November/December 2018 Chief Executive Magazine by Chief Executive Group

Talent Crisis Survival

What CEOs Really Earn

Rethinking Millennials

Outsider CEOs

NOVEMBER/DECEMBER 2018

VIETNAM VETERAN SNAP-ON CEO NICHOLAS PINCHUK

What We Learned How military service shaped the lives and leadership of five CEOs PLUS: VETERANS AND THE LABOR CRUNCH

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

Welcome to Ohio.

C ONTENT S

N OV E M B E R /D E C E M B E R 2018 No. 297

FEATURES SPECIAL REPORT COVER STORY 18 WHAT WE LEARNED The U.S. military trained them to lead. Five CEOs on the lessons they’ll never forget. By Dale Buss

28 HIRING AMERICA’S HEROES 18

They’re competent, disciplined and skilled. So why aren’t we making better use of the country’s robust pipeline of military talent—and what we can we do to fix the problem? Some ideas to get started. Plus: Announcing Chief Executive’s Patriots in Business Award Winners By Russ Banham

TRANSITIONS 38 WELCOME TO THE FAMILY Running a business that’s been led by relatives for generations isn’t for everyone. What you need to know. By C.J. Prince

MARKETING 44 RE-MEET THE MILLENNIALS As Gen-Y creeps up on middle age (Yikes! It’s true!), understanding their changing habits is critical for CEOs. Start by rethinking conventional wisdom. By Dale Buss 28

CEO TALENT SUMMIT AT WEST POINT 50 TALENT TAKES CHARGE In times of rampant disruption, building a high-performing, mission-driven culture may be your best shot at a sustainable competitive advantage. Here’s how. By Jennifer Pellet

CEO ROUNDTABLES 54 THE UNCONVENTIONAL

WORKFORCE Win the talent war with innovative approaches to finding and engaging workers. By C.J. Prince

57 CATALYZING CULTURE How companies leverage leadership purpose to engage, connect and align employees. By Jennifer Pellet 44 COVER PHOTO BY KEVIN HARNACK

C O NTE NT S EDITOR-IN-CHIEF

Dan Bigman

EDITOR-AT-LARGE

Jennifer Pellet

MANAGING EDITOR

Patrick Gorman DIGITAL EDITOR

Gabe Perna

PRODUCTION DIRECTOR

Rose Sullivan

DEPARTMENTS

CHIEF COPYEDITOR

Rebecca M. Cooper ART DIRECTORS

Carole Erger-Fass Gayle Erickson Alli Lankford

6 EDITOR’S NOTE Think You’ve Got Problems?

RESEARCH EDITOR

9 LEADERS

Melanie Nolen

9 Annual CEO Compensation Report Sorry, Bernie: The Truth About CEO Pay

CONTRIBUTING EDITORS

Russ Banham Dale Buss Daniel Fisher Craig Guillot C.J. Prince Laura Rich Jeffrey Sonnenfeld James Wynbrandt

12 Law Brief Court Campaigns 14 Exit Interview Staying Power 17 On Management When the Board Wants You Out

EDITOR EMERITUS

J.P. Donlon PUBLISHER

60 REGIONAL REPORT The Midwest Urban areas are carving out hubs in tech, life sciences and manufacturing. By Craig Guillot

68 PLANE ADVANTAGE How to Charter a Jet A DIY primer on getting airborne in a hurry. By James Wyndbrandt

Christopher J. Chalk 847-730-3662 | cchalk@chiefexecutive.net PUBLISHER, CORPORATE BOARD MEMBER/ DIRECTOR OF EVENTS, CHIEF EXECUTIVE GROUP

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

Phillip Wren 203-930-2708 | pwren@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

72 LAST WORD Reinvent Yourself

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

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

If you really want a culture of innovation, start thinking bigger—and include everyone. By Tom Kinisky

DIRECTOR, BUSINESS DEVELOPMENT

STATEMENT OF OWNERSHIP U.S. Postal Service Statement of Ownership, Management, and Circulation 1. Publication Title: Chief Executive. 2. Publication No. 431-710. 3. Filing Date: 9/28/18. 4. Issue Frequency: Bi-monthly. 5. No. of Issues Published Annually: 6. 6. Annual Subscription Price: $99.00 7. Complete Mailing Address of Known Office of Publication: 9 West Broad Street, Suite 430; Stamford, CT 06902. 8. Complete Mailing Address of Headquarters or General Business Office of Publisher: same. 9. Full Names and Complete Mailing Addresses of Publisher, Editorial Director, and Managing Editor: Christopher J. Chalk, (Publisher); Dan Bigman, (Editorial Director/Editorin-Chief); Patrick Gorman (Managing Editor); address same. 10. Owner: Chief Executive Group, LLC, 9 Broad West Broad St.-Suite 430; Stamford, CT 06902; Wayne Cooper, 10 Woodside Dr. Greenwich, CT 06830; Marshall Cooper, 35 Anderson Road, Greenwich, CT 06830 11. Known Bondholders, Mortgagees, and Other Security Holders Owning or Holding 1 Percent or More of Total Amount of Bonds, Mortgages, or Other Securities: None. 12. Not Applicable. 13. Publication Title: Chief Executive. 14. Issue Date for Circulation Data Below: July/Aug. 2018. 15. Extent and nature of Circulation: Requested Mail Subscription a. Total No. of Copies (Net Press Run): 45,475; 46,356. Paid and/or Requested Circulation: (1) Paid/Requested Outside-County Mail Subscriptions Stated on Form 3541 (Includes Advertisers’ Proof and Exchange Copies): 24,221; 22,992. (2) Paid In-County Subscriptions: None. (3) Sales Through Dealers and Carriers, Street Vendors, Counter Sales, and Other Non-USPS Paid Distribution: 0; 0 . (4) Other paid or requested distribution outside USPS: 0; 0 b. Total Paid and/or Requested Circulation [Sum of 15b(1), (2), (3), and (4)]: 24,221; 22,992. d. (1) Nonrequested Distribution (By Mail and Outside the Mail): 18,994; 20,010. (4). Free Distribution Outside the Mail (Carriers or Other Means): 0; 0. f. Total Distribution (Sum of 15c and 15e): 43,215; 43,002. g. Copies Not Distributed: 2,259; 3,354. h. Total Distribution (Sum of 15f and 15g): 45,474; 46,356. i. Percent Paid and/or Requested Circulation (15c/15fx100): 56.04%; 53.46%.

Gabriella Kallay 203-930-2918 | gkallay@chiefexecutive.net DIRECTOR, BUSINESS DEVELOPMENT

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

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

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

CHIEF EXECUTIVE GROUP EXECUTIVE CHAIRMAN

Wayne Cooper

CHIEF EXECUTIVE OFFICER

Marshall Cooper

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 297 November/December 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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CHIEF CONTENT OFFICER

Dan Bigman

MANAGING DIRECTOR

Scott Budd

MARKETING DIRECTOR

Debra Menter

VICE PRESIDENT, HUMAN RESOURCES

Melanie Haniph CONTROLLER

Steve Hallem

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CH I EF E XECUT IV E RE SE A RCH

AD INDEX ASSOCIATED AIRCRAFT GROUP flyaag.com 67

CEO CONFIDENCE LOSING STEAM?

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

EDITORS NOTE: BEGINNING WITH THIS ISSUE, we’re pleased to publish insights from the Chief Executive Group’s proprietary CEO Confidence Index, a widely-followed monthly poll of more than 200 U.S. CEOs that’s proven to be (no surprise) highly correlated to future economic events. We’ll also share data from our Chief Executive Network, a nationwide membership organization that helps chief executives improve their effectiveness and gain competitive advantage. (For more information, visit ChiefExecutiveNetwork.com). Taken together, these two sources offer an unparallelled look inside the thinking of your peers across the nation. We hope you’ll find it useful. CEO CONFIDENCE LEVEL IN BUSINESS CONDITIONS ONE YEAR FROM NOW 7.62

7.29 7.19

7.16

7.07

7.14

7.11

7.02

7.05

6.85

Oct.

DELOITTE R.E. AND LOCATION SERVICES Deloitte.com/us/locationstrategy 13 DETROIT REGION AEROTROPOLIS DEVELOPMENT CORPORATION DetroitAero.org 65 DISRUPTIVE TECH SEMINAR boardmember.com/disruptivetech 49

HONDA JET HondaJetElite.com 7 IRONNET CYBERSECURITY ironnetcyber.com 33

6.75 Sept. ‘17

CHIEF EXECUTIVE NETWORK ChiefExecutiveNetwork.com 71

HARVARD BUSINESS SCHOOL EXED.HBS.EDU 3

7.42

7.17

CEO AND SENIOR EXECUTIVE COMPENSATION REPORT FOR PRIVATE COMPANIES ChiefExecutive.net/compreport 36, 37

EY EY.com 27

(12-month trailing, as of October 2018)

7.56

BACK TO HUMAN danschawbel.com/back-to-human/ 69

Nov.

Dec.

Jan. ’18

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

CEOs’ outlook for business conditions over the next 12 months, rated on a one-to-10 scale.

Highlights from Our Research • Preliminary data from the October CEO Confidence Index reveals sliding confidence in both the current and future business environment. • CEOs ranked the current environment 7.46 out of 10, down from September. Confidence in business conditions one year from now has decreased 7.5 percent since its January high, clocking in at 7.05 out of 10 in October. • Nevertheless, the confidence level remains “very good.” CEOs we polled expect their company’s revenues to increase an average 81 percent and profits 74 percent over the next 12 months.

Top CEN Discussion Topics During the Last 90 Days Over the last three months, CEOs in the healthcare, architecture, engineering and construction industries chose these topics for discussion most often: • Strategic planning/future growth of the firm (by far the biggest area of focus) • Fostering leadership at all levels of the organization • Defining and implementing competitive differentiation • Creating a focused workforce in the “Age of Distraction” • Motivating and inspiring millennials • Attracting and retaining good technical talent

JOBS OHIO ECONOMIC DEVELOPMENT JobsOhio.com Inside front cover MICHIGAN ECONOMIC DEVELOPMENT CORP. michiganbusiness.org/pure-production 63 NATIONAL SHOOTING SPORTS FOUNDATION nssf.org 23 PNC FINANCIAL SERVICES GROUP, INC. pnc.com 16 PURE INSURANCE pureinsurance.com 5 RECRUITER.COM recruiter.com 43 RHR INTERNATIONAL rhrinternational.com 8 RHODE ISLAND COMMERCE CORPORATION WhereAreYou.us 11 SMART MANUFACTURING SUMMIT ChiefExecutive.net/SMS 53 STRATEGIC LOGISTICS SUMMIT ChiefExecutive.net/strategiclogistics Inside back cover TATA CONSULTANCY SERVICES info.tcs.com/bts-home.html 15 TRUE OFFICE LEARNING trueoffice.com 35 THE UNIVERSITY OF ALABAMA ua.edu 25

4 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2018

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

THINK YOU’VE GOT PROBLEMS? IF YOU’RE LEADING THROUGH COMPLEX TIMES, you could do a lot worse than studying Lincoln, Teddy Roosevelt, FDR and LBJ. That’s exactly what presidential historian Doris Kearns Goodwin did for her new book Leadership: In Turbulent Times. Here are some takeaways from a recent conversation we had, edited for length and clarity: Empathy. “Teddy Roosevelt specifically said when he went into public life he wasn’t going in to make life better for other people. But then... through his broad experiences by going to tenement houses and being police commissioner, he developed what he called empathy or fellow feeling and decided that he wanted to do something larger with his ambition than simply have an adventure for himself.” Doris Kearns Goodwin

Team Builders. “They all shared the ability to build a team filled with strong-minded individuals who could argue with them. Then they were able to lead that team toward common goals, most dramatically illustrated by Lincoln bringing in a team of rivals who were more educated, more celebrated than he, but knowing that he needed them in order to enjoy their experience and bring them to the common mission of winning that war.” Tempering Temper. “All of them have moments of anger or frustration. They found ways to vent that frustration. In Lincoln’s case, he wrote these famously hot letters to people when he’d get angry with them and then put them aside and never need to change because he would then cool down psychologically.” Finding Ways to Decompress. “Lincoln went to the theater more than 100 times during the Civil War. He said that if he couldn’t go, somehow the anxieties would be so great they would kill him. Teddy Roosevelt took exercise two hours every afternoon in the White House. FDR had a cocktail party in the White House every night, where he refused to let anybody talk about the war. “Only LBJ was unable to unwind, and I think that was part of the problem. I remember swimming with him at the ranch after the White House years when I was helping him on his memoirs... he had floating rafts with floating notepads, and the floating telephone so that you could work at every moment.” Getting Through the Night. “A CEO I was talking to asked how presidents get through their anxiety... I told him FDR was the kind of person who just believed that, ‘As long as I’ve made a decision, as tough as it is, with the best information possible, in the time period I had, I’m just going to roll over and go to sleep.’ “Lincoln would stay up all night writing a memo about some decision that may not have gone well, and figure it out what he had done wrong so that it wouldn’t happen again. FDR imagined himself a young boy again at Hyde Park in a sled on the back of this hill, going down on the sled and coming up over and over again. like counting sleds instead of sheep. “So I asked the CEO, ‘How do you fall asleep at night when things are tough?’ And he said, ‘I take an Ambien.’” —Dan Bigman, Editor

6 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2018

2019 SELECTION COMMITTEE DAN GLASER President and Chief Executive, Marsh & McLennan

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

MARILLYN HEWSON Chairman and CEO, Lockheed Martin 2018 CEO of the Year

TAMARA LUNDGREN President and Chief Executive, Schnitzer Steel Industries

ROBERT NARDELLI Chief Executive, XLR-8

THOMAS J. QUINLAN III Chairman, President and Chief Executive, LSC Communications

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

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

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

CONTACT US Corporate Office Chief Executive Group LLC 9 West Broad Street, Suite 430 Stamford, CT 06902 Phone: 203.930.2700 Fax: 203.930.2701 ChiefExecutive.net Letters to the Editor letters@ChiefExecutive.net Advertising, Custom Publishing, Events, Roundtables & Conferences Phone: 847.730.3662 Fax: 847.730.3666 advertising@ChiefExecutive.net Reprints Phone: 203.889.4974 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: THE LIFE CYCLE OF THE CEO PHASE ONE: PREPARATION BY DEBORAH RUBIN, SENIOR PARTNER, PRACTICE LEADER CO-HEAD, BOARD & CEO SERVICES, RHR This is the second in a series addressing the imperatives and challenges CEOs face through the entire spectrum of the role—from preparation for the job to exit. TO MAXIMIZE THEIR VIABILITY AS CEO CANDIDATES, executives in the succession pipeline must move through various roles, not only to acquire the necessary skills, knowledge and experience, but also to demonstrate a track record of success. They need to cultivate a deep and accurate appreciation of their strengths, weaknesses and tendencies under pressure, as well as insight about their motivations and impact as leaders. Boards and incumbent CEOs have a major role in ensuring that there is a thorough assessment of potential successors and proactive, focused development of pipeline candidates. What must you prepare potential successors to do? There are eight core responsibilities that span across most CEO positions: • Set and communicate the vision and strategic direction • Drive execution of the strategic plan, including managing the organization’s financial and physical resources • Evolve and lead the organization’s culture and values, ensuring they are aligned with the strategic direction • Manage the talent resources of the organization, including selecting and developing the senior leadership team • Manage key relationships and represent the company to community, media, industry, customers, analysts and investors • Align with, leverage and potentially manage the board (depending on role on board) • Monitor and mitigate risks (e.g., regulatory compliance, debt obligations, competitive and vendor/customer risks) • Model integrity, resilience and a strong moral core Key Experiences Preparation for the top role becomes more intense within eight to ten years of the transition, when specific job assignments become paramount. To capture the learning from complex roles, executives need time to see the impact of their decisions, ideally three years. Less time will still provide exposure but short circuits the longer feedback loop required for learning and integrating the experience, creating a less-solid foundation. Important experiences include: running a P&L, leading a turnaround, running an international unit while living abroad, serving as a group head, serving on a public company board. Knowledge/Skills Most pipeline candidates will need to increase their knowledge and skills for the next role. Key areas to consider are the following: • Financial savvy: Candidates must have a solid understanding of how the company makes money, with an ability to map the key business drivers and what aspects impact how the company is valued.

MOST COMMON NON-CEO JOB TITLES PRIOR TO BECOMING CEO 34%

Chief Operating Officer

23%

Executive Vice President

19%

President of Company

10% Chief Financial Officer 7%

President, Subsidiary or Division

Founder

Source: CEO1000 available data, excludes CEO as prior title. Based on total occurrences of title, internal previous positions only.

• Robust and broad external network: Develop a well-honed external radar to recognize early trends, best practices or technological advances and their implications for the company. • Ability to “see the whole”: Most executives have deep experience in one part of the organization; can they avoid overly weighting or focusing on the familiar at the expense of new terrain? Self-Insight and Development Now is the time to ensure your potential successors fine-tune their personal energy management and resilience, addressing any areas that may limit their ability to sustain peak performance mentally, physically and emotionally. They need to articulate what they stand for, as it is virtually guaranteed to be tested at some point in the new role. In their personal life, successors need to ensure their significant other is on board with the implications of the CEO role. How will they make their family lives work? Finally, they must cultivate a balance of confidence and humility through ongoing development. They need to know their strengths and limitations and seek feedback about their impact as leaders. To prepare successors well requires ongoing investment of time, energy and regular follow-up on progress, along with course corrections. You also need to provide opportunities for your board to get to know your pipeline candidates through formal and informal interactions. After all, the directors will ultimately have to decide if they want to select an insider to succeed you. It takes a secure CEO to fully engage in the critical task of preparing potential successors. The next article will focus on the second phase: Transition.

• Strategic skills: How adept are they at developing strategy and driving strategic choices? • Engagement of external constituents: They will need multiple opportunities to speak to and engage with analysts and investors, regulators, key customers and suppliers.

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

LE ADERS

SORRY, BERNIE

Our annual study of CEO pay uncovers an inconvenient truth: Most CEOs get paid a lot less than people think. BY WAYNE COOPER REALITY CHECK Total 2017 CEO Compensation in Private U.S. Companies

PERKS BENEFITS EQUITY GAINS NEW EQUITY BONUS BASE SALARY

10th Percentile $126K TOTAL

25th Percentile $203.9K TOTAL

IS IT ANY WONDER BUSINESS has a black eye? “Want to Make Money Like a CEO? Work for 275 Years,” blared The New York Times earlier this year. “The Average CEO Makes as Much Money in One Day as the Typical Worker Earns in a Full Year,” bellowed Money (citing AFL-CIO data). The Wall Street Journal’s tone was more measured (“How Much Do CEOs Make?”), but the story was as flawed as the rest. The problem, of course, is that they’re all based on data for the CEOs of America’s largest public companies. Of the roughly 30 million businesses in the United States, fewer than 6,000 are publicly traded and only the largest 8 percent of these public companies make it into the S&P 500. Yet most media outlets repeat the $12.1 million median annual pay package statistic for CEOs of S&P 500 companies in 2017,

Median $350.6K TOTAL

75th Percentile $790K TOTAL

leading the public to mistakenly assume that this 0.002 percent of companies is representative of all CEOs. Look at data for all U.S. CEOs—as we do each year—and you get a different story. Chief Executive Research surveyed 1,631 companies in April through June of 2018 about their 2017 fiscal year compensation levels and practices, as well as their current and expected compensation levels for senior executives for the remainder of 2018. (Detailed data from this survey is analyzed and presented in our annual CEO & Senior Executive Compensation Report for Private Companies. More infomation below.) The median private company CEO total compensation package for 2017? $350,622. For the record, that’s just 6.7 times the median income for all U.S. workers, not 275 times. Sorry, Bernie.

90th Percentile $2.22M TOTAL Median CEO pay in 2017 was $350,622 according to our annual CEO & Senior Executive Compensation Report for Private Companies.

NOVEMBER/DECEMBER 2018 / CHIEFEXECUTIVE.NET

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50K

225K

LE AD ER S

GAINS AT THE TOP Change in CEO salaries and bonuses 2017 vs. Prior Year

SALARY BONUS

0% 25th Percentile

3.25%

Median

5.5%

75th Percentile

PE PAYS Median CEO 2017 Compensation by Ownership Type PERKS BENEFITS EQUITY GAINS NEW EQUITY

CEOs. That differential, however, reflects a premium for the shorter tenure PE CEOs face—58 percent are gone within two years. While the gaps between the compensation packages at different ownership types are significant, some of this difference is also attributable to average company size by ownership type. Among companies with more than $100 million in revenues, CEOs running sole proprietorships earn only 3.5 percent less than their private equity-owned counterparts. A similar situation occurs with CEOs of venture capital-backed companies with revenues between $10 million and $99.9 million—the median CEO of a venture capital backed company earned 90.8 percent of the median CEO running a PE-backed company in this size range.

BONUS BASE SALARY

Silent Majority

$284K TOTAL

$312K TOTAL

$357K TOTAL

$370K TOTAL

$533K TOTAL

Sole Proprietorship

Partnership

Family Owned

Employee Owned

Venture Capital Owned

Private Equity Owned

Mind The Gap

Of course, not every CEO is paid the median. Private company CEO compensation is highly correlated with the size of the company. The 2017 median total compensation package for CEOs of companies with revenues of $1 billion-plus was more than five times that of CEOs whose companies generate between $100 and $250 million in revenues. The median CEO running a company with between $10 million and $25 million in revenues earned 52.9 percent of the total compensation of the median CEO of a company with revenues of $100 million to $250 million. Ownership structure, as you’d expect, is the other huge factor in compensation. CEOs of private equity-owned companies had the highest total pay packages overall, with a median compensation package 87.7 percent higher than that of sole proprietor

10 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2018

Across all CEOs in our survey, median 2017 cash compensation (base salary and bonus) was $321,022—91.6 percent of the total compensation package—and the “at risk” portion (i.e., bonuses and incentives) was $71,022 or 28.4 percent of their base salary. For this year’s median survey participant, this represented no increase in either their salary or bonus vs. the prior year. Meanwhile, top-quartile CEOs enjoyed increases in both their base salaries and bonuses—3.25 percent and 5.50 percent respectively. The vast majority of CEOs in the study did not record any equity appreciation over the past year, nor did they receive any new in-the-money options or equity grants. Median base salaries in 2018 were flat with the prior year overall, but median bonuses are expected to increase to $90,000, for an overall cash compensation increase of 5.9 percent. Not bad. But not Bezos, either. Detailed information on salaries, bonuses, equity grants, benefits, perks, as well as how these elements vary by company size, industry, ownership type, geographic region and other variables is available in the full 2018-2019 CEO & Senior Executive Compensation Report for Private Companies: CompReport.ChiefExecutive.net.

LE AD ER S LAW BRIEF \ DANIEL FISHER

COURT CAMPAIGNS

Talc lawsuits show the role plaintiff’s ads can play in creating a mass tort fiasco.

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

A STRANGE THING HAPPENED in the St. Louis television market in early 2016. Days after a jury there delivered a $72 million verdict against Johnson & Johnson over the company’s ubiquitous Johnson’s Baby Powder, TV viewers were deluged with ads associating talcum powder with cancer. There’s nothing new about lawyers advertising for clients on TV. Lawyers of all types spent $472 million in the first half of 2018 on more than 6 million ads, according to X Ante, a firm that analyzes mass tort advertising spending. Current targets include Xarelto, a heart drug that has spawned more than 300,000 attorney ads since 2015, and Invokana, a diabetes drug. But lawyers usually run ads to get new clients. The talcum powder ads in St. Louis seemed to have a different purpose. Instead of urging viewers to call the law firm that paid for them, the ads described in large type the monumental verdict the plaintiff had just won. And although St. Louis is the 21st largest media market in the U.S., more talcum powder ads ran there than in any other market through the year ended June 30, 2016, according to a report J&J commissioned in an unsuccessful effort to move the talc trials elsewhere. “These ads come out basically saying, ‘Here are the facts,’ then they cite what other juries have done,” said John Beisner, the head of mass torts litigation at Skadden Arps, who includes J&J among his clients. “I think the hope of those who designed the ads is to get jurors to think, ‘What is there

12 / CHIEFEXECUTIVE.NET / NOVEMBER/DECEMBER 2018

to talk about? We know what the answer is because we’ve seen it on TV.’” So far, Johnson & Johnson is fighting the verdicts over talcum powder, including a whopping $4.6 billion a St. Louis jury awarded 22 plaintiffs and their families in July. The company says the fundamental premise of the lawsuits—that talcum powder contains cancer-causing asbestos—is false. But with more than 10,000 lawsuits against it and TV ads running nationwide, it’s not inconceivable J&J could surrender to the pressure of ceaseless litigation and pull another widely used product off the market. Just type the word “Essure” into a search engine to see how this can happen. The top of the search screen is filled with paid advertising by lawyers warning women against using this FDA-approved birth control device and urging them to sue if they did. Rather than keep fighting, Bayer decided to pull the device off the market by the end of this year. Now the juggernaut of advertising and litigation is steaming toward glyphosate, the herbicide Monsanto sells under the brand name Roundup. Encouraged by a $289 million jury verdict for a man who blamed his cancer on Roundup, Monsanto faces more than 8,000 lawsuits and a barrage of television ads warning “farmworkers, landscapers and homeowners” that Roundup may have given them cancer, too. Plaintiff lawyers love advertising—and they’re backed up by a landmark 1977 U.S. Supreme Court decision that struck down bans on attorney ads. But they’re not so enthusiastic about corporate defendants trying to get a counternarrative out. They routinely seek judicial orders to halt even product advertising during trials, Beisner said. “Plaintiff counsel are very aggressive about anything a company may be saying to the market,” he said. “It’s really an effort to press for a double standard.”

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War for Talent on a Local Level– The Case for Collaboration THE TERM “WAR FOR TALENT” is one that is used broadflowing into an industry via the refinement of educational ly and loosely by CEOs and business leaders across curricula, from high school, through technical school industries, and an ever-expanding set of geograand on into university programming. Leveraging CEOs should phies. Unemployment rates across the U.S. are the weight of the business community to not mandate their local now at 3.7%* and most established economies only help shape the education system but drive are experiencing talent shortages.** Rare are interest in a specific sector or employment secbusiness leaders to the opportunities to pioneer new locations, shape the local talent tor can serve to open the recruitment aperture recruit ready-to-work employees, or teach by encouraging more individuals to enter the pipeline to meet large, untapped workforces how to produce industry. their needs. and transport goods, service customers, develop The ability to be an influencer in the talent market products, or efficiently manage a company’s back is not driven purely by a company’s pay and benefits and middle office. For many, the fundamental quespolicy; rather, it is the broader industry’s ability to aggretion for CEOs as they fashion and refine their global footgate and communicate its talent needs to those responsible for its print has shifted from “Where is next?” to “How do we successfully development that enables agenda-setting leadership. Questions cohabit with incumbents?” that CEOs should challenge their critical site leaders to answer: The War for Talent implies that the front lines of talent sourcing 1. What talent strategies are working or have failed incumbents are battlegrounds where there can be only limited victors. The or new entrants in the past? How are we responding? truth from the field suggests otherwise. Most communities 2. Are we leveraging local industry expertise, or are we operatdemonstrating highly successful (measured in terms of inward ing in a vacuum? investment) and competitive talent environments are characterized by an acceptance that a rising tide lifts all boats. A mutually 3. Is the local industry community leveraging scale of demand supportive, communicative business community typically results to influence the talent pipeline? in success for the majority of incumbent employers, rather than a 4. Is the business community sufficiently engaged in influencbinary environment characterized by “winners and losers.” ing the education system with an eye to producing enough of tomorrow’s talent? Deloitte has observed that many successful locations and their business communities share information and resources. In such locations, new entrants are viewed, within reason, as an opportunity to improve the quality of the local workforce, rather than a potentially predatory presence. One red flag commonly observed when conducting field evaluation in unhealthy talent markets, is the unwillingness of incumbent employers in a prospect community to share experiences and perspectives on operating environment. This suggests an operating environment beset by unhealthy suspicion, defensive posturing, and lack of communication. A pay and benefits war, exacerbated by lack of information and community, may offer short term benefits to both employers and employees, but risks making a location unsustainable, and in danger of closure. Experience suggests that CEOs should mandate their local business leaders proactively seek to shape the local talent pipeline to meet their needs. They could help influence state and local authorities who, in turn, can influence the pipeline of talent

CEOs should encourage their local leadership to materially engage at the local level with other business leaders, both existing and prospective, and state and local authorities alike. The ultimate goal can be achieved by leveraging scale, common goals and shared expertise to develop solutions for today’s and tomorrow’s talent challenges. In the war for talent, being on an island is not the place to be. Matt Highfield (mahighfield@deloitte.com) is a managing director at Deloitte Consulting LLP and leads the firm’s Location Strategy practice. *Bureau of Labor Statistics –September 2018) **Manpower 2018 Global Talent Shortage Survey -https://go.manpowergroup.com/ talent-shortage-2018#shortagebycountry) As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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

LE AD ER S EXIT INTERVIEW \ LAURA RICH

STAYING POWER

Well+Good co-founder Alexia Brue on selling and staying.

HARD TO IMAGINE AS IT IS, just a decade ago, supermarkets didn’t have entire sections dedicated to kombucha. Fitbits didn’t exist. Today, wellness is a $3 trillion industry and Well+Good, a media company, has been tracking its expansion since 2010, highlighting health products and services to its readers through its publication and events. Partners Alexia Brue and Melisse Gelula began the company largely to “create jobs for ourselves that we really loved.” In June 2018, Well+Good was acquired by the media brand Leaf Group for $10 million up front, plus additional incentive-based payments up to $9 million through 2020. The partners still jointly run Well+Good, while also overseeing other Leaf Group properties. Brue is now general manager and SVP for Leaf Group, overseeing the company’s fitness and wellness vertical, and Gelula is SVP, focused on brand extensions such as cookbooks. Recently, Brue talked to Chief Executive about the decision to sell, finding a buyer and going back to being an employee. Why did you want to sell? We were growing but there were bigger advertisers we wanted to work with who were looking for more scale. We thought we could be more effective in the current media climate with the right larger partner, who would also bring us economies of scale. So, over the last two years, we started to [seek] the right partner who would allow us to keep our voice and be our authentic self.

Laura Rich is the founder of Exit Club, an organization focused on helping entrepreneurs successfully transition into their next phase after the sale of their businesses. She hosts The Exit Club podcast on Fratzke Media.

How did you go about finding a buyer? We prioritized meeting with tons of people in media. It’s always great to share best practices and know what’s going on in the landscape. And, once we got to a certain point in terms of our size and being in the media hub of New York, people started reaching out.

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How did the deal come about? Organically—we started doing an audience development partnership with one of Leaf Group’s sites and got to know them. The relationship grew from there, and we realized that we had complementary skills, audiences and ways of monetizing. What made you sure Leaf Group was the right fit? We really did our diligence in making sure we felt this was a team that we’d be able to work with. They are an entrepreneurial-minded company. Pre-acquisition, they said that they let their group leaders make decisions and move quickly, and we’ve really found that to be the case. We act independently, with some oversight and guidance, so I feel like I’m able to do my job, but with a lot more support. It’s still our same team that runs it day to day. A huge part of it was about keeping the Well+Good culture intact, making sure that no jobs were lost and that our team would have even more opportunities, which was really exciting to us. Because we certainly had other companies who were interested in us over the last couple of years but would not have kept the whole team intact. Are you concerned at all about staying on at a company you no longer fully control? Like you, I’ve heard my fair share of horror stories, but I think we’re all invested in the same outcome. They really want to see our success because it’s one and the same, right? We’re really growing their media business. Our lawyer said throughout the transaction, “The earn-out in any transaction is consideration not compensation.” It’s a really helpful framework to look at things because that price is being paid over time, but I really feel we’re very aligned in terms of business goals. Melisse and I both feel like the whole wellness revolution that’s happening in this country is really just in its infancy. We’re really just getting started.

The Unique Challenges of Digital M&As A GROWING NUMBER OF COMPANIES ARE LEVERAGING MERGERS AND ACQUISITIONS to bolster their digital competitiveness. These market plays can often accelerate time to market and create new levels of differentiation. They also present several risks that are unfamiliar to traditionally managed companies, easily resulting in the loss of the very competitive advantage that inspired the deal. Today, most companies have a collection of due diligence templates for evaluating the financial merits of a deal. Few, however, have the comprehensive M&A playbook that identifies the right path to deliver the intended value in an economic and timely fashion. This is particularly true for digital acquisitions where technology and culture are the core differentiators. While a good digital M&A playbook covers several key topics, valuation and integration are of particular importance. GETTING THE VALUATION RIGHT Determining the right valuation for a digital acquisition is fraught with misleading and often conflicting information. Digital targets are frequently expensive, with multiples typically exceeding those of traditional deals. Valuation begins with a practical understanding of how the acquisition could transform the NewCo’s operating model, business performance and equity proﬁle. This should be tempered with the observable differences in process, culture and technology that create impediments to integration and operating synergy. While synergies generally translate into cost savings from economies of scale and elimination of duplication, they can also include new revenue streams and adoption of the better processes, technologies or practices. The impact on customer perception and the business ecosystem, such as value chain partners, are other important considerations in the valuation decision.

A successful record in harnessing traditional M&As is no guarantee of success with Digital M&As

GETTING THE INTEGRATION STRATEGY RIGHT Formulating the integration strategy starts during due diligence. This analysis is much more detailed than that done to evaluate the deal, particularly in the areas of people, process, culture and technology. Understanding the “secret sauce” from the customer’s perspective and how it’s made is the basis for ensuring none of the key ingredients is lost in the integration. Executives from both the parent and the acquisition should work in partnership to determine which functions to integrate and which should be left independent. A merger that boosts the company’s access to markets, products or customers may be better off with a modular integration, incorporating only those parts of the business that would yield compelling strategic gains. For other acquisitions, operating independently and only integrating at the financial reporting level is the best way to preserve deal value. The ability to absorb change should always be a consideration for the integration strategy. The following framework is a starting point for evaluating integration options: Getting the valuation and integration strategy right are imperative, but only part of the challenge of a digital acquisition. A successful track record in harnessing traditional M&As is no guarantee of success in integrating a digital asset or in using it to accelerate a digital transformation. If your company’s M&A playbook is incomplete or isn’t tailored to digital acquisitions, or the company lacks the deal-making experience, then engage an experienced M&A consultancy firm to secure it. Great digital opportunities are out there. Finding them, valuing them and integrating them rapidly and effectively is the new competitive advantage. ALTERNATIVE INTEGRATION STRATEGIES

Thought Leadership Content Provided by TCS, https://sites.tcs.com/bts/MASuccess

LE A DERS ON MANAGEMENT \ JEFFREY SONNENFELD

WHEN THE BOARD WANTS YOU OUT JOHN FLANNERY’S SUDDEN OUSTER at GE after a mere 13 months on the job by a newly constituted board startled many peer CEOs, as well as analysts, investors and employees. Admittedly, GE’s share price dropped 50 percent since he was appointed a year earlier, but Flannery had inherited a troubled turnaround challenge. Moreover, the board that hired him was not even the board that fired him—and it had held only two quarterly meetings before he was dumped. So what’s to be learned here? Plenty, at least for any CEO who needs to gain—or retain—board support if they hope to stick around for awhile. Some thoughts: Defend CEO Tenure. GE moved too hastily. It takes a minimum of two years to master the job of CEO. Yet, CEO tenure has been steadily falling, with the average now between five and six years. While research suggests CEO performance falls off after a decade at the helm, there are plenty of examples of highly effective, longer-serving CEOs, such as Colgate’s Reuben Mark. Over his 23-year run, Mark transformed Colgate from an also-ran to a firm with a 17-fold increase in shareholder value that towered over formidable rivals such as P&G, Unilever, Johnson & Johnson and Gillette. Bob Iger has led Disney since 2005, raising market cap from $48.4 billion to $163 billion over a period of eleven years, and he recently extended his commitment to 2021, allowing him to complete the integration of Fox Entertainment. Be Wary of Board-Control Issues. The activists on GE’s board enthusiastically endorsed the failed strategy of Flannery’s predecessor. In 2017, with no clear justification, short-term activist investors pressed for the removal of Honeywell CEO Darius Adamczyk two months after he took charge, following the 200 percent total shareholder return of his hugely successful predecessor Dave Cote. The board stood by Adamczyk, who then finished his year

in office with a soaring 32 percent jump in stock price, far ahead of Honeywell’s industrial peers. However, when well-respected CEOs at firms such as DuPont, Athena Healthcare and Arconic were attacked by shareholder activists, fearful boards afraid of public attacks on their vulnerable reputations capitulated and fired their CEOs. Manage Expectations. Ellen Kullman led DuPont with unrivaled 266 percent total shareholder returns in her six years, yet was removed to appease activist investors when the board panicked over two anomalous quarters due to global events outside her control. One of Meg Whitman’s great triumphs in leading HP was managing fiveyear expectations. Elon Musk, by contrast, has continually set inspiring, but unrealistic technological and financial targets.

When your company hits a bump in the road, will your board have your back— or back you right out the door?

Model Exemplary Leadership Conduct. Ultimately, even crony loyalties have limits, and no one is truly indispensable, as we eventually saw at CBS, Wynn Resorts, Lululemon Athletica, American Apparel, Intel and Uber. Faced with potential harm to their own reputations, directors will take action when evidence of abuse or unethical behavior mounts. Understand Your Board and Its Politics. There are often conflicting career agendas, impenetrable family dynamics and personal friendships on boards, as Mark Fields of Ford found out when he was dismissed, despite having led Ford to design, product quality and technology triumphs and overseen the three most profitable years in the automaker’s history. CEOs must maintain individual, personal relations with each director. Except in the cases of audit, comp and nominating review committees, when the board starts meeting without you, it is time to start packing.

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.

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S P EC I AL R E PORT

WHAT WE LEARNED The U.S. military trained them to lead. Five CEOs on the lessons they’ll never forget. BY DA L E B U S S

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PHOTO BY KEVIN HARNACK

emaining cool under fire. Dealing with ambiguity. Taking on life-or-death responsibility at an early age. Learning how to give orders—and follow them. Ask a veteran what they learned about leadership from their time in uniform, and you hear all this, and more. After all, whether it was George Washington at Trenton, Ulysses Grant at Vicksburg or Dwight Eisenhower at Normandy, the U.S. military has produced some of the greatest leaders in world history— at war—and peace. It’s definitely doing something right. Which begs the question: What do you learn about leadership in the U.S. military that’s different than anywhere else? And how do those lessons carry over to running a company? For Veteran’s Day, Chief Executive asked five CEOs to discuss lessons from their time in the service. They were in different branches, doing very different jobs, for a couple of years or for decades, and they now run businesses of very different sizes. But all of them share a sense of respect and responsibility for those that they lead—as well as a well-honed set of tools for keeping them focused and motivated. What follows are excerpts from those conversations, edited for length and clarity:

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“I learned this in Vietnam: When the proverbial debris hits the fan, people in an organization worry, question and wonder—and they look to their leaders to express the confidence that the path they’ve chosen is correct.” —Nick Pinchuk, CEO, Snap-on

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‘Establish Clear and Compelling Rules’ Nick Pinchuk, chairman and CEO, Snap-on Tools: An executive at the Kenosha, Wisconsin-based maker of high-end tools and equipment for transportation-industry technicians, Pinchuk served the U.S. Army as a Signal Corps engineer during the Vietnam War, from 1971 to 1972. He became CEO of Snap-on in 2007 and chairman in 2009.

he Army is a tremendous template for leadership in all walks of life. When I was in graduate school, I also was a high-school football coach, and over the years I’ve found similarities from sports teams, to corporations, to military commands. They are all collective social organisms in which people enlist to create a value or achieve a goal that they couldn’t accomplish individually. A few lessons stand out from the Army. The first is that it’s very powerful to establish clear and compelling rules and to continually reinforce those causes. That seems obvious in the military. But in your company, clear and compelling goals can also create powerful effects. Employees enlist in that goal and enforce in each other expected behaviors so that, individually, they’re contributing to the team goal. So whatever company or organization you’re in, you want to spend time establishing goals and making them clear and compelling. At Snap-on, we see ourselves as people who enable the professionals who accomplish tasks that are critical, where the penalty for failure is high. We move the world forward by easing those critical tasks and giving people the means to shape lives of pride and dignity. That mission has worked well for us for almost a century.

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Another lesson that I learned from the Army is that you need to focus on enlisting and energizing the middle. It’s easy to get effort from the high performers. And the low and sub-par players are also relatively easy to deal with, because people know if they’re underperforming, in the military or in a corporation. So you can get their attention in getting them up to the level of their colleagues; no one wants to fail. But the challenge is people who are in the middle. Telling someone they’re average is neither motivating nor electrifying. You need to motivate them by convincing them that the goals are worthy of their energy—raising their performance by capturing their imagination. They’re the group that makes the difference in an organization; they deliver you from evil. Another military lesson is how soldiers come from all over, and people are there for different reasons. In any collective organization you have that diversity and need to tailor things for each group. In a company, some are there for the compensation and some to be recognized, and that’s where their loyalty and energy come from. Others are there because they like the idea of shaping lives and creating opportunities for pride and dignity. Others are trying to build a career and are there for the experience. So you have got to create appeal for these varying groups in different ways, and you can’t be deluded by the idea that one size fits all. I learned how to do this as a lieutenant watching senior officers in the Army. Finally, it’s absolutely important for a business leader to express confidence in his or her own strategy and tactics. I saw this in Vietnam: When the proverbial debris hits the fan, people in an organization worry, question and wonder—and they look to their leaders to express the confidence that the path they’ve chosen is correct. Do what you say you’re going to do. “Walk the talk” but also “talk the walk”— express confidence. Otherwise your people will lose faith.

‘Put the Needs of the Collective Ahead’ Adam Coffey, CEO, CoolSys: A mechanic by background, Coffey joined the Army as a radar repairman in 1982 and jumped out of helicopters with his toolbox until 1986. He became a sergeant and tech-section chief. Then Coffey served for two years in the U.S. Army reserves. Brea, California-based CoolSys is parent of retail and commercial refrigeration and HVAC companies.

’m a guest lecturer at UCLA, and I tell MBA students that if it weren’t for the military, I wouldn’t be here today. Military leadership taught me discipline, how to show up on time, how to get engaged and how to work as part of a larger group. An army can’t function when everyone does as they please, so you learn early about unit cohesiveness. You learn to work with people with a diverse set of backgrounds. The Army is a true melting pot. You learn to work as a team and how to put the needs of the collective ahead of the needs of the individual. You learn about sacrifice and serving others. I’ve spent 20 years as a CEO of three different national service companies in three industries, and I learned that every individual has value—but it’s the same value. I don’t value myself higher than a janitor in a plant. Titles are how you organize your efforts, but at the human level, everyone adds value. And diversity is important. So you put these things together, and you manage believing that collective goals and objectives are ahead of any individual’s. You inspire a vision and build common goals and get people to aspire to do more than they can on their own. All of those lessons I learned in the military. In fact, I call myself a consensus leader. That may sound counterintuitive to military training. But sometimes you respect a person because of their rank—and other times not just because of their rank but because they’ve inspired you and earned that leadership and respect. I also apply military lessons in smaller— but still significant—ways. There’s a lot of regimentation and discipline around what

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“I tell MBA students that if it weren’t for the military, I wouldn’t be here today.” — Adam Coffey, CEO, CoolSys

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we do. So, for example, our employees have stripes on their shirts that indicate their level of expertise. And if they are a military veteran, they can put a veteran tab on their uniform and a veteran sticker on their vehicle. Also, like the military does, we hand out “challenge coins” that represent the core values of our company. And it’s funny—when you’re in the service, you spend every day thinking about how long it is until you get out. Once you do, you spend the rest of your life looking back with some sense of pride, and the little hassles you endured go away. But you remember the friendships and the good part about service, and you spend the rest of your life being a proud veteran.

‘Failure is Not Terminal’ Sean Feeney, CEO, DefenseStorm: A West Point graduate, Feeney reached the rank of captain while serving in Germany in the Field Artillery from 1981 to 1985 and was an instructor at the U.S. Army Ordnance School for a year. Then he

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“There are no perfect decisions. Once you make it, though, execute it violently.” — Sean Feeney, CEO, DefenseStorm

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served in the Pennsylvania National Guard, rising to major. Alpharetta, Georgia-based DefenseStorm provides cybersecurity and compliance tech to the banking industry.

est Point is the greatest leadership school in the country. There, and in the Army in general, I learned at least five important things, which I saw played out again and again there—and which I see again and again in the civilian world. First, when you’re in command, be in command—be the leader. That means you’re in charge, accountable for everything that happens. When you’re a leader, you’ve got to make a decision and execute it—or, as we said in the Army, think, decide and act. You think a problem through with the information at hand, make a decision, and then aggressively act on it. There are no perfect decisions. Once you make it, though, execute it violently. In the civilian world, that means aggressive execution of your decision. For example, at one company where I was CEO, half the executive team wanted to implement a pretty significant price

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increase, and the other half didn’t. I had to make a decision to increase price. We built a plan of customer communication and executed the plan very aggressively. And it went very well, increasing the profitability of a product line that was old and tired, allowing us to invest more in a new product line, and helping the organization grow significantly. It had little impact on customers. The organization gained confidence in the management team and me that we could make tough decisions and execute them well. Second, the commander’s intent is critical for people to know in the military and, in the civilian world, his or her vision and mission are critical to communicate. If you want to clear a building of the enemy, and you step off the helicopter and get killed, it is critical that everyone knows what the commander’s intent and plan was and to continue the mission. The military is full of stories where the leader gets killed and the next person picks up the task. In the business world, it’s also critical that people know what the organization is attempting to do and can make decisions toward accomplishing that mission. Third, failure is not terminal. At West Point, they push you to the point where you are just going to fail. But today, in business and elsewhere, everyone gets a trophy and everyone is great. The real world isn’t like that. Fourth, when you’re in charge and someone on your team does something great, your job is to make sure the sun shines on them, not on you. At the same time, when someone screws something up, your job is to put up an umbrella and make sure you take the criticism and don’t allow your person to get hammered by that. So you make sure people get credit, but also you protect them when they’ve made a bad decision or a mistake. And fifth, in the military, we said that you make your decisions as close to your target as possible. The further away you get from where you’re actually engaging your target, the more mistakes you make. So in business, ultimately, you want to make decisions as close to the customer as possible, because your people there are the ones who really know what needs to be done.

MAKING A DIFFERENCE FOR A SAFER AMERICA The firearms industry welcomes participation in the national conversation to make our communities safer. Our trade association, THE NATIONAL SHOOTING SPORTS FOUNDATION, has long advocated for effective solutions to prevent access to firearms by criminals, children and the dangerously mentally ill. We run programs that make a real difference.

NSSF has led the way in improving the FBI National Instant Criminal Background Check System (NICS) through our FixNICS® initiative that has reformed the law in 16 states and improved the reporting of disqualifying records. The Don’t Lie for the Other GuyTM program helps firearms retailers prevent illegal straw purchases and is conducted in cooperation with Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). Project ChildSafe® has distributed more than 37 million free gun locks since 1999. Our partnerships with federal and state agencies, as well as a leading national suicide prevention organization, are building public education resources for firearms retailers, shooting SUICIDE PREVENTION

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

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

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“From the beginning of boot camp to the end, they really do instill in you the team mentality.” —Chris Hall, CEO, Talking Rain

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‘Every Position Pulls Its Own Weight’ Chris Hall, CEO, Talking Rain: A longtime executive at the company behind the Sparkling Ice beverage brand, Hall is a third-generation U.S. military veteran. He served on the U.S. Navy nuclear submarines USS Pennsylvania and USS Georgia from 2000 to 2005. Hall became CEO of the Seattle-based company in 2018.

he most important thing I took away from my military service was the concept of teamwork. From the beginning of boot camp to the end, the military instills in you the team mentality. And on a submarine, you actually live together or die together. Every position pulls its own weight. The submarine community is very small. There is a high level of trust. You only succeed if there is integrity, because you’re putting your life in other people’s

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hands in a boat that goes underwater. It’s a huge demonstration of teamwork. I have carried that with me. I’ve applied that principle to building our culture at Talking Rain. For us, those priorities come through in every decision. It’s company, first; team, second; and self, third. In the U.S. Navy, we learned the pillars of honor, courage and commitment. So when I came up through the sales department of Talking Rain, I created leadership and management pillars that were similar. Only, I called them “curiosity,” “execution” and “forward-looking.” When I became CEO, I carried forward the three-pillars idea to formulate the company “purpose,” “foundation” and “vision.” When you create a purpose and get everyone rallied behind it, it drives people. Purpose creates an environment of priorities for everyone. Every time you’re on a submarine, you have a mission, and that’s what a company must do. In the business world, our purpose is to create value. At Talking Rain, I have worked closely with our president to create a group of value goals, and a group of value drivers. We had a group get together and identify key areas of the organization on which to focus our resources. This has been close to the concept of what your mission is on a sub. Another important way I applied military principles was through the 100-day plan rolled out when I took over as CEO. When a new captain takes over a boat, he rolls out his agenda during the transition. So when I became CEO of Talking Rain, I communicated to the entire company what the plan was, what the deliverables were and what we were going to achieve in those first 100 days. It’s not often put this way in the military, but it’s also difficult to overlook the importance of passion. When you know you have an important mission, an awesome team and the transparency of knowing what you want to accomplish, passion simply comes out of that. And without that passion and drive in business, it’s really tough for a company to stay relevant.

CONGRATULATIONS

2018 CEO OF THE YEAR

A G R E AT E R T R A J E C T O R Y. Every journey starts somewhere. Marillyn Hewson’s began at The University of Alabama, learning principles of business strategy and leadership. She’s been climbing ever since.

M A R I L LY N H E W S O N | C L A S S O F 1 9 76 CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER – LOCKHEED MARTIN

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“To jump out of an airplane at night with 300 other people with rifles strapped to them, you’ve got to trust a lot of people.” — Jennifer Pritzker, CEO, Tawani Enterprises

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‘Know Your People’ Jennifer Pritzker, CEO, Tawani Enterprises: Over a 26-year career, she served as an enlisted soldier and as an officer in the U.S. Army and Illinois Army National Guard, retiring as a lieutenant colonel before an honorary promotion to full colonel. In addition to running the Chicago-based umbrella company for various ventures, Pritzker is founder and chairwoman of the Pritzker Military Museum and Library in her home city.

had a number of learning experiences in the military, positive and negative—but all very useful. For instance, one superior who eventually retired as a four-star general made an effort to invite his 20 to 30 lieutenants to lunch every couple of months. He’d reserve a meeting space at the officers’ club and tell us we could say whatever we wanted, for a couple of hours. That was very effective: The lesson was to know your people and take an interest in them and listen to them. Another thing I learned after I decided to wear the jump wings on my hat instead of air-assault wings. What you wore was voluntary, but the battalion commander wanted everyone to do the latter to encourage people to go to air-assault school. When I didn’t he told my immediate boss, a captain, that “Pritzker needs to fix that hat.” He didn’t scream at me. But I learned that if I’m supposed to be the leader of a few dozen soldiers, I need to set a good example and encourage them to be constantly improving themselves—by improving yourself. Yet another time, a private in basic training lost his bolt group for his M-16—a series

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of parts that are critical to enabling the rifle to fire. The drill sergeant made all of us spend six hours in the barracks looking for that four-inch carrier, until two in the morning. I can’t remember if we ever found it, but it made a deep impression: You don’t want to be in a combat situation with a rifle that won’t shoot. You can get that lesson across to a large group in business: Make sure your team has the right tools to get the job done and is always prepared. The Army has the famous intelligence-reporting acronym: SALUTE, which means Size, Activity, Location, Uniform, Time, Equipment. For myself, my troops and now my employees, I came up with the decision acronym SLEEP: Is something Safe, Legal, Ethical, Efficient and Cost Effective and Profitable? It’s a handy filter for all decisions because you’ll hit the main points to evaluate. I’m also a big believer in the slogan that President Reagan used in his defense strategy: Trust, but verify. You need to be accountable for what you do and keep yourself informed, and help your people be informed. What you tell people must help them gain confidence and an understanding of what you’re trying to accomplish, why it’s worth doing, and how they fit into it. I also learned in the military a lot about trust. For example, if you’re going to jump out of an airplane at night with 300 other people with rifles strapped to them, you’ve got to trust a lot of people. Everyone has to be aware of what they’re doing and contribute by doing it in a confident and timely manner. And no one has time to explain everything they’re doing to everyone on the aircraft. In the same way, when you’re running a company, you have to trust everyone to do their job because all roles are important to success. This covers everyone from upper management to the cleaning staff. If the building isn’t cleaned well, for example, people are more likely to get sick and not be able to work at their full capacity.

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

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S P ECI AL R E PORT

HIRING AMERICA’S HEROES BY RU S S B A N H A M

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They’re competent, disciplined and skilled. So why aren’t we making better use of the country’s robust pipeline of military talent— and what we can we do to fix the problem? Some ideas to get started.

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merica’s military veterans are some of the most skilled people on the planet, able to lead a project team through extraordinary challenges and deliver superior outcomes on mission-driven tasks. More than one million of them will exit the U.S. Armed Forces over the next five years. This diverse talent pool possesses sought-after competencies, including discipline, flexibility, planning, technical and problem-solving skills. And that’s the short list. Yet, approximately 400,000 U.S. veterans remain unemployed, somehow slipping through the recruitment net. Research suggests companies struggle to access this talent pool, despite recognition of its potential. In a recent survey by Chief Executive and the Indiana Economic Development Corporation of nearly 300 U.S.-based CEOs, 57 percent reported that their company considered hiring veterans, yet only 17 percent

had programs to support those efforts. (See “Boots in the Workplace,” p. 35) The good news? A growing number of U.S. companies are creating initiatives to more closely align military training experiences with employment openings and business needs. And the efforts are paying off. “Veterans are disciplined and accountable; they take ownership of their work, are very proactive in finding solutions to varied challenges, and don’t make excuses,” says Larry Hughes, vice president of training and diversity at 7-Eleven and a former Army officer who commanded two companies as a field artillery officer during his five-year service. “They also have advanced technical training and strong cross-cultural experiences. And they’re team builders who know how to resolve conflicts, motivate people and get the best out of them.” On the pages that follow, we share some practical tips from companies and CEOs making a difference in the lives of veterans—while also making the most of a great opportunity.

Winners Circle: The 2018 Patriots in Business Earlier this year, Chief Executive and the Thayer Leader Development Group (TLDG) at West Point, launched the inaugural Patriots in Business Awards to honor the Best Companies with Veteran & Military Initiatives. The award recognizes businesses that lead our nation in supporting active-duty military members, veterans and their families and exemplify the values of Duty, Honor and Country. “This award recognizes the innovative and dedicated initiatives of companies big and small to support America’s veteran and military families,” says Marshall Cooper, CEO of Chief Executive Group. “In

doing so, we hope to inspire more CEOs to improve or begin their own efforts.” “The winners distinguished themselves by consistently improving their military support each year, and going beyond just focusing on hiring efforts,” says Dan Rice, cofounder and president of TLDG. Both organizations extend their thanks to judges Nicholas Pinchuk, CEO of Snapon Incorporated; Gen. (Ret.) Herbert J. “Hawk” Carlisle, CEO of National Defense Industrial Association; Michael Linnington, CEO of the Wounded Warrior Project; and David Kim, founder and president of the Children of Fallen Patriots Foundation.

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Getting Started Kevin Ryan founded the Service Brewing Company in Savannah, Georgia, in 2014. Of its 24 investors, 20 are veterans; and the majority of its 13 employees are also vets. One is deployed in the National Guard and another is a former military spouse. “We’re always looking for veterans to add to our team,” says Ryan, a 1996 West Point graduate who served as an Army infantry officer. In recruiting, Ryan aligned with two local military bases (Ft. Stewart and Hunter AAF) and Georgia Tech’s Veteran Education Program. He also sought out student veterans at Georgia Southern, as well as at the Association of the U.S. Army, the Military Officers Association of America, the Mighty Eighth Air Force Museum and many other organizations. “Soldiers don’t often get to go to job fairs or have the ability to network successfully, so we need to get out in front of them,” he says.

Other companies employ similar strategies. At 7-Eleven, field personnel nurture close relationships with military base transition office staff members. “We advise transitioning soldiers on resumé building and job interview tactics, host entrepreneurial boot camps and invite exiting service members to attend our seminars on franchising opportunities,” says Hughes. “We’re also a regular presence at military hiring fairs.” The company has hired more than 300 veterans and military spouses as field consultants in the past year. The position is a gateway to other jobs in the organization. Companies interested in hiring military veterans and spouses can draw on a wealth of resources geared toward assisting veterans. including local Veteran Service Organizations, Student Veterans of America

chapters at colleges and universities and web sites like Hero 2 Hired, Veterans Job Bank or Vetsuccess.gov. Companies can also seek

PATRIOTS IN BUSINESS

LARGE ENTERPRISE: COMCAST NBCUNIVERSAL Led by retired U.S. Army Brigadier General Carol Eggert, Comcast NBCUniversal’s Military and Veteran Affairs team focuses on recruiting, hiring and cultivating veteran, National Guard and Reserve, and military spouse talent. Key features of its programs include 15 days paid time off each year for active duty employees on deployment, in addition to

regular paid time off. Comcast has hired more than 10,000 veterans, military spouses and National Guard and Reserve members since 2015. “We continue to hire and support this incredible community, as well as develop new partnerships to help us do so,” says Eggert.

PATRIOTS IN BUSINESS

MEDIUM-SIZED BUSINESS: ACADEMY SECURITIES Founded by former U.S. Naval Officer and Naval Academy graduate R. Chance Mims, Academy Securities is the nation’s first post-9/11 disabled veteran-owned broker-dealer. More than half its ownership (62 percent) consists of former military and/or disabled veterans. Eighty-nine percent of management ranks and 41 percent

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of employees are veterans. The firm’s 2018 target for veterans as a percentage of total hires is 50 percent, says CEO Mims, who notes that the management team reviews all veteran employment applications and many applicants are given training to become general securities representatives.

BOOTS IN THE WORKPLACE While many CEOs recognize the armed forces as a potential talent pool, surprisingly few actively pursue ways to recruit and develop former service members, according to a CEO survey conducted by Chief Executive and the Indiana Economic Development Corporation. In fact, just 17 percent of the nearly 300 U.S.-based participants reported having a veterans recruitment program in place. That’s a huge missed opportunity, notes Wes Wood, director of Conexus Indiana’s INvets program, which matches veterans with private sector employers. “I speak to great employers in small towns across Indiana that have opportunities veterans would love but have never heard of,” he says, noting that 200,000 to 300,000 skilled personnel leave the military every year. “A constant effort is required to make these careers known to transitioning service members… Even a small alteration in the normal hiring process for veterans can make a huge difference.” —Melanie C. Nolen

out career fairs focused on veteran recruitment and programs like Google’s “Jobs for Veterans” initiative. Once hired, give veterans and military spouses the support they need to make the best of their talents. La Quinta Inns & Suites gives military hires a special veteran or military spouse pin to wear on their uniforms or business attire. “Putting people first is embedded in our culture, and those who have a passion for people and service fall in line with these core values,” says Derek Blake, La Quinta’s vice president of marketing and military programs. Starbucks provides veterans with a unique benefit—to gift their Starbucks College Achievement Plan to a child or spouse. The program funds tuition for an online bachelor’s degree at Arizona State University. Starbucks also offers Military Mondays, a program developed with the William and Mary Law School to provide free legal counseling to

What Veteran-Specific Resources Does Your Company Have? 80% We do not have any veteran-specific resources

13% Employee resource/affinity group

7% Internal veteran mentor program

4% Separate application process

4% Other Participants were asked to select all that apply. Source: Chief Executive/Indiana Economic Development Corporation Study

veteran employees. “Military Mondays is now scaling nationally and growing to include other critical services such as financial literacy and investment counseling,” says Christopher Miller, veterans and military affairs manager. Citi, in partnership with Bring Them Homes, helps provide transitional, supportive, temporary and permanent housing for veterans and their families. “To date, the program has supported the creation of more than 3,500 affordable housing units,” says Ruth Christopherson, senior vice president, Citi, and retired colonel, U.S. Air National Guard.

Matching Skills 7-Eleven, which joined other U.S. companies in a 2012 pledge to hire one million vets by 2020, is well on its way toward achieving the goal. The company has hired more than 300 veterans and military spouses in the past four years alone. To align the resumés of veterans with needed business skill sets, the compa-

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PATRIOTS IN BUSINESS

SMALL BUSINESS: VETCOR LLC Since its launch in 2013, this south Florida restoration company has provided employment to more than 100 veterans, easing their transition by recreating the cultures, norms and values of their military experiences. Technicians receive 90-day on-the-job training on restoring damaged commercial and residential properties.

“The vast majority of our teammates just needed an opportunity, and have since moved on to bigger and better things in their lives,” says Paul Huszar, VetCor’s CEO, whose last active duty assignment was directing training and leader development for the U.S. Army’s School of Engineering at Fort Leonard Wood.

ny created a program geared toward hiring managers called “Military 101” that translates military assignments into corresponding business tasks. “It ensures our recruiting team has a firm understanding of how military experiences and skill sets translate into roles within our team, and enables our transitioning veterans to be set up for success,” says Dave Strachan, chief of staff and a former Army officer. 7-Eleven CEO Joseph DePinto also is a former Army field artillery officer and West Point graduate. Other companies also tout the business-applicable range of abilities that soldiers attain over a military career. “People don’t think of veterans as having finance, operations, HR, IT or project management skills in a business context,” says retired U.S. Army Brigadier General Carol Eggert, a recipient of the Legion of Merit, a Bronze Star and a Purple Heart and head of Comcast NBCUniversal’s eight-person Military and Veteran Affairs organization (see p. 34). “[But] they have to equip, supply and train the people in their command, with little guidance other than to win over the hearts and minds of the local community. Recruiters need to broaden the aperture when it comes to hiring such people.” Many companies are doing just that, creating a array of programs designed to match military community skill sets with business needs. For example, Citi, cofounder of the Veterans on Wall Street recruitment initiative and corporate sponsor of Military.com’s mobile app, has an established

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veteran employee network, Citi Salutes, which centralizes its 17 military networks under the oversight of an executive steering committee. The firm also created a Veterans Recruiting Toolbox for recruiters. Dow Chemical implemented a program where four or more years of military service meet the company’s minimum job requirements. The company also is running a pilot Military Engagement Program, in which a current employee-veteran coaches service members and military spouses through its hiring process. Many companies, including 7-Eleven, Starbucks and Comcast, are corporate partners in the Hiring Our Heroes fellowship program. The 12-week operations management internship is designed to provide the skills needed to succeed in the civilian workforce.

Smoothing Transitions For many veterans, a first job in the private sector can be dislocating. The management structure is different, the vocabulary of business is arcane and the processes are atypical. A 2016 survey by the U.S. Chamber of Commerce Foundation found that 44 percent of veterans left their first post-military job within a year. Easing this transition improves the chances of retaining them. Job vacancies at Black Knight, a fast-growing company of 5,000 employees, are being filled with veterans at a 10 percent rate. For good reasons, too, since the company pledges full-wage continuation and medical and dental benefits to employees called up for ac-

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PATRIOTS IN BUSINESS

MILITARY SERVICE BUSINESS: USAA (Companies Whose Mission is to Serve the Military Community)

USAA serves millions of military members and their families with competitive rates on insurance, banking and investment services. Of its 33,000 employees, more than 4,900 are veterans and over 850 actively serve the National Guard and Reserve. “Veterans bring tremendous technical ability, learning agility, problem-solving skills, leadership and

tive duty in the Reserves or National Guard. Returning employees are placed in the same position, or another position they might have attained. “We’re ensuring their career paths remain productive and promising,” says Melissa Circelli, chief human resource officer. “You need to make hiring veterans a priority and then have the dedication to deliver on that commitment.” At construction giant Cushman and Wakefield, a military transition roadmap helps veterans acclimate to the corporate environment. Deloitte sponsors the Career Opportunity Redefinition and Exploration Leadership Program to help veterans and active duty service members plan their careers. Every Deloitte business has a partner, principal or managing director as a Champion for Military and Veterans. GE partnered with the U.S. Army Reserve Medical Command in a pioneering externship program providing eight months of biomed and imaging training to Army Reserve biomedical technicians.

Another Opportunity

Russ Banham is a Pulitzer-nominated financial journalist and author.

According to research compiled by Blue Star Families (BSF), 43 percent of military spouses are unemployed, compared to 25.5 percent of civilian spouses. Eggert suggests employers shun this talent pool for outdated reasons. “Employers know they often need to relocate,” Eggert explains. “This makes no sense in an era where millennials are job-hopping every

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loyalty to the workforce,” says John DiPiero, director of USAA Military Advocacy and Affairs. Key initiatives include a 12-month Veteran Transition Leadership Development program; a Veteran Sponsorship Program that encourages veteran employees to help new veteran hires, and TEAMFIT, a program designed to transition veterans into IT positions.

three or four years.” Comcast not only proactively recruits military spouses, but also helps those forced to relocate find jobs elsewhere in the organization or with other employers. Booz Allen Hamilton welcomes military spouse employees with personal emails from other military spouses at the vice president level and a specialized handbook. And Starbucks is a member of the Defense Department’s Military Spouse Employment Partnership program, composed of more than 360 employers vetted and recognized by the Defense Department as portable career options. Certainly, companies looking for skilled, hard-working and motivated employees would benefit from giving more thought and effort to hiring veterans and military spouses. “Every branch of service espouses specific core values like loyalty, dedication, respect and integrity,” says Eggert. “Military personnel live by these values, forging people with remarkable character, self-reliance, tenacity to get the job done and leadership.” Service Brewing’s Kevin Ryan agrees. “One of the first things the military teaches you is to take orders—you’re given a task and you do it,” says Ryan. “Working in a brewery is a physically demanding job. You’re pulling and pushing and shoveling all day long, and then putting on your best face to pour a draft for a customer. I’ve never heard a single complaint.”

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TR A N SI T I ON S

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WELCOME TO THE FAMILY Running a business that’s been led by relatives for generations isn’t for everyone. What you need to know. By C.J. Prince

n Mario Puzo’s The Godfather, Michael Corleone, having narrowly escaped an assassination attempt, names the mafia family’s loyal No. 2, Tom Hagen, as acting don—or interim non-family CEO, if you will—and Hagen takes the assignment with impressive calm. The organization faced some fairly significant challenges, including lethal external competition, damaged morale, infighting among senior-level staff, and, of course, the strong tendency for anyone in charge to meet the business end of a Smith & Wesson. In Puzo’s corporate climate, a single wrong move could land an executive on a one-way trip to the bottom of Lake Tahoe. While more traditional family businesses might not be as fraught with quite so much peril, they do share some of the challenges of the Corleone’s: loyalty is

highly prized, but not always guaranteed in return; competition is fierce; expectations are high; and just about every family has its Fredo—or at the very least, its share of drama and dysfunction. If two owners have opposing views on the company’s direction, an external CEO can easily wind up in the crosshairs. Just ask Porsche’s ex-CEO Wendelin Wiedeking, who landed on the wrong side of a feud between third cousins Wolfgang Porsche and Ferdinand Piech, who headed Porsche and Volkswagen, respectively. When the warring cousins finally came to a merger agreement in 2009, it was Wiedeking who got the boot. But for CEOs looking for new leadership opportunities, it’s only logical to include family-owned companies in the scope of search. They account for 90 percent of American businesses, according to the U.S. Bureau of the Census, collectively contribute 57 percent of the U.S. GDP and employ 63 percent of the workforce, per Family

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Enterprise USA figures. While many are smaller companies, mid-size and larger entities comprise a significant number of family-owned operations, including some of the country’s largest businesses. Think Cargill, Bechtel and Albertsons. Leading one of these family-run companies comes with some advantages, including greater longevity. “If you look at turnover in public companies it gets higher and higher every year,” says Shawn Cooper, member of the global board and CEO practice at Russell Reynolds Associates. “In a family-owned company, unless there is tissue rejection when you first join, there is a greater likelihood you can call this a longer-term career for yourself.” You might also get a greater breadth of experience earlier on, says Steve Miller, who served as vice chairman of the execu-

tive committee of The Biltmore Company in Ashville, North Carolina (the rules of the family were such that only family members could hold the CEO title), and who at various times held responsibilities of both COO and CEO. “A lot of my friends went to work for bigger companies that were probably more prestigious, but those guys were still running the Xerox machines and I was able to execute strategy,” says Miller, who, thanks to the annual cash payouts that he received for good performance, retired in 2011 to start a second career in teaching. Paul Leone, CEO of The Breakers, an opulent 122-year-old resort in Palm Beach, Florida, points to another intangible benefit as the reason he turns down recruiters come knocking with sometimes better-paying opportunities. “There is a real sense of contribution here,” he says. “I’m not in a

All in the (Foodie) Family A serendipitous move from the #2 in fast food to a small, family chain. Early in his career, Don Fox never imagined he’d end up the CEO of a family-owned franchise business. But in 2003, after 23 years rising through the ranks at Burger King, the fast-food giant let him go. His young family, happily settled in Jacksonville, Florida, did not want to move. “That limited my career opportunities, at least in the restaurant industry,” he says. Then karma took over, Fox says, and he happened upon an opportunity with Firehouse Subs, a fledgling regional brand with just 65 locations founded a decade earlier by brothers Robin and Chris Sorensen. In less than two years, Fox became COO, and then four years later, CEO. Under Fox’s leadership, Firehouse Subs has grown into a $1 billion-plus franchise with more than 1,125 locations in 44 states,

Puerto Rico, Canada and Mexico. He gets along well with the Sorensen brothers, who prefer the culinary side of the business. “They’re foodies, so they’re very involved in menu development,” says Fox who says he has “substantial” autonomy when it comes to operations, although he still consults them on big strategic decisions. Fox recommends trying to find out as much as possible about a company’s family owners before taking a position, given how key that relationship is to a successful run. “I would propose doing a retreat somewhere,” he says. “You have to somehow be able to take more time to thoroughly understand the nature of the individuals. It’s hard to imagine doing that in a conventional interview process.” Early in his career with Firehouse Subs, senior management made a practice of touring and visiting all the restaurant’s locations—by bus. “So we spent a lot of time together.”

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If another chance to run a bigger, public company came his way, Fox says he’d have no interest. “I feel bad for CEOs, some very good people in public companies, in a situation where, for their personal survival, they have had to make short-term decisions that you know are in the worst interest of the brand because they’re trying to make their numbers.” He saw that first-hand at Burger King, where, in an effort to stay on target with quarterly projections, the company (then owned by Pillsbury) would sell off restaurants—only to buy them back later for a much higher price. “It was such foolishness,” he says. Those CEOs who are “more transactional in nature,” or looking for a short-term payday, might not be the best fit for a private, family-owned business. “But other people are wired to really make a home somewhere and have a longer impact and legacy,” he says. “That’s the way I’m wired.”

“The CEO coming in needs to understand it’s not just a traditional set of goals that you learn in business school.” —RANDALL HERREL, CEO, CATALINA ISLAND COMPANY

corporate office somewhere that is removed from the operation, or working with a non-family board that doesn’t bring any emotional connection to the business. I’m not saying [non-family] boards don’t care, but by bloodline, they don’t own the business. Here, there is this incredible feeling of contribution and doing something that is making a huge difference in the lives of our team, guests and community.” That said, family-owned companies offer CEOs some unique territory to navigate— and for those who fail to go in eyes open, the landscape can quickly become a minefield. Consider the following advice from family business veterans on how to make the assignment a success. • Know the ground rules. Before you accept an offer, you need to know the longterm game plan. Are you being brought in as a gap measure while the younger generation matures and learns to take the reins, or does the family expect to stay in an advisory role indefinitely? Will the founder be retiring or “retiring”? “It’s very hard for a family CEO to let go,” says JoAnne Norton of the Family Business Consulting Group. “There should be very clear, transparent plans for what the founder or family member who has been leading the family business is actually going to do.” Also, what is the family’s definition of success? In a public company, the goal is clear, says Randall Herrel, CEO of Catalina Island Company: “You want to grow shareholder value or EPS or EBITDA, and everyone knows that. But in family companies, that may or may not be the overarching goal.” While financial targets will undoubtedly be part of measurement, other personalized ambitions, such as helping the community or being an outstanding

employer, could be equally important. “The CEO coming in needs to understand it’s not just a traditional set of goals that you learn in business school.” Once that is clear, the CEO can ensure that bonus targets align with what’s truly important to the family, says Norton. If, for example, the bonus is tied to how much money the CEO brings in, but he or she is limited in who can be fired—and hired— that wouldn’t be a fair goal. “One of the things the family has to do is make sure the non-family CEO gets a bonus based on how well he or she trains the members of the next generation,” she notes. Don Fox, who left a 17-year career at Burger King to join Firehouse Subs and has been CEO of the franchise company since 2009, says CEOs also need to know which areas the owners want to have control over and what, if anything, is untouchable. “You need to have alignment on goals at the outset and you need to know the ground rules,” he notes. (See sidebar, p. 40.) • Check your ego at the door. “That will get whacked around quite a bit, and you have to handle the criticism, whether it’s founded or not,” says Herrel. “A family member may not have any financial expertise or business knowledge, but boy, they have an opinion and you’re going to hear it.” Early on, Herrel spent hours with family members, listening to their dreams and plans for the business, as well as with employees on the front line and other stakeholders. That effort earned him the trust and confidence of even those who were skeptical about bringing in an outsider for the job. “It does take a lot of time, but my recommendation as CEO is, take the time, listen, ask a lot of questions and don’t talk,” says Herrel. Because of the trust he earned, he

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“You can’t allow triangulation with any family members, because eventually they’ll make up and you’ll lose.” —STEVE MILLER, VICE CHAIRMAN, THE BILTMORE COMPANY

C.J. Prince is a contributing editor at Chief Executive who specializes in management, leadership and corporate philanthropy.

was able to convince the family to invest $15 million to revitalize the property in 2008, at a time when most companies were hunkered down. In some cases, you will be training the next generation of family owners, one of whom may eventually become your boss. That would be tough to swallow for some CEOs. But Miller says he didn’t mind. “The compensation was fine and the job was challenging and to me, and that was more important than the title.” It helps to care about the mission of the company, adds Miller, who grew up in Ashville. “I felt honored to be part of this mission that was bigger than me, bigger than the family, bigger than money. It was preserving this fabulous property, which benefits our whole community. If you don’t really believe in the mission and don’t share the family’s values, it’s never going to work.” • Stay as neutral as you can. Dozens of legendary family business battles that have played out in the press—e.g., Sumner Redstone and his children, the Koch brothers’ family feud spanning the ’90s, the soap opera-worthy Gucci family squabbles— should serve as cautionary tales on how toxic a family-owned situation can become. Non-family executives have to do their best to play it cool. This is especially challenging because the external CEO is often brought in by the board because the family isn’t getting along. “So they immediately try to grab the ear of the new CEO,” says Norton. “You might have one faction saying, ‘We want you to get this company fattened up and ready to sell,’ and the other one saying, ‘We have this long legacy and we want it to last forever so run this in a way that my children can take over someday.’ How in the world can that CEO

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possibly be successful?” Even on smaller matters, two family members will bring their dispute to the CEO, each hoping to win him or her over. “You can’t allow triangulation with any family members, because eventually they’ll make up and you’ll lose,” says Miller. “Instead, explain that you can be sympathetic, but the only people who are able to solve it are the two people having the issue.” Herrel recalls several occasions when he felt caught between warring family members. “I felt like it was my job to try and mediate the disagreement and find some common ground,” he says, adding that it was similar to his experience as CEO and chairman of apparel company Ashworth, where he often had to moderate heated discussions between dissenting board members. “It’s really incumbent upon the CEO to have everybody take a deep breath and listen to one another and try to understand and then look at what our common vision is for the company. If not, board meetings can get very dysfunctional.” In an effort to avoid conflict, Herrel did much of his legwork before board meetings, hearing people out and sewing up support to gain consensus. “Never sit down at the board table unless you have the votes to move forward,” he says. Miller also warns non-family CEOs to remember their ultimate outsider status. “You will hopefully become friendly with the family owners—but you’re not family and you still have to keep a professional distance.” He formed close and trusting bonds with multiple generations of Cecil family members, but was careful to remember his place. “I was friendly with all of them,” he recalls, “but blood is still thicker than water.”

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USES A TRAVEL AGENT

RE-MEET THE MILLENNIALS! As Gen-Y creeps up on middle age (Yikes! It’s true!) understanding their changing habits is critical for CEOs. Start by rethinking conventional wisdom. By Dale Buss

ALEX SCHULZE IS A POSTER BOY for millennials: an entrepreneur who plays to the unmatched environmental sensibilities of Generation Y. The 27-year-old Floridian co-founded 4Ocean, which pays Pacific fishermen to collect plastic ocean waste that the enterprise makes into bracelets and sells for $20 apiece. “It’s really a movement that we created a business around,” says Schulze, whose company stands to rake in about $50 million in its first year of operation. But wait, maybe Stephanie McGuire, 34, is actually the face of the millennial generation. A legislative analyst with a one-year-old son, she and her 30-year-old husband, Brad McGuire, recently moved from downtown Lansing, Michigan, to a two-story house with a yard and a white front porch in suburban Diamondale. “Buying a house might be a dream delayed for a lot of millennials because of student debt and what the economy was,” McGuire says. “But that’s what a lot of my friends are doing once they have children.” CEOs have long known how much is at stake with the most populous demographic cohort in American history, 70-million-some shoppers and cmployees born between

1981 and 1996, according to the Pew Research Center. Some iconic companies hit the shoals in large part because they’ve wrongly assessed millennial consumers. Harley-Davidson hobbled U.S. sales with an inability to lure enough millennials. P&G is struggling with CEO David Taylor’s strategy of focusing on its huge existing brands over smaller, newer ones that millennials favor. And even amid a retailer renaissance in 2018, enfeebled JCPenney is flailing thanks to new clothing lines that don’t appeal to millennial women. Campbell Soup tried to bait millennials with healthier soup in pouches and in zesty new flavors, but CEO Denise Morrison was ousted last summer in part because she couldn’t overcome the company’s association with traditional table fare in the minds of Generation Y. “Millennials are buying bone broth in shelf-stable boxes because they think the products are better,” says Ken Harris, a long-time CPG advisor and managing director of Cadent Consulting. “Soups are doing just fine; but Campbell isn’t.” But other companies are prospering in large part because they’ve figured out Gen-Y. Nestlé sells them its

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OWNS A HOUSE IN THE SUBURBS

new Wildscape frozen meal-bowl brand, and startup Rind successfully peddles dried fruit pieces with the skins on. Ford is moving mammoth, $52,000-plus Expedition SUVs to millennials, while Thor Industries is getting them into recreational vehicles (see p. 60). Why such varySECRETLY CRAVES ing track records? AN RV While, of course, millennials’ attitudes and behaviors range widely, some huge myths have grown up around their tendencies and values—the biggest of them being that millennials are unique. “There are important differences between generations, for sure, but millennials and boomers are more alike than any of the other five generations in North America right now,” says Sheryl Connelly, Ford Motor’s futurist. Richard Dix, CEO of home-builder Winchester Carlisle, believes that “millennials are acting very much like their parents— just in a dramatically delayed way. Their front-end life stages are much more elongated than [boomers’] were. When they take that next step and get married they tend to fall very much in line with what we look at as traditional behaviors.” Winning CEOs in the coming decade will be able to separate fact from fiction and act accordingly. We examined some conventional wisdom about millennials, and found examples of companies making some right—and some wrong—bets:

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MILLENNIALS ARE ALL ALIKE. WRONG. Just as a 72-year-old boomer is wildly different from a 54-year-old boomer, a freshly minted college graduate experiences life very differently than a father of three kids who is pushing 40 and been in his career for 15 years—though both are millennials. And how they grew up may have exacerbated some of those differences. “Someone in that first five to seven years of the millennial generation has a lot more in common with [older] Generation X than with a 25- or 26-year-old,” says James Rigney, Thor’s senior director of marketing. “So your marketing needs to double down on their particular life stage.” Also, Generation Y was “split right down the middle by the financial crisis of 2008,” notes Ford’s Connelly. Visa SVP of North America Marketing, Mary Ann Reilly, adds, “You need to break them into older and younger. Older ones are more like their parents, and that really may be more of an age thing and where they’re at in their lives. They begin to have more similarities to older generations. But millennials who are 28 or younger, there’s a question whether they’re changing that way.”

LOVE THE CITY, HATE THE SUBURBS. WRONG. The idea was that Generation Y would flock to old city centers like Detroit and St. Louis and revive them, spurning the leafy exurban enclaves where many grew up. That has happened to a degree. But millennials’ migration to urban cores leveled off in 2015. In part that was because rents rose and availability of apartments tightened. Another factor: It turns out millennials—like the generations before them— prefer suburbs for raising their children. “The oldest of them are starting their own families at a later age than any time in U.S. history and finding what other generations have found: that for families, suburbs are the best locale,” says Chuck Underwood, a generational-study consultant. Dallas-based Winchester Carlisle is booming by creating affordable starter

homes for millennials in the suburbs of North Texas and elsewhere. “They’re a big part of the housing recovery,” Dix says. “And one way they are different is that they want more efficient homes. They want things that are more utilitarian than wasteful.”

DON’T KNOW THE VALUE OF A BUCK. FALSE. After all, millennials are the Amazon Generation, shaking up traditional retailers like Toys ‘R’ Us and Macy’s with their stay-athome bent for e-commerce. They’re doing it for the savings as well as the convenience. And millennials are the only generation currently increasing their use of coupons. “They grew up during the Great Recession and watched their parents live on a tight budget,” says Curtis Tingle, CMO of direct mail promotion company Valassis, based in Livonia, Michigan. “They’ve gone through a decade-long recovery, but all of this made millennials the most promotionally sensitive generation.” Meal-kit startups, one of the hot plays in the last few years, found out painfully that millennials aren’t willing to pay through the nose to have someone deliver a box of pre-chopped and proportioned supper ingredients. Blue Apron and Hello Fresh are among the meal-kit makers facing existential reversals, and Chef’d ran out of cash and suspended operations for a time, even with the high-profile backing of Campbell Soup and Smithfield Foods. Racine, Wisconsin-based SC Johnson, maker of Windex and Glade, plays to this aspect of the millennial mindset by making sure its household-cleaning brands cover the full price spectrum. “You can’t just play in the premium-products segment,” says CEO Fisk Johnson. “You have to offer millennials more economic options as well, because some are very price-sensitive.” Uniquely, also, millennials are dealing with the bulk of the student-debt overhang placing tremendous financial stress on their generation. “Contrary to popular belief,” says Visa’s Reilly, “millennial women are more conservative spenders than previous generations. They’re more career-driven,

but they’re also concerned that they don’t make enough money.”

DON’T WANT TO OWN OR DRIVE VEHICLES. FALSE. Several years ago, automaker CEOs fretted that millennials didn’t seem nearly as interested in owning or even driving cars—or getting their driver’s licenses, in fact—as earlier generations. Would this lack of automotive passion combine with a ride- and car-sharing future to kill the car industry as they knew it? Not so. It turned out that the financial constraints of the long recession hampered car ownership. As Generation Y comes into its own financially, its members have actually been responsible for all new-car sales growth in 2018, according to Experian. “Thirty-five percent of large SUV buyers are between the ages of 35 and 44,” a cohort that includes some GenXers, says Erich Merkle, sales analyst for Ford. “As millennials age into this timeframe, there will be even more of a need for three-row products.” Spectrum Brand Holdings even sees a path to getting millennials to obsess over their cars’ appearance the way boomers do. Its Armor All brand has introduced car-exterior wipes that don’t require a hose or bucket. “Deep down, millennials have the desire to do this themselves and feel good about it,” says Jamie Kistner, vice president of marketing. “It’s about finding the time to do it.”

USE SMARTPHONES FOR EVERYTHING. FALSE. That’s certainly how they take in and give out information, which has prompted companies to radically shift toward marketing that relies on social media and digital and mobile channels. But even with the prevalence of apps, augmented reality and AI, millennials still want a strong human element for some services. For example, millennials’ use of traditional travel agents has more than doubled since 2015, according to Travel Leaders Group, a Plymouth, Minnesota-based outfit with 52,000 agents. “Conventional wisdom would argue that we’ve got this hyper-technology-enabled population of people who are obviously native to mobile and the Internet, so why would they

CEOs have long known how much is at stake with the millennial market, a collective 70-millionsome shoppers born between 1981 and 1996

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CASE STUDY be interested in using travel agents?” says CEO Ninan Chako. “It turns out that the literally infinite resources online don’t help them come to decisions any better or faster. Plus, millennials want unique experiences that they can put on Instagram—and that’s where experienced travel agents are helping them.” Meanwhile, the real estate company Winchester Carlisle has been astounded by this group’s demand for old-fashioned classroom instruction in the intricacies of home buying. “We offer two-hour classes on weeknights and four-hour sessions on Saturdays, and [millennials] come in and want to hear about every single aspect of the transaction,” says Tara Williams, president of the Carlisle Title division.

LIKE ONLY BRANDS THAT CONVEY ‘MEANING.’ FALSE . It’s millennials, not the Woodstock Generation, who forced brands to embrace sublime values beyond merely offering goods and services of high quality or at affordable prices. CEOs have adopted a broad mentality toward “sustainability” and other green values to satisfy Generation Y alone. However, “while millennials are more globally minded and politically active than other generations, they don’t need their brands to be,” says Jeff Cartwright, managing director of content for Morning Consult, a Washington, D.C.-based research outfit. It’s true that only 25 percent of millennials surveyed recently by Morning Consult said they’ll buy from companies they know have labor practices they don’t support. But only 29 percent said they would avoid buying from companies with political positions different from their own. So, brands should focus on imbuing meaning not in some politically declarative way but rather in the sense of “having a purpose and caring about [consumers] in a way that isn’t viewed as trite,” Reilly says. That’s what Culver’s CEO Craig Culver had in mind with TV ads last summer for the line of new chicken sandwiches at the 650 fast-food restaurants owned and franchised by the Prairie du Sac, Wisconsin-based chain. The ads feature him and his daughter—a millennial mother of two—as they tour a Georgia chicken farm and talk with the owner about the quality of his flock. Generational expert Underwood says that millennials have “no brand snobbery,” unlike boomers and GenXers, but care about practicality and price. And because of social media, they are more able and willing to jump on brands that they like—or away from those they dislike.“They want to save the whole damned world and put their money where their values are, like boomers,” Underwood says. “But because they have unprecedented debt, they also have to be careful about their spending. They look for quality products at a good price.” Kids these days.

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How Thor Got Millennials RVing Big, gas guzzling and traditionally associated with retired geezers, recreational vehicles would seem to be a tough sell to millennials. So much for conventional wisdom. It turns out that millennials are flocking to RVs—and RV makers have only begun to target them effectively. “What do [millennials] like to do? Enjoy the outdoors and spend time with friends and their families,” says Bob Martin, CEO of Elkhart, Indiana-based Thor, owner of Airstream, Jayco and other RV brands. “If they’ve got a kid in sports and they’re at an all-weekend soccer tournament, and they’re there for 12 hours in a parking lot, it can be a great thing to have air conditioning and a bathroom.” Thor’s approach to millennials is that the company seeks out participants in outdoor-oriented or RV-ready lifestyles, such as tent camping, rather than looking at them monolithically. “We’re talking about emotion, a sense of community and other drivers of behavior, and those don’t appear or disappear depending on when you were born,” says James Rigney, senior director of marketing, who recently came to Thor with a background in promoting brands popular with millennials including GrubHub, Red Bull, Converse and MTV. To attract millennials, Thor tries to tap into their social-media conversations, such as fan enthusiasm around music festivals, and then intimate that its vehicles could make their experiences more enjoyable. “We provide a great story or tidbit of information within their culture; we don’t interrupt them with a big ad that says, ‘Let’s go buy an RV,’” Rigney says. And Thor realizes that financial pressures keep many in this demographic from making big discretionary purchases. Dealers remind millennial shoppers they can finance an RV purchase over many more years than for an automobile and can write off the interest on their taxes as a second home. It also can help if Thor’s dealers throw in a gasoline-purchase card to close a deal. “Whatever helps them have a bit more cash in their pocket,” Martin says, “can be a tipping point.”

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C EO SUMMI T

TALENT TAKES CHARGE

In times of rampant disruption, building a high-performing, mission-driven culture may be your best shot at a sustainable competitive advantage. Here’s how.

“Look people in the eye and know that you have purpose and they have purpose. If they don’t know what theirs is, help them figure it out.” —BRIGADIER GENERAL (RET.) REBECCA HALSTEAD

ithout question, the talent game is changing, and companies that don’t change with it—in fact, ahead of it—will lose out. Economics, demographics, workforce trends and technological innovations are all factors in that imperative. Only 6 million Americans are currently unemployed, which is good news for the economy, but not such great tidings for employers already struggling to fill key roles and retain talented workers. Megatrends like millennials dominating the workforce, connectivity reshaping the way we work and the rise of the gig economy all demand a response from today’s leaders, who are charged with adapting their organizations to talent’s new reality. As Brigadier General (Ret.) George “Barney” Forsythe told 150 CEOs gathered for the 2018 CEO Talent Summit at West Point, “What got you here may not get you where you need to go.” Held in partnership with the Thayer Leader Development Group, the event took place at the nation’s premier leadership acade-

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my, a particularly apropos setting for the discussion, given that the U.S. military navigated a similar challenge in the wake of the Cold War. “The leadership development culture that was successful in an era when we knew who the enemy was, where they were and how to train to deal with it, was not the way to develop leaders for a more volatile, uncertain and complex environment,” said Forsythe, who recounted an ambitious, ultimately successful effort to overhaul West Point’s development of cadets. “We now required leaders who were flexible, adaptive, innovative, creative, willing to take risks.” Operating in the civilian world, today’s businesses face a similar challenge—one made more complex by a workforce that’s demanding more from employers. This era demands new ideas for leading people: fostering a powerful sense of purpose, harnessing technology and, most of all, challenging top performers to win in the face of volatility, digital disruption and fierce competition. Ideas and insights follow.

PHOTOGRAPHY BY ALYSSA RINGLER

BY JENNIFER PELLET

LEADING TEAMS IN UNCERTAIN TIMES When Bob Leduc took the helm of aviation giant Pratt & Whitney in 2016, he found an organization in desperate need of change. “The culture was toxic, we didn’t see open and honest communication and the company—which had always been a market leader—was facing innovation as a competitive threat,” he said. In bringing agility to a company culture mired in approval processes and procedures, employee empowerment ultimately proved the most effective tool, albeit one that introduced risk. “You need to accept the fact that some outcomes will not be what you hoped for—and you have to give your employees a safety net,” Luduc cautioned CEOs. 7-Eleven CEO Joe DePinto faced a similar challenge when his stores began to see transaction declines as a result of more consumers shopping at home and taking “trips off the street” in 2017. Digitally enabling 7-Eleven in response entailed steering the company toward a servant leadership structure, essentially flipping the pyramid so that management was supporting store owners and customers rather

than presiding over them. “Without culture change you cannot take a company that is non-digital at its core and change it into a digital organization,” recounted DePinto. It’s also critical for leaders to model the behaviors they seek, added Robert Weidner III, CEO of Metals Service Center Institute, who steered a turnaround at the 109-year-old trade organization. “Often, it’s not what is said that really drives organizational change, it’s what people observe about your behavior,” he said. “The effect of nonverbal communication on the part of leaders is far greater than any words coming out of their mouths.”

General (Ret.) Dennis Reimer, Pratt & Whitney’s Bob Leduc, 7-Eleven’s Joe DePinto and Metals Service Center Institute’s Robert Weidner

LEADERSHIP DEVELOPMENT: THE WEST POINT WAY In a two-hour keynote presentation, Brigadier General (Ret.) George “Barney” Forsythe, Ph.D., outlined the U.S. Military Academy’s best practices for leadership development. Highlights: Be the standard. Leaders at all levels drive the organization culture, but you as the executive set the culture. Understand that whatever you do and care about is what will matter to your people. Empower your team. Get out of the way and allow people to do their work. One of the ways you develop leaders is by allowing people to make meaningful significant decisions at their level and be accountable for them. Evaluate performance through multiple touchpoints. Assess and measure performance at multiple points of time in multiple ways, from formal 360-degree feedback to informal observations about specific behaviors as you walk around and see people performing in their roles.

Strategically create the organizational design, systems and procedures that will take you where you need to be. The Army realized that if they were going to change for a post-Cold War world, they had to be more flexible and adaptive. They rebuilt the West Point’s Cadet Leader Development System accordingly. Make developing others a core competency. To build a strong leader development culture, developing others has to be part of the job description and part of assessment process at all levels of the organization. The Army assesses leaders on how well they do at providing growth opportunities, coaching, feedback and training opportunities.

Brigadier General (Ret.) George “Barney” Forsythe

Formalize and communicate leadership beliefs. Think about your core values and how you want those values to be demonstrated in your organization. Write that philosophy down and share it with your organization to set expectations for yourself and others.

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CREATING CONNECTION Ironically, given the 24/7 connectivity that technology now allows, it’s connection that today’s employees most crave and that workplaces often lack. Human connection, that is. The temptation to shun time-consuming face-to-face meetings in favor of tech-enabled messaging is robbing companies of a valuable form of retention—relationships.

Author Dan Schwabel, Citizen’s Bank’s Jessica Latimer, Hawke Media’s Eric Huberman, Xandr’s Ilona Jurkiewicz

Ilona Jurkiewicz, senior people partner at Xandr, recounted relearning this fundamental truth when she changed jobs. “The first thing my [new] manager said to me was, ‘Take people to dinner, lunch or coffee; this place functions on relationships. You will not be invited into the room—you will not know there is a room—if you don’t build relationships.”

Research increasingly shows the hallmark of the highest-performing workplace cultures— is a sense of authentic connection with others. “Millennials in particular are demanding a lot more out of their employment relationship; they have a stronger tie to purpose, job satisfaction and making a connection with their work than any other generation,” noted Tony Steadman, principal of Ernst & Young’s global people advisory practice. While compensation still ranks highly on most surveys about what motivates employees, Dan Schwabel, research director at Future Workplace and author of Back to Human: How Great Leaders Create Connection in the Age of Isolation, said those results are misleading. “It’s not so much that money is a motivator as it is that people want to be compensated fairly,” he said, pointing out that pay data is readily available to workers interesting in knowing how their comp stacks up. “So if I feel I’m not being paid fairly I might leave.” More than any mission statement or compensation package, today’s workers seek deep connections and a sense of a fulfillment from their places of work, agreed Erik Huberman, CEO of Hawke Media, who says employees “are there for each other, for the entire team,” rather than out of loyalty to his company or its leadership. “Very few people, including the CEO, are there because of what the mission statement says on the wall.”

TOP TALENT TAKEAWAYS

technostress and be prepared to help team members avoid having technology becoming a hindrance rather than a help.

1. Develop a personal leadership statement. Define what leadership means to you and how you want to behave and operate as a leader and set that philosophy down in writing to help stay on track and hold yourself accountable.

3. Communicate, communicate, communicate. Rallying team members around strategic vision requires constant communication—and going back and making sure that what you have communicated is what has actually been heard and understood.

2. Use technology appropriately for your organization’s purpose and culture. Understand that tech tools can breed

4. Embrace servant leadership. A mindset of enabling and supporting others will permeate at all levels, creating a culture of

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“Your ability to get, retain and develop talent is contingent on your ability to have a better working environment than the companies you’re competing with for labor.” —TONY STEADMAN, PRINCIPAL, ERNST & YOUNG

commitment to collaboration and personal accountability. 5. Develop resilience and adaptability. Avoid channeling team members into roles where they will stagnate by making a conscious effort to cross pollinate and place high-potential employees in stretch positions. 6. It’s never too late for change—or too hard to accomplish. No matter where you are now, you can still move from a reactive position as a company, a leader or an employee to a proactive position.

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C EO ROU NDTAB LE

THE UNCONVENTIONAL WORKFORCE Smart CEOs are turning to new sources and taking innovative approaches to get great people. BY C.J. PRINCE

“I see it as exciting to see all the different ways that we can engage people to come either off the sidelines to be a part of the workforce.” —BLAIRE MILO, STATE OF INDIANA

WHEN IT COMES TO ACQUIRING talent, there’s no getting around the fact that it’s a seller’s market. Unemployment fell to 3.7 percent in September, the lowest level since 1969, according to the Department of Labor. Finding and keeping the best and brightest has become the top challenge for all U.S. companies, agreed executives gathered for a recent CEO roundtable discussion sponsored by the Indiana Economic Development Corp. “It’s a war out there,” said PierreYves Lesaicherre, CEO of semiconductor equipment manufacturer Nanometrics, of the competition in Silicon Valley, where his company is based. “When Google is not hiring your HR people, it’s Apple hiring your finance people, so it’s really hard to attract and retain people.” Fierce competition is motivating companies to look beyond typical talent pools to target prospective employee groups that traditionally have not been a focus: veterans, the formerly incarcerated, the undereducated, the disabled, parents returning to the workforce and retirees, among others. “We’re looking at those populations to see, how do we take away a barrier? How do we skill them up? How do we recruit?” said Elaine Bedel, president of the Indiana Economic Development Corporation. Indiana’s unemployment, at

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3.5 percent, is even lower than the national average, but Bedel points out that workforce participation, currently at 65 percent in the state, could be higher. “I see it as exciting to see all the different ways that we can engage people to come either off the sidelines to be a part of the workforce, or develop those future opportunities,” agreed Blaire Milo, secretary of career connections and talent for the State of Indiana. Reaching Deeper In bringing in such employees, intentionality can make all the difference. To attract veterans to businesses in Indiana, the state created the NextLevel Veterans program, which connects with veterans “while they’re still on military bases making the decision on where they’re going to go once they make the transition,” said Milo, who is also a Navy veteran. “In that process, [we connect] them with an employer with some incentives for relocation assistance and housing assistance.” For companies seeking highly skilled workers, the veteran pool is fertile soil. Carlos Borjas, president of steel maker Feralloy, regularly hires veterans for maintenance jobs that require a high degree of technical skill. “Right now, that is one of the most demanding jobs in our companies, and where we have less people available in the workforce,” he said. “[Veterans] have great skills and their discipline is fantastic.” Gary Metcalf added that Peckham Industries has been intentionally replacing departing managers with veterans. “They just step the game up totally differently,” he said. “They know how to interact with a

labor force where they are unionized. They have a keen ability to focus on what we do every day.” Correctional facilities represent another untapped source. With the right initiatives, companies can make the transition from prison to work easier and more successful long term, said Bedel, pointing to two programs implemented in Indiana. One was a welding program at a women’s prison that only offered inmates training, but made sure they had jobs before their release. “That keeps them from going back to an old lifestyle that they needed before,” she said. The other program brought coding classes into prisons, training inmates for jobs that not only pay, but pay well. “They need a career path,” Milo said, “not just a job that they may or may not be able to get because of the stigma of some decisions made in the past.” There are challenges to be sure, particularly with high recidivism rates in the U.S., but when talent is scarce, every source must be mined. Laco, a contract manufacturing company based in Reno, works with a local correctional facility to rehabilitate light offenders and put them on a path to work. While retention rate among that group is at just 20-25 percent, “we’re still doing it because that’s one source at least,” said CEO Erika Meciar. Former addicts are another potential talent pool. Bedel pointed to a company in Indiana that sends job applicants who failed the drug test to rehab to get clean. “When they get out, they have a guaranteed job with that business,” she said. Talent With Staying Power For manufacturers of all kinds, the labor pool feels even smaller, not only because of skills needed but the stamina to stick with manual labor. While medical marijuana company KDBF Ventures, for example, attracts young employees, their enthusiasm tends to wane after long hours in hot greenhouses. “It’s hard to find and keep people once they find out that jobs are hard,” said J.D. Peckham, principal with KDBF Ventures.

Workers are rotated between jobs so they each get a chance to do, say packaging, which is less physically demanding. But Peckham has also told managers to try to screen out employees who are likely to become disillusioned quickly or have unrealistic aspirations. “A lot of our early hires expected the American dream to happen [really quickly]—you hire them, they work on the floor, and then in a year and a half they’re managing the entire plant,” said Peckham. One group KDBF has been targeting seems to have both the wherewithal and a grasp of reality are parents who left the workforce to raise children and are now getting back in. “They have the stamina, they’re used to long hours and they’re usually dedicated. They have real goals they want to achieve,” said Peckham, noting that about 50 percent of the management team has been hired through this initiative. Another unlikely source for stamina: retirees. Kansas City-based Associated Wholesale Grocers, which provides more than 5,000 retail grocers with products and services, facing a shortage, brought its retirees back to work, as consultants or temporary employees. “We saw a significant exodus of talent at a time when we were having the most significant growth, so we went to some of our alumni and have had quite a bit of success with that,” said

“ We’re looking at

those populations to see, how do we take away a barrier? How do we skill them up? How do we recruit?” —ELAINE BEDEL, INDIANA ECONOMIC DEVELOPMENT CORPORATION

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More and more companies are developing programs to partner with local schools, at younger grades, to introduce students to the trade.

human resources SVP Patrick Reeves. It was a perfect synergy, added CEO David Smith. “We were in a time of need and they were enthusiastic. They came in with great gusto, guns a’blazing.” That enthusiasm sharply contrasts the next generation’s attitude toward manufacturing, added Smith. “Manual jobs are jobs they just don’t aspire to have,” he said. Nancy van Ginkel, VP of finance for Mantaline, agreed. “We’ve noticed that to go from playing video games to standing for eight to 12 hours in the heat is a large transition,” she said. Early Onboarding Manufacturing’s image problem has been a source of angst for some time—and it’s a barrier to tapping perhaps the largest potential pool of employees: school-age kids. More and more companies are developing programs to partner with local schools, at younger grades, to introduce students to the trade. GH Metal Solutions, for example, recently partnered with a local high school to bring three students into the plant for one full semester, every afternoon for a couple of hours, to learn welding. “When they graduated, we hired all three,” said Edwin Stanley, vice president of operations, who recently approached the same teacher to find more students to recruit. “I

Roundtable Participants Top row, from left: Patrick Reeves, SVP, Human Resources, Associated Wholesale Grocers

Kristi McKenna, Director of Operations, Regency Memory Care

Edwin Stanley, VP, GH Metal Solutions

Kathleen Drengler, VP, Human Resources, Greenheck

Gary Metcalf, VP, Peckham Industries Jack Guffey, Senior VP, Lewis Tree Service J.D. Peckham, Principal, KDBF Ventures

Blaire Milo, Secretary of Career Connections and Talent, State of Indiana

Erika Meciar, CEO, Laco

Arturo Marroquin, General Manager, Feralloy

Neil Ferguson, VP, Manufacturing, Kimray

Nancy van Ginkel, VP, Finance, Mantaline

Carlos Borjas, President, Feralloy

Pierre-Yves Lesaicherre, President & CEO, Nanometrics

David Smith, President & CEO, Associated Wholesale Grocers

Bottom row, from left:

Dan Bigman, Chief Content Officer & Editorin-Chief; Chief Executive Group

Elizabeth Barry, President & CEO, Delta Systems

Elaine Bedel, President, Indiana Economic Development Corp.

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don’t know if that will be sustainable, but we’ll keep asking. We have to get that generation coming out of high school to warm up to manufacturing.” Elizabeth Barry, CEO of Delta Systems, thought the outreach should start even earlier, to counteract the enormous pressure to choose higher education. “We discourage the tinkerers of the world by saying, ‘Everybody has to go to college, and if you’re not, you’re a failure,’” she said. The industry should make first contact in middle school and then follow that up with programs for high schoolers, she said. “My goal is to hire someone from Streetsboro High School and have them go back the next year in a Mustang.” The connection works in the reverse, as well. Some businesses in Indiana have hired teachers during the summer as interns. “Sometimes just for a week or so, but so they understand what the business does, and they can communicate that better to students,” said Bedel. “That’s been very successful.” The state also adopted another new program known as “Graduation Pathways,” which will require every high school graduate to have completed either a project-based learning, a service-based learning or an experience-based learning project, usually in partnership with private industry or nonprofits. “Not only does that create the exposure to the student of what this really is like, but it’s developing those employability skills early so they’re understanding punctuality, working on a team, all the different core concepts of how work can be hard at times,” said Milo. One tried-and-true method of attraction is focusing on being “an employer of choice,” said Kathleen Drengler, vice president of human resources for Greenheck, which is based in Schofield, Wisconsin, where unemployment is at 2.6 percent. Greenheck is part of a community initiative designed to upskill employees from other industries into more technical manufacturing jobs without those people having to return to a formal school program. “We’re just getting going so I don’t know if it will work, but we’re optimistic.”

CEO ROUNDTA BLE

CATALYZING CULTURE How companies leverage leadership purpose to engage, connect and align employees. BY JENNIFER PELLET UBER, UNITED AIRLINES, WELLS Fargo—there’s nothing like abject failure to call into sharp relief the perils of neglecting that all-important, but oh-soelusive success factor: corporate culture. Whether by default or by design, every company has one. It influences employee behavior and engagement, affects stakeholder expectations and shapes the way companies as a whole approach every aspect of their businesses. It’s culture, ultimately, that will determine whether your company will make headlines for inappropriately berating employees, manhandling an irate customer or incenting staffers to lie, cheat and steal—and, if it does, how adept you’ll be at recovering from the resulting maelstrom. It’s culture, also, that will enable your company to build a loyal following among increasingly jaded and fickle customers, to become an employer of choice and to create and sustain a reputation for integrity and excellence, agreed CEOs participating in a recent roundtable discussion co-sponsored by PURE Insurance. “The best way for us to look at culture is that it’s the way our employees view the world,” said Ross Buchmueller, CEO of PURE Insurance. “If we can have them see that world in a way that affects their actions, in a way that drives results, we have created a successful culture.” Yet, this key aspect of long-term performance is difficult to develop, and even more challenging to nurture and sustain while navigating growth and coping with competitive pressures. All too often, companies take the time to define well-intentioned and inspiring standards of performance only to have them fall by the wayside.

“That happens a lot,” said Glenn Tyranski, managing director of FTI Consulting. “You spend so much time, money and energy drafting your code of conduct and mission statement. Then, before you

“The best way for us to look at culture is that it’s the way our employees view the world.”

know it, you go out and do something completely the opposite of what it says— and you have to suffer the consequences of that, whether through your employees, your customers or, more likely, the press or the analyst community.” “We’ve handled many litigations where people who were terminated or felt they were discriminated against took that list of rules companies were going to abide by and said, ‘Look they failed with number three, number seven and number nine,’” agreed Vince Cino, chairman of Jackson Lewis. “It’s an incredibly powerful argument that we have to try to defend against because it’s not legalistic, it’s

NOVEMBER/DECEMBER 2018

—ROSS BUCHMUELLER, PURE INSURANCE

CHIEFEXECUTIVE.NET

Left: Jackson Lewis’s Vincent Cino, Strativity’s Lior Arussy; Right: GCW Capital’s Thomas Waring, Yale University’s Jeff Sonnenfeld, Girls Inc.’s Judy Vredenburgh

moralistic: ‘You said this was what you were going to do and how you were going to behave and then you failed that.’” Equally damaging are scenarios where star performers or top leaders are forgiven their cultural transgressions, undermining everything for which a company stands. “When you see bad behavior and the reaction is ‘Oh, that’s just so-andso being so-and-so,’ or ‘We’ll give that person a little rope because he or she is a top producer,’ that ends up blowing up in a magnified way,” noted Fred Crawford, managing director of AlixPartners. “All you have to do is think about Uber. There were massive signals of bad behavior and the board didn’t act until it blew up.” How, then, can CEOs create a framework for culture that is effective and durable, able to adapt to a changing environment over time? Getting culture right demands both authenticity and a commitment to constant vigilance, noted Buchmueller. “A friend of mine described culture as being like a quilt,” he said. “You’re either pulling at the threads or you’re stitching it tighter. And you have to decide what you’re doing every day to [pursue] that.” Keeping It Real “Everything flows from authenticity,” agreed Tom Rogers, CEO of TRget Media. “To believe in a leader, the leader has to come off as authentic, but unfortunately, that’s hard for CEOs. They’re in a position where they have to defend, spin and

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sell their companies and employees tend to see those kinds of appearances and performances and think, ‘Gee, that’s not the world as we understand it to be.’ So you have to confront head-on the idea that a CEO put in the position of needing to be a salesman is potentially in conflict with the whole notion of being authentic. “That really puts a lot of strain on the issue of how do you really connect to employees, to make them understand you’re not bullshitting them,” he said. “I think the biggest issue there is to really understand that you have to let employees challenge, have input, make sure that their views on issues, which may not be as comforting or as benevolent as the ones you’re putting out publicly, need to be grappled with, need to be handled head-on.” To that end, Vince Bertram, CEO of Project Lead the Way, urged CEOs to delve more deeply into the organization to truly take the pulse of the organization’s culture. “It’s easy to sit and talk with your senior leadership team, but you have to move down several levels and ask questions,” he said. “You can’t isolate yourself with people who will filter the information you need. You need to be willing to get out there and talk with your people and your customers and see what people are doing to understand the culture.” CEOs and the companies they lead must also have the courage to present a consistent message across constituencies and to take action when leaders or employees fail to uphold cultural values,

noted Crawford. “Nothing takes the heart out of an organization faster than when the stated values and reward systems— the stuff on the wall—is put in stark contrast to executive behavior,” he said. “And in a crisis, particularly, when the pressure is on, that little compass had better stay north.” Stanley Bergman, CEO of Henry Schein, drew a distinction between non-negotiable corporate values—in his company’s case a devotion to teamwork, respect and dignity for all—and company culture. “Values last from the beginning of the company to eternity,” he said. “Culture is born from [them], but it has to be adaptable; it has a purpose and that purpose can change. I want to empower my team to challenge my culture every single day, but no one challenges the values. They are a constant.” Power to the People Employee empowerment is a critical component of a functioning culture, agreed Lior Arussy, CEO of Strativity. “Culture is what happens when you, the CEO, leaves the room, not when you’re in the room. Because you can be as purposeful as you want, as values-based as you want, but if your people cannot actually go and do something different in the name of those things, or if the tribal culture rather than the one on the wall tells them not to do it, then this is all useless. It’s a poster.” Giving employees the wherewithal and right to do as they see fit requires a leap of faith, but the upside is enormous, he added. “I know it’s terrifying for a control-based, predictability-based CEO, who likes to have numbers, a pie chart and an Excel chart when making decisions,” Arussy acknowledged. “But as we digitize everything else, what’s going to be left for the organization to be relevant? It is the ability to create a differentiating experience—which depends on a series of personal choices of employees about whether or not to bring their best to work. You can pay someone to smile, but you can’t pay them to smile sincerely. That’s a choice.”

In addition to helping prevent employees from veering off course, strong core values will ensure that the company responds appropriately when missteps do occur. Consider the difference between the responses of Starbucks and United Airlines, respectively, to incidents involving customer treatment, suggested Jeff Sonnenfeld, president, Yale University’s Chief Executive Leadership Institute, who pointed out that the airline’s tepid reaction allowed its public relations crisis to escalate exponentially. “Juxtapose that with how Starbucks reacted to what could have been a major crisis,” he said. “It’s about making sure that you communicate when things go well, but also when things don’t go well and what you’re going to do about it. Cultures are reinforced or weakened dramatically at these flash points. Those are the moments where true leadership is expressed and in a really highly focused way.”

“Culture is what happens when you, the CEO, leaves the room, not when you’re in the room.” —LIOR ARUSSY, STRATIVITY

Roundtable Participants Top row, from left: Glenn Tyranski, Managing Director, FTI Consulting Stephanie Hobson, CEO, Libera Vince Bertram, President and CEO, Project Lead the Way Fred Crawford, Managing Director, Alix Partners A.J. Caffentzis, Vice President, Henry Schein Jeff Sonnenfeld, President, Yale School of Management’s Chief Executive Leadership Institute Lior Arussy, CEO, Strativity Tom Rogers, Chairman & CEO TRget Media

Thomas Waring, Principal, GCW Capital Group

Bottom row, from left: Judy Vredenburgh, President & CEO, Girls Inc. Christopher Missling, President & CEO, Anavex Life Sciences Stanley Bergman, Chairman & CEO, Henry Schein Ross Buchmueller, President & CEO, PURE Keith Denham, Managing Principal, CohnReznick Vincent Cino, Chairman, Jackson Lewis

NOVEMBER/DECEMBER 2018

CHIEFEXECUTIVE.NET

EC O N O M I C D E VE LOPME NT

REGIONAL REPORT

THE MIDWEST

The Midwest’s urban areas are carving out hubs in tech, life sciences and manufacturing. BY CRAIG GUILLOT FARMING REMAINS A BEDROCK GDP-driver across the Midwest, but new opportunities are emerging. In Michigan, the auto industry has given rise to new growth in cybersecurity. Iowa is blowing in new opportunities through its growing wind energy power, and in Nebraska, corn and agricultural assets are now being used to create fuel and Omega-3 fatty acids. Expanding into new areas is a common theme among Midwestern states.

*No. ranking in the 2017 Chief Executive Best & Worst States for Business (ChiefExecutive. net/2017-Best-Worst-States)

5* INDIANA

new companies and attracting new investors as well,” says Indiana Secretary of Commerce Jim Schellinger. Prominent happenings in the Hoosier State in the past year include the inaugeration of Infosys’s technology and innovation hub, a $160 million facility in South Bend for electric car manufacturer SF Motors, 600 new jobs at Republic Airway’s commercial pilot training center in Indianapolis and a $600 million investment by Toyota in its Princeton facility.

GROWING A TECH HUB Leaving one foot firmly rooted in agriculture, Indiana is making big leaps in the tech sector. Indianapolis-headquartered Interactive Intelligence and ExactTarget were respectively acquired by Genesys and Salesforce in 2016 for a combined $4 billion, solidifying the state’s position in tech. Startups have been blossoming ever since, and 21 Indianapolis companies made the Inc. 5000 Fastest Growing list in 2017. “It’s a close-knit tech community that continues to feed into itself… helping launch

DEVELOPING SECTOR STRENGTH Formed in 2011, JobsOhio now has a few years of records under its belt. McKinsey & Company recently rated the agency as consistently performing at or near the top five of its peer organizations with strength in deal-making, customer satisfaction and transparency. “People are really noticing the transformation,” says JobsOhio President and Chief Investment Officer John Minor. “The busi-

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10 OHIO

INDIANA In March, Infosys inaugerated its flagship technology and innovation hub in Indianapolis. ness environment, the balanced budget, the financial stability… There’s a platform here that’s really created an economic development model unlike any other.” The state attracted 30 new biomedical and healthcare companies and $503 million worth of equity investments in 2017, according to a recent report by BioEnterprise. On the IT side, Hyland Software recently completed another expansion at its Cleveland headquarters and has added 1,300 new jobs in the past several years. Fintech also continues to thrive in Ohio. “We’re seeing a lot of momentum and opportunities in our cross-sector initiatives… This diversification we have is a real positive for the state,” Minor says. 13 WISCONSIN INVESTING IN 21ST CENTURY TALENT The Badger State is working on a “pretty aggressive” talent strategy, says Tricia Braun, CEO of the Wisconsin Economic Development Corporation. Initiatives include public-private partnership apprenticeship programs and even training facilities in jails and prisons. One program offers grants for K-12 schools to build fabrication labs that enable students to learn about everything from CAD design to 3D printing. “If you can name it on the workforce development spectrum, we’ve been investing it in somewhere to the tune of $340 million over the last [few years],” Braun says. The state is also luring talent. “We’re targeting millennials, primarily in the Midwest, folks that graduated from a university or college in the state and moved away,” Braun adds. “We’re also looking at vets transitioning out of the military.” Other projects include a $10 billion manufacturing facility for Foxconn and German confectionary company Haribo’s first North American manufacturing facility. Green Bay Packaging recently broke ground on a $500 million paper mill, and Milwaukee Tool is adding another 350 jobs at its facilities in Brookfield.

14 IOWA WIND ENERGY OPPORTUNITIES New wind farms continue to come online in Iowa, including two from Invenergy with 80 turbines each that can generate a combined 400 MW. Berkshire Hathaway-owned MidAmerican Energy plans a $922 million investment in a 591 MW wind farm. “[Wind] has provided abundant reliable and affordable power to our market and helped us attract a number of data centers,” says David Maahs, executive vice president of the Greater Des Moines Partnership, who says the state has seen $6.5 billion in data center investments in the past two yerars. Last August, Apple acquired 2,000 acres of land in Waukee for a massive data center complex. And Facebook, which broke ground on a $1.5 billion data center in Altoona last year, continues to expand. However, a low unemployment rate of near three percent, coupled with fast-growing companies has put a pinch on human capital. In April, Gov. Kim Reynolds signed the Future Ready Iowa Act, which aims to ensure 70 percent of Iowa workers have a post-high school education by 2025. 16 SOUTH DAKOTA NEW SCIENCE Expanding beyond banking, South Dakota is cultivating new opportunities in innovation and science. The Sanford Underground Research Facility in Lead is growing as a top research center for particle experiments. The site is home to the Deep Underground Neutrino Experiment where contractors will install a 70,000-ton neutrino detector capable of beaming neutrinos underground 800 miles to the Fermi National Accelerator Laboratory outside of Chicago. “There’s continued demand for innovation and we have a lot of really smart people there. You couple that with the [low costs], and it makes us a great place for that type of research and activity,” says Scott Stern, commissioner of the South Dakota Governor’s Office of Economic Development.

IOWA The Hawkeye State generates 37 percent of its power from wind.

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facility in Blair that will produce Omega-3 fatty acids EPA and DHA by mid-2019. “There’s a lot of technology that’s happening right here in Nebraska that is truly unique to our state. It can change how we feed the world,” Rippe says. The IT sector is also experiencing strong growth, Rippe says. In March, Facebook announced a massive expansion at its Papillion data center, which will use wind power from the Omaha Public Power District.

KANSAS Workforce initiatives are helping to fuel growth for aviation companies in Kansas.

Things are also happening above ground in South Dakota. Terex Utilities, an electric utility equipment manufacturer, announced in April plans to consolidate in a new state-ofthe-art manufacturing facility in Watertown. And Agropur also broke ground in February on a substantial expansion of its cheese manufacturing facility in Lake Norden. 19 KANSAS AVIATION GAINING ALTITUDE Kansas’ aviation industry continues to gain altitude. Spirit Aerosystems plans to invest $1 billion and add 1,000 jobs to its Wichita headquarters within the next five years, accessing the state’s Workforce Aligned with Industry Demand initiative. “Aligning the needs of Kansas employers with education provided by schools, colleges and universities requires a fresh look at how our educational system is teaching students,” says Bob North, interim secretary of the Kansas Department of Commerce. Logistics and distribution are also growing in Kansas. Logistics Park Kansas City, a 1,700acre distribution and warehouse development in Edgerton, is home to BNSF’s only full-service logistics park in the U.S. In June 2018, Kubota Tractor Corporation became the first tenant, acquiring 200 acres for a one-millionsquare-foot distribution center. 26 NEBRASKA HARVESTING BIOTECH The Cornhusker State has been building a booming biotech sector, says Dave Rippe, director of the Nebraska Department of Economic Development. In September, Prairie Catalytic opened a $50 million production facility that uses Nebraska corn to produce ethyl acetate. Veramaris, a joint venture of DSM and Evonik, is also constructing a $200 million

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27 MICHIGAN MANUFACTURING A NEW FUTURE IN CYBER Michigan is leveraging its position as a leader in auto manufacturing to develop new opportunities in cybersecurity, an industry experiencing a talent shortage, says Sarah Tennant, strategic advisor of cyber initiatives at the Michigan Economic Development Corporation. The Michigan Cyber Range, which was launched in 2012, has been expanding and offers a platform for cyber exercises, product testing, digital forensics and more than 40 professional certifications. “We’re looking to grow that automotive cybersecurity talent, through the hubs, community colleges and schools,” Tennant says. In May, leading cybersecurity firm GRIMM announced a research lab in Grand Rapids. And in June, Trillium Secure, a leader in cybersecurity platforms, established its Midwest Operations and R&D Center in Ann Arbor. “We’re trying to provide the assets and resources [cybersecurity companies] need to grow,” Tenant says. 29 NORTH DAKOTA FLYING HIGH IN THE UAS INDUSTRY The Peace Garden State continues to diversify beyond oil and mining. Last year, Gov. Doug Burgum announced the Main Street Initiative to focus on workforce, smart infrastructure and inspiring vibrant communities. The state has also refined its focus on economic development and recently reorganized the North Dakota Department of Commerce, says John Schneider, economic development and finance division director. The UAS (Unmanned Aerial System) industry is one sector primed for development. In August, General Atomics announced a doubling of its workforce and expansion of

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ILLINOIS Life sciences and pharmaceutical companies have invested more than $2 billion in Illinois in recent years.

Craig Guillot is a New Orleans, Louisiana-based business writer specializing in technology and economic development.

its test center at the Grand Sky Unmanned Aircraft System Business Park near Grand Forks. Grand Sky recently became the first U.S. location to receive federal regulatory permission to allow UAS to fly unmanned, something Schneider says will likely attract more UAS companies to the region. “We’re looking at ways to get the infrastructure in place, so we can do [more] beyond vision line of sight operations. There’s tremendous opportunity and momentum in that space,” Schneider says.

tiple IPOs in the past year. Swiss drug maker Novartis also entered a deal in April to acquire Chicago-based AveXis for $8.7 billion. Biopharm company CSL Behring is working on a 1.8-million-square-foot expansion in Kankakee County. Last September, German healthcare company Fresenius Kabi broke ground on a $250 million facility in Melrose Park. “[The industry] is growing like hotcakes... It’s happening with existing companies that are already here and with new companies launching a footprint here,” says Mark Peterson, president and CEO of Intersect Illinois. That growth is being driven by talent and momentum, Peterson says. The state has also tied the sector to its foreign direct investment strategy by pitching Illinois as a centrally located, cost-competitive alternative to New Jersey and the West Coast. “The talent is here… and they can get it in a cost-effective structure,” Peterson says.

30 MISSOURI

40 MINNESOTA

ALL ABOUT POTENTIAL State officials are focusing on turning around the Show-Me State, which hasn’t quite lived up to its potential in GDP growth. The Best in the Midwest and Talent for Tomorrow initiatives are looking to take a strategic approach to workforce development, says Rob Dixon, director of the Missouri Department of Economic Development.“We have the assets to get there but it’s going to take a fundamental reset of the way we approach economic development as a state.” The new focus is already paying off. In July, Dollar Tree started operations at a one-million-square-foot distribution center in Warrensburg. Financial services company Square announced 300 new jobs in May, and Save-aLot announced a new corporate headquarters in St. Ann. Amazon also plans construction of an 800,000-square-foot fulfillment center in St. Peters with 1,500 new jobs. “It shows a new way of doing business in economic development and that we are trying to bring the entire team to the table,” Nixon says.

GROWTH IN RURAL AREAS A ranking of state economies by 24/7 Wall Street based on home ownership rate, job growth and education put Minnesota in the top 10. The state’s exports rose 15 percent in the second quarter of 2018 to $5.9 billion with most going to Canada, China and Mexico. Minnesota is trying to extend growth to rural areas, says Kevin McKinnon, deputy commissioner of economic development at the Minnesota Department of Employment and Economic Development. “It’s much broader than Minneapolis/St. Paul. This past year was interesting with a lot of things happening in rural Minnesota,” McKinnon says. One beneficiary of those recent initiatives is Thief River Falls, a community of roughly 8,000 people. In March, global electronics distributor Digi-Key broke ground on a 2.2 million-square-foot, $300 million expansion of its facilities there. In August, Daikin, an HVAC company from Japan, announced a $40 million expansion generating 130 jobs. And custom manufacturing firm Protolabs plans with a million expansion in Brooklyn Park that will add another 150 workers in the next three years. “It’s a broad base of growth in many industries,” McKinnon says.

48 ILLINOIS BUILDING ON BIOTECH Illinois’s life sciences industry has seen mul-

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HOW TO CHARTER A JET

BY JAMES WYNBRANDT

f you’ve never experienced private aviation firsthand, you’ve probably at least pondered chartering a plane at some point. Maybe you were struggling to get your team to a key meeting with a client located off the beaten path. Or your commercial flight got canceled. The situation could even have been even more dire—such as the sudden need to evacuate personnel from an area in the wake of a natural disaster or political instability. How great would it be to dial up a plane when the need arises? But chartering a plane isn’t like walking up to the Hertz counter. Even this most basic entry point to private aviation can be overwhelming for executives who have never navigated the process before. Where do you find charter companies, and which one should you choose? How much should you expect to pay, and how can you get

Private jet operator Clay Lacy, founded in 1968, offers both domestic and international charters.

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the best possible deal? And, most important, how do you make sure the plane is safe? Finding a Charter Technically, all it really takes to charter a jet is a phone call, text or e-mail—but making sure you’re working with the right provider is critical. “Do your homework,” advises Mike Moore, vice president, aviation sales at Meridian, one of the largest U.S. charter companies. “Work with a reputable company that’s financially stable and offers a viable solution to your needs, develop a relationship, and let them find you airplanes.” While you can book a charter either directly with an operator or with a broker, the latter may be able to cast a wider net for lift, particularly outside of major metro areas. Going through either class of provider, “you’re probably ending up in the

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Choose a jet with a cabin configuration, such as conference-style seating, that suits your onboard needs.

Compared with refurbished older jets, new aircraft will usually be quieter, more comfortable and deliver better performance.

same spot” on price, says Dr. Kevin O’Leary, president and founder of private aviation consultancy Jet Advisors. There are more than 1,000 charter operators and a larger number of brokers, but you can cull your options on the National Business Aviation Association’s (NBAA’s) web site (nbaa.org)’s. A search on its charter broker services and passenger charter directories can be filtered by region globally or by state domestically. (While there are additional providers who don’t belong to the NBAA, the association is a good starting point.) Here’s where it gets complicated. All the jets on charter company sites tend to look similar, showcasing gleaming exteriors and luxurious cabins. Yet, there’s a wide range in the quality among the 3,000 or so jets available for charter in the U.S. Because age, condition, price, crew qualifications and other factors vary widely, you’ll want to ask detailed questions about the jet you’ll be getting when you book a charter. Vetting Your Ride The age of the aircraft may seem an obvious starting point, but even jets that are more than 30 years old, when properly maintained, are perfectly safe to fly. “It’s more

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important to look at the company that operates the airplane, and their standards and safety practices, than [the airplane’s] age,” notes Moore. (Safety aside, however, newer aircraft will usually be quieter, more comfortable and deliver better performance compared with refurbished older jets.) Federal Air Regulations mandate minimum maintenance, pilot training and operational standards that operators must meet. Forget that. You want your charter to meet the higher bars set by third-party auditors like Argus International, Wyvern, the Air Charter Safety Foundation and the International Standard for Business Aircraft Operations. The sites of operators and brokers that use only aircraft meeting one or more of these standards are typically badged with the emblems of audit standards they observe. “The FAA doesn’t have the resources to audit these operators,” explains Joe Moeggenberg, CEO of Argus International. “We go on site and dig a lot deeper than just to find out if the operator is compliant [with regulations].” Argus, for example, examines training and maintenance programs, requires having a Safety Management System in place and sets flight-time experience minimums for flight crews before approving Argus Rated status. What Will It Cost? Per-hour rates average about $3,000 for light jets; $4,000-$5,000 for mid-size/ super-mid-size jets; and $5,000 and up for large cabin jets. However, you may find that your trip’s estimates vary dramatically from this rule of thumb if you get the [charter price] quote and divide it by the flight time, says O’Leary who cites flight time minimums and crew lodging expenses as among the variables that boost fees. While you can’t necessarily use these average rates to predict what you’ll actually pay, you should be leery of flights priced well below them. A charter company owner in Boca Raton, Florida was recently sentenced to prison for operating more than 700 illegal “discount” charter flights, with dozens of them under his command, though his pilot’s license had been revoked by the FAA.

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Most of the 3,500-plus jets and turboprops available for charter are privately owned planes made available when owners aren’t using them—which means they vary in age, condition and features.

“In 19 years, I’ve met hundreds of people who can afford private jet travel [but] got so burned they never came back.”

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

When booking a charter, it’s a good idea to winnow the field down to between three and five companies and then more thoroughly question each about its aircraft, crew, charter process, insurance coverage, costs, payment, contingencies and cancellation fees, to avoid unpleasant surprises when the jet or invoice arrives. “We do think there’s a major issue with the education that takes place in our industry today,” cautions Jamie Walker, president and CEO of charter management company Jet Linx, fifth largest operator in the U.S. “Unfortunately, a large number [of consumers] get taken advantage of. In 19 years, I’ve met hundreds of people who can afford private jet travel [but] got so burned they never came back.” Undisclosed or higher-than-expected fees are among potential sore points. This includes omitting items from the cost estimate, such as the mandated 7.5 percent federal excise tax, minimum daily flight time, crew overnight charges and high catering bills. An inappropriate aircraft for the mission can also affect your experience. If you charter an eight-passenger jet and plan to fill it, what if that eighth seat doubles as the potty? Or what if the baggage and equipment that went into the jet on the outbound leg won’t fit into a model of the same agreed-upon category dispatched for the return trip? The more questions you ask, the less likely such situations will occur. Once you’ve selected a provider and nailed down the details, the charter contract you receive will warrant a careful

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look, warns attorney James Butler, CEO of business aviation consultancy Shaircraft Solutions. “Even a $25,000 one-off charter is still a lot of money,” he points out. “The providers have been successful in shrinking these contracts to make them look like boilerplate, but in reality they’re fairly complex legal documents.” Butler points to possible issues, including onerous cancellation fees and policies on “recovery,” or providing a replacement jet, that could leave you grounded if the aircraft you chartered becomes unavailable because of a mechanical or other problem. Your Flight Experience Charter flights come and go from Fixed Base Operator (FBO) terminals, facilities that range from comfortable to posh. Passengers need only arrive 15 minutes before scheduled departure. Whether you enter the FBO and proceed to the aircraft across the tarmac or simply drive through a security gate up to the jet largely “depends on the airport,” says Luis Barros, CEO of Leviate Air Group in Dallas, Texas. Your operator will have taken care of security clearance for everyone on the passenger list you provide in advance, but last-minute additions to the manifest will still need to be screened. However, a good provider can get a TSA clearance for domestic flights in minutes; expect a minimum one-hour delay if traveling internationally. As on an airliner, once on board, you’ll receive a safety briefing. Charter operations can be scheduled to avoid peak travel times at commercial airports and a there is little air traffic at general aviation airports, which translates to minimal takeoff delays at both. En route, the crew can help with any onboard entertainment or communication equipment. If you’re chartering a large cabin jet, a flight attendant will typically be aboard for assistance. On arrival, transportation will be waiting either planeside or curbside at the FBO to speedy your departure. In fact, within five minutes of the cabin door opening, charter customers have usually left the airport. At that point, your only regret may actually be that the experience ended too quickly.

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L AST WOR D TOM KINISKY \ SAINT-GOBAIN NORTH AMERICA

REINVENT YOURSELF

If you really want a culture of innovation, start thinking bigger—and include everyone.

Tom Kinisky is North American CEO for Saint-Gobain, the $40 billion global buildingmaterials conglomerate.

CEOS, MYSELF INCLUDED, often talk about the strategic imperative for their organizations to boost innovation. They imagine internal meetings with their entire employee populations where they talk about becoming more innovative. What happens? I would suggest that less than 10 percent of employees embrace the call to boost innovation. How can CEOs unite employees in a rallying vision to unlock the true innovation power of an organization? I have ruminated on this question for most of my professional life. About 10 years ago, I finally had a chance to put ideas into practice—to see if we could make a global organization more innovative. Turns out, I was one of those leaders who encourages a culture of enterprise innovation but inspires limited progress at best. After speaking candidly with employees, I found that few people in the organization felt connected to innovation. Let me jump to the end of the story—six years later, we had nearly doubled the sales of the business and products less than five years old accounted for more than 50 percent of total revenue. Collectively, we identified three steps to embrace enterprise innovation: Think enterprise and think everyone. Our journey was charted by a few key beliefs, chief among them that innovation is not R&D’s job—it is everyone’s job. Everyone is creative and we can increase people’s creative confidence through training because innovation can be learned and taught. Eliminate unconscious bias to develop a comprehensive roadmap. To involve all levels of the organization we created an Innovation Council, and, rather than naming members, invited everyone to apply by sharing the reasons they wanted to be part of the Council and the attributes that they would bring. Without knowing applicants’ identities, we selected 15 people from

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nearly 100 submissions. The final list surprised us, and it resulted in a group of diverse individuals from across the organization. Redefine how you train employees. We hired a passionate person to be our innovation process leader. Her job was to create and roll out a training program. With her team of just three people, we trained more than 3,000 employees in two years by focusing on key concepts within five main organizational levels: 1. I ndividuals: Instill creative confidence by encouraging people to release their creativity. 2. T eams: Promote listening skills by working with teams and team leaders to make sure that people are being heard. 3. M anagers: Remove unconscious bias to promote diversity by working with managers to seek diverse people and opinions. 4. Customers: Take a nontraditional approach to identifying customers’ needs by working on ideation and listening/questioning skills. 5. B usinesses: Work strategically with business units to thoroughly understand their core competencies. So what does enterprise innovation look like? It looks like managers who hire candidates whose ideas differ from their own enough to make them just a little bit uncomfortable. It looks like a workforce that uses curiosity and passion to develop new solutions instead of doing things the way they’ve always been done. It looks a machine tool operator in one of our plants who welcomes co-bots into her daily routine when she discovered how they can help her perform her job more safely and efficiently. The themes of the training are obvious— diversity, encourage, listen, act. What isn’t obvious is the engagement it creates, the fact that everyone is on the journey together and that innovation can and does occur in every function across your enterprise—so go encourage it.

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To learn more and to register, go to ChiefExecutive.net/StrategicLogistics

SITE SELECTION SITE SELECTION WAS REINVENTED WAS HERE. ArkansasEDC.com/Chief REINVENTED HERE.

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