homeownership prospects vary greatly by metro. Millennial homeownership rates are 37 percent in Nashville, 29 percent in San Antonio and 27 percent in Orlando, compared to under 20 percent on the California coast or New York City and environs.

Fastest-growing for 30-44 year olds

Fastest-growing for 45-64 year olds

Las Vegas, NV 2.8%

Austin, TX 8.2% San Antonio, TX 6.8%

Orlando, FL 10.1% Tampa-St. Petersburg, FL 6.5%

The Burb Boom So where are millennials and other generations moving? First, we have to realize that more than 80 percent of 25- to 34-year-olds in major metropolitan areas already live in suburbs and exurbs, according to the ACS data. Among older generations, this number jumps to more than 85 percent. As economist Jed Kolko notes, people tend to move out of core cities to suburban locations as they age. Over 393,000 people age 30 to 44 in 2007 to 2011, largely covering members of Generation X, left the urban cores by 2012 to 2016, while 678,000 moved into the suburbs. Although younger millennials migrated toward urban cores more than previous generations, the website FiveThirtyEight notes that they are more likely than prior generations to move to the suburbs as they age. We have already passed, in the words of University of Southern California demographer Dowell Myers, “peak millennial” and are seeing the birth of a new suburban wave. This trend is likely to accelerate as early as 2020, when millennials enter their 30s, the age when people tend to raise children. As generational researchers Morley Winograd and Mike Hais have long pointed out, millennial attitudes about family remain surprisingly conventional, other than a greater emphasis on gender equality. The vast majority want to get married, start a family and be “good parents.”

Phoenix, AZ 4.1% Austin, TX 3.0%

Orlando, FL 2.5%

DAVID LADA

Raleigh, NC 7.8%

Tampa-St. Petersburg, FL 2.5%

6.1% THE DROP IN THE NUMBER OF BOOMERS LIVING IN URBAN CORES OVER THE LAST FIVE YEARS

Millennials may take longer to take the vow or have the child, but they are doing so in increasing numbers. Today, 16 million millennials have children, up from barely six million a decade ago—and that number is likely to soar in coming years. Young, growing families tend to opt for the suburbs for reasons of affordability, safety and education quality. Among those under 35 who do buy homes, four-fifths choose the single-family detached houses most often found in suburban locales. Surveys such as those from The Conference Board and Neilsen consistently find that most millennials see suburbs as the ideal place to live in the long run. According to a recent National Association of Homebuilders report, more than 66 percent, including those living in cities, actually prefer a house in the suburbs. Generational preferences on where to live remain remarkably similar. Generation X, perhaps the best guide to future millennial behavior, saw the urban core share drop 7.8 percent, from 15.6 percent in 2007 to 2011 to 14.3 in the 2012 to 2016 period. Employers need to pay attention to this generation, which, while smaller than millennials, now makes up the majority of managers at U.S. companies. They are also far more entrepreneurial than their millennial successors, with a startup rate roughly twice that of millennials—and growing—while the younger generation’s rate has been on the decline. Boomers—many of whom also went to

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SILICON VALLEY:

Perhaps no region in the world is more associated with talent than the once-booming San Francisco Bay Area. In the first four years of the decade, the area netted an average of 10,000 domestic migrants annually. But by 2016, the tide had turned. About 12,000 residents fled San Francisco that year, and the net outflow for 2017 climbed to 25,000. Nor is the future prognosis particularly great. Seventy-four percent of millennials in the Bay Area are currently considering an exit, according to the Urban Land Institute. No surprise. San Francisco has devolved in recent years, with streets in some areas marred by the presence of homeless people, excrement and needles. Yet, housing prices are such that the California Association of Realtors now suggests a $181,000 income is necessary to purchase a home, more than 3.5 times the national average. Expect Bay Area prices to rise further— even if Valley economic expansion continues to slow due to planning policies that block the

core cities in their 20s—also are largely clustered in suburbs or exurbs. The much-hyped “return to the city” is a minor phenomenon. As with other groups, the share of boomers living in urban cores since 2010 has dropped from 13.9 percent to 13.1 percent. Some might dismiss the boomers as a potential talent pool, but many are well-educated, particularly in skilled trades, and now remain on the job longer than at any time since the 1950s. They are also, along with immigrants, increasing their entrepreneurial presence.

Shifting Regions Perhaps even more significant for talent acquisition may be regional shifts, measured

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JUSTIN SULLIVAN/GETTY IMAGES NEWS

Generation Disaster?

There are more than 750,000 homeless people in once-booming San Francisco, according to the Department of Housing and Urban Development.

peripheral growth required to improve affordability. Meanwhile, the outflow of households from the Bay Area could be accelerated by the new federal income tax provisions. To date, the Bay Area’s job market has survived largely by hiring foreign workers; immigrants account for virtually all the region’s population growth. Many of these are essentially indentured servants on H-1B visas; the Bay Area accounts for a disproportionate share of these contract laborers and depends on non-citizens almost twice as much as other tech-oriented metropolitan areas. If the Trump administration follows through on promises to cut this program, the Bay Area may face even greater talent challenges in the years ahead.

74%

by the latest U.S. Census Bureau population estimates (2016). Virtually all the major metropolitan areas with the strongest population growth since 2011 are cities with smaller or, in some cases, even negligible urban cores—places like Austin, Orlando, Raleigh, Houston, San Antonio, Dallas-Ft. Worth, Nashville, Phoenix, Denver and Charlotte. For example, less than five percent of the population of these metropolitan areas is in the urban core. In comparison, more than 50 percent of the population of New York lives in the urban core, while in Boston, San Francisco, Philadelphia and Chicago, the number exceeds 25 percent. Overall, population growth in the expensive big cities tends to be one-third to one-

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lose boomers, often by wide margins. Given the increasing importance of boomers, Xers and aging millennials in the workforce, it may well be that employers seeking help need to calibrate their choices to where these generations seem to be headed. At a time of growing shortages of labor, an appreciation of these demographic and geographic trends seems sensible.

Where Talent Wants to Be

Lower-cost metros like Nashville, Tennessee, are outpacing former urban hot spots like New York and Chicago.

half less than in Sunbelt boomtowns. Again, as in the suburban shift, there’s a strong correlation with aging. Among people who were in their early 20s in 2007 to 2011, some of the biggest population increases took place in metropolitan areas like Denver, San Francisco, San Jose, Seattle and Portland. Yet, these movements shifted as people entered their late 20s. Among those 25 to 29 in 2011, now in their early 30s, the fastest growth occurred in Orlando, Raleigh, Austin, San Antonio, Charlotte and Houston. San Francisco, which does so well among people in their early 20s, grew at half the rate of the Sunbelt standouts. New York, Los Angeles and Chicago all experienced net declines in this cohort. Turn to those 30 to 44 in 2011 and the pattern accelerates. In this cohort, growth shifts to lower-cost, largely Sunbelt metros such as Orlando, Austin, Raleigh, San Antonio, Tampa-St. Petersburg, Houston, Charlotte, Miami, Jacksonville and Nashville. In contrast, most of the metros that attracted younger people—like San Francisco and Washington, D.C.—grew half as quickly or less. New York, Chicago, Los Angeles and San Jose saw a net decline in this population, indicating no significant net in-migration. These trends also apply for the boomers. Here the fastest growth takes places almost exclusively in lower-cost Sunbelt metros such as Phoenix, Austin, Las Vegas, Orlando and Tampa. In contrast, New York, Los Angeles, Chicago, San Jose, Boston and San Francisco

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5.6% AMOUNT BY WHICH PEOPLE HAVE LEFT THE NEW YORK METRO SINCE 2010

Joel Kotkin is the presidential fellow in urban futures at Chapman University and executive director of the Center for Opportunity Urbanism. Wendell Cox is a senior fellow with the Center for Opportunity Urbanism and principal of Demographia, an international public policy firm.

If current trends continue, another generation—often called GenZ—will follow their predecessors into urban cores in disproportionate numbers. Then they’ll face the same pressures that have impacted older generations. And unless there is some dramatic recasting of the housing industry, these younger workers may have even shorter windows to live in the large legacy cities before sparking urban core growth in metros such as Orlando, Phoenix, San Antonio and Nashville. For the next generation, New York, Boston and San Francisco may seem more like gated communities than places of opportunity. The big opportunities for employers are likely to be found in the suburbs, particularly those developing amenities like theaters, ethnic restaurants and music venues. Aging millennials will want locations with town centers—whether restored or created—and will likely prefer such things as bike trails and parks over golf and endless mega-retail centers. The millennial suburb, as MIT’s Alan Berger has noted, will be different than the ones their grandparents desired, more walkable, environmentally sustainable and likely connected eventually by autonomous technologies. In other words, the most coveted American community of the coming decades could resemble a 19th century village. It is also where more of America’s immigrants are headed, as is most evident in locales like Fort Bend, Texas, or Orange County, California; this is where minorities and immigrants, who make up 45 percent of all millennials, are increasingly settling. Along with aging millennials, Xers and boomers, these newcomers will dominate the workplace of the future—and that workplace will be in suburbia.

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B E ST & WOR ST STAT E S

BEST & WORST STATES T

he best place to do business in the United States is Texas, followed by No. 2 Florida and, in a tie, No. 3 North Carolina and South Carolina, according to Chief Executive’s 2018 “Best and Worst States for Business.” The worst place is No. 50 California, bested only slightly by No. 49 New York, No. 48 Illinois, No. 47 New Jersey, No. 46 Connecticut and No. 45 Massachusetts. Seem familiar? That’s because those are the exact same positions each of these states has occupied in each of the last four years in our annual poll of CEOs about business climates.

Surprises abound this year as low-ranking states like Michigan and Rhode Island shake off the doldrums—and soar up the charts.

Meanwhile, there are fast and furious moves up and down by states in the middle. This year, Rhode Island rocketed up 10 spots to No. 32, while Michigan gained nine spots, up to No. 27. Nebraska fell six to No. 26, and Idaho plummeted by 10 to No. 28. What explains the dynamism in CEO opinion of states in the middle while their impressions dictate complete stasis in the rankings at the top and bottom? Both realities and perceptions, say CEOs, state and local officials and economic development consultants. “Generally those performing best and worst stay there because the states don’t see significant leadership changes,” says Larry Gigerich, managing director of Ginovus,

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RON THOMAS/GETTY IMAGES

FOR BUSINESS 2018

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STATE-BY-STATE RANKINGS STATE

TE X AS FLORIDA NORTH CA RO L I NA S OUTH CA RO L I NA INDIA NA TENNE S SEE GEORGIA C OLOR A D O A RIZONA OH IO U TA H NEVA DA WIS C ONS I N IOWA VIRGINIA S OUTH DA KOTA A L A BA M A W YOM IN G KA NSAS D EL AWA R E OK L A H OMA A RKA NSAS M ONTA NA NEW H A M P S HI R E K ENTU CKY NEBR ASKA M ICH IG AN IDA H O NORTH DA KOTA M IS S OU R I PENNSYLVA N I A RH OD E IS L A N D LOU IS IA NA NEW M E X I C O M A INE M IS S IS SI P P I WE ST VI RGI N I A M A RYL A N D VERM ON T M INNE S OTA H AWA II WAS H IN GTO N A L AS KA OREGON M AS SACHU S E T T S C ONNECTI CU T NEW JER S EY ILLINOIS NEW YOR K CA LIFOR N I A

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2018 RANK

1 2 3 3 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

CHANGE 2017-2018

0 0 0 1 0 1 1 5 0 1 1 -6 -3 0 0 5 2 6 8 -4 -4 1 3 7 -3 -6 9 -10 -1 -5 -2 10 0 -4 0 -4 0 3 1 -2 2 -3 -9 0 0 0 0 0 0 0

2017 RANK

TAXATION AND REGULATION

WORKFORCE QUALITY

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

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

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

LIVING ENVIRONMENT

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

STATES TO WATCH

1. TEXAS

2. FLORIDA

5. INDIANA

8. COLORADO

17. ALABAMA

Texas has lots of advantages, and one of the biggest reasons it may stay No. 1 perpetually in the Chief Executive survey is something that will never change: its location. “That’s not talked about much, but from DFW airport you can fly almost anywhere non-stop, and that’s a terrific advantage for a national company like us,” says Don Daseke, CEO of Daseke, which owns flatbed trucking companies across the U.S. Plus, notes economic development consultant Dennis Cuneo, Texas “borders Mexico, so it gets all that NAFTA trade. Florida is becoming the [trade] gateway to South America, but the biggest trade flows are in NAFTA— and Texas is right in the middle of that.”

Florida has had trouble unseating Texas as No. 1, but the Orlando area is leading the charge with a flourishing advanced manufacturing sector, based on being at the center of a nexus of colleges and universities and tapping the expertise of engineers from the nearby “Space Coast” around Cape Canaveral on the Atlantic Ocean. “Orlando has one of the highest concentrations of optics engineers and [others] that we have in the company,” says Austin Russell, CEO of Luminar Technologies, a leading provider of radar systems carmakers are using for autonomous driving. “People from the defense industry who were building missiles to take lives—we’re bringing them in to save lives.”

CEOs have come to rely on Indiana as the business-friendly center of the industrial Midwest, thanks to a corporate income tax rate on its way to falling below 5 percent by 2021, reasonable regulations, right to work, global-caliber talent, a growing workforce—and affordable costs. Then there’s the the state’s plan to become a digital hub by investing $100 million a year for the next decade in innovation and entrepreneurship programs in schools and businesses. “Every unit of state government has an eye on making sure we’re a business-friendly state,” says Indiana Secretary of Commerce Jim Schellinger. “We’re turning over every stone.”

Colorado shot up five places to No. 8 as more CEOs grow to appreciate the vibe there: It ranked No. 1 in living environment in the 2018 Chief Executive survey. And the state is becoming a leading cluster for digital businesses. Recondo Technology, which writes cloud-based healthcare software, is part of the state’s “health innovation ecosystem” that includes a regional cluster of startups, tech companies and major healthcare organizations. “That has made Colorado a healthtech powerhouse,” says Jay Deady, CEO of the Denver-area company. “And we’re taking full advantage of the talented labor pool and positive economic outlook.”

Alabama climbed two spots this year, to No. 17, with an ever-expanding cast of automaker and suppliers, including a planned Toyota-Mazda plant in Huntsville, where aerospace manufacturers loom large. Improving quality of life in cities like Birmingham, where millennials are migrating to enjoy the low cost of living, helped too. “We’re going to open a marketing office in Birmingham for just that reason, to attract more skilled workers,” says David Heacock, CEO of FilterBuy, a Talladega, Alabama-based manufacturer and marketer of air filters. “There’s a lot more good going on in Alabama than the state gets credit for.”

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THE BIGGEST GAINS 1-YR CHANGE

Rhode Island

2018

2017

America’s smallest state jumped the most RHODE ISLAND 10 32 42 of any in the 2018 Best & Worst list because MICHIGAN 9 27 36 over the last three years, Democratic Gov. KANSAS 8 19 27 Gina Raimondo and the state’s legislature, NEW HAMPSHIRE 7 24 31 economic development and business commuWYOMING 6 18 24 COLORADO 5 8 13 nities finally decided enough was enough. SOUTH DAKOTA 5 16 21 The state eliminated or cut consumption, MONTANA 3 23 26 energy sales, unemployment insurance and MARYLAND 3 38 41 other taxes and maintained the region’s lowALABAMA 2 17 19 est corporate income tax. It also overhauled HAWAII 2 41 43 government pensions and has been heavily promoting the changes. CEOs noticed. “This has resulted in 22 companies landing Michigan streamlined its business-tax structure at or expanding in Rhode Island in the last two years and the beginning of the eight-year tenure of Gov. Rick Snymore than 30 real estate deals,” says Stefan Pryor, der, which ends this year. And the state continues on Rhode Island’s secretary of commerce. “Now there are that path, eliminating the personal property tax; launchconstruction cranes all over the place.” ing a platform to attract the largest investments, such Michigan as those it missed out on in Foxconn and Amazon’s Brembo North America is nearing the 1,000-job level at second headquarters; initiating a huge plan to recruit its brake manufacturing complex in western Michigan, and retain STEM workers; and passing legislation aimed and CEO Dan Sandberg says it’s because the state didn’t at making it easier to transform urban “brownfield” take the operation for granted. “We got incentives in the sites into new enterprises. beginning and lots of location support, from the power The results: 540,000 new private-sector jobs, an grid all the way to improving the roads next to our plant,” unemployment rate at about the national average and he says. “When you build a gray iron foundry in this day rising per capita income, says Jeff Mason, president and age, you need cooperation with the environmental and CEO of the Michigan Economic Development Corp. authorities and everyone else.” “It’s proven to be an effective strategy.”

an economic development consultancy in Fishers, Indiana. “They have a philosophy about how to approach the business climate and economic development. There’s more opportunity in the middle states for a change of leadership because those places tend to flip more philosophically, between parties or within parties.” The top states recognize how truly important it is to maintain the business-friendly cultures that helped them grow dynamically even during the slow-go years following the Great Recession. For example, “The fact that Indiana is generally a state ‘open for business’ is kind of accepted,” says Parker Beauchamp, CEO of INGUARD, an insurance and risk

38 / CHIEFEXECUTIVE.NET / MAY/JUNE 2018

THE TOP STATES RECOGNIZE HOW TRULY IMPORTANT IT IS TO MAINTAIN THE BUSINESSFRIENDLY CULTURES THAT HELPED THEM GROW.

management firm of about 50 people headquartered in Wabash, Indiana. “It’s been good enough for long enough that people just kind of know there’s no shenanigans, no running hot and cold. It’s a very solid, all-around state.” Texas has held the No. 1 spot for each of the 14 years since the inception of the Chief Executive survey. “Texas has no corporate or personal state tax,” enthuses Bill Hall, CEO of Ultravision International, a Dallas-based LED lighting manufacturer. “And Texas gives us very highly skilled workers because of the number of great colleges we have.” But, Avis-like, Florida and the Carolinas keep trying to knock Texas off the pinnacle.

AT THE BOTTOM Illinois

California

Excitement over Chicago’s being a potential finalist for Amazon’s “second headquarters” is only distracting attention from the state’s ongoing fiscal nightmare and unpopularity with most CEOs. And it doesn’t help that border states are increasingly poaching dissatisfied business owners and CEOs. Wisconsin just got a commitment from CEO and Founder Len Koren to move his Grayslake, Illinois, mold maker, International Mold and Production, north to the Badger State to supply the coming Foxconn complex. “I just shake my head at the burgeoning deficits and high taxes,” says Grant Thornton’s Michael McGuire, whose company is headquartered in Chicago. “You’ve got to run [Illinois] like a business and have a leader who will make tough calls.”

The Golden State has accounted for about 20 percent of the nation’s economic growth since 2010, significantly more than its share of the population or overall output. The state finally has a multi-billion-dollar budget surplus. Crises in both electricity generation and water supplies have abated. That doesn’t mean its reputation among CEOs has improved. While the state attracts an outsize portion of entreprenuers and VC financing, there are flies in the tanning lotion. High taxes, high costs and thickets of regulation remain turnoffs. The biggest problem is popping up at the grassroots level: Housing and other costs are so out of whack in the Bay Area (See “Where Talent Wants to Live,” p. 26) that it is losing skilled workers to other parts of the country.

Florida “is a very good place to do business, with relatively low regulations and relatively low cost of labor, a good university system and low cost of living with no income taxes,” says Jeff Vinik, the most prominent real estate investor in the Tampa Bay area. Michael McGuire says, “North Carolina has it right—it has a nice environment and climate and is business friendly, and while it doesn’t have a zero tax rate, property taxes are reasonable and so is the cost of living.” McGuire, CEO of Grant Thornton, adds, “Plus Charlotte and the Research Triangle are there.” Meanwhile, the high-tax, high-cost environments created by the bottom states also tend to be self-reinforcing. Mostly, those places are kept afloat economically by legacy advantages such as strong education and healthcare systems, as well as by the fact that in-demand, digitally skilled millennials enjoy living in their cities. But states like Massachusetts risk eroding even those advantages as the cost of living skyrockets in big cities and traffic and other annoyances mount. “There are so many businesses and so many people that it’s inflated the cost of everything,” complains Travis York, head of GYK Antler, a mid-market ad agency

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THE SITUATIONS OF BOTTOM FEEDERS COULD GET WORSE... BECAUSE OF A PARTICULAR EFFECT OF FEDERAL TAX REFORM ON HIGH-TAX STATES.

with offices in Massachusetts. “That’s made it hyper-competitive and, frankly, hard to get around.” The situations of bottom feeders could get worse before they get better, in part because of a particular effect of federal tax reform on high-tax states—like the basement dwellers. “The exit numbers of companies and owners are going to be higher,” McGuire says, “because people won’t be able to deduct as much in property and income taxes. They’re being taxed into oblivion.” Also, the coasts are losing some of their perceived edge in talent and lifestyle amid sharply higher costs of living—and facing steadily increasing digital capabilities in the heartland. “It’s getting to the point now where if you’re a digital marketing specialist, you can move to Nashville or Omaha and have three or four opportunities,” says David Hall, vice president for investments at Revolution LLC, a Washington, D.C.-based seed fund. “Before it was so scattered. You’re seeing the density of the tech and startup ecosystem build on itself and create great network effects within a region.” Great talent in less expensive locales? That’s good news for business—and great news for the nation.

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CAN YOU DO

VUCA? By Brigadier General George Forsythe (Ret), Daniel E. Rice and Karen Kuhla, Thayer Leader Development Group at West Point

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SIX TOP CORPORATE LEADERS CONFRONT AN AGE OF UNPRECEDENTED AND UNENDING DISRUPTION.

says Joe DePinto, CEO of 7-Eleven. “We are seeing all aspects of VUCA.” VUCA? Yes, VUCA. The acronym was coined by the U.S. Army in the 1990s to describe the post-Cold War world: volatile, uncertain, complex and ambiguous. The idea of VUCA has since been embraced by leaders in all sectors of society to describe the nature of the world in which they operate: the accelerating rate of change (volatility), the lack of predictability (uncertainty), the interconnectedness

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SCOTT RENYER / EYEEM / GETTY IMAGES

“

isruption is as great as we have ever seen it,”

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“In the end, the biggest thing you can try to shape is the culture in the organization.” of cause-and-effect forces (complexity) and the strong potential for misreads (ambiguity). “There is no question that we are in a VUCA environment,” says Bob Leduc, president of Pratt & Whitney, the $15.1 billion aircraft systems manufacturer. “When you think about our business, we’ve got a very complicated landscape. We have technology moving; we have commercial and military customers redefining what their business models are and what they value now versus what they previously did. So basically, the whole landscape is moving on us in many different directions. Because of that, we actually need to have an organization that

can move quickly.” So how do CEOs and their companies understand the challenges of a VUCA environment? We talked with DePinto, Leduc and four other top corporate leaders from a variety of industries to find out, including Mike Fucci, chairman of Deloitte; Margaret Keane, CEO of Synchrony Financial; Tony Guzzi, CEO of the construction services corporation EMCOR; and Bob Weidner, CEO of Metals Service Center Institute (MSCI), the trade group representing the industrial metals supply chain in North America.

Build a Responsive Culture Top of the to-do list for everyone we talked to is creating, shaping and transforming their organization’s culture to be more responsive. The executives spoke about the values of integrity, trust, empowerment, employee and leader development and learning as being essential in the new normal of VUCA. “In the end, the biggest thing you can try to shape is the culture in the organization,” says Guzzi. The executive’s role, says DePinto, is “getting the right culture, setting the right tone, demonstrating… that is the way we want to do things, but it’s picking the right folks

STRATEGY

A Constant Drumbeat

BOB LEDUC, President, Pratt & Whitney $15.1 billion (revs), 33,500 employees

“I view my most important responsibility to be setting the vision, longer-term mission and near-term objectives of the enterprise. I also need to set expectations about the company culture that’s needed to achieve our goals. It’s then the job of the broader leadership team to cascade these concepts through their organizations to ensure alignment from top to bottom. “And I make a point of reinforcing them constantly in large forums like global employee town hall meetings and

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executive conferences and in smaller settings like individual performance conversations. I ask my direct reports to tell me what, specifically, they are doing to advance the company’s mission and to foster our desired culture. I expect them to ask the same questions of their teams. “I really believe that it’s not enough to set these expectations once, then move on. A constant drumbeat is needed to maintain focus and is especially important during times of change or challenge.”

STRATEGY

Communicate and Share

JOE DEPINTO, CEO, 7-Eleven $84.5 billion (2015 revs), 31,500 employees

“We do a national video call with all of our field operators every two weeks. It’s about a two-hour call. There are probably 4,000 or so people on the call. They are all linked in. We zero in on a part of the strategy that we want to talk about. They all understand the overall strategy, but we constantly reinforce the importance of executing

and then allowing them the leeway… giving their folks room to run and room to grow.” Once corporate values are articulated and shared, the executives reinforce them through personal example and by ensuring they cascade throughout the organization. They also understand they need others to shape and reinforce the corporate culture. They use the values to guide hiring decisions and personnel development processes, and they ensure that all the organizational systems are aligned and synchronized to embody the culture. Among other values, Leduc stressed empowerment, integrity and employee development at all levels. He also recognized that he could not shape the culture alone. “I can certainly set the tone, but then I need these 225 executives to do that exact same thing. They need accurate senses to find it, they need to model it and they need to embrace and nourish it.” These CEOs did more than formally communicate the company’s values; they were present throughout the organization to encourage and reinforce the values. “You’ve got to be visible, particularly in a franchise business—franchisees have to know that the leadership is available,” says DePinto. “So we are very open, available and accessible.” At Pratt & Whitney, Leduc reinforced culture and values alignment through periodic conversations at all levels. “We have this

the strategy this way. We also share case studies of how others across the organization have been successful or have tried different ways to improve different parts of our strategy and have either been successful or failed. They actually get up there and teach their peers and go through their case study in a national forum.”

thing called performance connections,” he says. “It is different than a performance evaluation. We sit with our direct [reports] three times a year. It’s really, ‘How’s it going? What can I do to help you? Is there anything I can do to make this easier—more money, more capital, whatever it is?’ And also, my question is, ‘What are you doing to change the culture? What have you done in the last four months, since I saw you last, to change the culture?’”

Create a Learning Organization Second, the executives are transforming their companies into learning organizations. They are encouraging experimentation with new products, services and procedures. From corporate R&D “skunk works” to small-scale pilot projects to cross-functional project teams, they are investing in experiments with new ways of doing business within their markets. They are also creating conditions where the organization can learn from experience, making “work” the “curriculum” for improvement and innovation. Many employed after-action reviews on a routine basis, where work groups take stock of their collective performance following major events or tasks, looking at what worked, what went wrong and what needs to be improved. For example, to facilitate organizational learning, Fucci at Deloitte engages the firm’s partners in

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STRATEGY

Instill Peer Learning

TONY GUZZI, CEO, EMCOR $7.6 billion (revs), 33,000 employees

“We have a very extensive set of what I would describe as peer learning and job learning [programs]. We have peer groups around building information modeling. The CEOs have peer groups around different construction techniques. We have peer groups around safety. Then, we reinforce those peer groups all the time. Plus, we have a lot of communication that goes around those peer groups. When they get together, it’s usually around a learning event—and we’ve taken that down multiple

levels. So we have a superintendents’ peer group once a year for mechanical. We have a superintendents’ peer group for electrical. We have a superintendents’ peer group for service managers. We have a peer group around different kinds of estimating. Now, some will say, ‘Hey, we see this need,’ and we’ll start connecting to different people in the organization, and then we’ll develop a peer group around that. So, there’s an extensive group of peer learning that goes on here.”

conversations about specific events. Several innovations resulted from this process. Pratt & Whitney’s Leduc recently brought together his executive leadership team to review actions taken over the past nine months to implement culture change and align systems. He also recognizes that there will be times when things don’t go as planned, and it is important to learn from mistakes as well as successes. “I will tell you that in virtually every meeting we have now, we have a conversation around ‘what went well, what could we have done better and what have we learned from this?’” says Leduc. Tony Guzzi at EMCOR says the CEO’s reaction to failure can build trust and reinforce the company’s values. “When you’re at the top of an organization, bad news needs to travel relatively fast, right?” says Guzzi. “And really bad news has to travel exceptionally fast. The only way that really bad news will travel exceptionally fast is if you build a culture of trust—that when someone gives you that bad news and they’ve been a good performer and made good decisions—even if they haven’t—that you’re going to react appropriately. If they think you will immediately fly off the handle or that everybody around it goes into cover-up mode, then that’s not going to be a good outcome.”

Invest in Your People

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Finally, the executives are investing heavily in employee learning and leader development. They understand that organizational agility requires employees who have the knowledge, skills and personal attributes to operate within the corporate culture they are trying to establish. Employee training programs are planned and delivered to create a workforce that embodies the culture. Leader development efforts leverage stretch assignments and work experiences, which are supplemented with supportive coaching and mentoring to grow and expand the leadership bench of potential executives. “You cannot ignore the development of the employees, because they are the foundation of how things operate every day,” says Synchrony Financial’s Margaret Keane. “We have to make sure we are thinking through the skill sets of our employees to make sure they will be successful in their careers and that we have the right talent.” All the companies we studied have inhouse employee training programs. Deloitte, for example, takes pride in Deloitte University, which uses case studies in small-group settings to prepare professionals for the complexity and ambiguity inherent in their

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“You cannot ignore the development of the employees.…They are the foundation of how things operate every day.” business environment and to help clients solve their challenges. “When you walk through the doors, you see a different setting,” says Fucci. “After you check in, your mind switches to learning mode. It’s very collaborative, a lot of group settings and multimedia interactivity. Not a lot of presentations. Groups of 6 to 8 to 20 can get together and solve problems. We do a lot of case studies; we do a lot of hands-on kind of learning. It’s a very immersive experience.” Synchrony addresses development by moving people with real talent, leadership and capabilities to different functions. MS-

CI’s CEO, Bob Weidner, sees his organization’s role as offering training and education for client companies. He has established a graduate program—the Strategic Metals Management program (SMM) at Washington University in St. Louis, and he sponsors conferences on emerging trends in the metals industry. Pratt & Whitney has a comprehensive employee training program that includes leadership training for managers at all levels. In addition, stretch assignments and cross-functional rotational programs develop high-potential leaders for more senior positions. Leduc believes much of his company’s leadership development philosophy revolves around modeling and reinforcement of positive behaviors until they become ingrained in employees’ DNA.

Listen, Be Patient and Persevere At the end of the interviews, we asked the executives to reflect on how well their efforts are working. They mentioned that employee surveys and “voice of the customer” feedback provide indications for how internal and external stakeholders perceive change efforts. They also believe it’s important to be visible and available to employees—listening to employees at all

STRATEGY

Pull People Up

MARGARET KEANE, CEO of Synchrony Financial $13.5 billion (revs), 15,000 employees

Under Keane, Synchrony developed twoto-three-day academies for functions, such as credit, finance and technology. Keane also instituted a range of leader development programs. The company’s STEP Program prepares high potential, non-exempt individuals for management positions. “We have a lot of non-exempt employees, many in call centers, and the STEP Program is focused on helping them

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advance. This is a two-year rotational program using experiential learning and development to help them grow out of the non-exempt ranks into the exempt ranks and become managers of people; we’ve had real success with the program. The other positive is that there is a lot of diversity in our non-exempt staff, so we’ve been able to pull people up through the organization and increase diversity in our ranks.”

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STRATEGY

Consider the What-Ifs

MIKE FUCCI, Chairman of Deloitte $18.6 billion (U.S. revs), 84,000 U.S. employees

“I’d say the same things that are affecting our clients are affecting us, which is artificial intelligence, robotics, cognitive technology. Our clients are struggling with the question of how they incorporate these innovative technologies into their day-to-day operations. Therefore, if we’re going to consult with them, we need to be ahead of the curve and help them decide how they use this technology. The days when you got by using just the experience you had are gone. We have to anticipate things that aren’t even fully baked yet, but it’s mostly around technology. I call it the ‘everything is a what-if scenario.’ “[I]t’s almost a 180-degree difference [from when I joined the firm] as to what people need to be learning and how they learn. We don’t work in offices anymore. We have people in London on the phone with people in New York… people in South Carolina. The way we work is so different that training and learning [are different]. It’s more like an extension of college, as

opposed to a way to actually help you build skills that help clients solve problems. “When people enter different levels of their career, we do a lot of work with new senior managers and new partners; it’s helping them learn how to operate differently in those roles, and it’s not just what got you to where you are doesn’t work at the next level. It used to be that that technical experience was all you needed—you had a deep knowledge in something, and you brought that knowledge to clients. “We have to stay in front of disruption with our clients. As the chairman, one of the things that actually concerns me a lot is, how do we govern over disruption? It’s hard enough to manage over disruption. How do we govern over it? So, how do I build really nimble leaders to be able to address a little bit of the unknown? That’s why the VUCA analogy resonates with me, because it’s really more about building leadership than it is about building technical skills.”

levels share their stories and experiences with change. They employ “leadership by walking around.” The executives expect the changes to result in better performance of the business. Although they are anxious to see early results, they also understand that many of their efforts will need time to fully blossom. While they understand

the importance of patience, they are eager to celebrate early successes and anticipate making great progress. Perhaps this is the most important take away: Excellence in a VUCA environment takes time, requires strong leadership and agile, resilient team members dedicated to being learning leaders who persevere in the face of resistance and setbacks.

Brigadier General George Forsythe, PhD, Karen Kuhla, PhD, and Daniel Rice, MBA, are with the Thayer Leader Development Group at West Point, New York, based on the grounds of the United States Military Academy. Founded in 2010, TLDG’s mission is to help build leaders of character by offering leadership and ethics education grounded in the U.S. Army leadership philosophy of “Be, Know, Do” and the U.S. Military Academy values of “Duty, Honor, Country.” TLDG is a for-profit corporation not endorsed or affiliated with the U.S. Government.

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S OC I A L R E SP ON SI BI L I T Y

HOW TO DO

‘GOOD’ BY DALE BUSS

When it comes to successfully extolling your purpose or speaking out on politics, there’s a right way and a wrong way. A guide.

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ast year, John Schnatter and Rose Marcario both followed the C-Suite zeitgeist and spoke out on hot-button issues from their CEO perches. Schnatter, then CEO of Louisville-based Papa John’s, told investors in December that the National Football League was mishandling player protests of the national anthem. He blamed the league’s weakness for denting sales as its “official pizza sponsor.” At about the same time, Marcario, CEO of Patagonia, started leveling high-profile criticism at the Trump administration for downsizing two Utah national monuments, posting a withering message on the company website, “The

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SQUARED PIXELS/GETTY IMAGES

President Stole Your Land,” and filing suit with an environmental coalition against the actions. What happened next is as close to a controlled experiment in leadership as you can get, leading to two very different outcomes and plenty of lessons for those hoping to use their perch atop a company as a lectern. Dynamics across the business and social landscape are prompting more CEOs to act like Marcario and Schnatter and create expanded roles for their companies and, often, themselves. Call it “Goodism.” More than ever, consumers, customers, employees, investors and other constituencies are expecting and even demanding a corporate embrace of values supposedly more sublime than merely making sales and profits, and CEOs are emerging as the logical spear carriers. In recasting their brands and engaging vigorously in public dialogue, they are moving beyond mere market positioning and even comfortable “corporate social re-

sponsibility” accounting of environmental initiatives and donations to human services nonprofits. Look at how quickly the CEOs of major gun-selling brands, including Ed Stack of Dick’s Sporting Goods and Doug McMillon of Walmart, pivoted on the issue of increasing restrictions on gun sales in their stores in March after the mass shootings at the Parkland school in Florida galvanized public outcry about America’s approach to firearm regulation. Dick’s and Walmart alienated a huge swath of their clientele—Second Amendment-dedicated gun owners—but they felt compelled to flip on this hugely divisive issue. But as CEOs search feverishly for the right course, it’s worth keeping in mind that penalties for getting Goodism wrong can be extreme. In a survey conducted by our sister publication, Corporate Board Member, 26 percent of directors flat out opposed their CEOs taking public stances on controversial issues of the day, and 57 percent said the chief should consult the board before piping up. In the case of Schnatter, customers fired back on social media that pizza quality was to blame, not the NFL.

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Papa John’s sank into tepid same-store sales comparisons. In the wake of the public disaster, Schnatter stepped down as CEO of the company he founded and is now chairman. And to add insult to injury, given the chance to swap pies in February, the league took on Pizza Hut as its official pizza sponsor in place of Papa John’s. Schnatter declined an interview request, but Papa John Chief Marketing Officer Brandon Rhoten told Chief Executive that his old boss “doesn’t love it when he has to talk about and explain his politics, because he feels that might make people uncomfortable.” Schnatter, he says, believes that

“when [Apple CEO] Tim Cook and [Amazon CEO] Jeff Bezos say something, and they don’t have the same political views as John, it’s not twisted and turned by most media sources.” Over at Patagonia, the results were the complete inverse. Employees and customers cheered, sending letters of support to Congress for the company’s stand against the feds and expressing an outpouring of social media love for the nearly $1 billion, Ventura, California-based brand. “When is it a bad idea to stand up for what you value?” Marcario says. “I think some companies, mostly public companies,

BENIOFF’S BIG STICK a Heartland tech capital almost overnight. Indy now hosts Salesforce’s second-biggest concentration of workers, behind only San Francisco, and the company’s occupation of the former Chase Tower downtown has beckoned many other tech firms to the Indiana capital. But in 2015, Indiana’s state legislature passed a

KIMBERLY WHITE/GETTY IMAGES ENTERTAINMENT

If there’s one thing that’s tough to beat when it comes to successful CEO Goodism, it’s raw economic power. Case in point: Salesforce CEO Marc Benioff and Indiana. When the $10 billion revenue tech giant acquired Indianapolis-based online marketing firm ExactTarget five years ago, it transformed the city into

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law that allowed businesses to refuse service to gay and lesbian customers under religious freedom protection, and then-Governor Mike Pence signed it. Benioff wasn’t pleased. “Today we are canceling all programs requiring our customers and employees to travel to Indiana to face discrimination,” he tweeted. Within days, a group of heavy-hitter local CEOs, including then-chief John Lechleiter of Eli Lilly and Tom Linebarger of Cummins, were trying to reconcile the new law with their companies’ stances, a city “human rights” ordinance and Benioff’s concerns. “We were able to bring a certain pragmatism to the discussion about the law’s long-term impact on retention and attraction

of talent for key economic sectors,” says Michael Huber, president and CEO of the Indianapolis Chamber of Commerce, who headed a “war room” at his offices for a week as CEOs and others worked on a solution. The “fix” was to amend the law to explicitly protect sexual orientation and gender identity, and Pence and the legislature agreed to it. While Salesforce executives weren’t entirely satisfied, they love Indianapolis as the company’s effective second headquarters. “Indiana just really needed to indicate that it was going to be a state that fought for people’s rights and would be fair and just,” says Bob Stutz, CEO of the Salesforce Marketing Cloud operation in Indianapolis.

are too afraid to express what they know is right because they are worried more about their major shareholders and delivering on earnings per share. [But] there is a responsibility now to have moral courage and speak out when something is wrong. If you’re not doing that, I’m not sure why you’re in the game.” CEOs speaking out on issues is hardly new. The Business Roundtable, for instance, was born in 1970s as a platform for major company CEOs to take up issues facing the nation. But a conflation of societal trends over the last decade is luring more individual CEOs into taking more public stands. First, the corporate social responsibility movement morphed beyond “green” values into a more amoebic “sustainability” ethos, even as millennials, scarred by the Great Recession, became captivated by entrepreneurs launching “world-changing” companies that purported a purpose beyond mere capitalism. (For example, consider Snap’s mission statement, which reads in part,“We believe that reinventing the camera represents our greatest opportunity to improve the way people live and communicate.”) Second, the recent takeover of public discussion by social media—with their immediacy, ubiquity and global reach—has given CEOs both a new platform for expressing views and a virtual mandate to do so. Third, the elections and presidencies of Barack Obama and Donald Trump cast America’s political divisions into much higher relief, with a corresponding impact on consumer behavior. Some 78 percent of consumers who self-identify as liberal want brands to take stands on social and political issues, according to a recent survey by Sprout Social, while 52 percent of conservatives feel the same. As a result, Goodism isn’t just for outliers anymore. Most CEOs now either are participating in the trend or at least seriously considering whether they should.

Before you do, here are six guidelines: Start with authenticity: Successful public advocacy of social or political values

“THERE IS A RESPONSIBILITY NOW TO HAVE MORAL COURAGE AND SPEAK OUT WHEN SOMETHING IS WRONG.” requires the CEO’s stand to be closely tied to a company’s actual needs and outcomes. For example, when Facebook CEO Mark Zuckerberg and Chobani Founder Hamdi Ulukaya opposed President Trump’s attempts at a controversial immigration ban, their established history of hiring immigrants backstopped their comments and made them credible. Brands and market positions often provide the most obvious clues to whether a CEO’s stand will ring true. “It makes a lot of sense for [Coca-Cola] to project progressive, international sorts of values,” says Americus Reed, a marketing professor at The Wharton School, because it is “an international brand, openly supporting diversity.” Decide what purposes can work: That’s easiest if a company grows up with a stated purpose, such as Plum Organics, a childhood nutrition company co-founded by Neil Grimmer in 2007 and sold in 2013 to Campbell Soup for $249 million. “A purpose and a mission must be at the epicenter of your culture,” says Grimmer, who went on to found an individualized nutrition startup called Habit. “That’s different than saying, ‘Our purpose is XYZ’ and not having proof points. And people need to see evidence of their work delivering on your mission on a weekly basis.” Indeed, the more closely a CEO can tie transcendent corporate purposes to a company’s actual products, services and missions—and not necessarily to sublime cultural or social values—the better his or her chances of success will be. “IBM’s purpose is to put technology to use to transform businesses and make them

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“IN FINDING PURPOSE, YOU HAVE TO GET TO THE INTERSECTION BETWEEN WHAT THE WORLD NEEDS AND WHAT YOUR COMPANY CAN BE BEST AT.” thrive,” says Constantine Alexandrakis, head of the U.S. region for Russell Reynolds Associates. “That’s a purpose that millennials can get excited about, but it isn’t around social issues.” Prioritize crucial constituencies: CEOs may want to reach NGO leaders and politicians and even consumers with their appeals to purpose, but they ignore the most important audiences—including shareholders and directors—at their peril. “All CEOs should be unilaterally focused on their customers and their employees and the market they serve,” says Alexandrakis. Millennial employees also should loom large in this consideration. “You have to step back and say, ‘What values do we believe in that would resonate with the workforce we’re trying to hire?’” says John Grace, president of the BrandTaxi consultancy. Have a rein on social media: The C-Suite must make sure it has control of the marketing department—and especially trigger-fingered social-media staffers—when it comes to company statements and positioning on issues of the day. Keurig Green Mountain CEO Bob Gamgort learned that lesson the hard way in November after the company pulled ads from Fox News in the wake of a host’s defense of Republican Senate candidate Roy Moore of Alabama against allegations of sexual harassment. Irate consumers smashed Keurig coffee makers and put videos online. Gamgort apologized to employees, say-

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ing the decision to “pause” advertising was “highly unusual” and “outside company protocols. This gave the appearance of ‘taking sides’ in an emotionally charged debate that escalated on Twitter and beyond… which was not our intent.” Social media are hamstrung “by the inability to have thought-out, thoughtful conversations,” says Andrew Caravella, vice president of marketing at Sprout Social. “So CEOs have to be extra careful.” Beware me-tooism: Consumers may grow tired of the exercise if every brand feels obligated to make a political or social case. And each successive company that goes in this direction runs a bigger risk of encountering such resistance. No one is likely to mimic how Interface approached the notion of purpose. The $1 billion, Atlanta-based commercial carpet manufacturer has been pursuing purpose around environmental sustainability for almost 25 years. One of Founder Ray Anderson’s defining moves was to pioneer the procurement of used fishing nets from places as diverse as Cameroon and the Philippines as raw material for new nylon carpets, creating a huge and ecologically beneficial recycling loop that is central to Interface’s supply chain. “In finding purpose, you have to get to the intersection between what the world needs and what your company can be the very best at,” says Jay Gould, who became Interface’s CEO in 2017. “One-third of architects make decisions about purchases like carpet based on a company’s position on sustainability. So it’s actually central to our position in the market.” Get everything else right: Some research shows that CEOs who embrace standing up had better perform well in traditional metrics—or else. Examining the exits of Fortune 500 bosses over several years, a team led by University of Notre Dame Professor Tim Hubbard found that CEOs who heavily invested company resources in good corporate citizenry were 84 percent more likely to be fired amid sluggish financial results than CEOs at poorly performing companies

WHEN GOOD GOES BAD Goodism has gone awry for a number of high-profile CEOs, especially at public companies. Here are four of them:

Target’s Brian Cornell:

The board of Unilever has begun planning for the exit of a CEO who has struggled to pull the Anglo-Dutch consumer products giant out of a performance funk. Late2017 financial results ticked up, but Polman has staked his preferred legacy on improving the world far beyond the confines of Unilever. “My personal mission is to galvanize our company to be an effective force for good,” Polman writes, vaguely, on his LinkedIn page. Regarding shareholders, Polman has said, “I’m not just working for them. Slavery was abolished a long time ago.”

The chief of Minneapolis-based Target hadn’t pre-approved an April 2016 blog post welcoming transgender employees and shoppers to use restrooms and fitting rooms corresponding with their gender identities. However, he stood by the policy, dubbing it in keeping with the company’s history of “embracing diversity and inclusion.” Conservative Christians called for a boycott of Target. Within months, as many as 1.4 million former customers were staying away, prompting the chain to add single-sex bathrooms at a cost of $20 million. Early-2018 financial results have improved, however.

who spent less on do-good initiatives. “I didn’t expect to find the negative side of this when I started,” Hubbard says. “I’m a big fan of CSR. But the perception is changing that CSR is good for business. The research doesn’t support that.” On the other hand, according to Hubbard’s research published in Strategic Management Journal, at “high levels of

Lands’ End’s Federica Marchionni: When the ousted Lands’ End CEO first got the job in 2015, she insisted on being ensconced in New York City instead of at Lands’ End’s Dodgeville, Wisconsin, headquarters. Then, in early 2016, she authorized publication of an interview with Gloria Steinem in a spring catalog. A social media firestorm ensued among Lands’ End’s conservative customers. In response, Marchionni quickly cut the company’s connection to the iconic feminist leader—angering the liberal half of its clientele. Marchionni was gone by September 2016; Jerome Griffith took over as CEO March 6, 2017.

Chipotle’s Steve Ells: The troubles of the former Chipotle CEO stem in part from a failure in the Goodist conception of his brand. Chipotle’s Ells marketed its antibiotic-free meats and simple ingredients as a healthier anti-McDonald’s. “Industrial food,” Chipotle called the other stuff. But a simple breakdown in food safety led to the poisoning of dozens of customers in 2015, which brought samestore sales down by nearly 30 percent. By late 2017, Ells had stepped aside to the chairman’s job, and early this year the chain turned to one of those “industrial-food” guys—Taco Bell CEO Brian Niccol—as its new CEO.

financial performance,” boosting spending on Goodist initiatives can reduce a CEO’s chances of dismissal by 53 percent. “CEOs should be thinking about purpose that leads to profitability,” says Sara Roberts, executive director of purpose-led transformation for consulting firm EY. “Not rainbows and unicorns, but something that really creates longevity for their company.”

LEFT TO RIGHT: STEPHANIE KEITH, FREDERICK M. BROWN, DIMITRIOS KAMBOURIS, FERNANDO LEO, GETTY IMAGES

Unilever’s Paul Polman:

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

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B OOK E XC ER PT

THE WORLD IS

GETTING BETTER FACT: People on earth are richer, healthier and better educated than they were just a couple of generations ago. So why do we all think things are going to hell? Blame the negativity instinct.

By Hans Rosling with Ola Rosling and Anna Rosling Rรถnnlund

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Which statement do you agree with most? A: The world is getting better.

B: The world is getting worse.

“Things are getting worse” is the statement about the world that I hear more than any other. And it is absolutely true that there are many bad things in this world. The number of war fatalities has been falling since the Second World War, but with the Syrian War, the trend has reversed. Terrorism too is rising again. Overfishing and the deterioration of the seas are truly worrisome. The lists of dead areas in the world’s oceans and of endangered species are getting longer. Ice is melting. Sea levels will continue to rise by probably three feet over the next 100 years. There’s no doubt it’s because of all the greenhouse gases humans have pumped into the atmosphere, which won’t disperse for a long time, even if we stop adding more. The collapse of the U.S. housing market in 2007, which no regulators had predicted, was caused by widespread illusions of safety in abstract investments that hardly anyone understood. The system remains as complex now as it was then and a similar crisis could happen again. Maybe tomorrow. In order for this planet to have financial stability, peace and protected natural resources, there’s one thing we can’t do without, and that’s international collaboration, based on a shared and fact-based understanding of the world. The current lack of knowledge about the world is, therefore, the most concerning problem of all. I hear so many negative things all the time. Maybe you think, “Hans, you must just meet all the gloomiest people.” I decided to check. People in 30 countries were asked the question at the top of the chapter: Do you think the world is getting better, getting worse or staying about the same? The majority said they think the world is getting worse. No wonder we all feel so stressed.

C: The world is getting neither better nor worse.

Statistics as Therapy It is easy to be aware of all the bad things happening in the world. It’s harder to know about the good things: billions of improvements that are never reported. Don’t misunderstand me, I’m not talking about some trivial positive news to supposedly balance out the negative. I’m talking about fundamental improvements that are world-changing but are too slow, too fragmented or too small one-by-one to ever qualify as news. I’m talking about the secret, silent miracle of human progress. The basic facts about the world’s progress are so little known that I get invited to talk about them at conferences and corporate meetings all over the world. They sometimes call my lectures “inspirational,” and many people say they also have a comforting effect. That was never my intention. But it’s logical. What I show is mostly just official UN data. As long as people have a world view that is so much more negative than reality, pure statistics can make them feel more positive. It is comforting, as well as inspiring, to learn that the world is much better than you think. A new kind of happy pill, completely free online!

Adapted from Factfulness: Ten Reasons We’re Wrong About the World—And Why Things Are Better Than You Think, Copyright 2018 by Factfulness AB. Reprinted with the permission of Flatiron Press. All rights reserved.

Extreme Poverty Let’s start by looking at the trend for extreme poverty. Question: In the last 20 years, the proportion of the world population living in extreme poverty has… A: almost doubled B: remained more or less the same C: almost halved The correct answer is C: over the last 20 years, the proportion of people living in extreme poverty has almost halved. But in our online polls, in most countries, less

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than 10 percent knew this. In the year 1800, roughly 85 percent of humanity lived in extreme poverty, or what we call Level 1. All over the world, people simply did not have enough food. Most people went to bed hungry several times a year. Across Britain and its colonies, children had to work to eat, and the average child in the UK started work at age 10. One-fifth of the entire Swedish population, including many of my relatives, fled starvation to the U.S., and only 20 percent of them ever returned. When the harvest failed and your relatives, friends and neighbors starved to death, what did you do? You escaped. You migrated. If you could. Level 1 is where all of humanity started. It’s where the majority always lived, until 1966. Until then, extreme poverty was the rule, not the exception. The curve you see below shows how the extreme poverty rate has been falling since 1800. Look at the last 20 years. Extreme pov-

85% 1800

50% 1966

50% Share of humanity living in extreme poverty (on less than $2/day)

9% 2017

Dollars adjusted for inflation and price differences

0% 1800

1850

1900

1950

2000

AVERAGE LIFE EXPECTANCY FROM 1800 TO TODAY 70 60

World War II Famine

50 40

Spanish Flu

72 Years 2017

31 Years 1800

CHARTS BY DAVID LADA

30 20 10 0 1800

1850

1900

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1950

Life Expectancy Question: What is the life expectancy in the world today? A: 50 years B: 60 years C: 70 years

EXTREME POVERTY RATE FROM 1800 TO TODAY 100%

erty dropped faster than ever in world history. How old were you 20 years ago? Close your eyes for a second and remember your younger self. How much has your world changed? A lot? A little? Well, this is how much the world has changed: just 20 years ago, 29 percent of the world population lived in extreme poverty. Now that number is 9 percent. Today almost everybody has escaped hell. The original source of all human suffering is about to be eradicated. We should plan a party! A big party! And when I say “we,” I mean humanity! Instead, we are gloomy. On TV, we still see people in extreme poverty, and it seems that nothing has changed. Billions of people have escaped misery and become consumers and producers for the world market without the people in the world’s richest countries noticing.

2000

Showing all the causes of deaths and suffering in one number is nearly impossible. But the average life expectancy gets very close. Every child death, every premature death from man-made or natural disasters, every mother dying in childbirth and every elderly person’s prolonged life is reflected in this measure. Back in 1800, when Swedes starved to death and British children worked in coal mines, life expectancy was roughly 30 years everywhere in the world. That was what it had been throughout history. Among all babies who were ever born, roughly half died during their childhood. Most of the other half died between the ages of 50 and 70. So the average was around 30. It doesn’t mean most people lived to be 30. It’s just an average, and with averages we must always remember that there’s a spread. The average life expectancy across the world today is 70. Actually, it’s better than that: it’s 72. This is one of those questions where the better educated you are, the more ignorant you seem to be. In most countries where we

tested, members of the public just about beat chimps, who could be expected to guess correctly 33 percent of the time. But in our more highly educated audiences, the most popular answer was 60 years. That would have been correct if we had asked the question in 1973 (the year 200,000 people starved to death in Ethiopia). But we asked it in this decade, more than 40 years of progress later. People live on average 10 years longer now. We humans have always struggled hard to make our families survive, and finally we are succeeding. When I show this amazing graph, people often ask, “What is the most recent dip there?” and they point at 1960. If you don’t know already, this is a great opportunity for me to attack the misconception that the world is getting worse. There’s a dip in the global life expectancy curve in 1960 because 15 million to 40 million people—nobody knows the exact number—starved to death that year in China, in what was probably the world’s largest ever man-made famine. The Chinese harvest in 1960 was smaller than planned because of a bad season, combined with poor governmental advice about how to grow crops more effectively. The local governments didn’t want to show bad results, so they took all the food and sent it to the central government. There was no food left. One year later, the shocked inspectors were delivering eyewitness reports of cannibalism and dead bodies along roads. The government denied that its central planning had failed, and the catastrophe was kept secret by the Chinese government for 36 years. It wasn’t described in English to the outside world until 1996. (Think about it. Could any government keep the deaths of 15 million people a global secret today?) The misconception that the world is getting worse is very difficult to maintain when we put the present in its historical context. We shouldn’t diminish the tragedies of the droughts and famines happening right now. But knowledge of the tragedies of the past should help everyone realize how the world has become both much more transparent and much better at getting help to where it’s needed.

‘Billions of people have escaped misery and become consumers.’ More Improvements Is the world in your head still getting worse? Then get ready for a challenging data encounter. We have 16 more improvements to show you. For each, we could tell a similar story to those we told about extreme poverty and life expectancy. For many, we could show you that people are consistently more negative than the data says they should be. (And where we can’t, it’s because we haven’t asked these questions yet.) We can’t fit all these explanations into this excerpt, so just the charts appear on the next page, starting with eight terrible things that are on their way out, or have even already disappeared. Then, we look at eight wonderful things that have gotten better. It is hard to see any of this global progress by looking out your window. It is taking place beyond the horizon. But there are some clues you can tune into, if you pay close attention. Listen carefully. Can you hear a child practicing the guitar or the piano? That child has not drowned or died of starvation and is instead experiencing the joy and freedom of making music. The goal of higher income is not just bigger piles of money. The goal of longer lives is not just extra time. The ultimate goal is to have the freedom to do what we want. Me, I love the circus and playing computer games with my grandchildren and zapping through TV channels. Culture and freedom, the goals of development, can be hard to measure, but guitars per capita is a good proxy. And boy, has that improved. With beautiful statistics like these, how can anyone say the world is getting worse?

The Negativity Instinct In large part, it is because of our negativity instinct: our instinct to notice the bad more than the good. There are three things going

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8 GOOD THINGS

PROTECTED NATURE

WOMEN’S RIGHT TO VOTE

Share of Earth’s land surface protected as national parks and other reserves 14.7%

Countries with equal rights for women and men to vote (out of 194)

2016

193 2016

INCREASING

0.03% 1900

1 1893

1900

1950

2000

LITERACY

DEMOCRACY

Share of adults (15+) with basic skills to read and write

Share of humanity living in democracy

1900

2000

GIRLS IN SCHOOL 56% 2015

Share of girls of primary school age enrolled 90% 2015

86% 2016 10% 1800

1950

65% 1970 1% 1816

1800

1900

2000

1850

1900

1950

GUITARS PER CAPITA

INTERNET

Playable guitars per million people

Share of people using the internet

2000

1970

1980

1990

2000

2010

IMMUNIZATION 48% 2017

11,000 2014

Share of 1-year olds who got at least one vaccination 88% 2016 22% 1980

200 1962

0% 1980 1970

1980

1990

2000

2010

1980

1990

2000

2010

on here: the misremembering of the past; selective reporting by journalists and activists; and the feeling that as long as things are bad, it’s heartless to say they are getting better.

Warning: Objects in Your Memories Were Worse Than They Appear For centuries, older people have romanticized their youths and insisted that things ain’t what they used to be. Well, that’s true, but not in the way they mean it. Most things used to be worse, not better. But it is extremely easy for humans to forget how things really did “used to be.” Beyond living memory, for some reason we avoid reminding ourselves and our children about the miseries and brutalities of the past. The truth is to be found in ancient graveyards and burial sites, where archeologists have to get used to discovering that a large proportion of all the remains

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1980

1990

2000

2010

they dig up are those of children. Most will have been killed by starvation or disgusting diseases, but many child skeletons bear the marks of physical violence. Hunter-gatherer societies often had murder rates above 10 percent, and children were not spared. In today’s graveyards, child graves are rare.

Selective Reporting We are subjected to never-ending cascades of negative news from across the world: wars, famines, natural disasters, political mistakes, corruption, budget cuts, diseases, mass layoffs, acts of terror. Journalists who reported flights that didn’t crash or crops that didn’t fail would quickly lose their jobs. Stories about gradual improvements rarely make the front page, even when they occur on a dramatic scale and impact millions of people. And thanks to increasing press freedom and improving technology, we hear more

8 BAD THINGS

OIL SPILLS

CHILDREN DYING

1,000 tons oil spilled from tanker ships

Percent dying before their 5th birthday

636 1979

44% 1800

DECREASING

4% 2016

6 2016 1980

2000

1800

1900

2000

BATTLE DEATHS

PLANE CRASH DEATHS

CHILD LABOR

Battle deaths per 100,000 people

Deaths per 10 billion passenger miles (5-year averages)

Share of children aged 5-14 who work full time under bad conditions

201 1942

2,100 1929-33

28% 1950

1 2012-16

1 2016 1900

1950

10% 2012

1940

2000

1960

1980

2000

1960

1980

DEATH FROM DISASTER

OZONE DEPLETION

HUNGER

1,000 deaths/year (10-year average)

1,000 tons ozone-depleting substances

Share of people undernourished

1,663 1970

971 1930s

28% 1970

72 2010-16 1950

2000

11% 2015

22 2016 1970

about more disasters than ever before. When Europeans slaughtered indigenous peoples across America a few centuries ago, it didnâ&#x20AC;&#x2122;t make the news back in the Old World. When central planning resulted in mass famine in rural China, millions starved to death while the youngsters in Europe waving communist red flags knew nothing about it. When in the past whole species or ecosystems were destroyed, no one realized or even cared. Alongside all the other improvements, our surveillance of suffering has improved tremendously. This improved reporting is itself a sign of human progress, but it creates the impression of the exact opposite. At the same time, activists and lobbyists skillfully manage to make every dip in a trend appear to be the end of the world, even if the general trend is clearly improving, scaring us with alarmist exaggerations and prophecies. For example, in

1980

1990

2000

2010

1970

1980

1990

2000

2010

the U.S., the violent-crime rate has been on a downward trend since 1990. Just under 14.5 million crimes were reported in 1990. By 2016 that figure was well under 9.5 million. Each time something horrific or shocking happened, which was pretty much every year, a crisis was reported. The majority of people, the vast majority of the time, believe that violent crime is getting worse. No wonder we get an illusion of constant deterioration. The news constantly alerts us to bad events in the present. The doom-laden feeling that this creates in us is then intensified by our inability to remember the past; our historical knowledge is rosy and pink and we fail to remember that, one year ago, or 10 years ago, or 50 years ago, there was the same number of terrible events, probably more. This illusion of deterioration creates great stress for some people and makes other people lose hope. For no good reason.

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‘As a possibilist, I see all this progress, and it fills me with conviction.’ Feeling, Not Thinking There’s something else going on as well. What are people really thinking when they say the world is getting worse? My guess is they are not thinking. They are feeling. If you still feel uncomfortable agreeing that the world is getting better, even after I have shown you all this beautiful data, my guess is that it’s because you know that huge problems still remain. My guess is you feel that me saying that the world is getting better is like me telling you that everything is fine, or that you should look away from these problems and pretend they don’t exist, and that feels ridiculous and stressful. But it is just as ridiculous, and just as stressful, to look away from the progress that has been made. People often call me an optimist, because I show them the enormous progress they didn’t know about. That makes me angry. I’m not an optimist. That makes me sound naïve. I’m a very serious “possibilist.” That’s something I made up. It means someone who neither hopes without reason, nor fears without reason, someone who constantly resists the overdramatic worldview. As a possibilist, I see all this progress, and it fills me with conviction and hope that further progress is possible. This is not optimistic. It is having a clear and reasonable idea about how things are. It is having a worldview that is constructive and useful. When people wrongly believe that nothing is improving, they may conclude that nothing we have tried so far is working and lose confidence in measures that actually work. I meet many such people, who tell me they have lost all hope for humanity. Or, they may become radicals, supporting drastic measures that are counterproductive when, in fact, the methods we are already using to improve our world are working just fine. Take, for example, girls’ education.

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Educating girls has proven to be one of the world’s best-ever ideas. When women are educated, all kinds of wonderful things happen in societies. The workforce becomes diversified and able to make better decisions and solve more problems. Educated mothers decide to have fewer children and more children survive. More energy and time is invested in each child’s education. It’s a virtuous cycle of change. Poor parents who can’t afford to send all their children to school have often prioritized the boys. But since 1970 there has been fantastic progress. Across religions, cultures and continents, almost all parents can now afford to send all their children to school and are sending their daughters as well as their sons. Now the girls have almost caught up: 90 percent of girls of primary school age attend school. For boys, the figure is 92 percent. There’s almost no difference. There are still gender differences when it comes to education among the poorest people in the world, especially when it comes to secondary and higher education, but that’s no reason to deny the progress that has been made. I see no conflict between celebrating this progress and continuing to fight for more. I am a possibilist. And the progress we have made tells me it’s possible to get all girls in school, and all boys too, and that we should work hard to make it happen. It won’t happen by itself, and if we lose hope because of stupid misconceptions, it might not happen at all. The loss of hope is probably the most devastating consequence of the negativity instinct and the ignorance it causes.

How to Control the Negativity Instinct How can we help our brains to realize that things are getting better when everything is screaming at us that things are getting worse? on’t Censor History D When we hang on to a rose-tinted version of history, we deprive ourselves and our children of the truth. The evidence about the terrible past is scary, but it is a great resource. It can help us to appreciate what we have today and provide us with hope that future generations will, as previous genera-

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‘Think of the world as a premature baby in an incubator.’ tions did, get over the dips and continue the long-term trends toward peace, prosperity and solutions to our global problems. Expect Bad News Something else that helps to control the negativity instinct is to constantly expect bad news. Remember that the media and activists rely on drama to grab your attention. Remember that negative stories are more dramatic than neutral or positive ones. Remember how simple it is to construct a story of crisis from a temporary dip pulled out of its context of a long-term improvement. Remember that we live in a connected and transparent world where reporting about suffering is better than it has ever been before. When you hear about something terrible, calm yourself by asking, if there had been an equally large positive improvement, would I have heard about that? Even if there had been hundreds of larger improvements, would I have heard? Would I ever hear about children who don’t drown? Can I see a decrease in child drownings or in deaths from tuberculosis out my window, or on the news or in a charity’s publicity material? Keep in mind that the positive changes may be more common, but they don’t find you. You need to find them. (And if you look in the statistics, they are everywhere.) This reminder will give you the basic protection to allow you, and your children, to keep watching the news without being carried away into dystopia on a daily basis.

Bad and Better Still, the solution is not to just balance out all the negative news with more positive news. That would just risk creating a self-deceiving, comforting, misleading bias in the other direction. It would be as helpful as balancing too much sugar with too much salt. It would make things more exciting, but maybe even less healthy. A solution that works for me is to persuade myself to keep two thoughts in my head at the same time. It seems that when we hear someone say things are getting better, we think they are also saying “don’t worry, relax” or even “look away.” But when I say things are getting better, I am not saying those things at all. I am certainly not advocating looking away from the terrible problems in the world. I am saying that things can be both bad and better. Think of the world as a premature baby in an incubator. The baby’s health status is extremely bad and her breathing, heart rate and other important signs are tracked constantly so that changes for better or worse can quickly be seen. After a week, she is getting a lot better. On all the main measures, she is improving, but she still has to stay in the incubator because her health is still critical. Does it make sense to say that the infant’s situation is improving? Yes. Absolutely. Does it make sense to say it is bad? Yes, absolutely. Does saying “things are improving” imply that everything is fine, and we should all relax and not worry? No, not at all. Is it helpful to have to choose between bad and improving? Definitely not. It’s both. It’s both bad and better. Better and bad at the same time. That is how we must think about the current state of the world.

Hans Rosling was a medical doctor, professor of international health and renowned educator. He was an adviser to the World Health Organization and UNICEF, co-founded Médecins sans Frontières in Sweden and was one of Time Magazine’s 100 most influential people in the world. Hans died in 2017, having devoted the last years of his life to writing this book. Ola Rosling and Anna Rosling Rönnlund, Hans’s son and daughter-in-law, were co-founders of the Gapminder Foundation, and Ola its director from 2005 to 2007 and from 2010 to the present day. After Google acquired the bubble-chart tool called Trendalyzer, invented and designed by Anna and Ola, Ola became head of Google’s Public Data team and Anna the team’s senior user experience (UX) designer.

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Global high-speed Wi-Fi has come to business jets—and so have the tools to optimize bandwidth and make online access as seamless and simple as it is on the ground.

CONNECTIVITY TAKES WING FORGET AIRSPEED, RANGE AND rate of climb: Today the business jet performance metrics that matter most to executives are often the bandwidth, speed and coverage area of onboard connectivity equipment—specs that are rapidly increasing as a new generation of cabin connectivity solutions get airborne. “Twenty years ago, CEOs used to read on airplanes—that was quiet time,” says Curt Gray, senior director of connectivity support at Honeywell Aerospace, whose JetWave high-speed Ka-band satellite service debuted last year. “Now they’re always plugged in and connected. They want to walk on [the aircraft] and have a seamless transition, continue their phone call, check e-mail and have video running in the background wherever they are in the world.” Enhancing connectivity boosts efficiency, says David Stanley, senior director of strategy and business development, Information Management Services, for Rockwell Collins, a provider of hardware and services, who cites a team that used to fly from the U.S. to Europe at night to avoid being out of touch during the workday. After upgrading its service, the team started flying in the morning, allowing the executives “a full day of onboard productivity, and a good night’s rest before their meetings.”

You don’t need to travel internationally—or have a large cabin jet—to realize the benefits of boosting onboard connectivity. Initially, Tracy Forrest, CEO of Winter Park Construction, couldn’t see the ROI in upgrading the satcom service aboard the CJ3 he now flies. That’s partly because he pilots the aircraft himself, leaving little time to take advantage of standard cabin connectivity utilities. Still, potential productivity gains led him to install a Gogo Air-toGround (ATG) broadband system. Now his passengers “pretend they’re at their desks, getting as much work done as possible while en route.” Meanwhile, from the flight deck, Forrest uses online services and apps that enhance cockpit and flight operations.

Bringing high-speed broadband to business jets. BY JAMES WYNBRANDT

Seeking Solutions

A combination of equipment, software and network access plans from a variety of companies enable onboard connectivity. The satellite and ATG networks carry the digital traffic to and from the aircraft; onboard hardware and software, or apps, control data coming to, from and within the cabin; and service subscriptions provide network access. Satellite networks such as Inmarsat and Iridium typically cede sales of retail service to value-added resellers (VARs) like Honeywell, Rockwell Collins, Gogo Business Avia-

James Wynbrandt is a pilot and aviation expert and author of Flying High.

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tion and Viasat, all of which consumption costs and make their own connectivity slow down performance. equipment. These VARs Satcom Direct’s platform develop subscription-style transforms aircrafts into access plans with propri“data information nodes,” etary features and options. reporting information When looking for a soluon engines, position and tion, “First, ask what do you want to do aircraft systems. It has a predictive mapMore bandwidth with the aircraft, what problem do you ping feature that “can actually show any can solve a lot want to solve?” advises Gray. Some execs [connectivity] issues on the planned flight of issues, but need only basic e-mail access and light route,” says Chris Moore, Satcom Direct’s bandwidth is web-surfing capability. Others want to chief commercial officer. Flight crews can scarce in an stream movies, support video conferencinform passengers about expected shortaircraft using ing or even trade stocks while airborne. falls and, if necesssary, alter the route. a satellite Based on the needs, providers will deSimilarly, a partnership with the sign the best system and service plan. Weather Channel enables sensors on connection when The trend today is to have dual soluGogo’s systems to turn “each aircraft you have multiple tions: an ATG pipe for use in North into a mini weather station and provide users with America—the only continent where that information across the entire multiple devices. ATG service is available—and a satcom equipped fleet” to smooth travel for pipe for everywhere else. Though its speed advantage passengers, says Sergio Aguirre, president of Gogo. has largely disappeared with the new generation of KaAt a time of heightened concern about cybersecurity, band and Ku-band satellites, ATG access is less costly hacking is luckily less of an issue with onboard connecthan satcom service, making it attractive to U.S.-based tivity. Satellite links are carried by private networks, aircraft. But satcom service allows connectivity on the and companies typically have their own virtual private ground and in the air, while ATG is guaranteed to work network with security protocols built atop that foundaonly at altitudes of 10,000 feet. tion. In fact, executives “will go to the aircraft to make Often the solution is part of a cabin management phone calls to ensure they’re secure” when traveling system that also controls in-flight entertainment, envito underdeveloped parts of the world, says Gray. (The ronmental systems and can even manage multiple conbiggest threat, according to experts, is from authorized nectivity solutions, switching between a satellite and users ignoring security protocols.) ATG system based on signal strength, service charges Satcom Direct, which offers a cybersecurity moniand other configurable parameters. toring module, recently detected multiple unauthorized Each solution must also earn FAA approval, called attempts to access the email account of someone on a a supplemental type certificate (STC), for use on each customer’s jet and alerted the crew. “The customer’s model of aircraft. The process is complex and time laptop was fine, but a guest onboard had malware on a consuming, and many business jet models aren’t yet laptop,” says Moore. “We were able to capture that and approved for all or any of these installations, so the report it to the customer.” availability of an STC may dictate the solution adopted. Connecting to the Future Keeping the Pipes Clean

As with any high-tech gear, configuration and system management are key factors in optimizing connectivity. Solution providers place a premium on providing 24/7 service, proactively monitoring networks and usage to watch for service issues and unusual activity. “More bandwidth can solve a lot of issues, but bandwidth is scarce in an aircraft using a satellite connection when you’ve got multiple users with multiple devices,” says Stanley. Like those of other providers, Rockwell’s data-usage application blocks automatic app updates and other bandwidth-hogging functions that might boost data

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Experts see onboard connectivity trends accelerating. “If you’re a consumer, service will get better, speeds will get faster and costs will go down,” says Stanley. “I see more players and more competition—not just geosynchronous [satellite] constellations, but low-earth orbit constellations and even mid-earth orbit constellations, so there’s no lack for future connectivity technologies coming to market.” Says Moore, “In the future, all aircraft will become connected. It is the natural progression of technology, coupled with an overwhelming need for people to be connected all of the time.”

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‘LEADERS SHOULD BE WARM, TRANSPARENT AND SINCERE’ When driving a nationwide sales force, you get what you give. BY LARRY MONDRY

“Without sincerity and transparency, your team members will not only lose trust, they will lose faith.”

Larry Mondry is CEO of Stream, a provider of energy, wireless, protective and home services.

EVERY CEO IS DIFFERENT. We come from different upbringings, have unique personalities and our own individual career paths. These factors all contribute to the way we lead. When I was just 11 years old, I began working as a stock boy for only $1.60 an hour. My father, the only member in his family to survive the Holocaust, instilled the drive and desire to work hard. This need to do the things my family never had the chance to do pushed me to work hard at every stage and every age of my life. I had already served as CEO at several companies by the time I arrived at Stream. Each experience was different but provided invaluable lessons that allowed me to better understand that what is needed in a leader truly depends on his or her team. I was drawn to Stream for many reasons—one of them being the people. Not only do I lead our corporate team, but I also lead our team of over 52,000 independent associates. They live in cities across the country and come from all backgrounds—no one has the same story. However, they are all looking for the same thing: opportunity. With both our local team and our inde-

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pendent associates across the nation, my leadership philosophy is simple: leaders should be warm, transparent and sincere but ultimately results oriented, expecting accountability from their teams. This statement has been my compass over the past two years and continues to provide clarity on the leader I want to be for my company. It is my belief that people relate better to those they view as human. Without sincerity and transparency, your team members will not only lose trust, they will also lose faith. Just as your team gives you their all, you must give them yours. Always have a servant mentality. You get what you give in this world. It is my job to inspire everyone to do their jobs and do them well. Individual achievement is necessary to the overall success of any company, especially at Stream. Our incredible corporate team works daily to provide the best opportunities for our independent associates, and in return, those independent associates work tirelessly to build their businesses and better the company as a whole. When you have a team so willing to work, it makes you want to work harder for them. At Stream, we recognize the accomplishments of our team members on a regular basis. This commitment to our people and their growth shows we care about their success beyond the company. Nothing we do in the office, nothing we do in the field is possible without the combined efforts of all of us working toward the same goal.

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