September October 2016 Chief Executive Magazine

Shoulder to Shoulder

How partnerships can grow your business, p. 34

Bonus Basics

New comp survey shows some growth, p. 40

Winning on Retention Hiring is only half the battle, p. 42

The Wellness Payoff Getting healthy is good for business, p. 67

SEPTEMBER/OCTOBER 2016

PLUS:

Leading economists explain what the candidates mean for your business

WHO’S VOTING FOR WHOM? CEOs explain how they’re making the decision PAGE 28

CONTENTS

SEPTEMBER/OCTOBER 2016 No. 284

FEATURES

COVER STORY

28 An Election Like No Other

Controversy continues to define the presidential race,

yet everyone can agree on one thing—the outcome will dramatically impact both the national economy and individual businesses. By Dale Buss

Plus: Four top economists weigh in on what the election could mean for your business—and the economy. By Richard Sine

PARTNERSHIPS

34 Shoulder to Shoulder

How big and small companies push growth by working together. By William J. Holstein

TALENT MANAGEMENT

42 Trim Your Turnover

Hiring and developing great employees is only half the battle—now you’ve got to keep them. By C.J. Prince

ECONOMIC DEVELOPMENT

50 Regional Report: The Southeast

Workforce improvement is increasingly the new face of economic development.

By Warren Strugatch

SPECIAL EVENT COVERAGE

CEO OF THE YEAR GALA RECEPTION

57 Celebrating the 2016 CEO of the Year:

AT&T’s Randall Stephenson

More than 200 business leaders gathered to

recognize a peer—and to reflect on the role business plays in America’s economy. By Jennifer Pellet

CEO ROUNDTABLE

60 Building a High-Performance,

Highly Engaged Culture

Pressure to deliver short-term results and accommodate Millennial employees complicates the culture challenge. By William J. Holstein

CEO ROUNDTABLE

63 How Leaders Can Align Talent with

Opportunities in the 21st Century

In adapting to new technologies, CEOs need to transform their workforces along with their companies. By Jennifer Pellet

02 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

C O V E R I L L U S T R AT I O N B Y S E A N M c C A B E

CONTENTS Editor-in-Chief Michael Winkleman Editor at Large Jennifer Pellet Creative Director Marne A. Mayer Production Director Rose Sullivan Chief Copyeditor Rebecca M. Cooper Art Director Gayle Erickson Associate Copyeditor Carl Levi Contributing Editors Dale Buss Bill Holstein C.J. Prince Joe Queenan Dr. Thomas J. Saporito Richard Shine Warren Strugatch Prof. Jeff Sonnenfeld Online Editor Lynn Russo Whylly Editor Emeritus J.P. Donlon

DEPARTMENTS 8 Editor’s Note 12 CEO Watch

• Yum! Brands’ David Novak on the power of recognition • CEO Inbox: Why outside CEO appointments are on the rise • Corporate Citizenship: Lifeway Foods’ Julie Smolyansky on advocating for rape victims • Eagle Pharmaceuticals’ Scott Tariff on staying the startup course • CEO Confidence: Larger companies have the least confidence

22 Chief Concern

Good-to-Great Boards and the Importance of Culture Research unveils the traits shared by truly successful boards.

By Dr. Thomas J. Saporit o

24 Mid-Market Report

Rebound Continues for Mid-Market Companies CEOs are optimistic overall, albeit concerned about Brexit.

26 Sonnenfeld

Mastering the Monarch Succession From Viacom to Facebook, creative enterprises often struggle with transitions.

By Jeff Sonnenfel d

40 Executive Comp

Bonus Blast In a year where there was little growth in compensation, there were some high spots in bonuses.

By Chief Executive Research

67 Executive Life

Getting Well is Good for Business Neglecting your health can be devastating—for you and your company. Here’s how to chart a course toward a healthier lifestyle. By C.J. Prince

72 Flip Side

Am I a Dope—or What?

From cannabis to cuddling, new business news can strain the brain. By Joe Qu eenan

Chief Executive (ISSN 0160-4724 & USPS # 431-710), Number 284, September/October 2016. 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 2014 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 Greenwich, 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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VP, Associate Publisher Christopher J. Chalk 847/730-3662 cchalk@chiefexecutive.net Director, Business Development Lisa Cooper 203/889-4983 lcooper@chiefexecutive.net Director, Business Development Liz Irving 203/889-4976 lirving@chiefexecutive.net Director, Business Development Marc Richards 203-930-2705 mrichards@chiefexecutive.net Vice President Phillip Wren 203/930-2708 pwren@chiefexecutive.net Marketing Director Jason Golden 203/889-4978 jgolden@chiefexecutive.net Vice President, Human Resources Melanie Haniph Controller Steve Hallem Wayne Cooper Executive Chairman

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CHIEF EXECUTIVE OF THE YEAR 2016 SELECTION COMMITTEE CATHY ENGELBERT CEO, Deloitte LLC

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EDITOR’S NOTE

Hope Amidst the Uncertainty Nothing has excited me more than the plans we’re developing for all of Chief Executive’s informational products.

Change keeps things interesting—in the world, in business and at Chief Executive. By Mike Winkleman GIVEN THE UNCERTAINTY EXPRESSED in our cover story (p. 28), I’m happy to say that the rest of the issue is packed with just the opposite—hope, excitement and lots of solid, energizing ideas. In these pages, you’ll find examples of big and small companies working together to push growth (p. 34), through which big companies get access to nimble new technologies and small companies get access to, well, money, influence and power. You’ll hear from firms like Deloitte (p. 42) that have reinvented their approach to performance management in order to win the newly raging talent wars through retention. And CEOs like Randall Stephenson (honored as our CEO of the Year; see p. 57) will describe how his company, AT&T, has partnered with Georgia Tech to train a workforce for whom, he notes “every form of work is fundamentally changing” (p. 63).

In this issue, there are CEOs like Lifeway Foods’ Julie Smolyansky, who parlayed previous work as a rape crisis counselor to push for the elimination of untested rape kits in the U.S. (p. 16)—a prime example of the sort of corporate citizenship we’ve been championing in these pages—the type that we’ll honor with our first annual Corporate Citizenship Awards this coming January. And there are CEOs like Scott Tariff of Eagle Pharmaceuticals, who has weathered the tides of change in his industry with a focus on reformulation, based on information from doctors, nurses and patients about problems with existing drugs (p. 18).

Next year is Chief Executive’s 40th anniversary. While that’s exciting for us, it doesn’t really mean much to you—except for the fact that it will give us the opportunity, on your behalf, to look both back-

08 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

wards and forwards and, in the process, provide you with information and insights that will help you not only navigate the forces of change but find ways to take charge of them.

I’m the new editor-in-chief and chief content officer at Chief Executive. I’ve had a long career in business journalism, some of it actually spent here (in the late ’90s).

I’ve covered a wide range of special topics for Adweek, launched and managed six business magazines for Faulkner & Gray, created a magazine incubator at ALM (formerly American Lawyer Media), and I ran a custom publishing firm that produced magazines, books, white papers and more for law firms and major corporations.

But I have to say that nothing has excited me more than the plans that we’re developing for all of Chief Executive’s informational products. Over the course of the next few months, particularly starting with our January/February issue, look for some critical changes not only in the magazine but on our website and in our e-newsletters. We’ll delve more deeply into quantitative matters. We’ll take a new thematic and CEO-focused approach to covering economic development. We’ll draw on the strength of a new team of beat reporters to cover a wide range of critical topics— across all our platforms. We’ll share more insights from our events and our research in all our venues. And we’ll enlist CEOs to debate critical issues through point/counterpoint discussions in our pages.

As always, we value your feedback. To help gather it, I’ll be traveling around the country to talk with CEOs about what’s keeping them up at night. Please feel free to drop me a line at mwinkleman@chiefexecutive.net and let me know what’s on your mind.

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CEO WATCH POV | DAVID NOVAK, EXECUTIVE CHAIRMAN OF YUM! BRANDS

The Power of Recognition David Novak shares his secret weapon for boosting performance. By J.P. Donlon DURING DAVID NOVAK’S 15-year run as CEO of Louisville, Kentucky-based Yum! Brands, he gained a reputation for using unlikely accolades—rubber chickens and chattering teeth—to galvanize employees. In fact, when Novak was recognized as Chief Executive’s CEO of the Year in 2012, it was in no small part due to his uncanny ability to identify and nurture talent. Now Novak, who stepped into an executive chairman role last year, is embarking on a new venture, one dedicated to spreading the word about the power of personal recognition.

In 2016, Novak launched OGO (O Great One!) Enterprises, which he describes as the “world’s first recognition brand,” dedicated to “getting people everywhere to recognize each other for being great people and for the great things they do every day.”

As part of that mission, Novak recently published O Great One! A Little Story About the Awesome Power of Recognition, a parable that chronicles the journey of Jeff Johnson, a new CEO whose family-owned toy company has fallen on hard times. Struggling to get the business back on track, the CEO protagonist encounters surly factory workers and a dispirited management team.

O Great One—which was what Novak’s grandkids called him when he said granddad, grandpa, poppy or the usual names would make him feel old—is meant to address what he sees as a global recognition deficit. “I’ve learned that everywhere I go around the world people crave recognition,” he says. “Sixty percent of employees say that recognition in work matters more than money. So, my question to the world is: Why isn’t recognition used more often?”

The following are excerpts from a recent interview with David Novak on his newest venture.

Why don’t more leaders practice recognition?

There are two big reasons. One is that, unfortunately, bosses think their employees won’t work as hard if they tell them they did a good job. So, in other words, they’re concerned that if you tell somebody they did a great job, people will take the pedal off the metal. It will relieve the pressure of performance, which is crazy because, 40 percent of people say they’d put more energy into work if they were to get recognized. So, it’s a fallacious assumption.

The second reason is that leaders often think if they recognize someone, others will feel left out. What I find is that if you recognize people, it creates a contagious energy that makes other people want to get recognized. The best thing you can do is to create a culture where everybody in the company recognizes each other for good performance. It spreads like wildfire.

Unfortunately, too many leaders run their businesses around the onetenth of 1 percent who aren’t going to work that hard or take advantage of the system versus the 99 percent of the people who go to work every day wanting to do a good job.

Is there any set of circumstances in which recognition simply doesn’t work?

Recognition, by itself, isn’t going to be effective, but recognition that is earned is very effective. You can’t go around and just tell people they’re doing a good job if they’re not doing a good job. Then, people look at it as more of going through the motions

12 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

versus driving the kind of behaviors that drive performance.

The key in business and in life is to give people earned recognition. Once you do something that drives performance or once you exhibit a behavior that’s going to drive performance in your company, recognition is then earned. We always try to recognize the good things that will drive performance of the company or in your family or wherever you might be trying to influence people in a positive way, but it’s just as important to recognize the bad behavior. So, if people are not performing, you have to give them proper coaching and hope that they turn it around. If they don’t, have them go somewhere else to work.

Even Yum! Brands experienced performance difficulties in its China business in recent years. Some may argue that superior recognition practices couldn’t overcome those sorts of problems.

Recognition creates a culture that allows you to overcome problems faster. Nothing works by itself. The work environment you create [generates] the kind of performance orientation that you want to have. I always felt it was more important to recognize people in the down times than when everything was going along swimmingly well. Because that says that you’re consistent in your behavior and that the good [actions] that you’re looking for in the company are going to get you out of the ditch.

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CEO WATCH on autopilot forever. You’re always going to have your ups and downs.

Even when we grew our earnings per share 13 percent a year for well over a decade—13 years—we still had ups and downs. We had to deal with different adversities, but we never lost the philosophy that drove our culture.

A work environment that is driven by recognition helps you recover a lot faster than you would otherwise.

Are there some forms of recognition that are better than others?

The best forms of recognition are ones that are personal, from the heart.

You recognize people in a way that is unique to you and what you’re trying to reinforce. I always tried to reinforce behaviors that drove what we called “customer mania,” listening and responding to the voices of the customers.

I always personalized each award with a clear articulation of what that person did to deserve the recognition.

And I tried to make it fun because I think, in business, you don’t want to take yourself too seriously. You want to take your business seriously, but don’t take yourself too seriously.

Has your successor, Greg Creed, taken up the recognition torch?

He wouldn’t have gotten the job if he weren’t a believer. In fact, nobody in our company gets promoted without being a big believer in the kind of work environment [existing] in the firm.

Which other CEOs are good at recognition?

Every great leader I’ve ever met is good at it. Jamie Dimon [CEO, JPMorgan Chase] is great at earned recognition. If somebody has really done something great, he goes out of his way to tell people that this is the kind of behavior that [they’re] looking for at JPMorgan Chase. Southwest Airlines’ Gary Kelly is different from Herb Kelleher, but he’s been able to keep that culture moving in the right direction. Brian Cornell at Target is a big proponent of recognition. He visits stores and sits down with team members and makes them feel special in his own unique way.

When people adhere to your culture, it has an amazing effect. People who don’t adhere to it almost get rejected like a bad juror. It’s a great way to protect the values you are building. A good example is Ken Langone, the co-founder of Home Depot. If you did something well, he sits down and writes a hand-written personal note that makes you feel like a million dollars. These guys all have very

different styles; but in their own way, they have their own [method] of being personal when it’s appropriate and giving people earned recognition that they need. At the same time, if you don’t have the behaviors that they’re looking for, they’ll manage you out or have you go make somebody miserable at some other company.

Is there a particular message you want CEOs to take away from the O Great One book?

The book makes it clear that a leader casts a shadow. People will do what the leader does. So, there’s no way you will have a culture of recognition unless the leader recognizes earned performance.

The biggest lesson for CEOs is that they have to cast the right shadow.

Obviously, not all leaders are doing this well. If you’ve got 82 percent of employees saying that their supervisor doesn’t recognize what they do, there’s a big problem. Some people may think they’re doing a good job, but they’re not. Even in our company, we do a culture survey every year. We score very high on recognition, but people still wanted more recognition. We are one of the best-in-class companies at recognition, but even our employees wanted more of it.

INBOX | TRANSITION TRENDS

The Outsider Advantage?

Outsider CEO Appointments on the Rise (Incoming CEOs via planned turnover, by pedigree)

THE LONGSTANDING BIAS toward internal

candidates in succession planning may be lessening— at least in certain circumstances, according to CEO Success Study, a new report from PwC’s Strategy&.

The number of outsiders brought in during planned successions rose to 22 percent between 2012-2015, up from 14 percent in 2004-2007, leading study authors to posit that companies increasingly need CEOs whose experience can help them address “significant discontinuities” like industry convergence, digitization and regulatory change.

“Outsiders who don’t have biases and commitments built up over the years and can make changes more objectively” may be better equipped to lead transformative change, sums up Gary Neilson, thought leader on organizational design and leadership with Strategy&, and a principal with PwC U.S. 14 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

949

INCOMING INSIDER CEOS INCOMING OUTSIDER CEOS 748

78%

560 83% 86%

14% 2004-07

17% 2008-11

Note: Excludes turnover events resulting from M&A and interims.

Source: Strategy& 2015 CEO Success Study

22% 2012-15

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CEO WATCH CORPORATE CITIZENSHIP | JULIE SMOLYANSKY, CEO OF LIFEWAY FOODS

Taking on a Legal Loophole How a former rape-crisis counselor is leveraging her business success to advocate for the victims of violence. By C.J. Prince JULIE SMOLYANSKY IS NO stranger to tough challenges. In 2002, at just 27 years old, she was thrust into the position of CEO at Lifeway Foods when her father, the company’s founder, died suddenly. Smolyansky rose to the task and sales of Lifeway’s kefir products have risen approximately 800 percent, to $109 million, since she took the helm Having reached that level of success, Smolyansky believes it is her responsibility to leverage that to make a difference in the world. “My role, as I see it, does not just end with my corporate life,” she says. “If every leader looked at the things they’re passionate about and said, ‘I’m going to dedicate my life to this, I’m going to talk to my network about this, I’m going to leverage my platform to help change society and make my community better,’ that really would build a better world.”

The societal ill she is most moved to challenge is violence against women and children. According to the Centers for Disease Control and Prevention’s most recent data, one in five women will be raped during her lifetime and one in three will be the target of some form of sexual violence. “The statistics have not really changed over the decades, even as awareness has increased,” she says. “It’s an epidemic.”

While in college, Smolyansky served as a certified rape crisis counselor and helped women who had to undergo invasive forensic exams necessary to collect possible DNA evidence. The “rape kit,” as it has become

known, can then be used to find and convict the perpetrator.

But in 2010, Smolyansky was shocked to learn from a Human Rights Watch report that the U.S. had accumulated a backlog of more than 400,000 untested rape kits.

“We have the technology, the resources, the ability to test and track

“If every leader looked at the things they’re passionate about and said, ‘I’m going to dedicate my life to this, I’m going to talk to my network about this,’ that really would build a better world.” every single kit and put away serial perpetrators who should not be in our communities,” she says, adding that the backlog “is something we need to push back on and say, this is not okay.”

Smolyansky and her husband, Jason Burdeen, cofounded Test400k, a nonprofit organization dedicated to eliminating the backlog of untested rape kits in the U.S. Specifically, Test400k asks that every kit be tested within 15-30 days and every criminal justice system implement a transparent tracking system so that survivors know the status of their

16 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

case. The most often cited explanation for the backlog of testing has been a lack of municipal resources. “But we find resources for what we value and what we think is important,” she says.

“We need to start sending the message that the safety of women and children is important.”

Last year, thanks to Test400k’s efforts, the Illinois statute of limitations law was changed; though the time limit to prosecute remains 10 years, the clock does not start running until the survivor’s rape kit is tested. Earlier this year, Test400k issued a national call to action to every state to reduce the testing period to no more than 15-30 days and to implement a transparent tracking system so that survivors can easily find out the status of their case.

In April, Test400k hosted the first-ever national forum to address the backlog issue and share best practices.

“To have all those experts together in one room talking about this, that was really important,” says Smolyansky.

To further draw attention to the issue nationally, in August the company sent each U.S. state governor an unused rape kit with a tracking number that was made public. “We asked them, ‘Doesn’t every survivor deserve to know where their rape kit is? And would you commit to implementing a notification and tracking system?’” Changing the system will take time, she acknowledges, and the pace can sometimes be frustrating.

“But every little step counts. And we will, slowly but surely, get there.”

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CEO WATCH CEO WATCH CEO INSIGHT | SCOTT TARIFF, CEO OF EAGLE PHARMACEUTICALS

Scott Tariff on Staying the Course

Riddled with bunkers, the path of a startup drug company demands perseverance and adaptability. By Jennifer Pellet THE CHALLENGE After parting ways with the pharmaceutical company you’ve led for three years and worked at for eight, you decide it’s time to build your own business. You pull together a threepage business plan, leverage a 30-year relationship with a venture capital company and launch your own pharmaceutical company.

THE CONTEXT “Starting a business is not for the fainthearted,” says Scott Tariff, reflecting on the early years after he founded Eagle Pharmaceuticals in 2007. “We didn’t go straight up—there were a lot of days where we woke up with less than a month’s cash left in the bank wondering what the heck to do.”

Working with limited resources demanded adaptability—and ultimately reshaped the company’s strategy.

Initially, Tariff intended to focus on generic drugs, a market he knew well, having previously led the generic drug maker Par Pharmaceuticals. In fact, his company’s moniker—in golf, a score of “eagle” is two strokes better than par—signaled Tariff’s intent to outpace his former employer. “They had their big sign on their building that said Par. I moved out and put up my big sign that said Eagle.”

Soon, however, Tariff found his focus shifting to specialty drugs, a business originally intended to be a smaller sideline to the generic business. “We saw an opportunity and had to make a decision,” explains Tariff. “We basically flipped the ratio to more specialty drugs than generics.”

Tariff describes his products—primarily injectable treatments in the

areas of critical care and oncology— as “line extensions.” Rather than developing brand new medications, Eagle talks to doctors, patients and nurses to identify problems with existing drugs and looks for ways to reformulates them to address those issues. Enhancing already-FDA-approved drugs enables the company to use an expedited FDA regulatory review pathway known as 505(b)(2), which speeds time to development and approval to market.

WHO Scott Tariff Founder & CEO, Eagle Pharmaceuticals SIZE $255 million, 65 employees LOCATION Woodcliff Lake, New Jersey PERSONAL PASSION New York Mets

18 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

THE HURDLES Reformulating drugs is a complex, expensive process that doesn’t always succeed—and that’s before factoring in the FDA approval process. Early on, and at a time when it could ill afford to do so, Eagle suffered its share of product failures. “When you are an R&D company and your R&D isn’t working, it’s a problem,” says Tariff.

“We hung in there, learned from our mistakes, modified the products and ultimately wound up with some successes.”

Still, running a pharmaceutical business remains a risky undertaking. Just this past April, Eagle tussled with the FDA when the agency denied “orphan drug” seven-year marketing exclusivity for its lead compound, Bendeka. (An orphan drug designation is meant for drugs that treat diseases affecting fewer than 200,000 people or for which there’s little hope of recovering R&D costs.) The agency’s surprise move came on the heels of a lucrative licensing agreement between Eagle and generic drug maker Teva, which was poised to market the compound as an improvement on its existing

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CEO WATCH drug, Treanda. In April, Eagle filed a lawsuit against the FDA protesting the decision.

“It worked out in our favor,” says Tariff. “Teva is doing a great job transitioning their old formulation. I think we have 77 percent of the market share of [Treanda].”

THE ENDGAME Today, the venture Tariff founded out of his home is a thriving company whose revenues are expected to hit $255 million this year. With growth has come stability, says Tariff, who took the company public in 2014.

“The people we can attract today—as

a successful public company—are different than the ones we were able to bring in nine years ago without products on the market,” he notes. “When you’re developing drugs you need the best formulators and developers. It’s all about the people.”

THE LESSON Striking a balance between committing to your startup vision and being willing to consider the possibility of failure is tricky, but critical to success, says Tariff. “When you’re starting a business, you need to understand that there will be dark days before you get to the other side,”

he says. “The key is to be honest with yourself about when to persevere and when to make significant adjustments or to move on. You can’t keep pouring money and time into a business that won’t work. On the other hand, you may just be going through a dark patch and, with perseverance, you’ll come out the other side.”

Most company founders need help navigating the twists and turns in the journey, he adds. “Everyone needs mentors,” he says. “You need to surround yourself with talented people who you can trust and listen to in order to help you be objective about how to move forward.”

CEO CONFIDENCE INDEX

The Larger the Company, the Deeper the Concern IT’S NOT SURPRISING that large companies ($1 billion-plus) have the weakest view of future business conditions (12 months from now). They have the most to lose if new tax-related legislation is enacted. Plus, they have the most employees should the minimum wage be raised. They also may be concerned that the Democratic nominee, Hillary Clinton, might beat out business-friendly Donald Trump in the presidential election.

In Chief Executive’s August 2016 CEO Confidence Index, CEOs rated their expectations of future business conditions (12 months from now) on a scale of 1 to 10, with 10 being the highest. While the overall rating was flat against last month (5.70 vs. 5.69), significant differences appear when broken out by company size.

Large companies, on average, rated their view of future business conditions at 5.38, compared with upper mid-marketers’ rating, which came in the highest at 5.82.

Lower mid-marketers and small companies ranked similarly, with a 5.70 and 5.65, respectively.

When broken out by industry, the government/nonprofit industry was the most optimistic, with a 7.50 rating, followed by energy/utilities at 6.67. Industries with the lowest ratings included transportation at 4.50 and real estate at 4.75. Comparing future business conditions to now, CEOs in the government/nonprofit sector projected the highest improvement, with a 15.4 percent jump (6.50 to 7.50), followed by manufacturers of industrial goods with a 9.7 percent projected growth rate (4.95 to 5.43).

LARGE COMPANIES HAVE THE WEAKEST VIEW OF FUTURE BUSINESS CONDITIONS (12 MONTHS OUT)

6.0

5.82 5.70 5.30 5.5

5.30

5.0

Large >$1B

Upper Mid-Market $100M-$999.9M

20 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

Lower Mid-Market $10M-$99.9M

Small >$10M

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CHIEF CONCERN

Good-to-Great Boards and the Importance of Culture Research unveils the traits shared by truly successful boards.

By Dr. Thomas J. Saporito AS I REFLECT on our latest research about what distinguishes good boards from great, high-performing boards, I find several themes emerging from the data that echo the pressures felt by directors today.

We recently interviewed 45 directors who collectively serve on 125 boards of public companies with revenues in the midcap to Fortune 50 range. We sought their experiences and views on what makes a board great and what high-performing boards focus on.

Without question, board members are shifting their attention away from statutory and regulatory compliance; for the vast majority, that work has already been done. Our research shows that their attention now centers on addressing the fundamentals in board succession, competency and composition. Yet, among the best, even these considerations are becoming table stakes.

What truly distinguishes great boards is something that is hard to measure and even define, yet it is recognized by many directors as the underlying criterion for success— board culture. In this changing business environment, the effectiveness of board interaction ultimately shapes high-performing boards. The most successful are able to gel together as one and succeed in defining their roles in their companies’ futures.

THE BEST LOOK TO STRATEGY AND PROCESS

Superior boards are no longer content with traditional governance but look to become more strategically aligned

in helping to achieve their companies’ goals. This trait has made them more disciplined and skills-focused in their board succession. In our research, the best understand the strategic implications of board succession and plan beyond the traditional roles of governance, audit, finance and compensation.

Once boards define their value-added roles, the best take stock and identify the skill sets and expertise needed. Then, they match those qualities up against existing capabilities and term limits and use the information to shape and define their succession plan.

All of this speaks to strategy and process, the first priorities. What cannot be overlooked is the social glue that a team needs to keep them united as they hash out the strategic direction of the board, the value that each member brings and the talent being targeted for board succession.

THE VERY BEST FOCUS ON BOARD CULTURE

In order to align with purpose, boards need to build cultures of trust, communication, teamwork and candid debate. Our research shows a strong desire among directors to create an atmosphere that promotes open discussion, role clarity and genuine respect for differing opinions.

A board of directors experiences the same dynamics present in any small group. There are always risks found in trying to maintain social accord, groupthink, the potential to deflect responsibility and the conscious—and often unconscious—motivations to not rock the boat in order to

22 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

maintain relationships.

The best boards confront these cultural issues and tendencies head on. The top factors that directors most often cited as contributing to the making of a great board were the qualities of boardroom dialogue and debate (88 percent) and the ability to ask the tough questions of management (77 percent).

Conversely, the greatest factors directors mentioned as undermining board effectiveness were lack of candor in the boardroom (77 percent) and lack of mutual respect and a collaborative culture (68 percent).

Many directors commented on the importance of healthy conflict and tension in the boardroom and of feeling comfortable exploring issues from different perspectives. A key strategic element in their succession planning is to identify individuals who reflect the culture they want to establish and attach the same importance to it as they do to the skill set the individual brings.

The great high-performing boards today have a handle on strategy. They know how, where and when to fill the skills gaps needed to help their companies compete and succeed in the future. More importantly, the very best realize the need to come together as one and build a culture of trust, communication and debate.

DR. THOMAS J. SAPORITO (tsaporito@ rhrinternational.com) is chairman and CEO of RHR International, a global firm committed to the development of top management leadership.

Congratulations Randall Stephenson 2016 CEO of the Year We celebrate your vision and leadership.

Keep “mobilizing our world!�

MID-MARKET REPORT

Rebound Continues for Middle-Market Companies

CEOs broadly are optimistic, although some are concerned about the impact of Brexit.

MIDWAY INTO 2016, the year seems to be shaping up nicely for mid-market companies, with both revenues and hiring on the rise, according to the Middle Market Indicator, a quarterly report by National Center for the Middle Market (NCMM) at the Ohio State University’s Fisher College of Business.

Middle-market companies reported a healthy 7.2 percent revenue growth rate during the second quarter of 2016, as compared with 6.3 percent growth in the first quarter of the year and a 1.2 percent growth rate for the S&P 500.

What’s more, middle-market executives seem more optimistic about the short-term business outlook than they were in the beginning of the year.

The majority still expect the business climate to remain unchanged, but 19 percent anticipate a better business climate, while just 10 percent feel conditions will worsen.

In a separate NCMM survey, nearly half of middle market companies (49 percent) reported expecting the UK’s decision to exit the EU to impact their businesses. Not surprisingly, companies with a higher stake in the region expressed greater concern about the potential for changes in regulations, tariffs, exchange rates and customer demand.

Several respondents also expressed concern about the logistics of shipping to an independent England. “Now we will need to abide by the UK shipping standard and the EU shipping standards,” said one mid-market executive. “[They] are vastly different.”

The tables and charts at right offer a look at how 2016 is shaping up so far for middle-market companies, and what mid-market leaders expect for the year to come.

Gaining Ground in Revenue Growth

More than seven in 10 companies reported revenue growth gains since last year.

MIDDLE MARKET

S&P 500 2Q'15

5%

6.6

6.3

7.2 0%

2Q'15 1Q'16

2Q'16

of middle-market companies reported positive revenue growth.

-1.2 -3.4

-3% 0%

2Q'16

66% 72%

1.2

2Q'15 1Q'16 2Q'16

Heartier Hiring

2Q'15

At 4.4 percent, the rate of year-over-year employment growth increased for the first time in the past nine months.

MIDDLE MARKET Past 12 Mo.

2Q'16

38% 37%

of middle-market companies expect to add jobs.

ADP (PAST 12 MO.) Large Corp.

Next 12 Mo.

Small Bus.

3%

5%

2.7

4.4 3.6

3.6 2.7

2Q'15 1Q'16 2Q'16

2.7

3.3

2Q'15 1Q'16 2Q'16

2.2

2.3

2.1

1.7

2Q'15 1Q'16 2Q'16

1.9

2Q'15 1Q'16 2Q'16

How They Grew

Expanding into new domestic markets had the most impact on top-line growth, while overall salesforce effectiveness drove performance improvement.*

TOP DRIVERS OF GROWTH Expansion into new domestic markets Percentage of annual revenue spent on R&D Attracting new customers Setting formal annual growth targets Overall salesforce effectiveness

TOP DRIVERS OF OVERALL PERFORMANCE Overall saleforce effectiveness Having a long-term, 3-5 year growth strategy in place Retaining profitable accounts Maintaining margins Innovating new products and services

*Based on the National Center for the Middle Market factor and regression analysis of companies that outperformed their industry or the economy.

24 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

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SONNENFELD

Mastering the Monarch Succession THE FEROCIOUS VIACOM BOARD BATTLE Jeffrey Sonnenfeld

Instead of clinging to a throne, a creative leader can serve a short tour of duty.

between Sumner Redstone and his deposed, failed successor Philippe Dauman provides drama to rival the intrigue of HBO’s series Game of Thrones, not to mention Orson Welles’ film Citizen Kane, Shakespeare’s King Lear, Shelley’s “Ozymandias” or the biblical King Saul.

Dauman, despite years of Viacom’s collapsing stock price and declines in creative programming, tried to fortify his own troubled reign.

He’s charged Redstone’s daughter Shari with manipulating her 93-year-old, frail father, who controls 80 percent ownership of Viacom and CBS. Redstone has held the Viacom throne and CBS’s controlling enterprise, National Amusements, for roughly 50 years, routinely terminating successor candidates.

The saga is a timeless theme we see often in show business and parallels the long reigns of movie moguls like Louis B. Mayer of MGM, Lew Wasserman of MCA Universal and Paramount founder Adolph Zucker, as well as others in the media, including CBS founder William Paley and publishing magnate William Randolph Hearst.

When I wrote The Hero’s Farewell, I labeled this CEO departure style as that of a “monarch.”

They only exit feet first—through a palace revolt or dying in office, as commonly found in creative, personality-infused businesses, such as fashion, technology and media.

BCG founder Bruce Henderson suffered one such palace revolt. Despite a tight autocratic rule, he faced multiple insurrections (e.g., the spinout of rival Bain & Co.) before his own ouster.

Also leaving feet first, IMG founder and renowned super-agent Mark McCormack, died at 72 with no clear successor. Entrepreneurs from Ralph Lauren to Facebook’s Mark Zuckerberg and Alibaba’s Jack Ma are current examples of CEOs with the controlling votes to thwart genuine, planned succession.

These common, tragic sagas do not have to be the only scripts for such personality infused businesses. Consider these five exit strategies:

1. Active board intervention. Michael Eisner’s terrific first decade at Walt Disney disintegrated in his second decade. Suspecting Eisner efforts to derail succession, the board appointed Senator George Mitchell as board chairman above Eisner. Ultimately, the highly regarded Bob Iger assumed the CEO position. Meanwhile, in 2015, after a decade that saw Disney’s stock triple, Iger announced his own retirement date (2018), carefully reviewing candidates for succession.

2. Incumbent humility. Time Warner’s Gerald Levin tried to extend his troubled rein by placing humble former banker Richard Parsons at his side, assuming Parsons’ lack of show biz background would ensure he was not a threat.

Yet, Levin left in 2002, a year after the disastrous AOL merger, leaving Parsons in charge to stabilize things and smoothly pass the reins to the highly successful insider Jeff Bewkes.

3. Intergenerational partnership. Cable pioneer Ralph Roberts se amlessly transferred formal power to his carefully groomed son Brian, who brilliantly has built out the enterprise with NBCUniversal, as well as Xfinity.

4. Selling out. Another path often taken by monarchs, who fear anyone sitting on their throne, is selling the firm. Jim Wiatt surrendered the helm of the William Morris Agency with its 2009 takeover by Endeavor. ABC’s Leonard Goldenson did the same in 1985 when, after 30 years on top, he merged the network with Capital Cities Communications.

5. A governor’s mission. Instead of clinging to a throne, a creative leader can serve a short tour of duty, like a state governor, and then move to new ventures. Quincy Jones has soared as a musician, record exec/broadcaster (Qwest), publisher (VIBE), producer (Fresh Prince of Bel Air) and more. Chester Bowles co-founded an advertising giant, then sold his shares and stepped out as a top official for FDR. He later became governor of Connecticut, ambassador to India and Nepal under Truman, an under secretary of state for Kennedy, and finally, Nixon’s ambassador to India.

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.

26 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

I LLU ST R AT I O N BY T I M TO M K I N S O N

From Viacom to Facebook, creative enterprises often struggle with transitions. By Jeffrey Sonnenfeld

The 21st century economy has a 21st century address.

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ELECTION 2016 : WHAT CEOS THINK

“I'm looking for another candidate to support. It doesn't seem like I should have to pick between the lesser of 2 evils, the least criminal, least incompetent or least egomaniacal.”

BRIAN KINSEY, PRESIDENT AND CEO, BROWN INTEGRATED LOGISTICS

“You know about [Trump’s] winning and business and success. [But he also] wins with his family… Any of [Trump’s] children, you’d be proud to have them as part of your family… That’s how I judge a winner.”

BRIAN FRANCE, CEO, NASCAR

“Trump would destroy much of what is great about America.

It’s important that Trump lose by a landslide to reject what he stands for.”

REED HASTINGS, CEO AND CO-FOUNDER, NETFLIX

AN ELECTION LIKE

NO OTHER

Controversy continues to define the presidential race, yet everyone can agree on one thing—the outcome will dramatically impact both the national economy and individual businesses. By Dale Buss 28 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

“[Trump] is someone who is not beholden to special interests and has the fortitude to make tough decisions. With a slew of onerous regulations now threatening to cripple American business, the next president of the United States must have the courage, determination and intelligence to disrupt politics as usual."

HAROLD HAMM, CHAIRMAN AND CEO, CONTINENTAL RESOURCES

“I like Hillary Clinton, somebody who’s experienced and has the depth of understanding. Mostly, why I like Hillary Clinton is I believe if we don’t focus on the education of our children, we are going to create more inequality in this world.”

MARC BENIOFF, CHAIRMAN, FOUNDER AND CEO, SALESFORCE.COM

IT’S NO SECRET

that uncertainty has a dampening affect on economies, and election years are, by definition, a time of uncertainty. In fact, once the nation’s new leader is anointed, sluggish voting-year growth is often bolstered by a post-election “relief rally” as businesses breathe a collective sigh of relief and get on with things. But this November—with the two top presidential candidates so diametrically opposed on so many compelling issues—just might be different.

According to a recent survey by U.S. Trust, 68 percent of high-net-worth executives and business owners are concerned about the impact of the presidential election on their companies. In fact, depending on whether Donald Trump or

Hillary Clinton becomes president—and on which candidate each business leader has bet—some American CEOs’ worries may go sky-high by Inauguration Day. CEOs can make a positive case for either candidate: Clinton, who had a front-row seat to the action while serving as First Lady and then went on to develop her own formidable political skill set in Congress as New York’s senator and as the country’s secretary of state, may be viewed as the experienced and steady hand.

Meanwhile, Trump can be seen as the no-nonsense, billionaire hero who can’t be bought and will unleash a new era of business growth by taking a Roto Rooter to sclerotic Washington, D.C. Yet, what may be much more persua-

sive to many CEOs is the negative case against whichever candidate they fear more. And that decision is often based largely on fears around how the new administration might impact our economy and the business climate. (See sidebar, next page, for the perspectives of four top economists.)

One block of CEOs believes that the election of Clinton would ensure nothing short of disaster in the years ahead, as she continues what they see as the anti-business philosophy of President Obama, tries to wring even more taxes out of the 1 percent and scrambles for the government to fulfill all the economic promises she’s made to her growing coalition of what some (continued on page 32)

CEO QUOTES: USA TODAY (FRANCE), CHIEF EXECUTIVE (KINSEY), CLINTON CAMPAIGN (HASTINGS), CNN (BENIOFF), THE WALL STREET JOURNAL (HAMM)

ELECTION 2016 : SCENARIO PLANNING

WHAT THE ELECTION COULD MEAN FOR YOUR BUSINESS—AND THE ECONOMY

Leading economists predict the impact of the candidates on the GDP.

By Richard Sine ECONOMISTS COMMONLY SAY that the course of the

economy doesn’t depend very much on who sits in the White House. But as the chart below demonstrates, this election could be different. We asked prominent economists for their predictions about the economy based on the two major candidates’ stated policies on their campaign websites and in speeches and interviews.

This chart contains GDP predictions for each year of the candidates’ first term, as well as a few predictions of unemployment rates and S&P 500 levels. Moody’s Analytics economist Mark Zandi gets two predictions:

One in which he reflects what would happen if the candidates’ stated policies were implemented without changes, and one in which he reflects his prediction if the candidates’ policies are modified by a “somewhat skeptical Congress.” Zandi considers the latter the more likely scenario for both candidates.

Our panel includes independent economic advisors, as well as economists who have counseled or worked under Republicans. Nonetheless, we found a general feeling that the economy—and business—would fare better under a Clinton presidency.

DACO “If fully implemented, Mrs. Clinton’s tax, spending, immigration and minimum wage proposals would provide a much needed boost to the U.S. economy.”

BAUMOHL“If he tries to implement some of policies talked about during the campaign [protectionism and deficit spending], it will raise a lot of anxiety among business leaders and investors in the U.S and around the world.”

CLINTON TRUMP

BAUMOHL“Hillary Clinton is a known entity and her tax and spending proposals can roughly be modeled…. There are huge challenges to doing the same for Trump.”

4.0

Real GDP growth

3.5

2.5 2.0

DACO “After a negative shock, the economy often rebounds, supported by more supportive policy.”

SWAGEL “Infrastructure spending would give a short-term boost to the economy.”

SWAGEL“There would be more regulation and interference in the economy.

Nothing in her agenda would restart business confidence.”

DACO “The Clinton plan appears to be deficit-neutral.”

BAUMOHL“By then we will have a bit more clarity, which will give businesses a better idea of how or where to invest.”

3.0

SWAGEL“A Trump presidency (however unlikely) would be a disaster for the economy—he could do considerable harm with actions relating to trade and immigration.”

SWAGEL “Between zero and 1 percent.”

1.5 1.0 0.5 0.0

2016

2017

2018

BAUMOHL

2016

2017

2018

DACO

DACO “We assume part of the deficit his policies would create will be financed through cuts in government spending, which creates a drag on the U.S. economy. And deficit spending will lead to a surge in long-term interest rates, crowding out private-sector investment.”

30 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

2019

2020

2016

2017

2018

2019

SWAGEL GDP -2.1

BAUMOHL “If Trump looks like he will be victorious, we will have lots of businesses scale back or cancel capital spending and hiring.”

SWAGEL“The economy and business would adapt to a degree, but there would still be a serious shock to business confidence.”

Our Panel

THE ROUNDUP change her tune. Moretion-reform proposThe economists All of the economists over, Baumohl notes als would boost the were also concerned noted the vagueness that several groups economy by enlarging about the implications of Trump’s proposals, have concluded that of Trump’s protectionist the labor force. Her with Baumohl suggestClinton’s plans will not spending proposals and anti-immigration ing that Trump’s unpreZANDI ZANDI “Near-term substantially increase would boost growth stances. A clampdictability would hurt Unemployment growth is supported by the federal debt. and her tax proposals down on trade would business confidence.

ZANDI “The large tax cuts and rate: 4.5 percent, the stimulus provided Swagel, who worked would have onlyS&P a small result in adeficits “shockactually to Zandi and Daco were bigger support 500 at 1,972 by her spending plans stronger consumer spending and on consumer in the Treasury Departimpact business confidence” especially worried in combination with that growth, ment under George spending because and economic could also push particularly up Trump is proposing much stronger foreign early rates, in Mr. Trump’s W. Bush, said that he they fall mostly on the Swagelterm, before huge spending increas- interest immigration.” the negative impacts of the hopes Trump would ulwealthiest taxpayers, noted.

The departure of es but also large tax higher interest rates caused by timately defer to Mike millions of immigrants cuts. This, they said, the large deficits take hold.”who spend a relatively ZANDI Pence and Paul Ryan, smaller proportion of would cause an “alcould widen deficits Unemployment rate: ZANDI do have their income, they said. 5.7“who ready-tight labor marand ultimately push up percent, S&P a vision Unemployment rate: forathow to increase Both are also ket” to get even tighter, interest rates.

If the 500 1,997 3.7 percent, S&P growth.” As for Clinton, concerned about her pushing up labor costs, deficit were ultimate500 at 2,002 he says, “I don’t see stated opposition to Zandi stated. ly financed through anything in her agenda the Trans-Pacific Partspending decreases, ZANDI As for Clinton, Zandi to restart business nership, but suspect and Daco contended that could also hinderUnemployment rate: ZANDI confidence.” she may ultimately that her growth, Daco said. 3.7 percent, S&PimmigraUnemployment rate: 6.8 percent. “[A pullback from trade] will mean a smaller U.S. economy as the years go by.”

500 at 1,472

ZANDI “Near-term growth is supported by the stimulus provided by her spending plans in combination with much stronger foreign immigration.”

2017

ZANDI Unemployment rate: 3.7 percent,2019 S&P 2018 500 at 2,002

ZANDI Reflects what would happen if the candidates’ stated policies were implemented without changes.

2020

ZANDI Unemployment rate: 3.7 percent, S&P 500 at 1,472

GDP -1.5

2016

ZANDI Unemployment rate: 4.4 percent ZANDI “The large tax cuts and bigger deficits actually support stronger consumer spending and economic growth, particularly early in Mr. Trump’s term, before the negative impacts of the higher interest rates caused by the large deficits take hold.”

ZANDI ZANDI “Pulling back from Unemployment globalization…will rate: 4.4 diminish the nation’s percent growth prospects.”

2016

2017

ZANDI Unemployment rate: 4.5 percent, S&P 500 at 1,972

2018

BAUMOHL BERNARD BAUMOHL, CHIEF GLOBAL ECONOMIST, The Economic Outlook Group

DACO GREGORY DACO, HEAD OF U.S. MACROECONOMICS, Oxford Economics

Our Panel

ZANDI “There are also some long-term economic costs from the higher tax rates in the secretary’s proposals.”

SWAGEL BAUMOHL PHILLIP BAUMOHL, SWAGEL, BERNARD OF CHIEF PROFESSOR GLOBAL ECONOMIST, INTERNATIONAL The Economic ECONOMIC POLICY, Outlook Group University of Maryland; former assistant treasury secretary under George W. Bush

ZANDI Unemployment rate: 5.7 percent, S&P 500 at 1,997

2019

DACO

2020

GREGORY DACO, HEAD OF ZANDI U.S. MACROECONOMICS, Oxford Economics MARK ZANDI, CHIEF ECONOMIST, Moody’s Analytics.

Zandi was a senior advisor to presidential candidate John McCain, but SWAGEL has also contributed to Hillary Clinton’s PHILLIP SWAGEL, 2008 campaign PROFESSOR OF INTERNATIONAL ECONOMIC POLICY, University READ MOREof Maryland; Mark former Zandi’sassistant treasury secretary forecasts also cover under George W. Bush

ZANDI ZANDI Unemployment ZANDI rate: 6.8 percent. Reflects his prediction if the“There are also some candidates’ policies are modified “[A pullback from long-term economic trade] will mean by a “somewhat skeptical costs from the higher a smaller U.S. Congress.” Zandi considers this tax rates in the economy as thethe more likely scenario for both secretary’s proposals.” years go by.” candidates.

+

2017

2018

ZANDI Reflects what would happen if the candidates’ stated policies were implemented without changes.

2019

2020

GDP -1.5

2016

ZANDI “Pulling back from globalization…will diminish the nation’s growth prospects.”

2016

2017

2018

2019

employment, stock prices, CPI and more. His Trump report is at: http://bit. ly/28IWrdO. His Clinton report is at: http://bit.

ZANDI ly/2amwyQb. Gregory Daco’s full MARK ZANDI, report on Trump also CHIEFannual ECONOMIST, includes estimates Moody’s Analytics. inZandi areas such as consumer was a senior advisor spending and business to presidential candidateinJohn McCain, butfound vestment.

It can be also contributed to at:has http://bit.ly/2acYZjp.

2020

ZANDI Reflects his prediction if the candidates’ policies are modified by a “somewhat skeptical Congress.” Zandi considers this the more likely scenario for both candidates.

SEPTEMBER/OCTOBER 2016

Hillary Clinton’s 2008 campaign

/

CHIEFEXECUTIVE.NET

/ 31

ELECTION 2016 : WHAT CEOS THINK (continued from page 29)

describe as the “47 percent of Americans who pay no income tax.”

The other block is just as frightened at the prospect of Trump as the next president, with their trepidation fueled by saber rattling on trade and immigration that may translate into policies that will throw the U.S. economy into reverse.

They also fear the simple uncertainty a Trump presidency would bring, because the unknown is one of the worst things for business decision-making.

FEAR-FUELED FAVORITES Put another way: Many CEOs fear Clinton could decelerate the U.S. economy by adding taxes and regulatory burdens over the next eight years, while others fear Trump could blow up the U.S. economy almost immediately by turning it over like an apple cart. “The choice between Clinton and Trump is really a choice between the lesser of two evils,” says Robert Johnson, CEO of the American College of Financial Services. “There is a time-worn adage—‘the markets dislike uncertainty’—and Trump epitomizes uncertainty.”

Indeed, it’s a curious twist when a lifelong progressive activist who’s never held a job in business becomes the presidential choice of significant numbers of business leaders. But Clinton is the devil they know versus the one they don’t.

Johnson believes that neither candidate is “appealing” to CEOs but that many of Trump’s promises to shake things up are “very concerning and potentially disruptive to business interests.” Meanwhile, although Clinton advocates higher taxes on wealthy Americans, “she definitely has more of a track record that business people can rely on.”

Temperament also comes up a lot. As former General Motors CEO Dan Akerson put it in endorsing Clinton, “Serving as the leader of the free world requires effective leadership, sound judgment, a steady hand and, most importantly, the temperament to deal with crises large and small. Donald Trump lacks each of these characteristics.”

Other notable business leaders backing Clinton include, of course, Warren

Buffett; Barry Diller, chairman of IAC/ Interactive; Eric Schmidt of Google; Sheryl Sandberg of Facebook; Wendell Weeks, CEO of Corning and Reed Hastings, CEO of Netflix. Also backing Clinton is HP’s Meg Whitman, who has spoken out against Trump, likening him to Hitler and expressing concern about his impact on business. “I think his policies around free trade will be damaging to business as a whole,” she explained to CNBC in a recent interview.

Yet Trump is backed by many CEOs, as well, including Sheldon Adelson of Las Vegas Sands, Stanley Hubbard of Hubbard Broadcasting, Robert E. Murray of Murray Energy, PayPal founder Peter Thiel and oil man T. Boone Pickens.

What may be persuasive is the negative case against whichever candidate CEOs fear most.

When it comes right down to it, many CEOs will support Trump simply because he agrees with them on one of the biggest fundamentals: taxes. “Trump says that by cutting everyone’s taxes, he will create jobs. That’s going to stimulate the economy, so people are going to make more money and, in the long run, also raise more revenue” for the government,” argues Giacomo Santangelo, an economics professor at Fordham University.

“So as we approach the election, more CEOs may support Trump just because he’s talking about cutting their taxes and Clinton is talking about increasing them.”

Another big difference between the candidates that has emerged on economic policy also reflects their broader, stylistic differences. The bombastic Trump fixates on just a few bold and controversial ideas, such as the “wall” with Mexico and tariffs on Chinese imports. A relatively wonkish Clinton peppers her economic proposals with so

32 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

many specifics that general themes are easily lost. She actually has spent time, for instance, discussing her proposals to protect horses from specific abuses and to speed up the Internet in rural areas.

Perhaps the largest difference is in basic attitudes toward CEOs. Trump promises a friendly one in part because he is one and knows and works with so many of them.

Clinton is likely to be much more wary of business leaders philosophically. After all, it was Obama’s basic anti-business actions and attitudes that one CEO after another cited as disincentives to capital spending and expansion efforts during the last eight years—and Clinton has essentially promised a third Obama term.

Another major area where most CEOs agree with Trump is the view that the U.S. economy remains in rough shape, with disappointing GDP growth, a declining pace of business startups, disappointing wage growth and rising inequality. Trump has been hammering that theme from the beginning of his campaign.

Clinton, however, argues that private-sector job gains have been strengthening under Obama and that the unemployment rate has anchored itself below 5 percent. While acknowledging the economic discontent and “inequality” that fueled the rise of both Bernie Sanders and Trump, she presents herself as the person best qualified to address it. As her campaign shifted into general-election mode, Clinton emphasized the remaining problem of a long-term divergence between worker productivity and wages.

Clinton also touted an analysis by Moody’s Mark Zandi, who said that by constricting trade and immigration and slashing taxes while not cutting spending significantly, a President Trump would plunge the U.S. into “an unusually lengthy recession—even longer than the Great Recession.” (For more on Zandi’s predictions, see page 30.)

Moving into the final leg of the presidential campaign marathon, only one thing is truly certain about the outcome of this election: It has fueled an unprecedented level of passion among CEO supporters—and detractors—of both candidates.

The Power of the Network Effect Allow your team to benefit from the experience of peer senior executives with comparable roles and responsibilities at noncompetitive companies. Let your them find solutions in Senior Executive Network (SEN) group sessions designed to explore issues and clarify options and actions steps, including: • Benchmarks for projects and outcomes • Clarifying what’s working (and what’s not) • Developing individual skills, and management methods, learning from shared experience Imagine a more effective and motivated team with enhanced skills and new relationships, focused on driving your bottom line.

We have networks for the following key executives in your company: • Finance • Operations • Marketing • Controllers • Sales • Product Development • Engineering & Technology

Candidates must be nominated and sponsored by their CEO and/or President.

Tap into the Power of the Network Effect >> Visit www.SrExec.com Or call Rob Grabill at: 785-832-0303

PARTNERSHIPS

SHOULDER TO SHOULDER

B

How big and small companies push growth by working together.

BY WILLIAM J. HOLSTEIN

Brian Day, CEO of software system company Apperian, is taking a risk—but it’s a risk that could yield a big payoff. He is allowing his software, which helps companies manage employees’ smartphones and other personal devices, to be bundled with security software Intel is selling as part of its push into new fields outside of semiconductors. At the same time, Intel Capital, a venture capital unit of the Silicon Valley giant, has made an undisclosed investment in Apperian and has board observation rights.

One risk, of course, is that Intel, either consciously or unconsciously, absorbs Apperian’s intellectual property and runs away with it. But Day, whose Boston-based company has less than $100 million in sales, says the relationship with Intel is

helping Apperian grow more rapidly than it otherwise could have. “Any time you get the luxury of working with someone like Intel that has such a large footprint, it adds a lot of credibility to our product by being able to put the Intel name on it,” Day says. “People say, ‘Hey, this company is for real.’”

A Strategic Win-Win The Apperian-Intel collaboration is just one of what appears to be a rapid proliferation of such deals between large and small companies. Intel has the largest, most developed venture capital (VC) program with investments in 302 companies around the world, but other technology giants such as Google, Cisco, Apple and Microsoft have similar strategies to collaborate with startups. In wireless communications, Qualcomm seeks to maintain its edge through alliances with small fry, much as Johnson & Johnson is in the pharmaceutical, consumer goods and medical device fields. J&J even hosts more than 140 startup companies in six innovation labs in North America called JLABS. One of the hottest fields for these collaborations at the moment is automotive, a sector that hasn’t been traditionally known for its rapid embrace of new technologies.

General Motors, Ford Motor, Toyota Motors and Volkswagen all have announced investments in mobility companies like

Uber and Lyft to give them a window into the future of how people will use vehicles.

Ford even invested $182 million in software company Pivotal for new insight into advanced software development methods.

The upside from the perspective of the large companies is clear—they gain access to technologies that may be moving faster than their own internal R&D arms. “Every investment we make has to hit the nexus of strategic and financial,” says Ken Elefant, a managing director of Intel Capital for the software and security fields. “If a company doesn’t have a strategic fit in some way with one or more of Intel’s business units, we won’t invest.” The company often matches up startups with its internal R&D operations, which spend a hefty $12 billion a year on finding and developing new ideas, to foster cross-fertilization.

An investment from Intel does not necessarily mean that it plans to acquire a startup. Intel leads all VC companies in the number of companies it “exits” each year, meaning sells out its shares.

In those cases, Intel’s investments may have achieved financial goals, but not necessarily technological ones.

Apperian’s Day says that the security division of Intel, which previously had purchased the widely known McAfee brand of computer security software, approached his company in 2012. Now that so many employees are bringing their own personal devices into the workplace, there’s a need for software like Apperian’s, which helps corporate IT managers manage security on employees’ personal devices. After product integration discussions

KEY TAKEAWAYS

1 Strategy First

Before engaging, know what you want out of a tie-up—and what you’re willing to give up

2 Define the Deal

Parties should agree in writing on what they will contribute to the alliance

3 Patent Pending

Protect your technology by filing before you forge a relationship

4 The Big ROI

Big companies get a window on rapidly evolving niches; small companies get resources, credibility and distribution

PARTNERSHIPS with Intel, Day agreed to let it package Apperian’s software with its other offerings. Then the security unit introduced Apperian to Intel Capital, which invested in a Series B round of fundraising.

Intel has board observation rights, but does not officially sit on the board, meaning that Intel is not privy to sensitive discussion, such as whether a potential suitor may want to buy the company. “They get to listen to the business part of the board meetings, but not board-only sessions,” Day explains. “We did that because if you’re not careful, one of the things that happens is you lose a little bit of independence. If you don’t structure it right, you give them in effect a call option on the company.”

Apperian is also determined to drive its own technology strategy rather than accept Intel’s guidance. “We are completely in the driver’s seat,” Day says. “They have no influence over our product roadmap.”

Aside from paying Apperian to bundle its software with its own, Intel has an aggressive program of introducing its portfolio companies to dozens of other large companies each year.

To maintain its independence, Apperian has other major investors such as Kleiner Perkins, which is considered purely a financial investor rather than a strategic investor. Apperian also manages another somewhat smaller strategic alliance with IBM in Europe, helping to ensure that it does not fall completely within Intel’s grip.

Day says he sees large companies in many industries moving to embrace startup companies. “It allows bigger companies to hedge their bets a little bit,” he says. “If Intel invests in 100 companies, they know what 100 companies are doing.” The risk of a company like Apperian losing intellectual property, he argues, is minimal because large tech companies “don’t want to be in position where someone else is accusing them of stealing technology. That’s not good for their business.”

A Tie-Up Trend Tie-ups between large and small companies have become part of the economic development toolkit in many regions of the country. Rebecca Bagley, vice chancellor for economic partnerships at the Univer-

Apperian’s promising security software lured investment from Intel Capital.

sity of Pittsburgh, says she sees a trend in which large companies no longer simply license technology from universities.

They prefer that the university spin out a small company with a dedicated management team to start commercializing an idea from inside the university.

“It minimizes risk for the large company,” says Bagley, who previously was executive director of Nortech, a technology development organization in northeast Ohio. “When an idea gets further up the commercial pathway, the big company can decide to invest more money, buy the company or just walk away from it because it wasn’t technologically relevant.” Her university’s sweet spot, she believes, is in healthcare information technology because the university has a large hospital, the University of Pittsburgh Medical Center, and enjoys a robust research relationship with academic departments of the university.

Not all strategic collaborations follow the Intel model. Johnson & Johnson, for example, has a slightly different bag of tools. In recent years, it has developed a system for identifying and nurturing startup companies that is akin to professional baseball’s farm team system. It has four regional innovation centers in Boston, California, London and Asia-Pacific where J&J experts are based to source and sign deals with entrepreneurs in early stage science.

Those locations were chosen because they were considered hot spots of innovation.

The centers have closed more than 200 such deals since starting in 2013.

Then when small companies begin to gain traction, they can physically

36 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

locate themselves in the company’s six JLABS—two in the San Francisco area and one each in San Diego, Houston, Boston and Toronto. These “incubators” offer laboratories, prototyping and other services. They currently host more than 140 startups. There are no strings attached—the companies do not have to do business with J&J. Johnson & Johnson Innovation, the VC arm of the company, invests in fewer than half of them.

“To collaborate with innovators everywhere, a company of our scale and complexity has to industrialize it,” says Robert G. Urban, the Boston-based global head of Johnson & Johnson Innovation who manages both the regional innovation centers and the JLABS. J&J is particularly active in newer fields such as Alzheimer’s, nervous disorders and diabetes, which continues to emerge as a problem for obese populations. “We are very strategically focused,” explains Urban. “We work in specific areas that are in line with what our businesses are trying to achieve. Big companies in some cases will worry about the big picture rather than worrying about the piece of the picture that matters most. Entrepreneurial focus really helps the big companies.”

San Diego-based Arcturus Therapeutics, one of the startups that began developing in a JLAB, grew rapidly in the field of delivering genetic cures to genes through nanotechnology particles. The company has developed a platform, not a specific medicine, to deliver RNA interferon to cells, a potentially revolutionary way to treat cancers and rare diseases.

FLORIDA’S TALENT KEEPS COMPANIES ON THE

WHEN BRIGHT TALENT MEETS A GOLDEN OPPORTUNITY, IT CREATES AN INFIRNO For more than 60 years, Lockheed Martin has produced innovative global security and aerospace technologies in Florida. One of their newest projects in the state is INFIRNO®, a high-performance targeting sensor for air, maritime and ground platforms. It has highdefinition optical sensors that enable users to identify, track and engage multiple targets at extended ranges, while also providing intelligence, surveillance and reconnaissance capabilities.

Alissa Windham had the opportunity to work as a systems engineering intern on the INFIRNO® team during the design phase. In fact, the skills she developed through her courses at the University of Florida’s College of Engineering prepared her for multiple internships at Lockheed Martin. Getting that real-world experience helped her gain fundamental skills and ultimately find a future with the Fortune 100 company, where she is employed as a full-time systems engineer.

FLORIDA TALENT BY THE NUMBERS

st 1 in high-tech

rd 3 largest

employment in the Southeast

workforce in the U.S.

+ 28K annual STEM

+ 311K high-tech

graduates

employees

Alissa is just one of Florida’s 28,000+ STEM graduates helping tech companies compete and succeed in the industry.

Lockheed Martin Vice President Frank St. John, who began his career with the company more than 25 years ago as an intern, believes that access to educated, prepared talent is critical to the company’s future.

ALISSA WINDHAM

FRANK ST. JOHN

“Our success – and our nation’s technological advantage – depends on a constant supply of highly trained, highly capable technical talent.”

– Frank St. John, Vice President, Lockheed Martin

To maintain that standard of excellence, Florida colleges and universities are committed to collaborating with companies to ensure that STEM programs and high-tech curriculums are relevant to industry needs and remain on the cutting edge of innovation.

“Florida is able to keep high-quality talent in the state, giving high-tech companies like Lockheed Martin and others access to employees who are critical to our businesses’ success.”

– Frank St. John, Vice President, Lockheed Martin

To learn more about the Florida-Lockheed Martin talent partnership, visit floridathefutureishere.com/LMtalent.

PARTNERSHIPS

Last year, it signed a research collaboration and worldwide license agreement with Janssen Pharmaceuticals, J&J’s pharma arm. The company did not invest in Arcturus—which was just fine with CEO Joseph E. Payne. “That was our preference,” says Payne. “We did not want to dilute the stock at this point.” (See sidebar, opposite.)

Instead, Payne and other co-founders wanted to maintain control and avoid having the value of their shares diminished by an outside investor coming in. The company, with roughly $10 million in sales, is already profitable and did not require an immediate infusion of money, another reason J&J did not invest.

Instead, J&J gave Arcturus an upfront payment, promised R&D support, set development and sales milestone payments, and pledged to make royalty payments on any future licensed product sales. If Arcturus reaches certain milestones, J&J will take control of specific products it develops and see them through the necessary clinical trials and regulatory approvals, then distribute the products globally.

“They would have rights to our technologies within the area of their drug product,” Payne explains. “The intellectual property would be theirs with respect to the drug product itself, but all the learnings about our platforms would stay with us.”

That’s a different pattern than what Intel established with Apperian where the smaller company accepted an investment but wished to remain in complete control of its technology development.

Payne says Arcturus will announce perhaps two more deals with major pharmaceutical companies this year and is relying on having multiple relationships so that current management remains in charge. “The more relationships you have,” he explains, “the less likely you will have an acquiring exit,” meaning an acquisition.

The bottom line? Smart CEOs of small technology companies can achieve much faster growth if they structure win-win relationships with large companies.

WILLIAM HOLSTEIN (williamjholstein.com) is a New York-based business journalist who has authored seven books, including The Next American Economy: Blueprint for Real Recovery.

38 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

LESSONS FROM ARCTURUS

“DO THE DEAL” JOSEPH E. PAYNE is a

“ People lose deals because they try to make them more complicated and bigger than they need to be.

You can always grow the relationship later.”

— JOSEPH E. PAYNE, CEO, Arcturus

scientist who worked for large companies such as DuPont, Merck and Bristol-Myers Squibb before taking a leap into entrepreneurship. He and a partner were fascinated with the potential of RNA interferon in treating diseases through nanotechnology particles. They started their company, Arcturus Therapeutics, in 2013 in an innovation center run by Johnson & Johnson in San Diego.

Now Arcturus has signed a major development and distribution agreement with J&J, which promises to greatly accelerate the startup’s growth. It is an extremely hot field and altogether Payne says 60 to 70 companies have launched efforts to develop the new technology. But only two, Arcturus and one other firm, have signed deals with major pharmaceutical companies. “There are so many RNA companies that haven’t done any deals,” Payne says. “The first best practice I would convey is, do what it takes to get a deal. A deal is better than no deal.”

Entrepreneurs who believe their product is going to change the world spend too much time agonizing about whether they are getting the best possible deal. “Should we have held strong in the negotiations and gotten huge upfront payments and huge royalties?” they ask themselves.

Others display a sense of arrogance about their technology that hampers

deal-making, Payne says.

But if Payne had engaged in those patterns of behavior, “we would have lost the deal.”

What are the pitfalls to avoid? “You need to define the relationship,” Payne says. “It’s important to have a carefully written contract.” Legal counsel should review any agreement and CEOs should rely on experienced, well-seasoned veterans on their boards or at law firms who have had experience in structuring these types of relationships. “If you have the right team around you to make sure you don’t screw up, that’s a positive thing,” he says.

In his case, Payne says it was important that Arcturus took the time to identify and understand what the larger company was trying to achieve with its product portfolio. That allowed for very targeted discussions that “streamlined the very bureaucratic and slow-moving process that Big Pharma gets stuck in.”

It also allowed the two companies to identify what Payne calls “the anchor,” the sweet spot of collaboration that both parties were enthusiastic about. “People lose deals because they try to make them more complicated and bigger than they need to be. So the deal never closes.” In his view, it’s best to strike a narrower deal at first and then amend it over time. “You can always grow the relationship later,” he says.

—BH

CEO Talent Summit October 13th-14th Cincinnati, Ohio

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Talent is a function that requires the CEO’s leadership and direction Strategies and solutions for your toughest talent challenges: ∫ Creating a winning talent strategy for your ∫ Adapting your company’s talent strategy for unique company needs Millennials ∫ Separating hype from reality with upcoming ∫ Engaging your employees across generations technology to optimize recruitment

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Professor & Faculty Director, Tuck Center for Leadership

Vice President of Global Talent, Procter & Gamble

DR. ILHAM KADRI

CASSANDRA FRANGOS

MARK BIEGGER

MICHAEL ARENA

President of Diversey Care, Sealed Air Corp.

Vice President, Global Talent and Organizational Design, Cisco Systems

Chief Human Resource Officer, Procter & Gamble

Chief Talent Officer for General Motors Corporation

CAROLYN TASTAD

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For more information, full agenda, and registration, please visit:

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2016 COMPENSATION REPORT

Bonus Blast In a year where there was little growth in CEO salaries, bonuses were another story.

ACTUAL BONUS PAID The average bonus was more than twice the median, a measure of the impact of large bonuses in the top quartile (75th percentile).

ACTUAL BONUS PAID AS % OF BASE SALARY FOR MOST RECENT YEAR 25th Percentile

11.1%

BONUSES WERE THE HIGH SPOT in private company CEO compensation this past year, with noticeable growth evident among top-quartile (75th percentile) CEOs. This was in contrast to little growth in median salaries or overall compensation, according to Chief Executive’s new CEO and Senior Executive Compensation in Private Companies Report (www.chiefexecutive.net/compreport). At companies with annual revenue of under $50 million, CEO salaries were flat; at companies with revenue above $100 million, salary growth did not push beyond cost of living increases.

At the largest companies, bonuses tend to be pegged at nearly two-thirds of CEO salaries, compared to one-third or less in mid-market companies. Nonetheless, more than 25 percent of mid-market companies experienced bonus growth equal to or greater than that of their large counterparts.

And while CEO bonuses across the board naturally rise with profitability, that growth was compounded for companies in the 75th percentile by growth in the size of bonuses.

Perhaps most interesting is the change in the 75th percentile of industries, where bonuses for CEOs in the restaurant/food/beverage industries jumped by 25 percent. Similarly, bonuses for CEOs in several other industries rose by 11 percent each, most notably in transportation, thanks, most likely, to falling oil prices.

While industries such as entertainment/gaming/sports and finance/insurance experienced modest increases in CEO bonuses, CEOs in advertising/marketing/sales and media/ publishing/printing barely registered bonus increases at all, even at the 75th percentile.

Differences can be seen across bonuses by type of ownership as well. Although bonuses as a percentage of salary are generally highest at private equity-owned, venture capital-owned and family-owned companies, only venture capital-owned firms experienced double-digit growth in CEO bonuses (again, in the 75th percentile), equaling the growth reported by sole proprietorships.

For more information, visit ChiefExecutive.net/CompReport 40 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

Median

30.0%

75th Percentile

45.7%

Average

60.2%

COMPANY SIZE As companies grow, so do the absolute and percentage levels of bonuses. But at the 75th percentile, mid-size companies experienced growth parallel with larger firms.

BONUS AS PERCENTAGE OF SALARY BY COMPANY REVENUES (MEDIAN) 60% 30%

UNDER $2M

$2$4.9M

$5$9.9M

$10$25$50$100- $250- $500$1B$24.9M $47.9M $99.9M $249.9M $499.9M $999.9M $10B

CHANGE IN BONUS BY COMPANY SIZE

50th Percentile

75th Percentile

10% 5%

UNDER $2M

$2$4.9M

$5$9.9M

$10$25$50$100- $250- $500$1B$24.9M $47.9M $99.9M $249.9M $499.9M $999.9M $10B

PROFIT LEVEL Greater profitability generally translates into higher bonuses.

MEDIAN CEO BONUS % BY COMPANY PROFIT LEVEL (EBITDA MARGIN)

CHANGE IN CEO BONUS BY COMPANY PROFIT LEVEL (EBITDA MARGIN)

30%

15%

20%

10%

10%

5%

50th Percentile

0

0510- 204.9% 9.9% 19.9% 30% PROFIT LEVEL

30+%

0

75th Percentile

0510- 204.9% 9.9% 19.9% 30% PROFIT LEVEL

30+%

INDUSTRY The economy played a role in bonus growth, with industries such as restaurants and transportation outpacing agriculture, media and advertising.

MEDIAN CEO BONUS PERCENTAGE BY INDUSTRY 10%

20%

30%

40%

CHANGE IN CEO BONUS BY INDUSTRY 50%

10%

20%

30%

Advertising/Marketing/ Sales Agriculture/Forest/ Fishing Business Service/Legal Construction/ Engineering/Mining Education/Goverment/ Non-Profit Energy/Utility/Oil/Gas Entertainment/Gaming/ Sports Finance/Insurance Health Manufacturing/ Consumer Manufacturing/Industrial Media/Publishing/Printing Real Estate/Property Restaurant/Food/ Beverage Retail/Wholesale/ Distribution Technology/ Telecommunications Transportation 50th Percentile

75th Percentile

OWNERSHIP TYPE Bonuses are higher at both private equity-owned and venture capital-owned companies, where CEOs have more at risk.

MEDIAN CEO BONUS AS A PERCENT OF SALARY BY OWNERSHIP TYPE 10%

20%

30%

CHANGE IN CEO BONUS BY OWNERSHIP TYPE 5%

40%

10%

Sole Proprietorship Partnership Family Employee Venture Capital Private Equity 50th Percentile

75th Percentile

Source for all data: CEO and Senior Executive Compensation Report for Private Companies

SEPTEMBER/OCTOBER 2016

/

CHIEFEXECUTIVE.NET

/ 41

TALENT MANAGEMENT

TRIM YOUR TURNOVER Hiring and developing great employees is only half the battle—now you’ve got to keep them.

By C.J. Prince

U

UNTIL RECENTLY, global management consulting firm Deloitte had a performance management system similar to that of most other big firms. Objectives were set for each of the 70,000-plus employees at the beginning of the year. Evaluations were done as projects were completed.

Both were then factored into a single year-end rating, which the employees received as feedback in their endof-year annual performance reviews.

Then, in 2012, Deloitte decided to start digging deeper into the numbers and found something shocking: Completing annual review forms, holding meetings and creating employee ratings consumed a whopping 2 million man hours per year—most of it spent with managers behind closed doors discussing past performance rather than top performers’ future prospects.

“We wanted to get away from a system that was about an arbitrary assignment of a numerical rating to one that was about getting people focused on developmental conversations,” says Mike Preston, Deloitte’s chief talent officer. That led the firm on a course to completely change the way it collects data on employee satisfaction and performance, how it recognizes that performance and how it drives even better performance. Although the longitudinal data is not yet in to prove a correla-

tion with retention, says Preston, “I do know that if it’s increasing engagement, it will reduce turnover.”

Deloitte is one of a growing number of companies, including Accenture, Microsoft, Medtronic and Adobe, ditching the traditional “rank and yank” method of talent evaluation, which falls short not only in evaluating talent but also saps morale and leads to frustration and voluntary attrition. With the talent war raging once again, employee retention and turnover are the top focuses for HR professionals, who, in a recent survey by the Society of Human Resource Management, report that these are the biggest challenges their companies face today.

CEOs are increasingly finding that the old methods of engagement don’t work for today’s diverse workforce, whose members seek not only competitive pay, but also flexibility, recognition, mentorship, a sense of purpose and a clear path to their next job. When they don’t get those things, they tend to walk. “When we have someone leave Deloitte, they don't leave for money,” says Cathy Engelbert, CEO of Deloitte. “They leave because maybe they didn't feel they were valued.” Engelbert sees it as her role to set the tone and engage her own team of leaders, which then cascades through the workforce. “As CEO, I see an important role for me

42 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

KEY TAKEAWAYS UPDATE YOUR APPROACH Traditional tools don’t work with today’s diverse, multigenerational workforce FREQUENCY IS KEY Forward-looking “check-ins” are replacing antiquated annual reviews PURPOSE A PRIORITY Employees want to feel that they’re making meaningful progress and have autonomy

TALENT MANAGEMENT

There is no one culture at Google or at Apple or any company because the experience of what it’s like to work there varies so much by team.

in driving culture, especially when managing a diverse and multigenerational workforce.”

A look at how top employers are experimenting with new tools for engaging their best employees reveals the following best practices: KILL THE ANNUAL PERFORMANCE REVIEW. The time-honored tradition of getting together with direct reports in a closed-door session to reveal strengths, weaknesses and the year’s compensation numbers is a failure, says Preston. For starters, “you’re often reviewing something that happened nine months ago,” he says. A better bet? Change the focus from remediating past behavior to the future career of that employee and what will energize him or her to want to do better.

Millennials, in particular, don’t want to be told where they stand once a year. “They’ve grown up in a culture of transparency, in a world where you can get online and see what people think about everything—good, bad or indifferent,” says Erika Anderson, founder of coaching firm Proteus International and author of Leading so People Will Follow and Growing Great Employees. They want the same transparency at work, she says.

“The Millennial is used to rich, robust information—all the time,” agrees Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us. “Then, we bring her into a large organization and say, ‘I know you’re used to rich, robust, meaningful feedback every waking hour. But here, we give you feedback once a year in an awkward kabuki-style theater in an office.’ How do you think that will work for her?”

Adobe realized its approach wasn’t working back in 2011 and was the first to implement a completely different system of communication between managers and employees: the CheckIn. The new system required man-

agers to convey what was expected from their employees clearly, to give and receive feedback and to provide opportunities for personal and professional development. The form and the frequency of check-ins were left to the discretion of managers, although conversations are required once per quarter at a minimum, with many doing it monthly, weekly or even daily.

Because managers must also be open to feedback from employees, Adobe established organization-wide leadership workshops where managers were trained on how to deliver constructive feedback and receive feedback about their own performance as team leaders.

ENGAGE AND EVALUATE at the team level. For those who thought simply increasing the frequency of performance reviews might be the answer, Marcus Buckingham, founder of The Marcus Buckingham Company, a global provider of performance solutions, offers a resounding negative.

“That’s actually going to make things worse before they get better. The first problem isn’t frequency; it’s who the heck is this for?”

Buckingham believes engagement should be driven by team leaders, not by central HR or even the C-suite.

44 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

What employees want isn’t feedback necessarily, he explains, but coaching and steering in the right direction.

“Think about what people yearn for—positive attention that helps me get better. That’s a 180-degree flip from these ranking systems. HR risks becoming increasingly irrelevant by making it all about feedback when, in fact, we’re looking for attention from someone who wants us to grow,” says Buckingham, who worked with Preston as Deloitte was reinventing its performance management system.

One of the big changes in the 21st century has been that teams are no longer static within divisions or silos.

Much more often, teams are dynamically organized, with members of different departments and even contract or consultant workers coming together to collaborate on a project for a particular client.

“Companies are becoming like Hollywood film sets,” says Buckingham. “You bring people together from across the country for a year or one month to get a bunch of things done for a customer. Then, they go off and work with other people.” Even in retail stores with more traditional organizational charts, he says, cross-functional teams collaborate on things like merchandising.

Roderick Bohn

TALENT MANAGEMENT Therefore, evaluating employees based on the org-chart team layout won’t accurately depict what is really going on. In fact, the variation is so great from team to team that the “Best Places to Work” surveys that frequently tout winners like Google and Apple often tell an inaccurate story, Buckingham charges. “There is no one culture at Google or at Apple or any company because the experience of what it’s like to work there varies so much by team. And if you’re the CEO, you want to see that variation, the spread, the scatterplot.”

After Adobe eliminated the

stack-ranking system it had previously used to reward top performers, the company also changed the system for awarding incentive pay. Instead of HR providing a budget for compensation with parameters based on rankings and ratings, managers are given a budget and left to determine how it’s distributed, putting much more autonomy at the team leader level.

DEVELOP YOUR BEST PEOPLE— and recognize them. Upward mobility has always been a key draw; but today's employees want to see specifically where they might track upward

from their current roles and what sort of training and development they’ll receive to get there. Too often, the support to progress is lacking, creating a frustrating experience for Millennials, says Dan Schawbel, managing partner of consultancy Millennial Branding and partner and research director at Future Workplace, an executive development firm. “The No. 1 complaint Millennials have is they’re unprepared for their roles as managers. They’re moved into roles quickly, but they’re not prepared and are not as successful, as a result.”

When training and leadership

WHAT EMPLOYEES REALLY WANT PERKS LIKE on-campus dry-cleaning and subsidized gym memberships are nice; but, if the fundamental drivers of performance are missing, they won’t keep people in their positions. For example, if you don’t pay people enough, it’s over from the start, says Daniel Pink, author of Drive: The Surprising Truth About What Motivates Us. “Pay people enough to take the issue of money off the table.” Once you do that, address these three key motivators for enduring performance:

PURPOSE:

Employees need to know why they’re doing something, says Pink. “People who know why they’re doing something will do it better.” He offers an example: “People working at a call center to raise money for a scholarship fund will work harder if they meet a recipient, because they remember why they’re doing it.”

MASTERY:

The single best motivator for people is making progress at meaningful work. “The days people make progress, they’re motivated; the days they don’t, they’re not,”

says Pink. Progress depends on information and feedback so that individuals can course-correct and make headway. Erika Anderson says that companies have to create environments where people are encouraged to learn completely new skills and roles, rather than being standing experts in a specific job where no more growth is required. “The core of a good retention strategy is giving people the tools and the permission to be novices over and over. That’s both about risk-taking behavior and about letting people try things they’re not good at.

That’s what makes people happy.

46 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

But if you say to someone, ‘This is your job, just do it and shut up,’ they’ll leave.”

AUTONOMY:

“If you want people to be compliant, manage them. But if you want people to be engaged, that doesn’t work,” says Pink. Giving people the ability to come up with ideas on their own, to figure out the best and most efficient way to work on a project and to present that back to the company as the author of that strategy—that’s motivating. “The technology of engagement is self-direction,” says Pink.

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TALENT MANAGEMENT development is not made a priority, emerging leaders are essentially set up to fail. “This is something that drives me crazy,” says Anderson. “If somebody is going to be a lawyer, they go to law school and they have to pass the Bar. But if someone wants to be a manager, they walk into the boss’s office and the boss says, ‘Congratulations! You’re managing a team of three. Let me know if you have any problems.’” While some people are born leaders, most are made, she says, adding that the leadership qualities that can help an emerging good leader

ient. The more tightly the identification is tied to the company’s mission, the better the retention, according to a 2015 survey by the SHRM. HR professionals reported that employee-recognition programs had a positive impact on employee engagement (90 percent values-based vs. 67 percent nonvalues-based), increased employee happiness (86 percent vs. 70 percent) and improved employee relationships (84 percent vs. 66 percent), among other findings.

Anderson points out that employee recognition programs can actually be

The more tightly the identification is tied to the company’s mission, the better the retention. become a great one are teachable.

Investing in education—whether one-on-one coaching or leadership training via a business school program or other form—can be a great way to let employees know you are willing to invest in them. According to studies of Millennials by the Intelligence Group, 72 percent say they would prefer to be their own bosses— but if they had to work for a boss, 79 percent say they would want that boss to serve more as a coach or mentor.

Anderson also encourages CEOs to practice what they preach with their own direct reports, even the very senior among them. “Too many CEOs think, are you kidding? This guy is the head of sales. If he’s not developed yet, he’s never going to be. But the great CEOs I know are helping their very senior people continue to grow.”

Bonuses aside, all employees want to be recognized for a job well done, and recognition not only provides incentive to do the job well, but engenders loyalty on the part of the recip-

as simple as one-on-one recognition from a leader—or the CEO. “When you’re the CEO, everything you say is enormously magnified, good and bad,” she says. So when he or she takes the time to point out what a team has done well, it registers. “The CEO is the one person who can make everyone at the company feel valued.”

HIRE THE RIGHT PEOPLE. As many experts will agree, hires that weren’t good fits for the company culture or for the role account for a good share of retention problems. Bryan Kennedy, CEO of Epsilon/Conversant, reports that being more intentional about college recruiting has led to a 75 percent retention rate after five years for employees hired out of college. “That’s a very good rate in a hot market, and those are all Millennials,” he says.

“Once you find young, talented people with some degree of depth in technology or critical thinking, you can build and grow talent from there.”

Mike Wachholz, president of

48 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

workforce solutions provider Pontoon, adds that the importance of hiring the right people and successful onboarding applies to contract and temp workers, as well. “From a legal perspective, they’re not employees, but they’re a critical part of your environment.”

KNOW WHAT YOU’RE TRYING TO ACCOMPLISH. Before investing in any new systems or technology aimed at better retention, CEOs should first determine the ultimate goals, says Linda Brenner, co-founder and managing partner of Designs on Talent. It may sound harsh, she notes, but not every role is on the same level, as far as contributing to the company’s value. Having a retention strategy that’s too broad or general and that groups people together by, say, title rather than by role, can jeopardize your efforts to hold onto your best people.

“We have to link performance management with how value is created in the business, and value is created in most businesses today through intellectual capital,” says Brenner.

That means that, for a pharmaceutical company, while the sales reps and training managers are very important to the business, they’re not on the same level as the people in R&D— even if both are at the vice president level. A greater pool of resources should be channeled toward keeping those employees who are creating the company’s intellectual capital, rather than a random “top 20 percent of the company,” she says.

Preston notes that the investment in Deloitte’s new system has been significant on a relative scale, particularly given the results. He adds that it isn’t just about performance management. “It’s way more than that.

It’s a way to be innovative, to drive a culture change around development and engagement and to use predictive data analytics to your advantage.

Calling it ‘performance management’ really almost sells it short.”

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ECONOMIC DEVELOPMENT

REGIONAL REPORT

The Southeast

Workforce improvement is increasingly the new face of economic development.

By Warren Strugatch DIEGO FRANCISCO, 46, an upholsterer at Lexington Home Brands in High Point, North Carolina, learned about the brand-new Catawba Valley Furniture Academy from a coworker last year. He quickly registered with the two-year, certificate-granting program. When he graduated, Lexington welcomed him back with a $4.50 hourly raise plus a status change that could add up to $10 an hour to his paycheck.

“I’m very glad I did this,” says Francisco. “I’d definitely do it again.”

The Academy, organized by Lexington and four much-larger manufacturers in the furniture-manufacturing hub, is housed at the local community college. Its faculty is comprised of craftsmen and technicians from the five companies who teach high-demand sewing, cutting, upholstering and spring-tying skills. The program came about because regional manufacturers were struggling to attract and retain skilled workers, often raiding each others’ labor forces.

Furniture companies “weren’t getting the trained workers we used to get,” explains Bill McBrayer, human resource manager at Lexington. “People believed there was no future making furniture in North Carolina. They stopped learning the skills. We had to

change that perception.”

Manufacturers like Lexington say they need skilled workers more than ever, as quality and efficiency drive revenues. All 67 members of the first graduating class have found jobs.

Increasingly, workforce development is the new face of economic development. Companies weighing incentive packages often tip their decisions in favor of deals that provide skill training and STEM-based (Science, Technology, Engineering and Math-based) education to workers.

In Tennessee, a government initiative known as Tennessee Promise pulled 4,000 students into the state’s post-secondary pipeline, helping high school grads start skill-based training programs. The program, administered through a nonprofit called tnArchieves, helps finance tuition for state residents who want two-year degrees.

Another Tennessee education-promotion program, Drive to 55, primarily helps older students enroll and complete baccalaureate programs. Its name refers to the goal of increasing the population of Tennesseans with college degrees to 55 percent by 2025. Currently, about 28 percent of state residents have sheepskins; nationally, the rate is about 32 percent. Both programs are

50 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

funded by state lottery revenues.

Last year, the number of freshmen enrolled full-time increased 10 percent at public four-year programs, 20 percent at technical colleges and 24 percent at community colleges. “Our statistics indicate that our students are graduating at a rate three times the state average,” says Krissy DeAlejandro, head of tnAchieves. “We definitely believe the program’s working.”

“Workforce development is economic development,” says Randy Boyd, Tennessee Economic Development chief. “It’s that simple.”

FLORIDA | #2 | SKIES DARKEN Florida created or retained over 21,000 total jobs in the 12-month period starting May 2015, led by financial and professional services, headquarters, manufacturing, life sciences and logistics/distribution. Major recent announcements include NBCUniversal Telemundo’s $250 million headquarters, Blue Origin’s $200 million launch facility and OneWeb’s $85 million satellite-manufacturing plant.

Renovation and expansion are underway at Orlando, Miami and Tampa airports. The state’s manufacturing sales tax exemption, set to expire next year, was made permanent earlier this year. This spring, however, legislators critical of Gov. Rick Scott defunded Enterprise Florida, a public-private partnership aimed at job-creation, saying it isn't cost effective. The program is undergoing a cost-cutting audit; it's future is now unclear. “People are a little stunned,” says site selector Tom Stringer with BDO in New York.

Despite the setback, the organization continues to pursue relocation and expansion business, albeit at a slower pace. In June, it was managing 380 expansion and pipeline-relocation projects.

In South Florida, a strong dollar and weakening South American economies continue to vex Miami-Dade and Broward counties. Macquarie Group’s decision to put a 120-employee global services headquarters in Jacksonville

could spur further FinTech investments in that city.

NORTH CAROLINA | #3 | GROWTH CONTINUES North Carolina’s economy continues to outperform the nation’s. Real GDP growth was 3.4 percent in 2015 versus 2.2 percent nationally, and the labor force grew 3.2 percent versus .6 percent nationally. This year, state economists forecast 3.5 percent GDP growth versus 2.4 percent nationally; expansions and relocations will generate a projected 90,000 jobs. Overall, the Tar Heel State’s labor force grew five times faster than the national rate.

Last year’s big announcement: Novo Nordisk, the Danish pharmaceutical, announced a $1.8 billion investment in a new bio-manufacturing plant in Johnston County, generating 700 jobs.

After years of decline, the furniture industry shows signs of revival. “I’m shocked at how well it’s doing,” says site selector Stringer. Lower-wage hospitality/leisure and personal services jobs will also expand. Growth favors urban centers: Charlotte, Greensboro/High Point and Durham enjoyed the fastest relative payroll growth in 2015, while Fayettesville and Hickory pared back.

financed more projects in Tennessee than in any other state save Georgia last year, adding 90,000 new jobs.

Represented by Nissan, GM and Volkswagen, the automotive industry continues to dominate the manufacturing sector, bringing OEM and supplier jobs to center state. Greater Nashville, expanding faster than 9 percent a year, continues attracting jobs and well-educated newcomers to fill them. Vibrant healthcare and entertainment clusters attract new residents and contribute to the city’s hipster reputation.

HB2, the controversial transgender bathroom bill passed earlier this year, irked many area CEOs, including Salesforce CEO Marc Benioff and Bank of America boss Brian Moynihan. Citing the "discriminatory" legislation, PayPal CEO Dan Schulman canceled plans to open a 400-employee global operations center in Charlotte.

TENNESSEE | #4 | MANUFACTURING LEADS THE WAY Economic growth in Tennessee has outpaced the nation in recent quarters.

Private-sector employment grew nearly 15 percent from January through May, third-fastest in the Southeast. Manufacturing drove growth; for May 2015 and May 2016, Tennessee led the Southeast with a 3.3 percent manufacturing increase. Nonfarm jobs grew 2.5 percent— well above the 2.1 percent national rate.

Last year, the Volunteer State incentivized 161 major expansions and corporate relocations, totaling $5.5 billion in investments and a promised 26,000 jobs. This year’s pace will add another 175 positions, though both investments and job creation will lag.

A new angel tax credit introduced this year may spur startups. The state is a darling of foreign investors, who

GEORGIA | #8 | JOBS GROWTH Can the Peach State regain its economic mojo? After reporting some of the nation’s highest unemployment rates last summer and fall, Georgia improved to 37th rank by May. Over 335 major projects have moved forward since January, landing $4 billion in investments and more than 23,000 jobs. Key announcements came from Kaiser Permanente, KeySight Technologies, Equifax and Alcon.

Overall, employers created 135,000 jobs in the 12-month period beginning May 2015—22 percent faster than last year and enough to pace job creation in the Southeast during that period.

How The States Stack Up Business Climate 3 Rank (1-50)

Relocation/ Expansion Incentives (HQ/Job 3 Creation)

Workforce Quality (readiness and 3 availability)

Community College Performance (Meeting labor market 6 expectations)

Unemployment Rate x (date?)

Economic Performance Rank 4 Rank (1-50)

Business Tax Climate Rank (1-50)5

X

X

X

CEO Rank 1 (1-50)

GDP Rank 2 (1-50)

GDP VALUE 2 ($ billions)

% Scoring College-Ready on 6 Standardized Tests

U.S.

X

X

$18,164.00

X

X

X

4.7

X

FLORIDA

2

4

790.00

B-

C-/C-

B

4.7

8

5

6%

C

NORTH CAROLINA

3

9

442.50

C

C+/C+

B+

5.1

2

15

4%

C

TENNESSEE

4

19

280.30

A-

A-/A-

B+

4.1

7

16

4%

C

GEORGIA

8

10

442.40

B

B+/B

B-

5.3

19

39

7%

C

SOUTH CAROLINA

7

27

177.10

B+

A-/A-

B

5.6

30

36

4%

B

VIRGINIA

12

11

431.60

B

B/B

B

3.8

13

27

11%

C

ALABAMA

20

26

182.70

B

B/B

B

6.1

21

29

3%

A

KENTUCKY

24

28

173.40

B-

B/B

B

5.1

33

28

5%

D

WEST VIRGINIA

35

39

67.30

B

B-/B

C

6.2

37

21

6%

D

LOUISIANA

37

24

213.00

B

B-/B-

B-

6.3

28

37

4%

C

MISSISSIPPI

42

36

95.50

B+

C+/B+

B-

5.8

17

20

3%

A

SOURCES: 1 Chief Executive magazine reader poll; 2 Bureau of Economic Analysis; 3 Site selector advisory committee: Betty McIntosh, Cushman & Wakefield; Tom Stringer, BDO; Gary Yates, JLL Site Selection; Scott Redabaugh, Jones Lang LaSalle; 4 American Legislative Exchange Council (ALEC); 5 Tax Foundation; 6 U.S. Chamber of Commerce Foundation.

SEPTEMBER/OCTOBER 2016

/

CHIEFEXECUTIVE.NET

/ 51

ECONOMIC DEVELOPMENT

WHY WE’RE HERE / NASHVILLE, TENNESSEE WHO CURT STEVENS, CEO, LP BUILDING PRODUCTS SITE HISTORY This manufacturer of building and lumber products was founded in 1973 as Louisiana-Pacific, spun off

by Portland, Oregon-based Georgia-Pacific in an FTC-ordered divestment. The company originally occupied four floors in a downtown Class A office building. In 2004, LP relocated its headquarters to Nashville where it leases four-and-a-half floors in Class A space, housing nearly 300 employees.

WHY TENNESSEE? “With the closing down of federal timberland, we felt it was important to be more centrally located. We had operations in Charlotte, Chicago, Houston and Portland, and we consolidated in Nashville. We got some infrastructure grants for the building and for training and development.”

REASON FOR LOCATION Nashville “was convenient as, at the time, we had two corporate planes and [city officials] waived the use tax. Most importantly, it was the attitude of the business community that welcomed us here. Nashville is a tolerant community and has a diverse workforce. It turns out to be an easy place for recruiting; we have no difficulty asking people to relocate here.”

Foreign capital is helping to drive growth. Georgia is the country’s premier Foreign Direct-Investment magnet by some measures. Generous incentives have attracted enough film and TV show makers for it to become the U.S.'s third-largest production center.

Delta Airlines, Coca-Cola, GE Energy, ThyssenKrupp and Microsoft have all started R&D centers in metro Atlanta. The state’s decision to classify software coding as a foreign language that meets high school graduation requirements last year pleased employers.

The development of the Appalachian Regional Port, an inland facility in Northwest Georgia capable of handling 50,000 shipping containers annually, is slated to open by 2018 and expected to reduce Atlanta truck traffic by 40,000 moves a year.

Overall, Georgia is a smart bet for many corporate relocation projects, says Scott Redabaugh, managing director at Jones Lang LaSalle’s Location Footprint Strategy in Washington DC. He says, “They make a strong case from infrastructure, workforce quality and some good education programs.”

SOUTH CAROLINA | #7 | GROWTH PACE SLOWS South Carolina’s robust growth this decade, which Wells Fargo economist Mark Vitner calls “an astonishing run

of economic development” has begun to slow. Since 2010, “every year has been better than the year before; but in 2016, the acceleration tapered off,” says Joseph Von Nessen, a research associate at University of South Carolina’s Darla Moore School of Business. Even so, nonfarm employment grew 3.3 percent last year, creating thousands of manufacturing jobs and landing scores of international companies. Nearly 8 percent of residents work for overseas entities, the nation’s second-highest rate.

Tire manufacturing is now the Palmetto State’s biggest cluster; Giti Tire is building a $560 million manufacturing factory in Chester County, and Trelleborg opened a tire manufacturing plant in Spartanburg. Professional and business services have grown by nearly a third since 2010; leading sector growth; leisure and hospitality and manufacturing follow at 17.2 percent and 16.5 percent respectively.

International trade keeps expanding; goods exports totaled $30 billion over the past year, up 11 percent from the 12 months ending in March 2015. Charlotte’s charm and quality of life attract Millennials and empty-nesters. Jobs follow; one of every four payroll spots created between 2009 and 2014 was in metro Charlotte, three counties of which are in South Carolina.

Addressing infrastructure, the Port

52 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

of Charleston began a $509 million dredging project designed to make it the deepest harbor on the East Coast.

The Myrtle Beach-Conway-North Myrtle Beach metro area, on the border of the two Carolinas, ranked second nationally in population growth.

VIRGINIA | #12 | JOB CREATION DOUBLED Virginia doubled its pace of job creation last year, adding 83,000 new jobs during the 12-month period starting April 2015 versus 41,500 last year. Most were headquarter jobs, which outpaced manufacturing posts more than 2 to 1.

Despite the surge, once-robust Virginia still trails the nation in payroll expansion. Real GDP grew a tepid 1.3 percent over the four quarters through Q3 2015, besting only Alaska (51st) and Mississippi (50th). Key projects included Bechtel’s $149 million Fairfax headquarters, Wells Fargo’s 500-job operation in Roanoke and ADP’s 1,800job project in Norfolk.

Launched this spring, the Virginia Growth and Opportunity Board—call it Go Virginia—aims to depoliticize corporate recruitment and training programs while encouraging collaboration between regional business, education and community leaders. Its initial budget is $35 million. In July, a new $12.5 million state-financed training program was set to begin credentialing tech workers.

This summer, the state began funding a $29 million IT program to commercialize research at public institutions.

In infrastructure improvement, a $350 million bond package was passed to fund expansion of the Port of Virginia.

ALABAMA | #20 | PUSHING FOR ECONOMIC GROWTH Alabama continues struggling to regain pre-Recession job growth and salary levels. Since February 2010, the national low point for private-sector employment, the Yellowhammer State added over 114,000 jobs for a 7.7 percent increase, well below the national 13.6 percent average.

Due to weak employment growth,

ECONOMIC DEVELOPMENT nearly one quarter of the state’s work force is underemployed, according to the University of Alabama’s Center for Business and Employment Research.

That figure rises to 28 percent in the Montgomery area.

Business and professional services pace job creation, but lower-paying jobs in restaurants and bars came in second.

Auto manufacturing, the muscle in the state’s economy, ranked third. Workforce development and education infrastructure remain “concerns of almost every company,” says Jim Searcy, executive director of the Economic Development Association of Alabama. Business leaders call for more alignment between school curricula and employer needs.

One positive economic development sign was the passage last year of a new incentive package designed to attract manufacturers; the program is “making a difference” in recruiting manufacturing companies, says Betty McIntosh, Atlanta-based senior managing director of Cushman & Wakefield’s Business Incentives practice.

KENTUCKY | #24 | MANUFACTURING EXPANDS Led by a booming manufacturing sector expanding at three times the national rate, Kentucky continues to create jobs.

Toyota’s decision to open a new Lexus line in Georgetown enhanced the state’s auto-building appeal. About 56 percent of new jobs are in the Louisville and Lexington areas, the Bluegrass State’s two largest metros.

The economic corridor linking the cities, jumpstarted by the Bluegrass Economic Advancement Movement, or BEAM, seeks to leverage the momentum of such multinationals as Toyota, Ford, Raytheon, Lexmark, GE and Lockheed Martin.

Professional services, education and healthcare sectors are thriving; manufacturing and housing are also doing well. The income divide between cities and rural areas continues to grow, while farming and coal mining decline.

The state budget passed in April reduced serious pension underfunding,

but it did so largely by slashing higher-education monies 4.5 percent.

WEST VIRGINIA | #35 | NEWEST RIGHT-TO-WORK STATE Hammered by the soft global energy market, coal-producing West Virginia continues to lag national job-creation rates. Businesses have shed more than 5,800 jobs in the 12-month period beginning April 2015, nearly double the previous year’s rate. Real GDP slipped 2.1 percent in the four quarters; ending with Q3 2015; the national GDP growth rate was 2 percent.

With tax revenues declining, this spring’s lack of consensus over how to balance the budget raised fears of furloughing state workers. The coal country in the state’s southwest is hurting; but counties in the northwest, where one out of five residents work for the government, have been spared the brunt of economic turbulence.

The Mountain State owns the lowest workforce participation rate in the country and leads in disability payments. Atlanta-based Jones Lang LaSalle site selector Gary Yates sees growth on the state’s eastern edge, driven by distribution centers. In February, West Virginia became the 26th state in the country to adopt right-to-work legislation, a development that “will make a real difference” in attracting relocating companies, says incentives advisor McIntosh.

LOUISIANA | #37 | GOOD NEWS FOR EXPORTERS Louisiana, like every other U.S. energy producing state, has been hammered by fuel prices. In January, the lifting of the decades-long fuel export ban bolstered the Bayou State’s economy. By February, Cheniere’s Sabine Pass Terminal had exported its first liquefied natural gas shipment, triggering what state economic-development officials hope will be a much-needed capital infusion into the state. In May, Louisiana’s largest pipeline project—the Bosco Pumping Station in Ouachita Parish, connecting with the Gulf of Mexico—came online.

54 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

Louisiana Economic Development has announced several major chemical and petrochemical projects, creating nearly 5,500 direct jobs and over 35,000 supplier jobs, with investments surpassing $44 billion. Significant investment comes from overseas; since 2003, Louisiana has led the U.S. in per capita Foreign Direct Investment (FDI), and it ranks second for total FDI in that period, attracting over $30 billion, according to FDI Markets. Recent projects include Japan’s $1.4 billion ethylene expansion by Shintech, the $1 billion Australia-financed ammonia plant under construction in Jefferson Parish outside New Orleans and the Netherland’s Shell Chemical’s $717 million expansion in Ascension Parish.

MISSISSIPPI | #42 | BETTER THAN ZERO Mississippi grew 1 percent last year, outpacing only Alaska but bettering 2014’s zero growth. Another positive sign: unemployment fell half a percentage point over the previous year.

Still, the Magnolia State ranked 49th in growth among states.

Some economists project a 2.2 percent growth or better in 2016, which would quintuple the decade’s annual average growth rate. Professional and business sector employment growth led job creation, expanding at about 18.5 percent; leisure and hospitality grew 12 percent and information services growth reached 9 percent.

In February, global giant Continental announced a $1.4 billion investment in a new tire-manufacturing plant near Jackson to service its North American market. The project will employ 2,500 in this job-hungry state. In March, addressing a major employer concern, Mississippi allocated $55 million for workforce training programs.

Passage of controversial religious-freedom legislation generated pullouts and cancellations from entertainment-industry businesses and high-profile performers and state governments, while business leaders called for the bill’s repeal.

WRITE YOUR SUCCESS STORY IN MISSISSIPPI

Whether it’s as big as a battleship or visible only with a microscope, Mississippi manufactures it.

If it’s going into outer space or coming in from overseas, Mississippians make it move.

Companies collaborate with our #1 nationally ranked community college system for workforce training and utilize the nationally recognized centers of excellence at our universities for R&D. Mississippi is building one success story after another. That’s why companies like Rolls Royce, SpaceX, Northrop Grumman, NASA, Huntington Ingalls, GE Aviation, Airbus Helicopters, Aurora Flight Sciences and Raytheon have operations in Mississippi.

Let us help write your success story in Mississippi.

MISSISSIPPI © Mississippi Development Authority 2016

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CELEBRATING THE 2016 CEO OF THE YEAR

AT&T’s Randall Stephenson

IN JULY, MORE THAN 200 BUSINESS LEADERS gathered at the ICE NYSE to honor Randall Stephenson, who was recognized by a selection committee of his CEO peers for demonstrating exemplary vision, business acumen and success in delivering sustained performance. “In his nearly 10 years leading AT&T, Randall Stephenson has continually driven growth by delivering a great customer experience and moving the company into new markets in an intensely competitive, dynamic industry,” said Jim McNerney, former CEO of Boeing and Chief Executive’s 2015 CEO of the Year, who commended Stephenson for creating value during his tenure. “During that time, the company’s annual average return to shareholders rose to 10 percent—and that is each and every year—with revenues increasing nearly 24 percent from roughly $119 billion in 2007 to $147 billion in 2015.”

“Once we got past the performance criteria, we also looked at employee engagement and people processes; the company’s impact on the community; and then, finally, the person him or herself—that missing dimension that has to do with substance and values like courage, integrity, judgment and personal reputation,” added Tom Saporito, CEO of RHR International, who served as an advisor to the selection committee. “These are the leadership qualities on display during challenging times and critical decision making, moments that ultimately make good leaders great.”

In accepting the award, Stephenson thanked his wife and his executive team for helping to make it possible and then took the opportunity to speak up for a business community

that has been repeatedly vilified during the year’s tumultuous presidential campaign. “If you listen to the political rhetoric going on, you would think that American business is stealing the American Dream,” he said. “I would suggest to you that the American Dream would not even be possible were it not for highly competitive, highly productive American businesses. Think about what you do. You invest, you innovate, you invent, you hire, you provide healthcare and educate your people—and you pay a whole lot of taxes.

American business is not the villain. In fact, American business is the very engine that makes this whole thing possible.”

The comment underscored a sentiment voiced earlier in the evening by Marshall Cooper, CEO of Chief Executive Group, who also acknowledged that divisive messages have fueled discontent and anger. “Cynicism against our leaders and institutions has become deep-rooted,” he noted. “The free-market system provides more innovation, choice, jobs, social mobility and wealth than any other force in human history. At the same time, it is by no means perfect—and the people in this room have an obligation to help fix it.”

Cooper urged business leaders to play a part in addressing that issue. “In addition to our day jobs, it is up to the men and women in this room tonight—through both our day-today actions and as part of our life’s work—to help guide not just our employees but also our communities and this country by living and teaching core values that have underpinned American society for 240 years.” —Jennifer Pellet SEPTEMBER/OCTOBER 2016 /

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1. Chief Executive Group’s Wayne Cooper, Chief Executive’s J.P. Donlon, NYSE’s Tom Farley, AT&T’s Randall Stephenson, Boeing’s Jim McNerney, ICE’s Jeffrey Sprecher, Chief Executive Group’s Marshall Cooper; 2. Walker Digital’s Jay Walker, Yale University’s Jeff Sonnenfeld and Gabelli Asset Management’s Mario Gabelli; 3. Boeing’s Jim McNerney, with Victor Smith, IEDC; 4. NYSE’s Farley, ICE’s Sprecher, Silver Lake’s Glenn Hutchins; 5. AT&T’s David Huntley 6. Nicholas Air’s NJ Correnti and Nicholas Air’s Mary Shadrix 7. Lenise Stephenson and CE’s J.P. Donlon; 8. XLR-8’s Robert Nardelli, EY’s Mark Weinberger and Stanley Black & Decker’s John Lundgren; 9. Mercer’s Ilya Bonic, NYSE’s Garvis Toler and Mercer’s Mary Tinebra 10. CEOs join Vonage’s Alan Masarek to ring the NYSE’s closing bell; 11. CohnReznick’s Chuck Ludmer and CohnReznick’s Keith Denham 12. Boeing’s McNerney and AT&T’s Stephenson; 13. RHR International’s Tom Saporito 14. Andrea Olstein and Chief Executive’s Mike Winkleman

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CEO ROUNDTABLE

Building a High-Performance, Highly Engaged Culture Pressure to deliver short-term results and accommodate Millennial employees complicates the culture challenge.

By William J. Holstein HUNDREDS OF BOOKS HAVE BEEN written about how CEOs should create corporate cultures that use purpose and a sense of mission to help their companies perform at a high level. Thousands of speeches and similar numbers of consulting assignments have tackled the same challenge.

A group of 15 CEOs at a Chief Executive roundtable co-sponsored

by PURE Insurance on “Building a High Performance, Highly Engaged Culture” concluded that the challenge is only getting greater. The rise of the Millennials, a demographic contingent of 20- and 30-year olds, means that CEOs cannot simply assume that they will embrace corporate ideals. They have their own distinct set of values that they cling to. Many, for example, choose to work short-periods of time as part of a flexible work force.

At the same time, CEOs are facing ever greater pressures to achieve short-term financial results because of the rise of increasingly successful activist investors and private equity funds—which the Germans call “locusts.” This “rampant shorter-termism,” in the words of moderator Jeff Sonnenfeld, intensifies pressures on employees and tends to erode the building of long-term trust between them and top management.

Still another factor: new waves of technology keep disrupting established industries, forcing CEOs to rapidly shift and reallocate their human resources, making it difficult to build

and maintain long-term relationships with some employees. Martin Sorrell, CEO of advertising giant WPP, used an old analogy to explain the situation.

“Legacy companies have to change

“We help our members become smarter, safer, and more resilient so they can pursue their passion with greater confidence.”

60 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

—JEFFREY PARASCHAC, CO-FOUNDER AND CFO, PURE INSURANCE

the engine of an aircraft while it is still flying,” he told participants.

The way CEOs respond to these intensified challenges to their cultures, participants agreed, varies considerably depending on: • The age of their companies.

New companies can consciously create new cultures.

• Their size. It’s often easier to create winning cultures in smaller companies.

• Whether a company has grown organically or is the result of mergers. It’s tricky to merge different corporate cultures.

• Whether the company operates in multiple countries. It may be difficult to persuade different nationalities to buy into the same values.

Jeff Paraschac, co-founder and CFO of PURE Insurance, shared how his member-owned company, created in 2006 to address the insurance needs of high net-worth individuals, went about consciously crafting a culture. The company’s top management was determined to differentiate

”It’s got to align with individuals. Why is it worth it? What’s in it for me? How do I grow?”

—JAMES MCNERNEY, FORMER CHAIRMAN, PRESIDENT & CEO, BOEING

[Clockwise from top left] Revenue Analytics’ Dax Cross with Terex’s John Garrison; WPP’s Sir Martin Sorrell; Hourly Nerd’s Peter Maglathlin with OgilvyOne’s Brian Fetherstonhaugh; Yale’s Jeff Sonnenfeld

itself from other insurance companies that provided poor service. It sat down and hammered out a statement, which read: “We help our members become smarter, safer and more resilient so they can pursue their passion with greater confidence.” That gave employees a clear picture of how they were supposed to act every day, Paraschac said. Employee engagement jumped.

Then, top management asked a rank-and-file grouping of employees to produce “principles” that would translate top management’s statement into day-to-day behaviors. Those included such slogans as “be member-centric” and “have fun.”

The firm evaluates its people on the basis of how they adhere to those principles, not just their job performance, and offers perks such as extended time off and hardship loans.

The net result, said Paraschac, has been superior financial performance.

The company now has 500 employees, but it aspires to grow to 5,000.

James McNerney faced a dramatically different challenge when he took over as CEO of Boeing in 2005 after a period of scandal and dysfunction at the aerospace giant, which had 180,000 employees. McNerney had previously served at GE and Honeywell. Did he simply import the cultures he had learned at those companies into Boeing? Not entirely.

“Cultures that work make a company more competitive—that’s the definition of a functional culture,” McNerney, who stepped down as Boeing’s CEO in July 2015 and retired as its chairman in March, said, “You have to read and react to what you’re dealing with. There are pieces from your background that make sense and there are other pieces from your background that don’t make sense.”

The key challenge was that Boeing had acquired McDonnell Douglas, Hughes Aircraft and Rockwell but had not integrated the companies or their cultures. Four sets of values were com-

peting. “That was a cultural problem that produced big business problems,” explained McNerney. “People were not talking to each other. Language meant completely different things to different people. Behaviors were described and people were evaluated in different ways.”

“The choice was whether to impose the old legacy Boeing culture or create a fifth culture that everyone could aspire to; we chose the fifth culture,” he added. “Let us choose what we want to be, both the aspirational piece and then the behavioral piece. Behaviors are what really change cultures.”

If there is a magic sauce in creating a culture that competes strongly in the marketplace, McNerney concluded, it is this: “It’s got to align with individuals.

Why is it worth it? What’s in it for me?

How do I grow?” That “alignment” with the aspirations of employees is key.

CEOs of other older, large “legacy” companies at the roundtable, such as Stanley Black & Decker (173 years old) or RR Donnelly (152 years old) spoke about how they have tried to retain the enthusiasm of employees despite upheavals, such as acquisitions and

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CEO ROUNDTABLE

“If we as leaders show up and act differently from what we are saying, then we are not authentic. We are fakes.”

—TOM HARRISON, FORMER CHAIRMAN OF DIVERSIFIED AGENCY SERVICES DIVISION, OMNICOM

downsizings. John Lundgren, CEO of Stanley Black & Decker, the world’s largest tool company, said his company had established a clear culture. “You won’t get shot if you fail once,” he said, “but you’ll probably be fired if you fail three times.

Three strikes and you’re out.”

The company sends out surveys to 20,000 of its employees every 18 months and gets a 60 to 65 percent response rate, which is considered high. The company can analyze how people in different business

units and different geographies feel about their work, and then, it tries to fix any problems. “The fact that we do respond to the findings, that we acknowledge ‘This is something we’re lacking,’ that’s helped,” Lundgren said. “Morale has never been higher.”

Tom Quinlan, CEO of RR Donnelley, said CEOs need to have “disciples” below them in the management chain, who promulgate cultural values. His company has 70,000 employees in 39 coun-

PURE CEO Roundtable Participants ■ DAX CROSS, CEO,

■ WAYNE JOHNSON, CEO,

■ JON ELLENTHAL, Vice

■ JOHN LUNDGREN,

Revenue Analytics

Chairman & CEO, Walker Innovation ■ BRIAN FETHERSTONHAUGH, Chairman & CEO, OgilvyOne Worldwide ■ JOHN GARRISON,

President & CEO, Terex Corporation

Accuform

■ JEFF SONNENFELD

Founder & CFO, HourlyNerd

(moderator), Senior Associate Dean for Leadership Programs & Lester Crown Professor in the Practice of Management, Yale School of Management

■ JIM MCNERNEY, former

■ MARTIN SORRELL, CEO,

Chairman & CEO, Stanley Black & Decker

■ PETER MAGLATHLIN, Co-

Chairman, President & CEO, Boeing

■ JEFFREY PARASCHAC,

WPP

■ PAUL C. WINUM, Senior

Chairman, Omnicom

co-founder and CFO, PURE Insurance

Partner-Practice Leader, Board & CEO Services, RHR International

■ FRED HASSAN, Managing

■ THOMAS QUINLAN,

■ DAN WEINFURTER, CEO,

■ TOM HARRISON, Former

Director, Warburg Pincus

President & CEO, RR Donnelly

62 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

GrowthPlay

tries, complicating the task.

Ultimately, the issue of culture is connected to the issue of leadership, another subject that has spawned hundreds of books and worthy speeches. “Driving a coherent culture across a multinational company across multiple industries is a real big-time challenge,” said John Garrison, president and CEO of Terex Corporation, the maker of construction equipment and related materials. “It comes down to leadership. A leader drives the culture.”

Paul Winum, who serves as practice leader of board & CEO services at consultancy RHR, said there’s nothing wrong with coming up with value statements or behavioral statements that seem like “motherhood and apple pie.” The real moment of truth comes when a company faces a clear conflict between upholding its values and making a profit. Only a CEO can resolve those conflicts, he said. “Don’t underestimate the impact of your leadership, the way you behave,” Winum added. “People pay attention to things you reinforce in value. That catches on and people will follow the leader.”

It ultimately boils down to a CEO’s “authenticity,” another buzzword but one that contains real meaning. “If we as leaders show up and act differently from what we are saying, then we are not authentic,” said Tom Harrison, former chairman of Diversified Agency Services Division, Omnicom. “We are fakes.”

And the workforce, particularly the Millennials, will know it.

CEO ROUNDTABLE

How Leaders Can Align Talent with Opportunities in the 21st Century In adapting to new technologies, CEOs need to transform their workforces along with their companies.

By Jennifer Pellet AS TECHNOLOGICAL ADVANCES continue to transform both companies and the way they do business, CEOs face an endemic problem: a widening gap between the skills their companies need and those their current workforces have to offer. Across industries and geographies, companies big and small desperately need workers with technical proficiency. Meanwhile, employees tethered to legacy technologies are threatened with the prospect of their current jobs becoming obsolete.

At the same time, too few of those just entering the workforce have the skill sets to fill the jobs of tomorrow, largely due to a disconnect between the skills being taught in educational institutions and those that employers embracing the digital era need, agreed CEOs gathered for a recent Chief Executive Magazine roundtable co-sponsored by Indiana Economic Development Corp. (IEDC). “The community colleges training people aren’t necessarily imparting the skills that industry needs,” noted Nick Pinchuk, CEO of Snap-on. “And when you talk about that, you get pushback, with technical colleges saying, ‘How dare this CEO tell us what we should teach.’”

That pushback will be hard to overcome without the direct involvement of the business sector, noted Mark Weinberger, global chairman and CEO of EY. “We can’t tell other people what to do. We need to do it ourselves, and that means working

“We more or less guaranteed a pipeline of talent in perpetuity.”

—VICTOR SMITH, SECRETARY OF COMMERCE AT INDIANA ECONOMIC DEVELOPMENT CORPORATION

with the existing educational institutions to drive change, even though it’s hard.”

POCKETS OF PROGRESS When the public and private sector work together on shaping curriculum, everyone wins. In Indiana, for example, programs jointly developed by the business community and educational

institutions are enabling students in some regions to graduate from high school already certified for tech-oriented jobs at places like Subaru, GE or Honda. “Part of the reason GE chose to build its new jet engine facility in Indiana was because of what we’re doing with technical education at places like Purdue University, where the engineering dean tweaked the engineering program to specifically address what they will need in that facility,” explained Victor Smith, secretary of commerce at IEDC. “We more or less guaranteed a pipeline of talent in perpetuity.”

But educational institutions, particularly four-year colleges and universities, aren’t always receptive to business-sector input, noted several CEOs. “The future of higher education is dismal,” asserted Jay Walker, chairman of Walker Digital. “They’re completely living in yesterday. The professors, not the administrators, run the enterprise, and they grew up with a system that gives them tenure for life. The inmates run the asylum.”

Even getting technical colleges

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CEO ROUNDTABLE [Clockwise from far left], Silver Lake and North Island’s Glenn Hutchins with MetLife’s Stephen Kandarian; AT&T’s Randall Stephenson; Chief Executive‘s J.P. Donlon with FleishmanHillard’s John Saunders; Omnicom Media’s Daryl Simm

addition to making the program accessible, the company had to convince employees to participate. “We put a lot of money and time into a human resources system that tells our people, ‘There’s a job opening here—and if you click on it, you’ll see the specific training you need for that job.’”

to play ball can take perseverance.

Recounting his experience working with Georgia Tech on a massive employee-re-skilling initiative, AT&T CEO Randall Stephenson described the path he traveled as “long and laborious.”

The journey began three years ago, when the telecom giant recognized that machine learning and other technology advances would drop the number of people needed to run its network from 150,000 to 90,000 by 2020, and the 90,000 jobs left would be very different. “Every form of work is fundamentally changing,” said Stephenson, recounting his decision to embark on a massive initiative to train his workforce in data science, cloud computing and wireless technologies.

“This was the biggest logistical issue we dealt with in many, many years.”

To tackle it, AT&T partnered with Georgia Tech and the online-education company Udacity to develop a fully accredited master’s degree in computer science program that students—many of them who were AT&T employees—can do from home

+

“Looking at where we are today politically, unless we solve some of these workforce challenges, we won’t be able to get to the issues that are important to the business community—issues like tax reform, free trade and immigration— because people are dispossessed from the system.”

—GLENN HUTCHINS, CO-FOUNDER, SILVER LAKE

for a fraction of the cost of a traditional computer-science degree program.

“We’ve had 100,000 of our people get ‘badges’ [AT&T’s internal accreditation] in new skill sets, from machine learning to web-based development,” says Stephenson, who notes that in

SERVING SOCIETY, TOO At an average cost of $7,000—as compared to the $45,000 that an on-campus student will pay for a similar degree, Massive Open Online Courses (MOOC)-based programs like Georgia Tech’s can also play a part in addressing the snowballing societal issue of a generation of young people entering the workforce encumbered with insurmountable college debt. Americans currently owe nearly $1.3 trillion in student debt, with the average 2016 graduate emerging $37,172 in the red.

“It’s a scandal, I think, the amount of student debt these kids are left with—and for degrees with which they can’t earn anywhere near what they’ll need to pay off that debt,” noted Glenn Hutchins, chairman of North Island and co-founder of Silver Lake, a $24 billion private equity firm. He went on to urge CEOs to step up to help address some of the issues plaguing the nation’s workforce. “Looking at where we are today politically, unless we solve some of these workforce challenges, we won’t be able to get to the issues that are important to the business community—issues like tax reform, free trade and immigration— because people are dispossessed from the system because they feel obsolete

Visit ChiefExecutive.net/ND16-7workforcetrends to learn about seven workforce trends transforming today’s workplaces—and what they mean for your business.

64 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

“We can’t tell other people what to do. We need to do it ourselves, and that means working with the existing educational institutions to drive change, even though it’s hard.”

—MARK WEINBERGER, EY

or at a disadvantage by the global economy we’ve all adopted.”

Workers who once thought that what was good for General Motors was good for America don’t think that anymore, agreed Pinchuk. “People on the street—and therefore, by extension, politicians—are looking with jaundiced eyes at the motivation of business whenever we propose anything,” he said. “So I think we have to ask: ‘What can we do that wouldn’t be directly self-serving, but would help the country and would therefore restore our image in the eyes of all people?’ Education is one of those issues.”

Communication can also help, noted Ilya Bonic, CEO of Mercer Group, who suggested that companies work more closely with employees to help them understand their options. “I’d like to see organizations being more transparent, like AT&T has been, about how jobs are going to change within their organizations and be much more open to career mobility and to helping individuals make the decisions about what their next steps will be within their own organization,” he said. “They should be open to collaboration, externally, to help people find a landing space when maybe that opportunity will not exist within the organization or the employer that they’re part of now.”

While partnering with educational institutions to help workers join the digital economy is effective, more action on more fronts will be required to truly move the needle on a national level. “Employers, employees, government and institutions all have to come together on ways to adapt the model,” said Tiger Tyagarajan, CEO of Gen-

pact, who suggested that businesses consider finding ways to facilitate continual education so that employees can keep pace with technology. “As an employer, I should be willing to say, ‘You work only two-thirds of your time; one-third of your time, you don’t work. And then the college says, ‘That one-third of the time, I’m going to educate you.”

In Europe, a hybrid apprenticeship model has students spending a few years alternately working one week and the next week attending a school funded by the employer. At the end of the program, the student emerges debt-free with all the credentials he

or she needs. “Models that are very different from the U.S. model are working in different places around the world,” reported Greg Cappelli, CEO of Apollo Education Group. “Within the next year or two, those [versions] will make their way here.”

In the meantime, CEOs need to do their part to push the envelope, summed up Jim Taiclet, CEO of American Tower. “We can’t solve government policy here, but we can keep making the case as industry for value-added education—not because it’s good for companies, but because at the end of the day, it’s good for individuals.”

IEDC CEO Roundtable Participants ■ ILYA BONIC, President, Talent Business, Mercer ■ GREG CAPPELLI, CEO, Apollo Education Group ■ J.P. DONLON, Editor Emeritus, Chief Executive

■ NICHOLAS PINCHUK, Chairman, President & CEO, Snap-on

■ RANDALL STEPHENSON, Chairman & CEO, AT&T ■ JAMES TAICLET, Chairman, President & CEO, American Tower

■ ANDREW ROBERTSON, President & CEO, BBDO Worldwide

■ GLENN HUTCHINS, Chairman, North Island and Co-Founder, Silver Lake

■ JOHN SAUNDERS, President & CEO, FleishmanHillard

■ STEVEN KANDARIAN, Chairman, President & CEO MetLife

■ DARYL SIMM, Chairman & CEO, Omnicom Media Group

■ NV TIGER TYAGARAJAN, President & CEO, Genpact ■ JAY WALKER, Chairman, Walker Innovation and Walker Digital ■ MARK WEINBERGER, Global Chairman & CEO, EY

■ VICTOR SMITH, Secretary of Commerce, Indiana Economic Development Corporation

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THOUGHT LEADERSHIP CONTENT FROM THE MOUNT SINAI HOSPITAL

How an Executive Health and Wellness Program Can Help You and Your Company Mitigate Risk AS BOTH CEOS AND DOCTORS UNDERSTAND, health risk can be seen in the context of prevention: take steps to prevent an illness, and risk is mitigated.

Unfortunately, the current health care system is focused on the treatment of diseases after a disease occurs.

A recent survey of CEOs conducted by Chief Executive and sponsored by The Mount Sinai Hospital made it clear that CEOs are well aware of their own health risks as well as the risks that poor health can pose to their businesses. The catch: they aren’t sure where to start when it comes to mitigating these risks.

Valentin Fuster, MD, PhD, Director, Mount Sinai Heart Physician-in-Chief, The Mount Sinai Hospital

RISK 1: THE CEO’S OWN HEALTH Eighty-five percent of CEOs said that they are very or extremely aware of their own medical risks and know what they need to do to live longer and healthier lives. And when the CEO’s company offers an annual health and wellness program in addition to its regular health coverage, the vast majority of CEOs said they participate. However, more than two-thirds said their companies do not offer this option, and, while two-thirds said they were very or extremely involved in the selection of a health and wellness program, nearly half said they were not aware of any particular programs.

RISK 2: THE HEALTH OF YOUR EXECUTIVE TEAM In discussing why they might choose a health and wellness program for their companies, CEOs showed a strong commitment to their teams, citing health risk reduction, higher morale, decreased absenteeism, and saving executive time as key advantages such a program would provide.

RISK 3: LOSS OF TALENT And this litany of advantages extended further to include not only an edge when recruiting talent, but also increased engagement and retention.

RISK 4: DECREASED PRODUCTIVITY Underlying all of this was the impact a program could have on productivity—more than half of respondents cited this, underscoring its importance by emphasizing the impact of good health on creativity and innovation.

RISK 5: DECREASED SHAREHOLDER VALUE If health risks undermine the factors that lead to productivity—including talent retention and employee morale—that can translate into decreased revenue and falling shareholder value; not surprisingly, CEOs cited the importance of increasing both revenue and shareholder value as strategic advantages enjoyed by companies offering executive health programs.

From the CEO’s perspective, it appears that an executive health and wellness program can go a long way toward mitigating risks to both their own health and the health of their companies. The primary obstacle to CEO participation is time constraints. In the next issue of Chief Executive magazine, we’ll discuss some of the specifics involved in The Mount Sinai Executive Health Program and how it is uniquely designed to address this obstacle by providing a one-day comprehensive exam with a team of world-renowned experts in a convenient location—New York City.

You can learn more about the results of this survey in a white paper produced by the Chief Executive Group and sponsored by The Mount Sinai Hospital. To discuss this topic further, consider attending a roundtable that Chief Executive Group and The Mount Sinai Hospital are holding in New York City on November 10. To obtain the white paper and register for the roundtable, write to mountsinai@chiefexecutive.net. For more information about The Mount Sinai Executive Health Program, visit www.mountsinai.org/executivehealth.

CEOS ARE AWARE OF THEIR MEDICAL RISKS —

AND KNOW WHAT TO DO

45% Extremely aware 40% Very aware 13% Moderately aware 2%

Slightly aware

1%

Not at all aware

While the vast majority of CEOs say they are keenly aware of their health risks, two-thirds of respondents said that their companies do not offer an executive health and wellness program, largely because they are unfamiliar with specific programs.

EXECUTIVE LIFE

GETTING WELL IS GOOD FOR BUSINESS Neglecting your health can be devastating— for you and your company.

Here’s how to chart a course toward a healthier lifestyle.

By C.J. Prince TED GAVIN IS THE FIRST TO ADMIT that health was not a priority before the incident that changed his life. He worked constantly, exercised rarely and ate one meal a day, usually late at night. “I was probably the textbook example of a Type-A person for whom health was a remote afterthought to all the demands of work and schedule and family and other obligations,” says Gavin, founding partner and managing director of bankruptcy consulting firm Gavin/Solmonese.

A little over a year ago, Gavin, who plays guitar and bass with a band during his rare free time, was rehearsing for a gig in Seattle when he slipped Look for “The CEO’s Guide to Executive Health Programs” in the November/ December issue of Chief Executive.

and fell, breaking both wrists. “They took my blood pressure and it was perfectly normal—for two healthy men,” he recalls. That led to a battery of tests, which ultimately showed a 100 percent blockage in his right coronary artery. “I should have been dead,” he says.

After a triple bypass, Gavin had six weeks of recuperation time to think about his life and priorities—and he decided to make some changes.

Today, Gavin is 50 pounds lighter. He exercises every day and eats a mainly vegan diet with small, healthy meals.

His heart function now is better than normal. He still works hard, but now he takes time out to reboot. At night, he leaves his mobile phone charging in the other room. “You’re never going to

remember the long list of things you did instead of taking care of yourself.

But you will remember the things that happened because you didn’t take care of yourself,” says Gavin, who is married and has two children. “And if you’re not around to do it, the people who care about you will remember.”

Neglecting health and exercise is not a foible unique to CEOs, notes Stephanie Faubion, director of the executive and international health program at Mayo Clinic. “Many of us are more proactive about getting the oil changed in our cars than taking care of our own health.”

But for CEOs and others at the highest corporate levels, an unhealthy lifestyle can often be an occupational hazard. Packed schedules coupled with intense pressure to satisfy stake-

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EXECUTIVE LIFE holders makes self-care challenging for even the most well-intentioned CEOs. It doesn’t help that top executives—accomplished, high-energy, high-stamina—are conditioned to view themselves as somewhat more immune to physical ailments or human limitations and, therefore, often push themselves into overdrive for long stretches. But CEOs are human, says Faubion. “You can go 100 miles an hour, but it’s only a matter of time before things start to break down if you aren’t paying attention.”

Over time, overwork, lack of exercise, poor eating habits and sleep deprivation take their toll on the system, leading to health problems that can eventually cause major events that affect not only the individual CEO but his or her company. Last October, United Airlines suffered a setback in its turnaround plan when newly minted CEO Oscar Munoz suffered a massive heart attack just over a month into the job.

In the weeks leading up to his heart attack, Munoz reportedly worked around the clock, flying about the country to meet with disgruntled employees and dissatisfied customers.

He was determined to put the company back on course following years of lagging performance since the merger with Continental in 2010. Instead, United was forced to implement an interim solution while Munoz was sidelined for months following the heart attack and heart transplant surgery.

“What is the cost of that to the company?” asks J. Craig Venter, co-founder and CEO of Human Longevity, a genomics-based, technology-driven company creating the world’s largest database of whole genome, phenotype and clinical data.

Part of the problem is that CEOs lack the information they need to make smart decisions about health and lifestyle, says Jack Groppel, cofounder of the Johnson & Johnson Human Performance Institute and author of The Corporate Athlete: How to Achieve Maximal Performance in Business and

“One of the bad habits I had was that I'd skip breakfast and come to the office early to get things done. I'd work through lunch because everyone wanted to meet with me, then go home and end up eating double what I should have.”

—Duff Stewart, CEO, GSD&M

Life. “Human beings are biological organisms. In business school, [CEOs] learn how to be great managers and leaders, but they never learn anything about the biology of the human being,” he says, adding that mobile technology has created an “always on” business culture that makes it all too easy for CEOs to overwork and push personal health to the side. “Now, they have to be available 365 days, 24/7. So then they start to develop a story of, ‘If I’m not connected, something bad will happen,’” says Groppel.

CEOs have to learn to set those boundaries themselves and then trust those left in charge. Gavin, who was forced to let others take over, says he learned a valuable lesson about leadership. “As important as we all think we are, if it doesn’t keep working if we get hit by a bus, then it’s not working when we’re there,” he says. That’s taught him to go on vacation, to unplug and to reserve time every day for physical activity and recharging. “It’s easy to think it can’t exist without you.

And I had a few moments of that when I was being told, ‘You have to have this surgery.’ But I got past it. Because what was the alternative? Drag the ship down with me?”

WELLNESS WAKE-UP CALL Fortunately, getting started on a new course toward a healthier lifestyle doesn’t require as much downtime as a major health crisis would. Executive health programs at top medical centers around the country offer comprehensive screenings in as little as one day.

68 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

Mount Sinai Hospital, for example, offers a 12-hour screening that evaluates participants “from top to bottom,” says cardiologist Dr. Valentin Fuster, physician-in-chief of the Mount Sinai Medical Hospital, director of the cardiovascular center and one of the leaders of the executive health program. Participants receive comprehensive lab workups and a battery of biological-function assessments, including cardiovascular, pulmonary, gastrointestinal, endocrine, ophthalmic and audiometric and dermatological. Before leaving, the executive receives an in-depth consultation and strategic recommendations to address any current or potential health issues.

Getting to that first step of information gathering is often half the battle.

“It’s very characteristic for CEOs to ignore their own health, to think, ‘it can’t happen to me,’” says Fuster, who notes that in almost every participant who comes in to be screened, some unknown risk factor or potential health issue is uncovered.

Venter, whose company, HLI (Human Longevity), runs the Health Nucleus program for comprehensive screenings for executives, estimates that about 40 percent of participants who assume they are healthy go through the program and discover something important that needs to be addressed. One executive, in his mid-50s with no symptoms, learned he had a large tumor underneath his breast bone, Venter recalls. A week later, he had the tumor surgically removed using robotics technology

THOUGH T LE A DE RSH IP CON T EN T FROM M AYO CL I N I C

Investing in Your Health Why busy executives should never be too busy to take care of their health.

WHEN THE GOING GETS TOUGH and the work piles up, many executives don’t get enough sleep, manage their stress, maintain a proper diet or find the time to exercise. Especially when they are on the road more than they are at home.

What happens to a CEO when his or her responsibilities begin to feel too heavy to carry? "High stress, long hours and competitive conditions can lead to burnout—which manifests as emotional exhaustion, loss of meaning in work and feelings of ineffectiveness. It can also lead to fatigue, depression, sleep issues and even heart disease,” says Dr. Stephanie Hines, a consultant and chair of Consultative and Diagnostic Medicine and chair for the Executive Health Program at Mayo Clinic, which has been helping executives, business owners and entrepreneurs maintain good health for 40 years.

According to the first-ever Mayo Clinic National Health Check-Up, a survey focused on Americans’ top barriers to staying healthy, a person’s work schedule ranked as the number one leading barrier to staying healthy (22 percent) in 2015. In addition to work schedule, women are significantly more likely than men to cite caring for a child, spouse or parent as a barrier to self-care.

“While we know that women tend to be more proactive about their health, it’s concerning that so many fewer men say that they plan to schedule a milestone screening, such as a colonoscopy, this year,” says Dr. Hines. “Men need to prioritize screenings as well, because early detection of disease can help improve chances of survival. Colonoscopies can also help to reduce the risk of colon cancer by detecting and removing polyps. If they are of average risk, men should begin getting screened for colorectal and prostate cancer at age 50—and sooner if they are of above-average risk.”

Unsurprisingly, a study conducted last year by Mayo Clinic researchers showed that people exposed to periods of shortened sleep have significant increases in blood pressure during nighttime hours.

High blood pressure is one of the major risk factors for heart disease.

Spa treatments, occasional massages and taking time off may alleviate stress in the short term, but the most important action a busy executive can take is to schedule annual checkups and screenings.

When was the last time you had a checkup with a doctor? Even if you feel healthy, the National Institutes of Health recommends you visit a health care provider regularly.

A FULL-SCALE PREVENTIVE CHECKUP SHOULD INCLUDE ALL OF THE FOLLOWING:  A comprehensive medical history review and physical exam by an internal medicine specialist and referrals to subspecialists, as necessary  A full range of screening tests for early detection of cancer, heart disease and other serious conditions  A heart (cardiovascular) fitness evaluation  A review and update of medications, vaccinations and immunizations, including those needed for international travel  A lifestyle assessment including review of nutrition, stress management, alcohol, tobacco and other indicators of disease  A full report of test results

“Burnout can lead to fatigue, depression, sleep issues and even heart disease.”

— Dr. Stephanie Hines

EXECUTIVE LIFE and he went home cancer free. “Had he not gotten the test and then detected it later because he had symptoms, he’d probably have had two years to live,” said Venter, adding that early detection can prevent the No. 1 and No. 2 causes of premature death in both women and men: heart disease and cancer.

Once executives know the status of their health, they can begin to make changes. Some of the executive health programs, such as the Mayo Clinic, offer help in that area. Participants in the Mayo Executive Wellness Experience meet one-on-one with a personal coach to review goals and challenges; then, they participate in interactive sessions on nutrition, physical activity and resiliency. They leave the center with a customized plan to improve their lifestyle and to achieve greater health and well-being—despite a very full schedule.

One new development in the works is a “living lab,” developed by the cardiology team, which will show executives in an office setting how they can use the latest technology

erybody leaves his or her cell phone at the office. “It’s a really productive time to chat because when the phones and computers are not in front of them, you get a lot more attention,” says Black.

Diet is also a huge factor, says Groppel. CEOs all too often will skip meals or make poor choices because they’re eating on the go. “If you think about what’s going on with the brain, if you’re

surably with stress. “Stress is an immune system suppressant,” says Venter. “The immune system is the main thing that protects us from cancer. All of us are constantly clearing cancers from our system.

But if you have a suppressed immune system, your risk of cancer goes way up.”

One obvious way to prioritize fitness is to bring it onsite, which Centerra Group, a paramilitary support company, did

“I strongly feel that as a CEO, I can’t just talk the talk—I have to walk the talk. Otherwise it’s just another program." —Carine M. Feyten, president and chancellor, Texas Woman’s University

going long periods of time without eating, you’re not getting enough glucose to the brain.” Without the right fuel, the brain is operating at a disadvantage.

Duff Stewart, CEO of creative marketing agency GSD&M ate that way until 2011, when his wife expressed concern about his health. “One of the bad habits I had was that I’d skip breakfast and come to the office early to get things done. I’d work through because everyone wanted to "There's no excuse meet with me and then go home and wind up eating not to exercise now.” double what I should have,” —Paul Donahue, says Stewart.

CEO, Centerra Today, Stewart eats small, healthy meals throughout the day and has incorpoand fitness products. Ideas include rated a daily regimen of exercise. He pedals installed under the desk, desk zealously guards that time on his treadmills and exercise-ball seating calendar. “You have to do that. If you to allow users to work on core fitness just say, ‘I’ll go to the gym tomorrow,’ while sitting at a computer. “Sitting is too many things will come into the the new smoking,” says Faubion. mix and interrupt that.” And because

he’s working more efficiently, he finds THE WALK AND TALK himself with more time rather than Some CEOs incorporate exercise less. “When you do this, you’re also into their workday in other ways. calm and have a different wavelength Cheryl Black, CEO of You Technology, that enables you to be engaged and the largest digital-coupon-network present in the conversation you’re in provider in the U.S., takes advantage and not irritable and thinking about of a beautiful path around the office other things.” building by holding walking meetings, In addition to bringing down the during which she walks and talks with cholesterol level and strengthening the members of her team. The one rule: evheart, exercise can also help immea70 / CHIEFEXECUTIVE.NET / SEPTEMBER/OCTOBER 2016

by converting a large office into a gym.

“There’s no excuse not to exercise now,” says Paul Donahue, Centerra’s CEO, a former competitive body builder who does not need to be sold on the benefits of exercise. He estimates that about 20 percent of employees take advantage of the gym to get in shape. “That’s not as high as I’d like.

But if we didn’t have the gym, it would probably be the country’s average of 2 percent, so we’re a lot better than that.”

Mount Sinai’s Fuster notes that companies that put programs in place, including onsite gyms and flex-time so that employees can take advantage, will ultimately benefit. “You need to prioritize health as one of the main objectives,” he says. “If you do it for your company, you will get motivated yourself.”

On the flip side, if a company puts a program in place and the CEO doesn’t get involved himself or herself, then there likely won’t be a lot of buy-in from employees. “Because the employees won’t really believe they have permission to do it, no matter what they’re told. If they don’t see the senior leadership doing it, they won’t either,” says Groppel.

Carine M. Feyten couldn’t agree more.

The president and chancellor of Texas Woman’s University, who is a vegetarian, works out in the university exercise center alongside students. “I strongly feel that as a CEO, I can’t just talk the talk—I have to walk the talk. Otherwise it’s just another program.”

Leverage the Power of A CEO Peer Network.

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Chief Executive Network peer groups are: Industry-specific Meet with peers in your same industry

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Join the Chief Executive Network.

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Joe Queenan

From cannabis to cuddling, new business news can strain the brain. By Joe Queenan

THE OTHER DAY, I READ THAT MICROSOFT was “partnering” with the marijuana compliance company Kind Financial, inviting Kind to join its blue-chip Azure Government cloud platform, with enhanced security and science protocols that enable companies to interact more effectively with federal government agencies. In this particular case, companies that sell marijuana.

Every day, I see more news that I either cannot follow or cannot believe. I was fine with the drones delivering medicine to customers stranded in the Australian outback.

I was okay with the company teaching Millennial sales reps how to talk on the telephone because “cold texting” doesn’t work.

But now, I read that there are people making a living as professional cuddlers.

According to the New York Times, forlorn, angst-ridden or unloved people badly in need of a nice, warm cuddle, contact a reputable cuddling agency—not some fly-by-night operation run by somebody named Brandi or The Dude—and have a trained cuddler come by to embrace them for an hour. Cuddlers not only engage in conventional, old-school cuddling, but they will also tickle or lock the cuddlee in a deep embrace, if the cuddlee so desires. Presumably, cuddlers might also be persuaded to pat clients on the head, pinch their cheeks or tap them on the tip of the nose and say, “Up and at ’em, Tiger!”

Stories about the Microsoft-marijuana compliance company partnership and the rise of the professional cuddler make me wonder if the world has spun off its axis. I had this same feeling when I read that professional sports teams like the Los Angeles Kings are getting into the ticket-scalping business. Scalpers, after obtaining season’s tickets at inflated prices from the team itself, will only be allowed to resell the tickets through a ticketing service maintained by the Kings’ owner. It’s like telling the Sioux

that they must first agree to be scalped by the Cheyenne before they can get permission to take a crack at Custer and the boys.

It’s equally hard to follow what happened with the digital fund that lost one-third of its assets to hackers. Seemingly, the futuristic currency Ethereum—a rival to the equally vaporous Bitcoin—was worth about $150 million at its apex. Then hackers exploited a defect in the Ethereum Foundation’s coding that allowed them to spirit away $50 million in money that does not actually exist. Police now suspect that the $50 million may have been electronically hauled off to Mordor or the Vale of the Kraken by Sauron or Merlin or perhaps even the Witches of Endor.

There used to be a Chicago drive-time radio show that ran a feature called “Dead or Canadian?” I feel that way about the news I read every morning. Is it true that you now have to pay banks in Denmark to hold your money? Did the mayor of New York sign a bill requiring costumed characters like Minnie Mouse and Elmo to remain within eight, 400-square-foot, teal-colored rectangles called “Designated Activity Zones” in Times Square or risk being arrested? Is it true that civil libertarians have accused the city of violating the impersonators’ First Amendment rights by muzzling Mickey, silencing Spiderman and gagging Gumby?

I simply don’t know. I just re-read the official statement by Microsoft’s “executive director of the division of state and local government solutions” regarding the company’s partnering with the marijuana industry. She said: “Kind agreed that Azure Government is the only cloud platform designed to meet government standards for the closely regulated cannabis compliance programs, and we look forward to working together to help our government customers launch successful regulatory programs.”

Nope. I’m sorry. Somebody’s pulling our leg.

Q U E E N A N I LLU ST R AT I O N BY T I M TO M K I N S O N

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