November December 2012 Issue by Chief Executive Group

contents

November/December 2012 No. 261

COVER Story: A Crisis of Capitalism 22

Taking Back the Reins The crisis of American capitalism is real. But if we want to revive it, we can’t wait for Washington. We need to do it ourselves. by Ram Charan

CEOs weigh in on the crisis of capitalism—and how to fix it. by Dale Buss

Editor’s Note

CEO Chronicles

CEO Confidence Index

CEO Confidence Rises Slightly

Thought Leader

CEO Outlook

Spinnaker Coating’s Lou Guzzetti on strategic transformation • Hill Holliday’s Mike Sheehan on leveraging social media • Tom Pike on succeeding a founder at Quintiles

What Obamacare Means for Business A look at the reality behind the theory. by John C. Goodman

Talent Management Human Capital: Achieving Alignment How to get your people behind your business objectives. by Russ Banham The New Chief of Talent How CEOs are personally architecting talent strategy. by C.J. Prince

CEO Event Highlight How to Become an Employer of Choice Tips from top employers on how to lure—and keep—the best talent. by Jennifer Pellet

Family Businesses

The Challenge of CEO Succession in Family Companies A smooth transition is harder to pull off than in publicly traded companies. Here’s how to manage it. by William J. Holstein

november/december 2012

chiefexecutive.net 01

contents

Job Creation

America’s Leading Job Creators Meet 25 companies that are boosting head counts despite continuing economic uncertainty. by Russ Banham with Sam Lloyd

2012 Wealth Creators

CEOs at Serious Leisure Meet CEOs who are making a mark at a wide range of adventurous pastimes. by George Nicholas

02 chiefexecutive.net november/december 2012

Flip Side

No Crony? No Capital A look at the longstanding—if not much loved—tradition of doling out funds to those who dole out favors. by Joe Queenan

Final Word

The Dagger at the Heart of the U.S. Economy

How to Get the Most from Your Communications Officer Commanding a 360-degree view of your business, your head of communications should be your go-to resource to anticipate issues and build bridges to stakeholders inside and outside the company. by John Kador

CEO Life

Essentials

ECON O

Who’s Generating Real Economic Value? The fifth annual ranking of CEOs who have created real economic value underscores what Jim Collins once observed, “that good to great does happen” once you understand the “underlying variables that make it happen.” by Drew Morris

CHIEF EXECUTIVE, USPS # 431-710 (ISSN 0160-4724) is published bimonthly by Chief Executive Group, LLC with executive and editorial offices at One Sound Shore Drive, Suite 100, Greenwich, CT 06830. Wayne Cooper, president. Copyright 2012. Published and printed in the United States. All rights reserved. Reproduction in whole or in part without permission is strictly prohibited. Annual subscriptions are $198. U.S. single-copy price is $33. Periodicals postage paid at Greenwich, CT and additional mailing offices. POSTMASTER: Please send change of address to Chief Executive, PO Box 15306, North Hollywood, CA 91615-5306. For subscription inquiries, call 818-286-3119. All reprint and permission requests should be made to Brian Cuthbert (Email: bcuthbert@chiefexecutive, net, Phone: 203-889-4974).

ChiefExecutive.net | Chief Executive Magazine

CEO http://chiefexecutive.net/

Google

online toc

November/December 2012

features Struggling to Grow? What’s Your Difference? A serial entrepreneur shares his experience on how best to differentiate and market your product to gain share and build growth. by Lance Anderson

Avoiding the “Hazards” of Operational Excellence The tendency for teams to see markets from the perspective of their own products rather than the eyes of their own customers can lead even well performing companies astray. Here’s how to correct that. by Jason Green and Taddy Hall

Does Your Leadership Development Strategy Mimic Amazon? Internal development can be customized to the unique needs and learning dimensions of your people. by Marcus Buckingham

CEOs Need to Improve Relations with Their Regulators Too Leaders of major companies—not just financial firms—increasingly recognize the importance of good relationships with regulators, but for this to work regulators need to be flexible too. by Thomas H. Stanton

Why Traditional Job Descriptions Don’t Attract Top Talent The single biggest hiring mistake—and one rarely considered—is that employers don’t define success for qualified candidates. by Brad Remillard

Real People, Not Regulations, are the Key to Accountability The government dysfunction that vexes business leaders and citizens alike affects everyone and is a concern to both Democrats and Republicans. In a recent Atlantic online article, Common Good’s chairman outlines a four-step process to correct the deviant subculture of government: abandon bureaucracy and put humans on the spot.

Every business knows about social media, many businesses have some sort of social media presence, but very few have implemented a comprehensive and successful social media strategy that maximizes benefits and mitigates risks. Why is this? The answer is simple: The Three “C’s:” Content, Context and Conditions. The 27 Most Adaptive Companies Adaptive companies adjust and learn better, faster and more economically than their rivals. Here’s how your company can outperform competitors by nurturing adaptive capabilities. What Causes CEO Failure? Yahoo! has had six CEOs in five years. One HP CEO lasted just six months. According to some studies, up to one-third of Fortune 500 CEOs have lasted three years, with top executive failure rates as high as 75 percent and rarely less than 30 percent. A study by Booz Consultants found global CEO tenure today is 7.6 years, down from 9.5 years in 1995. According to the Harvard Business Review, two out of five new CEOs fail in their first 18 months on the job. What is causing this leadership revolving door and what can leaders do to avoid falling victim to missteps? Six Basic Ideas for CEOs To Better Communicate Their Messages How do you make a big company small? How do you bridge the gaps that inevitably develop from doing business in disparate cultural, political and financial environments? Irv Rothman, CEO of HP Financial Services offers six steps that any CEO aspiring to communicate his message should master. Why Regulation Punishes IPOs Are our capital markets broken? The global economy is operating on one cylinder and economic data from the U.S. continues to disappoint. A dangerous disconnect exists between the real economy and financial markets, threatening the emergence of young companies and the jobs that they normally create.

by Philip K. Howard

CEO Briefings Ten Steps to Succeed in Effective Use of Social Media

Is the App Bubble About to Burst? Is the magic evaporating from social media? Facebook shares have lost nearly half their value since its IPO in May. The games maker Zynga has seen its share price slide nearly 70 percent

04 chiefexecutive.net november/december 2012

since December. Facebook has 900 million active profiles and Zynga has 240 million people playing its games, but neither company seems to be able to monetize these strong followings. Why GM’s CEO Is Not Alone in Being Frustrated by Bureaucracy If there was any remaining doubt about the importance of culture to a company’s prospects, one needs to look no further than a recent town hall meeting at GM where CEO Dan Akerson told workers that while the company has made progress in shrinking the bureaucracy, the old sclerotic culture still exists and needs to be replaced with something more attuned to the 21st century. Five Key Findings About Recent Proxy Proposals What’s behind the rash of proposals challenging executives’ pay and coroporations’ political spending in the 2012 proxy season. Expect a Lawsuit Boon as a Result of Obamacare One sector of the economy that will unquestionably benefit from the Affordable Care Act: Lawyers.

always available CEO Briefings CEO Interviews Upcoming webinars event calendar

CASE STUDY

ceo chronicles

Creative Coating Chapter 11, a strategic reversal and—ultimately—an ESOP saved the day for Spinnaker Coating.

THE CHALLENGE

THE GAME PLAN

You’re brought in to save a 300-employee company under fire from every direction. You’re saddled with $90 million in debt, a far-flung plant losing $3 million a year, strained relations with a disgruntled union, slow and outdated equipment and intense competition from far-larger firms able to underprice you at every turn. As a maker and marketer of adhesive-coated paper and film for printers and industrial users, your Troy, Michigan-based company competes with the likes of Avery Dennison, which commands 54 percent of the market. You have 3 percent.

Fixing Spinnaker required immediate triage. “We basically had to come in and say, ‘No, that’s not the strategy. We’ve got to sell this plant or we’re done for,’” explains Guzzetti. The plant was shuttered within 45 days. Next, he tackled the debt hurdle by taking the company into Chapter 11 and working with a private equity group to restructure the company so that it was carrying a more reasonable amount of debt. Spinnaker also downsized, cutting its employee base from 300 down to 250, and froze salaries for everyone, from managers on down. “At that point, we had a company with a shot at being successful,” says Guzzetti. The next step was to change business strategy to focus on its smaller customers. “We ultimately came to the concept of targeting the underserved customers—the market that was not being serviced by the big guys,” he explains.

THE CONTEXT

Previous management landed CEO Louis Guzzetti in this tight spot largely through one wrong call. In a misguided attempt to go head-to-head against full-line commodity competitors, Spinnaker vastly overpaid to acquire a plant in Maine (the one hemorrhaging money when Guzzetti took the helm in 2002) and spent the subsequent three years rallying employees around a new directive: targeting the 80 large companies that represent $1.8 billion of the $2.5 billion market. Typically in industries like retail and household product manufacturing, these companies use pressure-sensitive, adhesive-coated papers for everything from pricing and marketing products to tracking them. Examples include the price tag a supermarket deli worker slaps on your cheese and the label the airport baggage clerk puts on your luggage. But serving that market requires huge, fast, modern equipment and considerable purchasing clout—firepower Spinnaker simply didn’t have. What the company did have was an experienced work force capable of delivering great service in a marketplace renowned for neglecting smaller customers. “Avery and the other big [players] treat [a lot] of the customers in the industry like crap—not because they’re bad companies, but because their focus is on serving their largest customers,” explains Guzzetti.

08 chiefexecutive.net november/december 2012

THE HURDLE

In March of 2003, just as things were beginning to look up, Spinnaker suffered an unexpected blow when a longstanding customer lost its contract servicing the U.S. Postal Service’s Bureau of Engraving and Printing (BEP). The BEP decided to downscale from using five printers to three. Spinnaker’s customer didn’t make the cut and subsequently went out of business. “It was the highest margin business we had,” says Guzzetti. “Within two or three years, we lost $13 million of revenue, which put extra pressure on us.” THE RESOLUTION

Clearly, survival would demand additional changes. A minor revelation that boosted efficiency proved to be part of the solution. “Up until the early ’90s, customers in our industry could buy a roll of any length [of adhesive-backed papers] that they wanted, but they had to buy the whole width,” explains Guzzetti. “Then larger players came up with the idea of using an algorithm to sequence orders and offer ‘trimless’ rolls. In other words, customers would only need to buy what they

needed—rather than what the manufacturer needed to produce—but you had to be producing large volumes to do trimless.” In 2003, an employee at Spinnaker came up with a way to use trimless production on lower-volume orders, enabling the company to offer its customers added value. Guzzetti also made another change that proved pivotal—transitioning his sales staff from a focus on face-time to telephone service. “We had about 14 salespeople scattered around the country; and at that point, 600-plus customers,” he recounts. “So you had sales guys traveling three days a week, seeing three or four people on those travel days. They just weren’t able to contact customers as often as they should.” Spinnaker decided to devote two of its best people to providing customer support and sales from home and soon discovered that sales figures were rising faster for the telephone-only salespeople. Over the next five years, the company transitioned to telephone sales. “It was absolutely stunning how successful it’s been,” says Guzzetti. “Today, our salespeople might only go out once a month to a customer, but they’re available when they’re needed—they’re not out in a car visiting someone else.” THE ENDGAME

By 2006, the company was back in fighting shape. Guzzetti had managed to find partners and buy out his privateequity investors, and sales were on the rise. Then, the recession hit and sent the company back into survival mode. Guzzetti was forced to raise more capital from his investors and to institute a 15 percent salary cut across the board. Fortunately, those measures saw Spinnaker through the lull and today the company is on track for 2012 sales of $120 million, a considerable bump from the $73 million it brought in during 2009. In February of 2012, Guzzetti led the company through yet another ownership transition, this time enabling the employees who had stuck by the company for so long to buy out prior

Spinnaker Coating’s Lou Guzzetti

investors through an employee stock ownership plan (ESOP). THE LESSONS

Guzzetti offers two business imperatives from his experience at Spinnaker: Find and Refine Your Strategy. “You have to develop a strategy that fits your capability,” asserts Guzzetti. “And then you have to think about how you maximize that strategy once you define your niche. For example, in our case, changes like the transition to telephone service and trimless capability were big. You’ve got to constantly look for ways to fine-tune.” Be Candid with Constituencies. “If you’re not open and honest, it comes back and bites you in the butt at the end of the day,” says Guzzetti. “When we had to wind down the business, we talked to everyone about what we were trying to do and where we were going.” Communicating openly with employees through the salary freeze, the bankruptcy and the strategy change factored heavily in the company’s eventual turnaround. “To a certain extent, this is like a fairy tale, what’s happened here,” says Guzzetti, who cautions that Spinnaker’s happily-ever-after-future is still a work in progress. “It’s not a happy ending until we generate profits over the next few years to enable the investors to be paid out and the employees to make a lot of money.” —Jennifer Pellet

november/december 2012 chiefexecutive.net 09

ceo chronicles

WHO: Mike Sheehan

CEO BRIEF

WHAT: CEO of Hill Holliday, a U.S. arm of the global advertising conglomerate, Interpublic Group WHERE: Boston, Massachusetts SIZE: $176 million in 2011 revenues (Advertising Age); 850 employees MOTTO/BUSINESS PHILOSOPHY: “OK isn’t” PASSIONATE ABOUT: People. And creating a culture within which they can think big and be themselves.

What has Facebook Done for You Lately? Hill Holliday’s Mike Sheehan on social media. Some days, it seems like everyone’s talking about the marketing potential of Facebook, Twitter, YouTube and assorted other social media. Unfortunately, they’re rarely saying the same thing. Earlier this year, GM withdrew $10 million in advertising from Facebook, griping that its campaign wasn’t contributing to car purchases. Shortly thereafter, Ford reported planning to spend more than 25 percent of its advertising budget on digital advertising this year, enthusing to Forbes that its Facebook marketing improves the company’s image among buyers and builds advocates for its brand. Coca-Cola also jumped into the debate, announcing that it currently spends more than 20 percent of its

advertising budgets on digital and mobile platforms in markets like Japan, South Korea and Scandinavia. So who’s got it right? Recently, Chief Executive had the opportunity to put that question to Hill Holliday CEO Mike Sheehan, whose career path as an award-winning copywriter and creative director led him to the corner office of the cutting-edge marketing firm. While Sheehan stopped short of calling GM out on its decision, his answer supported the opposing strategy— and offered three points CEOs may want to keep in mind as they struggle to gauge the potential of social media as a sales and marketing channel. Recognize the Power of Peers

10 chiefexecutive.net november/december 2012

“When I look at the big, overarching

picture, we live in a world today where consumers have great distrust of institutions, such as government and big companies,” he says. “That was also true in the ’60s—maybe it’s cyclical— but now you couple that with the fact that the access that people have to peerto-peer influence is so much greater. People now rely a great deal more on those conversations.” In addition to heightened skepticism, that shift is partly due to consumers being far less likely to sit through what Sheehan describes as the traditional “crop dusting” marketing method of yore. “In the old days—six, seven years ago—you would get up in the plane and dust the crops,” he says, referring to marketing campaigns that centered around creating a big idea

ceo chronicles

Chief Executive of the Year 2012 Selection Committee

Brian Duperreault President and Chief Executive, Marsh & McLennan Fred Hassan Chairman, Bausch & Lomb Senior Partner, Warburg Pincus William Hickey President and Chief Executive, Sealed Air Christine Jacobs Chairman, President and Chief Executive, Theragenics Alan Mulally President and Chief Executive, Ford Motor, 2011 Chief Executive of the Year William R. Nuti Chairman and Chief Executive, NCR Thomas J. Quinlan III President and Chief Executive, RR Donnelley

for a brand and spending money to promote it on television and radio. “Now it’s more like going after every single plant one at a time and putting a little fertilizer next to it. It’s a different world. But it can be far more effective.” Yet companies are still struggling mightily to gauge the potential of social media as a sales and marketing channel—let alone realize that potential. What, exactly, is the value of a million likes on Facebook? At this point, the answer remains murky, concedes Sheehan. “That’s where digital properties really need to spend their time, because advertisers are really comfortable with the metrics of television, radio and print,” he says. “They know how many eyeballs there are, and they’re very comfortable justifying the cost of a $3 million Super Bowl spot. That is, by the way, the cost of a single 30-second spot—which is about a third of the cost of the entire campaign GM pulled from Facebook.” Such metrics are not yet available for the still-developing social media-marketing sphere. In the meantime, however, CEOs and their marketing gurus can’t afford not to explore the potential of social media marketing. “We know from research that when customers engage with your brand or your product by choice, the impact of that engagement is far more effective than the traditional kind of engagement,” Sheehan notes. “Since choice-based engagement is far more powerful, the question becomes how do you weave yourself into the conversation that people are having during their daily lives to make them choose to engage you?”

Jeffrey Sonnenfeld President and Chief Executive, The Chief Executive Leadership Institute, Yale School of Management James Turley Chairman and Chief Executive, Ernst & Young

c o ntact us

Chief Executive Group, LLC One Sound Shore Drive, Ste. 100 Greenwich, CT 06830 www.chiefexecutive.net Letters to the Editor Address above or letters@chiefexecutive.net Advertising & Custom Publishing 847.730.3662 advertising@chiefexecutive.net Events, Roundtables & Conferences 847.730.3662 advertising@chiefexecutive.net Fax: 847.730.3666

Subscriptions Chief Executive, PO Box 15306 North Hollywood, CA 91615-5306 circulation@chiefexecutive.net Reprints: Brian Cuthbert, 203.889.4974 bcuthbert@chiefexecutive.net Back Issues & Customer Service circulation@chiefexecutive.net

12 chiefexecutive.net november/december 2012

Consider Starting in the Middle

One entry point may well be the places where traditional and new media intersect, such as social television, where people are watching television and simultaneously engaging in digital media exchanges about the television show or commercial that they’re viewing. Just as criticisms and praise flew across the Internet during the recent political conventions as each speaker presented, loyal viewers of popular shows like The Newsroom, American Idol and True Blood are commenting on what the actors are wearing and products in the ads they see as they watch their favorite shows. “We call it the second screen—there’s the TV screen and there’s the iPad on their lap,” says Sheehan. “CEOs really have to figure out what they’re doing in the traditional world of advertising and how that intersects with what’s going on in the digital world.” In addition to the opportunities such intersections may offer, companies can also mine valuable customer feedback from such exchanges. “One of the great things about digital media is that you can find out what people are saying about your company, your brand, your product, all the time,” points out Sheehan. “It’s amazing how many companies, still to this day, don’t dedicate resources to finding out what’s being said about them out there. So start there—with finding out what is being said about you, and then figuring out how to deal with it.” For B2B companies seeking to provide added value or garner customer feedback, social media can offer a great forum for engaging with customers—and for allowing those customers to interact with and learn from one another. “You can create communities of customers for a particular product line and use them to distribute content that engages them and to allow them to dialogue back and forth,” says Sheehan, who points to Home Depot’s contractor customer base as one such community. Be True to Thyself

Social media feels so foreign to some CEOs that they look to delegate digital marketing efforts entirely. This can be a mistake, warns Sheehan. “As a CEO, you have to be involved,” he asserts. “Advertising works best when it’s reflective and fits like a really good suit on the CEO. It has to reflect who you are as a person, your belief system and your respect for and knowledge of your customer. So before you sign off on it, you better feel comfortable with it. You’re doing nobody a favor by signing off on something you’re not comfortable with.” —Jennifer Pellet

Core competencies are never safe. Quintiles’ newly minted CEO Tom Pike tells why the biggest challenge for a successful company is to change in order to become more successful. by J.P.

Donlon

Spending on health care may, indeed, be on track to hit 20 percent of U.S. GDP by 2020, but that hardly means that the industry that exists today will remain unchanged when that day arrives. For starters, the pharmaceutical industry is hurting. Rising development costs, intensifying competition from generics, declining productivity, market saturation, increasing regulatory hurdles and the coming pipeline cliff of fewer patented big drugs coming to market have squeezed margins and limited growth. (An estimated $128 billion of branded revenues have lost or will lose patent protection between 2009 and 2014.) Pharma has been awakening to the fact that it must change the way new drugs are found and commercialized. The era of highmargin blockbusters is pretty much over. No one wants to be the Kodak of pharma, the industry powerhouse that dithered away its lead position. This partly explains why contract research organizations (CROs) are experiencing growth in a difficult environment. Pharma wants to shift fixed costs to variable costs and must yield to competitive pressures to compress development time. Durham, North Carolina-based Quintiles, one of the world’s largest biopharmaceutical service companies, is a CRO, but it has moved beyond clinical development and commercialization services. The $3.5 billion privately held firm helped develop or commercialize all of the top 50 best-selling drugs or compounds in 2010. It is somewhat unusual that, at this crucial stage, the company would choose as a successor to Dennis Gillings—who co-founded the firm in 1982—not only an outsider but one with no CRO or pharma background. Tom

november/december 2012 chiefexecutive.net 13

CEO WATCH

Partner with Your Key Customers

ceo chronicles

In Fact Compiled by John Kador 1 Percent of Generation Z (people ages 13-22) who expect to receive an inheritance, thus reducing their need to save for retirement: 40 2 Percent of parents who expect to provide an inheritance: 16 3 Rank of the U.S. on the World Economic Forum’s Global Competitiveness Index, which ranks countries against a number of factors, including the strength of their infrastructure and how they foster innovation: 7 4 Number of consecutive years in which the rank of the U.S. has fallen: 4 5 Number of the world’s 10 largest companies by market value that are based in the U.S., up from 4 in 2007: 8 6 Number based in China, down from 4 in 2007: 1 7 Average stock market swing on the day following the unexpected deaths of CEOs between 1980 and 2008: 5.6% 8 Average percentage of audits by the big four accounting firms that were found to be deficient in 2010, more than double from a year earlier: 33 9 Change in size of small business paychecks in August 2012 from August 2011: -1.4% 10 Rank of Wyoming on the Tax Foundation’s State Business Climate Tax Rating for 2012: 1 11 Rank of New Jersey: 50 12 Total amount of money in goods and services the federal government transferred in entitlements to individuals in 2010: $2.2 trillion 13 Factor by which this exceeds the amount transferred in 1960, in current dollars: 100 14 Burden of these entitlements per man, woman and child in America: $7,200 15 Amount at which the average collegeeducated man’s annual salary maxes out, at age 48: $95,000 16 At which the average college-educated woman’s does, at age 39: $60,000 17 Percentage of U.S. households that are headed by millionaires: 4.3 18 Percent of Swiss and Singaporean households headed by millionaires, respectively: 9.5, 17.1 19 Percentage of American small business owners who are immigrants: 18 Continued on p. 16

14 chiefexecutive.net november/december 2012

Pike, who became CEO last April, logged 22 years as a consultant at Accenture and eight at McKinsey. “I spent the majority of my career as a business service provider. In fact, a lot of the challenges that we went through as we grew are challenges that Quintiles has either gone through or that it faces going forward.” Pike thinks innovation and the higher-margin products that come with it can best be created through strategic alliances where expertise—and risks coupled with high uncertainty within R&D—are shared. In moving from tactical outsourcing to alliances, Quintiles is borrowing a page from the IT industry playbook. In IT, many innovations are the products of networks of partners, not just single companies. Cisco, for example, thrives by creating collaboration alliances where it teams up with major system integrators along a shared value chain. Such alliances allow pooling of resources, capital, and—most importantly—talent to develop innovative products in a fast-moving environment. Quintiles formed a similar collaborative partnership with Eli Lilly on the antidepressant Cymbalta. Quintiles helped finance the development of the drug, a role for which it receives royalties from the commercialized product. In addition, the firm created with Lilly an integrated approach to optimizing how trials are conducted, eliminating inefficiencies and using “big data” to drive better development decisions. While such strategic relationships vary by company, invariably they create more opportunities for growth when each partner brings its own intellectual property, which—once integrated—can be leveraged for mutual benefit. It is a model that is not only enjoying success in IT and healthcare, but can also be employed in other industries. For Pike, who spends his free time restoring jeeps (his pride is a 1947 Willys Jeep and he’s working on a 1972 Corvette), the biggest challenge of being a CEO is improving the company’s ability at relationship-selling and beefing up its leadership development program. Recently, we caught up with him in New York. For Quintiles, reaching beyond its industry for a new leader is a bold step. What do you bring to the job and what do you hope to accomplish? Given the evolution in the pharmaceutical industry, the need to get drugs paid for, the need for evidence-based medicine [and] to get proper medical practices associated with drug therapy out in the field, the company felt it was valuable to have somebody with a broader perspective. I’m pressing the organization to drive the question of how development should work because I believe product development for pharmaceutical firms can be improved by at least 20 percent in terms of cost reduction, speed and better decision-making. The advantage that we have is the ability to apply therapeutic expertise not only to one drug, one company, one therapeutic area, but across the industry. We have expertise in quantitative analysis, in development and in commercialization. So, in addition to the therapeutic expertise, we have the biostatistical and analytical expertise; and increasingly, we have process and technology expertise. We’re a global company: 27,000 people with offices in 60 countries. We’ve made investments in technology and can leverage this strength across companies. It’s becoming increasingly difficult for a pharmaceutical firm to try to make capital investments in a focused area like this. How can you do this better than the pharmaceutical companies themselves? Let’s take drug development as an example. We can implement better planning and design of clinical trials. In diabetes there are 13 or more drugs competing for a $20 billion market. It’s expected to be a $70 billion market in 2020. There are a number of different therapies in the pipeline. Some are a little different, such as oral medications, as opposed to injectables. Others are combinations of medication and devices. In the development phase, we need to design a great clinical trial that, for example, demonstrates the comparative effectiveness of a device in combination with a drug and why that will be more effective than the drug alone. And some therapies may involve an implantable device. This can get very complex, especially when selling to doctors. We can help a customer prepare months in advance for that launch pre-approval. In addition, they will need support when the time comes for payers—insurance companies—to decide whether they will support the therapy and include it on their formulary. We can help educate them on the comparative effectiveness of that medical device plus drug.

How do these partnerships work? Working with Eli Lilly, we co-developed a tool we call Semio, which essentially improves planning and design of clinical trials. It puts electronic health records, patient information and some of our data together in a sophisticated structure that lets people make better decisions about trials. It uses multiple screens. It’s like something from the movie Minority Report, where experts monitor multiple screens of information [while] trying to figure out the most effective way to design a trial among populations of potential patients. It’s something I don’t believe anyone else has in the industry. We’ve taken office space in Indianapolis to further our collaboration on this product. In the case of Lilly, we’re pushing the boundaries of planning and design, but we have great relationships with all major players. For example, Tokyo’s Eisai, which conducted proofof-concept trials with Quintiles, says the compounds developed were produced at half the level budgeted. Solvay used Quintiles’ balanced scorecard toolkit and reduced the total cycle time in clinical studies by 40 percent. We can do this in pieces or jointly, depending upon what customers require. For example, we’re doing interesting work with some organizations looking at outsourcing the entire lifecycle of a molecule, from early in vivo situation all the way to the final product. Our strategy is to work with the major pharmas, as well as biotechs and even organizations in emerging markets. The better the design of, say, a clinical trial, the less likely one will have to go back and rework it. This [approach] also minimizes audits or inspections from the FDA. So, yes, we do reduce costs, but it’s not like saying we’re delivering this Boeing 777 for 10 percent less because each drug, each trial is different. The thing to always remember about drug development is that speed of decision-making and speed associated with the actual execution of the trial is crucial to everybody’s best interests, not [the] least [of which is] the patient’s. We have one study going on in an emerging market that found that delivering the product six months sooner will save 150,000 lives per year.

STATEMENT OF OWNERSHIP U.S. Postal Service Statement of Ownership, Management, and Circulation 1. Publication Title: Chief Executive. 2. Publication No. 431-710. 3. Filing Date:10/1/12. 4. Issue Frequency: Bi-monthly. 5. No. of Issues Published Annually: 6. 6. Annual Subscription Price: $198.00 7. Complete Mailing Address of Known Office of Publication: One Sound Shore Drive-Suite 100, Greenwich,CT 06830 . 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: Marshall Cooper (Publisher); J.P. Donlon (Editorial Director/Editor-in-Chief); address same. 10. Owner: Chief Executive Group, LLC, One Sound Shore Drive-Suite 100, 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: Marshall Cooper and Wayne Coooper. 12. Not Applicable. 13. Publication Title: Chief Executive. 14. Issue Date for Circulation Data Below: July/Aug. 2012.15. Extent and nature of Circulation: Requested Mail Subscription a. Total No. of Copies (Net Press Run): 45,773; 45,976. b. Paid and/or Requested Circulation: (1) Paid/Requested Outside-County Mail Subscriptions Stated on Form 3541 (Includes Advertisers’ Proof and Exchange Copies): 22,462; 22,518. (2) Paid In-County Subscriptions: None. (3) Sales Through Dealers and Carriers, Street Vendors, Counter Sales, and Other Non-USPS Paid Distribution: 738; 743 . (3) Other paid or requested distribution outside USPS: None. (4) Other Classes Mailed Through the USPS: None. c. Total Paid and/or Requested Circulation [Sum of 15b(1), (2), (3), and (4)]: 23,200; 23,261. d. Nonrequested Distribution (By Mail and Outside the Mail): 21,708;21,870. e. Free Distribution Outside the Mail (Carriers or Other Means): 865; 845. f. Total Distribution (Sum of 15c and 15e): 45,773; 45,976. g. Copies Not Distributed: 802; 733. h.Total Distribution (Sum of 15f and 15g): 46,575; 46,709. i. Percent Paid and/or Requested Circulation (15c/15fx100): 50.68%; 50.59%

november/december 2012 chiefexecutive.net 15

ceo chronicles

In Fact Continued from p. 14

Illustration: Pablo Lobato

20 The number of CIOs who were paid highly enough in 2011 to be included in proxy statements required by the SEC among the 1,000 largest public companies in the U.S.: 45 21 Total 2011 compensation of Harve Demovick Jr., EVP of Customer Services Organization and IT at Coventry Health Care, the sitting CIO with the highest compensation: $4,538,843 22 Number of hours between Duke Energy anointing Bill Johnson as CEO of the Duke-Progress Energy combination and the new board firing him in favor of Duke Energy CEO Jim Rogers: 6 23 Value of Johnson’s severance package: $44 million 24 Number of the 15 employment categories projected to grow the fastest by 2016 that are dominated by women: 12 25 Costs for the average undergraduate at a four-year college in 2011 for textbooks and supplies: $1,213 26 Oil production in Iraq in August 2012, overtaking Iran as the second-largest OPEC oil producer: 3 million barrels per day 27 Percent of the investable assets of high net worth individuals in America that are tied to real estate: 20 28 In Europe (including Russia) and China, respectively: 16, 31 29 Cost of electricity to charge an iPhone over the course of a year: 38 cents 30 Percent of small-business owners who sought lending in 2012: 18 31 Number of financial advisors at Morgan Stanley Smith Barney, the world’s largest brokerage by number of advisors, as of July 2011: 16,934 32 Factor by which the value of a unit in Empire State Building Associates has increased from 1960 to date: 33 33 Share of income given to charity among people with incomes from $50,000$99,000: 6% 34 Of people with incomes $200,000+: 4.2% Sources 1-2 TDAmeritrade; 3-4 World Economic Forum, Global Competitiveness Index 2012-2103; 5-6 Forbes; 7 Tim Quigley, Lehigh University; 8 Public Company Accounting Oversight Board; 9 SurePayroll Small Business Scorecard; 10 Tax Foundation, Washington DC; 12-14 Bureau of Economic Analysis, Washington DC; 15-16 PayScale Seattle, WA; 17-18 Boston Consulting Group, NY; 19 Fiscal Policy Institute, NY; 20-21 SEC, CIO.com; 22-23 Duke Energy SEC filings. WSJ; 24 Bureau of Labor Statistics, Washington DC, 25 The College Board; 26 International Energy Agency; 27-28 Citigroup, Knight Frank Property Consultants; 29 Time Magazine; 30 SurePayroll Small Business Scorecard; 31 Morgan Stanley Smith Barney, NY; 32 BusinessWeek; 33-34 Chronicle of Philanthropy.

16 chiefexecutive.net november/december 2012

Thorns & Roses Thorn Data from the U.S. government indicate that people are spending more on phone bills over the last four years even to the point where they have had to dial back on eating out, clothes and entertainment. And what’s the wireless industry’s response? To see if they can push bills even higher by offering faster speeds, more bells and whistles and new usage plans that read like the fat paragraphs in a car lease.

Rose Ed Whitacre, GM’s former CEO, says in a Wall Street Journal op-ed that it’s time for the U.S. to hit the road as shareholder in the bailedout carmaker because the company’s continuing link saddles it with the “Government Motors,” appendage (the U.S. Treasury refuses to sell its stake). Someone should tell GM that if one lies down with dogs, one gets up with fleas.